MAKING SENSE OF YOUR HOMEOWNERS POLICY

Like other industries, the insurance business is chock full of terms that the average person doesn’t really understand. But since your insurance coverage is meant to protect your livelihood should something happen to necessitate a claim by you or someone else, it is important to be at least minimally cognizant of policy language.

Many terms overlap different coverages and some are unique to different markets. In the case of homeowners insurance, there are terms that apply to that particular type policy. Here are a few of them:

Additional living expenses (ALE) – Reimburses the policyholder for the cost of temporary housing, food, and other essential living expenses, if the home is damaged by a covered peril that makes the home temporarily uninhabitable. Some policies cap the amount of ALE payable to 20 percent of the policy’s dwelling coverage.

Exclusion – A provision in an insurance policy that denies coverage for certain perils, people, property, or locations.

Liability coverage – Covers losses that an insured is legally liable. For homeowners insurance, liability coverage protects you against financial loss if you are sued and found legally responsible for someone else’s injury or property damage.

Loss of use – A provision in homeowners and renters insurance policies that reimburses policyholders for the additional costs (housing, food, and other essentials) of having to live elsewhere while the home is being restored following a disaster.

Peril – A specific risk or cause of loss covered by an insurance policy, such as a fire, windstorm, flood, or theft. A named-peril policy covers the policyholder only for the risks named in the policy. An all-risk policy covers all causes of loss except those specifically excluded.

Personal property – All tangible property (other than land) that is either temporary or movable in some way, such as furniture, jewelry, electronics, etc.

Replacement cost – Pays the dollar amount needed to replace the structure or damaged personal property without deducting for depreciation but limited by the policy’s maximum dollar amount.

Naturally, you should make an appointment with your insurance professional to go over anything about your policy — homeowners and others — that is unclear. In fact, the beginning of the year is a great time to review all of your policies top be sure you have all the coverages you need.