All Key Words - Ass 1 - 9

12/22/14
Printable Flash Cards
Term 1
Definition 1
Umbrella liability policy
A liability policy that provides excess

coverage above underlying policies
and may also provide coverage not
available in the underlying policies,
subject to a self-insured retention.
Term 2
Definition 2
Liability coverage
Coverage that protects the insured

from damages owed because of legal
liability to another party. For auto
policies, it protects insureds against
liability arising out of the ownership or
operation of automobiles.
Term 3
Definition 3
Term life insurance
Life insurance that provides coverage

for a specified period, such as ten or
twenty years, with no cash value.
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Term 4
Definition 4
Permanent life insurance
Coverage until death.
Term 5
Definition 5
Long-term care insurance
Insurance that pays for extended

medical care or custodial care received
in a nursing home, hospital, or home.
Term 6
Definition 6
Annuity
A type of life insurance policy or

contract that makes periodic payments to the recipient for a fixed period
or for life in exchange for a specified
premium.
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Term 7
Definition 7
Commercial Package Policy (CPP)
Policy that covers two or more lines of

business by combining ISOs
commercial lines coverage parts.
Term 8
Definition 8
Businessowners policy (BOP)
A package policy that combines most

of the property and liability coverages
needed by small and medium-sized
businesses.
Term 9
Definition 9
Commercial auto insurance
Insurance that covers a business or a

not-for-profit organization against loss
exposures arising out of the
ownership, maintenance, or use of
automobiles.
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Term 10
Definition 10
Auto physical damage coverage
Coverage for damage to or theft of a

covered auto that can include both
collision coverage and other than
collision (comprehensive) coverage.
Term 11
Definition 11
Commercial property insurance
Insurance that covers commercial

buildings and their contents against
various types of property loss.
Term 12
Definition 12
Ocean marine insurance
Insurance that covers vessels and

their cargoes, including various
vessel-related liability exposures.
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Term 13
Definition 13
Inland marine insurance
Insurance that covers many different

classes of property that typically
involve an element of transportation.
Term 14
Definition 14
Commercial crime insurance
Insurance that covers (1) money and

securities against numerous perils (not
limited to crime perils) and (2) property
other than money and securities
against crime perils, such as employee
theft, robbery, theft by outsiders, and
extortion.
Term 15
Definition 15
Commercial general liability (CGL)

insurance
Insurance that covers many of the

common liability loss exposures faced
by an organization, including its
premises, operations, and prod- ucts.
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Term 16
Definition 16
Professional liability insurance
Insurance that covers persons

engaged in various occupations
against liability resulting from their
rendering or failing to render
professional services.
Term 17
Definition 17
Workers compensation insurance
Insurance that provides coverage for

benefits an employer is obligated to
pay under workers compensation
laws.
Term 18
Definition 18
Private insurer
A nongovernment insurance provider.
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Term 19
Definition 19
Stock insurer
An insurer that is owned by its

stockholders and formed as a
corporation for the purpose of earning
a profit for the stockholders.
Term 20
Definition 20
Mutual insurer
An insurer that is owned by its

policyholders and formed as a
corporation for the purpose of
providing insurance to them.
Term 21
Definition 21
Reciprocal insurance exchange

(interinsurance exchange)
An insurer owned by its policyholders,

formed as an unincorporated
association for the purpose of
providing insurance coverage to its
members (called subscribers), and
managed by an attorney-in-fact.
Members agree to mutually insure
each other, and they share profits and
losses in the same proportion as the
amount of insurance purchased from
the exchange by that member.
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Term 22
Definition 22
Captive insurer, or captive
A subsidiary formed to insure the loss

exposures of its parent company and
the parents affiliates.
Term 23
Definition 23
Reinsurance
The transfer of insurance risk from one

insurer to another through a
contractual agreement under which
one insurer (the reinsurer) agrees, in
return for a reinsurance premium, to
indemnify another insurer (the primary
insurer) for some or all of the financial
consequences of certain loss
exposures covered by the primarys
insurance policies.
Term 24
Definition 24
Underwriting
The process of selecting insureds,

pricing coverage, determining
insurance policy terms and conditions,
and then monitoring the underwriting
decisions made.
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Term 25
Definition 25
Underwriter
An insurer employee who evaluates

applicants for insurance, selects those
that are acceptable to the insurer,
prices coverage, and determines
policy terms and conditions.
Term 26
Definition 26
Claim
A demand by a person or business

seeking to recover from an insurer for
a loss that may be covered by an
insurance policy.
Term 27
Definition 27
Risk control
A conscious act or decision not to act

that reduces the frequency and/ or
severity of losses or makes losses
more predictable.
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Term 28
Definition 28
Premium audit
Methodical examination of a
policyholders operations, records,
and books of account to determine the
actual exposure units and premium for
insurance coverages already provided.
Term 29
Definition 29
Solvency
The ability of an insurer to meet its

financial obligations as they become
due, even those resulting from insured
losses that may be claimed several
years in the future.
Term 30
Definition 30
Domestic insurer
An insurer doing business in the

jurisdiction in which it is incorporated.
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Term 31
Definition 31
Foreign insurer
An insurer licensed to operate in a

state but incorporated in another state.
Term 32
Definition 32
Alien insurer
An insurer domiciled in a country other

than the United States.
Term 33
Definition 33
Admitted insurer
An insurer to which a state insurance

department has granted a license to do
business within that state.
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Term 34
Definition 34
Nonadmitted insurer
An insurer not authorized by the state

insurance department to do business
within that state.
Term 35
Definition 35
Surplus lines laws
State laws that permit producers with a

surplus lines license to write business
for an acceptable nonadmitted
insurer when protection from admitted
insurers is not available.
Term 36
Definition 36
Mandatory rate law
State law under which insurance rates

are set by a state agency or rating
bureau and all licensed insurers are
required to use those rates.
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Term 37
Definition 37
Prior-approval law
An insurance rating law in which the

rates and supporting rules must be
filed with and approved by the state
insurance department before they can
be used.
Term 38
Definition 38
File-and-use law

insurer must file rates and supporting
rules with the state insurance
department prior to their use, but the
rates can then be used immediately
without specific approval.
Term 39
Definition 39
Use-and-file law

rates must be filed with the state
insurance department within a
specified period after they are put into
use.
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Term 40
Definition 40
Flex rating law
An insurance rating law under which

prior approval is required only if the
new rates exceed a certain percentage
above (and sometimes below) the
rates previously filed.
Term 41
Definition 41
Open competition (no-file law)
An insurance rating law that allows

insurers to develop and use rates
without having to file with or get
approval from the state insurance
department.
Term 42
Definition 42
Market conduct regulation
Regulation of the practices of insurers

in regard to four areas of operation:
sales practices, underwriting
practices, claim practices, and badfaith actions.
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Term 43
Definition 43
Unfair trade practices law
State law that specifies certain

prohibited business practices.
Term 44
Definition 44
Solvency surveillance
The process, conducted by state

insurance regulators, of verifying the
solvency of insurers and determining
whether their financial condition
enables them to meet their financial
obligations and to remain in business.
Term 45
Definition 45
National Association of Insurance

Commissioners (NAIC)
An association of insurance
commissioners from the fifty U.S.
states, the District of Columbia, and
the five U.S. territories and
possessions, whose purpose is to
coordinate insurance regulation
activities among the various state
insurance departments.
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Term 46
Definition 46
NAIC Annual Statement
The primary financial statement

prepared by insurers and required by
every state insurance department.
Term 47
Definition 47
Reserve
The amount the insurer estimates and

sets aside to pay on an existing claim
that has not been settled.
Term 48
Definition 48
Insurance Regulatory Information

System (IRIS)
An information and early-warning

system established and operated by
the NAIC to monitor the financial
soundness of insurers.
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Term 49
Definition 49
Guaranty fund
A state-established fund that provides

a system for the payment of some of
the unpaid claims of insolvent insurers
licensed in that state, generally funded
by assessments collected from all
insurers licensed in the state.
Term 50
Definition 50
Standard market
Collectively, insurers who voluntarily

offer insurance coverages at rates
designed for customers with average
or better-than-average loss exposures.
Term 51
Definition 51
Surplus lines insurance
Insurance obtained from nonadmitted

insurers when protection is not
available from admitted insurers.
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Term 52
Definition 52
Surplus lines insurer
A nonadmitted insurer that is eligible to

insure risks that have been exported
by a surplus lines licensee in
accordance with a surplus lines law.
Term 53
Definition 53
Loss adjustment expense (LAE)
The expense that an insurer incurs to

investigate, defend, and settle claims
according to the terms specified in the
insurance policy.
Term 54
Definition 54
Paid losses
Losses that have been paid to, or on

behalf of, insureds during a given
period.
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Term 55
Definition 55
Incurred losses
The losses that have occurred during

a specific period, no matter when
claims resulting from the losses are
paid.
Term 56
Definition 56
Incurred but not reported (IBNR)

losses
Losses that have occurred but have

not yet been reported to the insurer.
Term 57
Definition 57
Dividends
The portion of an organizations profits

that is paid to shareholders.
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Term 58
Definition 58
Assets
Types of property, both tangible and

intangible, owned by an entity.
Term 59
Definition 59
Admitted assets
Assets meeting minimum standards of

liquidity that an insurer is allowed to
report on its balance sheet in
accordance with statutory accounting
principles.
Term 60
Definition 60
Nonadmitted assets
Types of property, such as office

furniture and equipment, that
regulators do not allow insurers to
show as assets on financial
statements because these assets
cannot readily be converted to cash at
or near their market value.
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Term 61
Definition 61
Liabilities
Financial obligations, or debts, owed

by a company to another entity,
usually the policyholder in the case of
an insurer.
Term 62
Definition 62
Loss reserve
An estimate of the amount of money

the insurer expects to pay in the future
for losses that have already occurred
and been reported, but are not yet
settled.
Term 63
Definition 63
Unearned premium reserve
An insurer liability representing the

amount of premiums received from
policyholders that are not yet earned.
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Term 64
Definition 64
Policyholders surplus
Under statutory accounting principles

(SAP), an insurers total admitted
assets minus its total liabilities.
Term 65
Definition 65
Loss ratio
A ratio that measures losses and loss

adjustment expenses against earned
premiums and that reflects the
percentage of premiums being
consumed by losses.
Term 66
Definition 66
Expense ratio
An insurers incurred underwriting

expenses for a given period divided by
its written premiums for the same
period.
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Term 67
Definition 67
Combined ratio
A profitability ratio that indicates

whether an insurer has made an
underwriting loss or gain.
Term 68
Definition 68
Investment income ratio
Net investment income divided by

earned premiums for a given period.
Term 69
Definition 69
Producer
Any of several kinds of insurance

personnel who place insurance
business with insurers and who
represent either insurers or insureds,
or both.
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Term 70
Definition 70
Agent
In the agency relationship, the party

that is authorized by the principal to
act on the principals behalf.
Term 71
Definition 71
Agency
A legal, consensual relationship that

exists when one party, the agent, acts
on behalf of another party, the
principal.
Term 72
Definition 72
Principal
The party in an agency relationship

that authorizes the agent to act on that
partys behalf.
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Term 73
Definition 73
Actual authority
Authority (express or implied)

conferred by the principal on an agent
under an agency contract.
Term 74
Definition 74
Express authority
The authority that the principal

specifically grants to the agent.
Term 75
Definition 75
Implied authority
The authority implicitly conferred on

an agent by custom, usage, or a
principals conduct indicating intention
to confer such authority.
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Term 76
Definition 76
Binding authority
An insurance agents authority to

effect coverage on behalf of the
insurer.
Term 77
Definition 77
Apparent authority
A third partys reasonable belief that an

agent has authority to act on the
principals behalf.
Term 78
Definition 78
Independent agency
A business, operated for the benefit of

its owner (or owners) that sells
insurance, usually as a representative
of several unrelated insurers.
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Term 79
Definition 79
Broker
An independent producer who

represents insurance customers.
Term 80
Definition 80
Agency expiration list
The record of an insurance agencys

present policyholders and the dates
their policies expire.
Term 81
Definition 81
Independent agency network
A group of agencies that contractually

link to share services, resources, and
insurers to gain advantages normally
available only to large regional and
national brokers.
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Term 82
Definition 82
Managing general agent (MGA)
An authorized agent of the primary

insurer that manages all or part of the
primary insurers insurance activities,
usually in a specific geographic area.
Term 83
Definition 83
Exclusive agency marketing system
An insurance marketing system under

which agents contract to sell
insurance exclusively for one insurer
(or for an associated group of
insurers).
Term 84
Definition 84
Direct writer marketing system
An insurance marketing system that

uses sales agents (or sales
representatives) who are direct
employees of the insurer.
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Term 85
Definition 85
Mixed marketing system
An insurers use of more than one

marketing system or distribution
channel.
Term 86
Definition 86
Cold canvass
Contacting a prospect without an

appointment.
Term 87
Definition 87
Loss run
A report detailing an insureds history

of claims that have occurred over a
specific period, valued as of a specific
date.
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Term 88
Definition 88
Agency bill
A payment procedure in which a

producer sends premium bills to the
insured, collects the premium, and
sends the premium to the insurer, less
any applicable commission.
Term 89
Definition 89
Direct bill
A payment procedure in which the

insurer assumes all responsibility for
sending premium bills to the insured,
collecting the premium, and sending
any commission payable on the
premium collected to the producer.
Term 90
Definition 90
Commission
A percentage of the premium that the

insurer pays to the agency or producer
for new policies sold or existing
policies renewed.
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Term 91
Definition 91
Contingent commission agreement
A contract provision in which an

insurer agrees to make supple- mental
payments to producers based on
profitability alone or on a combination
of profitability, volume, and growth in
the agencys book of business placed
with that insurer.
Term 92
Definition 92
Book of business
A group of policies with a common

characteristic, such as territory or type
of coverage, or all policies written by a
particular insurer or agency.
Term 93
Definition 93
Adverse selection
In general, the tendency for people

with the greatest probability of loss to
be the ones most likely to purchase
insurance.
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Term 94
Definition 94
Capacity
The amount of business an insurer is

able to write, usually based on a
comparison of the insurers written
premiums to its policyholders surplus.
Term 95
Definition 95
Underwriting guidelines (underwriting

guide)
A written manual that communicates

an insurers underwriting policy and
that specifies the attributes of an
account that an insurer is willing to
insure.
Term 96
Definition 96
Underwriting authority
The scope of decisions that an

underwriter can make without
receiving approval from someone at a
higher level.
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Term 97
Definition 97
Line underwriter
Underwriter who is primarily

responsible for implementing the steps
in the underwriting process.
Term 98
Definition 98
Staff underwriter
Underwriter who is usually located in

the home office and who assists
underwriting management with making
and implementing underwriting policy.
Term 99
Definition 99
Underwriting policy (underwriting

philosophy)
A guide to individual and aggregate

policy selection that supports an
insurers mission statement.
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Term 100
Definition 100
Advisory organization
An independent organization that

works with and on behalf of insurers
that purchase or subscribe to its
services.
Term 101
Definition 101
Prospective loss costs
Loss data that are modified by loss

development, trending, and credibility
processes, but without considerations
for profit and expenses.
Term 102
Definition 102
Loss development
The increase or decrease of incurred

losses over time.
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Term 103
Definition 103
Trending
A statistical technique for analyzing

environmental changes and projecting
such changes into the future.
Term 104
Definition 104
Treaty reinsurance
A reinsurance agreement that covers

an entire class or portfolio of loss
exposures and provides that the
primary insurers individual loss
exposures that fall within the treaty are
automatically reinsured.
Term 105
Definition 105
Facultative reinsurance
Reinsurance of individual loss

exposures in which the primary
insurer chooses which loss exposures
to submit to the reinsurer, and the reinsurer can accept or reject any loss
exposures submitted.
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Term 106
Definition 106
Underwriting audit
A review of underwriting files to ensure

that individual underwriters are
adhering to underwriting guidelines.
Term 107
Definition 107
Expert systems, or knowledge-based

systems
Computer software programs that

supplement the underwriting decisionmaking process. These systems ask
for the information necessary to make
an underwriting decision, ensuring
that no information is overlooked.
Term 108
Definition 108
Hazard
A condition that increases the

frequency or severity of a loss.
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Term 109
Definition 109
Physical hazard
A tangible characteristic of property,

persons, or operations that tends to
increase the frequency or severity of
loss.
Term 110
Definition 110
Moral hazard
A condition that increases the

likelihood that a person will
intentionally cause or exaggerate a
loss.
Term 111
Definition 111
Morale hazard (attitudinal hazard)
A condition of carelessness or
indifference that increases the
frequency or severity of loss.
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Term 112
Definition 112
Legal hazard
A condition of the legal environment

that increases loss frequency or
severity.
Term 113
Definition 113
Information efficiency
The balance that underwriters must

maintain between the hazards
presented by the account and the
information needed to underwrite it.
Term 114
Definition 114
Predictive analytics
Statistical and analytical techniques

used to develop models that predict
future events or behaviors.
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Term 115
Definition 115
Predictive modeling
A process in which historical data

based on behaviors and events are
blended with multiple variables and
used to construct models of
anticipated future outcomes.
Term 116
Definition 116
Catastrophe model
A type of computer program that

estimates losses from future potential
catastrophic events.
Term 117
Definition 117
Counteroffer
A proposal an offeree makes to an

offeror that varies in some material
way from the original offer, resulting in
rejection of the original offer and
constituting a new offer.
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Term 118
Definition 118
Experience rating
A ratemaking technique that adjusts

the insureds premium for the
upcoming policy period based on the
insureds experience for the current
period.
Term 119
Definition 119
Schedule rating
A rating plan that awards debits and

credits based on specific categories,
such as the care and condition of the
premises or the training and selection
of employees, to modify the final
premium to reflect factors that the
class rate does not include.
Term 120
Definition 120
Retrospective rating
A ratemaking technique that adjusts

the insureds premium for the current
policy period based on the insureds
loss experience during the current
period; paid losses or incurred losses
may be used to determine loss
experience.
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Term 121
Definition 121
Mix of business
The distribution of individual policies

that compose the book of business of
a producer, territory, state, or region
among the various lines and
classifications.
Term 122
Definition 122
Binder
A temporary written or oral agreement

to provide insurance coverage until a
formal written policy is issued.
Term 123
Definition 123
Certificate of insurance
A brief description of insurance

coverage prepared by an insurer or its
agent commonly used by
policyholders to provide evidence of
insurance.
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Term 124
Definition 124
Rate
The price per exposure unit for

insurance coverage.
Term 125
Definition 125
Rate manual
A resource for classifying accounts

and developing premiums for given
types of insurance; includes
necessary rules, factors, and
guidelines to apply those rates.
Term 126
Definition 126
Exposure unit (unit of exposure)
The unit of measure (for example, area,

gross receipts, payroll) used to
determine an insurance policy
premium.
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Term 127
Definition 127
Ratemaking
The process insurers use to calculate

insurance rates, which are a premium
component.
Term 128
Definition 128
Actuary
A person who uses mathematical

methods to analyze loss data and
develop insurance rates.
Term 129
Definition 129
Insurance rating system
The price per exposure unit

determined by adjusting the
prospective loss costs for expenses,
profits, and contingencies.
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Term 130
Definition 130
Loss costs
The portion of the rate that covers

projected claim payments and loss
adjusting expenses.
Term 131
Definition 131
Insurance advisory organization
An independent corporation that

works with and on behalf of insurers
that purchase or subscribe to their
services, which include developing
prospective loss costs and standard
policy forms.
Term 132
Definition 132
Law of large numbers
A mathematical principle stating that

as the number of similar but
independent exposure units increases,
the relative accuracy of predictions
about future outcomes (losses) also
increases.
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Term 133
Definition 133
Contingencies
A provision in an insurance rate for

losses that could not be anticipated in
the loss data.
Term 134
Definition 134
Class rating
A rating approach that uses rates

reflecting the average probability of
loss for businesses within large
groups of similar risks; the
predominant method used for rating
commercial properties.
Term 135
Definition 135
Individual rate, or specific rate
A type of insurance rate that reflects

the unique characteristics of an
insured or the insureds property.
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Term 136
Definition 136
Judgment rating
Rating used by underwriters to rate

one-of-a-kind risks.
Term 137
Definition 137
Final rate
The price per exposure unit

determined by adjusting the
prospective loss costs for expenses,
profits, and contingencies.
Term 138
Definition 138
First-party claim
A demand by an insured person or

organization seeking to recover from
its insurer for a loss that its insurance
policy may cover.
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Term 139
Definition 139
Third-party claim
A demand against an insured by a

person or organization other than the
insured or the insurer, seeking to
recover damages that may be payable
by the insureds liability insurance.
Term 140
Definition 140
Claimant
A party that makes a claim and that can

be either a first-party claimant or a
third-party claimant.
Term 141
Definition 141
Claim representative
A person responsible for investigating,

evaluating, and settling claims.
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Term 142
Definition 142
Third-party administrator (TPA)
An organization that provides

administrative services associated
with risk financing and insurance.
Term 143
Definition 143
Independent adjuster
An independent claim representative

who handles claims for insurers for a
fee.
Term 144
Definition 144
Public adjuster
An outside organization or person

hired by an insured to represent the
insured in a claim in exchange for a
fee.
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Term 145
Definition 145
Nonwaiver agreement
A signed agreement indicating that

during the course of investigation,
neither the insurer nor the insured
waives rights under the policy.
Term 146
Definition 146
Reservation of rights letter
An insurers letter that specifies

coverage issues and informs the
insured that the insurer is handling a
claim with the understanding that the
insurer may later deny coverage
should the facts warrant it.
Term 147
Definition 147
Subrogation
The process by which an insurer can,

after it has paid a loss under the policy,
recover the amount paid from any
party (other than the insured) who
caused the loss or is otherwise legally
liable for the loss.
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Term 148
Definition 148
Mediation
An alternative dispute resolution (ADR)

method by which disputing parties use
a neutral outside party to examine the
issues and develop a mutually
agreeable settlement.
Term 149
Definition 149
Arbitration
An alternative dispute resolution (ADR)

method by which disputing parties use
a neutral outside party to examine the
issues and develop a settlement,
which can be final and binding.
Term 150
Definition 150
Appraisal
A method of resolving disputes

between insurers and insureds over
the amount owed on a covered loss.
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Term 151
Definition 151
Mini-trial
An alternative dispute resolution

method by which a case undergoes an
abbreviated version of a trial before a
panel or an adviser who poses
questions and offers opinions on the
outcome of a trial, based on the
evidence presented.
Term 152
Definition 152
Summary jury trial
An alternative dispute resolution

method by which disputing parties
participate in an abbreviated trial,
presenting the evidence of a few
witnesses to a panel of mock jurors
who decide the case.
Term 153
Definition 153
Insurable interest
An interest in the subject of an

insurance policy that is not unduly
remote and that would cause the
interested party to suffer financial loss
if an insured event occurred.
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Term 154
Definition 154
Actual cash value (ACV)
Cost to replace property with new

property of like kind and quality less
depreciation.
Term 155
Definition 155
Depreciation
The reduction in value caused by the

physical wear and tear or
technological or economic
obsolescence of property.
Term 156
Definition 156
Replacement cost
The cost to repair or replace property

using new materials of like kind and
quality with no deduction for
depreciation.
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Term 157
Definition 157
Agreed value method
A method of valuing property in which

the insurer and the insured agree, at
the time the policy is written, on the
maximum amount that will be paid in
the event of a total loss.
Term 158
Definition 158
Salvage rights
The insurers rights to recover and sell

or otherwise dispose of insured
property on which the insurer has paid
a total loss or a constructive total loss.
Term 159
Definition 159
Constructive total loss
A loss that occurs when the cost to

repair damaged property plus its
remaining salvage value equals or
exceeds the propertys pre-loss value.
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Term 160
Definition 160
Damages
Money claimed by, or a monetary

award to, a party who has suffered
bodily injury or property damage for
which another party is legally
responsible.
Term 161
Definition 161
Compensatory damages
A payment awarded by a court to

reimburse a victim for actual harm.
Term 162
Definition 162
Special damages
A form of compensatory damages that

awards a sum of money for specific,
identifiable expenses associated with
the injured persons loss, such as
medical expenses or lost wages.
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Term 163
Definition 163
General damages
A monetary award to compensate a

victim for losses, such as pain and
suffering, that do not involve specific
measurable expenses.
Term 164
Definition 164
Punitive damages (exemplary

damages)
A payment awarded by a court to

punish a defendant for a reckless,
malicious, or deceitful act to deter
similar conduct; the award need not
bear any relation to a partys actual
damages.
Term 165
Definition 165
Pure risk
A chance of loss or no loss, but no

chance of gain.
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Term 166
Definition 166
Speculative risk
A chance of loss, no loss, or gain.
Term 167
Definition 167
Avoidance
A risk control technique that involves

ceasing or never undertaking an
activity so that the possibility of a
future loss occurring from that activity
is eliminated.
Term 168
Definition 168
Retention
A risk financing technique by which

losses are retained by generating
funds within the organization to pay
for the losses.
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Term 169
Definition 169
Fixture
Any personal property affixed to real

property in such a way as to become
part of the real property.
Term 170
Definition 170
Money
Currency, coins, bank notes, and

sometimes travelers checks, credit
card slips, and money orders held for
sale to the public.
Term 171
Definition 171
Securities
Written instruments representing

either money or other property, such
as stocks and bonds.
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Term 172
Definition 172
Auto
As defined in commercial general

liability and auto forms, a land motor
vehicle, trailer, or semitrailer designed
for travel on public roads, including
attached machinery or equipment; or
any other land vehicle that is subject to
a compulsory or financial
responsibility law or other motor
vehicle insurance law in the state
where it is licensed or principally
garaged.
Term 173
Definition 173
Mobile equipment
Various types of vehicles designed for

use principally off public roads, such
as bulldozers and cranes.
Term 174
Definition 174
Recreational vehicle
A vehicle used for sports and

recreational activities, such as a dune
buggy, all-terrain vehicle, or dirt bike.
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Term 175
Definition 175
Peril
The cause of a loss.
Term 176
Definition 176
Mortgagee
A lender in a mortgage arrangement,

such as a bank or another financing
institution.
Term 177
Definition 177
Mortgagor
The person or organization that

borrows money from a mortgagee to
finance the purchase of real property.
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Term 178
Definition 178
Bailee
The party temporarily possessing the

personal property in a bailment.
Term 179
Definition 179
Legal liability
The legally enforceable obligation of a

person or an organization to pay a
sum of money (called damages) to
another person or organization.
Term 180
Definition 180
Constitutional law
The Constitution itself and all the

decisions of the Supreme Court that
involve the Constitution.
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Term 181
Definition 181
Statute
A written law passed by a legislative

body, at either the federal or state level.
Term 182
Definition 182
Statutory law
The formal laws, or statutes, enacted

by federal, state, or local legislative
bodies.
Term 183
Definition 183
Common law (case law)
Laws that develop out of court

decisions in particular cases and
establish precedents for future cases.
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Term 184
Definition 184
Criminal law
The branch of the law that imposes

penalties for wrongs against society.
Term 185
Definition 185
Civil law
A classification of law that applies to

legal matters not governed by criminal
law and that protects rights and
provides remedies for breaches of
duties owed to others.
Term 186
Definition 186
Tort
A wrongful act or an omission, other

than a crime or a breach of contract,
that invades a legally protected right.
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Term 187
Definition 187
Tort law
The branch of civil law that deals with

civil wrongs other than breaches of
contract.
Term 188
Definition 188
Negligence
The failure to exercise the degree of

care that a reasonable person in a
similar situation would exercise to
avoid harming others.
Term 189
Definition 189
Proximate cause
A cause that, in a natural and

continuous sequence unbroken by
any new and independent cause,
produces an event and without which
the event would not have happened.
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Term 190
Definition 190
Tortfeasor
A person or organization that has

committed a tort.
Term 191
Definition 191
Vicarious liability
A legal responsibility that occurs when

one party is held liable for the actions
of a subordinate or associate because
of the relationship between the two
parties.
Term 192
Definition 192
Intentional tort
A tort committed by a person who

foresees (or should be able to foresee) that his or her act will harm
another person.
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Term 193
Definition 193
Assault
The threat of force against another

person that creates a well-founded fear
of imminent harmful or offensive
contact.
Term 194
Definition 194
Battery
Intentional harmful or offensive

physical contact with another person
without legal justification.
Term 195
Definition 195
Defamation
A false written or oral statement that

harms anothers reputation.
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Term 196
Definition 196
Slander
A defamatory statement expressed by

speech.
Term 197
Definition 197
Libel
A defamatory statement expressed in a

writing.
Term 198
Definition 198
False arrest
The seizure or forcible restraint of a

person without legal authority.
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Term 199
Definition 199
Invasion of privacy
An encroachment on another persons

right to be left alone.
Term 200
Definition 200
Strict liability (absolute liability)
Liability imposed by a court or by a

statute in the absence of fault when
harm results from activities or
conditions that are extremely
dangerous, unnatural, ultrahazardous,
extraordinary, abnormal, or
inappropriate.
Term 201
Definition 201
Hold-harmless agreement (or

indemnity agreement)
A contractual provision that obligates

one of the parties to assume the legal
liability of another party.
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Term 202
Definition 202
Warranty
A written or oral statement in a

contract that certain facts are true.
Term 203
Definition 203
Statutory liability
Legal liability imposed by a specific

statute or law.
Term 204
Definition 204
Personnel loss exposure
A condition that presents the

possibility of loss caused by a
persons death, disability, retirement,
or resignation that deprives an
organization of the persons special
skill or knowledge that the
organization cannot readily replace.
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Term 205
Definition 205
Key employee
An employee whose loss to a firm

through death or disability before
retirement would have economic
effects on the company.
Term 206
Definition 206
Disability
The inability (because of impairment)

of a person to meet his or her
personal, social, or occupational
demands; other activities of daily
living; or statutory or other legal
requirements.
Term 207
Definition 207
Valid contract
A contract that meets all of the

requirements to be enforceable.
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Term 208
Definition 208
Consideration
Something of value or bargained for

and exchanged by the parties to a
contract.
Term 209
Definition 209
Principle of indemnity
The principle that insurance policies

should provide a benefit no greater
than the loss suffered by an insured.
Term 210
Definition 210
Valued policy
A policy in which the insurer pays a

stated amount in the event of a
specified loss (usually a total loss),
regardless of the actual value of the
loss.
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Term 211
Definition 211
Concealment
An intentional failure to disclose a

material fact.
Term 212
Definition 212
Misrepresentation
A false statement of a material fact on

which a party relies.
Term 213
Definition 213
Material fact
In insurance, a fact that would affect

the insurers decision to provide or
maintain insurance or to settle a claim.
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Term 214
Definition 214
Conditional contract
A contract that one or more parties

must perform only under certain
conditions.
Term 215
Definition 215
Preprinted form
An insurance form that meets the

needs of many policyholders and is
therefore printed in bulk for future use.
Term 216
Definition 216
Manuscript form
An insurance form that is drafted

according to terms negotiated
between a specific insured (or group
of insureds) and an insurer.
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Term 217
Definition 217
Coverage part
A component of a CPP or a monoline

policy that contains the policy
provisions relating to a particular line
of business, such as commercial
property or commercial general
liability; consists of the coverage
parts declarations page, one or more
coverage forms, applicable
endorsements, and in some cases a
general provisions form.
Term 218
Definition 218
Declarations page (declarations, or

dec.)
An insurance policy information page

or pages providing specific details
about the insured and the subject of
the insurance.
Term 219
Definition 219
Endorsement
A document that amends an insurance

policy.
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Term 220
Definition 220
Policy provisions
Any phrase or clause in an insurance

policy that describes the policys
coverages, exclusions, limits,
conditions, or other features.
Term 221
Definition 221
Scheduled coverage
Insurance for property specifically

listed (scheduled) on a policy, with a
limit of liability for each item.
Term 222
Definition 222
Insuring agreement
A statement in an insurance policy that

the insurer will, under described
circumstances, make a loss payment
or provide a service.
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Term 223
Definition 223
Condition
Any provision in an insurance policy

that qualifies an otherwise enforceable
promise of the insurer.
Term 224
Definition 224
Exclusion
A policy provision that eliminates

coverage for specified exposures.
Term 225
Definition 225
Floater
A policy designed to cover property

that floats, or moves, from location to
location.
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Term 226
Definition 226
Named peril
A specific cause of loss listed and

described in an insurance policy. Also
used to describe policies containing
named perils.
Term 227
Definition 227
Special form, or open perils policy
A policy that provides coverage for

any direct loss to property unless the
loss is caused by a peril specifically
excluded.
Term 228
Definition 228
Collision coverage
Coverage for direct and accidental

loss or damage to a covered auto
caused by collision with another
object or by overturn.
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Term 229
Definition 229
Other than collision (OTC) coverage
Coverage for physical damage to a

covered auto resulting from any cause
of loss except collision or a cause of
loss specifically excluded.
Term 230
Definition 230
Specified causes of loss coverage
Coverage for direct and accidental

loss caused by fire, lightning,
explosion, theft, windstorm, hail,
earthquake, flood, mischief, vandalism,
or loss resulting from the sinking,
burning, collision, or derailment of a
conveyance transporting the covered
auto.
Term 231
Definition 231
Direct loss
A reduction in the value of property

that results directly and often
immediately from damage to that
property.
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Term 232
Definition 232
Time element loss (indirect loss)
A loss that arises as a result of damage

to property, other than the direct loss
to the property.
Term 233
Definition 233
Net income
The difference between revenues

(such as money received for goods or
services) and expenses (such as
money paid for merchandise, rent, and
insurance).
Term 234
Definition 234
Extra expenses
Expenses, in addition to ordinary

expenses, that an organization incurs
to mitigate the effects of a business
interruption.
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Term 235
Definition 235
Additional living expense
A coverage in homeowners policies

that indemnifies the insured for the
additional expenses that are incurred
following a covered property loss so
that the household can maintain its
normal standard of living while the
dwelling is being restored.
Term 236
Definition 236
Named insured
A person, corporation, partnership, or

other entity identified as an insured
party in an insurance policys
declarations page.
Term 237
Definition 237
Loss payee
A party entitled to share in whatever

loss payment an insured receives.
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Term 238
Definition 238
Deductible
A portion of a covered loss that is not

paid by the insurer.
Term 239
Definition 239
Insurance-to-value provision
A provision in property insurance

policies that encourages insureds to
purchase an amount of insurance that
is equal to, or close to, the value of the
covered property.
Term 240
Definition 240
Coinsurance
An insurance-to-value provision in
many property insurance policies
providing that if the property is
underinsured, the amount that an
insurer will pay for a covered loss is
reduced.
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Term 241
Definition 241
Bodily injury
Physical injury to a person, including

sickness, disease, and death.
Term 242
Definition 242
Property damage
Physical injury to, destruction of, or

loss of use of tangible property.
Term 243
Definition 243
Personal injury
Injury, other than bodily injury, arising

from intentional torts such as libel,
slander, or invasion of privacy.
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Term 244
Definition 244
Release
A legally binding contract between the

parties to a dispute that embodies their
agreement, obligates each to fulfill the
agreement, and releases both parties
from further obligation to one another
that relates to the dispute.
Term 245
Definition 245
Supplementary payments
Various expenses the insurer agrees

to pay under a liability insurance policy
(in addition to the liability limits) for
items such as premiums on bail bonds
and appeal bonds, loss of the
insureds earnings because of
attendance at trials, and other
reasonable expenses incurred by the
insured at the insurers request.
Term 246
Definition 246
Prejudgment interest
Interest that may accrue on damages

before a judgment has been rendered.
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Term 247
Definition 247
Postjudgment interest
Interest that may accrue on damages

after a judgment has been entered in a
court and before the money is paid.
Term 248
Definition 248
Medical payments coverage
Coverage that pays necessary medical

expenses incurred within a specified
period by a claimant (and in certain
policies, by an insured) for a covered
injury, regardless of whether the
insured was at fault.
Term 249
Definition 249
Occurrence basis coverage
Coverage that is triggered by the

actual happening of bodily injury or
property damage during the policy
period.
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Term 250
Definition 250
Claims-made coverage form
A coverage form that provides

coverage for bodily injury or property
damage that is claimed during the
policy period.
Term 251
Definition 251
Retroactive date
The date on or after which bodily injury

or property damage must occur (or a
personal and advertising injury
offense must be committed) in order to
be covered.
Term 252
Definition 252
Each person limit
The maximum amount an insurer will

pay for injury to any one person for a
covered loss.
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Term 253
Definition 253
Each occurrence limit

pay for all covered losses from a single
occurrence, regardless of the number
of persons injured or the number of
parties claiming property damage.
Term 254
Definition 254
Aggregate limit

pay for all covered losses during the
covered policy period.
Term 255
Definition 255
Split limits
Separate limits for bodily injury and

property damage liability coverage.
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Term 256
Definition 256
Single limit
A single limit of liability for the

combined total of bodily injury and
property damage from any one
accident or occurrence.
86/86

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12/22/14

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Umbrella liability policy

A liability policy that provides excess

Coverage that protects the insured

Term life insurance

Life insurance that provides coverage

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Permanent life insurance

Coverage until death.

Long-term care insurance

Insurance that pays for extended

A type of life insurance policy or

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Commercial Package Policy (CPP)

Policy that covers two or more lines of

Businessowners policy (BOP)

A package policy that combines most

Commercial auto insurance

Insurance that covers a business or a

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Auto physical damage coverage

Coverage for damage to or theft of a

Commercial property insurance

Insurance that covers commercial

Ocean marine insurance

Insurance that covers vessels and

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Inland marine insurance

Insurance that covers many different

Commercial crime insurance

Insurance that covers (1) money and

Commercial general liability (CGL)

Insurance that covers many of the

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Professional liability insurance

Insurance that covers persons

Workers compensation insurance

Insurance that provides coverage for

A nongovernment insurance provider.

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An insurer that is owned by its

An insurer that is owned by its

Reciprocal insurance exchange

An insurer owned by its policyholders,

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Captive insurer, or captive

A subsidiary formed to insure the loss

The transfer of insurance risk from one

The process of selecting insureds,

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An insurer employee who evaluates

A demand by a person or business

A conscious act or decision not to act

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The ability of an insurer to meet its

An insurer doing business in the

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An insurer licensed to operate in a

An insurer domiciled in a country other

An insurer to which a state insurance

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An insurer not authorized by the state

Surplus lines laws