Insurance Term Glossary


Let's not let insurance jargon confuse us anymore. Get some helpful and straightforward definitions of some oft perplexing insurance terms.

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Insurance Definitions A - B


A

Abandonment: Surrendering the insured property to the insurer for repair or disposal after a covered loss event has occurred. Abandonment is not permitted under most property insurance contracts as it is generally the insured’s responsibility to arrange for repair or disposal.

Accidental bodily injury: A bodily injury which is not intentionally self-inflicted.

Accidental death benefit: A form of insurance that provides payment if death of the insured results from an accident, subject to the conditions of the specific policy. Accidental death insurance is often combined with dismemberment insurance in a form called Accidental Death & Dismemberment (AD&D).

Accidental direct physical loss (ADPL): Property insurance that covers against essentially all perils except those specifically excluded.

Accumulation account: An account, typically associated with Universal Life insurance plans, to which funds are added and from which risk charges are deducted. The balance earns interest.

Act of God: A legal term used to define natural events, outside of human control, such as floods, tornadoes, earth quakes, etc., in which there is no one held accountable for damages.

Actual Cash Value (ACV): The cost to replace property minus an allowance for the property's depreciation.

Actuary: A person trained in mathematics whose job is to apply the theory of probability to the business of insurance and develop insurance rates. This is done largely from past experience, though future probable trends are also taken into account.

Additional insured/additional interest: Some person, other than the original named insured, who is entitled to protection under a policy either by virtue of the wording of the basic policy or because the policy has been modified to protect such interest.

Additional living expense clause: A coverage in homeowners policies that covers the insured for additional expenses incurred following a covered property loss so that the household can maintain its normal standard of living while the dwelling is being restored.

Adjustable premium: The contractual right of a company to modify a policy owner's premium payments under certain specified conditions.

Adjuster: An individual representing the insurance company who works on agreements regarding the amount of a loss and liability issues.

Adjustment income: Income paid to the dependent(s) of a primary wage earner in the event of his or her death. These funds, usually provided through life insurance policies, are intended to provide financial support as the beneficiary adjusts to becoming self-sufficient.

Advance premium, or deposit premium: The premium for many policies depends on payroll or some other factor which can only be determined accurately at the end of the policy period. In such cases, an estimated premium is charged in advance and an adjustment is made at the close of the policy term.

Adverse Carrier: Term used to refer to the other party’s insurance company.

Agency: A legal relationship that exists when one party, the agent, represents or acts on behalf of another party, the principal.

Agent: An individual appointed by an insurance company to solicit, negotiate, effect, or countersign insurance contracts, and to provide policyholder services on its behalf.

Allied lines insurance: Coverage for such miscellaneous perils as floods, earthquakes, and sprinkler leakage, all of which have no immediate relationship to fire insurance but are normally associated with it. Some of these perils are written by endorsement to a fire contract; others are written in separate policies.

Annuitant: The person whose life is measured to determine the timing and amount of annuity payments.

Annuity: A contract that provides for a stipulated sum payable at certain regular intervals during the lifetime of one or more persons, or payable for a specified period in exchange for a specified premium. There are various types of annuities, such as immediate and deferred, which can be fixed or variable.

Apportionment clause: This clause provides that if there is other insurance covering the loss, the policy to which the clause is attached will not pay more than its pro rata share of the loss.

Appraisal clause: Used when the insured and insurer agree that the loss is covered, but the amount of the loss is in dispute. In general, each party selects its own appraiser. If the appraisers cannot agree, they select an umpire. An agreement by any two is binding on all parties.

Appurtenant structures: Buildings located on the same premises as the main building insured under a property policy (e.g., a tool shed).

Arbitration clause: In a property insurance contract, a clause that provides that if the policyholder and the company cannot agree on the settlement amount on a claim, they both select a neutral arbitrator. Any differences between the arbitrators are submitted to an umpire. The amount agreed to by any two of the three will be the amount of reimbursement.

Assigned risk: A risk which is not ordinarily acceptable to insurers and, thus, is "assigned" to an insurer by an assigned risk pool or plan. Each participating company agrees to accept its share of these risks.

Assumed expense: Refers to the amount of money that will be spent to get a policy into the hands of the policyholder. These costs include items like commissions, underwriting expenses, salaries for company employees, state insurance filing fees, and product development costs.

Assumed mortality: An estimate of when a policyholder is likely to die, based primarily on age, and also influenced by health. Mortality tables covering large cross sections of people in varying degrees of health, different occupations, and multiple lifestyles have been developed to help insurance companies determine the average number of people of any given age who will die within a certain year.

At Fault: The party legally liable for damages after an accident.

Attorney-in-fact: A person or entity given the power of performing stated acts for another person or entity. Such legal authority is given to the attorney-in-fact under a written contract, called a "power of attorney."

Attractive nuisance: Any dangerous feature of a property, including any object, place, or condition therein, that is attractive to children and may prove harmful to them. Owners may be held liable for injuries to children caused by an attractive nuisance, even if the children were trespassing when they sustained the injury.

Audit: A survey or examination of the insured's books (payroll records) or other records to determine the premium due the carrier for coverage provided.

Authorization: The amount of insurance which an insurer will accept from a broker; also the limit of authority for a claims adjuster in settling losses on his/her own initiative.

Automatic coverage: Subject to contract terms, coverage of additional property or other risk by an existing contract without specific request by the insured.

Automatic premium loan: An option which may be available on certain policies to automatically pay premiums in default at the end of the grace period by charging the amount against the policy as a policy loan.

Automatic reinstatement clause: In a property insurance contract, a clause providing for the automatic restoration of the full face value of the policy after the payment of a loss.

Average rate: A rate used in fire insurance to determine the premium for a policy or policies covering more than one location or more than one type of property. It is obtained by multiplying the rate for each location by the value at that location, totaling the premium for all locations, and dividing the sum of the results by the total value.

B

Bailee: A person or business in lawful, temporary possession of the personal property entrusted to them by others. A bailee is obligated to return it.

Bailor: The person who gives or entrusts their personal property to another person.

Basic Reparation Benefits: Known as Personal Injury Protection (PIP) in other states, this coverage pays for reasonable medical and rehabilitation expenses, funeral expenses, replacement services, and time off of work that you, family members, passengers, or pedestrians experience as the result of injuries caused by an accident with your insured vehicle.

Beneficiary: The party to whom the proceeds of a life insurance policy or the values of an annuity policy are payable when the insured or annuitant dies.

Benefits: The money provided by an insurance policy for covered losses.

Binder: An oral or written agreement to provide temporary insurance coverage until a formal written policy is issued.

Blanket insurance: A type of property insurance that covers, through a single contract, more than one type of property in one location, or one or more types of property at more than one location.

Bodily injury: Refers to physical injury, sickness, disease, or death, subject to any definitions or limitations in the policy.

Bodily injury liability: The legal obligation that stems from the injury or death of another person. Bodily injury liability coverage helps pay if you are legally obligated to pay damages due to bodily injury to others arising from an accident (i.e. a covered loss). It also helps pay the cost of your legal defense in the event you are sued because of an accident.

Broker: A person who acts as the representative of the applicant for insurance. Although brokers are compensated with a commission from the insurance company (just like agents), they do not represent the insurer. Their sole duty is to get the best possible coverage for their clients at the lowest possible cost.

Bundling: Purchasing multiple insurance policies from the same company in order to obtain a full assortment of coverages at a lower rate.

Business insurance (also referred to as partnership insurance and/or corporation insurance): Insurance concerned primarily with the coverage of an insured's business or vocation. Business insurance protects a business against the loss of its "valuable lives" or key people, stabilizes the business through the establishment of better credit relations, and can provide a practical plan for the retirement of business interests in the event of the death of one of the owners.

Business interruption insurance: Protects against the loss of prospective earnings because of the interruption or suspension of business caused by a covered peril.

Buy-back deductible: A deductible that may be eliminated for an additional premium.