A home insurance payout is worked out in steps, and you can check each one. Your policy first says whether a loss is settled at replacement cost or actual cash value. Depreciation may then be held back until the repair is done. The deductible comes off, the limits set a ceiling, and the check may name your mortgage company as well as you. Each step below links to the page that explains it, with the policy wording and the law we read; none can say what an insurer will pay on your claim.
General information, not legal or insurance advice, and not a substitute for the advice of an attorney. Your policy’s wording and your state’s law decide, and both change. For help with your claim, your state insurance department’s consumer line and legal aid are free.
This section follows the money in the order it usually moves. Much of it rests on the ISO HO-3 specimen homeowners form (2000 edition, HO 00 03 10 00), a standard form many insurers adapt, and the federal flood policy (SFIP Dwelling Form, 44 CFR part 61 appendix A(1)). Neither is your policy: keep your own declarations page at hand.
Step 1: replacement cost or actual cash value
Replacement cost is what it costs today to repair or replace damaged property with material of like kind and quality. Actual cash value (ACV) is that cost less depreciation, the value lost to age, wear and use. Under the ISO specimen, the house is usually settled at replacement cost and your belongings at actual cash value, with conditions on both. Carpeting and household appliances are settled at actual cash value even when attached (ISO HO 00 03 10 00, Section I Condition C, copy hosted by a trade group).
No official table says how fast a roof or a sofa loses value, and whether labor may be depreciated depends on the state and the policy: California’s regulation (10 CCR 2695.9(f)(1)) and Alaska’s statute (AS 21.60.030) bar it, with exceptions, and Louisiana’s lets a policy include it (R.S. 22:1892). Our actual cash value vs replacement cost calculator works out the gap on your numbers, with labor shown both ways.
Step 2: replacement cost usually comes in two payments
The ISO specimen pays no more than actual cash value until the repair is complete, unless the repair costs both less than 5% of the building’s insurance and less than $2,500. You may take the actual cash value first and claim the rest later if you tell the insurer within 180 days after the date of loss (Condition C.2.d and e). The flood policy draws its line lower: more than $1,000 or more than 5% of the dwelling’s insurance (SFIP VII.R.2.c).
The part held back is usually called recoverable depreciation. Depreciation on anything settled at actual cash value, such as belongings under the standard form, is not paid later. Texas (Ins. Code 707.004) and Louisiana (R.S. 22:1892(A)(7)) let an insurer hold it until you show the deductible was paid. Our recoverable depreciation calculator splits an estimate into the first check and the holdback.
Example, with made-up numbers: an estimate shows $24,000 replacement cost and $9,000 of recoverable depreciation, with a $2,500 deductible. On the specimen’s wording, the first payment is $24,000 − $9,000 − $2,500 = $12,500, and $9,000 waits for the finished repair. Arithmetic only, not what any insurer pays.
Step 3: the deductible
The deductible is the part of a covered loss you carry yourself; in the ISO specimen it comes off once per loss, not once per coverage. A percentage deductible is a share of your dwelling limit (Coverage A), not of the damage: 2% of a $300,000 limit is $6,000, whether the storm does $8,000 of damage or $80,000. Our home insurance deductible calculator turns a percentage into dollars and shows how much of your estimate sits above it.
Hurricane, named-storm and wind/hail deductibles apply only to the events their endorsement names, inside a window the policy or the state sets; there is no national rule. Florida, Louisiana and Rhode Island apply a hurricane deductible once per calendar year, while New Jersey’s required wording applies it to each hurricane. Florida’s window stays open 72 hours after the last hurricane watch or warning for any part of the state ends (Fla. Stat. 627.4025(2)(c)). Our page on hurricane deductibles by state sets out each rule we read.
Step 4: the limit is the ceiling
Under the ISO specimen, the house is paid at replacement cost but never more than the smallest of three amounts: the limit for the building, the cost to replace the damaged part, and the amount actually spent. Full replacement cost also depends on insuring the house for at least 80% of its full replacement cost just before the loss; below that, the form pays the greater of the actual cash value or a proportion of the repair cost. Building code upgrades get up to 10% of Coverage A as additional insurance (Additional Coverage E.11).
Endorsements can add more. Extended replacement cost adds a stated percentage or dollar amount above the limit: 25% on a $300,000 limit would make up to $75,000 more available, if the loss meets the endorsement’s conditions. Guaranteed replacement cost usually has no preset cap on the house, and in California a policy sold under that name may not have one (Cal. Ins. Code 10102(e)). Neither usually pays code upgrades. Our guide to extended dwelling coverage and guaranteed replacement cost explains each with a worked example.
Step 5: who the check is made out to
If you have a mortgage, money for the house and other structures is usually paid to you and the lender together, under the policy’s mortgage clause. Belongings and living-expense money is outside that clause in the specimen form and is often paid to you alone. The servicer, the company you pay each month, often releases the repair money in stages.
Who owns your loan decides the release rules. For Fannie Mae and Freddie Mac loans that were current or less than 31 days late at the loss, the servicer may release up to the largest of $40,000, 33% of the proceeds, or the amount above the loan balance first (Fannie Mae Servicing Guide B-5-01; Freddie Mac Guide 8202.5). The Federal Trade Commission’s advice is to “never sign your insurance check over to a contractor” (FTC). Our mortgage company and insurance check calculator applies those rules to your numbers, with FHA and VA in words.
Step 6: taxes on the premium, the loss and the payout
Premiums on the home you live in are not deductible: the IRS lists homeowner’s insurance premiums among the nondeductible parts of a house payment (Publication 530, 2025). The exceptions are a part you rent out and a qualifying home office. The uninsured part of a damage loss is deductible on your own home only as a casualty loss, and now, apart from offsetting casualty gains, only after a federally declared disaster or, from tax year 2026, a state-declared one that meets the tax code’s test, with floors taken off first. An insured loss counts only if you file a timely insurance claim (26 U.S.C. 165(h)(4)(E)). Insurance payments are usually not income unless they come to more than your adjusted basis in the property. Our guide to whether homeowners insurance is tax deductible covers each rule.
Claims you may see elsewhere
You may see these on other sites. We checked them, and they aren’t the rule.
- “Replacement cost coverage pays the full cost up front.” Not under the standard forms we read: above their small-loss lines, they pay actual cash value until the work is done.
- “The mortgage company can keep your insurance check.” For Fannie Mae, Freddie Mac and FHA loans, not as a general rule: building money is released for repairs, usually in stages.
- “We’ll cover your deductible.” Some contractors offer this. In Texas, waiving or rebating it without the insurer’s consent is a Class B misdemeanor for a contractor paid from claim money (Bus. & Com. Code 27.02).
Your next step
- Gather: the full policy with its declarations page and endorsements, the adjuster’s estimate with its depreciation lines, and every letter with its date.
- Read: the policy’s Loss Settlement condition, its deductible section and endorsements, and the mortgage clause.
- Ask in writing: how a depreciation figure was worked out, what each deductible is in dollars, and, from your servicer, who owns the loan and its written process for claim checks.
- What can’t wait: the specimen’s 180 days to give notice that you’ll claim replacement cost, any proof-of-loss request, and your policy’s suit limit. Our claim deadlines by state list the state rules we read, with their sources. Your policy may give longer; waiting until the last day is unsafe.
- Get help: your state insurance department’s consumer line, found through our complaint and consumer links by state, legal aid, or a licensed attorney. If you disagree with the amount, see how the appraisal clause works.
Sources checked on 8 November 2026.
