Glossary

Common Business Insurance Terms

 

The explanations appearing in this Glossary are provided solely for general reference and informational purposes. They are not intended to be complete descriptions of all terms, conditions and exclusions applicable to the products and services defined. Additional comments and examples are sometimes included for clarity purposes. In all cases, every single policy wording, regardless of the insurer, include Definitions.  As such, in the case of any inconsistency between the explanations in this Glossary and the definitions appearing in the actual policy, the Definitions contained in the actual policy / insurance contract shall govern.

[A]

ACCIDENT – An unexpected event, which happens by chance and is not expected in the normal course of events.

ACTUAL CASH VALUE – The current cost of replacing an article with a similar one in the same condition. Ie.  Used, depreciated value.  Any item has three basic values: original cost, actual cash value or market value and replacement value.

ADDITIONAL INSURED – Another party that is required contractually to be added to your insurance, to protect that Third Party if they are named in a suit due to your negligence.

ADDITIONAL PREMIUM – An extra charge for an alteration, during the policy period, which increases the hazard or the Company’s liability. The premium charged is pro-rated from the date of the alteration to the end of the policy term.

ADJUSTER – A person who investigates a loss and negotiates settlement with the claimant on the Company’s behalf.

AGENT – A person or firm employed exclusively with one specific Insurance Company

ALL PERILS – An optional coverage designed to provide protection for your vehicle for all types of losses except those specifically excluded in your policy. All perils coverage protect you from loss or damage to your own vehicle, regardless of fault. This physical damage coverage is optional and it is subject to a deductible.

ALL RISK – Coverage against all loss or damage from – except for those perils specifically excluded.

APPLICATION (APP) – A form on which the prospective insured states facts requested by the insurance company and on the basis of which (together with any information from other sources) the insurance company decides whether or not to accept the risk, modify the coverage offered, or decline the risk.

APPRAISAL – A valuation of property made for determining its insurable value or the amount of loss sustained.

AUTOMOBILE INSURANCE – Coverage for the risks associated with driving or owning an automobile. It can include liability, collision, comprehensive, accident benefits, uninsured motorist coverages.

[B]

BI/PD – Bodily Injury / Property Damage Liability Coverage and / or BI/PD deductible.

BINDER – A temporary binding agreement, which provides coverage until a policy is issued by the insurer;

BODILY INJURY – Term used in Auto and Casualty policies meaning physical injury, including sickness, disease, mental injury, shock or death.

BODILY INJURY LIABILITY – Pays when an insured person is legally liable for bodily injury or death caused by your vehicle or in some cases, your operation of non-owned vehicles. This coverage also pays for your legal defense if you are sued.

BROAD FORM – Any of the commercial or personal lines property forms which provide coverage on a named perils basis. In Personal Insurance, this form is generally used for coverages on a Homeowners and adds Extended Coverage, Vandalism and Malicious Mischief. . In commercial property policies, Broad Form coverage is typically described as “All Risks” – where all losses except certain perils and property specifically is excluded, as defined in the policy wording.

BROKER – An independent person or firm who acts on behalf of the insured in placing business with the insurance company. Represents multiple insurers.  Responsible for the collection of premiums but having no authority to give coverage on the insurance company’s behalf without their specific agreement. Compensation is on a commission basis.

BUSINESS INTERRUPTION – Insurance against business expenses and loss of income resulting from fire or other insured peril.

[C]

CANCELLATION – Termination of an insurance contract during the policy period by the voluntary act of the insurance company or insured, effected in accordance with provisions in the contract or by mutual agreement.

CLAIM – Notice to an Insurer by the Insured, that under the terms of a policy, a loss is requested to be covered.

CLAUSE – A term used to identify a particular part of a policy or endorsement.

CO-INSURANCE – In property insurance, a clause under which the insured shares in losses to the extent that he is underinsured at the time of loss.

COLLISION COVERAGE – An optional automobile coverage designed to provide protection for your vehicle when damage occurs as a result of a collision with another object. This coverage is optional and may be purchased in addition to the mandatory coverages required by law, and it is subject to a deductible.

COMMERCIAL GENERAL LIABILITY – This is the most common form of Liability Insurance for Businesses. The main section covers:  Bodily Injury and Property Damage to a Third Party;

There are also four other coverages that regularly come with the policy, including:

  • Personal Injury and Advertising Injury – for allegations that the company caused property damage or bodily injury to a third party arising out of his/her negligence and/or products. This also covers the policy holder’s Employees actions within the scope of their work
  • Medical Payments – to provide for a third party’s minor medical expenses for an injury that occurred on the policy holder’s premise
  • Tenant’s Legal Liability – If you unintentionally cause property damage to workspace you rent or lease this coverage would respond for the space you occupy.
  • Non-Owned Automobile Liability – to protect the business if it is named in a suit due to the owners/staff driver their own personal vehicles for work purposes.

 COMPREHENSIVE INSURANCE – For Automobiles, Comprehensive insurance covers damage to your own vehicle from causes other than collision or overturning, except what is excluded. The comprehensive portion of your policy pays for loss due to perils, on an Actual Cash Value Basis, for perils like hail, flood, theft, fire, glass breakage, falling objects, missiles, explosions, earthquakes, windstorms, vandalism or malicious mischief, riot or civil commotion, and collision with a bird or an animal.

CONSEQUENTIAL DAMAGE – A loss, which is an indirect result of an accident or fire, e.g. food spoiled through breakdown of a refrigerator.

CONTRACT – A legally binding agreement between two parties. It includes an offer, an acceptance between two parties for a consideration and a mutual intent to be bound. In insurance, the insurance policy is a contract between the insurer and the insured, known as the policyholder, which determines the claims which the insurer is legally required to pay. In exchange for an initial payment, known as the premium, the insurer promises to pay for loss caused by perils covered under the policy language.

COVER – To insure.

COVERAGE – Describes the type of Insurance.

[D]

DECLARATIONS PAGE (DEC SHEET) – A term used in insurance for the portion of the insurance contract which contains specific information pertaining to the insured. Generally the first page will include the business name, policy term, mailing address, annual premium and amount of the minimum and retained premium. The next page will generally outline the location address, description of operations that are insured under the policy, the property insured, the details of what is covered including the amount of insurance coverage and supplemental representations by the insured.

DEDUCTIBLE – The portion of a loss that you are required to pay before your insurance coverage will respond. Deductibles can be used to reduce your premiums. If the standard deductible is $500, then there could be a premium savings to increase to $1,000 or $2,500.

DEPRECIATION – After a loss by an insured peril, the Insurance Company will determine what the cost to repair or replace the property damaged or destroyed is. Then they will determine the age of the property, what the life expectancy is and then decrease it accordingly. They will take into consideration such things as use, wear, tear, and obsolescence. For example, if you paid $1,000 for a laptop with a life expectancy was 5 years, the depreciation would be 20% per year. So after two years if the laptop was destroyed the amount they would pay would be $600.00.

DIRECT LOSS (OR DAMAGE) – A loss, which is a direct consequence of a particular peril. Fire damage to a refrigerator would be a direct loss. Spoiling of food in the refrigerator as a result of the fire damage would be an indirect loss.

DIRECT WRITER – An insurance company, which sells its policies through salaried employees (licensed agents) who represent it exclusively, rather than through independent local brokers, who represent several insurance companies.

DISCOVERY PERIOD – With Professional Liability policies, there is a defined term of when a loss will be continue to be covered after the cancellation / lapse of a policy. Most policies lapse as at expiry, in some cases there is a built in additional time period – insurer and contract dependent.  (eg. 30 or 60 days) If ceasing operations, the client in some cases can voluntarily choose to purchase an Extended Discovery Period.

[E]

EARTHQUAKE INSURANCE – Insurance covering damage caused by an earthquake as defined in the contract.

EFFECTIVE DATE – The date on which an insurance policy or bond goes is effective, and from which protection is furnished.

EMBEZZLEMENT – The fraudulent use of money or property, which has been entrusted to one’s care.

EMPLOYERS LIABILITY INSURANCE – Coverage against common law liability of an employer for accidents to employees, as distinguished from liability imposed by a workers’ compensation law.

ENDORSEMENT – Amendment to the policy used to add or delete coverage. Also referred to as a “rider.”

EXCLUSIONS – Certain perils, causes and conditions, specifically listed in the policy, which are not covered.

EXPIRATION – The date upon which a policy will end.

EXTENDED COVERAGE (EC) – A common extension of property insurance beyond coverage for fire and lightning. Extended coverage adds insurance against loss by the perils of windstorm, hail, explosion, riot and riot attending a strike (civil commotion), aircraft damage, vehicle damage, smoke damage and volcanic eruption.

EXTENDED DISCOVERY PERIOD – In cases when an insured is ceasing operations (eg. Retiring or in some cases sold to a different company) the Insured may be eligible to purchase an additional Extended Discovery Period for the policy. The Extended Discovery Period acts to continue to allow Third parties to bring claims forward to have them covered, depending on the terms, conditions and exclusions of the policy. The Extended Discovery period is purchased, premium payable 100% up front, for an additional specifically named term, typically 1 to 6 yrs, depending on the industry and Insured’s comfort level.

[F]

FAIR MARKET VALUE – The price that a willing buyer would pay a willing seller, neither being under any compulsion to sell or buy.

FIRE – Combustion sufficient to produce a spark, flame, or glow and which is hostile (as opposed to friendly – i.e., not in the place where it is intended to be, such as in a furnace.)

FIRE INSURANCE – Coverage for loss of or damage to a building and/or contents due to fire.

FIRE RESISTIVE CONSTRUCTION – A building, which has exterior walls, floors, and roof constructed of masonry or other fire-resistive materials.

FLOATER – A property extension, specifically purchased, to cover for specifically identified property, covering it wherever it may be. Eg. Laptops, Portable Tools, Contractor’s Equipment

FLOOD INSURANCE – A form of insurance designed to reimburse property owners from loss due to the defined peril of flood.

[G]

GARAGING LOCATION – The postal code where your vehicle is parked or garaged when not in use. This is usually your primary residence / location.

[H]

HAZARD – A specific situation that increases the probability of the occurrence of loss arising from a peril, or that may influence the extent of the loss. For example, slippery floors, unsanitary conditions, shingled roofs, congested traffic, unguarded premises, and uninspected boilers are also hazards.

HOUSEKEEPING – The general care, cleanliness and maintenance of an insured property, inside or out.

 [I]

IMPROVEMENTS AND BETTERMENTS – When a tenant, at their own expense, makes alterations or upgrades to the portion of the building he/she is occupying, the increased costs would be considered improvements and betterments and should be insured to the replacement cost value. Depending on the lease agreement, while these improvements become a part of the building, in the event of a loss, the building owners insurance may not respond for the increased costs so the tenant would then be responsible to put in a claim to replace damaged property.  Condominium unit owners may also upgrade such items as flooring, counters and/or cupboards which would also be considered improvements and betterments and should be insured on the unit owners policy at the replacement cost.

INDEMNIFY – To restore the victim of a loss, in whole or in part, by payment, repair, or replacement.

INDIRECT LOSS (OR DAMAGE) – Loss resulting from a peril, but not caused directly and immediately thereby. For example: Loss of property due to fire is a direct loss, while the loss of rental income as the result of the fire would be an indirect loss.

INSPECTION – Independent checking on facts about an applicant or claimant, usually by a commercial inspection agency.

INSURABILITY – Acceptability of an applicant for insurance to the insurance company.

INSURANCE – A formal contract whereby the insurer agrees, for a consideration or premium, to assume, to a specified extent, the losses suffered by the insured. The insured agrees to pay the premium in return for transferring / reducing their risk of loss.

INSURANCE POLICY – Legal document issued to the insured setting out the terms of the contract of insurance.

INSURED – The person (or persons) whose risk of financial loss from an insured peril is protected by the policy.

INSURER – The Insurance Company.

[J]

JOINT TENANCY – Ownership of property shared equally by two or more parties under which the survivor assumes complete ownership. This is different from a tenancy in common where the heirs of a deceased party to the tenancy inherit his or her share.

[K]

[L]

LAPSE: At the end of a policy term, the insured may decide not to renew and the policy will then be lapsed. Of if the renewal has been issued, the Insurance Company may terminate a policy as of the renewal date because of failure to pay the premium

LESSEE – The person / company to whom a lease is granted.

LESSOR – The person / company granting a lease.

LIABILITY INSURANCE – a policy or portion of the policy that protects the policy holders when legal actions brought against them. Also refer to Commercial General Liability for businesses and Personal Liability for homeowners, tenants and condominium dwellings.

LIMIT OF LIABILITY – The maximum amount, which an insurance company agrees to pay in case of loss.

LIMITS – Maximum amount a policy will pay either overall or under a particular coverage.

LOSS – Generally refers to:

  1. the amount of reduction in the value of an insured’s property caused by an insured peril,
  2. the amount sought through an insured’s claim, or
  3. the amount paid on behalf of an insured under an insurance contract.

LOSS OF USE INSURANCE – Coverage to compensate an insured for the loss of use of property if it cannot be used because of a peril covered by the policy.

 [M]

MARKET VALUE – The price for which an asset would sell in its particular conditions and characteristics. For example, if you wanted to purchase or sell a specific piece of equipment – the Market Value is what you could purchase (or sell that equipment for) as at a specific date.

MATERIAL MISREPRESENTATION – The policyholder / applicant discloses information about the company up front in the quoting process, which the insurer relies upon in order to quote the policy and offer the contract.  In some cases, someone may make a false statement of a material (important) fact on his/her application, which had the insurer know this information, they may not have offered the insurance or changed the terms, conditions or pricing.  For instance, the policyholder provides false information regarding the location where the vehicle is garaged.  In cases such as a material Misrepresentation, the insurer has the right to cancel the policy and even in some cases void the insurance.

MORAL HAZARD – A condition of morals or habits that increase the probability of a loss from a peril.

MORTGAGEE – The creditor who lends money to a client, based on the security of the value of the property mortgaged.

MORTGAGOR – The debtor who receives loaned money and in turn grants a mortgage on his property as security for a loan.

[N]

NAMED INSURED – The policy holder, and if commercial, the principals, spouses and employees working within the scope of the policy holder’s scope of operations; and if personal, the policy holder, and while living in the same household, relatives and persons under the age of 21 in their care.

NAMED PERILS – Named perils are the specific perils that a policy insures you against – such as fire, windstorm, and hail in a property policy, for example. All of the specific perils are “named” or listed in the policy. If it is not listed – it is not covered;

NEGLIGENCE – Failure to use that degree of care, which an ordinary person of reasonable prudence would use under the given circumstances. Negligence may be constituted by acts of either omission or commission or both.

[O]

OCCASIONAL DRIVER – The person who is not the primary or principal driver of the vehicle. In drivers under 25 years old, there may be an “Occasional Operator” surcharge.

OCCUPANCY – In insurance, this term refers to how the premises is specifically used and by whom.

OCCURRENCE – An event that results in an insured loss. In some lines of insurance, such as Liability, it is distinguished from accident in that the loss does not have to be sudden and fortuitous, but which results in bodily injury or property damage neither expected nor intended by the insured.

[P]

PARTIAL LOSS – A loss under an insurance policy which does not either (1) completely destroy or render worthless the insured property, or (2) exhaust the insurance applying thereto.

PERIL – A chance event that is unexpected and accidental which results in the loss of property. For example, fire, theft, or hail.

PERSONAL INJURY – Injury other than bodily injury arising out of false arrest or detention, malicious prosecution, wrongful entry or eviction, libel or slander, or violation of a person’s right to privacy committed other than in the course of advertising, publishing, broadcasting or telecasting. Contrast with Advertising Injury.

PHYSICAL DAMAGE – A generic term indicating actual damage to property.

PHYSICAL DAMAGE COVERAGE – Physical damage coverage is usually referring to damage to your car. The physical damage section of an automobile policy is optional and can include any of All Perils, Comprehensive, Collision or Specified Perils coverage.

POLICY – Legal document (contract) issued to the insured, setting out the terms of the contract of insurance.

POLICY EXPIRATION DATE – The date when your current insurance policy expires. This date can be found on your current Declaration (or “DEC”) page, insurance identification card, or recent cancellation notice.

POLICY LIMIT – The maximum amount a policy will pay, either overall or under a particular coverage.

POLICY PERIOD (OR TERM) – The period during which the policy contract provides protection, typically one year.

POLICYHOLDER – The person, persons or company, whose risk of financial loss from an insured peril is protected by the policy. Otherwise known as an Insured or Named Insured.

PREMISES – The particular location of property or a portion thereof as designated in a policy.

PREMIUM – The amount of money an insurance company charges for insurance coverage.

PRINCIPAL DRIVER – The person who drives the car most often.

PROFESSIONAL LIABILITY INSURANCE – Liability insurance to indemnify any professionals, who are specifically relied upon for their work or advice (eg. doctors, lawyers, architects, etc.) for loss or expenses allegedly resulting from an error, omission, mistake, or malpractice committed by the Insured in his profession.

PROHIBITED RISK – Any class of business, which an insurance company will not insure under any condition.

PROOF OF LOSS – A formal statement made by the insured to the insurance company regarding a loss. The purpose of the proof of loss is to provide sufficient information concerning the loss to enable the insurer to determine its liability under the policy.

PROPERTY INSURANCE – Property Insurance indemnifies an insured whose property is stolen, damaged, or destroyed by a covered peril. The term property insurance includes direct or indirect property losses covered in several lines of insurance.

[Q]

QUOTE – An estimate of the cost of insurance, based on information supplied to the insurance company by the applicant. Quotes are typically honored for a period of 30 to 60 days policy and insurer dependent;

[R]

RATE – The per unit cost of insurance. (See also Premium).

REIMBURSEMENT – Payment of an amount of money related to the amount of the loss to or on behalf of the insured upon the occurrence of a defined loss.

REINSTATEMENT – Restoring a lapsed policy being back in force. 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.

RENEWAL – The continuation in full force and effect of a policy that is about to expire. With an insurance policy, renewal occurs by the issuance of a new policy, renewal or continuation certificate, to take effect upon the expiration of the old policy.

REPLACEMENT COST – The cost of replacing property damaged or destroyed with new property of like kind and quality without deduction for depreciation.

RIDER – Usually known as an endorsement, a rider is a specific amendment to the policy, used to add or delete coverage.

RISK MANAGEMENT – Involves analyzing the exposures to a particular company and determining how to handle these exposures through such practices as avoiding the risk, reducing the risk, or usually transferring the risk via insurance or a contract to a Third Party;

ROBBERY – The felonious taking, either by force or by fear of force, of the personal property of another, commonly known as “hold-up.”

  [S]

SETTLEMENT – Refers to the claim payment(s) that is made to settle a loss.

SPECIFIED PERILS – An optional coverage designed to provide protection on a more limited form, the insured perils are specifically listed in the policy and only those perils are covered.

SUBROGATION –Subrogation refers to the right of an insurance company go back to any other party to collect back portions of a loss that the insurer paid on behalf of their insured, where another party may have been wholly or partially negligent.

[T]

THEFT – Any act of stealing. Theft includes larceny, burglary and robbery.

TOTAL LOSS – A loss of sufficient size so that it can be said there is nothing left of value. The complete destruction of the property.

TRANSFER OF RISK – Shifting all or part of a risk to another party. Two most common methods are risk transfer to an Insurance Company or via Contract to another party. Eg. Landlords, Contractors, etc.

[U]

UMBRELLA LIABILITY POLICY – an additional layer of coverage which increases the limit of coverage for Commercial or Personal Liability, and often Automobile Liability.  In certain circumstances, it may provide coverage for liability losses outside of what is covered under Commercial or Personal Liability, or Automobile Liability

UNDERWRITER – A person who works for the Insurance Company, that assesses the information provided on individual clients and quotes / makes decisions on individual policies, with respect to the rates and coverages to be offered by that insurer.

UNDERWRITING – The process of evaluating a risk for the purpose of issuing insurance coverage on it.

[V]

VANDALISM – willful physical damage to property.

VANDALISM AND MALICIOUS MISCHIEF or ACTS (V&MM / V&MA) – Damage or destruction to property, which is willful. This coverage can be purchased under many Property forms. Typically automatically insured except in cases of higher risk, eg. Vacant properties

VALUATION – Estimation of the value of an item, usually by appraisal.

VIN – The vehicle identification number (VIN) on your vehicle. This number is usually found on the dashboard of your vehicle on the driver’s side, and is usually listed on the vehicle registration and title. The VIN is a combination of letters and numbers 17 characters in length that can be used to identify the specific make, model, and year of your car.

 [W]

 [X]

[Y]

[Z]

 

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