HO-4 Insurance

HO-4 insurance is an insurance policy that protects tenants from loss of personal property and liability. It’s commonly referred to as “renters insurance.”




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Insurance Company

Typically used as a synonym for a carrier.




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Policy

A policy is the written contract between you and your insurance company. It includes your coverages, insurance term, and other information about your plan.




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Hazard

A hazard is anything that makes a loss more likely, such as an icy sidewalk or burning candle.




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Surety Bond

A surety bond is a special type of “insurance-like” agreement among three parties. The insurance company is the surety, the party who guarantees the performance of the principal or obligor, which is the party that provides services to a third party called the obligee. Construction contractors are often required to purchase a surety bond to ensure their client receives the services they paid for (e.g., in case the construction company goes out of business during the job).




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Obligee

In the context of a surety bond, an obligee (think: “person to whom is obligated”) is the person to whom a certain level of performance or a duty is promised. In a security deposit replacement surety bond, for example, the obligee is the landlord, since they are being guaranteed protection in the event a tenant (the obligor) damages the apartment.




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Obligor

In the context of a surety bond, an obligor or principal (think: “person who is obligated”) is the person who is held to some level of performance by the obligee or who owes the obligee a duty. In a lease guaranty surety bond, for example, the obligor is the tenant, who is held to the standard of paying rent every month.




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Principal

See obligor.




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Secondary Insurer

A secondary insurer provides a policy that supplements a primary insurance policy. For example, people located in high-risk flood areas may choose to purchase secondary flood insurance from FEMA, since floods are not covered by most primary insurance policies.




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Exposure

An exposure is any situation that creates a possibility for loss. Driving would be considered an exposure in auto insurance for example, as the act creates the potential for a loss (vs. sitting at home).




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Indemnify

To indemnify is to provide payment, repair, or replacement to a person who has experienced a loss with the intention of bringing them back to the position they were at before the loss. The idea is to “make the person whole again” and to restore them exactly to where they were before—neither better nor worse off, but just as before.




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Insured

The insured is the individual or party protected under an policy. Also called a policyholder.




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Policyholder

The policyholder is the person who has possession of the policy. Sometimes called an insured.




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Depreciation

A term used to describe the way in which an asset (whether a machine or a handbag) loses value over time, whether due to wear-and-tear or obsolescence.




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Reinsurance

Insurance for insurance companies.




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Public Adjuster

A public adjuster is an insurance-claims adjuster who is hired by you, the policyholder, to work on your behalf to appraise and negotiate a property-insurance claim.




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Adjuster

An adjuster is someone who is paid by either the insurance company or the insured person to investigate or negotiate insurance claims on their behalf.




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Reserves

Reserves are large amounts of money an insurance carrier sets aside to pay for claims.




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ISO

The ISO is one of the largest and most respected insurance rating bureaus, which are advisory organizations that collect and analyze massive amounts of data to determine fair rules for insurance pricing, draft and file policy forms, and carry out other administrative tasks.




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Surety

The surety is one of three parties bound by a surety bond. The surety party is responsible for guaranteeing the performance of the obligor to the obligee.




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Actual Cash Value

Actual cash value is the current value of some property—in other words, the amount it’s worth today, which is the amount you paid for it, minus some amount for the “depreciation” the item suffered in the years since you bought it due to normal wear-and-tear. If you’re being reimbursed on an “ACV” basis, it’s less than what you’d see under a comparable replacement cost plan.




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Replacement Cost

The replacement cost of a damaged or stolen item is the money you need to buy a new and comparable item. Unlike actual cash value, replacement cost doesn’t consider depreciation so you’ll be “fully” reimbursed.




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Subrogation

Also known as the ‘right to recover.’ If someone runs a red light and totals your car, your insurance company will immediately reimburse you, but they will then attempt to work with the other driver, or that driver’s insurance company, to recoup the money it paid you. This is an example of the subrogation process.




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Proof of Loss

Proof of loss is a formal statement the policyholder makes to the insurance company about a loss.




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Loss of Use

You experience loss of use when your home is uninhabitable—for instance, if a pipe bursts and floods the carpeted floors, you are experiencing loss of use because you cannot stay at home while it’s under repairs.




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Liability

Liability is the state of being responsible for something; in an insurance context, it’s about owing money others due to acts you’re responsible for, like a dog bite, an overflowing bathtub or a fire you caused.




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Property

Your possessions, and if you named a significant other, theirs as well.




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Declarations Page

The declarations page is a document in your insurance policy that lists who’s covered and all of the key policy overview information.




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Schedule

A schedule is a list of specified items covered under your plan. Often, “normal belongings” like clothing and furniture don’t need to be scheduled, while special valuables like jewelry, antiques or fine fashion items may need to be scheduled individually to enjoy maximum protection.




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Floater/Rider

A floater/rider is an attachment to a policy that modifies the conditions of the policy by expanding or decreasing its benefits, or excluding certain conditions from coverage. It’s similar to an endorsement.




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Endorsement

An endorsement is an ‘attachment’ to a policy that modifies it for special circumstances, such as broadening the range of covered perils to include more situations not normally covered.




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Form

The form is the written terms and language that make up an insurance policy.




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Rule

Rules are the specific guidelines that are used to determine the insurance rate. State law prohibits discriminatory rules, so incorporating factors such as credit score when determining rules is sometimes acceptable, while using factors such as race or ethnicity is not.




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Rate

The rate is a complicated formula used to determine the price of your insurance. It’s regulated by the government to be a fair calculation.




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Lapse

A lapse occurs when the policyholder doesn’t pay the premium and is no longer covered.




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Underwriting

An insurance company underwrites an insurance request when it determines how risky a situation is (based on factors such as your credit score and location) and then generates a fair price for insurance depending on that situation.




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Commission

Commission is payment an agent, broker, or MGA earns for selling a policy. Compared with some other commission-based industries, insurance pricing is more heavily regulated by the states, so you can worry less about sketchy business tactics.




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Deductible

A deductible is the amount of money you pay out of pocket before your insurance kicks in. If your claim is $1,000 and your deductible is $200, your insurance company will pay you a maximum of $800 for the loss. The higher your deductible, the lower your premium. Why do insurance companies include this in their policies? To keep administrative costs—and premium prices—as low as possible, especially by eliminating small claims.




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Limit

Each insurance plan comes with limits, which are the maximum amounts the insurance company will pay a policyholder for each area of coverage, such as contents coverage (your stuff) and electronics protection. Proper limits ensure that you are neither ‘underinsured’ (and underprotected if something happens) nor ‘overinsured’ (and overpaying in premiums). Think Goldilocks…you should buy not too much, not too little, but just the right amount of insurance to cover what you own.




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Loss

A loss can be a stolen laptop or a friend injured on your property—it is the event that triggers payment under an insurance policy.




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Exclusion

Exclusions are clauses in a policy that deny coverage for certain causes of loss. In standard contracts, exclusions from coverage may include flood or earthquake coverage, or the stuff your roommates own.




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Claim

A claim is a request for reimbursement from your insurance carrier when something happens. If the pipes leak and your house floods, you file a claim and the insurance company will review and pay out your claim.




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Premium

Your premium is how much you pay to the insurance company for coverage. Insurance is based on the principle that paying a relatively small amount of money—the premium—in exchange for future protection is preferable to paying nothing but being left entirely on your own if an accident happens.




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Peril

A peril is the event that caused a loss. If your computer is fried by a power surge, the peril is the lightning bolt that hit your house. Some perils, such as floods, are not covered by standard renter’s or homeowners insurance plans.




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Coverage

Your coverage is the range of situations that are covered by your insurance. Renters insurance covers many situations—medical bills, property damage, and more—but some special cases such as floods are typically not covered.




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Term

The term is the amount of time that you’re covered for under your insurance plan or policy. A typical policy is usually 12 months long.




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Agent, Broker, MGA

While carriers are the company you’re actually on a policy with, most insurance is sold through agents, brokers, or MGA’s. Agents represent big companies, while brokers are more like “freelance” agents. Managing General Agents (MGA) are like turbo-agents that not only sell you a policy, but can also help with claims and other issues during the life of your policy.




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Carrier

A carrier, or insurance company, is the company which actually owns the risk associated with the sale of an insurance policy. Sometimes, they’re referred to in the industry just as “companies.” Meanwhile, agents, brokers, and MGA’s are the front-facing people you buy insurance from, typically on behalf of an insurance company.




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