Glossary of Insurance Terms
Accelerated Death Benefits
A benefit that can be attached to a life insurance policy that enables the policy holder to receive cash advances against the death benefit in the case of being diagnosed with a terminal illness. Many individuals who choose the accelerated death benefit have less than one year to live and use the money for treatments and other costs needed to stay alive.
An unforeseen, unintended and expected event.
Accounts Receivable Insurance
Insurance against loss of revenue that cannot be collected because accounts receivable records are destroyed by an insured peril. Coverage commonly includes any extra expense to recapture records and payment of interest on loans needed to cover the interim period reduction in collections. An insured’s keeping duplicate records in safe storage off premises is a highly recommended risk reduction technique—and the cost of coverage is considerably reduced thereby. Insurance may be arranged to cover electronic records as well as paper.
Actual Cash Value
Actual cash value is the true value of property at the time of loss (cost minus depreciation).
One who qualifies as “insured” under the terms of a policy even though not named as insured. Officers of a corporation may be included as insured’s under the terms of a policy written in the name of the corporation.
Additional Living Expense Insurance
This coverage, found in the broad and special dwelling and homeowners forms, applies to extra expenses necessitated by the insured’s inability to reside in the insured dwelling because of a covered loss—for example, restaurant meals and hotel bills. The amount is the difference between normal household expenses and the increase.
A person may act either on behalf of the insurance company or the insured in the settling a claim. Independent adjusters represent the insurance company on a fee basis; public adjusters represent the insured on a fee basis.
An insurance company that is licensed (admitted) to conduct business within a given state.
The range of insurance available through admitted companies.
Relates to a policy premium that cannot be precisely determined until the end of the term. The advance premium, also called “deposit premium,” is a down payment on what will be final premium.
The idea that the greater the likelihood of loss, the more attractive the idea of buying insurance to cover that loss becomes.
Claim arising out of slander, libel, copyright infringement, or misappropriation of advertising ideas. Coverage is provided as part of coverage B of the commercial general liability policy.
The term used for one person acting on behalf of another in an insurance transaction.
The maximum amount an insurer will pay under a policy in any one policy period.
Property insurance that is usually bought in conjunction with fire insurance; it includes wind, water damage, and vandalism coverage.
Alternative Dispute Resolution / ADR
Alternative to going to court to settle disputes. Methods include arbitration, where disputing parties agree to be bound to the decision of an independent third party, and mediation, where a third party tries to arrange a settlement between the two sides.
Mechanisms used to fund self-insurance. This includes captives, which are insurers owned by one or more non-insurers to provide owners with coverage. Risk-retention groups, formed by members of similar professions or businesses to obtain liability insurance, are also a form of self-insurance.
The anniversary of the original date of issue of a policy as shown in the declarations.
Annual Aggregate Deductible
A deductible applied annually to the total amount paid in claims during a policy period. Claims are generally subject to a per-occurrence deductible; the aggregate is the limit beyond which no further deductibles are applied.
Summary of an insurer’s or reinsurer’s financial operations for a particular year, including a balance sheet. It is filed with the state insurance department of each jurisdiction in which the company is licensed to conduct business.
The person(s) who receives the income from an annuity contract. Usually the owner of the contract or his or her spouse.
The conversion of the account balance of a deferred annuity contract to income payments.
A life insurance product that pays periodic income benefits for a specific period of time or over the course of the annuitant’s lifetime. There are two basic types of annuities: deferred and immediate: Deferred annuities allow assets to grow tax deferred over time before being converted to payments to the annuitant. Immediate annuities allow payments to begin within about a year of purchase.
Annuity Accumulation Phase or Period
The period during which the owner of a deferred annuity makes payments to build up assets.
Annuity Administrative Charges
Covers the cost of customer services for owners of variable annuities.
In certain types of annuities, a person who receives annuity contract payments if the annuity owner or annuitant dies while payments are still due.
A written agreement between an insurance company and a customer outlining each party’s obligations in an annuity coverage agreement. This document will include the specific details of the contract, such as the structure of the annuity (variable or fixed), any penalties for early withdrawal, spousal provisions such as a survivor clause and rate of spousal coverage, and more.
Annuity Contract Owner
The person or entity that purchases an annuity and has all rights to the contract. Usually, but not always, the annuitant (the person who receives incomes from the contract).
Annuity Death Benefits
The guarantee that if an annuity contract owner dies before annuitization (the switch-over from the savings to the payment phase) the beneficiary will receive the value of the annuity that is due.
Annuity Insurance Charges
Covers administrative and mortality and expense risk costs.
Annuity Investment Management Fee
The fee paid for the management of variable annuity invested assets.
The insurance company that issues the annuity.
Legal document providing detailed information about variable annuity contracts. Must be offered to each prospective buyer.
Annuity Purchase Rate
The cost of an annuity based on such factors as the age and gender of the contract owner.
Laws that prohibit companies from working as a group to set prices, restrict supplies or stop competition in the marketplace. The insurance industry is subject to state antitrust laws but has a limited exemption from federal antitrust laws. This exemption, set out in the McCarran-Ferguson Act, permits insurers to jointly develop common insurance forms and share loss data to help them price policies.
The dividing of a loss proportionately among two or more insurers that cover the same loss.
A survey to determine a property’s insurable value, or the amount of a loss.
Procedure in which an insurance company and the insured or a vendor agree to settle a claim dispute by accepting a decision made by a third party.
The intentional setting afire of property.
A risk that may not be generally acceptable to any insurance company but for which the law says that insurance must be acquired. Personal auto liability is one such necessary coverage. Insurance companies doing personal auto business in a state can be required to accept assignment of a portion of the state’s unacceptable drivers as insureds.
Auto Insurance Policy
There are basically six different types of auto insurance coverages. Some may be required by law. Others are optional. They are:
1. Bodily injury liability, for injuries the policyholder causes to someone else.
2. Medical payments or Personal Injury Protection (PIP) for treatment of injuries to the driver and passengers of the policyholder’s car.
3. Property damage liability, for damage the policyholder causes to someone else’s property.
4. Collision, for damage to the policyholder’s car from a collision.
5. Comprehensive, for damage to the policyholder’s car not involving a collision with another car (including damage from fire, explosions, earthquakes, floods, and riots), and theft.
6. Uninsured motorists coverage, for costs resulting from an accident involving a hit-and-run driver or a driver who does not have insurance.
Auto Insurance Premium
The price an insurance company charges for coverage, based on the frequency and cost of potential accidents, theft and other losses. Prices vary from company to company, as with any product or service.
Premiums also vary depending on the amount and type of coverage purchased; the make and model of the car; and the insured’s driving record, years of driving and the number of miles the car is driven per year. Other factors taken into account include the driver’s age and gender, where the car is most likely to be driven and the times of day – rush hour in an urban neighborhood or leisure-time driving in rural areas, for example. Some insurance companies may also use credit history-related information.
Automobile Liability Insurance
Insurance in which the insurer agrees to pay all sums for which the insured is legally obligated because of bodily injury or property damage arising from the ownership, maintenance, or use of an auto.
Automobile Medical Payments
Insurance applying to the medical, hospital, or funeral expenses of anyone injured while on or in an insured automobile. The coverage is not dependent on liability, being triggered simply by an accident. It may be included in either the Business Auto Policy or the Personal Auto Policy.
Consequences that are caused by lack of care on the part of an individual, and that could have been avoided had the individual exercised proper care. Generally refers to events that occur following a loss as the result of a person’s failure to take steps to prevent the consequences.
Basic Named Perils
Covered perils in a property insurance contract: fire, lightning, windstorm, civil commotion, smoke, hail, aircraft, vehicles, explosions and riot.
An insurer’s agreement, by way of an agent, to provide non-life insurance on the spot, pending issuance of the policy contract.
A means of insuring various items of property under one limit of liability.
Insurance covering multiple items of property as a group. Covered property may be at one location or several.
A term that refers to physical injury, sickness, or disease, or death resulting therefrom. In some jurisdictions “bodily injury” includes emotional injury.
Bodily Injury Liability
Legal obligation that flows from the injury or death of another person. This insurance is commonly limited to bodily injury liability derived by the way of negligence, but coverage of liability by way of contract (holding another harmless) is also possible.
Boiler & Machinery Insurance
Fired vessels, steam generators, mechanical and or electrical objects and turbines, are all examples of “objects” that might be listed for coverage under a boiler and machinery policy. Coverage is for damage to covered property caused by an accident to an object identified in the policy’s schedule. Coverage includes extra expense, automatic 90-day coverage at new locations, defense against liability claims, and supplementary payments like those provided under public liability policies.
A document for expressing surety. A bond engages three entities; the “surety” (bonding company) sells the bond to the “principal” for the purpose of paying off the party the principal will owe to the “obligee” upon failure of the “principal” to perform some act or provide some service under agreed terms.
A surety bond is the financial assumption of responsibility by one or more persons for fulfilling another’s obligations.
Broad Form Perils
A property insurance designation for coverage that extends beyond the basic named perils.
One who acts as the insured’s agent in arranging insurance. A broker may also serve an the agent of an insurance company.
Builders Risk Insurance
A variation of property coverage specifically applicable to construction projects. It is commonly written in an amount to cover the value of the structure when completed. The premium charged takes into account that values at risk increase gradually over the term of the policy.
Business Auto Policy (BAP)
A standardized contract for writing liability and property coverage on commercial autos.
Business Income Coverage
Insurance protecting the income derived from an insured’s business activities when curtailed peril. Coverage includes reasonable extra the insured undertakes to expedite return to business operations.
Business Personal Property
A tern relating to “contents” of a commercial enterprise, it may include furniture, fixtures, machinery and equipment as well as stock, all other chattels owned by the insured, and even use interest in building improvements and betterments.
Business Owners Policy (BOP)
A package of property and liability insurance for small and medium size businesses, the BOP owes its origin to the success of the homeowners policy.
Cancellation; Flat, Pro Rata, or Short Rate
In a flat cancellation the full premium is returned to the insured. A pro rata cancellation means the insurer has charged for the time the coverage was in force. Short rate cancellation entails a penalty in excess of pro rata for early termination.
A person who represents only one insurance company and is restricted by agreement from submitting business to any other company, unless it is first rejected by the agent’s captive company.
An inland marine or ocean marine policy covering cargo in the care, custody, or control of the carrier.
The insurance company providing coverage.
The type of insurance concerned with legal liability for losses caused by bodily injury to others or physical damage to property of others.
Certificate of Insurance
A written description of insurance in effect as of the date and time of the certificate. The certificate does not ordinarily confer any rights on the holder, i.e., the issuing insurer does not promise to inform the holder of change in or cancellation of coverage.
Notification to the insurance company for payment under the policy terms for a loss.
A type of public liability insurance that responds only to claims for injury or damage that are brought (to the insurer) during the policy period (or during a designated extended reporting period beyond expiration). The development was in response to “long tail” claims, such as those related to asbestos injury, carrying over many years and multiple layers of coverage limits. However, most public liability policies are written on an “occurrence” basis, covering injury or damage occurring during the policy period even if a claim is brought months or even years later.
“Coinsurance” refers to the bargain between commercial property owners and the insurance industry. The clause in property policies encourages the property owner to gauge coverage needs by possible, not probable, maximum loss. With $1 million at risk but a probable maximum loss of $100,000, for example, the property owner would probably buy $100,000 insurance and bank on avoiding the larger disaster. The bargain offered by the insurance industry is a reduced rate per $100 of coverage if the owner agrees to buy coverage at a specified relation (80% commonly) to value (to possible maximum loss in other words). If the insured accepts the bargain but events prove the amount of insurance is inadequate to the stated coinsurance percentage, the insured becomes “co-insurer” in the same ratio as the amount of insurance bears to the amount that should have been carried.
A property insurance peril, subject to its own specific agreement in commercial property policies, which otherwise insure on an open perils basis.
Coverage that pays to repair damage to your insured vehicle after a collision.
Combined Single Limit (CSL)
Liability policies commonly offer separate limits that apply to bodily injury claims for property damage. “50/100/25” is shorthand under such a policy for $50,00 per person/$100,000 per accident for bodily injury claims and $25,000 for property damage. A combined single limits policy might cover for $100,000 per covered occurrence whether bodily injury or property damage, one person or many.
Commercial General Liability (CGL)
The CGL policy is an ISO form, widely used to provide commercial enterprises with premises and operations liability coverage, products and completed operations insurance and personal injury coverage. Premises medical payments coverage is often included as well.
Insurance for a business. In fact, it is one of the most important investments a business owner can make. Commercial insurance can be instrumental in protecting a business from potential loss caused by unforeseen and unfortunate circumstances.
A distinction marking property and liability coverage written for business or entrepreneurial interests as opposed to personal lines.
Commissioner of Insurance
The official in a state (or territory) responsible for administering insurance regulation: sometimes called the Superintended of Insurance.
The award, usually monetary, that is intended to compensate the claimant for injury sustained. Comprehensive physical damage (automobile) Auto insurance covering physical damage except collision.
Coverage for damage to an insured vehicle not involving a collision with another car (including damage from fire, explosions, earthquakes, floods and riots) and theft.
Compulsory Auto Insurance
The minimum amount of auto liability insurance that meets a state law. Financial responsibility laws in every state require all automobile drivers to show proof, after an accident, of their ability to pay damages up to the state minimum. In compulsory liability states, this proof, which is usually in the form of an insurance policy, is required before you can legally drive a car.
Liability of individuals, corporations, or partnerships for accidents caused by people other than employees for whose acts or omissions the corporations or partnerships are responsible.
Contractors Equipment Floater
Coverage designed for the special needs of contractors to insure their machinery and other equipment.
Liability that does not arise by the way of negligence but by assumption under contract. For example, in certain leases, a tenant may assume a landlord’s liability to others unsafe conditions on the premises. Some such assumptions are covered automatically under the Commercial General Liability form.
A defense to a negligence action in which it is asserted that the claimant failed to meet the standard required for his or her own protection, and that the failure contributed to the loss.
An accident, including accidental damage by forces of nature, that brings a contract of insurance into play.
Synonym for insurance.
Completed Operations Coverage
Pays for bodily injury or property damage caused by a completed project or job. Protects a business that sells a service against liability claims.
The number produced by an analysis of an individual’s credit history. The use of credit information affects all consumers in many ways, from getting a job, finding a place to live, securing a loan, getting a telephone, and buying insurance. Credit history is routinely reviewed by insurers before issuing a commercial policy because businesses in poor financial condition tend to cut back on safety which can lead to more accidents and more claims. Auto and home insurers may use information in a credit history to produce an insurance score. Insurance scores may be used in underwriting and rating insurance policies.
Term referring to property coverages for the perils of burglary, theft and robbery.
Protection against damage to growing crops from hail, fire, or lightning provided by the private market. By contrast, multiple peril crop insurance covers a wider range of yield-reducing conditions, such as drought and insect infestation, and is subsidized by the federal government.
Debris Removal Clause
A consequential coverage commonly included in direct loss policies. For example, fire policies limited recovery for the insured’s cost of removing the debris after a covered fire. Not to be confused with “removal.”
Declaration Page or Dec Page
The section of a policy (usually the cover page of the policy) that states the name and address of policyholder, location of the insured property and description, the policy period, premiums and supplemental information.
Out-of-pocket amount that must be paid by the policyholder before the insurance company pays a claim.
When the price of insurance is tied to fluctuating values or costs that cannot be known until the end of the policy period, inventory or payroll are two common examples, a deposit or provisional premium or estimated premium may be charged at the outset of a policy with final adjustment to come at the end of the term.
A property ages and becomes worn it often loses value and that has to be taken into account in any property insurance that covers loss of actual cash value.
Driver Other Car (DOC) Endorsement
A business auto or garage policy endorsement providing coverage for named individuals while driving non-owned autos in situations related to the business of the insured.
An annuity under which the annuity payment period is scheduled to begin at some future date.
Customer assets that are held in a checking account. Funds can be readily withdrawn by check, “on demand.”
The conversion of insurance companies from mutual companies owned by their policyholders into publicly-traded stock companies.
Financial institution that obtains its funds mainly through deposits from the public. Includes commercial banks, savings and loan associations, savings banks, and credit unions.
In insurance, reducing regulatory control over insurance rates and forms. Commercial insurance for businesses of a certain size has been deregulated in many states.
Difference in Conditions
Policy designed to fill in gaps in a business’s commercial property insurance coverage. There is no standard policy. Policies are specifically tailored to the policyholder’s needs.
Diminution of Value
The idea that a vehicle loses value after it has been damaged in an accident and repaired.
Property/casualty premiums collected by the insurer from policyholders, before reinsurance premiums are deducted. Insurers share some direct premiums and the risk involved with their reinsurers.
Direct Sales / Direct Response
Method of selling insurance directly to the insured through an insurance company’s own employees, through the mail, or via the Internet. This is in lieu of using captive or exclusive agents.
Insurance companies that sell directly to the public using exclusive agents or their own employees, through the mail, or via Internet. Large insurers, whether predominately direct writers or agency companies, are increasingly using many different channels to sell insurance. In reinsurance, denotes reinsurers that deal directly with the insurance companies they reinsure without using a broker.
Directors and Officers Liability Insurance / D&O
Covers directors and officers of a company for negligent acts or omissions, and for misleading statements that result in suits against the company, often by shareholders. Directors and officers insurance policies usually contain two coverages: personal coverage for individual directors and officers who are not indemnified by the corporation for their legal expenses or judgments against them – some corporations are not required by their corporate or state charters to provide indemnification; and corporate reimbursement coverage for indemnifying directors and officers. Entity coverage for claims made specifically against the company may also be available.
Money returned to policyholders from an insurance company’s earnings. Considered a partial premium refund rather than a taxable distribution, reflecting the difference between the premium charged and actual losses. Many life insurance policies and some property/casualty policies pay dividends to their owners. Life insurance policies that pay dividends are called participating policies.
Domestic Insurance Company
Term used by a state to refer to any company incorporated there.
The amount of policy premium that has been earned at any point in time from inception of term to the end. A disproportionate amount will have been “earned” during the early days of contract that is subject to short rate cancellation.
Total financial loss resulting from the death or disability of a wage earner, or from the destruction of property. Includes the loss of earnings, medical expenses, funeral expenses, the cost of restoring or replacing property, and legal expenses. It does not include non-economic losses, such as pain caused by an injury.
Total financial loss resulting from the death or disability of a wage earner, or from the destruction of property. Includes the loss of earnings, medical expenses, funeral expenses, the cost of restoring or replacing property, and legal expenses. It does not include non-economic losses, such as pain caused by an injury.
The date shown in the declarations of policy upon which coverage is to take effect.
Employee Dishonesty Coverage
Insurance protecting employers from loss due to theft by their employees.
Employers Liability Insurance
A feature of standard workers compensation policies, this coverage applies to liability that may be imposed on an employer outside the provisions of a worker compensation law.
Employers Non-Ownership Liability
Employers who buy commercial auto coverage on a basis other than “any auto” have this exposure whenever an employee uses his or her own auto on the employer’s behalf.
Employment Practices Liability
Coverage against allegations of illegal or discriminatory hiring firing practices, sexual harassment of employees, and so on.
A written attachment to an insurance policy that alters the policy’s coverage, terms, or conditions. Also called a rider.
Errors and Omissions Coverage
A type of professional liability insurance protecting the insured against claims alleging bodily injury or property damage caused by the professional or technical incompetence of the insured.
Coverage that applies on top of underlying insurance that is primary, i.e., that pays until its coverage limit is exhausted at which point that excess coverage takes over.
Excess or Surplus Lines Market
The range of insurance available through non-admitted insurers, i.e., insurance companies that are not licensed in a particular state or territory. Specific provisions of state or territorial law control placements.
Conditions or situations which are not covered by the insurance policy.
A record of losses.
The rising or lowering of premiums under term of an experience rating plan.
Extended Period of Indemnity
A time of recovery of proved business income loss after physical property is restored and business reopened. The 30-day extension of business income forms may be extended by endorsement.
Extended Transportation Expense
Pays for the use of rental vehicle while your damaged auto is being repaired.
A reinsurance policy that provides an insurer with coverage for specific individual risks that are unusual or so large that they aren’t covered in the insurance company’s reinsurance treaties. This can include policies for jumbo jets or oil rigs. Reinsurers have no obligation to take on facultative reinsurance, but can assess each risk individually. By contrast, under treaty reinsurance, the reinsurer agrees to assume a certain percentage of entire classes of business, such as various kinds of auto, up to preset limits.
Fair Access to Insurance Requirements Plans / Fair Plans
Insurance pools that sell property insurance to people who can’t buy it in the voluntary market because of high risk over which they may have no control. FAIR Plans, which exist in 28 states and the District of Columbia, insure fire, vandalism, riot, and windstorm losses, and some sell homeowners insurance which includes liability. Plans vary by state, but all require property insurers licensed in a state to participate in the pool and share in the profits and losses.
Package policy that protects the policyholder against named perils and liabilities and usually covers homes and their contents, along with barns, stables, and other structures.
Reserve balances that depository institutions lend each other, usually on an overnight basis. In addition, Federal funds include certain other kinds of borrowings by depository institutions from each other and from federal agencies.
Federal Insurance Administration / FIA
Federal agency in charge of administering the National Flood Insurance Program. It does not regulate the insurance industry.
Federal Reserve Board
Seven-member board that supervises the banking system by issuing regulations controlling bank holding companies and federal laws over the banking industry. It also controls and oversees the U.S. monetary system and credit supply.
A form of protection that covers policyholders for losses that they incur as a result of fraudulent acts by specified individuals. It usually insures a business for losses caused by the dishonest acts of its employees.
A type of surety bond, sometimes called a probate bond, which is required of certain fiduciaries, such as executors and trustees, that guarantees the performance of their responsibilities.
Legal responsibility of a fiduciary to safeguard assets of beneficiaries. A fiduciary, for example a pension fund manager, is required to manage investments held in trust in the best interest of beneficiaries. Fiduciary liability insurance covers breaches of fiduciary duty such as misstatements or misleading statements, errors and omissions.
States where insurers must file rate changes with their regulators, but don’t have to wait for approval to put them into effect.
Financial Guarantee Insurance
Covers losses from specific financial transactions and guarantees that investors in debt instruments, such as municipal bonds, receive timely payment of principal and interest if there is a default. Raises the credit rating of debt to which the guarantee is attached. Investment bankers who sell asset-backed securities, securities backed by loan portfolios, use this insurance to enhance marketability.
Financial Responsibility Law
A state law requiring that all automobile drivers show proof that they can pay damages up to a minimum amount if involved in an auto accident. Varies from state to state but can be met by carrying a minimum amount of auto liability insurance.
Finite Risk Reinsurance
Contract under which the ultimate liability of the reinsurer is capped and on which anticipated investment income is expressly acknowledged as an underwriting component. Also known as Financial Reinsurance because this type of coverage is often bought to improve the balance sheet effects of statutory accounting principles.
Coverage protecting property against losses caused by a fire or lightning that is usually included in homeowners or commercial multiple peril policies.
Coverage for the policyholder’s own property or person. In no-fault auto insurance it pays for the cost of injuries. In no-fault states with the broadest coverage, the personal injury protection (PIP) part of the policy pays for medical care, lost income, funeral expenses and, where the injured person is not able to provide services such as child care, for substitute services.
An annuity that guarantees a specific rate of return. In the case of a deferred annuity, a minimum rate of interest is guaranteed during the savings phase. During the payment phase, a fixed amount of income, paid on a regular schedule, is guaranteed.
Attached to a homeowners policy, a floater insures movable property, covering losses wherever they may occur. Among the items often insured with a floater are expensive jewelry, musical instruments, and furs. It provides broader coverage than a regular homeowners policy for these items.
Coverage for flood damage is available from the federal government under the National Flood Insurance Program but is sold by licensed insurance agents. Flood coverage is excluded under homeowners policies and many commercial property policies. However, flood damage is covered under the comprehensive portion of an auto insurance policy.
Forced Place Insurance
Insurance purchased by a bank or creditor on an uninsured debtor’s behalf so if the property is damaged, funding is available to repair it.
Foreign Insurance Company
Name given to an insurance company based in one state by the other states in which it does business.
Intentional lying or concealment by policyholders to obtain payment of an insurance claim that would otherwise not be paid, or lying or misrepresentation by the insurance company managers, employees, agents, and brokers for financial gain.
A period of up to one month during which the purchaser of an annuity can cancel the contract with no penalty. Rules vary by state.
Number of times a loss occurs. One of the criteria used in calculating premium rates.
A procedure in which a primary insurer acts as the insurer of record by issuing a policy, but then passes the entire risk to a reinsurer in exchange for a commission. Often, the fronting insurer is licensed to do business in a state or country where the risk is located, but the reinsurer is not. The reinsurer in this scenario is often a captive or an independent insurance company that cannot sell insurance directly in a particular country.
Agreement to buy a security for a set price at a certain date. Futures contracts usually involve commodities, indexes or financial futures.
An automobile insurance option, available in some states, that covers the difference between a car’s actual cash value when it is stolen or wrecked and the amount the consumer owes the leasing or finance company.
Generally Accepted Accounting Principles / GAAP
Generally accepted accounting principles (GAAP) accounting is used in financial statements that publicly-held companies prepare for the Securities and Exchange Commission.
Generic Auto Parts
Auto crash parts produced by firms that are not associated with car manufacturers. Insurers consider these parts, when certified, at least as good as those that come from the original equipment manufacturer (OEM). They are often cheaper than the identical part produced by the OEM.
Coverage for glass breakage caused by all risks; fire and war are sometimes excluded. Insurance can be bought for windows, structural glass, leaded glass, and mirrors. Available with or without a deductible.
Graduated Driver Licenses
Licenses for younger drivers that allow them to improve their skills. Regulations vary by state, but often restrict night time driving. Young drivers receive a learner’s permit, followed by a provisional license, before they can receive a standard drivers license.
Financial services legislation, passed by Congress in 1999, that removed Depression-era prohibitions against the combination of commercial banking and investment-banking activities. It allows insurance companies, banks, and securities firms to engage in each others’ activities and own one another.
A single policy covering a group of individuals, usually employees of the same company or members of the same association and their dependents. Coverage occurs under a master policy issued to the employer or association.
Period during which the level of interest specified under a fixed annuity is guaranteed.
Guaranteed Death Benefits
Basic death benefits guaranteed under variable annuity contracts.
Guaranteed Income Contract / GIC
Often an option in an employer-sponsored retirement savings plan. Contract between an insurance company and the plan that guarantees a stated rate of return on invested capital over the life of the contract.
Guaranteed Living Benefit
A guarantee in a variable annuity that a certain level of annuity payment will be maintained. Serves as a protection against investment risks. Several types exists.
Guaranteed Replacement Cost Coverage
Homeowners policy that pays the full cost of replacing or repairing a damaged or destroyed home, even if it is above the policy limit.
A new legal concept that holds gun manufacturers liable for the cost of injuries caused by guns. Several cities have filed lawsuits based on this concept.
A coverage that protects businesses engaged in electronic commerce from losses caused by hackers.
A seller’s market in which insurance is expensive and in short supply.
Homeowners Insurance Policy
The typical homeowners insurance policy covers the house, the garage and other structures on the property, as well as personal possessions inside the house such as furniture, appliances and clothing, against a wide variety of perils including windstorms, fire and theft. The extent of the perils covered depends on the type of policy. An all-risk policy offers the broadest coverage. This covers all perils except those specifically excluded in the policy.
Homeowners insurance also covers additional living expenses. Known as Loss of Use, this provision in the policy reimburses the policyholder for the extra cost of living elsewhere while the house is being restored after a disaster. The liability portion of the policy covers the homeowner for accidental injuries caused to third parties and/or their property, such as a guest slipping and falling down improperly maintained stairs. Coverage for flood and earthquake damage is excluded and must be purchased separately.
Equal to 365 days of insured coverage for a single dwelling. It is the standard measurement for homeowners insurance.
A percentage or dollar amount added to a homeowner’s insurance policy to limit an insurer’s exposure to loss from a hurricane. Higher deductibles are instituted in higher risk areas, such as coastal regions. Specific details, such as the intensity of the storm for the deductible to be triggered and the extent of the high risk area, vary from insurer to insurer and state to state.
Identity Theft Insurance
Coverage for expenses incurred as the result of an identity theft. Can include costs for notarizing fraud affidavits and certified mail, lost income from time taken off from work to meet with law-enforcement personnel or credit agencies, fees for reapplying for loans and attorney’s fees to defend against lawsuits and remove criminal or civil judgments.
A product purchased with a lump sum, usually at the time retirement begins or afterwards. Payments begin within about a year. Immediate annuities can be either fixed or variable.
A policy provision in which the company agrees not to contest the validity of the contract after it has been in force for a certain period of time, usually two years.
Incurred but not Reported Losses / IBNR
Losses that are not filed with the insurer or reinsurer until years after the policy is sold. Some liability claims may be filed long after the event that caused the injury to occur. Asbestos-related diseases, for example, do not show up until decades after the exposure. IBNR also refers to estimates made about claims already reported but where the full extent of the injury is not yet known, such as a workers compensation claim where the degree to which work-related injuries prevents a worker from earning what he or she earned before the injury unfolds over time. Insurance companies regularly adjust reserves for such losses as new information becomes available.
Losses occurring within a fixed period, whether or not adjusted or paid during the same period.
Provide financial compensation for losses.
Agent who is self-employed, is paid on commission, and represents several insurance companies.
Inflation Guard Clause
A provision added to a homeowners insurance policy that automatically adjusts the coverage limit on the dwelling each time the policy is renewed to reflect current construction costs.
Inland Marine Insurance
This broad type of coverage was developed for shipments that do not involve ocean transport. Covers articles in transit by all forms of land and air transportation as well as bridges, tunnels and other means of transportation and communication. Floaters that cover expensive personal items such as fine art and jewelry are included in this category.
Insurer’s inability to pay debts. Insurance insolvency standards and the regulatory actions taken vary from state to state. When regulators deem an insurance company is in danger of becoming insolvent, they can take one of three actions: place a company in conservatorship or rehabilitation if the company can be saved or liquidation if salvage is deemed impossible. The difference between the first two options is one of degree – regulators guide companies in conservatorship but direct those in rehabilitation. Typically the first sign of problems is inability to pass the financial tests regulators administer as a routine procedure.
An organization such as a bank or insurance company that buys and sells large quantities of securities
Risks for which it is relatively easy to get insurance and that meet certain criteria. These include being definable, accidental in nature, and part of a group of similar risks large enough to make losses predictable. The insurance company also must be able to come up with a reasonable price for the insurance.
A system to make large financial losses more affordable by pooling the risks of many individuals and business entities and transferring them to an insurance company or other large group in return for a premium.
A group of insurance companies that pool assets, enabling them to provide an amount of insurance substantially more than can be provided by individual companies to ensure large risks such as nuclear power stations. Pools may be formed voluntarily or mandated by the state to cover risks that can’t obtain coverage in the voluntary market such as coastal properties subject to hurricanes.
Insurance Regulatory Information System / IRIS
Uses financial ratios to measure insurers’ financial strength. Developed by the National Association of Insurance Commissioners. Each individual state insurance department chooses how to use IRIS.
Insurance scores are confidential rankings based on credit information. This includes whether the consumer has made timely payments on loans, the number of open credit card accounts and whether a bankruptcy filing has been made. An insurance score is a measure of how well consumers manage their financial affairs, not of their financial assets. It does not include information about income or race.
Studies (1) have shown that people who manage their money well tend also to manage their most important asset, their home, well. And people who manage their money responsibly also tend to handle driving a car responsibly. Some insurance companies use insurance scores as an insurance underwriting and rating tool.
Related Study – The Relationship of Credit-Based Insurance Scores to Private Passenger Automobile Insurance Loss Propensity, by EPIC Actuaries, LLC, June 2003
Insurance written in an amount approximating the value of the insured property.
The policyholder – the person(s) protected in case of a loss or claim.
The insurance company.
Coverage where the distinction between job-related and non-occupational illnesses or injuries is eliminated and workers compensation and general health coverage are combined. Legal obstacles exist, however, because the two coverages are administered separately. Previously called twenty-four hour coverage.
An insurer that sells exclusively via the Internet.
Internet Liability Insurance
Coverage designed to protect businesses from liabilities that arise from the conducting of business over the Internet, including copyright infringement, defamation, and violation of privacy.
Income generated by the investment of assets. Insurers have two sources of income, underwriting (premiums less claims and expenses) and investment income. The latter can offset underwriting operations, which are frequently unprofitable.
Prepaid legal insurance coverage plan sold on a group basis.
Coverage for a policyholder’s legal liability resulting from injuries to other persons or damage to their property as a result of an auto accident.
Coverage for all sums that the insured becomes legally obligated to pay because of bodily injury or property damage, and sometimes other wrongs, to which an insurance policy applies.
A policy that will pay a specified sum to beneficiaries upon the death of the insured.
Maximum amount of insurance that can be paid for a loss.
Limits of Insurance
The greatest amount of insurance a policy will provide; the amount beyond which the insurer is no longer required to pay.
What the loss history has been on a particular line or book of business.
A set of circumstances presenting the possibility of loss, whether or not the loss actually occurs.
A policy that will pay a specified sum to beneficiaries upon the death of the insured.
The amount which can be borrowed at a specified rate of interest from the issuing company by the policyholder, using the value of the policy as collateral. In the event the policyholder dies with the debt partially or fully unpaid, then the amount borrowed plus any interest is deducted from the amount payable.
Insurance primarily concerned with transportation exposures and property that is commonly moved around from place to place. The field is divided between inland marine and ocean marine.
Refers to the price that a seller of real property, which is property in the form of land, what lies beneath the land, and objects fixed to the land, can expect to receive from a buyer in a fair and open negotiation.
The policyholder / applicant makes a false statement of any material (important) fact on his/her application. For instance, the policyholder provides false information regarding the location where the vehicle is garaged.
In the Commercial General Liability coverage forms, refers to certain carefully and specifically described vehicles for use on land. Some such vehicles are self-propelled while others are not. Some are used only when attached to other vehicles or to provide mobility to certain equipment. Some are intended for use on public roads while others are not.
Type of insurance protecting physicians, surgeons, nurses, and other medical practitioners against claims alleging failure to perform.
Will pay reasonable expenses incurred for necessary medical and /or funeral services because of bodily injury caused by accident and sustained by you or any other person while occupying a covered automobile.
A form of auto rating in which an insured’s past experience as well as anticipated experience is taken into account when arriving at a rate.
An insurer’s lowest charge for an insurance policy.
Includes insurance against loss from damage done, directly or indirectly by lightning, windstorm, tornado, earthquake or insurance under an open policy indemnifying the producer of any motion picture, television, theatrical, sport, or similar production, event, or exhibition against loss by reason of the interruption, postponement, or cancellation of such production, event, or exhibition due to death, accidental injury, or sickness preventing performers, directors, or other principals from commencing or continuing their respective performance or duties; and any insurance not included in any other classes and which is a proper subject of insurance.
Generally, misstatement of facts made on an application for insurance. May also be misstatement of coverage made by an agent to an insured.
An insurance policy covering one subject of insurance, as opposed to a combination of multiline policy.
Life insurance that pays the balance of a mortgage if the mortgagor (insured) dies.
The individual(s) listed in the declarations by name as the insured(s) under a policy. Other individuals may be covered as insureds without being named (such as family members who are residents of the household).
A formal and specific listing of perils covered in a policy providing property insurance. A policy covering for damage by fire is said to cover for “the named peril” of fire.
This term signifies an auto that is neither owned, hired, nor borrowed by the insured under a commercial auto policy. Employees’ cars used in company business are commonly classified this way. The employer’s auto liability cover for use of non-owned autos is covered by entry of symbol 1 (“any auto”) or symbol 9 (“non-owned autos”) on the declaration page.
In general, an event that triggers coverage under any policy. Specifically, an event that triggers coverage under an occurrence-based liability policy. Such a policy covers injury or damage that occurs during the policy period even if claim is brought months or even years after the policy has expired.
Off premises cover
Commercial property policies commonly established a small coverage limit that applies to property temporarily away from the insured’s place of business.
In Commercial General Liability insurance, a policy that pays for events that occur during its policy term, regardless of when a claim is filed. That is, an expired occurrence policy will pay a valid claim even if the claim is made years later, provided that the event occurred while the policy was in effect.
Any combination of insuring agreements that combines property and casualty coverages. Homeowners, business owners, and garage policies are examples.
A specific risk or cause of loss, such as fire, windstorm, flood or theft. A named-peril policy covers only the risks named in the policy, while an all-risk policy covers all causes of loss except those specifically excluded.
Personal injury protection (PIP)
An extension of car insurance available in some U.S. states that covers medical expenses, and in some cases, lost wages and other damages. PIP is sometimes referred to as “no fault” coverage, because the statutes enacting it are generally known as no-fault laws, and PIP is designed to be paid without regard to “fault,” or more properly, legal liability.
Personal liability insurance
Insurance for individuals or members of a household offering protection against claims by third parties. (outsiders) alleging bodily injury or property damage due to negligence.
Personal insurance for individual and family needs, such as home and auto.
Policy and endorsements
The contract of insurance that details the coverages, exclusions, conditions, and loss settlement of a claim. Endorsements amend the policy, either adding or restricting coverage outlined in the policy.
The maximum amount a policy will pay, either overall or under a particular coverage.
The price an insurance company charges for coverage, based on many different factors, including past loss history. Prices vary from company to company.
A policyholder contracts with a lender to pay the insurance premium on his/her behalf. The policyholder agrees to repay the lender for the cost of the premium, plus interest and fees.
Products and completed operations liability
The liability exposure of the manufacturer whose malfunctioning products may cause injury or property damage or of the contractors whose failed structures or projects may do the same. Coverage of the exposure is a feature of the commercial general liability policy. The insurance does not in any way constitute a guarantee of either the insured’s product or work. Contrast with “premises and operations liability.”
A form of errors and omissions insurance, (sometimes called “malpractice” coverage of errors alleged against those in the healing and legal professions). Arbitrarily it seems, “error and omissions” is the term applied most often to insurance covering liability for mistakes in matters affecting property, i.e., coverage for “Insurance Agents E&O,” “Architects E&O while “professional liability” is used in reference to coverages such as “Druggists Professional Liability,” Physicians and Surgeons Professional Liability,” and “Lawyers Professional Liability.”
That event which, in an unbroken sequence, results in direct physical loss under an insurance policy. For example, wind is the proximate cause of loss when a windstorm blows out a window that in turn topples a lit candle that sets fire to a structure and burns it down.
The only consideration is the possibility of loss. Contrast with “speculative risk.”
Products-Completed operations hazard
Refers to bodily injury and property damage that occur somewhere other than the insured’s premises, and involve the insured’s products or work, subject to the limitations and parameters specified in the Commercial General Liability coverage forms.
In the Commercial General Liability coverage forms, refers to physical damage to tangible property and to loss of use tangible property, whether or not physically damaged.
When the policy is terminated midterm by the insurance company, the earned premium is calculated only for the period coverage was provided. For example: an annual policy with premium of $1,000 is canceled after 40 days of coverage at the company’s election. The earned premium would be calculated as follows: 40/365 days X $1,000=.110 X $1,000=$110.
An estimate of the cost of insurance, based on information supplied to the insurance company by the applicant.
The restoring of a lapsed policy to full force and effect. The reinstatement may be effective after the cancellation date, creating a lapse of coverage. Some companies require evidence of insurability and payment of past due premiums plus interest.
Term for insurance for the non-owner occupant of a dwelling or apartment.
The cost to replace damaged personal property or dwelling property without deducting for depreciation.
The date that defines the extent of coverage in time under claims-made liability policies. Claims resulting from occurrences prior to the policy’s stated retroactive date are excluded.
Usually known as an endorsement, a rider is an amendment to the policy used to add or delete coverage.
The process of handling pure risk by way of reduction, elimination, or transfer of risk, with the latter commonly achieved through insurance.
Your willingness to take on risk, ranging from zero tolerance (e.g., wanting a zero deductible so that 100 percent of your claim is covered) to 100 percent tolerance (knowingly not insuring a beater car and taking the loss if it’s stolen).
List of items on a policy declaration, sometimes also showing descriptions and values.
When the policy is terminated prior to the expiration date at the policyholder’s request. Earned premium charged would be more than the pro-rata earned premium. Generally, the return premium would be approximately 90 percent of the pro-rata return premium. However, the company may also establish its own short-rate schedule.
A licensed employee of a fire and casualty agent or broker who may act for the agent or broker in some circumstances.
In contrast to the named perils forms in property insurance, those forms that list specific perils for coverage, the special form contract covers simply risk of direct physical loss, relying on exclusions to delimit an define the protection intended.
As in auto insurance, where rather than one liability amount applying on a per-accident basis, separate amounts apply to bodily injury and property damage liability.
An extra charge applied by the insurer. For automobile insurance, a surcharge is usually for accidents or moving violations.
To terminate or cancel a life insurance policy before the maturity date. In the case of a cash value policy, the policyholder may exercise one of the non-forfeiture options at the time of surrender.
Team and Vehicle Insurance
Includes insurance against loss through damage or legal liability for damage, to property caused by the use of teams or vehicles other than ships, boats, or railroad rolling stock, whether by accident or collision or by explosion of engine, tank, boiler, pipe, or tire of the vehicle, and insurance against the theft of the whole or part of such vehicle.
Coverage for losses if a land title is not free and clear of defects that were unknown when the title insurance was written.
A liability contract with high limits covering over top of primary liability coverages and, subject to deductible, covering exposures otherwise uninsured.
The process of selecting applicants for insurance and classifying them according to their degrees of insurability so that the appropriate premium rates may be charged. The process includes rejection of unacceptable risks.
Uninsured / underinsured motorists coverage protects you in the event of an accident motorists coverage with an uninsured (no insurance) or underinsured (not enough insurance) driver.
An uninsurable risk is one which is literally uninsurable because loss is certain rather than possible.
Once defined as devoid of occupants or contents, a stricter definition is being applied as more and more communities find older buildings of three and four stories that are only one quarter occupied. Property policies impose limitations on coverage of “vacant” building so that (changing) definition of vacant property is quite important.
The condition arising where one person is responsible for the actions of another, as a parent is often held responsible for the vandalism damage a minor child does to a school.
Waiver of subrogation
An insurer has the right of subrogation; however, it may waive that right through this method.
Wear and tear exclusion
A common heading for an “all risks” exclusion relating to a group of events that do not represent risk at all. Property will become worn out and torn; it will rust, settle, become rotted, infested, marred, scratched, etc. It is easy to distinguish however between the marring that occurs over time (excluded) and marring that occurs when a concrete block is dropped into a fine wooden table.
Workers compensation insurance
Coverage that conforms to the workers compensation laws of the states in which it written.
Workers compensation and Employers liability insurance
A type of liability insurance not included in the Commercial General Liability coverage part. Workers Compensation makes benefits payable for injuries to, disability or death of an employee without regard to liability. Employers Liability covers the common-law liability of an employer for injuries to an employee. Because these coverages are related specifically to employer-employee relationships, they are not characterized as general liability.