Insurance Glossary
Clear, plain-language definitions for the most important insurance terms. Click any term for a detailed explanation with examples.
Premium
The amount you pay for your insurance policy, typically on a monthly, quarterly, or annual basis. Your premium is determined by factors including your risk profile, coverage level, deductible, and the insurance company's pricing model.
Deductible
The amount you must pay out of pocket before your insurance coverage kicks in. For example, with a $1,000 deductible, you pay the first $1,000 of a covered claim, and your insurer pays the rest up to your policy limits.
Copay (Copayment)
A fixed dollar amount you pay for a specific healthcare service at the time of service. For example, a $30 copay for a doctor visit means you pay $30 each visit regardless of the total cost. Copays are common in health insurance.
Coinsurance
The percentage of costs you share with your insurer after meeting your deductible. For example, with 80/20 coinsurance, your insurer pays 80% and you pay 20% of covered costs until you reach your out-of-pocket maximum.
Out-of-Pocket Maximum
The most you will pay for covered healthcare services in a plan year. After reaching this amount, your insurance pays 100% of covered services. Includes deductibles, copays, and coinsurance but not premiums.
Liability Coverage
Insurance coverage that pays for injuries or damage you cause to other people or their property. Liability coverage is the foundation of auto and business insurance and is legally required for drivers in most states.
Bodily Injury Liability
Auto insurance coverage that pays for medical expenses, lost wages, and pain and suffering when you injure someone in an accident you caused. It has per-person and per-accident limits (e.g., 100/300 means $100K per person, $300K per accident).
Property Damage Liability
Auto insurance coverage that pays for damage you cause to another person's property (vehicles, buildings, fences, etc.) in an accident. The third number in liability limits (e.g., the 50 in 100/300/50 means $50K property damage limit).
Collision Coverage
Auto insurance that pays to repair or replace your vehicle after an accident with another vehicle or object (tree, guardrail), regardless of who is at fault. Requires a deductible ($250-$1,000 typical). Part of full coverage.
Comprehensive Coverage
Auto insurance that covers damage to your vehicle from non-collision events: theft, vandalism, weather (hail, flood, falling trees), fire, hitting an animal, and glass damage. Also called 'other than collision' coverage.
Full Coverage
A common term (not an official insurance term) referring to a combination of liability, collision, and comprehensive coverage. This provides the most complete protection for both yourself and others. Required by lenders if you have an auto loan or lease.
Underwriting
The process by which an insurance company evaluates your risk to determine whether to offer coverage and at what price. Underwriters consider factors like age, health, driving record, credit score, and claims history.
Claim
A formal request to your insurance company to pay for a covered loss or event. Filing a claim triggers the claims process where an adjuster evaluates the damage or loss and determines the payout based on your policy terms.
Insurance Adjuster
A professional who investigates insurance claims to determine the extent of the insurance company's liability. Types include: company adjusters (work for the insurer), independent adjusters (hired by insurers), and public adjusters (hired by policyholders).
Coverage Limits
The maximum amount your insurance policy will pay for a covered claim. Limits are expressed as per-occurrence, per-person, or aggregate amounts. Higher limits provide more protection but cost more in premiums.
Exclusion
A specific situation, condition, or circumstance that your insurance policy does not cover. Common exclusions include: flood damage in homeowners insurance, pre-existing conditions in some health plans, and intentional damage in all policies.
Endorsement (Rider)
An addition or modification to an existing insurance policy that changes the coverage. Endorsements can add coverage (flood endorsement), remove coverage, or modify terms. Also called a rider in life and health insurance.
Rider
An optional add-on to a life or health insurance policy that provides additional coverage or benefits. Common riders include: waiver of premium, accelerated death benefit, accidental death, and guaranteed insurability.
Actuary
A professional who uses mathematics, statistics, and financial theory to assess risk and set insurance pricing. Actuaries determine how much insurance companies need to charge in premiums to cover expected claims and remain profitable.
Umbrella Insurance
A type of liability insurance that provides extra coverage beyond the limits of your primary policies (auto, home, etc.). Umbrella policies typically provide $1-$10 million in additional liability protection for a relatively low cost ($150-$500/yr for $1M).
Actual Cash Value (ACV)
The value of property at the time of loss, calculated as the replacement cost minus depreciation. ACV policies pay less than replacement cost policies because they account for the age and wear of the item being replaced.
Replacement Cost
The cost to replace damaged or destroyed property with new property of similar kind and quality, without deducting for depreciation. Replacement cost coverage pays more than actual cash value but costs slightly more in premiums.
Dwelling Coverage
The portion of a homeowners insurance policy that covers the physical structure of your home, including walls, roof, floors, and built-in appliances. Dwelling coverage should equal the full replacement cost of rebuilding your home.
Personal Property Coverage
Insurance coverage for your belongings inside your home, including furniture, electronics, clothing, and valuables. Typically set at 50-70% of your dwelling coverage amount. Available with ACV or replacement cost valuation.
Personal Injury Protection (PIP)
Auto insurance coverage that pays for your medical expenses, lost wages, and related costs regardless of who caused the accident. Required in no-fault states. Also known as 'no-fault insurance.' Coverage limits typically range from $10,000 to $50,000.
Uninsured/Underinsured Motorist Coverage
Auto insurance that protects you if you are injured by a driver who has no insurance (uninsured) or insufficient insurance (underinsured). Covers medical bills, lost wages, and pain and suffering. Required in many states.
SR-22
A certificate of financial responsibility filed by your insurance company with your state DMV to prove you carry minimum required auto insurance. Required after DUI, driving without insurance, or multiple violations. Not insurance itself but proof of insurance.
GAP Insurance
Guaranteed Asset Protection insurance covers the difference between what you owe on your car loan/lease and the car's actual cash value if it is totaled. Essential when you owe more than your car is worth, which is common in the first few years of a car loan.
Term Life Insurance
Life insurance that provides coverage for a specific period (10, 20, or 30 years). If you die during the term, your beneficiaries receive the death benefit. If you survive the term, coverage expires with no payout. The most affordable type of life insurance.
Whole Life Insurance
Permanent life insurance that covers your entire life with guaranteed death benefits and cash value accumulation. Premiums are fixed and never increase. Cash value grows at a guaranteed rate (typically 2-4% per year) and can be borrowed against or withdrawn.
Death Benefit
The amount of money paid to beneficiaries when the insured person dies. The death benefit is the core purpose of life insurance. It is generally tax-free to beneficiaries under federal income tax law.
Beneficiary
The person or entity designated to receive the death benefit or insurance payout. Primary beneficiaries receive the payout first. Contingent beneficiaries receive it if primary beneficiaries are deceased. Keeping beneficiary designations current is essential.