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Glossary of Terms
ACCOUNT RECEIVABLESSee Receivables ACTUAL CASH VALUE A form of insurance that pays damages equal to the replacement value of damaged property minus depreciation. (See Replacement cost ) ADJUSTER An individual employed by a property/casualty insurer to evaluate losses and settle policyholder claims. These adjusters differ from public adjusters, who negotiate with insurers on behalf of policyholders, and receive a portion of a claims settlement. Independent adjusters are independent contractors who adjust claims for different insurance companies. ADMITTED COMPANY An insurance company licensed and authorized to do business in a particular state. AFFINITY SALES Selling insurance through groups such as professional and business associations. AGENCY COMPANIES Companies that market and sell products via independent agents. AGENT Insurance is sold by two types of agents: independent agents, who are self-employed, represent several insurance companies and are paid on commission, and exclusive or captive agents, who represent only one insurance company and are either salaried or work on commission. Insurance companies that use exclusive or captive agents are called direct writers. ALL RISK COVERAGE Insurance policy that covers losses from all causes not specifically excluded in the policy. ARSON The deliberate setting of a fire. AUTO INSURANCE POLICY There are basically six different types of 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. BEACH AND WINDSTORM PLANS State-sponsored insurance pools that sell property coverage for the peril of windstorm to people unable to buy it in the voluntary market because of their high exposure to risk. Seven states (AL, FL, LA, MS, NC, SC, TX) offer these plans to cover residential and commercial properties against hurricanes and other windstorms. Georgia and New York provide this kind of coverage for windstorm and hail in certain coastal communities through other property pools. Insurance companies that sell property insurance in the state are required to participate in these plans. Insurers share in profits and losses. (See Fair access to insurance requirements plans / FAIR plans, Residual market ) BINDER Temporary authorization of coverage issued prior to the actual insurance policy. BLANKET INSURANCE Coverage for more than one type of property at one location or one type of property at more than one location. Example: chain stores. BODILY INJURY LIABILITY COVERAGE Portion of an auto insurance policy that covers injuries the policyholder causes to someone else. BOILER AND MACHINERY INSURANCE Often called Equipment Breakdown, or Systems Breakdown insurance. Commercial insurance that covers damage caused by the malfunction or breakdown of boilers, and a vast array of other equipment including air conditioners, heating, electrical, telephone, and computer systems. BOND A security that obligates the issuer to pay interest at specified intervals and to repay the principal amount of the loan at maturity. In insurance, a form of suretyship. Bonds of various types guarantee a payment or a reimbursement for financial losses resulting from dishonesty, failure to perform and other acts. BURGLARY AND THEFT INSURANCE Insurance for the loss of property due to burglary, robbery or larceny. It is provided in a standard homeowners policy and in a business multiple peril policy. BUSINESS INCOME INSURANCE (also known as BUSINESS INTERRUPTION INSURANCE) Commercial coverage that reimburses a business owner for lost profits and continuing fixed expenses during the time that a business must stay closed while the premises are being restored because of physical damage from a covered peril, such as a fire. Business interruption insurance also may cover financial losses that may occur if civil authorities limit access to an area after a disaster and their actions prevent customers from reaching the business premises. Depending on the policy, civil authorities coverage may start after a waiting period and last for two or more weeks. BUSINESSOWNERS POLICY / BOP A policy that combines property, liability and business interruption coverages for small- to medium-sized businesses. Coverage is generally cheaper than if purchased through separate insurance policies. CLAIMS-MADE POLICY A form of insurance that pays claims presented to the insurer during the term of the policy or within a specific term after its expiration. It limits liability insurers’ exposure to unknown future liabilities. (See Occurrence policy ) COINSURANCE In property insurance, requires the policyholder to carry insurance equal to a specified percentage of the value of property to receive full payment on a loss. For health insurance, it is a percentage of each claim above the deductible paid by the policyholder. For a 20 percent health insurance coinsurance clause, the policyholder pays for the deductible plus 20 percent of his covered losses. After paying 80 percent of losses up to a specified ceiling, the insurer starts paying 100 percent of losses. COLLISION COVERAGE Portion of an auto insurance policy that covers the damage to the policyholder’s car from a collision. COMMERCIAL GENERAL LIABILITY INSURANCE / CGL A broad commercial policy that covers all liability exposures of a business that are not specifically excluded. Coverage includes product liability, completed operations, premises and operations, and independent contractors. COMMERCIAL LINES Products designed for and bought by businesses. Among the major coverages are boiler and machinery, business interruption, commercial auto, comprehensive general liability, directors and officers liability, fire and allied lines, inland marine, medical malpractice liability, product liability, professional liability, surety and fidelity, and workers compensation. Most of these commercial coverages can be purchased separately except business interruption which must be added to a fire insurance (property) policy. (See Commercial multiple peril policy ) COMMERCIAL MULTIPLE PERIL POLICY Package policy that includes property, boiler and machinery, crime, and general liability coverages. 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. COMPREHENSIVE COVERAGE Portion of an auto insurance policy that covers damage to the policyholder’s car 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. CONTINGENT LIABILITY 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. COVERAGE Synonym for insurance. CRIME INSURANCE Term referring to property coverages for the perils of burglary, theft and robbery. DECLARATION Part of a property or liability insurance policy that states the name and address of policyholder, property insured, its location and description, the policy period, premiums, and supplemental information. Referred to as the “dec page.” DEDUCTIBLE The amount of loss paid by the policyholder. Either a specified dollar amount, a percentage of the claim amount, or a specified amount of time that must elapse before benefits are paid. The bigger the deductible, the lower the premium charged for the same coverage. DOMESTIC INSURANCE COMPANY Term used by a state to refer to any company incorporated there. EARNED PREMIUM The portion of premium that applies to the expired part of the policy period. Insurance premiums are payable in advance but the insurance company does not fully earn them until the policy period expires. EARTHQUAKE INSURANCE Covers a building and its contents, but includes a large percentage deductible on each. A special policy or endorsement exists because earthquakes are not covered by standard homeowners or most business policies. ECONOMIC LOSS 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 noneconomic losses, such as pain caused by an injury. ELECTRONIC COMMERCE / E-COMMERCE The sale of products such as insurance over the Internet. EMPLOYEE DISHONESTY COVERAGE Covers direct losses and damage to businesses resulting from the dishonest acts of employees. (See FIDELITY BOND ) EMPLOYER’S LIABILITY Part B of the workers compensation policy that provides coverage for lawsuits filed by injured employees who, under certain circumstances, can sue under common law. (See EXCLUSIVE REMEDY ) EMPLOYMENT PRACTICES LIABILITY COVERAGE Liability insurance for employers that covers wrongful termination, discrimination, or sexual harassment toward the insured’s employees or former employees. ENDORSEMENT A written form attached to an insurance policy that alters the policy’s coverage, terms, or conditions. Sometimes called a rider. ERRORS AND OMISSIONS COVERAGE / E&O A professional liability policy covering the policyholder for negligent acts and omissions that may harm his or her clients. EXCLUSION A provision in an insurance policy that eliminates coverage for certain risks, people, property classes, or locations. EXPERIENCE Record of losses. EXPOSURE Possibility of loss. 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. (See Residual market ) FIRE INSURANCE Coverage protecting property against losses caused by a fire or lightning that is usually included in homeowners or commercial multiple peril policies. FIRST-PARTY COVERAGE 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. (See No-fault, Third-party coverage ) FLOATER 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. FLOOD INSURANCE 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. FOREIGN INSURANCE COMPANY Name given to an insurance company based in one state by the other states in which it does business. FRAUD 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. FREQUENCY Number of times a loss occurs. One of the criteria used in calculating premium rates. GLASS INSURANCE 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. 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. INSURANCE-TO-VALUE Insurance written in an amount approximating the value of the insured property. LIABILITY INSURANCE Insurance for what the policyholder is legally obligated to pay because of bodily injury or property damage caused to another person. LIMITS Maximum amount of insurance that can be paid for a covered loss. LIQUOR LIABILITY Coverage for bodily injury or property damage caused by an intoxicated person who was served liquor by the policyholder. LOSS A reduction in the quality or value of a property, or a legal liability. MEDICAL PAYMENTS INSURANCE A coverage in which the insurer agrees to reimburse the insured and others up to a certain limit for medical or funeral expenses as a result of bodily injury or death by accident. Payments are without regard to fault. MULTIPLE PERIL POLICY A package policy, such as a homeowners or business insurance policy, that provides coverage against several different perils. It also refers to the combination of property and liability coverage in one policy. In the early days of insurance, coverages for property damage and liability were purchased separately. NAMED PERIL Peril specifically mentioned as covered in an insurance policy. NATIONAL FLOOD INSURANCE PROGRAM Federal government-sponsored program under which flood insurance is sold to homeowners and businesses. NO-FAULT Auto insurance coverage that pays for each driver’s own injuries, regardless of who caused the accident. No-fault varies from state to state. It also refers to an auto liability insurance system that restricts lawsuits to serious cases. Such policies are designed to promote faster reimbursement and to reduce litigation. NOTICE OF LOSS A written notice required by insurance companies immediately after an accident or other loss. Part of the standard provisions defining a policyholder's responsibilities after a loss. OCCURRENCE POLICY Insurance that pays claims arising out of incidents that occur during the policy term, even if they are filed many years later. (See Claims-made policy ) PACKAGE POLICY A single insurance policy that combines several coverages previously sold separately. Examples include homeowners insurance and commercial multiple peril insurance. PERIL A specific risk or cause of loss covered by an insurance policy, such as a fire, windstorm, flood, or theft. A named-peril policy covers the policyholder only for the risks named in the policy in contrast to an all-risk policy, which covers all causes of loss except those specifically excluded. PERSONAL INJURY PROTECTION COVERAGE / PIP Portion of an auto insurance policy that covers the treatment of injuries to the driver and passengers of the policyholder’s car. POLICY A written contract for insurance between an insurance company and policyholder stating details of coverage. PREMISES The particular location of the property or a portion of it as designated in an insurance policy. PREMIUM The price of an insurance policy, typically charged annually or semiannually. (See Direct premiums, Earned premium, Unearned premium ) PREMIUM TAX A state tax on premiums paid by its residents and businesses and collected by insurers. PRODUCT LIABILITY A section of tort law that determines who may sue and who may be sued for damages when a defective product injures someone. No uniform federal laws guide manufacturer’s liability, but under strict liability, the injured party can hold the manufacturer responsible for damages without the need to prove negligence or fault. PRODUCT LIABILITY INSURANCE Protects manufacturers’ and distributors’ exposure to lawsuits by people who have sustained bodily injury or property damage through the use of the product. PROFESSIONAL LIABILITY INSURANCE Covers professionals for negligence and errors or omissions that injure their clients. PROOF OF LOSS Documents showing the insurance company that a loss occurred. PROPERTY/CASUALTY INSURANCE Covers damage to or loss of policyholders’ property and legal liability for damages caused to other people or their property. Property/casualty insurance, which includes auto, homeowners and commercial insurance, is one segment of the insurance industry. The other sector is life/health. Outside the United States, property/casualty insurance is referred to as nonlife or general insurance. RATE The cost of a unit of insurance, usually per $1,000. Rates are based on historical loss experience for similar risks and may be regulated by state insurance offices. RATING AGENCIES Six major credit agencies determine insurers’ financial strength and viability to meet claims obligations. They are A.M. Best Co.; Duff & Phelps Inc.; Fitch, Inc.; Moody’s Investors Services; Standard & Poor’s Corp.; and Weiss Ratings, Inc. Factors considered include company earnings, capital adequacy, operating leverage, liquidity, investment performance, reinsurance programs, and management ability, integrity and experience. A high financial rating is not the same as a high consumer satisfaction rating. REPLACEMENT COST Insurance that pays the dollar amount needed to replace damaged personal property or dwelling property without deducting for depreciation but limited by the maximum dollar amount shown on the declarations page of the policy. SCHEDULE A list of individual items or groups of items that are covered under one policy or a listing of specific benefits, charges, credits, assets or other defined items. TERRORISM COVERAGE Included as a part of the package in standard commercial insurance policies before September 11, 2001 virtually free of charge. Since September 11, terrorism coverage prices have increased substantially to reflect the current risk. THIRD-PARTY COVERAGE Liability coverage purchased by the policyholder as a protection against possible lawsuits filed by a third party. The insured and the insurer are the first and second parties to the insurance contract. (See First-party coverage ) UMBRELLA POLICY Coverage for losses above the limit of an underlying policy or policies such as business owners and auto insurance. While it applies to losses over the dollar amount in the underlying policies, terms of coverage are sometimes broader than those of underlying policies. UNDERINSURANCE The result of the policyholder’s failure to buy sufficient insurance. An underinsured policyholder may only receive part of the cost of replacing or repairing damaged items covered in the policy. UNDERWRITING Examining, accepting, or rejecting insurance risks and classifying the ones that are accepted, in order to charge appropriate premiums for them. UNEARNED PREMIUM The portion of a premium already received by the insurer under which protection has not yet been provided. The entire premium is not earned until the policy period expires, even though premiums are typically paid in advance. VANDALISM The malicious and often random destruction or spoilage of another person’s property. WORKERS COMPENSATION Insurance that pays for medical care and physical rehabilitation of injured workers and helps to replace lost wages while they are unable to work. State laws, which vary significantly, govern the amount of benefits paid and other compensation provisions. WRITE To insure, underwrite, or accept an application for insurance. |
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