Glossary of Insurance Terms...
J thru R

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 "J"

Jacket - The cover of an insurance policy; it usually contains the name of the insurer, its address, etc.

Jettison - Act of throwing overboard part of a vessel’s cargo or hull in hopes of saving a ship from sinking.

Jewelers block insurance - A policy especially designed for jewelers, it offers a combination of coverages protecting against risks of physical loss to property at the jeweler’s premises, property in transit, or customers’ property in the insured’s care.

Jewelry floater, see Floater.

Joint and several liability - A legal doctrine whereby a creditor or claimant may demand payment or sue one or more of the parties separately, or all of them together.

Joint Underwriting Association (JUA) - These are insurance pools representing all insurers in a state. A few "servicing carriers" act on behalf of all the insurers, issuing policies, receiving fees, and handling claims. They are reimbursed for losses, and receive fees from the JUA to cover operating costs.

Joint venture - A venture in which two businesses join together to share risk or expertise on a specific project or group of projects.

Jones Act - The Federal act through which maritime workers are provided workers compensation coverage (which ordinarily responds to the mandates of particular states).

Judicial bonds - Two types of bonds available to guarantee faithful performance of court appointed duties. Fiduciary bonds guarantee the faithful performance of persons entrusted by the courts in the management, conservation, and disposition of property. Litigation bonds (or "court bonds") are required in court actions. Bail bonds and appeals bonds are litigation bonds; where the bond amount is forfeited if the bonded person disappears or the appeal is lost.

Jumbo risk - A policy of insurance written with exceptionally high limits.

Entries Under "K"

Keeton-O’Connell, see No fault auto insurance.

Key employee insurance - Life insurance written on the life of an organization’s officer or other key employee, the loss of whom would cause the organization financial hardship.

Kidnap-Ransom insurance - A specialty coverage offered in the surplus and excess lines markets that responds to ransom demands for recovery of kidnap victims.

Entries Under "L"

Lapse - Termination of a policy because of failure to pay the premium.

Larceny - The unlawful taking of personal property of another.

Latent defect - A hidden flaw that will, in time, cause property damage that is uninsurable. Such damage is uninsurable because the element of chance is no longer present.

Law of large numbers - An underlying principle of insurance; the larger the number of participants in a given arrangement, the more accurate the rate is to the exposure.

Leased worker - A worker leased from another organization on a long-term basis.

Leasehold interest insurance - The insurable interest is that of a tenant who has some years remaining under a favorable lease that is subject to termination upon significant damage to the leased property.

Legal liability - Liability imposed by law; this includes liability based on negligence, strict liability, or contractual liability.

Libel - Written defamation of another’s reputation.

Liberalization clause - A feature of property policies that promises that any future change in the company’s form that would broaden coverage with no change in premium will automatically apply under the policy currently in force.

License and permit bonds - Suretyship guaranteeing that the principal will abide by the rules and obligations imposed by licensing laws or ordinances. For example, an electrician may have to post such a bond guaranteeing compliance with building codes before being licensed by a municipality.

Limited partnership - A form of partnership that consists of one or more general partners, who actively engage in the business, and one of more special partners, who are not liable for the debts of the partnership beyond their initial financial contribution. Commercial insurance policies usually differentiate in the "Who Is Insured" section between corporations, partnerships, and other business models. Therefore, the type of model being insured is important.

Liquor liability insurance - Liability coverage for owners and operators of establishments selling or serving alcoholic beverages. Litigation bonds, see Judicial bonds.

Livery use - An exclusion in automobile liability policies applying to the use of autos to carry persons for hire as in a taxi service. A share-the-ride car pool is not "livery use."

Livestock insurance - Life insurance on livestock covering death by named perils.

Lloyd’s of London - An association of individuals, called "names," or groups of individuals who write insurance for their own accounts. Lloyd’s had its beginning in 17th century London in Edward Lloyd’s coffee house.

Loading and unloading exclusion - A feature of commercial general liability (CGL) policies intended to separate that coverage from the automobile exposure. The CGL coverage ends at the point where an item is picked up for loading onto an auto and resumes at the point where the item is deposited upon unloading.

Long tail - Refers to liability under policies written on an occurrence basis. Claims stemming from injury or damage occurring years earlier can be presented for coverage long after the policy has expired. Contrast with Claims-made.

Longshore and Harbor Worker’s Act - A Federal law that specifies compensation amounts for injured longshore and harbor workers. Formerly referred to as the Longshoremen’s and Harbor Workers Act.

Loss - An unintentional decline or disappearance in value arising from an event.

Loss adjustment expenses - Payments by an insurer for the investigation and settling of claims. They include the cost of defending a lawsuit in court.

Loss assessment coverage - Insurance responding to property or liability loss of a property owners association that are not covered by the association’s master policy.

Loss control - Actions to reduce the frequency or severity of losses. Installing locks, burglar or fire alarms and sprinkler systems are loss control techniques.

Loss costs - Loss data that has been modified by insurance advisory organizations by necessary loss development, trending, and credibility processes in order to arrive at the statistical cost of losses to be used in establishing a premium rate.

Loss development - An actuarial method to detect and correct for consistent errors in estimating the amount of future loss payments or the procedure for adjusting incurred losses to reflect their future development and ultimate value. Loss development factors are developed actuarially and applied to current losses in order to predict what the ultimate cost of losses will be when the claims are closed.

Loss expectancy - The underwriter’s calculation of probable maximum loss.

Loss experience - What the loss history has been on a particular line or book of business.

Loss exposure - A set of circumstances presenting the possibility of loss, whether or not the loss actually occurs.

Loss frequency - How often a loss occurs over a given space of time.

Loss limit - Commonly used in financial institution bonds, a loss limit is the aggregate amount that will be paid out under the coverage during the policy term. Loss limits also may be used when insuring large property risks where the exposures are spread out geographically. In this type of situation, it is unlikely that all property would be damaged by a single occurrence. Therefore, the amount of insurance may be set at a "loss limit" per each covered occurrence.

Loss of use insurance - See Additional living expense insurance.

Loss payable clause - A property policy provision that, at the request of the named insured, stipulates that claims tied to losses of certain property will be paid to both the named insured and the party named in the subject clause.

Loss prevention - Refers to engineering or inspection activities carried out to prevent losses in the workplace.

Loss ratio - The ratio of incurred losses including loss adjustment expenses to earned premiums.

Loss payout pattern - Losses often are paid over a period of years, especially in casualty lines of insurance. The payout pattern illustrates the way that claims are paid out from the time they are filed until they are closed.

Loss trending - A method to modify developed losses for changes that will occur in the future. Trend factors are used by rate makers to adjust past losses to more accurately reflect the loss experience expected to develop while the rates are being used.

Loss triangle - Used to show how losses develop, a loss triangle is a chart that lists losses by line and by year. It shows the value of each set of annual losses at the end of subsequent 12-month periods.

Lost policy release - A means whereby an insured may cancel a policy by signing a statement to the effect that, since his or her policy has been lost, he cannot return it to the insurer to effect cancellation, but still wishes to cancel the policy.

Entries Under "M"

MCS-90 - This is the "Endorsement for Motor Carrier Policies of Insurance for Public Liability under Sections 29 and 30 of the Motor Carrier Act of 1980." The endorsement assures that the trucker is using insurance to comply with the financial responsibility requirements of the act.

Maintenance bond - Guarantees that faulty work or defective materials charged to the bond principals will be corrected or replaced. A maintenance bond may be included among the terms of a performance bond.

Malicious mischief, see Vandalism.

Malpractice, see Professional liability.

Managing General Agent (MGA) - An agent standing between an insurer and other agents. The MGA sells to retail agents, who then sell to the consumer. MGAs often are said to have the "pen" because they are given the authority to accept, underwrite, and price submissions received from retail agents.

Manufacturers and Contractors liability (M&C) - The premises and operations liability exposures of manufacturers and contractors covering third parties for bodily injury or property damage negligently inflicted in the course of daily activities.

Manufacturers Output Policy (MOP) - Policy originally designed to cover property of a manufacturer being processed at another company; it covers personal property away from the premises on an open perils basis.

Manufacturers selling price clause - Clause stating that finished goods are valued for insurance purposes at their selling price rather than their cost of manufacture.

Manuscript policy - An insurance policy covering property or liability exposures (or both) that is uniquely assembled from standard or specially created forms to suit the needs of an insured.

Marine insurance - Insurance primarily concerned with transportation exposures and property that is commonly moved around from place to place. In America, the field is divided between Inland marine and Ocean marine.

Maritime coverage - Crew members of vessels are subject to Admiralty Law and may sue their employers for work-related injuries because state workers compensation laws do not apply to them. Therefore, special coverage must be purchased for this exposure.

Market value - The price at which insured property could have been sold just prior to its loss or damage. Along with "cost new minus use deprecation," market value is but another gauge used to determine the loss settlement to which an insured is entitled. The insured may choose the gauge that produces the most favorable outcome.

Market value appraisal - An appraisal to determine the market value of a building and related personal property.

McCarran-Ferguson Act - Passed by Congress in 1945, this act states that regulation and taxation of insurance by the states is in the public interest, and that congressional silence should not be construed as a barrier to state regulation.

Medical malpractice - Type of insurance protecting physicians, surgeons, nurses, and other medical practitioners against claims alleging failure to perform.

Medical payments insurance - A coverage found in auto and liability policies that pays medical expenses to injured persons without regard to liability.

Merit rating - A form of auto rating in which an insured’s past experience as well as anticipated experience is taken into account when arriving at a rate.

Minimum premium - An insurer’s lowest charge for an insurance policy.

Misrepresentation - Generally, misstatement of facts made on an application for insurance. May also be misstatement of coverage made by an agent to an insured.

Mobile equipment - Included for coverage under the commercial general liability form, this term relates to land vehicles used in ways that take them out of an explicit "automobile liability" exposure (e.g., vehicles used only on the insured premises, to carry certain permanently attached equipment, that are not required to be registered, or are designed for solely for off-road use).

Model bill - A bill drawn up for insurance regulatory purposes by the National Association of Insurance Commissioners, with the recommendation that it be implemented by the states.

Monoline policy - An insurance policy covering one subject of insurance, as opposed to a combination or multiline policy.

Monopolistic state fund - Five states have their own system for providing reparations to injured employees eligible under the state’s workers compensation act. Private insurance companies may not compete. The states are North Dakota, Ohio, Washington, West Virginia, and Wyoming.

Moral hazard - As "physical hazard" relates to susceptibility to fire or wind, the term "moral hazard" relates to susceptibility to loss through moral lapse of the owner (e.g.,"Burn the house down and collect from the insurance company before losing it in a foreclosure to the finance company.").

Morale hazard - The term "morale hazard" addresses the issue of an apathetic insured (e.g., "It’s insured, let it burn.")

Mortgage holders clause - A standard property policy provision that creates elements of a separate contract between a mortgage company and an insurance company. Any loss to building or structures will be paid to the mortgage company and insured jointly and any act of the insured voiding coverage will not affect the mortgage holder without it first being given an opportunity to comply with the insurer’s needs.

Motor Carrier Act of 1980 - A federal law that deregulated the United States trucking industry and transferred the enforcement of financial responsibility requirements for truckers to the Bureau of Motor Carrier Safety, U.S. Department of Transportation. Insurance is one method of complying with the financial responsibility requirements.

Motor truck cargo policy - Two forms of inland marine coverage are associated with this title, one for carriers and one for owners. As a carrier, the insured is protected for legal liability relating to property of others in the course of transport. As an owner, the insured is protected for in-transit damage to its own property.

Motor vehicle record (MVR) - An official record of a driver’s accidents and traffic violations kept by the licensing state(s). Often used to determine eligibility and/or premiums for auto insurance.

Multi-line era - During the first half of the twentieth century, insurers were licensed to write property insurance or liability insurance but not both. Two insurers were needed to write automobile liability and physical damage insurance, for example, in a contrivance called a "combination policy." Not long after World War II, states began licensing insurers to write both forms of insurance introducing what was then called the "multi-line era."

Mutual insurance company - A cooperative insurance company organized and owned by its insureds.

Mysterious disappearance - A named peril in some forms. Either theft or unexplained disappearance of covered property from a known location may activate coverage.

Entries Under "N"

Named insured - The party or parties specifically named as insured in the insurance contract. Others may have claim on the coverage of a policy by way of internal provisions, but any such right is by way of the agreement between the named insured and the insurance company.

Named non-owner policy - Issued to someone who does not own an automobile, but who drives borrowed or rented autos.

Named perils - A formal and specific listing of perils covered in a policy providing property insurance. A policy covering for damage by fire is said to cover for "the named peril" of fire.

National Association of Insurance Commissioners (NAIC) - An association of insurance commissioners and superintendents formed to share information and develop common laws and procedures for insurance regulatory purposes.

National Association of Insurance Women (NAIW) - An association of women (and men) in the insurance industry who have achieved the designation of Certified Professional Insurance Woman (CPIW) or CPIM.

National Association of Professional Surplus Lines Offices (NAPSLO) - Trade association of and providing services to surplus and excess lines agents and brokers.

National Council on Compensation Insurance (NCCI) - National association that collects, tabulates, and provides data used in formulating rates for workers compensation insurance.

National Flood Insurance Program (NFIP) - A federal program through which persons with property located in predefined flood plains can obtain flood coverage. See Flood insurance.

Nationwide Definition of Marine Insurance - A document published by the National Association of Insurance Commissioners that was rooted in an older (1933) definition of "...Insuring Powers of Marine and Transportation Underwriters". In general, the "definition" specifies property that may be insured under marine contracts such as property in inland transport and property regularly or routinely in transit, e.g., contractors equipment.

Negligence - Action or failure to act that is outside the realm of what would be considered appropriate by ordinary, reasonably prudent persons.

Net loss - The amount of a loss, after deductions for salvage, other insurance, and any subrogation that an insurer is responsible for.

Net premium - Premium less expense, such as commission.

New York Standard Fire Policy - Once the benchmark of property policies, it was adopted for use in all but a handful of states. The familiar provisions of its 165-Numbered-Lines, e.g., cancellation, mortgagee, appraisal clauses, etc., survive in Insurance Service Office property policies as well as in independently produced forms.

No Benefit To Bailee - A clause in inland marine forms that prevents a person in the possession of property of others from benefiting from any insurance the owner has on the property.

No-Fault Auto Insurance - A few states have laws that partially exempt drivers from legal liability for auto accidents. In these "no fault" states car owners buy insurance to protect themselves and their passengers from the economic and medical effects of auto accidents in addition to liability insurance at whatever limit the statute decrees. Professors Robert Keeton and Jeffrey O’Connell gave the "no fault" notion impetus with the 1967 publication of their study "After Cars Crash."

NOC - Underwriter’s shorthand derived from general liability and workers compensation rating tables that stands for "not otherwise classified" meaning no more specific classification is available — as in "Clerical Office Employees NOC."

Non-admitted Insurers, see Excess or surplus lines market.

Non-owned Auto - This term signifies an auto that is neither owned, hired, nor borrowed by the insured under a commercial auto policy. Employees’ cars used in company business are commonly classified this way. The employer’s auto liability cover for use of non-owned autos is covered by entry of symbol 1 ("any auto") or symbol 9 ("non-owned autos") on the declarations page.

Non-resident agent - An agent who does not reside in the state in which he or she is licensed.

Nose coverage - This is the opposite of Tail coverage, although it fulfills the same need. Nose coverage most commonly provides prior acts coverage for insureds who are moving from a claims-made coverage form to an occurrence coverage form. It is provided by the replacement policy.

Notice of loss - Notice the insured provides to the insurer that a loss has occurred.

Nuclear energy insurance pools - Any of the insurance pools designed to provide property and/or liability coverage for organizations that handle substantial quantities of nuclear material.

Nuisance Value - The amount for which an insurance company will settle a claim - not because it is a valid claim but, because the company considers it worth that amount to dispose of it.

Entries Under "O"

Object, see Boiler & machinery insurance.

Obligee - A term used in surety bonds to refer to the individual or firm that is to benefit from the bond’s protection. A performance bond, for example, provides the obligee property owner with recourse if the bonded contractor, the principal, fails to perform.

Obligor - A term used in surety bonds to refer to the individual or firm bound by an obligation. Also known as the "principal."

Occupancy - In general, a condition affecting the desirability of property policies.

Occupational Safety and Health Act (OSHA) - Passed in 1970, this law promulgated strict work-safety regulations, and set up the mechanism to enforce these rules through fines for violations, and closure of unsafe plants.

Occurrence - In general, an event that triggers coverage under any policy. Specifically, an event that triggers coverage under an occurrence-based liability policy. Such a policy covers injury or damage that occurs during the policy period even if claim is brought months or even years after the policy has expired - see Claims-made for the alternate arrangement. Also see Accident.

Ocean marine - Insurance coverage for vessels and property in ocean shipping. "River marine" is the term referring coverage for inland shipments on water. "Motor truck cargo" refers to coverage for property transported over highways.

Off premises cover - Commercial property policies commonly establish a small coverage limit that applies to property temporarily away from the insured’s place of business.

Omnibus clause - An agreement in most automobile liability policies and some others that extends the definition to include to others without the needing to name them. An example would be a policy that covers the named insured and "those residing with him."

Open perils - Property coverage that applies to risks of loss on a general basis, in contrast with policies that cover for specifically identified perils ? see Named perils. The old term for open perils was "all risks."

Open rating - A state rating system that allows the insurer to use rates without prior approval. Also referred to as "open competition."

Operating ratio - The sum of the combined ratio plus investment income.

Ordinance or law coverage - This insurance responds to property loss or damage necessitating repair, demolition, or rebuilding in accordance with current building codes.

Ordinary payroll - Payroll allotted to employees whose services could be curtailed in event of a long-term shutdown of a business without a harmful effect on reopening. This figure is important in calculating business income insurance exposures.

Other than collision insurance (automobile), see Comprehensive physical damage (automobile).

Other insurance - When two or more policies cover the same interests for the same exposures, each policy is said to represent "other insurance" to the other. Most insurance policies contain clauses that specify how or if claims will be paid if other insurance exists for the same exposures.

Outer Continental Shelf Lands Act - This act makes the Longshore and Harbor Workers Compensation Act apply to work involving the development of the natural resources of the outer continental shelf. A special endorsement, the Outer Continental Shelf Lands Act Coverage Endorsement, amends workers compensation policies to provide coverage for this exposure.

Owners and Contractors Protective (OCP) Liability coverage form - Provides coverage for the liability of an owner of land on which a building is being constructed for the acts of the contractor handling the construction. Owners, Landlords, and Tenants legal liability (OL&T), see Premises and operations liability.

Ownership of expirations - Refers to the ability of an independent agent to place a risk with any of the companies that he or she represents. Unless that customer goes to another agent, the current agent "owns" the policy and the right to place it as he/she sees fit.

Entries Under "P"

Package policy - Any combination of insuring agreements that combines property and casualty coverages. Homeowners, business owners, and garage policies are examples.

Paid losses - The losses that have been paid for a claim.

Pair and set clause - Clause that stipulates that partial loss to a pair or set of items will be valued in terms of the lost item, not on the basis of reduced value of the pair or set.

Partial loss - A property loss that is less than a total loss. See Constructive total loss.

Partnership - A business model in which two or more individuals join together to conduct business and share profit and losses. Commercial insurance policies usually differentiate in the "Who Is Insured" section between corporations, partnerships, and other business models. Therefore, the type of model being insured is important.

Pay-at-the-pump - A device for making sure all motorists are insured; the theory being that premiums for basic liability coverage could be collected through "taxes" at the gasoline pump in a relatively painless manner, thus eliminating the uninsured motorist.

Payment bond - Sometimes also called a "labor and materials bond," this bond guarantees that bills owed by the contractor will be paid as they come due. The agreement may be incorporated into the performance bond.

PD - A shorthand expression for "property damage."

Peak season endorsement - Instead of buying insurance amounts reflecting values at the height of inventory, some enterprises are able to forecast times when values will be at their peak and use this endorsement to increase the amount of insurance during that specific interval.

"Pen," The, see Managing General Agent (MGA).

Per occurrence/per loss excess reinsurance treaty - An agreement under which losses above a certain dollar amount are ceded to the reinsurer, who is responsible for all losses from any one exposure above this amount up to the reinsurance limit. The retention is expressed as an amount incurred per occurrence. An occurrence may be one hurricane, one flood, or one accident that results in injuries to multiple people.

Per risk excess reinsurance treaty - Similar to a per occurrence/per loss excess treaty except in the matter of the retention. The retention applies separately to each subject of insurance.

Performance bond - A bond that guarantees the property owner (the "obligee") that the contractor with the winning bid on a job will perform as promised and on time.

Peril - A potential cause of loss.

Perils of the sea - Somewhat akin to open perils on land, the term refers to any potential cause of loss derived from shipment on a seagoing vessel.

Period of restoration - The period of time following a loss that is necessary to restore a business or organization to a pre-loss condition.

Personal articles floater - Before the advent of packaged forms and broad coverages, households commonly had fire insurance on dwelling and personal property with the possible addition of extended coverage. The personal articles floater is an inland marine form that was used by the affluent for scheduling open perils coverage for various articles and classes of valuable personal property. A homeowners endorsement accomplishes the same thing today and the personal articles floater is no longer widely written.

Personal auto policy - The form currently promulgated by Insurance Services Office (ISO) for coverage of personal auto liability and physical damage exposures.

Personal injury - Distinguished from "bodily injury," this term relates to injury inflicted by way of false arrest, invasion of privacy, malicious prosecution, and so on. It is written as Coverage B of the commercial general liability forms and as homeowners Coverage E.

Personal Injury Protection (PIP) - The section of an auto policy in a no-fault state that responds to physical injury, loss of income, etc., of the insured regardless of fault.

Personal liability insurance - Insurance for individuals or members of a household offering protection against claims by third parties (outsiders) alleging bodily injury or property damage due to negligence. See also Premises medical payments.

Personal lines - Insurance covering the liability and property damage exposures of private individuals and their households. Contrast with Commercial lines.

Personal property - Term used in insurance to distinguish chattels from real property.

Physical Hazard - A hazard that arises from the material, structural, or operational features of the risk itself apart from the persons owning or managing it.

Physicians and surgeons professional liability insurance, see Professional liability.

Plate glass coverage - Provides "special" protection, except for the perils of war, nuclear reaction, and fire. (Fire is covered under the building policy.) This coverage is for full replacement cost and covers the expense of repairing frames, installing temporary plates, or boarding up openings.

Policy year - Unique to the insurance business, this is a means of cost accumulation in which the aggregate transactions of all policies becoming effective in a given year determine the financial performance of those policies. Policyholder, see Insured.

Policyholders’ surplus - The amount of money available to an insurer to meet its obligations to its policyholders, after subtracting liabilities.

Pollution liability insurance - Coverage for bodily injury or property damage caused by a "pollution incident." Insurance Services Office has two forms, one limited to on-site clean up of pollution spills.

Pool - An organization in which insurers cover certain types of risks as a group and share premiums, expenses and losses. Pools are often used to underwrite larger risks.

Portfolio - All of an insurer’s in-force policies and outstanding losses, respecting described segments of its business.

Power-of-attorney - Commonly used in bonding, this document conveys authority for the individual(s) named on it to execute bonds and other legal documents.

Premises - Generally, a piece of land with a building or buildings upon it.

Premises and operations liability - Once known as owners, landlords, and tenants legal liability, or as manufacturers and contractors liability, depending on the business’s activity, the term refers to the liability exposure of business entities to third parties (customers, guests, and passers by) who may become injured or have property damaged through the negligent acts of the business persons, their agents, or employees. Coverage of this exposure is by way of the commercial general liability policy. Contrast with Products and completed operations liability.

Premises and operations medical payments - Bodily injury rather than liability is the trigger for this coverage. Sometimes referred to as "customer good will insurance," it is a relatively inexpensive addition to the commercial general liability policy and an automatic feature of personal liability protection. Since it responds to injury of customers or guests without regard to fault, it is sometimes effective in heading off a potentially much more serious liability claim against the owner or tenant of the business premises or private residence.

Premium - Term for the amount of money the insured pays the insurer to purchase insurance.

Pressure vessel - In boiler and machinery insurance, a type of container designed to hold liquids or gasses under pressure. Types are categorized as fired (such as a boiler) and unfired (such as an oxygen or hydrogen tank).

Price-Anderson Act of 1957 - Federal law that requires evidence of financial responsibility for all privately owned nuclear reactors, spent fuel reprocessing plants, and for fuel fabrication plants licensed to process five or more kilograms of plutonium.

Primary insurance - The first policy or coverage to apply. Contrast with Excess insurance.

Principal - Used in suretyship, it refers to the individual whose performance is guaranteed.

Prior Approval - Indicates that an insurer must have rate or form changes formally approved by the state insurance department before it can use them Private Passenger Automobile - A four wheeled motor vehicle, subject to state registration laws, designed to carry passengers (such as a car, station wagon, SUV, or van) on public roads.

Pro rata cancellation, see Cancellation.

Producer - A term identifying the insurance agent, field rep, or other employee who sells insurance.

Product recall insurance - Coverage for the costs of recalling a product known, or suspected to be, defective.

Products and completed operations liability - The liability exposure of the manufacturer whose malfunctioning products may cause injury or property damage or of the contractor whose failed structures or projects may do the same. Coverage of the exposure is a feature of the commercial general liability policy. The insurance does not in any way constitute a guarantee of either the insured’s product or work. Contrast with Premesis and operations liability.

Professional Insurance Agents (PIA) - Trade association of insurance agents.

Professional liability - A form of errors and omissions insurance, (sometimes called "malpractice" coverage for errors alleged against those in the healing and legal professions). Arbitrarily it seems, "errors and omissions" is the term applied most often to insurance covering liability for mistakes in matters affecting property, i.e., coverage for "Insurance Agents E&O," "Architects E&O" while "professional liability" is used in reference to coverages such as "Druggists Professional Liability," "Physicians and Surgeons Professional Liability," and "Lawyers Professional Liability."

Promulgate - To develop, file, publish, and put into effect insurance rates or forms. Proof of loss - Following a loss, a formal statement given by an insured to the insurer that includes details of the loss such as the original cost of damaged or destroyed property.

Pro-rata or proportional reinsurance - A certain portion of every risk is ceded under a proportional agreement. The insurer and reinsurer agree to share a portion of all insurance, premium, and losses in the same amount. The insurer is paid a commission for ceding the risk portion and premium to the reinsurer.

Prospect - A potential buyer of an insurance policy or program.

Protection and Indemnity (P&I) insurance - The nautical equivalent of bodily injury and property damage liability.

Proximate cause - That event which, in an unbroken sequence, results in direct physical loss under an insurance policy. For example, wind is the proximate cause of loss when a windstorm blows out a window that in turn topples a lit candle that sets fire to a structure and burns it down.

Public adjuster - An individual or member of a firm who contracts with private parties to aid with the preparation of loss statements and presentation to insurers. Contrast with Independent adjuster.

Public liability insurance - General term for any liability coverage for claims brought against the insured by a third party or member of the public.

Public official bond - A "performance bond" for holders of public office.

Punitive damages - An award for damages above and beyond the requirements for compensating third parties for injury or damage. As the word implies the award is meant to punish the offender. Most states and territories permit punitive damages awards to be covered by liability insurance.

Pure risk - The only consideration is the possibility of loss or no loss, but not making a profit. Contrast with Speculative risk.

Entries Under "Q"

Q Schedule - A New York specific regulation that schedules (and limits) the types of expenses that can be charged against new business by an insurer. The insurer must file the schedule to verify compliance. The overall effect of the Q Schedule in New York is to reduce commissions.

Qualified impairment insurance - A health insurance rider that eliminates the policy exclusion for impairment, making that impairment acceptable or "qualified" with respect to coverage.

Qualified plan - Qualified plans are those employee benefit plans that meet Internal Revenue Service requirements as stated in IRS Code Section 401a. When a plan is approved, contributions made by the employer are tax deductible expenses.

Qualified retirement plan - A retirement plan that has been formed to comply with the IRS federal tax regulations, whether the plan is a pension plan, a profit-sharing plan or a savings plan. Funds to the plans will accumulate but taxes are deferred until actual retirement and the distribution of benefits. Employee contributions may be made to qualified plans on a pre-tax earnings basis. Contributions to the plans by employers are treated as current business expenses for tax deduction purposes.

Qualified terminable interest property trust - A type of trust for married couples in which an annual income payout is made to the surviving spouse from trust assets. In effect, this reduces estate taxes assessed against the surviving spouse while providing annual income for the survivor.

Quantity discount - Premium credits given in certain life insurance policies that have high benefit payout amounts.

Quasi-insurance institutions - Federal, state, or local government institutions which implement and run compulsory government programs that give the appearance of acting in a way similar to the insurance mechanism. Unemployment compensation is an example.

Quick assets - Highly liquid assets that can be converted to cash very quickly. Cash, checks, certain stocks, bonds, and Treasury Bills are all examples. Real and personal property are not.

Quid pro quo - Latin term meaning "this for that," or "one thing for another." As it applies to insurance, it is when the consideration in an insurance contract is an exchange of values between both parties to the contract for it to become a valid contract.

Quota share - When more than one policy, insurer, or reinsurer is obligated to respond to a property loss for a risk according to a percentage or its proportionate share of the total limits applicable. Premiums are usually shared in the same proportion as the limits.

Quota share reinsurance - A form of pro rata reinsurance (proportional) in which the reinsurer assumes an agreed percentage of each insurance policy being insured and shares all premiums and losses accordingly with the reinsured.

Entries Under "R"

Railroad protective liability - Liability coverage designed to protect a railroad from liability claims arising out of the operations of others on or adjacent to railroad property.

Rain insurance - A weather coverage that indemnifies a promoter or organizer against loss of income because of the cancellation of an outdoor event due to rainfall that exceeds a specified amount during a specified time period.

Rate filing - Documentation filed by an insurer with the state requesting a change in the existing rates.

Rating bureau - A private organization that classifies and promulgates manual rates (or loss costs).

Real property - Land, buildings, and other structures (such as a swimming pool or tool shed).

Rebate - In insurance, a portion of an agent’s commission returned to a customer as an inducement to place the insurance through the agent. This practice is illegal in all but two states as against public policy. Reciprocal exchange - A type of insurance managed by an attorney-in-fact in which members pay premiums, and share in losses equally. Membership is required for insurance.

Redlining - Unfair discrimination based not on the risk’s characteristics but on its location. The term is commonly associated with an insurer’s refusal to consider insuring any home or business within a specific area marked by a line drawn on a map.

Reinsurance - The business of insuring insurance companies. By "ceding" a portion of its business to a reinsurance company, an insurer spreads the risk of exposure to catastrophic loss.

Reinsurer, see Reinsurance.

Removal - "Removal" was a provision of the New York Standard Fire Policy in which the insurer agreed to cover the cost of removing covered property from the path of a fire. Presently, property policies express the agreement in terms of "preservation of property" from imminent danger of damage from any covered peril. Not to be confused with Debris removal.

Renewal - The extension of the term of coverage of an expired policy, commonly by replacement with another policy effective on the date of expiration of the previous policy.

Rent-a-captive - A specialized form of captive insurance company operation designed for businesses that do not want to own a captive but want to obtain some of the advantages offered by captives. A rent-a-captive is formed by a group of investors and operated as an income-producing business. Insureds who wish to participate "rent" space in the captive instead of setting up and capitalizing their own captive insurance company.

Rent insurance - A form of business interruption insurance for a landlord. It protects building owners against loss of income when the building cannot be rented because of damage from any of the insured perils. It provides income while an insured’s building is untenantable.

Rental value insurance - Refers to protection of either a landlord’s rental income or an owner occupant’s economic stake in use of the subject structure. Either interested party can obtain coverage by way of an Insurance Services Office business income form.

Renters insurance - Term for insurance for the non-owner occupant of a dwelling or apartment.

Replacement cost, see Actual cash value.

Replacement cost appraisal - An appraisal that determines the amount required to replace an existing structure and related personal property.

Replacement cost insurance - Covers property — both building and contents — on the basis of full replacement cost without deduction for depreciation on any loss sustained, subject to the terms of the co-insurance clause.

Reporting form - A device for insuring values subject to extensive fluctuation that keeps the premium in line with the actual exposure. A maximum limit is set at policy inception and the insured is charged a "deposit premium." Actual values are then reported, usually on a monthly basis, and earned premium is figured on the basis of those reports and laid off against the deposit premium.

Reservation of rights - An arrangement in which an insurer agrees to proceed with the defense of a case without commitment to provide coverage, in the event that the facts disclosed during the trial reveal that the occurrence is not covered.

Reserves or reserved losses - The value of losses that have been estimated and set up for future payment.

Resident agent - A licensed agent who resides in and is licensed in the state in which business is being written.

Residual markets - Insurance markets established outside the normal insurance marketing channels to cover unusually large or poor risks. Such markets include assigned risk plans, aircraft pools, nuclear pools, and certain government insurance programs.

Respondeat superior - A legal term referring to the fact that, under specific circumstances, an employer (or principal) is legally liable for the actions of his or her employees while in the course of their employment.

Retention - Usually used in reinsurance, this is the amount of liability retained by an insurer, and not ceded to a reinsurer.

Retroactive date - The date that defines the extent of coverage in time under claims-made liability policies. Claims resulting from occurrences prior to the policy’s stated retroactive date are excluded.

Retrocessionnaire - A reinsurer that contractually accepts a portion of the cedant’s reinsurance risk. The transfer is called a retrocession. Retrospective rating - A rating arrangement in which the final premium for insurance coverage is not determined until all claims are closed. The final premium is determined by the insured’s actual loss experience during the policy period.

Rider - Another term for an endorsement attached to a policy that modifies the coverage.

Riot - One of the extended coverage perils, related to, but broader than, civil commotion.

Risk - Risk is uncertainty concerning loss. Sometimes also used to refer to a piece of business or a submission to an insurer.

Risk and Insurance Management Society, Inc. (RIMS) - Trade association of risk managers and insurance buyers.

Risk management - The process of handling pure risk by way of reduction, elimination, or transfer of risk, with the latter commonly achieved through insurance.

Risk manager - The individual in an organization responsible for evaluation of the organization’s exposures, and controlling these exposures through such means as avoidance or transference, as to an insurance company.

Risk retention group - An insurance company chartered under the laws of a state or other U.S. jurisdiction, composed of members whose business activities are similar, and controlled by its members.

Rolling store - A vehicle out of which goods are sold. An example would be a mobile snack bar at a construction site. Insurance policies may contain wording that may restrict or define available coverage for this type of operation.

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