Simplified Definitions

Understanding the Insurance Jargon

Replacement Cost (RC)

The cost to repair or replace property using new materials of a like kind and quality with no deduction for depreciation. Replacement cost is limited by the maximum dollar amount shown on the declarations page of the policy.

Replacement Cost in English

This is what it will cost you to buy new items to replace damaged ones.

Actual Cash Value (ACV)

Replacement cost of the property at the time of the loss, less depreciation, using materials of like kind and quality to the extent practical.

Actual Cash Value in English

Actual cash value is what your things are worth today based on their expected lifespan and age.

Liability Insurance

A type of insurance that covers claims for monetary damages resulting from bodily injury to others or damage to the property of others for which the insured is legally liable and to which the coverage applies.

Personal liability insurance is financial protection against legal obligations of the insured arising out of activities and conditions at the premises where the insured maintains a covered residence. This coverage also extends to the personal (non-business) activities of the named insured and household members anywhere in the world.

Liability in English

Liability insurance covers you if someone comes into your home and is hurt, either because of something you did or because you didn’t prevent it. Without insurance, liability can cost you big if someone is injured in your home.

Coinsurance Clause

At the time of a loss, the amount of insurance carried must be at least 80 percent or more of the full replacement cost of the building immediately before the loss in order for the insurer to pay the cost to repair or replace. If sufficient insurance is carried, the insurer will pay (after deductible without depreciation) the lowest of: 1) the limit of liability applicable to the building; 2) the replacement cost of the damaged part of the building with material of like kind and quality and for like use; 3) the necessary amount actually spent to repair or replace the dwelling. If there is less than 80 percent insurance to replacement cost, the insurer pays the greater of: 1) the actual cash value of the damaged part of the building; 2) that proportion of the cost to repair or replace the damage (after deductible without depreciation) that the amount of insurance on the building bears, up to 80 percent of the building’s replacement cost.

Coinsurance is an insurance-to-value provision used to encourage you to insure your property at or near its true value. If the property is underinsured, the coinsurance provision reduces the amount that the insurer will pay for a covered loss.

Coinsurance Value in English

Insurance companies know that if you are underinsured, everyone loses, so they charge you a penalty for being insured for less than 80 percent of the value of your home.

Market Value

The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion.

Replacement Value/Cost

The cost to repair or replace property using new materials of a like kind and quality with no deduction for depreciation. This is what it would cost to rebuild your home at your current location just before your loss. This does not include the value of the land or unattached structures located on the same property site.

Market Value vs. Replacement Value in English

Replacement value is what it would cost you to rebuild your home exactly as it was. Replacement value can be determined via an appraisal or by checking out the Cost Calculator on this web site.

Market value is what you would get if you sold your home—but that number is not the same as rebuilding and replacing a home!

Insurable Value

The portion of the value of an asset or asset group that is acknowledged or recognized under the provisions of an applicable loss insurance policy. It is based on the replacement and/or reproduction cost of physical items that are subject to loss from hazards.

Insurable Value in English

Insurable value is the amount of coverage you purchase, which should be equal to the replacement value. It doesn’t include the value of your land because that should still be there after a loss.

Windstorm Mitigation

The act of hardening or strengthening your home against wind damage. Windstorms include hurricanes and tornadoes, but less severe wind can also cause damage—which can leave a structure vulnerable to further damage from water and debris.

Windstorm Mitigation in English

The variety of things you can do to your home to make it safer in a storm and save you money.

Ordinance or Law Coverage

This coverage responds if a covered loss results in covered property—a covered building or structure—having to be rebuilt, repaired or demolished in accordance with the enforcement of any building code, law, or ordinance that:

  • Requires or regulates the construction, demolition, remodeling, renovation, or repair of property, including removal of any resulting debris;
  • Imposes requirements that result in a loss in value to property; or
  • Requires any “insured” or others to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of, pollutants. (A pollutant is any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned, or reclaimed.)

Ordinance or Law Coverage in English

When a home must be rebuilt, it must be rebuilt to current codes and laws—even if your original home did not meet those codes.