Insurance dictionary.

FAQ - Insurance Terms

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A

ABANDONMENT

Relinquishment of ownership of property that has been lost or damaged and "abandon" it to the Insurance Company for the purpose of claiming a total loss.

ACCIDENT

1. An unusual fortuitous, unexpected, or unforeseen event or occurrence. 2. An unforeseen, undesigned occurrence at a given time and place causing physical injury to persons or damage to property.

ACT OF GOD

A sudden and violent act of nature, which could not have been foreseen or prevented. Examples: flood, earthquake

ACTUAL CASH VALUE

The actual or current value at the time of the loss. Actual cash value takes depreciation into consideration.

ADDITIONAL INSURED

A person other than the named insured who is protected by the terms of the policy. Most automobile policies, for example, insure a specific individual as an insured, but also insures anyone driving with the insured's consent. The additional insured may be "named" or "unnamed."

ADDITIONAL LIVING EXPENSE INSURANCE

Coverage applicable when an insured's dwelling is damaged by an insured peril to such an extent that one cannot live in it until repaired. This insurance pays the extra amount it costs to live elsewhere until repairs are made, such as the cost of living in a hotel.

ADDITIONAL PREMIUM

An extra charge for an alteration, during the policy period, which increases the hazard or the Company's liability.

ADJUSTER

One who represents an insurer on investigations and dealings with respect to settlement of claims. This may be a salaried employee of an insurer or one who operates as an independent adjuster.

ALL-RISKS POLICY

A name given to an insurance policy which covers against the loss caused by all perils except those which are specifically excluded by the terms of the policy.

AMOUNT OF INSURANCE

The limit of payment for which an insurer is liable under a policy.

APPLICANT

The person or firm requesting insurance.

APPLICATION (APP)

A form on which the prospective insured states facts requested by the insurance company and on the basis of which (together with any information from other sources) the insurance company decides whether or not to accept the risk, modify the coverage offered, or decline the risk.

APPRAISE

To set and state in writing the true value of property.

ARBITRATION

Referral of a dispute to one or more impartial persons chosen by the disputing parties to determine their rights and/or obligations. The parties agree in advance to abide by the arbitration agreement. Each party has a chance to be heard.

ARBITRATION CLAUSE

A clause in an insurance policy that provides arbitration in the event of a disagreement.

ARSON

The deliberate and intentional burning of property by its owner or by another person.

ASSUMED LIABILITY

Liability, which would not rest upon a person except that he has accepted responsibility by contract expressed or implied. This is also known as contractual liability.

ASSURED

See "insured".

ASSURER

See "insurer".

AUTHORIZATION

The power or right to act on behalf of another.

AUTOMOBILE FLEET

A group of automobiles under the same ownership and management which may, because of the number, justify a discount in the insurance premium. Usually five or more vehicles.

AUTOMOBILE INSURANCE

Insurance coverage that provides indemnity and/or compensation for injury or physical damage which ensues from the ownership, use or operation of an automobile.

B

BAILEE

One to whom goods or property are entrusted for a stated purpose. Can be either gratuitous (for no consideration) or for hire (for consideration).

BETTERMENTS

Physical improvements beyond simple maintenance or repairs that increase the value of a property.

BINDER

A written or oral agreement given by an insurer to insure a risk, pending the issuance of a policy. A binder is deemed to be the policy and must be canceled in the same manner.

BODILY INJURY

Term used in Auto and Casualty policies meaning physical injury, including sickness, disease, mental injury, shock or death.

BROAD FORM

Any of the commercial or personal lines property forms which provide coverage on a named perils basis. This form normally adds the Extended Coverage and Vandalism and Malicious Mischief coverages. This form is generally used for coverages on a Homeowners Policy.

BROKER

An independent person or firm that acts on behalf of the insured in placing business with insurance companies.

BUILDERS RISK INSURANCE

Insurance coverage on property under construction, including loss to buildings, machinery and equipment. Materials incidental to construction are also covered.

BURGLARY

Unlawful removal of property from premises involving visible forcible entry or exit.

BUSINESS INTERRUPTION

Insurance against business expenses and loss of income resulting from fire or other insured peril.

C

CIVIL LIABILITY

Liability to other motorists, pedestrians and property owners that you assume when operating your automobile on a public roadway.

CLAIM

Notice to an insurer that under the terms of a policy, a loss may be covered.

CLAUSE

A term used to identify a particular part of a policy or endorsement.

COLLISION COVERAGE

An optional coverage designed to provide protection for your vehicle when damage occurs as a result of a collision with another object. This coverage is optional and may be purchased in addition to the mandatory coverages required by law, and it is subject to a deductible.

COMPREHENSIVE INSURANCE

Comprehensive insurance reimburses you for damage to your own car from causes other than collision or overturning. The comprehensive portion of your policy pays for loss due to perils like hail, flood, theft, fire, glass breakage, falling objects, missiles, explosions, earthquakes, windstorms, vandalism or malicious mischief, riot or civil commotion, and collision with a bird or an animal. When you look at a policy's comprehensive coverage, check for exclusions or limitations. If you have a special audio system installed in your car, for example, you should make sure your policy would cover the cost of the equipment if it were damaged or stolen. It's also important to know if the policy pays for the actual cash value of damaged or stolen property (its current value after depreciation has been subtracted or the full amount required to replace it today.)

COMPULSORY INSURANCE

Any form of insurance, which is required by law.

CONSEQUENTIAL DAMAGE

A loss, which is an indirect result of an accident or fire, e.g. food spoiled through breakdown of a refrigerator.

COVER

To insure.

COVERAGE / PROTECTION

The nature of protection afforded by a particular policy. Also see "insurance".

D

DEBRIS REMOVAL

A provision in an insurance policy most commonly found in fire insurance, providing indemnification for the cost of removal of the debris after a loss.

DEDUCTIBLE

The amount of money that the policy holder must contribute in the event of a claim before the insurance coverage responds. Deductibles can be used to reduce your physical damage premiums.

DEPRECIATION

Reduction in value of property through use, aging, deterioration and obsolescence.

DIRECT LOSS/DAMAGE

A loss, which is a direct consequence of a particular peril. Fire damage to a refrigerator would be a direct loss. Spoiling of food in the refrigerator as a result of the fire damage would be an indirect loss.

DIRECT WRITER

An insurance company, which sells its policies through salaried employees (licensed agents) who represent it exclusively, rather than through independent local agents, who represent several insurance companies.

DRIVING CLASS

A term used when rating automobile insurance. Driving class indicates age of the operator, and/or sex and/or vehicle use.

DRIVING RECORD

A driving record is given to each driver. The record is determined by the experience, prior accidents, traffic tickets (speeding) and driver training. The higher the driving record, the lower the risk.

E

EMBEZZLEMENT

The fraudulent use of money or property, which has been entrusted to one's care.

EMPLOYERS LIABILITY INSURANCE

Coverage against common law liability of an employer for accidents to employees, as distinguished from liability imposed by a workers' compensation law.

ENDORSEMENT / RIDER

Amendment to the policy used to add or delete coverage.

ERRORS & OMISSIONS INSURANCE

Insurance covering the legal liability of professionals such as architects, engineers, accountants and insurance brokers. Most general liability policies exclude coverage to professionals. An errors and omissions policy will cover the mistakes or forgetfulness of one who offers a professional service.

EXCLUSIONS

Risks, perils or properties defined in the policy as not covered.

EXPOSURE

Degree of hazard threatening a risk because of external or internal physical conditions.

EXTENDED COVERAGE (EC

A common extension of property insurance beyond coverage for fire and lightning. Extended coverage adds insurance against loss by the perils of windstorm, hail, explosion, riot and riot attending a strike (civil commotion), aircraft damage, vehicle damage, smoke damage and volcanic eruption.

F

FACILITY ASSOCIATION

A pooling agreement between all automobile insurers in which a market is guaranteed for all licensed drivers and registered owners.

FAIR MARKET VALUE

The price that a willing buyer would pay a willing seller, neither being under any compulsion to sell or buy.

FLOATER POLICY

A policy under the terms of which protection follows moveable property, covering it wherever it may be.

FORGERY

In general, any false writing with intent to defraud.

FORTUITOUS EVENT

An unforeseen accident.

FRAUD

An act of willful deception and dishonesty carried out with a view to securing some advantage, to which one is not entitled.

G

GARAGING LOCATION

The postal code where your vehicle is parked or garaged when not in use. This is usually your primary residence.

GRACE PERIOD

A period after the premium due date, during which an overdue premium may be paid without penalty. The policy remains in force throughout this period.

H

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, burglary, and explosion are perils. Slippery floors, unsanitary conditions, shingled roofs, congested traffic, unguarded premises, and uninspected boilers are also hazards.

HOUSEKEEPING

The general care, cleanliness and maintenance of an insured property.

I

IN-FORCE

Insurance on which the premiums are being paid or have been fully paid. In life insurance, usually refers to insurance by face amount. In health, usually refers to premium volume being paid to insurance company or insurance companies in aggregate.

INDEMNIFY

To restore the victim of a loss, in whole or in part, by payment, repair, or replacement.

INDIRECT LOSS/DAMAGE

Loss resulting from a peril, but not caused directly and immediately thereby. For example: Loss of property due to fire is a direct loss, while the loss of rental income as the result of the fire would be an indirect loss.

INLAND MARINE INSURANCE

A branch of the insurance business which developed from the insuring of shipments which did not involve ocean voyages. Exposures eligible for this form of protection are described in the nation-wide definition of Marine Insurance. Such diverse properties as bridges tunnels, jewellery and furs can now be written under Inland Marine forms.

INSPECTION

Independent checking on facts about an applicant or claimant, usually by a commercial inspection agency.

INSURABILITY

Acceptability of an applicant for insurance to the insurance company.

INSURANCE / ASSURANCE

A formal social device for reducing risk by transferring the risks of several individual entities to an insurer. The insurer agrees, for a consideration, to assume, to a specified extent, the losses suffered by the insured.

INSURANCE TO VALUE

Insurance written in an amount approximating the value of the property insured.

INSURED / ASSURED / POLICYHOLDER

The entity (individual or business) whose risk of financial loss from an insured peril is protected by the insurance policy.

INSURER / ASSURER

The company providing the insurance coverage.

J

JOINT TENANCY

Ownership of property shared equally by two or more parties under which the survivor assumes complete ownership. This is different from a tenancy in common where the heirs of a deceased party to the tenancy inherit his or her share.

L

LAPSE

Termination of a policy because of failure to pay the premium.

LEGAL LIABILITY

Liability imposed by law on individuals or corporations to pay for harm done to others.

LESSEE / TENANT

The person to whom a lease is granted.

LESSOR / LANDLORD

The person granting a lease.

LIABILITY INSURANCE

Insurance which agrees to indemnify the insured for sums that he or she may be required by law to pay to third parties as damages for bodily injury or damage to property.

LIBEL

A written statement about someone, which is personally injurious to that individual

LIMITS

Maximum amount a policy will pay either overall or under a particular coverage. For instance, "Liability Limits" or "Limit of Liability" means the sum or sums beyond which a liability insurance does not protect the insured. It is therefore the maximum amount that an insurance company agrees to pay in case of a liability loss.

LOSS

1. the amount of reduction in the value of an insured's property caused by an insured peril, 2. the amount sought through an insured's claim, or 3. the amount paid on behalf of an insured under an insurance contract.

LOSS-OF-USE INSURANCE

Coverage to compensate an insured for the loss of use of property if it cannot be used because of a peril covered by the policy.

M

MARKET VALUE

The price for which something would sell, especially the value of certain types of assets, such as stocks and bonds. It is based on what they would sell for under current market conditions. For example, common stock market value would be the price of the stock as of a specified date.

MISREPRESENTATION

Misrepresentation is the assertion of a material fact which the insured knowingly distorts.

MORAL HAZARD

A condition of morals or habits that increase the probability of a loss from a peril.

MORALE HAZARD

An attitude that increases the probability of loss from a peril. "It's insured; so why worry?" is an example of an attitude related to morale hazard.

MORTGAGE INSURANCE POLICY

In life and health insurance, a policy the benefits from which are intended to pay off the balance due on a mortgage or meet the payments on a mortgage as they fall due upon or after the death or disability of the insured.

MORTGAGEE

The creditor (person/company) that loans money to another, taking the security of property in exchange (such as the bank that holds the mortgage on a house).

MORTGAGOR

The debtor who receives money and in turn grants a mortgage on his property as security for a loan.

N

NAMED INSURED

The first person in whose name the insurance policy is issued.

NAMED/SPECIFIED PERILS

The specific dangers an optional coverage policy insures you against - such as fire, windstorm, and hail in a homeowner's policy, for example. These perils are "named" or listed in the policy.

NEGLIGENCE

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

NO-FAULT INSURANCE

A policy designed to speed up claims payments to accident victims and to lower the cost of auto insurance by reducing the number of lawsuits for minor claims. Under no-fault insurance, a person's own insurance company pays for financial losses like medical expenses and lost wages due to an accident, regardless of who caused it. (In a fault system, your expenses won't be paid by the other party's insurance company until he or she has been proved negligent.) In exchange, the right to sue may be restricted in some cases.

O

OCCASIONAL DRIVER/OPERATOR

A person who is not the principal operator but will occasionally drive the vehicle (such as a child of the insured).

OCCUPANCY

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

OCCURRENCE

An event that results in an insured loss. In some lines of insurance, such as Liability, it is distinguished from accident in that the loss does not 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

PARTIAL LOSS

A loss under an insurance policy which does not either (1) completely destroy or render worthless the insured property, or (2) exhaust the insurance applying thereto.

PERIL

The event that caused a loss covered by the policy (such as fire, windstorm, hailstorm).

PERSONAL ARTICLES FLOATER

Provides all risk coverage, subject to reasonable exclusions for valuable items such as furs, jewellery, cameras, silverware, etc. formerly insured under separate contracts. The items are generally listed by description and value. This can be contrasted to the personal effects floater.

PERSONAL EFFECTS FLOATER

An inland Marine policy covering world-wide except in the insured's domicile, personal effects usually carried by a tourist. In two forms: "All Risk" or Broad and "Named Perils" form.

PERSONAL LIABILITY

A form of liability insurance for the insured in the event that they become liable to pay money for damage or injury caused to others. This form does not include automobile liability.

PERSONAL PROPERTY

Any property of an insured other than real property. Homeowner policies protect the personal property of family members, and commercial forms are used to protect many types of business personal property of an insured.

PERSONAL PROPERTY FLOATER

A broad policy covering all personal property world-wide, including insured's domicile.

PHYSICAL HAZARD

The material, structural, or operational features of the risk itself, apart from the morale or moral hazards of the persons owning or managing it.

PILFERAGE

Petty theft, especially theft of articles in less than package lots.

POLICY

Legal document issued to the insured setting out the terms of the contract of insurance.

POLICY PERIOD/TERM

The period during which the policy contract provides protection, e.g. six months or one or three years.

POLICYHOLDER

See "insured".

PREFERRED RISK

An insurance classification indicating a risk that is superior to the average risk on which the rate has been calculated and thus eligible for a reduced rate.

PREMISES

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

PREMIUM

The amount of money an insurance company charges for insurance coverage.

PRINCIPAL DRIVER/OPERATOR

The person who operates the vehicle most often, usually the named insured.

PROFESSIONAL LIABILITY INSURANCE

Liability insurance to indemnify professionals, doctors, lawyers, architects, etc. for 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 within the given profession.

PROHIBITED RISK

Any class of business which an insurance company will not insure under any condition.

PROOF OF LOSS

A formal statement made by a policyholder to an insurance company regarding a loss. This statement is intended to provide sufficient information to the company for it to determine the extent of its liability.

PROPERTY DAMAGE LIABILITY

Pays when an insured person is legally liable for damage to the property of others caused while operating own vehicle or most non-owned vehicles. This coverage also pays for the insured's legal defense costs if sued.

PROPERTY DAMAGE UNINSURED MOTORIST

This protects the insured in situations where own vehicle has been wrecked by another driver who doesn't have adequate coverage or no insurance at all, and can't pay for the losses. With this coverage, the insured's own insurance company would pay for the losses up to the policy's limit.

PROTECTION

1. See "coverage" 2. Term used to indicate the existence of fire-fighting facilities in an area known as a "protected" area.

Q

QUOTE

An estimate of the cost of insurance based on information supplied to the insurance company by the applicant.

R

RATE

The per unit cost of insurance. Also see "premium".

RATED

Usually used in combination, rated-up or rated policy. A policy issued with an extra premium charge.

REIMBURSEMENT

Payment of an amount of money related to the amount of the loss to or on behalf of the insured upon the occurrence of a defined loss.

REINSTATEMENT

Restoring a lapsed policy back in force. 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.

REINSURANCE

1. A contract of indemnity against liability by which the insurance company procures another insurance to insure it against loss or liability by reason of the original insurance. 2. Insurance by one insurance company of all or part of a risk accepted by it with another insurance company which agrees to reimburse the insurance company for the portion of the claim reinsured. The insurance company obtaining the reinsurance is called the "ceding insurance company;" the insurance company issuing the reinsurance is called the "reinsurer." A reinsurer may, in turn, seek reinsurance on some portion of the risk it has reinsured, a process known as "retrocession."

REPLACEMENT COST

The cost to replace or repair an item without deduction for depreciation.

RIDER

See "endorsement".

RISK

1. A chance of loss. 2. A person or thing insured — Impaired or substandard risk: An applicant whose physical condition or moral habits do not meet the standard on which the rate is based.

RISK MANAGEMENT

Management of the pure risks to which a company might be subject. It involves analyzing all exposures to the possibility of loss and determining how to handle these exposures through such practices as avoiding the risk, retaining the risk, reducing the risk, or transferring the risk, usually by insurance.

S

SALVAGE

The remaining value of property after severe damage by fire or other peril. The overall loss is reduced by the salvage value. Damaged property may be quite salable and some property may be partially damaged, but repairable and then salable.

SHORT RATE CANCELLATION

The cancellation by the insured of a policy before its intended expiration. The insurance company pays a return premium which is less than the amount that actually remains unearned. In so doing the policyholder pays a penalty for a mid-term cancellation.

SPECIFIED PERILS

See "named perils".

STATEMENT OF CLAIM

A written statement by a plaintiff detailing the facts which support the claim against the defendant and the compensation sought.

STATUTORY CONDITIONS

Special prescribed and standardized conditions that the Provincial Insurance Acts require to be included in fire, automobile, accident and sickness policies.

SUBROGATION

The right of an insurance company to step into the shoes of the party whom they compensate and sue any party whom the compensated party could have sued. For instance, once an insurance company has paid a loss for which someone other than the policyholder is responsible, it may have the right to recover this loss from the actual guilty party.

T

THIRD PARTY INSURANCE

Protection of the insured against liability for damage to or destruction of the bodies or property of others.

TOTAL LOSS

1. A loss of sufficient size so that it can be said there is nothing left of value. The complete destruction of the property. 2. A loss requiring the maximum amount a policy will pay.

TRANSFER OF RISK

Shifting all or part of a risk to another party. Insurance is the most common method of risk transfer, but other devices, such as hold harmless agreements, also transfer risk. One of the four major risk management techniques. Also see "risk management".

U

UMBRELLA POLICY

A special form of liability policy designed to protect the policyholder for certain unknown contingencies over and above the normal coverage and to provide a higher limit of insurance.

UNDERINSURED COVERAGE

See "property damage uninsured motorist".

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." In theory, the agent is supposed to do some underwriting before submitting the case to the home office underwriter; i.e., to make a decision on the basis of facts known to him on whether or not the risk is sound and to report all facts known to him that might affect the risk.

UNDERWRITING

The process of evaluating a risk for the purpose of issuing insurance coverage on it.

UNOCCUPIED BUILDING

A building with contents, but no occupant (occupant does intend to return).

UTMOST GOOD FAITH

Literally, "of the utmost good faith": the basis of all insurance contracts. Both parties to the contract are bound to exercise good faith and do so by a full disclosure of all information material to the proposed contract.

V

VACANT BUILDING

A building with no occupants or furnishings.

VALUATION

Estimation of the value of an item, usually by appraisal

VANDALISM

Used synonymously with "malicious mischief" (see below); willful physical damage to property.

VANDALISM AND MALICIOUS MISCHIEF (V&MM)

Damage or destruction to property, which is willful. This coverage can be purchased under many Property forms and is automatically covered under most Homeowners policie

VIN

The Vehicle Identification Number (VIN) on your vehicle. This number is usually found on the dashboard of your vehicle on the driver's side, and is usually listed on the vehicle registration and title. The VIN is a combination of letters and numbers 17 characters in length that can be used to identify the make, model, and year of your car.

W

WAIVER

1. A rider waiving (excluding) liability for a stated cause of accident or (especially) sickness. 2. A provision or rider agreeing to waive (forego) premium payment during a period of disability. 3. The giving up or surrender of a right or privilege that is known to exist. It may be effected by the agent, adjuster, or insurance company employee or official orally or in writing.

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