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 C - D


CFP®: certified financial planner®.

Cancellation: The termination of a policy prior to the expiration date stated in the policy. A policy may be canceled at the request of the insured or by the insurer.

  • Flat cancellation - Ending of an insurance policy as of its date of inception, without premium charge.

  • Pro-rata - Termination of an insurance contract or bond by the insurance company, with the premium charge then adjusted in proportion to the exact time the protection has been in force.

  • Short rate - A cancellation by the insured that refunds the unearned premium minus administrative expenses.

Capital sum:
The maximum amount collectable for accidental death or for some major disabling injury, as one resulting in the loss of limb, sight or hearing.

Cash surrender value (CSV): The amount, if any, available to the policy owner when certain life insurance policies are surrendered.

Casualty insurance: A broad term which includes nearly every form of insurance except property coverage, life, fire and its allied lines.

Catastrophe: An event or occurrence that causes a loss of extraordinarily large values.

Causes of loss: A substitute term in the Commercial Property forms that replaces the old term "perils."

Certificate of insurance: A memorandum stating that a policy has been issued. The certificate states the coverage afforded in general terms. A mortgagee usually insists upon holding the fire insurance policy on the mortgaged property, SOA certificate of insurance is sent to the mortgagor.

Claim: A demand by a person or business seeking to recover from an insurer for a loss that may be covered by an insurance policy.

Claimant: Anyone who submits a claim to an insurer.

Claims adjuster (claims representative): The person responsible for investigating and settling, or otherwise concluding, a claim.

Claims made: Policies on a "claims made" basis cover claims reported during the policy terms, regardless of the date of occurrence. In contrast, "occurrence" policies cover claims which occur during the policy term, regardless of when reported.

Class rating: A type of insurance rate that applies to all insureds in the same rating category or rating class.

Coding: The process of inputting numerical and/or alphabetic data to represent policy information.

Coinsurance clause (contribution clause): A clause which requires the policyholder to maintain at all times a certain percentage of insurance to the actual value of the property insured. If they fail to maintain the required percentage, they have to pay part of every loss themselves.

Collateral assignment: The assignment of a policy to a creditor as security for a debt. Under a collateral assignment, the creditor is entitled to be reimbursed out of policy proceeds for the amount owed. The beneficiary is entitled to any excess of policy proceeds over the amount due the creditor in the event of the insured's death.

Combined Single Limit (CSL) Policy: A single level of coverage that wraps collision, property, personal injury, bodily injury, and other types of liability coverage up into one total amount. This single amount covers any claims made against an insured’s coverage.

Commercial lines: Refers to insurance for businesses, professionals, and commercial establishments.

Commercial package policy: A policy containing two or more of the following coverage parts: Commercial Property, Commercial General Liability, Commercial Crime, Commercial Inland Marine, Boiler and Machinery or Commercial Auto.

Commercial general liability insurance: Insurance that covers liability loss exposures arising from a business organization's premises and operations, its products, or its completed work.

Common disaster clause: A clause sometimes added to a life policy which is designed to provide an alternate beneficiary in the event that the insured and the original beneficiary meet death as the result of a common accident.

Common law: Law based upon custom, usage, and case law of the courts during the past several hundred years, as distinguished from statutory law which is passed by state legislatures or Congress.

Comparative negligence: The comparison of each party’s negligence, according to a doctrine of law followed by some states. Depending on the percentage of the claimant’s negligence, his or her recovery amount may be decreased in proportion to his or her negligence.

Comprehensive coverage: Insurance with a wide scope of coverage. Comprehensive liability provides coverage for a range of damages, incidents, and losses, but it is not all inclusive. Specific exclusions apply depending on the terms of the policy.

Comprehensive personal liability (CPL): This coverage protects individuals and families from liability for nearly all types of accidents occurring in their personal lives.

Compulsory insurance: Any form of insurance required by law.

Concealment: Intentional Withholding of material facts concerning a risk or a loss. Concealment usually voids coverage.

Concurrent insurance: Two or more policies covering the same interest in exactly the same manner. It is extremely important for all fire policies covering the same risk to be concurrent as to forms and clauses.

Conditional binding receipt: A receipt given to an applicant in exchange for an initial premium, sufficient to bind the company under certain circumstances.

Conditions: A section in an insurance contract that lists the duties and responsibilities of both the insured and insurer. A condition (1) invests or divests the rights and duties of the parties to the contract, or (2) stipulates that the occurrence or nonoccurrence of a certain event creates or terminates a contract.

Consequential loss (indirect loss): A financial loss that results indirectly from the occurrence of a direct physical damage or theft loss (e.g., loss of rent or rental value if a building burns).

Consideration: An exchange of something of value between two parties. This is one of the requirements of a valid contract. Payment of the premium is an applicant's consideration. The company's promise to pay proceeds is its consideration.

Constructive total loss: A partial loss of such severity that the cost of repairing the damaged property plus salvage value is more than the property is worth in a repaired state.

Contingent beneficiary: A person entitled to receive policy benefits if the primary beneficiary is deceased at the time benefits become payable.

Contractual liability: Liability assumed under any written or oral contract. This kind of liability is excluded by the automobile liability policy and most other liability policies.

Contributory negligence: Lack of care by the injured person when such lack of care helps to cause the accident. Under common law, contributory negligence may bar the right to recover damages.

Controlled business: Business written by a producer covering the life, property or interests of that producer and the members of his or her immediate family.

Conversion: 1) The wrongful use of disposition of another person's property by someone who is in lawful possession of it. 2) In life insurance: changing a life policy, at the policy owner's request, from a term policy to a permanent policy without new evidence of insurability. Conditions and limitations in the original term policy vary by plan.

Countersignature: Signature of an insurer's representative validating an insurance contract.

Coverage: The specific protection provided by a policy against the results of the hazards insured against.

Credit life insurance: Usually a term life-insurance policy on the life of a borrower, and a lender as the beneficiary. It pays the lender a specified amount if the borrower dies before full repayment of the loan.


Damages: Money claimed by, or a monetary award to, a party who has suffered bodily injury or property damage for which another party is legally responsible.

Debris removal: A clause often added to the policy under which the company assumes liability for the removal of debris resulting from damage to the property covered by the peril insured against.

Declarations: Statements made by the applicant relating to the risk. In casualty insurance, the declarations are frequently made a part of the policy - included in this portion of the contract is descriptive information relating to the subject covered, insured, policy period, policy limits, deductible, and premium.

Declination: Rejection of an application for insurance by the insurer.

Deductible: A certain dollar amount beyond which insurance protection begins. The insured assumes the loss up to the deductible limit and the insurer pays the remainder, up to the policy limit.

Deferred annuity: An annuity contract which provides for the postponement of the commencement of annuitized payments until after a specified period or until the annuitant attains a specified age. Deferred annuities may be purchased either on the single premium or annual premium basis. Deferred annuities are sometimes known as "retirement annuities."

Demolition clause: Used to insure against loss resulting from laws or ordinances regulating construction or repair. Inclusion of this clause requires additional premium.

Deposit premium (dep. prem.): That premium paid at the inception of the policy based on known or expected exposures. Premium is adjusted following an audit, to reflect the actual exposures during the policy period.

Depreciation: The decline in value of property due to age, use, wear and tear, etc. Depreciation is an important factor in the adjusting of property losses.

Direct loss: Loss of, or damage to, the primary subject of the insurance agreement which is the immediate result of a hazard insured against.

Direct-response insurer: An insurer that sells through the mail or other mass media (e.g., internet, newspapers, magazines, radio). No agents are used to sell the insurance.

Disability income insurance: A form of insurance that provides periodic payments to replace income if the insured is unable to work due to injury or illness.

Discovery period: A grace period given to an insured who has cancelled a bond, during which he or she can still discover and report losses that occurred during the bond's term. Losses reported in this fashion are paid by the original surety.

Dividend: In insurance, this means a refund to the policyholder of that portion of their premium which is not needed to pay their share of the losses and expenses incurred during the policy period. Dividends are paid by mutual, participating stock companies and sometimes by reciprocals.

Dividend additions: Participating policies provide that policy dividends may be used as single premiums at the insured's attained age to purchase paid-up insurance as additions to the amount of insurance specified on the face of the contract. See paid-up additions.

Domestic insurance company: An insurer organized under the law of the state of domicile.

Double indemnity: Payment of twice the basic benefit if the loss results from specified causes or under specified circumstances.

Draft: An instrument, similar in appearance to a check, directing the payment of money subject to approval by the payor when presented for payment. Most often used for payment of insurance losses.