Basic Insurance Terminology

Basic Insurance Terminology

Insurance can be quite confusing – but we’re here to help! 

When shopping for insurance or even reviewing your policy, it helps to know some common insurance terms. Always remember that if you don’t understand something on your policy, don’t be afraid to ask your insurance representative!

Absolute Liability

The liability of a wrongdoer’s automobile insurance company to pay someone harmed by the wrongdoer, even if the wrongdoer has violated the terms on the insurance policy, for example, by driving with an expired license. This is subject to a limit, usually $200,000, and the requirement that the wrongdoer in violation of the contract must reimburse the insurer.

Accident Benefits (AB)

The part of auto insurance that provides medical care and income replacement benefits to insured persons injured in a car collision, regardless of who caused the accident. 

Comprehensive Automobile Coverage

An item of coverage in an Automobile Physical Damage policy insuring against loss or damage resulting from numerous miscellaneous causes such as fire, theft, windstorm, flood, vandalism, etc., but normally not including loss by collision or upset. 

Comprehensive Personal Liability

A form of liability insurance for individuals which insures the policyholder in the event he has become liable to pay money for damage or injury he has caused to others. This form does not include automobile liability, but does cover almost every activity of the policyholder except those which arise from the operations of a business. Hence “Personal” Liability. 

Contingent Liability

A liability which may be incurred by an insured as a result of negligence on the part of independent persons engaged by him to perform work. The most common example is the contingent liability of a principal contractor, which may result from construction operations undertaken by his subcontractors.


What the insurance contract covers.


An agreed specified sum to be deducted from the amount of loss and assumed by the insured.

Deductible Clause

A clause defining the amount of loss for which insured is liable; defines insurers and insured’s contributions to cover losses. 

Direct Billing

A system for the collection of premiums whereby the insurance company “directly bills” the insured for the premium in lieu of the conventional collection of premiums by the agent or broker. The insurer sends a statement to the agent, usually monthly, recording the premiums collected directly, and credits the agent with the commission on those items. 

Direct Loss 

Damage to or loss of the insured property itself. It does not include consequential loss or expenses incurred as an indirect result of the damage, such as the cost of renting replacement items while the originals are being repaired. 

Earthquake Insurance

Coverage for damage caused by an earthquake as defined in the contract

Effective Date

The date on which an insurance policy or bond goes into effect, and from which protection is furnished.


End of the policy period

Legal Liability

Liability imposed by law on individuals or corporations to pay for harm done to others. Such law may be the common law, statute law or customs which over a period of time have taken on the same status as law. Legal liability may also be assumed under the terms of a contract.


This is a legally enforceable obligation. Liability insurance pays for the damages or losses suffered by others for which the insured person is legally responsible. 

Personal Lines Insurance

Home or auto insurance for individuals, as distinguished from commercial lines insurance for businesses.

Proof of Loss

A formal statement made by a policyholder to the insurance company regarding a claim, specifying its circumstances and the amount of loss, especially in property insurance.

Property and Casualty (or General) Insurance

This is the branch of the insurance industry that covers home, car and business insurance. (The other branch of the industry is life and health insurance)

Pro Rate Cancellation

Cancellation of an insurance policy or bond with the return premium credit being the full proportion of premium for the unexpired term of the policy. 

Vehicle Identification Number (VIN)

This is the number usually found on the dashboard of a vehicle on the driver’s side, and is usually listed on the vehicle registration and title. The VIN is a combination of letters and numbers 17 characters in length that can be used to identify the make, model, and year of a car

Click here for the full glossary

Remember to never be afraid to contact your insurance representative if you don’t understand something on your policy. Contact us today to speak to a representative today at 905-696-9090 or email us at This email address is being protected from spambots. You need JavaScript enabled to view it.  

Source: Insurance Bureau 


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