Glossary of home insurance and renters insurance terms

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Actual cash value

Value of property before it was destroyed or damaged, minus depreciation. For example, if a 5-year-old television was destroyed, the insurance would pay an amount equal to the depreciated value of the old television. Replacement cost coverage would pay the cost of buying a new TV to replace the old one.

Additional living expenses

An insurance policy provision that pays for extra living expenses a policyholder faces while a home is undergoing reconstruction following a fire, storm or other covered peril. Covered expenses may include costs for moving, rent, hotel accommodations, restaurant meals and laundry expenses.

Adjusted basis

The cost of a property, with adjustments for improvements and depreciation.

All risks policy

A policy that protects against damage or loss of property from any peril, except those that are specifically excluded.

Appraisal

A professional estimate for how much property is worth, or an estimate of damage for insurance purposes. An appraisal is usually necessary before a home or a valuable possession, such as piece of jewelry or fine art, can be insured. The estimate guides the owner and insurance company to insure the property for the appropriate amount.

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Casualty insurance

Insurance focusing on liability coverage for injury to other people or their property. It also includes a broad category of other types of insurance, such as aviation insurance and machinery insurance

C.L.U.E. database

The Comprehensive Loss Underwriting Exchange is a claims history database insurers use to help qualify and set premiums for insurance applicants. Maintained by LexisNexis Risk Solutions, the C.L.U.E database for property covers seven years. A C.L.U.E. Property report includes the policyholder's name, date of birth, policy number and claim information, including date and type of loss and amounts paid by an insurer. LexisNexis also maintains a C.L.U.E. database for car insurers.

Condo insurance

A personal home insurance policy for condominium owners. Also called an H-06 policy, the policy provides protection for personal property from perils as well as liability protection. Typically, a condo owner purchases an H-06 policy for possessions and personal liability, and the condominium association carries insurance for the building exterior and common areas.

Contents coverage

Insurance coverage for household contents and other belongings worn or carried by the homeowner and covered family members. The coverage provides protection for belongings anywhere in the world, although standard home insurance policies have limits for how much coverage is given to off-premises belongings.

Coverage A

The portion of a home insurance policy that covers damage or destruction of  a home’s structure, including its walls, roof, flooring, doors, windows and more. The amount of insurance should be enough to cover the cost of rebuilding the home in the event it is destroyed.

Coverage B

The portion of a home insurance policy that covers detached structures, such as a detached garage, fence, guesthouse or shed. Detached structures that are leased are not covered under this portion of the home insurance policy and require separate insurance.

Coverage C

The portion of a home insurance policy that covers personal belongings. The coverage applies to possessions anywhere in the world. Standard policies typically set coverage at 40 percent of the amount for which the house is insured. Typically, there are coverage limits on valuables – such as jewelry, firearms, antiques and fine art, and off-premises belongings – so additional insurance may be necessary for complete coverage.

Coverage D

The portion of a home insurance policy that covers additional living expenses if the home is uninhabitable while undergoing repairs after a disaster. Additional living expenses cover such costs as hotel rooms, rent, restaurant meals and moving.

Coverage E

The portion of a home insurance policy that provides financial protection against lawsuits associated with injuries or property damage. Coverage E comes into play if a homeowner was sued after the family dog bit a passerby, or a visitor sued after slipping and falling on an icy front step. Standard home insurance policies include exclusions and caps for liability protection.

Coverage F

The portion of a home insurance policy that pays for the medical bills of guests injured on the property. Often called MedPay, the insurance covers medical costs when no lawsuit is involved. It does not cover injuries stemming from abuse, transmission of disease or illegal sale of drugs.

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Declarations

A section of the home insurance policy that summarizes coverage details. Included are the names of the insured, the policy effective dates, amount of coverage, deductibles and endorsements.

Deductible

An amount specified in the insurance policy for how much the policyholder must pay before insurance kicks in for a claim. For example, if a policyholder incurs a $1,000 covered loss and the deductible is $500, the insurance company would pay $500 for the claim.

Depreciation

A decrease in a covered item's value due to age and deteriorating condition. Depreciation is the gap between the cost of new replacement property and the value of the old item before it was destroyed.

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Earthquake insurance

Insurance that protects against losses caused by earthquakes. Standard home, condo and renters insurance policies do not cover damage caused by earthquakes. Earthquake insurance coverage can be purchased as a separate policy or as an endorsement.

Effective age

An appraiser's estimate of a structure's age based on its current condition, rather than its actual age. The effective age takes into account how well a property has been maintained and can be older or younger than the chronological age.

Endorsement

A document added to an insurance policy to add or restrict coverage. An endorsement can be added to a home insurance policy to increase coverage for landscaping, other structures, valuables, personal liability or a variety of other needs. An endorsement can also be used to exclude coverage – such as a pollution exclusion endorsement, which excludes damage from pollutant, unless their discharge was caused by a named peril in the policy.

Exclusion

A restriction in an insurance policy that eliminates coverage for certain perils, people, property or locations. Typical exclusions in a standard home insurance policy include floods and earthquakes.

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FAIR plans

State-run insurance plans that provide property insurance to people in high-risk areas who might not otherwise have access to coverage.

Floater

Insurance that provides additional coverage for personal belongings. Standard home, renters and condo insurance policies set dollar limits on coverage for valuables, such as jewelry, antiques, fine art and firearms. A policyholder with a large fine art collection would need to buy a floater to cover the full value of the artwork.

Flood

An overflow of water from a lake, stream, river or other body of water. Flood damage is not covered under standard renters, condo or home insurance. Coverage can be obtained by buying a separate flood insurance policy. Overflow of water from a broken pipe in a home does not constitute a flood.

Flood insurance

A special policy that provides protection against damage caused by floods. Flood insurance is backed and administered by the federal government through its National Flood Insurance Program and sold by home insurance companies.

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Grace period

The period of time an insurance policy remains in effect after the premium due date has passed without a payment being made. The grace period for home, condo and renters insurance is relatively short, such as two weeks.

Group policy

Home insurance that's purchased through a group, such as a professional association or employer. Group home insurance rates can be lower than individual home insurance rates.

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Home insurance

Insurance for private homes. The policy covers the house, garage and other structures on the property and personal belongings against fire, theft, wind and a variety of other perils. Home insurance also provides personal liability protection for the homeowner and additional living expenses if the home is uninhabitable while undergoing repairs after a disaster.

Home inventory

A record of personal possessions for home, condo or renters insurance purposes. The inventory can include written information as well as video recordings and photographs of belongings. Insurers recommend homeowners and renters maintain a complete inventory of their household contents to ensure they purchase enough coverage and to help the claims process go smoothly.

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Independent adjuster

An independent contractor who investigates and settles claims for insurance companies. An independent adjuster works on contract for insurers but is not employed by insurance companies.

Individual policy

A home insurance policy sold directly to an individual. The purchaser of an individual policy does not have to belong to a specific group to qualify for the insurance.

Insurance binder

A document that provides temporary proof of insurance coverage. The insurance binder is issued to cover the property until a formal policy is issued. When purchasing a home, the binder gives proof to the mortgage lender that the home is insured. Permanent home insurance must be purchased before the binder's expiration date.

Insurance risk score

A score based on credit reports that insurers use to help them determine the risk for selling a policy to an individual home insurance applicant. A poor insurance risk score can trigger higher premiums.

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Lapse

The discontinuation of an insurance policy because the premium was not paid before the end of the grace period. A homeowner who allows a policy to lapse generally will face higher premiums to reinstate the policy.

Liability coverage

Insurance coverage that pays for damage or injuries a policyholder accidentally causes to others. These are costs for which the policyholder has a legal responsibility.

Loss of use

Inability to use a home while it's being repaired or rebuilt after a disaster. Loss of use coverage in a home insurance policy provides a policyholder with additional living expenses to find and rent a home while the insured home is undergoing repair.

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Market value

The estimated price for which a property can be expected to sell in the open market. A home insurance policy should provide enough coverage to rebuild the home in the event it is destroyed, and such costs can exceed a home's market value.

Master policy

Insurance that covers the common areas of a condominium complex, such as building exteriors, pools, hallways and grounds. The master policy, funded by residents' monthly dues, is a collective policy that does not cover personal belongings. Condo owners should know what their condominium association's master policy covers so they can choose appropriate individual condo insurance.

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Nonrenewal

A notice by an insurance company that it will not renew a policy when the term expires. Filing too many insurance claims can result in nonrenewal.

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Personal property

Personal belongings not attached to the structure of the home, such as furniture, clothing, artwork and appliances. Most home insurance policies cover personal property up to 40 percent of the amount for which the home is insured. There are also specific limits for valuables, such as jewelry and firearms.

Public insurance adjuster

An adjuster who works on behalf of policyholders to help them evaluate damage and rebuilding costs after a disaster, and to guide them through the insurance claims process. Public adjusters charge a fee, typically 3 percent to 10 percent of the claim, to help clients get what they deserve from insurers.

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Rated policy

An insurance policy with a higher-than-standard premium for property rated at a higher risk.

Renters insurance

Insurance for renters to protect their personal belongings, which are not covered under a landlord or apartment complex's insurance policy. Renters insurance covers losses to personal belongings from a wide variety of perils, including theft, fire, smoke, windstorm and vandalism. Renters insurance also provides liability coverage.

Replacement cost coverage

Insurance that pays to replace damaged or destroyed belongings with new items. Replacement cost coverage is more expensive than actual cost coverage, which pays only the current value of the item (after factoring in depreciation) at the time it was destroyed.

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Scheduled items

Valuables covered by additional insurance protection in a rider on a home, condo or renters insurance policy. Standard insurance policies provide a limited coverage amount for costlier items, such as jewelry, artwork, antiques and firearms. Scheduling such items increases the policyholder's level of insurance coverage.

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Umbrella liability

A liability insurance policy that provides additional protection beyond what is provided in car, home, renters or condo insurance policies. Insurers often require buyers to purchase up to the maximum liability limits on their home and car insurance policies before purchasing an umbrella liability policy.

Underwriter

The insurance company that assumes risk and issues the policy. It also refers to an insurance company professional who determines how to classify an insurance applicant's risk level and whether the risk is worth assuming.

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