Glossary of Home Insurance

Actual Cash Value - Replacement cost of lost or damaged property at the time of loss, minus depreciation.

Additional Living Expense - Any increase in living expenses incurred by the insured, so the household can maintain its normal standard of living.

Affordability Analysis - A detailed analysis of your ability to afford the purchase of a home considering all your assets and liabilities.

Amortization Term - The time required to amortize the mortgage loan. The amortization term is expressed as a number of months. For a 20-year fixed-rate mortgage, the amortization term is 240 months.

Annual Percentage Rate (APR) - The cost of a mortgage stated as a yearly rate.

Appraisal - A survey by a Claims Representative or Claims Appraiser estimating the amount of damage to property and the cost to repair.

Appraised Value - An opinion of a property's fair market value, based on a detailed analysis of the property.

Assessed Value - The valuation placed on property by a public tax assessor for taxation purposes.

Balance Sheet - A financial statement that shows assets, liabilities, and net worth as of a specific date.

Balloon Mortgage - A mortgage that has level monthly payments that will amortize it over a stated term but that provides for a lump sum payment to be due at the end of an earlier specified term.

Basic Limits - The lowest coverage amount, as prescribed by law or the company, for which an insurance policy can be written.

Before-tax Income - Income before taxes are deducted.

Beneficiary - The person designated to receive the income from a trust, estate, or a deed of trust.

Bequeath - To transfer personal property through a will.

Blanket Insurance Policy - Single policy that covers more than one piece of property.

Cancellation - To terminate a contract before its expiration date by either the insurance company or the policyholder.

Capital Expenditure - The cost of an improvement made to extend the useful life of a property or to add to its value.

Catastrophe - A sudden, severe disaster that causes a significant loss.

Certificate of Title - A statement provided by a title company, or attorney stating that the title to real estate is legally held by the current owner.

Coinsurance - A sharing of insurance risk between the insurer and the insured. Coinsurance depends on the coverage amount of the policy and a percentage of the actual value of the property insured at the time of the loss.

Coinsurance Clause - A provision in a hazard insurance policy that states the amount of coverage that must be maintained -- as a percentage of the total value of the property – so that the insured may collect the full amount of a loss.

Credit Life Insurance - A type of insurance often bought by mortgagors because it will pay off the mortgage debt if the mortgagor dies while the policy is in force.

Deductible - The minimum amount of a claim that the policyholder has agreed to pay.

Depreciation - A decrease in the value of any type of property over time.

Effective Date - The coverage begin date on an insurance contract (policy).

Effective Age - An appraiser’s estimate of the physical condition of a building.

Effective Gross Income - Normal annual income including overtime that is guaranteed. The income may be from one/more sources.

Exclusion - Part of an insurance contract that excludes certain coverage conditions.

Extended Coverage - A clause in an insurance policy that provides additional coverage over and above the basic policy provisions.

Fire Insurance - Contract prescribed by each state insuring against direct loss by fire, lightning related causes.

Flood Insurance - Coverage against damages caused by the rising or overflowing of bodies of water.

Hazard Insurance - Insurance coverage that compensates for physical damage to a property from natural calamities.

Insurable Title - A property title that a title insurance company agrees to insure against defects and disputes.

Insurance Binder - A document that states that insurance is temporarily in effect. A permanent policy must be obtained before the expiration date.

Insured Mortgage - A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI). If the borrower defaults on the loan, the insurer must pay the lender the lesser of the loss incurred or the insured amount.

Liabilities - A person's long-term and short-term financial obligations.

Liability Insurance - Insurance coverage that offers protection against claims alleging that a property owner is responsible for any bodily injury or property damage to another party.

Mortgage Insurance - A contract that insures the lender against loss caused by a mortgagor's default on a government mortgage or conventional mortgage.

Mortgage Life Insurance - A type of term life insurance often bought by mortgagors. The amount of coverage decreases as the principal balance declines.

Named Insured - The individual or organization with whom an insurance contract is made and who is specifically named as a Named Insured in the contract policy declarations.

Private Mortgage Insurance (MI) - Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults.

Reinstatement - Returning a lapsed policy to its full value after its termination as if it was never terminated.

Replacement Cost - Coverage costs for replacing property with new material; depreciation is not taken into consideration.

Residence Employee - An employee of an insured whose duties are related to the maintenance or use of the insured residence premises.

Rent Loss Insurance - Insurance that protects a landlord against loss of rent or rental value due to fire or other casualty that renders the leased premises unavailable for use and as a result of which the tenant is excused from paying rent.

Tenants Policy - A form of homeowner policy sold to person(s) who rent their living quarters.

Underwriting - A process that evaluates an applicant and their property against pre-established criteria for insurability.

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