Glossary of Insurance Terms

A

Actual Cash Value (ACV) - How much an item is worth in its current condition.

Additional Insured - A person, group, or location that is added to a business insurance policy - traditionally commercial general liability (CGL), professional liability, or errors & omissions. Essentially, it’s a way of extending the named insured’s coverage to others.

Adjuster - A person who investigates claims and recommends settlement options based on estimates of damage and insurance policies held.

Agent - An intermediary between small business owners and insurance products from a single insurer.

Agreed Value - The amount of insurance that represents a fair valuation of the property as agreed upon by the insurer and the insured at the time the insurance was written. 

Assigned Risk - A governmental pool established to write business declined by carriers in the standard insurance market.

Audit - An examination performed by insurers to ensure your policy meets your business risk exposure needs. It is performed at the end of each policy term to confirm your business’s annual revenue and/or payroll was reported properly, and that the policy reflects accurate rating metrics. It also verifies you are paying the correct premium amount. The most common types of insurance audits review general liability, liquor liability, worker’s compensation, or other similar commercial business policies.

B

Base Rate - The rate per $100 in payroll. This is the rate that will be listed on your quote. 

Binder - A temporary insurance contract delivered by the insurer to the insured before a permanent contract is issued.

Blended Rate - An adjusted version of the base rate that factors in any state assessments, fees, or discounts. Also known as the Net Rate. This is the rate we use to calculate premium on pay as you go workers’ compensation billing in order to capture all of the premium components included in your policy.

Broker - An intermediary between small business owners and insurance products from dozens of insurers.

Business Personal Property - Items your business owns such as inventory, equipment, and furniture. 

Business Owner’s Policy (BOP) - Combines commercial general liability and property insurance. Protects your business from liability claims and lawsuits; safeguards your buildings, equipment and inventory; and helps cover you financially if your business unexpectedly shuts down from a covered loss.

C

Certificate Holder - A person or organization to whom the certificate is being provided as evidence of insurance.

Certificate of Insurance (COI) - A document issued by an insurance company or broker verifying the existence of an insurance policy and summarizing the key aspects and conditions of the policy. Typically on an ACORD form, but there are policy and state-specific forms used as well. Follow this link for how to request certificates. 

Claim - A request made by the insured for insurer remittance of payment due to loss incurred and covered under the policy agreement. Follow this link for information on how to report a claim. 

Class Code - Workers’ compensation class codes identify the type of work a business is in and the amount of risk workers face. These codes are assigned by the National Council on Compensation Insurance (NCCI) or independent state bureaus. For information on how to determine which class codes to use, follow this link. 

Commercial Auto Insurance - Covers vehicles owned by and used in your business, and protects against liability for damages caused by accidents involving their use. 

Commercial Property Insurance - Protects your business’ owned or rented building and equipment. 

Cyber Liability Insurance - Provides coverages to help your business respond to and recover from a cyberattack. 

D

Declarations Page - The pages of your policy that list the important information about your business as well as the coverages and limits that apply to your policy. 

Deductible - The amount of money you have to pay out-of-pocket before your insurance coverage kicks in.

Disability Insurance - Provides employee benefits in the event that they are prevened from working and earning an income due to an injury or illiness that can occur both on or off the job. 

E

Earned Premium - The portion of the paid premium that's been applied to the days a policy has been in place.

Effective Date - The date when your coverage begins. 

Employers Liability - A coverage that helps pay a business owner’s costs related to a lawsuit resulting from an employee’s work-related injury or illness. Typically, part of a workers’ compensation insurance policy. But in monopolistic states, business owners may have to get this coverage separately.

Endorsement - An amendment or rider to a policy adjusting the coverages and taking precedence over the original/general contract.

Experience Modification Rate (EMR) - A rating determined by insurance regulators and used by insurance carriers to gauge the likelihood (risk) of your business filing a workers’ comp claim. Also known as an Experience Rating or a MOD factor.

Expiration Date - The date when your coverage ends. 

F
Fair Value - The amount at which an asset (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties.

G
General Liability Insurance - Helps cover claims where your company caused bodily injury or property damage to a third party or their belongings. Also known as Commercial General Liability Insurance of Business Liability Insurance. 

Gross Wage - The total amount of money an employee earns before any deductions are made. Includes all forms of income, such as: salaries, wages, bonuses, and any other compensation.

H
Hired and Non-Owned Auto Insurance - Protects your employees if they drive their own personal vehicles or a rental car in the company’s name for business. 

I
Inland Marine Insurance - Provides financial protection for a business’s property that is transported on land. This can include equipment, products, parts, and materials being shipped “inland” by automobiles, trucks, and trains. Coverage extends to property that is owned or in a business’s care related to construction, transportation, fine art and renewable energy.

Insured - The person, business or party named on a policy that has insurance coverage.

Insurer - The insurance company (also known as the carrier) that underwrites an insured risk and agrees by contract to pay compensation. 

L

Lapse - A gap in coverage. Typically caused by the cancellation of a policy. 

Liability - Responsibility for a loss. 

Loss - The financial cost of a claim. The reduction, decrease, or disappearance of value of the person or property insured in a policy by a peril. 

Loss Payee - The party that receives payment in the event of a loss. Banks, Lienholders and Mortgagees typically are listed on this endorsement.

Loss Runs - A report showing a business’ claims for a certain period of time. Also known as a claims history.

M
Minimum Premium - The minimum premium is the lowest amount of money your insurer (carrier) will take for an insurance policy.

Monopolistic State - The states of North Dakota, Ohio, Washington and Wyoming are states where private insurance is prohibited. Each of these states operates its own workers' compensation insurance fund and must be contacted directly for coverage. 

N
Named Insured - The individual defined as the insured in the policy contract.

Nonrenewal - A termination of a policy by an insurer on the anniversary or renewal date. 

O
Occurrence - An accident , including injurious exposure to conditions, which results, during the policy period in bodily injury or property damage neither expected or intended from the standpoint of the insured.

Officer - A president, vice-president, treasurer, actuary, secretary, controller and any other person who performs for the company functions corresponding to those performed by the foregoing officers.

P
Package Policy - Two or more distinct policies combined into a single contract.

Paid Family Leave - Enables workers to receive wage replacement when they take extended time off from work for qualifying reasons, such as bonding with a new child, recovering from their own serious health condition or caring for a loved one with a serious health condition.

Peril - The cause of a loss. 

Policy Limit - The maximum amount of money your insurer will pay for a loss. 

Policyowner - The person who is entitled to exercise the rights and proveleges of a policy. This person may or may not be the insured. 

Policy Period - The period of time a policy is in effect. Also known as Policy Term. 

Premium - What you pay your insurance company (carrier) in exchange for coverage. 

Professional Liability Insurance - Helps cover claims when your business makes a mistake in the professional services provided to a client. Also known as errors and omissions (E&O) insurance.

Q
Quote - The estimated cost provided by the insurance company (carrier) for an insurance policy. 

R
Rate - The value of insured losses expressed as a cost per unit of insurance. 

Replacement Value - The amount it would cost to replace a stolen or damaged item with a brand-new replacement.

Risk - The chance of a loss occurring in a situation that involves the opportunity for either loss or gain.

S
Standard Risk - A person who, according to a company's underwriting standards, is considered a normal risk and insurable at standard rates.

Stop Gap Coverage - A specific type of insurance that employers may purchase that provides employers liability insurance when it is not included in a workers’ compensation policy automatically. Typically only needed when a business has employees working in a monopolistic state. 

Subcontractor - A business or person hired by a contractor to carry out specific tasks or services in their area of expertise.

Subrogation - Subrogation gives an insurance company (aka: carrier) the right to pursue a third party if they caused a loss to the insured.

T
Third Party - A person other than the insured or insurer.

Tort - A wrongful act that causes another person damages or harm. 

U
Umbrella Insurance - A policy that covers losses that are higher than the policy limits of your existing insurance policies. Once your other policy has paid to its limit, the umbrella insurance could cover any remaining costs.

Underwriter - A person who evaluates and classifies risks to accept or reject them on behalf of the insurer. 

Underwriting - A process where an insurance company (aka: carrier) reviews and evaluates a business’ risks to decide whether it qualifies for coverage and at what premium. 

Unearned Premium - The amount of premium for which payment has been made by the policyholder but coverage has not yet been provided.

V
Vicarious Liability - Your business can be liable for the actions of a third party, such as your employees or contractors you work with. 

W
Waiver of subrogation - An endorsement where the insurance company agrees to not recover the money it paid for a claim from a third party who may have caused the loss. If you need a waiver of subrogation added to your certificate (COI) or proof of insurance, you can follow the steps listed in this article.

Workers’ Compensation Insurance - Provides benefits to help employees recover from a work-related injury or illness. Most states require employers to carry this type of business insurance.

Written Premium - The contractually determined amount charged by the reporting entity to the policyholder for the effective period of the contract based on the expectation of risk, policy benefits, and expenses associated with the coverage provided by the terms of the insurance contract.