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Insurance terms, in plain English
Policies are full of words most people never hear anywhere else. Here is what the common ones mean. Your AI summary explains the terms in your own documents, too.
Basics on every policy
- Declarations page
- The summary page of a policy, usually the first one or two pages. It lists who is insured, the policy period, what is insured, each coverage with its limit and deductible, and the premium.
- Named insured
- The person, family, or business the policy is issued to. Other people, like household members or employees, may also be insured under the policy's wording.
- Policy period
- The dates the policy runs, from the effective date to the expiration date. Most personal and business policies run six or twelve months, then renew.
- Limit
- The most the insurer will pay for a covered loss under that part of the policy. A policy can have many limits, one for each coverage.
- Deductible
- The part of a covered loss you pay before the insurance pays. A higher deductible usually means a lower premium, and more out of pocket when you have a claim.
- Endorsement
- A page that changes the policy: it can add coverage, remove it, or change a limit or definition. Endorsements often matter as much as the main policy.
- Exclusion
- Something the policy says it does not cover. Common examples are flood on a homeowners policy or your own employees' injuries on general liability.
- Liability coverage
- Pays others when you are legally responsible for injuring them or damaging their property, and usually pays for your legal defense.
- Replacement cost
- Pays what it costs to repair or replace damaged property with new property of similar kind and quality, without subtracting for age or wear.
- Actual cash value (ACV)
- Pays replacement cost minus depreciation, so older property pays out less. Some policies use it for roofs or older items.
- Umbrella policy
- Extra liability limits above your auto, home, or business policies. It pays after those policies reach their limits.
- Lienholder, loss payee, or mortgagee
- A lender or leasing company with a financial interest in a vehicle, home, or equipment. They are listed so claim payments for that property include them.
Auto and home terms
- Bodily injury and property damage limits
- On an auto policy, liability limits are often written as three numbers, like 100/300/100: thousands of dollars per person injured, per accident for all injuries, and for property damage.
- Uninsured and underinsured motorist (UM/UIM)
- Pays for your injuries when the at-fault driver has no insurance, or not enough. South Dakota requires it on auto policies.
- Collision
- Pays to repair or replace your own vehicle after a crash with another vehicle or object, after the deductible.
- Comprehensive (other than collision)
- Pays for damage to your vehicle from things other than a crash, such as hail, deer, theft, fire, and glass, after the deductible.
- Medical payments
- Pays smaller medical bills for you, your passengers, or guests, usually regardless of who was at fault.
- Dwelling (Coverage A)
- The limit for the house itself and attached structures. It is meant to reflect the cost to rebuild, which can differ from the market value.
- Other structures (Coverage B)
- Detached garages, sheds, fences, and similar structures on the property.
- Personal property (Coverage C)
- Your belongings: furniture, clothes, electronics, and more. Valuables like jewelry and firearms often have small built-in limits unless scheduled.
- Loss of use (Coverage D)
- Extra living costs, like a hotel and meals, while your home cannot be lived in after a covered loss.
- Wind and hail deductible
- A separate deductible for wind and hail damage on some home policies. It may be a flat amount or a share of the dwelling limit, which can be much larger than the regular deductible.
- Scheduled property
- Items or vehicles listed individually on the policy, often with their own value. Jewelry, firearms, and equipment are commonly scheduled.
- Agreed value
- A value you and the insurer set in advance for a vehicle, boat, or item. Policies differ in whether they pay that amount or the lower of it and actual cash value.
- Sewer and drain backup
- Water that backs up through a floor drain or sewer line. It is commonly excluded from home policies unless an endorsement adds it.
Business insurance terms
- Each occurrence and aggregate
- Each occurrence is the most paid for one incident. The aggregate is the most paid for all incidents during the policy period combined.
- Additional insured
- Another person or company, like a general contractor or landlord, added to your policy for claims arising from your work. Contracts often require it.
- Waiver of subrogation
- Your insurer agrees not to try to recover what it paid from another party, usually a customer or contractor whose contract asks for it.
- Certificate of insurance (COI)
- A one-page summary showing that policies exist, with their dates and limits. It is informational and does not change the policy.
- Products-completed operations
- Liability for injury or damage caused by your work after you finish it, or by products you sold.
- Hired and non-owned auto
- Liability when your business uses vehicles it does not own, such as rentals or employees' personal cars on errands.
- Inland marine (equipment)
- Covers tools, equipment, and property that moves from place to place.
- Experience modification (mod)
- A workers' compensation factor based on your claims history compared with similar businesses. Above 1.00 raises the premium; below lowers it.
- Loss run
- A report from an insurer listing past claims on a policy. Other insurers ask for it when quoting.
A note on these definitions
These are general definitions. Every policy's own wording decides what it covers. For what a term means on your policy, ask a licensed insurance agent.
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