Insurance Glossary: Plain-English Insurance Terms

Terms A to Z

A

Accelerated death benefit

A rider that may let you access part of the death benefit early if you’re diagnosed with a qualifying terminal illness, subject to policy terms. Related: life insurance.

Actual cash value (ACV)

A way of valuing a loss that takes the replacement cost and subtracts depreciation (wear and age). An older roof or couch paid at ACV gets less than the cost of a new one. Related: homeowners insurance.

Additional insured

A person or business added to someone else’s policy, usually because a contract requires it. General contractors and landlords often ask to be added to a subcontractor’s or tenant’s general liability policy. Related: general liability insurance.

Additional living expenses (ALE)

Also called loss of use. Helps pay extra costs, like a hotel and meals, if a covered loss makes your home unlivable for a while. Related: homeowners insurance.

Aggregate limit

The most a policy will pay for all covered claims during the policy term, usually one year. Compare with the per-occurrence limit. Related: general liability insurance.

Agreed value

A policy that sets the value of your boat, RV, motorcycle, or classic car up front. If there’s a covered total loss, the agreed amount is paid (minus any deductible), instead of a depreciated value. Related: boat insurance.

At-fault accident

A crash where you are found mostly responsible. At-fault accidents can affect your rates at renewal with many carriers. Related: car insurance.

B

Beneficiary

The person, people, or trust you name to receive a life insurance death benefit. You can usually name primary and contingent (backup) beneficiaries. Related: life insurance.

Binder

A temporary document showing coverage is in place until the full policy is issued. Lenders often ask for one before a home closing. Related: homeowners insurance.

Bodily injury liability

Pays for injuries you cause to other people, up to your limits, and helps pay for your legal defense if you’re sued. Related: car insurance.

Business income coverage

Also called business interruption. Can replace lost income and pay ongoing expenses if a covered loss, like a fire, forces your business to close for a while. Related: business insurance.

Business owner’s policy (BOP)

A package that bundles general liability and business property coverage, and often business income, for many small businesses. Related: business insurance.

C

Cancellation

Ending a policy before its expiration date, by you or the insurer. Insurers must follow state rules and policy terms on notice. Related: car insurance.

Cash value

A savings-like part of many permanent life insurance policies that can grow over time. You may be able to borrow against it, subject to policy terms. Related: life insurance.

Certificate of insurance (COI)

A one- or two-page summary showing what business coverage you have, the limits, and the policy dates. Clients and general contractors often ask for one before you start work. Related: general liability insurance.

Claim

A formal request to your insurance company to pay for a covered loss. Related: homeowners insurance.

Claims-made policy

A policy that covers claims first made during the policy period, as long as the event happened after any retroactive date. Many professional liability policies work this way. Related: general liability insurance.

Collision coverage

Pays to repair or replace your car after it hits another vehicle or object, or rolls over, regardless of fault, minus your deductible. Related: car insurance.

Commercial auto insurance

Auto coverage for vehicles owned or used by a business. In Tennessee, a vehicle with a commercial license plate must be covered under a commercial auto policy, according to the Tennessee Department of Revenue. Related: commercial auto insurance.

Commercial general liability (CGL)

The formal name for business general liability insurance. Related: general liability insurance.

Commercial umbrella

Extra liability coverage that sits above a business’s general liability, commercial auto, and employer’s liability limits. Related: business insurance.

Completed operations

Coverage for injury or damage caused by work you have already finished, like a deck that collapses months after you built it. Related: general liability insurance.

Comprehensive coverage

Also called other-than-collision. Pays for damage to your car from things like theft, hail, falling trees, fire, flood, or hitting a deer, minus your deductible. Related: car insurance.

Contents coverage

Coverage for your personal belongings, like furniture, clothes, and electronics. On a homeowners policy it’s often called personal property or Coverage C. Related: renters insurance.

Contingent beneficiary

The backup beneficiary who receives the death benefit if the primary beneficiary has died or can’t be found. Related: life insurance.

Contractor’s license (Tennessee)

Tennessee requires a contractor’s license before bidding or contracting on many projects of $25,000 or more, and the Board requires general liability and workers’ compensation (unless exempt), per the Board for Licensing Contractors. Related: general liability insurance.

Coverage A (dwelling)

The part of a homeowners policy that covers the structure of your house. The limit should reflect the cost to rebuild, not the market price. Related: homeowners insurance.

Custom parts and equipment

Coverage for add-ons like saddlebags, chrome, or upgraded exhaust that aren’t part of the factory bike. Related: motorcycle insurance.

Cyber liability

Coverage that can help a business respond to data breaches, ransomware, and similar events, including notification costs and certain legal claims. Related: business insurance.

D

Declarations page

The summary page of your policy that lists who’s insured, what’s covered, limits, deductibles, and premium. It’s the first page to review. Related: homeowners insurance.

Deductible

The amount you pay out of pocket on a covered claim before insurance pays the rest. A higher deductible usually lowers your premium. Related: homeowners insurance.

Depreciation

The loss in value from age and wear. It’s the difference between replacement cost and actual cash value. Related: homeowners insurance.

DP-1, DP-2, DP-3

Common dwelling policy forms used for rental homes. DP-1 is the most basic (named perils, often actual cash value), and DP-3 is the broadest (open perils on the building, often replacement cost). Related: landlord insurance.

Dram shop liability

Liability a business may face for serving alcohol to someone who then hurts others. Liquor liability coverage is built for this risk. Related: business insurance.

Dwelling fire policy

A policy for a home you rent out or don’t live in. Liability and loss of rent may be included or added, depending on the form. Related: landlord insurance.

E

Earthquake coverage

Coverage for earthquake damage, usually excluded from standard home policies and added by endorsement or a separate policy. Related: homeowners insurance.

Endorsement

Also called a rider. A change to a policy that adds, removes, or modifies coverage. Related: homeowners insurance.

Errors and omissions (E&O)

Another name for professional liability. Covers claims that a mistake or oversight in your professional work cost a client money. Tennessee requires real estate licensees to carry it under Tenn. Code § 62-13-112. Related: business insurance.

Exclusion

Something a policy specifically does not cover, like flood or wear and tear on a typical homeowners policy. Related: homeowners insurance.

Extended replacement cost

An option that pays more than your dwelling limit, often by a set percentage, if rebuilding costs more than expected after a covered loss. Related: homeowners insurance.

F

Face amount

The death benefit amount of a life insurance policy. Related: life insurance.

Final expense insurance

A smaller whole life policy meant to help with funeral costs, medical bills, and other end-of-life expenses. Related: final expense insurance.

Financial Responsibility Law (Tennessee)

Tennessee law requiring drivers to be able to pay for damage they cause in a crash. Most people meet it with auto liability insurance. See the Department of Revenue’s summary and Tenn. Code Title 55, Chapter 12. Related: car insurance.

Flood insurance

Coverage for damage from rising water. Standard home and renters policies usually exclude flood. New NFIP policies generally have a 30-day waiting period, per FloodSmart. Related: homeowners insurance.

Free look period

A short window after you receive a new life policy when you can review it and cancel for a refund of premium. The length depends on the policy and state rules. Related: life insurance.

Fuel spill liability

Coverage for cleanup and liability if your boat leaks fuel into the water. Related: boat insurance.

Full coverage

An informal phrase, not an official coverage. It usually means liability plus collision and comprehensive. Always check the actual limits. Related: car insurance.

G

Gap insurance

Helps pay the difference between what your car is worth and what you still owe on the loan or lease if the car is totaled. Related: car insurance.

General liability insurance

Covers a business if it’s held responsible for injuring someone, damaging someone else’s property, or certain advertising injuries. Related: general liability insurance.

Grace period

Extra time after a premium due date when coverage stays in force while you catch up on payment. Related: life insurance.

Graded benefit

A life policy that pays a limited benefit if death from natural causes happens in the first years, then the full benefit after that. Some final expense policies work this way. Related: final expense insurance.

Guaranteed issue

Some policies offer coverage without health questions. They often have lower face amounts, higher premiums for the coverage, and a waiting period before the full benefit applies. Related: final expense insurance.

H

Hired and non-owned auto (HNOA)

Liability coverage for a business when employees use rented vehicles or their own cars for business errands. Related: commercial auto insurance.

Home inventory

A list, with photos or video, of what you own and what it’s worth. It makes claims faster and helps you choose the right contents limit. Related: homeowners insurance.

Hull coverage

The physical damage part of a boat policy that covers the boat itself, its motor, and often its trailer. Related: boat insurance.

I

Inland marine

Despite the name, coverage for property that moves, like contractors’ tools, equipment, and items in transit. Related: business insurance.

Insurable interest

A real financial or family stake in someone’s life or property. You generally need one to buy insurance on it. Related: life insurance.

Insurance score

A score based partly on credit history that many insurers use, where allowed, to help price policies. Related: car insurance.

J

James Lee Atwood Jr. Law

The Tennessee law behind the state’s electronic insurance verification program. Uninsured drivers can face fines and risk losing their registration, per the Department of Revenue. Related: car insurance.

L

Lapse

When a policy ends because premiums weren’t paid by the end of the grace period. Related: life insurance.

Lay-up period

Months when a boat is stored out of use, often in winter. Some policies adjust coverage or price for lay-up. Related: boat insurance.

Liability coverage

Pays for injury or damage you’re legally responsible for causing to others, plus legal defense, up to your limits. Related: umbrella insurance.

Lienholder

A lender with a financial interest in your car or boat. Lenders often require collision and comprehensive coverage. Related: car insurance.

Liquor liability

Coverage for businesses that sell or serve alcohol, for claims that an intoxicated customer hurt someone or damaged property. Related: business insurance.

Loss of rent (fair rental value)

Coverage for a landlord’s lost rental income while a rental home is being repaired after a covered loss. Related: landlord insurance.

Loss of use

See additional living expenses. Helps with extra living costs if a covered loss forces you to move out temporarily. Related: renters insurance.

M

Medical payments (auto)

Optional coverage that helps pay medical bills for you and your passengers after a crash, regardless of fault, up to a small limit. Related: car insurance.

Medical payments to others

Pays small medical bills for a guest injured at your home, regardless of fault. Related: homeowners insurance.

Mortgage protection insurance

Life insurance designed to help your family pay the mortgage if you die. Some versions also include disability or critical illness riders. Related: mortgage protection insurance.

Mortgagee clause

The part of a home policy that names your lender, so claim checks for the home may include the lender. Related: homeowners insurance.

Motor carrier filing

Proof of insurance an insurer files with a regulator for a trucking company. Federal minimums for interstate for-hire carriers are listed by the FMCSA. Related: commercial auto insurance.

Motorcycle passenger liability

Coverage for injuries to a passenger riding with you. Check whether your policy includes or excludes it. Related: motorcycle insurance.

N

Named insured

The person or business listed on the declarations page as the policyholder. Some decisions, like rejecting uninsured motorist coverage, belong to the named insured. Related: car insurance.

Named perils

A policy that only covers the causes of loss it lists, like fire or wind. Compare with open perils. Related: landlord insurance.

O

Occurrence policy

A policy that covers events that happen during the policy period, even if the claim is made later. Related: general liability insurance.

Open perils

Also called special form. Covers all causes of loss except those specifically excluded. Most homeowners policies cover the house this way. Related: homeowners insurance.

Ordinance or law coverage

Helps pay extra costs to rebuild to current building codes after a covered loss. Related: homeowners insurance.

P

Per-occurrence limit

The most a policy will pay for a single covered incident. Related: general liability insurance.

Permanent life insurance

Life insurance meant to last your whole life, like whole life or universal life, often with cash value. Related: life insurance.

Personal articles floater

Also called scheduled personal property. Separate, broader coverage for valuables like jewelry, guns, art, or instruments. Related: homeowners insurance.

Personal injury protection (PIP)

No-fault medical coverage required in some states. Tennessee’s required minimums, listed by the Department of Revenue, are liability limits and don’t include PIP. Medical payments coverage is an optional alternative many drivers consider. Related: car insurance.

Personal liability (Coverage E)

The part of a home or renters policy that pays for injuries or damage you cause to others, like a guest who slips or a dog bite, subject to policy terms. Related: renters insurance.

Personal umbrella policy

Extra liability coverage above your home, auto, and boat policies, often in $1 million layers. Related: umbrella insurance.

Policy period

The dates your policy is in force, often six months for auto and one year for home. Related: homeowners insurance.

Premium

What you pay for an insurance policy, monthly, every six months, or yearly. Related: homeowners insurance.

Professional liability

Covers claims that your advice or professional services caused a client financial harm. Also called errors and omissions (E&O). Related: business insurance.

Proof of insurance

A card or document showing you have active coverage. Tennessee drivers should keep proof of insurance available when driving. Related: car insurance.

Property damage liability

Pays for damage you cause to other people’s property, like their car, fence, or mailbox. Related: car insurance.

R

Rebuild cost

What it would cost to rebuild your home at today’s labor and material prices. It is often different from what you paid for the home. Related: homeowners insurance.

Rental reimbursement

Optional coverage that helps pay for a rental car while yours is being repaired after a covered claim. Related: car insurance.

Renters insurance

Coverage for a renter’s belongings, personal liability, and extra living costs after a covered loss. The landlord’s policy usually covers only the building. Related: renters insurance.

Replacement cost

Pays what it costs to repair or replace damaged property with new property of like kind and quality, without subtracting depreciation. Related: homeowners insurance.

Rider

An add-on to a life policy, like a waiver of premium or an accelerated death benefit rider. Related: life insurance.

Roadside assistance

Optional coverage for towing, jump-starts, lockouts, and flat tires. Related: car insurance.

Roof surfacing ACV endorsement

An endorsement some insurers use that pays roof damage at actual cash value instead of replacement cost. Ask how your roof is valued. Related: homeowners insurance.

RV full-timer coverage

Coverage for people who live in their RV much of the year. It adds home-like liability and contents protection. Related: RV insurance.

S

Scheduled equipment

Listing each tractor, mower, or machine by value on a farm or equipment policy. Compare with blanket coverage that uses one total limit. Related: farm equipment insurance.

Service line coverage

Optional coverage for damage to underground utility lines you own, like water and sewer lines. Related: homeowners insurance.

Stacking

Combining uninsured motorist limits across vehicles. Tennessee law says UM limits aren’t increased because of multiple vehicles, per Tenn. Code § 56-7-1201. Related: car insurance.

State minimum liability (Tennessee 25/50/25)

Tennessee’s required minimum auto liability: $25,000 per person and $50,000 per accident for injuries, plus $25,000 for property damage, per the Tennessee Department of Revenue. Many drivers choose higher limits. Related: car insurance.

Subrogation

When your insurer pays your claim and then seeks repayment from the person who caused the loss. Related: homeowners insurance.

Surety bond

A three-party guarantee that a business will do what it promised, like finish a job or follow licensing rules. Tennessee home improvement licenses require a $10,000 bond or other approved security, per the Board for Licensing Contractors. Related: business insurance.

T

Term life insurance

Life insurance for a set number of years, like 10, 20, or 30. It’s often the lowest-cost way to get a large death benefit. Related: life insurance.

Total loss

When repairing a car, boat, or RV would cost more than it’s worth (or a set share of its value), so the insurer pays the value instead. Related: car insurance.

Towing and labor

See roadside assistance. Related: car insurance.

Trip interruption (RV and motorcycle)

Optional coverage that helps with meals and lodging if your RV or motorcycle breaks down after a covered loss far from home. Related: RV insurance.

U

Umbrella underlying limits

The minimum liability limits an umbrella insurer requires on your home and auto policies before the umbrella applies. Related: umbrella insurance.

Underinsured motorist (UIM)

Helps when the at-fault driver has some insurance, but not enough to cover your injuries. Related: car insurance.

Underwriting

How an insurer reviews an application to decide whether to offer coverage and at what price. Related: life insurance.

Uninsured motorist coverage (Tennessee)

Covers your injuries when an at-fault driver has no insurance or can’t be found. In Tennessee, auto policies include UM at your bodily injury limits unless the named insured rejects it or picks lower limits in writing, per Tenn. Code § 56-7-1201. Related: car insurance.

Uninsured motorist property damage

Optional coverage for damage to your car caused by an uninsured driver. Tennessee law generally applies a $200 deductible, with some exceptions, per Tenn. Code § 56-7-1201. Related: car insurance.

V

Vacancy clause

Policy language that can limit coverage if a home has been empty for a set time, often 30 or 60 days. Related: landlord insurance.

W

Waiting period

A period after a policy starts before some benefits apply. Some final expense policies and new NFIP flood policies have one. Related: final expense insurance.

Waiver of subrogation

An agreement, often required in contracts, where your insurer gives up its right to recover from the other party. Related: general liability insurance.

Water backup coverage

Optional coverage for damage from water backing up through drains or a failed sump pump. It’s often excluded unless you add it. Related: homeowners insurance.

Whole life insurance

Permanent life insurance with level premiums and cash value, designed to last your whole life. Related: life insurance.

Workers’ compensation

Pays medical bills and lost wages for employees hurt on the job. In Tennessee, construction employers generally need it with one or more employees and most other employers with five or more, per the Tennessee Department of Labor and Workforce Development. Related: business insurance.

Wreck reconstruction (boat)

Coverage that helps pay to remove a sunken or wrecked boat from the water when required. Related: boat insurance.