“If you can’t explain it to a six year old, you don’t understand it yourself.”
Instructions: We decided not to organize this alphabetically in order to keep terms organized by topic instead. The easiest way to find a specific term is to use the Command+F on a Mac or Control+F on a PC.
Basics of Insurance:
Insurance: Paying a company a little money for the promise they will pay a lot of money for things we break without meaning to.
Accident: A bad thing that happened without meaning to.
Risk: Chance of something changing either for better or worse .
Pure Risk: An event that can only leave you worse off, but not better.
Speculative Risk: An event that could leave you better or worse.
Probability: The chance that an event will happen written as a number.
Physical Hazard: something real about a building, job or place that creates a larger chance of a poor ending
Moral Hazard: Something that might lead the owner to break his own stuff.
Morale Hazard: Something that might lead the owner to not care if his stuff breaks.
Liability: When the law says you have to pay for breaking something.
Premium: The little bit of money that the company asks you to pay for the promise that they will pay a lot of money if you break or lose something covered by their promise.
Claim: Asking somebody else to pay when something breaks or is lost.
Insurer/Carrier: A company who promised to pay for big things you break or lose if you pay them a little money before it happened.
Insured: The person who gets paid when something breaks or is lost.
Claimant: The person who tries to get paid by another person’s insurance.
Policy: A written paper that explains in long words the promise you have bought from the company and what is covered or not covered.
Contract: A written promise.
Act of God: Something that happened beyond control of any human.
Risk Management: The way we study how things can go wrong and try to lower the chances that they will go wrong.
Risk Manager: The person at a company who manages their insurance and keeps things from breaking or getting lost. Studying Risk Management and Insurance (RMI) in college leads to great jobs!
Avoidance: When you try to keep from breaking or losing things by simply not using doing those things at all. Example: You can’t break a leg playing ball if you just don’t play ball.
Loss Reduction: When you can’t avoid the thing you do that might cause you to break or lose something, you can try to lower how bad the breaking might be.
Separation: Avoiding breaking too many of your things by keeping them in different places.
Duplication: Having more than one of each in case one breaks.
Loss Control: Things you can do to avoid breaking and losing things, or to lower how much money you have to pay when it happens. Most Insurance companies also have a group that work in doing this for those they work with.
Underwriter: The person who decides to accept or not accept your offer to pay a company for the promise that they will pay for things you break or lose.
Insurance License: A paper from that allows a person to sell insurance.
Agent/Broker/Producer: The person who sells you the promise to pay for things you break or lose.
Independent Agent: A person that sells insurance from many insurance companies.
Exclusive Agent/Captive Agent: A person that sells insurance from only one insurance company.
Agency: The company the agent works for.
Direct Writer: A company that sells promises to pay for things you break or lose without using agents.
Reserves: Money put away by a company to pay for a loss that already happened but they haven’t paid yet.
Reinsurance: Insurance for insurance companies.
Catastrophe/CAT: Something very big breaking the houses and businesses of a lot of people at the same time.
CAT Model: A computer system that takes good guesses about how much money catastrophes will take to fix.
Rebating: An agent giving you back part of the money you gave him so you will buy more promises from him. This is not allowed in most states!
Department of Insurance: Each state has a group of people who make sure insurance companies and agents play well with others.
Insurance Fraud: A lie told in order to have an insurance company pay you for something that they should not be paying you for.
Soft Fraud: Saying that things broke more than they really did.
Hard Fraud: Saying you broke or lose something that you didn’t really break or lose.
Special Investigation Unit (SIU): Group inside an insurance company that works finding and fighting against people who lie to get more money than they should.
Commission: The money an agent gets paid for selling you an insurance policy.
Actuary: The person at a company that uses computers to help the company decide how much money to sell their promises for.
Mutual: An insurance company owned by all of the people who they have sold promises to.
Stock Company: A company owned by other people, not just the people it has sold promises to.
Policyholder: The person who has bought a promise from an insurance company.
Businessowners Policy (BOP): Insurance for a small business.
Loss Ratio: The part of the money paid by company for broken and lost things against the money paid by the person for the promise. High numbers are bad, low numbers are better!
Application: A form you fill out with certain information when you want to buy insurance.
Deductible: The small part that you have to pay after you break or lose something, even if you had insurance on it.
Watch this video explanation from Dr. Mark Tarmann Jr.
Lines of business: The different things that you can buy insurance on. For example: Your car, house, business.
Uninsured Motorist Coverage: Paying for your doctor and hospital when the person who hurt you doesn’t have insurance.
Underinsured Motorist Coverage: Paying for your doctor and hospital when the person who hurt you doesn’t have enough insurance.
MedPay: When someone gets hurt in a car MedPay pays for their doctor and hospital with very few questions.
Personal Injury Protection/PIP: A promise to pay for your doctor and hospital if your state says your own insurance has to pay for it it even if you didn’t do anything wrong.
Discount: Same as a credit.
Real Property: Land and buildings built on that land.
Personal Property: Anything that you can touch that is not land or a building. Things like books, computers, tables and chairs are all Personal Property.
Body Shop: A business that fixes the outside of cars.
Mechanical Shop: A business that fixes the engines and other inside parts of cars.
Comprehensive/Other Than Collision: A part of your car insurance that covers your car when it’s hurt by something other than hitting another car, thing or a roll over. Hitting an animal counts as Comprehensive, not as Collision. You’ll have to pay your deductible before the company pays the rest, but it might be a smaller deductible than if you had a Collision.
Umbrella Insurance: A promise to pay for things you broke that used up so much money that your car insurance, home insurance or other insurance paid as much as they are allowed to. This is very important if you have nice things like a house and if you make more than $50,000 a year.
Self-Insured Retention: A kind of deductible used in Umbrella Insurance.
Auto Insurance: A promise to pay to fix your car if you hit something and to pay to fix the things and people you hit.
Homeowner’s Insurance: A promise to pay to fix things that break parts of your house, it usually also has a promise to pay when the law says you have to pay for breaking something or hurting someone even if it didn’t happen in your home.
Renter’s Insurance: A promise to pay for your things if they break or to pay if you hurt the apartment you live in or someone visiting your apartment.
Health Insurance: A promise to pay for most of your doctor and hospital if you get sick.
Pet Insurance: A promise to pay for the animal doctor if your dog, cat or other animal gets sick.
Coinsurance: A kind of deductible. If you break something and it was not covered for enough money you will have to pay part of it.
Credit: A credit means you have to pay less money for your insurance because your stuff is in very good shape.
Debit: A debit means you have to pay more money for your insurance because your stuff is not in very good shape…
Business Personal Property: Anything that you can touch that is not land or a building that is owned by a business.
Hold-Harmless Agreement: Where one company agrees to pay back another company for any money that company has to spend because of something the first company does.
Life Safety: Changes that can be made to buildings to make it easier for people to get out alive in case of a fire or other bad thing happening.
COPE: The four things that matter most when looking at a building: Construction, Occupancy, Protection and External Environment.
Construction: How a building is built and out of what things is it made.
Occupancy: What a building is used for.
Protection: What things have been put into a building to make it safer.
External Environment: What kind of buildings right next to it where something like a fire might spread.
Business Income Coverage: A promise that the insurance company will pay the owner of another company for the money it lost because of something breaking at their company.
Extra Expense: A promise to pay for extra money you spend to continue your business while things get fixed and back to normal.
Business Insurance: A promise to pay to fix things when they break in your business.
Life Insurance: A promise that if someone dies their family (usually) will get paid a lot of money to help them out.
Beneficiary: The person who gets paid when someone dies and they have life insurance.
Retrospective Rating Plan/Loss Sensitive Plan: A way of figuring out how much money your company will pay for its insurance at the end of the policy instead of at the beginning considering how much money the insurance company paid out during the policy.
Absolute Liability: Doing something so bad that the law might consider you guilty just for doing it.
Adjuster: The person who looks into a claim and decides is the insurance company will pay for it and how much they will pay.
Litigation: When the company and the person can’t come to see eye to eye and let another person named by the state decide who is right and who is wrong. This burns a lot of money!
Bodily Injury: When a person gets sick and has to see a doctor because of something that happened.
Arson: A fire that was started in order to burn something down.
Bad Faith: When a company goes out of its way to not pay what they should pay in a very bad way.
Incurred Losses: All of the money the insurance company has paid out and the money it thinks it will pay out in the future.
Paid Losses: All of the money the insurance company has already paid out.
Loss Adjustment Expenses (LAE): The money the insurance company has spent on figuring out how much to pay for broken and lost things.
Cause of Loss: The reason for the thing breaking or getting lost.
The Real Nerdy Stuff:
Marine Insurance: A kind of insurance where the company promises to pay for things that break or get lost while carried on a boat or ship. This is the oldest kind of insurance!
Inland Marine Insurance: A kind of insurance where the company promises to pay for things that break or get lost while carried on a truck, train or car. It works for all kinds of things that are moved over land and don’t stay put in a single place.
Adverse Selection: People know more about their chance of a bad thing happening that the insurance company knows. People who know they have more chances of a bad thing happening buy insurance more often than those who know their chances are lower.
Surety Bond: A promise that the insurance company will pay somebody else if you fail to do something you promised to do.
Surplus Lines: Insurance companies that are working kind of without the go ahead from the state, they are allowed to sell promises but in a different way than normal insurance companies. To buy a promise from a Surplus Lines company you first have to have three normal insurance companies tell you “no”.
Law of Large Numbers: If you have a lot of things that look like each other you can make good guesses about other things that look like them. The more things the better the guesses!
Maximum Possible Loss (MPL): The very worst thing that could happen if something goes wrong.
Tort: When somebody hurts somebody else in a way not allowed by law.
Tortfeasor: The person who hurt another person or their things.:
Negligence: When someone is not as careful as the law expects them to be and someone else gets hurt because of it.
Intentional Tort: Hurting someone else or their things because you felt like it. This is usually not covered by your insurance!
Strict Liability: When you do something so bad that there is no need to question if it is your bad. Example: Having a wild animal in your yard and someone gets hurt.
Injunction: An order from the law to do something in a different way.:
Promisor: The person making a promise.
Promisee: The person getting a promise.
Breach of Contract: Breaking a written promise.
Consideration: Getting paid something for making a promise.
Flat Cancellation: Backing away from a promise as if it had never happened.
Binder: A starter insurance policy that will later get changed for the real one once it is ready.
Material Fact: Something that if the insurance company had known it from the beginning they would not have made the promises they did.
Principle of Indemnification: A key part of insurance that says that you will only get paid for what you lost, not for more.
Utmost Good Faith: A key part about insurance saying that every person or company has to do their very best to tell the truth and be as nice as they can to the other.
Contract of Adhesion: A written promise written by the insurance company where the person or company buying the insurance can only say yes or no but does not have the chance to make changes to it.
Exclusion: Something that is not covered by insurance, such as lighting your house on fire.
Named Causes of Loss/Named Perils: When broken or lost things are only covered when they are broken or lost in a way the promise said they would pay for.
Special Causes of Loss: When broken or lost things are covered unless broken or lost by things that the policy clearly says it does not cover.
Liberalization Clause: A cool part of insurance that says that if a company makes a change to their promise that makes it better without asking for more money everybody who has that promise gets the new and better promise.
Sprinkler System: A system that can shoot water out of the roof to get rid of a fire.
Vacant: A building that is empty.
Insurance to Value: A part of insurance that forces you to let the insurance company know the number of money it would take to get you a new one if the old one burnt down.
Actual Cash Value: The insurance company will pay the number of money you could sell the thing for today.
Replacement Cost: The insurance company will pay the number of money you would have to pay to buy a new one today.
Pair or Set Clause: A key part of insurance that says that if you lose or break one thing that is part of a set with another thing, they will pay for both things. Example: If you lose one shoe they will pay for both shoes since you cann’t buy a single shoe!
Limit: The most money the insurance company will pay you.
Sublimit: The most money the insurance company will pay you for a kind of thing.
Endorsement: Something that changes the promise from your insurance company.
Subrogation: The insurance company trying to get the money they paid you back by going after the person who caused the breaking of your things.
Salvage: The number of money you can if you sell something that is broken.
Secondary/Excess: A insurance policy that only pays when another insurance policy has paid all it is allowed to.
Disability Insurance: A promise to pay you if you can’t keep working because you’re sick.
Workers Compensation: A promise to pay for your doctor and hospital if you get sick because of your job.
Compulsory Auto Insurance Law: A law that says everyone who drives a car has to have insurance.
Financial Responsibility Law: A law that says that if you get pulled over you must prove that you have insurance.
First Party: You.
Third Party: Someone else.
Insurance Services Office (ISO): A company that sells services to insurance companies including writing policies that anyone can use.
Loss of Use Coverage: A promise to pay for you to stay somewhere else if your house is broken or to drive somebody else’s car while your car gets fixed.