As a first-time homebuyer in Tennessee, understanding your home insurance is crucial. Not only do you need to choose the right policy form (such as an HO-3 or HO-5), but you also need to know what’s covered by home insurance – and more importantly, what’s not covered. In this guide, we’ll break down the differences between HO-3 and HO-5 policies (especially how each covers your dwelling and personal property), explain actual cash value vs replacement cost, list common home insurance exclusions in Tennessee, and provide real-life examples. We’ll also highlight a few Tennessee-specific factors (like weather risks and local insurance regulations) that can affect your coverage. Let’s dive in!
HO-3 and HO-5 are the two most common types of homeowners insurance policies. Both provide a broad range of coverages – protecting your home (dwelling), other structures (like a shed or detached garage), personal belongings, liability, and more. The key difference lies in how they cover your property, particularly your personal belongings:
HO-3 (Special Form): This is the standard policy for many homeowners. It covers your dwelling and attached structures on an “open-perils” basis, meaning any damage is covered unless the cause is specifically excluded. However, personal property (your furniture, electronics, clothes, etc.) is covered on a “named-perils” basis under HO-3. That means your belongings are protected only against the specific dangers listed in the policy (fire, theft, windstorm, etc.). If something happens that isn’t on that list, it won’t be covered under a basic HO-3. (You can often add endorsements to broaden personal property coverage, but by default HO-3 is more limited for belongings.)
HO-5 (Comprehensive Form): This policy offers more extensive protection. Like HO-3, it covers the dwelling on an open-perils basis, but it also covers personal property on an open-perils basis. In other words, both your house and your belongings are covered for all risks except those explicitly excluded in the policy. HO-5 is considered a more comprehensive plan – it protects you against a wider range of problems (for example, accidental damage to your own stuff or mysterious losses may be covered under HO-5, whereas HO-3 would only cover personal property if the damage was caused by a named peril like fire or theft). Because of this broader coverage, HO-5 policies typically come with a higher premium than HO-3 policies. They’re often offered to homes in great condition or higher-value homes, and not all insurers provide HO-5 in every marke.
In summary: Both HO-3 and HO-5 will protect your home’s structure against common disasters (except those listed as exclusions), but HO-5 gives more expansive coverage for your personal belongings. An easy way to remember: HO-3 covers your contents for named perils only, while HO-5 covers your contents for any peril not excluded. If you accidentally drop your new TV or you lose an expensive item under mysterious circumstances, an HO-5 is more likely to cover it. With an HO-3, that kind of incident might not be covered because it wasn’t one of the named perils.
Understanding how your claim will be paid out is just as important as knowing what is covered. Home insurance policies can settle claims on either an Actual Cash Value (ACV) basis or a Replacement Cost Value (RCV) basis for your property. These terms affect how much money you receive if your home or belongings are damaged:
Replacement Cost (RCV): This means the policy will pay the full cost of repairing or replacing the damaged property with new materials of like kind and quality, without deducting for depreciation. In simpler terms, RCV coverage can replace your items or fix your home as if they were new. For example, if a windstorm destroys a 10-year-old roof, a replacement cost policy would pay to install a new roof of similar type, even though the old roof had aged. It doesn’t matter that the old roof or item wasn’t brand new; you get the amount to buy a new one (minus your deductible). This is ideal for homeowners because it typically allows you to fully rebuild or replace lost items.
Actual Cash Value (ACV): This type of settlement takes depreciation into account. The policy will pay the current value of the item or property at the time of loss, factoring in its age and wear and tear. In practice, ACV is essentially RCV minus depreciation. Using the roof example, ACV would pay only what a 10-year-old roof is worth today (which will be much less than the cost of a brand-new roof). ACV coverage often doesn’t pay enough to fully replace the item or fix the damage because most things lose value over time. It will “make you whole” in terms of the value you lost, but that may not be equal to the cost of buying new replacements.
Real-World Example: Imagine you had a five-year-old smart TV that gets destroyed in an electrical fire. With actual cash value coverage, the insurer might say, “A TV loses value over 5 years, so we’ll pay what that TV would sell for today – maybe a few hundred dollars.” But with replacement cost coverage, the insurer would pay what it costs to buy a new equivalent TV at today’s price. In this case, the replacement cost payout could be significantly higher, allowing you to actually purchase a new TV of similar quality. The difference can be huge: If $2,000 of living room furniture or electronics are ruined, ACV might only give you $1,000 after depreciation, whereas RCV would aim to give you the full $2,000 it costs to go buy new replacements (minus your deductible).
Which one do you have? Most HO-5 policies automatically provide Replacement Cost coverage for both dwelling and personal property, which is one reason they cost more. Standard HO-3 policies usually cover the dwelling at replacement cost (so your house is covered for the cost to rebuild it new) but personal belongings at actual cash value by default. However, you can typically upgrade an HO-3 to include replacement cost coverage for personal property via an endorsement (and it’s highly recommended to do so, so you’re not caught short after a loss). Always check your policy or ask your agent whether your contents coverage is ACV or RCV, and consider replacement cost coverage for better protection.
Even the broadest home insurance policy (HO-5) doesn’t cover every possible mishap. All policies have a section listing “exclusions” – things that are not covered even if they cause damage to your home. These exclusions are pretty standard nationwide, but as a Tennessee homeowner you should be especially aware of a few key ones (given our local weather and conditions). Here’s a list of the most common home insurance exclusions and gaps in Tennessee:
Flooding (Surface Water): Damage from external water sources – such as flash floods, overflowing rivers, heavy rain runoff, or groundwater seeping into your home – is not covered by standard homeowners insurance. For example, if a spring storm causes a creek to overflow and flood your basement, your home insurance claim would be denied because flood is excluded. (Flood insurance is a separate policy provided through FEMA’s National Flood Insurance Program or private insurers.)
Tip: If your property is in a flood-prone area or even if you just have a basement, consider purchasing a flood insurance policy because your regular “home insurance in Tennessee” won’t cover flood damage.
Earthquakes & Earth Movement: Standard policies exclude damage from earth movement events like earthquakes, land/rockslides, and sinkholes. Tennessee isn’t California, but we do have earthquake risk – for instance, the Memphis area can be affected by the New Madrid Seismic Zone. If an earthquake cracks your foundation, a typical HO-3/HO-5 won’t pay for repairs. Similarly, sinkholes (which can occur in parts of Tennessee due to our limestone/karst terrain) are excluded. However, Tennessee is one of the few states that require insurers to offer optional sinkhole coverage. You can usually add an earthquake endorsement or buy separate earthquake insurance as well. First-time buyers in TN should at least discuss these options if your new home is in a region with any history of seismic activity or sinkholes.
Wear and Tear / Maintenance Issues: Home insurance is meant for sudden, accidental losses – not gradual problems. So it won’t cover damage that results from normal wear and tear, aging, or neglect. If your roof is old and simply deteriorates over time until it leaks, or if you have a slow plumbing leak that causes rot over months, the insurance company will likely say that’s a maintenance issue you should have prevented. For example, mold or rot caused by a chronic leak is typically not covered because it wasn’t a sudden incident — it happened over time due to lack of maintenance. Always keep up with home maintenance, because if something gradual goes wrong, you’ll be paying out-of-pocket for the repairs. Insurance will cover a burst pipe that floods your kitchen (sudden accident), but not the leaky pipe that drips for a year behind a wall.
Mold, Rot, and Infestations: Related to maintenance – mold damage or infestations by pests (termites, rodents, etc.) are generally excluded from homeowners insurance coverage. Mold is often a result of long-term moisture (which is a maintenance issue), and pest infestations are considered preventable with regular upkeep. For instance, if termites quietly eat away at your floor joists and you later discover expensive structural damage, your insurance will not cover the $ tens of thousands in repairs because termite damage is excluded as a preventable maintenance issue. (Some insurers offer limited add-on coverage for mold or pests, but you’d have to arrange that separately – it’s not in standard policies.)
Earth Movement (Landslide or Sinkhole): As mentioned, any kind of earth shifting under your house is not covered. If a landslide or sinkhole (or ground settling) causes damage, that’s excluded. This isn’t a daily concern for most, but it’s worth noting given Tennessee’s geology. (You can purchase sinkhole coverage separately; in fact, insurers must offer it here in TN as an option.)
Sewer/Drain Backup: Water backup from sewers or sump pumps is not covered by a standard policy (even though the damage is water). You’d need a specific water backup endorsement for this. So if heavy rain overwhelms your sump pump or clogs a sewer line and sewage backs up into your house, a normal HO-3/HO-5 won’t cover that cleanup unless you added this endorsement. Many Tennessee homeowners add this coverage due to storm drainage issues in some areas.
Intentional or Illegal Acts: Any intentional damage you or a member of your household cause is obviously not covered. (For example, you can’t file a claim after deliberately destroying your own property.) Fraudulent claims are also excluded. Additionally, losses resulting from illegal activities (like a meth lab explosion) typically won’t be covered either. Hopefully not applicable to our readers, but it’s a standard exclusion to be aware of.
Nuclear Hazards, War, and Government Actions: These are standard exclusions in all homeowner policies. Catastrophes like nuclear accidents or war are not insurable events for private insurers. Similarly, if the government seizes or condemns your property, that’s not an insurance issue. While these are technically exclusions in your policy, they are extremely rare scenarios (but it’s interesting to know they’re listed).
This isn’t an exhaustive list (every policy can have its own specific exclusions or limits), but these are the big ones that commonly surprise first-time homeowners. Always read the exclusions section of your policy or have your insurance agent walk you through it. Knowing what isn’t covered is half the battle – you can then decide if you need additional coverage (like flood or earthquake insurance) or if you need to take extra precautions.
Sometimes it helps to see how these exclusions play out in real claims. Here are a few real-world scenarios that illustrate why understanding exclusions is so important for Tennessee homeowners:
Flood Disaster in Nashville: A young couple in Nashville learned the hard way that standard insurance doesn’t cover floods. After a severe thunderstorm, water from a nearby creek rushed into their first floor. The damage to floors and furniture was extensive. When they filed a claim, the insurer denied it because the cause was classified as flood – an excluded peril. The homeowners had to seek help from FEMA and cover much of the repair cost themselves, since they didn’t carry a separate flood policy. Lesson: If your home is near a river, creek, or in a flood-prone area, get flood insurance – home insurance won’t cover this type of water damage and flood coverage is typically inexpensive.
Unnoticed Leak in Knoxville: A family in Knoxville noticed a musty smell and staining on their ceiling. It turned out an undetected drip from an upstairs bathroom pipe had been leaking for months, causing mold between the walls. They filed an insurance claim for the water and mold damage. Unfortunately, the claim was denied. The insurer cited that the damage was gradual and due to lack of maintenance, which is excluded from coverage. If the pipe had burst suddenly and immediately flooded the home, it would have been covered – but slow leaks over time are the homeowner’s responsibility.
Lesson: Perform regular maintenance checks (and consider installing leak detectors), because insurance covers sudden accidents, not long-term maintenance issues.
Termite Troubles in a Suburban Home: A homeowner in Middle Tennessee discovered that termites had been silently feasting on the wooden support beams of their house, causing parts of the structure to weaken. The repair estimate was huge. When they contacted their insurer, they were told pest infestations aren’t covered by home insurance. The homeowner had to pay out-of-pocket for termite treatment and major structural repairs.
Lesson: Be proactive with pest inspections and treatments. Home insurance will help if a raccoon breaks a window to get into your house (that’s sudden damage), but it won’t pay a dime for damage from insects or rodents that happens over months or years.
Earthquake Shakes West TN: A rare tremor from the New Madrid fault shook parts of West Tennessee, cracking the foundation of a Memphis homeowner’s property. The standard HO-3 policy didn’t cover the crack, as earthquake damage is excluded without a special endorsement. The cost to stabilize and repair the foundation – tens of thousands of dollars – fell entirely on the homeowner.
Lesson: If you live in the western part of the state (or any area with even mild earthquake risks), talk to your agent about adding earthquake coverage. It’s usually not very expensive for the amount of protection it provides.
Not every denied claim is a horror story – but these examples show how important it is to know your policy’s exclusions. By being aware, you can either take steps to prevent these issues or buy additional coverage if needed (for example, a sewer backup rider or a separate flood policy).
Home insurance works similarly across most states, but Tennessee does have some unique factors to keep in mind, from our weather patterns to state insurance regulations:
Severe Storms (Wind and Hail): Tennessee gets its share of tornadoes, thunderstorms, and hailstorms. The good news is that wind damage (including tornadoes) and hail damage are covered perils under virtually all standard home insurance policies – so if a windstorm or hailstorm damages your roof or siding, your HO-3/HO-5 will generally cover it. However, due to the frequency of these events, some insurance companies in Tennessee are adjusting how they cover them. In recent years, a few insurers have even started adding specific exclusions or limitations, most commonly increased deductibles, for hazards like ice dams or hail damage (which traditionally were covered). For example, an insurer might impose a separate (higher) wind/hail deductible for Tennessee homes, or exclude cosmetic damage from hail (dents in metal roofing, etc.).
Tip: Review your policy’s wind and hail terms. Make sure there aren’t new exclusions or deductible rules. Most TN homeowners will have full coverage for wind and hail, but it’s wise to confirm given our storm activity.
Flood Zones and Waterways: As mentioned in exclusions, Tennessee’s many rivers and flash-flood-prone areas mean you should evaluate your flood risk. Areas around Nashville (remember the big 2010 flood and others since) and mountainous regions prone to flash floods might require extra insurance. Tennessee doesn’t mandate flood insurance, but lenders will if you’re in a high-risk zone. Don’t assume “I’m not next to a river, so I’m fine” – heavy local rain can still flood streets and basements. Always consider flood insurance if there's any chance of water intrusion, because home insurance won’t cover flood damage.
Sinkhole Coverage Offer: Tennessee is one of the few states where insurers must offer you optional sinkhole coverage for your home. This stems from the state’s “Sinkhole Insurance” law, recognizing that parts of TN (like the Central Basin and East TN) have karst geology (limestone caves) that can lead to sinkholes. The coverage might not be automatically included in a policy, but you’ll have the right to add it (for additional premium). If your new home is in a region known for sinkholes or former caves, it’s worth adding this. (Florida has a similar law; Tennessee joined them in ensuring consumers can get sinkhole protection.)
Availability of HO-5 Policies: Not every insurance company offers HO-5 comprehensive policies in Tennessee. HO-3 remains the most common policy form for Tennessee homeowners. If you have a high-value home or you want the broadest coverage, you may need to seek out an insurer that provides HO-5. Also, insurers might have stricter criteria for HO-5 (e.g., the home must be newer or in excellent condition). Be prepared that you might end up with an HO-3 plus some add-ons, rather than a true HO-5, depending on your insurer’s offerings.
State Wind Pools or Tornado Insurance: Unlike coastal states that have state-run wind insurance pools, Tennessee doesn’t have a separate wind pool since windstorm coverage is generally included in normal policies. But after big tornado outbreaks, you might see premiums rise or insurers tighten guidelines in those areas. Always shop around if you get an unwarranted premium hike; Tennessee has a competitive insurance market. This is why using an independent agent like Hutsenpiller Insurance is so important.
Local Building Codes (Ordinance or Law Coverage): If you buy an older home in Tennessee, be aware that standard policies have limited coverage for the extra costs required to bring a damaged building up to current code. For example, if a 1970s-era home has only partial updates, and a covered loss occurs, the city might require new wiring or structural upgrades during repairs. The “ordinance or law” exclusion in policies means the policy won’t fully pay for those code-driven upgrade costs unless you have an endorsement. You can often add Ordinance or Law coverage (usually a percentage of the dwelling amount) to help with this. This is especially relevant in historic neighborhoods or older homes around Tennessee.
By keeping these Tennessee-specific factors in mind, you can tailor your insurance to fit the local risks. For instance, a homeowner in Memphis might prioritize adding earthquake coverage, while someone in Knoxville might focus on flood coverage due to hilly runoff, and a Nashville buyer near a creek should definitely consider flood insurance. And everyone should keep an eye on hail/wind coverage details, since our weather can be tough on roofs!
Home insurance can be complex, but with the right knowledge, it becomes much easier to manage. As a first-time homebuyer in Tennessee, remember these key takeaways:
Choose the right policy form (HO-3 vs HO-5): HO-3 is the standard and covers your home for a wide range of perils, but limits personal property coverage to named perils. HO-5 offers broader “all-risk” coverage for both home and belongings. Decide how much coverage you need for your possessions and what you’re willing to pay in premiums.
Understand ACV vs RCV: Whenever possible, insure your home and goods at replacement cost so you can fully recover after a loss. Actual cash value payouts may leave a gap where you have to spend your own money to fully replace items. Check that your policy provides replacement cost on both the dwelling and personal property (many Tennessee insurers can add replacement cost on contents to an HO-3).
Know what’s not covered: Don’t be caught off guard by common exclusions. Standard home insurance in Tennessee won’t cover flooding, earthquakes, sinkholes without extra coverage, routine wear-and-tear, mold, infestations, or intentional damage. Be proactive – mitigate these risks where you can (maintenance, pest control, sump pumps, etc.), and buy additional policies or riders for the big exclusions if needed (e.g., flood insurance, earthquake rider).
Consider Tennessee’s local risks: Our state’s weather and geology bring specific challenges – from tornadoes and hail to the occasional tremor or flood. Make sure your insurance strategy addresses “what’s covered by home insurance” in these scenarios and what’s not. For example, wind damage is covered (but double-check deductibles), while hail might have new limitations per some insurers. Earth movement is excluded (so think about earthquake/sinkhole add-ons). Tailor your coverage to your home’s location and condition.
Finally, don’t hesitate to ask questions and get advice. Work with a reputable insurance agent who knows Tennessee’s landscape. They can explain policy details in plain language and help first-time buyers avoid coverage gaps. With the right policy and a clear understanding of its exclusions, you’ll have peace of mind knowing your new Tennessee home is well protected against the unexpected. Welcome to homeownership in the Volunteer State, and congrats on taking this important step to safeguard your home!