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Insurance Terms and Definitions A-K

A useful list of Car Insurance Terms and Definitions (A-K)

The following list of car insurance terms & definitions has been provided to help consumers purchasing auto insurance select coverage and understand the terms and conditions of the policy.

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Abandonment – As used in property insurance, prohibits the insured from abandoning damaged property to the insurance company for repair or disposal.

Accounts Receivable Coverage – Covers loss of sums owed to the insured by its customers that are uncollectible due to damage by an insured peril to accounts receivable records.

Actual Cash Value (ACV) – Cost to repair or replace damaged property with materials of like kind and quality, less depreciation.

Additional Insured – A person or organization for whom insured status is arranged by endorsement.

Advertising Injury – General liability coverage that insures against libel, slander, invasion of privacy, copyright infringement and misappropriation of advertising in connection with the insured’s advertising of its goods or services.

Aggregate – The maximum amount an insurance company will pay during the policy.

All Risk Coverage – Property insurance covering loss arising from all causes except those specifically excluded.

Application – A form with the information needed for an insurance company to underwrite and rate a specific policy.

Audit – A verification of the financial records, usually payroll or receipts, of an organization to determine exposures and premiums.

Automobile – A land motor vehicle, trailer or semi-trailer designed for travel on public roads, not including ‘mobile equipment’.

Bailee Coverage – Coverage on property left in the care of the insured for storage, repair or servicing.

Basic Cause of Loss Form – Property coverage for named perils: fire, lightning, explosion, smoke, windstorm, hail, riot, civil commotion, aircraft, vehicles, vandalism, sprinkler leakage, sinkhole collapse and volcanic activity.

Basic Limits – The minimum limits of liability that can be carried by an insured.

Best’s Rating – A rating system by A.M. Best Company giving the financial condition of insurance companies.

Binder – A legal agreement issued on behalf of insurance companies to provide temporary evidence of insurance until a policy can be issued.

Bodily Injury by Accident Limit – The most an insurer will pay under Part Two of a Workers’ Compensation Policy for claims arising out of any one accident, regardless of how many employee claims arise out of the accident.

Bodily Injury by Disease, Each Employee – The most an insurer will pay under Part Two of a Workers’ Compensation Policy for damages due to bodily injury by disease to any one employee.

Bodily Injury by Disease-Policy Limit – The most an insurer will pay under Part Two of a Workers’ Compensation Policy employee bodily injury by disease claims during the policy period regardless of the number of employees who make such claims.

Bodily Injury Liability Limit – The insured is legally liable for damages due to bodily injury, sickness, or disease, including resulting death.

Boiler & Machinery Insurance – Coverage for loss caused by mechanical or electrical equipment breakdown, including damage to the equipment.

Bond – A written agreement in which one party, the surety, guarantees the performance or honesty of a second party, the principal (obligor), to the third party (obligee) to whom the performance or debt is owed.

Brands and Labels Endorsement – Property insurance coverage that allows the insured to remove labels from damaged goods or mark the items as ‘salvage,’ provided the goods are not damaged in the process.

Broad Causes of Loss Form – Property coverage for the named perils: fire, lightning, explosion, smoke, windstorm, hail, riot, civil commotion, aircraft, vehicles, vandalism, sprinkler leakage, sinkhole collapse, volcanic action, breakage of building glass, falling objects, weight of snow, ice or sleet, water damage (in the form of leakage from appliances) and collapse from specified causes.

Building Ordinance Coverage – Covers against loss caused by enforcement or ordinances or laws regulating construction and repair of damaged buildings.

Burglary – Theft of property by forcible entry evidenced by visible signs of entry, in a premise, by a person.

Business Auto Policy – Auto Policy for businesses that includes auto liability and auto physical damage coverages.

Business Income Coverage – See Business Income Coverage

Business Owners Policy – A policy that combines property and liability coverages for special types of small businesses.

Cancellation – The termination of an insurance policy usually before its expiration.

Care, Custody or Control – An exclusion of liability insurance which eliminates coverage for damage to property in the insured’s care, custody or control.

Carrier – The insurance company which provides coverage.

Casualty Insurance – Insurance that covers loss caused by injuries to persons and the legal liability imposed on the insured for injury or for damage to property of others.

Catastrophe – A severe calamity or disaster causing considerable financial loss.

Causes of Loss Forms – The commercial property forms that define the covered causes of loss for which coverage is provided. Commonly, there are three (3) Cause of Loss Forms: Basic, Broad and Special.

Certificate of Insurance – A document providing evidence that insurance has been purchased.

Claim – A request by a policyholder or a claimant for payment under a policy of insurance.

Claim Expense – Expenses of settling or investigating a claim.

Claimant – The person presenting a claim.

Claims Reserve – An amount of money set aside to meet claims reported but not paid.

Class – A group of businesses who have common or similar exposures and are grouped together for rating purposes.

Classification – The arranging or establishing of business groups or categories for rating purposes.

Coinsurance Provision – An insurance provision for property coverages in which the policyholder must carry an amount of insurance that is at least equal to a set percentage of the value of the property in order to receive full payment of a loss.

Collapse – Collapse of a building and collapse of personal property within a building due to specified causes (such as weight of snow, ice or rain). Does not include collapse due to design error or due to faulty workmanship or materials if the collapse occurs after construction is complete.

Collision Insurance – Provides for payment to a covered automobile resulting from the striking of another object by a moving vehicle.

Commercial General Liability Policy – A coverage which protects business organizations against liability claims for bodily injury and property damage. Those claims may be the result of events at your place of business, from your business operations, the products or services you make or do, communications or advertisements your business broadcasts.

Competitive State Funds – State-owned and operated facilities that write Workers’ Compensation Insurance solely for that state.

Completed Operations – A General Liability coverage for the work of the insured that has been completed away from the business premises.

Comprehensive Auto Coverage – Covers an automobile for loss or damage for all causes except for those specifically excluded.

Compulsory Insurance – Insurance that is required by law.

Concealment – Failure to disclose facts which may void an insurance policy

Conditions – Things agreed upon in an insurance policy that state the rights and the requirements of the insured and the insurer

Consequential Loss – An indirect loss such as the reduction in value of property that is the result of a direct damage loss

Constructive Total Loss – Term used when damage to property is more than the value of the property

Contract – An agreement between two or more parties with characteristics of mutual assent, competent parties, a valid consideration and legal subject

Countersignature – The signature of a licensed agent or representative on a policy that is required to validate the policy

Cumulative Injury – A type of injury which occurs from the repetition of tasks over an extended length of time

Data Processing or EDP Coverage – All risk property insurance for electronic data processing equipment (computers), computer programs and data including mechanical breakdown, electrical injury and changes in temperature and humidity.

Debris Removal – The cost of removal of debris from covered property damaged by an insured peril.

Deductible – The amount of loss which is paid or absorbed by the insured prior to determining the insurance company’s liability.

Deposit Premium – The amount of premium required at the beginning of a policy prior to the actual premium being determined.

Depreciation – The reduction in value of property over a period of time. Usually as a result of age, wear and tear, or economic obsolescence.

Direct Damage – Causes of loss that produce direct and straightforward property damage (without interruption in time or deviation in space) from the cause of the event to the damaged property.

Driver Other Car Endorsement – An endorsement that can be added to an automobile policy that gives protection while the insured designated in the endorsement is driving a car other than the one named in the policy.

Drop Down Provision – A clause used in Umbrella policies providing that the Umbrella will ‘drop-down’ over underlying policy aggregate limits when they have been reduced or exhausted.

Earned Premium – The amount of premium that has been used for certain periods of time.

Earth Movement or Earthquake Exclusion – An exclusion found in most property insurance policies eliminating coverage for earth movement or earthquake, except ensuing fire.

Effective Date – The date on which an insurance binder or policy goes into effect.

Electrical Damage or Injury Exclusion – An exclusion usually contained in property insurance policies eliminating coverage for damage to electrical appliances caused by artificially generated currents, except for ensuing fire or explosion.

Employee Dishonesty Coverage – Coverage for theft of money, securities or property by an employee.

Employee Leasing – A staffing method which an employee leasing company provides all or most of its client’s employees.

Employers Excess Indemnity Insurance – Insurance coverage purchased by employers that do not subscribe to the Texas Workers’ Compensation law .

Employers Excess Indemnity Insurance – Insurance coverage purchased by employers that do not subscribe to the Texas Workers’ Compensation law.

Employers Liability Coverage – Part 2 of the Workers’ Compensation policy which pays on behalf of the employer all sums that the employer becomes legally obligated to pay because of bodily injury by accident or disease sustained by any employee of the insured arising out of and in the course of his employment by the insured.

Employment Practices Liability Insurance – A form of liability insurance covering wrongful acts arising from employment practices such as wrongful termination, discrimination and sexual harassment.

Endorsement – A document attached to an insurance policy that changes the original policy provisions.

Equipment Floater – A property insurance coverage for equipment that is often moved from place to place.

Estimated Premium – A preliminary premium amount that could be adjusted based on a variance in exposures.

Excess and Surplus Lines Insurance – Coverage that is provided by insurers not licensed in the states where the risk is located.

Excess Liability Policy – A policy that provides additional limits in excess of an underlying liability policy.

Exclusion – A circumstance or peril that is not covered by the policy.

Expected or Intended – An exclusion for injury or damage that is expected or intended.

Expediting Expense Coverage – Coverage providing reimbursement of expenses for temporary repairs and costs incurred to speed up the permanent repair or replacement of covered property or equipment.

Expense Constant – A small flat expense charged to Workers’ Compensation policies.

Experience Modifier – A debit or credit factor developed by measuring the difference between the insured’s actual past experience and the expected or actual experience of the class of business.

Expiration – The ending date of an insurance policy.

Exposure Base – The basis of rates that are applied to determine premium. Some exposures may be measured by payroll, receipts, sales, square footage, area, man-hours or per unit.

Extra Expense Coverage – Coverage for reimbursement of expenses in excess of normal operating expenses that are incurred to continue operations after a direct damage loss.

Extraterritorial Coverage – The coverage for extending workers’ compensation law to provide benefits for workers hired in one state but injured while working in another state.

Fiduciary Liability – The liability placed on trustees, employers, fiduciaries and professional administrators with respect to errors and omissions in the administration of employee benefit programs.

Fire Department Service Charge Coverage – Coverage in a property insurance policy for charges incurred by the insured from a fire department for their services in fighting a fire.

Fire Legal Liability Coverage – Liability coverage for the insured’s legal liability for fire damage to premises rented by the insured.

Fire Wall – A wall designed to prevent the spread of fire from one part of a building to another.

Firewall – A computer that protects a company’s private network from outside internet users.

Flat Cancellation – The full cancellation of a policy as of the effective date of coverage which requires the return of paid premium in full.

Flood Coverage – Coverage for damage to property caused by flood.

Flood Exclusion – A provision in most all property insurance policies eliminating coverage for damage by flood and possibly other types of water damage, such as seepage and sewer backup.

Follow Form – An umbrella policy provision that follows the underlying policy for coverages and policy provisions.

Forgery or Alteration Coverage – An event that is subject to chance without the implication of suddenness.

Fortuitous Event – An umbrella policy provision that follows the underlying policy for coverage and policy provisions.

Frequency – The number of times that a loss will occur within any given period of time.

Full Coverage – Any form of insurance that provides payment in full of all losses caused by the perils insured against without applying a deductible or depreciation.

Garage Liability Insurance – Insurance coverage for the legal liability of automobile dealers, garages, repair shops and service stations for bodily injury and property damage arising out of their business operations.

Garagekeepers Coverage – Provides coverage to owners of storage garages, parking lots and body and repair shops for their liability of damage to automobiles left in their custody for safekeeping or repair.

General Aggregate Limit – The maximum amount of insurance payable during the policy period for losses (other than those arising from the products – completed operations hazards as covered under the standard commercial general liability policy).

General Liability Insurance – Insurance protecting businesses from most liability exposures other than automobile and professional liability.

Glass Insurance – A property insurance policy covering breakage of building glass regardless of cause.

Governing Classification – In Workers’ Compensation Insurance, the classification that best describes the workers’ compensation exposure of an employer’s business.

Gross Negligence – Willful and wanton misconduct.

Gross Vehicle Weight (GVW) – The weight specified by a manufacturer for the maximum total loaded weight of a single vehicle.

Hired Automobile – An automobile whose exclusive use has been temporarily given to another for a monetary sum or other consideration. The business auto definition of ‘hired autos,’ however, includes autos borrowed except those borrowed from employees or partners.

Hold Harmless Agreement – A contractual agreement that requires one contracting party to assume certain legal liabilities of the other party.

Host Liquor Liability – Liability coverage for hosts of business or social functions arising out of the serving or distribution of alcoholic beverages by a party not engaged in this activity as a business enterprise.

Improvements and Betterments – Additions or changes made by a lessee at his own expense to property that may not legally be removed. Usually covered under the tenants property coverage.

Incurred Losses – The amount of paid claims and loss reserves within a particular period of time, usually a policy year. Customarily computed as losses incurred during the period, plus outstanding losses at the end of the period, less outstanding losses at the beginning of the period.

Independent Adjuster – A claims adjuster who provides adjustment services to insurance companies but is not employed by them.

Independent Contractor – An individual or company who has agreed, in writing, with another party to perform a job or function on behalf of that party.

Inflation Guard Provision – A provision that increases the limit of insurance by a specified percentage over a specified period of time to offset inflation costs.

Insurance to Value – Insurance written in an amount equal to the value of the property or which meets coinsurance requirements.

Insurer – An insurance company that provides insurance coverage and other insurance-related services.

Joint Venture – A business relationship when two or more persons join their labor or property for a business undertaking and share profits.

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