Reading an insurance policy — homeowners, auto, or whichever — can be a bit confusing. That is hardly news. But as it is important that you review all of your insurance coverages annually, it is equally important that you understand what your are reading. There are industry terms and legalese that can stymie all but those who deal with insurance frequently.
To help you better comprehend your homeowners policy, here are some common terms with which you should be familiar:
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.
While this list includes some common terms, it is best to take some time and talk with your insurance professional to be sure you understand everything about your coverages.