Plain-English definitions of the insurance terms that actually affect your coverage and claims. 32 terms, no jargon.
Actual Cash Value (ACV)
The depreciated value of property — replacement cost minus wear and tear. ACV payouts are lower than replacement cost, especially for older items.
Replacement Cost Value (RCV)
The cost to replace damaged property with new equivalent items, without deducting for depreciation. Costs a bit more in premium but pays far more at claim time.
Deductible
The amount you pay out of pocket on a covered claim before insurance pays. Higher deductibles lower your premium but raise your cost per claim.
Premium
The amount you pay (monthly or annually) to keep your insurance policy active.
Peril
A specific cause of loss — fire, theft, wind, hail, etc. A “covered peril” is one your policy pays for.
Exclusion
A loss or situation your policy specifically does not cover, such as floods, earthquakes, or wear and tear.
Endorsement (Rider)
An add-on that changes your policy — adding coverage (e.g., a jewelry rider) or raising a limit.
Liability Coverage
Pays for injuries or property damage you cause to others, including legal costs, up to your limit.
Dwelling Coverage
The part of a homeowners policy that pays to repair or rebuild the physical structure of your home.
Personal Property Coverage
Covers your belongings — furniture, electronics, clothing — against covered perils, often even away from home.
Loss of Use
Pays for extra living costs (hotel, meals) if a covered event makes your home unlivable.
Comprehensive Coverage
Auto coverage for non-crash damage — theft, vandalism, fire, hail, flood, and hitting an animal.
Collision Coverage
Auto coverage for damage to your own car from a crash, regardless of fault.
Umbrella Policy
Extra liability coverage above your home and auto limits, for large claims and lawsuits.
Sub-limit
A cap on how much a policy pays for a specific category, like $1,500 for jewelry or a mold sub-limit.
Scheduled Personal Property
A rider that insures a specific high-value item (ring, art) for its full appraised value, often with no deductible.
Adjuster
The insurance professional who investigates a claim and estimates the covered amount.
Underwriting
The process insurers use to evaluate risk and set your premium.
Depreciation
The loss in value of property over time due to age and wear, subtracted in ACV payouts.
Coinsurance
A clause requiring you to insure your home to a set percentage of its value, or face a penalty at claim time.
Actual Loss Sustained
Reimbursement based on the actual documented costs of a loss, common for loss-of-use claims.
Named Peril Policy
A policy that only covers perils specifically listed in it (versus open-peril, which covers all but exclusions).
Open Peril (All-Risk)
Coverage for all causes of loss except those specifically excluded — broader than named-peril.
Binder
Temporary proof of insurance that provides coverage until the full policy is issued.
Grace Period
A short window after a missed premium payment during which your coverage stays active.
Lapse
A gap in coverage when a policy is canceled or expires — which can raise future rates.
Beneficiary
The person or entity who receives a life insurance payout when the insured dies.
NFIP
The National Flood Insurance Program, the federal source of most U.S. flood insurance policies.
Water Backup Coverage
An endorsement that pays when water or sewage backs up through drains into your home.
Service Line Coverage
An endorsement covering repairs to buried utility lines (sewer, water, electric) on your property.
Gap Insurance
Auto coverage that pays the difference between what you owe on a car loan and the car’s actual cash value if it’s totaled.
Actual Peril of Collapse
A provision that may cover sudden structural collapse from specific causes, subject to strict conditions.
Explore our guides
Homeowners coverage · Auto coverage · Renters coverage · Flood insurance · How claims work
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