To know how financially protected you and your home are in the event of a loss, it is important to be able to read and understand your home insurance policy. You may be put off by the page count and insurance terminology in some policy documents, but that’s not what we’re talking about here. The two most important pages are the declarations page and the policy jacket. These two elements are found at the beginning of the policy.
Every policy is unique and every insurer writes policies a little differently, but in general, policy documents have common characteristics. It is important to note, however, that if you have any questions that are not answered here, you can (and should) contact your insurance agent or insurance company to understand the scope and design of your police.
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, your 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 like exclusions and conditions, as well as 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
The home insurance policy is divided into types of coverage, which can vary depending on the company and the options chosen by the insured and the owner. The central element is housing cover, and the other options are usually expressed as a percentage of the housing cover amount.
Knowing what to look for on your policy’s declarations page can be vital if you’re in the position of having to file a claim. At that time, you’ll need to know the coverage options you’re paying for (see the table below for common types of coverage), as well as the coverage limits for each option. If you have any endorsements or add-ons, such as flood insurance or coverage for electronics and valuables, you’ll also need to understand the scope of that coverage.
Here are the common types of coverage and what they cover.
|Cover||What it covers|
|Lodging||This coverage provides financial protection to repair or rebuild the structure of your home if it is damaged or destroyed during a covered loss.|
|Other Structures||Provides coverage for structures detached from the home, such as a fence, shed, barn or in-ground pool, if they are damaged or destroyed during a covered loss.|
|Personal property||Covers your belongings at home and often extends some coverage for belongings stored in other locations, such as a storage unit.|
|Loss of use||If you and members of your household are temporarily displaced from your home due to a covered loss, this coverage helps cover the costs.|
|Responsibility||Protects you if you (or your pet – restrictions may apply) cause injury to someone else and are financially responsible for covering the costs associated with the injury.|
|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, replacement cost or actual cash value applies. With replacement value, the 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, with no depreciation. The actual cash value takes depreciation into account when determining the amount of your claim payment. 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 a snapshot of the home insurance policy. It includes vital information about the insurance company, including the named insured, the location of the property and the coverage chosen. 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:
- Police number: The unique number identifying your property and the guarantees included. This number is used in all transactions, including filing and tracking a claim.
- Address of policyholder: The location of the insured property, may or may not be the same as the mailing address.
- 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 non-renewal notice.
- Named insured: The person(s) having an insurable interest in the dwelling and holder of the insurance contract.
- Blankets: The specific types of coverage included in the home insurance policy or selected by the named insured.
Exclusions from the home insurance contract
A policy exclusion on your home insurance indicates a loss or scenario that is specifically not covered. Housing cover is usually determined on an open risk basis, which means that if cover is not specifically excluded, it is included. For personal property, coverage is based on named perils, which means that if loss is not included, it is excluded from coverage. Policy exclusions and basis of claims are detailed in the policy coverage and may differ by company and type of policy.
Most home insurance policies exclude the following risks:
- Normal wear and tear
- Construction defects
- Foundation failure
- Damage to pets and animals
- movement of the earth
- Intentional loss
- Nuclear risk
- Mechanical failure
- Mold and fungus
Flood damage is also not covered by a home insurance policy. Some carriers may offer flood insurance separately, or you can purchase it directly from the National Flood Insurance Program (NFIP).