You pay premiums every month so you can be covered in case of damage to your home or property. But, do you know exactly what you’re paying for?
Homeowners insurance documents can be quite complicated to understand. To make things simpler, we have compiled a list of key terms about home insurance. This will make navigating your home insurance policy much easier.
Key Terms to Understand
Actual cash value: This is an estimate of what your property’s fair market value was before it sustained damage. This will include your home, your property and any belongings you have inside your home. ACV is basically the determination of how much it would cost to replace everything. It takes out depreciation. This is the amount of value the property has lost over time because of normal wear and tear and/or aging.
Binder: This temporary agreement states that your insurance policy is now effective. You use this binder to prove to your mortgage company that you have home insurance. You’ll get a binder from your insurer before the actual policy goes into effect.
Blanket coverage: A blanket insurance policy covers multiple items under one coverage amount. This is done instead of listing each item separately with an individual coverage amount. If you have a shed, separate garage and home, for example, blanket coverage would cover all three at, say $150,000, rather than covering the shed at $10,000, the garage at $30,000 and the home at $110,000.
Claim: A claim occurs when you request your insurer compensate you for a loss you have incurred due to damage. After you file a claim, your insurance company will investigate. If they validate it, you’ll get a payment per your policy.
Damage: This is any loss of property or physical harm that is suffered.
Declarations: This is a page in your home insurance policy that has the basic overview information of the policy. This will include the name and address of the people being insured, the time period when the policy is in effect, the total amount of your premium and the total amount of your coverage.
Deductible: This is the amount of money you must pay before your home insurance company will pay the rest of the claim. Your deductible may be $1,000, for example. This means that if your claim is $10,000, you must pay the first $1,000, and your insurance company will pay the remaining $9,000.
Endorsement: This is sometimes also called a rider. It’s a document that gets attached to your home insurance policy that would change or amend some of the coverage.
Exclusion: This is any circumstance, condition and/or situation that would not be covered under your policy. These will be listed explicitly in the policy.
Liability insurance: This part of your home insurance policy will cover you in case of damages that are incurred on your property. If someone else suffers bodily injury while slipping on your property, for example, liability insurance will kick in to cover their damages.
Limit of liability: This is the maximum dollar amount your home insurance company will have to pay for a claim. It’s also known as your policy limits.
Loss: In terms of home insurance, this is the damage that is sustained by you. It’s what your insurance company will agree to cover.
Market value: This is the appraised dollar amount for what your home would sell for if it were listed for sale today.
Negligence: If someone does not exercise “reasonable care” for a specific situation, they could be considered negligent. You can be negligent if you do something or don’t do something.
Over insurance: This is home insurance that exceeds the value of the home and property that you’re insuring.
Personal property: This is a general term that refers to the things you own other than the structures on your property. It could include furniture, clothing, electronics and more.
Premium: This is the total amount of money that you must pay for your home insurance company to cover your property. It is often stated on an annual basis. Sometimes, this is paid directly through your mortgage company on a monthly payment as part of your escrow.
Reinstatement: If you don’t make a premium payment on time, your home insurance policy may lapse. When the policy is put back into effect after payment, this is called reinstatement.
Renters insurance: If you are renting your home, you can get renters insurance. This will cover you mainly for your personal items that you have in your home.
Replacement cost value insurance: This is insurance coverage that will pay for the restoration or replacement of the property that was damaged. The insurance coverage will cover you so that your property is made back to the same condition it was in before the damage occurred.
Total loss: This refers to the unfortunate situation where a home is completely destroyed. It can also occur if the cost to rebuild or repair the property exceeds the home insurance policy limit.
Umbrella insurance: This is additional coverage that increases your limits above what your home insurance policy states. It can also provide general, broad coverage in addition to the basic coverage of your policy.
Underwriting: This is the process your home insurance company will use to analyze your application. They will either reject or accept it based on your application.
Work with a Trusted Home Insurance Company
Having a sufficient home insurance policy is essential for any homeowner. It helps protect your investment — your property, your home and everything you have in it.
Home insurance can be confusing at times, unfortunately. That’s why it’s important to work with an insurance company such as Signature Insurance. We make the process easy to complete and easy to understand.
Contact us today to find out how we can protect you and your home.
Get insurance today!
At Signature Insurance we want to help you understand your insurance coverage options so you make the best decision.
Contact us at (586) 274-9600 and we’ll be happy to get quote for you from many of the top auto insurance companies or home insurance companies in Metro Detroit.