Insurance glossary

A.M. Best ratingGeneral

An independent opinion of an insurer's ability to pay claims, from A++ down to D. We place life business only with carriers rated A- or better.

Accelerated death benefitLife

A rider letting you draw part of your death benefit while alive if you are diagnosed as terminally, chronically or critically ill. Increasingly included at no extra premium.

Actual cash value (ACV)Home

Replacement cost minus depreciation. An ACV roof settlement on a 15-year-old shingle roof can pay less than half the cost to replace it.

Actuarial valueHealth

The share of average medical costs a health plan covers. Bronze is roughly 60%, silver 70%, gold 80%, platinum 90%.

Additional living expenses (ALE)Home

Coverage D on a homeowners policy. Pays hotel, restaurant and rent costs above your normal spending while your home is uninhabitable after a covered loss.

AnnuitantFinancial

The person whose life expectancy determines an annuity's payout. Often but not always the contract owner.

BeneficiaryLife

Who receives the death benefit. A named beneficiary overrides your will, which is why the form matters more than the estate plan.

BinderHome

Temporary proof of coverage issued before the policy documents arrive. Usually valid 30 to 90 days.

Bodily injury liabilityAuto

The part of an auto policy that pays others' medical costs and lost wages when you are at fault. The first two numbers in 100/300/100, in thousands.

Cash surrender valueLife

What a permanent policy actually pays you if you cancel it, after surrender charges. Materially less than the illustrated cash value in the early years.

CoinsuranceHealth

Your percentage share of a covered cost after the deductible. A 20% coinsurance on a $4,000 procedure is $800.

Contestability periodLife

The first two policy years, during which an insurer may investigate and rescind for material misrepresentation on the application. Answer honestly.

CopayHealth

A flat dollar amount for a specific service, such as $35 for a specialist visit, often payable before the deductible is met.

Cost-sharing reduction (CSR)Health

Extra federal help that lowers deductibles and copays, available only on silver marketplace plans to households under 250% of the federal poverty level.

Declarations pageHome

The summary page listing your limits, deductibles, named insureds and endorsements. The first document to read and the one to keep.

DeductibleGeneral

What you pay before coverage begins. On homeowners policies, hurricane and wind deductibles are often a percentage of the dwelling limit rather than a flat amount.

Dividend (participating policy)Life

A return of surplus from a mutual insurer to whole life policyholders. Not guaranteed, and historically lower than the illustrations issued in the 1980s implied.

Elimination periodGeneral

The waiting time before a disability or long-term care policy starts paying. Longer periods mean lower premiums.

Endorsement (rider)General

An add-on that changes the base policy — scheduling jewellery, adding water backup coverage, or waiving premiums during disability.

ExclusionGeneral

Something the policy does not cover, stated in the contract. Flood and earth movement are excluded from every standard homeowners policy in the United States.

Face amountLife

The death benefit stated on the policy. Distinct from cash value and from the total your beneficiaries receive if riders pay out.

FiduciaryFinancial

A legal duty to act in your best interest, not merely to recommend something suitable. Registered investment advisers owe it; brokers generally do not in the same form.

Free-look periodLife

A window after delivery, commonly 10 to 30 days by state law, in which you can return a policy for a full refund with no questions asked.

Guaranteed issueLife

Coverage with no health questions and no exam, usually with a graded death benefit for the first two years. The most expensive way to buy per dollar of coverage.

Guaranty associationGeneral

A state-run safety net that pays claims up to statutory limits if an insurer becomes insolvent. Commonly $300,000 of death benefit, higher in some states.

HDHPHealth

A high-deductible health plan meeting IRS minimums, which is the only kind of plan that makes you eligible to contribute to a health savings account.

HO-3Home

The standard homeowners form: open perils on the structure, named perils on contents. HO-5 upgrades contents to open perils; HO-6 is the condo form.

IndemnityGeneral

The principle that insurance restores you to your prior financial position and no further. It is why you cannot profit from a claim.

Insurable interestLife

The requirement that you would suffer a genuine financial loss from the insured's death. Without it, the policy is void.

IRMAAMedicare

Income-Related Monthly Adjustment Amount. A surcharge on Medicare Part B and D premiums for higher incomes, based on your tax return from two years earlier.

LapseGeneral

Termination for non-payment. On universal life, a policy can lapse even with cash value remaining if rising insurance charges outrun the account.

Loss of useHome

Coverage for the cost of living elsewhere after a covered loss. Called additional living expenses on a homeowners policy, loss of use on renters.

Medical loss ratioHealth

The share of premium an insurer spends on care. The Affordable Care Act requires 80% to 85% and rebates to members when a plan falls short.

MIBLife

The Medical Information Bureau, an industry database of coded information from prior insurance applications. Carriers check it, so declinations follow you.

MOOPMedicare

Maximum out-of-pocket. The annual ceiling on your in-network cost sharing in a Medicare Advantage plan. Original Medicare has no such cap.

Named perilsHome

Coverage limited to the causes of loss listed in the policy. Anything not listed is not covered, which is the opposite of open perils.

Non-forfeiture optionLife

What happens to accumulated value if you stop paying a permanent policy — reduced paid-up coverage, extended term, or cash surrender.

Open enrollmentHealth

The annual window to buy or change coverage without a qualifying life event. Marketplace and Medicare windows are different dates.

Per stirpesLife

A beneficiary designation that passes a deceased beneficiary's share to their children rather than redistributing it among surviving beneficiaries.

Personal injury protection (PIP)Auto

No-fault medical coverage required in Florida and about a dozen other states. Pays your own medical costs regardless of who caused the crash.

Pre-existing conditionHealth

A health condition present before coverage begins. ACA-compliant plans cannot exclude or surcharge for it; short-term medical plans absolutely can.

PremiumGeneral

What you pay for coverage. Modal premiums — monthly rather than annual — usually cost 3% to 8% more over a year.

Rate classLife

The underwriting tier that sets your life premium: preferred plus, preferred, standard plus, standard, then table ratings for substandard risk.

Replacement costHome

What it costs to rebuild or replace with new materials at today's prices, with no depreciation deducted. Not market value and not your purchase price.

RescissionGeneral

An insurer voiding a policy retroactively, usually for a material misstatement discovered during the contestability period.

RiderGeneral

See endorsement. On life insurance, common riders include waiver of premium, child term, accelerated death benefit and guaranteed insurability.

Scheduled personal propertyHome

Individually listed high-value items — rings, art, firearms, cameras — insured above the sublimits in the base policy, often with no deductible.

Special enrollment period (SEP)Health

A window to enrol outside open enrollment triggered by a qualifying event: marriage, birth, moving, or losing other coverage.

SR-22Auto

A certificate your insurer files with the state proving you carry minimum liability coverage. A filing, not a type of insurance. Florida and Virginia also use FR-44.

SubrogationGeneral

Your insurer's right to recover what it paid from the party actually at fault, which is how your deductible sometimes comes back to you.

Surrender chargeGeneral

A declining penalty for withdrawing from a permanent life policy or annuity early, typically running 7 to 10 years and starting near 8% to 10%.

Table ratingLife

A percentage surcharge above standard rates for elevated health risk, usually 25% per table. Table 4 means roughly double the standard premium.

Term lengthLife

How long a level term premium is guaranteed — commonly 10, 15, 20, 25 or 30 years. After it ends, annual renewal premiums rise steeply.

Umbrella policyGeneral

Excess liability coverage stacking above your auto and home limits, typically $1 million for $150 to $300 a year once underlying limits are high enough.

Underinsured motorist (UIM)Auto

Pays your injuries when the at-fault driver has liability limits too low to cover them. Often the most valuable coverage on the policy.

UnderwritingGeneral

The process of assessing risk and setting price and eligibility. Accelerated underwriting substitutes database checks for labs and an exam.

Waiting periodGeneral

Time between purchase and coverage taking effect. Flood policies have a standard 30-day wait, which is why buying during a storm forecast does not work.

Waiver of premiumLife

A rider that keeps your policy in force without payments if you become totally disabled. Usually 5% to 10% of premium and generally worth it.

Definitions are general and written for ordinary buyers. Your policy contract controls, and terms can be defined differently by state or by carrier form. If a definition here conflicts with your policy, the policy wins.