question

loss exposure

answer

any condition or situation that presents the possibility of a loss

question

law of large numbers

answer

a mathematical principle stating that as the number of similar but independent exposure units increases, the relative accuracy of predictions about future outcomes (losses) based on these exposure units also increases

question

exposure unit

answer

a measure of the loss exposure assumed by the insurer, used in pricing insurance

question

property loss exposure

answer

any condition or situation that presents the possibility that a property loss will happen

question

real property

answer

land, buildings, and other structures attached to the land or embedded in it

question

personal property

answer

all tangible or intangible property that is not real property

question

net income

answer

revenue minus expenses and taxes during a given time period

question

net income loss

answer

an indirect loss caused by a reduction in revenue, an increase in expenses, or both during a given time period

question

liability loss exposure

answer

any condition or situation that presents the possibility of a claim alleging legal responsibility of a person or business for injury or damage suffered by another party

question

liability loss

answer

a claim for monetary damages because of injury to another party or damage to another party's property

question

personal loss exposure

answer

any condition or situation that presents the possibility of a financial loss to an individual or a family by such causes as death, sickness, injury, or unemployment

question

personnel loss exposure

answer

any condition or situation that presents the possibility of a financial loss to a business because of the death, disability, retirement, or resignation of key employees

question

indemnify

answer

to restore a party who has sustained a loss to the same financial position that party held before the loss occurred

question

fire and allied line insurance

answer

insurance that covers direct damage to or loss of insured property

question

business income insurance (business interruption insurance)

answer

insurance that covers the loss of net income or additional expenses incurred by a business as the result of a covered loss to its property

question

crime insurance

answer

insurance that covers money, securities, merchandise, and other property from various causes of loss such as burglary, robbery, theft, and employee dishonesty

question

ocean marine insurance

answer

insurance that covers ships and their cargo against such causes of loss as fire, lightning, and "perils of the seas"

question

inland marine insurance

answer

insurance that covers miscellaneous types of property, such as movable property, goods in domestic transit, and property used in transportation and communication

question

auto physical damage insurance

answer

insurance that covers loss of or damage to specified vehicles from collision, fire, theft, or other causes

question

auto liability insurance

answer

insurance that covers an insured's legal liability arising out of the ownership, maintenance, or use of an automobile

question

commercial general liability insurance

answer

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

question

personal liability insurance

answer

insurance that provides liability coverage to individuals and families for bodily injury and property damage arising from the insured's personal premises or activities

question

professional liability insurance

answer

insurance that provides liability coverage to professionals for errors and omissions arising out of their professional duties

question

whole life insurance

answer

life insurance that provides lifetime protection, accrues cash value, and has premiums that remain unchanged during the insured's lifetime

question

cash value

answer

the monetary amount, considered to be a form of savings, that accumulates in a whole life insurance policy

question

term insurance

answer

life insurance that provides coverage for a specified period, such as ten or twenty years, with no cash value

question

universal life insurance

answer

insurance that provides life insurance protection and a savings component

question

medical insurance

answer

insurance that covers medical expenses that result from illness or injury

question

disability income insurance

answer

a type of health insurance that provides periodic income payments to an insured who is unable to work because of sickness or injury

question

stock insurer

answer

an insurer that is owned by its stockholders and formed as a corporation for the purpose of earning a profit for the stockholders

question

mutual insurer

answer

an insurer that is owned by its policyholders and formed as a corporation for the purpose of providing insurance to them

question

demutualization

answer

the process by which a mutual insurer owned by its policyholders becomes a stock company, which is then owned by its stockholders

question

reciprocal insurance exchange (interinsurance exchange)

answer

an insurer owned by its policyholders, formed as an unincorporated association for the purpose of providing insurance coverage to its members (called subscribers) and managed by an attorney-in-fact

question

subscribers

answer

the policyholders of a reciprocal insurance exchange who agree to insure each toher

question

attorney-in-fact

answer

in a reciprocal insurance exchange, the contractually authorized manager of the reciprocal who administers its affairs and carries out its insurance transactions

question

captive insurer (captive)

answer

an insurer formed as a subsidiary of its parent company, organization, or group, for the purpose of providing all or part of the insurance on the parent company or companies

question

reinsurance

answer

a contractual agreement that transfers some or all of the potential costs of insured loss exposures from policies written by one insurer to another insurer

question

primary insurer

answer

the insurer that transfers some or all of the potential costs of its insured loss exposures to another insurer in a reinsurance contractual agreement

question

reinsurer

answer

the insurer that assumes some or all of the potential costs of insured loss exposures of the primary insurer in a reinsurance contractual agreement

question

monopolistic state fund

answer

a state workers' compensation insurance plan that is the only source of workers' compensation insurance allowed in that state

question

competitive state fund

answer

a state workers' compensation insurance plan that competes with private insurers to provide workers' compensation insurance

question

residual market plan (shared market plan)

answer

a program that makes workers' compensation insurance available for those who cannot obtain voluntary coverage from private insurers

question

guaranty fund

answer

a state fund that provides a system to pay the claims of insolvent insurers, generally funded by assessments collected from all insurers licensed in the state

question

National Association of Insurance Commissioners (NAIC)

answer

an association of the commissioners of the insurance departments of each state, the District of Columbia, and the U.S. territories and possessions, whose purpose is to coordinate insurance regulation activities among the various state insurance departments

question

model law

answer

a document drafted by the NAIC, in a style similar to a state statute, that reflects the NAIC's proposed solution to a given problem or issue and provides a common basis to the states for drafting laws that affect the insurance industry

question

ratemaking

answer

the process insurers use to calculate the rates that determine the premium to charge for insurance coverage

question

rate

answer

the amount per exposure unit for insurance coverage, used to arrive at a premium when multiplied by the number of exposure unites

question

premium

answer

the price of the insurance coverage provided for a specified period

question

actuary

answer

a person who uses complex mathematical methods and technology to analyze loss data and other statistics and to develop systems for determining insurance rates

question

actuarial equity

answer

a ratemaking concepts through which actuaries base rats on calculated loss experience to place insureds with similar characteristics in the same rating class

question

social equity

answer

a rating concept that holds that rate structures discriminate unfairly if they impose a higher rate on an insured for factors beyond the insured's control, such as age or gender

question

unfair discrimination

answer

applying different standards or methods of treatment to insureds who have the same basic characteristics and loss potential, such as charging higher-than-normal rates for an auto insurance applicant based solely on the applicant's race, religion, or ethnic background

question

prior-approval law

answer

an insurance rating law that requires rates to be approved by the state insurance department before they can be used

question

flex rating law

answer

an insurance rating law that requires prior approval only if the new rates are a specified percentage above or below previously filed rates

question

file-and-use law

answer

an insurance rating law that requires insurers to file rates with the state insurance department but does not require insurers to wait for approval before using the rates

question

use-and-file law

answer

an insurance rating law that requires rates to be filed within a specified period after they are first used in the state

question

open competition (no-file law)

answer

an insurance rating law that does not require rates to be filed with the state

question

state-mandated rates

answer

an insurance rating law that requires all insurers to adhere to rates established by the state insurance department for a particular type of insurance

question

exempt commercial policyholders

answer

an organization with sufficient size and sophistication to be permitted to buy property, liability, and automobile insurance using rates and/or policy forms not filed with state insurance departments

question

non-filed inland marine

answer

classes of inland marine insurance that are exempt from filing requirements

question

solvency

answer

the ability of an insurer to meet its financial obligations as they become due, even those resulting from insured losses that may be claimed several years in the future

question

solvency surveillance

answer

the process, conducted by state insurance regulators, of verifying the solvency of insurers and determining whether their financial condition enables them to meet their financial obligations and to remain in business

question

Insurance Regulatory Information Systems (IRIS)

answer

an information and early-warning system established and operated by the NAIC to monitor the financial soundness of insurers

question

licensed insurer (admitted insurer)

answer

an insurer authorized by the state insurance department to sell insurance within that state

question

domestic insurer

answer

an insurer incorporated in the same state in which it is writing insurance

question

foreign insurer

answer

an insurer licensed to operate in a state but incorporated in another state

question

alien insurer

answer

an insurer licensed in a U.S. state but incorporated in another country

question

market conduct regulation

answer

regulation of the practices of insurers in regard to four areas of operation: sales, practices, underwriting practices, claim practices, and bad-faith actions

question

standard market

answer

collectively, insurers who voluntarily offer insurance coverages at rates designed from customers with average or better-than-average loss exposures

question

excess and surplus lines (E&S) insurance

answer

insurance coverages unavailable in the standard market that are written by nonadmitted insurers

question

nonadmitted insurer (unlicensed insurer)

answer

an insurer that is not licensed in many of the states in which it operates and that writes E&S insurance coverages

question

paid loss

answer

a claim payment that an insurer has made

question

incurred losses

answer

the sum of paid losses and changes in loss reserves for a particular period

question

loss reserves

answer

amounts designated by insurers to pay claims for losses that have already occurred but are not yet settled

question

net investment gain or loss

answer

an insurer's gains or losses from the sale of invested assets plus net investment income

question

net underwriting gain or loss

answer

an insurer's earned premiums minus its losses and underwriting expenses for a specific period

question

overall gain or loss from operations

answer

net investment gain or loss plus net underwriting gain or loss

question

assets

answer

types of property, both tangible and intangible, owned by an entity

question

admitted assets

answer

types of property, such as cash and stocks, that regulators allow insurers to show as assets on their financial statements

question

nonadmitted assets

answer

types of property, such as office furniture and equipment, that regulators do not allow insurers to show as assets on financial statements because these assets cannot readily be converted to cash at or near their market value

question

liabilities

answer

financial obligations, or debts, owed by a company to another entity, usually the policyholder in the case of an insurer

question

loss reserve

answer

the amount estimated and set aside by insurers to pay claims for losses that have already occurred but are not yet settled

question

unearned premium reserve

answer

the total of an insurer's unearned premiums on all policies at a particular time

question

policyholders' surplus

answer

an insurer's total admitted assets minus its total liabilities

question

balance sheet

answer

a financial statement that shows a company's financial position at a particular point in time. For an insurer, it includes the insurer's admitted assets, liabilities, and policyholders' surplus.

question

income statement

answer

a financial statement that shows a company's revenues, expenses, and net income for a particular period, usually one year

question

loss ratio

answer

an insurer's incurred losses (included loss adjustment expenses) for a given period divided by its earned premiums for the same period

question

expense ratio

answer

an insurer's incurred underwriting expenses for a given period divided by its written premiums for the same period

question

dividend ratio

answer

an insurer's policyholder dividends for a given period divided by its earned premiums for the same period

question

combined ratio

answer

the sum of the loss ratio and the expense ratio

question

investment income ratio

answer

net investment income divided by earned premiums for a given period

question

overall operating ratio

answer

the combined ratio minus the investment income ratio

question

capacity ratio (premium-to-surplus ratio)

answer

written premiums divided by policyholders' surplus

question

producer

answer

a person who sells insurance products for one or more insurers

question

agency

answer

a legal relationship that exists when one party, the agent, represents or acts on behalf of another party, the principal

question

agent

answer

in the agency relationship, the party that is authorized by the principal to act on the principal's behalf

question

principal

answer

in the agency relationship, the party that authorizes the agent to act on its behalf

question

insurance agent

answer

a legal representative of one or more insurers for which the representative has a contractual agreement to sell insurance

question

agency contract (agency agreement)

answer

a written agreement between an insurer and an agent that specifies, among other things, the scope of the agent's authority to conduct business for the insurer

question

errors and omissions (E&O)

answer

negligent acts (errors) committed by a person conducting insurance business that give rise to legal liability for damages; a failure to act (omission) that creates legal liability

question

express authority

answer

the authority that the principal specifically grants to the agent

question

binding authority

answer

an insurance agent's authority to effect coverage on behalf of the insurer

question

binder

answer

an oral or written agreement to provide temporary insurance coverage until a formal written policy is issued

question

implied authority

answer

the authority implicitly conferred on an agent by custom, usage, or a principal's conduct indicating intention to confer such authority

question

apparent authority

answer

a third party's reasonable belief that an agent has authority to act on the principal's behalf

question

independent agency

answer

a business, operated for the benefit of its owner (or owners) that sells insurance, usually as a representative of several unrelated insurers

question

independent agent

answer

a producer who works for an independent agency who can be either the owner or an employee of the agency

question

agency expiration list

answer

the record of an insurance agency's present policyholders and the dates their policies expire

question

insurance broker

answer

an independent business owner or firm that sells insurance by representing customers rather than insurers

question

managing general agency (MGA)

answer

an independent business or organization that appoints and supervises independent agents for insurers that use the independent agency system

question

exclusive agent

answer

an agent that has a contract to sell insurance exclusively for one insurer or a group of related insurers

question

direct writing system

answer

a system of insurance marketing that uses sales representatives who are employees of the insurer

question

direct response

answer

a system of insurance marketing that relies primarily on mail, phone, and/or Internet sales, without the services of an agent

question

mixed marketing system

answer

an insurer's use of more than one marketing system or distribution channel

question

sales commission (commission)

answer

a percentage of the premium that the insurer pays to the agency or producer for new policies sold or existing policies renewed

question

contingent commission

answer

a commission that an insurer pays, usually annually, to an independent agency that is based on the premium volume and profitability level of the agency's business with that insurer

question

marketing representative

answer

an insurer employee who visits agents representing the insurer, develops and maintains sound working relationships with those agents, and motivates the agents to produce a satisfactory volume of profitable business for the insurer

question

production underwriter

answer

an insurer employee who works in the insurer's office in an underwriting position but also travels to visit and maintain rapport with agents and sometimes clients

question

unfair trade practices law

answer

state law that specifies certain prohibited business practices

question

rebating

answer

a practice, prohibited in most states, of offering a cash payment or something of value to an applicant as an inducement to buy or maintain insurance

question

underwriting

answer

the process of selecting insureds, pricing coverage, determining insurance policy terms and conditions, and then monitoring the underwriting decisions made

question

underwriter

answer

an insurer employee who evaluates applicants for insurance, selects those that are acceptable to the insurer, prices coverage, and determines policy terms and conditions

question

adverse selection

answer

a situation that occurs because people with the greatest probability of loss are the ones most likely to purchase insurance

question

capacity

answer

the amount of business an insurer is able to write, usually based on a comparison of the insurer's written premiums to its policyholders' surplus

question

class rate (manual rate)

answer

a type of insurance rate that applies to all insureds in the same rating category or rating class

question

merit rating plan

answer

a rating plan that modifies class rates to reflect loss characteristics of a particular insured

question

individual rate (specific rate)

answer

a type of insurance rate that reflects the unique characteristics of an insured or the insured's property

question

judgment rate

answer

a type of individual rate that is used to develop a premium for a unique exposure for which there is no established rate

question

standard form

answer

a policy form that contains standard insurance wording; it is used by insurers that subscribe to the services of insurance advisory organizations

question

hazard

answer

a condition that increases the frequency or severity of a loss

question

book of business (portfolio)

answer

a group of policies with a common characteristic, such as territory or type of coverage; can also refer to all policies written by a particular insurer or agency

question

treaty reinsurance

answer

an arrangement whereby a reinsurer agrees to automatically reinsure a portion of all eligible insurance of the primary insurer

question

facultative reinsurance

answer

an arrangement whereby the primary insurer chooses which policies to submit to the reinsurer and the reinsurer can accept or reject any policies submitted

question

underwriting authority

answer

the scope of decisions that an underwriter can make without receiving approval from someone at a higher level

question

underwriting audit

answer

a process in which members of the home office underwriting department examine files to see whether underwriters are following underwriting guidelines

question

expert systems (knowledge-based systems)

answer

computer software programs that supplement the underwriting decision-making process; ask for the information necessary to make an underwriting decision, ensuring that no information is overlooked

question

moral hazard

answer

a condition that may lead a person to intentionally cause or exaggerate a loss

question

attitudinal hazard (morale hazard)

answer

a hazard that involves carelessness about, or indifference to, potential loss on the part of an insured or applicant

question

physical hazard

answer

a tangible characteristic of property, persons, or operations that tends to increase the frequency or severity of loss

question

legal hazard

answer

a characteristic of the legal or regulatory environment that hampers an insurer's ability to collect a premium commensurate with the exposure to loss

question

claim

answer

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

question

claimant

answer

anyone who submits a claim to an insurer

question

first party

answer

the insured in an insurance contract

question

third party

answer

a person or business who is not a party to the insurance contract but who asserts a claim against the insured

question

claim representative (adjuster)

answer

a person responsible for verifying coverage, determining the cause of loss, determining the amount of damages or extent of loss, and settling or otherwise concluding a claim

question

staff claim representative

answer

an insurer employee who performs some or all of the insurer's claim handling activities

question

inside claim representative

answer

an insurer employee who handles claims that can be settled by phone, mail, or email from inside the insurer's office

question

outside claim representative (field claim representative)

answer

an insurer employee who handles calims that cannot be handled easily by phone, mail, or email

question

independent adjuster

answer

a claim representative who offers claim handling services to insurers for a fee

question

settlement authority

answer

authority expressly given to a producer by an insurer to settle and pay certain types of claims up to a specified limit

question

public adjuster

answer

a person hired by an insured to represent the insured in handling a claim

question

self-insurance plan

answer

an arrangement in which an organization pays for its losses with its own resources rather than by purchasing insurance

question

third-party administrator (TPA)

answer

an organization that contracts to provide administrative services, including claim handling, to other businesses

question

reservation of rights letter

answer

a notice sent by the insurer advising the insured that the insurer is proceeding with a claim investigation but that the insurer retains its right to deny coverage later

question

insurable interest

answer

a coverage verification criterion that exists when a person or other entity would suffer a financial loss if the subject property were damaged

question

actual cash value (ACV)

answer

the cost to replace property minus an allowance for the property's depreciation

question

depreciation

answer

the allowance for physical wear and tear or technological or economic obsolescence

question

replacement cost

answer

the cost to repair or replace property using new materials of like kind and quality with no deduction for depreciation

question

agreed value

answer

a method of valuing property in which the insurer and the insured agree, at the time the policy is written, on the maximum amount that will be paid in the event of a total loss

question

subrogation

answer

the insurer's right, assumed from the insured, to recover payment from a third party this is legally responsible for the loss

question

salvage rights

answer

the insurer's rights to recover and sell or otherwise dispose of insured property on which the insurer has paid a total loss or a constructive total loss

question

constructive total loss

answer

a loss such that property cannot be repaired for less than its actual cash value minus the anticipated salvage value

question

damages

answer

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

question

compensatory damages

answer

damages intended to compensate a victim for actual harm suffered; include special damages and general damages

question

special damages

answer

compensatory damages for specific, out-of-pocket expenses, such as doctor and hospital expenses

question

general damages

answer

compensatory damages awarded for losses that do not have a specific economic value, such as pain and suffering

question

punitive damages

answer

damages awarded by a court to punish wrongdoers who cause bodily injury or property damage to others and to deter others from committing similar wrongs

question

case reserve

answer

a loss reserve assigned to an individual claim

question

unfair claim practices law

answer

a state law that specifies illegal claim practices

question

policy

answer

a complete written contract of insurance

question

contract

answer

a legally enforceable agreement between two or more parties

question

consideration

answer

something of value given by each party to a contract

question

conditional contract

answer

a contract in which one or more parties must perform only under certain conditions

question

utmost good faith

answer

an obligation to act in complete honesty and to disclose all relevant facts

question

concealment

answer

an intentional failure to disclose a material fact

question

material fact

answer

in insurance, a fact that would affect the insurer's decision to provide or maintain insurance or to settle a claim

question

misrepresentation

answer

a false statement of a material fact on which a party relies

question

contract of adhesion

answer

a contract to which one party (the insured) must adhere as written by the other party (the insurer)

question

contract of indemnity

answer

a contract in which the insurer agrees, in the event of a covered loss, to pay an amount directly related to the amount of the loss

question

principle of indemnity

answer

the principle that insurance should provide a benefit no greater than the loss suffered by the insured

question

valued policy

answer

a policy in which the insurer pays a stated amount in the event of a specified loss (usually a total loss), regardless of the actual value of the loss

question

declarations page (declarations, dec)

answer

an insurance policy information page or pages providing specific details about the insured and the subject of the insurance

question

insuring agreement

answer

an insurance policy statement indicating that the insurer will, under certain circumstances, make a payment or provide a service

question

exclusion

answer

a policy provision that eliminates coverage for specified exposures

question

policy condition

answer

any provision that qualifies an otherwise enforceable promise of the insurer

question

manuscript policy (manuscript endorsement)

answer

an insurance policy that is specifically drafted according to terms negotiated between a specific insured (or group of insureds) and an insurer

question

self-contained policy

answer

a single document that contains all the agreements between the insurer and the insured; forms a complete policy by itself

question

endorsement

answer

a document that amends an insurance policy

question

modular policy

answer

a policy consisting of several different documents, none of which by itself forms a complete contract

question

cancellation

answer

termination of a policy, by either the insurer or the insured, during the policy term

question

pro rata refund

answer

the unused premium (based on the pro rata portion of the premium for the number of days remaining in the policy) returned to the insured when a policy is canceled

question

short rate refund

answer

a refund of premium that is less than what the pro rata refund would be; sometimes used when the insured cancels a policy midterm

question

liberalization clause

answer

a policy condition providing that if a policy form is broadened at no additional premium, the broadened coverage automatically applies to all existing policies of the same type

question

assignment

answer

the transfer of rights or interest in a policy to antoher party by the insured

question

money

answer

currency, coins, bank notes, and sometimes traveler's checks, credit card slips, and money orders held for sale to the public

question

securities

answer

written instruments representing either money or other property, such as stocks and bonds

question

auto

answer

in insurance, a broad term that includes cars, trucks, trailers, buses, and other motorized vehicles designed for road use

question

mobile equipment

answer

various types of land vehicles and the equipment attached to them, such as tractors, bulldozers, forklifts, and backhoes, designed primarily for off-road use

question

recreational vehicle

answer

a vehicle used for sports and recreational activities, such as a dune buggy, all-terrain vehicle or dirt bike

question

cause of loss (or peril)

answer

the actual means by which property is damaged or destroyed

question

named peril

answer

a specific cause of loss listed and described in an insurance policy; also used to describe policies containing named perils

question

special form (or open perils policy)

answer

a policy that provides coverage for any direct loss to property unless the loss is caused by a peril specifically excluded

question

mortgagee (or mortgageholder)

answer

a lender that loans money on a home, building, or other real property

question

mortgagor

answer

the person or organization that borrows money from a mortgagee to finance the purchase of real property

question

bailee

answer

a person or business in possession of property entrusted to them by others

question

property insurance

answer

any type of insurance that indemnifies an insured who suffers a financial loss because property has been lost, stolen, damaged, or destroyed

question

floater

answer

a policy designed to cover property that floats, or moves, from location to location

question

friendly fire

answer

a fire that stays in its intended place, such as a fire in a fireplace

question

hostile fire

answer

a fire that leaves its intended place, such as a spark that escapes a fireplace and sets the carpet on fire

question

proximate cause

answer

the event that sets in motion an uninterrupted chain of events contributing to a loss

question

vehicle damage

answer

damage caused by a motor vehicle to some other kind of property

question

vandalism

answer

willful and malicious damage to or destruction of property

question

sprinkler leakage

answer

accidental leakage or discharge of water or other substance from an automatic sprinkler system

question

sinkhole collapse

answer

a cause of loss involving the sudden sinking or collapse of land into underground empty spaces created by the action of water on limestone or similar rock formations

question

mine subsidence

answer

a cause of loss involving the sinking of ground surface when underground open spaces, resulting from the extraction of coal or other minerals, are gradually filled in by rock and earth from above

question

volcanic action

answer

a cause of loss involving lava flow, ash, dust, particulate matter, airborne volcanic blast, or airborne shock waves resulting from a volcanic eruption

question

burglary

answer

the taking of property from inside a building by someone who unlawfully enters or exits the building

question

robbery

answer

the taking of property from a person by someone who has caused or threatened to cause the person harm

question

theft

answer

any act of stealing; includes burglary and robbery

question

collision

answer

damage to a motor vehicle caused by its impact with another vehicle or object, or by the vehicle's overturn

question

other than collision (or comprehensive)

answer

losses to a covered auto by fire, theft, vandalism, falling objects, flood, and various other perils

question

specified causes of loss

answer

for other than collision coverage in commercial auto policies, a named perils alternative that is less expensive than comprehensive because fewer causes of loss are covered

question

direct loss

answer

a reduction in the value of property that results directly and often immediately from damage to that property

question

time element loss (or indirect loss)

answer

loss of income or extra expenses resulting from direct loss to property

question

extra expenses

answer

expenses that reduce the length of a business interruption or enable a business to continue some operations when the property has been damaged by a covered cause of loss

question

additional living expense

answer

a coverage in homeowners policies that indemnifies the insured for the additional expenses that are incurred following a covered property loss so that the household can maintain its normal standard of living while the dwelling is being restored

question

named insured

answer

the policyholder whose name(s) appears on the declarations page of an insurance policy

question

first named insured

answer

the person or organization whose name appears first as the named insured on a commercial insurance policy; this person or organization is usually responsible for paying premiums and has the right to receive any return premiums, to cancel the policy, and to receive the notice of cancellation or nonrenewal

question

mortgage clause (or mortgageholders clause)

answer

a clause in a property insurance policy that protects the insurable interest of the mortgagee by giving it certain rights, such as the right to be named on claim drafts for losses to insured property and the right to be notified of policy cancellation

question

loss payee

answer

a lender, named on an insurance policy, who has loaned money on personal property, such as a car

question

loss payable cause

answer

a clause that provides that a loss will be paid to both the insured and the loss payee as their interests appear and gives the loss payee certain rights

question

deductible

answer

a portion of a covered loss that is subtracted from the amount the insurer would otherwise be obligated to pay the insured

question

insurance-to-value provision

answer

a provision in property insurance policies that encourages insureds to purchase an amount of insurance that is equal to, or close to, the value of the covered property

question

coinsurance

answer

an insurance-to-value provision in many property insurance policies providing that if the property is underinsured, the amount that an insurer will pay for a covered loss is reduced

question

legal liability

answer

a person or an organization's status as legally responsible for injury or damage suffered by another person or organization

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constitutional law

answer

the Constitution itself and all the decisions of the Supreme Court that involve the Constitution

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statutory law

answer

the formal laws, or statutes, enacted by federal, state, or local legislative bodies

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common law (or case law)

answer

a body of principles and rules established over time by courts on a case-by-case basis

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criminal law

answer

the category of law that applies to wrongful acts that society deems so harmful to the public welfare that government takes the responsibility for prosecuting and punishing the wrongdoers

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civil law

answer

the category of law that deals with the rights and responsibilities of citizens with respect to one another; applies to legal matters not governed by criminal law

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contract law

answer

the branch of civil law that deals with contracts and settles contract disputes

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tort

answer

a wrongful act, other than a crime or breach of contract, committed by one party against another

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tort law

answer

the branch of civil law that deals with civil wrongs other than breaches of contract

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negligence

answer

a person or an organization's failure to exercise the level of care that a reasonably prudent person would have exercised under similar circumstances

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tortfeasor

answer

a person, a business, or another party who has committed a tort

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vicarious liability

answer

legal responsibility that occurs when one party is held liable for the actions of another party

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intentional tort

answer

a deliberate act (other than a breach of contract) that causes harm to another person

question

assault

answer

the intentional threat of bodily harm

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battery

answer

unlawful physical contact with another person

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defamation

answer

an intentional false communication, either written or spoken, that damages another's reputation or good name

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slander

answer

a spoken untrue statement that damages a person's reputation

question

libel

answer

a written or printed untrue statement that damages a person's reputation

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false arrest

answer

any unlawful physical restraint of another's freedom

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invasion of privacy

answer

an encroachment on another person's right to be left alone

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strict liability (or absolute liability)

answer

legal liability that arises from inherently dangerous activities or dangerously defective products that result in injury or harm to another, regardless of how much care was used in the activity; also used to describe the liability imposed by certain statutes, such as workers' compensation laws

question

hold-harmless agreement

answer

a contractual provision that obligates one party to assume the financial consequences of legal liability for another party

question

warranty

answer

a promise, either written or implied, such as a promise by a seller to a buyer that a product is fit for a particular use

question

statutory liability

answer

legal liability imposed by a specific statute or law

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liability insurance

answer

insurance that covers losses resulting from bodily injury to others or damage to the property of others for which the insured is legally liable and to which the coverage applies

question

bodily injury

answer

as defined in many liability policies, any physical injury to a person, including sickness, disease, and death

question

property damage

answer

insurance term referring to physical injury to, destruction of, or loss of use of tangible property

question

personal injury

answer

injury, other than bodily injury, arising from intentional torts such as libel, slander, or invasion of privacy

question

supplementary payments

answer

various expenses the insurer agrees to pay under a liability insurance policy (in addition to the liability limits) for items such as premiums on bail bonds and appeal bonds, loss of the insured's earnings because of attendance at trials, and other reasonable expenses incurred by the insured at the insurer's request

question

prejudgment interest

answer

interest that may accrue on damages before a judgment has been rendered

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postjudgment interest

answer

interest that may accrue on damages after a judgment has been entered in a court and before the money is paid

question

medical payments coverage

answer

coverage that pays necessary medical expenses incurred within a specified period by a claimant (and in certain policies, by an insured) for a covered injury, regardless of whether the insured was at fault

question

occurrence basis coverage

answer

coverage for liability claims that occur during the policy period, regardless of when the claim is submitted to the insurer

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claims-made coverage

answer

coverage for liability claims that are first made against the insured during the policy period for covered events that occur on or after the retroactive date and before the end of the policy period

question

retroactive date

answer

the date in a claims-made policy on or after which injury or damage must occur in order to be covered

question

each person limit

answer

the maximum amount an insurer will pay for injury to any one person for a covered loss

question

each occurrence limit

answer

the maximum amount an insurer will pay for all covered losses from a single occurrence, regardless of the number of persons inured or the number of parties claiming property damage

question

aggregate limit

answer

the maximum amount an insurer will pay for all covered losses during the covered policy period

question

split limits

answer

separate limits for bodily injury and property damage liability coverage

question

single limit

answer

the maximum amount an insurer will pay for the insured's liability for both bodily injury and property damage that arise from a single occurrence

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risk management

answer

the process of managing exposures to accidental losses

question

loss frequency

answer

how often a loss occurs in a given period

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loss severity

answer

monetary amount of damage that results from a loss

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risk control

answer

a risk management technique that attempts to decrease the frequency or severity of losses

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avoidance

answer

a risk control technique that eliminates a loss exposure and reduces the chance of loss to zero

question

loss prevention

answer

a risk control technique that seeks to lower the frequency of loss from a particular loss exposure

question

loss reduction

answer

a risk control technique that seeks to lower the severity (decrease the dollar amount) of losses

question

separation

answer

a risk control technique that isolates loss exposures from one another to minimize the adverse effect of a single loss

question

duplication

answer

a risk control technique that uses backups, spares, or copies of critical property, information, or capabilities

question

risk financing

answer

a risk management technique that includes steps to pay for or transfer the cost of losses

question

retention

answer

a risk financing technique that involves retaining all or part of a particular loss exposure

question

noninsurance transfer

answer

a risk financing technique in which one party transfers the potential financial consequences of a particular loss exposure to another party that is not an insurer

AINS 21 Glossary – Flashcards

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