Home Insurance Glossary

Actual Cash Value: Cost, minus depreciation, of a home or property to be replaced.

Additional Living Expense: The living costs associated with fire damage or other covered loss. The costs can be hotel accommodations, food and even clothing.

Affordability Analysis: The analysis of all assets and liabilities in regard to being able to purchase a property.

Agent: An agent may work for a single insurance company or may represent a number of different companies and sell a variety of policies and receive a commission.

Amortization Term: Length of time necessary to pay back a mortgage loan. The term is shown as a number of months. For example, a 10-year fixed-rate mortgage, the length is 120 months.

Annual Percentage Rate (APR): Yearly mortgage interest rate.

Appraisal: An assessment of the insurable value of property. May also be used to determine the sum of a loss.

Appraised Value: A valuation of a property’s worth.

Appurtenant Structure: An appurtenant structure is a building that is located on the same premises as the primary insured structure. Examples include sheds, garages and barns.

Arbitration Clause: An arbitration clause is used as a way for the insured and an insurer to reach a mutual agreement when one cannot be agreed upon. A neutral arbitrator is used as a mediator and the ruling is binding.

Assessed Value: The value of a property that is used for the purpose of taxation.

Balance Sheet: A financial statement. This document contains assets, liabilities, and net worth.

Balloon Mortgage: A lump sum payment paid at the end of a specific term prior to the previously determined end of the mortgage.

Basic Limits: An insurance policy that is written for the lowest amount of coverage as determined by the insurer or law.

Before-tax Income: The income earned prior to taxes being deducted.

Beneficiary: The individual who is given the income from an estate, trust, or a deed of trust.

Bequeath: The use of a will to assign the ownership of personal property.

Blanket Insurance Policy: If more than one piece of property is covered by a single insurance policy.

Bodily Injury (BI): This category of liability insurance will pay legal damages awarded for injury or death if you are found to be legally responsible.

Broad Theft Coverage: Additional coverage in case of theft for the property of the insured owner. Is often an endorsement for a dwelling policy.

Business Personal Property: Items owned by your business that are used by an employee off-site. Coverage is often capped at $2,500.

Cancellation: The cancellation of a contract by a policyholder or an insurance company prior to the termination date.

Capital Expenditure: The expense of an improvement made to add value or to add to the amount of time a property may be used.

Catastrophe: An unexpected, devastating disaster that causes a substantial losses.

Certificate of Title: A statement provided by an attorney or title company certifying that the current owner legally holds the property.

Claim: A request to recover a loss that is covered by an insurance policy.

Coinsurance: The risk shared among the insurance company and the insured. This type of coverage depends on the amount protection in the policy and the percentage of the current value of the insured property insured at the moment of the loss.

Coinsurance Clause: The amount of hazard insurance that must be maintained on a property in order to receive the full amount for the loss.

Coverage: An indication of how much protection will be provided under the policy; can be either a dollar amount or type of loss covered in contract.

Coverage A: Otherwise known as the Dwelling, the policy covers the house structure, including flooring, frame and fixed objects within the home; this coverage replaces the structure in the event of a total loss due to a covered peril.

Coverage B: Covers other structures, such as garages, sheds and barns.

Coverage C: Covers 50% of your personal items in Coverage A.

Coverage D: Expenses that the policyholder will have if the property is left inunhabitable after a covered peril; expenses include living expenses and temporary housing.

Coverage E: Protection against your responsibility for accidents on your property while you were on or away from your dwelling.

Coverage F: Medical costs are paid when someone is injured on your property; automatic coverage pays $1,000 but increases of $1,000 increments are available up to $5,000.

Credit Life Insurance: Protection in case the mortgagor dies while the policy is current; insurance will pay off the remaining mortgage debt owed.

Debris Removal Clause: Protection on the cost of removing debris caused by a peril; not typically covered under a standard policy.

Deductible: The total financial amount the policyholder will pay toward a loss before reimbursement can begin under the contract.

Depreciation: Each year, the decrease in value for the property and items due to age and use.

Direct Loss: Damage as a direct consequence to a peril stated within the policy; when a business burns to the ground, the property damage is the direct loss while lost revenue is an indirect loss; see also Indirect Loss.

Direct Writer: When policies are offered through its own employees directly to the consumer.

Dwelling: Coverage for the house and structures accompanying the house, such as porch or garage; built-in appliances, cupboards and carpet can be included, but land is not protected.

Dwelling Forms: Protection for the residential building and personal items within the dwelling; each dwelling form offers a varying degree of protection.

Earthquake Endorsement: An additional clause to the common homeowner policy, this coverage can be added to protect against earthquake damage.

Easement: Allowing the policy holder to certain interests unique to the area.

Effective Date: The start date on the insurance coverage plan.

Effective Age: The estimated age of the physical building based on the appraisal.

Effective Gross Income: Comprehensive annual income from one or more sources, including guaranteed overtime.

Endorsement: A clause attached to the policy to revise or add terms of the contract.

Exclusion: A loss or peril that is not covered in the insurance policy.

Extended Coverage: Additional coverage over the basic policy provisions.

FAIR: Fair Access to Insurance Requirements; offers coverage to people in high-risk locations that might be denied coverage; backed by the government, FAIR offers fire and allied peril policies for coverage.

Fire Insurance: Coverage from unintentional or hostile occurrences of flame and heat from fire within the property insurance.

Fire Resistive Construction: When construction materials are fire-resistive, such as metal or brick, and used to build the exterior walls, floor and roof; see also Modified Fire-Resistive Construction.

Fire Wall: Construction walls created specifically to contain or seal off fires in certain areas of the dwelling.

Fireproof: A building that is fire-resistive or resistant to most fire damage.

Flood Insurance: Partial or complete submersion of normally dry land by either water or mud; this temporary situation is often caused by water runoff or overflow; unless specified in a normal insurance policy, this coverage is not included.

Floater: Additional policy coverage insuring certain personal items not included in the basic homeowners or rental policy; wherever the personal item is located, the policy covers it so long as it is the limitations outlined in the contract.

Flood Insurance: Coverage against damage and loss due to floods or flood waters, often used in combination with a government-backed flood insurance plan.

Frame Construction: Primarily consisting of wood frames and joists, this is the most common form of housing construction.

Guaranteed Replacement Cost: Protection that your property will be restored to its original value before the time of loss, regardless of amount of coverage stated in policy; this coverage states that if your house costs $2 million to rebuild, the policy will pay $2 million to restore it to its previous state.

Hazard Insurance: Compensation for physical damage to the property from natural diasters.

Homeowner Policy: Property and liability insurance that protects homeowners and/or renters from damage and theft to the dwelling as well as all liability issues should an accident to another person occur on the land.

Increased Cost of Construction Insurance: Covers the additional cost of repair and reconstruction costs when you rebuild with more expensive materials and techniques than required by local codes and ordinances.

Increased Hazard: The introduction of dangerous materials or activities to the property that will create an increased risk of harm to the property; the liability of these increased risks are not covered by the original policy terms.

Indirect Loss: Resulting from a peril, this loss cannot be caused directly by a peril; if a business is destroyed, the property damage is direct loss, while lost revenues are an indirect loss; also known as consequential loss or damage.

Inflation Guard Coverage: Provides automatic increases on the insurance to reflect inflation on building replacement expenses and materials.

Inherent Vice: Not typically covered through insurance, a property flaw that will cause its own destruction.

Insurable Title: The title insurance company agrees to a property title that protects against defects and disputes with the dwelling.

Insurance Binder: Temporary insurance granted by a document; permanent coverage must be granted before a certain expiration date.

Insured: The individual or business covered by the insurance policy; this can include the policyholder and other persons granted protected under the policy terms.

Insured Mortgage: Protected by the Federal Housing Administration (FHA) or through private mortgage insurance (PMI), this mortgage will protect the lender in the event that the borrower defaults on the loan. The insurer will pay the lender either the amount of the loss incurred or the insured amount, depending which is lower.

Insurer: The company or institution that provides coverage to the policyholder.

Liability: An obligation that can be legally enforced.

Liability Insurance: When you are legally responsible for an accident that causes damage to a person or property, this insurance covers the cost.

Limits: The highest level of insurance coverage that can be paid for a loss covered in the policy.

Liberalization Clause: If legislation or rating authority rulings expand coverage, this clause will automatically broaden the coverage in existing policies.

Loss: The specific dollar amount on the claim; the basis for which the claim is submitted.

Loss of Use Coverage: This coverage provides financial compensation if the property becomes uninhabitable due to a covered peril within the policy; compensation is for additional living expenses to maintain a normal standard of living after the peril has occurred; coverage is often automatically included as 20% of the Replacement Cost amount; see Additional Living Expenses.

Loss Payable Clause: Coverage for individuals with an interest in the property; often used to protect lenders holding the mortgage.

Masonry Noncombustible Construction: Buildings constructed of noncombustible materials; materials include but are not limited to cinder block, brick, tile, stone, metal and other fire-resistant substances.

Medical Payments: Should an accident occur on your property, this coverage pays medical expenses regardless of the cause or fault; coverage does not pay for medical expenses for policy holder or additional inhabitants that reside on property.

Mobile Home Policy: Coverage on a permanently situated mobile home.

Modified Fire-Resistive Construction: The building materials for the exterior walls, roof and floors that are fire-retardent and resisitent; materials are often metal or masonry construct.

Mortgage Clause: This clause protects the lender or interests of the mortgagee and promises reimbursement after a loss and other rights to recovery.

Mortgage Insurance: Contract insurance for the lender that protects against loss caused by a default on the government or conventional mortgage by the mortgagor.

Mortgage Life Insurance: Term life insurance bought by mortgagors whose coverage decreases as the principal amount declines.

Morgagee: Typically a bank or financial institution that holds the mortgage and lends money based on the value of the property.

Mortgagor: The property owner who receives money from the mortgagee or financial institution to secure the dwelling in exchange for mortgage granted as a security for the loan.

Named Insured: The individual or policyholder that has the contract and is specifically named in the contract declarations.

Named Perils: The specified perils listed in the policy; the opposite of an “all-risk insurance” policy which covers all losses other than those specifically named in the policy.

National Flood Insurance Program (NFIP): A government program used to provide flood insurance for property; the NFIP has reimbursement options for flood insurance and will write coverage policies directly.

Occupancy: If the policyholder lives in the insured property, the policy will generally be less expensive than in a “non-owner occupied” property.

Off Premises: Coverage on items or personal contents outside the insured property; typically, coverage for off premises items are limited by the overall total coverage in the primary coverage policy.

Other Structures: Detached structures like tool sheds, storage sheds or separate garages that share the property ground on the insured land; homeowner policy generally covers other structures for 10% under Coverage A.

Peril: Accident or disaster that causes destruction of structure or personal items; the cause of the accident or disaster as explained in policy.

Personal Property: Values or items other than the physical structure of the home; most policies cover personal property and structural property.

Premium: The financial amount owed to the insurance company to secure protection through the policy.

Private Mortgage Insurance (PMI): If the borrower defaults on the loan, the PMI protects the lender through this policy held by a private mortgage insurance company.

Property Damage: See also Physical Damage; protection against the loss or damage caused by perils outlined in coverage policy to your property.

Policyholder: The individual responsible for paying the premium in exchange for agreed-upon coverage from loss by the insurance company.

Physical Damage: Damage done to your property.

Red-Lining: When coverage is denied based solely on the location of the property; unfair discrimination against property owners in depressed areas.

Reinstatement: When a policy is returned to its full value prior to its previous termination; lapsed policy will be returned to its complete coverage before the termination occurred.

Rental Value: In the event of an accident or disaster that would make property uninhabitable for use or tenant occupation, this coverage protects against the loss of the rental value or the actual monthly rent.

Renters Insurance: See Also HO-4.

Renewal: When the insurance policy is extended for a certain number of days assuming the premium is paid on time by the policyholder.

Rent Loss Insurance: Ideal for landlords, this coverage protects property or valuables due to fire or accident that leaves the premises uninhabitable and excuses renter(s) from paying rent.

Replacement Cost: The cost needed to replace damaged property and items with items of a similar nature and quality; insurer will pay for the cost of new replacements (minus the deductible) if the policy has replacement cost coverage.

Residence Employee: A caretaker or employee of insured policyholder; duties of said individual will include maintenance and upkeep of residence premises.

Residence Premises: The primary residence of the insured; includes the structure and grounds of the building where insured lives.

Rider: Revision to the policy to change or add terms to the contracted agreement.

Riot: Violent actions and destruction caused by more than one person; coverage may be direct attack by the riot or through extended coverage. Each state determines how many individuals create a riot.

Risk: The possibility of injury, loss or damage to insured property covered in policy.

Scheduled Personal Property: Additional items whose values exceed the limits of liability set by the policy coverage; this coverage is added to the standard policy.

Sinkhole Collapse: The sudden collapse or sinking of land into underground spaces eroded by water. This natural disaster is covered by some homeowner insurance policies.

Smoke Damage: Damage solely attributed by the smoke itself; excludes damage caused by fire, combustion, heat or burning.

Special-Form Policy: An addendum to the coverage policy that covers losses from a peril not specifically excluded in chosen coverage plan.

Stated Amount: When the policy holder wants to cover valuables at a specific amount, the insurer will pay the stated amount regardless of the actual value of the item. If an item is initially set at $15,000 and was stolen, the insurance would pay $15,000 (minus the deductible) regardless if the item had increased in value since the policy had been put in place.

Tenants Policy: Also known as renters’ insurance, this form of coverage is for person(s) renting their primary residence.

Umbrella Liability Insurance: A type of insurance that covers the applicant in specific situations not included in standard liability coverage; this policy includes protection against losses to exceed amounts covered in other liability policies.

Underwriting: During the insurance procedures, the process of evaluating the applicant and the property for coverage possibilities.

Unoccupied: A building that does not have people living within it. Unoccupied buildings might have furnishings and other items, while a vacant building is completely devoid of furniture and items. A building cannot remain unoccupied for a specific amount of time according to standard homeowner policy coverage. See also: Vacant

Vacant: Describing a property with nothing in it; a vacant building suggests a structure without furniture or other items, while an unoccupied building simply means there are not people inside. A vacant building is prohibited for extended periods of time by most standard homeowner policies. See also: Unoccupied.

Vandalism and Malicious Mischief: A term in your homeowner’s policy, this term covers your property against intentional destruction or damage caused by other individuals.