Insurance Glossary

Also known as judgment rates, it is the rates given by the insurer based on an individual’s record, and not on a statistical basis. For example, if you are a 19-year-old male with a red sports car, chances are, your rate premium will be pretty high, since statistically, young people are labeled as riskier driversand red sports car are most likely to be apprehended by the police in event of a traffic violation. However, if you have a stellar driving record and have shown evidence of road responsibility, you will get a lower judgment rate.

Absolute Assignment –

Occurs when a policy holder assigns all control and rights in a policy to a third party.

Accident –

An unexpected event that is beyond control of any persons.

Accident Severity –

An indicator of how serious an accident is, it is also a way of measuring the effectiveness of loss prevention services.

Act Of God –

A term used to describe an event that occurred from natural, unpreventable events.

Actual Cash Value –

The amount of the cost of replacement of goods lost or damaged under approved conditions, less depreciation.

Additional Insured –

Other person that are insured under a policy other than the person named to hold the contract.

Adhesion –

Occurs when the insured accepts all conditions outlined in the policy by the insurer, a characteristic of a unilateral contract. All conditions are accepted by the insured “as is,” or as written in the contract.

Advance Payment –

Premiums that are paid in advance of due date.

Adverse Selection –

Occurs when those insured select coverages that are most likely to have losses.

Adverse Underwriting Decision –

Refers to an underwriting decision that involves a termination of insurance coverage, a refusal of an application, or applying higher rates to a coverage.

Age Limits –

Either the age minimum an insurer requires to write specific forms of insurance, or the maximum age an insurer will continue a presently existing policy.

Agent –

An insurer’s representative, an agent negotiates the policy on the behalf of the company.

Aggregate Limit –

Indicates how much coverage one is entitled to for a certain period of time, no matter how many accidents occur.

Aleatory Contract –

Insurance contracts are aleatory, which are contracts where the money relinquished by each party is not equal. For example, you may pay lots in premium, but never claim the money; or, you may claim for more than you have paid in premiums.

Alienated –

A term used in insurance to describe a property’s deed that is no longer held by the owner.

All-Risks Insurance –

This term is used to refer to insurance against loss or damage to property that occurs because of events except those that are specifically stated on the contract.

Appraisal –

A process of valuation of property to determine how much insurance to be written or how much loss to be paid out.

Assigned Risk –

A risk that is not usually acceptable to insurers, and is therefore assigned to insurers in an assigned risk pool, who then agree to share the responsibility of these risks.

Automatic Cover –

A term used to describe coverage that is granted immediately, due to increasing values and changing interest rates. This coverage is usually only valid for a limited time, and for a limited amount of coverage.

B

Basic Limit –

Refers to the lowest amount for which a policy can be written.

Basic Premium –

Refers to the fixed charged that is paid under a retrospective rating plan.

Basic Rate –

Refers to the rate from which discounts are taken to which charges are added to reflect “A” or judgment rates.

Benefits –

The financial rewards an individual is provided under the policy terms.

Binder –

An agreement that states that insurance can be put into force before the contract has been written or the premium has been paid.

Broker –

Acts as a representative of the individual being insured and renders services incidental to the functions of contracts of insurance.

Broker-Agent –

A broker that works with one or more insurers.

Burning Ratio –

The ratio of losses suffered to the amount of insurance in effect.

“Buy-Back” Deductible –

A deductible that can be eliminated for additional premium in change for “first-dollar” coverage.

C

Cancelable –

An insurance policy that can be terminated by the insurer or insured at any time.

Cancellation –

What occurs when a policy is ceased by the insurer or the insured in compliance to what is outline in the contract.

Capital Sum –

The maximum lump sum payable if accidental death or mutilation occurs.

Captive Agent –

An agent who represents only one company.

Carrier –

A term that is used interchangeably with the term “insurer.”

Cash Flow Plans –

A payment plan that allows an individual to keep a significant percentage of the premium and pay it over a specified time period.

Cash Flow Underwriting –

Using rating and premium collection techniques to maximize interest gains on premiums.

Catastrophe Hazard –

A hazard due to a perilous event that affects many insured individuals.

Certificate Of Insurance –

Either the statement of coverage of a contract that is issued to an individual on a group policy, or the form which confirms that a policy has been written.

Claim –

A request by an individual for a disbursement of benefits under the provisions written in a policy.

Claim Report –

The report filed by an agent detailing circumstances surrounding a claim.

Claimant –

The individual demanding the disbursement of benefits under the provisions written in a policy.

Claims Reserve –

An reserve account where money is set aside to meet the costs of paying out a claim that has been filed but not been settled yet.

Class –

A group of individuals that possess the same characteristics. Also refers to structures combined ratio. The sum of an expense ratio and a loss ratio.

Common Law Liability –

A law that places the burden of responsibility for injury or damage to another individual or property to an individual, based on his/her actions or negligence.

Contingent Fund –

A reserve account set aside for possible claims that result from highly unusual events.

Cooperative Insurance –

A term used to describe a policy given to groups like employee associations and trade unions.

Countersignature –

An agent’s signature on the policy

Cover –

Could refer to either a contract of insurance or an action to cover an individual. Can also mean an inclusion of a clause or entity within a policy.

Coverage –

The nature of protection provided under a contract of insurance.

Covered Loss –

Any situation or loss for which an insurance company will pay out benefits for. Situations include illness, injury, death, property loss or destruction, et al.

Cut Rate –

A term used to insurers that charge premiums below the industry average.

D

Daily Report –

A summarized report regarding pertinent contract information located at the top page of a policy.

Deductible –

A percentage of an insured loss that an individual is responsible for before he or she can collect benefits.

Deductible Clause –

A statement in a policy that sets the deductible.

Dependent –

An individual who depends on another for sustenance.

Deposit Premium –

Premium paid at the beginning of a policy that sets forth future premium adjustments.

Deviation –

A rate that varies from the manual rate.

Disability –

A condition that hampers an individual’s ability to carry on his or her normal, daily activities.

Disclosure Authorization Form –

A form that authorizes the disclosure of personal information in relation to an insurance transaction.

Divided Cover –

The placing of insurance with more than one insurer.

Dividend –

The portion of a premium returned on a participating basis.

Drive-In Claim Service –

A service provided by automobile insurers where the extent of damage can be determined and a settlement is usually agreed upon.

E

Earned Premium –

The amount of premium that has been earned, or “used up” during the term of a policy. For example, a three-year policy that has been in effect for a year and a half will have been half earned.

Effective Date –

The date when the policy goes into effect.

Endorsement –

A form that alters conditions of the contract.

Estate Plan –

A plan that details the disbursement of one’s property at time of death, incompetence, or disability.

Estimated Premium –

A conditional premium that is adjusted at the end of each year.

Evidence Clause –

A clause that requires an individual to comply in the investigation of a claim by producing records or submitting to medical examinations.

Ex Gratia Payment –

A payment of claim made by an insurer due to a mistake or misunderstanding, and not necessarily due to a liability.

Excess Coverage –

Coverage that is in excess of one or more primary coverages, and does not need to pay a loss until the amount exceeds a specified sum.

Expense Allowance –

Fees paid to an insurance in excess to specified commissions.

F

Face Amount –

The amount of insurance provided by the terms of a policy. In the case of life insurance, this is the death benefit.

Federal Insurance Administration –

A government office under the Department of Housing and Urban Development.

Fiduciary –

A person assigned to be in charge of another person’s money or property.

Fire Mark –

A usually metal symbol place by insurance companies on the buildings that they insure.

First Loss Insurance –

This refers either to a policy that pays a loss before other covering the same risk, or a policy written for an amount just enough to cover an insurer’s expected loss during a specified, contractual period, without any other policy outstanding.

“First” Named Insured –

The main policy holder on an insurance, literally the “first” name listed on a contract.

First Party Insurance –

A policy that covers the insured’s own person or property.

Flat –

A fee or amount without interest or service charges.

Flat Cancellation –

A policy that is cancelled upon an effective date.

Flat Commission –

A standard fee an agent earns regardless of type of contract or policy.

G

General Adjustment Bureau, Inc. (GAB) –

An independent company that adjusts claims for all types of insurance companies.

Geographical Limitation –

A policy clause that states the geographical boundaries where the contract is valid.

Gross Line –

The total accepted by an insurance company on an individual risk.

H

Hazard –

A circumstance that increases the probability of the occurrence of a loss as a result of accident, sickness, fire, flood, etc. An example of a hazard would be exposing oneself to viral infections.

I

Incurred But Not Reported –

A term used to refer to losses that have occurred during a specific period but not been claimed.

Incurred Loss Ratio –

The ratio of the losses incurred to premiums earned.

Incurred Losses –

Losses that take place during a specified period, regardless of when it is adjusted or paid out.

Indemnify –

To compensate a loss victim so that he or she is in the same position before the loss transpired.

Indemnity –

The act of compensating a loss victim by payment, restoration, or replacement.

Independent Adjuster –

An adjuster that works on his own, freelancing among different insurance companies.

Independent Agent –

An agent that works as an independent contractor under the independent agency system.

Independent Contractor –

An agent who agrees to perform accordingly to a contract and not under an agency system.

Individual Risk Premium Modification Rating Plan –

A plan that alters the premium on large package policies by considering factors such as reduced expenses for cost handling and specific features of the risk not affected by the basic rate.

Initial Premium –

The amount paid at the beginning of a policy, subject to adjustment at the end of the policy period.

Insolvent Insurer –

An insurer that is unable to meet the financial obligations as stated in the contract.

Inspection –

The process of investigating facts about people or property involved in a claim or application.

Inspection Report –

A synopsis of facts discovered during the course of an inspection.

Insurability –

How acceptable, after risk assessment, an applicant is to an insurer.

Insurable Interest –

The interest, such as property or automobile, a policyholder has on a contract that will cause him financial loss if exposed to hazardous conditions.

Insurable Risk –

An insurable risk must meet these qualifications:

• The loss insured must be able to be defined.
• The loss must have occurred out of accidental or act-of-God circumstances.
• To be insured, the loss, if it transpires, must cause a hardship.
• The risk involved must not be a highly unlikely occurrence.
• The risk must not be subject to the same loss at the same time as a large number of other risks.
• The loss must be financially calculable by a company.
• The probability of loss must be calculable.

Insurance –

A type of financial security that individuals can seek from improbable occurrences that can impair him or her from carrying out normal social functions. A premium, or monthly payment, is what insurance costs to an individual.

Insurance To Value –

An insurance written in an amount estimating the value of the insured property.

Insured –

The individual in an insurance contract whom the insurer agrees to indemnify for losses, provide benefits or offer services.

Item –

A term that refers to what is insured in a contract.

J

Judgment Rates –

Also known as A rates, it is the rates given by the insurer based on an individual’s record, and not on a statistical basis. For example, if you are a 19-year-old male with a red sports car, chances are, your rate premium will be pretty high, since statistically, young people are labeled as riskier drivers and red sports car are most likely to be apprehended by the police in event of a traffic violation. However, if you have a stellar driving record and have shown evidence of road responsibility, you will get a lower judgment rate.

L

Lapse –

A term used to refer to a cancellation of a contract due to an individual’s failure to pay premium.

Limitations –

Stated exceptions to coverage as outlined in a policy.

Limits –

Either the age limits that a policyholder imposes to accept an application, or the maximum benefits payable.

Line –

Either used to refer a particular type of insurance, as a description of various types of insurance written for a property owner, or the amount of insurance on a given property.

Loss –

A loss is either of three things:

• The amount sought by a claimant.
• The amount a property value is reduced to after a perilous situation has occurred.
• The amount paid out by an agency.

Loss Control –

Actions taken to reduce risk of loss.

Loss Development –

The difference between an estimated amount of losses and its actual amount as evaluated.

Loss Expectancy –

An underwriting estimate of the maximum loss possible.

Loss Frequency –

The number of time a loss occurs in a time period.

Loss Payee –

The party to whom an insurer pays out losses.

Loss Ratio –

The ratio of losses to premiums paid.

Loss Reserve –

The estimated amount of unpaid insurance claims or losses that have transpired as of a given date of evaluation.

Loss Severity –

Financial amount of loss.

Losses Incurred –

Total losses in a specified period, regardless of whether they are paid out or not.

Losses Outstanding –

A summary of claims not yet settled in property, life, or liability insurance.

Losses Paid –

A summary of claims paid.

M

Malicious Mischief –

A willful act of damage to one’s property or rights.

Malinger –

An act of faking a disability to continue to collect benefits for a longer time than an individual is entitled.

Manuscript Policy –

A policy written to include specific coverage or conditions not provided in a standard policy.

Mental Distress –

A condition not covered by policies unless the claimant also underwent physical injury.

Merit Rating –

A rating used to determine an individual’s premium dependent on his or her past record. Usually used in auto insurance.

Minimum Premium –

The smallest amount of premium for which an insurer will issue coverage under a certain policy.

Monoline Policy –

Insurance written as a single line policy.

Moral Hazard –

A hazard that increases the probability of loss from a peril due to an individual’s indifference or malicious intent.

Multi-Peril Policies –

Contracts that cover a number of perils in one contract.

Multiple Line Policy –

A policy that has several different coverages, like property and auto.

N

Named Insured –

Any person(s), firms or corporation that is named to be protected under the insurance contract.

Negligence –

Failure to execute a reasonable degree of care or caution to reduce the chances of a perilous occurrence occurring.

Net Premium –

Net premium can be either of the following:

• Amount of premium without agent fee.
• Amount of premium that would be enough to cover the cost of losses.
• Amount of premium minus dividends paid or anticipated in participating life insurance when the individual chooses to use his dividends toward payment of the premium.

Non-Admitted Assets –

Assets that cannot be declared under an insurance contract.

Non-Assessable Policy –

A policy with a set, non-negotiable premium.

Non-Assignable –

A policy that cannot be assigned to a third party.

Non-Insurable Risk –

A risk that cannot be measured or is too frequently occurring to be considered insurable.

Non-Participating –

Also known as non par. Term used to describe insurance that does not pay policy dividends.

Non-Renewal –

Termination of insurance coverage at its expiration date.

Notice Of Cancellation –

A notice written by an insurance agent with the intent of terminating a policy.

Not Taken –

Contracts that are applied for and issued but rejected by the proposed owner (and unpaid).

Notice To Company –

Notice to an insurer about the event upon which the claim is based.

Nuisance Value –

The amount an insurance policy will pay out a claim in order to settle it, not necessarily for legitimacy, but to dispose of it.

O

Occurrence –

The event that a claim is based upon.

Old Age, Survivors, Disability, and Health Insurance –

A provision of the Social Security Act of 1935 that provides social insurance benefits for those who are elderly, disabled, and their surviving dependents.

Omnibus Clause –

A clause imposed by the insured that states the extent of the coverage a policy outlines is applicable to others who are not necessarily formally named on the contract.

Over-Insured –

A term used to describe what occurs when an individual purchases coverage for more than the actual cash value or replacement cost of the subject of the insurance.

P

Package Policy –

A contract that includes two or more types of coverage.

Partial Loss –

A loss that is covered by a contract that doesn’t render an insured property completely worthless.

Participating (par) –

Either an insurance that pays our dividends or insurance that contributes the same as other insurances on the same risk.

Personal Assets –

Valued items that is owned by an individual.

Personal Lines –

Term used to refer to insurance that covers individuals or families and theIr respective properties.

Personal Property Of Others –

Property that is not owned by the insured individual.

Physical Hazard –

A hazard that arises from the material features of a risk that is not controllable by the persons responsible for it.

Policy –

The written contract effecting insurance.

Policy Dividend –

The portion of a premium paid on a participating policy.

Policy Period –

The period under which the insured is protected from stated risks.

Policyholder’s Surplus –

The overage of the amount an insurer can pay to meet its obligations to its policyholders.

Preliminary Term –

Period of short-term insurance issued to cover a risk to a date which the policyholder establishes as the anniversary date for future premiums.

Premises –

The particular location of property.

Premium –

The price an individual pays for insurance.

Premium Discounts –

A discount on premiums paid a year in advanced, based on projected interest earned. The present value is equivalent to the discounted value.

Premium Rate –

Price per unit of insurance.

Prepayment Of Premiums –

Payment made by an individual through paying the discount, or present, value, or having interest paid on the holder’s deposit by the insurer.

Primary Coverage –

Insurance that covers from the first dollar, sometimes after a deductible.

Pro Rata –

Either the distribution of the amount of insurance under one contract among several interests or the distribution of liability among several insurers on a certain risk.

Pro Rata Rate –

A fee charge for a coverage term shorted than the normal period.

Proof Of Loss –

A statement made by a policy owner to an insurer regarding a loss.

Prospective Rating –

A plan that uses a formula to determine premiums based on an individual’s previous record.

Provisional Rates –

Rates that are subject to adjustments.

Pure Premium –

Portion of total premium that is needed to pay expected losses.

Q

Quid Pro Quo –

A term used to a consideration in an insurance contract that calls for the exchange of values by both parties contracted.

R

Rate –

Cost per unit of insurance.

Rate Card –

A card that lists rates for various coverages.

Rate Discrimination –

The illegal rendering of different rates for individuals in the same class and general characteristics.

Rebate –

Part of agent’s fee that is returned to an individual as an incentive to purchase a policy.

Rescission –

Repudiation or termination of a contract when it is felt that fraud was involved.

Retrospective Premium –

Final premium in a retrospective rating plan.

Retrospective Rating –

A plan where the final premium is not determined until the end of the coverage period and is based on the insured’s own loss background for that same period; subject to a maximum and minimum.

Return Premium –

Percentage on a premium returned a policy holder as a result of cancellation, rate adjustment, or excess.

Rider –

A part of a policy that states expansion or restriction of benefits an/or conditions.

Risk –

Can be defined as out of the following: q An uncertainty of an outcome on an event q The interest being insured.

S

Salvage –

Term used to refer to property taken over by an insurer to reduce its loss.

Schedule P Reserve –

A reserve required in automobile liability, other liability, and workers compensation.

Seasonal Risk –

A risk that is only viable in certain parts of the year.

Self-Insured Retention (SIR) –

Percentage of a risk or potential loss assumed by an insured, whether in the form of a deductible, self-insurance, or no insurance at all.

Shock Loss –

A loss so devastating that it has a material effect on the underwriting results of the company.

Short Rate Cancellation –

The act of returning a premium to an individual that is not in direct proportion to the number of days remaining in a specified policy period.

Short Rate Premium –

Premium required for a policy issuance for less than a normal term.

Single Limit –

A term used to refer to a policy that is a single amount of insurance or liability.

Speculative Risk –

Uncertainty about whether a gain or loss will occur.

Split Limit –

A term used to refer to a policy that has different amounts for different types of losses.

Standard Policy –

A term used to refer to a policy that has identical requirements regardless of the insurer.

Stop Loss –

An injunction in any coverage to stop an insurer’s loss at any point.

Sublimit –

Limits of insurance that exists within another limit.

Subrogation Clause –

A clause giving an insurer the right to pursue against a third party who may be liable for any loss that was paid out.

Subrogation Release –

A release taken by an insurer upon indemnifying an insured.

Subscription Policy –

A policy whose risks are shared by two or more insurers.

Substandard Risk –

A risk not measuring up to underwriting standards.

T

Tabular Plan –

A retrospective rating plan that uses tables to develop the various values for the rating formula.

Target Risk –

Can be defined as one of the following:

• A hazardous risk that insurers find difficulty to place values on.
• A large risk that is considered attractive to many insurers.
• Used to define certain items that are not included from automatic reinsurance to permit specific handling of the capacity problem and to release the reinsurer from heavy liability on of risk. Items include fine art, roadways, etc.

Termination –

Terms used to refer to when a policy coverage ends.

Third Party Beneficiary –

A person who is not directly stated in a contract but reaps some rewards under it.

Time Limits –

The limits within which notices of claims and proofs of losses must be submitted.

Title Insurance –

A type of insurance that indemnifies the real estate owner if faults are discovered in the title that was passed to him/her.

Total Loss –

A term used to describe a loss so great that there is no salvageable value left.

Transfer Of Risk –

The reassignment of risk to another party.

Traumatic Injury –

An physical injury caused by an outside source.

Trustee –

A person appointed to be in charge of the property of another.

U

Ultimate Net Loss –

The total sum that an insurer or individual is legally obligated to pay out.

Umpire –

An arbitrator that helps make a decision if a dispute between a company and an individual arise in property insurance. The company and individual hires an appraiser each, who select an umpire. A decision of two out of three becomes the binding decision.

Underinsurance –

A term used to refer to an occurrence of not having enough insurance to cover the value of that insured.

Underwriter –

A person trained in evaluating risk and determining rates and coverages.

Unearned Premiums –

Portion of the written premium that is applicable to the unused part of the period for which premium has been paid.

Unemployment Insurance –

Insurance that covers against loss of income in case unemployment ensues.

Unilateral Contract –

A term used to refer to a contract where the insurer is legally liable to only one part.

V

Vis Major –

Another term used to refer to acts of God or accidents.

Voidable –

A type of contract that includes a clause stating that either party can void the policy at any time.

W

Waiver –

Can be defined as one of the following:

• A rider waiving liability for a stated cause of injury of sickness.
• A rider that waives premium payments during a period of disability of an individual.

Waiver Of Restoration Premium –

Can be defined as one of the following:

• A decision to relinquish any premiums for reinstatement of the face amount of coverage under an insurance policy after it has been reduced by the amount of the loss payment.
• A provision for automatic restoration of the full amount of protection without cost to the insured.

Write –

To insure, underwrite and accept an application.
Now that you understand the terms, read more insurance articles and advice.