5 Key Terms In Your Homeowners Insurance Policy

by: Russ Thornton

Don't you just hate it when you finally select home insurance, read the policy, and have absolutely no idea what on earth you're reading?

You're not alone.

When it comes to insurance, terminology can differ from carrier to carrier.

The reason homeowners policies often make no sense is because, although they use a lot of different words, quite a few of them mean the same thing.

While there are a lot of things you need to be aware of when reading and understanding your home insurance policy, we'd like to help explain the 5 key terms you need to know in order to make sure that your personal assets are protected and any potential liability is covered.

Replacement Cost

Nobody ever expects it to happen to them, but all of your belongings could be gone overnight. Whether this is due to a burglary or a natural disaster, you want to make sure that you're insured against all types of events and circumstances. If you don't include this, you will face some serious issues when you try to claim the damage that has already been done.

Water Backup

Imagine you're doing your daily chores, and the water suddenly starts overflowing. You've tried everything, but at this point, you can't do any more to prevent this getting worse. You're going to have to call a company to help you out, and maybe even your insurance for repairs and/or replacement costs. Water backup is a vital feature in coverage, and if you encounter an issue with water accidents, you'll be glad that you made sure it's included in your home insurance policy. Normally, the coverage is for situations that are not covered on a standard home policy.

All-Risk Coverage

All-risk coverage doesn't list everything which is included - instead, it lists everything that isn't included in your coverage. And that's a good thing! In any scenario on the list, you can expect to be covered. It's not imperative to purchase an all-risk coverage plan, but it's always good to ask for and evaluate. While there are a few exceptions to all-risk coverage (nuclear war, flood and ground contamination), it's a "must" for many home-owners to feel safe and secure with their policy.


If you're in a home that relies on a master policy as your primary coverage, read it carefully and pay attention to the details. You want to make sure that there are no special items, deductibles or gaps in the coverage between your personal and your master policy. You can easily get more clarity on this information by talking to your insurance agent or an HOA representative. It could come in handy to record these conversations (with their permission) so that you always have the information on hand when you need it.

Valuable items

It's not uncommon for valuable items like jewelry, guns, furs, silver, etc., to only be insured up to $2,500. Often, items that have more value than this are kept in a safe. But even if your item is kept in a safe, you'll want to ensure that they are properly insured. To do this, you will need a professional appraisal of the item in question and a picture. After you've shown that to your agent, it can be added to your home policy for the actual value.

Of course, home owners insurance is just part of your overall risk management plan. And your risk management plan is just a small part of your personal financial plan. Make sure you consider and address all facets of your personal financial plan and regularly review and update them.