Property Insurance Definitions Flashcards
Accident
An unintended, unforeseen and unexpected event, that takes place at a specific time
and location, that causes bodily injury or property damage.
Actual Cash Value (ACV)
The sum of money required to pay for damages or lost property,
computed on the basis of replacement value (at the time of the loss), less its depreciation.
Agent
– A licensed producer who represents the insurance company, but serves the public’s
best interest.
Appurtenant Structures
(a.k.a. Coverage B…Other Structures) - A structure pertaining or
belonging to the insured structure, such as a tool shed.
Bailee
A person or concern having possession of property committed in trust from the owner.
Bailee’s Customers’ Policy
A policy providing coverage for loss of or damage to property of
bailee’s customers, payable to customers, regardless of whether the bailee is at fault or not for
the loss.
Binder (Binding Receipt)
An acknowledgment from the agent that insurance coverage is in
force whether or not the premium has yet been paid or the policy issued.
Bodily Injury Liability
The liability which may arise from injury or death of another person.
Bond (3-party contract)
- An obligation of the surety company (a.k.a. guarantor) to protect
another (a.k.a. obligee) against financial loss caused by the acts of another (a.k.a. principal or
obligor)
Broker
A licensed producer who represents an insured in the solicitation, negotiation or
procurement of contracts of insurance, and who may render services incidental to those
functions. A broker must be bonded with a $2,500 bond OR 5% of the premiums brokered in
the previous calendar year, whichever is greater, not to exceed $100,000, in favor of the people
of the State of Washington.
Burglary
Breaking and entering into the premises of another, with felonious intent and with
visible signs of forced entry or exit
Business Income Coverage Form (a time element coverage, a.k.a. consequential loss)
A commercial property form providing coverage for indirect losses resulting from property
damage, such as loss of business income and extra expenses incurred. Business income
coverage is a “time element” coverage, since time is a factor (“element”) in determining the
extent of the loss.
Cancellation
Termination of a contract of insurance by the insurance company or insured,
effected in accordance with provisions in the contract or by mutual agreement. This is
termination of a contract before the renewal date. It usually requires a premium refund.
Casualty Insurance (a.k.a. Liability)
- Insurance that is primarily concerned with losses caused by
injuries to persons and legal liability imposed upon the insured for such injury or for damage to
the property of others.
Causes of Loss Forms -
Commercial property forms stating the perils insured against, additional
coverage provided, and exclusions that apply. Causes of Loss Forms include Basic, Broad,
Special, and Earthquake.
Coinsurance
A provision in insurance that says the insured agrees to insure to a certain value
(such as 80%, 90% or 100%). If there is a loss and the insured has breached this agreement,
only a proportional share of the loss will be paid.
Commercial General Liability (CGL)
Coverage Part - General liability coverage which may be
written as a monoline policy or part of a commercial package. The coverage forms include
Occurrence or Claims-Made.
Commercial Package Policy (CPP)
A commercial policy that contains more than one of the
following seven coverage parts: Commercial Property, Commercial General Liability, Marine,
Crime, Equipment Breakdown Coverage, Commercial Automobile, and Farm Insurance.
Common Policy Conditions -
- Under the latest commercial lines program, a form including
common conditions which apply to all coverage parts attached to a commercial policy.
Common Policy Declarations
- A common declarations page is part of every commercial policy.
It shows information applicable to the entire policy (policy number, insurer, insured, total
premium, forms attached, etc.).
Concealment
Deliberate failure to reveal facts. If deemed to be material, it would affect the
validity of a policy of insurance. The withholding of facts.
Consideration
Element of an insurance contract; acceptance by the company of payment of
the premium and statements made by the prospective insured in the application.
It is the insurance company’s promise to pay for certain losses.
Declarations (a.k.a. Dec. Page) -
A term used in insurance for the portion of the contract which
contains information such as the name and address of the insured, the property insured, its
location and description, the policy period, the amount of insurance coverage, and applicable
premiums.
Direct Loss
A loss caused by a peril such as a house fire, and the resulting damage caused
from putting out the fire such as water damage.
Earned Premium
That portion of a premium for which the policy protection has already been
given during the now-expired portion of the policy term. The premium the insurance company
has “earned” the right to keep. Unearned premiums belong to the named insured.
Earth Movement
A peril including landslide, mudflow, earth sinking, rising or shifting, and
earthquake. Usually excluded on property policies.
Endorsement -
Provision added to a policy which broadens or restricts coverage; may also be in
the form of a rider. Not valid unless signed by an executive officer of the company and
attached to the policy.
Exclusions
Perils, conditions or property listed in the policy which are not covered and for
which no benefits are payable.
Extended Coverage Endorsement (EC)
A specific endorsement attached to Fire Policies,
usually providing coverage for Riot, Explosion, Vehicular & Volcano damage, Civil commotion
Smoke, Hail, Aircraft, and Windstorm (acronym = R.E.V. C. S.H.A.W.)
Fair Credit Reporting Act
Federal law requiring an individual to be informed if he or she is
being investigated by an inspection company.
Fire
Combustion sufficient to produce a spark, flame, or glow, and which is hostile, i.e., not in
the place where it is intended to be, as in a furnace. Only hostile fire losses are covered by
insurance.
Hazard
Anything that increases the chance of a loss, such as an old roof, bald tires, being
overweight, or smoking
Impaired Property
Tangible property which cannot be used or has become less useful because
it incorporates the insured’s product or work which is defective or inadequate, or because the
insured has failed to fulfill a contractual obligation. Impaired property is usually excluded from
property coverage.
Indirect Loss
An indirect loss (a.k.a. consequential loss) is a loss which is a result of a direct
loss. Indirect losses involve money, whether from loss of income, loss of business, or expenses
for lodging and meals after a house fire.
Insurable Interest
Any interest in a subject of insurance or any legal relation to it of such a
nature that a certain happening might cause monetary loss to the insured. Insurable Interest
must exist at the time of the loss.
Insurance
A formal social device for reducing risk by transferring the risks of several individual
entities to an insurer. The insurer agrees, for a consideration, to assume to a specified extent,
the losses suffered by the insured.
Insuring Clause (Agreement)
The clause in a policy that specifies in brief the contract’s intent.
It states the terms under which the policy will pay. This is also known as the heart of the
contract
Misrepresentation (a lie
- The use of written or oral statements by the insured or insurance
company on or at the time of an application , misrepresenting the risks, terms, coverage,
benefits, privileges, or estimated future dividends of any policy.
Morale Hazard
An attitude that increases the probability of loss from a peril. The attitude of,
“it’s insured, so why worry about it,” is an example of a morale hazard.
National Association of Insurance Commissioners (NAIC)
An association of state Insurance
Commissioners, active in discussions of regulatory problems and in the formation and
recommendation of uniform practices and legislation. Oldest association of state officials.
Negligence
The most common way that an insured becomes liable for a third party’s bodily
injury. Failure to use that degree of care which an ordinary person of reasonable prudence
would use under the given circumstances
Nonrenewal
Termination of insurance coverage at an expiration date or anniversary date.
This action may be taken by an insurer who refuses to renew, or by an insured who rejects a
renewal offer.
Offer and Acceptance -
The offer may be made by the applicant by signing the application,
paying the first premium and, if necessary, submitting to physical examination. Policy issuance,
as applied for, constitutes acceptance by the company.
Package Policy
- Any insurance policy including two or more lines or types of coverages in the
same contract.
Peril
- The cause of a loss; the event insured against. Some perils are insured against in property policies (such as fire and lightning), and some perils are NOT insured against in property policies (such as earthquake and flood)
Personal Injury (P.I.)
a.k.a. Third Party Coverage, pays for injury other than bodily injury arising
out of false arrest or detention, malicious prosecution, wrongful entry or eviction, libel or
slander, or violation of a person’s right to privacy. A liability coverage
Personal Injury Protection (P.I.P)
a.k.a. First Party Coverage, pays for bodily injury, lost wages
and lost services of family members injured in an insured’s auto, regardless of who is at fault.
Personal Property
Any property of an insured other than real property. Homeowner policies
protect the personal property of family members, and commercial forms are used to protect
business personal property.
Policy
An instrument, including all endorsements and attached papers, constituting the entire
insurance contract. The written contract effecting insurance and including all clauses, riders,
endorsements, and papers attached thereto and made a part thereof.
Proof of Loss
- A formal statement made by the insured to the insurance company regarding a
loss. The purpose of the proof of loss is to place before the company sufficient information
concerning the loss to enable it to determine its liability under the policy or bond.
Pro Rata Cancellation
The termination of an insurance contract or bond where the premium
charge is adjusted in proportion to the exact time the protection has been in force.
A cancellation with NO SERVICE FEE.
Pro Rata Liability Clause
Provides that losses will be paid in the proportion that the amount of
the policy bears to the entire amount of insurance on all policies covering the loss. This
provides for insurance companies to appropriately share in the loss when more than one policy
exists, yet prevents the insured from collecting in total from several insurance companies and
making a profit.
Proximate Cause
The effective cause of loss or damage; an unbroken chain of cause and
effect between the occurrence of an insured peril or a negligent act, and the resulting injury or
damage to property.
Rebating
Giving any valuable consideration such as a rebate, discount or reduction of
premium to induce a person to buy insurance. Guaranteeing to pay future dividends is an
example of rebating. In the State of Washington, it is illegal to rebate premiums.
Replacement Cost
The cost of replacing property without deduction for depreciation.
Reporting Form
Fire or other direct damage insurance written under a form of policy that
covers fluctuating values of stocks of merchandise, furniture, fixtures, improvements and
betterments, by means of periodical reports submitted to the insurance company by the
insured, with an annual adjustment of premium on the average value.
Representations - On an application
facts (written or verbal) that the applicant represents as
true and accurate to the best of his or her knowledge and belief.
Risk
The uncertainty of loss. The purpose of insurance is to deal with the transfer of risk from
the insured to the insurer. Without risk, there is no need for insurance. Only pure risk is
insurable. Pure risk means that only a chance of loss is present and no chance of gain.
Robbery -
The felonious taking, either by force or by fear of force, of the personal property of
another, commonly known as a hold-up.
Scheduled Personal Property Endorsement (Stated Value Coverage)
Provides Special Form
coverage for valuable items such as furs, jewelry (the most common), cameras, silverware, etc.
Items are generally listed by description and value, with no deductible. The coverage picks up
the peril of mysterious disappearance. The items must be insured for their full value.
Short Rate
Regarding cancellation, the term short rate cancellation is used to describe the
procedure in which the premium returned to the insured is not in direct proportion to the
number of days remaining in the policy period. In effect, the insured pays more for each day of
coverage than if the policy had remained in force for the full term.
Special Coverage Form
Any of the commercial or personal lines property forms which provide
coverage on a risks of direct physical loss type basis. These forms provide the broadest
coverage and do not list covered perils, but do include a list of exclusions.
Subrogation
The legal process by which an insurance company seeks from a third party who
may have caused the loss, recovery of the amount paid to the insured. The condition most
closely related to indemnification
Surplus Lines -
Coverage procured in an unlicensed insurance company by a Surplus Lines
Broker because of its unavailability in the state where the insured lives.
Temporary License
A person who is licensed to act as an agent for a brief period of time
(180 days in Washington) without taking a written examination. A temporary license is
commonly granted to allow someone to continue the business of a producer who has died or
becomes disabled. The individual must be a legal representative of the producer, such as,
spouse, relative, attorney, employee, etc.
Theft -
- Any loss of property by stealing, including both robbery and burglary.
TRIA - Terrorism Risk Insurance Act
requires insurance companies to offer terrorism insurance
to their commercial policyholders. The TRIA directs the Secretary of the Treasury to administer
a program for sharing terrorism losses. The government pays 90% of insured losses over the
deductible, with the insurer paying 10%.
To determine if an act is an “act of terrorism” and covered under the TRIA, it must be agreed
upon by these three individuals:
1. Secretary of the Treasury
2. Secretary of State
3. Attorney General
Twisting
When a person tries to misrepresent or mislead by comparison, or tries to induce,
or tend to induce any insured to lapse, terminate, forfeit, surrender, retain, or convert any
insurance policy. Violation is considered Twisting.
Underwriting
Process through which an insurer determines whether, and on what basis, an
insurance application will be accepted
Warranties
Written statements in the contract (policy) guaranteed to be true; that is, they
are exact in every detail. This is opposed to representations which are statements on an
application believed to be true at that time. Warranties are expressed in the contract (in
writing)
Watercraft
- Bodily Injury (Section II Liability coverage) in a homeowners policy will extend
coverage for usage of owned or rented boats which meet the definition of a “watercraft.”
watercraft definition
Watercraft in a homeowners policy means an inboard or inboard-outboard motorpowered boat owned by or rented to the insured that has 50 horsepower or less; sailing
vessels of 25 feet or less; and any boat powered by an outboard motor of 25 HP or less.
