Glossary of Insurance Terms

A

Accident Insurance – insurance for unforeseen bodily injury.
Actual Cash Value – repayment value for indemnification due to loss or damage of property; in most cases it is replacement cost minus depreciation.
Admitted Company – an insurance company licensed to do business in a state(s), domiciled in an alternative state or country.
Agent – an individual who sells, services, or negotiates insurance policies either on behalf of a company or independently.
Aggregate – the maximum dollar amount or total amount of coverage payable for a single loss, or multiple losses, during a policy period, or on a single project.
ALAE – an estimate of the claims settlement associated with a particular claim or claims.
Assigned Risk – a governmental pool established to write business declined by carriers in the standard insurance market.
Auto Liability – coverage that protects against financial loss because of legal liability for motor vehicle related injuries (bodily injury and medical payments) or damage to the property of others caused by accidents arising out of ownership, maintenance or use of a motor vehicle (including recreational vehicles such as motor homes). Commercial is defined as all motor vehicle policies that include vehicles that are used primarily in connection with business, commercial establishments, activity, employment, or activities carried on for gain or profit. No Fault is defined by the state concerned.
Auto Physical Damage – motor vehicle insurance coverage (including collision, vandalism, fire and theft) that insures against material damage to the insured’s vehicle. Commercial is defined as all motor vehicle policies that include vehicles that are used in connection with business, commercial establishments, activity, employment, or activities carried on for gain or profit.
Automobile Liability Insurance – coverage for bodily injury and property damage incurred through ownership or operation of a vehicle.

B

Blanket Coverage – coverage for property and liability that extends to more than one location, class of property or employee.
Boatowners/Personal Watercraft – covers damage to pleasure boats, motors, trailers, boating equipment and personal watercraft as well as bodily injury and property damage liability to others.
Boiler & Machinery or Equipment Breakdown & Machinery – coverage for the failure of boilers, machinery and other electrical equipment. Benefits include (i) property of the insured, which has been directly damaged by the accident; (ii) costs of temporary repairs and expediting expenses; and (iii) liability for damage to the property of others. Coverage also includes inspection of the equipment.
Book Value – original cost, including capitalized acquisition costs and accumulated depreciation, unamortized premium and discount, deferred origination and commitment fees, direct write-downs, and increase/decrease by adjustment.
Broker – an individual who receives commissions from the sale and service of insurance policies. These individuals work on behalf of the customer and are not restricted from selling policies for a specific company, but commissions are paid by the company with which the sale was made.
Builders’ Risk Policies – typically written on a reporting or completed value form, this coverage insures against loss to buildings in the course of construction. The coverage also includes machinery and equipment used in the course of construction and materials incidental to construction.
Business Auto – coverage for motor vehicles, other than those in the garage business, engaged in commerce. Business auto filings include singularly or in any combination coverage such as the following: Auto Liability, PIP, MP, Uninsured Motorist and/or Underinsured Motorists (UM/UIM); Specified Causes of Loss, Comprehensive, and Collision.
Business Interruption – loss of income as a result of property damage to a business facility.
Business Owners Policy – business insurance typically for property, liability and business interruption coverage.

C

Casualty Insurance – a form of liability insurance providing coverage for negligent acts and omissions such as workers compensation, errors and omissions, fidelity, crime, glass, boiler, and various malpractice coverages.
Claim – a request made by the insured for insurer remittance of payment due to loss incurred and covered under the policy agreement.
Claims Adjustment Expenses – costs expected to be incurred in connection with the adjustment and recording of accident and health, auto medical and workers’ compensation claims.
Claims-made Form – a type of liability insurance form that only pays if both an event that causes (triggers) the claim and the actual claim are submitted to the insurance company during the policy term.
Coinsurance – a clause contained in most property insurance policies to encourage policy holders to carry a reasonable amount of insurance. If the insured fails to maintain the amount specified in the clause (usually at least 80%), the insured shares a higher proportion of the loss. In medical insurance a percentage of each claim that the insured will bear.
Commercial Auto – coverage for motor vehicles owned by a business engaged in commerce that protects the insured against financial loss because of legal liability for motor vehicle related injuries, or damage to the property of others caused by accidents arising out of the ownership, maintenance, use, or care-custody & control of a motor vehicle. This includes Commercial Auto Combinations of Business Auto, Garage, Truckers and/or Other Commercial Auto.
Commercial Farm and Ranch – a commercial package policy for farming and ranching risks that includes both property and liability coverage. Coverage includes barns, stables, other farm structures and farm inland marine, such as mobile equipment and livestock.
Commercial Flood – separate flood insurance policy sold to commercial ventures.
Commercial General Liability – flexible & broad commercial liability coverage with two major sub-lines: premises/operations sub-line and products/completed operations sub-line.
Commercial Multiple Peril – policy that packages two or more insurance coverages protecting an enterprise from various property and liability risk exposures. Frequently includes fire, allied lines, various other coverages (e.g., difference in conditions) and liability coverage. Such coverages would be included in other annual statement lines, if written individually. Include under this type of insurance multi-peril policies (other than farmowners, homeowners and automobile policies) that include coverage for liability other than auto.
Commercial Package Policy – provides a broad package of property and liability coverages for commercial ventures other than those provided insurance through a business owners policy.
Commercial Property – property insurance coverage sold to commercial ventures.
Commission – a percentage of premium paid to agents by insurance companies for the sale of policies.
Completed Operations Liability – policies covering the liability of contractors, plumbers, electricians, repair shops, and similar firms to persons who have incurred bodily injury or property damage from defective work or operations completed or abandoned by or for the insured, away from the insured’s premises.
Comprehensive General Liability (CGL) – coverage of all business liabilities unless specifically excluded in the policy contract.
Comprehensive Personal Liability – comprehensive liability coverage for exposures arising out of the residence premises and activities of individuals and family members. (Non-business liability exposure protection for individuals.)
Conditions – requirements specified in the insurance contract that must be upheld by the insured to qualify for indemnification.
Condos – homeowners insurance sold to condominium owners occupying the property described.

D

Deductible – portion of the insured loss (in dollars) paid by the policy holder.
Directors & Officers Liability – liability coverage protecting directors or officers of a corporation from liability arising out of the performance of their professional duties on behalf of the corporation.
Dwelling Property/Personal Liability – a special form of package policy composed of dwelling fire and/or allied lines, and personal liability insurance.

E

Earned Premium – portion of insured’s prepaid premium allocated to the insurance company’s loss experience, expenses, and profit year-to-date.
Earthquake – property coverages for losses resulting from a sudden trembling or shaking of the earth, including that caused by volcanic eruption. Excluded are losses resulting from fire, explosion, flood or tidal wave following the covered event.
Effective Date – date at which an insurance policy goes into force.
Employers Liability – employers’ liability coverage for the legal liability of employers arising out of injuries to employees. This code should be used when coverage is issued as an endorsement, or as part of a statutory workers’ compensation policy.
Employment Practices Liability Coverage – liability insurance for employers providing coverage for wrongful termination, discrimination, or sexual harassment of the insured’s current or former employees.
Endorsement – an amendment or rider to a policy adjusting the coverages and taking precedence over the general contract.
Environmental Impairment Liability (EIL) – coverage for negligence or omission resulting in pollution or environmental contamination.
Environmental Pollution Liability – liability coverage of an insured to persons who have incurred bodily injury or property damage from acids, fumes, smoke, toxic chemicals, waste materials or other pollutants.
Errors and Omissions Liability – liability coverage of a professional or quasi professional insured to persons who have incurred bodily injury or property damage, or who have sustained any loss from omissions arising from the performance of services for others, errors in judgment, breaches of duty, or negligent or wrongful acts in business conduct.
Event Cancellation – coverage for financial loss because of the cancellation or postponement of a specific event due to weather or other unexpected cause beyond the control of the insured.
Excess and Umbrella Liability – liability coverage of an insured above a specific amount set forth in a basic policy issued by the primary insurer; or a self-insurer for losses over a stated amount; or an insured or self-insurer for known or unknown gaps in basic coverages or self-insured retentions.
Experience Rating – rating system where each group is rated entirely on the basis of its own expected claims in the coming period, with retrospective adjustments for prior periods. This method is prohibited under the conditions for federal qualification.
Exposure – risk of possible loss.
Extra Expense Insurance – a type of property insurance for extraordinary expenses related to business interruption such as a back-up generator in case of power failure.

F

Farmowners Insurance – farmowners insurance sold for personal, family or household purposes. This package policy is similar to a homeowners policy, in that it has been developed for farms and ranches and includes both property and liability coverage for personal and business losses. Coverage includes farm dwellings and their contents.
Federal Flood Insurance – coverage for qualifying residents and businesses in flood prone regions through the National Flood Insurance Act, a federally subsidized flood insurance program enacted in 1968.
Fire – coverage protecting the insured against the loss of real or personal property from damage caused by the peril of fire or lightning, including business interruption, loss of rents, etc.
Fire Legal Liability – coverage for property loss liability as the result of separate negligent acts and/or omissions of the insured that allows a spreading fire to cause bodily injury or property damage of others. An example is a tenant who, while occupying another party’s property, through negligence causes fire damage to the property.
Flood – coverage protecting the insured against loss or damage to real or personal property from flood. (Note: If coverage for flood is offered as an additional peril on a property insurance policy, file it under the applicable property insurance filing code.)

H

Hold-Harmless Agreement – a risk transfer mechanism whereby one party assumes the liability of another party by contract.
Homeowners Insurance – a package policy combining real and personal property coverage with personal liability coverage. Coverage applicable to the dwelling, appurtenant structures, unscheduled personal property and additional living expenses are typical. Includes mobile homes at a fixed location.

I

Indemnity, Principle of – a general legal principle related to insurance that holds that the individual recovering under an insurance policy should be restored to the approximate financial position he or she was in prior to the loss. Legal principle limiting compensation for damages is equivalent to the losses incurred.
Independent Agent – a representative of multiple insurance companies who sells and services policies for records which they own and operate under the American Agency System.
Independent Contractor – an individual who is not employed for a company but instead works for themselves providing goods or services to clients for a fee.
Insurable Interest – a right or relationship in regard to the subject matter of the insured contract such that the insured can suffer a financial loss from damage, loss or destruction to it. (Bickelhaupt and Magee)
Insurance – an economic device transferring risk from an individual to a company and reducing the uncertainty of risk via pooling.
Insurance to Value – amount of insurance purchased vs. the actual replacement cost of the insured property expressed as a ratio.
Insured – party(ies) covered by an insurance policy.
Insurer – an insurer or reinsurer authorized to write property and/or casualty insurance under the laws of any state.
Internet Liability Insurance/Cyber Insurance – coverage for cyber commerce including copyright infringement, libel, and violation of privacy.

L

Liability – a certain or probable future sacrifice of economic benefits arising from present obligations of a particular entity to transfer assets or to provide services to other entities in the future as a result of past transactions(s) or event(s). three essential characteristics: a) It embodies a present duty or responsibility to one or more other entities that entails settlement by probable future transfer or use of assets at a specified or determinable date, on occurrence of a specified event, or on demand; b) The duty or responsibility obligates a particular entity, leaving it little or no discretion to avoid the future sacrifice; and c) The transaction or other event obligating the entity has already happened.
Limits – maximum value to be derived from a policy.
Line of Business – classification of business written by insurers.
Liquor Liability – coverage for the liability of an entity involved in the retail or wholesale sales of alcoholic beverages, or the serving of alcoholic beverages, to persons who have incurred bodily injury or property damage arising from an intoxicated person.
Loss – physical damage to property or bodily injury, Including loss of use or loss of income.
Loss Adjustment Expense (LAE) – expected payments for costs to be incurred in connection with the adjustment and recording of losses. Can be classified into two broad categories: Defense and Cost Containment (DCC) and Adjusting and Other (AO). Can also be separated into (Allocated Loss Adjustment Expense) and (Unallocated Loss Adjustment Expense for ratemaking purposes.
Loss of Use Insurance – policy providing protection against loss of use due to damage or destruction of property.
Loss Payable Clause – coverage for third party mortgagee in case of default on insured property, secured by a loan, which has been lost or damaged.

M

Market Value – fair value or the price that could be derived from current sale of an asset.
Minimum Premium Plan – an arrangement under which an insurance carrier will, for a fee, handle the administration of claims and insure against large claims for a self-insured group. The employer self-funds a fixed percentage (e.g. 90%) of the estimated monthly claims, and the insurer covers the remainder.
Municipal Liability – liability coverage for the acts of a municipality.
Mutual Insurance Company – a privately held insurer owned by its policyholders, operated as a non-profit that may or may not be incorporated.

N

Named Insured – the individual defined as the insured in the policy contract.
NFIP – National Flood Insurance Program – flood insurance and floodplain management for personal and business property administered under the National Flood Act of 1968. Encourages participation by private insurers through a flood insurance pool.

O

Occurrence – an accident, including injurious exposure to conditions, which results during the policy period in bodily injury or property damage neither expected nor intended from the standpoint of the insured. (Bickelhaupt and Magee)
Owner Occupied – homeowners insurance sold to owners occupying the property described.

P

Package Policy – two or more distinct policies combined into a single contract.
Peril – the cause of property damage or personal injury, origin of desire for insurance. “Cause of Loss.”
Personal Auto Policy – coverage designed to insure private passenger automobiles and certain types of trucks owned by an individual or spouses.
Personal Flood – separate flood insurance policy sold for personal, family or household purposes.
Personal Injury Liability – liability coverage for those who have been discriminated against, falsely arrested, illegally detained, libeled, maliciously prosecuted, slandered, suffered from identity theft, mental anguish or alienation of affections, or have had their right of privacy violated.
Personal Injury Protection Coverage/PIP – automobile coverage available in states that have enacted no-fault laws or other auto reparation reform laws for treatment of injuries to the insured and passengers of the insured.
Personal Property – single interest or dual interest credit insurance (where collateral is not a motor vehicle, mobile home, or real estate) that covers perils to goods purchased or used as collateral and that concerns a creditor’s interest in the purchased goods or pledged collateral either in whole or in part; or covers perils to goods purchased in connection with an open-end credit transaction.
Policy Period – time period during which insurance coverage is in effect.
Pollution – environmental contamination.
Premises and Operations – policies covering the liability of an insured to persons who have incurred bodily injury or property damage on an insured’s premises during normal operations or routine maintenance, or from an insured’s business operations either on or off of the insured’s premises.
Premium – money charged for insurance coverage reflecting an expectation of loss.
Primary Insurance – coverage that takes precedence when more than one policy covers the same loss.
Private Passenger Auto (PPA) – filings that include singularly or in any combination coverage such as the following: Auto Liability, Personal Injury Protection (PIP), Medical Payments (MP), Uninsured/Underinsured (UM/UIM); Specified Causes of Loss, Comprehensive, and Collision.
Product Liability – insurance coverage protecting the manufacturer, distributor, seller, or lessor of a product against legal liability resulting from a defective condition causing personal injury, or damage, to any individual or entity, associated with the use of the product.
Professional Errors and Omissions Liability – coverage available to pay for liability arising out of the performance of professional or business-related duties, with coverage being tailored to the needs of the specific profession. Examples include abstracters, accountants, insurance adjusters, architects, engineers, insurance agents and brokers, lawyers, real estate agents, and stockbrokers.
Property – coverage protecting the insured against loss or damage to real or personal property from a variety of perils, including but not limited to fire, lightening, business interruption, loss of rents, glass breakage, tornado, windstorm, hail, water damage, explosion, riot, civil commotion, rain, or damage from aircraft or vehicles.

R

Rate – value of insured losses expressed as a cost per unit of insurance.
Renters Insurance – liability coverage for contents within a renter’s residence. Coverage does not include the structure but does include any affixed items provided or changed by the renter.
Replacement Cost – the cost of replacing property without a reduction for depreciation due to normal wear-and-tear.
Retention – a mechanism of internal fund allocation for loss exposure used in place of or as a supplement to risk transfer to an insurance company.

S

Salvage – value recoverable after a loss.
State of Domicile – the state where a company’s home office is located.
Subrogation – a situation where an insurer, on behalf of the insured, has a legal right to bring a liability suit against a third party who caused losses to the insured. Insurer maintains the right to seek reimbursement for losses incurred by insurer at the fault of a third party.
Surplus Line – specialized property or liability coverage available via nonadmitted insurers where coverage is not available through an admitted insurer, licensed to sell that particular coverage in the state.

T

Total Revenue – premiums, revenue, investment income, and income from other sources.

U

Umbrella and Excess (Commercial) – coverage for the liability of a commercial venture above a specific amount set forth in a basic policy issued by the primary insurer; or a self-insurer for losses over a stated amount; or an insured or self-insurer for known or unknown gaps in basic coverages or self-insured retentions.
Umbrella and Excess (Personal) – non-business liability protection for individuals above a specific amount set forth in a basic policy issued by the primary insurer; or a self-insurer for losses over a stated amount; or an insured or self-insurer for known or unknown gaps in basic coverages or self-insured retentions.
Underinsured Motorist Coverage – policy option for bodily injury or property losses caused by a motorist with coverage insufficient to cover total dollar amount of losses. Compensation for the injured party is equal to the difference between the losses incurred and the liability covered by the motorist at fault.
Underwriter – person who identifies, examines and classifies the degree of risk represented by a proposed insured in order to determine whether or not coverage should be provided and, if so, at what rate.
Underwriting Risk – section of the risk-based capital formula calculating requirements for reserves and premiums.

W

Workers’ Compensation – insurance that covers an employer’s liability for injuries, disability or death to persons in their employment, without regard to fault, as prescribed by state or federal workers’ compensation laws and other statutes.
Written Premium – the contractually determined amount charged by the reporting entity to the policyholder for the effective period of the contract based on the expectation of risk, policy benefits, and expenses associated with the coverage provided by the terms of the insurance contract.