There are many insurance terms and definitions that you should be familiar with as a homeowner. Knowing the proper insurance terminology is the key to understanding homeowners insurance and becoming comfortable and confident in your investments.
At David Pope Insurance Services, LLC, we want you to feel informed and knowledgeable about our services. That’s why we’ve provided a comprehensive homeowners insurance glossary of terms filled with general definitions that will help you fully comprehend the essential concepts.
If any of your possessions are stolen, destroyed or damaged, insurers will determine their actual cash value to price out a policyholder’s personal property claims. Insurance companies calculate this rate by establishing how much money it would cost to replace the item, then subtracting depreciation.
Additional coverages are extra funds for circumstantial expenses that an insurance company provides to policyholders under a particular set of criteria. Insurers will evaluate a policyholder’s claim by comparing it to a baseline for everyday expenses. Then, they will determine whether additional coverages are in order.
An individual can make a claim to receive extra funds in the event of an unexpected situation like a fire or disaster. They must be able to verify the claim with proof of paying additional fees, like receipts and other financial documents.
Additional living expenses are funds under an individual’s insurance policy that cover any costs of living that apply after having to relocate from their house, apartment or condo temporarily. Policyholders can usually acquire additional living expense insurance when their home is rendered uninhabitable by external factors like fire, flood, tornado or other disasters.
Most homeowners and renters insurance policies include additional living expense coverage, which typically pays for hotel and food costs until the policyholder’s residence is available to them again. Additional living expense insurance may also cover other expenses, but this coverage depends on the insurer’s assessment of the policyholder’s claimed costs and usual day-to-day expenses.
An insurance adjuster is an individual who evaluates claims to determine whether an insurance company should pay for a policyholder’s losses and how much they should cover.
Adjusters can be in-house representatives or independent hirees who delve into issues like medical bills, injuries and property damage to determine how much an insurer should pay. These individuals sort out fair settlements by speaking with policyholders or claimants, assessing damages, corresponding with witnesses and sifting through official reports.
An insurance agency creates policies through a range of different companies rather than working for one individual carrier. Agencies often employ brokers or agents to sell an insurance company’s products for a commission. Insurance agencies can pick and choose who they represent and what products they’d like to offer, allowing them to find the most affordable coverage for their clients.
Insurance agents act as representatives for insurance companies and can work as captive or independent agents. These agents help consumers choose the right insurance to invest in, serving as their primary resource for filing claims or increasing coverage. They focus on catering to their clients’ individual needs and establishing viable plans conducive to their financial status and long-term goals.
Captive agents are insurance agents who only work for one company rather than acting as representatives for numerous insurance companies. These agents are limited to selling products for their designated employer and cannot work with clients outside of that insurance company, unlike independent agents.
In general, captive agents are skilled in providing excellent customer service and have an in-depth understanding of their company’s policies and products. They are typically paid a yearly salary and commission and get benefits from their company.
Catastrophe claims are much like standard insurance claims in that they protect policyholders in the event of unexpected disasters. However, these claims differ according to who they cover and under what circumstances.
Catastrophe claims account for and protect entire communities, like businesses and residences, in situations that are typically excluded from homeowners insurance policies. For example, damages resulting from natural disasters like landslides, earthquakes and sinkholes aren’t typically covered by homeowners insurance, but they can be resolved through catastrophe insurance claims.
Condominium coverage is an insurance policy that protects you, your condo and all of your personal belongings against losses. This type of coverage protects you from factors that homeowners insurance might not, like internal repairs and stolen property.
Generally, condominium owner’s insurance covers:
Insurance coverage is used to protect policyholders from unforeseen events like fires, theft or lawsuits that could result in financial repercussions. There are many types of coverage, such as life, auto and hole-in-one insurance, that are issued by an insurer.
Individuals can maintain their insurance coverage by paying a monthly premium in return for protection from an insurance company, so long as the circumstances qualify for coverage. There are six types of insurance coverage based on various events:
An individual’s dwelling and personal property tend to lose their value over time due to age, damage and natural wear and tear. This loss of worth is known as depreciation. You can calculate depreciation by assessing an item’s replacement cost value and its life expectancy. Insurers can use this information to establish an actual cash value, which they can use to determine how much coverage they can offer a policyholder.
A dwelling policy is part of homeowners insurance coverage. It can help policyholders pay for structure repairs and rebuilding for their homes in the event of hazards that the insurance policy covers. Dwelling coverage includes an individual’s home as well as any attached structures like garages, porches or decks.
A dwelling policy typically helps individuals recover from the following events:
Emergency measures are used to protect individuals from property damage or losses in the event of unexpected disasters. These measures may include issuing inspections or permanent repairs meant to prevent future damages to the property.
Insurance endorsements are written agreements that are added onto an insurance policy to overwrite the original terms of the contract. Endorsements are usually used for changes like coverage additions or exclusions, but can also clarify language or update a policyholder’s home address or email.
You can structure an endorsement in various ways, including standard versus nonstandard and mandatory versus voluntary. There are many different endorsement types, like personal property replacement costs, sewer backup, home business and earthquake endorsements.
Any losses or damages that your insurance policy doesn’t cover are referred to as exclusions. Insurance companies use exclusions to determine what is and isn’t covered in your homeowners or renters insurance policy.
Exclusions are usually listed under the main coverage section of your insurance policy, but they can also be found in the conditions, definitions and endorsements sections. In most cases, exclusions affect named perils like earth movement, flooding, neglect, governmental action and other scenarios that do not warrant coverage.
Floater insurance protects items that standard insurance policies don’t cover as well as transportable items. Floater policies ensure that homeowners will recover the full value of their items if they undergo damage, loss or theft. If you’re looking to insure multiple personal artifacts, you’ll likely have to get floater insurance for each item individually.
You can get floater insurance for various valuables, such as:
Floater coverage usually comes with a limit of $1,500 per item, so insurers won’t pay more than that amount for insured property.
Policyholders use homeowners insurance to protect their homes, property and other assets under unexpected circumstances. Homeowners insurance covers internal and external damages and asset damage or losses. It also provides liability coverage to account for any accidents or injuries that occur in the home or on the property. Homeowners are required to pay a deductible when they file a claim for any of the listed incidents.
Each insurance policy has a defined liability limit that outlines how much the insurer will cover in the event of any mishaps. This limit is typically set around $100,000, though policyholders can negotiate for a higher amount.
Independent insurance agents sell products and policies for numerous insurance companies rather than representing a single organization. These agents are not employees of any specific company, so insurance groups pay them a commission for every policy they sell rather than rewarding them a salary.
Because independent agents are not limited to one insurance company, they’re able to evaluate and consider their clients’ coverage needs and give them various policy options at reasonable prices. Independent agents often have to manage their own business operations, which include creating marketing and advertising materials.
Insurance is a contract that promises policyholders financial protection against losses. Insurance companies that offer this contract are in charge of managing risks and compensating the client for personal property damages, losses or liabilities involving third-party injury. There are many types of insurance policies, but the most common ones are health, auto, homeowners and life insurance.
Every insurance policy includes a limit detailing how much the insurer will cover as well as a monthly premium that policyholders must pay based on their risk profiles. Insurance contracts also require individuals to pay a deductible before the insurer pays their claims.
Insurance commissioners are state-level public officials who regulate the insurance industry, advocating for consumer protection and educating individuals about insurance systems within their designated state. Commissioners’ duties vary by state, but their primary purpose is to act as mediators between insurance companies and their clients. Insurance commissioners are usually appointed, but they are elected in certain jurisdictions.
Most insurance commissioners work to:
Insurance fraud is when a buyer or seller illegally misuses insurance policies for financial gain. The majority of these cases occur when the guilty party makes exaggerated or false claims, but fraud can extend to acts as extreme as faking a death. Most instances of insurance fraud are committed by policyholders rather than insurers, but both groups can and do commit the act.
The term “insured” refers to a policyholder who is covered by an insurance policy. Who is considered “insured” and who isn’t depends on the policy. In most cases, homeowners and renters insurance covers all residents who are related to the policyholder by blood, marriage or adoption, like a spouse, child or parent. These individuals are considered to be the “named insured” on the policy.
Most insurance policies won’t cover roommates or a significant other who is not legally married to the policyholder. However, the insured individual can include other parties on their insurance policy for liability purposes by adding them as “additional insured.”
A liability is something that an individual or company owes to another party, like goods, services and, most often, money. Liabilities include accounts payable, loans, mortgages, bonds, deferred revenues, warranties and accrued expenses. They can be either short-term or long-term contracts, meaning the liability is expected to conclude in a few months or over a year.
A liability can also refer to the money or services that an individual owes to another party, like property taxes or income taxes. It can refer to someone who is responsible for providing another person with collateral as well.
Liability insurance is when a product is covered by an insurance policy, and the insured has protection against claims regarding injury or damage to other people or their property. This type of insurance covers any payouts or legal costs that the insured owes in a situation where they are found liable. It does not usually include contractual liabilities or intentional damage. Different types of liability insurance policies include personal liability, commercial liability and workers’ compensation.
Loss of use is a type of insurance coverage that individuals can purchase to assist with any temporary living expenses that arise if their home becomes uninhabitable due to perils. This type of coverage is typically included in homeowners and renters insurance policies. It generally covers additional living expenses, fair rent value and government intervention. However, policyholders will only be reimbursed if their reason for leaving the home is something their insurance company initially agreed to cover.
Market value is an amount that reflects the market price of covered property rather than the replacement or actual cash value. This clause usually covers property that fluctuates in value over time and doesn’t typically include fixed assets, aside from commodities. Market value is a dollar amount that the insured individual can collect for their personal property. It is generally set at open market levels.
Ordinance or law exclusion packages cover losses related to building construction or repairs resulting from physical damage. Most insurance policies include an ordinance or law exclusion which provides coverage when the enforcement of an ordinance or law:
Insured individuals can negotiate for different types of coverage if their insurer doesn’t provide it in the first place, including undamaged portions of the building, demolition, increased costs of construction and increased restoration period.
A peril is an unexpected event that may cause damage to your home or personal property. Your insurance policy should include a list of named perils, or specific occurrences that warrant coverage, in the “Perils Insured Against” section. Each policy typically covers about 16 named perils, though some states cover fewer. Examples of these named perils include fire or lightning, explosions, falling objects, windstorms or hail, freezing and other sudden disasters.
Personal liability is a homeowners or umbrella insurance policy that protects individuals against claims regarding property damage or physical injury against another party. This coverage prevents policyholders from paying out-of-pocket expenses if they are found legally responsible for any harm to a third party. Personal liability coverage applies in situations where the policyholder:
Personal property refers to an individual’s assets, not including real estate. Personal property is movable, meaning it isn’t fixed to any particular location. Every homeowners and renters insurance policy covers personal property as well as any named perils that result in property loss or damage.
The amount of personal property coverage you need is based on how much stuff you own, so it’s wise to take inventory of your belongings to estimate how much protection you should get.
An insurance policy is a legal contract between the insured and their insurer. This contract details how much coverage your insurance company will provide you, other individuals on the policy and your home and personal property. Your insurance policy will outline your length of coverage, pricing, deductible and what is and isn’t covered under your contract. It’s important to review your policy to develop an informed understanding of your coverage.
A premium is the amount of money a policyholder pays for their insurance either monthly or annually. Premiums account for policies covering auto, healthcare, home and life insurance.
The cost of a premium depends on the type and amount of coverage you choose, the location of your residence and personal information, including past claims. If you fail to pay your premium, your insurance company can cancel the policy and take away your coverage.
Homeowners and renters insurance policies typically include property coverage, or protection against damages or theft. If a policyholder makes a claim, the insurance company will reimburse them for the actual value of the damaged items or the associated replacement costs.
Perils covered by property insurance typically include weather-related damages like fire, wind, snow and lightning strikes but exclude events like floods, sewer backups, earthquakes and other specified circumstances.
Rates are units of cost that help insurance companies determine an insurance premium. Insurers multiply this rate by an exposure base to determine how much money they should charge policyholders for their insurance. This rate accounts for the amount of money needed to cover expenses, losses and damages while also providing profit to the insurer.
In homeowners insurance, real property is a policyholder’s land and any attached property, like buildings, roads, ponds and machinery. It is immovable real estate that can be legally sold, owned, occupied or transferred. Every state has its own laws regarding real property, and coverage typically varies by estate type. Real property coverage includes some exclusions regarding certain perils.
Regulations are state and federal laws regarding how insurance companies should conduct business. They preserve insurer solvency and protect consumers by ensuring the financial health and fairness of the insurance industry. Insurance regulation guidelines specify that rates must be adequate, reasonable and inclusive and are typically set and monitored by the state.
Property insurance available to individuals renting or subletting a residence is called renters insurance. This insurance policy protects renters by providing coverage for their personal property, liabilities and living expenses in the event of losses caused by fire, theft and other unexpected perils.
Policyholders can choose between actual cash value or replacement cost coverage depending on their preference. Insured individuals should purchase as much renters insurance as necessary to account for all of their personal possessions.
Replacement value, also known as replacement cost, is the amount of money an insurance company will pay for damaged or stolen assets to replace or repair them. Insurers use replacement costs to estimate the value of an insured item. This value may fluctuate based on the asset’s market value and any expenses involved with preparation. Insurance companies can determine what property needs to be replaced by assessing its net present value.
In insurance policies, riders are used to amend or add benefits to a basic contract, like additional coverages or exclusions. They are used to cover individualized needs that a standard policy may not cover. Policyholders must pay an additional cost to secure a rider, but most sell at relatively low rates and are more cost-effective than purchasing a separate policy.
An insurance risk is any named peril that insurance companies choose to cover under an insurance policy. Risks include any unexpected event that may result in financial losses like physical injury or property damage, including fire, earthquakes or third-party injuries. If any covered risks occur, a policyholder can file a claim, and their insurer will pay them the agreed-upon reimbursement costs.
An underwriter is an individual who evaluates and takes responsibility for another party’s risks for a price, usually in the form of a commission, spread, interest or premium. Insurance underwriters review coverage requests and accept or reject them based on the associated risks. They also offer input regarding risk management issues, provide ongoing coverage analyses and determine available coverage for individuals.
At David Pope Insurance, we provide high-quality insurance at affordable rates.
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