Glossary of Insurance Terms...
S thru Z

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 inyour 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 "S"

SIG - A self-insured group. An SIG is a group of risks, usually sharing common characteristics or exposures, that join together in order to generate enough premium volume to justify self-insuring themselves. Members of an SIG often are jointly and severally liable for the losses of one another.

Safe driver plan - Merit rating of automobile insurance. In most states drivers are charged with "points" for (moving) traffic violations and auto accidents. These points translate to surcharges on the drivers’ insurance rates.

Salvage - When an insurer makes a payment for lost or damaged property, the insurer is entitled to the salvage of that property.

Schedule - List of items on a policy declaration, sometimes also showing descriptions and values.

Seasonal risk - A risk that is present only during certain parts of the year. For example: seasonal dwellings such as cottages used for vacations.

Self-insurance - An insurance-like strategy for handling one’s own exposures to loss supported by the financial wherewithal to meet expected losses. Not to be confused with a decision to forego insurance.

Self-Insured Retention (SIR) - That portion of pure risk an insured undertakes to handle on his or her own. A deductible is a form of self-insured retention.

Selling price clause - Applicable to the value of goods which have been damaged or destroyed by an insured peril. This clause insures the profit that would have been earned if the goods had been sold. It sets the insurable value of the property that has been sold, but not delivered, at the amount at which it was sold, less any charges not incurred.

Severability - A provision that insurance applies separately to each insured under the policy.

Shock loss - Name given to any large loss that impacts an otherwise profitable book of business.

Short rate cancellation, see Cancellation.

Short tail - Additional coverage that may be purchased under a claims-made policy that responds to losses that may have occurred during a policy period, but are not reported until after the end of the policy period. Usually available for no longer than a year.

Sidetrack agreement - The contract between a business and a railroad wherein a railroad builds a track onto the business’s property to facilitate shipping, and the business agrees to release the railroad from liability.

Sine Qua Non Rule - A legal rule stating that a person’s conduct cannot be held to be the cause of a loss if the loss would have occurred anyway.

Single interest policy - A policy that insures the interest of only one party in property where there are a number of parties having an insurable interest.

Sinkhole peril - Risk of loss by collapse of a "sinkhole." This is now covered as a basic cause of loss in commercial property policies.

Sistership exclusion - An exclusion in products insurance that eliminates coverage for the withdrawal or recall of products.

Sliding scale dividend plan - Often used with workers compensation insurance, dividend plans are established as a means of returning a portion of the premium to the policyholder if losses are better than expected and the insurance company board of directors declares a dividend. In a sliding scale plan, the amount of the potential dividend slides up or down according to the loss experience. Dividends cannot be guaranteed; they are paid upon declaration by the insurer’s board of directors.

Slip - At Lloyd’s of London, a document that identifies which syndicates are participating on a risk and for what percentage.

Smoke damage - An Extended coverage peril.

Society of Chartered Property & Casualty Underwriters - Professional society of those having attained the CPCU designation. (See CPCU.)

Soft costs and rents - Related to builders risk insurance, these are the necessary expenses that are incurred because a building project is delayed as the result of a covered property loss. Included are expenses such as increases in architectural fees, loss of rents because the project completion date is later than planned, increased interest expense, etc.

Soft market - A term given to a condition in which insurance is relatively inexpensive and easy to obtain.

Solicitor - An employee of an insurance agent or agency who is empowered to sell insurance on behalf of a licensed agent, generally using only those insurers that the agency represents. A solicitor usually does not have binding authority, and the business that is generated by a solicitor usually is owned by the agent, not the solicitor.

Solvency - Insurers must have sufficient assets (capital, surplus, reserves) in order to satisfy statutory financial requirements (investments, annual reports, examinations) and to meet liabilities.

Special agent - An insurer’s representative in a territory. He or she serves as a liaison between the insurer and the agent. The special agent is responsible for the volume and quality of the business written in that territory. Some states require a special license of special agents. Special form - In contrast to the named perils forms in property insurance, those forms that list specific perils for coverage, the special form contract covers simply risk of direct physical loss, relying on exclusions to limit and define the protection intended. See Open perils.

Specific excess reinsurance - Another term for per occurrence/per loss excess reinsurance.

Specific insurance - An insurance policy that covers only property specifically described in the policy, as opposed to blanket insurance, which usually covers all property at specified locations.

Specimen policy form - Specimen policy forms often are requested when non-standard coverage forms are being used. The specimen form may be reviewed to determine the actual policy provisions before coverage is bound.

Speculative risk - Risk which entails a chance of gain as well as a chance of loss. Contrast with Pure risk.

Split limits - As in auto insurance, where rather than one liability amount applying on a per-accident basis, separate amounts apply to bodily injury and property damage liability.

Sprinkler leakage insurance - Insurance that covers damage due to the accidental discharge from an automatic sprinkler system.

Stacking of limits - The application of the limits of one or more insurance policies to a claim or loss.

Standard fire policy, see New York Standard Fire Policy.

Stated amount - Amends the valuation clause on a policy to include an amount that is "stated" as the value of the item(s) being insured. Usually, these policies pay the lesser of the ACV of the damaged property, the cost of repairing or replacing the property, or the stated amount.

Statutory Accounting Principles (SAP) - Statutorily mandated accounting principles and practices that must be followed when an insurance company submits its annual financial statement to the department of insurance. In contrast to Generally Accepted Accounting Principles (GAAP) which are followed by most other businesses.

Steam boiler explosion, see Boiler & machinery insurance.

Stop loss - A provision in an insurance policy that cuts off an insurer’s losses at a given point. In effect, a stop loss agreement guarantees the loss ratio of the insurer.

Strict liability - Liability ascribed to a manufacturer or seller of a defective or dangerous product regardless of any fault or negligence.

Subrogation - The right of one party who has paid for the loss of a second party to obtain recompense from the third party who is responsible for the loss. For example, an insurance company becomes "subrogated" to the rights of its insured to the extent of the insurer’s payment for collision damage caused by the negligence of the other driver.

Subsidence - A form of earth movement, excluded in most property policies.

Substandard risk - A risk falling outside normal underwriting standards. If written at all, it is usually with a substantial premium surcharge.

Sue and labor clause - A marine insurance clause comparable to removal in property insurance.

Superfund - The better-known name for the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) passed by Congress in 1980. Under this law, parties found responsible for polluting a site must clean up the contamination or reimburse the EPA for doing so. Liability is strict, retroactive, joint and several.

Superintendent of Insurance - In some states the Commissioner of Insurance is known as the Superintendent.

Supplemental extended reporting period - An optional reporting period that allows coverage for liability claims made after the policy period.

Surety, see Bond.

Surety Association of America (SAA) - A voluntary, non-profit, unincorporated association that is licensed as a rating or advisory organization for surety and fidelity insurance in all states, D.C., and Puerto Rico. The SAA handles statistical information, filings, publications, and surety and fidelity bonds.

Surface water - Commonly known as water on the surface of the ground usually created by rain or snow, which is of a casual or vagrant character, following no definite course and having no substantial or permanent existence. Some insurance policy may include surface water as a covered peril but exclude "flood" when defined as the overflowing of water from its natural boundaries, such as a lake or river.

Surplus - The amount by which an insurer’s assets exceed its liabilities.

Surplus lines, see Excess & surplus lines market.

Surplus share reinsurance - A type of pro-rata or proportional reinsurance agreement under which the insurer and reinsurer agree to share a predetermined portion of all insurance, premium, and losses. The primary insurer’s retention in a surplus share agreement is stated as a dollar amount of the amount insured.

Syndicate - An association of insurers that work together to insure an especially large or hazardous risk. Also see Pool.

Entries Under "T"

TPA - Third party administrator. A TPA is a contractor that adjusts and administers insurance claims.

Tail coverage - Coverage for claims made after a claims-made liability policy has terminated; the extended reporting or discovery period. See Nose coverage.

Temporary worker - An employee hired on a short term, often seasonal, basis.

Tenants improvements and betterments, see Improvements and betterments.

Third party - An outsider; a business or personal invitee or a party with absolutely no connection to an insured who may become a claimant under a form of public liability coverage because of injury or property damage alleged to have been caused by the negligence of the insured.

Threshold level - The point at which an injured person may bring tort action under a modified No-Fault Auto Plan. Many no-fault plans only allow tort action for pain and suffering after medical bills exceed some figure, like $1,000; or if disfigurement or death occurs.

Tight market, see Hard market.

Time element coverage - Insurance in which the element of time has heavy bearing on the extent of loss. Business income insurance covers loss of income for the unknown duration of the insured’s business interruption.

Title insurance - Insurance that indemnifies the owner of real estate in the event that someone challenges his or her ownership of property, due to the discovery faults in the title.

Tort - A wrong for which a civil (as opposed to criminal) action can be brought. Many tort claims arise from negligence.

Trailer interchange agreement - An arrangement among truckers whereby trailers may be moved along by the tractors of one or more parties to the agreement.

Transfer of risk - A basic underlying principle of insurance, whereby the risk of financial loss is transferred from one party to another.

Treaty reinsurance - An agreement in which the ceding company agrees in advance to cede certain classes of business or types of insurance to a reinsurance company. The reinsurer agrees to accept all risks or losses that fall within the terms of the agreement.

Twisting - The practice of inducing by misrepresentation, or inaccurate or incomplete comparison, a policyholder in one company to lapse, forfeit or surrender his insurance for the purpose of taking out a policy in another company.

Entries Under "U"

Umbrella liability - A liability contract with high limits covering over top of primary liability coverages and, subject to a self-insured retention (deductible), covering exposures otherwise uninsured.

Underground Storage Tank (UST) - Tanks sunk in the ground that are used to store or dispose of gasoline or other fuels, hazardous chemicals, or other pollutants or contaminants.

Underinsured motorists coverage - Coverage for the insured and passengers whenever the at-fault driver in an accident has auto liability insurance with lesser limits than the insured’s. This coverage lies atop "uninsured motorists coverage" or atop the at-fault driver’s low limit automobile liability insurance and provides the insured and passengers with protection equal (usually) to the insured’s own automobile liability cover.

Underlying insurance policy - The policy providing initial coverage for a claim until its limit of liability is reached and an umbrella or excess policy’s coverage is triggered.

Underlying limits - The limits of liability of the policy(ies) underlying an umbrella or excess policy.

Underwriter - One who researches and then accepts, rejects, or limits prospective risks for an insurance company.

Underwriters Laboratories, Inc. (UL) - Originally begun as a cooperative of western fire insurers to test materials, the UL is now an independent organization testing virtually every fabricated device and material. Items are permitted to bear the UL seal of approval only after they have passed stringent testing for safety.

Unearned premium - That portion of an insurance premium that would have to be returned to the insured if the policy were cancelled.

Unilateral contract - A contract such as an insurance policy in which only one party to the contract, the insurer, makes any enforceable promise. The insured does not make a promise but pays a premium, which constitutes his part of the consideration.

Uninsurable risk - An uninsurable risk is one that is literally uninsurable because loss is certain rather than possible.

Uninsured motorists coverage - Coverage for the insured and passengers whenever the at-fault driver in an accident has no auto liability insurance. Coverage is usually to the extent of limits required by state auto financial responsibility laws.

United States Longshore and Harbor Workers Compensation Act (USL&H) - A compulsory law administered by the Department of Labor that covers injuries to employees on vessels or drydocks.

Unsatisfied judgment fund (UJF) - In some states a person who is injured in an automobile accident and who cannot collect from the person responsible, may collect from a special fund (UJF).

Entries Under "V"

Vacant property - Once defined as devoid of occupants or contents, a stricter definition is being applied as more and more communities find older buildings of three and four stories that are only one quarter occupied. Property policies impose limitations on coverage of "vacant" buildings so the (changing) definition of vacant property is quite important.

Valuable papers coverage - Provides "all risk" coverage on "valuable papers," such as: written, printed, or otherwise inscribed documents and records, including books, maps, films, drawings, abstracts, deeds, mortgages, and manuscripts. It covers the cost of research to reconstruct damaged records, as well as the cost of new paper and transcription.

Valuation - To estimate the value of a piece of property usually by considering its replacement cost or its actual cash value. Factored into the estimate is any depreciation or wear and tear.

Valued policy, see Agreed amount clause.

Valued policy law - Law that exists in some states which applies primarily to buildings. The laws differ but, in general, they state that in case of a total loss the amount of insurance is the agreed amount of loss.

Vandalism and malicious mischief - Once treated as a separate peril to be added to a property policy or not, current property forms routinely include the protection.

Verbal threshold - Term in no-fault auto insurance, applicable in some states, which states that victims are allowed to sue in tort only if their injuries meet certain verbal descriptions of the types of injuries that render one eligible to recover for pain and suffering.

Vested commissions - Commissions on renewal business which are paid to the agent whether or not he or she still works for the insurance company with which the business is placed.

Vicarious liability - The condition arising where one person is responsible for the actions of another, as a parent is often held responsible for the vandalism damage a minor child does to a school.

Entries Under "W"

Waiver of subrogation - An insurer has the right of subrogation; however, it may waive that right through this method.

Wear and tear exclusion - A common heading for an "all risks" exclusion relating to a group of events that do not represent risk at all. Property will become worn out and torn; it will rust, settle, become rotted, infested, marred, scratched, etc. It is easy to distinguish however between the marring that occurs over time (excluded) and marring that occurs when a concrete block is dropped onto a fine wooden table.

Whole dollar premium - The practice of many insurers to round premiums to the nearest dollar, rather than carrying them out to the nearest cent. An amount of 51 cents or more is usually rounded up to the next dollar, and any cents amount less than that is dropped.

Workers compensation insurance - Coverage that conforms to the workers compensation laws of the states in which it written. See also Employers liability insurance.

Entries Under "X"

XCU - A term used in commercial general liability insurance to designate that three hazards exist for the classification under review. Those three hazards are explosion, collapse and underground. The current CGL includes those coverages automatically in the basic form, but they may be deleted by endorsement.

Entries Under "Y"

Yacht - A larger vessel used for pleasure purposes, as distinguished from a motorboat, sailboat or commercial vessel.

Yacht Insurance - A marine insurance designed to provide property damage or hull coverage for yachts, cabin cruisers, and sailing vessels. Some will also cover small inboard motors and other personal vessels.

Year 2000 Problem - A potential electronic and computer hardware/ software problem that is expected to affect users at the turn of the century. It is a year-date coding problem that results from using only two-digit year dates instead of four. Once the new millennium occurs, computers and other equipment using computerized technology may have a problem understanding what year is 1900 or 2000. The resulting problems may range from systems or programs that do not work at all, to ones that are inaccurate. Important data may be lost and, overall, a great many potential problems may occur unless individuals and businesses have carefully evaluated and upgraded their software and hardware. The actual impact is not yet known. Also called the Millennium Bug or the Y2k Problem.

Entries Under "Z"

Zero coupon bond - A certificate evidencing private or public indebtedness that provides no periodic interest payments to the bondholder (such as by annual coupons) during the life of the bond but that, instead, provides for a maturity value that is largely relative to the cost of the bond so as to reflect the absence of annual interest payments.

Zone rating - In commercial automobile insurance, those risks that have a radius of operation of over 300 miles, and fall into the long-haul category, are rated on the zone they travel in using the city of origin and the city of destination to determine the zone category.

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