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Buying home insurance is an important part of your financial plan as a homeowner, and knowing how to read and understand your coverage is an integral step. Home insurance policies may seem complex, but don’t worry. Bankrate’s insurance editorial team includes four licensed insurance agents with a combined 47 years in the industry, so we can help you understand the details of your home insurance policy. Knowing how to read a home insurance policy might help you choose the appropriate coverage and evaluate your policy as your needs change.
- The main parts of home insurance policy documents are the declarations page and the policy jacket.
- Understanding replacement cost versus actual cash value is important to know how your homeowners insurance claim would be settled.
- Homeowners should also be aware that home insurance policies typically exclude certain types of property damage.
How to read and understand your home insurance policy
The declarations page is the most important page when trying to understand your homeowners insurance policy. It’s generally a single page or two at most. It will have information related to your policy, such as the insurance company’s name, your name, property address, coverage amounts, deductibles, endorsements and annual premium.
The policy jacket, or policy form, is included with the declarations page, and it goes into even more detail with policy language, such as exclusions and conditions, as well as definitions of important terms. It is helpful to read it first so you understand the terms you will see on the declarations page.
The parts of a homeowner insurance policy
The homeowners insurance policy is divided up by coverage types, which can vary by company and options selected by the policyholder and homeowner. The central element is dwelling coverage, and several of the other standard options are usually framed as a percentage of the dwelling coverage amount.
Knowing what to look for on your policy’s declarations page can be vital if you are in the position of having to file a claim. If you have endorsements, or add-ons, such as flood insurance or coverage for electronics and valuables, you’ll need to understand the scope of this coverage as well.
Here are common coverage types and what they cover.
|Coverage||What it covers|
|Dwelling||Provides financial protection to repair or rebuild your home’s structure if damaged or destroyed in a covered loss.|
|Other structures||Provides coverage for structures detached from the dwelling, like a fence, shed, barn or gazebo, if damaged or destroyed in a covered loss.|
|Personal property||Covers your personal belongings in the home and often extends some coverage for personal belongings stored in other locations, like a storage unit.|
|Loss of use||If you and your household members are temporarily displaced from your home due to a covered loss, this coverage helps cover the costs.|
|Liability||Protects you if you (or your pet — restrictions may apply) cause injuries to or damage someone else’s property and are financially responsible for covering the costs.|
|Medical coverage||Provides medical coverage if a guest is injured on your property, but you are not legally responsible for covering the costs of injuries.|
Replacement cost value versus actual cash value
For dwelling and personal property coverage, either replacement cost or actual cash value applies. With replacement cost value, the home or personal property will be covered for the cost to replace what is damaged in a covered loss at the time of the claim, without depreciation. Actual cash value considers depreciation when determining your claim payout amount. Some insurance companies automatically include replacement cost for dwelling and personal property coverage, while other companies require it be added as an endorsement.
What is a home declarations page?
A homeowners insurance declarations page is a snapshot of the home insurance policy. It includes vital information about the insurance company and policy, including the named insured, property location and the selected coverage. Coverage limits, deductibles, endorsements, policy number and policy term, are also listed on the declarations page. If you have a mortgage, the company will be listed to show its insurable interest in the property.
By reviewing your declaration page, you can see how you and your home are insured from covered losses. The elements included in the homeowners declarations page are:
- Policy number: The unique number identifying your policy. This number is used in all transactions, including filing and tracking a claim.
- Policyholder address: The location of the insured property, which may or may not be the same as the mailing address.
- Policy period: The dates listed are the start and end dates of the current policy term. Most home insurance policies automatically renew but contact your property insurer if you receive a nonrenewal notice.
- Named insured: The person or people with an insurable interest in the home and the holder of the insurance policy.
- Coverage types and limits: The specific coverage types included in the home insurance policy or selected by the named insured.
Home insurance policy exclusions
A policy exclusion on your homeowners insurance indicates a loss or scenario that is specifically not covered. Policy exclusions are detailed in the policy jacket and can differ by company and policy type.
Most homeowners insurance policies exclude the following perils:
- Normal wear and tear
- Construction defects
- Foundation failure
- Pet and animal damage
- Earth movement
- Intentional loss
- Nuclear hazard
- Mechanical breakdown
- Mold and fungus
Damage from a flood is also not covered under a home insurance policy. Some carriers may offer flood insurance separately or you can purchase it directly from the National Flood Insurance Program (NFIP).