Insurance Terms

Actual Cash Value

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

Adjuster

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

Agent

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

Aggregate

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

ALAE

An estimate of the claims settlement associated with a particular claim or claims.

All-Risk

Also known as open peril, this type of policy covers a broad range of losses. The policy covers risks not explicitly excluded in the policy contract.

Appraisal

An estimate of value.

Assessed Value

Estimated value for real or personal property established by a taxing entity

Assumed Reinsurance

The assumption of risk from another insurance entity within a reinsurance agreement or treaty.

Authorized Reinsurance

Reinsurance placed with a reinsurer who is licensed or otherwise allowed to conduct reinsurance within a state.

Bodily Injury

Physical injury including sickness or disease to a person.

Burglary and Theft

Coverage for property taken or destroyed by breaking and entering the insured’s premises, burglary or theft, forgery or counterfeiting, fraud, kidnap and ransom, and off-premises exposure.

Catastrophe Loss

A large magnitude loss with little ability to forecast.

Claim

A request made by the insured for insurer remittance of payment due to loss incurred and covered under the policy agreement.

Conditions

Requirements specified in the insurance contract that must be upheld by the insured to qualify for indemnification.

Date of Issue

Date when an insurance company issues a policy.

Declarations

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

Deductible

Portion of the insured loss (in dollars) paid by the policyholder

Direct Incurred Loss

Loss whereby the proximate cause is equivalent to the insured peril.

Direct Loss

Damage to covered real or personal property caused by a covered peril.

Dwelling Property/Personal Liability

A special form of package policy composed of dwelling fire and/or allied lines, and personal liability insurance.

Earthquake

Property coverages for losses resulting from a sudden trembling or shaking of the earth,  including that caused by volcanic eruption. Excluded are losses resulting from fire, explosion, flood or tidal wave following the covered event.

Effective Date

Date at which an insurance policy goes into force.

Endorsement

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

Exposure

Risk of possible loss.

FAIR Plan - Fair Access to Insurance Requirements

Physical injury including sickness or disease to a person.

Federal Flood Insurance

Coverage for property taken or destroyed by breaking and entering the insured’s premises, burglary or theft, forgery or counterfeiting, fraud, kidnap and ransom, and off-premises exposure.

FEMA - Federal Emergency Management Agency

An independent agency, tasked with responding to, planning for, mitigating and recovery efforts of natural disasters.

Financial Reporting

Insurance companies are required to maintain records and file annual and quarterly financial statements with regulators in accordance with statutory accounting principles (SAP). Statutory rules also govern how insurers should establish reserves for invested assets and claims and the conditions under which they can claim credit for reinsurance ceded.

Fire

Coverage protecting the insured against the loss to real or personal property from damage caused by the peril of fire or lightning, including business interruption, loss of rents, etc.

Flood

Coverage protecting the insured against loss or damage to real or personal property from flood. Notice: flood insurance is a separate policy from your homeowners/dwelling policy.

Hazard

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

Homeowners Insurance

A package policy combining real and personal property coverage with personal liability coverage. Coverage applicable to the dwelling, appurtenant structures, unscheduled personal property and additional living expense are typical.

Indemnity, Principle of

A general legal principle related to insurance that holds that the individual recovering under an insurance policy should be restored to the approximate financial position he or she was in prior to the loss. Legal principle limiting compensation for damages be equivalent to the losses incurred.

Independent Adjuster

Freelance contractor paid a fee for adjusting losses on behalf of companies.

Independent Agent

A representative of multiple insurance companies who sells and services policies for records which they own and operate under the American Agency System.

Independent Contractor

An individual who is not employed for a company but instead works for themselves providing goods or services to clients for a fee.

Insurable Interest

A right or relationship in regard to the subject matter of the insured contract such that the insured can suffer a financial loss from damage, loss or destruction to it.

Insurance

An economic device transferring risk from an individual to a company and reducing the uncertainty of risk via pooling.

Insurance Regulatory Information System (IRIS)

A baseline solvency screening system for the National Association of Insurance Commissioners (NAIC) and state insurance regulators established in the mid-1970s.

Insurance to Value

Amount of insurance purchased vs. the actual replacement cost of the insured property expressed as a ratio.

Insured

Party(ies) covered by an insurance policy.

Insurer

An insurer or reinsurer authorized to write property and/or casualty insurance under the laws of any state.

Lapse

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

Liability

The state of being responsible for something, especially by law.

Limits

Maximum value to be derived from a policy.

Lloyd’s of London

Association offering membership in various syndicates of wealthy individuals organized for the purpose of writing insurance for a particular hazard.

Loss

Physical damage to property or bodily injury, Including loss of use or loss of income.

Loss Frequency

Incidence of claims on a policy during a premium period.

Loss of Use Insurance

Policy providing protection against loss of use due to damage or destruction of property.

Market Value

Fair value or the price that could be derived from current sale of an asset.

Morale Hazard

Negligence or disregard on the part of the insured which could lead to probable loss.

Mortgage

A note used to secure a loan for real property.

Named Insured

The individual defined as the insured in the policy contract.

Named Peril Coverage

Insurance for losses explicitly defined in the policy contract.

National Association of Insurance Commissioners (NAIC)

The U.S. standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer review, and coordinate their regulatory oversight. NAIC staff supports these efforts and represents the collective views of state regulators domestically and internationally. NAIC members, together with the central resources of the NAIC, form the national system of state-based insurance regulation in the U.S.

Negligence

Failure to exercise reasonable consideration resulting in loss or damage to oneself or others.

NFIP - National Flood Insurance Program

Flood insurance and floodplain management for personal and business property administered under the National Flood Act of 1968. Encourages participation by private insurers through a flood insurance pool. Notice: flood insurance is a separate policy from your homeowners/dwelling policy.

Occurrence

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

Owner Occupied

Homeowners insurance sold to owners occupying the described property.

Peril

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

Personal Earthquake

Earthquake property coverage for personal, family or household purposes.

Personal Flood

Separate flood insurance policy sold for personal, family or household purposes. Notice: flood insurance is a separate policy from your homeowners/dwelling policy.

Personal Injury Liability

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

Personal Property

Property owned or used by an insured

Policy

A written contract ratifying the legality of an insurance agreement.

Policy Period

Time period during which insurance coverage is in effect.

Preferred Risk

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

Premium

Money charged for the insurance coverage reflecting expectation of loss.

Producer

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

Property

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

Provisions

Contingencies outlined in an insurance policy.

Rate

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

Rebate

A refund of part or all of a premium payment.

Reinsurance

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

Reinsurer

Company assuming reinsurance risk.

Replacement Cost

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

Reported Losses

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

Rider

An amendment to a policy agreement.

Risk

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

Salvage

Value recoverable after a loss.

Standard Risk

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

Subrogation

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

Subrogation Clause

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

Tenants

Homeowners insurance sold to tenants occupying the described property.

Term

Period of time for which policy is in effect.

Underwriter

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

Underwriting

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

Unpaid Losses

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