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Thursday, 07/31/2014email print

Glossary of Insurance Terms

Accident and Health Insurance: A type of coverage that pays benefits, sometimes including reimbursement for loss of income, in case of sickness, accidental injury or accidental death. 

Actual Cash Value: The cost of repairing or replacing damaged property with property of the same kind and quality less depreciation (which means in the same physical con­dition as the original property at the time of damage). 

Additional Coverages: Extra coverage that can be purchased to provide protection above and beyond that provided in the original or standard policy. When such additional coverage is purchased, it becomes an Endorsement or Rider to the original policy. 

Adjuster: An insurance company representative who seeks to determine the extent of the firm’s liability for loss when a claim is submitted. 

Agency: An insurance sales office that is directed by a general agent, manager, independent agent or company manager. 

Agent: A person licensed by a state insurance department who solicits, negotiates or effects insurance contracts on behalf of one or more insurers.   

Appraisal: A survey to determine a property’s insurable value or the amount of loss. 

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

Assigned Risk: A program administered by the state to guarantee the availability of insurance to those not ordinarily acceptable to insurers.  This is sometimes referred to as the residual market. 

Bailee: One who has temporary possession of property belonging to another, usually for storage, repair or servicing. 

Basic Form: An insurance policy providing coverage against a limited number of specified perils. 

Basic Limits: The minimum limits of liability that can be purchased by an insured. 

Basic Rate: The manual rate from which discounts are taken or to which charges are added to reflect the individual circumstances of a risk. 

Blanket Coverage: Insurance covering more than one item of property at a single location or two or more items of property in different locations. 

Block Policy:  Covers several different properties, shipments or locations under one policy rather than under separate ones. 

Boiler and Machinery Insurance:  Insurance covering the sudden and accidental break­down of boilers, machinery and electrical equipment. It may cover damage to the machinery itself, damage to other property and business interruption losses. 

Bond:  A policy where one party, called the surety, obligates itself to a second party, called the obligee, to answer for the default of a third party, called the principal. 

Broad Form Policy:  A policy providing coverage for the same perils covered in the basic form, plus specified additional perils. 

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

Business Income Coverage Form:  A commercial property form providing coverage for “indirect losses” resulting from property damage, such as loss of business income and extra expenses incurred. 

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. 

Business Owners Policy:  A policy providing broad property and liability coverage in a single contract, it is designed for small and medium-sized mercantile, office or apartment risks. Additional endorsements may be required to cover a specific business’s risk. 

Business Personal Property:  Traditionally known as “contents,” this term actually refers to furniture, fixtures, equipment, machinery, merchandise, materials and all other personal property owned by the insured and the insured’s business. 

Captive Agent:  An agent who sells insurance for only one company, as opposed to an independent agent who represents several companies. 

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

Claim: A demand made by the insured, or the insured’s benefi­ciary, for payment of benefits provided by an insurance policy. 

Coinsurance Clause:  A provision under which the insured agrees to carry a certain amount of insurance equal to a specified per­centage of the property’s value in order to receive full payment for a loss. 

Collision Insurance: A form of automobile insurance that covers loss to the insured’s own vehicle caused by its collision with another vehicle or object or its upset.  It does not cover bodily injury or property damage liability arising out of the collision. 

Combined Single Unit: A policy with a single limit of liability applying to bodily injury and property damage, and a corresponding limit apply to medical payments. (Note: this policy has been replaced by the personal auto policy.) 

Commercial Lines:  Insurance coverages designed for and purchased by busi­nesses, professionals and commercial establishments, as opposed to personal lines of insurance designed for and bought by individuals. 

Comprehensive Coverage: Physical damage coverage for losses to your automobile by fire, theft, vandalism and numerous other perils.  (Note: on personal auto policies, this is now called “other than collision” coverage.) 

Compulsory Insurance:  Any form of insurance required by law. 

Conditions:  Provisions of an insurance policy that state the rights and duties of the insured or the insurer. Typical condi­tions have to do with such things as the insured’s duties in the event of loss, cancellation provisions and the right of the insurer to inspect the property. 

Coverage:  The scope of protection provided under an insurance contract. 

Data Processing Coverage:  A special form providing protection for loss due to the breakdown of data processing systems. It also covers the cost of putting the system back into operation. 

Deductible:  The amount of an insured loss paid by the policy­holder. For example, if you select a deductible of $500 for loss due to fire, you agree to pay the first  $500 worth of damages to your business if there is a fire on the premises. 

Depreciation:  A decrease in the value of property over a period of time resulting from use, obsolescence or wear and tear. 

Disability Insurance:  A type of health insurance that pays a monthly income to the policyholder when he or she is unable to work because of an illness or accident. 

Employee Benefits:  Benefits offered an employee at his or her place of work covering medical expenses, disability, retire­ment and death. These benefits are usually insurance coverages and are paid in whole or in part by the employer. 

Employers Liability Coverage:  Policy or section of the workers compensation policy that provides coverage against the common law liability of an employer for injuries to employees as distinguished from the liability imposed by a Workers Compensation law. Employers liability applies in situations where a worker does not come under these laws. 

Endorsement:  An attachment to an insurance policy that amends and alters the coverage provided in the policy. Also called a Rider. 

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

Exclusions:  Specific situations, conditions or circumstances that are listed in the insurance policy as not being covered. 

Exposure:  The state of being subject to the possibility of loss; the extent of risk as measured by various standards such as payroll, gate receipts and area. 

Financial Responsibility Law: A state law that requires the insured to furnish evidence of ability to pay for property damage and injuries to others, either before or after an accident. 

Floater:  Property insurance for items that are moved from location to location, covering losses wherever they occur. The insurance “floats” with the property. 

Fraud:  Deception or strategy used to deceive or cheat, including misrepresentation or concealment. 

Good Student Discount: A discount granted to students with high scholastic ratings. 

Guaranty Fund: A state-run mechanism funded by insurance companies to pay claims against insolvent insurance companies 

Hazard:  Condition that creates or increases the chances of a loss. 

Independent Agent:  An agent who represents more than one insurer, often eight or more different companies. 

Indemnify:  To provide financial compensation for losses. 

Insurance:  A formal device for reducing the chance of loss by transferring the risks of several individual entities to insurance companies. 

Insurance Fraud:  Intentional lying or concealment by policyholders to obtain payment of an insurance claim that otherwise would not be paid. 

Insured:  The party covered by an insurance arrangement, to whom an insurer agrees to indemnify for losses, pro­vide benefits or render services. 

Involuntary Insurance Market: A state-authorized mechanism that guarantees availability of insurance to all licensed drivers by assigning customers to insurers on a rotating basis or providing coverage through pooling arrangements. 

Liability Insurance:  Insurance that pays and renders services on behalf of a policyholder who is unintentionally, but legally responsible for bodily injury or property damage that is caused to another person and covered in the policy. 

Marine Insurance:  A form of insurance primarily concerned with instru­ments of transportation and communication and with goods in transit. 

Medical Payments Insurance: A form of insurance, optional in automobile policies, that provides for the payment of medical and similar expenses without regard for liability. 

Mercantile Risk:  A term most often used in property insurance meaning a retail or wholesale risk as contrasted with a service risk, a manufacturing risk or a habi­tational risk. 

Motor Vehicle Record (MVR): The record of an automobile driver’s accidents and/or traffic violations. 

Named Non-Owner Policy: An automobile insurance policy issued to someone who does not own an automobile, but who drives borrowed or rented vehicles. 

Negligence: A legal term describing the failure to use a reasonable degree of care that an ordinary person, given similar circumstances, would use.  Liability insurance covers you in cases of negligence. 

No-Fault Insurance: Several states have passed laws (with many variations) permitting an automobile accident victim to collect directly from his/her own insurance company for medical or hospital expenses regardless of who was at fault in the accident. 

Non-Owned Auto: Any autos not owned, leased, hired or borrowed. 

Occupational Accident:  An accident arising out of or occurring in the course of one’s employment and caused by hazards inherent in or related to it. 

Occupational Hazard:  An occupational condition that increases the risk of accident, sickness or death. 

Package Policy:  A single insurance policy that combines several coy­erages available separately. For example, home­owners insurance is a package policy, combining property, liability and theft coverages. 

Peril:  A property insurance term referring to the possible cause of loss such as a fire or windstorm. 

Personal Injury Protection (PIP): The formal name usually given to no-fault benefits in states that have enacted mandatory or optional no-fault automobile insurance coverages.  PIP often includes benefits for medical expenses, loss of work income, essential services, accidental death and funeral expenses. 

Policy:  A written contract for insurance between the insur­ance company and the policyholder. 

Premises:  The particular location of property or a portion thereof as designated in a policy. 

Premium:  The price of insurance protection for a specified risk for a specified period of time. 

Private Passenger Automobile: Four-wheeled motor vehicles such as station wagons, vans or other private passenger automobiles, designed for use on public highways and subject to motor vehicle registration. 

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. 

Professional Liability Insurance:  Coverage for a professional practitioner, such as a doctor or a lawyer, against liability claims for dam­ages resulting from alleged malpractice in the perfor­mance of the insured’s services. Often called mal­practice insurance. 

Radius of Operation: A specific distance, commonly used to estimate rates for automobiles.  Beyond a certain number of miles, rates are increased. 

Rate:  The cost of a unit of insurance as determined by insurance companies and state regulators. The rate serves as the basis for the premium. 

Regulation:  Supervision of business practices by a governmental entity. 

Reinsurance:  Assumption by one insurance company of all or part of a risk undertaken by another insurance company 

Rental Car Reimbursement: An optional coverage to temporarily pay for the cost of a rental vehicle when your own automobile is damaged or stolen. 

Rider:  See Endorsement. 

Risk:  This word has two meanings for insurers: (1) the chance of loss, such as from a peril; and (2) the person or entity that is insured by a policy 

Safe Driver Plan: A system in which points are assigned for traffic violations and certain accidents.  Each point adds a percentage surcharge to the rating factor. 

Specified Causes of Loss: Automobile coverage for physical damage incurred as a consequence of the specified perils of fire, lightning, explosion, theft, windstorm, hail, earthquake, flood, vandalism, or the sinking, burning, collision or derailment of any conveyance transporting a covered auto. 

Threshold Level: The point at which the insured may bring tort action under a modified no-fault auto plan.  Many of these plans prohibit tort action for pain and suffering unless medical bills exceed a particular figure, or death or disfigurement occurs. 

Towing Costs: Optional automobile coverage that pays the cost up to a fixed amount for the towing of a disabled automobile. 

Underinsurance:  A condition in which the insurable value of property or possessions exceeds that of the coverage carried by a policyholder 

Underinsured Motorist (UIM) Coverage: A coverage in an automobile insurance policy under which the insurer will pay damages up to specified limits for bodily injury, if the limits of liability under the liable motorist’s policy are exhausted and he/she cannot pay the full amount he/she is liable for. 

Underwriter:  A company representative who reviews applications for insurance coverage to ensure they are acceptable and appropriately priced. 

Uninsured Motorist (UM) Coverage: A coverage in an automobile insurance policy under which the insurer will pay damages to the insured for which another motorist is liable if that motorist is unable to pay because he/she is uninsured.  This coverage usually applies to bodily injury damages only.  Injuries to the insured caused by a hit-and-run driver are also covered. 

--Source: Independent Insurance Agents of America

 

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