This is a list of terms designed to assist you while shopping or learning about insurance. It is not meant to be all-inclusive but should help with your understanding of the most common terms.
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
A
Actual Cash Value
The value of property based on the cost of repairing or replacing it with property of the same kind and quality. Typically, actual cash value equals the current replacement cost minus depreciation (age, condition, length of time in use, and obsolescence).
Adjuster
A person who investigates and settles losses for an insurance carrier.
Agent
In insurance, the person authorized to represent the insurer in negotiating, servicing, or effecting insurance policies.
Annual Out-of-Pocket Maximum
A dollar amount set by the plan which puts a cap on the amount of money the insured must pay out of his or her own pocket for covered expenses over the course of a calendar year.
Annuity
A contract that provides for a series of periodic payments to be made or received at regular intervals.
Applicant
The party applying for an insurance policy.
Application
A printed form developed by an insurer that includes questions about the prospective insured and the desired insurance coverage and limits.
Assigned Risk
A risk insured through a pool of insurers and assigned to a specific insurer. These risks are generally considered undesirable by underwriters, but due to state law or otherwise, they must be insured.
Auto Collision Coverage
Optional auto insurance which pays for damage to your car caused by collision with another car or object, or by rolling the car over. Frequently required if you have a car loan.
Auto Comprehensive Physical Damage Coverage
Optional auto insurance which pays for damage to your auto caused by things other than collision or rolling the car over, such as fire, theft, vandalism, flood or hail. Frequently required if you have a car loan.
B
Beneficiary
Any person, persons, or other entity designated to receive the policy benefits upon the death of the policyholder.
Binder
A written or oral contract issued temporarily to place insurance in force when it is not possible to issue a new policy or endorse the existing policy immediately. A binder is subject to the premium and all the terms of the policy to be issued.
Binding Receipt
A premium receipt acknowledging temporary insurance coverage immediately until the insurance company rejects the application or approves it and issues a policy.
Broker
A marketing specialist who represents insurance organizations and who deals with either agents or companies in arranging for the coverage required by the customer.
Buy-Sell Agreement
Agreement that a deceased business owner’s interest will be sold and purchased at a predetermined price or at a price according to a predetermined formula.
C
Cancellation
The discontinuance of an insurance policy before its normal expiration date, either by the insured or the company.
Case Management
A utilization management technique that addresses the medical necessity of care as well as alternative treatments or solutions, especially when the patient is likely to require very expensive treatment.
Certificate of Insurance
A statement of coverage issued to an individual insured under a group insurance contract, outlining the insurance benefits and principal provisions applicable to the member.
Claim
A person’s request for payment from an insurer for a loss covered by the insurance policy.
COBRA (Consolidated Omnibus Budget Reconciliation Act)
COBRA requires organizations with twenty or more employees to offer the continuation of group health benefits (Medical, Dental, Vision, and Medical Reimbursement Account) to employees (and covered dependents) upon experiencing a “Qualifying Event.”
Employers are required to provide initial COBRA notification to covered employees and dependents, a letter detailing an individual’s rights upon experiencing a “qualifying event,” and an explanation of the conversion privilege. The legislation defines the following six situations as “Qualifying Events” that require COBRA continuation:
- Termination of Employment
- Reduction of Work Hours
- Employee’s Death
- Employee’s Divorce (or legal separation in some states)
- Medicare Entitlement
- Change in “Dependent” Status
Coinsurance Provision
A specified percentage of the cost of treatment the insured is required to pay for all covered medical expenses remaining after the policy’s deductible has been met.
Collision Insurance
Protection against loss resulting from any damage to the policyholder’s car caused by collision with another vehicle or object, or by upset of the insured car, whether it was the insured’s fault or not.
Commission
The amount of money, usually a percentage of the premiums that is paid to an insurance agent for selling an insurance policy.
Comprehensive Auto Insurance
Protection against loss resulting from damage to the insured auto, other than loss by collision or upset.
Compulsory Auto Liability Insurance
Insurance laws in some states required motorists to carry at least certain minimum auto coverages. This is called “compulsory” insurance.
Conditions
The part of your insurance policy that states the obligations of the person insured and those of the insurance company.
Contract
A legally enforceable agreement between two or more parties.
Copay
The fee you pay for certain medical services or for each prescription. For example, you may pay $20 for an office visit or $10 to fill a prescription and the health plan covers the balance of the charges. (1) A fee that many insurance plans require an insured to pay for certain medical services (such as a physician’s office visit). (2) An amount that the insured must pay toward the cost of each prescription under a prescription drug plan.
D
Declination
The insurer’s refusal to insure an individual after careful evaluation of the application for insurance and any other pertinent factors.
Deductibles
The portion of the loss that the policyholder agrees to pay out of pocket, before the insurance company pays the amount they are obligated to cover. For example, if the covered claim is $1000 and your deductible is $250, you pay $250 and your company will pay $750. Deductibles help to keep insurance rates reasonable. Raising the amount of the deductible lowers the cost of insurance.
Depreciation
Reduction in the value of property due to age and use.
E
Endorsement
Attachment or addendum to an insurance policy; an endorsement changes the contract’s original terms.
G
Guaranty Association
Established by each state to support insurers and protect consumers in the case of insurer insolvency, guaranty associations are funded by insurers through assessments.
I
Indemnification
Compensation to the victim of a loss, in whole or in part, by payment, repair, or replacement.
Indemnity
Legal principle that specifies an insured should not collect more than the actual cash value of a loss but should be restored to approximately the same financial position as existed before the loss.
Insolvent
Having insufficient financial resources (assets) to meet financial obligations (liabilities).
Insurable Risk
The conditions that make a risk insurable are (a) the peril insured against must produce a definite loss not under the control of the insured, (b) there must be a large number of homogeneous exposures subject to the same perils, (c) the loss must be calculable and the cost of insuring it must be economically feasible, (d) the peril must be unlikely to affect all insureds simultaneously, and (e) the loss produced by a risk must be definite and have a potential to be financially serious.
Insurable Interest
Any interest a person has in property that is the subject of insurance, so that damage to this property would cause the insured a financial loss.
Insurance Company
An organization that has been chartered by a governmental entity to transact the business of insurance.
Insured
A person or organization covered by an insurance policy, including the “named insured” and any other parties for whom protection is provided under the policy terms.
Insurer
The party to the insurance contract who promises to pay losses or benefits. Also, any corporation engaged primarily in the business of furnishing insurance to the public.
K
Key Employee
Insurance protection of a business against financial loss caused by the death or disablement of a vital member of the company, usually individuals possessing special managerial or technical skill or expertise. Also called key executive insurance.
L
Lapse
Termination of a policy due to nonpayment of premiums.
Liability
A legal obligation to compensate a person harmed by one’s acts or omissions.
Liability Coverage
Insurance that provides compensation for a harm or wrong to a third party for which an insured is legally obligated to pay.
Lifetime Maximum
The maximum amount of money a plan will pay towards healthcare services over the course of the insured’s lifetime.
Loss
The happening of the event for which insurance pays.
Loss Expense – Allocated
Handling expenses, such as legal or independent adjuster fees, paid by an insurance company in settling a claim which can be definitely charged to that particular claim.
Loss Expense – Unallocated
Salaries and other expenses incurred in connection with the operation of a claim department of an insurance carrier which cannot be charged to individual claims.
M
Misrepresentation
Act of making, issuing, circulating or causing to be issued or circulated an estimate, an illustration, a circular or a statement of any kind that does not represent the correct policy terms, dividends or share of surplus or the name or title for any policy or class of policies that does not in fact reflect its true nature.
N
No-fault Insurance
A system of compensation enacted by law in many states under which indemnification is made by the insured’s own insurance company regardless of who is at fault. Details of this system vary significantly from state to state.
O
Offer and Acceptance
The offer may be made by the applicant by signing the application, paying the first premium and, if necessary, submitting to physical examination. Policy issuance, as applied for, constitutes acceptance by the company. Or the offer may be made by the company when no premium payment is submitted with the application. Premium payment on the offered policy then constitutes acceptance by the applicant.
Out-of-Pocket Expense
Any medical care costs not covered by insurance, which must be paid by the insured.
P
Peril
The cause of loss or damage.
Physical Damage
Damage to or loss of the automobile resulting from collision, fire, theft or other perils.
Policy
The written forms that make up the insurance contract between an insured and insurer. A policy includes the terms and conditions of the coverage, the perils insured or excluded, etc.
Policy Declarations
The part of the insurance contract that lists basic underwriting information, including the insured’s name, address and description of insured locations as well as policy limits.
Policy Limits
The maximum amount an insured may collect or for which an insured is protected, under the terms of the policy.
Policy Loan
A loan from a life insurer to the owner of a policy that has a cash value.
Policyholder
The person who buys insurance.
Policyowner
An individual with an ownership interest in an insurance policy.
Policy Period
The amount of time an insurance contract or policy lasts.
Preferred Risk
A risk whose physical condition, occupation, mode of living and other characteristics indicate a prospect for longevity superior to that of the average longevity of unimpaired lives of the same age.
Premium
The price for insurance coverage as described in the insurance policy for a specific period of time.
Primary Beneficiary
The person designated as the first to receive the proceeds of a life insurance policy upon the death of the insured.
Policyholder
The person who buys insurance.
Probationary Period
The length of time that a new group member must wait before becoming eligible to enroll in a group insurance plan.
Proof of Loss
A sworn statement that usually must be furnished by the insured to an insurer before any loss under a policy may be paid.
Property Damage Coverage
An agreement by an insurance carrier to protect an insured against legal liability for damage by an insured automobile to the property of another.
Protection Amount
The face amount of a life insurance policy, or amount of money that will be paid to a beneficiary upon the death of an insured. This amount will be reduced by the amount of any outstanding policy loan.
R
Rate
The pricing factor upon which the insurance buyer’s premium is based.
Rated Policy
Sometimes called an “extra-risk” policy, an insurance policy issued at a higher-than-standard premium rate to cover the extra risk where, for example, an insured has had a DUI (Driving Under the Influence) or other traffic violations.
Rebating
Giving any valuable consideration, usually all or part of the commission, to the prospect or insured as an inducement to buy or renew. Insurance rebating is prohibited by law.
Reimbursement
The payment of an amount of money by an insurance policy for a covered loss.
Reinstatement
The process by which a life insurance company puts back in force a policy that has lapsed or has been canceled for nonpayment of premium.
Replacement Cost Coverage
In the event of a covered loss, you may be reimbursed for the cost you incur to replace many of your damaged contents with similar property, brand new. The total amount you’d be reimbursed is subject to the terms and conditions of your particular policy, including applicable deductible and coverage limits.
Rider
An addition to an insurance policy that becomes a part of the contract.
Risk
The possibility or chance of loss or injury.
S
Salvage
Recovery made by an insurance company by the sale of property which has been taken over from the insured as a part of loss settlement.
Settlement
An agreement between a claimant or beneficiary to an insurance policy and the insurance company regarding the amount and method of a claim or benefit payment.
Standard Industrial Classification (SIC)
The Standard Industrial Classification (SIC) system is a series of number codes that attempts to classify all business establishments by the types of products or services they make available. Establishments engaged in the same activity, whatever their size or type of ownership, are assigned the same SIC code. These definitions are important for standardization. Insurance companies use SIC codes to determine specific rates for various industries. HealthInsurance.com uses these codes to ensure that you receive the best possible rate for your occupation.
Standard Risk
A person who, according to a company’s underwriting standards, is entitled to purchase insurance protection without extra rating or special restrictions.
Standard Risk Rate
The risk category that is composed of proposed insureds who have a likelihood of loss that is not significantly greater than average.
Subrogation
Subrogation refers to an insurance company seeking reimbursement from the person or entity legally responsible for an accident after the insurer has paid out money on behalf of its insured. The general rule is that, after paying your claim, your insurer is “subrogated” to the rights of your policy and can “step into your shoes” to go after or sue the negligent party on your behalf.
Substandard Risk
A risk that cannot meet the normal requirements of an auto insurance policy. Protection is provided in consideration of a waiver, a special policy form, or a higher premium charge. Substandard risks may include those persons who are rated because of poor driving habits.
T
Theft Limit (or Inside Policy Limits)
The highest amount an insurance company will pay on certain items of personal property. For instance, some policies have a $5,000 limit for computers. If an item would cost more than the limit to replace, you may need to purchase supplementary coverage.
U
Umbrella Liability Insurance
Umbrella liability insurance is becoming more popular as people are realizing how inexpensive an umbrella policy and umbrella coverage can be. See how umbrella liability protection can be a nice added cushion of insurance on top of your existing policies.
Underwriter
(a) A company that receives the premiums and accepts responsibility for the fulfillment of the policy contract; (b) the company employee who decides whether or not the company should assume a particular risk; (c) the agent who sells the policy.
Underwriting
The process of reviewing applications for coverage. Applications that are accepted are then classified by the underwriter according to the type and degree of risk.
Uninsured (Underinsured) Motorist Coverage
A form of insurance that pays the policyholder and passengers in his/her car for bodily injury caused by the owner or operator of an uninsured or inadequately insured automobile.
Uninsurable Risk
One not acceptable for insurance due to excessive risk.
Usual, Customary and Reasonable Fee
The maximum dollar amount of a covered expense that is considered eligible for reimbursement under a major medical policy.
W
Waiver
An agreement attached to a policy which exempts from coverage certain disabilities or injuries that otherwise would be covered by the policy.
