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Insurance Glossary

A

Actual cash value (ACV)

The value of your property, based on the current cost to replace it minus depreciation. Also see “replacement cost.

Additional living expenses (ALE)

Reimburses the policyholder for the cost of temporary housing, food, and other essential living expenses, if the home is damaged by a covered peril that makes the home temporarily uninhabitable. Policies cap the amount of ALE payable to 20 percent of the policy’s dwelling coverage.

Adjuster

An individual employed by an insurer to evaluate losses and settle policyholder claims. Also see “public insurance adjuster.”

Agent

A person who sells insurance policies.

Application

A form you fill out with information about you that an insurance company will use to decide whether to issue you a policy and how much to charge.

B

Benchmark rate(s)

The rates set annually by the Commissioner of Insurance that rate-regulated insurance companies use to reference their rates. Rate-regulated insurance companies filing rates within a range of 30 percent above or below the benchmarks may use them immediately upon filing without prior approval. A company that wants to set its rates outside this range must receive the Commissioner’s prior approval.

Binder

A temporary insurance contract that provides proof of coverage until you receive a permanent policy.

Bodily injury (BI)

Physical injury to a person.

C

Cancellation

Termination of an insurance policy by the company or insured before the renewal date.

Claim

A policyholder’s request for reimbursement from an insurance company under a home insurance policy for a loss to property.

Claimant

A person who makes/files an insurance claim.

Collision coverage

Pays for damage to your car without regard to who caused an accident. The company must pay for the repair or up to the actual cash value of your vehicle, minus your deductible.

Comprehensive coverage (physical damage other than collision)

Pays for damage to or loss of your automobile from causes other than accidents. These include hail, vandalism, flood, fire, and theft.

Contract

In most cases, the term “contract” refers to an insurance policy. A policy is a contract between the insurance company and the policyholder.

D

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.

Deductible

The amount the insured must pay in a loss before any payment is due from the company.

Depreciation

Decrease in the value of property over time due to use or wear and tear.

E

Earned premium

The portion of a policy premium that has been used to actually buy coverage, or that the insurance company has “earned.” For instance, if you have a six-month policy that you paid for in advance, two months into the policy, there would be two months of earned premium. The remaining four months of premium is “unearned premium.”

Effective date

The date on which an insurance policy becomes effective. Also known as the “commencement date” and “policy start date”.

Endorsement

A written agreement attached to a policy expanding or limiting the benefits otherwise payable under the policy. Also called a “rider.”

Escrow

Money placed in the hands of a third party until specified conditions are met.

Exclusion

A provision in an insurance policy that denies coverage for certain perils, people, property, or locations.

Expiration date

The date on which an insurance policy expires.

F

First-party claim

A claim filed by an insured against his or her own insurance policy.

Flood insurance

Insurance that covers things like: 1) overflow of inland or tidal water (such as storm surge); 2)
run off or buildup of surface water (such as flash floods); and 3) mudflow (such as flowing mud on the surface of normally dry land).

G

Gap Insurance

Insurance that pays the difference between the actual cash value of a vehicle and the amount still to be paid on the loan. Some gap policies may also cover the amount of the deductible.

Group of companies

Several insurance companies under common ownership and often common management.

I

Independent adjuster

A person who charges a fee to an insurance company to adjust the company’s claim.

Inflation protection

Automatically adjusts your home insurance policy limits to account for increases in the costs to repair or rebuild a property.

Insurable interest

Any financial interest a person has in the property or person insured. In life insurance, a person´s or party´s interest – financial or emotional – in the continuing life of the insured.

Insured

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

Insurer

The insurance company.

L

Lapse

The termination of an insurance policy because a renewal premium is not paid by the end of the grace period.

Liability coverage

Covers losses that an insured is legally liable. For homeowners insurance, liability coverage protects you against financial loss if you are sued and found legally responsible for someone else’s injury or property damage.

Liability limits

The maximum amount which a liability policy will pay as a result of a single accident or injury to a single person.

Loss

The amount an insurance company pays on a claim.

Loss of use

A provision in homeowners and renters insurance policies that reimburses policyholders for the additional costs (housing, food, and other essentials) of having to live elsewhere while the home is being restored following a disaster.

Loss history

Refers to the number of insurance claims previously filed by a policyholder. A company will consider loss history when underwriting a new policy or considering a renewal of an existing policy. Companies view loss history as an indication of the likelihood that an insured will file a claim in the future.

M

Market value

The current value of your home, including the price of land.

Material misrepresentation

A significant misstatement in an application form. If a company had access to the correct information at the time of application, the company might not have agreed to accept the application.

N

Named peril

Type of insurance coverage that offers narrower protection than an open peril policy and covers only those perils specifically named under the policy.

Named insured

The person to whom the insurance policy is issued.

Non-renewal

A decision by an insurance company not to renew a policy.

O

Open peril

Type of insurance coverage that offers broad protection and covers all perils unless they are specifically excluded in the policy.

P

Peril

A specific risk or cause of loss covered by an insurance policy, such as a fire, windstorm, flood, or theft. A named-peril policy covers the policyholder only for the risks named in the policy. An open peril policy covers all causes of loss except those specifically excluded.

Personal property

All tangible property (other than land) that is either temporary or movable in some way, such as furniture, jewelry, electronics, etc.

Policy

The contract issued by the insurance company to the insured.

Policy owner

The person or party who owns an individual insurance policy. This person may be the insured, the beneficiary, or another person. The policy owner usually is the one who pays the premium and is the only person who may make changes to a policy.

Policy period

The period a policy is in force, from the beginning or effective date to the expiration date.

Premium

The amount paid by an insured to an insurance company to obtain or maintain an insurance policy.

Primary residence

The place where you’ll live for the majority of your policy period.

Primary use

How you mainly use your vehicle. Primary use options include to/from work, business, pleasure, or farm use.

Principal driver

The person who drives the car most often is the principal driver.

Property damage

Physical damage to property.

Public insurance adjuster

An individual employed by a policyholder to negotiate a claim with the insurance company in exchange for a percentage of the claim settlement. Public insurance adjusters must be licensed by TDI.

R

Refund

An amount of money returned to the policyholder for overpayment of premium or if the policyholder is due unearned premium.

Reinstatement

The process by which a life insurance company puts a policy back in force after it lapsed because of nonpayment of renewal premiums.

Renewal

Continuation of a policy after its expiration date.

Renters insurance

A form of insurance that covers a policyholder’s belongings against perils. It also provides personal liability coverage and additional living expenses. Possessions can be covered for their replacement cost or the actual cash value, which includes depreciation.

Rental reimbursement coverage

Rental reimbursement provides rental car coverage if you have a claim that is covered under comprehensive or collision coverage.

Replacement cost (RCV)

Pays the dollar amount needed to replace the structure or damaged personal property without deducting for depreciation but limited by the policy’s maximum dollar amount.

Residual market

Insurers, such as assigned risk plans and the Texas FAIR Plan, that exist to provide coverage for those who cannot get it in the standard market.

Return premium

The premium returned to an insured for canceling or amending a policy.

Rider

A written agreement attached to the policy expanding or limiting the benefits otherwise payable under the policy. Also called an “endorsement.”

S

Single interest insurance

Insurance coverage for only one of the parties having an insurable interest in that property. For instance, if you still owe money on your mortgage and do not have homeowners insurance, your lender may take out a single interest insurance policy to protect its own interest in your property. Single interest insurance protects only the policy owner, not the homeowner.

Surcharge

An extra charge added to your premium by an insurance company.

Surplus lines

Coverage from out-of-state companies not licensed in Texas but legally eligible to sell insurance on a “surplus lines” basis. Surplus lines companies generally charge more than licensed companies and often offer less coverage.

T

Third-party administrator (TPA)

An organization that performs managerial and clerical functions related to an employee benefit insurance plan by an individual or committee that is not an original party to the benefit plan.

Third-party claim

A claim filed against another person’s insurance policy.

U

Umbrella insurance

Additional liability insurance coverage that can be purchased separately that provides coverage over and above your homeowners and auto or other vehicle insurance policies.

Underwriting

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

Unearned premium

The amount of a pre-paid premium that has not yet been used to buy coverage. For instance, if you paid in advance for a six-month premium, but then cancel the policy after two months, the company must refund the remaining four months of “unearned” premium to you.

V

Vehicle identification number (VIN)

A combination of 17 letters and numbers that can be used to identify a specific vehicle. No two vehicles have the same VIN.

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