Insurance Terminology

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All Rights Reserved
This manual or any part thereof may not be reproduced
without written permission of North American Training Group, Inc.
First Edition, 2005
Dictionary of Insurance Terms
-A-

• Absolute Liability: Liability for damages even though fault or negligence cannot
be proven.
• Accident: An event or occurrence which is unforeseen and unintended.
• Act of God: A flood, earthquake or other non preventable accident resulting from
natural causes that occur without any human intervention.
• Activities of Daily Living: A list of activities, normally including mobility,
dressing, bathing, toileting, transferring, and eating which are used to assess
degree of impairment and determine eligibility for some types of insurance
benefits.
• Actual Cash Value (ACV): 1) The cost of replacing or restoring property at
prices prevailing at the time and place of the loss, less depreciation, however
caused; 2) replacement cost minus depreciation.
• Additional insured: A person, company or entity protected by an insurance
policy in addition to the insured.
• Adjuster: A person who investigates and settles losses for an insurance carrier.
• Adjusting: The process of investigating and settling losses with or by an
insurance carrier.
• Amendment: A formal document changing the provisions of an insurance policy
signed jointly by the insurance company officer and the policy holder or his
authorized representative.
• Application: A signed statement of facts made by a person applying for insurance
and then used by the insurance company to decide whether or not to issue a
policy. The application becomes part of the insurance contract when the policy is
issued.
• Arbitration: Arbitration: A form of alternative dispute resolution where an
unbiased person or panel renders an opinion as to responsibility for or extent of a
loss.
• Arson: The willful and malicious burning of, or attempt to burn, any structure or
other property, often with criminal or fraudulent intent.
• Assets: All funds, property, goods, securities, rights of action, or resources of any
kind owned by someone.
• Assignment: The legal transfer of one person's interest in an insurance policy to
another person.
• Automobile Insurance Plan: One of several types of "shared market"
mechanisms where persons who are unable to obtain such insurance in the
voluntary market are assigned to a particular company, usually at a higher rate
than the voluntary market. Formerly called "Assigned Risk."
• Automobile Liability Insurance: Protection for the insured against financial loss
because of legal liability for car-related injuries to others or damage to their
property.
• Automobile Physical Damage Insurance: Coverage to pay for damage to or loss
of an insured automobile resulting from collision, fire, theft, or other perils.
Dictionary of Insurance Terms
-B-
• Benefits: The amount payable by the insurance company to a claimant, assignee
or beneficiary under each coverage.
• Binder: A written or oral contract issued temporarily to place insurance in force
when it is not possible to issue a new policy or endorse the existing policy
immediately. A binder is subject to the premium and all the terms of the policy to
be issued.
• Binding Receipt: A receipt given for a premium payment accompanying the
application for insurance. If the policy is approved, this binds the company to
make the policy effective from the date of the receipt.
• Blanket Medical Expense: A provision which entitles the insured person to
collect up to a maximum established in the policy for all hospital and medical
expenses incurred, without any limitations on individual types of medical
expenses.
• Boat Owners Package Policy: A special package policy for boat owners that
combines physical damage insurance, medical expense insurance, liability
insurance, and other coverage's in one contract.
• Boiler and Machinery Insurance: Coverage for loss arising out of the operation
of pressure, mechanical, and electrical equipment. It covers loss of the boiler and
machinery itself, damage to other property, and business interruption losses.
• Bond: A certificate issued by a government or corporation as evidence of a debt.
The issuer of the bond promises to pay the bondholder a specified amount of
interest for a specified period and to repay the loan on the expiration (maturity)
date.
• Book of Business: the number, size and type of accounts (policyholders) that an
agent "owns."
• Broker: A marketing specialist who represents buyers of property and liability
insurance and who deals with either agents or companies in arranging for the
coverage required by the customer.
• Burglary: Breaking and entering into another person's property with felonious
intent.
• Burglary and Theft Insurance: Coverage against property losses due to
burglary, robbery, or larceny.
• Business Insurance: A policy which primarily provides coverage of benefits to a
business as contrasted to an individual. It is issued to indemnify a business for the
loss of services of a key employee or a partner who becomes disabled.
• Business Interruption Insurance: Protection for a business owner against losses
resulting from a temporary shutdown because of fire or other insured peril. The
insurance provides reimbursement for lost net profits and necessary continuing
expenses.
Dictionary of Insurance Terms
-C-
• Cancellation: The discontinuance of an insurance policy before its normal
expiration date, either by the insured or the company.
• Captive Insurance Company: A company owned solely or in large part by one
or more non- insurance entities for the primary purpose of providing insurance
coverage to the owner or owners.
• Captive Insurer: Insurance companies established and owned by a parent firm in
order to insure its loss exposures while reducing premium costs, providing easier
access to a re-insurer, and perhaps easing tax burdens. Cargo Insurance: Type of
ocean marine insurance that protects the shipper of the goods against financial
loss if the goods are damaged or lost.
• Casualty Insurance: Insurance concerned with the insider's legal liability for
injuries to others or damage to other persons' property; also encompasses such
forms of insurance as plate glass, burglary, robbery and workers' compensation.
• Catastrophe: Event which causes a loss of extraordinary magnitude, such as a
hurricane or tornado.
• Causes-of-loss Form: Form added to commercial property insurance policy that
indicates the causes of loss that are covered. There are four causes-of-loss forms:
basic, broad, special, and earthquake.
• Certificate of Insurance: A statement of coverage issued to an individual insured
under a group insurance contract, outlining the insurance benefits and principal
provisions applicable to the member.
• Chartered Property and Casualty Underwriter (CPCU): Professional who has
attained a high degree of technical competency in property and liability insurance
and has passed ten professional examinations administered by the American
Institute for Property and Liability Underwriters.
• Choice no-fault: Allows auto insureds the choice of remaining under the tort
system or choosing no-fault at a reduced premium.
• Claim: A request for payment of a loss which may come under the terms of an
insurance contract.
• Claims Adjustor: Person who settles claims: an agent, company adjustor,
independent adjustor, adjustment bureau, or public adjustor.
• Coinsurance: 1) A provision under which an insured who carries less than the
stipulated percentage of insurance to value, will receive a loss payment that is
limited to the same ratio which the amount of insurance bears to the amount
required; 2) a policy provision frequently found in medical insurance, by which
the insured person and the insurer share the covered losses under a policy in a
specified ratio, i.e., 80 percent by the insurer and 20 percent by the insured.
• Collision Insurance: Protection against loss resulting from any damage to the
policyholder's car caused by collision with another vehicle or object, or by upset
of the insured car, whether it was the insured's fault or not.
• Combined Ratio: Basically, a measure of the relationship between dollars spent
for claims and expenses and premium dollars taken in; more specifically, the sum
of the ratio of losses incurred to premiums earned and the ratio of commissions
and expenses incurred to premiums written. A ratio above 100 means that for
every premium dollar taken in, more than a dollar went for losses, expenses, and
commissions.
• Commercial General Liability Policy (CGL): A broad commercial policy that
covers all liability exposures of a business that are not specifically excluded.
Coverage includes product liability, completed operations, premises and
operations, and independent contractors. Commercial liability policy drafted by
the Insurance Services Office containing two coverage forms, an occurrence form
and a claims-made form.
• Commercial Lines: Insurance for businesses, organizations, institutions,
governmental agencies, and other commercial establishments.
• Community Property: A special ownership form requiring that one half of all
property earned by a husband or wife during marriage belongs to each.
Community property laws do not generally apply to property acquired by gift, by
will, or by descent.
• Comparative Negligence: Under this concept a plaintiff (the person bringing
suit) may recover damages even though guilty of some negligence. His or her
recovery, however, is reduced by the amount or percent of that negligence.
• Completed Operations: Liability arising out of faulty work performed away
from the premises after the work or operations are completed. Applicable to
contractors, plumbers, electricians, repair shops, and similar firms.
• Comprehensive Automobile Insurance: Protection against loss resulting from
damage to the insured auto, other than loss by collision or upset.
• Comprehensive
• Comprehensive Personal Liability Insurance: Protection against loss arising
out of legal liability to pay money for damage or injury to others for which the
insured is responsible. It does not include automobile or business operation
liabilities.
• Compulsory Auto Liability Insurance: Insurance laws in some states required
motorists to carry at least certain minimum auto coverage’s. This is called
"compulsory" insurance.
• Compulsory Insurance Law: Law protecting accident victims against
irresponsible motorists by requiring owners and operators of automobiles to carry
certain amounts of liability insurance in order to license the vehicle and drive
legally within the state.
• Concealment: Deliberate failure of an applicant for insurance to reveal a material
fact to the insurer.
• Concurrent Causation: Legal doctrine that states when a property loss is due to
two causes, one that is excluded and one that is covered, the policy provides
coverage.
• Conditions: Provisions inserted in an insurance contract that qualify or place
limitations on the insurer's promise to perform.
• Consideration: One of the elements for a binding contract. Consideration is
acceptance by the insurance company of the payment of the premium and the
statement made by the prospective policyholder in the application.
• Consequential Loss: Financial loss occurring as the consequence of some other
loss. Often called an indirect loss.
• Contingent Liability: Liability arising out of work done by independent
contractors for a firm. A firm may be liable for the work done by an independent
contractor if the activity is illegal, the situation does not permit delegation of
authority, or the work is inherently dangerous.
• Contract: A binding agreement between two or more parties for the doing or not
doing of certain things. A contract of insurance is embodied in a written document
called the policy.
• Contributory Negligence: Negligence of the damaged person that helped to
cause the accident. Some states bar recovery to the plaintiff if the plaintiff was
contributory negligent to any extent. Others apply comparative negligence.
• Coverage: The scope of protection provided under a contract of insurance; any of
several risks covered by a policy.
• Covered: A person covered by a pension plan is one who has fulfilled the
eligibility requirements in the plan, for whom benefits have accrued, or are
accruing, or who is receiving benefits under the plan.
• Credit Insurance: A guarantee to manufacturers, wholesalers, and service
organizations that they will be paid for goods shipped or services rendered.
Applies to that part of working capital which is represented by accounts
receivable.
• Crop-hail Insurance: Protection against damage to growing crops as a result of
hail or certain other named perils.
• CSR: Customer service representatives support the work of insurance agents with
a variety of tasks that must be done within a company or agency to deliver
services to and handle requests from clients.
Dictionary of Insurance Terms
-D-
• Declination: The insurer's refusal to insure an individual after careful evaluation
of the application for insurance and any other pertinent factors.
• Deductible: An amount which a policyholder agrees to pay, per claim or per
accident, toward the total amount of an insured loss.
• Dependent Benefits: Social Security benefits available to the spouse or children
of a Social Security beneficiary.
• Depreciation: A decrease in the value of property over a period of time due to
wear and tear or obsolescence. Depreciation is used to determine the actual cash
value of property at time of loss. (See Actual Cash Value)
• Direct Loss: Financial loss that results directly from an insured peril.
• Disability: a physical or a mental impairment that substantially limits one or more
major life activities of an individual. It may be partial or total. (See Partial
Disability; Total Disability.)
• Disability Benefit: Periodic payments, usually monthly, payable to participants
under some retirement plans, if such participants are eligible for the benefits and
become totally and permanently disabled prior to the normal retirement date.
• Disability Income Insurance: A form of health insurance that provides periodic
payments to replace income when an insured person is unable to work as a result
of illness, injury, or disease.
• Dismemberment: Loss of body members (limbs), or use thereof, or loss of sight
due to injury.
• Dividend: A return of part of the premium on participating insurance to reflect he
difference between the premium charged and the combination of actual mortality,
expense and investment experience. Such premiums are calculated to provide
some margin over the anticipated cost of the insurance protection.
• Dollar Threshold: In no-fault auto insurance states with the dollar threshold, it
prevents individuals from suing in tort to recover for pain and suffering unless
their medical expenses exceed a certain dollar amount.
• Dramshop Law: Law that imputes negligence to the owner of a business that
sells liquor in the case that an intoxicated customer causes injury or property
damage to another person. Usually excluded from general liability policies.
• Dwelling Property 1: Property insurance policy that insures the dwelling at
actual cash value, other structures, personal property, fair rental value, and certain
other coverage’s. Covers a limited number of perils.
• Dwelling Property 2: Property insurance policy that insures the dwelling and
other structures at replacement cost. It adds additional coverage’s and has a
greater list of covered perils than the Dwelling Property 1 policy.
 • Dwelling Property 3: Property insurance policy that covers the dwelling and
other structures against direct physical loss from any peril except for those perils
otherwise excluded. However, personal property is covered on a named-perils
basis.

Dictionary of Insurance Terms

-E-
• Earned Income: Employment income derived from salary, wages, commissions,
or fees.
• Effective Date: The date on which the insurance under a policy begins.
• Elements of a Negligent Act: Four elements an injured person must show to
prove negligence: existence of a legal duty to use reasonable care, failure to
perform that duty, damages or injury to the claimant, and proximate cause
relationship between the negligent act and the infliction of damages.
• Embezzlement: Fraudulent use or taking of another's property or money which
has been entrusted to one's care.
• Endorsements: An additional piece of paper, not a part of the original contract,
which cites certain terms and which, when attached to the original contract,
becomes a legal part of that contract. An amendment of the policy usually by
means of a rubber stamp or rider.
• Errors and Omissions Insurance: Liability insurance policy that provides
protection against loss incurred by a client because of some negligent act, error, or
omission by the insured.
• Estoppels: Legal doctrines that prevent a person from denying the truth of a
previous representation of fact, especially when such representation has been
relied on by the one to whom the statement was made.
• Excess and Surplus Insurance: (1) Insurance to cover losses above a certain
amount, with losses below that amount usually covered by a regular policy. (2)
Insurance to cover an unusual or one-time risk, e.g., damage to a musician's hands
or the multiple perils of a convention, for which coverage is unavailable in the
normal market. (See also "Umbrella liability" and "surplus lines.")
• Exclusions: Specific conditions or circumstances listed in the policy for which
the policy will not provide benefit payments.
• Exclusive Remedy Doctrine: Doctrine in workers compensation insurance which
states that workers compensation benefits should be the exclusive or sole source
of recovery for workers who have a job related accident or disease; doctrine has
been eroded by legal decisions.
• Experience Modification Factor: Used in workers compensation rating to reflect
the degree to which a particular employer has experience that is better or worse
that expected for that industry. Weighted by employer's credibility factor.
• Experience Rating: The process of determining the premium rate for a group
risk, wholly or partially on the basis of that group's experience.
 • Exposure Unit: Unit of measurement used in insurance pricing.
• Extended Non-owned Coverage: Endorsement that can be added to an
automobile liability insurance policy that covers the insured while driving any
non owned automobile on a regular basis.
• Extortion: Surrender of property away from the premises as a result of a threat to
do bodily harm to the named insured, relative, or invitee who is being held
captive.

Dictionary of Insurance Terms

-F-
• Fair Rental Value: Amount payable to an insured homeowner for loss of rental
income due to damage that makes the premises uninhabitable.
• Fidelity Bond: A form of protection which reimburses an employer for losses
caused by dishonest or fraudulent acts of employees.
• Fiduciary: A person who holds something in trust for another.
• Fire Insurance: Coverage for losses caused by fire and lightning, plus resultant
damage caused by smoke and water.
• Fire Legal Liability: Liability of a firm or person for fire damage caused by
negligence of and damage to property of others. First party claim: a demand
made by a policyholder reporting an insured event directly to his company.
• First Party Coverage: An insurance coverage under which the policyholder
collects compensation for losses from the insured's own insurer rather than from
the insurer of the person who caused the accident.
• Floaters: Insurance policies that cover property that can be moved from one
location to another for both transportation perils and perils affecting property at a
fixed location.
• Flood Insurance: Coverage against loss resulting from the flood peril, widely
available at low cost under a program developed by the private industry and the
federal government.
• Functional Capacity Evaluation (FCE) is a compilation information that 1.
objectively assists in measuring functional abilities and consistency of efforts, 2.
provides further data for the determination of permanent work capacity and 3.
helps to promote safe work parameters.
• Future Increase Option: A provision found in some policies that allows the
insured to purchase additional disability income insurance at specified future
dates regardless of the insured's physical condition.
Dictionary of Insurance Terms
-G-
• General Liability Insurance: Coverage that pertains, for the most part, to claims
arising out of the insured's liability for injuries or damage caused by ownership of
property, manufacturing operations, contracting operations, sale or distribution of
products, and the operation of machinery, as well as professional services.
• Glass Insurance: Protection for loss of or damage to glass and its appurtenances.
• Grace Period: A specified period after a premium payment is due, in which the
policyholder may make such payment, and during which the protection of the
policy continues.
• Gross Negligence: the intentional failure to perform a manifest duty in reckless
disregard of the consequences as affecting the life or property of another
• Group Insurance: Insurance written on a number of people under a single master
policy, issued to their employer or to an association with which they are affiliated.
• Guaranty Fund: A fund, derived from assessments against solvent insurance
companies, to absorb losses of claimants against insolvent insurance companies.

Dictionary of Insurance Terms

-H-
• Hazard: Condition that creates or increases the chance of loss.
• Health Maintenance Organization (HMO): An organization that provides a
wide range of comprehensive health care services for a specified group at a fixed
periodic payment. The HMO can be sponsored by the government, medical
schools, hospitals, employers, labor unions, consumer groups, insurance
companies, and hospital medical plans.
• High Risk Automobile Insurer: Company that specializes in insuring motorists
who have poor driving records or have been canceled or refused insurance.
• Hold Harmless Clause: Clause written into a contract by which one party agrees
to release another party from all legal liability, such as a retailer who agrees to
release the manufacturer from legal liability if the product injures someone.
• Homeowners Policy: A package of insurance providing home owners with a
broad range of property and liability coverage’s.
• Hurricane: A tropical storm marked by extremely low barometric pressure and
circular winds with a velocity of 75 miles an hour or more.
Dictionary of Insurance Terms
-I-
• Imputed Negligence: Case in which responsibility for damage can be transferred
from the negligent party to another person, such as an employer.
• Indemnification: Compensation to the victim of a loss, in whole or in part, by
payment, repair, or replacement.
• Indemnity: Legal principle that specifies an insured should not collect more than
the actual cash value of a loss but should be restored to approximately the same
financial position as existed before the loss.
• Independent Adjustor: Claims adjustor who offers his or her services to
insurance companies and is compensated by a fee.
• Independent Agent: an independent business person who usually represents two
or more insurance companies in a sales and service capacity and who is paid on a
commission basis.
• Independent Medical Examination (IME): A medical examination used to
determine whether an injured party claiming injuries is actually injured or to the
extent they claim. Independent medical examiners are registered medical
practitioners who provide impartial medical assessments of an injured worker to
assist decisions about: accepting a claim, ongoing liability and the worker’s level
of fitness for work.
• Inland Marine Insurance: A broad form of insurance, generally covering
articles in transit as well as bridges, tunnels and other means of transportation and
communication. Besides goods in transit (generally excepting trans-ocean), it
includes numerous "floater" policies, such as those covering personal effects,
personal property, jewelry, furs, fine arts, and other items.

• Inspection Report: A report (usually written) of an investigation of an applicant,

conducted by an independent agency that specializes in insurance investigations.
The report covers such matters as occupation, financial status, health history, and
moral problems.
• Insurability: Acceptability to the company of an applicant for insurance.
• Insurable Risk: The conditions that make a risk insurable are (a) the peril insured
against must produce a definite loss not under the control of the insured, (b) there
must be a large number of homogeneous exposures subject to the same perils, (c)
the loss must be calculable and the cost of insuring it must be economically
feasible, (d) the peril must be unlikely to affect all insureds simultaneously, and
(e) the loss produced by a risk must be definite and have a potential to be
financially serious.
• Insurance: A system under which individuals, businesses, and other
organizations or entities, in exchange for payment of a sum of money (a
premium), are guaranteed compensation for losses resulting from certain perils
under specified conditions.
 • Insurance Company: An organization chartered to operate as an insurer. Any
corporation primarily engaged in the business of furnishing insurance protection
to the public.
• Insurance Guaranty Funds: State Funds that provide for the payment of unpaid
claims of insolvent insurers.
• Insurance Services Offices (ISO): Major rating organization in property and
liability insurance that drafts policy forms for personal and commercial lines of
insurance and provides rate data on loss costs for property and liability insurance
lines.
• Insured: A person or organization covered by an insurance policy, including the
"named insured" and any other parties for whom protection is provided under the
policy terms.
• Insurer: The party to the insurance contract who promises to pay losses or
benefits. Also, any corporation engaged primarily in the business of furnishing
insurance to the public.

Dictionary of Insurance Terms

-J-
• Joint-and-Several Liability: A legal principle that permits the injured party in a
tort action to recover the entire amount of compensation due for injuries from any
tort-feasor who is able to pay, regardless of the degree of that party's negligence.
• Joint Tenants: A form of joint property ownership with right of survivorship,
i.e., in which the survivors automatically own the share of a deceased co-owner.
• Joint Underwriting Association: One of several types of "shared market"
mechanisms used to make automobile insurance available to persons who are
unable to obtain such insurance in the regular market. JUAs also have been
created in some states to help alleviate availability problems in the fields of
medical malpractice and commercial insurance.
• Joint Underwriting Association: A device used to provide insurance to those
who cannot obtain insurance in the voluntary market. Certain companies (called
carriers) issue policies at one rate level and handle claims, but the ultimate costs
are borne by all companies writing insurance in that state.
• Judicial Bond: Type of surety bond used for court proceedings and guaranteeing
that the party bonded will fulfill certain obligations specified by law, for example,
fiduciary responsibilities.
Dictionary of Insurance Terms
-L-
• Lapse: The termination or discontinuance of an insurance policy due to non-
payment of a premium.
• Lapsed Policy: A policy terminated for non-payment of premiums. The term is
sometimes limited to a termination occurring before the policy has a cash or other
surrender value.
• Larceny-theft: The unlawful taking, carrying, leading or riding away of another
person's property.
• Last Clear Chance Rule: Statutory modification of the contributory negligence
law allowing the claimant endangered by his or her own negligence to recover
damages from a defendant if the defendant has a last clear chance to avoid the
accident but fails to do so.
• Liability: Any legally enforceable obligation.
• Liability Insurance: Insurance covering the policyholder's legal liability
resulting from injuries to other persons or damage to their property. Provides
protection for the insured against loss arising out of legal liability to third parties.
• Liability Limits: The stipulated sum or sums beyond which an insurance
company is not liable to protect the insured.
• Liability Without Fault: Principle on which workers compensation is based,
holding the employer absolutely liable for occupational injuries or disease
suffered by workers, regardless of who is at fault.
• Lifetime Disability Benefit: A benefit to help replace income lost by an insured
person as long as he/she is totally disabled, even for a lifetime. Disability income
payable for the life of the insured as long as he is totally disabled.
• Liquidation: Dissolving a company by selling its assets for cash.
• Long-Term Disability Income Insurance: Insurance issued to an employer
(group) or individual to provide a reasonable replacement of a portion of an
employee's earned income lost through serious and prolonged illness or injury
during the normal work career. (See also Integration.)
• Loss: The happening of the event for which insurance pays.
• Loss Ratio: The percent which losses bear to premiums for a given period. The
ratio of claims to premiums. It may be calculated in several different ways, using
paid premiums or earned premiums, and using paid claims with or without
changes in claim reserves and with or without changes in active life reserves.
• Loss Reserve: The amount set up as the estimated cost of a claim. (See IBNR
Reserve)
Dictionary of Insurance Terms
-M-
• Malingering: The practice of feigning illness or inability to work in order to
collect insurance benefits.
• Malpractice: Improper care or treatment by a physician, hospital, or other
provider of health care.
• Malpractice Insurance: Coverage for a professional practitioner, such as a
doctor or a lawyer, against liability claims resulting from alleged malpractice in
the performance of professional services.
• Managed Care: Health care systems that integrate the financing and delivery of
appropriate health care services to covered individuals by arrangements with
selected providers to furnish a comprehensive set of health care services, explicit
standards for selection of health care providers, formal programs for ongoing
quality assurance and utilization review, and significant financial incentives for
members to use providers and procedures associated with the plan.
• Market Price (or Market Value): The price at which a item can be bought or
sold at any particular time.
• Material Damage: Insurance against damage to a vehicle itself. It includes
automobile comprehensive, collision, fire and theft. Material damage and physical
damage are terms that often are used inter- changeably.
• Maximum Medical Improvement (MMI) Maximum Medical Improvement
(MMI) is a treatment plateau in each person’s healing process. It can mean that
the patient has fully recovered from the injury or that the patient’s medical
condition has stabilized to the point that no major medical or emotional change
can be expected in the injured workers’ condition. This occurs despite continuing
medical treatment or rehabilitative programs the injured worker partakes in.
• Medical Payments Insurance: A coverage, available in various liability
insurance policies, in which their insurer agrees to reimburse the insured and
others, without regard for the insured's liability, for medical or funeral expenses
incurred as the result of bodily injury or death by accident under specified
conditions.
• Misrepresentation: A false, incorrect, improper, or incomplete statement of a
material fact, made in the application or claim process.
• Mutual Insurance Company: An insurance company in which the ownership
and control is vested in the policyholders and a portion of surplus earnings may
return to policyholders in the form of dividends. No capital stock exists.
Dictionary of Insurance Terms
-N-
• Named Perils: Coverage in a property policy that provides protection against loss
from only the perils specifically listed in the policy rather than protection from
physical loss. Examples of named perils are fire, windstorm, theft, smoke, etc.
• National Association of Insurance Commissioners (NAIC): The association of
insurance commissioners of various states formed to promote national uniformity
in the regulation of insurance.
• Negligence: Failure to use the care that a reasonable and prudent person would
have used under the same or similar circumstances.
• No-Fault: A type of auto insurance mechanism whereby the right to sue another
party for damages caused by negligence is limited and, in exchange, expanded
first party benefits are offered.
• No-fault Automobile Insurance: A form of insurance by which a person's
financial losses resulting from an automobile accident are paid by his or her own
insurer regardless of who was at fault.
• Non-disabling Injury: An injury which may require medical care, but does not
result in loss of working time or income.

Dictionary of Insurance Terms

-O-
• Occupational Hazards: Occupations which expose the insured to greater than
normal physical danger by the very nature of the work in which the insured is
engaged, and the varying periods of absence from the occupation, due to the
disability, that can be expected.
• Occurrence: An accident, including continuous or repeated exposure to
substantially the same general, harmful conditions, that results in bodily injury or
property damage during the period of an insurance policy.
• Occurrence policy: A liability insurance policy that covers claims arising out of
occurrences that take place during the policy period, regardless of when the claim
is filed.
• Overhead Insurance: A type of short-term disability income contract that
reimburses the insured person for specified, fixed monthly expenses, normal and
customary in the operation and conduct of his/her business or office.
Dictionary of Insurance Terms
-P-
• Partial Disability: The result of an illness or injury which prevents an insured
from performing one or more of the functions of his/her regular job. A benefit
sometimes found in disability income policies providing for the payment of
reduced monthly income in the event the insured cannot work full time and/or is
prevented from performing one or more important daily duties pertaining to his
occupation.
• Peril: The cause of a possible loss, such as fire, windstorm, theft, explosion, or
riot.
• Persistency: A term used to refer to the length of time insurance remains
continuously in force.
• Personal Articles Floater: A form of coverage designed to meet the needs for
insurance on property of a moveable nature. The coverage usually protects against
all physical loss, subject to special exclusions and conditions. Examples of
property covered include jewelry, furs, silverware, and fine arts.
• Personal Injury Protection (PIP): First-party no-fault coverage in which an
insurer pays, within the specified limits, the wage loss, medical, hospital and
funeral expenses of the insured.
• Personal Lines: Those types of insurance, such as auto or home insurance, for
individuals or families rather than for businesses or organizations.
• Personal representative: A person appointed through the will of a deceased or
by a court to settle the estate of one who dies.
• Physical Damage: Damage to or loss of the auto resulting from collision, fire,
theft or other perils.
• Policy: The printed legal document stating the terms of the insurance contract that
is issued to the policyholder by the company. A contract of insurance. The legal
document issued by the company to the policyholder, which outlines the
conditions and terms of the insurance; also called the policy contract or the
contract.
• Policy Term: That period for which an insurance policy provides coverage.
• Policyholder: The person who owns a life insurance policy. This is usually the
insured person, but it may also be a relative of the insured, a partnership or a
corporation. A person who pays a premium to an insurance company in exchange
for the insurance protection provided by a policy of insurance.
• Premium: The sum paid by a policyholder to keep an insurance policy in force.
• Primary Insurance: Insurance that pays compensation for a loss ahead of any
other insurance coverage’s the policyholder may have.
• Probate: The court supervised process of validating or establishing a distribution
for assets of a deceased including the payment of outstanding obligations.
• Probationary Period: A period from the policy date to a specified time, usually
15 to 30 days, during which no sickness coverage is effective. It is designed to
eliminate a sickness actually contracted before the policy went into effect.
 • Product Liability: legal liability incurred by a manufacturer, merchant, or
distributor because of injury or damage resulting from the use of its product.
• Product Liability Insurance: Protection against financial loss arising out of the
legal liability incurred by a manufacturer, merchant, or distributor because of
injury or damage resulting from the use of a covered product.
• Proof of Loss: Documentation presented to the insurance company by the insured
in support of a claim so that the insurer can determine its liability under the
policy. Documentary evidence required by an insurer to prove a valid claim
exists. It usually consists of a claim form completed by the insured and the
insured's attending physician. For medical expense insurance itemized bills must
also be included.
• Property Damage Coverage: An agreement by an insurance carrier to protect an
insured against legal liability for damage by an insured automobile to the property
of another.
• Property Insurance: Insurance providing financial protection against the loss of,
or damage to, real and personal property caused by such perils as fire, theft,
windstorm, hail, explosion, riot, aircraft, motor vehicles, vandalism, malicious
mischief, riot and civil commotion, and smoke.
• Proximate Cause: The dominating cause of loss or damage; an unbroken chain
of events between the occurrence and damage.
• Punitive Damages: a court awarded amount that exceeds the economic losses
and general damages of a defendant and is intended solely to punish the plaintiff

Dictionary of Insurance Terms

-Q-
• Qualification Period: The period during which the insured must be totally
disabled before becoming eligible for residual disability benefits.
Dictionary of Insurance Terms
-R-
• Rate: The pricing factor upon which the insurance buyer's premium is based.
• Rated Policy: Sometimes called an "extra risk" policy, an insurance policy issued
at a higher-than-standard premium rate to cover the extra risk where, for example,
an insured has impaired health or a hazardous occupation.
• Regulation: Supervision of business practices by a governmental entity.
• Rehabilitation: (1) Restoration of a totally disabled person to a meaningful
occupation, (2) a provision in some long- term disability policies that provides for
continuation of benefits or other financial assistance while a totally disabled
insured is retraining or attempting to resume productive employment.
• Reimbursement: The payment of the expenses actually incurred as a result of an
accident or sickness, but not to exceed any amount specified in the policy.
• Reinstatement: The resumption of coverage under a policy which has lapsed.
• Reinsurance: Assumption by one insurance company of all or part of a risk
undertaken by another insurance company. The acceptance by one or more
insurers, called re-insurers, of a portion of the risk underwritten by another insurer
who has contracted for the entire coverage. The purchase of insurance by an
insurance company from another insurance company (re-insurer) to provide it
protection against large losses on cases it has already insured.
• Renewal: Continuance of coverage under a policy beyond its original term by the
insurer's acceptance of the premium for a new policy term.
• Renter's Policy: A package type of insurance that includes coverage similar to a
homeowner’s policy to cover the personal property of a renter or tenant in a
building.
• Replacement: The substitution of health insurance coverage from one policy
contract to another.
• Replacement Cost: The cost to repair or replace property at construction costs
prevailing at time of loss; the cost to repair or rebuild property without
considering depreciation. (See Actual Cash Value)
• Representation: Statements made by an applicant in the application, which he
represents as being substantially true to the best of his knowledge and belief, but
which are not warranted as exact in every detail.
• Rescission: Termination of an insurance contract by the insurer on the grounds of
material misstatement on the application for insurance. The action of rescission
must take place within the contestable period or Time Limit on Certain Defenses
but takes effect as of the date of issue of the policy, thus voiding the contract from
its inception.
• Reservation of Rights: An arrangement whereby an insurer defends a case
without commitment to provide coverage in the event that the facts disclosed
during the trial reveal that the occurrence is not covered.
• Reserve: (1) an amount representing liabilities kept by an insurer to provide for
future commitments under policies outstanding. (2) An amount allocated for a
special purpose. Note that a reserve is usually a liability and not an extra fund.
• Revocable Trust: A trust that can be terminated or revoked by its creator.
• Rider: (1) A document which amends the policy or certificate. It may increase or
decrease benefits, waive the condition of coverage or in any other way amend the
original contract. (2) A special policy provision or group of provisions that may
be added to a policy to expand or limit the benefits otherwise payable. (3) A
document that modifies the policy. It may increase or decrease benefits, waive a
condition or coverage, or in any other way amend the original contract.
• Right of Survivorship: at the death of one co-owner of property, that person's
interest in the property automatically passes to the surviving joint tenant or
tenants.
• Risk: The chance of loss. Also used to refer to the insured or to property covered
by a policy. (2) Any chance of loss. (3) A term used to refer to a person or the
peril insured.
• Risk Classification: The process by which a company decides how its premium
rates for life insurance should differ according to the risk characteristics of
individuals insured (e.g., age, occupation, sex, state of health) and then applies the
resulting rules to individual applications. (See: Underwriting)
• Robbery: The taking of property from a person by force or threat of violence.
Dictionary of Insurance Terms
-S-
• Salvage: Recovery made by an insurance company by the sale of property which
has been taken over from the insured as a part of loss settlement.
• Self-Insurance:(1) A program for providing group insurance with benefits
financed entirely through the internal means of the policyholder, in place of
purchasing coverage from commercial carriers. (2) A form of risk financing
through which a firm assumes all or a part of its own losses.
• Settlement Options: The several ways, other than immediate payment in cash,
which a policyholder or beneficiary may choose to have policy benefits paid.
• Short-Term Disability Income Insurance: The provision to pay benefits to a
covered disabled person as long as he/she remains disabled up to a specified
period not exceeding two years.
• Special Risk Insurance: Coverage for risks or hazards of a special or unusual
nature.
• Spouse's Benefit: Payments to the surviving spouse of a deceased employee,
usually in the form of a series of payments upon meeting certain requirements and
usually terminating with the survivor's remarriage or death.
• State Fund: A fund set up by a state government to provide a specific line or
lines of insurance. Some state permit private insurers to compete with the state
fund.
• State Insurance Department: A department of a state government whose duty is
to regulate the business of insurance and give the public information on insurance.
• Strict Liability: Liability for damages even though fault or negligence cannot be
proven.
• Subrogation: Process by which one insurance company seeks reimbursement
from another company or person for a claim it has already paid.
• Substandard Insurance: Insurance issued with an extra premium or special
restriction to those persons who do not qualify for insurance at standard rates.
• Substandard Risk: An individual, who, because of health history or physical
limitations, does not measure up to the qualification of a standard risk.
• Surplus Lines: (1) A risk or a part of a risk for which there is no normal
insurance market available. (2) Insurance written by non-admitted insurance
companies.
Dictionary of Insurance Terms
-T-
• Temporary Total Disability (TTD): This benefit is payable when the injured
worker is unable to work during a period when he/she is under active medical care
and has not yet reached what is called “maximum medical improvement” (MMI).
By virtue of simple common sense, once “maximum medical improvement” has
been reached the condition can no longer be categorized as temporary.
• Temporary Partial Disability (TPD): An employee may be eligible for
temporary partial disability when he or she is able to do some work but is still
recuperating from the effects of the injury, and is, thus, temporarily limited in the
amount or type of work which can be performed compared to the pre-injury work.
• Tenants in common: A form of joint property ownership in which the owners
may have unequal shares and which does not involve a right of survivorship.
• Third Party: The claimant under a liability policy. So called because the person
making the claim is not one of the two parties, insured and insurer, to the
insurance contract.
• Third party claim: a demand made by a person against a policyholder of another
company and any payment that will be made by that company.
• Threshold (No-Fault): The point, measured in money, time or other ways,
beyond which tort liability can be established. Until that point is reached,
reparations must be paid within the provisions of the no-fault plan, with no
recourse to the courts.
• Time Limit: The period of time during which a notice of claim or proof of loss
must be filed.
• Tort: A civil wrong, other than a breach of contract, for which a court of law will
afford legal relief, i.e. harming another by an act of negligence in driving an auto.
• Total Disability: An illness or injury which prevents an insured person from
continuously performing every duty pertaining to his/her occupation or engaging
in any other type of work. (This wording varies among insurance companies.)
• Travel Accident Policy: A limited contract covering only accidents while an
insured person is traveling, usually on a commercial carrier.
• Turnover Rate: The rate at which employees terminate covered service other
than by death or retirement. Expected future turnover can be taken into account in
translating contributions into benefits.
• Twisting: The practice of inducing by misrepresentation, or inaccurate or
incomplete comparison, a policyholder in one company to lapse, forfeit or
surrender his insurance for the purpose of taking out a policy in another company.
Dictionary of Insurance Terms
-U-
• Umbrella Liability: Insures losses in excess of amounts covered by other
liability insurance policies; also protects the insured in many situations not
covered by the usual liability polices.
• Underwriter: (1) a company that receives the premiums and accepts
responsibility for the fulfillment of the policy contract; (2) the company employee
who decides whether or not the company should assume a particular risk; (3) the
agent who sells the policy.
• Underwriting: The process of selecting risks for insurance and determining in
what amounts and on what terms the insurance company will accept the risk.
• Uninsured/Underinsured Motorist Coverage: A form of insurance that pays the
policy holder and passengers in his/her car for bodily injury caused by the owner
or operator of an uninsured or inadequately insured automobile.

Dictionary of Insurance Terms

-V-
• Verbal Threshold: In no-fault auto insurance states with a verbal threshold,
victims are allowed to sue in tort only if their injuries meet certain verbal
descriptions of the types of injuries that render one eligible to recover for pain and
suffering.
• Viatical Settlement: Payment of a portion of the proceeds from life insurance to
an insured who is terminally ill.

Dictionary of Insurance Terms

-W-

• Waiver: An agreement attached to a policy which exempts from coverage certain

disabilities or injuries that otherwise would be covered by the policy.
• Workers Compensation: A system established under state law that provides
payments, without regard to fault, to employees injured in the course and scope of
their employment.
• Workers' Compensation Insurance: Insurance against liability imposed on
certain employers to pay benefits and furnish care to employees injured, and to
pay benefits to dependents of employees killed in the course of or arising out of
their employment.