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Insurance Terms and Definitions

Insurance can be complicated and confusing.  For you convenience we have provided a list of commonly used insurance terms and definitions.  If you have any additional questions, of any type, please feel free to contact us.  We would be more than happy to help.

ACTUAL CASH VALUE

ACV is a form of payout that pays for damages equal to the replacement value of the damaged property less the applicable depreciation.

ADJUSTER

A company adjuster is an individual employed by an insurance company to evaluate losses and settle claims with policyholders. There are also public adjusters. Public adjusters negotiate with insurance companies on behalf of policyholders and receive a portion of the settlement as compensation. Public adjuster’s are independent contractors who handle claims for numerous insurance companies, not just one.

AGENT

There are several types of distribution channels for insurance coverage, the first being independent agents and brokers. These individuals sell insurance for a variety of company’s and are not exclusive to one company. The second being exclusive agents. These agencies sell exclusively for one insurance company / brand.

AUTO INSURANCE POLICY

There are six primary facets of an auto policy. Some coverage’s are required by law. These coverage’s are:

  1. Bodily Injury Liability – This coverage pays for the bodily injury / medical bills of the party that the insured causes injury too. Subject to policy limits.
  2. Medical Payments- This coverage pays for the medical bills of the driver and any passengers in the car. Subject to policy limits.
  3. Property Damage-This coverage pays for damage that a policyholder causes to another persons property.
  4. Comprehensive Coverage – This is coverage to the insured’s car. It is losses caused by things other than a collision (including damage from fire, hail, deer, riot, etc).
  5. Collision Coverage-This coverage pays for the damage to a clients car that is the result of a collision.
  6. Uninsured/Underinsured Motorist Coverage-This coverage pays for medical bills for the insured if the person hitting our insured is not insured or does not have enough coverage to pay the medical bills that they are liable for.

AUTO INSURANCE PREMIUM

The auto insurance premium is the price that a policyholder pays for the desired coverage in their area. When establishing a premium the companies take a variety of variables into account. Things such as

  1. Type of Vehicle – Its year, make and model
  2. Address of where the car is garaged
  3. Driving record of the drivers in the household
  4. Drivers age (s)
  5. Coverage desired
  6. Some insurance companies use credit history in their premium calculation.

Auto policies are generally semi-annually policies and premiums are due semi-annually at their renewal date. Premiums can be placed on various payment plans; however, the policies renew semi-annually.

BINDER

A binder is a temporary, usually 30 day, verification of coverage. This is issued prior to the actual policy.

COMPREHENSIVE COVERAGE

Comprehensive Coverage is the part of the policy that covers damage to the policyholder’s car that is not related to a collision. Examples of this are fire , hail, flood, theft and glass breakage). This coverage is usually purchased with Collision Coverage

DECLARATION

This is the portion of the policy that states the name and address of the policyholder, the property/car insured, the location that the car is garaged in, the policy period and the premium. It is often referred to as the “dec page”.

DEDUCTIBLE

The deductible is the money that is paid by the policyholder in the event of a loss. It is typically a specified dollar amount ($250/$500/$1000). The higher the deductible, the lower the premium that is charged.

EXCLUSION

A statement in an insurance policy that eliminates/excludes coverage for certain exposures, risks or people. Example: if a child has numerous tickets and accidents he may be excluded from his parents policy. If he/she is excluded and they have an accident there would be no coverage by the insurance company.

EXPERIENCE

A record of losses.

FRAUD

Lying, concealment or making of misleading statements by policyholders to receive payment from an insurance company on a claim that otherwise may not have been paid.

HIRED AUTO

This coverage is typically provided to businesses and is only for autos leased, hired rented or borrowed in the businesses name.

INSURANCE

A method of making large financial losses more affordable by pooling monies of these risks together and transferring them to the insurance company. These premium groups then pay the losses out of the pool of monies made up of the premium dollars submitted.

LIABILITY INSURANCE

The portion of the policy that the policyholder is legally liable to pay as a result of bodily injury or property damage caused by them to another person or persons.

LIMITS

Maximum amount of insurance that can be paid for a covered loss.

LIMITS OF LIABILITY

The limits of liability is the maximum amount of insurance that will be paid for a covered loss. In Illinois, the minimum liability limits allowed by the state are $20,000 per person Bodily Injury/$40,000 per accident for Bodily Injury/$15,000 Property Damage.

MANDATORY INSURANCE

Some states require compulsory insurance. These states have minimum liability limits . In these states the policyholder is required to carry evidence of coverage to prove coverage. This is usually in the form of an insurance policy or insurance identification cards.

MEDICAL COVERAGE

The coverage that pays for all reasonable and necessary medical and funeral expenses incurred by an insured as a result of bodily injury caused by an accident.

NAMED PERIL

A peril is a specific type of covered loss that is mentioned in the policy.

OWNED AUTO

Owned auto coverage is coverage for all autos owned by the named insured. Some policies extend to the spouse and/or additional family members.

POLICY

A policy is a written contract for insurance between a policyholder (s) and an insurance company. This document provides details of the coverage.

PREMIUM

The price of an insurance policy. Policy periods usually run annually or semi-annually.

PROOF OF LOSS

Documents that prove to the insurance company that a loss occurred.

PROPERTY/CASUALTY INSURANCE

This type of policy pays for damages to the policyholders property and legal liability for damages caused by the insured’s to other people’s property. Property/Casualty insurance is one type of insurance and includes-home, auto, commercial auto and commercial property/liability insurance.

RENTAL REIMBURSEMENT

This coverage pays a specific amount per day if coverage is provided for a loss. There are maximum established . There is usually a Daily maximum and a total rental car claim basis.

SALVAGE

An insurer may take possession of property that is severly damaged after a claim. This damaged property is called salvage. The insurance company may them sell/dispose of the salvage for money in an attempt to recoup some of the monies paid out for the loss.

TOWING

Towing pays the insured for towing and labor costs each time a covered auto or not owned auto is disabled. May also cover emergency labor costs at the site of the disablement.

SEVERITY

The size of a loss. The amount paid out by the insurance company. Frequency and severity are two of the variables in calculating premium.

SPECIFIED CAUSE OF LOSS

This coverage protects loss from fire, lightning or explosion; theft, windstorm, hail, earthquake, flood, miscellaneous mischief or vandalism, collision, etc.

TERM LIFE INSURANCE

Term life insurance is the type of insurance that covers an individual for a certain period of time. These “terms” are usually in increments of 10/20/30 year periods. It pays a benefit to a designated beneficiary when the insured dies. Term policies are renewable, but the premium increases as the insured ages.

TERRITORIES

Territories are geographic locations that insurance companies use in classifying insurance rates. The location in which a policyholder lives and drives has a significant impact on their auto insurance rates. Generally speaking, auto insurance rates are more expensive in metropolitan areas versus rural.

TOTAL LOSS

When a vehicle loss is considered a total loss the cost to the insurance company to repair the vehicle/property is more that the actual value of the property in its current condition.

UNDERWRITING

The process of reviewing, examining, accepting or rejecting a risk is called underwriting. An underwriter is responsible for assigning a classification, territory, etc to a risk.

UNEARNED PREMIUM

The portion of the premium that has been received by the insurance company; however the coverage/protection has not yet been provided. The entire premium is not earned until the policy period ends.

UNINSURABLE RISK

A risk the insurable is not able/willing to insure.

UNINSURED MOTORIST COVERAGE

The portion of the auto policy that protects the policyholder from a driver that is uninsured and causes the policyholder some type of damage – albeit medical or physical damage to the property.

VANDALISM

The malicious destruction of another person’s property.