Home Insurance Glossary

Home insurance policies can read like a foreign language. Don’t get discouraged.

These definitions of basic home insurance coverage terms will help you understand this important piece of your financial safety net, so that you can select the right coverage for your new home:

Actual Cash Value (ACV)

This term describes the amount needed to repair or replace damaged portions of your home after depreciation. For example, your insurance company will deduct for the age and condition of a 12-year-old roof with a 15-year life expectancy. Most insurance policies are written on an ACV basis unless another form of valuation is specified (see Replacement Cost below).

Claim

A request for reimbursement for a loss. In order to be paid, a claim must be the result of a loss that is covered by the policy. For example, a home insurance policy will not pay for flood damage if flood peril is not covered by the policy.

Deductible

This is the amount a policyholder must pay out-of-pocket for each claim or loss before the insurance company will begin paying. Deductibles may be a specific dollar amount (i.e., $1,000) or a percentage of the homes value at the time of the loss.

Depreciation

This term describes the decrease in value of your home or personal property due to normal wear and tear from the time your home was built or the personal property was purchased.

Endorsement

Also known as a rider, this term describes a change added to the home insurance policy that modifies its original terms.

Exclusion

A person, event, situation or condition specified in the home insurance policy to which coverage under the policy does not apply. A common example of an exclusion found in a standard home insurance policy is flood damage.

Liability

A legal obligation.

Loss of Use

(a.k.a. Additional Living Expense) This term describes coverage that pays for certain additional expenses such as lodging and food while your home is undergoing repair.

Medical Payments

Coverage for medical expenses up to a specified limit for persons accidentally injured at your home. It applies regardless of fault, but does not apply to injuries sustained by you or anyone living with you. Other exclusions usually apply.

Named-Perils Policy

Also known as a Basic or Broad form policy, this type of policy covers losses resulting from any peril that is specifically named as a covered peril in the policy.

Peril

The action, event or condition that causes a loss. Examples of perils include fire, wind and theft. The home insurance policy will specify which perils are covered.

Replacement Cost

This term describes the amount needed to repair or replace damaged property with materials of similar kind and quality without deducting for depreciation.

Special-Form Policy

A policy that covers losses resulting from any peril that is not specifically excluded from coverage.