Insurance-to-value simply means having enough insurance to cover the actual replacement value of your home should a loss occur. If a loss occurs, you want enough insurance to cover the total costs of replacing your home. The cost to rebuild your house may be different from the actual market value of the property.

Replacement cost is the amount of money you would have to spend to replace your home with another of like kind and quality on the same site where your home was destroyed. Actual cash value (ACV) is the replacement cost less depreciation. To determine the actual cash value, the general condition, repair, and character of your home are taken into consideration. Replacement cost and actual cash value are generally used in reference to the home only, not including the land.

Coinsurance is a provision in your policy which states that if you fail to carry at least 80% of the replacement cost of the property, you may receive a reduced loss settlement. Please keep in mind that the coinsurance clause relates to the value of the property when the loss occurs, not when the policy was written. In general, most policies have a coinsurance provision. Please refer to the next question (4) for an example.

Assume that property valued at $100,000 is insured for only $40,000 and a loss of $40,000 occurred. If the policy had no coinsurance clause, you would get $40,000. If the policy contained the usual 80% coinsurance clause, you would get only $20,000. Because you carried only one-half ($40,000) of the 80% ($80,000) insurance required by the coinsurance clause, you would receive only one-half ($20,000) of the $40,000 loss.

Deductible is the initial portion of the loss for which the policyholder is responsible. If you have a $100 deductible on your homeowner policy, you are responsible for the first $100 of the loss. The company will only pay that portion of the loss in excess of $100.

Loss away from premises can be defined as a loss incurred by the policyholder while he or she is away from home. An example of this is a theft from a motel room, perhaps while a policyholder is on a vacation or business trip.