To know how you and your home are financially protected in the event of a loss, it is important to be able to read your home insurance policy. While policy coverages and exclusions differ by company, there are general terms and features explained within the policy that are common among them. Bankrate helps provide an explanation of these terms and features so you are better able to understand your policy.
The homeowners declarations page, often shortened to “dec page,” and the policy jacket include everything you need to know about your home insurance coverage, endorsements and limitations. By learning how to understand and read your homeowners insurance policy, you can be confident in the coverages selected and ensure you have the right policy limits in place.
How to read and understand your home insurance policy
While homeowners insurance policy layouts differ by company, generally, a policy is laid out with the most important information 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 included with the declarations page details the terms, limits, exclusions, conditions and definitions to supplement the policy information. Here you can find specific policy language not included in the declarations page. By reading both the declarations page and the policy jacket of the homeowners insurance policy, you can better understand what is and is not covered.
What are the parts of a home 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 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.
The selected coverages are typically a percentage of the dwelling coverage, but can be increased independently as needed. A homeowners insurance policy does not cover the market value of the home, but the cost to replace the home if it were a total loss. Even if it is a total loss, the land still remains, so it is not included in the dwelling coverage. You do not have to know the value of the home because insurance companies use a valuation tool to determine, based on the features and condition of your home.
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 would be an unpleasant experience to have a loss and find out when you are ready to submit a claim for compensation that the damage is not covered in your policy. By reviewing your policy details each time you get a new or renewed homeowners insurance policy, you can have a good idea of your financial protections. Here are common coverages and what they cover, as well as who may require or recommend it be included in your policy.
|Coverage||Who requires it||What it covers|
|Dwelling||Generally required by lenders||This coverage provides financial protection to repair or replace the structure of the home if damaged in a covered loss.|
|Other structures||May be required by lenders but could be optional||Provides coverage for structures not part of the dwelling, like a fence, shed, barn or pool if damaged in a covered loss|
|Personal property||Generally required by lenders||Covers your personal belongings in the home and your vehicle, may extend coverage to other locations.|
|Loss of use||May be required by lenders||Covers you and your household members if you are displaced from the home due to a covered loss and need a temporary place to stay while repairs or rebuilding occurs.|
|Liability||May required by lenders||Protects you if you (or your pet — restrictions may apply) cause injuries to someone else or are sued due to negligence, on or off the property|
|Guest medical coverage||May be required by lenders||Provides medical coverage if a guest is injured on your property|
Replacement cost value versus actual cash value
For dwelling and personal property coverage, one of two values applies: replacement cost or actual cash value. With replacement cost value, the home or personal property will be covered for the actual cost to replace what is damaged in a covered loss, without depreciation being a contributing factor. Actual cash value factors in depreciation, which may not be enough to replace items new. Some insurance companies automatically include replacement cost for these coverages, while others require it be added for an additional premium cost.
What is a home insurance declaration page?
A homeowners insurance declaration page is a snapshot of the home insurance policy. It includes vital information about the insurance company, the named insured, the property and the coverages selected. Coverage limits, deductibles, endorsements, the policy number and coverage policy period are also listed on the declaration page. If you have a mortgage or lien holder against the property, the company will be listed as a loss payee to show its insurable interest in the property.
Understanding the declarations page in your policy is important to ensure coverage accuracy and what is and is not covered. By reviewing your declaration page each time it is sent, you can quickly see how you and your home are protected from covered losses. The elements included in the homeowners declaration page are:
- Policy number: The unique number identifying your property and the coverages included. This number is used in all transactions, including filing and tracking a claim.
- Policyholder address: The location of the insured property, may or may not be the same as the mailing address.
- Policy period: The dates listed are the start and end date of the current policy. Most home insurance policies automatically renew a set number of days before the policy period date.
- Named insured: The person or people with an insurable interest in the home and the holder of the insurance policy.
- Coverages: The specific coverages automatically 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. The dwelling coverage is typically determined on an open perils basis, which means if coverage is not specifically excluded, it is included. For personal property, coverage is based on named perils, which means if the loss is not included, it is excluded from coverage. Policy exclusions and claims basis 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).
Frequently asked questions
What are home insurance endorsements?
Endorsements allow you to customize your homeowners insurance for your specific needs. Add-on endorsements can vary by state and carrier, but could include coverage for identity theft, home daycare and scheduled personal property like jewelry and fine arts.
How do 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.
Do I need to change my home insurance policy?
It is recommended by insurance agents to review your home insurance policy annually when you get the renewal policy to see if changes are needed or if there are new discounts or savings options available. If you make changes to your home, like adding or removing a pool or updating your home appliances like the HVAC or plumbing, let your insurance company know to see if changes are needed to the homeowners policy.
Does my policy include earthquake coverage?
Generally, a homeowners insurance policy does not include earthquake coverage. However, some companies offer an endorsement on the policy or a separate earthquake insurance policy. If you can add earthquake insurance as an endorsement, it will probably have a different deductible than the rest of your coverages.