Insurance glossary

Short definitions for common policy words. Definitions are educational and may differ from a specific contract.

Premium: The premium is the price of coverage for a given period. Bills are often monthly, quarterly, or yearly. Missed payments can lead to cancellation under the contract and state rules. Premiums are separate from deductibles and copays.
Deductible: A deductible is your retained share of a covered loss, often a fixed dollar amount. Health plans usually apply deductibles across a plan year. Some homeowners forms use percentage deductibles for named perils. A deductible does not create coverage for an excluded loss.
Copay: A copayment (copay) is typically a set dollar charge for specific services. Whether it applies before or after the deductible depends on the health plan. Copays differ from coinsurance, which is a percentage of an allowed amount.
Coinsurance: Coinsurance splits an allowed amount between you and the plan once deductible requirements are met. With 20% coinsurance, you pay 20% of that allowed amount for the service until you reach the out-of-pocket maximum, subject to plan terms.
Liability: Liability insurance can help pay covered claims brought by others and, under many policies, related defense costs. It generally does not fix your own vehicle or home. Limits appear on the declarations page. Intentional acts and other exclusions often apply.
Coverage limit: A coverage limit caps what the insurer will pay for that section of the policy. Dwelling, personal property, liability, and medical payments can each have their own limits. Amounts above the limit stay with you unless another policy applies.
Policy: A policy typically includes declarations, insuring agreements, definitions, exclusions, conditions, and endorsements. Marketing summaries are not a substitute. If a brochure and the policy conflict, the policy controls.
Claim: A claim triggers the insurer’s review of the facts, whether the policy applies, and how much may be paid. Not every claim is covered. Fraudulent claims are illegal. Claims history can affect future underwriting.
Underwriting: Underwriters weigh risk using applications, driving records, inspections, credit-based insurance scores where allowed, and other data. Guidelines differ by company and by state law.
Exclusion: Exclusions spell out what is not covered — for example, flood on many homeowners forms, or wear and tear. Endorsements can restore limited coverage. Read exclusions instead of assuming a loss is insured.
Actual cash value: Actual cash value (ACV) usually means replacement cost minus depreciation. A used item is not settled like a brand-new one. Each policy defines ACV in its own wording, which may differ from this overview.
Replacement cost: Replacement cost coverage may pay to rebuild or replace without subtracting depreciation, within limits and conditions. Some forms pay ACV first and the balance after you replace the item. Replacement cost is not the same as a home’s market value.
Beneficiary: The policy owner names the beneficiary. Contingent beneficiaries may receive proceeds if the primary beneficiary has died. Updating designations after marriage, divorce, or births is a common administrative step. Tax and estate results depend on individual facts.
Term life: Term life pays a death benefit if the insured dies during the term while the policy is in force. When the term ends, coverage usually ends unless renewed or converted under the contract. New coverage at older ages can cost much more.
Whole life: Whole life is designed to stay in force for life when contract requirements are met. It generally builds cash value. Loans and withdrawals can reduce the death benefit. It differs from term life and usually costs more for the same initial face amount.
Out-of-pocket maximum: After you reach the out-of-pocket maximum, the plan usually pays 100% of covered in-network allowed amounts for the rest of the year. Premiums generally do not count. Out-of-network and excluded services can still leave you with costs.