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Understanding Insurance Definitions

Updated on September 8, 2009

Insurance Terms and Terminology

  • Abandonment- The act of relinquishing title to damaged or lost property by the insured to an insurance company for the purpose of claiming a total loss.
  • Accounts Receivable Insurance- Insurance against loss due to inability to collect outstanding accounts receivable because of damage to or destruction of records by a peril insured against.
  • Actual Cash Value- The value of property covered by insurance at the time of a loss.
  • Actuary- A technical expert in the insurance and related fields, particularly in the mathematics of life insurance.
  • Agent- One who solicits, negotiates, or effects contracts of insurance on behalf of the insurer.

  • All Risks Insurance- Insurance against loss or damage to property arising from any fortuitous cause, except such as may be specifically excluded.
  • Allied Lines- Coverages, traditionally written by fire companies, that provide protection against perils in addition to fire, such as windstorm, explosion, riot, and aircraft or vehicle damage.
  • Automatic Premium Loan- A provision in a life insurance policy authorizing the company to pay automatically by means of a policy loan any premium not paid by the end of the grace period.
  • Automobile Assigned Risk Plan- A program, operative in each state, under which automobile liability insurance is made available to persons who are unable to obtain such insurance in the voluntary market.
  • Average Clause- See 'Coinsurance'.
  • Banker's Blanket Bond- A form of bond providing broad protection guaranteeing banks against loss due to dishonest, fraudulent, or criminal acts of their employees and insuring against loss due to robbery, larceny, burglary, theft, holdup, forgery, misplacement, or mysterious disappearance.
  • Binder- A preliminary agreement providing evidence of insurance until a policy can be written, either by an agent or by a company.
  • Blue Cross- An independent, nonprofit, membership corporation providing protection against the costs of hospital care in a limited geographical area.
  • Blue Shield- An independent, nonprofit, membership corporation providing protection against the costs of surgery and other items of medical care in a limited geographical area.
  • Capital Sum- The maximum amount payable in one sum in event of accidental dismemberment.
  • Cash Surrender Value- The amount available in cash upon surrender of a life insurance policy before it becomes payable by maturity or before occurrence of the circumstance insured against.
  • Coinsurance- (1) An arrangement under which two or more insurers (or reinsurers) are each liable for a proportion of losses; (2) risk sharing or loss sharing. In the second sense, in property insurance, it is an arrangement, by contract or custom recognized by law, under which an insured shares in losses in proportion to the extent by which his aggregate insurance is less than a specified amount or a proportion of the value of the property; in health insurance, it is a provision that the insured and insurer will share covered losses in agreed proportion.
  • Comprehensive Dishonesty, Disappearance, and Destruction Insurance- A broad form of insurance available to business risk covering optionally one or more of eight separate types of loss.
  • Comprehensive Medical Expense Insurance- A form of health insurance that combines major medical and basic medical expense insurance in one broad contract providing coverage for almost all types of medical expense, usually subject to a small deductible for some or all expenses and to a percentage participation clause (for example, the insured may be required to pay 20%) applicable to all or some of the covered expenses above the amount of the deductible.
  • Comprehensive Personal Liability Insurance- A type of insurance that reimburses the policyholder if he becomes liable to pay money for damage or injury he has caused to others.
  • Convertible Term Insurance- Term life insurance that can be exchanged, at the option of the policyholder and without evidence of insurability, for another plan of insurance.
  • Constructive Total Loss- When an insured peril so damages property that, while not completely destroyed, it is not worth repairing.
  • Deductible Clause- A provision that specifies an amount to be deducted from any loss or makes the company liable only for the excess above a stated amount.
  • Deferred Annuity- An annuity providing for the income payments to begin at some future date, such as in a specified number of years or at a specified age.
  • Errors and Omissions Insurance- Insurance providing for indemnity to the mortgagee if, by reason of error or omission in the operation of customary procedure in procuring insurance, a damaged or destroyed building is found to be without insurance.

  • Disability Income Insurance- A form of health insurance that provides periodic payments to replace income, actually or presumptively lost, when the insured is unable to work as a result of sickness or injury.
  • Expectation of Life (Life Expectancy)- The average number of years of life remaining for persons of a given age, according to a particular mortality table.
  • Exposure- (1) The state of being subject to the possibility of loss; (2) extent of risk as measured by payroll, gate receipts, area, or other standard; (3) possibility of loss to a risk being caused by its surroundings; (4) surroundings producing the preceding.
  • Extended Coverage Endorsement- A specific endorsement attached to a standard fire policy usually providing coverage of losses from windstorm, hail, explosion, riot, riot attending a strike, civil commotion, aircraft and vehicle damage, and smoke.
  • Family Income Policy- A life insurance policy, combining whole life and decreasing term insurance, under which the beneficiary receives income payments to the end of a specified period if the insured dies prior to the end of the period, and the face amount of the policy at the end of the period.
  • Fine Arts Floater Insurance Policy- A form of insurance coverage on fine arts works against all risks on a valued (agreed) basis.
  • General Average- In maritime law and marine insurance, "a sacrifice to avert a common peril". It means losses suffered through expenses voluntarily incurred and sacrifices intentionally made by a master of a ship of a part of a ship's cargo to preserve the rest from destruction.
  • Guaranteed Renewable Contract- A contract that the insured has the right to continue in force by the timely payment of premiums for a substantial period of time.
  • Homeowners Policy- A package type of insurance for the homeowner that includes coverages ranging from fire and extended coverage, theft, and personal liability to "all risk" coverages, all in a single policy.
  • Indemnity- Restoration to the victim of a loss, in whole or in part, by payment, repair, or replacement.
  • Industrial Life Insurance- Life insurance issued in small amounts, usually not over $ 1,000, with premiums payable on a weekly or monthly basis. The premiums are generally collected at the home by an agent of the company.
  • Insurer- The party to an insurance arrangement who undertakes to indemnify for losses, provide other pecuniary benefits, or render service.
  • Loss- The basis for a claim for indemnity or damages under the terms of an insurance policy.
  • Major Medical Expense Insurance- A form of health insurance that provides benefits for most types of expenses incurred up to a high limit subject to a large deductible. Such contracts may contain internal limits and a percentage participation clause (for example, the insured may be required to pay 20% of expenses).
  • Medical Expense Insurance- A form of health insurance that provides benefits for medical care.
  • Medical Payments Insurance- A coverage, available in various liability insurance policies, in which the insurer agrees to reimburse the insured and others, without regard for the insured's liability, for medical or funeral expenses.
  • Multiple Line Insurance- Policies that combine many perils previously covered by individual policies of fire and liability companies.
  • Noncancellable Contract- A contract of health insurance that the insured has the right to continue in force by the timely payment of premiums set forth in the contract for a substantial period of time.
  • Nonforfeiture Option- One of the choices available to the policyholder if he discontinues the required premium payments. The policy value, if any, may be taken in cash, as extended term insurance, or as reduced paid-up insurance.
  • Ordinary Life Policy- Life insurance for the whole of life with level premiums payable on an annual, semiannual, quarterly, or monthly basis; also referred to as straight life policy.
  • Participating Insurance- Insurance on which the policy-holder is entitled to share in the surplus earnings of the company through dividends that reflect the difference between the premium charged and the insurer's actual loss experience.
  • Permanent Life Insurance- A phrase used to cover any form of life insurance except term; generally insurance, such as whole life or endowment, that accrues cash values.
  • Personal Property Floater- An insurance policy with broad coverage for personal property either at home or away.
  • Policy Reserves- The measure of an insurance company's policy liabilities- the amounts needed to fulfill its policy obligations.
  • Primary Commercial Blanket Bond- A fidelity bond providing blanket coverage against employee dishonesty that specifies the amount available for any single loss regardless of the number of identifiable employees involved.
  • Principal Sum- The amount payable in one sum in event of accidental death and, in some cases, accidental dismemberment.
  • Rated Policy- An insurance policy issued at higher than standard premium rate to cover the extra risk involved in certain cases where the insured has impaired health or a hazardous occupation.
  • Renewable Term Insurance- Term insurance that can be renewed at the end of the term, at the option of the policyholder and without evidence of insurability, for a limited number of successive terms.
  • Replacement Cost Insurance- Insurance providing that the insured will be paid the cost of replacing the damaged property without deduction for depreciation.
  • Settlement Option- One of the ways, other than immediate payment in a lump sum, in which the policy-holder or beneficiary may choose to have the policy proceeds paid.
  • Term Insurance- (1) A plan of life insurance payable at death provided death occurs within a specified period; (2) in property or liability insurance, a policy contract for a period of more than one year.
  • Total Loss- The complete destroying or ruining of the property insured; a claim of sufficient size to require settlement of the maximum amount of insurance on the covered property.
  • Underwriter- A person whose duty it is to select risks for insurance and to determine in what amounts and on what terms the insurance company will accept the risks.
  • Uninsured Motorist Protection- A form of insurance that covers the policyholder and members of his family if injured by a hit-and-run motorist or a driver who carries no liability insurance, assuming the other driver is at fault.
  • Vesting- A participant's attainment of a benefit right to employer contributions; it is not contingent upon a participant's continuation in specified employment. (For example, an employee may be entitled to 10% of his normal accrued pension benefits for each year of service, up to 100% after 10 years service).
  • Waiver of Premium- A provision that under certain conditions an insurance policy will be kept in full force by the company without further payment of premiums. It is used most often in the event of total and permanent disability.
  • Whole Life Insurance- Insurance payable to a beneficiary at the death of the insured whenever that occurs. Premiums may be payable for a specified number of years (limited payment life) or for life (straight life).


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