Glossary of Insurance Terms and Definitions

Are you starting a career as an insurance agent, or have you just started a new agency and are unfamiliar with some industry jargon? Use this reference guide (or cheat sheet) of insurance terminology to better understand the industry and communicate clearly using the right language.

Common Insurance Terms

A

Actual Cash Value

Actual cash value is the value of something, considering its age and wear. Think of it as the amount of money it's currently worth, not what you paid for it.

Adjuster

An adjuster is a person who looks into claims to figure out how much the insurance company should pay.

Annuity

An annuity is a plan you pay into that then pays you back regularly for a period of time, often after you retire.

At Fault

At fault refers to the party responsible for causing an accident or damage.

B

Bodily Injury

Bodily injury is harm that happens to a person's body, like cuts or broken bones.

Book Roll

Book roll is the process of moving insurance policies from one company to another, often to get a better deal.

C

Cancelation

A cancelation is stopping an insurance policy before it naturally ends.

Captive Agent

A captive agent is an insurance seller who works for just one insurance company.

Claimant

A claimant is a person asking for money from an insurance company because of a loss.

Coinsurance

Coinsurance is a way of sharing costs between you and your insurance. For example, you pay 20%, and your insurance pays 80%.

Comprehensive Coverage

Comprehensive coverage is insurance that pays for damages to your car not caused by a collision, like theft or a storm.

Copayments

Copayments are a fixed amount you pay for a service, like a doctor's visit, while your insurance covers the rest.

Covered Loss

Covered losses are damages or accidents your insurance agrees to pay for.

D

Damaged Property

Damaged property are things you own that have been harmed or broken.

Declarations Page

A declarations page is the part of your insurance policy that lists your specific details, like your name and what's covered.

Deductible

A deductible is the amount you must pay out of your pocket before insurance starts paying.

Depreciation

Depreciation is the loss in value of something over time due to age and wear.

E

Endorsements

Endorsements are changes or additions to your insurance policy that alter your coverage.

Exclusions

Exclusions are things your insurance won't cover.

F

Financial Loss

A financial loss is losing money because of damage, injury, or another claim.

I

Indemnity

Indemnity is an agreement where one party agrees to pay for losses or damages incurred by another.

Insurance Contract

An insurance contract is the agreement between you and the insurance company stating what's covered and what's not.

Insurance Coverage

Insurance coverage is protection you get from an insurance plan against losses or damages.

Insurance Policy

An insurance policy is the document that outlines your insurance contract.

Insurance Premium

An insurance premium is the amount you pay for insurance.

L

Lender

A lender is an institution or person that lends money, expecting to get it back with interest.

Loss of Use

Loss of use is compensation for not being able to use your property due to damage.

M

Market Value

Market value is the current dollar amount of something if you sold it now.

Medicare

Medicare is a federal health insurance program in the United States. It mainly helps people who are 65 years old or older, but also younger individuals with some specific disabilities or diseases, pay for their medical expenses. Think of it like a safety net that covers various healthcare costs, such as doctor visits, hospital stays, and sometimes prescription drugs, to make healthcare more affordable for those who qualify.

MGA (Managing General Agent)

An MGA is a specialist who can perform insurance functions like underwriting on behalf of an insurer.

Misrepresentation

Misrepresentation is giving false information on purpose.

N

Named Insured

Named insured is the person or entity specifically named as insured on an insurance policy.

O

Omissions

Omissions are leaving out information that should have been included.

Out-of-Pocket

Out-of-pocket are expenses you pay yourself, not covered by insurance.

P

Personal Injury Protection

Personal injury protection is insurance that covers medical expenses and possibly lost wages after an accident.

Personal Property

Personal property is stuff you own, like furniture or electronics.

Policy Limits

Policy limits are the maximum amounts an insurance company will pay for a claim.

Policy Period

The policy period is how long an insurance policy lasts.

Policyholder

A policyholder is the person or group that owns an insurance policy.

Premium Payments

Premiums are payments you make to keep your insurance active.

Property Damage

Property damage is harm or destruction to someone's property.

R

Riders

Riders are additional coverages added to an insurance policy to provide extra protection.

Reimbursement

Reimbursement is getting money back from insurance for money you've spent on a claim.

Reinsurance

Reinsurance is insurance that an insurance company purchases from another insurance company to help cover large losses.

Replacement Cost

Replacement cost is the cost to replace damaged property with new property.

S

State Law

State law refers to rules made by a state's government that must be followed.

T

Total Loss

Total loss is when damage is so bad it's not worth fixing, or it can't be fixed.

U

Uninsured Motorist

Uninsured motorist is insurance coverage that protects you if you're hit by a driver who doesn't have insurance.

V

Vandalism

Vandalism is intentional damage to property.

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What Is Insurance?

Insurance is a contract, referred to as an insurance policy, between an individual or entity (the insured) and an insurance company (the insurer). In this contract, the insurer promises to pay the insured for specific potential future losses resulting from a variety of risks in exchange for periodic payments known as premiums. These potential losses can be related to life, health, property, or liability.

An insurance agent is often involved in helping individuals or entities choose the right insurance plan that fits their needs. The specific terms of insurance policies vary widely, depending on the kind of insurance, the insurer's business model, and legal regulations. Understanding the different types of coverage available is crucial for tailoring an insurance plan to adequately protect against potential risks.

What Are the Various Types of Insurance?

Insurance can be broadly classified into two main categories: Personal Lines and Commercial Lines. Each of these categories encompasses a wide range of insurance types, each tailored to meet specific needs.

Understanding these types can help individuals and businesses make informed decisions about protecting their assets and managing risks. Let's explore these various types of insurance:

Personal Lines

Personal Lines insurance policies are designed to protect individuals and families from financial loss due to accidents, health issues, damage to property, or other unexpected events. Here are some common types:

• Auto Insurance: Provides financial protection against physical damage and bodily injury from traffic collisions. It covers repair costs, medical expenses, and liability claims. An auto policy is essential for both personal and commercial vehicle owners to manage the financial impact of accidents and other incidents.

• Health Insurance: covers medical expenses for illnesses, injuries, and preventive care, including doctor's visits, hospital stays, surgeries, and prescription medications. It often includes options for long-term care, providing extended assistance for chronic illnesses or disabilities, such as nursing home and in-home care costs. Additionally, health insurance can complement a life insurance policy, offering comprehensive financial protection by covering immediate medical needs and long-term financial security for beneficiaries in the event of the policyholder’s death. Together, these policies form a robust safety net against various health and financial risks.

• Homeowners Insurance: Protects a home and its contents against various risks such as theft, fire, and natural disasters. It also provides liability coverage, safeguarding homeowners against legal and medical expenses if someone is injured on their property.

• Renters Insurance: Protects the personal property of tenants from risks such as theft, fire, and vandalism. It also offers liability protection and covers additional living expenses in case the rented unit becomes uninhabitable due to covered losses.

• Disability Insurance: Provides income replacement to individuals who are unable to work due to illness or injury. This type of insurance ensures financial stability by covering a portion of the insured person's lost earnings during periods of disability.

• Life Insurance: Provides a death benefit to beneficiaries upon the insured's death, helping to cover expenses such as funeral costs and outstanding debts. It also offers long-term financial security for the insured's dependents by replacing lost income.

• Pet Insurance: Covers veterinary costs and treatments for pets due to illnesses and injuries. It helps pet owners manage unexpected medical expenses, ensuring their pets receive necessary care without financial strain.

• Travel Insurance: Covers financial risks and losses associated with traveling, such as trip cancellations, medical emergencies, and lost luggage. It offers peace of mind by providing reimbursement or assistance for unforeseen travel-related issues.

• Umbrella Insurance: Provides additional liability coverage beyond the limits of standard policies, such as auto or homeowners insurance. This extra layer of protection helps guard against substantial financial losses from lawsuits and large claims.

• Valuables Insurance: Provides protection for high-value items such as jewelry, art, and collectibles against loss, theft, or damage. It ensures that owners receive compensation based on the appraised value of their treasured possessions in case of covered incidents.

Commercial Lines

Commercial Lines insurance policies are tailored to meet the needs of businesses and organizations, helping them manage risks associated with their operations and protect their assets.

Here are some common types:

• Business Owner’s Policy (BOP): Packages several types of insurance needed by business owners, typically including property insurance, liability insurance, and business interruption insurance.

• Cyber Insurance: Helps businesses cover financial losses related to data breaches, cyberattacks, and other internet-based risks.

• Directors and Officers Liability Insurance: Protects executives and board members from personal losses if they are sued for alleged wrongful acts while managing a company.

• Environmental Liability Insurance: Covers businesses for the costs associated with environmental cleanup, as well as damages claimed by third parties due to pollution-related incidents.

• Errors and Omissions (E&O) Insurance: Provides protection against claims of inadequate work or negligent actions made by professional service providers.

• Excess and Surplus (E&S) Lines: Offers insurance for unique or high-risk situations that standard insurers do not cover.

• General Liability Insurance: Also known as a liability policy, offers protection against claims of bodily injury or property damage resulting from business operations. This liability coverage helps safeguard businesses from financial losses due to accidents, injuries, or damages that occur on their premises or as a result of their activities.

• Marine Insurance: Covers the loss or damage of ships, cargo, and other items during transit over water. It provides financial protection for shipowners, cargo owners, and other stakeholders against risks such as sinking, theft, collision, and natural disasters during maritime transport.

• Property Insurance: Offers protection against various risks to property, including fire, theft, and weather-related damage. It ensures financial compensation for losses or damages to buildings, personal belongings, and other physical assets, helping property owners recover and rebuild after unforeseen events.

• Surety Bonds: Provides a guarantee that certain tasks or obligations will be fulfilled, typically used in construction and contracting.

• Title Insurance: Protects lenders and buyers against losses arising from defects in the title of real property. It provides financial protection against issues such as liens, ownership discrepancies, and other title-related problems that may surface after the property transaction.

• Workers’ Compensation: Provides wage replacement and medical benefits to employees injured or ill due to their job, and protects employers from legal liability in such cases.

The Importance of Understanding Different Insurance Types

Mastering the different types of personal and commercial insurance is crucial.

This knowledge enables agents to guide individuals and businesses in selecting the right policies to protect their wealth, health, and overall security against unforeseen events. Experienced agents will help clients feel confident in their coverage decisions, ensuring their financial stability and peace of mind.

What Are the Typical Job Functions of an Insurance Agent?

New insurance agents are joining a dynamic and engaging environment with the central goal of helping clients navigate their insurance needs. Here are some of the key functions of agents:

• Claims Assistance: Assisting clients with the claims process, including understanding policy coverage and providing necessary information to the insurance company.

• Client Consultation: Meeting with clients to discuss their insurance needs and financial situations.

• Policy Management: Managing and updating insurance policies for clients as their needs change.

• Policy Recommendations: Recommending appropriate insurance policies based on the client's needs.

• Policy Sales: Selling insurance policies, explaining policy terms and conditions, and providing customer service.

• Underwriting: Evaluating the risk and exposures of potential clients to determine coverage and pricing.