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Common Insurance Terms

Actual Cash Value

In automobile insurance, actual cash value is equivalent to a vehicle’s pre-loss market value. In homeowner's insurance, actual cash value represents the actual cost to replace a damaged item less depreciation.

Agent

A person or firm authorized to sell insurance as a representative of the insurance company (also see producer).

Adjuster

A person or firm who is employed by the insurance company (or contracted by the company) and is responsible for investigating and determining the value of your loss.

Alaska Automobile Insurance Plan

An entity established to provide automobile insurance to people who are unable to find a licensed insurance company willing to sell them a policy.

Annuitant

A person who receives income payments from an annuity.

Application

The form on which you provide the information required by the insurer for their use determining whether to sell you an insurance policy. The information provided on this form is also used to determine the premium rate you will be charged for the insurance policy.

Arbitration

A process of resolving disputes in a nonjudicial setting to determine the rights or obligations under a contract.

Beneficiary

A person named by the owner of a life or annuity to receive benefits under an insurance policy.

Binder

A temporary proof of insurance that is only valid for the number of days indicated on the binder or until the actual insurance policy is issued, which time period is shorter. A binder is not issued in life and health insurance.

Broker

A producer who represents you, not the insurance company, and who helps you find an insurance policy. Brokers cannot bind your coverage.

Cancellation

The termination of your insurance coverage at any time other than at a policy anniversary date.

Cash Value

The amount of money you are entitled to receive from the insurance company when you terminate a life insurance or annuity policy. The amount of cash value will be determined as stated in the policy.

Claim

A request for benefits for a loss made against you or your insurance company.

Commission

The amount paid by the insurance company to the producer as compensation for selling and servicing an insurance policy.

Covered Loss

Any claim that is covered under the provisions of your insurance policy.

Declaration Page

The part of your insurance policy that shows the policy period, who and what is insured, the basic amounts, and general types of coverage being provided. The declaration page also lists all the documents or policy forms, endorsements, and riders which make up the insurance policy.

Deductible

The amount you pay when you have a claim before your insurance company begins payment.

Endorsement

Written agreement attached to a policy to add or subtract insurance coverages. An endorsement modifies the original provisions in a policy.

Evidence of Insurability

Statement or proof of a person’s medical history, occupation, age, lifestyle, and physical condition upon which acceptance for coverage will be made.

Incontestability Clause

Section in a life insurance policy stating that after the policy is in force for a period of time (usually two years), the company cannot terminate the policy because of misrepresentation or concealment by the insured in obtaining the policy.

Inflation Guard Endorsement

An endorsement to a home owner's policy that adjusts the policy limits based on the insurer’s estimates of increases in building costs.

Insurance Policy

The entire written legal contract of insurance that describes you and your insurance company’s rights and responsibilities.

Insured

The person covered by an insurance policy. The insured is often the policyholder.

Insurer

The insurance company.

Lapse

For property/casualty insurance, termination of your policy for failure to pay your premium. For life insurance, termination of your policy for failure to pay premium and lack of enough cash value to pay the premium.

Lienholder

The person or entity that holds a security interest in a property until debt on the property is paid off.

Limits of Liability

The maximum amount a policy will pay, either overall or under a particular coverage.

Misrepresentation

When a policyholder or applicant makes an oral or written false statement of any fact.

Nonrenewal

The insurance company’s failure to continue coverage at a policy anniversary.

Personal Property

Property that belongs to the insured and family members living in the insured’s home other than real estate.

Policyholder

The person who purchases or owns an insurance policy.

Premium

The amount of money that you are charged to purchase or maintain your insurance coverage.

Producer

The person who sells you an insurance policy.

Proof of Loss

A formal statement made by the insured to the insurance company providing sufficient information concerning the loss that the company uses to determine its liability under the policy.

Provider

Physicians and other individuals or entities that provide medical care.

Provider Network (Out-of-Network Provider)

A provider network is a list of the doctors, other health care providers, and hospitals that a plan contracts with to provide medical care to its members. These providers are called “network providers” or “in-network providers.” A provider that isn’t contracted with the plan is called an “out-of-network provider.”

Rating Agency

An independent organization that reviews the financial condition of insurance companies and provides a grade based on their review.

Rebate

When an insurer or producer agrees to accept a lower commission or provides something of value not stated in the insurance policy to an applicant or the insurance company in exchange for the applicant’s agreement to purchase an insurance policy.

Renewal

The continuation of your insurance coverage at the end of the original policy period with the same insurance company.

Replacement Cost

The cost to repair or replace an insured item without adjustment for depreciation.

Self-Funded (also called Self-Insured) Plans

Self-funded health plans are not insurance policies. An insurance policy is one where an employer or group transfers the risk to an insurance company. An employer or group who self-funds/insures their benefits determines what benefits to offer, pays medical claims from employees and their families, and assumes the risk. A Third-Party Administrator (TPA) often provides administrative claims services for the employer or group who are self-funding their benefits.

Importantly:

  • An insurance company may provide both insurance for one group and function as a TPA for a self-funded plans for another group
  • Some third-party administrators only handle self-funded plans

Stop-Loss Insurance

Insurance coverage purchased by employers, associations, labor unions, and other entities that choose to self-insure. Stop-loss insurance pays for claims that exceed a preset limit often called the retention amount.

Subrogation

In property/casualty insurance, the transfer to an insurance company of an insureds rights to recover from a third party.

Twisting

Misrepresentation by an insurer or producer that is intended to cause you to terminate an existing insurance policy and purchase a new policy.

Underwrite

The process of examining, accepting or rejecting an individual or group for insurance coverage, and classifying those accepted into categories based on their risk in order to charge an appropriate premium.

Unearned Premium

That portion of a premium payment that has not yet been used for coverage. For example, if you pay an annual premium at the end of the first month of the premium period, 11/12 of the premium would still be unearned.

Waiting Period

The period of time indicated in a policy that must pass before you are covered.