2024-01-01 · basics, glossary
Insurance Terms Glossary
Understanding insurance gets much easier once the vocabulary clicks. This glossary explains the most common terms you’ll see in auto, home, health, and life policies. The goal is to give you quick, plain-English definitions and show why each term matters when you shop for coverage.
Core cost terms
Premium: The amount you pay for your policy, usually monthly or annually. A higher premium often means more coverage or lower out-of-pocket costs during a claim.
Deductible: The amount you must pay out of pocket before insurance pays. Higher deductibles lower premiums but increase your share of a loss.
Copay: A fixed fee you pay for a covered service (common in health insurance), such as $30 for a doctor visit.
Coinsurance: The percentage you pay after you meet your deductible. Example: the insurer pays 80% and you pay 20%.
Out-of-pocket maximum: The most you’ll pay in a policy year for covered medical services. After that, the insurer pays 100% of covered costs.
Coverage and limits
Coverage: The specific protection your policy provides (liability, collision, comprehensive, etc.).
Policy limit: The maximum the insurer will pay for a covered loss. Limits can apply per person, per accident, per claim, or per policy year.
Sublimit: A smaller limit that applies to a specific category of loss, like jewelry or electronics.
Per occurrence: The maximum the insurer will pay for a single event or claim.
Aggregate limit: The total amount the insurer will pay for all claims during a policy period.
Replacement cost: The amount needed to replace property with new items of similar kind and quality.
Actual cash value (ACV): Replacement cost minus depreciation. ACV payouts are typically lower than replacement cost.
Policy structure and documents
Declarations page (dec page): The summary page that lists your coverages, limits, deductibles, and premium. It’s the quickest way to verify what you bought.
Policy form: The standard contract language that defines your coverage and exclusions.
Endorsement (rider): An add-on that modifies the policy. It can expand or restrict coverage.
Binder: Temporary proof of insurance coverage before the full policy is issued.
Insured: The person or entity covered by the policy.
Beneficiary: The person who receives the payout from a life insurance policy.
Liability and legal terms
Liability coverage: Protection if you’re responsible for injury or property damage to others. This is essential in auto, home, and business policies.
Bodily injury liability: Covers injuries you cause to others.
Property damage liability: Covers damage you cause to others’ property.
Negligence: Failing to take reasonable care, which can lead to legal liability.
Umbrella policy: Extra liability coverage that sits on top of your auto or home limits.
Common exclusions and restrictions
Exclusion: A loss or situation the policy does not cover (e.g., flood damage in a standard homeowners policy).
Wear and tear: Routine deterioration that isn’t covered.
Intentional acts: Damage you cause on purpose, typically excluded.
Vacancy clause: Restrictions that apply if a property is vacant for a certain period.
Policy conditions: Requirements you must follow, such as timely reporting of claims or maintaining smoke detectors.
Claims and loss terms
Claim: A request for payment under your policy after a covered loss.
Adjuster: The insurer’s representative who investigates claims and estimates the payout.
Appraisal: A formal process to resolve disputes over the value of a loss.
Loss: The event or damage that triggers a claim.
Subrogation: The insurer’s right to recover costs from the responsible party after paying your claim.
Salvage: The leftover value of damaged property (like a totaled car) that the insurer may keep or sell.
Health insurance-specific terms
Network: The group of doctors and hospitals that have agreements with your insurer.
Out-of-network: Providers who do not have contracts with your insurer, often leading to higher costs.
HMO/PPO/EPO: Types of health plans that determine how referrals and network coverage work.
Prior authorization: Insurer approval required before certain treatments or medications are covered.
Auto insurance-specific terms
Collision coverage: Pays for damage to your car after an accident.
Comprehensive coverage: Pays for non-collision damage like theft, hail, or vandalism.
Uninsured/underinsured motorist (UM/UIM): Covers you if another driver doesn’t have enough insurance.
Personal injury protection (PIP): No-fault medical coverage for you and passengers (required in some states).
Homeowners and renters terms
Dwelling coverage: Protects the structure of your home.
Personal property coverage: Protects your belongings inside the home.
Loss of use (additional living expenses): Pays for temporary housing if your home is unlivable.
Named peril vs open peril: Named peril covers only listed risks; open peril covers all risks except exclusions.
Life insurance terms
Term life: Coverage for a set period (10, 20, 30 years).
Permanent life: Coverage that lasts for your lifetime and builds cash value.
Cash value: A savings component that grows inside a permanent life policy.
Why this glossary matters
Knowing the language helps you compare quotes accurately, ask better questions, and avoid surprise gaps in coverage. If a term isn’t clear, ask your insurer for a written explanation. The right policy is the one you understand and can rely on when it matters most.