Insurance terms in plain language

Insurance uses ordinary words in particular ways. The same term can be defined a little differently from one policy, insurer or state to the next, and your policy has a definitions section that controls. Treat these entries as general information and check your own wording. The National Association of Insurance Commissioners keeps its own glossary of insurance terms too. For a tour of the page where many of these terms appear, see the declarations page guide.

Actual cash value

A way of valuing a loss that takes age and wear into account, so the payment is typically the cost of replacement minus depreciation. Compare with replacement cost.

Additional insured

A person or business, other than the named insured, who is protected by the policy in the way an endorsement describes. Commercial contracts often ask for it.

Adjuster

The person who investigates a claim and helps decide what the policy pays. An adjuster may work for the insurer, for an independent firm, or for the policyholder. Ask who they work for.

Appraisal

A process some policies provide for settling a disagreement about the amount of a loss. The policy sets out how it works, who chooses the appraisers and the time limit.

Binder

Temporary proof that coverage is in place while the full policy is being issued. It is normally limited in time.

Cancellation

Ending a policy before its term is up, by you or by the insurer. The allowed reasons and the notice required are set by the policy and by state law.

Claims-made policy

A policy that covers claims first made during the policy period, with some also requiring that the event happened after a stated date. Compare with occurrence policy.

Coinsurance

A condition in some property policies that reduces a payment if the amount insured is lower than a stated share of the property’s value. The term has a different meaning in health insurance, so check the context.

Conditions

The section of a policy that sets out what the policyholder and the insurer must do, such as giving notice of a loss and cooperating with the investigation. A failure to meet a condition can affect a claim.

Declarations page

The summary at the front of a policy listing who is insured, the property or risk, the policy period, the coverages, the limits, the deductibles and the forms that apply.

Deductible

The amount you carry on a covered loss before the insurer pays. It may be a flat amount or a percentage, and a policy can have more than one. The deductible break-even calculator compares two options.

Depreciation

The loss in value of property from age, wear and use. It is used to work out actual cash value.

Endorsement

A document that changes the base policy by adding, removing or altering coverage. Where it conflicts with the base form, the endorsement generally prevails.

Exclusion

A situation, cause of loss or type of property that the policy does not cover. Exclusions appear in the base form and in endorsements, so read both.

Grace period

A set time after a premium due date during which coverage continues while you pay. Whether one applies, and how long it lasts, depends on the policy and on state law.

Limit of liability

The most the insurer will pay under a coverage. Some limits apply per occurrence, per person or per policy period, and the wording tells you which.

Loss payee

A lender or other party with a financial interest in covered property who is named on claim payments for it.

Named insured

The person or entity named in the declarations as the policyholder. Other people may be insured too, as the policy defines.

Non-renewal

The insurer’s decision not to offer a new term when the current one ends. State rules set the notice an insurer must give.

Occurrence policy

A policy that covers events that happen during the policy period, even if the claim is made later. Compare with claims-made policy.

Peril

A cause of loss, such as fire, theft or wind. Some policies cover named perils only, and others cover all causes except those excluded.

Policy period

The span of time, with a start and end date, during which the policy applies.

Premium

The price of the policy for its term. How it is set depends on the insurer, the state and the risk, and it can change at renewal.

Proof of loss

A formal statement, often sworn and in writing, of what was lost and its value. Policies set a time limit for sending it once the insurer asks.

Replacement cost

A way of valuing a loss based on what it costs to replace the item with a similar new one, without deducting depreciation. Policies often add conditions on how and when it is paid.

Retention

The amount a policyholder carries before the insurance responds, a term used in commercial policies. It works like a deductible but has different mechanics in some forms.

Sublimit

A lower cap on a particular type of loss or item inside a larger coverage. It may sit in the declarations or only in the form.

Subrogation

The insurer’s right, after paying a claim, to seek recovery from the party that caused the loss. It is why an insurer may ask you not to sign away your rights against another party.

Umbrella policy

Extra liability coverage that applies above the limits of other policies, subject to its own terms and requirements. What it requires of underlying policies varies by insurer.

Underwriting

The insurer’s process of assessing a risk, deciding whether to offer coverage and on what terms. It is a reason premiums and availability differ between applicants.

Workers’ compensation

Insurance that covers certain medical costs and lost wages for employees hurt on the job. Whether it is required, and by whom, is set by state law. See the business insurance topic.