Our Complete Insurance Glossary with Terms and Definitions
The purpose of this glossary is for educational purposes only. We have compiled a list of common insurance terms and provided definitions. Insurance terms can be complicated and overwhelming since there are quite many. Our goal is to simplify your life.
A.M. Best Company
An organization that provides ratings on insurance companies' financial stability that do business in the United States. They are headquartered in Oldwick, New Jersey, and were founded by Alfred M. Best.
Actual cash value (ACV)
The cost to repairing or replacing an item of property during the time of loss, less depreciation; ACV is often used to determine the amount of reimbursement for a loss.
Add-on insurance coverages that apply only in certain situations. Additional coverages have reduced or separate limits of liability. They require the insured to meet specific requirements before they become applicable. Additional coverages are also known as coverage extensions, other coverages, and extended coverages.
Within an insurance policy, an additional insured is an individual or company who receives the insured's benefits under the insurance policy. They will be listed in the declarations. For example, a mortgage company that insured property and has an insurable interest.
An insurer is licensed to conduct business in the state or country. The insurer is a fully licensed carrier, and they are approved to provide specific lines of insurance coverage in the state the insurance exposure is located.
Type of policy limit found in liability policies that place a ceiling on coverage to a specified total amount for all losses (property damage, bodily injury, etc.) that occurred within the policy period.
Agreed value method
This method involves assigning a value for a property in which the insured and insurer agree, at the beginning of the policy period, on the maximum amount paid in the event of a total loss.
All risk policy
Insurance coverage that, unless explicitly omits, covers any risk. For example, if the policy does not expressly exclude flood insurance, then the house would be covered in the event of a flood. See open peril policy.
An individual or company that meets a state insurance department's standard and is approved by the responsible authority to do business in the given state, also known as admitted insurer.
An add-on to an insurance policy where the coverage for a property automatically increases over time, considering changing construction costs, protecting the insured from facing losses.
Basic named perils
A basic named-peril is a term that is used to label specific losses or damages that are "named" or written in your insurance policy. Here are the basic named perils: fire, lightning, explosion, windstorm or hail, smoke, aircraft or vehicles, riot or civil commotion, vandalism or malicious mischief, sprinkler leakage, sinkhole collapse, and volcanic action.
It provides immediate but temporary insurance for some time until a formal policy has been issued or denied.
Broad named perils
This type of named-perils relates, particularly to property coverage. Includes an additional six areas of protection on top of the 11 of the basic form policies. Added areas include burglary, fallen objects, ice or snow, frozen plumbing, accidental water damage, and electricity.
Broad theft coverage endorsement
A dwelling policy covering theft attempted theft and vandalism, and malicious mischief resulting from theft, and applies to theft on and off the premises.
Builders risk coverage form
Also known as a builder's risk policy covering residential, commercial, and farm structures that are being renovated or under construction.
It covers losses resulting from a person unlawfully entering premises evident from forced entry.
Businessowners policy (BOP)
A type of insurance coverage businesses typically for liability, property, and coverage on business interruptions.
A broad type of insurance coverage for employers, businesses, and individuals against property damage and other liabilities. It's also an umbrella term for different types of insurance like aviation, surety bonds, nad workers' compensation.
Certificate of insurance
A certificate provided by an insurance company that authenticates the existence of a policy; includes a brief description of the type of coverage under the policy.
A requirement set out in a policy stating the insured pay part of a loss to an insurance company— usually at least 80%.
The amount the insurance company will not pay if the policyholder fails to adhere to the coinsurance clause.
Common policy declarations
A form located in a different section of an insurance policy; containing critical information about the policy, such as the name of the insured, policy terms, and the amount of coverage included.
An insurance cover offering more than what a standard policy provides; usually purchased separately from a standard policy and works as an extension.
A regulated insurance form is used to issue an insurance contract. Generally contains insuring agreements, coverages, exclusions, and conditions.
This must occur before a liability policy can apply to a given loss. The coverage trigger is the occurrence of injury or property damage that takes place during the policy period.
A DP-1 policy is a type of home insurance that protects rental or vacant homes from nine named perils. It covers the property for its actual cash value, not replacement cost.
Commonly known as Dwelling Fire Form 2, a DP2 policy is created for rental properties and is a named-perils insurance policy. As this policy operates a named perils form, it only covers losses detailed within the policy, usually 18 perils.
A DP3 policy is the third and most in-depth insurance policy and is considered the best insurance cover for rental properties. Also referred to as Dwelling Fire Form 3, this insurance is suitable for residential homes that are not occupied by the owner.
A financial grant is awarded by a court to compensate an injured party for their pain/suffering.
Declarations (dec page)
The part of an insurance contract shows who is insured, when and where the coverage is adequate, what property or risk is covered, and how much coverage applies.
The amount of money you— the insured individual— are expected to pay towards an insured loss before the insurance company starts to pay.
The expenses incurred by the insurer from a legal matter after defending a case against insured persons.
The part of a homeowner's policy that may help repair or rebuild your home's physical structure, flat, or place of residence if damaged by a covered peril such as lightning strikes or fires; some versions can cover additional living expenses.
Dwelling under construction endorsement
This coverage protects your home against things like burst pipes, theft, and other perils for dwellings under construction; the limits of liability increase as construction of the building progress.
Represents any premiums an insurance company has accumulated on the part of the insurance contract that has expired.
Protection against damage to a structure, its contents, or both after an earthquake. Type of insurance is available as an additional policy and backing to homeowners, commercial properties, and dwelling policies.
A building without a basement with its lowest elevated floor above ground level by shear walls, post, foundation walls, piers, columns, or pilings.
Equipment breakdown protection coverage form
Covers insured for loss of equipment due to electrical or mechanical breakdown of most types of equipment.
Insurance that covers a claim when the primary insurance limit has been used up or exhausted.
Extended cover of the casualty insurance policy; supplies insurance against risks unprotected under the primary policy.
Fair Credit Reporting Act
FCRA is a federal law that monitors the gathering and reporting of credit information about consumers; allows consumers to obtain information in credit reports for free.
When a policy is canceled by the insurance company or the insured on its effective date.
Functional replacement cost
The procedure used to figure out the amount it would cost to replace or repair a damaged property with less costly typical constructions, methods, and materials.
Anything that makes risk more probable or a loss more likely to occur due to the peril. There are five types of hazards: Physical Hazard, Moral Hazard, Morale Hazard, Legal Hazard, and Informational Hazard.
A policy that integrates both personal liability cover and personal property coverage. Depending on the policy chosen by the insurer, the property coverage can vary, whereas liability coverage remains the same.
This type of peril is caused directly by a person(s) such as vandalism, regulation, poor design or production, theft, negligence, etc.
Part of the homeowner's policy that authorizes cover on the insured individuals' business activities conducted on the residence premises.
The measures of compensating the insured, as close to the same financial condition preceding the incident, for the loss or damage that has occurred.
The insurance protections provided when damage or loss is sustained, insured needs to be restored to the approximate financial condition preceding the incident. (See also indemnification)
Inflation guard protection
An insurance system that gradually increases property coverage to match the effects of inflation.
The realistic concern of a person acquiring insurance for any individual or estate against unforeseen events, such as death or losses.
Insurance Policy Cancellation
Ending or terminating an insurance policy before the confirmed end date.
They are coverages that are excluded from your insurance policy. You'll usually find most exclusions after the main coverage sections in your policy, referring to named perils, additional coverage, medical payments, personal property, and personal liability.
Insurance to value
The total amount of insurance purchases vs. the actual replacement cost of the insured property is usually expressed as a ratio.
A common law that states any person or entity is accountable for the financial damage suffered by another group, entity, or person.
Transfers the weight of financial loss— because of a liability claim— from the insured to insurer.
Liability loss exposure
The possibility that a person or business will sustain a loss from a claim made against them stating they are legally responsible for injuries or damages sustained.
When an untrue statement is broadcasted about an individual as a fact rather than an opinion. If the statement can be proven to be broadcasted maliciously, the harmed person can sue for damages— typically classed as defamation.
Limited Liability Company (LLC)
A legal entity allowed when forming a business; offers a sophisticated business structure and provides personal liability protection for debts incurred by the company.
A voluntary group of individuals is set up to write insurance policies; everyone is accountable for the amount of policy they write.
Mobile home insurance
A type of homeowners insurance that protects a mobile homes structure and its contents; some policies also included property and liability insurance.
Only insures against losses explicitly listed in the policy; if the risk is not listed, there is no coverage
Named peril policy
Often called specified peril policy-only insures against losses specifically defined in the policies contract.
Showing insufficient care needed to safeguard others from harm or damage to themself or others.
An organization that is not permitted or licensed to do business in a particular state.
Non-special flood hazard area
An area considered a moderate-to-low threat flood zone and did not signify immediate danger. Zones B, C, or X are used to describe the type of flood.
Open peril policy
Unlike a named peril policy, an open peril policy provides cover to the insured for any loss caused by any peril that is not clearly ruled out by the policy
Ordinance or law coverage endorsement
Insurance that gives part coverage for demolition costs and increased construction costs that are regulated by law or regulation.
More than two types of insurance cover combined into a single contract; also called a multi-line policy.
The source of personal injury or property damage; the cause of loss. Perils are terms used to name the risks that can cause injury or property damage. Lightning or fire are examples of perils. They are generally named in your policy.
Protects against damages that are not bodily but discriminatory like slander, libel, false arrest, violation of privacy, malicious prosecution, and wrongful entry.
Personal liability and medical payments to others endorsement
A policy that validates liability cover to the dwelling policy, like the homeowner's policy, can be purchased as a standalone policy.
Property that is not real estate can be an asset that is movable and not rooted in a fixed location.
Personal property replacement cost endorsement
Endorsed by the homeowner's policy; adds relief cost cover for personal properties.
Personal umbrella policy
Extra insurance that gives the insured further protection and cover than other policies. Can provide cover for certain lawsuits, property damage, and personal liability scenarios.
Coverage that takes priority when more than one policy or coverage bears on the same loss.
Concerned with how the action that caused the loss to the insured happened and if it resulted from an insured peril.
The fee to replace a damaged or destroyed item is insured without lowering the price because of depreciation.
Attempting to steal or stealing property from an individual or place with force or a threat to force.
Scheduled personal property endorsement
An additional policy an insured individual can add to their homeowner’s policy; extends the type of coverage to protect against personal property and expensive goods such as jewelry.
Special flood hazard areas (SFHA)
Refers to land with roughly a 1 percent chance of a flood occurring there in any given year. The two classifications for SFHA areas are 1) “A” zones and 2) “V” zones.
Specified peril policy
Section of the insurance policy that insures against losses arising from particular events is clearly set out in the policy, such as theft or fires.
Provides the insured- through the insurer- the legal right to file a liability suit against the party at fault which caused a loss to the insured. Insurers are granted the right to request reimbursement for any loss incurred.
Extra insurance- available as personal or commercial insurance- gives the insured further protection and cover than other policies. Can provide cover for certain lawsuits, property damage, and personal liability scenarios.
Comprising all components that work interdependently, such as the building and its parts used to structure the build, such as exterior walls, interior walls, plumbing fixtures.
When a property or dwelling is unoccupied by people, insurers will restrict the level of coverage when the property is vacant for an extended period.
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