How do I read my insurance policy?

Here are twelve steps to reading your insurance policy after a loss.

First, ensure you have the full policy.  Your policy will most likely be long – at least 30-70 pages.  If you are looking at a “certificate” of insurance, it is not the full policy.

Second, once you have the full policy, ensure you have the correct one.  Look for the “effective date” in the first pages of the policy to see if it is the current policy.  Also look for the insured address on the declarations page, if this is a property policy, to make sure it covers the property at issue.

Third, locate the declarations page(s).  Some policies have one main declarations page in the first ten pages or so that lists all coverages, while other policies will have multiple declarations pages throughout the policy.  Thus, even if you find a declarations page in the early parts of the policy, look to see if there are other policy “sections” that address other types of coverages.  These sections may begin with their own separate declarations pages.

Fourth, look for coverage-adding endorsements.  Endorsements are add-on provisions that affect your policy coverages.  Look for the endorsements towards the back of each coverage section and/or the entire policy to see if any of them add, replace, or change any coverages.  For example, if you are a business owner, your policy might have an endorsement for certain kinds of electronic data, hacking, and the like.  

Fifth, determine the coverages you have.  The declarations page(s) and any coverage-adding endorsements will help tell you what exactly your policy covers.  For a business policy, for example, you might have first-party insurance that covers damage to the structure and the business personal property, third-party coverage that covers lawsuits against the business, coverage for lost income and profits, business interruption coverage, and more.  In a homeowners policy, you could have similar provisions, plus a coverage provision that pays for the cost of an alternative living arrangement while your home is being repaired.  

Sixth, determine the applicable policy limits.  The declarations page(s) and coverage-adding endorsements should also tell you the limits of insurance for each coverage.  Limits are the most the insurer will pay for a specific type of loss, minus any deductible you are responsible for paying before your coverage kicks in.  Declarations pages may not list "additional coverages" or "sub-limits," which may apply to very specific scenarios.  Those may be specifically listed in the coverage sections themselves, which you will also want to explore.  For example, your declarations page might not tell you that you have additional and separate limits available for the cost to remove debris after a loss, or for ordinance insurance that pays for code upgrades you need to make when rebuilding.  

Seventh, determine the deductible.  A deductible is an amount you may have to pay before insurance kicks in.  Your declarations page should list your deductibles.  However, your policy may also contain provisions that compel the insurance company to absorb the deductible in certain cases.

Eighth, determine whether your policy has a coinsurance provision.  A co-insurance provision may limit the coverage you actually get.  Coinsurance provisions typically state that you are responsible for a percentage of the loss.  Coinsurance provisions are complicated.  Determining how they affect your claim payment can require complicated math and analysis.  

Ninth, check the insuring clauses for each applicable coverage section.  Insuring clauses explain in detail what is covered.  For example, in a property damage section, the insurance provision could read very broad and say it covers any damage or loss to the covered property.  Or, it could be narrow, stating it only covers losses to specific property, or from specific causes.  It is important to remember that even if this provision is broad, it is limited by exclusions.

Tenth, read the policy exclusions, at least by title.  Your policy will have a section for exclusions for every coverage type, which tell you what is not covered.  Even if your policy's insuring clauses indicate everything is covered, those clauses can be expressly limited by exclusions.  More than almost any other provisions, exclusions are usually written in complicated legalese.  Your main goal should be to focus on the title of the exclusions, and if anything are concerning, to get professional help understanding what they mean.

Eleventh, read the policy conditions.  Your policy will also have a section for conditions which may affect your claim.  Conditions range from your duties to provide information to the insurer, to protect property from further damage, and to tender your claim within a certain time.  Breaching a condition may cause you to lose out on an otherwise covered claim.

Twelfth, get professional help with the specifics.  Following the above-mentioned steps will help you get an overall idea of the coverages you have, but much of the “small print” will seriously affect coverage.  Because your policy is written almost entirely in legalese, the meaning of certain sections may not be controlled by what they appear to mean, but rather what a court of law has said they should mean.  Accordingly, to fully understand all applicable provisions, an insurance professional like a lawyer, public adjuster, or experienced insurance agent can help.