Insurance Glossary
Click on a term to expand and see the definition.
Actual Cash Value (ACV)
The amount equal to the replacement cost minus depreciation of a damaged or stolen property at the time of the loss.
Example: If your 5-year-old television is stolen, the insurance company will pay you the value of the TV after accounting for depreciation, not the cost of a brand new one.
Example: If your 5-year-old television is stolen, the insurance company will pay you the value of the TV after accounting for depreciation, not the cost of a brand new one.
Aggregate Limit
The maximum amount an insurer will pay for all covered losses during a policy period.
Example: If your policy has an aggregate limit of $1,000,000, the insurer will pay up to that amount for all claims made during the policy period.
Example: If your policy has an aggregate limit of $1,000,000, the insurer will pay up to that amount for all claims made during the policy period.
Assigned Risk Pool
A group of individuals or businesses that are unable to obtain insurance in the voluntary market and are provided coverage through a state-run program.
Example: A high-risk driver with multiple traffic violations may be placed in the assigned risk pool to get auto insurance.
Example: A high-risk driver with multiple traffic violations may be placed in the assigned risk pool to get auto insurance.
Beneficiary
A person or entity named in an insurance policy who will receive the death benefit or payout when the insured event occurs.
Example: John named his wife as the beneficiary of his life insurance policy, so she will receive the benefit if he passes away.
Example: John named his wife as the beneficiary of his life insurance policy, so she will receive the benefit if he passes away.
Binder
A temporary insurance contract that provides proof of coverage until a formal policy is issued.
Example: When Jane bought her new car, the insurance company issued her a binder to prove she was covered until the full policy was ready.
Example: When Jane bought her new car, the insurance company issued her a binder to prove she was covered until the full policy was ready.
Broker
An insurance professional who represents the insured and works to find the best policy available from multiple insurers.
Example: Mark worked with an insurance broker to compare policies from different companies and find the best coverage for his needs.
Example: Mark worked with an insurance broker to compare policies from different companies and find the best coverage for his needs.
Captive Agent
An insurance agent who represents a single insurance company and sells only that company’s products.
Example: Sarah is a captive agent for XYZ Insurance, meaning she only offers policies from XYZ Insurance to her clients.
Example: Sarah is a captive agent for XYZ Insurance, meaning she only offers policies from XYZ Insurance to her clients.
Claim
A formal request to an insurance company asking for a payment based on the terms of the insurance policy.
Example: After a storm damaged his roof, Tom filed a claim with his homeowners insurance company to cover the repair costs.
Example: After a storm damaged his roof, Tom filed a claim with his homeowners insurance company to cover the repair costs.
Claims Adjuster
A professional who investigates insurance claims to determine the extent of the insurer’s liability.
Example: A claims adjuster visited Maria’s home to assess the damage after she filed a claim for water damage.
Example: A claims adjuster visited Maria’s home to assess the damage after she filed a claim for water damage.
Coinsurance
A clause in an insurance policy that requires the policyholder to bear a portion of the costs after the deductible is met.
Example: If your health insurance has a 20% coinsurance clause, you would pay 20% of the medical bill after meeting your deductible, and the insurer would cover the rest.
Example: If your health insurance has a 20% coinsurance clause, you would pay 20% of the medical bill after meeting your deductible, and the insurer would cover the rest.
Coverage Limit
The maximum amount an insurance company will pay for a covered loss.
Example: If your policy has a coverage limit of $50,000 for personal property, that is the most the insurer will pay for covered losses to your belongings.
Example: If your policy has a coverage limit of $50,000 for personal property, that is the most the insurer will pay for covered losses to your belongings.
Deductible
The amount of money a policyholder is required to pay out-of-pocket before the insurance company pays a claim.
Example: If your car insurance policy has a $500 deductible and you have $2,000 in damages, you will pay the first $500, and the insurer will pay the remaining $1,500.
Example: If your car insurance policy has a $500 deductible and you have $2,000 in damages, you will pay the first $500, and the insurer will pay the remaining $1,500.
Endorsement
A written document attached to an insurance policy that changes, adds, or restricts the coverage of the policy.
Example: John added an endorsement to his homeowners policy to include coverage for his home office equipment.
Example: John added an endorsement to his homeowners policy to include coverage for his home office equipment.
Exclusion
Specific conditions or circumstances for which the policy does not provide coverage.
Example: Flood damage is often listed as an exclusion in standard homeowners insurance policies, meaning it is not covered.
Example: Flood damage is often listed as an exclusion in standard homeowners insurance policies, meaning it is not covered.
Grace Period
A period of time after the premium due date during which the policy remains in force without penalty even though the premium has not been paid.
Example: Sarah’s life insurance policy has a 30-day grace period, giving her extra time to pay her premium without losing coverage.
Example: Sarah’s life insurance policy has a 30-day grace period, giving her extra time to pay her premium without losing coverage.
Indemnity
Compensation provided by an insurance policy to make the insured whole after a loss, up to the amount of the loss.
Example: After a fire damaged his kitchen, the indemnity paid by the insurance company allowed Mark to repair and replace the damaged items.
Example: After a fire damaged his kitchen, the indemnity paid by the insurance company allowed Mark to repair and replace the damaged items.
Insurable Interest
A financial stake in the property or person being insured, which would cause the policyholder to suffer a financial loss if the insured event occurs.
Example: Mary has an insurable interest in her home, meaning she would suffer financially if it were damaged or destroyed.
Example: Mary has an insurable interest in her home, meaning she would suffer financially if it were damaged or destroyed.
Liability Coverage
Coverage that provides protection from claims arising from injuries or damage to other people or property.
Example: Liability coverage on Jim’s auto insurance paid for the damages to the other driver’s car after Jim was found at fault in an accident.
Example: Liability coverage on Jim’s auto insurance paid for the damages to the other driver’s car after Jim was found at fault in an accident.
Loss of Use
Coverage that reimburses the policyholder for additional living expenses if they cannot use their home due to a covered loss.
Example: After a fire, Laura’s loss of use coverage paid for her hotel stay while her home was being repaired.
Example: After a fire, Laura’s loss of use coverage paid for her hotel stay while her home was being repaired.
No-Fault Insurance
A type of auto insurance where the insured’s own insurance company pays for damages, regardless of who was at fault in an accident.
Example: In a state with no-fault insurance, both drivers’ insurers will cover their own policyholders’ medical expenses after an accident.
Example: In a state with no-fault insurance, both drivers’ insurers will cover their own policyholders’ medical expenses after an accident.
Peril
A specific risk or cause of loss covered by an insurance policy, such as fire, theft, or windstorm.
Example: Fire is a covered peril under most homeowners insurance policies, meaning the insurer will pay for fire damage.
Example: Fire is a covered peril under most homeowners insurance policies, meaning the insurer will pay for fire damage.
Personal Injury Protection (PIP)
Coverage in an auto insurance policy that pays for medical expenses and, in some cases, lost wages and other damages, regardless of who was at fault.
Example: After an accident, Maria’s PIP coverage paid for her medical bills and a portion of her lost wages.
Example: After an accident, Maria’s PIP coverage paid for her medical bills and a portion of her lost wages.
Personal Property
Items of value that are not permanently attached to a dwelling, such as furniture, electronics, and clothing, covered under a homeowner’s policy.
Example: When Jim’s apartment was burglarized, his insurance policy covered the cost of his stolen personal property, like his laptop and television.
Example: When Jim’s apartment was burglarized, his insurance policy covered the cost of his stolen personal property, like his laptop and television.
Policyholder
The individual or entity that owns an insurance policy.
Example: As the policyholder of his auto insurance policy, David is responsible for paying the premiums and ensuring the coverage meets his needs.
Example: As the policyholder of his auto insurance policy, David is responsible for paying the premiums and ensuring the coverage meets his needs.
Premium
The amount of money an individual or business must pay for an insurance policy.
Example: Jane pays a monthly premium of $100 for her car insurance policy.
Example: Jane pays a monthly premium of $100 for her car insurance policy.
Proof of Loss
A formal statement made by the policyholder to the insurance company regarding a claim, providing details of the loss.
Example: After her house was damaged by a storm, Emily submitted a proof of loss to her insurer detailing the repairs needed.
Example: After her house was damaged by a storm, Emily submitted a proof of loss to her insurer detailing the repairs needed.
Reinsurance
Insurance that an insurance company purchases from another insurer to reduce its risk exposure.
Example: To manage risk, XYZ Insurance bought reinsurance from a larger company to cover potential large claims.
Example: To manage risk, XYZ Insurance bought reinsurance from a larger company to cover potential large claims.
Replacement Cost
The amount it would take to replace or repair damaged property with similar kind and quality without deducting for depreciation.
Example: If John’s roof is damaged in a storm, replacement cost coverage will pay to replace it with a similar quality roof without considering depreciation.
Example: If John’s roof is damaged in a storm, replacement cost coverage will pay to replace it with a similar quality roof without considering depreciation.
Rider
An add-on to an insurance policy that provides additional coverage or benefits.
Example: Mary added a jewelry rider to her homeowners insurance to provide extra coverage for her engagement ring.
Example: Mary added a jewelry rider to her homeowners insurance to provide extra coverage for her engagement ring.
Risk
The likelihood or probability of a loss occurring.
Example: Insuring a home in a flood-prone area carries a higher risk, which can result in higher premiums.
Example: Insuring a home in a flood-prone area carries a higher risk, which can result in higher premiums.
Salvage Value
The estimated value that an asset will have at the end of its useful life, often used when determining claim settlements.
Example: After a car accident, the salvage value of the totaled vehicle was determined to be $1,000, which affected the insurance payout.
Example: After a car accident, the salvage value of the totaled vehicle was determined to be $1,000, which affected the insurance payout.
Subrogation
The process by which an insurance company seeks reimbursement from the responsible party after paying a claim.
Example: After paying for the damages to Tom’s car, the insurer pursued subrogation against the at-fault driver to recover the costs.
Example: After paying for the damages to Tom’s car, the insurer pursued subrogation against the at-fault driver to recover the costs.
Third-Party Liability
Insurance coverage that protects the insured against claims made by another person or entity for injury or damage.
Example: Jack’s business liability insurance provided third-party liability coverage when a customer slipped and fell in his store.
Example: Jack’s business liability insurance provided third-party liability coverage when a customer slipped and fell in his store.
Umbrella Policy
A type of liability insurance that provides additional coverage beyond the limits of the insured’s other policies.
Example: After a serious car accident, Susan’s umbrella policy provided extra liability coverage when her auto policy limits were exceeded.
Example: After a serious car accident, Susan’s umbrella policy provided extra liability coverage when her auto policy limits were exceeded.
Underwriting
The process by which an insurance company evaluates the risk of insuring a person or asset and determines the terms of coverage.
Example: During the underwriting process, the insurer reviewed Michael’s medical history before issuing his life insurance policy.
Example: During the underwriting process, the insurer reviewed Michael’s medical history before issuing his life insurance policy.
Waiting Period
The amount of time that must pass after an event before benefits are paid by an insurance policy.
Example: Jane’s disability insurance policy has a 90-day waiting period before benefits begin after she becomes disabled.
Example: Jane’s disability insurance policy has a 90-day waiting period before benefits begin after she becomes disabled.
