Every industry has a set of terminology or jargon that makes sense to experts in that field but causes confusion for clients and customers. At Cornerstone, our Insurance Brokers recognize that our clients have many questions about the terminology contained in their insurance policies. While we’re always happy to answer questions and explain anything in your policy that isn’t clear, we also want you to feel empowered and informed when shopping for your insurance coverage. We’ve created this Complete Guide to 17 Essential Home Insurance Terms to help you get started.
While this list is not exhaustive, it does cover the main terms you’ll need to know with easy-to-understand explanations.
General Insurance Terms
These general insurance terms are words you’ll encounter in most insurance policies, including home insurance, residential insurance, commercial insurance, auto insurance, life insurance, and cyber insurance.
The reason you want home insurance in the first place is to have financial protection in the event something happens to your home. The term “coverage” refers to the specific protection provided by an insurance policy, including dwelling coverage, personal property coverage, liability coverage, and additional living expenses coverage. As insurance brokers, we help you find the right coverage for your needs.
Your “premium” is how much you pay for your insurance policy. With most insurance providers, you can pay annually or monthly for a slightly higher fee. The amount of coverage and deductible you choose will influence how high your premiums are.
The term “deductible” will appear on every insurance policy you read, but what does it mean? The deductible is simply the amount of money you must pay out of your pocket before your insurance coverage kicks in—in other words, the insurance company deducts your contribution from the total before paying their portion. Generally, the higher your deductible is, the lower your policy will cost, also known as your “premium.”
4. Policy Limit
Another term you’ll want to be aware of is the “Policy Limit.” Your policy limit is the maximum amount your insurance company will pay, as outlined in your policy. This means that you’ll want to ensure that your coverage limits match your needs and budget. Not sure how to calculate your coverage needs? We can help address those needs.
When you see the term “rider” in an insurance policy, your mind might leap to the legendary rock band Van Halen and their ingeniously crafted concert rider. While this is not the place to ask your insurance provider to give you M&Ms as part of your policy, it is the place to modify or expand your coverage. An example of a rider or endorsement would be to add a specification for expensive jewellery or fine art that isn’t typically covered by a standard policy.
An “exclusion” is just as it sounds; it refers to events or situations that are not covered by your insurance policy. It’s important to understand the exclusions in your policy. Hence, you know what is not included and won’t be taken by surprise. Your insurance broker can help you understand what exclusions are contained in your home insurance policy.
It’s always the hope that you’ll never need to use your insurance, but when you do, your insurance company and insurance broker are here to help. The “claim” is the formal request to your insurance company to cover a loss or damage and serves as your file, which keeps all the paperwork and financial information organized.
Once you make a claim, your insurer will investigate it. If your claim is approved, your insurance provider will provide compensation. Your insurance broker is here to help you through the entire claims process.
Underwriting is an important step in both the insurance and financial industries to evaluate and manage the risk of insuring a person or property. The goal is to balance providing financial services to customers and protecting the institution from excessive risk.
The individual(s) who holds the insurance policy is the “policyholder(s).” If you’ve purchased an insurance policy for your home, then you own the policy and are the policyholder.
When you make a claim on your policy, an “Adjuster” will be assigned to investigate and research your claim. The adjuster is the representative of the insurance company who assesses the damage to your property, home, and other items covered by your policy. They’ll determine the amount of compensation your claim requires.
While the term “peril” may sound ominous, in the insurance world, it refers to a specific risk or cause of loss that your insurance policy covers. Common perils include fire, theft, vandalism, and natural disasters.
Home Insurance Terms
The following terms are more specific to residential property insurance, although they may also appear in commercial and auto insurance policies.
12. Property Coverages
Your policy will cover “property coverages” and “liability coverages. “The term “property coverages” describes insurance on “dwellings,” detached private structures, and personal property. It also includes additional living expenses and/or fair rental value in certain circumstances.
You may have heard the term “appraisal” before. It typically refers to the process of determining the value of an item or property. For home insurance purposes, an appraisal is to establish the monetary value of your property and assets covered by the policy. This is crucial for determining the right amount of coverage, setting premiums, and assessing potential claims.
14. Market Value
The “market value” refers to the current worth or current price that an insured property would fetch in the open market. It is the amount that an informed buyer would be willing to pay the seller for the property.
15. Actual Cash Value (ACV)
You might see the term “actual cash value (ACV)” on your home insurance policy and wonder what it means. This term refers to the value of your property or belongings while factoring in depreciation. This takes into account the age of the item in question and its condition at the time of the loss. You might also encounter this term in other insurance policies.
16. Replacement Cost
By contrast, the “replacement cost” is the cost of replacing damaged or destroyed property with new items that are similar in kind and quality without subtracting for depreciation. You may want to consider a higher premium to include replacement costs in your policy. This can make it easier to replace damaged items.
17. Loss of Use/Additional Living Expenses (ALE)
Many home insurance policies include coverage that pays for additional living expenses. This coverage kicks in when you are unable to live in your home due to a loss covered by your policy. This may include hotel bills, meals, and other expenses.
Expert Advice on Home Insurance in Alberta
We hope this list of insurance terms has helped you better understand your home insurance options. While it is not an exhaustive list, it should help you feel more confident about insurance policies.
Our insurance brokers are always here and happy to help demystify anything related to your insurance policy or to answer your home insurance questions.