GLOSSARY OF INSURANCE TERMS

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A

ACCIDENT - A fortuitous event, unforeseen and unintended.

ACT OF GOD - A flood, an earthquake or other accident or event that is without any human intervention and that could not have been prevented by reasonable care or foresight but is the result of natural causes.

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.

ACTUARY - A specialist in the mathematics of insurance who calculates rates, reserves, etc. (Americanism. In most other countries the individual is known as "mathematician".)

ADDITIONAL INSURED - A person, firm or corporation other than the named insured on a policy or mortgage company named in a mortgagee clause, who is protected against loss by the terms of the policy or mortgage company named in a mortgage clause.

ADDITIONAL LIVING EXPENSE - A form of coverage which may be included in a policy, providing funds to pay for increased living costs which result from damage covered by the policy.

ADJUSTER - An individual representing the insurance company and acting for the company in working on agreements as to the amount of a loss and the liability of the company in same.

ADMITTED COMPANY - An insurance company authorized and licensed to do business in a given state. See also Alien, Foreign, and Non-Admitted Insurers.

ADVERSE SELECTION - Selection against the insurance company; the tendency of more poor risks to buy and maintain insurance than good risks.

ADVERSE UNDERWRITING DECISION - Any decision involving individually underwriting insurance coverages resulting in termination of existing insurance, declination of an application, or writing the coverage only at higher rates. For property and casualty insurance, it also includes placing the coverage with a residual market mechanism or an unauthorized insurer.

AGENT - The individual appointed by an insurance company to solicit, negotiate, effect or countersign insurance contracts on its behalf.

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 later how many separate accidents may occur.

AGREED VALUE - Relating to an agreement by an insurer to pay a specified amount of money to or on behalf of the insured upon occurrence of a defined loss. See also Valued Policy.

ALIEN INSURANCE COMPANY (INSURER) - An insurance company formed under laws of a country other then the United States.

ALL RISK - Insurance against loss or damage to property arising from any fortuitous cause, except such as may be specifically excluded.

AMOUNT SUBJECT - The value which may reasonably be expected to be lost in one fire or other casualty.

APPARENT AUTHORITY - Authority of an agent that is created when the agent oversteps actual authority, and when inaction by the insurer does nothing to counter the public impression that such authority exists.

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.

APPORTIONMENT - The division of loss among insurance companies when two or more cover the same loss.

APPRAISAL - A survey of property made for determining its insurable value or the amount of loss sustained.

APPROVED - The condition which exists when the person or object to be insured meets the underwriting standards of the insurer.

APPROVED ROOF - A term used in building construction. It indicates a roof made of fire-resistive materials, such as tile or asphalt shingles.

APPURTENANT STRUCTURES - A structure pertaining or belonging to the insured structure, such as a tool shed. Appurtenant structures are provided for in the Homeowners policy and other dwelling forms.

ARBITRATION CLAUSE - The provision in a Property Insurance contract which states that if the insurer and insured cannot agree on an appropriate claim settlement, each will appoint an appraiser, and these will select a neutral umpire. A decision by any 2 of the 3 prescribes a settlement and binds both parties to it.

ARSON - The willful and malicious burning of property.

ASSIGNED RISK - A risk which underwriters do not care to insure, but because of state law or otherwise, the insured must be protected and the insurance is therefore handled through the state and assigned companies.

ASSIGNEE - The person to whom policy rights are assigned in whole or in part by the original policy owner.

ASSIGNMENT - Transfer of rights in a policy to other than the policy owner.

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.

ASSURANCE - Same as "insurance".

ASSURED - Same as "insured".

ASSURER - Same as "insurer" (insurance company).

ATTORNEY-IN-FACT - A person to whom authority is given by an individual to exchange insurance with other persons, as in reciprocal insurance.

AUTHORIZATION - The amount of insurance an underwriter says he will accept on a risk of a given class or on specific property, given for the guidance of agents and in response to requests from them.

AUTOMATIC COVER - A provision in many forms of property-liability insurance to cover increasing values, newly acquired and changing interests, usually for a specified period and limited in amount.

AUTOMATIC REINSTATEMENT - A clause providing for automatic reinstatement of the full value of the policy after payment of a loss.

AVOIDANCE OF RISK - Taking steps to remove a hazard, engage in an alternative activity, or otherwise end a specific exposure. One of the four major risk management techniques. See Risk Management.

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B
BAILEE - A person or concern having possession of property committed in trust from the owner.

BAILEES CUSTOMERS POLICY - A policy providing for loss of or damage to property of bailees' customers, payable either to bailees for their account or direct to customers.

BASIC COVERAGE FORM - Any of the commercial or personal lines property forms which provide basic coverages. These forms generally provide the most limited coverage, which is surpassed by broad forms and special forms. (DP 00 01)

BASIC RATE - The manual rate, from which are taken discounts or to which are added charges to compensate for the individual circumstances of the risk.

BINDER - In lines other than life and (usually) health, a binder is an acknowledgment (usually from the agent) that insurance applied for is in force whether or not premium settlement has yet been made or the policy issued.

BLANKET INSURANCE - (1) Property-liability insurance that covers more than one type of property in one location in one policy or form instead of under separate items, or one or more types of property at more than one location. (2) A contract of health insurance that covers all of a class of persons not individually identified.

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

BOND - An obligation of the insurance company to protect one against financial loss caused by the acts of another.

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. (DP 00 02)

BROKER - One who represents an insured in the solicitation, negotiation or procurement of contracts of insurance, and who may render services incidental to those functions. By law the broker may also be an agent of the insurer for certain purposes such as delivery of the policy or collection of the premium.

BROKER OF RECORD - A broker who has been designated to handle certain insurance contracts for the policyholder.

BUILDERS RISK INSURANCE - Insurance against loss to buildings or structures in the course of construction.

BURGLARY - Breaking and entering into premises of another, with felonious intent and with visible signs of the forced entry.

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C
CANCELLATION - Termination of contract of insurance in force by voluntary act of the insurance company or insured, effected in accordance with provisions in the contract or by mutual agreement.

CARRIER - 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.)

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.

CATASTROPHE HAZARD - The risk of loss by reason of simultaneous occurrence of a peril to which all insured in a group (or very large number of insureds) are subject.

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

CERTIFICATE - A statement evidencing that a policy has been written and stating the coverages in general.

CHATTEL MORTGAGE - A type of mortgage where the collateral is personal property, rather than land or buildings.

CHARTERED PROPERTY AND CASUALTY UNDERWRITER (CPCU) - A designation granted by the American Institute for Property and Liability Underwriters upon successful completion of a series of examinations and experience requirements in the fields of insurance, plus accounting, financing, economics, management, and law.

CIVIL COMMOTION - An uprising of a large number of people, usually resulting in damage to property. This term is generally used to describe one of the extended coverage perils in the Extended Coverage Endorsement.

CLAIM - The demand for benefits as provided by the policy.

CLASS RATE - A rate for risks of similar hazard. Class rates, for example, apply to dwellings.

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

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 share covered losses in agreed proportion. In health insurance, the preferred term is "percentage participation."

COLLUSION - Cooperation between two or more persons secretly to defraud another.

COMMISSION - That portion of the premium retained by the agent or broker as compensation for sales, service, and distribution of insurance policies by him.

COMMON LAW LIABILITY - The responsibility for injuries or damage imposed upon a party because of his actions, by that part of the law based upon custom and usage as established by the courts, as distinguished from liability under statutes passed by a legislative body.

COMPREHENSIVE PERSONAL LIABILITY POLICY (CPL) - A personal liability contract. it provides liability insurance coverage for the individual and family needs arising out of numerous personal activities and situations, such as the ownership of residential property, ownership of pets, sports activities and many other everyday activities.

COMPULSORY INSURANCE - Any form of insurance which is required by law.

COMPUTER FRAUD - Fraudulent theft or transfer of money, securities or other property resulting from the use of any computerized equipment or systems.

CONCEALMENT - The withholding of facts by an applicant for insurance that affects an insurance risk or loss.

CONCURRENT CAUSATION - A term referring to two or more perils acting concurrently )at the same time or in sequence) to cause a loss. These created problems for property insurers when one of the perils was covered and one was not, and it led to recent revisions in policy language.

CONCURRENT INSURANCE - Two or more insurance policies with the same conditions, which cover the same interest in identical property. Also, two bonds, not necessarily identical in their provisions, providing common coverage for the same interests.

CONDITIONS - These are provisions of an insurance policy which state either the rights and duties of the insured or the rights and duties of the insurer. Typical conditions have to do with such things as the insured's duties in the event of loss, cancellation provisions, and the right of the insurer to inspect the property.

CONDOMINIUM ASSOCIATION COVERAGE FORM - A commercial property form designed to cover the joint insurance needs of members of a condominium association who collectively own commercial property.

CONDOMINIUM UN OWNERS COVERAGE FORM - A commercial property form designed to cover the individual needs of commercial (not residential) condominium unit-owners.

CONSEQUENTIAL LOSS - A loss arising indirectly from an insured peril.

CONSIDERATION - The exchange of value on which a contract is based. In life and health insurance, the Consideration is usually the premium and the statements in the application.

CONSTRUCTIVE TOTAL LOSS - A partial loss of sufficient degree to make the cost of repairing more than the property is worth.

CONTRACT OF INSURANCE - A contract whereby an insurance company agrees to indemnify an insured for losses, provide other benefits, or render services to, or on behalf of, an insured. (The contract of insurance is often called an "insurance policy", but "policy" is merely the evidence of the agreement.)

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.
CONTRIBUTION - (1) The share of a loss payable by an insurer when contracts with two or more insurers cover the same loss. (2) The insurer's share of a loss under a coinsurance or similar provision.
CONVERSION - (1) Wrongful use of property by one in lawful possession of it. (2) The change of one policy form to another, usually without evidence of insurability.
COUNTERSIGNATURE - Signature of licensed agent or representative on a policy necessary to validate the contract.
COVER - (1) A contract of insurance. (2) To effect insurance. (3) To include within the coverage of a contract of insurance.
COVERAGE - Scope of the protection provided under a contract of insurance.
C.P.C.U. - See Chartered Property and Casualty Underwriters.
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D
DEBRIS REMOVAL CLAUSE - A clause often added to a Fire Insurance policy under which the company assumes liability for the removal of debris resulting from damage to the property covered by the peril insured against.

DECLARATIONS (DEC SHEET) - A term used in insurance for the portion of the contract which contains information such as the name and address of the insured, the property insured, its location and description, the policy period, the amount of insurance coverage, applicable premiums, and supplemental representations by the insured.

DECLINATION - Rejection of an application for insurance by the insurer.

DEDUCTIBLE - A provision or clause in an insurance policy that the first given number of dollars or percentage of expense will not be reimbursed.

DEFAMATION - Any derogatory statement which is designed to injure a person's business or reputation. Defamation can be accomplished as libel or slander.

DEPRECIATION - Decrease in the value of property over a period of time due to use, wear, tear, and obsolescence.

DIRECT LOSS (OR 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 SELLING SYSTEM - A distribution system within which the insurance company deals with the insureds through employees.

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.

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EARNED PREMIUM - That portion of a premium for which the policy protection has already been given during the now-expired portion of the policy term.

EARTH MOVEMENT - A peril including landslide, mudflow, earth sinking, rising or shifting, and earthquake. Usually excluded on homeowner and commercial property policies.

EARTHQUAKE INSURANCE - Insurance covering damage caused by an earthquake as defined in the contract.

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

ELECTRONIC DATA PROCESSING (EDP) COVERAGE - Specialized type of insurance designed to cover computer equipment, data systems, information storage media and expenses or income loss related to EDP losses.

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.

ENCUMBRANCE - Any outside interest in or right to property founded on legal grounds, such as a mortgage, lien for work and materials, or a right of dower. it diminishes the interest of the person owning the property.

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

EXCLUSIONS - Causes, conditions or property listed in the policy which are not covered and for which no benefits are payable.

EXCLUSIVE AGENCY SYSTEM - A distribution system within which agents function under contracts that limit representation to one or more insurance companies under common management and that reserve to the insurance company the ownership, use, and control of policy records and expiration data.
EXPERIENCE - The loss record of an insured, a class or coverage, or of an insurance company.

EXPIRATION - The date upon which a policy will cease to cover, unless previously canceled.

EXPOSURE - (1) State of being subject to the possibility of loss; (2) extent of risk as measured by payroll, gate receipts, area, or otherwise; (3) possibility of loss to a risk being caused by its surroundings.

EXPRESS AUTHORITY - Authority of an agent that is specifically granted by the insurer in the agency contract or agreement.

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.

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F
FAIR PLAN - Fair Access to Insurance Requirements. A pooling plan reinsured by the United States government that makes insurance available to those in inner-city or other high risk areas who cannot obtain insurance through normal channels. Coverage for fires and allied perils is available, with considerable high limits, after inspection of the premises.

FIRE - Combustion sufficient to produce 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, such as in a furnace.)

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

FIRE RESISTIVE CONSTRUCTION - A building which has exterior walls, floors, and roof constructed of masonry or other fire-resistive materials.

FLAT CANCELLATION - Cancellation of a policy free of any charge or penalty to the insured, as contrasted to short rate or pro-rata cancellation.

FLAT RATE - A fixed rate not subject to any subsequent adjustment.

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

FLOOD - A general and temporary condition of partial or complete inundation or normally dry land areas from (1) overflow of inland or tidal waters, (2) the unusual accumulation and runoff of surface waters from any source, or (3) abnormal, flood-related erosion and undermining of shorelines. Flood also means inundation from mud flows caused by accumulations of water on or under the ground, as long as the mud flow and not a landslide is the proximate cause of loss.

FLOOD INSURANCE - A form of insurance designed to reimburse property owners from loss due to the defined peril of flood. Usually sold in connection with a government Flood Insurance plan.

FOREIGN INSURER - An insurer formed under the laws of another state other than the state in which the property is written.

FORGERY - In general, any false writing with intent to defraud.

FORM - An insurance policy itself or riders and endorsements attached to it.

FORTUITOUS EVENT - An unforeseen accident.

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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.

HOLD HARMLESS AGREEMENT - A contractual arrangement whereby one party assumes the liability inherent in a situation, thereby relieving the other party of responsibility. Such agreements are typically found in contracts like leases, sidetrack agreements, and easements. For example, a typical lease may provide that the lessee must "hold harmless" the lessor for any liability from accidents arising out of the premises.

HOMEOWNERS POLICY - A Property and Liability Insurance contract that provides insurance against any of the Property and Liability perils to which a homeowner or renter is exposed.

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

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I
IIA - Insurance Institute of America. An institution offering a variety of insurance diplomas after the successful completion of certain examinations.

IIAA - Independent Insurance Agents of America (formerly N.A.I.A.). Membership is made up of agents of fire and casualty insurers who operate as a part of the American Agency System. Numerous state associations are affiliated with the I.I.A.A.

IMPLIED AUTHORITY - Authority of an agent that the public may reasonably believe the agent to have. If the authority to collect and remit premiums is not expressly granted in the agency contract, but the agent does so on a regular basis and the insurer accepts, the agent has implied authority to do so.

IMPROVEMENTS AND BETTERMENTS - Additions or changes made by a lessee at his own cost to a building which he is occupying which enhance its value. These become part of the realty and require special insurance consideration.

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

INDIRECT LOSS (OR 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.

INFLATION GUARD ENDORSEMENT - An endorsement which provides for quarterly increases in the amount of insurance in effect on buildings so as to keep it "to value" considering the effect of inflation on building replacement costs. The term "Inflation Guard" is used in connection with Homeowners policies. In Commercial policies the similar endorsement is called the "Automatic Increase in Insurance Endorsement."

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.

INHERENT VICE - A defect or cause of loss arising out of the nature of the goods in question.

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 nationwide definition of Marine Insurance. Such diverse properties as bridges tunnels, jewelry 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.

INSURABLE INTEREST - Any interest in a subject of insurance or any legal relation to it of such a nature that a certain happening might cause monetary loss to the insured.

INSURABLE RISK - A risk which meets most of the following requisites: (1) The loss insured against must be capable of being defined. (2) It must be accidental. (3) It must be large enough to cause a hardship to the insured. (4) It must belong to a homogeneous 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 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 COMPANY - (1) Every person or company engaged in the business of making contracts of insurance. (2) The party to an insurance arrangement who undertakes to indemnify for losses, provide other pecuniary benefits, or render service.

INSURANCE INSTITUTE OF AMERICA - (See IIA.)

INSURANCE POLICY - Broadly, the entire written contract of insurance. More narrowly, the basic written or printed document, as distinguished from the forms and endorsements added thereto.

INSURANCE SERVICES OFFICE (ISO) - An organization of the Property and Liability Insurance business designed to gather statistics, promulgate rates, and develop policy forms.

INSURANCE TO VALUE - Insurance written in an amount approximating the value of the property insured.

INSURED - The party to an insurance arrangement to whom, or on behalf of whom, the insurance company agrees to indemnify for losses, provide benefits, or render service. In pre-paid hospital service plans, the insured is called the subscriber.

INSURER - (See Insurance Company.)

INSURING AGREEMENT (OR CLAUSE) - That portion of an insurance contract which states the perils insured against, the persons and/or property covered, their locations, and the period of the contract.

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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.

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K
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L
LAPSE - Termination of a policy because of failure to pay the premium.

LAW OF LARGE NUMBERS - This law states that the larger the number of exposures considered, the more closely the losses reported will match the underlying probability of loss. The simplest example of this law is the flipping of a coin. The more times the coin is flipped, the closer it will come to actually reaching the underlying probability of 50% heads and 50% tails.

LESSEE - The person to whom a lease is granted, commonly called the tenant.

LESSOR - The person granting a lease, also known as the landlord.

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

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 particular policy.

LIBEL - A written statement about someone which is personally injurious to that individual.

LIBERALIZATION CLAUSE - A clause in Property Insurance contracts which provides that if policy or endorsement forms are broadened by legislation or ruling from rating authorities and no additional premium is required, then all existing similar policies will be construed to include the broadened coverage.

LIMIT OF LIABILITY - The maximum amount which an insurance company agrees to pay in case of loss.

LIMITS - (1) Maximum amount of benefit payable for a given situation or occurrence. (2) Ages below or above which the insurance company will not issue a new policy or above which it will not continue a policy in force.

LLOYD'S - Generally refers to Lloyd's of London, England, an institution within which individual underwriters accept or reject the risks offered to them. The Lloyd's Corporation provides the support facility for their activities.

LOSS - Generally refers to (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 his property if it cannot be used because of a peril covered by the policy.

LOSS PAYABLE CLAUSE - A provision in Property Insurance contracts that authorize payment to persons other than the insured to the extent that they have an insurable interest in the property. This clause may be used when there is a lien or loan on the property being insured, and it protects the lender.

LOST POLICY RELEASE - A statement signed by the insured releasing the insurance company from all liability under a lost or mislaid contract of insurance, so that a replacement policy may be issued.

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M
MALICIOUS MISCHIEF - Similar to vandalism. Purposely damaging the rights or property of another.

MANUAL - A book published by an insurance or bonding company, a conference or a rating association or bureau, giving rates, classifications and underwriting rules for some phase of insurance or bonds in a particular territory.

MANUAL RATES - Usually the published rate for some unit of insurance. An example is in the Workers' Compensation Manual where the rates shown apply to each $100 of the payroll of the insured, $100 being the "unit."

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.

MINIMUM PREMIUM - The smallest premium which an insurance company will accept for writing a particular policy or bond for a designated period.

MISREPRESENTATION - The use of written or oral statements of the insured or insurance company misrepresenting the risk, terms, coverages, benefits, privileges or estimated future dividends of any policy.

MODE PREMIUM - The premium paid according to the mode of payment selected by the policyowner; that is, monthly, quarterly, semi-annually (or any other mode acceptable to the insurance company).

MONOLINE POLICY - Any insurance coverage written as a single line policy.

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. The attitude of, "It's insured; so why worry?" is an example of a morale hazard.

MORTGAGE (OR MORTGAGEE) CLAUSE - A provision attached to a Fire or other direct damage insurance policy covering mortgaged property, reciting that the loss shall be payable to the mortgagee as his interest may appear and that the mortgagee's right of recovery shall not be defeated by any act or neglect of the insured and giving the mortgagee other rights and privileges.

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 to whom a mortgage is given and who lends money on the security of the value of the property mortgaged.

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

MUTUAL INSURANCE COMPANY (INSURER) - An incorporated insurance company without incorporated capital whose governing body is elected by the policyholders. The policyholders are the shareholders and they share in the success and sometimes the failure of the company.

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N
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. A common application of this latter principle is in liability policies wherein by a definition of "insured" protection is extended to interests (not designated by name) according to their status or in particular situations or circumstances.

NAMED PERIL POLICIES - Names peril policies specify what perils are insured against, contrary to so-called all risk policies.

NATIONAL FLOOD INSURANCE PROGRAM - The federal government's program to provide flood insurance at subsidized rates.

NEGLIGENCE - Failure to use that degree of care which an ordinary person of reasonable prudence would use under the given circumstances. Negligence may be constituted by acts of either omission or commission or both.

NONRENEWAL - Termination of insurance coverage at an expiration date or anniversary date. This action may be taken by an insurer who refuses to renew, or by an insured who rejects a renewal offer.

NON-ADMITTED INSURANCE COMPANY (INSURER) - An insurance company not licensed to do business in a given state.

NON-ASSIGNABLE - A policy that the owner cannot assign to a third party. Most policies are non-assignable unless approval is given by the insurer.

NON-CONCURRENCY - The situation which exists where a number of insurance policies, intended to cover the same property against the same hazard or hazards, are not identical as to the extent of coverage or the interest insured.

NON-RESIDENT AGENT - An agent licensed in a state in which he is not a resident.

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O

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.

OFF PREMISES - A clause in a Property Insurance contract extending coverage away from the premises described in the policy. The amount of coverage away from the premises is usually restricted to a percentage of the total coverage on the premises. e.g., 10%.

ORDINARY CONSTRUCTION - A building in which floors are on wood joists, in which the interior finish usually conceals space where fire can spread, and which has little protection of stair shafts.

OTHER INSURANCE - The existence of another contract covering the same interest and perils.

OTHER INSURANCE CLAUSE - A provision found in practically every insurance policy except life and sometimes health, stating what is to be done in case any other contract of protection embraces the same property and/or hazard.

OVER-INSURANCE - A condition in which (1) more insurance is in force on the insured or the risk than the potential loss or (2) so much is in force as to constitute a moral or morale hazard (such as so much disability insurance being in force that it becomes profitable to become disabled).

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P
PACKAGE POLICY - Any insurance policy including two or more lines or types of coverage in the same contract.

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 - Cause of a possible loss.

PERSONAL ARTICLES FLOATER = Provides all risk coverage for valuable items such as furs, jewelry, 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 Form and "Specified Perils" form.

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 or telecasting. Contrast with Advertising Injury.

PERSONAL INJURY COVERAGE - Liability insurance coverage for third party claims for damages which are other than physical such as, libel, slander, false arrest, wrongful eviction, invasion of privacy, etc.

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

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.

PERSONAL PROPERTY OF OTHERS - Property, other than real property, which is not owned by an insured. Liability forms have traditionally excluded coverage for property of others in an insured's care, custody or control. Modern homeowner forms and commercial property forms provide some coverage for property of others.

PERSONAL THEFT POLICY - A policy providing for the exposures of theft for individuals as opposed to businesses. There are a variety of types of Personal Theft policies rarely written separately, but frequently written as part of other policies.

PHYSICAL DAMAGE - A generic term indicating actual damage to property.

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

POLICY ANNIVERSARY - The anniversary of the date of issue of a policy as shown in the policy declarations.

POLICY FEE - A special, one-time, first-premium charge to offset in whole or part the first-year acquisition cost rather than amortize it over several years. Also sometimes used as a "quantity-discount" device. The policy fee, being the same amount whether the insurance policy is for $1,000 or $1,000,000, means that the insured pays proportionately less as policy size increases - which is equitable in view of the fact that certain costs of acquisition (such as clerical costs) do not vary with policy size.

POLICY PERIOD (OR TERM) - The period during which the policy contract afford protection, e.g., six months or one or three years.

POLICYHOLDER - Literally, the person who has possession of the policy. Thus the term is non-functional as commonly used. See comment under Insured.

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. In reciprocal insurance each subscriber gives the individual or incorporated manager (attorney-in-fact) authority to exchange insurance for him with other subscribers. A reciprocal contract of insurance cannot be completed without this power of attorney.

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 - (1) Part of the consideration for the insurance, by whatever name called. (2) The periodic payment made to keep a policy in force. Premium and rate are sometimes incorrectly used interchangeably. Technically, rate is the amount charged for a given unit of insurance coverage, and premium is the sum of the unit rates for a given policy. (3) In annuities, the purchase payment.

PREMIUM NOTICE - A notice from the insurance company to the policyowner that a premium is (or will be) due on a given date.

PROBABILITY - The likelihood or relative frequency of an event expressed in a number between zero and one. The throw of a die is an example. The probability of throwing a five is found by dividing the number of faces that have a five (1) by the total number of faces (6). That is a probability of one sixth or one divided by six, which is .17.

PRODUCER - Team commonly applied to an agent, solicitor, or other person who sells insurance, producing business for the company and for a commission (if so paid) for himself.

PROFESSIONAL LIABILITY INSURANCE - Liability insurance to indemnity 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 his 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 the insured to the insurance company regarding a loss. The purpose of the proof of loss is to place before the company sufficient information concerning the loss to enable it to determine its liability under the policy or bond.

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. In the majority of cases, property damage insurance is written in connection with the bodily injury protection, the premiums and limits of insurance being distinct.

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

PRO RATA - (1) Distribution of the amount of insurance in one policy, among the several objects or places covered, in proportion to their value or to the amounts shown. (2) The distribution of liability among the several insurance companies having policies on the risk.

PRO RATA CANCELLATION - The termination of an insurance contract or bond, premium charge being adjusted in proportion to the exact time the protection has been in force. (See Short Rate).

PRO RATA DISTRIBUTION - A provision, also known as the Pro Rata Distribution clause, used in the writing of certain blanket policies. Its purpose is to divide the amount of insurance carried under a single item in the policy form among the several subjects of insurance, in that proportion which the value of each subject of insurance bears to the total value of all property covered under that single item in the policy form.

PRO RATA LIABILITY CLAUSE - Provides that losses will be paid in the proportion that the amount of the policy bears to the entire amount of insurance on all policies covering the loss. This provides for insurance companies to appropriately share in the loss when more than one policy exists yet prevents the insured from collecting in total from several insurance companies and making a profit.

PROTECTED - A subject of insurance located in an area protected by a fire department.

PROTECTION - (1) Term used interchangeably with the word "coverage" to denote the insurance provided under the terms of a policy. (2) Term used to indicate the existence of fire-fighting facilities in an area known as a "protected" area.

PROTECTION CLASS - The grading of fire protection, determined by the Grading Schedule for Cities and Towns, for a given area. This designation is used for all fire rating except that for dwellings, in which case the Dwelling Class is used.

PROXIMATE CAUSE - The effective cause of loss or damage; an unbroken chain of cause and effect between the occurrence of an insured peril or a negligent act and resulting in injury or damage to property.

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RATE - The per unit cost of insurance. (See also Premium).

RATED - Usually used in combination, rated-up or rated policy. A policy issued with an extra premium charge because of physical or moral impairment. A form of substandard.

RATING BUREAU - An organization that classifies and promulgates and in some cases complies data and measures hazards of individual risks in terms of rates in a given territory.

REBATE - Giving to the policyowner some part of the agent's commission (or something of value) as an inducement to buy, which is an illegal action.

RED-LINING - Discriminating unfairly against a risk solely because of its location. An example would be refusing to insure as risk because the building is located in a depressed area or location. Sometimes these areas are referred to as blackout areas.

REDUCTION OF RISK - Taking steps to reduce the probability or severity of a possible loss. For example, installing alarms and sprinkler systems to reduce the risk of fire loss to a building. One of the four major risk management techniques. See Risk Management.

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 - (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. This may be done automatically either with or without premium consideration or at the request of the insured.

REINSURANCE - (1) A contract of indemnity against liability bywhich 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."

REJECTION - (1) Refusal by an insurer to underwrite a risk. (2) Sometimes used to refer to the refusal or denial of a claim by an insurer.

RELEASE - (1) To give up, abandon, and discharge a claim or an enforceable right to one as against another. (2) Name of the instrument or form evidencing such an act.

RENEWAL - The continuation in full force and effect of something that is about to expire. With an insurance policy it is made either by the issuance of a new policy or renewal receipt or certificate, to take effect upon the expiration of the old policy.

RENTAL VALUE INSURANCE - Insurance that provides indemnity for loss of the rental value of property when the owner or the tenant (if he remains liable for the payment of rent) is deprived of the use of the property because of its damage by a peril insured against.

REPLACEMENT COST - The cost of replacing property without deduction for depreciation.

REPRESENTATIONS - On an application, facts that the applicant represents as true and accurate to the best of his or her knowledge and belief. In contrast to warranty (see Warranty).

RESERVE - (1) An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders. (2) An amount allocated for a special purpose. Note that a reserve is usually a liability and not an extra fund. On occasion a reserve may be an asset, such as a reserve for taxes not yet due.

RESIDUAL MARKETS - Various insurance markets outside of the normal agency-company marketing system. Residual markets include government insurance programs, specialty pools (aviation risks and nuclear risks), and shared market mechanisms (assigned risk plans).

RETENTION - (1) The amount of liability assumed but not reinsured by an insurance company. (See Net Line and Reinsurance). (2) A risk management form which means to retain a risk rather than insuring or transferring it.

RETENTION OF RISK - Assuming all or part of a risk instead of purchasing insurance or otherwise transferring the risk. One of the four major risk management techniques. See Risk Management.

RETURN PREMIUM - The amount due the insured if a policy is cancelled, reduced in amount or reduced in rate. (See Pro Rata and Short Rate).

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.

ROBBERY - The felonious taking, either by force or by fear of force, of the personal property of another, commonly known as "hold-up."

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SALVAGE - (1) Property taken over by an insurance company to reduce its loss. (2) Award recoverable by salvors under maritime law.

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, animals and other property in property insurance or the list of the rings, bracelets, etc., insured under a jewelry floater.

SELF-INSURANCE - Making financial preparations to meet pure risks by appropriating sufficient funds in advance to meet estimated losses, including enough to cover possible losses in excess of those estimated. Few organizations are large or dispersed enough to make this a sound alternative to insurance.

SETTLEMENT - Usually, a policy benefit or claim payment. It connotes an agreement between both parties to the policy contract as to the amount and method of payment.

SHORT RATE - The term "short rate" in insurance and bonding is used to describe the charge required for insurance or bonds taken for less than one year, and in some cases, the earned premium, including penalty, for insurance or bonds cancelled by the insured before the end of the policy period or term of bond.

SHORT-TERM POLICY - A policy written for a period of less time than is normal for that type of policy.

SINGLE INTEREST POLICY - Insurance protecting the interest of only one of the parties having an insurable interest in certain property, as that protecting a mortgagee but not the mortgagor, or protecting the seller but not the buyer of merchandise.

SLANDER - A spoken statement about someone which is personally injurious to the individual.

SMOKE DAMAGE - Damage caused by the smoke from a fire in contrast to damage caused by the actual combustion.

SOLICITOR - An individual appointed and authorized by an agent to solicit and receive application for insurance as a representative of such agent.

SONIC BOOM - Noise, pressures and shock waves resulting from an aircraft approaching, attaining or exceeding the speed of sound.

SPECIAL COVERAGE FORM - (DP 00 03) - Any of the commercial or personal lines property forms which provide coverage on an all-risk type basis. These forms provide the broadest coverage and do not list covered perils, but do include a lengthy list of exclusions.

SPECIFIC RATE - A rate applying to an individual property, as in fire insurance rates.

STATED AMOUNT - Relating to an agreement by the insurance company to pay a specified amount of money to or on behalf of the insured upon the occurrence of a defined loss. In contrast to a Reimbursement benefit.

STOCK INSURANCE COMPANY (INSURER) - An incorporated insurance company with capital divided into shares and owned by the shareholders.

SUBLIMIT - Any limit of insurance which exists within another limit. For example, special classes of property may be subject to a specified dollar limit per occurrence, even though the policy has a higher overall limit; a health insurance policy may limit certain benefits to fixed dollar amounts or maximum amounts per day, even though the overall coverage limit is higher.

SUBROGATION - The legal process by which an insurance company seeks from a third party who may have caused the loss, recovery of the amount paid to the insured.

SUBROGATION WAIVER - A waiver by the named insured giving up any right of recovery against another party. Normally an insurance policy requires that subrogation (recovery) rights be preserved. In commercial property insurance, a written waiver of subrogation rights is permitted if it is executed before the loss occurs.

SUPPLEMENTARY PAYMENTS - A provision in most liability policies under which the insurer agrees to pay defense costs, premiums on various bonds, interest accruing after a judgment, and other reasonable expenses in addition to the limit of liability.

SURPLUS LINE - Coverage procured in an unlicensed insurance company because of its unavailability in the licensed market.

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TARGET RISKS - Policyholders, or prospects for insurance, whose values require large premiums are considered targets for insurance agents. Also used to describe risks of large value and severe hazards that are difficult to insure.

TEMPORARY AGENT - A person who is licensed to act as an agent for a brief period of time (usually 90 days) without taking a written examination. Temporary licenses are commonly granted to allow someone to continue the business of an agent who has died, become disabled, or entered active military service.

TENANTS POLICY - A Homeowners form which is specifically designed for people who rent.

THEFT - Any act of stealing. Theft includes larceny, burglary and robbery.

THIRD PARTY INSURANCE - Protection of the insured against liability for damage to or destruction of the bodies or property of others.

TIME ELEMENT INSURANCE - A general term referring to those covers that protect against indirect losses resulting from damage to described property, where the amount of such losses depends on the length of time over which such losses accumulate. Examples include Rent insurance, Leasehold insurance, Business Interruption insurance, and Extra Expense insurance.

TIME LIMITS - The limits of time within which notice of claim and proof of loss must submitted.

TOTAL LOSS - A loss of sufficient size so that it can be said there is nothing left of value. The complete destruction of the property. The term is also used to mean a loss requiring the maximum amount a policy will pay.

TRANSACTING INSURANCE - Includes a solicitation and inducement, preliminary negotiations, effecting a contract of insurance and transaction of matters subsequent to effecting the contract and arising out of it.

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. See Risk Management.

TRIP TRANSIT POLICY - An insurance policy for loss to person property on a single trip between two specified locations.

TWISTING - Inducing or seeking to induce a policyowner by misrepresentation to terminate an existing policy to take a new policy.

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UMBRELLA LIABILITY POLICY - A liability policy designed to provide liability protection above and beyond that provided by standard liability contracts. (See also Excess Umbrella Liability).

UMPIRE - For Property coverage, if a company and a claimant fail to agree on the amount of loss, each may appoint an appraiser, and these in turn select an umpire. A decision by any two of the three is binding.

UNAUTHORIZED INSURANCE COMPANY (INSURER) - An insurance company not licenses in the state in which is it termed unauthorized. A nonadmitted insurer.

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

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.

UNEARNED PREMIUM - That portion of an advance premium that has not yet been used for coverage written. Thus in the case of an annual premium, at the end of the first month of the premium period, 11 months of the premium would still be "unearned," etc.

UNOCCUPIED - Refers to property which may be furnished or have furnishings in it but is not occupied or being lived in. The Standard Fire policy prohibits unoccupancy beyond a specified period of time. This term is contrasted with vacant, which means that there is nothing within the building.

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VANDALISM - Used synonymously with malicious mischief; 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 policies.

VACANT - A term used in Property Insurance to describe a building that has nothing in it. This goes one step beyond the description of unoccupied. The Standard Fire policy prohibits vacancy beyond a specified period of time.

VALUATION - Estimation of the value of an item, usually by appraisal.

VALUED POLICY - A policy which states that in the event of a total loss, a specified amount will be paid, that being the amount stated in the policy. The effect is to eliminate the need for determining the actual cash value of an item of property in the event of a total loss. It is generally used with certain more valuable items, such as tine arts, antiques, and furs.

VOID - A term used to describe a policy contract that is completely free of all legal effect.

VOIDABLE - A policy contract that can be made void at the option of one or more of the parties to it. An example would be a Property Insurance policy which is voidable by the insurer if the insured commits certain acts.

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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.

WARRANTY - A statement made on an application for insurance that is warranted to be true in all respects. If untrue in any respect, even though the untruth may not have been known to the person giving the warranty, the contract may be voided whether or not the untruth or inexactness is material to the risk. Statements on life and health insurance applications are, in the absence of fraud, not warranties but representations. (See also Representations).

W.C. - (See Worker's Compensation).

WORKERS COMPENSATION (W.C.) - (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 the employer. (2) Insurance agreeing to pay the Worker's Compensation benefits required by law on behalf of the employer.

WRITE - In insurance terms, to insure, to underwrite or to sell.

WRITTEN - (1) Insurance for which the application has been taken and the policy has been issued. (2) The entire amount of insurance premium on contracts issued by the insurance company.

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