GLOSSARY OF TERMS
A quick glance at common insurance terms.
Insurance Glossary of Terms
Operating a construction business is fraught with challenges; thus, securing the proper insurance is likely the least of your concerns. However, the overly complicated legalese used in policies and confusing insurance jargon make it difficult to understand coverages, let alone choose the ones right for you. Finding the right insurance should be easy and expedient, not headache-inducing.
To help make your insurance experience easier, here are some common insurance terms, as defined by the International Risk Management Institute, that are likely to pop up in your policy.
Actual Cash Value: In the event of property damage or destruction, Actual Cash Value is the amount the insurer will pay at the time of loss. It’s typically calculated one of three ways: (1) the cost to repair or replace the damaged property, less depreciation; (2) the damaged property’s “fair market value”; or (3) using the “broad evidence rule,” which takes into account all relevant evidence of the value of the damaged property.
Additional Insured: An individual or organization that is insured under a policy you have purchased. You might decide to provide insured status to others because of a close relationship with that party or to comply with a contractual agreement requiring you to do so (e.g., customers or owners of property leased by the named insured).
Agent: An individual licensed to sell insurance policies for an insurance company or carrier. The individual’s agency may be exclusive or non-exclusive, meaning he or she sells insurance for a single carrier, or a number of carriers.
Aggregate: A limit in an insurance policy stating the most an insurance company will pay for all covered losses sustained during a specified period of time and individual losses. A typical aggregate limit for a contractor’s insurance policy is $1,000,000 or $2,000,000.
Claim: Used in reference to insurance, a claim may be a demand by an individual or corporation to recover a loss under an insurance policy. For example, if you have general liability insurance and a third party’s property is damaged because of you or your employees, a claim would be filed under your policy.
Coverage: Specific protections or benefits an insurance policy provides. These are outlined in your policy or contract and can be found on your declarations page.
Damage: Any loss, destruction, or harm to a person or property.
Damages: The actual money one individual or party is legally required to pay another.
Declarations Page: The front page (or pages) of a policy that specifies the named insured, address, policy period, location of premises, policy limits, and other key information that varies from insured to insured. The declarations page is also known as the information page. Often informally referred to as the "dec" or "dec page."
Deductible: An amount the insurer will deduct from the loss before paying up to its policy limits. This is the amount of money the insured is required to pay before the insurance company steps in.
Endorsements: An insurance policy form that either changes or adds to the provisions included in one or more forms used to construct the policy, such as the declarations page or the coverage form. Insurance policy endorsements may serve any number of functions, including broadening the scope of coverage, limiting or restricting the scope of coverage, clarifying the application of coverage to some unique loss exposure, adding other parties as insureds, or adding locations to the policy.
Errors and Omissions Insurance: A policy that protects an insured against liability for committing an error or omission in performance of professional duties. These policies are typically designed to cover financial losses rather than liability for bodily injury (BI) and property damage (PD).
General Liability: A standard insurance policy issued to business organizations to protect them against liability claims for bodily injury (BI) and property damage (PD) arising out of premises, operations, products, and completed operations; and advertising and personal injury (PI) liability.
Inland Marine Coverage: Property coverage for material, products or equipment that moves or is transportable, and/or is instrumental in transportation or communication. Contractors typically cover their construction tools and equipment with an inland marine policy or floater.
Insured: The person(s) protected under an insurance contract, also known as an assured or policyholder. An insured can also be an organization or entity.
Insurer: The insurance company or carrier that provides insurance policies to the insured.
Liability: This refers to a legal obligation or responsibility one party has for causing damage, injury, or loss to another party. For example, if a client trips over your equipment and injures themself, you may be held liable.
Limit: The total amount of losses to be paid under an insurance policy or reinsurance agreement, expressed either on a per occurrence basis (e.g., per accident or event) or on an aggregate basis (e.g., all losses under a single policy, or for all policies during an underwriting period).
Loss: A loss refers to the damage caused to an insured piece of property. A covered loss refers to any damage or injury that for a policy specifically provides protection.
Named Insured: Any person, firm, or organization, or any of its members specifically designated by name as an insured(s) in an insurance policy, as distinguished from others that, although unnamed, fall within the policy definition of an “insured.”
Negligent: Failure to use a degree of care considered reasonable under a given set of circumstances, including acts of omission.
Premium: Amount of money the insured pays to an insurance company in exchange for coverage. Can be paid in a variety of different ways, such as monthly or upfront, and is determined by a variety of different factors.
Replacement Cost Coverage: A property insurance term that refers to one of the two primary valuation methods for establishing the value of insured property for purposes of determining the amount the insurer will pay in the event of loss. Differs from actual cash value because it does not subtract depreciation due to normal use or wear and tear.
Umbrella/Excess Liability: A liability contract with high limits over and above the primary liability coverages and subject to a self-insured retention (deductible). The policy provides excess limits when the amount of underlying liability policies are exhausted in a claim. Umbrella insurance picks up where the underlying policy leaves off when the aggregate limit of the underlying policy in question is exhausted by claim payments. General contractors are required to carry an umbrella policy to work on government jobs and on large commercial projects.
Underwriter: One who researches and then accepts, rejects, or limits prospective risks for an insurance company. Underwriters classify risks according to their degrees of insurability to assign appropriate rates.
Workers’ Compensation: A type of business insurance that provides benefits to employees (or their families) who suffer work-related injuries or illnesses.
While these terms are general and a great way to better familiarize yourself with your insurance policy, questions likely remain. Contact an agent or review your insurance policy to determine what coverages are best for you and find answers to any other questions you may have.
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