Out-of-Pocket Costs

No policy covers 100% of your loss. Some policies require more contribution from the insured, so review these items in your policy carefully.


A deductible is the amount you have to pay on a claim before the policy pays the loss for your home and personal property. Higher deductibles help reduce your premium, but be sure you can afford the deductible. Most policies have a flat deductible, such as $500 or $1,000. Others have a separate deductible for some perils, such as windstorm, often stated as a percentage of your coverage limit. For example, if your dwelling coverage is $150,000 with a 1% windstorm deductible, your deductible for that type of loss would be $1,500.

Replacement Cost vs. Actual Cash Value

You can choose to insure your home and belongings for either replacement cost or actual cash value. Replacement cost (RC) is the cost to rebuild your home or repair damage, or to replace damaged belongings with new ones of similar quality. Actual Cash Value (ACV) is based on the replacement cost less depreciation, taking into account the item’s age and condition. It pays for the value of the damaged property at the time of the loss.  ACV coverage might not be enough to fully repair or replace the item. Replacement cost may be added for an additional premium.


The homeowners and condo owners policies require that you insure your home to a stated percentage of the cost to replace it.  The percentage varies from insurer to insurer. Standard policies require 80% of the home’s RC value. Other policies require 90% or even 100%. If you do not meet the requirement, you will have to “coinsure” or contribute a much higher amount for your repairs than expected, even for a partial loss.
For example, assume:

  • Your home would cost $100,000 to be rebuilt
  • You insured it for $80,000  
  • You have a $500 deductible
  • A fire causes $25,000 in damage.

If your policy requires 80% coverage, it would pay you $24,500.  This is the full amount of your loss (less your deductible). However, assume that you only insured your home for $60,000.  This is less than the amount required by your policy. Your insurer will use the following formula to calculate what it will pay for the $25,000 loss:

Actual Coverage ($60,000)
------------------------------- = 75% x Amount of Loss ($25,000) = $18,750
Required Coverage ($80,000)

Your policy only covers 75% of your $25,000 loss, or $18,750. You will have to pay the remaining $6,250 yourself, in addition to your $500 deductible.