Key takeaways

  • 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’s helpful to read the policy jacket 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, or add-ons, such as coverage for electronics, high-value items or an earthquake endorsement, you’ll also need to understand the scope of these coverage options. If you have a separate policy for more robust coverage, like a flood policy, knowing what to look for in your policy documents can help you understand your other policy coverages.

Here are common coverage types found in your policy documents and what they cover.

Coverage What it covers
Dwelling Provides financial protection to repair or rebuild your home’s structure if damaged or destroyed in a covered loss.
Other structures 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 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 If you and your household members are temporarily displaced from your home due to a covered loss, this coverage helps cover the costs.
Liability Protects you, a household member, or your pet (restrictions may apply) if you cause injuries to or damage someone else’s property and are financially responsible for covering the costs.
Medical coverage 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 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.

What is a home insurance 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. A mortgagee clause on the home insurance policy also shows who the insurance company is billing if insurance is paid via escrow, so it’s important that info is correct in the policy documents.

By reviewing your declarations 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.
  • Property 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 policy term. Most home insurance policies automatically renew, but you should 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.
  • Premium: The total amount of money you’re responsible for paying, whether directly or through an escrow account, over the policy’s term length to ensure it remains active.
  • 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.
  • Endorsements: Also referred to as riders, listed endorsements are provisions that add or modify your insurance policy’s coverage.
  • Deductible: The fixed amount of money you would pay out of pocket for damage to your home while your insurance covers the rest (up to your coverage limits). A higher deductible usually results in a lower premium, since you’d be taking on more financial responsibility.
  • Replacement cost value or actual cash value: The pre-established way your policy is designed to pay out. Replacement cost is the cost associated with repairing or replacing your property or personal belongings at today’s prices, without depreciation factored. The actual cash value is the cost of replacement after factoring depreciation.

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
  • 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 typically 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.