Insurance Terms Dictionary

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Contributor, Benzinga
October 1, 2021

Navigating the world of insurance can be confusing if you're not familiar with the jargon that comes with it. Below is a glossary of terms and definitions commonly encountered while searching for, comparing and purchasing insurance. Use this insurance terms dictionary as a resource while you shop.


Insurance Terms and Definitions

A Terms

Accidental Death & Dismemberment Insurance Definition:

Accidental death and dismemberment (AD&D) insurance is a type of insurance protection that provides a payout for the insured party in the event of an accidental death. An AD&D insurance policy will also provide you with a payout in the event that you lose a limb or 1 of your major bodily functions (for example, sight or hearing) as the result of an accident.

Actual Cash Value Definition:

Actual cash value is the amount of money it will cost to repair or replace an insured item minus the depreciation value. This is also known as depreciated cash value and is often used in reference to houses and cars, but can refer to any depreciating insured assest. 

Additional Insured Party Definition:

This is any individual who is insured under the same policy as the policyholder other than the policyholder themselves. This is different than a beneficiary, but an additional insured party may be a beneficiary and vice versa.

Additional Living Expenses Definition:

This is the amount of money spent on additional living expenses (such as the cost of living in a hotel) that an insured party incurs when their insured property becomes unusable due to a covered event. For example, if you can't live in your house due to a covered event, your home insurance may cover the costs of your hotel and so forth.

Adjuster Definition:

In insurance, this is known as an insurance or claims adjuster. This is the official who takes a look at your claim and determines if and also the amount an insurance company should pay out.

Annual Maximum Definition:

An annual maximum is the total amount of money that an insurance provider will pay out towards a member’s care or treatments within a single year.

Annual Maximum Out-of-Pocket Limit:

A cap on the total amount of money that you can spend towards your healthcare costs. Your out-of-pocket limit includes copays and coinsurance percentages. Once you reach your annual maximum out-of-pocket limit, your insurance will cover 100% of your care costs. Some plan providers simply refer to this as an “out-of-pocket limit.”

Annual Percentage Rate Definition:

APR, or annual percentage rate, refers to the interest accumulated on a loan. You'll often see this with your car or home loan, but it's essentially what you're charged yearly for borrowing from a lender. 

Appliance Coverage Definition:

Home appliance coverage refers to protection for your appliances from damage and wear and tear. This may be a part of your homeowners insurance. Or, you may have a separate home warranty. You may also have this type of protection from a 3rd party, like your utility company.

Auto Insurance Definition:

This is a type of contract between you (the policyholder) and an insurance company to protect you and your vehicle from the financial risks that come with driving a car. There are different types of car insurance, with many states requiring a minimum level of coverage. Often, your policy includes some combination of personal liability, collision coverage and medical expenses coverage, although policies may be more extensive than that while some only meeting the minimum legal requirements. 

B Terms

Balloon Payments Definition:

As it's name suggests, a balloon payment is an "inflated" payment at the end of the loan term. This payment is significantly higher than your average monthly loan payment. This lump sump payment allows a borrower to make lower monthly payments during the term of loan. This option is usually only available to those who have a sufficient credit rating and a high income compared to the payment amount. 

Beneficiary Definition:

A beneficiary is a named party who will receive the benefit of an insurance payout, such as with life insurance. A beneficiary may be the main policyholder or other named parties, or can include both.

Blanket Insurance Definition:

Much like what it sounds, a blanket insurance policy is one that covers multipe properties or other insured items under 1 policy. Unlike bundling 2 different types of insurance together from 1 provider, this is 1 policy that insures multiple types of items, such as personal belongings, equipment, physical locations, commercial properties and more. 

Bodily Injury Insurance Definition:

Often included in car insurance policies, bodily injury insurance is coverage that helps pay for the medical expenses of injured parties not in your vehicle due to an accident or collision involving your vehicle. 

Broker Definition:

In insurance, this is a 3rd party who sells insurance policies from insurance providers.

Broker Fee Definition:

This is a fee or commission paid based on premiums sold by an insurance agent. These types of fees aren't legal everywhere, so you may or may not have to pay this when signing a policy. 

Buried Utilities Coverage Definition:

Also known as underground utility line coverage, sewer line coverage and so forth, this is a type of coverage that offers protection for underground lines leading to and from your insured property. These lines arent always covered by a standard homeowners or commercial property policy. This type of coverage may be offered as a standalone policy, an add-on, an endorsement or rider. You may also find this type of coverage with a home or property warranty. 

Business Insurance Definition:

The term business insurance refers to a range of insurance protections that you might need as a business owner. Some types of business insurance are required by law depending on the structure of your business and where you live while others provide optional protections.

C Terms

Car Insurance Definition:

This is a type of contract between you (the policyholder) and an insurance company to protect you and your vehicle from the financial risks that come with driving a car. There are different types of car insurance, with many states requiring a minimum level of coverage. Often, your policy includes some combination of personal liability, collision coverage and medical expenses coverage, although policies may be more extensive than that while some only meeting the minimum legal requirements. 

Certificate of Insurance (COI) Definition:

An official document from your insurer stating that you have coverage. This is most often referred to with business insurance policies, since you may be required to prove your insured status to clients or to your locality depending on business licensing laws. With auto insurance, you'll likely be asked to provide proof of insurance rather than a COI, although each display the status of your insurance.

Claim Definition:

When you make a claim in insurance, you are making a formal request to your insurance company to compensate you for something covered under your policy.

Claims Process Definition:

The process by which a submitted claim is examined and investigated. Once your claim is processed, a judgement will be issued on your payout by the claims adjuster at your insurance company. 

Co-insurance Definition:

Most commonly referred to in health insurance, co-insurance is how much you're required to pay once you've exhausted your deductible. For example, if you have a $500 deductible and 20% coninsurance, you have to pay $500 out-of-pocket before your coverage kicks in for certain things and then after, you have to pay 20% of total costs while your insurance company pays the rest. 

Collision Coverage Definition:

Collision coverage insures only your car for the cost of repairs. No other driver involved in the accident is covered under your collision coverage. It is essential to know that it only applies when you are at fault in an accident or if your car is damaged and you do not know what caused it.

Condo/Condominium Insurance Definition:

Condo insurance is a type of homeowners' insurance. This is an HO6 Policy that offers specific coverage for a condo or condominium.

Contents Insurance Definition:

Also known as personal property insurance or Coverage C, this is coverage for the "contents" of your life, particularly in reference to renters insurance. This will offer protection for your personal property, even if you don't own the dwelling your stuff is in.

Contingent Beneficiary Coverage Definition:

A contingent beneficiary is someone who will receive payouts/benefits from an insurance policy if the proceeds are unable to go to a primary beneficiary for some reason.

Commercial Insurance Definition:

Commercial insurance is an umbrella term for many different types of policies that offer coverage for corporations, small businesses and business of all sizes and types. This type of coverage usually offer protection for the business itself as well as the employees and the owner(s).

Comprehensive Coverage Definition:

Comprehensive insurance helps pay to replace or repair your car if it is damaged or stolen. It usually covers fire, vandalism or falling objects. It is usually sold in with collision, personal liability and medical expenses coverage.

Copay Definition:

A copay in insurance is a fixed amount that you pay towards a covered healthcare service after you have met your deductible.

Coverage Definition:

In insurance, coverage refers whatever risk or liability the insurance company is contracting to take on in exchange for the monthly premium paid by the policyholder. This is referred to as insurance coverage, insurance or coveage interchangeably.

Covered Peril Definition:

A covered peril is a risk or cause of a loss that your insurance provider agrees to cover. For example, floods are a covered peril under flood insurance but are excluded from coverage in regular homeowners' policies.

Credit-Based Insurance Score Definition:

Your credit-based insurance score is a rating used, in part, to determine how risky you are to insure and therefore what type of coverage that is available to you and how much you'll pay for it. This is based on several factors, including your age, history, gender, location, credit score and more. Different types of insurance providers may analyze credit-based insurance scores in different ways depending on what type of coverage is being requested.

Credit Life Insurance Definition:

Credit life insurance is a specific type of life insurance that promises to pay off the debts of the insured upon their passing, which prevents family members and loved ones from being held responsible for fulfilling these debts. 

Cybersecurity Insurance Definition:

A type of insurance that protects the insured from cyber liabilities and risks. Usually, this is a type of commercial insurance that helps protect a business from these risks, which can often have severe financial and reputational consequences. 

D Terms

Date of Issue Definition:

This is the date that your insurance contract begins -- the date that your insurer creates your policy. It is not always the same date that coverage begins. Many types of insurance policies enact a waiting period before coverage kicks in, and/or require you to meet a minimum deductible before receiving insurance benefits. 

Death Benefit Definition:

A death benefit is the payout received by your named beneficiaries if you pass away while your life insurance is active and terms of your life insurance policy are met. 

Declarations Page Definition:

In insurance, this is a summary of your coverage, how much it costs and what type of benefits you have. You'll often see this with home insurance, especially when first purchasing a policy, renewing it or making changes to it. 

Deductible Definition:

A deductible is how much you have to pay out-of-pocket before your insurance company will begin paying benefits. Most car insurance, health insurance and pet insurance policies have deductibles, although some may not and other types of insurance may include this, as well.

Dental Insurance Definition:

Dental insurance is a separate insurance policy that helps you cover the costs of dental care. It includes its own premium and deductible. The ACA does not require insurance providers to cover the majority of dental care services for adults on any health insurance plan. 

Disability Insurance Definition:

Disability insurance is a type of coverage that specifically provides stated financial coverage in the event of short or long-term disability.

Dwelling Coverage Definition:

Dwelling coverage covers the structure of a home or other covered building. It may also provide coverage for certain items that are attached to it, such as a garage, deck, porch, or built-in bookcases or appliances.

E Terms

Earthquake Insurance Definition:

Standard homeowners insurance policies specifically exclude earthquake insurance coverage. Earthquake insurance pays for damage to homes and personal property due to an earthquake. It also pays for additional living expenses if homeowners need to live in a temporary dwelling until the damage is repaired.

Effective Date Definition:

This is the date an insurance policy becomes active, which may be different than the date coverage begins.

Endorsement Definition:

An endorsement is a clause that you add onto your insurance policy to extend the limits of your insurance coverage.

Equipment Breakdown Coverage Definition:

Equipment/mechanical breakdown coverage will pay for repairs or replacement due to a mechanical breakdown or electrical breakdown of heating systems, air conditioning systems, refrigerators, riding lawn mowers, home security systems, boilers, and pressure systems.

Errors and Omissions Insurance:

Also known as professional liability insurance or E&O insurance, is a type of coverage that offers protection from legal claims that there was an error or mistake during the course of your professionial practice.

Exclusion Definition:

An event or peril that is specifically listed as excluded from being covered under an insurance policy.

F Terms

Fire Insurance Definition:

Fire insurance is a type of property insurance that may be built into your homeowners or commercial property policy. It provides financial relief for loss or damage to a structure due to a fire. Some policies cap the liability amount, so you may need extra coverage.

Flood Insurance Definition:

Flood insurance is a kind of propety coverage. It insures a dwelling for damage that occurs as a result of flooding. Most home insurance policies do not offer flood insurance as part of their plans. Flood insurance premiums are dictated in part by which Flood Zone you reside in.

Flood Zone Definition:

These are zones designated by FEMA. These zones determine your risk of flood as well whether your lender (if you have a home or property loan) is mandated to require that the property owner carry flood insurance as part of the loan terms. They also determine the rate you'll pay for flood insurance.

G Terms

Gap Insurance Definition:

Gap insurance is a type of auto coverage that can help bridge the gap between your car's depreciated value and how much it will cost to replace or repair your car in the event it is damaged beyond repair in an accident or stolen. This type of insurance is optional and usually only available to the original loan or leaseholder. 

Grace Period Definition:

A grace period refers to the period between when you purchase coverage and when your coverage begins. Insurance companies often enact these to ensure you aren't trying to make a claim for an event that occured before you purchased coverage. 

H Terms

Hazard Insurance Definition:

Hazard insurance is a type of protection for dwellings against natural disasters like fires and floods. This type of coverage can be for either individual or commercial properties, and isn't often included in a standard commercial property or homeowners policy

Health Insurance Definition:

Health insurance is a type of insurance that provides financial assistance in paying for healthcare costs and medical expenses as well as other types of benefits in exchange for a monthly premium.

HO1 Policy Definition:

An HO-1 homeowners insurance policy is the most basic type of homeowners insurance policy. It is a bare-bones policy that only covers the dwelling, and it is only covered for named perils.

HO2 Policy Definition:

An H02 homeowners policy is also a basic policy that covers personal property in addition to dwelling coverage. This form only covers the dwelling and personal property for certain named perils. It covers more named perils than an H01 policy.

HO3 Policy Definition:

A type of open perils homeowners coverage except excluded perils.

HO4 Policy Definition:

A type of homeowners insurance; tenant insurance coverage for properties you'll rent out.

HO5 Policy Definition:

This is comprehensive homeowners coverage with all risks covered except excluded perils and events.

HO6 Policy Definition:

Homeowners Insurance Definition:

A contract between you and an insurance provider to compensate you for harm or loss in connection with your home. Depending on the type of policy, homeowners insurance policies have various components, and they cover different types of perils.

Home Warranty Definition:

A home warranty is a warranty or additional coverage for perils, events or assets not covered by a standard homeowners policy.

Hurricane Insurance Definition:

Hurricane insurance coverage is not a separate or standalone policy. Damage from a hurricane falls under the peril of wind damage, which is usually covered by home insurance. It is common for home insurance companies to have one deductible for policy claims other than wind and a separate (often higher) deductible for hurricane-related claims.

I Terms

Insured Definition:

This is the policyholder who is insured against specified types of financial risk. An insured party enters into a contractual agreement with an insurer for coverage.

Insurer Definition:

This is the company or provider that enters into a contractual agreement with the insured party to offer coverage against specified risks. 

J Terms

Jewelry Insurance Definition:

Jewelry insurance is financial protection for your jewelry. You can insure jewelry with standalone jewelry insurance or as part of your homeowners insurance policy, whether included in the policy itself or as an add-on/rider.

L Terms

Landlord Insurance Definition:

Opposite to renters insurance, landlord insurance is a special type of coverage that protects dwellings you rent out to others. This works like homeowners insurance in that it covers the dwelling itself as well as stuctures on the property. It also typically offers liability protection. 

Limit of Liability Definition:

This is the maximum dollar amount that an insurance provider will pay in terms of liability coverage. 

Liability Insurance Definition:

Liability insurance is a broad term that applies to any insurance coverage offering liability protection. Liability insurance is part of auto insurance policies, homeowners insurance policies, business insurance policies, professional liability policies and more. It protects you against legal liabilty for certain risks, such as being sued in an auto accident or by someone who is hurt on your property.

Life Insurance Definition:

Life insurance compensates people, businesses or charities (called your policy’s “beneficiaries”) in the event that you die when your policy is active. A life insurance policy can help pay for living expenses for children and spouses after you pass. Your life insurance coverage may be valid for a limited amount of time or indefinitely depending on the type of coverage you choose. Some types of life insurance policies also accumulate a cash value, which you can access while you are alive.

Loss of Use Definition: 

This refers to "loss of use" of a property or equipment due to a covered peril under an insurance policy. Loss of use coverage offers financial reimbursement for the expenses associated with loss of use.

M Terms

Mobile Home Insurance Definition:

Mobile home insurance is a type of homeowners coverage specific to mobile and manufactured homes. Much like a standard home insurance policy, this offers property coverage and liability protection.

Motorcycle Insurance Definition:

Motorcycle insurance is a type of coverage that compensates anyone who you injure or whose property you damage during a motorcycle collision. Like auto insurance, you must have a certain level of motorcycle liability insurance in order to remain on the road legally in most states.

N Terms

Named Insured Definition:

This is any party, whether an individual, group or entity, specifically named as being covered under a policy.

Named Perils Definition:

In insurance, this refers to a specific type of damage, loss or event that is named in your policy as being covered under your policy.

Negligence Definition:

In business, or with an insurance policy, this is a failure of the insured party to act or conduct business in a way that is reasonable. Negligence may lead to legal liability, which is often an offered protection with certain business policies and other types of coverage, like malpractice coverage.

No-Medical Exam Life Insurance Definition:

No-medical exam life insurance is a type of life insurance that can be purchased without a standard medical exam. Usually only available for term life insurance policies and may be more expensive than other types of life insurance policies.

Open Perils Definition:

As part of an insurance policy, this is coverage that extends to all perils excpet those specifically excluded. 

Other Structures Definition:

Other structures on a property other than the main dwelling that may or may not be covered under the homeowners or commercial property insurance for the main dwelling.

P Terms

Permanent Life Insurance

This is a type of life insurance that lasts for the entire span of your life and offers a savings component. Whole life insurance is a type of permanent life insurance policy.

Personal Injury Insurance Definition:

Personal injury protection (PIP) coverage is an essential part of your insurance if you are involved in an accident and injured. It covers medical costs for you and your passengers.

Personal Liability Definition:

Liability coverage, also called personal liability, pays for accidental losses that occur when a visitor gets injured in your home. This coverage includes payments for medical bills, pain and suffering, lost wages, death benefits, and legal costs.

Personal Property Insurance Definition:

Financial coverage to repair or replace your personal property if lost or damaged due to a covered peril, usually as part of homeowners or renters insurance.

Pet Insurance Definition:

Pet insurance is a type of coverage that helps you cover the cost of veterinary bills you incur if your pet becomes ill or is injured. Some pet insurance policies will also include coverage for routine wellness visits and routine care.

Policy Definition:

An agreement between the insured (the policyholder) and an insurer that outlines the terms and conditions of coverage, payment and more.

Policyholder Definition:

The individual who enters into an agreement, or policy, with an insurance provider.

Policy Limit or Aggregate Definition:

Your policy limit (sometimes referred to as a “policy aggregate limit”) is the maximum amount of money that your insurance provider will pay out for covered losses within a single policy period, which is usually 1 year.

Premium Definition:

A set amount of money you’ll pay to your insurance provider to keep your coverage current, usually paid in monthly or yearly installments.

Pre-Existing Condition Definition:

A preexisting condition is a condition that a beneficiary of an insurance policy already has when they sign onto your insurance policy. Some insurers won't cover preexisting conditions.

Professional Liability Insurance Definition:

Professional liability insurance is a type of business insurance that protects you against claims of negligence made against you within your line of work.

Proof of Insurance Definition:

This is any document, digital or physical, that offers proof of insurance coverage, such as a certificate of insurance or COI. You may be legally required to carry or show proof of insurance in certain instances. For example, you may be required to show proof of insurance when registering a vehicle, renewing a business license and so forth. 

Q Terms

Quote Definition:

In insurance, this is an estimated or gauranteed premium rate "quoted" by the provider, customized to your unique profile. A quote is offered based on your risk profile, which is determined by several factors that may change depending on what type of insurance you're looking for.

R Terms

Reimbursement Definition:

A reimbursement is a check or money transfer from your insurance provider after you receive care or service and pay up front.

Renters Insurance Definition:

Renters insurance is a type of property coverage for those renting a home. It offers coverage for renters against personal property loss and liabilities. Similar to home insurance, it may also offer living expenses coverage if you can't inhabit your rental home due to a covered peril.

Replacement Cost Value Definition:

Replacement cost value is the cost to replace a covered object, dwelling or other asset under an insurance policy. This is often different than the actual cash value and may be the depreciated value of an asset.

Rider Definition:

A rider is a clause that you add onto your insurance policy to extend the limits of your insurance coverage.

Risk Assessment Definition:

An insurance risk assessment is a process that a company uses to determine the likelihood that you will need to file an insurance claim in the future. If you’re at a higher risk of needing to use your insurance coverage, most insurance companies will charge you a higher premium to maintain your policy.

S Terms

Standard Deductible Definition:

A standard deductible is the amount of money that you pay before the insurance provider pays a claim for a covered loss.

Subrogation Definition:

3rd-party assumption of legal responsibilty. In insurance, an insurance company assumes the legal responsibility that would normally apply to the policyholder in exchange for a premium. Or, an insurance company may assume the legal responsibility of another party as specified by the terms of the policy.

T Terms

Term Definition:

As part of an insurance policy, this is the term or length of time an insurance policy is active for unless renewed, extended or cancelled.

Term Life Insurance Definition:

Term life is a type of life insurance that offers financial coverage in the form of a death benefit payout to your beneficiaries for a specified term. Standard terms include 10, 20 and 30 year terms, though 25 and 35 year terms are also available. 

Travel Insurance Definition:

Travel insurance is a type of protection that safeguards you against losses associated with vacations or other types of travel.

U Terms

Underwriting Definition:

Underwriting is a process in which an insurance or loan company takes a look at your finances, your claims history and your personal information in order to determine whether you qualify for an insurance policy or a loan. Some factors that underwriters may consider when determining if you qualify for coverage or a loan include current loan balances, your credit history and assets that you own.

Uninsurable Perils Definition:

A peril or event considered too risky by insurance providers to offer financial coverage for.

Uninsured or Underinsured Motorist Coverage Definition:

Uninsured or underinsured motorist coverage is part of your car insurance that will pay for your or another’s injuries resulting from an accident if the at-fault driver is uninsured or underinsured.

Umbrella Insurance Definition:

Much like it name indicates, umbrella insurance is a type of coverage offering protection where other insurance may fall short. It's a general policy that may be applied to a wide range of insurance coverage.

V Terms

Vandalism Definition:

Vandalism is a covered peril in many insurance policies like home and auto insurance policies.

Vision Insurance Definition:

Like dental care, vision care services are not considered essential benefits for adults under the rules of the ACA. Vision insurance is a separate policy that helps you cover the costs of vision exams, eyeglasses, contact lenses and other sight-related needs.

W Terms

Waiting Period Definition:

A waiting period is a set amount of time that your insurance policy must be active before you can begin using your benefits.

Whole Life Insurance Definition:

Whole life insurance is a type of life insurance that lasts for the duration of your entire life, meaning there's a guaranteed death benefit to your named beneficiaries as long as you keep your coverage active. Whole life insurance also typically has a cash value component that allows your whole life insurance act as an investment product. This is a type of permanent life insurance, but not all permanent life insurance is whole life insurance.

Windstorm Insurance Definition:

Windstorm insurance coverage refers to strong winds that are typically over 34 miles per hour that cause damage to trees and structures, which is often a covered peril in home insurance policies.

Workers' Compensation Definition:

Workers’ compensation insurance is a type of business insurance that compensates your employees in the event that they are injured while performing work-related duties. Payments from worker’s compensation insurance can help employees cover missed wages, pay off medical bills or retrain for a new career in the event of permanent disability. Workers’ compensation laws vary by state, and you may be legally required to purchase a policy is you have 1 or more part-time or full-time employees.