How to read a home insurance policy
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 they don’t have to be. Bankrate’s insurance editorial team has nearly 50 years of combined experience in the industry 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 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
A homeowners insurance policy includes a variety of coverage types, each one with its own monetary coverage limit. The central element is dwelling coverage, and many other standard coverage options are usually a percentage of this dwelling coverage amount. However, depending on your carrier, you may be able to increase some of these limits or add other endorsements to further personalize your policy.
Knowing what to look for on your policy’s declarations page can be vital if you have 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’ll need to understand the scope of this coverage as well.
Here are common coverage types and what they cover.
What it covers
Provides financial protection to repair or rebuild your home’s structure if damaged or destroyed in a covered loss.
Provides coverage for structures detached from the dwelling, like a fence, shed, barn or gazebo, if damaged or destroyed in a covered loss.
Covers your personal belongings in the home and often extends some coverage for personal belongings stored in other locations, like a storage unit.
If you and your household members are temporarily displaced from your home due to a covered loss, this coverage helps cover the costs.
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.
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 discounts: The list of discounts you’ve qualified for and have added to the policy will be shown on your home insurance insurance declarations page.
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
Pet and animal damage
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). Earthquakes (categorized under earth movement) are also typically excluded from home insurance policies. However, if you live in an earthquake-prone area, you may be able to buy a separate earthquake insurance policy or, depending on your carrier, you could add an endorsement to your policy.
Frequently asked questions
Endorsements allow you to personalize 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.
The best home insurance company offers coverage, 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 to compare options.
While this may vary for every homeowner, it’s a good idea to check your home insurance policy at least once a year to make sure it still fits your needs and the coverage limits are adequate, especially due to inflation. If you’ve made any major changes to your house — like getting a new roof, adding an extension or updating your utilities — you should let your insurance agent or company know so your policy coverage can be adjusted accordingly.
The most common causes of home damage (also called insurance perils), such as fire, wind, theft, the weight of snow and ice, vandalism, explosions and freezing pipes, are generally covered under a homeowners insurance policy. However, two major exclusions are flooding and earthquake coverage. If you live in an area prone to these types of disasters, you’ll need an endorsement or a separate policy to cover costs associated with these damages.