Glossary of Insurance Terms
Understanding Key Terms in Insurance
Insurance can be a complex subject, especially when you’re unfamiliar with the terminology used. Whether you’re shopping for personal or commercial insurance, knowing the common terms is essential to making informed decisions. To help you navigate the world of insurance, we’ve created this comprehensive glossary of common insurance terms.
A
Actual Cash Value (ACV): The value of an insured item at the time of loss, factoring in depreciation. ACV is typically lower than the replacement cost.
Adjuster: An insurance professional who investigates claims, determines the extent of damage or loss, and negotiates settlements.
B
Beneficiary: The person or entity designated to receive the payout of a life insurance policy or other benefits upon the policyholder's death.
Bodily Injury Liability: Coverage that pays for injuries you cause to someone else in an accident where you are at fault, including medical bills, lost wages, and legal fees.
C
Claim: A formal request made by the policyholder to the insurance company for payment or compensation for a covered loss.
Collision Coverage: Insurance that pays for damage to your vehicle resulting from a collision with another car or object.
Comprehensive Coverage: Insurance that covers damage to your vehicle caused by non-collision events, such as theft, vandalism, or weather-related incidents.
D
Deductible: The amount of money the policyholder must pay out of pocket before the insurance coverage kicks in to pay for the remaining costs of a claim.
Depreciation: The decrease in the value of an asset over time due to factors like wear and tear, age, or market conditions.
E
Exclusion: Specific conditions or circumstances that are not covered by an insurance policy. Exclusions vary from policy to policy.
Endorsement: A rider or amendment that modifies the terms, coverage, or conditions of an insurance policy, adding or excluding certain coverage.
F
Flood Insurance: A specific type of insurance coverage that protects property from damage caused by flooding, often not covered under standard homeowners insurance.
Fraud: The act of intentionally deceiving an insurer or policyholder to gain an unfair or unlawful advantage, often leading to denied claims or penalties.
G
Grace Period: A period of time after the due date during which a policyholder can make a payment before the policy is canceled or lapses.
General Liability Insurance: A broad type of insurance coverage that protects businesses from financial losses resulting from claims of bodily injury, property damage, or negligence.
H
Hazard: A condition or situation that increases the likelihood of a loss occurring, such as icy roads or faulty wiring.
Homeowners Insurance: A type of insurance that provides coverage for a home and its contents, as well as liability protection for accidents that occur on the property.
I
Indemnity: The process of compensating for a loss or injury, restoring the insured party to their original financial position prior to the event.
Inflation Guard: A feature in some property insurance policies that automatically increases coverage limits to keep pace with inflation.
L
Liability Insurance: Coverage that protects the policyholder from claims involving injury or damage to other people or property. This can include auto, general, or professional liability insurance.
Loss: Any event or circumstance that results in damage, injury, or destruction covered under the terms of an insurance policy.
M
Medical Payments Coverage: Insurance that pays for medical expenses incurred by the insured or others injured in an accident, regardless of who is at fault.
Misrepresentation: Providing false or incomplete information during the application or claims process, which can lead to the denial of coverage.
P
Premium: The amount of money the policyholder pays periodically (monthly, quarterly, or annually) to maintain their insurance coverage.
Policyholder: The individual or entity that owns an insurance policy.
Peril: A specific risk or cause of loss covered by an insurance policy, such as fire, theft, or a natural disaster.
R
Replacement Cost: The amount it would take to replace or repair an asset without accounting for depreciation, generally resulting in a higher payout than Actual Cash Value.
Risk: The chance or possibility of a loss occurring, which determines the cost and terms of an insurance policy.
S
Subrogation: The process by which an insurer seeks reimbursement from the responsible party or their insurance company after paying a claim to the policyholder.
Stop-Loss: A provision in health insurance or group plans that limits the maximum amount a policyholder must pay out-of-pocket for covered services.
T
Term Life Insurance: A life insurance policy that provides coverage for a specific period (term), such as 10, 20, or 30 years. It pays a death benefit if the policyholder dies within the term.
Total Loss: A situation where the cost of repairing a damaged item exceeds its value, or when an item is destroyed beyond repair, triggering a full payout from the insurer.
U
Underwriting: The process by which an insurer evaluates the risk of insuring a person or entity and determines the terms and conditions of the insurance policy, including premium rates.
Uninsured Motorist Coverage: A type of auto insurance that covers injuries and damages caused by a driver who lacks insurance or doesn’t have enough coverage.
V
Valued Policy: An insurance policy where the insured and insurer agree on the value of an asset upfront, often used for items like fine art or antiques.
Vandalism: Intentional destruction of property, typically covered by homeowners or commercial property insurance.
W
Waiver: A voluntary relinquishment of a known right or claim, such as waiving the right to file a lawsuit in some circumstances.
Workers’ Compensation Insurance: Insurance that provides medical benefits and wage replacement to employees who are injured on the job, often required by law for businesses with employees.
Conclusion
Navigating the world of insurance can be a lot easier when you understand the terminology. Whether you're purchasing auto, homeowners, business, or life insurance, familiarizing yourself with these terms will empower you to make better decisions and avoid confusion down the road. If you need help understanding your policy or have more questions, feel free to reach out to us at Justin Lundquist Insurance Agency for expert guidance and support.