Glossary of Insurance Terms

This is a list of terms designed to assist you while shopping for 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-W-Y-Z

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ACTUAL CASH VALUE

An amount equivalent to the replacement cost of a stolen or damaged property at the time of the loss, less depreciation. For vehicles, this amount would be determined by a local area private party sales and dealer quotations. Kelly Blue Book would only be used as a guide and not the final word.

ADMITTED COMPANY

An insurance company authorized to do business in California.

AGENT

A licensed person or organization authorized to sell insurance by or on behalf of an insurance company.

AUTOMOBILE INSURANCE

Coverage on the risks associated with driving or owning an automobile. It can include collision, liability, comprehensive, medical, and uninsured motorist coverages.

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BINDER

A temporary or preliminary agreement which provides coverage until a policy can be written or delivered.

BROKER

A licensed person or organization paid by you to look for insurance on your behalf.

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CANCELLATION

The termination of insurance coverage during the policy period. Flat cancellation is the cancellation of a policy as of its effective date, without any premium charge.

CAPTIVE AGENT

Representative of a single insurer or fleet of insurers who is obliged to submit business only to that company, or at the very minimum, give that company first refusal rights on a sale. In exchange, that insurer usually provides its captive agents with an allowance for office expenses as well as an extensive list of employee benefits such as pensions, life insurance, health insurance and credit unions.

CLAIM

Notice to an insurer that under the terms of a policy, a loss
maybe covered.

CLAIMANT

The first or third party. That is any person who asserts right of recovery.

CONTENTS-ONLY COVERAGE

In personal property insurance, this coverage is for personal property items that are movable, that is, not attached to the building's structure (the home), such as television sets, radios, clothes and household goods. Not included under the coverage are animals, automobiles
and boats.

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DECLINE

The company refuses to accept the request for insurance coverage.

DEDUCTIBLE

The amount of the loss which the insured is responsible to pay before benefits from the insurance company are payable. You may choose a higher deductible to lower your premium.

DEPRECIATION

A decrease in value due to age, wear and tear, etc.

DIRECT WRITER

Method of selling insurance directly to insureds through a company's own employees, through the mail, the Internet, or at airport booths.

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ENDORSEMENT

Amendment to the policy used to add or delete coverage. Also referred to as a "rider."

EXCLUSION

Certain causes and conditions, listed in the policy, which are
not covered.

EXPIRATION DATE

The date on which the policy ends.

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FACE AMOUNT

The dollar amount to be paid to the beneficiary when the insured dies. It does not include other amounts that may be paid from insurance purchased with dividends or any policy riders.

FIRE INSURANCE

Coverage for loss of or damage to a building and/or contents due to fire.

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GRACE PERIOD

A period (usually 31 days) after the premium due date, during which an overdue premium may be paid without penalty. The policy remains in force throughout this period.

GUARANTEED INSURABILITY

An option that permits the policy holder to buy additional stated amounts of life insurance at stated times in the future without evidence of insurability.

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HEALTH INSURANCE

A policy that will pay specifies sums for medical expenses or treatments. Health policies can offer many options and vary in their approaches to coverage.

HOMEOWNER INSURANCE

An elective combination of coverages for the risks of owning a home. Can include losses due to fire, burglary, vandalism, earthquake, and other perils.

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INCONTESTABLE CLAUSE

A policy provision in which the company agrees not to contest the validity of the contract after it has been in force for a certain period of time, usually two years.

INDEPENDENT AGENT

Contractor who represents different insurance companies and who searches the market for the best coverage based on a client's
insurance needs.

INSURED

The policyholder - the person(s) protected in case of a loss or claim.

INSURER

The insurance company.

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LIFE INSURANCE

A policy that will pay a specified sum to beneficiaries upon the death of the insured.

LIMIT

Maximum amount a policy will pay either overall or under a
particular coverage.

LOAN VALUE

The amount which can be borrowed at a specified rate of interest from the issuing company by the policyholder, using the value of the policy as collateral. In the event the policyholder dies with the debt partially or fully unpaid, then the amount borrowed plus any interest is deducted from the amount payable.

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MATERIAL MISREPRESENTATION

The policyholder / applicant makes a false statement of any material (important) fact on his/her application. For instance, the policyholder provides false information regarding the location where the vehicle
is garaged.

MISQUOTE

An incorrect estimate of the insurance premium.

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PERIL

The cause of a possible loss. For example, fire, theft, or hail.

POLICY

The written contract of insurance.

POLICY LIMIT

The maximum amount a policy will pay, either overall or under a particular coverage.

PREMIUM

The amount of money an insurance company charges for
insurance coverage.

PREMIUM FINANCING

A a policyholder contracts with a lender to pay the insurance premium on his/her behalf. The policyholder agrees to repay the lender for the cost of the premium, plus interest and fees.

PRO-RATA CANCELLATION

When the policy is terminated midterm by the insurance company, the earned premium is calculated only for the period coverage was provided. For example: an annual policy with premium of $1,000 is cancelled after 40 days of coverage at the company's election. The earned premium would be calculated as follows: 40/365 days X $1,000=.110 X $1,000=$110.

 

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QUOTE

An estimate of the cost of insurance, based on information supplied to the insurance company by the applicant.

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RATE

Cost per unit of insurance. When used to calculate a premium, it must be adequate enough to pay expected losses according to frequency and severity, reasonable to the point that insurers do not not earn an excessive profit and not discriminatory or inequitable. Based on the amount of coverage needed, an individual will purchase the appropriate number of units of insurance with the total cost reflected in a
premium payment.

REPLACEMENT COST

The cost to repair or replace an insured item. Some insurance only pays the actual cash or market value of the item at the time of the loss, not what it would cost to fix or replace it. If you have personal property replacement cost coverage, your insurance will pay the full cost to
repair an item or buy a new one once the repairs or purchases have been made.

REPLACEMENT VALUE

The full cost to repair or replace the damaged property with no deduction for depreciation, subject to policy limits and contract provisions.

REINSTATEMENT

The restoring of a lapsed policy to full force and effect. The reinstatement may be effective after the cancellation date, creating a lapse of coverage. Some companies require evidence of insurability and payment of past due premiums plus interest.

RIDER

Usually known as an endorsement, a rider is an amendment to the policy used to add or delete coverage.

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SHORT-RATE CANCELLATION

When the policy is terminated prior to the expiration date at the policyholder's request. Earned premium charged would be more than the pro-rata earned premium. Generally, the return premium would be approximately 90 percent of the pro-rata return premium. However, the company may also establish its own short-rate schedule.

SOLICITOR

A licensed employee of a fire and casualty agent or broker who may act for the agent or broker in some circumstances.

SURCHARGE

An extra charge applied by the insurer. For automobile insurance, a surcharge is usually for accidents or moving violations.

SURRENDER

To terminate or cancel a life insurance policy before the maturity date. In the case of a cash value policy, the policyholder may exercise one of the nonforfeiture options at the time of surrender.

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UNDERWRITING

The process of selecting applicants for insurance and classifying them according to their degrees of insurability so that the appropriate
premium rates may be charged. The process includes rejection of unacceptable risks.

WAITING PERIOD

A period of time set forth in a policy which must pass before some or all coverages begin.

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