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Glossary of Insurance Terms

NOTICE: This document is for informational purposes only and is not intended to alter or replace the insurance policy. Additionally, this informational sheet is not intended to fully set out your rights and obligations or the rights and obligations of the insurance company. If you have questions about your insurance, you should consult your insurance agent, the insurance company, or the language of the insurance policy.

Click on the “+” or “-” symbols to expand or hide groups of definitions.


Accident – Unexpected or chance event. This term is frequently defined in older commercial general liability (CGL) policies.

Accident medical reimbursement insurance – Covers medical expenses for injuries arising out of accidents, regardless of liability. Traditionally also provides a schedule of payments for death or severe injury, such as loss of limb or sight. Can be written to provide coverage for volunteers in the course of their work for the insured, participants in the insured’s activities, or clients while under the insured’s supervision.

Accrued Income – Income that has been earned but not yet received. For instance, if you have a non-registered Guaranteed Investment Certificate (GIC), Mutual Fund or Segregated Equity Fund, growth accrues annually or semi-annually and is taxable annually even though the gain is only paid at maturity of your investment.

Actual cash value (ACV) – The value of your property, based on the current cost to replace it minus depreciation. Also see “replacement cost.”

Actual damages (also known as compensatory damages) – Sum of money a plaintiff (injured party) is entitled to, to compensate him for actual economic loss sustained.

Additional insured endorsement – An additional insured endorsement is the contract by which an additional insured (a person or entity, other than the named insured) is protected by a particular insurance policy.

Additional living expenses (ALE) – Reimburses the policyholder for the cost of temporary housing, food, and other essential living expenses, if the home is damaged by a covered peril that makes the home temporarily uninhabitable. Policies cap the amount of ALE payable to 20 percent of the policy’s dwelling coverage.

Adjuster – An individual employed by an insurer to evaluate losses and settle policyholder claims. Also see “public insurance adjuster.”

Admitted carrier – An insurance company licensed by a particular state, monitored by the state for financial stability, covered by the state’s guaranty fund, and subject to the state’s regulations for licensed insurance companies.

Agent – An insurance professional/intermediary who markets and explains insurance products to insured’s and prospective insured’s. Agents, like brokers, are licensed by state regulatory agencies. However, they are restricted in the marketing and placement of coverage to those carriers with whom they have a contractual relationship. Some agents have relationships with a number of companies, while others represent a single insurer.

Aggregate limit – Maximum amount that the insurer will pay under a liability policy during one annual policy period, regardless of the number of occurrences, usually in addition to legal defense costs. For general liability, policies are sometimes written with the aggregate limit applying separately to each scheduled location.

Alternative market – Nontraditional risk financing, including risk retention groups, risk pools, self-insurance and captive insurance companies.

A.M. Best Company, Inc. – An independent company that rates insurance companies on their financial stability and future claims-paying ability (see

Annuity – A contract which provides an income for a specified period of time, such as a certain number of years or for life. An annuity is like a life insurance policy in reverse. The purchaser gives the life insurance company a lump sum of money and the life insurance company pays the purchaser a regular income, usually monthly.

Annuitant – This is the person during whose life an annuity is payable.

Application – A signed statement of facts made by a person applying for life insurance and then used by the insurance company to decide whether or not to issue a policy. The application becomes part of the insurance contract when the policy is issued.

Appraisal – An evaluation of a home insurance property claim by an authorized person to determine property value or damaged property value. Many policies provide an “appraisal” process to resolve claim disputes. In this process, you and the insurance company hire separate damage appraisers. The two appraisers choose a third appraiser to act as an “umpire.” The appraisers then review your claim, and the umpire rules on any disagreements. The umpire’s decision is binding on you and the insurance company, but only for the loss amount. If there is a dispute over what is covered, you can still pursue a settlement of the coverage issue after the appraisal takes place. You are required to pay for your appraiser and half of the umpire’s costs.

Appraising risks – Identifying the portfolio of risks and assigning values or weights to the risks. Risk appraisal is a hybrid of list making and brainstorming. This is the second step in the risk management process.

Assignment – This is the legal transfer on one person’s interest in an insurance policy to another person or entity, such as to a bank to qualify for a loan

Attribution Rules – Legislation under which interest, dividends, or capital gains earned on assets you transfer to your spouse will be treated as your own for tax purposes. Interest or dividends relating to property transferred to children under 18 also will be attributed back to you. The exception to this rule is that capital gains relating to property transferred to children under 18 will not be attributed back to you.

Auto insurance – Business auto policy (BAP) – A standard business automobile policy that is designed to cover the liability and physical damage of motor vehicles. Liability coverage can be provided for the organization, regardless of whether a staff member, volunteer or other party owns the vehicle.


Backdating – A procedure for making the effective date of a policy earlier than the application date. Backdating is often used to make the age of the consumer at policy issue lower than it actually was in order to get a lower premium.

Back To Back Annuity – This term refers to the simultaneous issue of a life annuity with a non-guaranteed period and a guaranteed life insurance policy [usually whole life or term to 100]. The face value of the life insurance would be the same amount that was used to purchase the annuity.

Beneficiary – This is the person who benefits from the terms of a trust, a will, an RRSP, a RRIF, a LIF, an annuity or a life insurance policy. In relation to RRSP’s, RRIF’s, LIF’s, Annuities and of course life insurance, if the beneficiary is a spouse, parent, offspring or grand-child, they are considered to be a preferred beneficiary. If the insured has named a preferred beneficiary, the death benefit is invariably protected from creditors.

Binder – A temporary insurance contract that provides proof of coverage until you receive a permanent policy.

Broker – An insurance professional/intermediary who markets and explains insurance products to insured’s and prospective insured’s. Brokers are typically licensed by a state to place insurance on behalf of clients (individuals and organizations) with any number of companies, while others represent a single insurer. A broker technically represents the client.

Business auto policy – A hybrid policy that provides both property and liability coverage; main coverage’s are auto liability and physical damage coverage.

Business interruption insurance (loss of income coverage) – Insurance coverage designed to protect the insured against loss of earnings resulting from the interruption of business caused by an insured peril, subject to the policy provisions.

Buy/Sell Agreement – This is an agreement entered into by the owners of a business to define the conditions under which the interests of each shareholder will be bought and sold. The agreement sets the value of each shareholders interest and stipulates what happens when one of the owners wishes to dispose of his/her interest during his/her lifetime as well as disposal of interest upon death or disability. Life insurance, critical illness coverage and disability insurance are major considerations to help fund this type of agreement.

Cancellation – Termination of an insurance policy by the company or insured before the renewal date.

Captive Agent – A licensed insurance agent who sells insurance for only one company.

Captive insurance company – Subsidiary of one or more parent or member organizations formed for the purpose of insuring the exposures of the parent or member organization(s).

Certificate of insurance – A form that indicates the types of insurance policies written, policy dates, and coverage limits.

Charitable immunity – Legal defense by which charitable organizations were protected from litigation by virtue of their charitable status. The common law doctrine of charitable immunity exists – to some degree – in nine states: Alabama, Arkansas, Georgia, Maine, Maryland, New Jersey, Virginia, Utah and Wyoming. The states with the least restrictive forms of charitable immunity are Arkansas, New Jersey and Virginia.

Charitable risk pool – A nonprofit property/casualty insurance company that insures nonprofit organizations and qualifies as a charitable risk pool pursuant to federal tax laws and is exempt from federal income tax. A qualified charitable risk pool may only be comprised of nonprofit organizations that qualify under section 501 (c)(3) of the Internal Revenue Code.

Claim – A policyholder’s request for reimbursement from an insurance company under a home insurance policy for a loss to property.

Claimant – A person who makes an insurance claim.

Claims-made basis – A liability coverage form that requires that claims be reported to the insurance company while the policy is still in force in order for coverage to apply. In other words, a claim must be made while the policy is in force. The claims-made form is one of two types of liability policy forms. The other more common form is called occurrence form. Under an occurrence form policy, a claim occurring during the policy term may be reported to the insurance company at any time, even years after the policy expires.

Claims management – Involves proper and timely notification and record keeping of specific claims and overall loss history for the organization.

Co-insurance – In medical insurance, the insured person and the insurer sometimes share the cost of services under a policy in a specified ratio, for example 80% by the insurer and 20% by the insured. By this means, the cost of coverage to the insured is reduced.

Commercial general liability insurance – Covers liability exposures that are common to all organizations; a combination of three separate coverage’s, each with its own insuring agreement and exclusions: Coverage A = general liability; Coverage B = personal injury and advertising injury liability; and Coverage C = medical payments.

Commercial property insurance – Covers risk of loss to an organization’s buildings or personal property. Usually includes buildings, personal property of the insured, personal property of others on site and in insured’s possession. Coverage can be on an all risk or specific perils basis.

Company profile – A summary of information about an insurance company, including its license status, financial data, complaint history, and a history of regulatory action.

Complaint – A written communication primarily expressing a grievance against an insurance company or agent.

Complaint history – Information collected or maintained by the State Department of Insurance relating to the number of complaints received against a particular insurer, agent or premium finance company and the disposition of the complaints.

Compound Interest – Interest earned on an investment at periodic intervals and added to principal and previous interest earned. Each time new interest earned is calculated it is on a combined total of principal and previous interest earned. Essentially, interest is paid on top of interest.

Conceptual competition – A method of choosing an insurance provider. Establish a comfortable relationship with a new insurance provider (agent, broker or consultant) prior to obtaining firm coverage proposals.

Conditions – Part of every insurance policy; qualify the various promises made by the insurance company.

Consequential damage insurance – Optional coverage for equipment insurance that insures against spoilage of specified property (food or plants) from lack of power, light, heat, steam or refrigeration.

Context – The environment and circumstances facing your nonprofit which affect risks and risk management efforts. For example, a nonprofit that serves vulnerable clients is exposed to a different array of risks than an organization that doesn’t’t. A nonprofit that has never faced an incident or lawsuit may be somewhat less enthusiastic about risk management activities. Exploring the context for risk management in a nonprofit is the first step in the risk management process.

Contingent Beneficiary – This is the person designated to receive the death benefit of a life insurance policy if the primary beneficiary dies before the life insured. This is a consideration when husband and wife make each other the beneficiary of their coverage. Should they both die in the same car accident or plane crash, the death benefits would go to each others estate and creditor claims could be made against them. Particularly if minor children could be survivors, then a trustee contingent beneficiary should be named.

Contingent Owner – This is the person designated to become the new owner of a life insurance policy if the original owner dies before the life insured.

Contract – In most cases, an insurance policy. A policy is considered to be a contract between the insurance company and the policyholder.

Conversion Right – Term life insurance products are offered as non-convertible or convertible to a certain time in the future. The conversion right has a time limit, usually to the policy holder’s age 60 or possibly even age 70. This right means that the policy holder has the right to convert their existing policy to another specific different plan of permanent insurance within the specified time period, without providing evidence of insurability.

Creditor Proof Protection – The creditor proof status of such things as life insurance, non-registered life insurance investments, life insurance RRSPs and life insurance RRIFs make these attractive products for high net worth individuals, professionals and business owners who may have creditor concerns. Under most circumstances the creditor proof rules of the different provincial insurance acts take priority over the federal bankruptcy rules.

Crime coverage – A package of policies that protect an organization against intentional theft by insiders, as well as theft of assets by third parties. Crime coverage generally includes a fidelity bond plus a basic menu of other coverage’s.


Dead Peasants Insurance – Also known as “Dead Janitors Insurance”, this is the practice, where allowed, in several U.S. states, of numerous well known large American Corporations taking out corporate owned life insurance policies on millions of their regular employees, often without the knowledge or consent of those employees. Corporations profiting from the deaths of their employees [and sometimes ex-employees] have attracted adverse publicity because ultimate death benefits are seldom, even partially passed down to surviving families.

Declarations – Usually the first page of an insurance policy; summarizes key information specific to the policy; sometimes called a dec page.

Declarations page – The page in a policy that shows the name and address of the insurer, the period of time a policy is in force, the amount of the premium, and the amount of coverage.

Deductible – Amount deducted from a loss. The amount the insured must pay in a loss before any payment is due from the company. The deductible is an amount assumed in advance by an insured as required by the insurance company or as a means of obtaining a lower premium for the coverage.

Deemed Disposition – Under certain circumstances, taxation rules assume that a transfer of property has occurred, even though there has not been an actual purchase or sale. This could happen upon death or transfer of ownership.

Defendant – Individual or organization against whom a lawsuit has been brought.

Defense coverage – Source of funding for the defense of a legal challenge filed against the nonprofit.

Deferred Annuity – An annuity providing for income payments to commence at a specified future time.

Definitions – Part of every insurance policy; explain the special meaning of the designated words (identified in bold print or set off by quotation marks) within the context of insurance.

Depreciation – Decrease in the value of property over time due to use or wear and tear.

Dimensions of risk – The three dimensions of risk are 1) directional (positive/negative), 2) probability (more/less often) and 3) magnitude (major/minor) dimension of risk.

Directors’ & officers’ liability insurance (D&O insurance) – Insurance that provides coverage against wrongful acts which might include actual or alleged errors, omissions, misleading statements, and neglect or breach of duty on the part of the board of directors and other insured persons and entities. Many D&O policies include employment practices liability coverage.

Disability insurance – Provides an employee security by providing an income should he or she become sick or injured and unable to work.

Diversification – Investing so as to spread investments over different kinds of investments, cushioning the portfolio against sudden swings in any one area. Segregated equity funds have become a popular and secure way for average investors to get the benefits of greater diversification.

Dividend – As the term dividend relates to a corporation’s earnings, a dividend is an amount paid per share from a corporation’s after tax profits. Depending on the type of share, it may or may not have the right to earn any dividends and corporations may reduce or even suspend dividend payments if they are not doing well. Some dividends are paid in the form of additional shares of the corporation.

As the term dividend relates to a life insurance policy, it means that if that policy is “participating”, the policy owner is entitled to participate in an equitable distribution of the surplus earnings of the insurance company which issued the policy. Surpluses arise primarily from three sources: (1) the difference between anticipated and actual operating expenses, (2) the difference between anticipated and actual claims experience, and (3) interest earned on investments over and above the rate required to maintain policy reserves. Having regard to the source of the surplus, the “dividend” so paid can be considered, in part at least, as a refund of part of the premium paid by the policy owner.

Doctrine of contra proferentem – Latin term referring to practice of reviewing courts to construe ambiguous insurance policy terms in favor of the insured policyholder.

Dollar Cost Averaging – A way of smoothing out your investment deposits by investing regularly. Instead of making one large deposit a year into your RRSP, you make smaller regular monthly deposits. If you are buying units in a mutual fund or segregated equity fund, you would end up buying more units in the month that values were low and less units in the month that values were higher. By spreading out your purchases, you don’st have to worry about buying at the right time


Earned premium – The portion of a policy premium that has been used to actually buy coverage, or that the insurance company has “earned.” For instance, if you have a six-month policy that you paid for in advance, two months into the policy, there would be two months of earned premium. The remaining four months of premium is “unearned premium.”

Earthquake coverage – Purchased as separate policy as most property policies do not protect against damage by earthquake.

Effective date – The date on which an insurance policy becomes effective.

Electronic property coverage – An inland marine floater designed specifically for computers and other electronic equipment. Provides coverage for perils not normally included in a standard property policy, such as electrical surge and loss of data.

Employee benefits liability (EBL) – Covers errors and omissions in the administration of the insured’s employee benefits such as health insurance or pension benefits.

Employment practices liability insurance (EPLI or EPL) – Insurance that provides coverage for claims arising out of employment practices. EPLI policies generally cover the organization, its directors, officers, and employees.

Employer’s liability insurance – Coverage protecting an employer against claims, which are not covered under workers’ compensation statutes, alleging employer negligence stemming from work-related injuries, illness or death. Claims may be filed by injured workers or their spouse or family members for economic losses. This policy is generally bundled with workers’ compensation coverage.

Endorsement – Part of most insurance policies; A written agreement or policy forms that modify the main coverage form; attached to a policy expanding or limiting the benefits otherwise payable under the policy. Also called a “rider.” Changes to the policy language.

Endowment – Life insurance payable to the policyholder, if living on the maturity date stated in the policy, or to a beneficiary if the insured dies before that date. For example, some Term to age 100 policies offer the option of taking the face amount of the policy as a cash payout at age 100 if the policyholder is still alive and paying all required income taxes on the amount received or leaving the policy to pay out upon death whereupon the payout is tax free.

Equipment breakdown insurance – Supplements property insurance (which specifically excludes physical damage and the financial damage stemming from equipment breakdown) to cover the unique causes that can damage equipment. Was known as boiler and machinery coverage.

Errors and Omissions Insurance – Insurance coverage purchased by the agent/broker which provides protection against loss incurred by a client because of some negligent act, error, oversight, or omission by the agent/broker.

Escrow – Money placed in the hands of a third party until specified conditions are met.

Excess and surplus lines carrier – Insurer that is not admitted (not licensed) to do business in a particular state, but is permitted because coverage is not available through licensed insurers.

Excess liability insurance – Provides coverage over and above primary insurance. The coverage is triggered when the amount of a loss exceeds (exhausts) an existing primary policy. Excess liability coverage mirrors the terms and conditions of the underlying policy.

Exclusions – Part of every insurance policy; A provision in an insurance policy that denies or eliminates coverage for specified exposures such as certain perils, people, property, or locations.

Extra expense insurance – Covers the extra cost of continuing to deliver services following the destruction or damage to a nonprofit’s facility or equipment due to a covered peril. Extra expense coverage is generally sold in tandem with business interruption coverage.

Expiration date – The date on which an insurance policy expires.

Fiat Money – Fiat Money is paper currency made legal tender by law or fiat. It is not backed by gold or silver and is not necessarily redeemable in coin. This practice has had widespread use for about the last 70 years. If governments produce too much of it, there is a loss of confidence. Even so, governments print it routinely when they need it. The value of fiat money is dependent upon the performance of the economy of the country which issued it.

Fidelity bond – A bond that reimburses an employer, up to the stated amount, in the event that an employee commits a dishonest act covered by the bond. Also known as employee dishonesty coverage. A nonprofit can purchase a fidelity bond as a stand alone or part of a crime coverage package.

Fiduciary liability – Protects the fiduciaries of health and welfare, or pension plans from claims by employees alleging financial loss due to mismanagement of funds.

File and Use – Residential property rates utilize a system called “file and use.” Under this system, insurance companies file their rates, but they do not need prior approval to implement new rates. If the State determines that a company’s rates are excessive, the company can be ordered to pay refunds to the policyholders it overcharged. Companies can appeal adverse rate decisions.

First-party claim – A claim filed by an insured against his or her own insurance policy.

First To Die Coverage – This means that there are two or more life insured on the same policy but the death benefit is paid out on the first death only. If two or more persons at the same address are purchasing life insurance at the same time, it is wise to compare the cost of this kind of coverage with individual policies having a multiple policy discount


Grace period – A specific period of time after a premium payment is due during which the policy owner may make a payment, and during which, the protection of the policy continues. The grace period usually ends in 30 days. This is not a “free-insurance” period.

Group insurance programs – Special programs generally developed to serve homogeneous or geographically similar groups of organizations; may offer better rates, specialized coverage’s or features, fewer restrictions and better acceptance of the risks inherent in the group programs.

Group of companies – Several insurance companies under common ownership and often common management


Hammer clause – A policy provision that acts as a financial incentive for an insured to agree to a settlement proposed by the insurer.

Hard market – A phase of the insurance market cycle during which time coverage may be more costly, terms may be more restrictive, and policy conditions and requirements more stringent.

Health insurance – Covers medical expenses for accidents or sickness, on a first-party basis, and regardless of fault.

Hired and non owned auto liability – Coverage that protects a nonprofit for claims that result from the use of a vehicle not owned by the nonprofit but used on the nonprofit’s behalf (for example, an employee’s or volunteer’s personal vehicle). Hired and non owned coverage is excess over the insurance on the auto involved in the accident. The policy protects the named insured, not the driver of the vehicle. This coverage can be purchased as an add-on to the CGL policy, as an adjunct to the Business Auto Policy, as part of a Business Owners Policy, or as a separate policy.

Hold harmless agreement – Contract by which legal liability for damages of one party is assumed by the other party. One party agrees to hold the other party harmless (and usually indemnify) from the liabilities associated with the hazards of a particular activity or venture. Contracts may contain a hold harmless clause.

Hybrid policies – Have both liability and property coverage’s. Examples are business auto policy, international coverage, volunteer accident medical reimbursement and personal liability policies


Incontestable Clause – This clause in regular life insurance policy provides for voiding the contract of insurance for up to two years from the date of issue of the coverage if the life insured has failed to disclose important information or if there has been a misrepresentation of a material fact which would have prevented the coverage from being issued in the first place. After the end of two years from issue, a misrepresentation of smoking habits or age can still void or change the policy.

Income Splitting – This is a tax planning strategy of arranging for income to be transferred to family members who are in lower tax brackets than the one earning the income, thus reducing taxes. Even though attribution rules limit income splitting, there are still a number of legitimate ways to do so, such as through the use of spousal RRSPs.

Independent adjuster – A person who charges a fee to an insurance company to adjust the company’s claim.

Independent Broker – This is a provincial government licensed independent businessperson who usually represents five or more life insurance companies in a sales and service capacity and who is paid a commission by those life insurance companies for sales and service of life insurance products. We for example, have been in business for 12 years and regularly place new business with over twenty different life insurance companies.

Immunity – A provision in the law which shields a person or organization from legal obligations.

Improper sexual conduct coverage – Coverage that protects an organization against claims alleging improper sexual conduct.

Indemnification agreement – When one party (the indemnitor) assumes the liability of another (the indemnitee) in the event of a claim or loss. An example is a hold harmless agreement.

Indemnify – To compensate for actual losses sustained.

Individual causing harm – The person whose actions led to the injury or loss.

Inflation protection – Automatically adjusts your home insurance policy limits to account for increases in the costs to repair or rebuild a property.

Inland marine coverage – Also known as a floater endorsement. Insure special items, such as computers, light and sound equipment, and camera equipment at an agreed amount.

Inspection Report – This is a telephone interview of the person applying for life insurance conducted by someone from the underwriting department of the insurance company. Some insurance companies only sporadically contact applicants and some contact every applicant. On average the interview lasts between 15 to 30 minutes. The questions asked relate to personal habits (like smoking and alcohol consumption) and finances, including income and net worth, confirmation of employment, duties and the nature of the applicant’s business. In addition, there are questions about driving, sports, aviation and currently held insurance. All information obtained is strictly confidential and is submitted solely to the underwriter for review.

Insurable interest – Any financial interest a person has in the property or person insured. In life insurance, a person’s or party’s interest – financial or emotional – in the continuing life of the insured.

Insurance – Traditional risk-financing tool used to transfer the financial hazard of risk. An insurance policy spells out what is or is not covered caused by all or specific perils (causes of damage or injury). Insurance is also a contract whereby an organization agrees to indemnify another and/or to pay a specified amount for covered losses in exchange for a premium. For many nonprofits, insurance provides the funds to pay for the nonprofit’s unexpected losses of people, property and income, while ultimately keeping the organization in operation.

Insurance policy – A legally binding contract that defines the obligations of both the insured and the insurer.

Insurance professional – An agent, broker or consultant.

Insurance program review – A review of the nonprofit’s existing insurance coverage’s for the purpose of identifying coverage gaps, overlaps and commenting on the adequacy of specific policy terms, limits and deductibles.

Insurance Services Office (ISO) – An insurance industry-supported agency that creates standard policy forms and collects premium and claims statistics.

Insured – The policyholder – the person(s) protected in case of a loss or claim.

Insured Mortgage – An insured mortgage protects only the mortgage lender in case you do not make your mortgage payments. This coverage is provided by CMHC [Canada Mortgage and Housing Corporation] and is required if a person has a high-ratio mortgage. [A mortgage is high-ratio if the amount borrowed is more than 75% of the purchase price or appraised value, whichever is less.]

Insured versus insured exclusion – Negates coverage for claims brought by one insured against another insured.

Insurer – The insurance company.

Insured Retirement Plan – This is a recently coined phrase describing the concept of using Universal Life Insurance to tax shelter earnings which can be used to generate tax-free income in retirement.

Insuring agreement – Part of every insurance policy; specifies what the insurance company has agreed to pay for or to provide in exchange for the premium.

Intentional acts – Deliberately fraudulent acts or omissions, wanton, willful, reckless or intentional disregard of any law or laws.

Intestate – This means dying without a will, in which case the local laws of the state in which the death occurred apply to the manner in which assets will be distributed. In other words, if you don’t write your own will, the government will do it for you after your death and it may not be as you would have wished.

Joint liability – A form of liability in which liability is shared by more than one person or organization.

Justified complaint – A complaint that exposes an apparent violation of a policy provision, contract provision, rule, or statute; or which indicates a practice or service that a prudent layperson would regard as below customary business or medical standards




Lapse – The termination of an insurance policy because a renewal premium is not paid by the end of the grace period.

Last To Die Coverage – This means that there are two or more life insured on the same policy but the death benefit is paid out on the last person to die. The cost of this type of coverage is much less than a first to die policy and it is generally used to protect estate value for children where there might be substantial capital gains taxes due upon the death of the last parent. This kind of policy is also valuable when one of two people covered has health problems which would prohibit obtaining individual coverage.

Latent injury – Injury that manifests itself years after the event occurred such as those from asbestos, medical malpractice, and sexual abuse or molestation.

Level Premium Life Insurance – This is a type of insurance for which the cost is distributed evenly over the premium payment period. The premium remains the same from year to year and is more than actual cost of protection in the earlier years of the policy and less than the actual cost of protection in the later years. The excess paid in the early years builds up a reserve to cover the higher cost in the later years.

Liability coverage – Covers losses that an insured is legally liable. For homeowners insurance, liability coverage protects you against financial loss if you are sued and found legally responsible for someone else’s injury or property damage.

Liability – Any enforceable legal obligation. For example, the failure to meet the duty of care of a reasonable person under similar circumstances.

Liability insurance – Insurance covering the financial risk of civil lawsuits.

Life Expectancy – The average number of years of life remaining for a group of people of a given age and gender according to a particular mortality table.

Life Income Fund – Commonly known as a LIF, this is one of the options available to locked in Registered Pension Plan (RPP) holders for income payout as opposed to Registered Retirement Savings Plan (RRSP) holders choice of payout through Registered Retirement Income Funds (RRIF). A LIF must be converted to a unisex annuity by the time the holder reaches age 80.

Liquor liability – Liability arising out of the manufacture, distribution or sale of liquor. Under the standard CGL, coverage is excluded if the insured is in the business of serving alcohol.

Living Benefit – Some insurance companies include this benefit option at no cost to their policy holders. The insurer considers on a case to case basis, the need for insurance funds before death. If the insured can demonstrate a shortened life of less than two years and with some insurers one year, the insurer will consider releasing up to 50% or a maximum of $100,000 of the life insurance coverage held by the insured. Not all insurers offer this benefit for free. The need has resulted in specific stand alone living benefit/critical illness policies coming into existence. Look under “Different types of Life Insurance” for further information. You might have heard of “Viatical Settlements”, the practice of seriously ill people selling the rights to their life insurance policies to third parties.

Living Will – This is a will which specifically expresses the testator’s desire not to be kept alive on life support machines, should the occasion arise.

Long-tail exposure – Exposures for which a claim might be filed long after the insurance policy or policies expire. Loss may not be recognized for many years, involving such latent injuries as asbestos, medical malpractice, and sexual abuse or molestation.

Loss – The amount an insurance company pays on a claim.

Loss control – Analyzing hazards and determining a course of action to reduce the risk of loss while carrying out the nonprofit’s mission.

Loss experience report – Compiled by the insurance company, it provides detailed history of an insured’s claims information. Also known as loss runs or hard copy loss runs. Every insured is entitled to receive an account history from its insurance company.

Loss of use – A provision in homeowners and renters insurance policies that reimburses policyholders for the additional costs (housing, food, and other essentials) of having to live elsewhere while the home is being restored following a disaster.

Loss history – Refers to the number of insurance claims previously filed by a policyholder. A company will consider loss history when underwriting a new policy or considering a renewal of an existing policy. Companies view loss history as an indication of the likelihood that an insured will file a claim in the future.



Market assignment – Method of choosing an insurance provider. Choose several insurance agents or brokers as bidders for your account and assign one or more insurance companies (markets) to each.

Market value – The current value of your home, including the price of land.

Material misrepresentation – A significant misstatement in an application form. If a company had access to the correct information at the time of application, the company might not have agreed to accept the application.

Media liability – Policy protects the insured from extensive personal and advertising injury, as well as publishers’ liability for all forms of media.

Medical Information Bureau – This organization was established in 1902. The Medical Information Bureau (M.I.B.) is a non-profit association of life insurance companies. Its purpose is to detect and deter fraud by providing warnings called, alerts, to member companies. For example, if an insurance applicant advised one insurance company of a heart attack and then applied to another insurance company omitting this history, codes, reported by the first insurance company, indicating a heart attack would alert the second insurance company to the undisclosed history. It is a rarity, however, that the alert is the only notice of a specific medical impairment as most applicants completely disclose their history.

Money Laundering – This is the process by which “dirty money” generated by criminal activities is converted through legitimate businesses into assets that cannot be easily traced back to their illegal origins.

Moody’s – An insurance rating service that provides credit ratings on an estimated 700 insurance companies worldwide (see

Morbidity Tables – These are statistical tables used by life insurance companies showing the probability of disease of male and females at all ages.

Mortality Tables – This is a statistical table used by life insurance companies showing the probability of death of male and females at all ages.

Mortgage Insurance – Commonly sold in the form of reducing term life insurance by lending institutions, this is life insurance with a death benefit reducing to zero over a specific period of time, usually 20 to 25 years. In most instances, the cost of coverage remains level, while the death benefit continues to decline. Re-stated, the cost of this kind of insurance is actually increasing since less death benefit is paid as the outstanding mortgage balance decreases while the cost remains the same. Lending institutions are the most popular sources for this kind of coverage because it is usually sold during the purchase of a new mortgage.


Named insured – An individual, business or organization that is identified on the policy declarations page as the insured(s) under a policy. Most policies, especially liability policies, will have insured’s or additional insured’s other than the named insured (such as employees, volunteers, board members, landlords), but only the named insured is responsible for premium payments, receipt of notices, and adjustment of losses.

Negligence – Failure to use the standard of care that a reasonably prudent person would exercise in a similar circumstance.

Non-Medical Limit – This is the maximum value of a policy that an insurance company will issue without the applicant taking a medical examination, although medical questions are invariably asked during the application process. When a non-medical issue is made through group insurance, in most cases, medical data is not requested at all.

Non-renewal – A decision by an insurance company not to renew a policy


Obedience, duty of – Standard of care that obligates a director or officer (of a board) to act in a manner that demonstrates faithfulness to the organization’s mission and obeys all applicable laws, statutes and regulations.

Occupational accident – Accident to an employee that occurs within and arises out of the course of employment.

Occurrence basis – A liability coverage form that covers claims that occur during the policy period, and for which claims can be reported to the insurance company at any time during or after the policy period.

Open bidding – Method of choosing an insurance provider. Send a request for proposal to a list of firms asking them to bid for your business.

Owner – This is the person who owns the insurance policy. It is usually the same person as the insured but it could be someone else who has the permission of the insured to be the owner, like a spouse, a common-law-spouse, an offspring, a parent, a corporation with insurable interest or a business partner with insurable interest. In order for someone else to be an owner of your policy, they have to have a legitimate insurable interest in you


Peril – A specific risk or cause of loss covered by an insurance policy, such as a fire, windstorm, flood, or theft. A named-peril policy covers the policyholder only for the risks named in the policy. An all-risk policy covers all causes of loss except those specifically excluded.

Personal injury liability – Injury to a person or organization caused by slander, invasion of privacy, false arrest or detention, malicious prosecution, or wrongful entry or eviction.

Personal liability policy (volunteers) – Provides protection if the volunteer is liable for bodily injury or property damage arising out of the performance of his or her duties; generally written on an excess basis. Purchase separately or bundled with accident medical reimbursement and/or excess automobile liability insurance for volunteers.

Personal property – All tangible property (other than land) that is either temporary or movable in some way, such as furniture, jewelry, electronics, etc.

Personally liable – Liability that an individual assumes when he/she is directly involved in the occurrence and cannot defer the liability to another person or entity.

Plaintiff – Individual or organization that initiates a lawsuit to obtain a remedy for an injury. an injury.

Policy – The contract issued by the insurance company to the insured.

Policy Fee – This is an administrative fee which is part of most life insurance policies. It ranges from about $40 to as much as $100 per year per policy. It is not a separate fee. It is incorporated in the regular monthly, quarterly, semi-annual or annual payment that you make for your policy. Knowing about this hidden fee is important because some insurance companies offer a policy fee discount on additional policies purchased under certain conditions.

Policyholder – This is the person who owns a life insurance policy. This is usually the insured person, but it may also be a relative of the insured, a partnership or a corporation. There are instances in marriage breakup (or relationship breakup with dependent children) where appropriate life insurance on the support provider, owned and paid for by the ex-spouse receiving the support is an acceptable method of ensuring future security.

Policy owner – The person or party who owns an individual insurance policy. This person may be the insured, the beneficiary, or another person. The policy owner usually is the one who pays the premium and is the only person who may make changes to a policy.

Policy period – The period a policy is in force, from the beginning or effective date to the expiration date.

Premium – The amount paid by an insured to an insurance company to obtain or maintain an insurance policy.

Prior acts coverage – Coverage for all acts that occurred before the policy was issued. Prior acts coverage is one of the means of covering the gap in coverage when switching from a claims-made policy to another claims-made policy or to an occurrence policy. The prior acts coverage is provided by the new policy, as opposed to tail coverage that is added by endorsement to an expired claims-made policy.

Probate – Letters probate represent judicial certification of the validity of a Will and judicial confirmation of the authority of the personal representative who is to administer the Will. Essentially, probate fees are a tax on a person’s estate and except for the provinces of Quebec and Alberta, there is no limit to this tax.

Professional liability insurance – Also known as malpractice coverage or errors and omissions (E&O) coverage; covers liability for damages arising from the rendering of or failure to render professional services.

Property – Category of nonprofit assets at risk that includes real property (buildings, improvements and betterments), personal property (furniture, fixtures, valuable papers and records, equipment, and supplies) and intangible property (copyrights, business goodwill and trademarks).

Property damage – Physical damage to property.

Property insurance – Insurance that covers direct damage to the nonprofit’s property and equipment including consequential losses (business income, loss of rents, extra expense) caused by an insured peril.

Public insurance adjuster – An individual employed by a policyholder to negotiate a claim with the insurance company in exchange for a percentage of the claim settlement. Public insurance adjusters must be licensed.

Punitive damages – Damages awarded by the court in excess of those required to compensate the plaintiff for the loss sustained. These damages are a type of punishment for the offender for failing to take proper care


Refund – An amount of money returned to the policyholder for overpayment of premium or if the policyholder is due unearned premium.

Registered Pension Plan – Commonly referred to as an RPP this is a tax sheltered employee group plan approved by Federal and Provincial governments allowing employees to have deductions made directly from their wages by their employer with a resulting reduction of income taxes at source. These plans are easy to implement but difficult to dissolve should the group have a change of heart.

Registered Retirement Savings Plan – Commonly referred to as an RRSP, this is a tax sheltered and tax deferred savings plan recognized by the Federal and Provincial tax authorities, whereby deposits are fully tax deductible in the year of deposit and fully taxable in the year of receipt. The ability to defer taxes on RRSP earnings allows one to save much faster than is ordinarily possible.

Registered Retirement Income Fund – Commonly referred to as a RRIF, this is one of the options available to RRSP holders to convert their tax sheltered savings into taxable income.

Re-entry – This is a provision in some term insurance policies that allow the insured the right to renew the policy at a more favorable rate by providing updated evidence of insurability.

Reinstatement – The process by which a life insurance company puts a policy back in force after it lapsed because of nonpayment of renewal premiums.

Reinsurer – A company that insures upper layers of coverage for commercial carriers, risk retention groups, captive insurance companies and other insurance providers.

Renewal – Continuation of a policy after its expiration date.

Renters insurance – A form of insurance that covers a policyholder’s belongings against perils. It also provides personal liability coverage and additional living expenses. Possessions can be covered for their replacement cost or the actual cash value, which includes depreciation.

Replacement cost – Pays the dollar amount needed to replace the structure or damaged personal property without deducting for depreciation but limited by the policy’s maximum dollar amount.

Replacement cost basis – The cost of replacing the appraised or inventoried property.

Respondeat superior – Legal principle by which employers are held responsible for the actions of those they supervise. Literally, the master shall answer for the acts of his servant. In the context of volunteer organizations, the nonprofit is the master and paid and volunteer staff are the servants working on the organization’s behalf.

Residual market – Insurers, such as assigned risk plans, that exist to provide coverage for those who cannot get it in the standard market.

Return premium – The premium returned to an insured for canceling or amending a policy.

Rider – A written agreement attached to the policy expanding or limiting the benefits otherwise payable under the policy. Also called an “endorsement.”

Risk – A measure of the possibility that the future may be surprisingly different from what we expect. Downside risk of loss and upside risk of gain.

Risk assessment – A thorough examination of the exposures of the nonprofit, both insurable and uninsurable.

Risk-financing plan – The monetary tools that you will use to protect the nonprofit’s resources so the lion’s share may be devoted to its community-serving mission. Primarily used to protect an organization from catastrophic financial loss.

Risk-financing pools – A nonprofit association that benefits it members by pooling their contributed premiums in order to finance losses.

Risk management – A discipline for dealing with the possibility that the future may be surprisingly different from what we expect (see Strategic risk management).

Risk management committee – A representative group of staff, volunteers and advisors who identify exposures, develop a risk control program, and establish a risk-financing strategy for the nonprofit. May act in place of a staff designee in small nonprofits. In midsize and large organizations, they may work in partnership with the staff designee (such as finance director or professional risk manager).

Risk management program – Educated projections about the future and sound management practices.

Risk retention – A method of funding loss using internal money.

Risk transfer or sharing – A method of funding loss using external funds (such as insurance) or risk sharing with another organization. Examples of risk sharing include mutual aid agreements with other nonprofits, and sharing responsibility for a risk with another through a contractual agreement.

Rule of 72 – This is a very important rule to know. The rule is that the number 72 divided by the rate of return of your investment equals the number of years it takes for your investment to double.

For example:

At 1% your money will double in 72 years
At 2% your money will double in 36 years
At 3% your money will double in 24 years
At 4% your money will double in 18 years
At 5% your money will double in 14.4 years
At 6% your money will double in 12 years
At 7% your money will double in 10.3 years
At 8% your money will double in 9 years
At 9% your money will double in 8 years
At 10% your money will double in 7.2 years



Segregated Fund – Sometimes called seg funds, segregated funds are the life insurance industry equivalent to a mutual fund with some differences.The term “Mutual Fund” is often used generically, to cover a wide variety of funds where the investment capital from a large number of investors is “pooled” together and invested into specific stocks, bonds, mortgages, etc.

Self insurance – When an organization’s own resources (internal) are used to fund losses. A nonprofit may self-insure risks through a formally structured risk-financing program, such as a captive insurer, or by setting aside funds to pay for losses. A nonprofit can also be self-insured on an informal basis when it has made no arrangements to finance losses and must use operating funds when losses occur.

Self-insured retention – Similar to a deductible except that until the SIR is exhausted the insured will generally be responsible for performing the loss adjustment functions that would otherwise be undertaken by an insurance company. For umbrella liability, the SIR is the amount the insured is obligated to pay for claims when there is no underlying insurance.

Single interest insurance – Insurance coverage for only one of the parties having an insurable interest in that property. For instance, if you still owe money on your mortgage and do not have homeowners insurance, your lender may take out a single interest insurance policy to protect its own interest in your property. Single interest insurance protects only the policy owner, not the homeowner.

Soft insurance market – Insurance companies are eager to write new business.

Special endorsement – Written language appended to an insurance policy that changes the coverage in regards to special circumstances.

Special events insurance – General liability insurance for events that are outside the day-to-day operations of the insured, such as fund-raising events.

Speculative risk – An insurance term that includes the possibility of gain or loss.

Split Dollar Life Insurance – The split dollar concept is usually associated with cash value life insurance where there is a death benefit and an accumulation of cash value. The basic premise is the sharing of the costs and benefits of a life insurance policy by two or more parties. Usually one party owns and pays for the insurance protection and the other owns and pays for the cash accumulation. There is no single way to structure a split dollar arrangement. The possible structures are limited only by the imagination of the parties involved.

Sponsored insurance program – Members, chapters or affiliates of a national, regional or statewide organization create a group insurance program by partnering with a commercial insurance provider or endorsing the services of an agent or broker.

Spousal Registered Retirement Savings Plan – This is an RRSP owned by the spouse of the person contributing to it. The contributor can direct up to 100% of eligible RRSP deposits into a spousal RRSP each and every year. Contributing to a spouses RRSP reduces the amount one can contribute to one’s own RRSP, however, if the spouse is a lower income earner, it is an excellent way in which to split income for lower taxation in retirement years.

Staff adjuster – Employee of the insurance company’s claims department.

Standard & Poor’s – A nationally recognized organization that rates insurance companies on their financial strength (see

Standardized form – A document prepared in a prescribed arrangement of words and layout.

Strategic risk management – A discipline that counters downside risks by reducing the likelihood, magnitude, and unpredictability of losses and financing recovery from these losses; and seizes upside risks by searching for opportunities to more fully, more certainly, and more efficiently achieve an organization’s nonprofit goals, and developing plans to act on these opportunities when the future presents them.

Strategic risk management process – Five steps to empower an organization to be all it can be in a less-than-fully-predictable world.

Establish the risk management context
Appraise risks
Decide what to do
Take action on your decision
Follow up and adjust.
Structured Settlement – Historically, damages paid out during settlement of personal physical injury cases were distributed in the form of a lump-sum cash payment to the plaintiff. This windfall was intended to provide for a lifetime of medical and income needs. The claimant or his/her family was then forced into the position of becoming the manager of a large sum of money. A Structured Settlement is an alternative to a lump sum cash payment in the resolution of personal physical injury, wrongful death, or workers’ compensation cases. The settlement usually consists of two components: an up-front cash payment to provide for immediate needs and a series of future periodic payments which are funded by the defendant’s purchase of one or more annuity policies. Those payers make payments directly to the claimant. In the unfortunate event of the claimant’s death, a guaranteed portion of the settlement may be directed to a beneficiary or his/her estate. A Structured Settlement is a guaranteed source of funds paid to the claimant or his/her family on a tax-free basis.

Subrogation – Conditional payments may be made by an insurance company to a disability insurance claimant who has a loss of income claim against a third party who caused or contributed to their disability, however, the insurance company has a right to seek reimbursement of any payments they made to the claimant either from the third party or from any judgment or settlement received by the claimant from the third party.

Suicide Clause – Generally, a suicide clause in a regular life insurance policy provides for voiding the contract of insurance if the life insured commits suicide within two years of the date of issue of the coverage.

Surcharge – An extra charge added to your premium by an insurance company.

Surplus lines – Coverage from out-of-state companies not licensed in the state but legally eligible to sell insurance on a “surplus lines” basis. Surplus lines companies generally charge more than licensed companies and often offer less coverage.


Term Life Insurance – A plan of insurance which covers the insured for only a certain period of time and not necessarily for his or her entire life. The policy pays a death benefit only if the insured dies during the term.

Third-party administrator (TPA) – An organization that performs managerial and clerical functions related to an employee benefit insurance plan by an individual or committee that is not an original party to the benefit plan.

Third-party claim – A claim filed against another person’s insurance policy


Umbrella liability insurance – Provides excess coverage over several primary policies, such as CGL, auto liability and employers liability. Increases the amount of liability insurance beyond that of the basic policies carried by the nonprofit and reaches out to cover areas of unknown exposures lacking in the basic insurance policy.

Underwriter – This could be the person (broker or agent) who helps you choose the proper type of life insurance or disability insurance and the insurance company for your particular needs. This could also be the person at the insurance company’s head office who reviews your application for coverage to determine whether or not the insurance company will issue a policy to you.

Underwriting – The process an insurance company uses to determine whether to accept or reject an application for a policy, what policy provision will be included and at what price.

Unearned premium – The amount of a pre-paid premium that has not yet been used to buy coverage. For instance, if you paid in advance for a six-month premium, but then cancel the policy after two months, the company must refund the remaining four months of “unearned” premium to you.


Volunteer excess automobile liability insurance – Auto liability insurance that covers claims arising from a volunteer’s use of his or her own vehicle. This policy pays in excess of the volunteer’s personal auto policy. No coverage is provided to the nonprofit.


Waiver – The giving up of a right or privilege. Nonprofits frequently require participants in recreational or other programs to waive the right to sue in the event of injury. Courts often invalidate waivers on the grounds that the individual did not fully appreciate the rights being waived or that the waiver did not specifically indicate that it covered liability for negligence.

Waiver of Premium – This is an option available to the applicant for life insurance which sets certain conditions under which an insurance policy will be kept in full force by the insurance company without the payment of premiums. Very specifically, a life insured would have to become totally disabled through injury or illness for a period of six months before the benefit kicks in. When it does, the insurance company retroactively pays premiums from the beginning of the disability until the time the insured is able to perform some form of regular activity. “Totally disabled” is highlighted here, because that is what is required to receive this benefit.

Will – This is a legal document detailing how you want your assets to be distributed upon your death. You may also stipulate how you wish to be buried or who you would like to take care of any surviving dependent family members. In my opinion, it is very important to be quite specific about your wishes for the distribution of special assets such as the antique grandfather clock, the classic silver tea set or the antique piano. If you think that your beneficiaries may dispute how your things are to be distributed, consider stipulating that an auction be held in which all beneficiaries may bid on the item which they value and all moneys collected are then shared in the same manner in which you distributed your other liquid assets. Your might want to remember that a will is automatically revoked upon marriage unless the will specifically states that the will is made in contemplation of marriage.

Workers’ compensation and employers’ liability insurance – The first part covers expenses an employer is mandated to pay by state statute to cover specific benefits for employee injuries. The second part protects employers from employee-related suits that are separate from WC claim.


Yearly Renewable Term Insurance – Sometimes, simply called YRT, this is a form of term life insurance that may be renewed annually without evidence of insurability to a stated age