All definitions are presented in the context of, or as related to, insurance.
Adjuster – An individual who handles claims on behalf of an insurance company, approving or denying claims and settlement amounts. Adjusters answer to a claims manager who has authority to modify or overrule the adjusters decisions. An adjuster can be either an employee of the insurance company or an outside representative hired by the company.
Agent – A person licensed to sell insurance. There are two basic types of agents: captive and independent. Captive Agents work for, and sell, the policies of one insurance company only. Independent Agents may work with, and sell, policies for many different insurance companies. Agents are trained to sell insurance. They are not coverage, claims or legal experts. Therefore their opinions about the policies they are selling have limited value.
Alternative Dispute Resolution – (ADR) A method of resolving disputes without going to court. The most common types of ADR include appraisal, mediation and arbitration. Many insurance policies contain provisions requiring that disputes between the insurer and insured be resolved by binding appraisal or binding arbitration. Whether a particular ADR provision is good for the policyholder, or not, depends on the details. Some are fair, and quite acceptable, while others are extremely unfair and should be avoided at all costs. You can find more on this subject in the FAQs and Types of Insurance sections.
Ambiguity – A provision in a policy that is reasonably subject to more than one interpretation is considered ambiguous. Ambiguous provisions in policies must be interpreted in favor of the insureds.
Anniversary Date – The date on which insurance coverage will expire, which is usually one year from the date that coverage began.
Application – A form submitted to the insurance company by the agent at the time of sale. It contains answers to questions of importance to the insurance company in its determination as to whether or not it will agree to sell a policy to the proposed insured, and if so, at what price. Inaccurate statements in the application can result in rescission (voiding) of the policy even after an otherwise valid claim has been made.
Appraisal – Refers to the value of personal or real property determined by a licensed, professional person. It can also refer to a type of ADR (see above).
Arbitration – A method of resolving disputes in which a (hopefully) neutral third party listens to the facts and assertions of the parties and, acting in the role of a private judge, makes a decision on the matter. Claims decisions by arbitrators are usually final, binding and non-appealable.
Bad Faith – Unfair or unreasonable conduct in the handling of an insurance claim. It can refer to the conduct of either the insurer or the claimant. In most states such conduct is unlawful.
Benefit – Payment a policyholder is entitled to receive under the terms and conditions of an insurance policy.
Bid – An offer to perform specific services, such as construction repairs, for a specific price. It is a binding commitment. A bid is very different from an estimate (see below).
Binder – A temporary or preliminary agreement which provides coverage until a policy can be written or delivered.
Broker – A licensed person hired by the policyholder to look for insurance on the policyholder’s behalf. A broker represents the policyholder and, unlike an agent, his/her actions are generally not attributable to the insurer.
Cancellation – The termination of insurance coverage during the policy period. A policyholder can cancel the insurance policy at any time. Generally, an insurance company can cancel the policy only if the policyholder has made a material misrepresentation to the company (such as on the application for insurance) or has failed to pay the premiums.
Code Upgrade – A provision in a Homeowners Policy that increases stated dwelling protection coverage limits to account for building or fire code requirements that may not have been in effect at the time the house was originally built. The upgrade coverage is supposed to pay for the increased cost to rebuild or replace based on such codes.
COLA (Cost of Living Adjustment) – A provision that increases coverage under certain types of policies so the policy benefits keep pace with inflation. The terms of COLAs can differ from one to another substantially, depending on the wording of the policy.
Cooperation Clause – An insurance contract that requires the policyholder to cooperate with the insurance company in its investigation and processing of a claim. Violating or breaching the duty to cooperate can result in the relief of an insurer’s obligations under a policy.
Coverage or Insuring Clause – The clause in an insurance policy that sets forth the circumstances under which a policyholder is entitled to benefits under the policy.
Coverage Opinion – The opinion of an insurance lawyer, given to an insurance company, concerning the meaning of policy provisions. A coverage opinion is sought when the company is considering whether or not to deny a claim.
Conditions – Conditions detailing what the policyholder must do in the event of a loss. For example, the policyholder must give prompt notice of a loss and file a sworn proof of loss if asked to do so. However, this condition is often not enforceable by the insurer.
Declarations – The portion of the policy that contains the amount of the insurance provided, the deductibles (what portion of a loss the policyholder pays), and the limits (the maximum amount the insurance company will pay).
Declaratory Relief – A lawsuit, usually filed by an insurance company against its policyholder, that seeks a court decision about coverage.
Deductible – The amount of a loss that the policyholder must pay before the insurance company is obligated to pay.
Definitions Section – An important part of an insurance policy that explains keywords and phrases used in the policy. Both sides are bound by these definitions, as long as they are clear and unambiguous.
Delinquency – The failure to make a premium payment on time.
Depreciation – A decrease or loss in value to property because of use, disuse, physical wear and tear, age or other causes.
Discounts – Reductions in the cost of insurance based on specific conditions. For example, insurance companies may offer discounts on automobile insurance for good drivers, safety or anti-theft equipment and other factors.
Duty of Good Faith – The obligation of an insurer to deal with all aspects of the claims handling process fairly and reasonably.
Duty to Defend – A requirement under a liability policy that obligates the insurance company to pay the cost of defending an insured against certain claims filed against him or her.
Effective Date – The date the insurance policy goes into effect. Generally, a policy goes into effect when it is delivered to the policyholder. However, the insurance company may agree to cover the policyholder while the policy is being processed.
Endorsements – Extra, usually optional, provisions added to the policy in order to increase or reduce the coverage.
ERISA (The Employment Retirement Income Security Act) – A federal law that applies to certain types of insurance, such as medical or disability insurance, purchased in the workplace. If a policy is governed by ERISA the policyholder loses all rights provided under state consumer protection laws and regulations. In addition, if there is a dispute or disagreement between the insurer and the policyholder, the policyholder loses his or her right to a jury trial.
Examination Under Oath (EUO) – An examination by an insurance company lawyer, with a court reporter present and transcribing the proceedings. An EUO usually takes place when a claim is being disputed by the insurance company.
Excess Verdict – A judge or jury verdict against a policyholder in excess of the amount of the liability coverage provided under an applicable policy. For example, if the liability coverage is $250,000 but the verdict is for $500,000 the excess verdict is in the amount of $250,000 balance. With the exception of situations involving a failure by an insurer to reasonably attempt to settle the case within the policy limits, the insured is responsible for paying an excess verdict.
Exclusions – Portions of a policy setting forth the causes and conditions of loss for which the insurance company provides no coverage.
Expiration Date – The date the insurance policy ends.
First Party Claim – Insurance claims requesting payment from the your own insurance company.
Flood Insurance – Property insurance provided through the Federal Emergency Management Authority (FEMA).
Incontestability Clause – A policy provision in which the company is prohibited from contesting the validity of certain types of insurance coverage after a policy has been in force for a certain period of time, usually two or three years.
Insureds or Additional Insureds – The people who are covered under a policy, such as residents of the household or minor children away at school. It is often possible to add specific individuals as insureds who would not otherwise be covered under a policy.
Investigator – A person hired by the insurance company to investigate the facts surrounding a claim. Investigators may take surveillance videos, tape record conversations, contact witnesses and otherwise examine facts surrounding a claim or claimant.
Lapse – A period during which insurance coverage is void due to a policyholders failure to pay for premiums. If the premium payment is late, the insurance company may decide to reinstate the policyholder, but the insurance company does not have to pay for claims that arose during the lapse period.
Liability Claim – A third party’s demand for money due to an occurrence resulting in a loss.
Limits or Limitations – The maximum amount the insurance company must pay on a particular type of loss.
Like Kind and Quality – The same or equivalent quality. For example, under Homeowners Insurance, property that is damaged or destroyed must be replaced to the same level of quality of that which was lost.
Loan Value – The amount of money that can be borrowed at a specified rate of interest from the issuing company by the policyholder, using the value of the policy as collateral. If the policyholder dies and the debt has not been fully paid, then the balance of the debt plus interest is deducted from the benefit.
Material Misrepresentation – A material misrepresentation occurs when the policyholder/ applicant makes a false statement or omits an important fact on the application, and when the statement in question is an important or significant one.
Mediation – A private, informal dispute resolution process in which a neutral third person (mediator) helps disputing parties to reach an agreement. Mediators’ opinions are not binding on either side.
Net Assets – The total present value of all of your assets.
Notice of Loss – Notice to the insurance company that you are seeking benefits under the policy. There are often time limits on how quickly a notice of loss must be filed from the date of loss. Such time limits may or may not be enforceable.
Notice of Non-Renewal – Notification of an insurer’s intent to cancel a policy. If the insurance company elects not to renew a policy on the anniversary date, it must provide notice of non-renewal, usually 30 days before your policy expires, so that insurance may be sought elsewhere.
Peril – The cause of a possible loss.
Personal Property – Items such as clothing, art, furniture, jewelry, and other personal belongings. Some types of personal property are subject to dollar limits, or may require appraisals and special endorsements in order to be covered.
Policy Term– The period in which the policy continues in effect.
Premium – The amount of money an insurance company charges for insurance coverage.
Prompt Notice of the Loss – A policyholders notification of loss. The policyholder must inform the insurance company within a specific period of time that a loss has occurred.
Quote – An estimate of a cost.
Real Property – Land and anything attached to it, including houses, sheds, barns, fences etc.
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 premiums due, plus interest. before they will reinstate the policy.
Replacement Cost Guarantee – A provision in a homeowner’s or property coverage policy that increases the amount an insurance company will pay beyond the dollar limits of the policy.
Rescission – The act of voiding or disavowing a contract – – treating it as if it had never existed.
Replacement Guarantee – A provision under a Homeowners Policy that provides coverage beyond the stated dwelling limits in order to account for increases in the costs of materials and workmanship. Read these provisions carefully. They are often subject to a cap or limit.
Reservation of Rights – The act of an insurance company in which it agrees to defend a liability suit against an insured, but does so while asserting that it does not have to pay for any settlement or verdict in the case. This is called a defense with a reservation of rights.
Rider – Additional coverage to persons or property who would otherwise be excluded from the insurance policy. Also known as a “floater.”
Scope of Repair – A written description of the specific tasks that need to be performed in order to repair or rebuild covered property. The scope is very important and must be complete. It serves as the basis for contractor bids or estimates.
Sworn Proof of Loss – A document filed by a policyholder with the insurance company attesting to the fact that a loss has occurred and outlining what it involves. (See Conditions.)
Tender of Defense – A policyholder’s notice to a liability carrier that a claim has been filed against him/her, and asking the company to provide legal defense and acknowledgment of coverage under the policy.
Third Party Claim – A claim filed by an individual who is not a party to your insurance contract.
Unearned Premium – The portion of the premium that must be returned to the policyholder when an insurance contract is canceled before the anniversary date of the policy.
Underwriting – The practice of assessing risk before the insurance company agrees to insure someone or something.
Uninsured Motorist Coverage – A type of coverage under an automobile policy by which the insurance company steps into the shoes of an uninsured driver who causes an accident.
Underinsured Motorist Coverage – A type of coverage under an automobile policy by which the insurance company steps into the shoes of a driver who does not have sufficient coverage to pay for the claim. Underinsured motorist coverage is capped with a coverage ceiling.
Waiver – The act of giving up certain legal rights.