Glossary of Home Insurance Terms

Actual Cash Value (ACV)

 

When you buy something like a car or computer, it loses value over time. This is known as depreciation. If you need to make a claim and your insurance policy provides ACV, the insurance company will look at the Replacement Cost (how much it will cost to replace at today’s price) and they will subtract the depreciation value from the Replacement Cost. For example, if a new laptop today costs $900, and your damaged laptop was assessed to have a depreciation value of $300, you would receive $600 to replace the laptop. That $600 is the Actual Cash Value.

 

Appraisal

 

The process of assessing an item’s worth. For example, if you have an engagement ring, you can get an appraisal from your jeweler to determine the value of your ring.

 

Deductible

 

The amount you must pay towards replacing an item before the insurance company pays the rest of the claim. If you file a claim and it is covered, the insurance company will subtract the deductible amount from the indemnity. For example, if your deductible is $300 and you make a claim for $1000, the insurance company will pay out $700 and you are responsible for the remaining $300.

 

Depreciation

 

The value that your insured items lose over time. Many items such as your car and computer lose value due to age and general wear and tear. Most insurance policies subtract this depreciation value from the replacement cost of your items before they pay out a claim. For example, if a new laptop today costs $900, and your damaged laptop was assessed to have a depreciation value of $300, you would receive $600 to replace the laptop.

 

Endorsements (also known as add-ons or riders)

 

An amendment or addition to an existing insurance policy that may change the terms of the policy. Endorsements are often purchased to give additional coverage on common home insurance exclusions, or where extra coverage is needed. Common endorsements include “sewer back-up coverage”, “overland water coverage” and “increased jewellery coverage”.

 

General Insurance Agent

 

A general insurance agent, also simply known as an insurance agent, sells home, condo and tenant insurance policies from a single insurance company that protect you from financial loss in the event of fire, theft, storms and other events. In Ontario, insurance agents must be licensed by FSCO. For a list of agents licensed to sell insurance in Ontario, visit FSCO’s Agents Licensed in Ontario.

 

General Insurance Broker

 

An insurance broker may sell insurance on behalf of more than one insurance company. They work to find you the coverage that best suits your needs from any of the companies they represent. Insurance brokers are licensed by the Registered Insurance Brokers of Ontario (RIBO). Visit RIBO’s website [New Window] to learn more about insurance brokers.

 

Home Insurance Company

 

A general insurance company, also known as a property and casualty insurance company, provides home, condo and tenant insurance policies that protect you from financial loss in the event of fire, theft, storms and other events. For a list of companies licensed to sell insurance in Ontario, visit FSCO’s Licensed Insurance Companies in Ontario.

 

Indemnity

 

A sum of money paid by an insurance company to provide compensation against loss, theft or damage to the extent of the policy coverage. The principle of indemnity is that the insured shall not receive more than the actual loss suffered.

 

Insured Perils

 

Risks to a home or contents that are normally covered by an insurance policy (for example, fire, theft, lightning, falling objects and others). Policies may differ, so make sure you understand what perils your policy includes.

 

Moral Risk

 

Not taking proper care or disregarding measures to protect your home because you know the insurance company will step in if something is damaged or stolen, (for example, not installing a smoke alarm because you have fire insurance.)

 

Overland Water Coverage (also known as flood coverage)

 

Most basic insurance policies do not cover overland water damage. However you may purchase an endorsement for damage caused by overland water, sewer backups as a result of overland water and basement flooding caused by overland water. Overland water coverage may not be available in all areas and is not offered by all insurance companies.

 

Personal Liability

 

If someone slips on ice outside your door, or your condo’s pipes leak, causing damage to other units, you may be legally liable for replacement costs, medical fees, legal fees and more. Insurance covers you for third party bodily injury or property damage as a result of an accident or negligence. Most basic home, condo and tenant’s insurance policies offer some type of Personal Liability Insurance.

 

Premiums

 

The amount of money you pay for your home insurance policy. Premiums may be paid annually, quarterly or monthly, and are determined by your policy type, your level of risk, your deductible, endorsements and other features. Shop around to find the coverage that suits your needs at affordable premiums.

 

Proximate cause

 

The event that is deemed to have caused an injury or damage. All damages that were caused as a result of the proximate cause are resulting damage. 

 

Purchase Price (also known as retail price)

 

The price you paid for an item at the time of purchase.

 

Replacement Cost (also known as Replacement Cost Value (RCV))

 

The amount you would have to pay to replace an item at today’s current value. Replacement Cost Value (RCV) is not the same as Actual Cash Value (ACV). RCV policies may cost more than ACV policies.

 

Uninsured Perils (also known as exclusions)

 

A type of risk that is not covered by a particular insurance policy. Common exclusions include earthquakes, floods and damage resulting from failure to take steps to protect the home in the owner’s absence (e.g., burst pipes due to freezing). Every property insurance policy contains a section on applicable exclusions.