Key Insurance Terms
Accidental Death Benefit (Auto or Health Insurance)
Provision for payment of a dollar amount usually equal to the face amount of insurance – if the insured is killed in an accident. This coverage is available either as a health insurance policy, or as an auto insurance option with some companies. (Also see Accidental Death Benefit [life Insurance].)
Accidental Death Benefit (Life Insurance)
Provision under a life insurance policy for payment of an additional amount – usually equal to the face amount of insurance – if the insured is killed in an accident. Popularly known as ‘double indemnity.” (Also see Accidental Death Benefit [Auto or Health Insurance].)
Accident and Health Insurance
See Health Insurance.
Actual Cash Value
Insurance under which the amount payable is the current replacement cost of the property new; reduced by an allowance for depreciation, wear and obsolescence.
A highly specialized mathematician professionally trained in the risk aspects of insurance, whose functions include the calculations involved in determining proper insurance rates, evaluating reserves, and in various aspects of insurance research.
Additional Living Expense
A property coverage which pays for the increased expense of living while the insured’s residence is being rebuilt or repaired after damage from an insured peril. Examples are the extra cost of housing the insured’s family in a hotel, dining in restaurants, etc.
Adhesion (Contract of)
Parties are of unequal bargaining power, and one party (the insured) cannot negotiate any terms, having to accept the offer of the other party.
A person who investigates and settles losses for an insurance carrier.
The investigation process of settling claims by an insurance company.
Administrative Services Only (AS0) Plan
An arrangement under which an insurance company or an independent agent will, for a fee, handle the administration of claims, benefits and other administrative functions for a self-insured group. This is very popular with larger corporations.
An insurance company licensed and authorized to do business in a particular state.
Laws of all states require all insurance agents to be licensed by the state to sell insurance. Agents may be categorized as: (I)An Exclusive Agent, who is a sales employee or sales representative of one and only one insurance company or its affiliated group of insurance companies and seeks and services business exclusively for that company or group. (See Direct Writer.) (2) An Independent Agent, who usually represents two or more insurance companies or groups in a sales and service capacity as an independent business person.
Aggregate (Limit of Liability)
The total amount available in a policy year regardless of how many claims are presented. A liability policy may have $1,000,000 per occurrence and $2,000,000 aggregate. If (5) $500,000 claims were presented in a policy year, the insurance company would stop paying after the 4th claim when the $2,000,000 aggregate had been used.
A deductible in some property and health insurance contracts which all covered losses during a year are figured together and an insurer pays only when the aggregate deductible amount is exceeded.
Alien Insurance Company
An insurance company incorporated under the laws of a foreign country.
Types of insurance associated with property insurance, which may include earthquake, sprinkler leakage, and income and extra expense
Coverage through an insurance contract that promises to cover all losses except those losses specifically excluded in the policy. Most companies refer to this coverage as “Risks of loss” coverage rather the “All-risk” since the later raises the question that all possible losses would be covered.
A formal document revising the provisions of an insurance policy. In life insurance, it is usually signed jointly by an insurance company officer and the policy owner or his authorized representative. In property/casualty insurance, it is signed only by a company representative, usually the agent.
Insurance policy written for a term of one year or renewed one year at a time.
A report made by a company at the close of its fiscal year. It is the primary financial report required by state insurance departments to be submitted by insurers annually.
The person during whose life an annuity is payable, usually the person to receive the annuity.
A contract that provides an income for life, a specified number of years, or a combination of the two.
The statement of information that a prospective insured gives when applying for an insurance policy and that an insurance company uses to help decide if it will issue the policy and what premium rate will be charged.
The willful and malicious act of burning, or attempt to burn, any structure or property, usually with with criminal or fraudulent intent.
A group formed from members of a trade or a professional association for group insurance under one master health insurance contract.
A condition that can attract and injure children. The occupants of land on which such a condition exists are liable for their injuries. For example, pool owners are required to fence the area around the pool.
Automobile Liability insurance
Protection for the insured against loss arising out of legal liability when his or her car injures others or damages their property. (includes Bodily Injury Liability and Property Damage Liability Coverages.)
Automobile Physical Damage Insurance
The Collision and Comprehensive coverages in the automobile insurance policy.
Coverage against aviation perils, primarily involving operation of aircraft and characterized by a constant exposure to potential catastrophe loss. Types of coverages include insurance for damage to the aircraft or contents, aircraft owner’s liability insurance on passenger bodily injury or death, Airport Liability, Hangarkeeper’s Liability, and Aviation Products Liability insurance.
Bailees Customers Goods Insurance
A policy that covers the loss or damage to personal property of customers while in your care, custody or control.
A package insurance policy providing coverage against a limited number of specified perils.
Any person, institution, trust, etc., named in a life policy to receive the policy benefits upon the death of the insured.
A blanket form is one under which property is insured under a single amount applying to several different pieces of property rather than a specific amount of insurance on each property.
An inland marine policy covering all property on or off a merchant’s premises, including property of others in the care, custody or control of the policyholder.
A written or oral contract issued temporarily to place insurance in force immediately prior to issuance of a new policy or endorsement of an existing one. A binder is subject to payment of the premium and provides coverage under the terms of the policy to be issued, unless otherwise specified.
Boiler and Machinery Insurance
A form of property coverage for loss arising out of the operation of pressure, mechanical and electrical equipment. It may, among other things, cover loss to the boiler and machinery itself and business interruption losses.
A package policy providing coverage for the same perils covered in the basic form, plus specified additional perils.
A representative of the buyer of property and liability insurance who deals with either agents or companies in arranging for the coverage required by the customer. A broker is paid a commission by the company or its agent.
Broker of Record
Also known as Agent of Record, this is a broker who is designated to handle certain insurance contracts for the named
An insurance contract that insures buildings under construction. Claim payments are based on the percentage completed at time of loss. Once completed, the Builders Risk policy must be converted to a specific type of homeowners or commercial property form. Can be written in the name of the contractor or the building owner.
The loss of property due to theft when there is visible evidence of forcible entry to the exterior of the building.
Business Personal Property:
Known as “contents,” this refers to furniture, fixtures, equipment, machinery, merchandise, and all other
personal property owned by the insured and used in the insured’s
A professional liability policy covering future claims resulting from incidents which occurred during the period that an expired claims-made policy was in force.
Buy Sell Agreement
An agreement made by the part-owners of a business to purchase the interest of a disabled or deceased owner. Values of the owner’s share of the business and the terms of the buying and selling are established before death or at the beginning of a disability.
Generic term for an employee benefit plan that allows employees to select among the various group life, medical expense, disability, dental, dependent and elder care assistance and other plans that best meet their specific needs. Also called flexible benefit plans. Sometimes used in conjunction with a Section 125 qualified benefit plan.
A policy which may be cancelled by the company at any time by giving advance notice in compliance with state requirements to the insured citing the reasons such insurance is being cancelled and refunding any unearned premium. (Term is not usually applicable to life or health insurance.)
The discontinuance of an insurance policy before its normal expiration date.
A measure of the amount of insurance which an insurer is able or prepared to assume on particular risks.
Capital Stock Insurance Company
An insurance company which is owned and controlled by stockholders or investors.
A method of payment for health services in which a physician or hospital is paid a fixed, per capita amount for each person served regardless of the actual number of services provided to each person.
An insurance company set up by a company or group of companies to insure their own risks or risks common to the group.
See Exclusive Agent
An insurance company set up by a company or group of companies to insure their own risks or risks common to the group.
A broad classification of marine insurance providing coverage on cargo, as opposed to hulls, to protect shippers by sea from loss or damage to goods for which they would be unlikely to collect from the carriers themselves. Whether cargoes are insured for a particular voyage or under open policies which are in the nature of reporting-form policies depends upon the volume and regularity with which a shipper uses ocean transit. Cargo insurance also can cover goods transported by train or truck.
The insurance company or the one who agrees to pay the losses. The carrier may be organized as a stock or mutual company, a reciprocal exchange, as an association of underwriters or as a state fund.
The cash fund which a life policy develops usually after the first or second year the policy has been in force. It is available when the policy is surrendered or may be borrowed earlier as a policy loan.
Insurance primarily concerned with the legal liability for losses caused by injury to persons or damage to property of others. Also includes, among other coverages: automobile, workers’ compensation, employers’ liability, general liability, plate glass, theft and personal liability. It excludes life, fire and marine insurance.
A sudden event causing an extraordinary level of loss; most often associated with natural disasters such as tornadoes, hurricanes, floods or earthquakes. ln insurance, it is applied to an incident or series of related incidents involving an insured loss in excess of $5 million.
This is a form of insurance written in order to improve the spread of risk against unknown concentrations of liability subject to one occurrence. This type of reinsurance reimburses an insurer when its losses due to a single catastrophe exceed a specified large amount (the retention).
To transfer all or part of a risk written by an insurer (the ceding, or primary company) to a reinsurers
The unit of insurance passed to the reinsurer by the ceding company. The unit (cession) may accordingly be the whole or a portion of (a) single risks, (b) defined type or class of policies or (c) defined divisions of a policy as agreed.
Chartered Life Underwriter (CLU)
A designation conferred in recognition of the attainment of certain standards of education and proficiency in the art and science of property and casualty insurance underwriting. It contains a series of ten, three hour essay tests which must be passed by the student before being awarded the designation.
Chartered Property Casualty Underwriter (CPCU)
A designation conferred in recognition of the attainment of certain standards of education and proficiency in the art and science of property and casualty insurance underwriting.
A request for payment for a loss which may come under the terms of an insurance contract. There are two types of claims. A first-party claim is one made by the policyholder for reimbursement by his or her company. A third party claim is one by a person against a policyholder of another company and the payment, if any, will be made by that company.
The number of claims occurring under a given coverage divided by the number of earned exposures for the given coverage. It is usually expressed as the number of claims paid per 100 of such exposures. Example: For auto bodily injury (BI), the frequency of 2.50% means that bodily injury accidents were incurred at the rate of 2-1/2 for every 100 cars insured for BI for one year.
The average cost per claim.
A type of liability policy which covers claims which occur and are reported while the policy is in effect.
The combining of policyholders or properties into groups with the same general characteristics so that the various groups’ inherent differences in exposure to loss can be recognized for rating or underwriting purposes.
Coinsurance (Health Insurance)
A provision in a medical-expense insurance policy which requires that the insured person pay part of the expense and the insurance company will pay the remaining part. (Also see Coinsurance [Property Insurance].)
Coinsurance (Property Insurance)
A provision in a property insurance policy which requires the insured to carry insurance equal to a certain specified percentage of the value of the property for the insured to receive full payment on a loss up to the amount of the policy. Otherwise, payment would be only a percentage of the actual loss, that percentage determined by the amount of insurance carried relative to the amount that is required to be carried by the policy for full protection up to policy limits. (Also see Coinsurance [Health Insurance].)
Protection against loss resulting from any damage to the policyholder’s car caused by collision with another vehicle or object, or by upset of the insured car, whether it was the insider’s fault or not (other than his/her own willful act). The does not cover other people’s property. (See Deductible Collision.)
The sum of the ratio of losses incurred to premiums earned and the ratio of commissions and expenses incurred to premiums written.
Combined Single Limit
A liability coverage limit that combines both bodily injury and property damage into one aggregate amount.
Commercial Blanket Bond
A fidelity bond for operators of commercial establishments, etc. (See Fidelity Bond.)
Commercial Credit Insurance
A guarantee to manufacturers, wholesalers and service organizations that they will be paid for goods shipped or services rendered. It is a guarantee of that part of their working capital that is represented by accounts receivable.
Commercial insurance (Coverages)
Definitions of many commercial coverages are listed alphabetically throughout the Glossary. Among these coverages are Aviation Insurance, Cargo Insurance, Commercial Credit Insurance, Commercial Multiple-Line Policy, Crop-Hail Insurance, Employers’ Liability Insurance, General Liability Insurance, Kidnap and Ransom Insurance, Marine Insurance, Products Liability Insurance, Professional Liability Insurance, Public Liability Insurance, Rain Insurance, Surplus Lines, Title Insurance and Workers’ Compensation.
Commercial General Liability Policy
Often referred to as the CGL, this policy provides broad protection against situations in which a business must defend itself against lawsuits or pay damages for personal injury or property damage to third parties.
The various kinds of insurance which are written for businesses. (Also see Commercial Insurance
Commercial Multiple-Line Policy
Package type of policy that includes a wide range of essential property and liability coverages for businesses.
A percentage of an insurance premium paid to an agent or broker for producing and servicing the business.
Commissioner of Insurance
Title of the head of the state insurance department who is responsible for the enforcement of insurance laws and for promulgating regulations dealing with the insurance industry.
Under this concept a plaintiff (the person bringing suit) may recover damages even though guilty of some negligence. His or her recovery, however, is reduced by the amount or percent of that negligence. There are various forms of comparative negligence, such as: “Pure Comparative,” in which the plaintiff recovers so long as he or she is not solely at fault; “Less Than,” in which the plaintiff recovers so long as his or her negligence is less than that of the defendant; and “Not Greater Than,” in which the plaintiff recovers so long as his or her negligence is not greater than the defendant’s.
Competitive State Fund
State-operated workers’ compensation insurer which competes with private insurers for employers’ workers’ compensation business in certain states.
Comprehensive Automobile Insurance
Protection against loss resulting from damage to the insured auto, commonly referred to as “other than collision” coverage. Broad coverage is provided and includes protection from such hazards as fire, theft, glass damage, wind, hail and malicious mischief. This is a first-party coverage.
Comprehensive Personal Liability Insurance
Protection for an insured against loss arising out of his or her legal liability to pay money for damage or injury he or she has caused to others. This does not include automobile liability, but includes almost every activity of the insured except “personal injury” and his or her business operations. (See “Personal Injury” Liability Insurance.)
Compulsory Auto Liability Insurance
Insurance laws in some states require motorists to carry at least certain minimum auto liability coverages for bodily injury and property damage.
Normally means the willful withholding of material fact which could affect an insurer’s issuance of a policy or processing of a claim.
Provisions of an insurance policy which state the rights and duties of the insured and insurer.
A policy designed for the special needs of condominium unit owner-occupants to cover personal property and liability, to complement the insurance normally purchased by the condominium association for the building, structures and liability. Additional coverages are offered unit owners by many insurers.
A loss resulting from, but not caused directly by, another insured loss. A “consequential loss” (spoilage of meat stored in a refrigerated building, for example) usually arises out of a change in temperature resulting from damage to the building (but not directly to the meat) by a covered peril such as fire. “Consequential Loss” coverages are available to protect the insured against this specific indirect loss.
Contingent Liability Insurance
Covers the insured individual or business in cases of indirect or “contingent” liability, where direct liability for an accident, for example, falls on another, but because of the relationship between the insured and the other party, the insured might still be held indirectly liable. (Example: A business being responsible for the work performed by an independent contractor.)
The “Law of Contracts” specifies four requirements for the formation of a single contract: (1) parties of legal capacity; (2) expression of mutual consent of the parties to a promise, or set of promises; (3) a valid consideration; and (4) the absence of any statute or other rule declaring such agreement void. An insurance policy
qualifies as a contract under the above definition.
A bond which guarantees faithful performance of a construction contract and payment of all material and labor bills related to that contract. A Performance Bond covers faithful performance only; a Payment Bond guarantees payment of material and labor expenses.
Higher valued tools and equipment owned or used by commercial contractors which is specifically listed and insured on an insurance policy. It provides coverage anywhere in the world. Insurance companies have different thresholds, however most contractors equipment must be listed at $500 or more per item.
Contractual Liability Insurance
Provides coverage for claims arising out of liability that has been assumed by the insured under a written or oral contract.
Carelessness of the injured person that helped to cause the accident in which he or she was injured. Some states bar recovery to the plaintiff if the plaintiff was contributorily negligent. oil
The scope of the protection provided under a contract of insurance; any of several risks covered by a policy.
The perils of loss you are protected against by an insurance policy. Examples of perils include fire, lightning, theft, vandalism and the threat of a lawsuit.
Credit Disability Insurance
Disability insurance on the borrower, payable to the creditor while the borrower is disabled, to cover the loan payment (usually small loans repayable in installments). This insurance is usually issued through the creditor (a lender or lending agency) and is provided by an insurance company under a group credit disability policy. Credit disability insurance also can be purchased by an individual directly from an insurance company. (Also see Credit Life Insurance.)
Credit insurance (Commercial)
See Commercial Credit Insurance.
Credit Life Insurance
Term life insurance on the life of a borrower, payable to the creditor, to repay a loan (usually small loans repayable in installments) in case of death. This insurance is usually issued through the creditor (a lender or lending agency) and is provided by life insurance company under a group credit life insurance policy to insure the lives of those who borrow from the creditor. Credit life insurance also can be purchased by an individual directly from a life insurance company. (Also see Credit Disability Insurance.)
A section in a commercial insurance policy which covers money, securities and other negotiable instruments. It can provide coverage for the perils of burglary, robbery, theft, employee dishonesty, safe burglary and other perils.
Protection against hail damage to growing crops. Coverage is often afforded under such policies for crop damage due to fire, windstorm, drought, frost, snow, etc.
Customer Service Representative (CSR)
The assistant that supports the sales efforts of the sales agent or producer. Other titles include administrative assistant, agency underwriter and marketing specialist. CSR is also a designation for a certifier] customer service representative.
Decreasing Term Life Insurance
Term insurance, the face value of which decreases each year over a stated period. Family income and mortgage cancellation are common types of decreasing term insurance.
A provision in an insurance contract stating that the insurer will pay that amount of any insured loss that is in excess of a specified amount. The specified amount is the deductible.
Deductible Collision and Deductible Comprehensive Coverages
Forms of collision or comprehensive auto insurance coverages which specify that an insurance company will pay the damage less a specified amount under the particular coverage. For example: For $ 1 00 Deductible Collision Coverage, the company would deduct $100 from the total damage under the collision coverage and be liable for the amount in excess of $100. Rates are reduced as the amount of the deductible is increased.
A decrease in the value of property due to age, wear and tear.
Directors and Officers Liability Insurance
Coverage for directors and officers of firms or organizations against liability claims arising out of alleged errors in judgment, breaches of duty, and wrongful acts related to their organizational activities.
Direct Premiums Written
Property and casualty insurance premiums written (less return premiums), without any allowance for premiums for assumed or ceded reinsurance.
An insurer whose distribution mechanism is either the direct selling system or the exclusive agent system. (See Agent.)
In no-fault insurance states with the disability threshold, it provides that a victim may not sue in tort unless he/she has been disabled (defined differently in various state plans) from an accident for a specific period of time.
(1) Policyholder Dividend-The return of part of the premium paid for a policy issued on a participating basis by an insurer. Any such dividend is dependent upon premiums collected in excess of losses and expenses for the particular class of business at the end of the policy period. (2) Stockholder Dividend-A portion of the surplus paid to the stockholders of a corporation.
In no-fault auto insurance states with the dollar threshold, it prevents individuals from suing in tort to recover for pain and suffering unless their medical expenses exceed a certain dollar amount.
Domestic Insurance Company
An insurance company organized or domiciled in a given state is referred to in that state as a domestic carrier.
See Accidental Death Benefit (Life Insurance).
Employers’ Liability Insurance
Provides protection for the employer for those injuries arising out of and in the course of employment which were not covered under the workers’ compensation law.
Employment Practices Liability Insurance
A coverage added to a commercial insurance policy or written on a stand alone basis which provides coverage for wrongful termination, sexual harassment, American with Disabilities Act and other employment related matters.
Excess Medical Payments
Medical Payments coverage on an auto insurance policy which pays after other collectible insurance has paid. Other collectible insurance is usually group or individual health insurance.
An additional piece of paper, not a part of the original contract, which cites certain terms and which becomes a legal part of that insurance contract. Additions to life insurance contracts are accomplished through the use of riders, which are similar to endorsements.
Environmental Impairment Insurance
A form of insurance designed to cover losses and liabilities arising from damages to property by pollution.
Equipment Breakdown Insurance
See Boiler and Machinery Insurance.
Errors and Omissions Insurance
A type of professional liability insurance which indemnities insured professionals-who include, but are not limited to, lawyers, insurance agents and brokers, accountants, real estate agents, appraisers, abstracters, title insurance agents, architects and engineers, advertising agents, adjusters, directors and trustees, fiduciaries, travel agents and data processing firms-for losses sustained because of their errors or oversights.
Coverage against losses in excess of a specified dollar limit.
A provision in an insurance policy which denies coverage for certain perils, persons, property or location.
A business person who sells insurance to individuals and/or business, and represents only one
The ratio of a company’s operating expenses to premiums written. (Expenses include losses and loss adjustment expenses.)
The loss record of an insured or of a particular class of coverage.
The date shown on the declarations page of the policy when coverage will stop. It may be a specific date or a statement that coverage is continuous until cancelled.
This term in the insurance field may have several meanings: (1) possibility of loss; (2) a loss potential as measured by type of construction, area or values; (3) a possibility of a loss being communicated to an insurance risk from its surroundings; or (4) a unit of measure of the amount of risk a company assumes (for example, one car insured for one year).
Extended Coverage Property Insurance
An extension of the fire insurance policy to protect the insured against property damage caused by the additional perils of windstorm, hail, explosion, or riot, riot attending a strike, civil commotion, aircraft, vehicle and smoke.
Reinsurance on an individual policy basis wherein each risk which an insurance company wishes to reinsure is reviewed by the reinsurer, which has the “faculty” or option to accept or decline all or part of each risk offered to it.
FAIR (Fair Access to Insurance Requirements) Plan
A facility, operating under a government / insurance industry cooperative program, to make fire insurance and other forms of property insurance readily available to persons who have difficulty obtaining such coverage.
Family Auto Insurance Policy
An auto insurance policy (most common in the industry) which provides protection for the insured and resident relatives in the same household.
Family Plan Insurance
This is insurance in which the head of the household has one master policy on his/her life (usually whole life) and term coverage for wife/ husband and children in lesser amounts.
Federal Crime insurance
Insurance against burglary, larceny and robbery losses offered by the federal government where the Federal Insurance Administration has determined that such insurance in not otherwise readily available.
Protection guaranteed by the surety which reimburses an employer for losses due to dishonest acts of employees.
Financial Responsibility Law
A state law which may require motorists to furnish evidence, either before or after involvement in an auto accident (depending on the individual state’s law), of ability to pay for damages up to certain minimum dollar limits. These requirements commonly are met by carrying auto liability insurance with specified minimum limits or more.
Coverage is provided to protect the insured property from the perils of fire and lightning.
An auto policy covering a number of vehicles owned by a single insured.
A form of insurance that applies to movable property, whatever its location, within the territorial limits imposed by the contract. The coverage “floats” with the property.
Coverage against loss resulting from the flood peril, widely available under a program developed in 1 968 by the private insurance industry and the federal government.
Foreign Insurance Company
In a given state, an insurer domiciled in another state.
Intentional concealment or misrepresentation with the objective of forcing an insurer to provide a benefit (such as paying a claim) which otherwise would not be provided.
Bookkeeping account of sums set aside periodically by a business for the purpose of paying for losses as they occur. Usually, the sums are invested conservatively.
In ocean marine insurance, a concept which provides that, where a portion of a vessel or cargo is jettisoned to save the entire venture from peril at sea, the resulting loss is shared by all parties involved. The owners of property that is saved contribute in proportion to the interests suffering loss, provided the latter are free of fault in the danger and the venture ultimately is successful. (Distinct from Particular Advantage.)
In auto insurance, typically refers to awards for pain and suffering.
General Liability Insurance
A broad term meaning liability insurance, other than automobile liability or employers’ liability, written to cover professional and commercial risks. As respects commercial liability, various available coverages could cover such risks as premises and operations, contractual liability, products and completed operations.
Generally Accepted Accounting Principles (GAAP)
A method of accounting used by insurance produce results consistent with those of other industries. This is the method of reporting financial results required by the Securities and Exchange Commission of all industries under its jurisdiction and by the stock exchanges.
Protection for loss of or damage to glass and its appurtenances.
Good Driver Plan
An auto insurance rating program that reflects the insider’s accident and traffic violation record as a factor in determining the premium.
The number of days (31 in most cases) a life insurance policy will remain in force when a payment is overdue.
Insurance written on a group of people under a single master policy, issued to their employer or to an association with which they are affiliated.
Guaranteed Cost Insurance
The life insurance sold by some companies, with all cost factors guaranteed at the time of issue. Policies of this type usually have lower premiums than the pre-dividend premiums of comparable participating policies.
A health policy which the company guarantees to renew until the insured reaches a specified age, usually 65. The company may adjust rates only on a class of risks, not on any individual.
A fund, derived from assessment against solvent insurance companies, to absorb losses of claimants against insolvent insurers.
Hard Insurance Market
A condition caused by insurance companies lacking sufficient capital to accept new business, sometimes
causing a sharp rise in pricing and the diminishing of coverage availability.
The presence of a condition that could cause loss or injury to property or persons. For example, smoking in bed increases the chance for loss of property and life resulting from fire.
There are two major types: Disability income insurance pays for loss of income due to disability; medical expense insurance pays for hospital, doctor and other medical expenses. Both of these generally pay for losses arising from sickness or accidents. Some policies, referred to as “accident policies,” do not cover sickness.
Hold Harmless Agreement
A contract under which one party’s legal liability for damages is assumed by the other party to the contract.
A package policy for the homeowner that combines “named peril” (including theft coverage) protection on contents, coverage on the dwelling ranging from “named peril” to physical loss, additional living expense protection and personal liability insurance.
An ocean marine or aviation insurance contract covering damage to or loss of a ship or plane, but not the contents.
A tropical storm with sustained winds of 75 or more miles an hour that is usually accompanied by rain and abnormally high tides.
Improvements and Betterment’s Insurance
Insurance coverage that protects a tenant or condominium unit owner against loss as a result of fire, etc., of improvements made by him/her to the real property in which he/she resides. Some property policies use the term “improvements and additions” in describing the coverage.
The provision of a policy that prevents a life insurance company from calling the policy invalid after the policy has been in effect a certain length of time (usually two years).
In general, means reimbursement for loss, but also is used to mean a benefit provided by a policy. In health insurance it sometimes is used to designate an amount paid regardless of actual loss or expense incurred.
Industrial Life Insurance
A class of life insurance that is usually issued with a protection amount of less than $1,000 and premiums usually payable weekly or at most monthly.
Inland Marine Insurance
A broad type of insurance, generally covering articles that may be transported from one place to another as well as bridges, tunnels and other instrumentality’s of transportation and communication. Lt includes goods in transit (generally excepting transoceanic) as well as numerous “floater” policies such as personal effects, personal property, jewelry, furs, fine arts and others.
A report filed by an investigator employed by the insurance company or a credit agency, giving general information on the health and finances of the applicant and the physical condition of the property (if property is to be insured).
Insurance to Value
Insurance written in an amount approximating the value of the property insured.
A person covered by an insurance policy.
An act of deception or strategy used to deceive or cheat an insurer by an employee, including misrepresentation or
The income generated by a company’s portfolio of investments (such as bonds, stocks or other financial ventures).
Joint Underwriting Association (JUA)
A device used to provide insurance to those who cannot obtain insurance in the voluntary market. Certain companies issue policies at one rate level and handle claims, but the ultimate costs are borne by all companies writing insurance in that state.
Kidnap and Ransom Insurance
Written for financial institutions and other corporations, this insurance covers named employees for individual or aggregate amounts paid as ransom, with deductibles requiring the insured to participate in approximately 10% of
any loss. It has become available to wealthy individuals as well.
Legal Expense Insurance
Insurance to reimburse policyholders for legal fees incurred for defense from lawsuits involving areas of civil law not covered by standard liability insurance. Examples include: discrimination, wrongful discharge, contract disputes and patent disputes.
Level Premium Life Insurance
Insurance for which the cost is distributed evenly over the period during which premiums are paid. The premium remains the same from year to year and is more than the actual cost of protection in the earlier years of the policy and less than the actual cost in the later years. The excess paid in the early years builds up a reserve which helps meet the costs in later
An insurance company’s liabilities consist of its immediate or contingent policy obligations and unpaid claims, as well as the usual obligations arising out of doing business such as taxes, payroll, etc.
Provides protection for the insured against loss arising out of his/her legal liability to third parties.
The stipulated sum or sums beyond which an insurance company is not liable to protect the insured.
License-Agent or Broker
Insurance applications in the state for the period covered.
Certification issued by a state’s department of insurance that an insurance company is qualified to do business in the state.
Life Insurance Cost Indexes
The measurements used to determine the cost of life insurance protection.
The maximum amount of benefits that an insurer agrees to pay in the event of a loss.
A type or kind of insurance.
The process of a lawsuit.
An occurrence that is the basis for submission and/or payment of a claim. Losses can be covered, limited or excluded from coverage, depending on the terms of the policy.
Loss Control Representative
Insurance company employees, also called safety engineers, that perform loss control surveys or inspections, and prepare written loss control reports that outline their findings.
Loss Control Service
Engineering or inspection service which assists the insured in reducing its exposure to loss.
Salaries and other expenses incurred in connection with the operation of a claims department of a property and liability insurance carrier which cannot be charged to individual claims.
The possibility that a loss may occur.
In property and liability insurance, the percent that losses bear to premiums for a given period.
The estimated liability on an insurer’s balance sheet for unpaid insurance claims or losses that have occurred as of a given reporting date. On an individual claim, the loss reserve is the estimate of what will ultimately be paid out on that case.
Coverage afforded to a professional practitioner, such as a doctor or a lawyer, against liability claims for damages resulting from alleged negligence in the performance of the insured’s services.
A book published by an insurance company, rating association or bureau, containing its rates, classifications and rules for rating a policy.
See Inland Marine Insurance and Ocean Marine Insurance.
Insurance against damage to a vehicle or boat itself. It includes automobile comprehensive, collision, fire and theft. Material damage and physical damage are terms that are often used interchangeably.
The date at which the endowment amount of a life policy becomes payable.
Medical Payments Automobile Insurance
Coverage in non-no-fault states, which pays medical and hospital expenses and the expense of funeral services resulting from an automobile accident, regardless of the liability of the insured. This is a first-party coverage.
(1) A basic type of life insurance or disability insurance purchased for the specific purpose of paying off any mortgage balance outstanding at death or paying mortgage payments while the insured is disabled. (2) “Private mortgage insurance” offers a method of providing minimum down payment residential mortgages by insuring mortgage lenders against losses in the event of borrower default.
A package policy that provides protection against a number of separate perils. Multi-peril policies are not necessarily multiple-line policies, since the combined perils may be all within one insurance line, such as property. (See Multiple-Line Policy.)
A company that writes a variety of both the basic or traditional lines of insurance known as property and casualty (liability) insurance, such as auto, boat owners, homeowners, commerciaI, etc.
A package policy which combines coverages from both the traditional property and liability insurance lines.
Mutual Insurance Companies
Insurance companies without capital stock, owned by the policyholders.
Coverage in a property policy that provides protection against loss from only the perils specifically listed in the policy rather than protection from physical loss. Examples of named perils are fire, windstorm, theft, smoke, etc.
This term ordinarily refers to the cost of life insurance after deducting the policy dividends from the premiums paid. A variant is the net surrendered cost, which is the premiums minus both dividends and the cash surrender value at the end of the given period.
Net Premiums Written
Property and casualty gross premiums written less returned premiums, plus reinsurance assumed premiums less reinsurance ceded premiums.
No-Fault Automobile Insurance
A form of insurance by which a person’s financial losses resulting from an automobile accident, such as medical and hospital expenses and loss of income, are paid by his/her own insurance company without concern for who was at fault. The right to sue may be restricted in some cases.
The choices available to an insured as to how the cost value of a life insurance policy will be received -as a lump-sum payment, as extended term insurance, or as reduced paid-up life insurance. These options guarantee that the cash value will not be forfeited by the insured.
See Guaranteed Cost Insurance.
Notice of Loss
Notification to an insurance company by an insured or claimant that a loss has occurred. Written notice maybe required, although many companies accept notice by telephone.
Dangers inherent in an occupation which increase the risk of sickness or injury.
Ocean Marine Insurance
Coverage on all types of vessels, including liabilities connected with them, and coverages on their cargoes.
An automobile policy provision that covers persons driving the named insured’s auto with the named insured’s permission.
Ordinary Life Insurance
The class of life insurance that usually refers to whole life, term and endowment insurance.
Other Than Collision Coverage
See Comprehensive Automobile Insurance.
A combination of two or more individual policies or coverages into a single policy. A homeowners policy, for example, is a package combining property, liability and theft coverages for the homeowner.
The actual dollar total that has been paid on incurred losses by issuing checks or drafts to claimants.
An impairment that prevents the insured from performing one or more, but not all, important duties of his/her job.
The life insurance, sold by some life companies, on which dividends may be payable to policy owners. The amount and timing of the dividend payments are determined by the company board of directors.
In ocean marine insurance, a concept providing that, where a portion of vessel or cargo is jettisoned to save the entire venture from peril at sea, the resulting loss is borne entirely by that individual owning the property that is damaged or sacrificed. No other interests contribute to payment of the loss. (Distinct from General Average.)
A Professional Employer Organization (PEO) is defined as an organization that provides an integrated and cost effective approach to the management and administration of the human resources and employer risk of its clients, by contractually assuming substantial employer rights, responsibilities, and risk and, through the establishment and maintenance of an employer relationship with the workers assigned to its clients.
More specifically, a PEO establishes a contractual relationship with its clients whereby the
- assigns workers to client locations, and thereby assumes responsibility as an employer for specified purposes of the workers assigned to the client locations;
- reserves a right of direction and control of the employees and may share such responsibility with the client, consistent with the client’s responsibility for its product or service;
- pays wages and employment taxes of the employee out of its own accounts;
- reports, collects, and deposits employment taxes with state and federal authorities;
- establishes and maintains an employment relationship with its employees which is intended to be long term and not temporary; and
- retains a right to hire, reassign, and fire the employees.
Businesses today need help managing increasingly complex employee related matters such as personnel management, health benefits, workers’ compensation claims, payroll, payroll tax compliance, and unemployment insurance claims. Businesses contract with a PEO to assume these responsibilities, which then allows the client to concentrate on the revenue-producing side of its operations.
A PEO provides integrated services which more cost effectively manage critical human resource responsibilities and employer risks for clients. PEOs deliver these services by establishing and maintaining an employer relationship with the workers assigned to its client and by contractually assuming substantial employer rights, responsibilities, and risk.
The cause of a possible loss, such as fire, windstorm, theft, explosion or riot.
The type of life insurance that develops cash value and includes whole life, endowment, universal life and variable life insurance.
An insurance term used to refer to the probability of insurance remaining in force.
Personal Articles Floater
A form of coverage designed to meet the needs for insurance on property of a movable nature. The coverage usually protects against all physical loss, subject to special exclusions and conditions. Examples of property covered include jewelry, furs, silverware and fine arts.
“Personal Injury” Liability Insurance
Protects against liability for damages other than physical injury arising out of false arrest, detention or imprisonment, or malicious prosecution; libel, slander or defamation of character.
This type of property is usually movable and easily transportable. On the other hand, real property generally is considered to be immovable, such as land and things affixed to it. A rule of thumb definition for personal property is “everything other than real property.”
This refers to the material, structural or operational features of the risk itself, apart from the persons owning or managing it. Electrical wiring, building construction and type of heating system are examples of physical hazards.
Physical Loss Form
The property coverage protects against loss from risk of physical loss to buildings except as limited or excluded in the form.
Policies written and recorded on the books of the carrier which are unexpired as of a given date. Usually applies to property and IiabiIity insurance.
The name generally used to mean the written contract of insurance
One who owns an insurance policy. A mortgagee often is issued a copy of an insurance policy, or a certificate of insurance, at the request of the insured, but it is not a policyholder.
The sum an insurance company has remaining after all liabilities are deducted from all assets. Sums such as paid-in capital and special voluntary reserves are also included in this term. This surplus is one form of financial protection to policyholders in the event a company suffers unexpected or catastrophic losses.
The borrowing against a life insurance policy’s cash value.
An organization of insurers or reinsurers through which particular types of risks are underwritten with premiums, losses and expenses shared in agreed ratios.
A physical condition that existed prior to the issuance of an insurance policy.
The building, other structures and land where the insurance protection is applicable. It is usually described and defined in the property and casualty policy.
The amount of money charged a policyholder for an insurance policy. (Also see Direct Premiums Written, Earned Premium, Net Premiums Written, Unearned Premium.)
A person who examines a liability insurance policyholder’s insurance records (sales, payroll, etc.) at the end of the policy term to determine if the basis for the premium charge has either increased or decreased. If the audited premium is less than originally estimated and paid, the policyholder will receive a refund; if greater, the policyholder will receive a statement for the balance.
In suretyship, the party whose honesty or performance is guaranteed.
Any person directly involved in the sale of insurance.
Product Liability Insurance
Protection against financial loss arising out of the legal liability incurred by a manufacturer, merchant or distributor because of injury or damage resulting from the use of a covered product.
Professional Employer Organization
Professional Independent Insurance Agent
An independent business person who sells insurance to individuals and/or business, and represents more than one insurance company. The independent agent can compare different insurance company coverage and pricing to determine the best overall package for the consumer.
Proof of Loss
Documentation presented to the insurance company by the insured in support of a claim so that the insurer can determine its liability under the policy.
Provides financial protection against loss or damage to the insured’s property, other than automobile, caused by specified perils, such as fire, windstorm, hail, explosion, riot, aircraft, motor vehicles, vandalism, malicious mischief, riot and civil commotion, and smoke. (See Property Insurance [Coverages].)
Property Insurance (Coverages)
For definitions of specific types available, see following property insurance coverages and terms listed alphabetically throughout the Glossary-Actual Cash Value, Additional Living Expense, Blanket Coverage, Condominium Insurance, Extended Coverage Property Insurance, Fire Insurance, Homeowners Policy, Property Insurance, Renter’s Policy, Rents or Rental Value Coverages, Replacement Cost Property Coverage, Tenant’s Policy and Theft Insurance.
The face amount of a life insurance policy, or amount of money that will be paid to a beneficiary upon the death of an insured-depending upon the policy. This amount will be reduced by the amount of any outstanding policy loan.
The dominating cause of loss or damage; an unbroken chain of events between the occurrence of an insured peril and damage to property. As an illustration, weather damage occurring from fire-fighting activities is covered under the fire policy because fire was the proximate cause of the loss.
Public Liability Insurance
A broad term meaning insurance to cover professional and commercial risks against liability exposures other than those involving employees or arising out of ownership or use of autos or airplanes.
A charge per unit in determining insurance premiums.
An organization that gathers statistics, makes rates and/or creates policy forms and provides other services for the property and casualty insurers affiliated with the bureau.
In various property and casualty lines, a geographical grouping within which insureds are likely to share an exposure to similar risks. Grouping of insureds within a territory helps establish equitable rates for the territory.
An illegal act to refuse to lend money or issue insurance based only on geographic area.
The restoration of a lapsed life or health insurance policy to its original premium-paying status-usually after evidence of good health has been submitted and past-due premiums have been paid.
An arrangement by which one insurer transfers all or a portion of its risk under a policy or group of policies to another insurer reinsurers. Thus reinsurance is insurance purchased by an insurance company from another insurer, to reduce risk for the original insurer.
An alternative mechanism to service those insureds who cannot obtain insurance in the voluntary market. Premiums and losses for the business that is ceded to the facility are pooled and all insurers share according to their proportion of the voluntary market.
A package type of insurance that includes coverage similar to a homeowners policy to cover the personal property of a renter or tenant in a building.
Rents or Rental Value Coverages
Insurance against loss of the rental value of a property; protects against loss of rents resulting from an insured peril.
Replacement Cost Property Coverage
Insurance under which the amount payable is the current replacement cost of the property new, rather than the depreciated value. Applies to the building structures (in most cases) and can apply to contents in some policies.
(1) An amount representing actual or potential liabilities kept by an insurer to cover obligations to policyholders and third-party claimants.
(2) An amount allocated for a special purpose. Note that a reserve is usually a liability and not an extra fund. On occasion, a reserve may be an asset, such as a reserve for taxes not yet due.
A general term describing the total of all consumers who have had difficulty purchasing insurance through normal channels. Automobile Insurance Plans, FAIR Plans, Reinsurance Facilities and Joint Underwriting Associations all service this market.
The net amount of risk retained by an insurance company for its own account or that of specified others, and not reinsured.
Rating procedure that allows adjustment of an insured’s final rate on the basis of the insured’s own loss experience.
Additional provision added to a policy by issuance of an amending document. (See Endorsement.)
Chance of loss with respect to person, liability or the property of the insured. Also is used to mean “the insured.”
The management of the various risks that might affect a business firm. Its purpose is to identify potential loss situations and control or reduce them through insurance, elimination of risk, or improved or additional safety practices.
The loss of property due to theft when a person is threatened with physical harm or injury.
Property damaged to the extent that it is not economical to perform repairs, taken over by an insurer after it has paid a claim, to reduce its loss by “salvaging” the remaining value of the property.
A list describing the property or items insured under the policy and the extent to which they are insured.
A form of risk financing through which a firm assumes all or a part of its own losses. Self insurers may purchase insurance to cover excess losses.
A condition where insurance premiums are lowered and the availability of insurance is high. Opposite of a hard insurance market.
A person authorized by an agent to solicit and receive applications for insurance.
Special Multi-Peril Policy (SMP)
A business policy which combines in one contract the coverages normally purchased under several policies. Many options and endorsements are available to tailor it to the policyholder’s needs.
See Named Perils.
A type of risk with three possible outcomes: gain, loss or no change.
Policy provisions required by law.
A person who according to a company’s underwriting standards is entitled to insurance without extra rating or
Statutory Accounting Principles (SAP)
Those principles required by statute that must be followed by an insurance company when submitting its financial statements to the various state insurance departments. Such principles differ from Generally Accepted Accounting Principles (GAAP) in some important respects. For example, SAP requires that expenses must be recorded immediately and cannot be deferred to track with premiums as they are earned and taken into revenue.
Statutory Underwriting Profit or Loss
Earnings or losses as shown by an insurer on its Statutory lncome Statement (convention blank) as required by state insurance departments. More specifically: (1) the profit or loss realized from insurance operations as distinct from that realized from investments; (2) the excess of premiums over losses and expenses (profit), or the excess of losses and expenses over premiums (loss).
A company organized and owned by stockholders, as distinguished from the mutual form of company, which is owned by its policyholders.
A principle of law incorporated in insurance policies that enables an insurance company, after paying a loss to its insured, to recover the amount of the loss from another who is legally liable for it.
Substandard or Extra Risk
An individual who, because of health history or physical limitations, does not measure up to the qualifications of a standard life or health insurance risk.
An agreement providing for monetary compensation should there be a failure to perform specified acts within a stated period. The surety company, for example, becomes responsible for fulfillment of a contract if the contractor defaults.
Contractual relationship in which one party (surety) guarantees another party (obligee) against the default or misperformance of a third party (principal). (See Fidelity Bond and Surety Bond.)
A stock company’s surplus is the amount by which its admitted assets exceed its liabilities and capital stock. In both stock and mutual companies, the term surplus-to-policyholders means the excess of admitted assets over liabilities.
A term originating in property/casualty insurance, used to describe any risk or part thereof for which insurance is not available through a company licensed in the applicant’s state (an “admitted” insurer). The business, therefore, is placed with “non-admitted” insurers (insurers not licensed in the state) in accordance with surplus or excess lines provisions of state insurance laws. These provisions generally allow operations on a relatively unregulated basis; that is, the non-admitted insurer is not subject to the same rate or coverage requirements that apply to an admitted insurer.
A group of insurers or underwriters that join to insure certain property that may be of such value or high hazard or so expensive to underwrite that it can be covered more safely or efficiently on a cooperative basis.
Life insurance protection during a limited number of years but expiring without value if the insured survives the stated period.
Protection for loss of property due to stealing, including burglary, robbery and larceny.
A person who files a liability insurance claim.
Used in no-fault auto insurance to remove non serious cases from the tort system by establishing a point of “threshold” that must be met or exceeded to sue in tort. Of those states and the District of Columbia that have no-fault auto insurance, many, including the District of Columbia, have a threshold in their plan. There are three types of thresholds: the dollar threshold, the disability threshold and the verbal threshold.
An insurance contract relating to real estate described in the policy which protects the insured landowner against loss or damage by reason of defects, liens or encumbrances in the insured title, if these faults exist at the date of the policy and are not expressly excluded from its terms.
Any wrongful act, damage or injury done willfully, negligently or in circumstances involving strict liability, but not involving breach of contract, for which a civil lawsuit can be brought.
Disability that prevents a person from performing(a) any of his/her occupational duties, or (b) any duties for which he/she is reasonably qualified. Definitions vary within policies.
Insures against charges for towing and road service at the place of disablement, with a maximum amount stipulated for each occurrence.
A general reinsurance agreement between the ceding or primary company and the reinsurer containing the contractual terms under which a portion or all of the primary company’s business or a particular class is passed on to the reinsurers.
A form of insurance protection against losses in excess of amounts covered by other liability insurance policies; also protects the insured in many situations not covered by the usual liability policies.
Underinsured Motorist Coverage
Coverage is intended to cover you and passengers in your car for losses unpaid because sufficient bodily injury liability limits are not available from the policy of an at-fault driver. How and under what circumstances the coverage becomes operative varies in different states.
An employee of an insurance company who is a selector of risks. The underwriter is expected to select business that will produce an average risk of loss no greater than anticipated for the class of business. In the life insurance industry, “underwriter” may also mean an agent or other field representative who is referred to as a “field underwriter.”
The process of selecting risks for insurance and determining in what amounts and on what terms the insurance company accepts the risk.
Underwriting Profit or Loss
The profit or loss experienced by a property/ casualty insurance company after deducting from earned premiums the incurred losses and expenses of doing business, but before provision of federal income tax. It excludes investment income.
The portion of a property/casualty insurance premium that applies to the unexpired portion of the policy period.
Uninsured Motorist Coverage
Pays the policyholder and passengers in his/ her car for losses sustained by reason of bodily injury, sickness, disease or death caused by the owner or operator of an uninsured automobile or a “hit-and-run” driver.
Uninsured Motorist Property Damage Coverage (UMPD)
Provides coverage to a vehicle involved in an accident with an uninsured motorist. UMPD is similar to “collision coverage,” and is not available to those who purchase collision coverage.
A type of permanent life insurance under which the policyowner is allowed to vary the timing and amount of premium payments, plus increase or decrease the death benefit (subject to underwriting for an increase).
The process of determining a company’s liabilities under its policy obligations is known as policy valuation. The process of determining the value of a company’s investments is known as asset valuation. Minimum valuation standards are usually prescribed by state laws.
An insurance policy under which the insurance company is obligated to pay the full amount of the policy written to insure real property against loss by fire (and, sometimes, other perils) when the property insured is totally destroyed. Several states have laws that are known as Valued Policy Laws.
Willful, intentional, often random, destruction or defacement of private or public property. Insurance against the vandalism peril is usually combined with the malicious mischief peril.
Variable Life insurance
A type of permanent life insurance in which the death benefit and the policy value vary in relation to the investment experience of a selected fund in which the policy values are invested.
In no-fault auto insurance states with the verbal threshold, victims are allowed to sue in tort only if their injuries meet certain verbal descriptions of the types of injuries that should, as a matter of policy, render one eligible to seek to recover for pain and suffering in a cause of action in tort.
The market where a person seeking insurance obtains it with no help from the state, through an insurer of his or her own selection.
A system (established under state laws) under which employers provide insurance for benefit payments to employees for their work-related injury, death and disease regardless of fault.
To insure, underwrite or accept an application for insurance.