Glossary
Of Terms
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Actual Cash Value (ACV)
The replacement (current) cost of an item minus depreciation from wear and tear or obsolescence.
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Actuary
A mathematician who specializes in the field of insurance. The actuary determines, on the basis of existing experience, the rate to be charged for various lines of insurance and reserves to be set aside for payment of losses.
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Additional Insured
An individual or business, other than the named insured on the declarations page, who has a financial interest requiring protection under the terms of the contract, e.g., the lienholder on the loan for the car or a bank for a mortgage.
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Additional Living Expense Insurance
This is insurance coverage that pays for extra necessary living costs incurred during the time it takes to repair or replace insured property that has been damaged or destroyed by an insured peril.
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Aggregate Limit
The maximum limit of liability the company is obligated to pay for all claims within a specific time period, usually one policy year.
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Application
The questionnaire completed by a prospect or insurance professional that will be used during the underwriting of the policy. For contractual purposes, the application is considered the offer to purchase.
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Audit Premium
A premium adjusted at the end of the policy term to compensate for additional exposures. Audited contracts typically include liability and workers' compensation. See also deposit premium.
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Bodily Injury (BI) Liability Coverage
Liability coverage that protects the insured from financial loss in the event he or she is legally liable to pay damages because of bodily injury, sickness, or disease, including required care, loss of services, and resulting death.
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Bond
A written agreement under which the surety agrees to pay, within stated limits, for a financial loss caused to another (obligee) by the act or default of a third party (principal) or by some other contingency over which the principal may have no control.
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Builder's Risk Insurance
This provides coverage against loss to a building in the course of construction and to temporary structures, materials, and supplies incidental to that construction. May also cover the builder's machinery and equipment while on the premises.
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Business Auto Policy
This is insurance for commercial automobile risks against legal liability, damage to vehicles, medical expenses, loss from uninsured motorists, and personal injury protection or other equivalent no fault coverage. Coverage can be extended to owned, leased, and borrowed vehicles.
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Business Income Insurance / Business Interruption Insurance
This provides coverage for loss of earnings that results when a business must shut down or curtail its operations after damage or destruction of property by an insured peril. Coverage applies for the length of time it takes to rebuild, repair, or replace the damaged or destroyed property so that business operations can resume.
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Cancellation
The termination of a policy before the end of the policy period by the insurance company or the insured according to the terms of the policy. See also non-renewal; pro rata cancellation; short rate cancellation.
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Casualty Insurance
The generic term for non-property insurance coverage, such as liability, crime, workers' compensation insurance, fidelity, and surety. In some states, accident and sickness coverage are considered casualty coverage.
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Catastrophe
A sudden, unexpected, unavoidable, and severe calamity or disaster that involves a large population and normally generates an extraordinarily large amount of loss. Examples would include floods, earthquakes, and tornadoes.
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Claim
A notification given to the insurance company that a loss has occurred and that demands payment for the loss, as provided by the terms of the insurance policy.
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Claimant
A person who has a claim according to the provisions of an insurance policy. See also first party claim; third party claim.
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Coinsurance Clause
A provision requiring a specified amount of insurance based on the value of the insured property. There may be a penalty in the event of a partial loss if the insured fails to comply.
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Collision Insurance
This is automobile coverage for direct and accidental loss to the insured automobile resulting from upset or impact with another vehicle or other object, usually paid without regard to fault.
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Combined Single Limit (CSL)
The combination of the liability limits of bodily injury and property damage into a single limit of liability for both. Example: $25,000 per person/$50,000 per occurrence for bodily injury and $15,000 for property damage liability is the equivalent of $65,000 ($50,000 + $15,000) combined single limit of liability for BI and PD.
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Commercial Lines Insurance
A common term for insurance that pertains to business, industrial, mercantile, or manufacturing risks. See also personal lines insurance.
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Commercial Package Policy (CPP)
A commercial package policy that combines commercial property, liability, and other insurance in a single package policy.
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Competitive State Fund
A state fund that writes insurance coverage, usually workers' compensation, in competition with private insurance companies.
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Completed Operations Liability Insurance
This is bodily injury and property damage legal liability insurance that covers finished operations by the insured business. See also products liability insurance.
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Comprehensive Coverage (other than collision)
Provides auto coverage for theft, vandalism, fire and collision with a missile, falling object, and wild or domestic animal. See also collision.
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Commercial General Liability (CGL)
This provides commercial liability coverage, including premises and operations, products and completed operations and other available liability options.
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Compulsory Insurance
Insurance that is required by law.
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Contract
An agreement (offer and acceptance) between two parties who have legal capacity to contract that involves valuable consideration and that does not violate any statute or other legal rule.
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Contractor's Equipment Floater
This provides physical damage coverage for equipment used by contractors, such as bulldozers or cranes, that may be located at a temporary or permanent jobsite.
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Contractual Liability Insurance
This provides coverage against legal liability for bodily injury or property damage assumed by the insured under a contract.
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Declarations Page (dec page)
The part of an insurance policy that contains the applicant's representations and other information pertinent to the risk, on the basis of which the policy is issued.
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Deductible
Policy provision that requires the insured to pay a specific amount or percentage of a loss and the insurance company to pay covered losses in excess of that amount.
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Depreciation
A decrease in value of property due to use, age, obsolescence, wear and tear, deterioration, etc.
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Effective Date
The date on which a policy or bond is put in force and protection is furnished. Also called the inception date.
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Employer's Liability Coverage
This provides coverage for an employer against third-party liability claims that result from an employee's injuries. Usually part of a workers' compensation policy.
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Endorsement
A written amendment attached to a policy, with the insurance company's approval, that stipulates changes to the policy's terms.
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Equipment Breakdown Coverage
This provides coverage for accidental loss arising from the operation of a boiler, pressure, mechanical and electrical equipment, and machinery. Such policies may include coverage for loss to the boiler and machinery itself, for liability from damage done to other property and for loss from business interruption. Formerly called boiler and machinery coverage.
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Errors and Omissions (E&O) Insurance
This is professional liability insurance primarily intended for non-medical professionals that pays for losses or for defense of malpractice suits. See also malpractice.
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Exclusion
A provision in an insurance policy that excludes certain risks or otherwise limits the scope of coverage; certain causes and conditions listed in the policy that are not covered.
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Expiration Date
The date on which coverage under a policy terminates.
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Exposure
The potential for loss to an item of property or to the assets of an individual, family, firm, or organization; the measure of risk to the insurer.
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Floater Policy
An insurance policy that provides coverage for mobile property regardless of location.
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General Liability Insurance
This provides protection against legal liability for commercial risks arising from ownership, maintenance, or use of business premises, defects in manufactured products, and completed operations. See also commercial general liability.
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Hazard
A specific situation or condition that increases the probability or severity of a loss.
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Hold Harmless Agreement
A contractual agreement, usually written, whereby one party assumes legal liability on behalf of the other.
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Insurable Interest
The interest from which monetary loss will result if the peril insured against occurs; possibility of financial loss that can be protected against by insurance.
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Lapse
The termination of a policy terminated because of the nonpayment of premiums.
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Lessee
One to whom a lease is granted; a tenant.
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Lessor
One who grants a lease; a landlord.
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Mortgage Clause
A provision in or attached to fire policies covering mortgaged property that defines the mortgagee's rights and privileges under the policy.
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Motor Truck Cargo Insurance
This provides coverage (1) against direct loss or damage to an insured trucker's goods while they are in transit on the insured's own trucks and (2) against the legal liability of an individual or business engaged in transporting the property of others for hire.
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Named Insured
The person specifically designated by name as the insured in a policy. See also insured.
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National Flood Insurance Program (NFIP)
A federal program established through the Housing and Urban Development (HUD) Act of 1968 to make flood insurance available to individuals and businesses in those flood-prone communities that adopt certain land-use and flood-loss control measures.
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Negligence
The failure to act as a reasonable and prudent person would (under the same circumstances and with the same knowledge) to prevent an accident or injury.
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Nonowned Auto
An automobile that is borrowed or rented from others or is owned by an employee of the insured.
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Ordinance or Law Coverage
Usually attached to a homeowners or commercial property form (HO or CPP). This provides protection for the cost of demolition, increased costs of construction or the value of undamaged property if these actions are required by a governmental authority due to a covered loss.
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Personal Auto Policy (PAP)
This provides protection for liability, medical payments and damage to the automobile for individuals and married couples and their owned and nonowned vehicles.
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Policy Period
The length of time during which the policy contract affords protection; also called the policy term.
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Premium
The designated amount owed by the insured to the insurance company in order to keep the contract in force.
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Pro Rata Cancellation
The termination of a policy or bond with a return of premium charged for the exact time the protection was in force equal to the ratio of the total premium to the total policy period. See also short rate cancellation.
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Replacement Cost
The actual cost of replacing property without a deduction for depreciation. See also actual cash value.
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Short Rate Cancellation
The termination of a policy or bond by the insured before the end of the policy period, with the earned premium plus administrative expenses retained by the insurance company.
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Split Limits
The practice of separating Bodily Injury and Property Damage into distinct limits of liability (for example, $50,000 BI and $15,000 PD). See also combined single limit.
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Subrogation
The act of assigning or substituting the rights of one party to another in collecting a debt or claim, as an insurance company is assigned an insured's rights of recovery from a third party who has caused a loss.
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Umbrella Liability Insurance
This provides broadened coverage and higher limits of liability for businesses, organizations, and individuals. Supplements basic liability coverage. See also excess insurance.
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Underinsured Motorist (UIM)
This is auto coverage that provides protection in the event an insured is involved in an accident who is caused by another who is carrying insurance coverage lower than the amount of the damages and lower than the claimant's Underinsured Motorists coverage.
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Uninsured Motorist (UM) Coverage
This is auto coverage that provides protection in the event the injured is involved in an accident where the other party is at fault, but not insured. See also underinsured motorist.
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Workers' Compensation Insurance
This provides benefits to a worker or the worker's dependents for injury, disability, or disease contracted by the worker in the course of his or her employment.
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