- Glossary of Insurance Terminology
Glossary of Insurance Terminology
Insurance Terms GlossaryThe LGIT Glossary of Insurance Terminology is a reference guide to give the user quick and easy definition of common insurance terms. These definitions are not intended to and do not supersede any definitions used in the LGIT Scope of Coverage and are intended to be used as a reference only. If you have questions concerning a term used in the LGIT Scope of Coverage or need additional information please contact your LGIT Underwriting representative.
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- Accident - Unexpected or chance event. This term is frequently defined in older commercial general liability (CGL) policies.
- Accounts Receivable Coverage - Coverage against loss due to inability to collect outstanding accounts receivable (or other transactions) because of damages to or destruction of records by an insured peril.
- Actual Cash Value (ACV) - Replacement cost of the damaged property with deduction for depreciation or sometimes market value.
- Additional Insured - A person or other entity, other than the original named insured, who is protected under an insurance contract, as their interests may appear.
- Additional Insured Endorsement - An additional insured endorsement is the contract by which an additional insured (a person or entity, other than the named insured) is protected by a particular insurance policy.
- Advertising Injury - Injury from offenses committed in the course of advertising activities including infringement of copyright, title or slogans, misappropriating advertising ideas, violation of right of privacy, or slander or libel through oral or written publication of material.
- Aggregate Limit - The maximum dollar amount of damages that the insurer will pay under the insurance contract, during the coverage period regardless of the number of claims for a particular coverage.
- Audit - A retrospective review of the insured’s payroll records, transactions, and assets by outside specialists, or by a specialized department of the insurer, to determine the accuracy of the ratable exposures used in calculating the premium for the prior year’s policy.
- Automobile - Automobile includes a land motor vehicle, trailer or semi-trailer designed for travel on public roads, including any attached machinery or equipment. Does not include “mobile equipment”.
- Binder - A temporary insurance contract issued either by an agent or a company, pending execution of the policy contract or endorsement. Unless specified, the terms of the binder are the same as the contract which intends to replace it. Sometimes called “advice” or “evidence” of coverage.
- Blanket Limit - A property insurance limit, which covers several different buildings and contents under one total limit versus separate limits for each building or contents in the building.
- Bodily Injury - Injury arising out of alleged negligent acts by the insured resulting in bodily injury, sickness, disease, mental anguish or injury sustained by any person, including death.
- Bond, Public Official - A guarantee that a public official (i.e. tax collector, treasurer, etc.) will properly account for public funds and will perform such other duties as are prescribed by law. The form of the bond and the performance guaranteed are normally prescribed by statute.
- Builder’s Risk Coverage - Insurance against loss to buildings in the course of construction, alteration or repair, including machinery, contractor’s equipment, and materials incidental to construction.
- Business Interruption - Loss resulting from necessary interruption of business conducted by insured and caused by loss, damage or destruction by any covered peril to real and personal property. A business slowdown or shutdown may cause losses in the forms of net profits, additional expenses, etc.
- Cancellation - The termination of an insurance contract or bond, before its expiration, by either the insured or the insurer. The contract must state the type of notice necessary before such cancellation becomes effective.
- Catastrophe - An event which causes a loss of extraordinary proportions (e.g., hurricanes, tornadoes, earthquakes, etc.)
- Certificate of Insurance - Written verification from an insurance company that coverage exists. It usually includes the names of the insured, coverages, policy number, limits term, etc.
- Claims Made Coverage - A “Coverage trigger” common in professional liability contracts whereby claims must be made (reported) during the coverage period in which they took place. The date of the claim must be within the coverage period, which extends from any retroactive date to policy expiration. Claims made coverage requires two special associated provisions known as the “Retroactive Date and “Extended Reporting Loss Periods.” Knowledge of situations which may result in claims prior to the beginning of the policy will not be covered even if a claim falls within prior acts period.
- Claims Management - Involves proper and timely notification and record keeping of specific claims and overall loss history for the organization.
- Coinsurance Penalty - A penalty resulting when an owner of property fails to carry enough insurance to comply with the coinsurance provision, and therefore is responsible for a portion of the loss.
- Collision Coverage - Damage to an automobile resulting from impact with other vehicles, either moving or stationary, or with fixed objects.
- Comprehensive Coverage - Coverage for damage to an automobile arising from such perils as fire, theft, vandalism or a falling object. Our policy classifies all glass breakage as a collision.
- Conditions - Part of every insurance policy; qualify the various promises made by the insurance company.
- Crime Coverage - A package of policies that protect an organization against intentional theft by insiders, as well as theft of assets by third parties. Crime coverage generally includes a fidelity bond plus a basic menu of other coverages.
- Contractual Liability - An obligation assumed by contract to pay damages for which another may be legally obligated to pay.
- Damages - Amount of money required to pay for a loss. Two common types of damages are compensatory and punitive damages. There may be non-money damages too, such as injunctive relief, specific performance, etc., which are typically non insurable, however, we provide coverage for non-monetary acts under coverage C and D.
- Declarations - Usually the first page of an insurance policy; summarizes key information specific to the policy; sometimes called a dec page.
- Deductible - The portion of a loss considered the responsibility of the insured before an insurer becomes liable for payment. The deductible is usually a stated dollar amount of the loss.
- Defendant - Individual or organization against whom a lawsuit has been brought.
- Defense Coverage - Source of funding for the defense of a legal challenge filed against the local government.
- Demolition Coverage - Insurance against the cost of removing the ruins of a building partially or totally destroyed by an insured peril.
- Discovery Period - The time allowed the insured after termination of a claims made insurance contract or bond, or after an occurrence of a loss, to discover a loss that occurred during the period covered by the contract or bond.
- Endorsements - Additional documents that modify or amend the coverage in the insurance contract to which they are attached.
- Equipment Breakdown Insurance - Supplements property insurance (which specifically excludes physical damage and the financial damage stemming from equipment breakdown) to cover the unique causes that can damage equipment. Also known as boiler and machinery coverage.
- Environmental Impairment Liability - Liability for losses arising from damage to persons and property by pollution or environmental impairment.
- Errors and Omissions Coverage – (PUBLIC OFFICIALS LIABILITY) - Coverage for losses due to alleged wrongful acts, errors and omission by officials, both elected and appointed, and employees in connection with their work.
- Experience Modification Factor - A numerical value based on an insured’s loss experience which, when applied to the premium, may decrease or increase that cost to reflect good or bad loss experience. May apply to both workers’ compensation and liability coverages.
- Excess Liability Insurance - Provides coverage over and above primary insurance. The coverage is triggered when the amount of a loss exceeds (exhausts) an existing primary policy. Excess liability coverage mirrors the terms and conditions of the underlying policy.
- Exclusions - Part of every insurance policy; policy provisions that eliminate coverage for specified exposures.
- Extended Loss Reporting Period (“TAIL”) - This provision “extends” the coverage period during which an incident must be reported or a claim made after an insurance contract expires. Many claims made contracts provide this extended reporting period, sometimes called “tail” coverage.
- Extra Expense Coverage - Covers the extra expense incurred by an insured in order to continue operation while damaged premises are being restored.
- Fidelity Bond - A bond that reimburses an employer, up to the stated amount, in the event that an employee commits a dishonest act covered by the bond. Also known as employee dishonesty coverage. A local government can purchase a fidelity bond as a stand alone or part of a crime coverage package.
- Fine Arts - Paintings, etchings, pictures, tapestries, art glass windows, and other bona fide works of art of rarity, historical value or artistic merit.
- Forgery or Alteration Coverage - This coverage pays for loss resulting directly from the forgery or alteration of, on, or in any covered instrument; the limit of insurance applies to any number of forgeries by the same person.
- Garagekeepers Legal Liability - Coverage for loss to a customer’s automobile from an insured peril while under the care, custody and control of the insured and for which the insured is legally liable.
- GatherGuard Policy - A Tenants' and Users' Liability Insurance Policy, also known as "Events Coverage". It is used by local governments who permit "third parties" to use their facilities for specific events. It protects both the Facility User and the local government against claims by third parties who may be injured or lose property as a result of participating in an event.
- Hard Market - A phase of the insurance market cycle during which time coverage may be more costly, terms may be more restrictive, and policy conditions and requirements more stringent.
- Hold Harmless Agreement - A contractual agreement whereby one party assumes the legal liability of another party for damages thereby releasing the other party of liability for specific losses. In Maryland these agreements are usually considered against public policy if one party relieves another at fault party of liability.
- Immunity - A provision in the law which shields a person or organization from legal obligations.
- Incurred But Not Reported (IBNR) - An actuarial term that refers to a claims cost estimated, for those claims not yet reported.
- Indemnification Agreement - When one party (the indemnitor) assumes the liability of another (the indemnitee) in the event of a claim or loss. An example is a hold harmless agreement.
- Indemnify - To restore a party who has had a loss to the same financial position that would have existed had no loss occurred.
- Insurance - Traditional risk-financing tool used to transfer the financial hazard of risk. An insurance policy spells out what is or is not covered caused by all or specific perils (causes of damage or injury). Insurance is also a contract whereby an organization agrees to indemnify another and/or to pay a specified amount for covered losses in exchange for a premium. For many members, insurance provides the funds to pay for the member’s unexpected losses of people, property and income, while ultimately keeping the organization in operation.
- Insurable Interest - Any legal interest in property; real or personal, people or events of such a nature that occurrence of an event insured against would cause financial loss to the insured. Owners and mortgagees are examples of those having an insurable interest in property.
- Insurance Policy - A legally binding contract that defines the obligations of both the insured and the insurer.
- Intentional Acts - Deliberately fraudulent acts or omissions, wanton, willful, reckless or intentional disregard of any law or laws.
- Joint and Several Liability - A legal situation in which each wrongdoer is fully responsible for the consequences of the “wrong”, and each is responsible independently or separately from the others, regardless of the apportionment of fault. For example, an accident on a construction site could lead to liability judgments against the construction firm working on the project and the entity that owned the property, each could be responsible for the entire judgment.
- No glossary terms avaialble.
- Liability - Any enforceable legal obligation. For example, the failure to meet the duty of care of a reasonable person under similar circumstances.
- Liability Insurance - Insurance covering the financial risk of civil lawsuits.
- Limit of Liability - The maximum amount of coverage to be paid to an insured or on behalf of an insured by an insurance company in the event of a loss.
- Loss Control - Analyzing hazards and determining a course of action to reduce the risk of loss while carrying out the member’s mission.
- Loss Payable Clause - The clause in a policy, which provides for payment to a party such as mortgagee or lien-holder, in addition to the insured, for any losses to the insured property according to the extent of the loss payee’s interest in the property at the time of the loss.
- Loss Ratio - The ratio between insurance losses incurred and premiums earned during a given period. The ratio is derived by dividing a member’s claims by the cost of that member’s premium during the period. It is used in the development of the future rates of the member and can be an indicator of the effectiveness of a member’s loss control efforts.
- Mobile Equipment - Land vehicles of a mobile nature that are generally not licensed for highway use.
- Named Insured - An individual, business or organization that is identified on the policy declarations page as the insured(s) under a policy. Most policies, especially liability policies, will have insureds or additional insureds other than the named insured (such as employees, volunteers, board members, landlords, but only the named insured is responsible for premium payments, receipt of notices, and adjustment of losses.
- Negligence - Failure to use that degree of care, which is considered to be reasonable and prudent under the given circumstances. Acts of either omission or commission, or both, may constitute negligence.
- Occurrence - An accident, including continuous or repeated exposure to substantially the same general conditions that cause bodily injury or property damage.
- Occurrence Basis - A liability coverage form that covers claims that occur during the policy period, and for which claims can be reported to the insurance company at any time during or after the policy period.
- Offense - Any act giving rise to advertising or personal injury.
- Other Insurance Clause - A provision found in almost every insurance contract stating what is to be done at time of loss, in case any other contract of insurance protection covers the same exposures.
- Perils - The cause of a loss insured against in a property policy (e.g., fire, windstorm, explosion, etc.)
- Personal Injury - Injury other than bodily injury arising out of a specific offense, including false arrest, libel, slander, invasion of privacy or malicious prosecution.
- Personal Property - Property that consists of temporary or moveable contents, not attached to a building or land (real property).
- Personally Liable - Liability that an individual assumes when he/she is directly involved in the occurrence and cannot defer the liability to another person or entity.
- Plaintiff - Individual or organization that initiates a lawsuit to obtain a remedy for an injury.
- Premium - The payment for an insurance policy or bond.
- Prior Acts (Nose Coverage) - Provides coverage in a claims made insurance contract for claims occurring before the policy period. Prior acts coverage extends existing coverage to include incidents “back” to the retroactive date for any unknown losses, incidents, or claims. Is also referred to as “nose” coverage. A retroactive date must be designated.
- Products Liability - Claims or damages arising from use of products manufactured, sold, handled, or distributed by the insured; the accident or occurrence on which claims are based taking place away from the insured’s premises.
- Proof of Loss - A formal written statement of a claim for payment of a loss made by an insured to an insurance company.
- Property - Category of member assets at risk that includes real property (buildings, improvements and betterments), personal property (furniture, fixtures, valuable papers and records, equipment, and supplies) and intangible property (copyrights, business goodwill and trademarks).
- Property Insurance - Insurance that covers direct damage to the member’s property and equipment including consequential losses (business income, loss of rents, extra expense) caused by an insured peril.
- Property Damage - Damage or destruction of tangible property, real, intellectual or personal.
- Punitive Damages - Damages awarded by the court in excess of those required to compensate the plaintiff for the loss sustained. These damages are a type of punishment for the offender for failing to take proper care.
- No glossary terms avaialble.
- Reinsurance - A contractual agreement that transfers some or all of the exposures insured by one company (the primary insurer) to another company (the re-insurer or excess insurer). Reinsurance enables insurance companies and pools to provide higher limits of coverage to insureds.
- Reinsurer - A company that insures upper layers of coverage for commercial carriers, risk retention groups, captive insurance companies and other insurance providers.
- Relative Loss Ratio - A means of comparing a member’s loss ratio to that of the pool overall by dividing the member loss ratio by the pool loss ratio. A relative loss ratio of less than 1.0 is performing relatively better than the pool as a whole while a relative loss ratio of greater than 1.0 is not performing as well as the pool as a whole. It can be used in comparing the relative effectiveness of a member’s loss control efforts.
- Replacement Cost - A standard used to determine the value of property exposures based on the cost necessary to replace the damaged property without deduction for depreciation with property of comparable kind and quality to like new condition.
- Retention - The financial burden assumed by an insured for part or all of the consequences of a particular loss exposure. For an example, with a deductible the insured retains a portion of the exposure and insures the rest.
- Retroactive Date - Usually considered the inception date of the policy. Claims made policies contain a retroactive date, which is shown on the declaration page of the policy. Claims that occur prior to the retroactive date will not be honored by the insurer.
- Risk - A measure of the possibility that the future may be surprisingly different from what we expect. Downside risk of loss and upside risk of gain.
- Risk Assessment - A thorough examination of the exposures of the member, both insurable and uninsurable.
- Risk of Direct Physical Loss - Coverage for all losses caused by all perils within the line of coverage (e.g., fire, windstorm, etc.) except those specifically excluded in the insurance contract. This term is commonly used in property coverage contracts.
- Risk Management - A discipline for dealing with the possibility that the future may be surprisingly different from what we expect.
- Risk Management Committee - A representative group of staff, volunteers and advisors who identify exposures, develop a risk control program, and establish a risk-financing strategy for the member. May act in place of a staff designee in small members. In midsize and large organizations, they may work in partnership with the staff designee (such as finance director or professional risk manager).
- Risk Management Program - Educated projections about the future and sound management practices.
- Risk Retention - A method of funding loss using internal money.
- Risk Transfer or Sharing - A method of funding loss using external funds (such as insurance) or risk sharing with another organization. Examples of risk sharing include mutual aid agreements with other members, and sharing responsibility for a risk with another through a contractual agreement.
- Self Insurance - When an organization’s own resources (internal) are used to fund losses. A member may self-insure risks through a formally structured risk-financing program, such as a captive insurer, or by setting aside funds to pay for losses. A member can also be self-insured on an informal basis when it has made no arrangements to finance losses and must use operating funds when losses occur.
- Soft Insurance Market - Insurance companies are eager to write new business.
- Special Endorsement - Written language appended to an insurance policy that changes the coverage in regards to special circumstances.
- Special Events Insurance - General liability insurance for events that are outside the day-to-day operations of the insured, such as fund-raising events.
- Standardized Form - A document prepared in a prescribed arrangement of words and layout.
- Stop Loss - Any provision in a policy designed to cut off the insurer’s or insured’s loss at a given point. A stop loss may be an aggregate payable under the policy, maximum payable for any one occurrence, or the insured’s maximum retention for any one loss or policy year.
- Subrogation - The right of an insurance company to seek recovery of the amount paid to the insured from a responsible third party who has caused a loss.
- Surety - The corporation or individual guaranteeing performance or faithfulness under a bond.
- Theft, Disappearance and Destruction - This coverage is for money and securities only; it insures against loss caused by theft, disappearance, and destruction of covered property, providing essentially “all risk” coverage. It covers the property while inside a banking premises, or outside the insured’s premises while in the care and custody of a messenger.
- Time Element - A phase used to describe a kind of insurance which reimburses the policyholder for the loss of use of property (i.e., business interruption, extra expense, or rental value).
- Transit Coverage - Insurance against loss to personal property while in the course of transportation.
- Umbrella Liability Insurance - Provides excess coverage over several primary policies, such as CGL, auto liability and employers’ liability. Increases the amount of liability insurance beyond that of the basic policies carried by the member and reaches out to cover areas of unknown exposures lacking in the basic insurance policy.
- Underwriting - The process of determining whether coverage will be offered, what policy provision will be included and at what price.
- No glossary terms avaialble.
- Waiver - The giving up of a right or privilege. Local governments frequently require participants in recreational or other programs to waive the right to sue in the event of injury. Courts often invalidate waivers on the grounds that the individual did not fully appreciate the rights being waived or that the waiver did not specifically indicate that it covered liability for negligence.
- Workers’ Compensation and Employers’ Liability Insurance - The first part covers expenses an employer is mandated to pay by state statute to cover specific benefits for employee injuries. The second part protects employers from employee-related suits that are separate from WC claims.
- Wrongful Act - This term means any actual or alleged error, omission, misstatement, act of negligent or breach of duty including misfeasance, malfeasance or nonfeasance of an insured.
- No glossary terms avaialble.
- No glossary terms avaialble.
- No glossary terms avaialble.