Our complimentary insurance glossary will give insights into insurance industry jargon and improve an individual's understanding of insurance terms
A-Share Variable Annuity
A form of variable annuity contract in which the contract holder pays sales charges up front rather than eventually having to pay a surrender charge.
From the beginning; as if coverage never existed.
The transfer of all (and not merely a portion of) ownership, benefits, interests, liabilities, or rights under a contract by one party to another, without any pre-condition.
Accidental Death Benefit (ADB)
A life insurance benefit, usually in the form of a rider or policy addition, under which the proceeds are payable to the beneficiary only if the insured dies by accident.
Accumulation at Interest Dividend Option
An option, available to the owners of participating insurance policies, that allows a policy owner to leave policy dividends on deposit with the insurer and earn interest.
Activities of Daily Living (ADL)
A term, often used in the care of the sick or elderly, that refers to the routine tasks that individuals perform in the course of daily living, including acts of self-care such as feeding oneself, dressing, and grooming; working; maintaining a home; and participating in leisure activities. Health professionals use this term when measuring individual's’ functional status.
Actual Cash Value Coverage (ACV)
Actual Cash Value coverage (ACV) is the amount a claimed item is worth at the time of the loss. For example, assume that a television purchased for $500, 5-years ago, is now worth only $300, due to depreciation. Under a policy with ACV coverage, the insurer’s payment to the insured is $300. Actual Cash Value policies usually cost less than Replacement Cost Policies.
Actual Charge is the amount a health care provider bills a patient for a particular medical service or procedure.
An individual with a background in mathematics and statistics who calculates insurance premium rates, dividends, risks, etc., according to probabilities derived from statistics.
Additional Living Expense Coverage
An additional living expense (also called loss-of-use) policy is coverage that pays for certain extra, above-normal expenses, such as food and lodging, while the policyholder's home undergoes repair. Such coverage is usually not applicable to children living away at college.
Additional Personal Injury Protection
For the named insured and family members only, this endorsement increases the $10,000 per person maximum Personal Injury Protection (PIP) benefit. Additional amounts commonly available include $10,000, $25,000, $40,000 and $90,000, available only if Extended PIP is purchased.
Additional Term Insurance Option
An option available to owners of participating insurance policies under which the insurer uses a policy dividend as a net single premium to purchase one-year term insurance on the insured’s life (also known as fifth dividend option).
Adjustable Life Insurance
A form of life insurance that allows policy owners to vary the type of coverage provided by their policies as their insurance needs change.
An interest rate that changes based on market indexes.
An individual who investigates and settles insurance claims.
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.
An insurance company licensed and authorized to do business in a particular state.
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.
Insurance companies that market and sell products via independent agents.
Insurance is sold by two types of agents: independent agents, who may be self-employed or employed by an agency, 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. Agents must be licensed by the Florida Department of Financial Services to sell insurance in Florida.
Refers to maximum dollar amount of coverage in a liability policy for the life of the contract.
A contract in which one party provides something of value to another party in exchange for a conditional promise (a promise that the other party will perform a stated act upon the occurrence of an uncertain event). Insurance contracts are aleatory because the policy owner pays premiums to the insurer, and in return the insurer promises to pay benefits if the event insured against occurs. Contrast with commutative contract.
Alien Insurance Company
An insurance company incorporated under the laws of a foreign country, as opposed to a “foreign” insurance company, which does business in states outside its own.
All-Risk or Special-Form Policy is one that covers the loss of property or damage resulting from any peril, except those specifically excluded in the contract.
Property insurance that is usually bought in conjunction with fire insurance; it includes wind, water damage, and vandalism coverage.
An allowable charge is the maximum fee Medicare uses in reimbursing a provider for a given service. Allowable charges are sometimes called “reasonable charges.”
Nontraditional mechanisms used to finance risk. These include 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 and self-insurance, are also included.
An amendment is an attachment that modifies certain policy benefits.
Annual Annuity Contract Fee
Covers the cost of administering an annuity contract.
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.
A person who receives the payments from an annuity during his or her lifetime, usually the owner of the contract or his or her spouse.
The conversion of the account balance of a deferred annuity contract to income payments.
A contract in which the buyer deposits money with a life insurance company as an investment. The contract provides for specific payments to be made at regular intervals for a fixed period or for life.
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.
In certain types of annuities, a person who receives annuity contract payments if the annuity owner or annuitant dies while payments are still due.
The written agreement between an insurance company and a customer that specifies each party’s obligations in the annuity coverage agreement. An annuity contract will include the specific details of the contract, including the structure of the annuity (variable, fixed, etc.), any penalties for early withdrawal, and others.
A monetary amount that is equal to the present value of future periodic income payments under an annuity.
The date on which an insurer begins or is scheduled to begin making annuity benefit payments under an annuity contract. Also known as a maturity date and an annuity date.
Annuity Death Benefits
The guarantee that if an annuity contract owner dies before annuitization (the switchover from the savings phase to the payment phase), the beneficiary will receive the value of the annuity that is due.
The insurance company that issues the annuity.
The tendency of individuals who suspect or know they are more likely than average to experience loss to apply for or renew insurance to a greater extent than people who lack such knowledge of probable loss. Also known as adverse selection and selection against the company.
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 types of residual auto insurance markets, which exist in every state. In an assigned risk plan, all insurers selling auto insurance in a state are assigned these drivers to insure, based on the amount of insurance they sell in the regular market.
An agreement under which one party—the assignor—transfers some or all of his ownership rights in a particular property, such as a life insurance policy or an annuity contract, to another party—the assignee.
A bona fide organization that purchases insurance on a group basis on behalf of the group’s members.
An accident in which the insured is held legally responsible for the damages or injuries resulting from the accident.
An authorized Health Maintenance Organization (HMO) is one that has received a Certificate of Authority from the Office of Insurance Regulation. After it has met certain quality of care standards, the Agency for Health Care Administration is responsible for issuing a Health Care Provider Certificate to HMO providers.
An insurance company that has a Certificate of Authority from the Department of Financial Services to operate in Florida.
Auto Insurance Policy
There are basically six different types of coverages. Some may be required by law, while others are optional. They are:
Bodily Injury liability, for injuries the policyholder causes to someone else.
Medical Payments or Personal Injury Protection (PIP) for treatment of injuries to the driver and passengers of the policyholder’s car.
Property Damage liability, for damage the policyholder causes to someone else’s property.
Collision, for damage to the policyholder’s car from a collision.
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.
Uninsured Motorists coverage, for costs resulting from an accident involving a hit-and-run driver or a driver who does not have insurance.
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 it will be driven (for example, rush hour in an urban neighborhood, leisure time driving in rural areas, etc.). Some insurance companies may also use information related to an individual’s credit history.
Automatic Premium Loan
An automatic premium loan is an optional provision that allows for the automatic payment of unpaid premiums by a policy loan. You may obtain such a loan only if your life insurance policy has sufficient cash value. This feature acts as a safeguard if you forget or cannot make a particular payment.
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.
B-Share Variable Annuity
A form of variable annuity contract with no initial sales charge, but in the event that the contract is cancelled, the holder pays deferred sales charges (usually from 5 to 7 percent the first year, declining to zero after 5 to 7 years). The most common form of annuity contract.
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.
Designated person who receives the death benefits from a life insurance policy or annuity.
A benefit is the payment made by the insurance company in accordance with the terms of a policy.
A benefit maximum is the limit a policy will pay for a given benefit. A benefit maximum can be expressed either as a length of time (for example, four years), or as a dollar amount (for example, $1 million).
In reference to health insurance, this refers to the number of days for which benefits are paid to the insured and his or her dependents. For example, the number of days that benefits are calculated for a calendar year consists of the days beginning on Jan. 1 and ending on Dec. 31 of that year.
A temporary insurance contract that provides proof of coverage until the permanent policy is issued.
Coverage for more than one type of property at one location or one type of property at more than one location ( a chain store, for example).
Bodily Injury Liability Coverage
Portion of an auto insurance policy that covers injuries the policyholder causes to someone else.
Physical injury to a person.
Boiler and Machinery Insurance
Often called Equipment Breakdown or Systems Breakdown insurance, this is 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.
When a prospective principal comes to a surety (a person or entity who agrees to be responsible for the debt or obligation of another) in need of a bond, so as to perform a function, or get a license, or appeal a court judgment, or get out of jail, or whatever else it may be that demands the guarantees provided by a surety, a delicate underwriting process begins. The surety is out to satisfy itself that there will be no default.
Book of Business
Total amount of insurance on an insurer’s books at a particular point in time.
An insurance agent who acts in the best interest of his or her clients rather than the insurance companies.
An independent insurance salesperson that represents particular insurers but also might function as a broker by searching the entire insurance market to place an applicant's coverage to maximize protection and minimize cost. This person is licensed as both an agent and broker.
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 Auto Insurance
Covers a company's ownership or use of cars, trucks, vans and other vehicles. Coverage may include vehicles owned or leased by the company, hired by the company, or employee-owned vehicles used for business purposes.
Business Auto Policy
Covers vehicles used in a trade, profession, or occupation.
Business Income Insurance
Also known as Business Interruption Insurance, this is 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 income 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.
Business Owners 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.
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.
Cafeteria plans (also known as Section 125 plans) are benefit arrangements in which employees can pick and choose from a menu of benefits, tailoring their benefits package to their specific needs. Employees can select the benefits they need or want. The employer allocates a certain amount of money to each employee to “buy” the benefits he/she desires; if the cost of the benefits exceeds the allocation, the employee may contribute the balance.
The renewability provision in a cancelable policy allows the insurer to cancel or terminate the policy at any time, simply by providing written notification to the insured and refunding any advance premium that has been paid. Cancelable policies also allow the insurer to increase premiums.
A policy cancellation is the termination of an insurance policy before its normal termination date.
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 is 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.
Shareholders’ 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.
A form of payment payable under an Accidental Death & Dismemberment (AD&D) policy. It is a specified amount, usually expressed as a percentage of the principal sum, which varies according to the severity of the injury. For example, the benefit for the loss of one foot or one hand is typically 50 percent of the principal sum. The benefit for the loss of one arm or one leg is usually two-thirds of the principal sum. The most extreme losses, such as both feet or sight in both eyes, generally qualify for payment of the full benefit, which is 100 percent of the principal sum.
Under Capitation, primary care providers are paid a set amount (generally monthly) for each plan participant, regardless of the number of visits or services provided. Capitation payment methods are used extensively by HMO's. This form of payment shifts some of the risk to the medical provider, who accepts the capitation amount, assuming the increased enrollment will level out the risk.
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.
Insurers that are created and wholly owned by one or more non-insurers, to provide owners with coverage. A form of self-insurance.
Equal to 365 days of insured coverage for a single vehicle. It is the standard measurement for automobile insurance.
A Care Coordinator is a person who assesses a patient’s need for Long-Term Care, devises a treatment plan, helps with nursing services, and monitors the care. Coverage for such an individual is usually an optional benefit in an insurance policy.
Cash Dividend Option
For participating insurance policies, a dividend option under which the insurer sends the policy owner a check in the amount of the policy dividend.
Cash Payment Option
One of several non-forfeiture options included in life insurance policies and some annuity contracts that allows a policy owner to receive the cash surrender value of a life insurance policy or an annuity contract in a single payment. Also known as cash surrender option.
Cash Surrender Value
For life insurance, the amount, before adjustments for factors such as policy loans, that the owner of a permanent life insurance policy is entitled to receive if the policy does not remain in force until the insured’s death. For annuities, the amount of a deferred annuity’s accumulated value, less any surrender charges, that the contract holder is entitled to receive if the policy is surrendered during its accumulation period. Also known as cash value and surrender value.
Loss or liability that results from an accident.
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.
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.
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.
Probability of catastrophic loss, based on the total number of catastrophes in a state over a 40-year period.
Reinsurance 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.
Chartered Life Underwriter (CLU)
A professional designation by The American College in Bryn Mawr, Pennsylvania 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 Chartered Property Casualty Underwriters. National examinations and three years of work experience are required.
Churning is a fraudulent practice in which insurance agents mislead consumers into giving up the cash value of, or taking loans against, current life policies to buy new coverage with the same company. These schemes usually include the misrepresentation or omission of pertinent information about the consumer’s existing policy and how it will be affected by the use of its value to fund the new policy.
A request or demand for payment by the insured, in accordance with an insurance policy.
The individual who makes a claim with an insurer.
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.
In medical insurance the co-insurance requires the participant to pay portion of expenses (ex 20% after deductible, then plan pays remainder (ex: 80%). Employee co-insurance is limited each year to an out of pocket maximum, then the plan pays 100%.
COBRA (Consolidated Omnibus Budget Reconciliation Act)
COBRA is 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.
Property that is offered to secure a loan or other credit that becomes subject to seizure on default. Also called security.
A temporary transfer of some of the ownership rights in a particular property, such as a life insurance policy or an annuity contract, as collateral for a loan. The transfer is made on the condition that upon payment of the debt for which the contract is collateral, all transferred rights shall revert back to the original owner. Contrast with absolute assignment.
With respect to automobile insurance, this covers physical damage of an insured’s automobile in the event of an accident, no matter who was at fault.
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
Also known as general liability insurance, this insurance protects businesses from third party claims for bodily injury, associated medical costs and damage to another person's property.
Commercial Insurance Providers
Companies that sell insurance to businesses. The most common types of commercial insurance are property, liability, and workers’ compensation. Health insurance may be written by a number of commercial insurers, including life insurance companies, casualty insurance companies, or monoline companies that specialize in one or more types of medical expense and disability income insurance (this includes both individual and group insurance policies).
An insurance policy written for businesses to cover negligent acts that cause injury or damage to persons or property unrelated to the business.
Insurance products designed for and bought by businesses. Among the major coverages are boiler and machinery, business income, 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 for business income, which must be added to a fire insurance (property) policy.
Commercial Multiple Peril Policy
Package policy that usually includes property, boiler and machinery, crime, and general liability coverages.
Community Rating Laws
Enacted in several states on health insurance policies, these laws require insurers 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.
With respect to automobile insurance, comparative negligence is a determination of the percentage of fault shared by each driver who contributed to an accident.
Compensatory money damages are intended to make an individual "whole." For example, if a person, driving negligently, totally destroys your 1992 Ford, the compensatory damages would normally equal the market value of your 1992 Ford at the time of its destruction, less any scrap or "salvage" value. It would not pay to replace the 1992 Ford even if that is what you had intended to do.
A measure used by some state insurance departments to track consumer complaints against insurance companies. Generally, it is stated as the number of complaints upheld against an insurance company, as a percentage of premiums written. In some states, complaints from medical providers over the promptness of payments may also be included.
Completed Operations Coverage
Pays for bodily injury or property damage caused by a completed project or job. This coverage protects a business that sells a service against liability claims.
This refers to coverage of an insured’s automobile in the event of damage not resulting from an accident.
Comprehensive Health Care
This refers to services, medical equipment, and supplies furnished by a provider, which may include, but which are not limited to: medical, surgical, and dental care; psychological, optometric, optic, chiropractic, podiatric, nursing, physical therapy, and pharmaceutical services; health education, preventive medical, rehabilitative, and home health services; inpatient and outpatient hospital services; extended care; nursing home care; convalescent institutional care; technical and professional clinical pathology laboratory services; laboratory and ambulance services; appliances, drugs, medicines, and supplies; and any other care, service, or treatment of disease, or correction of defects for human beings.
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.
Conditionally Renewable Policies
A conditionally renewable policy allows an insurance company to terminate insurance coverage, but only in the event of one or more conditions stated in the contract. These conditions cannot apply to the insured's health; most frequently, they are related to the insured reaching a certain age or losing gainful employment. Usually, the premium for conditionally renewable policies may be increased, if such an increase applies to an entire class of policies.
In insurance, the construction type refers to the type of material the dwelling is made of (ex. concrete block, wood frame, brick, etc.)
The time during which an insurer has the right to cancel or rescind an insurance policy if the application contained a material misrepresentation.
The party designated to receive the proceeds of a life insurance policy following the insured’s death if the primary beneficiary predeceased the insured. Also known as secondary beneficiary and successor beneficiary.
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.
Contract of Reimbursement
This describes a situation in which the benefit the insured receives from the policy is not a fixed amount, but instead is dependent on the amount of the loss.
This is a clause in a contractual document stipulating when and how certain actions are to be taken.
Contributory Health Plan
If the employee shares a portion of the health insurance premium, the plan is considered contributory.
A conversion policy is a type of individual health insurance policy available to some individuals who lose coverage through employer-based or out-of-state association group policies. Conversion means the individual still has insurance with the same insurer or Health Maintenance Organization (HMO) he or she had with the group coverage, but now through an individual policy. Conversion policies must be issued without evidence of insurability; however, the benefits offered are not required to be the same as those under the prior group policy. The premium for a conversion policy is normally higher than the premium for the prior group policy, as much as 200% of the standard risk rate.
Convertible Term Insurance Policy
A term life insurance policy that gives the polic owner the right to convert the policy to a permanent plan of insurance.
Coordination of Benefits
Coordination of benefits is a method of integrating payments by more than one insurance policy so that benefits from all sources do not exceed 100 percent of the bills.
A copayment is a specified dollar amount a subscriber in a managed-care plan must pay for covered health care services. The subscriber pays this amount to the provider at the time of service.
The scope of protection as outlined in an insurance policy.
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 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.
Creditable coverage is defined as time spent covered under a prior health plan which is used to satisfy the pre-existing condition exclusion in a new policy or qualify an individual for a guaranteed issue HIPAA policy.
Term referring to property coverages for the perils of burglary, theft, and robbery.
CrItical Illness (CI) Insurance
A type of individual health insurance that pays a lump-sum benefit when the insured is diagnosed with a specified illness. Also known as critical diagnosis insurance. Contrast with specified disease coverage.
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.
Custodial care is a lower level of care that does not require a nurse to administer it. It may be provided in a nursing home or a private home, but must be recommended by a doctor. This care includes help with activities of daily living. A Medicare supplement policy provides limited nursing care coverage, as it supplements Medicare payments for skilled nursing care, but not intermediate or custodial care.
The regular maintenance schedule recommended by the manufacturer of the vehicle such as oil changes, etc.
The part of the policy that states the name of the insurance company and the policyholder, including the address, property insured, its location and description, the policy period, coverage, premiums, and supplemental information. Commonly known as the “dec page.”
A deductible is the amount a policyholder must pay out-of-pocket per claim or loss before the insurance company will begin paying. Deductibles are fixed amounts specified in the policy. Some Property & Casualty policies contain percentage deductibles for certain perils, such as windstorm, hurricane, or hail.
A Deferred Annuity is a contract where money is paid to an insurance company in a lump sum (Single Premium Deferred Annuity) or over a period of years (Flexible Premium Deferred Annuity).
Depreciation is the decrease in the value of a home or personal property due to normal wear and tear from the time a home was built or from the time the personal property was purchased.
Direct Loss Damage
When an insured peril causes physical damage to insured property, it is called “direct damage.”
When an insured peril causes physical damage to insured property, it is called “direct damage.”
In insurance, the act of treating certain groups of people unfairly in the sale and/or pricing of policies; treating any of a given class of risk differently from other like risks. In group health coverage, it means policies may not condition eligibility or continued eligibility on an individual’s health status, medical claims experience, receipt of health care, medical history, genetic information, or evidence of insurability.
Disenrollment is a procedure for ending membership in an HMO or a Medicare HMO program.
A dividend is money paid annually to a policyholder as a partial return on the paid premium. Frequently, dividends may be used to increase cash values and death benefits.
A domestic insurer is an insurance company incorporated according to the laws of the state in which the insured risk is located and in which the policy has been issued.
Duplication of Coverage
Duplication of coverage is when an agent sells you more insurance than you need. It is also called “overselling” or “stacking.”
Early Learning/Child Care Center Insurance
Protects licensed early learning child care centers for their business insurance needs in addition to crisis management, emergency vacating expenses, kidnap expenses, etc.
The portion of an insurance premium that has been paid for in advance by money that has been “earned” during the time that coverage has been provided and that no claim has been filed.
An effective date is the date on which insurance protection begins.
An elimination period is the length of time a policyholder has to wait after a covered illness begins before receiving benefits.
An endorsement is a change added to an insurance policy that modifies the original terms.
The first day of coverage or the first day of a waiting period, if applicable, under a group health plan.
Errors and Omissions Insurance
Also known as professonial liability, this insurance protects your business against damages arising from the rendering of or failure to render professional services.
Evidence of Insurability
Evidence of insurability is a signed health questionnaire or a physical examination, depending on a company’s requirement.
Coverage that is paid after other coverage has been exhausted. In a situation in which an owner of a vehicle’s insurance policy is primary and that coverage is exhausted, the user of the vehicle’s insurance is considered excess coverage.
A provision in an insurance policy that denies coverage for certain losses, persons, or property.
This is a situation in which all insurance limits have been paid.
Extended Non-Owned Coverage
This endorsement adds liability coverage (and optionally, Medical Payments) for a non-owned automobile which is furnished or available for the regular use of the person, for using all types of non-owned autos in business, and for using non-owned autos when carrying persons or property for a fee.
Extended Personal Injury Protection (PIP)
For the named insured and family members only, this increases PIP medical benefits from 80% to 100% and work loss benefits from 60% to 80%. The maximum limit per person remains $10,000.
Face amount (face value) is the dollar amount stated on the specification page of a policy and paid by the company upon policy maturity or death. It does not include dividends or additional amounts payable under special provisions, such as an accidental death.
Pay interest at a rate set annually by the issuing company, normally having a minimum guaranteed rate. Once the payout or annuitization phase begins, payments are fixed and do not fluctuate based on interest rate changes.
Flexible Spending Account (FSA)
In an FSA plan, employee's set aside, on a pre-tax basis, a pre-established amount of money per plan year. The employees can use the funds in the FSA to help pay for out of pocket medical, dental, and dependent care expenses that are not covered by other benefit plans.
Florida Insurance Guaranty Association/ FIGA
The Florida Insurance Guaranty Association (FIGA) is a nonprofit corporation created by state law to pay claims in the event of the bankruptcy of a property and casualty insurance company licensed in Florida.
Free Look Period
A free look period is a 10-day period after you receive a policy which allows you time to decide whether to keep it.
The Garage coverage form is used to insure businesses engaged in selling, servicing, repairing, parking, or storing autos.
General Liability Insurance
Also known as commercial general liability insurance, this insurance protects businesses from third party claims for bodily injury, associated medical costs and damage to another person's property.
Good Faith Estimate
An estimate of charges that a borrower is likely to incur in connection with a settlement.
A grace period is a specified period in which a policyholder may submit an overdue payment and still retain coverage.
The total insurance premium for the policy, including the agent’s commission and policy fees.
Group Life Insurance
Protects against the death of the insured in the form of payment to a selected beneficiary, typically a family member or business.
Guaranteed Insurability is an option that allows you to buy additional life insurance at specified times without evidence of insurability, such as a questionnaire or a physical exam.
Guaranteed Renewable Policy
An insurance policy provision guaranteeing a policy owner the right to renew coverage at every policy renewal date. The insurer may cancel coverage only if the policy owner fails to pay the premiums; however, the insurer is permitted to raise rates.
A coverage that protects businesses engaged in electronic commerce from losses caused by hackers.
A seller’s market in which insurance is expensive and in short supply.
Health Insurance Portability and Accountability Act/ HIPAA
HIPAA is the acronym for the federal Health Insurance Portability and Accountability Act of 1996. The Centers for Medicare & Medicaid Services (CMS) is responsible for implementing various unrelated provisions of HIPAA. HIPAA may mean different things to different people. Title I of HIPAA, known as HIPAA Health Insurance, protects health insurance coverage for workers and their families when they change or lose their jobs by giving them access to continuous coverage. State Law protects health insurance for individuals that are losing access to their coverage under a limited number of circumstances.
Health Maintenance Organization (HMO)
A type of prepaid group health insurance plan in which members use the services of physicians, hospitals, and clinics participating in the plan. Members are required to use contracted health-care providers. HMOs emphasize preventative medicine.
Health Savings Account (HSA)
A portable insurance plan that allows individuals to contribute pre-tax money to an account whose funds can be used for qualified medical expenses. HSAs are linked to high-deductible health insurance policies.
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, covering 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.
Equal to 365 days of insured coverage for a single dwelling. It is the standard measurement for homeowners insurance.
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.
Identity Theft Insurance
Coverage for expenses incurred as the result of an identity theft. This coverage 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.
An annuity purchased with a single premium. Payment to the annuitant begins at the the end of the first prescribed payment period. For example, if payments will be on a monthly basis, the first payment will be made 1 month after the annuity is purchased. Immediate annuities are most often purchased as a settlement option under a life insurance policy
The date on which an insurer begins or is scheduled to begin making annuity benefit payments under an annuity contract. Also known as maturity date and annuity date.
Income Protection Insurance
A type of disability income coverage that provides an income benefit both while the insured is totally disabled and unable to work and while he or she is able to work but, because of a disability, is earning less than before being disabled. Also known as residual disability insurance.
An insurance and annuity policy provision that limits the time within which an insurer has the right to avoid the contract on the ground of material misrepresentation in the application for the policy. Also known as an incontestable clause.
Increasing Term Life Insurance
A type of term life insurance that provides a death benefit that increases by some specified amount or percentage at stated intervals over the policy term. Contrast with decreasing term life insurance.
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.
Losses occurring within a fixed period, whether or not adjusted or paid during the same period.
Indemnification is the principle on which insurance is structured. An insured is indemnified if a covered loss occurs. He or she is placed in the same situation that existed prior to the loss. For example, reimbursement for damaged property, medical bills, or disability income.
To provide financial compensation for losses.
A contract under which the insurer pays benefits to an insured based on a predetermined, fixed rate set for the services provided regardless of the actual expenses incurred.
An agent who represents several insurance companies, rather than a single company, as does a captive agent. An independent agent may be self-employed and is usually paid on commission.
Independent Medical Exam (IME)
The insurer, at its discretion and in the course of any ongoing claim or claim investigation, may request an insured to be examined by a physician chosen by the insurance company as often as is deemed reasonably necessary. This is referred to as an independent medical examination (IME).
Indeterminate Premium Life Insurance Policy
A type of nonparticipating whole life policy that specifies two premium rates—both a maximum guaranteed rate and a lower rate. The insurer charges the lower premium rate when the policy is purchased and guarantees that rate for at least a stated period of time, after which the insurer uses its actual mortality, interest, and expense experience to establish a new premium rate that may be higher or lower than the previous premium rate. Also known as nonguaranteed premium life insurance policy and variable premium life insurance policy.
Indexed Life Insurance Contract
An arrangement similar to a universal life contract. Death benefit amounts are based on the amount selected by the policyholder plus the account value. The policyholder’s account value is linked to cumulative returns based on the S&P 500 index or some other tied index. An essential component of the contract is that the cash surrender value is also linked to a tied index. Typically, the tied index doesn’t include dividends. There may be additional constraints on the amount that the insurance company will credit as interest under this policy.
A loss that is a result or consequence of a direct loss. Examples of an indirect loss: a business interruption loss, extra expense, lost rent, etc.
Individual insurance is insurance that covers one person under one policy.
Inland Marine Insurance
This broad type of coverage was developed for shipments that do not involve ocean transport and 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.
This refers to an insurer’s inability to pay debts. Insurance insolvency standards and the regulatory actions taken in response to insolvency 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 the company either in conservatorship, 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 for a company is the inability to pass the financial tests that regulators administer as a routine procedure.
A person has an insurable interest in a potential loss if that person will suffer an economic loss if the event insured against occurs. In an auto insurance contract, the person must have an insurable interest at the time of loss. In a life and health contract, the person must have an insurable interest at the time the policy was purchased.
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.
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.
A group of insurance companies that pool assets, enabling them to provide an amount of insurance substantially greater than can be provided by individual companies to insure large risks, such as nuclear power stations. Pools may be formed voluntarily or mandated by the state to cover risks that obtain coverage in the voluntary market, such as coastal properties subject to hurricanes.
Insurance scores are confidential numerical rankings based on credit information. The criteria used to calculate an insurance score includes information from an individual’s credit history, including payment history, length of payments, outstanding debt, available credit, the number of open credit card accounts, and any history of bankruptcy filing. An insurance score is a measure of how well consumers manage their financial affairs, not a measure of their financial assets. It does not include information about income or race. Studies have shown that people who manage their money well also tend 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.
Insurance Service Office (ISO)
The ISO develops policy forms and rates for its member insurance companies. The ISO has members from all over the United States.
Insurance written in an amount approximating the value of the insured property.
The insured is the person covered under an insurance policy. The term can also be used in describing items that are covered.
Insured loss is a loss (as a result of theft, damage, etc.) the insurance policy will pay for in full or in part.
Coverage in which 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.
Interest-Adjusted Cost Comparison Index
A cost comparison index used to compare the costs of life insurance policies that takes into account the time value of money. By comparing the index numbers derived for similar life insurance policies, a consumer has some basis on which to compare the costs of the policies.
A general category of insurance products in which the face amount and/or the cash value vary according to the insurer’s investment earnings.
An insurer that sells policies 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.
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.
A life insurance policy beneficiary who has a vested interest in the policy proceeds even during the insured’s lifetime because the policy owner has the right to change the beneficiary designation only after obtaining the beneficiary’s consent. Contrast with revocable beneficiary.
Joint and survivor annuity
An annuity with two annuitants, usually spouses. Payments continue until the death of the longest living of the two.
Joint underwriting Association/JUA
Insurers that join together to provide coverage for a particular type of risk or size of exposure, when there are difficulties in obtaining coverage in the regular market, and which share in the profits and losses associated with the program. JUAs may be set up to provide auto and homeowners insurance and various commercial coverages, such as medical malpractice.
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.
Coverage up to specific limits for the cost of ransom or extortion payments and related expenses, often purchased 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 existence of the coverage.
A lapse is the voluntary termination of a policy by the policyholder.
A lapsed policy is a policy terminated for nonpayment of premium following the grace period.
A large group, for health insurance purposes, is defined as an employer with 51 or more eligible employees.
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.
Level Premium Insurance
Level Premium Insurance is a policy with a fixed payment plan over a specified period.
Level Premium Policies
Premiums paid for a life insurance policy or for a deferred annuity that remain the same each year that the contract is in force. Contrast with modified premium policies and single premium policies.
A liability is a legal obligation.
Insurance for what the policyholder is legally obligated to pay because of bodily injury or property damage caused to another person.
This is the maximum amount of benefits your insurance company will pay for liability claims or losses.
Life and Health Insurance
The sector of the insurance industry whose products are intended to cover the economic costs of death, illness, and disability. The other sector of the insurance industry is property/casualty insurance.
A type of annuity contract that guarantees periodic income payments throughout the lifetime of a named individual—the annuitant. If a life annuity provides no further benefits after the death of the annuitant, the annuity is known as a straight life annuity. However, some life annuities provide that income payments will be paid either for the life of the annuitant or for a guaranteed period—life income with period certain—or at least until a guaranteed amount has been paid—life income with refund annuity.
Life Annuity with Period Certain
A type of annuity contract that guarantees periodic income payments throughout the lifetime of a named individual—the annuitant—and guarantees that the payments will continue for at least a specified period. If the annuitant dies before the end of that specified period, the payments will continue to be paid until the end of the period to a beneficiary designated by the annuitant.
Life Income with Refund Annuity
A type of annuity contract that guarantees specified periodic income payments throughout the lifetime of a named individual—the annuitant— and guarantees that a refund will be made if the annuitant dies before the total of the periodic payments made equals the amount paid for the annuity. Also known as refund annuity.
This coverage is a contract between the policy owner and the insurer, under which terms the insurer agrees to pay a sum of money upon the occurrence of the insured individual's or individuals' death or other event, such as a terminal or critical illness. In return, the policy owner agrees to pay a stipulated amount, called a premium, at regular intervals or in lump sums. In some countries, policy premiums include bills and death expenses plus after- funeral catering expenses. In the United States, the predominant form simply specifies a lump sum to be paid on the insured's demise.
A limit is the maximum amount of benefits an insurance policy will pay in the event of a loss.
This is the type or kind of insurance, such as personal lines, commercial lines, etc.
Coverage for bodily injury or property damage caused by an intoxicated person who was served liquor by the policyholder.
Vehicles owned by a company that rents them.
A corporation, found primarily in Texas and having no connection to Lloyd’s of London, formed to market the services of a group of underwriters. Lloyd’s does not issue insurance policies or provide insurance protection. Insurance is written by individual underwriters, with each assuming a part of every risk.
Lloyd’s of London
A marketplace in which 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. Lloyd’s of London’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 ship owners 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.
Loading refers to the administrative fees paid when buying either life insurance or an annuity.
Long-term Care Insurance
Long-term Care includes a wide range of medical, personal, and social services. A person may need this care if he/she suffers from a prolonged illness, disability, or cognitive impairment. Long-term Care includes services provided by home health care agencies, adult daycare centers, traditional nursing homes, and continuing care retirement communities. In addition to providing the three levels of nursing care, Skilled Care, Intermediate Care, and Custodial Care, Long-term care must also provide at least one lower level of care such as home health care. Coverage provided for all lower levels of care must be a least 50% of the nursing home benefit. The minimum benefit period for coverage is two years.
Long-term Disability Income Insurance
A type of disability income insurance that provides disability income benefits after short-term disability income benefits terminate and continues until the earlier of the date when the insured person returns to work, dies, or becomes eligible for pension benefits. Contrast with short-term disability income insurance.
An occurrence or event resulting in damage or destruction of property, injury, or death. A policy may cover, limit, or exclude certain losses, depending on the terms of the policy.
Loss Adjustment Expenses
The sum insurers pay for investigating and settling insurance claims, including the cost of defending a lawsuit in court.
Activities, efforts, or expenditures intended to avoid, prevent, or reduce the frequency and severity of loss.
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.
Circumstances or conditions that allow for the chance of a financial loss, regardless of whether a loss in fact occurs or whether the condition is insurable.
The regularity or rate at which losses occur or may occur during a specified period of time.
Loss of Use
The loss of the ability to use the insured property.
An interested party to the insurance contract such as a lien holder.
Percentage of each premium dollar an insurer spends on claims.
Loss Reserves represent the insurer’s liability for losses that have occurred, but for which settlement is not yet complete
The scope or amount of loss.
Professional liability coverage for physicians, lawyers, and other specialists against suits alleging negligence or errors and omissions that have harmed clients.
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.
Managing General Agent (MGA)
A person or firm authorized by an insurance company to transact insurance business on their behalf. They have authority to bind coverage, issue policies, appoint agents, adjust claims, and provide administrative support.
A book published by an insurance or bonding company or a rating association or bureau that gives rates, classifications, and underwriting rules.
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 that 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.
Maturity is the time at which life insurance death proceeds or endowments are paid, either at the death of an insured or at the end of the endowment period.
(1) In insurance, the date on which an insurer will pay the face amount of an endowment policy to the policy owner if the insured is still living. (2) In investing, the date on which a bond issuer must repay to the bondholder the amount originally borrowed. (3) For an annuity, the date on which the insurer begins to make annuity payments. Also known as income date.
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 is an informal way to resolve a claims dispute between the insured and the insurance company. It is a process in which a neutral third party acts to encourage and assist in the resolution of a dispute without dictating the outcome.
Medical Expense Insurance
Provides benefits for the cost of medical care. Depending on the type of policy, coverage can range from limited (coverage for hospital costs only, for example) to very broad (coverage for all aspects of medical services and care). Medical expenses can be paid as a reimbursement of actual expenses or at a fixed rate, regardless of the actual loss.
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 made without regard to fault.
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.
Minimum Earned Premium
Once coverage is bound, a minimum earned premium is the amount of premium actually earned by the insurance company even if the policy is immediately cancelled by the insured. When this occurs, the insurance company is usually a Surplus Lines Carrier.
A false or misleading statement. (1) In insurance sales, a false or misleading statement made by a sales agent to induce a customer to purchase insurance is a prohibited sales practice. (2) In insurance underwriting, a false or misleading statement by an insurance applicant may provide a basis for the insurer to avoid the policy.
Misstatement of Age or Sex Provision
A life insurance, health insurance, and annuity policy provision that describes how policy benefits will be adjusted if the age or sex of the insured has been misstated in the insurance application. Typically, the benefits payable will be those that the premiums paid would have purchased for the correct age or sex.
Modified Premium Policies
An insurance policy for which the policy owner first pays a lower premium than she would for a similar level premium policy for a specified initial period and then pays a higher premium than she would for a similar level premium policy. Contrast with level premium policies and single premium policies.
The possibility that a person may act dishonestly in an insurance transaction because the party is insulated from risk. In insurance, moral hazard occurs when the insured party’s behavior raises costs for the insurer because the insured party is not responsible for the costs of that behavior.
Mortality and Expense (M&E) Risk Charge
A fee that covers such annuity contract guarantees as death benefits.
Mortality charge is the cost of a life insurance risk, based upon a mortality table used by the insurance company.
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).
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. (See Term Insurance)
Means multiple vehicles on the same policy.
Means more than one type of insurance policy with the same company.
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 bond holders 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.
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.
Mutual Life Insurance Company
Mutual Life Insurance Company is a life insurance company owned by its policyholders, who elect a Board of Directors. Policyholders usually receive dividends from the company’s surplus earnings.
The individual or firm with whom an insurance contract is made and whose interests the insurance policy is written to protect. The individual or firm is specifically named as a Named Insured in the policy declarations.
Named Non-Owner Coverage
This endorsement provides Liability, Medical Payments, and UM coverages for a named individual who does not own an automobile to cover the individual for the operation of autos owned by others.
Named perils are perils specifically named and covered by in a policy. Some examples are fire, windstorm, theft, smoke damage, lightning, and vandalism.
National Flood Insurance Program
Federal government-sponsored program under which flood insurance is sold to homeowners and businesses.
The failure to exercise a degree of care that the law requires to protect others from an unreasonable risk of harm; the failure to act as a prudent person would have acted under similar circumstances, resulting in an unintended injury to another party.
Gross policy premium minus agent’s commission.
NET 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.
Also known as Personal Injury Protection (PIP), no-fault auto insurance compensates individuals for a loss according to the terms of their policy, regardless of who caused the accident. In Florida, no-fault insurance applies to personal injury only and does not provide any coverage for a vehicle.
An agreement by the insurance company to keep a Universal Life Insurance policy in force, even if the cash value is zero or less, provided that a specified minimum continuation premium is made when required.
The idea that people who don’t buy coverage should not receive insurance benefits. This provision 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.
Assets that are not included on the balance sheet of an insurance company, including furniture, fixtures, past-due accounts receivable, and agents’ debt balances.
Insurers licensed in some states but not in others. A state considers an insurer not licensed within that state to be a non-admitted insurer. Non-admitted insurers sell coverage that is unavailable from licensed insurers within the state.
An individual health insurance policy, stipulating that, until the insured reaches a specified age (usually age 65), the insurer will not cancel the coverage or change the policy provisions as long as the premiums are paid when due. Non-cancellable provisions are most commonly found in disability income policies; they are rarely used in medical expense policies. Contrast with Guaranteed Renewable policy.
The various ways in which a contract owner may apply the cash surrender value of an insurance or an annuity contract if the contract lapses. In the United States, the typical non-forfeiture options for life insurance are the cash payment option, the extended term insurance option, and the reduced paid-up insurance option.
An annuity in which contributions are not tax deductible. Contributions to qualified annuities are generally tax deductible, and taxes on interest are deferred until withdrawal. In contrast, contributions to a Non-Qualified Annuity are not tax deductible; however, the interest accumulation in the contract is still deferred.
A non-renewal is the termination of an insurance policy at its normal expiration date.
Nonparticipating Insurance is insurance on which you are paid no dividends.
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.
Nursing Home Insurance
A form of long-term care policy that covers a policyholder’s stay in a nursing facility.
Abnormal condition or illness caused by factors associated with the workplace. Like occupational injuries, this is covered by workers’ compensation policies.
Something that takes place; an accident, event, or continuing condition that causes personal property damage that is unintended or unexpected from the standpoint of an insured party making a claim.
Insurance that pays claims arising out of incidents that occur during the policy term, even if they are filed many years later. Contrast with a Claims-made policy.
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. This policy provides coverage for marine-related liabilities. War is excluded from basic policies but can be obtained.
A property insurance form that insures against any risks of loss that are not specifically excluded. This term is frequently used instead of "all risks."
Optionally Renewable Policies
The renewability provision in an optionally renewable policy gives the insurer the option to terminate the policy on a date specified in the contract. Furthermore, this provision allows the insurer to increase the premium for any class of optionally renewable insureds. Usually termination or premium increases take place on policy anniversary dates or premium due dates. A "class" of insureds includes all insureds of policies of a particular kind or all insureds of a specific group. For example, a class of insureds may be those of a particular age or those who live in a specific geographic region.
Ordinance or Law Coverage
Endorsement to a property policy, including homeowners policies, 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.
A Package policy is an insurance policy that includes several kinds of coverages. For example, homeowners policies usually include coverage for property damage, additional living expenses, personal liability, and medical payments.
Paid-up Additional Insurance Option
An option, available to the owners of participating life insurance policies, that allows the policy owner to use policy dividends to purchase additional insurance on the insured’s life; the paid-up additional insurance is issued on the same plan as the basic policy and in whatever face amount the dividend can provide at the insured’s attained age.
An insurance policy that requires no further premium payments but continues to provide coverage.
Participating Insurance is insurance that entitles the policyholder to share in the company’s surplus earnings.
A type of insurance policy that allows policy owners to receive policy dividends. Also known as a par policy.
The methods available to an annuity contract owner for the distribution of the annuity’s accumulated value. The following are some payout options: (1) The lump sum distribution method allows the contract owner to receive the balance of his account in a single payment. (2) The fixed period option provides that the annuity’s accumulated value will be paid out over a specified period of time, such as 10 or 20 years. (3) The fixed amount option provides that the annuity’s accumulated value will be paid out in a pre-selected payment amount until the accumulated value is exhausted. (4) A life annuity option provides that periodic income payments will be tied in some manner to the life expectancy of a named individual.
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.
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).
Per Capita Beneficiary Designation
A type of life insurance policy beneficiary designation in which the life insurance benefits are divided equally among the designated beneficiaries who survive the insured. For example, if the policy specifies two beneficiaries, but only one is surviving at the time of the insured’s death, then the remaining beneficiary receives the entire policy benefit. Contrast with per stirpes beneficiary designation.
Per Stirpes Beneficiary Designation
A type of life insurance policy beneficiary designation in which the life insurance benefits are divided among a class of beneficiaries; for example, children of the insured. The living members of the class and the descendants of any deceased members of the class share in the benefits equally. Contrast with per capita beneficiary designation.
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.
The stated period over which an insurer makes periodic benefit payments under an annuity certain.
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.
Property/casualty insurance products that are designed for and bought by individuals, including homeowners and automobile policies.
Point-of-Service Plans (POS)
These plans may be called by a variety of names and have various features. They combine some aspects of traditional medical expense insurance plans and other aspects of HMOs and PPOs. In a Point-of-Service Plan (POS) plan, insured members may choose, at the point of service, whether to receive care from a physician within the plan’s network or to go out of the network for services. A POS plan provides less coverage for health care expenses provided outside the network than for expenses incurred within the network. Also, a POS plan will usually require the insured to pay deductibles and coinsurance costs for medical care received out of network.
A method used by insurance companies to charge increased premiums for operators with violations. Example: An insurance company may charge 1 point for a minor speeding ticket if the offense is the driver’s second violation for speeding.
A written contract for insurance between an insurance company and policyholder stating details of coverage.
Policy Dividend Options
Ways in which the owner of a participating insurance policy may receive policy dividends.
A policy loan is the amount that can be borrowed against a life insurance policy’s cash value.
The period of time an insurance policy provides coverage. Some policies are annual, and some are six-months.
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.
Policies that cover property loss and liability arising from pollution-related damages, for sites that have been inspected and found uncontaminated. This insurance 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.
An organization of insurers who band together to write insurance jointly for applicants unable to get coverage through ordinary methods.
Portability is a protection provided in HIPAA that allows a person to go from one insurance or HMO contract to another with no adverse affect due to pre-existing conditions. Portability allows an insured to offset the pre-existing condition exclusion in a contract with their prior creditable coverage. Generally, portability applies when you change from one employer-based group plan to another, from an employer-based group plan to an individual policy, or from an individual policy to an employer-based group plan. Under Florida law, portability is provided for individual to individual coverage except under Health Maintenance Organization (HMO) contracts and out-of-state association or trust group certificates.
Power of Attorney
A written instrument by which one person authorizes another person to take specific actions for that person, as stated in the instrument. For premium financing, this gives the premium finance company the authority to act as the insured and request cancellation of the insurance policy when the insured fails to make an installment payment to the premium finance company. This is the only authority granted to the premium finance company.
A pre-existing condition is a condition for which medical advice or treatment was needed, recommended by, or received from a health care provider before the date the insured person’s coverage took effect. This phrase can also refer to an illness for which an ordinarily prudent person would have sought treatment. Pre-existing conditions usually are not covered until some time after a policy has been in effect.
Preferred Provider Organization (PPO)
A network of medical providers who charge on a fee-for-service basis but who are paid by insurers on a negotiated, discounted fee schedule.
Preferred Risk Class
In insurance underwriting, the group of proposed insureds who represent a significantly lower-than-average likelihood of loss within the context of the insurer’s underwriting practices. Contrast with declined risk class, standard risk class, and substandard risk class.
The amount charged for an insurance policy; in effect, the cost of the insurance.
Premium Reduction Option
An option, available to the owners of participating insurance policies, that allows the insurer to apply policy dividends toward the payment of renewal premiums.
Premium reserves reflect the liability of the insurer for losses that have not occurred but for which premiums have been paid.
A state tax on premiums paid by its residents and businesses and collected by insurers.
Premium Waiver Provision
A premium waiver provision is a contract provision that takes effect if the named insured (or in some policies, the person paying the premiums) becomes disabled. The disabled party will not have to pay premiums for the duration of the disability, even if the disability is life-long.
Premiums in Force
The sum of the face amounts, plus dividend additions, of life insurance policies outstanding at a given time.
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.
The party designated to receive the proceeds of a life insurance policy following the death of the insured. Also known as first beneficiary.
In a reinsurance transaction, the insurance company that is reinsured.
Coverage that exists first, before any other coverage.
The person listed on the policy as the primary user of the vehicle.
The principal sum under an Accidental Death & Dismemberment (AD&D) policy is the amount payable as a death benefit. It is the amount of insurance purchased, usually $10,000, $25,000, $50,000, $100,000, or more. The principal sum represents the maximum amount the policy will pay.
Prior Approval States
States where insurance companies must file proposed rate changes with state regulators; proposed rate changes must gain approval before they can go into effect.
This is a situation in which an insurance contract/policy is terminated midterm by the insurance company, and the earned premium is calculated only for the period for which the coverage was provided. The insurance company returns to the policyholder the unearned premium (the portion of the premium for the remaining period that the policy will not be in force).
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. For example, a death certificate would be submitted as proof of loss by the beneficiary of a life insurance policy upon the death of the insured.
Property and Casualty Insurance
Insurance that 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 and 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, the cycles have been less regular and less frequent.
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.
A prospectus is a statement about a security (such as most variable insurance plans) disclosing extensive information about a company’s investments and investment strategies.
The Insurance Service Office (ISO) collects information about the quality of public fire protection in the United States. In each of these fire districts, ISO analyzes the relevant data and assigns a Public Protection Classification. Protection class is also known as Fire Protection. See Public Protection Classification.
Public Protection Classification
A number from 1 to 10 assigned by the Insurance Service Office. Class 1 represents exemplary fire protection, and Class 10 indicates that the area’s fire-suppression program does not meet their minimum criteria. The ISO studies the community’s fire alarm and communication skills, the fire department (including equipment, staffing, training, and geographic distribution of fire companies), and the water supply system.
Punitive or Exemplary Damages
These are damages awarded by a court as a punishment to the at-fault party in a civil action. Such damages are designed to serve as a warning to others and to deter similar activities or conduct.
A life insurance contract that pays a periodic income benefit for the life of the owner of the annuity. The payment can be monthly, quarterly, semiannually, or annually.
Pure Life Annuity
A form of annuity that ends payments when the annuitant dies. Payments may be fixed or variable.
This is an approved IRS Pension vehicle used for IRAs, 401K rollovers, Tax Sheltered Annuities (TSAs), and other approved pension plans. The funds inside a qualified annuity are pre-tax. Taxes are deferred until the money is withdrawn, whereupon the money is subject to income tax.
Six major credit agencies determine insurers' financial strength and viability to meet claim obligations. They are: AM Best Company, Moody’s Investor Services, Duff & Phelps, Inc., Fitch, Inc., Standard & Poor’s Corporation, and TheStreet.com 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. Generally, the ratings are shown as A++ (being the best) to D or E.
Reduced Paid-up Insurance
Reduced Paid-up Insurance is a non-forfeiture option by which the cash value is used to buy a reduced amount of insurance with no further premiums while still continuing coverage for the same length of time as the original policy. This is required in every cash value policy issued in Florida.
Reinstatement is the restoration of a lapsed policy to its original premium-paying status after you pay past due premiums and interest.
Replacement Cost Coverage
Replacement Cost coverage means the policy will pay for the actual cost of replacement or repair of a damaged or destroyed home or personal property, up to the policy limits, without deducting for depreciation, when the property is damaged by a covered peril. The amount paid would be reduced by the deductible.
The insurers’ best estimate of what it will pay for claims. Reserves, which are periodically readjusted, represent a liability on an insurer’s balance sheet because they are held to cover debts to policyholders.
A rider is an attachment to an insurance policy that specifies conditions or benefits the policy covers, in addition to the original contract benefits.
A chance of loss to insured persons, liabilities, or properties.
The management of the various risks that might affect a business. Its purpose is to identify potential loss situations and to control or reduce them through safety and insurance programs.
Rule of 78s
The method of calculating the amount of unearned service charge to be refunded when an insured prepays his or her premium finance agreement in full at any time before the due date of the final payment.
A secondary addressee is a person designated by the insurance policyholder to receive any notice of possible lapse in coverage.
The concept of assuming a financial risk oneself, instead of paying an insurance company to accept the risk. Every policyholder is a self-insurer in terms of paying a deductible. Large firms will often self-insure frequent small losses, such as damage to their fleet of vehicles. For group health insurance, self-insured means the employer assumes the risk of paying the benefits itself. An insurance company may provide administrative services to a self-insured plan, such as claims administration, but does not assume any risk to pay claims for benefits.
The charge for financing insurance premiums. A service charge is computed on the balance of the premiums due, after subtracting the down payment made by the insured. The charge is calculated in accordance with the premium finance agreement, beginning from the effective date of the insurance coverage for which the premiums are being advanced to and including the date when the final payment of the premium finance agreement is payable.
When an insured cancels an insurance contract prior to the expiration date, the company may refund the unearned premium, keeping a percentage of the refund amount as a penalty. This is called a short-rate cancellation.
Similarly Situated Individuals
Individuals that have common characteristics for permitted distinctions such as geographic location, job position, full-time or part-time employment, etc. Health insurance regulations prohibit discrimination against similarly situated individuals, which means those with the defined common characteristics must be treated equally.
Sliding is the act or practice of: representing to the applicant that a specific ancillary coverage or product is required by law in conjunction with the purchase of insurance when such coverage or product is not required; representing to the applicant that a specific ancillary coverage or product is included in the policy applied for without an additional charge when such charge is required; or charging an applicant for a specific ancillary coverage or product, in addition to the cost of the insurance coverage applied for, without the informed consent of the applicant.
In health insurance, a stop-loss limit is the dollar amount of claims filed for eligible expenses at which point an individual has paid 100 percent of out-of-pocket expenses and the insurer begins to pay 100 percent of any more claims. A stop-loss limit is designed to limit the amount of coinsurance a policyholder must pay.
Subrogation is the process by which an insurance company, after paying a loss to its insured, recovers the amount paid for damages (which can include the insured's deductible) from the legally liable party. For example, the not-at-fault company pays for their not-at-fault insured's auto damage under collision coverage. The not-at-fault company collects the money they paid their not-at-fault insured from the at-fault company.
Surrender is turning in a policy to the company in exchange for its cash value.
The fee paid by a policyholder when a life insurance policy or an annuity is surrendered for its cash value.
When a licensee receives a suspension, it is temporary for a certain length of time. However, once the specified time period has expired, the licensee must make a written request for reinstatement to licensing. The determination as to whether or not to reinstate the suspended licensee depends upon factors such as payment of any required restitution and whether the circumstances leading up to the suspension have been corrected. The suspension period can vary but has a maximum of 24 months. During their suspension, individuals cannot engage in any transactions requiring licensure and must divest themselves of any ownership or control of an agency or adjusting firm.
Literally, this is any property that can be touched, including both real and personal property. It is physical property that has value.
Life insurance that provides coverage at a fixed rate of payments for a limited period of time, the relevant term. When that period expires, coverage at the previous rate of premiums is no longer guaranteed, and the client must either forgo coverage or potentially obtain further coverage with different payments and/or conditions. If the insured dies during the term, the death benefit will be paid to the beneficiary. Term insurance is often the most inexpensive way to purchase a substantial death benefit on a coverage amount per premium dollar basis.
Twisting is a fraudulent practice in which insurance agents mislead consumers into giving up the cash value of current life policies to buy new coverage with a different company. Like churning, twisting usually involves the misrepresentation or omission of pertinent information about the consumer’s existing 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.
A form of annuity contract that gives purchasers the freedom to choose among certain optional features in their contract.
The result of the policyholder’s failure to buy sufficient insurance. An underinsured policyholder may receive only part of the cost of replacing or repairing damaged items covered in the policy.
The term may be used for: (1) The company that receives the premiums and accepts responsibility for the policy contract. (2) An individual trained in evaluating risks and determining rates and coverages. (3) An agent who sells a policy.
The process of examining, accepting, or rejecting insurance risks, according to their degree of insurability. Underwriting also entails classifying accepted risks so that the appropriate insurance rates may be assigned.
The insurer’s profit on the insurance sale after all expenses and losses have been paid. When premiums are not sufficient to cover claims and expenses, the result is an underwriting loss. Underwriting losses are typically offset by investment income.
The amount of commission associated with the portion of a cancelled insurance policy for which protection has not yet been provided, to be returned by the agent.
The portion of a premium already received by the insurer for 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.
Risks for which it is difficult for someone to get insurance.
Uninsured Motorists Coverage
The portion of a personal auto insurance policy that covers a policyholder in the event of a collision with a hit-and-run driver or one who does not have liability insurance.
Universal Life Insurance
A flexible premium policy that combines protection against premature death with a type of savings vehicle, known as a cash value account, that typically earns a money market rate of interest. Death benefits can be changed during the life of the policy within limits, generally subject to a medical examination. Once funds accumulate in the cash value account, the premium can be paid at any time, but the policy will lapse if there isn’t enough money to cover annual mortality charges and administrative costs.
State in which an insurance company can implement a rate increase before the rate is approved by regulators. However, if regulators approve a lower rate of increase, or no increase at all, the company may have to reimburse policyholders in the form of credits or refunds.
A contract 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. A life insurance policy is an example of a valued contract.
An annuity whose contract values are based on the underlying value of the securities they invest in, such as mutual funds or common stocks. Variable annuities generally do not have maximum limits or minimum guarantees, meaning that individuals could potentially lose their investments.
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.
Variable Premium Life Insurance Policy
A type of nonparticipating whole life policy that specifies two premium rates—both a maximum guaranteed rate and a lower rate. The insurer charges the lower premium rate when the policy is purchased and guarantees that rate for at least a stated period of time, after which the insurer uses its actual mortality, interest, and expense experience to establish a new premium rate that may be higher or lower than the previous premium rate. Also known as nonguaranteed premium life insurance policy and a variable premium life insurance policy.
The Insurance Services Office (ISO), an industry ratings bureau that analyzes data and statistics about vehicles, determines symbols that are used to provide insurance carriers with information about a vehicle’s theft susceptibility, safety features, and repair costs; this information is then used to establish auto insurance premium rates. All vehicles are assigned symbols based on such factors as size, body construction, horsepower, and loss experience. Each make and model receives two symbols—one covering bodily injury and property damage and another applying to medical payment coverage.
Vehicle Territorial Rating
Condition under which an insurance rate is determined by where the insured vehicle is principally garaged.
Vehicle Usage Rating
Condition under which an insurance rate is determined based on how the vehicle is used. Example: The vehicle is used to commute to work or school.
The sale, assignment, transfer, or bequest of the death benefit or the ownership of a life insurance policy by the owner of the policy to a viatical settlement company when the insured has a catastrophic or life-threatening illness or condition. Usually, the policy owner receives cash from the viatical settlement company, which becomes the new owner and beneficiary of the policy and becomes responsible for paying future premiums. Viatical settlement companies collect the face value of a policy upon the policyholder’s death.
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 if the policyholder has provided information that is proven untrue.
For a health insurance policy, the period of time that must pass from the date of policy issue before benefits are payable to an insured. Also known as the elimination period and the probationary period.
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.
Waiver of Premium for Disability (WP) Benefit
A supplementary life insurance policy or annuity contract benefit under which the insurer promises to give up its right to collect premiums that become due while the insured is disabled, according to the policy or rider’s definition of disability, while keeping the policy in force. The waiver remains in effect as long as the insured individual is considered disabled.
Waiver of Surrender Charges
Waiver of surrender charges is a policy provision allowing the annuitant or owner of an annuity to surrender his or her contract with no penalty or surrender charges if he or she becomes terminally ill, disabled, and/or confined to a hospital, nursing home or extended care facility for a specified period.
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 but can be purchased separately. War Risk coverage 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, resulting from a circumstance such as a burst pipe. This coverage does not pay for damage created by 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.
An insurance or securities product used as a hedge by energy-related businesses and others whose sales tend to fluctuate depending on the weather.
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
The oldest kind of cash value life insurance that combines protection against premature death with a savings account. Premiums are fixed and guaranteed, remaining level throughout the policy’s lifetime.
Insurance that pays for medical care and physical rehabilitation of injured workers, replacing lost wages while injured employees are unable to work. State laws, which vary significantly, govern the amount of benefits paid and other compensation provisions.
Broad policy coordinated to cover liability exposures for a large group of businesses that have something in common. Wrap-up insurance might be used to insure all businesses working on a large construction project, such as an apartment complex.
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.
The National Association of Insurance Commissioners’ current model valuation law for life insurance policies, adopted in March 1999. The law tells insurance companies how much they should hold as a reserve for each term life insurance policy. The model has been adopted by most of the states.
Yearly Renewable Term (YRT) Insurance
One-year term life insurance that is renewable at the end of the policy term. Also known as annually renewable term (ART) insurance