Glossary: Key Insurance Terms

 

Reading your home insurance policy can feel like a real challenge. Policies are loaded with terms and jargon that the average homeowner should not be expected to know. With that in mind, we have put together a list of some of the key insurance terms you are likely to come across while reviewing your policy.

 

• All Risk Coverage: Coverage for all physical loss. Only items specifically excluded in the policy are excepted.

 

• Act of God: Unpreventable events such as floods, earthquakes, lightning, or other natural causes.

 

• Actual Cash Value: The value of your personal items when depreciation is deducted from their full cost. This is a common settlement option in most policies and is typically what the insurer will attempt to settle for. For example, if you owned a $500 couch for 3 years, before it is destroyed in a residential fire, the insurer would likely offer you around 50% of the value of the couch ($250) due to the effect of three years’ worth of wear-and-tear.

 

• Agreed value policy: A policy that pays out the full insured value in the event of a total loss rather than the stated amount.

 

• Appraisal: A survey conducted to determine the amount of damage, costs of repairs, and whether the loss qualifies as a total or complete loss.

 

• Arson: The act of intentionally or recklessly causing damage to a property by fire or explosion.

 

• Arbitration: Settling a dispute through proceedings with an impartial third-party other than a judge as an alternative to a lawsuit.

 

• Assured: A synonym for insured or policyholder.

 

• Additional Insurance: Insurance supplemental to an existing policy.

 

• Additional Living Expenses: The new and increased costs of everyday living incurred by you and your family (the policy holders), if you are displaced from your place of residence. These expenses include, but are not limited to: hotels, rent, emergency clothing, increased utilities, etc.

 

• Basic Limits: The minimum coverage amount you can purchase in a policy for a specific property.

 

• Brand New Belonging / Extended Replacement Cost: Coverage that pays the full cost to replace or repair recently purchased belongings without factoring in depreciation.

 

• Buildings/Additions/Alterations Coverage: Coverage for tenants and condo-owners to indemnify the costs of repairing damages to fixtures, alterations, additions, and improvements made to a rented apartment or condo.

 

• Cancellation: Termination of an insurance policy before the stated end date.

 

• Catastrophe: A severe and sudden event that causes significant loss.

 

• Claim: The demand for payment under an insurance policy after an insured loss.

 

• Coinsurance Clause: An insurance-to-value proposition requiring the policyholder to pay a share of the loss if the home was not insured equal to its value. If, after a loss, it is determined that your home was insured for less than it should have been insured for, the insurance company will hold back whatever proportion of the settlement is equal to the home’s true value you left uninsured. For example, if your home is worth $100,000 to rebuild, and you only insured it for $75,000, you will be responsible for the difference (25%) of the repair or rebuild work.

 

• Conditions: The rights, responsibilities, and duties for the parties, as set out in the terms of the insurance policy.

 

• Contributory Negligence: A legal doctrine that may prevent claimants from recovering 100% of their damages because they are partially or wholly negligent or at fault for them.

 

• Claimant: The individual (or entity) making an insurance claim.

 

• Condominium Owners Policy: A policy that protects condo owners who do not have ownership of the building in its entirety. Coverage can include: personal property, some structural coverage for improvements made to the base-unit, and liability for injuries or damage to others.

 

• Construction Type: The construction of the building, i.e., masonry vs. frame.

 

• Constructive Total Loss: A situation in which the cost to make repairs to a property exceeds the value of the property.

 

• Contents Coverage: A type of insurance coverage that will compensate policyholders when they experience loss to personal belongings. This can be part of a comprehensive home policy, or the majority of a condo or rental policy that covers personal belongings even without coverage for structural damage.

 

• Damages: The amount of money that a party is obligated to pay as compensation for injury or loss.

 

• Declaration Page: The summary page for your insurance policy, providing written confirmation of your coverage limits, as well as a detailed overview of the specific elements chosen for the coverage of your home. The fine print will be contained in the long-form policy.

 

• Deductible: A specified amount of money that you must pay before the insurance company will pay a claim.

 

• Depreciation: A reduction in the value of personal contents or building materials proportionate to the passage of time. This is meant to account for the effect of wear-and-tear over time.

 

• Dwelling Fire Policy: A fire insurance policy that covers property which the policyholder rents at least partially to other parties. The policyholder may have no personal contents on-site requiring coverage, but does require coverage to reimburse any costs necessary to repair or rebuild the structure.

 

• Dwelling Replacement Cost Plus/Guarantee: Optional and extended insurance coverage that will provide additional coverage funds for unexpected increases in the cost of building materials which may drive up the cost of repairs or rebuilding.

 

• Effective Date: The date an insurance policy comes into effect and coverage begins.

 

• Endorsement: A document amending an insurance policy by altering (adding or deleting) coverage, or in any way modifying coverage from what is stated in the boilerplate long-form policy.

 

• Exclusions: Also known as exceptions, these are circumstances or provisions outlined in a policy for which the insurer will not provide compensation or benefits.

 

• Expiration Date: Found in your Declaration Pages, this is the date when the coverage on your policy runs out and (if you’ve agreed to one) a renewal policy begins.

 

• Extended Coverage: Additional coverage for amounts, risks, and/or hazards not provided under your basic policy, but added as a clause or endorsement.

 

• Extended Replacement Cost: (See Brand New Belonging.)

 

• Fire Insurance: A contract or policy insuring against direct loss caused by fire, lightning, or other defined events.

 

• Flood Insurance: Insurance coverage protecting damage caused by overflowing or rising bodies of water, also known as surface flooding. Flooding insurance is not included in standard home insurance.

 

• Gated Community: Any residential community with controlled entry or access.

 

• Global Cash Settlement: A settlement agreement between you and the insurance company, where your spending is not monitored by your submission of receipts. You receive a lump-sum payment, typically for all your personal contents, and can proceed with the funds as you wish. Note that if you fail to properly budget the settlement and run out of funding, you will not be able to secure more funding later.

 

• Guaranteed Replacement Cost Coverage: A home insurance policy that will pay the full cost of replacing contents or repairing damages or rebuilding a home, even if those costs exceed the limits outlined in the policy. Some guaranteed replacement cost provisions may be capped at 125% or 200% of the limit. Personal Property limits may also increase proportionally if your policy includes a Guaranteed Replacement Cost clause.

 

• Hazard: A condition or situation that increases the possibility of a loss or its extent.

 

• Homeowners Policy: A type of packaged policy that includes coverage for fire, theft, personal liability, and other perils, with all premiums included in one amount.

 

• Hurricane/Named Storm Deductible: A separate deductible for damages caused by a hurricane (or a named storm).

 

• Holdback: A balance due to the insured. Often when a property has replacement cost coverage, the full replacement costs will not be paid by the insurer until the property is fully repaired. The insured must meet the requirements for replacement outlined in the insurance policy.

 

• Increased Replacement Cost on Dwelling: Optional and extended insurance coverage that will provide additional coverage funds for unexpected increases in the cost of building materials which may drive up the cost of repairs or rebuilding.

 

• Insurance to Value: The insurance coverage is roughly equal to the value of the property.

 

• Insuring Agreements: The element of the insurance policy that states the coverage.

 

• Insured: The person who receives benefits or protection from an insurance policy.

 

• Insurer: The party or company that issues an insurance policy to the policyholder and promises to pay losses.

 

• Indemnification: Providing compensation for a loss with the intention of restoring the insured to their position prior to their loss.

 

• Independent Adjuster: A professional who provides an estimate of losses on behalf of either an insurance company or the insured, but not an employee of the insurance company.

 

• Inflation Guard Protection: An additional provision in a home insurance policy that automatically provides increases in coverage limits throughout the term of the policy to account for inflation, as computed by a specific formula.

 

• Limits: The maximum protection purchased for a specific type of coverage in a policy.

 

• Loss: A reduction in value of the insured’s property due to an insured peril; the amount pursued in an insurance claim; or the amount paid on behalf of the insured.

 

• Loss Assessment Coverage: Coverage providing payment for extra fees charged by a condo or homeowners association, subject to a deductible and stated policy limits.

 

• Loss Payable Clause: A condition in the policy that enables the insured to direct the insurer to pay losses that may be due to a third party.

 

• Loss of Use: Compensation for the loss of use of the policyholder’s property. Also known as “Additional Living Expenses.”

 

• Material Damage: All damage and losses related to a property covered by the policy, including property damage, comprehensive damage, collision damage, Fire, Theft, Combined Additional Coverage, or rental reimbursement.

 

• Mischief: Willful destruction of property.

 

• Market Value: The amount something can be sold for on the market. For example, your home may be worth $400,000, but to rebuild your home, it will only cost the insurer the replacement cost (materials, labour, etc.), which may be far less than the market value.

 

• Medical Payments to Others (Property): Coverage that can provide payment for medical expenses related to an accident on your property, intended for the immediate medical payment of guests on your property, subject to specific dollar limits per incident.

 

• Mitigation: Any actions taken to prevent or reduce the extent of damages, loss or the likelihood of loss.

 

• Mortgage Clause: An insurance policy clause that will make a claim jointly payable to both the policyholder and the property’s mortgagee (i.e., mortgage lender).

 

• Named Insured: The person (or entity) designated as a party to the policy, also known as the policyholder.

 

• Named Perils Coverage: An event listed in the policy for which coverage is available. Events not listed are generally not covered. The most common perils include fire, water damage, or theft.

 

• Non-Renewal: A policy that the insurer decides not to continue or renew after its expiration date.

 

• Notice of Loss: The insured is under an obligation to notify the insurance company of a loss due to one of the insured perils.

 

• Occurrence: A loss or accident (including continuous exposure to the same harmful conditions) resulting in damage to the property or bodily injury.

 

• Ordinance or Law Coverage: Insurance coverage providing for the additional cost required to bring an antiquated element of the home up to code during repair or demolition of property. While the insurance company only has to rebuild the home exactly as it stood prior to the loss, this may be impossible if to do so would break a current bylaw or code requirements. In these cases it will have to be rebuilt slightly differently, and this coverage would provide the funds if to do so would add increased cost.

 

• Other / Detached Structure: Any structure located on the property not directly attached to the dwelling, i.e., a gazebo, shed, or detached garage that may be under the homeowner’s policy.

 

• Partial Loss: A loss on an insured property that has not been completely destroyed.

 

• Peril: Any hazard or danger that can cause a loss, i.e., a fire.

 

• Personal Contents: The individual items in your home. This includes, but is not limited to, furniture, clothing, food, linens, etc.

 

• Personal Liability Coverage: Coverage for a resident found legally responsible for injury to a person or damage to property, subject to liability limits on your Declaration Page.

 

• Policy: The contract between the insurance company and the homeowner. A document will be issued to the policyholder by the insurance company outlining the terms of the insurance agreement; also known as the policy contract.

 

• Premium: The amounts paid by the policyholder to maintain insurance coverage.

 

• Premises: The insured structure or area containing the insured property, and may include adjacent areas.

 

• Proof of Loss: Documented evidence that the insurer requires to prove the quantity of a claim, usually including a claim form completed by the insured or a statement of the extent of the claim. May be requested to satisfy the conditions of the policy.

 

• Property Insurance: Insurance on real or personal property to protect against loss or damage.

 

• Property Damage: The loss of use, injury to, or destruction of real property.

 

• Protective Devices: Safety equipment used to prevent, notify of, or protect from an emergency event, including dead-locks, fire extinguishers, and smoke alarms.

 

• Property Fire Wall: A fire resistant wall with structural stability that will impede or control the spread of a fire.

 

• Public Adjuster: A claims adjuster who represents the policyholder in exchange for a fee or percentage of the compensation collected. Their responsibility is to serve the best interest of the policyholder and they do not work for the insurance company.

 

• Real Property: Real estate; the ground and attached land and buildings.

 

• Reinstatement: Restoring a lapsed policy to its full value as though it had never been terminated.

 

• Renewal: A new policy issued to replace an expired one.

 

• Replacement Cost: The cost to replace your personal items if you were to repurchase the exact same models, or models of like-kind-and-quality. It is one way the insurer values your items.

 

• Replacement Cost Coverage: Optional and extended insurance coverage that will provide additional coverage funds for unexpected increases in the cost of building materials and/or contents which may cause the replacement to exceed coverage limits. Often an insurer will pay out a portion of the replacement cost (perhaps the actual cash value) and only reimburse the remainder once receipts and proofs of purchase are offered.

 

• Replacement Cost Payments: Payments made from a policy that provides replacement cost coverage. The insurer often only pays out a portion of the replacement cost (such as the Actual Cash Value), and will then require the homeowner to purchase the replacement item and submit a receipt or proof of payment to reimburse the remaining portion.

 

• Residence Employee: An employee of the insured whose responsibilities are related to the use of or maintenance of the insured property.

 

• Residence Premises: The primary residence of the insured.

 

• Renters Insurance: A type of property insurance that provides coverage to an individual residing in a residence such as an apartment, condominium, or single-family home owned by another party.

 

• Resident Adjuster: An adjuster on staff who handles claims in a remote area.

 

• Rider: Also known as an endorsement or addition to an insurance policy.

 

• Salvage: Damaged property that the insurance company takes ownership of after paying out a claim.

 

• Schedule of Loss: A document with a list of personal contents that were damaged or destroyed due to your residential loss.

 

• Specified Peril: Part of an insurance policy that covers certain types of loss. Typically these types of losses are not subject to personal content limits. For example, if fire is a specified peril in your policy, you may not be subject to the $10,000 limit for jewellery that is listed. Each policy has a different definition of “specified peril.”

 

• Subrogation: A process in which one insurance company pursues reimbursement for a claim it has already paid from another insurance company or individual.

 

• Supplemental Heating Device: Any appliance used as a secondary heating source such as a wood or coal stove, cookstoves, freestanding fireplaces, or fireplaces with inserts. Typically all such appliances need to have a separate flue from the primary heating source in order to be covered. Portable space heating units are not considered to be supplemental heating devices.

 

• Tenants Policy: An insurance policy covering personal contents, liability, and potentially Additional Living Expenses which is used by an insured who rents their residence.

 

• Total Loss: The loss of the entire value of insured property or goods; payment of the full amount of an insurance contract.

 

• Underwriting: The process of evaluating an applicant and their property against criteria for insurability to determine the applicant’s eligibility for insurance coverage, as well as whether rates should be standard or modified.

 

• Upgrade Coverage:  Insurance coverage providing for the additional cost required to bring an antiquated element of the home up to code during repair or demolition of the property. While the insurance company only has to rebuild the home exactly as it stood prior to the loss, this may be impossible if to do so would break a current bylaw or code requirements. In these cases, it will have to be rebuilt slightly differently, and this coverage would provide the funds if to do so would add increased cost.

 

• Water Backup of Sewers or Drains Coverage: An optional form of coverage that can be added to your policy to cover the cost of damages to your home caused by water backing up from public sewers or drains.

 

• Wind/Hurricane Deductible: A deductible that only applies to losses caused by wind or a hurricane.

 

• Windstorm or Hail Coverage: Insurance coverage that protects from losses caused by a windstorm or hail. May be subject to special conditions, deductibles, or terms. Note that some policies will explicitly exclude these perils all together.

 

• Walkaway: A compromise between the policyholder and the insurance company regarding any holdback benefits in a replacement cost policy agreement.

 

Be sure to familiarize yourself with the key terms in your insurance policy when you have to make a claim. Understanding your policy will go a long way toward helping you settle your claim quickly and with positive results.

If you need help with your policy or your claim, you can contact Virani Law or explore our resource centre. There you can find articles that explore common policy terms and issues that arise in the claims process.