Click on a term to see its definition: E

Lost in the terminology insurance companies use? Our quick-reference insurance glossary provides easy-to-understand definitions and examples of the terms insurance professionals use.

Early Warning System

The Early Warning System is a system that provides insurance industry regulators will a tool to determine the financial stability of an insurance company. This helps the state insurance commission to step in when a certain insurance company may need more regulatory attention or help in order to maintain its solvency or its ability to pay the claims of its policy holders.

The Early Warning System is made up of rating methods and financial ratios. A range is used for these ratios and if an insurance company falls off the range, the Insurance Regulatory Information System or IRIS may step in.

There are financial ratios that insurance companies are regularly required to provide the state insurance commission. These include earned premium, loss ratios and other pertinent statistics.

Earned Premium

Earned Premium is the portion of the insurance premium that applies to the period that already has been covered. Even if the insurance premium is paid by the policyholder often at the beginning of the policy, it is only the portion of the risk that has already elapsed of expired that is earned by the company.

For example, Jim has a home insurance policy, where he pays annual premiums of $1,200. After six months that the coverage is in place, the insurance company has earned half of the premium paid ($600).

In accounting for the income and profit of the insurance company, only the earned premium is included. This is because it is assumed that the company did not need to pay premiums on that portion of the coverage. If the company had paid benefits or claims for that period, then that part of the premium may be listed as a loss.

Earthquake Insurance

Earthquake Insurance provides protection against the losses incurred due to damage to an insured building (and what it contains) because of an earthquake. The protection may include direct damage to the building structure (such as the collapse of the building) or indirect damage (such as a fire caused by faulty electric lines). The coverage depends on the policy and may vary from one company to another. That is why it is recommended that you check your policy to know what it covers.

Earthquake Insurance is usually an option endorsement to the policy. Most homeowners' and business policies don't cover earthquakes. Earthquake Insurance is required for homeowners whose house is located in an earthquake prone area. This is to ensure that the people who become victims of an earthquake will rely on their insurance instead of government disaster funds.

Earthquake insurance is often very expensive and may involve a high deductible, since the tendency is that only those who live in high risk areas will tend to buy the coverage.

Economic Loss

Economic Loss refers to the financial loss. For persons or families, this means the loss of earnings because of the disability or the death of an income owner. For businesses, this means the loss of income that results from damage or destruction to a commercial property.

Economic loss usually includes medical expenses, burial and funeral expenses, as well as legal expenses, payments for a lost liability suit and the cost of replacing or repairing the damaged property.

To compute for the economic loss of a property, it is valued according to the earnings potential of the business that the business failed to earn because the business was not in operation.

This kind of loss does not cover the pain or grief that results from the death or injury.

Electronic Commerce / E-Commerce

Electronic Commerce (also called E-Commerce) is the term used for buying and selling over the Internet or other computer networks. There is a growing market that sells over the Internet, as this is easier for some customers. This is seen along with the growth in the number of Internet users, as well as the development of payment modes over the Internet.

Companies that sell their products or services through the Internet directly to their customers are called B2C companies (or business-to-consumer companies).

Some insurance companies also sell their products over the Internet. These are those who sell insurance produce exclusively through E-Commerce.

Elimination Period

The Elimination Period is the waiting period before the insurance company will pay benefits, usually for disability insurance. The period is counted in days from the diagnosis of a covered illness, injury or disability.

This is a type of deductible, only it is a time period, and not a specified dollar amount. During the elimination period, it is the insured that pays for related expenses. For example, if an insurance policy pays for monthly disability income and there is a 30-day elimination period, the benefit payments will not kick in until the end of the 30-day period. Elimination periods usually take as long as 90 days, which is the usual length of such waiting periods.

The elimination period is a method by which the insurance companies keep the premiums low. It is recommended that you as the policy owner check the coverages to determine the elimination period for the benefits to be paid.

Employee Dishonesty Coverage

Employee Dishonesty Coverage protects the business from losses or damage caused by the dishonesty of its employees.

These dishonest acts may result in the loss of income or liability demanded by customers who may have been adversely affected by such acts. This includes the theft of the business' physical assets as well as the theft of intellectual assets. This covers instances where a cashier skims money from the cash register, an employee who pockets part of valuable equipment or an employee taking client lists and selling it to a competitor. Other intellectual property that may need protection includes the theft of software files, as well as trade secrets.

It is important, however, to note that some policies do not cover some unlawful acts of employees; that is why it is also advisable to be covered by a Fidelity Bond. Remember, claims are only payable when they are covered by the insurance contract's terms.

Employee Retirement Income Security Act (ERISA)

Employee Retirement Income Security Act (or ERISA) is a federal requirement covering any pension, vesting or profit-sharing plans for employees of a company. The ERISA strives to fairly cover the retirement needs of an employee without relying too much on the employer.

ERISA requires that employers disclose the details of their employees' benefit plans. It also outlines how plan fiduciaries are to be administered and it also provides the employee with options of accessing the federal courts in cases of disputes or alleged violations.

The Department of the Treasury (specifically the Internal Revenue Service), the Pension Benefit Guaranty Corporation and the Department of Labor work together to ensure that companies comply with the ERISA.

Employer’s Liability

Employer's Liability outlines the circumstances that the employer is liable for the acts of its employees. The law (specifically tort doctrine) makes an employer responsible for the acts its employees by virtue of their special relationship (employee-employer relationship).

Under the doctrine of respondeat superior, the negligent acts or omissions by the employees while they are doing performing their duties as employees are imputed on the employer. This means that the employer may be sued for damages by customers, other employees and other people affected by such acts.

For example, if a delivery truck driver (on the course of his making deliveries) beats the red light and hits another vehicle, the employer of the delivery truck driver is responsible. However, if the delivery truck driver uses the truck for his own business (and outside the business of the company), the damage is generally the responsibility of the employee.

However, if the employee acts under his or her own right or commits assault and battery, such acts are not considered the liability of the employer.

Employment Practices Liability Coverage

Employment Practices Liability Coverage provides the employers with protection in case an employee files a lawsuit because of discrimination, illegal dismissal or termination, and other alleged violation of his legal rights as an employee. This includes violations such as harassment, invasion of privacy and defamation. Discrimination may be based on religion, race, sex, age, or other pertinent factors.

This coverage covers claims, from past, current and future employees. It also covers lawsuits made not just to the company, but also to its directors and officers, as well as other employees.

The way this coverage is priced is based on the size of the company (in terms of the number of employees and the amount of sales), the industry it belongs, the company's history for employment practices liability claims. The insurance underwriter may also look at the employer's employee policies and procedures, as wells as its practices when it comes to hiring and firing.


An Endorsement, which is also called rider, is an addition or amendment to an insurance policy. It changes the extent of the coverage of the policy, its terms or conditions. The changes to the policy may be considerable or may be small. However, the endorsement is added so that the policy owner does not have to rewrite the policy entirely.

For example, a homeowners' insurance policy covers a standard set of risks. A policyowner can decide to add earthquake coverage and add this as an endorsement to the policy. It is assumed that the earthquake insurance is part of the policy's coverage.

Because an endorsement usually covers an additional risk or provides an additional benefit to the policy owner, premiums are charged for endorsements.

For health insurance policies, riders may also add exclusions to the coverage, particularly in cases where the insured person is discovered to have a preexisting health condition.

Endowment Insurance

An Endowment Insurance is a kind of life insurance policy that pays a benefit when the insured person dies or when the policy matures at a specified date (usually regardless of whether the insured person is alive at that date or not). If the insured person dies within the coverage of the endowment insurance, the beneficiary is the one who stands to gain the proceeds.

Endowment insurance is usually used to fund retirements or educational funds. As such, this kind of insurance is one of the expensive kinds in life insurance policies.

The endowment is usually designed to mature within 10 to 30 years. For some companies, though, this can be customized based on the needs of the proposed insured. However, the general rule is that the longer the maturity date, the less expensive the premiums will be.

Environmental Impairment Liability Coverage

Environmental Impairment Liability Coverage provides protection from liabilities and losses due to pollution.

Basically, people and business are held responsible for cleaning up contaminated property, as well as to pay for liabilities to other people that were hurt by the pollution or environmental hazard. There may also be fines imposed by regulatory bodies in your state or city, as well as decreased market share (for companies).

Environmental Impairment Liability Insurance is usually tailor made to fit the needs of the customer. It looks at basic aspects of the coverage: 1) impairment liability that is site specific (this may also cover the transfer of goods and property, as well as storage tanks; 2) lead/asbestos-abatement contractors; 3) environmental impairment liability of contractors; and 4) environmental impairment because of professional omissions and mistakes. For large companies, an expert insurance consultant is hired to help build the insurance policy cost effectively and in such a way that will sufficiently provide protection for the company.


Equity refers to the amount or percentage in ownership held by shareholders.

The term "equity" is used in several ways:

  • For homeowners, home equity refers to the difference between the house's fair market value (or the value that the house will fetch currently) and the mortgage balance that still remains unpaid. In short, home equity is what the homeowner actually "owns" with regards to a certain property.
  • In corporations, equity is used to refer to ownership in a stock. It is the remaining interest after all liabilities have been deducted. The remaining amount is spread among individual shareholders of the stock (be they preferred or common stock).
  • For private equity, this means that the stock being referred to is for a privately held company.
Equity Indexed Annuity

Equity Indexed Annuity is tax-deferred annuity that guarantees a minimum return plus interest. That interest is linked to an equity index, usually an international index or something like S&P 500. This investment protects the principal amount, while giving the annuity owner the opportunity to earn more than a fixed rate, based on the performance of the equity index. There is a cap to the interest rate provided (usually set at 8%).

The returns provided by this kind of annuity are generally higher than that provided by money market accounts, CDs or other fixed instruments. However, the returns are lower when compared to market returns. Thus, the Equity Indexed Annuity is best for those who would rather avoid risk, particularly those who are nearing retirement age.

Errors and Omissions Coverage (E&O)

Errors and Omissions Coverage protects the policyholder against losses or liability due to mistakes (acts of negligence or omissions) during the course of his practicing his profession.

Professionals and agencies (as well as their agents) may have to face liability suits when they make representation of their clients. The insurance company who covers them will be the one paying for these. Examples of professionals who need the Errors and Omissions coverage are real estate brokers and financial institutions that originate mortgage loans for reselling in the secondary mortgage market.

This does not protect against fraud or gross negligence. This includes resulting judgments made against the insured, legal defense costs and other related expenses up to the specified limits of the policy.

Escrow Account

Escrow Account refers to the funds used to collect regular payments such as premiums for homeowners and mortgage insurance, lease payments and even property taxes and other property-related payments.

The escrow account is in the name of the borrower. This is established at the time a borrower takes out a mortgage so that payments the homeowner has to pay in relation to the property are paid and paid on time. The escrow account is important to the lender, since it ensures that the homeowners insurance policy does not lapse, or the property is not foreclosed because of failure to pay for the property taxes. The lender wants to ensure that its investment in the mortgage is protected.

The borrower, according to the mortgage agreement, will make regular deposits to the escrow account.

Excess and Surplus Lines

Excess and Surplus Lines, when referred to in Insurance, refers to the protection provided for coverage that is not to be had from any of the insurers licensed to operate in the state. This kind of coverage (mainly casualty and property insurance) is usually bought through the state regulated insurance market.

For Excess and Surplus Lines, the insurance applicants (the clients), brokers, agents and insurance companies work to design insurance coverage specific to the needs of the client. The premiums for the coverage are negotiated, based on the kind of the risk to be secured.

Those who avail of Excess and Surplus Lines usually are not able to get it from a standard carrier because of a number of reasons - an unsatisfactory loss record, a risk that is not covered by standard carriers or an inadequate loss history.

Excess of Loss Reinsurance

Excess of Loss Reinsurance refers to the agreement between an insurance company and a reinsurer.

The insurance company passes on some of the risk it agrees to cover to a reinsurer. The insurance company then agrees to pay a portion of a claim while the reinsurer will pay a portion or the entire claim amount in excess of the amount paid by the insurance company.

For example, an insurance company writes an automobile liability policy for $200,000. The insurance company retains the first $50,000 on any one risk. The insurance company then buys excess of loss reinsurance for $30,000 in excess of $50,000 on any one risk. When there is a claim for $100,000, the insurance company pays $50,000 and that reinsurer pays $30,000.


An Exclusion is a provision in the insurance contract that states that the policy will not cover a specific risk, class of property, location and people. These, essentially, are risks not covered by the policy.

For example, a home insurance policy may exclude acts of war. If an insured house is destroyed because of acts of war, the insurance company is not obligated to pay the claims. There are also home insurance policies that cover the house, but not valuable jewelry inside the house. Thus, if claims are filed for theft of the jewelry, the insurance company will not pay for this loss.

Exclusive Agent

An Exclusive Agent (which is also called a captive agent) is a licensed insurance agent that sells the products of only one insurance company. Normally, a contract with the insurance company is signed, which restricts the agent from selling products from competitive insurance companies. The only exception for this are businesses that have first been rejected by the insurance company that the agent has signed on.

The exclusive agent earns income from commissions or from a basic salary plus commissions. There may also be benefits such as office expense allowance, health insurance and life insurance that may normally be offered by the insurance company to its employees.

Exclusive Remedy

An Exclusive Remedy refers to the portion of the social contract that provides the basis for the rules that govern the workers compensation.

With an exclusive remedy, the employee essentially gives up his right to sue the employer for any work-related disease or injury even when the injury may be a result of the employer's negligence or fault. This means that the Workers Compensation Benefits would be where the injured employee can get payment for his claims. These claims include medical care, lost wages, and medical rehabilitation.

However, if the employer failed to cover the employee with workers' compensation insurance or it is proven that the employer intentionally caused harm to the employee, the injured employee may sue the employer.

The employee may bring a personal injury lawsuit for injury occurring on someone else's premises, product liability actions and injury caused by a third party on the Employer's premises.

Expense Ratio

Expense Ratios refer to the portion of the premium that is used to pay for costs such as overhead, commissions, as well as writing and servicing insurance and reinsurance policies. The Expense ratio is expressed as a percentage.

The expense ratio is used as one of the important indicators of the insurance company's performance, as well as an intrinsic part of the computations of the policy's premiums.

The expense ratio also refers to the percentage of the total investment people invest in a mutual fund in a year, as against fees like operating fees, administrative and management fees. For prospective investors, it is good to compare the expense ratio to the prospective return or increase in value. It the rate of return less the expense ratio is at a positive, which means that the fund will post a gain for that year.


Experience refers to the insurance company's record of losses, for a specific account, for a certain line, for a specified client, or any other category defined by the insurance company. The relevant information included may be the date the loss occurred, the amount of the loss, the type of loss and whether that loss is closed or open.

For new business, the insurance company would usually ask for the company's loss experience records so that it will know how to set the premiums. Thus, it will be good for a company to keep the records of losses reports its insurer provides.


Exposure, in the insurance industry, refers to the possibility of loss. This is the risk you are exposing yourself to. For a homeowner, for instance, the exposure would be the possibility of damage or loss of the house. For a person, it will be the possibility that he will die or get sick.

To protect yourself from exposure, you can buy insurance, which will compensate you for that loss, in the event that it does happen.

The premiums for an insurance policy usually is computed based on the expected probability of the loss, as well as other factors such as profit and expense loadings, premium taxes and commissions.

Extended Coverage

Extended coverage refers to an insurance endorsement that adds to the risks the original policy already covers.

This is commonly used for property insurance. The basic home insurance policy protects from fire and lightning. Once can get extended coverage so as to protect from additional risks such as explosions, civil commotion, windstorm, riots and riots attending a strike, smoke damage, aircraft damage, hail, and vehicle damage.

The extended coverage is also usually used to cover a risk that is usually not included in a standard insurance coverage. For example, a house that is located near a golf course may be insured by its owner for damage caused by golf balls.

Extended Replacement Cost Coverage

Extended Replacement Cost Coverage provides protection to the policy owner in cases where the cost of replacement is more than the limit specified on the policy. This is usually for property insurance. The policy owner gets exactly the same kind and quality as the one lost or damaged.

It is aimed to ensure that the policy owner would be at the same financial position after a loss occurred. The insured person will not lose or profit from the insurance payment. It is also aimed to protect a policy owner when a major disaster happens and there is an increased demand for building materials and contractors which will cause an increase in the prices.

It is computed by getting the equivalent actual cash value, less fair wear and tear and obsolescence. In essence, this is generally 120 to 125% percent of the value.

Extended Term Insurance Option

The Extended Term Insurance Option refers to the option that the owner of a life insurance policy has to stop premium payments and instead use the policy's cash value to buy term life insurance.

This is a non-forfeiture option that allows the purchase of term insurance for the same face amount provided by the original policy for the length of time that the cash value can provide. The insurance company computes for the premiums based on the life expectancy of the insured. Also, the cash value referred here is the net cash value - meaning the cash value minus any related deductions.

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