Insurance Policy Glossary

  • Actual Cost Value (ACV) — The value calculated to be reimbursed, or cost, of an item, determined at the time of loss or damage. The ACV is calculated using both the expenses needed to replace the item and a depreciation determination. For property insurance companies, depreciation is based on the age of the item to be replaced, its current condition, and its remaining expected life or usage. ACV policies usually cost less than comparable RCV policies.
  • Dependent property coverage — Coverage written to cover a third party on whom the insured party is dependent for a certain business reason. Dependent property coverage insures a loss to the policyholder’s business resulting from an event that hampered a third party’s business operations — a business that the insured party relied on to be able to operate his or her own business. This policy is sometimes written as an endorsement to a regular business income insurance policy.
  • Exclusions — Specified, or named, items, events, conditions, persons, or limitations listed in an insurance policy that will not be covered for loss according to the contract.
  • Liability — A legally enforceable contractual or assumed obligation or responsibility, which can be financial or personal. Businesses may incorporate with provisions intended to try to limit corporate or personal financial liabilities; insurance is written to reimburse financial perils in the event that a company or person is deemed to be liable for the insured loss.
  • Limits — Dollar, time, and physical or geographic minimums and/or maximums that are written into an insurance policy in order to define and delineate the covered risks and reimbursements that will be paid in the event of a claim against a covered loss.
  • Peril — The named or unnamed cause of a potential financial or physical loss related to a property, person, or entity. Causes can be either specifically defined as “named perils” or “all perils” in the insurance contract.
  • Premium — The dollar amount stated in an insurance policy contract that, when paid, will maintain a policy’s actively insured status. Premium amounts are usually stated along with a specified term period (i.e., annually, monthly, or quarterly) to keep the policy in force.
  • Replacement Cost Value (RCV) — The actual cost to replace (or reimburse for) an insured property or entity in the event of damage or loss, without any deductions for depreciation. When RCV is specified in the contract, the loss must be either replaced with another item of similar kind and quality, or reimbursed with the amount of the current market value for another of like kind and quality.
  • Rider (Endorsement) — A written endorsement to a regular insurance contract that amends or changes a policy’s coverage, terms, or conditions. A rider can be attached to the contract to either enhance or change the contractual details or limitations of the policy, or may be written to comply with newly passed legislation concerning insurance contracts.
  • Risk — The actuarial, or measurable, chance of loss to be insured. Risk can be a person, an entity, a condition, or an event. Insurance companies calculate insurable risk by evaluating historical, demographic, and financial records of prior losses, along with details of current reimbursement and/or payment costs. Insurance companies’ skill in analyzing numbers to determine risk versus cost impacts not only their pricing and profits but also their reputations and financial ratings.
  • Special perils — Also referred to as “named perils.” Most property insurance policies are written on an “all risk” contract, covering all losses to a property or insured entity except those that are specifically excluded. A special perils policy specifies only those perils (conditions, events, or losses) that are written in the contract and covered under the policy. The most common special perils listed in contracts are for earthquakes and hurricanes or severe windstorms.
  • Umbrella insurance — A broad policy with higher-than-normal coverage limitations, usually written in conjunction with one or more limited property or liability insurance policies. Umbrella insurance enhances the coverage of the specific underlying policies by offering higher (or excess) dollar amount limits than those of the underlying policies. Umbrella insurance functions as additional risk coverage beyond that typically allowed by more limited policies, at a lower premium than if the underlying policies simply increased their own limits.

Last Updated: 08/20/2013

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