Insurance terms explained

Insurance often sounds like legalese—right up until you need to file a claim. Whether you're assessing your health, home, or auto policy, understanding the terminology can mean the difference between a smooth recovery and an expensive oversight.

This glossary walks you through 10 foundational insurance terms that every policyholder should have in their back pocket.

Accident: Life doesn’t send warnings. When the unexpected happens—think car crash, slip, or fire—it’s called an accident. These events aren’t planned, and they often bring both physical and financial damage. A solid policy may step in to ease the financial burden, but only if the event falls under its definition of coverage

Additional Interest: Sometimes, more than one party has skin in the game. Additional interest refers to an individual or organization that’s not the main policyholder, but still has a financial interest in the insured item. Picture a company car driven by an employee—the employer often gets listed here to protect their stake.

Appraisal: How much was it worth before the damage? That’s what an appraisal aims to answer. This professional estimate—typically required after a loss—helps insurers determine the value of property or the cost of repairs. Not all appraisals are created equal, so make sure the one you're relying on is from an approved source.

Benefit: Don’t mistake a benefit for a windfall. Insurance is designed to compensate, not enrich. A benefit typically covers a portion of lost income or provides assistance during periods of disability. It’s a financial cushion—nothing more, nothing less.

Cancellation: Policies don’t always run their full course. Cancellation refers to ending your insurance coverage early, whether by your choice, the insurer’s, or mutual agreement. Sometimes it’s as simple as signing a “lost policy release.” Other times, it’s triggered by missed payments or risk reassessment.

Claim: When something goes wrong, you file a claim. It’s your formal ask for compensation based on the terms of your coverage. A first-party claim involves just you and your insurer. A third-party claim kicks in when someone else files against your policy—like after a fender bender you caused.

Deductible: Think of the deductible as your share of the risk. It’s the amount you must pay before your insurance starts covering the rest. A higher deductible can shrink your premium—but be prepared to pay more upfront when trouble hits. It’s a trade-off worth weighing carefully.

Depreciation: Time takes a toll. Depreciation accounts for the reduction in value due to age, use, or obsolescence. When you file a claim, don’t expect to recoup what you originally paid. Insurers typically calculate payouts based on current value—not replacement cost—unless your policy says otherwise.

Endorsement: Life changes—and policies should too. An endorsement is a formal amendment to your insurance contract. It can expand, limit, or tweak your coverage. Adding flood protection to your home policy? That’s an endorsement. So is removing a vehicle from your auto plan.

Premium: This is the price tag of peace of mind. Your premium is the amount you pay—monthly, quarterly, or annually—for insurance protection. It’s calculated based on your risk profile, coverage level, and other variables. Some premiums are earned gradually over time, while others include minimum charges regardless of usage.

It’s easy to ignore the fine print—until the fine print defines your reality. Insurance only works if you understand what you’re buying, what it covers, and what’s left on you when something goes wrong.

Here’s a simple next step: pull out your current policy and match each section against the terms above. Still feels murky? That’s normal. But this time, at least, you’ve got a clearer map.