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.”
