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Insurance Definitions and Insurance Terms
Insurance Terms By Alphabet
Insurance Glossary and Insurance Terms Definitions are below.

Choose the letter of the alphabet that your Insurance question or term falls under. You may browse the
definitions to obtain an understanding of the product you have. These definitions are not limited to just car
Insurance. Thank you for visiting our site.
CAPACITY
The supply of Insurance available to meet demand. Capacity depends on the industry’s financial ability to
accept risk. For an individual insurer, the maximum amount of risk it can underwrite based on its financial
condition. The adequacy of an insurer’s capital relative to its exposure to loss is an important measure of
solvency.

A property/casualty insurer must maintain a certain level of capital and policyholder surplus to underwrite
risks. This capital is known as capacity. When the industry is hit by high losses, such as after the World
Trade Center terrorist attack, capacity is diminished. It can be restored by increases In net income, favorable
investment returns, reinsuring more risk and or raising additional capital. When there is excess capacity,
usually because of a high return on investments, premiums tend to decline as insurers compete for market
share. As premiums decline, underwriting losses are likely to grow, reducing capacity and causing insurers to
raise rates and tighten conditions and limits In an effort to increase profitability. Policyholder surplus is
sometimes used as a measure of capacity.

CAPITAL
Shareholder’s equity (for publicly-traded Insurance companies) and retained earnings (for mutual Insurance
companies). There is no general measure of capital adequacy for property/casualty insurers. Capital
adequacy is linked to the riskiness of an insurer’s business. A company underwriting medical device
manufacturers needs a larger cushion of capital than a company writing Main Street business, for example.

CAPITAL MARKETS
The markets In which equities and debt are traded.

CAPTIVE AGENT
A person who represents only one Insurance company and is restricted by agreement from submitting
business to any other company, unless it is first rejected by the agent’s captive company

CAPTIVES
Insurers that are created and wholly-owned by one or more non-insurers, to provide owners with Coverage.
A form of self-insurance.

CAR YEAR
Equal to 365 days of insured Coverage for a single vehicle. It is the standard measurement for automobile
Insurance

CASE MANAGEMENT
A system of coordinating medical services to treat a patient, improve care, and reduce cost. A case manager
coordinates health care delivery for patients.

CATASTROPHE
Term used for statistical recording purposes to refer to a single incident or a series of closely related
incidents causing severe insured property losses totaling more than a given amount, currently $25 million
(per the Insurance Information Institute, iii.org).

CATASTROPHE BONDS
Risk-based securities that pay high interest rates and provide Insurance companies with a form of
reinsurance to pay losses from a catastrophe such as those caused by a major hurricane. They allow
Insurance risk to be sold to institutional investors In the form of bonds, thus spreading the risk.

CATASTROPHE DEDUCTIBLE
A percentage or dollar amount that a homeowner must pay before the Insurance policy kicks In when a major
natural disaster occurs. These large deductibles limit an insurer’s potential losses In such cases, allowing it
to insure more property. A property insurer may not be able to buy reinsurance to protect its own bottom line
unless it keeps its potential maximum losses under a certain level.

CATASTROPHE FACTOR
Probability of catastrophic loss, based on the total number of catastrophes In a state over a 40-year period.

CATASTROPHE MODEL
Using computers, a method to mesh long-term disaster Information with current demographic, building and
other data to determine the potential cost of natural disasters and other catastrophic losses for a given
geographic area.

CATASTROPHE REINSURANCE
Reinsurance (Insurance for insurers) for catastrophic losses. The Insurance industry is able to absorb the
multibillion dollar losses caused by natural and man-made disasters such as hurricanes, earthquakes and
terrorist attacks because losses are spread among thousands of companies including catastrophe
reinsurers who operate on a global basis. Insurers’ ability and willingness to sell Insurance fluctuates with the
availability and cost of catastrophe reinsurance.

After major disasters, such as Hurricane Andrew and the World Trade Center terrorist attack, the availability
of catastrophe reinsurance becomes extremely limited. Claims deplete reinsurers’ capital and, as a result,
companies are more selective In the type and amount of risks they assume. In addition, with available supply
limited, prices for reinsurance rise. This contributes to an overall increase In prices for property Insurance.

CELL PHONE Insurance
Separate Insurance provided to cover cell phones for damage or theft. Policies are often sold with the cell
phones themselves.

CHARTERED FINANCIAL CONSULTANT / ChFC
A professional designation given by The American College to financial services professionals who complete
courses In financial planning.

CHARTERED LIFE UNDERWRITER / CLU
A professional designation by The American College for those who pass business examinations on
Insurance, investments, and taxation, and have life Insurance planning experience.

CHARTERED PROPERTY/CASUALTY UNDERWRITER / CPCU
A professional designation given by the American Institute for Property and Liability Underwriters. National
examinations and three years of work experience are required.

CLAIMS-MADE POLICY
A form of Insurance that pays claims presented to the insurer during the term of the policy or within a specific
term after its expiration. It limits liability insurers’ exposure to unknown future liabilities.

COBRA
Short for Consolidated Omnibus Budget Reconciliation Act. A federal law under which group health plans
sponsored by employers with 20 or more employees must offer continuation of Coverage to employees who
leave their jobs and their dependents. The employee must pay the entire premium. Coverage can be
extended up to 18 months. Surviving dependents can receive longer Coverage.

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 percent health Insurance coinsurance clause, the
policyholder pays for the deductible plus 20 percent of his covered losses. After paying 80 percent of losses
up to a specified ceiling, the insurer starts paying 100 percent of losses.

COLLATERAL
Property that is offered to secure a loan or other credit and that becomes subject to seizure on default. (Also
called security.)

COLLATERAL SOURCE RULE
Bars the introduction of Information that indicates a person has been compensated or reimbursed by a
source other than the defendant In civil actions related to Negligence or other liability.

COLLISION Coverage
Portion of an auto Insurance policy that covers the damage to the policyholder’s car from a collision.

COMBINED RATIO
Percentage of each premium dollar a property/casualty insurer spends on claims and expenses. A decrease
In the combined ratio means financial results are improving; an increase means they are deteriorating.

COMMERCIAL GENERAL LIABILITY Insurance / CGL
A broad commercial policy that covers all liability exposures of a business that are not specifically excluded.
Coverage includes product liability, completed operations, premises and operations, and independent
contractors.

COMMERCIAL LINES
Products designed for and bought by businesses. Among the major coverages are boiler and machinery,
business interruption, commercial auto, comprehensive general liability, directors and officers liability, fire
and allied lines, inland marine, medical malpractice liability, product liability, professional liability, surety and
fidelity, and workers compensation. Most of these commercial coverages can be purchased separately
except business interruption which must be added to a fire Insurance (property) policy.

COMMERCIAL MULTIPLE PERIL POLICY
Package policy that includes property, boiler and machinery, crime, and general liability coverages.

COMMERCIAL PAPER
Short-term, unsecured, and usually discounted promissory note issued by commercial firms and financial
companies often to finance current business. Commercial paper, which is rated by debt rating agencies, is
sold through dealers or directly placed with an investor.

COMMISSION
Fee paid to an agent or Insurance salesperson as a percentage of the policy premium. The percentage
varies widely depending on Coverage, the insurer, and the marketing methods.

COMMUNITY RATING LAWS
Enacted In several states on health Insurance policies. Insurers are required to accept all applicants for
Coverage and charge all applicants the same premium for the same Coverage regardless of age or health.
Premiums are based on the rate determined by the geographic region’s health and demographic profile.

COMPETITIVE STATE FUND
A facility established by a state to sell workers compensation In competition with private insurers.

COMPLETED OPERATIONS Coverage
Pays for bodily injury or property damage caused by a completed project or job. Protects a business that
sells a service against liability claims.

COMPREHENSIVE Coverage
Portion of an auto Insurance policy that covers damage to the policyholder’s car not involving a collision with
another car (including damage from fire, explosions, earthquakes, floods, and riots), and theft.

COMPULSORY AUTO Insurance
The minimum amount of auto liability Insurance that meets a state law. Financial responsibility laws In every
state require all automobile drivers to show proof, after an accident, of their ability to pay damages up to the
state minimum. In compulsory liability states this proof, which is usually In the form of an Insurance policy, is
required before you can legally drive a car.

CONTINGENT LIABILITY
Liability of individuals, corporations, or partnerships for accidents caused by people other than employees
for whose acts or omissions the corporations or partnerships are responsible.

Coverage
Synonym for Insurance.

CRASH PARTS
Sheet metal parts that are most often damaged In a car crash.

CREDIT
The promise to pay In the future In order to buy or borrow In the present. The right to defer payment of debt.

CREDIT DERIVATIVES
A contract that enables a user, such as a bank, to better manage its credit risk. A way of transferring credit
risk to another party.

CREDIT ENHANCEMENT
A technique to lower the interest payments on a bond by raising the issue’s credit rating, often through
Insurance In the form of a financial guarantee or with standby letters of credit issued by a bank

CREDIT Insurance
Commercial Coverage against losses resulting from the failure of business debtors to pay their obligation to
the insured, usually due to insolvency. The Coverage is geared to manufacturers, wholesalers, and service
providers who may be dependent on a few accounts and therefore could lose significant income In the event
of an insolvency.

CREDIT LIFE Insurance
Life Insurance Coverage on a borrower designed to repay the balance of a loan In the event the borrower
dies before the loan is repaid. It may also include disablement and can be offered as an option In connection
with credit cards and auto loans.

CREDIT SCORE
The number produced by an analysis of an individual’s credit history. The use of credit Information affects all
consumers In many ways, from getting a job, finding a place to live, securing a loan, getting a telephone, and
buying Insurance. Credit history is routinely reviewed by insurers before issuing a commercial policy because
businesses In poor financial condition tend to cut back on safety which can lead to more accidents and more
claims. Auto and home insurers may use Information In a credit history to produce an Insurance score.
Insurance scores may be used In underwriting and rating Insurance policies.

CRIME Insurance
Term referring to property coverages for the perils of burglary, theft and robbery.

CROP-HAIL Insurance
Protection against damage to growing crops from hail, fire, or lightning provided by the private market. By
contrast, multiple peril crop Insurance covers a wider range of yield-reducing conditions, such as drought
and insect infestation, and is subsidized by the federal government.



NOTICE: These glossary definitions provide a brief description of the terms and phrases used within the
Insurance industry. These definitions are not applicable In all states or for all Insurance and financial
products. This is not an Insurance contract. Other terms, conditions and exclusions apply. Please read your
official policy for full details about coverages. These definitions do not alter or modify the terms of any
Insurance contract. If there is any conflict between these definitions and the provisions of the applicable
Insurance policy, the terms of the policy control. Additionally, this informational resource is not intended to
fully set out your rights and obligations or the rights and obligations of the Insurance company, agent or
agency. If you have questions about your Insurance, you should contact your Insurance agent, the
Insurance company, or the language of the Insurance policy.
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