FAQ & Resources

Actual Cash Value

• Repayment value for indemnification due to loss or damage of property; in most cases, it is replacement cost minus depreciation.

Adjuster

• A person who investigates claims and recommends settlement options based on estimates of damage and insurance policies held.

Aggregate

• The maximum dollar amount or the total amount of coverage payable for a single loss, or multiple losses, during a policy period, or on a single project.

Assigned Risk

• A governmental pool established to write business declined by carriers in the standard insurance market.

Auto Liability

• Coverage that protects against financial loss because of legal liability for motor vehicle-related injuries (bodily injury and medical payments) or damage to the property of others caused by accidents arising out of ownership, maintenance or use of a motor vehicle (including recreational vehicles such as motor homes). Commercial is defined as all motor vehicle policies that include vehicles that are used primarily in connection with business, commercial establishments, activity, employment, or activities carried on for gain or profit. No Fault is defined by the state concerned.

Blanket Coverage

• Coverage for property and liability that extends to more than one location, class of property or employee.

Builder’s Risk Policies

• Typically written on a reporting or completed value form, this coverage insures against loss to buildings in the course of construction. The coverage also includes machinery and equipment used in the course of construction and to materials incidental to construction.

Business Auto

• Coverage for motor vehicles, other than those in the garage business, engaged in commerce. Business auto filings include singularly or in any combination coverage such as the following: Auto Liability, PIP, MP, Uninsured Motorist and/or Underinsured Motorists (UM/UIM); Specified Causes of Loss, Comprehensive, and Collision.

Claims-Made Form

• A type of liability insurance form that only pays if the both event that causes (triggers) the claim and the actual claim are submitted to the insurance company during the policy term.

Class Rating

• A method of determining rates for all applicants within a given set of characteristics such as personal demographic and geographic location.

Coinsurance

• A clause contained in most property insurance policies to encourage policy holders to carry a reasonable amount of insurance. If the insured fails to maintain the amount specified in the clause (Usually at least 80%), the insured shares a higher proportion of the loss. In medical insurance a percentage of each claim that the insured will bear.

Commercial General Liability

• Flexible & broad commercial liability coverage with two major sub-lines: premises/operations sub-line and products/completed operations sub-line.

Contingent Liability

• The liability of an insured to persons who have incurred bodily injury or property damage from work done by an independent contractor hired by the insured to perform work that was illegal, inherently dangerous, or directly supervised by the insured.

Declarations

• Policy statements regarding the applicant and property covered such as demographic and occupational information, property specifications and expected mileage per year.

Deductible

• Portion of the insured loss (in dollars) paid by the policy holder.

Endorsement

• An amendment or rider to a policy adjusting the coverages and taking precedence over the general contract.

Excess And Umbrella Liability

• Liability coverage of an insured above a specific amount set forth in a basic policy issued by the primary insurer; or a self-insurer for losses over a stated amount; or an insured or self insurer for known or unknown gaps in basic coverages or self insured retentions.

Exposure

• Risk of possible loss.

Federal Flood Insurance

• Coverage for qualifying residents and businesses in flood prone regions through the National Flood Insurance Act, a federally subsidized flood insurance program enacted in 1968.

Flood

• Coverage protecting the insured against loss or damage to real or personal property from flood. (Note: If coverage for flood is offered as an additional peril on a property insurance policy, file it under the applicable property insurance filing code.)

Hazard

• Circumstance which tends to increase the probability or severity of a loss.

Homeowners Insurance

• A package policy combining real and personal property coverage with personal liability coverage. Coverage applicable to the dwelling, appurtenant structures, unscheduled personal property and additional living expense are typical. Includes mobile homes at a fixed location.

Lapse

• Termination of a policy due to failure to pay the required renewal premium.

Named Peril Coverage

• Insurance for losses explicitly defined in the policy contract.

Occurrence

• An accident, including injurious exposure to conditions, which results, during the policy period in bodily injury or property damage neither expected or intended from the standpoint of the insured.

Package Policy

• Two or more distinct policies combined into a single contract.

Peril

• The cause of property damage or personal injury, origin of desire for insurance. “Cause of Loss”.

Permanent Life Insurance

• Policy that remains active for the life of the insured.

Personal Flood

• Separate flood insurance policy sold for personal, family or household purposes.

Personal Gap Insurance

• Credit insurance that insures the excess of the outstanding indebtedness over the primary property insurance benefits in the event of a total loss to a collateral asset.

Personal Injury Liability

• Liability coverage for those who have been discriminated against, falsely arrested, illegally detained, libeled, maliciously prosecuted, slandered, suffered from identity theft, mental anguish or alienation of affections, or have had their right of privacy violated.

Personal Injury Protection Coverage/PIP

• Automobile coverage available in states that have enacted no-fault laws or other auto reparation reform laws for treatment of injuries to the insured and passengers of the insured.

Personal Property

• Single interest or dual interest credit insurance (where collateral is not a motor vehicle, mobile home, or real estate) that covers perils to goods purchased or used as collateral and that concerns a creditor’s interest in the purchased goods or pledged collateral either in whole or in part; or covers perils to goods purchased in connection with an open-end credit transaction.

Policy Period

• Time period during which insurance coverage is in effect.

Policy Reserve

• The amount of money allocated specifically for the fulfillment of policy obligations by a life insurance company; reserves are in place to safeguard that the company is able to pay all future claims.

Preferred Risk

• Insured, or applicant for insurance, who presents likelihood of risk lower than that of the standard applicant.

Premises And Operations

• Policies covering the liability of an insured to persons who have incurred bodily injury or property damage on an insured’s premises during normal operations or routine maintenance, or from an insured’s business operations either on or off of the insured’s premises.

Premium

• Money charged for the insurance coverage reflecting expectation of loss.

Premiums Earned

• The portion of premium for which the policy protection or coverage has already been given during the now-expired portion of the policy term.

Primary Insurance

• Coverage that takes precedence when more than one policy covers the same loss.

Producer

• An individual who sells, services, or negotiates insurance policies either on behalf of a company or independently.

Product Liability

• Insurance coverage protecting the manufacturer, distributor, seller, or lessor of a product against legal liability resulting from a defective condition causing personal injury, or damage, to any individual or entity, associated with the use of the product.

Professional Errors And Omissions Liability

• Coverage available to pay for liability arising out of the performance of professional or business related duties, with coverage being tailored to the needs of the specific profession. Examples include abstracters, accountants, insurance adjusters, architects, engineers, insurance agents and brokers, lawyers, real estate agents, stockbrokers.

Property

• Coverage protecting the insured against loss or damage to real or personal property from a variety of perils, including but not limited to fire, lightening, business interruption, loss of rents, glass breakage, tornado, windstorm, hail, water damage, explosion, riot, civil commotion, rain, or damage from aircraft or vehicles.

Proximate Cause

• Event covered under insured’s policy agreement.

Public Adjuster

• Independent claims adjuster representing policyholders instead of insurance companies.

Pure Premium

• That portion of the premium equal to expected losses void of insurance company expenses, premium taxes, contingencies, or profit margin.

Pure Risk

• Circumstance including possibility of loss or no loss but no possibility of gain.

Rate

• Value of insured losses expressed as a cost per unit of insurance.

Reinsurance

• A transaction between a primary insurer and another licensed (re) insurer where the reinsurer agrees to cover all or part of the losses and/or loss adjustment expenses of the primary insurer. The assumption is in exchange for a premium. Indemnification is on a proportional or non-proportional basis.

Reinsurer

• Company assuming reinsurance risk.

Renewable Term Insurance

• Insurance that is renewable for a limited number of successive terms by the policyholder and is not contingent upon medical examination.

Renters Insurance

• Liability coverage for contents within a renter’s residence. Coverage does not include the structure but does include any affixed items provided or changed by the renter.

Replacement Cost

• The cost of replacing property without a reduction for depreciation due to normal wear and tear.

Reported Losses

• Includes both expected payments for losses relating to insured events that have occurred and have been reported to the insurance company, but not yet paid.

Reserve

• A portion of the premium retained to pay future claims.

Retention

• A mechanism of internal fund allocation for loss exposure used in place of or as a supplement to risk transfer to an insurance company.

Retention Limit

• Maximum amount of medical and hospital expense an insurer will carry on its own. The limit can be for an individual claim and/or for the insurers total claims, depending upon the terms of the reinsurance contract.

Rider

• An amendment to a policy agreement.

Risk

• Uncertainty concerning the possibility of loss by a peril for which insurance is pursued.

Risk Retention ACT

• A 1986 federal statute amending portions of the Product Liability Risk Retention Act of 1981 and enacted to make organization of Risk Retention Groups and Purchasing Groups more efficient.

Salvage

• Value recoverable after a loss.

Self-Insurance

• Type of insurance often used for high frequency low severity risks where risk is not transferred to an insurance company but retained and accounted for internally.

Standard Risk

• A person who, according to a company’s underwriting standards, is considered a normal risk and insurable at standard rates. High or low risk candidates may qualify for extra or discounted rates based on their deviation from the standard.

State Of Domicile

• The state where a company’s home office is located.

Subrogation

• Situation where an insurer, on behalf of the insured, has a legal right to bring a liability suit against a third party who caused losses to the insured. Insurer maintains the right to seek reimbursement for losses incurred by insurer at the fault of a third party.

Subrogation Clause

• Section of insurance policies giving an insurer the right to take legal action against a third party responsible for a loss to an insured for which a claim has been paid.

Subsequent Event

• Events or transactions that occur subsequent to the balance sheet date, but before the issuance of the statutory financial statements and before the date the audited financial statements are issued, or available to be issued.

Substandard Risk

• (impaired risk) risks deemed undesirable due to medical condition or hazardous occupation requiring the use of a waiver, a special policy form, or a higher premium charge.

Surety Bond

• A three-party agreement whereby a guarantor (insurer) assumes an obligation or responsibility to pay a second party (obligee) should the principal debtor (obligor) become in default.

Surplus Line

• Specialized property or liability coverage available via non-admitted insurers where coverage is not available through an admitted insurer, licensed to sell that particular coverage in the state.

Tenants

• Homeowners insurance sold to tenants occupying the described property.

Term

• Period of time for which policy is in effect.

Term Insurance

• Life insurance payable only if death of insured occurs within a specified time, such as 5 or 10 years, or before a specified age.

Third Party

• Person other than the insured or insurer who has incurred losses or is entitled to receive payment due to acts or omissions of the insured.

Umbrella And Excess (Commercial)

• Coverage for the liability of a commercial venture above a specific amount set forth in a basic policy issued by the primary insurer; or a self-insurer for losses over a stated amount; or an insured or self-insurer for known or unknown gaps in basic coverages or self-insured retentions.

Umbrella And Excess (Personal)

• Non-business liability protection for individuals above a specific amount set forth in a basic policy issued by the primary insurer; or a self-insurer for losses over a stated amount; or an insured or self-insurer for known or unknown gaps in basic coverages or self-insured retentions.

Unauthorized Reinsurance

• Reinsurance placed with a company not authorized in the reporting company’s state of domicile.

Underinsured Motorist Coverage

• Policy option for bodily injury or property losses caused by a motorist with coverage insufficient to cover total dollar amount of losses. Compensation for the injured party is equal to the difference between the losses incurred and the liability covered by the motorist at fault.

Underlying Interest

• The asset(s), liability(ies) or other interest(s) underlying a derivative instrument, including, but not limited to, any one or more securities, currencies, rates indices, commodities, derivative instruments, or other financial market instruments.

Underwriter

• Person who identifies, examines and classifies the degree of risk represented by a proposed insured in order to determine whether or not coverage should be provided and, if so, at what rate.

Underwritting

• The process by which an insurance company examines risk and determines whether the insurer will accept the risk or not, classifies those accepted and determines the appropriate rate for coverage provided.

Underwriting Risk

• Section of the risk-based capital formula calculating requirements for reserves and premiums.

Unearned Premium

• Amount of premium for which payment has been made by the policyholder but coverage has not yet been provided.

Unpaid Losses

• Claims that are in the course of settlement. The term may also include claims that have been incurred but not reported.

Warrant

• An agreement that gives the holder the right to purchase an underlying financial instrument at a given price and time or at a series of prices and times according to a schedule or warrant agreement.

Warranty

• Coverage that protects against manufacturer’s defects past the normal warranty period and for repair after breakdown to return a product to its originally intended use. Warranty insurance generally protects consumers from financial loss caused by the seller’s failure to rectify or compensate for defective or incomplete work and cost of parts and labor necessary to restore a product’s usefulness. Includes but is not limited to coverage for all obligations and liabilities incurred by a service contract provider, mechanical breakdown insurance and service contracts written by insurers.

Workers’ Compensation

• Insurance that covers an employer’s liability for injuries, disability or death to persons in their employment, without regard to fault, as prescribed by state or federal workers’ compensation laws and other statutes.

Written Premium

• The contractually determined amount charged by the reporting entity to the policyholder for the effective period of the contract based on the expectation of risk, policy benefits, and expenses associated with the coverage provided by the terms of the insurance contract.