Glossary

Prepared Insurance Company Terms

Almost everyone needs insurance, but not everyone fully understands it. To help keep you Prepared for the complexities of home insurance, here are some helpful definitions for commonly used terms. If you have any questions, don’t hesitate to ask your agent.

Act of God – An accident or event resulting from natural causes, without human intervention or agency, and one that could not have been prevented by reasonable foresight or care—for example, flood, lightning, tornado, earthquake, or a storm.

Actual Cash Value – In property damage insurance, one of several possible methods of establishing the value of insured property to determine the amount the insurer will pay in the event of a loss. ACV is the cost to replace damaged property with materials of like kind and quality with a deduction for depreciation. The rate of depreciation will vary by item and age.

Additional Living Expense – ALE coverage reimburses the insured for the cost of maintaining a comparable standard of living following a covered loss that exceeds the insured’s normal expenses prior to the loss. For example, ALE insurance would cover an insured’s hotel bill while fire damage to the home is being repaired or replaced or until the insured moves to a permanent residence.

Adjuster – The person who investigates and settles insurance claims. This involves investigating the loss and determining the extent of coverage.

Admitted Insurer – Sometimes referred to the "licensed insurer." An insurer authorized by the state insurance department to sell insurance within the state.

Agent/Agency – Sells, solicits, or negotiates insurance for compensation and represents or acts on the behalf of another party.

All Other Peril Deductible (AOP) – A set amount owed by a policyholder for any peril covered under the policy except for damage caused by a Hurricane.

A.M. Best Rating – One of several financial rating organizations that evaluates life, property, and casualty insurers domiciled in the United States and U.S. branches of foreign property insurer groups active in the United States. The ratings are often used to determine the claims-paying ability, suitability, service record, and financial stability of insurance companies. ambest.com

BCEGS Class – The Building Code Effectiveness Grading Schedule (BCEGS®) assesses the building codes in effect in a particular community and how the community enforces its building codes, with special emphasis on mitigation of losses from natural hazards.

Binder – A legal agreement issued by either an agent or an insurer to provide temporary evidence of insurance until a policy can be issued. Binders should contain definite time limits, should be in writing, and should clearly designate the insurer with which the risk is bound. They should also indicate the amount of insurance, the type of policy, and (in the case of property insurance) the perils insured against.

Bodily Injury – As defined in many liability policies, any physical injury to a person, including sickness, disease, and death.

Broad Form Coverage – Coverage for causes of loss due to falling objects (trees or other objects that may fall onto a structure), sudden and accidental water damage (sudden leaks, may for example, damage carpets, floors, or ceilings).

Cancellation – Termination of an insurance policy.

Catastrophic Loss – Losses incurred as a result of a hurricane, earthquake, fire, or other major storm.

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.

CLUE Report (Comprehensive Loss Underwriting Exchange) – CLUE is a claims-information report generated by LexisNexis®, a consumer-reporting agency. The report includes reported losses for the policyholder and/or the risk as well as the loss amount, date of loss and prior carrier information.

Conditions of Coverage – These conditions explain the insured’s responsibility in the event of a claim

Coverage A – Coverage for the dwelling

Coverage C – Personal property coverage, also referred to as contents

Coverage D – Coverage for additional living expenses for temporary housing in the event you are displaced from your home by a covered loss

Coverage E – Coverage for liability claims

Coverage F – Coverage for medical expenses of non-household members injured on your premises

Damages – Money awarded to a party who has suffered bodily injury or property damage for which another party is legally responsible.

Declarations Page – The front page (or pages) of a policy that specifies the named insured, address, policy period, location of premises, policy limits, and other key information that varies from insured to insured. The declarations page is also known as the information page. Often informally referred to as the “dec” or “dec page.”

Deductible – A portion of a covered loss that is subtracted from the amount the insurer would otherwise be obligated to pay the insured.

Demotech Rating – One of several financial rating organizations that evaluates life, property, and casualty insurers domiciled in the United States and U.S. branches of foreign property insurer groups active in the United States. The ratings are often used to determine the claims-paying ability, suitability, service record, and financial stability of insurance companies. demotech.com

Depreciation – The allowance for physical wear and tear or technological or economic obsolescence.

Endorsement – An amendment or addition to an existing insurance contract which changes the terms or scope of the original policy. Examples of endorsements could be name changes, coverage amount changes, deductible amount changes or the addition or deletion of policy credits.

Excess and Surplus Lines (E&S) – Insurance coverages unavailable in the standard market that are written by nonadmitted insurers.

Exclusions of Coverage – These explain specific items and scenarios not covered in the policy

Exposure – Any condition or situation that presents the possibility of a loss.

Field Claim Representative – An insurer employee who handles claims that cannot be handled easily by phone, mail, or e-mail.

Floater – A policy designed to cover property that floats, or moves, from location to location.

General Damages – Compensatory damages awarded for losses that do not have a specific economic value, such as pain and suffering.

Guaranty Fund – A state fund that provides a system to pay the claims of insolvent insurers, generally funded by assessments collected from all insurers licensed in the state.

Hazard – A condition that increases the frequency or severity of a loss.

Hurricane Deductible – Applies to a wind/hail claim caused by a named hurricane. The hurricane deductible is effective once a hurricane watch or warning is posted by the National Hurricane Center.

Incurred Losses – The sum of paid losses and changes in loss reserves for a particular period.

Indemnify – To restore a party who has sustained a loss to the same financial position that party held before the loss occurred.

Independent Agent – A producer who works for an independent agency who can be either owner or an employee of the agency. This agency usually represents several unrelated insurers.

Insurable Interest – A coverage verification criterion that exists when a person or other entity would suffer a financial loss if the subject property were damaged.

Insurance – A form of risk management primarily used to hedge against the risk of a contingent, uncertain loss.

Insurance Agent – A legal representative of one or more insurers for which the representative has a contractual agreement to sell insurance.

Insured – The individual whose property or liability is covered by an insurance policy.

Insurer – An insurance company.

Liability – Financial obligations, or debts, owed by a company to another entity, usually the policyholder in the case of an insurer.

Liability Coverage – The personal liability portion of your homeowners insurance policy covers you against lawsuits for injury or property damage that you or your family members cause to other people. Common types of liability claims are pets/dog bites, slip, fall or trips by guests as well as contractors/workers that are injured on your property. It is important that any contractor you hire to perform work on your property (landscaping included) are properly licensed and insured. The liability coverage in your standard homeowners policy pays both for the cost of defending you and for any damages a court rules you must pay.

Licensed Insurer – An insurer authorized by the state insurance department to sell insurance within that state.

Limit of Liability – The maximum amount for which an insurance company may be held liable, as established in the contract.

Limited Coverage – This states special coverage limit items such as a loss of jewelry resulting from theft, may have a limit of coverage

Loss of Use – Reimbursable living expenses if unable to reside in home

Loss Assessment – Coverage for assessments made against insured resulting from loss of commonly owned property

Managing General Agency (MGA) – An independent business or organization that appoints and supervises independent agents for insurers that use the independent agency system.

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.

Named Insurer – The policyholder whose name(s) appears on the declarations page of an insurance policy.

Non-Admitted Insurer – Insurers that are not licensed in many of the states in which they operate and that write E&S insurance coverages.

Occurrence Basis Coverage – Coverage for liability claims that occur during the policy period, regardless of when the claim is submitted to the insurer.

Ordinance or Law Coverage – Coverage for loss caused by enforcement of ordinances or laws regulating construction and repair of damaged buildings. This coverage covers the increased costs of bringing a home to building code after a loss. It also covers the cost of demolition if required, and to rebuild portions of your home that were not damaged. Building code departments may not issue a permit to repair the covered damage until all areas not to code are addressed properly. Standard homeowners policies include a provision granting a limited amount of building ordinance coverage; this amount can be increased by endorsement. Also referred to as building ordinance coverage.

Peril – The actual means by which property is damaged or destroyed.

Policy – A complete written contract of insurance.

Personal Liability Insurance – Insurance that provides liability coverage to individuals and families for bodily injury and property damage arising from the insured’s personal premises or activities.

Premium – The price of the insurance coverage provided for a specified period

Rate – The amount per exposure unit for insurance coverage, used to arrive at a premium when multiplied by the number of exposure units.

Reinsurance – Insurance purchased by an insurance company from one or more other insurance companies (the “reinsurer”) directly or through a broker as a means of risk management. The reinsurer would pay a share of the claims incurred for event coverage.

Replacement Cost – The cost to replace damaged property with materials of like kind and quality, without any deduction for depreciation. The damaged property will be replaced at today’s cost.

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.

Special Form – A policy that provides coverage for any direct loss to property unless the loss is caused by a peril specifically excluded.

Special Provisions – These state additional limits, conditions and exclusions that may apply to a policy.

Subrogation – The insurer’s right, assumed from the insured, to recover payment from a third party that is legally responsible for the loss.

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.

Underwriting – The process of selecting insureds, pricing coverage, determining insurance policy terms and conditions, and then monitoring the underwriting decisions made.

Windstorm Mitigation – A home inspection that checks for construction features that are shown to reduce loss from heavy winds during hurricanes.

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