Insurance can be complex and overwhelming for those unfamiliar with the industry. It’s important to have a clear understanding of the technical terms and jargon involved in coverage for your property, vehicle, health, or life.
Our glossary provides definitions and explanations of common insurance terms like deductibles, premiums, and policy limits, as well as more specialized concepts like underwriting, risk assessment, and claims processing.
We hope our glossary helps you make informed decisions about your insurance needs.
A
Actual Cost:
Actual cash value policies will only cover the current market value of your property, taking into account its age, condition, and replacement cost. Because they’ll include depreciation, the insurance company gives you a lower payout than replacement cost coverage.
Actuary:
An actuary is a person who evaluates and assesses risk in insurance and finance using statistical methods. Actuaries are responsible for setting insurance policy prices and ensuring profitability for insurance companies.
Adjuster:
An adjuster investigates and settles insurance claims on behalf of an insurance company. They assess the extent of damage or loss, review policy coverage, and negotiate settlements with the claimant.
All Risk:
An all-risk policy is a type of insurance policy that covers a wide range of losses and damages that may occur to the insured property. Unlike named-peril policies, which only provide coverage for specifically listed perils, an all-risk policy covers any cause of loss that is not explicitly excluded from the policy. All-risk policies are generally broader and more comprehensive than other types of insurance policies and are often used to insure high-value items, such as fine art, jewelry, or valuable collections. However, all-risk policies may be more expensive than other types of policies due to their broad coverage.
B
Benefit:
Benefit refers to the amount of money an insurance company pays to an insured person or their beneficiaries. Depending on the terms of the insurance policy, benefits can be paid in a lump sum or in installments.
Binder:
A binder is a temporary insurance contract that provides coverage until a formal policy is issued. They are typically used when a policyholder needs immediate coverage.
Bodily Injury Liability:
Bodily injury liability coverage can help pay for medical expenses, lost wages, and other damages if you are found responsible for injuring someone in an accident. It is often required by state law for auto insurance policies.
C
Certificate of Insurance:
A certificate of insurance is a document that summarizes the key details of an insurance policy provided by the insurance company. It usually includes the policyholder’s name and address, the type of coverage, policy limits, and the effective dates of the policy. Certificates of insurance are often used as proof of insurance coverage and may be required by landlords, lenders, or other third parties.
Claim:
A claim is a request made by a policyholder to an insurance company for compensation for a loss covered by the policy. Claims can be submitted online, by phone, or by mail and are typically processed by claims adjusters.
Claims Processing:
Claims processing refers to the steps that an insurance company takes to handle and settle an insurance claim filed by a policyholder. This process usually involves evaluating the claim, determining coverage and eligibility, investigating the incident, and ultimately paying out a settlement or denying the claim. The objective of claims processing is to ensure that policyholders receive the coverage and benefits they are entitled to under their insurance policy.
Coinsurance:
Coinsurance is a provision in an insurance policy that requires the policyholder to pay a percentage of the cost of covered services or expenses. It can be used in health insurance, property insurance, and other types of insurance. Coinsurance is often expressed as a percentage and requires policyholders to pay a certain portion of the cost of a covered expense. It’s commonly seen in health insurance policies, where policyholders share the cost of healthcare expenses with the insurer.
D
Declarations Page:
The declarations page is the first page of an insurance policy that provides basic information about the policy, including the policyholder’s name and address, the policy term, and the coverage limits.
Deductible:
A deductible is the amount of money a policyholder must pay out of pocket before their insurance coverage starts. A higher deductible typically results in lower premiums, but it also means that the policyholder will have to pay more out of pocket if they need to make a claim. Deductibles can vary depending on the type of insurance policy and can impact the cost of premiums.
Depreciation:
Depreciation is a term used in insurance to refer to the decrease in value of an asset over time due to wear and tear or other factors. In property insurance policies, depreciation may be factored into the calculation of claims payouts, which can result in lower payouts for older or less valuable property.
E
Effective date:
The effective date is the date on which an insurance policy goes into effect and coverage begins. The effective date is important for both insurers and policyholders, as it determines when coverage is available and when premiums are due. In some cases, the effective date may be retroactive, meaning that coverage is provided for events or losses that occurred prior to the policy’s effective date.
Endorsement:
An endorsement is a document that can add, modify, or remove coverage from an insurance policy, or change policy limits or deductibles. Endorsements can be used to customize insurance policies to fit the policyholder’s specific needs.
Exclusions:
Exclusions refer to specific situations or conditions that are not covered by an insurance policy. They can vary depending on the type of insurance and policy and can include pre-existing medical conditions or certain types of damage to property. Policyholders must understand what is and isn’t covered by their policies.
Expiration Date:
The expiration date is the date on which an insurance policy’s coverage ends if it is not renewed. Policyholders are required to renew their policies before the expiration date if they wish to continue coverage.
Extended coverage:
Extended coverage refers to additional protection that can be added to an insurance policy to provide coverage for specific risks that are not covered by the standard policy. For example, homeowners insurance may offer extended coverage options for losses due to earthquakes, floods, or other natural disasters.
Extended Reporting Period:
An extended reporting period is a provision in a liability insurance policy that allows the policyholder to report claims made against them after the policy has expired.
F
Fiduciary:
A fiduciary is a person or entity that is legally responsible for managing the assets or interests of another party and is obligated to act in that party’s best interests. In the context of insurance, a fiduciary may be responsible for managing an insurance policy or trust fund on behalf of a policyholder or beneficiary. Fiduciary duties can include managing assets, making investment decisions, and ensuring that the best interests of the policyholder or beneficiary are always prioritized.
Floater:
A floater is a type of insurance policy that provides coverage for high-value items that are frequently moved or taken outside of the home, such as jewelry, art, or electronics. Floater policies can provide more comprehensive coverage for these items than standard homeowners or renters’ insurance policies. They can also cover losses that are not covered by other policies, such as accidental loss or damage.
Flood Insurance:
Flood insurance is a type of insurance policy that provides coverage for damage caused by flooding. It is designed to protect policyholders from financial losses due to flood damage, which is not typically covered by standard homeowners or renters insurance policies. Flood insurance may be required for properties located in high-risk flood zones, as designated by the Federal Emergency Management Agency (FEMA).
G
Grace Period:
The grace period refers to the period of time after the due date of an insurance premium during which the policyholder can still make a payment without their policy being canceled. The length of the grace period can vary depending on the type of insurance policy and can be a few days to a few weeks long.
Group Insurance:
Group insurance is a type of insurance policy that provides coverage for a group of people, such as employees of a company or members of an organization. Group insurance policies can cover various types of insurance, including health, life, disability, and others. This type of insurance can be a more cost-effective way to provide coverage compared to individual policies.
Guaranteed Issue:
Guaranteed-issue policies are typically offered for life insurance and do not require a medical exam or underwriting. However, premiums for guaranteed issue policies may be higher than those for traditional policies. Guaranteed-issue policies are often used for individuals with pre-existing medical conditions who may have difficulty obtaining coverage through other means.
H
Hazard:
A Hazard is anything that increases the likelihood of a loss occurring, such as a natural disaster, a faulty electrical system, or a dangerous road. They can be physical (such as a slippery floor), moral (such as dishonesty or fraud), or moral (such as lack of motivation or carelessness).
Health Insurance:
Health insurance is a type of insurance that provides coverage for medical expenses incurred by the policyholder. Health insurance can cover a wide range of medical expenses, including doctor visits, hospital stays, and prescription drugs.
High-Deductible Health Plan:
Also called an HDHP, a high-deductible health plan is a type of health insurance plan that has a higher deductible than traditional plans. The deductible is the amount of money that the policyholder is responsible for paying before the insurance company starts covering costs.
Holding Company:
A holding company is a parent corporation that owns and controls a subsidiary by owning a majority of its stock. In the insurance industry, holding companies may own multiple insurance companies or other financial institutions.
Homeowners Insurance:
Homeowners insurance is a policy that protects a home and its contents and provides liability coverage. It covers the dwelling, personal property, and liability protection. It can also provide coverage for additional living expenses if the home is uninhabitable due to a covered loss.
Home insurance policies can vary in terms of coverage limits, exclusions, and deductibles.
I
In-Network:
In-network refers to healthcare providers and facilities that are contracted with an insurance company to provide services at a discounted rate. Policyholders who seek medical care from in-network healthcare providers can save money on healthcare expenses. In-network healthcare providers have agreements with insurance companies to provide care at a lower cost, which is why staying in-network is often a requirement for certain types of health insurance plans.
Incontestability Clause:
An incontestability clause is a provision in an insurance policy that prevents the insurer from disputing the policy after a certain period of time has elapsed. In life insurance policies, the incontestability clause typically takes effect after the policy has been in force for a specified period of time, usually two years.
Indemnity:
Indemnity refers to the compensation paid to the policyholder for a loss or damage that is covered by an insurance policy. The indemnity payment can be made to the policyholder or directly to service providers such as hospitals or repair shops.
J
Jewelry Insurance:
Jewelry insurance provides coverage for high-value items, such as jewelry, that may not be fully covered by standard homeowners or renters insurance policies. Jewelry insurance policies can cover losses due to theft, loss, damage, or other covered perils, and may have specific coverage limits and deductibles for different types of jewelry.
Joint Ownership:
Joint ownership refers to a situation in which two or more individuals own the same property or asset. In the context of insurance, joint ownership may be relevant when determining who is covered by a policy and how much coverage is required. For example, if two individuals jointly own a vehicle, they may need to purchase a joint auto insurance policy to ensure that both parties are covered in the event of an accident.
Jurisdiction:
Jurisdiction refers to the geographic area or legal territory in which an insurance policy is valid and enforceable. The jurisdiction of a policy may be determined by factors such as the location of the insured property or the location of the insured individual, and may have legal implications for policyholders in the event of a dispute or claim.
K
Key Person Insurance:
Key person insurance is a type of life insurance that provides coverage for a business in case a key employee or executive dies. It can help a business recover from the loss of a key employee by providing funds to hire a replacement or cover lost income. Key person insurance policies may cover costs such as lost profits, hiring and training replacement employees, or repaying debts.
Key Rate:
The key rate is a specific interest rate used as a benchmark for other interest rates. In insurance, the key rate can be used to determine the interest rate for a policy loan, which is a loan taken out against the cash value of a life insurance policy.
Known Loss:
A known loss is a loss that has already occurred and is not covered by insurance. For example, if a person has a health condition when they apply for health insurance, that condition would be considered a known loss and would not be covered by their policy.
L
Lapse:
A lapse occurs when a policyholder fails to pay their insurance premiums and the policy is terminated as a result. When a policy lapses, the policyholder is no longer covered by the insurance policy and may have to reapply for coverage in the future.
Liability Insurance:
Liability insurance is a type of insurance coverage that provides protection for the policyholder if they are held liable for injury, damage, or loss to another person or their property. Liability insurance can help protect policyholders from the financial consequences of being held responsible for injury or property damage caused to others. Liability insurance can be purchased for a variety of purposes, such as auto, home, or business liability.
Limits:
Limits refer to the maximum amount of coverage that an insurance policy provides. For example, if a car insurance policy has a $50,000 limit for bodily injury liability, the insurer will only pay up to $50,000 per person injured in an accident, regardless of how high the medical bills may be.
Loss of use:
Loss of use is a provision in property insurance that provides coverage for additional living expenses if a policyholder’s home is damaged and becomes uninhabitable. Loss of use coverage can help the policyholder pay for temporary housing and other living expenses.
M
Malpractice Insurance:
Malpractice insurance is a type of insurance policy that provides coverage for professionals in case they are sued for negligence or malpractice. Malpractice insurance is commonly used by doctors, lawyers, and other professionals.
Medical Payment Coverage:
This is a type of insurance that pays for medical expenses incurred by the driver and passengers in the policyholder’s vehicle or boat. Medical payment coverage can help pay for medical bills, regardless of who was at fault in the accident.
Mitigation:
In insurance, mitigation refers to the steps taken to minimize or prevent loss or damage to a property. For instance, installing fire alarms, sprinklers, and fireproofing materials can mitigate the risk of fire damage to a building, which may result in lower insurance premiums.
Moral Hazard:
Moral hazard refers to a type of risk that arises when an insured person or organization behaves in a way that increases the likelihood of a loss occurring. For example, a driver who knows that their car is fully insured against theft may be less careful about locking it, leading to an increased risk of theft.
N
Named Perils:
This is a type of property insurance coverage only for specific risks or perils that are listed in the policy. Named perils policies typically do not cover losses that are not specifically listed. They only cover losses caused by specifically listed perils, such as fire, theft, or wind damage. Named perils policies can be contrasted with all-risk policies, which cover any loss that is not specifically excluded.
No-Fault Insurance:
No-Fault Insurance is a type of car or boat insurance that provides coverage for medical expenses and lost wages for operators and passengers involved in a car accident, regardless of who was at fault for the accident. This type of insurance is available in many states and is intended to reduce the number of lawsuits resulting from car accidents.
Non-Renewal:
This is the decision of an insurance company not to renew an insurance policy at the end of its term. Non-renewal can happen for a variety of reasons, including changes to the policyholder’s risk profile or a change in the insurance company’s business approach.
O
Occurrence:
An event that triggers coverage under an insurance policy is called an occurrence. For example, in liability insurance, the occurrence of an accident that causes injury or property damage may trigger coverage.
Open Enrollment:
Open enrollment is a period of time when individuals can enroll in or make changes to their health insurance coverage. Open enrollment periods are often offered once a year by employers or by the government for health insurance marketplaces.
Out-of-Pocket Maximum:
This is the maximum amount a policyholder is required to pay for covered medical expenses in a given year. Out-of-pocket maximums can help protect policyholders from catastrophic medical bills.
P
Personal Injury Protection:
This type of car insurance provides coverage for medical expenses and lost wages in case of an accident, regardless of who was at fault. Personal injury protection is required in some states.
Personal Property Insurance:
Personal property insurance can provide coverage for personal belongings, such as furniture, clothing, and electronics, that are damaged or stolen. Personal property insurance is often included as part of a homeowners or renters insurance policy, but coverage limits may vary.
Policy Limits:
This term refers to the maximum amount an insurance company will pay for a particular coverage within a policy period. Policy limits can apply to various types of insurance, such as liability insurance or property insurance. For example, if a liability insurance policy has a policy limit of $100,000, the insurance company will pay a maximum of $100,000 for any claims covered by the policy during the policy period, regardless of the actual cost of the claim.
Premium:
A premium is the amount of money a policyholder pays to an insurance company for coverage. Premiums can be paid monthly, quarterly, or annually and can vary depending on a range of factors, including the policyholder’s risk profile and the level of coverage.
Pro-rata Cancellation:
This is a type of cancellation in which an insurance policy is terminated before its expiration date, and the policyholder is refunded a prorated amount of the premium for the unused portion of the policy period. Pro rata cancellation may be initiated by either the policyholder or the insurance company, and may be subject to certain fees or penalties.
Q
Qualifying Event:
A qualifying event is a specific life event, such as marriage or the birth of a child, that allows an individual to enroll in or make changes to their health insurance coverage outside of the open enrollment period.
Quiet Enjoyment:
Quiet enjoyment is a legal concept in property insurance that ensures the policyholder has the right to use and enjoy their property without interference from others.
Quote:
A quote is an estimate of the cost of an insurance policy based on the information provided by the prospective policyholder. Insurance quotes can be obtained online, over the phone, or in person from insurance companies or insurance agents.
R
Renewal:
Renewal is the process of extending the coverage of an existing insurance policy after its expiration date. The insurer reviews the policy and may adjust the premium rates based on the insured’s claims history and any changes in the level of risk.
Replacement Cost:
Replacement cost is the amount of money needed to replace a damaged or destroyed item with a new one of the same kind and quality. Policies with replacement cost coverage are typically more expensive than actual cost value coverage because they provide higher claim reimbursements.
Rider:
A rider is an amendment or addition to an insurance policy that adds or modifies its terms or conditions. Riders can be used to add or remove coverage or to make other changes to an insurance policy.
Risk Assessment:
Risk assessment refers to the process of identifying and analyzing potential risks that an individual or organization may face, like the chance of a loss or damage occurring to property, life, or health, which can be covered by insurance. The insurer assesses the risk of an applicant and determines the cost of the insurance premium based on the level of risk.
S
Salvage Value:
Salvage value refers to the value of damaged or destroyed property that can be sold or reused. Salvage value can be used to reduce the amount of a claim payment in property insurance.
Settlement:
Settlement refers to the resolution of an insurance claim. It is the amount of money that an insurance company agrees to pay to the policyholder to compensate for damage or loss covered by the policy. Settlements can be reached through negotiations between the policyholder and the insurance company, or they may be determined through arbitration or litigation.
Subrogation:
Subrogation is the process by which an insurance company seeks to recover the costs of a claim from another party who may have been responsible for the loss. Subrogation can be used to recover costs from third-party individuals or entities, such as other drivers or manufacturers. It is the legal process by which an insurance company seeks reimbursement from a third party for payments made to the policyholder for a covered loss. Subrogation can help insurance companies recover costs and keep premiums low.
T
Term Life Insurance:
Term life insurance provides coverage for a specific period of time, often 10, 20, or 30 years. Term life insurance policies typically have lower premiums than whole life insurance policies, but they don’t build cash value.
Third-Party Liability:
Third-party liability is a type of insurance coverage that provides protection for the policyholder if they are held liable for injury or damage to someone else’s property. Third-party liability coverage is typically included in auto insurance and liability insurance policies.
Total Loss:
Total loss is a condition where the cost of repairing or replacing damaged property exceeds its value. In insurance, it usually means that the insurance company declares the property a total loss and pays the policyholder the actual cash value or the policy limit, whichever is lower.
U
Umbrella Insurance:
Umbrella insurance is a type of insurance policy that provides additional liability coverage beyond what is provided by a standard policy. It is commonly used to protect against large claims or lawsuits.
Underwriting:
Underwriting is the process by which an insurance company evaluates an applicant’s risk and determines whether to offer coverage and at what price. Underwriting can involve analyzing a variety of factors such as age, health, driving record, and credit history to assess the level of risk associated with the applicant.
Uninsured/Underinsured Motorist Coverage:
Sometimes referred to as UM/UIM, this is a type of auto insurance that protects you if you’re involved in an accident with someone who doesn’t have insurance or has insufficient coverage. If the other driver is at fault and doesn’t have insurance or doesn’t have enough insurance to cover your damages, your UM/UIM coverage will pay for your medical expenses, lost wages, and other damages up to your policy limit.
V
Valuation:
This is the process of determining the value of an insured item or property, which can impact how much the insurance company will pay out in the event of a covered loss.
Variable Life Insurance:
Life insurance that allows the policyholder to invest the policy’s cash value in various investment options, such as stocks, bonds, and mutual funds is commonly known as Variable life insurance. These policies can provide both a death benefit and a cash value investment component because they combine the flexibility of universal life insurance with the investment options of variable life insurance. Policyholders can choose where to invest their premiums, but the cash value of the policy is subject to market fluctuations.
Voluntary Benefits:
Voluntary benefits are employee benefits that are offered by an employer but are paid for by the employee, such as vision or dental insurance.
W
Waiting Period:
A waiting period is the period of time between the start of a disability or illness and when insurance benefits begin. Waiting periods are often seen in disability insurance policies and can vary in length.
Waiver of Premium:
A waiver of premium is a provision in an insurance policy that allows a policyholder to stop paying premiums if they become disabled and unable to work. Waiver of premium can help policyholders continue their insurance coverage even if they are unable to earn income.
Whole Life Insurance:
This is a type of life insurance policy that provides both a death benefit and an investment component. Whole life insurance policies typically have higher premiums than term life insurance policies but can build cash value over time. Unlike variable life insurance, whole life insurance offers a guaranteed death benefit and a fixed premium payment for the life of the policy. The investment component of a whole-life policy is managed by the insurance company and typically earns a low, fixed rate of return. Policyholders do not have control over the investments made by the insurance company.
Y
Yearly Renewable Term:
A type of term life insurance policy that is renewed annually without requiring the policyholder to undergo a new medical exam. Yearly renewable term policies can be a good option for individuals who only need coverage for a short period of time. They can be less expensive than longer-term policies, but premiums may increase each year as the policyholder gets older.
Yield:
Yield refers to the return on an investment made in an insurance policy, such as the interest earned on a life insurance policy’s cash value. The yield can be affected by various factors, such as the type of policy, investment options, and market conditions.
Z
Zero Deductible:
This is a type of insurance policy, such as car insurance, that provides coverage without requiring the policyholder to pay a deductible before coverage begins. Zero-deductible policies can provide more immediate coverage for policyholders who cannot afford to pay a deductible out of pocket, but they can be more expensive than policies with deductibles.
Zero Depreciation:
Zero depreciation coverage provides for the full replacement or repair of damaged or stolen property without factoring in depreciation. It’s a popular add-on for auto insurance policies.
Zip Code Rating:
This is a tool used by insurance companies to determine rates for insurance policies based on the location of the insured property. This method can consider factors such as crime rates, natural disasters, and other risks associated with the specific geographic location.
