Insurance policies are filled with industry-specific language that can make your eyes glaze over. This glossary defines more than 60 common insurance terms in plain English — so you can understand your policy, ask better questions, and make smarter coverage decisions.
A–C Terms
Actual Cash Value (ACV)
The value of property at the time of loss, accounting for depreciation. If your 5-year-old TV is stolen, ACV pays what it was worth today — not what a new one costs. Compare to Replacement Cost Value.
Additional Living Expenses (ALE)
Coverage that pays for temporary housing, food, and other costs when a covered peril makes your home temporarily uninhabitable. Also called "Loss of Use" coverage.
Adjuster
A person who investigates insurance claims to determine the extent of loss and appropriate settlement amount. Insurance company adjusters work for the insurer; public adjusters work for policyholders.
Agent
A licensed professional who sells insurance on behalf of one or more insurers. Captive agents represent one company; independent agents work with multiple carriers and can shop the market.
Aggregate Limit
The maximum total amount an insurer will pay for all claims during a policy period. Common in business liability policies — e.g., a $1M/$2M policy has a $1M per-occurrence limit and $2M aggregate limit per year.
Binder
A temporary insurance agreement that provides coverage while a formal policy is being issued. Often used in real estate closings and business insurance situations.
Bodily Injury Liability
Coverage that pays for medical expenses, lost wages, and other damages when you injure someone else in an accident. Required in nearly every state as part of auto insurance. See our guide on liability insurance.
Broker
A licensed professional who represents the buyer (not the insurer) in finding coverage. Brokers work with multiple companies and have a fiduciary-like duty to find appropriate coverage for their clients.
Carrier
Another term for an insurance company — the entity that "carries" the risk by issuing the policy.
Claim
A formal request to an insurance company for payment under the terms of a policy following a covered loss or event.
COBRA
Consolidated Omnibus Budget Reconciliation Act. A federal law allowing you to continue employer-sponsored health coverage for up to 18 months after leaving a job, at your own cost (usually expensive).
Coinsurance
In health insurance, the percentage of covered costs you pay after meeting your deductible. If your coinsurance is 20%, you pay 20% of covered expenses and the insurer pays 80%. In property insurance, a clause requiring you to insure your property to a minimum percentage of its value.
Collision Coverage
Auto insurance that covers damage to your vehicle from a collision with another vehicle or object, regardless of fault. Subject to your collision deductible.
Comprehensive Coverage
Auto insurance that covers non-collision damage to your vehicle — theft, vandalism, weather events, fire, falling objects, and animal strikes. Subject to your comprehensive deductible.
Copay (Copayment)
A fixed amount you pay for a covered health service at the time of service — for example, $25 per doctor visit. Copays typically don't count toward your deductible.
D–F Terms
Declarations Page (Dec Page)
The summary page of your insurance policy showing the named insured, coverage types, limits, deductibles, premium, and policy period. Your quick reference for what you're covered for.
Deductible
The amount you pay out of pocket before insurance begins paying a claim. A $1,000 deductible means you cover the first $1,000 of a loss; insurance pays the rest. Higher deductibles = lower premiums. See our deductible guide.
Depreciation
The reduction in an item's value over time due to age, wear, and obsolescence. Actual cash value claims factor in depreciation; replacement cost claims do not.
Dwelling Coverage
The portion of a homeowners policy that covers the structure of your home — walls, roof, foundation, and built-in fixtures. Coverage should equal the cost to rebuild your home, not its market value.
Elimination Period
In disability insurance, the waiting period between when you become disabled and when benefits begin. Functions like a deductible measured in time rather than dollars. Common periods: 30, 60, 90, or 180 days.
Endorsement (Rider)
An amendment to an insurance policy that modifies its terms — adding, removing, or changing coverage. Also called a "rider." Example: scheduled personal property endorsement for jewelry.
Exclusion
A specific condition, peril, or circumstance that a policy does not cover. Understanding exclusions is critical — floods excluded from homeowners, intentional acts excluded from liability policies.
Face Value
The death benefit stated in a life insurance policy — the amount paid to beneficiaries upon the insured's death.
Flood Insurance
Separate coverage for flood damage, which is excluded from standard homeowners policies. Available through FEMA's NFIP or private insurers. See our flood vs. homeowners guide.
G–L Terms
Gap Insurance
Auto coverage that pays the difference between what you owe on a car loan and what your car is worth if it's totaled. Important for new cars and those with long loan terms where you might be "underwater."
Grace Period
A period after a premium due date during which the policy remains in force without cancellation for non-payment. Typically 10–30 days depending on policy type and state law.
HDHP (High-Deductible Health Plan)
A health insurance plan with a higher deductible than traditional plans ($1,600+ for individuals in 2025) but lower premiums. HDHPs qualify for Health Savings Accounts (HSAs).
HSA (Health Savings Account)
A tax-advantaged account available to HDHP enrollees. Contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free — a triple tax benefit.
Indemnity
The core insurance principle of restoring you to your financial position before a loss — no better, no worse. Insurance compensates for actual losses; you can't profit from a claim (in theory).
In-Network
Healthcare providers who have contracted with your health insurance company to provide services at negotiated rates. Using in-network providers results in lower out-of-pocket costs than out-of-network providers.
Insurable Interest
A financial stake in the subject of insurance. You can only insure something you'd suffer a financial loss from if it were damaged or destroyed. You have insurable interest in your own car, home, and life — but not a stranger's.
Lapse
The termination of a policy due to non-payment of premium. A lapsed policy provides no coverage. A coverage gap can affect future insurability and premiums.
Liability Coverage
Insurance that pays for damages and injuries you cause to other people. Required for auto insurance; included in homeowners, renters, and umbrella policies. See our full liability insurance guide.
Loss of Use
See Additional Living Expenses (ALE). In auto insurance, "rental reimbursement" is the analogous coverage paying for a rental car while yours is being repaired.
M–P Terms
Medical Payments Coverage (MedPay)
In auto insurance: covers medical expenses for you and your passengers regardless of fault. In homeowners/renters: covers minor medical expenses for guests injured on your property without requiring a liability claim.
Named Peril
A policy that only covers losses explicitly listed (named) in the policy — fire, theft, wind, hail, etc. Contrast with "open peril" (or "all-risk") coverage, which covers all causes of loss except those specifically excluded. Open peril provides broader protection.
No-Fault Insurance
A system (used in about a dozen states) where each driver's own insurance pays for their injuries and damages, regardless of who caused the accident. Reduces litigation but limits your ability to sue.
Out-of-Pocket Maximum
The most you'll pay for covered healthcare in a plan year. After reaching this limit, your insurer pays 100% of covered costs for the rest of the year. For 2025, the ACA maximum is $9,450 for individuals, $18,900 for families.
Out-of-Network
Healthcare providers who don't have a contract with your insurer. Out-of-network care typically costs significantly more, and some plans don't cover out-of-network care at all (except emergencies).
Peril
A cause of loss — fire, theft, windstorm, flood. Insurance policies list covered perils (named peril) or exclude specific perils (open/all-risk).
Personal Property
Movable belongings covered under homeowners or renters insurance — furniture, clothing, electronics, appliances, jewelry. Coverage is typically 50–70% of your dwelling limit in a homeowners policy.
Policy Period
The dates during which an insurance policy is in force — typically one year for most personal lines policies.
Premium
The amount you pay for insurance coverage, typically billed monthly, semi-annually, or annually. Paying annually often earns a small discount.
Property Damage Liability
Covers damage you cause to someone else's property — their vehicle, fence, building, etc. Required component of auto liability insurance in every state.
R–S Terms
Replacement Cost Value (RCV)
Pays the full cost to replace damaged or destroyed property with new items of similar kind and quality — without deducting for depreciation. Superior to Actual Cash Value coverage but costs more. Well worth the additional premium for most homeowners and renters.
Rider
See Endorsement. In life insurance, a rider adds additional coverage — disability waiver of premium, accidental death benefit, long-term care riders, etc.
SR-22
A certificate of financial responsibility filed by your insurer with the state, proving you carry the required auto insurance. Required after certain violations: DUI, driving uninsured, license suspension. Not a type of insurance itself — it's a filing that often results in higher premiums.
Subrogation
The right of your insurer to pursue a third party responsible for your loss after paying your claim. If your insurer pays for repairs after an accident caused by another driver, they can then sue that driver's insurer to recover those costs. You typically must cooperate with subrogation and can't independently release the at-fault party from liability.
Surcharge
A premium increase applied after a claim, violation, or other adverse event. An at-fault accident surcharge might increase your auto premium 25–50% for 3–5 years.
T–Z Terms
Term Life Insurance
Life insurance providing coverage for a specified period (term) — 10, 20, or 30 years. If the insured dies during the term, the death benefit is paid. No cash value. Most cost-effective type of life insurance for most people. See our comparison: term vs. whole life.
Umbrella Policy
A personal liability policy providing additional coverage — typically $1M–$5M — above your auto and homeowners liability limits. Covers a broad range of liability scenarios at relatively low cost. See our umbrella insurance guide.
Underwriting
The process by which an insurer evaluates a risk and determines whether to offer coverage, and at what price. Underwriting factors for auto insurance include driving record, age, credit score, vehicle type, and location.
Uninsured/Underinsured Motorist Coverage (UM/UIM)
Covers you if you're injured by a driver with no insurance (UM) or insufficient insurance to cover your damages (UIM). Strongly recommended — about 13% of drivers are uninsured nationally.
Waiting Period
A period before coverage begins or before certain benefits become available. Disability insurance has an elimination period (waiting period before benefits start); health insurance may have waiting periods for pre-existing conditions in some contexts; NFIP flood insurance has a 30-day waiting period.
Whole Life Insurance
Permanent life insurance providing lifelong coverage plus a cash value component that grows over time. Significantly more expensive than term life. Appropriate for specific estate planning and permanent coverage needs. Compare: term vs. whole life.