Property Insurance Vocab

Exam FX

Abandonment

The abdication of insured property into the hands of another, or into the possession of no one in particular.

Accident

An unplanned, unforeseen event which occurs suddenly and at a specific place.

Actual Cash Value (ACV)

– The required amount to pay damages or for property loss, which is calculated based on the property's current replacement value minus depreciation.

Additional Coverage

– A provision in an insurance policy that allows for more coverage for specific loss expense without increase in premium.

Additional Insureds

– Individuals or business that are not named as insured on the declaration page, but are protected by the policy, usually in regard to a specific interest.

Adhesion

– A contract offered on a "take-it-or-leave-it" basis by an insurer, in which the insured's only option is to accept or reject the contract. Any ambiguities in the contract will be settled in favor of the insured.

Admitted Insurer

– An insurance company authorized and licensed to transact business in a particular state.

Adverse Selection

– The tendency of risks with higher probability of loss to purchase and maintain insurance more often than the risks who present lower probability.

Agent

– An individual who is licensed to sell, negotiate, or effect insurance contracts on behalf of an insurer.

Agreed Value

– A property policy with a provision agreed upon by the insurer and insured as to the amount of insurance that represents a fair valuation for the property at the time the insurance is written.

Aleatory

– A contract in which the participating parties agree to exchange unequal amounts. Insurance contracts are aleatory in that the amount the insured will pay in premiums is unequal to the amount the insurer will pay in the event of a loss.

Alien Insurer

– An insurance company that is incorporated outside the United States.

Apparent Authority

– The appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created.

Appraisal

– An assessment of property to determine either the correct amount of insurance to be written or the amount of loss to be paid.

Arbitration

– Method of claim settlement used when the insured and insurer cannot agree upon the amount of the loss.

Assignment

– The transfer of a legal right or interest in an insurance policy. In property and casualty insurance, assignments of policies are usually valid only with the prior written consent of the insurer.

Authorized Insurer

– An insurance company that has qualified and received a Certificate of Authority from the Department of Insurance to transact insurance in the state.

Auto

– A land motor vehicle, trailer or semi-trailer designed for use on public roads, including attached machinery or equipment; auto does not include mobile equipment.

Avoidance

– A method of dealing with risk by deliberately keeping away from it (e.g., if a person wanted to avoid the risk of dying in an airplane crash, they may choose never to fly in a plane).

Bailee

– A person or entity that has possession of personal property entrusted to him/her by the owner. For example, a television repair person that has possession of a customer's television would be a bailee.

Beneficiary

The person who receives the proceeds from the insurance policy.

Binder

– A temporary contract that puts an insurance policy into force before the premium has been paid.

Blanket Bond

– A type of bond that covers losses caused by dishonest employees.

Blanket Insurance

– A single property insurance policy that provides coverage for multiple classes of property at one location, or provides coverage for one or more classes of property at multiple locations.

Boycott

– An unfair trade practice in which one person refuses to do business with another until they agree to certain conditions.

Builder's Risk Coverage Form

– A commercial property form that covers buildings under construction.

Building and Personal Property Coverage Form

– A commercial property form that covers buildings, and/or their contents.

Burglary

– The forced entry into another's premises with felonious intent.

Cancellation

– The termination of an in-force insurance policy by either the insured or the insurer prior to the expiration date shown in the policy.

Casualty Insurance

– A type of insurance that covers losses caused by injury to persons or damage to the property of others.

Cease and Desist Order

– A demand of a person to stop committing an action that is in violation of a provision.

Certificate of Authority

– A document that authorizes a company to start conducting business and specifies the kind(s) of insurance a company can transact. It is illegal for an insurance company to transact insurance without this certificate.

Certificate of Insurance

– A legal document that indicates that an insurance policy has been issued, and that states both the amounts and types of insurance provided.

Class Rating

– The practice of computing a price per unit of insurance that applies to all applicants possessing a given set of characteristics.

Coercion

– An unfair trade practice in which an insurer uses physical or mental force to persuade an applicant to buy insurance.

Coinsurance

– An agreement between an insurer and insured in which both parties are expected to pay a certain portion of the potential loss and other expenses.

Commercial Lines

– Type of insurance that pertains to business, mercantile or manufacturing establishments.

Commissioner (Superintendent, Director)

– The chief executive and administrative officer of a state insurance department.

Common Law

– An unwritten body of law based on past judicial decisions as well as usages and customs.

Complaint

– A written statement of a liability claim given by the claimant; a reason for a lawsuit.

Components

– Factors that determine rates, including loss reserves, loss adjusting expenses, operating expenses and profits.

Concealment

– The withholding of known facts which, if material, can void a contract.

Conditional Contract

– A type of an agreement in which both parties must perform certain duties and follow rules of conduct to make the contract enforceable.

Conditions

– The section of an insurance policy that indicates the general rules or procedures that the insurer and insured agree to follow under the terms of the policy.

Consideration

– The binding force in a contract that requires something of value to be exchanged for the transfer of risk. The consideration on the part of the insured is the representations made in the application and the payment of premium; the consideration on the part of the insurer is the promise to pay in the event of loss.

Consultant

– A person who, for a fee, offers any advice, counsel, opinion, or service regarding the benefits, advantages, or disadvantages promised under a policy of insurance.

Consumer Reports

– Written and /or oral statements regarding a consumer's credit, character, reputation, or habits collected by a reporting agency from employment records, credit reports, and other public sources.

Contract

– An agreement between two or more parties enforceable by law.

Controlled Business

– An entity that obtains and possesses a license solely for the purpose of writing business on the owner, immediate family, relatives, employer and employees.

Death Benefit

– The amount payable upon the death of the person whose life is insured.

Declarations

– The section of an insurance policy containing the basic underwriting information, such as the insured's name, address, amount of coverage and premiums, and a description of insured locations, as well as any supplemental representations by the insured.

Deductible

– The portion of the loss that is to be paid by the insured before any claim benefits may be paid by the insurer.

Defamation

– An unfair trade practice in which one agent or insurer makes an injurious statement about another with the intent of harming the person’s or company’s reputation.

Deposit Premium Audit

– A condition that allows the insurer to audit the insured's books or records at the end of the policy term to make sure adequate premium has been collected for the exposure.

Depreciation

– The lessening of value of real and personal property due to age and wear and tear.

Direct Losses

– Physical damage to buildings and/or personal property as a result of direct consequence of a particular peril.

Director (Commissioner, Superintendent)

– The head of the state department of insurance.

Disclosure

– An act of identifying the name of the producer, representative or firm, limited insurance representative, or temporary insurance producer on any policy solicitation.

Domestic Insurer

– An insurance company that is incorporated in the state.

Domicile of Insurer

– Insurer's location of incorporation and the legal ability to write business in a state.

Economic Loss

– The estimated total cost (both insured and uninsured) of an accident.

Endorsement

– A printed addendum to a contract that is used to change the policy's original terms, conditions, or coverages.

Estoppel

– A legal impediment to denying a fact or restoring a right that has been previously waived.

Excess Policy

– A policy that only pays for loss after the primary policy has paid its limit.

Exclusions

– Causes of loss, exposures, conditions, etc. listed in the policy for which the benefits will not be paid.

Exclusive or Captive Agent

– An agent who represents only one company and is compensated by commissions.

Experience Rating – Method of determining the premium based on the insured's own past loss experience.

Exposure

– A unit of measure used to determine rates charged for insurance coverage.

Express Authority

– The authority granted to an agent by means of the agent's written contract.

Extensions of Coverage

– A provision in some property policies which allows the extension of a major coverage to certain types of loss to property not specifically insured.

FAIR Plan

– Fair Access to Insurance Requirements plan is a state-run program that makes insurance obtainable to those in high risk areas who have been unable to acquire insurance through other channels.

Fiduciary

– An agent/broker who handles insurer's funds in a trust capacity.

First Named Insured

– The individual whose name appears first on the policy's declaration

Foreign Insurer

– An insurance company that is incorporated in another state.

Fraternal Benefit Society

– A life or health insurance company formed to provide insurance for members of an affiliated lodge, religious, or fraternal organization with a representative form of government.

Fraud

– Intentional misrepresentation or deceit with the intent to induce a person to part with something of value.

Functional Replacement Cost

– The cost to replace damaged property with less expensive and more modern construction or equipment.

Gross Negligence

– Reckless behavior that shows disregard for the safety or lives of others.

Hazard

– A circumstance that increases the likelihood of a loss.

Hazard, Moral

– The effect of a person’s reputation, character, or living habits on their insurability.

Hazard, Morale

– The effect a person’s indifference concerning loss has on the risk to be insured.

Hazard, Physical

– A type of hazard that arises from the physical characteristics of an individual, such as a physical disability due to either current circumstance or a condition present at birth.

Implied Authority

– Authority that is not expressed or written into the contract, but which the agent is assumed to have in order to transact the business of insurance for the principal.

Indemnity

– Compensation to the insured that restores them to the same financial position that they enjoyed prior to the loss.

Independent Agents

– Agents that sell the insurance products of several companies and work for themselves or other agents.

Indirect Losses

– Losses resulting from a peril, but not directly caused by it. Indirect losses may include business disruption, rent insurance, extra expenses, and other consequences that occur over time.

Inflation Guard

– A coverage extension that automatically increases amounts of insurance on buildings by an agreed upon percentage annually.

Insurable Interest

– Any interest an insured may have in property that is the subject of insurance, so that damage or destruction of that property would cause the insured financial loss.

Insurance

– The transfer of the possibility of a loss (risk) to an insurance company, which in turn spreads the costs of unexpected losses to many individuals.

Insurance Policy

– A contract between an insured and an insurance company which agrees to pay the insured for loss caused by specific events.

Insured

– The person or organization that is protected by insurance; the party to be indemnified.

Insured Contract

– A definition on liability forms that describes the types of contracts in which liability is assumed by the insured and included for coverage in the policy. Examples of insured contracts are leases of premises, elevator maintenance agreements, easement agreements, and other agreements related to the insured's business.

Insurer

– An entity that indemnifies against losses, provides benefits, or renders services (also known as the "company" or "insurance company").

Insuring Agreement

– The section of an insurance policy containing the insurer's promise to pay, the description of coverage provided and perils insured against.

Intentional Tort

– Any deliberate act that causes harm to another person.

Interline Endorsement

– A written amendment designed to eliminate redundancy and minimize the number of endorsements in the policy.

Judgment Rating

– An approach used when credible statistics are lacking or when the exposure units are so varied that it is impossible to construct a class.

Law of Large Numbers

– A principle stating that the larger the number of similar exposure units considered, the more closely the losses reported will equal the underlying probability of loss.

Liability

– Responsibility under the law.

Liberalization

– A property insurance clause that extends broader legislated or regulated coverage to current policies, as long as it does not result in a higher premium.