Glossary of Basic Insurance Terms

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Below are some of the more common terms used in the insurance contract. They are not intended to be a complete description of all terms, conditions and exclusions applicable to the actual insurance policy.

Actual Cash Value

The replacement cost of the property at the time of a loss, less depreciation

Additional Living Expenses (ALE)

Reimburses the insured for the cost of temporary housing, food, and other essential living expenses, if the home is damaged by an insured peril that makes the home uninhabitable. The limit is typically a maximum of 20% of the policy’s dwelling coverage.

Actual Loss Sustained

A form of Business Interruption insurance. Covers the period from the time of an insured loss until the property is tenantable, or the business can operate.


A person who represents the insurance company who determines the extent of liability for loss or damage when a claim is reported.

Aggregate Limit

A limit of insurance stipulating the most the insurer will pay for all covered losses during a specified period of time, usually one year. Is commonly included in the commercial liability policy.

All Risks

Coverage provided by an insurance contract to cover all losses except those specifically excluded in the policy wording.


A form on which the insured states facts required by the insurance company to assist in determining whether to accept the risk, modify the coverage offered, or decline the risk.


A legal document issued on a temporary basis providing evidence of coverage until a permanent policy is issued by the insurance company.

Bodily Injury Liability

Pays for injuries suffered by a third party. This could result from an auto accident or a faulty product.

Boiler and Machinery

Coverage for loss to boilers and machinery caused by explosion or mechanical breakdown. The policy may cover other property and business interruption. 

Broad Form

Any of the commercial or personal insurance property forms which provide coverage on a named perils basis.


An independent insurance intermediary that represents the insured. The broker is responsible for placing coverage with an insurance company, the collection of premiums, but has no authority to give coverage on the insurer’s behalf without their specific agreement.

Business Interruption

Coverage which applies to loss of earnings and/or increased expenses when operations are shut down or limited because of property loss caused by an insured peril.

Certificate of Insurance

A document used as proof that certain types of insurance are in force, and subject to certain terms and conditions. The actual policy always takes precedence over a certificate of insurance in a coverage dispute.


Notice to an insurer that under the terms of a policy, a loss may be covered.

Claims Made

Applies to certain types of liability coverage. The policy will only cover claims presented to the insurer during the particular year the policy is in force for an insured incident that occurs during the same policy year, or any previous year noted in the policy retroactive date.

Collision Coverage

An optional automobile insurance coverage that provides protection for your vehicle when damage occurs as a result of a collision with another object or overturning. It is subject to a deductible.

Comprehensive Coverage

Is an optional automobile coverage where the policy pays for loss due to causes other than a collision. Perils include hail, theft, fire, glass breakage, falling objects, and vandalism. It is subject to a deductible.


A clause in most property insurance policies that requires an insured to share in a loss if the limit of insurance purchased does not at least equal a minimum specified percentage of the replacement cost of the property.
The formula used to calculate the penalty is:

                Amount of Insurance Purchase 
                Amount of Insurance Required  X  Loss = Payout

Commercial General Liability

A policy which covers a variety of general liability exposures (e.g. premises, property and operations, completed operations, product liability).


Covered means the insured entity or individual is protected by insurance. Coverage describes the type of protection and the amount of insurance.

Declaration Page (or "Dec Page”)

The first page of the insurance policy that typically includes your name, address, insured property, the policy period, premium and additional specified information provided by the insured.


The portion of the claim the insured is responsible for before the insurer is obligated to pay for an insured loss.


The decrease in the value of an item due to age, use or wear and tear. Is not covered under the insurance contract.

Direct Writer

An insurance company who sells directly to the public or through an exclusive agency force.

Directors’ & Officers Liability

Covers the non-criminal acts of Directors & Officers of a corporation (for or non-profit) accused of negligence.


This is an extension to the standard insurance policy that can provide additional insurance or, alternatively, limit.coverage and benefits. Also referred to as a "rider”.


Certain causes, conditions or perils, listed in the policy, which are not covered.

Errors & Omissions Insurance

Protects the insured against liability for committing an error or omission in its performance of professional duties. Typically are designed to cover financial losses rather liability for bodily injury or property damage.


A form of insurance which provides protection for moveable property, covering it when away from the insured premises (e.g. contractors equipment; jewellery). May also be referred as Personal Articles or Miscellaneous Property floater.

Improvements and Betterments

Additions or changes made by a lessee at his or her own expense to a property being leased, which enhance its value.


To make compensation to an entity, person, or insured for loss, damage or injury.


A provider or carrier of insurance.

Liability Insurance

Provides coverage if an insured is responsible for injuring another person or damaging their property. Will cover the cost of your legal defence as well as damages for you are found legally liable subject to specific terms and conditions.

Limit of Liability

The maximum amount which an insurance company agrees to pay in the event of a loss – property or liability.

Material Misrepresentation

The applicant / policyholder makes a false statement or significant misstatement of any material (important) fact during the negotiation of placement of insurance, amendment or renewal of a policy

Mechanical Breakdown

See Boiler & Machinery

Named Insured

Any person, entity, organization, or any of its members specifically designated by name as an insured in an insurance policy.

Named Perils

A policy that lists the perils insured against. As opposed to an All Risks policy.

No-fault Auto Insurance

Is a system of auto insurance whereby the policyholder recovers for any damages from their own insurance company regardless of fault in the accident. Fault will be determined in the event of an accident and used for rating purposes, but it does not decide which company pays the claim.


An accident, including continuous or repeated exposure, resulting in bodily injury or property damage that is sudden and accidental.


The cause of loss insured against in an insurance policy, e.g. fire, theft.

Physical Damage

A generic term indicating actual damage to property.


The particular location of property or a portion thereof as designated in a policy declaration.

Products and Completed Operations Insurance

A principal element of general liability insurance that applies to claims arising out of products sold, manufactured, handled or distributed, or operations which are completed and abandoned.

Pro Rata Cancellation

A portion of the annual premium charged based on the exact number of days a policy has been in force.

Proof of Loss

A formal statement by an insured to the insurance company providing the details of a loss and the amount of damage being claimed.

Replacement Cost

The valuation clause in a property policy that determines the amount the insurer will pay in the event of a loss. It is typically defined as the cost to replace the damaged property with materials of like kind and quality without deduction for depreciation.


The continuation in full force and effect of a policy beyond its expiration date. 

Salvage Value

The estimated cash amount that would be received if damaged property were to be sold.

Short Rate Cancellation

A calculation of premium charges not in direct proportion to the unexpired term of the policy. It is used mostly to penalize an insured for canceling the policy before the expiry date of a policy.

Specified Perils

A form of insurance that provides basic protection for loss or damage resulting only from the perils specifically stated in the policy.

Stated Amount

An agreement whereby the coinsurance clause is waived when the insured completes a Statement of Values form agreeing to carry a specific amount of insurance which represents at least 90%  of the total values of property at risk.


The assignment to an insurance company after payment of a loss, of the rights of the insured to attempt to recover the amount of loss from the party responsible for the loss.

Third Party

Is anyone other than the policyholder, its employees or family members covered under the insurance policy. The policyholder is the first party.

Insurable Interest

The policyholder must have a financial interest in the property insured when the policy is taken out and at the date of loss. It is the basic requirement for the issuance of an insurance policy.

Umbrella Liability

An excess Insurance that provides limits of coverage over and above those provided in the primary insurance policy.

Vacancy Clause

A special endorsement in property insurance permitting a premises to be vacant or unoccupied beyond the period allowed in the original contract (typically a maximum of 30 days).

Waiver of Subrogation

The relinquishment by an insurer of the right to subrogate from another party for damages paid on behalf of an insured.