Insurance Glossary: Terms & Definitions

The amount it would cost to replace your property, minus depreciation. For example, if your 5-year-old TV is damaged, ACV pays what it's worth today—not what you originally paid or what a new one costs.

A licensed professional who helps you compare insurance policies and find coverage that fits your needs and budget. Agents who represent multiple carriers can give you more options than those who work for a single company.

The maximum amount your policy will pay for all claims during your policy period (usually one year). Once you hit this limit, you're responsible for any additional costs.

A financial product that provides regular income payments in exchange for a lump sum or series of payments. Often used for retirement planning, annuities can be fixed (guaranteed payments) or variable (payments tied to investments).

The person or entity designated to receive benefits from an insurance policy, such as the death benefit from a life insurance policy. You can name primary beneficiaries (first in line) and contingent beneficiaries (backup).

A temporary insurance contract that provides immediate coverage until your formal policy is issued. Binders are commonly used during home purchases or when you need proof of coverage quickly.

Coverage that pays for injuries you cause to others in an accident. This includes medical bills, lost wages, and legal fees if you're sued. Required in most states for auto insurance.

Similar to an agent, a broker helps you shop for insurance. The key difference: brokers typically work for you (the buyer) rather than the insurance company.

The savings component of permanent life insurance policies (like whole life or universal life) that grows over time. You can borrow against it or surrender the policy for this amount, though doing so reduces your death benefit.

A formal request to your insurance company for payment after a covered loss—like a car accident, house fire, or medical expense. Your insurer reviews the claim and decides whether to approve it.

The Consolidated Omnibus Budget Reconciliation Act allows you to continue your employer's group health insurance for up to 18-36 months after leaving a job. You pay the full premium plus an administrative fee.

Your share of costs after meeting your deductible, expressed as a percentage. In health insurance, you might pay 20% coinsurance while your plan pays 80%. In property insurance, coinsurance clauses require you to insure your property to a certain percentage of its value.

Auto insurance that pays to repair or replace your vehicle after you hit (or are hit by) another car or object, regardless of who's at fault.

Auto insurance that covers damage to your vehicle from events other than collisions—like theft, vandalism, fire, hail, or hitting an animal.

Term life insurance that can be converted to permanent coverage (like whole life) without a medical exam. This option lets you lock in coverage while young and healthy, then upgrade later.

A fixed amount you pay for a covered service, usually at the time of service. For example, you might pay a $30 co-pay when you visit your doctor.

The maximum amount your insurance company will pay for a covered loss. Limits can apply per incident, per person, or for the entire policy period.

The amount paid to beneficiaries when a life insurance policyholder dies. This payout is generally income tax-free and can be used for any purpose—funeral expenses, debt payoff, income replacement, or inheritance.

The amount you pay out-of-pocket before your insurance kicks in. For example, with a $1,000 deductible, you pay the first $1,000 of a claim, and your insurer covers the rest (up to your policy limits).

The decrease in your property's value over time due to age, wear, and tear. Insurance companies use depreciation when calculating actual cash value payouts.

The part of homeowners insurance that pays to repair or rebuild your home's structure if it's damaged by covered events like fire, wind, or lightning.

Coverage for property damage caused by earthquakes. Excluded from standard homeowners policies, earthquake insurance is typically purchased as a separate policy or endorsement—essential in seismically active regions.

Something your insurance policy specifically doesn't cover. Common exclusions include flood damage (in standard homeowners policies), intentional damage, and normal wear and tear.

An addition or change to your insurance policy that modifies coverage. Also called a rider. For example, you might add an endorsement to cover expensive jewelry beyond your standard limits.

An employer-sponsored account that lets you set aside pre-tax dollars for eligible medical expenses. Unlike HSAs, FSA funds typically must be used by year-end or you lose them (though some plans offer limited rollover).

Coverage for damage caused by flooding. Not included in standard homeowners policies—you need a separate flood policy, typically through the National Flood Insurance Program (NFIP).

Additional coverage for valuable personal property—like jewelry, art, or collectibles—that exceeds the limits of your standard homeowners or renters policy. Floaters typically cover items anywhere in the world, not just at home.

Auto coverage that pays the difference between what your car is worth and what you still owe on your loan or lease if your vehicle is totaled. Essential for new cars that depreciate faster than you pay down the loan.

Extra time (usually 10-30 days) after your payment due date to pay your premium without losing coverage. Policies vary, so check yours to avoid a lapse.

Life or health insurance that requires no medical exam or health questions. While easier to qualify for, these policies often have higher premiums and may include graded death benefits (limited payouts in the first few years).

Any condition or situation that increases the chance of a loss occurring. For insurance purposes, hazards can be physical (like a damaged roof) or related to behavior.

A type of health plan with lower premiums that requires you to use in-network doctors and get referrals from your primary care physician to see specialists. Out-of-network care (except emergencies) typically isn't covered.

A tax-advantaged account paired with a high-deductible health plan (HDHP). Contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free. Funds roll over year to year.

A health plan with lower premiums and higher deductibles than traditional plans. In 2025, HDHPs have minimum deductibles of $1,650 for individuals and $3,300 for families. Required if you want to open an HSA.

A homeowners insurance endorsement that automatically increases your coverage limits each year to keep pace with rising construction costs, helping ensure you can fully rebuild if disaster strikes.

A financial stake in the property or person being insured. You can only buy insurance on something you'd suffer a loss from—your own home, car, or the life of a spouse or business partner.

Insurance that protects you if you're responsible for injuring someone or damaging their property. Covers legal defense costs and settlements up to your policy limits.

When your insurance policy ends because you didn't pay your premium. A lapse leaves you without coverage and can make future insurance more expensive.

A premium that stays the same throughout your policy term, common in term life insurance. While initially higher than annual renewable term, level premiums provide predictable costs and protection against rate increases.

Homeowners insurance coverage that pays for additional living expenses (like hotel bills and restaurant meals) if your home becomes uninhabitable due to a covered loss.

A joint federal-state program providing free or low-cost health coverage to eligible low-income individuals and families. Eligibility and benefits vary by state, with many states covering adults earning up to 138% of the federal poverty level.

Auto or homeowners insurance that pays medical expenses for you or others injured on your property or in your vehicle, regardless of who's at fault. Usually has lower limits than liability coverage.

Federal health insurance for people 65 and older (and some younger people with disabilities). Includes Part A (hospital), Part B (medical), Part C (Medicare Advantage), and Part D (prescription drugs).

Supplemental insurance sold by private companies to fill 'gaps' in Original Medicare coverage—like copays, coinsurance, and deductibles. Also called Medicare Supplement Insurance.

A policy that only covers specific events (perils) listed in your policy—like fire, theft, or windstorm. If it's not named, it's not covered.

Auto insurance system where each driver's own policy pays for their injuries regardless of who caused the accident. Required in some states, it limits the ability to sue except for serious injuries.

The annual period when you can enroll in or change health insurance plans. For ACA marketplace plans, open enrollment typically runs November 1 through January 15. Missing this window means waiting until next year unless you qualify for a special enrollment period.

The most you'll pay for covered services in a policy period (common in health insurance). After you hit this limit, your insurance pays 100% of covered expenses.

Auto coverage that pays medical expenses, lost wages, and other costs for you and your passengers after an accident—regardless of fault. Required in no-fault insurance states.

A type of health plan offering more flexibility than HMOs. You can see any doctor without referrals, though you pay less when using in-network providers. Higher premiums but greater choice.

An event that causes damage or loss, like fire, theft, windstorm, or vandalism. Insurance policies specify which perils are covered.

Homeowners or renters insurance that protects your belongings—furniture, electronics, clothing, etc.—from covered events like theft or fire.

The written contract between you and your insurance company that details what's covered, what's excluded, your limits, deductibles, and premiums.

The length of time your insurance policy is in effect, typically six months or one year. Your coverage renews (or ends) at the end of each period.

The amount you pay for your insurance coverage, usually monthly or annually. Your premium depends on factors like coverage limits, deductibles, your risk profile, and location.

Auto insurance coverage that pays for damage you cause to someone else's property (like their car, fence, or building). Required in most states.

When your insurance policy continues for another term. Your insurer may adjust your rates or coverage at renewal based on claims, risk factors, or market conditions.

The amount it would cost to replace your property with new items of similar quality—no deduction for depreciation. Usually costs more in premiums than actual cash value coverage but provides better protection.

An add-on to your insurance policy that provides extra coverage for specific items or situations. Same as an endorsement. Common riders cover jewelry, collectibles, or home-based businesses.

A certificate filed by your insurer proving you carry the minimum required auto liability coverage. Required after serious violations like DUI, driving without insurance, or multiple at-fault accidents. Not insurance itself—it's proof of insurance.

When your insurance company recovers money from the at-fault party after paying your claim. For example, if someone hits your car, your insurer may pay you first, then seek reimbursement from the other driver's insurance.

Technology that tracks your driving habits—like speed, braking, and mileage—through a mobile app or device. Insurers use this data for usage-based insurance programs that can lower premiums for safe drivers.

The length of time your insurance policy is active. Life insurance terms typically run 10, 20, or 30 years. Auto and home policies usually have 6 or 12-month terms.

Life insurance that covers you for a specific period (10, 20, or 30 years). If you die during the term, your beneficiaries receive the death benefit. If you outlive the term, coverage ends with no payout. The most affordable type of life insurance.

When the cost to repair your vehicle exceeds its value (or a percentage set by your state). Your insurer declares it a total loss, pays you the actual cash value, and takes possession of the vehicle.

Extra liability coverage that kicks in after your auto or homeowners liability limits are exhausted. Provides additional protection (often $1-5 million) against major claims and lawsuits. Learn more about umbrella insurance.

Auto insurance that pays when you're hit by a driver whose insurance isn't enough to cover your damages. Fills the gap between their limits and your actual costs.

The process insurance companies use to evaluate your risk and decide whether to offer you coverage (and at what price). They look at factors like your driving record, credit score, claims history, and property condition.

Auto insurance that protects you when you're hit by a driver with no insurance or in a hit-and-run. Covers medical bills and vehicle damage you'd otherwise have to pay yourself.

Permanent life insurance with flexible premiums and an adjustable death benefit. Part of your premium goes into a cash value account that earns interest. You can adjust payments and coverage as your needs change.

Auto insurance pricing based on how you actually drive, tracked via telematics. Programs like pay-per-mile or pay-how-you-drive can significantly reduce premiums for low-mileage or safe drivers.

When your insurance company agrees to give up a right or requirement, like waiving your deductible under certain conditions.

A life insurance rider that waives premium payments if you become totally disabled. Your coverage stays in force without payment until you recover or reach a specified age.

Permanent life insurance with fixed premiums that never increase. Provides lifetime coverage and builds guaranteed cash value you can borrow against. More expensive than term but offers lifelong protection.

Coverage for damage caused by wind, including hurricanes. In some coastal areas, windstorm coverage is excluded from standard homeowners policies and must be purchased separately.