Insurance Terminology

Accident – An unexpected and unintended event resulting in bodily injury or property damage. In auto insurance, an accident may trigger liability, collision, or medical payments coverage. 

Accidental Death Benefit – A rider on a life insurance policy that provides an additional payout if the insured dies due to an accident. 

Actual Cash Value (ACV) – The cost to replace damaged property with new property of similar kind and quality, minus depreciation. 

Adjuster – A representative of the insurance company who investigates and settles claims. 

Aggregate Limit – The maximum amount an insurer will pay for all covered losses during a policy period. Found in BOP, CPP, liability, and bond insurance. 

Beneficiary – The person or entity designated to receive the proceeds of a life insurance policy upon the insured’s death. 

Binder – Temporary proof of coverage until the official policy is issued. Common in auto, farm, and business policies. 

Blanket Coverage – Insurance that covers multiple items or locations under a single limit. Often used in farm insurance or BOP policies. 

Bodily Injury Liability – Auto insurance coverage that pays for injuries or death caused to others in an at-fault accident, including medical expenses, lost wages, and legal costs. 

Bond (Surety Bond) – A financial guarantee that an obligation will be fulfilled. For example, a contractor bond ensures a project will be completed, while a fidelity bond protects employers against employee dishonesty. 

Business Owners Policy (BOP) – A packaged policy designed for small to mid-sized businesses. It typically includes property insurance, general liability insurance, and business interruption coverage. 

Collision Coverage – Auto insurance that pays to repair or replace the insured’s vehicle if it collides with another vehicle or object. 

Comprehensive Coverage – Auto insurance that pays for damage caused by non-collision events (theft, fire, hail, flood, vandalism, hitting an animal). 

Commercial Package Policy (CPP) – A customizable insurance policy that allows businesses to bundle coverages such as property, general liability, inland marine, crime, boiler and machinery, etc. 

Co-Insurance – In health insurance, the percentage of medical costs shared between the insurer and insured. In property insurance, it refers to the requirement that property must be insured to a certain percentage of its value to receive full claim payment. 

Crop Insurance – A type of farm insurance that protects farmers against loss of crops due to natural disasters or declining commodity prices. 

Declarations Page (Dec Page) – The front page of an insurance policy listing the insured’s name, policy period, coverages, limits, and deductibles. 

Deductible – The amount the policyholder must pay before insurance coverage applies. 

Death Benefit – The payout a life insurance policy provides to the beneficiary when the insured dies. 

Disability Income Insurance – A health/life insurance product that pays a portion of income if the insured cannot work due to illness or injury. 

Endorsement (Rider) – A written amendment that modifies or adds coverage to a policy. 

Exclusion – A risk or cause of loss not covered by an insurance policy. 

Extended Coverage – Additional protection beyond the standard policy, for example, a farm policy endorsement adding equipment breakdown coverage. 

Farm Insurance – A specialized policy that combines homeowners, commercial, and liability coverage tailored for farms. Includes dwellings, barns, livestock, equipment, and liability. 

Fidelity Bond – Protects employers from financial losses caused by fraudulent or dishonest acts of employees. 

Fire Insurance – Covers loss or damage to property caused by fire. 

First-Party Coverage – Insurance that pays benefits directly to the policyholder. 

Grace Period – The extra time after a premium is due during which coverage remains in effect. 

Group Health Insurance – A single policy issued to an employer or association covering multiple individuals, often with lower premiums than individual policies. 

Health Insurance – Coverage that pays for medical, surgical, and hospital expenses. 

Homeowners Insurance – A policy that protects homes and personal property from risks such as fire, theft, liability, and weather damage. 

Indemnity – Compensation for a loss intended to restore the insured to their prior financial position. 

Insurable Interest – A financial interest in the insured item or person, required to purchase insurance. 

Inland Marine Insurance – Part of CPP policies, covering property in transit or mobile equipment. 

Liability Insurance – Protects against claims for bodily injury or property damage caused to others. 

Lapse – Termination of coverage due to nonpayment of premiums. 

Livestock Coverage – Part of a farm insurance policy, protecting animals from accidents, illness, or theft. 

Long-Term Care Insurance – Provides coverage for nursing homes, assisted living, or home healthcare not typically covered by health insurance. 

Medical Payments Coverage (MedPay) – Auto coverage that pays medical expenses for the driver and passengers, regardless of fault. 

Mortality Table – A statistical chart showing expected lifespans, used in life insurance underwriting to set premiums. 

Municipal Bond Insurance – A type of bond coverage guaranteeing repayment of principal and interest to investors if the issuer defaults. 

 Professional Liability Insurance (Errors & Omissions, E&O) – Coverage for professionals (doctors, lawyers, real estate agents, consultants) against claims of negligence, mistakes, or failure to provide promised services. 

Personal Injury Protection (PIP) – Auto insurance coverage that pays medical expenses, lost wages, and other costs for the insured, regardless of fault. 

Policyholder – The person or business that owns the insurance policy. 

Premium – The amount paid for insurance coverage. 

Property Insurance – Coverage for physical property against risks such as fire, theft, or weather damage. 

Reinsurance – Insurance purchased by insurers to reduce their own risk exposure. 

Replacement Cost – The amount to replace damaged property without deducting depreciation. 

Rider – See Endorsement.

Split Limits – Auto liability insurance limits expressed as three numbers (e.g., 100/300/100). 

Surety Bond – A three-party agreement (principal, obligee, surety) where the surety guarantees the principal will fulfill an obligation. 

Subrogation – The insurer’s right to pursue a third party responsible for a loss after paying the insured. 

 Term Insurance – Life insurance coverage for a specific period-of-time (e.g., 10, 20, 30 years) usually with no cash value accumulation. 

Third-Party Coverage – Insurance that pays benefits to someone other than the policyholder. 

Total Loss – A loss where the cost of repair equals or exceeds the insured property’s value. 

Umbrella Insurance – Provides additional liability coverage beyond the limits of auto, homeowners, or business policies. Protects assets in the event of a large claim or lawsuit. 

Underwriting – The process of evaluating risks and deciding whether to insure them. 

Uninsured/Underinsured Motorist Coverage (UM/UIM) – Auto coverage that pays for injuries or damages caused by a driver who has no insurance or insufficient coverage. 

 Whole Life Insurance – A permanent life insurance policy with a savings component (cash value accumulation). 

Workers’ Compensation Insurance – Provides wage replacement and medical benefits to employees injured on the job.