Decipher your homeowner insurance policy
with this easy-to-use glossary of common terms.
Having trouble figuring out what all that
legal lingo in your homeowners insurance policy means? This glossary of
insurance terms will help you understand what's covered, what's not covered,
and what your insurance company is really saying in its policy.
A
Accident
An unexpected or involuntary event that causes harm, injury, damage, or loss.
Act of God
Something that is beyond human control that damages or destroys your home or
possessions - such as a hurricane or tornado.
Actual Cash Value (ACV)
For property insurance, the market value of your home before and after your
loss.
For possessions, what it would cost to
replace your items minus how much value they've lost since you bought them (for
example, because the item is used, or suffers wear and tear).
Usually, a policy offering ACV costs less
to buy than replacement-cost insurance and pays you less after a loss.
Additional Living Expenses
The cost of housing and feeding your family after your home is damaged by
something your homeowners insurance covers. Usually limited to 10% to 30% of
your policy value (if you have a $100,000 policy, your potential reimbursement
would be $10,000-$30,000).
Adjusted Basis
What a property is worth after you add the value of any improvements you've
made and then subtract any value it's lost.
Adjuster
The person who works out the details of your claim. An adjuster can work for
anyone. Staff adjusters work for the insurance company. Public adjusters are
hired by and paid by homeowners. Independent adjusters work for whomever hires
them - insurance companies or consumers.
All Risks Coverage
A homeowners policy that covers you for losses caused by anything that's not
specifically listed as being excluded (see exclusions, open perils,
and named perils). You pay extra for all risks coverage.
Assessed Value
What the local tax assessor (http://www.houselogic.com/home-advice/property-taxes/why-real-estate-assessments-matter/)
says your home is worth. The assessed value of your home is used to determine
your property taxes. You can appeal your home's assessed value
(http://www.houselogic.com/home-advice/property-taxes/property-tax-appeal/) if
you think it's too high.
B
Basic Limits
The smallest (and often cheapest) policy you can buy in your state. Usually
mentioned in liability policies.
Betterment
An improvement you make after you move into your home. Applies mostly to
condominiums. Some condominium policies only insure your condo unit as it was
when you bought it. If you improve your unit, the improvements (betterments)
aren't covered. If you live in a condo, ask your agent to explain what the
building policy covers and what it says about betterment.
Binder
A short summary of the insurance policy you've agreed to buy. You use the
binder to prove to your lender that you have homeowners insurance. Check your
binder to make sure these facts are correct:
•The type of insurance you're buying.
•Your home's address.
•How long the policy lasts.
•The policy's price.
•Any riders or additional coverage
you're buying.
Blanket Policy
An insurance policy that covers more than one property.
C
Casualty Insurance
Insurance that covers the cost when you, or a family member, injure people or
property.
CLUE Report
A record of the claims you've filed, plus all the claims filed by people living
in your house over the past seven years. Insurance companies check your CLUE
report before they give you a homeowners policy. Make sure your CLUE report is
correct because mistakes can raise your rate.
Coinsurance Clause
Insurance companies want you to buy insurance to cover the full actual cash
value of your home. They include in their policies a "coinsurance
clause" that says if you buy a policy for less than 80% of what your home
is worth, they can reduce any claims.
For example, assume your home is worth
$100,000 and you insure it at $70,000 or a value of 70%:
•If a fire completely destroys your
home, the insurance company would pay you $70,000 because that's your policy
maximum.
•If a fire causes $10,000 in damage,
the insurance company would pay $7,000 (70% of $10,000).
Common Area
The land, buildings, and amenities owned by a homeowners association, community
association, or condominium association. They're called common areas because
they're owned and paid for by all the homeowners. Usually, common areas include
everything your condo association owns other than the individual units. The
association's insurance policy covers common areas. Your homeowners policy
covers what's inside your unit.
Typical common areas include:
•Pools.
•Tennis Courts.
•Driveways.
•Gatehouses.
•Hallways.
•Stairwells.
•Elevators.
•Lounges.
•Fitness facilities.
•Patios.
•Roof decks.
Contents Coverage
The part of your homeowners insurance that protects you if your possessions are
damaged or destroyed. The contents coverage is based on the size of your
overall homeowners insurance policy.
For example, if you have a contents
coverage limit of 50% and you have a $100,000 homeowners policy, then you have
50% contents coverage. If a fire destroys all your possessions, the policy
would pay $50,000.
To make it easier to file a contents claim,
compile a home inventory.
(http://www.houselogic.com/home-advice/home-inventories/home-inventory-tools/)
D
Declarations Page
Usually the first page of your insurance documents, it's a one-page summary of:
•The company providing the insurance.
•What the policy covers.
•How much the property is covered for.
•What you're paying for coverage.
•The time period you're covered.
Deductible
The percentage you'll have to pay for damage or loss to your home or
possessions. When paying a claim, your insurance company subtracts the amount
of your deductible from what it owes you.
E
Effective Age
This measures the wear and tear on your house. Your home's effective age can be
more years or fewer years than the actual age of your home.
Endorsement
(also called rider)
A written change that adds, deletes, or alters your policy.
Exclusions
Things that your insurance policy does not cover. Insurance policies can
exclude risks (like damage from a nuclear war), locations (cliff-side homes),
or possessions (a $1 million painting).
Circumstances and situations commonly make
the exclusions list in homeowners policies, too, for example, losses that you
cause likely aren't covered.
Always read the list of exclusions in your
policy so you know what's not covered. If you want insurance for something your
homeowners policy excludes, talk to your insurance agent. There may be a rider,
endorsement, or separate policy you can buy that will give you the coverage you
want.
F
First-Party Claim
That's when you sue your own insurance company if your insurer says you aren't
covered in certain instances and you believe you are. For example, if your home
is damaged in a hurricane and your insurance company says the damage was due to
flooding (uncovered by your policy) but you believe the damage was due to wind
(covered).
Floater
Additional insurance that covers a possession wherever you take it, such as a
grand piano.
Force Placed Insurance
If you have a mortgage, you must keep your home insured. If you can't or won't
get homeowners insurance, your lender will "force place" a policy -
meaning it will buy an insurance policy for you and then send you the bill for
the insurance. Force placed insurance
(http://www.houselogic.com/blog/home-insurance/force-placed-insurance/) is more
expensive and provides less coverage than a regular homeowners insurance
policy.
G
Grace Period(s)
How long you can go without paying your insurance premium before getting
canceled.
Group Limits
When you have a group of items whose values, when added together, are more than
your policy limit, you can buy a higher "group limit." For example,
if you have a policy that insures up to $2,500 in jewelry, but you own five
necklaces worth $1,000 each, you need a higher group limit to cover your $5,000
group of necklaces.
H
I
Incontestability
If you lie on your insurance application, your insurance company can deny your
claim. However, there's a time limit - usually two years - for the insurance
company to deny your claim because you lied. Incontestability is basically a
statute of limitations on getting caught for falsehoods you have on your
application (see also material misrepresentation).
Inflation Protection
When you buy inflation protection, then your dwelling coverage automatically
goes up to match inflation. That's true whether you opt for replacement value
or actual cash value.
Insurance to Value
The amount your policy covers compared to the replacement value of your home.
For example, a $75,000 policy on a $100,000 home has 75% insurance-to-value
coverage. Many insurance companies require you to have 80% insurance-to-value
in coverage (see also coinsurance).
L
Lapsed Policy
When you don't pay your insurance bill by the end of the grace period and you
lose your coverage.
Liability Coverage/Liability Insurance
The part of your homeowners insurance policy that covers you when you cause an
injury to someone or damage someone's property.
Limit of Liability
The maximum amount your insurance company has to pay for a liability claim.
Loss Assessment Coverage
When a condominium has an insurance loss, all the individual unit owners
sometimes have to pay a portion of the loss. If you buy loss assessment
coverage, it pays for the assessment your condominium charges for your share of
a loss.
Loss of Use Coverage
This coverage pays your living expenses when you can't live in your home
because it's damaged or destroyed by an event your insurance covers (such as a
fire). It is sometimes limited to a set percentage of your overall policy limit
(see also additional living expenses).
M
Manufactured/Modular/Mobile Home Insurance
You can buy homeowners insurance for a manufactured, modular, and mobile home
two ways:
•As a regular homeowners policy with a
written change (see also endorsement) that specifically includes your
manufactured home.
•As a stand-alone homeowners policy.
Watch out for stripped-down policies that
don't provide much coverage for liability, medical payments, and other
homeowners insurance benefits.
Market Value
What your home would sell for in the current market.
Material Misrepresentation
If you lie to an insurance company, you make a misrepresentation. When that lie
is significant enough, the insurance company can cancel your policy or refuse
to pay your claim. Each state decides which type of misrepresentations are so
important (material) that the insurance company doesn't have to pay your claim.
Mortgage or Mortgagee Clause
This is an agreement in your insurance contract that says:
•Your insurance company can tell your
mortgage lender if you cancel your homeowners policy (see force placed
insurance).
•Claim payment checks can be made out
to your mortgage lender.
•If it's determined that you
intentionally destroyed your own home (say you burned it down on purpose), the
insurance company will pay the mortgage lender (but not you).
N
Named Perils
A policy that covers your losses when they're caused by specific
"named" perils that are listed in your policy, for example, an
earthquake policy only covers you for one named peril, earthquakes (see all
risks coverage).
Negligence
When your lack of care causes injury to another. The liability portion of your
homeowners policy covers negligence.
Non-Renewal
When your insurance company refuses to give you insurance for another year.
O
Occurrence
Something that causes a loss.
Open Perils
A homeowners policy that covers you for losses caused by anything that's not
specifically listed as being excluded (see exclusions, all perils,
and named peril).
Other Structure Coverage
The part of your homeowners insurance policy that covers the buildings on your
property other than your home, such as a detached garage or a barn. It's
usually limited to 10% of your policy, so if you have a $100,000 policy, the
other structure coverage would pay for $10,000 in damage or losses to your
outbuildings.
P
Partial Loss
When your property or possessions are not completely destroyed, you have a
partial loss. When your claim is for less than the limit on your policy, that's
also called a partial loss.
Peril
Something that can cause a loss by damaging or destroying your home or
possessions. In a named perils policy, you get a list of perils that are
covered. In an open perils policy you're covered against all perils except
those specifically excluded.
Personal Liability Protection Coverage
This part of your homeowners insurance policy covers you if you're responsible
for injuring someone or damaging their property. It pays claims won against
you, up to the limit of your policy (see also umbrella liability policy).
The typical homeowners insurance policy
includes $100,000 in personal liability protection. To get more coverage,
purchase an umbrella liability policy.
Personal Property Coverage
Insurance companies refer to your possessions as "personal property."
If you can move it, it's personal property - furniture, televisions, clothing,
and sports equipment.
Personal property coverage is usually set
at 50% to 70% of your dwelling coverage. For example, if you have $100,000 in
dwelling coverage, your personal property coverage would be $50,000 to $70,000.
You can opt for coverage that pays for new
items (see replacement value) or pays you what your stuff is worth after
wear-and-tear (see actual cost value).
Proof of Loss
This is the form you fill out and sign to make your insurance claim. There's
probably a deadline for getting it to your insurance company.
R
Reinstatement
If you don't pay your premium by the end of the grace period, it lapses. To get
it reinstated, you have to pay the insurance premium you skipped (possibly with
interest).
Replacement Value
When you buy replacement value coverage, the insurance company guarantees to
replace what was lost or damaged. This policy usually costs more than actual
cash value -- coverage which pays you what the home or possession is currently
worth.
Residence Employee
Someone who works on or in your home, for example, your gardener, your nanny,
or even a child you pay to baby sit your children. It doesn't mean an
independent contractor or someone who works for you in a business you run from
your home.
Your homeowners insurance personal
liability and medical payments provisions cover residence employees as long as
their injury happens on the job and they aren't covered by worker's
compensation.
If
people work for you in a home-based business or you have domestic employees,
talk to an insurance agent to see if your state requires you to buy a separate
workers compensation policy for them.
Rider
A written change that adds, deletes, or alters your policy (see also
endorsement).
S
Scheduled Personal Property
When you own expensive items, such as jewelry, a stamp collection, or antiques,
the typical homeowners insurance policy limits may not be high enough to cover
the cost of replacing them (see also group limits).
You can pay an additional premium to have
them covered as scheduled personal property. If they're lost or destroyed along
with other possessions, you typically don't pay a separate deductible for
scheduled personal property. If you have a group of valuable items to insure,
you may want insure those using a group limit.
Single Interest Insurance
Property insurance that protects just one party. For homeowners, single
interest insurance usually protects your mortgage lender, not you.
Sprinkler Insurance
This covers you if your fire sprinkler system goes off accidentally, or if it
leaks and causes damage. Most homeowners policies cover sprinkler system leaks,
but if you have a system be sure to ask if your policy covers accidental
discharge.
Subrogation
If your loss was caused by someone else, your insurance company may sue them
for the loss. If it wins, the recovered money may go toward repaying you for
your deductible. That process is called subrogation.
For example, suppose the wiring in your
microwave is faulty and causes a fire that destroys your home. Your insurance
company sues the company that made the microwave to get back what it lost
paying your claim.
Subrogation might also come into play if
you do something that causes a problem for a neighbor. For example, if you live
in a townhouse and your plumbing repair error floods your unit and the home on
the other side of your joint wall.
T
Total Loss (also
called constructive total loss)
When it would cost more to repair your home than it's worth.
U
Umbrella Liability Policy
This insurance policy protects you when you have a claim that's more than your
homeowners insurance pays.
Umbrella policies usually cover:
•Personal injury and property damage
caused by your family (and pets) when you're not at home.
•Injuries on your property.
•Vehicle protection when your auto
policy is exhausted.
•Protection against slander, libel,
wrongful eviction, or false arrest.
•The costs of defending you from
lawsuits and claims filed against you involving issues that your insurance
covers, such as an injury on your property.
Article From HouseLogic.com
By: Dona DeZube
Published: August 16, 2013
