Insurance Terms
Accounts Receivable InsuranceProvides coverage for direct physical loss of or damage to your records of accounts receivable.
Additional Insured
A person, firm or corporation, other than the named insured on a policy, who is protected against loss by the terms of the policy.
Admitted Carrier
Admitted means that the Insurance Carrier is "licensed" to transact business in the applicable state. Licensed insurance carriers submit to examination and financial requirements by the individual state Insurance Department. Admitted Carriers can only sell what the State has approved. All rates and forms must be filed and approved by the State before an Admitted Carrier can offer insurance coverage. Admitted Carriers also participate in the State Insolvency Guarantee Funds.
Adverse Selection
The insuring of one or more risks with a higher chance of loss than contemplated by the insurance rate. The selection of such risks is adverse because the rate is inadequate.
A.M. Best Rating
A.M. Best is an independent company that ranks the financial strength of insurance companies. Their purpose and/or mission is to "perform a constructive and objective role in the insurance industry towards the prevention and detection of insurance insolvency". A.M. Best ratings give an indicator of how the insurance carrier may be expected to perform in the future, based on past and present performances. A.M. Best assigns letter grades and number grades (ie. A+, 15). The letter grades range from highest to lowest (A++ through F), just like school grades; the higher the grade, the higher the performance level the carrier is expected to meet. The number grades express a carrier's financial size. Financial size categories range from 1 to 15; 1 being the poorest and 15 being the richest. The financial size category is an indicator of how much capital, surplus, & conditional reserve funds the carrier has.
Aggregate Limit
The maximum amount the policy will pay during the policy term.
Attractive Nuisance
A condition which, although normally harmless, may nevertheless attract those (usually children) who do not understand its uses and may cause injury. Although it may be proper to maintain such condition, the owner is required to take such means as may be necessary to prevent its causing injury to innocent people (ie. an empty swimming pool, an unattended tractor etc.)
Auto Insurance
Premiums are set according to your driving record, insurance record, the make and model of the car you own, as well as the purpose for which it is used and where and how far you drive. The area you live will also affect how much you pay. So in addition in choosing your vehicle you can help to control costs by driving responsibly.
Back-up of Sewers or Drains Coverage
Provides coverage for loss or damage to thecovered property caused by water that backs-up from a sewer or drain.
Business Income Insurance
Provides reimbursement for actual loss of earnings due to a covered loss. Includes losses due to downtime and extra expenses needed to restore the normal business operations.
Business Liability Coverage
Providesliability coverage for business operations if a claim arises due to bodily injury to customers of the insured or to the general public. Coverage is also provided for damage to property owned by others.
Builders Risk Insurance
Provides coverage for loss to buildings or structures while under the course of construction.
Cancellation
The discontinuance of an insurance policy before its normal expiration date, either by the insured or the company.
Catastrophe
Event which causes a loss of extraordinary magnitude, such as a hurricane or tornado.
Claim
A formal request for compensation with respect to losses incurred from an insured peril.
Commercial Lines
Insurance for businesses, organizations, institutions, governmental agencies, and other commercial establishments.
Computers & Media Coverage
Insurance portection that reimburses for physical loss or damage to your computer hardware and software.
Concealment
Failure to disclose a material fact that may void an insurance policy.
Conditions
These are provisions of an insurance policy, which state either the rights and duties of the insured or the rights and duties of the insurer. For example, the insured's duties in the event of a loss, cancellation provisions, etc.
Conservation
The attempt by the insurer to prevent the lapse of a policy.
Contractors Equipment Insurance
Covers the equipment, usually valued over $500, that is used on the job site or in transit to and from the job site.
Coverage Trigger
The event that determines when coverage of a liability policyapplies. In an "occurrence" policy, the event is the occurrence of the injury or damage. In a "claims-made" policy, the event is the notification to the insurer or the insured, whichever come first, of the happening of the injury or damage.
Debris Removal Claus
This clause extends insurance coverage to include the cost of debris removal resulting from damage caused by a covered loss up to a specified limit of loss. The clause is an additional property insurance coverage.
Directors & Officers Liability
This insurance is used to protect against claims arising from negligent acts, errors or omissions alleged to have been committed by present or former directors or officers of a corporation.
Earthquake Coverage
provides protection for loss due to earth movement including earthquake shocks and volcanic eruption.
Employee Benefits
provides coverage for claims from a negligent act or omission in the administration of the insured's Employee Benefits Program.
Employee Benefits Libility
this insurance is issued to protect against acts, errors or omissions committed by the insured while engaging in the management of their company's employee benefits plan.
Employee Dishonesty Coverage
Reimburses an insured employer for loss, up to a specified amount, sustained by the employer by reason of any dishonest act of employee(s) that are covered - including money and securities.
Employment Practices Liability
provides protection for an employer against claims made by employees, former employees, or potential employees. It covers discrimination (age, sex, race, disability, etc.), wrongful termination of employment, sexual harassment, and other employment related allegations.
Errors & Omissions Liability
provides protection from claims if a client of the insured alleges an error was made, or the insured failed to perform work as promised in a contract. Coverage includes legal defense costs.
Equipment Breakdown
Coverage that pays to repair or replace your "equipment" in case of breakdowns caused by losses such as power surges, mechanical malfunctions, and boiler explosions. "Equipment" includes computer equipment, phone systems, air conditioners, refrigeration systems, and many others.
Excess Line Associations
State Excess Line Associations are non-profit advisory associations charged with the duty to facilitate and encourage compliance with the excess line law. Excess Line Associations generally act as a facilitator between the brokers and the regulators; conduct financial reviews and oversight of Non-Admitted Carriers; lobby Regulators & Legislators; review documents for compliance; protect members, consumers and the marketplace against fraud; and protects State revenues.
Expense Constant
A flat premium charge made on small workers compensation policies based upon the fact that the expense factor on such risks is inadequate to cover the cost of issuing and handling the policy.
Extra Expense Coverage
Provides coverage for necessary extra expenses incurred by the insured, during the period of restoration, that minimize or avoid the suspension of the insured's business and allows the operations to continue. This includes relocation expenses and the cost to equip and operate the replacement or temporary location.
Floater Policy
An Inland Marine policy which protects moveable property, covering it wherever it may be.
Guarantee Fund
Fees are collected from Admitted Carriers and are held in a State Guarantee Fund in case of insolvency of a carrier. In the event of a carrier going bankrupt or insolvent, and leaving no funds to cover losses in that State, claimants would be eligible to receive at least a portion of their allowable claim paid through the State Guarantee Fund.
Hard Market
In the property and liability insurance business, underwriting philosophies fluctuate between periods called the hard market and the soft market. The hard market is the period during which underwriting standards are very tight and the rates are high. Normally the hard market closely follows a soft market period during which the underwriting standards had been soft and the price or rates are very low, resulting in substantial underwriting losses. The cycle swings back and forth between the two and bounces between soft underwriting with low rates and heavy losses, to the hard market with subsequent tightening of standards and dramatic increases in price.
Hazard
A specific situation that increases the probability of loss. Slippery floors, unguarded premises, wood shingle roofs are examples of hazards.
Impaired Property
Property is considered to be impaired when it has not been physically damaged, but either cannot be used for its intended purpose or has lost monetary value because it contains a defective product or the work performed on it is defective or inadequate, or because the insured has not fulfilled a contractual obligation.
Improvements and Betterments
Additions or changes made by a lessee, at his own cost, to a building he/she is occupying which enhances the building's value.
Indemnity
A principle of insurance which individual is compensated for incurred losses resulting from insured perils so as to enjoy the same financial status prior to the loss.
Installation Coverage
Covers property to be installed at the job site. Coverage applies at the job site and in transit to and from the job site.
Insurance
A contractual mechanism designed to share the losses of the few by pooling them among the many who are exposed to the same chances of suffering losses.
Liability
Legal responsibility or obligation to either partake in or abstain from an act.
Liability Insurance
Common examples where liability insurance would apply include the child who accidentally hits a ball through a neighbor's window or the neighbor who slips and falls on your steps. This insurance helps you meet any potential legal obligations to others in the event of an unintentional incident.
Liquor Liability Coverage
An Endorsement that provides Liability Coverage for Bodily Injury or Property Damage for insured's whose operations include the serving or selling of alcoholic beverages.
Loss Control
The steps and processes made by a risk to reduce, eliminate or control the frequency of loss from occurring and the severity of the loss once it has occurred.
Lost Policy Release (LPR)
An agreement signed by the policyholder relieving the insurer from liability under an insurance contract which has been lost, misplaced or is otherwise unavailable. The lost policy release form is used to fulfill the requirement that a policy be returned when the insured requests that coverage be canceled.
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.
Mechanical Breakdown Coverage
covers repair or replacement of electrical systems, heating, air conditioning, or other machinery (except computers) in the event of an unexpected breakdown. Many policies also cover lost business that results from the equipment breakdown.
Medical Expense Coverage
Provides reimbursement for third party medical expenses caused by an accident on the insured's premises. This coverage applies regardless of the insured's fault.
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 insureds liability, for medical or funeral expenses incurred as the result of bodily injury or death by accident under specified conditions.
Morale Hazard
An attitude of the policyholder that increases the probability of loss from a peril. "It's insured, so why worry?" is an example of a morale hazard.
Named Peril vs Special Form
A "peril" is defined as a cause of damage or loss. To be covered for damage or loss under a "basic" property insurance policy, the damage or loss must be caused by a peril that is "named" or listed in the contract. Consequently, if damage or loss is caused by a peril that is not named, there is no coverage.
In a "special" property insurance policy, it is not necessary to name or list the insured perils since the intent is to cover Risks of Direct Physical Loss unless the loss is excluded or limited in the policy form. However, the exclusions of the policy must be considered. The "special" form of coverage provides a much greater coverage quality. Note: "special" coverage should not be construed to mean "all loss" coverage. Certain types of loss are definite and therefore not insurable.
Non-Admitted Carrier
A Non-Admitted Carrier (aka - Surplus Lines Carrier) is "not licensed" in the State and does not participate in the State Guarantee Funds. Non-Admitted Carriers are not subject to form and rate filings by the State. Most States prohibit competition between Admitted and Non-Admitted Carriers, and allow Non-Admitted Carriers to sell insurance only when coverage is not available through an Admitted Carrier. Non-Admitted Carriers can only write coverage through an Excess & Surplus Lines Broker (such as Northeast Agencies, Inc.) that is licensed in the jurisdiction. When coverage is written through a Non-Admitted Carrier, most states require some sort of Affidavit be completed and filed with their State Excess Line Association. Policies written with a Non-Admitted Carrier are subject to a policy fee and state tax (varying by state). In addition, Non-Admitted Carriers maintain a minimum earned premium (generally 25%) should the policy cancel short term.
Occurence Limit
An accident, including bodily injury or property damage, which occurs during the policy period.
Ordinance or Law Coverage
Provides coverage for losses resulting from the enforcement of laws or ordinances which do not permit restoring the insured building to the same condition as existed prior to the damage.
Over-Insurance
A condition in which more insurance is in force on the insured property than the potential loss. For example, so much insurance on a building that it becomes profitable in the event of a total loss.
Peak Season Coverage
Provides protection for businesses with fluctuating inventoriesby increasing the amount of insurance coverage during peak inventory periods.
Period of Restoration
Begins with the date of the direct physical loss or damage to the insured property and ends on the date when the property is repaired, rebuilt or replaced.
Personal Property of Others
Provides coverage for direct physical loss or damage, due to a covered loss, to property not owned by the insured but is in the care, custody or control of the insured.
Pesticide or Herbicide Applicator Coverage
This coverage is important to exterminators and landscapers who apply herbicides or pesticides. Normally there is a pollution exclusion in a liability insurance policy that states that the insurance does not apply to bodily injury or property damage rising out of the discharge, dispersal, release, or escape of pollutants into or on land, the atmosphere, or any watercourse or body of water. However, pesticide or herbicide applicator insurance affords coverage to the named insured in the following situations:
Premises / Operations
Included in Business Liability. Premises exposures arise at the place of business, such as a store or office. (A slick floor or loose board might cause an injury.)
Products / Completed Operations
Included in Business Liability. Provides protection for all injuries occurring away from the premises and arising out of the insured's work or product.
Premium Financing
a policyholder contracts with a lender to pay the insurance premium on his/her behalf. The policyholder agrees to repay the lender for the premium, plus interest and fees.
Professional Liability Insurance
Liability insurance to indemnify professionals (doctors, lawyers, architects etc.) for loss or expense resulting from a claim due to error or mistake committed or alleged to have been committed by the insured in the scope of his profession.
Property Off Premises
Extends coverage to property owned by the insured that is temporarily at a location not owned or operated by the insured.
Risk
Any chances of loss to the insured or the property to which the insurance policy relates.
Reporting Form
this policy is used to insure property when values fluctuate over time of shift between various locations. The limit of insurance is set high enough to cover the maximum potential for loss as stated in daily, weekly, monthly, or quarterly reports made to the insurance carrier.
Temperature Change Coverage
Provides coverage for direct loss to perishable stock caused by the change of temperature occasioned by the interruption of electrical power or mechanical breakdown of refrigerating or cooling apparatus.
Tools Coverage
Covers hand tools, usually valued under $500 per tool for losses that occur at the job site or in transit between jobs.
Umbrella Liability Policy
A liability policy designed to provide liability protection above and beyond that provided by standard liability contracts.
Under-Insurance
A condition in which not enough insurance is carried to cover the insurable value (especially, to satisfy a coinsurance clause in property insurance).
Unearned Premium
The portion of the premium representing the unexpired portion of the policy term.
Valuable Papers Coverage
Covers direct physical loss of or damage to your valuable papers and records. The cost to research, replace or restore the lost information on lost or damaged valuable papers and records is included. We hope this guide proves to be a useful tool when you find yourself questioning an insurance related term.
Vendors Endorsement
this endorsement is used to extend products liability coverage to include vendors of the insured's products. Its purpose is to provide additional protection above standard products liability limits, or to afford at least limited coverage where the availability or cost of products liability insurance is prohibitive.