Insurance Terms

ACCIDENT: An unexpected fortuitous event, unforeseen and unintended, not under the control of an insured and resulting in a loss.

ACCIDENTAL DEATH:Coverage in the event of death due to an accident, usually in combination with dismemberment insurance.

ACTUAL CASH VALUE: The sum of money required to pay for damages or lost property, computed on the basis of replacement value less its depreciation by obsolescence or general wear.

BENEFICIARY:  Designation by the owner of a life insurance policy indicating to whom the proceeds are to be paid upon the insured's death or when an endowment matures.

BINDER:  (Or Binding Receipt):  In lines other than life and health, a binder is an acknowledgement (usually from the agent) that insurance applied for is in force whether or not premium settlement has yet been made or the policy issued. In life and health insurance, binders are not issued, but if premium settlement is made with the application, what is often erroneously referred to as a "binder" is issued. Actually this is a conditional binding receipt.

BODILY INJURY LIABILITY: The liability which may arise from injury or death of another person.

BUSINESS LIABILITY:  The term used to describe the liability coverages provided by the Businessowners Liability Coverage Form. It includes liability for bodily injury, property damage, personal injury, advertising injury, and fire damage.

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 used in the insured's business.

CARRIER: (1) An insurance company which "carries" the insurance. (The terms "insurance company" or "insurer" are preferred because of the possible confusion of "carrier" with transportation terminology). (2) In transportation, the trucker, air carrier, ocean steamship company or other entity which moves the goods. (See "Contract Carrier)

CASUALTY INSURANCE: That type of insurance that is primarily concerned with losses caused by injuries to persons and legal liability imposed 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 or forgery, Boiler and Machinery insurance, and Aviation insurance. Many casualty companies also write surety business.

CAUSES OF LOSS:  Under the latest commercial property forms, this term replaces the earlier term "perils" insured against.

CLAIM:  (1) A formal request for payment of a loss under an insurance contract or bond; (2) The actual amount of the final settlement.

CLAIMANT:  One who seeks reimbursement for loss under the terms and conditions of the insurance contract.

CLAIMS-MADE COVERAGE: A policy providing liability coverage only if a written claim is made during the policy period or any applicable extended reporting period. For example, a claim made in the current reporting year could be charged against the current policy even if the injury or loss occurred many years in the past. If the policy has a retroactive date, an occurrence prior to that date is not covered. (Contrast this with "Occurrence Coverage)

COBRA (Consolidated Omnibus Budget Reconciliation  Act):  A federal law under which group health plans sponsored by employers with 20 or more employees must offer continuation of coverage to employees who leave their jobs, voluntarily or otherwise, and their dependents; gives individuals and their dependent families the right to continue their health care coverage for as long as 18 months.

COINSURANCE: (1) In property insurance, a clause under which the insured shares in losses to the extent that he is underinsured at the time of loss. (2) In health insurance, a provision that the insured and insurance company will shared covered losses in agreed proportion. In health insurance, the preferred term is "percentage participation."

COLLISION COVERAGE:  Physical damage protection for the insured's own automobile(s) for damage resulting from a collision with another object or upset.

COMMERCIAL GENERAL LIABILITY (CGL) COVERAGE PART:  General liability coverage which may be written as a monoline policy or part of a commercial package. "CGL" now means commercial general liability forms which have replaced the earlier "comprehensive" general liability forms. The latest forms include all sublines, provide very broad coverage, and two variations are available, "Occurrence," and "Claims Made," coverage.

COMPREHENSIVE COVERAGE:  Traditional name for physical damage coverage for losses by fire, theft, vandalism, falling objects and various other perils. On Personal Auto Policies this is now called "other than collision" coverage. On commercial forms, it continues to be called "comprehensive coverage."

CONTRACTUAL LIABILITY: Liability assumed under any contract or agreement. Coverage is generally limited in liability policies, but in most cases may be provided for an additional premium.

CO-PAYMENT:  The portion, either a percentage or a fixed dollar amount, of a medical bill that a patient pays. The insurer pays the rest.

COVERAGE:  The scope of protection provided under the contract of insurance.

DEDUCTIBLE:  The amount of loss paid by the policyholder before the insurance policy benefits become payable.

DENTAL INSURANCE:Coverage for dental services under a group of individual policy.

DEPRECIATION: Decrease in the value of any type of tangible property over a period of time resulting from use, wear, tear, deterioration, and obsolescence.

DISABILITY:  A condition that curtails to some degree a person's ability to carry on his normal pursuits. A disability may be partial or total, and temporary or permanent.

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 illness or accident.

DISCOVERY PERIOD:  The time allowed the insured after termination of certain bond and policy provisions to discover that he has sustained a loss which occurred during the period covered by the contract.

EFFECTIVE DATE:  The date on which an insurance policy or bond goes into effect, and from which protection is furnished.

ENDORSEMENT: A form attached to the policy bearing the language necessary to change the terms of the policy to fit special circumstances.

EXCLUSIONS:  Specified hazards for which a policy will not provide benefit payments. (Often called Exceptions)

EXTENDED REPORTING PERIOD (ERP):  A period allowed for making claims after expiration of a "claims made" liability policy. Also known as a "tail."

FIRE:   Combustion sufficient to product a spark, flame or glow and which is hostile (as opposed to friendly - i.e. not in the place where it is intended to be as in a furnace or fireplace.)

FIRE INSURANCE:   (1) Insurance contracts that indemnify an insured for loss caused by the destruction of the insured's property resulting from a fire; (2) The field of insurance that provides insurance policies on the insured's property for a variety of perils, including fire.

FLAT CANCELLATION:  Cancellation of an insurance policy as of the date of its start with no premium charge.

GOOD FAITH:   A basic principle of insurance. The Assured and his broker must disclose and truly represent every material circumstance to the Underwriter before acceptance of the risk. A breach of good faith entitles the Underwriter to avoid the contract. (Proposed changes in law may affect this definition - also see "Utmost Good Faith".)

 HAZARD:   A specific situation that increases the probability of the occurrence of loss arising from a peril, or that may influence the extent of the loss. For example, accident, sickness, fire, flood, liability, explosion are perils. Slippery floors, unsanitary conditions, shingled roofs, congested traffic, unguarded premises, and uninspected boilers are Hazards.

HEALTH INSURANCE:  Protection against the costs of hospital and medical care or lost income arising from an illness or injury (sometimes called Accident & Sickness Insurance).

HMO (Health Maintenance Organization):  An organization that provides health care for a monthly payment set in advance. In a traditional HMO, doctors and other providers are salaried employees and the facilities are owned by the organization. In recent years, however, other forms of HMOs have sprung up that contract with doctors and hospitals to care for members at set, negotiated fees. Many HMOs are hybrids, offering both kinds of care to members.

INSURABLE INTEREST:  A direct monetary interest in the insured property sufficient to result in monetary loss should the property be damaged or destroyed.

INSURABLE RISK: A risk which meets most of the following requisites: (1) The loss insured against must be defined; (2) It must be accidental; (3) It must be large enough to cause hardship to the insured; (4) It must belong to a homogenous group of risks large enough to make losses predictable; (5) It must not be subject to the same loss at the same time as a large number of other risks; (6) The insurance company must be able to determine a reasonable cost for the insurance; (7) The insurance company must be able to calculate the chance of loss.

INSURANCE:  A system to protect persons, groups, or businesses against the risks of financial loss by transferring the risks to a large group who agree to share the financial losses in exchange for premium payments.

INSURED:  The person whose risk is transferred and shared; the party to an insurance agreement whom the insurer agrees to indemnify for losses, provide benefits for, or render services to.

INSURER:  The company or group offering protection through the sale of an insurance policy to an insured; the party to an insurance agreement who undertakes to indemnify for losses, provide pecuniary benefits, or render services.

JOINT LIFE POLICY:   Pays the insurance amount when the first of two or more covered persons dies.

KNOWN LOSS:   A loss known to one or both parties when a broker and Underwriter are negotiating a placing.

LIABILITY:   Broadly, any legally enforceable obligation; a responsibility of one person to another, enforceable in law.

LIABILITY INSURANCE:   That 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.

LIABILITY LIMITS:   The sum or sums beyond which a liability insurance company does not protect the insured on a liability policy.

LIFE INSURANCE:  Protection against the death of the Insured in the form of payment to a designated beneficiary, typically a family member or business.

LONG-TERM CARE INSURANCE:  A type of insurance policy that covers the cost of long-term custodial care in a nursing facility or at home.

MANAGED CARE:  A health plan that places limits on which treatments and which doctors, hospitals and other providers a member can use and still receive full coverage. Generally, under managed care an insurer negotiates lower fees with doctors, hospitals, or laboratories who join in a network that members of the plan are encouraged to use. Frequently, members of a managed care plan can use health care providers outside their network, but they must pay a greater share of the fees.

MARKET VALUE CLAUSE:   A provision that may be used in property damage insurance form covering some risks which obligates the insurance company, in the event of loss, to pay the established cash selling price of the destroyed or damaged stock, rather than the actual case value as provided in the Standard Fire Policy.

MEDICAID:  A federal/state program that helps pay for health care for the needy, blind or disabled and for low-income families with children.

MEDICARE:  A federal health care program for people age 65 and over, and for the disabled.

MEDIGAP:  Insurance coverage sold by private insurers to supplement federal insurance benefits and expenses not covered under the federal Medicare program.

NAMED INSURED:   Any person, firm, or corporation, or any member thereof, specifically designated by name as insured(s) in a policy as distinguished from  the others who, though unnamed, are protected under some circumstances.

NAMED PERIL POLICIES:  Named Peril Policies specify what perils are insured against, as opposed to so-called all-risk policies.

NEGLIGENCE:  Failure to use the degree of care expected from a reasonable and prudent person.

NON-CANCELABLE POLICY:  A policy which the insured has the right to continue in force by the timely payment of premiums set forth in the policy, during which period the insurer has no right to make unilaterally any change in any provision of the policy while the policy is in force. (See also "Guaranteed Renewable Policy".)

NOTICE OF LOSS:  Written notice of a loss to the insurance company as outlined in the conditions of the insurance policy.

OBLIGEE:   Broadly, anyone in whose favor an obligation runs. This term is most frequently used in surety bonds, where it 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 obligors.

OCCUPANCY:   In insurance, this term refers to the type and character of the use of property in question.

OCCURRENCE COVERAGE:   A policy providing liability coverage only for injury or loss that occurs during the policy period, regardless of when the claim is actually made.

PACKAGE POLICY:   An insurance policy including two or more lines or types of coverages in the same contract.

PERSONAL INJURY:   Injury other than bodily injury arising out of false arrest or detention, malicious prosecution, wrongful entry or eviction, libel or slander, or violation of a person's right to privacy committed other than in the course of advertising, publishing, broadcasting, publishing, or telecasting.

PERSONAL INJURY COVERAGE:   Liability insurance coverage for third party claims for damages which are other than physical such as libel, slander, false arrest, etc.

PERSONAL INJURY PROTECTION:   The formal name usually given to no-fault benefits in states that have enacted mandatory or optional no-fault Automobile Insurance coverages. PIP usually includes benefits for medical expenses, loss of work income, essential services, accidental death and funeral expenses.

PERSONAL LINES:   This term is used to refer to insurance for individuals and families such as private passenger automobile or homeowner insurance.

POLICY:  The written statement of a contract effecting insurance, or certificates thereof, by whatever name called and including all causes, riders, endorsements and papers attached thereto and made part thereof.

POLICY PERIOD:  The period during which the policy contract affords protection.

PRE-EXISTING CONDITIONS:  A physical condition of an insured person which existed prior to the issuance of the policy.

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

PREMIUM:  The payment for an insurance policy, usually paid periodically (annually, semi-annually, quarterly, or monthly).

PRIOR DAMAGE:  Pre-existing damage that occurred prior to the loss in question.

PRO-RATA:  Cancellation of an insurance contract by the insurance company, allowing a policyholder a share of the premium relating to the remainder of the time under the contract that bears to the total contract premium.

PRODUCTS LIABILITY INSURANCE:   Provides protection against claims arising out of the use, handling or consumption of a product.

PROFESSIONAL LIABILITY INSURANCE:   Liability insurance to indemnify professionals, doctors, lawyers, architects, etc. for the loss or expense resulting from claim on account of bodily injuries because of any malpractice, error or mistake committed or alleged to have been committed by the insured in his profession.

PROOF OF LOSS:  A statement made to the insurance company under oath setting out the basis of an insured's claim under the insurance policy.

PROPERTY DAMAGE (LIABILITY) INSURANCE:   Protection against liability for damage to the property of another not in the care, custody and control of the insured, as distinguished from liability for bodily injury.

PROPERTY INSURANCE:   Insurance which indemnifies a person with an interest in physical property for its loss or the loss of its income-producing ability.

REINSTATEMENT:   (1) Putting a lapsed policy back in force; (2) The payment of a claim under some forms of insurance reduces the principal amount of the policy by the amount of the claim. Provision is usually made for a method of reinstating the policy to its original amount.

REPLACEMENT COST:   The cash value representing what it would cost to replace the specific property without deduction for depreciation.

RIDER:  An endorsement to an insurance policy that modifies clauses and provisions of the policy, adding or excluding coverage(s).

RISK:   A fortuity. A term used to designate an insured of a peril insured against. It does not embrace inevitable loss. The term is used to define causes of loss covered by a policy.

 SCHEDULE: (1) A list of specified amounts payable for, usually, surgical procedures, dismemberments, ancillary expenses or the like in Health Insurance policies; (2) The list of individual items covered under one policy as the various buildings or animals and other property in property insurance; (3) In Marine policies, a list attached to a slip, open cover, policy or other document, usually detailing the rates of premium for various voyages, interests and risks.

SCHEDULE OF LOSS:  Notice completed by the insured documenting loss or damage to contents, personal property and/or stock.

TERM INSURANCE:  Life insurance issued for a stated temporary period of time.

TOTAL LOSS:   This can be actual total loss or constructive total loss, where the cost of damage repair exceeds the value of the property insured.

UNDER-INSURANCE:   A condition in which not enough insurance is carried to cover the insurable value, and, especially, to satisfy a coinsurance clause.

UNDERWRITER:   (1) A person trained in evaluating risks and determining the rates and coverages that will be used for them; (2) An agent, especially a life insurance agent, who might qualify as a "field underwriter."

UNDERWRITING:  The process of examining, accepting, or rejecting insurance risks, and classifying those selected in order to charge the proper premium for each.

UNINSURED MOTORIST COVERAGE:  Endorsement to a personal automobile policy that covers an insured involved in a collision with a driver who does not have liability insurance.

UNIVERSAL LIFE INSURANCE:  A flexible premium policy that combines protection against premature death with a savings account that typically earns a money market rate of interest.

WAITING PERIOD:   A period of time between the beginning of a disability and the date benefits begin.

WAIVER CLAUSE:   A clause which entitles both Underwriter and Assured to take measures to prevent or reduce loss without prejudice to the rights of either party.

WHOLE LIFE INSURANCE:  Life insurance payable to a beneficiary at the time of death of the insured, whenever that occurs.

WORKERS COMPENSATION:  (1) A schedule of benefits payable to an employee for injury, disability, dismemberment, or death as a result of occupational hazard. The payments are a liability of an employer. (2) Insurance agreeing to pay the Workers Compensation benefits required by law on behalf of the employer.


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