Sometimes understanding insurance can be like trying to understand a second language.  For your convenience, American Insurance Mart has provided a glossary below of common insurance terms.

 

 

A

Actual cash value (ACV) - The value of your property, based on the current cost to replace it minus depreciation.

 

Additional living expenses (ALE) - Reimburses the policyholder for the cost of temporary housing, food, and other essential living expenses, if the home is damaged by a covered peril that makes the home temporarily uninhabitable.

Adjuster - A person who investigates and settles insurance claims.

Agent - A person who sells insurance policies.

Application - A form you fill out with information about you that an insurance company will use to decide whether to issue you a policy and how much to charge.

 

Appraisal - An evaluation of a home insurance property claim by an authorized person to determine property value or damaged property value. Many policies provide an "appraisal" process to resolve claim disputes. In this process, you and the insurance company hire separate damage appraisers. The two appraisers choose a third appraiser to act as an "umpire." The appraisers then review your claim, and the umpire rules on any disagreements. The umpire's decision is binding on you and the insurance company, but only for the loss amount. If there is a dispute over what is covered, you can still pursue a settlement of the coverage issue after the appraisal takes place. You are required to pay for your appraiser and half of the umpire's costs.

B

Binder - A temporary insurance contract that provides proof of coverage until you receive a permanent policy.

Bodily injury (BI) - Physical injury to a person.

C

Cancellation - Termination of an insurance policy by the company or insured before the renewal date.

Claimant - A person who makes an insurance claim. 


Collision coverage - Pays for damage to your car caused by an accident or caused by an uninsured driver.  The company must pay for the repair or up to the actual cash value of your vehicle, minus your deductible.

Comprehensive coverage (physical damage other than collision) - Pays for damage to or loss of your automobile from causes other than accidents. These include hail, vandalism, flood, fire, and theft.

Contract - In most cases, the term "contract" refers to an insurance policy. A policy is considered to be a contract between the insurance company and the policyholder.

D

Declarations page - The page in your policy that shows the name and address of the insurer, the period of time a policy is in force, a description of the vehicle, the amount of the premium, and the amount of coverage.

Deductible - The amount the insured must pay in a loss before any payment is due from the company.

Depreciation - The act of lowering an item´s value due to use or wear and tear.

E

Earned premium - The portion of a policy premium that has been used to actually buy coverage, or that the insurance company has "earned." For instance, if you have a six-month policy that you paid for in advance, two months into the policy, there would be two months of earned premium. The remaining four months of premium is called unearned premium.
 

Effective date - The date on which an insurance policy becomes effective.

Endorsement - A written agreement attached to a policy expanding or limiting the benefits otherwise payable under the policy.

 

Exclusion - A provision in an insurance policy that denies coverage for certain perils, people, property, or locations.

Expiration date - The date on which an insurance policy expires.

G

Gap Insurance - Insurance that pays the difference between the actual cash value of a vehicle and the amount still to be paid on the loan, Some gap policies may also cover the amount of the deductible.

 

I

 

Inflation protection - Automatically adjusts your home insurance policy limits to account for increases in the costs to repair or rebuild a property.

 

Insured - The policyholder - the person(s) protected in case of a loss or claim.

Insurer - The insurance company.

L

Lapse - Termination of a policy due to non-payment of premiums.
 

(Home) Liability coverage - Covers losses that an insured is legally liable. For homeowners insurance, liability coverage protects you against financial loss if you are sued and found legally responsible for someone else's injury or property damage. 

Auto Liability insurance - Pays for injuries to the other party and damages to the other vehicle resulting from an accident you caused. It also pays if the accident was caused by someone covered by your policy, including a driver operating your car with your permission.

Auto Liability limits - The maximum amount your liability policy will pay. Your policy must pay at least $30,000 for each injured person, up to a total of $60,000 per accident, and $25,000 for property damage per accident. This basic coverage is called "30/60/25" coverage.

Loss of use - A provision in homeowners and renters insurance policies that reimburses policyholders for the additional costs (housing, food, and other essentials) of having to live elsewhere while the home is being restored following a disaster.

Loss history - Refers to the number of insurance claims previously filed by a policyholder. A company will consider loss history when underwriting a new policy or considering a renewal of an existing policy. Companies view loss history as an indication of the likelihood that an insured will file a claim in the future.

M 

Market value - The current value of your home, including the price of land.

Material misrepresentation - A significant misstatement in an application form. If a company had access to the correct information at the time of application, the company might not have agreed to accept the application or charged a higher premium.

Medical payments - Pays limited medical and funeral expenses if you, a family member, or a passenger in your car is injured or killed in a motor vehicle accident.

N

Non-owners policy - Insurance coverage that offers liability, uninsured motorist, and medical payments to a named insured who does not own a vehicle.

Non-renewal - A decision by an insurance company not to renew a policy.

P
 

Peril - A specific risk or cause of loss covered by an insurance policy, such as a fire, windstorm, or theft. A named-peril policy covers the policyholder only for the risks named in the policy. An all-risk policy covers all causes of loss except those specifically excluded.

Personal property - All tangible property (other than land) that is either temporary or movable in some way, such as furniture, jewelry, electronics, etc.

Policy - The contract issued by the insurance company to the insured.

Policy period - The period a policy is in force, from the beginning or effective date to the expiration date.

Premium - The amount paid by an insured to an insurance company to obtain or maintain an insurance policy.

Property damage (PD) - Physical damage to property.

R
 

Refund - An amount of money returned to the policyholder for overpayment of premium or if the policyholder is due unearned premium.

Rental reimbursement coverage - Pays a set daily amount for a rental car if your car is being repaired because of damage covered by your auto policy.

Reinstatement - If a policy cancels for non-payment and the insured agrees there has been no losses since the cancellation date, the insurance company may agree to reinstate coverage back to the cancellation date to avoid a lapse in coverage.

 

Renewal - Continuation of a policy after its expiration date.

Renters insurance - A form of insurance that covers a policyholder's belongings against perils. It also provides personal liability coverage and additional living expenses. Possessions can be covered for their replacement cost or the actual cash value, which includes depreciation.

Replacement cost - Pays the dollar amount needed to replace the structure or damaged personal property without deducting for depreciation but limited by the policy's maximum dollar amount.

 

Return premium - The premium returned to an insured for canceling or amending a policy.
 

S
 

Single interest insurance - Insurance coverage for only one of the parties having an insurable interest in that property. For instance, if you still owe money on your mortgage and do not have homeowners insurance, your lender may take out a single interest insurance policy to protect its own interest in your property. Single interest insurance protects only the policy owner, not the homeowner.
Surcharge - An extra charge added to your premium by an insurance company. For example, a surcharge is usually added if you have at-fault accidents.

Surplus lines - Coverage from out-of-state companies not licensed in Texas but legally eligible to sell insurance on a "surplus lines" basis. Surplus lines companies generally charge more than licensed companies and often offer less coverage.

T

 

Third-party claim - A claim filed against another person's insurance policy.

 

Towing and labor coverage - Pays for towing charges when your car can´t be driven. Also pays labor charges, such as changing a flat tire, at the place where your car broke down.

U

Underwriter - The person who reviews an application for insurance and decides if the applicant is acceptable and at what premium rate.

Underwriting - The process an insurance company uses to decide whether to accept or reject an application for a policy.
 

Unearned premium - The amount of a pre-paid premium that has not yet been used to buy coverage. For instance, if you paid in advance for a six-month premium, but then cancel the policy after two months, the company must refund the remaining four months of "unearned" premium to you.

Uninsured/underinsured motorist (UM/UIM) coverage - Pays for your injuries and property damage caused by an uninsured or underinsured motorist without any or enough liability insurance.