Glossary

Common Insurance Terms

Here at Castle Agency, Inc. we understand insurance can be confusing at times. We've compiled a list of common insurance terms and their definitions to help you better understand your policy's verbiage.

If you can't find what you need below, or still have questions, please contact our friendly staff and we will be more than glad to help you understand your policy better.

A
Actual cash value: The value of property at the time it was stolen or destroyed, arrived at by subtracting depreciation from the replacement cost of the item.
Additional Insureds: Individuals or businesses that are not named as insured on the declaration page, but are protected by the policy, usually regarding a special interest.
B
Bodily injury liability coverage: Pays for medical expenses, legal expenses, and judgments when the policyholder’s car is involved in an accident that causes property damage and/or the injury or death of another person.
C
California Earthquake Authority (CEA): A state-sponsored partnership between private companies and the government offering earthquake insurance policies in the state.
Cancellation: When an insurer discontinues an auto policy because a driver fails to pay the premium, loses driving privileges, or has not accurately reported the facts relating to his level of risk. A cancellation may make it difficult to get insurance for a long time to come.
Claim: A request to an insurer for compensation for a loss.
Collision coverage: Covers the damage to a policyholder’s vehicle resulting from a collision, regardless of who is responsible. Collision coverage typically requires the payment of a deductible by the policyholder.
Commercial Lines: A type of insurance that pertains to business, mercantile or manufacturing establishments
Comprehensive physical damage coverage: Pays for damage to a policyholder’s car that is not the result of an auto accident, such as theft, vandalism, fire, hail, natural disasters, hitting a deer. Comprehensive coverage requires a deductible and will only pay as much as the car was worth before sustaining the damage.
D
Damage depreciation: Commonly used in aviation policies to describe the inherent loss of value to an aircraft that has been damaged and repaired. An identical aircraft that had never been damaged would be worth more in a sale than one that has been repaired, even if the repair work was exemplary.
Declarations: The section of the insurance policy containing the basic underwriting information, such as the insured’s name, address, amount of coverage and premiums, and a description of insured locations.
Deductible: The amount of a claim that the insured must pay before the insurance company will cover the rest.
Depreciation: The loss of an asset’s value over time.
E
Earned Premium: Premium collected by an insurance company for the portion of a policy that has expired.
Earthquake insurance: A specific policy covering home repair and the replacement of personal property lost to seismic activity.
Endorsement: An agreement added to a policy to change the amount of coverage offered by that policy. Once attached, an endorsement supersedes the original terms of the policy.
F
First-party claim: Request to an insurance company from one of its policyholders for compensation for a loss.
Floater: A separate policy designed to extend the coverage of the basic insurance policy for an item or collection of items. It's called a floater because sometimes the asset may “float” from location to location with the owner’s use.
Flood insurance: A private or government-sponsored policy covering home repair and the replacement of personal property damaged by a flood. Normally not included in basic homeowner's policies.
Flood insurance rate map (FIRM): A map developed by the National Flood Insurance Program showing base flood elevations, risk zones, and floodplain boundaries; used in determining flood insurance premiums.
Flood zone: Area in which the likelihood of a flood is much higher than average.
H
Homeowner's insurance: An insurance policy that covers a home and its contents against loss, and helps protect the insured from liability claims, up to the policy limits.
Hull insurance: Portion of an aircraft or a yacht policy that covers physical damage to the insured craft.
I
Intentional misconduct: Willful damage to property or injury to others; distinct from negligence.
L
Lienholders interest endorsement: Also called “breach of warranty”; optional coverage in an aviation policy that pays a lienholder the balance of a loan in the event the aircraft is damaged in a manner that also voids the policy; favors the lienholder, not the policyholder.
Loan/lease gap insurance: Covers the difference between a car’s actual cash value and the amount still owed on a loan or lease.
M
Medical payments coverage: Covers the medical bills incurred by policyholders and their passengers after an auto accident, regardless of who is at fault.
Mortgagee Clause: This clause ensures that the insurance company pays the lender if the property is damaged and guarantees that they will receive their money even when the borrowers are responsible for the destruction of the property
N
National Flood Insurance Program (NFIP): Coverage against flooding for personal and business property under the National Flood Insurance Act of 1968, provided by a partnership of private insurers and the government.
Negligence: Failure to exercise care, resulting in injury to others or damage to property.
No-fault laws: Regulations in some states require each person involved in an auto accident to pay his or her own medical expenses and lost wages. Stricter versions disallow certain pain-and-suffering lawsuits.
Non-renewal: Means only that a company does not want to offer the driver a policy any longer, possibly because of the driving or claims record over the last three to five years. More than likely, other insurers will provide insurance at a higher price.
O
Open pilot clause: Minimum competency required by an aviation policy for a pilot to be covered under the policy.
P
Peril: A specific cause of loss, such as fire or vandalism. There are 17 named perils in most homeowner's policies.
Personal injury protection (PIP): Auto insurance required in many no-fault states, which pays extensive medical expenses, lost wages, and a small death benefit for the driver and all passengers. PIP usually comes with a 20 percent deductible.
Personal liability insurance: The part of a homeowner's policy that covers the insured from legal expenses and claims for compensation should the insured accidentally injure others or damage their property.
Personal Lines: A type of coverage available to individuals and families for non-business risks.
Personal property: In regard to homeowner's insurance, the possessions of the insured.
Personal watercraft: A small but powerful motorized watercraft sold under brand names such as Jet Ski or Wave Runner. Distinct from a boat or yacht.
Policyholder: Person who buys and maintains an insurance policy; also called the "insured".
Policy Limits: The maximum amount an insured may collect, or for which an insured it protected under the terms of the policy.
Premium: Payment required to initiate and continue an insurance policy.
Property and indemnity coverage: Common name for liability portion of a yacht insurance policy.
Property damage liability coverage: Pays for damages to the property of others caused by the policyholder in his or her vehicle.
R
Rent-loss provision: Portion of a policy that would reimburse an owner for rent that is lost while repairs are being made to rental property.
Rental reimbursement coverage: Pays a set amount per day for transportation expenses or car rental while the insured’s car is being repaired due to a covered loss.
Renter's insurance: Policies available to those who rent a dwelling usually covers personal possessions and liability, but not the dwelling itself.
Replacement cost: The cost of replacing a lost or destroyed item does not factor in depreciation or market value.
Rider: A provision attached to a policy that adds or changes coverage.
Risk: Potential for loss or injury.
S
Special flood hazard areas (SFHA): A categorization of the different risk areas associated with floods, used in determining premiums for flood insurance. “V” is the most hazardous.
T
Third-party claim: Claim made to an insurance company for damage or injury caused by one of its policyholders.
Total, totaled: Classification for a vehicle in need of repairs that will cost more than the vehicle’s actual value.
Towing and labor coverage: Provides emergency road service and pays for towing charges. This coverage is not limited just to accidents, but can be used any time the insured’s car breaks down.
U
Umbrella liability policy: An extra protection against liability that covers the amount above the maximum limits of homeowner's and auto policies.
Unearned premium: A portion of a premium that may be returned to the policyholder if a claim resulting in a total loss takes place before the end of the policy term and eliminates the need for continued coverage.
Underinsured Motorist Coverage: Coverage in an automobile insurance policy under which the insurer will pay costs up to specified limits for bodily injury, if the liable driver’s policy limits are exhausted and he/she cannot pay the full amount for which he or she is liable.
Uninsured Motorist Coverage: This is coverage that allows the named insured, resident relative(s) and passengers in a vehicle to collect sums another driver would be legally liable to pay for bodily injury resulting from an auto accident, providing the accident was caused by an uninsured motorist, a hit-and-run driver or a driver whose insurance company is insolvent.
Y
Yacht: Typically, a recreational watercraft that is 26 feet or more in length; distinct from a boat or a personal watercraft.

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