GLOSSARY OF INSURANCE TERMS, 7TH EDITION

Alphabetical vocabulary flashcards defining key insurance terms across annuities, health, life, property, liability, and legal categories from the Kaplan Glossary of Insurance Terms.

abandonment

A relinquishing of ownership of lost or damaged property by the insured to the insurer so that a total loss may be claimed. Abandonment is prohibited in most other types of property insurance.

absolute assignment

Assignment by a policyowner of all control of and rights in the policy to a third party.

absolute liability

A type of liability that arises from extremely dangerous operations, such as the use of explosives. It is usually not necessary for a claimant to establish that the operation is dangerous.

acceptance

In insurance, acceptance occurs when an applicant receives the policy and pays the premium. In life insurance, issuance of the policy by the company constitutes acceptance since the initial premium is submitted with the application.

accident

An unplanned event, unexpected and undesigned, that occurs suddenly and at a definite place.

accident frequency

The rate of the occurrence of accidents, often expressed in terms of the number of accidents over a period; a method for measuring the effectiveness of loss prevention services.

accident severity

A measure of the severity or seriousness of losses measured in terms of time lost from work rather than the number of individual accidents.

accidental means

Unexpected or undesigned cause of an accidental bodily injury where the mishap itself must be accidental, not just the resulting injury.

accommodation line

Business accepted from an agent or broker that would normally be rejected according to strict underwriting standards but is accepted because of the overall profitability of the customer’s other business.

account premium modification plan

A rating plan for fire, property damage, and time element coverages with a maximum credit or surcharge of $25\%$, available to risks that develop a three-year premium of at least $\$5,000$.

acquisition cost

Expenses incurred by an insurer directly related to putting business on the books, including clerical work, medical examiners’ fees, and inspection costs, with the largest portion usually being the agent’s commission.

act of God

An event arising out of natural causes with no human intervention that could not have been prevented by reasonable care or foresight, such as floods, lightning, and earthquakes.

action

A lawsuit involving the right of one party to recover from another person in a court of law.

actual cash value

An amount equivalent to the replacement cost of lost or damaged property at the time of the loss, less depreciation.

actuary

A specialist trained in mathematics, statistics, and accounting who is responsible for rate, reserve, and dividend calculations and other statistical studies.

additional living expense insurance

A contract to reimburse the insured for increased living costs, such as hotel costs or restaurant meals, when loss of property forces the insured to maintain temporary residence elsewhere.

additur

A situation in which the court increases a previous jury award.

adhesion

A characteristic of a unilateral contract offered on a take it or leave it basis where terms are drawn up by the insurer and ambiguous provisions are often interpreted by courts in favor of the insured.

administration bond

A bond furnished by the executor or administrator of an estate that guarantees the estate will be settled in accordance with the terms of the will or the law.

administrative services only

Services provided by an insurer, such as providing claim forms and processing claims, when the insurer is not the party funding the loss payments.

admiralty liability

All laws relating to liability resulting from any kind of maritime activity, including common law and statutory law such as the Jones Act.

admitted company

An insurance company authorized and licensed to do business in a given state.

adverse selection

The tendency of poorer than average risks to buy and maintain insurance, occurring when insureds select only coverages that are most likely to have losses.

advertising injury

Injury arising out of libel or slander, violation of privacy, misappropriation of ideas, or infringement of copyright committed in the course of advertising products or services.

affidavit

A written or printed declaration or statement of fact, made voluntarily and confirmed by oath or affirmation before an authorized officer.

age change

The date on which a person's age changes for insurance purposes, midway between natural birth dates in most life insurance contracts.

agency

A relationship created when one person (the agent) acts on behalf of another person (the principal), where the principal is generally responsible for the acts of its agents.

agent

One who solicits, negotiates, or effects contracts of insurance on behalf of an insurer.

agent's appointment

Official authorization from an insurance company granting an agent the authority to act as its agent; agents must be appointed by at least one insurer and licensed by the state.

aggregate excess of loss reinsurance

A form of reinsurance that indemnifies the ceding company against losses incurred during a specific period (usually $12$ months) that exceed a predetermined dollar amount or percentage of premiums.

aleatory contract

A contract in which the number of dollars to be given up by each party is not equal.

all risk insurance

An older term meaning insurance against loss or damage to property arising from any cause except those specifically excluded, now known as special coverage forms.

ambiguity

Terms in a policy that make the meaning unclear or can be interpreted in multiple ways, generally construed against the insurer and in favor of the insured.

amount at risk

The difference between the face amount of a whole life insurance contract and the cash value it has built up.

annuitant

The person who is covered by an annuity and who will normally receive the benefits of the annuity.

annuity

An amount of money payable yearly or at other regular intervals, or an agreement by an insurer to make periodic payments during the survival of the annuitants.

apparent authority

Authority of an agent created when the agent oversteps actual authority and inaction by the insurer does nothing to counter the public impression that such authority exists.

appraisal

An evaluation of property made to ascertain the appropriate amount of insurance to be written or the amount of loss to be paid.

appurtenant structures

Buildings on the same premises as the main building insured under a property insurance policy.

arbitration clause

A provision stating that if the insurer and insured cannot agree on a claim settlement, each will appoint an appraiser who will select a neutral umpire to bind both parties to a decision.

arson

The willful and deliberate burning of property.

assessed value

The value of real estate or personal property as determined by a governmental unit, such as a city, for the purpose of determining taxes.

assigned risk

A risk not ordinarily acceptable to insurers that is assigned to insurers participating in a pool or plan, with each company accepting its share.

assignment

Transfer by the policyowner of legal rights or interest in the policy contract to a third party.

assumption of risk

A common-law defense where an individual has voluntarily accepted the risk of a dangerous activity and therefore has no action against the other party if an accident occurs.

attorney-in-fact

The individual who manages a reciprocal insurance exchange and to whom subscribers give authority to exchange insurance on their behalf.

attractive nuisance

An artificial structure or condition especially attractive to children and capable of harming them, creating a legal obligation for property owners to protect trespassing children.

audit

A survey of the insured's payroll records to determine the premium that should be paid for workers' compensation and general liability policies.

authorized insurer

An insurer authorized by the state to transact business in that state for specific types of insurance.

automobile fleet

A number of automobiles under the same ownership, usually consisting of $5$ or more self-propelled units for insurance purposes.

avoidance of risk

Taking steps to remove a hazard or end a specific exposure; one of the four major risk management techniques.

bailee

A person or concern that has possession of personal property entrusted to them by the owner, required to exercise care with the property of others.

bailment

The personal property of one person being held by another with the intent that it will be returned to the original owner, such as cars in a garage for repairs.

beneficiary

A person who may become eligible to receive or is receiving benefits under an insurance policy other than a participant.

binder

An agreement putting insurance into force before the contract has been written or the premium paid; this term is not usually used in life insurance.

birthday rule

A method of determining primary medical coverage for dependent children where the parent whose birthday falls earliest in the year is considered primary.

bond

A three-party contract guaranteeing that if the principal fails to perform or is dishonest, the obligee will be financially protected by the surety.

boycott

An unfair trade practice occurring when someone in the insurance business refuses to have dealings with another until they comply with certain conditions.

brick construction

Refers to a building in which at least $75\%$ of the exterior walls are of some type of masonry construction.

broad form nuclear energy liability exclusion endorsement

A form attached to every general liability coverage part excluding coverage for any loss resulting from hazardous properties of nuclear material.

building and personal property coverage form

A commercial property coverage form designed to insure most types of buildings and contents, replacing several earlier specialized forms.

burglary

Breaking and entering into the premises of another with felonious intent, leaving visible signs of forcible entry or exit.

buy-sell agreement

An agreement among business owners stating that upon disability or death, withdrawing owners or heirs are obligated to sell their interest to remaining owners at a fixed price.

capacity

The largest amount of insurance or reinsurance available from a company or in the overall marketplace.

cession

The unit of insurance transferred to a reinsurer by a ceding company.

cestui que vie

The person whose life measures the duration of a trust or insurance contract; specifically the insured person.

claim

A demand made by the insured or beneficiary for payment of the benefits provided by the contract.

claims-made coverage

A policy providing liability coverage only if a written claim is made during the policy period or applicable extended reporting period.

coinsurance clause

A provision stating the insured and insurer will share all covered losses in a proportion agreed upon in advance, such as $80/20$.

commission

The portion of the premium paid to the agent as compensation for services.

Commissioner of Insurance

The title of the head of most state insurance departments; also known as Director or Superintendent of Insurance.

comparative negligence

A rule in some states where negligence of both parties to an accident is established in proportion to their contribution to the accident.

concealment

The failure to disclose a material fact.

concurrent causation

A term referring to two or more perils acting at the same time or in sequence to cause a loss.

conditional binding receipt

Terminology for a receipt providing that if a premium accompanies an application, coverage is in force from the application date if the insurer would have issued the coverage.

consequential loss

An indirect loss arising out of the policyholder's inability to use property over a period, rather than a direct loss happening instantaneously.

constructive delivery

Intentionally relinquishing control over a policy by turning it over to someone acting for the policyowner, such as when an insurer mails it to an agent.

constructive total loss

A partial loss making the cost of repairs more than the damaged property is worth.

contributory

A plan of employee coverage in which the employee pays at least part of the premium.

contributory negligence

A doctrine stating that if an injured party fails to exercise proper care and contributes to his injury, the claim may be negated even if the other party is negligent.

conversion

Change of one policy form to another, usually without evidence of insurability.

declarations

The portion of a contract stating information such as the name and address of the insured, the property insured, the policy period, and premiums.

deductible

The portion of an insured loss to be borne by the insured before any recovery may be made from the insurer.

defamation

Under insurance law, an unfair trade practice involving false or maliciously critical statements intended to injure a person in the insurance business.

depreciation

A decrease in the value of any type of tangible property over a period of time resulting from use, wear and tear, or obsolescence.

direct loss

A loss that is a direct consequence of a particular peril, such as fire damage to a refrigerator.

discovery period

The period allowed an insured who canceled a bond or policy to discover and report a loss that occurred during the term of that bond or policy.

dismemberment

The loss of, or loss of use of, specified members of the body resulting from accidental bodily injury.

dividend

The return of part of the premium paid for a policy issued on a participating basis by either a mutual or a stock insurer.

double indemnity

Payment of twice the basic benefit in the event of loss resulting from specified causes or circumstances, such as accidental death.

dram shop laws

Liquor liability laws providing that a person serving someone intoxicated may be liable for injury caused by the intoxicated person.

earned premium

The amount of the premium that has been used up during the term of a policy.

elimination period

The waiting period in a health insurance policy before benefits begin.

entire contract clause

A provision stating the entire agreement between the insured and insurer is contained in the contract, including the application and endorsements.

estoppel

The legal principle whereby a person loses the right to deny a certain condition exists by virtue of having acted in a way to persuade others of its existence.

excess insurance

Coverage designed to be in excess over primary coverages, paying only after loss amounts exceed a certain sum.

exclusion

A contractual provision that denies coverage for certain perils, persons, property, or locations.

expense ratio

The percentage of the premium dollar devoted to paying the expenses of an insurer, other than losses.

experience rating

A method of adjusting the premium for a risk on the basis of past loss experience for that risk compared with an average risk.

exposure

The state of being subject to the possibility of loss, or the extent of risk as measured by payroll, area, or other standards.