You don’t need to be an insurance expert to read and understand your home insurance policy. In fact, getting familiar with what’s in your home insurance policy could help you avoid an expensive mishap. For instance, more than half of U.S. adults think that floods are covered by home insurance, which is incorrect. Floods aren’t covered by home insurance; without a flood policy, you’d have to pay out-of-pocket for the resulting damage. We’re here to help teach you how to read your home insurance policy, so you can find the information you need.
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, and will summarize 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 more detail with policy language, such as exclusions and conditions, as well as definitions of important terms. It’s helpful to read the policy jacket first so you understand the terms you will see on the declarations page.
We just changed home insurance companies after 10 years. It wasn’t until we were going through the policy paperwork with our new agent that we realized the policy we had before would have only covered a fraction of a rebuild if we had a fire or something like that — even though we had asked for confirmation from our previous agent that our policy looked good. Ultimately, it’s on us that we never verified the paperwork, but if we had had a fire we would have not been able to rebuild our home.
— Rebekah H.
The parts of a homeowners insurance policy
Your home insurance declarations page contains most — but not all — of the information you’ll need to know about your policy. Think of it like a snapshot of your policy; your declarations page contains a rundown of the different types of coverage you have, your policy number, policy effective date, insured property address and a list of the named insureds.
Coverage Section I
Section I of a home insurance policy includes different property coverage types. In a standard, HO-3 policy, these include dwelling, other structures, personal property and loss of use. Your declarations page will also include your coverage limits for each part of your policy. You may also see these coverage limits expressed as “limits of liability.”
- Dwelling
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Provides financial protection to repair or rebuild your home’s structure if damaged or destroyed in a covered loss.
- Other structures
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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
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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
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If you and your household members are temporarily displaced from your home due to a covered loss, this coverage helps cover costs such as hotel and meal expenses.
Coverage Section II
The second part of a home insurance policy consists of the two major types of liability coverage. These are usually personal liability insurance and medical payments coverage. You may also see “medical payments” written as “guest medical” coverage, but they mean the same thing.
- Personal liability
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Protects you financially if you, a household member or your pet (restrictions may apply) are financially responsible for injuries or damage to someone else or their property.
- Medical payments
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Provides medical coverage if a guest is injured on your property, but you are not legally responsible for covering the costs of injuries.
Endorsements
It’s easiest to think of endorsements as add-on coverages. Your insurance company may also call endorsements “riders.” Some common ones in home insurance include:
- Sewer/water backup coverage
- Ordinance/law coverage
- Inflation guard
- Extended dwelling replacement
- Jewelry or other valuables coverage
- Sinkhole coverage
When you purchase endorsements, the cost of the added protection will be added to your premium. In general, the more you buy, the more you can expect to pay.
Deductibles
Your deductible represents the amount of money you are financially responsible for when you file a claim. If your claim requires you to hire a contractor, you may need to pay your insurer your deductible before the repairs begin. Or, if your insurance company is reimbursing you for something, you may have your deductible taken out of your reimbursement payment. Most home insurance deductibles range between a few hundred and a few thousand dollars.
It’s possible that your policy will have more than one deductible. For instance, you may have a separate wind or hurricane deductible, depending on where you live.
Discounts
Your declarations page will typically list any discounts applied to your policy. You can score savings for a variety of things, like bundling your policy, getting an early quote, enrolling in paperless statements and remaining claims-free. Your home’s features can also help you save on insurance; your insurance company may give you a discount for having a home security system, fire extinguishers, a new roof, a doorbell camera and more.
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 would 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.
Bankrate tip: Keep a digital copy of your policy
If possible, it can come in handy to keep a digital copy of your home insurance policy on your hard drive. That way, you can use the “Command + F” or “Control + F” function to search your policy. For instance, if you want to know if dog bites are covered by your personal liability insurance, you can search for key phrases like “dog bite,” “pet,” or “animal bite” to see where it’s mentioned.
Home insurance policy exclusions
A policy exclusion on your homeowners insurance indicates a loss or scenario, known as a peril, 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 standard 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.
Duties after loss
Your duties after loss are an often overlooked part of your insurance policy, but an important one that you won’t typically find on your declarations page. Insurance is a contract, and part of that contract includes what you, the homeowner and insured, are responsible for doing after you experience a loss to prevent further damage.
If, for instance, a bad windstorm breaks some of your kitchen windows, you may be responsible for boarding them up to prevent any water or other debris from getting inside. If you need to go out and buy materials to board your windows up, your insurance company can usually reimburse you for the cost of those supplies. However, if you don’t board them up, some water gets in and you file a claim for that water damage, your claim may get denied. Your contractual obligation to your insurance company doesn’t end with you just paying your premium on time — be sure to flip through your policy to get a better sense of what you’re responsible for.
Frequently asked questions
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