The Insurance Glossary

Your Ultimate Guide to Understanding Insurance Terms

We get it, insurance comes with a lot of terms you never hear anywhere else, and can be quite confusing. We’re here to help.

Accident Forgiveness

An optional feature where your insurer won’t raise your premium after your first at-fault accident.

Example

Your rate stays the same after a small fender-bender.

Act of God

An event caused by natural forces that is outside human control.

Example

A hurricane damages your boat — that’s considered an Act of God.

Additional Living Expenses (ALE)

Covers extra costs if you can’t live in your home after a covered loss.

Example

Your homeowners insurance pays for hotel stays after a fire.

Aggregate Deductible

A total deductible for all claims in a period rather than per incident.

Example

Your health plan may have a $5,000 aggregate deductible per year.

All-Risk Policy

Covers all perils except those specifically excluded.

Example

Your homeowners policy may cover most losses except floods and earthquakes.

Appraisal

An evaluation of property value for insurance purposes.

Example

Your insurer sends an appraiser to value your classic car.

Assigned Risk Pool

A state program for drivers who can’t get insurance in the regular market.

Example

High-risk drivers are assigned to insurers through this pool.

At-Fault

Legally responsible for causing damage or injury.

Example

You are found at-fault in a rear-end collision.

Beneficiary

Person designated to receive insurance benefits.

Example

Your spouse is the beneficiary of your life insurance policy.

Betterment

An improvement to property that increases its value.

Example

Installing a new engine in your boat is a betterment.

Bodily Injury Liability

Pays for injury to others you cause in an accident.

Example

May cover medical bills for another driver you hit.

Business Interruption Insurance

Covers lost income if your business can’t operate due to a covered loss.

Example

Your photography studio closes after a fire, and insurance replaces lost income.

Catastrophe

A large-scale disaster causing extensive losses.

Example

Hurricane Katrina was a catastrophe for insurers.

Certificate of Insurance (COI)

Proof of insurance coverage.

Example

A venue requests your COI before you shoot a wedding there.

Claim History

A record of all your past insurance claims.

Example

Frequent claims may increase your premiums.

Commingled Property

Property mixed with others’ so it can’t be distinguished.

Example

Your grain storage mixes with other farmers’ grain.

Conditional Receipt

Proof that coverage is in force under certain conditions.

Example

You get a conditional receipt after applying for life insurance.

Constructive Total Loss

Repair costs exceed the value of the property.

Example

Repairing your damaged yacht would cost more than buying a new one.

Contingent Liability

Liability for actions of others, such as contractors.

Example

You’re liable if your subcontractor damages property.

Contract of Adhesion

A contract where one party sets the terms, like an insurance policy.

Example

You either accept or reject the policy terms as written.

Decreasing Term Life Insurance

Life insurance with a death benefit that decreases over time.

Example

Often used to cover a shrinking mortgage balance.

Defensive Driving Discount

A premium discount for completing an approved safe-driving course.

Example

You can save up to 10% on your auto insurance after taking a state safety class.

Dwelling Coverage

Part of homeowners insurance covering the structure itself.

Example

Pays to rebuild your home after a fire.

Earthquake Insurance

Separate coverage for earthquake damage.

Example

Not included in standard homeowners policies.

End-of-Term

The date your policy coverage ends.

Example

Your policy expires December 31.

Equipment Breakdown Coverage

Covers sudden mechanical or electrical failures.

Example

Your restaurant’s walk-in freezer motor burns out.

Extended Replacement Cost

Pays more than your policy limit to rebuild after a covered loss.

Example

Covers rebuilding after a spike in construction costs.

Extra Expense Coverage

Covers additional costs to keep your business running after a loss.

Example

Renting a temporary workspace after a fire.

First-Party Claim

A claim you file with your own insurer.

Example

You file a claim for hail damage to your car.

Flood Insurance

Separate coverage for flood damage.

Example

Needed if you live in FEMA-designated high-risk zones.

Functional Replacement Cost

Pays to replace with a functionally equivalent item.

Example

A wood shake roof replaced with asphalt shingles.

General Average

In marine insurance, all parties share losses from a voluntary sacrifice to save a voyage.

Example

Cargo is jettisoned to keep a ship afloat.

Grace Period

Time you have to pay after the due date without losing coverage.

Example

You have 15 extra days to pay your premium.

Hull Insurance

Coverage for damage to a ship or boat’s hull.

Example

Pays for repairs after your yacht runs aground.

Impaired Property

Property that can’t be used due to your defective product or service.

Example

Your faulty part stops a machine from working.

Inflation Guard

Automatically increases coverage limits to keep pace with inflation.

Example

Your home coverage rises each year without changing your premium much.

Inland Marine Insurance

Covers movable property or equipment.

Example

Protects your photography gear on location shoots.

Joint and Several Liability

Legal principle making each liable party individually responsible for the full loss.

Example

Multiple contractors share responsibility for damage.

Key Person Insurance

Covers financial loss if a crucial employee dies.

Example

Your business insures its founder.

Lender-Required Insurance

Coverage your lender mandates for a loan.

Example

A bank requires collision coverage for a financed car.

Long-Term Care Insurance

Pays for extended nursing or in-home care.

Example

Helps cover costs if you can’t perform daily activities.

Loss of Use

Pays for extra expenses if you can’t use insured property.

Example

Your insurer covers car rental costs while your vehicle is repaired.

Medical Payments Coverage (MedPay)

Pays medical bills regardless of fault.

Example

Covers you and passengers after an accident.

Minimum Coverage

The lowest limits required by law.

Example

State law requires 25/50/25 auto liability coverage.

Moral Hazard

Risk of loss increased by the policyholder’s behavior.

Example

A business takes more risks knowing it’s insured.

Named Insured

The person listed on the policy’s declarations page.

Example

You’re the named insured on your policy.

Non-Owned Auto Coverage

Liability coverage for cars you use but don’t own.

Example

Covers you driving a rented delivery van.

Occurrence

An event resulting in a covered loss.

Example

A single storm damaging multiple houses.

Other Structures Coverage

Covers detached structures on your property.

Example

Your detached garage burns down.

Per Occurrence Limit

The max paid for a single claim event.

Example

$500,000 per occurrence for liability claims.

Personal Injury Protection (PIP)

Auto coverage for medical costs, lost wages, and more.

Example

Your PIP covers rehab after a car accident.

Personal Property Coverage

Protects belongings inside your home.

Example

Pays to replace furniture lost in a fire.

Pollution Liability Insurance

Covers certain claims from pollution incidents.

Example

Pays cleanup costs after a fuel spill from your boat.

Proof of Loss

Formal statement of what was lost.

Example

You submit proof of loss after a burglary.

Proximate Cause

The primary cause of a loss.

Example

A lightning strike causes a fire — lightning is the proximate cause.

Quote-Bind-Issue

Steps from initial quote to active policy.

Example

You get a quote, agree to terms, and your policy is issued.

Rate

The cost per unit of insurance coverage.

Example

$1 per $100 of coverage is the rate.

Reinstatement

Restoring a lapsed policy.

Example

You reinstate your health policy after missed payments.

Rental Reimbursement

Pays for a rental car while yours is repaired.

Example

Covers a rental after a covered accident.

Replacement Value

The amount to replace damaged property with new.

Example

Pays for a brand-new TV after a fire.

Reserve

Money insurers set aside for future claims.

Example

A reserve is held for your pending claim.

Risk Management

Steps taken to minimize risk.

Example

Installing security cameras at your business.

Salvage Title

Issued when a vehicle is declared a total loss.

Example

You buy a used car with a salvage title.

Scheduled Coverage

Listing specific items with stated values.

Example

Scheduling a diamond necklace on your policy.

Self-Insured Retention (SIR)

The amount you pay before excess insurance applies.

Example

A business pays $50k before excess liability kicks in.

Short Rate Cancellation

Canceling a policy with a penalty.

Example

You pay a fee when ending your policy early.

Stacking

Combining coverage limits from multiple policies.

Example

Using UM coverage from two cars in one accident.

Sub-Limit

A smaller coverage limit within a policy.

Example

$5,000 sub-limit for jewelry on your homeowners policy.

Supplemental Coverage

Extra coverage added to a policy.

Example

Adding towing coverage to your auto policy.

Surplus Lines Insurance

Coverage from non-standard insurers for high risks.

Example

Insuring a rare boat through a surplus lines carrier.

Term Life Insurance

Life coverage for a set period.

Example

A 20-year term policy covers your mortgage years.

Third-Party Liability

Coverage for claims from someone else.

Example

Liability for injuring a pedestrian.

Total Loss

When the cost to repair exceeds the value.

Example

Your car is totaled after a major crash.

Umbrella Policy

Extra liability coverage beyond standard limits.

Example

Adds $1M coverage above your auto and home policies.

Underinsured Motorist Coverage

Helps when the at-fault driver’s insurance is too low.

Example

Their $25k limit doesn’t cover your $50k medical bills.

Valuation

Determining an item’s worth for coverage.

Example

An appraiser values your classic car.

Waiver of Deductible

The insurer doesn’t require your deductible in certain cases.

Example

Your deductible is waived if your car is totaled.

Watercraft Liability

Liability coverage for boats.

Example

Covers injuries caused by your speedboat.

Workers’ Compensation

Pays for employee injuries on the job.

Example

Covers medical bills for a deckhand hurt at work.

Write-Off

Another term for total loss.

Example

Your storm-damaged RV is a write-off.

Marine Insurance

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What else needs to be insured?

Explore our other insurance products that you can pair with your Auto Insurance.

Business Owner’s Policy

Commercial Auto

General Liability

Professional Liability

Workers' Compensation

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Sun Coast General Insurance Agency, Inc. is a wholesale insurance agency and authorized program administrator for several insurance companies authorized to sell in Arizona, Alaska, California, Colorado, Florida, Hawaii, Nevada, Oregon, Texas, Utah and Washington. We provide consumers with online, phone, and in-person insurance services through our insurance company and independent agent relationships. Sun Coast offers all of it's products through independent insurance agents. If you would like to speak with a local independent insurance agent near you, please call (800) 300-8838 and one of our representatives will put you in contact with an authorized Sun Coast producer.