Insurance policies can be confusing. We have put together this glossary to help explain some of the terminology that is used in the insurance business.
A
Accident
An unexpected event or circumstance without deliberate intent
Actual Cash Value
Repayment value for an item due to loss or damage of property. In most cases it is replacement cost minus depreciation
Agent
An individual who sells, services, or negotiates insurance policies either on behalf of a company or independently
Assessed value
Estimated value for real or personal property established by a taxing entity
Asset
Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.
Automobile Insurance
Coverage on the risks associated with driving or owning an automobile. It can include collision, liability, comprehensive, medical, and uninsured motorist coverages.
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B
Bid Bond
A guarantee that the contractor will enter into a contract, if it is awarded to him, and furnish such contract bond (sometimes called “performance bond”) as is required by terms thereof.
Binder
A temporary or preliminary agreement which provides coverage until a policy can be written or delivered.
Bodily Injury
Any physical injury to a person. The purpose of liability insurance is to cover bodily injury to a third party resulting from the negligent or unintentional acts of an insured.
Bonds
A form of debt security whereby the debt holder has a creditor stake in the company.
Broker
An individual who receives commissions from the sale and service of insurance polies. These individuals work on behalf of the customer and are not restricted to selling policies for a specific company.
Burglary
Coverage against loss as a result of forced entry into premises.
Business auto
Coverage for motor vehicles, other than those in the garage business, engaged in commerce.
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C
Cancellation
The termination of insurance coverage during the policy period. Flat cancellation is the cancellation of a policy as of its effective date, without any premium charge. Written documentation is usually required.
Claim
Notice to an insurer that under the terms of a policy, a loss may be covered.
Claimant
The first or third party. That is any person who asserts right of recovery.
Collision (Auto)
Reimburses you for damage to your automobile sustained in a collision with another car or with any other object, movable or fixed, (for example, you accidentally backed into another object while pulling out from a parking stall and causing damage to the bumper and fender of your covered automobile).
Collision Deductive Waiver
This coverage waves your collision deductible if you are hit by a negligent uninsured motorist.
Common Carrier Liability
Coverage for transportation firms that must carry any customer’s goods so long as the customer is willing to pay. Examples include trucking companies, bus lines, and airlines.
Comprehensive (Auto)
Provides coverage for any direct and accidental loss of, or damage to, your covered automobile and its normal equipment, to include but not limited to fire, theft or vandalism.
Comprehensive Glass Insurance
Coverage on an “all risks” basis for glass breakage, subject to exclusions of war and fire.
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D
Decline
An insurance company refuses to accept the request for insurance coverage.
Deductible-The about you are responsible for paying for a claim. Deductibles are chosen by the insured and can be different amounts. Generally, the higher the deductible chosen the lower the overall premium.
Depreciation
A decrease in value due to age, wear and tear, etc.
Disability Insurance
Health insurance that provides income payments to the insured wage earner when income is interrupted or terminated because of illness, sickness, or accident.
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E
Effective Date
The date on which an insurance policy or bond goes into effect, and from which protection is furnished.
Endorsement
Amendment to the policy used to add or delete coverage. Also referred to as a “rider.”
Exclusion
Certain causes and conditions, listed in the policy, which are not covered.
Expiration Date
The date on which the policy ends. Most policies will renew at expiration date as long as accounts remain in good standing.
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F
Face Amount (Life insurance)
The dollar amount to be paid to the beneficiary when the insured dies. It does not include other amounts that may be paid from insurance purchased with dividends or any policy riders.
Fidelity Bond
An obligation of the insurance company against financial loss caused by the dishonest acts of employees.
Fire Insurance
Coverage for loss of or damage to a building and/or contents due to fire.
Floater Insurance
A type of insurance policy that covers property that is easily movable and provides additional coverage over what normal insurance policies do not. This can cover anything from jewelry to expensive stereo equipment.
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G-H
Grace Period
A period (usually 31 days) after the premium due date, during which an overdue premium may be paid without penalty. The policy remains in force throughout this period.
Health Insurance
A policy that will pay specifies sums for medical expenses or treatments. Health policies can offer many options and vary in their approaches to coverage.
Homeowner Insurance
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. While homeowners insurance covers most scenarios where loss could occur, some events are typically excluded from policies, namely: earthquakes, floods or other “acts of God” and acts of war. Separate policies may be required in certain areas to cover against these exclusions.
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I-J-K
Incontestable Clause
A policy provision in which the company agrees not to contest the validity of the contract after it has been in force for a certain period of time, usually two years.
Inland Marine Policy
See “Floater Insurance”
Insured
the policyholder; the person, group, or organization whose life or property is covered by an insurance policy
Insurer
The insurance company; a person or company that contracts to indemnify another in the event of loss or damage.
Judicial Bond
A bond required in civil and criminal court actions.
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L
Liability (Auto)
Coverage for a policyholder’s legal liability resulting from injuries to other persons or damage to their property as a result of an auto accident.
Liability Insurance
Coverage for all sums that the insured becomes legally obligated to pay because of bodily injury or property damage, and sometimes other wrongs, to which an insurance policy applies.
Life Insurance
A policy that will pay a specified sum to beneficiaries upon the death of the insured.
Limit
Maximum amount a policy will pay either overall or under a particular coverage.
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M-N-O
Marine Insurance
Coverage for goods in transit and the vehicles of transportation on waterways, land, and air.
Material Misrepresentation
The policyholder / applicant makes a false statement of any material (important) fact on his/her application. For instance, the policyholder provides false information regarding the location where the vehicle is garaged.
Medical Payments
Will pay reasonable expenses incurred for necessary medical and /or funeral services because of bodily injury caused by accident and sustained by you or any other person while occupying a covered automobile.
Misquote
An incorrect estimate of the insurance premium.
Mortgage Insurance
Life insurance that pays the balance of a mortgage if the mortgagor (insured) dies.
Named Peril
Specific perils listed on an insurance policy. Perils that are unlisted usually are not covered.
Obligee
Broadly, anyone in whose favor an obligation runs. Frequently used in surety bonds, this refers to the person, firm or corporation protected by the bond.
Obligor
Commonly called “principal,” one bound by an obligation. Under a bond, strictly speaking, both the principal and the surety are obligers.
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P-Q
Peril
The cause of a possible loss. For example, fire, theft, or hail.
Policy
The written contract of insurance between the insurer and the insured which determines the claims in which the insurer is legally required to pay. In exchange for initial payment, the insurer promises to pay for loss caused by perils covered under the policy language.
Policy Limit
The maximum amount a policy will pay, either overall or under a particular coverage.
Power of Attorney
Authority given one person or corporation to act for and obligate another, to the extent laid down in the instrument creating the power.
Premium
The amount of money an insurance company charges for insurance coverage.
Premium Financing
A policyholder contracts with a lender to pay the insurance premium on his/her behalf. The policyholder agrees to repay the lender for the cost of the premium, plus interest and fees.
Principal
A person or organization whose obligation are guaranteed by a bond.
Pro-Rata Cancellation
When the policy is terminated midterm by the insurance company, the earned premium is calculated only for the period coverage was provided. For example: an annual policy with premium of $1,000 is canceled after 40 days of coverage at the company’s election. The earned premium would be calculated as follows: 40/365 days X $1,000=.110 X $1,000=$110.
Property Damage
damage to or the destruction of public or private property, caused either by a person who is not its owner or by natural phenomena.
Quote
An estimate of the cost of insurance, based on information supplied to the insurance company by the applicant.
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R
Replacement Cost
The cost to repair or replace an insured item. Some insurance only pays the actual cash or market value of the item at the time of the loss, not what it would cost to fix or replace it. If you have personal property replacement cost coverage, your insurance will pay the full cost to repair an item or buy a new one once the repairs or purchases have been made.
Replacement Value
The full cost to repair or replace the damaged property with no deduction for depreciation, subject to policy limits and contract provisions.
Reinstatement
The restoring of a lapsed policy to full force and effect. The reinstatement may be effective after the cancellation date, creating a lapse of coverage. Some companies require evidence of insurability and payment of past due premiums plus interest.
Rider
See “Endorsement”.
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S-T-U-V
Short-Rate Cancellation
When the policy is terminated prior to the expiration date at the policyholder’s request. Earned premium charged would be more than the pro-rata earned premium. Generally, the return premium would be approximately 90 percent of the pro-rata return premium. However, the company may also establish its own short-rate schedule.
Solicitor
A licensed employee of a fire and casualty agent or broker who may act for the agent or broker in some circumstances.
Surcharge
An extra charge applied by the insurer. For automobile insurance, a surcharge is usually for accidents or moving violations.
Surety
An arrangement whereby one party becomes answerable to a third party for the acts of a second party. Customarily an insurance company, the party in a suretyship arrangement who holds himself responsible to one person for the acts of another.
Surety Bond
A bond which the surety agrees to answer to the obligee for the non-performance of the principal (also known as the obligor).
Suretyship
Stated in its simplest terms, suretyship embraces all forms of obligation to pay debts or answer for the default of another.
Surrender
To terminate or cancel a life insurance policy before the maturity date. In the case of a cash value policy, the policyholder may exercise one of the non-forfeiture options at the time of surrender.
Umbrella Insurance
Extra liability insurance coverage that goes beyond the limits of the insured’s home, auto or watercraft insurance. It provides an additional layer of security to those who are at risk for being sued for damages to other people’s property or injuries caused to others in an accident. It also protects against libel, vandalism, slander and invasion of privacy
Underwriting
The process of selecting applicants for insurance and classifying them according to their degrees of insurability so that the appropriate premium rates may be charged. The process includes rejection of unacceptable risks.
Uninsured Motorist Bodily Injury
Will pay you and your passengers for bodily injury cause by a negligent uninsured motorist, a hit-and-run driver, or by a driver whose insurer is insolvent.
Uninsured Motorist Property Damage
Will pay for damages to your automobile, set up to a limit, when caused by a negligent uninsured motorist.
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W-X-Y-Z
Waiting Period
A period of time set forth in a policy which must pass before some or all coverages begin.
Workers Compensation Insurance
Coverage providing four types of benefits (medical care, death, disability, and rehabilitation) for employee job-related injuries or diseases as a matter of right (without regard to fault).
