Homeowners Insurance Terms Made Simple

If you find yourself confused by insurance terms, join the club. Fancy insurance jargon isn’t always fun to deal with alone — that’s why we’re here to help! Our glossary of homeowners insurance terms will get you up to speed on language that will help you better understand your coverages and continue protecting what matters most.

Need to clear up anything else? Your American Family agent is the perfect person to ask!

A

Actual cash value (ACV). The market value of your home before and after the damage occurs, or what it would cost to replace your possessions minus how much value they’ve lost due to wear and tear since you bought them.

Additional coverages. Extra coverage that can be purchased to provide protection beyond the homeowners policy. When this kind of additional coverage is purchased, it becomes an Endorsement or Rider to the original policy.

Adjuster. An insurance company representative who seeks to determine the extent of the insurer's liability for loss when a claim is submitted.

Agent. An agent is a person who sells insurance on behalf of an insurance company. Your American Family agent is always available and ready to help answer any questions you have regarding your insurance!

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.

Appraisal. An evaluation of a home insurance policy claim by an authorized person to determine property value or damaged property value.

Appraiser. A person who determines the value of property.

At-fault. The party that is legally liable for the damages in an accident.


B

Betterments. See Improvements.

Binder. A temporary agreement declaring that the policy is in effect. A binder is used to prove to your lender that you have homeowners insurance when it’s not possible to issue or endorse the policy immediately.

Blanket policy. An insurance policy that covers more than one property.


C

Cancel. To terminate a contract or a policy.

Cancellation. The termination of a home insurance policy during the policy term. An insurance company can only cancel a home insurance policy for reasons stated in the policy and permitted under the law of the state in which the policyholder resides.

Catastrophe. A disaster affecting a specific geographic area. They can cause injury, death or result in extensive property damage. Hurricanes, floods, tornadoes, and even large hailstorms are typical examples of catastrophes.

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.

Claimant. A person who makes an insurance claim.

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


D

Damage. Loss or harm to a person or property.

Damages. The money that one party is legally obligated to pay another party.

Declarations page. The page in a policy that shows the name and address of the insurer, the period of time a policy is in force, the amount of the premium and the amount of coverage.

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

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

Dwelling. A structure for people to live in.

Dwelling policy. Though similar to personal property and structural coverage in a homeowners policy, a dwelling policy excludes liability coverage.


E

Effective date. The date that coverage goes into effect.

Endorsement. An attachment to an insurance policy that amends and alters the coverage provided in the policy. Also called a Rider.

Escrow. Money placed in the hands of a third party until specified conditions are met.

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

Expiration date. The date on which an insurance policy expires.


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. Flood insurance protects against damage done by the rising or overflowing bodies of water.

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


G

Grace period. The time (typically 31 days) during which a policy remains in force after the premium is due but not paid. The policy lapses as of the day the premium was originally due unless the premium is paid before the end of the 31 days.


H

Hazard: Anything that increases the chance of an accident occurring.

Homeowners insurance policy: A homeowners insurance policy protects dwellings by combining property coverage with personal liability insurance.

Housekeeping. Generally refers to the overall care, cleanliness and maintenance of a property, and is a key factor when an underwriter considers your policy.


I

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

Indemnify. When someone, like your insurer, promises to reimburse you in the event of a loss or damage.

Inflation protection. Automatically adjusts your home insurance policy limits to account for increases in costs to repair property.

Insurance.  Something people buy to protect themselves from losing money in the event of an accident or unexpected mishap. It’s an agreement between you (the person being insured), and your insurance company, where you’ll pay a certain amount up front — your premium. In the event of an accident, injury or other loss covered in your policy, you’ll pay a small portion of the financial cost, known as the “deductible,” and the insurance company promises to pay the balance.

Insurance contract or policy. A contract between an insured and an insurer.

Insured. The policyholder; the person(s) protected in case of a loss or claim.

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

Inventory. A list of one's possessions that records your possessions and their value. A home inventory allows you to more easily and quickly settle claims and report losses on tax forms.


J

Justified complaint. A formal complaint made against an insurance company that is found in violation of the insurance contract it entered with the policyholder.


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. A part of your insurance that helps pay medical costs for bodily injuries or property damage that occurred on your property, or that resulted due to something you caused. For instance, someone slipping on your floor.

Limit of liability: The maximum amount your insurance company has to pay for a liability claim.

Loss. The injury or damage sustained by the insured that the insurance company agrees to cover.

Loss history. When applying for a new policy or renewing your current policy, the insurance company will look at all the claims you’ve filed in the past.

Loss of use. A part of your homeowners policy that provides reimbursement for living expenses when loss of property by a covered peril forces you to maintain temporary residence elsewhere.

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

Market value. What your home would sell for in the current market.

Material misrepresentation. If you provide significant false information to your insurance company, it can cancel your policy or refuse to file your claim.

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, earthquakes, 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.

Non-renewal. A decision by an insurance company not to renew a policy.


O

Open peril. A form of insurance that provides coverage for all losses or damages except those that are specifically excluded in your policy.

Other structure coverage. The part of your homeowners insurance policy that covers the buildings on your property other than your home, such as a detached garage, barns and swimming pools.

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 owner. The person or party who owns an individual insurance policy i.e. the insured, the beneficiary or another person. The policy owner is typically the person who pays the premium and has authority to make changes to a policy.

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.

Reinstatement. When a life insurance company puts a policy back in force after it was lapsed because of nonpayment of renewal premiums.

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.

Rider. A written change that adds, deletes or alters your policy. Also called an endorsement.

Risk. The chance of suffering a loss.


S

Scheduled personal property. If you have expensive items, such as jewelry or antiques, your homeowners policy limit may not be high enough to cover the cost of replacing them. You can pay an additional premium to have them covered as scheduled personal property.

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

Subrogation. When an insurance company pays you for damages, but makes its own claim against others who may have caused the loss or contributed to it. For example: If you are injured and it is another person’s fault, your insurance company may pay your claim and then try to collect the damages from the other person or his or her insurance carrier.

Surcharge: An extra charge added to your premium by your insurance company.


T

Tenant or renter insurance. 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.

Total loss. When it would cost more to repair your home than it’s worth.


U

Umbrella insurance. Umbrella insurance is additional liability coverage that offers limits higher than your homeowners policy. It also provides coverage that might be excluded by other liability policies.

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.

Underwriting. The process an insurance company uses to decide whether to accept or reject an application for a policy.


V

Valued policy statute. A policy in which the company agrees that the property insured is worth the amount for which it is insured. Thus, in the case of total loss, the company pays the face amount or value of the policy.


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