Terms and Definitions
Auto Insurance and Home insurance can be very confusing. Understanding the basic terminology can be very helpful.
Liability – Broadly, any legally enforceable obligation. The term is most commonly used in a pecuniary sense.
Liability Insurance – Insurance that pays and renders service on behalf of an insured for loss arising out of his responsibility, due to negligence, to others imposed by law or assumed by contract.
Peril – The cause of a possible loss.
Personal Injury Protection – Pays basic expenses for an insured and his or her family in states with no-fault auto insurance. No-fault laws generally require drivers to carry both liability insurance and personal injury protection coverage to pay for basic needs of the insured, such as medical expenses, in the event of an accident.
Personal Lines – Insurance for individuals and families, such as private-passenger auto and homeowners insurance.
Premium – The price of insurance protection for a specified risk for a specified period of time.
Premium Earned – The amount of the premium that has been paid for in advance that has been “earned” by virtue of the fact that time has passed without claim. A three-year policy that has been paid in advance and is one year old would have only partly earned the premium.
Premium Unearned – That part of the premium applicable to the unexpired part of the policy period.
Renewal – The automatic re-establishment of in-force status effected by the payment of another premium.
Replacement Cost – The dollar amount needed to replace damaged personal property or dwelling property without deducting for depreciation but limited by the maximum dollar amount shown on the declarations page of the policy.