Glossary
Insurance terms, simplified.
Every insurance term you need to know — explained in plain, simple language.
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1035 Exchange
Tax StrategyA provision in the tax code allowing you to exchange one life insurance policy or annuity for another without triggering a taxable event. Useful for upgrading policies.
A
Actual Cash Value (ACV)
GeneralThe replacement cost of an item minus depreciation. If your 5-year-old laptop is stolen, ACV pays what a 5-year-old laptop is worth today, not what a new one costs.
Adjuster
GeneralA person who investigates insurance claims to determine the extent of the insurer's liability. They inspect damage, review documents, and recommend settlement amounts.
Annuity
RetirementAn insurance product that provides regular income payments, typically used in retirement. You pay a lump sum or series of premiums, and the insurer pays you back over time.
B
Beneficiary
Life InsuranceThe person or entity designated to receive the proceeds of an insurance policy, trust, or retirement account upon the death of the insured.
Binder
GeneralTemporary insurance coverage provided while a permanent policy is being issued. It confirms you have coverage before the official policy documents are ready.
C
Cash Value
Life InsuranceThe savings component of a permanent life insurance policy that grows over time on a tax-deferred basis. You can borrow against it or surrender the policy for its cash value.
Claim
GeneralA formal request made to an insurance company for payment or coverage under the terms of a policy after a covered loss or event.
COBRA
Health InsuranceThe Consolidated Omnibus Budget Reconciliation Act allows employees to continue their employer-sponsored health insurance for a limited time (usually 18 months) after leaving a job.
Coinsurance
Health InsuranceThe percentage of costs you pay after meeting your deductible. For example, with 80/20 coinsurance, your insurer pays 80% and you pay 20% of covered expenses.
Collision Coverage
Auto InsuranceAuto insurance that pays for damage to your vehicle from a collision with another car or object, regardless of who is at fault.
Comprehensive Coverage
Auto InsuranceAuto insurance that covers damage to your vehicle from non-collision events such as theft, vandalism, hail, flooding, or hitting an animal.
Copay (Copayment)
Health InsuranceA fixed dollar amount you pay for a covered healthcare service, like $30 for a doctor visit or $15 for a prescription, regardless of the total cost.
D
Death Benefit
Life InsuranceThe amount of money paid to a beneficiary upon the death of the insured person. In life insurance, this is typically received income tax-free.
Deductible
GeneralThe amount you pay out of pocket before your insurance coverage begins to pay. A $1,000 deductible means you cover the first $1,000 of a covered claim.
Disability Insurance
Life InsuranceCoverage that replaces a portion of your income (typically 50-70%) if you are unable to work due to illness or injury.
Dwelling Coverage
Home InsuranceThe part of a homeowners insurance policy that pays to repair or rebuild the structure of your home after covered damage like fire, wind, or hail.
E
Elimination Period
Life InsuranceThe waiting period between when a disability begins and when insurance benefits start paying. Common periods range from 30 to 180 days.
Endorsement (Rider)
GeneralAn addition to an insurance policy that modifies or adds coverage. For example, a scheduled personal property endorsement covers high-value items like jewelry.
EPO (Exclusive Provider Organization)
Health InsuranceA health plan that only covers services from in-network providers, except in emergencies. Similar to a PPO but without out-of-network benefits.
Estate Tax
Estate PlanningA tax on the transfer of property after death. Federal estate tax applies to estates exceeding the exemption amount ($13.61 million per individual in 2026).
Exclusion
GeneralA specific condition, hazard, or loss that is not covered by an insurance policy. Common exclusions include flood damage in homeowners policies and pre-existing conditions in some health plans.
F
Fiduciary
GeneralA person or entity legally obligated to act in the best interest of another party. Some financial advisors are fiduciaries; insurance agents typically are not.
G
Grace Period
GeneralA set number of days after a premium due date during which the policy remains in force even if payment hasn't been received, typically 30 days.
Guaranteed Renewable
GeneralA policy feature that requires the insurer to renew your policy as long as you pay premiums, though they may increase rates for your entire class of policyholders.
H
HDHP (High Deductible Health Plan)
Health InsuranceA health plan with higher deductibles but lower premiums. Qualifies you to open a Health Savings Account (HSA) for tax-advantaged medical savings.
HMO (Health Maintenance Organization)
Health InsuranceA health plan requiring you to select a primary care physician who coordinates your care and provides referrals to specialists. Typically lower cost but less flexibility.
HSA (Health Savings Account)
Tax StrategyA tax-advantaged savings account paired with an HDHP. Contributions are tax-deductible, growth is tax-free, and withdrawals for medical expenses are tax-free — a triple tax benefit.
I
ILIT (Irrevocable Life Insurance Trust)
Estate PlanningA trust that owns a life insurance policy, removing it from your taxable estate. The death benefit passes to beneficiaries free of both income and estate taxes.
Indemnity
GeneralThe principle of restoring the insured to the same financial position they were in before a loss occurred — no better, no worse.
Indexed Universal Life (IUL)
Life InsuranceA type of permanent life insurance where cash value growth is tied to the performance of a stock market index, with a guaranteed minimum and capped maximum return.
Insurable Interest
GeneralA financial stake in the well-being of the insured person or property. You must have insurable interest to purchase insurance — you can't insure a stranger.
L
Liability Coverage
GeneralInsurance that covers your legal responsibility for injuries or damage you cause to others. Required in auto insurance and included in homeowners and renters policies.
Long-Term Care Insurance
RetirementCoverage for extended care services including nursing homes, assisted living, and in-home care that aren't covered by regular health insurance or Medicare.
Loss Ratio
GeneralThe percentage of premiums an insurer pays out in claims. A 70% loss ratio means $0.70 of every premium dollar goes to claims.
M
Medigap (Medicare Supplement)
RetirementPrivate insurance that fills the gaps in Original Medicare coverage, paying for deductibles, copays, and coinsurance that Medicare doesn't cover.
Mortgage Insurance (PMI)
Home InsuranceInsurance that protects the lender if you default on your mortgage. Required when your down payment is less than 20% of the home's value.
N
Non-Cancelable Policy
GeneralAn insurance policy the insurer cannot cancel, raise premiums on, or reduce benefits for, as long as you pay premiums on time. The strongest form of policy guarantee.
O
Out-of-Pocket Maximum
Health InsuranceThe most you'll pay for covered health services in a year. After reaching this limit, your health plan pays 100% of covered services for the rest of the year.
P
PIP (Personal Injury Protection)
Auto InsuranceAuto insurance that covers medical expenses, lost wages, and other costs for you and your passengers regardless of who caused the accident. Required in no-fault states.
PPO (Preferred Provider Organization)
Health InsuranceA health plan offering a network of preferred providers at lower costs, but also covering out-of-network care at a higher cost. No referrals needed for specialists.
Premium
GeneralThe amount you pay for an insurance policy, typically monthly, quarterly, or annually. Your premium is the cost of maintaining your coverage.
R
Replacement Cost
GeneralThe amount it would take to replace a damaged or lost item with a new one of similar kind and quality, without deducting for depreciation.
Rider
GeneralSee Endorsement. An optional addition to a policy that provides extra benefits or modifies existing coverage, usually for an additional premium.
T
Term Life Insurance
Life InsuranceLife insurance that provides coverage for a specific period (10, 20, or 30 years). If you die during the term, beneficiaries receive the death benefit. No cash value component.
U
Umbrella Insurance
Home InsuranceLiability coverage that goes beyond the limits of your auto, home, or other policies. Provides an extra layer of protection, typically starting at $1 million.
Underwriting
GeneralThe process insurers use to evaluate risk and determine whether to issue a policy and at what premium. Factors include age, health, occupation, and claims history.
Universal Life Insurance
Life InsuranceA type of permanent life insurance offering flexible premiums and death benefits, with a cash value component that earns interest based on current market rates.
W
Waiting Period
GeneralThe time between when you purchase a policy and when coverage begins, or between a disability and when benefits start paying. Similar to elimination period.
Whole Life Insurance
Life InsurancePermanent life insurance with fixed premiums, a guaranteed death benefit, and a cash value component that grows at a guaranteed rate. Coverage lasts your entire lifetime.
Workers Compensation
Business InsuranceInsurance that covers medical bills, lost wages, and rehabilitation costs for employees who are injured or become ill due to their job. Required in most states for employers.