Resources
Insurance
Glossary
76+ insurance terms defined in plain English. No jargon, no fine print, just clear definitions you can understand.
Showing 76 of 76 terms
Actual Cash Value (ACV)
The replacement cost of an item minus depreciation. If your five-year-old roof is damaged, ACV coverage pays what the roof is worth today, not what it costs to replace with a new roof. ACV policies typically have lower premiums than replacement cost policies.
Additional Insured
A person or organization added to an insurance policy who receives coverage under that policy. Landlords, contractors, and business partners often require being listed as additional insureds on your policy.
Adjuster
An insurance professional who investigates and evaluates claims to determine how much the insurance company should pay. Adjusters may be employed by the insurance company, work independently, or be hired by the policyholder (public adjuster).
Agent
A licensed professional who sells insurance policies on behalf of one or more insurance companies. Independent agents represent multiple carriers, while captive agents work for a single company.
Aggregate Limit
The maximum total amount an insurance policy will pay for all claims during a policy period, usually one year. For example, a general liability policy with a $2 million aggregate limit will pay no more than $2 million total for all claims in the policy year.
Binder
A temporary agreement that provides insurance coverage until the formal policy is issued. Binders are commonly used in real estate transactions when proof of insurance is needed at closing before the full policy is processed.
Bodily Injury Liability
Insurance coverage that pays for injuries you cause to another person in an accident. This includes medical expenses, pain and suffering, and lost wages of the injured party. all five Mid-Atlantic states require bodily injury liability coverage for auto insurance.
Broker
A licensed insurance professional who represents the buyer rather than the insurance company. Brokers shop multiple carriers to find the best coverage and price for their clients, similar to how an independent agent operates.
Business Owners Policy (BOP)
A bundled insurance package designed for small to medium businesses that combines general liability and commercial property coverage into a single, cost-effective policy. BOPs typically cost less than purchasing each coverage separately.
Captive Agent
An insurance agent who works exclusively for one insurance company and can only sell that company's products. Unlike independent agents who compare multiple carriers, captive agents are limited to their company's offerings.
Certificate of Insurance (COI)
A document that proves you have insurance coverage. Landlords, clients, and business partners often request a COI as proof that you carry adequate insurance before entering into a contract or lease agreement.
Claim
A formal request to an insurance company asking for payment based on the terms of your insurance policy. You file a claim when a covered event, such as a car accident, home damage, or business liability incident, occurs.
COBRA
The Consolidated Omnibus Budget Reconciliation Act, a federal law that allows employees to temporarily continue their employer-sponsored health insurance after losing their job or experiencing a qualifying life event, typically for up to 18 months.
Co-Insurance
A clause in property insurance that requires the policyholder to insure their property to a certain percentage of its value (usually 80%). Failing to meet the co-insurance requirement means the insurance company may reduce claim payments proportionally.
Collision Coverage
Auto insurance coverage that pays to repair or replace your vehicle when it is damaged in an accident with another vehicle or object, regardless of who is at fault. Collision coverage is typically required by lenders if you finance or lease your vehicle.
Commercial Auto Insurance
Insurance coverage for vehicles owned, leased, or used by a business. Commercial auto policies cover company cars, delivery vans, service trucks, and other business vehicles. Personal auto policies typically exclude business use.
Commercial Property Insurance
Coverage that protects a business's physical assets, buildings, equipment, inventory, furniture, and signage, against damage from fire, theft, vandalism, storms, and other covered perils.
Comprehensive Coverage
Auto insurance that covers damage to your vehicle from events other than collisions, including theft, vandalism, hail, flooding, fire, falling objects, and animal strikes. Also called 'other than collision' coverage.
Contributory Negligence
A legal rule used in Maryland and a few other states where a person who is even 1% at fault for an accident cannot recover damages from the other party. This makes adequate insurance coverage especially important in Maryland.
Cyber Liability Insurance
Coverage that protects businesses from financial losses caused by data breaches, cyber attacks, ransomware, and other digital threats. Policies cover first-party costs like data recovery and third-party costs like customer notification and lawsuits.
Declaration Page (Dec Page)
The first page of an insurance policy that summarizes key information: your name, policy number, coverage limits, deductibles, premiums, and the policy period. It serves as a quick reference for your coverage details.
Deductible
The amount you pay out of pocket before your insurance coverage kicks in. For example, if you have a $1,000 deductible and a $5,000 claim, you pay $1,000 and your insurance pays $4,000. Higher deductibles generally result in lower premiums.
Directors and Officers (D&O) Insurance
Liability coverage that protects the personal assets of corporate directors and officers if they are sued for wrongful acts while managing a company. D&O insurance is essential for nonprofits, startups, and any organization with a board of directors.
Dwelling Coverage
The part of a homeowners insurance policy that covers the physical structure of your home, walls, roof, foundation, and built-in appliances, against covered perils like fire, wind, and hail.
Endorsement
A written amendment to an insurance policy that adds, removes, or changes coverage. Also called a rider. Common endorsements include adding scheduled jewelry, water backup coverage, or home business equipment to a homeowners policy.
Errors and Omissions (E&O)
Professional liability insurance that protects against claims of negligence, mistakes, or failure to perform professional duties. Essential for consultants, accountants, real estate agents, technology companies, and other service providers.
Excess Liability Insurance
Additional liability coverage that sits on top of your underlying policies. Similar to umbrella insurance but typically follows the same terms and conditions as the underlying policy rather than providing broader coverage.
Exclusion
A provision in an insurance policy that eliminates coverage for certain risks, events, or circumstances. Common exclusions include flood damage in homeowners policies, intentional acts, and wear and tear.
Experience Modification Rate (EMR)
A number used in workers compensation insurance that compares your business's claims history to other businesses in your industry. An EMR below 1.0 means fewer claims than average (lower premium), while above 1.0 means more claims (higher premium).
Fiduciary Liability Insurance
Coverage that protects individuals who manage employee benefit plans from claims of mismanagement or breach of fiduciary duty under ERISA regulations.
Flood Insurance
A separate insurance policy that covers damage caused by flooding. Standard homeowners and renters policies do not cover flood damage. Flood insurance is available through the National Flood Insurance Program (NFIP) and some private carriers.
Full Tort
A Pennsylvania auto insurance option that preserves your unrestricted right to sue for pain and suffering after an accident. Full tort policies have higher premiums than limited tort but provide greater legal protection.
Gap Insurance
Coverage that pays the difference between what you owe on a vehicle loan or lease and the vehicle's actual cash value if it is totaled. Important for drivers who owe more on their car than it is worth.
General Liability Insurance
The foundation of business insurance that protects against third-party claims of bodily injury, property damage, and personal or advertising injury. Most commercial leases and contracts require proof of general liability coverage.
Grace Period
A set number of days after a premium due date during which you can make a payment without losing coverage. Grace periods vary by state and policy type but are typically 10 to 31 days.
Hired and Non-Owned Auto
Commercial auto coverage that protects your business when employees drive rental cars or use their personal vehicles for business purposes. This fills a gap that personal auto policies may not cover during business use.
Homeowners Insurance
A policy that covers your home's structure, personal belongings, liability, and additional living expenses if your home becomes uninhabitable. Standard policies (HO-3) cover the dwelling on an open-peril basis and contents on a named-peril basis.
Independent Agent
An insurance professional who represents multiple insurance carriers and can compare coverage and rates across companies. Independent agents work for the client, not the insurance company, providing unbiased recommendations. Prominent Insurance Services operates as an independent agency.
Indemnity
The principle that insurance should restore you to the same financial position you were in before a loss, no better and no worse. Insurance is designed to make you whole, not to create a profit from a claim.
Inland Marine Insurance
Coverage that protects movable property and goods in transit, including contractor tools and equipment, fine art, electronics, and other valuables that travel between locations. Despite the name, this coverage has nothing to do with water.
Insurable Interest
A financial stake in the wellbeing of the person or property being insured. You must have an insurable interest to purchase insurance, for example, you can insure your own home but not your neighbor's home.
Liability Insurance
Coverage that protects you from financial loss when you are legally responsible for injuring another person or damaging their property. Liability insurance is a component of auto, homeowners, renters, umbrella, and commercial policies.
Limited Tort
A Pennsylvania auto insurance option that restricts your right to sue for pain and suffering after an accident except in cases of serious injury. Limited tort lowers your premium compared to full tort.
Loss of Use Coverage
A portion of homeowners or renters insurance that pays for additional living expenses, hotel stays, restaurant meals, temporary rentals, if your home becomes uninhabitable due to a covered loss.
Loss Ratio
The percentage of premium dollars an insurance company pays out in claims. A loss ratio of 60% means the company pays $0.60 in claims for every $1.00 collected in premiums.
Malpractice Insurance
Professional liability coverage specifically for healthcare providers, doctors, dentists, nurses, therapists, that protects against claims of medical errors, negligence, or omissions in patient care.
Named Peril
A type of insurance coverage that only pays for losses caused by perils specifically listed in the policy, such as fire, theft, windstorm, or hail. Contrast with open peril, which covers all risks except those specifically excluded.
Negligence
Failure to exercise reasonable care that results in harm to another person or damage to their property. Negligence is the basis for most liability insurance claims.
No-Fault Insurance
A system where your own insurance company pays for your medical expenses after an auto accident regardless of who caused it. New Jersey is a no-fault state, Pennsylvania is a choice no-fault state, and Delaware has a modified system with PIP requirements.
Occurrence Policy
A liability insurance policy that covers claims for incidents that happen during the policy period, regardless of when the claim is actually filed. Contrast with claims-made policies, which only cover claims filed during the policy period.
Open Peril
A type of insurance coverage that protects against all risks of loss except those specifically excluded in the policy. Also called all-risk coverage. Homeowners HO-3 policies provide open-peril coverage for the dwelling structure.
Personal Injury Protection (PIP)
Auto insurance coverage that pays for your medical expenses, lost wages, and sometimes funeral costs after an accident, regardless of who is at fault. Required in Delaware and New Jersey. Maryland policies must include at least $2,500 of Personal Injury Protection (PIP) unless the named insured waives full PIP in writing; the waiver does not apply to pedestrians or children under 16. Pennsylvania requires first-party medical benefits of at least $5,000 on every auto policy, often called PIP.
Personal Liability
Coverage included in homeowners and renters insurance that protects you if someone is injured on your property or if you accidentally damage someone else's property. Standard policies provide $100,000 to $300,000 in personal liability coverage.
Policy Limit
The maximum amount an insurance company will pay for a covered loss. Limits may apply per occurrence, per person, or as an aggregate over the policy period.
Premium
The amount you pay for your insurance coverage, typically monthly, quarterly, semi-annually, or annually. Premiums are determined by risk factors including your location, claims history, coverage limits, and deductible.
Professional Liability Insurance
Coverage that protects professionals against claims that their services caused a client financial harm. Also called Errors and Omissions (E&O) insurance. Essential for consultants, accountants, attorneys, technology companies, and other professional service providers.
Property Damage Liability
Auto insurance coverage that pays for damage you cause to another person's property in an accident. All five states require property damage liability coverage, with minimums ranging from $5,000 (Pennsylvania and New Jersey's Basic policy) to $25,000 (New Jersey's Standard policy and Virginia).
Renters Insurance
A policy that protects tenants by covering their personal belongings, providing liability protection, and paying additional living expenses if the rental becomes uninhabitable. Renters insurance does not cover the building itself, that is the landlord's responsibility.
Replacement Cost
The amount it costs to replace a damaged item with a new item of similar kind and quality, without deducting for depreciation. Replacement cost coverage pays more than actual cash value coverage but has higher premiums.
Rider
An amendment to an insurance policy that adds or modifies coverage. Also called an endorsement. Common riders include scheduled personal property for jewelry, identity theft protection, and water backup coverage.
Risk
The chance that a loss will occur. Insurance companies assess risk to determine premiums. Higher-risk policyholders, such as drivers with accidents or homes in flood zones, typically pay more for coverage.
Scheduled Personal Property
An endorsement to a homeowners or renters policy that provides additional coverage for specific valuable items like jewelry, watches, fine art, or musical instruments. Scheduled items are covered for their full appraised value with no deductible.
SR-22
A certificate of financial responsibility that your insurance carrier files with the state to prove you carry the required minimum auto insurance. SR-22 filings are required after certain driving violations, such as DUI or driving without insurance. Delaware, Pennsylvania, and New Jersey use SR-22; Maryland uses the FR-19 form.
Subrogation
The process by which your insurance company recovers money from the at-fault party's insurance after paying your claim. If another driver damages your car and your insurer pays for repairs, your insurer will seek reimbursement from the other driver's insurance.
Surety Bond
A three-party agreement that guarantees one party will fulfill an obligation to another, with the surety company providing financial backing. Common in construction, government contracting, and certain professional licenses.
Term Life Insurance
A life insurance policy that provides coverage for a specific period, typically 10, 20, or 30 years. If the insured person dies during the term, the beneficiary receives the death benefit. Term life is the most affordable type of life insurance.
Tort
A civil wrong that results in harm to another person, for which the injured party can seek compensation. In insurance terms, tort law determines who is at fault in an accident and who pays for damages.
Umbrella Insurance
A personal liability policy that provides additional coverage above and beyond the limits of your homeowners, auto, and other underlying policies. Umbrella policies typically start at $1 million in extra coverage and protect against lawsuits, personal injury claims, and catastrophic losses.
Underinsured Motorist (UIM)
Auto insurance coverage that protects you when the at-fault driver does not have enough insurance to cover your full damages. If the other driver has $15,000 in coverage but your injuries cost $50,000, your UIM coverage pays the difference.
Underwriting
The process by which an insurance company evaluates the risk of insuring a person, property, or business and determines whether to offer coverage and at what price. Underwriters review applications, claims history, inspections, and other risk factors.
Uninsured Motorist (UM)
Auto insurance coverage that protects you when you are hit by a driver who has no insurance. Required in Maryland. Strongly recommended in Delaware, Pennsylvania, and New Jersey.
Universal Life Insurance
A type of permanent life insurance that combines a death benefit with a cash value component. Universal life offers flexible premiums and death benefits that can be adjusted over time, unlike whole life which has fixed premiums.
Vacancy Clause
A provision in property insurance policies that limits or eliminates coverage when a property has been vacant for a specified period, typically 30 to 60 days. This is important for landlords and property investors to understand.
Waiver of Subrogation
An endorsement that prevents your insurance company from seeking recovery from a third party after paying a claim. Commonly required in commercial contracts, leases, and construction agreements.
Whole Life Insurance
A type of permanent life insurance that provides coverage for your entire lifetime, with fixed premiums and a guaranteed cash value component that grows over time. Whole life premiums are higher than term life but the policy never expires.
Workers Compensation Insurance
Coverage that pays for medical expenses, lost wages, and rehabilitation for employees who are injured or become ill on the job. Required by law in Delaware, Pennsylvania, New Jersey, Maryland, and Virginia for most employers.
Still Have Questions About Insurance Terminology?
Insurance shouldn't be confusing. Our team at Prominent Insurance Services explains everything in plain English so you always understand your coverage.