Glossary of Insurance Terms...
E thru I

RPM was established over a century ago with the idea that buying insurance doesn't have to be frustrating, complicated or expensive.

Below is a Glossary of insurance terms to help you navigate some of the insurance jargon. The information presented may not apply or may not included in your specific insurance policy. Please contact us or your insurance carrier to verify coverage provided on your specific insurance policy or policies you are contemplating purchasing.

Entries Under "E"

e-business - The transaction of business by way of electronic media, such as telephones, fax machines, computers, and video-teleconferencing equipment. This generally is broader than e-commerce although some may view e-business and e-commerce as interchangeable terms.

E-commerce - The buying and selling of goods by way of electronic media, such as telephones, fax machines, computers, and video-teleconferencing equipment.

Earned premium - Portion of a premium for which the insurer has already provided protection.

Earnings insurance - A simplified form of insurance covering business income loss, limited to a set percentage of the policy’s total amount for recovery of proved loss for each 30-day period.

Earth movement - Subject to an exclusion in property policies, this peril includes earthquake, landslide, mudflow, etc.

Effective date - The date shown in the declarations of a policy upon which coverage is to take effect.

Employee dishonesty coverage - Insurance protecting employers from loss due to theft by their employees.

Employers liability insurance - A feature of standard workers compensation policies, this coverage applies to liability that may be imposed on an employer outside the provisions of a workers compensation law.

Employers non ownership liability - Employers who buy commercial auto coverage on a basis other than "any auto" have this exposure whenever an employee uses his or her own auto on the employer’s behalf.

Employment practices liability insurance - Coverage against allegations of illegal or discriminatory hiring and firing practices, sexual harassment of employees, and so on.

Endorsement - An amendment to a policy form.

Enterprise-wide risk management - An effort to categorize, measure, and treat all types of risk that may adversely affect a business. It includes both traditional hazard risks and other business risks, such as risks posed by competitors, by economic developments, and natural conditions the business cannot control, and by general operations.

Environmental Impairment Liability Insurance, see Pollution liability insurance.

Equipment floater, see Floater.

ERISA - An acronym standing for the 1974 Employee Retirement Income Security Act which regulates certain employee benefit plans.

Errors and omissions coverage - A type of professional liability insurance, protecting the insured against claims alleging bodily injury or property damage caused by the professional or technical incompetence of the insured.

Estimated premium, see Deposit premium.

Estoppel - The legal doctrine that a party may be precluded from denying that certain rights exist if, by behavior or implication that such rights did, in fact, exist, another party has acted upon this information to his or her detriment.

Ex gratia payment - A payment by an insurer to an insured for which there is no contractual liability. Such payments are sometimes made as a goodwill gesture if there is the possibility of a misunderstanding or a mistake.

Examination under oath - Found in the conditions section of many insurance policies, the insurer’s right to examine an insured under oath following a loss.

Excess insurance - Coverage that applies on top of underlying insurance that is primary, i.e., that pays until its coverage limit is exhausted at which point the excess coverage takes over.

Excess or surplus lines market - The range of insurance available through non-admitted insurers, i.e., insurance companies that are not licensed in a particular state or territory. Specific provisions of state or territorial law control placements.

Exclusive agency system, see Captive agent.

Expense ratio - The dollar amount that represents acquisition and service costs, expressed as a percentage of written premium.

Experience - A record of losses.

Experience modification - The raising or lowering of premiums under terms of an experience-rating plan.

Experience rating - A method of rating that uses past experience to establish current rates.

Explosion - An extended coverage peril and currently a covered peril in nearly every policy of property insurance. The peril remains distinct from steam boiler explosion, which is covered by boiler & machinery insurance.

Extended coverage - An early and indivisible "package" of property insurance perils said to have been devised to make possible the spread of windstorm insurance beyond the highly exposed coastal and plains states. For those whose exposure to windstorm was less, "extended coverage" also encompassed smoke damage, hail, riot and civil commotion, aircraft and vehicle damage, and explosion insurance. Included here for historic purposes only since the term, "extended coverage," is no longer in general use.

Extended non-owner liability - A personal auto policy endorsement that provides broader liability coverage for specifically named individuals. When attached, it covers: (1) non-owned autos furnished for the regular use of an insured; (2) use of vehicles to carry persons or property for a fee; and (3) broader coverage for business use of vehicles.

Extended period of indemnity - A time for recovery of proved business income loss after physical property is restored and business reopened. The 30-day extension included in many business income forms may be extended by endorsement.

Extended recovery period, see Extended period of indemnity.

Extended reporting period, see Claims-made coverage.

Extra expense insurance - Depending on an insured’s requirements, this coverage may be purchased as a supplement to business income insurance, applying to expediting expenses that aid in quickly restoring the insured’s operations after a covered loss; or it can be the primary coverage sustaining the extra cost of continuing doing business for those insureds who would find it extremely damaging to fail to meet customer commitments, e.g., newspapers, dairies, etc.

Entries under "F"

Factory mutual - A mutual insurance company insuring only properties that meet high underwriting standards. The typical risk is fire-resistive construction with a central station alarm.

Facultative reinsurance - A separate reinsurance agreement that is negotiated for a particular risk or insurance policy.

Fair Credit Reporting Act - Public Law 91-508 requires that an insurer tell an applicant if a consumer report may be requested. The applicant must also be told the scope of the possible investigation. Should the application be declined because of information contained in that report, the applicant must be given the name and address of the reporting agency. The insurer may not reveal the contents of the report. Only the agency that compiled the report may release its contents.

FAIR plan - An acronym for Fair Access to Insurance Requirements, these plans have been established in many states to make fire and extended coverage (and homeowners in some states) available in areas otherwise not addressed by the voluntary market.

Fair rental value - An amount payable to an insured homeowner for loss of rental income due to damage that makes the premises uninhabitable.

Farmowners-ranchowners policy - A "homeowners" type package policy adapted to include farm and ranch exposures.

FEMA - Federal Emergency Management Agency. This agency administers the National Flood Insurance Program.

Fidelity bond, see Employee dishonesty coverage.

Fiduciary - A generic term for persons or legal entities such as executors, trustees, and guardians appointed by the court, under a will, or by a trust to manage, control, or dispose of the property of others.

Fiduciary bonds, see Judicial bonds.

Fiduciary liability insurance - This insurance covers claims arising from: (1) a breach of the responsibilities or duties imposed on a benefit plan administrator; or (2) a negligent act, error, or omission of the administrator.

File and use rating laws - State laws that permit the use of new rates by an insurance company without first obtaining the approval of that state’s insurance department.

Financial responsibility clause - The clause in an auto policy stating that, when the policy is certified as future proof of financial responsibility, then the policy will comply with the financial responsibility laws to the extent required.

Financial responsibility law - When applied to automobile operations, this term signifies the minimum statutory limits of an operator’s responsibility for bodily injury and property damage caused by negligent operation of the vehicle.

Fine arts floater, see Floater.

Fire - Combustion evidenced by a flame or glow. Insurance distinguishes between a "hostile" fire (one out of bounds) and "friendly" fire (such as that contained within the firebox of a stove).

Fire department service charge - A fee that may be imposed by a fire department for responding to a call. Most fire coverage agreements include indemnification provisions for such eventualities.

Fire legal liability - Public liability policies routinely exclude coverage for damage to property in an insured’s care, custody, or control. This leaves a big gap in a tenant’s coverage, a gap partially filled by an exception in the commercial general liability policy that restores limited coverage for fire damage to the landlord’s building. Perhaps the best benefit of the exception is to call attention to the exposure so arrangements can be made for broader coverage at appropriate limits.

Fire mark - An insignia, attached to the outside of a house, that represented the insurer of the house.

First named insured - An insurance policy may have more than one party named as insured. In such cases, the first named insured attends to policy "housekeeping," i.e., pays premiums, initiates (or receive notice of) cancellation, or calls for interim changes in the contract. This is spelled out in commercial policies in the "common policy conditions."

Fixtures - Generally, something tangible that is fixed or attached, as to a building, so that it becomes an appendage or structural part.

Flat cancellation, see Cancellation.

Fleet policy - Written for a risk that has five or more vehicles.

Flesch test - A method to determine the degree of ease or difficulty for reading material. It counts not only the number of words in a sentence, but also the number of syllables in each word. Some states require that insurance contracts be written so that they have a certain readability level (often, 8th grade).

Floater - An inland marine form covering movable property wherever located within territorial limits.

Flood - A general and temporary condition of partial or complete inundation of dry land caused by the overflow of the natural boundaries of a body of water or the unusual and rapid accumulation of surface water runoff. Some insurance policies that include flood as a covered peril only insure against damage caused by overflow of the natural boundaries of a body of water, but other policies also may insure against surface water losses.

Flood insurance - Flood insurance, like earthquake coverage, is usually only of interest to those relatively few whose property is exposed. Consequently, losses among this small group will be high and premiums can be prohibitive. However, in 1968 the Federal government stepped in to help property owners in designated "flood plains" with the National Flood Insurance Act of 1968. Coverage is not only available, but may even be required to obtain financing for exposed properties.

Flood Insurance Rate Map (FIRM) - Provided by FEMA (Federal Emergency Management Agency), this map delineates base flood elevations and flood risk zones, and is used for rating purposes for flood insurance.

Forgery or alteration coverage - This type of insurance covers loss sustained through forgery or alteration of outgoing negotiable instruments made or drawn by the insured; drawn on the insured’s account(s); or made or drawn by someone acting as the insured’s agent. This includes loss caused by any of the following: (1) Checks or drafts made or drawn in the insured’s name, payable to a fictitious entity; (2) Checks or drafts, including payroll checks, executed through forged endorsements; and (3) Alteration of the amount of a check or draft.

Form - The central document or documents of an insurance contract. Forms may be altered by endorsement.

Fraud - The intentional perversion of the truth in order to mislead someone into parting with something of value.

Friendly fire, See Fire.

Fronting - The practice, in reinsurance, of the ceding company retaining only a small portion of a risk and ceding the remainder to a reinsurer.

Functional replacement cost - The cost to repair or replace damaged property with materials that are functionally the equivalent of the damaged or destroyed property. For example: replacing a solid mahogany banister with a pine banister.

Fur floater, see Floater.

Furriers customers insurance, see Bailees floater.

Entries Under "G"

Gap coverage - Insurance for a lessee designed to cover the difference in selling price between a vehicle’s actual cash value, and the payout left on a lease.

Garage policy - One of the early package policies, it is written for automobile dealers and may include liability insurance for garage operations, automobile operations, physical damage coverage on garage owned autos, bailees coverage on customers cars, and auto and premises medical payments coverage.

Garagekeepers liability - A bailee coverage applying to automobiles. Commonly included in garage policies, it may be written to provide coverage for limited perils or for comprehensive physical damage, with or without collision damage coverage. Coverage may be expressed as covering the legal liability of the garage-keeper or amended to cover on a direct basis, as primary insurance or excess.

General liability insurance, see Commercial general liability.

Glass insurance - Commercial property form that covers plate glass, glass signs, lettering, etc.

Gross earnings coverage - An outdated term for business income coverage.

Guarantee funds - State mandated funds collected from licensed insurers and maintained as backup protection for policyholders of bankrupt insurers.

Guiding principles - Suggested procedures for establishing primacy of coverage in situations involving loss under a variety of coverage forms and, perhaps, more than one interested party. Last promulgated in the 1960s, the spirit of the principles survives because insurers apparently find that the prescribed procedures commonly lead to equitable settlements for all parties.

Entries under "H"

Hangarkeepers legal liability - A bailee coverage for those charged with the care of aircraft owned by their customers.

Hard market - A condition of the insurance marketplace in which insurance is difficult to obtain, and relatively expensive.

Hazard - Generally, a condition that increases the possibility of loss.

Hazardous waste - Term generally used to refer to pollutants or contaminants which result from industrial processing and must be disposed.

Highly Protected Risk (HPR) - A building meeting certain standards of fire protection, which is therefore eligible for a reduced rate.

Hired auto - A non-owned auto that may be borrowed as well as rented or leased by the insured. Personal auto policy insureds are covered automatically for hired autos, but business auto policy insureds may not be.

Hold harmless agreement - A contractual assumption by one party of the liability exposure of another. Lease agreements, for example, commonly require the tenant to hold the landlord harmless for bodily injury or property damage experienced by others on the premises.

Hole-in-one insurance - Coverage designed for amateur golf tournaments in which there is a substantial cash prize for anyone making a hole-in-one.

Holistic risk management - See Enterprise-wide risk management.

Homeowners insurance - An early and hugely successful example of "packaged" property and liability insurance. A mid-twentieth century insurance development was introduction of the so-called "multi-line era" in which insurers became empowered to write both property and liability forms of insurance, making way for the first packaging of these coverages within a single policy.

Host liquor liability - Part of the CGL, this covers the incidental serving of alcohol by an insured who is not in the business of serving alcohol.

Hostile fire, see Fire.

HPR - See Highly protected risk.

Housekeeping - A generalized term that refers to the overall care, cleanliness, and maintenance of an insured’s property.

Hull insurance - Ocean marine insurance covering physical damage to the ship or vessel insured. Usually, written on an "all-risks" basis.

Entries Under "I"

Impaired property - A liability exclusion relating to the insured’s faulty products or work that results in an "impairment" to the property to which it is attached assuming the insured can salvage the situation by replacing the property or redoing the work.

Improvements and betterments - Anything that adds to the value of property. Commonly used to describe a tenant’s use interest in fixtures added to the landlord’s building. May also refer to permanent changes made by a condominium unit-owner to his/her unit, such as the addition of new kitchen cabinets.

Increased cost of construction - A damaged building may have to be upgraded to be repaired under building codes in force at the time of reconstruction. Building owners in such situations need guidance in buying insurance to cover this added exposure.

Incurred losses - The value of claim payments plus reserves.

Indemnity - A fundamental concept governing insurance: compensation for loss or injury sustained.

Independent adjuster - An individual or member of a firm who contracts with insurers to investigate claims and suggest appropriate settlements. Contrast with Public adjuster.

Independent agent - A "retailer" of insurance who, by contractual arrangement with a number of insurance companies, sells and services property and liability insurance. The independent agent "owns" the policy information and expiration dates of his client’s coverage and thus controls renewals and their placement.

Independent Insurance Agents of America (IIAA) - An association of insurance agents who are independent contractors, and represent one or more insurers. Sometimes referred to as the "Big I."

Indirect damage - Sometimes referred to as indirect loss, this is loss resulting from a peril, but not directly caused by that peril. An example is fire damaging a freezer (direct damage), with resultant food spoilage (indirect damage).

Inflation guard endorsement - An endorsement attached to an insurance policy whereby the limits of liability on a piece of property are increased on a regular basis by a certain percentage in order to offset increasing building costs associated with inflation.

Inherent vice - A flaw in an item of property that will, in time, reveal itself and show the property as damaged. Property insurance does not normally cover such damage.

Inland marine insurance - Property insurance signaling broad coverage of properties exposed to the transportation peril and those subject to being used or kept at a location other than the insured’s customary premises. Eligible property is identified in the Nationwide Definition of Marine Insurance.

Innkeepers legal liability - A bailee coverage purchased by innkeepers to cover the property of their guests.

Insolvency fund - See Guarantee funds.

Inspection Report - A report prepared for an insurer by an outside organization. It provides information about an applicant’s or insured’s physical, financial, and moral attributes.

Insurable interest - The potential for financial loss associated with damage or destruction of property.

Insurable risk - The exposure to significant, measurable accidental loss from identifiable perils. The exposure, while not catastrophic, must be shared by a sufficient number of potential insureds so that the cost of loss for one can be measured and affordably shared throughout the market.

Insurance - A mechanism whereby risk of financial loss is transferred from an individual, company, organization, or other entity to an insurance company.

Insurance contract - A legal document defining circumstances under which the insurer will pay, and the amount to be paid. Also see Insurance policy.

Insurance exchange - See Reciprocal exchange.

Insurance Institute for Highway Safety - A not-for-profit research organization, well known for its auto "crash tests."

Insurance policy - The document containing the contract between the insured and the insurer which defines the rights and duties of the contracting parties.

Insurance Services Office (ISO) - An organization providing statistical information, actuarial analyses, policy language, and related services for the insurance industry.

Insurance to value - The concept of purchasing sufficient insurance coverage so as to closely approximate the value of the property being insured.

Insured - The party or parties whose interests are covered in a non-life insurance contract. The less common term Assured is sometimes used synonymously.

Insuring agreement - In an insurance contract, the insurer’s promise to pay.

Integrated risk financing - A type of risk financing designed to provide integrated protection against catastrophic losses. It may incorporate both traditional and non-traditional types of exposures, or it may include only traditional property and casualty risks.

Interline endorsements - Commercial endorsements that apply, or could apply, to more than one coverage as part of a package policy.

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