Common Homeowner's Insurance Policy Terminology

If you find yourself confused by insurance terms, you’re not alone. Insurance jargon can seem complicated — that’s why we’re here to help! Our glossary of homeowner’s insurance terms will get you up to speed on language that will help you better understand your coverages and how they help you protect what matters most.

Here are some common property insurance terms and their definitions:

  • Actual Cash Value. This is the property value based on today’s replacement costs minus the depreciation. Some states consider Broad Evidences Rule(BER) as a way to determine Actual Cash Value.  It means that all facts and circumstances that impact the value of the property can be considered.
  • Additional insured or loss payee.  Refers to a person or party other than the policyholder who is added to the policy so they’ll be covered.
  • Additional living expenses (ALE).  ALE is the money paid to you when your property is unlivable for any period of time due to a covered source or type of damage. These funds are to be used towards temporary housing, food, and any other necessary living expenses you incur from that loss. Some policies limit this based on a timeline, type of claim, level of coverage, or monetary cap.
  • Appraisal.  In most policies,  there will be an Appraisal Provision Clause. If there is a disagreement in the amount of loss or damage, between the insured and the insurer,  the insured (you) or the insurer can invoke this clause to determine the value of the damaged property. Each party is responsible for hiring a competent and impartial appraiser. The two appraisers will then get together and select a 3rd neutral part as the referee. If there is still a disagreement in the amount of loss between the two appraisers, they would present their differences to the 3rd neutral party who will make the final ruling.
  • Blanket coverage. An insurance policy that provides coverage for a variety of items with only one limit of insurance. For example, instead of scheduling one building at $10,000, one building at $40,000 and one building at $50,000, a blanket policy would be issued with a $100,000 limit that covers all three buildings.
  • Contract.The contract is basically just your insurance policy. A policy is legally considered a contract between the insurer and you, the insured.
  • Coverage. The protection against financial loss provided by an insurance contract. 
  • Declarations page.  It is the page or pages where your insurance company is identified and shows their contact information, the time frame that the policy is in force, the cost of the premium, and the amount of coverage. This page will list all applicable amendments, exclusions, and any other forms that are attached to your policy.
  • Deductible.  The amount you are required to pay as outlined on your policy before any monies are paid from your insurance company.
  • Depreciation. A decrease in the value of your property (e.g. house, roof, stove, oven, etc.) due to wear and tear or the use becoming obsolete.
  • Endorsement.  It is also called a rider.  It is a written agreement added to your policy that increases or limits the coverage otherwise payable under the policy. 
  • Escrow.  It is money held by a third party until specified conditions are met in a contract. 
  • Exclusion. Type of loss or a cause of loss that is specifically not covered by your homeowner’s insurance policy. Your policy will have a section labeled exclusions that will list them.
  • First-party claim.  It is a claim filed by you, the insured, on your insurance policy.
  • Hazard. An action, condition circumstance or situation that makes the occurrence of a loss more likely. 
  • Inflation protection Adjusts your home insurance policy limits to account for increases in costs to repair or replace your home or property due to inflation.
  • Inventory. A list of your possessions and their value that allows you to more easily and quickly settle claims and report losses on tax forms. 
  • Lapse. An insurance policy that ends and coverage stops because the premium amount wasn’t paid in full.
  • Liability insurance. A part of your homeowner’s insurance that helps pay for damages owed for bodily injury or property damage that occurs on your property, or that from your activities.
  • Limit of liability. The maximum amount your insurance company has to pay for a claim. Always make sure to refer to your individual policy to understand your policy limits.
  • Loss.  The amount an insurance company pays out for your claim.
  • Loss payee. Someone who receives insurance payments in the event of damage to property. The loss payee must have a financial interest in the property. Loss payees include property owners and mortgagees.
  • Market value.  The current value of the property that has damage or a loss.
  • Named-peril policy. A policy in which you’re covered only for the specific hazards named in your policy, such as wind, hail, fire, earthquakes, etc.
  • Open peril. A form of insurance that provides coverage for all losses or damages except those that are specifically excluded in your policy.
  • Over-insurance. Insurance that exceeds the actual value of the property insured.
  • Premium. The amount of money an insurance company charges to provide insurance coverage.
  • Public insurance adjuster.  An individual you hire to negotiate a claim with your insurance company who represents you, the policyholder, not the insurance company.  They are paid a percentage of the claim settlement.
  • Reinstatement. When an insurance company reactivates a policy after it was lapsed because of nonpayment of renewal premiums.
  • Renewal. An extension of an existing insurance policy for another policy period.
  • Replacement cost value insurance (RCV). The amount paid or required to be paid to restore or replace the damaged or destroyed property back to the condition it was in before the damage happened without a depreciation deduction in today’s dollars.
  • Rider. It is a document that adds additional coverage to your policy.
  • Term. The length of time for which a policy is written. For property policies, the policy period or term is typically 12 months.
  • Total loss. When the property is totally destroyed or the cost to repair or rebuild it exceeds the policy limit.
  • Underinsurance. When the limits of a property insurance policy are less than would be needed to cover a total loss.

If you suffer a property loss, for example, fire damage, flooding, storm, etc., you will want to be familiar with some common insurance terminology.  It will help you understand the successfully manage your insurance claim. Knowledge is power.  Understanding these terms will help you to understand what your insurance company and insurance adjuster are talking about and have a successful settlement when you are managing your insurance claim.    

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