Insurance glossary
Short definitions for common policy words. Definitions are educational and may differ from a specific contract.
- Deductible
- A deductible is your share of a covered loss, often a flat dollar amount. Health deductibles usually apply across a plan year. Some homeowners policies use percentage deductibles for named perils. A deductible does not make an excluded loss covered.
- Copay
- A copayment, or copay, is typically a set fee for certain services. Whether a copay applies before or after the deductible depends on the health plan. Copays are different from coinsurance, which is a percentage.
- Coinsurance
- Coinsurance splits an allowed charge between you and the plan after deductible rules are met. For example, 20% coinsurance means you pay 20% of the allowed amount for that service until you reach the out-of-pocket maximum, subject to plan terms.
- Liability
- Liability insurance may pay others’ covered claims and, in many policies, defense costs. It generally does not repair your own car or house. Limits are stated on the declarations page. Some claims, such as certain intentional acts, are excluded.
- Coverage limit
- A coverage limit caps the insurer’s payment for that part of the policy. Separate limits can apply to dwelling, personal property, liability or medical payments. Losses above the limit remain your responsibility unless another policy applies.
- Policy
- An insurance policy includes declarations, insuring agreements, definitions, exclusions, conditions and endorsements. Marketing summaries are not a substitute for the contract. If the policy and a brochure disagree, the policy controls.
- Claim
- Filing a claim starts the insurer’s review of what happened, whether the policy applies, and how much may be paid. Not every claim is covered. Fraudulent claims are illegal. Claim history can affect future underwriting.
- Underwriting
- Underwriters evaluate risk using applications, motor vehicle records, inspection data, credit-based insurance scores where permitted, and other sources. Underwriting guidelines vary by company and by state law.
- Exclusion
- Exclusions describe what the policy does not cover, such as flood on many homeowners forms or wear and tear. Endorsements can add back limited coverage. Always read exclusions rather than assuming a loss is insured.
- Actual cash value
- Actual cash value (ACV) typically pays replacement cost minus depreciation. A five-year-old television is not settled like a new one. Policies define ACV in their own wording, which can differ from this general description.
- Replacement cost
- Replacement cost coverage may pay to rebuild or replace without subtracting depreciation, subject to limits and conditions. Some policies pay ACV first and the rest after you actually replace the item. Replacement cost is not the same as market value of a home.
- Beneficiary
- A beneficiary is named by the policy owner. Contingent beneficiaries may receive proceeds if the primary beneficiary has died. Keeping designations updated after marriage, divorce or births is a common administrative task. Tax and estate outcomes depend on individual circumstances.
- Term life
- Term life pays a death benefit if the insured dies during the term and the policy is in force. When the term ends, coverage usually ends unless renewed or converted under the contract. Premiums for new coverage at older ages can be much higher.
- Whole life
- Whole life is designed to remain in force for life when contract requirements are met. It generally builds cash value. Loans and withdrawals can reduce the death benefit. It is not the same product as term life and usually has a higher premium for the same initial face amount.
- Out-of-pocket maximum
- After you reach the out-of-pocket maximum, the plan usually pays 100% of covered in-network allowed amounts for the rest of the year. Premiums generally do not count. Out-of-network and excluded services may still cost money.