General Insurance Applications (GIA) key terms

The chance of loss or the possibility of an adverse outcome. In insurance, it refers to the uncertainty about whether a loss will occur and how severe it might be.

A situation that involves only the possibility of loss or no loss, with no chance of gain. Insurers typically insure pure risks because they are accidental and measurable.

A risk that involves the possibility of either gain or loss, such as investing in stocks or starting a business. This type of risk is generally not insurable.

The specific cause of a loss, such as fire, windstorm, theft, or collision. Insurance policies list covered perils and exclusions to define what events are protected.

A condition that increases the likelihood or severity of a loss. Examples include icy sidewalks (physical hazard), careless behavior (moral hazard), and indifference to loss (morale hazard).

A condition where a person intentionally creates or exaggerates a loss to collect insurance money. It involves dishonesty and is a factor insurers consider when underwriting.

A condition where a person's carelessness or indifference increases the chance of loss because insurance will cover it. For example, leaving a car unlocked because it is insured.

A tangible condition that increases the chance of loss, such as a slippery floor, faulty wiring, or a building's construction type. Insurers may inspect for these when underwriting.

A financial stake in the subject of insurance such that a loss would cause a direct economic hardship. It must exist at the time of loss for property insurance and at policy inception for life insurance.

The principle that insurance should restore the insured to approximately the same financial position as before the loss, no better and no worse. It prevents profiting from insurance.

A method of valuing property for insurance claims equal to replacement cost minus depreciation. It reflects the property's current worth rather than the cost to buy new.

The cost to repair or replace damaged property with new property of similar kind and quality, without deducting for depreciation. Policies may offer this as an alternative to actual cash value.

A property insurance requirement that the insured carry coverage equal to a specified percentage of the property's value. If underinsured, a penalty applies to partial losses.

The amount of a loss that the insured must pay out of pocket before the insurer pays. It reduces small claims and helps control premiums.

The amount of money an insured pays to an insurer in exchange for insurance coverage. It is based on factors like risk, coverage limits, and deductibles.

The maximum amount an insurer will pay for a covered loss under a policy. Limits may apply per occurrence, per person, or in total for the policy period.

A package policy that provides property and liability coverage for a residence and its contents, plus additional living expenses and personal liability. It typically covers named perils or open perils depending on the form.

A property insurance policy that covers a residential structure but not its contents, typically used for rental properties or homes not eligible for homeowners coverage. It may also cover fair rental value.

Coverage that pays for increased costs of living, such as temporary housing and meals, when a home is uninhabitable due to a covered loss. It may have a time limit or percentage limit.

Coverage that protects an insured against claims for bodily injury or property damage caused by the insured's negligence. It typically applies to non-business activities on and off the premises.

Coverage that pays reasonable medical expenses for guests injured on the insured's premises or by the insured's activities, regardless of fault. It is often included in homeowners and auto policies.

A standardized policy covering personal automobiles, including liability, medical payments, uninsured motorist, collision, and other than collision coverage. It is used for private passenger vehicles.

Coverage that pays for bodily injury or property damage caused by a driver who has no insurance or who cannot be identified, such as a hit-and-run driver. It may also cover underinsured motorists.

Auto coverage that pays for damage to the insured vehicle caused by impact with another vehicle or object, or by overturning. A deductible usually applies.

Auto coverage that pays for damage to the insured vehicle from causes other than collision, such as fire, theft, vandalism, or weather. It is often called other than collision coverage.

A broad liability policy for businesses covering bodily injury, property damage, personal and advertising injury, and medical payments. It may be written on an occurrence or claims-made basis.

A package policy for small to medium businesses that combines property and liability coverage, often with business income and extra expense. It is designed for eligible business types.

Insurance that provides benefits to employees for work-related injuries or illnesses, including medical care, disability income, and death benefits. It is required by state law in most states.

Coverage that replaces lost income and pays ongoing expenses when a business is forced to suspend operations due to a covered property loss. It often includes extra expense coverage.

A policy covering business buildings, equipment, inventory, and other property against perils such as fire, theft, and weather. It may include coverage for business income and equipment breakdown.

A liability policy trigger where coverage applies to injuries or damage that occur during the policy period, regardless of when the claim is reported. It differs from claims-made coverage.

A liability policy trigger where coverage applies to claims reported during the policy period, provided the injury or damage occurred after a specified retroactive date. It often requires an extended reporting period.

The process by which an insurer evaluates a risk to decide whether to accept it and at what premium and terms. It involves assessing hazards, loss history, and other factors.

The process of investigating, evaluating, and settling insurance claims. It includes verifying coverage, determining the loss amount, and negotiating a settlement with the insured.

Insurance purchased by an insurer to transfer part of its risk to another insurer (the reinsurer). It helps insurers manage large exposures and maintain financial stability.

A legal principle requiring both the insured and insurer to act honestly and disclose all material facts. Breach by the insured can allow the insurer to void the policy.

A false statement of a material fact made by an insured that induces the insurer to issue a policy. It may allow the insurer to rescind the policy or deny a claim.

A statement or promise by the insured that certain conditions are true, such as maintaining a security system. A breach may allow the insurer to deny coverage.

The state official responsible for regulating the insurance industry, including licensing insurers and agents, approving policy forms and rates, and enforcing insurance laws.

A legal obligation of an insurance agent or broker to act in the best interest of the client, handling premiums and client information with honesty and care. Breach can lead to license revocation.