Insurance Glossary
Insurance terms and definitions from Century Max Inc.
Coverages and benefits listed below may not be available in your state. If available, some optional coverages and benefits might be offered at an additional charge. Contact Century Max Inc today to learn more.
A-SHARE VARIABLE ANNUITY
A form of variable annuity contract where the contract holder pays sales charges up front rather than eventually having to pay a surrender charge.
ABANDONMENT
As used in property insurance, prohibits the insured from abandoning damaged property to the insurance company for repair or disposal
ACCELERATED DEATH BENEFITS
A benefit that can be attached to a life insurance policy that enables the policy holder to receive cash advances against the death benefit in the case of being diagnosed with a terminal illness. Many individuals who choose the accelerated death benefit have less than one year to live and use the money for treatments and other costs needed to stay alive.
ACCIDENT AND HEALTH INSURANCE
Coverage for accidental injury, accidental death, and related health expenses. Benefits will pay for preventative services, medical expenses, and catastrophic care, with limits.
ACCOUNTS RECEIVABLE COVERAGE
Covers loss of sums owed to the insured by its customers that are uncollectible due to damage by an insured peril to accounts receivable records
ACTUAL CASH VALUE
A form of insurance that pays damages equal to the replacement value of damaged property minus depreciation.
ACTUARY
An insurance professional skilled in the analysis, evaluation, and management of statistical information. Evaluates insurance firms’ reserves, determines rates and rating methods, and determines other business and financial risks.
ADVERTISING INJURY
General liability coverage that insures against libel, slander, invasion of privacy, copyright infringement and misappropriation of advertising in connection with the insured’s advertising of its goods or services
ADDITIONAL LIVING EXPENSES
Extra charges covered by homeowners policies over and above the policyholder’s customary living expenses. They kick in when the insured requires temporary shelter due to damage by a covered peril that makes the home temporarily uninhabitable.
ADJUSTER
An individual employed by a property/casualty insurer to evaluate losses and settle policyholder claims. These adjusters differ from public adjusters, who negotiate with insurers on behalf of policyholders, and receive a portion of a claims settlement. Independent adjusters are independent contractors who adjust claims for different insurance companies.
ADMITTED ASSETS
Assets recognized and accepted by state insurance laws in determining the solvency of insurers and reinsurers. To make it easier to assess an insurance company’s financial position, state statutory accounting rules do not permit certain assets to be included on the balance sheet. Only assets that can be easily sold in the event of liquidation or borrowed against, and receivables for which payment can be reasonably anticipated, are included in admitted assets.
ADMITTED COMPANY
An insurance company licensed and authorized to do business in a particular state.
ADVERSE SELECTION
The tendency of those exposed to a higher risk to seek more insurance coverage than those at a lower risk. Insurers react either by charging higher premiums or not insuring at all, as in the case of floods. (Flood insurance is provided by the federal government but sold mostly through the private market.) In the case of natural disasters, such as earthquakes, adverse selection concentrates risk instead of spreading it. Insurance works best when risk is shared among large numbers of policyholders.
AGGREGATE
The maximum amount an insurance company will pay during the policy
AGENCY COMPANIES
Companies that market and sell products via independent agents.
AGENT
Insurance is sold by two types of agents: independent agents, who are self-employed, represent several insurance companies and are paid on commission, and exclusive or captive agents, who represent only one insurance company and are either salaried or work on commission. Insurance companies that use exclusive or captive agents are called direct writers.
ALIEN INSURANCE COMPANY
An insurance company incorporated under the laws of a foreign country, as opposed to a foreign insurance company that does business in states outside its own.
ALLIED LINES
Property insurance that is usually bought in conjunction with fire insurance; it includes wind, water damage, and vandalism coverage
ALTERNATIVE DISPUTE RESOLUTION / ADR
Alternative to going to court to settle disputes. Methods include arbitration, where disputing parties agree to be bound to the decision of an independent third party, and mediation, where a third party tries to arrange a settlement between the two sides.
ALTERNATIVE MARKETS
Mechanisms used to fund self-insurance. This includes captives, which are insurers owned by one or more non-insurers to provide owners with coverage. Risk-retention groups, formed by members of similar professions or businesses to obtain liability insurance, are also a form of self-insurance.
ANNUAL ANNUITY CONTRACT FEE
Covers the cost of administering an annuity contract.
ANNUAL STATEMENT
Summary of an insurer’s or reinsurer’s financial operations for a particular year, including a balance sheet. It is filed with the state insurance department of each jurisdiction in which the company is licensed to conduct business.
ANNUITANT
The person(s) who receives the income from an annuity contract. Usually the owner of the contract or his or her spouse.
ANNUITIZATION
The conversion of the account balance of a deferred annuity contract to income payments.
ANNUITY
A life insurance product that pays periodic income benefits for a specific period of time or over the course of the annuitant’s lifetime. There are two basic types of annuities: deferred and immediate: Deferred annuities allow assets to grow tax deferred over time before being converted to payments to the annuitant. Immediate annuities allow payments to begin within about a year of purchase.
ANNUITY ACCUMULATION PHASE OR PERIOD
The period during which the owner of a deferred annuity makes payments to build up assets.
ANNUITY ADMINISTRATIVE CHARGES
Covers the cost of customer services for owners of variable annuities.
ANNUITY BENEFICIARY
In certain types of annuities, a person who receives annuity contract payments if the annuity owner or annuitant dies while payments are still due.
ANNUITY CONTRACT
A written agreement between an insurance company and a customer outlining each party’s obligations in an annuity coverage agreement. This document will include the specific details of the contract, such as the structure of the annuity (variable or fixed), any penalties for early withdrawal, spousal provisions such as a survivor clause and rate of spousal coverage, and more.
ANNUITY CONTRACT OWNER
The person or entity that purchases an annuity and has all rights to the contract. Usually, but not always, the annuitant (the person who receives incomes from the contract).
ANNUITY DEATH BENEFITS
The guarantee that if an annuity contract owner dies before annuitization (the switchover from the savings to the payment phase) the beneficiary will receive the value of the annuity that is due.
ANNUITY INSURANCE CHARGES
Covers administrative and mortality and expense risk costs.
ANNUITY INVESTMENT MANAGEMENT FEE
The fee paid for the management of variable annuity invested assets.
ANNUITY ISSUER
The insurance company that issues the annuity.
ANNUITY PROSPECTUS
Legal document providing detailed information about variable annuity contracts. Must be offered to each prospective buyer.
ANNUITY PURCHASE RATE
The cost of an annuity based on such factors as the age and gender of the contract owner
ANNUALLY RENEWABLE TERM
Term insurance that provides coverage for one year and allows the policy owner to renew his or her coverage each year.
ANTITRUST LAWS
Laws that prohibit companies from working as a group to set prices, restrict supplies or stop competition in the marketplace. The insurance industry is subject to state antitrust laws but has a limited exemption from federal antitrust laws. This exemption, set out in the McCarran-Ferguson Act, permits insurers to jointly develop common insurance forms and share loss data to help them price policies.
APPORTIONMENT
The dividing of a loss proportionately among two or more insurers that cover the same loss.
APPRAISAL
A survey to determine a property’s insurable value, or the amount of a loss.
APPLICATION
A form with the information needed for an insurance company to underwrite and rate a specific policy
ARBITRATION
Procedure in which an insurance company and the insured or a vendor agree to settle a claim dispute by accepting a decision made by a third party.
All RISK COVERAGE
Property insurance covering loss arising from all causes of loss except those that are specifically excluded
ARSON
The deliberate setting of a fire.
ASSET-BACKED SECURITIES
Bonds that represent pools of loans of similar types, duration and interest rates. Almost any loan with regular repayments of principal and interest can be securitized, from auto loans and equipment leases to credit card receivables and mortgages.
ASSIGNMENT
The transfer of ownership of a Life Insurance policy from one person to another.
ASSETS
Property owned, in this case by an insurance company, including stocks, bonds, and real estate. Insurance accounting is concerned with solvency and the ability to pay claims. State insurance laws therefore require a conservative valuation of assets, prohibiting insurance companies from listing assets on their balance sheets whose values are uncertain, such as furniture, fixtures, debit balances, and accounts receivable that are more than 90 days past due.
ASSIGNED RISK PLANS
Facilities through which drivers can obtain auto insurance if they are unable to buy it in the regular or voluntary market. These are the most well-known type of residual auto insurance market, which exist in every state. In an assigned risk plan, all insurers selling auto insurance in the state are assigned these drivers to insure, based on the amount of insurance they sell in the regular market.
ATTAINED AGE
Your current age. Your attained age is a factors life insurance companies use to determine premiums.
AUTO INSURANCE POLICY
There are basically six different types of coverages. Some may be required by law. Others are optional. They are:
1. Bodily injury liability, for injuries the policyholder causes to someone else.
2. Medical payments or Personal Injury Protection (PIP) for treatment of injuries to the driver and passengers of the policyholder’s car.
3. Property damage liability, for damage the policyholder causes to someone else’s property.
4. Collision, for damage to the policyholder’s car from a collision.
5. Comprehensive, for damage to the policyholder’s car not involving a collision with another car (including damage from fire, explosions, earthquakes, floods, and riots), and theft.
6. Uninsured motorists coverage, for costs resulting from an accident involving a hit-and-run driver or a driver who does not have insurance.
Coverages and benefits listed above may be available at an additional charge, talk to us today to find out more.
AUTO INSURANCE PREMIUM
The price an insurance company charges for coverage, based on the frequency and cost of potential accidents, theft and other losses. Prices vary from company to company, as with any product or service.
Premiums also vary depending on the amount and type of coverage purchased; the make and model of the car; and the insured’s driving record, years of driving and the number of miles the car is driven per year. Other factors taken into account include the driver’s age and gender, where the car is most likely to be driven and the times of day – rush hour in an urban neighborhood or leisure-time driving in rural areas, for example. Some insurance companies may also use credit history-related information
AVIATION INSURANCE
Commercial airlines hold property insurance on airplanes and liability insurance for negligent acts that result in injury or property damage to passengers or others. Damage is covered on the ground and in the air. The policy limits the geographical area and individual pilots covered.
AUDIT
A verification of the financial records, usually payroll or receipts, of an organization to determine exposures and premiums
AUTOMOBILE
A land motor vehicle, trailer or semi-trailer designed for travel on public roads, not including ‘mobile equipment’
B-SHARE VARIABLE ANNUITY
A form of variable annuity contract with no initial sales charge but if the contract is cancelled the holder pays deferred sales charges (usually from 5 to 7 percent the first year, declining to zero after from 5 to 7 years). The most common form of annuity contract.
BACKDATING
Making the effective date of a policy earlier than the date of application. Backdating is often used to make the age of the applicant lower than it actually was at the time of application so that he/she can get a lower premium. State laws often set limits to this.
BASIA CAUSE OF LOSS FORM
Property coverage for named perils: Fire, Lightening, Explosion, Smoke, Windstorm, Hail, Riot, Civil Commotion, Aircraft, Vehicles, Vandalism, Sprinkler Leakage, Sinkhold Collapse and Volcanic Action
BAILEE COVERAGE
Coverage on property left in the care of the insured for storage, repair or servicing
BALANCE SHEET
Provides a snapshot of a company’s financial condition at one point in time. It shows assets, including investments and reinsurance, and liabilities, such as loss reserves to pay claims in the future, as of a certain date. It also states a company’s equity, known as policyholder surplus. Changes in that surplus are one indicator of an insurer’s financial standing.
BANK HOLDING COMPANY
A company that owns or controls one or more banks. The Federal Reserve has responsibility for regulating and supervising bank holding company activities, such as approving acquisitions and mergers and inspecting the operations of such companies. This authority applies even though a bank owned by a holding company may be under the primary supervision of the Comptroller of the Currency or the FDIC.
BASIS POINT
0.01 percent of the yield of a mortgage, bond or note. The smallest measure used.
BEACH AND WINDSTORM PLANS
State-sponsored insurance pools that sell property coverage for the peril of windstorm to people unable to buy it in the voluntary market because of their high exposure to risk. Seven states (AL, FL, LA, MS, NC, SC, TX) offer these plans to cover residential and commercial properties against hurricanes and other windstorms. Georgia and New York provide this kind of coverage for windstorm and hail in certain coastal communities through other property pools. Insurance companies that sell property insurance in the state are required to participate in these plans. Insurers share in profits and losses
BENEFICIARY
The designated person set to receive the death benefit if the insured should die.
BEST’S RATING
A rating system by A.M. Best Company giving the financial condition of insurance companies
BINDER
Temporary authorization of coverage issued prior to the actual insurance policy.
BLANKET INSURANCE
Coverage for more than one type of property at one location or one type of property at more than one location. Example: chain stores.
BODILY INJURY LIABILITY COVERAGE
Portion of an auto insurance policy that covers injuries the policyholder causes to someone else.
BODILY INJURY BY ACCIDENT LIMIT
The most an insurer will pay under Part Two of a Workers’ Compensation Policy for claims arising out of any one accident, regardless of how many employee claims arise out of the accident
BODILY INJURY BYDISEASE, EACH EMPOYEE
The most an insurer will pay under Part Two of a Workers’ Compensation Policy for damages due to bodily injury by disease to any one employee
BODILY INJURY BY DISEASE-POLICY LIMIT
The most an insurer will pay under Part Two of a Workers’ Compensation Policy employee bodily injury by disease claims during the policy period regardless of the number of employees who make such claims
BODILY INJURY LIABILITY LIMIT
The insured is legally liable for damages due to bodily injury, sickness, or disease, including resulting death
BOILER AND MACHINERY INSURANCE
Often called Equipment Breakdown, or Systems Breakdown insurance. Commercial insurance that covers damage caused by the malfunction or breakdown of boilers, and a vast array of other equipment including air conditioners, heating, electrical, telephone, and computer systems.
BOND
A written agreement in which one party, the surety, guarantees the performance or honesty of a second party, the principal (obligor), to the third party (obligee) to whom the performance or debt is owed
BRANDS AND LABELS ENDORSMENT
Property insurance coverage that allows the insured to remove labels from damaged goods or mark the items as ‘salvage,’ provided the goods are not damaged in the process
BASIC LIMITS
The minimum limits of liability that can be carried by an insured
BOND RATING
An evaluation of a bond’s financial strength, conducted by such major ratings agencies as Standard & Poor’s and Moody’s Investors Service.
BOOK OF BUSINESS
Total amount of insurance on an insurer’s books at a particular point in time.
BROKER
An intermediary between a customer and an insurance company. Brokers typically search the market for coverage appropriate to their clients. They work on commission and usually sell commercial, not personal, insurance. In life insurance, agents must be licensed as securities brokers/dealers to sell variable annuities, which are similar to stock market-based investments.
BUILDING ORDINANCE COVERAGE
Covers against loss caused by enforcement or ordinances or laws regulating construction and repair of damaged buildings
BURGLARY AND THEFT INSURANCE
Insurance for the loss of property due to burglary, robbery or larceny. It is provided in a standard homeowners policy and in a business multiple peril policy.
BUSINESS INCOME INSURANCE (also known as BUSINESS INTERRUPTION INSURANCE)
Commercial coverage that reimburses a business owner for lost profits and continuing fixed expenses during the time that a business must stay closed while the premises are being restored because of physical damage from a covered peril, such as a fire. Business interruption insurance also may cover financial losses that may occur if civil authorities limit access to an area after a disaster and their actions prevent customers from reaching the business premises. Depending on the policy, civil authorities coverage may start after a waiting period and last for two or more weeks.
BURGARY
Theft of property by forcible entry, which is evidenced by visible signs, in a premises, by a person
BUSINESS AUTO POLICY
Auto Policy for businesses that includes auto liability and auto physical damage coverages
BUSINESS INCOME COVERAGE
Insurance covering loss of income by a business when operations are interrupted due to property loss that is a covered cause of loss
BUSINESS INETERRUPTION COVERAGE
See Business Income Coverage
BUSINESSOWNERS POLICY / BOP
A policy that combines property, liability and business interruption coverages for small- to medium-sized businesses. Coverage is generally cheaper than if purchased through separate insurance policies
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CANCELLATION
The termination of an insurance policy usually before its expiration
Care, Custody or Control
An exclusion of liability insurance which eliminates coverage for damage to property in the insured’s care, custody or control
Carrier
The insurance company which provides coverage
Cash Benefits
The Money that is paid to the policy holder upon settlement of a covered claim.
Cash Value
The equity amount or “savings” accumulation in a whole life insurance policy.
Casualty Insurance
Insurance that covers loss caused by injuries to persons and the legal liability imposed on the insured for injury or for damage to property of others
Catastrophe
A severe loss causing sizable financial loss
Causes of Loss Forms
The commercial property forms that define the covered causes of loss for which coverage is provided. Commonly, there are 3 Cause of Loss Forms: Basic, Broad and Special
Certificate of Insurance
A document providing evidence that insurance has been purchased
Claim
A request by a policyholder or a claimant for payment under a policy of insurance
Claim Expense
Expenses of settling or investigating a claim
Claimant
The person presenting a claim
Claims Reserve
An amount of money set aside to meet claims reported but not paid
Class
A group of businesses who have common or similar exposures and are grouped together for rating purposes
Classification
The arranging or establishing of business groups or categories for rating purposes
Collapse
Collapse of a building and collapse of personal property within a building due to specified causes (such as weight of snow, ice or rain). Does not include collapse due to design error or due to faulty workmanship or materials if the collapse occurs after construction is complete
Collision Insurance
Provides for payment to a covered automobile resulting from the striking of another object by a moving vehicle
Commercial General Liability Policy (CGL)
A coverage which protects business organizations against liability claims for bodily injury and property damage. Those claims may be the result of events at your place of business, from your business operations, the products or services you make or do, communications or advertisements your business broadcasts
Competitive State Funds
State-owned and operated facilities that write Workers’ Compensation Insurance solely for that state
Completed Operations
A General Liability coverage for the work of the insured that has been completed away from the business premises
Comprehensive Auto Coverage
Covers an automobile for loss or damage for all causes except for those specifically excluded
Compulsory Insurance
Insurance that is required by law
Concealment
Failure to disclose facts which may void an insurance policy
Conditional Receipt
Given to policy owners when they pay a premium at the time of the application. These receipts bind the insurance company, provided your policy is approved, but are subject to any other conditions stated on the receipt.
Conditions
Things agreed upon in an insurance policy that state the rights and the requirements of the insured and the insurer
Consequential Loss
An indirect loss such as the reduction in value of property that is the result of a direct damage loss
Constructive Total Loss
Term used when damage to property is more than the value of the property
*Contestable Clause
A provision in an insurance policy setting forth the conditions or time period under which the insurance company may contest or void the policy. After this time has lapsed, typically two years, the policy cannot be contested. Example: Suicide.
Contingent Beneficiary
Person or persons designated to receive the value of an insurance policy in case the original beneficiary is not alive.
Contract
An agreement between two or more parties with characteristics of mutual assent, competent parties, a valid consideration and legal subject
*Coverage
Coverage is just another term for Insurance. It can be used to mean either the dollar amounts of insurance purchased ($500,000 of liability coverage), or the type of loss covered (coverage for theft).
Convertible Term
A policy that may be changed to another form by contractual provision and without evidence of insurability. Most term policies are convertible into permanent insurance.
Countersignature
The signature of a licensed agent or representative on a policy that is required to validate the policy
Cross-Purchase Plan
An agreement that provides that upon a business owner’s death, surviving owners will purchase the deceased’s interest, often with funds from life insurance.
Cumulative Injury
A type of injury which occurs from the repetition of tasks over an extended length of time
C-SHARE VARIABLE ANNUITIES
A form of variable annuity contract where the contract holder pays no sales up front or surrender charges. Owners can claim full liquidity at any time.
CAPACITY
The supply of insurance available to meet demand. Capacity depends on the industry’s financial ability to accept risk. For an individual insurer, the maximum amount of risk it can underwrite based on its financial condition. The adequacy of an insurer’s capital relative to its exposure to loss is an important measure of solvency.
A property/casualty insurer must maintain a certain level of capital and policyholder surplus to underwrite risks. This capital is known as capacity. When the industry is hit by high losses, such as after the World Trade Center terrorist attack, capacity is diminished. It can be restored by increases in net income, favorable investment returns, reinsuring more risk and or raising additional capital. When there is excess capacity, usually because of a high return on investments, premiums tend to decline as insurers compete for market share. As premiums decline, underwriting losses are likely to grow, reducing capacity and causing insurers to raise rates and tighten conditions and limits in an effort to increase profitability. Policyholder surplus is sometimes used as a measure of capacity.
CAPITAL
Shareholder’s equity (for publicly-traded insurance companies) and retained earnings (for mutual insurance companies). There is no general measure of capital adequacy for property/casualty insurers. Capital adequacy is linked to the riskiness of an insurer’s business. A company underwriting medical device manufacturers needs a larger cushion of capital than a company writing Main Street business, for example.
CAPITAL MARKETS
The markets in which equities and debt are traded.
CAPTIVE AGENT
A person who represents only one insurance company and is restricted by agreement from submitting business to any other company, unless it is first rejected by the agent’s captive company
CAPTIVES
Insurers that are created and wholly-owned by one or more non-insurers, to provide owners with coverage. A form of self-insurance.
CAR YEAR
Equal to 365 days of insured coverage for a single vehicle. It is the standard measurement for automobile insurance
CASE MANAGEMENT
A system of coordinating medical services to treat a patient, improve care, and reduce cost. A case manager coordinates health care delivery for patients.
CATASTROPHE
Term used for statistical recording purposes to refer to a single incident or a series of closely related incidents causing severe insured property losses totaling more than a given amount, currently $25 million (per the Insurance Information Institute, iii.org).
CATASTROPHE BONDS
Risk-based securities that pay high interest rates and provide insurance companies with a form of reinsurance to pay losses from a catastrophe such as those caused by a major hurricane. They allow insurance risk to be sold to institutional investors in the form of bonds, thus spreading the risk.
CATASTROPHE DEDUCTIBLE
A percentage or dollar amount that a homeowner must pay before the insurance policy kicks in when a major natural disaster occurs. These large deductibles limit an insurer’s potential losses in such cases, allowing it to insure more property. A property insurer may not be able to buy reinsurance to protect its own bottom line unless it keeps its potential maximum losses under a certain level.
CATASTROPHE FACTOR
Probability of catastrophic loss, based on the total number of catastrophes in a state over a 40-year period.
CATASTROPHE MODEL
Using computers, a method to mesh long-term disaster information with current demographic, building and other data to determine the potential cost of natural disasters and other catastrophic losses for a given geographic area.
CATASTROPHE REINSURANCE
Reinsurance (insurance for insurers) for catastrophic losses. The insurance industry is able to absorb the multibillion dollar losses caused by natural and man-made disasters such as hurricanes, earthquakes and terrorist attacks because losses are spread among thousands of companies including catastrophe reinsurers who operate on a global basis. Insurers’ ability and willingness to sell insurance fluctuates with the availability and cost of catastrophe reinsurance.
After major disasters, such as Hurricane Andrew and the World Trade Center terrorist attack, the availability of catastrophe reinsurance becomes extremely limited. Claims deplete reinsurers’ capital and, as a result, companies are more selective in the type and amount of risks they assume. In addition, with available supply limited, prices for reinsurance rise. This contributes to an overall increase in prices for property insurance.
CELL PHONE INSURANCE
Separate insurance provided to cover cell phones for damage or theft. Policies are often sold with the cell phones themselves.
CHARTERED FINANCIAL CONSULTANT / ChFC
A professional designation given by The American College to financial services professionals who complete courses in financial planning.
CHARTERED LIFE UNDERWRITER / CLU
A professional designation by The American College for those who pass business examinations on insurance, investments, and taxation, and have life insurance planning experience.
CHARTERED PROPERTY/CASUALTY UNDERWRITER / CPCU
A professional designation given by the American Institute for Property and Liability Underwriters. National examinations and three years of work experience are required.
CLAIMS-MADE POLICY
A form of insurance that pays claims presented to the insurer during the term of the policy or within a specific term after its expiration. It limits liability insurers’ exposure to unknown future liabilities.
COBRA
Short for Consolidated Omnibus Budget Reconciliation Act. A federal law under which group health plans sponsored by employers with 20 or more employees must offer continuation of coverage to employees who leave their jobs and their dependents. The employee must pay the entire premium. Coverage can be extended up to 18 months. Surviving dependents can receive longer coverage.
COINSURANCE
In property insurance, requires the policyholder to carry insurance equal to a specified percentage of the value of property to receive full payment on a loss. For health insurance, it is a percentage of each claim above the deductible paid by the policyholder. For a 20 percent health insurance coinsurance clause, the policyholder pays for the deductible plus 20 percent of his covered losses. After paying 80 percent of losses up to a specified ceiling, the insurer starts paying 100 percent of losses.
COLLATERAL
Property that is offered to secure a loan or other credit and that becomes subject to seizure on default. (Also called security.)
COLLATERAL SOURCE RULE
Bars the introduction of information that indicates a person has been compensated or reimbursed by a source other than the defendant in civil actions related to negligence or other liability.
COLLISION COVERAGE
Portion of an auto insurance policy that covers the damage to the policyholder’s car from a collision.
COMBINED RATIO
Percentage of each premium dollar a property/casualty insurer spends on claims and expenses. A decrease in the combined ratio means financial results are improving; an increase means they are deteriorating.
COMMERCIAL GENERAL LIABILITY INSURANCE / CGL
A broad commercial policy that covers all liability exposures of a business that are not specifically excluded. Coverage includes product liability, completed operations, premises and operations, and independent contractors.
COMMERCIAL LINES
Products designed for and bought by businesses. Among the major coverages are boiler and machinery, business interruption, commercial auto, comprehensive general liability, directors and officers liability, fire and allied lines, inland marine, medical malpractice liability, product liability, professional liability, surety and fidelity, and workers compensation. Most of these commercial coverages can be purchased separately except business interruption which must be added to a fire insurance (property) policy.
COMMERCIAL MULTIPLE PERIL POLICY
Package policy that includes property, boiler and machinery, crime, and general liability coverages.
COMMERCIAL PAPER
Short-term, unsecured, and usually discounted promissory note issued by commercial firms and financial companies often to finance current business. Commercial paper, which is rated by debt rating agencies, is sold through dealers or directly placed with an investor.
COMMISSION
Fee paid to an agent or insurance salesperson as a percentage of the policy premium. The percentage varies widely depending on coverage, the insurer, and the marketing methods.
COMMUNITY RATING LAWS
Enacted in several states on health insurance policies. Insurers are required to accept all applicants for coverage and charge all applicants the same premium for the same coverage regardless of age or health. Premiums are based on the rate determined by the geographic region’s health and demographic profile.
COMPETITIVE STATE FUND
A facility established by a state to sell workers compensation in competition with private insurers.
COMPLETED OPERATIONS COVERAGE
Pays for bodily injury or property damage caused by a completed project or job. Protects a business that sells a service against liability claims.
COMPREHENSIVE COVERAGE
Portion of an auto insurance policy that covers damage to the policyholder’s car not involving a collision with another car (including damage from fire, explosions, earthquakes, floods, and riots), and theft.
COMPULSORY AUTO INSURANCE
The minimum amount of auto liability insurance that meets a state law. Financial responsibility laws in every state require all automobile drivers to show proof, after an accident, of their ability to pay damages up to the state minimum. In compulsory liability states this proof, which is usually in the form of an insurance policy, is required before you can legally drive a car.
CONTINGENT LIABILITY
Liability of individuals, corporations, or partnerships for accidents caused by people other than employees for whose acts or omissions the corporations or partnerships are responsible.
COVERAGE
Synonym for insurance.
CRASH PARTS
Sheet metal parts that are most often damaged in a car crash.
CREDIT
The promise to pay in the future in order to buy or borrow in the present. The right to defer payment of debt.
CREDIT DERIVATIVES
A contract that enables a user, such as a bank, to better manage its credit risk. A way of transferring credit risk to another party.
CREDIT ENHANCEMENT
A technique to lower the interest payments on a bond by raising the issue’s credit rating, often through insurance in the form of a financial guarantee or with standby letters of credit issued by a bank
CREDIT INSURANCE
Commercial coverage against losses resulting from the failure of business debtors to pay their obligation to the insured, usually due to insolvency. The coverage is geared to manufacturers, wholesalers, and service providers who may be dependent on a few accounts and therefore could lose significant income in the event of an insolvency.
CREDIT LIFE INSURANCE
Life insurance coverage on a borrower designed to repay the balance of a loan in the event the borrower dies before the loan is repaid. It may also include disablement and can be offered as an option in connection with credit cards and auto loans.
CREDIT SCORE
The number produced by an analysis of an individual’s credit history. The use of credit information affects all consumers in many ways, from getting a job, finding a place to live, securing a loan, getting a telephone, and buying insurance. Credit history is routinely reviewed by insurers before issuing a commercial policy because businesses in poor financial condition tend to cut back on safety which can lead to more accidents and more claims. Auto and home insurers may use information in a credit history to produce an insurance score. Insurance scores may be used in underwriting and rating insurance policies.
CRIME INSURANCE
Term referring to property coverages for the perils of burglary, theft and robbery.
CROP-HAIL INSURANCE
Protection against damage to growing crops from hail, fire, or lightning provided by the private market. By contrast, multiple peril crop insurance covers a wider range of yield-reducing conditions, such as drought and insect infestation, and is subsidized by the federal government.
Data Processing or EDP Coverage
All risk property insurance for electronic data processing equipment (computers), computer programs and data including mechanical breakdown, electrical injury and changes in temperature and humidity
Death Benefit
The amount of money paid to the beneficiary when the insured person dies.
Decreasing Term Insurance
Term life insurance on which the face value slowly decreases in scheduled steps from the date the policy comes into force to the date the policy expires, while the premium remains level. The intervals between decreases are usually monthly or annually.
Debris Removal
The cost of removal of debris from covered property damaged by an insured peril
Deductible
The amount of loss which is paid or absorbed by the insured prior to determining the insurance company’s liability
Deposit Premium
The amount of premium required at the beginning of a policy prior to the actual premium being determined
Depreciation
The reduction in value of property over a period of time. Usually as a result of age, wear and tear, or economic obsolescence
Direct Damage
Causes of loss that produce direct and straightforward property damage (without interruption in time or deviation in space) from the cause of the event to the damaged property
Double Indemnity
Payment of twice the basic benefit in the event of loss resulting from specified causes or under specified circumstances.
Driver Other Car Endorsement
An endorsement that can be added to an automobile policy that gives protection while the insured designated in the endorsement is driving a car other than the one named in the policy
Drop Down Provision
A clause used in Umbrella policies providing that the Umbrella will ‘drop-down’ over underlying policy aggregate limits when they have been reduced or exhausted
DECLARATION
Part of a property or liability insurance policy that states the name and address of policyholder, property insured, its location and description, the policy period, premiums, and supplemental information. Referred to as the “dec page.”
DEDUCTIBLE
The amount of loss paid by the policyholder. Either a specified dollar amount, a percentage of the claim amount, or a specified amount of time that must elapse before benefits are paid. The bigger the deductible, the lower the premium charged for the same coverage.
DEFERRED ANNUITY
An annuity under which the annuity payment period is scheduled to begin at some future date.
DEFINED BENEFIT PLAN
A retirement plan under which pension benefits are fixed in advance by a formula based generally on years of service to the company multiplied by a specific percentage of wages, usually average earnings over that period or highest average earnings over the final years with the company.
DEFINED CONTRIBUTION PLAN
An employee benefit plan under which the employer sets up benefit accounts and contributions are made to it by the employer and by the employee. The employer usually matches the employee’s contribution up to a stated limit.
DEMAND DEPOSIT
Customer assets that are held in a checking account. Funds can be readily withdrawn by check, “on demand.”
DEMUTUALIZATION
The conversion of insurance companies from mutual companies owned by their policyholders into publicly-traded stock companies.
DEPOSITORY INSTITUTION
Financial institution that obtains its funds mainly through deposits from the public. Includes commercial banks, savings and loan associations, savings banks, and credit unions.
DEREGULATION
In insurance, reducing regulatory control over insurance rates and forms. Commercial insurance for businesses of a certain size has been deregulated in many states.
DERIVATIVES
Contracts that derive their value from an underlying financial asset, such as publicly-traded securities and foreign currencies. Often used as a hedge against changes in value.
DIFFERENCE IN CONDITIONS
Policy designed to fill in gaps in a business’s commercial property insurance coverage. There is no standard policy. Policies are specifically tailored to the policyholder’s needs.
DIMINUTION OF VALUE
The idea that a vehicle loses value after it has been damaged in an accident and repaired.
DIRECT PREMIUMS
Property/casualty premiums collected by the insurer from policyholders, before reinsurance premiums are deducted. Insurers share some direct premiums and the risk involved with their reinsurers.
DIRECT SALES/ DIRECT RESPONSE
Method of selling insurance directly to the insured through an insurance company’s own employees, through the mail, or via the Internet. This is in lieu of using captive or exclusive agents.
DIRECT WRITERS
Insurance companies that sell directly to the public using exclusive agents or their own employees, through the mail, or via Internet. Large insurers, whether predominately direct writers or agency companies, are increasingly using many different channels to sell insurance. In reinsurance, denotes reinsurers that deal directly with the insurance companies they reinsure without using a broker.
DIRECTORS AND OFFICERS LIABILITY INSURANCE/D&O
Covers directors and officers of a company for negligent acts or omissions, and for misleading statements that result in suits against the company, often by shareholders. Directors and officers insurance policies usually contain two coverages: personal coverage for individual directors and officers who are not indemnified by the corporation for their legal expenses or judgments against them – some corporations are not required by their corporate or state charters to provide indemnification; and corporate reimbursement coverage for indemnifying directors and officers. Entity coverage for claims made specifically against the company may also be available.
DIVIDENDS
Money returned to policyholders from an insurance company’s earnings. Considered a partial premium refund rather than a taxable distribution, reflecting the difference between the premium charged and actual losses. Many life insurance policies and some property/casualty policies pay dividends to their owners. Life insurance policies that pay dividends are called participating policies.
DOMESTIC INSURANCE COMPANY
Term used by a state to refer to any company incorporated there.
Earned Premium
The amount of premium that has been used for certain periods of time
Earth Movement or Earthquake Exclusion
An exclusion found in most property insurance policies eliminating coverage for earth movement or earthquake, except ensuing fire
Effective Date
The date on which an insurance binder or policy goes into effect
Electrical Damage or Injury Exclusion
An exclusion usually contained in property insurance policies eliminating coverage for damage to electrical appliances caused by artificially generated currents, except for ensuing fire or explosion
Employee Dishonesty Coverage
Coverage for theft of money, securities or property by an employee
Employee Leasing
A staffing method which an employee leasing company provides all or most of its client’s employees
Employers Excess Indemnity Insurance
Insurance coverage purchased by employers that do not subscribe to the Texas Workers’ Compensation law
Employers Liability Coverage
Part 2 of the Workers’ Compensation policy which pays on behalf of the employer all sums that the employer becomes legally obligated to pay because of bodily injury by accident or disease sustained by any employee of the insured arising out of and in the course of his employment by the insured
Employment Practices Liability Insurance
A form of liability insurance covering wrongful acts arising from employment practices such as wrongful termination, discrimination and sexual harassment
Endorsement
A document attached to an insurance policy that changes the original policy provisions
Equipment Floater
A property insurance coverage for equipment that is often moved from place to place
Estimated Premium
A preliminary premium amount that could be adjusted based on a variance in exposures
Evidence of Insurability
Any statement or proof of a person’s physical condition, occupation, etc., affecting acceptance of the applicant for insurance.
Excess and Surplus Lines Insurance
Coverage that is provided by insurers not licensed in the states where the risk is located
Excess Liability Policy
A policy that provides additional limits in excess of an underlying liability policy
Exclusions
Specified hazards listed in a policy for which benefits will not be paid.
Expected or Intended
An exclusion for injury or damage that is expected or intended
Expediting Expense Coverage
Coverage providing reimbursement of expenses for temporary repairs and costs incurred to speed up the permanent repair or replacement of covered property or equipment
Expense Constant
A small flat expense charged to Workers’ Compensation policies
Experience Modifier
A debit or credit factor developed by measuring the difference between the insured’s actual past experience and the expected or actual experience of the class of business
Expiration
The ending date of an insurance policy
Exposure Base
The basis of rates that are applied to determine premium. Some exposures may be measured by payroll, receipts, sales, square footage, area, man-hours or per unit
Extra Expense Coverage
Coverage for reimbursement of expenses in excess of normal operating expenses that are incurred to continue operations after a direct damage loss
Extraterritorial Coverage
The coverage for extending workers’ compensation law to provide benefits for workers hired in one state but injured while working in another state
EARLY WARNING SYSTEM
A system of measuring insurers’ financial stability set up by insurance industry regulators. An example is the Insurance Regulatory Information System (IRIS), which uses financial ratios to identify insurers in need of regulatory attention.
EARNED PREMIUM
The portion of premium that applies to the expired part of the policy period. Insurance premiums are payable in advance but the insurance company does not fully earn them until the policy period expires.
EARTHQUAKE INSURANCE
Covers a building and its contents, but includes a large percentage deductible on each. A special policy or endorsement exists because earthquakes are not covered by standard homeowners or most business policies.
Coverages and benefits listed above may be available at an additional charge, talk to us today to find out more.
ECONOMIC LOSS
Total financial loss resulting from the death or disability of a wage earner, or from the destruction of property. Includes the loss of earnings, medical expenses, funeral expenses, the cost of restoring or replacing property, and legal expenses. It does not include noneconomic losses, such as pain caused by an injury.
ELECTRONIC COMMERCE / E-COMMERCE
The sale of products such as insurance over the Internet.
ELIMINATION PERIOD
A kind of deductible or waiting period usually found in disability policies. It is counted in days from the beginning of the illness or injury.
EMPLOYEE DISHONESTY COVERAGE
Covers direct losses and damage to businesses resulting from the dishonest acts of employees.
EMPLOYEE RETIREMENT INCOME SECURITY ACT / ERISA
Federal legislation that protects employees by establishing minimum standards for private pension and welfare plans.
EMPLOYER’S LIABILITY
Part B of the workers compensation policy that provides coverage for lawsuits filed by injured employees who, under certain circumstances, can sue under common law.
EMPLOYMENT PRACTICES LIABILITY COVERAGE
Liability insurance for employers that covers wrongful termination, discrimination, or sexual harassment toward the insured’s employees or former employees.
ENDORSEMENT
A written form attached to an insurance policy that alters the policy’s coverage, terms, or conditions. Sometimes called a rider.
ENVIRONMENTAL IMPAIRMENT LIABILITY COVERAGE
A form of insurance designed to cover losses and liabilities arising from damage to property caused by pollution.
EQUITY
In investments, the ownership interest of shareholders. In a corporation, stocks as opposed to bonds
EQUITY INDEXED ANNUITY
Non-traditional fixed annuity. The specified rate of interest guarantees a fixed minimum rate of interest like traditional fixed annuities. At the same time, additional interest may be credited to policy values based upon positive changes, if any, in an established index such as the S&P 500. The amount of additional interest depends upon the particular design of the policy. They are sold by licensed insurance agents and regulated by state insurance departments.
ERRORS AND OMISSIONS COVERAGE / E&O
A professional liability policy covering the policyholder for negligent acts and omissions that may harm his or her clients.
ESCROW ACCOUNT
Funds that a lender collects to pay monthly premiums in mortgage and homeowners insurance, and sometimes to pay property taxes.
EXCESS AND SURPLUS LINES
Property/casualty coverage that isn’t available from insurers licensed by the state (called admitted insurers) and must be purchased from a non-admitted carrier.
EXCESS OF LOSS REINSURANCE
A contract between an insurer and a reinsurer, whereby the insurer agrees to pay a specified portion of a claim and the reinsurer to pay all or a part of the claim above that amount.
EXCLUSION
A provision in an insurance policy that eliminates coverage for certain risks, people, property classes, or locations.
EXCLUSIVE AGENT
A captive agent, or a person who represents only one insurance company and is restricted by agreement from submitting business to any other company unless it is first rejected by the agent’s company
EXCLUSIVE REMEDY
Part of the social contract that forms the basis for workers compensation statutes under which employers are responsible for work-related injury and disease, regardless of whether is was the employee’s fault and in return the injured employee gives up the right to sue when the employer’s negligence causes the harm.
EXPENSE RATIO
Percentage of each premium dollar that goes to insurers’ expenses including overhead, marketing, and commissions.
EXPERIENCE
Record of losses.
EXPOSURE
Possibility of loss.
EXTENDED COVERAGE
An endorsement added to an insurance policy, or clause within a policy, that provides additional coverage for risks other than those in a basic policy.
EXTENDED REPLACEMENT COST COVERAGE
Pays a certain amount above the policy limit to replace a damaged home, generally 120 percent or 125 percent. Similar to a guaranteed replacement cost policy, which has no percentage limits. Most homeowner policy limits track inflation in building costs. Guaranteed and extended replacement cost policies are designed to protect the policyholder after a major disaster when the high demand for building contractors and materials can push up the normal cost of reconstruction
Face Amount
The amount covered by the terms of an insurance contract, usually found on the first page of the policy.
Fiduciary Liability
The liability placed on trustees, employers, fiduciaries and professional administrators with respect to errors and omissions in the administration of employee benefit programs
Final Expenses
Expenses incurred at the time of a person’s death. These include but are not limited to:funeral costs, court expenses, current bills or debt, mortgages, loans and taxes.
Fine Arts Coverage
Property insurance for works of art
Fire Department Service Charge Coverage
Coverage in a property insurance policy for charges incurred by the insured from a fire department for their services in fighting a fire
Fire Legal Liability Coverage
Liability coverage for the insured’s legal liability for fire damage to premises rented by the insured
Fire Wall
A wall designed to prevent the spread of fire from one part of a building to another
Firewall
A computer that protects a company’s private network from outside internet users
Fixed Benefit
A death benefit, the dollar amount of which does not vary.
Flat Cancellation
The full cancellation of a policy as of the effective date of coverage which requires the return of paid premium in full
Flood Coverage
Coverage for damage to property caused by flood
Flood Exclusion
A provision in most all property insurance policies eliminating coverage for damage by flood and possibly other types of water damage, such as seepage and sewer backup
Follow Form
An umbrella policy provision that follows the underlying policy for coverages and policy provisions
Forgery or Alteration Coverage
Covers loss due to the dishonesty of writing, signing or altering of checks and bank drafts
Fortuitous Event
An event that is subject to chance without the implication of suddenness
Free Look
Trial period required in most states where policy owners have up to 20 days to examine their new policies with no obligation.
Frequency
The number of times that a loss will occur within any given period of time
Full Coverage
Any form of insurance that provides payment in full of all losses caused by the perils insured against without applying a deductible or depreciation
Funeral Expenses
Expenses including casket, vault, grave plot, headstone and funeral director.
FACULTATIVE REINSURANCE
A reinsurance policy that provides an insurer with coverage for specific individual risks that are unusual or so large that they aren’t covered in the insurance company’s reinsurance treaties. This can include policies for jumbo jets or oil rigs. Reinsurers have no obligation to take on facultative reinsurance, but can assess each risk individually. By contrast, under treaty reinsurance, the reinsurer agrees to assume a certain percentage of entire classes of business, such as various kinds of auto, up to preset limits.
FAIR ACCESS TO INSURANCE REQUIREMENTS PLANS / FAIR PLANS
Insurance pools that sell property insurance to people who can’t buy it in the voluntary market because of high risk over which they may have no control. FAIR Plans, which exist in 28 states and the District of Columbia, insure fire, vandalism, riot, and windstorm losses, and some sell homeowners insurance which includes liability. Plans vary by state, but all require property insurers licensed in a state to participate in the pool and share in the profits and losses.
FARMOWNERS-RANCHOWNERS INSURANCE
Package policy that protects the policyholder against named perils and liabilities and usually covers homes and their contents, along with barns, stables, and other structures.
FEDERAL FUNDS
Reserve balances that depository institutions lend each other, usually on an overnight basis. In addition, Federal funds include certain other kinds of borrowings by depository institutions from each other and from federal agencies.
FEDERAL INSURANCE ADMINISTRATION / FIA
Federal agency in charge of administering the National Flood Insurance Program. It does not regulate the insurance industry.
FEDERAL RESERVE BOARD
Seven-member board that supervises the banking system by issuing regulations controlling bank holding companies and federal laws over the banking industry. It also controls and oversees the U.S. monetary system and credit supply.
FIDELITY BOND
A form of protection that covers policyholders for losses that they incur as a result of fraudulent acts by specified individuals. It usually insures a business for losses caused by the dishonest acts of its employees.
FIDUCIARY BOND
A type of surety bond, sometimes called a probate bond, which is required of certain fiduciaries, such as executors and trustees, that guarantees the performance of their responsibilities.
FIDUCIARY LIABILITY
Legal responsibility of a fiduciary to safeguard assets of beneficiaries. A fiduciary, for example a pension fund manager, is required to manage investments held in trust in the best interest of beneficiaries. Fiduciary liability insurance covers breaches of fiduciary duty such as misstatements or misleading statements, errors and omissions.
FILE-AND-USE STATES
States where insurers must file rate changes with their regulators, but don’t have to wait for approval to put them into effect.
FINANCIAL GUARANTEE INSURANCE
Covers losses from specific financial transactions and guarantees that investors in debt instruments, such as municipal bonds, receive timely payment of principal and interest if there is a default. Raises the credit rating of debt to which the guarantee is attached. Investment bankers who sell asset-backed securities, securities backed by loan portfolios, use this insurance to enhance marketability.
FINANCIAL RESPONSIBILITY LAW
A state law requiring that all automobile drivers show proof that they can pay damages up to a minimum amount if involved in an auto accident. Varies from state to state but can be met by carrying a minimum amount of auto liability insurance.
FINITE RISK REINSURANCE
Contract under which the ultimate liability of the reinsurer is capped and on which anticipated investment income is expressly acknowledged as an underwriting component. Also known as Financial Reinsurance because this type of coverage is often bought to improve the balance sheet effects of statutory accounting principles.
FIRE INSURANCE
Coverage protecting property against losses caused by a fire or lightning that is usually included in homeowners or commercial multiple peril policies.
FIRST-PARTY COVERAGE
Coverage for the policyholder’s own property or person. In no-fault auto insurance it pays for the cost of injuries. In no-fault states with the broadest coverage, the personal injury protection (PIP) part of the policy pays for medical care, lost income, funeral expenses and, where the injured person is not able to provide services such as child care, for substitute services.
FIXED ANNUITY
An annuity that guarantees a specific rate of return. In the case of a deferred annuity, a minimum rate of interest is guaranteed during the savings phase. During the payment phase, a fixed amount of income, paid on a regular schedule, is guaranteed.
FLOATER
Attached to a homeowners policy, a floater insures movable property, covering losses wherever they may occur. Among the items often insured with a floater are expensive jewelry, musical instruments, and furs. It provides broader coverage than a regular homeowners policy for these items.
FLOOD INSURANCE
Coverage for flood damage is available from the federal government under the National Flood Insurance Program but is sold by licensed insurance agents. Flood coverage is excluded under homeowners policies and many commercial property policies. However, flood damage is covered under the comprehensive portion of an auto insurance policy
FORCED PLACE INSURANCE
Insurance purchased by a bank or creditor on an uninsured debtor’s behalf so if the property is damaged, funding is available to repair it.
FOREIGN INSURANCE COMPANY
Name given to an insurance company based in one state by the other states in which it does business.
FRAUD
Intentional lying or concealment by policyholders to obtain payment of an insurance claim that would otherwise not be paid, or lying or misrepresentation by the insurance company managers, employees, agents, and brokers for financial gain.
FREE-LOOK PERIOD
A period of up to one month during which the purchaser of an annuity can cancel the contract with no penalty. Rules vary by state.
FREQUENCY
Number of times a loss occurs. One of the criteria used in calculating premium rates.
FRONTING
A procedure in which a primary insurer acts as the insurer of record by issuing a policy, but then passes the entire risk to a reinsurer in exchange for a commission. Often, the fronting insurer is licensed to do business in a state or country where the risk is located, but the reinsurer is not. The reinsurer in this scenario is often a captive or an independent insurance company that cannot sell insurance directly in a particular country.
FUTURES
Agreement to buy a security for a set price at a certain date. Futures contracts usually involve commodities, indexes or financial futures.
Garage Liability Insurance
Insurance coverage for the legal liability of automobile dealers, garages, repair shops and service stations for bodily injury and property damage arising out of their business operations
Garagekeepers Coverage
Provides coverage to owners of storage garages, parking lots and body and repair shops for their liability of damage to automobiles left in their custody for safekeeping or repair
General Aggregate Limit
The maximum amount of insurance payable during the policy period for losses (other than those arising from the products – completed operations hazards as covered under the standard commercial general liability policy)
General Liability Insurance
Insurance protecting businesses from most liability exposures other than automobile and professional liability
Glass Insurance
A property insurance policy covering breakage of building glass regardless of cause
Governing Classification
In Workers’ Compensation Insurance, the classification that best describes the workers’ compensation exposure of an employer’s business
Grace Period
Period of time after the due date of a premium during which the policy remains in force without penalty.
Graded Premium Policy
A type of whole life policy designed for people who want more life coverage than they can currently afford. They pay a lower premium rate that increases gradually over the first three to five years and then remains constant over the life of the policy.
Gross Negligence
Willful and wanton misconduct
Gross Vehicle Weight (GVW)
The weight specified by a manufacturer for the maximum total loaded weight of a single vehicle
Guaranteed Term
A form of renewable term insurance that remains in force as long as the premiums are paid on time. With guaranteed term insurance, the insurance company cannot terminate the policy during the term.
GAP INSURANCE
An automobile insurance option, available in some states, that covers the difference between a car’s actual cash value when it is stolen or wrecked and the amount the consumer owes the leasing or finance company.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES/GAAP
Generally accepted accounting principles (GAAP) accounting is used in financial statements that publicly-held companies prepare for the Securities and Exchange Commission.
GENERIC AUTO PARTS
Auto crash parts produced by firms that are not associated with car manufacturers. Insurers consider these parts, when certified, at least as good as those that come from the original equipment manufacturer (OEM). They are often cheaper than the identical part produced by the OEM
GLASS INSURANCE
Coverage for glass breakage caused by all risks; fire and war are sometimes excluded. Insurance can be bought for windows, structural glass, leaded glass, and mirrors. Available with or without a deductible.
GRADUATED DRIVER LICENSES
Licenses for younger drivers that allow them to improve their skills. Regulations vary by state, but often restrict night time driving. Young drivers receive a learner’s permit, followed by a provisional license, before they can receive a standard drivers license.
GRAMM-LEACH-BLILEY ACT
Financial services legislation, passed by Congress in 1999, that removed Depression-era prohibitions against the combination of commercial banking and investment-banking activities. It allows insurance companies, banks, and securities firms to engage in each others’ activities and own one another.
GROUP INSURANCE
A single policy covering a group of individuals, usually employees of the same company or members of the same association and their dependents. Coverage occurs under a master policy issued to the employer or association.
GUARANTEE PERIOD
Period during which the level of interest specified under a fixed annuity is guaranteed.
GUARANTEED DEATH BENEFIT
Basic death benefits guaranteed under variable annuity contracts.
GUARANTEED INCOME CONTRACT / GIC
Often an option in an employer-sponsored retirement savings plan. Contract between an insurance company and the plan that guarantees a stated rate of return on invested capital over the life of the contract.
GUARANTEED LIVING BENEFIT
A guarantee in a variable annuity that a certain level of annuity payment will be maintained. Serves as a protection against investment risks. Several types exists.
GUARANTEED REPLACEMENT COST COVERAGE
Homeowners policy that pays the full cost of replacing or repairing a damaged or destroyed home, even if it is above the policy limit.
GUN LIABILITY
A new legal concept that holds gun manufacturers liable for the cost of injuries caused by guns. Several cities have filed lawsuits based on this concept.
Hired Automobile
An automobile whose exclusive use has been temporarily given to another for a monetary sum or other consideration. The business auto definition of ‘hired autos,’ however, includes autos borrowed except those borrowed from employees or partners
Hold Harmless Agreement
A contractual agreement that requires one contracting party to assume certain legal liabilities of the other party
Host Liquor Liability
Liability coverage for hosts of business or social functions arising out of the serving or distribution of alcoholic beverages by a party not engaged in this activity as a business enterprise
HACKER INSURANCE
A coverage that protects businesses engaged in electronic commerce from losses caused by hackers.
HARD MARKET
A seller’s market in which insurance is expensive and in short supply.
HOMEOWNERS INSURANCE POLICY
The typical homeowners insurance policy covers the house, the garage and other structures on the property, as well as personal possessions inside the house such as furniture, appliances and clothing, against a wide variety of perils including windstorms, fire and theft. The extent of the perils covered depends on the type of policy. An all-risk policy offers the broadest coverage. This covers all perils except those specifically excluded in the policy.
Homeowners insurance also covers additional living expenses. Known as Loss of Use, this provision in the policy reimburses the policyholder for the extra cost of living elsewhere while the house is being restored after a disaster. The liability portion of the policy covers the homeowner for accidental injuries caused to third parties and/or their property, such as a guest slipping and falling down improperly maintained stairs. Coverage for flood and earthquake damage is excluded and must be purchased separately.
HOUSE YEAR
Equal to 365 days of insured coverage for a single dwelling. It is the standard measurement for homeowners insurance.
HURRICANE DEDUCTIBLE
A percentage or dollar amount added to a homeowner’s insurance policy to limit an insurer’s exposure to loss from a hurricane. Higher deductibles are instituted in higher risk areas, such as coastal regions. Specific details, such as the intensity of the storm for the deductible to be triggered and the extent of the high risk area, vary from insurer to insurer and state to state.
Tab Content
Improvements and Betterments
Additions or changes made by a lessee at his own expense to property that may not legally be removed. Usually covered under the tenants property coverage
Incontestable Clause
A clause in a policy providing that a policy has been in effect for a given length of time (two or three years), the insurer shall not be able to contest the statements contained in the application. In life policies, if an insured lied as to the condition of his health at the time the policy was taken out, that lie could not be used to contest payment under the policy if death occurred after the time limit stated in the incontestable clause.
Incurred Losses
The amount of paid claims and loss reserves within a particular period of time, usually a policy year. Customarily computed as losses incurred during the period, plus outstanding losses at the end of the period, less outstanding losses at the beginning of the period
Independent Adjuster
A claims adjuster who provides adjustment services to insurance companies but is not employed by them
Independent Contractor
An individual or company who has agreed, in writing, with another party to perform a job or function on behalf of that party
Inflation Guard Provision
A provision that increases the limit of insurance by a specified percentage over a specified period of time to offset inflation costs
Insurability
The condition of the individual wishing to be insured, including their health, susceptibility to injury and life expectancy.
Insurance
A formal social device for reducing risk by transferring the risks of several
individual entities to an insurer. The insurer agrees, for a consideration, to pay for the loss in the amount specified in the contract.
Insurance Policy
The printed form which serves as the contract between an insurer and an insured.
Insurance to Value
Insurance written in an amount equal to the value of the property or which meets coinsurance requirements
Insured
The party who is being insured. In life insurance, it is the person because of his or her death the insurance company would pay out a death benefit to a designated beneficiary.
Insurer
The insurance company; Party that provides insurance coverage, typically through a contract of insurance.
Irrevocable Beneficiary
A beneficiary that cannot be changed without that beneficiary’s consent.
Increasing Term Insurance
Term life insurance in which the death benefit increases periodically over the policy’s term. Usually purchased as a cost of living rider to a whole life policy
IDENTITY THEFT INSURANCE
Coverage for expenses incurred as the result of an identity theft. Can include costs for notarizing fraud affidavits and certified mail, lost income from time taken off from work to meet with law-enforcement personnel or credit agencies, fees for reapplying for loans and attorney’s fees to defend against lawsuits and remove criminal or civil judgments.
IMMEDIATE ANNUITY
A product purchased with a lump sum, usually at the time retirement begins or afterwards. Payments begin within about a year. Immediate annuities can be either fixed or variable.
INCURRED BUT NOT REPORTED LOSSES / IBNR
Losses that are not filed with the insurer or reinsurer until years after the policy is sold. Some liability claims may be filed long after the event that caused the injury to occur. Asbestos-related diseases, for example, do not show up until decades after the exposure. IBNR also refers to estimates made about claims already reported but where the full extent of the injury is not yet known, such as a workers compensation claim where the degree to which work-related injuries prevents a worker from earning what he or she earned before the injury unfolds over time. Insurance companies regularly adjust reserves for such losses as new information becomes available.
INCURRED LOSSES
Losses occurring within a fixed period, whether or not adjusted or paid during the same period.
INDEMNIFY
Provide financial compensation for losses.
INDEPENDENT AGENT
Agent who is self-employed, is paid on commission, and represents several insurance companies.
INDIVIDUAL RETIREMENT ACCOUNT/IRA
A tax-deductible savings plan for those who are self-employed, or those whose earnings are below a certain level or whose employers do not offer retirement plans. Others may make limited contributions on a tax-deferred basis. The Roth IRA, a special kind of retirement account created in 1997, may offer greater tax benefits to certain individuals.
INFLATION GUARD CLAUSE
A provision added to a homeowners insurance policy that automatically adjusts the coverage limit on the dwelling each time the policy is renewed to reflect current construction costs.
INLAND MARINE INSURANCE
This broad type of coverage was developed for shipments that do not involve ocean transport. Covers articles in transit by all forms of land and air transportation as well as bridges, tunnels and other means of transportation and communication. Floaters that cover expensive personal items such as fine art and jewelry are included in this category.
INSOLVENCY
Insurer’s inability to pay debts. Insurance insolvency standards and the regulatory actions taken vary from state to state. When regulators deem an insurance company is in danger of becoming insolvent, they can take one of three actions: place a company in conservatorship or rehabilitation if the company can be saved or liquidation if salvage is deemed impossible. The difference between the first two options is one of degree – regulators guide companies in conservatorship but direct those in rehabilitation. Typically the first sign of problems is inability to pass the financial tests regulators administer as a routine procedure.
INSTITUTIONAL INVESTOR
An organization such as a bank or insurance company that buys and sells large quantities of securities
INSURABLE RISK
Risks for which it is relatively easy to get insurance and that meet certain criteria. These include being definable, accidental in nature, and part of a group of similar risks large enough to make losses predictable. The insurance company also must be able to come up with a reasonable price for the insurance.
INSURANCE
A system to make large financial losses more affordable by pooling the risks of many individuals and business entities and transferring them to an insurance company or other large group in return for a premium.
INSURANCE POOL
A group of insurance companies that pool assets, enabling them to provide an amount of insurance substantially more than can be provided by individual companies to ensure large risks such as nuclear power stations. Pools may be formed voluntarily or mandated by the state to cover risks that can’t obtain coverage in the voluntary market such as coastal properties subject to hurricanes.
INSURANCE REGULATORY INFORMATION SYSTEM / IRIS
Uses financial ratios to measure insurers’ financial strength. Developed by the National Association of Insurance Commissioners. Each individual state insurance department chooses how to use IRIS.
INSURANCE SCORE
Insurance scores are confidential rankings based on credit information. This includes whether the consumer has made timely payments on loans, the number of open credit card accounts and whether a bankruptcy filing has been made. An insurance score is a measure of how well consumers manage their financial affairs, not of their financial assets. It does not include information about income or race.
Studies (1) have shown that people who manage their money well tend also to manage their most important asset, their home, well. And people who manage their money responsibly also tend to handle driving a car responsibly. Some insurance companies use insurance scores as an insurance underwriting and rating tool.
Related Study – The Relationship of Credit-Based Insurance Scores to Private Passenger Automobile Insurance Loss Propensity, by EPIC Actuaries, LLC, June 2003
INSURANCE-TO-VALUE
Insurance written in an amount approximating the value of the insured property.
INTEGRATED BENEFITS
Coverage where the distinction between job-related and non-occupational illnesses or injuries is eliminated and workers compensation and general health coverage are combined. Legal obstacles exist, however, because the two coverages are administered separately. Previously called twenty-four hour coverage.
INTERMEDIATION
The process of bringing savers, investors and borrowers together so that savers and investors can obtain a return on their money and borrowers can use the money to finance their purchases or projects through loans.
INTERNET INSURER
An insurer that sells exclusively via the Internet.
INTERNET LIABILITY INSURANCE
Coverage designed to protect businesses from liabilities that arise from the conducting of business over the Internet, including copyright infringement, defamation, and violation of privacy.
INVESTMENT INCOME
Income generated by the investment of assets. Insurers have two sources of income, underwriting (premiums less claims and expenses) and investment income. The latter can offset underwriting operations, which are frequently unprofitable.
Joint Venture
A business relationship when two or more persons join their labor or property for a business undertaking and share profits
IDENTITY THEFT INSURANCE
Coverage for expenses incurred as the result of an identity theft. Can include costs for notarizing fraud affidavits and certified mail, lost income from time taken off from work to meet with law-enforcement personnel or credit agencies, fees for reapplying for loans and attorney’s fees to defend against lawsuits and remove criminal or civil judgments.
IMMEDIATE ANNUITY
A product purchased with a lump sum, usually at the time retirement begins or afterwards. Payments begin within about a year. Immediate annuities can be either fixed or variable.
INCURRED BUT NOT REPORTED LOSSES / IBNR
Losses that are not filed with the insurer or reinsurer until years after the policy is sold. Some liability claims may be filed long after the event that caused the injury to occur. Asbestos-related diseases, for example, do not show up until decades after the exposure. IBNR also refers to estimates made about claims already reported but where the full extent of the injury is not yet known, such as a workers compensation claim where the degree to which work-related injuries prevents a worker from earning what he or she earned before the injury unfolds over time. Insurance companies regularly adjust reserves for such losses as new information becomes available.
INCURRED LOSSES
Losses occurring within a fixed period, whether or not adjusted or paid during the same period.
INDEMNIFY
Provide financial compensation for losses.
INDEPENDENT AGENT
Agent who is self-employed, is paid on commission, and represents several insurance companies.
INDIVIDUAL RETIREMENT ACCOUNT/IRA
A tax-deductible savings plan for those who are self-employed, or those whose earnings are below a certain level or whose employers do not offer retirement plans. Others may make limited contributions on a tax-deferred basis. The Roth IRA, a special kind of retirement account created in 1997, may offer greater tax benefits to certain individuals.
INFLATION GUARD CLAUSE
A provision added to a homeowners insurance policy that automatically adjusts the coverage limit on the dwelling each time the policy is renewed to reflect current construction costs.
INLAND MARINE INSURANCE
This broad type of coverage was developed for shipments that do not involve ocean transport. Covers articles in transit by all forms of land and air transportation as well as bridges, tunnels and other means of transportation and communication. Floaters that cover expensive personal items such as fine art and jewelry are included in this category.
INSOLVENCY
Insurer’s inability to pay debts. Insurance insolvency standards and the regulatory actions taken vary from state to state. When regulators deem an insurance company is in danger of becoming insolvent, they can take one of three actions: place a company in conservatorship or rehabilitation if the company can be saved or liquidation if salvage is deemed impossible. The difference between the first two options is one of degree – regulators guide companies in conservatorship but direct those in rehabilitation. Typically the first sign of problems is inability to pass the financial tests regulators administer as a routine procedure.
INSTITUTIONAL INVESTOR
An organization such as a bank or insurance company that buys and sells large quantities of securities
INSURABLE RISK
Risks for which it is relatively easy to get insurance and that meet certain criteria. These include being definable, accidental in nature, and part of a group of similar risks large enough to make losses predictable. The insurance company also must be able to come up with a reasonable price for the insurance.
INSURANCE
A system to make large financial losses more affordable by pooling the risks of many individuals and business entities and transferring them to an insurance company or other large group in return for a premium.
INSURANCE POOL
A group of insurance companies that pool assets, enabling them to provide an amount of insurance substantially more than can be provided by individual companies to ensure large risks such as nuclear power stations. Pools may be formed voluntarily or mandated by the state to cover risks that can’t obtain coverage in the voluntary market such as coastal properties subject to hurricanes.
INSURANCE REGULATORY INFORMATION SYSTEM / IRIS
Uses financial ratios to measure insurers’ financial strength. Developed by the National Association of Insurance Commissioners. Each individual state insurance department chooses how to use IRIS.
INSURANCE SCORE
Insurance scores are confidential rankings based on credit information. This includes whether the consumer has made timely payments on loans, the number of open credit card accounts and whether a bankruptcy filing has been made. An insurance score is a measure of how well consumers manage their financial affairs, not of their financial assets. It does not include information about income or race.
Studies (1) have shown that people who manage their money well tend also to manage their most important asset, their home, well. And people who manage their money responsibly also tend to handle driving a car responsibly. Some insurance companies use insurance scores as an insurance underwriting and rating tool.
Related Study – The Relationship of Credit-Based Insurance Scores to Private Passenger Automobile Insurance Loss Propensity, by EPIC Actuaries, LLC, June 2003
INSURANCE-TO-VALUE
Insurance written in an amount approximating the value of the insured property.
INTEGRATED BENEFITS
Coverage where the distinction between job-related and non-occupational illnesses or injuries is eliminated and workers compensation and general health coverage are combined. Legal obstacles exist, however, because the two coverages are administered separately. Previously called twenty-four hour coverage.
INTERMEDIATION
The process of bringing savers, investors and borrowers together so that savers and investors can obtain a return on their money and borrowers can use the money to finance their purchases or projects through loans.
INTERNET INSURER
An insurer that sells exclusively via the Internet.
INTERNET LIABILITY INSURANCE
Coverage designed to protect businesses from liabilities that arise from the conducting of business over the Internet, including copyright infringement, defamation, and violation of privacy.
INVESTMENT INCOME
Income generated by the investment of assets. Insurers have two sources of income, underwriting (premiums less claims and expenses) and investment income. The latter can offset underwriting operations, which are frequently unprofitable.
KEY PERSON INSURANCE
Insurance on the life or health of a key individual whose services are essential to the continuing success of a business and whose death or disability could cause the firm a substantial financial loss.
KIDNAP/RANSOM INSURANCE
Coverage up to specific limits for the cost of ransom or extortion payments and related expenses. Often bought by international corporations to cover employees. Most policies have large deductibles and may exclude certain geographic areas. Some policies require that the policyholder not reveal the coverage’s existence.
Lapse
Termination of a policy due to the policy owner’s failure to pay the premium within the grace period.
Leasehold Interest
Property insurance covering the loss suffered by a tenant due to termination of a lease because of damage to the leased premises by a covered loss
Lessee
The person to whom a lease is granted
Lessor
The person granting the lease
Liability
The legal obligation to pay a monetary award for injury or damage caused by one’s negligent or statutorily prohibited action
Liberalization Clause
A provision within an insurance policy that broadens the coverage if the insurance company offers a broader coverage form within the first 45 days of coverage
Lien
An obligation that can be held by an individual who has an interest in a particular matter or property
Life Expectancy
The average number of years a person is expected to live based on a national average per age group, and other factors.
Life Insurance
Insurance coverage that pays out a set amount of money to specified beneficiaries upon the death of the individual who is insured.
Limit of Liability
The most an insurance company agrees to pay in the case of loss
Limited Pay Policy
A type of whole life insurance designed to let the policyholder pay higher premiums over a specific time period such as 10 or 20 years so that they won’t have to pay any premiums for the rest of his or her life.
Longshore and Harbor Workers’ Compensation Act
A federal law that provides workers’ compensation benefits to employees of a vessel injured in maritime employment – usually in loading, unloading, repairing or building a vessel – but not applicable to crew members
Loss
The amount an insurance company pays for damages under the terms of a policy
Loss Adjustment Expense
The cost assessed to a particular claim for investigating and adjusting that claim
Loss Constant
A flat charge added to the premium of small workers’ compensation policies to offset higher loss ratios
Loss Control
A technique that is put in place to reduce the possibility that a loss will occur or reduce the severity of those that do occur
Loss Payable Clause
An insurance clause that authorizes loss payments to a person or entity having an insurable interest in the covered property
Loss Ratio
Percentage of losses incurred against earned premiums
Loss Report
A form showing reported claims which provides information such as the date of occurrence, type of claim, amount paid and amount reserved for each loss
Loss Reserve
An estimated amount set aside for a particular claim that has not yet been paid
Lost Policy Release
A signed statement by the named when the insured wishes to cancel the policy, but has lost or mislaid the policy, which releases the insurance company from all liability or losses
L-SHARE VARIABLE ANNUITIES
A form of variable annuity contract usually with short surrender periods and higher mortality and expense risk charges.
LADDERING
A technique that consists of staggering the maturity dates and the mix of different types of bonds.
LAW OF LARGE NUMBERS
The theory of probability on which the business of insurance is based. Simply put, this mathematical premise says that the larger the group of units insured, such as sport-utility vehicles, the more accurate the predictions of loss will be.
LIABILITY INSURANCE
Insurance for what the policyholder is legally obligated to pay because of bodily injury or property damage caused to another person
LIMITS
Maximum amount of insurance that can be paid for a covered loss.
LINE
Type or kind of insurance, such as personal lines.
LIQUIDATION
Enables the state insurance department as liquidator or its appointed deputy to wind up the insurance company’s affairs by selling its assets and settling claims upon those assets. After receiving the liquidation order, the liquidator notifies insurance departments in other states and state guaranty funds of the liquidation proceedings. Such insurance company liquidations are not subject to the Federal Bankruptcy Code but to each state’s liquidation statutes.
LIQUIDITY
The ability and speed with which a security can be converted into cash.
LIQUOR LIABILITY
Coverage for bodily injury or property damage caused by an intoxicated person who was served liquor by the policyholder.
LLOYD’S OF LONDON
A marketplace where underwriting syndicates, or mini-insurers, gather to sell insurance policies and reinsurance. Each syndicate is managed by an underwriter who decides whether or not to accept the risk. The Lloyd’s market is a major player in the international reinsurance market as well as a primary market for marine insurance and large risks. Originally, Lloyd’s was a London coffee house in the 1600s patronized by shipowners who insured each other’s hulls and cargoes. As Lloyd’s developed, wealthy individuals, called “Names,” placed their personal assets behind insurance risks as a business venture. Increasingly since the 1990s, most of the capital comes from corporations.
LLOYDS
Corporation formed to market services of a group of underwriters. May issue insurance policies or provide insurance protection. Insurance is written by individual underwriters, with each assuming a part of every risk. Has no connection to Lloyd’s of London, and is found primarily in Texas.
LONG-TERM CARE INSURANCE
Long-term care (LTC) insurance pays for services to help individuals who are unable to perform certain activities of daily living without assistance, or require supervision due to a cognitive impairment such as Alzheimer’s disease. LTC is available as individual insurance or through an employer-sponsored or association plan.
LOSS
A reduction in the quality or value of a property, or a legal liability.
LOSS ADJUSTMENT EXPENSES
The sum insurers pay for investigating and settling insurance claims, including the cost of defending a lawsuit in court.
LOSS COSTS
The portion of an insurance rate used to cover claims and the costs of adjusting claims. Insurance companies typically determine their rates by estimating their future loss costs and adding a provision for expenses, profit, and contingencies.
LOSS OF USE
A provision in homeowners and renters insurance policies that reimburses policyholders for any extra living expenses due to having to live elsewhere while their home is being restored following a disaster.
LOSS RATIO
Percentage of each premium dollar an insurer spends on claims.
LOSS RESERVES
The company’s best estimate of what it will pay for claims, which is periodically readjusted. They represent a liability on the insurer’s balance sheet.
Medical
A document completed by a physician or another approved examiner and submitted to an insurer (insurance company) in order to provide medical information. This is usually done to determine insurability (or lack of insurability) or is sometimes done in relation to a claim.
Medical Expenses
Reasonable charges for medical, surgical, x-ray, dental, ambulance, hospital, professional nursing, prosthetic devices, and funeral expenses. What is considered reasonable is outlined in a policy.
Medical Payments, Auto
Coverage, which is optional, under an auto policy to pay for medical expenses for bodily injury caused by an auto accident, regardless of fault. Coverage for persons other than the named insured and his or her family members is typically restricted to circumstances when they are occupants of the insured auto
Medical Payments, General Liability
A general liability coverage that reimburses others, regardless of fault, for medical or funeral expenses incurred as a result of bodily injury or death sustained by an accident
Mexico Coverage
Coverage which is sometimes provided under automobile policies for the operation of an insured motor vehicle within Mexico, usually limited to a stated number of miles from the U.S. border
Minimum Premium
The lowest amount of premium to be charged for providing a particular insurance coverage
Misrepresentation
The act of knowingly presenting false information.
Mobile Equipment
Equipment such as earthmovers, tractors, diggers, farm machinery, forklifts, etc., that even when self-propelled, are not considered as automobiles for insurance purposes
Monopolistic State Funds
States or Jurisdictions where an employer must obtain workers’ compensation insurance from a state fund or qualify as a self-insurer, as is allowed in five of the states: North Dakota, Ohio, Washington, West Virginia, Wyoming, Puerto Rico and the U.S. Virgin Islands
Mortality Rate
The number of deaths in a group of people, usually expressed as deaths per thousand.
Mortality Table
A table showing the incidence of death at specified age groups.
Mortgage Clause
Property insurance provisions granting protection for the mortgagee named in the policy. It establishes that loss to mortgaged property is payable to the insured and to the mortgagee named in the policy
MALPRACTICE INSURANCE
Professional liability coverage for physicians, lawyers, and other specialists against suits alleging negligence or errors and omissions that have harmed clients.
MANAGED CARE
Arrangement between an employer or insurer and selected providers to provide comprehensive health care at a discount to members of the insured group and coordinate the financing and delivery of health care. Managed care uses medical protocols and procedures agreed on by the medical profession to be cost effective, also known as medical practice guidelines.
MANUAL
A book published by an insurance or bonding company or a rating association or bureau that gives rates, classifications, and underwriting rules.
MARINE INSURANCE
Coverage for goods in transit, and for the commercial vehicles that transport them, on water and over land. The term may apply to inland marine but more generally applies to ocean marine insurance. Covers damage or destruction of a ship’s hull and cargo and perils include collision, sinking, capsizing, being stranded, fire, piracy, and jettisoning cargo to save other property. Wear and tear, dampness, mold, and war are not included. (See Inland marine and Ocean marine)
MCCARRAN-FERGUSON ACT
Federal law signed in 1945 in which Congress declared that states would continue to regulate the insurance business. Grants insurers a limited exemption from federal antitrust legislation.
MEDIATION
Nonbinding procedure in which a third party attempts to resolve a conflict between two other parties.
MEDICAID
A federal/state public assistance program created in 1965 and administered by the states for people whose income and resources are insufficient to pay for health care.
MEDICAL PAYMENTS INSURANCE
A coverage in which the insurer agrees to reimburse the insured and others up to a certain limit for medical or funeral expenses as a result of bodily injury or death by accident. Payments are without regard to fault.
MEDICAL UTILIZATION REVIEW
The practice used by insurance companies to review claims for medical treatment.
MEDICARE
Federal program for people 65 or older that pays part of the costs associated with hospitalization, surgery, doctors’ bills, home health care, and skilled-nursing care.
MEDIGAP/MEDSUP
Policies that supplement federal insurance benefits particularly for those covered under Medicare.
MINE SUBSIDENCE COVERAGE
An endorsement to a homeowners insurance policy, available in some states, for losses to a home caused by the land under a house sinking into a mine shaft. Excluded from standard homeowners policies, as are other forms of earth movement.
MONEY SUPPLY
Total supply of money in the economy, composed of currency in circulation and deposits in savings and checking accounts. By changing the interest rates the Federal Reserve seeks to adjust the money supply to maintain a strong economy.
MORTALITY AND EXPENSE (M&E) RISK CHARGE
A fee that covers such annuity contract guarantees as death benefits.
MORTGAGE GUARANTEE INSURANCE
Coverage for the mortgagee (usually a financial institution) in the event that a mortgage holder defaults on a loan. Also called private mortgage insurance (PMI).
MORTGAGE INSURANCE
A form of decreasing term insurance that covers the life of a person taking out a mortgage. Death benefits provide for payment of the outstanding balance of the loan. Coverage is in decreasing term insurance, so the amount of coverage decreases as the debt decreases. A variant, mortgage unemployment insurance pays the mortgage of a policyholder who becomes involuntarily unemployed.
MORTGAGE-BACKED SECURITIES
Investment grade securities backed by a pool of mortgages. The issuer uses the cash flow from mortgages to meet interest payments on the bonds.
MULTIPLE PERIL POLICY
A package policy, such as a homeowners or business insurance policy, that provides coverage against several different perils. It also refers to the combination of property and liability coverage in one policy. In the early days of insurance, coverages for property damage and liability were purchased separately.
MUNICIPAL BOND INSURANCE
Coverage that guarantees bondholders timely payment of interest and principal even if the issuer of the bonds defaults. Offered by insurance companies with high credit ratings, the coverage raises the credit rating of a municipality offering the bond to that of the insurance company. It allows a municipality to raise money at lower interest rates. A form of financial guarantee insurance
MUNICIPAL LIABILITY INSURANCE
Liability insurance for municipalities.
MUTUAL HOLDING COMPANY
An organizational structure that provides mutual companies with the organizational and capital raising advantages of stock insurers, while retaining the policyholder ownership of the mutual.
MUTUAL INSURANCE COMPANY
A company owned by its policyholders that returns part of its profits to the policyholders as dividends. The insurer uses the rest as a surplus cushion in case of large and unexpected losses.
Named Perils Coverage
A property insurance term referring to exact causes of loss specifically listed as covered
National Flood Insurance Program
A federally funded program established to make flood insurance available to properties located in participating communities National Flood Insurance Program: A federally funded program established to make flood insurance available to properties located in participating communities
Nonadmitted Insurer
An insurance company that is not licensed to do business in a specific state. The insurers may write coverage through an excess and surplus lines broker that is licensed in these jurisdictions
Nonowned Automobile
In commercial auto policies, coverage for autos that are used in connection with the named insured’s business but are neither owned, leased, hired, rented or borrowed by the named insured. The term specifically applies to vehicles owned by employees and used for company business
Nonsubscription
A Workers’ Compensation term used in Texas that refers to employers who choose to be out of the workers’ compensation system. Firms that are proven negligent in causing a worker’s injury, can be held liable in tort, since nonsubscribing employers waive the traditional common law defenses available to employers subject to workers’ compensation laws
NAMED PERIL
Peril specifically mentioned as covered in an insurance policy.
NATIONAL FLOOD INSURANCE PROGRAM
Federal government-sponsored program under which flood insurance is sold to homeowners and businesses.
NO-FAULT
Auto insurance coverage that pays for each driver’s own injuries, regardless of who caused the accident. No-fault varies from state to state. It also refers to an auto liability insurance system that restricts lawsuits to serious cases. Such policies are designed to promote faster reimbursement and to reduce litigation. This coverage is not available in all states, check with us to find out more.
NO-FAULT MEDICAL
A type of accident coverage in homeowners policies.
NO-PAY, NO-PLAY
The idea that people who don’t buy coverage should not receive benefits. Prohibits uninsured drivers from collecting damages from insured drivers. In most states with this law, uninsured drivers may not sue for noneconomic damages such as pain and suffering. In other states, uninsured drivers are required to pay the equivalent of a large deductible ($10,000) before they can sue for property damages and another large deductible before they can sue for bodily harm.
NON-ADMITTED ASSETS
Assets that are not included on the balance sheet of an insurance company, including furniture, fixtures, past-due accounts receivable, and agents’ debt balances
NON-ADMITTED INSURER
Insurers licensed in some states, but not others. States where an insurer is not licensed call that insurer non-admitted. They sell coverage that is unavailable from licensed insurers within the state.
NOTICE OF LOSS
A written notice required by insurance companies immediately after an accident or other loss. Part of the standard provisions defining a policyholder’s responsibilities after a loss.
NUCLEAR INSURANCE
Covers operators of nuclear reactors and other facilities for liability and property damage in the case of a nuclear accident and involves both private insurers and the federal government.
NURSING HOME INSURANCE
A form of long-term care policy that covers a policyholder’s stay in a nursing facility.
Original Age
The age you were when you bought an insurance policy.
Other Insured Rider
The temporary addition to an insurance policy, usually a member of the direct family.
Ownership
All rights, benefits and privileges under life insurance policies are controlled by their owners. Policy owners may or may not be the insured. Ownership may be assigned or transferred by written request of current owner.
Occupational Hazard
A condition in the workkplace that increases the chances of the an accident, sickness, or death. It usually will mean higher premiums.
Occurrence
A continual, gradual or repeated exposure to substantially the same general harmful conditions. General liability policies insure liability for bodily injury or property damage that is caused by an occurrence
OCCUPATIONAL DISEASE
Abnormal condition or illness caused by factors associated with the workplace. Like occupational injuries, this is covered by workers compensation policies.
OCCURRENCE POLICY
Insurance that pays claims arising out of incidents that occur during the policy term, even if they are filed many years later.
OCEAN MARINE INSURANCE
Coverage of all types of vessels and watercraft, for property damage to the vessel and cargo, including such risks as piracy and the jettisoning of cargo to save the property of others. Coverage for marine-related liabilities. War is excluded from basic policies, but can be bought back.
OPEN COMPETITION STATES
States where insurance companies can set new rates without prior approval, although the state’s commissioner can disallow them if they are not reasonable and adequate or are discriminatory.
OPERATING EXPENSES
The cost of maintaining a business’s property, includes insurance, property taxes, utilities and rent, but excludes income tax, depreciation and other financing expenses.
OPTIONS
Contracts that allow, but do not oblige, the buying or selling of property or assets at a certain date at a set price.
ORDINANCE OR LAW COVERAGE
Endorsement to a property policy, including homeowners, that pays for the extra expense of rebuilding to comply with ordinances or laws, often building codes, that did not exist when the building was originally built. For example, a building severely damaged in a hurricane may have to be elevated above the flood line when it is rebuilt. This endorsement would cover part of the additional cost.
ORDINARY LIFE INSURANCE
A life insurance policy that remains in force for the policyholder’s lifetime.
ORIGINAL EQUIPMENT MANUFACTURER PARTS / OEM
Sheet metal auto parts made by the manufacturer of the vehicle.
OVER-THE-COUNTER (OTC)
Security that is not listed or traded on an exchange such as the New York Stock Exchange. Business in over-the-counter securities is conducted through dealers using electronic networks.
Package Policy
A policy providing several different coverages combined into one policy. Refers to a policy providing both general liability insurance and property insurance
Payroll Limitation
A limit on the amount of payroll for certain classifications used for the development of premium
Peril
Cause of loss such as fire, windstorm, collision, etc.
Personal Auto Policy (PAP)
A policy insuring private-passenger autos owned by individuals
Personal Injury
A General Liability coverage for insurable offenses that cause harm, other than bodily injury, such as false arrest, detention or imprisonment, malicious prosecution, wrongful eviction, slander, libel and invasion of privacy
Personal Injury Protection (PIP)
An automobile insurance coverage mandated by law in some states. The statutes typically require insurers to provide or offer to provide first-party benefits for medical expenses, loss of income, funeral expenses and similar expenses without regard to fault
Personal Property
All tangible property not classified as real property such as contents
Policy
The printed document given to the insured, outlining the terms and conditions of the Insurance coverage.
Policy Fee
A one-time charge per policy that does not change with the size of the premium
Policy Holder
The person who owns a life insurance policy. This is usually the insured person, but it may also be a relative of the insured, a partnership or a corporation.
Policy Period
The term or duration of a policy including the effective and expiration dates
Pollutant
An irritant or contaminant, whether in solid, liquid, or gaseous form, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste
Preferred Risk
A positive characterisic of someone seeking to be insured. Usually means a better likely hood for long life, and usually means a lower premium.
Premises
The location where coverage applies
Premises-Operations
A category of hazard ordinarily insured by a general liability policy which is composed of those exposures to loss that fall outside the defined ‘products-completed operations hazard,’ including liability for injury or damage arising out of the insured’s premises or out of the insured’s business operations while such operations are in progress
Premium
The agreed upon, payment made to keep an insurance policy in force, usually a monthly payment.
Premium Flexibility
The policy holder’s right to vary the amount of premium paid each
month.
Primary Beneficiary
In life insurance, the beneficiary designated by the insured as the first to receive policy benefits.
Primary Policy
The insurance policy that pays first when you have a loss that’s covered by more than one policy.
Pro Rata Cancellation
The cancellation of an insurance policy with the return premium being the full proportion of premium for the unexpired term of the policy, without penalty for early cancellation
Product
Items manufactured, sold, handled, distributed or disposed of by the named insured or others involved with the named insured in the course of their business. Includes containers, parts and equipment, product warranties and provision of or failure to provide instructions and warnings
Product Liability
The liability for bodily injury or property damage a merchant or manufacturer may incur as a consequence of some defect in the product sold or manufactured
Products-Completed Operations
General Liability coverage for liability arising out of the insured’s products or business operations conducted away from the insured’s premises once those operations have been completed
Professional Liability
Coverage designed to protect professionals such as physicians and real estate brokers, against liability incurred as a result of errors and omissions in performing professional services
Property Damage
In the general liability policy, a physical injury to property, resulting in the loss of use
Property Insurance
First-party insurance for real and personal property against physical loss or damage
Provisions
Details of an insurance policy which explain the benefits, conditions and other features of the insurance contract.
PACKAGE POLICY
A single insurance policy that combines several coverages previously sold separately. Examples include homeowners insurance and commercial multiple peril insurance.
PAY-AT-THE-PUMP
A system proposed in the 1990s in which auto insurance premiums would be paid to state governments through a per-gallon surcharge on gasoline.
PENSION BENEFIT GUARANTY CORPORATION
An independent federal government agency that administers the Pension Plan Termination Insurance program to ensure that vested benefits of employees whose pension plans are being terminated are paid when they come due. Only defined benefit plans are covered. Benefits are paid up to certain limits
PENSIONS
Programs to provide employees with retirement income after they meet minimum age and service requirements. Life insurers hold some of these funds. Since the 1970s responsibility for funding retirement has increasingly shifted from employers (defined benefit plans that promise workers a specific retirement income) to employees (defined contribution plans financed by employees that may or may not be matched by employer contributions).
PERIL
A specific risk or cause of loss covered by an insurance policy, such as a fire, windstorm, flood, or theft. A named-peril policy covers the policyholder only for the risks named in the policy in contrast to an all-risk policy, which covers all causes of loss except those specifically excluded.
PERSONAL ARTICLES FLOATER
A policy or an addition to a policy used to cover personal valuables, like jewelry or furs.
PERSONAL INJURY PROTECTION COVERAGE / PIP
Portion of an auto insurance policy that covers the treatment of injuries to the driver and passengers of the policyholder’s car.
PERSONAL LINES
Property/casualty insurance products that are designed for and bought by individuals, including homeowners and automobile policies.
POINT-OF-SERVICE PLAN
Health insurance policy that allows the employee to choose between in-network and out-of-network care each time medical treatment is needed.
POLICY
A written contract for insurance between an insurance company and policyholder stating details of coverage.
POLICYHOLDERS’ SURPLUS
The amount of money remaining after an insurer’s liabilities are subtracted from its assets. It acts as a financial cushion above and beyond reserves, protecting policyholders against an unexpected or catastrophic situation.
POLITICAL RISK INSURANCE
Coverage for businesses operating abroad against loss due to political upheaval such as war, revolution, or confiscation of property.
POLLUTION INSURANCE
Policies that cover property loss and liability arising from pollution-related damages, for sites that have been inspected and found uncontaminated. It is usually written on a claims-made basis so policies pay only claims presented during the term of the policy or within a specified time frame after the policy expires.
PREFERRED PROVIDER ORGANIZATION
Network of medical providers which charge on a fee-for-service basis, but are paid on a negotiated, discounted fee schedule.
PREMISES
The particular location of the property or a portion of it as designated in an insurance policy.
PREMIUM
The price of an insurance policy, typically charged annually or semiannually
PREMIUM TAX
A state tax on premiums paid by its residents and businesses and collected by insurers.
PREMIUMS IN FORCE
The sum of the face amounts, plus dividend additions, of life insurance policies outstanding at a given time.
PREMIUMS WRITTEN
The total premiums on all policies written by an insurer during a specified period of time, regardless of what portions have been earned. Net premiums written are premiums written after reinsurance transactions.
PRIMARY COMPANY
In a reinsurance transaction, the insurance company that is reinsured.
PRIMARY MARKET
Market for new issue securities where the proceeds go directly to the issuer.
PRIME RATE
Interest rate that banks charge to their most creditworthy customers. Banks set this rate according to their cost of funds and market forces.
PRIOR APPROVAL STATES
States where insurance companies must file proposed rate changes with state regulators, and gain approval before they can go into effect.
PRIVATE PLACEMENT
Securities that are not registered with the Securities and Exchange Commission and are sold directly to investors
PRODUCT LIABILITY
A section of tort law that determines who may sue and who may be sued for damages when a defective product injures someone. No uniform federal laws guide manufacturer’s liability, but under strict liability, the injured party can hold the manufacturer responsible for damages without the need to prove negligence or fault.
PRODUCT LIABILITY INSURANCE
Protects manufacturers’ and distributors’ exposure to lawsuits by people who have sustained bodily injury or property damage through the use of the product.
PROFESSIONAL LIABILITY INSURANCE
Covers professionals for negligence and errors or omissions that injure their clients.
PROOF OF LOSS
Documents showing the insurance company that a loss occurred.
PROPERTY/CASUALTY INSURANCE
Covers damage to or loss of policyholders’ property and legal liability for damages caused to other people or their property. Property/casualty insurance, which includes auto, homeowners and commercial insurance, is one segment of the insurance industry. The other sector is life/health. Outside the United States, property/casualty insurance is referred to as nonlife or general insurance.
PROPERTY/CASUALTY INSURANCE CYCLE
Industry business cycle with recurrent periods of hard and soft market conditions. In the 1950s and 1960s, cycles were regular with three year periods each of hard and soft market conditions in almost all lines of property/casualty insurance. Since then they have been less regular and less frequent.
PROPOSITION 103
A November 1988 California ballot initiative that called for a statewide auto insurance rate rollback and for rates to be based more on driving records and less on geographical location. The initiative changed many aspects of the state’s insurance system and was the subject of lawsuits for more than a decade.
PURCHASING GROUP
An entity that offers insurance to groups of similar businesses with similar exposures to risk.
PURE LIFE ANNUITY
A form of annuity that ends payments when the annuitant dies. Payments may be fixed or variable.
QUALIFIED ANNUITY
A form of annuity purchased with pretax dollars as part of a retirement plan that benefits from special tax treatment, such as a 401(k) plan.
Real Property
Real estate including buildings and vegetation
Re-entry Option
An option in a renewable term life policy under which the policy owner is guaranteed, at the end of the term, to be able to renew his or her coverage without evidence of insurability, at a premium rate specified in the policy.
Reinstatement
Putting a lapsed policy back in force by producing satisfactory evidence of insurability and paying any past-due premiums required.
Renewal Policy
A policy issued to replace an expiring policy
Rents or Rental Value Insurance
Insurance that reimburses a building owner for loss of rental income due to damage by an insured peril
Replacement
A new policy written to take the place of one currently in force.
Representation
Statements made by applicants on their applications for insurance that they represent as being substantially true to the best of their knowledge and belief but that are not warranted as exact in every detail.
Return Premium
The amount of premium due the insured should the actual cost of a policy be less than the insured previously paid
Rider
An attachment to a policy that modifies its conditions by expanding or restricting benefits or excluding certain conditions from coverage.
Risk
The chance of injury, damage, or loss.
Robbery
Theft of property while force is used or threatened
RATE
The cost of a unit of insurance, usually per $1,000. Rates are based on historical loss experience for similar risks and may be regulated by state insurance offices.
RATE REGULATION
The process by which states monitor insurance companies’ rate changes, done either through prior approval or open competition models.
RATING AGENCIES
Six major credit agencies determine insurers’ financial strength and viability to meet claims obligations. They are A.M. Best Co.; Duff & Phelps Inc.; Fitch, Inc.; Moody’s Investors Services; Standard & Poor’s Corp.; and Weiss Ratings, Inc. Factors considered include company earnings, capital adequacy, operating leverage, liquidity, investment performance, reinsurance programs, and management ability, integrity and experience. A high financial rating is not the same as a high consumer satisfaction rating
RATING BUREAU
The insurance business is based on the spread of risk. The more widely risk is spread, the more accurately loss can be estimated. An insurance company can more accurately estimate the probability of loss on 100,000 homes than on ten. Years ago, insurers were required to use standardized forms and rates developed by rating agencies. Today, large insurers use their own statistical loss data to develop rates. But small insurers, or insurers focusing on special lines of business, with insufficiently broad loss data to make them actuarially reliable depend on pooled industry data collected by such organizations as the Insurance Services Office (ISO) which provides information to help develop rates such as estimates of future losses and loss adjustment expenses like legal defense costs.
REAL ESTATE INVESTMENTS
Investments generally owned by life insurers that include commercial mortgage loans and real property
RECEIVABLES
Amounts owed to a business for goods or services provided.
REDLINING
Literally means to draw a red line on a map around areas to receive special treatment. Refusal to issue insurance based solely on where applicants live is illegal in all states. Denial of insurance must be risk-based.
REINSURANCE
Insurance bought by insurers. A reinsurer assumes part of the risk and part of the premium originally taken by the insurer, known as the primary company. Reinsurance effectively increases an insurer’s capital and therefore its capacity to sell more coverage. The business is global and some of the largest reinsurers are based abroad. Reinsurers have their own reinsurers, called retrocessionaires. Reinsurers don’t pay policyholder claims. Instead, they reimburse insurers for claims paid.
RENTERS INSURANCE
A form of insurance that covers a policyholder’s belongings against perils such as fire, theft, windstorm, hail, explosion, vandalism, riots, and others. It also provides personal liability coverage for damage the policyholder or dependents cause to third parties. It also provides additional living expenses, known as loss-of-use coverage, if a policyholder must move while his or her dwelling is repaired. It also can include coverage for property improvements. Possessions can be covered for their replacement cost or the actual cash value that includes depreciation.
REPLACEMENT COST
Insurance that pays the dollar amount needed to replace damaged personal property or dwelling property without deducting for depreciation but limited by the maximum dollar amount shown on the declarations page of the policy.
REPURCHASE AGREEMENT /’REPO’
Agreement between a buyer and seller where the seller agrees to repurchase the securities at an agreed upon time and price. Repurchase agreements involving U.S. government securities are utilized by the Federal Reserve to control the money supply.
RESERVES
A company’s best estimate of what it will pay for claims.
RESIDUAL MARKET
Facilities, such as assigned risk plans and FAIR Plans, that exist to provide coverage for those who cannot get it in the regular market. Insurers doing business in a given state generally must participate in these pools. For this reason the residual market is also known as the shared market.
RETENTION
The amount of risk retained by an insurance company that is not reinsured.
RETROCESSION
The reinsurance bought by reinsurers to protect their financial stability.
RETROSPECTIVE RATING
A method of permitting the final premium for a risk to be adjusted, subject to an agreed-upon maximum and minimum limit based on actual loss experience. It is available to large commercial insurance buyers.
RETURN ON EQUITY
Net income divided by total equity. Measures profitability by showing how efficiently invested capital is being used.
RIDER
An attachment to an insurance policy that alters the policy’s coverage or terms.
RISK
The chance of loss or the person or entity that is insured.
RISK MANAGEMENT
Management of the varied risks to which a business firm or association might be subject. It includes analyzing all exposures to gauge the likelihood of loss and choosing options to better manage or minimize loss. These options typically include reducing and eliminating the risk with safety measures, buying insurance, and self-insurance.
RISK RETENTION GROUPS
Insurance companies that band together as self-insurers and form an organization that is chartered and licensed as an insurer in at least one state to handle liability insurance.
RISK-BASED CAPITAL
The need for insurance companies to be capitalized according to the inherent riskiness of the type of insurance they sell. Higher-risk types of insurance, liability as opposed to property business, generally necessitate higher levels of capital.
Secondary Beneficiary
An alternate beneficiary designated to receive payment, usually in the event the original beneficiary predeceases the insured.
Short-Term Cancellation
Cancellation of an insurance policy prior to the expiration date in which a penalty in the form of a less than full pro-rata premium refund is allowed
Single Premium Policy
A whole life policy for people who want to buy a policy for a one-time lump sum, and then be covered for the rest of their lives without paying any additional premiums.
Special Causes of Loss Form
A cause of loss form providing coverage from all causes of loss unless specifically excluded or limited
Specified Causes of Loss Coverage
Auto physical damage coverage only for losses caused by the perils listed in the policy
Sprinkler Leakage Coverage
Coverage for property damage caused by the accidental discharge or leakage of water from automatic sprinkler systems or other fire prevention devices
Surplus Lines Insurance
Insurance written by insurers not licensed in the states where the risks are located and placed with such insurers under the surplus line laws of the various states. Before such placements can be made through specially licensed surplus line agents and brokers, state laws generally require evidence reported before some predetermined future date (‘sunset’)
SALVAGE
Damaged property an insurer takes over to reduce its loss after paying a claim. Insurers receive salvage rights over property on which they have paid claims, such as badly-damaged cars. Insurers that paid claims on cargoes lost at sea now have the right to recover sunken treasures. Salvage charges are the costs associated with recovering that property.
SCHEDULE
A list of individual items or groups of items that are covered under one policy or a listing of specific benefits, charges, credits, assets or other defined items.
SECONDARY MARKET
Market for previously issued and outstanding securities.
SECURITIES AND EXCHANGE COMMISSION / SEC
The organization that oversees publicly-held insurance companies. Those companies make periodic financial disclosures to the SEC, including an annual financial statement (or 10K), and a quarterly financial statement (or 10-Q). Companies must also disclose any material events and other information about their stock.
SECURITIES OUTSTANDING
Stock held by shareholders.
SECURITIZATION OF INSURANCE RISK
Using the capital markets to expand and diversify the assumption of insurance risk. The issuance of bonds or notes to third-party investors directly or indirectly by an insurance or reinsurance company or a pooling entity as a means of raising money to cover risks.
SELF-INSURANCE
The concept of assuming a financial risk oneself, instead of paying an insurance company to take it on. Every policyholder is a self-insurer in terms of paying a deductible and co-payments. Large firms often self-insure frequent, small losses such as damage to their fleet of vehicles or minor workplace injuries. However, to protect injured employees state laws set out requirements for the assumption of workers compensation programs. Self-insurance also refers to employers who assume all or part of the responsibility for paying the health insurance claims of their employees. Firms that self insure for health claims are exempt from state insurance laws mandating the illnesses that group health insurers must cover.
SEVERITY
Size of a loss. One of the criteria used in calculating premiums rates.
SEWER BACK-UP COVERAGE
An optional part of homeowners insurance that covers sewers.
SINGLE PREMIUM ANNUITY
An annuity that is paid in full upon purchase.
SOFT MARKET
An environment where insurance is plentiful and sold at a lower cost, also known as a buyers’ market.
SOLVENCY
Insurance companies’ ability to pay the claims of policyholders. Regulations to promote solvency include minimum capital and surplus requirements, statutory accounting conventions, limits to insurance company investment and corporate activities, financial ratio tests, and financial data disclosure.
SPREAD OF RISK
The selling of insurance in multiple areas to multiple policyholders to minimize the danger that all policyholders will have losses at the same time. Companies are more likely to insure perils that offer a good spread of risk. Flood insurance is an example of a poor spread of risk because the people most likely to buy it are the people close to rivers and other bodies of water that flood.
STACKING
Practice that increases the money available to pay auto liability claims. In states where this practice is permitted by law, courts may allow policyholders who have several cars insured under a single policy, or multiple vehicles insured under different policies, to add up the limit of liability available for each vehicle.
STATUTORY ACCOUNTING PRINCIPLES / SAP
More conservative standards than under GAAP accounting rules, they are imposed by state laws that emphasize the present solvency of insurance companies. SAP helps ensure that the company will have sufficient funds readily available to meet all anticipated insurance obligations by recognizing liabilities earlier or at a higher value than GAAP and assets later or at a lower value. For example, SAP requires that selling expenses be recorded immediately rather than amortized over the life of the policy.
STOCK INSURANCE COMPANY
An insurance company owned by its stockholders who share in profits through earnings distributions and increases in stock value.
STRUCTURED SETTLEMENT
Legal agreement to pay a designated person, usually someone who has been injured, a specified sum of money in periodic payments, usually for his or her lifetime, instead of in a single lump sum payment
SUBROGATION
The legal process by which an insurance company, after paying a loss, seeks to recover the amount of the loss from another party who is legally liable for it.
SUPERFUND
A federal law enacted in 1980 to initiate cleanup of the nation’s abandoned hazardous waste dump sites and to respond to accidents that release hazardous substances into the environment. The law is officially called the Comprehensive Environmental Response, Compensation, and Liability Act.
SURETY BOND
A contract guaranteeing the performance of a specific obligation. Simply put, it is a three-party agreement under which one party, the surety company, answers to a second party, the owner, creditor or “obligee,” for a third party’s debts, default or nonperformance. Contractors are often required to purchase surety bonds if they are working on public projects. The surety company becomes responsible for carrying out the work or paying for the loss up to the bond “penalty” if the contractor fails to perform.
SURPLUS
The remainder after an insurer’s liabilities are subtracted from its assets. The financial cushion that protects policyholders in case of unexpectedly high claims
SURPLUS LINES
Property/casualty insurance coverage that isn’t available from insurers licensed in the state, called admitted companies, and must be purchased from a non-admitted carrier. Examples include risks of an unusual nature that require greater flexibility in policy terms and conditions than exist in standard forms or where the highest rates allowed by state regulators are considered inadequate by admitted companies. Laws governing surplus lines vary by state.
SURRENDER CHARGE
A charge for withdrawals from an insurance based contract before a designated surrender charge period.
SWAPS
The simultaneous buying, selling or exchange of one security for another among investors to change maturities in a bond portfolio, for example, or because investment goals have changed.
Time Element Insurance
A term referring to property coverage for loss of earnings or income resulting from the inability to put damaged property to its normal use
Term Insurance
Protection during limited number of years; expiring without value if the
insured survives the stated period, which may be one or more years but usually is five to twenty years, because such periods usually cover the needs for temporary protection.
Term
Period for which the policy runs. In life insurance, this is to the end of the term period for term insurance.
Third-Party Owner
A policy owner who is not the prospective insured. The policy owner and the insured may be, and often are the same person. If for example, you apply for and are issued an insurance policy on your life, then you are both the policy owner and the insured and may be known as the policy owner-insured. If, however, your mother applies for and is issued a policy on your life, then she is the policy owner and you are the insured.
Transit Coverage
Coverage on the insured’s property while in transit from one location to another, over land
TERM CERTAIN ANNUITY
An form of annuity that pays out over a fixed period rather than when the annuitant dies.
TERM INSURANCE
A form of life insurance that covers the insured person for a certain period of time, the “term” that is specified in the policy. It pays a benefit to a designated beneficiary only when the insured dies within that specified period which can be one, five, 10 or even 20 years. Term life policies are renewable but premiums increase with age.
TERRITORIAL RATING
A method of classifying risks by geographic location to set a fair price for coverage. The location of the insured may have a considerable impact on the cost of losses. The chance of an accident or theft is much higher in an urban area than in a rural one, for example.
TERRORISM COVERAGE
Included as a part of the package in standard commercial insurance policies before September 11, 2001 virtually free of charge. Since September 11, terrorism coverage prices have increased substantially to reflect the current risk.
THIRD-PARTY ADMINISTRATOR
Outside group that performs clerical functions for an insurance company.
THIRD-PARTY COVERAGE
Liability coverage purchased by the policyholder as a protection against possible lawsuits filed by a third party. The insured and the insurer are the first and second parties to the insurance contract.
TIME DEPOSIT
Funds that are held in a savings account for a predetermined period of time at a set interest rate. Banks can refuse to allow withdrawals from these accounts until the period has expired or assess a penalty for early withdrawals.
TITLE INSURANCE
Insurance that indemnifies the owner of real estate in the event that his or her clear ownership of property is challenged by the discovery of faults in the title.
TORT
A legal term denoting a wrongful act resulting in injury or damage on which a civil court action, or legal proceeding, may be based.
TORT LAW
The body of law governing negligence, intentional interference, and other wrongful acts for which civil action can be brought, except for breach of contract, which is covered by contract law.
TORT REFORM
Refers to legislation designed to reduce liability costs through limits on various kinds of damages and through modification of liability rules.
TOTAL LOSS
The condition of an automobile or other property when damage is so extensive that repair costs would exceed the value of the vehicle or property.
TRANSPARENCY
A term used to explain the way information on financial matters, such as financial reports and actions of companies or markets, are communicated so that they are easily understood and frank.
TRAVEL INSURANCE
Insurance to cover problems associated with traveling, generally including trip cancellation due to illness, lost luggage and other incidents.
TREASURY SECURITIES
Interest-bearing obligations of the U.S. government issued by the Treasury as a means of borrowing money to meet government expenditures not covered by tax revenues. Marketable Treasury securities fall into three categories — bills, notes and bonds. Marketable Treasury obligations are currently issued in book entry form only; that is, the purchaser receives a statement, rather than an engraved certificate.
TREATY REINSURANCE
A standing agreement between insurers and reinsurers. Under a treaty each party automatically accepts specific percentages of the insurer’s business.
Umbrella Liability Policy
A policy designed to provide additional protection against catastrophic losses covered under liability policies, such as the business auto policy, commercial general liability policy, watercraft and aircraft liability policies and employers liability coverage. It provides excess limits when the limits of the underlying liability policies are used up by the payment of claims and it drops down and picks up where the underlying policy leaves off when the aggregate limit of the underlying policy in question is exhausted by the payment of claims. It also provides protection against some claims not covered by the underlying policies, subject to a self-insured retention
Underinsured Motorists Coverage
Provides coverage for bodily injury, and in some states property damage, for losses incurred by an insured when an accident is caused by a motorist who does not have sufficient insurance limits
Underlying Coverage
The insurance or coverage in place on the same risk that will respond to loss before the excess policy is called on to pay any portion of the claim
Underwriter
Company receiving premiums and accepting responsibility for fulfilling the policy contract. Also, company employee who decides whether the company should assume a particular risk; or the agent who sells the policy
Uninsurable Risk
A person who is not acceptable for insurance due to excessive risk.
Universal Life
An interest-sensitive life insurance policy that builds cash values. The premium payer has control over how the policy is structured. He has the flexibility to eliminate the premiums (essentially pay up the policy and pay no more premiums) or have the premiums continue for life. It is a matter of juggling three variables: the assumed interest rate, the cash value and the premium payment plan. The policy is interest-sensitive, and if interest rates change from the assumed interest, it will affect the other two variables. In the past, many Universal Life Policies were structured assuming a higher interest rate then was actually received, therefore, most of them have under performed. If you have a Universal Life Policy, you should have it evaluated to see if it needs
to have the premiums adjusted to get it back on track. A fourth variable that has not been a factor but could be in the future, and the owner should be aware of, is the Mortality variable. Universal Life policies are usually structured assuming current mortality rates. The insurance companies reserve the right to change those rates.
Unearned Premium
That portion of the policy premium that represents the unexpired policy term
Uninsured Motorist Coverage
Provides coverage for bodily injury, and in some states property damage, for losses incurred by an insured when an accident is caused by a motorist who is not insured
Utility Service Interruption Coverage
Coverage for the loss to an insured due to lack of incoming electricity which was caused by damage from a covered cause of loss, such as a fire or windstorm, to property away from the insured’s premises – usually the utility generating station. Also referred to as ‘off-premises power coverage’
UMBRELLA POLICY
Coverage for losses above the limit of an underlying policy or policies such as homeowners and auto insurance. While it applies to losses over the dollar amount in the underlying policies, terms of coverage are sometimes broader than those of underlying policies.
UNBUNDLED CONTRACTS
A form of annuity contract that gives purchasers the freedom to choose among certain optional features in their contract.
UNDERINSURANCE
The result of the policyholder’s failure to buy sufficient insurance. An underinsured policyholder may only receive part of the cost of replacing or repairing damaged items covered in the policy.
UNDERWRITING
Examining, accepting, or rejecting insurance risks and classifying the ones that are accepted, in order to charge appropriate premiums for them.
UNDERWRITING INCOME
The insurer’s profit on the insurance sale after all expenses and losses have been paid. When premiums aren’t sufficient to cover claims and expenses, the result is an underwriting loss. Underwriting losses are typically offset by investment income.
UNEARNED PREMIUM
The portion of a premium already received by the insurer under which protection has not yet been provided. The entire premium is not earned until the policy period expires, even though premiums are typically paid in advance.
UNINSURABLE RISK
Risks for which it is difficult for someone to get insurance.
UNINSURED MOTORISTS COVERAGE
Portion of an auto insurance policy that protects a policyholder from uninsured and hit-and-run drivers.
Vacancy Provision
Property insurance provision found in commercial property policies that restrict coverage in connection with buildings that have been vacant for a specified number of days, usually 60 days
Valuable Papers and Records Coverage
Coverage that pays the cost to reconstruct damaged or destroyed valuable papers and records and usually includes almost all forms of printed documents or records except money or securities; data processing programs, data and media are usually excluded
VALUED POLICY
A policy under which the insurer pays a specified amount of money to or on behalf of the insured upon the occurrence of a defined loss. The money amount is not related to the extent of the loss. Life insurance policies are an example.
VANDALISM
The malicious and often random destruction or spoilage of another person’s property.
VARIABLE ANNUITY
An annuity whose contract value or income payments vary according to the performance of the stocks, bonds and other investments selected by the contract owner.
VARIABLE LIFE INSURANCE
A policy that combines protection against premature death with a savings account that can be invested in stocks, bonds, and money market mutual funds at the policyholder’s discretion.
VIATICAL SETTLEMENT COMPANIES
Insurance firms that buy life insurance policies at a steep discount from policyholders who are often terminally ill and need the payment for medications or treatments. The companies provide early payouts to the policyholder, assume the premium payments, and collect the face value of the policy upon the policyholder’s death.
VOID
A policy contract that for some reason specified in the policy becomes free of all legal effect. One example under which a policy could be voided is when information a policyholder provided is proven untrue.
VOLATILITY
A measure of the degree of fluctuation in a stock’s price. Volatility is exemplified by large, frequent price swings up and down.
VOLCANO COVERAGE
Most homeowners policies cover damage from a volcanic eruption.
VOLUME
Number of shares a stock trades either per day or per week.
Waiver of Premium
Rider or provision included in most life insurance policies exempting the insured from paying premiums after he or she has been disabled for a specified period of time, usually six months.
Waiver of Subrogation
Also known as ‘transfer of rights of recovery,’ the relinquishment by an insurer of the right to collect from another party for damages paid on behalf of the insured
Whole Life Insurance
Life insurance that is kept in force for a person’s whole life as long as the scheduled premiums are maintained. All Whole Life policies build up cash values. Most Whole Life policies are guaranteed as long as the scheduled premiums are maintained. The variable in a Whole life Policy is the dividend which could vary depending on how well the insurance is doing. If the company is doing well and the policies are not experiencing a higher mortality than projected, premiums are paid back to the policy holder in the form of dividends. Policyholders can use the cash from dividends in many ways. The three main uses are: it can be used to lower or vanish premiums, it can be used to purchase more insurance or it can be used to pay for term insurance.
Workers’ Compensation
Protection which provides benefits to employees for injury or contracted disease arising out of and in the course of employment. Most states have laws which require such protection for workers and prescribe the length and amount of such benefits provided
WAIVER
The surrender of a right or privilege. In life insurance, a provision that sets certain conditions, such as disablement, which allow coverage to remain in force without payment of premiums.
WAR RISK
Special coverage on cargo in overseas ships against the risk of being confiscated by a government in wartime. It is excluded from standard ocean marine insurance and can be purchased separately. It often excludes cargo awaiting shipment on a wharf or on ships after 15 days of arrival in port.
WATER-DAMAGE INSURANCE COVERAGE
Protection provided in most homeowners insurance policies against sudden and accidental water damage, from burst pipes for example. Does not cover damage from problems resulting from a lack of proper maintenance such as dripping air conditioners. Water damage from floods is covered under separate flood insurance policies issued by the federal government.
WEATHER DERIVATIVE
An insurance or securities product used as a hedge by energy-related businesses and others whose sales tend to fluctuate depending on the weather.
WEATHER INSURANCE
A type of business interruption insurance that compensates for financial losses caused by adverse weather conditions, such as constant rain on the day scheduled for a major outdoor concert.
WHOLE LIFE
Insurance which provides coverage for an individual’s whole life, rather than a specified term. The oldest kind of cash value life insurance that combines protection against premature death with a savings account. Premiums are fixed and guaranteed and remain level throughout the policy’s lifetime.
WORKERS COMPENSATION
Insurance that pays for medical care and physical rehabilitation of injured workers and helps to replace lost wages while they are unable to work. State laws, which vary significantly, govern the amount of benefits paid and other compensation provisions.
WRAP-UP INSURANCE
Broad policy coordinated to cover liability exposures for a large group of businesses that have something in common. Might be used to insure all businesses working on a large construction project, such as an apartment complex.
WRITE
To insure, underwrite, or accept an application for insurance.