Actual Cash Value
Adjustable Rate
Commercial Lines
Comprehensive Insurance
Earned Premium
Elimination Period
Insurance Adjuster
Loss Adjustment Expenses
Loss Control
Loss Ratio
Mutual Insurance Companies
Named Perils
Other Income/Expenses
Preferred Auto
Premium Earned
Qualifying Event
Replacement Cost
Risk Management
Unearned Premiums
Uninsured Motorist Coverage
Waiver of Premium

Actual Cash Value - Cost of replacing damaged or destroyed property with comparable new property, minus depreciation and obsolescence. For example, a 10-year-old sofa will not be replaced at current full value because of a decade of depreciation.

Adjustable Rate - An interest rate that changes, based on changes in a published market-rate index.

Claim - A demand made by the insured, or the insured's beneficiary, for payment of the benefits as provided by the policy.

Coinsurance - In property insurance, requires the policyholder to carry insurance equal to a specified percentage of the value of property to receive full payment on a loss. For health insurance, it is a percentage of each claim above the deductible paid by the policyholder. For a 20% health insurance coinsurance clause, the policyholder pays for the deductible plus 20% of his covered losses. After paying 80% of losses up to a specified ceiling, the insurer starts paying 100% of losses.

Commercial Lines - Refers to insurance for businesses, professionals and commercial establishments.

Comprehensive Insurance - Auto insurance coverage providing protection in the event of physical damage (other than collision) or theft of the insured car. For example, fire damage or a cracked windshield would be covered under the comprehensive section. Coverage - The scope of protection provided under an insurance policy. In property insurance, coverage lists perils insured against, properties covered, locations covered, individuals insured, and the limits of indemnification. In life insurance, living and death benefits are listed.

Deductible - Amount of loss that the insured pays before the insurance kicks in.

Earned Premium - The amount of the premium that as been paid for in advance that has been "earned" by virtue of the fact that time has passed without claim. A three-year policy that has been paid in advance and is one year old would have only partly earned the premium.

Elimination Period - The time which must pass after filing a claim before policyholder can collect insurance benefits. Also known as "waiting period."

Exclusions - Items or conditions that are not covered by the general insurance contract.

Exposure - Measure of vulnerability to loss, usually expressed in dollars or units.

Insurable Interest - Interest in property such that loss or destruction of the property could cause a financial loss.

Insurance Adjuster - A representative of the insurer who seeks to determine the extent of the insurer's liability for loss when a claim is submitted. Independent insurance adjusters are hired by insurance companies on an "as needed" basis and might work for several insurance companies at the same time. Independent adjusters charge insurance companies both by the hour and by miles traveled. Public adjusters work for the insured in the settlement of claims and receive a percentage of the claim as their fee.

Liability - Broadly, any legally enforceable obligation. The term is most commonly used in a pecuniary sense.

Loss Adjustment Expenses - Expenses incurred to investigate and settle losses.

Loss Control - All methods taken to reduce the frequency and/or severity of losses including exposure avoidance, loss prevention, loss reduction, segregation of exposure units and noninsurance transfer of risk. A combination of risk control techniques with risk financing techniques forms the nucleus of a risk management program. The use of appropriate insurance, avoidance of risk, loss control, risk retention, self insuring, and other techniques that minimize the risks of a business, individual, or organization.

Loss Ratio - The ratio of incurred losses and loss-adjustment expenses to net premiums earned. This ratio measures the company's underlying profitability, or loss experience, on its total book of business.

Mutual Insurance Companies - Companies with no capital stock, and owned by policyholders. The earnings of the company--over and above the payments of the losses, operating expenses and reserves--are the property of the policyholders. There are two types of mutual insurance companies. A nonassessable mutual charges a fixed premium and the policyholders cannot be assessed further. Legal reserves and surplus are maintained to provide payment of all claims. Assessable mutuals are companies that charge an initial fixed premium and, if that isn't sufficient, might assess policyholders to meet losses in excess of the premiums that have been charged.

Named Perils - Perils specifically covered on insured property.

Other Income/Expenses - This item represents miscellaneous sources of operating income or expenses that principally relate to premium finance income or charges for uncollectible premium and reinsurance business.

Peril - The cause of a possible loss.

Policy - The written contract effecting insurance, or the certificate thereof, by whatever name called, and including all clause, riders, endorsements, and papers attached thereto and made a part thereof.

Preferred Auto - Auto coverage for drivers who have never had an accident and operates vehicles according to law. Drivers are not a risk for any insurance company that writes auto insurance, and no insurance company would be afraid to take them on as risk.

Premium - The price of insurance protection for a specified risk for a specified period of time.

Premium Earned - The amount of the premium that as been paid for in advance that has been "earned" by virtue of the fact that time has passed without claim. A three-year policy that has been paid in advance and is one year old would have only partly earned the premium.

Qualifying Event - An occurrence that triggers an insured's protection.

Renewal - The automatic re-establishment of in-force status effected by the payment of another premium.

Replacement Cost - The dollar amount needed to replace damaged personal property or dwelling property without deducting for depreciation but limited by the maximum dollar amount shown on the declarations page of the policy.

Risk Management - Management of the pure risks to which a company might be subject. It involves analyzing all exposures to the possibility of loss and determining how to handle these exposures through practices such as avoiding the risk, retaining the risk, reducing the risk, or transferring the risk, usually by insurance.

Subrogation - The right of an insurer who has taken over another's loss also to take over the other person's right to pursue remedies against a third party.

Surplus - The amount by which assets exceed liabilities.

Occurrence - An event that results in an insured loss. In some lines of business, such as liability, an occurrence is distinguished from accident in that the loss doesn't have to be sudden and fortuitous and can result from continuous or repeated exposure which results in bodily injury or property damage neither expected not intended by the insured.

Underwriter - The individual trained in evaluating risks and determining rates and coverages for them. Also, an insurer.

Underwriting - The process of selecting risks for insurance and classifying them according to their degrees of insurability so that the appropriate rates may be assigned. The process also includes rejection of those risks that do not qualify.

Unearned Premiums - That part of the premium applicable to the unexpired part of the policy period.

Uninsured Motorist Coverage - Endorsement to a personal automobile policy that covers an insured collision with a driver who does not have liability insurance.

Waiver of Premium - A provision in some insurance contracts which enables an insurance company to waive the collection of premiums while keeping the policy in force if the policyholder becomes unable to work because of an accident or injury. The waiver of premium for disability remains in effect as long as the ensured is disabled.

Property Insurance
Property insurance insures against loss or damage to the location of the business and its contents. It can also insure the property of others in your control when the loss occurs. Property insurance can be for a specific risk. For example, a fire insurance policy insures only against a fire loss to the location. A tornado is not a fire and, therefore, that loss would not be covered. The insured location can be owned, leased or rented.

Casualty Insurance
Some insurers will lump property and casualty insurance together and refer to the coverage as “property and casualty” insurance. In fact, “packaged” policies of property and casualty are often the best purchase a business owner can make. However, to have an understanding of the difference between the coverage, I will discuss this as a separate type of insurance. Casualty insurance insures against loss or damage to the business.

Types of Business Insurance Policies
“Business insurance” is a broad description that can be broken down into a list of nine types of insurance policies and here I will briefly explain the coverage and expand on these as individual topics. For now, these are general descriptions so that we are talking about the same thing when I use these terms in later articles.

Liability Insurance
Liability insurance insures against liability legally imposed upon your business because of the negligence of the business or its employees. Put another way, it protects your business when the business is sued for negligence.

Business Interruption Insurance
Business interruption insurance insures against loss or damage to the cash flow and profit of a business caused by the business being unable to operate because of interruption. The easiest example is to think about a critical piece of machinery being struck by lightning. The repairs to the machine may be covered by other coverage such as property or casualty insurance. But, if you can’t make widgets for three months, then there is no replacement of that income without this coverage.

Coinsurance: is a requirement in a policy that the insured insure a minimum percentage of an asset's value. It is called coinsurance because if the insured fails to purchase the required policy limits as required they become a "co-insurer" on any loss.

Endorsement: is a written document attached to an insurance policy that modifies the policy by changing the coverage afforded under the policy. An endorsement can add coverage for acts or things that are not covered as a part of the original policy and can be added at the inception of the policy or later during the term of the policy.

Exclusion: is a provision within an insurance policy that eliminates coverage for certain acts, property, types of damage or locations.

Replacement cost: is a method of loss replacement where the dollar amount needed to replace damaged property is paid without deducting for depreciation. The term also refers to a policy that uses replacement cost as the method to pay for losses.

Commercial Property & Liability Insurance
Commercial property and liability coverage protects an insured's buildings, property and general liability. The following are the different coverages found in these types of policies:

Commercial Property Coverage
Coverage A - Covered Property
This coverage protects an insured's building, business personal property and the personal property of others. The building consists of: the structure, completed additions, permanently installed fixtures, permanently installed machinery and equipment, outdoor fixtures, personal property used to service the business and materials used for additions, alterations and repairs that are within 100 feet of the covered location.

Coverage B - Covered Business Personal Property
This coverage includes business property such as furniture, portable machinery and equipment, inventory, stock and all other personal property owned by the insured and used for business purposes located in the building or within 100 feet of it. Personal property of others that is covered refers to property in the insured's care, custody ore control, which is located in the building or within 100 feet of it. This coverage is limited. There are certain property types that are not covered as well.

Additional coverages and extensions are also available.

Commercial Liability Coverage
Coverage A
This section of coverage protects the insured who is legally responsible for injury or damage to others as a result of the ownership of premises or business activities on or off the premises. Policy limits are provided on a per person, per occurrence and aggregate basis. This section also covers products and completed operations coverage. This relates to coverage for bodily injury or property damage to others as a result of the use or consumption of a product manufactured by the business. This section of coverage also covers some "insured contacts" and damage to premises the business rents, also known as fire legal limit.

Coverage B
This section provides protection to a business owner against personal injury and advertising injury losses. Personal injury examples are: wrongful detention or eviction, false arrest, slander and libel. Advertising injury arises out of oral or written defamation committed while advertising one's business or products.

Coverage C
This section covers medical payments. It will pay the reasonable medical expenses of others incurred within on year of the date of the accident.

Additional coverages and extensions are also available.

Endorsement: is a written document attached to an insurance policy that modifies the policy by changing the coverage afforded under the policy. An endorsement can add coverage for acts or things that are not covered as a part of the original policy and can be added at the inception of the policy or later during the term of the policy.

Exclusion : is a provision within an insurance policy that eliminates coverage for certain acts, property, types of damage or locations.

Additional Insured: a person or entity added to a business policy for purposes of coverage. This may be a temporary arrangement (contractor on a job adding the premises of the project until complete) or more permanent (tenant in a commercial building adding landlord).

The terms of EPLI coverage included in a packaged policy can be very different than the terms of the general liability policy. EPLI coverage will often be coverage where settlement costs and legal fees are both considered in the policy limits. That is, for every dollar spent defending a claim, less money is available to settle the claim. Some policies will possess a strong "hammer clause" where the business is forced to settle even meritless claims if the insurer decides to settle with the claimant. In the alternative, some policies give the business owner the right to hire their own counsel and require business owner permission to settle any claim.

EPLI coverage will need to be tailored to every state where the business has operations. The business may need additional endorsements to cover operations in some states that have very strong employee protection laws.

Finally, EPLI coverage should be a last line of defense. Proper risk management and business insurance planning for your business will include training. Diversity and sensitivity training must be part of that training.


Circle Insurance Agency, Inc. ~ 247 Newbury St., Danvers, MA 01923 • 10 Elm St., Salisbury, MA 01952

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