How to Read a Homeowner’s Insurance Policy

Are You Covered?

Every year, when your homeowner’s insurance policy renews, you receive the policy. You probably stash it in a file or drawer labeled “important papers” without a thought.

But what exactly does that policy say? There may or may not be coverages that you’ll need if disaster hits. It would be prudent to know what you’re prepared for and what vulnerabilities you have. Reading a homeowners policy is simple and straightforward.

Declaration Page Is an Executive Summary

The homeowner’s insurance declaration page, also called a “dec” page, summarizes your coverages. This is the first step to reading and understanding your policy.

On the dec page, the named insured is listed. The named insured is you, your spouse, or a relative under 21 living in the house. It also lists the insurance company and the home’s lender if you have a mortgage. Contact information is also included.

Deductible and Premium Coverages Listed on the Dec Page

Your deductible is listed on the declaration page. The deductible is what you agree to pay before the insurance company steps in and pays.

The policy period will also be listed. This is the length and effective dates for an insurance policy. It is generally one year.

You will also find your premium, which includes all coverages you have selected. The dec page will also show any applicable discounts. It’s important to read through your discounts to ensure that you are receiving what is due to you.

For example, if you’ve installed a home security system, this should be noted. Otherwise, you won’t receive any possible discount.

Coverages Listed on the Dec Page

The dec page is divided into two sections: property coverages and liability coverages. Although there are other property coverages not listed, the dec page gives you the bones of your insurance policy.

Dwelling and Other Structure Coverages

Coverage A on the dec page refers to the dwelling. This pertains to your dwelling and any attached structures such as a garage or fence. It’s important that you review your dwelling coverage yearly to ensure you are adequately insured.

Coverage B refers to detached structures such as a storage building or detached garage. The limit is generally 10 percent of your Coverage A limit.

Personal Property Includes a Home’s Contents

Coverage C includes your home’s contents and personal property. It also covers personal belongings when you travel.

The monetary limit on Coverage C is 50 percent of Coverage A, which is your dwelling. For example, if you have dwelling insurance for $100,000, you'll have $50,000 in personal property/contents insurance.

This doesn’t count specific items such as jewelry. You’ll need an endorsement stating you have it covered for a specific amount. Check with your agent if you have items such as collectibles, jewelry, coin collections, and so on that may need additional insurance.

Coverage D is loss of use, which provides funds to live if your house is deemed unfit to live in. It pays for temporary living arrangements up to the policy limits.

The dec page will also state whether your coverage is replacement cost (RC) or actual cash value (ACV). This is an important distinction. Replacement cost covers the actual cost of replacing your dwelling or personal property without factoring in depreciation.

Actual cash value factors in depreciation when determining how much to pay for a loss. Auto insurance is an example of ACV.

2 Types of Liability Coverages

Section two of your dec page summarizes your liability coverages.

Coverage E protects you against damages or injuries, up to the policy limits, caused by you or your property. It will show your limits. So double-check that your limits are what you feel are adequate. For example, if you have a pool, you might want higher limits than a house without one.

Finally, Coverage F includes medical payments to others. This covers the medical expenses of others who may incur bodily or property damage at your home.

It usually has $1,000 in coverage, but additional limits may be purchased.

What Is Not on the Declaration Page

Your declaration page doesn’t include all your coverages. Optional coverages and any add-ons may not be listed. The dec page is a summary. If you want details, you’ll need to read the whole policy.

Exclusions are also not on the dec page.

Standard Exclusions in a Homeowner’s Policy

In homeowner’s insurance, a loss or scenario for such is called a peril. An exclusion states what perils are not covered under your policy. It’s imperative you read through your policy to see what will not be covered. Then, if you can, you can purchase coverage.

Generally, some perils that homeowner’s insurance doesn’t cover include:

• construction defects
• wear and tear
• pet and animal damage
• Earth movement (e.g., earthquake)
• intentional loss
• foundation failure
• mechanical breakdown
• nuclear hazard
• mold and fungus

Flood is also excluded from a homeowner’s policy. You may be able to obtain flood insurance separately from your carrier. Or you must purchase it directly from the National Flood Insurance Program.

Earthquakes are also excluded, but you can purchase coverage for this as an additional.

Read your policy thoroughly to understand what isn’t covered.

Lender Needs Homeowner Insurance Dec Page

The mortgage company will need a copy of the declaration page if you have a mortgage. This must be given to the mortgager yearly so it knows that insurance is in place.

If this is not provided to the lender, it has the right to purchase home insurance in your name. This is called “forced-placed insurance.” It’s usually more expensive than a standard home policy.

Your insurance agent usually automatically sends the dec page to the lender yearly. But ultimately, it’s the homeowner’s responsibility.

Read Your Homeowner’s Policy

Ensure you read your policy every year. Contact your insurance agent if you don’t understand a coverage or exclusion.

It’s prudent to take an inventory of your personal property to ensure you have everything covered. Ensure you know and understand what the exclusions are so you can avoid any unexpected problems.

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