This is a list of common insurance terms for personal and commercial policies, explained in easy-to-understand terms.
General Insurance Terms (Applies to Almost All Policies)
Premium: The regular payment you make (usually monthly or yearly) to the insurance company to keep your policy active. Think of it like a subscription fee.
Deductible: The amount of money you must pay out-of-pocket for a loss before the insurance company starts to pay. For example, if you have a $1,000 deductible and your car repair costs $5,000, you pay the first $1,000, and the insurer pays the remaining $4,000.
Claim: Your formal request to the insurance company to pay for something that is covered by your policy, like a car accident or a damaged roof.
Policy: The legal contract between you (the insured) and the insurance company (the insurer) that outlines what is covered, for how much, and under what circumstances.
Limit of Liability (or Coverage Limit): The maximum amount of money the insurance company will pay for a covered loss.
Insured: The person, group, or business covered by the insurance policy.
Insurer: The insurance company that provides the coverage.
Peril: The specific cause of a loss. Examples include fire, theft, hail, or a car collision.
Exclusion: A specific situation, event, or type of property that your insurance policy does not cover.
Endorsement (or Rider): An addition or amendment to your policy that changes, adds, or removes coverage. For example, you might add an endorsement to cover expensive jewelry.
Actual Cash Value (ACV): The value of your damaged property at the time of the loss. It’s the replacement cost minus depreciation (a decrease in value due to age, wear, and tear).
Replacement Cost (RC): The cost to replace your damaged property with a brand new, similar item, without any deduction for depreciation. This coverage usually costs more.
Underwriting: The process the insurance company uses to evaluate your risk, decide whether to offer you a policy, and determine how much your premium will be.
Personal Insurance Terms (Auto & Home)
Liability Coverage (Auto/Home): Covers costs if you are legally responsible for injuring someone or damaging their property.
Bodily Injury Liability: Pays for the other person’s medical bills and lost wages.
Property Damage Liability: Pays to repair or replace the other person’s property, like their car or fence.
Collision Coverage (Auto): Pays to repair your own car after an accident, regardless of who was at fault.
Comprehensive Coverage (Auto): Pays for damage to your car from non-collision events, like theft, vandalism, fire, hitting an animal, or a fallen tree.
Uninsured/Underinsured Motorist Coverage (Auto): Protects you if you are hit by a driver who has no insurance or not enough insurance to cover your medical bills and car repairs.
Personal Umbrella Policy: Provides extra liability coverage above the limits of your existing home and auto policies. It protects you from large lawsuits.
Dwelling Coverage (Home): Covers the physical structure of your house.
Personal Property Coverage (Home): Covers your belongings inside the house, like furniture, electronics, and clothing.
Life Insurance Terms
Beneficiary: The person, people, or entity (like a trust or charity) you name to receive the money from your life insurance policy when you die.
Death Benefit: The amount of money paid to the beneficiary when the insured person dies.
Term Life Insurance: Provides coverage for a specific period of time (the “term”), such as 10, 20, or 30 years. If you die during that term, the policy pays out. If you outlive the term, the coverage ends. It is generally the most affordable type of life insurance.
Whole Life Insurance (or Permanent Life): Provides lifelong coverage that never expires as long as you pay the premiums. It also includes a savings component called “cash value” that grows over time.
Cash Value: A feature of a whole life/permanent policy where a portion of your premium funds a savings account that grows tax-deferred. You can borrow against or withdraw from this account.
Commercial Insurance Terms (Business)
General Liability: Protects your business from claims of bodily injury or property damage caused to others. This is often called “slip and fall” insurance.
Commercial Property Insurance: Covers your business’s physical property, including the building, equipment, tools, and inventory, from loss due to events like fire or theft.
Business Interruption Insurance: Helps replace lost income and covers operating expenses if your business has to temporarily close due to a covered event, like a fire that forces you to shut down for repairs.
Workers’ Compensation: Covers medical expenses and lost wages for employees who get sick or injured on the job. It’s required by law in most states.
Professional Liability (or Errors & Omissions – E&O): Protects service-based businesses (like consultants, accountants, or architects) from lawsuits claiming you made a mistake or were negligent in providing your services.
Cyber Liability Insurance: Covers business losses resulting from data breaches and other cybercrimes. It can help pay for things like notifying affected customers, credit monitoring, and legal fees.
Commercial Auto Insurance: Provides coverage for vehicles used for business purposes. Personal auto policies typically exclude business use.