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					                                                                     Certificate III Small Business Management
                                                                                           Code No: 2304ACC
                                                                            Western Business Enterprise Centre
                                                                                               Victoria University

                                                   Insurance Terms
Insurance and the insurance industry can be very confusing. This is largely
because they use many uncommon terms, and the language used, even by
some of those companies whose documents are supposedly written in plain
English, is often complicated.
The following information and definitions will help you work through the book,
and will also help you make sense of insurance documents.
Some Useful Definitions
Actual cash value (acv)
"Actual Cash Value" is the replacement cost of property damaged or destroyed
at the time of loss, with deduction for depreciation. Actual cash value cannot
exceed the applicable limit of liability shown in the declarations of the policy, nor
the amount it would cost to repair or replace such property with material of like
kind and quality within a reasonable amount of time after a loss.
Aggregate
  1. A limit in an insurance policy stipulating the most it will pay for all
     covered losses sustained during a specified period of time, usually one
     year. Aggregate limits are commonly included in liability policies. While
     not often used in property insurance, aggregates are sometimes
     included with respect to certain catastrophic exposures, e.g., earthquake
     and flood.

      2. The dollar amount of reinsurance coverage during one specified period,
         usually 12 months, for all reinsurance losses sustained under a treaty
         during such period.
Assessor - Sometimes referred to as a loss adjuster, an assessor is a person
who determines the amount of loss or damage. An assessor is usually an
independent person or firm. They receive a fee payment from insurance
companies. Some insurance companies have assessors as employees.
Asset value - The total sum for which business and personal property items
(assets) are insured.
Average under-insurance - When you insure for less than the full value of
your property, you must bear the uninsured proportion of the losses that may
arise.
Builder's risk
Indemnifies for loss of or damage to a building under construction. Insurance is
normally written for a specified amount on the building and applies only in the
course of construction. Coverage customarily includes fire and extended
coverage and vandalism and malicious mischief. Builders risk coverage can be
extended to a "special" form as well. The builders risk policy also may include
coverage for items in transit to the construction site (up to a certain percentage
of value) and items stored at the site.
Basis of settlement - This tells you how insurance companies will settle each
and every loss or damage claim. For example, for loss or damage caused by


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                                                                  Certificate III Small Business Management
                                                                                        Code No: 2304ACC
                                                                         Western Business Enterprise Centre
                                                                                            Victoria University
fire to plant and equipment, insurance companies have the option of repairing,
reinstating or replacing damaged property.
Binder agreement - A binder agreement is a contract between insurance
underwriting agents, insurance agents and insurance brokers to accept risk on i
of insurance companies.
Claims-made basis - Insurance companies will only cover you for claims made
against you and notified to them during the period of insurance.
Co-insurance - See 'Average/underinsurance
Commission - The amount paid to an insurance agent or broker, usually in the
form of a percentage of the base premium.
Common law - Law which has been founded on established customs and past
legal decisions.
Contract of insurance - An agreement between you (the insured party) and
the insurance company. The insurance company undertakes, in return for the
payment of a certain amount of money, (called the premium) to grant
compensation or to pay you if certain specified events occur.
Declaration conditions - Specific instructions (forming part of an insurance
contract) detailing how you should comply with an insurance company's
request to provide information.
Deductible - see 'Excess'.
Depreciated value - Is the cost of replacing your property with completely new
property less a deduction for wear, tear and any loss of value due to its age.
Endorsement memo- A formal document which notes any change/addition to
a contract of insurance.
Excess - The amount of the claim paid by you. Where a contract of insurance
details that an excess (also referred to as a deductible) is to be paid, the
amount will be deducted by insurance company (on each and every loss or
damage claim) from the amount they agree to pay you.
Exclusions - What the contract of insurance will not do for you, in other words,
what it will not cover.
Ex gratia payment - Usually an amount paid by insurance companies when
there is no strict liability to make a payment.
Extra cost of reinstatement - additional cost you would face to comply with
current government or statutory building regulations. For example, an
earthquake has damaged an existing septic waste system, but current
regulations require a sand filter, so there would be an additional cost to restore
the system. Perhaps a building damaged by fire is of timber construction, but in
order to obtain a permit to rebuild, you are required by local government to use
kiln-dried bricks, with an estimated additional cost of $150 per square metre.




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