Glossary of Insurance Terms


Accident: An event that happens unexpectedly. There are often undesirable consequences from an accident.

Accident-Boiler and Machinery: The Boiler & Machinery Policy spells out four object definitions of this term.

Accounts Receivables: The records that keep track of monies owed to a business, individual or organization. If these records were lost or stolen, it could prevent the creditors from collecting their money. The records can be insured for their value under Inland Marine Accounts Receivables insurance.

Actual Cash Value: the value of property right before a loss. The property’s condition, market value and obsolescence are oftentimes taken into account and that is referred to as its depreciated value.

Actual Loss Sustained Business Interruption Insurance: The portion of Boiler & Machinery insurance that pays the income loss of a business after a property loss. (This is in contrast to valued coverage.)

ACV: The abbreviation for Actual Cash Value

Agreed Amount Clause: This used to be known as Agreed Value Option. (See below)

Agreed Value Option: This is an optional clause for Property & Business income policies. It waives the Coinsurance Clause on a yearly basis that is based on the filing, the insurer’s acceptance of it, and a statement of the amount of insurance for the coming year that is based on the actual values. If a person fails to a new statement within the proper time frame, the Coinsurance Clause will be reapplied until a new statement is filed and approved. (See Coinsurance Clause.)

All-Risks Insurance: This term is no longer used because it gave the impression to insurers that more coverage was being given than was intended. It used to refer to a policy that covered all risks of loss that were not specifically excluded.

Assessment Liability: This is the liability that condominium owners, cooperative apartment tenants and others share for the cost of assessments to the individual owner or tenant. It pays for improvement for common good of the property. There is insurance coverage for this exposure.

Average Clause: This is another term for Coinsurance Clause. (See Coinsurance)


Bare Walls Ownership: This is one of the methods of condominium ownership. In it, the unit owner owns the entire inside of the unit to the inside of the outside bare walls, floor, roof or ceiling. The unit owners as a group own the remaining portion of the building and its grounds.

Blanket Insurance: A policy that covers more than one object of insurance that can be at one or more locations.
Boiler and Machinery Insurance: This policy covers boilers and/or machinery in case of an explosion or mechanical failure. This is normally excluded from typical property insurance plans.

Boiler and Machinery Time Element Insurance: When a business is shut down by an accident that is covered under the Boiler & Machinery policy, this insurance covers the profits or earnings loss, as well as the additional expenses to maintain or speed up the resumption of business following the accident.

Building Codes: A set of rules created by counties, states, municipalities and Federal jurisdictions that outline how reconstruction of a building must be done after that property is damaged or destroyed. Some laws might not allow the property to rebuild, or require that the building is demolished.

Building Ordinance Exclusion: A policy exclusion that says the extra costs of complying with zoning or building laws after a loss will not be covered. This clause is included in most property, business income and boiler and machinery policies.

Building Ordinance Insurance: When added to a policy, it sets aside the Ordinance of Law exclusion and allows for some of the following coverages: 1) the cost of demolition 2) the loss of value for the undamaged portion of a building and 3) the increased price of reconstruction that complies with the current building codes. (See Ordinance of Law insurance)

Burglary: Breaking into a car or building to steal property.

Business Defined: Four definitions apply for Boiler & Machinery Valued Business Interruption. They are: 1) Production, which is the production of finished product for packing, shipping or to sell, 2) Sales, which are the gross sales at the business location, 3) Rents, which are the collectable rents at the business location, and 4) Income, which is defined as the gross income at the business location.

Business Income Insurable Value: This is the monetary value that determines the amount of business income insurance that an insured must carry in order to satisfy the Coinsurance (Contribution) Clause of a business income policy. It is typically the gross sales minus most, but not all, of the cost of goods sold. (This is also figured as profit continuing expenses.)

Business Income Insurance: Following a loss, this policy covers the loss of business income plus the continuing expenses to run a business.

Business Interruption Coverage: Although this term is still in use for Boiler & Machinery insurance, it is no longer in use for business income insurance.


Care, Custody and Control: An exclusion in many general liability policies that gives no coverage for damage or loss to property that is in the care, custody or control of the insured.

Civil Authority Clause: When the civil authority closes down an adjacent or nearby premise that prohibits occupancy of the insured’s building, this business income policy clause extends coverage to the insured for up to three weeks.

Claims Adjustment Expense: The cost to determine the conclusion of difficult aspects of a claim. The cost can be incurred by the insured or by claims professionals. While many policies don’t cover the cost, there are special endorsements and forms that give coverage.

Coinsurance Clause: Otherwise known as Average or Contribution Clause, this clause requires the insured to carry a certain percentage of insurance to the value being insured. If this requirement isn’t met, the recovery of the loss will be lowered in proportion to the deficiency. This clause is found in many commercial property and business income policies.

Combined and Business Income (Business Interruption and Extra Expense Insurance): Coverage for loss of earnings during a property loss as well as the extra expenses required to stay in business during this time or enable a faster return to business. This clause covers the amount beyond what Business Income Insurance would cover. Business Income Insurance is included in both Property and Boiler & Machinery forms.

Concurrent Causation: This clause originated because of the California courts. The courts found that although a policy clearly excluded a peril, such as a flood, if another peril, such as the faulty design of a dam, isn’t excluded, then coverage could still apply. As a response, insurers inserted the concurrent causation clause in their policies. This clause goes so far as to actually take away coverage formally covered by all risk policies. The California courts rescinded the concurrent causation doctrine, but the insurers have not taken away the concurrent causation clause.

Concurrent Causation Exclusions: These exclusions are added to some property insurance policies to exclude coverage when a loss occurs that isn’t covered because it’s excluded by a basic exclusion. Some of the exclusions are: weather conditions, some acts or decisions, including the failure to make a decision or act by any person, group, organization or government body, faulty, inadequate or defective planning, development, zoning, sitting, surveying or design specifications, materials used or maintenance. These exclusions only apply to excluded losses, not those covered in the policy.

Conditional Suspension of Coinsurance: This is similar to the Value Option on Property Insurance. It is used in the Boiler & Machinery Business Interruption Actual Loss Sustained Insurance, and it waives the coinsurance clause on a year to year basis.

Condominium: Beginning in the 1960s, this concept is that there are unit owners who own the space that they occupy, and then they share ownership of the remainder of the buildings and grounds. (Known as unit owners in common.) The unit owners must belong to the condominium association as well as share the common condominium expenses. They can also be billed for extraordinary condominium expenses.

Condominium Bylaws: Rules that are set up by the condominium managers that outline how the condominium operates.

Condominium Declaration: A legal document that establishes the duties, right and privileges of the unit owners, unit owners in common and the condominium association and managers or board of directors. The declaration is set forth when a condominium is established.

Consequential Damage: A loss other than damage to the property or business income/interruption or extra expense. It usually involves losses that occur off the building premises and includes things like spoilage from a loss of refrigeration and utilities.

Contingent Business: Also called interruption insurance. This is a type of business income insurance coverage that insures against a loss of income when a major supplier, customer, or location is shut down and the satellite will lose business.

Contingent Business Interruption Insurance: See Business Income from Dependent Properties Coverage
Contingent Liability for: operation of building laws. This is a former name for one of the three types of loss that result from operation of building or zoning laws. Now it’s Coverage A and applies to loss of value of the undamaged part of a building when it has to be demolished or radically altered because of application of an ordinance of law.

Continuing Expenses: These are expenses that still must be paid, even when no income is coming in to pay them.

Contribution Clause: The same as the Coinsurance Clause. (See also Average Clause.)

Cooperative Apartments: Rental apartments where the tenant is given a lifetime lease. This lease can be sold to someone else with the approval of the cooperative management.

Cost of Goods Sold: Accounts define this term as all costs entered into the price of goods expect for the profit. Business income insurance defines it as a deduction from the amount of insurance needed, but it doesn’t include things like overhead costs and labor. Keep these different definitions in mind when developing insurable business income values using an accountant’s figures.

Covered Causes of Loss: Basic, Broad and Special are the three levels of covered property and business income loss. The loss must be identified and covered is it is basic and broad, but a special loss is any loss that is not specifically excluded. (This used to be referred to as perils insured against.)


Debris Removal Insurance: Covers the cost of disposing of debris or cleaning it up from a covered loss. The coverage can be purchased as an additional item under a property insurance policy and comes with its own limits of insurance.

Deductible Clauses: A clause that states that the insured pays the first portion of a loss. The insurance company will pay the remainder of the loss up to the amount of the policy’s limit.

Definition of Business: See Business Defined.

Demolition Insurance: Insures the cost of site clearance and demolition of any undamaged portion of a damaged building when the ordinance or law requires that it be demolished. This is one of three Ordinance of Law coverages.

Depreciation: The reduction of the value of a property over time because of wear and tear or obsolescence.
Directors and Officer Liability: A liability that is typically excluded from the general liability of an organization as it requires a separate policy of specialized insurance. It covers the liability incurred by the directors or officers of the organization for damages that stem from their activities while in their role.

Discontinued Expenses: Expenses that are not covered in a business income loss policy because, after a property loss, they do not continue. This is true even though they have to be considered when determining the amount of insurance to be carried.


Earth Movement Exclusion: A clause found in most property insurance policies that excludes coverages for loss caused by any type of earth movement, not limited to earthquakes.

Earthquake Exclusion: This exclusion doesn’t exclude damage caused by earth movement other than earthquakes. This is a narrower exclusion clause than the Earth Movement Exclusion.

Earthquake Insurance: An endorsement that can be added to property insurance that covers against loss by an earthquake. The deductable is much higher than other types of property insurance.

Employee Dishonesty: When employees commit wrongful acts against their employer. This type of insurance is excluded from the employer’s crime coverage unless it’s specifically included in the coverage.

Employers Liability Exposures: This is the employer’s liability that isn’t covered by worker’s compensation insurance. Worker’s Comp policies have separate coverages for employer’s liability exposures.

Expected or Intended Injury: These injuries are not typically insurable because the insured can reasonably expect them to happen, or the insured intends for them to happen.

Expense to Reduce Loss: An expense to an insured party that reduces the amount of a business income loss that would occur otherwise. The expense is covered only in the amount that the loss is actually reduced. When combined business income and extra expense insurance, if the expense is justified, the loss is covered even if more than the loss is reduced.

Explosion Exclusion: The Boiler & Machinery policy limits the coverage to pressure explosions, but excludes fire box explosions and combustible gas explosions. Property policies exclude explosions that are covered by Boiler & Machinery policies.

Extended Period of Indemnity: In order to allow for the recovery of a business’ momentum, business income insurance policies can be extended by an endorsement in order to cover the business past the time when operations can be commenced.

Extra Expense Insurance: This insurance can be written alone or in connection with business income insurance, and it covers additional costs that help maintain operations or help get the business running again faster after a loss.


Fire Exclusion: An exclusion under the Boiler & Machinery policy that excludes a loss by fire in the property insurance policy.

Firebox Explosion Exclusion: A Boiler & Machinery exclusion that limits the insurance coverage for steam pressure explosions, but not other boiler explosions.

Flood Exclusion: An exclusion in most property insurance policies that force the insured to purchase a separate flood insurance policy.

Flood Insurance: This coverage is excluded from most property insurance policies and typically must be purchased through a federal insurance program. It protects against flood and other water damage.

Forensic Investigation: An investigation lead by specially trained investigators that tries to determine the cause of losses.


Gross Earnings: A term used in the past for business interruption insurance that defined the amount of insurance the insured needed to buy. It was defined as total sales (or sales value of production in the case of manufacturers less the cost of goods sold. (Or goods consumed for manufacturers). See also Cost of Goods Sold

Gross Profit: Sales less the cost of goods sold figured before the allowances for operating expenses and income taxes have been taken.


Height and Area Limitation: A now omitted limitation under the ordinance or law insurance that does not pay for the added cost of reconstruction even if it’s required by an ordinance or law that exceeded the height or area of the existing structure.

Hired and Non-Owned Vehicles: See Non-Owned and Hired Vehicles


Increased Cost of Construction: Pays for the additional costs of rebuilding according to the current codes instead of rebuilding to the standards prior to the loss. It is one of three ordinance or law coverages.

Increased Period of Restoration: Insurance that can be purchased to cover the additional time that’s needed following a property loss beyond the time when business operations can be resumed. It helps bring business operations to where they were before the loss.

Inland Marine Insurance: Covers things such as instruments of transportation, property in transit, furs and jewelry, laundries, book binderies, repair facilities, customers goods held by dry cleaners and more. It’s a separate branch of property insurance that is less regulated and typically more competitive than a standard property insurance policy.

Insurable Interest: A property insurance requirement that the insured must show an interest in the property. That could mean ownership, a contractual requirement with the owner to insure the property or a loss of use. It is against public policy and considered a gamble to insure a policy without any insurable interest.


Joint Loss Agreement: An agreement made between a property insurer and a Boiler & Machinery that covers the identical property, but for different risks. They share in the initial payment to the insured for any losses until the adjusters can determine which insurer should pay for what amount of the loss. The insurer that owes the greater amount will reimburse the other insurer.


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Layered Liability: Rather than an insurer accepting pro rata portions of a loss exposure, they can write a layered liability policy that gets progressively less expensive in each successive layer. The loss exposure is paid after a large deductible or self-insured retention to be paid by the insured. The price depends on the availability and market conditions.

Liability Exposures: The exposures that an insured faces as a result of their activities. Some of these exposures are covered under their general or personal liability insurance policy, but others require a specialized insurance policy.

Liquor Liability: This is typically excluded from general liability policies. It’s a liability that stems from the sale of or serving of alcoholic beverages. It’s possible to add an endorsement to the policy, along with specialized liquor liability insurance.


Manufacturer Selling Price Clause: This applies to good that have been manufactured by the insured, but haven’t been sold. (Less customary discounts and uninsured costs.) It’s added because Business Income policies are based on goods that are manufactured rather than sold.

Market Value Clause: A clause that allows the insured to set the value of their merchandise at its market value instead of their purchase price. This allows them to profit from sale in the recovery after a loss.

Mechanical Failure Exclusion: An exclusion found in property insurance policies that do not cover a loss to a property because of a mechanical failure. Losses following this initial loss caused by the mechanical failure are covered unless it is specifically excluded.

Motor Vehicles: Damage by: Covered under the motor vehicle cause of loss. There are some exceptions.

Motor Vehicles: Liability for Use of: This typically requires a separate auto liability insurance these types of losses are mostly excluded under general and personal liability insurance policies. The exceptions apply to vehicles such as small all terrain vehicles, power mowers and other vehicles that aren’t intended for or licensed for public roads.


Non-Owned and Hired Vehicles: A policy that may be purchased when there are no owned vehicles to be insured. (For instance, for employee owned vehicles.) Non-owned and hired vehicle coverage is typically included in owned vehicle insurance, often on an if-any basis.

Nuclear Hazard Exclusion: Most property and Liability polices contain this exclusion. When needed, separate coverage must be purchase when a nuclear hazard is present and causes an exposure.


Occurrence: A term that expands the term “accident,” in that it includes a repeated or continuous loss resulting from the same occurrence.

Off Premises Utilities: Separate coverage is necessary for this exposure because loss that occurs on premises from a failure of off-premises utilities is typically excluded from property and boiler & machinery policies.

Ordinance and Law: This is a standard exclusion under property and boiler & machinery insurance policies. One or more of these three separate ordinance or law coverages can be purchased when significant exposure to increased costs from operation of building or zoning laws exist.

Ordinary Payroll: The wages of employees who aren’t necessary to ongoing business operation. Those wages can be excluded from business interruption or business income coverage, or limited to short term coverage.


Period of Interruption: The period of time between a property loss and when business operations can be resumed quickly. The policy coverage terminates at this time, or when the extended period of indemnity expires. This is more commonly known as period of restoration.

Period of Restoration: The same as “Period of Interruption.”

Pollution: Most property insurance policies include an exclusion or a limitation on pollution and spell out what defines pollution. It is generally regarded as a type of emission, discharge or seepage that causes damage to people or property.

Professional Liability: A liability incurred by many types of professionals that injure or damage their patients or clients while acting in their professional role. It is typically written by separate specialty underwrites and is typically excluded under most general liability policies.


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Replacement Cost: The cost to replace damaged or lost property new. There is no deduction for obsolescence or depreciation.

Reporting Form Insurance: When property or earnings substantially fluctuate over time, this coverage requires an insured to report either monthly, quarterly or annually and report their total values on hand as of that date. Late reporting can result in severe penalties. Annual reporting is required when an Agreed Value Option is used. If it’s late, coinsurance will apply until a new report is filed and the Option is extended to another year.

Reproduction Cost: The cost to replace damaged or lost property without its original fancy frills and design. This is useful in insuring older ornate buildings that would be very expensive to duplicate.


Selling Price Clauses: Allows the insured to recover the loss of finished goods at their selling price. It includes the loss of profit.

Specific Insurance: As opposed to blanket insurance, this insurance covers one item of property at a specific location. It’s also insurance that is placed as an underlying amount under a reporting form insurance policy.

Subrogation: Once an insurer pays a property loss, they have the right to take over the insured’s right of recovery against a negligent party.


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Umbrella Liability Insurance: Insurance that covers over and beyond primary general or personal liability insurance. It’s usually broader and comes with a “drop-down” to a lower deductible for coverage that is not included in the primary policy.

Utilities Off Premises: See Off Premises Utilities


Valued Insurance: When property is totally lost or damaged, regardless of its perceived value, this insurance covers it for a specific value when a predictable degree of loss can be anticipated. It is commonly used with things like fine arts, where values are highly subjective. Also use with Boiler & Machinery business interruption insurance.

Valued Policy Laws: When a loss is determined “total” or “constructive total,” the insurer has to pay the full limit of the policy. That’s true even if the amount of the loss doesn’t reach the policy limit. This law is in effect in a number of states.


Worker’s Compensation: This was formally known as Workman’s Compensation. Laws Exposures & Insurance passed in all states and requires that employers of a certain size cover worker’s injuries that happen in the course of their employment. This is true even if the injury was due to the employee’s negligence or they were at fault. Larger employers can choose to self-insure under a variety of other plans, but most insure under worker’s compensation.


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