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Insurance Terms and Glossary

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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.