Navigating the world of insurance can be complex, especially when dealing with insurance contracts. As a broker, understanding insurance terminology is crucial for advising clients and ensuring they have the right coverage. This guide provides a comprehensive glossary of insurance terms, along with resources for translated versions, to aid brokers in effectively serving a diverse clientele.
Key Insurance Terminology
A
Actual Cash Value: This refers to the fair market value of damaged or stolen property immediately before the loss. For real property, it’s the difference in fair market value before and after the loss. For vehicles, it’s determined by comparing sales and dealer quotes for similar vehicles in the local area.
Admitted Company: An insurance company that is authorized to conduct business within California.
Agent: A licensed individual or organization authorized to sell insurance on behalf of an insurance company.
Aircraft Insurance: Coverage for losses arising from the negligent actions or omissions of the insured related to the use, ownership, or maintenance of aircraft.
Automobile Insurance: Coverage for risks associated with owning or driving a vehicle. This includes collision, liability, comprehensive, medical payments, and uninsured motorist coverage.
Binder: A temporary agreement providing coverage until a formal policy is issued.
Bodily Injury: Physical harm to a person. Liability insurance covers bodily injury to a third party resulting from the insured’s negligence.
B
Boiler and Machinery Insurance: Insurance covering losses from the malfunction of boilers and machinery. This is often excluded from standard property insurance.
Broker: A licensed individual or organization paid by a client to find insurance on their behalf.
Burglary: Coverage against losses resulting from forced entry into a property.
C
Cancellation: The termination of an insurance policy during its term. Flat cancellation refers to cancellation as of the policy’s effective date, with no premium charged.
Catastrophe Model: A computer-based system simulating catastrophic events to estimate potential financial losses, including insured losses. It incorporates statistical, financial, economic, physical, engineering, and insurance data.
Claim: A notification to an insurer that a loss may be covered under the terms of a policy.
Claimant: An individual or entity asserting a right to recovery.
Collision (Auto): Reimbursement for damage to the insured’s vehicle resulting from a collision with another car or object.
Collision Deductible Waiver: Coverage waiving the collision deductible if the insured is hit by a negligent uninsured motorist.
Common Carrier Liability: Coverage for transportation companies legally obligated to carry any customer’s goods for a fee.
Comprehensive (Auto): Coverage for direct and accidental loss or damage to the insured’s vehicle and its equipment, including fire, theft, and malicious mischief.
Comprehensive Glass Insurance: Broad coverage for glass breakage, excluding war and fire.
Credit Life Insurance: Insurance protecting a lender by covering the life of a borrower for an outstanding loan.
D
Decline: Refusal by an insurance company to provide coverage.
Deductible: The portion of a loss the insured must pay before insurance benefits are paid. A higher deductible generally results in a lower premium.
Depreciation: A decrease in value due to age, wear, and tear.
Disability Insurance: Health insurance providing income replacement when the insured is unable to work due to illness or accident.
E
Endorsement: An amendment to an insurance policy that adds or deletes coverage; also known as a “rider.”
Exclusion: Specific causes or conditions listed in the policy that are not covered.
Expiration Date: The date on which an insurance policy ends.
F
Face Amount: The dollar amount paid to the beneficiary upon the death of the insured, not including additional amounts from dividends or policy riders.
Financial Guarantee Insurance: Insurance protecting against financial loss to a claimant, obligee, or indemnitee.
Fire Insurance: Coverage for loss or damage to a building and/or its contents due to fire.
G
Good Driver Discount: A discount for drivers with a clean driving record (licensed for at least three years, with no more than one point on their record and not at fault in an accident causing bodily injury or death).
Grace Period: A period after the premium due date during which payment can be made without policy interruption (typically applies to Life and Health policies).
Guaranteed Insurability: An option allowing the policyholder to purchase additional life insurance at specified times without proof of insurability.
H
Health Insurance: A policy covering medical expenses or treatments.
Homeowner Insurance: A combination of coverages for risks associated with owning a home, including fire, burglary, vandalism, and earthquake.
I
Incontestable Clause: A policy provision preventing the insurer from contesting the validity of the contract after it has been in force for a specified period (usually two years).
Insured: The policyholder who is protected against loss or claim.
Insurer: The insurance company.
L
Legal Insurance: Prepaid legal insurance coverage sold on a group basis.
Liability (Auto): Coverage for the policyholder’s legal responsibility for injuries to others or damage to their property resulting from an auto accident.
Liability Insurance: Coverage for sums the insured is legally obligated to pay for bodily injury or property damage.
Life Insurance: A policy paying a specified sum to beneficiaries upon the death of the insured.
Limit: The maximum amount a policy will pay, either overall or under a specific coverage.
Loan Value: The amount a policyholder can borrow from the issuing company, using the policy’s value as collateral.
M
Marine Insurance: Coverage for goods in transit and vehicles of transportation on waterways, land, and air.
Material Misrepresentation: A false statement of a material fact on an insurance application.
Medical Payments: Coverage for reasonable medical and funeral expenses incurred due to bodily injury caused by an accident while occupying a covered vehicle.
Miscellaneous Insurance: A broad category including coverage for various risks not included in other classes.
Misquote: An inaccurate estimate of the insurance premium.
Mortgage Insurance: Life insurance paying the balance of a mortgage if the insured dies.
P
Peril: The cause of a potential loss, such as fire, theft, or hail.
Policy: The written insurance contract.
Policy Limit: The maximum amount a policy will pay.
Premium: The price charged by an insurance company for coverage.
Premium Financing: A policyholder borrows funds to pay insurance premiums, repaying the lender with interest and fees.
Pro-Rata Cancellation: Termination of a policy midterm by the insurance company, with the earned premium calculated only for the period of coverage.
Property Damage: Damage to another person’s property.
Q
Quote: An estimate of the cost of insurance based on information provided by the applicant.
R
Reinstatement: Restoring a lapsed policy to full force and effect.
Reinsurance: A tool used by insurance companies to manage risk by transferring portions of their risk portfolios to other insurers.
Replacement Cost: The cost to repair or replace an insured item.
Replacement Value: The full cost to repair or replace damaged property without deducting for depreciation.
Rider: An amendment (endorsement) to the policy that adds or deletes coverage.
S
Short-Rate Cancellation: Policy termination before the expiration date at the policyholder’s request, resulting in a less-than-pro-rata refund.
Solicitor: A licensed employee of a fire and casualty agent or broker.
Sprinkler Insurance: Coverage for property damage caused by the discharge of an automatic sprinkler system.
Surcharge: An extra charge applied by the insurer, often for accidents or moving violations.
Surrender: Termination of a life insurance policy before its maturity date.
T
Team and Vehicle Insurance: Coverage against loss or liability for damage caused by teams or vehicles.
Title Insurance: Coverage for losses if a land title has defects unknown when the insurance was purchased.
U
Underwriting: The process of assessing and classifying applicants for insurance to determine appropriate premium rates and accept or reject risks.
Uninsured Motorist Bodily Injury: Coverage for bodily injury caused by a negligent uninsured motorist, hit-and-run driver, or a driver whose insurer is insolvent.
Uninsured Motorist Property Damage: Coverage for damage to the insured’s vehicle caused by a negligent uninsured motorist.
W
Waiting Period: A period specified in a policy that must pass before certain coverages begin.
Workers Compensation Insurance: Coverage for employee job-related injuries or diseases, providing medical care, death, disability, and rehabilitation benefits.
Surety and Bond Terminology
Arrestee: A person in custody whose release may be secured by posting bail.
Bailee: A person or concern having possession of property committed in trust from the owner.
Bid Bond: A guarantee that a contractor will enter into a contract if awarded and furnish the required contract bond.
Court Bonds: Bonds required of litigants to pursue certain court remedies.
Effective Date: The date on which an insurance policy or bond goes into effect.
Fidelity Bond: Protection against financial loss caused by dishonest employee acts.
Judicial Bond: A bond required in civil and criminal court actions.
Named Schedule Bond: A fidelity bond covering specifically listed individuals.
Obligee: The person or entity protected by a bond.
Obligor: The “principal” bound by an obligation.
Power of Attorney: Authority given to act for another.
Principal: The person or organization whose obligations are guaranteed by a bond.
Surety: The party (usually an insurance company) responsible to one person for the acts of another.
Surety Bond: A bond where the surety agrees to answer to the obligee for the principal’s non-performance.
Suretyship: All forms of obligation to pay debts or answer for the default of another.
Residential Title Insurance Terminology
Lender’s Policy: Protects the lender’s investment against claims against the property.
Owner’s Policy: Protects the homeowner’s financial interests against claims against the property.
Choice of Title Insurer: The seller cannot require the buyer to use a specific title insurance company.
Escrow: A transaction where a third party holds instruments, money, and evidence of title until specified conditions are met.
Title Homeowners Fee: Fee paid for title insurance protecting the buyer.
Title Lenders Fee: Fee paid for title insurance protecting the lender.
Escrow Sale Fee: Fee for escrow services related to a purchase.
Escrow Loan Fee: Fee for escrow services related to a loan.
Multilingual Resources for Health Insurance Terms
The California Department of Insurance provides uniform language glossaries for health insurance terms in multiple languages, crucial for brokers assisting clients with limited English proficiency. These glossaries can be accessed in the following languages:
- Arabic 2014
- Armenian 2014
- Chinese 2017
- Farsi 2014
- Hmong 2014
- Khmer-Cambodian 2014
- Korean 2014
- Russian 2014
- Spanish 2017
- Tagalog 2017
- Vietnamese 2014
Conclusion
A comprehensive understanding of insurance terminology is essential for insurance brokers. This guide provides a solid foundation for navigating insurance contracts and effectively serving clients. Utilizing the provided multilingual resources further empowers brokers to assist a diverse range of clients, ensuring they receive the best possible coverage and advice. By staying informed and utilizing available resources, brokers can build trust and provide valuable services to their clients in the complex world of insurance.
