State Farm

Statute Law

The written law as enacted by a legislative body (i.e. the laws of the state), which generally takes precedence in cases where both common law and statute law apply.

Commercial Lines

Type of insurance that pertains to business, mercantile or manufacturing establishments.

Consumer Reports

Written and/or oral statements regarding a consumer's credit, character, reputation, or habits collected by a reporting agency from employment records, credit reports, and other public sources.

Proof of Loss

A sworn statement that must usually be furnished by the insured to an insurer before any loss under a policy can be paid.

Binder

A temporary contract that puts an insurance policy into force before the premium has been paid.

Nonrenewal

A termination of a policy by an insurer on the anniversary or renewal date.

Conditional Contract

A type of an agreeement in which both parties must perform certain duties and follow rules of conduct to make the contract enforceable.

Blanket Bond

A type of bond that covers losses caused by dishonest employees.

Hazard, Physical

A type of hazard that arises from the physical characteristics of an individual, such as a physical disability due to either current circumstance or a condition present at birth.

Casualty Insurance

A type of insurance that covers losses caused by injury to persons or damage to the property of others.

Vicarious Liability

A type of liability in which one person is responsible for the acts of another. For example, employers may be vicariously liable for the actions of their employees, and parents may be held responsible for negligent acts of their children.

Absolute Liability

A type of liability that occurs due to extremely dangerous operations, such as the use of explosives or working at extreme heights.

Exposure

A unit of measure used to determine rates charged for insurance coverage.

Interline Endorsement

A written amendment designed to eliminate redundancy and minimize the number of endorsements in the policy.

Complaint

A written statement of a liability claim given by the claimant; a reason for a lawsuit.

Tort

A wrongful act or the violation of someone's rights that leads to legal liability. Torts are classified as intentional or unintentional (referred to as negligence).

Named Peril

The cause of loss specifically covered by the insurance policy. No coverage is provided for unlisted perils.

Commissioner (Superintendent, Director)

The chief executive and administrative officer of a state insurance department.

Functional Replacement Cost

The cost to replace damaged property with less expensive and more modern construction or equipment.

Replacement Cost

The cost to replace damaged property with like kind and quality at current price, without any deduction for depreciation.

Hazard, Morale

The effect of a person's indifference concerning loss has on the risk to be insured.

Hazard, Moral

The effect of a person's reputation, character, living habits, etc. on his/her insurability.

Economic Loss

The estimated total cost (both insured and uninsured) of an accident.

Negligence

The failure to use the care that a reasonable, prudent person would under the same or similar circumstances.

Utmost Good Faith

The fair and equal bargaining by both parties in forming the contract, where the applicant must make full disclosure of risk to the company, and the insurance company must be fair in underwriting the risk.

Burglarly

The forced entry into another's premises with felonious intent.

Director (Commissioner, Superintendent)

The head of the state department of insurance.

Superintendent (Commissioner, Director)

The head of the state department of insurance.

First Named Insured

The individual whose name appears first on the policy's declaration.

Named Insured

The individual(s) whose name appears on the policy's delcaration.

Depreciation

The lessening of value of real and personal property due to age and wear and tear.

Policy Limits

The maximum amount an insured may collect, or for which an insured is protected under the terms of the policy.

Limit of Liability

The maximum amount for which an insurer is liable.

Aggregate Limit

The maximum limit of coverage available under a liability policy during a policy year regardless of the number of claims that may be made or the number of accidents that may occur.

Policyholder

The person in possession of an insurance policy; may or may not be the policyowner and/or insured.

Insured

The person or organization that is protected by insurance; the party to be indemnified.

Policyowner

The person who is entitled to exercise the rights and privileges in the policy. This person may or may not be the insured.

Beneficiary

The person who receives the proceeds from the insurance policy.

Deductible

The portion of the loss that is to be paid by the insured before any claim benefits may be paid by the insurer.

Class Rating

The practice of computing a price per unit of insurance that applies to all applicants possessing a given set of characteristics.

Settlement

The process by which an agreement is reached and a claim is resolved in liability insurance.

Underwriting

The process of reviewing, accepting or rejecting applications for insurance.

Loss

The reduction, decrease, or disappearance of value of the person or property insured in a policy, by a peril insurered against.

Actual Cash Value (ACV)

The required amount to pay damages or for property loss, which is calculated based on the property's current replacement value minus depreciation.

Unintentional Tort

The result of acting without proper care, generally referred to as negligence.

Arbitration

Method of claim settlement used when the insured and insurer cannot agree upon the amount of the loss.

Experience Rating

Method of determining the premium based on the insured's own past loss experience.

Concurrent Causation

Multiple events leading to one loss.

Cease and Desist Order

A demand of a person to stop committing an action that is in violation of a provision.

Liability

Responsibility under the law.

Death Benefit

The amount payable upon the death of the person whose life is insured.

Passive

A description of an anti-theft device or system for autos which is activiated automatically when the driver turns the ignition key to the off position and the key is removed.

Mysterious Disappearance

A disappearance of property that cannot be explained as to the location, time or the manner of property loss.

Producer

A person who acts on the behalf of the insurer to sell, negotiate, or effect insurance contracts; also known as an agent.

Insurance Policy

A contract between an insured an an insurance company which agrees to pay the insured for loss caused by specific events.

Aleatory

A contract in which the participating parties agree to exchange unequal amounts. Insurance contracts are aleatory in that the amount the insured will pay in premiums is unequal to the amount the insurer will pay in the event of a loss.

Adhesion

A contract offered on a "take-it-or-leave-it" basis by an insurer, in which the insured's only option is to accept or reject the contract. Any ambiguities in the contract will be settled in favor of the insured.

Unilateral Contract

A contract that legally binds only one party to contractual obligations after the premium is paid.

Inflation Guard

A coverage extension that automatically increases amounts of insurance on buildings by an agreed upon percentage annually.

Insured Contract

A definition on liability forms that describes the types of contracts in which liability is assumed by the insured and included for coverage in the policy. Examples of insured contracts are leases of premises, elevator maintenance agreements, easement agreements, and other agreements related to the insured's business.

Claim

A demand made by the insured to cover a loss protected by the insurance policy.

Transfer

A basic principle of insurance under which the risk of financial loss is assigned to another party.

Primary Policy

A basic, fundamental insurance policy which pays first with respect to other outstanding policies.

Occurrence

A broader definition of loss, which differs from accident in that it includes losses caused by continuous or repeated exposure to conditions resulting in injury to persons or damage to property that is neither intended nor expected.

Loss Ratio

A calculation used by insurance companies to relate income from loss expenses: loss ration = (incurred losses + loss adjusting expense) / earned premium.

Lien

A charge, security or encumbrance on property.

Hazard

A circumstance that increases the likelihood of a loss.

Pair and Set Clause

A clause included in many property and inland marine policies, which provides that the insurer is not obligated to pay for the total value of a set of items if only one item has been lost, damaged, or destroyed.

Builder's Risk Coverage Form

A commercial property form that covers buildings under construction.

Deposit Premium Audit

A condition that allows the insurer to audit the insured's books or records at the end of the policy term to make sure adequate premium has been collected for the exposure.

Certificate of Authority

A document that authorizes a company to start conducting business and specifies the kind(s) of insurance a company can transact. It is illegal for an insurance company to transact insurance without this certificate.

Loss Valuation

A factor in determining the premium charged and the amount of insurance required.

Misrepresentation

A false statement or lie that can render the contract void.

Reinsurance

A form of insurance whereby one insurance company (the reinsurer) in consideration of a premium paid to it, agrees to indemnify another insurance company (the ceding company) for part or all of its liabilities from insurance policies it has issued).

Twisting

A form of misrepresentation in which an agent persuades an insured/owner to cancel, lapse, or switch policies, even when it's to the insured's disadvantages.

Flood

A general and temporary condition of partial or complete inundation of normally dry land areas from overflow of inland or tidal waters or from the unusual and rapid accumulation or runoff of surface waters from any source.

Surety Bond

A guarantee that debts and obligations will be carried out, and the benefits will be paid for losses caused by nonperformance.

Auto

A land motor vehicle, trailer, or semi-trailer designed for use on public roads, including attached machinery or equipment; auto does not include mobile equipment.

Certificate of Insurance

A legal document that indicates that an insurance policy has been issued, and that states both the amounts and types of insurance provided.

Partnership

A legal entity in which 2 or more persons agree to share the profits and losses of the business.

Estoppel

A legal impediment to denying a fact or restoring a right that has been previously waived.

Strict Liability

A liability that refers to damages caused by defective products even though the manufacturer's fault or negligence cannot be proven.

Legal Liability

A liability under the law that occurs when a person is responsible for injuries or damages to another due to negligence.

Fraternal Benefit Society

A life or health insurance company formed to provide insurance for members of an affiliated lodge, religious, or fraternal organization with a representative form of government.

Warranty

A material stipulation in the policy that if breached may void coverage.

Avoidance

A method of dealing with risk by deliberately keeping away from it (e.g. if a person wanted to avoid the risk of being killed in an airplane crash, he/she might choose never to fly in a plane).

Retention

A method of dealing with risk by intentially or unintentionally keeping a portion of it for the insured's account; the amount of responsibility assumed but not reinsured by the insurance company.

Sharing

A method of dealing with risk for a group of individual persons or businesses with the same or similar exposure to loss who share the losses that occur within that group.

Mutual Assessment Insurer

A mutual insurance company with the right to assess policyholder's additional amounts of premium to meet operational needs.

Policy Period

A period of time a policy is in effect (also known as Policy Term)

Premium

A periodic payment to the insurance company to keep the policy in force.

Bailee

A person or entity that has possession of personal property entrusted to him/her by the owner. For example, a television repair person that has possession of a customer's television would be a bailee.

Underwriter

A person who evaluates and classifies risks to accept or reject them on behalf of the insurer.

Consultant

A person who, for a fee, offers any advice, counsel, opinion, or service regarding the benefits, advantages, or disadvantages promised under a policy of insurance.

Disability

A physical or mental impairment, either congenital or resulting from an injury or sickness.

Excess Policy

A policy that only pays for loss after the primary policy has paid its limit.

Valued Policy

A policy used when it is difficult to establish the actual cash value of insured property after a loss occurs because of its rarity or uniqueness. A valued policy provides for payment of the full policy amount in the event of a total loss without regard to actual value or depreciation.

Monoline Policy

A policy written separately as a single coverage.

Law of Large Numbers

A principle stating that the larger the number of similar exposure units considered, the more closely the losses reported will equal the underlying probability of loss.

Endorsement

A printed addendum to a contract that is used to change the policy's original terms, conditions, or coverages.

Liberalization

A property insurance clause that extends broader legislated or regulated coverage to current policies, as long as it does not result in a higher premium.

Specific Insurance

A property insurance policy that covers a specific kind or unit of property for a specific amount of insurance.

Agreed Value

A property policy with a provision agreed upon by the insurer and insured as to the amount of insurance that represents a fair valuation for the property at the time the insurance is written.

Unoccupied

A property that has contents or furnishings in it, but is not being used or lived in.

Vacant

A property that has no contents, furnishings, or occupants.

Additional Coverage

A provision in an insurance policy that allows for more coverage for specific loss expense without increase in premium.

Right of Salvage

A provision in property insurance policies requiring that after payment of a total loss to insured property, the insured must transfer the title (or ownership) to the property to the insurer.

Loss Payable Clause

A provision in property insurance that is used to cover the interest of a secured lender in personal property.

Extensions of Coverage

A provision in some property policies which allows the expense of a major coverage to certain types of loss to property not specifically insured.

No Benefit to the Bailee

A provision that excludes any assignment or granting of any policy provision to any person or organization holding, storing, repairing, or moving insurance property for a fee.

Severability of Interests

A provision that insurance applies separately to each insured in a policy, treating each individual as the only insured.

Notice of Claim

A provision that spells out an insured's duty to provide the insurer with reasonable notice in the event of a loss.

Market Value

A seldom used method of valuing a loss based upon the amount a willing buyer would pay to a willing seller for the property prior to the loss.

Retrospective Rating

A self-rating plan under which the actual losses during the policy period determine the final premium (subject to a minimum and maximum premium).

Combined Single

A single dollar limit of liability applying to the total of damages for bodily injury and property damage combined, resulting from one accident or occurrence.

Blanket Insurance

A single property insurance policy that provides coverage for multiple classes of property at one location, or provides coverage for one or more classes of property at multiple locations.

Nonconcurrency

A situation in which other insurance is written on the same risk, but not on the same coverage basis.

Independent Agents

Agents that sell the insurance products of several companies and work for themselves or other agents.

Comprehensive Coverage

Also known as Other Than Collision coverage, it covers losses by fire, theft, vandalism, falling objects, etc.

Disclosure

An act of identifying the name of the producer, representative or firm, limited insurance representative, or temporary insurance producer on any policy solicitation.

Proximate Clause

An act or event that is the immediate or actual cause of a loss.

Exclusive or Captive Agent

An agent who represents only one company and is compensated by commissions.

Fiduciary

An agent/broker who handles insurer's funds in a trust capacity.

Coinsurance

An agreement between an insurer and insured in which both parties are expected to pay a certain portion of the potential loss and other expenses.

Contract

An agreement between two or more parties enforceable by law.

Stated Amount

An amount of insurance scheduled in a property policy which is not subject to any coinsurance requirements in the event of a covered loss.

Judgment Rating

An approach used when credible statistics are lacking or when the exposure units are so varied that it is impossible to construct a class.

Appraisal

An assessment of property to determine either the correct amount of insurance to be written or the amount of loss to be paid.

Insurer

An entity that indemnified against losses, provides benefits, or renders services (also known as the "company" or "insurance company").

Controlled Business

An entity that obtains and possesses a license solely for the purpose of writing business on the owner, immediate family, relatives, employer and employees.

Agent

An individual who is licensed to sell, negotiate, or effect insurance contracts on behalf of an insurer.

Admitted Insurer

An insurance company authorized and licensed to transact business in a particular state.

Nonadmitted Insurer

An insurance company that has not applied, or has applied and been denied a Certificate of Authority and may not transact insurance.

Unauthorized Insurer

An insurance company that has not applied, or has applied and been denied a Certificate of Authority.

Authorized Insurer

An insurance company that has qualified and received a Certificate of Authority from the Department of Insurance to transact insurance in the state.

Domestic Insurer

An insurance company that is incorporated in the state.

Alien Insurer

An insurance company that is incorporated outside the United States.

Foreign Insurer

An insurance company that is incporporated in another state.

Coercion

An unfair trade practice in which an insurer uses physical or mental force to persuade an applicant to buy insurance.

Defamation

An unfair trade practice in which one agent or insurer makes an injurious statement about another with the intent of harming the person's or company's reputation.

Boycott

An unfair trade practice in which one person refuses to do business with another until he or she agrees to certain conditions.

Accident

An unplanned, unforeseen event which occurs suddenly and at a specific place.

Common Law

An unwritten body of law based on past judicial decisions as well as usages and customs.

Theft

Any act of stealing or removing property from its rightful owner. Theft encompasses both burglary and robbery.

Intentional Tort

Any deliberate act that causes harm to another person.

Rebating

Any inducement offered in the sale of insurance products that is not specified in the policy.

Insurable Interest

Any interest an insured may have in property that is the subject of insurance, so that damage or destruction of that property would cause the insured financial loss.

Implied Authority

Authority that is not expressed or written into the contract, but which the agent is assumed to have in order to transact the business of insurance for the principal.

Workers Compensation

Benefits required by state law to be paid to an employee by an employer in the case of injury, disability, or death as the result of an on-the-job hazard.

Exclusions

Causes of loss, exposures, conditions, etc. listed in the policy for which the benefits will not be paid.

Stock Companies

Companies owned by stockholders whose investments provide the capital necessary to establish and operate the insurance company.

Indemnity

Compensation to the insured that restorers them to the same financial position that they enjoyed prior to the loss.

Underinsured Motorist Coverage

Coverage in an automobile insurance policy under which the insurer will pay costs up to specified limits for bodily injury, if the liable driver's policy limits are exhausted and he/she cannot pay the full amount for which he or she is liable.

Uninsured Motorist Coverage

Coverage that allows the named insured, resident relative(s) and passengers in a covered auto to collect sums another driver would be legally liable to pay for bodily injury resulting from an auto accident, providing the accident was caused by an uninsured motorist, a hit-and-run driver or a driver whose insurance company is insolvent.

Umbrella Liability Policy

Coverage that provides extra protection against liability, and excess amount of insurance above the primary policy.

Components

Factors that determine rates, including loss reserves, loss adjusting expenses, operating expense and profits.

FAIR Plan

Fair Access to Insurance Requirements plan is a state-run program that makes insurance obtainable to those in high risk areas who have been unable to acquire insurance through other channels.

Additional Insureds

Individuals or business that are not named as insured on the declaration page, but are protected by the policy, usually in regard to a specific interest.

Surplus Lines

Insurance for which there is no readily available, admitted market.

Mutual Companies

Insurance organizations that have no capital stock, but are owned by the policyholders.

Third-Party Provisions

Insurance provisions that address the rights of someone other than the policyowner to have a secured financial interest in the insured property.

Reciprocal

Insurance resulting from an interchange of reciprocal agreements of indemnity among persons known as subscribers.

Domicile of Insurer

Insurer's location of incorporation and the legal ability to write business in a state.

Fraud

Intestinal misrepresentation or deceit with the intent to induce a person to part with something of value.

Bodily Injury Liability

Legal liability arising from death or physical trauma to a person as a result of a negligent or purposeful act and omissions by an insured.

Property Damage Liability

Legal liability arising from physical damage to tangible property of others caused by the negligence of an insured.

Personal Injury Liability

Legal responsibility for an injury to the character of another person caused by libel, slander, false arrest, invasion of privacy and other acts.

Reduction

Lessening the possibility or severity of a loss.

Indirect Losses

Losses resulting from a peril, but not directly caused by it. Indirect losses may include business disruption, rent insurance, extra expenses, and other consequences that occur over time.

Express Authority

The authority granted to an agent by means of the agent's written contract.

Lloyd's Associations

Organizations that provide support facilities for underwriters or groups of individuals that accept insurance risk.

Direct Losses

Physical damage to buildings and/or person property as a result of direct consequence of a particular peril.

Pro Rata

Proportional distribution of shares of the loss for each insurance policy written on a piece of property.

Gross Negligence

Reckless behavior that shows disregard for the safety or lives of others.

Split

Separately stated limits of liability for different coverages, which may be stated on a per person, per occurrence, per policy period basis, or can be divided between bodily injury and property damage.

Pure Risk

Situations that can only result in a loss or no change; a gain is never possible. Pure risk is the only type insurance companiess are willing to accept.

Consideration

The binding force in a contract that requires something of value to be exchanged for the transfer of risk. The consideration on the part of the insured is the representations made in the application and the payment of premium; the consideration on the part of the insurer is the promise to pay in the event of loss.

Peril

The cause of a possible loss.

Representations

Statetments made by the applicant on teh insurance application that are believed to be true, but are not guaranteed to be true.

Open Peril

Term used in property insurance to describe the breadth of coverage provided under an insurance policy form that insures against "any risk of loss" that is not specifically excluded.

Abandonment

The abdication of insured property into the hands of another, or into the possession of no one in particular.

Subrogation

The acquisition by an insurer of an insured's rights against any third party for indemnification of loss or other payment, to the extent that the insurer pays the loss.

Salvage

The amount of money realized from the sale of damaged merchandise or property. A salvage clause is found in ocean marine insurance and usually states that the rescuers of a ship are entitled to the salvage of the ship and cargo.

Apparent Authority

The appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created.

Declarations

The section of an insurance policy containing the basic underwriting information, such as the insured's name, address, amount of coverage and premiums, and a description of insured locations, as well as any supplemental representations by the insured.

Insuring Agreement

The section of an insurance policy containing the insurer's promise to pay, the description of coverage provided and perils insured against.

Conditions

The section of an insurance policy that indicates the general rules or procedures that the insurer and insured agree to follow under the terms of the policy.

Robbery

The taking of property from another by using violence or the threat of violence.

Adverse Selection

The tendency of risks with higher probability of loss to purchase and maintain insurance more often than the risks who present lower probability.

Cancellation

The termination of an in-force insurance policy by either the insured or the insurer prior to the expiration date shown in the policy.

Assignment

The transfer of a legal right or interest in an insurance policy. In property and casualty insurance, assignments of policies are usually valid only with the prior written consent of the insurer.

Insurance

The transfer of the possibility of a loss (risk) to an insurance company, which in turn spreads the costs of unexpected losses to many individuals.

Risk, Pure

The uncertainity or chance of a loss occurring in a situation that can only result in a loss or no change.

Risk, Speculative

The uncertainty or chance of a loss occurring in a situation that involves the opportunity for either loss or gain.

Speculative Risk

The uncertainty or chance of a loss occurring in a situation that involves the opportunity for either loss or gain.

Waiver

The voluntary abandonment of a known or legal right or advantage.

Concealment

The withholding of known facts which, if material, can void a contract.

Personal Lines Insurance

Type of coverage available to individuals and families for non-business risks.

Risk

Uncertainty as to the outcome of an event when two or more possibilities exist.

Waiting Period

Time between the beginning of a disability and the start of disability insurance benefits.