Have you ever found yourself in the middle of reading a paragraph only to realize you only understand every other word? Before you dust off that heavy dictionary, check out our list of 45 basic insurance terms everyone should know!
Have you ever found yourself in the middle of reading a paragraph only to realize you only understand every other word? It happens to the best of us, especially when we're talking about complicated insurance terms and concepts. Fortunately, you don't have to know every insurance term to stay informed. Before you dust off that heavy dictionary, check out our list of 45 basic insurance terms everyone should know!
Most subjects, like sports or cooking, have jargon that can take years to fully memorize and understand, and insurance is no exception. But when we're talking about insurance, the stakes are often much higher than discussions revolving around hobbies; we're talking about protecting our property and our lives. That's why it's essential to have an understanding of what these terms refer to in the context of insurance.
1. Actual cash value. There are a few ways your policy can be set up that impact the amount you are paid when filing a claim. Actual cash value is one such method, and it is calculated by subtracting the amount of depreciation from the initial cost of the property. Depreciation is usually calculated by subtracting a certain percentage from the property per year. However, not every insurance company calculates depreciation the same.
In most cases, actual cash value coverage is a less-expensive insurance option. Another (often more expensive) alternative is called "replacement cost coverage," which we will cover later on.
2. Actuary. Actuaries are experts at a-sessing risks by analyzing statistics and data. They often work with insurance companies to help set rates for insurance products.
3. Adjuster. Sometimes referred to as a 'claim examiner,' an adjuster is someone who investigates a claim. They determine if the loss is covered by the policy, estimate damages, and often write a check to the insured.
4. Agent. An agent, or insurance agent, is someone who sells insurance policies for an insurance company or carrier. Their agency may be exclusive or non-exclusive, meaning they sell insurance for a single carrier, or a number of carriers.
5. A-set. A financial or economic benefit controlled by a person or entity. In other words, these are the things you own that have financial value, or can generate financial value in the future. A-sets like your house, your vehicle, your savings account, and your investments are taken into consideration when purchasing certain insurance policies, like life insurance and liability insurance.
6. A-sured. This is an individual who has an insurance policy, and is another word for "insured" or "policyholder."
7. At-fault. In a situation such as an auto accident, "at-fault" refers to the person who is liable for the damages. In other words, this is the person who caused the accident, or is otherwise legally responsible for it.
8. Beneficiary. A beneficiary is a person who is designated as the recipient of payment of something like a life insurance benefit.
9. Bodily injury. As the name suggests, this simply refers to an injury a person sustains. In an auto accident, bodily injury liability coverage is designed to pay for the expenses that result from such an injury.
10. Carrier. This is another word for the insurance company that provides you with your policy.
11. Cause of loss. Another way you may see 'perils' referenced in policy language.
12. Collision. In reference to auto insurance, "collision" refers to coverage that pays for damages to your vehicle after a collision (hence the name), either with another vehicle or an object, like a traffic sign. This is often an optional coverage unless you have an auto loan or lease your vehicle, in which case the lender will likely require it.
13. Claim. A claim refers to any request for payment within the bounds of an insurance policy. For example, if you have homeowners insurance, and hail damages your roof, you would file a claim, requesting that your insurance carrier investigate and issue a payment if needed.
14. Claimant. A claimant is any person or entity requesting payment from an insurer, or insurance company.
15. Commercial. Commercial Auto, Commercial Property, Commercial General Liability - there are a number of different types of commercial insurance coverage. Commercial insurance products are distinct from traditional or personal lines in that they are designed for certain businesses or business practices.
16. Comprehensive. Some insurance carriers refer to OTC coverage as "comprehensive" coverage.
17. Coverage. Coverage, or coverages, are the specific protections or benefits an insurance policy provides. These are outlined in your policy or contract, and can be found on your declarations page.
18. Damage. This term refers to any loss, destruction, or harm to a person or property, such as a vehicle or home. For example, if your vehicle's windows are broken by an attempted theft, this would be considered "damage."
19. Damages. Not to be confused with "damage," this refers to the actual money one individual or party is required legally to pay to another.
20. Declarations page. This page is basically a snapshot of the important information regarding your insurance policy. It will have policyholder information, such as name, address, and policy number, as well as coverages, limits, premiums, deductibles, and dates of coverage.
21. Deductible. A deductible refers to the amount of money that you, the insured, are required to pay before the insurance company takes over. For example, if you have a $500 deductible on your auto insurance policy, and you're involved in an accident that results in $5000 in damages, you would pay $500 and the policy would pay the $4500 (or up to the limit of the policy).
22. Dwelling. When looking through a home insurance policy, you may see the word "dwelling" mentioned in reference to coverages. This refers to your house! Specifically, it refers to the actual structure and often structures attached to it, such as a deck or a garage. This is defined separately from other structures, like barns, workshops, or detached garages. It is important to understand what a policy specifically defines as a dwelling, as the dwelling and other structures are often protected from different perils.
23. Electronic Funds Transfer (EFT). This is a method of payment where the insurance company electronically deposits the claim amount into your bank account. While many claims adjusters are able to write checks on site, there are a variety scenarios where this may be possible. For example, if the claims process takes place using a mobile app (as opposed to an in person inspection), you may be able to have funds deposited directly via EFT.
EFT may also refer to a method by which a policyholder can pay premiums electronically, sometimes through automatic deductions.
24. Endorsement. An endorsement is an amendment attached to a base policy which adjusts the coverage. For example, you can often add an endorsement to a basic property insurance policy to cover additional perils (more on perils in a moment).
25. Estimate. This refers to the amount of money required to repair or replace the covered property when damaged. This is usually provided by the claims adjuster following their inspection and evaluation.
26. Exclusion. On some occasions, an exclusion is a defined scenario or event that an insurance policy does not provide coverage for. Exclusions are one way that an insurance company can further specify what a policy covers, but they can also be a way for a policyholder to customize their coverage. For example, in some cases a policyholder can use an exclusion to remove coverages on a policy that may not apply to their situation.
27. Insured. This refers to the person(s) (or sometimes organization or entity) that an insurance policy provides coverage for. For example, if you have an auto insurance policy, you are considered to be the insured in that contract.
28. Insurer. An insurer is the company or organization that provides insurance policies to the insured. This is another word for an insurance company, like the term "carrier."
29. Liability. This refers to a legal obligation or responsibility one party has for causing damage, injury, or loss to another party. For example, if you rear-end another car, and the driver and passengers are injured, you may be held liable for the damaged property and persons. In such a case, the "liability coverage" portion of your auto insurance would potentially pay for the damages up to the policy limit.
30. Limits. A limit refers to the maximum amount of protection the insurance company agrees to pay for a specific coverage in any given claim. This amount is agreed upon before the policy is issued, and can be found on your policy declaration page.
As an example, your auto insurance policy may have a limit of $60,000 per accident. This means that insurance company would pay up to that limit, after which the policyholder is responsible for paying any expenses accrued beyond that limit.
31. Loss. In the context of insurance, "loss" refers to damage caused to an insured piece of property. A "covered loss" refers to any damage or injury that an insurance policy specifically provides protection for. For example, hail damage is a common covered loss for many homeowners insurance policies, whereas flood damage is typically not a covered loss for many homeowners policies.
32. Medical Payments. If you see "medical payments" included in policy language, it refers to expenses related to medical treatment caused by a particular incident. You will see this in a personal auto policy, but may also see it in a liability policy, too.
33. Named insured. Like the term "insured," this term refers to a named individual or entity that an insurance policy covers, and is the person or organization listed on the declaration page. However, there are circumstances where the two can differ. For example, if a company has general liability insurance, that company would be the "named insured" as listed on the declaration page. Its employees would technically be insured under that policy, but only while they are performing their duties as an employee. In other words, they are insured, but not the "named insured."
34. Named Peril (Named Peril Policy). This refers to a type of insurance policy that provides protection or coverage for certain perils explicitly outlined in the policy. The opposite of a named peril policy would be an open peril policy, which provides coverage for all causes of loss except those excluded in the policy.
35. Other than collision (OTC). As the name suggests, OTC adds protection against things like hail, fire, vandalism, and more to your personal auto policy. While it isn't likely to cover every possible source of damage, it covers most that occur outside of a collision.
36. Peril. Lightning, windstorms, fire - just to name a few. Perils are the causes of damage to your insured property that your policy protects against. A basic policy will cover a certain set of perils, and endorsements can often add to that.
37. Policyholder. This is yet another term you might frequently hear or see that refers to the person or entity an insurance policy covers, like "insured," and would appear on the declarations page.
38. Policy Jacket. In reference to an insurance policy, the policy jacket is a document that contains all of the details about the specific policy. This includes terms, conditions, coverages, perils, exclusions, and so on. It does not include endorsements or a declarations page.
39. Premium. This is the amount of money you, the insured, pay to an insurance company in exchange for coverage. Depending on the policy, the premium can be paid a variety of ways, such as monthly payments, or possibly in a single upfront payment. The premium amount is determined by a variety of different factors, and will be different depending on the type of policy, the individual or entity, deductibles, limits, and so on.
40. Quote. When you're searching for a new insurance policy, an insurance agent or insurance carrier will give you a quote, which is an estimate of the premium you will pay for the policy. This estimate is based on certain pieces of information that you provide to the agent or carrier.
41. Replacement cost coverage. As opposed to the actual cash value, replacement cost refers to the cost of replacing property without subtracting depreciation due to normal use or wear and tear. For example, if you have boat insurance, replacement cost coverage would pay to replace that boat with an identical model, or a model of comparable quality.
42. Rider. As you'll see, in the world of insurance, there are often a number of different words that refer to the same thing. The word "rider" is one such example. Like an endorsement, a rider is an amendment that can be added to a basic policy to modify it, typically for an additional premium.
43. Risk. Risk is the possibility that a loss will occur. For example, the probability that a home will be damaged, a car will be destroyed, or a piece of property stolen. Risk is used to calculate coverage costs or premiums and the level of risk can determine how, or if, coverage is offered.
44. Umbrella Insurance. A type of liability insurance that expands coverage limits above and beyond the limits of an underlying liability insurance policy.
45. Underwriting. The process of underwriting is how an insurance company evaluates risk and whether or not the company will offer coverage for it. It also helps determine rates based on various factors found in an application.
While there are many more insurance terms than the ones outlined here, these are some of the more common definitions that can help you get on the right track. But this isn't a test, so don't worry if you haven't memorized them all!
After you've gone through this list, consider adding this blog to your internet browser's bookmarks (here's a quick tutorial for creating bookmarks)! Then, the next time you're speaking to an agent, filing a claim, or simply looking through your policy, you can quickly reference these terms.
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