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Actual Cash Value.
An amount equivalent to the replacement cost of lost or damaged
property at the time of the loss, less depreciation. With regard
to buildings, there is a tendency for the actual cash value to
closely parallel the market value of the property.
Accident.
An unplanned event, unexpected and undesigned, which occurs suddenly
and at a definite place. See also Occurrence.
Additional Insured.
A person other than the named insured who is protected under
the terms of the contract. Usually, additional insureds are added
by endorsement or referred to in the wording of the definition
of "insured" in the policy itself.
Agent.
One who solicits, negotiates or effects contracts of insurance
on behalf of an insurer. His right to exercise various functions,
his authority, and his obligations and the obligations of the
insurer to the agent are subject to the terms of the agency contract
with the insurer, to statutory law, and to common law
Aggregate Limit.
Usually refers to Liability Insurance and indicates the amount
of coverage that the insured has under the contract for a specific
period of time, usually the contract period, no matter how many
separate accidents may occur.
All-Risks Insurance.
The term "All-Risks Insurance" is used to mean insurance
against loss of or damage to property arising from any fortuitous
cause except those that are specifically excluded. An insurance
contract which provides All-Risks Insurance is an All-Risks policy.
Contrast with Named Perils.
Amendment.
A formal document which corrects or revises an insurance master
policy. See also Endorsement and Rider.
Application.
A form on which the prospective insured states facts requested
by the insurer on the basis of which, together with information
from other sources, the insurer decides whether to accept the
risk, modify the coverage offered, or decline the risk.
Appraisal.
An evaluation of property made to ascertain either the appropriate
amount of insurance to be written or the amount of loss to be
paid.
Assets.
The items on the balance sheet of the insurer which show the
book value of property owned. Under state regulations, not all
property or other resources can be admitted in the statement
of the insurer. This gives rise to the term "nonadmitted
assets." See also Nonadmitted Assets.
Assigned Risk.
A risk which is not ordinarily acceptable to insurers and which
is, therefore, assigned to insurers participating in an assigned
risk pool or plan. Each participating company agrees to accept
its share of These risks.
Basic Limit.
Usually refers to Liability policies and indicates the lowest
amount for which a policy can be written. This amount is either
prescribed by law or company policy.
Benefits.
financial reimbursement and other services provided insureds
by insurers under the terms of an insurance contract. An example
would be the benefits listed under a Life or Health Insurance
policy or benefits as prescribed by a Workers Compensation law.
Binder.
An agreement executed by an agent or insurer (usually the latter)
putting insurance into force before the contract has been written
or the premium paid. This term is not usually used in Life Insurance.
See also Cover note.
"Buy-Back"
Deductible.
A deductible which may be eliminated for an additional premium
in order to provide "first-dollar" coverage.
Bobtailing.
Using the truck-tractor after unloading the trailer and not driving
for trucking purposes.
Business Auto Coverage Form.
The latest commercial Automobile Insurance coverage form, which
may be written as a monoline policy or as part of a commercial
package. This form has largely replaced the Business Auto Policy.
Business Auto Policy.
A policy which provides Liability and Physical damage coverages
on commercial vehicles. In most jurisdictions, this has been
replaced by the Business Auto Coverage Part.
Cancellation.
Termination of a contract of insurance in force by voluntary
act of the insurer or insured in accordance with the provisions
in the contract or by mutual agreement.
Carrier.
Sometimes used to designate the insurer. The term "insurer"
is preferred because of the possible confusion of "carrier"
with transportation. See also Insurer.
Certificate of Insurance.
(1) A statement of the coverage and general provisions of a master
contract in group insurance that is issued to individuals covered
in the group. (2) A form which verifies that a policy has been
written and states the coverage in general, often used as proof
of insurance in loan transactions and for other legal requirements.
Claim.
A demand made by the insured, or the insured's beneficiary, for
payment of the benefits provided by the contract.
Claimant.
The person making a demand for payment of benefits
Class (or Classification).
A group of insureds having the same general characteristics and
who are, therefore, grouped together for rating purposes. Class
rates apply to dwellings and apartments, since they usually have
the same general characteristics and are exposed to the same
perils.
Clause.
A section of a policy contract or endorsement dealing with a
particular subject. For instance, a Subrogation Clause deals
with the rights of the insurer in the event of payment of a loss
under the contract.
Commercial Lines.
This term is used to refer to insurance for businesses, professionals,
and commercial establishments. See also Business Insurance. Contrast
with Personal Lines.
Commercial Package
Policy (CPP).
A commercial lines policy that contains more than one of the
following coverage parts: Commercial Property, Commercial General
Liability, Commercial Inland Marine, Commercial Crime, Boiler
and Machinery Insurance, Commercial Automobile Insurance, and
Farm Coverage.
Contract.
(1) An agreement entered into by two or more persons under which
one or more of them agree, for a consideration, to do or refrain
from doing acts in accordance with the wishes of the other party(s).
(2) In insurance, the agreement by which an insurer agrees, for
a consideration, to provide benefits, reimburse losses or provide
services for an insured. A "policy" is the written
statement of the terms of the contract. (3) An agreement under
which an agency or agent does business with an insurer
Collision Insurance
A form of Automobile Insurance that covers loss to the insured's
own vehicle caused by its collision with another vehicle or object
or its upset but not covering bodily injury or property damage
liability arising out of the collision.
Comprehensive Coverage.
Traditional name for physical damage coverage for losses by fire,
theft, vandalism, falling objects, and various other perils.
On Personal Auto Policies, this is now called "other than
collision" coverage. On commercial forms, it continues to
be called "comprehensive" coverage.
Covered Loss.
Illness, injury, death, property loss, legal liability, or any
other situation or loss for which an insurance company will pay
benefits under a policy when such event occurs.
Credit Report.
A confidential report made by an independent individual or organization
that has investigated the reputation and record of an applicant
for insurance.
Declination.
Rejection of an application for insurance by the insurer.
Deductible.
The portion of an insured loss to be borne by the insured before
he is entitled to recovery from the insurer.
Drive-Other-Car Endorsement
(DOC).
A coverage that may be added to an Automobile policy affording
auto coverage to the individuals named in the endorsement while
they are driving cars not owned by the individuals and not named
in the policy.
Deductible Clause.
A contract provision that sets forth the deductible.
Depreciation.
A decrease in the value of any type of tangible property over
a period of time resulting from use, wear and tear, or obsolescence.
Disability.
A condition that curtails to some degree a person's ability to
carry on his normal pursuits. A disability may be partial or
total, and temporary or permanent.
Drive-In Claim Service.
A facility maintained by an Automobile insurer in which the extent
of damage to a claimant's automobile can be determined and, in
many cases, a settlement made.
Earned Premium.
The amount of the premium that has been "used up" during
the term of a policy. For example, if a one-year policy has been
in effect six months, half of the total premium has been earned.
Effective Date.
The date on which the protection of an insurance policy or bond
goes into effect.
Employers Nonownership
Liability Insurance.
Protects the employer for liability arising from the use by employees
of their own cars on company business.
Extended Non-Owner
Liability.
An endorsement attached to a Personal Auto Policy to provide
broader liability coverage only for specifically named individuals.
When attached, it covers non-owned autos furnished for the regular
use of an insured, use of vehicles to carry persons or property
for a fee, and broader coverage for business use of vehicles
Endorsement.
A written or printed form attached to the policy which alters
provisions of the contract.
Estate Plan.
A plan for the disposition of one's property at death, including
the handling of property in the event of the incompetency or
total disability of the estate owner. A will is part of an estate
plan.
Estimated Premium.
A provisional premium which is adjusted at the end of the year.
For example, in Workers Compensation Insurance an estimated premium
is based on estimated payrolls for the coming year. At the end
of the year, final payrolls are determined and the final premium
is computed.
Excess Insurance.
A coverage designed to be in excess over one or more primary
coverages, and which does not pay a loss until the loss amount
exceeds a certain sum. Contrast with Primary Coverage.
Face Amount.
The amount of insurance provided by the terms of an insurance
contract, usually found on the face of the policy. In a Life
Insurance policy, the death benefit.
Fiduciary.
A person holding the funds or property of another in a position
of trust. An example would be the executor of an estate.
Financial Statement.
The disclosure of the financial results of a firm's operations.
It involves the balance sheet, profit and loss statement, and
associated information.
First Named Insured.
The first named insured appearing on a commercial policy. The
latest forms permit the insurer to satisfy contractual duties
by giving notice to the "first" named insured rather
than requiring notice to all named insureds.
First Party Insurance.
Insurance which applies to coverage for the insured's own property
or person. Contrast with Third Party Insurance.
Financial Responsibility
Clause.
A clause which states that a policy conforms to the financial
responsibility laws of any state in which the insured is operating
the insured vehicle.
Fleet Policy.
An insurance contract that applies to a number of vehicles. Usually
5 or more self-propelled vehicles constitute a fleet.
Form.
(1) An insurance document which, when attached to a policy, makes
it complete. For example, a Standard Fire policy would have to
have a Business Interruption form attached to it to make up a
Business Interruption policy. (2) Any rider or endorsement, such
as a Deductible Endorsement "form."
Garage Coverage Form.
A commercial Automobile Insurance coverage form used to insure
automobile dealers, repair shops, service stations, and garage
risks. Garage liability, garagekeepers coverage, and physical
damage coverages may be included.
Good Student Discount.
A discount granted to students with high scholastic ratings.
There is a proven relationship between good grades and safe driving.
Hazard.
A specific situation that increases the probability of the occurrence
of loss arising from a peril, or that may influence the extent
of the loss. For example, accident, sickness, fire, flood, liability,
burglary, and explosion are perils. Slippery floors, unsanitary
conditions, shingled roofs, congested traffic, unguarded premises,
and uninspected boilers are also hazards.
Hired Automobile.
Autos the insured leases, hires, rents, or borrows, but not autos
owned by employees or members of their households.
Indemnify.
To restore the victim of a loss to the same position as before
the loss occurred.
Indemnity.
Restoration to the victim of a loss by payment, repair, or replacement.
Independent Agent.
An agent operating as an independent contractor under the independent
agency system.
Inspection Report.
A summary statement of the physical, financial, and moral attributes
of an insured or an applicant for insurance on his property.
Such reports are prepared by inspection bureaus, specialized
organizations, and insurers.
Insurability.
Acceptability to the insurer of an applicant for insurance.
Insurable Interest.
Any interest a person has in a possible subject of insurance,
such as a car or home, of such a nature that a certain happening
might cause him financial loss.
Insurance.
A formal social device for reducing risk by transferring the
risks of several individual entities to an insurer. The insurer
agrees, for a consideration, to assume, to a specified extent,
the losses suffered by the insured.
Insurance to Value.
Insurance written in an amount approximating the value of the
property insured.
Insured.
The party to an insurance arrangement whom the insurer agrees
to indemnify for losses, provide benefits for, or render services
to. This term is preferred to such terms as policyholder, policy
owner, and assured. See also Named Insured.
Insurer.
The party to an insurance arrangement who undertakes to indemnify
for losses, provide pecuniary benefits, or render services. It
is desirable to use the word "insurer" in preference
to "carrier" or "company" since it is a functional
word applicable without ambiguity to all types of individuals
or organizations performing the insurance function. The word
insurer is generally used in statutory law.
Insuring Agreement (or Clause).
That portion of an insurance contract which states the perils
insured against, the persons and/or property covered, their locations,
and the period of the contract.
Lapse.
Termination of a policy because of failure to pay the premium.
In Life Insurance, the term refers to nonpayment before the policy
has developed any nonforfeiture values. If it has, and the premium
is not paid, it is said to have lapsed "except as to any
nonforfeiture benefits that may apply."
Lapsed Policy.
One which has been allowed to expire because of nonpayment of
premiums.
Limits.
(1) Ages below or above which the insurer will not issue a policy
or above which it will not continue a policy presently in force.
(2) The maximum amount of benefits payable for a given situation
or occurrence, e.g., a limit of $50,000 on the contents of a
home, or a $40,000 per accident limit for Property Damage Liability.
See also Limit of Liability.
Line of Business.
The general classification of business as utilized in the insurance
industry, e.g., Fire, Allied Lines and Homeowners.
Livery Use.
Use of a vehicle for hire to carry persons. Livery use is excluded
in Automobile Insurance contracts unless coverage for it is stated
in the policy
Loss.
Generally refers to (1) the amount of reduction in the value
of an insured's property caused by an insured peril, (2) the
amount sought through an insured's claim, or (3) the amount paid
on behalf of an insured under an insurance contract.
Loss Payee.
The party to whom money or insurance proceeds is to be paid in
the event of loss, such as the lienholder on an automobile or
the mortgagee on real property.
Lost Policy Release.
A statement signed by an insured releasing the insurer from all
liability for a lost or mislaid contract of insurance. It is
usually signed after the company has issued a replacement policy.
Malicious Mischief.
Similar to vandalism. Purposely damaging the rights or property
of another. See also V&MM.
Motor Vehicle Record
(MVR).
The record of an automobile driver's accidents and/or traffic
violations.
Market Value.
The price for which something would sell, especially the value
of certain types of assets, such as stocks and bonds. It is based
on what they would sell for under current market conditions.
For example, common stock market value would be the price of
the stock as of a specified date. See also Actual Cash Value.
Monoline Policy.
Any insurance coverage written as a single line policy. Contrast
with Multiple Line or Package policy.
Moral Hazard.
A condition of morals or habits that increases the probability
of loss from a peril. An extreme example would be an individual
who previously burned his own property to collect the insurance.
Morale Hazard.
Hazard arising out of an insured's indifference to loss because
of the existence of insurance. The attitude, "It's insured,
so why worry," is an example of a morale hazard.
Named Insured.
Any person, firm, or corporation, or any member thereof, specifically
designated by name as the insured(s) in a policy. Others may
be protected as insureds even though their names do not appear
on the policy. A common application of this latter principle
is in Automobile policies where, under the definition of insured,
protection is extended to cover other drivers using the car with
the permission of the named insured.
Named Non-Owner
Policy.
An Automobile Insurance policy issued to someone who does not
own an automobile, but who drives borrowed or rented autos.
No-Fault Insurance.
Many states have passed laws permitting the individual automobile
accident victim to collect directly from his or her own insurance
company for medical and hospital expenses regardless of who was
at fault in the accident. There are many variations in the laws
of those states which have no-fault statutes. Most states do
allow the individual to sue the negligent party if the amount
of damages exceeds a certain stated limit. See also Keeton-O'Connell
Plan.
Nonowned Auto.
Any autos not owned, leased, hired, or borrowed which are used
in connection with the business.
Negligence.
Failure to use that degree of care which an ordinary person of
reasonable prudence would use under the given or similar circumstances.
A person may be negligent by acts of omission or commission or
both.
Nonrenewal.
Termination of insurance coverage at an expiration date or anniversary
date. This action may be taken by an insurer who refuses to renew,
or by an insured who rejects a renewal offer.
Notice of Cancellation.
Written notice by an insurer of intent to cancel insurance, or
written notice by an insured requesting cancellation.
Occurrence.
An event that results in an insured loss. In some lines of insurance,
such as Liability, it is distinguished from accident in that
the loss does not have to be sudden and fortuitous and can result
from continuous or repeated exposure which results in bodily
injury or property damage neither expected nor intended by the
insured.
Other Insurance
Clause.
A provision found in almost every insurance policy except Life
and sometimes Health stating what is to be done in case any other
contract of insurance embraces the same property and/or hazards.
See also Nonduplication of Benefits and Apportionment.
Package Policy.
Any insurance policy including two or more lines or types of
coverages in the same contract. Personal and commercial package
policies are very common today. In fact, most policies sold are
package policies.
Physical Damage.
A term indicating damage from such perils as collision, comprehensive,
fire and theft or any damage to the vehicle itself.
Peril.
The cause of a possible loss. Contrast with Hazard and Risk.
Personal Lines.
This term is used to refer to insurance for individuals and families,
such as private passenger automobile insurance and homeowner
policies. Contrast with Business Insurance and Commercial Lines.
Personal Property
of Others.
Property, other than real property, which is not owned by an
insured. Liability forms have traditionally excluded coverage
for property of others in an insured's care, custody or control.
Modern homeowner forms and commercial property forms provide
some coverage for property of others.
Physical Hazard.
Any hazard arising from the material, structural, or operational
features of the risk itself apart from the persons owning or
managing it.
Policy.
The written statement of a contract effecting insurance, or certificates
thereof, by whatever name called, and including all clauses,
riders, endorsements, and papers attached thereto and made a
part thereof.
Policy Anniversary.
The anniversary of the date of issue of a policy as shown in
the policy declarations.
Policy Period (or
Term).
The period during which the policy contract affords protection,
e.g., six months or one or three years.
Policyholder.
(1) The person in actual possession of an insurance policy. (2)
Often used loosely to refer to the policy owner and/or insured.
See also Insured.
Premises.
The particular location of property or a portion thereof as designated
in a policy.
Premium.
The price of insurance protection for a specified risk for a
specified period of time.
Primary Coverage.
Insurance coverage which covers from the first dollar, perhaps
after a deductible, as distinguished from excess coverage which
pays only after some primary coverage has been exhausted. Contrast
with Excess Insurance.
Proof of Loss.
A formal statement made by a policy owner to an insurer regarding
a loss. It is intended to give information to the insurer to
enable it to detemine the extent of its liability.
Rate.
The cost of a given unit of insurance. For example, in Ordinary
Life Insurance, it is the price of $1,000 of the face amount.
In Disability Income Insurance, it is usually the price per $10
or per $100 of monthly benefits. In Property Insurance, it is
the rate per $100 of value to be insured. The premium, then,
is the rate multiplied by the number of units of insurance purchased.
Renewal.
The reestablishment of the in-force status of a policy, the term
of which has expired or will expire unless it is renewed.
Return Premium.
A portion of the premium returned to a policy owner as a result
of cancellation, rate adjustment, or a calculation that an advance
premium was in excess of the actual premium.
Risk Management.
Management of the pure risks to which a company might be subject.
It involves analyzing all exposures to the possibility of loss
and determining how to handle these exposures through such practices
as avoiding the risk, reducing the risk, retaining the risk,
or transferring the risk, usually by insurance.
Risk Retention Groups.
Liability insurance companies owned by their policyholders. Membership
is limited to people in the same business or activity which exposes
them to similar liability risks. The purpose is to assume and
spread liability exposure to group members and to provide an
alternative risk financing mechanism for liability.
Self-Insured Retention
(SIR).
That portion of a risk or potential loss assumed by an insured.
It may be in the form of a deductible, self-insurance, or no
insurance.
Settlement.
Usually, a policy benefit or claim payment. It connotes an agreement
between both parties to the policy contract as to the amount
and method of payment.
Short Rate Cancellation.
A cancellation procedure in which the premium returned to the
insured is not in direct proportion to the number of days remaining
in the policy period. In effect, the insured has paid more for
each day of coverage than if the policy had remained in force
for the full term. Contrast with Pro Rata Cancellation.
Specified Causes
of Loss.
A commercial automobile physical damage coverage for loss by
the specified perils of fire, lightning, explosion, theft, windstorm,
hail, earthquake, flood, vandalism, or the sinking, burning,
collision or derailment of any conveyance transporting a covered
auto. Comprehensive coverage is slightly broader.
Single Limit.
Any insurance coverage which is expressed as a single amount
of insurance, or a single limit of liability. Contrast with Split
Limit.
Split Limit.
Any insurance coverage which is expressed in different amounts
for different types of losses. For example, automobile liability
of 50/100/50 means bodily injury limits of $50,000 per person,
$100,000 per accident, and a property damage limit of $50,000
per accident. Contrast with Single Limit.
Subrogation Clause.
A clause giving an insurer the right to pursue any course of
action, in its own name or the name of a policy owner, against
a third party who is liable for a loss which has been paid by
the insurer. One of its purposes is to make sure that an insured
does not make any profit from his insurance. This clause prevents
him from collecting from both his insurer and a third party.
It is never part of a Life Insurance policy.
Term.
The period of time for which a policy or bond is issued.
Total Loss.
A loss of sufficient size so that it can be said there is nothing
left of value. The complete destruction of the property. The
term is also used to mean a loss requiring the maximum amount
a policy will pay.
Underinsurance.
A condition in which not enough insurance is carried to cover
the insurable value.
Underwriter.
A technician trained in evaluating risks and determining rates
and coverages for them. The term derives from the practice at
Lloyd's of each person willing to accept a portion of the risk
writing his name under the description of the risk.
Underinsured Motorists
Coverage.
A coverage in an Automobile Insurance policy under which the
insurer will pay damages up to specified limits for bodily injury
damages, if the limits of liability under the liable motorist's
policy are exhausted and he cannot pay the full amount he is
liable for.
Unearned Premium.
That portion of the written premium applicable to the unexpired
or unused part of the period for which the premium has been paid.
Thus, in the case of an annual premium, at the end of the first
month of the premium period eleven-twelfths of the premium is
unearned.
Valuation Clause.
A clause stating the value of items for insurance purposes, making
it a valued policy.
Waiver.
(1) A rider waiving (excluding) liability for a stated cause
of injury or sickness. (2) A provision or rider agreeing to waive
premium payments during a period of disability of the insured.
(3) The act of giving up or surrendering a right or privilege
that is known to exist. In Property and Liability fields, it
may be effected by an agent, adjuster, company, employee, or
company official, and it can be done either orally or in writing.
We/Us/Our.
These words are used to refer to the insurer in many of the modernized/personalized
policy forms recently introduced.
You/Your.
These words are used to refer to the named insured in many of
the modernized/personalized policy forms.
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