Homeowners Insurance Glossary
Over the past few decades, I’ve learned that my role as a public adjuster is often to be an interpreter for the insurance company. Large insurance providers typically fill their policies with terms that homeowners don’t understand. When I arrive at a loss location, I make it a point to talk to the policyholder in plain language.
At Avner Gat Inc., our fees are based on a percentage of the total settlement amount. While I am always happy to help with an insurance claim, I strive to empower homeowners to manage their own negotiations whenever possible. I never want to take money from homeowners in total loss cases. Instead, my team may give advice or recommend restoration professionals. Typically, when I simplify the terms in the insurance policy, homeowners will discover they might not need a public adjuster.
Corporate insurance adjusters don’t always speak clearly, leaving homeowners to feel they are being misled. At that point, people begin to worry and they look for help online. That’s why I’ve created this simple glossary of terms to help you interpret the industry jargon in your homeowners insurance policy. Please do not hesitate to contact me if you have any additional questions!
ACTUAL CASH VALUE COVERAGE
Actual cash value coverage is different from replacement cost coverage. If your policy provides actual cash value coverage, it means you will be paid the actual cash value of the property at the time that it was damaged. The insurance company will not compensate you for depreciation, and the actual cash value of an item may not be sufficient to replace the item in the event of a total loss.
ADDITIONAL LIVING EXPENSE
Your additional living expense is the difference between your normal cost of living and the amount it will cost to maintain that same lifestyle after an accident. Please note, additional living expenses do not cover your entire cost of living. For example, if your expenses were $600/month before an accident and they increased to $1000/month after an accident, your insurance provider would only provide you with the difference between those two amounts. In this example, your additional living expense would be $400. (You can find more detailed information on this topic in our blog.)
An amendatory endorsement is language added to your insurance policy that changes the specifics of your coverage. These endorsements help to modify more generic policy components in order to suit your specific needs. For example, if you inform your insurance agent of specific items you would like to declare, they may be specified in an amendatory endorsement. To more fully understand these endorsements, see the following example of an amendatory endorsement through Liberty Mutual.
When you purchase homeowners insurance, there might be a clause in your policy that grants both you and your insurance provider the right to a binding appraisal. This means that if you disagree with the insurance companies valuation of your loss, you may demand an appraisal process, the terms of which will be explained in your policy.
BUILDING CODE UPGRADE COVERAGE
During construction, buildings must adhere to certain building codes. Over time, these codes will change, and older buildings may not meet new requirements. If your home is damaged in a covered loss, building code upgrade coverage will provide the funds necessary to make the mandatory improvements to the structure. Without this coverage, it can be difficult to get your provider to cover the expense of upgrades required by local City Building & Safety Departments.
Your policy deductible is the amount of money that you should pay as the homeowner before your insurance provider will pay for any expenses and repairs related to your claim. Your deductible will be outlined in your policy, and it could be a flat fee or a percentage of the total agreed upon cost of repairs.
For homeowners insurance purposes, a ‘dwelling’ is any building structure and any attached structures such as garages, patios, and carports.
A ‘dwelling limit’ is another way to refer to the total amount of coverage that you have available to you. Think of your dwelling limit as the total cost to remove any damaged portion and then rebuild your home and restore it to the pre-loss condition, with consideration for contemporary labor costs and other construction prices.
One of the biggest points of confusion for homeowners is the topic of earthquake coverage. In most California policies, earthquake coverage is excluded. Some insurance providers will offer endorsements or riders for earthquake coverage which can be added to a DIC or all-risks policy. Please note that situations where an earthquake causes fires or other forms of property damage may be approached differently than claims in which the earthquake was the only source of damage.
Homeowners may have the option to include an inflation guard in their policy. With an inflation guard, your policy will have a provision that steadily increases your coverage limits by a specified percentage over a set time period. While this may sound complicated, it can be relatively straightforward.
An accident may be considered an intentional loss if your insurance provider determines you purposefully caused the damage. Most policies will not cover intentional loss claims. If your insurance provider declares something an ‘intentional loss’ and you do not agree with the decision, one of our public adjusters will be happy to consult with you directly.
LIMITS OF LIABILITY
This term refers to the total amount that will be paid by the insurer in the event of a covered loss. In this case, context is very important because corporate adjusters use this phrase to refer to specific coverage limits as well. For example, your insurer may have limits of liability for structural damage, which will be different from their limits of liability toward content coverage. Some policies may also mention “special limits of liability” which refers to the maximum amount your provider will pay for certain, predefined items. These items must have been declared to your insurance agent in order to receive full coverage under the special liability endorsements.
In cases where a claim impacts different property owners or families, you may have loss assessment coverage. A loss assessment is a formal inspection by an appraisal professional that determines your share of the settlement for shared or common property. For example, in a condominium claim, you may need a loss assessment to determine how to divide funding for damaged common area property. This term is commonly used to describe an amount assessed by a condominium management for each unit owner when a repair is needed for the common area due to a loss.
LOSS OF USE COVERAGE
As the phrase suggests, loss of use is an insurance coverage that provides compensation to homeowners or business owners in the event they are unable to use their space. If your home or business facility is rendered unusable, you may be entitled to compensation.
If you are a homeowner with an active mortgage, the mortgage clause in your policy is intended to protect the bank or financial institution that owns your property. The clause basically functions as a separate policy between your insurance provider and the bank – guaranteeing them that they will receive a settlement, even in the event that the homeowner is found responsible for the accident.
NUCLEAR HAZARD CLAUSE
This clause appears in nearly all insurance policies and serves to protect the insurance company. The nuclear hazard clause eliminates coverage for damage that results from nuclear reactions.
Your homeowner’s insurance policy might include liability coverage. Within the sections of that liability coverage, you’re likely to find a list of coverages for events or accidents you may have personal liability for. As an example, the policy may specify what will happen in cases where a claim is caused by personal activities, pet exposures, and certain incidentals.
While personal property is mostly self-explanatory – homeowners should not that insurance providers differentiate between personal property and “real” property. Real property is the land you own, the buildings and crops on that land, and anything that may be beneath the soil of your land such as oil or spring water. Personal property is all property that is not considered “real” property.
Your insurance premium is the amount you pay to your insurance provider when you purchase an insurance policy. This amount is separate from your deductible. It is essentially the price that you’re paying for the protection and privilege of having an insurance policy.
REPLACEMENT COST COVERAGE
Unlike actual cash value coverage, replacement cost coverage is a more favorable form of coverage that provides property owners with a settlement in the full amount it will cost to replace damaged property and structures. Replacement cost coverage should include all funds needed to replace lost or irreparable items with materials of the same kind and quality. This kind of coverage means that the homeowner does not have to absorb the cost of depreciation during restoration/repairs to the dwelling and/or replacement of covered personal property.
Subrogation refers to the legal right your insurance company has to recover the settlement amount paid to you from another party that might be found liable to your loss.