All definitions provided in this glossary are for informational purposes only and do not replace or modify definitions and information found within individual insurance contracts, policies, or declaration pages, which are controlling. Such terms and availability may vary by state and exclusions apply.
Terms and definitions provided by the International Risk Management Institute and The Insurance Information Institute.
Actual Cash Value (ACV)
Actual Cash Value (ACV) – In property and auto physical damage insurance, one of several possible methods of establishing the value of insured property to determine the amount the insurer will pay in the event of loss. ACV is typically calculated one of three ways: (1) the cost to repair or replace the damaged property, minus depreciation; (2) the damaged property’s “fair market value”; or (3) using the “broad evidence rule,” which calls for considering all relevant evidence of the value of the damaged property.
Additional Insured – A person or organization not automatically included as an insured under an insurance policy who is included or added as an insured under the policy at the request of the named insured. A named insured’s impetus for providing additional insured status to others may be a desire to protect the other party because of a close relationship with that party (e.g., wanting to protect church members performing services for the insured church) or to comply with a contractual agreement requiring the named insured to do so (e.g., project owners, customers, or owners of property leased by the named insured).
Additional Living Expense (property)
Additional Living Expense (property) – A type of insurance included within homeowners policies. ALE coverage reimburses the insured for the cost of maintaining a comparable standard of living following a covered loss that exceeds the insured’s normal expenses prior to the loss. For example, ALE insurance would cover an insured’s motel bill while fire damage to the home is being repaired or replaced or until the insured moves to a permanent residence.
Aftermarket Parts – Auto crash parts produced by firms other than the manufacturer of the car. Usually, aftermarket parts are cheaper than the identical part from the automobile manufacturer. In an effort to keep costs (and thus, premiums) down, insurers often repair damaged cars with such parts. Although they often are certified as being as good as the ones that come from the auto manufacturer, some consumer groups say that they have evidence that they are not.
Appraisal – A survey to determine a property’s insurable value, or the amount of a loss.
Arson – The deliberate setting of a fire.
Bodily Injury Liability Coverage
Bodily Injury Liability Coverage – Portion of an auto insurance policy that covers injuries the policyholder causes to someone else.
Broker – An intermediary between a customer and an insurance company. Brokers typically search the market for coverage appropriate to their clients. They work on commission and usually sell commercial, not personal, insurance. In life insurance, agents must be licensed as securities brokers/dealers to sell variable annuities, which are similar to stock market-based investments.
Cancellation – The termination of an insurance policy or bond, before its expiration, by either the insured or the insurer. Insurance policy cancellation provisions require insurers to notify insureds in advance (usually 30 days) of canceling a policy and stipulate the manner in which any unearned premium will be returned.
Claim – Used in reference to insurance, a claim may be a demand by an individual or corporation to recover, under a policy of insurance, for loss that may come within that policy.
Claimant – The person making a claim. Use of the word “claimant” usually denotes that the person has not yet filed a lawsuit. Upon filing a lawsuit, claimant becomes a plaintiff, but the terms are often used interchangeably.
Collateral – Property that is offered to secure a loan or other credit and that becomes subject to seizure on default. Also called security.
Collision Coverage – Portion of an auto insurance policy that covers the damage to the policyholder’s car from a collision.
Comprehensive Auto Coverage
Comprehensive Auto Coverage – Coverage under an automobile physical damage policy insuring against loss or damage resulting from any cause, except those specifically precluded. It covers losses such as fire, theft, windstorm, flood, and vandalism, but not loss by collision or upset.
Continuous Insurance – This occurs when a policyholder has been insured by one or more insurance companies, without any lapse in coverage, for a specified period of time.
Declarations Page – The front page (or pages) of a policy that specifies the named insured, address, policy period, location of premises, policy limits, and other key information that varies from insured to insured. The declarations page is also known as the information page. Often informally referred to as the “dec” or “dec page.”
Deductible – An amount the insurer will deduct from the loss before paying up to its policy limits. Most property insurance policies contain a per-occurrence deductible provision that stipulates that the deductible amount specified in the policy declarations will be subtracted from each covered loss in determining the amount of the insured’s loss recovery. Usually, the amount of the deductible is not subtracted from policy limits.
Depreciation – The decrease in the value of property over a period of time, usually as result of age, wear and tear from use, or economic obsolescence. Actual physical depreciation (wear and tear from use) is subtracted from the replacement cost of insured property in determining its actual cash value (ACV); courts in some jurisdictions have allowed insurers to deduct depreciation due to economic obsolescence as well.
Directors and Officers Liability Insurance/D&O
Directors and Officers Liability Insurance/D&O – Directors and officers liability insurance (D&O) covers directors and officers of a company for negligent acts or omissions and for misleading statements that result in suits against the company. There are a variety of D&O coverages. Corporate reimbursement coverage indemnifies directors and officers of the organization. Side-A coverage provides D&O coverage for personal liability when directors and officers are not indemnified by the firm. Entity coverage, for claims made specifically against the company, is also available. D&O policies may be broadened to include coverage for employment practices liability.
Endorsement – An insurance policy form that either changes or adds to the provisions included in one or more other forms used to construct the policy, such as the declarations page or the coverage form. Insurance policy endorsements may serve any number of functions, including broadening the scope of coverage, limiting or restricting the scope of coverage, clarifying the application of coverage to some unique loss exposure, adding other parties as insureds, or adding locations to the policy. They often effect these changes by modifying the existing insuring agreement, policy definitions, exclusions, or conditions in the coverage form or adding additional information, such as insured locations, to the declarations page.
Exclusion – A provision of an insurance policy or bond referring to hazards, perils, circumstances, or property not covered by the policy. Exclusions are usually contained in the coverage form or causes of loss form used to construct the insurance policy.
Fire Insurance – Coverage protecting property against losses caused by a fire or lightning that is usually included in homeowners or commercial multiple peril policies.
Generic Auto Parts
Generic Auto Parts – Auto crash parts produced by firms that are not associated with car manufacturers. Insurers consider these parts, when certified, at least as good as those that come from the original equipment manufacturer (OEM). They are often cheaper than the identical part produced by the OEM.
Hazard – Conditions that increase the probability of loss. Examples include poor housekeeping in a factory and inadequate lighting in a crime-prone area.
Hurricane/Named Storm Deductible
Hurricane / Named Storm Deductible – A percentage or dollar amount added to a homeowner’s insurance policy to limit an insurer’s exposure to loss from a hurricane. Higher deductibles are instituted in higher risk areas, such as coastal regions. Specific details, such as the intensity of the storm for the deductible to be triggered and the extent of the high risk area, vary from insurer to insurer and state to state.
Indemnification – (1) In policies written on an indemnification basis, the insurer reimburses the insured for claims and claim costs already paid by the insured. Technically, the insured must not only suffer a loss but must also pay the loss before being indemnified by the insurer. (2) The agreement of one party to assume financial responsibility for the liability of another party. Hold harmless agreements are typically used to impose this transfer of risk.
Inland Marine Coverage
Inland Marine Coverage – Property insurance for property in transit over land, certain types of moveable property, instrumentalities of transportation (such as bridges, roads, and piers, instrumentalities of communication (such as television and radio towers), and legal liability exposures of bailees. Many inland marine coverage forms provide coverage without regard to the location of the covered property; these are sometimes called “floater” policies. As a group, inland marine coverage forms are generally broader than property coverage forms.
Insurable Interest – An interest by the insured person in the value of the subject of insurance, including any legal or financial relationship. Insurable interest usually results from property rights, contract rights, and potential legal liability.
Insured – The person(s) protected under an insurance contract.
Insurer – The insurance company that undertakes to indemnify for losses and perform other insurance-related operations.
Lapse – Termination of an insurance policy due to the insured’s failure to pay the premium.
Liability Insurance – Insurance for what the policyholder is legally obligated to pay because of bodily injury or property damage caused to another person.
Limits – Maximum amount of insurance that can be paid for a covered loss.
Loss – A reduction in the quality or value of a property, or a legal liability.
Loss Assessment – A property owner’s share of a loss to property owned in common by all members of a property owners association. Homeowners policies and condominium unit owners policies typically provide a small amount of coverage for such assessments, with additional amounts available by endorsement for an additional premium.
Loss of Use (property)
Loss of Use (property) – A provision in homeowners and renters insurance policies that reimburses policyholders for any extra living expenses due to having to live elsewhere while their home is being restored following a disaster.
Market Value – The price that would have to be paid to purchase an asset in its particular market.
Medical Payments to Others (homeowners)
Medical Payments to Others (homeowners) – Coverage designed to pay for medical expenses to others who are accidentally injured on an insured location or by the activities of an insured, resident employee, or an animal owned by or in the care of an insured. These payments are not based on the law of negligence; that is, no negligence on the part of the insured has to be proven for payment to be made.
Misrepresentation – A false or misleading statement that, if intentional and material, can allow the insurer to void the insurance contract. Some insurance policies and state laws that govern insurance contract provisions vary on the exact details of the conditions under which coverage may be voided; these variations are usually denoted in state amendatory endorsements.
Named Insured – Any person, firm, or organization, or any of its members specifically designated by name as an insured(s) in an insurance policy, as distinguished from others that, although unnamed, fall within the policy definition of an “insured.”
Named Non-Owner Coverage
Named Non-Owner Coverage – A personal auto policy (PAP) or an endorsement to a PAP that provides auto liability coverage for an individual who does not own a car but may operate borrowed or rented vehicles.
Named Perils Coverage
Named Perils Coverage – A property insurance term referring to policies that provide coverage only for loss caused by the perils specifically listed as covered. It contrasts with all risks coverage, which applies to loss from all causes not specifically listed as excluded.
Notice of Loss
Notice of Loss – A written notice required by insurance companies immediately after an accident or other loss. Part of the standard provisions defining a policyholder’s responsibilities after a loss.
Ordinance or Law Coverage
Ordinance or Law Coverage – Coverage for loss caused by enforcement of ordinances or laws regulating construction and repair of damaged buildings. Older structures that are damaged may need upgraded electrical; heating, ventilating, and air-conditioning (HVAC); and plumbing units based on city codes. Many communities have a building ordinance(s) requiring that a building that has been damaged to a specified extent (typically 50 percent) must be demolished and rebuilt in accordance with current building codes rather than simply repaired. Unendorsed, standard commercial property insurance forms do not cover the loss of the undamaged portion of the building, the cost of demolishing that undamaged portion of the building, or the increased cost of rebuilding the entire structure in accordance with current building codes. However, coverage for these loss exposures is widely available by endorsement. Standard homeowners policies include a provision granting a limited amount of building ordinance coverage; this amount can be increased by endorsement. Also referred to as building ordinance coverage.
Personal Property – All tangible property not classified as real property.
Personal Umbrella Policy
Personal Umbrella Policy– Provides high limits of liability to protect an insured against a catastrophic liability loss. This policy grants liability coverage that stacks on top of the primary liability coverage provided by the insured’s homeowners, personal auto, watercraft, and any other scheduled underlying liability policies. It covers bodily injury (BI), property damage (PD), and personal injury (PI), which includes offenses such as libel, slander, false arrest, invasion of privacy, and others. The umbrella policy also fills some gaps in coverage over a specified deductible (often called a retained limit) in the underlying policy.
Policy – A written contract for insurance between an insurance company and policyholder stating details of coverage.
Policy Conditions – The section of an insurance policy that identifies general requirements of an insured and the insurer on matters such as loss reporting and settlement, property valuation, other insurance, subrogation rights, and cancellation and nonrenewal. The policy conditions are usually stipulated in the coverage form of the insurance policy.
Policyholder – Person in actual possession of insurance policy; policy owner.
Premium – The amount of money an insurer charges to provide the coverage described in the policy or bond.
Renters Insurance (tenants insurance)
Renters Insurance (tenants insurance) – A form of insurance that covers a policyholder’s belongings against perils such as fire, theft, windstorm, hail, explosion, vandalism, riots, and others. It also provides personal liability coverage for damage the policyholder or dependents cause to third parties. It also provides additional living expenses, known as loss-of-use coverage, if a policyholder must move while his or her dwelling is repaired. It also can include coverage for property improvements. Possessions can be covered for their replacement cost or the actual cash value that includes depreciation.
Replacement Cost –Insurance that pays the dollar amount needed to replace damaged personal property or dwelling property without deducting for depreciation but limited by the maximum dollar amount shown on the declarations page of the policy.
Severity – Size of a loss. One of the criteria used in calculating premiums rates.
Term Life Insurance
Term Life Insurance – A form of life insurance that covers the insured person for a certain period of time, the “term” that is specified in the policy. It pays a benefit to a designated beneficiary only when the insured dies within that specified period which can be one, five, 10 or even 20 years. Term life policies are renewable but premiums increase with age.
Umbrella policy – Coverage for losses above the limit of an underlying policy or policies such as homeowners and auto insurance. While it applies to losses over the dollar amount in the underlying policies, terms of coverage are sometimes broader than those of underlying policies.
Underinsurance – The result of the policyholder’s failure to buy sufficient insurance. An underinsured policyholder may only receive part of the cost of replacing or repairing damaged items covered in the policy.
Underwriting – Examining, accepting, or rejecting insurance risks and classifying the ones that are accepted, in order to charge appropriate premiums for them.
Uninsured Motorists Coverage
Uninsured Motorists Coverage – Portion of an auto insurance policy that protects a policyholder from uninsured and hit-and-run drivers.
Universal Life Insurance
Universal Life Insurance – A flexible premium policy that combines protection against premature death with a type of savings vehicle, known as a cash value account, that typically earns a money market rate of interest. Death benefits can be changed during the life of the policy within limits, generally subject to a medical examination. Once funds accumulate in the cash value account, the premium can be paid at any time but the policy will lapse if there isn’t enough money to cover annual mortality charges and administrative costs.
Valued Policy – A policy under which the insurer pays a specified amount of money to or on behalf of the insured upon the occurrence of a defined loss. The money amount is not related to the extent of the loss. Life insurance policies are an example.
Void – A policy contract that for some reason specified in the policy becomes free of all legal effect. One example under which a policy could be voided is when information a policyholder provided is proven untrue.
Waiver – The surrender of a right or privilege. In life insurance, a provision that sets certain conditions, such as disablement, which allow coverage to remain in force without payment of premiums.
Water-damage Insurance Coverage
Water-damage Insurance Coverage – Protection provided in most homeowners insurance policies against sudden and accidental water damage, from burst pipes for example. Does not cover damage from problems resulting from a lack of proper maintenance such as dripping air conditioners. Water damage from floods is covered under separate flood insurance policies issued by the federal government.