Insurance Glossary
Plain-English definitions of the insurance terms you'll encounter when shopping for coverage. Click a letter to jump to that section.
A
- Accelerated Death Benefit
- A policy rider that allows the insured to receive a portion of the death benefit while still alive, typically upon diagnosis of a terminal illness. This provides cash when it's needed most without canceling the policy.
- Actual Cash Value (ACV)
- The replacement cost of damaged or stolen property minus depreciation. ACV policies pay less than replacement cost policies because they account for wear and tear over time.
- Adjuster
- An insurance company representative who investigates and evaluates claims to determine how much the insurer should pay. Adjusters can be employed by the insurer (staff adjuster) or work independently (independent adjuster).
B
- Beneficiary
- The person or entity designated to receive the death benefit or insurance payout when a claim is made. Policyholders can name primary and contingent (backup) beneficiaries.
- Binder
- A temporary agreement that provides insurance coverage until a formal policy is issued. Binders are common in property insurance and typically last 30-90 days.
- Bodily Injury Liability
- Auto insurance coverage that pays for injuries you cause to other people in an accident. Every state sets minimum required limits, expressed as per-person and per-accident maximums (e.g., 25/50 means $25,000 per person, $50,000 per accident).
C
- Cash Value
- The savings component of a permanent life insurance policy (whole life or universal life) that grows over time on a tax-deferred basis. Policyholders can borrow against or withdraw the cash value during their lifetime.
- COBRA
- The Consolidated Omnibus Budget Reconciliation Act. A federal law that allows employees to continue their employer-sponsored health insurance for up to 18 months after losing their job or experiencing a qualifying life event. The employee pays the full premium plus a small administrative fee.
- Coinsurance
- The percentage of covered medical expenses you pay after meeting your deductible. For example, with 80/20 coinsurance, the insurer pays 80% and you pay 20% until you reach your out-of-pocket maximum.
- Collision Coverage
- Auto insurance that pays to repair or replace your vehicle after a collision with another vehicle or object, regardless of who is at fault. Required by lenders if you have a car loan.
- Comprehensive Coverage
- Auto insurance that covers damage to your vehicle from non-collision events: theft, vandalism, weather, fire, falling objects, and animal strikes. Often required by lenders alongside collision coverage.
- Convertible Term Policy
- A term life insurance policy that can be converted to a permanent (whole life or universal life) policy without a new medical exam. This option is valuable if your health declines during the term period.
- Copay (Copayment)
- A fixed dollar amount you pay for a covered healthcare service at the time of the visit. For example, a $30 copay for a doctor visit means you pay $30 and the insurer covers the rest.
D
- Death Benefit
- The amount paid to beneficiaries when the insured person dies. In life insurance, this is the face value of the policy. Death benefits are generally income-tax-free to the recipient.
- Declarations Page
- The front page of an insurance policy that summarizes key information: the insured's name, policy number, coverage limits, deductibles, premium amount, and policy period. Often called the "dec page."
- Deductible
- The amount you pay out of pocket before your insurance begins to cover costs. A $1,000 deductible means you pay the first $1,000 of a covered loss. Higher deductibles generally mean lower premiums.
- Dwelling Coverage
- The part of a homeowners insurance policy that pays to repair or rebuild the physical structure of your home after a covered loss (fire, wind, hail, etc.). Does not include land value.
E
- Endorsement (Rider)
- An add-on to an insurance policy that modifies coverage, either adding or restricting it. Examples include a home business endorsement on homeowners insurance or a waiver of premium rider on life insurance.
- Exclusion
- A specific condition, situation, or circumstance that is not covered by an insurance policy. Common exclusions include flood damage in homeowners policies and intentional acts in all policies.
F
- Face Value
- The stated amount of coverage on a life insurance policy — the death benefit that will be paid to beneficiaries. A $500,000 policy has a face value of $500,000.
- Filing a Claim
- The formal process of notifying your insurance company that a covered loss or event has occurred and requesting payment. Claims require documentation of the loss and may involve an adjuster's inspection.
- FR-44
- A certificate of financial responsibility required in some states (notably Virginia and Florida) for drivers convicted of DUI. Similar to an SR-22 but requires higher liability limits — typically double the state minimum.
G
- Grace Period
- A set number of days after a premium due date during which the policy remains active even though payment hasn't been received. Typically 30-31 days for life insurance and 10-30 days for other types.
- Guaranteed Issue
- An insurance policy that accepts all applicants regardless of health status, with no medical exam or health questions. These policies typically have higher premiums and may include a graded death benefit (limited payout in the first 2-3 years).
H
- HMO (Health Maintenance Organization)
- A type of health insurance plan that requires you to use a network of doctors and hospitals, choose a primary care physician, and get referrals to see specialists. HMOs typically have lower premiums and copays but less flexibility.
- Homeowners Insurance (HO Policy)
- Insurance that covers your home's structure, personal belongings, liability, and additional living expenses if your home is uninhabitable. Standard policies (HO-3) cover the dwelling against all perils except those specifically excluded.
I
- Inflation Guard
- A homeowners insurance endorsement that automatically increases your dwelling coverage each year to keep pace with rising construction costs, preventing you from being underinsured.
- Insurable Interest
- A legal requirement that the policyholder must stand to suffer a financial loss if the insured event occurs. You can insure your own life, your spouse's life, or a business partner's life — but not a stranger's.
L
- Lapse
- When an insurance policy is terminated because the policyholder failed to pay premiums within the grace period. A lapsed life insurance policy may be reinstated within a certain window, usually with proof of insurability.
- Liability Coverage
- Insurance that pays for injuries or damage you cause to others. In auto insurance, this is bodily injury and property damage liability. In homeowners insurance, it covers injuries to visitors on your property.
- Loss Ratio
- The percentage of premiums an insurer pays out in claims. A loss ratio of 70% means the company pays $0.70 in claims for every $1.00 collected in premiums. Regulators monitor this to ensure fair pricing.
M
- Medical Underwriting
- The process insurers use to evaluate your health risks when you apply for coverage. May involve a medical exam, prescription history check, medical records review, or health questionnaire.
N
- Named Peril
- A policy that only covers losses from risks specifically listed (named) in the policy — such as fire, lightning, windstorm, or theft. Contrast with open peril (all-risk) policies that cover everything except what's excluded.
- No-Exam Life Insurance
- Life insurance that doesn't require a medical exam for approval. Underwriting is based on your application answers and data sources (prescription history, motor vehicle records). Faster approval but typically 30-50% more expensive than traditional policies.
O
- Out-of-Pocket Maximum
- The most you'll pay for covered healthcare services in a plan year. After reaching this limit, the insurance company pays 100% of covered services. Includes deductibles, copays, and coinsurance.
P
- PPO (Preferred Provider Organization)
- A health insurance plan that offers a network of preferred providers at lower rates but allows you to see out-of-network providers at higher cost. No referrals needed for specialists. More flexibility than HMOs, but typically higher premiums.
- The amount you pay for insurance coverage, typically billed monthly, quarterly, or annually. Premiums are determined by risk factors specific to your policy type — age and health for life insurance, driving record for auto, location for homeowners.
- Property Damage Liability
- Auto insurance coverage that pays for damage you cause to another person's property (their car, fence, building, etc.) in an accident. Required in all states with mandatory auto insurance.
R
- Replacement Cost
- The amount it would cost to replace damaged property with new property of similar kind and quality, without deducting for depreciation. Replacement cost policies pay more than actual cash value policies.
S
- Scheduled Personal Property
- A homeowners insurance endorsement that provides additional coverage for specific high-value items (jewelry, art, musical instruments) that exceed the standard policy's sub-limits.
- SR-22
- A certificate of financial responsibility that your insurance company files with the state to prove you carry the required minimum auto insurance. Required after certain violations (DUI, driving without insurance, multiple at-fault accidents). Not insurance itself — it's proof of insurance.
T
- Term Life Insurance
- Life insurance that provides coverage for a specific period (term) — typically 10, 20, or 30 years. If you die during the term, beneficiaries receive the death benefit. If you outlive the term, coverage ends with no payout. The most affordable type of life insurance.
U
- Umbrella Insurance
- A supplemental liability policy that provides coverage beyond the limits of your auto, homeowners, or other underlying policies. Typically sold in $1 million increments and relatively inexpensive for the amount of protection.
- Underinsured Motorist Coverage
- Auto insurance that pays for your injuries or damages when the at-fault driver doesn't have enough insurance to cover your losses. Works after their coverage is exhausted.
- Underwriting
- The process an insurer uses to evaluate the risk of insuring you and determine your premium. Underwriters review applications, medical records, driving history, credit reports, and other data to classify risk.
- Uninsured Motorist Coverage
- Auto insurance that protects you if you're hit by a driver who has no insurance at all. Covers your medical expenses and, in some states, property damage.
- Universal Life Insurance
- A type of permanent life insurance with flexible premiums and an adjustable death benefit. Part of each premium goes toward the cost of insurance and part builds cash value that earns interest. More flexible than whole life but requires active management.
W
- A policy rider that waives future premium payments if the insured becomes totally disabled and unable to work. The policy remains in force without payment for the duration of the disability.
- Whole Life Insurance
- Permanent life insurance that provides coverage for your entire life with fixed premiums and a guaranteed cash value that grows over time. More expensive than term life but builds savings and never expires as long as premiums are paid.