Helpful definitions of common terms
Insurance Terminology

Accidental Death: A death that is not natural (ie. due to old age or illness) and occurs in an unexpected manner.

Act of God: A phrase used to describe catastrophic natural disasters that reach a certain level of destructiveness. Once an event is declared an Act of God, liability issues generally are unenforceable.

Actual Cash Value: The value of an item less depreciation for the for the time owned or used. For instance, if a computer has a life of three years, and it is lost after two years, the actual cash value would be one third of the original costwhich is equal to one year of remaining life.

Actuarial Science: The scientific and mathematical principles used by insurance companies to predict the probability of occurences that would cause an insurable loss.

Adjuster: An insurance adjuster or appraiser is the insurance company's representative who investigates and accident or loss. The adjuster determines the value of the loss and recommends alternatives in settling a claim.

Arbitration: Arbitration is an alternative method of resolving a dispute rather than going through the court system.

Assigned Risk: High risk insurance usually offered through a pool of insurance companies to cover individuals or situations that are too risky for conventional insurers. Drunk drivers or homes built in forest fire danger areas would usually fall under the "assigned risk" category and require special coverage. Typically, policy benefits are limited and premiums are very high.

Assignment: Giving away a right or interest -- assigning it -- to another party.

Beneficiary: The legal entity (individual, corporation or trust) who is entitled to receive payment from the insurance company in case of a loss.

Betterment: Improving or upgrading an item or situation resulting in increased valule.

Bodily injury: Physical harm to an individual.

Cancellation: Termination of a policy by the insurance company, usually for excess claims, nonpayment or changes in underwriting restrictions.

Claim: Asserting a right under the insurance policy, such as the right to be compensated for damage to a vehicle.

Claimant: The individual making the claim.

Collision: An accident while a vehicle is moving and makes contact with another vehicle or object.

Comprehensive: Coverage in an auto policy that protects against damage incurred while the vehicle is stationary.

Coverage: The scope of the insurance policy.

Covered event: The occurrence of an act that results in a loss and the insurance provides protection from that type of loss.

Damages: The economic loss assigned to an event.

Declarations: The page of your insurance policy which details the types of insurance you have and the dollar limits associated with each coverage.

Deductible: The amount you agree to pay as your share of any covered loss. The lower the deductible you choose, the higher your premiums will be because you are transferring more risk of loss to the insurance company.

Depreciation: An accounting term used to assign a value to the amount of use and item has had. For instance, if you have had an item for 5 years and it has a useful life of 10 years, the item would have lost 50 percent of it's value. It would be said to have depreciated in value by 50 percent.

Disability: The mental or physical inability to continue typical day-to-day functioning.

Dismemberment: When an accident results in a body being torn apart.

Each Occurrence: Separate events. Insurance policies list their coverages based on limiting the amount paid for certain losses each time that type of loss occurs.

Examination under Oath: Questioning in a situation in which you are declaring for legal purposes that your answers are truthful. Failure to answer truthfully can result in criminal prosecution for perjury.

Exclusions: Specific items or events the insurance will not cover.

Fiduciary: A legal capacity in which the individual is obligated to act in the best interests of the individual or organization he or she represents.

Financial Responsibility: Being accountable to pay for the results of one's actions. For instance financial responsibility laws in most states require drivers to carry minimal insurance to be able to pay for any damages they might cause.

Fraud & Misrepresentation: Lying or making statements that circumvent the truth, usually for some financial benefit such as obtaining payment for an insurance company for a false claim.

Indemnity: A fancy word for protection. If an individual is "indemnified", he or she is protected by another party. One can indemnify another by agreeing to step in and defend against a loss. Indemnity agreements are common in businesses in which a prior business owner agrees to be responsible or indemnify the new owner for any claims made prior to a certain date.

Insurance benefits: The specific details of the coverages included in an insurance policy.

Insurance fraud: The criminal act of lying to an insurer for the sole benefit of receiving payment under a policy.

Insurance Policy: The combination of insurance coverages sold to the consumer as a package such as auto insurance, homeowners insurance, business insurance, etc.

Insurance Rider: An amendment to an insurance policy that contains additional stipulations.

Legal Representative: An individual who has the legal capacity to represent the interests of another.

Limit of Liability: The maximum amount of risk an insurer will accept in a particular situation. This can be expressed in terms of an economic value or in terms of "perils".

Loss: Damages or negative economic impact.

Loss of earnings: When an individual's or company's income stream is interrupted or terminated.

Loss of Life: Death

Loss of Limb: When an individual loses an arm or a leg.

Negligence: The act of failing to pay attention and respond in a prudent manner. For instance, a driver who causes an accident is said to be "negligent" by failing to stop at a stop sign or failing to obey a traffic signal.

Perils: Events that carry potential for loss. For instance, a house might be insured against the "perils" of fire, earthquake, tornado, etc.

Personal Injury: Damage, either physically or mentally, to an individual.

Physical damage: Actual damage to an item.

Policy Amendment: A change or addition to an insurance policy.

Policy contract: The actual agreement between you and the insurance company.

Policy Fee: An administrative fee often charged by insurance companies over and above the premium.

Policy limit: The maximum amount an insurance policy will pay in the event of a covered loss.

Policy Period: The time period a policy is in force.

Policyholder: The purchaser of the insurance policy.

Pre-existing condition: A common phrase used in health insurance policies to exclude or place coverage restrictions on any condition that was treated prior to the purchase of a policy, or in some cases, becomes apparent in the first six months to year of a new policy.

Premium: The fee you pay to the insurance company in exchange for the insurance coverage.

Proof of claim: A signed statement with documentation supporting a claim against an insurance policy. For instance, a proof of claim in a medical situation might include a signed statement from the attending physician as well as copies of your medical records.

Recovery: Reimbursement for a losses, damages or fees. For instance, you "recover" your losses from the insurance company or a third party company when you receive payment.

Renewal: Extending your coverage for an additional time period.

Settlement: An agreement arrived at through negotiation.

Subrogation: When more than one insurance company is responsible to pay in the same damage situation, companies typically reserve the right to "subrogate" their claim or seek some degree of recovery from the other company or companies.

Territory: A physical area, usually a country, state or municipality, referred to in an insurance policy or used by the insurance company for determining premiums or specifying policy conditions.

The Insured: The party being protected by the insurance -- not necesarily the owner of the policy. For instance, the owner of a life insurance policy may be different from the individual insured which is often the case with life insurance policies taken out on business executives. Usually the corporation owns the policy which protects the business if a key executive dies.

Total Loss: An insurance adjuster's term meaning that the cost to repair or restore a property (car, home, boat, etc.) exceeds either the actual cash value or the replacement cost of the item depending on your policy. Theoretically, an old car can be considered a total loss even though it just has some body damage, depending on the cost to repair.

Underinsured: When insurance coverage is insufficient to cover the entire amount of a claim, the property owner is said to be "underinsured".

Uninsured: No insurance.

Waiting period: An amount of time usually specified in a health insurance policy before certain conditions are covered.

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