INSURANCE: Learning the Lingo

If you sit down and actually read your insurance policy, it might feel as if you're reading another language. Like any field, the insurance industry has its share of jargon, and it's important to understand key terms when entering into a contract.

To help businesses better navigate insurance transactions, the following is a comprehensive list of insurance terms:

Absolute Liability: When a person has total liability, either because of the circumstances surrounding an occurrence or as a matter of law.

Aggregate Limit: The dollar amount of insurance coverage for a specified time.

Binder: A legal agreement issued by an agent or insurance company providing temporary insurance until a policy can be written.

Blanket Policy: A policy that covers more than one item of property at the same or different locations.

Bond: An agreement where one party (the surety) obligates itself to a second party (the obligee) to answer for the default of a third party (the principal).

Casualty Insurance: Protects against the costs of personal injuries and property damage.

Declaration: Part of a liability insurance policy that includes the insureds' name, address, description, policy period, the amount of insurance coverage, applicable premiums and supplemental information.

Earned Premium: When premiums are paid in advance, the insurance company “earns” portions of that premium over time.

Excess: A claim that exceeds a policy's maximum benefit limits, leaving the insured responsible for excess amounts.

Exclusion: Damages, property, persons or locations that are not covered by an insurance policy.

Exposure: A situation that could potentially result in loss, where the insurer could incur a claim.

Incurred Losses: Losses occurring within a fixed period of time.

Indemnify: Financial compensation for losses.

In Kind: To replace a loss or damaged property with something comparable.

Liability Limit: The maximum amount an insurance company has agreed to pay.

Loss Experience: A record of premium payments vs. claims paid. This is used to determine rates and coverage continuation.

Loss Exposure: The possibility that a loss may occur.

Loss Ratio: The ratio of incurred losses and adjustment expenses to earned premiums, which usually is expressed as a percentage. Commonly, this is used as a measure of an insurance company's profitability.

Named Insured: Person or organization specifically named in a policy, as opposed to those who may not be named but are protected under certain circumstances.

Occurrence: An incident or series of related incidents resulting in personal injury or property damage.

Reserve: The amount an insurance company estimates needed to compensate a specific claimant.

Schedule of Insurance: A list of individual items covered under one policy.

Subrogation: An insurance company's right to recover the amount paid under a policy from a third party.

Surplus Line: A risk for which there is no insurance market available. In this case, insurance is written by a nonadmitted or unregulated insurance company.

Third Party: A person or company who is involved in an accident or other occurrence with the first party.

Total Loss: A loss that leaves nothing of value.

Umbrella Policy: Protection against losses that are in excess of the amount covered by other liability insurance policies. Also, this coverage protects the insured in situations not covered by usual liability policies.

Unearned Premium: A portion of the original premium not yet “earned” by the insurance company because the policy has not reached its expiration date.