Insurance Dictionary
Plain-English definitions of the terms you'll actually see on a policy.
A method of calculating claim payouts based on the current market value of covered property at the time of loss, subtracting depreciation for age and wear-and-tear.
Example: Because his stolen laptop was three years old, the insurer paid its actual cash value of $400 rather than the $1,200 cost of a brand-new model.
Related: Replacement Cost, Deductible
Coverage that pays to repair or replace your vehicle after a collision with another vehicle or object, regardless of fault.
Example: You slide on wet pavement and hit a guardrail. Collision coverage may pay to repair your car, minus your deductible.
Related: Comprehensive Coverage, Deductible
Coverage that pays to repair or replace your vehicle after non-collision damage such as theft, fire, vandalism, falling objects, or weather.
Example: A tree limb falls on your parked car during a windstorm. Comprehensive coverage may pay for the repair, minus your deductible.
Related: Collision Coverage, Deductible
The maximum dollar amount an insurance company will pay out for a covered loss under a specific policy provision.
Example: With a property damage liability limit of $50,000, the insurer pays up to $50,000 toward damages caused to other vehicles in an accident.
Related: Liability, Deductible, Premium
The pages at the front of your policy that summarize who is insured, what is covered, your limits, and your premium.
Example: Your lender asks for your 'dec page' to verify you carry the required coverage on a financed vehicle.
Related: Premium, Liability
The amount you pay out of pocket before your insurance kicks in on a covered claim.
Example: If your deductible is $1,000 and you have a $5,000 claim, you pay the first $1,000.
Related: Premium, Coverage Limit
A written amendment or rider attached to an insurance policy that alters, adds, or removes specific coverages, terms, or conditions.
Example: David added a scheduled jewelry endorsement to his homeowners policy to fully cover his wife's engagement ring above the standard sub-limit.
Related: Exclusion, Premium
A specific situation or type of loss your policy does not cover. Exclusions are listed in the policy contract.
Example: A standard homeowners policy typically excludes flood damage — separate flood insurance is required.
Related: Premium, Liability
A loose term — not an actual coverage — usually meaning a policy with liability plus comprehensive and collision coverage. Insurance professionals do not use this term. This term was made up by financial institutions to describe having the coverages that cover their interests.
Example: A lender may require 'full coverage' on a financed car, meaning liability plus comprehensive and collision.
Related: Comprehensive Coverage, Collision Coverage, Liability
Coverage that pays the difference between what you owe on a car loan or lease and the vehicle's actual value if it's totaled or stolen.
Example: You owe $28,000 on a car that's worth $22,000 when it's totaled. Gap coverage may pay the $6,000 difference.
Related: Comprehensive Coverage, Premium
Coverage that pays for others' injuries or damage you're legally responsible for.
Related: Bodily Injury, Property Damage
The amount you pay for your insurance policy, usually monthly or annually.
Related: Deductible
An insurance payout calculation that covers the full cost to repair or replace damaged property with new items of similar quality, without subtracting for depreciation.
Example: Thanks to her replacement cost home policy, Julia received enough funds to buy a new refrigerator of equal quality after a kitchen fire.
Related: Actual Cash Value, Coverage Limit
Extra liability insurance that adds a layer of protection — often $1 million or more — on top of your auto and homeowners policies.
Example: A serious accident results in $1.5 million in damages. Your auto policy covers $300,000 and your umbrella covers the next $1 million.
Related: Liability, Premium
Coverage that steps in when the at-fault driver has insurance, but their limits are too low to fully cover your injuries or damages.
Example: The other driver carries $50,000 in liability but your injuries cost $200,000. Your UIM coverage may help cover the difference, up to your limits.
Related: Uninsured Motorist Coverage (UM), Liability
Coverage on your own auto policy that pays for your injuries when the at-fault driver has no insurance at all.
Example: An uninsured driver rear-ends you and your passenger is injured. Your UM coverage may pay medical bills and lost wages.
Related: Underinsured Motorist Coverage, Liability, Premium
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