How to Read (and Understand) an Insurance Policy, Part 1

When researching or renewing a homeowner’s insurance policy, one of the challenges can be understanding the details of the policy. The insurance industry has many unique terms that often aren’t seen outside the industry or in a homeowner’s insurance policy.

Understanding these terms and what they cover can help homeowners better select the right policy for them. It can also be useful in knowing when they may need supplemental coverage or when they may need to increase (or decrease) their coverage.

In this two-part blog series, we cover some of the more common terms homeowners will find on their insurance policies.

Insurance Agreement

The legal contract between an insurance company and a homeowner is known as the insurance agreement. As part of this agreement, the insurer agrees to take on the risk of financial losses, and the insured agrees to pay a premium.

Policy Limits

A policy limit is the maximum monetary amount an insurer will pay out for a claim. All insurance policies should state the policy limits.

Dec Page

Short for declaration page, a dec page is a summary of a homeowner’s policy and coverage. It should include the address of the covered property, the policy’s effective dates, and the policy’s limits and deductibles. Homeowners should receive a new dec page for each renewal period.

Exclusions

Homeowner’s insurance doesn’t cover everything. All homeowner’s insurance policies should have an exclusions section. This part of a policy should spell out, in detail, what the policy doesn’t cover. For example, many homeowners’ policies don’t cover flooding, mold, or wind damage. These exclusions can be especially important when a property is located in a hurricane zone. Homeowners who are unaware of what their policy doesn’t cover may end up responsible for thousands of dollars' worth of repairs.

Difference in Conditions (DIC)

Difference in Conditions, or DIC policies, cover gaps in a traditional insurance policy. DIC policies can provide additional and expanded coverage, which can be especially important in areas that experience hurricanes and potential flooding. DIC policies are most often used to help homeowners protect against damage from natural disasters.

In the second part, we look at additional terms and two common insurance problems facing homeowners.