Glossary of Insurance Terms
Accidental Death Benefit
An optional supplement to a life insurance policy that provides an extra payment if the insured’s death resulted from an accident.
Actual Cash Value
An amount equivalent to the fair market value of an item or property at the time of loss, less any allowance for depreciation.
Actuary
A mathematical and statistical expert who calculates risks, forecasts and other financial values for the insurance industry.
Adjustable Rate
An interest rate that varies based current market rates.
Adjuster
A person who investigates and settles insurance claims.
Admitted Assets
An insurance company’s assets that have met state law guidelines as being easily converted to cash.
Agent
A person licensed to sell insurance on behalf of an insurance company.
Aggregate Limit
The maximum dollar amount of all claims that will be paid during a policy’s contract period.
Annuitization
To convert a deferred annuity contract’s account balance to income payments.
Annuity
A contract where the buyer deposits money initially and later receives payments at regular intervals, usually for life.
Assets
All of the property owned by a business or individual that has a present market value or worth.
Automobile Liability Insurance
Protection for the insured against liability claims arising from their ownership or use of automobiles.
Balance Sheet
A financial statement showing a company’s assets, liabilities and equity on a specified date.
Benefit Period
The amount of time on a contract that insurance coverage is effective and benefits will be paid.
Broker
An insurance salesperson that searches the marketplace, in the interest of clients, to find the best policy.
Broker–Agent
An insurance salesperson who acts both as an agent representing insurance companies and as a broker working in the best interests of clients.
Capital
Equity of shareholders for a publicly traded insurance company.
Casualty
A liability or loss resulting from an accident.
Casualty Insurance
Insurance that is primarily concerned with legal liability for personal injuries or damage to the property of others.
Claim
Contact made to an insurance company alerting them that payment of the benefit is due under the policy’s contract terms.
Coinsurance
Where the insured shares in the cost of covered services on a percentage basis.
Collision Insurance
Optional coverage that pays for damages due to the insured’s car striking another object.
Commercial Lines
Property and liability policies written specifically for businesses.
Commission
A percentage of the policy premium paid to an agent or insurance salesperson as compensation for services.
Comprehensive Insurance
An optional auto insurance coverage that covers damage to the policyholder’s car caused by fire, theft, vandalism, falling objects and other dangers.
Copayment
Part of a cost–sharing policy where the insured pays a set amount before receiving a specified service.
Cost–of–Living Adjustment (COLA)
An annual adjustment in wages that corresponds with a change in the cost of living.
Coverage
The total amount of protection provided under an insurance contract.
Coverage Area
The geographic area where an insured is protected under their policy.
Death Benefit
The payment made to a beneficiary upon the death of an insured person.
Deductible
The amount which a policyholder agrees to pay toward the total amount of an insured loss.
Dividend
A return of part of the annual premium to the policyholder based on the insurance company’s earnings.
Earned Premium
The portion of an insurance premium that falls under the expired part of the policy period.
Elimination Period
The amount of time a policyholder must be insured before he or she is eligible to receive benefits.
Employers Liability Insurance
Coverage that protects against liability that may be imposed on an employer outside the constraints of a workers’ compensation law.
Exclusions
Specified conditions or risks that a policy does not cover.
Expense Ratio
The calculation of an insurance company’s operating expenses to premiums.
Exposure
The possibility of risk or loss that an insurance company accepts from its policyholder in exchange for the premium.
Extended Replacement Cost
Pays an additional amount beyond the policy limit to replace a damaged home.
Floater
An insurance policy that covers moveable property under the terms and provisions of a policy covering property at a fixed location, such as a homeowner’s policy.
General Account
An undivided account in which insurers maintain funds that support contractual obligations for guaranteed products and annuities.
General Liability Insurance
Coverage protecting businesses from most liability risks other than automobile and professional liability.
Grace Period
Period of time after the due date of a premium during which the policy remains active without penalty.
Guaranteed Renewable
A policy that the insurer is required to renew until the policyholder reaches a certain age, as long as premiums are paid on time.
Hazard
Something that affects the likelihood of a loss occurring.
Health Maintenance Organization (HMO)
Prepaid insurance plans that provide comprehensive health care to its members.
Health Savings Account
Tax–free savings account used solely for health care expenditures.
Hurricane Deductible
An amount added to a homeowner’s insurance policy to limit an insurer’s loss from hurricane damages.
Indemnity
The principle by which a policyholder is restored to the same financial position that they were in immediately prior to a loss.
Inflation Protection
The clause in an insurance policy that increases benefit levels to account for anticipated increases in the cost of covered services.
Insurance Adjuster
An individual who settles claims brought by policyholders on behalf of an insurance company.
Investment Income
The money an insurance company received in premiums but has not yet paid out on claims.
Liability
A legally enforceable obligation.
Liability Insurance
Coverage designed to protect the policyholder from financial loss due to liability resulting from bodily injuries or property damage.
Licensed
An agent or insurer who has completed certification in order to operate and conduct business in the insurance industry.
Living Benefits
Allows terminally ill policyholders to collect part of their life insurance benefits before death to pay for medical expenses.
Loss Ratio
The percentage of premiums an insurer spends on claims.
Losses Incurred (Pure Losses)
The total losses incurred by an insurance company during a particular time period.
Named Perils
The specific hazards a policy protects you against.
Net Income
The income that a company has after subtracting costs and expenses from the total revenue.
Net Premium
The total policy premium minus commissions and expenses.
Noncancellable
A policy that guarantees you can receive coverage as long as you make timely premium payments.
Nonstandard Auto (High Risk Auto or Substandard Auto)
Coverage for drivers who are unable to purchase standard coverage because of a variety of factors including lack of experience, poor driving record, etc.
Occurrence
An accident or exposure to conditions resulting in bodily injury or property damage which occurs during a policy’s term period.
Other Income/Expenses
Represents income and expenses other than normal business operations.
Out–of–Pocket Limit
The maximum amount an insured will be required to pay for covered services during a specified time period.
Peril
The cause of a possible loss that an insurance policy covers against.
Personal Injury Protection
Automobile insurance coverage that typically requires insurance companies to provide first–party coverage without regard to fault.
Personal Lines
Insurance policies that are written specifically for individuals and their property.
Policy
A written document that outlines the terms and conditions of the insurance coverage.
Pre–Existing Condition
A physical or mental condition which existed prior to the effective date of an insurance policy.
Preferred Auto
Coverage offered to drivers who have a clean driving record.
Preferred Provider Organization (PPO)
A network of healthcare providers who give medical care to enrolled persons at a discounted rate.
Premium
The payment or one of the regular payments made to an insurance company in exchange for protection from risk, as specified on the insurance policy.
Profit
Gross income minus expenses.
Qualifying Event
An occurrence that begins the protection for a policyholder.
Reinsurance
Protection that an insurer purchases from another insurance company on a large–risk policy.
Renewal
Continuing an insurance contract beyond its original term by the insurer’s acceptance of the premium for a new policy term.
Replacement Cost
The amount needed to replace damaged property without cost to the insured for depreciation.
Risk Management
Controlling the various risks that a company may be subject to.
Solvency
The ability of an insurance company to pay the claims of its policyholders.
Standard Auto
Insurance for average drivers with relatively few accidents on their record.
State of Domicile
The state where an individual or business is permanently residing or doing business.
Stop Loss
The dollar amount on claims when the insurance company begins to pay at 100% per insured individual.
Subrogation
Gives the insurer full rights to recover damages against the person responsible for the loss.
Term Life Insurance
Provides coverage for a specified period of time.
Tort
A wrong or injury caused by one person to another, resulting in legal liability.
Total Loss
A claim for the maximum amount covered by the insurance policy.
Umbrella Policy
Provides for coverage of losses beyond the limit of a regular insurance policy.
Underwriter
An individual working for an insurance company who determines whether or not that company should accept the risk for a particular policy.
Underwriting
The process by which an insurer determines whether or not it will accept the risk for a specific insurance policy.
Unearned Premium
The portion of an insurance premium that falls under the unexpired part of the policy period.
Uninsured Motorist Coverage
Insurance that covers a policyholder’s collision with a driver who does not have liability insurance.
Universal Life Insurance
A flexible policy where excess premiums are invested in interest–yielding accounts.
Valuation
The process of estimating the value of an existing insurance policy.
Variable Life Insurance
A flexible type of coverage whose value depends on how well the investments chosen are performing.
Viator
The owner of a life insurance policy who sells it to a third party and receives a lump sum cash payment in return.
Waiting Period
The number of days that must pass before a policyholder’s benefits start.
Waiver of Premium
A provision in an insurance policy that waives the collection of premiums should the policyholder become unable to work due to an accident or injury.
Whole Life Insurance
A policy that has been kept active with the required payments and which pays a lump sum upon the insured’s death.
