Learning Center

Homeowners Insurance Definitions

These explanations are for illustrative purposes only. For exact coverages and how they will protect you and your family, check with your insurance agent. If you need insurance, contact your local American Family Insurance agent.

A

Agent: A person who sells insurance on behalf of an insurance company.

Application: A printed form created by an insurer that collects information about the property and person who wants insurance. An insurer relies on this information when deciding to issue or decline an application.

Appraiser: A person who determines the value of property.

B

Betterments: See Improvements.

C

Cancel: To terminate a contract or a policy.

Claim: The amount of money a person believes he or she has coming from an insurance company as a result of a loss or accident. A claim can be for property damage, bodily injury or death.

Coverage: The protection against financial loss provided by an insurance contract.

D

Deductible: The amount of the covered loss that an insured is responsible for before the company pays the balance on a loss/claim.

Depreciation: The reduction in value of property due to wear and tear or becoming obsolete.

Dwelling: A structure for people to live in.

E

Effective Date: The date that coverage goes into effect.

Exclusion: Something not covered by a policy and specifically described as not covered by the policy.

F
Fire: In insurance, fire must have a flame in order to be called a "fire."

Fire Resistive: Refers to buildings made of steel and concrete or other nonflammable materials.

Fire Wall: A fire resistive wall erected to slow or stop the spread of fire.

Flood: Water that has overflowed its natural boundaries or is the result of unusual surface water runoff.

Flood Insurance: Insurance against damage done by the rising or overflowing bodies of water.

Frame: Refers to the construction of a building built of lumber.

H

Homeowners Insurance Policy: An insurance policy that protects dwellings by combining property coverage with personal liability insurance.

Housekeeping: A type of hazard that may increase the probability of a loss. Generally refers to the overall care, cleanliness and maintenance of a property.

I

Inflation: Automatic specified increases in homeowners insurance property coverage during a policy period. This avoids underinsurance caused by the appreciation in a building's value.

Improvements: Additions made to a building that increase its value. Improvements are more than just repairs. Also known as betterments.

Insurance: The transfer of financial risk from one party (the insured) to another (the insurer). As long as the premium payments are made, the insurer promises to pay to the insured for financial losses that result from a loss.

Insurance Contract or Policy: A contract between an insured and an insurer.

Insurer: The insurance company that provides insurance coverage and services.

Inventory: A list of one's possessions.

L

Lapse: A policy that ends because the insured did not pay the premium amount.

Larceny: Theft of personal property.

Lessee: A tenant who has signed a lease.

Lessor: A person who rents his or her property to another under the terms of a lease.

Liability Insurance: Insurance which pays on behalf of the policyholder when the policyholder is legally required to pay medical costs for bodily injuries or property damage due the policyholder’s own negligence.

Loss: The amount the insurer is required to pay.

Loss Payee: Someone who receives insurance payments in the event of damage to property. The loss payee must have a financial interest in the property. Loss payees include property owners and mortgagees.

M

Medical Payments Insurance: Insurance that pays the cost of medical care to an injured person regardless of whether or not the policyholder is legally required to do so.

Mutual Insurance Company: An insurance company that is owned by its policyholders — not stockholders.

N

Named Peril Policy: A policy in which specific hazards are insured against, such as wind, hail, fire, etc.

Negligence: When a person doesn't exercise reasonable care in a given situation, he or she may be considered to be negligent. One can be negligent as a result of doing something or not doing something.

O

Open Peril: A form of insurance that protects against all risks of loss except those specifically excluded.  

Over-Insurance: Insurance that exceeds the actual value of the property insured.

P

Perils: The cause of a loss. Examples include explosion, collision, flood, fire, theft, etc.

Personal Property: Refers generally to property — goods, clothes and documents — and not a building.

Physical Hazard: Danger of loss arising from the condition, occupancy or use of the property insured. Examples of physical hazards that may increase the probability of loss include unsafe or unclean conditions, cheap or flammable building materials, etc.

Policy: A formal written contract of insurance.

Policy Jacket: The outer covering of an insurance policy, which usually contains the common provisions of the policy.

Policy Year: The year beginning with the effective date of the policy or its anniversary. This should not be confused with a calendar year, which starts Jan. 1.

Policyholder: The person who pays the insurer for coverage as provided for under the insurance policy.

Premium: The amount of money an insurance company charges to provide coverage.

Property Insurance: The insurance of real and personal property against physical loss or damage.

R

Real Property or Real Estate: Land and whatever is erected or affixed to the land, such as buildings or structures.

Renewal: An extension of an existing policy for another policy period.

Replacement Cost Insurance: Insurance that pays the cost to restore or replace the damaged or destroyed property back to the condition it was in before the damage.

S

Standard Form: A form used to write insurance that is used by a large number of insurance companies.

Subrogation: In insurance, subrogation substitutes one party (insurer) for another party (insured) in order to pursue any rights that the insured may have against a third party who is liable for a loss. For example: If you are injured and it is another person’s fault, your insurance company may pay your claim and then pursue (collect) the damages from the other person or his or her insurance carrier.

T

Tenant or Renter Policy: A form of Homeowners insurance sold to persons who rent vs. own their homes. A tenant or renter policy combines broad personal property and personal liability coverage. It is like a homeowners policy, except that it does not include coverage for the structure itself.

Term: The length of time for which a policy is written. For property policies, the policy period or term is typically 12 months.

Third Party Interest: A party (other than the policyholder and the company) having some interest in the subject matter of the policy, typically as mortgagee or lien holder; sometimes refers to the relationship among a lender, the policyholder and the insurer.

U

Underinsurance: Less than enough insurance to cover the amount of loss a policyholder may have.

Underwriter: One who accepts or rejects risks for an insurance company.

V

Valued Policy Statute: A policy in which the company agrees that the property insured is worth the amount of insurance placed on the property. Thus, in the case of total loss, the company pays the face amount or value of the policy.

 

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