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Insurance Terms

Common insurance terms and descriptions

All Risk Insurance - A generic term for insurance that covers all risks that are not explicitly excluded.

Annuity - A contract that provides an income for a stated period or for a person's lifetime.

Auto collision coverage - The portion of an auto insurance policy that pays for collision damage to the insured auto.

Auto comprehensive coverage - The portion of an auto insurance policy that pays for loss or damage to the insured auto other than the loss or damage caused by collision.

Auto liability coverage - The portion of an auto insurance policy that protects against claims for legal liability arising out of auto accidents. Provides legal defense and pays sums necessary to settle claims against the insured person.

Automatic premium loan - A life insurance policy provision authorizing the insurer to use the policy's loan value to pay any premium not paid by the end of the grace period.

Beneficiary - The person who receives the proceeds of a life insurance policy upon the death of the insured person.

Binder - A temporary insurance contract (written or oral) that remains in effect until replaced by a regular policy.

Cash surrender value - The amount of money payable to a policyholder who discontinues a life insurance policy.

Casualty Insurance - Insurance that covers losses caused by injury to others or damage to property of others. Casualty insurance policies may or may not require that policyowners determine legal liability (fault) in order to collect payments.

Coverage - The protection provided by insurance.

Credit life insurance - Term life insurance issued to cover repayment of a loan if the borrower dies.

Deductible clause - A policy provision defining the specific amount of loss that, if exceeded, will trigger insurance coverage.

Dividend - A partial return of premium, reflecting the difference between the premium charged and the amount needed to cover the company's operations and payments on claims.

Endowment insurance - Life insurance payable to the insured if he or she is living on the maturity date stated in the policy, or to a beneficiary if the insured dies before that date.

Exclusions - Provisions that explicitly limit the coverage provided by an insurance policy.

Expiration date - The date when an insurance policy ends.

Grace period - A period of time following the date the premium is due, during which a policy remains in force even though the premium has not been paid.

Group insurance - Any insurance plan that covers a number of individuals under a single contract. It is typically issued to an employer for the benefit of employees.

Guaranteed insurability - A life insurance policy provision permitting the purchase of additional insurance at stated times regardless of the condition of the insured person's health.

Incontestable clause - A policy provision that prevents the insurer from challenging or contesting claims after a stated period of coverage, regardless of any misstatements made by the applicant.

Insurance rate - The price of insurance per unit of coverage, usually expressed as a cost per dollar amount of coverage per year.

Insured - A person or organization that is protected by insurance.

Insurer - An insurance company or other organization that provides insurance.

Liability insurance - An insurance policy that protects against claims for legal liability. Provides legal defense and pays sums necessary to settle claims against the insured.

Limit of liability - The maximum amount an insurer will pay in the event of a covered loss.

Limited payment whole life - Whole life insurance on which premiums are payable for a specified number of years.

Loss - An event or circumstance for which insurance may pay.

Major medical expense insurance - Insurance that pays for a broad range of medical services up to a very high maximum amount. It is usually subject to a deductible amount and percentage participation. Also called major medical.

Medical payments coverage - A form of insurance that pays for medical and funeral expenses without regard to liability. It is available in auto policies and other policies that provide liability coverage.

Mutual insurance company - An insuring organization that is owned by its policyholders.

Named peril insurance - Any insurance that specifies the perils (risks) it covers.

No fault system - A system in which reimbursement for injuries on the basis of fault (tort liability) is not legally available.

Nonforfeiture options - Alternatives available to a policyowner who discontinues premium payments on a policy of insurance.

Nonparticipating insurance - Insurance provided by policies on which no policy dividends are payable. Also called nonpar.

Participating insurance - Insurance provided by policies on which dividends are payable.

Permanent life insurance - Loosely, any form of individual life insurance that develops a cash value.

Policy loan - A loan made by a life insurance company to a policyowner on the security of a policy's cash surrender value.

Policyholder - The person or entity who pays for, and therefore owns, an insurance policy. This is usually the insured, but it may also be a relative of the insured, a partnership, or a corporation. Also called a policyowner.

Premium - The price of an insurance policy.

Replacement cost - The cost of replacing damaged or destroyed property with new property, without deducting for depreciation.

Risk - The cause of a possible loss. Also referred to as peril.

Settlement options - The alternatives, other than immediate payment in cash, in which a life insurance beneficiary may choose to have policy benefits paid.

Stock insurance company - A corporate insuring organization owned by stockholders.

Straight life insurance - Whole life insurance on which premiums are payable for life.

Subrogation - A legal principle which provides that, to the extent an insurer has paid for a loss, the insurer receives the policyholder's right to recover from any third party who caused the loss.

Term life insurance - Life insurance payable to a beneficiary when the insured dies within a specified period. If the insured is living at the end of the period, the policy expires without value.

Underwriting - The process by which insurers decide which losses to insure and how to insure them.

Uninsured motorists coverage - A form of auto insurance that pays the damages that insured persons are legally entitled to collect from uninsured motorists.

Waiting period - In disability income insurance, the period of time between the beginning of a disability and the date that the policy's income payments begin. In group insurance, the period an employee must work for a firm in order to qualify for coverage.

Waiver of premium - A life or health insurance policy provision stating that premiums will not be charged if the insured person becomes totally and permanently disabled.

Whole life insurance - Life insurance payable to a beneficiary at the death of the policyholder, whenever that occurs. Premiums may be payable for a specified number of years (limited payment life insurance) or for life (straight life insurance).