Buying a home represents a major milestone and investment, and finding a homeowners insurance policy goes hand in hand with it. Before you settle on one, make sure you familiarize yourself with these nine key industry terms.

Common Area

Common area refers to a space in an estate or residential area that no single individual can lay claim to. These amenities are often the property of a homeowners' association or any other association of that kind. They may include swimming pools, gyms, tennis or basketball courts, elevators, driveways, stairways, and patios, just to mention some examples. Common areas are covered under a homeowners’ association policy cover, not an individual’s policy.

Material Misrepresentation

Material misrepresentation refers to a lie made to an insurance company during the purchase of a policy. Some people exaggerate their property's worth or fail to disclose all the information regarding the condition of their property. In the event of a misrepresentation, the company may legally pay your claim partially, refuse to pay your claim, or worse still, cancel your entire policy. Different states have different legislation regarding material misrepresentation, so what applies in your state might not be applicable in another.

Personal Property Coverage

Personal property refers to your possessions. Property that falls in this category is usually movable property, such as furniture, clothing, and electronics. Most homeowners insurance providers include personal belongings in their policies. The level of coverage varies, but it is commonly between 50 to 70 percent of its worth, which is a much better deal than total loss. However, there is a clause for every item. Most insurance companies advise purchasing a special endorsement or rider, usually referred to as a floater, to insure specific types of personal property.

Liability Coverage

Liability coverage is a special coverage that shields the homeowner from lawsuits. If someone gets injured while on your property, and they decide to sue you, this form of coverage takes care of your court defense and liability fees up to your policy limit. A "no-fault medical coverage," on the other hand, covers individuals who sustain injuries within your property.


Peril refers to an occurrence that may bring about damage to your home or possessions. There are two types of peril policies. An open peril policy insures you against all perils, provided your policy does not exclude them. A named peril policy, on the other hand, covers a particular peril named in your policy.


Cancellation is simply a term designating the termination of home insurance policy. The terms of agreement detail the reasons that can lead to the termination of an insurance policy, and they differ from state to state and have to be permitted by law.


In subrogation, your insurance provider may sue on your behalf, in the event another party destroyed your home. If they win the lawsuit, the money goes toward repaying your deductible. Subrogation may also refer to the action of your insurance provider coming to your rescue in the case of damage to a neighbor’s house or property as a result of your actions. For instance, a plumbing repair in your apartment causes flooding in your neighbor’s apartment. Lastly, another case in which your policy provider may apply subrogation on your behalf is, for instance, a fire caused by a faulty stove. They may sue the manufacturer on your behalf.

Loss History

During purchase or renewal of your policy, the company accesses a CLUE report, which details a loss history of your house in the past seven years. This is regardless of the owner. The company goes through any claims filed by you or the previous occupant(s). Depending on the number and size of the claims, it may result in the company raising your premiums or even turning down your request for coverage.

Additional Living Expense

In the event of severe damage to your home that forces you to relocate to a temporary residence, additional living expenses coverage would pays for a hotel bill, for instance. It offers you peace of mind during the period your home is being repaired. Leading insurance firms provide it for their clients.


A homeowners insurance policy is a legal contract between you as the policyholder and the insurance company. Make sure you are aware of your rights and responsibilities and the rights and responsibilities of the company. It is paramount that you read and understand the policy completely and are satisfied with the terms before committing to it.