Glossary of Homeowners Insurance Terms
Understanding Homeowners Insurance Policies is Half the Battle
Actual Cash Value (ACV)
Actual Cash Value refers to the value of your property at the time of loss, after accounting for depreciation. This means if your roof is 10 years old, the payout will reflect its current worth—not the cost to replace it new. It’s often cheaper in terms of premiums, but you may receive significantly less in a claim because wear and tear are deducted from the payout.
Adjuster
An adjuster is the insurance professional who investigates your claim, evaluates the damage, and determines how much the insurer should pay. They may visit the property, review documentation, and work with contractors to assess the cost of repairs or replacement.
Binding Authority
Binding Authority is the power granted to agents or brokers to immediately start insurance coverage on behalf of an insurer. It allows them to commit the insurer to a policy before the full underwriting process is complete, especially in time-sensitive situations.
Claim
A claim is a formal request made by the policyholder to the insurance company for coverage or compensation for a covered loss or event. The insurer reviews the claim, determines if it’s covered, and issues a payout if applicable. Claims are recorded in various systems for rating and other purposes.
Glossary of Insurance Terms
Understanding Homeowners Insurance Policies is Half the Battle
Deductible
A deductible is the amount you agree to pay out of pocket before your insurance coverage begins to pay for a loss. For example, if you have a $1,000 deductible and a covered loss of $5,000, you’ll pay the first $1,000 and the insurer pays the remaining $4,000.
Depreciation
Depreciation is the reduction in value of your property due to age, wear and tear, or obsolescence. It’s used when calculating Actual Cash Value, reducing the payout on older or used items.
Diligent Effort (Declination Requirement)
Diligent Effort refers to the legal requirement that surplus lines insurance can only be used after the policyholder has been declined by a certain number of admitted insurers. This ensures that standard market options are explored before turning to surplus lines coverage.
Dwelling Coverage (Coverage A)
Dwelling Coverage pays to repair or rebuild the structure of your home if it’s damaged by a covered peril like fire, wind, or hail. This includes walls, roof, and attached structures such as a garage.
Glossary of Homeowners Insurance Terms
Understanding Homeowners Insurance Policies is Half the Battle
E&S (Excess and Surplus Lines)
E&S refers to a specialized insurance market that covers high-risk or unique properties not eligible for standard insurance. These policies are written by non-admitted carriers and often offer flexible terms to meet unusual coverage needs.
Endorsement (Rider)
An endorsement is a written change to your insurance policy that modifies coverage, limits, or terms. It can add, remove, or change protections, such as including coverage for a home office or jewelry collection.
Exclusion
An exclusion is something that your policy specifically does not cover. For example, most standard policies exclude flood or earthquake damage, meaning you’d need separate policies for those risks.
Export List
An export list is a state-specific list of insurance coverages that can be placed with surplus lines carriers without needing proof of declinations from admitted insurers. It helps streamline the placement of high-risk policies.
Glossary of Homeowners Insurance Terms
Understanding Homeowners Insurance Policies is Half the Battle
HO-3 Policy
An HO-3 policy is the most common type of homeowners insurance. It provides broad coverage on the dwelling and named peril coverage on personal property, balancing comprehensive protection with affordability.
HO-5 Policy
An HO-5 policy offers open-peril coverage for both your home and belongings, meaning everything is covered unless specifically excluded. It typically provides higher limits and fewer coverage restrictions than HO-3.
Insurable Interest
Insurable interest means that you must stand to suffer a financial loss if the insured property is damaged. This requirement ensures that insurance can’t be taken out on property or people in which the policyholder has no stake.
Liability Coverage
Liability coverage protects you if someone is injured on your property or if you accidentally cause damage to someone else’s property. It can help cover medical bills, legal fees, and court-ordered judgments.
Glossary of Homeowners Insurance Terms
Understanding Homeowners Insurance Policies is Half the Battle
Loss of Use (ALE)
Loss of Use, also known as Additional Living Expenses (ALE), pays for temporary housing and other living expenses if your home becomes uninhabitable due to a covered event like fire or storm damage.
Loss Settlement
Loss settlement is how your insurance company determines what to pay you after a loss. The method may be based on actual cash value, replacement cost, or agreed value, depending on your policy.
Non-Admitted Carrier
Insurable interest means that you must stand to suffer a financial loss if the insured property is damaged. This requirement ensures that insurance can’t be taken out on property or people in which the policyholder has no stake.
Other Structures Coverage (Coverage B)
Other Structures Coverage protects detached buildings on your property such as garages, sheds, fences, and guest houses. It is typically a percentage of your dwelling coverage.
Glossary of Homeowners Insurance Terms
Understanding Homeowners Insurance Policies is Half the Battle
Peril
A peril is the cause of a loss, such as fire, theft, wind, or vandalism. Policies may offer 'named peril' or 'all-risk' (open peril) coverage, which determines how many events are covered.
Personal Property Coverage (Coverage C)
This covers your belongings such as furniture, clothing, electronics, and appliances. It can be based on actual cash value or replacement cost, and may include special limits for high-value items.
Premium
The premium is the amount you pay for your insurance coverage. It can be billed monthly, quarterly, or annually, and depends on your home’s characteristics, coverage levels, and risk factors.
Replacement Cost Value (RCV)
Replacement Cost refers to the amount it would take to replace or repair your home or belongings at today's prices, without deducting for depreciation. This means you would receive enough money to replace items with new ones of similar kind and quality. It usually costs more in premiums but provides better protection because you’re more likely to recover your actual loss.
Glossary of Homeowners Insurance Terms
Understanding Homeowners Insurance Policies is Half the Battle
Subrogation
Subrogation is the insurer’s right to pursue a third party that caused a loss to the insured. If your insurer pays your claim, they may seek reimbursement from the responsible party.
Surplus Lines Broker
A surplus lines broker is a specially licensed insurance professional authorized to place coverage with non-admitted carriers. They serve as intermediaries between retail agents and the surplus lines market.
Surplus Lines Insurance
This is insurance provided by a non-admitted carrier for risks that are not acceptable to the standard market. It’s commonly used for high-risk homes, properties with previous claims, or unique construction types.
Underwriting
Underwriting is the process insurers use to assess risk and decide how much coverage to offer, under what terms, and at what price. It involves evaluating the property, location, claim history, and other risk factors.