How to Actually Read Your Homeowners Policy

Your homeowners policy declarations page is usually two pages long and, for most people, completely opaque. It does not have to be. Every standard HO-3 policy in the United States uses the same six coverage letters. Here is what each one means and where the traps hide.

Coverage A — Dwelling

The cost to rebuild your home. Should be based on a replacement cost estimator, not your purchase price. In today's market, ask about an Extended Replacement Cost or Guaranteed Replacement Cost endorsement — they add 25%–100% of extra cushion for very little premium.

Coverage B — Other Structures

Detached garage, shed, fence, gazebo. Default is usually 10% of Coverage A. If you have a big detached garage or an outbuilding, that may not be enough.

Coverage C — Personal Property

Everything inside the house. Default is 50%–70% of Coverage A. Most policies pay Actual Cash Value unless you have added a Replacement Cost Personal Property endorsement — worth doing.

Coverage D — Loss of Use

Pays for a hotel or rental if your home is uninhabitable. Default is usually 20%–30% of Coverage A. In tight rental markets this can run out fast.

Coverage E — Personal Liability

If someone sues you — the neighbor kid on your trampoline, your dog, a slip on your icy walk — this defends and pays. Default is $100,000. Raise it. This is the cheapest, most valuable dollar you will spend.

Coverage F — Medical Payments

Small no-fault payments for guests injured on your property. Usually $1,000–$5,000. Not something to lose sleep over.

What is not on the dec page

Exclusions. Every policy excludes flood, earth movement, normal wear and tear, and (usually) sewer backup and service line breaks. Ask your agent what endorsements are available to fill those gaps. A five-minute conversation once a year is the difference between an insured loss and an out-of-pocket disaster.