How does homeowners insurance work?

A homeowners policy is a contract: you pay a premium (usually annually or split across an escrow account with your mortgage) in exchange for the insurer's promise to pay for covered losses. When something covered happens — a kitchen fire, a burst pipe, wind damage to the roof — you file a claim and the insurer investigates before paying.

The claims process, step by step

1. Report the loss. Contact your insurer as soon as possible after damage occurs; most carriers have a claims deadline in the policy.
2. Document everything. Photograph damage before cleanup or repairs, and keep receipts for any emergency repairs you make to prevent further damage.
3. Adjuster inspection. The insurer sends an adjuster to assess the damage and estimate the covered repair or replacement cost.
4. Deductible applied. Your out-of-pocket deductible is subtracted from the claim payout — a $1,500 deductible on a $10,000 claim means you're paid $8,500.
5. Payout issued. For structural damage, payment may come in installments tied to repair progress; for personal property, it's typically a single payment.

Replacement cost vs. actual cash value

Most modern policies pay replacement cost — what it actually costs to repair or replace the item today, with no deduction for age or wear. Older or lower-cost policies may pay actual cash value — replacement cost minus depreciation, which produces a lower payout. The NAIC recommends confirming which basis your policy uses before you need to file a claim, since the difference can be substantial on older belongings.