Commonly used insurance terms

Absolute liability
The insurance company’s responsibility to a third party regardless of any statutory breaches on the part of the insured.

Actual cash value
Replacement or market value of damaged property less depreciation.

Adjuster
A person who acts on behalf of an insurance company to evaluate and settle claims.

Agent
A person who solicits or offers insurance products on behalf of one insurance company.

Broker
A person who solicits or offers insurance products on behalf of more than one insurance company.

Cancellation
The termination of an insurance contract before it expires.

Cancellation (flat)
An insurance company cancels a policy as of its effective date, without charging any premium to you. This may happen if an insurance company realizes it has given an incorrect quote. It may cancel the policy and refund all your money. It may also do this if they void the policy. It may void a policy if it determines that not all material information was provided to them to properly assess the risk.

Cancellation (pro-rata)
An insurance company cancels a policy and adjusts the premium in proportion to the time the coverage was in effect. It refunds a portion of the premium back to you.

Cancellation (short-rate)
An insurance company cancels a policy at your request before the expiry date and charges a premium larger than what would be applicable for the period insured.
This must be provided for in the policy. Generally, this increased charge is made because fixed expenses have been incurred by the insurance company. Insurance companies often use fixed rate tables to calculate the premium they have earned.

Claim
A demand for payment for a loss under an insurance policy

Deductible
The amount of a loss that you are required to pay. For example, if you have $2000 in insured damage to your facility from vandalism and your deductible is $1000, you will be responsible for $1000 of the repair cost. The insurance company will pay for the other $1000.

Endorsement
A form amending the terms of the policy, sometimes called a rider.

Lapse in coverage
Companies rate a policy based on continuous insurance history. A short lapse in coverage is no longer a reason to decline someone insurance. It is, however, a factor in the rate charged by an insurer. Before canceling a policy for a short term, check with your insurance broker to determine how the lapse in coverage will affect you and your future insurability.

Premium
The price you pay for the insurance policy, based on the risk assessment.

Third party liability insurance
Protects the insured against liability arising out of bodily injury or property damage to others. The insured and the insurer are the first and second parties to the insurance contract.

Underwriter
A person who decides if an insurance risk is acceptable. The underwriter decides in what amount and on what terms the insurance company will accept the risk. Also called an insurer.