How to read a home insurance policy

It is essential to understand your home insurance policy to find out how your home and finances are protected in case of loss. Although policy coverages and exclusions vary by company, there are some common features and terms that all policies have. Bankrate will help you understand your policy by providing an explanation of these terms.

The policy jacket and homeowners declarations page (often shortened to “decpage”) contain all information about your home insurance coverage, endorsements, and limitations. You can feel confident about the coverages you choose and have the correct policy limits.

How to understand and read your home insurance policy

Although homeowners insurance policies are laid out differently by companies, the main information is found on the declarations page. The information provided typically includes the insurance company information, the address of the policyholder and location of the insured property, coverages, limits, deductibles, endorsements, coverage dates and the annual premium.

The policy jacket that comes with the declarations page outlines the terms, limitations, exclusions and conditions. It also contains definitions and additional information. This section contains policy language that is not contained on the declarations page. You can understand the coverage by reading the declarations page as well as the policy jacket for homeowners insurance.

What are the components of a home-insurance policy?

There are several coverage options available for homeowners insurance policies. These can vary depending on the company and the homeowner’s choices. The typical home insurance policy includes coverages for the dwelling, other structures, personal property, loss of use (also called additional living expenses or ALE), guest medical payments and liability.

These coverages typically make up a portion of the dwelling coverage but can be adjusted as necessary. The market value of the home is not covered by homeowners insurance. However, it does cover the cost of replacing the home in the event that the house is totaled. The dwelling coverage does not cover the land even if the home is totaled. Insurance companies use a valuation tool that determines the value of your home based on its features and condition.

It is important to understand the coverage and limitations in your policy so you know what is and is not counted as a covered loss. It is a very unpleasant experience to suffer a loss, and then discover that your policy does not cover the damages. You can get a better understanding of your financial protections by reviewing your homeowners insurance policy details every time you renew or replace it. These are the most common coverages, along with their contents. You can also see who might recommend that it be included in your policy.

Actual cash value versus replacement cost value

Personal property and dwelling coverage can be purchased for either replacement cost or actual cash value. The replacement cost value covers the cost of replacing the property or home damaged by a covered loss. Depreciation is not considered. The actual cash value is a factor in depreciation. This may not be sufficient to replace new items. These coverages may be included by insurance companies as an automatic part of their policies, or you can add it to your premium.

What page is a home insurance declaration page?

The homeowners insurance declaration page shows a snapshot of your home insurance policy. It contains vital information such as the name of the insured, the property, and the coverages chosen. The declaration page lists the coverage limits, deductibles and endorsements as well as the policy number, policy period, and the policy number. To show its ownership interest in the property, a lien or mortgage holder will be listed on the declaration page.

It is crucial to understand the declarations page of your policy in order to verify coverage accuracy. Also, it is important that you know what is and isn’t covered. You can quickly review your declaration page every time it is sent to see if you and your home have been covered from any losses. These are the elements that make up the homeowners declaration page:

  • Policy number: This is the unique number that identifies your property and all coverages. This number is used for all transactions, including the filing and tracking of a claim.
  • Address of the policyholder: This is the address of the insured property. It may differ from the mailing address.
  • Policy period: These dates are the start and ending dates of your current policy. Home insurance policies are typically renewed automatically after a certain number of days.
  • Named insured: A person or group of people who have an insurable interest at the home, and the holder the insurance policy.
  • Specific coverages: These are the coverages that are automatically covered by your home insurance policy.

Exclusions from home insurance policies

An exclusion from homeowners insurance means that a specific loss or scenario is not covered. The dwelling coverage is usually determined on an “open perils” basis. This means that coverage can be included even if it isn’t specifically excluded. Personal property coverage is determined on the basis of named perils. If a loss is not covered, it will be excluded. Policy exclusions and claims basis are detailed in the policy jacket and can differ by company and policy type.

The following are excluded from most homeowners insurance policies:

  • Normal wear and tear
  • Construction defects
  • Foundation failure
  • Animal and pet damage
  • Earth movement
  • Intentional loss
  • Nuclear hazard
  • Mechanical breakdown
  • Mold and fungus

Flood damage is not covered by a home insurance policy. Some carriers may offer flood insurance separately or you can purchase it directly from the National Flood Insurance Program (NFIP).

Questions frequently asked

What are home insurance endorsements and what do they mean?

Endorsements let you customize your homeowners insurance to meet your needs. The exact coverage of add-on endorsements varies by carrier and state, but they could include coverage for identity theft and home daycare.

How can I find the best home-insurance company?

The best home insurance company offers the coverages, endorsements and limits you need to adequately protect your home, belongings and your personal liability. If you are not sure what the best homeowners insurance company is for you, consider getting several home insurance quotes from different companies to find out which one has the coverages you need.

What do I need to do to update my home insurance policy

Insurance agents recommend that you review your home insurance policy every year when you renew it. This will allow you to determine if any changes need to be made or if there are savings or discounts available. Your insurance company should be notified if you make any changes to your home like adding or taking out a pool, or updating home appliances such as the HVAC or plumbing.

Is earthquake coverage included in my policy?

A homeowners insurance policy generally does not cover earthquake coverage. However, some companies offer an endorsement on the policy or a separate earthquake insurance policy. You may be able to add earthquake insurance as an endorsement. This will likely have a lower deductible than your other coverages.