Glossary - insuranceloan.net

This comprehensive glossary covers insurance and loan terminology in depth, helping you understand key concepts and processes in both fields.

Table of Contents

Insurance Terms

Act of God: An event caused by natural forces such as hurricanes, earthquakes, floods, etc., that is beyond human control.
Accident: An unforeseen event or mishap, often leading to a claim for damages, medical costs, or injury.
Accidental Death & Dismemberment (AD&D): A type of life insurance that pays benefits in the event of death or severe injury (e.g., loss of limbs or eyesight) resulting from an accident.
Adjuster: A person employed by an insurance company who investigates and evaluates insurance claims to determine the extent of the insurer’s liability.
Aggregate Limit: The maximum amount an insurance policy will pay for all claims during a policy term.
Applicant: The person or entity applying for insurance coverage.
Arbitration: A method of resolving disputes outside of court, often used in insurance to settle disagreements over a claim.
At-Fault: The party responsible for causing damage or injury in an insurance claim.
Beneficiary: The person(s) or entity designated to receive the benefits of an insurance policy upon the insured’s death or under specific conditions.
Binding Agreement: A written or verbal agreement between the insurer and the insured, indicating the terms and conditions under which the insurance policy is in effect.
Broker: An intermediary who acts on behalf of a policyholder to procure insurance from different insurers.
Cancellation: The termination of an insurance policy before the expiration date, either by the insurer or the insured.
Capital Sum: The fixed amount that is paid under an accident or life insurance policy in case of certain injuries or death.
Claim: A formal request made to an insurance company for payment based on a loss or damage.
Claimant: The person or entity that submits a claim for benefits.
Co-Insurance: A type of insurance in which the insured pays a percentage of the covered loss, and the insurer pays the remaining percentage. Commonly used in health insurance.
Coinsurance Clause: A clause in an insurance policy that requires the policyholder to carry insurance equal to a certain percentage of the property value to avoid penalties.
Comprehensive Coverage: A type of auto insurance that covers damages to a vehicle caused by non-collision events like theft, vandalism, or weather damage.
Conditional Receipt: A receipt issued when an applicant applies for insurance, stating that coverage will begin upon approval or underwriting of the application.
Contestability Period: A period (usually two years) after the policy is issued during which the insurer can investigate and potentially deny claims due to misrepresentation.
Continuous Coverage: The uninterrupted provision of insurance coverage, typically through renewing or replacing policies over time.
Contract of Adhesion: An insurance contract in which the insurer drafts the terms and conditions, and the policyholder must either accept or reject the contract as a whole.
Coverage: The specific types of protection provided under an insurance policy, including the limits and exclusions of the policy.
Creditor Insurance: Insurance taken out by a borrower to ensure that the loan is repaid in case of death, disability, or other circumstances.
Deductible: The amount the insured must pay before the insurance company pays for the remainder of a claim.
Depreciation: The reduction in value of an insured property due to wear and tear, aging, or obsolescence.
Disability Insurance: A type of insurance that provides income replacement to individuals who are unable to work due to illness or injury.
Dividends: A portion of the profit returned to policyholders of mutual insurance companies, based on the performance of the insurer.
Exclusions: Specific conditions, events, or circumstances that are not covered by an insurance policy.
Excess Insurance: Additional insurance coverage that is triggered when primary coverage is exhausted.
Expense Ratio: The ratio of the insurer’s operational costs to its total premiums earned, used to measure the company’s efficiency.
Face Value: The amount of coverage or the payout amount specified in the insurance policy.
Fiduciary: A person or organization with a legal responsibility to act in the best interests of another party, often in managing or administering insurance policies.
Flat Cancellation: A cancellation of an insurance policy from the start of the coverage period, with no charge to the policyholder.
Flood Insurance: A type of insurance that covers damage caused by floods, typically not included in standard homeowner’s insurance.
Free Look Period: A period (usually 10–30 days) during which the policyholder can review and cancel the insurance policy for a full refund of premiums paid.
Grace Period: A period of time after the due date for payment during which the policyholder can pay premiums without losing coverage.
Gross Premium: The total premium amount charged by the insurer, which may include various charges like administrative fees and taxes.
Group Insurance: Insurance that covers a group of people, often provided by employers or other organizations, at a lower rate than individual policies.
Health Insurance: A type of insurance that covers medical expenses incurred by the insured due to illness or injury.
Homeowners Insurance: A policy that provides protection against risks to a home, such as fire, theft, or natural disasters.
Indemnity: The compensation paid to restore the insured to the financial position they were in before a loss occurred.
Indemnity Plan: A type of health insurance where the insurer reimburses the insured for medical expenses based on the cost of services rendered.
Insurable Interest: A requirement that the policyholder must have a legitimate financial stake in the insured property or life to take out an insurance policy.
Insurance Agent: A person who sells insurance policies on behalf of an insurer and is often paid a commission.
Insurance Binder: A temporary contract that provides coverage until a formal policy is issued.
Insured: The person or entity covered by an insurance policy.
Insurance Policy: A formal agreement between the insurer and the insured outlining the terms, conditions, and coverage of the insurance.
Insurer: The company or entity that provides insurance coverage.
Investment Income: Income generated from investing the funds collected in premiums by an insurance company.
Lapse: The termination of an insurance policy due to the failure to pay premiums or meet other policy conditions.
Liability Insurance: Insurance that protects against legal responsibility for injury or damage caused to others.
Life Insurance: A type of insurance that pays a death benefit to the beneficiary in the event of the insured’s death.
Limit of Liability: The maximum amount an insurer will pay for a claim, as defined in the policy.
Long-Term Care Insurance: A type of insurance that provides coverage for the long-term care needs of an insured, such as nursing home or in-home care.
Loss: The damage, destruction, or injury that triggers an insurance claim.
Loss Payee: A person or entity that receives payment from an insurance policy when a claim is made, typically in cases involving collateral, such as car loans or mortgages.
Medical Insurance: A type of health insurance that covers medical expenses, including hospitalization, treatment, and medications.
Moral Hazard: A situation where the behavior of an insured party changes as a result of having insurance coverage, often leading to risky behavior.
Morale Hazard: A situation where an insured party becomes less cautious about preventing losses because they know they have insurance coverage.
Motor Insurance: A type of insurance that provides coverage for vehicles, including liability, damage, and theft protection.
Named Peril: A type of insurance that only covers risks specifically listed (named) in the policy.
No-Fault Insurance: A type of auto insurance that pays for the insured’s damages, regardless of who is at fault in an accident.
Perils: Events or risks that may cause damage or loss to the insured property or person.
Policyholder: The individual or entity that owns the insurance policy.
Premium: The amount paid by the policyholder to the insurer for coverage, usually paid monthly, quarterly, or annually.
Primary Insurance: The first layer of insurance coverage, which is responsible for covering the claim before any excess or secondary insurance.
Profit Sharing: A feature in some insurance policies where the insurer shares profits with policyholders, typically in the form of dividends.
Pro-rata: A method of calculating an insurance premium or claim payment based on the proportion of coverage provided.
Quotation: An estimate of the premium cost provided by the insurer based on the information provided by the applicant.
Reinsurance: Insurance purchased by an insurer to protect itself from large claims by transferring some of the risk to another insurer.
Renewal: The process of extending an insurance policy for another term, typically upon the expiration of the current policy.
Rider: An additional clause added to an insurance policy that modifies or expands the coverage provided.
Risk: The potential for loss or damage, which the insurer agrees to cover under the terms of the policy.
Salvage: The amount recovered from a damaged or lost item, often subtracted from the claim amount.
Self-Insurance: A practice where an individual or company sets aside funds to cover potential losses rather than purchasing insurance coverage.
Short-Term Disability Insurance: Insurance that provides income replacement for a short period when the insured is temporarily unable to work due to illness or injury.
Subrogation: The right of an insurer to recover payments made to the insured from the responsible party.
Surrender Value: The amount the policyholder will receive if they cancel a life insurance policy before its maturity.
Term Life Insurance: A type of life insurance that provides coverage for a specified period and does not accumulate cash value.
Third-Party Insurance: Insurance that protects against claims made by someone other than the policyholder or the insurer, such as liability insurance.
Underwriting: The process by which an insurer assesses the risks and determines the terms and premiums of an insurance policy.
Underwriter: A person or entity that evaluates and assumes the risks of an insurance policy.
Uninsured Motorist Insurance: A type of auto insurance that provides coverage if the policyholder is involved in an accident with a driver who has no insurance.
Universal Life Insurance: A type of permanent life insurance that combines a death benefit with a savings component that earns interest over time.

Loan Terms

Amortization: The process of paying off a loan through regular installments over a set period.
Annual Percentage Rate (APR): The interest rate charged for a loan or credit, expressed as a yearly percentage of the loan amount.
Balloon Payment: A large, lump-sum payment due at the end of a loan term after smaller, regular payments have been made.
Borrower: The individual or entity that takes out a loan and is responsible for repaying it.
Capital: The amount of money invested by the borrower or lender in a loan or business venture.
Collateral: An asset pledged by the borrower to secure a loan, which can be seized by the lender if the borrower defaults on the loan.
Credit Score: A numerical representation of a borrower’s creditworthiness, based on their credit history.
Debt-to-Income Ratio (DTI): A measure of a borrower’s ability to manage monthly debt payments, calculated by dividing total debt payments by gross income.
Default: Failure to meet the terms of a loan, such as not making scheduled payments.
Delinquency: The state of being behind on loan payments, typically after a set period of non-payment.
Equity: The difference between the value of an asset (such as a home) and the amount owed on the loan used to finance it.
Fixed Interest Rate: An interest rate that remains the same throughout the entire term of the loan.
Flexible Loan: A loan with terms that allow for adjustments in the repayment schedule, interest rate, or amount borrowed.
Guarantor: A person who agrees to take on the responsibility for repaying a loan if the borrower defaults.
Grace Period: A period after the due date of a loan payment during which the borrower can make a payment without penalty.
Installment Loan: A loan that is repaid in equal monthly payments over a set period.
Interest: The cost of borrowing money, usually expressed as a percentage of the loan amount.
Lender: The institution or individual who provides funds for a loan.
Loan Term: The period over which a borrower must repay the loan.
Loan-to-Value Ratio (LTV): The ratio of the loan amount to the appraised value of the asset being financed.
Prepayment: The act of repaying a loan in full or in part before the due date, often subject to penalties or fees.
Prepayment Penalty: A fee charged to a borrower for paying off a loan early, compensating the lender for the loss of interest income.
Principal: The original amount of money borrowed or the remaining balance of the loan, excluding interest.
Private Mortgage Insurance (PMI): Insurance required by lenders when the borrower’s down payment is less than 20% of the home’s value, protecting the lender in case of default.
Refinance: The process of replacing an existing loan with a new one, typically to take advantage of better terms, such as a lower interest rate.
Repayment Schedule: A plan outlining the frequency and amount of payments that must be made toward repaying a loan.
Revolving Credit: A type of credit arrangement that allows the borrower to draw and repay funds repeatedly up to a certain limit, such as with a credit card or line of credit.
Secured Loan: A loan that is backed by collateral, which the lender can seize if the borrower defaults on the loan.
Secured Credit: Credit extended based on the borrower providing collateral, such as a car loan or mortgage.
Service Fee: A fee charged by a lender for processing or administering a loan.
Subprime Loan: A loan offered to borrowers with poor credit history, typically at a higher interest rate due to the higher risk.
Syndicated Loan: A large loan provided by a group of lenders (a syndicate) rather than a single lender.
Term Loan: A loan with a fixed term for repayment, which could be short, medium, or long-term, and is typically repaid with regular installments.
Total Loan Cost: The sum of the principal and all interest, fees, and other costs incurred throughout the life of the loan.
Unsecured Loan: A loan that is not backed by collateral. These loans are often based on the borrower’s creditworthiness, such as personal loans or credit card debt.
Underwriting: The process of evaluating the risk of lending to a borrower, including reviewing the borrower’s creditworthiness, income, and other factors to determine loan approval.
Variable Interest Rate: An interest rate that changes over time based on market conditions or an index rate.
Venture Debt: A type of loan provided to startups and high-growth companies, often with less stringent requirements, in exchange for higher risk and interest rates.
Working Capital Loan: A short-term loan used to finance the day-to-day operations of a business, such as paying for inventory, salaries, and overhead.
Credit Limit: The maximum amount of credit a lender will extend to a borrower, typically applicable to revolving credit accounts like credit cards or lines of credit.
Late Payment Fee: A penalty fee charged to the borrower when a loan payment is not made by the due date.
Loan Modification: A change to the terms of an existing loan, typically to reduce the interest rate, extend the loan term, or adjust other terms to help the borrower repay.
Loan Default: Failure by the borrower to make the required payments as specified in the loan agreement, potentially leading to legal action, repossession of collateral, or other consequences.
Loan Agreement: A formal contract between the borrower and lender outlining the terms and conditions of the loan, including repayment schedule, interest rate, and consequences for non-payment.
Interest-Only Loan: A type of loan where the borrower only pays interest for a certain period, with the principal remaining unchanged until the end of the term or the interest-only period.
Margin Loan: A loan that allows the borrower to borrow money against the value of their investment portfolio (such as stocks or bonds).
No-Cost Loan: A loan where the lender covers certain upfront fees, such as closing costs, often by raising the interest rate on the loan.
Overdraft Loan: A form of credit that allows the borrower to withdraw more funds from an account than they have available, typically offered by banks as a short-term solution.
Personal Loan: A type of unsecured loan that individuals take out for various personal expenses, such as debt consolidation, medical expenses, or home improvement.
Payday Loan: A short-term, high-interest loan intended to cover expenses until the borrower receives their next paycheck, typically with very high fees and rates.
Peer-to-Peer Lending (P2P): A lending model in which individuals or businesses lend money to others through online platforms, bypassing traditional financial institutions.
Principal Balance: The amount of money owed on a loan excluding interest and fees.
Prime Rate: The interest rate that commercial banks charge their most creditworthy customers, often used as a benchmark for setting interest rates on loans.
Promissory Note: A written promise by the borrower to repay a loan according to specified terms, including the loan amount, interest rate, and repayment schedule.
Refinancing Fee: A fee charged by lenders when a borrower replaces their current loan with a new one, often including application fees, processing fees, and appraisal fees.
Revolving Loan: A loan that allows the borrower to access additional funds as needed, repay the debt, and then borrow again without needing to reapply.
Second Mortgage: A loan taken out against the value of a property in addition to the primary mortgage. This loan is subordinate to the first mortgage in case of default.
Secured Credit Card: A credit card that requires the borrower to make a deposit to secure the credit limit. It is often used to build or rebuild credit.
Servicing Fees: Fees charged by the lender for managing the loan, including processing payments, providing account statements, and customer service.
Soft Inquiry: A credit check that does not affect the borrower’s credit score, often done for prequalification or background checks.
Subordination: The process of determining the priority of claims against collateral in the event of default, such as which lender gets paid first.
Surety Bond: A bond issued by a third party that guarantees repayment of a loan or debt if the borrower defaults.
Syndicated Loan Agreement: A contract that outlines the terms and conditions of a loan provided by multiple lenders as part of a syndicate.
Term Sheet: A non-binding document outlining the terms of a loan or investment agreement, including the loan amount, interest rate, repayment terms, and other conditions.
Title Loan: A type of secured loan where the borrower’s car title is used as collateral for the loan.
Trade Credit: A type of business credit that allows a company to purchase goods or services on credit from a supplier, often with terms for repayment.
Unpaid Balance: The amount of the loan or debt that has not yet been repaid, excluding any interest or late fees.
Used Car Loan: A type of loan designed for the purchase of a pre-owned car, typically requiring a down payment and varying interest rates depending on the borrower’s credit history.
Variable-Rate Loan: A loan with an interest rate that can change over time, based on the market or other indices, potentially resulting in fluctuating monthly payments.
Wage Garnishment: A legal process in which a portion of the borrower’s wages is withheld by an employer to repay a debt or loan.
Working Capital Loan: A loan designed to finance the day-to-day operations of a business, covering expenses like payroll, inventory, and overhead.
Zero-Interest Loan: A loan that does not accrue interest, usually for a short term and often offered by certain organizations or programs as a promotional offer or benefit.