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Understanding Your Policy
Insurance is integral to owning a home, and understanding how to read your policy is equally essential. Your insurance coverage may change as your needs change, so knowing how to read your insurance policy to make necessary changes is critical.
Declarations Page
The declarations page is the most important page to review when reviewing your insurance policy. It is usually a one-or-two-page document that includes details about your policy, such as the insurance company’s name, your name, your address, coverage amounts, deductibles, endorsements and annual premiums. The policy jacket, or policy form, included with the declarations page, goes into more detail on policy forms and endorsements and things such as exclusions, conditions, and definitions of keywords.
Coverage Types
Homeowner’s insurance policies are divided into coverage types, varying from insurer to insurer and policyholder to policyholder. 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 windstorm or flood insurance, you will need to understand these coverages and their limitations.
Typical Coverage Types
- Dwelling: Pays for damage to the house and attached structures.
- Other Structures: Pays for damage to structures not attached to the house (fences, sheds).
- Personal Property: Pays the value of damaged or lost possessions (furniture, electronics, clothing).
- Loss of Use: Pays some additional living expenses during the home repair.
- Personal Liability: Covers financial losses from property damage and personal injuries to others if found legally responsible.
- Medical Payments: Pays medical bills for people hurt on the homeowner’s property or by the homeowner’s pets.
- Flood Insurance: Separate policy that pays for flood-related damages to the house and contents.
- Windstorm Insurance: Sometimes, it’s a separate policy that pays for windstorm damages to the house and contents
- Water Backup of Sewer: Pays for losses to the house from sewer or drain backup.
- Personal Umbrella Liability: Pays for losses from bodily injury, property damage and personal injury to others beyond the policy limits.
Replacement Cost Value vs. Actual Cash Value
A loss to your home or personal property is covered as either a replacement cost or actual cash value. With replacement cost value, you are covered for the cost to replace damaged items at the time of a claim without depreciation. With actual cash value, you’re covered for the depreciated cost of your damaged items at the time of a claim. Some insurance companies include replacement costs for dwelling and personal property coverage as a standard feature, while others require an endorsement.
Replacement Cost Value vs. Actual Cash Value
A loss to your home or personal property is covered as either a replacement cost or actual cash value. With replacement cost value, you are covered for the cost to replace damaged items at the time of a claim without depreciation. With actual cash value, you’re covered for the depreciated cost of your damaged items at the time of a claim. Some insurance companies include replacement costs for dwelling and personal property coverage as a standard feature, while others require an endorsement.
Policy Exclusions & Limitations
What is covered under your insurance policy depends on the specifics of your insurance policy. The policy details what is and isn’t covered under the terms and conditions. Even the best coverage might not compensate you for everything that can happen to your home.
Some frequent insurance exclusions are:
- Pre-existing damages
- Normal wear and tear
- Construction defects
- Pet, animal, and insect damage
- Earth movement
- Foundation failure
- Intentional loss or neglect
- Mechanical breakdown
Some policies limit the number of payments for your damages.
Many homeowners’ insurance policies include payment limits for the following:
- Jewelry, valuables and collectibles
- Electronics and computers
- Antiques, fine arts, and collections
- Ordinance and law
- Mold and fungi
Insurance Endorsements
An insurance endorsement modifies the traditional coverage on an existing policy. This can include adding coverage not initially specified, removing or limiting coverage, or altering coverage. Endorsements are not the same thing as entirely changing your homeowner’s insurance policy. Instead, they simply add to, limit or exclude coverage on an existing policy.
You can add endorsements anytime, usually at the initial purchase or renewal. Endorsements may change your policy rate – they are valid and active for the length of your policy and renew the same way unless otherwise stated.
Need Help Reading Your Policy?
Murray + Murray can help fill any gaps in understanding your insurance policy. Let’s chat about what your homeowner’s insurance policy does and doesn’t cover for you.