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Glossary of Insurance Terms

Actual Cash Value
An amount equivalent to the replacement cost of a stolen or damaged property at the time of the loss, less depreciation.
Admitted Company
An insurance company authorized to do business in New Jersey.
Agent
A licensed person or organization authorized to sell insurance by or on behalf of an insurance company.
Automobile Insurance
Coverage on the risks associated with driving or owning an automobile. It can include collision, liability, comprehensive, medical, and uninsured motorist coverages.
Binder
A temporary or preliminary agreement which provides coverage until a policy can be written or delivered.
Broker
A licensed person or organization paid by you to look for insurance on your behalf.
Cancellation
The termination of insurance coverage during the policy period. Flat cancellation is the cancellation of a policy as of its effective date, without any premium charge.
Carrier
Claim
Notice to an insurer that under the terms of a policy, a loss may be covered.
Claimant
The first or third party; that is, any person who asserts right of recovery.
Co-insurance
Many insurers require that homeowners insure their homes for at least 80 percent of Replacement Cost. If the homeowner fails to do this, a penalty is applied to partial losses. This penalty is usually referred to as Co-insurance.
Decline
Refusal by an insurer to accept the request for insurance coverage.
Deductible
The amount of the loss which the insured is responsible to pay before benefits from the insurance company are payable. You may choose a higher deductible to lower your premium.
Depreciation
A decrease in value due to age, wear and tear, and the like.
Endorsement
Amendment to the policy used to add or delete coverage. Sometimes referred to as a Floater or Rider.
Exclusion
Certain causes and conditions, listed in the policy, which are not covered.
Expiration Date
The date on which the policy ends.
Face Amount
The dollar amount in a life insurance policy to be paid to the beneficiary when the insured dies. It does not include other amounts that may be paid from insurance purchased with dividends or any policy riders.
Fire Insurance
Coverage for loss of or damage to a building and/or contents due to fire.
Floater
Grace Period
A period after the premium due date, during which an overdue premium may be paid without penalty. The policy remains in force throughout this period.
Guaranteed Insurability
An option that permits the policyholder to buy additional stated amounts of life insurance at stated times in the future without evidence of insurability.
Health Insurance
A policy that will pay specified sums for medical expenses or treatments. Health policies can offer many options and vary in their approaches to coverage.

Homeowner's Insurance

An elective combination of coverages for the risks of owning a home. Can include losses due to fire, burglary, vandalism, and other perils.
Inception Date
The date on which a policy begins.
Incontestable Clause

A policy provision in which the company agrees not to contest the validity of the contract after it has been in force for a certain period of time, usually two years.

Insured
The policyholder - the person(s) protected in case of a loss or claim.
Insurer
The insurance company.
Life Insurance
A policy that will pay a specified sum to beneficiaries upon the death of the insured.
Limit
Maximum amount a policy will pay either overall or under a particular coverage.
Loan Value
The amount which can be borrowed at a specified rate of interest from the issuing company by the policyholder, using the value of the policy as collateral. In the event the policyholder dies with the debt partially or fully unpaid, then the amount borrowed plus any interest is deducted from the amount payable.
Material Misrepresentation
A false statement of an important fact on an application; for instance, false information regarding the location where a vehicle is garaged.
Misquote
An incorrect estimate of the insurance premium.
Peril
The cause of a possible loss; for example, fire, theft, or windstorm.
Policy
The written contract of insurance.
Policy Limit
The maximum amount a policy will pay, either overall or under a particular coverage.
Premium
The amount of money an insurance company charges for insurance coverage.
Premium Financing
A policyholder contracts with a lender to pay the insurance premium on his/her behalf. The policyholder agrees to repay the lender for the cost of the premium, plus interest and fees.
Pro-rata Cancellation
When the policy is terminated midterm by the insurance company, the earned premium is calculated only for the period coverage was provided.
Quote
An estimate of the cost of insurance, based on information supplied to the insurance company by the applicant.
Replacement Cost
The cost to repair or replace an insured item. Some insurance only pays the actual cash or market value of the item at the time of the loss, not what it would cost to fix or replace it. If you have personal property replacement cost coverage, your insurance will pay the full cost to repair an item or buy a new one.
Replacement Value
The full cost to repair or replace the damaged property with no deduction for depreciation, subject to policy limits and contract provisions.
Reinstatement
The restoring of a lapsed policy to full force and effect. The reinstatement may be effective after the cancellation date, creating a lapse of coverage. Some companies require evidence of insurability and payment of past due premiums plus interest.
Return Premium
The amount of money the insurance company has to give back to you in the event of a pro-rata cancellation or a short-rate cancellation of your policy.
Rider
Short-rate cancellation
When the policy is terminated prior to the expiration date at the policyholder's request. Earned premium charged would be more than the pro-rata earned premium. Generally, the return premium would be approximately 90 percent of the pro-rata return premium. However, the company may also establish its own short-rate schedule.
Surcharge
An extra charge applied by the insurer.
Surrender
To terminate or cancel a life insurance policy before the maturity date. In the case of a cash value policy, the policyholder may exercise one of the nonforfeiture options at the time of surrender.
Underwriting
The process of selecting applicants for insurance and classifying them according to their degrees of insurability so that the appropriate premium rates may be charged. The process includes rejection of unacceptable risks.
Waiting Period
A period of time set forth in a policy which must pass before some or all coverages begin.

 
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New Jersey Department of Banking and Insurance