Insurance Glossary

A method of valuing insured property which factors in depreciation, such as wear and tear and age of the property.

Actual cash value (ACV) is calculated by subtracting depreciation from the replacement cost of the property. If your policy has a recoverable depreciation clause, you may be able to claim the difference between replacement cost and ACV with proof of repair/replacement after your insurer’s initial payout.

An actuary is an insurance specialist who assesses the risk of future adverse events. They also help determine rates and other methods of lessening the impact of adverse events when they do occur.

Also known as loss of use coverage, this pays for additional living expenses should a policyholder have to make alternative living arrangements during repairs due to a covered loss.

An adjuster is someone employed by an insurance company to evaluate and settle claims.

This is different from independent adjusters, who may be contracted by multiple insurance companies to handle claims. This is also different from public adjusters, who are hired by policyholders to negotiate claims on their behalf and who typically receive a percentage of the policyholder’s settlement amount.

Admitted assets are those assets recognized and accepted by state law as contributing toward an insurance company’s solvency.

Adverse selection refers to the trend where policyholders with higher-risk properties tend to seek more insurance coverage than their lower-risk counterparts. This results in costlier premiums or no coverage at all. Adverse selection concentrates risk instead of sharing risk.

This involves marketing insurance products via organized entities like professional networks or business groups.

Firms using independent agents to sell insurance products are known as agency companies.

Two types of agents exist in insurance: independent agents who represent multiple companies and earn commissions and exclusive agents, also known as captive agents, who work for one company. Firms using exclusive or captive agents are known as direct writers.

A type of contract in which duties are triggered by a specific, uncertain event. For example, insurance policies are aleatory contracts: policyholders pay premiums while an insurer pledges to provide benefits if and when a covered loss occurs.

This term refers to an insurance company located in one country and providing policies for those located in another country.

This is the standard deductible other than a hurricane deductible– typically a fixed amount the policyholder chooses – on a homeowner’s policy. It refers to the amount of money a policyholder must pay out-of-pocket before insurance kicks in for losses caused by a covered peril. You may have a separate deductible for some perils.

This refers to various types of coverage associated with, and often bundled together with, property insurance. For example, wind, water damage and vandalism may be considered allied lines of coverage.

ADR aims to resolve disputes outside the court system. Arbitration and mediation are two of its most common forms; both rely on a neutral third party to either make a binding decision (arbitration) or help the parties negotiate a settlement (mediation).

Insurance providers who operate outside the traditional marketplace are known as alternative markets. This includes surplus lines insurers, risk-sharing pools and captives.

These laws promote marketplace competition by preventing companies from abusing their market power or forming monopolies.

Under the McCarran-Ferguson Act of 1945, the insurance industry is regulated by state (rather than federal) antitrust laws, allowing insurance companies to share loss data and set rates with one another.

An appraisal is an estimate of the value of property – or the amount of loss it has sustained.

A form of alternative dispute resolution, arbitration involves using a neutral third-party arbitrator who hears arguments and evidence from parties in dispute and makes a decision.

Deliberately setting fire to property is called arson.

Assets are items like stocks, bonds, real estate and other items of value. Insurance company assets help establish its solvency and capacity to pay out claims, assuring policyholders the company is capable of fulfilling its responsibilities in times of need. See also admitted assets.

Assigned risk plans are state-run programs available in the residual market, providing a variety of insurance to high-risk individuals who are unable to secure coverage in the insurance marketplace. All insurers in the state share the responsibility of covering these high-risk parties.

Assignment refers to the transfer of policy benefits to a third party. However, due to increased fraud and litigation by contractors, Florida law no longer allows Assignment of Benefits or AOBs.

Another term for the Citizens takeout process. In Florida, this means a private insurer has chosen to assume a policy from the state-run insurer of last resort, Citizens Property Insurance Corporation and assumes the liability for any claim the policyholder may have. Upon renewal the policy will be issued by the private carrier.

A balance sheet is a financial statement showing a company’s assets, surplus, liabilities and net worth.

A bank holding company is a financial institution owning or controlling one or more banks and providing governance and supervision while engaging in other financial activities and controlled by the Federal Reserve.

A unit of measurement (0.01%) used to express a percentage change in premiums or other financial values.

A beneficiary is the person or entity chosen to receive the benefits of an insurance policy.

A temporary contract or agreement providing immediate coverage until a formal insurance policy is issued.

The complete collection of active insurance policies held by an insurance company or an insurance agent/broker.

A broker serves as the liaison between a buyer and seller of insurance (or reinsurance). They typically earn a commission.

BCEG class is an assessment of how effective building codes and their enforcement are in a community, with grades ranging from 1 (best) to 10 (worst). Depending on your community's grade, you may be eligible for credits or discounts on your homeowner’s policy.

This type of insurance reimburses policyholders for financial loss due to the theft of covered items or damage caused during a burglary or theft incident.

In insurance, capacity refers to an insurer's ability to take on and manage risk. It represents an insurer’s financial and operational capability to under write policies and handle potential losses.

"Captive agent" is another term for exclusive agent, or someone who sells policies for a single insurance company. This is the opposite of an independent agent.

A type of alternative market in insurance, captive refers to an insurance company created by a business to cover its risks. For example, multiple homeowners associations may use a captive arrangement to cover their collective property risks. It is essentially a form of self-insurance.

An unusually severe natural or man-made disaster causing more than $25M in property damage.

Unlike a regular deductible, a catastrophe deductible is generally higher and designed to apply specifically to losses caused by catastrophic events.

A calculation used by insurance companies to assess the potential impact of catastrophic events in a given state geographic area over a span of 40 years based on their overall risk exposure and financial stability.

A computerized tool used to simulate catastrophic events and estimate potential losses for a given area.

This is a type of homeowner’s insurance coverage protecting against sudden and severe ground collapses, such as sinkholes. The collapse must render the home uninhabitable for the coverage to apply.

A fee imposed by Citizens Property Insurance Corporation to cover financial shortfalls caused by catastrophic events or significant losses. It is added to Florida policyholders' insurance premiums and may be spread over multiple years.

A fee imposed by Citizens Property Insurance Corporation to cover operating costs, administrative expenses, and policyholder claims in the event of a shortfall. This assessment is paid by the state’s private insurance carriers and, therefore, often added to Florida policyholders’ insurance premiums.

A Citizens takeout or assumption is when private insurers in Florida takes out, or assume, policies from Citizens Property Insurance Corporation, the state-run "insurer of last resort," to reduce its policy count and help maintain a healthy private insurance market. Upon assumption, the private carrier assumes the liability for any claim the policyholder may have. At renewal the policy will be issued by the carrier who assumed the policy.

A formal request made by a policyholder to their insurance company for compensation due to a covered loss.

Collateral is an asset or property – such as a home – used to secure a loan and which may be seized by the lender in case of default.

The extent of protection an insurance policy provides against a loss.

Also known as dwelling coverage, Coverage A protects the physical structure of the home (and any attached structures) against covered perils. It does not apply to land.

Coverage B is known as other structures protection. It covers structures on the property not attached to the main dwelling, such as detached garages, fences, sheds or guest houses.

Coverage C is known as personal property coverage. It covers the personal belongings of the insured, such as furniture, clothing, electronics, appliances and more.

Coverage D is known as loss of use, or additional living expenses coverage. It will reimburse you for any costs associated with having to temporarily live elsewhere should the home become uninhabitable due to a covered loss.

Coverage E is known as personal liability coverage. It can help pay for legal expenses if you’re held legally liable for bodily or property damage to someone else while on your property.

Coverage F is known as medical payments to others coverage. It covers minor medical expenses if a guest is injured on your property, regardless of who is at fault.

Coverage L is known as personal liability coverage. It is similar to Coverage E, although it is designed to accompany a DP-3 policy for rented residential homes.

Coverage M is known as medical payments to others coverage. It is similar to Coverage F, although it is designed to accompany a DP-3 policy for rented residential homes.

This refers to insurance coverage protecting against the perils of burglary, theft and robbery.

What dwelling fire coverage is called in the insurance industry. “DP-3” stands for “dwelling property, form3.” It is typically used to insure rental or nonowner-occupied homes. Form 3 is the most comprehensive of the dwelling property forms, making DP-3 similar to a standard homeowners insurance policy.

The removal of debris (e.g., broken glass, demolished walls, fallen trees) after a covered loss is typically covered under a standard homeowners insurance policy.

“Declarations” refers to the insurance policy's summary, which typically includes policyholder information, the insured property, coverage amounts, premium cost, deductible amounts, policy number and policy period. Watch the Video: Reading Your Homeowner’s Policy

The amount of money paid by a policyholder before insurance benefits are paid. In general, the higher the deductible, the lower the premium. See also all other perils (AOP) deductible.

Direct premiums are the total premiums an insurer receives from policyholders during a specific period. It differs from earned premiums, which are the premiums received for the already passed portion of the policy term.

Direct writers are insurance companies selling policies directly to customers with exclusive agents or other methods, such as the internet. It may also refer to reinsurers who bypass brokers to deal directly with insurance companies.

An insurer incorporated and doing business in a particular state. For example, Edison Insurance Company is considered a domestic insurance company in Florida.

Also known as a DP-3 insurance policy, or landlord policy, this type of coverage is similar to what’s offered in a standard homeowners insurance policy – but dwelling fire coverage is typically used to protect investment properties, vacation homes, or rental homes.

Earned premiums are the premiums an insurer receives from policyholders corresponding to the elapsed portion of a policy term. For example, if a policyholder pays $1,200 for a one-year policy, at the six-month halfway mark, $600 is considered the earned premium.   Total premiums collected for a set time period are called direct premiums.

This is a separate deductible a policyholder must pay before insurance kicks in after a covered earthquake loss.

This state-run fund was created to aid in Florida's disaster preparedness, response, recovery and mitigation efforts. It is funded through nominal annual surcharges on property insurance policies in the state.  Like the Florida Insurance Catastrophe Fund, it was created in the aftermath of Hurricane Andrew, which decimated South Florida in 1992.

In the world of insurance, an endorsement (sometimes called a rider) is a written modification to an existing insurance contract, typically used to add or remove coverage.

Equipment breakdown coverage is a type of insurance policy endorsement used to repair or replace nonfunctioning household appliances, computer equipment, or other systems (e.g., HVAC, water heaters, security systems) due to sudden failure; wear-and-tear is not covered. It is typically sold along with service line coverage.

The value of an asset after deducting what's owed. In terms of an insurance company's financial status, equity refers to the company's assets minus its liabilities. In this context, it’s also sometimes called shareholder equity or owner’s equity and it represents the net worth of the company.

A type of insurance used by professionals who provide services or advice to clients. E&O protects them against claims of negligence or inadequate work by covering legal defense costs and damages awarded, up to policy limits.

Policyholders may turn to excess and surplus lines of insurance in high-risk or unusual situations. "Excess" refers to coverage beyond the primary policy limits, and "surplus" refers to what standard insurers won't cover. Typically “non-admitted” carriers provide this coverage.

A specific situation, risk or type of damage not covered by an insurance policy.

An exclusive agent – also called a captive agent – is an agent who represents a single insurance company and cannot sell policies for another company unless their primary company declines it first. This is the opposite of an independent agent.

The expense ratio is the proportion of a company's net premiums it uses to cover the costs of doing business.

In insurance, experience is the claim history of an insured individual or group. It is used to determine future premiums based on past claims or loss experience.

Exposure refers to the potential risk or liability an insurer assumes on behalf of a policyholder.

This is an insurance policy provision (or endorsement) offering coverage beyond what’s in the basic policy. It may cover additional perils, increase policy limits or duration.

A reinsurance policy providing an insurer with coverage for specific individual risks which is unusual and not covered in the insurance company’s reinsurance treaties. Unlike treaty reinsurance, the reinsurer agrees to assume a certain percentage of entire classes of business.

Similarly to assigned risk plans, FAIR plans are a tool of the residual market offering insurance to those who can’t obtain it through the usual means due to high risk – but FAIR plans offer property insurance specifically for those with risk factors beyond their control, such as living in high-risk locations.

Also known as “the Fed,” the Federal Reserve Board is the nation’s central banking entity responsible for monetary policy, bank supervision and promoting a stable economy.

This homeowner’s coverage provides financial protection against losses or damages caused by fire.

A barrier designed to prevent the spread of fire between different sections or units within a building.

This covers the policyholder's property or interests – but typically excludes liability coverage. First-party coverage and liability coverage are often both included in homeowners’ policies.

A floater is a type of endorsement used to cover personal property a person may move from location to location, such as jewelry, musical instruments or expensive camera equipment.

This type of insurance covers damage due to flooding, aka rising water. It is available from the federal government under the National Flood Insurance Program and is NOT included in standard homeowners’ policies. See also adverse selection. Watch the Video: Flood Insurance

The Florida Building Code lays out the construction standards in Florida, such as for roof covering, which can reduce property risk and the cost of homeowner insurance.

Commonly referred to as the Cat Fund or the Florida Hurricane Catastrophe Fund, this state-run, tax-exempt fund is, essentially, a reinsurance program. Property insurers pay into it, and it reimburses them for a portion of their losses following catastrophic storms.  Like the Emergency Management Preparedness and Assistance (EMPA) Trust Fund, it was created in the aftermath of Hurricane Andrew, which decimated South Florida in 1992.

A state-run nonprofit formed by the Florida Legislature in 1970 to pay policyholder claims should their insurance company become insolvent. It is primarily funded by assessments on Florida property and casualty insurers.

Insurance fraud involves dishonest activities related to insurance transactions, such as exaggerating claims, making false claims, lying on insurance applications, selling fake insurance policies or inflating repair costs for financial gain. Watch the Video: How to Spot Fraud

Frequency refers to the number of claims filed within a specific period. High claim frequency indicates higher risk and can lead to increased premiums.

Catastrophe futures are financial contracts allowing insurance companies to hedge against major disaster risks, such as hurricanes or earthquakes. They transfer risk from insurers to investors, who profit if a catastrophe does not occur and lose if it does.

This insurance policy provision covers the full cost of replacing damaged or destroyed property, regardless of its original value or policy limits. It is a type of extended coverage.

One of the most popular types of homeowners insurance policies. It provides broad protection for the home and personal belongings, meeting the needs of many homeowners.

Often referred to as renter’s insurance, HO-4 policies cover the personal belongings or contents of a dwelling in the event of a covered loss. It excludes the physical structure or interior features of the dwelling itself.

Also known as condo insurance, an HO-6 policy covers personal belongings as well as structures within the condominium unit (e.g., flooring, lighting, appliances, countertops and cabinets), as well as liability for the condo owner.

A hard market in insurance refers to a period when insurance becomes more expensive, coverage terms become stricter and underwriting standards become tighter. It’s the opposite of a soft market. See also property & casualty insurance cycle.

A policy protecting a homeowner's residence and its contents from damage and liability. It typically covers the physical structure, personal belongings, legal liabilities and additional living expenses if the home becomes uninhabitable. There may be more or less protections, depending on the policy.   Common policy types include HO-3 (home), HO-4 (renter’s insurance), and HO-6 (condo).   Watch the Video: Why You Need Homeowners Insurance

"House year" refers to a one-year period of policy coverage. It's often used when discussing the frequency of claims at an insured dwelling over the course of a year.

Unlike a standard All Other Perils deductible, a hurricane deductible is usually set as a percentage of the insured value of the home, typically between 1% and 5%, although it can be higher in high-risk areas, such as coastal regions.

This type of insurance covers expenses related to rectifying your identity after your personal information is stolen and used fraudulently. This includes attorneys fees, lost wages, etc. Restoration of your ID to pre-breach status may also available.