A, B, & C Definitions Flashcards
Define
A.M. Best Company
A.M. Best Company:
Organization that rates the financial stability of insurance companies doing business in the United States.
Define
Abandonment Condition
Abandonment Condition:
A condition contained in property insurance policies that states that the insured cannot abandon damaged property to the insurer and demand to be reimbursed for its full value.
Define
Absolute Liability
Absolute Liability:
- *Type of liability imposed by law on those participating in certain activities that are considered especially hazardous. A person involved in such operations may be held liable for the damages to another, even though the individual was not negligent.**
- *See also Strict Liability.**
Define
Accident
Accident:
An unexpected and unintended event that results in a loss or damage that occurs at a specific time and place.
Define
Accidental Bodily Injury (BI)
Accidental Bodily Injury (BI):
An unexpected and unintended event of external origin that results in traumatic damage to the body of the injured person.
Define
Acts of God
Acts of God:
A flood, earthquake or other event or accident that occurs without human intervention and that could not have been prevented by reasonable care or foresight, but is the result of natural causes.
Define
Actual Cash Value (ACV)
Actual Cash Value (ACV):
Actual Cash Value follows the principle of indemnification, because settlement takes into account the cost to replace an item of property at the time of loss, less an allowance for depreciation (use of the property, wear and tear, etc.).
Define
Actuary
Actuary:
An individual concerned with the application of probability and statistical theory. An actuary is a mathematician (statistician), someone that does statistical analysis of historical data in order to make predictions of future probability. Actuaries work closely with insurance companies in their premium (rate) development.
Define
Additional Coverages
Additional Coverages:
Additional Coverages that apply only in certain circumstances; have reduced or separate limits of liability or require the insured to meet certain requirements before they are applicable.
Also called Coverage Extensions, Other Coverages and Extended Coverages.
Define
Additional Insured
Additional Insured:
An individual or company, in addition to the insured, who is listed in the Declarations.
An example is a mortgage company that has an insurable interest in the property insured may be listed to protect its interest in the property.
Define
Adhesion
Adhesion:
A term under contract law identifying a contract written by one party with little or no input in the contract language from the other party to the contact. An insurance policy is a contract of adhesion, because the insurer prepares it and the purchaser “adheres” to the contract as written with no say on the contract language. An insurer provides the policy on a take-it or leave-basis, in other words, as written.
Ambiguities found in a contract of adhesion are generally interpreted in favor of the party that did not write the contract, in this case, the purchaser of insurance (policyowner).
Define
Adjustor
Adjustor:
A person who adjusts claims, i.e. determines the amount of the loss. A licensed adjustor is authorized to adjust claim for or against an insurer. An adjustor’s license is not required for an employee of the insurer, where they are adjusting claims for the insurer only.
May be referred to as a Claims Adjustor or Insurance Adjustor.
Define
Admitted Company (Insurer)
Admitted Company (Insurer)
An insurance company authorized (admitted) to do business in a given state.
See also Authorized Company.
Define
Advance Premium
Advance Premium:
The initial premium payment made at the time of application for a policy or at the beginning of the period covered by the policy. A basic premise of insurance is that premiums are collected in advance and claims paid in arrears.
See also Deposit Premium
Define
Adverse Selection
Adverse Selection:
Selection against the insurer in terms of insuring more poor risks than good or average risks; i.e. the tendency of more poor risks to buy and maintain insurance than good risks.
Define
Adverse Underwriting Decision
Adverse Underwriting Decision:
Any decision by the insurer (underwriter) that results unfavorably to the proposed insured or to an insured, which would include, but not be limited to; cancellation of existing insurance, declination of an application, an offer of coverage at other than standard rates (surcharge or substandard offer) or an offer of coverage involving exclusions other than general exclusions applicable to all insureds,
Define
Agency
Agency:
(1) The power vested in an insurance producer to act on behalf of an insurance company. Under Law of Agency; actions of the appointed agent are taken to be the actions of the principal, the insurer in this case.
(2) The sales office of an insurance producer (agent)
Define
Agent
Agent:
An insurance producer appointed by an insurer to solicit, negotiate or effect insurance contracts on its behalf. A state-licensed professional who represents the insurance company in the sale and servicing of insurance; the direct link between the insurance company and the insured.
See also Insurance Producer
Define
Aggregate Limit
Aggregate Limit:
Type of policy limit found in Liability policies that limits coverage to a specified total amount for all losses occurring within the policy period, e.g. the insured maintains a $500,000 personal liability policy and there is a $100,000 claim made and paid by the insurer, the available coverage for the remainder of the policy period is $400,000.
Define
Agreed Value
Agreed Value:
Under an Agreed Value contract, the insured and insurer agree on a value, which is the amount (up to) paid by the insurer in the event of a loss. Also referred to as Stated Value.
(A) Personal Lines - The insured and insurer agreed on a value, generally subject to an appraisal. When property is scheduled it is insured to its appraised value.
(B) Commercial Lines - Under this agreement the insured and the insurer agree on the value of covered property. While Agreed Value Coverage is in effect, the Coinsurance Condition does not apply and the insured is required to carry insurance equal to the agreed value.
Define
Aleatory Contract
Aleatory Contract:
A contract that is contingent on an uncertain outcome (loss). An insurance policy is an aleatory contract. Simply stated, an aleatory contract is unequal in value, in other words, each party to the contract may not receive equal value. From the insurer’s perspective; the insured pays a small premium in exchange for a potentially very large benefit in the event of a loss and conversely, from the insured’s perspective; a premium is paid without anything provided in return, except for a promise of future benefit and then only in the event of a loss.
Define
Alien Company (Insurer)
Alien Company (Insurer):
An insurer organized and domiciled (incorporated) in a country other than the United States that has been authorized (admitted) to do business in a particular state. In this situation, the insurer would then be authorized to insure domestic risks within that state.
Define
All Risk Policy
All Risk Policy:
In property insurance, an “open peril” policy is sometimes referred to as an “all-risk” policy, because it covers everything not specifically excluded, but it is important to note that there are no true “all-risk” policies, all of these policies contain exclusions.
See also Open Peril Policy.
Define
Apparent Authority
Apparent Authority:
Apparent Authority gives the appearance of authority, but may not in fact be valid. An insurance producer’s (agent’s) conduct may cause a client or prospective client to reasonably believe an agent has the authority to contract on behalf of an insurance company. The issuance of a binder may give the appearance of authority, however, a binder is temporary coverage only, allowing the insurer (home office underwriters) an opportunity to evaluate the risk.
See also Express Authority and Implied Authority.
Define
Application
Application:
Questionnaire filled out by an insurance producer and the prospective buyer seeking to purchase insurance. The application is the applicant’s offer to buy insurance and provides information used to underwrite and rate the policy.
Define
Appraisal Condition
Appraisal Condition:
Policy condition that outlines a procedure used when the insured and insurer disagree on the amount of a loss. The insured and the insurer each select an appraiser. The two appraisers select an umpire. If the appraisers cannot agree on the amount of loss, the umpire is consulted. The amount agreed to by any two of three parties is the amount paid for the loss.
Define
Appurtenant Structures
Appurtenant Structures:
Buildings of lesser value that are on the same premises as the main building insured under a Property policy, which are typically insured under the same policy as the main building.
Also referred to as Other Structures.
Define
Arbitration Condition
Arbitration Condition:
Policy condition that is similar to the Appraisal condition; however, typically used to resolve other areas of disagreement; other than the amount of the loss, e.g. whether a particular coverage applies over another.
Define
Assigned Risk Plan / Automobile Insurance Plan
Assigned Risk Plan / Automobile Insurance Plan:
A state-sponsored plan that provides automobile insurance to those who are considered uninsurable under standard Auto insurance policies
Define
Assignment Condition
Assignment Condition:
Condition in insurance policies that specifies that the policy cannot be transferred to another unless the insurance company consents to the transfer in writing, e.g. the insured has sold a piece of property to another, the insured’s policy cannot arbitrarily be transferred to the buyer; the insurance company would have to accept the purchaser as a new insured
Define
Assumption Of Risk
Assumption Of Risk:
Defense against liability based on the common law principle that a person who knowingly exposes himself or herself to danger or injury assumes the risk of loss and cannot hold another person responsible for the loss.
Define
Audit
Audit: See Premium Audit
Define
Authorized Insurer
Authorized Insurer:
Company that meets a state insurance department’s standards and is authorized to do business in that state.
Also called an admitted insurer.
Define
Automobile Insurance Plan
Automobile Insurance Plan:
A state-sponsored plan that provides automobile insurance to those who are considered uninsurable under standard Auto insurance policies.
Define
Avoidance
Avoidance:
Risk avoidance, which is endeavoring not to associate with activity involving risk, engaging in alternative activity or otherwise eliminating the exposure. Risk avoidance is one of four commonly accepted methods of handling risk.
Define
Bailee
Bailee:
A person or organization that has temporary possession of someone else’s personal property. Generally, a bailee will charge a fee for the release of the property back to the property owner, the “bailor.”
Define
Bailment
Bailment:
Delivery of property by the owner to someone else to be held for some special purpose and then returned to the owner.
Define
Best’s
Best’s:
See A.M. Best Company
Define
Bid Bond
Bid Bond:
Type of Surety Bond that guarantees that if a contractor’s bid is accepted, the contractor will enter into a contract and provide the required Performance Bond.
Define
Bilateral Contract
Bilateral Contract:
A contract under which there is an exchange of promise for a promise. An insurance policy is a unilateral contract, because only the insurance company is making a promise, which is provided in exchange for the payment of premium from the insured
Define
Bill Of Lading
Bill Of Lading:
Standardized contract of carriage issued by common carriers (airline, train, bus, trucking company, etc.) to the business for which it is transporting goods.
Define
Binder
Binder:
Oral or written statement that provides immediate insurance protection for a specified period. Designed to provide temporary coverage until a policy is underwritten by the insurer and subsequently issued or denied.
Define
Blanket Insurance
Blanket Insurance:
Type of insurance policy that covers more than one item of property at a single location or one or more items of property at multiple locations
Define
Bodily Injury (BI)
Bodily Injury (BI)
Defined in most policies to include injury, sickness, disease or death caused by an outside agent or force, which may be physical or chemical, and may have been intentionally or unintentionally inflicted
Define
Broker
Broker:
A person who represents a prospective buyer in the insurance transaction, not the insurance company.
Define
Burglary
Burglary:
The taking of property by a person unlawfully entering or exiting the premises as evidenced by visible signs of forced entry or exit
Define
Business Liability
Business Liability:
Liability that arises out of the conduct of a business.
Define
Cancellation
Cancellation:
Termination of an insurance policy by the insured or the insurance company during the policy period.
Define
Captive Agent
Captive Agent:
An insurance producer that has contracted with (appointed agent) and has agreed to write insurance exclusively for one company.
Also called Exclusive Agent.
Define
Cargo Insurance
Cargo Insurance:
Type of insurance that covers goods (cargo) while they are in transit in the care of a common carrier (airline, trucking company, railroad, etc). Protects the carrier against loss or damage to property in its care, custody or control
Define
Carrier
Carrier:
An airline, railroad, trucking company, etc. that hauls cargo for a fee.
Define
Casualty Insurance
Casualty Insurance:
A line of insurance that includes a wide variety of unrelated coverages; provides protection against liability claims that may be brought against the insured. Automobile liability exposures, general liability (personal and commercial), Workers’ Compensation claims, crime coverages, aviation liability and Surety Bonds.
Define
Catastrophic Hazard
Catastrophic Hazard:
The hazard of loss by reason of a simultaneous occurrence of a peril under which all persons in a group or a very large number of insureds are subject. Catastrophic exposures are generally excluded from coverage, e.g. war or nuclear events.
Define
Cede
Cede:
To obtain reinsurance
Define
Ceding Insurer
Ceding Insurer:
An insurer that participates in reinsurance, by ceding (subcontracting) its original risk or a portion of that risk with an assuming reinsurer. The ceding insurer may be referred to as the “originating insurer.”
Define
Certificate of Authority
Certificate of Authority:
Documentation issued by a State’s Insurance Department as evidence of an insurer’s authorization to transact insurance within that state.
Define
Certificate Of Insurance
Certificate Of Insurance:
Written form that verifies a policy has been written, provides proof of insurance and may include a summary of the coverages provided, e.g. an insurance card required to be carried in an insured’s auto as proof of financial responsibility
Define
Claim
Claim:
The demand from an insured or his/her representative for payment of claim as provided in and by the insurance policy.
Define
Claims Adjuster
Claims Adjuster:
Person employed by or acting on behalf of an insurance company to evaluate and settle insurance. Claims. The adjuster must determine the cause of loss, whether the loss is covered by the policy, the value of the loss, and the amount of loss payable by the policy.
Define
Class Rating
Class Rating:
Exposures with similar characteristics are placed the same underwriting class and then charged the same premium. The rates charged are based upon the average loss experience for the class as a whole. Class rating is also called Manual Rating.
See also Manual Rating.
Define
Clause
Clause:
An insurance policy is a legal contract and as such is required to have provisions stating rights and duties of the parties to the contract. A stated provision in an insurance contract may be referred to as a “clause.”
Define
Coinsurance
Coinsurance:
A stipulation in a property insurance contract, whereby, the insurer will pay the full amount on a partial loss, up to the limit of insurance carried, as long as the insured has maintained coverage to the coinsurance percentage required, e.g. An 80% coinsurance requirement requires the insured carry insurance at 80% of the replacement cost on the property to be eligible for full coverage on a partial loss. If the insured suffers a total loss, the insurer will pay up to the amount of insurance carried and the insured would be responsible for repair or replacement of property damage above that dollar amount. In other words, the insurer and the insured are sharing financial responsibility (coinsuring) in the event of a total loss.
Define
Coinsurance Penalty
Coinsurance Penalty:
Specifies the reduced amount the insurer will pay on a “partial” property loss in the event the insured fails to maintain the required amount of coverage to meet the coinsurance requirement
Define
Collision Coverage
Collision Coverage:
In auto insurance, a type of Physical Damage coverage that covers the insured’s auto for loss that occurs when the insured auto strikes another object or vehicle. Also includes upset or overturn of the insured auto. It is important to note that a Physical Damage claim for Collision is considered an at-fault against the insured
Define
Combined Single Limit
Combined Single Limit:
Bodily injury and property damage expressed as a single limit of liability coverage, generally associated with auto insurance liability.
A Combined Single Limit is generally added by endorsement to a personal auto policy. This endorsement is not available from all insurers.
Define
Commercial Lines
Commercial Lines:
Insurance designed for businesses, institutions or organizations.
Define
Commingling
Commingling:
A prohibited activity that occurs when an insurance producer mixes insurance company money (premium) with personal or business (operating) funds
Define
Comparative Negligence
Comparative Negligence:
Civil law that allows an injured party to collect from another party for a loss, even when the injured party contributed to his or her own loss. The injured party’s claim is reduced to the extent of the injured party’s negligence.
See also Contributory Negligence.
Define
Compensable Injury
Compensable Injury:
Under State Workers’ Compensation law, bodily injury (accident or illness) that arises out of and in the course of an individual’s employment and therefore eligible for compensation to cover medical expenses, lost earnings, rehabilitation, and survivor benefits in the event of death.
Define
Compensatory Damages
Compensatory Damages:
Damage awards that reimburse an injured party for losses that were actually sustained, which include both General and Special Damage awards.
See also General Damages and Special Damages
Define
Competent Parties (Competency)
Competent Parties (Competency):
One of the requirements of a legal contract; which states that for a contract to be valid it must be made between parties who are considered competent under the law. An individual who is a minor, the mentally infirm and those under the influence of alcohol or drugs are considered incompetent under contract law.
Define
Competitive State
Competitive State:
Method of providing Workers Compensation coverage in some states; employers have the option of either purchasing insurance from a state fund, e.g. SAIF, the State Accident and Insurance Fund or from a an insurance company.
Define
Comprehensive Coverage
Comprehensive Coverage:
In Auto insurance, Physical Damage coverage that covers damage to the insured’s vehicle for perils insured against excluding collision losses. Under personal auto this coverage is call Other Than Collision Coverage (OTC), providing coverage for perils specifically named, whereas, under Commercial Auto, the insured has the option of purchasing Comprehensive coverage, which is an open peril contract or Specified Cause of Loss coverage, which is a named peril contract
Define
Concealment
Concealment:
The withholding of a material fact(s), by an applicant for insurance or by an insured relating to a claim under insurance, of facts that materially affect an insurance risk or loss
Define
Conditional Contract
Conditional Contract:
A contract that contains a number of conditions that both parties, the insured and the insurer must comply with. An insurance policy is a conditional contract.
Define
Conditions
Conditions:
Portion of an insurance policy that describes the rights and duties of the insured and the insurance company under the policy
Define
Consequential Loss
Consequential Loss:
See Indirect Loss
Define
Consideration
Consideration:
A characteristic of a legal contract; the thing of value exchanged by the parties to the contract. Under insurance contracts, the insured’s consideration is the payment of premium, which is exchanged for the insurer’s consideration, which is the promise of benefit in the event of a loss.
Define
Consultant
Consultant:
Insurance professional who, for a fee, offers advice on the benefits, advantages and/or disadvantages of various insurance policies. An insurance consultant Sells advice, not insurance. It is important to note that an individual cannot charge a fee for giving insurance advise unless he/she is a licensed insurance consultant
Define
Consumer Report
Consumer Report:
Consumer Reports include (1) credit reports obtained through retail credit agencies, such as Equifax and (2) investigative consumer reports, which are done through personal interviews with friends, neighbors, business associates, etc. in a effort to establish an individual’s character, general reputation, personal habits and hobbies, as well as, mode-of-living
Define
Contract of Insurance
Contract of Insurance:
A contract whereby an insurer agrees to:
(1) indemnify an insured for losses
or
(2) render services to or on behalf of an insured. The contract of insurance is referred to as an insurance policy; which is a contractual agreement.
Define
Contribution By Equal Shares
Contribution By Equal Shares:
Type of Other Insurance condition found in Liability policies. It calls for all insurers to contribute equally up to the limit of the policy having the smallest limit, whereupon that company stops paying. The other companies share in the remainder of the loss until the loss is paid in full or all policy limits are exhausted.
Define
Contribution By Limits
Contribution By Limits:
See Pro Rata Other Insurance
Define
Contributory Negligence
Contributory Negligence:
Common law defense against negligence that states that if a individual contributes to his or her own loss in any way, then someone else cannot be held liable for the loss.
See also Comparative Negligence.
Define
Controlled Business
Controlled Business:
Insurance coverage written relative to insurance producer’s own property, the producer’s spouse and/or children, the producer’s employer, spouse and/or children, and on any group of employees under control of the insurance producer or the producer’s employer.
Define
Countersignature
Countersignature:
Signature of a licensed insurance producer acting in the capacity of an appointed agent of the insurer; in most states, a countersignature must appear on the policy to validate the contract.
Define
Coverage Extensions
Coverage Extensions:
See Additional Coverages
Define
Coverage Trigger
Coverage Trigger
Event that activates (triggers) coverage under a Commercial General Liability coverage form. Under the Occurrence Form, the coverage trigger is bodily injury or property damage that occurs during the policy period. Under the Claims-Made Form, the trigger is BI or PD that occurs on or after the retroactive date, if any, for which a claim is first made against an insured during the policy period.
Define
Credit Report
Credit Report:
Information obtained from a credit reporting agency, e.g. Equifax, relative to a individual’s credit standing, credit history, credit capacity, credit worthiness, etc.
Define
Custodian
Custodian:
As defined in insurance forms; an insured, partner or employee who has care and custody of insured property inside the premises.
NOTE - For the purpose of insurance, a custodian is not a janitor.
See also Messenger.
Define
Condition
Condition:
An insurance policy may be referred to as a “conditional contract,” because there are conditions applicable to both the insurance company and the insured. The conditions section of an insurance policy describe the duties of each party to the contract.
Business Entity
Business Entity: A corporation, association, partnership, limited liability company, limited liability
partnership, or other legal entity. For test purposes, business entity may be referring to an insurance
agency licensed by the state with individual insurance producers as affiliates under the agency license.
