Insurance Glossary

Your comprehensive guide to insurance terminology. Explore over 100 industry terms with clear definitions and practical usage examples.

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A

Terms Starting with A

Actuary

Professionals

Definition:

A professional who analyzes the financial costs of risk and uncertainty using mathematics, statistics, and financial theory.

Usage Context:

The insurance company's actuary calculated premium rates based on historical claim data and risk factors.

Adjuster

Professionals

Definition:

A person who investigates insurance claims and determines the amount of loss payable under an insurance policy.

Usage Context:

After the flood, the adjuster visited the property to assess the damage and determine the claim amount.

Adverse Selection

Risk Management

Definition:

The tendency of higher-risk individuals to seek insurance coverage more actively than lower-risk individuals.

Usage Context:

The insurer implemented stricter underwriting guidelines to mitigate adverse selection in their health insurance portfolio.

Aggregate Limit

Coverage

Definition:

The maximum amount an insurer will pay for all covered losses during a specified period, typically a policy year.

Usage Context:

The liability policy has an aggregate limit of $2 million, meaning the insurer won't pay more than this amount for all claims combined during the policy period.

All-Risk Policy

Policy Types

Definition:

An insurance policy that covers all perils except those specifically excluded in the policy.

Usage Context:

The homeowner purchased an all-risk policy that covers any damage to their property except for those perils explicitly excluded, such as floods and earthquakes.

Annuity

Financial Products

Definition:

A financial product that provides regular payments to the policyholder for a specified period or for life.

Usage Context:

After retirement, she used her savings to purchase an annuity that provides monthly income for the rest of her life.

Appraisal

Underwriting

Definition:

An evaluation of property or assets to determine their current value for insurance purposes.

Usage Context:

Before insuring her antique jewelry collection, the owner had to get an appraisal to establish its current market value.

Attachment Point

Coverage

Definition:

The dollar amount of loss where excess insurance coverage begins to apply after underlying insurance is exhausted.

Usage Context:

The excess liability policy has an attachment point of $1 million, meaning it only responds to losses exceeding this threshold.

B

Terms Starting with B

Beneficiary

Policy Components

Definition:

The person or entity designated to receive the proceeds or benefits from an insurance policy.

Usage Context:

John named his wife as the primary beneficiary of his life insurance policy, ensuring she would receive the death benefit if he passed away.

Binder

Policy Components

Definition:

A temporary insurance contract that provides coverage until the formal policy is issued.

Usage Context:

After applying for homeowners insurance, the agent provided a binder that offered immediate coverage until the official policy documents were processed.

Broker

Professionals

Definition:

An insurance professional who represents the insured and shops among multiple insurers to find the best coverage and rates.

Usage Context:

The company hired an insurance broker to help them find the most comprehensive coverage at competitive rates across various insurance carriers.

Bordereau

Reinsurance

Definition:

A detailed report provided by an insurer to a reinsurer listing the risks, premiums, and claims covered by a reinsurance agreement.

Usage Context:

Each quarter, the insurer submitted a bordereau to their reinsurer detailing all policies ceded under the treaty, including premium amounts and any claims activity.

Burning Cost

Reinsurance

Definition:

A method of calculating reinsurance premiums based on the historical loss experience of the ceding insurer.

Usage Context:

The reinsurer calculated the burning cost by dividing the ceding company's total losses over the past five years by the total exposure during that period, then adding a margin for expenses and profit.

C

Terms Starting with C

Captive Insurance

Insurance Structures

Definition:

A subsidiary company formed to provide insurance to its parent company and affiliates.

Usage Context:

The multinational corporation established a captive insurance company in Bermuda to self-insure its global operations while gaining tax advantages.

Casualty Insurance

Insurance Types

Definition:

Insurance that covers legal liability for losses caused by injury to persons or damage to property.

Usage Context:

The business purchased casualty insurance to protect against lawsuits arising from customer injuries on their premises.

Catastrophe Modeling

Risk Assessment

Definition:

Computer-based risk assessment tools that estimate potential losses from natural disasters and other catastrophic events.

Usage Context:

The reinsurer used catastrophe modeling to assess their potential exposure to hurricane losses along the Gulf Coast.

Cede

Reinsurance

Definition:

To transfer all or part of the risk associated with an insurance policy to another insurer or reinsurer.

Usage Context:

The primary insurer decided to cede 40% of the risk to a reinsurer to reduce their exposure to potential large claims.

Claim

Claims

Definition:

A formal request by a policyholder to an insurance company for coverage or compensation for a covered loss or policy event.

Usage Context:

After the car accident, the policyholder filed a claim with their insurance company to cover the repair costs.

Coinsurance

Policy Components

Definition:

A provision that requires the policyholder to share a percentage of covered losses with the insurer.

Usage Context:

Under her health insurance plan with 20% coinsurance, Sarah paid $200 of her $1,000 medical bill while the insurer covered the remaining $800.

Combined Ratio

Financial Metrics

Definition:

A measure of profitability used by insurance companies, calculated by adding the loss ratio and expense ratio.

Usage Context:

The insurer reported a combined ratio of 95%, indicating that they paid out $95 in claims and expenses for every $100 collected in premiums, resulting in an underwriting profit.

Commercial Lines

Insurance Types

Definition:

Insurance products designed for businesses rather than individuals.

Usage Context:

The insurance agency specializes in commercial lines, offering property, liability, and workers' compensation coverage to small and medium-sized businesses.

Commutation

Contracts

Definition:

An agreement between an insurer and policyholder to release each other from further obligations by making a final settlement payment.

Usage Context:

The reinsurer and ceding company agreed to a commutation, settling all outstanding and future claims with a one-time payment of $5 million.

Conditional Receipt

Policy Components

Definition:

A receipt given to an applicant who pays the first premium when applying for insurance, providing temporary coverage subject to conditions.

Usage Context:

When John applied for life insurance and paid his first premium, the agent gave him a conditional receipt that provided coverage while his application was being processed, subject to his meeting underwriting requirements.

Contingent Commission

Business Operations

Definition:

Additional compensation paid to insurance agents or brokers based on the profitability or volume of business placed with an insurer.

Usage Context:

The agency received a contingent commission of $50,000 because the business they placed with the insurer had a loss ratio below 60% for the year.

Coverage Trigger

Policy Components

Definition:

The event or condition that must occur for a policy to respond and provide coverage.

Usage Context:

In occurrence-based liability policies, the coverage trigger is the date when the injury or damage occurred, not when the claim was made.

Captive Agent

Professionals

Definition:

An insurance agent who represents only one insurance company and is typically an employee of that company.

Usage Context:

As a captive agent for State Farm, John could only offer insurance products from that company to his clients.

D

Terms Starting with D

Deductible

Policy Components

Definition:

The amount the policyholder must pay out-of-pocket before insurance coverage begins to pay.

Usage Context:

With a $500 deductible on his auto insurance policy, Mark had to pay the first $500 of repair costs after his accident before the insurance company covered the rest.

Directors and Officers (D&O) Liability

Insurance Types

Definition:

Insurance that protects directors and officers of a company against claims resulting from their decisions and actions in their capacity as company officials.

Usage Context:

After the company's stock price dropped significantly, shareholders sued the board of directors, but the D&O liability insurance covered the legal defense costs and settlement.

Declarations Page

Policy Components

Definition:

The part of an insurance policy that identifies the named insured, policy period, coverages, limits, and premiums.

Usage Context:

Sarah reviewed her declarations page to confirm her coverage limits and deductibles before filing a claim for the storm damage.

E

Terms Starting with E

Earned Premium

Financial Metrics

Definition:

The portion of an insurance premium that has been used to provide coverage during a specific period.

Usage Context:

Six months into the one-year policy, the insurer had earned 50% of the premium, or $600 of the $1,200 annual premium.

Endorsement

Policy Components

Definition:

A written amendment attached to an insurance policy that modifies the coverage, terms, or conditions.

Usage Context:

The homeowner added an endorsement to their policy to provide additional coverage for their valuable art collection.

Errors and Omissions (E&O) Insurance

Insurance Types

Definition:

Professional liability insurance that protects against claims of inadequate work or negligent actions.

Usage Context:

The accounting firm purchased E&O insurance to protect against potential lawsuits claiming mistakes in their financial advice or tax preparation services.

Exclusion

Policy Components

Definition:

A provision in an insurance policy that eliminates coverage for certain risks, perils, property, or locations.

Usage Context:

The homeowner's policy contained an exclusion for flood damage, which is why they purchased a separate flood insurance policy.

Experience Rating

Underwriting

Definition:

A method of determining insurance premiums based on the insured's past loss experience.

Usage Context:

Due to their excellent safety record and few claims over the past three years, the manufacturing company received a favorable experience rating that reduced their workers' compensation premiums.

Exposure

Risk Management

Definition:

The possibility of loss to which an insurer is subject from the perils covered under the terms of an insurance policy.

Usage Context:

The insurer limited its exposure to hurricane losses by not writing policies in coastal areas prone to severe storms.

F

Terms Starting with F

Facultative Reinsurance

Reinsurance

Definition:

Reinsurance arranged for a specific risk or policy, where both the ceding insurer and reinsurer have the option to accept or decline the arrangement.

Usage Context:

For the high-value commercial building in the earthquake zone, the primary insurer arranged facultative reinsurance to share the risk with three different reinsurers.

Fidelity Bond

Insurance Types

Definition:

Insurance that protects against losses caused by dishonest acts of employees, such as theft or embezzlement.

Usage Context:

After discovering that their accountant had embezzled company funds, the business filed a claim under their fidelity bond to recover the stolen money.

Fiduciary Liability Insurance

Insurance Types

Definition:

Coverage that protects individuals acting as fiduciaries from claims of mismanagement of employee benefit plans.

Usage Context:

The pension plan trustees purchased fiduciary liability insurance to protect themselves from potential lawsuits alleging improper investment decisions.

First-Party Coverage

Coverage

Definition:

Insurance that covers the policyholder's own losses or damages.

Usage Context:

When Sarah's house was damaged in a fire, she filed a claim under her homeowner's policy's first-party coverage to pay for repairs.

Floater

Policy Types

Definition:

An insurance policy or endorsement that covers personal property that may be moved from location to location.

Usage Context:

The photographer added a floater to his insurance policy to cover his expensive camera equipment whether it's at home, in his studio, or on location for a shoot.

Force Majeure

Legal Concepts

Definition:

Unforeseeable circumstances that prevent someone from fulfilling a contract, often excluded from insurance coverage.

Usage Context:

The event organizer's insurance didn't cover losses from the canceled conference because the government shutdown was considered a force majeure event.

Fronting

Insurance Structures

Definition:

An arrangement where an insurer issues a policy but transfers all or most of the risk to a reinsurer.

Usage Context:

The multinational corporation used a fronting arrangement where a licensed insurer in each country issued policies, but the risk was transferred to the company's captive insurer.

G

Terms Starting with G

Grace Period

Policy Components

Definition:

A specified period after a premium payment is due during which the policy remains in force and the policyholder can pay the premium without penalty.

Usage Context:

Even though John forgot to pay his life insurance premium on the due date, his policy remained in effect during the 30-day grace period, giving him time to make the payment.

H

Terms Starting with H

Hard Market

Market Conditions

Definition:

An insurance market characterized by high premiums, strict underwriting standards, and limited capacity.

Usage Context:

Following several major natural disasters, the property insurance industry entered a hard market, with premiums increasing by 20-30% and many insurers restricting coverage in high-risk areas.

Hazard

Risk Management

Definition:

A condition that increases the likelihood or severity of a loss.

Usage Context:

The faulty wiring in the old building was identified as a hazard that increased the risk of fire.

I

Terms Starting with I

Incurred But Not Reported (IBNR)

Claims

Definition:

An estimate of losses that have occurred but have not yet been reported to the insurance company.

Usage Context:

The insurer set aside $10 million in reserves for IBNR claims, anticipating that some policyholders had experienced covered losses but hadn't filed claims yet.

Indemnity

Insurance Principles

Definition:

The principle that an insured should be restored to the same financial position they were in before a loss, no better and no worse.

Usage Context:

Under the principle of indemnity, the insurer paid exactly what it cost to repair the damaged car, not the amount the owner originally paid for it.

Insurable Interest

Insurance Principles

Definition:

A legal and financial interest in the protection of a subject of insurance, such that the person would suffer a financial loss if the subject were damaged.

Usage Context:

A bank has an insurable interest in a mortgaged property and can require the homeowner to maintain insurance on it.

Insurance-to-Value

Underwriting

Definition:

The relationship between the amount of insurance and the value of the insured property.

Usage Context:

The homeowner maintained 100% insurance-to-value by updating their coverage limits annually to reflect the increasing cost of rebuilding their home.

Insured

Policy Components

Definition:

The person or entity protected by an insurance policy.

Usage Context:

As the named insured on the auto policy, Sarah was covered when driving any vehicle, even one she didn't own.

Insurer

Insurance Entities

Definition:

The company that provides insurance coverage to the insured in exchange for premiums.

Usage Context:

After comparing quotes from several insurers, the business chose the one offering the best coverage at the most competitive price.

L

Terms Starting with L

Lapse

Policy Components

Definition:

The termination of an insurance policy due to failure to pay the premium.

Usage Context:

Because he forgot to pay his premium for three months, John's life insurance policy lapsed and he had to reapply for coverage.

Liability Insurance

Insurance Types

Definition:

Coverage that protects the insured against claims alleging negligence, errors, or omissions that result in bodily injury or property damage to others.

Usage Context:

The business owner purchased liability insurance to protect against lawsuits if a customer was injured on the premises.

Limit of Liability

Policy Components

Definition:

The maximum amount an insurer will pay under an insurance policy for a covered loss.

Usage Context:

The policy had a $1 million per occurrence limit of liability, meaning the insurer would pay up to this amount for any single covered incident.

Line of Business

Business Operations

Definition:

A classification of insurance based on the type of risk being covered, such as property, liability, or workers' compensation.

Usage Context:

The insurance company decided to exit the workers' compensation line of business due to increasing claims and regulatory challenges.

Lloyd's of London

Insurance Entities

Definition:

A specialized insurance market where members join together as syndicates to insure risks.

Usage Context:

The movie production company obtained insurance for their $100 million film project through Lloyd's of London, which specializes in unique and high-value risks.

Loss Adjustment Expenses (LAE)

Claims

Definition:

Costs associated with investigating and settling insurance claims.

Usage Context:

In addition to the $500,000 paid to claimants, the insurer incurred $50,000 in loss adjustment expenses for attorneys, investigators, and claims adjusters.

Loss Control

Risk Management

Definition:

Activities designed to reduce the frequency or severity of losses, such as safety programs and risk management.

Usage Context:

The manufacturing company implemented a comprehensive loss control program that included regular safety training, equipment inspections, and hazard identification.

Loss Ratio

Financial Metrics

Definition:

The ratio of incurred losses and loss adjustment expenses to earned premiums, expressed as a percentage.

Usage Context:

The auto insurance division reported a loss ratio of 70%, meaning they paid out $70 in claims for every $100 in premiums earned.

Loss Reserve

Financial Operations

Definition:

Funds set aside by an insurer to pay anticipated claims.

Usage Context:

After the major hurricane, the insurer established a loss reserve of $50 million based on preliminary damage assessments in affected areas.

M

Terms Starting with M

Material Misrepresentation

Legal Concepts

Definition:

False information provided by an applicant that would have affected the insurer's decision to issue a policy or the premium charged.

Usage Context:

The insurer denied the claim and rescinded the policy due to material misrepresentation when they discovered the applicant had failed to disclose a pre-existing medical condition.

Medical Payments Coverage

Coverage

Definition:

Insurance that pays for medical expenses for injuries sustained by non-residents of the insured's household, regardless of fault.

Usage Context:

When a guest slipped on the wet floor and broke her arm, the homeowner's medical payments coverage paid for her emergency room visit and treatment.

Moral Hazard

Risk Management

Definition:

The risk that an insured will behave more recklessly because they have insurance protection.

Usage Context:

To reduce moral hazard, the insurer required a significant deductible so the policyholder would still have a financial incentive to prevent losses.

N

Terms Starting with N

Named Insured

Policy Components

Definition:

The person or entity specifically designated by name as the insured in the policy.

Usage Context:

As the named insured on the policy, John received all notices and had the authority to make changes to the coverage.

Named Perils

Policy Components

Definition:

Specific causes of loss listed in an insurance policy as covered.

Usage Context:

The named perils policy covered losses caused by fire, lightning, explosion, and theft, but not water damage from a burst pipe.

Non-Admitted Insurer

Insurance Entities

Definition:

An insurer not licensed to do business in a particular state but allowed to sell insurance under special circumstances.

Usage Context:

Unable to find coverage in the standard market, the high-risk business obtained a policy from a non-admitted insurer through a surplus lines broker.

O

Terms Starting with O

Occurrence

Policy Components

Definition:

An accident or event that results in covered damage or injury during the policy period.

Usage Context:

The liability policy defined an occurrence as an accident, including continuous or repeated exposure to substantially the same harmful conditions.

Open Perils

Policy Types

Definition:

An insurance policy that covers all risks except those specifically excluded.

Usage Context:

The homeowner upgraded from a named perils policy to an open perils policy, which provided broader coverage by insuring against all risks except those specifically excluded.

P

Terms Starting with P

Package Policy

Policy Types

Definition:

An insurance policy that combines multiple coverages, such as property and liability, in a single policy.

Usage Context:

The business owner purchased a business owner's package policy that included property, liability, business interruption, and crime coverage in one comprehensive policy.

Peril

Policy Components

Definition:

A cause of loss, such as fire, windstorm, or theft.

Usage Context:

The insurance policy covered losses resulting from various perils, including fire, lightning, explosion, and vandalism.

Personal Lines

Insurance Types

Definition:

Insurance products designed for individuals rather than businesses, such as auto and homeowners insurance.

Usage Context:

The insurance agency focused on personal lines, helping individuals protect their homes, cars, and personal property.

Policy

Policy Components

Definition:

A written contract of insurance between the insurer and the policyholder.

Usage Context:

Before signing the policy, Sarah carefully reviewed all terms, conditions, and exclusions to understand her coverage.

Policyholder

Policy Components

Definition:

The person or entity who owns an insurance policy.

Usage Context:

As the policyholder, John was responsible for paying premiums and had the right to file claims for covered losses.

Premium

Financial Operations

Definition:

The amount paid by the policyholder to the insurer for insurance coverage.

Usage Context:

The annual premium for the homeowner's insurance policy was $1,200, payable in monthly installments of $100.

Professional Liability Insurance

Insurance Types

Definition:

Coverage that protects professionals against claims alleging negligence or errors in providing professional services.

Usage Context:

The architectural firm carried professional liability insurance to protect against claims alleging design errors or omissions in their building plans.

Property Insurance

Insurance Types

Definition:

Coverage that protects against damage to or loss of the insured's property.

Usage Context:

After the fire damaged their manufacturing facility, the company filed a claim under their property insurance policy to cover the cost of repairs and replacement equipment.

Pro Rata Cancellation

Policy Components

Definition:

Termination of an insurance policy with the premium charged only for the period the policy was in force.

Usage Context:

When John sold his car mid-year, the insurer processed a pro rata cancellation of his auto policy and refunded the unused portion of his annual premium.

Parametric Insurance

Insurance Types

Definition:

Insurance that pays out a predetermined amount based on the occurrence of a specific event or parameter, rather than indemnifying actual losses.

Usage Context:

The agricultural cooperative purchased parametric insurance that would pay $1 million if rainfall in the growing season fell below 10 inches, regardless of actual crop losses.

Q

Terms Starting with Q

Quota Share

Reinsurance

Definition:

A type of proportional reinsurance where the reinsurer agrees to accept a fixed percentage of every risk within a defined category of business.

Usage Context:

Under the quota share treaty, the primary insurer ceded 30% of all premiums and losses from their commercial property portfolio to the reinsurer.

R

Terms Starting with R

Rate

Underwriting

Definition:

The price per unit of insurance used to determine the premium.

Usage Context:

The insurer charged a rate of $0.85 per $100 of property value, resulting in a premium of $8,500 for a building valued at $1 million.

Reinsurance

Insurance Structures

Definition:

Insurance purchased by an insurer from another insurer to manage risk and increase capacity.

Usage Context:

The regional insurance company purchased catastrophe reinsurance to protect against major hurricane losses that could threaten its financial stability.

Renewal

Policy Components

Definition:

The continuation of an insurance policy for an additional policy period.

Usage Context:

At renewal, the insurer reviewed the policyholder's claims history and adjusted the premium based on their experience over the past year.

Replacement Cost

Coverage

Definition:

The cost to replace damaged property with new property of like kind and quality, without deduction for depreciation.

Usage Context:

The homeowner's policy provided replacement cost coverage, so when their 10-year-old roof was damaged by hail, the insurer paid the full cost of a new roof without depreciation.

Rescission

Legal Concepts

Definition:

The cancellation of an insurance policy back to its inception date, as if it never existed.

Usage Context:

After discovering the applicant had intentionally misrepresented their medical history, the insurer exercised its right of rescission, returning all premiums and voiding the policy from its inception.

Retention

Risk Management

Definition:

The amount of risk the insured or insurer keeps for its own account.

Usage Context:

The corporation decided on a $250,000 retention for their liability program, meaning they would self-insure the first $250,000 of any claim.

Rider

Policy Components

Definition:

An endorsement to an insurance policy that modifies the policy's coverage, terms, or conditions.

Usage Context:

Sarah added a valuable items rider to her homeowner's policy to provide additional coverage for her jewelry and art collection.

Risk

Insurance Principles

Definition:

The chance of loss or the person or entity that is insured.

Usage Context:

The underwriter evaluated the risk carefully before deciding whether to issue the policy and what premium to charge.

Risk Management

Risk Management

Definition:

The process of identifying, assessing, and prioritizing risks followed by coordinated application of resources to minimize, monitor, and control the probability or impact of unfortunate events.

Usage Context:

The company implemented a comprehensive risk management program that included safety training, regular inspections, and appropriate insurance coverage.

S

Terms Starting with S

Schedule

Policy Components

Definition:

A list of covered items, locations, or vehicles attached to an insurance policy.

Usage Context:

The commercial property policy included a schedule listing all insured buildings, their locations, and their insured values.

Self-Insurance

Risk Management

Definition:

A risk management method in which a company or individual sets aside money to cover potential losses instead of purchasing insurance.

Usage Context:

Rather than buying commercial auto insurance, the large corporation with 500 vehicles opted for self-insurance, establishing a fund to pay for vehicle damage and liability claims.

Short-Rate Cancellation

Policy Components

Definition:

Termination of an insurance policy at the policyholder's request, with the premium refund calculated at less than pro rata to cover the insurer's expenses.

Usage Context:

When Sarah decided to cancel her policy mid-term, the insurer processed a short-rate cancellation, retaining a higher percentage of the premium than they would have with a pro rata cancellation.

Soft Market

Market Conditions

Definition:

An insurance market characterized by low premiums, relaxed underwriting standards, and high capacity.

Usage Context:

During the soft market, businesses were able to negotiate lower premiums and broader coverage terms as insurers competed aggressively for market share.

Subrogation

Legal Concepts

Definition:

The right of an insurer to pursue a third party that caused a loss to the insured for which the insurer has paid a claim.

Usage Context:

After paying for the damage to their insured's car, the insurance company pursued subrogation against the at-fault driver to recover the claim payment.

Surplus Lines

Insurance Structures

Definition:

Insurance coverage provided by non-admitted insurers for risks that cannot be placed in the admitted market.

Usage Context:

Unable to find coverage for their high-risk chemical manufacturing operation in the standard market, the company obtained a policy through a surplus lines broker.

T

Terms Starting with T

Third-Party Administrator (TPA)

Insurance Entities

Definition:

An organization that processes claims and performs other administrative services for a self-insured company or an insurer.

Usage Context:

The corporation hired a third-party administrator to handle claims processing, premium collection, and customer service for their self-insured health plan.

Treaty Reinsurance

Reinsurance

Definition:

A reinsurance contract that automatically covers all risks meeting the criteria defined in the agreement.

Usage Context:

Under their property treaty reinsurance agreement, the insurer automatically ceded a portion of every property risk within their portfolio to the reinsurer.

U

Terms Starting with U

Umbrella Liability

Insurance Types

Definition:

Excess liability coverage that provides protection beyond the limits of primary liability policies.

Usage Context:

The business purchased a $5 million umbrella liability policy to provide additional protection beyond the $1 million limits of their primary general liability and auto liability policies.

Underwriter

Professionals

Definition:

A professional who evaluates risks and determines coverage terms and premiums for insurance policies.

Usage Context:

The underwriter carefully reviewed the applicant's claims history, property details, and risk management practices before deciding to issue the policy.

Underwriting

Business Operations

Definition:

The process of evaluating risks to determine insurability, coverage terms, and premiums.

Usage Context:

During the underwriting process, the insurer requested additional information about the building's fire protection systems and construction materials.

Unearned Premium

Financial Operations

Definition:

The portion of a premium that represents the unexpired part of the policy period.

Usage Context:

When the policy was canceled halfway through the term, the insurer's unearned premium was 50% of the original premium, which was refunded to the policyholder.

Utmost Good Faith

Insurance Principles

Definition:

The principle that both parties to an insurance contract must act honestly and disclose all relevant information.

Usage Context:

Insurance contracts are based on utmost good faith, requiring applicants to disclose all material facts that could influence the insurer's decision to accept the risk.

V

Terms Starting with V

Valuation

Underwriting

Definition:

The process of determining the value of property for insurance purposes.

Usage Context:

Before insuring the historic building, the insurer required a professional valuation to determine its replacement cost and actual cash value.

Void

Legal Concepts

Definition:

Having no legal force or effect; not legally binding.

Usage Context:

The court ruled that the insurance policy was void from inception due to fraudulent misrepresentation on the application.

W

Terms Starting with W

Waiver

Legal Concepts

Definition:

The voluntary relinquishment of a known right, such as an insurer's right to deny coverage based on a policy provision.

Usage Context:

By paying the claim despite knowing about the policy violation, the insurer created a waiver of its right to deny similar claims in the future.

Warranty

Policy Components

Definition:

A statement by the insured guaranteeing the truth of certain facts or promising that certain conditions will be fulfilled.

Usage Context:

The policy contained a warranty that the building's fire sprinkler system would be maintained in working order at all times.

Workers' Compensation

Insurance Types

Definition:

Insurance that provides medical benefits and wage replacement to employees injured in the course of employment.

Usage Context:

After the warehouse employee injured his back while lifting a heavy box, he filed a workers' compensation claim to cover his medical expenses and lost wages during recovery.

X

Terms Starting with X

XOL (Excess of Loss)

Reinsurance

Definition:

A type of reinsurance that covers losses exceeding a specified amount.

Usage Context:

The insurer purchased an XOL reinsurance treaty that would cover losses exceeding $1 million up to a limit of $10 million per occurrence.

Y

Terms Starting with Y

Year Built

Underwriting

Definition:

The year a building was constructed, which is an important factor in property insurance underwriting.

Usage Context:

The underwriter noted that the building's year built was 1920, which raised concerns about outdated electrical systems and plumbing that could increase the risk of fire and water damage.

Yield

Financial Metrics

Definition:

The income return on an investment, expressed as a percentage of the investment's cost or current value.

Usage Context:

The insurance company's investment portfolio achieved a yield of 4.5%, generating significant income to supplement underwriting profits.

Z

Terms Starting with Z

Zone Rating

Underwriting

Definition:

A method of determining insurance rates based on geographic zones with similar risk characteristics.

Usage Context:

The insurer used zone rating for flood insurance, with properties in Zone A (high-risk flood areas) paying significantly higher premiums than those in Zone X (minimal flood risk).

Zero-Day Attack

Cyber Risk

Definition:

In cyber insurance, an attack that exploits a previously unknown vulnerability in software or hardware.

Usage Context:

The company's cyber insurance policy covered losses resulting from the zero-day attack that bypassed their security systems before a patch was available.

Zonal Catastrophe

Risk Management

Definition:

A catastrophic event that affects a specific geographic zone or region.

Usage Context:

The reinsurer limited its exposure to zonal catastrophes by diversifying its portfolio across different geographic regions and types of natural disasters.

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