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Buying Home Insurance? Know These Important Terms

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Are you shopping around for home insurance for the very first time? The buying process can be very confusing, with new terms being used that you are completely unfamiliar with. Here are some frequently used terms that you should know as you start shopping around. 

Actual Cash Value

You will see many items referred to as having an actual cash value, especially when it comes to personal property coverage. This is used to describe the value of what an item is worth today after depreciation. Formulas are often used to calculate the actual cash value of items, based on a set amount of depreciation per year. 

Market Value

Market value is what is used to describe your home's value if you were to sell it on the real estate market today. While you won't know how much the home will sell for until the time comes to do so, this is typically an estimate based on current market trends. 


Your deductible is how much you will pay when the time comes to use your insurance policy. A home insurance deductible can either be a flat fee or a percentage of the home's market value, which you can select at the time that you purchase your home insurance policy. You'll then need to pay that deductible before the insurance provider will pay for repairs with the coverage that you have. 


You will have the option to add endorsements to your policy, which is a fancy way of saying that you are adding additional coverage. For example, you may want an endorsement for sewer and drain backup coverage because you live in an area with a very high water table. You may need an endorsement to cover certain items in your home not covered by the default policy, such as artwork.


Perils are a list of incidents that will be covered by having a home insurance policy. Pay close attention to what is covered and what is not. While things like fires, theft, and vandalism are typically listed as covered perils, things like flooding and earthquakes are not. Those perils typically require additional insurance to be protected.

Replacement Cost

The replacement cost of an item is how much your insurance company will pay to replace something that was damaged. If an insurance provider says they will cover 100% of the replacement cost, this means that they will replace an item with something identical or similar to what is available today. 

For more information about home insurance policies, contact a local insurance agent.