Insurance policy – The contractual agreement between the insured and the insurer. The policy specifies the terms of the agreement, including covered perils, insurability requirements, premium, deductible, and coverage levels.

Premium – The amount of money the insured must pay to purchase an insurance policy – to make the policy active.

Coverage levels – The amounts the insurer will pay for a given type and level of loss. Higher coverage levels require higher premiums.

Covered perils – Identified in the insurance policy as the specific types and causes of loss that will trigger a financial payment to the insured.

Deductible – In the event of a loss due to a covered peril, the portion of the loss that the insured must cover before payment is provided by the insurer.

Indemnity – In the event of a loss due to a covered peril, the portion of the loss that is paid by the insurer.

Rating – The process of establishing the premiums for an insurance policy; rating considers expected losses, and varies across coverage terms.

Underwriting – The process of establishing the detailed insurance policy terms.