Printable Flash Cards

7/20/14
Printable Flash Cards
Term 1
Definition 1
insured
"a person, a business, or an

organization whose property, life, or
legal liability is covered by an
insurance policy"
Term 2
Definition 2
insurer
an insurance company
Term 3
Definition 3
covered loss
the events for which insurance pays
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Term 4
Definition 4
loss exposure (exposure)
any condition or situation that

presents the possibility of a loss
Term 5
Definition 5
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) based
on these exposure units also
increases"
Term 6
Definition 6
exposure unit
"a measure of loss potential and used

in pricing insurance, i.e., in
homeowners insurance, each home
insured is an exposure unit"
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Term 7
Definition 7
property loss exposure

presents the possibility that a property
loss will happen
Term 8
Definition 8
real property
consists of land as well as buildings

and other structures attached to the
land or embedded in it
Term 9
Definition 9
personal property
consists of all tangible or intangible

property that is not real property
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Term 10
Definition 10
net income
income (or revenue) minus expenses

during a given period
Term 11
Definition 11
liability loss exposure

presents the possibility that a liability
loss will happen
Term 12
Definition 12
liability loss
a claim for monetary damages

because of injury to another party of
damage to another party's property
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Term 13
Definition 13
human loss exposure (personal loss

exposure)
"any condition or situation that

presents the possibility of a financial
loss to an individual or a family by
such causes as death, sickness,
injury, or unemployment"
Term 14
Definition 14
personnel loss exposure
"the possibility of a financial loss to a

business because of the death,
disability, retirement, or resignation of
key employees"
Term 15
Definition 15
indemnify
to restore a party who has had a

covered loss to the same financial
position that party held before the loss
occurred
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Term 16
Definition 16
fire and allied lines insurance
covers direct damage to or loss of

insured property
Term 17
Definition 17
business income insurance
covers the loss of net income or

additional expenses incurred by a
business as the result of a covered
loss to its property
Term 18
Definition 18
crime insurance
"protects the insured against loss to

covered property from various causes
of loss such as burglary, robbery,
theft, and employee dishonesty"
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Term 19
Definition 19
ocean marine insurance
includes hull insurance (which covers

ships) and cargo insurance (which
covers the goods transported by
ships)
Term 20
Definition 20
inland marine insurance
"covers miscellaneous types of

property, such as movable property,
goods in domestic transit, and
property used in transportation and
communication"
Term 21
Definition 21
auto physical damage insurance
covers loss of or damage to specified

vehicles owned by the insured and
sometimes covers vehicles borrowed
or rented by the insured
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Term 22
Definition 22
auto liability insurance
covers an insured's liability for bodily

injury to others and damage to the
property of others resulting from
automobile accidents
Term 23
Definition 23
"covers businesses for their liability

for bodily injury and property damage;
it can also include liability coverage for
commercial general liability insurance
various other offenses that might give
rise to claims, such as libel, slander,
false arrest, and advertising injury"
Term 24
Definition 24
personal liability insurance
provides liability coverage to

individuals and families for bodily
injury and property damage arising
from the insured's personal premises
or activities
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Term 25
Definition 25
professional liability insurance
"protects physicians, accountants,

architects, engineers, attorneys,
insurance agents and brokers, and
other professionals against liability
arising out of their professional acts or
omissions"
Term 26
Definition 26
whole life insurance
provides life-time protection (to age

100); policies accrue cash value and
have premiums that remain
unchanged during the insured's
lifetime
Term 27
Definition 27
cash value (of life insurance)
"a savings fund that accumulates in a

whole life insurance policy and that the
policyholder can access in several
ways, including borrowing,
purchasing paid-up life insurance, and
surrendering the policy in exchange
for the cash value"
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Term 28
Definition 28
term insurance
a type of life insurance that provides

temporary protection (for a certain
period) with no cash value
Term 29
Definition 29
universal life insurance
"combines life insurance protection

with savings; the policy is a flexiblepremium policy that separates the
protection, savings, and expense
components"
Term 30
Definition 30
medical insurance
"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
Definition 31
disability income insurance
a type of health insurance that

provides periodic income payments to
an insured who is unable to work
because of sickness or injury
Term 32
Definition 32
stock insurance company
an insurer that is owned by its

stockholders and formed as a
corporation for the purpose of earning
a profit for these stockholders
Term 33
Definition 33
mutual insurance company
an insurer that is owned by its

policyholders and formed as a
corporation for the purpose of
providing insurance to its
policyholder-owners
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Term 34
Definition 34
demutualization
"the process by which a mutual

insurer, which is owned by its
policyholders, becomes a stock
company, which is then owned by its
stockholders"
Term 35
Definition 35
reciprocal insurance exchange

(interinsurance exchange)
an unincorporated association formed

to provide insurance coverage to its
members; one of the distinguishing
features of a reciprocal is that the
subscribers empower an attorney-infact to manage it
Term 36
Definition 36
subscriber
"also known as members, these are

the policyholders of a reciprocal
insurance exchange who agree to
insure each other"
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Term 37
Definition 37
attorney-in-fact
the contractually authorized manager

of a reciprocal insurance exchange
who administers its affairs and carries
out its insurance transactions
Term 38
Definition 38
captive (insurance company)
"an insurer that is formed as a

subsidiary of its parent company,
organization, or group, for the purpose
of writing all or part of the insurance
on the parent company or companies"
Term 39
Definition 39
reinsurance
a type of insurance in which one

insurer transfers some of all of the loss
exposures from policies written for its
insureds to another insurer
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Term 40
Definition 40
primary insurer
the insurance company that transfers

its loss exposures to another insurer
in a contractual reinsurance
arrangement
Term 41
Definition 41
reinsurer
the insurance company that accepts

the loss exposures of the primary
insurer
Term 42
Definition 42
monopolistic state fund
a state workers compensation

insurance plan that is the only source
of workers compensation insurance
allowed in that state
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Term 43
Definition 43
competitive state fund
a state workers compensation

insurance plan that competes with
private insurers to provide workers
compensation insurance
Term 44
Definition 44
residual market plan (shared market

plan)
a program that makes insurance

available to those who cannot obtain
coverage because private insurers will
not voluntarily provide such coverage
for various reasons
Term 45
Definition 45
guaranty fund
a state fund that provides a system to

pay the claims of insolvent insurers;
the money comes from assessments
collected from all insurers licensed in
the state
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Term 46
Definition 46
National Association of Insurance

Commissioners (NAIC)
"an association consisting of the

commissioners of the insurance
departments of each state, the District
of Columbia, and US territories and
possessions; it coordinates insurance
regulation activities among the various
insurance departments"
Term 47
Definition 47
model law
"a document drafted by the NAIC, in a

style similar to a state statute, that
reflects the NAIC's proposed solution
to a given problem and provides a
common basis to the states for
drafting laws that affect the insurance
industry"
Term 48
Definition 48
ratemaking
the process insurers used to calculate

the rates that determine the premium
for insurance coverage
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Term 49
Definition 49
rate
the price of insurance for each unit of

exposure; it's multiplied by the number
of exposure units to arrive at a
premium
Term 50
Definition 50
premium
a periodic payment by an insured to an

insurance company in exchange to
insurance coverage
Term 51
Definition 51
actuary
a person who uses complex

mathematical methods and technology
to analyze loss data and other
statistics and to develop systems for
determining insurance rates
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Term 52
Definition 52
actuarial equity
a ratemaking concept through which

actuaries base rates on actuarially
calculated loss experience and place
insureds with similar characteristics in
the same rating class
Term 53
Definition 53
social equity
a rating concept that considers rates

to be unfairly discriminatory if they
penalize an insured for characteristics
(such as age or gender) that are
beyond the insured's control
Term 54
Definition 54
unfair discrimination
involves applying different standards

or methods of treatment to insureds
who have the same basic
characteristics and loss potential
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Term 55
Definition 55
prior-approval law
rates must be approved by the state

insurance department before they can
be used
Term 56
Definition 56
flex rating law
prior approval is required only if the

new rates are a specified percentage
above or below previously filed rates
Term 57
Definition 57
file-and-use law
rates must be filed by do not have to

be approved before use
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Term 58
Definition 58
use-and-file law
rates must be filed within a specified

period after they are first used in the
state
Term 59
Definition 59
open competition
(also called no-file) rates do not have

to be filed with the state
Term 60
Definition 60
state-mandated rate
state-specified rates must be used by

all insurers of a particular type of
insurance in the state
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Term 61
Definition 61
solvency
"the ability of an insurance company

to meet its financial obligations as they
become due, even those resulting from
insured losses that might be claimed
several years in the future"
Term 62
Definition 62
solvency surveillance
"the process, conducted by state

insurance regulators, of verifying the
solvency of insurance companies and
determining whether the financial
condition of insurers enables them to
meet their obligations and to remain in
business in the long term"
Term 63
Definition 63
Insurance Regulatory Information

System (IRIS)
begun in the early 1970s as the Early

Warning System; it is an analytical
system designed by the NAIC to
monitor an insurer's overall financial
condition
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Term 64
Definition 64
licensed (admitted) insurer
is authorized by the state insurance

department to transact business within
that state
Term 65
Definition 65
domestic insurer
is incorporated in the same state in

which it is transacting business
Term 66
Definition 66
foreign insurer
licensed to operated in a state but is

incorporated in another state
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Term 67
Definition 67
alien insurer
is licensed in a US state but

incorporated in another country
Term 68
Definition 68
market conduct regulation
"consists of state laws that regulate

the practices of insurers in regard to
four areas of operation: sales and
advertising, underwriting, ratemaking,
and claim handling"
Term 69
Definition 69
standard market
refers collectively to insurers who

voluntarily offer insurance coverages
at rates designed for customers with
average or better-than-average loss
exposures
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Term 70
Definition 70
excess and surplus lines (E&S

insurance)
"consists of insurance coverages,

usually unavailable in the standard
market, that are written by unlicensed
insurers"
Term 71
Definition 71
nonadmitted (unlicensed) insurer
insurers that are not licensed in many

of the states in which they operate and
that write E&S insurance coverages
Term 72
Definition 72
written premium
premiums on policies put into effect

during a given period
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Term 73
Definition 73
earned premium
the portion of the written premium that

applies to the part of the policy period
that has already occurred
Term 74
Definition 74
unearned premium
the portion of the written premium that

applies to the part of the policy period
that has not yet occurred
Term 75
Definition 75
paid loss
claim payment that an insurer has

made
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Term 76
Definition 76
incurred loss
the sum of paid losses and changes in

loss reserves
Term 77
Definition 77
loss reserve
amounts designated by insurance

companies to pay claims for losses
that have already occurred but are not
yet settled; it is the insurer's best
estimate of the total amount that it will
pay in the future for a loss that has
already occurred
Term 78
Definition 78
net underwriting gain or loss
earned premiums minus losses and

underwriting expenses for a specific
period
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Term 79
Definition 79
overall gain or loss from operations
net underwriting gain or loss plus net

investment gain results (or minus
investment loss results)
Term 80
Definition 80
asset (in financial statements)
property (both tangible and intangible)

owned by an entity (the insurance
company)
Term 81
Definition 81
admitted asset
"types of property, such as cash and

stocks, that regulators allow insurers
to show as assets on their financial
statements; such assets are easily
convertible to cash at or near the
property's market value"
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Term 82
Definition 82
nonadmitted asset
"types of property, such as office

furniture and equipment, that
insurance 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"
Term 83
Definition 83
liabilities (in financial statements)
"financial obligations, or debts, owed

by a company to another entity,
usually the policyholder in the case of
an insurance company"
Term 84
Definition 84
unearned premium reserve
the total of an insurer's unearned

premiums on all policies at a particular
time
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Term 85
Definition 85
policyholders' surplus
equal to total admitted assets minus

total liabilities
Term 86
Definition 86
balance sheet
"a type of financial statement that

shows a company's financial position
at a particular point in time and
includes the company's admitted
assets, liabilities and policyholders'
surplus"
Term 87
Definition 87
income statement
"a type of financial statement that

shows a company's revenues,
expenses, and net income for a
particular period, usually one year"
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Term 88
Definition 88
loss ratio
calculated by dividing an insurer's

incurred losses (including loss
expenses) for a given period by its
earned premiums for the same period
Term 89
Definition 89
expense ratio
calculated by dividing an insurer's

incurred underwriting expenses for a
given period by its written premiums
for the same period
Term 90
Definition 90
combined ratio
the sum of the loss ratio and the

expense ratio
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Term 91
Definition 91
investment income ratio
calculated by dividing net investment

income by earning premiums for a
particular period
Term 92
Definition 92
overall operating ratio
calculated by subtracting the

investment income ratio from the
combined ratio
Term 93
Definition 93
capacity ratio or premium-to-surplus

ratio
calculated by dividing written

premiums by policyholders' surplus
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Term 94
Definition 94
marketing
"the process of identifying customers

and their needs and then creating,
pricing, promoting, selling, and
distributing products or services to
meet those needs"
Term 95
Definition 95
producer
any person who sells insurance

products for an insurance company or
companies
Term 96
Definition 96
agency
"a legal relationship that is formed

when one party, the principal,
authorizes another party, the agent, to
act as a legal representative of the
principal"
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Term 97
Definition 97
principal
the party that authorizes the agent to

act on its behalf in an agency
relationship
Term 98
Definition 98
agent
the party that is authorized by the

principal to act on the principal's
behalf in an agency relationship
Term 99
Definition 99
insurance agent
legal representatives of the insurance

company for which they have
contractual agreements to sell
insurance
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Term 100
Definition 100
agency contract (agency agreement)
"a written agreement between an

insurance company and an agent that
specifies, among other things, the
scope of the agent's authority to
conduct business for the insurer"
Term 101
Definition 101
errors and omissions (E&O)
negligent acts committed by a person

in the conduct of the insurance
business that give rise to legal liability
for damages; these claims can also
arise from a failure to act that creates
legal liability
Term 102
Definition 102
express authority
authority that the principal specifically

grants to the agent
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Term 103
Definition 103
binding authority
"usually granted in the agency

contract, this is the authority of an
insurance agent to effect coverage on
behalf of an particular insurer"
Term 104
Definition 104
binder
a temporary contract of insurance that

can be either written or oral
Term 105
Definition 105
implied authority
"authority that arises from actions of

the agent that are in accord with
accepted custom and are considered
to be within the scope of authority
granted by the principal, even though
such authority is not expressly
granted orally or in an agency
contract"
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Term 106
Definition 106
apparent authority
authority based on a third party's

reasonable belief that an agent has
authority to act on behalf of the
principal
Term 107
Definition 107
independent agency
"an independent firm that sells

insurance, usually as a representative
of several unrelated insurance
companies"
Term 108
Definition 108
independent agent
a producer who works for an

independent agency
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Term 109
Definition 109
agency expiration list
the record of an insurance agency's

present policyholders and the dates
their policies expire
Term 110
Definition 110
(insurance) broker
an independent business owner or

firm that sells insurance by
representing customers rather than
insurers
Term 111
Definition 111
managing general agency (MGA)
an independent business organization

that appoints and supervises
independent agents for insurance
companies that use the independent
agency system; it functions almost as
a branch office for one or more
insurance companies
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Term 112
Definition 112
exclusive agent
an agent that has a contract to sell

insurance exclusively for one
insurance company (or a group of
related companies)
Term 113
Definition 113
direct writing system
uses sales representatives who are

employees of an insurance company
Term 114
Definition 114
direct writer
uses the direct writing system to

market insurance
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Term 115
Definition 115
direct response system
"includes any insurance marketing

system that does not depend primarily
on individual producers to locate
customers and sell insurance but
relies primarily on mail, phone, and/or
internet sales"
Term 116
Definition 116
mixed marketing system
refers to the use by an insurer of more

than one marketing system
Term 117
Definition 117
(sales) 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 118
Definition 118
contingent commission
"a commission that an insurer pays,

usually annually, to an independent
agency and that is based on the
premium volume and profitability level
of the agency's business with that
insurer"
Term 119
Definition 119
marketing representative
"insurance company employees

whose role is to visit agents
representing the insurer, to develop
and maintain sound working
relationships with those agents, and to
motivate the agents to produce a
satisfactory volume of profitable
business for the insurer"
Term 120
Definition 120
production underwriter
insurance company employees who

work in an insurer's office in an
underwriting position but who also
travel to visit and maintain rapport with
agents and sometimes clients
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Term 121
Definition 121
unfair trade practices laws
state laws that specify certain

prohibited business practices
Term 122
Definition 122
rebating
"offering anything of value, other than

the insurance itself, to an applicant as
an inducement to buy or maintain
insurance"
Term 123
Definition 123
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 124
Definition 124
underwriter
"an insurance company employee

who evaluates applicants for
insurance, selects those that are
acceptable to the insurer, prices
coverage, and determines policy terms
an conditions"
Term 125
Definition 125
adverse selection
a situation that occurs because people

with the greatest probability of loss are
the ones most likely to purchase
insurance; it normally occurs if the
premium is low relative to the loss
exposure
Term 126
Definition 126
capacity
"refers to the amount of business an

insurer is able to write, usually based
on a comparison of the insurer's
written premiums to the size of its
policyholders' 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
Definition 127
commensurate with the exposure
a relationship between the premium

and the exposure where the size of the
premium is appropriate for the
exposure assumed by the insurer
Term 128
Definition 128
class rate or manual rate
"rates that apply to all insureds in the

same rating category, or rating class;
insureds with similar loss exposures
are grouped into rating classes"
Term 129
Definition 129
merit rating plan
rating plans that modify class rates to

reflect loss characteristics of a
particular insured
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Term 130
Definition 130
individual rate or specific rate
used to assign a specific insurance

rate that reflects the unique
characteristics of an insured or the
insured's property
Term 131
Definition 131
judgment rate
a type of individual rate used to

develop a premium for a unique
exposure for which there is no
established rate; the underwriter relies
heavily on his experience
Term 132
Definition 132
standard form
"insurance forms that contain

standardized policy wording; they are
developed by insurance advisory
organizations, although some insurers
develop their own"
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Term 133
Definition 133
book of business (portfolio)
"a group of policies with a common

characteristic, such as territory or type
of coverage; it can also refer to all
policies written by a particular insurer
or agency"
Term 134
Definition 134
treaty reinsurance
an arrangement whereby a reinsurer

agrees to reinsure automatically a
portion of all eligible insurance of the
primary insurer
Term 135
Definition 135
facultative reinsurance
involves a separate transaction for

each reinsured policy; each policy is
evaluated individually
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Term 136
Definition 136
underwriting authority
the limit on decisions that an

underwriter can make without
receiving approval from someone at a
higher level
Term 137
Definition 137
decentralized
"activities are moved away from a

central location; processes and
decision-making authority are moved
geographically closer to the insured,
usually to a field office"
Term 138
Definition 138
centralized
activities are in a central location;

many decisions are made in the home
office
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Term 139
Definition 139
underwriting audit
a process in which members of the

home office underwriting department
examine files to see whether
underwriters are following
underwriting guidelines
Term 140
Definition 140
expert system (knowledge based

system)
"computer software programs that

supplement the underwriting decisionmaking process; it asks for
information necessary to make an
underwriting decision, ensuring that
no necessary information is
overlooked"
Term 141
Definition 141
hazard
conditions that increase the chance of

a loss occurring
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Term 142
Definition 142
physical hazard
"tangible characteristics of property,

persons, or operations that tend to
increase the probably frequency or
severity of loss"
Term 143
Definition 143
moral hazard
dishonest tendencies in the character

of the insured (or applicant) that
increase the probability of a loss
occurring
Term 144
Definition 144
morale hazard (attitudinal hazard)
"involve carelessness about, or

indifference to, potential loss on the
part of an insured or applicant"
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Term 145
Definition 145
legal hazard
characteristic of the legal/regulatory

environment that affect an insurer's
ability to collect a premium
commensurate with the exposure to
loss
Term 146
Definition 146
claim
a demand by a person or business

seeking to recover from an insurance
company for a loss that might be
covered by an insurance policy
Term 147
Definition 147
claim representative (adjuster)
"a person responsible for

investigating, evaluating and settling
claims"
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Term 148
Definition 148
claimant
anyone who submits a claim to an

insurance company; can be a first
party or a third party
Term 149
Definition 149
reservation of rights letter
a notice sent by the insurer to an

insured advising that the insurer is
proceeding with investigation of a
claim but that the insurer retains the
right to deny coverage later
Term 150
Definition 150
staff claim representative
an insurance company employee who

performs some or all of the insurer's
claim handling activities
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Term 151
Definition 151
inside claim representative
"an insurance company employee

who handles claims that can be
settled, usually by telephone or letter,
from inside the insurer's office"
Term 152
Definition 152
outside claim representative (field

claim representative)
an insurance company employee who

handles claims that cannot be handled
easily by phone or mail
Term 153
Definition 153
independent adjuster
independent claim representatives

who offer claim handling services to
insurance companies for a fee
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Term 154
Definition 154
draft authority
authority expressly given to an agent

by an insurer to settle and pay certain
types of claims by writing a claim draft
up to a specified limit
Term 155
Definition 155
public adjuster
a person hired by an insured to

represent the insured in handling a
claim
Term 156
Definition 156
self-insurance plan
"an arrangement in which an

organization pays for its losses with its
own resources rather than purchasing
insurance, however, the organization
may choose to buy insurance for
losses exceeding a certain limit"
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Term 157
Definition 157
third-party administrator (TPA)
business firms that contract to provide

administrative services to other
businesses (often contracted by
business with self-insurance plans)
Term 158
Definition 158
insurable interest
exists if a person or other entity has

any right to or interest in the property
such that a loss to that property would
cause a direct monetary loss to that
person or entity
Term 159
Definition 159
actual cash value (ACV)
the replacement cost of property

minus depreciation
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Term 160
Definition 160
replacement cost
the cost to repair or replace property

using new materials of like kind and
quality with no deduction for
depreciation
Term 161
Definition 161
depreciation
an allowance for physical wear and

tear or technological or economic
obsolescence
Term 162
Definition 162
agreed value
"a method of valuing property in which

the insurer and the insured agree on
the value of the property at the time the
policy is written, and that amount is
stated in the policy declarations and is
the amount the insurer will pay in the
event of a total loss to the property"
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Term 163
Definition 163
subrogation
the insurer's right to recover payment

from a negligent third party
Term 164
Definition 164
salvage rights
the rights of the insurer 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 165
Definition 165
constructive total loss
exists when a vehicle (or other

property) cannot be repaired for less
than its actual cash value minus the
anticipated salvage value
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Term 166
Definition 166
damages
refer to a monetary award that one

party is required to pay to another who
has suffered loss or injury for which
the first party is legally responsible
Term 167
Definition 167
compensatory damages
"damages, which include both special

and general damages, that are
intended to compensate a victim for
harm actually suffered"
Term 168
Definition 168
special damages
"compensatory damages allowed for

specific, out-of-pocket expenses, such
as doctor and hospital bills"
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Term 169
Definition 169
general damages
"compensatory damages awarded for

losses, such as pain and suffering,
that do not have a specific economic
value"
Term 170
Definition 170
punitive damages
"damages awarded by a court to

punish wrong-doers who, through
malicious or outrageous actions,
cause injury or damage to others"
Term 171
Definition 171
unfair claim practices laws
state laws that specify claim practices

that are illegal
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Term 172
Definition 172
contract
a complete written contract of

insurance
Term 173
Definition 173
policy
a legally enforceable agreement

between two or more parties
Term 174
Definition 174
agreement
offer and acceptance
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Term 175
Definition 175
consideration
an exchange of something of value

that is required in any valid contract
Term 176
Definition 176
conditional contract
a contract in which one or more parties

must perform only under certain
conditions
Term 177
Definition 177
utmost good faith
an obligation to act in complete

honesty
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Term 178
Definition 178
concealment
an intentional failure to disclose a

material fact
Term 179
Definition 179
material fact
any information that would affect the

insurer's underwriting decision to
provide or maintain insurance or that
would affect a claim settlement
Term 180
Definition 180
misrepresentation
a false statement of a material fact
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Term 181
Definition 181
contract of adhesion
a contract in which one party (the

insured) must adhere to the agreement
as written by the other party (the
insurer)
Term 182
Definition 182
contract of indemnity
"the insurer agrees, in the event of a

covered loss, to pay an amount
directly related to the amount of the
loss"
Term 183
Definition 183
principle of indemnity
states that the insured should not be

better off financially after a loss than
before
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Term 184
Definition 184
valued policy
"a policy in which the insurer pays a

stated amount in the event of a
specified loss, regardless of the actual
value of the loss"
Term 185
Definition 185
an information page that provides

"declarations page (declarations, dec)" specific details about the insured and
the subject of the insurance
Term 186
Definition 186
insuring agreement
"a statement that the insurer will,

under certain circumstances, make a
payment or provide a service"
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Term 187
Definition 187
exclusion
policy provisions that eliminate

coverage for specified exposures
Term 188
Definition 188
manuscript policy
an insurance policy that is specifically

drafted according to terms negotiated
between a specific insured (or group
of insureds) and an insurer
Term 189
Definition 189
self-contained policy
a single document that contains all the

agreements between the insurer and
the insured and that forms a complete
policy by itself
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Term 190
Definition 190
endorsement
a document that amends an insurance

policy in some way
Term 191
Definition 191
modular policy
"consists of several different

documents, non of which by itself
forms a complete contract"
Term 192
Definition 192
cancellation
"refers to the termination of a policy,

by either the insurer or the insured,
during the policy period"
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Term 193
Definition 193
pro rata refund
the unused premium (based on the

portion of the premium for the number
of days remaining in the policy)
returned to the insured when a policy
is canceled
Term 194
Definition 194
short rate refund
"sometimes used when the insured

cancels midterm, this is a return of
premium less than the pro rata refund
would be"
Term 195
Definition 195
liberalization clause
"a policy condition that provides that if

a policy form is broadened at not
additional premium, the broadened
coverage automatically applies to all
existing policies of the same type"
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Term 196
Definition 196
assignment
the transfer of rights or interest in a

policy to another party by the insured
Term 197
Definition 197
money
"currency, coins and bank notes; can

also include traveler's checks, credit
card slips and money orders held for
sale in some cases"
Term 198
Definition 198
securities
"written instruments representing

either money or other property (i.e.,
stocks and bonds)"
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Term 199
Definition 199
auto (automobile)
"a broad term that includes cars,

trucks, buses and other motorized
vehicles designed for use on public
roads"
Term 200
Definition 200
mobile equipment
includes many types of land vehicles -usually designed for use principally off
public roads -- including equipment
attached to them (this is specifically
defined in most commercial insurance
policies)
Term 201
Definition 201
recreational vehicles
vehicles used for sports and

recreational activities
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Term 202
Definition 202
cause of loss (peril)
the actual means by which property is

damaged or destroyed
Term 203
Definition 203
named perils
listed and described in the policy;

represent the only covered causes of
loss
Term 204
Definition 204
open perils (special form coverage)

(all-risks)
provides coverage for 'risk of direct

loss' to property; any direct loss to
property is covered unless the cause
of loss is specifically excluded in the
policy
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Term 205
Definition 205
mortgagee (mortgage holder)
"a lender that loans money on a home,

building or other real property"
Term 206
Definition 206
mortgagor
the person or organization that

borrows money from a mortgagee to
finance the purchase of real property
Term 207
Definition 207
bailee
a person or business that holds the

property of others for some specific
purpose
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Term 208
Definition 208
property insurance
"any type of insurance that

indemnifies an insured who suffers a
financial loss because property has
been lost, stolen, damaged or
destroyed"
Term 209
Definition 209
floater
policies that are designed to cover

property that moves from location to
location
Term 210
Definition 210
friendly fire
"a fire that stays in its intended place

(i.e., a fireplace)"
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Term 211
Definition 211
hostile fire
a fire that leaves its intended place
Term 212
Definition 212
proximate cause
the event that sets in motion an

uninterrupted chain of events
contributing to the loss
Term 213
Definition 213
vehicle damage (peril)
damage done by a motor vehicle to

some other kind of property
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Term 214
Definition 214
vandalism
willful and malicious damage to or

destruction of property
Term 215
Definition 215
sprinkler leakage
the accidental leakage or discharge of

water or other substance from an
automatic sprinkler system
Term 216
Definition 216
sinkhole collapse
a cause of loss involving damage by

the sudden sinking or collapse of land
into underground empty spaces
created by the action of water on
limestone or dolomite
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Term 217
Definition 217
mine subsidence
"a cause of loss involving the sinking

of ground surface when underground
open spaces, resulting from the
extraction of coal or other minerals, are
gradually filled in by rock and earth
from above"
Term 218
Definition 218
volcanic action
"a cause of loss by lava flow, ash,

dust, particulate matter, airborne
volcanic blast, or airborne shock
waves resulting from a volcanic
eruption"
Term 219
Definition 219
burglary
the taking of property from inside a

building by someone who unlawfully
enters or exits the building
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Term 220
Definition 220
robbery
the taking of property from a person by

someone who has caused or
threatened to cause the person harm
Term 221
Definition 221
theft
a broad term that means any act of

stealing; theft includes burglary and
robbery
Term 222
Definition 222
collision
covers damage to an insured motor

vehicle caused by its impact with
another vehicle or object or by its
upset or overturn
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Term 223
Definition 223
other than collision (comprehensive)
"covers losses to a covered auto by

fire, theft, vandalism, falling objects,
flood and various other perils"
Term 224
Definition 224
specified causes of loss
"a less expensive alternative to

comprehensive coverage in
commercial auto policies; it is a named
perils coverage that covers loss to a
covered vehicle caused by fire,
lightning, theft, windstorm, hail,
earthquake, flood, vandalism and other
specifically listed perils"
Term 225
Definition 225
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 226
Definition 226
time element loss (indirect loss)
includes loss of income or extra

expenses resulting from direct loss to
property
Term 227
Definition 227
extra expenses
expenses that reduce the length of a

business interruption or enable a
business to continue some operations
when the property has been damaged
by a covered cause of loss
Term 228
Definition 228
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 uninhabitable
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Term 229
Definition 229
named insured
the policyholder whose name(s)

appear on the declarations page of an
insurance policy
Term 230
Definition 230
first named insured
"the person or organization whose

name appears first as the named
insured on a commercial insurance
policy and who, depending on the
policy conditions, might be the one
responsible for paying premiums and
the one who has the right to receive
any return premiums, to cancel the
policy, and to receive the notice of
cancellation or nonrenewal"
Term 231
Definition 231
mortgage clause (mortgage holders

clause)
"protects the insurable interest of the

mortgagee by giving it certain rights,
such as the right to be named on claim
drafts for losses to insured property
and the right to be notified of policy
cancellation"
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Term 232
Definition 232
loss payee
"a lender, named on an insurance

policy, who has loaned money on
personal property, such as a car"
Term 233
Definition 233
loss payable clause
"provides that a loss will be paid to

both the insured and the loss payee as
their interests appear and gives the
loss payee certain rights; however, not
as many rights are extended to the
lender as the mortgage clause
extends"
Term 234
Definition 234
deductible
a portion of a covered loss that is not

paid by the insurer; it is subtracted
from the amount the insurer would
otherwise be obligated to pay the
insured
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Term 235
Definition 235
insurance-to-value provisions
"provisions in property insurance

policies that encourage insureds to
purchase an amount of insurance that
is equal to, or close to, the value of the
covered property"
Term 236
Definition 236
coinsurance
"an insurance-to-value provision in

many property insurance policies; if
the property is underinsured, this
provision reduces the amount than an
insurer will pay for a covered loss"
Term 237
Definition 237
legal liability
means that a person or organization is

legally responsible for injury or
damage suffered by another person or
organization
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Term 238
Definition 238
constitutional law
consists of the Constitution itself and

all the decisions of the Supreme Court
that involve the Constitution
Term 239
Definition 239
statutory law
"consists of the formal laws, or

statutes, enacted by federal, state, or
local legislative bodies"
Term 240
Definition 240
common law (case law)
consists of a body of principles and

rules established over time by courts
on a case-by-case basis
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Term 241
Definition 241
criminal law
the category of law that applies to

wrongful acts that society deems so
harmful to the public welfare that
government takes the responsibility
for prosecuting and punishing the
wrongdoers
Term 242
Definition 242
civil law
the category of law that deals with the

rights and responsibilities of citizens
with respect to one another; applies to
legal matters not governed by criminal
law
Term 243
Definition 243
contract law
the branch of civil law that deals with

contracts and settles contract disputes
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Term 244
Definition 244
tort
"a wrongful act, other than a crime or

breach of contract, committed by one
party against another"
Term 245
Definition 245
tort law
the branch of civil law that deals with

civil wrongs other than breaches of
contract
Term 246
Definition 246
negligence
failure to act in a manner that is

reasonably prudent; occurs when a
person or organization fails to exercise
the appropriate degree of care under
given circumstances
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Term 247
Definition 247
tortfeasor
"a person, a business, or another party

who has committed a tort"
Term 248
Definition 248
vicarious liability
legal responsibility that occurs when

one party is held liable for the actions
of another party
Term 249
Definition 249
intentional tort
a deliberate act (other than a breach of

contract) that causes harm to another
person
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Term 250
Definition 250
assault
the intentional threat of bodily harm
Term 251
Definition 251
battery
the unlawful physical contact with

another person
Term 252
Definition 252
libel
a written or printed untrue statement

that damages a person's reputation
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Term 253
Definition 253
slander
an oral untrue statement that damages

a person's reputation
Term 254
Definition 254
false arrest
an unlawful physical restraint of

another's freedom
Term 255
Definition 255
invasion of privacy
an encroachment on another person's

right to be left alone
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Term 256
Definition 256
absolute liability (strict liability)
"a legal liability that arises from

inherently dangerous activities or
dangerously defective products that
result in injury or harm to another,
regardless of how much care was
used in the activity; does not require
proof of negligence"
Term 257
Definition 257
hold harmless agreement
a contractual provision that obligates

one party to assume the legal liability
of another party
Term 258
Definition 258
warranty
"a promise, either written or implied,

such as a promise by a seller to a
buyer that a product is fit for a
particular purpose"
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Term 259
Definition 259
statutory liability
legal liability imposed by a specific

statute or law
Term 260
Definition 260
compensatory damages
damages intended to compensate a

victim for harm actually suffered;
include special (specific out-of-pocket)
and general (losses w/o specific
economic value) damages
Term 261
Definition 261
liability insurance
covers losses resulting from bodily

injury to others or damage to the
property of others for which the
insured is legally liable and to which
the coverage applies
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Term 262
Definition 262
bodily injury
"any physical injury to a person,

including sickness, disease and
death"
Term 263
Definition 263
property damage
"physical injury to, destruction of, or

loss of use of tangible property"
Term 264
Definition 264
personal injury (as used in insurance

policies)
"injury, other than bodily injury, arising

from intentional torts such as libel,
slander, or invasion of privacy"
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Term 265
Definition 265
litigation expenses
"the expenses incurred for legal

defense, such as attorneys' fees,
expert witness fees, and the cost of
legal research"
Term 266
Definition 266
supplementary payments
"amounts the insurer agrees to pay (in

addition to the liability limits) for items
such as premiums on bail bonds and
appeal bonds, loss of the insured's
earnings because of attendance at
trials, and other reasonable expenses
incurred by the insured at the insurer's
request"
Term 267
Definition 267
prejudgment interest
interest that might accrue on damages

before a judgment has been rendered
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Term 268
Definition 268
postjudgment interest
interest that might accrue on damages

after a judgment has been entered in a
court and before the money is paid
Term 269
Definition 269
medical payments coverage
"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 270
Definition 270
occurrence basis coverage
"covers liability claims that occur

during the policy period, regardless of
when the claim is submitted to the
insurer"
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Term 271
Definition 271
claims-made coverage
covers liability claims that are made

(submitted) during the policy period for
covered events that occur on or after
the retroactive date and before the end
of the policy period
Term 272
Definition 272
retroactive date
the date on or after which injury or

damage must occur in order to be
covered under a claims-made policy
Term 273
Definition 273
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 274
Definition 274
each occurrence limit
"the maximum amount an insurer will

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 275
Definition 275
aggregate limit
the maximum amount an insurer will

pay for all covered losses during the
covered policy period
Term 276
Definition 276
split limits
separate limits that an insurer will pay

for bodily injury and for property
damage
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Term 277
Definition 277
single limit
the maximum amount and insurer will

pay fro the insured's liability for both
bodily injury and property damage that
arise from a single occurrence
Term 278
Definition 278
risk management
"the process of making and

implementing decisions to deal with
loss exposures; involves identifying
loss exposures and then applying
various techniques to eliminate,
control, finance or transfer those
exposures"
Term 279
Definition 279
loss exposure survey
a risk management tool in the form of a

checklist of questionnaire listing
potential loss exposures that a
household or an organization might
face
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Term 280
Definition 280
flowchart
a diagram that depicts the flow of a

particular operation or set of related
operations within an organization
Term 281
Definition 281
loss frequency
a term used to indicate how often

losses occur or are expected to occur;
it is used to predict the likelihood of
similar losses in the future
Term 282
Definition 282
loss severity
refers to the dollar amount of damage

that results or might result from loss
exposures; used to predict how costly
future losses are likely to be
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Term 283
Definition 283
avoidance
a risk management technique that

eliminates a loss exposure and
reduces the chance of loss to zero
Term 284
Definition 284
loss control

attempts to decrease the frequency or
severity of losses; includes loss
prevention and loss reduction
Term 285
Definition 285
loss prevention
seeks to lower the frequency of

losses; to decrease the number of
losses
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Term 286
Definition 286
loss reduction
seeks to lower the severity of losses

that do occur; to decrease the dollar
amount of losses
Term 287
Definition 287
retention

involves retaining all or part of a
particular loss exposure
Term 288
Definition 288
noninsurance transfer
a risk management technique in which

one party transfers the potential
financial consequences of a particular
loss exposure to another party that is
not an insurance company
96/96

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7/20/14