Understanding insurance terms

Need help understanding some of the words in your policy or deciphering insurance terms in general? Here's a list of the most common auto and home insurance terms that may help clarify things.

The definitions in this glossary are strictly informational. Please refer to your policy book for a more precise definition of terms as they relate to your specific contract. All coverages are subject to the terms, limits and conditions of your policy contract.

A

Additional living expense

Reimbursement to the policyholder for living costs when he or she is forced to maintain a residence elsewhere because of a loss of property. Expenses are in excess of normal day-to-day living expenses, and may include motel or hotel lodging, food, laundry, etc.

Actual cash value (ACV)

The current value of an item of property. It is the amount it would cost to replace an item, minus depreciation.

Additional insured

A person or interest protected by the insurance policy other than the named insured. For example, a trust or lienholder may also be listed as an additional insured on an auto policy.

Adjuster

A person who investigates and settles claims.

Adverse carrier

Another person's or group's insurance company.

Amendment

A change to your policy that permanently alters it.

Anti-lock brakes (ABS)

A system that prevents the wheels on a vehicle from locking under heavy braking. The same system helps drivers to maintain steering control under heavy braking and, in some situations, to shorten braking distances.

Anti-theft devices

Devices that may reduce the chance your car will be vandalized or stolen, or increase the chance it will be found if it is stolen (e.g., car alarms, keyless entry, starter disablers, motion detectors, parts etched with the Vehicle Identification Number, recovery systems, etc.).

Appraisal

An impartial review of property to determine its value and, if applicable, the extent of damages.

Arbitration

A method of resolving disputes outside a court of law. Generally, all parties agree to accept the final decision of the arbitrator, and it is legally binding.

At-fault accident

An accident in which the driver is considered responsible. To determine if the driver was responsible, an investigation is conducted and, based on that, a percentage of fault is assigned. If the percentage of fault exceeds the standard (which varies by state), it is considered an at-fault accident.

B

Binder

Provides temporary coverage before the policy can be issued or a change made effective to an active policy.

Bodily injury liability coverage

Coverage that pays damages for bodily injury, sickness, disease or death that occur as a result of an accident for which you are at fault.

Business use

Using a vehicle in connection with your occupation, profession, or business (does not include traveling to and from your principal place of business).

C

Cancellation

Terminating a policy before its expiration date.

Carrier

An insurance company.

Certificate of financial responsibility (CFR)

A certificate mandated by the state to verify that an individual has auto insurance liability coverage. Typically, the state's Motor Vehicle Department will notify you if a CFR (also known as SR-22) is needed.

Chargeable accident

An at-fault accident that affects premium.

Civil union partner

A person in a legally recognized arrangement similar to marriage, typically involving same-sex couples. In states that recognizes Civil Unions, each partner is considered a spouse under the insurance contract.

Claim

Any request for payment or coverage under the terms of your insurance policy.

Claimant

An individual presenting a claim.

CLUE report (Comprehensive Loss Underwriting Exchange)

A report obtained from an outside company (LexisNexis®) that lists previous claims filed by you or related to your property as reported by an insurance company.

Collision coverage

Pays for damage to the insured vehicle and its equipment in the case of an accident with another vehicle or striking a fixed object.

Commercial vehicle

A vehicle not primarily used for personal use - generally titled to a business or covered by business or commercial insurance.

Comparative negligence

A law that, in some states, may enable claimants to recover a portion of their damages even when they are partially at fault. Each party's negligence is compared to the other's and a claimant's recovery can be reduced by the percentage of his or her own negligence.

Comprehensive coverage

Pays for non-collision damages to the insured vehicle and its equipment (e.g.,theft, striking an animal, glass breakage, vandalism, fire, natural causes).

Contributory negligence

A law that, in some states, may prevent claimants from recovering any portion of their damages if they are even partially at fault.

Coverage

Specific protection provided by a policy against loss or damages, up to the limits of liability.

Covered person

This refers to the individuals (named insured, spouse, resident relatives, etc.) insured under a policy.

D

Damages

Generally, money that one party becomes legally obligated to pay to another party.

Declaration page

The initial part of your policy that includes your name and address, a description and location of the property being insured, the policy period, the selected coverage limits, and the applicable premiums.

Deductible

The portion of the loss the policyholder is required to pay before policy coverage begins.

Depreciation

The decrease or loss in value caused by age, wear or market conditions.

Discount

A reduction in premium for certain conditions that you, your home, or your vehicle may meet.

Dwelling coverage

Protects your house and any structures attached to your home, like the garage and the screened porch. Coverage should be based on the current cost to rebuild your home, not including the value of the land.

E

Effective date

The date on which the insurance contract becomes effective or the date the insured requests the policy to be amended. It may become effective the day after the postmarked date of payment or on the day it is credit card bound.

Endorsement

Written modification to a policy that adds something to the original.

Escrow account

An account with a mortgage company where a client can have premium withdrawn for homeowners insurance.

Estimate

A professional assessment of the cost to repair damaged property. The actual cost may vary depending on a variety of factors.

Exclusion

A restriction in the policy that limits or excludes coverage for certain perils, persons, property or locations.

Expiration date

The date your insurance contract expires as shown on the declaration page.

G

GAP coverage

Optional coverage that would pay the difference between the market value of a totaled car and the amount you still owe on your loan or lease.

Good student discount

You may receive a discount for students under the age of 25 with average grades of "B" or better, or that ranked in the upper 20% on a national standardized test in the last twelve months. (Availability varies by state.)

H

Hazard

A condition that introduces or increases the probability that a loss will occur.

I

ID card

A card issued by your insurer containing basic information about your policy. Some states require you to keep an ID card in your vehicle.

Inception date

The date coverage begins on an insurance policy.

Increased special limits

An endorsement that allows an increased amount of coverage for specific possessions (but it does not change or broaden the type of coverage afforded in the policy).

Indemnification

Providing compensation for a loss with the intent to restore an individual or entity to the approximate financial position prior to the loss.

Independent adjuster

An individual who investigates or estimates losses on behalf of an insurance company, but is not an employee of that company.

Inland marine insurance

Covers items that may be transported from one place to another, as well as items of unique value.

Insurance score

A numerical score based on factors such as: bill-paying history, number and type of accounts with late payments, collection actions, outstanding debt, and age of accounts. Insurance scores should not be confused with credit scores, which use some of these same elements. In some states, this score is one factor used to determine premium.

Insured

A person or organization covered by an insurance policy.

Insurer

An organization that provides insurance.

L

Lapse in coverage

The cancellation or termination of a policy for failure to pay premium, or when the policy contract is void for other reasons.

Liability coverage (also known as personal liability coverage or third party insurance)

Liability coverage offers protection against property damage or bodily injury to a third party that you or a member of your household accidentally caused. This coverage applies only if the policyholder is considered legally responsible for the damage.

Liability coverage is a broad term - for example, bodily injury coverage and property damage coverage are types of liability coverage.

Lien

A claim or charge on property as a security for the payment of a debt.

Lienholder/loss payee

A person or organization with a financial interest in property up to the amount of money borrowed or still owed on the property.

Limits (or limits of liability)

The maximum sum of money an insurance company agrees to pay under a policy in the event of a covered loss. Generally, for auto insurance, limits are identified and paid on a per person and per occurrence basis. Typically, for home insurance, limits are based on replacement cost.

Longevity discount

You may receive a discount if you maintain a homeowners policy for at least five years. The discount may increase after ten years.

Loss

Any measurable dollar cost of damage and/or injury suffered by a person.

Loss payee/lienholder

A person or organization with a financial interest in property up to the amount of money borrowed or still owed on the property.

Loss of use coverage

When a loss occurs due to a covered peril and a dwelling becomes uninhabitable, the cost of additional living expenses for maintaining a normal standard of living is covered.

Loss assessment

An endorsement that provides coverage to pay the policyholder's share of any assessment charged to all property owners by an association (home or condominium).

Loss payable

A policy provision that ensures that in the case of a total loss a lienholder is paid the amount outstanding on a loan before the insured is paid.

Loyalty discount/multi-policy discount

If you purchase more than one policy with our company, you may receive a discount.

M

Major violation

Serious traffic citations such as driving under the influence of alcohol, reckless driving, vehicular homicide, etc.

Mature driver improvement course discount

You may qualify for a discount if you are 55 or older and have completed a state-approved driver improvement course within the past three years. (Availability varies by state.)

Medical expense coverage

Coverage that pays for medical and funeral expenses for the insured and passengers injured as a result of a car accident, regardless of fault.

Medical payments to others coverage

Homeowner's coverage that compensates others who sustain an injury while on your property, or whom you injure accidentally (excluding the people who live in your house).

Minor violation

Less serious traffic citations such as failure to stop or minor speeding.

Motor vehicle report (MVR)

A report from the Department of Motor Vehicles that lists any accidents and violations on your driving record.

Moving violation

A traffic citation such as speeding or failure to obey a traffic signal or sign.

Multi-car discount

You may receive a discount if you insure two or more cars on the same policy.(Availability varies by state.)

Multi-policy discount/loyalty discount

If you purchase more than one policy with our company, you may receive a discount.

N

Named insured

The person or entity listed on the policy declaration page.

Negligence

The failure to exhibit the behavior expected of a reasonable person in similar circumstances.

No-fault insurance

Coverage that provides reimbursement for losses incurred by automobile accident victims regardless of who caused the accident.(Availability varies by state.)

Not-at-fault accident

An incident where the driver is typically less than 50% at fault (but percentage varies by state).

Non-renewal

When an insurer does not renew a policy at the end of the policy period.

O

Other structures coverage

Coverage (typically 10% of the dwelling coverage value) for structures not attached to the home such as utility sheds, gazebos, unconnected fences and above-ground pools.

Optional coverages

Coverages not included as part of a basic policy, but added at the insured's or applicant's request (e.g., towing, rental reimbursement, etc.).

P

Passive restraint discount

A discount that may be available if your vehicle is equipped with automatic seat belts or airbags. (Availability varies by state.)

Per occurrence limit

The maximum amount an insurance company will pay for all claims arising from a single incident.

Per person limit

The maximum amount an insurance company will pay for any one person's injuries arising from a single incident.

Peril

A danger or hazard that can cause a loss.

Personal injury endorsement

An endorsement used to protect against personal injury offenses to others, including: false arrest, detention, imprisonment, malicious prosecution, libel, slander, defamation of character, invasion of privacy, wrongful eviction, wrongful entry.

Personal injury protection (PIP)

Coverage that pays for medical treatment, lost wages, funeral expenses of the insured, others in the insured vehicle or pedestrians struck by an insured vehicle.

Personal liability coverage

See liability coverage.

Personal property

Property that is portable or mobile, such as furniture or jewelry. Does not include land (real estate) or permanent structures (including fixtures).

Personal property coverage

Coverage (typically 50%-70% of dwelling coverage value) to replace belongings after a loss at their actual cash value (i.e., original value minus depreciation).However, there are restrictions on the amount a standard homeowners policy will pay on some items - jewelry or furs, for example - but you can buy additional coverage for them separately.

Policy

A written contract of insurance.

Policyholder

A person who pays a premium to an insurance company in exchange for insurance protection.

Premium

The amount an insured pays in exchange for insurance coverage.

Primary operator

The most frequent driver of a particular vehicle.

Proof of insurance (POI)

A copy of a current insurance policy, declaration page, or ID card showing prior coverage, including dates.

Property damage liability coverage

Pays for damage to someone else's property resulting from an accident for which you are at fault and provides your legal defense.

Physical damage coverage

Coverage that applies to car damage by fire, windstorm, hail, theft, or collision. Is sometimes referred to as Collision, Comprehensive or Other Than Collision coverage.

Q

Quote

A preliminary statement of the cost of insurance coverages based on the information provided at the time of the request.

R

Rate

Refers to the base rating units that are used to determine a final premium.

Registered domestic partner

A person in a legally recognized arrangement similar to marriage, typically involving same-sex couples. In states that recognize Registered Domestic Partnerships, each partner is considered a spouse under the insurance contract.

Reinstate

To reactivate a canceled policy that had a lapse in coverage.

Release

Legally binding contract stating that all obligations past, present or future arising from a particular accident or occurrence have been fulfilled.

Rental reimbursement

Optional coverage that covers rental vehicle costs (to a specified dollar amount) when an insured vehicle is disabled as the result of a covered accident or loss.

Renewal date

The date one policy expires and a renewed policy begins.

Replacement cost coverage

Provides coverage to replace personal items (such as clothes, furniture, electronics, etc.) damaged in a covered loss at their current cost.

Replacement cost value

The amount of money it would cost to repair or replace an item with one of the same kind and quality as the original was at the time of loss (without deduction for depreciation).

Roadside assistance

If you add optional towing coverage to your policy, you may receive assistance if you: have a flat tire, have a dead battery, get locked out of your car, get stuck in mud or snow, run out of gas.

S

Safe driving history discount

A discount may be applied to your policy if you've had no at-fault accidents within the last three years. (Availability varies by state.)

Salvage

Damaged property taken by the insurance company after a claim has been settled.

Scheduled personal property (or personal property coverage)

An endorsement used to cover individual items for a specified value, such as jewelry, furs, fine art, musical instruments, etc. Items are covered under most circumstances and with no deductible.

Spouse

A person to whom you are lawfully married. In states that recognize Civil Unions or Registered Domestic Partnerships, the parties involved are considered spouses under the insurance contract.

SR-22

A certificate mandated by the state to verify that an individual has auto insurance liability coverage. Typically, the state's Motor Vehicle Department will notify you if an SR-22 (also known as a Certificate of Financial Responsibility) is needed.

Student away discount

You may receive a discount for full-time students who reside at an educational institution more than 100 miles away. (Availability varies by state.)

Subrogation

A process in which an insurance company pursues the party at fault to recover any benefits paid under the policy.

Subscription fire department

A type of fire department that sells its service directly to customers, rather than receiving public funding. Policyholders living in areas with subscription fire departments must have a contract in order to obtain insurance coverage.

T

Tenure discount

You may receive a discount if you maintain an auto policy for at least three years. The discount may increase after six years and again after ten years.

Term

The period of time an insurance policy coverage is effective.

Third party

A person or entity who is not a signatory to an agreement. A third party may have rights, benefits and obligations relating to that agreement (for example, the other driver in an accident, or a lienholder or mortgage company).

Third party insurance

See Liability Coverage.

Title

A legal document that provides evidence of property ownership.

Tort

An injury or wrong (other than a breach of contract) committed on the person or property of another for which a civil (as opposed to criminal) action can be brought.

Total loss

When damage to a vehicle is:

• So severe that it cannot be repaired safely, or
• Repairing the vehicle is not economically practical, or
• State law deems the vehicle unrepairable based on the amount of damage the vehicle sustained in the accident.

U

Umbrella insurance (personal liability umbrella)

A policy that provides liability coverage limits beyond that provided under your homeowners, renters or automobile insurance. Coverage begins after other coverage under those other policies has been exhausted.

Underwriting

A systematic technique for evaluating, selecting and classifying risks to establish and verify the appropriate coverages and rates.

Uninsured motorist

An individual who owns or operates an automobile without liability insurance.

Uninsured motorist coverage (UM)

Compensates you for damages for which you may be legally entitled to collect from an owner or operator of an uninsured motor vehicle. These benefits may include payment for certain medical expenses, lost wages, and pain and suffering subject to your policy's limits and conditions.

Underinsured motorist

An individual whose coverage limits are less than the damages you sustain in a covered loss.

Underinsured motorist coverage (UIM)

Compensates you for injuries for which you may be legally entitled to collect from an owner or operator of an underinsured motor vehicle, subject to your policy's limits and conditions.

Uninsured motorist property damage (UMPD)

Compensates you for damages to your vehicle for which you may be legally entitled to collect from an owner or operator of an uninsured or underinsured motor vehicle. These benefits are subject to your policy's limits and conditions.

V

VIN (Vehicle identification number)

A 17-digit number assigned to each vehicle manufactured in the United States after 1980. This number is used for identification purposes and is visible on the dashboard when viewed from the outside of the vehicle.

W

Water back-up endorsement

An endorsement to cover damages due to a sump pump failure or a sewer back-up. These items are not covered in a standard home policy.

Workers compensation coverage

Provides coverage for medical costs and lost wages (up to statutory limits). For employees injured within the course and scope of their employment, your homeowners policy provides limited benefits, as required under the Workers Compensation law, to some employees in your home.