Insurance Glossary

The date coverage provided in your policy begins.

Damages incurred but not yet reported to an insurer. Liability claims are examples of potential IBNR losses. Insurance companies must estimate and set aside funds for IBNR losses to ensure they can cover future payouts. These losses can also affect premium rates.

These are the total costs an insurer anticipates for claims within a given period, including those already paid and future estimated payouts (i.e., incurred but not reported losses).

An independent agent is an agent who sells policies on behalf of multiple insurance companies. It is the opposite of an exclusive or captive agent.

If an insurance company risks insolvency (the inability to meet its financial obligations, including to pay claims), regulators can take conservatorship or rehabilitation measures to salvage it, or initiate liquidation if recovery is deemed unfeasible.

A professional assessment of a home or other property to identify potential risks, structural conditions, and safety issues. This can influence the terms of a homeowners insurance policy.

A risk an insurance company is willing to cover. It must be definable, unintentional, common enough to predict, financially manageable to cover and non-catastrophic. Examples include common perils like fire, theft, windstorm and water damage.

Insurance is a risk management strategy offering financial protection against unforeseen adverse events. It spreads the risk of losses across a large group, transferring repair/replacement costs to an insurance company in exchange for a payment known as a premium.

An insurance pool is when many insurance companies come together to provide coverage for a specific type of risk or to cover high-risk individuals or businesses. Assigned risk plans and FAIR plans are examples of insurance pools.

IRIS is a tool used by regulators to monitor the financial health of insurance companies.

A rating used by insurance companies to assess potential risk. It is derived from a person’s credit report and is used, along with other factors, to predict the likelihood of a claim and determine your premium amount.

The insurance-to-value ratio is used to ensure a property is adequately insured – by comparing its value to the amount of insurance coverage on it – so there is sufficient protection in place in the event of a total loss.

Another name for a policyholder, or someone who pays premiums to an insurance company for coverage.

An insurance company conducting its business primarily or exclusively online.

A joint underwriting association (JUA) is a type of insurance pool. A JUA is a group of insurance companies who, together, provide coverage to a market difficult to insure by any one insurer, often due to high risk. Each member company shares in the profits and losses of the policies written by the JUA.

This is insurance covering legal defense costs and damages, up to the policy limits, if you're found legally responsible for the injuries or property damage of others occurring on your property.

The maximum amount an insurer will pay for a covered loss. Each type of coverage in your policy typically has its own limit and can be found on the declarations page.

A line refers to a classification of insurance used in an insurer’s annual reports. For example, personal lines of insurance include products such as homeowners insurance, flood insurance, auto insurance, life insurance and more.

The ability of a company or individual to meet short-term obligations or expenses by quickly turning its assets into cash. High liquidity implies greater financial stability.

A UK-based insurance marketplace where members join together to insure and reinsure complex and specialized risks globally. It is not an insurance company, but a society of insurers.

Lloyd's Companies, or Lloyd's Plan Companies, are insurance organizations permitted under Texas law, where underwriters individually insure risks but operate under a shared brand, with each only responsible for their portion of the risk. This structure was inspired by Lloyd's of London.

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In insurance, loss refers to damage to or destruction of property. A covered loss is when a particular damage or loss is covered by your insurance policy.

This is a fee condo owners or HOA members are charged to cover shared costs exceeding the association's insurance policy limits. Homeowners can protect themselves from these costs with loss assessment coverage.

Loss costs refers to the average cost of claims, often per $1,000 of home value, derived from historical data. These costs don't include overhead expenses or profit.

A loss ratio in property insurance is the proportion of claims paid verses premiums collected, used as a profitability indicator.

These are the funds set aside by insurers to cover estimated future claims.

If your home becomes uninhabitable due to a covered loss, loss of use coverage reimburses you for extra living expenses, such as temporary housing or meal costs, while repairs are being made. See also additional living expenses (ALE).

A mortgagee is a financial institution or lender providing funds to a borrower for the purchase of property, with the property itself serving as collateral for the loan.

Jurisdictions where insurers set their own rates without needing prior approval from a state regulatory authority, relying on market competition for rate regulation. It is the opposite of prior approval states.

This refers to protective measures – such as storm shutters, impact-resistant windows and reinforced doors – applied to the openings of a house, to protect it against damage from windstorms or hurricanes.

This is insurance covering the extra costs of having to meet current building codes during repair/replacement after a covered loss.

Those structures on a policyholder’s property not physically attached to the main insured dwelling. Other structures coverage is also known as Coverage B.

An insurance policy bundling coverage for multiple perils or properties into one policy, typically at a lower cost than with separate policies.

An event with the potential to cause property damage or loss. Perils covered in a homeowner’s policy may include fire, windstorm, theft or vandalism. The exact perils covered will depend on your policy.

This is the legal document between insurer and insured detailing the terms and conditions of coverage.

The difference between an insurance company's assets and its liabilities. The surplus serves as a financial cushion to cover potentially higher-than-expected claims and is an indicator of an insurer’s financial health.

Premises refers to the specific location of property covered under the policy.

A premium is the fee an insurance company requires in exchange for providing insurance coverage.

A state tax on insurance premiums, typically paid by insurance companies and often passed along to policyholders. Rates vary by jurisdiction and insurance type.

An industry term referring to the total cost of insurance policies (i.e., premiums received) an insurer has underwritten during a specific period, serving as a measure of the insurance company's sales activity at that time.

An industry term referring to the total cost of insurance policies (i.e., premiums received) for all active policies an insurance company has at a given point in time. It measures the insurance company’s exposure to risk at a particular moment in time.

The initial marketplace where newly issued securities, such as stocks and bonds, are offered and sold directly to investors, allowing companies to raise capital.

An interest rate, typically low, banks and financial lenders charge their most creditworthy customers for short-term loans.

A jurisdiction where insurance companies must submit proposed rate changes to a regulatory authority for approval before they can be implemented. This level of rate regulation is at the other end of the spectrum from open competition states.

Evidence submitted to support an insurance claim.

This describes the cyclic nature of the insurance industry, in which a soft market (favorable to policyholders) alternates with a hard market (favorable to insurers). It involves fluctuations in premium prices, coverage availability, and underwriting standards.

This type of insurance provides coverage for physical property and liability risks. It includes protection for assets against damage or loss, and coverage for legal obligations resulting from accidents or injuries.

An insurance rating system evaluating the level of fire protection available in a particular geographic area. It is used to help determine homeowners insurance rates.

Insurance rates are the price per unit of insurance coverage, reflecting the cost of obtaining insurance for a specific risk or period.

Oversight by state authorities to ensure insurance premiums are fair, adequate and not discriminatory. The level of rate regulation ranges from prior-approval (regulatory approval is needed to change rates) to open-competition systems (market determines rates).

Independent organizations – e.g., A.M. Best, Demotech, Standard & Poor’s, Moody’s Investors Service – evaluating and assigning creditworthiness ratings to determine an insurer’s financial stability and ability to pay policyholder claims.

A rating bureau – e.g., Insurance Services Office (ISO) –collects and analyzes data on insurance risks and loss experience, providing statistical information and actuarial analysis to insurance companies. It helps establish standard rates and guidelines for insurance pricing and risk assessment.

This is the portion of your insurance payout withheld until you prove repairs or replacements are done. After settling a claim, your insurer may provide an initial payment with some funds withheld.  These funds typically represent the difference between replacement cost and actual cost value – aka the recoverable depreciation – and may be claimed once repairs are confirmed.

Reinsurance is insurance for insurers. It's what allows insurers to provide more coverage by transferring a portion of the policy risk they're assuming. See also treaty reinsurance. Reinsurers have their own reinsurers, known as retrocessionaires.

Also known as an HO-4 insurance policy, renter’s insurance covers a tenant’s personal property against common perils. It also provides liability coverage.

A method of valuing insured property in which the full cost of replacing damaged property is covered, without accounting for depreciation. Replacement cost is a more comprehensive form of coverage than actual cash value, which subtracts depreciation from replacement cost. Even with replacement cost, however, your coverage will be capped at the maximum amounts specified in your policy.

Funds set aside by an insurance company for loss reserves (to cover future claim payouts), as well as for other reasons, such as dividends, contingencies or other anticipated future liabilities.

Funds set aside by an insurance company for loss reserves (to cover future claim payouts), as well as for other reasons, such as dividends, contingencies or other anticipated future liabilities.

The residual market is where people who can't get insurance the usual way go because they're considered too risky. Two ways the residual market helps them is through assigned risk plans and FAIR plans, both of which share the risk among all insurance companies in a state.

This refers to risk retained by an insurer which is not reinsured.

This refers to the practice of reinsurers – aka retrocessionaires – purchasing their own reinsurance to safeguard their financial stability.

Typically used in commercial insurance for larger risks, retrospective rating is a method of determining insurance premiums based on the policyholder’s actual loss experience during the policy period.

Another word for endorsement, which modifies an insurance contract to add or remove coverage.

The possibility of being subject to an adverse event causing harm or loss.

Risk management is the process of identifying, assessing and controlling risks to minimize their impact and maximize opportunities.

A standard used to gauge the minimum amount of capital (financial resources) an insurance company needs to support its overall business operations while also considering the inherent risks it faces.

Roof covering refers to the materials used on the outermost layer of a roof. Florida Building Codes lay out the standards to be followed in the state. Typical roof coverings include: shingles, tiles, and metal.

Roof deck attachments are the fasteners and connections used to secure the roof deck or roof covering to the building structure, ensuring stability and durability.

Roof shape refers to the geometric design or outline of a building's roof when viewed from above. It plays a role in the structural integrity of a building and its ability to withstand high winds. Common roof shapes include hip, gable, flat and Mansard.

This is the way in which a house's roof is attached to its walls. It's important to a home's overall structure and stability, particularly in the face of high-wind events like hurricanes or tornadoes.

This refers to property damaged by a covered peril but can still be repaired, sold or recycled for value. If you submit a claim for the damage and the insurance company pays for total loss, they may take possession of these salvage items to recoup some of the claim cost.

A detailed list of high-value items, like jewelry or art, insured separately for their appraised values.

An extra layer of protection on a roof. It helps to prevent water intrusion should the outer roofing layer be damaged during a storm.

Usually sold with equipment breakdown coverage, service line coverage is an endorsement on homeowners' policies protecting against  "service line failures" meaning breaks, leaks, tears, ruptures, collapses, or arching to a wide range of buried lines including: water lines, electrical lines, sewer lines, steam piping, fiberoptic lines, drainage lines, ground loop piping, and phone lines.

The extent or cost of damage resulting from an insured event.

When the ground collapses, often due to erosion of underlying rock, leaving a hole or depression in the ground.

A sinkhole deductible is a separate, and typically higher, deductible specifically for sinkhole-related claims.

A soft market in insurance refers to a period when insurance is more readily available, premiums are lower, and coverage terms are more favorable to policyholders. It’s the opposite of a hard market. See also property & casualty insurance cycle.

An insurance company's ability to meet its financial obligations, including paying out claims to policyholders. A solvent company has enough assets to cover its liabilities.

Spread of risk lowers the costs of covering a peril (adverse event) by selling policies to a large pool of policyholders in a variety of locations, making coverage more affordable for policyholders and insurers alike. It is the opposite of adverse selection.

This is the capon roof damage payouts by an insurance company. It’s based on the estimated cost to repair or replace your roof agreed upon by both parties at the time coverage is bound. Depreciation may be applied each year at the policies renewal and will be clearly indicated on the declarations page.

Insurance carrier surplus is an insurer’s net worth, an indication of how financially sound it is and able to pay claims. Surplus is calculated by subtracting a company’s total liabilities from its total assets.

These are insurance providers who may cover unusual or high-risk situations not accepted by standard, admitted (licensed by the state in which they’re conducting business) insurance carriers. Surplus lines insurers are a type of alternative market.

A process where private insurance companies select policies from the state-run insurer of last resort (Citizens Property Insurance Corporation in Florida) to shift the insurance risk to the private sector. Also called assumption.

This type of insurance pays beneficiaries if the insured dies during a specified time period, or "term." It's often used to cover financial responsibilities like mortgage payments. When the term is 1 year and can be renewed annually, it’s called yearly renewable term (YRT) insurance.

This type of insurance protects property owners and lenders from potential disputes over property ownership. It’s not home insurance but it is crucial to ensure a buyer receives a clear title to a property.

When damage to a home or personal property is so severe it's considered beyond repair, often making it cheaper to rebuild than to restore.

Transparency refers to the clear, understandable communication of policy details, costs and processes between an insurance company and policyholder.

This is the agreement between an insurer and a reinsurer, where set percentages of the insurer's business are automatically shared.

Treaty reinsurance is different from facultative reinsurance, in which the reinsurer evaluates and decides to accept or reject certain risks.

This type of insurance policy goes beyond the limits of standard homeowners insurance, providing additional coverage for items or limits exceeding what’s allowed in the basic policy.

This is when your home insurance policy doesn't provide enough coverage to fully cover the costs of repairing or replacing your home or possessions following a damage or loss event.

The process of evaluating, assessing and assuming risks on behalf of an insurance company. This helps insurers manage risk and ensure premiums are aligned with the level of risk involved.

When a property is left without inhabitants for a certain period, a new owner may need to purchase specific insurance coverage due to an increased risk of certain perils like vandalism or water damage.

The intentional and malicious damage or destruction of property.

Water mitigation is the process of minimizing water damage after a flood or burst pipe. It involves actions such as water removal, drying, sanitizing, and restoring damaged areas to prevent further loss.

A wind deductible is the out-of-pocket amount a homeowner pays before insurance covers wind-caused damage, such as from hurricanes or tornadoes.

Wind mitigation is the process of minimizing potential damage from high winds, such as adding features to your home like reinforced roofs or hurricane shutters. It may also lower your insurance premium.

A professional review by a licensed roofer or contractor of a home's wind-resistant features by evaluating elements like roof and window protection.

This is a modification to a homeowner’s policy indicating damage caused by windstorms or hail is not covered by insurance.

To write a policy is to issue an insurance contract, outlining the terms of coverage between an insurer and policyholder.