Decoding Your Property Insurance Policy: Key Terms and Conditions Explained

Reading your property insurance policy can feel like reading a foreign language. With all the complex terms and conditions, it can be challenging to understand exactly what’s covered and what’s not. To help you better understand your policy, we’re breaking down some of the most common (and confusing) insurance jargon.

Act of God

Act of God (sometimes called force majeure) refers to natural events outside of human control, such as hurricanes, earthquakes, floods, and other natural disasters. While this term sounds comprehensive, it's important to be aware that not all acts of God are automatically covered by your property insurance policy. Check your policy to find out if it includes or excludes certain natural events.

Exclusions

Exclusions are specific situations or types of damage that your insurance policy does not cover. Common exclusions include wear and tear, neglect, and intentional damage. Read this section carefully to understand what is not covered under your policy so you’re not caught off guard when making a claim.

Endorsements or Riders

Endorsements or riders are additions to your insurance policy that provide extra coverage or modify existing coverage. For example, you might add an endorsement to cover valuable personal property, like jewelry or art, beyond the standard policy limits.

Increased Cost of Construction

An Increased Cost of Construction (ICC) endorsement or clause typically applies when changes in building codes or ordinances enacted after your home or business was originally constructed will make rebuilding or repairing the property more expensive than it would have been otherwise. This coverage helps to pay those additional costs associated with rebuilding or repairing according to the updated construction codes. However, not all policies automatically include ICC coverage, so check to see if it's part of your plan.

Replacement Cost vs. Actual Cash Value (ACV)

• Replacement cost is the amount needed to repair or replace your property with the same or similar materials without deducting for depreciation.
• Actual cash value (ACV) considers depreciation - i.e., the reduction in the value of a thing over time - and reflects the property's value at the time of loss.

Understanding whether your policy uses replacement cost value or actual cash value can significantly impact your out-of-pocket expenses following a claim. Often, insurance companies will initially pay the actual cash value and later pay the remaining replacement cost value after repairs are complete.

Deductible

A deductible is the amount you’re responsible for paying out of pocket before your insurance kicks in to cover the rest. For example, if you have a $1,000 deductible and suffer $10,000 in damage, you will pay the first $1,000, and your insurance company will cover the remaining $9,000. Higher deductibles generally lower your premiums, but they also mean more out-of-pocket expenses if you need to file a claim.

Declarations Page

Your declarations page is a summary of your insurance policy, outlining the coverage limits, deductibles, and premium amounts. It’s often found at the beginning of your policy document and serves as a quick reference guide to your coverage. Declarations typically also outline the policy endorsements, which provide additional coverage, and exclusions, which limit coverage.

Loss of Use Coverage

Loss of use coverage provides compensation for additional living expenses if your home is uninhabitable due to covered damage. This can include the cost of temporary housing, meals, and other necessary expenses. Knowing the limits and duration of this coverage is important, especially in cases of severe damage. Loss of use coverage can also provide compensation for loss of rent in a situation where a policyholder rents out a building but can no longer do so because of a covered loss or while repairs for a covered loss are ongoing.

Named Perils vs. Open Perils

Perils are specific risks or events that cause damage to your property, such as fire, theft, or windstorms. Understanding the perils covered by your policy is vital to knowing when you’re protected and when you’re not.‍

• Named perils policies cover only the specific types of damage listed in your policy, such as fire, theft, or vandalism.‍
• Open perils (also known as all risk) policies cover all types of damage unless they are explicitly excluded.

If you’re not sure which type of policy you have, ask your agent so that there’s no confusion over the potential coverage restrictions or limitations.

Subrogation

Subrogation is the right of your insurance company to pursue a third-party responsible for the damage after they’ve paid your claim. For example, if your neighbor's tree falls and damages your home, your insurance might cover the repairs but then seek reimbursement from your neighbor's insurance.

Aggregate Limit

An aggregate limit is the maximum amount your insurer will pay for multiple claims over a policy period (usually one year). If you exceed this limit, you will be responsible for any additional costs.

Contact Averill & Reaney

Understanding these terms means knowing what your property insurance policy covers and where it falls short. If you have any doubts or need clarity on your property insurance policy, consider consulting with a professional. At Averill & Reaney, we’re here to help you understand these complexities and make sure you’re fully protected.