Homeowners Insurance Glossary of Terms

Home insurance terms aren’t typically part of your vocabulary until they’re personally relevant, and then they’re important. Knowing the meaning behind complex phrases and the “alphabet soup” of acronyms can help you avoid surprises when buying a home, selecting insurance, and maintaining your property. 

What is the 80% rule in homeowners insurance? Wondering what the difference is between HO1 and HO3 policies? Need to add a rider onto your policy? Should you consider umbrella insurance? These are all great questions that you need the terminology of insurance to decode! 

Read on for a comprehensive homeowners insurance glossary of terms, including insurance coverage definitions and examples that should help the concept of each make applicable sense. 

Homeowners Insurance Glossary

• 80% Rule – You must insure your home for at least 80% of its replacement cost to receive full coverage for partial losses. If coverage is below 80%, the insurer may only pay a portion of the claim. Example: If your home costs $300,000 to rebuild, you should insure it for at least $240,000 (80%). If you only insure it for $200,000 (below 80%), you may not receive full compensation for damages.

• Actual Cash Value (ACV) – The value of an item after depreciation (definition below). Example: Your five-year-old TV is stolen; insurance pays based on its current worth, not its original price.

• Additional Living Expenses (ALE) – Covers extra costs if your home is uninhabitable; a specific part of Coverage D (definition below). Example: A fire forces you to stay in a hotel – ALE helps pay for lodging and meals.

• Appraisal – An evaluation of your home’s value for insurance purposes. Example: Your insurer requires an appraisal before finalizing coverage limits.

• Assessed Value – The dollar value assigned to a home by the local tax authority for property taxes. Example: Your home is assessed at $250,000, which determines your property taxes.

• Attractive Nuisance – A hazardous feature that might attract children. Example: Your swimming pool increases your liability risk.

• Binder – Temporary proof of coverage before the official policy is issued. Example: You need a binder to close on your new home.

• Blanket Insurance – A policy that covers multiple properties or valuable items under one limit. Example: If you own a primary home and a rental property, blanket insurance can cover both.

• Catastrophic Coverage – Additional protection for rare but severe events like earthquakes or hurricanes. Example: Standard homeowners insurance may not cover earthquakes, so you’d need catastrophic coverage.

• Claim – A request to your insurer for payment after a covered loss. Example: A hailstorm damages your roof, so you file a claim for repairs.

• Comprehensive Coverage – A policy that provides broad protection for multiple types of losses. Example: This covers a wide range of perils (definition below) beyond just fire or theft.

• Coverage A (Dwelling Coverage) – Protects the main structure of your home. Example: If a fire destroys your house, dwelling coverage helps rebuild it.

• Coverage B (Other Structures) – Covers detached buildings on your property. Example: Your backyard shed is damaged in a storm – this coverage pays for repairs.

• Coverage C (Personal Property) – Covers the belongings inside your home. Example: If your laptop is stolen, personal property coverage helps replace it.

• Coverage D (Loss of Use) – Pays for extra living expenses if your home is unlivable; includes ALE and other related expenses. Example: After a tornado, you stay in a rental while your home is repaired.

• Deductible – The amount you pay out-of-pocket before insurance kicks in. Example: Your policy has a $1,000 deductible, so you pay that amount before coverage starts.

• Depreciation – Reduction in an item’s value over time. Example: Your 10-year-old couch isn’t worth what you originally paid.

• Eco Insurance – Coverage for sustainable, energy-efficient, or green rebuilding options after a loss. Example: After a storm damages your roof, your eco insurance policy helps cover the cost of replacing it with solar panels instead of traditional shingles.

• Endorsement (Rider) – An optional add-on to your homeowners insurance that increases coverage for valuable items. Example: You add a jewelry rider to protect your engagement ring.

• Escrow – An account where lenders hold funds for property taxes and insurance payments. Example: Your monthly mortgage payment includes escrow funds for taxes and insurance.

• Exclusion – Items or situations not covered by your policy. Example: Your policy excludes flood damage, so you need separate flood insurance.

• Floater Policy – A standalone policy that provides extra protection for particular high-value items. Example: You insure your $5,000 watch separately in case of theft.

• Flood Insurance – Separate policy for water damage from floods. Example: Heavy rain floods your basement, but your standard policy doesn’t cover it.

• Hazard Insurance – Covers damage from events like fire and storms. Example: If a lightning strike damages your roof, hazard insurance helps pay for repairs.

• HO-1 Policy – Basic homeowners insurance policy that covers only named perils (definition below). Example: If a water pipe bursts and causes damage, it likely would only be covered if it was explicitly listed as a named peril.

• HO-3 Policy – A standard homeowners insurance policy covering most risks. Example: Your HO-3 policy covers damage from a tree falling on your house. 

• Independent Insurance Agent – licensed professional who sells policies from multiple insurance companies rather than being tied to one provider. Example: Instead of only offering policies from one company, an independent agent compares quotes from several companies to find you the best deal.

Your Independent Insurance Associates Team

• Inflation Guard – Adjusts your coverage to keep up with rising costs. Example: Your policy increases coverage each year to match rising home values.

• Insurance Fraud – Intentionally deceiving an insurance company to receive money or benefits dishonestly; includes exaggerating claims, falsifying damages, or staging accidents. Example: A homeowner intentionally sets fire to their house and files a claim for fire damage, falsely stating it was accidental, to collect the insurance payout.

• Insurance Score – A rating based on your credit and claims history. Example: A high insurance score can lower your premium.

• Insured – The person or entity covered by an insurance policy and entitled to benefits in case of a covered loss. Example: If you purchase a homeowners insurance policy for your house, you are the insured.

• Liability Coverage – Protects you if someone is injured on your property. Example: A guest slips on your icy driveway, and liability coverage helps pay for medical bills.

• Loss Assessment Coverage – Covers shared property losses in condos or HOAs. Example: A storm damages your condo’s clubhouse, and this coverage helps pay your share.

• Medical Payments Coverage (MedPay) – Covers minor injuries to guests. Example: A friend cuts their hand at your house – MedPay covers their medical costs.

• Named Perils – Specific risks (perils; definition below) covered by your policy. Example: Fire and theft are named perils in your insurance policy.

• Ordinance or Law Coverage – Pays for code-related repairs after a covered loss. Example: If a fire destroys your home, this helps pay for upgrades to meet new building codes.

• Peril – A specific cause of damage. Example: Fire, wind, and vandalism are common perils covered by homeowners insurance.

• Personal Liability – Covers injuries or property damage you accidentally cause. Example: Your dog bites a neighbor—this coverage helps pay their medical bills.

• Premium – The amount you pay for your insurance policy. Example: Your premium is $1,200 per year, paid in monthly installments.

• Renters Insurance – Protects a tenant’s personal belongings and provides liability coverage; does not cover the building itself (which is the landlord’s responsibility). Example: If your apartment is burglarized, renters insurance helps replace your stolen laptop and furniture.

• Replacement Cost – Covers the full cost to replace items without depreciation. Example: Your stolen TV is replaced with a brand-new model of similar quality.

• Subrogation – When your insurer recovers claim costs from a responsible party. Example: If a neighbor’s tree damages your home, your insurer may seek repayment from them.

• Title Insurance –  Protects homeowners and lenders from financial loss due to title defects. Example: A previous owner’s unpaid property tax lien surfaces after you buy a house. Your title insurance covers the legal costs and prevents financial loss.

• Umbrella Insurance – Extra liability protection beyond standard coverage. Example: If you’re sued for $500,000 but your policy covers only $300,000, umbrella insurance fills the gap.

• Underwriter – A professional who evaluates risk and determines whether an insurance company should approve, modify, or deny coverage for a policyholder. They also set premium rates based on risk factors. Example: Before approving your homeowners insurance policy, an underwriter reviews your home’s location, age, and past claims history to determine your coverage eligibility and premium cost.

Need further information about homeowners insurance? Get in touch with the Independent Insurance Associates team. We’re here to help with all of your insurance needs, whether you’ve studied up on your home insurance glossary terms or not! We stand ready to be the experts you can count on.