March 11, 2026
If you haven’t already, make sure to check out Part 1 and Part 2 of the Real Estate Insurance 101 series, where I cover the basics and lay the groundwork for understanding how insurance works in the real estate investing space.
Before we go deeper into the series, let’s slow down and define some of the terms you’re going to see again and again. Think of this as your cheat sheet. Bookmark it, come back to it, and use it as a reference as we get into more complex topics in future posts.
Premium: This is what you pay for your insurance coverage, usually monthly or annually. Your premium is determined by factors like the property's location, age, construction type, coverage amounts, and your claims history. Shopping around and comparing premiums is one of the easiest ways to save money as an investor.
Deductible: The amount you pay out of pocket before your insurance kicks in on a claim. If you have a $2,500 deductible and file a claim for $10,000 in damage, you pay the first $2,500 and your insurer covers the remaining $7,500. Higher deductibles mean lower premiums, but more exposure when something goes wrong.
Policy Limit: The maximum amount your insurer will pay out for a covered loss. If your dwelling coverage limit is $300,000 and a total loss costs $400,000 to rebuild, you're responsible for the $100,000 gap. Setting your limits correctly is one of the most important decisions you'll make when buying a policy.
Endorsement: An add-on or amendment to your base policy that modifies or expands your coverage. For example, if your standard policy doesn't cover sewer backup, you can often add that coverage through an endorsement for an additional premium. Endorsements let you customize a policy to fit your specific property and needs.
Replacement Cost: The amount it would cost to rebuild or replace your property using materials of similar kind and quality at today's prices. This is the number your dwelling coverage should be based on, not what you paid for the property. We covered this in depth in the previous post.
Actual Cash Value (ACV): The replacement cost of your property minus depreciation. If your roof is 15 years old and gets damaged, an ACV policy pays you what that 15-year-old roof is worth today, not what a brand new roof would cost. ACV policies have lower premiums but leave you with more out-of-pocket costs at claim time.
Liability Coverage: Protection against claims that you are legally responsible for someone's injury or property damage. If a tenant slips on an icy walkway and sues you, liability coverage pays for legal fees and any settlement or judgment up to your policy limit. For rental property owners, this is not optional.
Loss of Rental Income Coverage: Also called fair rental value coverage, this pays you the rent you're losing while your property is being repaired after a covered loss. If your rental is uninhabitable for three months after a fire, this coverage keeps income coming in during that time. Make sure the amount reflects your actual rent.
Claim: A formal request you submit to your insurer asking them to pay for a covered loss. Filing a claim triggers an investigation by the insurer to verify the damage and determine how much they owe you under your policy.
Adjuster: The person assigned by your insurance company to investigate your claim, assess the damage, and determine the payout. Adjusters work for the insurer, so their job is to assess accurately, but their interests aren't necessarily the same as yours. For large or complex claims, hiring a public adjuster to represent your interests is worth considering
Subrogation: When your insurer pays your claim and then pursues the party responsible for the damage to recover that money. For example, if a contractor's negligence causes a fire at your property and your insurer pays the claim, they may go after the contractor to recoup what they paid. As the policyholder, subrogation generally happens in the background without much involvement from you.
Exclusion: A specific condition, event, or type of damage that your policy does not cover. Common exclusions include floods, earthquakes, and normal wear and tear. Exclusions are one of the most important sections of any policy to read carefully, because this is where investors often discover gaps in their coverage.
Coinsurance: A requirement that you insure your property for at least a certain percentage of its replacement cost, typically 80%. If you fall below that threshold, your insurer can reduce your claim payout proportionally, even on a partial loss. We walked through exactly how this works in our last post, and it's one of the most costly mistakes new investors make.
Umbrella Policy: Extra liability coverage that kicks in after you've exhausted the limits on your underlying policies. For investors with multiple properties, an umbrella policy is one of the most cost-effective ways to protect your overall portfolio from a large lawsuit.
Disclaimer: This content is meant for informational purposes only and is not intended to be construed as financial, tax, legal, or insurance advice
