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Insurance Terms – A Dictionary To Make Shopping For Insurance Easier

Insurance Rates Online is happy to provide this dictionary of common insurance terms for general information only. If you have any questions concerning the specific meaning of this terminology in your policy, please contact your insurance company or insurance agent.

Act of God – Incidents resulting from natural causes, such as floods, earthquakes, lightning, etc, which could not be controlled or prevented.

Actual Cash Value – The current fair market value of an item, which equals the replacement cost less depreciation, unless otherwise specifically defined in an insurance policy.

Additional Equipment Endorsement – Covers specified parts and equipment not installed by the manufacturer.

Adjuster – An insurance company employee who determines compensation for damage caused by an accident or other covered loss.

Agent – Individual or organization licensed and approved by the state to sell and service insurance policies.

Agreed Value – The value of an item as agreed upon by you and the insurance company at the time the policy is written.

Assigned Risk – A pool of drivers with poor driving records who are assigned to insurance companies participating in the assigned risk pool. Some states require insurance companies to accept a share of high-risk drivers in order to sell insurance in that state.

Assignment of Benefits – A signed authorization to your medical provider assigning payment to be made directly to them for your medical treatment.

Binder – Written notification from your insurance agent that coverage is in force, protecting you until the actual policy is written.

Bodily Injury Liability (BI) – Your liability to others for injuries to them, including medical, death and hospital expenses. Normally shown as Per Person/Per Accident, the minimum is usually $15,000/$30,000, but it can increase up to $250,000/$500,000 or higher if necessary.

Cancellation – Termination of an insurance policy prior to its normal expiration date.

Certificate of Coverage – A document issued to a member of a group health insurance plan showing evidence of participation in the insurance program.

Certificate of Creditable Coverage – A document from your prior insurance company or health plan documenting the length of time you were covered.

Claim – Notice to an insurance company that payment is due under policy provisions.

CLUE – A Comprehensive Loss Underwriting Exchange report which offers the claim history of an existing home.

COBRA – Consolidated Omnibus Budget Reconciliation Act is a federal law which extends your current group health insurance if your work status changes through a qualifying event, such as termination or reduction of hours to part time status. The normal extension period is 18 months.

Collision Coverage – Covers damage to your vehicle caused by collision with another vehicle or any other object, regardless of fault, based on the fair market value of the vehicle. Collision coverage does not cover bodily injury or property damage liability.

Combined Single Limit Auto Policy – Uses a single limit amount for bodily injury liability coverage and property damage liability coverage, which is usually the total amount of the bodily injury per occurrence amount and property damage coverages. The policy will pay up to the single limit for either type (bodily injury or property damage) of claim.

Comprehensive Coverage – Covers damage to your car caused by something other than collision, such as fire, theft, windstorm, flood, vandalism, etc. It is based on the fair market value of the vehicle.

Co-pay – Usually associated with health insurance, the amount that is paid by the consumer at the time of usual medical services, such as doctor’s appointments. Amounts paid as co-pays do not counted toward deductible totals.

Coverage A – Home insurance which covers your house and anything installed in it, such as plumbing fixtures, carpeting, fireplaces, etc.

Coverage B – Homeowners insurance covering other structures on your property that is separated from your primary dwelling, such as sheds, garages, or hot tubs.

Coverage C – A type of home insurance coverage which protects your personal property anywhere in the world.

Coverage D – As part of a home insurance policy, this covers living expenses if you cannot live in your home due to damage from a covered loss.

Declarations Page (DEC) – The first page of an insurance policy which contains the full legal name of the insurance company, effective date and expiration date of the policy, premium amount, deductibles, and the amount and types of coverage.

Deductible – A specified amount which must be paid up front by the insured person before covered benefits are payable from the insurance company. Deductibles are included in auto insurance (comprehensive and collision), health insurance, home insurance, and motorcycle insurance.

Endorsements/Riders – A written agreement that adds or subtracts special coverages into your policy, such as special equipment added to a vehicle (auto insurance), or specific personal property (homeowners insurance).

Exclusion – A provision within an insurance policy that denies or restricts coverage for certain persons, property, locations, or perils.

Forced Insurance – Comprehensive and collision coverage insurance purchased by the lien holder on your vehicle (whoever you have the loan from) if you fail to do so. It is very expensive and the cost will be added to your loan.

Grace Period – The brief period of time after your policy premium due date during which the coverage is still in force.

Guaranteed Issue – If you lose your coverage from an employer sponsored group health plan, you are guaranteed the right to purchase individual health insurance coverage, even with a preexisting health condition, as a result of HIPPA.

Health Maintenance Organization (HMO) – Plan members are required to obtain health care services from providers affiliated within the HMO. Care is directed by a primary care physician. Usually services from non-affiliated providers will not be covered. Frequently a small co-pay is required. Geographic limitations to service may also be incorporated in this policy.

HIPPA – Health Insurance Portability and Accountability Act requires that if you have recently lost your employer sponsored group health plan, you are ensured the right to purchase individual health insurance coverage even with a preexisting health condition. This is a called “guaranteed issue.” HIPPA requirements begin after COBRA has been exhausted.

HSA – Health Savings Account

Inflation Guard – Provision in homeowners insurance which automatically increases dwelling insurance to help prevent your home from being underinsured.

Indemnity Policy – A traditional “fee-for-service” policy with almost unlimited choices in medical services providers. After meeting a specified deductible, charges are reimbursed at a specified percentage.

Individual Health Insurance Policy – A policy which covers a single individual or specified related individuals, such as a spouses, a parent and children, etc, and is not part of a group health plan.

Insurance Policy – A written agreement between a consumer and an insurance company for specified coverage for a specific time period

Insured – The policyholder entitled to receive covered benefits in case of loss or accident.

Insurer – The insurance company who issues the insurance policy.

Liability Insurance – Coverage for legal liability resulting from bodily injuries to other individuals or damage to their property.

Limit of Liability – The maximum amount you’ll have to pay in the event of a loss.

Limits – The maximum amount of benefits payable by the insurance company in the event of a loss.

Loss Settlement – The amount you’ll receive in case of irreparable damage or stolen property which was not recovered.

Medical Payments – Pays for medical and covered expenses following an accident without regard for liability, up to a policy specified limit.

Medical Payments Insurance – Pays for reasonable expenses for individuals (outside the immediate family) who are accidentally injured on your premises or areas adjoining your property, such as sidewalks or alleys. Coverage is not in force if you were operating a business out of the home, because the property was a rental, or due to acts intended to hurt another person.

Non-Renewal – Termination of an insurance policy at its normal expiration date.

Peril – Events that cause damage to property, such as fire, windstorm or theft.  

Personal Lines – Insurance for individuals and families, such as automobile and home insurance policies.

Physical Damage Coverage – A component of motorcycle insurance which includes comprehensive, collision, and custom parts & accessories coverage.

Policy – A contract that defines the rights and duties of the insurance company and the insured.

POS (Point Of Service) – Health care plan featuring lower medical costs in exchange for more limited choice.

Pre-Existing Condition – Medical condition which existed prior to the start of coverage by a new insurance company. If you have been previously insured without a break in coverage of more than 62 days, your new insurance company must continue coverage.

Preferred Provider Organization (PPO) – This type of plan provides a list of “preferred” providers from which to choose. Highest monetary benefit is available when using health care providers on the list. When an “out-of-network” provider is used, a smaller percentage of expenses or no expenses at all may be covered.

Premium – The amount paid to an insurance company for specific coverage through an insurance policy.

Property Damage Liability (PD) – Your liability for damage to someone else’s property including vehicles.

Property Insurance – Home insurance coverage for your personal or actual property.

Quotation – An estimate of the cost of insurance based on information provided to the agent, broker or insurance company.

Recision – Cancellation of a policy back to its effective date, with return of all charged premiums.

Rental Reimbursement – If you lose the use of your car due to accident or damage, this coverage will provide a daily allowance for use towards a rental car. Usually the daily limit and number of days are specified in the policy terms.

Replacement Cost – The actual cost to replace lost or damaged property with new property of like kind or quality in the local market.

Salvage – Property so damaged that it is legally signed over to the insurance company as part of the loss settlement. Insurance companies frequently sell salvaged property to reduce the amount of their loss.

Stated Amount – A value amount you select on an item at the time a policy is purchased. If the item is irreparably damaged or stolen and not recovered, the insurance company will pay either the stated amount or the value as determined by a third party, whichever is less. The deductible also applies to the settlement amount.

Surcharge – An extra charge applied to the premium, usually after an at-fault accident or moving violation.

Towing & Labor – Optional coverage for reasonable and necessary towing and labor, usually subject to policy terms, usually only a few dollars extra.

Umbrella Policy – Broad liability protection over and above your auto or homeowner policies liability limits.

Underwriting – The process by the insurance company of assessing the risk associated with the applicant, based on other applicants with similar risk, to decide whether insurance coverage will be offered, usually based on 3-5 years of prior history.

Uninsured Motorist Property Damage (UMPD) – Pays for property damage to your car following a collision with an identified uninsured driver. Check with your insurance company to see if this amount is limited.

Uninsured/Underinsured Motorist – Provides liability insurance when the party at fault does not have the state required minimum liability coverage, or the minimum liability coverage is insufficient to cover the injuries sustained in the accident.

Uninsured/Underinsured Motorist Bodily Injury – Covers medical or death expenses when involved in a collision with a driver who does not have any or sufficient liability coverage to pay for damages. Check with your insurance company to determine if the amount is limited.

VIN – Vehicle Identification Number; each motor vehicle has a unique VIN number