Insurance glossary
Use these definitions to read a policy, a renewal notice or a calculator result. Each entry explains where the term appears and what to check before using a number from your own documents.
Last updated
A
Actual cash value (ACV)
A way of valuing damaged property that takes depreciation into account. Age and condition can affect the amount available for an older item.
A ten-year-old sofa and a new replacement may have different values. Check the settlement terms before treating an inventory total as a potential payment.
Additional living expenses (ALE)
Coverage for extra living costs when a covered loss makes the insured home uninhabitable, subject to the policy’s limits and conditions.
If temporary meals cost $65 per day and usual meals cost $25, use the extra $40 when estimating how long a dollar limit could last.
B
Beneficiary
A person or other recipient designated to receive a life insurance benefit when the insured dies under the policy’s terms.
Check who is listed on each policy before counting its proceeds among the resources available to a particular household.
Benefit period
In disability income insurance, the length of time benefits may continue for a qualifying disability. Continued eligibility and the terms of the policy matter.
Mark both the first payable period and the last. A six-month benefit can leave a household with a shortfall if an absence lasts longer.
Bodily injury liability
Auto coverage that can pay for injuries to other people when the insured is legally responsible for an accident.
Enter a separate loss for each injured person. A $50,000 per-person limit can affect one severely injured person even when the shared accident limit has room left.
C
Cash surrender value
The amount a permanent life policy makes available if its owner gives up the coverage. Charges and outstanding loans can reduce the amount paid.
For a particular anniversary, use net surrender values from the same illustration. Keep the guaranteed figure, the illustrated figure and the death benefit on separate lines.
Collision coverage
Auto coverage for damage to the insured vehicle from a collision or rollover, subject to the policy’s terms and deductible.
When comparing two collision deductibles, keep the vehicle and other coverages the same and use the actual annual or term premiums from both quotes.
Comprehensive coverage
Auto coverage for covered damage to the insured vehicle from events such as theft, hail or fire. It applies to causes other than collision.
Use the comprehensive deductible for a covered hail scenario. A different deductible can appear on the collision line of the same policy.
Conversion option
A provision allowing a term life policyholder to convert to eligible permanent coverage under the contract’s rules, often without a new health assessment.
Get the conversion deadline in writing. The initial term can last longer than the window in which the policyholder may convert.
D
Death benefit
The amount payable to the beneficiary for a covered death. Policy loans, prior benefit payments or policy provisions can change the amount available.
When estimating the family’s coverage gap, use the amount the insurer confirms would be payable on the life you are modeling.
Declarations page
The policy summary that identifies the insured location or vehicle, policy period, coverages, limits, deductibles and premium.
Put both declarations pages side by side at renewal. Read any listed endorsements to understand a change that a summary line alone cannot explain.
Deductible
The amount a policy assigns to the insured for an applicable covered loss. It may be a fixed dollar amount or a percentage of a stated base.
On a policy that applies 2% to a $390,000 dwelling limit, the deductible is $7,800. Check which cause of loss triggers that percentage.
Disability income insurance
Insurance that can replace part of a person’s earnings when illness or injury meets the policy’s definition of disability.
Compare the benefit you could actually use with household expenses during an absence. Check the waiting time, benefit duration and any offsets in the plan.
Dwelling limit (Coverage A)
The base limit shown for the insured home’s structure. Policies can list belongings, detached structures or a rebuilding extension separately.
Compare the declarations-page limit with a current rebuilding estimate. A purchase price includes the land and can tell a different story.
E
Elimination period
In disability income insurance, the time a qualifying disability must continue before benefits become payable under the policy.
If benefits can start after 60 days, budget separately for those first weeks. Check the plan’s payment schedule as well as its waiting period.
Endorsement
A written change to the insurance contract that can add, remove or modify coverage.
When the renewal mentions an extension or a new restriction, request the actual endorsement wording and its effective date.
Extended replacement cost
A home policy provision that can increase the amount available above the base dwelling limit for qualifying rebuilding costs, subject to stated conditions.
A 25% extension on a $400,000 base could add up to $100,000 if its conditions are met. Enter the $400,000 base separately in a coverage comparison.
F
Face amount
The stated amount of life insurance on the policy. The benefit actually payable can differ under the policy’s terms.
Use the same face amount when comparing prices for two term lengths. Otherwise a difference in price could reflect a different amount of insurance.
G
GAP protection
Guaranteed asset protection is an optional product intended to cover some or all of the difference between a vehicle loan balance and an insurer’s settlement after a qualifying theft or total loss.
Start with a dated payoff and the net settlement. Subtract a GAP credit from the remaining balance only when the provider confirms the amount.
Group life insurance
Life insurance provided under a group arrangement, often through an employer. Coverage and premiums depend on the plan.
For supplemental employee coverage, check whether the benefits guide quotes a monthly rate per $1,000 or an actual payroll deduction. They use different units.
I
Illustration
A document showing how a particular life insurance policy could perform over time under stated assumptions. It distinguishes guaranteed elements from amounts that may change.
Compare the same anniversary and premium outlay in both columns. An illustrated dividend or surrender value can change even when it appears in a detailed table.
L
Liability limit
The maximum available under a specified liability coverage, subject to the contract. A limit may apply per person, per accident or to a particular kind of damage.
Identify the exact line you are changing. Raising a bodily-injury limit leaves the separate property-damage limit unchanged in a split-limit auto policy.
Loss assessment
An amount a condominium association charges a unit owner in connection with a loss. An owner’s policy may cover a qualifying assessment under a separate provision.
Use the association’s letter to identify the cause and your share. Check whether an assessment for the association’s deductible is eligible under the unit policy.
M
Master policy
In a condominium, the insurance policy the association carries for property and responsibilities defined by its documents, policy and applicable law.
Check who must restore the original interior and who must pay for improvements. Those answers can place parts of the same kitchen repair in different policies.
O
Original value
For the ordinary federal conventional PMI removal rule, generally the lower of the purchase price and the appraisal at purchase. For a refinance, it generally means the appraisal at refinancing.
Use that figure with the actual and scheduled balances required for the applicable tests. A current listing price can give the wrong threshold.
P
Personal property coverage
Coverage for belongings such as furniture and clothing when damaged or lost through a cause the policy covers.
Total what you own by room and record items subject to a special limit. Keep furnishings separate from the building estimate.
Private mortgage insurance (PMI)
Insurance that protects the lender if the borrower stops paying a conventional mortgage. The borrower may pay a recurring premium, an upfront charge or both.
Compare the quoted charges across the same number of months. Ask the servicer which cancellation and termination rules apply to your loan.
Property damage liability
Auto coverage that can pay for damage to someone else’s property when the insured is legally responsible for an accident.
A fence and another car damaged in one crash may share one property limit. Enter the total covered damage to both in the property line of the worksheet.
R
Replacement cost
The cost to repair or replace covered property with comparable property at current prices under the policy’s terms. For a dwelling, the cost of rebuilding excludes the land.
For the structure, obtain a dated estimate that reflects local labor, materials and the home’s features. Price movable belongings separately.
S
Split liability limits
Separate auto liability limits for injury to one person, injury to everyone in one accident and damage to others’ property.
A notation of 50/100/25 usually means $50,000 per injured person, $100,000 of injury liability per accident and $25,000 of property-damage liability per accident. Confirm the order on the declarations.
Sublimit
A narrower limit for a category of property or loss within a coverage. One category can reach its limit while the overall coverage still has room.
For a covered loss involving jewelry, check the category limit and applicable cause. Count the eligible part once within the overall belongings limit.
T
Term life insurance
Life insurance for a specified period. Its death benefit can be payable if the insured dies while the coverage is in force.
Compare the term end with the last year of a mortgage or family support obligation. Check renewal prices and conversion deadlines separately.
W
Whole life insurance
A form of permanent life insurance designed to provide lifetime protection when kept in force under its terms. It can build cash value.
Read the premium schedule and the guaranteed value for the anniversary you care about. Keep any projected dividends separate from a contractual guarantee.