Insurance Terms

Sometimes you have questions about insurance terms.  We have provided some of the most used insurance definitions below.  If you have any questions, please feel free to contact us.
  • Absolute Liability
  • Accident
  • Acquisition Costs
  • Actual Cash Value (ACV)
  • Actuary
  • Additional insured
  • Adhesion, Contract of
  • Adjuster
  • Adjusting
  • Adverse Selection
  • Agent
  • All-risks Policy
  • Application
  • Arbitration
  • Arson
  • Assumption of Risk Doctrine
  • Attractive Nuisance
  • Automobile Liability Insurance
  • Automobile Physical Damage Insurance
  • Avoidance
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    Absolute Liability
    Liability for damages even though fault or negligence cannot be proven.

    Accident
    An event or occurrence which is unforeseen and unintended.

    Acquisition Costs
    The insurer’s cost of putting new business in force, including the agent’s commission, the cost of clerical work, fees for medical examinations and inspection reports, sales promotion expense, etc.

    Actual Cash Value (ACV)
    1) The cost of replacing or restoring property at prices prevailing at the time and place of the loss, less depreciation, however caused; 2) replacement cost minus.

    Actuary
    A person professionally trained in the technical aspects of pensions, insurance and related fields. The actuary estimates how much money must be contributed to an insurance or pension fund in order to provide future

    Additional insured
    An assured party specifically named under an insurance policy

    Adhesion, Contract of
    A contract that is drafted by one party and accepted or rejected by the other, with no opportunity to bargain with respect to its terms.

    Adjuster
    A person who investigates and settles losses for an insurance carrier.

    Adjusting
    The process of investigating and settling losses with or by an insurance carrier.

    Adverse Selection
    The tendency of persons who present a poorer-than-average risk to apply for, or continue, insurance to a greater extent than do persons with average or better-than-average expectations of loss.

    Agent
    An insurance company representative licensed by the state who solicits, negotiates or effects contracts of insurance, and provides service to the policyholder for the insurer.

    All-risks Policy
    Coverage by an insurance contract that promises to cover all losses except those losses specifically excluded in the policy. See also: Risks of direct loss to property.

    Application
    A signed statement of facts made by a person applying for life insurance and then used by the insurance company to decide whether or not to issue a policy. The application becomes part of the insurance contract when the policy is issued.

    Arbitration
    A form of alternative dispute resolution where an unbiased person or panel renders an opinion as to responsibility for or extent of a loss.

    Arson
    The willful and malicious burning of, or attempt to burn, any structure or other property, often with criminal or fraudulent intent.

    Assumption of Risk Doctrine
    Defense against a negligence claim that bars recovery for damages if a person understands and recognizes the danger inherent in a particular activity or occupation.

    Attractive Nuisance
    Condition that can attract and injure children. Occupants of land on which such a condition exists are liable for injuries to children.

    Automobile Liability Insurance
    Protection for the insured against financial loss because of legal liability for car-related injuries to others or damage to their property.

    Automobile Physical Damage Insurance
    Coverage to pay for damage to or loss of an insured automobile resulting from collision, fire, theft, or other perils.

    Avoidance
    see Loss Avoidance.

    Bailees Customers Policy
    Policy that covers the loss or damage to property of customers regardless of a bailee’s legal liability.

    Binder
    A written or oral contract issued temporarily to place insurance in force when it is not possible to issue a new policy or endorse the existing policy immediately. A binder is subject to the premium and all the terms of the policy to be issued.

    Boat Owners Package Policy
    A special package policy for boat owners that combines physical damage insurance, medical expense insurance, liability insurance, and other coverages in one contract.

    Boiler and Machinery Insurance
    Coverage for loss arising out of the operation of pressure, mechanical, and electrical equipment. It covers loss of the boiler and machinery itself, damage to other property, and business interruption losses.

    Bond
    A certificate issued by a government or corporation as evidence of a debt. The issuer of the bond promises to pay the bondholder a specified amount of interest for a specified period and to repay the loan on the expiration (maturity) date.

    Broker
    A marketing specialist who represents buyers of property and liability insurance and who deals with either agents or companies in arranging for the coverage required by the customer.

    Burglary
    Breaking and entering into another person’s property with felonious intent.

    Burglary and Theft Insurance
    Coverage against property losses due to burglary, robbery, or larceny.

    Business Insurance
    A policy which primarily provides coverage of benefits to a business as contrasted to an individual. It is issued to indemnify a business for the loss of services of a key employee or a partner who becomes disabled.

    Business Interruption Insurance
    Protection for a business owner against losses resulting from a temporary shutdown because of fire or other insured peril. The insurance provides reimbursement for lost net profits and necessary continuing expenses.

    Cancellation
    The discontinuance of an insurance policy before its normal expiration date, either by the insured or the company.

    Capacity
    The amount of capital available to an insurance company or to the industry as a whole for underwriting general insurance coverage or coverage for specific perils.

    Cargo Insurance
    Type of ocean marine insurance that protects the shipper of the goods against financial loss if the goods are damaged or lost.

    Casualty Insurance
    Insurance concerned with the insured’s legal liability for injuries to others or damage to other persons’ property; also encompasses such forms of insurance as plate glass, burglary, robbery and workers’ compensation.

    Catastrophe
    Event, which causes a loss of extraordinary magnitude, such as a hurricane or tornado.

    Causes-of-loss Form
    Form added to commercial property insurance policy that indicates the causes of loss that are covered. There are four causes-of-loss forms: basic, broad, special, and earthquake.

    Certificate of Insurance
    A statement of coverage issued to an individual insured under a group insurance contract, outlining the insurance benefits and principal provisions applicable to the member.

    Certified Insurance Counselor (CIC)
    Professional in property and liability insurance who has passed a series of examinations by the Society of Certified Insurance Counselors.

    Chartered Property and Casualty Underwriter (CPCU)
    Professional who has attained a high degree of technical competency in property and liability insurance and has passed ten professional examinations administered by the American Institute for Property and Liability Underwriters.

    Claim
    A request for payment of a loss, which may come under the terms of an insurance contract.

    Claims Adjustor
    Person who settles claims: an agent, company adjustor, independent adjustor, adjustment bureau, or public adjustor.

    Claim-made policy
    A liability insurance policy under which coverage applies to claims filed during the policy period.

    Class Rating
    Rate-making method in which similar insureds are placed in the same underwriting class and each is charged the same rate. Also called manual rating.

    Coinsurance
    1) A provision under which an insured who carries less than the stipulated percentage of insurance to value, will receive a loss payment that is limited to the same ratio which the amount of insurance bears to the amount required.

    Collision Insurance
    Protection against loss resulting from any damage to the policyholder’s car caused by collision with another vehicle or object, or by upset of the insured car, whether it was the insured’s fault or not.

    Combined Ratio
    Basically, a measure of the relationship between dollars spent for claims and expenses and premium dollars taken in; more specifically, the sum of the ratio of losses incurred to premiums earned and the ratio of commissions and expenses incurred to premiums written. A ratio above 100 means that for every premium dollar taken in, more than a dollar went for losses, expenses, and commissions.

    Commercial General Liability Policy (CGL)
    Commercial liability policy drafted by the Insurance Services Office containing two coverage forms-an occurrence form and a claims-made form.

    Commercial Lines
    Insurance for businesses, organizations, institutions, governmental agencies, and other commercial establishments.

    Commercial Multiple Peril Policy
    A package of insurance that includes a wide range of essential coverages for the commercial establishment.

    Commercial Package Policy (CPP)
    A commercial policy that can be designed to meet the specific insurance needs of business firms. Property and liability coverage forms are combined to form a single policy.

    Company Adjustor
    Claims adjustor who is a salaried employee representing only one company.

    Comparative Negligence
    Under this concept a plaintiff (the person bringing suit) may recover damages even though guilty of some negligence. His or her recovery, however, is reduced by the amount or percent of that negligence.

    Completed Operations
    Liability arising out of faulty work performed away from the premises after the work or operations is completed. Applicable to contractors, plumbers, electricians, repair shops, and similar firms.

    Comprehensive Personal Liability Insurance
    Protection against loss arising out of legal liability to pay money for damage or injury to others for which the insured is responsible. It does not include automobile or business operation liabilities.

    Compulsory Auto Liability Insurance
    Insurance laws in some states required motorists to carry at least certain minimum auto coverages. This is called “compulsory” insurance.

    Compulsory Insurance
    Any form of insurance that is required by law.

    Compulsory Insurance Law
    Law protecting accident victims against irresponsible motorists by requiring owners and operators of automobiles to carry certain amounts of liability insurance in order to license the vehicle and drive legally within the state.

    Concealment
    Deliberate failure of an applicant for insurance to reveal a material fact to the insurer.

    Concurrent Causation
    Legal doctrine that states when a property loss is due to two causes, one that is excluded and one that is covered, the policy provides coverage.

    Conditions
    Provisions inserted in an insurance contract that qualify or place limitations on the insurer’s promise to perform.

    Consideration
    One of the elements for a binding contract. Consideration is acceptance by the insurance company of the payment of the premium and the statement made by the prospective policyholder in the application.

    Consequential Loss
    Financial loss occurring as the consequence of some other loss. Often called an indirect loss.

    Contingent Liability
    Liability arising out of work done by independent contractors for a firm. A firm may be liable for the work done by an independent contractor if the activity is illegal, the situation does not permit delegation of authority, or the work is inherently dangerous.

    Contract
    A binding agreement between two or more parties for the doing or not doing of certain things. A contract of insurance is embodied in a written document called the policy.

    Contractual Liability
    Legal liability of another party that the business firm agrees to assume by a written or oral contract.

    Contributory Negligence
    Negligence of the damaged person that helped to cause the accident. Some states bar recovery to the plaintiff if the plaintiff was contributory negligent to any extent. Others apply comparative negligence.

    Coverage
    The scope of protection provided under a contract of insurance; any of several risks covered by a policy.

    CPCU
    See Chartered Property and Casualty Underwriter.

    Crop-hail Insurance
    Protection against damage to growing crops as a result of hail or certain other named perils.

    Cross Purchase Agreement
    specifies the terms for the surviving partners or shareholders to buy a deceased’s share of the business’s ownership.

    CSR
    Customer service representatives support the work of insurance agents with a variety of tasks that must be done within a company or agency to deliver services to and handle requests from clients.

    Deductible
    An amount that a policyholder agrees to pay, per claim or per accident, toward the total amount of an insured loss.

    Depreciation
    A decrease in the value of property over a period of time due to wear and tear or obsolescence. Depreciation is used to determine the actual cash value of property at time of loss. (See Actual Cash Value)

    Difference in Conditions Insurance (DIC)
    “All-risks” policy that covers other perils not insured by basic property insurance contracts, supplemental to and excluding the coverage provided by underlying contracts.

    Direct Loss
    Financial loss that results directly from an insured peril.

    Direct Writer
    The industry term for a company, which uses its own sales employees to write its policies. Sometimes refers to companies, which contract with exclusive agents.

    Directors’ and Officers’ Liability
    The exposure of corporate managers to claims from shareholders, government agencies, and employees, and others alleging mismanagement.

    Domestic Insurer
    An insurance company is a domestic company in the state in which it is incorporated.

    Earned Premium
    That portion of a policy’s premium payment for which the protection of the policy has already been given. For example, an insurance company is considered to have earned 75 percent of an annual premium after a period of nine months of an annual term has elapsed.

    Economic Loss
    The estimated total cost, both insured and uninsured, of mishaps (such as motor vehicle accidents, work accidents, and fires); includes such factors as property damage, funeral expenses, wage loss, insurance administration costs, and medical, hospital and legal costs.

    Effective Date
    The date on which the insurance under a policy begins.

    Elements of a Negligent Act
    Four elements an injured person must show to prove negligence: existence of a legal duty to use reasonable care, failure to perform that duty, damages or injury to the claimant, and proximate cause relationship between the negligent act and the infliction of damages.

    Embezzlement
    Fraudulent use or taking of another’s property or money which has been entrusted to one’s care.

    Employee Dishonesty Coverage Form
    Commercial crime insurance form drafted by the Insurance Services Office that covers the loss of money, securities, and other covered property because of any dishonest act of a covered employee or employees.

    Endorsements
    An additional piece of paper, not a part of the original contract, which cites certain terms and which, when attached to the original contract, becomes a legal part of that contract.

    Errors and Omissions Insurance
    A form of insurance that indemnifies the insured for any loss sustained because of an error or oversight on his or her part.

    Excess and Surplus Insurance
    (1) Insurance to cover losses above a certain amount, with losses below that amount usually covered by a regular policy. (2) Insurance to cover an unusual or one-time risk, e.g., damage to a musician’s hands or the multiple perils of a convention, for which coverage is unavailable in the normal market. (See also “Umbrella liability” and “surplus lines.”)

    Exclusive Remedy Doctrine
    Doctrine in workers compensation insurance which states that workers compensation benefits should be the exclusive or sole source of recovery for workers who have a job-related accident or disease; doctrine has been eroded by legal decisions.

    Exclusion or Exception
    Specified conditions or circumstances, listed in the policy, for which the policy will not provide benefits.

    Expense Ratio
    The ratio of a company’s operating expenses to premiums.

    Experience
    A term used to describe the relationship, usually expressed as a percent or ratio, of premium to claims for a plan, coverage, or benefits for a stated time period.

    Experience Modification Factor
    Used in workers compensation rating to reflect the degree to which a particular employer has experience that is better or worse that expected for that industry.

    Experience Rating
    The process of determining the premium rate for a group risk, wholly or partially on the basis of that group’s experience.

    Extended Coverage Insurance
    Protection for the insured against property damage caused by windstorm, hail, smoke, explosion, riot, riot attending a strike, civil commotion, vehicle and aircraft. This is provided in conjunction with the fire insurance policy and the various “package” policies.

    Extended Nonowned Coverage
    Endorsement that can be added to an automobile liability insurance policy that covers the insured while driving any nonowned automobile on a regular basis.

    Extended Reporting Period
    An additional period of time after policy expiration during which valid claims will be paid under a claims-made policy of liability insurance

    Extended Reporting Period Endorsement
    Added to a claims-made policy of liability insurance to provide additional period of time during which valid claims will be paid

    Extortion
    Surrender of property away from the premises as a result of a threat to do bodily harm to the named insured, relative, or invitee who is being held captive.

    Extra Expense Insurance
    Type of business income insurance that covers the extra expenses incurred to continue operations after a loss has occurred.

    FAIR Plan
    A facility, operating under a program of the government and the insurance industry, to make fire insurance and other forms of property insurance readily available to persons and businesses for whom such insurance is not easily available or affordable.

    Fair Rental Value
    Amount payable to an insured homeowner for loss of rental income due to damage that makes the premises uninhabitable.

    Fidelity Bond
    Bond that protects an employer against dishonest or fraudulent acts of employees, such as embezzlement, fraud, or theft of money.

    Financial Responsibility Law
    A state law which may require motorists to furnish evidence, either before or after involvement in an auto accident (depending on the individual state’s law), of ability to pay for damages up to certain minimum dollar limits. These requirements commonly are met by carrying auto liability insurance with specified minimum limits or more.

    Fire
    A combustion accompanied by a flame or glow, which escapes its normal confines to cause damage.

    Fire Insurance
    Coverage for losses caused by fire and lightning, plus resultant damage caused by smoke and water.

    Fire Legal Liability
    Liability of a firm or person for fire damage caused by negligence of and damage to property of others. First party claim: a demand made by a policyholder reporting an insured event directly to his company.

    First Party Coverage
    An insurance coverage under which the policyholder collects compensation for losses from the insured’s own insurer rather than from the insurer of the person who caused the accident.

    Floaters
    Insurance policies that cover property that can be moved from one location to another for both transportation perils and perils affecting property at a fixed location.

    Flood Insurance
    Coverage against loss resulting from flood.

    Forgery or Alteration Coverage Form
    Commercial crime insurance form by the Insurance Services Office that covers loss resulting from the forgery or alteration of checks, drafts, bills of exchange, promissory notes, and similar instruments.

    General Damages
    Damages awarded to an injured person for intangible loss that cannot be measured directly by dollars. Popularly known as “pain and suffering.” General damages are distinguished from special damages that are awarded for actual economic loss, such as medical costs, loss of income, etc.

    General Liability Insurance
    Coverage that pertains, for the most part, to claims arising out of the insured’s liability for injuries or damage caused by ownership of property, manufacturing operations, contracting operations, sale or distribution of products, and the operation of machinery, as well as professional services.

    Glass Insurance
    Protection for loss of or damage to glass and its appurtenances.

    Gross Negligence
    the intentional failure to perform a manifest duty in reckless disregard of the consequences as affecting the life or property of another

    Guaranty Fund
    A fund, derived from assessments against solvent insurance companies, to absorb losses of claimants against insolvent insurance companies.

    Hard Market
    That part of the insurance sales cycle in which competitive pricing is at a minimum as companies charge the premiums necessary to meet their underwriting losses in order to avoid insolvency and boost capacity; usually associated with a sharp decline in capacity (see “Soft market”).

    Hazard
    Condition that creates or increases the chance of loss.

    Hold-Harmless Clause
    Clause written into a contract by which one party agrees to release another party from all legal liability, such as a retailer who agrees to release the manufacturer from legal liability if the product injures someone.

    Homeowners Policy
    A package of insurance providing homeowners with a broad range of property and liability overages.

    Hull Insurance
    (1) Class of ocean marine insurance that covers physical damage to the ship or vessel insured. Typically written on an “all-risks” basis. (2) Physical damage insurance on aircraft- similar to collision insurance in an automobile policy.

    Imputed Negligence
    Case in which responsibility for damage can be transferred from the negligent party to another person, such as an employer.

    Incurred Claims
    Incurred claims equal the claims paid during the policy year plus the claim reserves as of the end of the policy year, minus the corresponding reserves as of the beginning of the policy year. The difference between the year end and beginning of the year claim reserves is called the increase in reserves and may be added directly to the paid claims to produce the incurred claims.

    Incurred-but-not-reported (IBNR) reserves
    Liability account on an insurer’s balance sheet reflecting claims that are expected based upon statistical projections but which have not yet been reported to the insurer.

    Indemnification
    Compensation to the victim of a loss, in whole or in part, by payment, repair, or replacement.

    Indemnity
    Legal principle that specifies an insured should not collect more than the actual cash value of a loss but should be restored to approximately the same financial position as existed before the loss.

    Independent Adjustor
    Claims adjustor who offers his or her services to insurance companies and is compensated by a fee.

    Indirect Loss
    see Consequential Loss.

    Inflation-Guard Endorsement
    Endorsement added at the insured’s request to a homeowner’s policy to increase periodically the face amount of insurance of the dwelling and other policy coverage by a specified percentage.

    Inland Marine Insurance
    A broad type of insurance, generally covering articles that may be transported from one place to another as well as bridges, tunnels and other instrumentalities of transportation. It includes goods in transit (generally excepting trans-ocean) as well as numerous “floater” polices such as personal effects, personal property, jewelry, furs, fine art and others.

    Insolvent
    Having insufficient financial resources (assets) to meet financial obligations (liabilities).

    Insurability
    Acceptability to the company of an applicant for insurance.

    Insurable Risk
    The conditions that make a risk insurable are (a) the peril insured against must produce a definite loss not under the control of the insured, (b) there must be a large number of homogeneous exposures subject to the same perils, (c) the loss must be calculable and the cost of insuring it must be economically feasible, (d) the peril must be unlikely to affect all insured’s simultaneously, and (e) the loss produced by a risk must be definite and have a potential to be financially serious.

    Insurance
    A system under which individuals, businesses, and other organizations or entities, in exchange for payment of a sum of money (a premium), are guaranteed compensation for losses resulting from certain perils under specified conditions.

    Insurance Services Offices (ISO)
    Major rating organization in property and liability insurance that drafts policy forms for personal and commercial lines of insurance and provides rate data on loss costs for property and liability insurance lines.

    Insured
    A person or organization covered by an insurance policy, including the “named insured” and any other parties for whom protection is provided under the policy terms.

    Insurer
    The party to the insurance contract who promises to pay losses or benefits. Also, any corporation engaged primarily in the business of furnishing insurance to the public.

    Insuring Agreement
    That part of an insurance contract that states the promises of the insurer.

    Insuring Clause
    The clause, which sets forth the type of loss being covered by the policy and the parties to the insurance contract.

    ISO
    see Insurance Services Office.

    Joint-and-Several Liability
    A legal principle that permits the injured party in a tort action to recover the entire amount of compensation due for injuries from any tort feasor who is able to pay, regardless of the degree of that party’s negligence.

    Judicial Bond
    Type of surety bond used for court proceedings and guaranteeing that the party bonded will fulfill certain obligations specified by law, for example, fiduciary responsibilities.

    Lapse
    The termination or discontinuance of an insurance policy due to non-payment of a premium.

    Lapsed Policy
    A policy terminated for non-payment of premiums.

    Larceny-theft
    The unlawful taking, carrying, leading or riding away of another person’s property.

    Last Clear Chance Rule
    statutory modification of the contributory negligence law allowing the claimant endangered by his or her own negligence to recover damages from a defendant if the defendant has a last clear chance to avoid the accident but fails to do so.

    Law of Large Numbers
    Concept that the greater the number of exposures, the more closely will actual results approach the probable results expected from an infinite number of exposures.

    Legal Reserve
    The minimum reserve that a company must keep to meet future claims and obligations as they are calculated under the state insurance code.

    Liability
    Any legally enforceable obligation.

    Liability Insurance
    Insurance covering the policyholder’s legal liability resulting from injuries to other persons or damage to their property.

    Liability Limits
    The stipulated sum or sums beyond which an insurance company is not liable to protect the insured.

    Liability Without Fault
    Principle on which workers compensation is based, holding the employer absolutely liable for occupational injuries or disease suffered by workers, regardless of who is at fault.

    License and Permit Bond
    Type of surety bond guaranteeing that the person bonded will comply with all laws and regulations that govern his or her activities.

    Liquor Liability Law
    see Dramshop Law.

    LLoyd’s of London
    insurance marketplace where brokers, representing clients with insurable risks, deal with Lloyd’s underwriters, who in turn represent investors. The investors are grouped together into syndicates that provide capital to insure the risks.

    Loading
    The amount that must be added to the pure premium for expenses, profit, and a margin for contingencies.

    Loss
    The happening of the event for which insurance pays.

    Loss Adjustment Expense
    expenses incurred in the process of evaluating, defending and paying claims.

    Loss Avoidance
    A risk management technique whereby a situation or activity that may result in a loss for a firm is avoided or abandoned.

    Loss control
    any conscious action (or decision not to act) intended to reduce the frequency, severity, or unpredictability of accidental losses.

    Loss Expense – Allocated
    Handling expenses, such as legal or independent adjuster fees, paid by an insurance company in settling a claim that can be definitely charged to that particular claim.

    Loss Payable Clause
    Means of protecting a mortgager’s interest in property by directing the insurer to make a loss payment to the mortgager in the event of a loss.

    Loss Prevention
    Any measure that reduces the probability or frequency of a particular loss but does not eliminate completely all possibility of that loss

    Loss Ratio
    A ratio calculated by dividing claims into premiums. It may be calculated in several different ways, using paid premiums or earned premiums, and using paid claims with or without changes in claim reserves and with or without changes in active reserves.

    Loss Reserve
    The amount set up as the estimated cost of a claim. (See IBNR Reserve)

    Loss Reserve Development
    How the latest estimate of an insurance company’s claim obligations compares to an earlier projection.

    Malpractice Insurance
    Coverage for a professional practitioner, such as a doctor or a lawyer, against liability claims resulting from alleged malpractice in the performance of professional services.

    Manual Rate
    The premium rate developed for a group insurance coverage from the company’s standard rate tables normally referred to as its rate manual or underwriting manual.

    Manuscript Policy
    Policy designed for a firm’s specific needs and requirements.

    Marine Insurance
    A form of insurance primarily concerned with means of transportation and communication, and with goods in transit (see “Inland Marine Insurance” and “Ocean Marine Insurance”).

    Medical Payments Insurance
    A coverage, available in various liability insurance policies, in which their insurer agrees to reimburse the insured and others, without regard for the insured’s liability, for medical or funeral expenses incurred as the result of bodily injury or death by accident under specified conditions.

    Misrepresentation
    A false, incorrect, improper, or incomplete statement of a material fact, made in the application for a policy.

    Moral Hazard
    Hazard arising from any nonphysical, personal characteristic of a risk that increases the possibility of loss or may intensify the severity of loss, for instance, bad habits, low integrity, poor financial standing.

    Multi-Peril Policy
    A package policy that provides protection against a number of separate perils. Multi-peril policies are not necessarily multiple line policies, since the combined perils may be all within one insurance line.

    Mutual Insurance Company
    An insurance company in which the ownership and control is vested in the policyholders and a portion of surplus earnings may return to policyholders in the form of dividends. No capital stock exists.

    Named Perils
    Coverage in a property policy that provides protection against loss from only the perils specifically listed in the policy. Examples of named perils are fire, windstorm, theft, smoke, etc.

    Negligence
    Failure to use the care that a reasonable and prudent person would have used under the same or similar circumstances.

    Non-admitted Insurance Company
    An insurance company not licensed to do business in a particular state; such a company, however, may sell excess and surplus insurance in that state if admitted insurers lack the capacity.

    Occurrence
    An accident, including continuous or repeated exposure to substantially the same general, harmful conditions, that results in bodily injury or property damage during the period of an insurance policy.

    Occurrence policy
    A liability insurance policy that covers claims arising out of occurrences that take place during the policy period, regardless of when the claim is filed.

    Ocean Marine Insurance
    Insurance for sea-going vessels, including liabilities connected with them, and their cargoes.

    Overhead Expense Insurance
    A special form of health insurance designed to help offset overhead expenses such as office rent, utilities, employees’ wages, and auditors’ fees, incurred during total disability. The monthly payments during disability is not a fixed amount of indemnity as on regular disability polices, but the amount of overhead expense actually incurred, or a percentage thereof, up to the limit specified in the policy.

    Package Policy
    A combination of two or more individual polices or coverages into a single policy. A homeowners policy, for example, is a package combining property, liability and theft coverages for the homeowner.

    Peril
    The cause of a possible loss, such as fire, windstorm, theft, explosion, or riot.

    Persistency
    A term used to refer to the length of time insurance remains continuously in force.

    Personal Articles Floater
    A form of coverage designed to meet the needs for insurance on property of a moveable nature. The coverage usually protects against all physical loss, subject to special exclusions and conditions. Examples of property covered include jewelry, furs, silverware, and fine arts.

    Personal Lines
    Those types of insurance, such as auto or home insurance, for individuals or families rather than for businesses or organizations.

    Physical Damage
    Damage to or loss of the auto resulting from collision, fire, theft or other perils.

    Policy
    The printed legal document stating the terms of the insurance contract that is issued to the policyholder by the company.

    Policy Term
    That period for which an insurance policy provides coverage.

    Policyholder
    A person who pays a premium to an insurance company in exchange for the insurance protection provided by a policy of insurance.

    Pollution Liability
    Exposure to lawsuits for injury or cleanup costs that result from pollution damage

    Premium
    The sum paid by a policyholder to keep an insurance policy in force.

    Premium finance
    Allows the insured to pay part of the premium when coverage takes effect and pay the rest during the policy period.

    Product Liability
    Legal liability incurred by a manufacturer, merchant, or distributor because of injury or damage resulting from the use of its product.

    Product Liability Insurance
    Protection against financial loss arising out of the legal liability incurred by a manufacturer, merchant, or distributor because of injury or damage resulting from the use of a covered product.

    Proof of Loss
    Documentation presented to the insurance company by the insured in support of a claim so that the insurer can determine its liability under the policy.

    Property Damage Coverage
    An agreement by an insurance carrier to protect an insured against legal liability for damage by an insured automobile to the property of another.

    Property Insurance
    Insurance providing financial protection against the loss of, or damage to, real and personal property caused by such perils as fire, theft, windstorm, hail, explosion, riot, aircraft, motor vehicles, vandalism, malicious mischief, riot and civil commotion, and smoke.

    Provision
    A part (clause, sentence, paragraph, etc.) of an insurance contract that describes or explains a feature, benefit, condition, requirement, etc. of the insurance protection afforded by the contract.

    Proximate Cause
    The dominating cause of loss or damage; an unbroken chain of events between the occurrence and damage.

    Punitive Damages
    A court-awarded amount that exceeds the economic losses and general damages of a defendant and is intended solely to punish the plaintiff

    Rate
    The pricing factor upon which the insurance buyer’s premium is based.

    Reinstatement
    The resumption of coverage under a policy that has lapsed.

    Reinsurance
    The acceptance by one or more insurers, called reinsurers, of a portion of the risk underwritten by another insurer who has contracted for the entire coverage.

    Renewal
    Continuance of coverage under a policy beyond its original term by the insurer’s acceptance of the premium for a new policy term.

    Renter’s Policy
    A package type of insurance that includes coverage similar to a homeowners policy to cover the personal property of a renter or tenant in a building.

    Replacement Cost
    The cost to repair or replace property at construction costs prevailing at time of loss; the cost to repair or rebuild property without considering depreciation. (See Actual Cash Value)

    Representation
    statements made by an applicant in the application, which he represents as being substantially true to the best of his knowledge and belief, but which are not warranted as exact in every detail.

    Rescission
    Termination of an insurance contract by the insurer on the grounds of material misstatement on the application for insurance. The action of rescission must take place within the contestable period or Time Limit on Certain Defenses but takes effect as of the date of issue of the policy, thus voiding the contract from its inception.

    Reserve
    (1) An amount representing liabilities kept by an insurer to provide for future commitments under policies outstanding. (2) An amount allocated for a special purpose. Note that a reserve is usually a liability and not an extra fund.

    Risk
    Any chance of loss.

    Risk control
    any conscious action (or decision not to act) intended to reduce the frequency, severity, or unpredictability of accidental losses.

    Robbery
    The taking of property from a person by force or threat of violence.

    salvage
    Recovery made by an insurance company by the sale of property that has been taken over from the insured as a part of loss settlement.

    Self-Insured Retention
    A form of risk financing through which a firm assumes all or a part of its own losses.

    Soft Market
    That part of the insurance sales cycle in which competition is at a maximum as insurance companies use their excess capacity to sell more policies at lower prices (see “Hard market”).

    State Fund
    A fund set up by a state government to provide a specific line or lines of insurance. Some state permit private insurers to compete with the state fund.

    State Insurance Department
    A department of a state government whose duty is to regulate the business of insurance and give the public information on insurance.

    Strict Liability
    Liability for damages even though fault or negligence cannot be proven.

    Subrogation
    Process by which one insurance company seeks reimbursement from another company or person for a claim it has already paid.

    Surety Bond
    An agreement providing for monetary compensation in the event of a failure to perform specified acts within a stated period. The surety company, for example, becomes responsible for fulfillment of a contract if the contractor defaults.

    Surplus
    The amount by which the value of an insurer’s assets exceeds its liabilities, i.e., the net worth of an insurance company.

    Surplus Lines
    (1) A risk or a part of a risk for which there is no normal insurance market available. (2) Insurance written by non-admitted insurance companies.

    Umbrella Liability
    Insures losses in excess of amounts covered by other liability insurance policies; also protects the insured in many situations not covered by the usual liability polices.

    Underwriter
    1) a company that receives the premiums and accepts responsibility for the fulfillment of the policy contract; 2) the company employee who decides whether or not the company should assume a particular risk; 3) the agent who sells the policy.

    Underwriting
    The process of selecting risks for insurance and determining in what amounts and on what terms the insurance company will accept the risk.

    Underwriting Profit or Loss
    The amount of money that an insurance company gains or loses as a result of its insurance operations. It excludes investment transactions and federal income taxes.

    Unearned Premium
    The portion of a premium that a company has collected but has yet to earn because the policy still has unexpired time to run.

    Uninsurable Risk
    One not acceptable for insurance due to excessive risk.

    Uninsured/Underinsured Motorist Coverage
    A form of insurance that pays the policyholder and passengers in his/her car for bodily injury caused by the owner or operator of an uninsured or inadequately insured automobile.

    Workers Compensation
    A system established under state law that provides payments, without regard to fault, to employees injured in the course and scope of their employment.

    Workers’ Compensation Insurance
    Insurance against liability imposed on certain employers to pay benefits and furnish care to employees injured, and to pay benefits to dependents of employees killed in the course of or arising out of their employment.

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