It’s essential that you read your insurance policies carefully to understand what is covered — and what isn’t. As anyone who has opened up their policy packet knows, you can quickly get lost in an ocean of insurance terms you might not have come across before.
All of this can be confusing. So, here is a glossary of some essential insurance terms and phrases you might see when you are reviewing your existing policies or if you’re doing research to find new insurance coverage.
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A – D
Accident/accidental: Damage to property that occurs as a result of an unexpected and unintentional event.
Actual cash value: The value of property at the time it is lost, damaged or stolen. Commonly abbreviated as ACV.
Actuary: An insurance professional who analyzes risks and risk management in the development of premiums.
Additional insured: Anyone other than the policyholder who is added to an insurance policy for coverage.
Additional living expenses: Extra expenses you might incur if you are unable to occupy your primary residence. An example is coverage for a hotel room and meals if your home was damaged in a fire and you cannot live there during repairs.
Adjuster: Also called a claims adjuster, this person investigates claims for the insurance company and makes recommendations for settlements.
Agent: A licensed representative who provides advice on coverage options and sells insurance policies. Insurance agents can be employees of an insurance agency, or can work as independent agents.
Allied lines: Typically purchased alongside a fire insurance policy, this covers additional risks that might not be offered in a standard policy, such as water damage from putting the fire out or vandalism.
Appraisal: An estimate of value, provided by a certified individual . Often, an appraisal is for a valuable item like art or jewelry. An appraisal can also take place after a covered peril to determine the value of the property that was damaged.
Assessed value: An estimate of property value determined by a taxing entity.
Auto liability: Coverage for bodily injuries or property damage caused by an insured vehicle.
Beneficiary: The named recipient of the payment from a life insurance policy.
Boatowners/personal watercraft insurance: Protects a policyholder’s boat or jet ski, and related equipment.
Burglary and theft insurance: Protects against financial loss due to someone breaking in and stealing property.
Claim: A formal request for payment made by the insured party to the insurer in the event of a covered loss.
Coastal area: Property near an ocean. This includes areas such as inlets, bays, harbors, or gulfs. Property in these areas often requires special additional hurricane insurance coverage.
Collision coverage: Pays for damage to your vehicle when it collides with a vehicle or another object such as a building or tree, while being operated.
Comprehensive coverage: “Other than Collision” events which are out of your control. This coverage pays for damages to your vehicle such as wind, fire, theft, vandalism, an accident with an animal or damage to your windshield.
Date of issue: This is the time and day an insurance policy is created. There is sometimes a period of time between the date of issue and the effective date of your policy.
Declarations: The details of your insurance coverage. It identifies who the policyholder is, describes the property that is covered (such as your house or your vehicle), and lists the premium amounts and deductibles associated for each type of coverage you carry on your insurance policy.
Deductible: The amount of money that is deducted from the amount that is paid out in a claims scenario.
Dwelling: The structure in which you live: a home, condominium, rental, mobile home, etc.
E – H
Earthquake insurance: Separate coverage that protects against earthquakes, which are typically not covered under a standard property insurance policy.
Effective date: This is the date your coverage starts. It is sometimes different from the date of issue.
Endorsement: A separate provision that can adjust or alter the basic insurance coverages in a policy. It is also sometimes called an amendment or a rider.
Federal Flood Insurance Program: This program was created through an act of Congress to provide flood insurance. It is managed by FEMA.
FEMA: The Federal Emergency Management Agency.
Fire insurance: Protects against losses that result from fires, including those started by a lightning strike.
Flood insurance: Property insurance typically will exclude damage from flooding, which is defined as water that rises above ground level, regardless of the event that causes it. Flood insurance is sold as a separate policy.
Garaged location: The address where a vehicle is typically stored when not in use. Usually, this is the policyholder’s main address. For college students who are still listed as an additional insured on their parents’ auto policy, the garaged location may be their address at college.
Hazard: A condition or occurrence that can lead to a loss.
Homeowners insurance: These policies combine property and liability coverage for the insured’s primary residence and other structures (such as a detached garage) on the property.
Hurricane insurance: Separate coverage on a homeowners insurance policy that applies when a home is damaged by a named storm. The separate deductible is commonly expressed as a percentage of the home’s insured value. This deductible will be listed on a homeowners insurance policy’s declaration page.
I – L
Insured: The person who is covered by an insurance policy.
Insurer: The company that provides the insurance coverage.
Kit car: A car that is purchased as a set of parts, which is designed to be assembled by the owner. Kit cars usually are not covered by a standard auto insurance policy; you must purchase special insurance coverage designed to apply to a kit car’s attributes.
Landlord: A property owner who leases property to a tenant for use for a fixed period of time in exchange for rent.
Lapse: A period of time where you do not have coverage for any losses due to a carrier initiated cancellation or for neglecting to pay insurance premiums. This can result in higher premiums depending on the length of the lapse in coverage.
Lease: A contract that provides property for use by a renter over an established period of time. For example, a lease may outline terms for renting an apartment for a year, while the average car lease is a term of 24 to 36 months.
Liability: Establishes responsibility for losses associated with claims that result from either damage or injuries to people or property.
Life insurance: Coverage that provides an amount of money to the named beneficiaries of the policy upon the death of the insured.
Limits: The designated sum that an insurance company will pay for a claim on a covered loss. The limits of an insurance policy will typically be listed on the declarations page.
Loss: Damage to property that is insured.
M – O
Market value: The amount of money a property could be bought or sold for in an open market.
Mobile home insurance: A form of homeowners insurance coverage that is designed for mobile homes.
Mobile home under transport coverage: Insurance that protects a mobile home while it is being moved.
Mortgage insurance: A type of life insurance policy that pays out to the mortgage lender upon the death of the insured.
Named insured: The person identified in an insurance policy as the holder of the coverage.
Named perils: The list of hazards or types of accidental events that an insurance policy covers.
Negligence: Failure to provide sufficient care or attention that results in damage, loss, or injury.
National Flood Insurance Program: A federal program managed by FEMA that provides flood insurance for property owners.
Other structure: Buildings or structures located on an insured’s property that may also be covered by a homeowners insurance policy. Examples are detached garages, gazebos, sheds, etc.
Owner occupied: This describes a residence where the policyholder is living. Burglary and theft occur more often when a home is not occupied year-round, this is an important consideration for insurance companies when assessing property risk.
P – S
Peril: A hazard or accidental event covered by an insurance policy.
Permanent life insurance: The insured is covered until death, as long as premiums are paid on time and the insured adheres to any other clauses and conditions in the policy.
Personal line: Any form of insurance policy that covers individuals from losses, such as an auto insurance policy or homeowners insurance policy.
Personal property: This describes types of property owned by the insured other than the dwelling. Examples of personal property are furniture, clothes, kitchen items, etc.
Pet insurance policy: Coverage for medical care, illnesses and injuries that happen to your pet. As veterinary care has become more advanced and expensive, pet insurance policies are growing in popularity.
Policy: The written contract between the insured and the insurer.
Policy period: The time during which the insurance coverage is in effect.
Premium: The amount the insured pays the insurer in exchange for coverage.
Proof of coverage: A document issued by an insurance company that demonstrates the insured has secured coverage and is up-to-date on paying premiums.
Public adjuster: An independent insurance adjuster who does not work for an insurance company.
Renters insurance: Coverage that protects the policyholder from losses that occur in a rented dwelling.
Replacement cost: The cost to replace a covered item with the same or a similar new item. For example, if a fire damages a couch that is six years old, replacement cost would cover the value of a new couch, whereas actual cash value (ACV) would take the age of the couch into consideration and would reimburse at a lower rate.
Rider: An addition to an insurance policy. For example, a valuable personal property rider is separate coverage that protects against losses of expensive items such as jewelry or art.
Risk: The potential for loss during a covered peril. When offering coverage, insurers assess the level of risk, which then determines the price the insured will pay.
Roadside assistance: A type of auto insurance coverage that provides a policyholder with on-the-spot assistance if the insured is in an accident and the vehicle is undrivable or if their car breaks down and they need assistance.
Self-insured: Also known as proof of financial responsibility. In states where certain types of insurance coverage are not required by law, drivers who elect not to purchase insurance are sometimes required to show that they have the financial resources to cover a loss should one occur.
T – Z
Tenants: People who live in a dwelling owned by a landlord under a lease agreement.
Term: A defined period of time that an insurance policy is in effect.
Term life insurance: A policy that covers the insured for a set number of years (i.e. term). If the insured dies during this period, the insurance company pays a death benefit to the beneficiary.
Travel insurance: Short-term coverage that can be purchased to protect against potential losses that may occur while the insured is traveling. Many travel insurance policies now exclude pandemic-related losses.
Umbrella coverage: Umbrella insurance provides coverage beyond the limits of an insured’s standard policy. For example, say you have a homeowners insurance policy that provides $100,000 of liability coverage and an umbrella policy that goes up to $1,000,000. If someone is injured on your property and the medical bills exceed $500,000, the homeowners insurance policy will only pay up to the $100,000 limit. The umbrella policy then kicks in and covers the remaining amount (minus your deductible).
Underinsured motorist coverage: Protects against losses if the insured experiences damage or injury as a result of another motorist’s actions. If that motorist has inadequate insurance to cover the loss, this coverage kicks in. Some states require this coverage, while it is optional in others.
Underwriting: The process of analyzing the level of risk a policyholder represents. An underwriter determines what the premium for a policy should be based on the amount of risk. In some cases,the insurer may find that the risk is too high and can decline to offer coverage to an individual.
Uninsured motorist coverage: Protects the insured against losses that result from damage or injury caused by another motorist who does not have any insurance. Many states require drivers to carry this coverage, but some do not.
Universal life insurance: A form of permanent life insurance that offers the insured some flexibility in making changes to the death benefit or premiums (within limits established by the insurer).
Valuable personal property: Expensive items such as jewelry, fine art, furs, gun collections, cameras, some electronics, silverware, and more. If you have valuable personal property, you may schedule these items on your homeowners policy or purchase a rider to protect against losses of these items (depending on their value).
Vehicle identification number: Abbreviated as VIN, this is a vehicle’s unique ID, located on the dashboard and on the driver’s-side door. Your insurance company will need it when issuing an auto insurance policy, and this number usually appears on your proof of coverage card.
Whole life insurance: Another form of permanent life insurance with fixed premiums. It also includes a savings component.
Disclaimer:
All information provided in this publication is for informational and educational purposes only, and in no way is any of the content contained herein to be construed as financial, investment, or legal advice or instruction. Rate Insurance does not guarantee the quality, accuracy, completeness or timelines of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error free. Some information in the publication may have been provided by third parties and has not necessarily been verified by Rate Insurance. Rate Insurance, its affiliates and subsidiaries do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort (including negligence) or other tortious action.
