printable flash cards

Term 1

insured

Definition 1

"a person, a business, or anorganization whose property, life, or

legal liability is covered by aninsurance policy"

Term 2

insurer

Definition 2

an insurance company

Term 3

covered loss

Definition 3

the events for which insurance pays

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Term 4

loss exposure (exposure)

Definition 4

any condition or situation thatpresents the possibility of a loss

Term 5

law of large numbers

Definition 5

"a mathematical principle stating thatas the number of similar butindependent exposure units

increases, the relative accuracy ofpredictions about future outcomes(losses) based on these exposure

units also increases"

Term 6

exposure unit

Definition 6

"a measure of loss potential and usedin pricing insurance, i.e., in

homeowners insurance, each homeinsured is an exposure unit"


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Term 7

property loss exposure

Definition 7

any condition or situation thatpresents the possibility that a property

loss will happen

Term 8

real property

Definition 8

consists of land as well as buildingsand other structures attached to the

land or embedded in it

Term 9

personal property

Definition 9

consists of all tangible or intangibleproperty that is not real property


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Term 10

net income

Definition 10

income (or revenue) minus expensesduring a given period

Term 11

liability loss exposure

Definition 11

any condition or situation thatpresents the possibility that a liability

loss will happen

Term 12

liability loss

Definition 12

a claim for monetary damagesbecause of injury to another party ofdamage to another party's property


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Term 13

human loss exposure (personal lossexposure)

Definition 13

"any condition or situation thatpresents the possibility of a financial

loss to an individual or a family bysuch causes as death, sickness,

injury, or unemployment"

Term 14

personnel loss exposure

Definition 14

"the possibility of a financial loss to abusiness because of the death,

disability, retirement, or resignation ofkey employees"

Term 15

indemnify

Definition 15

to restore a party who has had acovered loss to the same financialposition that party held before the

loss occurred


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Term 16

fire and allied lines insurance

Definition 16

covers direct damage to or loss ofinsured property

Term 17

business income insurance

Definition 17

covers the loss of net income oradditional expenses incurred by abusiness as the result of a covered

loss to its property

Term 18

crime insurance

Definition 18

"protects the insured against loss tocovered property from various causes

of loss such as burglary, robbery,theft, and employee dishonesty"


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Term 19

ocean marine insurance

Definition 19

includes hull insurance (which coversships) and cargo insurance (whichcovers the goods transported by

ships)

Term 20

inland marine insurance

Definition 20

"covers miscellaneous types ofproperty, such as movable property,

goods in domestic transit, andproperty used in transportation and

communication"

Term 21

auto physical damage insurance

Definition 21

covers loss of or damage to specifiedvehicles owned by the insured and

sometimes covers vehicles borrowedor rented by the insured


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Term 22

auto liability insurance

Definition 22

covers an insured's liability for bodilyinjury to others and damage to theproperty of others resulting from

automobile accidents

Term 23

commercial general liability insurance

Definition 23

"covers businesses for their liabilityfor bodily injury and property damage;

it can also include liability coveragefor various other offenses that might

give rise to claims, such as libel,slander, false arrest, and advertising

injury"

Term 24

personal liability insurance

Definition 24

provides liability coverage toindividuals and families for bodilyinjury and property damage arising

from the insured's personal premisesor activities


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Term 25

professional liability insurance

Definition 25

"protects physicians, accountants,architects, engineers, attorneys,

insurance agents and brokers, andother professionals against liabilityarising out of their professional acts

or omissions"

Term 26

whole life insurance

Definition 26

provides life-time protection (to age100); policies accrue cash value and

have premiums that remainunchanged during the insured's

lifetime

Term 27

cash value (of life insurance)

Definition 27

"a savings fund that accumulates in awhole life insurance policy and that

the policyholder can access in severalways, including borrowing,

purchasing paid-up life insurance, andsurrendering the policy in exchange

for the cash value"


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Term 28

term insurance

Definition 28

a type of life insurance that providestemporary protection (for a certain

period) with no cash value

Term 29

universal life insurance

Definition 29

"combines life insurance protectionwith savings; the policy is a flexible-

premium policy that separates theprotection, savings, and expense

components"

Term 30

medical insurance

Definition 30

"covers the cost of medical care,including doctors' bills, hospital

charges (including room and board),laboratory charges, and related

expenses"


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Term 31

disability income insurance

Definition 31

a type of health insurance thatprovides periodic income payments to

an insured who is unable to workbecause of sickness or injury

Term 32

stock insurance company

Definition 32

an insurer that is owned by itsstockholders and formed as a

corporation for the purpose of earninga profit for these stockholders

Term 33

mutual insurance company

Definition 33

an insurer that is owned by itspolicyholders and formed as acorporation for the purpose of

providing insurance to itspolicyholder-owners


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Term 34

demutualization

Definition 34

"the process by which a mutualinsurer, which is owned by its

policyholders, becomes a stockcompany, which is then owned by its

stockholders"

Term 35

reciprocal insurance exchange(interinsurance exchange)

Definition 35

an unincorporated association formedto provide insurance coverage to itsmembers; one of the distinguishingfeatures of a reciprocal is that thesubscribers empower an attorney-

in-fact to manage it

Term 36

subscriber

Definition 36

"also known as members, these arethe policyholders of a reciprocal

insurance exchange who agree toinsure each other"


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Term 37

attorney-in-fact

Definition 37

the contractually authorized managerof a reciprocal insurance exchange

who administers its affairs and carriesout its insurance transactions

Term 38

captive (insurance company)

Definition 38

"an insurer that is formed as asubsidiary of its parent company,

organization, or group, for thepurpose of writing all or part of the

insurance on the parent company orcompanies"

Term 39

reinsurance

Definition 39

a type of insurance in which oneinsurer transfers some of all of the

loss exposures from policies writtenfor its insureds to another insurer


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Term 40

primary insurer

Definition 40

the insurance company that transfersits loss exposures to another insurer

in a contractual reinsurancearrangement

Term 41

reinsurer

Definition 41

the insurance company that acceptsthe loss exposures of the primary

insurer

Term 42

monopolistic state fund

Definition 42

a state workers compensationinsurance plan that is the only sourceof workers compensation insurance

allowed in that state


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Term 43

competitive state fund

Definition 43

a state workers compensationinsurance plan that competes withprivate insurers to provide workers

compensation insurance

Term 44

residual market plan (shared marketplan)

Definition 44

a program that makes insuranceavailable to those who cannot obtain

coverage because private insurers willnot voluntarily provide such coverage

for various reasons

Term 45

guaranty fund

Definition 45

a state fund that provides a system topay the claims of insolvent insurers;the money comes from assessments

collected from all insurers licensed inthe state


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Term 46

National Association of InsuranceCommissioners (NAIC)

Definition 46

"an association consisting of thecommissioners of the insurance

departments of each state, the Districtof Columbia, and US territories and

possessions; it coordinates insuranceregulation activities among thevarious insurance departments"

Term 47

model law

Definition 47

"a document drafted by the NAIC, in astyle similar to a state statute, that

reflects the NAIC's proposed solutionto a given problem and provides a

common basis to the states fordrafting laws that affect the insurance

industry"

Term 48

ratemaking

Definition 48

the process insurers used to calculatethe rates that determine the premium

for insurance coverage


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Term 49

rate

Definition 49

the price of insurance for each unit ofexposure; it's multiplied by the

number of exposure units to arrive ata premium

Term 50

premium

Definition 50

a periodic payment by an insured toan insurance company in exchange to

insurance coverage

Term 51

actuary

Definition 51

a person who uses complexmathematical methods and

technology to analyze loss data andother statistics and to develop

systems for determining insurancerates


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Term 52

actuarial equity

Definition 52

a ratemaking concept through whichactuaries base rates on actuarially

calculated loss experience and placeinsureds with similar characteristics in

the same rating class

Term 53

social equity

Definition 53

a rating concept that considers ratesto be unfairly discriminatory if they

penalize an insured for characteristics(such as age or gender) that are

beyond the insured's control

Term 54

unfair discrimination

Definition 54

involves applying different standardsor methods of treatment to insureds

who have the same basiccharacteristics and loss potential


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Term 55

prior-approval law

Definition 55

rates must be approved by the stateinsurance department before they can

be used

Term 56

flex rating law

Definition 56

prior approval is required only if thenew rates are a specified percentageabove or below previously filed rates

Term 57

file-and-use law

Definition 57

rates must be filed by do not have tobe approved before use


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Term 58

use-and-file law

Definition 58

rates must be filed within a specifiedperiod after they are first used in the

state

Term 59

open competition

Definition 59

(also called no-file) rates do not haveto be filed with the state

Term 60

state-mandated rate

Definition 60

state-specified rates must be used byall insurers of a particular type of

insurance in the state


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Term 61

solvency

Definition 61

"the ability of an insurance companyto meet its financial obligations as

they become due, even those resultingfrom insured losses that might be

claimed several years in the future"

Term 62

solvency surveillance

Definition 62

"the process, conducted by stateinsurance regulators, of verifying thesolvency of insurance companies and

determining whether the financialcondition of insurers enables them tomeet their obligations and to remain

in business in the long term"

Term 63

Insurance Regulatory InformationSystem (IRIS)

Definition 63

begun in the early 1970s as the EarlyWarning System; it is an analytical

system designed by the NAIC tomonitor an insurer's overall financial

condition


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Term 64

licensed (admitted) insurer

Definition 64

is authorized by the state insurancedepartment to transact business

within that state

Term 65

domestic insurer

Definition 65

is incorporated in the same state inwhich it is transacting business

Term 66

foreign insurer

Definition 66

licensed to operated in a state but isincorporated in another state


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Term 67

alien insurer

Definition 67

is licensed in a US state butincorporated in another country

Term 68

market conduct regulation

Definition 68

"consists of state laws that regulatethe practices of insurers in regard to

four areas of operation: sales andadvertising, underwriting, ratemaking,

and claim handling"

Term 69

standard market

Definition 69

refers collectively to insurers whovoluntarily offer insurance coveragesat rates designed for customers withaverage or better-than-average loss

exposures


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Term 70

excess and surplus lines (E&Sinsurance)

Definition 70

"consists of insurance coverages,usually unavailable in the standard

market, that are written by unlicensedinsurers"

Term 71

nonadmitted (unlicensed) insurer

Definition 71

insurers that are not licensed in manyof the states in which they operate

and that write E&S insurancecoverages

Term 72

written premium

Definition 72

premiums on policies put into effectduring a given period


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Term 73

earned premium

Definition 73

the portion of the written premiumthat applies to the part of the policy

period that has already occurred

Term 74

unearned premium

Definition 74

the portion of the written premiumthat applies to the part of the policy

period that has not yet occurred

Term 75

paid loss

Definition 75

claim payment that an insurer hasmade


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Term 76

incurred loss

Definition 76

the sum of paid losses and changes inloss reserves

Term 77

loss reserve

Definition 77

amounts designated by insurancecompanies to pay claims for losses

that have already occurred but are notyet settled; it is the insurer's best

estimate of the total amount that it willpay in the future for a loss that has

already occurred

Term 78

net underwriting gain or loss

Definition 78

earned premiums minus losses andunderwriting expenses for a specific

period


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Term 79

overall gain or loss from operations

Definition 79

net underwriting gain or loss plus netinvestment gain results (or minus

investment loss results)

Term 80

asset (in financial statements)

Definition 80

property (both tangible andintangible) owned by an entity (the

insurance company)

Term 81

admitted asset

Definition 81

"types of property, such as cash andstocks, that regulators allow insurersto show as assets on their financialstatements; such assets are easilyconvertible to cash at or near the

property's market value"


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Term 82

nonadmitted asset

Definition 82

"types of property, such as officefurniture and equipment, that

insurance regulators do not allowinsurers to show as assets on

financial statements because theseassets cannot readily be converted to

cash at or near their market value"

Term 83

liabilities (in financial statements)

Definition 83

"financial obligations, or debts, owedby a company to another entity,

usually the policyholder in the case ofan insurance company"

Term 84

unearned premium reserve

Definition 84

the total of an insurer's unearnedpremiums on all policies at a

particular time


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Term 85

policyholders' surplus

Definition 85

equal to total admitted assets minustotal liabilities

Term 86

balance sheet

Definition 86

"a type of financial statement thatshows a company's financial position

at a particular point in time andincludes the company's admitted

assets, liabilities and policyholders'surplus"

Term 87

income statement

Definition 87

"a type of financial statement thatshows a company's revenues,

expenses, and net income for aparticular period, usually one year"


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Term 88

loss ratio

Definition 88

calculated by dividing an insurer'sincurred losses (including loss

expenses) for a given period by itsearned premiums for the same period

Term 89

expense ratio

Definition 89

calculated by dividing an insurer'sincurred underwriting expenses for agiven period by its written premiums

for the same period

Term 90

combined ratio

Definition 90

the sum of the loss ratio and theexpense ratio


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Term 91

investment income ratio

Definition 91

calculated by dividing net investmentincome by earning premiums for a

particular period

Term 92

overall operating ratio

Definition 92

calculated by subtracting theinvestment income ratio from the

combined ratio

Term 93

capacity ratio or premium-to-surplusratio

Definition 93

calculated by dividing writtenpremiums by policyholders' surplus


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Term 94

marketing

Definition 94

"the process of identifying customersand their needs and then creating,

pricing, promoting, selling, anddistributing products or services to

meet those needs"

Term 95

producer

Definition 95

any person who sells insuranceproducts for an insurance company or

companies

Term 96

agency

Definition 96

"a legal relationship that is formedwhen one party, the principal,

authorizes another party, the agent, toact as a legal representative of the

principal"


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Term 97

principal

Definition 97

the party that authorizes the agent toact on its behalf in an agency

relationship

Term 98

agent

Definition 98

the party that is authorized by theprincipal to act on the principal'sbehalf in an agency relationship

Term 99

insurance agent

Definition 99

legal representatives of the insurancecompany for which they havecontractual agreements to sell

insurance


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Term 100

agency contract (agency agreement)

Definition 100

"a written agreement between aninsurance company and an agent that

specifies, among other things, thescope of the agent's authority to

conduct business for the insurer"

Term 101

errors and omissions (E&O)

Definition 101

negligent acts committed by a personin the conduct of the insurance

business that give rise to legal liabilityfor damages; these claims can also

arise from a failure to act that createslegal liability

Term 102

express authority

Definition 102

authority that the principal specificallygrants to the agent


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Term 103

binding authority

Definition 103

"usually granted in the agencycontract, this is the authority of an

insurance agent to effect coverage onbehalf of an particular insurer"

Term 104

binder

Definition 104

a temporary contract of insurance thatcan be either written or oral

Term 105

implied authority

Definition 105

"authority that arises from actions ofthe agent that are in accord with

accepted custom and are consideredto be within the scope of authority

granted by the principal, even thoughsuch authority is not expresslygranted orally or in an agency

contract"


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Term 106

apparent authority

Definition 106

authority based on a third party'sreasonable belief that an agent has

authority to act on behalf of theprincipal

Term 107

independent agency

Definition 107

"an independent firm that sellsinsurance, usually as a representative

of several unrelated insurancecompanies"

Term 108

independent agent

Definition 108

a producer who works for anindependent agency


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Term 109

agency expiration list

Definition 109

the record of an insurance agency'spresent policyholders and the dates

their policies expire

Term 110

(insurance) broker

Definition 110

an independent business owner orfirm that sells insurance by

representing customers rather thaninsurers

Term 111

managing general agency (MGA)

Definition 111

an independent business organizationthat appoints and supervises

independent agents for insurancecompanies that use the independent

agency system; it functions almost asa branch office for one or more

insurance companies


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Term 112

exclusive agent

Definition 112

an agent that has a contract to sellinsurance exclusively for one

insurance company (or a group ofrelated companies)

Term 113

direct writing system

Definition 113

uses sales representatives who areemployees of an insurance company

Term 114

direct writer

Definition 114

uses the direct writing system tomarket insurance


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Term 115

direct response system

Definition 115

"includes any insurance marketingsystem that does not depend primarily

on individual producers to locatecustomers and sell insurance but

relies primarily on mail, phone, and/orinternet sales"

Term 116

mixed marketing system

Definition 116

refers to the use by an insurer of morethan one marketing system

Term 117

(sales) commission

Definition 117

a percentage of the premium that theinsurer pays to the agency or

producer for new policies sold orexisting policies renewed


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Term 118

contingent commission

Definition 118

"a commission that an insurer pays,usually annually, to an independent

agency and that is based on thepremium volume and profitability level

of the agency's business with thatinsurer"

Term 119

marketing representative

Definition 119

"insurance company employeeswhose role is to visit agents

representing the insurer, to developand maintain sound working

relationships with those agents, andto motivate the agents to produce a

satisfactory volume of profitablebusiness for the insurer"

Term 120

production underwriter

Definition 120

insurance company employees whowork in an insurer's office in an

underwriting position but who alsotravel to visit and maintain rapportwith agents and sometimes clients


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Term 121

unfair trade practices laws

Definition 121

state laws that specify certainprohibited business practices

Term 122

rebating

Definition 122

"offering anything of value, other thanthe insurance itself, to an applicant as

an inducement to buy or maintaininsurance"

Term 123

underwriting

Definition 123

"the process of selecting insureds,pricing coverage, determining

insurance policy terms andconditions, and then monitoring the

underwriting decisions made"


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Term 124

underwriter

Definition 124

"an insurance company employee whoevaluates applicants for insurance,selects those that are acceptable to

the insurer, prices coverage, anddetermines policy terms an

conditions"

Term 125

adverse selection

Definition 125

a situation that occurs because peoplewith the greatest probability of lossare the ones most likely to purchaseinsurance; it normally occurs if thepremium is low relative to the loss

exposure

Term 126

capacity

Definition 126

"refers to the amount of business aninsurer is able to write, usually based

on a comparison of the insurer'swritten premiums to the size of itspolicyholders' surplus; an insurer

must have adequate policyholders'surplus to be able to increase the

volume of insurance it writes"


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Term 127

commensurate with the exposure

Definition 127

a relationship between the premiumand the exposure where the size of the

premium is appropriate for theexposure assumed by the insurer

Term 128

class rate or manual rate

Definition 128

"rates that apply to all insureds in thesame rating category, or rating class;insureds with similar loss exposures

are grouped into rating classes"

Term 129

merit rating plan

Definition 129

rating plans that modify class rates toreflect loss characteristics of a

particular insured


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Term 130

individual rate or specific rate

Definition 130

used to assign a specific insurancerate that reflects the unique

characteristics of an insured or theinsured's property

Term 131

judgment rate

Definition 131

a type of individual rate used todevelop a premium for a uniqueexposure for which there is no

established rate; the underwriter reliesheavily on his experience

Term 132

standard form

Definition 132

"insurance forms that containstandardized policy wording; they are

developed by insurance advisoryorganizations, although some insurers

develop their own"


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Term 133

book of business (portfolio)

Definition 133

"a group of policies with a commoncharacteristic, such as territory or type

of coverage; it can also refer to allpolicies written by a particular insurer

or agency"

Term 134

treaty reinsurance

Definition 134

an arrangement whereby a reinsureragrees to reinsure automatically a

portion of all eligible insurance of theprimary insurer

Term 135

facultative reinsurance

Definition 135

involves a separate transaction foreach reinsured policy; each policy is

evaluated individually


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Term 136

underwriting authority

Definition 136

the limit on decisions that anunderwriter can make without

receiving approval from someone at ahigher level

Term 137

decentralized

Definition 137

"activities are moved away from acentral location; processes and

decision-making authority are movedgeographically closer to the insured,

usually to a field office"

Term 138

centralized

Definition 138

activities are in a central location;many decisions are made in the home

office


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Term 139

underwriting audit

Definition 139

a process in which members of thehome office underwriting department

examine files to see whetherunderwriters are following

underwriting guidelines

Term 140

expert system (knowledge basedsystem)

Definition 140

"computer software programs thatsupplement the underwriting

decision-making process; it asks forinformation necessary to make an

underwriting decision, ensuring thatno necessary information is

overlooked"

Term 141

hazard

Definition 141

conditions that increase the chance ofa loss occurring


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Term 142

physical hazard

Definition 142

"tangible characteristics of property,persons, or operations that tend toincrease the probably frequency or

severity of loss"

Term 143

moral hazard

Definition 143

dishonest tendencies in the characterof the insured (or applicant) thatincrease the probability of a loss

occurring

Term 144

morale hazard (attitudinal hazard)

Definition 144

"involve carelessness about, orindifference to, potential loss on the

part of an insured or applicant"


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Term 145

legal hazard

Definition 145

characteristic of the legal/regulatoryenvironment that affect an insurer's

ability to collect a premiumcommensurate with the exposure to

loss

Term 146

claim

Definition 146

a demand by a person or businessseeking to recover from an insurance

company for a loss that might becovered by an insurance policy

Term 147

claim representative (adjuster)

Definition 147

"a person responsible forinvestigating, evaluating and settling

claims"


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Term 148

claimant

Definition 148

anyone who submits a claim to aninsurance company; can be a first

party or a third party

Term 149

reservation of rights letter

Definition 149

a notice sent by the insurer to aninsured advising that the insurer isproceeding with investigation of a

claim but that the insurer retains theright to deny coverage later

Term 150

staff claim representative

Definition 150

an insurance company employee whoperforms some or all of the insurer's

claim handling activities


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Term 151

inside claim representative

Definition 151

"an insurance company employee whohandles claims that can be settled,usually by telephone or letter, from

inside the insurer's office"

Term 152

outside claim representative (fieldclaim representative)

Definition 152

an insurance company employee whohandles claims that cannot be handled

easily by phone or mail

Term 153

independent adjuster

Definition 153

independent claim representativeswho offer claim handling services to

insurance companies for a fee


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Term 154

draft authority

Definition 154

authority expressly given to an agentby an insurer to settle and pay certaintypes of claims by writing a claim draft

up to a specified limit

Term 155

public adjuster

Definition 155

a person hired by an insured torepresent the insured in handling a

claim

Term 156

self-insurance plan

Definition 156

"an arrangement in which anorganization pays for its losses with

its own resources rather thanpurchasing insurance, however, the

organization may choose to buyinsurance for losses exceeding a

certain limit"


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Term 157

third-party administrator (TPA)

Definition 157

business firms that contract toprovide administrative services to

other businesses (often contracted bybusiness with self-insurance plans)

Term 158

insurable interest

Definition 158

exists if a person or other entity hasany right to or interest in the property

such that a loss to that propertywould cause a direct monetary loss to

that person or entity

Term 159

actual cash value (ACV)

Definition 159

the replacement cost of propertyminus depreciation


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Term 160

replacement cost

Definition 160

the cost to repair or replace propertyusing new materials of like kind and

quality with no deduction fordepreciation

Term 161

depreciation

Definition 161

an allowance for physical wear andtear or technological or economic

obsolescence

Term 162

agreed value

Definition 162

"a method of valuing property inwhich the insurer and the insured

agree on the value of the property atthe time the policy is written, and that

amount is stated in the policydeclarations and is the amount the

insurer will pay in the event of a totalloss to the property"


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Term 163

subrogation

Definition 163

the insurer's right to recover paymentfrom a negligent third party

Term 164

salvage rights

Definition 164

the rights of the insurer to recover andsell or otherwise dispose of insuredproperty on which the insurer has

paid a total loss or a constructive totalloss

Term 165

constructive total loss

Definition 165

exists when a vehicle (or otherproperty) cannot be repaired for lessthan its actual cash value minus the

anticipated salvage value


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Term 166

damages

Definition 166

refer to a monetary award that oneparty is required to pay to anotherwho has suffered loss or injury for

which the first party is legallyresponsible

Term 167

compensatory damages

Definition 167

"damages, which include both specialand general damages, that are

intended to compensate a victim forharm actually suffered"

Term 168

special damages

Definition 168

"compensatory damages allowed forspecific, out-of-pocket expenses, such

as doctor and hospital bills"


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Term 169

general damages

Definition 169

"compensatory damages awarded forlosses, such as pain and suffering,

that do not have a specific economicvalue"

Term 170

punitive damages

Definition 170

"damages awarded by a court topunish wrong-doers who, throughmalicious or outrageous actions,cause injury or damage to others"

Term 171

unfair claim practices laws

Definition 171

state laws that specify claim practicesthat are illegal


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Term 172

contract

Definition 172

a complete written contract ofinsurance

Term 173

policy

Definition 173

a legally enforceable agreementbetween two or more parties

Term 174

agreement

Definition 174

offer and acceptance


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Term 175

consideration

Definition 175

an exchange of something of valuethat is required in any valid contract

Term 176

conditional contract

Definition 176

a contract in which one or moreparties must perform only under

certain conditions

Term 177

utmost good faith

Definition 177

an obligation to act in completehonesty


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Term 178

concealment

Definition 178

an intentional failure to disclose amaterial fact

Term 179

material fact

Definition 179

any information that would affect theinsurer's underwriting decision to

provide or maintain insurance or thatwould affect a claim settlement

Term 180

misrepresentation

Definition 180

a false statement of a material fact


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Term 181

contract of adhesion

Definition 181

a contract in which one party (theinsured) must adhere to the agreement

as written by the other party (theinsurer)

Term 182

contract of indemnity

Definition 182

"the insurer agrees, in the event of acovered loss, to pay an amount

directly related to the amount of theloss"

Term 183

principle of indemnity

Definition 183

states that the insured should not bebetter off financially after a loss than

before


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Term 184

valued policy

Definition 184

"a policy in which the insurer pays astated amount in the event of a

specified loss, regardless of the actualvalue of the loss"

Term 185

"declarations page (declarations,dec)"

Definition 185

an information page that providesspecific details about the insured and

the subject of the insurance

Term 186

insuring agreement

Definition 186

"a statement that the insurer will,under certain circumstances, make a

payment or provide a service"


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Term 187

exclusion

Definition 187

policy provisions that eliminatecoverage for specified exposures

Term 188

manuscript policy

Definition 188

an insurance policy that is specificallydrafted according to terms negotiatedbetween a specific insured (or group

of insureds) and an insurer

Term 189

self-contained policy

Definition 189

a single document that contains allthe agreements between the insurer

and the insured and that forms acomplete policy by itself


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Term 190

endorsement

Definition 190

a document that amends an insurancepolicy in some way

Term 191

modular policy

Definition 191

"consists of several differentdocuments, non of which by itself

forms a complete contract"

Term 192

cancellation

Definition 192

"refers to the termination of a policy,by either the insurer or the insured,

during the policy period"


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Term 193

pro rata refund

Definition 193

the unused premium (based on theportion of the premium for the number

of days remaining in the policy)returned to the insured when a policy

is canceled

Term 194

short rate refund

Definition 194

"sometimes used when the insuredcancels midterm, this is a return of

premium less than the pro rata refundwould be"

Term 195

liberalization clause

Definition 195

"a policy condition that provides thatif a policy form is broadened at notadditional premium, the broadened

coverage automatically applies to allexisting policies of the same type"


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Term 196

assignment

Definition 196

the transfer of rights or interest in apolicy to another party by the insured

Term 197

money

Definition 197

"currency, coins and bank notes; canalso include traveler's checks, creditcard slips and money orders held for

sale in some cases"

Term 198

securities

Definition 198

"written instruments representingeither money or other property (i.e.,

stocks and bonds)"


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Term 199

auto (automobile)

Definition 199

"a broad term that includes cars,trucks, buses and other motorized

vehicles designed for use on publicroads"

Term 200

mobile equipment

Definition 200

includes many types of land vehicles-- usually designed for use principally

off public roads -- includingequipment attached to them (this is

specifically defined in mostcommercial insurance policies)

Term 201

recreational vehicles

Definition 201

vehicles used for sports andrecreational activities


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Term 202

cause of loss (peril)

Definition 202

the actual means by which property isdamaged or destroyed

Term 203

named perils

Definition 203

listed and described in the policy;represent the only covered causes of

loss

Term 204

open perils (special form coverage)(all-risks)

Definition 204

provides coverage for 'risk of directloss' to property; any direct loss to

property is covered unless the causeof loss is specifically excluded in the

policy


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Term 205

mortgagee (mortgage holder)

Definition 205

"a lender that loans money on a home,building or other real property"

Term 206

mortgagor

Definition 206

the person or organization thatborrows money from a mortgagee tofinance the purchase of real property

Term 207

bailee

Definition 207

a person or business that holds theproperty of others for some specific

purpose


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Term 208

property insurance

Definition 208

"any type of insurance thatindemnifies an insured who suffers afinancial loss because property has

been lost, stolen, damaged ordestroyed"

Term 209

floater

Definition 209

policies that are designed to coverproperty that moves from location to

location

Term 210

friendly fire

Definition 210

"a fire that stays in its intended place(i.e., a fireplace)"


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Term 211

hostile fire

Definition 211

a fire that leaves its intended place

Term 212

proximate cause

Definition 212

the event that sets in motion anuninterrupted chain of events

contributing to the loss

Term 213

vehicle damage (peril)

Definition 213

damage done by a motor vehicle tosome other kind of property


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Term 214

vandalism

Definition 214

willful and malicious damage to ordestruction of property

Term 215

sprinkler leakage

Definition 215

the accidental leakage or discharge ofwater or other substance from an

automatic sprinkler system

Term 216

sinkhole collapse

Definition 216

a cause of loss involving damage bythe sudden sinking or collapse of land

into underground empty spacescreated by the action of water on

limestone or dolomite


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Term 217

mine subsidence

Definition 217

"a cause of loss involving the sinkingof ground surface when underground

open spaces, resulting from theextraction of coal or other minerals,are gradually filled in by rock and

earth from above"

Term 218

volcanic action

Definition 218

"a cause of loss by lava flow, ash,dust, particulate matter, airbornevolcanic blast, or airborne shockwaves resulting from a volcanic

eruption"

Term 219

burglary

Definition 219

the taking of property from inside abuilding by someone who unlawfully

enters or exits the building


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Term 220

robbery

Definition 220

the taking of property from a personby someone who has caused or

threatened to cause the person harm

Term 221

theft

Definition 221

a broad term that means any act ofstealing; theft includes burglary and

robbery

Term 222

collision

Definition 222

covers damage to an insured motorvehicle caused by its impact withanother vehicle or object or by its

upset or overturn


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Term 223

other than collision (comprehensive)

Definition 223

"covers losses to a covered auto byfire, theft, vandalism, falling objects,

flood and various other perils"

Term 224

specified causes of loss

Definition 224

"a less expensive alternative tocomprehensive coverage in

commercial auto policies; it is anamed perils coverage that covers

loss to a covered vehicle caused byfire, lightning, theft, windstorm, hail,

earthquake, flood, vandalism andother specifically listed perils"

Term 225

direct loss

Definition 225

a reduction in the value of propertythat results directly and often

immediately from damage to thatproperty


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Term 226

time element loss (indirect loss)

Definition 226

includes loss of income or extraexpenses resulting from direct loss to

property

Term 227

extra expenses

Definition 227

expenses that reduce the length of abusiness interruption or enable a

business to continue some operationswhen the property has been damaged

by a covered cause of loss

Term 228

additional living expense

Definition 228

a coverage in homeowners policiesthat indemnifies the insured for the

additional expenses that are incurredfollowing a covered property loss sothat the household can maintain itsnormal standard of living while the

dwelling is uninhabitable


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Term 229

named insured

Definition 229

the policyholder whose name(s)appear on the declarations page of an

insurance policy

Term 230

first named insured

Definition 230

"the person or organization whosename appears first as the named

insured on a commercial insurancepolicy and who, depending on the

policy conditions, might be the oneresponsible for paying premiums andthe one who has the right to receiveany return premiums, to cancel thepolicy, and to receive the notice of

cancellation or nonrenewal"

Term 231

mortgage clause (mortgage holdersclause)

Definition 231

"protects the insurable interest of themortgagee by giving it certain rights,

such as the right to be named onclaim drafts for losses to insured

property and the right to be notified ofpolicy cancellation"


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Term 232

loss payee

Definition 232

"a lender, named on an insurancepolicy, who has loaned money onpersonal property, such as a car"

Term 233

loss payable clause

Definition 233

"provides that a loss will be paid toboth the insured and the loss payee

as their interests appear and gives theloss payee certain rights; however, not

as many rights are extended to thelender as the mortgage clause

extends"

Term 234

deductible

Definition 234

a portion of a covered loss that is notpaid by the insurer; it is subtractedfrom the amount the insurer wouldotherwise be obligated to pay the

insured


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Term 235

insurance-to-value provisions

Definition 235

"provisions in property insurancepolicies that encourage insureds to

purchase an amount of insurance thatis equal to, or close to, the value of

the covered property"

Term 236

coinsurance

Definition 236

"an insurance-to-value provision inmany property insurance policies; if

the property is underinsured, thisprovision reduces the amount than an

insurer will pay for a covered loss"

Term 237

legal liability

Definition 237

means that a person or organization islegally responsible for injury or

damage suffered by another person ororganization


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Term 238

constitutional law

Definition 238

consists of the Constitution itself andall the decisions of the Supreme Court

that involve the Constitution

Term 239

statutory law

Definition 239

"consists of the formal laws, orstatutes, enacted by federal, state, or

local legislative bodies"

Term 240

common law (case law)

Definition 240

consists of a body of principles andrules established over time by courts

on a case-by-case basis


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Term 241

criminal law

Definition 241

the category of law that applies towrongful acts that society deems so

harmful to the public welfare thatgovernment takes the responsibilityfor prosecuting and punishing the

wrongdoers

Term 242

civil law

Definition 242

the category of law that deals with therights and responsibilities of citizens

with respect to one another; applies tolegal matters not governed by criminal

law

Term 243

contract law

Definition 243

the branch of civil law that deals withcontracts and settles contract

disputes


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Term 244

tort

Definition 244

"a wrongful act, other than a crime orbreach of contract, committed by one

party against another"

Term 245

tort law

Definition 245

the branch of civil law that deals withcivil wrongs other than breaches of

contract

Term 246

negligence

Definition 246

failure to act in a manner that isreasonably prudent; occurs when a

person or organization fails toexercise the appropriate degree ofcare under given circumstances


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Term 247

tortfeasor

Definition 247

"a person, a business, or anotherparty who has committed a tort"

Term 248

vicarious liability

Definition 248

legal responsibility that occurs whenone party is held liable for the actions

of another party

Term 249

intentional tort

Definition 249

a deliberate act (other than a breach ofcontract) that causes harm to another

person


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Term 250

assault

Definition 250

the intentional threat of bodily harm

Term 251

battery

Definition 251

the unlawful physical contact withanother person

Term 252

libel

Definition 252

a written or printed untrue statementthat damages a person's reputation


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Term 253

slander

Definition 253

an oral untrue statement that damagesa person's reputation

Term 254

false arrest

Definition 254

an unlawful physical restraint ofanother's freedom

Term 255

invasion of privacy

Definition 255

an encroachment on another person'sright to be left alone


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Term 256

absolute liability (strict liability)

Definition 256

"a legal liability that arises frominherently dangerous activities or

dangerously defective products thatresult in injury or harm to another,regardless of how much care was

used in the activity; does not requireproof of negligence"

Term 257

hold harmless agreement

Definition 257

a contractual provision that obligatesone party to assume the legal liability

of another party

Term 258

warranty

Definition 258

"a promise, either written or implied,such as a promise by a seller to a

buyer that a product is fit for aparticular purpose"


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Term 259

statutory liability

Definition 259

legal liability imposed by a specificstatute or law

Term 260

compensatory damages

Definition 260

damages intended to compensate avictim for harm actually suffered;include special (specific out-of-pocket) and general (losses w/o

specific economic value) damages

Term 261

liability insurance

Definition 261

covers losses resulting from bodilyinjury to others or damage to theproperty of others for which the

insured is legally liable and to whichthe coverage applies


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Term 262

bodily injury

Definition 262

"any physical injury to a person,including sickness, disease and

death"

Term 263

property damage

Definition 263

"physical injury to, destruction of, orloss of use of tangible property"

Term 264

personal injury (as used in insurancepolicies)

Definition 264

"injury, other than bodily injury,arising from intentional torts such aslibel, slander, or invasion of privacy"


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Term 265

litigation expenses

Definition 265

"the expenses incurred for legaldefense, such as attorneys' fees,

expert witness fees, and the cost oflegal research"

Term 266

supplementary payments

Definition 266

"amounts the insurer agrees to pay (inaddition to the liability limits) foritems such as premiums on bail

bonds and appeal bonds, loss of theinsured's earnings because ofattendance at trials, and other

reasonable expenses incurred by theinsured at the insurer's request"

Term 267

prejudgment interest

Definition 267

interest that might accrue on damagesbefore a judgment has been rendered


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Term 268

postjudgment interest

Definition 268

interest that might accrue on damagesafter a judgment has been entered in a

court and before the money is paid

Term 269

medical payments coverage

Definition 269

"pays necessary medical expensesincurred within a specified period by aclaimant (and in certain policies, by an

insured) for a covered injury,regardless of whether the insured was

at fault"

Term 270

occurrence basis coverage

Definition 270

"covers liability claims that occurduring the policy period, regardless of

when the claim is submitted to theinsurer"


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Term 271

claims-made coverage

Definition 271

covers liability claims that are made(submitted) during the policy periodfor covered events that occur on orafter the retroactive date and before

the end of the policy period

Term 272

retroactive date

Definition 272

the date on or after which injury ordamage must occur in order to be

covered under a claims-made policy

Term 273

each person limit

Definition 273

the maximum amount an insurer willpay for injury to any one person for a

covered loss


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Term 274

each occurrence limit

Definition 274

"the maximum amount an insurer willpay for all covered losses from a

single occurrence, regardless of thenumber of persons injured or the

number of parties claiming propertydamage"

Term 275

aggregate limit

Definition 275

the maximum amount an insurer willpay for all covered losses during the

covered policy period

Term 276

split limits

Definition 276

separate limits that an insurer will payfor bodily injury and for property

damage


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Term 277

single limit

Definition 277

the maximum amount and insurer willpay fro the insured's liability for both

bodily injury and property damagethat arise from a single occurrence

Term 278

risk management

Definition 278

"the process of making andimplementing decisions to deal withloss exposures; involves identifyingloss exposures and then applyingvarious techniques to eliminate,control, finance or transfer those

exposures"

Term 279

loss exposure survey

Definition 279

a risk management tool in the form ofa checklist of questionnaire listing

potential loss exposures that ahousehold or an organization might

face


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Term 280

flowchart

Definition 280

a diagram that depicts the flow of aparticular operation or set of related

operations within an organization

Term 281

loss frequency

Definition 281

a term used to indicate how oftenlosses occur or are expected to occur;it is used to predict the likelihood of

similar losses in the future

Term 282

loss severity

Definition 282

refers to the dollar amount of damagethat results or might result from loss

exposures; used to predict how costlyfuture losses are likely to be


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Term 283

avoidance

Definition 283

a risk management technique thateliminates a loss exposure and

reduces the chance of loss to zero

Term 284

loss control

Definition 284

a risk management technique thatattempts to decrease the frequency or

severity of losses; includes lossprevention and loss reduction

Term 285

loss prevention

Definition 285

seeks to lower the frequency oflosses; to decrease the number of

losses


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Term 286

loss reduction

Definition 286

seeks to lower the severity of lossesthat do occur; to decrease the dollar

amount of losses

Term 287

retention

Definition 287

a risk management technique thatinvolves retaining all or part of a

particular loss exposure

Term 288

noninsurance transfer

Definition 288

a risk management technique in whichone party transfers the potential

financial consequences of a particularloss exposure to another party that is

not an insurance company


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