Insurance Policy Glossary

Actual Cash Value (ACV) – Coverage that only pays for the cash value of items lost or destroyed; the cash value is based on what the item would sell for used rather than the cost of a comparable new item.

Additional Living Expenses – Extra money provided to cover additional expenses incurred if you lose your home; unlike loss of use coverage, this covers expenses other than rent for alternative housing.

Annual Limit – The annual limit or aggregate annual limit is the maximum amount that can be paid out on a house insurance policy during a year. This limit is usually several times the value of the home so it should not affect most policy holders.

Deductible – This is the amount of money a policy holder will have to pay before coverage begins. The amount of the deductible often determines the premium or cost of the policy.

Depreciation – The loss of value over time that occurs with most items. Depreciation is used to determine the actual cash value of items covered by some home insurance policies.

Exclusions – A list of claims that the policy will not cover; this often includes damage from earthquakes, floods, and other kinds of disasters. Some policies may exclude claims on certain kinds of valuables as well.

Liability – A legal term that indicates that an individual can be sued for damages; liability insurance provides the funds to cover legal costs and settlements associated with such suits.

Limits – The maximum amounts that can be paid on certain kinds of claims. These are will be listed in the policy itself.

Premium – The regular payment made to keep an insurance policy current; the premium on a house policy is often based on the amount of the deductible.

Replacement Cash Value (RCV) – Coverage that will replace destroyed or damaged possessions with a comparable new item even if the possession destroyed is several years old; also called total replacement coverage

Rider – Also called an option or endorsement; this is a provision that provides additional coverage on a house insurance policy. Many riders cover items specifically excluded from basic house insurance policies, such as jewelry or electronics.

Risk – Insurance companies base their decision on coverage on the risk they take when issuing a policy. The risk means the likelihood that a claim will have to be paid. The cost of insurance policies is usually based on the risk the insurer takes.

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