Frequently Asked Questions & Glossary of Insurance Terms

No insurance resource would be complete without a comprehensive glossary of terms. We’ve compiled a list of terms and their definitions to better help you navigate the sometimes confusing world of insurance.

This page provides a glossary of insurance terms and definitions that are commonly used in the insurance business. New terms will be added to the glossary over time. If you need further help, call the insurance experts of Strong Tower Insurance Group at 480.926.9011. We’re here to help!

Q

What does Actual Cash Value mean?

A

An amount equivalent to the fair market value of the stolen or damaged property immediately preceding the loss. For real property, this amount can be based on a determination of the fair market value of the property before and after the loss. For vehicles, this amount can be determined by local area private party sales and dealer quotations for comparable vehicles.

Q

What is an Agent?

A

A licensed person or organization authorized to sell insurance by or on behalf of an insurance company.

Q

What is Automobile Insurance?

A

Coverage on the risks associated with driving or owning an automobile. It can include collision, liability, comprehensive, medical, and uninsured motorist coverages.

Q

What is a Binder?

A

A temporary or preliminary agreement which provides coverage until a policy can be written or delivered.

Q

What is Bodily Injury?

A

Any physical injury to a person. The purpose of liability insurance is to cover bodily injury to a third party resulting from the negligent or unintentional acts of an insured.

Q

What is Boiler & Machinery Insurance?

A

Covers losses resulting from the malfunction of boilers and machinery. This coverage is usually excluded from property insurance creating the need for this separate product.

Q

What is a Broker?

A

A licensed person or organization paid by you to look for insurance on your behalf.

Q

What is Burglary Insurance?

A

Coverage against loss as a result of forced entry into premises.

Q

What does Cancellation mean?

A

The termination of insurance coverage during the policy period. Flat cancellation is the cancellation of a policy as of its effective date, without any premium charge.

Q

What is a Claim?

A

Notice to an insurer that under the terms of a policy, a loss maybe covered.

Q

What is a Claimant?

A

The first or third party. That is any person who asserts right of recovery.

Q

What is Collision (Auto) Insurance?

A

Reimburses you for damage to your automobile sustained in a collision with another car or with any other object, movable or fixed, (for example, you accidentally backed into another object while pulling out from a parking stall and causing damage to the bumper and fender of your covered automobile).

Q

What is a Collision Deductive Waiver?

A

This coverage waves your collision deductible if you are hit by an negligent uninsured motorist.

Q

What is Common Carrier Liability?

A

Coverage for transportation firms that must carry any customer’s goods so long as the customer is willing to pay. Examples include trucking companies, bus lines, and airlines.

Q

What is Comprehensive (Auto) Insurance?

A

Provides coverage for any direct and accidental loss of, or damage to, your covered automobile and its normal equipment, to include but not limited to fire, theft or malicious mischief.

Q

What is Comprehensive Glass Insurance?

A

Coverage on an “all risks” basis for glass breakage, subject to exclusions of war and fire.

Q

What is Credit Life Insurance?

A

Insurance issued to a creditor (lender) to cover the life of a debtor (borrower) for an outstanding loan.

Q

What does it mean to be Declined?

A

The company refuses to accept your request for insurance coverage.

Q

What is a Deductible?

A

The amount of the loss which the insured is responsible to pay before benefits from the insurance company are payable. You may choose a higher deductible to lower your premium.

Q

What is Depreciation?

A

A decrease in value due to age, wear and tear, etc.

Q

What is Disability Insurance?

A

Health insurance that provides income payments to the insured wage earner when income is interrupted or terminated because of illness, sickness, or accident.

Q

What is an Endorsement?

A

Amendment to the policy used to add or delete coverage. Also referred to as a “rider.”

Q

What is an Exclusion?

A

Certain causes and conditions, listed in the policy, which are not covered.

Q

What is the Expiration Date?

A

The date on which the policy ends.

Q

What does Face Amount mean?

A

The dollar amount to be paid to the beneficiary when the insured dies. It does not include other amounts that may be paid from insurance purchased with dividends or any policy riders.

Q

What is Financial Guarantee Insurance?

A

A surety bond, insurance policy or, when issued by an insurer, an indemnity contract and any guaranty similar to the foregoing types, under which loss is payable upon proof of occurrence of financial loss to an insured claimant, obligee, or indemnitee.

Q

What is Fire Insurance?

A

Coverage for loss of or damage to a building and/or contents due to fire.

Q

What is a Good Driver Discount?

A

To be eligible for the Good Drivers Discount all operators of the insured vehicles must have been licensed for three or more year, have no more than a one (1) point charge on their driving record and has not been determined “at fault” in an accident resulting in bodily injury or death to any person.

Q

What is a Grace Period?

A

A period (usually 31 days) after the premium due date, during which an overdue premium may be paid without penalty. The policy remains in force throughout this period.

Q

What is Guaranteed Insurability?

A

An option that permits the policy holder to buy additional stated amounts of life insurance at stated times in the future without evidence of insurability.

Q

What is Health Insurance?

A

A policy that will pay specifies sums for medical expenses or treatments. Health policies can offer many options and vary in their approaches to coverage.

Q

What is Homeowner Insurance?

A

An elective combination of coverages for the risks of owning a home. Can include losses due to fire, burglary, vandalism, earthquake, and other perils.

Q

What is an Incontestable Clause?

A

A policy provision in which the company agrees not to contest the validity of the contract after it has been in force for a certain period of time, usually two years.

Q

Who is the Insured?

A

The policyholder – the person(s) protected in case of a loss or claim.

Q

Who is the Insurer?

A

The insurance company.

Q

What is Legal Insurance?

A

Prepaid legal insurance coverage plan sold on a group basis.

Q

What is Liability (Auto) Insurance?

A

Coverage for a policyholder’s legal liability resulting from injuries to other persons or damage to their property as a result of an auto accident.

Q

What is Liability Insurance?

A

Coverage for all sums that the insured becomes legally obligated to pay because of bodily injury or property damage, and sometimes other wrongs, to which an insurance policy applies.

Q

What is Life Insurance?

A

A policy that will pay a specified sum to beneficiaries upon the death of the insured.

Q

What is a Limit?

A

Maximum amount a policy will pay either overall or under a particular coverage.

Q

What is Loan Value?

A

The amount which can be borrowed at a specified rate of interest from the issuing company by the policyholder, using the value of the policy as collateral. In the event the policyholder dies with the debt partially or fully unpaid, then the amount borrowed plus any interest is deducted from the amount payable.

Q

What is Marine Insurance?

A

Coverage for goods in transit and the vehicles of transportation on waterways, land, and air.

Q

What is Material Misrepresentation?

A

The policyholder / applicant makes a false statement of any material (important) fact on his/her application. For instance, the policyholder provides false information regarding the location where the vehicle is garaged.

Q

What are Medical Payments?

A

Will pay reasonable expenses incurred for necessary medical and /or funeral services because of bodily injury caused by accident and sustained by you or any other person while occupying a covered automobile.

Q

What is Miscellaneous Insurance?

A

Includes insurance against loss from damage done, directly or indirectly by lightning, windstorm, tornado, earthquake or insurance under an open policy indemnifying the producer of any motion picture, television, theatrical, sport, or similar production, event, or exhibition against loss by reason of the interruption, postponement, or cancellation of such production, event, or exhibition due to death, accidental injury, or sickness preventing performers, directors, or other principals from commencing or continuing their respective performance or duties; and any insurance not included in any other classes and which is a proper subject of insurance (California Insurance Code, Section 120).

Q

What is a Misquote?

A

An incorrect estimate of the insurance premium.

Q

What is Mortgage Insurance?

A

Life insurance that pays the balance of a mortgage if the mortgagor (insured) dies.

Q

What does Peril mean?

A

The cause of a possible loss. For example, fire, theft, or hail.

Q

What is a Policy?

A

The written contract of insurance.

Q

What is a Policy Limit?

A

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

Q

What is a Premium?

A

The amount of money an insurance company charges for insurance coverage.

Q

What is Premium Financing?

A

A policyholder contracts with a lender to pay the insurance premium on his/her behalf. The policyholder agrees to repay the lender for the cost of the premium, plus interest and fees.

Q

What is Pro-Rata Cancellation?

A

When the policy is terminated midterm by the insurance company, the earned premium is calculated only for the period coverage was provided. For example: an annual policy with premium of $1,000 is canceled after 40 days of coverage at the company’s election. The earned premium would be calculated as follows: 40/365 days X $1,000=.110 X $1,000=$110.

Q

What is Property Damage?

A

Damage to another person’s property. The purpose of liability insurance is to cover property damage to a third party resulting from the negligent or intentional acts of an insured.

Q

What is a Quote?

A

An estimate of the cost of insurance, based on information supplied to the insurance company by the applicant.

Q

What does Replacement Cost mean?

A

The cost to repair or replace an insured item. Some insurance only pays the actual cash or market value of the item at the time of the loss, not what it would cost to fix or replace it. If you have personal property replacement cost coverage, your insurance will pay the full cost to repair an item or buy a new one once the repairs or purchases have been made.

Q

What does Replacement Value mean?

A

The full cost to repair or replace the damaged property with no deduction for depreciation, subject to policy limits and contract provisions.

Q

What does Reinstatement mean?

A

The restoring of a lapsed policy to full force and effect. The reinstatement may be effective after the cancellation date, creating a lapse of coverage. Some companies require evidence of insurability and payment of past due premiums plus interest.

Q

What is a Rider?

A

Usually known as an endorsement, a rider is an amendment to the policy used to add or delete coverage.

Q

What does Short-Rate Cancellation mean?

A

When the policy is terminated prior to the expiration date at the policyholder’s request. Earned premium charged would be more than the pro-rata earned premium. Generally, the return premium would be approximately 90 percent of the pro-rata return premium. However, the company may also establish its own short-rate schedule.

Q

What is a Solicitor?

A

A licensed employee of a fire and casualty agent or broker who may act for the agent or broker in some circumstances.

Q

What is Sprinkler Insurance?

A

Coverage for property damage caused by untimely discharge from an automatic sprinkler system.

Q

What is a Surcharge?

A

An extra charge applied by the insurer. For automobile insurance, a surcharge is usually for accidents or moving violations.

Q

What does Surrender mean?

A

To terminate or cancel a life insurance policy before the maturity date. In the case of a cash value policy, the policyholder may exercise one of the non-forfeiture options at the time of surrender.

Q

What is Team & Vehicle Insurance?

A

Includes insurance against loss through damage or legal liability for damage, to property caused by the use of teams or vehicles other than ships, boats, or railroad rolling stock, whether by accident or collision or by explosion of engine, tank, boiler, pipe, or tire of the vehicle, and insurance against the theft of the whole or part of such vehicle (California Insurance Code, Section 115).

Q

What is Title Insurance?

A

Coverage for losses if a land title is not free and clear of defects that were unknown when the title insurance was written.

Q

What does Underwriting mean?

A

The process of selecting applicants for insurance and classifying them according to their degrees of insurability so that the appropriate premium rates may be charged. The process includes rejection of unacceptable risks.

Q

What is Uninsured Motorist Bodily Injury?

A

Will pay you and your passengers for bodily injury cause by a negligent uninsured motorist, a hit-and-run driver, or by a driver whose insurer is insolvent.

Q

What is Uninsured Motorist Property Damage?

A

Will pay for damages to your automobile, set up to a limit, when caused by a negligent uninsured motorist.

Q

What is a Waiting Period?

A

A period of time set forth in a policy which must pass before some or all coverages begin.

Q

What is Workers Compensation Insurance?

A

Coverage providing four types of benefits (medical care, death, disability, and rehabilitation) for employee job-related injuries or diseases as a matter of right (without regard to fault).