Service Area:


    A
  • ABSOLUTE ASSIGNMENT

    An irrevocable transfer of complete ownership of a life insurance policy or an annuity from one party to another. Contrast with collateral assignment.

  • ACCELERATED DEATH BENEFITS

    A life insurance policy option that provides policy proceeds to insured individuals over their lifetimes, in the event of a terminal illness. This is in lieu of a traditional policy that pays beneficiaries after the insured’s death. Such benefits kick in if the insured becomes terminally ill, needs extreme medical intervention, or must reside in a nursing home. The payments made while the insured is living are deducted from any death benefits paid to beneficiaries.

  • ACCIDENT AND HEALTH INSURANCE

    Coverage for accidental injury, accidental death, and related health expenses. Benefits will pay for preventative services, medical expenses and catastrophic care, with limits.

  • ACCIDENTAL DEATH AND DISMEMBERMENT (AD&D) BENEFIT

    A supplementary life insurance policy benefit that provides for an amount of money in addition to the policy’s basic death benefit. This additional amount is payable if the insured dies as the result of an accident or if the insured loses any two limbs or the sight in both eyes as the result of an 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.

  • ACTUAL CASH VALUE

    A form of insurance that pays damages equal to the replacement value of damaged property minus depreciation. (See Replacement cost)

  • ADDITIONAL LIVING EXPENSES

    Extra charges covered by homeowners policies over and above the policyholder's customary living expenses. They kick in when the insured requires temporary shelter due to damage by a covered peril that makes the home temporarily uninhabitable.

  • 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.

  • ADJUSTER

    An individual employed by a property/casualty insurer to evaluate losses and settle policyholder claims. These adjusters differ from public adjusters, who negotiate with insurers on behalf of policyholders, and receive a portion of a claims settlement. Independent adjusters are independent contractors who adjust claims for different insurance companies.

  • ADMITTED ASSETS

    Assets recognized and accepted by state insurance laws in determining the solvency of insurers and reinsurers. To make it easier to assess an insurance company’s financial position, state statutory accounting rules do not permit certain assets to be included on the balance sheet. Only assets that can be easily sold in the event of liquidation or borrowed against, and receivables for which payment can be reasonably anticipated, are included in admitted assets.

  • AGENT

    Insurance is sold by two types of agents: independent agents, who are self-employed, represent several insurance companies and are paid on commission; and exclusive or captive agents, who represent only one insurance company and are either salaried or work on commission. Insurance companies that use exclusive or captive agents are called direct writers.

  • ANNUAL ANNUITY CONTRACT FEE

    Covers the cost of administering an annuity contract.

  • ANNUAL STATEMENT

    Summary of an insurer’s or reinsurer’s financial operations for a particular year, including a balance sheet. It is filed with the state insurance department of each jurisdiction in which the company is licensed to conduct business.

  • ANNUITANT

    The person who receives the income from an annuity contract. Usually the owner of the contract or his or her spouse.

  • ANNUITIZATION

    The conversion of the account balance of a deferred annuity contract to income payments.

  • ANNUITY

    A life insurance product that pays periodic income benefits for a specific period of time or over the course of the annuitant’s lifetime. There are two basic types of annuities: deferred and immediate. Deferred annuities allow assets to grow tax-deferred over time before being converted to payments to the annuitant. Immediate annuities allow payments to begin within about a year of purchase.

  • ANNUITY ACCUMULATION PHASE OR PERIOD

    The period during which the owner of a deferred annuity makes payments to build up assets.

  • ANNUITY ADMINISTRATIVE CHARGES

    Covers the cost of customer services for owners of variable annuities.

  • ANNUITY BENEFICIARY

    In certain types of annuities, a person who receives annuity contract payments if the annuity owner or annuitant dies while payments are still due.

  • ANNUITY CERTAIN

    A type of annuity contract that pays periodic income benefits for a stated period of time, regardless of whether the annuitant lives or dies. Also known as period certain annuity. Contrast with straight life annuity.

  • ANNUITY CONTRACT

    An agreement similar to an insurance policy for other insurance products such as auto insurance.

  • ANNUITY CONTRACT OWNER

    The person or entity that purchases an annuity and has all rights to the contract. Usually, but not always, the annuitant (the person who receives incomes from the contract).

  • ANNUITY COST

    A monetary amount that is equal to the present value of future periodic income payments under an annuity.

  • ANNUITY DATE

    See Income date

  • ANNUITY DEATH BENEFITS

    The guarantee that if an annuity contract owner dies before annuitization (the switchover from the savings to the payment phase) the beneficiary will receive the value of the annuity that is due.

  • ANNUITY INVESTMENT MANAGEMENT FEE

    The fee paid for the management of variable annuity invested assets.

  • ANNUITY PROSPECTUS

    Legal document providing detailed information about variable annuity contracts. Must be offered to each prospective buyer.

  • ANNUITY PURCHASE RATE

    The cost of an annuity based on such factors as the age and gender of the contract owner.

  • ANTITRUST LAWS

    Laws that prohibit companies from working as a group to set prices, restrict supplies or stop competition in the marketplace. The insurance industry is subject to state antitrust laws but has a limited exemption from federal antitrust laws. This exemption, set out in the McCarran- Ferguson Act, permits insurers to jointly develop common insurance forms and share loss data to help them price policies.

  • APPORTIONMENT

    The dividing of a loss proportionately among two or more insurers that cover the same loss.

  • APPRAISAL

    A survey to determine a property's insurable value, or the amount of a loss.

  • ARBITRATION

    Procedure in which an insurance company and the insured or a vendor agree to settle a claim dispute by accepting a decision made by a third party.

  • ARSON

    The deliberate setting of a fire.

  • ASSETS

    Property owned, in this case by an insurance company, including stocks, bonds and real estate. Insurance accounting is concerned with solvency and the ability to pay claims. State insurance laws therefore require a conservative valuation of assets, prohibiting insurance companies from listing assets on their balance sheets whose values are uncertain, such as furniture, fixtures, debit balances and accounts receivable that are more than 90 days past due. (See Admitted assets)

  • ASSIGNMENT

    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.

  • AUTO INSURANCE POLICY

    There are basically six different types of coverages. Some may be required by law. Others are optional. They are: 1.Bodily injury liability, for injuries the policyholder causes to someone else. 2.Medical payments or Personal Injury Protection (PIP) for treatment of injuries to the driver and passengers of the policyholder's car. 3.Property damage liability, for damage the policyholder causes to someone else's property. 4.Collision, for damage to the policyholder's car from a collision. 5.Comprehensive, for damage to the policyholder's car not involving a collision with another car (including damage from fire, explosions, earthquakes, floods, and riots), and theft. 6.Uninsured motorists coverage, for costs resulting from an accident involving a hit-and-run driver or a driver who does not have insurance.

  • AUTO INSURANCE PREMIUM

    The price an insurance company charges for coverage, based on the frequency and cost of potential accidents, theft and other losses. Prices vary from company to company, as with any product or service. Premiums also vary depending on the amount and type of coverage purchased; the make and model of the car; and the insured's driving record, years of driving and the number of miles the car is driven per year. Other factors taken into account include the driver's age and gender, where the car is most likely to be driven and the times of day—rush hour in an urban neighborhood or leisure time driving in rural areas, for example. Some insurance companies may also use credit history related information. (See Insurance score)

  • B
  • BALANCE SHEET

    Provides a snapshot of a company’s financial condition at one point in time. It shows assets, including investments and reinsurance, and liabilities, such as loss reserves to pay claims in the future, as of a certain date. It also states a company’s equity, known as policyholder surplus. Changes in that surplus are one indicator of an insurer’s financial standing.

  • BANK HOLDING COMPANY

    A company that owns or controls one or more banks. The Federal Reserve has responsibility for regulating and supervising bank holding company activities, such as approving acquisitions and mergers and inspecting the operations of such companies. This authority applies even though a bank owned by a holding company may be under the primary supervision of the Comptroller of the Currency or the FDIC.

  • BENEFICIARY

    The person or legal entity the owner of an insurance policy names to receive the policy benefit if the event insured against occurs.

  • BINDER

    Temporary authorization of coverage issued prior to the actual insurance policy.

  • BLANKET COVERAGE

    Coverage for more than one type of property at one location or one type of property at more than one location. Example: chain store

  • BODILY INJURY LIABILITY COVERAGE

    Portion of an auto insurance policy that covers injuries the policyholder causes to someone else.

  • BOILER AND MACHINERY INSURANCE

    Often called Equipment Breakdown, or Systems Breakdown insurance. Commercial insurance that covers damage caused by the malfunction or breakdown of boilers, and a vast array of other equipment including air conditioners, heating, electrical, telephone and computer systems.

  • BOND

    A security that obligates the issuer to pay interest at specified intervals and to repay the principal amount of the loan at maturity. In insurance, a form of suretyship. Bonds of various types guarantee a payment or a reimbursement for financial losses resulting from dishonesty, failure to perform and other acts.

  • BOOK OF BUSINESS

    Total amount of insurance on an insurer’s books at a particular point in time.

  • BROKER

    An intermediary between a customer and an insurance company. Brokers typically search the market for coverage appropriate to their clients. They work on commission and usually sell commercial, not personal, insurance. In life insurance, agents must be licensed as securities brokers/dealers to sell variable annuities, which are similar to stock market-based investments.

  • BURGLARY AND THEFT INSURANCE

    Insurance for the loss of property due to burglary, robbery or larceny. It is provided in a standard homeowners policy and in a business multiple peril policy.

  • BUSINESS INCOME AND EXTRA EXPENSE INSURANCE (also known as BUSINESS INTERRUPTIONINSURANCE)

    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. It 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.

  • BUSINESSOWNERS POLICY / BOP

    A policy that combines property, liability and business interruption coverages for small- to medium-sized businesses. Coverage is generally cheaper than if purchased through separate insurance policies.

  • C
  • CAPACITY

    The supply of insurance available to meet demand. Capacity depends on the industry’s financial ability to accept risk. For an individual insurer, the maximum amount of risk it can underwrite based on its financial condition. The adequacy of an insurer’s capital relative to its exposure to loss is an important measure of solvency. A property/casualty insurer must maintain a certain level of capital and policyholder surplus to underwrite risks. This capital is known as capacity. When the industry is hit by high losses, such as after the World Trade Center terrorist attack, capacity is diminished. It can be restored by increases in net income, favorable investment returns, reinsuring more risk and or raising additional capital. When there is excess capacity, usually because of a high return on investments, premiums tend to decline as insurers compete for market share. As premiums decline, underwriting losses are likely to grow, reducing capacity and causing insurers to raise rates and tighten conditions and limits in an effort to increase profitability. Policyholder surplus is sometimes used as a measure of capacity.

  • CAPITAL

    Shareholder’s equity (for publicly traded insurance companies) and retained earnings (for mutual insurance companies). There is no general measure of capital adequacy for property/casualty insurers. Capital adequacy is linked to the riskiness of an insurer’s business. A company underwriting medical device manufacturers needs a larger cushion of capital than a company writing Main Street business, for example.

  • CAPITAL MARKETS

    The markets in which equities and debt are traded.

  • CAPTIVE AGENT

    A person who represents only one insurance company and is restricted by agreement from submitting business to any other company, unless it is first rejected by the agent’s captive company.

  • CASE MANAGEMENT

    A system of coordinating medical services to treat a patient, improve care and reduce cost. A case manager coordinates health care delivery for patients.

  • 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 nonforfeiture 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

    1. 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. 2. 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.

  • CASH VALUE

    See Cash surrender value.

  • CATASTROPHE

    Term used for statistical recording purposes to refer to a single incident or a series of closely related incidents causing severe insured property losses totaling more than a given amount, currently $25 million

  • CATASTROPHE DEDUCTIBLE

    A percentage or dollar amount that a homeowner must pay before the insurance policy kicks in when a major natural disaster occurs. These large deductibles limit an insurer's potential losses in such cases, allowing it to insure more property. A property insurer may not be able to buy reinsurance to protect its own bottom line unless it keeps its potential maximum losses under a certain level.

  • CATASTROPHE REINSURANCE

    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.

  • 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. (See Occurrence policy)

  • Clone of DIVIDEND ACCUMULATIONS OPTION

    An accidental death benefit that is equal to the face amount of a life insurance policy’s basic death benefit and is paid when the insured’s death is the result of an accident as defined in the policy.

  • Clone of FACE AMOUNT

    A type of supplementary benefit rider offered in conjunction with a life insurance policy that insures the lives of the insured’s spouse and children. Also known as dependent life insurance and spouse and children’s insurance rider.

  • COBRA

    Short for Consolidated Omnibus Budget Reconciliation Act. A federal law under which group health plans sponsored by employers with 20 or more employees must offer continuation of coverage to employees who leave their jobs and their dependents. The employee must pay the entire premium. Coverage can be extended up to 18 months. Surviving dependents can receive longer coverage.

  • COINSURANCE

    In property insurance, requires the policyholder to carry insurance equal to a specified percentage of the value of property to receive full payment on a loss. For health insurance, it is a percentage of each claim above the deductible paid by the policyholder. For a 20 percent health insurance coinsurance clause, the policyholder pays for the deductible plus 20 percent of his covered losses. After paying 80 percent of losses up to a specified ceiling, the insurer starts paying 100 percent of losses

  • COLLISION COVERAGE

    Portion of an auto insurance policy that covers the damage to the policyholder's car from a collision.

  • COMMERCIAL GENERAL LIABILITY INSURANCE / CGL

    A broad commercial policy that covers all liability exposures of a business that are not specifically excluded. Coverage includes product liability, completed operations, premises and operations, and independent contractors.

  • COMMERCIAL LINES

    Products designed for and bought by businesses. Among the major coverages are boiler and machinery, business 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 business income, which must be added to a fire insurance (property) policy. (See Commercial multiple peril policy)

  • COMMISSION

    Fee paid to an agent or insurance salesperson as a percentage of the policy premium. The percentage varies widely depending on coverage, the insurer, and the marketing methods.

  • COMMUNITY RATING LAWS

    Enacted in several states on health insurance policies. Insurers are required to accept all applicants for coverage and charge all applicants the same premium for the same coverage regardless of age or health. Premiums are based on the rate determined by the geographic region’s health and demographic profile.

  • COMPLETED OPERATIONS COVERAGE

    Pays for bodily injury or property damage caused by a completed project or job. Protects a business that sells a service against liability claims

  • COMPREHENSIVE COVERAGE

    Portion of an auto insurance policy that covers damage to the policyholder's car not involving a collision with another car (including damage from fire, explosions, earthquakes, floods and riots), and theft.

  • CONTESTABLE PERIOD

    The time during which an insurer has the right to cancel or rescind an insurance policy if the application contained a material misrepresentation.

  • CONTINGENT BENEFICIARY

    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.

  • CONVERTIBLE TERM INSURANCE POLICY

    A term life insurance policy that gives the policy owner the right to convert the policy to a permanent plan of insurance.

  • COVERAGE

    Synonym for insurance.

  • 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.

  • CRIME INSURANCE

    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.

  • CROP-HAIL INSURANCE

    Protection against damage to growing crops from hail, fire or lightning provided by the private market. By contrast, multiple peril crop insurance covers a wider range of yield reducing conditions, such as drought and insect infestation, and is subsidized by the federal government.

  • CURRENT ASSUMPTION WHOLE LIFE INSURANCE

    See Interest-sensitive insurance

  • D
  • DEATH BENEFIT

    (1) For a life insurance contract, the amount of money paid by an insurer to a beneficiary when a person insured under the life insurance policy dies. (2) For an annuity contract, the amount of money paid to a beneficiary if the contract owner dies before the annuity payments begin.

  • DECLARATION

    Part of a property or liability insurance policy that states the name and address of policyholder, property insured, its location and description, the policy period, premiums and supplemental information. Referred to as the “dec page.”

  • DECLINED RISK CLASS

    In insurance underwriting, the group of proposed insureds whose impairments or anticipated extra mortality are so great that an insurer cannot provide insurance coverage to them at an affordable cost. Also known as uninsurable class. Contrast with preferred risk class, standard risk class and substandard risk class.

  • DECREASING TERM LIFE INSURANCE

    Term life insurance that provides a death benefit that decreases in amount over the policy term. Contrast with increasing term life insurance.

  • DEDUCTIBLE

    The amount of loss paid by the policyholder. Either a specified dollar amount, a percentage of the claim amount, or a specified amount of time that must elapse before benefits are paid. The bigger the deductible, the lower the premium charged for the same coverage.

  • DEFERRED ANNUITY

    An annuity contract, also referred to as an investment annuity, that is purchased either with a single tax-deferred premium or with periodic tax-deferred premiums over time. Payments begin at a predetermined point in time, such as retirement. Money contributed to such an annuity is intended primarily to grow tax-deferred for future use.

  • DEFINED BENEFIT PLAN

    A retirement plan under which pension benefits are fixed in advance by a formula based generally on years of service to the company multiplied by a specific percentage of wages, usually average earnings over that period or highest average earnings over the final years with the company.

  • DEFINED CONTRIBUTION PLAN

    An employee benefit plan under which the employer sets up benefit accounts and contributions are made to it by the employer and by the employee. The employer usually matches the employee’s contribution up to a stated limit.

  • DIMINUTION OF VALUE

    The idea that a vehicle loses value after it has been damaged in an accident and repaired.

  • DIRECTORS AND OFFICERS LIABILITY INSURANCE/D&O

    Directors and officers liability insurance (D&O) covers directors and officers of a company for negligent acts or omissions and for misleading statements that result in suits against the company. There are a variety of D&O coverages. Corporate reimbursement coverage indemnifies directors and officers of the organization. Side-A coverage provides D&O coverage for personal liability when directors and officers are not indemnified by the firm. Entity coverage, for claims made specifically against the company, is also available. D&O policies may be broadened to include coverage for employment practices liability.

  • DISABILITY

    In disability insurance, the inability of an insured person to work due to an injury or sickness. Each disability policy has a definition of disability that must be satisfied in order for the insured to receive the policy’s benefits.

  • DISABILITY INCOME INSURANCE

    This is a type of health insurance designed to compensate an insured person for a portion of the income lost because of a disabling injury or illness. Benefit payments are made either weekly or monthly for a specified period during the continuance of an insured’s disability.

  • DIVIDEND

    Money returned to policyholders from an insurance company’s earnings. Considered a partial premium refund rather than a taxable distribution, reflecting the difference between the premium charged and actual losses. Many life insurance policies and some property/casualty policies pay dividends to their owners. Life insurance policies that pay dividends are called participating policies.

  • DIVIDEND ACCUMULATIONS OPTION

    See Accumulation at interest option.

  • DREAD DISEASE COVERAGE

    See Specified disease coverage.

  • E
  • EARNED PREMIUM

    The portion of premium that applies to the expired part of the policy period. Insurance premiums are payable in advance but the insurance company does not fully earn them until the policy period expires.

  • EARTHQUAKE INSURANCE

    Covers a building and its contents, but includes a large percentage deductible on each. A special policy or endorsement exists because earthquakes are not covered by standard homeowners or most business policies.

  • EARTHQUAKE INSURANCE

    Covers a building and its contents, but includes a large percentage deductible on each. A special policy or endorsement exists because earthquakes are not covered by standard homeowners or most business policies.

  • ELECTRONIC COMMERCE / E-COMMERCE

    The sale of products such as insurance over the Internet.

  • ELIMINATION PERIOD

    A kind of deductible or waiting period usually found in disability policies. It is counted in days from the beginning of the illness or injury.

  • EMPLOYEE DISHONESTY COVERAGE

    Covers direct losses and damage to businesses resulting from the dishonest acts of employees. (See Fidelity bond)

  • EMPLOYEE DISHONESTY COVERAGE

    Covers direct losses and damage to businesses resulting from the dishonest acts of employees. (See Fidelity bond)

  • EMPLOYEE RETIREMENT INCOME SECURITY ACT / ERISA

    Federal legislation that protects employees by establishing minimum standards for private pension and welfare plans.

  • EMPLOYER’S LIABILITY

    Part B of the workers compensation policy that provides coverage for lawsuits filed by injured employees who, under certain circumstances, can sue under common law. (See Exclusive remedy)

  • EMPLOYMENT PRACTICES LIABILITY COVERAGE

    Liability insurance for employers that covers wrongful termination, discrimination and other violations of employees’ legal rights.

  • ENDORSEMENT

    A written form attached to an insurance policy that alters the policy's coverage, terms, or conditions. Sometimes called a rider.

  • ENDOWMENT INSURANCE

    Life insurance that provides a policy benefit payable either when the insured dies or on a stated date if the insured is still alive on that date.

  • EQUITY INDEXED ANNUITY

    Nontraditional fixed annuity. The specified rate of interest guarantees a fixed minimum rate of interest like traditional fixed annuities. At the same time, additional interest may be credited to policy values based upon positive changes, if any, in an established index such as the S&P 500. The amount of additional interest depends upon the particular design of the policy. They are sold by licensed insurance agents and regulated by state insurance departments.

  • ERRORS AND OMISSIONS COVERAGE / E&O

    A professional liability policy covering the policyholder for negligent acts and omissions that may harm his or her clients

  • ESCROW ACCOUNT

    Funds that a lender collects to pay monthly premiums in mortgage and homeowners insurance, and sometimes to pay property taxes.

  • EXCLUSION

    A provision in an insurance policy that eliminates coverage for certain risks, people, property classes, or locations.

  • EXCLUSIVE AGENT

    A captive agent, or a person who represents only one insurance company and is restricted by agreement from submitting business to any other company unless it is first rejected by the agent’s company.

  • EXPENSE RATIO

    Percentage of each premium dollar that goes to insurers’ expenses including overhead, marketing and commissions.

  • EXPERIENCE

    Record of losses.

  • EXPOSURE

    Possibility of loss.

  • EXTENDED COVERAGE

    An endorsement added to an insurance policy, or clause within a policy, that provides additional coverage for risks other than those in a basic policy.

  • EXTENDED REPLACEMENT COST COVERAGE

    Pays a certain amount above the policy limit to replace a damaged home, generally 120 percent or 125 percent. Similar to a guaranteed replacement cost policy, which has no percentage limits. Most homeowner policy limits track inflation in building costs. Guaranteed and extended replacement cost policies are designed to protect the policyholder after a major disaster when the high demand for building contractors and materials can push up the normal cost of reconstruction. (See Guaranteed replacement cost coverage)

  • EXTENDED TERM INSURANCE OPTION

    One of several nonforfeiture options included in life insurance policies that allows the owner of a policy with a cash value to discontinue premium payments and to use the policy’s net cash value to purchase term insurance for the full coverage amount provided under the original policy for as long a term as the net cash value can provide.

  • F
  • FACE AMOUNT

    For a fixed-amount whole life insurance policy, the amount of the death benefit payable if the insured person dies while the policy is in force.

  • FARMOWNERS-RANCHOWNERS INSURANCE

    Package policy that protects the policyholder against named perils and liabilities and usually covers homes and their contents, along with barns, stables and other structures.

  • FIDELITY BOND

    A form of protection that covers policyholders for losses that they incur as a result of fraudulent acts by specified individuals. It usually insures a business for losses caused by the dishonest acts of its employees.

  • FIDUCIARY BOND

    A type of surety bond, sometimes called a probate bond, which is required of certain fiduciaries, such as executors and trustees, that guarantees the performance of their responsibilities.

  • FIDUCIARY LIABILITY

    Legal responsibility of a fiduciary to safeguard assets of beneficiaries. A fiduciary, for example a pension fund manager, is required to manage investments held in trust in the best interest of beneficiaries. Fiduciary liability insurance covers breaches of fiduciary duty such as misstatements or misleading statements, errors and omissions.

  • FIRE COVERAGE

    Coverage protecting property against losses caused by a fire or lightning that is usually included in homeowners or commercial multiple peril policies.

  • FIRST-PARTY COVERAGE

    Coverage for the policyholder's own property or person. In no-fault auto insurance it pays for the cost of injuries. In no-fault states with the broadest coverage, the personal injury protection (PIP) part of the policy pays for medical care, lost income, funeral expenses and, where the injured person is not able to provide services such as child care, for substitute services. (See No-fault, Third-party coverage )

  • FIXED ANNUITY

    An annuity that guarantees a specific rate of return. In the case of a deferred annuity, a minimum rate of interest is guaranteed during the savings phase. During the payment phase, a fixed amount of income, paid on a regular schedule, is guaranteed.

  • FLEXIBLE PREMIUM

    A premium payment method sometimes offered in connection with annuities and with some types of life insurance that allows the contract owner or policy owner to alter the amount and the frequency of payments, within specified boundaries defined by the insurer and the law.

  • FLOATER

    Attached to a homeowners policy, a floater insures movable property, covering losses wherever they may occur. Among the items often insured with a floater are expensive jewelry, musical instruments and furs. It provides broader coverage than a regular homeowners policy for these items.

  • FLOOD INSURANCE

    Coverage for flood damage is available from the federal government under the National Flood Insurance Program but is sold by licensed insurance agents. Flood coverage is excluded under homeowners policies and many commercial property policies. However, flood damage is covered under the comprehensive portion of an auto insurance policy.

  • FOREIGN INSURANCE COMPANY

    Name given to an insurance company based in one state by the other states in which it does business.

  • FRAUD

    Intentional lying or concealment by policyholders to obtain payment of an insurance claim that would otherwise not be paid, or lying or misrepresentation by the insurance company managers, employees, agents and brokers for financial gain.

  • FREE-LOOK PERIOD

    A period of up to one month during which the purchaser of an annuity can cancel the contract with no penalty. Rules vary by state.

  • FREQUENCY

    Number of times a loss occurs. One of the criteria used in calculating premium rates.

  • G
  • GAP INSURANCE

    An automobile insurance option, available in some states, that covers the difference between a car's actual cash value when it is stolen or wrecked and the amount the consumer owes the leasing or finance company. Mainly used for leased cars. (See Actual cash value)

  • GENERAL ACCOUNT

    An undivided investment account in which insurers maintain funds that support contractual obligations for guaranteed insurance products such as whole life insurance or fixed-rate annuities. Contrast with separate account.

  • GENERALLY ACCEPTED ACCOUNTING PRINCIPLES/GAAP

    Generally accepted accounting principles (GAAP) accounting is used in financial statements that publicly held companies prepare for the Securities and Exchange Commission.

  • GLASS COVERAGE

    Coverage for glass breakage caused by all risks; fire and war are sometimes excluded. Insurance can be bought for windows, structural glass, leaded glass and mirrors. Available with or without a deductible.

  • GRACE PERIOD

    (1) For insurance premium payments, a specified length of time following a premium due date within which the renewal premium may be paid without penalty. The length of the grace period is specified in a grace period provision that is found in a life insurance, health insurance, or annuity policy. (2) For purchases made on credit, a period of time between the date of a purchase and the date the lender begins to charge interest during which no interest accrues.

  • GRADED PREMIUM POLICY

    A type of modified-premium whole life policy that calls for three or more levels of annual premium payment amounts, increasing at specified points in time - such as every three years - until reaching the amount to be paid as a level premium for the rest of the life of the policy.

  • GRADUATED DRIVER LICENSES

    Licenses for younger drivers that allow them to improve their skills. Regulations vary by state, but often restrict nighttime driving. Young drivers receive a learner's permit, followed by a provisional license, before they can receive a standard driver's license.

  • GRAMM-LEACH-BLILEY ACT

    Financial services legislation, passed by Congress in 1999, that removed Depression era prohibitions against the combination of commercial banking and investment banking activities. It allows insurance companies, banks and securities firms to engage in each other's activities and own one another.

  • GROSS ANNUITY COST

    A monetary amount equal to the present value of future periodic income payments under an annuity contract, calculated on a gross basis, with a specific provision for expense loading. Contrast with net annuity cost.

  • GROUP INSURANCE

    A single policy covering a group of individuals, usually employees of the same company or members of the same association and their dependents. Coverage occurs under a master policy issued to the employer or association.

  • GUARANTEE PERIOD

    Period during which the level of interest specified under a fixed annuity is guaranteed.

  • GUARANTEED DEATH BENEFIT

    Basic death benefits guaranteed under variable annuity contracts.

  • GUARANTEED INCOME CONTRACT / GIC

    Often an option in an employer-sponsored retirement savings plan. Contract between an insurance company and the plan that guarantees a stated rate of return on invested capital over the life of the contract.

  • GUARANTEED INSURABILITY (GI) BENEFIT

    A supplementary life insurance policy benefit often provided through a policy rider that gives the policy owner the right to purchase additional insurance of the same type as the life insurance policy that provides the GI benefit on specified option dates. Also known as guaranteed insurability option (GIO).

  • GUARANTEED LIVING BENEFIT

    A guarantee in a variable annuity that a certain level of annuity payment will be maintained. Serves as a protection against investment risks. Several types exist.

  • GUARANTEED RENEWABLE POLICY

    An individual health insurance policy that requires the insurer to renew the policy—as long as premium payments are made—at least until the insured attains a specified age. The insurer can change premium rates for broad classes of insureds but not for an individual insured. Contrast with noncancellable and guaranteed renewable policy.

  • GUARANTEED REPLACEMENT COST COVERAGE

    Homeowners policy that pays the full cost of replacing or repairing a damaged or destroyed home, even if it is above the policy limit. (See Extended replacement cost coverage)

  • GUARANTY FUND

    The mechanism by which solvent insurers ensure that some of the policyholder and third-party claims against insurance companies that fail are paid. Such funds are required in all 50 states, the District of Columbia and Puerto Rico, but the type and amount of claim covered by the fund varies from state to state. Some states pay policyholders’ unearned premiums—the portion of the premium for which no coverage was provided because the company was insolvent. Some have deductibles. Most states have no limits on workers compensation payments. Guaranty funds are supported by assessments on insurers doing business in the state.

  • GUARANTY FUND

    The mechanism by which solvent insurers ensure that some of the policyholder and third-party claims against insurance companies that fail are paid. Such funds are required in all 50 states, the District of Columbia and Puerto Rico, but the type and amount of claim covered by the fund varies from state to state. Some states pay policyholders’ unearned premiums—the portion of the premium for which no coverage was provided because the company was insolvent. Some have deductibles. Most states have no limits on workers compensation payments. Guaranty funds are supported by assessments on insurers doing business in the state.

  • H
  • HOMEOWNERS INSURANCE POLICY

    The typical homeowners insurance policy covers the house, the garage and other structures on the property, as well as personal possessions inside the house such as furniture, appliances and clothing, against a wide variety of perils including windstorms, fire and theft. The extent of the perils covered depends on the type of policy. An all-risk policy offers the broadest coverage. This covers all perils except those specifically excluded in the policy. Homeowners insurance also covers additional living expenses. Known as Loss of Use, this provision in the policy reimburses the policyholder for the extra cost of living elsewhere while the house is being restored after a disaster. The liability portion of the policy covers the homeowner for accidental injuries caused to third parties and/or their property, such as a guest slipping and falling down improperly maintained stairs. Coverage for flood and earthquake damage is excluded and must be purchased separately. (See Flood insurance, Earthquake insurance)

  • I
  • IDENTITY THEFT INSURANCE

    Coverage for expenses incurred as the result of an identity theft. Can include costs for notarizing fraud affidavits and certified mail, lost income from time taken off from work to meet with law-enforcement personnel or credit agencies, fees for reapplying for loans and attorney's fees to defend against lawsuits and remove criminal or civil judgments.

  • IDENTITY THEFT INSURANCE

    Coverage for expenses incurred as the result of an identity theft. Can include costs for notarizing fraud affidavits and certified mail, lost income from time taken off from work to meet with law-enforcement personnel or credit agencies, fees for reapplying for loans and attorney's fees to defend against lawsuits and remove criminal or civil judgments.

  • IDENTITY THEFT INSURANCE

    Coverage for expenses incurred as the result of an identity theft. Can include costs for notarizing fraud affidavits and certified mail, lost income from time taken off from work to meet with law-enforcement personnel or credit agencies, fees for reapplying for loans and attorney's fees to defend against lawsuits and remove criminal or civil judgments.

  • IMMEDIATE ANNUITY

    A product purchased with a lump sum, usually at the time retirement begins or afterwards. Payments begin within about a year. Immediate annuities can be either fixed or variable.

  • INCOME DATE

    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 is able to work, but because of a disability, is earning less than he earned before being disabled. Also known as residual disability insurance.

  • INCONTESTABILITY PROVISION

    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 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.

  • INCURRED LOSSES

    Losses occurring within a fixed period, whether or not adjusted or paid during the same period.

  • INDEMNIFY

    Provide financial compensation for losses.

  • INDEPENDENT AGENT

    Agent who is self-employed, is paid on commission, and represents several insurance companies.

  • 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.

  • INDIVIDUAL RETIREMENT ACCOUNT/IRA

    A tax-deductible savings plan for those who are self-employed, or those whose earnings are below a certain level or whose employers do not offer retirement plans. Others may make limited contributions on a tax-deferred basis. The Roth IRA, a special kind of retirement account created in 1997, may offer greater tax benefits to certain individuals.

  • INFLATION GUARD CLAUSE

    A provision added to a homeowners insurance policy that automatically adjusts the coverage limit on the dwelling each time the policy is renewed to reflect current construction costs.

  • INLAND MARINE INSURANCE

    This broad type of coverage was developed for shipments that do not involve ocean transport. Covers articles in transit by all forms of land and air transportation as well as bridges, tunnels and other means of transportation and communication. Floaters that cover expensive personal items such as fine art and jewelry are included in this category. (See Floater)

  • INSOLVENCY

    Insurer’s inability to pay debts. Insurance insolvency standards and the regulatory actions taken vary from state to state. When regulators deem an insurance company is in danger of becoming insolvent, they can take one of three actions: place a company in conservatorship or rehabilitation if the company can be saved or liquidation if salvage is deemed impossible. The difference between the first two options is one of degree – regulators guide companies in conservatorship but direct those in rehabilitation. Typically the first sign of problems is inability to pass the financial tests regulators administer as a routine procedure.

  • INSURABLE INTEREST

    In insurance, a person exhibits an insurable interest in a potential loss if that person will suffer a genuine economic loss if the event insured against occurs. Without the presence of insurable interest, an insurance contract is not formed for a lawful purpose and, thus, is not a valid contract.

  • INSURABLE RISK

    Risks for which it is relatively easy to get insurance and that meet certain criteria. These include being definable, accidental in nature, and part of a group of similar risks large enough to make losses predictable. The insurance company also must be able to come up with a reasonable price for the insurance.

  • INSURANCE

    A system to make large financial losses more affordable by pooling the risks of many individuals and business entities and transferring them to an insurance company or other large group in return for a premium.

  • INSURANCE REGULATORY INFORMATION SYSTEM / IRIS

    Uses financial ratios to measure insurers’ financial strength. Developed by the National Association of Insurance Commissioners. Each individual state insurance department chooses how to use IRIS.

  • INSURANCE SCORE

    Insurance scores are confidential rankings based on credit information. This includes whether the consumer has made timely payments on loans, the number of open credit card accounts and whether a bankruptcy filing has been made. An insurance score is a measure of how well consumers manage their financial affairs, not of their financial assets. It does not include information about income or race. Studies have shown that people who manage their money well tend also to manage their most important asset, their home, well. And people who manage their money responsibly also tend to handle driving a car responsibly. Some insurance companies use insurance scores as an insurance underwriting and rating tool.

  • INSURANCE-TO-VALUE

    Insurance written in an amount approximating the value of the insured property.

  • INSURANCE-TO-VALUE

    Insurance written in an amount approximating the value of the insured property.

  • INSURANCE-TO-VALUE

    Insurance written in an amount approximating the value of the insured property.

  • INTEGRATED BENEFITS

    Coverage where the distinction between job-related and non-occupational illnesses or injuries is eliminated and workers compensation and general health coverage are combined. Legal obstacles exist, however, because the two coverages are administered separately. Previously called twenty-four hour coverage.

  • INTEREST-ADJUSTED COST COMPARISON INDEX

    A cost comparison index used to compare life insurance policy costs 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.

  • INTEREST-SENSITIVE INSURANCE

    A general category of insurance products in which the face amount and/or the cash value vary according to the insurer’s investment earnings.

  • INTERMEDIATION

    The process of bringing savers, investors and borrowers together so that savers and investors can obtain a return on their money and borrowers can use the money to finance their purchases or projects through loans.

  • INVESTMENT ANNUITY

    See Deferred Annuity

  • INVESTMENT INCOME

    Income generated by the investment of assets. Insurers have two sources of income, underwriting (premiums less claims and expenses) and investment income. The latter can offset underwriting operations, which are frequently unprofitable.

  • IRREVOCABLE BENEFICIARY

    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.

  • J
  • JOINT AND SURVIVOR ANNUITY

    An annuity with two annuitants, usually spouses. Payments continue until the death of the longest living of the two.

  • K
  • 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.

  • L
  • LAPSE

    The termination of an insurance policy because a renewal premium is not paid by the end of the grace period.

  • 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 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.

  • LIABILITY INSURANCE

    Insurance for what the policyholder is legally obligated to pay because of bodily injury or property damage caused to another person.

  • LIFE ANNUITY

    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.

  • LIFE INSURANCE

    See Ordinary life insurance; Term insurance; Variable life insurance; Whole life insurance

  • LIMITS

    Maximum amount of insurance that can be paid for a covered loss.

  • LINE

    Type or kind of insurance, such as personal lines.

  • LIQUIDATION

    Enables the state insurance department as liquidator or its appointed deputy to wind up the insurance company's affairs by selling its assets and settling claims upon those assets. After receiving the liquidation order, the liquidator notifies insurance departments in other states and state guaranty funds of the liquidation proceedings. Such insurance company liquidations are not subject to the Federal Bankruptcy Code but to each state’s liquidation statutes.

  • LIQUIDITY

    The ability and speed with which a security can be converted into cash.

  • LIQUOR LIABILITY

    Coverage for bodily injury or property damage caused by an intoxicated person who was served liquor by the policyholder.

  • LLOYD'S OF LONDON

    A marketplace where underwriting syndicates, or mini-insurers, gather to sell insurance policies and reinsurance. Each syndicate is managed by an underwriter who decides whether or not to accept the risk. The Lloyd’s market is a major player in the international reinsurance market as well as a primary market for marine insurance and large risks. Originally, Lloyd’s was a London coffee house in the 1600's 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 1990's, most of the capital comes from corporations.

  • LLOYDS

    Corporation formed to market services of a group of underwriters. Does not issue insurance policies or provide insurance protection. Insurance is written by individual underwriters, with each assuming a part of every risk. Has no connection to Lloyd’s of London, and is found primarily in Texas.

  • LONG-TERM CARE INSURANCE

    Long-term care (LTC) insurance pays for services to help individuals who are unable to perform certain activities of daily living without assistance, or require supervision due to a cognitive impairment such as Alzheimer’s disease. LTC is available as individual insurance or through an employer-sponsored or association plan.

  • 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.

  • LOSS

    A reduction in the quality or value of a property, or a legal liability.

  • LOSS

    A reduction in the quality or value of a property, or a legal liability.

  • LOSS ADJUSTMENT EXPENSES

    The sum insurers pay for investigating and settling insurance claims, including the cost of defending a lawsuit in court.

  • LOSS COSTS

    The portion of an insurance rate used to cover claims and the costs of adjusting claims. Insurance companies typically determine their rates by estimating their future loss costs and adding a provision for expenses, profit, and contingencies.

  • LOSS OF USE

    A provision in homeowners and renters insurance policies that reimburses policyholders for any extra living expenses due to having to live elsewhere while their home is being restored following a disaster.

  • LOSS RATIO

    Percentage of each premium dollar an insurer spends on claims.

  • LOSS RATIO

    Percentage of each premium dollar an insurer spends on claims.

  • LOSS RATIO

    Percentage of each premium dollar an insurer spends on claims.

  • LOSS RESERVES

    The company’s best estimate of what it will pay for claims, which is periodically readjusted. They represent a liability on the insurer’s balance sheet.

  • LOSS RESERVES

    The company’s best estimate of what it will pay for claims, which is periodically readjusted. They represent a liability on the insurer’s balance sheet.

  • LOSS RESERVES

    The company's best estimate of what it will pay for claims, which is periodically readjusted. They represent a liability on the insurer's balance sheet.

  • M
  • MALPRACTICE INSURANCE

    Professional liability coverage for physicians, lawyers, and other specialists against suits alleging negligence or errors and omissions that have harmed clients.

  • MALPRACTICE INSURANCE

    Professional liability coverage for physicians, lawyers, and other specialists against suits alleging negligence or errors and omissions that have harmed clients.

  • MANAGED CARE

    Arrangement between an employer or insurer and selected providers to provide comprehensive health care at a discount to members of the insured group and coordinate the financing and delivery of health care. Managed care uses medical protocols and procedures agreed on by the medical profession to be cost effective, also known as medical practice guidelines.

  • MANUAL

    A book published by an insurance or bonding company or a rating association or bureau that gives rates, classifications, and underwriting rules.

  • MARINE INSURANCE

    Coverage for goods in transit, and for the commercial vehicles that transport them, on water and over land. The term may apply to inland marine but more generally applies to ocean marine insurance. Covers damage or destruction of a ship's hull and cargo and perils include collision, sinking, capsizing, being stranded, fire, piracy, and jettisoning cargo to save other property. Wear and tear, dampness, mold, and war are not included. (See Inland marine , Ocean marine insurance )

  • MATURITY DATE

    (1) For endowment 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.

  • MCCARRAN-FERGUSON ACT

    Federal law signed in 1945 in which Congress declared that states would continue to regulate the insurance business. Grants insurers a limited exemption from federal antitrust legislation.

  • MEDIATION

    Nonbinding procedure in which a third party attempts to resolve a conflict between two other parties.

  • MEDICAID

    A federal/state public assistance program created in 1965 and administered by the states for people whose income and resources are insufficient to pay for health care.

  • MEDICAL INFORMATION BUREAU

    See MIB, Inc.

  • MEDICAL PAYMENTS COVERAGE

    A coverage in which the insurer agrees to reimburse the insured and others up to a certain limit for medical or funeral expenses as a result of bodily injury or death by accident. Payments are without regard to fault.

  • MEDICAL PAYMENTS INSURANCE

    A coverage in which the insurer agrees to reimburse the insured and others up to a certain limit for medical or funeral expenses as a result of bodily injury or death by accident. Payments are without regard to fault.

  • MEDICAL UTILIZATION REVIEW

    The practice used by insurance companies to review claims for medical treatment.

  • MEDICARE

    Federal program for people 65 or older that pays part of the costs associated with hospitalization, surgery, doctors’ bills, home health care, and skilled-nursing care.

  • MEDIGAP/MEDSUP

    Policies that supplement federal insurance benefits particularly for those covered under Medicare.

  • MIB, INC.

    A nonprofit organization established to provide information to insurers about impairments that applicants have admitted to, or that other insurers have detected, in connection with previous applications for insurance. Formerly known as Medical Information Bureau.

  • MISREPRESENTATION

    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.

  • MORBIDITY RATE

    The rate at which sickness and injury occur within a defined group of people. Insurers base health insurance premiums in part on the morbidity rate for a proposed insured’s age group. Contrast with mortality rate.

  • MORTALITY RATE

    A percentage rate at which death occurs among a defined group of people of a specified age and sometimes of a specified gender. Insurers base the premiums for life insurance in part on the mortality rate for a proposed insured’s age group. Contrast with morbidity rate.

  • MORTGAGE INSURANCE

    A form of decreasing term insurance that covers the life of a person taking out a mortgage. Death benefits provide for payment of the outstanding balance of the loan. Coverage is in decreasing term insurance, so the amount of coverage decreases as the debt decreases. A variant, mortgage unemployment insurance pays the mortgage of a policyholder who becomes involuntarily unemployed.

  • 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 LIABILITY INSURANCE

    Liability insurance for municipalities.

  • MUTUAL HOLDING COMPANY

    An organizational structure that provides mutual companies with the organizational and capital raising advantages of stock insurers, while retaining the policyholder ownership of the mutual

  • MUTUAL INSURANCE COMPANY

    A company owned by its policyholders that returns part of its profits to the policyholders as dividends. The insurer uses the rest as a surplus cushion in case of large and unexpected losses.

  • N
  • NAMED PERIL

    Peril specifically mentioned as covered in an insurance policy.

  • NAMED PERIL

    Peril specifically mentioned as covered in an insurance policy.

  • NATIONAL FLOOD INSURANCE PROGRAM

    Federal government-sponsored program under which flood insurance is sold to homeowners and businesses.

  • NATIONAL FLOOD INSURANCE PROGRAM

    Federal government-sponsored program under which flood insurance is sold to homeowners and businesses. (See Adverse selection, Flood insurance )

  • NEGLIGENCE

    Failure to act with the legally required degree of care for others, resulting in harm to them.

  • NEGLIGENCE

    Failure to act with the legally required degree of care for others, resulting in harm to them.

  • NET ANNUITY COST

    A monetary amount equal to the present value of future periodic payments under an annuity contract, calculated on a net basis, without any specific provision for expense loading. Contrast with gross annuity cost.

  • NET PAYMENT COST COMPARISON INDEX

    A cost comparison index used to compare life insurance policies that takes into account the time value of money and that measures the cost of a policy over a 10- or 20-year period assuming the policy owner pays premiums over the entire period. Contrast with surrender cost comparison index.

  • NET PREMIUMS WRITTEN

    See Premiums written

  • NO-FAULT

    Auto insurance coverage that pays for each driver’s own injuries, regardless of who caused the accident. No-fault varies from state to state. It also refers to an auto liability insurance system that restricts lawsuits to serious cases. Such policies are designed to promote faster reimbursement and to reduce litigation.

  • NO-FAULT

    Auto insurance coverage that pays for each driver's own injuries, regardless of who caused the accident. No-fault varies from state to state. It also refers to an auto liability insurance system that restricts lawsuits to serious cases. Such policies are designed to promote faster reimbursement and to reduce litigation.

  • NO-FAULT

    Auto insurance coverage that pays for each driver's own injuries, regardless of who caused the accident. No-fault varies from state to state. It also refers to an auto liability insurance system that restricts lawsuits to serious cases. Such policies are designed to promote faster reimbursement and to reduce litigation.

  • NON-ADMITTED ASSETS

    Assets that are not included on the balance sheet of an insurance company, including furniture, fixtures, past-due accounts receivable, and agents’ debt balances.

  • NON-ADMITTED INSURER

    Insurers licensed in some states, but not others. States where an insurer is not licensed call that insurer non-admitted. They sell coverage that is unavailable from licensed insurers within the state.

  • NONCANCELLABLE AND GUARANTEED RENEWABLE POLICY

    An individual health insurance policy, which stipulates that, until the insured reaches a specified age (usually age 65), the insurer will not cancel the coverage, increase the premiums, or change the policy provisions as long as the premiums are paid when due. Also known as noncancellable policy. Contrast with guaranteed renewable policy.

  • NONFORFEITURE OPTIONS

    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 nonforfeiture options for life insurance are the cash payment option, the extended term insurance option and the reduced paid-up insurance option.

  • 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.

  • O
  • OCCUPATIONAL DISEASE

    Abnormal condition or illness caused by factors associated with the workplace. Like occupational injuries, this is covered by workers compensation policies. (SeeWorkers compensation) )

  • OCCURRENCE POLICY

    Insurance that pays claims arising out of incidents that occur during the policy term, even if they are filed many years later. (See 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. Coverage for marine-related liabilities. War is excluded from basic policies, but can be bought back.

  • OPERATING EXPENSES

    The cost of maintaining a business’s property, includes insurance, property taxes, utilities and rent, but excludes income tax, depreciation and other financing expenses.

  • OPTIONS

    Contracts that allow, but do not oblige, the buying or selling of property or assets at a certain date at a set price.

  • ORDINANCE OR LAW COVERAGE

    Endorsement to a property policy, including homeowners, that pays for the extra expense of rebuilding to comply with ordinances or laws, often building codes, that did not exist when the building was originally built. For example, a building severely damaged in a hurricane may have to be elevated above the flood line when it is rebuilt. This endorsement would cover part of the additional cost.

  • ORDINARY LIFE INSURANCE

    A life insurance policy that remains in force for the policyholder’s lifetime.

  • P
  • PACKAGE POLICY

    A single insurance policy that combines several coverages previously sold separately. Examples include homeowners insurance and commercial multiple peril insurance.

  • 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.

  • PAID-UP POLICY

    An insurance policy that requires no further premium payments but continues to provide coverage.

  • PARTIAL DISABILITY

    See Residual disability

  • PARTICIPATING POLICY

    A type of insurance policy that allows policy owners to receive policy dividends. Also known as par policy.

  • PAYOUT OPTIONS

    The methods available to an annuity contract owner for the distribution of the annuity’s accumulated value. (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. (3) The fixedamount 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.

  • PENSIONS

    Programs to provide employees with retirement income after they meet minimum age and service requirements. Life insurers hold some of these funds. Since the 1970s responsibility for funding retirement has increasingly shifted from employers (defined benefit plans that promise workers a specific retirement income) to employees (defined contribution plans financed by employees that may or may not be matched by employer contributions).

  • 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.

  • PERIL

    A specific risk or cause of loss covered by an insurance policy, such as a fire, windstorm, flood, or theft. A named-peril policy covers the policyholder only for the risks named in the policy in contrast to an all-risk policy, which covers all causes of loss except those specifically excluded.

  • PERIL

    A specific risk or cause of loss covered by an insurance policy, such as a fire, windstorm, flood, or theft. A named-peril policy covers the policyholder only for the risks named in the policy in contrast to an all-risk policy, which covers all causes of loss except those specifically excluded.

  • PERIOD CERTAIN

    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.

  • PERSONAL INJURY PROTECTION COVERAGE / PIP

    Portion of an auto insurance policy that covers the treatment of injuries to the driver and passengers of the policyholder's car.

  • PERSONAL LINES

    Property/casualty insurance products that are designed for and bought by individuals, including homeowners and automobile policies

  • POINT-OF-SERVICE PLAN

    Health insurance policy that allows the employee to choose between in-network and out-of-network care each time medical treatment is needed.

  • POLICY

    A written contract for insurance between an insurance company and policyholder stating details of coverage.

  • POLICY DIVIDEND OPTIONS

    Ways in which the owner of a participating insurance policy may receive policy dividends. (See Additional term insurance option, Cash dividend option, Dividend accumulations option, Paid-up additional insuranceoption, Premium reduction option )

  • POLICYHOLDERS' SURPLUS

    The amount of money remaining after an insurer’s liabilities are subtracted from its assets. It acts as a financial cushion above and beyond reserves, protecting policyholders against an unexpected or catastrophic situation.

  • POLLUTION INSURANCE

    Policies that cover property loss and liability arising from pollution-related damages, for sites that have been inspected and found uncontaminated. It is usually written on a claims-made basis so policies pay only claims presented during the term of the policy or within a specified time frame after the policy expires. (See Claims-made policy )

  • POOL

    See Insurance pool

  • PRE-EXISTING CONDITION

    (1) According to most group health insurance policies, a condition for which an individual received medical care during the three months immediately prior to the effective date of her coverage. (2) According to most individual health insurance policies, an injury that occurred or a sickness that first appeared or manifested itself within a specified period—usually two years—before the policy was issued and that was not disclosed on the application for insurance.

  • PREFERRED PROVIDER ORGANIZATION

    Network of medical providers which charge on a fee-for-service basis, but are paid 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.

  • PREMISES

    The particular location of the property or a portion of it as designated in an insurance policy.

  • PREMIUM

    The price of an insurance policy, typically charged annually or semiannually. (See Direct premiums, Earned premium, Unearned premium )

  • 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. (See Dividend, Policy dividend options )

  • PREMIUM TAX

    A state tax on premiums paid by its residents and businesses and collected by insurers.

  • PREMIUMS IN FORCE

    The sum of the face amounts, plus dividend additions, of life insurance policies outstanding at a given time.

  • PREMIUMS WRITTEN

    The total premiums on all policies written by an insurer during a specified period of time, regardless of what portions have been earned. Net premiums written are premiums written after reinsurance transactions.

  • PRIMARY BENEFICIARY

    The party designated to receive the proceeds of a life insurance policy following the death of the insured. Also known as first beneficiary. (See Contingent beneficiary )

  • PRODUCT LIABILITY

    A section of tort law that determines who may sue and who may be sued for damages when a defective product injures someone. No uniform federal laws guide manufacturer’s liability, but under strict liability, the injured party can hold the manufacturer responsible for damages without the need to prove negligence or fault.

  • PRODUCT LIABILITY INSURANCE

    Protects manufacturers’ and distributors’ exposure to lawsuits by people who have sustained bodily injury or property damage through the use of the product.

  • PROFESSIONAL LIABILITY INSURANCE

    Covers professionals for negligence and errors or omissions that injure their clients.

  • PROOF OF LOSS

    Documents showing the insurance company that a loss occurred.

  • PROPERTY/CASUALTY INSURANCE

    Covers damage to or loss of policyholders’ property and legal liability for damages caused to other people or their property. Property/casualty insurance, which includes auto, homeowners and commercial insurance, is one segment of the insurance industry. The other sector is life/health. Outside the United States, property/casualty insurance is referred to as nonlife or general insurance.

  • PROPERTY/CASUALTY INSURANCE

    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.

  • PURE ENDOWMENT

    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.

  • R
  • RATE

    The cost of a unit of insurance, usually per $1,000. Rates are based on historical loss experience for similar risks and may be regulated by state insurance offices.

  • RATE

    The cost of a unit of insurance, usually per $1,000. Rates are based on historical loss experience for similar risks and may be regulated by state insurance offices.

  • RATE REGULATION

    The process by which states monitor insurance companies’ rate changes, done either through prior approval or open competition models. (See Open competition states, Prior approval states )

  • RATED POLICY

    An insurance policy that is classified as having a greater-than-average likelihood of loss, usually issued with special exclusions, a premium rate that is higher than the rate for a standard policy, a reduced face amount, or any combination of these.

  • RATING AGENCIES

    Six major credit agencies determine insurers’ financial strength and viability to meet claims obligations. They are A.M. Best Co.; Duff & Phelps Inc.; Fitch, Inc.; Moody’s Investors Services; Standard & Poor’s Corp.; and Weiss Ratings, Inc. Factors considered include company earnings, capital adequacy, operating leverage, liquidity, investment performance, reinsurance programs, and management ability, integrity and experience. A high financial rating is not the same as a high consumer satisfaction rating.

  • RATING BUREAU

    The insurance business is based on the spread of risk. The more widely risk is spread, the more accurately loss can be estimated. An insurance company can more accurately estimate the probability of loss on 100,000 homes than on ten. Years ago, insurers were required to use standardized forms and rates developed by rating agencies. Today, large insurers use their own statistical loss data to develop rates. But small insurers, or insurers focusing on special lines of business, with insufficiently broad loss data to make them actuarially reliable depend on pooled industry data collected by such organizations as the Insurance Services Office (ISO) which provides information to help develop rates such as estimates of future losses and loss adjustment expenses like legal defense costs.

  • RECEIVABLES

    Amounts owed to a business for goods or services provided.

  • REDLINING

    Literally means to draw a red line on a map around areas to receive special treatment. Refusal to issue insurance based solely on where applicants live is illegal in all states. Denial of insurance must be risk-based.

  • REDUCED PAID-UP INSURANCE OPTION

    One of several nonforfeiture options included in life insurance policies that allows the owner of a policy with cash values to discontinue premium payments and to use the policy’s net cash value to purchase paid-up insurance of the same plan as the original policy. (SeeNonforfeiture options )

  • REINSTATEMENT

    The process by which an insurer puts back into force an insurance policy that has either been terminated for nonpayment of premiums or continued as extended term or reduced paid-up coverage.

  • REINSURANCE

    Insurance bought by insurers. A reinsurer assumes part of the risk and part of the premium originally taken by the insurer, known as the primary company. Reinsurance effectively increases an insurer's capital and therefore its capacity to sell more coverage. The business is global and some of the largest reinsurers are based abroad. Reinsurers have their own reinsurers, called retrocessionaires. Reinsurers don’t pay policyholder claims. Instead, they reimburse insurers for claims paid.

  • RELATION OF EARNINGS TO INSURANCE CLAUSE

    A clause included in some individual disability policies that limits the amount of benefits that an insurer will pay when the total amount of disability benefits from all insurers exceeds the individual’s usual earnings

  • RENEWABLE TERM INSURANCE POLICY

    A term life insurance policy that gives the policy owner the option to continue the coverage at the end of the specified term without presenting evidence of insurability, although typically at a higher premium based on the insured’s attained age.

  • RENTERS INSURANCE

    A form of insurance that covers a policyholder's belongings against perils such as fire, theft, windstorm, hail, explosion, vandalism, riots, and others. It also provides personal liability coverage for damage the policyholder or dependents cause to third parties. It also provides additional living expenses, known as loss-of-use coverage, if a policyholder must move while his or her dwelling is repaired. It also can include coverage for property improvements. Possessions can be covered for their replacement cost or the actual cash value that includes depreciation.

  • REPLACEMENT COST

    Insurance that pays the dollar amount needed to replace damaged personal property or dwelling property without deducting for depreciation but limited by the maximum dollar amount shown on the declarations page of the policy.

  • REPURCHASE AGREEMENT /'REPO'

    Agreement between a buyer and seller where the seller agrees to repurchase the securities at an agreed upon time and price. Repurchase agreements involving U.S. government securities are utilized by the Federal Reserve to control the money supply.

  • RESERVES

    A company’s best estimate of what it will pay for claims.

  • RESIDUAL DISABILITY

    In disability income insurance, a condition in which the insured is not totally disabled, but is still unable to function as before the sickness or injury, and therefore suffers a reduction in income of at least the percentage—typically 20 percent to 25 percent—specified in the disability income plan. Also known as partial disability.

  • RESIDUAL DISABILITY INSURANCE

    See Income protection insurance

  • RETENTION

    The amount of risk retained by an insurance company that is not reinsured.

  • RETURN ON EQUITY

    Net income divided by total equity. Measures profitability by showing how efficiently invested capital is being used.

  • REVOCABLE BENEFICIARY

    A life insurance policy beneficiary whose right to the policy’s proceeds can be cancelled or reduced by the policy owner at any time before the insured’s death. Contrast with irrevocable beneficiary.

  • RIDER

    An attachment to an insurance policy that alters the policy’s coverage or terms.

  • RISK

    The chance of loss or the person or entity that is insured.

  • RISK

    The chance of loss or the person or entity that is insured.

  • RISK

    The chance of loss or the person or entity that is insured.

  • RISK MANAGEMENT

    Management of the varied risks to which a business firm or association might be subject. It includes analyzing all exposures to gauge the likelihood of loss and choosing options to better manage or minimize loss. These options typically include reducing and eliminating the risk with safety measures, buying insurance, and self-insurance.

  • RISK MANAGEMENT

    Management of the varied risks to which a business firm or association might be subject. It includes analyzing all exposures to gauge the likelihood of loss and choosing options to better manage or minimize loss. These options typically include reducing and eliminating the risk with safety measures, buying insurance, and self-insurance.

  • ROLLOVER

    A direct transfer of retirement funds from one qualified plan to another plan of the same type or to an individual retirement arrangement (IRA) that does not pass through the hands of the owner and thus does not incur any tax liability for the owner. Also known as direct rollover and direct transfer.

  • S
  • SALVAGE

    Damaged property an insurer takes over to reduce its loss after paying a claim. Insurers receive salvage rights over property on which they have paid claims, such as badly-damaged cars. Insurers that paid claims on cargoes lost at sea now have the right to recover sunken treasures. Salvage charges are the costs associated with recovering that property.

  • SALVAGE

    Damaged property an insurer takes over to reduce its loss after paying a claim. Insurers receive salvage rights over property on which they have paid claims, such as badly-damaged cars. Insurers that paid claims on cargoes lost at sea now have the right to recover sunken treasures. Salvage charges are the costs associated with recovering that property.

  • SCHEDULE

    A list of individual items or groups of items that are covered under one policy or a listing of specific benefits, charges, credits, assets or other defined items.

  • SCHEDULE

    A list of individual items or groups of items that are covered under one policy or a listing of specific benefits, charges, credits, assets or other defined items.

  • SECTION 1035 EXCHANGE

    In the United States, a taxfree replacement of an insurance policy for another insurance contract covering the same person that is performed in accordance with the conditions of Section 1035 of the Internal Revenue Code.

  • SECTION 415

    A section of the Internal Revenue Code that provides for dollar limitations on benefits and contributions under qualified retirement plans. Section 415 also requires that the Internal Revenue Service annually adjust these limits for cost-ofliving increases.

  • SECURITIES AND EXCHANGE COMMISSION / SEC

    The organization that oversees publicly-held insurance companies. Those companies make periodic financial disclosures to the SEC, including an annual financial statement (or 10K), and a quarterly financial statement (or 10-Q). Companies must also disclose any material events and other information about their stock.

  • SECURITIES OUTSTANDING

    Stock held by shareholders.

  • SELF-INSURANCE

    The concept of assuming a financial risk oneself, instead of paying an insurance company to take it on. Every policyholder is a self-insurer in terms of paying a deductible and co-payments. Large firms often self-insure frequent, small losses such as damage to their fleet of vehicles or minor workplace injuries. However, to protect injured employees state laws set out requirements for the assumption of workers compensation programs. Self-insurance also refers to employers who assume all or part of the responsibility for paying the health insurance claims of their employees. Firms that self insure for health claims are exempt from state insurance laws mandating the illnesses that group health insurers must cover.

  • SETTLEMENT OPTIONS

    Choices given to the owner or beneficiary of a life insurance policy regarding the method by which the insurer will pay the policy’s proceeds when the policy owner does not receive the benefits in one single payment. Typically, the owner can elect (1) to leave the proceeds with the insurer and earn a specified interest rate, (2) to have the proceeds paid in a series of installments for a pre-selected period, (3) to have the proceeds paid in a pre-selected sum in a series of installments for as long as the proceeds last, or (4) to have the insurer tie payment of the proceeds to the life expectancy of a named individual through a life annuity. Also known as optional modes of settlement. (SeeLife annuity )

  • SEVERITY

    Size of a loss. One of the criteria used in calculating premiums rates.

  • SEWER BACK-UP COVERAGE

    An optional part of homeowners insurance that covers sewers.

  • SHORT-TERM DISABILITY INCOME INSURANCE

    A type of disability income coverage that provides disability income benefits for a maximum benefit period of from one to five years. Contrast with long-term disability income insurance.

  • SINGLE PREMIUM ANNUITY

    An annuity that is paid in full upon purchase.

  • SINGLE PREMIUM POLICIES

    A type of life insurance or annuity contract that is purchased by the payment of one lump sum. (1) A single-premium deferred annuity (SPDA) is an annuity contract purchased with a single premium payment whose periodic income payments generally do not begin until several years in the future. (2) A single premium immediate annuity (SPIA) contract is an annuity contract that is purchased with a single premium payment and that will begin making periodic income payments one annuity period after the contract’s issue date.

  • SOLVENCY

    Insurance companies’ ability to pay the claims of policyholders. Regulations to promote solvency include minimum capital and surplus requirements, statutory accounting conventions, limits to insurance company investment and corporate activities, financial ratio tests, and financial data disclosure.

  • SPECIFIED DISEASE COVERAGE

    A type of health insurance coverage that provides benefits for the diagnosis and treatment of a specifically named disease or diseases, such as cancer. Also known as dread disease coverage. Contrast with critical illness (CI) insurance.

  • SPENDTHRIFT TRUST CLAUSE

    Life insurance provision that protects policy payouts from the beneficiary’s creditors.

  • SPLIT-DOLLAR LIFE INSURANCE PLAN

    An agreement under which a business provides individual life insurance policies for certain employees, who share in paying the cost of the policies.

  • STANDARD RISK CLASS

    In insurance underwriting, the group of proposed insureds who represent average risk within the context of the insurer’s underwriting practices and therefore pay average premiums in relation to others of similar insurability. Contrast with declined risk class, preferred risk class and substandard risk class.

  • STATUTORY ACCOUNTING PRINCIPLES / SAP

    More conservative standards than under GAAP accounting rules, they are imposed by state laws that emphasize the present solvency of insurance companies. SAP helps ensure that the company will have sufficient funds readily available to meet all anticipated insurance obligations by recognizing liabilities earlier or at a higher value than GAAP and assets later or at a lower value. For example, SAP requires that selling expenses be recorded immediately rather than amortized over the life of the policy. (See GAAP accounting, Admitted assets )

  • STOCK INSURANCE COMPANY

    An insurance company owned by its stockholders who share in profits through earnings distributions and increases in stock value.

  • STRAIGHT LIFE ANNUITY

    A type of life annuity contract that provides periodic income payments for as long as the annuitant lives but provides no benefit payments after the annuitant’s death. (See Life annuity )

  • STRUCTURED SETTLEMENT

    Legal agreement to pay a designated person, usually someone who has been injured, a specified sum of money in periodic payments, usually for his or her lifetime, instead of in a single lump sum payment. (See Annuity )

  • SUBROGATION

    The legal process by which an insurance company, after paying a loss, seeks to recover the amount of the loss from another party who is legally liable for it.

  • SUBSTANDARD PREMIUM RATES

    The premium rates charged insureds who are classified as substandard risks. Also known as special class rates.

  • SUBSTANDARD RISK CLASS

    In insurance underwriting, the group of proposed insureds who represent a significantly greater-than-average likelihood of loss within the context of the insurer’s underwriting practices. Also known as special class risk. Contrast with declined risk class, preferred risk class and standard risk class.

  • SUICIDE EXCLUSION PROVISION

    A life insurance policy provision stating that policy proceeds will not be paid if the insured dies as the result of suicide as defined within the policy within a specified period following the date of policy issue.

  • SUPPLEMENTAL COVERAGE

    An amount of coverage that adds to the amount of coverage specified in a basic insurance policy.

  • SUPPLEMENTAL COVERAGE

    An amount of coverage that adds to the amount of coverage specified in a basic insurance policy.

  • SURETY BOND

    A contract guaranteeing the performance of a specific obligation. Simply put, it is a three-party agreement under which one party, the surety company, answers to a second party, the owner, creditor or “obligee,” for a third party’s debts, default or nonperformance. Contractors are often required to purchase surety bonds if they are working on public projects. The surety company becomes responsible for carrying out the work or paying for the loss up to the bond “penalty” if the contractor fails to perform.

  • SURETY BOND

    A contract guaranteeing the performance of a specific obligation. Simply put, it is a three-party agreement under which one party, the surety company, answers to a second party, the owner, creditor or “obligee,” for a third party’s debts, default or nonperformance. Contractors are often required to purchase surety bonds if they are working on public projects. The surety company becomes responsible for carrying out the work or paying for the loss up to the bond “penalty” if the contractor fails to perform.

  • SURETY BOND

    A contract guaranteeing the performance of a specific obligation. Simply put, it is a three-party agreement under which one party, the surety company, answers to a second party, the owner, creditor or “obligee,” for a third party's debts, default or nonperformance. Contractors are often required to purchase surety bonds if they are working on public projects. The surety company becomes responsible for carrying out the work or paying for the loss up to the bond “penalty” if the contractor fails to perform.

  • SURPLUS

    The remainder after an insurer’s liabilities are subtracted from its assets. The financial cushion that protects policyholders in case of unexpectedly high claims. (See Capital, Risk-based capital )

  • SURRENDER CHARGE

    A charge for withdrawals from an annuity contract before a designated surrender charge period, usually from five to seven years.

  • SURRENDER COST COMPARISON INDEX

    A cost comparison index, used to compare insurance policies, which takes into account the time value of money and measures the cost of a policy over a 10- or 20-year period assuming the policy owner surrenders the policy for its cash value at the end of the period. Contrast with net payment cost comparison index.

  • SWAPS

    The simultaneous buying, selling or exchange of one security for another among investors to change maturities in a bond portfolio, for example, or because investment goals have changed.

  • T
  • TAX SHELTERED ANNUITY (TSA)

    In the United States, a retirement annuity sold only to organizations offering qualified retirement plans under section 403(b) of the U.S. Internal Revenue Code. (See 403(b) plan )

  • TAX-DEFERRED BASIS

    Accumulation of investment income on which income taxes are not payable until money is withdrawn from the investment vehicle.

  • TEN-DAY FREE LOOK PROVISION

    See Free-look period

  • TERM CERTAIN ANNUITY

    An form of annuity that pays out over a fixed period rather than when the annuitant dies.

  • TERM LIFE INSURANCE

    A form of life insurance that covers the insured person for a certain period of time, the “term” that is specified in the policy. It pays a benefit to a designated beneficiary only when the insured dies within that specified period which can be one, five, 10 or even 20 years. Term life policies are renewable but premiums increase with age.

  • TERRITORIAL RATING

    A method of classifying risks by geographic location to set a fair price for coverage. The location of the insured may have a considerable impact on the cost of losses. The chance of an accident or theft is much higher in an urban area than in a rural one, for example.

  • TERRORISM COVERAGE

    Included as a part of the package in standard commercial insurance policies before September 11, 2001 virtually free of charge. Since September 11, terrorism coverage prices have increased substantially to reflect the current risk.

  • THIRD-PARTY ADMINISTRATOR

    Outside group that performs clerical functions for an insurance company.

  • THIRD-PARTY COVERAGE

    Liability coverage purchased by the policyholder as a protection against possible lawsuits filed by a third party. The insured and the insurer are the first and second parties to the insurance contract. (See First-party coverage )

  • TIME DEPOSIT

    Funds that are held in a savings account for a predetermined period of time at a set interest rate. Banks can refuse to allow withdrawals from these accounts until the period has expired or assess a penalty for early withdrawals.

  • TIME LIMIT ON CERTAIN DEFENSES PROVISION

    An individual health insurance policy provision that limits the time during which the insurer may contest the validity of the contract on the ground of misrepresentation in the application or may reduce or deny a claim on the ground it results from a preexisting condition. (SeeIncontestability provision )

  • TITLE INSURANCE

    Insurance that indemnifies the owner of real estate in the event that his or her clear ownership of property is challenged by the discovery of faults in the title.

  • TORT

    A legal term denoting a wrongful act resulting in injury or damage on which a civil court action, or legal proceeding, may be based.

  • TORT LAW

    The body of law governing negligence, intentional interference, and other wrongful acts for which civil action can be brought, except for breach of contract, which is covered by contract law.

  • TORT REFORM

    Refers to legislation designed to reduce liability costs through limits on various kinds of damages and through modification of liability rules.

  • TOTAL DISABILITY

    For disability insurance purposes, an insured’s disability that meets the requirements of the definition of total disability included in the disability insurance policy or policy rider and that qualifies for payment of the specified disability benefits. When a disability begins, total disability is usually the complete and continuous inability of an insured to perform the essential duties of his regular occupation. After a disability has existed for a specified period, total disability usually exists only if the insured is prevented from working at any occupation for which he is reasonably fitted by education, training or experience. (See Disability, Residual disability )

  • TOTAL LOSS

    The condition of an automobile or other property when damage is so extensive that repair costs would exceed the value of the vehicle or property.

  • TRANSPARENCY

    A term used to explain the way information on financial matters, such as financial reports and actions of companies or markets, are communicated so that they are easily understood and frank.

  • TRAVEL INSURANCE

    Insurance to cover problems associated with traveling, generally including trip cancellation due to illness, lost luggage and other incidents.

  • TREASURY SECURITIES

    Interest-bearing obligations of the U.S. government issued by the Treasury as a means of borrowing money to meet government expenditures not covered by tax revenues. Marketable Treasury securities fall into three categories—bills, notes and bonds. Marketable Treasury obligations are currently issued in book entry form only; that is, the purchaser receives a statement, rather than an engraved certificate.

  • TWISTING

    An illegal insurance sales practice, in which a sales agent misrepresents the features of a contract in order to induce the contract owner to replace his current contract, often to the disadvantage of the contract owner. (See Misrepresentation )

  • U
  • UMBRELLA POLICY

    Coverage for losses above the limit of an underlying policy or policies such as homeowners and auto insurance. While it applies to losses over the dollar amount in the underlying policies, terms of coverage are sometimes broader than those of underlying policies.

  • UMBRELLA POLICY

    Coverage for losses above the limit of an underlying policy or policies such as homeowners and auto insurance. While it applies to losses over the dollar amount in the underlying policies, terms of coverage are sometimes broader than those of underlying policies.

  • UMBRELLA POLICY

    Coverage for losses above the limit of an underlying policy or policies such as homeowners and auto insurance. While it applies to losses over the dollar amount in the underlying policies, terms of coverage are sometimes broader than those of underlying policies.

  • UNBUNDLED CONTRACTS

    A form of annuity contract that gives purchasers the freedom to choose among certain optional features in their contract.

  • UNDERINSURANCE

    The result of the policyholder’s failure to buy sufficient insurance. An underinsured policyholder may only receive part of the cost of replacing or repairing damaged items covered in the policy.

  • UNDERWRITING

    Examining, accepting, or rejecting insurance risks and classifying the ones that are accepted, in order to charge appropriate premiums for them.

  • UNDERWRITING INCOME

    The insurer’s profit on the insurance sale after all expenses and losses have been paid. When premiums aren’t sufficient to cover claims and expenses, the result is an underwriting loss. Underwriting losses are typically offset by investment income.

  • UNEARNED PREMIUM

    The portion of a premium already received by the insurer under which protection has not yet been provided. The entire premium is not earned until the policy period expires, even though premiums are typically paid in advance.

  • UNINSURABLE RISK

    Risks for which it is difficult for someone to get insurance. (See Insurable risk )

  • UNINSURED MOTORISTS COVERAGE

    Portion of an auto insurance policy that protects a policyholder from uninsured and hit-and-run drivers.

  • 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.

  • UTILIZATION REVIEW

    See Medical utilization review

  • V
  • VALUED POLICY

    A policy under which the insurer pays a specified amount of money to or on behalf of the insured upon the occurrence of a defined loss. The money amount is not related to the extent of the loss. Life insurance policies are an example.

  • VANDALISM

    The malicious and often random destruction or spoilage of another person’s property.

  • VARIABLE 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 UNIVERSAL LIFE (VUL) INSURANCE

    A form of permanent life insurance that combines the premium and death benefit flexibility of universal life insurance with the investment flexibility and risk of variable life insurance. With this type of policy, the death benefit and the cash value fluctuate according to the contract’s investment performance. Also known as universal life II.

  • VIATICAL SETTLEMENT COMPANIES

    Insurance firms that buy life insurance policies at a steep discount from policyholders who are often terminally ill and need the payment for medications or treatments. The companies provide early payouts to the policyholder, assume the premium payments, and collect the face value of the policy upon the policyholder’s death.

  • VOID

    A policy contract that for some reason specified in the policy becomes free of all legal effect. One example under which a policy could be voided is when information a policyholder provided is proven untrue.

  • W
  • WAITING PERIOD

    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 elimination period and probationary period.

  • WAIVER

    The surrender of a right or privilege. In life insurance, a provision that sets certain conditions, such as disablement, which allow coverage to remain in force without payment of premiums.

  • 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.

  • WATER-DAMAGE INSURANCE COVERAGE

    Protection provided in most homeowners insurance policies against sudden and accidental water damage, from burst pipes for example. Does not cover damage from problems resulting from a lack of proper maintenance such as dripping air conditioners. Water damage from floods is covered under separate flood insurance policies issued by the federal government.

  • 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 and remain level throughout the policy’s lifetime.

  • WORKERS COMPENSATION

    Insurance that pays for medical care and physical rehabilitation of injured workers and helps to replace lost wages while they are unable to work. State laws, which vary significantly, govern the amount of benefits paid and other compensation provisions.

  • WRAP-UP INSURANCE

    Broad policy coordinated to cover liability exposures for a large group of businesses that have something in common. Might be used to insure all businesses working on a large construction project, such as an apartment complex.