A glossary of legal terms is never an easy thing to read, but here we have made it as easy as possible.
Simply click on any term to read an explanation
Accident
An incident at a specific time and place in which a loss occurs.
Actual Cash Value
What it will cost to replace an item at the time of loss after subtracting depreciation. Common method of determining the amount of reimbursement for a loss.
Adhesion Contract
A contract where one party has more power than the other in composing and drafting the contract. An insurance policy is an adhesion contract because the insurance agent and company have the power in composing and drafting the contract.
Agent
A state-licensed professional who represents an insurance company in selling and servicing policies. In most states, agents are required to undergo approximately 40 hours of passing classroom instruction for the type of insurance they are qualifying for to be approved to take the state insurance exam. After successfully completing the state exam an agent will need to take continuing education classes to keep her/his license current. Only agents are allowed to sell and service insurance policies and only in the states they are licensed in.
Automobile Insurance Plan
A state sponsored plan for individuals who are not able to obtain insurance under private companies. This coverage is usually very expensive and will have very limited coverages.
Binder
Immediate insurance coverage that can be in oral or written form. Usually provides temporary coverage for a specified time until a formal policy is accepted or denied.
Blanket Insurance
An insurance policy that covers more than one piece of property at a specific location or multiple items at multiple locations.
Bodily Injury (BI)
In most policies bodily injury means sickness, disease, injury, and death arising from sickness, disease, or injury.
Broker
Someone who represents you with your insurance transactions, unlike an agent, who represents the insurance company.
Burglary
Coverage against loss as a result of forced entry into premises.
Cancellation
The termination of insurance coverage during the policy period. Flat cancellation is the cancellation of a policy as of its effective date, without any premium charge.
Casualty Insurance
The unrelated coverages of liability, auto, workers compensation, aviation, crime, and surety bonds.
Claim
A request to an insurance company to pay for a loss. After a claim is requested or filed an evaluation process will begin to determine if the loss is the responsibility of the requested company.
Claimant
The first or third party. That is any person who asserts right of recovery.
Collision Coverage
Coverage that pays to repair or replace your car after an accident or collision. A deductible can apply depending on the insured’s requests at the start of the policy. In most states this is an optional coverage and is not usually a required coverage.
Comprehensive Coverage
Coverage that helps pay for losses to an insured car due to fire, theft, or other losses that are not the result of a collision as stated in the insured’s policy. A deductible can apply depending on the insured’s requests at the start of the policy. In most states this is an optional coverage and is not usually a required coverage. (note: Colliding with an animal falls under comprehensive coverage)
Decline
The company refuses to accept the request for insurance coverage.
Deductible
The amount the insured is required and obligated to pay by the insurance policy. The deductible is chosen by the insured and is usually applied to coverage’s such as comprehensive and collision. Generally the lower the deductible, the higher the insurance premium.
Disability Insurance
Health insurance that provides income payments to the insured wage earner when income is interrupted or terminated because of illness, sickness, or accident.
Endorsement
Amendment to the policy used to add or delete coverage.
Exclusion
Certain causes and conditions, listed in the policy, which are not covered.
Expiration Date
The date on which the policy ends.
Face Amount
The dollar amount to be paid to the beneficiary when the insured dies. It does not include other amounts that may be paid from insurance purchased with dividends or any policy riders.
Financial Guarantee Insurance
A surety bond, insurance policy or, when issued by an insurer, an indemnity contract and any guaranty similar to the foregoing types, under which loss is payable upon proof of occurrence of financial loss to an insured claimant, obligee, or indemnitee.
Fire Insurance
Coverage for loss of or damage to a building and/or contents due to fire.
Grace Period
A period (usually 31 days) after the premium due date, during which an overdue premium may be paid without penalty. The policy remains in force throughout this period.
Guaranteed Insurability
An option that permits the policy holder to buy additional stated amounts of life insurance at stated times in the future without evidence of insurability.
Health Insurance
A policy that will pay specifies sums for medical expenses or treatments. Health policies can offer many options and vary in their approaches to coverage.
Homeowner Insurance
An elective combination of coverages for the risks of owning a home. Can include losses due to fire, burglary, vandalism, earthquake, and other perils.
Incontestable Clause
A policy provision in which the company agrees not to contest the validity of the contract after it has been in force for a certain period of time, usually two years.
Insured Person
All who are covered and listed by the insurance policy. Most insurance companies require every licensed driver living with you must be listed on your insurance policy unless they have a completely separate policy of their own. Examples: After Pat filed her claim her agent said that they would cover the entire cost of replacing the hood of her car after she contributed her deductible of $500.
Insurer
The insurance company.
Legal Insurance
Prepaid legal insurance coverage plan sold on a group basis.
Liability
One’s legal responsibility to pay for damages due to an accident or loss. Liability coverage for automobile insurance is the one coverage that is required in all states.
Life Insurance
A policy that will pay a specified sum to beneficiaries upon the death of the insured.
Limits
The maximum amount of money an insurance company will pay for each coverage. For additional coverage some choose umbrella insurance to go above and beyond their home and auto liability limits. Each state sets different limits on required minimum coverage for automobile insurance.
Loan Value
The amount which can be borrowed at a specified rate of interest from the issuing company by the policyholder, using the value of the policy as collateral. In the event the policyholder dies with the debt partially or fully unpaid, then the amount borrowed plus any interest is deducted from the amount payable.
Loss
A loss is any type of damage to property due to numerous reasons including fire, theft, and flood. It also includes harms suffered by persons.
Marine Insurance
Coverage for goods in transit and the vehicles of transportation on waterways, land, and air.
Material Misrepresentation
The policyholder/applicant makes a false statement of any material (important) fact on his/her application. For instance, the policyholder provides false information regarding the location where the vehicle is garaged.
Medical Payments Coverage
This type of coverage provides payments for medical treatments for bodily injury due to a covered accident and up to the coverage limit. It is generally for the people in your vehicle and has no deductible. This should be used promptly and is encouraged by insurance companies to do so. One reason for this coverage is to help remedy the injured person immediately so they will not feel anguished by what happened and want to sue the at fault driver.
Misquote
An incorrect estimate of the insurance premium.
Mortgage Insurance
Life insurance that pays the balance of a mortgage if the mortgagor (insured) dies.
Peril
The cause of a possible loss. For example, fire, theft, or hail.
Personal Injury Protection Coverage
Optional coverage for things not usually covered in general policies such as lost wages and childcare expenses. The coverage would be effective due to bodily injury caused by a covered accident.
Policy
The written contract of insurance.
Policy Limit
The maximum amount a policy will pay, either overall or under a particular coverage.
Premium
The amount of payment due to the insurance company in exchange for the insurance policy. Depending on the length of the policy term, the premium is sometimes paid at the beginning or in monthly payments. Regardless of the payment method one is insured to the full value of the policy at any time during the policy period as long as payments are on time as stated in the insurance policy.
Premium Financing
A policyholder contracts with a lender to pay the insurance premium on his/her behalf. The policyholder agrees to repay the lender for the cost of the premium, plus interest and fees.
Pro-rata Cancellation
When the policy is terminated midterm by the insurance company, the earned premium is calculated only for the period coverage was provided. For example: an annual policy with premium of $1,000 is cancelled after 40 days of coverage at the company’s election. The earned premium would be calculated as follows: 40/365 days X $1,000=.110 X $1,000=$110.
Property Damage
Damage to another person’s property. The purpose of liability insurance is to cover property damage to a third party resulting from the negligent or intentional acts of an insured.
Quote
An estimate of the cost of insurance, based on information supplied to the insurance company by the applicant.
Rating Factors
Facts including insurance history, loss history, credit rating, age, and demographic area that help determine a customers cost of insurance.
Replacement Cost
The cost to repair or replace an insured item. Some insurance only pays the actual cash or market value of the item at the time of the loss, not what it would cost to fix or replace it. If you have personal property replacement cost coverage, your insurance will pay the full cost to repair an item or buy a new one once the repairs or purchases have been made.
Replacement Value
The full cost to repair or replace the damaged property with no deduction for depreciation, subject to policy limits and contract provisions.
Reinstatement
The restoring of a lapsed policy to full force and effect. The reinstatement may be effective after the cancellation date, creating a lapse of coverage. Some companies require evidence of insurability and payment of past due premiums plus interest.
Rider
Usually known as an endorsement, a rider is an amendment to the policy used to add or delete coverage.
Settlement
The amount the insurance company pays to the party that was injured by a covered loss. The payment amount can be in other forms besides money such as replacements.
Short-rate Cancellation
When the policy is terminated prior to the expiration date at the policyholder’s request. Earned premium charged would be more than the pro-rata earned premium. Generally, the return premium would be approximately 90 percent of the pro-rata return premium. However, the company may also establish its own short-rate schedule.
Solicitor
A licensed employee of a fire and casualty agent or broker who may act for the agent or broker in some circumstances.
Sprinkler Insurance
Coverage for property damage caused by untimely discharge from an automatic sprinkler system.
Surcharge
An extra charge applied by the insurer. For automobile insurance, a surcharge is usually for accidents or moving violations.
Surrender
To terminate or cancel a life insurance policy before the maturity date. In the case of a cash value policy, the policyholder may exercise one of the nonforfeiture options at the time of surrender.
Title Insurance
Coverage for losses if a land title is not free and clear of defects that were unknown when the title insurance was written.
Underwriting
The process of selecting applicants for insurance and classifying them according to their degrees of insurability so that the appropriate premium rates may be charged. The process includes rejection of unacceptable risks.
Uninsured Motorist Bodily Injury
Will pay you and your passengers for BODILY INJURY cause by a negligent uninsured motorist, a hit-and-run driver, or by a driver whose insurer is insolvent.
Uninsured Motorist Property Damage
Will pay for damages to your automobile, set up to a limit, when caused by a negligent unisured motorist.
Waiting Period
A period of time set forth in a policy which must pass before some or all coverages begin.
Workers Compensation Insurance
Coverage typically providing four types of benefits (medical care, death, disability, and rehabilitation) for employee job-related injuries or diseases as a matter of right (without regard to fault).
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