Insurance Terms

Insurance Terms

“Focusing on the Human Side of Doing Business”

A B C E F G H I J K L M N O P Q R S T U V W X Y Z

Insurance Terms:

A

Accident and Health Insurance:

Coverage for accidental injury, accidental death, and related health expenses. Benefits will pay for preventative services, medical expenses and catastrophic care, with limits.

Accidental Death And Dismemberment (AD&D) Benefit*:

A supplementary life insurance policy benefit that provides for an amount of money in addition to the policy’s basic death benefit. This additional amount is payable if the insured dies as the result of an accident or if the insured loses any two limbs or the sight in both eyes as the result of an accident.

Accidental Death Benefit (ADB):

A supplementary life insurance policy benefit that provides a death benefit in addition to the policy’s basic death benefit if the insured’s death occurs as the result of an accident.

Accounts Receivable Coverage:

Covers loss of sums owed to the insured by its customers that are uncollectable due to damage by an insured peril to accounts receivable records.

Action:

A lawsuit.

Actual Cash Value:

A method for placing value on property as of the time of its loss or damage: Replacement cost less depreciation.

Additional Insured:

A person or corporation, other than the Named Insured on the policy, who is protected against loss by the terms of the policy (i.e. funding source, landlord).

Admitted Company:

An insurance company licensed and authorized to do business in a particular state. An admitted company is part of the California Insurance Guarantee Association (CIGA).  If an insurance company becomes insolvent then CIGA will pay covered benefits and claims up to a certain amount.

Advertising Injury:

Claim arising out of slander, libel, copyright infringement, or misappropriation of advertising ideas. Coverage is provided as part of coverage B of the Commercial General Liability policy.

Aggregate Limit:

The total amount that the insurance company will pay for all claims covered by the policy.

Agreed Value:

The insured and the insurer agree on the value at the time the policy is written. The coinsurance clause is suspended.

B

Best Ratings:

A rating system by A.M. Best Company giving the financial condition of insurance companies.

Binder:

Temporary authorization of coverage issued prior to the actual insurance policy.

Bodily Injury Liability Coverage:

Portions of auto insurance policy that covers injuries the policyholder causes to someone else.

Blanket Coverage:

Coverage for more than one type of property at one location or one type of property at more than one location. Example: chain store

Boiler And Machinery Coverage:

Often called Equipment Breakdown, or System Breakdown Insurance. Commercial insurance that covers damage caused by the malfunction or breakdown of boilers, and a vast array of other equipment including air conditioners, heating, electrical, telephone, and computer systems.

Bond:

A security that obligates the issuer to pay interest at specified intervals and to repay the principal amount of the loan at maturity. In insurance, a form of suretyship. Bonds of various types guarantee a payment or reimbursement for financial losses resulting form dishonesty, failure to perform and other acts.

Broker:

An intermediary between 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/deals to sell variable annuities, which are similar to stock market-based investments.

Burglary And Theft Insurance:

Insurance for the loss of property due to burglary, robbery, or larceny. It is provided in standard homeowners policy and in a business multiple peril policy.

Building:

Covers buildings against direct physical damage, subject to standard policy exclusions. Valuation can be based upon Replacement Cost or Actual Cash Value.

Building Ordinance:

Covers the enforcement of any building, zoning, or land use law to the undamaged portion of the building caused by ordinances or laws that require demolition or regulate construction, repair, zoning, or land use. Coverage is included in building limit by endorsement.

Building Ordinance Coverage:

Covers against loss caused by enforcement or ordinances or laws regulating construction and repair of damaged buildings.

Business Income Insurance (also known as Business Interruption Insurance):

Commercial coverage that reimburses a business owner for lost profits and continuing fixed expenses during the time that a business must stay closed while the premises are being restored because of physical damage from a covered peril, such as a fire. Business income insurance also may cover financial losses that may occur if civil authorities limit access to an area after a disaster and their actions prevent customers from reaching the business premises. Depending on the policy, civil authorities coverage may start after a waiting period and last for two more weeks. Also known as business interruption insurance.

Business Owners Policy/ BOP:

A policy that combines property, liability, and business interruption coverage’s for small-to medium-sized businesses. Coverage is generally cheaper than if purchased through separate insurance policies.

Business Personal Property:

Covers personal property and contents against direct physical damage subject to standard policy exclusions, Valuation can be based upon Replacement Cost or Actual Cash Value.

C

Care, Custody or Control:

An expression common to liability insurance contracts. It refers to an exclusion in the policy eliminating coverage for damage to property of others that is in the insured’s care, custody, or control.

Certificate of Insurance:

A document providing evidence that insurance has been purchased.

Claims Made Policy:

A form of insurance that pays claims presented to the insurer during the term of the policy or within a specific term after its expiration. It limits liability insurers’ exposure to unknown future liabilities. See Occurrence policy.

Co-insurance:

In property insurance, requires policyholder to carry insurance equal to a specified percentage of the value of property to receive fill payment on a loss. For health insurance, it is a percentage of claims above the deductible paid by the policyholder. For a 20 percent health insurance coinsurance clause, the policyholder pays for the deductible plus 20 percent of his covered losses. After paying 80 percent of losses up to a specified ceiling, the insurer starts paying 100 percent of losses.

Co-Insurance Clause:

Property insurance provision that imposes a penalty on an insured’s loss recovery if the limit of insurance purchased is not at least equal to a specific percentage of the value of the insured property.

COBRA:

Short for Consolidated Omnibus Budget Reconciliation Act. A federal law under which group health plans sponsored by employers with 20 or more employees must offer continuation of coverage to employees who leave their jobs and their dependents. The employee must pay the entire premium. Coverage can be extended up to 18 months. Surviving dependents can receive longer coverage.

Commercial General Liability:

“Slip and Fall” type claims are the most common occurrence covered by a Commercial General Liability policy. Additional coverages included under the Commercial General Liability policy include Products and Completed Operations and Personal Injury coverage. General Liability policies will not include coverage for damage to property under your Care, Custody or Control.

Completed Operations:

A General Liability coverage for the work of the insured that has been completed away from the business premises.

Computer Fraud:

Loss due to the use of a computer to fraudulently cause the transfer of property from the insured to a person or premises outside of the insured.

D

Data Process or EDP Coverage:

All risk property insurance for electronic data processing equipment (computers), computer programs and data including mechanical breakdown, electrical injury and changes in temperature and humidity.

Debris Removal:

The cost of removal of debris from covered property damaged by an insured peril.

Deductible:

The amount of loss which is paid or absorbed by the insured prior to determining the insurance company’s liability.

Depreciation:

The reduction in value of property over a period of time. Usually as a result of age, wear and tear, or economic obsolescence.

Directors & Officers Liability (D&O):

D&O coverage is designed to cover the intentional decisions made by the Board of Directors of an organization. In an employment-related case, the board affirmatively adopts personnel policies which are intentionally carried out by management. These are intentional actions that may result in some type of damage other than bodily Injury (i.e. an employee is terminated and alleges age discrimination). Most other types of insurance policies will not provide coverage for intentional actions.

E

Earth Movement or Earthquake Exclusion:

An exclusion found in most property insurance policies eliminating coverage for earth movement of earthquake except ensuring fire.

Earthquake:

Covers against direct physical damage caused by an earthquake, subject to standard policy exclusions.

Earthquake Sprinkler Leakage:

Covers against direct physical damage caused by leakage of your fire sprinkler due to an earthquake.

Employee Benefits Liability:

Protects the insured against claims by employees or former employees resulting from negligent acts or omissions in the administration of the insured’s employee benefits program.

Employee Dishonesty:

Loss due to embezzlement of money, securities or other property by an employee acting alone or with others (fidelity bond).

Employment Practices Liability Insurance:

A form of liability insurance covering wrongful acts arising from employment practices such as wrongful termination, discrimination and sexual harassment.

Errors and omissions coverage (E&O):

A type of professional liability insurance protecting the insured against claims alleging bodily injury or property damage caused by the professional or technical incompetence of the insured. There is no standard policy form.

Extra Expense:

Covers the necessary additional expenses and charges incurred in order to continue as nearly as possible the normal conduct of business following a covered loss. Examples would be the extra costs to rent a temporary facility and equipment to keep your business functional during a loss.

F

Fiduciary Liability Insurance:

This insurance covers claims arising from a breach of the responsibilities or duties imposed on a benefit plan administrator; or a negligent act, error or omission of the administrator.

Fire Legal Liability:

Covers rented or leased building against direct physical damage due to Insured’s negligence that results in Fire Damage Only. It is important for insured to have the fire legal liability limit equal to the amount it would cost to rebuild the structure you rent in the event of a full fire loss.

First Named Insured:

An insurance policy may have more than one party named as insured. The First Named insured is responsible for paying premiums, initiates cancellations or can amend the policy.

H

Hold Harmless Agreement:

A contractual assumption by one party of the liability exposure of another. Lease agreements, for example commonly require the tenant to hold the landlord harmless for bodily injury or property damage experienced by others on the premises.

I

Independent Contractor:

One who contracts to do a piece of work by his own methods and judgment and without the control of his employer, except as to the results.

Inside the Premises:

Loss due to robbery, theft or disappearance of money of securities within a covered premises.

L

Loss of Income:

Covers loss of income less non-continuing expenses due to necessary suspensions of business operations during the period of restoration. Interruption must be caused due to damage at the described location and caused by a covered peril. There are several options to the loss of income form, you can choose to include payroll for certain employees or choose to insure only the net income. One of the best forms of overage you can find is Actual Loss Sustained for 12 months (ALS). This coverage pays your actual loss of income for up to 12 months. Consult carefully with your agent to find the right coverage for your business.

Loss of Rents:

Covers the loss of anticipated gross rental income, back to you the insured which are the legal obligations of the lessee and the fair rental value of any portion of the property occupied by the insured.

N

Non Admitted Carrier:

An insurance company that does business in a jurisdiction in which it is not admitted to transact business. The policy holders are not protected by the State’s Guaranty Fund in the event that the insurance company becomes insolvent.

Non Owned Automobile Liability:

The purpose of this coverage is to insure the organization in the event it is held liable for the actions of their employee or volunteers while they are using their own vehicle on behalf of their employer. This coverage does not protect the employees or volunteers who carry their own automobile insurance.

O

Occurence Policy:

Insurance that pays claims arising out of incidents that occur during the policy term, even if they are filed many years later. (See Claims-made policy)

Ordinance Or Law Coverage:

Endorsement to a property policy, including homeowners, that pays for the extra expense of rebuilding to comply with ordinances or laws, often building codes that did not exist when the building was originally built. For example, a building severely damaged in a hurricane may have to be elevated above the flood line when it is rebuilt. This endorsement would cover part of the additional cost.

P

Personal Property of Others:

Covers the personal property of others in your care, custody or control. Examples, dry cleaners, repairs shops, auto repair shops, etc.

Pre-Existing Condition:

(1) According to most group health policies a condition for which an individual receive medical care during the three months immediately prior to the effective date of their coverage. (2) According to most individual health insurance policies, an injury that occurred or a sickness that first appeared or manifested itself within a specified period-usually two years-before the policy was issued and that was not disclosed on the application for insurance.

Professional Liability:

A form of errors and omissions insurance. Provides coverage for alleged professional misconduct or lack of skill in the performance of a professional act. There is no standard policy form and must therefore be reviewed to make sure that your operations and professional staff /volunteers are covered.

R

Rating Agencies:

Six major credit agencies determine insurers’ financial strength and viability to meet claims obligations. They are A.M. Best Co.: Duff & Phelps Inc.: Fitch, Inc.: Moody’s Investors Services: Standard & Poor’s Corp.: and Weiss Ratings, Inc. Factors considered include company earnings, capital adequacy, operating leverage, liquidity, investment performance, reinsurance programs, and management ability, integrity, and experience. A high financial rating is not the same as a high consumer satisfaction rating.

Rating Bureau:

The insurance business is based on the spread of risk. The more widely risk is spread, the more accurately loss can be estimated. An insurance company can more accurately estimate the probability of loss on 100,000 homes than on ten. Years ago, insurers were required to use standardized forms and rates developed by rating agencies. Today, large insurers use their own statistical loss data to develop rates. But small insurers or insurers focusing on special lines of business, with sufficiently broad loss data to make them actuarially reliable depend on pooled industry data collected by such organizations as the Insurance Services Office (ISO) which provides information to help develop rates such as estimates of future losses and loss adjustment expenses like legal defense costs.

Replacement Cost:

Insurance that pays the dollar amount needed to replace damaged persona; property or dwelling property without deducting for depreciation but limited by the maximum dollar amount shown on the declarations page of the policy.

Risk Management:

Management of the varied risks to which a business firm or association might be subject. It includes analyzing all exposures to gauge the likelihood of loss and choosing options to better manage or minimize loss. These options typically include reducing and eliminating the risk with safety measures, buying insurance, and self-insurance.

V

Valuation:

Method used to determine or establish value of an item of real or personal property at the time of loss.

W

Workers Compensation:

Coverage that conforms to the workers compensation laws of the states in which it is written. Workers Compensation coverage is mandated for most employers and is designed to cover the cost of injury and loss of time as a result of an employee related injury.