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JMP Insurance Services LLC - Insurance For Tomorrow
JMP Insurance Services LLC -
Insurance For Tomorrow
Insurance For Tomorrow
Insurance Terms
Property & Casualty Insurance Terms
Understanding insurance terminology is essential to making informed decisions about your coverage. Insurance policies contain specialized language that can sometimes feel overwhelming, but knowing these key terms empowers you to better protect your assets and financial future.
This comprehensive glossary is designed specifically for California property and casualty insurance clients. Whether you’re purchasing your first homeowners policy, reviewing your auto coverage, or exploring business insurance options, this resource will help you navigate the insurance landscape with confidence.
We’ve organized common insurance terms alphabetically and included special notation for California-specific regulations and programs. If you have questions about any terms not listed here, or need clarification on how they apply to your specific situation, our experienced agents are always here to help.
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A - Terms
Actual Cash Value (ACV) The replacement cost of property minus depreciation. This valuation method takes into account the age, condition, and wear of your property at the time of loss. For example, if your 5-year-old roof is damaged, ACV would pay what that 5-year-old roof is worth today, not the cost of a brand new roof.
Additional Insured A person or entity that is added to your insurance policy to receive coverage protection. This is common in business relationships where one party requires coverage under another’s policy. Additional insureds have certain rights under the policy but are not the primary policyholder.
Adjuster An insurance company representative who investigates, evaluates, and settles insurance claims. The adjuster inspects damage, reviews policy coverage, interviews involved parties, and determines the amount the insurance company will pay for a covered loss.
Agreed Value A pre-determined amount that you and your insurance company agree upon for the value of insured property, typically used for classic cars, boats, or valuable items. In the event of a total loss, you receive this agreed-upon amount without depreciation calculations.
Appraisal A professional assessment of property value or damage extent. Appraisals can be used to determine insurable value, establish replacement costs, or resolve disputes between policyholders and insurance companies regarding claim settlements.
B - Terms
Betterment The improvement in condition or value that results when damaged property is repaired or replaced with new materials. Insurance companies may reduce claim payments by the amount of betterment, as you’re receiving something in better condition than what was damaged.
Binder Temporary proof of insurance coverage issued before your official policy is prepared and delivered. A binder provides immediate coverage and includes the same protections as your final policy, typically valid for 30-90 days.
Bodily Injury Liability Coverage that pays for injuries you cause to other people in an accident. This includes medical expenses, lost wages, pain and suffering, and legal defense costs if you’re sued. It does not cover your own injuries.
C - Terms
California Earthquake Authority (CEA) [CALIFORNIA SPECIFIC] A publicly managed, privately funded organization that provides earthquake insurance to California property owners. The CEA was created by the state legislature in 1996 to ensure availability of earthquake coverage after many insurers stopped offering it following the 1994 Northridge earthquake.
California FAIR Plan [CALIFORNIA SPECIFIC] The California Fair Access to Insurance Requirements Plan is a last-resort insurance program for property owners who cannot obtain coverage in the traditional insurance market, typically due to high wildfire risk. It provides basic fire insurance coverage but is generally more expensive and offers less comprehensive protection than standard policies.
Cancellation The termination of an insurance policy before its scheduled expiration date. Cancellation can be initiated by either the insurance company (for reasons such as non-payment or misrepresentation) or the policyholder. California law provides specific protections regarding when and how insurers can cancel policies.
Claim A formal request to your insurance company for payment or coverage for a loss covered under your policy. The claim process involves reporting the incident, documenting damages, and working with an adjuster to determine the settlement amount.
Coinsurance A policy provision requiring you to insure your property for a specified percentage of its value (typically 80-100%) to receive full replacement cost benefits. If you’re underinsured, you may face a penalty that reduces your claim payment proportionally.
Collision Coverage Auto insurance that pays for damage to your vehicle resulting from a collision with another vehicle or object, regardless of who is at fault. This coverage is optional but typically required if you have an auto loan or lease.
Comprehensive Coverage Auto insurance that covers damage to your vehicle from non-collision events such as theft, vandalism, fire, falling objects, hail, floods, or animal strikes. Also known as “other than collision” coverage, this is optional but commonly required by lenders.
Coverage The scope of protection provided by your insurance policy. Coverage defines what losses, damages, or liabilities your insurance will pay for, subject to policy limits, deductibles, and exclusions.
D - Terms
Declarations Page (Dec Page) The summary page of your insurance policy showing key information including the named insured, policy period, coverage amounts, premiums, deductibles, and insured property or vehicles. This is typically the first page of your policy and provides a quick overview of your coverage.
Deductible The amount you must pay out-of-pocket before your insurance coverage begins to pay for a covered loss. Higher deductibles typically result in lower premiums, while lower deductibles mean higher premiums but less out-of-pocket expense when you file a claim.
Depreciation The decrease in value of property over time due to age, wear and tear, or obsolescence. Insurance companies calculate depreciation when determining actual cash value payments for claims.
Dwelling Coverage The portion of homeowners insurance that pays to repair or rebuild the physical structure of your home if it’s damaged by a covered peril. This includes the walls, roof, floors, built-in appliances, and attached structures like garages.
E - Terms
Endorsement (Rider) A written amendment to an insurance policy that adds, deletes, or modifies coverage. Endorsements can expand coverage for specific items, add additional insureds, or adjust policy terms. They become part of your insurance contract.
Exclusion Specific conditions, circumstances, or types of losses that are not covered by your insurance policy. Common exclusions include intentional damage, normal wear and tear, earth movement (without earthquake coverage), and flood damage (without flood insurance).
F - Terms
Flood Insurance Separate insurance coverage that protects against damage caused by flooding. Standard homeowners and business policies do not cover flood damage. Most flood insurance is provided through the National Flood Insurance Program (NFIP) or private insurers.
G - Terms
Good Driver Discount [CALIFORNIA SPECIFIC] A mandatory discount in California for drivers who meet specific criteria, including no at-fault accidents, no traffic violations, and valid license. Under Proposition 103, eligible drivers must receive at least a 20% discount on certain auto insurance coverages.
H - Terms
Hazard A condition or situation that increases the likelihood or potential severity of a loss. Hazards can be physical (such as faulty wiring), moral (dishonesty), or morale (carelessness). Insurers evaluate hazards when determining premiums and coverage eligibility.
I - Terms
Insurable Interest A financial stake or legal interest in the property or person being insured. You must have an insurable interest to purchase insurance – meaning you would suffer a financial loss if the insured property is damaged or the insured person is injured.
Insurance Score A credit-based score that insurers use to predict the likelihood of future claims. Based on factors from your credit report, insurance scores help determine your premium rates. California law limits but does not prohibit the use of credit information in insurance underwriting.
L - Terms
Liability Coverage Insurance protection that pays for damages and legal costs when you are found legally responsible for injury to others or damage to their property. Liability coverage is fundamental to most insurance policies and includes defense costs even if claims are groundless.
Loss Damage to or destruction of insured property, or legal liability for damages or injury to others. In insurance terms, a loss is the basis for an insurance claim and represents the financial impact of a covered event.
Loss of Use Coverage Also known as Additional Living Expenses (ALE), this coverage pays for temporary housing, meals, and other extra costs when your home is uninhabitable due to a covered loss. It typically covers the difference between your normal living expenses and temporary living costs.
M - Terms
Market Value The amount your property would sell for on the open market between a willing buyer and willing seller. Market value can differ from replacement cost or actual cash value and is often used in real estate and vehicle valuations.
Medical Payments Coverage Coverage that pays medical expenses for you and your passengers injured in an auto accident, regardless of who is at fault. In homeowners insurance, it covers medical expenses for guests injured on your property, regardless of liability.
Mitigation Actions taken to reduce or prevent the risk of loss or minimize the severity of potential damage. Examples include installing fire sprinklers, security systems, storm shutters, or creating defensible space around homes in wildfire zones. Many insurers offer discounts for mitigation efforts.
N - Terms
Named Insured The person or entity specifically identified on the insurance policy declarations page as the policyholder. The named insured has full rights to make policy changes, file claims, and receive any return premiums. Spouses are typically automatically covered as named insureds.
Negligence Failure to exercise reasonable care, resulting in injury or damage to another person or their property. Negligence is the legal basis for most liability claims and consists of four elements: duty of care, breach of duty, causation, and damages.
Non-Renewal An insurance company’s decision not to continue coverage when your policy expires. Unlike cancellation, non-renewal occurs at the policy’s natural expiration date. California law requires insurers to provide advance notice and valid reasons for non-renewal of property insurance policies.
P - Terms
Peril A specific cause of loss or damage covered by your insurance policy. Common covered perils include fire, lightning, windstorm, hail, theft, and vandalism. Policies either list covered perils specifically or cover all perils except those specifically excluded.
Personal Liability Coverage that protects you against claims and lawsuits for bodily injury or property damage that you or your family members cause to others. This is included in homeowners and renters policies and covers incidents both on and off your property.
Personal Property Coverage Insurance that covers your belongings, including furniture, clothing, electronics, and other personal items if they are damaged, destroyed, or stolen. Coverage typically extends to items both inside and away from your home, subject to policy limits.
Policy The written contract between you and the insurance company that outlines all terms, conditions, coverages, exclusions, and obligations. The policy is a legal document that specifies what is and isn’t covered and the responsibilities of both parties.
Policy Period The time frame during which your insurance coverage is active, typically shown on your declarations page with specific start and end dates. Most policies run for 6 or 12 months and must be renewed to continue coverage.
Premium The amount you pay for insurance coverage, usually expressed as an annual cost but often paid in monthly, quarterly, or semi-annual installments. Premiums are calculated based on risk factors, coverage amounts, deductibles, and other variables.
Proof of Loss Documentation you provide to support your insurance claim, including photos, videos, receipts, estimates, police reports, or other evidence of damage or loss. Complete proof of loss helps ensure accurate and timely claim settlements.
Property Coverage Insurance protection for physical damage to or loss of your property. This includes your home structure, personal belongings, vehicles, or business property, depending on your policy type. Coverage is subject to limits, deductibles, and exclusions.
Property Damage Liability Coverage that pays for damage you cause to someone else’s property. In auto insurance, this covers vehicles, buildings, fences, or other structures you damage in an accident. It also covers your legal defense if you’re sued for property damage.
Proposition 103 [CALIFORNIA SPECIFIC] A California ballot initiative passed in 1988 that provides significant consumer protections in insurance. It requires prior approval for rate increases, mandates good driver discounts, limits the use of certain rating factors, and gives consumers the right to challenge proposed rate hikes.
R - Terms
Renewal The continuation of your insurance policy for another term after the current policy period expires. Renewals may involve updated premiums, coverage changes, or policy terms. You typically receive renewal documents 30-60 days before expiration.
Replacement Cost The amount needed to replace or repair damaged property with new items of similar kind and quality, without deducting for depreciation. Replacement cost coverage typically costs more than actual cash value coverage but provides more comprehensive protection.
Risk The chance of loss or damage occurring. In insurance, risk refers to the uncertainty of loss and is evaluated to determine premiums and coverage availability. Factors affecting risk include location, property condition, claims history, and numerous other variables.
S - Terms
Settlement The final resolution of an insurance claim, including the payment amount agreed upon by you and the insurance company. Settlement represents the conclusion of the claims process and is typically documented in writing.
Subrogation The legal right of your insurance company to recover claim payments from a responsible third party. After paying your claim, your insurer may pursue reimbursement from the at-fault party or their insurance company. You may be required to cooperate with subrogation efforts.
T - Terms
Third Party Any person or entity involved in an insurance situation other than the policyholder (first party) and the insurance company (second party). In liability claims, the third party is typically the injured person or owner of damaged property seeking compensation.
Total Loss When the cost to repair damaged property exceeds its actual cash value or a specified percentage of its value (typically 75-80%). In a total loss situation, the insurance company pays the value of the property rather than repair costs, and typically takes ownership of the salvage.
U - Terms
Umbrella Policy A liability insurance policy that provides additional coverage above the limits of your homeowners, auto, or other underlying policies. Umbrella policies typically start at $1 million in coverage and protect your assets from major claims and lawsuits.
Underwriting The process insurance companies use to evaluate risk, determine whether to provide coverage, and establish appropriate premiums. Underwriters review applications, assess risk factors, and apply rating guidelines to make coverage decisions.
Uninsured/Underinsured Motorist Coverage Auto insurance that protects you when you’re injured or your vehicle is damaged by a driver who has no insurance or insufficient insurance to cover your losses. This coverage is particularly important in California, where many drivers carry only minimum liability limits.
W - Terms
Wildfire Defensible Space [CALIFORNIA SPECIFIC] The required buffer zone around structures in wildfire-prone areas where vegetation and combustible materials are managed to slow fire spread. California law requires homeowners in certain areas to maintain defensible space, typically 100 feet around structures. Some insurers require proof of defensible space maintenance for coverage eligibility.
NEED MORE INFORMATION?
If you have questions about any of these terms or how they apply to your specific insurance needs, please don’t hesitate to contact our office. Our experienced agents are here to help you understand your coverage and make informed decisions about protecting your property and assets.
