Insurance valuation glossary

A

Actual Cash Value (ACV)

The value of property at the time of loss, usually calculated as replacement cost minus depreciation. A policy that settles on an ACV basis pays less than the cost to rebuild new, especially for older components such as roofs. How ACV is determined varies by policy and state.

Additional Living Expense

Coverage that reimburses reasonable extra costs, such as temporary housing, when a covered loss makes a home uninhabitable. In unit owner policies it is often called loss of use.

Agreed Value

An endorsement in which the insurer and the insured agree on the property's value in advance, typically based on a current valuation, and the coinsurance clause is suspended for the policy term. Availability and documentation requirements vary by carrier.

All-In Coverage

A condominium master policy approach in which the association insures the structure plus fixtures and finishes inside units, often as originally built. The exact scope depends on the declaration, the policy and state law.

Appraisal Clause

A policy provision for resolving disagreements over the amount of a loss. Each side typically selects an appraiser, and an umpire decides items they cannot agree on. It is separate from an insurance appraisal used to set limits before a loss.

B

Betterments and Improvements

Upgrades made to a unit after original construction, such as new flooring or cabinetry. Whether the master policy or the unit owner's HO-6 policy covers them depends on the governing documents and policies.

Blanket Limit

A single limit of insurance that applies across multiple buildings or locations instead of a separate limit for each. Blanket limits usually still rely on an accurate statement of values and may carry their own coinsurance or margin conditions.

Building Limit

The maximum amount a policy will pay for damage to insured buildings in a covered loss. For an association, it should be based on the replacement cost of the structures it is responsible for insuring.

Building Ordinance Coverage

Another name for ordinance or law coverage: protection for the extra cost of rebuilding to current building codes, demolishing undamaged portions, and the value of undamaged portions that must be torn down.

C

Coinsurance

A policy condition that requires the property to be insured for at least a stated percentage of its value, often 80, 90 or 100 percent. If the limit falls short, a claim payment is reduced in proportion to the shortfall. Wording and calculation vary by policy.

Common Elements

The parts of a condominium owned in common by all unit owners, such as structure, roofs, hallways, grounds and shared systems. The declaration defines them, and the master policy typically insures them.

Construction Class

A classification of a building by its primary materials and fire resistance, such as frame, joisted masonry, non-combustible or fire-resistive. It affects both reconstruction cost and underwriting.

Contractor Overhead and Profit

The general contractor's costs of running a project and its margin, added on top of direct labor and materials. A realistic replacement cost includes it.

Cost per Square Foot

Total estimated reconstruction cost divided by building area. It is useful for comparison and screening but can mislead when applied as a single average to buildings with different construction, systems and amenities.

D

Debris Removal

The cost of clearing damaged materials from the site after a loss. Policies may include it within the building limit or provide a separate, often limited, amount. Terms vary by policy.

Declaration (Condominium)

The recorded legal document that creates a condominium and defines units, common elements and insurance responsibilities. It is the starting point for deciding what the master policy must cover.

Declarations Page

The summary page of an insurance policy listing the named insured, covered locations, limits, deductibles and key endorsements.

Deductible

The portion of a covered loss the insured pays before the insurer pays. Association master policies may have flat deductibles, percentage deductibles or separate deductibles for perils such as wind.

Demolition Cost

The cost to tear down damaged or code-noncompliant portions of a building before rebuilding. It is typically included in a replacement cost analysis.

Depreciation

The reduction in value of property due to age, wear and obsolescence. It is subtracted from replacement cost to arrive at actual cash value.

E

Effective Age

An estimate of a building's age based on its condition and updates rather than its year built. A renovated older building may have a much lower effective age.

Endorsement

A written change to an insurance policy that adds, removes or modifies coverage, such as agreed value, extended replacement cost or ordinance or law.

Extended Replacement Cost

An endorsement that pays above the building limit, often by a stated percentage, if the actual cost to rebuild exceeds the limit. It is a cushion, not a substitute for an accurate limit. Percentages and conditions vary by carrier.

F

Fair Market Value

The price a property would likely sell for between a willing buyer and seller. It includes land and reflects demand, so it is not an appropriate basis for setting insurance limits.

Functional Replacement Cost

The cost to replace property with materials and methods that serve the same function but may differ from the original, for example modern materials in place of obsolete ones. Some policies use it for historic or unusual buildings.

G

Gross Building Area

The total enclosed floor area of a building measured to the outside of exterior walls, including common areas. Consistent measurement is essential when comparing costs per square foot.

Guaranteed Replacement Cost

A coverage form, now uncommon, that pays the full cost to rebuild regardless of the stated limit. Most current policies instead use a fixed limit, sometimes with extended replacement cost. Availability varies by carrier and state.

H

HO-6 Policy

The standard form of insurance for condominium unit owners. It typically covers the parts of the unit the owner is responsible for, personal property, loss of use, liability and loss assessment, and is designed to fit around the association's master policy.

HOA (Homeowners Association)

An organization that governs a planned community, maintains common property and enforces covenants. Depending on its documents, it may insure shared structures, amenities or whole buildings.

I

Increased Cost of Construction

The portion of ordinance or law coverage that pays the added expense of rebuilding to meet current codes, such as upgraded electrical, fire protection or accessibility requirements.

Inflation Guard

An endorsement that automatically increases a limit by a set percentage over time. It helps keep pace with general cost changes but cannot correct a limit that was inaccurate to begin with.

Insurable Value

The value on which insurance should be based. For buildings this generally means replacement cost of the insured improvements, excluding land and items that are not insurable.

Insurance Appraisal

An independent estimate of the current cost to rebuild insured property after a total loss, used to set and support policy limits. It differs from a market value appraisal and from a reserve study.

Insurance-to-Value (ITV)

The ratio of the insured limit to the property's replacement cost. A ratio below 100 percent indicates underinsurance and may trigger a coinsurance penalty.

L

Limit of Insurance

The maximum amount an insurer will pay for a covered loss under a coverage part. Policies may have separate limits for buildings, contents and specific coverages.

Limited Common Elements

Common elements reserved for the use of one or some units, such as balconies, assigned parking or storage. Insurance and maintenance responsibility depends on the declaration.

Loss Assessment Coverage

Coverage in a unit owner's policy that helps pay the owner's share of an association assessment arising from a covered loss, such as a master policy deductible or a shortfall. Limits and covered causes vary by policy.

M

Margin Clause

A provision, often used with blanket or scheduled limits, that caps payment for any one building at a percentage above its value on the statement of values, for example 110 percent. It makes per-building values important even under a blanket limit.

Master Policy

The insurance policy purchased by a condominium or community association to cover the buildings, common elements and other property it is responsible for, along with association liability.

Mechanical, Electrical and Plumbing (MEP)

The building systems that provide heating, cooling, ventilation, power, lighting, water and drainage. In multifamily buildings MEP is often a large share of replacement cost.

N

Named Storm Deductible

A separate deductible, often a percentage of the insured value, that applies to losses from named tropical storms or hurricanes. Triggers and percentages vary by policy and state.

Non-Insurable Items

Property usually excluded from an insurance valuation, such as land, certain below-grade foundations and site work, or underground utilities. What is excluded depends on the policy form.

O

Ordinance or Law Coverage

Coverage for losses caused by enforcement of building codes after a loss, commonly split into value of the undamaged portion, demolition cost and increased cost of construction. Often written with sublimits.

Overinsurance

Carrying a limit well above the property's replacement cost. Because claims generally pay the cost of the loss rather than the limit, overinsurance usually means paying premium for coverage that cannot be collected.

P

Percentage Deductible

A deductible calculated as a percentage of the insured value rather than a flat dollar amount. On a large building limit it can be substantial.

Professional Fees

Architectural, engineering, permitting and similar costs required to rebuild. A complete replacement cost estimate accounts for them.

R

Reconstruction Cost

The cost to rebuild a structure after a loss, including labor, materials, overhead and related costs. Often used interchangeably with replacement cost.

Replacement Cost

The cost to rebuild or replace damaged property with materials of like kind and quality at current prices, without deduction for depreciation. It is the usual basis for setting building limits.

Reproduction Cost

The cost to build an exact replica using the same materials, design and craftsmanship. It can be much higher than replacement cost for historic or highly detailed buildings.

Reserve Study

A long-range plan that inventories an association's common components, estimates their remaining life and replacement cost over time, and recommends reserve funding. It is a budgeting tool, not an insurance valuation.

S

Soft Costs

Indirect costs of rebuilding beyond labor and materials, such as design fees, permits, financing and project management. Policies treat soft costs differently, and some require separate coverage.

Special Assessment

A one-time charge an association levies on owners for an unbudgeted expense, which can include an uninsured loss or a large deductible.

Statement of Values (SOV)

A schedule submitted to insurers listing each insured building or location and its value. Accurate SOV values support correct limits, premium and margin clause calculations.

Sublimit

A lower limit that applies to a specific type of loss or coverage within a broader limit, such as debris removal or ordinance or law.

U

Underinsurance

Carrying a limit below the property's replacement cost. It can leave an association short of funds to rebuild and may reduce payments on partial losses under a coinsurance clause.

Underwriting

The insurer's process of evaluating a risk to decide whether to offer coverage and on what terms. Documented replacement cost values are an important input.

Unit Owner

The owner of an individual condominium unit, who typically holds an HO-6 policy for the portions of the unit and personal property not covered by the master policy.

V

Valuation Date

The date as of which a replacement cost estimate is calculated. Because construction costs change, a valuation should be refreshed periodically.

W

Walls-In Coverage

Unit owner coverage for interior items such as fixtures, finishes and improvements inside the unit's walls, sized to fill the gap left by the master policy. Also called dwelling coverage on an HO-6 policy.

Wind Deductible

A separate deductible that applies to wind or hail losses, often a percentage of insured value. Not every policy has one, and terms vary by carrier and region.