Michigan Homeowners Insurance Terminology Guide

Your homeowners policy is likely the most important insurance policy you own — and also one of the most misunderstood. Many Michigan homeowners don't know what their policy actually covers until they have a claim, and by then it's too late to change it. This glossary defines every key term in a Michigan homeowners insurance policy.

The 3 Most Common Michigan Homeowners Coverage Gaps

• Flood damage — excluded on all standard HO policies; requires a separate NFIP or private flood policy
• Sewer & drain backup — excluded by default; add the endorsement for ~$50-$150/year
• Underinsurance — insuring to market value instead of full replacement cost leaves you short at claim time

Core Policy Forms

Homeowners Policy (HO)

A package insurance policy combining property and liability coverage. Michigan homeowners most commonly carry HO-3 policies.

HO-1 — Basic Form

A limited named-perils policy covering only 10 specific perils. Rarely written today.

HO-2 — Broad Form

A named-perils policy covering the dwelling and personal property against 16 specified perils.

HO-3 — Special Form

The most common homeowners form. Covers the dwelling on an open-perils basis and personal property on a named-perils basis. The Michigan market standard.

HO-4 — Renters Form

Designed for tenants; covers personal property and liability but not the structure.

HO-5 — Comprehensive Form

Provides open-perils coverage for both the dwelling and personal property. The broadest protection available.

HO-6 — Condo Unit Owner

Covers the interior of a condominium unit, personal property, and personal liability.

HO-8 — Modified Coverage

Used for older homes where replacement cost exceeds market value. Pays the lesser of repair cost or ACV.

Coverage Components (A-F)

Coverage A — Dwelling

Covers the physical structure including walls, roof, floors, built-in appliances, and attached structures. Insure to at least 80% of replacement cost.

Coverage B — Other Structures

Covers detached structures such as fences, sheds, and detached garages. Typically 10% of Coverage A.

Coverage C — Personal Property

Covers the insured's belongings both on and away from the premises. Special sublimits apply to jewelry, cash, firearms, and collectibles.

Coverage D — Loss of Use

Pays additional living expenses when a covered loss makes the home uninhabitable during repairs.

Coverage E — Personal Liability

Protects the insured against bodily injury or property damage claims by third parties, including legal defense costs.

Coverage F — Medical Payments

Pays reasonable medical expenses for guests injured on the premises regardless of fault. Typical limits are $1,000-$5,000.

Valuation & Settlement

Replacement Cost Value (RCV)

The cost to repair or replace damaged property with new materials of like kind and quality at current prices, without deducting depreciation.

Actual Cash Value (ACV)

Replacement cost minus depreciation. Produces lower claim payments than RCV.

Agreed Value

Insurer and insured agree upfront on the insured value; no coinsurance penalty applies.

Extended Replacement Cost

Provides coverage above the policy limit (typically 20-50%) if rebuilding costs spike after a major disaster.

Guaranteed Replacement Cost

Pays the full cost to rebuild regardless of the policy limit.

Coinsurance — 80% Rule

Requires the homeowner to insure the dwelling to at least 80% of replacement cost.

Depreciation

Decrease in value due to age, wear, and obsolescence. Withheld from ACV payments; may be recoverable after repairs.

Recoverable Depreciation

The withheld depreciation amount the insured can recover by completing repairs and submitting documentation.

Perils, Exclusions & Endorsements

Open Perils (All-Risk)

Covers all causes of loss except those specifically excluded.

Named Perils

Covers only the specific causes of loss listed in the policy.

Flood Exclusion

Standard homeowners policies exclude flooding from external sources.

Sewer Backup Endorsement

Optional coverage for water or sewage backing up through drains.

Service Line Coverage

Covers repair of utility service lines running from the street to the home.

Scheduled Personal Property (Floater)

Separately insuring high-value items beyond standard sublimits, often with broader perils and no deductible.

Home Business Endorsement

Provides limited coverage for business equipment and liability for home-based businesses.

Equipment Breakdown

Covers mechanical or electrical failure of home systems (HVAC, water heater, appliances).

Policy Conditions & Michigan Law

Deductible

The insured's out-of-pocket share before the insurer pays. Higher deductibles reduce premiums.

Wind / Hail Deductible

A separate deductible — often a percentage of Coverage A — applying specifically to wind or hail damage.

Mortgagee Clause

Protects the lender's interest in the property.

Subrogation

The insurer's right to pursue a responsible third party after paying a claim.

Cancellation (MCL 500.3220)

Michigan law requires written notice — typically 10 days for nonpayment and 30 days for other reasons.

Non-renewal

Insurer's decision not to continue the policy at expiration. Michigan requires at least 30 days advance written notice.

Proof of Loss

A formal, sworn statement by the insured detailing the nature, date, and amount of a loss.