Glossary of Commonly Used Insurance Terms
Actual Cash Value (ACV)
The replacement cost of the item less depreciation. Depreciation might take into account: age, wear and tear, betterment, and other factors. In certain instances involving real property, market value may be a factor in determining actual cash value. Market value is not to be confused with actual cash value.
Additional Living Expenses (ALE)
Charges covered by a homeowner’s policies over and above the policyholder’s customary living expenses. Additional living expenses generally apply when the policyholder needs temporary shelter (such as a hotel room, temporary apartment, temporary house, furniture rental, restaurant meals, additional mileage to work, etc.) after a covered peril has made their home or apartment uninhabitable. If a portion of the dwelling is held for rental, the rental loss might also be covered.
All-risk coverage is insurance for all physical loss except for items which are specifically excluded in writing.
Appraisal is defined in most homeowner policies. If there is a discrepancy as to the amount of value and loss, either the insured or the insurer can demand an appraisal. Both sides pay their owns costs and equally share the cost of the umpire. Each side names their appraiser who needs to be competent and disinterested. In most cases the findings of the appraisal panel are final.
Company Adjuster (Staff or Independent)
The person who investigates and settles losses on behalf of insurance companies. Staff adjusters are employees of an insurance company. An independent adjuster is an independent contractor who works for more than one insurance company. Both promote and represent the interests of the insurance company.
Constructive Total Loss
Where the cost to repair the property exceeds the property’s value.
This type of coverage protects the policyholder’s property normally kept in their condo or apartment. It also covers contents away from the premises.
Statements in an insurance policy about the property to be insured shows amount of coverage, named insured(s), etc.
The set amount of money the insurance company deducts when paying a claim for an insured loss.
The decrease in value of an item over a period of time. Depreciation is a factor in determining the ‘actual cash value’ of the property (see Actual Cash Value).
Protects the structure of your home, not the contents inside except for a few specified items.
Exclusions or Exceptions
Specific provisions or circumstances outlined in an insurance policy for which the insurer will not provide benefits.
Extended Coverage Insurance
An addition to an insurance policy that provides extra coverage for risks other than those in a basic policy. Extended coverage insurance generally protects the policyholder against property damage caused by perils such as windstorms, hail, explosions and riots. This type of insurance is usually provided in conjunction with a fire insurance policy.
Extended Replacement Cost
(See Guaranteed Replacement Cost)
Guaranteed Replacement Cost Coverage
(Not to be confused with Replacement Cost Coverage) A type of homeowners policy that pays the full cost of replacing or repairing a home damaged or destroyed, even if the cost exceeds the policy limit. Some guaranteed provisions, however, are capped at 125% to 200% of the the stated limit of insurance. This is a very important clause in the insurance policy and can provide much benefit. The Personal Property Limit might increase proportionally.
When property is insured at replacement cost, quite often the policy does not pay full replacement cost unless the property is fully repaired or replaced. This balance due to the insured is called the “holdback” and will not be paid until you have met the requirements for replacement as stated in the insurance policy. Here is a simple equation to assist you with this term: Replacement Cost – Actual Cash Value = Holdback $ < Amount of Insurance.
Homeowner’s Insurance Policy (HO Policy)
Provides homeowners with a range of property and liability coverage. Generally, it covers the house, garage and other structures on the property, as well as possessions inside the home (like furniture, appliances and clothing), against perils (including fire and theft). The types of perils covered depends on extent of the policy. Coverage for flood and earthquake damage must be purchased separately. Homeowner’s insurance generally includes ALE (see Additional Living Expenses).
(See Company Adjuster)
Inflation Guard Protection
A provision that can be added to a homeowners policy which will automatically increase the coverage periodically throughout the term of the policy. It is often computed by a specific formula.
Maximum amount of insurance that can be paid for a covered loss. The homeowner’s policy may have a dollar limit, but there are certain factors that may afford increased coverage to the policyholder. (see Guaranteed Replacement Cost)
Loss of Use
(See Additional Living Expenses)
Named Perils Coverage
An event which is listed in the policy that will afford coverage (and those that aren’t listed are therefore generally not covered). Named perils coverage may include fire, theft and water damage – the most common types of claims.
Notice of Loss
An obligation to notify the insurance company of the loss.
The cause (or possible cause) of a loss.
The legal document issued by the insurance company to the policyholder, which states the terms and conditions of the insurance contract.
Proof of Loss
Documentation provided by the policyholder to the insurance company that show a loss occurred. It is a requirement of the insured to file a Proof of Loss with the insurance company if they request it. (Check your policy and local, state or provincial requirements. In certain jurisdictions, failure to file a required Proof of Loss might bar the insured from recovery.)
A general term used to describe all types of home insurance (including homeowner ’s, tenant and condo insurance). Property insurance provides protection against loss or damage to the policyholder’s property.
A claims adjuster who represents the policyholder (for a fee or percentage of the amount collected) to settle their claim (as opposed to a ‘company adjuster,’ who is employed by an insurance company). Public Adjusters are licensed in most states, which also require an examination and continuing education. The National Association of Public Insurance Adjusters (NAPIA) is a professional association of public adjusters in the U.S. and Canada whose members subscribe to a strict code of ethics. Unlike other adjusters, a licensed public adjuster’s responsibility is to serve the best interests of the policyholder!
A type of insurance similar to a homeowner’s policy which covers the personal property of a renter or tenant. Also known as ‘tenant’s policy.’
Replacement Cost (RC)
The cost of replacing or repairing property at the time of loss (i.e. without considering depreciation).
Replacement Cost Coverage
Applies to some fire insurance policies in which special coverage is purchased so that, in the event of fire, or replacement will be made with material of like kind without deduction for depreciation.
Replacement Cost Payments
If the policy affords replacement cost coverage, in most cases the insured must notify the insurance company of its intent to make claim for replacement cost within (180) days of the loss. The insurer first pays the actual cash value and then the difference between the actual cash value and replacement cost when the item is repaired or replaced. There are several variations as to how this may adhere to the insured’s benefit.
Riders or Endorsements
An attachment to an insurance policy that amends the insurance policy that may include additions to coverage or restrictions to the benefits payable in the original contract.
The insurance company’s right to take items for which they pay a total loss. If the homeowner is under-insured, they may participate in the salvage recovery.
A list of specific items covered under one policy (often including jewelry, furs, firearms, etc.).
The right of an insurance company to go to a third party responsible for causing damage for which a claim is paid. The insured might be able to participate with the insurance company and may share in the subrogation recovery.
The condition of property when damage is so extensive that repair costs would exceed the value of the property. This does not necessarily mean that the insurer will agree to pay policy limits, unless the value of the dwelling exceeds the limit. There is a difference between a ‘structural total loss’ and a ‘total loss to the policy.’
A compromise between the insured and the insurer of the holdback benefits in a replacement cost policy.
© National Fire Adjustment Co., Inc.