Insurance Glossary
Understanding insurance terminology helps you make better decisions about your coverage. Here are the most common terms explained in plain language.
Throughout our guides, you’ll see terms like DeductibleThe amount you pay out-of-pocket before insurance kicks in. and Premium that show a definition when you hover over them. Look for the dotted underline to find defined terms.
A
Actual Cash Value (ACV)
The current value of property, calculated as replacement cost minus depreciation. If your 5-year-old roof is damaged, ACV pays what a 5-year-old roof is worth, not what a new roof costs.
Additional Living Expenses (ALE)
Coverage that pays for temporary housing, meals, and other costs when your home is uninhabitable due to a covered loss. Also called loss of use coverage.
Adjuster
An insurance company representative who investigates claims, assesses damage, and determines how much the insurer should pay.
Agent
A licensed professional who sells insurance policies. Captive agents represent one company; independent agents represent multiple insurers.
All-Risk Policy
Insurance that covers all perils except those specifically excluded. Opposite of named perils, which only covers listed events. Also called open perils or special form coverage.
B
Beneficiary
The person or entity designated to receive benefits from a life insurance policy or annuity upon the policyholder’s death.
Binder
Temporary insurance coverage issued while your full policy is being processed. Provides immediate proof of insurance.
C
Claim
A formal request to your insurance company for payment after a covered loss or event.
COBRA
Continuation of health coverage after leaving a job. Allows you to keep your employer’s plan for 18-36 months, but you pay the full premium.
Co-insurance
A cost-sharing arrangement where you pay a percentage of covered costs (e.g., 20%) and the insurer pays the rest (80%).
Collision Coverage
Auto insurance that pays to repair or replace your vehicle when it collides with another vehicle or object, regardless of fault.
Comprehensive Coverage
Auto insurance covering non-collision damage to your vehicle, including theft, vandalism, weather, fire, and animal strikes.
Coordination of Benefits
Rules determining which insurance pays first when you have multiple health plans. Prevents duplicate payments and determines primary vs secondary coverage.
Copay (Copayment)
A fixed amount you pay for a covered service (e.g., $30 for a doctor visit). Different from coinsurance, which is a percentage.
Coverage Limit
The maximum amount an insurer will pay for a covered loss. Higher limits mean higher premiums but better protection.
D
Deductible
The amount you pay out-of-pocket before insurance kicks in. A $1,000 deductible means you pay the first $1,000 of a claim.
Depreciation
The decrease in value of property over time due to age, wear, and tear. Affects actual cash value payouts.
E
Endorsement (Rider)
An add-on to your policy that modifies coverage—either adding protection or excluding certain risks.
EPO (Exclusive Provider Organization)
A health plan requiring you to use in-network providers (like an HMO) but without requiring referrals for specialists (like a PPO).
Exclusion
Specific situations, conditions, or circumstances that your policy doesn’t cover. Read these carefully!
Explanation of Benefits (EOB)
A statement from your health insurer explaining what was billed, what insurance paid, and what you owe. Not a bill, but helps you understand claims processing.
F
Face Value
The death benefit amount of a life insurance policy—what your beneficiaries receive when you die.
Floater
Additional coverage for valuable items (jewelry, art, collectibles) that exceed standard policy limits.
Formulary
A list of prescription drugs covered by your health plan. Drugs are organized into tiers, with lower tiers having lower copays.
FSA (Flexible Spending Account)
An employer-sponsored account letting you set aside pre-tax money for medical expenses. Use-it-or-lose-it rules apply—funds typically expire at year end.
G
GAP Insurance
Covers the difference between what you owe on a car loan and the car’s actual cash value if totaled. Protects you from owing money on a destroyed vehicle.
Grace Period
Time after your premium due date during which coverage continues even if you haven’t paid. Usually 30-31 days.
Guaranteed Renewal
Policy provision ensuring you can renew regardless of health changes (for health/life insurance).
H
HIPAA
Health Insurance Portability and Accountability Act. Federal law protecting your medical information privacy and ensuring you can maintain coverage when changing jobs.
HMO (Health Maintenance Organization)
A health plan requiring you to use in-network providers and get referrals from a primary care physician to see specialists. Typically lower premiums.
HRA (Health Reimbursement Arrangement)
An employer-funded account that reimburses employees for qualified medical expenses and sometimes health insurance premiums.
HSA (Health Savings Account)
A tax-advantaged account paired with high-deductible health plans. Contributions are tax-deductible, grow tax-free, and withdrawals for medical expenses are tax-free. Funds roll over year to year.
I
Indemnity
The principle that insurance should restore you to your pre-loss financial position—no better, no worse.
In-Network
Doctors, hospitals, and other providers who have contracts with your health insurer to provide services at negotiated rates. Using in-network providers costs you less.
Insured
The person or entity covered by an insurance policy.
L
Liability
Legal responsibility for damages or injuries to others. Liability insurance covers costs when you’re at fault.
Lifetime Maximum
A cap on total benefits an insurer will pay over your lifetime. The ACA eliminated lifetime limits for essential health benefits, but they may still apply to non-essential benefits or non-ACA plans.
Loss
Damage, injury, or claim event that may be covered by insurance.
M
Maximum Out-of-Pocket
The most you’ll pay for covered services in a year. After reaching this limit, insurance pays 100%.
Metal Tiers
ACA marketplace plan categories based on cost-sharing: Bronze (60/40), Silver (70/30), Gold (80/20), and Platinum (90/10). Higher metals mean higher premiums but lower out-of-pocket costs.
N
Named Insured
The person(s) specifically listed on an insurance policy as the policyholder.
Named Perils
Insurance that only covers specific events listed in the policy (fire, theft, wind, etc.). Less comprehensive than all-risk policies but often less expensive.
Network
Group of doctors, hospitals, and providers contracted with your health insurer. Using in-network providers costs less.
No-Fault Insurance
Auto insurance system where your own insurer pays for your injuries regardless of who caused the accident. Required in some states to reduce lawsuits.
O
Open Enrollment
The annual period when you can enroll in or change health insurance plans without a qualifying life event. For ACA plans, typically November 1 to January 15.
Out-of-Network
Providers without contracts with your health insurer. Services cost more, and some plans don’t cover out-of-network care except emergencies.
P
Peril
A specific risk or cause of loss that may be covered by insurance, such as fire, theft, wind, or hail.
Personal Injury Protection (PIP)
Auto coverage paying for medical expenses and lost wages for you and your passengers, regardless of fault. Required in no-fault states.
Policy
The written contract between you and your insurance company detailing coverage, limits, and conditions.
POS (Point of Service)
A hybrid health plan combining HMO and PPO features. Requires a primary care physician but allows out-of-network coverage at higher cost.
PPO (Preferred Provider Organization)
A health plan offering flexibility to see any provider. In-network care costs less, but out-of-network care is covered at higher cost-sharing. No referrals needed.
Pre-authorization (Prior Authorization)
Approval required from your health insurer before receiving certain services, procedures, or medications. Without approval, the insurer may not pay.
Pre-certification
Verification from your insurer that a planned hospital admission or procedure is medically necessary and will be covered. Similar to pre-authorization.
Pre-existing Condition
A health condition that existed before your insurance coverage began. The ACA prohibits health insurers from denying coverage or charging more for these.
Premium
The amount you pay for insurance coverage, usually monthly, quarterly, or annually.
Preventive Care
Health services aimed at preventing illness, like vaccinations, screenings, and annual checkups. ACA plans must cover these at no cost when using in-network providers.
R
Replacement Cost
The cost to replace damaged property with new items of similar quality, without deducting for depreciation.
Rider
See Endorsement. An addition to your policy that customizes coverage.
S
Special Enrollment Period
Time outside open enrollment when you can enroll in health insurance due to a qualifying life event like marriage, birth of a child, or job loss.
Subrogation
The process where your insurer pursues the at-fault party to recover claim payments. If another driver damages your car, your insurer may sue them.
T
Term Life Insurance
Life insurance that covers you for a specific period (10, 20, 30 years). No cash value; pure death benefit protection.
U
Umbrella Policy
Extra liability coverage that kicks in after your auto or home insurance limits are exhausted. Provides millions in additional protection.
Underinsured Motorist Coverage
Auto insurance that pays when the at-fault driver has insurance but not enough to cover your damages. Fills the gap between their limits and your costs.
Underwriting
The process insurers use to evaluate risk and determine whether to offer coverage and at what price.
Uninsured Motorist Coverage
Auto insurance protecting you when hit by a driver with no insurance. Covers your injuries and, in some policies, vehicle damage.
W
Waiting Period
Time before coverage becomes effective or before certain benefits are available. Common in disability and health insurance.
Whole Life Insurance
Permanent life insurance with a savings component (cash value) that grows over time. Higher premiums than term life.
Frequently Asked Questions
Common questions about insurance terminology answered below.
Frequently Asked Questions
What are the most important insurance terms everyone should know?
What's the difference between a copay and coinsurance?
What's the difference between deductible and out-of-pocket maximum?
Why do insurance policies use so much confusing terminology?
How can I better understand my insurance policy?
What does 'in-network' vs 'out-of-network' mean and why does it matter?
What's the difference between term life and whole life insurance?
Need help understanding your specific policy? Contact a licensed insurance professional in your state.
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