Common List of Insurance Terms and Definitions
- Actuary: A professional who calculates insurance risks and premiums.
- Example: An actuary determines the premium rates for a life insurance policy by analyzing mortality rates and financial risks.
- Adjuster: A person who investigates and settles insurance claims.
- Example: After a car accident, an insurance adjuster assesses the damage and determines how much the insurer should pay for repairs.
- Annuitant: The individual who receives payments from an annuity.
- Example: A retiree who invested in an annuity receives monthly payments from their policy.
- Binder: A temporary insurance contract providing immediate coverage until a formal policy is issued.
- Example: When purchasing a home, the lender requires a homeowner’s insurance binder before closing on the loan.
- Claim: A request made to an insurance company for payment of a covered loss.
- Example: A homeowner files a claim after a fire damages their property, seeking reimbursement for repairs.
- Endorsement (Rider): A policy add-on that modifies coverage.
- Example: A life insurance policyholder adds an accelerated death benefit rider to access funds early in case of terminal illness.
- Exclusion: A condition or circumstance not covered by the insurance policy.
- Example: Flood damage may be an exclusion in a standard homeowner’s insurance policy, requiring separate coverage.
- Grace Period: The time after a missed payment during which coverage remains active.
- Example: A life insurance policy may have a 30-day grace period, allowing the insured to pay the premium without losing coverage.
- Insurable Interest: A legitimate financial interest in the insured property or person.
- Example: A spouse has an insurable interest in their partner, as they would suffer financial loss if the partner passed away.
- Maturity Date: The date when the policy's payout is due.
- Example: A whole life insurance policy matures when the insured reaches a certain age, and the cash value is paid out.
- Peril: A specific risk or cause of loss covered by the policy.
- Example: Fire, theft, and hailstorms are common perils covered by homeowner’s insurance.
- Policyholder: The person or entity that owns an insurance policy.
- Example: John purchases an auto insurance policy, making him the policyholder responsible for premium payments.
- Premium: The amount paid for insurance coverage.
- Example: Sarah pays $50 per month as a premium for her health insurance policy.
- Reinsurance: When an insurance company transfers part of its risk to another insurer.
- Example: An insurance company issues high-risk policies and purchases reinsurance to avoid financial strain if multiple claims occur.
- Rider: An additional provision or amendment attached to an insurance policy that provides extra coverage or benefits beyond the standard terms of the policy. It typically allows policyholders to customize their insurance to meet specific needs, such as adding coverage for critical illness, accidental death, or disability. Riders may increase the premium cost but offer greater flexibility and enhanced protection.
- Example: A critical illness rider attached to a life insurance policy. This rider provides an additional benefit if the policyholder is diagnosed with a covered critical illness, such as cancer, heart attack, or stroke. In the event of such a diagnosis, the rider may pay out a lump sum or periodic payments to help cover medical expenses or other financial needs, on top of the original life insurance benefit. This allows policyholders to have extra financial protection for serious health conditions.
- Subrogation: The insurer's right to recover costs from a third party responsible for a loss.
- Example: After paying for damages from a car accident caused by another driver, the insurer seeks reimbursement from the at-fault driver’s insurance.
- Underwriter: The person or company that evaluates risk and issues policies.
- Example: Before approving a life insurance application, an underwriter reviews the applicant’s health records and lifestyle risks.
- Underwriting: The process of evaluating the risk of insuring a person or asset and determining the appropriate premium.
- Example: When applying for health insurance, the underwriting process involves assessing medical history, age, and lifestyle to set a fair premium.