Insurance Policy Glossary
A. Actual Cash Value (ACV): the cost to replace property in the event of damage, taking into account current market value and depreciation. It is sometimes called the "fair market value."
B. Replacement Cost Value (RCV): the cost to replace the property as determined by the cost of materials and labor required or the cost of purchase, without factoring in depreciation.
C. Recoverable Depreciation: when the insurance company refunds you the depreciation cost, or difference between replacement cost value and actual cash value.
D. Nonrecoverable Depreciation: if you have not signed a "recoverable depreciation clause," then the insurance company will likely not pay you the full amount, but will instead deduct funds for depreciation.
E. Peril: something that could cause loss of property, such as theft, injury, or natural disasters like flooding and hurricanes.
F. Risk: possibility of loss, through property damage or injury. The insurance company takes upon itself the risk of the insured and determines the rate from this risk. With liability insurance, companies evaluate your risk of directly/indirectly harming others. G. Exclusions: something not covered by an insurance policy, usually some type of risk.
H. Limits: the maximum and minimum benefit (amount covered) of an insurance policy. The minimum benefit is known as the deductible. The insured pays that amount, and then the insurance company pays the rest, up to the maximum limit.
I. Liability: an obligation that binds someone to debt because of something they did, whether directly or indirectly. In other words, the guilty party pays the price. Liability insurance protects this "guilty party" from the sudden financial loss of payment.
J. Coverage A-Dwelling: a type of insurance coverage that provides protection against financial loss caused by direct damage to your actual home or place of business. Dwelling coverage involves the home structure itself-the walls, roof, ceiling, floors, and so on-and not attached structures or property inside the home.
K. Coverage B-Other Structures: a type of insurance covering structures not attached to your home, such as detached garages, patios, swimming pools, storage sheds, barns, guest houses, sidewalks, driveways, fences, and so on.
L. Coverage C-Personal Property: insurance for the items in your home that are often damaged along with the home structure. These types of items include furniture, electronics, jewelry, clothing, tools-basically anything you own that you would like to replace.
M. Coverage D-Loss of Use: coverage for expenses incurred when your home is uninhabitable due to damage covered under your insurance policy. For example, a fire brings significant damage from burned walls, smoke damage, and water damage from the fire hoses. If you can't live in your home, you will need to stay elsewhere until your home has been repaired.
- Additional Living Expense (ALE): any expenses you would incur during the time your home is not inhabitable due to covered damage. Examples of this include restaurant bills, hotel bills, and possibly transportation.
- Fair Rental Value: if part of the damaged home was rented out (and the damage was covered under the insurance policy), the insurance company will pay the owner an amount equal to what the owner would have received as a rent payment.
- Prohibited Use: when legal authorities prohibit you, in written form, from living in a damaged home. Loss of Use coverage is only intended to cover expenses when a home is definitely uninhabitable, due to loss of function or damage. If the condition of your home is questionable but not clearly uninhabitable, your insurance company can require you to present a prohibited use form.
