4 Common Confusing Property Casualty Insurance Terms
I recently encountered a situation where I was using one insurance term to describe a coverage that I was looking for, but to the person I was speaking with, this insurance term meant something completely different. So, who was right?
As confusing as words in the English language can be, the same can be true for insurance terminology. You can use different terms and think you are talking about the same coverage, but there really is a difference.
As a result, I wanted to cover and provide clarity around a few terms that are commonly confused in the insurance world.
Additional Named Insurance vs. Additional Insured
An “additional named insured” will have the same rights and entitlements to coverage as the first named insured, but they may not pay a premium.
For example: An additional named insured is entitled to any notice of policy changes or cancellations and will have the same coverages as the named insureds but share the policy limits.
An “additional insured,” typically added by endorsement, is entitled to some of the liability benefits on your policy. This is often due to contractual obligations in which you agree to indemnify someone or another business. However, an additional insured doesn’t have the same rights to the policy as the named insured or additional named insured.
Blanket Coverage/Policy vs. Master Policy
A “Blanket Coverage/Policy” refers to a blanket limit that applies to more than one category of property (i.e. property & contents), more than one location, or both.
A “Master Policy” refers to one property policy that covers all locations; however, each location is covered up to its own specific limit of insurance.
Moral Hazard vs. Morale Hazard
A “Moral Hazard” refers to a person’s beliefs of what is right or wrong and is the intentional seeking of risk for personal gain because you don’t bear the cost.
For example: A struggling business could be more susceptible to loss than a thriving business based on the owner’s morals.
A “Morale Hazard” is a hazard arising out of an insured’s attitude and their indifference to loss because of the existence of insurance.
For example: Someone being careless about locking doors and windows when they leave because they know they are insured anyway.
The critical difference between moral and morale hazard is the intent of the insured.
One final confusing insurance term is “Replacement Cost.” Many insureds think that if they have Replacement Cost on their building, they’ll automatically be covered up to the limit on their policy; however, it’s important you don’t forget about the coinsurance clause.
If your building isn’t insured to the value it should be (ask for a Replacement Cost Estimator), you could suffer a coinsurance penalty at the time of the claim. For example: If you insure your building at $750,000, but the replacement cost of the building is $1,000,000, when a property claim occurs, you could only receive 75 percent of the damages incurred.
So, it’s important to make sure you know what the Replacement Cost of your building is and choose the limit for your policy accordingly.
Just Ask an Insurance Expert!
Talk about confusing, right?! We understand.
The key here is that when you’re talking with someone about property casualty insurance coverages, ask questions, use examples, and be sure you are both on the same page to avoid unnecessary surprises later on.
At Holmes Murphy, we strive to educate our clients about their coverages so we can continue to deliver peace of mind. But, we also understand questions can arise. If that is the case, please don’t hesitate to reach out to us. We’re happy to help weed through the confusion!
Published on: 11.02.20