California Insurance - Glossary of Terms -
This is a list of terms found in the department's brochures. It is not meant to
be all inclusive, but should help with your understanding of the documents.
Terms associated with Surety and Bonds are listed
separatly.
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ACTUAL CASH VALUE
An amount equivalent to the fair market value of the stolen or damaged property
immediately preceding the loss. For real property, this amount can be based on
a determination of the fair market value of the property before and after the
loss. For vehicles, this amount can be determined by local area private party
sales and dealer quotations for comparable vehicles.
ADMITTED COMPANY
An insurance company authorized to do business in California.
AGENT
A licensed person or organization authorized to sell insurance by or on behalf
of an insurance company.
AIRCRAFT INSURANCE
Coverage for the insured in the event that the insured's negligent acts and/or
omissions result in losses in connection with the use, ownership, or
maintenance of aircraft.
AUTOMOBILE INSURANCE
Coverage on the risks associated with driving or owning an automobile. It can
include collision, liability, comprehensive, medical, and uninsured motorist
coverages.
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BINDER
A temporary or preliminary agreement which provides coverage until a policy can
be written or delivered.
BODILY INJURY
Any physical injury to a person. The purpose of liability insurance is to cover
bodily injury to a third party resulting from the negligent or intentional acts
of an insured.
BOILER AND MACHINERY INSURANCE
Covers losses resulting from the malfunction of boilers and machinery. This
coverage is usually excluded from property insurance creating the need for this
separate product.
BROKER
A licensed person or organization paid by you to look for insurance on your
behalf.
BURGLARY
Coverage against loss as a result of forced entry into premises.
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CANCELLATION
The termination of insurance coverage during the policy period. Flat
cancellation is the cancellation of a policy as of its effective date, without
any premium charge.
CLAIM
Notice to an insurer that under the terms of a policy, a loss maybe covered.
CLAIMANT
The first or third party. That is any person who asserts right of recovery.
COLLISION (AUTO)
Reimburses you for damage to YOUR automobile sustained in a collision with
another car or with any other object, movable or fixed, (for example, you
accidentally backed into another object while pulling out from a parking stall
and causing damage to the bumper and fender of your covered automobile).
COLLISION DEDUCTIVE WAIVER
This coverage waves your collision deductible if you are hit by an negligent
uninsured motorist.
COMMON CARRIER LIABILITY
Coverage for transportation firms that must carry any customer's goods so long
as the customer is willing to pay. Examples include trucking companies, bus
lines, and airlines.
COMPREHENSIVE (AUTO)
Provides coverage for any direct and accidental loss of, or damage to, YOUR
covered automobile and its normal equipment, to include but not limited to
fire, theft or malicious mischief.
COMPREHENSIVE GLASS INSURANCE
Coverage on an "all risks" basis for glass breakage, subject to exclusions of
war and fire.
CREDIT LIFE INSURANCE
Insurance issued to a creditor (lender) to cover the life of a debtor
(borrower) for an outstanding loan.
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DECLINE
The company refuses to accept the request for insurance coverage.
DEDUCTIBLE
The amount of the loss which the insured is responsible to pay before benefits
from the insurance company are payable. You may choose a higher deductible to
lower your premium.
DEPRECIATION
A decrease in value due to age, wear and tear, etc.
DISABILITY INSURANCE
Health insurance that provides income payments to the insured wage earner when
income is interrupted or terminated because of illness, sickness, or accident.
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ENDORSEMENT
Amendment to the policy used to add or delete coverage. Also referred to as a
"rider."
EXCLUSION
Certain causes and conditions, listed in the policy, which are not covered.
EXPIRATION DATE
The date on which the policy ends.
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FACE AMOUNT
The dollar amount to be paid to the beneficiary when the insured dies. It does
not include other amounts that may be paid from insurance purchased with
dividends or any policy riders.
FINANCIAL GUARANTEE INSURANCE
A surety bond, insurance policy or, when issued by an insurer, an indemnity
contract and any guaranty similar to the foregoing types, under which loss is
payable upon proof of occurence of financial loss to an insured claimant,
obligee, or indemnitee.
FIRE INSURANCE
Coverage for loss of or damage to a building and/or contents due to fire.
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GOOD DRIVER DISCOUNT
To be eligible for the Good Drivers Discount all operators of the insured
vehicles must have been licensed for three or more year, have no more than a
one (1) point charge on their driving record and has not been determined "at
fault" in an accident resulting in bodily injury or death to any person.
GRACE PERIOD
A period (usually 31 days) after the premium due date, during which an overdue
premium may be paid without penalty. The policy remains in force throughout
this period.
GUARANTEED INSURABILITY
An option that permits the policy holder to buy additional stated amounts of
life insurance at stated times in the future without evidence of insurability.
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HEALTH INSURANCE
A policy that will pay specifies sums for medical expenses or treatments.
Health policies can offer many options and vary in their approaches to
coverage.
HOMEOWNER INSURANCE
An elective combination of coverages for the risks of owning a home. Can
include losses due to fire, burglary, vandalism, earthquake, and other perils.
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INCONTESTABLE CLAUSE
A policy provision in which the company agrees not to contest the validity of
the contract after it has been in force for a certain period of time, usually
two years.
INSURED
The policyholder - the person(s) protected in case of a loss or claim.
INSURER
The insurance company.
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LEGAL INSURANCE
Prepaid legal insurance coverage plan sold on a group basis.
LIABILITY (AUTO)
This coverage will pay for BODILY INJURY and/or PROPERTY DAMAGE to the OTHER
party for which you become legally responsible of an automobile accident.
LIABILITY INSURANCE
Coverage for all sums that the insured becomes legally obligated to pay because
of bodily injury or proprty damage, and sometimes other wrongs, to which an
insurance policy applies.
LIFE INSURANCE
A policy that will pay a specified sum to beneficiaries upon the death of the
insured.
LIMIT
Maximum amount a policy will pay either overall or under a particular coverage.
LOAN VALUE
The amount which can be borrowed at a specified rate of interest from the
issuing company by the policyholder, using the value of the policy as
collateral. In the event the policyholder dies with the debt partially or fully
unpaid, then the amount borrowed plus any interest is deducted from the amount
payable.
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MARINE INSURANCE
Coverage for goods in transit and the vehicles of transportation on waterways,
land, and air.
MATERIAL MISREPRESENTATION
The policyholder / applicant makes a false statement of any material
(important) fact on his/her application. For instance, the policyholder
provides false information regarding the location where the vehicle is garaged.
MEDICAL PAYMENTS
Will pay reasonable expenses incurred for necessary medical and /or funeral
services because of bodily injury caused by accident and sustained by YOU OR
ANY OTHER PERSON WHILE OCCUPYING A COVERED AUTOMOBILE.
MISCELLANEOUS INSURANCE
Includes insurance against loss from damage done, directly or indirectly by
lightning, windstorm, tornado, earthquake or insurance under an open policy
indemnifying the producer of any motion picture, television, theatrical, sport,
or similar production, event, or exhibition against loss by reason of the
interruption, postponement, or cancellation of such production, event, or
exhibition due to death, accidental injury, or sickness preventing performers,
directors, or other principals from commencing or continuing their respective
performance or duties; and any insurance not included in any other classes and
which is a proper subject of insurance (California Insurance Code §120).
MISQUOTE
An incorrect estimate of the insurance premium.
MORTGAGE INSURANCE
Life insurance that pays the balance of a mortgage if the mortgagor (insured)
dies.
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PERIL
The cause of a possible loss. For example, fire, theft, or hail.
POLICY
The written contract of insurance.
POLICY LIMIT
The maximum amount a policy will pay, either overall or under a particular
coverage.
PREMIUM
The amount of money an insurance company charges for insurance coverage.
PREMIUM FINANCING
A a policyholder contracts with a lender to pay the insurance premium on
his/her behalf. The policyholder agrees to repay the lender for the cost of the
premium, plus interest and fees.
PRO-RATA CANCELLATION
When the policy is terminated midterm by the insurance company, the earned
premium is calculated only for the period coverage was provided. For example:
an annual policy with premium of $1,000 is cancelled after 40 days of coverage
at the company's election. The earned premium would be calculated as follows:
40/365 days X $1,000=.110 X $1,000=$110.
PROPERTY DAMAGE
Damage to another person's property. The purpose of liability insurance is to
cover property damage to a third party resulting from the negligent or
intentional acts of an insured.
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QUOTE
An estimate of the cost of insurance, based on information supplied to the
insurance company by the applicant.
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REPLACEMENT COST
The cost to repair or replace an insured item. Some insurance only pays the
actual cash or market value of the item at the time of the loss, not what it
would cost to fix or replace it. If you have personal property replacement cost
coverage, your insurance will pay the full cost to repair an item or buy a new
one once the repairs or purchases have been made.
REPLACEMENT VALUE
The full cost to repair or replace the damaged property with no deduction for
depreciation, subject to policy limits and contract provisions.
REINSTATEMENT
The restoring of a lapsed policy to full force and effect. The reinstatement
may be effective after the cancellation date, creating a lapse of coverage.
Some companies require evidence of insurability and payment of past due
premiums plus interest.
RIDER
Usually known as an endorsement, a rider is an amendment to the policy used to
add or delete coverage.
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SHORT-RATE CANCELLATION
When the policy is terminated prior to the expiration date at the
policyholder's request. Earned premium charged would be more than the pro-rata
earned premium. Generally, the return premium would be approximately 90 percent
of the pro-rata return premium. However, the company may also establish its own
short-rate schedule.
SOLICITOR
A licensed employee of a fire and casualty agent or broker who may act for the
agent or broker in some circumstances.
SPRINKLER INSURANCE
Coverage for property damage caused by untimely discharge from an automatic
sprinkler system.
SURCHARGE
An extra charge applied by the insurer. For automobile insurance, a surcharge
is usually for accidents or moving violations.
SURRENDER
To terminate or cancel a life insurance policy before the maturity date. In the
case of a cash value policy, the policyholder may exercise one of the
nonforfeiture options at the time of surrender.
TEAM AND VEHICLE INSURANCE
Includes insurance against loss through damage or legal liability for damage,
to property caused by the use of teams or vehicles other than ships, boats, or
railroad rolling stock, whether by accident or collision or by explosion of
engine, tank, boiler, pipe, or tire of the vehicle, and insurance against the
theft of the whole or part of such vehicle (California Insurance Code §115).
TITLE INSURANCE
Coverage for losses if a land title is not free and clear of defects that were
unknown when the title insurance was written.
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UNDERWRITING
The process of selecting applicants for insurance and classifying them
according to their degrees of insurability so that the appropriate premium
rates may be charged. The process includes rejection of unacceptable risks.
UNINSURED MOTORIST BODILY INJURY
Will pay you and your passengers for BODILY INJURY cause by a negligent
uninsured motorist, a hit-and-run driver, or by a driver whose insurer is
insolvent.
UNINSURED MOTORIST PROPERTY DAMAGE
Will pay for damages to your automobile, set up to a limit, when caused by a
negligent unisured motorist.
WAITING PERIOD
A period of time set forth in a policy which must pass before some or all
coverages begin.
WORKERS COMPENSATION INSURANCE
Coverage providing four types of benefits (medical care, death, disability, and
rehabilitation) for employee job-related injuries or diseases as a matter of
right (without regard to fault).
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Insurance terms used in the area of Sureties and Bonds
Arrestee
A person in custody whose release may be secured by posting bail.
Bailee
A person or concern having possession of property committed in trust from the
owner.
Bid Bond
A guarantee that the contractor will enter into a contract, if it is awarded to
him, and furnish such contract bond (sometimes called "performance bond") as is
required by terms thereof.
Court Bonds
All bonds and undertakings required of litigants to enable them to pursue
certain remedies of the courts.
Effective Date
The date on which an insurance policy or bond goes into effect, and from which
protection is furnished.
Fidelity Bond
An obligation of the insurance company against financial loss caused by the
dishonest acts of employees.
Judicial Bond
A bond required in civil and criminal court actions.
Named Schedule Bond
A fidelity bond providing coverage for persons listed or scheduled on the bond.
Obligee
Broadly, anyone in whose favor an obligation runs. Frequently used in surety
bonds, this refers to the person, firm or corporation protected by the bond.
Obligor
Commonly called "principal," one bound by an obligation. Under a bond, strictly
speaking, both the principal and the surety are obligers.
Power of Attorney
Authority given one person or corporation to act for and obligate another, to
the extent laid down in the instrument creating the power.
Principal
A person or organization whose obligation are guaranteed by a bond.
Surety
An arrangement whereby one party becomes answerable to a third party for the
acts of a second party. Customarily an insurance company, the party in a
suretyship arrangement who holds himself responsible to one person for the acts
of another.
Surety Bond
a bond which the surety agrees to answer to the obligee for the non-performance
of the principal (also known as the obligor).
Suretyship
Stated in its simplest terms, suretyship embraces all forms of obligation to
pay debts or answer for the default of another.
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