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Insurance Glossary

MyCheapInsuranceQuotes.com is dedicated to helping consumers better understand the various insurance products, companies and industry information. Browse by insurance type below to find definitions for the most common insurance terms:

Life Insurance

Accelerated Death Benefit
An insurance rider that permits you to receive all or a portion of your policy before your death due to specific reasons such as, early benefit payments due to terminal illnesses. It is popularly known as the living benefit.

Accidental death benefit
An insurance rider that pays more (ex. double) in case the insured passes away in an accident.

Administrative expense charge
Expenses for insurance policy administration deducted from your policy.

Amendment
A document that is added to the general policy that modifies certain policy benefits.

Application
Your first application paperwork for life insurance.

Assignment
When you reassign benefits and rights of the insurance policy to another.

Automatic premium loan
Provides continuance of insurance, if you are unable to make premium payments. The insurance company withdraws the premium payment from your policy’s cash value, but you must have ample funds as cash value.

Beneficiary
A designated person(s) or entity that gets your life insurance death benefits after your death.

Life insurance broker
A licensed salesman of life insurance who can provide policies from several insurance companies, representing none.

Cash value
Cash funds that accumulate within your permanent life insurance policy while in force.

Convertible term insurance
You have the option to convert your term insurance policy to another type of insurance policy without giving proof of insurability.

Cost-of-living rider
Permits you to buy added insurance to keep up with the rising cost of living.

Death benefit
The face value of your insurance policy or the amount paid to your designated beneficiary after your death.

Declination
The life insurance company declines your application for insurance.

Decreasing term
An atypical term insurance policy in which your death benefit declines over time.

Effective date
The day your protection coverage officially starts.

Endowment
The payment of funds from your permanent life insurance cash value at the policy’s maturity, if living to you or to the beneficiary upon your death.

Evidence of insurability
A part of your insurance application that requires basic information about your health, habits, finances, lifestyle, or employment that has a direct bearing on the acceptability for life insurance.

Face value
The amount of life insurance applied for, is also the death benefit. Sometimes the death benefit may be lower or higher in permanent life insurance from the face value depending on any outstanding policy loans or owed premiums.

Grace period
A period of 30 to 31 days after the insurance premium’s due date during which you can make a premium payment to keep the policy in force.

Guaranteed insurability
An insurance rider that permits you to buy additional coverage at certain intervals in the future, without proof of insurability.

Incontestable clause
A period of two years after approval during which the insurance company can deny a claim for suicide or a material misrepresentation on your life insurance application.

Insured
The person on whose life the insurance policy is granted.

Lapsed policy
The termination of an insurance policy due to an inability to pay the premium(s).

Level premium insurance
A policy in which the premium payments remain the same for the term of the policy. More commonly known as term life insurance.

Loan
When you borrow against your built up policy’s cash value. If the loan isn’t repaid, it will be deducted from the death benefit.

Material misrepresentation
Purposefully not informing the insurance company about critical material facts which could have led the insurance company to rate you or deny insurance coverage, if they were aware of the material facts.

Mortality charge
Charges on an insurance policy that cover the insurance company’s cost of death claim payouts.

Mortality table
Statistical tables that reflect a high degree of accuracy of expected mortality for several working and living conditions.

Paid-up life insurance
Life insurance that no longer requires premiums.

Permanent life
Life insurance that is not term life insurance.

Policy loan
See loan

Policyholder
The person or entity that owns the life insurance policy. However, a policyholder doesn’t have to be the insured but usually is the insured.

Premium
The money paid to the insurance company to keep the policy in force.

Rated policy
A policy that charges a higher premium due to the insured being classified as a higher than-average risk based on several factors.

Reinstatement
Insurance policy that is reactivated after being lapsed.

Renewable term
Gives the policyholder the opportunity to renew a term insurance policy at the end of the policy’s term without providing additional proof of insurability.

Rider
An addition to the general policy that limits or enhances your insurance benefits.

Settlement option
The various ways that the insurance company can make payment of benefits.

Single premium whole life
A single premium is paid which provides coverage for the life of the policy.

Surrender
Terminating the policy and cashing out of built up cash surrender value before the policy’s maturity date.

Surrender charges
Insurance company charges for terminating your insurance policy prematurely.

Term life
Life insurance coverage for a period certain, may be convertible to a different type of policy before the policy’s expiration.

Underwriting
The whole process of insuring an individual by the life insurance company.

Universal life
Life insurance that permits you to adjust the premium and death benefit during the life of the policy. The cash value is invested in fixed investments.

Variable life Insurance
Life insurance in which the cash value is invested in securities. The cash value account assets are invested in stocks, bonds, money market funds, mutual funds, stocks, etc.

Waiver of premium
The convenience of not paying the insurance premiums and still being able to keep the policy in force.

Auto Insurance

Accidental Death and Dismemberment coverage (ADD)
It compensates you for specific injuries or death resulting from an accident in your vehicle.

Adjuster
A person from the insurance company who investigates and evaluates the damages occurring from an accident.

At-fault
You are responsible for the accident.

Agent
The person who sells you the auto insurance.

Arbitration
It is a binding determination as to the extent of the damage or property value made by impartial experts.

Binder
Temporary auto insurance contract that is proof of coverage pending receipt of a permanent policy from the auto insurance company. It is subject to the payment of a premium.

Bodily injury liability
Auto insurance coverage that pays for damages for another person’s bodily injury or death in a vehicle accident caused by you. The insurance company compensates the aggrieved party for pain and suffering as well as other resulting personal hardships. Insurance may also pay for partial economic damages (ex. lost income).

Broker
A car insurance salesman who works with insurance companies and agents to find suitable insurance for customers.

Claim
A demand for compensation from the insurance company for damages resulting from a car accident.

Collision coverage
Optional car insurance that compensates for physical damage caused by you when you hit another auto or structure, irrespective of who is at fault.

Declarations page
The first or front page of your auto insurance policy which contains important information about your coverage such as, the name of your insurance company, coverage amounts, the policy number, and deductibles.

Deductible
An out-of-pocket expense before the auto insurance company pays the rest of the claim or accident.

Depreciation
Decrease in value of your car due to age, tear, and wear.

Exclusion
A car insurance policy provision that denies insurance coverage for specific losses, people, or property.

GAP insurance
It compensates for the gap between the actual value of a car and the amount of the lease due at the time of the accident.

Liability insurance
Compensates for loss of property or to the person due to your liability.

Limits
The maximum ceiling on what the car insurance company will pay for on losses.

Medical payments
The auto insurance pays for medical and funeral expenses for you and any passengers in your auto during the accident. The medical payments are made irrespective of who is at fault.

Negligence
The failure to use proper care and caution which in turn results in injury or damage to a third party.

No-fault insurance
A type of auto insurance found in certain states under which each party files an accident claim with their respective auto insurance company for losses, such as medical expenses.

Personal injury protection (PIP)
Usually known as “no-fault” auto insurance. It is designed to pay quickly for damages, medical expenses, loss, or economic loss, irrespective of fault or negligence to a driver or passenger injured in the vehicle and any pedestrians injured by your vehicle or its operation. PIP protects you not only against personal injuries but vehicle damages as well.

Premium
Your payment to the insurance company for auto insurance coverage.

Underinsured motorist coverage (UIM)
Provides coverage for bodily injury caused by an underinsured driver, doesn’t cover auto damage.

Uninsured motorist bodily injury coverage (UMBI)
Protection for you and your family members against injuries due to a hit-and-run by a motorist or an uninsured driver given the other motorist is at fault.

Homeowner’s Insurance

Actual cash value
The actual value of stolen or damaged articles at the time of the loss.

Additional living expense coverage
Insurance pays any additional living costs at a motel, hotel, etc during the repairs of your damaged home.

Adjuster
A professional trained to evaluate home damage and to help settle your claim.

All risk
Comprehensive coverage of losses in the home insurance policy unless stipulated otherwise.

Appraisal
It is the process by which a trained appraiser assess property claim.

Binder
Interval insurance coverage until you receive your permanent policy is delivered.

Cancellation
The cancelation of your home insurance coverage before the policy’s normal expiration date.

Claim
An appeal for compensation from the insurance company for a loss covered under the policy.

Declarations page
Usually, the first page of your homeowner policy that includes the insured’s name, address, coverage amount, property description, and the cost.

Deductible
This is your out-of-pocket expense per insurance claim.

Depreciation
The lessening in your home’s value since its construction due to age or wear and tear.

Exclusions
Particular conditions that are not covered by your insurance policy.

Floater
Insurance coverage that protects special items such as, jewelry, antiques, furs, guns, and so on.

Guaranteed replacement cost coverage
The total cost to replace or rebuild your home, even if it exceeds the domicile’s policy limits.

Inflation guard coverage
Gives an automatic yearly increase in your policy’s coverage limits as determined by the insurance company’s estimate of rising construction, labor prices, and building material.

Liability coverage
Provide protection against liability due to injury to someone else or damage to their property for which you or your family are liable.

Limit
The ceiling in benefit amount paid by your policy in the event of a loss.

Named perils
Singularly stated perils stated in your policy.

Non-renewal
The rejection by your insurance company to renew your policy.

Peril
A certain event such as fire, windstorm, theft, and that causes a loss to your home and property.

Premium
Your regular home insurance policy payment.

Umbrella liability
Home protection against losses beyond the amount covered by other liability policies.

Health Insurance

Annual limits
The maximum dollar amount the insurance plan will pay for during any year.

Approved charge
The amount the health insurance company bases your payments and your co-payments upon.

Assignments of benefits
The insurance company pays the doctor or hospital for their service directly .

Beneficiary
The recipient of health benefits from a health insurance policy.

Benefit maximum
The ceiling for a specific loss or covered service the health policy compensates for.

Claim
Benefit payment request from the insured to the insurer.

Closed practice
A doctor’s practice that has stopped accepting new patients.

COBRA
Federal law that permits workers to continue group health care coverage for a specific period of time at their own expense, if the worker loses health coverage due to reduction of work hours or loss of job.

Conditionally renewable
Allows the continuance of health coverage, if you continue to meet certain conditions.

Conversion privileges
An insurance policy that permits you to convert group coverage to an individual policy at individual rates upon termination of employment.

Co-insurance
You pay up to a certain percentage of medical expenses, after which the insurance company covers the cost.

Co-Pay
A fixed dollar amount you pay directly to the health care provider at the time of services rendered.

Deductible
The dollar amount you must pay before the insurance company starts paying benefits

Enrollment period
A time frame during which you can enroll for group coverage.

Employee Retirement Income Security Act (ERISA)
A federal law regulating employer-sponsored pension and insurance plans.

Evidence of insurability
Your personal medical health information.

Exclusions
Listed exclusions and limitations of certain conditions or procedures that are not covered under the insurance plan.

Fee for service
A health plan that gives you the choice to see any doctor but you may file the claim or the doctor’s office does.

Free look
The period from when you receive your policy and the time when you can cancel the policy to get a full refund.

Grace period
A period of 30 to 31 days after the insurance premium’s due date during which you can make a premium payment to keep the policy in force.

Guaranteed renewable
The insurance continues if you maintain premium payments.

Health care reimbursement accounts
Health insurance that lets you place into an account pre-tax funds to pay for medical care costs.

Health Insurance Portability & Accountability Act (HIPAA)
A national federal law that guarantees healthcare insurance plan eligibility for people who change jobs to an employer who provides group insurance.

Health Maintenance Organizations (HMO)
Health insurance companies that have a network of health care services such as, doctors, laboratories, hospitals, and so on.

Lifetime maximum
The maximum dollar amount the plan will pay for various types of health medical expenses while the insured is covered under the plan.

Medical Savings Account (MSA)
An account created to provide health insurance, the special account is held in trust for the account holder. The employee or employer can make yearly tax-free contributions to the special account that has a high deductible.

Out-of-pocket limit
The dollar maximum limit on any covered medical expenses that the insured must pay during the benefit period.

Preferred Provider Organization (PPO)
It is a network of hospitals, medical suppliers, and doctors who provide members (insured) of the health plan at discounted fees

Annuities

Accumulation phase or Accumulation period
The time frame when the annuity owner makes payments to the deferred annuity which accumulates assets in due course.

Annual contract fee
An annual administrative fee charged annually by the insurance company for administering the contract.

Annuitant
The person (s) on whose life the annuity payments are made. Usually, it is the owner and the annuitant is the same person.

Annuitization
The procedure of arresting the accumulation phase and beginning the payout or withdrawal phase of an annuity.

Beneficiary

The person or entity who will receive the death benefit from, either the initial annuity investment or the accumulated value, whichever is greater.

Bonus credit or Bonus rate
Annuities may give a bonus for meeting certain investment dollar thresholds, generally as a percentage of the total initial annuity investment and/or ensuing additions.

Death benefit
Payment made by the insurance company to the beneficiary upon the death of the annuitant or owner.

Deferred variable annuity
A deferred annuity accrues investment funds until they are withdrawn sometime in the future. The invested funds accumulate on a tax deferred basis.

Diversification

Allocating your investment funds in certain assets and asset classes as to lessen investment risks.

Forced annuitization
The automatic payout of an annuity investment once the owner of the annuity reaches a specific age, as directed in the annuity contract.

Free look period
A trial period that permits you to sample your newly bought annuity and cancel it without fear of penalty. Thus, receiving a full refund of your investment.

Immediate annuity
A purchase of an annuity with one lump sum payment with immediate payments to annuitant from the annuitized annuity.

Joint and survivor annuity
A payout for the entire owner’s life and after the owner’s death any surviving spouse will receive payments for life.

Mortality and expense fee
Pays for three important annuity guarantees:

1. Capability to choose a payout option that gives you payments for life, payments that cannot be outlived as prescribed in the annuity contract

2. A death benefit given to beneficiaries

3. Annual insurance charges will never change

Surrender charge
The penalty charge the annuitant pays for early redemption of an annuity before the surrender period expires.

Variable annuity
An annuity in which the investments are securities such as, stocks, bonds, and money market instruments. The performance of the investments is not guaranteed.

Withdrawal
The distribution of funds from an annuity in addition to any regular payments

Long Term Care Insurance

Activities of daily living (ADLs)
The basic activities that an individual caring for oneself must be able to perform on a regular basis without help such as, eating, dressing, toileting, transferring, bathing, and continence. Ones inability to do one or more of these tasks may make you eligible for long term care (LTC).

Adult day care
An adult day care facility that provides adults with activity programs and other services for individuals with LTC needs.

Assisted living facility (ALF)
An adult residential facility that has boarding rooms and 24 hour personal care facilities for people with long-term care needs.

Benefit
The payment for benefits made for services covered under the LTC insurance plan by the insurance company.

Benefit period
The length of time the LTC insurance will last if you use daily care at a cost equal to or more than the daily maximum benefit amount. However, if less care is used, than the insurance will last for a longer benefit period.

Benefit trigger
The specific life event that triggers payment for long term care benefits.

Caregiver
A person who aids the individual to accomplish the basic ADLs due to the person’s inability to perform the activities without help.

Continence
It is the ability of the body control urination and/or bowel movements.

Daily maximum benefit
Long term care maximum benefit amount for any single day.

Elimination period
The time period between when you become eligible for benefits and when you start receiving them. Insurance companies usually have elimination periods of 30, 60, or 90 days.

Formal care
Home health care or homemaker services provided through a home care agency, nurse or therapist.

Future purchase option
This rider allows you to protect your benefits against inflation by allowing you to periodically purchase additional coverage without proof of insurability.

Grace period
A period after your premium payment was due in which you can pay your late premium and maintain your coverage.

Guaranteed renewable
A LTC insurance company cannot cancel or fail to renew your coverage due to change in your health or age.

Home care
LTC services offered at home may include, occupational, respiratory physical, or speech therapy; nursing care; homemaker services; and personal care.

Home health aides
LTC service providers who care for older adults or people with disabilities at home.

Homemaker services
Provided to individuals who are unable to perform basic household chores by themselves, such as housekeeping, shopping, etc.

Hospice care
Care provided at home to individuals diagnosed with a terminal illness.

Inflation protection
A rider that allows you increase the benefits of your long term care insurance to keep pace with increasing costs of care.

Informal care
Long Term Care services provided by an unlicensed caregiver whose services are neither approved nor supervised by a home care agency.

Long term care (LTC)
It is personal care and related care services provided on a long term basis to people who need help with basic activities of daily living or who require management due to severe cognitive impairment.

Long term care (LTC) insurance
Insurance that meets the LTC needs of people and aids in defraying costs associated activities of daily living or costs of management due to a severe cognitive impairment.

Nursing home
A licensed personal and nursing care facility which offers room and board as well.

Toileting
An important activity of daily living which entails mobility to and from the toilet, getting on and off the toilet, and performing related personal hygiene tasks.

Transferring
A critical activity of daily living, involving the ability to move in or out of a bed, wheelchair or chair.

Business Insurance

Business Continuation Insurance Plan
Offers continuation of the business if the owner or a key person dies.

Business Interruption Insurance
Pays the business for the cost of repairing or rebuilding or of the business in addition to income lost while business is out of commission.

Business Overhead Expense Coverage
Business disability coverage that provides benefits that pay for a disabled insured’s portion of business overhead expenses.

Business Owner's Package Policy (BOP)
A business insurance package that bundles property and liability insurance together in one affordable premium. Suitable for small businesses with 100 or fewer employees.

Commercial General Liability Insurance
Fundamental business liability policy that covers the four forms of injury--bodily injury or property damage that result in actual loss or physical damage, personal injury, and advertising injury.

Disability Insurance
Provides for a certain amount of business income if you are unable to continue working due to disability.

Employee Liability Coverage
Generally, part of workman’s compensation policy. It provides protection should an employee sue you for an injury or sickness incurred while on the job.

Employers Liability Insurance
Protection against liability in case an employee incurs an accident at the workplace.

Errors and omissions liability coverage
Insurance coverage for accountants, financial advisors, and other professional consultants against liability in case of an error or omission in their work.

Executive Indemnity Insurance
Protection for deferred compensation payments in case of corporate bankruptcy.

General Liability Coverage

Business insurance protection against injuries and accidents that occur at the workplace, covers exposure to risk related to its work related products.

Group Insurance

Includes mainly health, disability, and life protection to a group of employees, their dependents, and spouses under a one policy issued to their employer.

Key Person Insurance life insurance
Policy taken out on the key person(s) of the company with the beneficiary being the company. The life insurance death benefit can be used to buy out the key person’s shares or ownership interest in the company.

Malpractice Insurance
Business insurance purchased by hospitals and doctors to cover liability costs in case of being sued for malpractice.

Professional Liability Insurance
Protection for professionals such as, lawyers and doctors from financial loss resulting from liability for the losses suffered by their clients.

Umbrella coverage
Extra coverage not covered in existing insurance policies.

Workers' compensation insurance
Insurance that covers lost wages, medical, and rehabilitation costs for employee injuries at the workplace.