Home insurance policies can read like a foreign language. Don’t
get discouraged. Here are definitions of basic home insurance coverage terms that will help you understand important piece of your financial
safety net:
Actual Cash Value (ACV) – This term describes
the amount needed to repair or replace damaged portions of your home
after depreciation. For example, your insurance company will deduct for
the age and condition of a 12-year-old roof with a 15-year life expectancy.
Most insurance policies are written on an ACV basis unless another form
of valuation is specified (see “Replacement Cost” below).
Claim – A request for reimbursement for a loss.
In order to be paid, a claim must be the result of a loss that is covered
by the policy. For example, a home insurance policy will not pay for
flood damage if flood peril is not covered by the policy.
Deductible – This is the amount a policyholder
must pay out-of-pocket for each claim or loss before the insurance company
will begin paying. Deductibles may be a specific dollar amount (i.e.,
$1,000) or a percentage of the home’s value at the time of the
loss.
Depreciation – This term describes the decrease
in value of your home or personal property due to normal wear and tear
from the time your home was built or the personal property was purchased.
Endorsement – Also known as a “rider,” this
term describes a change added to the home insurance policy that modifies
its original terms.
Exclusion – A person, event, situation or condition
specified in the home insurance policy to which coverage under the policy
does not apply. A common example of an exclusion found in a standard
home insurance policy is flood damage.
Liability – A legal obligation.
Loss of Use (a.k.a. “Additional Living Expense”) – This
term describes coverage that pays for certain additional expenses – such
as lodging and food – while your home is undergoing repair.
Medical Payments – Coverage for medical expenses
up to a specified limit for persons accidentally injured at your home.
It applies regardless of fault, but does not apply to injuries sustained
by you or anyone living with you. Other exclusions usually apply.
Named-Perils Policy – Also known as a “Basic” or “Broad” form
policy, this type of policy covers losses resulting from any peril that
is specifically named as a covered peril in the policy.
Peril – The action, event or condition that causes
a loss. Examples of perils include fire, wind and theft. The home insurance
policy will specify which perils are covered.
Replacement Cost – This term describes the amount
needed to repair or replace damaged property with materials of similar
kind and quality without deducting for depreciation.
Special-Form Policy – A policy that covers losses
resulting from any peril that is not specifically excluded from coverage.
Now it’s time to research the best policy for you, start by getting
your free insurance quotes today.
