Abandonment the act of surrendering to the insurer all interest in the thing insured; it is generally conceded that damaged property cannot be abandoned to the insurer. One notable exception to this general rule occurs in ocean marine, where abandonment is merely one step in proving a loss.
Absolute Liability a legal doctrine under which one can be held liable even in the absence of negligence having been proven, as in the case of workers compensation.
ACA see Patient Protection and Affordable Care Act.
Accelerated Benefits an optional benefit under life insurance policies under which the insurer agrees to prepay a part of the death benefit if the insured is stricken by a catastrophic illness or is confined to a nursing home.
Acceptance agreeing to terms by means of which a bargain is concluded and the parties are bound; the binding of an insurance contract by the insurer.
Accident an event or occurrence that is unforeseen and unintended.
Accident Insurance a form of health insurance against loss by accidental bodily injury.
Accidental Bodily Injury injury to the body of the insured as the result of an accident.
Accidental Death Benefit a provision added to a life insurance policy for payment of an additional benefit in case of death by accidental means; it is often referred to as “double indemnity.”
Accidental Means appearing in some policies, the unexpected or undesigned cause of an accident; the “means” that caused the mishap must be accidental in order to claim policy benefits.
Accommodation Risk insurance written for an applicant that would normally be rejected by the insurer, but that is provided as a concession to the agency or a valued insured.
Accountable Care Organization an organization of hospitals and physicians reimbursed by third party payers in a manner designed to encourage the efficient delivery of high quality care.
Accumulation Period a specified period of time, such as 90 days, during which the insured person must incur eligible medical expenses at least equal to the deductible amount in order to establish a benefit period under a major medical expense or comprehensive medical expense policy.
Acquisition Cost that portion of an insurance premium that represents the cost of producing the insurance business; it includes the agent's commission, the company field expense, and other related expenses.
Act of God Bond see Catastrophe Bonds.
Activities of Daily Living (ADL) everyday living functions such as eating, bathing, dressing, walking (sometimes called mobility), moving from place to place, toileting, and continence that serve as coverage triggers for long-term care insurance when the insured is unable to perform a specified number.
Actual Cash Value the limit of indemnification under the Standard Fire Policy and other property contracts; in most cases it is replacement cost minus depreciation.
Actuary a person professionally trained in the technical aspects of insurance and related fields, particularly in the mathematics of insurance such as the calculation of premiums, reserves, and other values.
Additional Interest one who may claim under, or is protected by an insurance policy issued to another, as a mortgagee named in a fire policy.
Additional Living Expense insurance paying the extra expense involved in living elsewhere during the period of time it is impossible to remain in a dwelling that has been damaged by fire or another insured peril.
Adjustable Life Insurance a type of life insurance that allows the policyholder to change the plan of insurance, raise or lower the face amount of the policy increase or decrease the premium, and lengthen or shorten the protection period.
Adjusted Community Rating a rating methodology where premiums are not based on health status, but may be based upon other factors such as age and geographic location.
Adjuster one who settles insurance claims; may be a salaried employee or an independent operator.
Adjustment Bureau an organization that contracts with insurers to provide loss settlement services on behalf of those insurers.
Administrative Services Only (ASO) Plan an arrangement under which an insurance carrier or an independent organization will, for a fee, handle the administration of claims, benefits, and other administration functions for a self-insured group.
Administrator a person authorized to administer the estate of a deceased person by the court; his or her duties are to collect assets of the estate, pay its debts, and distribute the residue to those entitled: he or she resembles an executor, who is appointed by the will of the deceased—the administrator is appointed by the court and not by the deceased and therefore must give security for the administration of the estate, called an administration bond.
Admiralty involving maritime law; concerning the high seas or navigable waters.
Admitted Assets those assets of an insurer that under state law can be taken into account in representing the financial position of the company.
Admitted Company an insurer of another state or country licensed under the laws of a state to do business in that state.
Advance Premium Mutual an insurance company owned by its policyholders that charges an advance premium that is expected to cover losses and expenses; policies may be assessable or nonassessable.
Adverse Selection the tendency of persons with a higher than average probability of loss to seek or continue insurance to a greater extent than do persons with an average or below average probability of loss.
Advisory Organization a cooperative rate-making body that is supported by member companies; advisory organizations collect loss statistics and publish trended loss costs.
Age Limit in accident, life, or automobile insurance, the age below which or above which an insurer refuses to insure an applicant.
Agent in property and casualty insurance, an individual authorized by an insurance company to create, modify and terminate contracts of insurance; in life insurance a sales and service representative who is also called a “life underwriter.”
Aggregate the greatest amount recoverable on account of a single loss or during a policy period, or on a single project.
Aggregate Indemnity in disability insurance, the maximum dollar amount that may be collected for any disability period of disability, or under the policy.
Agreed Amount Endorsement a provision in fire insurance whereby the coinsurance clause is suspended if the insured carries an amount of insurance specified by the company (normally 90% or more of the value).
AIDS acquired immune deficiency syndrome. A fatal, incurable disease caused by a virus that can damage the brain and destroy the body's ability to fight off illness.
Alien Company an insurance company organized under the laws of a foreign country.
Alimony Insurance insurance designed to protect the insured against default in connection with payment of child support and alimony.
Allied Lines a term that has been adopted to refer to the lines of insurance that are allied with property insurance; these coverages provide protection against perils traditionally written by fire companies, such as sprinkler leakage, water damage, and earthquake.
Allocated Benefits in health insurance, coverage for which the maximum amount payable for specific services is itemized in the contract.
Allowable Charge in health insurance, the lesser of the actual charge, the customary charge and the prevailing charge. It is the amount on which Medicare will base its Part B payment.
All-Risk a term commonly used by insurance people to describe broad forms of coverage; it is misleading because no property or liability insurance policy is truly an all-risk coverage. There is a concerted effort to eliminate use of this term and to replace it with the term open peril.
Alternate Delivery Systems health services provided in other than an inpatient, acute-care hospital, which are designed to provide needed services in a more cost-effective manner.
Alternative Markets mechanisms used to fund self-insurance. This includes captives, which are insurers owned by one or more non-insurers to provide owners with coverage. Risk-retention groups, formed by members of similar professions or businesses to obtain liability insurance, are also a form of self-insurance.
Ambulatory Care medical services that are provided on an outpatient (nonhospitalized) basis; services may include diagnosis, treatment, and rehabilitation.
Amendment a formal document changing the provisions of an insurance policy signed jointly by the insurance company officer and the policyholder or his authorized representative.
American Agency System the term applied to the system of insurance marketing in which the agent is an independent business operator rather than an employee of the company.
Amortized Value the amount at a given point in time to which the purchase price of a bond purchased at a discount or premium has been increased or decreased.
Annual Statement an insurer's financial report to insurance departments issued at the end of the year. The report is required by the various state insurance departments and is made according to a form agreed upon by the supervising authorities.
Annuitant the person during whose life an annuity is payable, usually the person to receive the annuity.
Annuity a contract that provides an income for a specified period of time, such as a number of years or for life.
Annuity Certain a contract that provides an income for a specified number of years, regardless of life or death, to the insured if living or to his or her beneficiary if deceased.
Application a statement of information made by a person applying for life insurance: it is used by the insurance company to determine the acceptability of the risk and the basis of the policy contract.
Apportionment a division according to the interests of the various parties therein, as the apportionment clause in a fire policy.
Appraisal an estimate of value, loss, or damage; see Arbitration.
Arbitration the submitting of a matter in dispute to the judgment of a specified number of disinterested persons called arbitrators, whose decision, called an award, is binding upon the parties.
Arson the criminal act of maliciously burning or attempting to burn property.
Assault an intentional, unlawful threat of bodily injury to another by force, or force unlawfully directed toward the person of another, under such circumstances as create well-founded fear of imminent peril, coupled with apparent present ability to execute the attempt; see also Battery.
Assessable insurance to which the policyholder may be required to contribute in the event the company becomes unable to pay its losses; confined to certain mutual companies.
Assessment a charge sometimes levied against policyholders by certain types of companies.
Assessment Mutual an insurance company owned by its policyholders that issues policies under which the policyholders may be assessed for losses and expenses.
Assigned Risk an applicant for automobile or workers compensation insurance declined by one or more companies; such a risk may be assigned to designated companies as directed by recognized authority The operation is called an “assigned risk plan.”
Assignment the legal transfer of one person's interest in an insurance policy to another person.
Assured a person who has been insured by an insurance company or underwriter against loss.
Attachment a statutory legal remedy whereby one party may prevent removal of property belonging to another party pending determination of a court action.
Attorney-in-Fact one appointed to act for another; the chief administrative officer of a reciprocal insurance group, who uses his or her power of attorney to commit the members of the group as insurers of each other; also one who executes a surety bond on behalf of the company being represented.
Attractive Nuisance a dangerous place, condition, or object that is particularly attractive to children; in these cases the courts have frequently held that where “attractiveness” exists, the owner is under a duty to take steps to prevent injury to those who may be attracted and the owner may be held liable for failure to do so.
Audit Premium the additional premium to which an insurer is entitled or the return premium to which the insured is entitled after an audit and refiguring of the base on which the original or deposit premium was charged.
Automatic Premium Loan a provision in a life insurance policy authorizing the insurer to pay automatically by means of a policy loan any premium not paid by the end of the grace period.
Automatic Treaty a reinsurance contract under which risks written by the reinsured are automatically assumed by the reinsurer subject only to the terms and conditions of the treaty.
Automobile Insurance Plan a state pool in which each automobile insurer in the state accepts a portion of the undesirable automobile insurance applicants; formerly called “assigned risk plans.”
Automobile Liability Insurance a form of liability insurance that is specifically designed to indemnify for loss incurred through legal liability for bodily injury and damage to property of others caused by accident arising out of ownership or operation of an automobile.
Average Clause a coinsurance clause; a clause requiring an insured to purchase insurance for a stipulated portion of the entire value of the thing insured; see General Average; Particular Average.
Bail a deposit or assignment guaranteeing appearance of a defendant for a trial and which is forfeited if the defendant fails to appear at the stipulated time.
Bailee one who has possession of property belonging to another.
Bailment a delivery of goods or personal property by one person to another in trust for the execution of a special object upon or in relation to such goods. Bailment may be for the benefit of the bailee, for the benefit of the bailor, or for mutual benefit. In addition, bailment may be gratuitous or may be a bailment for hire.
Bailor the owner of property that has been delivered to and is in the possession of another.
Battery any unlawful beating or other wrongful physical violence or constraint inflicted upon a human being without his or her consent; see Assault.
Beneficiary one for whose benefit a contract is made: the person to whom a policy of insurance is payable.
Beneficiary, Contingent the person or persons designated to receive the death benefit if the primary beneficiary dies prior to the death of the insured.
Beneficiary, Irrevocable a beneficiary that cannot be altered by the insured, the insured having relinquished the right to change the beneficiary designation.
Beneficiary, Primary the person or persons designated to receive the benefits under the policy.
Betterment an improvement rendering property better than mere repairs would do.
Bid a proposal or offer.
Binder a written agreement (sometimes oral) whereby one party agrees to insure another party pending receipt of, and final action upon, the application.
Binding Receipt in life insurance, a receipt for a premium that accompanies the application for insurance. It binds the company if issuance is approved, to make the policy effective from the date of the receipt.
Blanket in property and liability used to designate insurance that extends to more than one location, or one class of property or one employee.
Blanket Medical Expense (health) a provision for the payment of actual expense of hospital, nurse, surgical, and medical care subject to an overall maximum for all such expense.
Blue Cross an independent, nonprofit membership corporation providing protection against the costs of hospital care in a limited geographical area.
Blue Shield an independent, nonprofit membership corporation providing protection against the costs of surgery and other items of medical care in a limited geographical area.
Bodily Injury physical injury to a person.
Boiler and Machinery Insurance coverage for loss arising out of the operation of pressure, mechanical, and electrical equipment; it may cover loss suffered by the boiler and machinery itself and may include damage done to other property as well as business interruption losses.
Bond a written agreement of obligation under seal; the person to whom the obligation is owed is called the “obligee”; the person liable for the undertaking is called the “obligor” or “principal,” if a third party guarantees performance of the agreement, he is called the “surety.”
Bottomry in the early days of marine insurance, a ship owner would borrow money on a mortgage on the ship, and the mortgage would provide that if the ship were lost, the borrower would not have to repay the loan. This was bottomry, which thus combined money lending with insurance. When cargo instead of hull was involved, it was called “respondentia.”
Breach of Contract failure to comply with the terms or conditions incorporated in an insurance policy, frequently resulting in a restriction of coverage or a voiding of a policy itself.
Broker an individual who arranges and services insurance policies on behalf of the insurance buyer: he or she is the representative of the insured, although the broker receives compensation in the form of a commission from the company.
Bureau see Advisory Organization.
Burglary felonious abstraction of property from within premises by persons making felonious entry by force of which there are visible marks on the exterior.
Business Interruption insurance covering the loss of earnings resulting from, and occurring after, destruction of property; also called “use and occupancy insurance.”
Business Life Insurance life insurance purchased by a business enterprise on the life of a member of the firm: it is often bought by partnerships to protect the surviving partners against loss caused by the death of a partner, or by a corporation to reimburse it for loss caused by the death of a key employee.
Businessowners Policy a multiple-line package policy for small businesses that includes property and liability coverages.
Cafeteria Plan an employee benefit arrangement under Internal Revenue Code Section 125 whereby an individual is allowed to select among certain employee benefits on a pretax basis rather than an after-tax basis.
Calendar Year Deductible in health insurance, the amount of expense that must be borne by the insured during a calendar year before the health insurance policy makes payment for loss.
Capital Sum a lump sum payable for dismemberment and sight losses.
Capitation a method of payment for health services in which a physician or hospital is paid a fixed, per capita amount for each person served regardless of the actual number of services provided to each person.
Captive Agent an agent who, by contract, represents only one company and its affiliates.
Captive Insurer an insurance company established by a parent firm for the purpose of insuring the parent's exposures.
Case Management The process by which all health related matters of a case are managed by a physician or nurse or designated health professional in an effort to match the intensity of services with the patient's need over time.
Cash Surrender Value the amount available in cash upon voluntary termination of a policy before it becomes payable by death or maturity.
Cash Value Accumulation Test one of two tests used in determining if a contract is a life insurance policy for the purpose of the Internal Revenue Code; see Cash Value Corridor Test.
Cash Value Corridor Test one of two tests used in determining if a contract is a life insurance policy for the purpose of the Internal Revenue Code; see Cash Value Accumulation Test.
Casualty Insurance a classification of insurance coverages used in the monoline era consisting of workers compensation, liability crime, glass, and boiler coverages, used to distinguish such coverages from “fire” or property coverages.
Catastrophe Bonds Bonds issued by an insurance company with the repayment terms linked to the company's losses from disasters, or acts of God. A loss exceeding a certain size automatically produces changes in the bonds' structure designed to the issuing insurer's capital base. Also known as “cat bonds” or “act of God bonds.”
Catastrophe Loss a loss of unusual size; a shock loss; a very large loss.
CATEX A New York computer-based electronic market for the exchange of insurance risks by insurance companies and reinsurers.
Ceding Company a company that has placed reinsurance as distinguished from the company that has accepted the reinsurance.
Certified Professional Public Adjuster (CPPA) professional designation granted to public adjusters who pass a rigorous examination and meet specified eligibility requirements.
Cession the amount of a risk that the insurance company reinsures; the amount passed on to the reinsurer.
Change of Occupation Clause standard provision in health insurance policies that reduces benefits if the insured changes to a more hazardous occupation.
Chartered Life Underwriter (CLU) professional designation granted to persons in the life insurance field who pass a series of rigorous examinations and meet specified eligibility requirements.
Chartered Property Casualty Underwriter (CPCU) professional designation granted to persons in the property and liability insurance field who pass a series of rigorous examinations and meet specified eligibility requirements.
Children's Health Insurance Program a program jointly funded and administered by the states and federal government to provide coverage to low- and moderate-income children. It was originally called the State Children's Health Insurance Program (SCHIP).
Claim notification to an insurance company that payment of an amount is due under the terms of a policy.
Claims-made Form a liability insurance policy under which coverage applies to claims made during the policy period; see Occurrence Form.
Class Rating an approach to rate-making in which a price per unit of insurance is computed for all applicants with a given set of characteristics. For example, the rate may apply to all persons of a given age and sex, to all buildings of a certain type of construction, or to all businesses of a certain type.
Closed panel A managed care plan that contracts with physicians on an exclusive basis for services and does not allow those physicians to see patients for another managed care organization. Examples include staff and group model HMOs. Could apply to a large private medical group that contracts with an HMO.
CLU see Chartered Life Underwriter.
COBRA Coverage Temporary continuation of health insurance coverage at group rates granted to certain former employees, retirees, spouses, former spouses, and children. The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1986 requires employers with 20 or more employees to provide COBRA continuation coverage. Many states have “mini-Cobra” laws that apply to employers with less than 20 employees.
Coinsurance in property and casualty insurance, a clause or provision in an insurance policy requiring a specified amount of insurance based on the value of the property insured; normally there is a premium reduction for purchasing insurance to some percentage of the value of the property—if the insured fails to comply with the clause, he or she will suffer a penalty in the event of partial loss; in health insurance, a policy provision requiring the insured to share a given percentage of the loss.
Collateral Source Rule a legal principle applicable in the area of tort liability, which holds that the plaintiffs measure of damage should not be mitigated by payments received from sources other than the tort feasor.
Collusion a compact between persons, usually to the detriment of other persons or for some improper purpose.
Combined Ratio a rough indication of the profitability of a property and liability insurer's underwriting operations, generally computed by adding the ratio of losses incurred to premiums earned and expenses incurred to premiums written.
Commercial the opposite of personal; of a business nature, usually mercantile or manufacturing.
Commercial Paper Insurance a form of credit enhancement insurance that guarantees the timely payment of principal and interest on commercial paper issued by corporations.
Commission the fee paid by the insurance companies to agents for the sale of policies.
Common Carrier a firm that offers to transport merchandise for hire and must accept shipments from anyone who wishes to use its services. Different laws and rules govern common carriers than those applicable to private or contract carriers that only transport the goods of those with whom they have made agreements.
Common Law distinguished from law created by enactment of statutes; common law comprises the body of principles and rules of action, which derive their authority solely from the judgments and decrees of the courts or from usages and customs of immemorial antiquity.
Community Rating the rating methodology required under some state laws in which premiums do not vary by age, sex, contract size, or other traditional rating variables but are determined by the geographic region's health and demographic profile.
Comparative Negligence a modification of the principle of contributory negligence. In those jurisdictions that follow the principle of comparative negligence, negligence on the part of the injured party will not necessarily defeat the claim, but will be considered in determining the amount of damages.
Compensation wages, salaries, awards, fees, commissions, financial returns of any kind.
Completed Operations a commercial liability insurance coverage applicable to liability arising out of work performed by the insured after such work has been finished.
Comprehensive a loosely used term signifying broad or extensive insurance coverage.
Comprehensive General Liability (CGL) a business liability policy that covers a variety of exposures in a single contract.
Comprehensive Major Medical Insurance a policy designed to give the protection offered by both a basic and major medical health insurance policy; it is characterized by a low “deductible” amount, coinsurance feature, and high or no maximum limit.
Comprehensive Personal Liability Insurance a type of insurance that reimburses the policyholder if he or she becomes liable to pay money for damage or injury he or she has caused to others; this form does not include automobile liability but does include almost every activity of the policyholder except business operations.
Concealment deliberate failure to reveal material facts that would affect the validity of a policy of insurance.
Concurrent covering the same kind of property at the same location under the same terms and conditions, with the same types of coverage, as two or more insurance policies.
Concurrent Causation a legal doctrine in property insurance that makes the insurer liable for damage when property is damaged by two causes, one of which is excluded and the other covered.
Concurrent Review A case management technique that allows insurers to monitor an insured's hospital stay and to know in advance if there are any changes in the expected period of confinement and the planned release date.
Conditionally Renewable a continuation provision in health insurance under which the insurer may not cancel the policy during its term but can refuse to renew under specified circumstances.
Conditions those provisions in insurance contracts that qualify the insurer's promise of indemnity or impose obligations on the insured.
Confining Sickness that which confines an individual to his or her home or a hospital (visits to physicians and hospitals are generally considered as not terminating confinement).
Conglomerate a group of corporations engaged in widely varied activities. In the insurance industry a conglomerate refers to a group of companies with noninsurance interests that purchases an insurance company.
Consequential Loss loss occurring after, and as a result of, some other loss, as loss of profits resulting from a fire or a loss of frozen foods resulting from electrical failure.
Consideration price, token, or other matter used as an inducement for the completion of a contract, as an insurance premium.
Constructive Total Loss a loss of sufficient amount to make the cost of salvaging or repairing the property equal to or greater than the value of the property when repaired.
Contingent conditional; depending on another happening; a contingent beneficiary is one next in line after the first named.
Contingent Beneficiary in life insurance, a beneficiary who is entitled to receive proceeds if the primary beneficiary has died.
Contract Bond a surety bond issued to support the obligation of one who is engaged to perform under a contract.
Contractual Liability legal liability assumed under contract.
Contribution a participation, as two insurance policies in the same loss.
Contribution by Equal Shares an “other insurance” provision under which two or more policies share equally in a loss until the limit of one policy is exhausted, with the unexhausted policy paying the loss in excess of this amount.
Contributory Negligence the lack of ordinary care on the part of an injured person, which combined with the defendant's negligence and contributed to the injury as a proximate cause. In some jurisdictions, contributory negligence on the part of an injured party will defeat his or her claim.
Convention Blank see Annual Statement.
Conversion wrongful appropriation to one's own use of property belonging to another.
Conversion Privilege privilege granted in an insurance policy to convert to a different plan of insurance without providing evidence of insurability.
Convertible Term Insurance term insurance that can be exchanged, at the option of the policyholder and without evidence of insurability for another plan of insurance.
Coordinated Care Plans term used under the Medicare Advantage program to refer to what have traditionally been called managed care plans.
Coordination of Benefits Provision a group health insurance policy provision designed to eliminate duplicate payments and provide the sequence in which coverage will apply when a person is insured under two contracts.
Copay an arrangement in which the covered person pays a specified amount for various services and the health care provider pays the remainder. Similar to coinsurance, except that coinsurance is usually a percentage of certain charges where the co-payment is a dollar amount.
Corridor Deductible in health insurance, a deductible under a major medical policy that applies after coverage under a base plan is exhausted.
Cost Containment the control or reduction of inefficiencies in the consumption, allocation, or production of health care services that contribute to higher than necessary costs.
Cost Contract A managed care contract payment method by which the Health Care Financing Administration (HCFA) pays for the delivery of health services to members based on the managed care organization's reasonable costs.
Cosurety a personal or corporate guarantor of a surety obligation on which one or more of the sureties are directly responsible for the same obligation.
Countersignature an additional signature required in most states to comply with resident agency laws; applies when a producer in one state controls business located in, or operating in, another state. Coverage the insurance afforded by the policy.
CPCU see Chartered Property Casualty Underwriter.
CPPA see Certified Professional Public Adjuster.
Credit Enhancement Insurance a form of coverage in which the insurer guarantees the payment of interest and/or principal of the insured in connection with debt instruments issued by the insured.
Credit Insurance See Trade Credit Insurance.
Credit Life Insurance term life insurance issued through a lender or lending agency to cover repayment of a specific loan, installment purchase, or other obligation in case of the debtor's death.
Crime a wrong against public laws or customs punishable by fine, imprisonment, or death after trial in a criminal court.
Crop-Hail Insurance protection for monetary loss resulting from hail damage to growing crops.
Crummey Rule a doctrine established by court decision in 1968 that holds annual contributions to the trust by the grantor will qualify as gifts as long as the trust beneficiaries are given the right to withdraw the contributions. If not withdrawn, the contributions are used to pay the premiums on life insurance on the grantor that is owned by the trust.
Currently Insured under OASDHI, the status of a worker who has at least 6 quarters of coverage out of the last 13 quarters and whose beneficiaries are entitled to “currently insured” benefits.
Custodial care care that is primarily for meeting personal needs such as help in bathing, dressing, eating or taking medicine. It can be provided by someone without professional medical skills or training but must be according to doctor's orders.
Cybersecurity Insurance insurance designed to mitigate losses from a variety of cyber incidents, including data breaches, network damage, and cyber extortion.
Daily Report a copy of that portion of an insurance contract dealing with the description of the risk and the amount of insurance, which is sent to the home office of the insurance company and retained in the agent's files.
Damages the amount claimed or allowed as compensation for injuries sustained or property damaged through the wrongful acts or the negligence of another; an award.
Declarations that part of an insurance policy containing the representations of the applicant.
Declination the rejection by a life insurance company of an application for life insurance, usually for reasons of the health or occupation of the applicant.
Deductible a provision whereby an insured may be required to pay part of a loss, the insurance being excess over the amount of the deductible.
Deferred Annuity an annuity providing for the income payments to begin at some future date, such as in a specified number of years or at a specified age.
Deferred Group Annuity a type of group annuity providing for the purchase each year of a paid-up deferred annuity for each member of the group, the total amount received by the member at retirement being the sum of these deferred annuities.
Defined Benefit Plan a pension plan in which the retirement benefit is defined and in which the employer's contribution is a function of that benefit.
Defined Contribution Plan a pension plan under which the payments into the plan are fixed, but the retirement benefit is variable; also called a money purchase plan.
Demutualization the process whereby a mutual insurance company converts to a capital stock company. Policyholders are generally offered a choice between stock in the new corporation or cash.
Dental Insurance a type of health insurance that covers dental care expenses.
Dependency Period the period during which children will be dependent on a surviving parent.
Deposit Administration a type of group annuity providing for the accumulation of contributions in an undivided fund out of which annuities are purchased as the individual members of the group retire.
Deposit Premium an original premium paid by the insured at the inception date of the policy; estimated premium, subject to later adjustment; see Audit Premium.
Depreciation the lessening of value through age, deterioration, and obsolescence.
Derivative a financial instrument whose price is derived from the value of commodity prices, interest rates, stock market prices, foreign exchange rates, or insurance indexes.
Deviate to file or use a rate that is based upon but departs from a standard bureau rate.
Diagnosis-Related Groups (DRGs) standard categories of treatment used in a system that reimburses health care providers fixed amounts for all care given in connection with specific treatments.
Difference In Conditions (DIC) Insurance a broad form of open-perils property insurance written as an adjunct to policies that cover named perils.
Direct Loss loss resulting directly and immediately from the hazard insured.
Direct Recognition a system of life insurer dividend distribution in which dividend on a policy is reduced by recognizing the difference between the interest on outstanding policy loans and the amount of investment income that would otherwise be earned on the funds.
Direct Writer an insurance company that deals directly with the insured through a salaried representative, as opposed to those insurers that use agents; also used to refer to insurers that operate through exclusive agents; in reinsurance, the company that originally writes the business.
Disability inability to perform all or part of one's occupational duties because of an accident or illness; see Total Disability and Partial Disability.
Disability Benefit a provision added to a life insurance policy for waiver of premium, and sometimes payment of monthly income, if the insured becomes totally and permanently disabled.
Disability Income Insurance a form of health insurance that provides periodic payments to replace lost income when the insured is unable to work because of illness or injury.
Discovery Period the period after termination of an insurance policy or bond, or after the occurrence of a loss, within which the loss must be discovered to be covered.
Dismemberment accidental loss of limb or sight.
Distress Insurer an insurance company specializing in substandard risk, usually in the field of automobile insurance.
Dividend in insurance contracts, the refund of a part of the premium paid at the beginning of a year that still remains after the company has made deductions for losses, expenses, and additions to reserves.
Dividend Addition an amount of paid-up insurance purchased with a policy dividend and added to the face amount of the policy.
Dodd-Frank Wall Street Reform and Consumer Protection Act legislation enacted in 2010 in response to the 2008-2009 global financial crisis. It made significant changes to the regulation of the financial services industry Also known as the Dodd-Frank Act.
Domestic Insurer a name given to a company in the state of its incorporation, as an Iowa company is domestic in the state of Iowa, foreign as to all other states, and alien as to all other countries.
Double Indemnity a provision under which certain benefits are doubled when an accident is due to specified circumstances, such as public conveyance accidents; in a life insurance policy a provision that the face amount payable on death will be doubled if the death is a result of an accident.
Dread Disease Policy a limited form of health insurance that pays for treatment of specified diseases such as cancer.
Dram-Shop Law a state statute that imposes liability on sellers of alcoholic beverages in the event that the buyer causes bodily injury to another or in some cases, to himself or herself.
Duplication of Benefits overlapping or identical coverage of the same insured under two or more health plans, usually the result of contracts of different insurance companies, service organizations or prepayment plans; also known as multiple coverage.
Early Warning System a system of measuring insurers' financial stability setup by insurance industry regulators. An example is the Insurance Regulatory Information System (IRIS), which uses financial ratios to identify insurers in need of regulatory attention.
Earned Premium premium for which protection has been provided. When a premium is paid in advance for a policy period, the company “earns” a portion of that premium only as time elapses during that period.
Economatic Ordinary Life See Enhanced Ordinary Life.
Education IRA a mechanism for saving for the cost of higher education created by the Tax Reform Act of 1997, under which nondeductible contributions compound free from taxes and for which withdrawals for education expenses are also tax free.
Effective Date the date on which the policy is put in force; the inception date.
Effective Benefit a benefit payable in lieu of another (e.g., a lump sum benefit may be allowed for specified fractures or dislocations in lieu of weekly indemnity).
Eligibility Period in group insurance, a period during which group members may enroll in the plan without providing evidence of insurability.
Elimination Period (also sometimes called “waiting period” or “probation period”) a provision designed to eliminate disability claims for the first number of days specified for each period of disability; the elimination period may run from 3 days to as long as 1 year: this term is also sometimes used to refer to a period of time after policy issuance during which specified conditions are not covered.
Employee Retirement Income Security Act (ERISA) a 1974 federal statute that establishes minimum standards for pension plans.
Employers Liability legal liability imposed on an employer making him or her responsible to pay damages to an employee injured by the employer's negligence. Generally, replaced by “workers compensation,” which pays the employee whether the employer has been negligent or not.
Employment Practices Liability Coverage liability insurance for employers that covers wrongful termination, discrimination, or sexual harassment toward the insured's employees or former employees.
Endorsement a written amendment affecting the declarations, insuring agreements, exclusions, or conditions of an insurance policy; a rider.
Endowment Insurance insurance payable to the insured if he or she is living on the maturity date stated in the policy, or to a beneficiary if the insured dies prior to that date.
Enhanced Ordinary Life a type of participating life insurance that uses policy dividends to provide some form of level constant coverage at a relatively low premium. Usually, dividends are used to purchase paid-up whole-life additions as the face amount of insurance automatically reduced. The policies are offered under names such as “Economatic” or “Extra Ordinary Life.”
Environmental Impairment Liability (EIL) liability arising out of pollution.
Equipment Value Insurance (EVI) insurance designed to protect businesses against a decline in the value of certain types of property.
Equity Indexed Annuity See Index Annuity.
Equivalent Level Annual Dividend the average of annual life insurance policy dividends for a specified period, adjusted for interest at a specified rate.
Errors and Omissions Insurance professional liability insurance for individuals in professions such as accounting, insurance, law, or real estate, where the exposure is primarily a property damage one as opposed to bodily injury.
Essential Benefits a basic package of benefits required by PPACA to be included in health insurance plans sold in 2014 and later years. Benefits include hospitalization, outpatient services, maternity care, prescription drugs, emergency care, preventive services, and other benefits.
Estate possessions of a deceased person; possessions of a minor or incompetent person; possessions of a bankrupt person or corporation; worldly goods of anyone.
Estoppel an admission or declaration by which a person is prevented from proving the contrary.
Evidence of Insurability any statement of proof of a person's physical condition and/or other factual information affecting his/her acceptance for insurance.
Excess that which goes beyond, as excess insurance, over and above a primary amount.
Excess of Loss Reinsurance a form of reinsurance whereby the reinsuring company reimburses the ceding company for the amount of loss the ceding company suffers, over and above an agreed aggregate sum in any one loss or in a number of losses arising out of any one event.
Exclusion that which is expressly eliminated from the coverage of an insurance policy.
Exclusive Agency System an insurance marketing system under which the agent represents a single company or company group.
Expectation of Life (life expectancy) the average number of years of life remaining for persons of a given age according to a particular mortality table.
Expected Loss Ratio the percentage of the final rate allocated for the payment of losses.
Expense Ratio the proportionate relationship of an insurer's expenses to premium expressed as a percentage.
Experience Rating an insurance pricing system in which the insured's past experience determines the premium for the current protection.
Expiration the date on which an insurance policy terminates unless continued or renewed by an additional premium.
Exposure unit of measurement to which an insurance rate is applied.
Extended Coverage Insurance a standard package of perils usually sold in conjunction with the peril of fire; includes the perils of windstorm, hail, smoke, explosion, riot, riot attending a strike, civil commotion, vehicle, and aircraft.
Extended Term Insurance a form of insurance available as a nonforfeiture option; it provides the original amount of insurance for a limited period of time.
Extended Unemployment Insurance Benefits additional unemployment benefits under a state-federal program payable during periods of high unemployment to workers who have exhausted their regular benefits.
Extra Expense Insurance a form of indirect loss property insurance that pays for the increased costs of continuing operations following damage to property by an insured peril.
Face Amount the amount stated on the face of a life insurance policy that will be paid in case of death or at the maturity of the contract; it does not include dividend additions, or additional amounts payable under accidental death or other special provisions.
Facultative Reinsurance reinsurance effected item by item and accepted or declined by the reinsuring company after scrutiny as opposed to reinsurance effected by treaty.
Fair Access to Insurance Requirements (FAIR) Plan state pools designed to provide insurance to property owners who are unable to obtain property insurance because of the location of their property or other factors over which they have no control.
Family Income Policy a life insurance policy combining whole life and decreasing term insurance, under which the beneficiary receives income payments to the end of a specified period if the insured dies prior to the end of the period, and the face amount of the policy either at the end of the period or at the death of the insured.
Family Maintenance Policy life insurance that pays, in addition to the face of the policy a monthly income for a period commencing with the insured's death and continuing for the number of years specified; the period is most often 10, 15, or 20 years.
Family Policy a life insurance policy providing insurance on all or several family members in one contract, generally whole-life insurance on the wage earner and smaller amounts of term insurance on the spouse and children, including those born after the policy is issued.
Family Purpose Doctrine a legal doctrine that imposes vicarious liability on the head of the family for operation of a family car by family members.
Federal Flood Insurance a federally subsidized flood insurance program enacted in 1968 under which flood insurance is available in areas that meet specific conditions.
Federal Insurance Administration a government office responsible for the supervision of the Federal Flood Insurance Program.
Fee-for-service in health insurance, a financing arrangement under which physicians and other providers receive payment from an insurer based on their billed charges for each service provided.
Fellow Servant one who serves and is controlled by the same employer; also those engaged in the same common pursuitunder the same general control.
Fellow Servant Rule rule that a master is not liable for injuries to a servant caused by the negligence of a fellow servant engaged in the same general business and where the master has exercised due care in the selection of servants.
Fidelity Bond a contract of fidelity insurance; a guarantee of personal honesty of the person furnishing indemnity against defalcation or negligence; a form of insurance or suretyship that protects a party against loss from the dishonesty of employees.
Fiduciary a person or corporation having the duty created by undertaking to act primarily for another's benefit in matters connected with such undertaking, or an agent handling the business of another when the business he or she transacts or the money or property being handled is not his or her own or for his or her own benefit.
Field Supervisor a salaried employee of an insurance company, whose responsibilities are (1) production of new business through existing agents, (2) the appointment of new agents, (3) general supervision of the company's affairs in his or her territory.
File and Use Law a system of rate regulation in which rates may be used immediately by an insurer once they are filed with the state regulatory authority. The supervisory authority may later disapprove and rescind the rates.
Financial Guarantee Insurance a form of coverage in which the insurer guarantees the payment of interest and/or principal of the insured in connection with debt instruments issued by the insured.
Financial Responsibility Law a statute that requires motorists to show evidence of financial responsibility following an accident that involves bodily injury or property damage in excess of some amount; normally, proof of financial responsibility is given through a valid policy of insurance.
Fire as used in insurance contracts, combustion proceeding at a rate rapid enough to generate a flame, glow, or incandescence.
Fire Insurance coverage for losses caused by fire and lightning, as well as the resultant damage caused by smoke and water.
Fire Legal Liability a form of liability insurance that covers damage to leased or rented property caused by fire or other specified perils.
Fleet a group, as of automobiles.
Flexible Benefits under a cafeteria plan, selected benefits that qualify for pretax treatment.
Floater a marine or fire policy, the coverage of which follows the movement of the property insured.
Flood overflow of water from its natural boundaries. More specifically defined by the National Flood Act of 1968 as “a general and temporary condition of partial or complete inundation of normally dry land areas from (1) the overflow of inland or tidal waters, or (2) the unusual and rapid accumulation or runoff of surface waters from any source.”
Foreign Insurer an insurance company that is chartered in another state.
Franchise Insurance a class of life insurance in which individual policies are issued to members of a group, with an employer or other body collecting and/or remitting the premiums.
Fraternal Insurance certain fraternal organizations have a form of cooperative life or disability insurance that is available to members of the fraternal organization.
Friendly Fire a fire confined to the place it is supposed to be in (e.g., in a stove or similar place).
Fronting an arrangement in which a primary insurer acts as the insurer of record by issuing a policy, but then passes the entire risk to a reinsurer in exchange for a commission. Often, the fronting insurer is licensed to do business in a state or country where the risk is located, but the reinsurer is not.
Fully Insured under OASDHI, the status of a worker who has 40 quarters of coverage or one quarter of coverage for each year after 1950 or after age 21, if later, and who is entitled to “fully insured” benefits.
Gatekeeper in health care, a primary care physician who performs initial diagnosis and refers the participant to specialist members of a provider network.
General Average in marine insurance, a loss that must be borne partly by someone other than the owner of the goods that were lost or destroyed; for example, if it is necessary to jettison cargo to save a ship, the owners of the ship and the rest of the cargo that is saved will share in the loss of the goods that were intentionally sacrificed.
General Damages amounts awarded in litigation to compensate for pain and suffering and other noneconomic loss.
Grace Period the period of time following the due date of a policy premium during which the payment of the premium will continue the policy and during which the policy is in full force and effect.
Graded Commission a reduced commission justified by the size of the premium.
Graded Expense a reduced expense item for the insurance company justified by the size of the premiums.
Graded Premium Whole Life a whole-life contract for which the initial premium is low, but increases yearly until it levels off sometime between the tenth and twentieth years.
Gramm–Leach–Bliley Act the Financial Services Modernization Act of 1999, which removed Depression-era prohibitions against the combination of commercial banking and investment-banking activities. It allows insurance companies, banks, and securities firms to affiliate with one another.
Gratuitous made without a consideration, as a gift requiring nothing in return.
Gross Premium the premium for insurance that includes the provision for anticipated losses (the pure premium) and for the anticipated expenses (loading).
Group Annuity a pension plan providing annuities at retirement to a group of persons under a single master contract, with the individual members of the group holding certificates stating their coverage; it is usually issued to an employer for the benefit of employees.
Group Insurance any insurance plan under which a number of employees and their dependents are insured under a single policy, issued to their employer, with individual certificates given to each insured employee; the most commonly written lines are life and accident and health.
Guaranteed Investment Contract (GIC) investment instruments issued by insurers to pension plans that are similar to the certificates of deposit issued by commercial banks.
Guaranteed Issue a requirement that insurers sell an insurance policy to any person who requests coverage.
Guaranteed Renewable Policy a policy that the insured has the right to continue in force by the timely payment of premiums to a specified age (usually age 50), during which period the insurer has no right to make unilaterally any change in any provision of the policy while the policy is in force, but may make changes in premium rates by policy-holder class.
Guest Laws state statutes that limit the right of action of an injured guest passenger in an automobile against the driver to instances of gross negligence or willful and wanton negligence.
Hard Market a seller's market in which insurance is expensive and in short supply.
Hazard a condition that creates or increases the probability of a loss.
Hazard, Moral the increase in the chance of loss caused by dishonest tendencies on the part of an insured.
Hazard, Morale the increase in the chance or loss or in the amount of loss that results from an attitude of carelessness or indifference simply because the loss will be paid by insurance.
Health Employer Data and Information Sets (HEDIS) a standardized set of performance measures that assess managed care plans' performance on a number of elements, including such things as financial stability access and quality of care. HEDIS enables purchasers and consumers to readily compare the performance of managed care plans. It is sponsored, supported, and maintained by the National Committee for Quality Assurance (NCQA).
Health Insurance a generic term applying to all types of insurance indemnifying or reimbursing for losses caused by bodily accident or sickness or for expenses of medical treatment necessitated by sickness or accidental bodily injury.
Health Insurance Portability and Accountability Act a federal law enacted in 1996 which eased the “job lock” problem by making it easier for individuals to move from job to job without the risk of being unable to obtain health insurance or having to wait for coverage due to pre-existing medical conditions.
Health Maintenance Organization (HMO) a prepaid medical group practice plan for the provision of health care, in which individual subscribers pay an annual fee in return for entitlement to a wide range of health services. HMOs are both insurers and providers of health care.
HIPAA See Health Insurance Portability and Accountability Act.
Health Savings Account a tax-advantaged savings account for qualified medical and retiree health expenses. It is available to taxpayers enrolled in a high-deductible health plan (HDHP). The funds contributed to the account are not subject to federal income tax at the time of deposit and funds roll over and accumulate year to year if not spent.
Hold-Harmless Agreement a contract usually written such that one party assumes legal liability on behalf of another party.
Home Service Life Insurance See Monthly Debit Ordinary Life Insurance.
Hospital Indemnity a form of health insurance that provides a stipulated daily weekly or monthly indemnity during hospital confinement without regard to the actual expense of hospital confinement.
Hostile Fire a fire burning where none is intended.
Hull Insurance in ocean marine and aviation insurance, coverage for physical damage to a vessel or aircraft.
ILS See Insurance-Linked Securities.
Immediate Participation Guarantee (IPG) Plan a type of insured pension plan under which gains and losses from mortality or investments are segregated from the rest of the insurer's operations and credited directly to the employer's account. See Harris Trust Decision.
Improvements and Betterments Insurance insurance that protects a tenant against loss to improvement made by him or her to property in which he or she is a tenant.
Incontestable Clause a provision that prevents the insurer from challenging the coverage because of alleged misstatements by the insured after a stipulated period has passed, usually two or three years.
Incurred Losses losses actually sustained during a fixed period, usually a year. Incurred losses are customarily computed by the formula: losses paid during the period, plus outstanding losses at the end of the period, less outstanding losses at the beginning of the period.
Indemnity, Principle of a general legal principle related to insurance that holds that the individual recovering under an insurance policy should be restored to the approximate financial position he or she was in prior to the loss.
Independent Adjuster one who adjusts losses on behalf of companies but is not employed by any one. He or she is paid by fee for each loss adjusted.
Independent Agent a person operating under the American Agency System, representing several property and liability insurers, and dividing the policies he or she writes among the various companies represented.
Independent Contractor one who performs work for another in his or her own manner and method, and who is not subject to the control or direction of the party for whom the work is performed; he or she is not an employee of the party for whom the work is performed.
Indeterminate Premium Life Insurance life insurance in which the premium may be adjusted upward or downward after inception, subject to a maximum premium stated in the policy.
Index Annuity a fixed annuity that earns interest or provides benefits that are linked to the performance of an equity index, such as the S & P 500.
Indirect contingent; that which happens only after something else has occurred.
Individual Policy Pension Trust a type of pension plan, frequently used for small groups, administered by trustees who are authorized to purchase individual level premium policies or annuity contracts for each member of the plan; the policies usually provide both life insurance and retirement benefits.
Individual Retirement Account (IRA) a tax-sheltered retirement plan established by an individual under which earnings accumulate tax free until distributed. Contributions up to $2250 are deductible for some persons.
Industrial Development Bond Insurance insurance designed to guarantee prompt payment of principal and interest on industrial development bonds.
Industrial Life Insurance life insurance issued in small amounts, usually less than $1000, on a single life exclusive of additional benefits, with premiums payable on a monthly or more frequent basis, and generally collected at the insured's home by an agent of the company.
Inherent Vice a characteristic depreciation such as the fading of ink, a cracking of parchment, the graying of hair.
Injury Independent of All Other Means an injury resulting from an accident, provided that the accident was not caused by an illness.
Inland Marine Insurance a broad type of insurance, generally covering articles that may be transported from one place to another; the essential condition is that the insured property be movable, though bridges, tunnels, and similar instrumentalities of transportation are also considered inland marine.
Insolvency Fund state plans created by law to guarantee payment of liabilities of insolvent insurers.
Inspection an examination by those having authority; right usually reserved by an insurance company with respect to any property it insured.
Insurable Interest an interest that might be damaged if the peril insured against occurs; the possibility of a financial loss to an individual that can be protected against through insurance.
Insurance an economic device whereby the individual substitutes a small certain cost (the premium) for a large uncertain financial loss (the contingency insured against) that would exist if it were not for the insurance contract; an economic device for reducing and eliminating risk through the process of combining a sufficient number of homogeneous exposures into a group in order to make the losses predictable for the group as a whole.
Insurance Linked Securities financial instruments whose performance is primarily driven by insurance and/or reinsurance loss events. A catastrophe bond is an example of an insurance-linked security.
Insurance Purchasing Group a group of firms or other organizations that band together under the provisions of the Risk Retention Act of 1986 for the purpose of buying insurance collectively.
Insurance Regulatory Information System (IRIS) a computerized model designed by the National Association of Insurance Commissioners for the detection of potential insurer insolvencies before they occur through analysis of selected audit ratios.
Insurance Services Office (ISO) the principal advisory organization for property and liability insurers.
Insured in life insurance, the person on whose life an insurance policy is issued; in property and liability insurance, the person to whom or on whose behalf benefits are payable under the policy.
Integration a coordination of retirement or disability benefits with benefits payable under Social Security through a specific formula.
Interest-Adjusted Method a means of measuring differences in cost among life insurance policies that considers the time value of money.
Interest-Sensitive Whole Life a participating life insurance policy in which the dividends are geared to current money rates. Some insurers guarantee a particular rate for the first few years of the policy.
Internet Liability Insurance See cybersecurity insurance.
Intestate leaving no will at death.
Investment Generation Method (IGM) a dividend allocation approach used in life insurance that recognizes the year (or generation of policies) during which money was invested by the policyholder in determining the dividend; See Portfolio Average Method.
Invitee a person having an express or implied invitation to enter a given location.
Irrevocable Beneficiary a beneficiary designation that may be changed only with the consent of the beneficiary.
Irrevocable Life Insurance Trust A type of living trust used to avoid the incidents of ownership in a life insurance contract that makes the insurance proceeds taxable under the federal state tax. The basic function of the trust is to own life insurance policies covering the grantor.
Joint Insured one of two or more persons whose names or interests are insured under the same or identical contracts.
Joint-and-Last-Survivor Annuity an annuity issued on two lives under which payments continue in whole or in part until both have died.
Joint-and-Several Liability a judgment obtained against multiple tort feasors that may be enforced against the tort feasors collectively or individually; permits the injured party to recover the entire amount of compensation due for injuries from any tort feasor who is able to pay regardless of the degree of that party's negligence.
Joint-Life Annuity an annuity issued on two lives under which payments cease at the death of either of the two persons.
Joint Mortgage Protection Policy decreasing term life insurance written on the lives of two persons, with the insurance payable at the death of the first.
Joint Underwriting Association (JUA) a loss-sharing mechanism used in some states to provide insurance to high-risk drivers.
Judgment the decision of a court or the reason for such decision.
Judgment Rating the process of determining the rate for a coverage without the benefit of extensive loss experience or statistical information.
Judicial Bond a surety bond required in court proceedings.
Jumbo Risk a risk requiring exceptionally high benefit limits.
Jumping Juvenile Insurance permanent life insurance on children under which the face amount automatically increases to a multiple of the initial amount when the child reaches a specified age.
Keogh Plan a tax-qualified retirement plan for self-insured individuals similar in most respects to qualified corporate pensions.
Key-Persons Insurance a life insurance program designed to cover the key employees of an employer; it may be written on a group or individual policy basis.
Kidnap/Ransom Insurance insurance that cover the cost of ransom or extortion payments and related expenses. Policies generally require that the policyholder not reveal the coverage's existence.
Lapse termination of a policy due to failure by the insured to pay the premium as required.
Lapsed Policy a policy discontinued for nonpayment of premiums; the term is technically limited to a termination occurring before a life insurance policy has a cash or other nonforfeiture value.
Last Clear Chance an exception to the doctrine of contributory negligence that makes a person who has a final opportunity to avoid an accident and fails to do so legally liable.
Law of Large Numbers the theory of probability that is the basis for insurance; the larger the number of exposure units, the more closely will the actual results obtained approach the probable results expected from an infinite number of exposures.
Leasehold Interest an intangible use interest that exists when the provisions of a lease stipulate a rental that is greater or less than the prevailing market price of renting similar facilities.
Legal Reserve Life Insurance Company a life insurance company operating under state insurance laws specifying the minimum basis for the reserves the company must maintain on its policies.
Level Premium Insurance life insurance for which the cost is distributed evenly over the premium paying period: the premium remains constant from year to year, and is more than the actual cost of protection in the earlier years of the policy and less than the actual cost in the later years; the excess paid in the early years accumulates the reserve.
Liability a debt or responsibility; an obligation that may arise by a contract made or by a tort committed.
License and Permit Bond a surety bond required of persons who obtain certain licenses and permits that guarantees that the individual will comply with laws and regulations pertaining to the license or permit.
Licensee a person on one's property with stated or implied permission but not to further the purposes of the landholder. The property owner is obligated to warn a licensee of any dangers the licensee might not be expected to know about.
Life Annuity a contract that provides an income for the life of the annuitant.
Lifetime Disability Benefit a benefit for loss of income payable as long as the insured is totally disabled, even for life.
Limited Payment Life Insurance a form of whole-life insurance on which premiums are payable for a specified number of years less than the period of protection, or until death, if death occurs before the end of the specified period.
Limited Policies those that cover specified accidents or sickness.
Limits the value or amount of a policy; the greatest amount that can be collected under the policy.
Livery in automobile insurance, the carrying of passengers for hire.
Living benefits rider a rider attached to a life insurance policy that provides LTC benefits or benefits for the terminally ill. The benefits provided are derived from the available life insurance benefits.
Lloyd's a voluntary unincorporated association of individuals organized for the purpose of writing insurance; normally refers to Lloyd's of London, a group of individual underwriters and syndicates that underwrite insurance risks severally using facilities maintained by the Lloyd's of London Corporation.
Loading that part of an insurance rate designed to cover expenses, profit, and a margin for contingencies: in some instances, an additional amount added to an insurance rate because of some extraordinary hazard or expense.
Local Agent a producer of insurance whose activities are purely of local extent.
Long-Term Care Insurance health insurance coverage designed to cover the cost of custodial care in nursing homes or extended care facilities.
Long-Term Disability a generally accepted period of time for more than two years—can vary according to company standards.
Loss the unintentional decline in, or disappearance of, value due to a contingency.
Loss Frequency the number of claims on a policy during a premium period.
Loss Ratio the proportionate relationship of incurred losses to earned premiums expressed as a percentage.
Loss Reserves an estimated liability in an insurer's financial statement, indicating the amount the insurer expects to pay for losses that have taken place but which have not yet been paid.
Losses Incurred But Not Reported (IBNR) losses resulting from accidents that have taken place but on which the company has not yet received notice or report of the loss.
Low-Load Life Insurance a life insurance contract on which the commission for the first and subsequent years is lower than the traditional commission rates.
Major Medical Expense Insurance policies especially designed to help offset the heavy medical expenses resulting from catastrophic or prolonged illness or injury; they provide broad coverage for medical expenses and a high or no maximum limit.
Malpractice alleged professional misconduct or lack of ordinary skill in the performance of a professional act. A practitioner is liable for damage or injuries caused by malpractice.
Managed Health Care a system of health care delivery that tries to manage the cost of health care, the quality of that health care, and access to that care. Features typically include a panel of contracted providers that is less than the entire universe of available providers, some type of limitations on benefits to subscribers who use noncontracted providers (unless authorized to do so), and some type of authorization system.
Mandated benefits in health insurance, benefits required by state or federal law.
Manual a book of rates, rules, and coverages usually available for each kind of insurance.
Marine pertaining to the sea or to transportation; usually divided as to “ocean marine” and “inland marine”; the insurance covering transportation risks.
Mass Merchandising the sale of group property and liability insurance, generally through an employer.
Material Fact information about the subject of insurance that if known would change the underwriting basis of the insurance, and that would cause the insurer to refuse the application or charge a higher rate.
Medicaid state programs of public assistance to persons regardless of age whose income and resources are insufficient to pay for health care. Title XIX of the federal Social Security Act provides matching federal funds for financing state Medicaid programs.
Medical Information Bureau (MIB) an organization to which life insurers report health impairments of applicants for life insurance; the information is then available to member companies for underwriting purposes.
Medical Loss Ratio The percentage of health insurance premiums spent by the insurance company on health care services. PPACA requires that large group plans spend 85% of premiums on clinical services and other activities for the quality of care for enrollees. Small group and individual plans must devote 80% of premiums to these purposes.
Medical Payments an additional coverage included in some liability contracts under which the insurer agrees to reimburse injured persons for medical expenses.
Medical Savings Account a fund into which individuals make tax-sheltered contributions to cover medical expenses that is used in connection with a high deductible health insurance policy to cover the expenses that fall within the policy deductible.
Medicare hospital and medical expense insurance provided under the Social Security system.
Medicare Advantage Plan an HMO, PPO, or Private Fee-For-Service Plan that contracts with Medicare to provide Part A and Part B benefits to subscribers; a Medicare Advantage Prescription Drug Plan also includes drug benefits.
Medicare Select Policy a Medicare Supplement policy under which insureds must use a preferred provider organization (except in emergency situations) to receive full benefits.
Medicare+Choice a major initiative in the Balanced Budget Act of 1997 (also called Medicare Part C), under which Medicare beneficiaries may select from among several managed care options or a Medical Savings Account.
Medicare Supplement Policy Medical expense insurance designed to dovetail with and supplement insurance under the federal Medicare system.
Medigap private health insurance products that supplement Medicare insurance benefits.
MET see Multiple Employer Trust.
MEWA see Multiple Employer Welfare Arrangement.
Minimum Premium Plan in group health insurance, a cost-plus arrangement in which an employer pays the insurer only a portion of the premium which is to be used for administration costs. The remainder is placed in a bank account which is then used by the insurer to pay claims.
Miscellaneous Hospital Expense a provision for the payment on a blanket basis or schedule basis of hospital services (other than room and board, special nursing care, and doctors fees) up to a stipulated maximum amount.
Misrepresentation a misstatement: if done with intent to mislead, it may void the policy of insurance.
Misstatement of Age Clause in life and health insurance, a policy provision requiring an adjustment in the amount of insurance when the insured has misstated his or her age.
Modified Endowment Contract (MEC) a life insurance contract that does not meet the requirements specified in the Internal Revenue Code and on which a withdrawal of investment earnings by a cash surrender or loan before age 59 1/2 is subject to penalty.
Modified Own Occupation a coverage definition in disability income policies under which benefits are payable if the insured cannot perform the duties of his or her own occupation and is not working in any gainful employment.
Modified Whole Life a form of whole-life insurance with a lower than usual initial premium that increases after 3 to 5 years.
Money Market Fund Insurance private insurance that protects insured investors in a money market mutual fund against loss in the event the fund fails or the issuers of investments held by the fund default.
Monthly Debit Ordinary (MDO) Life Insurance a marketing approach similar to industrial life insurance, characterized by relatively low face amounts of cash value life insurance with high premiums where the agents call door-to-door on customers both to sell the products and to collect monthly premiums. Also called home service life insurance.
Moral Hazard a dishonest predisposition on the part of an insured that increases the chance of loss.
Morale Hazard a careless attitude on the part of an insured that increases the chance of loss or causes losses to be greater than would otherwise be the case.
Morbidity The incidence and severity of sickness and accidents in a well-defined class or classes of persons.
Morbidity Table a statistical table showing the probable incidence and duration of disability.
Mortality Table a statistical table showing the probable rate of death at each age, usually expressed as so many per thousand.
Mortgage a deposit or conditional transfer to secure the performance of some act; the person who makes the transfer is called the “mortgagor,” the other party, the “mortgagee”; sometimes an intermediary called a “trustee” is appointed.
Multiple Employer Trust (MET) a legal trust established by a plan sponsor that brings together a number of small, unrelated employers for the purpose of providing group medical coverage on an insured or self-funded basis.
Multiple Employer Welfare Arrangement (MEWA) a multiple employer trust that provides health and welfare benefits to the employees of a number of employers under the provisions of the Employee Retirement Income Security Act (ERISA).
Multiple-Line Insurance policies that combine many perils previously covered by individual policies of fire and liability companies; the homeowners policy is one example; other examples are the commercial portfolio package policy and the farm coverage program.
Municipal Bond Guarantee Insurance a form of coverage sold to municipalities under which the insurer guarantees the payment of interest and principal on bonds issued by the municipality.
Municipal Lease Insurance a form of coverage sold to municipalities that ensures the municipality's lessors the prompt payment of principal and interest on municipal lease financing.
Mutual Insurance Company a nonprofit insurer, without capital stock, that is owned by the policyholders; it may be incorporated or unincorporated.
Mutual Insurance Holding Company an organization form under which a holding company organized as a mutual owns a capital stock insurer. Mutual insurance holding companies are organized under special state mutual insurance holding company laws.
Named Insured the person designated in the policy as the insured, as opposed to someone who may have an interest in a policy but not be named.
Named Peril Coverage property insurance that covers losses that result from specifically named causes; see Open Perils.
National Association of Insurance Commissioners a national organization of state officials who are charged with the regulation of insurance; although the organization has no official power, it exerts a strong influence through its recommendations.
National Committee for Quality Assurance (NCQA) a nonprofit organization that evaluates and accredits managed care plans. It is also responsible for implementing the Health Employer Data and Information Sets (HEDIS) data reporting system, that provides standardized performance measures for managed care plans.
Nationwide Marine Definition a classification of insurance coverages developed by the National Association of Insurance Commissioners to delineate marine insurance from other lines of insurance.
Negligence failure to exercise the degree of care that would be expected from a reasonable and prudent person.
Net Payment Cost Index in life insurance, a measure of cost of a life insurance policy maintained in force until death, with allowance for interest at some rate.
Net Retention the final amount of insurance retained by the insurance company after reinsuring such amounts as it did not wish to retain.
No-Fault Insurance a form of first party insurance written in conjunction with a no-fault law. Under a no-fault law, the person causing injury is granted immunity from tort action and the person injured must collect for his or her loss from his or her own insurer.
No-Load Life Insurance a life insurance policy on which no commission is payable; available from a limited number of insurers.
Nonadmitted Insurer an insurer that has not been licensed to write insurance in a given jurisdiction.
Noncancelable or Noncancelable and Guaranteed Renewable Policy a continuous term health insurance policy that guarantees the insured the right to renew for a stated number of years or to a stated age (usually 60 or 65), with the premium at renewal guaranteed.
Nonconcurrency a condition that exists when two or more policies covering the same property are written subject to different provisions.
Nonconfining Sickness a sickness that does not confine the insured to his or her home or a hospital.
Noncontributory Plan a group insurance or pension program under which the employer pays the entire cost.
Nondisabling Injury an injury that does not cause total or partial disability.
Nonforfeiture Option privilege available to the policyholder based upon his or her interest in the contract or once cash value has been created.
Nonoccupational Policy one that does not cover loss resulting from accidents or sickness arising out of or in the course of employment or covered under any workers compensation law.
Nonparticipating Insurance policy insurance on which the premium is calculated to cover as closely as possible the anticipated cost of the insurance protection and on which no dividends are payable to the insured.
Obligee the person in favor of whom some obligation is contracted, whether such obligation be to pay money, or to do, or not do something; the party to whom a bond is given.
Obligor the person who has engaged to perform some obligation; one who makes a bond; the bonding company.
Occupational Disease a disease or condition of health that results from performance of an occupation; examples include psittacosis, mercury poisoning, dust collection in the lungs, and the like; in most states occupational disease is now covered as part of the workers compensation exposure.
Occupational Safety and Health Act of 1970 (OSHA) a federal statute establishing safe and healthy working conditions on a nationwide basis. The act sets job safety and health standards enforced by Labor Department safety inspectors and also provides for compilation of relevant statistics on work injuries and illness.
Occurrence a happening that occupies some length of time, as an individual catching cold after sitting in a draft in a theater all evening; sometimes a series of accidents; see Accident.
Occurrence Form a liability insurance policy under which coverage applies to injuries or damage sustained, during the policy period, regardless of when the claim is made; see Claims-made Form.
Ocean Marine Insurance coverage on all types of vessels, including liabilities connected with them, and on their cargoes; the cargo coverage has been expanded to protect the owners from warehouse to warehouse, inclusive of all intermediate transit by rail, truck, or otherwise.
Omnibus Clause archaic term formerly used to refer to a provision in liability contracts that extends coverage to other persons not named in the policy.
Open Form a continuous policy written on a reporting basis.
Open Perils a term used to describe a broad form of property insurance in which coverage applies to loss arising from any fortuitous cause other than those perils or causes specifically excluded. This is in contrast to other policies that name the peril or perils insured against; see All-Risk.
Optionally Renewable in health insurance, a contract in which the insurer reserves the right to terminate coverage at an anniversary or premium-due date.
Ordinary Life Insurance a form of whole-life insurance usually issued in amounts of $1000 or more with premiums payable on an annual, semiannual, quarterly or monthly basis to the death of the insured or to the end of the mortality table employed, whichever occurs first and at which time (benefits) proceeds are due; the term is also used to mean straight life insurance.
Organized Delivery System see Integrated Delivery System.
Original Medicare Plan refers to Parts A and B of Medicare, which pay benefits for services received from any health care provider who accepts Medicare.
Outage Insurance a boiler and machinery consequential loss coverage covering loss during the period a specified object is inoperable as a result of an accident.
Overhead Disability Insurance a type of short-term disability income contract that reimburses the insured person for specified, fixed monthly expenses, normal and customary in the operation and conduct of his/her business or office.
Own Occupation in disability insurance, a term that defines the most liberal wording of the total disability requirement. It applies a single test in determining whether the insured is totally disabled; whether the insured is able to perform the duties of his or her own occupation.
Ownership of Expiration exclusive right on the part of a property and casualty insurance agent operating under the American Agency System to the records of dates and details of expiring policies.
P&I Insurance see Protection and indemnity insurance.
Package Policy a combination of the coverages of two or more separate policies into a single contract.
Paid-up Insurance insurance on which all required premiums have been paid; the term is frequently used to mean the reduced paid-up insurance available as one of the nonforfeiture options.
Parol Evidence Rule when the parties to a contract have purported to embody their contract in writing, that writing is the contract and all of the contract; therefore no evidence is admissible to prove any terms of the contract different from, or in addition to, those set forth in writing.
Partial Disability a provision generally found in accident and occasionally in sickness policies designed to offer some weekly or monthly indemnity benefit if the insured cannot perform all the important daily duties of his or her occupation.
Participating Insurance policies that entitle the policyholder to receive dividends reflecting the difference between the premium charged and the actual operating expenses and mortality experience of the company; the premium is calculated to provide some margin over the anticipated cost of the insurance protection. If expenses and mortality are lower than anticipated so that an excess of premium has been collected, a portion of the excess available is returned to the insured in the form of dividends.
Particular Average a term meaning an accidental and usually a partial loss suffered by one interest and not chargeable against others; see General Average.
Patient Protection and Affordable Care Act (ACA) (PPACA) Legislation signed by President Obama on March 23, 2010. Commonly referred to as the health reform law.
Paul v Virginia a U.S. Supreme Court decision of 1869 in which the court ruled that insurance was not commerce and therefore not interstate commerce, thereby exempting the industry from federal control. This decision was reversed in the Southeastern Underwriters Association case of 1944.
Payor Benefit a provision generally included in juvenile life insurance policies waiving future premiums if the payer (usually the parent who pays the premium on the policy) becomes disabled or dies before maturity of the policy.
PCP see Primary Care Physician.
PCS Option an insurance futures option formerly traded on the Chicago Board of Trade (CBOT) for which the value was determined from an index of insurance catastrophe estimates provided by the Property Claim Services (a division of American Insurance Services Group, Inc.).
Penalty the limit of an insurer's or surety's liability under a fidelity or surety bond.
Percentage Participation Clause in health insurance, a provision that requires the insured to bear a percentage of expenses in excess of the deductible; also called coinsurance.
Peril the cause of possible loss; the event insured against.
Permanent Life Insurance a phrase used to cover any form of life insurance except term; generally insurance, such as whole life or endowment, that accrues cash value.
Permissible Loss Ratio the maximum percentage of premium income that can be expended by the company to pay claims without loss of profit.
Personal Auto Policy a simplified language automobile policy designed to insure private passenger automobiles and certain types of trucks owned by an individual or husband and wife.
Personal Injury in law, a term used to embrace a broad range of torts that includes bodily injury libel, slander, discrimination, and similar offenses. Also a standard insurance coverage that protects against a more limited group of torts (false arrest, detention or imprisonment, malicious prosecution, wrongful entry or eviction, and libel, slander, or defamation).
Personal Injury Protection Coverage/PIP a form of automobile coverage that covers the treatment of injuries to the driver and passengers of the policyholder's car used in states that have enacted no-fault laws or other auto reparation reform laws.
Personal Producing General Agent a life insurance agent who has established a record of successful production and who is granted a contract that gives them greater compensation than they received as agents. These agents absorb all their own expenses, including office facilities, clerical staff, and other overhead expenses.
Physical Hazard a condition of the subject of insurance that creates or increases the chance of loss, such as structural defects, occupancy, or similar conditions.
Plaintiff a party to a lawsuit who brings charges against another party called the defendant.
Point-of-Service Plan in health insurance, a cost-containment approach in which care provided through a network of providers is managed by a primary care physician or gatekeeper.
Policy the written contract of insurance that is issued to the policyholder insured by the company insurer.
Policy Dividend a refund of part of the premium on a participating life insurance policy reflecting the difference between the premium charged and actual experience.
Policy Fee an additional charge placed on the initial premium designed to offset a portion of the expense of policy issuance.
Policy Loan a loan made by an insurance company to a policyholder on the security of the cash value of his or her policy.
Policy Period the term for which insurance remains in force, sometimes definite, sometimes not.
Policy Reserve the amounts that a life insurance company allocates specifically for the fulfillment of its policy obligations; reserves are so calculated that, together with future premiums and interest earnings, they will enable the company to pay all future claims.
Policyholders Surplus total capital funds as shown in an insurer's annual statement. Consists of capital, if any, unassigned funds (surplus) and any special funds that are not in the nature of liabilities.
Pollution the contamination of the environment that includes air pollution, noise pollution, water pollution, and disposal of waste materials.
Pool a risk-sharing mechanism in which the members of a group agree to be collectively responsible for losses.
Portfolio Average Method a dividend allocation approach used in life insurance in which excess investment earnings to be included in dividends are allocated to all policies, old and new. at a single rate, regardless of the pattern of premium payments over the years; see Investment Generation Method.
Postselection Underwriting an insurer's practice of reevaluating the desirability of insureds at or prior to the renewal of their policies.
PPACA See Patient Protection and Affordable Care Act.
Pre-admission authorization A cost containment feature of many group medical policies whereby the insured must contact the insurer prior to a hospitalization and receive authorization for the admission.
Preauthorized Check Plan a plan by which a policyholder arranges with his bank and insurance company to have his or her premium payments drawn, usually monthly, from his checking account.
Preexisting Condition a physical condition that existed prior to the effective date of the policy.
Preferred Provider Organization (PPO) a health care delivery organization composed of physicians, hospitals, or other health care providers that contracts with subscribers to provide health care services at a reduced fee.
Premises and Operations a commercial liability coverage that protects against liability arising out of the ownership or maintenance of premises or out of the activities of employees away from the premises.
Premium the payment, or one of the periodical payments, a policyholder agrees to make for an insurance policy.
Premium Loan a policy loan needed for the purpose of paying premiums.
Premium Period the length of time covered by the premium, usually identical with the policy period but frequently not.
Prepaid Group Practice Plan a plan under which a person pays in advance for the right to specified health services performed by participating physicians and institutions.
Primary basic, fundamental; an insurance policy that pays first with respect to other outstanding policies.
Primary Beneficiary the individual first designated to receive the proceeds of an insurance policy; see Contingent Beneficiary.
Primary Care Physician (PCP) the designated contact for a patient in health insurance plans that require members to select and seek treatment from a specific physician who either renders treatment or refers the member to an appropriate specialist within the approved health care network.
Principal the applicant for, or subject of, insurance: the one from whom an agent derives his or her authority.
Principal Sum a term used to refer to the lump sum amount payable for accidental death, dismemberment, or loss of sight.
Prior Approval Law a system of rate regulation in which rates must be filed with the state regulatory authority and approved before they may be used.
Prior Authorization in health insurance, a cost containment measure that provides full payment of health benefits only when the hospitalization or medical treatment has been approved in advance.
Private Insurance voluntary insurance programs available from a private firm or from the government by which an individual may obtain protection against the possibility of loss due to a contingency.
Pro Rata Apportionment a division of loss according to the interest of the various companies providing insurance; thus, if Company A has insured the property involved for $10,000 and Company B has insured the property for $20,000, Company A will pay one-third of any loss and Company B will pay two-thirds.
Pro Rata Cancellation cancellation with a return of premium charged for the period of time the policy was in force equal to the ratio of the total premium to the total policy period; see Short Rate Cancellation.
Pro Rata Distribution Clause a clause that provides that the face amount of the insurance will be divided between the objects insured in the proportion that the value of each bears to the value of all.
Probationary Period (also sometimes called “elimination period”) a period of time from the policy date to a specified date, usually 15–30 days, during which no sickness coverage is effective; it is designed to eliminate a sickness actually contracted before the policy went into effect-occurs only at the inception of a policy.
Producer an agent for an insurance company.
Professional Review Organization (PRO) an organization in which practicing physicians assume responsibility for reviewing the propriety and quality of health care services provided under Medicare and Medicaid.
Prohibited Risks those not written by a company because of an unusual occupational exposure or uninsurable physical or moral conditions.
Proof the act of substantiating another act, such as a claim for insurance payment.
Proposal an application for insurance or the facts contained in it; a recommendation.
Prorate Clause in health insurance, an optional policy provision designed to protect the company when an insured changes to a more hazardous occupation and does not have his or her policy amended accordingly; the company may pay only such portion of the indemnities provided as the premium paid would have purchased at the higher classification, subject to the maximum limits fixed by the company for such more hazardous occupation; it also protects the insured when he or she changes to a less hazardous occupation by providing for a return premium.
Prospective payment system a system of Medicare reimbursement for Part A benefits that bases most hospital payments on the patient's diagnosis at the time of hospital admission.
Protection and Indemnity (P&I) Insurance liability insurance coverage in an ocean marine policy.
Provider-Sponsored Organizations provider-owned and-sponsored ventures that operate much like health maintenance organizations.
Provisions the terms or conditions of an insurance policy.
Proximate Cause the immediate or actual cause of loss under an insurance policy.
Public Adjuster one who represents the policyholder instead of the company.
Public Guarantee Insurance Programs compulsory quasi-social insurance programs designed to protect lenders, investors, or depositors against loss in connection with the failure of a financial institution or other type of fiduciary: for example, the Federal Deposit Insurance Corporation.
Public Law 15 an historic piece of legislation passed by Congress in 1945 whereby insurance was exempted from the operation of federal antitrust laws “to the extent that it is regulated by the various states.” Certain other restrictions were added such as a prohibition of coercion; also known as the “McCarran Act.”
Punitive Damages damages awarded separately and in addition to the compensatory damages, usually on account of malicious or wanton misconduct, to serve as a punishment for the wrongdoer and possibly as a deterrent to others.
Pure Premium that part of the premium that is sufficient to pay losses and loss adjustment expenses but not including other expenses. Also, the premium developed by dividing losses by exposure disregarding any loading for commission, taxes, and expenses.
Pure Risk a condition in which there is the possibility of loss or no loss only.
Qualified Health Plan A health insurance policy that meets the minimum standards to be sold on a government-funded health insurance exchange.
Quota Share Reinsurance a reinsurance contract that reinsures an agreed fraction of every risk of the kind described in the contract, which the ceding company writes.
Rate the cost of a unit of insurance.
Rated Policy an insurance policy issued at a higher-than-standard premium rate to cover the extra risk involved in certain instances where the insured does not meet the standard under-writing requirements; for example, impaired health or a particularly hazardous occupation.
Rating Bureau see Advisory Organization.
Reasonable and Customary Charge a charge for health care, which is consistent with the going rate or charge in a certain geographical area for identical or similar services.
Rebate the return of part or all of a premium to a policyholder.
Reciprocal Exchange an association of individuals who agree to exchange insurance risks—each member of the association insures each of the other members and in turn is insured by each of the other members; see Attorney-in-Fact.
Recurring Clause a period of time during which a recurrence of a condition is considered as being a continuation of a prior period of disability or hospital confinement.
Reduced Paid-up Insurance a form of insurance available as a nonforfeiture option; it provides for continuation of the original insurance plan, but for a reduced amount.
Refund Annuity an annuity that provides that the difference between the original cost and payments made to the annuitant will be paid to a beneficiary.
Regional Agent a district agent; the grade between local and general agent.
Rehabilitation Benefit in disability policies, a provision that provides for continuation of disability benefits or other financial assistance while a totally disabled person is retraining or attempting to acquire skills to return to the work force.
Reimbursement Benefits those for which the insured is reimbursed on an actual expense-incurred basis.
Reinstatement the restoration of a lapsed policy.
Reinsurance insurance placed by an underwriter in another company to cut down the amount of the risk assumed under the original insurance.
Relation of Earnings to Insurance Clause in disability insurance, a provision that reduces payment to the proportion of policy benefits that the insured's earnings at the time of disability (or average earnings for two years prior to disability) bear to total disability benefits under all policies; also called the average earnings clause.
Release a discharge, as from further liability under an insurance policy.
Renew to continue; to replace, as with new policy.
Renewable at Insurers Option in health insurance, a continuance provision that reserves to the insurer the right to refuse to renew the contract.
Renewable Term Insurance term insurance that can be renewed at the end of the term, at the option of the policyholder, and without evidence of insurability, for a limited number of successive terms; the rates increase at each renewal as the age of the insured increases.
Rental Value Insurance insurance arranging to pay the reasonable rental value of property that has been rendered untenantable by fire or some other peril insured against, for the period of time that would be required to restore the property to tenantable condition.
Replacement Cost Insurance property insurance that pays for damaged or destroyed property without a deduction for depreciation.
Reporting Form insurance that depends upon regular reports from the insured to determine the amount of insurance or the premium or both.
Representation statements made by an applicant in the application that he represents as being substantially true to the best of his or her knowledge and belief, but which are not warranted as exact in every detail.
Res Ipsa Loquitur (the thing speaks for itself) rebuttable presumption that the defendant was negligent: the presumption arises on proof that the instrumentality causing the injury was in the defendant's exclusive control, and that the accident is one that ordinarily does not happen in the absence of negligence.
Reserve liability set up for particular purposes.
Residual Disability Benefit a provision in disability income policies that grants benefits based on a reduction in earnings, as opposed to inability to work full time.
Residual Market Plan a mechanism through which high-risk insureds who cannot obtain insurance through normal market channels are insured.
Residuary the balance remaining, as in an estate after specific bequests and debts have been paid.
Respondeat Superior (let the master answer) the principal is liable in certain cases for the wrongful acts of his agent; the doctrine does not apply where the injury occurs while the servant is acting outside the legitimate scope of his or her authority.
Respondentia an early form of marine insurance on cargo; similar to bottomry, the equivalent on hulls.
Restoration reinstatement, as the amount of coverage after a loss.
Retention the act of retaining an exposure to loss; also that part of the exposure that is retained.
Retroactive Conversion conversion of term life insurance into whole-life insurance at the insured's original age at issue rather than at the insured's attained age at conversion.
Retrocession the amount of risk that a reinsurance company reinsures: the amount of a cession that the reinsurer passes on.
Retrospective Rating the process of determining the cost of an insurance policy after expiration of the policy, based on the loss experience under the policy while it was in force.
Return Premium an amount due the insured upon cancellation of a policy.
Revival the reinstatement of a lapsed policy by the company on receipt of evidence of insurability and payment of past due premiums with interest.
Revocable Beneficiary a beneficiary designation that may be changed by the policy owner without the consent of the existing beneficiary.
Rider a document that amends the policy; it may increase or decrease benefits, waive a condition or coverage, or in any other way amend the original contract—the terms rider and endorsement are often used interchangeably.
Risk in the abstract, used to indicate a condition of the real world in which there is a possibility of loss; also used by insurance practitioners to indicate the property insured or the peril insured against.
Risk Contract a managed care contract payment method in which the Health Care Financing Administration (HCFA) pays a fixed monthly payment (sometimes supplemented by a payment from the enrollee) in return for the delivery of all Medicare-covered services medically necessary to members.
Risk Management a scientific approach to the problem of dealing with the pure risks facing an individual or an organization in which insurance is viewed as simply one of several approaches for dealing with such risks.
Risk Retention Act A 1986 federal statute that exempts risk retention groups and insurance purchasing groups from a substantial part of state regulation.
Risk Retention Group group-owned insurer formed under Risk Retention Act of 1986, whose primary activity consists of assuming and spreading the liability risks of its members.
Risk-Based Capital a financial-analysis model adopted by the National Association of Insurance Commissioners for judging the adequacy of insurers' capital, based on the specific risks facing an insurer, including underwriting risk, investment portfolio risk, and other risks not reflected in these factors.
Robbery the unlawful taking of property by violence or threat of violence.
Roth IRA a type of IRA established by the Tax Reform Act of 1997 under which contributions made only on a nondeductible basis and for which withdrawals are free from taxes.
Salvage value recoverable after a loss: that which is recovered by an insurance company after paying a loss; see Subrogation.
Schedule a list of coverages or amounts concerning things or persons insured.
Schedule Rating a system of rating in which debits and credits are added and subtracted from a base rate to determine the final rate for a particular insured.
Second-Injury Fund in workers compensation, a state fund that pays the increased benefits when a second work-related injury combined with a previous injury results in greater disability than would be caused by the second injury only.
Second-to-Die Policy a life insurance contract that insures two lives with the promise to pay only at the second death; also called survivorship whole-life insurance.
Securitization of Insurance Risk the process of converting insurance risk into securities that can be sold in financial markets. See Catastrophe Bond and PCS Option.
Self-funded plan synonymous with self-insured; an employee benefit plan in which the employer pays the claims rather than an insurance company.
Self-Insurance a risk-retention program that incorporates elements of the insurance mechanism.
Senior Professional Public Adjuster (SPPA) professional designation granted to public adjusters with 10 years' experience who pass a rigorous examination and meet other specified eligibility requirements.
Separate Account funds held by a life insurer that are segregated from the other assets of the insurer and invested for pension plans.
Settlement Option one of the ways, other than immediate payment in a lumpsum, in which the policyholder or beneficiary may choose to have the policy proceeds paid.
Seven-Pay Test a test applied to life insurance contracts under the Internal Revenue Code that is designed to determine if the contract is primarily an investment instrument rather than a life insurance contract. Premiums during the first 7 years of the contract may not exceed seven annual net level premiums for a 7-pay policy; see Modified Endowment Contract.
Short Rate Cancellation cancellation with a less than proportionate return of premium; see Pro Rata Cancellation.
Short-term Additional Monthly Benefit in disability policies, a monthly benefit payable during the first months of total disability. The benefit may be payable for up to 12 months, depending on the insurer.
Short-term Disability a generally accepted period of time for 2 years or less; can vary according to company standards.
Sickness Insurance a form of health insurance against loss by illness or disease.
SIMPLE Plan a simplified approach to pensions created by the Small Business Job Protection Act of 1996 (Savings Incentive Match Plan for Employees Plan) under which individual pensions are established for each employee using an IRA or 401(k) plan. Depending on the approach, the plans are referred to as either a SIMPLE IRA or a SIMPLE 401(k).
Single Premium Deferred Annuity an annuity under which the initial premium accumulates together with investment income to create a fund that will be paid out to the annuitant at some time in the future.
Single Premium Whole Life a whole-life policy in which the initial premium, together with interest earnings, is sufficient to pay the cost of the policy over its lifetime.
Social Insurance compulsory insurance, in which the benefits are prescribed by law and in which the primary emphasis is on social adequacy rather than equity.
Social Insurance Substitute Benefit in disability policies, an optional benefit that is payable when the individual is disabled under the policy terms, but does not qualify for Social Security disability benefits. Also sometimes called a Social Security Offset Rider.
Social Security Offset Rider see Social Insurance Substitute Benefit.
Soft Market a buyer's market in which insurance is relatively inexpensive and in plentiful supply.
South-Eastern Underwriters Association (S.E.U.A.) case U.S. Supreme Court decision in 1944 that reversed the decision in Paul v Virginia and held that insurance is interstate commerce.
Special Agent a representative of an insurance company who travels about a given territory dealing with agents and supervising the company's operations there.
Special Damages amount awarded in litigation to compensate for specific identifiable economic loss.
Speculative Risk a condition in which there is a possibility of loss or gain.
Split Funding a technique in which a part of the contributions to a pension plan is paid to a life insurer and a part is invested separately under a pension trust.
SPPA see Senior Professional Public Adjuster.
Sprinkler Leakage Insurance insurance against loss from accidental leakage or discharge from a sprinkler system due to some cause other than a hostile fire or certain other specified causes.
Staff Adjuster one who adjusts losses and is paid a salary by one company for all his or her time.
Standard Provisions (health insurance) a set of policy provisions prescribed by law setting forth certain rights and obligations of both the insured and company; these were originally introduced in 1912 and have now been replaced by the Uniform Provisions.
Standard Risk a person who, according to a company's underwriting standards, is entitled to insurance protection without extra rating or special restrictions.
Statutory Accounting accounting prescribed by regulatory authorities for insurance companies. Under the statutory accounting system, GAAP (Generally Accepted Accounting Principles) are not followed, but statutory conventions replace GAAP.
Statutory Profit the profit of an insurer computed under the statutory system of accounting.
Stock Insurance Company an insurance company owned by stockholders, usually for the purpose of making a profit.
Stop-loss insurance a type of reinsurance purchased by a health plan or self-funded employer plan. Coverage can be written to cover losses over a specified amount either on a specific or individual basis, or on a total basis for the plan over a period of time such as one year.
Straight Life Insurance whole-life insurance on which premiums are payable for life.
Structured settlement legal agreement to pay a designated person, usually someone who has been injured, a specified sum of money in periodic payments, usually for his or her lifetime, instead of in a single lump sum payment.
Subrogation an assignment or substituting of one person for another by which the rights of one are acquired by another in collecting a debt or a claim, as an insurance company stepping into the rights of a policyholder indemnified by the company.
Substandard (impaired risk) risks that have some physical impairment requiring the use of a waiver, a special policy form, or a higher premium charge.
Suicide Clause life insurance policy provision that limits the insurer's liability to the return of premiums if the insured commits suicide during the first 2 years of the policy.
Superfund a federal environmental cleanup fund created principally from taxes on the chemical industry intended for use in cleaning up waste dumps.
Summary Plan Description a recap or summary of the benefits provided under a health insurance plan most often used for employees covered by self-funded plans.
Supplementary Contract an agreement between a life insurer and a policyholder or beneficiary by which the insurer retains the proceeds payable under an insurance policy and makes payments in accordance with the settlement option chosen.
Supplementary Medical Insurance (SMI) optional insurance under the Medicare program that covers physicians' fees and other specified medical services.
Surety a guarantor of a duty or obligation assumed by another.
Surety Bond an agreement providing for monetary compensation should there be a failure to perform certain specified acts within a stated period: the surety company, for example, becomes responsible for fulfillment of a contract if the contractordefaults.
Surplus Line commonly used to describe any insurance for which there is no available market to the original agent or broker, and which is placed in a nonadmitted insurer in accordance with the Surplus or Excess Line provisions of state insurance laws.
Surrender Cost Index in life insurance, a measure of the cost of a policy, including interest foregone, if the policy is surrendered for its cash value at the end of a specified period.
Survivorship Whole Life a life insurance contract that insures two lives with the promise to pay only at the second death; also called the “second-to-die” policy.
Systemic Risk a risk that can affect an entire system, rather than just one entity. In economics, the term is often used where a shock, such as the failure of a single entity, could cause cascading effects and severely disrupt the financial system.
Tail Coverage an extended reporting period extension under claims-made liability policies that provides coverage for losses that are reported after termination of the policy.
Tax-Qualified Long-Term Care Insurance (TQ-LTCI) Long-term care insurance policies that meet the requirements established by the Health Insurance Portability and Accountability Act of 1996.
Tender Offer Defense Expense Insurance insurance designed to reimburse a publicly held corporation for defense expenses in resisting takeover attempts.
Term the length of time covered by a policy or a premium.
Term Insurance insurance payable to a beneficiary at the death of the insured, provided death occurs within a specified period, such as 5 or 10 years, or before a specified age.
Theft the unlawful taking of property of another: the term includes such crimes as burglary, larceny, and robbery.
Third Party someone other than the insured and insuring company.
Third-Party Administration administration of a group insurance plan by some person or firm other than the insurer or the policyholder.
Third-Party Insurance liability insurance, so called because it undertakes to pay to a third party sums that the insured becomes legally obligated to pay.
Title Insurance insurance that indemnifies the owner of real estate in the event his or her clear ownership of property be upset by the discovery of faults in his or her title: largely written by companies specializing in this class alone.
Tort an injury or wrong committed against an individual.
Total Disability disability that prevents the insured from performing all the duties of his or her occupation or any occupation: the exact definition varies among policies.
Trade Credit Insurance a form of guarantee to manufacturers and wholesalers against loss resulting from default on the part of debtors.
Travel Accident Policies those that are limited to paying for loss arising out of accidents occurring while traveling.
Trespasser one who enters property of another without permission. A property owner generally is obligated to avoid intentional injury to trespassers and do so by a full disclosure of all information material to the proposed contract.
Trust transfer of property right to one person called a “trustee” for the benefit of another called a “beneficiary.”
Trust Fund Plan a pension plan administered by a trustee rather than by an insurance company.
Twisting the act of switching insurance policies from one company to another, to the detriment of the insured.
Uberrimae Fidei literally of the utmost good faith. The basis of all insurance contracts—both parties to the contract are bound to exercise good faith and do so by a full disclosure of all information material to the proposed contract.
Umbrella Liability Insurance a form of excess liability insurance available to corporations and individuals protecting them against claims in excess of the limits of their primary policies or for claims not covered by their insurance program. This latter coverage requires the insured to be a self-insurer for a substantial amount ($10,000–$25,000).
Unallocated Benefit in health insurance, a policy provision providing reimbursement up to a maximum amount for the cost of all extra miscellaneous hospital services, but not specifying how much will be paid for each type of service.
Underinsured Motorist Coverage a form of automobile coverage that pays for bodily injury to insured persons by a motorist who has insurance that meets the requirements of the financial responsibility law, but is insufficient to cover the loss sustained by the insured.
Underwriter an individual who decides whether the insurance company will issue coverage and, in some cases, the rate at which it will be issued.
Underwriting the process by which an insurance company determines whether and on what basis it will accept an application for insurance.
Unearned Premium that portion of the original premium for which protection has not yet been provided because the policy still has some time to run before expiration. A property and liability insurer must carry unearned premiums as a liability on its financial statement.
Uniform Provisions statutory policy provisions that specify the rights and obligations of the insured and company.
Uninsured Motorist Coverage a form of automobile insurance that pays for bodily injury to an insured person by a motorist who is uninsured, a hit-and-run driver, or a driver whose insurer becomes insolvent.
Universal Life Insurance a flexible premium life insurance policy under which the policyholder may change the death benefit from time to time (with satisfactory evidence of insurability for increases) and vary the premium payments. Premiums (less expense charges) are credited to a policy account from which mortality charges are deducted and to which interest is credited at rates that may change from time to time.
Unsatisfied Judgement Fund a state fund created to reimburse persons injured in automobile accidents who cannot collect damages awarded to them because the responsible party is either insolvent or uninsured. Such funds are often financed by an addition to the regular automobile registration fee and will only pay unsatisfied judgments up to fixed limits.
Usual, Customary, and Reasonable (UCR) Charges in health insurance, an approach to benefits under which the policy agrees to pay the “usual, customary and reasonable” charges for a procedure, rather than a stipulated dollar amount.
Utilization Review a cost control mechanism by which the appropriateness, necessity and quality of health care is monitored by both insurers and employers.
Valued Policy an insurance contract in which the value of the thing insured and the amount to be paid in case of total loss is settled at the time of making the policy.
Valued Policy Law a state statute that specifies that in the event of a total loss, the insured shall receive in payment the full amount of the policy regardless of the principle of indemnity.
Vanishing Premium Policy a participating whole-life policy on which dividends are allowed to accumulate until accumulated dividends plus future dividends are sufficient to pay all future premiums under the policy.
Variable Annuity an annuity contract under which the amount of each periodic payment fluctuates according to the investment performance of the insurer.
Variable Life Insurance life insurance under which the benefits are not fixed but relate to the value of assets behind the contract at the time the benefit is paid.
Variable Universal Life a form of life insurance (also called Universal Life II) that combines the flexible premium features of universal life with the investment component of variable life.
Vesting a provision that a participant in a pension plan will, after meeting certain requirements, retain the right to the benefits he or she has accrued.
Viatical Settlement Company a business that specializes in the purchase of life insurance policies from terminally-ill persons.
Viatication the sale of a terminally ill person's life insurance policy to a business firm that specializes in such transactions.
Vicarious Liability in law, liability arising out of imputed negligence.
Void of no force or effect; null.
Waiting Period See Elimination Period.
Waiver the voluntary relinquishment of a known right.
Waiver of Premium a provision that waives payment of the premium that becomes due during a period of covered total disability that has lasted for a specified period of time, usually, 3 to 6 months.
Warranty a statement concerning the condition of the item to be insured that is made for the purpose of permitting the underwriter to evaluate the risk; if found to be false, it provides the basis for voidance of the policy.
Whole Life Insurance insurance payable to a beneficiary at the death of the insured whenever that occurs; premiums maybe payable for a specified number of years (limited-payment life) or for life (straight life).
Workers Compensation a system of providing for the cost of medical care and weekly payments to injured employees or to dependents of those killed in industry in which absolute liability is imposed on the employer, requiring him or her to pay benefits prescribed by law.
Written Premiums the premiums on all policies that a company has issued in some period of time, as opposed to “earned premiums.”