How to Read an Insurance Policy: Sum Insured, Exclusions, Deductible and Your Duties

Most people read what is covered and stop. A policy answers five questions: what is insured and for how much, what is excluded, how much of each loss you pay yourself, what limits apply inside the cover, and what you must do to keep it valid. Read all five before you sign. If you find a problem afterwards, many policies can still be cancelled within a short window.

What is happening

The amount insured is not the same as what your things are worth. In the US, a homeowners policy should insure the house for its full replacement cost, meaning what it would take to rebuild it. That is not the market price, which includes the land. If your cover is below 80% of the replacement cost, the insurer may pay less on a claim, and "actual cash value" cover deducts for wear and often does not pay for a full repair (NAIC). In the UK, many home policies have an "average" clause: insure for £300,000 a home that should be insured for £500,000, and a claim can be cut to 60%. The Financial Ombudsman Service is unlikely to see such a cut as fair unless the policy set the clause out clearly (FOS).

The deductible (in the UK usually called the excess) is the part of a loss you pay yourself. In neutral units: with a deductible of 10,000, a 30,000 loss brings a payout of 20,000, and an 8,000 loss brings nothing. In a US homeowners policy the deductible applies to each claim, and in some places there is a separate catastrophe deductible set as a percentage of the insured amount (NAIC). In a US health plan the deductible is what you pay for covered care before the plan starts paying; Marketplace plans cover some preventive care before it (HealthCare.gov). A higher deductible usually means a lower premium: it is a choice about which losses you can absorb yourself, see insurance you actually need.

Exclusions are where cover ends. Standard US homeowners policies do not cover flooding, and earthquakes are usually excluded too (NAIC). Flood cover is bought separately, and a National Flood Insurance Program policy usually takes effect 30 days after purchase, with some exceptions (FEMA). So check when cover starts, not only when you sign. Look at how a policy treats conditions you already have, risky activities and damage that builds up slowly, such as leaks.

Limits inside the cover. A US homeowners policy often sets cover for belongings, other structures and living costs while you are out of your home as a percentage of the limit on the house itself, typically 50%, 10% and 20% (NAIC).

Your side of the contract. In the UK, a consumer must take reasonable care not to give the insurer false or misleading information. This replaced the older duty to volunteer every material fact. Failing to confirm or correct details when the insurer asks can count as a misrepresentation (Consumer Insurance (Disclosure and Representations) Act 2012).

For comparing US health plans, use the standard Summary of Benefits and Coverage, given when you buy or renew, or on request (HealthCare.gov).

What to do

• Before signing, find five things: the sum insured compared with the rebuild or replacement cost; the list of exclusions; the deductible and how it applies; sub-limits; and the date cover starts.
• Ask for the full policy wording, not just the schedule or a sales summary.
• Answer the insurer's questions accurately, and tell it when something it asked about changes.
• Note how and by when to report a claim. Keep photos and receipts ready: keep a home inventory.
• Check the sum insured every year against current costs: review your insurance every year.
• Changed your mind? In the UK you can cancel most policies within 14 days, and pure protection (such as life cover) and payment protection within 30 days, counted from the start or from when you receive the terms, whichever is later. Travel and baggage policies shorter than a month are excluded (FCA, ICOBS 7.1). In the US, "free look" periods are set by each state and type of insurance: check yours. See cooling-off periods.

When this is not the case

• Compulsory insurance, such as motor liability, has minimum terms set by law; you choose less.
• Insurance sold with a loan follows its own rules and changes the loan's real price: see the real cost of a loan and minimum payments.
• Short trips. A UK travel policy shorter than a month may have no cancellation window at all, so read the medical exclusions before you buy: don't travel without insurance.
• A claim is refused. Ask for the reason in writing: what to do if a claim is denied.

Sources

• NAIC (US) — A consumer's guide to home insurance
• FloodSmart / FEMA (US) — Buying a flood policy
• HealthCare.gov (US) — Deductible
• HealthCare.gov (US) — Summary of Benefits and Coverage
• FCA Handbook (UK) — ICOBS 7.1, cancellation
• Consumer Insurance (Disclosure and Representations) Act 2012 (UK), s.2
• Financial Ombudsman Service (UK) — underinsurance complaints

Checked: 24 September 2026