Area Insurance

INSURANCE TERMS

Accidents:In insurance terms, events that are not deliberately caused by the insured and that are not inevitable. Thus, if you deliberately cause damage by driving your car into a tree, the damage is not insured. Similarly, insurers may argue that if you carry out a large excavation in soft soil without appropriate bracing, damage to surrounding property is inevitable and you may not be able to claim any insurance.

Act of God: Natural occurrence such as earthquake or typhoon. These can be specifically included in most insurance policies contrary to popular opinion.

Actual Cash Value: An amount equivalent to the fair market value of the stolen or damaged property immediately preceding the loss. For real property, this amount can be based on a determination of the fair market value of the property before and after the loss. For vehicles, this amount can be determined by local area private party sales and dealer quotations for comparable vehicles.

Agent: A state licensed person or organization authorized to sell insurance by or on behalf of an insurance company.

Aggregate Limits: An aggregate total limit on claims during a policy period, which applies in addition to a limit per claim. Often this applies to liability and medical policies.

Arbitration Clause: This clause is often found in the Conditions of property insurance policies. Any dispute between insurer and insured in agreeing on the amount or quantum of a claim can be referred to independent arbiters. Most arbitration clauses only apply to dispute over quantum, not to disputes over liability. Arbitration is usually faster and cheaper than going through the Courts.

Automobile Insurance: Coverage on the risks associated with driving or owning an automobile. It can include collision, liability, comprehensive, medical, and uninsured motorist coverages.

Bailee's Liability: Bailee's Liability insurance covers the bailee's legal liability for loss, destruction or damage to property whilst in the bailee's care. As an example, clothes being cleaned are under the temporary control of the bailee (laundry). The bailor (owner) expects the clothes to be returned in good condition. If the clothes are stolen from the cleaners, the bailee's Liability insurance would cover the liability of the laundry for the loss.

Binder: A temporary or preliminary agreement, which provides coverage until a policy, can be written or delivered.

Bonds: These are a guarantee issued by a bank or insurance company that an individual or company will meet various obligations.

Under a construction contract a contractor may be required to obtain:

A bid bond: This will protect the developer against the failure of the contractor to proceed with a project at his bid price.

Prepayment bond: This guarantees any advance payment made by the developer for the contractor's mobilisation.

Performance bond: This guarantees that the contractor carries out the project properly and the developer will be compensated for any breach of contract.

Retention bond: Often a developer will retain a small amount from the contract price for a period to ensure that any defects in the project discovered after completion are corrected in a timely manner. This can adversely effect the contractor's liquidity. A retention bond will guarantee that any corrective work is carried out and allow the developer to settle in full with the contractor immediately the project is complete.

Broker: A licensed person or organization paid by you to look for insurance on your behalf.

Broker: A licensed person or organization paid by you to look for insurance on your behalf.

Business: An insurance policy covering a business will only provide cover in respect of the 'businesses' described in the policy.

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.

Certificate of Insurance: A piece of paper not to be confused with an insurance policy. It is issued mainly to comply with certain statutory requirements as evidence of cover.

Claim: Notice to an insurer that under the terms of a policy, a loss maybe covered.

Claimant: The first or third party. That is any person who asserts right of recovery.

Constructive Total Loss: Partial loss of such significance that the cost of restoring damaged property would exceed its value after restoration. For example, a car is so badly damaged by fire that repairing it would cost more than the repaired vehicle would be worth.

Contribution: Where someone is holding two or more insurance policies covering the same interest in the same property for the same peril, and if the policies are contracts of indemnity, then the law does not allow the insured to recover a loss under both policies and so make a profit out of the misfortune he has insured against. Instead, the insurers concerned share in the loss proportionately. This is known as contribution.

Decline: The company refuses to accept the request for insurance coverage.

Deductible: The amount of the loss which the insured is responsible to pay before benefits from the insurance company are payable. You may choose a higher deductible to lower your premium.

Depreciation: A decrease in value due to age, wear and tear, etc.

Directors and Officers Insurance: Legislation in many countries makes directors and senior officers personally responsible for wrongful acts they commit as representatives of the company. If poor management decisions are made and the company loses business, if investors are given inaccurate information or if an employee believes he has been unfairly dismissed, personal action may be taken and the company may be prohibited from paying costs or damages on the directors behalf. Extremely large personal claims have been seen in the USA and they are becoming more frequent in Asia. For more information on Directors and Officers Insurance, see our separate article.

Effective Date: The date upon which cover under an insurance policy becomes effective. Usually this will not be until an insurer has accepted the proposal and confirmed cover in writing by issuing a cover note or cover confirmation.

Endorsement: An endorsement is a special amendment to a policy wording. It may be attached to the policy from inception or it may be added to the policy mid term. Mid term endorsements are often issued at the request of the Insured. For example an endorsement may be issued to note a change of address of the Insured. Amendment to the policy is also used to add or delete coverage. Also referred to as a rider.

Exclusion: Certain causes and conditions, listed in the policy, which are not covered.

Expiration date: The date on which the policy ends.

Fire Insurance: Coverage for loss of or damage to a building and/or contents due to fire.

Glass insurance: Glass insurance is normally provided as part of a package policy for shops and other small risks but can be obtained a separate policy. The policy covers breakage of fixed glass from any cause but normally excludes damage to frames.

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.

Health insurance: A policy that will pay specified sums for medical expenses or treatments. Health policies can offer many options and vary in their approaches to coverage.

Homeowners 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.

Indemnity: Indemnity is one of the basic principles of insurance and has been legally defined on several occasions. It states that the Insured should not profit by any claim, but should be returned to as near as possible the same financial position as he would have been had the loss not occurred.

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.

Inherent Vice: Certain goods are, by their very nature susceptible to damage and it would be unreasonable to expect insurers to pay for such damage. Examples of inherent vice are would be deterioration of imperfectly cured skins, spontaneous fermentation or combustion of improperly dried grain.

Insured: The policyholder - the person(s) protected in case of a loss or claim.

Insurer: The insurance company.

Insurable Interest: Insurable Interest is one of the basic principles of insurance. It states that the Insured must have a financial interest in the property insured such that he benefits from its continued existence and will be prejudiced by its loss or damage. This basically differentiates insurance from gambling. The insurance policy insures the interest of the policyholder in the property. If there is no insurable interest, the policy will not respond.

Lapse: Your policy will lapse or expire if you fail to pay the renewal premium.

Liability Insurance: Covers Legal Liability to third parties, including legal costs.

Limit: Maximum amount a policy will pay either overall or under a particular coverage.

Loss of Use of Vehicle: If you are involved in an accident you may have to hire a replacement vehicle. Standard Motor policies do not include cover for such costs but cover is available from specialist companies in certain territories. If the accident is cause by someone else it may be possible to claim loss of use from the other party or his insurers.

Lloyd's: This is the world's oldest and most famous insurance market, attended by Lloyds brokers and Lloyds underwriters. Lloyds started in a London coffee-house frequented by ship owners in the seventeenth century.

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.

Misquote: An incorrect estimate of the insurance premium.

Peril: The cause of a possible loss. For example, fire, theft, or hail.

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 money an insurance company charges for insurance coverage.

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. Depending on the company the fees and taxes are not returned you must also consider the interest rates if your policy was financed.

Quote: An estimate of the cost of insurance, based on information supplied to the insurance company by the applicant.

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.

Replacement value: 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.

Rider: Usually known as an endorsement, a rider is an amendment to the policy used to add or delete coverage.

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.

Surcharge: An extra charge applied by the insurer. For automobile insurance, a surcharge is usually for accidents or moving violations.

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.

Waiting period: A period of time set forth in a policy that must pass before some or all coverages begin.