Home insurance terms you need to know before buying a home
Buying a home is a complicated process. Make it simple again with this cheat sheet of home insurance terms before you sign on the dotted line! It’s important to know everything you’re agreeing to in a legal document, after all.
Actual cash value (ACV)
This figure encapsulates your property value, which is based on the current cost to replace that property minus depreciation. It’s the cost of replacing damaged property with new property while taking away obsolescence.
This is one of the more misunderstood insurance terms, but we’ve got you covered! The secret is that it represents the cost to rebuild or replace the piece of property in question today, minus the value lost according to the remaining lifespan of that item.
Additional living expense
If property loss forces you to find a different temporary living situation (and the cause of that property loss was covered), additional living expenses are great to have. You get reimbursement for meals, rooms, and other costs incurred due to such circumstances.
This is one of the most overlooked home insurance terms because it’s often viewed as a “nice to have.” However, it’s hard to argue with its value when you need to relocate your entire family for a limited amount of time.
Appraisal involves a thorough evaluation of a home insurance property claim by an authorized person to determine property value.
Various insurance policies provide an appraisal process to resolve any claim disputes that occur. You and your insurance company will both hire a damage appraiser while a third appraiser ‘umpires’ proceedings, ruling on any disagreements after your claim is reviewed.
Just be aware that the third party’s decision is binding. During this process, you pay for your appraiser as well as half the costs for that third-party “umpire.”
A binder is a temporary contract that offers proof of coverage until you receive a permanent policy. It’s a one-page document showing the company’s written commitment to insuring your newly-purchased home, which solidifies coverage for a period until you get a long-term plan.
This is one of the most useful home insurance terms to know when you need to move somewhere for a new work position.
While reading your insurance policy, you’ll want to look for this page to make sure everything is in order. On a policy’s declarations page, your insurer’s name and address are prominent as well as how long the policy lasts. Furthermore, this page details the amount of coverage you will receive as well as the premium amount, meaning the amount you pay to obtain and maintain the policy.
Homeowner’s insurance provides you with the money needed to repair or rebuild your home if it sustains certain types of damage, or if the contents inside it are damaged or lost.
Every policy is different, but you’ll usually find:
- Contents insurance
- Dwelling protection
- Protection for other structures (fences, sheds, or guest houses)
- Liability protection
Material misrepresentation refers to discrepancies between what’s listed on an application and what happens when a claim is filed. If there’s a substantial discrepancy, then the claim might need a deeper review.
This is why we recommend checking up on your insurance policy once per year, or whenever something major changes in your life. Keeping your policy as accurate as possible improves your chances for getting an approved claim when it really counts.
Many home insurance policies contain this critical coverage type. Personal liability coverage comes in handy during instances where you are being held responsible for property damage to a third party. It’s one of the more important home insurance terms to know because it covers you, not your property (but it is tied to your property).
It also covers you if someone is injured on your property, such as by slipping on your floor. If a lawsuit is brought to your door, personal liability coverage helps you deal with the legal fees.
Regarding premiums, there are multiple insurance terms to keep in mind before purchasing a home.
For one, there’s the earned premium, which refers to paid coverage for a time period that has passed (therefore counting as “earned” by the insurance company itself). If you paid for three months of coverage in advance but only two months have gone by, then the first two months’ of payment would be considered “earned,” while the third has yet to pass.
If you cancel a policy before the company “earns” any advance payments you made, then they would refund them back to you. The premium returned to you once you decide to cancel or amend your insurance policy is called a ‘return’ premium.
With single limit coverage (also called combined single limit coverage), your home’s total value is taken into account as well as personal property and any detached parts such as the garage. If something happens, your insurance provider will pay up to the maximum coverage amount for a one-time insured loss.
If you’re wondering who reviews your insurance application to qualify you for a policy, the underwriter is that person. Underwriters determine if you’re eligible to get home insurance and what premium rate you will get should you gain approval.
Now that you’ve brushed up on your home insurance terms, aha insurance can get you the best rate for the coverage you really need. Get your new home insurance quote with the confidence of knowing the essential terms.
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