PROPERTY INSURANCE TERMS
Actual Cash Value - There are two ways to calculate the value of your property. Replacement cost valuation is the full amount necessary to replace your property today with property of like kind and quality. The other valuation method is actual cash value, which is the cost to replace your property today with materials of like kind and quality, less depreciation.
Additional living expenses (ALE) - Reimburses the policyholder for the cost of temporary housing, food, and other essential living expenses, if the home is damaged by a covered peril that makes the home temporarily uninhabitable. Policies cap the amount of ALE payable to 20 percent of the policy's dwelling coverage.
Replacement Cost - The dollar amount it costs today to replace or repair your damaged property with that of like kind and quality, without any deduction for depreciation.
Depreciation - A decrease in the value of property over a period of time as a result of use, wear and tear, or obsolescence.
Endorsement - A written amendment added to and made a part of an insurance policy to change the original insurance policy language. The change may restrict or broaden the coverage.
Exclusion - A written provision in an insurance policy that denies coverage for certain events, hazards, people, property or location.
Named Peril Policy - A property insurance policy that covers only losses caused by the perils specifically listed in the policy. This coverage contrasts to special form coverage, which covers property losses from all causes not specifically excluded.
Open Perils - A homeowners policy that covers you for losses caused by anything that’s not specifically listed as being excluded (see exclusions, all perils, and named peril).
Peril - the cause of a possible property loss, such as fire, windstorm, theft, explosion or riot.
Sewer and Drain Back-Up Protection - protects your business against losses caused by water backing up through your sewers or drains, or by water overflowing from a pump.
Subrogation - the assignment to an insurer, after payment of a loss, of an insured’s right to recover the amount of the loss from someone who is legally liable for the damages.
Insurance companies want you to buy insurance to cover the full actual cash value of your home. They include in their policies a “coinsurance clause” that says if you buy a policy for less than 80% of what your home is worth, they can reduce any claims.
For example, assume your home is worth $100,000 and you insure it at $70,000 or a value of 70%:
- If a fire completely destroys your home, the insurance company would pay you $70,000 because that’s your policy maximum.
- If a fire causes $10,000 in damage, the insurance company would pay $7,000 (70% of $10,000).
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 or a barn. It’s usually limited to 10% of your policy, so if you have a $100,000 policy, the other structure coverage would pay for $10,000 in damage or losses to your outbuildings.
Proof of Loss - This is the form you fill out and sign to make your insurance claim. There’s probably a deadline for getting it to your insurance company.