50 Essential Definitions for the Property Insurance Exam

Success on the complete Property exam guide often comes down to your mastery of vocabulary. The exam is designed to test not just your knowledge of concepts, but your ability to distinguish between nuanced legal and technical terms. If you can define the following 50 terms with confidence, you will significantly improve your chances of passing on your first attempt.

We recommend using these definitions alongside our practice Property questions to see how these terms appear in situational scenarios.

The Core Fundamentals (1-15)

• 1. Abandonment: A clause stating that the insured cannot simply walk away from damaged property and demand full payment from the insurer without the insurer’s consent.
• 2. Actual Cash Value (ACV): The valuation method calculated as Replacement Cost minus Depreciation.
• 3. Adhesion: A legal characteristic of insurance contracts where the insurer writes the contract and the insured must "take it or leave it." Ambiguities are usually resolved in favor of the insured.
• 4. Adverse Selection: The tendency of people with higher-than-average risk to seek insurance more often than those with average risk.
• 5. Additional Living Expenses (ALE): Coverage that pays for the increase in living costs (like hotel bills) incurred by the insured while their home is uninhabitable due to a covered peril.
• 6. Appraisal: A process used when the insured and insurer disagree on the amount of a loss, rather than whether the loss is covered.
• 7. Arbitration: A method of dispute resolution where a neutral third party makes a binding decision regarding coverage disputes.
• 8. Assignment: The transfer of a policyholder’s legal right or interest in an insurance policy to another party; this usually requires written consent from the insurer.
• 9. Bailee: A person or organization that has temporary possession of someone else's property (e.g., a dry cleaner or a repair shop).
• 10. Binder: A temporary insurance contract that provides coverage until the formal policy is issued.
• 11. Blanket Insurance: A single policy that covers multiple classes of property at one location or one or more classes of property at multiple locations.
• 12. Bodily Injury: Physical injury, sickness, or disease sustained by a person, including death resulting from any of these.
• 13. Cancellation: The termination of an insurance policy by either the insurer or the insured before its expiration date.
• 14. Coinsurance: A requirement that the insured carry insurance equal to a certain percentage (usually 80%) of the property's value to receive full payment for partial losses.
• 15. Concealment: The intentional withholding of a material fact that is critical to an insurer's decision to provide coverage.

• 16. Conditions: The section of the policy that sets forth the rules of conduct, duties, and obligations of the parties.
• 17. Declarations: The first page of the policy containing the "who, what, when, where, and how much" of the insurance contract.
• 18. Deductible: The amount the insured must pay out-of-pocket for a loss before the insurer begins to pay.
• 19. Direct Loss: Physical damage to tangible property (e.g., fire destroying a wall).
• 20. Endorsement: A written amendment or attachment to a policy that changes the original terms or adds coverage.
• 21. Estoppel: A legal principle that prevents a party from asserting a right that they previously waived or acted inconsistently with.
• 22. Exclusions: Perils, property, or conditions listed in the policy for which the insurer will not provide coverage.
• 23. Exposure: A measure of the vulnerability to loss, usually based on units like location or value.
• 24. Fiduciary: A person in a position of financial trust who must act in the best interest of another.
• 25. Hazard: A condition that increases the likelihood or severity of a loss (Physical, Moral, or Morale).
• 26. Indemnity: The principle that an insurance contract should restore the insured to the same financial condition they were in before the loss, without profit.
• 27. Indirect Loss: An economic loss that results from a direct loss (e.g., loss of rental income after a fire).
• 28. Insurable Interest: The requirement that the insured must suffer a financial loss if the property is damaged. This must exist at the time of loss in property insurance.
• 29. Liberalization Clause: A provision stating that if the insurer broadens coverage without increasing the premium, existing policies will automatically include the improved coverage.
• 30. Limit of Liability: The maximum amount an insurer will pay for a covered loss.
• 31. Market Value: The amount for which a property could be sold on the open market; rarely used in insurance valuation.
• 32. Material Misrepresentation: A false statement made by the applicant that would have caused the insurer to reject the application had the truth been known.
• 33. Negligence: The failure to act as a reasonable and prudent person would under similar circumstances.
• 34. Occurrence: An accident, including continuous or repeated exposure to substantially the same general harmful conditions.
• 35. Open Peril: A type of policy that covers all risks of physical loss except those specifically excluded (also known as Special Form).

• 36. Pair and Set Clause: A provision stating that if one part of a set is lost, the insurer will pay for the difference between the value of the set before and after the loss, rather than the full value of the entire set.
• 37. Peril: The specific cause of loss, such as fire, wind, or hail.
• 38. Personal Injury: Liability coverage for non-physical injuries like libel, slander, or false arrest (distinguished from Bodily Injury).
• 39. Pro Rata: A method of sharing a loss proportionally between two or more policies covering the same risk.
• 40. Proximate Cause: The primary cause that sets in motion a chain of events leading to a loss.
• 41. Reinsurance: A process where one insurance company purchases insurance from another company to protect itself against catastrophic losses.
• 42. Salvage: Damaged property that an insurer takes ownership of after paying a total loss, in order to sell it and reduce the net loss.
• 43. Short Rate: A type of cancellation where the insurer keeps a portion of the unearned premium to cover administrative costs (usually when the insured cancels).
• 44. Subrogation: The right of the insurer to "step into the shoes" of the insured to sue a negligent third party for damages paid by the insurer.
• 45. Tort: A civil wrong (other than a breach of contract) for which the court provides a remedy in the form of damages.
• 46. Unoccupancy: A property that contains furniture and belongings but has no people present.
• 47. Vacancy: A property that contains neither people nor enough furniture to support human habitation.
• 48. Vicarious Liability: Liability imposed on one person for the actions of another (e.g., an employer's liability for an employee's actions).
• 49. Warranty: A statement in the policy that the insured guarantees to be absolutely true; a breach of warranty can void the contract.
• 50. Combined Single Limit: A single dollar limit of liability applying to the total of damages for bodily injury and property damage combined.