Insurance Resources Glossary

This is a list of terms designed to assist you while shopping or learning about insurance. It is not meant to be all inclusive, but should help with your understanding of the most common terms.

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A

Adjuster: A person who investigates and settles losses for an insurance carrier.

Agent: In insurance, the person authorized to represent the insurer in negotiating, servicing, or effecting insurance policies.

Annual Out-of-Pocket Maximum: A dollar amount set by the plan which puts a cap on the amount of money the insured must pay out of his or her own pocket for covered expenses over the course of a calendar year.

Assigned Risk: A risk insured through a pool of insurers and assigned to a specific insurer. These risks are generally considered undesirable by underwriters, but due to state law or otherwise, they must be insured.

Auto Collision Coverage: Optional auto insurance which pays for damage to your car caused by collision with another car or object, or by rolling the car over. Frequently required if you have a car loan.

Auto Comprehensive Physical Damage Coverage: Optional auto insurance which pays for damage to your auto caused by things other than collision or rolling the car over, such as fire, theft, vandalism, flood or hail. Frequently required if you have a car loan.

B

Binder: A written or oral contract issued temporarily to place insurance in force when it is not possible to issue a new policy or endorse the existing policy immediately. A binder is subject to the premium and all the terms of the policy to be issued.

Broker: A marketing specialist who represents insurance organizations and who deals with either agents or companies in arranging for the coverage required by the customer.

C

Cancellation: The discontinuance of an insurance policy before its normal expiration date, either by the insured or the company.

Claim: A person’s request for payment from an insurer for a loss covered by the insurance policy.

Collision Insurance: Protection against loss resulting from any damage to the policyholder’s car caused by collision with another vehicle or object, or by upset of the insured car, whether it was the insured’s fault or not.

Commission: The amount of money, usually a percentage of the premiums that is paid to an insurance agent for selling an insurance policy.

Comprehensive Auto Insurance: Protection against loss resulting from damage to the insured auto, other than loss by collision or upset.

Compulsory Auto Liability Insurance: Insurance laws in some states required motorists to carry at least certain minimum auto coverages. This is called “compulsory” insurance.

Conditions: The part of your insurance policy that states the obligations of the person insured and those of the insurance company.

Contract: A legally enforceable agreement between two or more parties.

D

Declination: The insurer’s refusal to insure an individual after careful evaluation of the application for insurance and any other pertinent factors.

Deductibles: The portion of the loss that the policyholder agrees to pay out of pocket, before the insurance company pays the amount they are obligated to cover. For example, if the covered claim is $1000 and your deductible is $250, you pay $250 and your company will pay $750. Deductibles help to keep insurance rates reasonable. Raising the amount of the deductible lowers the cost of insurance.

Dependent: A person for whom the insured has some legal obligation to. For most plans, it is the insured’s spouse and/or children. Some plans also allow non-traditional spousal relationships (significant other, life-partner, etc.) to be considered a dependent with some additional certifying paperwork.

E

Endorsement: Attachment or addendum to an insurance policy; an endorsement changes the contract’s original terms.

I

Incontestable Clause: A life insurance policy wording that provides a time limit (e.g., two years) on the insurer’s right to dispute a policy’s validity based on material misstatements in the application.

Insurance Company: An organization that has been chartered by a governmental entity to transact the business of insurance.

Insured: A person or organization covered by an insurance policy, including the “named insured” and any other parties for whom protection is provided under the policy terms.

Insurer: The party to the insurance contract who promises to pay losses or benefits. Also, any corporation engaged primarily in the business of furnishing insurance to the public.

L

Lapse: Termination of a policy due to nonpayment of premiums.

Loss: The happening of the event for which insurance pays.

Loss Expense – Allocated: Handling expenses, such as legal or independent adjuster fees, paid by an insurance company in settling a claim which can be definitely charged to that particular claim.

Loss Expense – Unallocated: Salaries and other expenses incurred in connection with the operation of a claim department of an insurance carrier which cannot be charged to individual claims.

No-fault Insurance: A system of compensation enacted by law in many states under which indemnification is made by the insured’s own insurance company regardless of who is at fault. Details of this system vary significantly from state to state.

N

P

Peril: The cause of loss or damage.

Physical Damage: Damage to or loss of the automobile resulting from collision, fire, theft or other perils.

Policy Declarations: The part of the insurance contract that lists basic underwriting information, including the insured’s name, address and description of insured locations as well as policy limits.

Policy Limits: The maximum amount an insured may collect or for which an insured is protected, under the terms of the policy.

Policy Loan: A loan from a life insurer to the owner of a policy that has a cash value.

Policyholder: The person who buys insurance.

Policyowner: An individual with an ownership interest in an insurance policy.

Policy Period: The amount of time an insurance contract or policy lasts.

Premium: The price for insurance coverage as described in the insurance policy for a specific period of time.

Policyholder: The person who buys insurance.

Proof of Loss: A sworn statement that usually must be furnished by the insured to an insurer before any loss under a policy may be paid.

Property Damage Coverage: An agreement by an insurance carrier to protect an insured against legal liability for damage by an insured automobile to the property of another.

R

Rate: The pricing factor upon which the insurance buyer’s premium is based.

Rated Policy: Sometimes called an “extra-risk” policy, an insurance policy issued at a higher-than-standard premium rate to cover the extra risk where, for example, an insured has had a DUI (Driving Under the Influence) or other traffic violations.

Rebating: Giving any valuable consideration, usually all or part of the commission, to the prospect or insured as an inducement to buy or renew. Insurance rebating is prohibited by law.

Reimbursement: The payment of an amount of money by an insurance policy for a covered loss.

Replacement Cost Coverage: In the event of a covered loss, you may be reimbursed for the cost you incur to replace many of your damaged contents with similar property, brand new. The total amount you’d be reimbursed is subject to the terms and conditions of your particular policy, including applicable deductible and coverage limits.

Rider: An addition to an insurance policy that becomes a part of the contract.

Risk: The possibility or chance of loss or injury.

S

Settlement: An agreement between a claimant or beneficiary to an insurance policy and the insurance company regarding the amount and method of a claim or benefit payment.

Standard Risk: A person who, according to a company’s underwriting standards, is entitled to purchase insurance protection without extra rating or special restrictions.

Standard Risk Rate: The risk category that is composed of proposed insureds who have a likelihood of loss that is not significantly greater than average.

Subrogation: Subrogation refers to an insurance company seeking reimbursement from the person or entity legally responsible for an accident after the insurer has paid out money on behalf of its insured. The general rule is that, after paying your claim, your insurer is “subrogated” to the rights of your policy and can “step into your shoes” to go after or sue the negligent party on your behalf.

Substandard Risk: A risk that cannot meet the normal requirements of an auto insurance policy. Protection is provided in consideration of a waiver, a special policy form, or a higher premium charge. Substandard risks may include those persons who are rated because of poor driving habits.

U

Underwriter: (a) A company that receives the premiums and accepts responsibility for the fulfillment of the policy contract; (b) the company employee who decides whether or not the company should assume a particular risk; (c) the agent who sells the policy.

Underwriting: The process of reviewing applications for coverage. Applications that are accepted are then classified by the underwriter according to the type and degree of risk.

Uninsured (Underinsured) Motorist Coverage: A form of insurance that pays the policyholder and passengers in his/her car for bodily injury caused by the owner or operator of an uninsured or inadequately insured automobile.

Uninsurable Risk: One not acceptable for insurance due to excessive risk.