Essential Insurance Terms
Most homeowners count on their agents to help navigate the ins and outs of their insurance policies. Yet, knowing some basic terms and their meanings will make shopping for homeowners, condominium or renters’ insurance easier for you and help, well, insure, you get just what you need.
Here are some essential terms to get you started.
Actual Cash Value
This covers the cost to replace property of the same kind and quality, minus depreciation costs for age and use. For example, if the life expectancy of your roof is 20 years and your roof is 15 years old, the cost to replace it in today’s marketplace is going to be much higher than its actual cash value.
Extra coverage that can be purchased to provide protection above and beyond that provided in the homeowners policy. In most standard homeowners policies, items such as jewelry, furs or antiques require a higher amount of coverage. When such additional coverage is purchased, it becomes an Endorsement or Rider to the original policy.
Additional Living Expense
This provision of homeowners insurance provides reimbursement for hotel/motel rooms, meals and other expenses when loss of property by a covered peril forces you to move outside of your home. Also called Loss of Use coverage.
An authorized representative from the insurance company who determines the scope of property damage and compiles an estimate to make repairs or replace property when a claim occurs.
Usually performed by an adjuster, this is an evaluation of an insurance claim to determine property value and damaged property value.
A person licensed by a state insurance department who solicits, negotiates and establishes insurance contracts on behalf of one or more insurers.
The termination of a home insurance policy during the policy term. An insurance company can only cancel a home insurance policy for reasons stated in the policy and permitted under the law of the state in which the policyholder resides.
An agent who sells insurance for one company.
To insurers, a catastrophe is a single incident, or series of related incidents, causing insured property losses totaling more than $25 million. This could be named hurricanes, tornados or other major perils. Insurance actuaries calculate the probability of catastrophic loss per state, using a formula based on the total number of catastrophes in each state over a 40-year period. This catastrophe factor, calculated annually, is included in the price of insurance.
A policyholder’s request for reimbursement from an insurance company under a home insurance policy for a loss to property.
Though similar in personal property and liability coverage to homeowners insurance, condominium policies are different in that they cover only from the “walls in” and do not cover the building/structure itself.
The scope of protection provided under an insurance contract.
The amount a home insurance policyholder must pay out of pocket for a covered claim.
The estimated decrease in property value over a period of time. This generally results from use, age or wear and tear.
As in a homeowners’ policy, a dwelling policy covers personal property and structure, but excludes liability coverage.
Repairs or other actions taken to protect the insured and the insured’s property from further loss when damaged or destroyed by a covered peril. If property damage occurs, a policyholder will generally be directed to protect the property from further damage.
A provision or document added to a home insurance policy that changes the original coverage offered in the policy (usually by adding additional coverage). Also called a Rider.
Certain property, conditions or circumstances noted in a policy as not covered by a home insurance policy.
Property insurance for items that are moved from location to location, covering losses wherever they occur. It is typically bought to cover jewelry, furs and other items whose full value may not be covered in standard homeowners policies.
A policy providing coverage against property and liability perils facing homeowners.
An agent who represents more than one insurer.
Automatically adjusts your home insurance policy limits to account for increases in costs to repair property.
A contract in which a policyholder pays a set amount to an insurance company for protection against specified losses or perils.
Occurs when a policyholder does not pay or pays less than the agreed amount for a home insurance policy premium. Often, termination of the policy results from a lapse.
Individual responsibility for causing, through negligence, injury to another person or damage to another person’s property.
Covers losses that an insured person is legally liable for due to negligence or other situations outlined in a home insurance policy.
Loss of Use
The part of homeowners insurance that provides for living expenses if your home becomes unlivable due to a covered peril. See Additional Living Expense.
The price at which something would sell under current market conditions. For example, the current value of your home, including the price of land.
Ordinance or Law Exclusion
Homeowners’ policies may exclude situations where repair or replacement of damaged property must be done in conformance with building codes requiring upgraded materials. A standard homeowners policy may cover only the cost of replacing or repairing with the original grade of materials. The difference in cost between the old materials and the new materials required by ordinance or law is excluded or limited, unless the homeowner has purchased additional coverage.
A single insurance policy that combines several coverages available separately. For example, homeowners insurance is a package policy, combining property, liability and theft coverages.
A property insurance term referring to the possible cause of loss, such as a fire or a windstorm.
All tangible property (other than land) that is either temporary or movable in some way, such as furniture, jewelry, electronics, etc.
A written contract for insurance between the insurance company and the policyholder, spelling out which perils and damages are covered and which are not.
The amount of money an insurance company charges, based on a given rate, to provide the coverage described in the policy. Or more simply, it is how much you pay for insurance protection for a specified risk for a particular timeframe. Typical homeowners insurance premiums are charged annually. Automobile premiums can be charged quarterly, bi-annually or annually.
Property Coverage Insurance
Protects personal property and land against loss or damage, as outlined in a home insurance policy.
The cost of a unit of insurance as determined by insurance companies and state regulators. The rate serves as the basis for the premium.
Land and most things attached to the land such as buildings and vegetation.
Insurance offering coverage for personal property and liability to renters. Excludes real property.
The cost of replacing property without deducting for depreciation.
A provision or document added to a home insurance policy that changes the original coverage offered in the policy (usually by adding additional coverage). Also called an Endorsement.
Insurers have two meanings for this term: 1) the chance of loss, such as from a peril; and 2) the person or entity that is insured by a policy.
A company representative who reviews applications for insurance coverage to ensure that they are acceptable and appropriately priced.
The process an insurance company uses to determine if someone is eligible for insurance and, if so, how much that person should pay for insurance.
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