How to Read a Homeowners Insurance Policy

How to interpret a homeowners insurance declaration page

Your home is likely among the priciest purchases you'll make, so protecting it with the right insurance policy is crucial. Though each insurance company formats its homeowners policy documents differently, each policy document has some features in common. We’ll help you navigate your homeowners insurance policy to ensure your home and personal belongings are properly covered. 

How to read a homeowners insurance policy:

1. What is a homeowners insurance declaration page?
2. Homeowners insurance coverage types
3. Homeowners insurance required by mortgage lenders
4. Which perils does a homeowers policy cover?
5. Home insurance policy exclusions
6. Home insurance discounts
7. Home insurance considerations

What is a homeowners insurance declaration page? 

Each section of your homeowners policy is important, but the declaration page is likely your go-to source for most information. Here you’ll find important info about your coverage amounts, coverage limits, and insurance premiums. Have a look at the example below to learn more about standard features of a homeowners declaration page.

1. Insurance company: The name of your insurance provider.
2. Named insured: Holder of the policy.
3. Policy number: This unique policy number is needed anytime you file a claim.
4. Policy period: Lists the start and end dates of your policy.
5. Policyholder address: Location of the insured property.
6. Coverages: This section details the specific coverages included in your policy. 
7. Limits: Signifies the limits of each coverage.
8. Deductibles: The amount for which you're responsible for paying before your insurance coverage kicks in. A higher deductible can lead to lower monthly insurance rates.
9. Replacement cost value/actual cash value: This signifies whether or not the insurance company will factor in depreciation when covering your losses or replace them at the full value.
10. Total premium: The total amount due over the duration of the policy term. 
11. Endorsements: Additional coverages and customizations.

Homeowners insurance coverage types explained

There can be many different coverage types within a single homeowners policy. The following list provides a brief rundown of each and how they work to protect you and your property. 

Section One

Coverage A: Dwelling

Dwelling coverage pertains to the primary dwelling and attached structures such as fences or garages. 

Coverage B: Other structures

This includes detached structures such as sheds or detached garages. The limit of this coverage is 10% of your Coverage A limit. 

Coverage C: Personal property

This covers your home’s contents or other personal property. This also covers personal belongings you carry while traveling. The limit of this coverage is 50% of your Coverage A limit. Another important thing to consider is the amount at which your belongings will be replaced. Actual cash value is standard amongst many policies, though full replacement cost coverage can typically be added at an additional cost. 

Coverage D: Loss of use

Loss of use provides coverage in the event your home is rendered unfit to live in. It covers additional living expenses and will pay for temporary living arrangements up to the policy limit. 

Section Two

Coverage E: Personal liability

Liability coverage is a vital component of a homeowners insurance policy. It protects you against damages or injuries caused by you or occurring on your property. Liability insurance follows you around the world as well, meaning you would be covered— in most cases — if you were to accidentally injure someone else while on vacation. In some cases, an umbrella policy can be added to provide increased personal liability protection.

Coverage F: Medical payments to others

This coverage covers some of the medical expenses of others who may have suffered bodily injury or property damage at your home. Sometimes known as guest medical coverage, it usually provides a baseline of $1,000 in coverage that can often be increased for an additional premium. 

Actual cash value/replacement cost value

Many basic policies cover a home and the personal property therein at actual cash value. Actual cash value factors in depreciation when considering how much to pay out for a covered loss. On the other hand, replacement cost value covers the actual cost to replace your dwelling or personal property without factoring in depreciation. This can be added for an additional premium. 

Home insurance endorsements

Endorsements to a home insurance policy allow you to customize your coverage to fit your individual needs. These add-ons can provide additional coverage to allow for unique needs to your lifestyle or geographic location. Common endorsements can include coverage for windstorms, identity theft, and home daycare coverage, to name a few. 

You can also add personal property endorsements—known as scheduled endorsements—that can increase the limits of coverage for high-value items such as antiques or jewelry. This often requires an appraisal of the items and an agreement from the insurance company on the payout amount.

Homeowners insurance required by mortgage lenders

Also listed on your insurance policy will be the name of your mortgage lender. Mortgage lenders often have their own insurance requirements to protect their investment in the event of a loss. The types of coverage required may vary depending on your lender and are likely to be based on the type of home you have as well as its location. For instance, lenders are likely to require special coverages in areas prone to natural disasters such as hurricanes, earthquakes, or wildfires.

What perils does your homeowners policy cover?

Sometimes dwelling and personal property coverage differ in the perils they cover. For instance, an HO-3 policy — the most common home insurance policy type— covers personal belongings on a named peril basis.

Common perils named on most HO-3 policies include:

1. Lightning or fire
2. Hail or windstorm
3. Damage caused by aircraft
4. Explosions
5. Riots or civil disturbances
6. Smoke damage
7. Damage caused by vehicles
8. Theft
9. Vandalism
10. Falling objects
11. Volcanic eruption
12. Damage from the weight of snow, ice, or sleet
13. Water damage from plumbing, heating, or air conditioning overflow
14. Water heater cracking, tearing, and burning
15. Damage from electrical current
16. Pipe freezing

Pay close attention to which perils are covered by your policy: this can have consequences down the line. 

Home insurance policy exclusions

Every home insurance policy has exclusions. While an HO-3 policy covers your personal belongings against named perils, it covers your primary dwelling on an open peril basis. This means that it will cover damage caused by all perils except those explicitly listed in this section of the policy. 

An HO-3 policy specifically excludes damages caused by the following perils:

1. Freezing pipes and systems in vacant dwellings
2. Damage to foundations or pavements from ice and water weight
3. Theft from a dwelling under construction
4. Vandalism to vacant dwellings
5. Latent defects, corrosion, industrial smoke, pollution
6. Settling, wear, and tear
7. Pets, other animals, and pests
8. Weather conditions that aggravate other excluded causes of loss
9. Government and association actions
10. Defective construction, design, and maintenance

Flood insurance: This covers damage resulting from flooding. Flood coverage is generally an excluded peril, as most standard homeowners policies do not include it. While it is offered by some specialty insurers, it is most often purchased through the National Flood Insurance Program (NFIP). 

Home insurance discounts

Many homeowners insurance companies offer discounts that can save you money on your insurance premiums. Installing deadbolt locks or a security system to deter burglars can lead to lower insurance rates. Bundling your home insurance with your auto insurance can likewise lead to savings. Below is a list of common discounts offered by most home insurers. Speak to your insurance company or agent to see which discounts you are eligible for. 

• Loyalty discount
• Multi-policy discount
• Home security system discount
• Fire prevention discount
• Retired or mature discount
• Occupation-based discounts
• Discounts for going claims-free

Homeowners policy considerations

Understanding your homeowners insurance policy is a crucial step toward protecting your investment. While the homeowners declaration page is can give you a good sense of what’s covered, it’s always a good idea to read through each part of the policy to make sure there are no holes in your coverage. Keep this in mind while you’re shopping for a homeowners policy, and make sure to compare rates and coverage options before settling on an insurance company.