Insurance Glossary
Understanding insurance terminology helps you make informed decisions about your coverage. Browse our comprehensive glossary of insurance terms — from A to Z.
Actual Cash Value (ACV)
The value of property at the time of loss, calculated as replacement cost minus depreciation. ACV accounts for the age and condition of the item rather than what it would cost to buy new.
Additional Insured
A person or organization added to an insurance policy who receives the same protection as the named insured. Common in business and contractor situations where a client requires coverage.
Adjuster
A professional who investigates insurance claims to determine the extent of the insurer's liability. Adjusters may be employed directly by the insurance company (staff adjuster) or work independently (independent adjuster).
Agent
A licensed professional who sells and services insurance policies on behalf of one or more insurance companies. An independent agent, like Insure Pacific, represents multiple carriers and can shop for the best coverage and price.
Aggregate Limit
The maximum total amount an insurance policy will pay for all covered losses during a policy period, regardless of the number of claims. Once the aggregate limit is reached, no further claims are paid until the policy renews.
Arbitration
A method of resolving insurance disputes outside of court, where a neutral third party (arbitrator) reviews the facts and makes a binding or non-binding decision.
Assigned Risk
A high-risk applicant who cannot obtain insurance through the standard market and is assigned to an insurance company through a state-mandated pool. Common in auto insurance for drivers with poor records.
Binder
A temporary insurance agreement that provides coverage while a formal policy is being prepared. A binder is legally binding and provides the same protection as the final policy.
Blanket Coverage
A single insurance policy that covers multiple items, locations, or types of property under one limit, rather than scheduling each item separately.
Bodily Injury Liability
Coverage that pays for injuries to another person caused by you or a covered driver in an auto accident. This includes medical expenses, lost wages, and pain and suffering for the injured party.
Broker
A licensed professional who represents the insurance buyer (not the insurance company) and shops multiple carriers to find the best coverage and price. Brokers have a fiduciary duty to their clients.
Business Interruption Insurance
Coverage that replaces lost income and pays ongoing expenses when a business cannot operate due to a covered loss, such as a fire or natural disaster. Also known as business income insurance.
Business Owners Policy (BOP)
A package policy designed for small to medium-sized businesses that bundles property insurance, general liability, and business interruption coverage into a single, cost-effective policy.
Cancellation
The termination of an insurance policy before its expiration date. Either the insurer or the insured may cancel a policy, though each must follow state-mandated notice requirements.
Carrier
The insurance company that underwrites and issues the policy. Insure Pacific works with 50+ carriers to find the right coverage for each client.
Certificate of Insurance (COI)
A document that provides evidence of insurance coverage, including the types and limits of coverage, policy number, and effective dates. Often required by landlords, lenders, or clients before starting work.
Claim
A formal request made by the policyholder to the insurance company for payment of a loss covered under the policy.
Claimant
The person who files an insurance claim. This may be the policyholder or a third party who suffered a loss caused by the insured.
Co-insurance
A provision requiring the policyholder to carry insurance equal to a specified percentage of the property's value. If the property is underinsured, the policyholder shares in any loss proportionally.
Collision Coverage
Auto insurance coverage that pays for damage to your vehicle resulting from a collision with another vehicle or object, regardless of fault.
Commercial General Liability (CGL)
A broad liability policy that protects businesses from claims of bodily injury, property damage, personal injury, and advertising injury arising from business operations.
Comprehensive Coverage
Auto insurance that covers damage to your vehicle from non-collision events such as theft, vandalism, fire, flood, hail, and animal strikes.
Conditions
The section of an insurance policy that outlines the duties and obligations of both the insurer and the insured. Failure to meet policy conditions can result in a denied claim.
Coverage
The protection provided by an insurance policy against specified losses or risks. Coverage is defined by the policy's declarations, insuring agreement, exclusions, and conditions.
Cyber Liability Insurance
Coverage that protects businesses from financial losses resulting from data breaches, cyberattacks, ransomware, and other technology-related risks.
Declarations Page (Dec Page)
The front page of an insurance policy that summarizes the key information: named insured, policy period, covered property, coverage limits, deductibles, and premium. Often called the 'dec page.'
Deductible
The amount the policyholder must pay out of pocket before the insurance company pays a claim. Higher deductibles generally result in lower premiums.
Depreciation
The reduction in value of property over time due to age, wear and tear, or obsolescence. Depreciation is subtracted from replacement cost to calculate actual cash value.
Directors and Officers (D&O) Insurance
Liability coverage that protects the personal assets of corporate directors and officers if they are sued for alleged wrongful acts in managing a company.
Dwelling Coverage
The portion of a homeowners policy that covers the physical structure of the home, including walls, roof, floors, and built-in appliances, against covered perils.
Endorsement
An amendment or addition to an existing insurance policy that changes the terms, coverage, or conditions. Also called a rider. Endorsements can add, remove, or modify coverage.
Errors and Omissions (E&O) Insurance
Professional liability coverage that protects businesses and individuals from claims of negligence, mistakes, or failure to perform professional services. Also known as professional liability insurance.
Exclusion
A specific condition, circumstance, or type of loss that is not covered by an insurance policy. Common exclusions include floods, earthquakes, and intentional acts.
Expiration Date
The date on which an insurance policy's coverage period ends. After this date, the policy must be renewed to maintain coverage.
Farm and Ranch Insurance
A specialized policy that combines property, liability, and agricultural coverage for farming and ranching operations, including structures, livestock, equipment, and crops.
Fire Insurance
Coverage that protects property against loss or damage caused by fire. Most homeowners and commercial property policies include fire coverage as a standard peril.
Flood Insurance
Coverage for damage caused by flooding, which is typically excluded from standard homeowners and commercial property policies. Flood insurance is available through the National Flood Insurance Program (NFIP) or private carriers.
Floater
An endorsement or separate policy that provides coverage for movable personal property, such as jewelry, fine art, or cameras, beyond the limits of a standard homeowners policy.
Gap Insurance
Auto insurance coverage that pays the difference between what you owe on a vehicle loan or lease and the actual cash value of the vehicle if it is totaled or stolen.
General Liability Insurance
Coverage that protects businesses from third-party claims of bodily injury, property damage, and personal injury arising from business operations, products, or completed work.
Grace Period
A specified period after a premium due date during which the policyholder can make payment without losing coverage. Grace periods vary by policy type and state law.
Guaranteed Replacement Cost
A homeowners coverage option that pays the full cost to rebuild a home after a total loss, even if that cost exceeds the policy's coverage limit.
Hazard
A condition that increases the likelihood or severity of a loss. Physical hazards include things like a wood-burning stove; moral hazards involve behaviors that increase risk.
Homeowners Insurance
A package policy that combines property coverage for the home and personal belongings with liability protection for the homeowner. Standard policies cover perils such as fire, theft, and windstorm.
HO-3 Policy
The most common homeowners insurance form, which provides open-peril (all-risk) coverage for the dwelling and named-peril coverage for personal property.
Indemnity
The principle that insurance restores the insured to the same financial position they were in before a loss, without allowing them to profit from the claim.
Independent Agent
A licensed insurance professional who represents multiple insurance companies and can shop the market to find the best coverage and price for clients. Insure Pacific is an independent agency.
Inland Marine Insurance
Coverage for property that is mobile or in transit, including equipment, tools, fine art, and goods being shipped. Despite the name, it covers property on land as well as water.
Insurable Interest
A financial stake in the property or person being insured. You must have an insurable interest to purchase insurance — you cannot insure something in which you have no financial interest.
Insurance Score
A numerical rating based on credit history and other factors used by insurers to predict the likelihood of a future claim. A higher score typically results in lower premiums.
Insuring Agreement
The section of an insurance policy that describes what the insurer agrees to cover and under what circumstances. It is the core promise of the policy.
Liability Coverage
Insurance that protects the policyholder from financial loss if they are legally responsible for injuring someone or damaging their property.
Life Insurance
A contract between an insurer and policyholder in which the insurer pays a death benefit to designated beneficiaries upon the insured's death, in exchange for premium payments.
Limit of Liability
The maximum amount an insurance policy will pay for a covered loss or series of losses. Limits may apply per occurrence, per claim, or in aggregate over the policy period.
Loss
The basis for an insurance claim — an unexpected reduction in value resulting from a covered peril. A loss triggers the insurer's obligation to pay under the policy.
Loss of Use
Coverage that pays for additional living expenses when a covered loss makes a home temporarily uninhabitable. Also called Additional Living Expenses (ALE) in homeowners policies.
Medical Payments Coverage
Coverage that pays for medical expenses of people injured on your property or in your vehicle, regardless of fault. Also called MedPay in auto insurance.
Moral Hazard
The risk that a person may behave differently because they are insured, potentially increasing the likelihood of a claim. For example, being less careful with property because it is insured.
Mutual Insurance Company
An insurance company owned by its policyholders rather than shareholders. Profits may be returned to policyholders as dividends or used to reduce premiums.
Named Insured
The person or organization specifically identified in the declarations page as the primary policyholder. The named insured has the broadest rights under the policy.
Named Peril
A type of coverage that only protects against specific risks listed in the policy. If a peril is not named, it is not covered.
Non-Renewal
The decision by an insurer not to renew a policy at the end of its term. State law requires insurers to provide advance written notice of non-renewal.
Occurrence Policy
A liability policy that covers claims arising from incidents that occur during the policy period, regardless of when the claim is filed. Contrasted with a claims-made policy.
Open Peril (All-Risk) Coverage
A type of property coverage that covers all causes of loss except those specifically excluded in the policy. Provides broader protection than named-peril coverage.
Ordinance or Law Coverage
Coverage that pays the additional cost to rebuild a structure to current building codes after a covered loss. Standard policies may not cover code-required upgrades.
Peril
A specific cause of loss, such as fire, theft, windstorm, or flood. Insurance policies cover losses caused by listed perils (named-peril) or all perils except those excluded (open-peril).
Personal Liability Coverage
Protection against claims of bodily injury or property damage that you or family members cause to others. Included in homeowners and renters insurance policies.
Personal Property Coverage
The portion of a homeowners or renters policy that covers the policyholder's belongings, such as furniture, clothing, and electronics, against covered perils.
Policy
The written contract between the insurer and the insured that outlines the terms, conditions, coverage, exclusions, and premium of the insurance agreement.
Policy Period
The length of time an insurance policy is in effect, typically one year. Coverage applies only to losses that occur during the policy period.
Premium
The amount paid by the policyholder to the insurance company in exchange for coverage. Premiums may be paid monthly, quarterly, semi-annually, or annually.
Professional Liability Insurance
Coverage that protects professionals from claims of negligence, errors, or omissions in the performance of their professional services. Also known as Errors and Omissions (E&O) insurance.
Property Damage Liability
Coverage that pays for damage you or a covered driver cause to another person's property in an auto accident, including their vehicle and other property.
Renters Insurance
A policy that covers a tenant's personal belongings against covered perils and provides personal liability protection. The landlord's policy covers the building but not the tenant's possessions.
Replacement Cost Value (RCV)
The cost to replace damaged or destroyed property with new property of like kind and quality, without deducting for depreciation. Provides more complete coverage than actual cash value.
Rider
An amendment to an insurance policy that modifies the original terms. Also called an endorsement. Riders can add, remove, or change coverage.
Risk
The possibility of financial loss or the uncertainty about whether a loss will occur. Insurance transfers risk from the policyholder to the insurance company in exchange for a premium.
Schedule
A list of individually identified items and their values within an insurance policy. Scheduling provides specific coverage for high-value items like jewelry, art, or equipment.
Self-Insured Retention (SIR)
Similar to a deductible, the amount the insured must pay before the insurer's coverage applies. Unlike a deductible, the insured manages and pays claims up to the SIR amount.
Subrogation
The legal right of an insurer to pursue a third party that caused an insurance loss in order to recover the amount paid to the policyholder. Prevents the insured from collecting twice for the same loss.
Surety Bond
A three-party agreement in which the surety (insurance company) guarantees to the obligee (project owner) that the principal (contractor) will fulfill their obligations. Common in construction and government contracting.
Term Life Insurance
Life insurance that provides coverage for a specified period (term), such as 10, 20, or 30 years. If the insured dies during the term, the death benefit is paid to beneficiaries.
Third Party
A person or entity other than the insured and the insurer who has a claim against the insured. Third-party liability coverage protects the insured from claims made by third parties.
Total Loss
A situation in which the cost to repair damaged property exceeds its actual cash value, or the property is damaged beyond repair. In auto insurance, a vehicle is typically declared a total loss when repair costs exceed 70-80% of its value.
Umbrella Insurance
A liability policy that provides additional coverage above and beyond the limits of underlying policies such as auto and homeowners insurance. Umbrella policies typically provide $1 million or more in additional protection.
Underinsured Motorist Coverage (UIM)
Coverage that pays for your injuries and damages when you are hit by a driver whose liability insurance limits are insufficient to cover your losses.
Underwriting
The process by which an insurer evaluates the risk of insuring a person or property and determines whether to offer coverage and at what premium.
Uninsured Motorist Coverage (UM)
Coverage that pays for your injuries and damages when you are hit by a driver who has no liability insurance or flees the scene (hit-and-run).
Waiver
The voluntary relinquishment of a known right. In insurance, a waiver may refer to the insurer's decision not to enforce a policy provision, or a waiver of subrogation that prevents the insurer from pursuing a third party.
Whole Life Insurance
Permanent life insurance that provides coverage for the insured's entire life and includes a cash value component that grows over time. Premiums remain level throughout the life of the policy.
Workers Compensation Insurance
Coverage required by law in most states that pays for medical expenses and lost wages for employees who are injured or become ill as a result of their job. Also protects employers from lawsuits by injured workers.
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