We know it can be difficult to understand insurance lingo. That is why we hope you find the following terms and definitions simple and easy to understand. Read the entire page or skip to a specific area you would like to learn a little more about.
PROPERTY INSURANCE: designed to protect your company's buildings, property, and contents. It protects against loss from perils including: fire, lightning, hail, windstorm, explosion (except when caused by boiler), civil commotion, riot, aircraft, vehicles, smoke, volcanic eruption, sprinkler system leakage, sinkhole collapse, vandalism, or malicious mischief. The above is referred to as basic insurance coverage and can be broadened to include other perils.
BUSINESS PERSONAL PROPERTY: traditionally known as "contents", this term actually refers to furniture, fixtures, equipment, machinery, merchandise, materials, and all other personal property owned by the insured and used in the insured's business.
COINSURANCE: clause that applies to building and personal property coverages. The coinsurance clause protects an insurance company when a property is underinsured. If a policy has a coinsurance clause, a coinsurance percentage will appear on the Declarations page of the policy. The insurance company uses this percentage in a formula to determine how much to pay for the property in the event of a loss. The insurance company will not pay the full amount of the loss if, at the time of loss, the value of the covered property times the coinsurance percentage exceeds the limit of insurance for the property.
BUSINESS INCOME INCLUDING EXTRA EXPENSE: net income (net profit or loss before income tax) that would be earned and continuing normal operating expenses (including payroll).
DEDUCTIBLE: the amount of loss which an insured must pay before the insurance company will pay its portion of the loss.
GENERAL LIABILITY: provides protection against damages for bodily injury or property damages for which the insured is legally responsible. The policy provides coverage for liability arising from personal injury and advertising injury. Coverage for medical expense is also provided. The policy provides supplemental payments for attorney fees, court costs and other expenses associated with a claim or the defense of a liability suit.
GENERAL AGGREGATE: the most money the insurer will pay under certain coverage for all claims occurring during the policy term.
EACH OCCURRENCE: considered to be an accident, which could include sudden events, a long series of events, or continuous or repeated exposure to the same harmful conditions.
PREMISES/OPERATIONS: provided for damages arising out of ownership or occupancy of the insured premises. This also covers damages arising out of operations performed by the insured business.
PRODUCTS/COMPLETED OPERATIONS: provided for damages arising out of products manufactured, sold, handled or distributed by the insured. Completed Operations covers damages occurring after operations have been completed or abandoned, or after an item is installed or built and released for its intended purpose.
MEDICAL EXPENSE LIMIT: pays medical expenses resulting from bodily injury caused by an accident on premises owned or rented by the insured, or when caused by the insured's operations. These payments are made without regard to the liability of the insured.
FIRE DAMAGE LIMIT: provides coverage for fire damage caused by negligence on the part of the insured to premises rented to the insured.
PERSONAL INJURY: provides coverage for injury (other than bodily injury) resulting from libel, slander, false arrest, malicious prosecution, detention or imprisonment, the wrongful entry into, wrongful eviction from and other acts of invasion, or rights of private occupancy of a room.
ADVERTISING INJURY: coverage for damages done by oral or written advertisement that libels or slanders another’s goods, products or services but is provided only if the offense occurs during the course of advertising the named insured's own goods, products or services.
PROFESSIONAL LIABILITY INSURANCE: liability insurance to indemnify professionals, doctors, lawyers, architects, etc. for the loss or expense resulting from claim on account of bodily injuries because of any malpractice, error or mistake committed or alleged to have been committed by the insured in their profession.
UMBRELLA LIABILITY: provides excess liability coverage over several of the insured's primary liability policies. Most umbrella liability policies provide coverage that is broader than the insured's primary policies. An excess liability policy may be what is called a following form policy, which means it is subject to the same terms as the underlying policies; it may be a self-contained policy, which means it is subject to its own terms only; or it may be a combination of these two types of excess policies. Umbrella policies have three functions: (1) to provide additional limits above the each occurrence limit of the insured's primary policies; (2) to take the place of primary insurance when primary aggregate limits are reduced or exhausted; and (3) to provide broader coverage for some claims that would not be covered by the insured's primary insurance policies, which would be subject to the policy retention. Most umbrella liability policies contain one comprehensive insuring agreement. The agreement usually states it will pay the ultimate net loss, which is the total amount in excess of the primary limit for which the insured becomes legally obligated to pay for damages of bodily injury, property damage, personal injury, and advertising injury.
LIMITS OF INSURANCE: all umbrella liability policies contain an each occurrence limit of insurance. Some umbrella liability policies may have a separate limit that applies to all personal and advertising injury for one person or for the organization. Also, some policies are written with aggregate limits for only one type of loss. Other policies may have one or more aggregates for all losses. Umbrella policies can be written with several different variations of the aggregate limits. There are no standard umbrella policies.
GENERAL AGGREGATE: the most money the insurer will pay under certain coverage for all claims occurring during the policy term.
PAY ON BEHALF: promises to make direct payment on behalf of the insured for those sums of money the insured becomes legally obligated to pay because of liability imposed upon the insured by law, or assumed under contract.
INDEMNITY: the insurer will indemnify or reimburse the insured for those sums of money the insured becomes obligated to pay by reason of liability imposed upon the insured by law, or assumed under contract.
SELF INSURED RETENTION: the amount of the loss an insured must pay before the umbrella policy would be required to respond. The self insured retention would only apply when a loss is excluded from coverage under the primary policy, but not excluded under the umbrella policy.
REQUIRED UNDERLYING LIMITS: requires the insured to have certain types and amounts of primary insurance before the umbrella policy can be written.
The purpose of Workers Compensation insurance is to provide medical and disability benefits for those who suffer an occupational injury or accident.
COVERED INJURIES: occupational injury is one that arises out of and in the course of employment. In the course of employment means that for the injury to be compensable, it must occur when the employee is at work, during the hours in which he is expected to be there, and while he is engaged in the work he is employed to do.
COVERED ACCIDENTS: occupational accidents must arise out of employment and are caused by poor conditions or lack of attention to the work at hand.
Workers Compensation insurance applies under the following criteria:
- The bodily injury must be sustained by an employee included in the group of employees described in the schedule of salary classification codes.
- The bodily injury must arise out of and in the course of employment necessary or incidental to work in a state listed in the schedule.
- The bodily injury must occur in the United States, its territories or possessions, or Canada, and may occur elsewhere if the employee is a United States or Canadian citizen temporarily away from those places.
- A bodily injury by accident must occur during the policy period.
- A bodily injury by disease must be caused or aggravated by the conditions of employment. The employee's last day or last exposure to the conditions or aggravating such bodily injury by disease must occur during the policy period.
EXECUTIVE OFFICERS, PARTNERS EXCLUSION ENDORSEMENT: in some states, workers compensation law allows an insured to include or exclude Executive Officers and Partners, or both, from coverage. Adding this endorsement can designate the individuals not covered under the policy.
EXPERIENCE MODIFICATION: a factor that deals with the rating of the policy. The Experience Modification figure is based on the insured's loss experience. The factor is used to increase or decrease the manual rates of insurance.
OWNED AUTO: provided for all autos owned by the named insured. The owned auto symbol is used for liability insurance only.
ANY AUTOMOBILE: provided for any auto, including autos owned by the insured, autos the named insured hires or borrows from others, and other non-owned autos used in the insured's business.
COLLISION COVERAGE: provides protection against loss or damage to a covered auto or a non-owned auto resulting from the impact with another vehicle or object. Collision losses are paid regardless of fault.
COMPREHENSIVE COVERAGE: provides protection against loss or damage to a covered auto resulting from loss other than a collision or upset. This coverage also provides for supplemental payments for transportation expenses in the event of total theft of a covered auto or a non-owned auto. Coverage begins forty-eight hours after the theft.
HIRED AUTO: provided only for autos leased, hired, rented, or borrowed for use in the named insured's business.
NON-OWNED AUTOS: provided only for autos not owned, leased, hired, or borrowed by the named insured. Coverage includes autos owned by the insured's employees or members of their households, but only while used in the named insured's business or personal affairs.
LIABILITY COVERAGE: provides protection against legal liability arising out of the ownership, maintenance, or use of any insured automobile. The insurer agrees to pay damages for bodily injury or property damage for which the insured is legally responsible because of an automobile accident with a covered auto of the insured. The insuring agreement also states that in addition to the payment of damages for which the insured is legally liable, the insurer also agrees to defend the insured for all legal defense costs. The defense costs are in addition to the policy limits.
MEDICAL PAYMENTS COVERAGE: the insuring agreement states that the insurer will pay all reasonable and necessary medical and funeral expenses incurred by the insured because of bodily injury caused by an accident. The insured is the named insured or the named insured's employees or guests or any other person occupying a covered auto. These payments are made without regard to fault.
RENTAL REIMBURSEMENT: the business auto policy provides a coverage extension if an auto is insured for comprehensive or specified cause of loss coverage which insures against loss of use of a covered auto only if the auto is a private passenger type auto and is stolen. The coverage extension pays up to a daily limit of $10 and a maximum limit of $300. Payments begin forty-eight hours after the theft and end when the insured auto is returned or when the insurer has paid the insured for the auto. However for broader coverage, the insured can pay an additional premium for rental reimbursement coverage. Rental reimbursement pays the cost of renting a substitute auto for replacement of any covered auto that has suffered a covered loss. The daily and maximum limit for this coverage varies among insurers.
SPECIFIED CAUSE OF LOSS: provides coverage against loss from fire, lightning, explosion, theft, windstorm, hail, earthquake, flood, mischief, or vandalism, and from the sinking, burning, collision or derailment of a conveyance transporting the covered auto.
TOWING AND LABOR: when this coverage is added, the insurer pays up to a stated amount for towing and labor costs each time a covered auto or non-owned auto is disabled.
UNINSURED MOTORIST: pays for bodily injury to an insured injured by an uninsured motorist, a hit-and-run driver, or a driver whose insurer becomes insolvent. These benefits are paid under the named insured's policy.
UNDERINSURED MOTORIST: this coverage is added to supplement the Uninsured Motorist Coverage. The coverage applies only when the other driver has liability limits at the time of an accident which may be insufficient to pay for damages for which that other driver is responsible. This is when the insured's underinsured motorist coverage would apply and payment for the difference could be made. The two coverages are mutually exclusive and do not overlap or duplicate each other.
PERSONAL INJURY PROTECTION (PIP): adds no-fault benefits. In applicable states, in the event of an automobile accident, each party collects from his or her own insurer regardless of fault. The PIP endorsement is only available in certain states with No-Fault Laws.
BOND: an obligation of the insurance company to protect one against financial loss caused by acts of another. There is more than one type of bond. Insurance bonds are normally three-party contracts in which one party agrees to guarantee the act, performance, or behavior of a second party, to a third party. Some types of bonds are performance bonds, license and miscellaneous bonds, and fidelity bonds.
SURETY BOND: A surety bond is a written agreement that usually provides for monetary compensation in case the principal fails to perform the acts as promised. There are many different types of surety bonds, but the two general categories are contract and commercial surety bonds.
FIDELITY BOND: A fidelity bond is a bond which indemnifies the insured for loss caused by the dishonest and fraudulent acts of its covered employees. In addition, a fidelity bond typically covers the insured against the following:
- Forgery or Alteration;
- Loss inside the premises caused by theft, disappearance and destruction, and robbery and safe burglary;
- Loss outside the premises caused by the robbery of a messenger.
These coverages sometimes are referred to as Crime Coverage.
EPLI: covers businesses against claims by workers whose legal rights as employees of the company have been violated.
The number of lawsuits filed by employees against their employers has been rising. While most suits are filed against large corporations, no company is immune to such lawsuits. Recognizing that smaller companies now need this kind of protection, some insurers provide this coverage as an endorsement to their Business Owners Policy (BOP). An endorsement changes the terms and conditions of the policy. Other companies offer EPLI as a stand-alone coverage.
EPLI provides protection against many kinds of employee lawsuits, including claims of:
- Sexual harassment
- Wrongful termination
- Breach of employment contract
- Negligent evaluation
- Failure to employ or promote
- Wrongful discipline
- Deprivation of career opportunity
- Wrongful infliction of emotional distress
- Mismanagement of employee benefit plans
The cost of EPLI coverage depends on your type of business, the number of employees you have and various risk factors such as whether your company has been sued over employment practices in the past. The policies will reimburse your company against the costs of defending a lawsuit in court and for judgments and settlements. The policy covers legal costs, whether your company wins or loses the suit. Policies typically do not pay for punitive damages or civil and criminal penalties. Liabilities covered by other insurance policies such as Workers Compensation are excluded from EPLI policies.
To prevent employee lawsuits, educate your managers and employees so that you minimize problems in the first place:
- Create effective hiring and screening programs to avoid discrimination in hiring.
- Post corporate policies throughout the workplace and place them in employee handbooks so policies are clear to everyone.
- Show employees what steps to take if they are the object of sexual harassment or discrimination by a supervisor. Make sure supervisors know where the company stands on what behaviors are not permissible.
Document everything that occurs and the steps your company is taking to prevent and solve employee disputes.
BOILER & MACHINERY: covers direct damage to covered property when caused by a covered cause of loss. Covered property is any property that is owned by the named insured or is in the named insured's care, custody, or control and for which the named insured is legally liable. A covered cause of loss is a sudden and accidental breakdown of the insured's boiler and machinery equipment or any part of the equipment described in the policy. Boiler and machinery insurance is necessary because commercial property policies exclude explosion of steam boilers and breakdown of machinery.
The standard boiler and machinery policy contains three extensions of coverage. The three extensions are 1) expediting expense coverage, which pays the reasonable extra cost incurred to expedite progress after a loss; 2) automatic coverage which covers accidents to objects at newly acquired locations for up to ninety days after the named insured acquires the property; and 3) defense cost and supplemental payments which would apply when the insurer is defending the insured against claims or suits alleging liability for damage to property of others. Defense Cost and Supplementary Payments are payable in addition to the policy limit. Expediting Expenses are included in, not in addition to, policy limits.
The policy has interior limits of $5,000 each, for 1) the cost of cleanup, repair or replacement, or disposal or hazardous substances; 2) damage resulting from contamination of covered property by ammonia; and 3) damage by water to covered refrigerating or air conditioning vessels and piping. These limits are part of and not in addition to the limit specified in the policy. A benefit of boiler and machinery insurance is the inspection service that insurers provide to the insured. Endorsements can be added to the standard boiler and machinery policy to provide coverage for business income, extra expense, and consequential losses.
COMPREHENSIVE COVERAGE: written only under the standard policy form. Coverage is provided for all insurable boiler and machinery equipment, including or excluding production machines. Coverage can also be written to cover particular types of boiler and machinery equipment.
BASIC COVERAGE: can be written under the small business form to cover boilers, vessels and equipment, including or excluding air conditioners/compressor units.
BROAD COVERAGE FORM: written under the small business policy. Many refer to this form as the comprehensive form for small business since it covers a broader range of equipment. Coverage is provided for any boiler, any fired or unfired pressure vessel, any refrigeration or air conditioning equipment, and any mechanical or electrical equipment. Only certain types of business can qualify for the small business policy and property values can be no more than $5 million.
LIMIT OF INSURANCE: based on the estimated value of the insured's property.
BUSINESS INCOME: can be written to provide coverage on either a "valued" or an "actual loss sustained" basis. When the actual loss sustained option is used, the coverage pays only for the insured's actual loss of income. If coverage is written using the valued option, the insured is able to collect a predetermined amount of coverage for each day the business is interrupted because of an accident to an insured object. The coverage is subject to a per-accident limit and a deductible that can be expressed as either a specified time period or a dollar amount. When the valued form is used the daily amount of insurance is paid regardless of the actual amount of loss.
EXTRA EXPENSE: pays for the extra expense of maintaining operations after an accident to an insured item until normal operations can be restored. This endorsement excludes coverage for loss of income. To have coverage for loss of income and extra expense, the endorsement called combined business interruption and extra expense must be added to the policy.
CONSEQUENTIAL DAMAGE: covers loss due to spoilage of specified property from lack of power, light, heat, steam or refrigeration, which results from an accident to an insured item.
DEDUCTIBLES: the standard deductible is $250. Coverage can be written with more than one deductible. The insured can choose one deductible for a group of covered items and a different deductible for all other items. If a loss occurs involving more than one covered item, the higher deductible would apply.
EMPLOYEE DISHONESTY: a criminal act committed by an employee acting alone or in collusion with others. There must be intent by the employee to cause the employer a loss and to obtain a financial benefit for the employee or someone else. Coverage insures against loss of money, securities, and property other than money and securities.
FORGERY OR ALTERATION: insures against loss caused by the forgery or alteration of a covered item drawn against the insured's accounts. A covered item might be a check, draft, promissory note, bill of exchange or similar instrument.
THEFT, DISAPPEARANCE AND DESTRUCTION: theft means any act of stealing. Disappearance is unknown causes of loss. Destruction is the loss of certain property; it is usually the result of another cause of loss.
ROBBERY AND SAFE BURGLARY: robbery is the taking of property from a person by the threat of personal injury to that person. Safe Burglary means the taking of property from a safe or vault which shows visible signs of forcible entry. This form covers property other than money and securities inside and outside the premises.
PREMISES BURGLARY: covers property other than money and securities inside the premises.
COMPUTER FRAUD: theft where a computer is used to steal property from its rightful owner.
EXTORTION: surrender of property away from the premises as a result of a threat of bodily harm to someone who is, or allegedly is, being held captive.
PREMISES THEFT & ROBBERY OUTSIDE: Premises Theft covers property for loss caused by actual or attempted theft. Robbery Outside the premises covers property while it is in the care and custody of a messenger.