Starting a career in insurance can sometimes feel like learning a new language. Premiums, deductibles, endorsements, appointments, lines of authority – the industry has plenty of terms that may be unfamiliar when you’re studying for your insurance license or starting your first job.
The good news is that you don’t need to learn the entire insurance dictionary at once.
This glossary covers some of the most important insurance terms for new agents and producers, with straightforward definitions and context to help you understand how they’re actually used.
Insurance People and Organizations
Agent or Producer
An insurance agent or producer is an individual licensed to sell, solicit, or negotiate insurance. Depending on the position, a producer may work for one insurance company, represent several companies, or work through an insurance agency.
States regulate producer licensing, so the license and lines of authority you need depend on where you plan to conduct insurance business and what types of insurance you plan to sell.
Insurance Broker
An insurance broker generally works on behalf of insurance buyers to help them find coverage from insurance companies.
The terms agent, broker, and producer are sometimes used differently depending on the state and situation. “Producer” is commonly used in insurance licensing laws as a broader term for individuals who sell, solicit, or negotiate insurance.
Insurance Agency
An insurance agency is a business that sells and services insurance policies. An agency may represent one insurance company or work with multiple carriers.
Insurance Carrier or Insurer
An insurance carrier, also called an insurer or insurance company, assumes insurance risk in exchange for premium. The carrier issues the policy and is responsible for paying covered claims according to the terms of that policy.
An insurance agency sells and services insurance. The carrier actually provides the insurance coverage.
Managing General Agent or Agency (MGA)
A Managing General Agent (MGA) is an insurance intermediary that has been given certain authority by an insurance carrier.
Depending on its agreement with the carrier, an MGA may perform functions such as underwriting, binding coverage, issuing policies, collecting premiums, or working with retail insurance agents.
MGAs are particularly common in specialized and commercial insurance markets.
Underwriter
An insurance underwriter evaluates the risk associated with an insurance application and determines whether that risk meets the insurance company’s guidelines.
Underwriters may approve or decline an application, request additional information, or help determine appropriate coverage, premium, and policy terms.
Underwriting Assistant
An underwriting assistant supports underwriters by gathering information, preparing files, communicating with agents or brokers, entering data, and helping with other parts of the underwriting process.
It can also be an entry point for someone interested in building a career in underwriting.
Claims Adjuster
An insurance adjuster investigates and evaluates insurance claims. Depending on the claim, an adjuster may inspect damage, review documentation, interview involved parties, and evaluate the loss according to the applicable insurance policy.
Agents generally help customers obtain and maintain insurance. Adjusters become involved when a claim needs to be investigated or evaluated.
Insurance Licensing and Career Terms
Line of Authority
A line of authority identifies the type of insurance a producer is authorized to sell under an insurance license.
Examples can include Property, Casualty, Life, Accident and Health, and Personal Lines, although available licenses and terminology vary by state.
This is an important distinction for new agents: having an insurance license doesn’t automatically mean you can sell every type of insurance.
Property and Casualty (P&C)
Property and Casualty insurance, commonly shortened to P&C, is a broad category of insurance covering property risks and liability risks.
Property insurance can protect things such as homes, buildings, vehicles, and business property. Casualty insurance generally involves liability for injuries or damage to others.
Many agents who plan to sell home, auto, or business insurance pursue Property and Casualty lines of authority.
Personal Lines
Personal Lines insurance refers to insurance products designed primarily for individuals and families.
Common examples include:
- Homeowners insurance
- Renters insurance
- Personal auto insurance
Personal Lines is also a specific producer license or line of authority in many states.
Commercial Lines
Commercial Lines insurance refers to insurance designed for businesses and organizations.
It can include commercial property, general liability, commercial auto, workers’ compensation, and numerous other types of business insurance.
Resident License
A resident insurance license is generally the producer license issued by the state considered the producer’s home or resident state.
Your resident state establishes the requirements you must meet to obtain and maintain that license.
Nonresident License
A nonresident insurance license allows a producer licensed in one state to obtain authority to conduct insurance business in another state, subject to the applicable licensing rules.
Producers who sell insurance in multiple states may therefore hold a resident license in their home state plus multiple nonresident licenses.
Reciprocity
Reciprocity generally refers to states recognizing another state’s producer licensing qualifications when granting nonresident licensing authority.
Reciprocity can make obtaining licenses in additional states easier, but it doesn’t mean your home-state license automatically gives you authority to sell insurance everywhere. Producers still need to follow the licensing requirements of each state where they conduct regulated insurance business.
Appointment
An insurance appointment is an authorization or formal relationship allowing a licensed producer to represent an insurance company for specified insurance business.
A producer license and a carrier appointment are not necessarily the same thing. Depending on state law and the type of insurance involved, a producer may need both appropriate licensing authority and a carrier appointment.
Continuing Education (CE)
Continuing Education, usually called CE, is education that licensed insurance professionals may be required to complete to maintain or renew their licenses.
CE requirements vary by state and license type and may include required topics such as insurance law or ethics.
Insurance Policy and Coverage Terms
Insurance Policy
An insurance policy is the contract that establishes the insurance agreement between the insurer and policyholder. It explains the coverage being provided along with applicable limits, conditions, exclusions, duties, and other terms.
When a claim occurs, the policy is critical in determining whether and how the loss is covered.
Policyholder
The policyholder is the person or entity that owns the insurance policy.
The policyholder and insured are often the same person, but the terms aren’t always interchangeable. A policy can provide coverage to additional insured people or entities who aren’t the policy owner.
Insured
An insured is a person or entity covered under an insurance policy.
Depending on the policy, there may be more than one insured.
Named Insured
The named insured is the person or organization specifically identified as an insured in the policy declarations.
Insurance policies may also extend certain coverage to other people or organizations based on the policy language.
Additional Insured
An additional insured is a person or organization added to another party’s insurance policy to receive certain coverage under that policy.
Additional insured status is particularly common in commercial insurance relationships.
Coverage
Coverage refers to the protection provided by an insurance policy against specified risks or losses.
Agents need to understand that saying someone “has insurance” doesn’t tell you exactly what is covered. The specific policy, coverage, limits, conditions, and exclusions matter.
Premium
An insurance premium is the amount charged for insurance coverage.
Premiums may be paid monthly, quarterly, annually, or according to another payment schedule.
Deductible
A deductible is the amount of a covered loss the policyholder is responsible for before the insurer’s claim payment is calculated according to the policy.
For example, if a covered property claim is $5,000 and a $1,000 deductible applies, the insurer may pay $4,000, subject to the policy’s other terms and limits.
Some policies use dollar deductibles, while others may use percentage-based deductibles.
Policy Limit
A policy limit is the maximum amount an insurance policy will pay for a particular coverage or covered loss, subject to the terms of the policy.
Different coverages within the same policy can have different limits.
Exclusion
An exclusion is policy language identifying losses, circumstances, property, people, or risks that aren’t covered by the policy.
Understanding exclusions is essential because knowing what a policy doesn’t cover can be just as important as knowing what it does.
Endorsement
An endorsement is an amendment or addition that changes the terms or coverage of an insurance policy.
An endorsement may add coverage, remove coverage, change a limit, add an insured, or otherwise modify the original policy.
You may also hear the term rider, particularly with certain types of insurance.
Declarations Page
The declarations page, sometimes called the dec page, provides key information about an insurance policy.
Depending on the type of policy, it can identify the named insured, policy period, insured property, coverage limits, deductibles, and premium.
Binder
An insurance binder provides temporary evidence of insurance coverage while the formal policy is being prepared or issued, subject to its terms and applicable law.
Agents may encounter binders when coverage needs to take effect before all final policy documents are available.
Risk and Underwriting Terms
Risk
Risk is the possibility of an uncertain event resulting in loss.
Insurance allows individuals and businesses to transfer certain financial risks to an insurer in exchange for premium.
Peril
A peril is the cause of a loss.
Examples can include fire, theft, wind, or vandalism.
An easy way to remember it: the peril is what causes the damage.
Hazard
A hazard is a condition that increases the likelihood or potential severity of a loss.
For example, faulty wiring could increase the likelihood of a fire. The fire is the peril; the faulty wiring is a hazard.
Understanding the difference between hazards and perils is especially useful when preparing for a Property and Casualty licensing exam.
Exposure
An exposure is a situation or characteristic that creates the possibility of a loss.
A business that owns a building has property-loss exposure. A company that operates vehicles has auto liability exposure. A store where customers regularly enter the premises has potential liability exposure from customer injuries.
Underwriting
Underwriting is the process an insurance company uses to evaluate a risk and decide whether and under what conditions it is willing to insure it.
The process can involve reviewing applications, claims history, property characteristics, business operations, financial information, driving records, or many other factors depending on the type of insurance.
Submission
An insurance submission is the information presented to an insurance company for consideration when seeking coverage.
A submission may include an application and supporting information an underwriter needs to evaluate the risk.
Agents and brokers play an important role in providing accurate, complete submissions to insurers.
Claims Terms
Claim
An insurance claim is a request for payment or other benefits under an insurance policy after a loss or covered event.
Filing a claim doesn’t automatically mean the insurer will pay the requested amount. The insurer evaluates the claim based on the facts of the loss and applicable policy coverage.
Loss
A loss is an event or occurrence that results in damage or financial harm and may give rise to an insurance claim.
Whether a particular loss is covered depends on the insurance policy.
Liability
Liability generally refers to legal responsibility for injury, damage, or loss suffered by another person or organization.
Liability insurance can help protect an insured against certain financial consequences of covered claims for which the insured is legally responsible.
Indemnity
Indemnity is the principle of restoring an insured financially after a covered loss, generally without allowing the insured to profit from the loss.
It’s a fundamental concept in many forms of insurance.
Actual Cash Value (ACV)
Actual Cash Value, or ACV, generally reflects the value of damaged property after accounting for depreciation.
A simple way to think about it is:
Replacement cost − depreciation = actual cash value
The exact calculation can depend on the policy and circumstances.
Replacement Cost
Replacement Cost generally refers to the cost of repairing or replacing damaged property with property of like kind and quality without deducting for depreciation, subject to policy terms and limits.
This is an important distinction for agents to understand because replacement cost and actual cash value coverage can result in significantly different claim payments.
Agency and Insurance Business Terms
Agency Management System (AMS)
An Agency Management System, or AMS, is software insurance agencies use to manage customer information and day-to-day agency operations.
Depending on the system, an AMS may be used for policy information, renewals, documents, customer communication, sales activity, reporting, and other agency functions.
Loss Ratio
A loss ratio compares an insurer’s incurred losses to earned premium, usually expressed as a percentage.
For example, a 60% loss ratio generally means the insurer incurred 60 cents in losses for every dollar of earned premium during the period being measured.
Loss ratio can be an important indicator of underwriting performance, but it isn’t by itself a complete measure of an insurance company’s profitability because insurers have expenses beyond claims.
Admitted Insurer
An admitted insurer is an insurance company authorized by a state’s insurance regulator to transact particular types of insurance business in that state.
Admitted insurers are subject to the state’s regulatory requirements applicable to the insurance they write.
Non-Admitted Insurer
A non-admitted insurer is an insurer that isn’t licensed or admitted in a particular state but may be eligible to provide certain insurance through that state’s surplus lines market.
“Non-admitted” does not simply mean an unauthorized or illegal insurance company. Eligible surplus lines insurers operate under a different regulatory framework.
Excess and Surplus Lines (E&S)
Excess and Surplus Lines insurance, often called E&S or surplus lines insurance, provides a market for risks that may be difficult to insure through the standard admitted insurance market.
These can include unusual, specialized, high-risk, or difficult-to-place exposures.
Examples might include certain new business ventures, unusual properties, high-risk contractors, special events, or businesses with unique liability exposures.
Captive Agent
A captive insurance agent generally represents a single insurance company or group of affiliated companies.
The exact business arrangement varies, but captive agents typically sell products offered by the carrier they represent.
Independent Agent
An independent insurance agent isn’t limited to representing only one insurance carrier and may have relationships with multiple insurers.
This can allow an independent agency to offer customers coverage options from different companies, depending on the agency’s carrier appointments and available products.
Renewal
A renewal is the continuation of insurance coverage for another policy term.
Renewal doesn’t necessarily mean the policy will remain exactly the same. Premiums, coverage, limits, endorsements, or other terms may change for the new policy period.
Cancellation
Cancellation is the termination of an insurance policy before the end of its scheduled policy period.
Insurance laws and policy provisions can regulate when and how an insurer or policyholder may cancel coverage.
Lapse
A lapse occurs when insurance coverage ends, often because the required premium wasn’t paid or another requirement for keeping the policy active wasn’t met.
A lapse can create a period during which the person or property has no insurance coverage.
Learning the Language of Insurance
You don’t need to memorize every insurance term before starting your career. But understanding the basic language of insurance makes it much easier to follow your licensing course, prepare for your state exam, communicate with customers, and understand conversations with carriers, underwriters, and other insurance professionals.
If you’re currently studying for an insurance license, pay particular attention to terms involving risk, policy structure, coverage, licensing, and the responsibilities of producers. You’ll encounter many of these concepts throughout your pre-licensing or exam prep course.
And remember that terminology is only part of the picture. Insurance laws and licensing requirements vary by state, so definitions like resident license, appointment, and line of authority need to be understood within your own state’s rules.
At All-Lines Training, our insurance licensing and exam prep courses are designed to help future agents understand these concepts while preparing for the licensing process and state exam.
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Frequently Asked Questions About Insurance Terms
What insurance terms should a new agent know?
New insurance agents should understand basic terms such as premium, deductible, policy limit, coverage, exclusion, endorsement, underwriting, risk, peril, hazard, claim, liability, carrier, appointment, and line of authority. The exact terminology you’ll use most often depends on the type of insurance you sell.
What is the difference between an insurance agent and a producer?
“Producer” is a licensing term commonly used for a person who sells, solicits, or negotiates insurance. “Agent” is also widely used within the industry. The precise terminology and legal definitions can vary by state.
What is the difference between an insurance carrier and an agency?
An insurance carrier or insurer provides insurance coverage and assumes the financial risk covered by the policy. An insurance agency sells and services insurance products and may represent one or multiple carriers.
What is the difference between a peril and a hazard?
A peril is a cause of loss, such as fire or theft. A hazard is a condition that increases the likelihood or severity of a loss. For example, fire can be a peril, while faulty electrical wiring can be a hazard that increases the chance of a fire.
What is the difference between an insured and a policyholder?
The policyholder owns the insurance policy. An insured is a person or entity covered by the policy. They are often the same person, but a policy can provide coverage to insureds other than the policyholder.
What is the difference between actual cash value and replacement cost?
Actual cash value generally accounts for depreciation when determining the value of damaged property. Replacement cost coverage generally pays the cost to repair or replace covered property with like kind and quality without deducting for depreciation, subject to the policy’s terms and limits.
Why do insurance agents need to know underwriting terms?
Agents work with insurance carriers to place coverage for customers. Understanding risk, exposures, submissions, and underwriting can help agents gather the information insurers need and better understand why a carrier may accept, decline, or modify a particular risk.
