Insurance Terms Glossary
Plain-language definitions drawn from the four study guide lessons. Open a term to see the lesson where it is taught and any related calculator.
81 terms shown
A
Actual cash value
Actual cash value, or ACV, is commonly the replacement cost of property at the time of loss minus depreciation for age, wear, and obsolescence. Some jurisdictions instead measure it by fair market value or a broad evidence rule.
Additional insured
A party added to a policy, usually by endorsement, who receives coverage to the extent the endorsement provides.
Agreed value
Agreed value is a valuation method in which the insurer and insured agree in advance on the amount payable for a covered total loss, suspending any coinsurance requirement. It is often used for property that is hard to value after a loss.
Appraisal
Appraisal is a policy provision for resolving disputes about the amount of a loss, not about coverage. Each side selects a competent appraiser, the two appraisers choose an umpire, and agreement by any two of the three sets the loss amount.
Appraisal clause
A policy condition that resolves disputes over the amount of loss by using each party's appraiser and a neutral umpire.
Arbitration
Arbitration is a method of settling disputes outside of court in which a neutral arbitrator hears both sides and renders a decision. Depending on the agreement, the decision may be binding or non-binding.
B
Binder
A binder is temporary evidence of coverage that protects the insured until the formal policy is issued or the insurer declines the risk. It may be oral or written and states the essential terms of the coverage.
Boycott
A boycott is an agreement or concerted action to refuse to deal with a person, or to withhold business from them, in order to restrain trade or coerce a particular result. In insurance it is treated as a prohibited unfair method of competition.
Burglary
Burglary is the unlawful entry into premises with intent to steal, usually evidenced by visible signs of forced entry. It targets property inside a building rather than a person.
C
Cancellation
Cancellation is the termination of a policy before its normal expiration date, by either the insurer or the insured. Insurer-initiated cancellation is regulated as to permissible reasons and advance notice.
Coercion
Coercion is the use of physical or economic force to compel a person to act against their will, such as forcing someone into or out of an insurance transaction. It is a prohibited unfair trade practice.
Coinsurance
Coinsurance is a property policy clause requiring the insured to carry a limit equal to a stated percentage of the property's value, commonly 80 percent. If the limit falls short at the time of loss, the insurer pays partial losses only in proportion to that shortfall.
Condition
A policy provision that sets out the duties and procedures each party must follow for coverage to apply and for a claim to be paid.
Condition precedent
A requirement the insured must satisfy before the insurer's obligation to pay is triggered, such as filing a timely proof of loss.
Conflict of interest
A situation where the adjuster's own financial stake, such as an interest in a repair firm or salvage, could compromise loyal representation of the insured.
Constructive total loss
A constructive total loss occurs when property is not entirely destroyed but the cost to repair it equals or exceeds its value or the policy limit, so it is treated and paid as a total loss.
D
Damages
Damages are the monetary compensation a party is legally obligated to pay for injury or loss caused to another. They may be compensatory, to cover actual harm, or punitive, to punish egregious conduct.
Deceptive Trade Practices-Consumer Protection Act
A consumer-protection law that gives Texans a remedy for false, misleading, or deceptive acts, including certain insurance conduct, and that the license examination covers.
Declarations page
The customized front section that names the insured and states the covered property, policy period, limits, deductible, premium, and attached forms.
Deductible
A deductible is the portion of a covered loss the insured must pay before the insurer's payment applies. It reduces small claims and lowers premiums by shifting the first layer of loss to the policyholder.
Depreciation
Depreciation is the loss in value of property caused by age, wear and tear, use, or obsolescence. It is the amount subtracted from replacement cost to arrive at actual cash value.
Duty to defend
Under liability coverage, the insurer's obligation to provide a legal defense against claims that could fall within coverage.
Duty to indemnify
The insurer's obligation to pay covered judgments or settlements up to the applicable limit of insurance.
Duty to mitigate
The insured's obligation to take reasonable steps to protect damaged property from additional loss after an event.
E
Endorsement
An endorsement, also called a rider, is a written amendment attached to a policy that adds, removes, or changes coverage. Endorsements customize the standard policy form to fit a particular insured.
Estoppel
Estoppel is a legal principle that prevents a party from asserting a right it previously gave up or led the other party to reasonably rely on as waived. Once an insurer waives a right, estoppel can bar it from later reclaiming that right.
Examination under oath
A formal, recorded questioning of the insured under oath that the insurer may require as part of investigating a claim.
Excess insurance
Excess insurance pays only after the primary coverage has been exhausted, responding to the portion of a loss that exceeds the primary policy's limit.
Exclusion
A provision that removes a specified cause, type, or circumstance of loss from what the insuring agreement would otherwise cover.
F
Fair market value
Fair market value is the price at which property would change hands between a willing buyer and a willing seller, neither under pressure and both reasonably informed. It is sometimes used to measure actual cash value.
Fiduciary capacity
The legal status in which an adjuster holds a client's claim funds for the client's benefit, forbidding any diversion or personal use of that money.
G
General average
A loss voluntarily incurred to save the entire marine venture from a common peril, shared proportionally by all interests including ship, cargo, and freight.
Good faith and fair dealing
The implied duty that requires an insurer to handle claims honestly and reasonably rather than putting its interests ahead of the insured's.
H
I
Indemnity
Indemnity is the principle that a property settlement should restore the insured to the same financial position held just before the loss, without profit. It is the reason most losses are paid on an actual cash value or replacement cost basis.
Insurable interest
Insurable interest is a financial stake in the person or property insured, such that the policyholder would suffer a real economic loss if the covered event occurred. In property insurance it must generally exist at the time of loss.
Insurance
Insurance is a contractual arrangement that transfers the financial risk of a loss from a person or business to an insurer in exchange for a premium, spreading that risk across many policyholders.
Insurance contract
An insurance contract, or policy, is the legally binding agreement in which the insurer promises to pay for covered losses in return for the premium and the insured's compliance with the policy conditions.
Insuring agreement
The provision that states what the insurer promises to cover in exchange for premium, defining covered property and covered causes of loss.
Intimidation
Intimidation is the use of threats or fear to compel a person to act. Like boycott and coercion, it is prohibited as an unfair method of competition in the business of insurance.
L
Liability
Liability is a legally enforceable obligation to pay for injury or damage caused to another person or their property. Liability insurance responds to these obligations arising from the insured's acts or omissions.
Liberalization
A liberalization clause provides that if the insurer broadens coverage under its policy forms without charging additional premium, the improved coverage automatically applies to existing policyholders.
Limits of liability
Limits of liability are the maximum amounts an insurer will pay under a policy, stated per occurrence, per person, per coverage, or in the aggregate. They cap the insurer's obligation regardless of the size of the loss.
Loss
A loss is the financial harm or reduction in value that results from a covered peril. It can be partial, affecting only part of the property, or total, destroying it entirely.
Loss payee
A party entitled to share in a loss payment because of a financial interest, but generally without the independent protections of a mortgagee.
M
N
Named insured
The person or entity listed on the declarations, holding the primary rights under the policy and responsibility for its duties.
Named perils form
A form that covers only the specific causes of loss it lists, placing the burden on the insured to show a listed peril caused the loss.
Negligence
Negligence is the failure to exercise the degree of care that a reasonably prudent person would use under similar circumstances. It is the most common basis for legal liability in property and casualty claims.
Non-waiver agreement
A non-waiver agreement is a document signed by the insurer and the insured stating that investigating or negotiating a claim does not waive either party's rights under the policy, letting the insurer proceed without admitting coverage.
Nonrenewal
Nonrenewal is the decision not to continue a policy at the end of its term, ending coverage as of the expiration date rather than during the term. It generally requires advance notice to the insured.
O
Obligee
In a bond, the party protected by the guarantee and to whom the underlying obligation is owed.
Occurrence
An occurrence is an accident, including continuous or repeated exposure to substantially the same harmful conditions, that results in loss during the policy period. It is broader than a single sudden event and is central to liability coverage.
Open perils form
A form that covers all direct physical loss except causes that are excluded, placing the burden on the insurer to prove an exclusion applies.
Other insurance
Other insurance provisions coordinate payment when more than one policy covers the same loss, preventing recovery of more than the actual loss. Common methods include primary and excess coverage and pro rata sharing.
P
Particular average
A partial loss that falls entirely on the owner of the property that was damaged, without contribution from the other parties to the voyage.
Peril
A peril is the actual cause of a loss, such as fire, wind, hail, lightning, theft, or water. Policies either name the covered perils or cover the risk of direct physical loss except for stated exclusions.
Policy period
The span between the effective date and expiration date during which a loss must occur for coverage to be triggered.
Primary insurance
Primary insurance is the coverage that pays first, up to its limit, before any other applicable policy responds. It bears the initial layer of a covered loss.
Principal
In a bond, the party who agrees to perform the obligation and whose performance the surety guarantees to the obligee.
Pro rata
Pro rata is a method of sharing a loss among multiple policies in proportion to each policy's limit relative to the total insurance in force. Each insurer pays its share rather than the full loss.
Prompt payment of claims
The Chapter 542 framework that requires an insurer to acknowledge, investigate, and accept or reject a claim within set deadlines, with statutory interest and attorney fees for delay.
Proof of loss
A proof of loss is a formal, usually sworn statement the insured submits documenting the amount, cause, and details of a claimed loss. Policies typically require it within a set time after the loss as a condition of payment.
Protection and indemnity
The liability portion of an ocean marine program, covering bodily injury and damage to others that the running down clause does not address.
Proximate cause
Proximate cause is the event that sets in motion an unbroken chain of events leading to a loss, without which the loss would not have happened. Coverage often turns on whether the proximate cause was a covered peril.
R
Replacement cost
Replacement cost is the amount needed to repair or replace damaged property with new property of like kind and quality, without deducting depreciation. Coverage of this type usually pays the depreciation only after repairs are completed.
Reservation of rights
A reservation of rights is a notice from the insurer stating that it will investigate or handle a claim while reserving its right to later deny coverage. Unlike a non-waiver agreement, it is issued by the insurer alone rather than signed by both parties.
Risk
Risk is the uncertainty or chance of loss. In insurance it can also refer to the person or property that is insured and to the peril being insured against.
Robbery
Robbery is the taking of property from a person by force, threat of force, or violence. The presence of a victim and the use of force or fear distinguish it from other stealing crimes.
S
Salvage
Salvage is the remaining value of damaged property after a loss. When an insurer pays for a total loss it often takes ownership of the salvage and sells it to offset the cost of the claim.
Standard mortgage clause
A provision that creates a separate agreement with the lender, preserving its right to payment even when the insured's own claim fails.
Subrogation
Subrogation is the insurer's right, after paying a claim, to pursue the third party that caused the loss to recover what it paid. It prevents the insured from collecting twice and shifts the cost to the responsible party.
Surety
In a bond, the party that guarantees the principal will meet the obligation and pays the obligee if the principal fails to perform.
T
U
Umpire
The neutral third person chosen by the two appraisers to decide the differences between them so that a binding amount can be set.
Unauthorized practice of law
Giving legal advice or performing acts reserved for licensed attorneys, which a public adjuster is expressly prohibited from doing.
Unfair claim settlement practice
Conduct such as misrepresenting policy provisions, failing to promptly and fairly settle a claim when liability is reasonably clear, or forcing a claimant to sue for amounts due, prohibited under Chapter 541.
Unoccupancy
Unoccupancy describes a building that still contains its furnishings and contents but has no people living or working in it. It generally does not trigger the coverage restrictions that apply to a vacant building.
V
Vacancy
Vacancy describes a building that is empty of both occupants and the contents needed to use it. Many policies suspend or reduce certain coverages once a property has been vacant beyond a stated number of days.
Valued policy
A valued policy sets a fixed amount the insurer will pay for a total loss, established when the policy is written rather than calculated afterward. Fine art, antiques, and, under some state laws, real property may be insured this way.