Glossary of Insurance Terms

A

• Actual Cash Value

  Cost of replacing damaged or destroyed property with comparable new property, minus depreciation and obsolescence. For example, a 10-year-old sofa will not be replaced at current full value because of a decade of depreciation.

• Actuary

  An actuary is one who analyzes the current financial implications of future contingent events.

• Additional Interest Insured

  A person or organization, other than the policy owner, who may be liable for an accident involving an insured person or an insured vehicle and who has been named as an additional interest insured under the policy.

• Adjuster

  A representative of the insurer who seeks to determine the extent of the insurer's liability for loss when a claim is submitted.

• Agent

  Individual who sells and services insurance policies. An Independent agent represents at least two insurance companies and (at least in theory) services clients by searching the market for the most advantageous price for the most coverage. A Direct or career agent represents only one company and sells only its policies.

• Aggregate Limit

  Usually refers to liability insurance and indicates the amount of coverage that the insured has under the contract for a specific period of time, usually the contract period, no matter how many separate accidents might occur.

• Automobile Liability Insurance

  Coverage if an insured is legally liable for bodily injury or property damage caused by an automobile.

B

• Broker

  Insurance salesperson that searches the marketplace in the interest of clients, not insurance companies.

• Broker Agent

  Independent insurance salesperson who represents particular insurers but also might function as a broker by searching the entire insurance market to place an applicant's coverage to maximize protection and minimize cost. This person is licensed as an agent and a broker.

C

• Casualty

  Liability or loss resulting from an accident.

• Casualty Insurance

  That type of insurance that is primarily concerned with losses caused by injuries to persons and legal liability imposed upon the insured 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 and forgery, boiler and machinery insurance and aviation insurance. Many casualty companies also write surety business.

• Claim

  A demand made by the insured, or the insured's beneficiary, for payment of the benefits as provided by the policy.

• Coinsurance

  In property insurance, requires the policyholder to carry insurance equal to a specified percentage of the value of property to receive full payment on a loss.

• Collision Insurance

  Covers physical damage to the insured's automobile (other than that covered under comprehensive insurance) resulting from contact with another inanimate object.

• Commercial Lines

  Refers to insurance for businesses, professionals and commercial establishments.

• Commission

  Fee paid to an agent or insurance salesperson as a percentage of the policy premium. The percentage varies widely depending on coverage, the insurer and the marketing methods.

• Comprehensive Insurance

  Auto insurance coverage providing protection in the event of physical damage (other than collision) or theft of the insured car. For example, fire damage or a cracked windshield would be covered under the comprehensive section.

• Continuous Coverage

  Being continuously insured means your insurance coverage from an insurer or more than one insurer was in effect at all times, without a break or lapse in coverage for any reason.

• Coverage

  The scope of protection provided under an insurance policy. In property insurance, coverage lists perils insured against, properties covered, locations covered, individuals insured, and the limits of indemnification. In life insurance, living and death benefits are listed.

D

• Death Benefit

  The limit of insurance or the amount of benefit that will be paid in the event of the death of a covered person.

• Deductible

  Amount of loss that the insured pays before the insurance kicks in.

• Direct Premiums Written

  The aggregate amount of recorded originated premiums, other than reinsurance, written during the year, whether collected or not, at the close of the year, plus retrospective audit premium collections, after deducting all return premiums.

• Direct Writer

  An insurer whose distribution mechanism is either the direct selling system or the exclusive agency system.

E

• Effective Date

  The date when insurance coverage under a policy begins.

• Elimination Period

  The time which must pass after filing a claim before policyholder can collect insurance benefits. Also known as "waiting period."

• Endorsement

  An endorsement is a written document attached to an insurance policy that can add coverage for things that are not covered in the original policy.

• Exclusions

  Items or conditions that are not covered by the general insurance contract.

• Expense Ratio

  The ratio of underwriting expenses (including commissions) to net premiums written. This ratio measures the company's operational efficiency in underwriting its book of business.

• Exposure

  Measure of vulnerability to loss, usually expressed in dollars or units.

• Extended Replacement Cost

  This option extends replacement cost loss settlement to personal property and to outdoor antennas, carpeting, domestic appliances, cloth awnings, and outdoor equipment, subject to limitations on certain kinds of personal property; includes inflation protection coverage.

F

• Fleet Insurance

  Covers four or more vehicles under one policy.

• FR44

  Is a document required by the court that demonstrates proof of financial responsibility for persons convicted of a DUI charge. It requires higher limits than an SR22.

G

• General Liability Insurance

  Insurance designed to protect business owners and operators from a wide variety of liability exposures. Exposures could include liability arising from accidents resulting from the insured's premises or operations, products sold by the insured, operations completed by the insured, and contractual liability.

• Grace Period

  The length of time (usually 31 days) after a premium is due and unpaid during which the policy, including all riders, remains in force. If a premium is paid during the grace period, the premium is considered to have been paid on time. In Universal Life policies, it typically provides for coverage to remain in force for 60 days following the date cash value becomes insufficient to support the payment of monthly insurance costs.

• Gross Vehicle Weight

  Maximum allowable total weight of a vehicle or loaded trailer, including the weight of the cargo, fuel and passengers.

H

• Hazard

  A circumstance that increases the likelihood or probable severity of a loss. For example, the storing of explosives in a home basement is a hazard that increases the probability of an explosion.

I

• Insurable Interest

  Interest in property such that loss or destruction of the property could cause a financial loss.

• Insurance Adjuster

  A representative of the insurer who seeks to determine the extent of the insurer's liability for loss when a claim is submitted. Independent insurance adjusters are hired by insurance companies on an "as needed" basis and might work for several insurance companies at the same time. Independent adjusters charge insurance companies both by the hour and by miles traveled.

• Insured

  A person whose interests are protected by an insurance policy; a person who contracts for an insurance policy that indemnifies him against loss of property or life or health etc.

L

• Liability

  Broadly, any legally enforceable obligation. The term is most commonly used in a pecuniary sense.

• Liability Insurance

  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.

N

• Named Insured

  Any person, firm or corporation specifically designated by name as the insured in the policy as distinguished from other persons, who though unnamed, may be protected under some circumstances in the policy.

• Noncancellable

  Contract terms, including costs that can never be changed.

• Nonstandard Auto (High Risk Auto or Substandard Auto)

  Insurance for motorists who have poor driving records or have been canceled or refused insurance. The premium is much higher than standard auto due to the additional risks.

O

• Occurrence

  An event that results in an insured loss. In some lines of business, such as liability, an occurrence is distinguished from accident in that the loss doesn't have to be sudden and fortuitous and can result from continuous or repeated exposure which results in bodily injury or property damage neither expected nor intended by the insured.

P

• Peril

  The cause of a possible loss.

• Personal Injury Protection

  Pays basic expenses for an insured and his or her family in states with no-fault auto insurance. No-fault laws generally require drivers to carry both liability insurance and personal injury protection coverage to pay for basic needs of the insured, such as medical expenses, in the event of an accident.

• Personal Lines

  Insurance for individuals and families, such as private-passenger auto and homeowners insurance.

• Policy Expiration Date

  The exact date and time that a policyholder’s insurance coverage ends.

• Policy Term

  The period of time your policy is active and in force.

• Policy

  The written contract effecting insurance or the certificate thereof, by whatever name called, and including all clauses, riders, endorsements, and papers attached thereto and made a part thereof.

• Preferred Auto

  Auto coverage for drivers who have never had an accident and operate vehicles according to law.

• Premium

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

• Premium Earned

  The amount of the premium that has been paid for in advance that has been "earned" by virtue of the fact that time has passed. A three-year policy that has been paid in advance and is one year old would have only partly earned the premium.

• Premium Unearned

  That part of the premium applicable to the unexpired part of the policy period.

• Primary Residence

  The place where you will live for the majority of your policy term.

• Private-Passenger Auto Insurance Policyholder Risk Profile

  This refers to the risk profile of auto insurance policyholders and can be divided into three categories: standard, nonstandard and preferred. In the eyes of an insurance company, it is the type of business (or the quality of driver) that the company has chosen to take on.

R

• Renewal

  The continuation of in-force status after the expiration of previous coverage, effected by the payment of additional premium.

• Replacement Cost

  The dollar amount needed to replace damaged personal property or dwelling property without deducting for depreciation but limited by the maximum dollar amount shown on the declarations page of the policy.

• SR22

  A document required by the court that demonstrates proof of financial responsibility for persons convicted of a certain traffic violation.

S

• Standard Auto

  Auto insurance for average drivers with relatively few accidents during their lifetime.

• Subrogation

  The right of an insurer who has taken over another's loss to also take over the other person's right to pursue remedies against a third party.

T

• Tort

  A private wrong, independent of contract and committed against an individual, which gives rise to a legal liability and is adjudicated in a civil court. A tort can be either intentional or unintentional, and liability insurance is mainly purchased to cover unintentional torts.

• Total Loss

  A loss of sufficient size that it can be said no value is left. The complete destruction of the property. The term also is used to mean a loss requiring the maximum amount a policy will pay.

U

• Underwriter

  The individual trained in evaluating risks and determining rates and coverages for them. Also, an insurer.

• Underwriting

  The process of selecting risks for insurance and classifying them according to their degrees of insurability so that the appropriate rates may be assigned. The process also includes rejection of those risks that do not qualify.

• Underwriting Guide

  Details the underwriting practices of an insurance company and provides specific guidance as to how underwriters should analyze all of the various types of applicants they might encounter. Also called an underwriting manual, underwriting guidelines, or manual of underwriting policy.

• Uninsured Motorist Coverage

  Endorsement to a personal automobile policy that covers an insured collision with a driver who does not have liability insurance.

V

• Vehicle Identification Number (VIN)

  This number is usually found on the driver’s side of your dashboard, the vehicle registration and the title. The VIN is a combination of 17 letters and numbers that can be used to identify the make, model and year of a car.