Common Insurance Terms

Insurance Terms

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A

Actual cash value
The present-day value of property measured in cash, arrived at by taking the replacement cost and deducting for depreciation brought about by physical wear and tear and obsolescence.
Actuary
A person concerned with the application of probability and statistical theories to the practical problems of insurance and related fields. Actuarial responsibilities extend to the calculation of premiums, evaluation of various reserves, forecasting of financial results on both a long-range and a short-range basis.
Additional insured
A person, other than the one in whose name an insurance policy is written, who is protected against loss by terms of the policy.
Agent
A representative of the insurer in negotiating, servicing or effecting insurance contracts.
Aggregate
The maximum limit of liability payable by an insurance carrier on behalf of a policyholder during any given policy period
All risk insurance
The name given to a policy which covers against the loss caused by all perils except those that are specifically excluded by the terms of the policy.
Allied lines
Types of insurance associated with property insurance, which may include earthquake, sprinkler leakage, and income and extra expense coverage.
Application
A form or document used by a person seeking insurance to provide information about their operations, and to indicate type and amount of coverage desired.
Appraisal
An estimate of quantity, quality, or value. The term also refers to the report setting forth the estimate and conclusion of value.
Arbitration
If a dispute arises between the insured and the company in regard to the amount of the loss, someone approved by both parties can be appointed to consider the facts and render a judgment. The arbitrator's decision is binding and final on both parties.
Attractive nuisance
A dangerous place, condition or object, which is particularly attractive to children. In these cases the courts have frequently held that where "attractiveness" exists, the owner is under a duty to take steps to prevent injury to those that may be attracted and the owner may be held liable for failure to do so.
Audit
A survey of the policyholder's records to determine the actual exposures for which premium should be paid to the insurance company.
Aviation insurance
Contractual protection against losses connected with airline accidents on domestic scheduled airplanes.

B

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Benefits
The sum of money provided in an insurance policy to be paid for certain types of loss under the terms of an insurance policy.
Binder
A temporary insurance contract pending the execution of the policy contract. It should contain a definite time limit, should be in writing, and clearly designate the company in which the risk is bound, the amount and the perils insured against, as well as the type of insurance.
Blanket coverage
Coverage under a single limit for two or more items, (e.g. building and/or contents) two or more locations, or a combination of items and/or locations.
Bodily injury liability
Insurance protection against loss arising out of the liability imposed upon the insured by law for damages because of bodily injury, sickness or disease sustained by any person or persons other than employees.
Broker
An insurance broker ordinarily is a solicitor of insurance who does not represent insurance companies in a capacity as agent but places orders for coverage with companies designated by the insured or with companies of his own choosing. The term "broker" frequently is used incorrectly to designate an agent of more than one insurance company.
Burglary
Breaking and entering into premises of another, with felonious intent, and with visible signs of forced entry. Most insurance policies specifically define burglary under their own terms, so it is wise to make sure the term "burglary" in your policy provides the coverage you need.

C

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Carrier
The insurance company that provides or "carries" the insurance.
Casualty insurance
The coverage of loss or liability arising from an accident or mishap excluding certain types of loss which by law or custom are considered as falling exclusively within the scope of other types of insurance such as fire or marine. It includes, but is not limited to, employees' liability insurance, workers compensation insurance, public liability insurance, automobile liability insurance, plate glass insurance, burglary and theft insurance; also personal liability insurance, forgery, power plant and aviation insurance.
Catastrophe
A sudden and severe calamity or disaster. An event which causes a loss of an extraordinarily large amount of money.
Certificate of insurance
Document used to provide evidence of coverage to an interested third party.
Chartered Property and Casualty Underwriter (C.P.C.U.)
A designation conferred by the American Institute of Property and Liability Underwriters to one who has completed a course of instruction and passed a series of examinations.
Claim
A demand for payment under an insurance contract or bond. The estimated or actual amount of a loss.
Claim severity
The average cost of each claim.
Classification
The underwriting or rating group into which a particular risk must be placed, as determined by the risk's type of business, location and other factors. Classifying persons, property or operations as a basis for tabulating statistical experience and determining premium rates.
Coinsurance
An arrangement by which the insured, in consideration of a reduced rate agrees to carry an amount of insurance equal to a percentage of the total value of the property insured.
Commercial lines
The various kinds of insurance written for businesses.
Commercial multiple-line policy
A package policy featuring a broad range of property and liability coverages designed for businesses.
Comparative negligence
A rule used in negligence cases in some states that provides for computing both the plaintiffs and the defendant's negligence, with the plaintiffs damages being reduced by a percentage representing the degree of his or her contributing fault. If the plaintiff's negligence is found to be greater than the defendant's, the plaintiff will receive nothing and will be subject to a counter claim by the defendant.
Competitive state fund
A state fund writing insurance in competition with private insurers.
Compulsory auto liability insurance
A state law requiring motorists to obtain minimum auto liability coverages for bodily injury and property damages.
Concealment
The withholding of material facts regarding the nature of an insurance risk or loss. Withholding essential information from the insurer in negotiating an insurance contract or in making a claim.
Consequential loss
A loss not directly caused by damage to property but which arises as a result of such damage (i.e., loss of rent).
Contract
An agreement entered into by two or more parties by the terms of which one or more of the parties, for a consideration, undertakes to do or to refrain from doing some act or acts in accordance with the wishes of the other party or parties. A contract to be valid and binding must be entered into by competent parties, be bound by a consideration, possess mutuality, represent an actual meeting of minds, and cover a legal and moral act.
Contributory negligence
The lack of care on the part of the individual, which helped cause the accident.
Coverage
A guarantee against specific losses provided under the terms of an insurance policy. It is used interchangeably with the words "insurance" or "protection" and also may refer to the amount of protection afforded under an insurance policy or to the insurance contract itself.

D

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Declarations
That part of an insurance contract which contains information regarding the insurance risk on the basis of which the policy is issued. A statement by the applicant for insurance, usually relative to underwriting information.
Deductible
The amount of a loss, which the insured has to pay.
Depreciation
Loss in value. The difference between the replacement cost new and present value.
Direct writer
An insurance company which sells its policies through salaried employees or agents who represent it exclusively, rather than through independent local agents or insurance brokers. The insurer that contracts with the insured as distinguished from the reinsurer.
Dividend
A share of the earned surplus apportioned for distribution and reflective of the difference between the premium charged and the actual loss experience. In a mutual or participating company, it is the return to the policyholder out of the earnings of the company. In a stock or nonparticipating insurance company, it is the division of the profits among the stockholders of the company. A refund of part of the premium on a participating life insurance policy.

E

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Earned premium
That part of an insurance premium which pays for the protection the insurance company has already given on a policy.
Employer's liability insurance
Protects an employer against the claims for damages, which arise out of the injuries to employees in the course of their work. Employer's liability insurance provides protection in cases not covered by workers' compensation insurance.
Endorsement
A provision added to a policy, to effect a change or alteration of terms or conditions; must be signed by an executive of the company and attached to and made part of the policy to be valid.
Exclusion
A provision of part of the insurance contract limiting the scope of the coverage. The causes and conditions listed in the policy, which are not covered.
Exposure
This term may refer to the state of being subject to the possibility of loss or the extent of risk as measured by payroll, receipts, area or other standards.

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FAIR plan
A government insurance cooperative program that makes various forms of property insurance readily available to persons who have difficulty obtaining this protection.
Fidelity bond
A form of insurance, which protects the covered employer against loss due to the dishonesty of his employees. A bond that reimburses an employer named in the bond for the amount lost due to any covered act of dishonesty by an employee. Blanket fidelity bonds embrace groups of employees.
Fiduciary
A person who occupies a position of special trust and confidence, especially handling or supervising the financial affairs or funds of another.
Financial responsibility law
A statute requiring motorists to furnish evidence of ability to pay damages, either before or after an accident.
Fire insurance
Contract prescribed by each state subject to modification by endorsements insuring against direct loss from fire, lightning and other defined causes.
Fleet policy
An insurance contract covering a number of vehicles with a single owner.
Floater policy
A policy under the terms of which protection follows movable property, covering it wherever it may be (e.g., a policy on tourist's baggage).
Flood insurance
Contract of protection for damage caused by overflowing or rising water.

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Grace period
A period of time, usually thirty-one days following the premium due date, during which a premium may be paid. The policy remains in force throughout this period.

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Hazard
A specific situation that introduces or in