Insurance Glossary
Clear, jargon-free definitions for 100 common insurance terms.
A
Actual Cash Value
The current market value of property at the time of a loss, calculated as replacement cost minus depreciation. If your five-year-old roof is damaged, an actual cash value policy pays what a five-year-old roof is worth today — not the cost of a brand-new roof.
Read full definition →Adjuster
An insurance professional who investigates and evaluates claims on behalf of an insurance company. The adjuster inspects damage, reviews documentation, interviews witnesses, and determines how much the insurer should pay for a covered loss.
Read full definition →Agent
A licensed individual who sells insurance policies on behalf of one or more insurance companies. Captive agents represent a single insurer, while independent agents can offer policies from multiple carriers, giving consumers more options to compare.
Read full definition →Actuary
A professional who uses mathematics, statistics, and financial theory to assess risk and set insurance premiums. Actuaries analyze historical data and probability models to predict future losses and ensure insurers can pay claims.
Read full definition →Additional Living Expenses
Homeowners insurance coverage that reimburses you for extra costs incurred when you cannot live in your home due to a covered loss. Also known as ALE or loss of use, it covers hotel bills, restaurant meals, and other temporary living costs above your normal expenses.
Read full definition →Aggregate Limit
The maximum total amount an insurer will pay for all covered claims during a policy period, typically one year. Once the aggregate limit is reached, the insurer will not pay any additional claims regardless of individual per-occurrence limits remaining.
Read full definition →B
Beneficiary
The person or entity designated to receive the proceeds of an insurance policy when the insured event occurs. In life insurance, the beneficiary receives the death benefit. You can name primary and contingent beneficiaries in case the primary is unable to collect.
Read full definition →Binder
A temporary agreement that provides insurance coverage until a formal policy is issued. Binders are commonly used in property and auto insurance to ensure you are covered immediately while the insurer completes underwriting.
Read full definition →Broker
A licensed insurance professional who represents the buyer rather than the insurance company. Unlike agents, brokers shop the market across multiple insurers to find the best coverage and price for their clients.
Read full definition →Bodily Injury Liability
Auto insurance coverage that pays for injuries you cause to other people in an accident where you are at fault. It covers medical bills, lost wages, pain and suffering, and legal defense costs. Most states require minimum bodily injury liability coverage.
Read full definition →Business Interruption Insurance
Coverage that replaces lost income and pays ongoing expenses when a business is temporarily shut down due to a covered event such as a fire, natural disaster, or other insured peril. It helps businesses survive financially until they can resume normal operations.
Read full definition →Business Owners Policy
A bundled insurance package designed for small and mid-sized businesses that combines general liability, commercial property, and business interruption coverage into a single, cost-effective policy. A BOP is typically cheaper than buying each coverage separately.
Read full definition →Bad Faith
An insurer's unreasonable denial, delay, or underpayment of a legitimate insurance claim. Insurance companies have a legal duty to act in good faith and deal fairly with policyholders. If an insurer acts in bad faith, the policyholder may sue for damages beyond the original claim amount.
Read full definition →C
Claim
A formal request made by a policyholder to an insurance company for payment or reimbursement for a covered loss or policy event. Filing a claim triggers the insurer to investigate the loss, assess damages, and determine what amount is payable under the policy.
Read full definition →Coinsurance
The percentage of costs you share with your insurer after meeting your deductible. For example, with 80/20 coinsurance, the insurer pays 80% of covered expenses and you pay 20% until you reach your out-of-pocket maximum.
Read full definition →Copay
A fixed dollar amount you pay for a covered health care service at the time you receive it. For example, you might pay a $30 copay for a doctor visit regardless of the total bill. Copays do not usually count toward your deductible but often count toward your out-of-pocket maximum.
Read full definition →Coverage Limit
The maximum amount an insurance company will pay for a covered loss under a policy. Limits can apply per occurrence, per person, or as an aggregate over the policy period. Choosing the right coverage limit is one of the most important decisions when buying insurance.
Read full definition →Cancellation
The termination of an insurance policy before its expiration date, initiated by either the policyholder or the insurer. Insurers may cancel a policy for non-payment, fraud, or a significant increase in risk. Policyholders can cancel at any time, though a short-rate penalty may apply.
Read full definition →Certificate of Insurance
A document issued by an insurer or broker that verifies a policy exists and summarizes its key coverages, limits, and effective dates. Certificates are commonly required by landlords, lenders, and business partners as proof of coverage.
Read full definition →Conditional Renewal
A renewal of an insurance policy that comes with modified terms, such as higher premiums, increased deductibles, or reduced coverage. Insurers use conditional renewals when the risk profile has changed but does not warrant full non-renewal.
Read full definition →Covered Peril
A specific risk or cause of loss that is included in an insurance policy. Fire, theft, windstorm, and hail are common covered perils in homeowners insurance. If a loss is caused by a peril not listed, the claim may be denied unless you have an open peril policy.
Read full definition →Collision Coverage
Auto insurance that pays for damage to your own vehicle when it collides with another vehicle or object, regardless of fault. Collision coverage is optional but often required by lenders if you have a car loan or lease.
Read full definition →Comprehensive Coverage
Auto insurance that pays for damage to your vehicle from non-collision events such as theft, vandalism, fire, hail, flooding, falling objects, and animal strikes. Like collision, it is optional but typically required by lenders.
Read full definition →Coordination of Benefits
Rules that determine which health insurance plan pays first when you are covered under two or more plans. The primary plan pays its share of covered expenses first, and the secondary plan may cover some or all remaining costs. Coordination prevents paying more than 100% of the total bill.
Read full definition →Cash Value
A savings component built into permanent life insurance policies that grows over time on a tax-deferred basis. You can borrow against the cash value, withdraw from it, or surrender the policy for its cash value. Term life insurance does not have a cash value component.
Read full definition →Convertible Term Policy
A term life insurance policy that includes the option to convert to a permanent life insurance policy without a new medical exam or proof of insurability. This feature is valuable if your health declines during the term, as you can lock in permanent coverage based on your original health rating.
Read full definition →Commercial General Liability
Insurance that protects businesses against claims of bodily injury, property damage, and personal or advertising injury caused by business operations, products, or events on business premises. CGL is one of the most fundamental coverages for any business.
Read full definition →Cyber Liability Insurance
Insurance that helps businesses respond to and recover from data breaches, ransomware attacks, and other cyber incidents. It covers costs such as data recovery, customer notification, credit monitoring, legal fees, regulatory fines, and business income lost during the event.
Read full definition →D
Declarations Page
The section of an insurance policy that summarizes key information including the policyholder name, covered property, coverage amounts, deductibles, premium, and policy period. Often called the "dec page," it is the first page of your policy and serves as a quick reference.
Read full definition →Deductible
The amount you must pay out of pocket before your insurance coverage kicks in. A higher deductible generally means a lower premium. For example, if you have a $1,000 deductible and file a $5,000 claim, you pay $1,000 and your insurer pays $4,000.
Read full definition →Depreciation
The decrease in the value of property over time due to age, wear and tear, or obsolescence. In insurance, depreciation determines the difference between replacement cost and actual cash value when settling a claim.
Read full definition →Dwelling Coverage
The part of a homeowners insurance policy that pays to repair or rebuild the physical structure of your home if it is damaged by a covered peril such as fire, wind, or hail. Dwelling coverage should equal your home's estimated rebuilding cost, not its market value.
Read full definition →Death Benefit
The amount of money paid to the beneficiary when the insured person dies. The death benefit is generally income-tax-free for the recipient. It can be paid as a lump sum, installments, or an annuity depending on the policy and beneficiary preferences.
Read full definition →Directors and Officers Insurance
Liability insurance that protects the personal assets of corporate directors and officers if they are sued for alleged wrongful acts in managing the company. D&O insurance covers legal fees, settlements, and judgments arising from claims of mismanagement, breach of duty, or regulatory violations.
Read full definition →Disability Insurance
Insurance that replaces a portion of your income if you are unable to work due to illness or injury. Short-term disability covers weeks to months, while long-term disability can provide benefits for years or until retirement age. It is one of the most important yet often overlooked forms of insurance.
Read full definition →Deductible Waiver
A provision that eliminates the deductible under certain circumstances. For example, some auto policies waive the deductible if the other driver is identified and found to be at fault, or if the damage exceeds a certain threshold.
Read full definition →E
Effective Date
The date on which an insurance policy begins providing coverage. No claims can be filed for events that occur before the effective date. It is listed on your declarations page and is sometimes different from the date you purchased the policy.
Read full definition →Endorsement
An amendment or addition to an existing insurance policy that changes its terms or coverage. Also called a rider, endorsements can add, remove, or modify coverage. Common examples include adding flood coverage to a homeowners policy or scheduling expensive jewelry.
Read full definition →Exclusion
A specific condition, situation, or circumstance that is not covered by an insurance policy. Common exclusions include flood damage on standard homeowners policies and intentional acts. Understanding your policy exclusions is critical to avoiding gaps in coverage.
Read full definition →EPO
An Exclusive Provider Organization is a managed care health plan that covers services only from its network of doctors and hospitals, except in emergencies. EPOs typically do not require referrals to see specialists, offering more flexibility than HMOs while still keeping costs lower than PPOs.
Read full definition →Explanation of Benefits
A statement sent by your health insurer after a claim is processed that shows what was billed, what the plan covered, what discount was applied, and what you owe. An EOB is not a bill, but it helps you understand how your benefits were applied to a specific service.
Read full definition →Errors and Omissions Insurance
Professional liability coverage that protects businesses and individuals against claims of negligence, mistakes, or failure to deliver professional services as promised. Also known as E&O insurance, it is essential for consultants, accountants, real estate agents, and other service professionals.
Read full definition →Elimination Period
The waiting period between when a disability begins and when insurance benefits start being paid. Elimination periods typically range from 30 to 180 days for long-term disability policies. A longer elimination period means lower premiums but requires you to cover expenses longer on your own.
Read full definition →Excess Liability
Insurance that provides additional coverage above the limits of an underlying liability policy. Similar to umbrella insurance but narrower in scope — excess liability follows the same terms and conditions as the underlying policy rather than broadening coverage.
Read full definition →F
Flood Insurance
A separate insurance policy that covers damage caused by flooding, which is excluded from standard homeowners policies. Flood insurance is available through the National Flood Insurance Program (NFIP) or private insurers and is required by lenders in high-risk flood zones.
Read full definition →Formulary
A list of prescription drugs covered by a health insurance plan, organized into tiers based on cost. Generic drugs are typically on the lowest-cost tier, while brand-name and specialty drugs are on higher tiers with larger copays or coinsurance.
Read full definition →Face Value
The dollar amount of coverage stated on a life insurance policy, also known as the death benefit amount. It is the amount the beneficiary will receive upon the insured's death, though the actual payout may be higher if the policy has accumulated dividends or riders.
Read full definition →G
Grace Period
A set amount of time after a premium due date during which you can make a late payment without losing coverage. Grace periods are typically 10 to 31 days depending on the type of insurance and state regulations.
Read full definition →Guaranteed Renewable
A policy provision that requires the insurer to renew your coverage as long as premiums are paid on time, regardless of changes in your health or claims history. The insurer may increase premiums for an entire class of policyholders but cannot single you out.
Read full definition →Gap Insurance
Coverage that pays the difference between what you owe on a car loan or lease and the vehicle's actual cash value if it is totaled or stolen. Without gap insurance, you could owe thousands of dollars to your lender after an insurance payout.
Read full definition →General Liability Insurance
A broad form of business insurance that covers claims of bodily injury, property damage, and personal injury arising from your business operations or premises. It protects against lawsuits from customers, vendors, or other third parties and is often required by contracts and leases.
Read full definition →H
Homeowners Insurance
A policy that bundles coverage for your home's structure, personal belongings, liability protection, and additional living expenses into one package. The most common form is the HO-3 policy, which covers the dwelling on an open-peril basis and personal property on a named-peril basis.
Read full definition →Health Savings Account
A tax-advantaged savings account available to individuals enrolled in a high-deductible health plan (HDHP). Contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free. HSA funds roll over year to year and are yours to keep even if you change jobs.
Read full definition →HMO
A Health Maintenance Organization is a type of health plan that requires you to choose a primary care physician (PCP) and get referrals to see specialists. HMOs typically have lower premiums and out-of-pocket costs but limit coverage to in-network providers except in emergencies.
Read full definition →I
Indemnity
A fundamental insurance principle that aims to restore the policyholder to the same financial position they were in before a loss, no more and no less. Indemnity prevents policyholders from profiting from an insurance claim.
Read full definition →Insurable Interest
A legal and financial stake in the continued existence or well-being of the person or property being insured. You must have insurable interest to purchase insurance — for example, you have insurable interest in your own home, car, or your own life and the lives of close family members.
Read full definition →In-Network Provider
A doctor, hospital, or other health care provider that has a contract with your insurance plan to provide services at negotiated, discounted rates. Visiting in-network providers almost always costs you less than going out of network.
Read full definition →L
Lapse
The termination of an insurance policy due to non-payment of premiums or failure to renew. A lapsed policy provides no coverage. Reinstating a lapsed policy may require a new application, medical exam (for life insurance), or evidence of insurability.
Read full definition →Loss Ratio
The ratio of claims paid by an insurer to premiums collected, expressed as a percentage. A loss ratio of 60% means the insurer pays $60 in claims for every $100 in premiums. Regulators and analysts use loss ratios to assess insurer performance and pricing adequacy.
Read full definition →Liability Coverage
Insurance that pays for bodily injury and property damage you cause to others. In auto insurance, liability coverage is required in almost every state. It does not cover your own injuries or vehicle damage — you need collision and comprehensive coverage for that.
Read full definition →Landlord Insurance
An insurance policy designed for rental property owners that covers the building structure, liability, and lost rental income if the property becomes uninhabitable due to a covered loss. It does not cover tenants' personal belongings — tenants need renters insurance for that.
Read full definition →Loss of Use
A homeowners insurance benefit that pays for temporary housing and living expenses when your home is uninhabitable due to a covered loss. It is another name for additional living expenses (ALE) coverage and is typically capped at a percentage of your dwelling coverage or a set time period.
Read full definition →Long-Term Care Insurance
Insurance that covers the cost of extended care services that are not covered by regular health insurance, such as assistance with daily activities like bathing, dressing, and eating. It can pay for care in a nursing home, assisted living facility, or your own home.
Read full definition →Long-Term Disability
Disability insurance that provides income replacement for extended periods — typically two years, five years, or until retirement age — after the elimination period ends. It usually replaces 50% to 70% of your pre-disability income and is available through employers or individual policies.
Read full definition →N
Named Insured
The person or entity specifically listed on an insurance policy as the primary covered party. The named insured has certain rights and responsibilities, including the authority to modify the policy, file claims, and receive notices from the insurer.
Read full definition →Non-Renewal
An insurer's decision not to renew a policy at the end of its term. Unlike cancellation, non-renewal happens at the natural expiration date. Insurers must typically provide advance notice (30 to 60 days) and may decline to renew due to excessive claims or increased risk.
Read full definition →No-Fault Insurance
An auto insurance system used in some states where each driver's own insurer pays for their injuries regardless of who caused the accident. No-fault laws are designed to reduce lawsuits and speed up claim payments, though they limit your right to sue except in serious injury cases.
Read full definition →Named Peril Policy
An insurance policy that only covers losses caused by perils specifically listed in the policy, such as fire, theft, or windstorm. If a loss is caused by a peril not on the list, it is not covered. Named peril policies are generally less expensive than open peril policies.
Read full definition →O
Open Peril Policy
An insurance policy that covers all causes of loss except those specifically excluded. Also called an all-risk policy, it provides broader protection than a named peril policy because you are covered unless the policy explicitly says otherwise.
Read full definition →Open Enrollment
A designated time period each year when you can sign up for or make changes to your health insurance plan without needing a qualifying life event. The federal marketplace open enrollment typically runs from November through mid-January; employer plans set their own windows.
Read full definition →Out-of-Network Provider
A health care provider that does not have a contract with your insurance plan. Services from out-of-network providers typically cost significantly more, and some plans (like HMOs and EPOs) may not cover out-of-network care at all except in emergencies.
Read full definition →Out-of-Pocket Maximum
The most you have to pay for covered health care services in a plan year. After you reach this amount through deductibles, copays, and coinsurance, your plan pays 100% of covered services for the rest of the year. This cap protects you from catastrophic medical bills.
Read full definition →P
Premium
The amount you pay to an insurance company to maintain your coverage, typically billed monthly, quarterly, or annually. Premiums are determined by factors such as risk level, coverage amount, deductible, location, and claims history.
Read full definition →Policy Period
The span of time during which an insurance policy provides coverage, typically six months or one year. Claims are only covered for events that occur within the policy period. The start and end dates appear on your declarations page.
Read full definition →Property Damage Liability
Auto insurance coverage that pays for damage you cause to another person's property in an at-fault accident, including their vehicle, fence, building, or other structures. Most states require minimum property damage liability coverage.
Read full definition →Personal Property Coverage
The portion of a homeowners or renters insurance policy that pays to repair or replace your belongings — furniture, electronics, clothing, and more — if they are damaged or stolen. Coverage typically applies both inside your home and anywhere in the world.
Read full definition →PPO
A Preferred Provider Organization is a health plan that gives you more flexibility to see any doctor or specialist without a referral. You pay less when using in-network providers, but you still have partial coverage for out-of-network care. PPOs typically have higher premiums than HMOs.
Read full definition →Pre-Authorization
Approval from your health insurer that must be obtained before certain medical services, procedures, or medications are provided. Also called prior authorization, failing to get it when required can result in the insurer denying the claim or paying a reduced amount.
Read full definition →Permanent Life Insurance
Life insurance that provides coverage for your entire lifetime as long as premiums are paid, unlike term life which expires after a set period. Permanent policies include a cash value component and come in several forms: whole life, universal life, and variable life.
Read full definition →Policy Loan
A loan taken against the cash value of a permanent life insurance policy. Policy loans do not require credit checks and typically carry low interest rates. However, unpaid loans reduce the death benefit, and if the loan balance exceeds the cash value, the policy may lapse.
Read full definition →Product Liability Insurance
Insurance that protects manufacturers, distributors, and retailers against claims that a product they sold caused bodily injury or property damage. It covers legal defense costs, settlements, and judgments even if the product was used incorrectly by the consumer.
Read full definition →Professional Liability Insurance
Insurance that covers claims arising from professional services, advice, or expertise you provide. It protects against allegations of negligence, errors, or omissions that cause financial harm to a client. Also called errors and omissions (E&O) insurance in many industries.
Read full definition →Per-Occurrence Limit
The maximum amount an insurer will pay for a single claim or event. Each separate incident is subject to this limit regardless of how many claims have already been filed during the policy period. Per-occurrence limits are distinct from aggregate limits.
Read full definition →Proof of Loss
A formal, sworn statement submitted by a policyholder to the insurance company documenting the details of a loss and the amount being claimed. It typically includes descriptions of damaged property, estimated values, and supporting documentation such as receipts or photographs.
Read full definition →R
Replacement Cost
The amount it would cost to replace damaged or destroyed property with new items of similar kind and quality, without deducting for depreciation. Replacement cost coverage typically results in higher claim payments than actual cash value coverage.
Read full definition →Renters Insurance
A policy for tenants that covers personal belongings, liability, and additional living expenses. It does not cover the building structure itself, which is the landlord's responsibility. Renters insurance is affordable — typically $15 to $30 per month — and is increasingly required by landlords.
Read full definition →S
Subrogation
The legal right of an insurer to pursue a third party that caused a loss to recover the amount paid on a claim. For example, if another driver is at fault in a car accident, your insurer may pay your claim and then seek reimbursement from the at-fault driver's insurer.
Read full definition →Short-Term Disability
Disability insurance that provides income replacement for a limited time, usually three to six months, while you recover from an illness or injury that prevents you from working. It typically replaces 60% to 70% of your salary and has a short elimination period of 0 to 14 days.
Read full definition →Surplus Lines Insurance
Insurance coverage for risks that standard, admitted insurance companies are unwilling to cover. Surplus lines insurers are not licensed in the state where the risk is located but are allowed to write business through surplus lines brokers. They provide coverage for high-risk or unusual exposures.
Read full definition →T
Tort
A civil wrong that causes harm or injury and gives the injured party the right to seek compensation through a lawsuit. In auto insurance, tort states allow you to sue an at-fault driver for damages, unlike no-fault states which restrict such lawsuits.
Read full definition →Term Life Insurance
Life insurance that provides coverage for a specific period, typically 10, 20, or 30 years. If the insured dies during the term, the beneficiary receives the death benefit. If the term expires, coverage ends with no payout. Term life is the most affordable type of life insurance.
Read full definition →U
Underwriting
The process insurers use to evaluate the risk of insuring a person or asset and determine the appropriate premium. Underwriters review applications, claims history, credit scores, and other data to decide whether to issue a policy and at what price.
Read full definition →Uninsured Motorist Coverage
Auto insurance that protects you if you are injured by a driver who has no insurance. It covers your medical expenses, lost wages, and pain and suffering. Many states require or strongly recommend this coverage since roughly 13% of drivers are uninsured.
Read full definition →Underinsured Motorist Coverage
Auto insurance that covers the gap when an at-fault driver has insurance but their limits are too low to fully cover your injuries or damages. This coverage kicks in after the other driver's policy is exhausted.
Read full definition →Universal Life Insurance
A type of permanent life insurance that offers flexible premiums and an adjustable death benefit. The cash value earns interest at a rate set by the insurer. You can increase or decrease your premium payments and death benefit within certain limits.
Read full definition →Umbrella Insurance
A personal liability policy that provides an extra layer of coverage beyond the limits of your homeowners, auto, or other underlying policies. Umbrella policies typically start at $1 million in additional coverage and protect against large lawsuits and claims that could threaten your savings and assets.
Read full definition →W
Whole Life Insurance
The most traditional form of permanent life insurance, offering a guaranteed death benefit, fixed premiums, and guaranteed cash value growth. Whole life policies may also pay dividends. Premiums are higher than term life but remain level for your entire life.
Read full definition →Workers Compensation Insurance
Insurance required in most states that provides benefits to employees who are injured or become ill as a result of their job. It covers medical expenses, rehabilitation costs, and a portion of lost wages. In exchange, employees typically give up the right to sue their employer for workplace injuries.
Read full definition →