| INSURANCE GLOSSARY
|
|
AUTO INSURANCE POLICY There are basically six different types of coverages. Some may be required by law. Others are optional. They are: 1. Bodily injury liability, for injuries the policyholder causes to someone else. 2. Medical payments or Personal Injury Protection (PIP) for treatment of injuries to the driver and passengers of the policyholder?s car. 3. Property damage liability, for damage the policyholder causes to someone else?s property. 4. Collision, for damage to the policyholder?s car from a collision. 5. Comprehensive, for damage to the policyholder?s car not involving a collision with another car (including damage from fire, explosions, earthquakes, floods, and riots), and theft. 6. Uninsured motorists coverage, for costs resulting from an accident involving a hit-and-run driver or a driver who does not have insurance. AUTO INSURANCE PREMIUM The price an insurance company charges for coverage, based on the frequency and cost of potential accidents, theft and other losses. Prices vary from company to company, as with any product or service. Premiums also vary depending on the amount and type of coverage purchased; the make and model of the car; and the insured?s driving record, years of driving and the number of miles the car is driven per year. Other factors taken into account include the driver?s age and gender, where the car is most likely to be driven and the times of day ? rush hour in an urban neighborhood or leisure-time driving in rural areas, for example. Some insurance companies may also use credit history-related information. (See Insurance score) ADMITTED COMPANY An insurance company licensed and authorized to do business in a particular state. ACCIDENT AND HEALTH INSURANCE Coverage for accidental injury, accidental death, and related health expenses. Benefits will pay for preventative services, medical expenses, and catastrophic care, with limits. [Back to Top] BINDER Temporary authorization of coverage issued prior to the actual insurance policy. BLANKET INSURANCE Coverage for more than one type of property at one location or one type of property at more than one location. Example: chain stores. BODILY INJURY LIABILITY COVERAGE Portion of an auto insurance policy that covers injuries the policyholder causes to someone else. BROKER An intermediary between a customer and an insurance company. Brokers typically search the market for coverage appropriate to their clients. They work on commission and usually sell commercial, not personal, insurance. In life insurance, agents must be licensed as securities brokers/dealers to sell variable annuities, which are similar to stock market-based investments. BURGLARY AND THEFT INSURANCE Insurance for the loss of property due to burglary, robbery or larceny. It is provided in a standard homeowners policy and in a business multiple peril policy. BUSINESS INCOME INSURANCE (also known as BUSINESS INTERRUPTION INSURANCE) Commercial coverage that reimburses a business owner for lost profits and continuing fixed expenses during the time that a business must stay closed while the premises are being restored because of physical damage from a covered peril, such as a fire. Business interruption insurance also may cover financial losses that may occur if civil authorities limit access to an area after a disaster and their actions prevent customers from reaching the business premises. Depending on the policy, civil authorities coverage may start after a waiting period and last for two or more weeks. BUSINESSOWNERS POLICY / BOP A policy that combines property, liability and business interruption coverages for small- to medium-sized businesses. Coverage is generally cheaper than if purchased through separate insurance policies. [Back to Top] COLLISION COVERAGE Portion of an auto insurance policy that covers the damage to the policyholder?s car from a collision. COMBINED RATIO Percentage of each premium dollar a property/casualty insurer spends on claims and expenses. A decrease in the combined ratio means financial results are improving; an increase means they are deteriorating. When the ratio is over 100, the insurer has an underwriting loss. COMMERCIAL GENERAL LIABILITY INSURANCE / CGL A broad commercial policy that covers all liability exposures of a business that are not specifically excluded. Coverage includes product liability, completed operations, premises and operations, and independent contractors. COMMERCIAL LINES Products designed for and bought by businesses. Among the major coverages are boiler and machinery, business interruption, commercial auto, comprehensive general liability, directors and officers liability, fire and allied lines, inland marine, medical malpractice liability, product liability, professional liability, surety and fidelity, and workers compensation. Most of these commercial coverages can be purchased separately except business interruption which must be added to a fire insurance (property) policy. (See Commercial multiple peril policy) COMMERCIAL MULTIPLE PERIL POLICY Package policy that includes property, boiler and machinery, crime, and general liability coverages. COMMERCIAL PAPER Short-term, unsecured, and usually discounted promissory note issued by commercial firms and financial companies often to finance current business. Commercial paper, which is rated by debt rating agencies, is sold through dealers or directly placed with an investor CATASTROPHE Term used for statistical recording purposes to refer to a single incident or a series of closely related incidents causing severe insured property losses totaling more than a given amount, currently $25 million. CATASTROPHE BONDS Risk-based securities that pay high interest rates and provide insurance companies with a form of reinsurance to pay losses from a catastrophe such as those caused by a major hurricane. They allow insurance risk to be sold to institutional investors in the form of bonds, thus spreading the risk. (See Securitization of insurance risk) CATASTROPHE DEDUCTIBLE A percentage or dollar amount that a homeowner must pay before the insurance policy kicks in when a major natural disaster occurs. These large deductibles limit an insurer?s potential losses in such cases, allowing it to insure more property. A property insurer may not be able to buy reinsurance to protect its own bottom line unless it keeps its potential maximum losses under a certain level. CATASTROPHE FACTOR Probability of catastrophic loss, based on the total number of catastrophes in a state over a 40-year period. CATASTROPHE MODEL Using computers, a method to mesh long-term disaster information with current demographic, building and other data to determine the potential cost of natural disasters and other catastrophic losses for a given geographic area. CATASTROPHE REINSURANCE Reinsurance (insurance for insurers) for catastrophic losses. The insurance industry is able to absorb the multibillion dollar losses caused by natural and man-made disasters such as hurricanes, earthquakes and terrorist attacks because losses are spread among thousands of companies including catastrophe reinsurers who operate on a global basis. Insurers? ability and willingness to sell insurance fluctuates with the availability and cost of catastrophe reinsurance. After major disasters, such as Hurricane Andrew and the World Trade Center terrorist attack, the availability of catastrophe reinsurance becomes extremely limited. Claims deplete reinsurers? capital and, as a result, companies are more selective in the type and amount of risks they assume. In addition, with available supply limited, prices for reinsurance rise. This contributes to an overall increase in prices for property insurance. CELL PHONE INSURANCE Separate insurance provided to cover cell phones for damage or theft. Policies are often sold with the cell phones themselves. COMPREHENSIVE COVERAGE Portion of an auto insurance policy that covers damage to the policyholder?s car not involving a collision with another car (including damage from fire, explosions, earthquakes, floods, and riots), and theft. COMPULSORY AUTO INSURANCE The minimum amount of auto liability insurance that meets a state law. Financial responsibility laws in every state require all automobile drivers to show proof, after an accident, of their ability to pay damages up to the state minimum. In compulsory liability states this proof, which is usually in the form of an insurance policy, is required before you can legally drive a car. CONTINGENT LIABILITY Liability of individuals, corporations, or partnerships for accidents caused by people other than employees for whose acts or omissions the corporations or partnerships are responsible. COVERAGE Synonym for INSURANCE. [Back to Top] WEATHER INSURANCE A type of business interruption insurance that compensates for financial losses caused by adverse weather conditions, such as constant rain on the day scheduled for a major outdoor concert. WHOLE LIFE INSURANCE The oldest kind of cash value life insurance that combines protection against premature death with a savings account. Premiums are fixed and guaranteed and remain level throughout the policy?s lifetime. WORKERS COMPENSATION Insurance that pays for medical care and physical rehabilitation of injured workers and helps to replace lost wages while they are unable to work. State laws, which vary significantly, govern the amount of benefits paid and other compensation provisions. WRAP-UP INSURANCE Broad policy coordinated to cover liability exposures for a large group of businesses that have something in common. Might be used to insure all businesses working on a large construction project, such as an apartment complex. WRITE To insure, underwrite, or accept an application for insurance. [Back to Top] |