Glossary of Insurance Terms

This page provides a glossary of insurance terms and definitions that are commonly used in the insurance business. New terms will be added to the glossary over time.

The definitions in this glossary are developed by the NAIC Research and Actuarial Department staff based on various insurance references. These definitions represent a common or general use of the term. Some words and/or phrases may be defined differently by other entities, or used in a context such that the definition shown may not be applicable.

(Click on the letter to view terms beginning with that alphabet.)

Glossary Of Insurance Terms And Definitions

A

Actual Cash Value

Value of your property, based on the current cost of replacement, less depreciation.

Additional Insured

A person or organization for whom insured status is arranged by endorsement.

Adjuster

An individual employed by an insurance company whose main function is to evaluate losses and settle policyholder claims.

After-Market Parts

Automotive replacement parts made by a company other than the vehicle’s manufacturer. Typically, after-market parts cost less than original equipment parts.

Agent

An individual who sells insurance coverage as the authorized representative of a specific insurance company or independently for several companies. Also you can get the insurance outsourcing with a Virtual Insurance Service.

Aggregate

The maximum dollar amount or total amount of coverage payable, during the policy period, for a single loss or multiple losses.

All Risk Coverage

A policy that covers property for a broad range of losses or risks, arising from all causes, except those specifically excluded in the policy contract. Also, sometimes known as open peril.

Amendment

A means of altering a policy by changing the basic policy contract.

Anti-lock Braking System (ABS)

A computer-controlled high pressure system that provides assistance to the vehicle’s normal braking system. ABS permits all wheels to slow at the same rate, preventing loss of control due to wheel lock-up or skidding.

Anti-Theft Device

A device specifically designed to reduce the chance a vehicle will be stolen or vandalized, or assist in its recovery. These include car alarms, keyless entry, starter disablers, motion detectors, and recovery systems, such as LoJack.

Appraisal

A process usually performed by an impartial expert that determines the value of property or the extent of damage to said property.

Arbitration

A process used as an alternative to legal action to settle a dispute between two parties through a neutral third party.

Assigned Risk (AIP)

A driver or vehicle owner who cannot qualify for auto insurance in the regular market must obtain coverage through a risk plan assigned by the state, usually at increased rates.

Assured

Basically, it means the same as an insured, policyholder, or someone who has an insurance policy in effect.

At-Fault

The party that is considered legally liable for the damages caused in an accident.

Auto Insurance

An insurance policy that provides required financial protection from expenses, such as personal liability and property damage, which may arise from an automobile accident.

Auto Theft

The theft of a vehicle. This type of loss is covered under comprehensive coverage.

B

Binder

A temporary agreement issued by an insurer that declares the policy is in effect, usually to protect a policyholder when the policy cannot be endorsed immediately

Bodily Injury

Any physical injury suffered by a person as a result of an accident.

Bodily Injury Liability Coverage

The coverage carried by an insured driver considered legally liable for an accident. It pays for damages in the event of bodily injury or death – to other than the insured driver. In addition, should a lawsuit ensue, it can also pay for legal defense costs.

C

Cancellation

Termination of an insurance policy prior to the end of the policy period or renewal date by either the insured or insurer.

Carrier

The insurance company or insurer who provides coverage to an insured person for a fee.

Catastrophe

A disaster of immense magnitude affecting a specific geographic area, often causing injury or death and extensive property damage. Hurricanes, floods, tornadoes and earthquakes are typical examples of catastrophes that result in considerable financial loss.

Certificate of Financial Responsibility (CFR)

Depending on state and Motor Vehicle requirements, this is a form that certifies the purchase, by an individual, of a specific coverage, which meets the state’s Financial Responsibility laws. This could be an SR-22, FR-44, SR-50, or any other State Requirement certification form. See SR-22

Certificate of Satisfaction

A standard form signed by the insured party when taking delivery of their car from the repair shop. It certifies satisfaction with the operation of the vehicle, appearance, and visible quality of the repairs.

Claim

Any request for reimbursement by a policyholder or second party from an insurance company for a loss to property or personal injury under the terms of the insurance policy.

Claimant

An individual or entity who files an insurance claim with an insurer for specified damages.

Claim Examiner

An individual responsible for conducting an investigation into the validity and settlement of a claim.

CLUE® Report

Acronym for Comprehensive Loss Underwriting Exchange (CLUE) report; provides claim and loss history information by an individual policyholder.

Collision Insurance Coverage

Coverage (optional) that pays for damage to a vehicle without regard to who caused an accident. Insurance company must pay for repairs or up to the actual cash value of the vehicle, minus the deductible, if totaled.

Comparative Negligence

A doctrine of law used in some states that may allow claimants to recover a portion of their damages even when they are partially at fault, or negligent, based primarily on the percentage of responsibility for the accident.

Competitive Estimate

An industry term used by insurance companies to requests that you submit multiple repair estimates for cost consideration.

Comprehensive Physical Damage Coverage

Coverage (optional) that pays for physical damage not caused by a collision or the loss of your vehicle, resulting from vandalism, flood, fire, and theft.

Conditions

The part of the insurance policy where the duties and responsibilities of both the insured and the insurance company are outlined and must be agreed upon.

Contributory Negligence

A legal statute followed in some states, that bars claimants from recovering any portion of their damages if they are found to be even partially at fault, or negligent in an accident.

Coverage

Protection and benefits provided to an insured party by his or her insurance company, according to what is specified in the policy.

Customized Vehicle

A vehicle that has been altered visually or mechanically by accessories not usually included as part of the vehicle’s original factory equipment.

D

Damage

Loss or harm resulting from injury to an individual or property.

Damages

Compensation, usually in the form of a set financial arrangement, that one party legally owes to another party.

Declarations

The part or page of your insurance policy that states your name and address; the property being insured, location and description of the property; the length of the policy period; amount of insurance coverage and applicable premiums.

Deductible

A set dollar amount, per the insurance policy, that the insured party must pay out-of-pocket on each loss to which the deductible applies. The insurance company pays the remainder of each covered loss up to the policy limits.

Defensive Driver Discount

Discount offered by insurance companies to older drivers (usually over age 50 or 55) who have voluntarily taken a defensive driving course..

Depreciation

The decrease in the value of property, such as a vehicle, over time due to age, wear and tear.

Direct Pay

An electronic payment method that lets you pay your monthly premiums with automatic deductions by your insurance company directly from your checking account.

Discount

A reduction in your premium based on certain factors that likely decrease an insurer’s losses or expenses. Also used by insurers to draw more business from you, such as offering discounts for insuring more than one vehicle or bundling a home and auto policy. A good driving record and safety features on your vehicle may qualify you for a discount as well.

Driver Training Discount

A discount for individuals who have taken an approved state accredited driver training course that consists of time spent behind-the-wheel with professional instruction. May not be available in all states or to all individuals.

E

Electronic Funds Transfer (EFT)

An electronic payment method that lets you pay your monthly premiums with automatic deductions by your insurance company directly from your checking account. .

Emergency Road Service Coverage

Protection for problems that are vehicle-related, but not typically covered as part of your auto insurance. These can include: Towing unrelated to an accident, locking yourself out of your vehicle, jumping or recharging a dead battery, replacing a flat tire, or delivering emergency gas to your car if you run out. Cost is in addition to your premiums

Endorsement

A document, when attached to a policy, modifies or changes the original provisions of the policy in some way.

Estimate

An assessment or calculation of the cost to repair your damaged property.

Exclusion

Section of the insurance policy that lists property, person, perils, or certain situations that are not covered under the existing policy.

Expiration Date

The date your coverage ends. Usually a definitive time of day is associated with this date. For example, an expiration date of 5/1/2015 at 12:01am – means your coverage ends at one minute after midnight on the date listed.

F

Field Adjuster

An insurance adjuster, who works mostly outside of an office, conducting face-to-face meetings with the public. Field adjusters can also engage in negotiations with claimants, perform scene investigations, and damage inspections.

Financed Car

A vehicle that is financed by an extended loan. The lender retains the vehicle’s title until the loan has been paid off.

First Party

Term used to refer to an insured individual.

First Party Claims

A claim for damage, loss or injury filed by an insured individual.

G

Gap Insurance

Insurance protection primarily for those making lease or loan payments. In the event of a total loss from an accident or theft, there may be a difference (gap) between the market value of your vehicle and what you still owe on it. This optional coverage or gap insurance pays the difference to the lender.

Good Student Discount

Discount awarded to full-time high school or college students who maintain a grade average of “B” or better. Not all carriers are alike and varying rules and conditions may apply.

H

Hazard

Any condition or situation that increases the chance of an accident or loss occurring.

I

Indemnification

The act of one party providing monetary compensation for a loss with the intent to restore a second party, such as an individual or entity, to the approximate financial position it enjoyed prior to the loss.

Indemnity

A principle of insurance, providing that when a loss occurs, the insured party should be restored to approximately the same financial condition it occupied before the loss occurred, no better, no worse.

Independent Adjuster

An individual who independently estimates losses on behalf of various insurance companies, while not being an employee of those companies.

Insurable Interest

Any financial interest an individual has in the property or person insured, which exists when a substantial economic loss is suffered as a result of bodily injury or property damage .

Insurance Card

See Insurance ID Card.

Insurance Fraud

The criminal act of falsifying or exaggerating facts of an accident to deceive an insurer in order to wrongly obtain payment that would not otherwise be made. Some common types of insurance fraud are staged accidents, fake or exaggerated injuries, and inflated medical bills.

Insurance ID Card

Also referred to as an Insurance Card, it serves as evidence of coverage when requested by law enforcement. Issued by your insurance carrier, the card provides basic information about your insurance policy.

Insurance Score

A confidential ratings tool created and used by insurance companies for underwriting purposes in some states. It may include information about the consumer’s payment history, claim history, the number of open accounts and if bankruptcy has been filed to estimate the likelihood that a policyholder will make a future claim.

Insurer

An organization that provides insurance coverage to individuals and entities.

L

Leased Vehicle

A vehicle rented under a long-term contract (lease) whose ownership is retained by the leasing company until the term of the lease, typically two or three years is terminated. The leasing company must be shown on your insurance policy as the primary insured party.

Legal Liability

Liability imposed by law; not the liability arising from an agreement or contract.

Liability

Any legally enforceable obligation or responsibility to make monetary restitution for the injury or damage suffered by another person.

Liability Examiner

Examiners who review settled insurance claims to determine that payments and settlements have been made in full accordance with the law, company practices, and procedures.

Liability Insurance Coverage

Insurance that provides protection on behalf of the policyholder from claims arising from bodily injuries or property damage as covered in the policy.

Liability Investigation

The investigative process of gathering information to determine the specific cause of an accident.

Lien

A legally filed claim, charge, or encumbrance on property as a security measure to ensure the payment of a debt.

Lienholder

An individual or organization with a financial interest in property up to and not exceeding the amount of money borrowed or still owed on the property.

Limit

The maximum amount of protection and compensation purchased by the insured for a specific coverage in the event of a loss.

Limits of Liability

The maximum amount of insurance your insurance company will pay out for a particular loss or for losses during a certain period of time.

Loss

Any measurable dollar cost incurred as a result of damages and/or injuries suffered by a person in an accident.

Loss of Use

Compensation paid to a third-party claimant for financial consequences they may have suffered from the inability to use their property because of accident-related damage.

M

Malicious Mischief

The act of intentionally damaging or destroying the personal property of another with malice of forethought.

Material Damage

All property-related damage losses that are covered by the policy, including the following: property damage, comprehensive damage, collision damage, fire/theft combined additional coverage, rental reimbursement, or uninsured motorist property damage.

Mechanical Breakdown Insurance

Covers repairs to all vital mechanical parts of your vehicle against costly out of pocket repairs.

Medical Claim Examiner

An individual responsible for reviewing all medical bills, replacement/essential services, and lost wages submitted to the company for injuries sustained by you and/or the passengers in your vehicle. This depends upon the coverage on your policy and your state of residence.

Medical Payments Coverage

Coverage (optional), which is subject to the terms, limits and conditions of your policy, pays medical expenses for bodily injury related to an automobile accident.

Misrepresentation

Making a written or verbal statement that is false or misleading with the intent of benefitting in some way from the statement.

Motor Vehicle Report (MVR)

A report generated from the agency (DMV) that issues your driver’s license, lists accidents and moving violations that appear on your driving record. Used to verify information provided by policyholders and those applying for insurance.

Multi-Car Discount

A discount offered by various insurance companies to policyholders who insure more than one vehicle on the same policy.

N

Named Insured

Any individual or entity designated by name as the insured person(s) in a policy. In some cases, others may be covered by policy definition although their names aren’t listed on the policy. This can include drivers operating (with consent) the named insured’s covered vehicle.

National Insurance Crime Bureau (NICB)

A not-for-profit organization working closely with insurers and law enforcement agencies, dedicated exclusively to fighting insurance fraud and crime, and, whose main goal is to facilitate the identification, detection, and prosecution of insurance criminals.

Negligence

The inadvertent or deliberate failure to exercise reasonable care and consideration, resulting in loss, injury or damage to oneself or others.

No-fault Insurance

A type of insurance available in some states that may pay for your medical expenses, lost wages, accidental death, funeral costs, or other accident-related expenses regardless of who caused the accident.

Non-Renewal

When your auto insurer decides, for any number of reasons, to notify you that they don’t intend to renew your policy at the end of its policy period.Your current coverage will continue until the end of that period, then immediately cease.

O

Original Equipment Manufacturer (OEM) Parts

OEM parts are auto parts obtained from the original manufacturer of the car or the supplier of the original part. Because OEMs are more costly than after-market parts, insurance companies are more likely to choose them over OEMs.

P

Passive Restraint System

A passenger safety system, such as an air-bag, designed specifically to activate automatically to protect the occupants of a vehicle from injury in the event of an accident.

Personal Injury Protection

Insurance coverage, mandated by law in certain states, that may pay your medical expenses, lost wages, or other accident-related expenses regardless of who is at-fault in the accident.

Personal Property

Property not considered or connected to land (real estate of any kind), such as furniture or jewelry.

Policyholder

The individual or entity who maintains ownership of an insurance policy and entitlement to covered benefits in case of an accident, injury or loss.

Pre-accident Condition

The state of a vehicle before an accident, which includes damage not related to the accident, mileage, options, and other factors.

Premium

The price of insurance an insured person is charged to be covered by an insurance company for a specified period of time.

Proof of Loss

A statement made by a policyholder regarding the extent of a claim, which may be requested in accordance with the conditions of the policy.

Property Damage Liability Coverage

Coverage that pays for damage caused to someone else’s property as a result of an accident for which you are considered at fault. Also, provides you with a legal defense in case you are sued.

Proximate Cause

An act or omission initiating an unbroken sequence of events that result in an injury to an individual or damage to property.

Q

Quote

A statement of the proposed premium amount to be charged for insurance coverages based entirely on specific information provided by the individual requesting insurance. Subject to change depending on verification of driving record, vehicle, and drivers to be covered.

R

Rate

Frequently used as a synonym for premium, it actually refers to the base rating units used to determine the final cost of the insurance premium.

Rating Plan

The rules that insurers use as guidelines to determine the cost of your auto insurance premium. Based on an insured’s personal characteristics, the rules modify the base rates by applying discounts and surcharges that are relevant to the policy.

Re-inspection

A review of an estimate or appraisal done by an insurance adjuster during or after repairs to a vehicle in order to guarantee the accuracy of staff or independent auto damage personnel as well as to guarantee that the work required in an estimate or appraisal is being completed by the body shop.

Release

Legally binding contract signed by an insured individual that states that all obligations past, present or future, arising from a particular claim, have been fulfilled, thereby, dismissing the insurance carrier of any future claims or liability involving the original claim.

Renewal Date

The stated date on the written insurance contract that your policy expires and the date that your renewed policy is to begin.

Rental Reimbursement

Coverage (optional) that, typically, pay a set daily amount for a rental vehicle while a policyholder’s own vehicle is being repaired due to damage sustained in an accident or loss, and which is covered by their auto insurance policy.

Renters Insurance

Insurance coverage that provides protection from losses, involving personal property or liability, that arise out of the renting of an apartment, condominium, or single family home owned by another individual other than the tenant.

Replacement Parts

Insurance companies have the option of using several types of parts to repair your damaged vehicle. These can be: new parts, original manufacturer equipment or after-market; and, recycled used parts. The age of your vehicle may decide what type of part your insurer will use.

Rider

A written agreement, also known as an endorsement, attached to the policy contract expanding or limiting the benefits otherwise payable under the insured individual’s policy.

S

Salvage

Property that has been damaged, but may be retrieved, reconditioned, and sold at auction or otherwise following payment of a claim by an insurance company as a means to recoup some of their losses.

Self-Insured Retention

Comparable to a deductible in other types of insurance coverages, such as collision and comprehensive, self-insured retention refers to umbrella insurance and the specific amount of damages the policyholder is liable for before the UC begins to cover the loss.

SR-22, Certificate of Financial Responsibility (CFR)

Not to be confused with an insurance policy, an SR-22 (CFR) is a certificate mandated by the state an individual resides in to verify that the individual is maintaining the required minimum auto insurance liability coverage. Should an individual need an SR-22, they will usually receive notification from their state’s Motor Vehicle Department.

SR-26

An SR-26 insurance form is filed by auto insurance companies when an insurance policyholder’s SR-22 certificate is no longer mandatory or when the policy expires or is cancelled. This form is not to be filed before policy term and probationary period are over or it could result in the state revoking driving privileges.

SR-50

An SR-50 is a form, or Affidavit or Current Insurance, issued by the insurance carrier and sent directly to the Bureau of Motor Vehicles to validate its insured driver’s compliance to the state’s financial responsibility mandates.

Subrogation

If your vehicle sustains damage as a result of another driver’s apparent negligence and you ask you insurer to settle the claim for the damage on your behalf, they will seek payment recovery, including your deductible from the other driver. The process of recovering payment is known as subrogation.

Supplement/Supplemental Estimate

While most claims settlements are fairly accurate when estimating costs of repairs, if they are inaccurate due to damage unaccounted for in the original estimate, you are entitled to any additional funds to settle your claim satisfactorily. These are paid with a supplement through a supplemental estimate.

T

Theft

The unlawful taking of another individual’s property with the full intent of depriving the owner of its use or possession permanently.

Third Party

Individual or entity other than the insured or insurer who has incurred losses or is entitled to receive payment due to acts or omissions on the part of the insured.

Third Party Claim

A claim for injury or damage to the property of a third party, which is alleged to have been caused by the actions of the insured.

Tort

A private wrong or harm (other than a breach of contract), either intentional or accidental (negligent), committed against another party, resulting in legal liability.

Total Loss

An insurance term used to describe the condition of a vehicle, boat, or home, where the cost of a repairing the item far exceeds the current value of that item.

Towing and Labor Coverage

Coverage (optional) that can be added to the physical damage coverage portion of a policy, which provides reimbursement up to a specified limit to tow your vehicle or pay for roadside labor costs.

U

Umbrella Insurance

Separate (optional) policy designed for the purpose of providing a policyholder higher limits of additional liability coverage above those of homeowner’s and auto policies in the event of catastrophic losses normally covered under liability.

Underwriting

The process of evaluation an insurer goes through to determine whether or not it will provide the coverage requested by an applicant. .

Uninsured Motorist Coverage

Coverage (optional in some states; required in others) that is in addition to a standard auto insurance policy. This extra coverage pays for a policyholder’s injuries and property damage resulting from a hit-and-run or a motorist without liability insurance. In some instances, it will also take care of medical and vehicle repair bills when higher than the other driver´s liability coverage.

V

Vandalism

The deliberate destruction or defacement of public or private property by various means.
Vehicle Identification Number (VIN)
A 17-digit number assigned to each vehicle manufactured in the United States after 1980, the VIN, which is placed on the dashboard to be visible from outside of the vehicle, is used primarily for identification purposes.

W

Warranty

Coverage in the form of a written assurance that protects the consumer against manufacturer’s defects of a product and holds the manufacturer accountable for the repair or replacement of defective parts for the duration of the stated warranty period. Periods can be for 1 year or more.

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