Insurance claim glossary

Claim letters, estimates and policies use a vocabulary of their own, and a few words in it decide most of the money. This glossary defines the terms Michigan homeowners and business owners run into most, in plain English, grouped by where they show up in a claim.

Start here: the terms that move the most money

If you read nothing else, know these five. Each one is defined in full further down.

• Scope. The itemized list of what gets repaired or replaced, room by room and line by line. Nearly every serious dispute is a scope dispute: not the price of drywall, but half the drywall missing from the list.
• Replacement cost and actual cash value. Which one your policy pays, and when, sets the size of every check you receive.
• Recoverable depreciation. Money held back at first and paid once the work is done and documented. Left unclaimed, it is money the policy already owed you.
• Supplement. A request to revise the estimate when walls come open and more damage shows itself. It is routine, not a complaint.
• Release. The document that ends the claim. Cashing a partial payment usually closes nothing. Signing a full and final release does.

If you remember one word, make it scope. Ask for the full line-item estimate behind any number you are given. A figure you cannot see the arithmetic of is a figure you cannot check.

Reading your policy

Declarations page

The declarations page is the summary sheet at the front of your policy. It lists who is insured, the property, the policy period, each coverage limit, the deductible and the endorsements you bought. It is the first page to pull after a loss, and the one most people have never read.

Coverage A, B, C and D

Most homeowners policies split coverage into lettered parts. Coverage A is the dwelling, Coverage B is other structures such as a detached garage or fence, Coverage C is personal property (your contents), and Coverage D is loss of use, which pays added living expenses while you cannot live at home. Each part has its own limit.

Peril

A peril is a cause of loss, such as fire, smoke, explosion, a burst pipe or a falling tree. A named perils policy covers only the causes it lists. An open perils policy covers every cause it does not specifically exclude, which shifts the burden onto the insurance company to point to an exclusion.

Exclusion

An exclusion is policy language that removes a type of loss from coverage. Wear and tear, long-term leaks and flood (surface water from outside the home) are common examples. Exclusions are read narrowly, and whether one applies often turns on the exact cause of the damage.

Endorsement

An endorsement is an add-on that changes the base policy. Water back-up coverage, higher limits for jewelry and ordinance or law coverage are usually endorsements. They often carry their own limits, so the endorsement page matters as much as the main form.

Policy limit

The policy limit is the most the insurance company will pay under a given coverage. A sublimit is a smaller cap inside a coverage, for example a limit on sewer back-up or on cash and jewelry.

Deductible

The deductible is the part of each covered loss you pay yourself. It is subtracted from the payment rather than paid to anyone, so a $2,500 deductible on a $60,000 loss means a $57,500 claim before any other adjustments.

Named insured

The named insured is the person or business listed on the declarations page. Other people may also be covered, such as family members living in the home, but the named insured is the one with the duties and rights under the policy.

How your loss is valued

Replacement cost value (RCV)

Replacement cost value is what it costs today to repair or replace damaged property with materials of like kind and quality, with no deduction for age. Most homeowners policies cover the dwelling at replacement cost.

Actual cash value (ACV)

Actual cash value is replacement cost minus depreciation. It is what the insurance company usually pays first, before repairs are done, even on a replacement cost policy.

Depreciation

Depreciation is the amount subtracted for age, wear and condition. It is a judgment call, not a formula printed in the policy, and it is one of the most negotiable numbers in an estimate. In Michigan, homeowners and dwelling policies that took effect on or after July 1, 2025 may depreciate labor and related costs only if the policyholder chose an optional endorsement for a lower premium.

Recoverable depreciation

Recoverable depreciation is the part of the depreciation held back at first and paid once the repair or replacement is actually done. It is also called the holdback. Your policy sets how and when you must complete the work to collect it, so read that deadline early.

Non-recoverable depreciation

Non-recoverable depreciation is depreciation you will not get back, usually because the property is covered at actual cash value or the work was never completed. Some items, such as certain contents, may only ever be paid at actual cash value.

Like kind and quality

Like kind and quality is the standard for a replacement: the new material has to be comparable to what was there. Plaster is not drywall, solid hardwood is not laminate, and a custom cabinet is not a stock box. Many underpaid estimates come down to this phrase.

Matching

Matching is the question of whether undamaged materials must be replaced so the repair looks uniform, such as siding on a wall that was only partly damaged. Some states require it by regulation. Michigan has no statute or rule requiring it, so in Michigan the answer depends on your policy language and the facts.

Overhead and profit (O&P)

Overhead and profit is the general contractor's charge for running a job that needs several trades, commonly priced as a percentage on top of the repair estimate. When a loss requires a general contractor to coordinate the work, the estimate should include it.

Total loss

A total loss is a building that cannot reasonably be repaired, or where repair would cost more than the limit. On a total loss the fights move to the policy limits, the contents inventory, debris removal and how long added living expenses run.

Underinsurance and coinsurance

Underinsurance means your limits are lower than the cost to rebuild. On many commercial policies a coinsurance clause cuts the payment on a partial loss if the building was insured for less than a set share of its value. Check both before you rely on the limit printed on the declarations page.

What gets paid for

Scope of loss

The scope is the itemized list of everything to be repaired, replaced, cleaned or removed, room by room and line by line. Most claim disputes are really scope disputes: not the price of drywall, but whether all of the damaged drywall is on the list.

Line item

A line item is a single entry in an estimate, such as removing and replacing a square foot of carpet pad or cleaning a wall. Missing line items are the most common reason an estimate comes in low.

Xactimate

Xactimate is the estimating software most of the insurance industry uses to price a scope. An estimate written in it can be compared line by line with the insurance company's own, which makes gaps much easier to show.

Supplement

A supplement is a request to add damage or costs that were not in the first estimate, usually found once walls are opened or work begins. It is a normal part of a claim, not a complaint.

Contents (personal property)

Contents are the belongings inside the building: furniture, clothing, electronics, tools, food and the rest. A contents claim is built as an inventory, item by item, with descriptions, ages and replacement prices. It is often the largest gap on a fire claim.

Additional living expenses (ALE)

Additional living expenses, part of loss of use coverage, pay the extra cost of living elsewhere while your home is unlivable: rent or a hotel, mileage, laundry, meals above your normal grocery bill. It pays what you document, so keep every receipt from the first night.

Business income

Business income coverage, sometimes called business interruption, replaces lost net income and continuing expenses while a business is shut down or slowed by a covered loss. It usually starts after a waiting period and runs for a set restoration period.

Debris removal

Debris removal pays to haul away what the loss left behind. Some policies include it inside the dwelling limit and add a small extra amount if the limit is used up, which matters on a large fire.

Ordinance or law

Ordinance or law coverage pays the added cost of bringing a repaired building up to current building codes, beyond what it costs to put back what was there. It is usually a separate, limited amount, so check the declarations page.

Mitigation

Mitigation is the work done right after a loss to stop it getting worse: tarping, boarding up, water extraction and drying. Your policy requires reasonable steps to protect the property, and the reasonable cost of those steps is normally part of the claim.

Water, fire and damage terms

Category 1, 2 and 3 water

Restoration standards rank water by contamination. Category 1 is clean water from a supply line. Category 2 is gray water, such as a washing machine discharge. Category 3 is grossly contaminated, such as sewage. Category 3 water means porous materials like drywall, carpet and pad usually have to come out rather than be dried.

Sewer or water back-up

A back-up is water or sewage pushed into the home through a floor drain, toilet or sump because a sewer or drain outside the home could not carry it. Most homeowners policies cover back-up only through an endorsement with its own, smaller limit. Water from a break in your own plumbing is different and is usually covered under the main policy.

Sudden and accidental

Sudden and accidental describes the kind of event most policies cover, such as a pipe that bursts. Damage the insurance company calls gradual or long-term leakage is often excluded, so the plumber's written cause of loss can decide the whole claim.

Smoke and soot damage

Smoke and soot travel far beyond the fire, into insulation, ductwork, closets and the contents of every room. Smoke damage that is only wiped down often comes back, so the scope should reflect testing and proper cleaning, sealing or replacement.

Cause and origin

Cause and origin is the investigation, usually by a fire investigator, into where a fire started and why. It matters for coverage, and for whether the insurance company can recover its payment from someone else.

Paperwork and deadlines

Notice of loss

Notice of loss is your first report of the claim to the insurance company. Give it promptly and in writing. In Michigan, the deadline to sue is paused from the time you notify the insurance company until it formally denies the claim, so notice also starts that protection.

Proof of loss

A proof of loss, often a sworn statement in proof of loss, is a signed and usually notarized statement of what you are claiming and why. The deadline to submit it comes from your policy. Michigan law requires the insurance company to tell you in writing, within 30 days of receiving your claim, what it needs for a satisfactory proof of loss.

Payment deadline and interest

Michigan law requires a covered loss to be paid within 30 days after the insurance company receives proof of the amount of loss (MCL 500.2833). Benefits paid late carry simple interest at 12% a year, starting 60 days after satisfactory proof of loss was received (MCL 500.2006).

Suit limitation

The suit limitation is the deadline to file a lawsuit on the policy. In Michigan it is one year after the loss or the period stated in the policy, whichever is longer, paused from the time you give notice until a formal denial (MCL 500.2833(1)(q)). A vague letter is not a formal denial.

Examination under oath

An examination under oath is a recorded, sworn interview the insurance company can require under most policies, usually on a large or questioned claim. You can bring your own attorney. Refusing one can put the claim at risk.

Recorded statement

A recorded statement is a less formal interview, often requested early by phone. Answer accurately, do not guess at numbers or causes, and it is fine to say you will confirm a detail later.

Reservation of rights

A reservation of rights letter says the insurance company is still handling the claim but may later deny some or all of it. It is not a denial, but it is a signal to get the policy read and the documentation tight.

Mortgagee

The mortgagee is your mortgage company. If it is listed on the policy, its name usually appears on claim checks for the building, and it may hold the money and release it in draws as repairs are completed.

Fire withholding

Under Michigan's fire insurance withholding law (MCL 500.2845), in cities, villages and townships that have adopted it, the insurance company holds back part of a fire or explosion settlement on real property when the settlement is more than about half of the coverage, and sends it to the local government to secure cleanup or demolition. The money comes back to you once you show the property was repaired or cleared. For 2026 the most that can be held on a residential claim is $16,383.

Release

A release is a signed document that ends the claim. Cashing an undisputed payment usually does not close a claim, but signing a full and final release does. Read which one is in front of you before you sign.

People in a claim

Staff adjuster

A staff adjuster is an employee of the insurance company who handles claims on its behalf.

Independent adjuster

An independent adjuster is hired by the insurance company on contract, often when claims spike. The business card is different, but the client is the same: the insurance company.

Public adjuster

A public adjuster is licensed by the state to represent the policyholder, not the insurance company. A public adjuster reads the policy, documents and prices the loss, and negotiates the claim. In Michigan, public adjusters are licensed individually by the Department of Insurance and Financial Services, and you can check a license in a few minutes.

Restoration contractor

A restoration contractor does emergency work such as water extraction, drying, board-up and smoke cleaning. You choose who does the work on your property, even if the insurance company suggests a vendor.

When you disagree

Underpayment

An underpayment is a payment that is lower than what the policy owes, usually because of missing scope, low pricing, heavy depreciation or contents left off. It is the most common problem on large claims, and it is usually fixed with documentation, not argument.

Denial

A denial is the insurance company's written decision that the policy does not cover a loss, or part of it. Ask for the specific policy language it relies on. A formal denial also restarts the clock on the deadline to sue.

Appraisal

Appraisal is a process Michigan requires in property policies for disputes about the amount of the loss. After a written demand, each side picks a competent, independent appraiser within 20 days. The two appraisers choose an umpire, and if they cannot agree on one within 15 days, a circuit court judge can pick. Any two of the three can set the amount. Appraisal does not decide whether something is covered.

Umpire

The umpire is the neutral third member of an appraisal panel who decides the items the two appraisers cannot agree on.

Coverage dispute

A coverage dispute is a disagreement about whether the policy pays at all, rather than how much. Coverage questions are legal questions, and they are a reason to talk with an attorney.

Subrogation

Subrogation is the insurance company's right, after paying your claim, to recover from whoever caused the loss, such as a contractor or a utility. Filing on your own policy does not let the responsible party off the hook. Read more in first-party vs third-party claims in Michigan.

DIFS complaint

The Michigan Department of Insurance and Financial Services takes complaints about how a claim is being handled. It does not decide what a claim is worth, but a complaint can move a stalled claim.

The one habit that protects every claim: keep everything in writing, and keep a copy of everything you send and the date you sent it.