Definitions

It really pays to

know your policy.

It’s important to fully understand your policy. Below we’ve listed some of the insurance terms and definitions that clients frequently ask us about. If you come across any additional words or phrases that need clarification, just ask your Goosehead agent or use the Glossary prepared by our friends at the Insurance Information Institute.

Glossary of frequently used insurance terms


ACV (Actual Cash Value)
A form of insurance that pays damages equal to the replacement value of damaged property minus depreciation. 


Additional Living Expenses
Extra charges covered by homeowners policies over and above the policyholder’s customary living expenses. They kick in when the insured requires temporary shelter due to damage by a covered peril that makes the home temporarily uninhabitable.  


Appraisal
A survey to determine a property’s insurable value, or the amount of a loss.  


Binder
Temporary authorization of coverage issued prior to the actual insurance policy.  


Bodily Injury Liability Coverage
Portion of an auto insurance policy that covers injuries the policyholder causes to someone else.  


Collision Coverage
Portion of an auto insurance policy that covers the damage to the policyholder’s car from a collision.  


Comprehensive Coverage
Portion of an auto insurance policy that covers damage to the policyholder’s car not involving a collision with another car or object (including damage from fire, explosions, earthquakes, floods and riots, and theft).  


Declarations Page
Part of a property or liability insurance policy that states the name and address of policyholder, property insured, its location and description, the policy period, premiums and supplemental information. Referred to as the “dec page.”  


Deductible
The amount of loss paid by the policyholder. Either a specified dollar amount, a percentage of the claim amount, or a specified amount of time that must elapse before benefits are paid.


Depreciation
The decrease in value of any property due to wear, tear, and/or time. Generally, depreciation is not an insurable loss.  


Escrow
Funds that a lender collects to pay monthly premiums in mortgage and homeowners insurance, and sometimes to pay property taxes.  


Exclusion
A provision in an insurance policy that eliminates coverage for certain risks, people, property classes, or locations.  


Endorsement
A written form attached to an insurance policy that alters the policy’s coverage, terms, or conditions. Sometimes called a rider.  


Fire Insurance
Coverage protecting property against losses caused by a fire or lightning that is usually included in homeowners or commercial multiple peril policies.  


Gap Insurance
An automobile insurance option, available in some states, that covers the difference between a car’s actual cash value when it is stolen or wrecked and the amount the consumer owes the leasing or finance company. Mainly used for leased cars.  


Insurance Score
Insurance scores are confidential rankings based on credit information. This includes whether the consumer has made timely payments on loans, the number of open credit card accounts and whether a bankruptcy filing has been made. An insurance score is a measure of how well consumers manage their financial affairs, not of their financial assets. It does not include information about income or race.  


Loss of Use
A provision in homeowners and renters insurance policies that reimburses policyholders for any extra living expenses due to having to live elsewhere while their home is being restored following a disaster.  


Liability Insurance
Insurance for what the policyholder is legally obligated to pay because of bodily injury or property damage caused to another person.  


Mortgage
A legal agreement by which a bank or other creditor lends money at interest in exchange for taking title of the debtor's property, with the condition that the conveyance of title becomes void upon the payment of the debt. 


Medical Payments Insurance
A coverage in which the insurer agrees to reimburse the insured and others up to a certain limit for medical or funeral expenses as a result of bodily injury or death by accident. Payments are without regard to fault.  


Named Perils Policy
Only provides coverage for losses specifically listed on an insurance policy.  


Open Peril Policy
An Open Peril Policy provides coverage from all perils except those that are specifically excluded.


Peril
A specific risk or cause of loss covered by an insurance policy, such as a fire, windstorm, flood, or theft. A named-peril policy covers the policyholder only for the risks named in the open peril policy in contrast to an all-risk policy or open peril policy, which covers all causes of loss except those specifically excluded.  


Property/Casualty Insurance
Covers damage to or loss of policyholders’ property and legal liability for damages caused to other people or their property. Property/casualty insurance, which includes auto, homeowners and commercial insurance, is one segment of the insurance industry. The other sector is life/health. Outside the United States, property/casualty insurance is referred to as nonlife or general insurance.  


Personal Belongings Coverage
Your furniture, clothes, sports equipment and other personal items are covered if they are stolen or destroyed by fire, hurricane or other insured disasters.  


Personal Injury Protection (PIP)
Portion of an auto insurance policy that covers the treatment of injuries to the driver and passengers of the policyholder’s car.  


Policy
A written contract for insurance between an insurance company and policyholder stating details of coverage.  


Premium
The price of an insurance policy, typically charged annually or semiannually. 


Property Damage Liability
Coverage for damage the policyholder causes to someone else’s property.  


Replacement Cost
Insurance that pays the dollar amount needed to replace damaged personal property or dwelling property without deducting for depreciation but limited to the maximum dollar amount shown on the declarations page of the policy.  


Schedule
A list of individual items or groups of items that are covered under one policy or a listing of specific benefits, charges, credits, assets or other defined items.  


Sewer Back Up Coverage
An optional part of homeowners insurance that covers damage from sewage backing up into the home. 


Total Loss
The condition of an automobile or other property when damage is so extensive that repair costs would exceed the value of the vehicle or property.  


Uninsured Motorist Coverage
Portion of an auto insurance policy that protects a policyholder from uninsured and hit-and-run drivers.  


Underwriting
Examining, accepting, or rejecting insurance risks and classifying the ones that are accepted, in order to charge appropriate premiums for them.  


Source: Insurance Information Institute