A glossary of insurance terms.

This page provides a glossary of insurance terms and definitions that are commonly used in the insurance business.

ACCIDENT: An unexpected event or circumstance without deliberate intent.

ACCREDITED CUSTOMER SERVICE REPRESENTATIVE (ACSR): Is a professional designation awarded by the National Alliance for Insurance Education and Research. To receive the designation, designates must attend 7, one day classes and pass the corresponding multiple choice exam.

ACTIVE SHOOTER INSURANCE: Covers the liability that companies or institutions have if they are found not to have taken the needed precautions to prevent gun rampages. It also covers the “on the scene” costs of a shooting incident, as well as the expense of any counseling or consulting that would be needed after a tragic event.

ACTUAL CASH VALUE (ACV): Repayment value for loss or damage to property; in most cases it is replacement cost minus depreciation.

ACTUAL LOSS SUSTAINED*: You will have coverage for your actual loss of business income for up to 12 months. In other words, you do not have to go through the process of setting a separate limit as long as it doesn’t exceed 12 months.

ACTUARY: Business professional who analyzes probabilities of risk and risk management including calculation of premiums, dividends and other applicable insurance industry standards.

ADDITIONAL LIVING EXPENSES: Coverage under a homeowner’s or renter’s insurance policy that covers the additional costs of living that are incurred by the policy holder should the policy holder be temporarily displaced from their place of residence due to a covered cause of loss.

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

ADMITTED COMPANY: An insurance company licensed to do business in a state(s), domiciled in an alternative state or country.

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 multiple losses, during a policy period.

AGREED AMOUNT: A property insurance provision in which the insurer agrees to waive the co-insurance requirement.

ALIEN COMPANY: An insurance company formed according to the laws of a foreign country. The company must conform to state regulatory standards to legally sell insurance products in that state.

ALL IN COVERAGE: The broadest coverage available for a condominium, offering coverage for not only the structure itself, but all fixtures, as well as improvements and betterments that are part of the building or structure, including floor coverings, wall coverings, fixtures, cabinetry, and built-in appliances such as those used for refrigerating, ventilating, cooking, dishwashing, and laundering, on a regardless of ownership basis. In other words, all interior fixtures and built-ins that become a permanent part of the unit would be covered.

AM BEST RATING*: An evaluation published by AM Best Company of all life, property, and casualty insurers domiciled in the United States and US branches of foreign property insurer groups active in the United States. The ratings are often used to determine the claims – paying ability, suitability, service record, and financial stability of insurance companies.

APPRAISAL: An estimate of value.

ARBITRATION: A binding dispute resolution tactic whereby a conciliator with no interest in the outcome intercedes.

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

AUTHORIZED COMPANY: An insurer licensed or admitted to do business in a particular state.

AUTO PHYSICAL DAMAGE: Coverage (including collision, vandalism, fire and theft) that insures against material damage to the insured’s vehicle.

AUTOMOBILE LIABILITY INSURANCE: Coverage for bodily injury and property damage incurred through ownership or operation of a vehicle.

BACK-UP OF SEWERS & DRAINS: Water or water-borne material which backs up through sewers or drains or which overflows or is discharged from a sump, sump pump or related equipment.

BARE WALLS: In addition to the structure, coverage is only provided up to the drywall of the exterior walls of the unit, often not including the finished surfaces and/or interior walls of the unit. The owners have to have more insurance and the condominium less when the governing documents indicate the master policy must be written this way.

BLANKET COVERAGE: A single policy on an insured property that covers more than one type of property at the same location, the same kind of property at more than one location, or two or more kinds or property at two or more locations.

BOATOWNERS/PERSONAL WATERCRAFT: Covers damage to pleasure boats, motors, trailers, boating equipment and personal watercraft as well as bodily injury and property damage liability to others.

BODILY INJURY: Physical injury including sickness, death or disease to a person.

BOILER & MACHINERY: See Systems Breakdown.

BROKER: An individual who receives commissions from the sale and service of insurance policies. These individuals work on behalf of the customer and are not restricted to selling policies for a specific company but commissions are paid by the company with which the sale was made.

BUILDER’S RISK POLICY: Insures against loss to buildings and materials incidental while in the course of construction.

BUILDERS SPEC A.K.A. ORIGINAL SPECIFICATIONS A.K.A. SINGLE ENTITY: Under this type of policy, the building would be rebuilt in accordance with the condominium’s original plans and specifications. Coverage would include property which was originally included in the “units” as they were initially constructed. Any improvements or betterments made by the current or prior owners, would be the owner’s responsibility.

BUILDING LIMIT*: A building limit is the maximum amount of money an insurance company will pay you for a covered loss.

BUSINESS INCOME*: Provides coverage for loss of income due to a covered claim. Income includes maintenance fees, rental income, sublet fees, laundry room income and parking fees.

BUSINESS INTERRUPTION: Covers loss of income that cannot be collected as a result of property damage from a covered cause of loss.

BUSINESS OWNERS POLICY: A policy that includes Property, General Liability and Business Interruption coverage.

CASUALTY INSURANCE: Liability insurance providing coverage for negligent acts and omissions by an insured individual or organization.

CATASTROPHE LOSS: A large magnitude loss with little ability to forecast.

CEDED PREMIUM: Amount of premium an insurance (ceded) company pays to purchase reinsurance.

CEDING COMPANY: An insurance company that transfers risk by purchasing reinsurance.

CERTIFICATE OF INSURANCE: A certificate of insurance is a document issued by an insurance company/broker that is used to verify the existence of insurance coverage under specific conditions granted to listed individuals.

CERTIFIED INSURANCE COUNSELOR: Is a professional designation awarded by the National Alliance for Insurance Education & Research. To receive the designation, designates must pass five CIC institutes, each consisting of 2½ days of coursework, followed by a 2-hour essay exam.

CHARTERED PROPERTY CASUALTY UNDERWRITER (CPCU): A professional designation awarded by the American Institute of Property and Casualty Underwriters to persons in the property and liability insurance field who pass a series of exams in insurance, risk management, economics, finance, management, accounting, and law. Designates must also have at least three years experience in the insurance business or related field.

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

CLAIMS-MADE POLICY: A liability insurance policy that is triggered at the time a claim is made, rather than at the time the injury or damage occurs.

COINSURANCE: A clause contained in some property insurance policies to encourage policy holders to carry a reasonable amount of insurance. If the insured fails to maintain the amount specified in the clause (usually at least 80%), the insured is penalized and shares a higher proportion of the loss.

COMBINED RATIO: An indication of the profitability of an insurance company, calculated by adding the loss and expense ratios.

COMMERCIAL AUTO INSURANCE: Liability insurance covering injuries or property damage suffered by others in an accident caused by you or your employee while driving a covered auto.

COMMERCIAL PACKAGE POLICY: Provides a broad package of property and liability coverages which typically can be added on an ala carte basis and rated accordingly.

COMMERCIAL PROPERTY: Protects covered property from damages resulting from covered perils such as fire, theft and natural disaster.

COMMERCIAL UMBRELLA: A policy designed to provide protection against catastrophic losses. It generally is written over various primary liability policies, such as the General Liability, Business Auto, Directors & Officers Liability and Employers Liability coverage.

COMMISSION: A percentage of premium paid to agents by insurance companies for the sale of policies.

COMPUTER FRAUD & WIRE TRANSFER*: Insures against theft of money, securities, or property by using a computer to transfer covered property from the insured’s premises or bank to another person or place. No coverage is provided for theft of information or for computer vandalism.

CONCURRENT CAUSATION: Property loss incurred from two or more perils in which only one loss is covered but both are paid by the insurer due to simultaneous incident.

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

CONDOMINIUM: A building or complex of buildings containing a number of individually owned apartments or houses. Use of land access to common facilities such as hallways, elevators, exterior areas and amenities are executed under legal rights associated with the individual ownership.

CONTRACTUAL LIABILITY: Liability coverage of an insured who has assumed the legal liability of another party by written or oral contract.

COOPERATIVE: A type of residence where the buyer owns shares in the corporation that owns the building and signs a proprietary lease, which gives them the right to live in a specific unit. The buyer does not actually own the unit. As part of their membership as a shareholder in the cooperative, they generally have access to any amenities.

COVERED CAUSE OF LOSS: The basic and broad causes of loss forms are named perils forms; they provide coverage for loss from only the particular causes that are listed in the policy as covered. The special causes of loss form provides coverage for loss from any cause except those that are specifically excluded.

CYBER LIABILITY A.K.A. DATA BREACH: Most often covers an insured’s liability for a data breach in which personal information in their possession, such as Social Security or credit card numbers, is exposed or stolen by a hacker or other criminal who has gained access to either the electronic network or paper files.

DATE OF ISSUE: Date when an insurance company issues a policy.

DECLARATIONS: The front page(s) 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.

DEDUCTIBLE: Portion of an insured loss that is required to be paid by the policy holder.

DEMOLITION COST: Cost to demolish the undamaged portion of the building in the event it must be demolished due to a covered cause of loss.

DIFFERENCE IN CONDITIONS (DIC) INSURANCE: An insurance policy or coverages that provide expanded coverage for some perils that are not covered by standard insurance policies. Difference in conditions insurance is designed to fill in gaps in insurance coverage, and is most frequently used for protection from catastrophic perils such as flood and earthquake coverage.

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

DIRECT WRITER: An insurance company that sells policies to the insured directly through salaried representatives or exclusive agents only.

DIRECTORS & OFFICERS LIABILITY: Liability coverage protecting directors or officers of a corporation from liability arising out of the performance of their professional duties on behalf of the corporation.

DOMESTIC INSURER: An insurance company that is domiciled and licensed in the state in which it sells insurance.

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

EARTHQUAKE: Property coverages for losses resulting from a sudden trembling or shaking of the earth, including that caused by volcanic eruption.

EDP POLICIES: Coverage to protect against losses arising out of damage to or destruction of electronic data processing equipment and its software.

EFFECTIVE DATE: Date at which an insurance policy goes into force.

EMPLOYEE BENEFIT LIABILITY A.K.A. EBL: A type of professional liability insurance which covers an insured in the event of a claim which may arise out of errors and/or omissions in the administration of a benefit plan, such as group health, dental, etc.

EMPLOYEE DISHONESTY*: Coverage for employee theft of money, securities, or property, written with a per loss limit, a per employee limit, or a per position limit. Employee Dishonesty Coverage is one of the key coverages provided in a commercial crime policy.

EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 (ERISA): A federal statute governing standards for private pension plans, including vesting requirements, funding mechanisms, and plan design.

EMPLOYEE THEFT*: Coverage insures an employer against theft of its property by its own employees.

EMPLOYERS LIABILITY: Employers’ liability provides coverage for the legal liability of employers arising out of injuries to employees. It is a portion of the Workers Compensation policy.

EMPLOYMENT PRACTICES LIABILITY COVERAGE: Liability insurance for employers providing coverage for wrongful termination, discrimination, or sexual harassment of the insured’s current or former employees.

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

ENVIRONMENTAL IMPAIRMENT LIABILITY (EIL): Coverage for negligence or omission resulting in pollution or environmental contamination.

ERRORS AND OMISSIONS LIABILITY | PROFESSIONAL LIABILITY OTHER THAN MEDICAL: Liability coverage of a professional or quasi professional insured to persons who have sustained a loss from omissions arising from the performance of services for others, errors in judgment, breaches of duty, or negligent or wrongful acts in business.

EXCESS LIABILITY: A policy issued to provide limits in excess of an underlying liability policy. The underlying liability policy can be, and often is, an umbrella liability policy. An excess liability policy is no broader than the underlying liability policy; its sole purpose is to provide additional limits of insurance.

EXPERIENCE MODIFICATION (MOD): An experience mod is a multiplier within a Workers Compensation policy applied to the premium and provides an incentive for loss prevention. It represents either a credit or debit that is applied to the premium before discounts. If a company’s loss experience is more costly on the average than other company’s loss experience in that industry, the result is a debit or surcharge on premiums. If a company’s experience is less costly than the industry average, they will receive a credit or discount on their premium. Basically, the insured’s loss experience is compared to the loss experience of the industry.

EXPERIENCE RATING: Rating system within a Workers Compensation policy where each company is rated entirely on the basis of its own expected claims in the coming period, with retrospective adjustments for prior periods.

EXPOSURE: Risk of possible loss.

EXTENDED REPLACEMENT COST*: Increases the Building Limit by specified % in the event coverage is needed.

EXTRA EXPENSE INSURANCE: A type of property insurance for extraordinary expenses related to business interruption such as a back-up generator in case of power failure that results from a covered cause of loss.

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

FEMA: Federal Emergency Management Agency – An independent agency, tasked with responding to, planning for, mitigating and recovery efforts of natural disasters.

FIDELITY A.K.A CRIME OR EMPLOYEE DISHONESTY: A bond or policy covering an employer’s loss resulting from an employee’s dishonest act (e.g., loss of cash, securities, valuables, etc.).

FIRE: Coverage protecting the insured against the loss to real or personal property from damage caused by the peril of fire.

FIRE LEGAL LIABILITY A.K.A DAMAGE TO PREMISES RENTED TO YOU: One of the limits of Liability prescribed by the standard Commercial General Liability policy. It applies to damage by fire to premises rented to the insured and to damage regardless of cause to premises (including contents) occupied by the insured for 7 days or less. Does not apply to a cooperative or condominium, only the commercial spaces that rent/lease space in the building.

FLOOD (FEMA): Either a general and temporary condition of partial or complete inundation of 2 or more acres of normally dry land area or of 2 or more properties (at least 1 of which is the policyholder’s property) from:

  • Overflow of inland or tidal waters
  • Unusual and rapid accumulation or runoff of surface waters from any source
  • Mudflow
  • A collapse or subsidence of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels that result in a flood as defined above.

FLOOD INSURANCE: Coverage protecting the insured against loss or damage to real or personal property from flood. In some instances, it may be offered as an additional peril on a property insurance policy

FOREIGN INSURER: An insurance company selling policies in a state other than the state in which they are incorporated or domiciled.

FORGERY & ALTERATION*: Covers loss due to dishonesty in writing, signing, or altering checks, bank drafts, and other financial instruments through Coverage Form B.

FRONTING: An arrangement in which a primary insurer acts as the insurer of record by issuing a policy, but then passes the entire risk to a reinsurer in exchange for a commission. Often, the fronting insurer is licensed to do business in a state or country where the risk is located, but the reinsurer is not.

FUNDS TRANSFER FRAUD*: Provides coverage for the loss of money and securities sustained by an insured that has been commited by a third party.

GARAGE KEEPERS LEGAL LIABILITY (GKLL): Coverage for a garage business for loss to a customer’s auto left in the insured’s care, custody or control. The policy clarifies that by stating, “while the insured is attending, servicing, repairing, parking or storing it in your garage operations.” A necessity when providing valet parking services.

GENERAL LIABILITY: A part of the general insurance system of risk financing to protect the insured from the risks of liabilities, such as legal fees and judgments in the event an insured is sued for claims that come within the coverage of the insurance policy.

GUARANTY FUND: Funding mechanism employed by states to provide funds to cover policyholder obligations of insolvent reporting entities.

HARD MARKET: A market characterized by high demand and low supply. Premiums tend to increase.

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

HIRED & NON-OWNED AUTO LIABILITY: Covers bodily injury and property damage caused by a vehicle you hire (including rented or borrowed vehicles) or caused by non-owned vehicles (vehicles owned by others, including vehicles owned by your employees).

HOLD-HARMLESS AGREEMENT: A risk transfer mechanism whereby one party assumes the liability of another party by contract.

HOMEOWNERS INSURANCE: A package policy combining real and personal property coverage with personal liability coverage. Coverage is applicable to the dwelling, appurtenant structures, unscheduled personal property, additional living expense and Personal Liability typically.

IMPROVEMENTS OR BETTERMENTS COVERAGE A.K.A. ADDITIONS & ALTERATIONS: A coverage within the HO-6 Condominium Unitowners Homeowner’s policy. It provides coverage for damage to what an owner, whether in a co-op or condominium, is responsible for within the unit.

INCREASED COST OF CONSTRUCTION: A part of Ordinance or law. Provides coverage for the cost to bring the building up to code in the event of a covered cause of loss.

INCURRED BUT NOT REPORTED (IBNR): Claims that have occurred but the insurer has not been notified of them at the reporting date. Estimates are established to book these claims.

INCURRED LOSSES: Sustained losses, paid or not, during a specified time period.

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.

INLAND MARINE: Coverage for property that may be in transit, held by a bailee, at a fixed location, a movable good that is often at different locations (e.g., off road constructions equipment), or scheduled property (e.g., Homeowners Personal Property Floater) including items such as property with antique or collector’s value, etc.

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 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.

KIDNAP/RANSOM INSURANCE: Coverage for ransom or extortion costs and related expenses.

LAPSE: The time between policies when there is no coverage for the insured, due to non-payment of the required renewal premium.

LEAD PAINT LIABILITY: Coverage for third party suits lodged for bodily injury due to lead paint. Does not provide coverage for remediation.

LIMITS: Maximum value to be derived from a policy.

LIQUOR LIABILITY: Coverage for the liability of an entity involved in the retail or wholesale sales of alcoholic beverages, or the serving of alcoholic beverages, to persons who have incurred bodily injury or property damage arising from an intoxicated person.

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 ASSESSMENT: Loss assessment is a coverage within the homeowner’s policy for a co-op or condominium unit owner. In the event the community association does not maintain adequate coverage for a covered cause of loss, such as a hurricane, the association may assess the owners to make up for the deficit. If this happens, Loss Assessment will provide the owner with coverage for their share of the assessment, up to the limit maintained and as long as the damage was from a covered cause of loss under the homeowner’s policy.

LOSS FREQUENCY: Incidence of claims on a policy during a premium period.

LOSS PAYEE: A person or entity that is entitled to all or part of the insurance proceeds in connection with the covered property in which it has an interest. Often those asking to be named as loss payees have leased some type of equipment to the insured—a photocopy machine, for example. A loss payee is also common in a Personal Auto policy in which the automobile is financed. The lending institution would require the insured to list them as the Loss Payee.

LOSS RATIO: The percentage of incurred losses to earned premiums.

LOSS TO THE UNDAMAGED PORTION: A part of Ordinance or Law. Covers the value of the undamaged portion of building in the event the building needs to be demolished.

LOSSES INCURRED BUT NOT REPORTED (IBNR): An estimated amount set aside by the insurance company to pay claims that may have occurred, but for some reason have not yet been reported to the insurance company.

MANDATED BENEFITS: Insurance required by state or federal law

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

MEDICAL PAYMENTS COVERAGE: Coverage pays medical expenses resulting from bodily injury caused by an accident on premises owned or rented by the insured, or locations next to such property, or when caused by the insured’s operations. These payments are made without regard to the liability of the insured.

MINIMUM EARNED PREMIUM: The minimum earned premium is the smallest amount of money an insurance company is willing to accept for writing a business insurance policy. The minimum earned premium becomes an issue mainly when named insured decides to cancel a policy before its expiration date.

MOLD COVERAGE: Coverage for mold remediation may be covered under the Property policy, depending on circumstances and defense and judgments from a mold related suit may be covered under the General Liability, depending on circumstances.

MORAL HAZARD: Personality characteristics that increase probability of losses. For example not taking proper care to protect insured property because the insured knows the insurance company will replace it if it is damaged or stolen.

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

MORTGAGE GUARANTY: Insurance that indemnifies a lender for loss upon foreclosure if a borrower fails to meet required mortgage payments.

MUTUAL INSURANCE COMPANY: A privately held insurer owned by its policyholders, operated as a non-profit that may or may not be incorporated.

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 PERIL COVERAGE: Insurance for losses explicitly defined in the policy contract. All perils not named are excluded.

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

NET PREMIUMS EARNED: Premiums on a policy that will not have to be returned to the policyholder if the policy is cancelled.

NON-ADMITTED INSURER: Insurance company not licensed to do business within a given state.

OCCURRENCE: An accident, including continuous or repeated exposure, which results during the policy period in bodily injury or property damage neither expected or intended from the standpoint of the insured.

ORDINANCE OR LAW: Consists of three parts, Coverage A: Loss to the Undamaged Portion – Covers the value of the undamaged portion of building in the event the building needs to be demolished. Coverage B: Demolition Cost – Cost to demolish the undamaged portion of building and Coverage C: Increased Cost of Construction – Cost to bring the building up to code in the event of a claim.

PACKAGE POLICY: Two or more distinct policies combined into a single contract.

PERIL A.K.A CAUSE OF LOSS: The cause of property damage or personal injury, origin of desire for insurance.

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

PERSONAL INJURY PROTECTION COVERAGE/PIP: Automobile coverage available in states that have enacted no-fault laws or other auto reparation reform laws for treatment of injuries to the insured and passengers of the insured.

PERSONAL LIABILITY: Provides coverage for bodily injury and property damage sustained by others for which you or your family members are legally responsible.

PERSONAL PROPERTY: Possessions other than real estate or buildings. Personal property, such as clothing and furniture, is movable and includes tangible and intangible items.

PERSONAL UMBRELLA: A policy designed to provide protection against catastrophic losses. It generally is written over a Homeowner’s policy, Personal Auto policy and a Watercraft policy.

PET INSURANCE PLANS: Veterinary care plan insurance policy providing care for a pet animal (e.g., dog or cat) of the insured owner in the event of its illness or accident.

POLICY: A written contract ratifying the legality of an insurance agreement.

POLICY PERIOD: Time period during which insurance coverage is in effect.

POLLUTION: Environmental contamination.

POOL: An association organized for the purpose of absorbing losses through a risk-sharing mechanism thereby limiting individual exposures.

PREMIUM: Money charged for the insurance coverage reflecting expectation of loss.

PREMISES POLLUTION LIABILITY*: Designed to cover claims arising from pollution releases at, on, or eminating from a specific scheduled location.

PRIMARY INSURANCE: Coverage that takes precedence when more than one policy covers the same loss.

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

PRODUCTS & COMPLETED OPERATIONS LIABILITY: Insurance coverage protecting the manufacturer, distributor, seller, or lessor of a product against legal liability resulting from a defective condition causing bodily injury, or damage, to any individual or entity, associated with the use of the product. Also covers the liability of contractors, plumbers, electricians, repair shops, and similar firms to persons who have incurred bodily injury or property damage from defective work or operations completed or abandoned by or for the insured, away from the insured’s premises.

PROPERTY INSURANCE: Coverage protecting the insured against loss or damage to real or personal property from a covered cause of loss.

PROPERTY DAMAGE LIABILITY: Covers your legal liability if you’re at fault in an accident that involves injury to others property.

PROVISIONS: Contingencies outlined in an insurance policy.

PROXIMATE CAUSE: Event covered under insured’s policy agreement.

PUBLIC ADJUSTER: Independent claims adjuster representing policyholders instead of insurance companies.

PURE RISK: Circumstance including possibility of loss or no loss but no possibility of gain.

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

REBATE: A refund of part or all of a premium payment.

RECOVERABLE DEPRECIATION A.K.A. HOLDBACK: Generally is the difference between Replacement Cost and Actual Cash Value. If the coverage is written on a Replacement Cost basis, the holdback or recoverable depreciation will be paid when the insured has completed repairing the damage to the property and shows proof in the form of paid invoices and canceled checks, to demonstrate that the cost to repair met or exceeded the total Replacement Cost amount of the claim.

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

REINSURER: Company assuming reinsurance risk.

RENTERS INSURANCE: A form of property insurance that provides coverage for a policy holder’s belongings and liability within a rental property.

REPLACEMENT COST VALUE (RCV): The cost of replacing property without a reduction for depreciation due to normal wear and tear.

RESERVATION OF RIGHTS: A reservation of rights letter from your insurer is a notice that even though the company is proceeding to handle your claim, certain losses may not be covered by the terms of your insurance policy.

RESERVE: The amount that insurers set aside to cover claims incurred but not yet paid.

RISK RETENTION GROUP: Group-owned insurer organized for the purpose of assuming and spreading the liability risks to its members.

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

SHORT RATE PENALTY: A short rate cancellation is when a policyholder cancels an insurance policy before the expiration date and they are not entitled to receive a refund proportionate to the period of coverage left in the policy term. It serves as a disincentive to canceling policies midterm.

SHORT TERM DISABILITY INSURANCE: Pays a percentage of an employee’s salary if they become temporarily disabled due to sickness or injury not related to their job. Required in most states if there are any employees on payroll.

SOFT MARKET: A buyer’s market characterized by abundant supply of insurance driving premiums down.

SPECIAL FORM A.K.A OPEN PERIL: Covers a broad range of losses. The policy covers risks not explicitly excluded in the policy contract. If it’s not listed under exclusions, it’s covered.

STATE OF DOMICILE: The state where a company’s home office is located.

STOCK INSURANCE COMPANY: Business owned by stockholders.

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

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

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

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

SYSTEMS BREAKDOWN COVERAGE A.K.A. BOILER & MACHINERY OR EQUIPMENT BREAKDOWN: Protects against breakdowns caused by power surges, motor burnout, boiler malfunction and operator error. It covers all sorts of equipment, including new technology. It provides coverage for mechanical and electrical equipment, computers and communication equipment, air conditioning and refrigeration systems, boilers and pressure equipment. Coverage can pay for 1) The cost to repair or replace the damaged equipment, 2) Costs associated with the time and labor to repair or replace the equipment, 3) Business income losses when a covered breakdown causes a partial or total business interruption, 4) Other expenses incurred to limit loss or speed restoration, 5) The cost to replace spoiled stock or materials.

THEFT, DISAPPEARANCE & DESTRUCTION*: Insures against loss by theft, disappearance, or destruction of the insured’s money and securities inside the insured’s premises (or insured’s bank’s premises) as well as outside the insured’s premises while in the custody of a messenger.

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

TREATY: A reinsurance agreement between the ceding company and reinsurer.

TRIA (TERRORISM RISK INSURANCE ACT): The Terrorism Risk Insurance Act (TRIA) is a United States federal law signed into law by President George W. Bush on November 26, 2002. The Act created a federal “backstop” for insurance claims related to acts of terrorism and in return, insurers must offer Terrorism Insurance.

UMBRELLA: See Commercial Umbrella or Personal Umbrella.

UNDERINSURED MOTORIST COVERAGE: Policy option for bodily injury or property losses caused by a motorist with coverage insufficient to cover total dollar amount of losses. It allows an insured to collect the difference between the losses incurred and the liability covered by the motorist at fault up to the limit maintained in their own policy.

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.

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

UNINSURED MOTORIST COVERAGE: In the event of a qualifying accident, the insurance company pays the difference between what the uninsured driver can pay and what the injured driver (insured) would be entitled to as if the uninsured motorist had proper insurance. May also apply when an individual flees the scene of an accident without leaving sufficient information to identify him or herself, the individual is considered uninsured for the purposes of an uninsured motorist provision and the insured can collect under their own policy up to the limit maintained.

WAIVER OF SUBROGATION: A waiver of subrogation is a special type of endorsement on a property-casualty insurance policy. It prohibits the insurer from attempting to seek restitution from a third party who caused a loss to the insured

WARRANTY: In contract law, a warranty has various meanings but for insurance purposes, it generally means a guarantee or promise which provides assurance by one party to the other party that specific facts or conditions are true or will happen.

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