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Personal insurance terms you should know about

General Terms

All-risk

All-risk coverage, also referred to as open perils, insures against all types of losses, except for those that are specifically excluded from the policy. This applies to several property and casualty (P&C) categories, including homeowners, auto, and commercial insurance.

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Cancellation

This refers to the cancellation of an insurance policy before the specified end-date. Typically, policyholders get a refund for any unused premiums, although insurers may charge a cancellation fee.

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Claim/Claimant

An insurance claim is a formal request filed by the policyholder to their insurer for compensation for covered losses or damages. These can include vehicular accidents for auto insurance, storm damage for homeowners’ policies, and emergency surgeries for health insurance plans.

A claimant, meanwhile, is the person who files the claim. In most cases, this is the policyholder.

 

Conditions (Policy conditions)

This is the section of a policy document that explains the duties and responsibilities of the insured (policyholder) and the insurance company. It also states the requirements that need to be met for the coverage to be valid.

 

Commencement date (Effective Date)

This is the date when the insurance policy goes into force. It is also known as the effective date.

 

Declarations page

This section of the policy document, also called the dec page, summarizes the details of the policy. It contains the coverages, limits, deductibles, and effective date. This page is often located on the front page of the policy.

 

Deductible

A deductible is the amount the policyholder agrees to pay out-of-pocket before the insurance company shoulders the cost. Typically, the higher the deductible, the lower the premiums as the insurers bear less financial risk.

There is no getting around paying insurance deductibles. Even the largest insurance companies in the world have these policies, and their main goal is to make it so insurance companies don't get flooded with small claims.

 

Hazard

A hazard is a situation or condition that raises the likelihood that a loss will occur. Ice on sidewalks, for example, increases the chance of a person slipping and getting injured, while smoking raises the probability of a policyholder getting lung cancer.

This is different from a peril, which is something that causes a loss. This includes fire, theft, collisions, natural disasters, illnesses, and death.

 

Lapse

This refers to a period when one goes without insurance coverage. If a person, for example, fails to renew their auto insurance policy, then they now have a lapse in coverage.

 

Loss

A loss is the basis for filing an insurance claim. This includes direct and accidental damage the insured or their property sustains.

 

Named insured

The named insured is the person or business named in the policy, also referred to as the policyholder. An insurance policy can have more than one named insured. The named insureds are listed on the declarations page of the policy document.

 

Named perils

These are the specific type of losses or damages listed in the policy document. A named perils coverage provides protection against these.

 

Policy

An insurance policy is a written contract between the policyholder and the insurer that lays out the details of the coverage. This includes coverage, exclusions, deductibles, and premiums.

 

Premium

This is the amount charged by an insurance company in return for coverage. There are several factors that impact premiums. These include age, gender, and driving history for auto insurance, weather-related and crime risks in an area for homeowners’ policies, and medical history and smoking status for life insurance.

 

Rider

A rider, sometimes referred to as an endorsement, is an optional coverage that policyholders can add to their policies. This includes identity theft and water backup coverage for home insurance, and accident forgiveness and roadside assistance for auto policies.

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Auto insurance

Agreed value
This type of policy pays out for the value agreed upon by the policyholder and insurance company when the policy was purchased in the event the vehicle is wrecked beyond repair. This is as opposed to stated value coverage, which reimburses whichever is lower between the stated value or actual cash value at the time of the loss.

Bodily injury coverage
Also known as bodily injury liability, this pays for the medical expenses a third party incurs due to an accident cause by the policyholder. This policy also covers legal costs in the event the insured is sued for damages.

Collision coverage
This part of an auto insurance policy covers the cost of damages resulting from a collision with another vehicle or object, or the car flipping over.

Comprehensive coverage
This is the portion of a car insurance policy that pays out damages not caused by a collision such as fire, vandalism, and natural disasters. It also covers incidents of vehicle theft.

Medical payments coverage (auto)
Also called Med Pay, this is an optional coverage that helps pay for medical expenses that the policyholder and their passengers incur due to a car accident, even if the driver was at-fault.

Motor vehicle report (MVR)
The MVR details a person’s driving history, including accidents and traffic violations, as reported to a state’s motor department.

Personal injury protection (PIP)
PIP is a part of an auto insurance policy that provides coverage for medical and other expenses resulting from a vehicular accident, regardless of who is at-fault. It covers the policyholder, the car’s passengers, and anyone driving the vehicle for injuries sustained from a collision, even those who do not carry insurance.

Uninsured motorist coverage
Uninsured motorist coverage, also called UM, is designed to compensate policyholders when an at-fault driver does not have liability insurance.

Underinsured motorist coverage
Underinsured motorist coverage, or UIM, works almost exactly the same as UM. The only difference is that UIM provides protection when the at-fault driver carries insurance, but their coverage is not enough the pay for all expenses.


Home insurance

Actual cash value coverage
This pays for the value of the property at the time of the loss, factoring in depreciation. This is as opposed to replacement cost coverage, which is explained below.

Additional living expenses coverage
This covers the cost incurred if the home becomes uninhabitable due to a covered loss. Coverage is standard in most homeowners’, condo, and renters’ insurance policies, and includes meals and hotel stays. This type of policy is also referred to as loss of use coverage.

Appraisal
Appraisals are often conducted to get an accurate estimate of the cost to rebuild a home, settle claim valuation disputes, and provide sufficient coverage for personal belongings.

Market value
This value refers to how much a property will sell in the market.

Medical payments coverage (property)
This type of policy covers the medical expenses of guests who are accidentally injured within a property’s premises, regardless of who is at-fault. Coverage does not include the members of the owner’s household.

Other structure
This refers to structures within the property’s premises that are not directly attached to the house such as a garage, fence, or shed. Depending on the policy, these may be covered under homeowners’ insurance.

Personal injury coverage
This type of policy covers instances other than bodily injury and property damage. These incidents include false arrest, invasion of privacy, libel, slander, and wrongful eviction.

Replacement cost coverage
This covers repairing or replacing the damaged property without factoring in depreciation. This type of coverage applies to the house, also called dwelling, and personal belongings.

Scheduled personal property coverage
This type of rider allows the homeowner to raise the amount of their policy limits to cover for high-value items such as jewelry, artwork, musical instruments, and other collectibles.

Water backup coverage
This optional coverage pays out for damages caused by backed-up drains, clogged sewer lines, and failed sump pumps, as well as mold buildup resulting from these events.

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