Adjustable-rate mortgage (ARM)

A mortgage or home equity loan in which your interest rate and monthly payments may change periodically during the life of the loan, based on the fluctuation of an index. Lenders may charge a lower interest rate for the initial period of the loan. Most ARMs have a rate cap that limits the amount the interest rate can change, both in an adjustment period, and over the life of the loan. Also, called a variable rate mortgage.

Additional Living Expense Insurance.
A contract to reimburse the insured for increased living costs when loss of his property forces him to maintain temporary residence elsewhere. Examples of these types of expenses are the cost for a hotel or motel, the extra cost for restaurant meals, and the cost of using a laundromat. The term Extra Expense Insurance is defined with regard to additional expenses incurred by businesses. See also Loss of Use.

Agreed Amount Clause.
Under this clause, the insured and the insurer agree that the amount of insurance carried will automatically satisfy the coinsurance clause. The effect is to eliminate the necessity of determining whether or not the amount carried is equal to the stated percentage of the actual cash value indicated in the coinsurance clause.

Allied Lines.
Various insurance coverages for additional types of losses, and against loss by additional perils, which are closely associated with and usually sold with fire insurance. Examples include coverage against loss by perils other than fire, coverage for sprinkler leakage damage, and business interruption coverage. The fire insurance field consists of coverages for "fire and allied lines."

Amortization

The gradual reduction in the principal amount owed on a debt. During the earlier years, most of each payment is applied toward the interest owed. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal, unless there has been negative amortization.

Amortization table

A time table or schedule to give you a breakdown of your monthly payments into principal and interest. You can use this schedule to figure out the amount of principal you'll repay during your mortgage term.

Amortization term

The amount of time required to amortize (or pay off) the loan. The amortization term is expressed in months. For example, for a 15-year fixed-rate mortgage, the amortization term is 180 months.

Amount Subject.
The maximum amount which underwriters estimate can possibly be lost under the most unfavorable circumstances in any given loss, such as a fire or tornado. Contrast with Probable Maximum Loss.

Annual fee

An annual amount you pay for having an open line of credit.

Annual adjustment cap

A limit on how much the variable interest rate on a loan can increase or decrease each year.

Annual income

The total amount of income earned in one year. This does not need to include alimony, child support or separate maintenance income unless you wish to have it considered as a basis of repaying this obligation.

Annual percentage rate (APR)

The annual cost of a loan to a borrower. Like an interest rate, the APR is expressed as a percentage of the loan amount. Unlike an interest rate, however, it includes other charges or fees to reflect the total cost of the loan. The Federal Truth in Lending Act requires that every consumer loan agreement disclose the APR. Since all lenders must follow the same rules to ensure the accuracy of the APR, borrowers can use the APR as a good basis for comparing certain costs of loans.

Application fees

Non-refundable fees paid when you apply for your loan. They may include charges for property appraisal, a credit profile and so forth.

Appraisal or appraised value

An informed estimate of the value of property. When made in connection with an application for a loan secured by a home, it's usually made by a professional appraiser. It's sometimes called a property valuation.

Appraisal fee

The charge for estimating the value of property.

Appraised

An informed estimate of the value of property. When made in connection with an application for a loan secured by a home, it's usually made by a professional appraiser. It's sometimes called a property valuation.

Appreciation

An increase in the value of property over time. Important factors in a home's appreciation are its location and condition, and the selling price of similar homes in the area. Appreciation increases the amount of equity, which may also increase the amount you can borrow for a home equity loan or line of credit. The opposite of depreciation.

Appurtenant Structures.
Buildings on the same premises as the main building insured under a Property Insurance policy. Most Dwelling Property Insurance policies cover appurtenant structures under most circumstances.

Arbitration Clause.
The provision in a Property Insurance contract which states that if the insurer and insured cannot agree on an appropriate claim settlement, each will appoint an appraiser, and these will select a neutral umpire. A decision by any two of the three prescribes a settlement and binds both parties to it.

Asset

Property or a possession of value that a lender may be willing to accept as collateral to secure repayment of debt. For example, real estate, stocks, mutual funds, cash and automobiles are all assets.

Assumable

When you sell your home, your buyer may be able to qualify to take over your existing mortgage at your current rate. This can be beneficial if interest rates have risen above the rate you're currently paying on your mortgage. The lower-interest rate benefit may make your home more affordable to prospective homebuyers.

Automatic Reinstatement Clause.
A stipulation in a Property Insurance policy which states that after a partial loss covered by the policy has been paid, the original limit of the policy will be automatically reinstated. Same as Loss Clause.

Available funds

The total amount of funds available to you from your own funds and/or other sources that can be used for your down payment and the closing costs associated with a loan.

Average Clause.
A clause providing that similar items in one location or several locations which are insured by a policy shall be covered in the proportion that the value of each bears to the value of all. Previously known as the "Pro Rata Distribution Clause" and the "Average Distribution Clause." See also Pro Rata Distribution Clause.

Average Rate.
A rate for a policy established by multiplying the rate for each location by the value at that location and dividing the sum of the results by the total value.

Balance sheet

A dated financial statement (in table form) that shows your assets, liabilities and net worth.

Balloon loan

A short-term loan with smaller payments for a certain period of time, and one or more large payments for the remaining principal amount, due at a specified time.

Balloon payment

A lump-sum payment, which is larger than your regular periodic payment, that's paid at the end of your loan repayment period.

Bankruptcy

A proceeding in federal court altering or eliminating an eligible individual's obligations to repay some or all of his or her creditors. A borrower may relieve debts by transferring his or her assets to a trustee. Different chapters or types of bankruptcy exist. If a person files bankruptcy, a record of the filing appears on the borrower's credit report for up to 10 years.

Base rate

The underlying interest rate used as a benchmark, or index, for pricing variable-rate loans such as adjustable-rate mortgages, auto loans or credit cards.

Basic Coverage Form.
Any of the commercial or personal lines property forms which provide basic coverages. These forms generally provide the most limited coverage, which is surpassed by broad forms and special forms.

Basic Form Rates.
Under the latest commercial lines program, Basic Form Rates are arrived at by adding Group I and Group II rates together. Refer to Group I Rates and Group II Rates

Basis point

An amount equal to 1/100th of a percentage point. For example, a fee calculated as 50 basis points of $200,000 would be 0.50% or $1000.

Bi-weekly

Every other week. Some loans offer a bi-weekly payment option, which requires 26 half payments per year (amounting to one additional full payment each year). This option allows you to pay your loan off more quickly and to build equity faster. Sometimes there are costs associated with choosing this option.

Blanket Insurance.
A form of Property Insurance that covers, in a single contract, either multiple types of property at a single location or one or more types of property at multiple locations.

Block Policy.
An All-Risk policy which derives its name from the French term en bloc meaning "all together." It provides coverage on stock, property being transported, property in bailment, and the property of the insured on the premises of others.

Blue Book value

Refers to the Kelley Blue Book, a guide and Web site that lists suggested values for new and used cars.

Boiler and Machinery Insurance.
Insurance against the sudden and accidental breakdown of boilers, machinery, and electrical equipment. Coverage is provided on (1) damage to the equipment, (2) expediting expenses, (3) property damage to the property of others, and (4) supplementary payments; and (5) automatic coverage is provided on additional objects. Coverage can be extended to cover consequential losses and loss from interruption of business.

Boston Plan.
This is a plan under which insurers agree that they will not reject property coverage on residential buildings in a slum area. Instead, they will accept the coverage until there has been an inspection and the owner has had an opportunity to correct any faults. Boston was the first city to originate such a plan, and many other cities have followed, including New York, Oakland, Cleveland, and Buffalo

Breach

A violation of any legal obligation or contract.

Broad Form.
A term generally used to designate policies that provide insurance for multiple types of perils over and above the usual basic perils, or additional coverages beyond standard coverages.

Broad Theft Coverage Endorsement.
This form may be attached to a dwelling policy to provide theft coverage for a named insured who is an owner occupant.

Broker

A third party who helps arrange funding or negotiates a contract between parties, but does not lend the money himself or herself.

Builder's Risk Coverage Form.
A commercial property coverage form specifically designed for buildings in the course of construction.

Building and Personal Property Coverage Form.
A commercial property coverage form designed to insure most types of commercial property (buildings, or contents, or both). It is the most frequently used commercial property form, and has replaced the General Property Form, Special Building Form, Special Personal Property Form, and others.

Business Income Coverage Form.
A commercial property form providing coverage for "indirect losses" resulting from property damage, such as loss of business income and extra expenses incurred. It has replaced earlier Business Interruption and Extra Expense forms.

Business Interruption Insurance.
A time element coverage that pays for loss of earnings when operations are curtailed or suspended because of property loss due to an insured peril. Now referred to as business income insurance. See Business Income Coverage Form.

Business Interruption Insurance, Contingent.
Now referred to as coverage for business income from dependent properties. See Business Income Coverage Form and Dependent Properties.

Business Personal Property.
Traditionally known as "contents," this term actually refers to furniture, fixtures, equipment, machinery, merchandise, materials, and all other personal property owned by the insured and used in the insured's business.

Buydown

A buydown is the prepayment by a lender or homebuilder of a portion of the interest that will become due on your promissory note during the buydown period, thereby reducing your monthly payments. The buydown period may be one, two or three years, during which time your monthly payments will increase annually, in accordance with a predetermined schedule, ending with the monthly payment specified in your note.

Cap

A limit on how much a variable interest rate can increase. Many adjustable rate mortgages have both annual (or semi-annual) rate caps and lifetime caps. They limit the amount your payments can increase in an adjustment period and over the life of the loan.

Capitalized cost

The amount financed under a lease agreement.

Casualty Actuarial Society (CAS).
A professional society for actuaries in areas of insurance work other than Life Insurance. This society grants the designation of Associate and Fellow of the Casualty Actuarial Society (ACAS and FCAS).

Causes of Loss.
Under the latest commercial property forms, this term replaces the earlier term "perils" insured against.

Causes of Loss Forms.
Commercial property forms stating the perils insured against, additional coverages provided, and exclusions that apply. There are four Causes of Loss Forms _ Basic, Broad, Special and Earthquake.

Chartered Property and Casualty Underwriter (CPCU).
A designation granted by the American Institute of Property and Liability Underwriters upon successful completion of a series of examinations.

Civil Commotion.
An uprising of a large number of people, usually resulting in damage to property. This term is generally used to describe one of the extended coverage perils in the Extended Coverage Endorsement.

Class Rate.
A rate for risks of similar hazard. Class rates, for example, apply to dwellings.

Clear Space Clause.
A clause requiring that insured property, such as stacks of lumber, be stored at some particular distance from each other or from other property.

Closed-end lease

A lease that predetermines what the specific value of the leased item will be at the end of the lease, and the fees that may be due at that time.

Closing

The time and place at which all documents for your loan are signed, dated and notarized. Also called a settlement.

Closing costs

Fees paid at or prior to the closing of your loan. They may include attorneys' fees, as well as fees for preparing and filing a mortgage, and for taxes, title search, and insurance. They include the expenses incurred in obtaining the loan and in transferring the ownership of any collateral property from the seller to the buyer. Generally closing costs range from 2% to 6% of the mortgage amount.

Co-borrower

An additional person who assumes equal responsibility for repayment of a loan and is fully obligated under the terms of the loan. This person also has equal rights to the proceeds of the loan.

Coinsurance Clause.
A clause under which the insured shares in losses to the extent that he is underinsured at the time of loss. The insurer grants a reduced rate to the insured providing he carries insurance 80, 90, or 100% to value. If, at the time of loss, he carries less than required, he must share in his loss. For example, if an insured has a building worth $100,000 and carries an 80% coinsurance clause, it means that he agrees to carry at least $80,000 of insurance. If the insurance carried equaled $60,000, then any loss under the policy would be paid for on the basis of the comparison of $60,000 (amount carried) divided by $80,000 (amount agreed upon in advance) times the amount of the loss. Thus, the insured above would only receive 75% of a loss or $7,500 for a $10,000 loss.

Collateral

An asset, such as a car or a home, used for securing the repayment of a loan. The borrower risks losing the asset if the loan is not repaid.

Collision insurance

Auto insurance that pays for repairing the damage to your car when you've been in a collision with another auto.

Combination Business Interruption Extra Expense Insurance.
A policy which provides both Business Interruption and Extra Expense coverages in a single contract. This has been replaced by the latest business income forms. See Business Income Coverage Form.

Combined liens

The outstanding balance of all mortgages held on a property. Used to determine the total available equity when considering the appraised value of the property less total combined or outstanding liens.

Combined loan-to-value ratio (CLTV)

The ratio between the unpaid principal amount of your first mortgage, plus your home equity loan – or your credit limit in the case of a line of credit – and the appraised value of your home. Expressed as a percentage.

Commission

The fee charged by a broker or agent for negotiating a real estate or loan transaction. A broker commission is generally a percentage of the price of the property or loan.

Comprehensive Glass Insurance Policy.
A policy which covers the insured against loss by breakage of glass from almost any peril. Fire is usually excluded because it is covered under any basic property policy, and war is excluded. This policy has largely been replaced by a new commercial form. See Glass Coverage Form.

Comprehensive insurance

Auto insurance that pays for repairing the damage sustained to your car in a non-collision accident. For example, theft, vandalism or bad weather.

Concurrent Causation.
A term referring to two or more perils acting concurrently (at the same time or in sequence) to cause a loss. This created problems for property insurers when one of the perils was covered and one was not, and it led to recent revisions in policy language.

Concurrent Insurance.
Two or more policies with the same conditions and coverages that cover the same interest in the same property. If an insured has two or more Property Insurance policies, he will usually not be insured properly if the policies are not concurrent (similar).

Condominium or condo

A building or development with many housing units where each person owns his or her individual unit and shares an interest in the common areas and facilities of the entire project. You go through the same process of buying a condo as you do when buying a house, and have a deed to and a mortgage on your particular unit. You also pay property taxes on your unit.

Condominium Association Coverage Form.
A commercial property form designed to cover the joint insurance needs of members of a condominium association who collectively own commercial property.

Condominium Unit Owners Coverage Form.
A commercial property form designed to cover the individual needs of commercial (not residential) condominium unit-owners.

Conforming loan

A mortgage loan that has the standard features as defined by and is eligible for sale to Fannie Mae and Freddie Mac.

Consequential Loss (or Damage).
(1) An indirect loss arising out of the policyholder's inability to use the property over a period of time, as opposed to a direct loss that happens almost instantaneously. Business Interruption, Extra Expense, Rents Insurance, and Leasehold Interest are the most common coverages included under the category of Consequential Loss coverages. (2) A loss not directly caused by a peril insured against, such as spoilage of frozen foods caused by fire damage to the refrigeration equipment. See also Indirect Loss, and contrast with Direct Loss.

Contents Rate.
The Fire Insurance rate on the contents of a building rather than on the building itself

Contingency

A specified condition that the sales contract requires must be satisfied before the home sale can occur. When buying a home, the two most common contingencies are that the house must pass inspection and that the borrower must be approved for a loan.

Contingent Business Interruption Insurance.
Coverage for the loss of earnings of an insured because of a loss to another business which is one of the insured's major suppliers or customers. This insurance is now known as business income from dependent properties. See Business Income Coverage Form and Dependent Properties.

Contributing Location.
A location upon which the insured depends as a source of materials or services. One of the four types of dependent properties for which Business Income coverage may be written.

Contract

An oral or written agreement to do, or not to do, a certain thing.

Co-signer

A second person who signs your loan and assumes equal responsibility for payment of the loan but receives no benefit from the loan proceeds.

Cost benefit analysis

A dollar-value analysis that compares the benefits of owning a home to the costs. Some home ownership benefits may include: tax savings you may receive on the mortgage interest and property taxes you pay; and the appreciation that may occur in the value of your home over time, building your home equity. Home ownership costs may include: interest you pay on the loan; closing costs, including any mortgage points; property taxes and homeowner's insurance premiums; private mortgage insurance premiums; and maintenance costs including those associated with normal wear and tear and weathering.

Credit

An arrangement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.

Credit reporting agency or credit bureau

An organization that gathers, records, updates and stores financial and public records of individuals who have been granted credit and provides this information to lenders and other authorized users for a fee.

Credit history

A record of an individual's debts and payment habits over time. It helps a lender determine whether or not a potential borrower is a good business risk.

Credit limit

The maximum amount you can borrow under a line of credit.

Credit report

A record of an individual's debts and payment habits. It helps a lender determine whether or not a potential borrower is a good business risk.

Credit score

A number, rating the quality of an individual's credit. Lenders calculate this number, often with the assistance of computer systems, as part of the process of assigning rates and terms to the loans they make.

Creditor

A person or business from whom you borrow or to whom you owe money.

Creditworthiness

The likely ability of a borrower to repay debt.

Cromie Rule.
A method or guide used to apportion losses under policies which are nonconcurrent, that is, not identical as to coverage provided.

Crop Insurance.
Provides protection against damage to growing crops by such perils as hail, windstorm, and fire. Traditionally, crop-hail coverage was the most common coverage sold. In recent years premiums for broad multi-peril crop insurance (MPCI) have exceeded those for the crop-hail business

Data Processing Coverage.
A special form providing protection for loss due to the breakdown of data processing systems. It also includes coverage for the additional expense of putting the system back into operation.

Dealer charges

Charges for features sold separately by an auto dealer, such as rustproofing, undercoating, extended warranties or additional options.

Dealer holdback

The difference between the amount on the invoice and what an auto dealer pays the manufacturer. This difference can be 2% to 3% of the car's MSRP.

Dealer incentives

Reduced-price programs that auto manufacturers can offer their dealers to boost sales of less popular models or reduce inventories. The dealers can then decide whether to pass these savings on to their customers.

Dealer invoice

The amount that auto manufacturers charge dealers for new cars, including the options.

Dean Schedule.
A schedule rating system for Property Insurance on commercial buildings. It is named for its author, Alfred F. Dean. This system is currently being replaced by a rating plan developed by the Insurance Services Office. Same as Analytic System.

Debris Removal Clause.
A provision that may be included in a Property policy contract to provide the insured with indemnification for expenditures incurred in the removal of debris produced by the occurrence of an insured peril. Ordinarily a Property policy covers only the direct damage caused by an insured peril

Debt

An amount of money owed by one person, company, organization or other entity to another.

Debt consolidation

A single loan to pay off multiple debts, usually over a longer term. This is a popular use of home equity loan or line of credit.

Debt-to-income ratio

The percentage of your total debt compared to your total income before taxes. Many lenders like to see your debt (including your mortgage payments) be no more than 36% of your total income.

Declaration.
A term used in insurance other than Life or Health to denote that portion of the contract in which is stated such information as the name and address of the insured, the property insured, its location and description, the policy period, the amount of insurance coverage, applicable premiums, and supplemental representations by the insured.

Deed (warranty or quit-claim)

A document that legally transfers ownership of real estate from a seller to a buyer. It's delivered to the buyer at closing. Before making a loan, a lender will usually require a title search or a title report to make sure the real estate that is to secure the loan is legally owned by the borrower.

Default

Failure to make mortgage payments on time or to meet other terms of a loan. Default can lead to foreclosure.

Delinquency

Failure to make payments on time.

Demolition Clause.
A provision that excludes liability for costs incurred in demolishing undamaged property, often necessitated by building ordinances requiring that structures must be demolished after a certain degree of damage has been sustained.

Demolition Insurance.
Insurance written to cover the cost of demolition excluded by a demolition clause. It may be endorsed to Property Insurance for an additional premium. See also Demolition Clause.

Dependent Properties.
Properties which an insured business does not own, operate or control, but upon which the insured's income depends. Examples include major suppliers or customers. Previously known as "contingent" properties

Depreciation

A decline in the value of property due to wear and tear or any other reason. The opposite of appreciation.

Destination charge

The actual costs the dealer pays for shipping and delivering a new car. The dealer then charges you this fee, with no mark-up.

Difference in Conditions (DIC).
A separate contract that expands or supplements insurance on property written on a named perils basis so as to cover on an all-risk basis, subject to certain exclusions.

Direct Loss (or Damage).
A loss which is a direct consequence of a particular peril. Fire damage to a refrigerator would be a direct loss. Spoiling of food in the refrigerator as a result of the fire damage would be an indirect loss. Contrast with Indirect Loss and Consequential Loss.

Direct Writer.
An insurer whose distribution mechanism is either the direct selling system or the exclusive agency system.

Direct Written Premium.
The premiums collected, without any allowance for premiums ceded to reinsurers

Disappearing Deductible.
A type of deductible that gradually disappears as the loss gets larger. If the deductible is $50, the insurer will pay 111% of that part of the loss which is in excess of $50. The deductible on losses between $50 and $500 is gradually reduced by this system, and if the loss reaches $500, the full amount is covered.

Disclosures

Information given to consumers about their loans.

Discount points

Typically, an amount paid at closing to the lender in conjunction with a mortgage loan in order to lower the interest rate. One discount point equals one percentage point of the loan amount.

Divisible Contract Clause.
A clause providing that a violation of the conditions of the policy at one insured location will not void the coverage at other locations.

Document preparation fee

Fee required to cover the cost of preparing the necessary documents for closing.

Document drawn date

The date on which your legal documents are prepared for closing.

Down payment

The amount of cash you pay toward the purchase of your home to make up the difference between the purchase price and your mortgage loan. Down payments often range between 5% and 20% of the sales price depending on many factors, including your loan, your lender, your credit history and so forth.

Draw

The process of obtaining an advance against your available credit under your line of credit.

Draw period

The period during which a borrower can obtain advances from the available line of credit. At the end of the draw period, borrowers may be able to renew the credit line or may be required to pay the outstanding balance in full or in monthly installments.

Dwelling Forms.
A policy form designed specifically to cover a dwelling building and the personal property in it plus other additional coverages. There are several forms available, depending on what coverage is to be provided.

Earnings Insurance.
A form of Gross Earnings Business Interruption Insurance, whose principal feature is the lack of a coinsurance clause. It is designed for small risks, and the maximum amount of loss the insured can collect in any 30-day period is established when the policy is written.

Earth Movement.
A peril including landslide, mud flow, earth sinking, rising or shifting, and earthquake. Usually excluded on homeowners' and commercial property policies

Earthquake Insurance.
Insurance covering damage caused by an earthquake as defined in the contract

Easement.
An interest in land owned by another that entitles its holder to specific uses.

Electrical (or Electrical Apparatus) Exemption Clause.
A clause providing that damage to electrical appliances caused by artificially generated electrical currents is recoverable only if fire ensues and then only for the damage caused by the fire.

Electronic Data Processing (EDP) Coverage.
Specialized type of insurance designed to cover computer equipment, data systems, information storage media and expenses or income loss related to EDP losses.

Elevator Collision Coverage.
Coverage for damage caused by collision of an elevator without regard to fault. This includes damage to personal property, the building, and the elevator itself. Liability coverage is usually provided automatically by Business Liability policies.

Endorsement Extending Period of Indemnity.
An endorsement attached to Business Interruption policies which extends coverage to the period during which a business has reopened for business but have not reached the level of business activity which existed prior to the Business Interruption loss.

Engineer (Loss Prevention Engineer or Safety Consultant).
An insurer's staff member who is charged with the responsibility of loss prevention and who assists in the securing of underwriting and rating information.

Equal Credit Opportunity Act (ECOA)

A federal law that requires lenders and other creditors to make credit available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.

Equity

The difference between the fair market value (appraised value) of your home and your outstanding mortgage balances and other liens.

Escrow

The process of placing an amount of money and documents with a neutral third party, called an escrow agent, who's given the authority to deposit, disburse and distribute to the proper parties all the money and documents involved in a real estate transaction. The purpose is to protect both the buyer and seller in the transaction from the other side's unauthorized use of funds and ensures an arm's-length transaction between both sides.

Also commonly used to mean an escrow account or impound account, required by many lenders and held by the lender during the term of the loan. This deposit is used to hold the borrower's advance payments toward insurance and property taxes until they become due.

Expediting Expenses.
Expenses incurred in order to speed up repair or replacement so as to reduce the amount of loss by a peril covered in a policy. Most commonly used in connection with Business Interruption and Boiler and Machinery Insurance. Expediting expenses are generally covered if they do reduce the amount of the loss that the insurer would otherwise have to pay.

Explosion Insurance.
Insurance against loss of property due to explosion but not including explosion of steam boilers, pipes, and certain pressure instruments. Most commonly written as part of the Extended Coverage Endorsement.

Extended Coverage (EC).
A common extension of property insurance beyond coverage for fire and lightning. Extended coverage adds insurance against loss by the perils of windstorm, hail, explosion, riot and riot attending a strike, aircraft damage, vehicle damage, and smoke damage. At one time EC was added by endorsement. In recent years it has been included on many forms as either an optional coverage or as part of the minimum coverages provided.

Extended Period of Indemnity.
A Business Income coverage that continues coverage for income losses for a period of time after operations have resumed.

Extra Expense Coverage Form.
A commercial property form designed to cover extra expenses incurred by a business so it can remain in operation following a property loss. See Extra Expense Insurance.

Extra Expense Insurance.
A form that provides reimbursement to the insured for the extra expenses reasonably incurred to continue the operation of a business when the described property has been damaged by a peril covered by the contract. This insurance is normally used by businesses where continuity of operation, regardless of cost, is a necessity as, for example, any business that would permanently lose customers if there were any suspension of operations. The term Additional Living Expense Insurance is defined with regard to extra expenses incurred by individuals, and such coverage is a common feature of homeowner policies.

Factory Insurance Association (FIA).
An association of stock Property insurers established to provide insurance and engineering services for insurer writing highly protected exposures.

Factory Mutuals.
Member insurers of the Factory Mutual System, which is a group of mutual coinsurers formed to provide member insurers with insurance and engineering services.

Fair Credit Reporting Act (FCRA)

Congress passed this act to give consumers certain rights when dealing with consumer reporting agencies, or CRAs. CRAs are required to provide accurate credit histories to authorized businesses for use in evaluating applications for insurance, employment, credit or loans.

Fair market value

The likely selling price of a home between a willing buyer and a willing seller on the open market. In a mortgage or a home equity loan, the fair market value is usually determined by an appraisal.

FAIR Plan.
Fair Access to Insurance Requirements. A pooling plan reinsured by the United States government that makes insurance available to those in inner-city or other high risk areas who cannot obtain insurance through normal channels. Coverages for fire and allied perils is available, with considerably high limits, after inspection of the premises.

Fair Rental Value Coverage.
Insurance that pays the loss of rental value, minus expenses which do not continue, when property rented to others or held for rental is damaged by a peril insured against.

Fallen Building Clause.
A provision in certain Property Insurance contracts which specifies that if a material part of an insured building collapses from causes other than fire or explosion, the fire coverage becomes void.

Fannie Mae

Federal National Mortgage Association, a government-sponsored enterprise which buys and securitizes mortgages for re-sale in the secondary market.

Farm Coverage Part.
One of the coverage parts available under the Commercial Package Policy program. Coverages may be included for farm property, agricultural equipment, livestock, and farm liability.

Farm Personal Property.
Scheduled or unscheduled classes of farm property which may be covered by the Farm Property Coverage Form. It may include grain, feed, supplies, livestock, farm machines and farm vehicles. Contrast with Household Personal Property.

Farm Property Coverage Form.
A farm coverage form which may be used to cover residential dwellings, other private structures, household personal property, farm personal property, and other farm structures.

Farmowners-Ranchowners Policy.
A package policy providing Property coverage on farm dwelling buildings and contents, as well as barns, stables, and other farm outbuildings. Liability coverage is also included. It is similar to a Homeowners policy adapted to cover farm properties.

Federal Crop Insurance Corporation.
A federal government agency which provides insurance on growing crops.

Fellow of the Society of Actuaries (FSA).
A designation which is gained by the completion of a series of examinations, as well as other experience requirements.

FHA

An acronym for Federal Housing Administration, which is an agency of the Department of Housing and Urban Development. The FHA provides mortgage insurance for certain residential mortgages. It sets standards for underwriting these mortgages and for construction of homes secured by these mortgages.

FICO

An acronym for Fair Isaac Company, Inc., which develops the mathematical formulas used to produce credit scores for assessing credit risk.

Finance charge

The finance charge is the cost of consumer credit expressed as a dollar amount. It includes the amount of interest you will pay during the terms of the loan, origination points and certain other items. Some closing costs are not treated as finance charges.

Fire.
Combustion which is rapid enough to produce a flame or glow. A fire, for purposes of Property Insurance, must be "hostile," which means it is not in a place in which it is intended to be. Fires in their proper contained area are called "friendly fires" and are not covered under most basic Property Insurance policies

Fire Department Service Clause.
A provision in a Fire Insurance policy that provides the insured with indemnification for charges he incurs due to action by a fire department to save his property. It is useful for property located outside the jurisdiction of the nearest fire department and where the call will be answered only for a fee.

Fire Legal Liability.
An insurance policy which protects the insured against liability incurred when his negligent actions result in the destruction of property which is in his care, custody or control.

Fire Maps.
A visual record of the distribution of Fire Insurance written by all reporting insurers placed on sectional maps. The maps show graphically the distribution of the insureds' covered properties in a given area and make it possible to avoid catastrophic losses.

Fire Marshal.
A public official responsible for the prevention and investigation of fires. The marshal and his office are usually financed by a tax on the premiums of Property insurers.

Fire Resistive Construction.
A building which has exterior walls, floors, and roof constructed of masonry or other fire-resistive materials

Fire Wall.
A structure (wall) which is designed to seal off fires within a building.

Fireproof.
A term used in describing building construction. It refers to buildings which are of such construction as to be practically undamageable by fire. However, the term is a misnomer, since no building is completely undamageable by fire, and it is gradually being replaced by the words "fire resistive."

First mortgage

A mortgage that is the senior lien against a property.

Fixed-rate option or fixed-rate loan option

An option available for home equity lines of credit allowing borrowers to fix the payments and interest rate on all or a portion of their outstanding principal balance for a specific term. Customers may be charged a fee for this privilege.

Fixed-rate mortgage

A home loan with a predetermined fixed interest rate for the entire term of your loan. This means that the interest rate will never change for as long as you have the loan.

Flat Deductible.
A deductible which is not one of the disappearing or franchise type. A specific amount deducted from each loss or claim.

Flood.
A general and temporary condition of partial or complete inundation of normally dry land areas from (1) overflow of inland or tidal waters, (2) the unusual accumulation and runoff of surface waters from any source, or (3) abnormal, flood-related erosion and undermining of shorelines. Flood also means inundation from mud flows caused by accumulations of water on or under the ground, as long as the mud flow and not a landslide is the proximate cause of loss.

Flood certification

A determination by a reputable source about whether property is located within a special flood hazard zone.

Flood insurance

Insurance that protects against loss due to floods. When available, this type of insurance is required by law when a property is located within a special flood hazard zone.

Following Form.
A term for a Fire or other form written exactly under the same terms and coverages as other insurance on the same property.

Foreclosure

A legal procedure in which property securing a defaulted loan is sold by the lender in order to repay a borrower's loan. The amount paid by a buyer at the foreclosure may not be enough to fully repay the loan and the borrower may continue to owe the lender the difference.

Foundation Exclusion Clause.
A provision in a Fire Insurance contract which provides that the value of the foundation is not to be included when determining the value of property at the time of a loss.

Frame.
A type of construction. A frame building is primarily made with wood frames and joists.

Freddie Mac

A government-sponsored enterprise which buys and securitizes mortgages for resale in the secondary market.

Full Reporting Clause.
Under this clause, an insured is required to report values periodically. The clause provides for a penalty to the insured if true values are not reported.

Funding date

The date on which the proceeds from a loan are available to, or disbursed for the benefit of, the borrowers.

GAP insurance

An acronym for guaranteed auto protection insurance.

General Property Form.
This form commonly in use for coverage on the property of commercial risks from whatever perils are specified in the contract.

Gift funds

The funds a borrower receives that do not have to be paid back.

Glass Coverage Form.
A commercial property form used to insure plate glass, lettering, frames and ornamentation. It has replaced earlier commercial glass insurance forms.

Good faith estimate (GFE)

An itemized, detailed list of certain estimated costs associated with a home loan that the lender is required to provide to the borrower within three business days of the application.

Grading Schedule for Cities and Towns.
A schedule prepared by the National Board of Fire Underwriters for the purpose of determining which of ten grades to assign to a city for fire rating purposes, based on such factors of fire protection as water supply.

Gross annual income

The total amount of income from all sources (not just salary) that a borrower receives per year before deductions.

Gross Earnings.
An accounting term which is arrived at by subtracting the cost of goods sold from the total sales. Traditionally, the term was used primarily in Business Interruption Insurance as the basis for determining how much insurance a policyholder should carry. The latest Business Income insurance forms have dropped this term.

Gross Earnings Form.
A form once used widely in the writing of Business Interruption Insurance. Coverage was written on either the Gross Earnings Form or the Earnings Form. The latest Business Income coverage forms no longer refer to gross earnings.

Group I Rates.
Under the latest commercial lines program, this term replaces the term "Fire Rates" for property coverages. Rates are included in Group I for fire, lightning, explosion, sprinkler leakage and vandalism.

Group II Rates.
Under the latest commercial lines program, this term replaces the term "Extended Coverage Rates" for property coverages. Rates are included in Group II for windstorm, hail, smoke, riot or civil commotion, aircraft, vehicles, sinkhole collapse and volcanic action.

Group Property and Liability Insurance.
The same definition as Group Life Insurance but applied to Property and Liability coverages. See Group Life Insurance.

Guaranteed auto protection (GAP) insurance

Intended to pay all or part of the amount you would owe due to early termination of a lease agreement. Such early termination may occur when a car is stolen or seriously damaged in an accident. However, the auto insurer's payment may not be enough to pay off the lease balance and any early-termination penalties.

Hail Insurance.
Insurance against loss of crops caused by hail.

Highly Protected Risk (HPR).
Refers to Property risks which meet the standards required for lower rates. Risks of this type are usually protected by sprinklers and have better-than-average construction and occupancy. The term is most often used in connection with the factory mutuals, Factory Insurance Association, and the improved risk mutuals.

Home equity line of credit (HELOC)

A line of credit secured by the equity in a borrower's residence. It can be used for home improvements, debt consolidation and other major purchases or expenses. Interest on these loans may be tax deductible. (Consult a tax advisor about tax deductibility of interest.) At closing, a credit limit is established. In most cases, the borrower can access the line of credit by a variety of access devices, such as convenience checks, debit cards and credit cards.

Home equity loan

An installment loan secured by the equity in a borrower's residence. It can be used for home improvements, debt consolidation and other major purchases or expenses. Interest on these loans may be tax deductible. (Consult a tax advisor regarding tax deductibility of interest.) On the funding date, all of the principal is advanced for the benefit of the borrower(s).

Home inspection

An inspection of the condition of a property. It's conducted by a third party who knows what to look for, including all major appliances and structural elements. If an inspector finds something wrong, and your sales contract allows you to, you can request that the seller pay for the repairs. If the seller refuses, and your sales contract allows you to, you may not have to proceed with the purchase of the home.

Homeowners' association

An organization of property owners that administers the rules and upholds the covenants of a subdivision, development or condominium complex.

Homeowners' insurance

Insurance to protect your home against damage from fire, hurricanes and other catastrophes. Usually, homeowners' insurance also covers you against theft and vandalism, as well as personal liability in case someone is hurt or injured on your property. A lender will likely require you to name it as a payee under the insurance if you need to make a claim.

Household Personal Property.
The term given to household goods, furniture and personal belongings of residents of a farm dwelling. The Farm Property Coverage Form uses the term "household" to distinguish it from the separate coverage for "farm" property. Contrast with Farm Personal Property

HUD

An acronym for the U.S. Department of Housing and Urban Development. HUD is a governmental agency responsible for the implementation and administration of housing and urban development programs.

If" Clauses.
Clauses that terminate coverage "if" certain conditions are created or discovered. An example is the concealment or misrepresentation provision which states that if this is discovered, the coverage is void. Contrast with "While" Clauses.

Impound account or escrow account

An account specifically set up by a lender to hold funds that are set aside for the payment of property taxes and insurance. These funds are held in escrow until disbursed on behalf of the borrower to the appropriate parties.

Increased Cost of Construction Insurance.
Insurance that covers the additional cost of reconstructing a damaged or destroyed building where ordinances require rebuilding with more expensive materials, services, or techniques.

Increased Hazard.
Property Insurance policies provide that coverage shall be suspended when the hazard in a risk is increased beyond that contemplated when the insurance was written. If a dwelling owner commences manufacturing dynamite in his home, the hazard is extremely increased, and coverage could be denied by the insurer if there were a loss.

Index

When used in a note or credit agreement, the measurement used to decide how much the annual percentage rate will change at the beginning of each adjustment period. Generally, the index plus or minus margin equals the new rate that will be charged, subject to any caps. Different lenders use different index rates (cost of funds index, prime rate and so forth).

Indirect Loss (or Damage).
Loss resulting from a peril but not caused directly and immediately by that peril. For example: Loss of property due to fire is a direct loss, while the loss of rental income as the result of the fire would be an indirect loss. See also Consequential Loss.

Inflation Guard Coverage.
Coverage which provides for automatic periodic increases in the amount of insurance on buildings to keep an appropriate "limit to value" considering the effect of inflation on building replacement costs. An endorsement is usually used to add this coverage to a Homeowners Policy. On the latest commercial property forms, inflation guard coverage is an option that may be activated by an entry in the declarations.

Inflation rate

The increase in price of consumer goods, usually expressed as a percentage over a specific period of time.

Inherent Explosion.
An explosion caused by some condition existing in and natural to an insured's premises. An example would be a dust explosion in a grain elevator.

Inherent Vice.
A fault in property that leads to its self-destruction. Insurance contracts usually exclude such damage.

Initial rate

The starting interest rate. Some people call this a teaser rate, because it gives you low interest and low monthly payments at the beginning, but may adjust up at the next adjustment period (it will usually adjust even if the index doesn't go up, since it's lower than index plus margin for the initial period).

In Kind.
An expression relating to the insurer's right in many Property contracts to replace damaged objects with new or equivalent (in kind) material, rather than to pay a cash benefit.

Inspection Bureau.
An organization created by Property and Liability insurers to investigate exposures and to establish rates. Many bureaus which establish fire and related perils rates for Property contracts are called "inspection bureaus."

Institutional Property.
Property eligible for special treatment under package policies. Essentially these are properties occupied by sanitariums and educational, religious, charitable, government, and non-profit organizations.

Insurance Information Institute (III).
The agency of the Property and Liability business designed to deal with the public relations programs of various segments of the business.

Insurance Services Office (ISO).
An organization of the Property and Liability Insurance business designed to gather statistics, promulgate rates, and develop policy forms.

Interest

A charge paid for borrowing money.

Interest-only payments

Some lenders permit you to pay only the interest due on a loan for a portion of the loan term, which lowers your periodic payment, but does not decrease your principal balance on the loan. See balloon loan and balloon payment.

Interest rate

Cost for the use of a loan, usually expressed as a percentage of the loan, paid over a specific period of time. The interest rate does not include fees charged for the loan. See annual percentage rate.

Interest rate cap

A limit on how much the variable interest rate can increase at any one time. Many real estate loans have both annual (or semi-annual) caps and lifetime caps, which limit the amount your payments can increase in an adjustment period and over the life of the loan.

Investment property

Property that is purchased to generate rental income, or to be sold once it's appreciated in value.

Invoice price

The amount that auto manufacturers charge dealers for new cars, including the options. Also called dealer invoice.

 Iron Safe Clause.
A provision in a Property Insurance policy which requires the insured to keep his records in a safe when they are not used.

Joisted Masonry Construction.
A building which has exterior walls constructed of masonry materials, such as adobe, brick, concrete, gypsum block, hollow concrete block, stone, tile, or other similar materials, and a roof and floor constructed of combustible materials. A floor which rests directly on the ground is an exception and may be disregarded.

Jumbo loan

Also known as a non-conforming loan. The amount of the loan exceeds standards that would make it eligible for sale to Fannie Mae and Freddie Mac.

Kinne Rule.
A formula designed to handle adjustments of Property Insurance losses when the insurance policies are nonconcurrent.

Late charge

The penalty charged to the borrower when a payment is made past the due date and any allowable grace period.

Leader Location.
A location which attracts customers to the insured's business. One of the four types of dependent properties for which Business Income coverage may be written.

Lease buyout

Buying your leased vehicle.

Leasehold Interest Coverage Form.
Commercial property coverage form used to insure an insured tenant's interest in a favorable lease under which the rent paid is less than the rental value of alternative premises. Pays the difference between rent paid and the rental value for remainder of the lease if the lease is canceled because of property damage caused by a peril insured against.

Leasehold Interest Insurance.
A form of Property Insurance that provides protection against the loss of a favorable lease if it should be terminated as a result of damage to the property by a peril covered by the contract. A leasehold value is determined by finding the difference between the rental value of the property at current rates and the rent payable under the terms of the lease. This amount is multiplied times the remaining term of the lease.

Lender

An individual or business entity making a loan.

Liberalization Clause.
A clause in Property Insurance contracts which provides that if policy or endorsement forms are broadened by legislation or ruling from rating authorities and no additional premium is required, then all existing similar policies will be construed to include the broadened coverage.

Lien

A legal claim of a creditor on the property of another as security for a debt.

Lien holder

An individual or entity that has placed a lien on real property.

Lifetime adjustment cap

A limit on how much the variable interest rate can increase during the term of a loan.

Limit of Liability Rule.
A prescribed procedure for allocating Property Insurance losses among insurers that provide protection on a given piece of property. It is called the "pro rata liability rule" in a Standard Fire policy.

Limited Theft Coverage Endorsement.
This form may be attached to a Dwelling Policy to provide theft coverage for a named insured who is not an owner occupant.

Line Card.
A record kept by a Property insurer of the insurance sold to any one particular insured.

Line of credit

An agreement by a lender to extend credit up to a maximum amount for a specified time. In a home equity line of credit, the line of credit is secured by the borrower's home.

Listing price

The asking price of the home, or the price the home is listed for.

Liquidate

To sell assets for the purpose of accumulating cash.

Livestock Coverage Form.
A commercial property form which may b