Insurance Terms Explained
More than you ever want to know about insurance.
Accident – An unforeseen circumstance or event that is unexpected
Accident Insurance – insurance for unexpected bodily injury.
Accident Only – an insurance policy that provides coverage, singly or in combination,
for death, dismemberment, disability. This can also cover hospital and medical care caused by or as a result of an accident.
Accidental Bodily Injury – Bodily injury to a person due to an unexpected event.
Accidental Death & Dismemberment – an insurance policy that pays a specified amount in the case of death and/or dismemberment caused by accident.
Actual Cash Value – Value of an item minus depreciation.
Actuary – Professional who analyzes risk and loss assessment for an insurance company. He Helps determine premium rating factors.
Adjuster – claims investigator who helps analyze the financial loss due to an accident.
Admitted Company – Insurance company who does business in other states outside of their home state.
Advance Premiums – Insurance payment made before the start of the policy.
Adverse Selection – the social occurrence whereby prospective clients with a higher than average of claims of loss, seek more insurance coverage than those with less risk.
Agent – A Licensed individual who sells, services, or negotiates insurance policies. They can be independent or captive to a particular company.
Allied Lines – Typical coverages are written associated property insurance, e.g., glass, tornado, windstorm and hail; sprinkler and water damage; explosion, riot, and civil commotion, etc.
All-Risk – commonly referred to as open peril, this type of policy covers a broad range of potential claims.
Appraisal – Value estimation
Arbitration – nonbiased third party problem resolution tactic.
Assessed Value – the taxable value of an item or property.
Assigned Risk – A market pool established through a government entity to write policies where the risk ‘s too big for the insurance company to offer coverage.
Authorized Company – Admitted insurance carrier authorized to offer policies in your state.
Auto Liability – Damage, both bodily injury, and property, covered under an auto insurance policy that protects other drivers during an accident. Individual states determine the guidelines for “at fault.”
Auto Physical Damage – Commonly referred to as Comprehensive and Collision coverage. This helps protect your vehicle from damage due to a covered peril.
Automobile Liability Insurance – typical insurance for bodily injury and property damage that may occur by operation of a vehicle or even ownership of a vehicle.
Boatowners/Personal Watercraft – an Insurance policy that helps protect personal watercrafts such as boats and jet skis. This policy includes liability coverage and can also include physical damage.
Bodily Injury – physical injury including sickness or disease to an individual.
Broker – An insurance professional who writes, services, and offers insurance policies through multiple different carriers.
Builders’ Risk Policies – Insurance policy to help protect a structure as it is being built, while it is under the course of construction.
Burglary and Theft – Insurance for property that has been taken, both on and off premise. Includes, theft, burglary, kidnapping, and fraud.
Business Auto – auto insurance policy for vehicles being used in a commercial capacity.
Business owners Policy – standard insurance policy to cover the liability and exposure of an individual company.
Captive Agent – An insurance agent who is contracted to sell one insurance company or its affiliates.
Cash – a medium of exchange.
Catastrophe Loss – an unforeseen event that causes severe loss across an area.
Claim – a request made by the insured to their insurance company for damage due to a covered loss.
Claims-made Form – A form that only pays out if both the event that causes the claim and the request to file the claim are submitted during the term of the policy.
Class Rating – A method used to help determine insurance rates based on a given set of characteristics. This can be based on personal demographic information such as age, gender, etc. and also based on geographic location. i.e. Zip code.
Combinations – packages policies bundles together such as auto and home insurance.
Commencement Date -This is the effective date of the policy.
Commercial Auto – Auto insurance policy for vehicles that are used in a commercial capacity.
Commercial Earthquake – insurance for commercial property for damage caused by an earthquake.
Commercial Flood – insurance for commercial property for damage resulting from a flood.
Commercial General Liability – commercial liability that is both flexible & broad coverage with two major sub-lines: Covers both the premise and products or completed operations.
Commercial Multiple Peril – the policy that packages two or more insurance policies protecting a business from various property and liability risk exposures.
Commercial Package Policy – additional coverage options beyond a business owners policy to cover other perils.
Commercial Property – Insurance policy to protect a property used for commercial purposes.
Commission – A percentage of the insurance premium the insurance agent earns from the insurance company for sale and service of an insurance policy.
Concurrent Causation – loss covered by an insurance policy when two or more perils occur at the same time.
Conditions – requirements stated in an insurance policy that is upheld by all parties to make the contract valid.
Condos – Home owners insurance for Condos. Typically referred to as an HO6.
Date of Issue – Date the insurance carrier issues the insurance policy.
Declarations – the Comprehensive document that stated coverage limits on an insurance policy.
Deductible – the Monetary portion of the claim the insured is responsible for in the event of a claim.
Difference In Conditions (DIC) Insurance – a special form of open-peril coverage to help protect against specific loss such as earthquake and flood.
Direct Loss – Damages caused by a covered peril.
Dwelling Property/Personal Liability – a special form of package policy composed of dwelling fire and/or allied lines, and personal liability insurance.
Earned Premium – Premium made through coverage on an insurance policy.
Earthquake – Coverage to property caused by earthquakes.
Effective Date – Date the insurance policy is active and in force.
Endorsement – Insurance policy change to modify coverage provided.
Excess and Umbrella Liability – Excess liability policy to mitigate losses where damage caused exceeds the current liability limit on the individual policy.
Expense Ratio – Percentage of premium used to service insurance policy and pay claims.
Exposure – the risk of unexpected loss.
FAIR Plan – Fair Access to Insurance Requirements – state pools designed to provide insurance to property owners who are unable to obtain property insurance through conventional means.
Fair Value – the amount at which an item could be bought or sold in a current transaction between willing parties.
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.
Fees Payable – fees that have been incurred but not yet paid.
FEMA – Federal Emergency Management Agency – an independent agency, tasked with responding to, planning for, mitigating and recovery efforts of natural disasters.
Financial Responsibility Law – a statute requiring drivers to show the capacity to pay for automobile-related losses, whether on their own or through an insurance policy.
Fire – coverage provided due to fire, even caused by lightning, to property.
Fire Legal Liability – coverage for property damaged by fire due to the negligence of a person. For example, a renter causes a fire and burns down an apartment building.
Flood – coverage to help protect from a flood (outside water coming in).
Hard Market – High demand for insurance but low supply or availability of providers.
Hazard – peril which tends to increase the probability or severity of a loss.
Homeowners Insurance – insurance policy to cover one’s property and possessions inside. This includes fixed homes, mobile homes, condos and renters insurance.
Incurred But Not Reported (IBNR) – Reserves insurance companies set aside for potential claims or estimated claims for the year.
Incurred Claims – Claims already paid out plus funds set aside for future claims not yet reported.
Incurred Losses – sustained losses, paid or not, during a specified time period.
Independent Adjuster – Independent contractor to investigates insurance claims for a fee.
Independent Agent – an Insurance agent who sells and services multiple companies.
Independent Contractor – an individual that works for themselves providing goods or services to clients for a fee.
Insurable Interest – The insured (policy holder) would sustain a direct loss if an event were to occur.
Insurance – transferring financial risk across a pool
Insurance to Value – Amount of insurance purchased vs. the actual replacement cost.
Insured – person who is covered by an insurance policy.
Insurer – the insurance company itself
International – business outside of the US.
Lapse – termination of an insurance policy for failure to pay the required premium.
Liability – your responsibility to others for damage that you have caused.
Limits – the maximum amount paid out on an insurance policy.
Line of Business – classification of insurance policy: auto, home, motorcycle, etc.
Long Duration Contracts – contracts longer than 13 months
Loss – physical damage to property or bodily injury
Loss Frequency – how many claims paid out during the life of an insurance policy.
Loss of Use Insurance – protection against loss of use of an item due to a covered claim. i.e. Rental car reimbursement when your vehicle is in the shop due to a claim.
Loss Payable Clause – third party mortgagee with a financial interest in the property.
Loss Ratio – the percentage of incurred losses to earned premiums.
Loss Reserve – the amount that insurance companies set aside to cover claims incurred but not yet paid.
Loss Reserves – an estimation of loss Reserve for the year
Losses Incurred – Claims that have been paid
Losses Incurred But Not Reported (IBNR) – reserves set aside for claims that have not been reported to the insurance company yet.
Mandated benefits – insurance required by state or federal law.
Market Value – fair value or an item derived from current market standards.
Mobile Homes – Homeowners – insurance for Mobile homes not in transport
Mobile Homes under Transport – coverage for mobile homes while under transport.
Moral Hazard – personality characteristics on an individual that increase the likelihood of a claim.
Mortgage – a loan used to secure a piece of property.
Multi-Peril Insurance – combining several types of property insurance in one policy for both business and personal use.
Named Insured – the individual defined as the insured in the policy contract.
Named Peril Coverage – insurance for losses explicitly identified in the policy contract.
Negligence – failure to exercise reasonable judgment or consideration to oneself or others resulting in loss or damage.
NFIP – National Flood Insurance Program – In consideration of the National Flood Act of 1968, insurance and floodplain management for personal and business property
Nonadmitted Insurer – insurance company, not licensed or contracted to provide insurance within a given state.
Occurrence – also referred to as an accident. Exposure to conditions as a result of bodily injury or property damage that was not expected.
Other Liability – Protection from the insured from legal liability arising from negligence, carelessness, or a failure to act resulting in property damage or personal injury to others.
Owner Occupied – home in which the owner resides and owns the structure.
Package Policy – two or more policies combined into a single policy.
Peril – the root cause of damage to one’s possession. Hail, fire, theft, etc.
Personal Auto Policy – insurance policy designed to cover personal automobiles for personal use.
Personal Earthquake – earthquake insurance for personally owned structure. Nonbusiness.
Personal Flood – Flood insurance for personally owned structure. None business.
Personal GAP Insurance – credit insurance that helps fill in the gap between the loan amount and actual cash value.
Personal Injury Liability -Coverage for an individual who has been discriminated against, maliciously prosecuted, slandered, a victim of identity theft, violation of rights, etc.
Personal Injury Protection Coverage/PIP – For states with “no-fault” laws – help for treatment of injuries when an accident occurs.
Personal Property – insured possessions, not including motor vehicles, homes, motorcycles, etc. This is coverage for items such as electronics, clothing, furniture, etc.
Policy – a written contract establishing an insurance agreement.
Policy Period – time in which insurance coverage is in effect.
Pool – a group of people who through risk sharing help to limit individual exposure to loss.
Preferred Risk – a person who exhibits a low risk for liability loss than a standard insured.
Premium – Money charged for the insurance coverage.
Premiums Earned – the portion of the premium for insurance that has already been provided.
Premiums Written – total premiums generated from all policies (contracts) written by an insurer within a specified period.
Primary Insurance – The insurance policy that takes precedence when there is multiple insurance policies involved in settling a claim.
Prior Approval Law – the regulatory requirement for insurance companies to have all insurance rates and forms sent to the state the policy is written through.
Private Passenger Auto – includes: Auto Liability, Personal Injury Protection, Medical Payments, Uninsured/Underinsured; Comprehensive, and Collision.
Producer – also referred to as an agent.
Property – coverage protecting policy holder against loss or damage to real or personal property from different perils. This includes fire, lightning, glass breakage, tornado, windstorm, hail, water damage, etc.
Provisions – contingencies as stated in an insurance policy.
Proximate Cause – situation covered under insured’s policy agreement.
Public Adjuster – independent claims adjuster representing policyholders (insured) instead of representing the insurance companies.
Pure Premium – that portion of the premium equal to expected losses.
Pure Risk – circumstance including the possibility of loss or no loss but also includes no possibility of gain.
Rate – Cost per unit of insurance
Rebate – a refund of part or all of a premium payment.
Renters Insurance – Content coverage for the renter.
Replacement Cost – cost to replace an item that is not adjusted for depreciation.
Reported Losses – Claims reported to the insurance company before compensation being made.
Reserve – Money set aside from insurance premiums to pay future claims.
Residence – where the insured lives or resides.
Residual Market Plan – program set in place for people who do not qualify for traditional insurance policy because of increased risk
Retrospective Rating – the process of determining insurance rates based on loss history.
Rider – a change to an insurance policy.
Risk – unknown factor or occurrence that may occur.
Risk Retention Group – group-owned insurance company which is organized for the purpose of assuming and spreading the liability risks between its members.
Salvage – the value of an item after a loss.
Self-Insurance – the individual is responsible for liability and claims. The individual acts as the insurance company.
Situs of Contract – the state or jurisdiction in which the insurance policy is issued.
Soft Market – abundant insurance available with lower premiums.
Standard Risk – normal risk insured at normal current insurance rates.
State of Domicile – the state where the insurance company’s home office is based out of.
Stock Insurance Company – Insurance company owned by stock owners.
Subrogation – insurer has the right to go after the negligent third party to recuperate claims paid out.
Subrogation Clause – statement in the insurance policy that gives the carrier an option for subrogation for a claim that has been paid out. Seeking reimbursement from the third party who is responsible for the loss.
Substandard Risk – prospect who is subject to higher insurance cost due to risk factors than the insurance premiums of a standard risk.
Surety Bond – a three-party agreement whereby an insurance company assumes an obligation or responsibility to pay a debt should the principal obligor become in default.
Tenants – person renting a home in which they do not own.
Term – length of time an insurance policy is in effect.
Third Party – the person other than the policy holder or insurance company who has incurred losses or is entitled to receive payment due to a claim.
Total Liabilities – maximum money an insurance policy pays out.
Unallocated Loss Adjustment Expense (ULAE) – expenses for loss adjustments that cannot be specifically tied to a claim.
Umbrella and Excess (Personal) – non-business excess liability policy that kicks in when the liability exposure of a claim exceeds the primary insurance policy liability limits.
Underinsured Motorist Coverage – option to protect bodily injury for damage to you when struck by another driver who does not have an active insurance policy in place.
Underwriter – the professional who analyzes risk when insurance assets.
Underwriting – the process by which an insurance company examines a risk to see if they are willing to offer coverage.
Underwriting Risk – the portion of the risk-based monetary formula calculated requirements for reserves plus the premiums for an insurance company.
Unearned Premium – the amount of premium owed by the insured to the insurance company for coverage that has been provided by not yet paid.
Valued Policy – an insurance policy where the value is agreed upon in advance. This is not a direct relation to the amount of the insured loss.
Valued Policy Law – legislation set in place by the state that specifies the policy holder insured shall receive the face amount of the policy in the event of a total loss to a dwelling, rather than the actual cash value.
Written Premium – the premium of the insurance policy over the policy term.