Insurance Glossary
Understanding insurance terminology helps you make better decisions about your coverage. Here are the most common terms explained in plain language.
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.
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.
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%).
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.
Exclusion
Specific situations, conditions, or circumstances that your policy doesn’t cover. Read these carefully!
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.
G
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).
I
Indemnity
The principle that insurance should restore you to your pre-loss financial position—no better, no worse.
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.
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%.
N
Named Insured
The person(s) specifically listed on an insurance policy as the policyholder.
Network
Group of doctors, hospitals, and providers contracted with your health insurer. Using in-network providers costs less.
P
Policy
The written contract between you and your insurance company detailing coverage, limits, and conditions.
Premium
The amount you pay for insurance coverage, usually monthly, quarterly, or annually.
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.
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
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.
Underwriting
The process insurers use to evaluate risk and determine whether to offer coverage and at what price.
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.
Need help understanding your specific policy? Contact a licensed insurance professional in your state.
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