Insurance Policy Glossary

Claims-Made Policy: With a claims-made policy, the policy provides coverage for any claims made during the time period (usually a year) in which the policy is in place, even if the actual act that led to the claim happened prior to that time, so long as the insured was covered by another claims-made policy during the time of the incident. In essence, this means that for the entire time that an insured is covered by claims-made insurance, even if the policies come from different insurance carriers, the current policy is the one that pays any claims made during it no matter when the actual incident occurred during that period.

Fraud: Fraud is any deception or trickery that is used to deliberately cheat or mislead, and can include the misrepresentation and concealment of facts. If a business owner or professional commits fraud while obtaining insurance (such as deliberately lying about the extent of the risk or the business involved) the insurance company can deny or cancel the policy. In addition, there is also special insurance available for certain kinds of fraud that can occur in a business situation.

Prior Acts: Prior acts coverage is available in claims-made insurance policies that either have no retroactive date at all or have a retroactive date that is prior to the beginning of the policy. These types of policies pay when the claim is made, even if the actual act that led to it happened prior to the beginning of the policy period, so long as it was after the retroactive date (usually when the insured first began purchasing claims-made insurance). Incidents that did not happen during the policy period that lead to claims are called prior acts. Coverage for prior acts can be important in policies like the Professional Liability policy because there can often be a long period of time between the act leading to the claim and the claim itself.

Deductible: The deductible on an insurance policy is the portion of any loss that is covered by the insured before the insurance policy begins to pay. In general, the lower the deductible, the higher the cost of the insurance policy. A policy that has no deductible is called a first dollar insurance policy because it pays on the first dollar of the loss. Deductibles can be either per occurrence which means that the insured pays the deductible for every loss, no matter how many occur within the policy period or they can be calculated based on the policy period, which means there is a maximum amount that the insured will usually pay over the course of the policy.

Risk: A risk can either be the uncertainty that arises from the possible occurrence of certain events (such as the chance that an insured business professional will or will not be sued) or it can refer to the actual insured person, business, or property to which a particular insurance policy is related.

Exclusions: Exclusions are provisions of an insurance policy that refer to specific risks, hazards, perils, or occurrences that are not covered by the policy. Exclusions are usually part of the insurance policy form and spell out the details of what is not covered. In some cases the exclusions can be extremely broad (like) and apply to many different types of policies, while in other cases they can be specifically tailored to a certain type of policy.

Policy Limits: The limits of an insurance policy are the total amount of losses that will be paid by the policy. In some cases the limit is determined on a per occurrence basis, which means that the limit can potentially be paid out for each claim that is filed no matter how many are filed during the policy period. For example, an insurance policy with a per-occurrence limit of $1 million could pay $1 million for one occurrence in January and then pay another $1 million for another occurrence in June. Other limits are determined on an aggregate basis, which means that there is a total amount of losses that will be paid for the entire policy period, and once that limit is reached no more losses will be paid. For example, an insurance policy with a $1 million aggregate limit could pay a $1 million claim in January but would not pay any other claims for the remainder of the policy year because the limit had been exhausted.

Liability: A liability is any legally enforceable obligation. For insurance purposes, a liability is the obligation that an individual or other entity has to pay money for an injury or damage caused by ones actions. At its essence, insurance is a way to protect against liabilities.

Depreciation: Depreciation is the amount that a piece of property decreases in value over time. This is usually due to age, wear and tear, and obsolescence. For example, a computer becomes less valuable over time not only because its worn, but because newer technology makes older machines less valuable. For insurance purposes, depreciation due to wear and tear is generally subtracted from the replacement cost of an item to determine its actual cash value. In some cases, depreciation due to other causes (such as obsolesce) can be deducted as well. If property is insured for actual cash value, changes in value due to depreciation can mean that insurance payments for the property will not cover the cost of replacing the item with a new one.

Premium: The premium is the amount of money that the purchaser of an insurance policy pays an insurance company in exchange for insurance coverage through the policy. Premiums can be paid on an annual basis, monthly, or through some other plan. Premiums are determined through underwriting, in which the insurance company assesses the risk presented by a clients liabilities and determines how much money the insurance company needs to charge to adequately provide for taking a gamble by covering those risks.

Rider (Endorsement): A rider or endorsement is a special form that is attached to an insurance policy that alters the policy in some way. One of the common uses for a rider or endorsement is to provide additional insurance coverage that is not provided in the body of the policy. This insurance could include coverage for additional risks, higher limits of insurance, or in other ways change the scope of the policy. Insurance policies endorsements can also be used to limit or restrict the insurance coverage in some way, to clarify the way the coverage applies to a specific exposure, or to add other parties or locations the insurance policy. In general, any changes that a business owner or individual wants or needs to add to the basic policy coverage form will be expressed through an endorsement to the policy. Depending on the details of the endorsement, it can either cost additional premium or decrease the premium costs of the policy to the insured.

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