Home Insurance Terms You Should Know About
Shopping for home insurance for the first time can be difficult. That’s why it’s helpful to read home insurance guides that explain insurance concepts and coverage types in plain English. Before you purchase a policy, it’s important to have a thorough understanding of home insurance at a high level.
Home insurance definitions
Sometimes, the hardest part about finding home insurance is simply understanding the terms and phrases that you hear from agents and provider websites. If you think home insurance terminology sounds like a foreign language, you’re not alone. Keep reading for easy-to-understand definitions of the most important home insurance terms you need to know.
Home insurance terms: the basics
Premium: A premium is the amount of money you pay for your insurance.
Deductible: A deductible is the amount of money you are required to pay out-of-pocket towards a claim before the insurance company reimburses you.
Coverage: Coverage is simply what your insurance covers. For home insurance, that typically includes dwelling coverage, personal property coverage, liability coverage, medical payments coverage, and additional living expenses coverage.
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Policy: A policy is a contract between you and your insurance company that says the provider will reimburse you for covered losses in exchange for your monthly payment. Your policy also includes other agreements, like your rate, the amount of coverage you have, discounts and more.
Additional living expenses: Additional living expenses is a type of insurance coverage that will pay for your hotel and food expenses if your home is damaged and you have to temporarily move out.
Direct insurance provider: A direct insurance provider is an insurance company that sells insurance policies directly to homeowners online, rather than through agents.
Contents coverage: Contents coverage, also called personal property coverage, is the portion of your home insurance policy that specifically protects your personal items.
Adjuster: An adjuster is someone who inspects damage at your home after you file an insurance claim. The adjuster will determine how much it will cost to fix the damages, and how much money the insurance company should give you to make repairs.
Claim: A claim is a formal request for reimbursement from your insurance company after a loss.
Liability coverage: Liability coverage will pay for your legal fees if you accidentally damage someone’s property, or if someone gets hurt on your property, and you get sued.
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Limit of liability: A limit of liability is the highest amount of money your insurance company will pay towards your legal fees if you get involved in a liability claim.
Dwelling: A dwelling refers to the physical structure of your home. It also accounts for structures that are attached to your home, like a garage or porch.
Endorsement: An endorsement is a secondary policy that you can add to your home insurance for more coverage, often for specific situations.
Name insured: A named Insured is someone who lives in your household, and is covered by your insurance, but does not own the home.
Owner: The owner, or policy owner, is the person whose name is on the insurance policy and owns the insured home.
Peril: A peril is an event that causes sudden or accidental damage or destruction to your home.
Replacement cost vs. actual cash value: Replacement cost (RCV) and actual cash value (ACV) are the two options for reimbursement from your insurance company after a loss. RCV will reimburse you for the original amount you paid for your home or personal belonging, whereas ACV will reimburse you for the cost, minus depreciation.
Term: A term usually refers to your policy term, which is the period of time that your insurance policy is active.
Tenant or renter insurance: Renters insurance or tenant insurance is a type of insurance that covers renters. Unlike home insurance, renters insurance only provides personal property coverage and liability coverage.
Market value: Market value is the estimated price of a house based on the home’s features, real estate demand in the area, the average price per square foot in the area and more.
Real estate property: Real estate property is any piece of land with a home built on it.
Personal property: Personal property refers to your personal belongings, like clothing, home appliances, furniture, etc.
Captive insurance agency: A captive insurance agency is an insurance company that is owned by a parent company.
Mutual insurance company: A mutual insurance company is an insurance company that is owned by its policyholders.
More definitions to know
Disasters coverage: Disasters coverage is a type of insurance that protects your home from catastrophic events, such as floods and earthquakes.
Inflation protection: Inflation protection is typically sold as an add-on to your home insurance policy. It guarantees that the price of your coverage won’t be impacted by inflation.
Independent insurance agency: An independent insurance agency is licensed to sell insurance policies from multiple insurance providers.
Umbrella liability coverage: Umbrella liability coverage increases your liability insurance beyond the standard limits of your homeowners policy.
Vacant property: A vacant property is a home that has no personal items inside (furniture, appliances, etc.), and is not being lived in.
Trust: A trust is a life insurance asset where you can hold real estate property and money for your beneficiaries. Life insurance trusts can reduce or eliminate estate taxes.
Life estate: A life estate is a joint ownership agreement that allows a homeowner to live in their house until their death, and after they pass away, a new owner takes control of the house.
Too long, didn’t read?
Buying home insurance can be complicated, but it doesn’t have to be. Before you purchase a policy, review these terms, and make sure you understand them. You can use this guide as a cheat sheet for the most important home insurance terms to know while shopping for insurance.
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