Glossary of Insurance Terms

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Lapse - Termination of a policy because of failure to pay the premium.

Larceny - The unlawful taking of personal property of another.

Latent defect - A hidden flaw that will, in time, cause property damage that is uninsurable. Such damage is uninsurable because the element of chance is no longer present.

Law of large numbers - An underlying principle of insurance; the larger the number of participants in a given arrangement, the more accurate the rate is to the exposure.

Leased worker - A worker leased from another organization on a long-term basis.

Leasehold interest insurance - The insurable interest is that of a tenant who has some years remaining under a favorable lease that is subject to termination upon significant damage to the leased property.

Legal liability - Liability imposed by law; this includes liability based on negligence, strict liability, or contractual liability.

Libel - Written defamation of another’s reputation.

Liberalization clause - A feature of property policies that promises that any future change in the company’s form that would broaden coverage with no change in premium will automatically apply under the policy currently in force.

License and permit bonds - Suretyship guaranteeing that the principal will abide by the rules and obligations imposed by licensing laws or ordinances. For example, an electrician may have to post such a bond guaranteeing compliance with building codes before being licensed by a municipality.

Limited partnership - A form of partnership that consists of one or more general partners, who actively engage in the business, and one of more special partners, who are not liable for the debts of the partnership beyond their initial financial contribution. Commercial insurance policies usually differentiate in the "Who Is Insured" section between corporations, partnerships, and other business models. Therefore, the type of model being insured is important.

Liquor liability insurance - Liability coverage for owners and operators of establishments selling or serving alcoholic beverages. Litigation bonds, see Judicial bonds.

Livery use - An exclusion in automobile liability policies applying to the use of autos to carry persons for hire as in a taxi service. A share-the-ride car pool is not "livery use."

Livestock insurance - Life insurance on livestock covering death by named perils.

Lloyd’s of London - An association of individuals, called "names," or groups of individuals who write insurance for their own accounts. Lloyd’s had its be-ginning in 17^th century London in Edward Lloyd’s coffee house.

Loading and unloading exclusion - A feature of commercial general liability (CGL) policies intended to separate that coverage from the automobile exposure. The CGL coverage ends at the point where an item is picked up for loading onto an auto and resumes at the point where the item is deposited upon unloading.

Long tail - Refers to liability under policies written on an occurrence basis. Claims stemming from injury or damage occurring years earlier can be presented for coverage long after the policy has expired. Contrast with Claims-made.

Longshore and Harbor Worker’s Act - A Federal law that specifies compensation amounts for injured longshore and harbor workers. Formerly referred to as the Longshoremen’s and Harbor Workers Act.

Loss - An unintentional decline or disappearance in value arising from an event.

Loss adjustment expenses - Payments by an insurer for the investigation and settling of claims. They include the cost of defending a lawsuit in court.

Loss assessment coverage - Insurance responding to property or liability loss of a property owners association that are not covered by the association’s master policy.

Loss control - Actions to reduce the frequency or severity of losses. Installing locks, burglar or fire alarms and sprinkler systems are loss control techniques.

Loss costs - Loss data that has been modified by insurance advisory organizations by necessary loss development, trending, and credibility processes in order to arrive at the statistical cost of losses to be used in establishing a premium rate.

Loss development - An actuarial method to detect and correct for consistent errors in estimating the amount of future loss payments or the procedure for adjusting incurred losses to reflect their future development and ultimate value. Loss development factors are developed actuarially and applied to cur-rent losses in order to predict what the ultimate cost of losses will be when the claims are closed.

Loss expectancy - The underwriter’s calculation of probable maximum loss.

Loss experience - What the loss history has been on a particular line or book of business.

Loss exposure - A set of circumstances presenting the possibility of loss, whether or not the loss actually occurs.

Loss frequency - How often a loss occurs over a given space of time.

Loss limit - Commonly used in financial institution bonds, a loss limit is the aggregate amount that will be paid out under the coverage during the policy term. Loss limits also may be used when insuring large property risks where the exposures are spread out geographically. In this type of situation, it is unlikely that all property would be damaged by a single occurrence. Therefore, the amount of insurance may be set at a "loss limit" per each covered occurrence.

Loss of use insurance - See Additional living expense insurance.

Loss payable clause - A property policy provision that, at the request of the named insured, stipulates that claims tied to losses of certain property will be paid to both the named insured and the party named in the subject clause.

Loss prevention - Refers to engineering or inspection activities carried out to prevent losses in the workplace.

Loss ratio - The ratio of incurred losses including loss adjustment expenses to earned premiums.

Loss payout pattern - Losses often are paid over a period of years, especially in casualty lines of insurance. The payout pattern illustrates the way that claims are paid out from the time they are filed until they are closed.

Loss trending - A method to modify developed losses for changes that will occur in the future. Trend factors are used by rate makers to adjust past losses to more accurately reflect the loss experience expected to develop while the rates are being used.

Loss triangle - Used to show how losses develop, a loss triangle is a chart that lists losses by line and by year. It shows the value of each set of annual losses at the end of subsequent 12-month periods.

Lost policy release - A means whereby an insured may cancel a policy by signing a statement to the effect that, since his or her policy has been lost, he cannot return it to the insurer to effect cancellation, but still wishes to cancel the policy.