When you’re new to the U.S., learning about homeowners insurance can seem overwhelming. However, familiarizing yourself with key insurance terms will make it easier to protect your home and belongings.
This glossary is written to clarify common homeowners insurance terms, helping you feel more confident in choosing the right coverage for your needs.
A
Actual Cash Value (ACV): The value of your property at the time of loss, determined by taking the cost to replace the item and subtracting depreciation. This means that the value decreases over time due to factors like age and wear and tear.
Additional Coverages: Extra funds are provided under your homeowner’s insurance policy for specific expenses not typically covered by standard policy limits. These can include additional protection for certain types of damages or incidents.
Additional Living Expense (ALE): Coverage that pays for temporary living costs, such as hotel stays and meals, if you need to relocate while your home is being repaired due to a covered loss.
Adjuster: A professional who assesses insurance claims to determine the extent of the insurance company’s liability. Adjusters evaluate damages, communicate with policyholders, and help establish the payout amount for a claim.
Agent: An individual licensed to sell insurance products on behalf of one or more insurance companies. Agents assist clients in selecting the appropriate homeowner’s insurance policies based on their specific needs.
B
Binder: A temporary agreement that provides insurance coverage until a formal policy is issued. A binder serves as proof of insurance when immediate coverage is required, such as during the home-buying process.
C
Catastrophe: A large-scale disaster, such as a hurricane, earthquake, or flood, that causes significant damage. Standard homeowners insurance may not cover certain catastrophes, so additional coverage might be necessary.
Claim: A request made by a policyholder to an insurance company asking for payment based on the terms of the policy after a covered event, such as property damage.
Condominium Owners Insurance: A type of insurance policy designed specifically for condo owners. It provides coverage for the interior of the unit, personal belongings, and liability protection. This policy typically covers everything “from the walls in,” while the condo association’s policy generally covers the building’s exterior and common areas.
Coverage: The protection provided under your homeowners insurance policy. This includes financial protection against property damage, liability claims, and other specified risks.
D
Deductible: The amount you must pay out of pocket before your insurance coverage kicks in. Higher deductibles usually result in lower premiums.
Depreciation: The decrease in value of your property over time due to factors like age and usage. Depreciation is used to calculate the actual cash value of insurance claims.
E
Endorsement (Rider): An addition or modification to your homeowners insurance policy that changes the coverage provided. Endorsements can add extra coverage or alter existing terms.
Exclusion: Specific situations or circumstances that are not covered by your homeowners insurance policy. These are clearly listed in your policy documents and may include events like floods or earthquakes.
F
Floater: Additional insurance coverage for specific valuable items, such as jewelry or artwork, that may not be fully covered under a standard homeowners policy. A floater ensures the full value of these items is protected.
Flood Insurance: A specialized insurance policy that covers damage to your home and personal property caused by flooding. Standard homeowners insurance policies typically do not cover flood-related damage, so this coverage must be purchased separately, especially if you live in a high-risk flood zone.
Full Replacement Cost: The amount your insurance company will pay to replace or repair damaged property without deducting for depreciation. This coverage ensures that you receive enough funds to restore your home or belongings to their original condition, even if the replacement cost exceeds the property’s current value.
H
Homeowners Insurance: A package policy that combines various types of coverage, including protection for your home, personal property, and liability coverage for injuries or damage caused to others.
I
Independent Agent: An insurance agent who represents multiple insurance companies, offering a variety of policies to help find the best fit for the client’s needs.
Insurance Commissioner: A state-level official responsible for regulating the insurance industry, ensuring that companies comply with state laws, and protecting consumers.
Insurance Fraud: An illegal act where someone intentionally lies or conceals information to receive payment for an insurance claim that they are not entitled to.
Insured: The person or entity covered by an insurance policy.
L
Liability Insurance: Coverage that protects you if you are held legally responsible for injuries or damage to someone else’s property. It covers legal fees and any settlements or judgments up to the policy limit.
Loss of Use: Coverage that pays for additional living expenses if your home becomes uninhabitable due to a covered loss, similar to Additional Living Expense (ALE) coverage.
M
Market Value: The price your property would likely sell for in the current market. This is different from replacement cost, which is the amount needed to rebuild or repair your home.
Medical Payments Coverage: A portion of your homeowners insurance policy that helps cover medical expenses if someone is injured on your property, regardless of who is at fault. This coverage is designed to cover minor injuries and typically has a lower limit compared to liability coverage.
P
Peril: A specific risk or event covered by an insurance policy, such as fire, theft, or windstorm. Policies typically list the perils they cover.
Personal Liability Coverage: Protection that financially safeguards you if you are found legally responsible for causing injury to someone else or damaging their property. This coverage can help pay for legal fees, medical bills, and any settlements or judgments up to the policy limit.
Personal Property: Movable items owned by an individual, such as furniture, electronics, and clothing. Homeowners insurance policies cover personal property up to certain limits.
Premium: The amount you pay for your homeowners insurance policy, typically on a monthly or annual basis. Premiums can vary based on the type and amount of coverage, as well as factors like your location and credit score.
Property Insurance: A broad category of insurance that provides financial protection against damage or loss to property, such as your home, personal belongings, or other structures on your property. This can include homeowners insurance, renters insurance, and specific coverage for natural disasters.
R
Renters Insurance: A type of insurance policy designed for individuals who rent their living space. It provides coverage for personal property, liability, and additional living expenses in the event of a covered loss, such as fire, theft, or water damage. Renters insurance does not cover the physical building itself, as that is the responsibility of the landlord.
Replacement Cost: The amount it would cost to replace or repair your damaged property with materials of like kind and quality, without deducting for depreciation.
Rider: See Endorsement.
T
Term: The length of time an insurance policy is in effect, usually 12 months. At the end of the term, the policy must be renewed or it will expire.
U
Umbrella Policy : Additional liability coverage that extends beyond the limits of your standard homeowners or auto insurance policies. It provides extra protection in the event of a significant claim.
V
Vacant Home Insurance: Coverage for a home that is unoccupied for an extended period. Standard homeowners insurance may not cover certain risks if a home is vacant, so additional coverage is often needed.
Building Confidence in Your Homeowners Insurance Knowledge
Understanding these homeowners insurance terms will go a long way in helping you protect your home and make informed decisions about your coverage. As such, we hope that this glossary can serve as a valuable resource to help you become more confident in managing your insurance needs.
Remember, confidence comes from knowledge, and with a solid understanding of your insurance policy, you can approach potential challenges with greater assurance and peace of mind.
When you’re ready to explore homeowners insurance options, consider speaking with a licensed agent who can guide you through the process and help you find the best coverage at the right price.
