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Insurance Terms Glossary

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A

Actual Cash Value (ACV)

A way of valuing insured property; calculated by subtracting depreciation value from replacement cost.

Actuary

A business professional who deals with the financial impact of risk and security, provides assessments of the mathematical likelihood of events and outcomes to minimize losses, and recommends measures to minimize impact when losses do occur.

Additional Insured

A person or organization that receives the benefits of being insured in addition to the actual purchaser of the original insurance policy.

Agent (Insurance)

A person that is authorized to act on behalf of another to create a legal relationship with a third party – specifically an Insurance Agent acts to negotiate and service a legal insurance contract between the Insured and the Insurance Carrier.

Aggregate Limit

The total amount during a policy period which an insurance carrier will pay out on the policy holder’s behalf; equal to the maximum limit of liability.

All Risk Insurance

A policy covering all losses, except those specifically excluded in the policy terms.

Allied Lines 

A variety of related coverages associated with property insurance including, but not limited to coverage of; data processing equipment, water damage, malicious damage and vandalism, increased cost of construction, earthquakes, radioactive contamination, sprinkler leakage, standing timber.

Application (insurance)

A written or digital document completed by a person requesting insurance to provide information about the type, extent, and amount of insurance desired as well as information regarding the person, organization, and/or items to be insured.

Appraisal (insurance)

Valuation based on a comparison of equivalents to determine the monetary estimate for insured properties. The act of calculating the worth of an item or business for insurance purposes, often by a projection of cash flow from assets as well as future and current activities.

Arbitration

A legal technique used for the resolution of disputes outside of the court system. One or more impartial persons, referred to as “arbiters” or “arbitrators”, are appointed by both sides to decide the case on behalf of the parties involved. The decision is final and legally binding for both sides of a dispute and enforceable by law. It is often faster than the legal system as well as less expensive and usually non-public.

Attractive Nuisance

Hazardous object or condition on land (artificial hazard) that is likely to attract children unable to appreciate the risk posed by it.Often applies to abandoned cars, piles of lumber or sand, trampolines, and swimming pools, but can apply to virtually anything on a property. Warning signs do not mitigate liability in all cases, particularly when children cannot read the sign.

Audit (insurance)

Once a policy expires, an insurance company will do an evaluation of policy holder’s records to determine actual exposures and operations for the policy term (rather than the original Estimated exposures). This is used to decide the premium which should be paid to the insurance company.

Aviation Insurance

Coverage geared specifically to the operation of aircraft and the risks associated with aviation. Policies include appropriate terminology, limits, and clauses particular to aviation insurance.

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C

Carrier (insurance)

The insurance company that issues the policy and assumes or“carries” the risk and responsibilities associated with the policy.

Casualty Insurance

Used to describe the liability coverage of an individual or organization for negligent acts or omissions, but not directly concerned with Life, Health, or Property insurance. This is a somewhat elastic term and can depend upon the specific policy, but can often cover such things as aviation related property insurance, glass insurance, crime insurance, boiler & machinery insurance, marine losses due to shipwreck and losses at sea or fidelity and surety insurance, earthquake, political risk, terrorism, forgery, fidelity and surety bonds, livestock, and legal expenses. Automobile insurance is the most common form of casualty insurance.

Catastrophe Insurance

Coverage for extremely large scale disasters, often resulting in high losses including loss of life and extensive property damage. This refers to natural disasters such as ice storms, hurricanes, tsunami, flood,and earthquake, as well as man-made disasters such as terrorism, depending on the policy specifics. These events are usually excluded from standard hazard insurance and so require their own policy.

Certificate of Insurance

A document which provides proof that insurance has been purchased by the policyholder and which can then be presented to other parties. It is not a substitute for the actual policy. Also referred to as an Insurance Certificate.

Chartered Property Casualty Underwriter (CPCU)

Considered to be the premier designation in the insurance industry and administered by the American Institute for Chartered Property and Casualty Underwriters. CPCU designation requires the completion of nine (9) graduate and post graduate courses as well as passing of nine (9) extensive national examinations in various specified areas. CPCU designees are bound by a Code of Ethics and must meet experience requirements outlined. Designees have a professional society called the Chartered Property and Casualty Underwriters Society with over 150 chapters in the United States.

Claim (insurance)

Formal notification to an insurance company requesting payment of estimated or actual amount of loss due under the terms of a policy. Claims are reviewed by the insurance company for validity and paid to the appropriate party once approved.

Claim Severity

The total amount paid out for all claims divided by the number of claims. Also called Average Cost Per Claim.

Classification or Class (insurance)

Grouping of persons, operations, or property with similar general characteristics which  are rated based on a number of statistical factors to determine risk and appropriate insurance rates.

Co-insurance

(a) The joint assumption of risk between the insurer and the insured, where the insured received a reduced rate for insurance equal to a percentage of the actual value of the property insured. (b) The sharing of risks between two or more title insurance companies.

Commercial Lines

Insurance policies designated for and purchased by businesses.

Commercial Multiple-Line Policy

A broad coverage policy package geared toward businesses, including various liability and property coverage.

Comparative Negligence

A rule of law applied to determine responsibility and damages based on negligence of every party involved in an accident.

Competitive State Fund (insurance)

An organization created by a state to sell workers' compensation insurance in competition with other private insurers.

Compulsory auto liability insurance

Nearly all states require registered vehicles to carry a minimum amount, which varies by state, of auto liability insurance to drive a car, covering the other driver’s medical, repair, and any additional costs associated with an accident.

Concealment (insurance)

The act of intentionally withholding information, which results in the voiding of an insurance claim, even if the insured is not specifically asked about it. The failure to disclose pertinent facts prior to the instatement of an insurance contract.

Consequential Loss

Loss accompanying an insured loss but not directly associated with it, such as loss of income to a business after flooding. These losses are not usually covered by normal insurance policies unless specifically indicated and usually accompany payment of an additional premium. Also called Indirect Loss.

Contract (insurance)

The insurance policy received by an insured from the insurer which details the extent coverage, conditions, and circumstances under which the policyholder will be compensated financially.

Contributory Negligence

Common law referring to a case where an individual is responsible in part for injuries or damages due to their own actions, often resulting in a reduction of financial compensation.

Coverage (insurance)

The total type and amount of insurance purchased by the policy holder against certain losses as described in the specific policy.

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F

FAIR Plan (Fair Access to Insurance Requirements)

Guaranteed individual and business insurance coverage plan instituted by the federal government for those who cannot purchase property insurance in the free market, usually those in high risk areas. FAIR plan insurers will work with the applicant and suggest improvements to the property if the property does not meet FAIR plan standards.

Fidelity Bond

A type of insurance for employers to protect against monetary or physical losses caused by employees, either through fraudulent acts, dishonesty, theft, embezzlement, fraudulent trading, or forgery.

Fiduciary

A legally appointed individual, association, or corporation who has been placed in a position of confidence and trust to manage assets, properties, and money of another party, usually with legal rights and duties to make decisions on behalf of the party they represent.

Financial Responsibility Law

A state law which requires that the automobile drivers provide proof of financial ability to pay a minimum amount of automobile accident related loss and damages, usually by purchasing an auto liability insurance policy of the required state amount.

Fire Insurance

Insurance policy for the protection against fire related loss and damages. This usually covers fire from any cause, including lightning, and is often part of a homeowner’s policy or multiple peril commercial policy.

Fleet Policy

A type of business insurance which provides protection for many vehicles, usually five (5) or more, referring to the vehicles as a “fleet”. Often used in trucking, limousine, and similar industries.

Floater Policy

Coverage for assets being moved from one location to another and providing protection from transportation perils, regardless of the asset’s location.

Flood Insurance

An insurance policy providing protection for property owners against loss and damages that are the direct result of flood and associated water damage. Flood insurance is provided in a separate policy from homeowner’s insurance.

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O P Q

Occurrence (insurance)

An event or exposure to conditions that triggers coverage under an insurance policy. Some policies consider an occurrence to be continuous or repeated exposure resulting in harm or losses that is unintended and unexpected, therefore the “occurence” can cover continuous events and not just accidents.

Package Policy

Several types of insurance coverage from different insurance lines included under a single policy.

Peril (insurance)

Cause of loss. Exposure to a risk or hazard that can cause injury, damages, or loss. Risk or hazard against which a policyholder is protected under the terms of their insurance policy.

Policyholder

Group, organization, or individual who owns the insurance policy, in whose name the policy is written, and who has the rights to exercise privileges of the insurance contract. This is usually, but not always, the same as the insured covered by the terms of an insurance policy.

Pool (insurance)

A group of small businesses who join together to receive better insurance coverage plans and better rates by combining the risks of a larger number of businesses and individuals and their increased buying power.Often referred to as Insurance Purchasing Cooperatives.

Premises (insurance)

Land and improvements on it, such as buildings or stores, or a portion of it specifically described in the insurance contract which the insurance policy covers in cases of damage or loss.

Proximate Cause

An act which is the main cause of an injury or loss and without which the injury or loss would not have occurred. A cause which is considered by law to result in liability. Often uses the “but for” test: But for event X, event Y would not have happened.

Quote (insurance)

Statement of the current cost of a specified insurance policy by an insurance agent or insurance agency.


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R

Rate (insurance)

The amount charged for an insurance policy reflecting the possibility of loss for the risks covered by the insurance company under that policy. This is used as a basis to determine the premium and is often used interchangeably with the term premium.

Rating Bureau

Organization made up of insurance companies which classifies rates and hazards of risks using statistical data such as geographic location.

Rating Territory

A geographic grouping where similar hazards tend to exist that allows a similar rate to those in the specified area and which can help to balance the risks of insurance policies. These can be defined differently by each insurance company.

Reinsurance

A practice where portions of the risk of an insurance policy are assumed by or transferred to a number of companies to help spread out the payment of damages in the case of a large loss. This helps protect the insurance company in such a case.

Rental Value Insurance

A type of property insurance intended for landlords or owners which covers loss of rental income caused by a peril for which they are specifically insured. It can also cover cases where a rental is owner occupied.

Replacement Cost Insurance

This type of insurance reimburses the policyholder for the value of the property or items as if it was new, versus the usual deprecated value. Also called Replacement Cost Property Insurance.

Replacement Cost Contents Insurance

A policy reimbursing the policyholder for the damaged contents of a home or apartment as new rather than deprecated.

Replacement Cost Dwelling insurance

A policy reimbursing the policyholder for the cost of damaged property as new rather than deprecated.

Reserve (insurance)

A specified amount of funds that an insurer must have set aside to meet insurance obligations and payments as needed. Claims Reserve is the amount which is already spoken for and must be settled at a future date.

Retrospective Rating

Calculation of the current year’s policy cost based on the actual current year’s losses, subject to agreed upon maximum and minimum amounts.

Rider

Part of an insurance policy, included as an addendum, which is purchased separately from the policy and alters or modifies the policy coverage in some way.

Risk

In the insurance industry, this term is used to refer to a thing or person which is insured by a policy.

Risk Control Service

A service for the evaluation of a policy holder’s chances for loss which offers suggestions on how to mitigate or remove potential for those losses.

Risk Management

A practice where an organization ensures that they do not assume an unacceptable level of risk, by analyzing exposure to risk and take steps to reduce and control such exposure.


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S

Salvage 

Damaged property taken by an insurer after it has paid the claim in order to minimize its losses. 

Schedule 

An enumeration of various properties covered by a policy. A system for computing rates. 

Self-insurance 

An individual or firm’s systematic provision of a fund to provide for all or part of its losses. 

Short rate cancellation 

The termination of an insurance policy or bond before its expiration either by the insured or the company. The notice necessary before such cancellation becomes effective is almost always stated in the insurance contract. 

Standard provisions 

Those clauses that certain state codes prescribe as being inserted in contracts of insurance; Contract provisions in general used by insurers, adopted by a group of insurers, approved by a state insurance department, or required by statute, either literally, in substance, or in a form more favorable to the insured. 

Stock company 

A company owned by a number of investors or stockholders. 

Subrogation 

The right of the insurance company to recover from a third party the amount paid under the policy.

Surety bond 

An instrument providing for monetary compensation should there be a failure to perform any specific acts within a stated period. 

Suretyship 

All forms of obligations to pay the debt or default of another. The function of being a surety. 

Surplus line 

Business which would otherwise be subject to regulation as to rates or coverage, placed in non-admitted markets on an unregulated basis in accordance with the Surplus or Excess Line provisions of state insurance laws. 

Syndicate 

Group of companies or other underwriters who join together to insure a certain property which may be of such value, or of such high hazard, or so expensive to underwrite that it can be done more efficiently on a cooperative basis.
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W X Y Z

Waiver (insurance)

Provision in an insurance policy which removes a party’s ability or right, such as to further legal action, and removes a liability for the other party. There is often a clause in insurance policies stating that the policy holder is not required to pay premiums if they become disabled or seriously ill. Often referred to as a Waiver of Premium.

Weather Derivative

Insurance product that can be used by individuals or organizations to reduce the risks associated with unforeseen and negatively effecting weather conditions. This can be very different on a situation to situation basis; insurance against warm winters for a ski area or protection against low turnout for tourist destinations on rainy weekends during peak times.

Whole Life Insurance

Unlike term life insurance, whole life insurance remains in force for the life of the insured. Upon the insureds death, the beneficiary receives the cash benefit. Premiums often have to be paid into the policy on a yearly basis.

Workers’ Compensation

Insurance covering employees injured on the job, providing medical benefits, and wage replacement in exchange for mandatory waiving of the right to sue the employer for negligence. Each state has its own standards required for the amount and type of coverage needed for Workers Compensation. Also called Workers’ Comp, Worker’s Compensation, Workers CompensationWorkman’s Compensation.

Write (insurance)

The accepting of an application for insurance by an insurance company. The completion of the contract and actual creation of the binding insurance relationship. To underwrite a policy or agree to the policy terms on the part of the insurance company.

Yearly Renewable Term (YRT) Reinsurance

A type of life insurance that is a one year term life policy where the premium is increased on a yearly basis due to increase in age and risk of the insured. Also called Annual Renewal Term Insurance and Increasing Premium Term Insurance.

Zero First Year YRT

A Yearly Renewable Term (YRT) without a first year premium.