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Insurance Glossary - Understanding Common Terms

Our glossary is divided alphabetically by insurance term in a quick reference guide to assist understanding the language commonly used by insurance companies. Policy documents contain a number of these terms because they typically define the limitations of risk and liability on the insured and any exclusions of coverage.

If you plan to start a new policy or renew your current policy with a different carrier or agency, it is important to review and understand the policy differences behind individual quotes from multiple carriers.  Lower policy premiums may be the result of decreased payout benefits, higher deductibles, or maximum damages allowed.  It is important to identify these unique features in any policy comparison, otherwise a lower price may come at a much higher cost when you have to file a claim for loss or damages in the future.

Select the first letter of the word or term to locate a definition and brief description.  For example, to get help with the terms "Automobile Liability Insurance" or "Premium", select either the letter A or P from the menu bar below: 


Insurance Glossary: Terms that Begin with the Letter 'c'


Cafeteria Plan

Generic term for an employee benefit plan that allows employees to select among the various group life, medical expense, disability, dental, and other plans that best meet their specific needs. Also called flexible benefit plans.

Calendar-Year Deductible

Amount payable by an insured during a calendar year before a group or individual health insurance policy begins to pay for medical expenses.

Cancelable

A contract of health insurance that may be canceled during the policy term by the insurer or insured.

Cancellation

The discontinuance of an insurance policy before its normal expiration date, either by the insured or the company.

Capacity

(1) The amount of capital available to an insurance company or to the industry as a whole for underwriting general insurance coverage or coverage for specific perils. (2) The amount of insurance a company or the industry are able to write, due to limitations on or availability of capital.

Capital Gain

Profit realized on the sale of securities. An unrealized capital gain is an increase in the value of securities that have not been sold.

Capital Retention Approach

A method used to estimate the amount of life insurance to own. Under this method, the insurance proceeds are retained and are not liquidated.

Capitation

A method of payment for health services in which a physician or hospital is paid a fixed, per capita amount for each person served regardless of the actual number of services provided to each person.

Captive Insurance Company

A company owned solely or in large part by one or more non-insurance entities for the primary purpose of providing insurance coverage to the owner or owners. The company's stock is controlled by one interest or a group of related interests so as to provide coverage for their business operations. A Captive Insurance Company may be a nonadmitted, nonresident, or foreign insurer. Sometimes it may provide reinsurance to a self-insured or a domestic company. See also Association Captive.

Career Average Formula

A pension plan formula that bases retirement benefits on earnings during all years of service to the employer.

Cargo Insurance

Type of ocean marine insurance designed to protect the shipper of the goods against financial loss if the goods are damaged or lost.

Cash Surrender Value

The amount available in cash upon voluntary termination of a policy by its owner before it becomes payable by death or maturity.

Casualty Insurance

Insurance concerned with the insured's legal liability for injuries to others or damage to other persons' property; also encompasses such forms of insurance as plate glass, burglary, robbery and workers' compensation.

Catastrophe

Event which causes a loss of extraordinary magnitude, such as a hurricane or tornado.

Causes-of-Loss Form

Form added to commercial property insurance policy that indicates the causes of loss that are covered. There are four causes-of-loss forms: basic, broad, special, and earthquake.

Cede

To transfer all or part of a risk written by an insurer (the ceding, or primary company) to a reinsurer.

Certificate of Insurance

A statement of coverage issued to an individual insured under a group insurance contract, outlining the insurance benefits and principal provisions applicable to the member.

Certified Financial Planner

Professional who has attained a high degree of technical competency in financial planning and has passed a series of professional examinations by the College of Financial Planning.

Certified Insurance Counselor

Professional in property and liability insurance who has passed a series of examinations by the Society of Certified Insurance Counselors.

Cession

Amount of the insurance ceded to a reinsurer by the original insuring company in a reinsurance operation.

CFP

See Certified Financial Planner.

CGL Policy

See Commercial General Liability Policy.

Change of Occupation Clause

Provision in a health insurance policy stipulating that if the insured changes to a more hazardous occupation, the benefits are reduced based on the amount of benefits the premium would have purchased for the more hazardous occupation.

Chartered Financial Consultant

An individual who has attained a high degree of technical competency in the fields of financial planning, investments, and life and health insurance and has passed ten professional examinations administered by The American College.

Chartered Life Underwriter

An individual who has attained a high degree of technical competency in the fields of life and health insurance and who is expected to abide by a code of ethics. Must have minimum of three years of experience in life or health insurance sales and have passed ten professional examinations administered by The American College.

Chartered Property and Casualty Underwriter

Professional who has attained a high degree of technical competency in property and liability insurance and has passed ten professional examinations administered by the American Institute for Property and Liability Underwriters.

ChFC

See Chartered Financial Consultant.

Choice No-Fault

Allows auto insureds the choice of remaining under the tort system or choosing no-fault at a reduced premium.

CIC

See Certified Insurance Counselor.

Claim

A request for payment of a loss which may come under the terms of an insurance contract.

Claims Adjustor

Person who settles claims: an agent, company adjustor, independent adjustor, adjustment bureau, or public adjustor.

Claims-Made Form

Claims-Made liability insurance, is different that Occurrence Form coverage. In a claims made policy, only those claims brought against the insured during the policy period and are reported during the policy period are covered.  In an Occurrence form policy, the claims brought against the insured or insurance company are based on the insurance that was in-force at the time of the accident or event.  A claims made policy can begin to look more like an occurrence form policy if the insured has been with the same insurance carrier for many years and has purchased “prior acts coverage”, similarly that same insured should purchase an “extended reporting or tail cover” to cover exposures known as incidents when the policy is in-force but do not develop into claims until after the policy is expired.

Claims-Made Policy

A liability insurance policy under which coverage applies to claims filed during the policy period.

Class Rating

Rate-making method in which similar insureds are placed in the same underwriting class and each is charged the same rate. Also called manual rating.

CLU

See Chartered Life Underwriter.

COB

See Coordination of Benefits.

COBRA

Consolidated Omnibus Budget Reconciliation Act. Contains provisions giving certain former employees, retirees, spouses and dependent children the right to temporary continuation of health coverage at group rates. This coverage, however, is only available in specific instances. Group health coverage for COBRA participants is usually more expensive than health coverage for active employees, since usually the employer formerly paid a part of the premium. It is ordinarily less expensive, though, than individual health coverage.

Coinsurance

(1) A provision under which an insured who carries less than the stipulated percentage of insurance to value, will receive a loss payment that is limited to the same ratio which the amount of insurance bears to the amount required; (2) a policy provision frequently found in medical insurance, by which the insured person and the insurer share the covered losses under a policy in a specified ratio, i.e., 80 percent by the insurer and 20 percent by the insured.

Collateral Source Rule

A legal rule, which states that the defendant cannot introduce any evidence that shows the injured party has received compensation from other collateral sources.

Collision Insurance

Protection against loss resulting from any damage to the policyholder's car caused by collision with another vehicle or object, or by upset of the insured car, whether it was the insured's fault or not.

Combined Ratio

Basically, a measure of the relationship between dollars spent for claims and expenses and premium dollars taken in; more specifically, the sum of the ratio of losses incurred to premiums earned and the ratio of commissions and expenses incurred to premiums written. A ratio above 100 means that for every premium dollar taken in, more than a dollar went for losses, expenses, and commissions.

Commercial Crime Insurance

Protects businesses from the loss of money, securities or inventory resulting from risks such as theft, embezzlement, forgery or alteration of checks, robbery, counterfeit currency and documents, disappearance and destruction of money, securities and documents, employee dishonesty, safe burglary, computer fraud, wire transfer, audit and investigation expense. Click here to shop for Commercial Crime Insurance at einsure.com!

Commercial General Liability Policy

Commercial liability policy drafted by the Insurance Services Office containing two coverage forms: an occurrence form and a claims-made form. Click here to shop for a Commercial General Liability Policy at einsure.com!

Commercial Lines

Insurance for businesses, organizations, institutions, governmental agencies, and other commercial establishments.

Commercial Multiple Peril Policy

A package of insurance that includes a wide range of essential coverages for the commercial establishment.

Commercial Package Policy

A commercial policy that can be designed to meet the specific insurance needs of business firms. Property and liability coverage forms are combined to form a single policy. Click here to shop for a Commercial Package Policy at einsure.com.

Commission

The part of an insurance premium paid by the insurer to an agent or broker for his services in procuring and servicing the insurance.

Commissioner

A state officer who administers the state's insurance laws and regulations. In some states, this regulator is called the director or superintendent of insurance.

Common Stock

Securities that represent an ownership interest in a corporation.

Community Property

A special ownership form requiring that one-half of all property earned by a husband or wife during marriage belongs to each. Community property laws do not generally apply to property acquired by gift, by will, or by descent.

Company Adjustor

Claims adjustor who is a salaried employee representing only one company.

Comparative Negligence

Under this concept a plaintiff (the person bringing suit) may recover damages even though guilty of some negligence. His or her recovery, however, is reduced by the amount or percent of that negligence.

Completed Operations

Completed Operations  is insurance that cover's a contractor's liability for accidents arising out of jobs, projects or operations that were completed by the contractor.

Comprehensive Automobile Insurance

Coverage designed to provide protection against loss resulting from damage to the insured auto, other than loss by collision or upset. Click here to shop for Comprehensive Automobile Insurance at einsure.com!

Comprehensive General Liability Insurance

Under this form of insurance and regarding a covered occurrence, the company will pay all sums the insured becomes legally obligated to pay as damages due to bodily injury (Coverage A) or property damage (Coverage B). Click here to shop for Comprehensive General Liability Insurance at einsure.com!

Comprehensive Major Medical Insurance

A policy designed to give the protection offered by both a basic and a major medical health insurance policy. It is characterized by a low deductible amount, a coinsurance feature, and high maximum benefits. Click here to shop for Comprehensive Major Medical Insurance at einsure.com!

Comprehensive Medical Expense Insurance

A form of health insurance that provides, in one policy, protection for both basic hospital expense and major medical expense coverages. The major medical part of a comprehensive policy is characterized by a deductible amount, coinsurance, and high maximum benefits. Click here to shop for Comprehensive Medical Expense Insurance at einsure.com!

Comprehensive Personal Liability Insurance

Protection against loss arising out of legal liability to pay money for damage or injury to others for which the insured is responsible. It does not include automobile or business operation liabilities.

Compulsory Auto Liability Insurance

Insurance laws in some states require motorists to carry at least certain minimum auto coverages. This is called compulsory insurance.

Compulsory Insurance

Any form of insurance which is required by law.

Compulsory Insurance Law

Law protecting accident victims against irresponsible motorists by requiring owners and operators of automobiles to carry certain amounts of liability insurance in order to license the vehicle and drive legally within the state.

Computer Extra Expense Insurance

Coverage designed to provide protection if computer or EDP equipment is damaged or destroyed by fire or any other insured peril. In such an event it would probably be necessary to incur certain extra expenses to continue business operations.

Concealment

Deliberate failure of an applicant for insurance to reveal a material fact to the insurer.

Concurrent Causation

Legal doctrine that states when a property loss is due to two causes, one that is excluded and one that is covered, the policy provides coverage.

Conditional Receipt

A receipt given for premium payments accompanying an application for insurance. If the application is approved as applied for, the coverage is effective as of the date of the prepayment or the date on which the last of the underwriting requirements, such as a medical examination, has been fulfilled.

Conditionally Renewable

Continuance provision of a health insurance policy under which the company cannot cancel the policy during its term but can refuse to renew under certain conditions stated in the contract.

Conditions

Provisions inserted in an insurance contract that qualify or place limitations on the insurer's promise to perform.

Confining Sickness

An illness that confines an insured person to his home or to a hospital.

Consequential Loss

Consequential loss or damage coverage -- as distinguished from direct loss or damage -- is indirect loss or damage resulting from that event caused by or covered under a covered peril, such as fire or windstorm.  Where windstorm is a covered peril, if a tree is blown down and cuts electricity to a home, the food in the refrigerator would have coverage for consequential loss. 

Conservation

The attempt by the insurer to prevent the lapse of a policy.

Consideration

One of the elements for a binding contract. Consideration for an insurance policy is acceptance by the insurance company of the payment of the premium and the statement made by the prospective policyholder in the application, balanced by the insurance company's promise to provide benefits in the case of loss.

Consideration Clause

The clause that stipulates the basis on which the company issues the insurance contract. In health policies, the consideration is usually the statements in the application and the payment of premium.

Contents Broad Form

See Homeowners Policy.

Contestable Period

An initial period—generally the first two years that the policy is in force—during which the insurance company has the right to cancel a policy based on any false statements made by the insured.

Contingent Annuity Option

An option under which an employee may elect to receive, under certain conditions, a reduced amount of annuity with the same income, or a specified fraction, to be paid after his death to another person designated as his contingent annuitant, for that person's lifetime. The contingent annuitant is usually the husband or the wife. See Joint-and-Survivor Annuity.

Contingent Beneficiary

The person or persons designated to receive the benefits of a policy or plan if the primary beneficiary dies while the insured is living.

Contingent Liability

Liability arising out of work done by independent contractors for a firm. A firm may be liable for the work done by an independent contractor if the activity is illegal, the situation does not permit delegation of authority, or the work is inherently dangerous.

Contingent Owner

The person to succeed as owner of a life insurance policy if the original owner dies.

Contract

A binding agreement between two or more parties for the doing or not doing of certain things. A contract of insurance is embodied in a written document called the policy.

Contract Holder

The group, entity or person to whom a group annuity contract is issued.

Contractors Liability Insurance

Contractor’s Liability Insurance provides coverage for liability exposures that result from manufacturing and/or contracting operations in process. For example, the contractor, off-premises, (away from the office), operations at a construction site. Independent contractors, damage to property by explosion, collapse, and underground property damage are excluded.

Contractual Liability

Legal liability of another party that the business firm agrees to assume by a written or oral contract. It is common in construction and other agreements (written or oral) for one party to assume the liability of another. This is sometimes referred to as a hold harmless agreement. The extent to which one holds another harmless varies from contract to contract, job-to-job, etc.

Contribution by Equal Shares

Type of other-insurance provision often found in liability insurance contracts that requires each company to share equally in the loss until the share of each insurer equals the lowest limit of liability under any policy or until the full amount of loss is paid.

Contributory

A group insurance plan issued to an employer under which both the employer and employee contribute to the cost of the plan. Seventy-five percent of the eligible employees must be insured. Compare Noncontributory.

Contributory Negligence

Negligence of the damaged person that helped to cause the accident. Some states bar recovery to the plaintiff if the plaintiff was contributorily negligent to any extent. Others apply comparative negligence.

Conversion Privilege

The right given to an insured person to change insurance without evidence of medical insurability, usually to an individual policy upon termination of coverage under a group contract.

Convertible Bond

A bond that offers the holder the privilege of converting the bond into a specified number of shares of stock.

Convertible Term Insurance

Term insurance that can be exchanged, at the option of the policyholder and without evidence of insurability, for another plan of insurance.

Coordination of Benefits

The mechanism used in group health insurance to designate the order in which the multiple carriers are to pay benefits and to prevent duplicate payments.

Corridor Deductible

Major medical plan deductible that excludes benefits provided by a basic plan if both a basic and a supplemental group major medical expense policy are in force.

Cost Basis

An amount attributed to an asset for income tax purposes; used to determine gain or loss on sale or transfer; used to determine the value of a gift.

Cost Containment

The controller reduction of inefficiencies in the consumption, allocation, or production of health care services that contribute to higher than necessary costs.

Cost-of-Living Rider

Benefit that can be added to a life insurance policy under which the policyowner can purchase one-year term insurance equal to the percentage change in the consumer price index with no evidence of insurability.

Coverage

The scope of protection provided under a contract of insurance; any of several risks covered by a policy.

Coverage for Damage to Your Auto

That part of the personal auto policy insuring payment for damage or theft of the insured automobile. This optional coverage can be used to insure both collision and other-than-collision losses. Click here to shop for Personal Auto Insurance at einsure.com!

Covered

A person covered by a pension plan is one who has fulfilled the eligibility requirements in the plan, for whom benefits have accrued, or are accruing, or who is receiving benefits under the plan.

Covered Expenses

Hospital, medical, and miscellaneous health care expenses incurred by the insured that entitle him/her to a payment of benefits under a health insurance policy. Found most often in connection with major medical plans, the term defines, by either description, reasonableness, or necessity to specify the type and amount of expense that will be considered in the calculation of benefits.

Covered Participant

A person covered by a pension plan is one who has fulfilled the eligibility requirements in the plan, for whom benefits have accrued, or are accruing, or who is receiving benefits under the plan.

CPCU

See Chartered Property and Casualty Underwriter.

CPP

See Commercial Package Policy.

Credibility

A statistical measure of the degree to which past results make good forecasts of future results.

Credibility Factor

The weight given to an individual insured's past experience in computing premiums for future coverage.

Credit Health Insurance

A form of health insurance on a borrower, usually under an installment purchase agreement. The benefits cover the obligations of the borrower and are payable to the creditor.

Credit Insurance

A guarantee to manufacturers, wholesalers, and service organizations that they will be paid for goods shipped or services rendered. Applies to that part of working capital which is represented by accounts receivable.

Credit Life Insurance

Term life insurance issued through a lender or lending agency to cover payment of a loan, installment purchase, or other obligation, in case of death.

Crop Hail Insurance

Coverage designed to provide financial protection against damage to growing crops as a result of hail or certain other named perils.

Cross Liability Endorsement

In the event of claim by one insured for which another insured covered by the same policy may be held liable, this endorsement covers the insured against whom the claim is made in the same manner as if separate policies had been issued. However, it does not operate to increase the insurance company's overall limit of liability.

Cross Purchase Agreement

Specifies the terms for the surviving partners or shareholders to buy a deceased's share of the business's ownership.

CSR

See Customer Service Representative.

Current Assumption Whole Life Insurance

Nonparticipating whole life policy in which the cash values are based on the insurer's current mortality, investment, and expense experience. An accumulation account is credited with a current interest rate that changes over time. Also called interest-sensitive whole life insurance.

Currently Insured

Status of a covered person under the Old-age, Survivors, and Insurance (OASDI) program who has at least six quarters of coverage out of the last thirteen quarters, ending with the quarter of death, disability, or entitlement to retirement benefits.

Customer Service Representative

Customer Service Representatives support the work of insurance agents with a variety of tasks that must be done within a company or agency to deliver services to and handle requests from clients.


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