No insurance resource would be complete without a comprehensive glossary of terms. We've compiled a list of terms and their definitions to better help you navigate the sometimes confusing world of insurance.
Actual Cash Value—Cost of replacing damaged or destroyed property with comparable new property, minus depreciation and obsolescence. For example, a 10-year-old sofa will not be replaced at current full value because of a decade of depreciation.
Actuary—A specialist in the mathematics of insurance who calculates rates, reserves, dividends and other statistics. (Americanism: In most other countries the individual is known as "mathematician.")
Adjustable Rate—An interest rate that changes, based on changes in a published market-rate index.
Adjuster - A representative of the insurer who seeks to determine the extent of the insurer's liability for loss when a claim is submitted.
Adjuster—A representative of the insurer who seeks to determine the extent of the insurer's liability for loss when a claim is submitted.
Aggregate Limit—Usually refers to liability insurance and indicates the amount of coverage that the insured has under the contract for a specific period of time, usually the contract period, no matter how many separate accidents might occur.
Assets—Assets refer to "all the available properties of every kind or possession of an insurance company that might be used to pay its debts." There are three classifications of assets: invested assets, all other assets, and total admitted assets. Invested assets refer to things such as bonds, stocks, cash and income-producing real estate. All other assets refer to non-income-producing possessions such as the building the company occupies, office furniture, and debts owed, usually in the form of deferred and unpaid premiums. Total admitted assets refer to everything a company owns. All other plus invested assets equals total admitted assets. By law, some states don't permit insurance companies to claim certain goods and possessions, such as deferred and unpaid premiums, in the all other assets category, declaring them "non-admissible."
Automobile Liability Insurance—Coverage if an insured is legally liable for bodily injury or property damage caused by an automobile.
Casualty—Liability or loss resulting from an accident.
Casualty Insurance—The type of insurance that is primarily concerned with losses caused by injuries to persons and legal liability imposed upon the insured for such injury or for damage to property of others. It also includes such diverse forms as plate glass, insurance against crime, such as robbery, burglary and forgery, boiler and machinery insurance and Aviation insurance. Many casualty companies also write surety business.
Claim—A demand made by the insured, or the insured's beneficiary, for payment of the benefits as provided by the policy.
Coinsurance—In property insurance, requires the policyholder to carry insurance equal to a specified percentage of the value of property to receive full payment on a loss.
Collision Insurance—Covers physical damage to the insured's automobile (other than that covered under comprehensive insurance) resulting from contact with another inanimate object.
Commercial Lines—Refers to insurance for businesses, professionals and commercial establishments.
Common Carrier- A business or agency that is available to the public for transportation of persons, goods or messages. Common carriers include trucking companies, bus lines and airlines.
Common Carrier—A business or agency that is available to the public for transportation of persons, goods or messages. Common carriers include trucking companies, bus lines and airlines.
Comprehensive Insurance—Auto insurance coverage providing protection in the event of physical damage (other than collision) or theft of the insured car. For example, fire damage or a cracked windshield would be covered under the comprehensive section.
Concurrent Periods—In hospital income protection, when a patient is confined to a hospital due to more than one injury and/or illness at the same time, benefits are paid as if the total disability resulted from only one cause.
Coverage—The scope of protection provided under an insurance policy. In property insurance, coverage lists perils insured against, properties covered, locations covered, individuals insured, and the limits of indemnification. In life insurance, living and death benefits are listed.
Death Benefit—The limit of insurance or the amount of benefit that will be paid in the event of the death of a covered person.
Deductible—Amount of loss that the insured pays before the insurance kicks in.
Dividend—The return of part of the policy's premium for a policy issued on a participating basis by either a mutual or stock insurer. A portion of the surplus paid to the stockholders of a corporation.
Earned Premium—The amount of the premium that as been paid for in advance that has been "earned" by virtue of the fact that time has passed without claim. A three-year policy that has been paid in advance and is one year old would have only partly earned the premium.
Elimination Period—The time that must pass after filing a claim before the policyholder can collect insurance benefits. Also known as "waiting period."
Employers Liability Insurance—Coverage against common law liability of an employer for accidents to employees, as distinguished from liability imposed by a workers' compensation law.
Encumbrance—A claim on property, such as a mortgage, a lien for work and materials, or a right of dower. The interest of the property owner is reduced by the amount of the encumbrance.
Exclusions—Items or conditions that are not covered by the general insurance contract.
Exposure—Measure of vulnerability to loss, usually expressed in dollars or units.
Extended Replacement Cost—This option extends replacement cost loss settlement to personal property and to outdoor antennas, carpeting, domestic appliances, cloth awnings, and outdoor equipment, subject to limitations on certain kinds of personal property; includes inflation protection coverage.
Floater—A separate policy available to cover the value of goods beyond the coverage of a standard renters insurance policy including movable property such as jewelry or sports equipment.
General Liability Insurance—Insurance designed to protect business owners and operators from a wide variety of liability exposures. Exposures could include liability arising from accidents resulting from the insured's premises or operations, products sold by the insured, operations completed by the insured, and contractual liability.
Hazard—A circumstance that increases the likelihood or probable severity of a loss. For example, the storing of explosives in a home basement is a hazard that increases the probability of an explosion.
Indemnity—Restoration to the victim of a loss by payment, repair or replacement.
Inflation Protection—An optional property coverage endorsement offered by some insurers that increases the policy's limits of insurance during the policy term to keep pace with inflation.
Insurable Interest—Interest in property such that loss or destruction of the property could cause a financial loss.
Insurance Adjuster—A representative of the insurer who seeks to determine the extent of the insurer's liability for loss when a claim is submitted. Independent insurance adjusters are hired by insurance companies on an "as needed" basis and might work for several insurance companies at the same time. Independent adjusters charge insurance companies both by the hour and by miles traveled. Public adjusters work for the insured in the settlement of claims and receive a percentage of the claim as their fee. A.M. Best's Directory of Recommended Insurance Attorneys and Adjusters lists independent adjusters only.
Liability—Broadly, any legally enforceable obligation. The term is most commonly used in a pecuniary sense.
Liability Insurance—Insurance that pays and renders service on behalf of an insured for loss arising out of his or her responsibility, due to negligence, to others imposed by law or assumed by contract.
Licensed—Indicates the company is incorporated (or chartered) in another state but is a licensed (admitted) insurer for this state to write specific lines of business for which it qualifies.
Loss Control—All methods taken to reduce the frequency and/or severity of losses including exposure avoidance, loss prevention, loss reduction, segregation of exposure units and non-insurance transfer of risk. A combination of risk control techniques with risk financing techniques forms the nucleus of a risk management program. The use of appropriate insurance, avoidance of risk, loss control, risk retention, self-insuring, and other techniques that minimize the risks of a business, individual, or organization.
Loss Ratio—The ratio of incurred losses and loss-adjustment expenses to net premiums earned. This ratio measures the company's underlying profitability, or loss experience, on its total book of business.
Loss Reserve—The estimated liability, as it would appear in an insurer's financial statement, for unpaid insurance claims or losses that have occurred as of a given evaluation date. Usually includes losses incurred but not reported (IBNR), losses due but not yet paid, and amounts not yet due. For individual claims, the loss reserve is the estimate of what will ultimately be paid out on that claim.
Losses Incurred (Pure Losses)—Net paid losses during the current year plus the change in loss reserves since the prior year end.
Mutual Insurance Companies—Companies with no capital stock that are owned by policyholders. The earnings of the company--over and above the payments of the losses, operating expenses and reserves--are the property of the policyholders. There are two types of mutual insurance companies. A non-assessable mutual company charges a fixed premium and the policyholders cannot be assessed further. Legal reserves and surplus are maintained to provide payment of all claims. An assessable mutual company charges an initial fixed premium and, if that isn't sufficient, might assess policyholders to meet losses in excess of the premiums that have been charged.
Named Perils - Perils specifically covered on insured property.
Nonstandard Auto (High Risk Auto or Substandard Auto)—Insurance for motorists who have poor driving records or have been canceled or refused insurance. The premium is much higher than standard auto because of the additional risks.
Occurrence—An event that results in an insured loss. In some lines of business, such as liability, an occurrence is distinguished from an accident in that the loss doesn't have to be sudden and fortuitous and can result from continuous or repeated exposure that results in bodily injury or property damage neither expected not intended by the insured.
Own Occupation—Insurance contract provision that allows policyholders to collect benefits if they can no longer work in their own occupation.
Peril—The cause of a possible loss.
Personal Injury Protection—Pays basic expenses for an insured and his or her family in states with no-fault auto insurance. No-fault laws generally require drivers to carry both liability insurance and personal injury protection coverage to pay for basic needs of the insured, such as medical expenses, in the event of an accident.
Personal Lines—Insurance for individuals and families, such as private-passenger auto and homeowners insurance.
Policy—The written contract effecting insurance, or the certificate thereof, by whatever name called, and including all clause, riders, endorsements, and papers attached thereto and made a part thereof.
Preferred Auto—Auto coverage for drivers who have never had an accident and operate vehicles according to law. Drivers are not a risk for any insurance company that writes auto insurance, and no insurance company would be afraid to take them on as risks.
Premium—The price of insurance protection for a specified risk for a specified period of time.
Premium Balances—Premiums and agents' balances in course of collection; premiums, agents' balances and installments booked but deferred and not yet due; bills receivable, taken for premiums and accrued retrospective premiums.
Premium Earned—The amount of the premium that as been paid for in advance that has been "earned" by virtue of the fact that time has passed without claim. A three-year policy that has been paid in advance and is one year old would have only partly earned the premium.
Premium Unearned—That part of the premium applicable to the unexpired part of the policy period.
Private-Passenger Auto Insurance Policyholder Risk Profile—Refers to the risk profile of auto insurance policyholders and can be divided into three categories: standard, nonstandard and preferred. In the eyes of an insurance company, it is the type of business (or the quality of driver) that the company has chosen to take on.
Qualifying Event—An occurrence that triggers an insured's protection.
Reinsurance—In effect, insurance that an insurance company buys for its own protection. The risk of loss is spread so a disproportionately large loss under a single policy doesn't fall on one company. Reinsurance enables an insurance company to expand its capacity; stabilize its underwriting results; finance its expanding volume; secure catastrophe protection against shock losses; and withdraw from a line of business or a geographical area within a specified time period.
Renewal—The automatic re-establishment of in-force status effected by the payment of another premium.
Replacement Cost—The dollar amount needed to replace damaged personal property or dwelling property without deducting for depreciation but limited by the maximum dollar amount shown on the declarations page of the policy.
Reserve— An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders. A reserve is usually treated as a liability.
Risk Class—Risk class, in insurance underwriting, is a grouping of insureds with a similar level of risk. Typical underwriting classifications are preferred, standard and nonstandard, smoking and nonsmoking, male and female.
Risk Management—Management of the pure risks to which a company might be subject. It involves analyzing all exposures to the possibility of loss and determining how to handle these exposures through practices such as avoiding the risk, retaining the risk, reducing the risk, or transferring the risk, usually by insurance.
Standard Auto —Auto insurance for average drivers with relatively few accidents during their lifetime.
State of Domicile—The state in which the company is incorporated or chartered. The company also is licensed (admitted) under the state's insurance statutes for those lines of business for which it qualifies.
Stop Loss—Any provision in a policy designed to cut off an insurer's losses at a given point.
Subrogation—The right of an insurer who has taken over another's loss also to take over the other person's right to pursue remedies against a third party.
Surplus—The amount by which assets exceed liabilities.
Tort—A private wrong, independent of contract and committed against an individual, which gives rise to a legal liability and is adjudicated in a civil court. A tort can be either intentional or unintentional, and liability insurance is mainly purchased to cover unintentional torts.
Total Loss—A loss of sufficient size that it can be said no value is left. The complete destruction of the property. The term also is used to mean a loss requiring the maximum amount a policy will pay.
Umbrella Policy—Coverage for losses above the limit of an underlying policy or policies such as homeowners and auto insurance. While it applies to losses over the dollar amount in the underlying policies, terms of coverage are sometimes broader than those of underlying policies.
Underwriter—The individual trained in evaluating risks and determining rates and coverages for them. Also, an insurer.
Underwriting—The process of selecting risks for insurance and classifying them according to their degrees of insurability so that the appropriate rates may be assigned. The process also includes rejection of those risks that do not qualify.
Underwriting Guide—Details the underwriting practices of an insurance company and provides specific guidance as to how underwriters should analyze all of the various types of applicants they might encounter. Also called an underwriting manual, underwriting guidelines, or manual of underwriting policy.
Unearned Premiums—That part of the premium applicable to the unexpired part of the policy period.
Uninsured Motorist Coverage—Endorsement to a personal automobile policy that covers an insured collision with a driver who does not have liability insurance.
The definitions in this glossary are developed by the NAIC Research staff based on various insurance reference sources available to the Research Department. These definitions represent a common or general use of the term. Some words and/or phrases may be defined differently by other entities, or used in a context such that the definition shown may not be applicable.