Every industry has its unique language and terminology. Property insurance is no exception. Here are some good terms to know about insuring your home or business.
Property insurance definitions and what they mean
Act of God
A natural occurrence, such as earthquake or hurricane.
Actual cash value (ACV)
The replacement cost of property, minus the diminished value from its age, use or wear.
Contract of indemnity
Property insurance that restores the insured to their original financial condition after a loss happens.
A page in your policy – usually the front page – with basic information such as your name and address, description of the property location insured, effective dates of the policy, amount of coverage and the premiums.
Increased cost of construction
Added costs of rebuilding a damaged or destroyed building where local laws require the use of more expensive materials, services or methods than the original.
Deliberate damage or destruction of another person’s property. For insurance purposes, it is typically covered under vandalism.
Named (or specified) peril
Events named in a policy such as vandalism, windstorm, fire or sprinkler leakage. A named-peril policy only covers those specific events, rather than all potential losses. These policies are usually cheaper because they cover fewer risks.
The features of a property that are vulnerable to damage. Building construction, electrical wiring and the heating/cooling system are examples of physical hazards.
Anything that has value. There are two types: real property and personal property.
Land and the permanent things on it, such as buildings, outdoor fixtures, machinery and equipment.
All other property not classified as real property, and which is easily moved. This includes furniture, clothing and household goods.
Replacement cost (RC)
The actual cost of replacing damaged or destroyed property with new property, in contrast to ACV. Refers to the amount it takes to replace damaged or destroyed property with new property, without consideration for depreciation.
Property damaged beyond repair, which is taken over by an insurance company (after the claim is paid) in order to reduce its loss by “salvaging” the remaining value of the property.
Special cause of loss
Losses not covered because they are specifically excluded by the policy.
A method of classifying risks by geographic location to set a fair price for coverage.
A specific amount paid to the insured in the event of a complete loss. Also known as an “agreed amount.”