Homeowners Insurance Terms You

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What Is Homeowners Insurance and How Does It Work?

Homeowners insurance covers losses and damage to an owner's residence, furnishings, and other possessions, as well as providing liability protection..

Julia Kagan has written about personal finance for more than 25 years and for Investopedia since 2014. The former editor of Consumer Reports, she is an expert in credit and debt, retirement planning, home ownership, employment issues, and insurance. She is a graduate of Bryn Mawr College (A.B., history) and has an MFA in creative nonfiction from Bennington College.

Eric is a duly licensed Independent Insurance Broker licensed in Life, Health, Property, and Casualty insurance. He has worked more than 13 years in both public and private accounting jobs and more than four years licensed as an insurance producer. His background in tax accounting has served as a solid base supporting his current book of business.

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Homeowners insurance is a form of property insurance that covers losses and damages to an individual's residence, along with furnishings and other a-sets in the home. Homeowners insurance also provides liability coverage against accidents in the home or on the property.

A homeowners insurance policy usually covers four kinds of incidents on the insured property: interior damage, exterior damage, loss or damage of personal a-sets/belongings, and injury that occurs while on the property. When a claim is made on any of these incidents, the homeowner will be required to pay a deductible, which in effect is the out-of-pocket costs for the insured.

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9 Key Homeowners Insurance Terms You Should Know

Buying a home represents a major milestone and investment, and finding a homeowners insurance policy goes hand in hand with it. Before you settle on one, make sure you familiarize yourself with these nine key industry terms...

Fair market value is the price of a product or a property when the concerned parties are not pressured to buy or sell and are given ample time to conclude a transaction that is agreeable to all involved. It is also the basis for taxation and court evaluation. View Full Term

When insurers refer to the common area, they mean the space in an estate or residential area that no single individual can lay claim to. These amenities are often owned by a homeowners' a-sociation or a condo a-sociation (see Condo Insurance 101 to learn more). They may include swimming pools, gyms, tennis or basketball courts, elevators, driveways, stairways, and patios. If common areas are insured, they will be covered under the homeowners' a-sociation's insurance, not an individual homeowner's policy.

Material misrepresentation occurs when an applicant lies to an insurance company during the purchase of a policy. Some people, for instance, exaggerate their property's worth or fail to disclose all the information regarding the condition of their property. In the event of a misrepresentation, the company may legally pay your claim partially, refuse to pay your claim, or worse still, cancel your entire policy. Different states have different legislation regarding material misrepresentation, so what applies in your state might not be applicable in another.

The level of coverage varies, but it is commonly between 50 to 70 percent of the item's worth, which is a much better deal than total loss. However, there is a clause for every item. Most insurance companies advise purchasing a special endorsement or rider, usually referred to as a floater, to insure specific types of personal property (learn more about these in Personal Property Floaters 101).

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Do I Really Need Homeowners Insurance

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Homeowners Insurance Guide: A Beginner's Overview

Everything you need to know about homeowners insurance, from what it covers to how rates are determined.

Homeowners insurance (also known as home insurance) isn't a luxury; it's a necessity. And not just because it protects your home and possessions against damage or theft. Virtually all mortgage companies require borrowers to have insurance coverage for the full or fair value of a property (usually the purchase price) and won't make a loan or finance a residential real estate transaction without proof of it.

You don't even have to own your home to need insurance; many landlords require their tenants to maintain renter's insurance coverage. But whether it's required or not, it's smart to have this kind of protection. We'll walk you through the basics of homeowners insurance policies.

Policy rates are largely determined by the insurer's risk that you'll file a claim; they a-sess this risk based on past claim history a-sociated with the home, the neighborhood, and the home's condition.

In the event of damage due to fire, hurricanes, lightning, vandalism or other covered disasters, your insurer will compensate you so your house can be repaired or even completely rebuilt. Destruction or mutilation from floods, earthquakes, and poor home maintenance is generally not covered and you may require separate riders if you want that type of protection. Freestanding garages, sheds or other structures on the property may also need to be covered separately using the same guidelines as for the main house.

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Home Insurance Terms & Definitions | Homeowners Insurance Definition

Home insurance definitions can be confusing. Learn the basics of home insurance terms so you can select the right coverage for your property. To see homeowners insurance terms explained, read through our glossary for quick answers and easy-to-understand definitions.

AARP® homeowners insurance coverages from The Hartford may feel complicated, but they don’t have to be.1 You can start learning more by reviewing important home insurance terms and definitions that relate to your policy. This will help you better understand the home insurance contracts you get from your insurance company.

You can also learn more about your policy by calling our representatives at 888-413-8970. They’ll go over each coverage that’s included, as well as other important details, like your policy’s effective date.

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

Actual Cash Value (ACV): You can use this to measure the value of real and personal property that you’re repairing or replacing after losses or damages. It’s calculated by subtracting depreciation from replacement cost.

Additional Limits in the Event of a Total Loss: If you receive 100% home replacement cost (the money required to rebuild a home at present, with similar materials) then you may be eligible for extra coverage limits.

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Home Insurance Glossary - Home Insurance

We’ll admit it. Some insurance terms can be tough to understand. Whether you’re looking for a specific term or simply trying to brush up on your home insurance knowledge, we can help. Check out our glossary for home insurance definitions from our experts. As an informed customer, you can better understand your home insurance protection …

We’ll admit it. Some insurance terms can be tough to understand. Whether you’re looking for a specific term or simply trying to brush up on your home insurance knowledge, we can help.

Check out our glossary for home insurance definitions from our experts. As an informed customer, you can better understand your home insurance protection and make the right decisions when shopping for coverage. It’s a win, win situation.

Cash ValueThe amount of money which the policy owner will receive as a refund if the coverage is cancelled and the policy is returned to the company. Also known as cash surrender value.

Coinsurance ClauseA provision in a hazard insurance policy that states the amount of coverage that must be maintained — as a percentage of the total value of the property — for the insured to collect the full amount of a loss.

Common AreasThose portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium projects homeowners’ a-sociation (or a cooperative projects cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.

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Glossary of Insurance Terms for Homeowners - HAR.com

No, it's not rocket science. It's just your homeowners insurance policy. Know these terms.

Having trouble figuring out what all that legal lingo in your homeowners insurance policy means? This glossary of insurance terms will help you understand what's covered, what's not covered, and what your insurance company is really saying in its policy.

For possessions, what it would cost to replace your items minus how much value they’ve lost since you bought them (for example, because the item is used, or suffers wear and tear).

Additional Living Expenses The cost of housing and feeding your family after your home is damaged by something your homeowners insurance covers. Usually limited to 10% to 30% of your policy value (if you have a $100,000 policy, your potential reimbursement would be $10,000-$30,000).

Adjuster The person who works out the details of your claim. An adjuster can work for anyone. Staff adjusters work for the insurance company. Public adjusters are hired by and paid by homeowners. Independent adjusters work for whomever hires them – insurance companies or consumers.

All Risks Coverage A homeowners policy that covers you for losses caused by anything that’s not specifically listed as being excluded (see exclusions, open perils, and named perils). You pay extra for all risks coverage.

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Glossary of Common Homeowner's Insurance Terms

Knowing the proper insurance terminology is the key to understanding homeowners insurance and becoming comfortable and confident in your investments.

There are many insurance terms and definitions that you should be familiar with as a homeowner. Knowing the proper insurance terminology is the key to understanding homeowners insurance and becoming comfortable and confident in your investments.

At David Pope Insurance Services, LLC, we want you to feel informed and knowledgeable about our services. That’s why we’ve provided a comprehensive homeowners insurance glossary of terms filled with general definitions that will help you fully comprehend the essential concepts.

If any of your possessions are stolen, destroyed or damaged, insurers will determine their actual cash value to price out a policyholder’s personal property claims. Insurance companies calculate this rate by establishing how much money it would cost to replace the item, then subtracting depreciation.

Additional coverages are extra funds for circumstantial expenses that an insurance company provides to policyholders under a particular set of criteria. Insurers will evaluate a policyholder’s claim by comparing it to a baseline for everyday expenses. Then, they will determine whether additional coverages are in order.

An individual can make a claim to receive extra funds in the event of an unexpected situation like a fire or disaster. They must be able to verify the claim with proof of paying additional fees, like receipts and other financial documents.

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Homeowners Insurance: Definition, Coverage, Types, Examples

Homeowners insurance is a policy that covers the costs for the loss of a person’s house or damage to the property and its possessions.

Homeowners insurance safeguards the insured property and compensates for any damage/loss to the home and its belongings. For example, Mr. Dawson inherits his family home and decides to buy insurance for the house. He, therefore, purchases $3,000,000 in home insurance. A sudden fire due to an electrical short circuit causes significant damage to the house and its possessions. Mr. Dawson claims the insurance and gets $2,000,000 (the home’s current market value).

Homeowners insurance covers damages from lightning, fire, natural disasters, and more. It generally reimburses for the home and its contents, such as furniture and appliances, and provides liability coverage if someone gets injured on the property.

Some policies also cover temporary living expenses if the residence is uninhabitable. Suppose a home gets damaged in a fire, then the policy may cover the cost of staying in a hotel during repairs on the house

Type Perils Coverage HO-1: Basic It is the most basic policy that covers limited perils, like fire, theft, vandalism, etc It pays in actual cash value HO-2: Broad It is an advanced HO-1 policy that covers extra perils such as water overflow, freezing, sudden accidental cracking, and more It compensates for dwelling in replacement costs and property in actual costs HO-3: Special It is the most commonly available insurance that provides coverage for most of the perils, excluding earthquakes, sinkholes, etc It pays replacement costs for both dwelling and property but still can differ on the policy HO-4: Contents Broad It is for renters to secure their belongings under most kinds of perils; similar to HO-3 It covers the renters’ damaged possessions in replacement costs. In addition, it can provide living expenses HO-5: Comprehensive It covers single-family homes under all possible perils, from fire to snow blockage and more It covers the damages in replacement costs for all possessions along with the house HO-6: Unit-owners It is for people living in condos, and the perils included vary on the plan. It can be limited, or all perils The coverage is mainly for renovations, liability, a-set losses, etc HO-7: Mobile Home It is generally for mobile houses like trailers, modular homes, and others. The perils depending on the plan It covers the policyholder only for losses when the home is not in transit HO-8: Modified Coverage It is an HO-1 policy for houses that do not fall under any other category, such as high-risk location-based homes. The coverage is for actual cost value, similar to HO-1.

In August 2022, Mark Orminski experienced a fire at his house due to a faulty LED bulb. He claimed the homeowners insurance from State Farm Insurance, and the company had to pay $246,000. However, the company then sued Amazon, where Mark bought the bulb from, as they had warranted it.

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Homeowners insurance terms and definitions

Want to better understand the insurance definitions, terms, and coverages in your homeowners insurance policy? We can help answer questions you may have about homeowners insurance terminology.

Home is where our stories begin. Home is where we spend time with our friends and family. Home is worth protecting. Our affiliated agents can help you protect what matters and make sure you get the right home insurance coverage, but in the meantime, it doesn’t hurt to know a few facts and terms.

Actual cash value: Cost of replacing damaged or destroyed property with comparable new property, minus depreciation and obsolescence. For example, a 10-year-old sofa will not be replaced at the current full value because of value depreciation.

Coinsurance: Property insurance requires policyholders to carry coinsurance — insurance equal to a specified percentage of the value of property — in order to be eligible for full payment on a loss.

Property covers your home (dwelling) and the other structures on your property (such as sheds or garages). If you have a loss, this part of your policy would cover costs to repair or rebuild the structures. This also includes damage to fixtures such as plumbing, wiring, and heating.

Furniture, clothes, and other personal items are usually covered if they are stolen or destroyed by certain types of natural disasters. Most companies provide coverage limits of 50 to 70 percent of the amount of insurance on the structure of the home.

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Insurance terms first-time home buyers should know

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Understanding some of the basic terms can help you choose the best coverage for you. We spoke with AAA President’s Elite agent Inga Neri to get a crash course on what first-time homebuyers should know.

Dwelling coverage helps to pay for the cost of fixing or rebuilding your home if it's damaged or destroyed. As the cornerstone of your home insurance policy, Inga says it's one of the most important factors to consider: “I always explain to people you want to make sure you have enough coverage to rebuild a home. Because it's very, very important."

Inga says most homeowners mistakenly think it's enough to cover their house for what they paid for it—the market value. That's how much the house is worth to a buyer in its current condition. A house's market value is affected by many factors that aren't related to the cost of rebuilding the home itself, such as the quality of nearby schools and whether there are many or few other homes on the market.

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Do You Have to Have Homeowners Insurance? (2022)

Affiliate Disclosure: This Old House‘s Reviews Team is committed to delivering honest, objective, and independent reviews on home products and services. To support this business model, This Old House may be compensated if you purchase through links on our website.

Homeowners insurance isn’t required by law, but your lender may require a policy. Keep reading to learn more about when you have to have homeowners insurance and the benefits of this type of coverage.

Homeowners insurance protects your home and personal belongings from damage and provides coverage if you’re involved in liability claims. While homeowners insurance isn’t required for every homeowner, it does offer peace of mind that you won’t have to pay for any covered accidents yourself. Keep reading to learn about the other benefits of homeowners insurance, when you need a policy, and how to find the best home insurance for your home.

Dwelling—This is the part of the policy that covers the home itself. If an event destroys your home, your policy will cover the cost to rebuild it and all of its built-in elements, like the cabinetry and electrical work.

Additional living expenses—If an event severely damages your home and you have to live elsewhere during repairs, your policy will pay for living expenses during that time, like the cost of a hotel room or the cost of eating out for every meal.

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Hazard Insurance Vs. Homeowners Insurance – Forbes Advisor

Understanding the difference between hazard insurance and homeowners insurance can help you get the coverage you need for your home.

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What is Homeowners Insurance and What Does it Cover? | State Farm®

After investing in your home, it's important to have it insured properly. What are all the policy coverages, forms and exclusions?

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Homeowners insurance is a type of insurance that will provide coverage for your home and other personal property in the case of a covered loss. It can also provide liability coverage if someone hurts themselves at your home or you cause property damage. Homeowners insurance is not only desired, but in many cases, required by your mortgage company so they will also be protected financially if your home experiences a covered loss.

A home is the single biggest investment most individuals will ever make. It is typically the largest a-set on the family "balance sheet." Also, the contents of a typical home, in the form of furniture, appliances, clothing, family heirlooms and other movable personal belongings, represent a substantial additional investment. The unprotected loss (or partial loss) of a home and its contents to theft, fire, windstorm or some other disaster, could be financially devastating. footnote [1]

Further, everyone faces the risk of personal liability. For example, a visitor to the residence could slip and fall. Such accidents can result in court decisions awarding large sums to the injured party for medical expenses and pain and suffering.

Originally, a standard homeowners policy covered only the risk of fire. Today's homeowners policies provide protection against a number of the perils of modern life, in one "package" policy. A typical homeowners policyfootnote [2] can provide insurance protection for the following:

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