A Policy Terms Glossary for Property Owners

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Property insurance policies are written in a vocabulary that rewards familiarity, and a homeowner or business owner facing a claim for the first time often has to learn a handful of terms quickly. A short glossary, kept plain and neutral, can make the rest of a claim easier to follow regardless of which side of the table a reader sits on.

Actual cash value, often shortened to ACV, refers to the value of damaged property after depreciation has been subtracted from the cost to repair or replace it new. Replacement cost value, or RCV, is the cost to repair or replace the damaged property with new materials of like kind and quality, without a deduction for depreciation. Many policies pay ACV first and release the depreciation held back, sometimes called recoverable depreciation, once repairs are completed and documented. Depreciation itself is typically calculated using an estimate of a material’s useful life and its age and condition at the time of loss, and different estimating platforms and adjusters can apply depreciation schedules somewhat differently, which is a frequent source of disagreement in a claim.

The appraisal clause is the contractual provision that allows either party to demand a structured process, described elsewhere on this site, for resolving disputes over the amount of a covered loss. An appraiser, in this context, is the person each party selects to represent its interests in the valuation process, while an umpire is the neutral third person the two appraisers select to decide any items on which they cannot agree. An award is the written, signed document that states the agreed or umpire-decided value of the loss.

Coverage refers to whether a particular type of damage or cause of loss is included under the policy at all, a question that is separate from amount of loss and is decided by the parties or, if necessary, a court, never by an appraiser or umpire. A deductible is the amount the policyholder is responsible for before the carrier’s payment obligation begins, and it is typically subtracted from the total loss figure regardless of how that figure was reached. A proof of loss is a sworn statement, required by many policies within a specified time, in which the policyholder details the amount claimed and the circumstances of the loss.

Scope of work, sometimes just called scope, describes the itemized list of repairs or replacement tasks an estimator believes are needed to restore damaged property, and it is usually the starting point from which pricing disagreements, and later appraisal, actually begin. Understanding these terms does not resolve a disputed claim by itself, but it does allow a policyholder, a contractor, or an adjuster to follow a conversation about value without having to stop and ask what a term means in the middle of an inspection or a hearing. A few additional terms come up often enough to be worth including. Betterment refers to an improvement in condition beyond simply restoring the property to its pre-loss state, and some estimating approaches deduct for betterment when a repair method necessarily leaves the property in better condition than before, such as when a small section of an aged roof must be replaced with an entire new run of matching material. Matching, as a concept, addresses whether and how repaired sections of a roof, siding, or flooring need to correspond in appearance to undamaged adjoining sections, a topic that varies by state and by specific policy wording. Line item pricing refers to the individual cost entries, drawn from an estimating database or from direct market research, that together make up a full estimate, and it is often at the level of individual line items, rather than the total claim figure, that appraisal disputes are actually decided.

General education only: the appraisal process described here can vary by state and policy language, and nothing in this article is legal advice.

Russ Lis works nationwide as a property insurance appraiser and umpire, based in Minnesota. Contact Appraisal Resolution.