Insurance Glossary

Each phrase in an insurance policy has case law behind it clarifying its meaning. However, since these meanings are ultimately defined in the courtroom by lawyers, rather than, say, by English teachers, the meanings may be different than in everyday usage. Therefore we provide a list of definitions to common insurance terms below. (We are not lawyers. If you need legal advice, talk to a lawyer.)


An unexpected event or circumstance without deliberate intent

Accidental bodily injury

An unexpected injury to a person

Actual Cash Value

The replacement cost of an item less some amount for depreciation. (By contrast replacement cost is the cost of replacing property now with reduction for depreciation due to normal wear and tear.)

Additional Insured

A person or organization, not automatically included as an insured under an insurance policy, who is added as an insured under the policy at the request of the named insured. The motivation may be a need to comply with a contractual agreement such as
Tenants add property owner,
Repairmen add building where job is
Contractors name General Contractor
In liability insurance, additional insured status is commonly used in conjunction with an indemnity agreement between the named insured (the indemnitor) and the party requesting additional insured status (the indemnitee). Having the rights of an insured under its indemnitor's commercial general liability (CGL) policy is viewed by most indemnitees as a way of backing up the promise of indemnification. (see named insured)


a person who investigates claims and recommends settlement options based on estimates of damage and insurance policies held

Admitted Company

A company licensed or authorized to sell insurance in the state in which the insured exposure is located. In the United States, admitted companies are licensed on a state-by-state basis and differentiated from excess and surplus lines insurers, which are authorized to sell insurance in a state on a nonadmitted basis. 
See discussion in FAQ of Admitted and Nonadmitted Insurers.

Adverse Selection

the social phenomenon whereby persons with a higher than average probability of loss seek greater insurance coverage than those with less risk


A person who acts on behalf of an insurance company selling, servicing or negotiating insurance policies. The agent may be "Captive" or "Exclusive" and represent only one company, or "Independent" and represent more than one company.

Aggregate Limit

The maximum dollar amount or total amount of coverage payable for a single loss, or multiple losses, during a policy period, or on a single project.

Aleatory Contract

Contracts where unequal values are exchanged. Insurance contracts are aleatory contracts, meaning if there is a loss, the insured may receive far more paid out than paid in. In ordinary contracts, each party expects to receive about the same value as given. 

Alien Insurance Company

This is not an insurance company populated by little green men, but is an insurance company domiciled in and licensed under the laws of a foreign country. Think Lloyd's of London.
See discussion in FAQ of Admitted and Nonadmitted Insurers.

All Risk

also known as open peril, this type of policy covers risks not explicitly excluded in the policy contract. All Risk policies cover more perils than either Basic or Broad form policies.

Assigned Risk

A governmental pool established to write business declined by carriers in the standard insurance market

Assumed Liability

Under a contract one party may assume the legal liability which the other party may incur under the terms of the contract. (Hold harmless agreements)


A survey of the insured's books, made to determine the premiums that should be paid to the insurer for the protection received under the insurance contract. Used in commercial lines where the premium is determined on payroll, sales, etc.

Authorized Company

an insurer licensed or admitted to do business in a particular state.


The custodian of property owned by another.


The owner of property, who gives up possession temporarily to the custody of another.


A contract for temporary insurance issued in writing pending the insurance policy issuance. Binding is normally accompanied by payment and signed documents.

Blanket Coverage

Coverage for property and liability that extends to more than one location, class of property or employee.

Bodily Injury

physical injury including sickness or disease to a person


A person who acts or aids in soliciting, negotiating and procuring insurance on behalf of an insured

Business Interruption

loss of income as a result of property damage to a business facility

Business Owners Policy

Business insurance package including:
• Property,
• Liability and
• Business interruption coverage

Captive Agent

An individual who sells or services insurance contracts for a single insurance company.


A request made by the insured for insurer payment due to loss incurred and covered under the policy agreement.

Coinsurance Clause

A clause contained in most property insurance policies to encourage policy holders to carry a reasonable amount of insurance. If the insured fails to maintain the amount specified in the clause (Usually at least 80%), the insured shares a higher proportion of the loss. The reasoning is that the policy holder, or another insurance company, covers the rest of the value, so the risk is shared proportionately and losses are paid proportionately.

Commercial General Liability

Flexible & broad commercial liability coverage with two major sub-lines:
Premises/operations sub-line and
Products/completed operations sub-line

Comparative Negligence

Is a partial legal defense that reduces the amount of damages as each party's negligence is weighed when determining damages.

Completed Operations Liability

Policies covering the liability of contractors, plumbers, electricians, repair shops, and similar firms to persons who have incurred bodily injury or property damage from defective work or operations completed or abandoned by or for the insured, away from the insured's premises.

Comprehensive General Liability

Coverage of all business liabilities unless specifically excluded in the policy contract.


Failure of an applicant to reveal known facts. Intentional or not, this can void an insurance contract.


Concurrent policies cover the same property with like forms, interest, location, insuring agreement and perils covered. Policies may vary in amount, rate, premium and inception date and still be concurrent.


Requirements specified in the insurance contract that must be upheld by the insured to qualify for indemnification.

Contingent Liabillity

The liability of an insured to persons who have incurred bodily injury or property damage from work done by an independent contractor hired by the insured to perform work that was illegal, inherently dangerous, or directly supervised by the insured.

Contributory Negligence

The concept is that when an individual does not act as a "reasonable person" and injury occurs, that person may be held entirely or partially responsible for the resulting injury, even though another party was involved in the accident.


Section of insurance contract which sets forth information that identifies the parties to the contract, what is covered, where, when and at what limits, and rates and premiums.


The insurer pays for the loss up to the limit and is then reimbursed, by the insured, a threshold amount called the deductible. The deductible is the portion of the insured loss paid by the policy holder. In practice, small losses are simply paid by the insured to avoid the "dollar-trading" problem. (See retention)


The amount of value a property declines over the normal course of time due to all causes including physical or location deterioration or obsolescence. May involve age as well as economic and physical factors.

Directors & Officers Liability (D&O)

Liability coverage protecting directors or officers of a corporation from liability arising out of the performance of their professional duties on behalf of the corporation.

Disability Insurance

A policy designed to compensate insured individuals for a portion of lost income because of a disabling injury or illness off the job. Required by law in New York State of employers.

Domestic Insurance Company

An insurance company admitted by and formed under the laws in the state in which insurance is written.

Earned Premium

Portion of premium for which the policy coverage has already been given during the now-expired portion of the policy term.

Effective Date

Date at which an insurance policy goes into force.

Employee Benefit Liability

Liability protection for an employer for claims arising from provisions in an employee benefit insurance plan provided for the economic and social welfare of employees. Examples of items covered are pension plans, group life insurance, group health insurance, group disability income insurance, and accidental death and dismemberment.

Employers Liability

Employers' liability coverage for the legal liability of employers arising out of injuries to employees. This code should be used when coverage is issued as an endorsement, or as part of a statutory workers' compensation policy.

Employment Practices Liability (EPL)

Liability insurance for employers providing coverage for wrongful termination, discrimination, or sexual harassment of the insured's current or former employees.


An amendment or rider to a policy adjusting the coverages and taking precedence over the general contract.

Environmental Impairment Liability (EIL)

Coverage for negligence or omission resulting in pollution or environmental contamination.

Environmental Pollution Liability 

Liability coverage of an insured to persons who have incurred bodily injury or property damage from acids, fumes, smoke, toxic chemicals, waste materials or other pollutants.

Errors and Omissions Liability (E&O)

Professional Liability coverage for services provided covering any loss from omissions arising from the performance of services for others, errors in judgment, breaches of duty, or negligent or wrongful acts in business conduct.
Coverage is tailored to the needs of the specific profession, such as:
• Lawyers
• Accountants,
• Architects,
• Engineers,
• Real estate agents,
• Stockbrokers
• And other non licensed providers of consulting services

Event Cancellation

Coverage for financial loss because of the cancellation or postponement of a specific event due to weather or other unexpected cause beyond the control of the insured.

Excess and Surplus Lines Insurance

Any type of coverage that cannot be placed with an insurer admitted to do business in a certain state. Risks placed in Excess and Surplus lines markets are either higher risk, unusual, or unable to be placed in conventional markets due to a shortage of capacity. Excess and Surplus lines insurers can write coverage through an Excess and Surplus lines broker, if the broker is licensed in the state where coverage is being written.

Excess and Umbrella Liability

Liability coverage of an insured above a specific amount set forth in a basic policy issued by the primary insurer; covers known or unknown gaps in basic coverages or self insured retentions.


A limitation of coverage granted by the insuring agreement of an insurance contract.

Experience Rating

As respects workers compensation, the method in which the actual loss experience of the insured is compared to the loss experience that is normally expected by other risks in the insured's rating class. The resulting experience modification factor is then applied to the premium of the insured.

Fair Access to Insurance Requirements (FAIR Plan)

State pools designed to provide insurance to property owners who are unable to obtain property insurance through conventional means.

Federal Flood Insurance

Coverage for qualifying residents and businesses in flood prone regions through the National Flood Insurance Act, a federally subsidized flood insurance program enacted in 1968.


A bond or policy covering an employer's loss resulting from an employee's dishonest act (e.g., loss of cash, securities, valuables, etc.).

Fire Insurance

Coverage protecting the insured against the loss to real or personal property from damage caused by the peril of fire or lightning, including business interruption, loss of rents, etc.

Flat Cancelation

A policy cancellation without charge, by agreement.


A policy provides coverage for those goods for which it is difficult to establish a specific location.

Foreign Insurer

An insurance company selling policies in one state while incorporated or domiciled in another. From the U.S. perspective, an insurer domiciled in the United States but outside the state in which the insurance is to be written. 


Intentional deception which results in injury to another party.

Grace Period

Period of time after the date the premium is due during which the premium can be paid with no interest charged while the policy remains in force.

Gross Premium

Total amount paid by the insured.

Guaranty Fund

State run funding mechanism to provide funds to cover policyholder obligations of insolvent domestic insurance company.


A hazard increases the magnitude or probability of loss associated with a peril, such as:
• Physical: broken steps, defective equipment
• Legal: breaking government regulations
• Moral: dishonest people, arsonists, fraud
• Morale: acts of indifference or laziness

Hold-Harmless Agreement

Risk transfer mechanism where one party assumes the liability of another party by contract.

Inception Date

The date an insurance contract becomes effective.

Inchmaree Clause

Provision in marine insurance protects property damaged or destroyed as a result of negligent acts of the crew (mutiny). Includes loss or damage to machinery or hull caused by:
• Accidents in loading, discharging or handling cargo,
• Explosions on shipboard or elsewhere,
• Breakage of shafts
• Latent defects in machinery or hull
• Negligence of master, mariner, pilot, engineer, or charterer

Indemnity, Principle of

General legal principle related to insurance that holds that the individual recovering under an insurance policy should be restored to the approximate financial position prior to the loss. Legal principle limiting compensation for damages be equivalent to the losses incurred.

Inferred Negligence

Where a person can be guilty of negligence even though they had nothing to do with the negligent act. (Think car owner who lent it out.)

Inherent Vice Exclusion

Provision of a property policy which excludes coverage for property that has the quality to damage or destroy itself.


Social device for reducing economic risk where many members of a group collect funds to pay the losses of a few members of the group. 

Insuring Agreement

Statement which sets forth in broad terms the perils covered by an insurance policy. Frequently covers:

Cyber Insurance

Coverage for data breaches resulting in loss of Personalli Identifiable Information. Frequently covers:
• Computer Forensic Expert to determine existence, extent
• Computer Security Expert to investigate
• Attorney to comply with Breach Notice Law
• Notification of Customers affected
• Call Center Services for notified individuals
• Credit Monitoring Program for notified individuals
 Regulatory Defense and Penalties and Fines
• Crisis Management public relations
• Computer Security Expert to demonstrate ability to prevent future breach

Key-Persons Insurance

Policy purchased by, for the benefit of, a business insuring the life or lives of personnel integral to the business operations.

Kidnap/Ransom Insurance

Coverage for ransom or extortion costs and related expenses.


Termination of a policy due to failure to pay the required renewal premium.


Legal obligation to perform or not perform specified acts.

Liability Claim

Claim based on an alleged negligent act of another.

Liability Insurance

Provides protection from lawsuits of others.

Liquor Liability

Coverage for the liability of an entity involved in the retail or wholesale sales of alcoholic beverages, or the serving of alcoholic beverages, to persons who have incurred bodily injury or property damage arising from an intoxicated person.

Lloyds of London

An insurance exchange where syndicates of individuals join together to insure large and unusual risks.

Loss Runs

Periodic reports of claim history provided by insurance companies to their insureds, needed for securing new insurance, available only by written request of the insured

Named Insured

Any person, firm, or organization specifically designated by name as an insured in an insurance policy, as distinguished from others that, although unnamed, fall within the policy definition of an "insured." (see additional insured)

Named Peril Coverage

Insurance for losses explicitly defined in the policy contract.


Failure to exercise reasonable consideration resulting in loss or damage to oneself or others.

Nonadmitted Insurer

An insurance company not licensed to do business in a certain state or country. In U.S. jurisdictions, such insurers can nevertheless write coverage through an excess and surplus lines broker licensed in that jurisdiction.


Accident, including exposure to conditions, which results in bodily injury or property damage neither expected or intended by the insured. 

Other Liability

Coverage protecting the insured against legal liability resulting from negligence, carelessness, or a failure to act resulting in property damage or personal injury to others.


The cause of property damage or personal injury. The reason you want insurance. "Cause of Loss". Perils com in three flavors:
Natural: flood, wind, earthquake, etc.
Human: theft, violence (assault, riots, war), and carelessness (legally called negligence)
Economic: recessions and changes in consumer tastes or technology


A written contract ratifying the legality of an insurance agreement.

Policy Limit

The dollar amount of coverage provided in the contract.

Policy Period

The time period when insurance coverage is in effect.

Preferred Risk

Insured, or applicant for insurance, who presents likelihood of lower risk than that of the standard applicant.


Money charged or price paid for the insurance coverage reflecting expectation of loss.

Product Liability

Insurance coverage protecting the manufacturer, distributor, seller, or lessor of a product from legal liability causing personal injury, or damage, to any individual or entity, associated with the use of the product.

Professional Liability

Professional Liability coverage (aka Errors and Omission) for services provided covering any loss from omissions arising from the performance of services for others, errors in judgment, breaches of duty, or negligent or wrongful acts in business conduct.
Coverage is tailored to the needs of the specific profession, such as: 
• Lawyers 
• Accountants, 
• Architects, 
• Engineers, 
• Real estate agents, 
• Stockbrokers
• And other non licensed providers of consulting services

Property Insurance

Coverage protecting the insured against loss or damage to real or personal property from a variety of perils, including but not limited to fire, lightening, business interruption, loss of rents, glass breakage, tornado, windstorm, hail, water damage, explosion, riot, civil commotion, rain, or damage from aircraft or vehicles.

Proximate Cause

In the law, a proximate cause is an event sufficiently related to a legally recognizable injury to be held to be the cause of that injury.

Pure Risk

Circumstance including possibility of loss or no loss but no possibility of gain.

Replacement Cost

Cost of replacing property now. No reduction for depreciation due to normal wear and tear. Replacement cost is higher than actual cash value.


A dollar amount specified in an insurance policy that must be paid by the insured before the policy will respond to a loss. In contrast, under a policy written with a deductible provision, the insurer would pay the costs associated with a claim on the insured's behalf and then seek reimbursement of the deductible payment from the insured.
(See deductible)


The clause in a property contract which provides that the insurance company can take title to damaged property after payment for loss.

Short Rate Cancelation

Cancellation with a penalty. Generally when the insured cancels, it is on a short-rate basis. (Exceptions: insured going into the military or when insured cancels and reinsures with the same company.)


The situation where an insurer, on behalf of the insured, has a legal right to bring a liability suit against a third party who caused losses to the insured. Insurer maintains the right to seek reimbursement for losses incurred by insurer at the fault of a third party.

Supplementary Payments

Payments made to the insured for specific expenses which are stated in the policy. These payments are over and above the policy limits.

Surety Bond

A three-party agreement whereby a guarantor (insurer) assumes an obligation or responsibility to pay a second party (obligee) should the principal debtor (obligor) become in default.


Period of time for which policy is in effect

Termination Date

The date that coverage expires on an insurance contract.


The specific geographic area where the coverage is in force.

Third Party Action Over

A situation where an injured employee, after collecting workers compensation benefits from the employer, sues a third party for contributing to the employee's injury. Then, because of some type of contractual relationship between the third party and the employer, the liability is passed back to the employer
This provision alone may double or triple the policy premium.

Unauthorized Insurer

An insurance company not licensed in a certain state or country. In U.S. jurisdictions, such insurers can nevertheless write coverage through an excess and surplus lines broker licensed in that jurisdiction.

Umbrella and Excess Policy

Coverage for the liability of a commercial venture above a specific amount set forth in a basic policy for losses over a stated amount, for known or unknown gaps in basic coverages.


Person who identifies, examines and classifies the degree of risk represented by a proposed insured, and determines whether or not coverage should be provided and, if so, at what rate.

Unearned Premium

Amount of premium for which payment has been made by the policyholder but coverage has not yet been provided.

Workers' Compensation

Insurance that covers an employer's liability for injuries, disability or death to employees, without regard to fault. Required by law in New York State with first employee hired.

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