Common Insurance Terms: A Guide to 100 Insurance Words 2024

Insurance can be complex, with a vast array of specialized terms that can be confusing if you’re not familiar with the industry. This guide explains 100 important insurance terms that are commonly used in the United States, providing clarity on what they mean and how they apply to different types of insurance policies.

1. Actuary

An actuary is a professional who analyzes financial risks using mathematics, statistics, and financial theory. In insurance, actuaries calculate premiums, reserves, and other important financial metrics.

2. Annuity

An annuity is a financial product that pays out a fixed stream of payments over time, often used as an income stream for retirees.

3. Binder

A binder is a temporary insurance contract that provides coverage until a formal policy is issued.

4. Beneficiary

A beneficiary is the person or entity designated to receive the proceeds of an insurance policy, typically in life insurance.

5. Captive Insurance

Captive insurance refers to an insurance company that is wholly owned and controlled by its insureds, primarily to insure the risks of its owners.

6. Claim

A claim is a request made by the insured to the insurance company for payment of benefits under a policy.

7. Coinsurance

Coinsurance is a cost-sharing requirement where the insured pays a percentage of the covered costs after the deductible is met.

8. Deductible

A deductible is the amount the insured must pay out-of-pocket before the insurance company pays its share of a covered claim.

9. Depreciation

Depreciation is the reduction in the value of an asset over time, which is considered when calculating claim payments for damaged property.

10. Dividend

A dividend is a return of premium or profit paid to policyholders of mutual insurance companies.

11. Endorsement

An endorsement is an amendment to an insurance policy that changes the terms or coverage.

12. Exclusion

An exclusion is a provision in an insurance policy that eliminates coverage for certain risks, events, or conditions.

13. Exposure

Exposure refers to the level of risk faced by an insured entity, usually measured by factors such as location, business activities, or assets.

14. Fiduciary

A fiduciary is someone who manages another person’s assets and has a legal and ethical obligation to put the other person’s interests first.

15. Floater

A floater is an insurance policy that provides additional coverage for valuable personal property that might not be fully covered under a standard policy.

16. Grace Period

A grace period is the time after a premium is due in which a policyholder can still make a payment without losing coverage.

17. Indemnity

Indemnity is the principle of compensating for loss or damage; insurance policies are designed to indemnify the insured by restoring them to their financial position prior to the loss.

18. Insurable Interest

Insurable interest is a requirement for insurance contracts, meaning the insured must have a financial stake in the insured item or person.

19. Liability

Liability refers to the legal responsibility for causing injury or damage to another person or their property.

20. Limit of Liability

The limit of liability is the maximum amount an insurer will pay for a covered loss under a policy.

21. Loss of Use

Loss of use coverage pays for additional living expenses if your home is uninhabitable due to a covered loss.

22. Moral Hazard

Moral hazard occurs when an insured person takes more risks because they are protected by insurance.

23. Morale Hazard

Morale hazard is when an insured party is careless or indifferent to risks because they have insurance.

24. Mutual Insurance Company

A mutual insurance company is owned by its policyholders, who may receive dividends or reduced premiums.

25. Named Peril

A named peril policy only covers losses caused by specific events listed in the policy.

26. No-Fault Insurance

No-fault insurance is a type of auto insurance where each party’s insurance pays for their own damages, regardless of fault.

27. Obligee

An obligee is the person or entity to whom an obligation is owed in a surety bond.

28. Occurrence

An occurrence is an event that triggers insurance coverage, often used in liability insurance.

29. Peril

A peril is a specific risk or cause of loss covered by an insurance policy, such as fire, theft, or windstorm.

30. Personal Liability

Personal liability coverage protects against claims for bodily injury or property damage for which you are legally responsible.

31. Policyholder

The policyholder is the individual or entity that owns an insurance policy.

32. Premium

A premium is the amount paid to the insurance company for coverage, typically on a monthly or annual basis.

33. Primary Insurance

Primary insurance is the policy that pays first in the event of a loss, before any other coverage.

34. Pro-rata

Pro-rata refers to the proportional distribution of premiums, coverage, or claims based on time or risk exposure.

35. Reinsurance

Reinsurance is when an insurance company purchases insurance from another insurer to reduce its risk.

36. Replacement Cost

Replacement cost coverage pays to replace damaged property with new items of similar kind and quality, without deducting for depreciation.

37. Reserving

Reserving is the process by which insurance companies set aside funds to pay future claims.

38. Rider

A rider is an additional provision to a policy that adds or excludes coverage.

39. Risk Retention

Risk retention is when an insured party chooses to bear some or all of the risk themselves rather than transferring it to an insurer.

40. Salvage

Salvage refers to the remaining value of damaged property that an insurer may claim after paying a total loss.

41. Self-Insurance

Self-insurance is when a company or individual sets aside money to cover potential losses rather than purchasing an insurance policy.

42. Subrogation

Subrogation allows an insurer to recover the amount it paid for a claim from the party responsible for the loss.

43. Surety Bond

A surety bond is a contract among at least three parties that guarantees one party’s performance or obligation to another.

44. Surrender Value

The surrender value is the amount a policyholder receives if they terminate a life insurance policy before it matures or the insured event occurs.

45. Underwriter

An underwriter is a professional who evaluates risks and determines the terms and pricing of insurance policies.

46. Umbrella Policy

An umbrella policy provides additional liability coverage beyond the limits of your standard policies.

47. Unearned Premium

Unearned premium is the portion of the premium paid in advance that has not yet been “earned” by the insurer because the coverage period is not complete.

48. Valuation

Valuation is the process of determining the worth of an insured item, used to calculate coverage and claim payments.

49. Waiver

A waiver is the voluntary relinquishment of a known right, such as an insurer waiving its right to deny coverage for a late payment.

50. Whole Life Insurance

Whole life insurance is a type of life insurance that provides coverage for the insured’s entire life and includes a savings component.

51. Act of God

An act of God is an event caused by natural forces, such as a flood or earthquake, that is beyond human control and not covered by some insurance policies.

52. Additional Insured

An additional insured is a person or entity added to an insurance policy who receives protection under the policy.

53. Aggregate Limit

The aggregate limit is the maximum amount an insurer will pay for all claims during a policy period.

54. All-Risk Policy

An all-risk policy provides coverage for all perils except those specifically excluded in the policy.

55. Arbitration

Arbitration is a method of resolving disputes outside of court, often used in insurance claims disagreements.

56. Blanket Insurance

Blanket insurance covers multiple items or locations under a single policy with a combined limit.

57. Catastrophic Loss

A catastrophic loss is a severe loss involving multiple claims and large-scale damage, often due to natural disasters.

58. Claims-Made Policy

A claims-made policy provides coverage only if the claim is made during the policy period, regardless of when the event occurred.

59. Coinsurance Clause

A coinsurance clause requires the insured to carry a certain percentage of insurance relative to the value of the property; failure to do so can result in a reduced claim payout.

60. Conditional Receipt

A conditional receipt is issued by an insurer when an initial premium payment is made, indicating coverage is conditional upon certain terms being met.

61. Contingent Beneficiary

A contingent beneficiary is a person or entity designated to receive insurance benefits if the primary beneficiary cannot or does not.

62. Contract of Adhesion

A contract of adhesion is an insurance contract drafted by the insurer where the policyholder has little or no ability to negotiate terms.

63. Coordination of Benefits

Coordination of benefits is the process of determining which insurer pays first when an insured is covered by multiple policies.

64. Declarations Page

The declarations page is the section of an insurance policy that outlines key details, including coverage, limits, and premiums.

65. Direct Writer

A direct writer is an insurance company that sells policies directly to consumers without using agents or brokers.

66. Earned Premium

Earned premium is the portion of the premium that corresponds to the expired part of the policy period.

67. Elimination Period

The elimination period is the time between the onset of a disability or event and when benefits begin to be paid.

68. Errors and Omissions (E&O)

Errors and omissions insurance covers professionals against claims of inadequate work or negligent actions.

69. Excess Coverage

Excess coverage provides additional coverage above the limits of an underlying policy.

70. Expense Ratio

The expense ratio is the percentage of an insurer’s premiums used to pay operating expenses.

71. Extended Coverage

Extended coverage is additional protection that extends the basic coverage of a policy to include risks like windstorm or hail.

72. Facultative Reinsurance

Facultative reinsurance is reinsurance that covers a specific risk or policy, agreed upon by both the insurer and reinsurer on a case-by-case basis.

73. Fiduciary Bond

A fiduciary bond is a type of surety bond that guarantees the faithful performance of a fiduciary’s duties.

74. First-Party Claim

A first-party claim is a claim filed by the policyholder against their own insurance policy.

75. Flood Insurance

Flood insurance provides coverage for damage caused by flooding, typically not covered under standard homeowners policies.

76. GAP Insurance

GAP insurance covers the difference between what you owe on a car and its actual cash value if it’s totaled or stolen.

77. Group Insurance

Group insurance is coverage provided to a group of people, typically employees, under a single policy.

78. Hazard

A hazard is a condition that increases the likelihood of a loss, such as faulty wiring or slippery floors.

79. Hold-Harmless Agreement

A hold-harmless agreement is a contract where one party agrees not to hold the other responsible for any liability or damage.

80. Incontestability Clause

An incontestability clause prevents the insurer from voiding a life insurance policy after it has been in force for a certain period, usually two years, except in cases of fraud.

81. Incurred but Not Reported (IBNR)

IBNR refers to claims that have occurred but have not yet been reported to the insurer.

82. Inland Marine Insurance

Inland marine insurance covers goods in transit over land, as well as certain types of movable property.

83. Insurable Risk

Insurable risk is a risk that meets the criteria to be insured, such as being calculable and non-catastrophic.

84. Joint and Several Liability

Joint and several liability means that each party is individually responsible for the entire debt or damage, not just their portion.

85. Key Person Insurance

Key person insurance provides financial protection to a business in the event of the death or disability of a key employee.

86. Layered Coverage

Layered coverage involves multiple policies that provide coverage at different levels of risk or loss.

87. Lienholder

A lienholder is a financial institution that holds a lien on a property until the loan is repaid.

88. Loss Ratio

The loss ratio is the ratio of claims paid by an insurer to the premiums earned.

89. Named Insured

The named insured is the individual or entity specifically named on the insurance policy as the primary insured.

90. Negligence

Negligence is the failure to exercise reasonable care, resulting in damage or injury to another.

91. Open Peril

An open peril policy covers all risks except those specifically excluded in the policy.

92. Participating Policy

A participating policy pays dividends to the policyholder, usually in mutual insurance companies.

93. Per Occurrence Limit

The per occurrence limit is the maximum amount an insurer will pay for a single incident.

94. Proof of Loss

Proof of loss is a formal statement made by the insured to support a claim, outlining the details of the loss.

95. Quota Share Reinsurance

Quota share reinsurance involves sharing premiums and losses between the insurer and reinsurer based on a fixed percentage.

96. Reinstatement Clause

A reinstatement clause allows for the reinstatement of a policy after it has lapsed due to non-payment, typically within a specified period.

97. Retrospective Rating

Retrospective rating adjusts the premium based on the actual loss experience during the policy period.

98. Settlement

A settlement is the resolution of a claim, either through payment, repair, or another agreement between the insured and insurer.

99. Time Element Coverage

Time element coverage provides protection against losses that occur over a period of time, such as business interruption insurance.

100. Umbrella Policy

An umbrella policy provides additional liability coverage beyond the limits of the insured’s primary policies, offering broader protection.

Conclusion

Understanding these 100 insurance terms can help you navigate the complexities of insurance policies, ensuring that you’re well-informed when making decisions about your coverage. Whether you’re buying insurance for the first time or reviewing your current policies, this guide serves as a valuable resource to demystify the jargon and clarify the key concepts of the insurance industry.