Hardy & Wren Insurance Services                 865-482-2222

Glossary of Common Insurance Terms

Additional insured - An individual or business, other than the named insured on the declarations page, who has a financial interest requiring protection under the terms of the contract (e.g., the lien holder on the loan for a car or a bank for a mortgage).

Annuity - A contract providing periodic income payments for a fixed period of time or during the lifetime of an annuitant. It may be defined as the systematic liquidation of an estate.

Arbitration - The process of settling differences relating to loss under an insurance policy between the insured and the insurer. Each party selects a representative who in turn selects a disinterested arbitrator whose decision or award is binding on both parties to the insurance contract.

Assigned risk - An uninsurable individual or company that is assigned an insurance company from a pool of insurers (usually all that hold certificates of authority in a specific state). Although the company must accept the risk, it may charge an appropriate premium.

Audit premium - A premium adjusted at the end of the policy term to compensate for additional exposures. Audited contracts typically include liability and workers' compensation.

Beneficiary - A person(s) designated to receive a specified payment(s) in the event of the insured's death.

Binder - A written or oral acknowledgment of insurance in force and evidence of acceptance of the applicant's offer to purchase the insurance, whether or not premium settlement has been reached and pending issuance of the policy.

Blanket insurance - A property or liability policy extending to more than one location, class of property or employee, without specifically naming the location, class or employee.

Bond - A written agreement under which the surety agrees to pay, within stated limits, for a financial loss caused to another (obligee) by the act or default of a third party (principal) or by some contingency over which the principal may have no control.

Business income insurance/business interruption insurance - This provides coverage for loss of earnings that results when a business must shut down or curtail its operations after damage or destruction of property by an insured peril. Coverage applies for the length of time it takes to rebuild, repair, or replace the damaged or destroyed property so that business operations can resume.

Claims-made coverage - A policy that provides liability coverage (usually professional or medical malpractice liability) only if a claim occurs and is reported during the policy period or any applicable extended reporting period.

Coinsurance clause - A provision requiring a specified amount of insurance based on the value of the insured property. There may be a penalty in the event of a partial loss if the insured fails to comply.

Combined single limit (CSL) - The combination of the liability limits of bodily injury and property damage into a single limit of liability for both. Example: $25,000 per person/$50,000 per occurrence for bodily injury and $15,000 for property damage liability is the equivalent of $65,000 ($50,000 + $15,000) combined single limit of liability for BI and PD.

Conditional receipt - A receipt given for the payment of the initial premium (accompanying the application) that makes coverage effective under the contract if the risk is approved as applied for, subject to the other conditions set forth in the receipt.

Dividend - A refund of part of the premium under a participating policy or a share of policyholder surplus funds apportioned for distribution. They are derived from savings in mortality and expenses and interest earned in excess of the assumed rate used in the calculation of the premium in the policy reserves.

Endorsement - A written amendment attached to a policy, with the insurance company's approval, that stipulates changes to the policy's terms.

Equipment breakdown coverage - This provides coverage for accidental loss arising from the operation of a boiler, pressure, mechanical, and electrical equipment, and machinery. Such policies may include coverage for loss to the boiler and machinery itself, for liability from damage done to other property, and for loss from business interruption. Formerly called boiler and machinery coverage.

Floater policy - An insurance policy that provides coverage for mobile property regardless of location.

Hold harmless agreement - A contractual agreement, usually written, whereby one party assumes legal liability on behalf of the other.

Insurance services office (ISO) - An organization that develops and provides standardized and state-specific forms, rates, and inspections for its members.

Medicaid - A state medical assistance program for eligible need or blind persons.

National Flood Insurance Program (NFIP) - A federal program established through the Housing and Urban Development (HUD) Act of 1968 to make flood insurance available to individuals and businesses in those flood-prone communities that adopt certain land-use and flood-loss control measures.

Nonadmitted company - An insurance company that is not licensed to write business in a particular state. Also known as a surplus, excess, or excess and surplus lines (E&S) company.

Occurrence coverage - A policy that provides liability coverage for injury or loss regardless of when the claim is actually made as long as it occurred during the policy period.

Preexisting condition - Any injury occurring, sickness contracted, or physical condition which existed for the issuance of a health policy.

Reinsurance - The act of sharing or spreading a risk that is too large for one insurer by transferring part of the risk to a reinsurer. The insurance company obtaining the reinsurance is called the ceding company; the insurance company issuing the reinsurance is called the reinsurer.

Split limits - The practice of separating Bodily Injury and Property Damage into distinct limits of liability (for example, $50,000 BI and $15,000 PD).

Subrogation- The act of assigning or substituting the rights of one party to another in collecting a debt or claim, as an insurance company is assigned an insured's rights of recovery from a third party who has caused a loss.
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