Glossary Of Insurance Terms
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Actual Cash Value
An amount equivalent to the fair market value of the stolen or damaged property immediately preceding the loss. For real property, this amount can be based on a determination of the fair market value of the property before and after the loss. For vehicles, this amount can be determined by local area private party sales and dealer quotations for comparable vehicles.
Admitted Company
An insurance company authorized to do business in Indiana.
Agent
A licensed person or organization authorized to sell insurance by or on behalf of an insurance company.
Aircraft Insurance
Coverage for the insured in the event that the insured’s negligent acts
and/or omissions result in losses in connection with the use,
ownership, or maintenance of aircraft.
Automobile Insurance
Coverage on the risks associated with driving or owning an automobile.
It can include collision, liability, comprehensive, medical, and
uninsured motorist coverages.
Binder
A temporary or preliminary agreement which provides coverage until a
policy can be written or delivered.
Bodily Injury
Any physical injury to a person. The purpose of liability insurance is
to cover bodily injury to a third party resulting from the negligent
or unintentional acts of an insured.
Boiler and Machinery Insurance
Covers losses resulting from the malfunction of boilers and machinery.
This coverage is usually excluded from property insurance creating the
need for this separate product.
Broker
A licensed person or organization paid by you to look for insurance on
your behalf.
Burglary
Coverage against loss as a result of forced entry into premises.
Cancellation
The termination of insurance coverage during the policy period. Flat
cancellation is the cancellation of a policy as of its effective date,
without any premium charge.
Claim
Notice to an insurer that under the terms of a policy, a loss maybe
covered.
Claimant
The first or third party. That is any person who asserts right of
recovery.
Collision (Auto)
Reimburses you for damage to your
automobile sustained in a collision with another car or with any other
object, movable or fixed, (for example, you accidentally backed into
another object while pulling out from a parking stall and causing
damage to the bumper and fender of your covered automobile).
Collision Deductive Waiver
This coverage waves your collision deductible if you are hit by an
negligent uninsured motorist.
Common Carrier Liability
Coverage for transportation firms that must carry any customer’s goods
so long as the customer is willing to pay. Examples include trucking
companies, bus lines, and airlines.
Comprehensive (Auto)
Provides coverage for any direct and accidental loss of, or damage to, your
covered automobile and its normal equipment, to include but not
limited to fire, theft or malicious mischief.
Comprehensive Glass Insurance
Coverage on an “all risks” basis for glass breakage, subject to
exclusions of war and fire.
Credit Life Insurance
Insurance issued to a creditor (lender) to cover the life of a debtor
(borrower) for an outstanding loan.
Decline
The company refuses to accept the request for insurance coverage.
Deductible
The amount of the loss which the insured is responsible to pay before
benefits from the insurance company are payable. You may choose a
higher deductible to lower your premium.
Depreciation
A decrease in value due to age, wear and tear, etc.
Disability Insurance
Health insurance that provides income payments to the insured wage
earner when income is interrupted or terminated because of illness,
sickness, or accident.
Endorsement
Amendment to the policy used to add or delete coverage. Also referred
to as a “rider.”
Exclusion
Certain causes and conditions, listed in the policy, which are not
covered.
Expiration Date
The date on which the policy ends.
Face Amount
The dollar amount to be paid to the beneficiary when the insured dies.
It does not include other amounts that may be paid from insurance
purchased with dividends or any policy riders.
Financial Guarantee Insurance
A surety bond, insurance policy or, when issued by an insurer, an
indemnity contract and any guaranty similar to the foregoing types,
under which loss is payable upon proof of occurrence of financial loss
to an insured claimant, obligee, or indemnitee.
Fire Insurance
Coverage for loss of or damage to a building and/or contents due to
fire.
Good Driver Discount
To be eligible for the Good Drivers Discount all operators of the
insured vehicles must have been licensed for three or more year, have
no more than a one (1) point charge on their driving record and has
not been determined “at fault” in an accident resulting in bodily
injury or death to any person.
Grace Period
A period (usually 31 days) after the premium due date, during which an
overdue premium may be paid without penalty. The policy remains in
force throughout this period.
Guaranteed Insurability
An option that permits the policy holder to buy additional stated
amounts of life insurance at stated times in the future without
evidence of insurability.
Health Insurance
A policy that will pay specifies sums for medical expenses or
treatments. Health policies can offer many options and vary in their
approaches to coverage.
Homeowner Insurance
An elective combination of coverages for the risks of owning a home.
Can include losses due to fire, burglary, vandalism, earthquake, and
other perils.
Incontestable Clause
A policy provision in which the company agrees not to contest the
validity of the contract after it has been in force for a certain
period of time, usually two years.
Insured
The policyholder – the person(s) protected in case of a loss or claim.
Insurer
The insurance company.
Legal Insurance
Prepaid legal insurance coverage plan sold on a group basis.
Liability (Auto)
Coverage for a policyholder’s legal liability resulting from injuries
to other persons or damage to their property as a result of an auto
accident.
Liability Insurance
Coverage for all sums that the insured becomes legally obligated to
pay because of bodily injury or property damage, and sometimes other
wrongs, to which an insurance policy applies.
Life Insurance
A policy that will pay a specified sum to beneficiaries upon the death
of the insured.
Limit
Maximum amount a policy will pay either overall or under a particular
coverage.
Loan Value
The amount which can be borrowed at a specified rate of interest from
the issuing company by the policyholder, using the value of the
policy as collateral. In the event the policyholder dies with the
debt partially or fully unpaid, then the amount borrowed plus any
interest is deducted from the amount payable.
Marine Insurance
Coverage for goods in transit and the vehicles of transportation on
waterways, land, and air.
Material Misrepresentation
The policyholder / applicant makes a false statement of any material
(important) fact on his/her application. For instance, the
policyholder provides false information regarding the location where
the vehicle is garaged.
Medical Payments
Will pay reasonable expenses incurred for necessary medical and /or
funeral services because of bodily injury caused by accident and
sustained by you or any other person while occupying a covered automobile.
Miscellaneous Insurance
Includes insurance against loss from damage done, directly or
indirectly by lightning, windstorm, tornado, earthquake or insurance
under an open policy indemnifying the producer of any motion picture,
television, theatrical, sport, or similar production, event, or
exhibition against loss by reason of the interruption, postponement,
or cancellation of such production, event, or exhibition due to death,
accidental injury, or sickness preventing performers, directors, or
other principals from commencing or continuing their respective
performance or duties; and any insurance not included in any other
classes and which is a proper subject of insurance (Indiana
Insurance Code, Section 120).
Misquote
An incorrect estimate of the insurance premium.
Mortgage Insurance
Life insurance that pays the balance of a mortgage if the mortgagor
(insured) dies.
Peril
The cause of a possible loss. For example, fire, theft, or hail.
Policy
The written contract of insurance.
Policy Limit
The maximum amount a policy will pay, either overall or under a
particular coverage.
Premium
The amount of money an insurance company charges for insurance
coverage.
Premium Financing
A a policyholder contracts with a lender to pay the insurance premium
on his/her behalf. The policyholder agrees to repay the lender for
the cost of the premium, plus interest and fees.
Pro-Rata Cancellation
When the policy is terminated midterm by the insurance company, the
earned premium is calculated only for the period coverage was
provided. For example: an annual policy with premium of $1,000 is
canceled after 40 days of coverage at the company’s election. The
earned premium would be calculated as follows: 40/365 days X
$1,000=.110 X $1,000=$110.
Property Damage
Damage to another person’s property. The purpose of liability
insurance is to cover property damage to a third party resulting from
the negligent or intentional acts of an insured.
Quote
An estimate of the cost of insurance, based on information supplied to
the insurance company by the applicant.
Replacement Cost
The cost to repair or replace an insured item. Some insurance only
pays the actual cash or market value of the item at the time of the
loss, not what it would cost to fix or replace it. If you have
personal property replacement cost coverage, your insurance will pay
the full cost to repair an item or buy a new one once the repairs or
purchases have been made.
Replacement Value
The full cost to repair or replace the damaged property with no
deduction for depreciation, subject to policy limits and contract
provisions.
Reinstatement
The restoring of a lapsed policy to full force and effect. The
reinstatement may be effective after the cancellation date, creating a
lapse of coverage. Some companies require evidence of insurability and
payment of past due premiums plus interest.
Rider
Usually known as an endorsement, a rider is an amendment to the policy
used to add or delete coverage.
Short-Rate Cancellation
When the policy is terminated prior to the expiration date at the
policyholder’s request. Earned premium charged would be more than the
pro-rata earned premium. Generally, the return premium would be
approximately 90 percent of the pro-rata return premium. However, the
company may also establish its own short-rate schedule.
Solicitor
A licensed employee of a fire and casualty agent or broker who may act
for the agent or broker in some circumstances.
Sprinkler Insurance
Coverage for property damage caused by untimely discharge from an
automatic sprinkler system.
Surcharge
An extra charge applied by the insurer. For automobile insurance, a
surcharge is usually for accidents or moving violations.
Surrender
To terminate or cancel a life insurance policy before the maturity
date. In the case of a cash value policy, the policyholder may
exercise one of the non-forfeiture options at the time of surrender.
Team and Vehicle Insurance
Includes insurance against loss through damage or legal liability for
damage, to property caused by the use of teams or vehicles other than
ships, boats, or railroad rolling stock, whether by accident or
collision or by explosion of engine, tank, boiler, pipe, or tire of
the vehicle, and insurance against the theft of the whole or part of
such vehicle (Indiana Insurance Code, Section 115).
Title Insurance
Coverage for losses if a land title is not free and clear of defects
that were unknown when the title insurance was written.
Underwriting
The process of selecting applicants for insurance and classifying them
according to their degrees of insurability so that the appropriate
premium rates may be charged. The process includes rejection of
unacceptable risks.
Uninsured Motorist Bodily Injury
Will pay you and your passengers for
bodily injury
cause by a negligent uninsured motorist, a hit-and-run driver, or by a
driver whose insurer is insolvent.
Uninsured Motorist Property Damage
Will pay for damages to your automobile, set up to a limit, when
caused by a negligent uninsured motorist.
Waiting Period
A period of time set forth in a policy which must pass before some or
all coverages begin.
Workers Compensation Insurance
Coverage providing four types of benefits (medical care, death,
disability, and rehabilitation) for employee job-related injuries or
diseases as a matter of right (without regard to fault).
Insurance Terms Used in the Area of Sureties and Bonds
Arrestee
A person in custody whose release may be secured by posting bail.
Bailee
A person or concern having possession of property committed in trust from the owner.
Bid Bond
A guarantee that the contractor will enter into a contract, if it is awarded to him, and furnish such contract bond (sometimes called “performance bond”) as is required by terms thereof.
Court Bonds
All bonds and undertakings required of litigants to enable them to pursue certain remedies of the courts.
Effective Date
The date on which an insurance policy or bond goes into effect, and from which protection is furnished.
Fidelity Bond
An obligation of the insurance company against financial loss caused by the dishonest acts of employees.
Judicial Bond
A bond required in civil and criminal court actions.
Named Schedule Bond
A fidelity bond providing coverage for persons listed or scheduled on the bond.
Obligee
Broadly, anyone in whose favor an obligation runs. Frequently used in surety bonds, this refers to the person, firm or corporation protected by the bond.
Obligor
Commonly called “principal,” one bound by an obligation. Under a bond, strictly speaking, both the principal and the surety are obligers.
Power of Attorney
Authority given one person or corporation to act for and obligate another, to the extent laid down in the instrument creating the power.
Principal
A person or organization whose obligation are guaranteed by a bond.
Surety
An arrangement whereby one party becomes answerable to a third party for the acts of a second party. Customarily an insurance company, the party in a suretyship arrangement who holds himself responsible to one person for the acts of another.
Surety Bond
A bond which the surety agrees to answer to the obligee for the non-performance of the principal (also known as the obligor).
Suretyship
Stated in its simplest terms, suretyship embraces all forms of obligation to pay debts or answer for the default of another.
GLOSSARY OF INSURANCE TERMS source: www.insurance.ca.gov