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Glossary of Insurance Terms

At MD Permanent Insurance, we understand that a lot of the insurance language is somewhat like a foreign language to most people. Therefore we have put together a list of terms and definitions of common insurance terminology. We hope that you find this useful.

If you still have questions, please feel free to Ask a Question.

Actual Cash Value: The value of property equal to the fair market value of damaged or stolen item at the of the loss.
Agent: An organization or individual that is authorized to represent a company and sell their insurance products.
Automobile Coverage: Coverage provided to insure a private passenger vehicle licensed for road use. Coverage can include liability coverage according to state requirements and physical damage to cover the actual damage to the insured vehicle.
Binder: A document that provides temporary coverage until the actual policy is issued by the insurance company.
Cancellation: The termination of coverage during a policy period or renewal. Policies can be terminated for non-payment of premium or underwriting reasons.
Claim: Damage or loss of property which is covered under the contract of the insuring policy.
Claimant: A third party involved in an accident or injured on the insured property.
Deductible: The amount of loss that insured is responsible for in the event of a loss. The insured party pays their deductible, the insuring company pays the amount of the loss above the deductible.
Depreciation: A decrease in the value of property due to wear and tear or age.
Endorsement: Change to policy per insured party or interested party request.
Exclusion: Specific items or conditions that are not covered by the policy. Drivers can also be excluded due to driving record.
Expiration Date: The date the policy ends or renews.
Fire Insurance: Coverage for property or building in the event of a fire.
Homeowner Insurance: Coverages purchased to insure an owner occupied home. Homeowners coverage comes in a variety of packages depending on the insuring company.
Insured: The person(s) covered under the policy in the event of a loss.
Insurer: The actual insuring or insurance company.
Life Insurance: A policy providing a specified amount of money paid to a beneficiary upon the death of the policyholder or insured.
Limit: The maximum amount that the insurance company will pay in the event of a loss or the maximum amount that will be paid according to a specific coverage.
Material Misrepresentation: The policyholder/insured/applicant makes a false or fraudulent statement regarding the completion of an application.
Peril: The actual cause or reason the loss occurred. For example: Fire, Theft, Wind or Water.
Policy: The contract or agreement between the insuring company and the policyholder/insured.
Premium: The amount of money that the insurance company charges for coverage.
Pro-Rate Cancellation: The basis that a refund/return premium is calculated when a policy is cancelled midterm by the insurance company.
Quote: An estimate or approximate cost of insurance based on the facts and information that the prospective insurer has provided to his/her agent.
Reinstatement: The reactivation of a policy that has cancelled or lapsed.
Replacement Value: The cost to replace an item damaged in a loss at the current market value. Most companies will replace the item at actual cash value, once the item has been replaced will reimburse the insured for the difference.
Rider: An endorsement that is added to an insurance policy that provides specific coverage or deletes specific coverage.
Short Rate Cancellation: The basis that a refund/return premium is calculated when a policy is cancelled midterm at the policyholder's request. Generally, this is 90 percent of the pro-rata return premium, however, an insuring company may also calculate the percentage according to their own guidelines or rate schedules.
Surcharge: This is an additional premium that is added to the policy when the risk exposure is higher. For example, insurance companies will surcharge a policy for accidents or moving violations.
Surrender: To cancel or turn in a life insurance policy before the actual maturity date.
Underwriting: The process that agents, as well as insuring companies, do to rate, qualify and issue policies according to the rules and rates of the guidelines of each company. This process will eliminate the risks that are unacceptable.

If you still have questions, please feel free to Ask a Question.

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