Insurance: Terminology and FAQs

Here’s a list of common P&C insurance terminology along with frequently asked questions (FAQs).

Common P&C Insurance Terms

1. General Terms

• Insured - The insured is the person or entity covered under an insurance policy.
• Named Insured - The primary person or entity listed on the insurance policy. For example, in an auto insurance policy, the car owner is the named insured.
• Insurer - An insurer is the insurance company or provider that issues policies and assumes financial risk in exchange for premiums.
• Premium – The amount paid by a policyholder to an insurer for coverage.
• Deductible – The amount a policyholder must pay out of pocket before insurance coverage kicks in.
• Coverage Limit – The maximum amount an insurer will pay for a covered loss.
• Exclusion – Specific conditions or events that are not covered by an insurance policy.
• Endorsement – A modification to an insurance policy that adds or removes coverage.
• Policyholder – The person or business that owns an insurance policy.
• Underwriting – The process insurers use to assess risk and determine premiums.

2. Property Insurance Terms

• Replacement Cost – The cost to replace damaged or lost property with new items of similar kind and quality.
• Actual Cash Value (ACV) – The value of an item at the time of loss, considering depreciation.
• Peril – A specific risk or cause of loss (e.g., fire, theft, windstorm).
• Named Perils Policy – A policy that only covers risks explicitly listed.
• All-Risk (Open Perils) Policy – A policy that covers all risks except those explicitly excluded.
• Commercial Property Insurance – Covers damage to business property due to fire, theft, vandalism, or natural disasters.
• Inland Marine Insurance – Covers business property while in transit or at an off-site location.
• Boiler and Machinery Insurance (Equipment Breakdown Insurance) – Covers damage from mechanical breakdowns, power surges, or electrical failures.
• Business Interruption Insurance – Covers lost income and expenses if the business is temporarily unable to operate due to a covered loss.

3.  Liability Insurance Terms

• Bodily Injury Liability – Covers medical expenses and legal costs if the policyholder is responsible for injuries to another person.
• Property Damage Liability – Covers damage the policyholder causes to another person’s property.
• General Liability Insurance – Protects businesses from claims of bodily injury, property damage, and personal injury.
• Errors and Omissions (E&O) Insurance – Covers professional mistakes or negligence claims.
• Directors and Officers (D&O) Insurance – Protects company executives from lawsuits related to their business decisions.
• Cyber Liability Insurance – Covers losses from data breaches, cyber-attacks, and digital fraud.
• Workers’ Compensation Insurance – Covers medical expenses and lost wages for employees injured on the job.
• Employment Practices Liability Insurance (EPLI) – Protects businesses against employee-related lawsuits (e.g., discrimination, wrongful termination).
• Fidelity Bond (Employee Dishonesty Insurance) – Covers losses due to employee theft, fraud, or misconduct.

4. Auto Insurance Terms

• Comprehensive Coverage – Covers damage to a vehicle from non-collision events (e.g., theft, fire, vandalism).
• Collision Coverage – Pays for damage to the policyholder’s vehicle in an accident.
• Uninsured/Under-insured Motorist Coverage (UM/UIM) – Protects against drivers who have no insurance or not enough insurance.
• Personal Injury Protection (PIP) – Covers medical expenses and lost wages regardless of fault.
• Hired and Non-Owned Auto Insurance (HNOA) – Covers liability for rented or employee-owned vehicles used for business purposes.
• Motor Truck Cargo Insurance – Protects businesses transporting goods against loss or damage to cargo.

5. Business & Specialty Insurance Terms

• Business Interruption Insurance – Covers lost income when a business is temporarily unable to operate due to a covered peril.
• Workers’ Compensation Insurance – Covers medical expenses and lost wages for employees injured on the job.
• Commercial Auto Insurance – Covers vehicles used for business purposes.
• Cyber Liability Insurance – Protects businesses from data breaches and cyber-attacks.
• Builders Risk Insurance – Covers construction projects against damage from fire, weather, and theft.
• Surety Bond – A financial guarantee that a business will fulfill its obligations (common in construction and contracting).
• Crime Insurance – Protects businesses from losses due to fraud, embezzlement, or employee dishonesty.
• Umbrella Insurance – Provides additional liability coverage beyond standard policy limits.

6. Commercial Insurance Policy Terms

• Per Occurrence Limit – The maximum an insurer will pay for a single claim.
• Aggregate Limit – The total maximum amount an insurer will pay during the policy term.
• Loss Payee – A third party (e.g., a lender) that receives insurance claim payments if business property is damaged.
• Waiver of Subrogation – A clause preventing the insurer from recovering money from a third party responsible for a loss.
• Named Perils Policy – Covers only specific risks explicitly listed in the policy.
• All-Risk (Open Perils) Policy – Covers all risks except those specifically excluded.
• Occurrence-Based Policy – Covers claims that occur during the policy period, regardless of when they are reported.
• Claims-Made Policy – Covers claims only if both the incident and claim reporting happen while the policy is active.

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Frequently Asked Questions (FAQs)

1. What is P&C insurance?

P&C insurance protects individuals and businesses against financial losses due to property damage, theft, or liability claims. It includes home, auto, renters, business, and specialty insurance policies.

2. What does a standard homeowners insurance policy cover?

Most standard homeowners policies cover:

• Dwelling coverage – Repairs/replacement of the home structure
• Personal property coverage – Protection for belongings inside the home
• Liability coverage – Coverage for injuries or damage to others on your property
• Additional living expenses (ALE) – Covers temporary housing costs if your home becomes uninhabitable

3. Is flood insurance included in homeowners insurance?

No, standard homeowners policies do not cover flood damage. A separate flood insurance policy, typically from the National Flood Insurance Program (NFIP) or private insurers, is needed.

4. How is my auto insurance premium calculated?

Insurers consider multiple factors, including:

• Driving history
• Age and gender
• Vehicle type and usage
• Location
• Credit score (in some states)
• Coverage limits and deductibles

5. What is the difference between actual cash value and replacement cost?

• Actual Cash Value (ACV) – Pays the depreciated value of damaged property.
• Replacement Cost – Pays the amount needed to replace the damaged property with a new equivalent.

6. What is an insurance deductible?

A deductible is the amount you pay out of pocket before your insurance policy starts covering a claim. For example, if your home insurance has a $1,000 deductible and you file a claim for $5,000 in damages, your insurance will cover $4,000 after you pay the deductible.

7. Do I need umbrella insurance?

Umbrella insurance provides additional liability coverage beyond your home or auto policy limits. It is useful for high-net-worth individuals or those at higher risk of lawsuits.

8. What happens if I drive without insurance?

Driving without insurance can result in:

• Fines and penalties
• License suspension
• Higher future insurance premiums
• Personal liability for damages in an accident

9. Does renters insurance cover my belongings outside of my apartment?

Yes, renters insurance often covers personal property outside your home, such as stolen items from your car or belongings lost while traveling.

10. What should I do after a car accident?

1. Check for injuries and call 911 if necessary.
2. Exchange information with the other driver(s).
3. Take photos of the scene and damage.
4. Notify your insurance company.
5. File a police report if required.

11. Is commercial insurance required by law?

Some types, like Workers’ Compensation Insurance (for employees) and Commercial Auto Insurance, are legally required in most states. Other policies depend on business needs and contractual obligations.

12. How is my business insurance premium calculated?

Factors include:

• Business industry and risk level

• Location

• Business revenue and payroll

• Number of employees

• Claims history

• Coverage limits and deductibles

13. Does commercial insurance cover natural disasters?

Standard policies may exclude disasters like floods or earthquakes. Businesses need separate flood or earthquake insurance for full protection.

If you are looking for specific terms and questions, please reach out to us at insurancedomainblogs@gmail.com