Glossary of Insurance Terms

NOTE:
This glossary provides a comprehensive list of some of the most commonly used terms in the property/casualty, life and health insurance industries. However, it should not be viewed as all-conclusive.

| A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | R | S | T | U | V | W |

Accidental Death Benefit (Auto or Health Insurance):
Provision for payment of a dollar amount—usually equal to the face amount of insurance—if the insured is killed in an accident. This coverage is available either as a health insurance policy, or as an auto insurance option with some companies. (Also see Accidental Death Benefit [Life Insurance].)

Accidental Death Benefit (Life Insurance):
Provision under a life insurance policy for payment of an additional amount—usually equal to the face amount of insurance—if the insured is killed in an accident. Popularly known as “double indemnity.” (Also see Accidental Death Benefit [Auto or Health Insurance].)

Accident and Health Insurance:
See Health Insurance.

Act of God (Act of Nature):
Perils that occur naturally such as tornadoes, earthquakes and hurricanes.

Actual Cash Value:
Insurance under which the amount payable is the current replacement cost of the property new; reduced by an allowance for depreciation, wear and obsolescence.

Actuary:
A highly specialized mathematician professionally trained in the risk aspects of insurance, whose functions include the calculations involved in determining proper insurance rates, evaluating reserves, and in various aspects of insurance research.

Additional Living Expense:
A property coverage which pays for the increased expense of living while the insured’s residence is being rebuilt or repaired after damage from an insured peril. Examples are the extra cost of housing the insured’s family in a hotel, dining in restaurants, etc.

Adjuster:
A person who investigates and settles losses for an insurance carrier

Admitted Company (Carrier):
An insurance company licensed and authorized to do business in a particular state.

Agent:
Laws of all states require all insurance agents to be licensed by the state to sell insurance. Agents may be categorized as: (1) An Exclusive Agent, who is a sales employee or sales representative of one and only one insurance company or its affiliated group of insurance companies, and seeks and services business exclusively for that company or group. (See Direct Writer.) (2) An Independent Agent, who usually represents two or more insurance companies or groups in a sales and service capacity as an independent business person.

Alien Insurance Company:
An insurance company incorporated under the laws of a foreign country.

Allied Lines:
Types of insurance associated with property insurance, which may include earthquake, sprinkler leakage, and income and extra expense coverages.

Annual Policy:
Insurance policy written for a term of one year or renewed one year at a time.

Annual Statement:
A report made by a company at the close of its fiscal year. It is the primary financial report required by state insurance departments to be submitted by insurers annually.

Annuitant:
The person during whose life an annuity is payable, usually the person to receive the annuity.

Annuity:
A contract that provides an income for life, a specified number of years, or a combination of the two.

Application:
The statement of information that a prospective insured gives when applying for an insurance policy and that an insurance company uses to help decide if it will issue the policy and what premium rate will be charged.

Apportionment:
The dividing of a loss proportionately among two or more insurers which cover the same loss.

Appraiser:
In insurance, a specialist that evaluates the size and cost of an object, such as jewelry or art; or the extent of damage based on a claim. Often works with a claims adjuster.

Appurtenant Structures:
Buildings on the same premises as the main building insured under a property insurance policy.

Arbitration:
Determination by impartial experts of the value of property or the extent of damage. Many insurance policies provide for appraisals where the company and the insured cannot agree on the amount or the extent of a loss. Arbitration also may be used to resolve liability and policy-coverage issues in certain situations.

Arson:
The willful and malicious burning of, or attempt to burn any structure or other property, often with criminal or fraudulent intent.

Assessment:
The extra premium a mutual or reciprocal insurer’s policyholder may be required to pay in the event the insurer’s losses are greater than anticipated.

Assets:
(1) All of the property owned by a carrier. (2) The items on the balance sheet of the insurer that show the book value of property owned. Under state regulations, not all property or other resources can be admitted on the statement of the insurer. This gives rise to the term “non-admitted assets.” (Examples would be furniture, fixtures, agents’ debt balances and accounts receivable that are over 90 days old.)

Assigned Risk Plan (Automobile Insurance Plans):
A mechanism used in some states to insure people who cannot obtain insurance in the voluntary market. There is one rate level and the individual policies are assigned to specific companies according to the percentage of the market they insure.

Assurance–Insurance:
These terms are today generally accepted as synonymous, although not originally so. The term “assurance” is used more commonly in Canada and Great Britain than in the United States.

Assured:
Synonymous with “insured.” One who has an insurance policy with an insurance carrier. “Insured” is preferred.

Audit:
An examination of the books of accounts, vouchers or other records of a person, corporation, firm or other organization for the purpose of ascertaining the accuracy or inaccuracy of the record.

Automobile Death Indemnity Coverage:
Provides limited life insurance protection to insured persons specifically named in the policy in the event of a death that is a direct result of a vehicle accident. Payment is not contingent upon the establishment of negligence, but death by an intentional act of the insured is not covered.

Automobile Disability Income Coverage:
Provides persons specifically named in the policy with the weekly benefit shown in the policy in the event of continuous total disability as a direct result of bodily injury, sickness, or infection caused by an auto accident.

Automobile Insurance (Coverages):
For definitions of specific types available, see following auto insurance coverages listed alphabetically throughout the Glossary—Automobile Death Indemnity Coverage, Automobile Disability Income Coverage, Automobile Liability Insurance, Automobile Physical Damage Insurance, Bodily Injury Liability Insurance, Collision Insurance, Comprehensive Automobile Insurance, Deductible Collision and Deductible Comprehensive Coverages, Medical Payments Automobile Insurance, Personal Injury Protection Automobile Insurance (PIP), Property Damage Liability Insurance, Towing Coverage, Underinsured Motorists Coverage, Uninsured Motorists Coverage and Uninsured Motorists Property Damage Coverage.

Automobile Liability Insurance:
Protection for the insured against loss arising out of legal liability when his or her car injures others or damages their property. (Includes Bodily Injury Liability and Property Damage Liability Coverages.)

Automobile Physical Damage Insurance:
The Collision and Comprehensive coverages in the automobile insurance policy.

Aviation Insurance:
Coverage against aviation perils, primarily involving operation of aircraft and characterized by a constant exposure to potential catastrophe loss. Types of coverages include insurance for damage to the aircraft or contents, aircraft owner’s liability insurance on passenger bodily injury or death, Airport Liability, Hangarkeeper’s Liability, and Aviation Products Liability insurance.

B

Bailee:
One who has temporary possession of property belonging to another.

Basic Form:
A package insurance policy providing coverage against a limited number of specified perils.

Beneficiary:
Any person, institution, trust, etc., named in a life policy to receive the policy benefits upon the death of the insured.

Binder:
A written or oral contract issued temporarily to place insurance in force immediately prior to issuance of a new policy or endorsement of an existing one. A binder is subject to payment of the premium and provides coverage under the terms of the policy to be issued, unless otherwise specified.

Blanket Coverage:
A blanket form is one under which property is insured under a single amount applying to several different pieces of property rather than a specific amount of insurance on each property.

Block Policy:
An inland marine policy covering all property on or off a merchant’s premises, including property of others in the care, custody or control of the policyholder

Bodily Injury Liability Insurance:
This coverage protects an insured against legal liability for injury to another person arising from an accident.

Boiler and Machinery Insurance:
A form of property coverage for loss arising out of the operation of pressure, mechanical and electrical equipment. It may, among other things, cover loss to the boiler and machinery itself and business interruption losses.

Broad Form:
A package policy providing coverage for the same perils covered in the basic form, plus specified additional perils.

Broker:
A representative of the buyer of property and liability insurance who deals with either agents or companies in arranging for the coverage required by the customer. A broker is paid a commission by the company or its agent.

Burglary:
The loss of property due to theft when there is visible evidence of forcible entry to the exterior of the building.

Business Income Insurance:
See Business Interruption Insurance.

Business Interruption Insurance:
Coverage for loss of earnings in case the policyholder’s business is shut down by fire, windstorm, explosion or other insured peril. It’s often added as a rider to a standard business policy and pays for such expenses as the rebuilding of an accounts receivable data base, cleaning computers, leasing temporary office space, and similar losses associated with a disaster.

Buy-Out Policy:
A professional liability policy covering future claims resulting from incidents which occurred during the period that an expired claims-made policy was in force.

C

Cancellable Policy:
A policy which may be cancelled by the company at any time by giving advance notice in compliance with state requirements to the insured citing the reasons such insurance is being cancelled and refunding any unearned premium. (Term is not usually applicable to life or health insurance.)

Cancellation:
The discontinuance of an insurance policy before its normal expiration date

Capacity:
A measure of the amount of insurance which an insurer is able or prepared to assume on particular risks.

Capital Stock Insurance Company:
An insurance company which is owned and controlled by stockholders or investors.

Captive Insurer:
An insurance company set up by a company or group of companies to insure their own risks or risks common to the group.

Cargo Insurance:
A broad classification of marine insurance providing coverage on cargo, as opposed to hulls, to protect shippers by sea from loss or damage to goods for which they would be unlikely to collect from the carriers themselves. Whether cargoes are insured for a particular voyage or under open policies which are in the nature of reporting-form policies depends upon the volume and regularity with which a shipper uses ocean transit. Cargo insurance also can cover goods transported by train or truck.

Carrier:
The insurance company or the one who agrees to pay the losses. The carrier may be organized as a stock or mutual company, a reciprocal exchange, as an association of underwriters or as a state fund.

Cash Value:
The cash fund which a life policy develops usually after the first or second year the policy has been in force. It is available when the policy is surrendered or may be borrowed earlier as a policy loan.

Casualty Insurance:
Insurance primarily concerned with the legal liability for losses caused by injury to persons or damage to property of others. Also includes, among other coverages: automobile, workers’ compensation, employers’ liability, general liability, plate glass, theft and personal liability. It excludes life, fire and marine insurance

Catastrophe:
A sudden event causing an extraordinary level of loss; most often associated with natural disasters such as tornadoes, hurricanes, floods or earthquakes. In insurance, it is applied to an incident or series of related incidents involving an insured loss in excess of $5 million.

Catastrophe Reinsurance:
This is a form of insurance written in order to improve the spread of risk against unknown concentrations of liability subject to one occurrence. This type of reinsurance reimburses an insurer when its losses due to a single catastrophe exceed a specified large amount (the retention).

Cede:
To transfer all or part of a risk written by an insurer (the ceding, or primary company) to a reinsurer.

Cession:
The unit of insurance passed to the reinsurer by the ceding company. The unit (cession) may accordingly be the whole or a portion of (a) single risks, (b) defined type or class of policies or (c) defined divisions of a policy as agreed.

Chartered Life Underwriter (CLU):
A designation conferred in recognition of the attainment of certain standards of education and proficiency in the uses of life insurance to satisfy the financial needs of the insured in light of current tax and other laws. A Chartered Life Underwriter is normally an agent or someone responsible for sales or marketing activities.

Chartered Property Casualty Underwriter (CPCU):
A designation conferred in recognition of the attainment of certain standards of education and proficiency in the art and science of property and casualty insurance underwriting.

Claim:
A request for payment for a loss which may come under the terms of an insurance contract. There are two types of claims. A first-party claim is one made by the policyholder for reimbursement by his or her company. A third-party claim is one by a person against a policyholder of another company and the payment, if any, will be made by that company.

Claim Frequency:
The number of claims occurring under a given coverage divided by the number of earned exposures for the given coverage. It is usually expressed as the number of claims paid per 100 of such exposures. Example: For auto bodily injury (BI), the frequency of 2.50% means that bodily injury accidents were incurred at the rate of 2-1/2 for every 100 cars insured for BI for one year.

Claim Severity:
The average cost per claim.

Claims-Made Form:
A type of liability policy which covers claims which occur and are reported while the policy is in effect.

Classification:
The combining of policyholders or properties into groups with the same general characteristics so that the various groups’ inherent differences in exposure to loss can be recognized for rating or underwriting purposes.

Coinsurance (Health Insurance):
A provision in a medical-expense insurance policy which requires that the insured person pay part of the expense and the insurance company will pay the remaining part. (Also see Coinsurance [Property Insurance].)

Coinsurance (Property Insurance):
A provision in a property insurance policy which requires the insured to carry insurance equal to a certain specified percentage of the value of the property for the insured to receive full payment on a loss up to the amount of the policy. Otherwise, payment would be only a percentage of the actual loss, that percentage determined by the amount of insurance carried relative to the amount that is required to be carried by the policy for full protection up to policy limits. (Also see Coinsurance [Health Insurance].)

Collision Insurance:
Protection against loss resulting from any damage to the policyholder’s car caused by collision with another vehicle or object, or by upset of the insured car, whether it was the insured’s fault or not (other than his/her own willful act). This does not cover other people’s property. (See Deductible Collision.)

Combined Ratio:
The sum of the ratio of losses incurred to premiums earned and the ratio of commissions and expenses incurred to premiums written.

Combined Single Limit:
A liability coverage limit that combines both bodily injury and property damage into one aggregate amount.

Commercial Blanket Bond:
A fidelity bond for operators of commercial establishments, etc. (See Fidelity Bond.)

Commercial Credit Insurance:
A guarantee to manufacturers, wholesalers and service organizations that they will be paid for goods shipped or services rendered. It is a guarantee of that part of their working capital that is represented by accounts receivable.

Commercial General Liability Policy:
Often referred to as the CGL, this policy provides broad protection against situations in which a business must defend itself against lawsuits or pay damages for personal injury or property damage to third parties

Commercial Insurance (Coverages):
Definitions of many commercial coverages are listed alphabetically throughout the Glossary. Among these coverages are Aviation Insurance, Cargo Insurance, Commercial Credit Insurance, Commercial Multiple-Line Policy, Crop-Hail Insurance, Employers’ Liability Insurance, General Liability Insurance, Kidnap and Ransom Insurance, Marine Insurance, Products Liability Insurance, Professional Liability Insurance, Public Liability Insurance, Rain Insurance, Surplus Lines, Title Insurance and Workers’ Compensation

Commercial Lines:
The various kinds of insurance which are written for businesses. (Also see Commercial Insurance [Coverages].)

Commercial Multiple-Line Policy:
Package type of policy that includes a wide range of essential property and liability coverages for businesses

Commission:
A percentage of an insurance premium paid to an agent or broker for producing and servicing the business

Commissioner of Insurance:
Title of the head of the state insurance department who is responsible for the enforcement of insurance laws and for promulgating regulations dealing with the insurance industry

Comparative Negligence:
Under this concept a plaintiff (the person bringing suit) may recover damages even though guilty of some negligence. His or her recovery, however, is reduced by the amount or percent of that negligence. There are various forms of comparative negligence, such as: “Pure Comparative,” in which the plaintiff recovers so long as he or she is not solely at fault; “Less Than,” in which the plaintiff recovers so long as his or her negligence is less than that of the defendant; and “Not Greater Than,” in which the plaintiff recovers so long as his or her negligence is not greater than the defendant’s

Competitive State Fund:
State-operated workers’ compensation insurer which competes with private insurers for employers’ workers’ compensation business in certain states

Comprehensive Automobile Insurance:
Protection against loss resulting from damage to the insured auto, commonly referred to as ”other than collision” coverage. Broad coverage is provided and includes protection from such hazards as fire, theft, glass damage, wind, hail and malicious mischief. This is a first-party coverage

Comprehensive Personal Liability Insurance:
Protection for an insured against loss arising out of his or her legal liability to pay money for damage or injury he or she has caused to others. This does not include automobile liability, but includes almost every activity of the insured except “personal injury” and his or her business operations. (See “Personal Injury” Liability Insurance.)

Compulsory Auto Liability Insurance:
Insurance laws in some states require motorists to carry at least certain minimum auto liability coverages for bodily injury and property damage

Concealment:
Normally means the willful withholding of material fact which could affect an insurer’s issuance of a policy or processing of a claim

Conditions:
Provisions of an insurance policy which state the rights and duties of the insured and insurer

Condominium Insurance:
A policy designed for the special needs of condominium unit owner-occupants to cover personal property and liability, to complement the insurance normally purchased by the condominium association for the building, structures and liability. Additional coverages are offered unit owners by many insurers

Consequential Loss:
A loss resulting from, but not caused directly by, another insured loss. A “consequential loss” (spoilage of meat stored in a refrigerated building, for example) usually arises out of a change in temperature resulting from damage to the building (but not directly to the meat) by a covered peril such as fire. “Consequential Loss” coverages are available to protect the insured against this specific indirect loss

Contingent Liability Insurance:
Covers the insured individual or business in cases of indirect or “contingent” liability, where direct liability for an accident, for example, falls on another, but because of the relationship between the insured and the other party, the insured might still be held indirectly liable. (Example: A business being responsible for the work performed by an independent contractor.)

Contract:
The “Law of Contracts” specifies four requirements for the formation of a single contract: (1) parties of legal capacity; (2) expression of mutual consent of the parties to a promise, or set of promises; (3) a valid consideration; and (4) the absence of any statute or other rule declaring such agreement void. An insurance policy qualifies as a contract under the above definition

Contract Bond:
A bond which guarantees faithful performance of a construction contract and payment of all material and labor bills related to that contract. A Performance Bond covers faithful performance only; a Payment Bond guarantees payment of material and labor expenses

Contractual Liability Insurance:
Provides coverage for claims arising out of liability that has been assumed by the insured under a written or oral contract

Contributory Negligence:
Carelessness of the injured person that helped cause the accident in which he or she was injured. Some states bar recovery to the plaintiff if the plaintiff was contributorily negligent

Coverage:
The scope of the protection provided under a contract of insurance; any of several risks covered by a policy

Covered/Insured Peril:
The perils of loss you are protected against by an insurance policy. Examples of perils include fire, lightning, theft, vandalism and the threat of a lawsuit

Credit Disability Insurance:
Disability insurance on the borrower, payable to the creditor while the borrower is disabled, to cover the loan payment (usually small loans repayable in installments). This insurance is usually issued through the creditor (a lender or lending agency) and is provided by an insurance company under a group credit disability policy. Credit disability insurance also can be purchased by an individual directly from an insurance company. (Also see Credit Life Insurance.)

Credit Insurance (Commercial):
See Commercial Credit Insurance

Credit Life Insurance:
Term life insurance on the life of a borrower, payable to the creditor, to repay a loan (usually small loans repayable in installments) in case of death. This insurance is usually issued through the creditor (a lender or lending agency) and is provided by a life insurance company under a group credit life insurance policy to insure the lives of those who borrow from the creditor. Credit life insurance also can be purchased by an individual directly from a life insurance company. (Also see Credit Disability Insurance.)

Crop-Hail Insurance:
Protection against hail damage to growing crops. Coverage is often afforded under such policies for crop damage due to fire, windstorm, drought, frost, snow, etc

Customer Service Representative:
The assistant that supports the sales efforts of the sales agent or producer. Other titles include administrative assistant, agency underwriter and marketing specialist. CSR is also a designation for a certified customer service representative

D

Declarations:
That part of the policy describing the named insured, address, effective date, term of the policy, applicable coverages, the amount of insurance and the premium

Decreasing Term Life Insurance:
Term insurance, the face value of which decreases each year over a stated period. Family income and mortgage cancellation are common types of decreasing term insurance

Deductible:
A provision in an insurance contract stating that the insurer will pay that amount of any insured loss that is in excess of a specified amount. The specified amount is the deductible

Deductible Collision and Deductible Comprehensive Coverages:
Forms of collision or comprehensive auto insurance coverages which specify that an insurance company will pay the damage less a specified amount under the particular coverage. For example: For $100 Deductible Collision Coverage, the company would deduct $100 from the total damage under the collision coverage and be liable for the amount in excess of $100. Rates are reduced as the amount of the deductible is increased

Depreciation:
A decrease in the value of property due to age, wear and tear

Directors and Officers Liability Insurance:
Coverage for directors and officers of firms or organizations against liability claims arising out of alleged errors in judgment, breaches of duty, and wrongful acts related to their organizational activities

Direct Premiums Written:
Property and casualty insurance premiums written (less return premiums), without any allowance for premiums for assumed or ceded reinsurance

Direct Writer:
An insurer whose distribution mechanism is either the direct selling system or the exclusive agent system. (See Agent.)

Disability Threshold:
In no-fault insurance states with the disability threshold, it provides that a victim may not sue in tort unless he/she has been disabled (defined differently in various state plans) from an accident for a specific period of time

Dividends:
(1) Policyholder Dividend—The return of part of the premium paid for a policy issued on a participating basis by an insurer. Any such dividend is dependent upon premiums collected in excess of losses and expenses for the particular class of business at the end of the policy period. (2) Stockholder Dividend—A portion of the surplus paid to the stockholders of a corporation

Dollar Threshold:
In no-fault auto insurance states with the dollar threshold, it prevents individuals from suing in tort to recover for pain and suffering unless their medical expenses exceed a certain dollar amount

Domestic Insurance Company:
An insurance company organized or domiciled in a given state is referred to in that state as a domestic carrier

Double Indemnity:
See Accidental Death Benefit (Life Insurance)

E

Earned Premium:
The part of the total property/casualty policy premium earned by the insurance company which applies to the expired portion of the policy period

Employers’ Liability Insurance:
Provides protection for the employer for those injuries arising out of and in the course of employment which were not covered under the workers’ compensation law

Endorsement:
An additional piece of paper, not a part of the original contract, which cites certain terms and which becomes a legal part of that insurance contract. Additions to life insurance contracts are accomplished through the use of riders, which are similar to endorsements

Environmental Impairment Insurance:
A form of insurance designed to cover losses and liabilities arising from damages to property by pollution

Equipment Breakdown Insurance:
See Boiler and Machinery Insurance

Errors and Omissions Insurance:
A type of professional liability insurance which indemnifies insured professionals—who include, but are not limited to, lawyers, insurance agents and brokers, accountants, real estate agents, appraisers, abstracters, title insurance agents, architects and engineers, advertising agents, adjusters, directors and trustees, fiduciaries, travel agents and data processing firms—for losses sustained because of their errors or oversights

Excess Limits:
Coverage against losses in excess of a specified dollar limit

Exclusion:
A provision in an insurance policy which denies coverage for certain perils, persons, property or location

Expense Ratio:
The ratio of a company’s operating expenses to premiums written. (Expenses include losses and loss adjustment expenses.)

Experience:
The loss record of an insured or of a particular class of coverage

Expiration Date:
The date shown on the declarations page of the policy when coverage will stop. It may be a specific date or a statement that coverage is continuous until cancelled

Exposure:
This term in the insurance field may have several meanings: (1) possibility of loss; (2) a loss potential as measured by type of construction, area or values; (3) a possibility of a loss being communicated to an insurance risk from its surroundings; or (4) a unit of measure of the amount of risk a company assumes (for example, one car insured for one year)

Extended Coverage Property Insurance:
An extension of the fire insurance policy to protect the insured against property damage caused by the additional perils of windstorm, hail, explosion, or riot, civil commotion, aircraft, vehicle and smoke

F

Face Amount:
See Protection Amount

Facultative Reinsurance:
Reinsurance on an individual policy basis wherein each risk which an insurance company wishes to reinsure is reviewed by the reinsurer, which has the “faculty” or option to accept or decline all or part of each risk offered to it

FAIR (Fair Access to Insurance Requirements) Plan:
A facility, operating under a government-insurance industry cooperative program, to make fire insurance and other forms of property insurance readily available to persons who have difficulty obtaining such coverage

Family Auto Insurance:
The automobile policy (most common in the industry) which provides protection for the insured and resident relatives in the same household

Family Plan Insurance:
This is insurance in which the head of the household has one master policy on his/her life (usually whole life) and term coverage for wife/husband and children in lesser amounts

Federal Crime Insurance:
Insurance against burglary, larceny and robbery losses offered by the federal government where the Federal Insurance Administration has determined that such insurance is not otherwise readily available

Fee For Service (FFS):
Formerly a standard health insurance policy. Now a form of health insurance that allows the insured to go to any doctor, hospital or other provider which would bill for each service given, and the insurer and the patient share in the cost of the services provided

Fidelity Bond:
Protection guaranteed by the surety which reimburses an employer for losses due to dishonest acts of employees

Financial Responsibility Law:
A state law which may require motorists to furnish evidence, either before or after involvement in an auto accident (depending on the individual state’s law), of ability to pay for damages up to certain minimum dollar limits. These requirements commonly are met by carrying auto liability insurance with specified minimum limits or more

Fire Insurance:
Coverage is provided to protect the insured property from the perils of fire and lightning

Fleet Policy:
An auto policy covering a number of vehicles owned by a single insured

Floater:
A form of insurance that applies to movable property, whatever its location, within the territorial limits imposed by the contract. The coverage “floats” with the property

Flood Insurance:
Coverage against loss resulting from the flood peril, widely available under a program developed in 1968 by the private insurance industry and the federal government

Foreign Insurance Company:
In a given state, an insurer domiciled in another state

Fraud:
Intentional concealment or misrepresentation with the objective of forcing an insurer to provide a benefit (such as paying a claim) which otherwise would not be provided

Funded Reserve:
Bookkeeping account of sums set aside periodically by a business for the purpose of paying for losses as they occur. Usually, the sums are invested conservatively

G

General Average:
In ocean marine insurance, a concept which provides that, where a portion of a vessel or cargo is jettisoned to save the entire venture from peril at sea, the resulting loss is shared by all parties involved. The owners of property that is saved contribute in proportion to the interests suffering loss, provided the latter are free of fault in the danger and the venture ultimately is successful. (Distinct from Particular Average.)

General Damages:
In auto insurance, typically refers to awards for pain and suffering

General Liability Insurance:
A broad term meaning liability insurance, other than automobile liability or employers’ liability, written to cover professional and commercial risks. In respect to commercial liability, various available coverages could cover such risks as premises and operations, contractual liability, products and completed operations

Generally Accepted Accounting Principles (GAAP):
A method of accounting used by insurance companies to produce results consistent with those of other industries. This is the method of reporting financial results required by the Securities and Exchange Commission of all industries under its jurisdiction and by the stock exchanges

Glass Insurance:
Protection for loss of or damage to glass and its appurtenances

Good Driver Plan:
An auto insurance rating program that reflects the insured’s accident and traffic violation record as a factor in determining the premium

Grace Period:
The number of days (31 in most cases) a life insurance policy will remain in force when a payment is overdue

Group Insurance:
Insurance written on a group of people under a single master policy, issued to their employer or to an association with which they are affiliated

Guaranteed Cost Insurance:
The life insurance sold by some companies, with all cost factors guaranteed at the time of issue. Policies of this type usually have lower premiums than the pre-dividend premiums of comparable participating policies

Guaranteed Renewable:
A health policy which the company guarantees to renew until the insured reaches a specified age, usually 65. The company may adjust rates only on a class of risks, not on any individual

Guaranty Fund:
A fund, derived from assessment against solvent insurance companies, to absorb losses of claimants against insolvent insurers

H

Hail Insurance:
See Crop-Hail Insurance

Hard Insurance Market:
A condition caused by insurance companies lacking sufficient capital to accept new business, sometimes causing a sharp rise in pricing and the diminishing of coverage availability

Hazard:
The presence of a condition that could cause loss or injury to property or persons. For example, smoking in bed increases the chance for loss of property and life resulting from fire

Health Insurance:
There are two major types: Disability income insurance pays for loss of income due to disability; medical expense insurance pays for hospital, doctor and other medical expenses. Both of these generally pay for losses arising from sickness or accidents. Some policies, referred to as “accident policies,” do not cover sickness

Health Maintenance Organization (HMO):
The oldest form of managed health care. In exchange for a monthly fee, HMOs offer members a comprehensive range of health services, usually including preventive medical care

Hold Harmless Agreement:
A contract under which one party’s legal liability for damages is assumed by the other party to the contract

Homeowners Policy:
A package policy for the homeowner that combines “named peril” (including theft coverage) protection on contents, coverage on the dwelling ranging from “named peril” to physical loss, additional living expense protection and personal liability insurance

Hull Policy:
An ocean marine or aviation insurance contract covering damage to or loss of a ship or plane, but not the contents

Hurricane:
A tropical storm with sustained winds of 75 or more miles an hour that is usually accompanied by rain and abnormally high tides

I

Improvements and Betterments Insurance:
Insurance coverage that protects a tenant or condominium unit owner against loss as a result of fire, etc., of improvements made by him/her to the real property in which he/she resides. Some property policies use the term “improvements and additions” in describing the coverage

Incontestable Clause:
The provision of a policy that prevents a life insurance company from calling the policy invalid after the policy has been in effect a certain length of time (usually two years)

Indemnity:
In general, means reimbursement for loss, but also is used to mean a benefit provided by a policy. In health insurance it sometimes is used to designate an amount paid regardless of actual loss or expense incurred

Individual Practice Association (IPA):
A type of HMO that contracts with a type of physician entity. Patients (policyholders) then visit individual doctors at their private offices

Industrial Life Insurance:
A class of life insurance that is usually issued with a protection amount of less than $1,000 and premiums usually payable weekly or at most monthly

Inland Marine Insurance:
A broad type of insurance, generally covering articles that may be transported from one place to another as well as bridges, tunnels and other instrumentalities of transportation and communication. It includes goods in transit (generally excepting transoceanic) as well as numerous “floater” policies such as personal effects, personal property, jewelry, furs, fine arts and others

Inspection Report:
A report filed by an investigator employed by the insurance company or a credit agency, giving general information on the health and finances of the applicant and the physical condition of the property (if property is to be insured)

Insurance to Value:
Insurance written in an amount approximating the value of the property insured

Insured:
A person covered by an insurance policy

Internal Fraud:
An act of deception or strategy used to deceive or cheat an insurer by an employee, including misrepresentation or concealment

Investment Income:
The income generated by a company’s portfolio of investments (such as bonds, stocks or other financial ventures)

J

Joint Underwriting Association (JUA):
A device used to provide insurance to those who cannot obtain insurance in the voluntary market. Certain companies issue policies at one rate level and handle claims, but the ultimate costs are borne by all companies writing insurance in that state

K

Kidnap and Ransom Insurance:
Written for financial institutions and other corporations, this insurance covers named employees for individual or aggregate amounts paid as ransom, with deductibles requiring the insured to participate in approximately 10% of any loss

L

Lapsed Policy:
A life or health insurance policy terminated as a result of nonpayment of a premium before the end of the grace period

Legal Expense Insurance:
Insurance to reimburse policyholders for legal fees incurred for defense from lawsuits involving areas of civil law not covered by standard liability insurance. Examples include: discrimination, wrongful discharge, contract disputes and patent disputes

Level Premium Life Insurance:
Insurance for which the cost is distributed evenly over the period during which premiums are paid. The premium remains the same from year to year and is more than the actual cost of protection in the earlier years of the policy and less than the actual cost in the later years. The excess paid in the early years builds up a reserve which helps meet the costs in later years

Liabilities:
An insurance company’s liabilities consist of its immediate or contingent policy obligations and unpaid claims, as well as the usual obligations arising out of doing business such as taxes, payroll, etc

Liability Insurance:
Provides protection for the insured against loss arising out of his/her legal liability to third parties

Liability Limits:
The stipulated sum or sums beyond which an insurance company is not liable to protect the insured

License—Agent or Broker:
Certification issued by a state’s department of insurance that an individual is qualified to solicit insurance applications in the state for the period covered

License—Company:
Certification issued by a state’s department of insurance that an insurance company is qualified to do business in the state

Life Insurance Cost Indexes:
The measurements used to determine the cost of life insurance protection

Limit:
The maximum amount of benefits that an insurer agrees to pay in the event of a loss

Line:
A type or kind of insurance

Litigation:
The process of a lawsuit

Loss:
An occurrence that is the basis for submission and/or payment of a claim. Losses can be covered, limited or excluded from coverage, depending on the terms of the policy

Loss Control Representative:
Insurance company employees, also called safety engineers, that perform loss control surveys or inspections, and prepare written loss control reports that outline their findings

Loss Control Service:
Engineering or inspection service which assists the insured in reducing its exposure to loss

Loss Expense—Unallocated:
Salaries and other expenses incurred in connection with the operation of a claims department of a property and liability insurance carrier which cannot be charged to individual claims

Loss Exposure:
The possibility that a loss may occur

Loss Ratio:
In property and liability insurance, the percent that losses bear to premiums for a given period

Loss Reserve:
The estimated liability on an insurer’s balance sheet for unpaid insurance claims or losses that have occurred as of a given reporting date. On an individual claim, the loss reserve is the estimate of what will ultimately be paid out on that case

M

Malicious Mischief:
The willful or intentional damage to or destruction of another’s property. Coverage for malicious mischief is usually combined with the vandalism peril in insurance policies

Malpractice Insurance:
Coverage afforded to a professional practitioner, such as a doctor or a lawyer, against liability claims for damages resulting from alleged negligence in the performance of the insured’s services

Manual:
A book published by an insurance company, rating association or bureau, containing its rates, classifications and rules for rating a policy

Marine Insurance:
See Inland Marine Insurance and Ocean Marine Insurance

Material Damage:
Insurance against damage to a vehicle or boat itself. It includes automobile comprehensive, collision, fire and theft. Material damage and physical damage are terms that are often used interchangeably

Maturity:
The date at which the endowment amount of a life policy becomes payable

Medical Payments Automobile Insurance:
Coverage in non-no-fault states, which pays medical and hospital expenses and the expense of funeral services resulting from an automobile accident, regardless of the liability of the insured. This is a first-party coverage

Mortgage Insurance:
(1) A basic type of life insurance or disability insurance purchased for the specific purpose of paying off any mortgage balance outstanding at death or paying mortgage payments while the insured is disabled. (2) ”Private mortgage insurance“ offers a method of providing minimum down payment residential mortgages by insuring mortgage lenders against losses in the event of borrower default

Multi-Peril Policy:
A package policy that provides protection against a number of separate perils. Multi-peril policies are not necessarily multiple-line policies, since the combined perils may be all within one insurance line, such as property. (See Multiple-Line Policy.)

Multiple-Line Company:
A company that writes a variety of basic or traditional lines of insurance known as property and casualty (liability) insurance, such as auto, boat owners, homeowners, commercial, etc

Multiple-Line Policy:
A package policy which combines coverages from both the traditional property and liability insurance lines

Mutual Insurance Companies:
Insurance companies without capital stock, owned by the policyholders

N

Named Perils:
Coverage in a property policy that provides protection against loss from only the perils specifically listed in the policy rather than protection from physical loss. Examples of named perils are fire, windstorm, theft, smoke, etc

Negligence:
The failure of a person to exercise the care that a prudent person would exercise under similar circumstances

Net Cost:
This term ordinarily refers to the cost of life insurance after deducting the policy dividends from the premiums paid. A variant is the net surrendered cost, which is the premiums minus both dividends and the cash surrender value at the end of the given period

Net Premiums Written:
Property and casualty gross premiums written less returned premiums, plus reinsurance assumed premiums less reinsurance ceded premiums

No-Fault Automobile Insurance:
A form of insurance by which a person’s financial losses resulting from an automobile accident, such as medical and hospital expenses and loss of income, are paid by his/her own insurance company without concern for who was at fault. The right to sue may be restricted in some cases

Non-admitted Company (Carrier):
An insurance company not licensed to do business in the state in question

Non-Forfeiture Options:
The choices available to an insured as to how the cost value of a life insurance policy will be received—as a lump-sum payment, as extended term insurance, or as reduced paid-up life insurance. These options guarantee that the cash value will not be forfeited by the insured

Non-Participating Insurance:
See Guaranteed Cost Insurance

Notice of Loss:
Notification to an insurance company by an insured or claimant that a loss has occurred. Written notice may be required, although many companies accept notice by telephone

O

Obligee:
A person, firm, corporation or government agency protected by a surety bond

Occupational Hazard:
Dangers inherent in an occupation which increase the risk of sickness or injury

Ocean Marine Insurance:
Coverage on all types of vessels, including liabilities connected with them, and coverages on their cargoes

Omnibus Clause:
An automobile policy provision that covers persons driving the named insured’s auto with the named insured’s permission

Ordinary Life Insurance:
The class of life insurance that usually refers to whole life, term and endowment insurance

Other Than Collision Coverage:
See Comprehensive Automobile Insurance

P

Package Policy:
A combination of two or more individual policies or coverages into a single policy. A homeowners policy, for example, is a package combining property, liability and theft coverages for the homeowner

Paid Losses:
The actual dollar total that has been paid on incurred losses by issuing checks or drafts to claimants

Partial Disability:
An impairment that prevents the insured from performing one or more, but not all, important duties of his/her job

Participating Insurance:
The life insurance, sold by some life companies, on which dividends may be payable to policy owners. The amount and timing of the dividend payments are determined by the company board of directors

Particular Average:
In ocean marine insurance, a concept providing that, where a portion of vessel or cargo is jettisoned to save the entire venture from peril at sea, the resulting loss is borne entirely by that individual owning the property that is damaged or sacrificed. No other interests contribute to payment of the loss. (Distinct from General Average.)

Peril:
The cause of a possible loss, such as fire, windstorm, theft, explosion or riot

Permanent Insurance:
The type of life insurance that develops cash value and includes whole life, endowment, universal life and variable life insurance

Persistency:
An insurance term used to refer to the probability of insurance remaining in force

Personal Articles Floater:
A form of coverage designed to meet the needs for insurance on property of a movable nature. The coverage usually protects against all physical loss, subject to special exclusions and conditions. Examples of property covered include jewelry, furs, silverware and fine arts

“Personal Injury” Liability Insurance:
Protects against liability for damages other than physical injury arising out of false arrest, detention or imprisonment, or malicious prosecution; libel, slander or defamation of character; invasion of privacy, wrongful eviction or wrongful entry

Personal Injury Protection Automobile Insurance (PIP):
First-party coverage in no-fault states that usually pays for medical expenses, loss of income and certain other expenses resulting from an auto accident. Coverage’s scope varies widely by state law so no two states have identical coverages. (See No-Fault Automobile Insurance.)

Personal Lines:
Types of insurance written for individuals or families, rather than for businesses

Personal Property:
This type of property is usually movable and easily transportable. On the other hand, real property generally is considered to be immovable, such as land and things affixed to it. A rule of thumb definition for personal property is “everything other than real property.”

Physical Hazard:
This refers to the material, structural or operational features of the risk itself, apart from the persons owning or managing it. Electrical wiring, building construction and type of heating system are examples of physical hazards

Physical Loss Form:
This property coverage protects against loss from risk of physical loss to buildings except as limited or excluded in the form

Point of Service (POS) Plan:
An HMO that offers an indemnity-type option. The primary care doctors in a POS plan make referrals to other providers in the plan. However, members can refer themselves outside the plan and still get some coverage as well

Policies-in-Force:
Policies written and recorded on the books of the carrier which are unexpired as of a given date. Usually applies to property and liability insurance

Policy:
The name generally used to mean the written contract of insurance

Policyholder:
One who owns an insurance policy. A mortgagee often is issued a copy of an insurance policy or certificate of insurance at the request of the insured, but it is not a policyholder

Policyholders’ Surplus:
The sum an insurance company has remaining after all liabilities are deducted from all assets. Sums such as paid-in capital and special voluntary reserves are also included in this term. This surplus is one form of financial protection to policyholders in the event a company suffers unexpected or catastrophic losses

Policy Loan:
The borrowing against a life insurance policy’s cash value

Pool:
An organization of insurers or reinsurers through which particular types of risks are underwritten with premiums, losses and expenses shared in agreed ratios

Pre-Existing Condition:
A physical condition that existed prior to the issuance of an insurance policy

Preferred Provider Organization (PPO):
Health plan through which a sponsoring group negotiates price discounts with providers in exchange for patients. The sponsor may be an insurer, employer or third-party administrator

Premises:
The building, other structures and land where the insurance protection is applicable. It is usually described and defined in the property and casualty policy

Premium:
The amount of money charged a policyholder for an insurance policy. (Also see Direct Premiums Written, Earned Premium, Net Premiums Written, Unearned Premium.)

Premium Auditor:
A person who examines a liability insurance policyholder’s insurance records (sales, payroll, etc.) at the end of the policy term to determine if the basis for the premium charge has either increased or decreased. If the audited premium is less than originally estimated and paid, the policyholder will receive a refund; if greater, the policyholder will receive a statement for the balance

Principal:
In suretyship, the party whose honesty or performance is guaranteed

Producer:
Any person directly involved in the sale of insurance

Product Liability Insurance:
Protection against financial loss arising out of the legal liability incurred by a manufacturer, merchant or distributor because of injury or damage resulting from the use of a covered product

Professional Liability Insurance:
See Directors and Officers Liability Insurance, Errors and Omissions Insurance, and Malpractice Insurance

Proof of Loss:
Documentation presented to the insurance company by the insured in support of a claim so that the insurer can determine its liability under the policy

Property Damage Liability Insurance:
Protection against loss from legal liability for damage to the property of another

Property Insurance:
Provides financial protection against loss or damage to the insured’s property, other than automobile, caused by specified perils, such as fire, windstorm, hail, explosion, riot, aircraft, motor vehicles, vandalism, malicious mischief, riot and civil commotion, and smoke. (See Property Insurance [Coverages].)

Property Insurance (Coverages):
For definitions of specific types available, see following property insurance coverages and terms listed alphabetically throughout the Glossary—Actual Cash Value, Additional Living Expense, Blanket Coverage, Condominium Insurance, Extended Coverage Property Insurance, Fire Insurance, Homeowners Policy, Property Insurance, Renter’s Policy, Rents or Rental Value Coverages, Replacement Cost Property Coverage, Tenant‘s Policy and Theft Insurance

Protection Amount:
The face amount of a life insurance policy, or amount of money that will be paid to a beneficiary upon the death of an insured—depending upon the policy. This amount will be reduced by the amount of any outstanding policy loan

Proximate Cause:
The dominating cause of loss or damage; an unbroken chain of events between the occurrence of an insured peril and damage to property. As an illustration, weather damage occurring from fire-fighting activities is covered under the fire policy because fire was the proximate cause of the loss

Public Liability Insurance:
A broad term meaning insurance to cover professional and commercial risks against liability exposures other than those involving employees or arising out of ownership or use of autos or airplanes

R

Rain Insurance:
Insurance protection against loss due to rain, hail, snow or sleet, which causes cancellation or reduced earnings of an outdoor event

Rate:
A charge per unit in determining insurance premiums

Rating Bureau:
An organization that gathers statistics, makes rates and/or creates policy forms and provides other services for the property and casualty insurers affiliated with the bureau

Rating Territory:
In various property and casualty lines, a geographical grouping within which insureds are likely to share an exposure to similar risks. Grouping of insureds within a territory helps establish equitable rates for the territory

Redlining:
An illegal act to refuse to lend money or issue insurance based only on geographic area

Reinstatement:
The restoration of a lapsed life or health insurance policy to its original premium-paying status—usually after evidence of good health has been submitted and past-due premiums have been paid

Reinsurance:
An arrangement by which one insurer transfers all or a portion of its risk under a policy or group of policies to another insurer (reinsurer). Thus reinsurance is insurance purchased by an insurance company from another insurer, to reduce risk for the original insurer

Reinsurance Facility:
An alternative mechanism to service those insureds who cannot obtain insurance in the voluntary market. Premiums and losses for the business that is ceded to the facility are pooled and all insurers share according to their proportion of the voluntary market

Renters Policy:
A package type of insurance that includes coverage similar to a homeowners policy to cover the personal property of a renter or tenant in a building

Rents or Rental Value Coverages:
Insurance against loss of the rental value of a property; protects against loss of rents resulting from an insured peril

Replacement Cost Property Coverage:
Insurance under which the amount payable is the current replacement cost of the property new, rather than the depreciated value. Applies to the building structures (in most cases) and can apply to contents in some policies

Reserve:
(1) An amount representing actual or potential liabilities kept by an insurer to cover obligations to policyholders and third-party claimants. (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 Market:
A general term describing the total of all consumers who have had difficulty purchasing insurance through normal channels. Automobile Insurance Plans, FAIR Plans, Reinsurance Facilities and Joint Underwriting Associations all service this market

Retention:
The net amount of risk retained by an insurance company for its own account or that of specified others, and not reinsured

Retrospective Rating:
Rating procedure that allows adjustment of an insured’s final rate on the basis of the insured’s own loss experience

Rider:
Additional provision added to a policy by issuance of an amending document (See Endorsement.)

Risk:
Chance of loss with respect to person, liability or the property of the insured. Also is used to mean “the insured.”

Risk Management:
The management of the various risks that might affect a business firm. Its purpose is to identify potential loss situations and control or reduce them through insurance, elimination of risk, or improved or additional safety practices

Robbery:
The loss of property due to theft when a person is threatened with physical harm or injury

S

Sales Expense:
Compensation of agents, advertising expense and other costs related to selling insurance policies

Salvage:
Property damaged to the extent that it is not economical to perform repairs, taken over by an insurer after it has paid a claim, to reduce its loss by “salvaging” the remaining value of the property

Schedule:
A list describing the property or items insured under the policy and the extent to which they are insured

Self-Insurance:
A form of risk financing through which a firm assumes all or a part of its own losses. Self-insurers may purchase insurance to cover excess losses

Soft Market:
A condition where insurance premiums are lowered and the availability of insurance is high. Opposite of a hard insurance market

Solicitor:
A person authorized by an agent to solicit and receive applications for insurance

Special Multi-Peril Policy (SMP):
A business policy which combines in one contract the coverages normally purchased under several policies. Many options and endorsements are available to tailor it to the policyholder’s needs

Specified Perils:
See Named Perils

Speculative Risk:
A type of risk with three possible outcomes: gain, loss or no change

Standard Provisions:
Policy provisions required by law

Standard Risk:
A person who according to a company’s underwriting standards is entitled to insurance without extra rating or special restrictions

Statutory Accounting Principles (SAP):
Those principles required by statute that must be followed by an insurance company when submitting its financial statements to the various state insurance departments. Such principles differ from Generally Accepted Accounting Principles (GAAP) in some important respects. For example, SAP requires that expenses must be recorded immediately and cannot be deferred to track with premiums as they are earned and taken into revenue

Statutory Underwriting Profit or Loss:
Earnings or losses as shown by an insurer on its Statutory Income Statement (convention blank) as required by state insurance departments. More specifically: (1) the profit or loss realized from insurance operations as distinct from that realized from investments; (2) the excess of premiums over losses and expenses (profit), or the excess of losses and expenses over premiums (loss)

Stock Company:
A company organized and owned by stockholders, as distinguished from the mutual form of company, which is owned by its policyholders

Stopgap Endorsement:
Provides employer liability coverage for work-related injury arising out of incidental operations or exposure in the monopolistic fund states

Subrogation:
A principle of law incorporated in insurance policies that enables an insurance company, after paying a loss to its insured, to recover the amount of the loss from another who is legally liable for it

Substandard or Extra Risk:
An individual who, because of health history or physical limitations, does not measure up to the qualifications of a standard life or health insurance risk

Surety Bond:
An agreement providing for monetary compensation should there be a failure to perform specified acts within a stated period. The surety company, for example, becomes responsible for fulfillment of a contract if the contractor defaults

Suretyship:
Contractual relationship in which one party (surety) guarantees another party (obligee) against the default or misperformance of a third party (principal). (See Fidelity Bond and Surety Bond.)

Surplus:
A stock company’s surplus is the amount by which its admitted assets exceed its liabilities and capital stock. In both stock and mutual companies, the term surplus-to-policyholders means the excess of admitted assets over liabilities

Surplus Lines:
A term originating in property/casualty insurance, used to describe any risk or part thereof for which insurance is not available through a company licensed in the applicant’s state (an “admitted” insurer). The business, therefore, is placed with “non-admitted” insurers (insurers not licensed in the state) in accordance with surplus or excess lines provisions of state insurance laws. These provisions generally allow operations on a relatively unregulated basis; that is, the non-admitted insurer is not subject to the same rate or coverage requirements that apply to an admitted insurer

Syndicate:
A group of insurers or underwriters that join to insure certain property that may be of such value or high hazard or so expensive to underwrite that it can be covered more safely or efficiently on a cooperative basis

T

Tenants Policy:
See Renters Policy

Term:
A period of time for which a policy is issued

Term Insurance:
Life insurance protection during a limited number of years but expiring without value if the insured survives the stated period

Theft Insurance:
Protection for loss of property due to stealing, including burglary, robbery and larceny

Third Party:
A person who files a liability insurance claim

Threshold:
Used in no-fault auto insurance to remove non-serious cases from the tort system by establishing a point of “threshold” that must be met or exceeded to sue in tort. Of those states and the District of Columbia that have no-fault auto insurance, many, including the District of Columbia, have a threshold in their plan. There are three types of thresholds: the dollar threshold, the disability threshold and the verbal threshold

Title Insurance:
An insurance contract relating to real estate described in the policy which protects the insured landowner against loss or damage by reason of defects, liens or encumbrances in the insured title, if these faults exist at the date of the policy and are not expressly excluded from its terms

Tort:
Any wrongful act, damage or injury done willfully, negligently or in circumstances involving strict liability, but not involving breach of contract, for which a civil lawsuit can be brought

Total Disability:
Disability that prevents a person from performing (a) any of his/her occupational duties, or (b) any duties for which he/she is reasonably qualified. Definitions vary within policies

Towing Coverage:
Insures against charges for towing and road service at the place of disablement, with a maximum amount stipulated for each occurrence

Treaty Reinsurance:
A general reinsurance agreement between the ceding or primary company and the reinsurer containing the contractual terms under which a portion or all of the primary company’s business or a particular class is passed on to the reinsurer

U

Umbrella Liability Policy:
A form of insurance protection against losses in excess of amounts covered by other liability insurance policies; also protects the insured in many situations not covered by the usual liability policies. This policy is available for both personal and commercial lines coverage

Underinsured Motorists Coverage:
Coverage is intended to cover you and passengers in your car for losses unpaid because sufficient bodily injury liability limits are not available from the policy of an at-fault driver. How and under what circumstances the coverage becomes operative varies in different states

Underwriter:
An employee of an insurance company who is a selector of risks. The underwriter is expected to select business that will produce an average risk of loss no greater than anticipated for the class of business. In the life insurance industry, “underwriter” may also mean an agent or other field representative who is referred to as a “field underwriter.”

Underwriting:
The process of selecting risks for insurance and determining in what amounts and on what terms the insurance company accepts the risk

Underwriting Profit or Loss:
The profit or loss experienced by a property/casualty insurance company after deducting from earned premiums the incurred losses and expenses of doing business, but before provision of federal income tax. It excludes investment income

Unearned Premium:
The portion of a property/casualty insurance premium that applies to the unexpired portion of the policy period

Uninsured Motorists Coverage (UM):
Pays the policyholder and passengers in his/her car for losses sustained by reason of bodily injury, sickness, disease or death caused by the owner or operator of an uninsured automobile or a “hit-and-run” driver

Uninsured Motorists Property Damage Coverage (UMPD):
Provides coverage to a vehicle involved in an accident with an uninsured motorist. UMPD is similar to “collision coverage,” and is not available to those who purchase collision coverage

Universal Life:
A type of permanent life insurance under which the policyowner is allowed to vary the timing and amount of premium payments, plus increase or decrease the death benefit (subject to underwriting for an increase)

V

Valuation:
The process of determining a company’s liabilities under its policy obligations is known as policy valuation. The process of determining the value of a company’s investments is known as asset valuation. Minimum valuation standards are usually prescribed by state laws

Valued Policy:
An insurance policy under which the insurance company is obligated to pay the full amount of the policy written to insure real property against loss by fire (and, sometimes, other perils) when the property insured is totally destroyed. Several states have laws that are known as Valued Policy Laws

Vandalism:
Willful, intentional, often random, destruction or defacement of private or public property. Insurance against the vandalism peril is usually combined with the malicious mischief peril

Variable Life Insurance:
A type of permanent life insurance in which the death benefit and the policy value vary in relation to the investment experience of a selected fund in which the policy values are invested

Verbal Threshold:
In no-fault auto insurance states with the verbal threshold, victims are allowed to sue in tort only if their injuries meet certain verbal descriptions of the types of injuries that should, as a matter of policy, render one eligible to seek to recover for pain and suffering in a cause of action in tort

Voluntary Market:
The market where a person seeking insurance obtains it with no help from the state, through an insurer of his or her own selection

W

Workers’ Compensation:
A system (established under state laws) under which employers provide insurance for benefit payments to employees for their work-related injury, death and disease regardless of fault. Not to be mistaken as health insurance

Write:
To insure, underwrite or accept an application for insurance.

Sources: Original glossary reprinted, with permission, Allstate Insurance Company, Northbrook, IL, with all rights. Excerpts also from Insuring Your Business, by Sean Mooney, Chief Economist, Director of Research, and Senior Vice President at Guy Carpenter & Company in New York, and former economist, Insurance Information Institute; Ensuring Availability: Residual Property Insurance Plans, Property Insurance Plans Service Office and The Buyers’ Guide to Business Insurance, PSI Research.