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Basic Terminology

Actual Cash Value

The replacement cost of the item minus depreciation.

Agency

The legal principle that allows an individual or organization to represent another individual or organization.  Also, an organization that sells and services insurance policies to consumers.

Agent

A person licensed by the state insurance authority to sell insurance products. The agent represents the insurance company in all transactions.

Claim

Notification to the insurance company that a loss has occurred and a demand of payment for the loss, as provided by the terms of the insurance policy.

Commercial Insurance

Protects businesses and organizations in event of unexpected loss.  Commercial insurance includes is property insurance, liability insurance, workers compensation and automobile insurance.

Deductible

A portion of a covered loss that is not paid by the insurer.

Endorsements

Insurance policy modifications to meet the special needs of an individual risk.

Indemnify

To restore the one who suffers a loss, in whole or in part, by payment, repair or replacement to the same condition they were in prior to the loss.

Insurance

A contractual means of transferring the payment of a loss to a third party by means of a contract and the pooling of similar risks.

Insurable Interest

Interest from which monetary loss will result if the peril insured against occurs; possibility of financial loss that can be protected against through insurance.

Law of Large Numbers

A statistical principle that indicates that the larger the number of examples, the more accurate and predictable the statistic will be. This is one of the main principles involved in determining insurance actuarial tables.

Liability

Condition of being bound by law or contract to do something that may be enforced in the courts; obligation, usually financial; probable cost of meeting an obligation.

Loss

Basis of a claim for indemnity under provisions of an insurance policy. A loss is measured in terms of the reduced value of the property, the amount of medical and other related expenses, or the amount of the claim made against an insured.

Personal Insurance

Protects individuals and families from risk of loss to their assets. Personal insurance includes automobile insurance, homeowners insurance and insurance for boats, jewelry and other special items.

Premium

Designated amount payable by the insured to the insurance company and required to keep the contract in force.

Policy

The insurance contract and all attached endorsements, including type of insurance coverage, the limits paid for particular loss and the amount the insured paid in premium.

Replacement Cost

Cost to purchase new property to replace older property that was lost or damaged.

Risk

Condition in which there is a possibility of loss. Also a term indicating the person or property insured.

Underwriting

Process an insurance company uses to determine who will be offered an insurance policy and at what price.