Common Insurance Terms
Read our list of common insurance terms so that you can better understand how your policy protects you.
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Actual Cash Value – The present-day value of property measured in cash, arrived at by taking the replacement cost and deducting for depreciation brought about by physical wear and tear and obsolescence.
Additional Insured – A person, other than the one in whose name an insurance policy is written, who is protected against loss by terms of the policy.
Agent – A representative of the insurer in negotiating, servicing, or effecting insurance contracts.
Aggregate – The maximum limit of liability payable by an insurance carrier on behalf of a policyholder during any given policy period
Appraisal – An estimate of quantity, quality, or value. The term also refers to the report setting forth the estimate and conclusion of value.
Arbitration – If a dispute arises between the insured and the company in regard to the amount of the loss, someone approved by both parties can be appointed to consider the facts and render a judgment. The arbitrator’s decision is binding and final on both parties.
Benefits – The sum of money provided in an insurance policy to be paid for certain types of loss under the terms of an insurance policy.
Binder – A temporary insurance contract pending the execution of the policy contract. It should contain a definite time limit, should be in writing, and clearly designate the company in which the risk is bound, the amount and the perils insured against, as well as the type of insurance.
Blanket Coverage – Coverage under a single limit for two or more items, (e.g. building and/or contents), two or more locations, or a combination of items and/or locations.
Bodily Injury Liability – Insurance protection against loss arising out of the liability imposed upon the insured by law for damages because of bodily injury, sickness or disease sustained by any person or persons other than employees.
Broker –
An insurance broker ordinarily is a solicitor of insurance who does not represent insurance companies in a capacity as an agent, but places orders for coverage with companies designated by the insured or with companies of his own choosing. The term “broker” frequently is used incorrectly to designate an agent of more than one insurance company.
Burglary – Breaking and entering into premises of another, with felonious intent, and with visible signs of forced entry. Most insurance policies specifically define burglary under their own terms, so it is wise to make sure the term “burglary” in your policy provides the coverage you need.
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Carrier – The insurance company that provides or “carries” the insurance.
Casualty Insurance –
The coverage of loss or liability arising from an accident or mishap excluding certain types of loss which by law or custom are considered as falling exclusively within the scope of other types of insurance such as fire or marine. It includes, but is not limited to, employees’ liability insurance, workers compensation insurance, public liability insurance, automobile liability insurance, plate glass insurance, burglary and theft insurance; also personal liability insurance, forgery, power plant and aviation insurance.
Catastrophe – A sudden and severe calamity or disaster. An event that causes a loss of an extraordinarily large amount of money.
Certificate of Insurance – Document used to provide evidence of coverage to an interested third party.
Claim – A demand for payment under an insurance contract or bond. The estimated or actual amount of a loss.
Coinsurance – An arrangement by which the insured, in consideration of a reduced rate agrees to carry an amount of insurance equal to a percentage of the total value of the property insured.
Commercial Lines – The various kinds of insurance written for businesses.
Concealment – The withholding of material facts regarding the nature of an insurance risk or loss. Withholding essential information from the insurer in negotiating an insurance contract or in making a claim.
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Declarations – That part of an insurance contract that contains coverage limits and information regarding the insurance risk on the basis of which the policy is issued.
Deductible – The amount of a loss, which the insured has to pay.
Depreciation – Loss in value. The difference between the replacement cost new and present value.
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Earned Premium – That part of an insurance premium that pays for the protection the insurance company has already given on a policy.
Employer’s Liability Insurance – Protects an employer against the claims for damages, which arise out of the injuries to employees in the course of their work. Employer’s liability insurance provides protection in cases not covered by workers’ compensation insurance.
Endorsement – A provision added to a policy, to effect a change or alteration of terms or conditions; must be signed by an executive of the company and attached to and made part of the policy to be valid.
Exclusion – A provision of part of the insurance contract limiting the scope of the coverage. The causes and conditions listed in the policy, which are not covered.
Exposure – This term may refer to the state of being subject to the possibility of loss or the extent of risk as measured by payroll, receipts, area or other standards.
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Financial Responsibility – A statute requiring motorists to furnish evidence of ability to pay damages, either before or after an accident.
Fleet Policy – An insurance contract covering a number of vehicles with a single owner.
Flood insurance – Contract of protection for damage caused by overflowing or rising water.
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Grace Period – A period of time, usually thirty-one days following the premium due date, during which a premium may be paid. The policy remains in force throughout this period.
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Hazard – A specific situation that introduces or increases the probability of the occurrence of a loss arising from a peril, or that may influence the extent of a loss.
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Insured – An individual or business organization protected in case of loss of property or life under the terms of an insurance policy.
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Liability Limits – The sum or sums beyond which a liability insurance company does not protect the insured on a particular policy. The majority of policies covering liability for bodily injury have two limits: a limit of liability to any one person; and another limit, usually higher, for any single accident where more than one person is involved.
Litigation – The act of carrying on a lawsuit.
Loss – The basis for a claim of indemnity or damages under the terms of an insurance policy. Any diminution of quantity, quality, or value of property.
Loss Ratio – The percentage of losses to premiums.
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Malicious Mischief –
Injury to the rights or property of another with a wicked or perverse intent.
Multi-peril Policy – Contrary to what the name might imply, the term “multi-peril policy” does not mean a policy insuring against two or more perils. Instead, it is a policy that combines fire and casualty and marine coverages in a single contract such as the homeowner’s policy.
Multiple-line Policy – A package that combines traditional property and liability insurance lines coverages.
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Named Perils – Named perils or hazards, policies name the specific perils or hazards the policy insures against. All risk policies do not name the perils specifically.
Negligence – Failure to do what a reasonably prudent individual would ordinarily do under the circumstances of a particular case, or doing what a prudent person would not have done. Negligence may be caused by acts of omission, commission or both.
No-fault Automobile Insurance – A form of insurance by which an insurance company pays for a policyholder’s financial loss resulting from an automobile accident without concern for who was at fault.
Notice of Loss – The conditions of the insurance policy require that any person sustaining a loss against the property insured by the policy shall forthwith (immediately) give notice to the company of such loss. This notice must precede recovery unless waived by the insurer. The notice is required in writing, although many companies accept a notice by telephone.
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Occurrence – A continued or repeated exposure to conditions, which results in a loss. Also, a policy clause stipulating all damages that arise out of the same general conditions are considered as arising from one occurrence.
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Package Policies – Combination policies wherein several coverages are included in one contract.
Peril – Cause of a possible loss, such as fire, theft, explosion, etc.
Policyholder
The individual or firm in whose name an insurance policy is written. Synonymous with insured.
Premises – A particular location or portion thereof as stated by the policy contract
Proximate Cause – The primary cause of an event, which is a natural and continuous sequence, unbroken by any new cause, produced that event, and without which that event would not have happened. For example, water sprayed from the hose of a firefighter may damage a house, but the primary or proximate cause, of course, was the fire itself.
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Rate – The cost of insurance per unit used as a means or base for the determination of premiums.
Rating Territory – In some property and casualty lines rating territory refers to a geographical grouping within which insureds tend to share an exposure to similar risks. This practice helps establish rates for the territory.
Reinsurance – Acceptance by an insurer called a reinsurer, of all or part of the risk of loss of another insurer. Thus, the risk of loss is spread and a disproportionately large loss under a single policy does not fall on one company.
Rents or Rental Value Insurance – Protection against the loss of rents resulting from an insured peril.
Replacement Cost Property Insurance – Insurance providing the amount payable to the insured as the replacement cost of the property new, rather than the depreciated value applied to the building structures or contents.
Reserve – Funds that are set aside by an insurance company for the purpose of meeting obligations as they become due. A liability set up by an insurer for a particular purpose.
Rider – A document or form containing special provisions that are not contained in the policy contract. Such forms are to be added or attached to the policy.
Risk – A person or thing insured.
Risk Management – The practice of analyzing all noncompetitive (non-production) exposure to the risk of loss (loss by fortuitous or accidental means) and taking steps to minimize those potential or real losses to levels acceptable to the organization.
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Salvage – Damaged property is taken by an insurer after it has paid the claim in order to minimize its losses.
Schedule – An enumeration of various properties covered by a policy. A system for computing rates.
Self-insurance –
An individual or firm’s systematic provision of a fund to provide for all or part of its losses.
Short Rate Cancellation – The termination of an insurance policy or bond before its expiration either by the insured or the company. The notice necessary before such cancellation becomes effective is almost always stated in the insurance contract.
Standard Provisions – Those clauses that certain state codes prescribe as being inserted in contracts of insurance; Contract provisions in general used by insurers, adopted by a group of insurers, approved by a state insurance department, or required by statute, either literally, in substance, or in a form more favorable to the insured.
Surety Bond – An instrument providing for monetary compensation should there be a failure to perform any specific acts within a stated period.
Suretyship – All forms of obligations to pay the debt or default of another. The function of being a surety.
Surplus Line – Business that would otherwise be subject to regulation as to rates or coverage, placed in non-admitted markets on an unregulated basis in accordance with the Surplus or Excess Line provisions of state insurance laws.
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Theft Insurance – Protection for the loss of property due to stealing, including the crimes of burglary, robbery, and larceny.
Tort – A legal wrong committed on a person or property apart from a responsibility in a contract.
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Underwriter – The individual whose duty it is to determine the acceptability of insurance risks; a person whose duty it is to select risks and determine the amounts and terms by which the insurance company will accept the risks.