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Sometimes insurance terminology can be confusing. Much like other businesses, insurance is full of buzzy industry-speak. But since an insurance policy is there to protect the consumer from possible financial liability exposure, as well as compensate them for any personal loss, the terms of an insurance policy should be well understood.
Even within the insurance industry, there are terms specific to particular types of coverages. In the case of homeowners insurance, there are a few key terms every policyholder should know.
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.
The best way to be sure you understand the terms of your policies and are clear on what you are and are not covered for is to talk with your insurance professional. Sit down and go over all of your policies and be sure you are fully covered for any eventuality.