Actual Cash Value: Cost of replacing damaged or destroyed property with comparable new property, minus depreciation and obsolescence. For example, a 10-year-old sofa will not be replaced at current full value because of a decade of depreciation.
Adjuster: A representative of the insurer who seeks to determine the extent of the insurer’s liability for loss when a claim is submitted.
Agent: individual who sells and services insurance policies in either of two classifications: Independent agent represents at least two insurance companies and (at least in theory) services clients by searching the market for the most advantageous price for the most coverage. The agent’s commission is a percentage of each premium paid and includes a fee for servicing the insured’s policy. Direct or career agent represents only one company and sells only its policies. This agent is paid on a commission basis in much the same manner as the independent agent.
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 might occur.
Auto: As the term is currently identified in Insurance Services Office Inc. (ISO), commercial auto and commercial general liability (CGL) insurance policies, and land motor vehicle, trailer, or semitrailer designed for travel on public roads; or any other land vehicle that is subject to compulsory or financial responsibility law or other motor vehicle insurance law where it is licensed or principally garaged. The term “auto” does not include “mobile equipment.” This definition is important in determining whether liability coverage is afforded under an auto liability policy or CGL policy (in the case of mobile equipment).
Automobile Physical Damage Insurance: Automobile insurance coverage that insures against damage to the insured’s own vehicle. Coverage is provided for perils such as collision, vandalism, fire, and theft.
Automobile Liability Insurance: Coverage if an insured is legally liable for bodily injury or property damage caused by an automobile.
Bailee Coverage: Inland marine coverage on property entrusted to the insured for storage, repair, or servicing. It is typically purchased by businesses such as dry cleaners, jewelers, repairers, furriers, etc
Builders Risk Policy: is a special type of property insurance which indemnifies against damage to buildings while they are under construction. Builder’s risk insurance is “coverage that protects a person’s or organization’s insurable interest in materials, fixtures and/or equipment being used in the construction or renovation of a building or structure should those items sustain physical loss or damage from a covered cause.
Building Insurance: Covers the cost of repairing damage to the structure of your property. Garages, sheds and fences can also be covered as well as the cost of replacing items such as pipes, cables and drains.
Building Ordinance Coverage: Coverage for loss caused by enforcement of ordinances or laws regulating construction and repair of damaged buildings. Older structures that are damaged may need upgraded electrical; heating, ventilating, and air-conditioning (HVAC); roofing materials; fences; and plumbing units based on city codes. Many communities have a building ordinance(s) requiring that a building that has been damaged to a specified extent (typically 50 percent) must be demolished and rebuilt in accordance with current building codes rather than simply repaired. Unendorsed, standard commercial property insurance forms do not cover the loss of the undamaged portion of the building, the cost of demolishing that undamaged portion of the building, or the increased cost of rebuilding the entire structure in accordance with current building codes. However, coverage for these loss exposures is widely available by endorsement. Standard homeowners policies include a provision granting a limited amount (e.g., 10 percent of the dwelling limit) of building ordinance coverage; this amount can be increased by endorsement.
Business Income Coverage: Commercial property insurance covering loss of income suffered by a business when damage to its premises by a covered cause of loss causes a slowdown or suspension of its operations. Coverage applies to loss suffered during the time required to repair or replace the damaged property. It may also be extended to apply to loss suffered after completion of repairs for a specified number of days. There are two Insurance Services Office, Inc. (ISO), business income coverage forms: the business income and extra expense coverage form (CP 00 30) and the business income coverage form without extra expense (CP 00 32). Business income coverage (BIC) is also referred to as business interruption coverage.
Business Owners Policy (BOP): A business owner’s policy (also businessowner’s policy, business owners policy or BOP) is a special type of commercial insurance designed for small and medium-sized businesses. By bundling general liability insurance and property insurance into a single policy, BOPs typically offer a reduced premium, often making them a more cost-effective option than separately purchased policies. Specific coverage included in a business owner’s policy varies among insurance providers, but most policies require that businesses meet eligibility criteria to qualify.
Business Personal Property(Contents): Consists of equipment, fixtures, furniture, merchandise, etc.. identified in an insurance policy as owned by the insured.
Casualty Insurance: That type of insurance that is primarily concerned with losses caused by injuries to persons and legal liability imposed upon the insured for such injury or for damage to property of others. It also includes such diverse forms as plate glass, insurance against crime, such as robbery, burglary and forgery, boiler and machinery insurance and Aviation insurance. Many casualty companies also write surety business.
Claim: A demand made by the insured, or the insured’s beneficiary, for payment of the benefits as provided by the 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% health insurance coinsurance clause, the policyholder pays for the deductible plus 20% of his covered losses. After paying 80% of losses up to a specified ceiling, the insurer starts paying 100% of losses.
Collision Insurance: Covers physical damage to the insured’s automobile (other than that covered under comprehensive insurance) resulting from contact with another inanimate object.
Commercial Lines: Refers to insurance for businesses, professionals and commercial establishments.
Commission: Fee paid to an agent or insurance salesperson as a percentage of the policy premium. The percentage varies widely depending on coverage, the insurer and the marketing methods.
Commercial Package Policy: A package insurance policy that provides both liability and property coverage for businesses and other organizations.
Condominium Association Coverage Form (ISO): The Insurance Services Office, Inc. (ISO), commercial property coverage form (CP 00 17) that covers buildings and personal property owned by condominium associations. Very similar to the building and personal property coverage form, except that the language is tailored to address the needs of condominium associations.
Coverage: The scope of protection provided under an insurance policy. In property insurance, coverage lists perils insured against, properties covered, locations covered, individuals insured, and the limits of indemnification. In life insurance, living and death benefits are listed.
Cyber Liability: Covers a business’ liability for a data breach in which the firm’s customers personal information such as Social Security or credit card numbers are exposed or stolen by a hacker or other criminal who has gained access to the firm’s electronic equipment.
Deductible: Amount of loss that the insured pays before the insurance kicks in.
Direct Writer: An insurer whose distribution mechanism is either the direct selling system or the exclusive agency system.
Earned Premium: The amount of the premium that has been paid for in advance that has been “earned” by virtue of the fact that time has passed without claim. A three-year policy that has been paid in advance and is one year old would have only partly earned the premium.
Employers Liability Insurance: Coverage against common law liability of an employer for accidents to employees, as distinguished from liability imposed by a workers’ compensation law.
Exclusions: Items or conditions that are not covered by the general insurance contract.
Expense Ratio: The ratio of underwriting expenses (including commissions) to net premiums written. This ratio measures the company’s operational efficiency in underwriting its book of business.
Exposure: Measure of vulnerability to loss, usually expressed in dollars or units.
Extra Expense Coverage: Commercial property insurance that pays for additional costs in excess of normal operating expenses that an organization incurs to continue operations while its property is being repaired or replaced after having been damaged by a covered cause of loss. Extra expense coverage can be purchased in addition to or instead of business income coverage, depending on the needs of the organization. There are two Insurance Services Office, Inc. (ISO), commercial property forms that provide extra expense coverage: the business income and extra expense coverage form (CP 00 30) and the extra expense coverage form (CP 00 50).
Floater: A separate policy available to cover the value of goods beyond the coverage of a standard renters insurance policy including movable property such as jewelry or sports equipment.
Flood Coverage: Coverage for damage to property caused by flood. May be available by endorsement to an all risks policy or to a difference-in-conditions (DIC) policy. Normally, the coverage provided is subject to a per occurrence sublimit, an annual aggregate limit, and a separate deductible. Coverage may also be available from the National Flood Insurance Program (NFIP).
General Liability Insurance: Insurance designed to protect business owners and operators from a wide variety of liability exposures. Exposures could include liability arising from accidents resulting from the insured’s premises or operations, products sold by the insured, operations completed by the insured, and contractual liability.
Garagekeepers Coverage / Garagekeepers Legal Liability: Coverage provided under a garage policy for auto and trailer dealers, particularly those dealers that maintain a service department or body shop, for liability exposures with respect to damage to a customer’s auto or auto equipment that has been left in the dealer’s care for service or repair, for example. For other types of auto-related businesses, such coverage is available under the garagekeepers coverage endorsement (CA 99 37). Coverage is contingent on establishing liability on the part of the insured.
Hazard: A circumstance that increases the likelihood or probable severity of a loss. For example, the storing of explosives in a home basement is a hazard that increases the probability of an explosion.
Homeowners Policy: A form of property insurance designed to protect an individual’s home against damages to the house itself, or to possessions in the home. Homeowners insurance also provides liability coverage against accidents in the home or on the property. In the U.S. there are seven forms of homeowners insurance that have become standardized in the industry; they range in name from HO-1 through HO-8 and offer various levels of protection depending on the needs of the homeowner.
Hurricane Deductible: Amount you must pay out-of-pocket before hurricane insurance will kick in. Many insurers in hurricane-prone states are selling homeowners insurance policies with percentage deductibles for storm damage, instead of the traditional dollar deductibles used for claims such as fire and theft. Percentage deductibles vary from one percent of a home’s insured value to 15 percent, depending on many factors that differ by state and insurer.
Indemnity: Restoration to the victim of a loss by payment, repair or replacement.
Independent Insurance Agents & Brokers of America (IIABA): Formerly the Independent Insurance Agents of America (IIAA), this is a member organization of independent agents and brokers monitoring and affecting industry issues. Numerous state associations are affiliated with the IIABA.
Inflation Protection: An optional property coverage endorsement offered by some insurers that increases the policy’s limits of insurance during the policy term to keep pace with inflation.
Insurable Interest: Interest in property such that loss or destruction of the property could cause a financial loss
Insurance Adjuster: A representative of the insurer who seeks to determine the extent of the insurer’s liability for loss when a claim is submitted. Independent insurance adjusters are hired by insurance companies on an “as needed” basis and might work for several insurance companies at the same time. Independent adjusters charge insurance companies both by the hour and by miles traveled. Public adjusters work for the insured in the settlement of claims and receive a percentage of the claim as their fee. A.M. Best’s Directory of Recommended Insurance Attorneys and Adjusters lists independent adjusters only.
Liability Insurance: Insurance that pays and renders service on behalf of an insured for loss arising out of his responsibility, due to negligence, to others imposed by law or assumed by contract.
Loss Control: All methods taken to reduce the frequency and/or severity of losses including exposure avoidance, loss prevention, loss reduction, segregation of exposure units and noninsurance transfer of risk. A combination of risk control techniques with risk financing techniques forms the nucleus of a risk management program. The use of appropriate insurance, avoidance of risk, loss control, risk retention, self insuring, and other techniques that minimize the risks of a business, individual, or organization.
Loss Ratio: The ratio of incurred losses and loss-adjustment expenses to net premiums earned. This ratio measures the company’s underlying profitability, or loss experience, on its total book of business.
Loss Reserve: The estimated liability, as it would appear in an insurer’s financial statement, for unpaid insurance claims or losses that have occurred as of a given evaluation date. Usually includes losses incurred but not reported (IBNR), losses due but not yet paid, and amounts not yet due. For individual claims, the loss reserve is the estimate of what will ultimately be paid out on that claim.
Named Perils: Perils specifically covered on insured property.
National Association of Insurance Commissioners (NAIC): Association of state insurance commissioners whose purpose is to promote uniformity of insurance regulation, monitor insurance solvency and develop model laws for passage by state legislatures.
Net Premium: The amount of premium minus the agent’s commission. Also, the premium necessary to cover only anticipated losses, before loading to cover other expenses.
Occurrence: An event that results in an insured loss. In some lines of business, such as liability, an occurrence is distinguished from accident in that the loss doesn’t have to be sudden and fortuitous and can result from continuous or repeated exposure which results in bodily injury or property damage neither expected not intended by the insured.
Peril: The cause of a possible loss.
Personal Injury Protection: Pays basic expenses for an insured and his or her family in states with no-fault auto insurance. No-fault laws generally require drivers to carry both liability insurance and personal injury protection coverage to pay for basic needs of the insured, such as medical expenses, in the event of an accident.
Personal Lines: Insurance for individuals and families, such as private-passenger auto and homeowners insurance.
Policy: The written contract effecting insurance, or the certificate thereof, by whatever name called, and including all clause, riders, endorsements, and papers attached thereto and made a part thereof.
Premium: The price of insurance protection for a specified risk for a specified period of time.
Private-Passenger Auto Insurance Policyholder Risk Profile: This refers to the risk profile of auto insurance policyholders and can be divided into three categories: standard, nonstandard and preferred. In the eyes of an insurance company, it is the type of business (or the quality of driver) that the company has chosen to taken on.
Reinsurance: In effect, insurance that an insurance company buys for its own protection. The risk of loss is spread so a disproportionately large loss under a single policy doesn’t fall on one company. Reinsurance enables an insurance company to expand its capacity; stabilize its underwriting results; finance its expanding volume; secure catastrophe protection against shock losses; withdraw from a line of business or a geographical area within a specified time period.
Renewal: The automatic re-establishment of in-force status effected by the payment of another premium.
Replacement Cost: 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.
Reserve: An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders. A reserve is usually treated as a liability.
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 practices such as avoiding the risk, retaining the risk, reducing the risk, or transferring the risk, usually by insurance.
State of Domicile: The state in which the company is incorporated or chartered. The company also is licensed (admitted) under the state’s insurance statutes for those lines of business for which it qualifies.
Subrogation: The right of an insurer who has taken over another’s loss also to take over the other person’s right to pursue remedies against a third party.
Surplus: The amount by which assets exceed liabilities.
Terrorism: The use of violence to produce terror for political or ideological purposes. Terrorism is distinct from war in that it need not be the act of a military force or be directed by a sovereign power. Foreign acts of terrorism may be certified as an insurable loss exposure under the Terrorism Risk Insurance Act (TRIA).
Tort: A private wrong, independent of contract and committed against an individual, which gives rise to a legal liability and is adjudicated in a civil court. A tort can be either intentional or unintentional, and liability insurance is mainly purchased to cover unintentional torts.
Total Loss: A loss of sufficient size that it can be said no value is left. The complete destruction of the property. The term also is used to mean a loss requiring the maximum amount a policy will pay.
Umbrella Policy: Coverage for losses above the limit of an underlying policy or policies such as homeowners 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.
Underwriter: The individual trained in evaluating risks and determining rates and coverages for them. Also, an insurer.
Uninsured Motorist Coverage: Endorsement to a personal automobile policy that covers an insured collision with a driver who does not have liability insurance.
Waiver of Subrogation: An agreement between two parties in which one party agrees to waive subrogation rights against another in the event of a loss. The intent of the waiver is to prevent one party’s insurer from pursuing subrogation against the other party. Generally, insurance policies do not bar coverage if an insured waives subrogation against a third party before a loss. However, coverage is excluded from many policies if subrogation is waived after a loss because to do so would violate the principle of indemnity.
Workers Compensation and employers Liability Policy: An insurance policy that provides coverage for an employer’s two key exposures arising out of injuries sustained by employees. Part One of the policy covers the employer’s statutory liabilities under workers compensation laws, and Part Two of the policy covers liability arising out of employees’ work-related injuries that do not fall under the workers compensation statute. In most states, the standard workers compensation and employers liability policy published by the National Council on Compensation Insurance (NCCI) is the required policy form.
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