Understanding your policy: 18 property insurance terms you need to know

Insurance policies can be confusing. The insurance industry has such specific language when it talks about coverage, deductibles, or floaters, and anyone on the outside might have a bit of a learning curve to overcome.

In this post, we're going to go over some of the key terms you'll need to know in order to better understand your coverage and the claims process. 

Actual cash value

Actual cash value (also known as actual cost value) refers to the cost of repairing or replacing damaged or lost property with similar property of the same quality or make. So, if your property is insured for actual cash value, you’ll have your damaged item replaced or repaired to its original condition prior to the damage. 

In practice, if your stove from 1990 goes bust, you'll have that stove from 1990 repaired or replaced right up to its 1990 condition.

Additional coverage

Sometimes, your basic insurance packages won’t cover all the things you want to protect.

Purchasing extra or additional coverages provides protection to things not listed in normal policies. For example, you may have some jewelry you want to keep safe, so you add on some extra coverage for the value of that jewelry in case it gets damaged or stolen.

Additional coverage can be called Endorsements, Riders or Floaters which all get attached to the original policy.  

Adjuster

If you file a claim, an adjuster might call you back to follow up or they may visit the site of the damage you’re seeking coverage for. Adjusters are representative of your insurance company who work to determine the extent of the damage you're claiming and the insurer’s liability towards it.

Claim

When your insured property experiences damage or loss, you submit a claim to your insurance provider. The claim acts as a demand for payment or benefits promised by your insurance policy if the damage is above your deductible. Claims can be denied by an insurer if they don’t meet certain criteria.  

Condo insurance

Condominium insurance is a type of property insurance that protects an owner’s condo unit.

It’s pretty similar to homeowners insurance, however, homeowners coverage covers the outside structure of the standalone home, whereas condo insurance does not. The condo unit owner has no responsibility for the building’s exterior areas. Therefore, condo insurance is relatively cheaper than homeowners coverage.

Depreciation

Depreciation occurs over time when the value of any particular property item decreases. The loss in value could be due to general use, obsolescence or wear and tear.

Exclusion

Whenever something is excluded from coverage or protection, it will explicitly say so on your policy. Certain conditions, circumstances or situations could void an insurance claim.

For example, your basement will not be covered for damages in the event of a flood if you don’t add flood coverage as a rider or if your policy explicitly excludes this type of peril.

Insurance fraud

You commit insurance fraud by intentionally lying about a claim, extent of damages, fault in the incident, or anything else that would allow you to obtain payment for something which would otherwise not be paid.

Liability

When you are liable for something, it means you hold the responsibility for causing (through negligence) injury to another person or damage to someone else’s property. This may also be called Personal Liability.

With property insurance, you can protect yourself from being blamed for the injury or damage to other people on your own property. Liability coverage would protect you from being sued in the event someone perhaps slips and falls on your property as a guest or as a worker.

Market value

Like actual cost value, market value is another insurance option that will dictate how you will receive payment, repair or replacement for damaged goods. With market value, however, your property in question will see depreciation making any payouts subject to the current market conditions of your item.

For example, if your contents coverage is named market value, a damaged television from 2003 would be repaid to you as if the insurer was finding and purchasing a television from 2003. Technology sees some of the fastest market value depreciation on the planet.

Peril

When your policy refers to a peril it’s referring to the possible cause of damage or loss. All of these are potential perils: fire, smoke, water damage, hail, wind, etc.

Your policy likely names perils that are and are not included in your insurance coverage.

Personal property

Personal property must be differentiated from real property (which is real estate or structural components of a property). Both personal property and real property can have distinct valuations on your policy and are usually covered differently at different deductibles.

Your personal property is all tangible property not classified as “real” and commonly refers to the contents of your home.

Premium

Your premium is how much your insurance company is charging you on an annual basis to receive coverage from them. You may receive a premium quote as an annual cost, but you may also pay for this premium on a monthly basis if preferred.

Rate

The rate is the “cost of a unit of insurance” as determined by insurance companies or provincial regulators.

For example, Quebec’s insurance regulator is called L'autorité des Marchés Financiers (AMF). The AMF oversees the financial and insurance sectors in the province and approves rate changes.

Renters insurance

Renters insurance is another major form of property insurance that is similar to both homeowners and condo insurance. When you’re renting a unit, your landlord has no legal responsibility towards your personal property. Their only obligation is to maintain the premises and their appliances.

Renters insurance can step in if you experience a theft or loss, if you damage your landlord’s property, or if you have any liability suits filed against you. Renters insurance is one of the cheapest forms of property insurance.

Replacement value

Replacement value is the cost to replace a damaged item or property without deducting for depreciation.

Risk

Your premium will reflect the amount of risk you or your property pose to insurers.

Your risk profile will determine how likely your property is to incur a loss (such as from a named peril) and how likely you are to file a claim based on any insurance history or risk you may have.

Keep learning

Ask your insurance provider if they have any special or specific terms exclusive to their company that you should know about. Always read over your policy in full so you know what's covered and what isn't!