Insurance 101: Basic Insurance Terms

Ever find yourself scratching your head when people start talking about insurance? We understand — that’s why we’re here to teach you the basics. The following glossary includes key insurance terms you’ll want to know. Take a look to gain more confidence in your coverage.

Browse our home, auto and life insurance glossaries to learn about more specific types of insurance.

A

Adjuster A representative of your insurance company who investigates your insurance claim. After investigating the claim, they’ll determine if the claim is covered, and if so, how much you’ll be paid.

Agent A qualified expert that’s licensed to sell insurance on behalf of an insurance company. We believe your American Family agent is your trusted advisor — they’re knowledgeable about your insurance needs and always available and ready to help answer any questions you have regarding your insurance. Our agents are required to take exams administered by the Department of Insurance and continue their education throughout their careers to always be informed in order to offer expert guidance. We want you to have confidence that your insurance needs are being reviewed by the best in the business.

Application The form you fill out with information about you. An insurance company will use this to decide if they should issue a policy and how much your rate will be.

Appraisal A professional assessment of your property to determine its value. Appraisals are conducted to determine the value of your expensive possessions, like jewelry or antiques, in order to purchase adequate coverage. An appraisal can also be done after a loss to determine the extent of damage.


C

Cancellation The termination of your insurance policy during the policy term.

Claim An insurance claim is when you make a request to your insurance company to pay you after a loss. If your insurance company validates the claim, you’ll be issued a payment.

Coverage The protection against financial loss provided by an insurance contract.

Credit based insurance score A credit-based insurance score is a number that is calculated using information from your credit report. It provides an assessment of your insurance risk at a particular point in time and helps American Family determine how likely you are to suffer losses that lead to claims. Find out more about credit based insurance scores.


D

Damage Physical harm to or loss of property.

Damages The money that one party is legally obligated to pay another party.

Declarations page The page in a policy that shows the name and address of the insurer, the period of time a policy is in force, the amount of the premium and the amount of coverage. Keep reading to better understand your declarations page.

Deductible The amount of the damage or loss that you’re responsible for before your company pays on a claim. Higher deductibles allow insurance companies to offer reduced premiums. Lower deductibles will increase the amount of the premium you will pay.


E

Effective date The date that your coverage goes into effect.

Endorsement An add-on to your insurance policy that changes the coverage provided in your policy. Learn more about endorsements.

Expiration date The date on which your policy expires.

Exposure Your susceptibility to suffering a loss.


H

Hazard An action, condition circumstance or situation that makes the occurrence of a loss more likely. Learn more about hazard insurance.


I

Insurance Something people buy to protect themselves from losing money in the event of an accident or unexpected mishap. It’s an agreement between you (the person being insured), and your insurance company, where you’ll pay a certain amount up front — your premium. In the event of an accident, injury or other loss covered in your policy, you’ll pay a small portion of the financial cost, known as the “deductible,” and the insurance company promises to pay above that amount up to the limit shown on their policy.

Insurance contract The document that is the agreement between your insurance company and you (the policyholder) detailing the terms and conditions of your insurance coverage.

Insured The policyholder; the person(s) protected in case of a loss or claim.

Insurer The insurance company that provides insurance coverage and services.


L

Lapse A policy that ends because you did not pay the premium amount.

Limits The maximum dollar amount of protection purchased by the policyholder for specific coverages.

Loss The injury or damage sustained by the insured that the insurance company agrees to cover.

Loss history The losses you have suffered, and their values, over a certain period of time.


M

Mutual insurance company An insurance company that’s owned by its policyholders — not stockholders.


N

Negligence When a person doesn't exercise reasonable care in a given situation, they may be considered to be negligent. One can be negligent as a result of doing something or not doing something.

Non-renewal A decision by an insurance company not to renew a policy at its expiration date.


O

Over-insurance When the limit of insurance exceeds the value of the property insured.


P

Perils The specific risk or cause of a loss covered by your insurance policy. Examples include explosion, collision, flood, fire, theft, vandalism, water damage, etc.

Policy A formal written contract of insurance.

Policyholder The person who applied for, pays for and is issued the insurance policy.

Policy period The time your policy is in force, from the effective date to the expiration date.

Premium The amount of money an insurance company charges to provide coverage.


R

Rate A number that, when multiplied by a limit of insurance or a measure of exposure, determines your premium. For example, a rate of $1 per $1000 of insurance will produce a premium of $10 for $10,000 of coverage.

Reinstatement When your policy goes back into force after it lapsed due to nonpayment of premiums.

Risk The chance that a loss may occur.


S

Subrogation In insurance, subrogation substitutes one party (insurer) for another party (insured) in order to pursue any rights that the insured may have against a third party who is liable for a loss. For example: If you are injured and it is another person’s fault, your insurance company may pay your claim and then attempt to collect the damages from the other person or his or her insurance carrier.

Surcharge When an insurance company increases your rate due to a factor (like your driving record, or the distance from your house to the fire department) that increases your likelihood of suffering a loss.


T

Term The length of time covered by a policy.


U

Underwriter The person who accepts or rejects risks for an insurance company.

Underwriting The process an insurance company uses to decide whether to accept or reject an application for a policy.


Disclaimer: This glossary represents only a brief description of terms and is not part of your policy. Insurance policy terms and conditions may apply. Coverage features and limits vary by state and may be subject to change. Some products are not available in every state. Please check with your agent and read the policy for exact details on coverage and exclusions.

 Insurance 101: Basic Insurance Terms


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