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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 essential step. Home insurance policies may seem complex, but they don’t have to be. Bankrate’s insurance editorial team has nearly 50 years of combined industry experience and includes three licensed insurance agents, so we can help you understand the details of your home insurance policy. Knowing how to read a home insurance policy can help you choose the right coverage and evaluate your policy as your needs change.
Key points to remember
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The main parts of the home insurance policy documents are the declarations page and the policy coverage.
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Understanding replacement cost versus actual cash value is important in knowing how your home insurance claim would be settled.
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Homeowners should also be aware that home insurance policies generally 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 home insurance policy. This is usually one or two pages at most. It will contain information about your policy, such as the name of the insurance company, your name, the address of your property, 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, and definitions of important terms. It is useful to read it first in order to understand the terms that you will see on the declarations page.
The elements of a home insurance policy
A home insurance policy includes a variety of coverage types, each with its own monetary coverage limit. The core element is the housing cover, and many other standard cover options are usually a percentage of this housing cover amount. However, depending on your insurer, you may be able to increase some of these limits or add other endorsements to further customize your policy.
Knowing what to look for on your policy’s declarations page can be vital if you need to file a claim. If you have endorsements, add-ons, separate policies such as flood or earthquake insurance, or coverage for electronics and valuables, you will also need to understand the scope of that coverage.
Here are the common types of coverage and what they cover.
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What it covers |
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Provides financial protection to repair or rebuild the structure of your home if it is damaged or destroyed during a covered loss. |
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Provides coverage for structures detached from the home, such as a fence, shed, barn or gazebo, if they are damaged or destroyed during a covered loss. |
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Covers your belongings at home and often extends some coverage for belongings stored in other locations, such as a storage unit. |
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If you and members of your household are temporarily displaced from your home due to a covered loss, this coverage helps cover the costs. |
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Protects you if you (or your pet – restrictions may apply) cause injury or damage the property of others and are financially responsible for covering the costs. |
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Medical cover |
Provides medical coverage if a guest is injured on your property, but you are not legally responsible for covering injury costs. |
Replacement value versus actual cash value
For home and personal property coverage, either replacement cost or actual cash value applies. With replacement valuethe home or personal property will be covered for the cost of replacing what is damaged in a covered loss at the time of the claim, without depreciation. Actual Cash Value take depreciation into account when determining the amount of your claim. Some insurance companies automatically include replacement cost for housing and personal property coverage, while other companies require it to be added as a rider.
What is a home declarations page?
A Home insurance declarations page is an overview of the home insurance policy. It includes vital insurance company and policy information, including named insured, property location, and coverage selected. Coverage limits, deductibles, endorsements, policy number and policy duration are also listed on the declarations page. If you have a mortgage, the business will be registered to show their insurable interest in the property.
By reviewing your declaration page, you can see how you and your home are insured against covered losses. Items included in the Owner Declarations page are:
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Police number: The unique number identifying your policy. This number is used in all transactions, including filing and tracking a claim.
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Address of the policyholder: The location of the insured property, which may or may not be the same as the mailing address.
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Insurance period: The dates shown are the start and end dates of the current term of the policy. Most home insurance policies renew automatically, but contact your property insurer if you receive a notice of non-renewal.
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Named insured: The person(s) with an insurable interest in the dwelling and the policyholder.
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Types of coverage and limits: The specific types of coverage included in the home insurance policy or selected by the named insured.
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Discounts on home insurance: The list of discounts you are entitled to and added to the policy will appear on your home insurance declarations page.
Exclusions from the home insurance contract
A policy exclusion on your home insurance indicates a loss or scenario that is specifically not covered. Policy exclusions are detailed in the policy coverage and may differ by company and type of policy.
Most home insurance policies exclude the following risks:
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Normal wear and tear
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Construction defects
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Foundation failure
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Damage to pets and animals
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movement of the earth
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Intentional loss
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Nuclear risk
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Mechanical failure
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Mold and fungus
Flood damage is also not covered by a home insurance policy. Some carriers may offer flood insurance separately or you can buy it directly from the National Flood Insurance Program (NFIP). Earthquakes (classified as earth movements) are also generally excluded from home insurance policies. However, if you live in an earthquake-prone area, you can purchase a separate earthquake insurance policy or, depending on your insurer, you can add an endorsement to your policy.
Frequently Asked Questions
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Endorsements allow you to customize your home insurance to suit your specific needs. Additional endorsements may vary by state and carrier, but may include coverage for identity thefthome daycare and programmed movable property.
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The best home insurance company offers the coverage, endorsements and limits you need to properly protect your home, property and personal liability. If you’re not sure which homeowners insurance company is best for you, consider getting more than one. home insurance quote to compare options.
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While this may vary for each homeowner, it’s a good idea to check your home insurance policy at least once a year to make sure it still meets your needs and that coverage limits are adequate, including due to inflation. If you have made major changes to your home, such as buying a new roof, adding an extension, or updating your utilities, you should tell your insurance agent or company. insurance so that your policy coverage can be adjusted accordingly.
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The most common causes of home damage (also called insurance risks), such as fire, wind, theft, the weight of snow and ice, vandalism, explosions and frozen pipes, are generally covered by a home insurance policy. However, two major exclusions are flood and earthquake coverage. If you live in an area prone to these types of disasters, you will need a separate rider or policy to cover the costs associated with these damages.
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