Back Glossary Of Terms

Insurance Terms

We have provided some basic definitions for a few of the more commonly used terms in the insurance industry.  These definitions are how the terms are used generally.  There may be more detailed definitions in your policy contract.  You are encouraged to read your policy contract to ensure a full understanding of the product you purchased. 

Actual Cash Value: refers to the cost, less any depreciation, to repair or replace damaged or stolen property.

Additional Interested Parties (Additional Insured): persons or organizations, other than covered persons or named insureds, identified to the insurance company for coverage under the policy. 

Adjuster: individual who investigates, evaluates and settles insurance claims.

Appraisal: evaluation of property damage to establish amount of payment to be made for a claim

Basic Limit: for liability, the lowest coverage amount for which a policy is written. This is often governed by law.

Benefit: amounts paid to the insured or others and all expenses paid by the insurance company for services outlined in the policy contract.

Business Use: vehicles used by the insured for transacting business or going to multiple business locations but does not include going to and from work.

Cancellation: termination of a policy contract at the request of the insured or by the insurance company.  Cancellations are governed by the policy contract and laws of the state in which the policy is written.

Claim: request of the insured for payments of benefits provided in the policy contract.

Continuously Insured: no lapse in coverage has occurred for a defined period of time.

Coverage: protection afforded by the policy contract.

Deductible: amount of damages the insured agrees to pay in the event of a loss.

Declarations: summary page of information about who is insured, and what is insured, what coverage has been purchased, what deductible amounts the insured has agreed to pay, and other factual information.  The declarations, policy contract, and application combine to create the insurance agreement between the insured and the company.

Depreciation: reduction in property value due to use, wear-and-tear, aging or obsolescence.

Earned Premium: premium that has been accrued by the insurance company, representing the risk that has been covered.  Premium is usually earned on a pro rata basis, but there can be provisions in the contract and in the company guidelines that allow for the company to retain additional premium.

Effective Date: date on which coverage begins.

Endorsement: form that changes the policy contract in some way.

Exclusions: situations, circumstances, or conditions where coverage is not provided.  These are listed in the policy contract and endorsements.

Fair Credit Reporting Act: a federal law that requires an insurance company to notify a consumer if a credit report will be requested and to provide contact information of the reporting company.

Garaging Location: location where a vehicle is parked most of the time, usually at the insured's primary residence.

Indemnity: payment, repair, or restoration to a victim of a covered loss.

Insured: person or organization that is to be paid for losses, or receive benefits and services in accordance with the policy contract.

Insurer: company or party that will pay for losses, provide benefits and services in accordance with the policy contract.

Lapse: termination of a policy for failure to pay premium.

Liability: legal responsibility.

Limit of Liability: maximum amount an insurance company will pay for a given covered event.

Loss Payee: party to whom benefits are to be paid in the event of a loss.  A loss payee may be the policyholder or a lienholder or a lessor or a healthcare provider, for example.

Motor Vehicle Report: a report containing information about a licensed driver's driving record.

Named Insured: person or entity specifically designated as an insured in the policy.

Notice of Loss: notification to an insurer that a loss has occurred.  Policy contracts outline the requirements for when and how the notice should occur.

Policy Contract: written documents, including the application, any endorsements or other materials provided by the insurer.

Policy Expiration Date: date on which coverage ends unless a renewal offer is made by the insurer and premium is paid by the insured.

Policy Period or Policy Term: length of time for which the policy contract is in force and valid if premiums are paid.

Pro Rata Cancellation: termination of a policy contract where the premium is allocated uniformly for each day the policy was in force.

Proof of Loss: statement provided to an insurer outlining facts related to a loss.  This statement is used by the insurer to evaluate limits of liability.

Return Premium: unearned portion of the premium given back to an insured if a policy contract is cancelled prior to the expiration date.

Short Rate Cancellation: termination of a policy contract where the premium earned by the insurer is not proportionate to the number of days the policy was in force but is greater because of additional expenses incurred by the company.

Total Loss: a loss where the damage exceeds the cost to repair or the damage is so great that there is nothing of value remaining.

Vehicle Identification Number (VIN): a unique 17 digit number assigned to every vehicle.  The VIN includes values that identify the make, model, year, and other features of the vehicle as well as a serial number.