Glossary of important insurance terms

Definitions of common insurance terms

From A-Z, we'll help you understand the trickiest insurance terms.

Can't find the definition you're looking for? Explore our auto, homeowners, and renters coverage type pages.

A

• Accident: An unforeseen act or result that may cause bodily injury or property damage. In some policies, it is identified as occurring at a specific time and place. In others, it includes continuous or repeated exposure to the same conditions.
• Act of God: An event caused by the forces of nature, without human intervention and which could not have been prevented by reasonable care; for example, flood, earthquake, hurricane.
• Actual Cash Value: Current market value of lost or damaged property at the time of a covered loss.

  For example:

  • The value of a 3-year-old vehicle is based on the value of similar 3-year-old vehicles selling on a used lot.
  • In a home policy, actual cash value is the replacement cost of the property, minus depreciation.
• Additional Insured: An individual or organization covered by an insurance policy other than the named Insured. In an auto policy, anyone who drives the policyholder's vehicle with their consent is an additional insured. In a home policy, a mortgage company may be listed as an additional insured.
• Adhesion: One of the special characteristics of insurance contracts. The insurance company sets the terms of the insurance contract. The insured may accept or reject these terms, but they are not negotiable.
• Agent: An individual or business firm having a license issued by the state insurance commissioner authorizing the sale of insurance policies and a contract with an insurance company authorizing the sale of that specific company's policies. Generally, an agent is authorized to receive applications for insurance, to bind coverage and to receive reports of loss. Generally, an agent may not pay claims, may not authorize repairs, and may not commit an insurance company to pay a claim by interpreting coverage. The coverage information forwarded by agents on the Loss Report may be accepted as accurate, unless it is found to be incomplete or inconsistent.
• Amendatory Endorsement: This notice confirms that a change was made to a policyholder's base policy, such as adding towing service.
• Appearance Allowance: Cosmetic adjustment for the vehicle. For instance, if a part is damaged in an accident but is still fully functional, the insurance company may pay the person making the claim money to keep the damaged part instead of fixing it.
• Appraisal: An estimate by a Claims Representative or Appraiser to estimate the amount of damage to a policyholder's property or vehicle, and the cost to repair it. In the worst-case scenario, a determination of a complete loss may be made.
• Arbitration: A legal hearing between insurance companies where each company presents its evidence to a neutral third party. That party then determines who's at fault.
• Authorized Service Provider: A service provider contracted by a customer's insurance company that provides services at a discount rate.

B

• Basic/State Minimum Financial Responsibility Limit: The lowest coverage amounts for which an insurance policy can be sold, as decided by law or an insurance company.
• Betterment: A fee you may be charged if your vehicle ends up in better condition after a repair from an accident than it was in before the accident.
• Broker: An insurance broker ordinarily is a solicitor of insurance who does not represent insurance companies in a capacity as agent but places orders for coverage with companies designated by the insured or with companies of the broker's own choosing.
• Business Use: When a vehicle is used for business.

C

• Casualty: Coverages usually written by Casualty Underwriters; generally Bodily Injury and Property Damage coverages.
• Casualty Insurance: A type of insurance primarily concerned with losses caused by injuries to persons and the legal liability imposed upon the insured for such injury or damage.
• Catastrophe: A sudden, severe disaster that results in a large amount of damage and causes a high number of auto and home insurance claims.
• Claim: A request for payment under a single item of coverage on an insurance policy. A request for payment under two items of coverage would be two claims.
• Claimant: One who makes a claim.
• Claims Adjuster: Also known as a claims representative, an employee at an insurance company who handles the customer's claim.
• Claimed Expenses: Refers to the claimant's alleged out of pocket expenses, which must be verified as accurate.
• Collision (Waived Deductible): If the policyholder's vehicle is impacted by another car, they won't need to pay a deductible if the other driver is uninsured and declared at fault.
• Combined Single Limit: The maximum amount that an insurance company will pay for any combination of bodily injury and property damage liability claims. This is generally not subject to a per-person limit.
• Commercial Lines: Insurance coverages for businesses.
• Compulsory Auto Financial Responsibility Laws: Laws that require policyholders to prove they can pay for damage from an accident. These laws vary by state.
• Compulsory Limit: The minimum amount of insurance that policyholders are required to have by law in their state.
• Condition: Used to describe the general maintenance and upkeep of a vehicle.
• Conditioning: This is the pre-accident condition of a vehicle.
• Conditions: The terms and provisions of an insurance contract.
• Covered Auto(s): Any vehicle shown in the policy Declarations or, in some cases, a substitute vehicle used temporarily because of breakdown or repair of the policyholder's covered vehicle.

D

• Damages: A sum of money a party is legally obligated to pay to another as compensation for property damage or injury.
• Damages from the Loss: Vehicle damage from an accident.
• Date of Loss: This is the date of an accident/incident.
• Declarations/Declarations Page: The part of an insurance policy that provides detailed information about the policyholder, the insurer, and the various coverages provided by the policy. It can be thought of as a summary page with key information about your insurance policy and coverages.
• Deductible: A reduction in value over time due to age, use, and condition of an item based on your market area.
• Desk Adjuster: This is a Claims Representative who is the main point of contact throughout the claim process.
• Desk Damage Estimate: A review of the policyholder's auto body shop estimate.
• Direct Bill: A bill sent by mail, also referred to as a paper bill.
• Direct Repair Program (DRP): A network of repair shops preferred by an insurance company.
• Dwelling: Another term to describe the part of your home insurance policy that covers the physical structure of the primary residence on your property.

E

• Endorsement: Attached to an insurance policy, it is used to modify the terms of the insurance contract. It can amend a policy to cover unique items or circumstances and it can also represent a change to a policy that's made during the policy's term.
• Equity: Percent of a policy paid.
• Exclusions: The part of an insurance policy that excludes coverage for certain risks, persons, property, or locations.

F

• Fair Plan: A program, created by law, to make fire and other forms of property insurance available to persons who have difficulty obtaining coverage from insurance companies.
• Field Appraiser: An insurance representative who will come out and review the damage.
• Fire Insurance: Part of a homeowner's policy that insures against direct loss by fire, lightning, and other defined causes.
• Floater Policy: A policy which insures personal property anywhere within a specified territory; the coverage ‘floats" with the goods as they are moved about.

G

• Garaging: Where the car is regularly parked while the policyholder is at home.
• General Damages: The portion of the claimant's claim which is in excess of his/her out-of-pocket expenses (i.e., pain and suffering, inconvenience).
• Group Savings Plus: A discount through an affiliation (e.g. alumni, company/employer).

H

• Hazard: Any situation or condition that increases the possibility or extent of a loss.
• Homeowner: A person who owns and does not rent their home from another.
• Household Member: Family members or a person living within the policy member's home.

I

• Inexperienced Operator: A driver of any age who holds a license in the United States, Canada, or Puerto Rico for less than 3 years.
• Improvements and Betterments: Additions or changes made by a lessee or renter at his or her own expense which enhance the value of the occupied building. These become part of the realty (and are not legally subject to removal) and require special insurance consideration.
• Indemnity: The insurance principle of putting the insured back in the same (or similar) financial position after a loss as he or she was in before the loss occurred.
• Inside Adjuster: Also known as a Claims Representative.
• Insurable Interest: Any interest in a subject, or any legal relation to it, of such a nature that a certain happening (such as fire) might cause monetary loss requiring insurance.
• Insured: A person or organization covered by an insurance policy.
• Insuring Agreements: The part or parts of an insurance policy that state the various coverages provided.

J

• Jacket: Cover of the insurance policy.

K

L

• Liable Party: The person(s) who is responsible for an accident.
• Liability Decision: The process of determining who was at fault/responsible for an accident.
• Lienholder: The person or entity that owns or finances the car/home. For example, a bank or a financial institution.
• Limit of Liability: The maximum amount of coverage provided by the policyholder's insurance policy.
• Loss: Any injury or damage that a policyholder sustains or causes.
• Loss History: Prior claims the policyholder has filed.
• Loss of Use: Compensation for losses the policyholder r incurs due to the inability to use their property or vehicle.

M

• Member of Household: Family members or a person living within the policyholder's home.
• Mitigation: The initial work required to dry out the policyholder's home due to water damage.
• Monoline: A policy written to cover a single line of insurance, such as fire alone.
• Mortgage of Loss Payee Clause: A clause in the policyholder's insurance policy that makes a claim jointly payable to the customer and their lender.

N

• Named Insured: The person or persons insured by the insurance policy. These names are listed within the policy Declarations. Additional persons or entities may also be added as additional named insureds under certain circumstances.
• Non-waiver Agreement: An agreement signed by both the insured and the company after a loss stating their recognition that a coverage problem exists and that investigation of loss and damages by the company is not intended by the company to be a waiver of its rights under the policy and shall not be construed to be so by the insured.
• Notice of Loss Clause: The statement explaining the requirements the insured must fulfill in the case of loss if the insured expects the insurance company to cover the cost of the loss.

O

• Optional Coverages: Extra coverages (endorsements) that can be added to a standard form policy.

P

• Peril: The cause of a possible accident, loss, or claim.
• Permissive Use: When the customer gives permission for someone else to use their car.
• Personal Injury Deductible: This is the amount the policyholder would pay out of pocket before their Personal Injury Protection coverage will begin.
• Policy: A formal written contract of insurance. The policy includes the customer's Declarations and all endorsements.
• Policyholder: The person (or persons) who agrees to pay a premium to an insurer in return for the insurer's promise to provide specified insurance protection. Or simply, the owner of the insurance policy.
• Potential Total Loss: When the cost to fix the policyholder's vehicle may be more than the value of the vehicle.
• Primary Coverage: When the policyholder's policy pays for damage first.
• Premium: The total price you pay for your insurance policy.
• Prior Related Damages: Damages on the policyholder's car not related to this accident.
• Promulgated: When a law or regulation is publicized. For example, a new regulation promulgated by the state of Ohio may affect a policyholder's policy.
• Punitive Damages: Compensation awarded to a policyholder above and beyond the claim amount.

Q

R

• Rated Driver: Any licensed driver who uses a vehicle. Each driver is considered when the policy rate is determined.
• Rating: The determination of premium to be charged for coverage on a risk based upon risk characteristics and actuarial calculations on the chance of loss.
• Renewal: A policy issued to replace one that will expire by a certain date.
• Replacement Value: The cost to repair an insured item with comparable material or replace it with a comparable item.

S

• Salvage Value: Value of the policyholder's vehicle in its current condition.
• Scheduled Property: These are belongings (jewelry, art, etc.) that typically require additional coverage, since the standard home policy limits the amount you can claim per item.
• Second Party: The insurance company (the second party to the insurance contract, the insured being the first party).
• Shop of Choice: The policyholder's chosen body shop to have repairs completed
• Single Limit Policy: A policy that insures, for example, $50,000 per occurrence, as opposed to a policy written for $25,000/ $50,000, which insures $25,000 per person and $50,000 per occurrence.
• Special Damages: The damages awarded by a court for the claimant's claimed expenses arising out of the insured's negligence. This term is often confused with "incurred expenses" or "out-of-pocket expenses," both of which are considered in arriving at a settlement without going to trial.
• Statute of Limitation: The lifespan of the claim.
• Subrogation: When money is paid for a loss caused by another person, the insurance company has the right to recover that money from the party that was legally at fault for the loss. The appropriate percentage of any deductible is repaid based on the amount recovered.
• Surcharge: A state-mandated fee.
• Supplement: Additional damage to the policyholder's vehicle.

T

• Tear Down: During a claim, this is when the mechanic disassembles the damaged area.
• Term: The period of time for which an insurance policy is issued.
• Territory Clause: The statement telling the geographical locations where the insurance coverages are in effect.
• Total Loss/Totaled (Car): When the cost to fix the vehicle is more than its pre-accident value.
• Transportation Network Platform: A way of connecting passengers with drivers via a smartphone app or other means. Examples include Uber and Lyft.

U

• Underwriter: The individual who weighs the risks involved, sets the premium rate to be charged, and eventually decides whether a policy is to be written/accepted or not, or once written/accepted, whether the company will continue to insure the risk.
• Unlisted Operator: This is when the driver is not currently listed on the policyholder's policy.

V

W

• Wear and Tear: General damage that builds up over time.
• Withdrawal Notice: Payment reminder

X

Y

Z

Can't find the definition you're looking for? Explore our auto, homeowners, and renters coverage type pages.