Glossary of Terms

It’s important to us that our clients feel educated, or at least comfortable, when it comes to the insurance coverage, advice, and solutions we offer. Here is a list of the most common words and phrases for insurance that has been shared by Insurance Canada. Please use these definitions listed below as general information only. You will need to refer to your actual policy for the complete descriptions of all terms, conditions and exclusions applicable to the insurance products and services defined.

If you cannot find the word and accompanying definition you’re searching for, please let us know at beready@mhkinsurance.com.

A

Absolute Liability: Liability for damages even though fault or negligence cannot be proven.

Accident: An event or occurrence that is unforeseen and unintended.

Accident and Health Insurance: A type of coverage that pays benefits, sometimes including reimbursement for loss of income, in case of sickness, accidental injury or accidental death.

Accident Insurance: A form of health insurance against loss by accidental bodily injury.

Accidental Bodily Injury: Injury to the body as the result of an accident.

Accidental Death Benefit: A benefit in addition to the face amount of a life insurance policy, payable if the insured dies as the result of an accident. Sometimes referred to as “double indemnity.”

Accounting: The process of recording, summarizing and allocating all items of income and expense of the company and then analyzing, verifying and reporting the results.

Actual Cash Value (ACV): The cost of replacing or restoring property at prices prevailing at the time and place of the loss, less depreciation, however caused.

Additional Insured: An assured party specifically named under an insurance policy.

Adjuster: A person who investigates and settles losses for an insurance carrier.

Adjusting: The process of investigating and settling losses with or by an insurance carrier.

Adverse Selection: The tendency of persons who present a poorer-than-average risk to apply for, or continue, insurance to a greater extent than do persons with average or better-than-average expectations of loss.

Agent: An insurance company representative licensed by the province who solicits, negotiates or effects contracts of insurance, and provides service to the policyholder for the insurer.

Aggregate Deductible: Deductible in some property and health insurance contracts in which all covered losses during a year are added together and the insurer pays only when the aggregate deductible amount is exceeded.

All-risks Policy: Coverage by an insurance contract that promises to cover all losses except those losses specifically excluded in the policy.

Amendment: A formal document changing the provisions of an insurance policy signed jointly by the insurance company officer and the policy holder or his/her authorized representative.

Annual Statement: The annual report, as of December 31, of an insurer showing assets and liabilities, receipts and disbursements, and other financial data.

Annuitant: The person during whose life an annuity is payable; usually the person to receive the annuity.

Annuity: A contract that provides an income for a specified period of time, such as a number of years or for life.

Application: A signed statement of facts made by a person applying for life insurance and then used by the insurance company to decide whether or not to issue a policy. The application becomes part of the insurance contract when the policy is issued.

Arbitration: A form of alternative dispute resolution where an unbiased person or panel renders an opinion as to reponsibility for or extent of a loss.

Arson: The willful and malicious burning of, or attempt to burn, any structure or other property, often with criminal or fraudulent intent.

Assets: All funds, property, goods, securities, rights of action, or resources of any kind owned by an insurance company. Statutory accounting, however, excludes non-admitted assets, such as deferred or overdue premiums, that would be considered assets under generally accepted accounting principles (GAAP).

Assignment: The legal transfer of one person’s interest in an insurance policy to another person.

Association Captive: Type of captive insurer owned by members of a sponsoring organization or group, such as a trade association.

Association Group: A group formed from members of a trade or a professional association for group insurance under one master health insurance contract.

Association Group Plan: Health insurance plans designed for members of a professional association or trade association. Members may be protected under a group health insurance policy or by individual franchise policies.

Assumption Certificate: An endorsement to an insurance contract stating that reinsurance proceeds will be paid directly to the named payee in the event of an insurer’s insolvency.

Attractive Nuisance: Condition that can attract and injure children. Occupants of land on which such a condition exists are liable for injuries to children.

Automatic Reinsurance: An agreement that the insurer must cede and the reinsurer must accept all risks within certain explicitly defined limits. The reinsurer undertakes in advance to grant reinsurance to the extent specified in the agreement in every case where the ceding company accepts the application and retains its own limit.

Automobile Liability Insurance: Protection for the insured against financial loss because of legal liability for car-related injuries to others or damage to their property.

Automobile Physical Damage Insurance: Coverage to pay for damage to or loss of an insured automobile resulting from collision, fire, theft, or other perils.

Aviation Insurance: Aircraft insurance including coverage of aircraft or their contents, the owner’s liability, and accident insurance on the passengers.The beneficiary is the person designated or provided for by the policy terms to receive any benefits provided by the policy or plan upon the death of the insured.

B

Bad Faith: The allegation that insurers have failed to act in good faith, i.e. that they have acted in a manner inconsistent with what a reasonable policyholder would have expected.

Bailees Customers Policy: Policy that covers the loss or damage to property of customers regardless of a bailee’s legal liability.

Basic Form: See Dwelling Property (Basic).

Benefit Period: A period of time, typically one to three years, during which major medical benefits are paid after the deductible is satisfied. When the benefit period ends, the insured must then satisfy a new deductible in order to establish a new benefit period.

Benefits: The amount payable by the insurance company to a claimant, assignee or beneficiary under each coverage.

Binder: A written or oral contract issued temporarily to place insurance in force when it is not possible to issue a new policy or endorse the existing policy immediately. A binder is subject to the premium and all the terms of the policy to be issued.

Blanket Contract: A contract of health insurance affording benefits, such as accidental death and dismemberment, for all of a class of persons not individually identified. It is used for such groups as athletic teams, campers, travel policy for employees, etc. 

Boat Owners Package Policy: A special package policy for boat owners that combines physical damage insurance, medical expense insurance, liability insurance, and other coverages in one contract.

Boiler and Machinery Insurance: Coverage for loss arising out of the operation of pressure, mechanical and electrical equipment. It covers loss of the boiler and machinery itself, damage to other property, and business interruption losses.

Bond: A certificate issued by a government or corporation as evidence of a debt. The issuer of the bond promises to pay the bondholder a specified amount of interest for a specified period and to repay the loan on the expiration (maturity) date.

Book of Business: The number, size and type of accounts (policyholders) that an agent “owns.”

Book Value: The purchase price minus accounting depreciation of a book of business.

Bordereau: An itemized statement of transactions, today resembling a spreadsheet format, commonly used in reinsurance.

Broad Form: See Dwelling Property (Broad) and Homeowners Policy.

Broker: A marketing specialist who represents buyers of property and liability insurance and who deals with either agents or companies in arranging for the coverage required by the customer.

Burglary: Breaking and entering into another person’s property with felonious intent.

Burglary and Theft Insurance: Coverage against property losses due to burglary, robbery or larceny.

Business Income Exposure: Lost profits resulting from damage to property that halts the business.

Business Interruption Exposure: See Business Income Exposure.

Business Insurance: A policy that primarily provides coverage of benefits to a business as contrasted to an individual. It is issued to indemnify a business for the loss of services of a key employee or a partner who becomes disabled.

Business Interruption Insurance: Protection for a business owner against losses resulting from a temporary shutdown because of fire or other insured peril. The insurance provides reimbursement for lost net profits and necessary continuing expenses.

Business Life Insurance: Life insurance purchased by a business enterprise on the life of a member of the firm. It is often bought by partnerships to protect the surviving partners against loss caused by the death of a partner, or by a corporation to reimburse it for loss caused by the death of a key employee.

Buy-Sell Agreement: An agreement made by the owners of a business to purchase the share of a disabled or deceased owner. The value of each owner’s share of the business and the exact terms of the buying-and-selling process are established before death or the beginning of disability.

C

Cancellation: The discontinuance of an insurance policy before its normal expiration date, either by the insured or the company.

Capacity: The amount of capital available to an insurance company or to the industry as a whole for underwriting general insurance coverage or coverage for specific perils.

Capital Gain: Profit realized on the sale of securities. An unrealized capital gain is an increase in the value of securities that have not been sold.

Captive Insurance Company: A company owned solely or in large part by one or more non- insurance entities for the primary purpose of providing insurance coverage to the owner or owners.

Captive Insurer: Insurance company established and owned by a parent firm in order to insure its loss exposures while reducing premium costs, providing easier access to a reinsurer, and perhaps easing tax burdens. See also Association Captive.

Cargo Insurance: Type of ocean marine insurance that protects the shipper of the goods against financial loss if the goods are damaged or lost.

Cash Surrender Value: The amount available in cash upon voluntary termination of a policy by its owner before it becomes payable by death or maturity.

Casualty Insurance: Insurance concerned with the insured’s legal liability for injuries to others or damage to other persons’ property; also encompasses such forms of insurance as plate glass, burglary, robbery and workers’ compensation.

Catastrophe: Event that causes a loss of extraordinary magnitude, such as a hurricane or tornado.

Causes-of-loss Form: Form added to a commercial property insurance policy that indicates the causes of loss that are covered. There are four causes-of-loss forms: basic, broad, special and earthquake.

Cede: To transfer all or part of a risk written by an insurer(the ceding, or primary company) to a reinsurer.

Certificate of Insurance: A statement of coverage issued to an individual insured under a group insurance contract, outlining the
insurance benefits and principal provisions applicable to the member.

Certified Financial Planner (CFP): Professional who has attained a high degree of technical competency in financial planning and has passed a series of professional examinations.

Cession: Amount of the insurance ceded to a reinsurer by the original insuring company in a reinsurance operation.

Claim: A request for payment of a loss, which may come under the terms of an insurance contract.

Civil Law: The portion of law that deals with interactions between individuals. The two branches of civil law are contract law and tort law.

Claims Adjuster: Person who settles claims: an agent, company adjuster, independent adjuster, adjustment bureau or public adjuster.

Claim-made Policy: A liability insurance policy under which coverage applies to claims filed during the policy period.

Class Rating: Rate-making method in which similar insureds are placed in the same underwriting class and each is charged the same rate. Also called manual rating.

Coinsurance: 1) A provision under which an insured who carries less than the stipulated percentage of insurance to value will receive a loss payment that is limited to the same ratio that the amount of insurance bears to the amount required; 2) a policy provision frequently found in medical insurance, by which the insured person and the insurer share the covered losses under a policy in a specified ratio, i.e. 80 per cent by the insurer and 20 per cent by the insured.

Collateral Source Rule: Under this rule, the defendant cannot introduce any evidence that shows the injured party has received compensation from other collateral sources.

Collision Insurance: Protection against loss resulting from any damage to the policyholder’s car caused by collision with another vehicle or object, or by upset of the insured car, whether it was the insured’s fault or not.

Combined Ratio: Basically, a measure of the relationship between dollars spent for claims and expenses and premium dollars taken in; more specifically, the sum of the ratio of losses incurred to premiums earned and the ratio of commissions and expenses incurred to premiums written. A ratio above 100 means that for every premium dollar taken in, more than a dollar went for losses, expenses, and commissions.

Commercial General Liability Policy (CGL): Commercial liability policy drafted by the brokerage or agent containing two coverage foms – an occurrence form and a claims-made form.

Commercial Lines: Insurance for businesses, organizations, institutions, governmental agencies, and other commercial establishments.

Commercial Multiple Peril Policy: A package of insurance that includes a wide range of essential coverages for the commercial establishment.

Commercial Package Policy (CPP): A commercial policy that can be designed to meet the specific insurance needs of business firms. Property and liability coverage forms are combined to form a single policy.

Commission: The part of an insurance premium paid by the insurer to an agent or broker for his/her services in procuring and servicing the insurance.

Commissioner: An officer who administers the province’s insurance laws and regulations.

Common Law: The law that has evolved over time as a result of previous court decisions, rather than having been enacted by a legislative body.

Common Stock: Securities that represent an ownership interest in a corporation.

Community Property: A special ownership form requiring that one-half of all property earned by a husband or wife during marriage belongs to each. Community property laws do not generally apply to property acquired by gift, by will or by descent.

Comparative Negligence: Under this concept, a plaintiff (the person bringing suit) may recover damages even though guilty of some negligence. His or her recovery, however, is reduced by the amount or per cent of that negligence.

Completed Operations: Liability arising out of faulty work performed away from the premises after the work or operations are completed. Applicable to contractors, plumbers, electricians, repair shops, and similar firms.

Comprehensive Automobile Insurance: Protection against loss resulting from damage to the insured auto, other than loss by collision or upset.

Comprehensive Personal Liability Insurance: Protection against loss arising out of legal liability to pay money for damage or injury to others for which the insured is responsible. It does not include automobile or business operation liabilities.

Compulsory Auto Liability Insurance: Insurance laws in some provinces require motorists to carry at least certain minimum auto coverages. This is called “compulsory” insurance.

Compulsory Insurance: Any form of insurance that is required by law.

Concealment: Deliberate failure of an applicant for insurance to reveal a material fact to the insurer.

Concurrent Causation: Legal doctrine that states when a property loss is due to two causes, one that is excluded and one that is covered, the policy provides coverage.

Conditions: Provisions inserted in an insurance contract that qualify or place limitations on the insurer’s promise to perform.

Conservation: The attempt by the insurer to prevent the lapse of a policy.

Consideration: One of the elements for a binding contract. Consideration is acceptance by the insurance company of the payment of the premium and the statement made by the prospective policyholder in the application.

Consequential Loss: Financial loss occurring as the consequence of some other loss; often called an indirect loss.

Constructive Total Loss: An insurance claim where the value to repair the property exceeds the market value of that property.

Contingent Beneficiary: The person or persons designated to receive the benefits of a policy or plan if the primary beneficiary dies while the insured is living.

Contingent Employers Liability Insurance: Provides payment on behalf of the employer for bodily injury to an employee if that person is ineligible to receive workers compensation benefits, e.g. an “occasional” employee.

Contingent Liability: Liability arising out of work done by independent contractors for a firm. A firm may be liable for the work done by an independent contractor if the activity is illegal, the situation does not permit delegation of authority, or the work is inherently dangerous.

Contingent Owner: The person to succeed as owner of a life insurance policy if the original owner dies.

Contract: A binding agreement between two or more parties for the doing or not doing of certain things. A contract of insurance is embodied in a written document called the policy.

Contract Law: The portion of civil law that interprets written agreements between parties and resolves disputes between them.

Contract Holder: The group, entity or person to whom a group annuity contract is issued.

Contract of Adhesion: Occurs when one party to the contract writes it and offers other parties only the option of acceptance or rejection. In such a circumstance, the law interprets any ambiguities in the contract against the party writing it.

Contractual Liability: Legal liability of another party that the business firm agrees to assume by a written or oral contract.

Contribution by Equal Shares: Type of other-insurance provision often found in liability insurance contracts that requires each company to share equally in the loss until the share of each insurer equals the lowest limit of liability under any policy or until the full amount of loss is paid.

Contributory: A group insurance plan issued to an employer under which both the employer and employee contribute to the cost of the plan. Seventy-five percent of the eligible employees must be insured.

Contractual Risk Transfer: A major method of loss financing through which a legal agreement is used to transfer risk to another party.

Contributory Negligence: Negligence of the damaged person that helped to cause the accident.

Conversion Privilege: The right given to an insured person to change insurance without evidence of medical insurability, usually to an individual policy upon termination of coverage under a group contract.

Convertible Term Insurance: Term insurance that can be exchanged, at the option of the policyholder and without evidence of insurability, for another plan of insurance. Credit life insurance. Term life insurance issued through a lender or lending agency to cover payment of a loan, installment purchase, or other obligation, in case of death.

Coordination of Benefits (COB): The mechanism used in group health insurance to designate the order in which the multiple carriers are to pay benefits and to prevent duplicate payments.

Cost of Pure Risk: All costs related to pure risk, which includes, from the perspective of shareholders, retained risk, loss prevention costs, insurance costs, and more.

Cost of Risk: The reduction in business value that arises as a result of risk.

Coverage: The scope of protection provided under a contract of insurance; any of several risks covered by a policy.

Coverage for Damage to Your Auto: That part of the personal auto policy insuring payment for damage or theft of the insured automobile. This optional coverage can be used to insure both collision and other-than-collision losses.

Covered: A person covered by a pension plan is one who has fulfilled the eligibility requirements in the plan, for whom benefits have accrued, or are accruing, or who is receiving benefits under the plan.

Covered Expenses: Hospital, medical, and miscellaneous health care expenses incurred by the insured that entitle him/her to a payment of benefits under a health insurance policy. Found most often in connection with major medical plans, the term defines, by either description, reasonableness, or necessity to specify the type and amount of expense that will be considered in the calculation of benefits.

Critical Illness Insurance: A hybrid coverage that combines elements of life, health and disability policies that pays the entire face value of the policy upon the diagnosis of one of the severe illnesses stated in the policy and a post-diagnosis waiting period.

Cross Liability Clause: Obligates an insurer to protect each insured separately.

Cross Purchase Agreement: Specifies the terms for the surviving partners or shareholders to buy a deceased’s share of the business’s ownership.

CSR: Customer Service Representative who supports the work of insurance agents with a variety of tasks that must be done within a company or agency to deliver services to and handle requests from clients.

Cut-through Endorsement: An endorsement to an insurance contract stating that reinsurance proceeds will be paid directly to the named payee in the event of an insurer’s insolvency.

D

Damage to Property of Others: Damage covered up to $500 per occurrence for an insured who damages another’s property. Payment is made despite the lack of legal liability. Coverage is included in Section II of the homeowners policy.

Death Benefit: A payment made to a designated beneficiary upon the death of the employee annuitant.

Declarations: Statements in an insurance contract that provide information about the property or life to be insured and used for underwriting and rating purposes and identification of the property or life to be insured.

Declination: The insurer’s refusal to insure an individual after careful evaluation of the application for insurance and any other pertinent factors.

Deductible: An amount that a policyholder agrees to pay, per claim or per accident, toward the total amount of an insured loss.

Deferred Annuity: An annuity providing for the income payments to begin at some specified future date.

Defined Contribution Plan: A plan under which the contribution rate is fixed and benefits to be received by employees after retirement depend to some extent upon the contributions and their earnings.

Dental Insurance: Individual or group plan that helps pay costs of normal dental care as well as damage to teeth from an accident.

Demutualization: the process of changing the legal structure of an insurance company from a mutual form of ownership to a stock form of ownership.

Dependency Period: Period of time following the readjustment period during which the surviving spouse’s children are under eighteen and therefore dependent of the parent.

Dependent Benefits: Social Security benefits available to the spouse or children of a Social Security beneficiary.

Deposit Premium: The premium deposit paid by a prospective policy holder when an application is made for an insurance policy. It is usually equal, at least, to the first month’s estimate premium and is applied toward the actual premium when billed.

Depreciation: A decrease in the value of property over a period of time due to wear and tear or obsolescence. Depreciation is used to determine the actual cash value of property at time of loss. (See Actual Cash Value)

Difference in Conditions Insurance (DIC): “All-risks” policy that covers other perils not insured by basic property insurance contracts, supplemental to and excluding the coverage provided by underlying contracts.

Direct Loss: Financial loss that results directly from an insured peril.

Direct Premiums Written: Property and casualty insurance premiums written (less return premiums), without any allowance for premiums for assumed or ceded reinsurance.

Direct Writer: The industry term for a company that uses its own sales employees to write its policies. Sometimes refers to companies that contract with exclusive agents.

Directors’ and Officers’ Liability: The exposure of corporate managers to claims from shareholders, government agencies, employees, and others alleging mismanagement.

Disability: A physical or mental impairment that substantially limits one or more major life activities of an individual. It may be partial or total. (See Total Disability)

Disability Benefit: A feature added to some life insurance policies providing for waiver of premium, and sometimes payment of monthly income, if the policy holder becomes totally and permanently disabled.

Disability Income Insurance: A form of health insurance that provides periodic payments to replace income when an insured person is unable to work as a result of illness, injury, or disease.

Disappearing Deductible: Deductible in an insurance contract that provides for a decreasing deductible amount as the size of the loss increases, so that small claims are not paid but large losses are paid in full.

Dismemberment: Loss of body members (limbs), or use thereof, or loss of sight due to injury.

Dismemberment Insurance: A form of health insurance that provides payment in case of loss by bodily injury of one or more body members (such as hands or feet) or the sight of one or both eyes.

Dividend: A policy holder’s share in the insurer’s divisible surplus fund apportioned for distribution, which may take the form of a refund of part of the premium on a participating policy. The term is also used for a stockholder’s share of the portion of a corporation’s earnings that is distributed in cash or additional stock.

Doctrine of Reasonable Expectations: A legal doctrine that holds that policies will be interpreted according to how a reasonable person who is not trained in the law would expect.

Dramshop Law: Law that imputes negligence to the owner of a business that sells liquor in the case that an intoxicated customer causes injury or property damage to another person. Usually excluded from general liability policies.

Driver Education Credit: Student discount or reduction in premium amount for which young drivers become eligible on completion of a driver education course.

Dwelling Property (Basic): Property insurance policy that insures the dwelling at actual cash value, other structures, personal property, fair rental value, and certain other coverages. Covers a limited number of perils.

Dwelling Property (Broad): Property insurance policy that insures the dwelling and other structures at replacement cost. It adds additional coverages and has a greater list of covered perils than the Dwelling Property (Basic) policy.

Dwelling Property (Comprehensive): Property insurance policy that covers the dwelling and other structures against direct physical loss from any peril except for those perils otherwise excluded. However, personal property is covered on a named-perils basis.

E

Earned Income: Employment income derived from salary, wages, commissions or fees.
Earned Premium: The part of the total property/casualty policy premium that applies to the portion of the policy period that has already expired.

Effective Date: The date on which the insurance under a policy begins.

Elements of a Negligent Act: Four elements an injured person must show to prove negligence: existence of a legal duty to use reasonable care; failure to perform that duty; damages or injury to the claimant; and, proximate cause relationship between the negligent act and the infliction of damages.

Embezzlement: Fraudulent use or taking of another’s property or money that has been entrusted to one’s care.

Employee Dishonesty Coverage Form: Commercial crime insurance form that covers the loss of money, securities, and other covered property because of any dishonest act of a covered employee or employees.

Employers Contingent Liability Insurance: Protects the employer for injuries sustained by an employee in the course of employment where he is otherwise not eligible for coverage under a Workers Compensation Act in a jurisdiction where the injury took place.

Endorsement: An additional piece of paper, not a part of the original contract, which cites certain terms and which, when attached to the original contract, becomes a legal part of that contract; an amendment of the policy usually by means of a rubber stamp or rider.

Endowment: Life insurance payable to the policyholder if living, on the maturity date stated in the policy, or to a beneficiary if the insured dies prior to that date.

Environmental Impairment Liability Insurance: A form of insurance designed to cover losses and liabilities arising from damage to property by pollution.

Equities: Investments in the form of ownership of property, usually common stocks, as distinguished from fixed income bearing securities, such as bonds or mortgages.

Errors and Omissions Insurance: Liability insurance policy that provides protection against loss incurred by a client because of some negligent act, error, or omission by the insured.

Estate: The assets and liabilities of a person left at death.

Estate Planning: Developing a plan to transfer all of your property from one generation to the next or within a generation .

Estoppel: Legal doctrine that prevents a person from denyng the truth of a previous representation of fact, especially when such representation has been relied on by the one to whom the statement was made.

Evidence of Insurability: Any statement of proof of a person’s physical condition and/or other factual information affecting his/her acceptance for insurance.

Excess and Surplus Insurance: (1) Insurance to cover losses above a certain amount, with losses below that amount usually covered by a regular policy. (2) Insurance to cover an unusual or one-time risk, e.g. damage to a musician’s hands or the multiple perils of a convention, for which coverage is unavailable in the normal market. (See also Umbrella Liability and Surplus Lines)

Exclusions: Specific conditions or circumstances listed in the policy for which the policy will not provide benefit payments.

Expense Ratio: The ratio of a company’s operating expenses to premiums.

Experience: A term used to describe the relationship, usually expressed as a percent or ratio, of premium to claims for a plan, coverage or benefits for a stated time period.

Experience Rating: The process of determining the premium rate for a group risk, wholly or partially on the basis of that group’s experience.

Extended Coverage Insurance: Protection for the insured against property damage caused by windstorm, hail, smoke, explosion, riot, riot attending a strike, civil commotion, vehicle and aircraft. This is provided in conjunction with the fire insurance policy and the various “package” policies.

Extended Nonowned Coverage: Endorsement that can be added to an automobile liability insurance policy that covers the insured while driving any non-owned automobile on a regular basis.

Extended Reporting Period: An additional period of time after the policy expiration during which valid claims will be paid under a claims-made policy of liability insurance.

Extended Reporting Period Endorsement: Added to a claims-made policy of liability insurance to provide an additional period of time during which valid claims will be paid.

Extended Term Insurance: A form of insurance available as a nonforfeiture option. It provides the original amount of insurance for a limited period of time.

Extortion: Surrender of property away from the premises as a result of a threat to do bodily harm to the named insured, relative or invitee who is being held captive.

Extra Expense Insurance: Type of business income insurance that covers the extra expenses incurred to continue operations after a loss has occurred.

G

General Average: In ocean marine insurance, a loss incurred for the common good that is shared by all parties to the venture.

General Damages: Damages awarded to an injured person for an intangible loss which cannot be measured directly by dollars; popularly known as “pain and suffering.” General damages are distinguished from special damages, which are awarded for actual economic loss, such as medical costs, loss of income, etc.

General Liability Insurance: Coverage that pertains, for the most part, to claims arising out of the insured’s liability for injuries or damage caused by ownership of property, manufacturing operations, contracting operations, sale or distribution of products, and the operation of machinery, as well as professional services.

Glass Insurance: Protection for loss of or damage to glass and its appurtenances.

Grace Period: A specified period after a premium payment is due, in which the policyholder may make such payment, and during which the protection of the policy continues.

Gross Negligence: The intentional failure to perform a manifest duty in reckless disregard of the consequences as affecting the life or property of another.

Gross Premium: The premium paid by the policyholder.

Gross Rate: The sum of the pure premium and a loading element.

Group Insurance: Insurance written on a number of people under a single master policy, issued to their employer or to an association with which they are affiliated.

Guaranteed Cost Insurance: A policy of insurance that costs the insured a fixed amount of premium, regardless of the amount of losses that may arise.

H

Hard Market: That part of the insurance sales cycle in which competitive pricing is at a minimum as companies charge the premiums necessary to meet their underwriting losses in order to avoid insolvency and boost capacity; usually associated with a sharp decline in capacity. (See Soft Market)

Hazard: Condition that creates or increases the chance of loss.

Health Insurance: Insurance against financial losses resulting from sickness or accidental bodily injury; protection that provides payment of benefits for covered sickness or injury. Included under this heading are various types of insurance such as accident insurance, disability income insurance, medical expense insurance, and accidental death and dismemberment insurance.

Hedging: Technique for transferring the risk of unfavorable price fluctuations to a speculator by purchasing and selling options and futures contracts on an organized exchange.

High-Risk Automobile Insurer: Company that specializes in insuring motorists who have poor driving records or have been canceled or refused insurance.

Hold-Harmless Clause: Clause written into a contract by which one party agrees to release another party from all legal liability, such as a retailer who agrees to release the manufacturer from legal liability if the product injures someone.

Homeowners Policy: A package of insurance providing home owners with a broad range of property and liability coverages.

Hull Insurance: (1) Class of ocean marine insurance that covers physical damage to the ship or vessel insured; typically written on an “all-risks” basis. (2) Physical damage insurance on an aircraft, similar to collision insurance in an automobile policy.

Hurricane: A tropical storm marked by extremely low barometric pressure and circular winds with a velocity of 75 miles an hour or more.

I

Imputed Negligence: Case in which responsibility for damage can be transfered from the negligent party to another person, such as an employer.

Incurred Claims: Incurred claims equal the claims paid during the policy year plus the claim reserves as of the end of the policy year, minus the corresponding reserves as of the beginning of the policy year. The difference between the year end and beginning of the year claim reserves is called the increase in reserves and may be added directly to the paid claims to produce the incurred claims.

Incurred-but-not-reported (IBNR) reserves: Liability account on an insurer’s balance sheet reflecting claims that are expected based upon statistical projections but which have not yet been reported to the insurer.

Indemnification: Compensation to the victim of a loss, in whole or in part, by payment, repair or replacement.

Indemnity: Legal principle that specifies an insured should not collect more than the actual cash value of a loss but should be restored to approximately the same financial position as existed before the loss.

Independent Adjustor: Claims adjustor who offers his or her services to insurance companies and is compensated by a fee.

Indexing: Adjusting of values over time to reflect the impact of inflation.

Indirect Loss: See Consequential Loss.

Inflation-Guard Endorsement: Endorsement added at the insured’s request to a homeowners policy to increase periodically the face amount of insurance of the dwelling and other policy coverages by a specified percentage.

Inherent Vice: A defect or cause of loss arising out of the nature of the goods in question.

Inheritance Tax: A tax on the right of an heir to receive property at the death of another.

Inland Marine Insurance: A broad type of insurance, generally covering articles that may be transported from one place to another as well as bridges, tunnels and other instrumentalities of transportation. It includes goods in transit (generally excepting trans-ocean) as well as numerous “floater” polices such as personal effects, personal property, jewelry, furs, fine art and others.

Inspection Report: A report (usually written) of an investigation of an applicant, conducted by an independent agency that specializes in insurance investigations. The report covers such matters as occupation, financial status, health history, and moral problems.

Insolvent: Having insufficient financial resources (assets) to meet financial obligations (liabilities).

Insurability: Acceptability to the company of an applicant for insurance.

Insurable Risk: The conditions that make a risk insurable are (a) the peril insured against must produce a definite loss not under the control of the insured, (b) there must be a large number of homogeneous exposures subject to the same perils, (c) the loss must be calculable and the cost of insuring it must be economically feasible, (d) the peril must be unlikely to affect all insureds simultaneously, and, (e) the loss produced by a risk must be definite and have a potential to be financially serious.

Insurance: A system under which individuals, businesses and other organizations or entities, in exchange for payment of a sum of money (a premium), are guaranteed compensation for losses resulting from certain perils under specified conditions.

Insurance Company: Any corporation primarily engaged in the business of furnishing insurance protection to the public.

Insurance Examiner: The representative of an insurance company assigned to participate in the official audit and examination of the affairs of that insurance company.

Insured: A person or organization covered by an insurance policy, including the “named insured” and any other parties for whom protection is provided under the policy terms.

Insured or Insured Life: The person on whose life the policy is issued.

Insurer: The party to the insurance contract who promises to pay losses or benefits. Also, any corporation engaged primarily in the business of furnishing insurance to the public.

Insuring Agreement: That part of an insurance contract that states the promises of the insurer.

Insuring Clause: The clause which sets forth the type of loss being covered by the policy and the parties to the insurance contract.

Interest: Money paid for the use of money.

Intestate: Without a will.

Investment Income: The income generated by a company’s portfolio of investments (such as in bonds, stocks or other financial ventures).

Irrevocable Beneficiary: Beneficiary designation allowing no change to be made in the beneficiary of an insurance policy without the beneficiary’s consent.

J

Joint-and-Several Liability: A legal principle that permits the injured party in a tort action to recover the entire amount of compensation due for injuries from any tort feasor who is able to pay, regardless of the degree of that party’s negligence.

Judgment Rating: Rate-making method for which each exposure is individually evaluated and the rate is determined largely by the underwriter’s judgment.

Judicial Bond: Type of surety bond used for court proceedings and guaranteeing that the party bonded willl fulfill certain obligations specified by law, for example, fiduciary responsibilities.

K

Key-Person Insurance: Insurance designed to protect a business firm against the loss of income resulting from the death or disability of a key employee.

L

Lapse: The termination or discontinuance of an insurance policy due to non-payment of a premium.

Lapsed Policy: A policy terminated for non-payment of premiums. The term is sometimes limited to a termination occurring before the policy has a cash or other surrender value.

Larceny-theft: The unlawful taking, carrying, leading or riding away of another person’s property.

Last Clear Chance Rule: Statutory modification of the contributory negligence law allowing the claimant endangered by his or her own negligence to recover damages from a defendant if the defendant has a last clear chance to avoid the accident but fails to do so.

Law of Large Numbers: Concept that the greater the number of exposures, the more closely will actual results approach the probable results expected from an infinite number of exposures.

Legal Reserve: The minimum reserve which a company must keep to meet future claims and obligations as they are calculated under the provincial insurance code.
Level Commission Scale: A commission scale providing for payment of commissions at the same rate every year the policy is in force.

Liability: Any legally enforceable obligation.

Liability Insurance: Insurance covering the policyholder’s legal liability resulting from injuries to other persons or damage to their property.

Liability Limits: The stipulated sum or sums beyond which an insurance company is not liable to protect the insured.

License and Permit Bond: Type of surety bond guaranteeing that the person bonded will comply with all laws and regulations that govern his or her activities.

Life Expectancy: The average number of years of life remaining for a group of persons of a given age according to a particular mortality table.

Life Insurance: Insurance providing for payment of a specified amount on the insured’s death, either to his or her estate or to a designated beneficiary; or in the case of an endowment policy, to the policy holder at a specified date.

Liquidation: Dissolving a company by selling its assets for cash.

Liquor Liability Law: See Dramshop Law.

Lloyd’s of London: Insurance marketplace where brokers, representing clients with insurable risks, deal with Lloyd’s underwriters, who in turn represent investors. The investors are grouped together into syndicates that provide capital to insure the risks.

Loading: The amount that must be added to the pure premium for expenses, profit and a margin for contingencies.

Loss: The happening of the event for which insurance pays.

Loss Adjustment Expense: Expenses incurred in the process of evaluating, defending and paying claims.

Loss Avoidance: A risk management technique whereby a situation or activity that may result in a loss for a firm is avoided or abandoned.

Loss Control: Any conscious action (or decision not to act) intended to reduce the frequency, severity or unpredictability of accidental losses.

Loss of Use: Value assigned to not having damaged property available, e.g., the cost of renting a replacement vehicle while one’s car is being repaired.

Loss Payable Clause: Means of protecting a mortgagee’s interest in property by directing the insurer to make a loss payment to the mortgagee in the event of a loss.

Loss Prevention: Any measure which reduces the probability or frequency of a particular loss but does not eliminate completely all possibility of that loss.

Loss Ratio: A ratio calculated by dividing claims into premiums. It may be calculated in several different ways, using paid premiums or earned premiums, and using paid claims with or without changes in claim reserves and with or without changes in active reserves.

Loss Reserve: The amount set up as the estimated cost of a claim.

M

Malpractice: Improper care or treatment by a physician, hospital or other provider of health care.

Malpractice Insurance: Coverage for a professional practitioner, such as a doctor or a lawyer, against liability claims resulting from alleged malpractice in the performance of professional services.

Manuscript Policy: Policy designed for a firm’s specific needs and requirements.

Marine Insurance: A form of insurance primarily concerned with means of transportation, communication and with goods in transit. (See Inland Marine Insurance and Ocean Marine Insurance)

Market Price (or Market Value): The price at which a security can be bought or sold at any particular time.

Master Policy (or Master Contract): The policy issued to a group policyholder setting forth the provisions of the group insurance plan. The individuals insured under the policy are then issued certificates of insurance.

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.

Medical Examination: The examination given by a qualified physician to determine the insurability of an applicant. A medical examination may also be used to determine whether an insured claiming disability is actually disabled.

Medical Malpractice: Improper care or treatment by a physician, hospital or other provider of health 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 incurred as the result of bodily injury or death by accident under specified conditions.

Misrepresentation: A false, incorrect, improper, or incomplete statement of a material fact, made in the application for a policy.

Mode of Premium Payment: The frequency with which premiums are paid monthly, quarterly, semiannually, or annually.

Moral Hazard: Hazard arising from any nonphysical, personal characteristic of a risk that increases the possibility of loss or may intensify the severity of loss, for instance, bad habits, low integrity, poor financial standing, etc.

Morbidity: The incidence and severity of sicknesses and accidents in a well-defined class or classes of persons.

Multi-Peril Policy: A package policy which provides protection against a number of separate perils. Multi-peril policies are not necessarily multiple line policies, since the combined perils may be all within one insurance line.

Mutual Insurance Company: An insurance company in which the ownership and control is vested in the policyholders and a portion of surplus earnings may return to policyholders in the form of dividends. No capital stock exists.

MVR: Motor vehicle report.

N

Named Perils: Coverage in a property policy that provides protection against loss from only the perils specifically listed in the policy rather than protection from physical loss. Examples of named perils are fire, windstorm, theft, smoke, etc.

Negligence: Failure to use the care that a reasonable and prudent person would have used under the same or similar circumstances.

Net Amount at Risk: The difference between a life insurance policy’s death benefit and its cash value amount.

Net Premium: The portion of the premium rate which is designed to cover benefits of the policy, but not expenses, contingencies or profit. The term is also used to describe the portion of the premium remitted to the home office by an agent after deduction of the agent’s commission.

No-Fault: A type of auto insurance mechanism whereby the right to sue another party for damages caused by negligence is limited and, in exchange, expanded first party benefits are offered.

O

Occupational Hazards: Occupations which expose the insured to greater than normal physical danger by the very nature of the work in which the insured is engaged, and the varying periods of absence from the occupation, due to the disability, that can be expected.

Occurrence: An accident, including continuous or repeated exposure to substantially the same general, harmful conditions, that results in bodily injury or property damage during the period of an insurance policy.

Occurrence Policy: A liability insurance policy that covers claims arising out of occurrences that take place during the policy period, regardless of when the claim is filed.

Ocean Marine Insurance: Coverage on all types of vessels, including liabilities connected with them, and on their cargoes.

Operating Ratio: The sum of expenses and losses expressed as a percent of earned premium.

P

Package Policy: A combination of two or more individual polices or coverages into a single policy. A homeowners policy, for example, is a package combining property, liability and theft coverages for the homeowner.

Pension Benefits: A series of payments to be provided in accordance with the plan of benefits.

Pension Plan: A plan established and maintained by an employer, group of employers, union or any combination, primarily to provide for the payment of definitely determinable benefits to participants after retirement.

Peril: The cause of a possible loss, such as fire, windstorm, theft, explosion or riot.

Personal Articles Floater: A form of coverage designed to meet the needs for insurance on property of a moveable nature. The coverage usually protects against all physical loss, subject to special exclusions and conditions. Examples of property covered include jewelry, furs, silverware, and fine arts.

Personal Injury Protection (PIP): First-party no-fault coverage in which an insurer pays, within the specified limits, the wage loss, medical, hospital and funeral expenses of the insured.

Personal Lines: Those types of insurance, such as auto or home insurance, for individuals or families rather than for businesses or organizations.

Personal Representative: A person appointed through the will of a deceased or by a court to settle the estate of one who dies.

Physical Damage: Damage to or loss of the auto resulting from collision, fire, theft or other perils.

Policy: A contract of insurance; the legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance; also called the policy contract or the contract.

Policy Term: That period for which an insurance policy provides coverage.

Policyholder: A person who pays a premium to an insurance company in exchange for the insurance protection provided by a policy of insurance.

Pollution Liability: Exposure to lawsuits for injury or cleanup costs that result from pollution damage.

Pool: An organization of insurers or reinsurers through which particular types of risk are underwritten and premiums, losses and expenses are shared in agreed-upon amounts.

Preexisting Condition: A physical condition that existed before the effective date of coverage.

Premium: The sum paid by a policyholder to keep an insurance policy in force.

Premium Finance: Allows the insured to pay part of the premium when coverage takes effect and pay the rest during the policy period.

Primary Insurance: Insurance that pays compensation for a loss ahead of any other insurance coverages the policyholder may have.

Probate: The court-supervised process of validating or establishing a distribution for assets of a deceased including the payment of outstanding obligations.

Product Liability: Legal liability incurred by a manufacturer, merchant or distributor because of injury or damage resulting from the use of its product.

Product Liability Insurance: Protection against financial loss arising out of the legal liability incurred by a manufacturer, merchant or distributor because of injury or damage resulting from the use of a covered product.

Proof of Loss: Documentary evidence required by an insurer to prove a valid claim exists. It usually consists of a claim form completed by the insured and the insured’s attending physician. For medical expense insurance itemized bills must also be included.

Property Damage Coverage: An agreement by an insurance carrier to protect an insured against legal liability for damage by an insured automobile to the property of another.

Property Insurance: Insurance providing financial protection against the loss of, or damage to, real and personal property caused by such perils as fire, theft, windstorm, hail, explosion, riot, aircraft, motor vehicles, vandalism, malicious mischief, riot and civil commotion, and smoke.

Proscription: A claim not covered by an insurance policy because it is filed after the time required in the language of the contract.

Provision: A part (clause, sentence, paragraph, etc.) of an insurance contract that describes or explains a feature, benefit, condition, requirement, etc. of the insurance protection afforded by the contract.

Proximate Cause: The dominating cause of loss or damage; an unbroken chain of events between the occurrence and damage.

Punitive Damages: A court-awarded amount that exceeds the economic losses and general damages of a plaintiff and is intended solely to punish the defendant.

Pure Premium: The portion of the premium that covers benefits of the policy, but not expenses, contingencies or profit.

Q

Quote: A price estimate given to the potential consumer as he/she decides on which company a formal application will be submitted. Company may be legally bound to honour this quote in some jurisdictions and/or lines of business.

R

Rate: The pricing factor upon which the insurance buyer’s premium is based.

Rating Territory: A geographical grouping in which like hazards tend to equalize and permit the establishment of an equitable rate for the territory.

Rebating: Giving any valuable consideration, usually all or part of the commission, to the prospect or insured as an inducement to buy or renew. Rebating is prohibited by law.

Regulation: Supervision of business practices by a governmental entity.

Reimbursement: The payment of the expenses actually incurred as a result of an accident or sickness, but not to exceed any amount specified in the policy.

Reinstatement: The resumption of coverage under a policy that has lapsed.

Reinsurance: The acceptance by one or more insurers, called reinsurers, of a portion of the risk underwritten by another insurer who has contracted for the entire coverage.

Renewal: Continuance of coverage under a policy beyond its original term by the insurer’s acceptance of the premium for a new policy term.

Renter’s Policy: A package type of insurance that includes coverage similar to a homeowners policy to cover the personal property of a renter or tenant in a building.

Replacement: The substitution of health insurance coverage from one policy contract to another.

Replacement Cost: The cost to repair or replace property at construction costs prevailing at the time of loss; the cost to repair or rebuild property without considering depreciation. (See Actual Cash Value)

Representation: Statements made by an applicant in the application, which he/she represents as being substantially true to the best of his/her knowledge and belief, but which are not warranted as exact in every detail.

Rescission: Termination of an insurance contract by the insurer on the grounds of material misstatement on the application for insurance. The action of rescission must take place within the contestable period or Time Limit on Certain Defenses, but takes effect as of the date of issue of the policy, thus voiding the contract from its inception.

Reservation of Rights: An arrangement whereby an insurer defends a case without commitment to provide coverage in the event that the facts disclosed during the trial reveal that the occurrence is not covered.

Reserve: (1) An amount representing liabilities kept by an insurer to provide for future commitments under policies outstanding. (2) An amount allocated for a special purpose. Note that a reserve is usually a liability and not an extra fund.

Residual Market: A system through which insurance is made available to buyers that represent unusually high risks.

Retention: The net amount of risk retained by an insurance company for its own account or that of specified others, and not reinsured.

Retrocession: The process by which a reinsurer obtains reinsurance from another company.

Retrospective Date: The first date for which claims will be paid under a claims-made policy of liability insurance.

Retrospective Rating: Rating procedure which allows adjustment of an insured’s final rate on the basis of the insured’s own loss experience.

Rider: A document which amends the policy or certificate. It may increase or decrease benefits, waive the condition of coverage, or in any other way amend the original contract.

Risk: The chance of loss; also used to refer to the insured or to property covered by a policy.

Risk Control: Any conscious action (or decision not to act) intended to reduce the frequency, severity or unpredictability of accidental losses.

Risk Pooling Arrangement: See Pool.

Robbery: The taking of property from a person by force or threat of violence.

S

Salvage: Recovery made by an insurance company by the sale of property which has been taken over from the insured as a part of loss settlement.

Self-Insured Retention: A form of risk financing through which a firm assumes all or a part of its own losses.

Settlement Options: The several ways, other than immediate payment in cash, which a policyholder or beneficiary may choose to have policy benefits paid.

Sickness Insurance: A form of health insurance providing benefits for loss resulting from illness or disease.

Soft Market: That part of the insurance sales cycle in which competition is at a maximum as insurance companies use their excess capacity to sell more policies at lower prices. (See Hard Market)

Special Damages: Compensation awarded for actual economic losses, such as medical expenses and lost wages. (See General Damages)

Special Risk Insurance: Coverage for risks or hazards of a special or unusual nature.

Standard Markets: Insurance companies for which the vast majority of people qualify.

State-of-the-Art Defense: An argument used in product liability cases that the technology needed to avoid the loss in a particular case did not exist at the time of the product’s manufacture.

Stockholder (or Shareholder): A person who owns shares of stock in a corporation.

Stock Insurance Company: A company in which the legal ownership and control is vested in the stockholders.

Strict Liability: Liability for damages even though fault or negligence cannot be proven.

Subrogation: Process by which one insurance company seeks reimbursement from another company or person for a claim it has already paid.

Substandard (Impaired Risk): A risk that cannot meet the normal health requirements of a standard health insurance policy. Protection is provided in consideration of a waiver, a special policy form, or a higher premium charge. Substandard risks may include those persons who engage in certain sports and persons who are rated because of poor habits or morals.

Surety Bond: An agreement providing for monetary compensation in the event of a failure to perform specified acts within a stated period. The surety company, for example, becomes responsible for fulfillment of a contract if the contractor defaults.

Surplus: The amount by which the value of an insurer’s assets exceeds its liabilities, i.e., the net worth of an insurance company.

Surplus Lines: (1) A risk or a part of a risk for which there is no normal insurance market available. (2) Insurance written by non-admitted insurance companies.

Surrender: The cancellation of life insurance by the policyholder.

T

Tenants in common: A form of joint property ownership in which the owners may have unequal shares and which does not involve a right of survivorship.

Term Insurance: Life insurance payable to a beneficiary only when an insured dies within a specified period.

Third Party: The claimant under a liability policy; so called because the person making the claim is not one of the two parties, insured and insurer, to the insurance contract. Third party claim: a demand made by a person against a policyholder of another company and any payment that will be made by that company.

Time Limit: The period of time during which a notice of claim or proof of loss must be filed.

Tornado: A whirling wind over land, accompanied by a funnel-shaped cloud. It is usually very violent and destructive in a narrow path, often for many miles.

Tort: A civil wrong, other than a breach of contract, for which a court of law will afford legal relief, i.e. harming another by an act of negligence in driving an auto.

Total Disability: An illness or injury that prevents an insured person from continuously performing every duty pertaining to his/her occupation or engaging in any other type of work. (This wording varies among insurance companies.)

Treaty: An agreement between a reinsurer and a ceding insurer setting forth details of the reinsurance arrangement.

Trust: A legal instrument allowing one party to control property for the benefit of another.

U

Umbrella Liability: Insures losses in excess of amounts covered by other liability insurance policies; also protects the insured in many situations not covered by the usual liability policies.

Underwriter: 1) A company that receives the premiums and accepts responsibility for the fulfillment of the policy contract; 2) The company employee who decides whether or not the company should assume a particular risk; 3) The agent who sells the policy.

Underwriting: The process of selecting risks for insurance and determining in what amounts and on what terms the insurance company will accept the risk.

Unearned Premium: The portion of a premium that a company has collected but has yet to earn because the policy still has unexpired time to run.

Uninsurable Risk: One not acceptable for insurance due to excessive risk.

Uninsured/Underinsured Motorist Coverage: A form of insurance that pays the policy holder and passengers in his/her car for bodily injury caused by the owner or operator of an uninsured or inadequately insured automobile.

V

Variable Annuity: An annuity contract in which the amount of each periodic income payment may fluctuate. The fluctuation may be related to securities market values, a cost of living index, or some other variable factor.

Vest: A provision that a pension participant will, after meeting certain requirements, retain a right to all or part of the accrued benefits, even though the employee may leave the job before retirement.

W

Waiver: An agreement attached to a policy which exempts from coverage certain disabilities or injuries that otherwise would be covered by the policy.

Whole Life Insurance: A plan of insurance for the whole of life. It includes straight life on which premiums are payable until death.

Will: The legal statement of a person’s wishes concerning the disposal of his or her property after death.

Workers Compensation: A system established under provincial law that provides payments, without regard to fault, to employees injured in the course and scope of their employment.
Written Premiums: The entire amount of premiums due in a year for all polices issued by an insurance company.

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