Insurance Terms Dictionary

401(k) Plan

A salary reduction plan that allows employees to contribute a portion of their salaries on a tax-deferred basis. See also: Defined Contribution Plan.

Absolute Liability

Liability for damages even though fault or negligence cannot be proven.

Accident and Health Insurance

A type of coverage that pays benefits, sometimes including reimbursement for loss of income, in case of sickness, accidental injury, or accidental death.

Accident Insurance

A form of Health Insurance against loss by accidental bodily injury.

Accidental Bodily Injury

Injury to the body as the result of an accident.

Accidental Death Benefit

A benefit in addition to the face amount of a Life Insurance Policy, payable if the Insured dies as the result of an accident. Sometimes referred to as double indemnity.

Accounting

The process of recording, summarizing, and allocating all items of income and expense of the company and analyzing, verifying, and reporting the results.

Accumulation period

(1) The time between the first premium payment and the first benefit payout under a deferred annuity; (2) 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.

Accumulation units

The mechanism used to account for the Insured's deposits in a variable annuity contract during the premium paying period. The number of units purchased depends upon the current valuation of a unit in dollars.

Acquisition Costs

The insurer's cost of putting new business in force, including the agent's commission, the cost of clerical work, fees for medical examinations and inspection reports, sales promotion expense, etc.

Activities of Daily Living

A list of activities, normally including mobility, dressing, bathing, toileting, transferring and eating which are used to assess degree of impairment and determine eligibility for some types of insurance benefits.

Acts of War, Confiscation, Detainment, Revolution (Free of Capture, Seizure Clause)

Exclusion in most Marine Cargo Policies, which states that coverage is not provided when due to capture, seizure, arrest, detainment, confiscation, preemption, requisition or nationalization, whether in time of peace or war. This clause also excludes from coverage loss due to hostilities or warlike operations (including atom bombs), embargoes or other interferences with the free flow of trade. Coverage for these hazards can be obtained through the Cargo War Risk Policy. See also: Marine Cargo Insurance

Actual Cash Value (ACV)

The replacement cost of property damaged or destroyed at the time of loss, with deduction for depreciation. Actual cash value cannot exceed the applicable limit of liability shown in the declarations of the policy, nor the amount it would cost to repair or replace such property with material of like kind and quality within a reasonable amount of time after a loss.

Actuarial Cost Method

One of several systems for determining either the contributions to be made under a retirement plan, or level of benefits when the contributions are fixed. In addition to forecasts of mortality, interest and expenses, some of the methods involve estimates of future labor turnover, salary scales and retirement rates.

Actuarial Equivalent

If the present values of two series of payments are equal, taking into account a given interest rate and mortality according to a given table, the two series are said to be actuarially equivalent on this basis. For example, a lifetime monthly benefit of $67.60 beginning at age 60 (on a given set of actuarial assumptions) can be said to be the actuarial equivalent of $100 a month beginning at age 65. The actual benefit amounts are different but the present value of the two benefits, considering mortality and interest, is the same.

Actuarially Fair

The price for insurance which exactly represents the expected losses.

Additional Insured

An assured party specifically named under an insurance policy that is not automatically included as an Insured under the policy of another, but for whom the named Insured's policy provides a certain degree of protection. An endorsement is typically required to effect additional insured status. The named Insured's impetus for providing additional insured status to others may be a desire to protect the other party because of a close relationship with that party (e.g., employees or members of an insured club) or to comply with a contractual agreement requiring the named Insured to do so (e.g., customers or owners of property leased by the named Insured).

Additional named insured

(1) An individual or entity, other than the first named insured, identified as an Insured in the policy declarations or an addendum to the policy declarations. (2) An individual or entity who is added to a policy with the status of named Insured after the policy is written. Such an individual or entity would have the same rights and responsibilities as an individual or entity named as an Insured in the policy declarations (other than those rights and responsibilities reserved to the first named Insured). In this sense the term can be contrasted with additional insured, an individual or entity added to a policy as an insured but not as a named Insured. The term additional named insured has not acquired a uniformly agreed-upon meaning within the insurance industry, and use of the term in the two different senses defined above often produces confusion in requests for additional insured status between contracting parties.

Adjustable Life Insurance

A type of 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 gross estate

Approximately the net worth of a deceased's estate--the beginning point for the computation of estate taxes. In addition to the deceased's assets while alive, the value will also generally include the proceeds of life insurance.

Adjustment Bureau

Organization for adjusting insurance claims that is supported by insurers using the bureau's services.

Administrative Services Only (AS0) Plan

An arrangement under which an insurance carrier or an independent organization will, for a fee, handle the administration of claims, benefits and other administrative functions for a self-insured group.

Advance Funding

Pension-funding method in which the employer systematically and periodically sets aside funds prior to the employee's retirement.

Advance Premium Mutual

Mutual insurance company owned by the policyowners that does not issue assessable policies but charges premiums expected to be sufficient to pay all claims and expenses.

Adverse Selection

The tendency of persons who present a poorer-than-average risk to apply for, or continue, insurance to a greater extent than do persons with average or better-than-average expectations of loss.

Advertising Injury

Injury rising out of an offense committed in the course of your advertising activities, if such injury rises out of libel, slander, defamation, violation of right of privacy, piracy, unfair competition or infringement of copyright, title or slogan. [MORE]

Age Limits

Stipulated minimum and maximum ages below and above which the company will not accept applications or may not renew policies.

Aggregate Deductible

Deductible in some Property and Health Insurance contracts in which all covered losses during a year are added together and the insurer pays only when the aggregate deductible amount is exceeded.

Aggregate Indemnity

The maximum dollar amount that may be collected for any disability or period of disability under the policy.

Aggregate Limit

(1) A limit in an insurance policy stipulating the most it will pay for all covered losses sustained during a specified period of time, usually one year. Aggregate limits are commonly included in Liability Policies. While not often used in Property Insurance, aggregates are sometimes included with respect to certain catastrophic exposures, e.g., earthquake and flood. (2) The dollar amount of reinsurance coverage during one specified period, usually 12 months, for all reinsurance losses sustained under a treaty during such period.

Agreed Amount Endorsement

An endorsement to a policy made by the insurance company wherein it waives the coinsurance clause on the specified property. As long as this endorsement is in effect, there would be no coinsurance penalty at the time of a claim. By combining an Agreed Amount Endorsement with a Replacement Cost Endorsement you can obtain an unusually high quality of insurance coverage.

Alien Insurer

An insurance company domiciled in another country. Contrast Foreign Insurer.

Alienated Premises Exclusion

An exclusion that eliminates coverage for property damage liability to premises sold by an entity. For example, a person owns a lot and builds a house on it. After the house is completed and sold, a subcontractor's faulty wiring causes the house to burn. The buyer, or his/her insurance company, sues for the cost of repairing or rebuilding the house. There is no coverage for this exposure under standard liability policies.

All-risks Policy

Coverage by an insurance contract that promises to cover all losses except those losses specifically excluded in the policy. To be covered for damage or loss under a 'basic' contract, the damage or loss must be caused by a peril that is 'named' or listed in the contract. Consequently, if damage or loss is caused by a peril that is not named, there is no coverage. In an All-Risk Policy, coverage is provided unless specifically excluded. The contract's exclusions must be considered in determining coverage. See also: Named Perils, Special Risk Insurance.

Allied Lines

A term for forms of Property Insurance allied with fire insurance, covering such perils as windstorm, hail, explosion, and riot.

Allocated Benefits

Benefits for which the maximum amount payable for specific services is itemized in the contract.

Alternate Delivery Systems

Health services provided in other than an in-patient, acute-care hospital. Examples include skilled and intermediary nursing facilities, hospice programs, and home health care. Alternate delivery systems are designed to provide needed services in a more cost-effective manner.

Ambulatory Care

Medical services that are provided on an outpatient (non-hospitalized) 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 policy holder or his authorized representative.

Amortization

Paying an interest-bearing liability by gradual reduction through a series of installments, as opposed to one lump-sum payment.

Annual Statement

The annual report, as of December 31, of an insurer to a state insurance department, showing assets and liabilities, receipts and disbursements, and other financial data, presented according to Statutory Accounting Principles.

Annuitant

The person during whose life an annuity is payable, usually the person to receive the annuity.

Annuity Certain

A contract that provides an income for a specified number of years, regardless of life or death.

Annuity Consideration

The payment, or one of the regular periodic payments, an annuitant makes for an annuity.

Anti-selection

The tendency of persons who present a poorer-than-average risk to apply for, or continue, insurance to a greater extent than do persons with average or better-than-average expectations of loss.

Arbitration

A form of alternative dispute resolution where an unbiased person or panel renders an opinion as to responsibility for or extent of a loss.

Assailing Thieves

Hazard generally covered under a marine cargo policy, which includes loss due to thievery when accompanied by violence, but does not include petty thievery. See also; Marine Cargo Insurance.

Assessment Association

An insurer that does not charge a fixed premium for insurance, but rather assesses its members periodically to pay its losses. Assessment insurers usually collect an advance premium which is estimated to cover losses and expenses, but reserve the right to make additional assessments whenever the premium collected is insufficient.

Assessment Mutual

Mutual insurance company that has the right to assess policy owners for losses and expenses.

Assigned Risk

See Automobile Insurance Plan.

Association Captive

Type of captive insurer owned by members of a sponsoring organization or group, such as a trade association.

Association Group

A group formed from members of a trade or a professional association for group insurance under one master Health Insurance contract.

Association Group Plan

Health Insurance plans designed for members of a professional association or trade association. Members may be protected under a group Health Insurance Policy or by individual franchise policies.

Assumption of Risk Doctrine

Defense against a negligence claim that bars recovery for damages if a person understands and recognizes the danger inherent in a particular activity or occupation.

Attractive Nuisance

Condition that can attract and injure children. Owners or occupants of land on which such a condition exists are liable for injuries to children.

Audit, Insurance

Sometimes factors that enter into determining appropriate premiums for insurance coverage can't be known in advance; therefore, accurate premiums for the coverage provided can't be billed by the insurance carrier. This often is true in the case of Worker's Compensation and Product Liability Insurance, where such things as payroll and sales can't be determined ahead of time. An audit serves as an examination of the Insured's records after the fact to adjust the initial premium billed to reflect the actual coverage.

Automatic Premium Loan

Cash borrowed from a Life Insurance policy's cash value to pay an overdue premium after the grace period for paying the premium has expired.

Automatic Reinsurance

An agreement that the insurer must cede and the reinsurer must accept all risks within certain explicitly defined limits. The reinsurer undertakes in advance to grant reinsurance to the extent specified in the agreement in every case where the ceding company accepts the application and retains its own limit. See also: Treaty Reinsurance.

Automobile Insurance Plan

One of several types of shared market mechanisms where persons who are unable to obtain such insurance in the voluntary market are assigned to a particular company, usually at a higher rate than the voluntary market. Formerly called Assigned Risk. Compare Automobile Reinsurance Facility, Residual Market.

Automobile Liability Insurance

Coverage designed to provide protection for the Insured against financial loss because of legal liability for car-related injuries to others or damage to their property.

Automobile Physical Damage Insurance

Coverage to pay for damage to or loss of an insured automobile resulting from collision, fire, theft, or other perils.

Automobile Reinsurance Facility

One of several types of shared market mechanisms used to make Automobile Insurance available to persons who are unable to obtain such insurance in the regular market.

Automobile Shared Market

A program in which all automobile insurers in each state and the District of Columbia participate to make coverage available to car owners who are unable to obtain Auto Insurance in the voluntary market. Except in Maryland, which operates a state-funded mechanism whose losses are subsidized by private insurers, each state uses one of three systems (an automobile insurance plan, a joint underwriting association, or a reinsurance facility) to guarantee the availability of Automobile Insurance.

Average Indexed Monthly Earnings (AIME)

Under the OASDI program, the person's actual earnings are indexed to determine his or her primary insurance amount (PIA).

Aviation Insurance

Aircraft Insurance including coverage of aircraft or their contents, the owner's liability, and Accident Insurance on the passengers.

Avoidance

see Loss Avoidance.

Bailee Insurance

Coverage designed to protect for loss or damage to property of customers regardless of a bailee's legal liability. Bailee Insurance is Inland Marine Coverage on property entrusted to the Insured for storage, repair, or servicing. It is typically purchased by businesses such as dry cleaners, jewelers, repairers, furriers, etc.

Barratry of the Master

An action of the master of a ship which violates the trust given to him, provided such action is not taken in connivance with the ship owner. Hazard covered in the Marine Cargo Policy.

Basic Form

see Dwelling Property 1.

Beneficiary

The person or entity designated or provided for by an insurance policy's terms to receive any benefits provided by the policy or plan upon the death of the Insured.

Benefit Period

A period of time, typically one to three years, during which major medical benefits are paid after the deductible is satisfied. When the benefit period ends, the Insured must then satisfy a new deductible in order to establish a new benefit period.

Binding Receipt

A receipt given for a premium payment accompanying the application for insurance. If the policy is approved, this binds the company to make the policy effective from the date of the receipt.

Blackout Period

The period during which Social Security benefits are not paid to a surviving spouse--between the time the youngest child reaches age sixteen and the widow's sixtieth birthday.

Blanket Contract

A contract of health insurance affording benefits, such as accidental death and dismemberment, for all of a class of persons not individually identified. It is used for such groups as athletic teams, campers, travel policy for employees, etc.

Blanket Insurance

A policy designed to provide coverage under a single limit for two or more items (e.g., building and/or contents), two or more locations, or a combination of items and/or locations

Blanket Medical Expense

A provision which entitles the insured person to collect up to a maximum established in the policy for all hospital and medical expenses incurred, without any limitations on individual types of medical expenses.

Block Policy

A form of Inland Marine Insurance designed to cover loss to the property of a merchant, wholesaler, or manufacturer including: property of others in the Insured's care, custody, or control, property on consignment, and property sold but not delivered. Common block policies are jeweler's block and furrier's block policies.

Blue Cross

An independent, nonprofit membership corporation providing protection on a service basis against the cost of hospital care in a limited geographical area.

Blue Shield

An independent, non-profit membership corporation providing protection on a service basis against the cost of surgical and medical care in a limited geographical area.

Boat Owners Package Policy

A special package policy for boat owners that combines physical damage insurance, medical expense insurance, liability insurance, and other coverages in one contract.

Boiler and Machinery Insurance

Coverage for loss arising out of the operation of pressure, mechanical, and electrical equipment. It covers loss of the boiler and machinery itself, damage to other property, and business interruption losses.

Book of Business

the number, size and type of accounts (policyholders) that an agent services, and upon which he earns commissions.

Branch Office System

Type of marketing system under which branch offices are established in various areas. Salaried branch managers, who are employees of the company, are responsible for hiring and training new agents.

Break in Service

A calendar year, plan year or other consecutive 12-month period designated by the plan during which a plan participant does not complete more than 500 hours of service.

Broad Form Property Coverage including Completed Operations

A coverage extension that is of great value to the general contractor as respects completed operations property damage liability claims. Without it, the normal Comprehensive General Liability policy will not respond for completed operations claims (i.e., claims rising out of work performed on behalf of the Insured by subcontractors). With this coverage extension, this exposure is covered. Additional broadening coverage features are also included, but none as important as the above to the general contractor. See also: Dwelling Property, Homeowners Policy.

Broadcasters Liability Insurance

The legal liabilities of a broadcaster are numerous and vary from the use of incorrect news stories, libel and slander, invasion of privacy, copyright infringement, and unauthorized use of plot, characters, or music. Broadcasters' Liability Insurance covers these exposures, as well as defense costs in contesting suits or claims. Employees are covered as Insureds while acting within the scope of their duties as such.

Broadened Named Insured

regarding liability coverages, these coverages will automatically apply to '. . . any affiliated, associated, allied or subsidiary company or entity (including subsidiaries thereof), now held or hereinafter acquired or constituted . . .'

Builders Risk Insurance

Indemnifies for loss of or damage to a building under construction. Insurance is normally written for a specified amount on the building and applies only in the course of construction. Coverage customarily includes fire and extended coverage and vandalism and malicious mischief. Builders Risk Coverage can be extended to a special form as well. The Builders Risk Policy also may include coverage for items in transit to the construction site (up to a certain percentage of value) and items stored at the site.

Burglary

Breaking and entering into another person's property with felonious intent.

Burglary and Theft Insurance

Coverage against property losses due to burglary, robbery, or larceny.

Business Insurance

A policy which primarily provides coverage of benefits to a business as contrasted to an individual. It is issued to indemnify a business for the loss of services of a key employee or a partner who becomes disabled.

Business Interruption Insurance

Coverage designed to provide protection for a business owner against losses resulting from a temporary shutdown because of fire or other insured peril. The insurance provides reimbursement for lost net profits and necessary continuing expenses. This form of insurance provides loss of income coverage (i.e., disability income) for your business by replacing your operating income during the period when damage to the premises or other property prevents income from being earned.

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.

Buy-Sell Agreement

An agreement made by the owners of a business to purchase the share of a disabled or deceased owner. The value of each owner's share of the business and the exact terms of the buying-and-selling process are established before death or the beginning of disability.

Cafeteria Plan

Generic term for an employee benefit plan that allows employees to select among the various group life, medical expense, disability, dental, and other plans that best meet their specific needs. Also called flexible benefit plans.

Calendar-year Deductible

Amount payable by an Insured during a calendar year before a group or individual Health Insurance Policy begins to pay for medical expenses.

Capacity

(1) The amount of capital available to an insurance company or to the industry as a whole for underwriting general insurance coverage or coverage for specific perils. (2) The amount of insurance a company or the industry are able to write, due to limitations on or availability of capital.

Capital Gain

Profit realized on the sale of securities. An unrealized capital gain is an increase in the value of securities that have not been sold.

Capital Retention Approach

A method used to estimate the amount of Life Insurance to own. Under this method, the insurance proceeds are retained and are not liquidated.

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 Insurance Company

A company owned solely or in large part by one or more non- insurance entities for the primary purpose of providing insurance coverage to the owner or owners. The company's stock is controlled by one interest or a group of related interests so as to provide coverage for their business operations. A captive insurance company may be a non-admitted, nonresident, or foreign insurer. Sometimes it may provide reinsurance to a self-insured or a domestic company.

Captive Insurer

Insurance company established and owned by a parent firm in order to insure its loss exposures while reducing premium costs, providing easier access to a reinsurer, and perhaps easing tax burdens. See also Association Captive.

Career Average Formula

A pension plan formula that bases retirement benefits on earnings during all years of service to the employer.

Cargo Insurance

Type of Ocean Marine Insurance designed to protect the shipper of the goods against financial loss if the goods are damaged or lost.

Cash Surrender Value

The amount available in cash upon voluntary termination of a policy by its owner before it becomes payable by death or maturity.

Casualty Insurance

Insurance concerned with the Insured's legal liability for injuries to others or damage to other persons' property; also encompasses such forms of insurance as plate glass, burglary, robbery and workers' compensation.

Causes-of-loss Form

Form added to Commercial Property Insurance policy that indicates the causes of loss that are covered. There are four causes-of-loss forms: basic, broad, special, and earthquake.

Certificate of Insurance

A statement of coverage issued to an individual Insured under a group insurance contract, outlining the insurance benefits and principal provisions applicable to the member.

Certified Financial Planner (CFP)

Professional who has attained a high degree of technical competency in financial planning and has passed a series of professional examinations by the College of Financial Planning.

Certified Insurance Counselor (CIC)

Professional in Property and Liability Insurance who has passed a series of examinations by the Society of Certified Insurance Counselors.

Change of Occupation Clause

Provision in a Health Insurance policy stipulating that if the Insured changes to a more hazardous occupation, the benefits are reduced based on the amount of benefits the premium would have purchased for the more hazardous occupation.

Chartered Financial Consultant (ChFC)

An individual who has attained a high degree of technical competency in the fields of financial planning, investments, and Life and Health Insurance and has passed ten professional examinations administered by The American College.

Chartered Life Underwriter (CLU)

An individual who has attained a high degree of technical competency in the fields of Life and Health Insurance and who is expected to abide by a code of ethics. Must have minimum of three years of experience in Life or Health Insurance sales and have passed ten professional examinations administered by The American College.

Chartered Property and Casualty Underwriter (CPCU)

Professional who has attained a high degree of technical competency in Property and Liability Insurance and has passed ten professional examinations administered by the American Institute for Property and Liability Underwriters.

Choice No-Fault

Allows auto insureds the choice of remaining under the tort system or choosing no-fault at a reduced premium.

Claim-Made Policy

A Liability Insurance Policy under which coverage applies to claims filed during the policy period.

Claims Adjustor

Person who settles claims: an agent, company adjustor, independent adjustor, adjustment bureau, or public adjustor.

Class Rating

Rate-making method in which similar Insureds are placed in the same underwriting class and each is charged the same rate. Also called manual rating.

Collateral Source Rule

A legal rule, which states that the defendant cannot introduce any evidence that shows the injured party has received compensation from other collateral sources.

Collision Insurance

Protection against loss resulting from any damage to the policyholder's car caused by collision with another vehicle or object, or by upset of the insured car, whether it was the Insured's fault or not.

Combined Ratio

Basically, a measure of the relationship between dollars spent for claims and expenses and premium dollars taken in; more specifically, the sum of the ratio of losses incurred to premiums earned and the ratio of commissions and expenses incurred to premiums written. A ratio above 100 means that for every premium dollar taken in, more than a dollar went for losses, expenses, and commissions.

Commercial General Liability Policy (CGL)

Commercial Liability Policy drafted by the Insurance Services Office containing two coverage forms-an occurrence form and a claims-made form.

Commercial Lines

Insurance for businesses, organizations, institutions, governmental agencies, and other commercial establishments.

Commercial Multiple Peril Policy

A package of insurance that includes a wide range of essential coverages for the commercial establishment.

Commercial Package Policy (CPP)

A commercial policy that can be designed to meet the specific insurance needs of business firms. Property and Liability Coverage forms are combined to form a single policy.

Common Stock

Securities that represent an ownership interest in a corporation.

Community Property

A special ownership form requiring that one-half of all property earned by a husband or wife during marriage belongs to each. Community property laws do not generally apply to property acquired by gift, by will, or by descent.

Company Adjustor

Claims adjustor who is a salaried employee representing only one company.

Comparative Negligence

Under this concept a plaintiff (the person bringing suit) may recover damages even though guilty of some negligence. His or her recovery, however, is reduced by the amount or percent of that negligence.

Completed Operations

Liability arising out of faulty work performed away from the premises after the work or operations are completed. Applicable to contractors, plumbers, electricians, repair shops, and similar firms. This form of liability insurance provides coverage for bodily injury and property damage rising from completed or abandoned operations, provided the incident occurs away from premises owned or rented by the insured. Operations are deemed completed at the earliest of: (1) when all operations to be performed by or on behalf of the Insured under contract have been completed; (2) when all operations to be performed by or on behalf of the Insured at the site of the operations have been completed; (3) when the portion of work out of which injury or damage rises has been put to its intended use by a party other than the contractor or subcontractor.

Comprehensive Automobile Insurance

Coverage designed to provide protection against loss resulting from damage to the insured auto, other than loss by collision or upset.

Comprehensive General Liability Insurance

Under this form of insurance and regarding a covered occurrence, the company will pay all sums the Insured becomes legally obligated to pay as damages due to bodily injury (Coverage A) or property damage (Coverage B).

Comprehensive Major Medical Insurance

A policy designed to give the protection offered by both a basic and a major medical Health Insurance Policy. It is characterized by a low deductible amount, a coinsurance feature, and high maximum benefits.

Comprehensive Medical Expense Insurance

A form of Health Insurance which provides, in one policy, protection for both basic hospital expense and major medical expense coverages. The major medical part of a comprehensive policy is characterized by a deductible amount, coinsurance, and high maximum benefits.

Comprehensive Personal Liability Insurance

Protection against loss arising out of legal liability to pay money for damage or injury to others for which the Insured is responsible. It does not include automobile or business operation liabilities.

Compulsory Auto Liability Insurance

Insurance laws in some states require motorists to carry at least certain minimum auto coverages. This is called compulsory insurance.

Compulsory Insurance

Any form of insurance which is required by law.

Compulsory Insurance Law

Law protecting accident victims against irresponsible motorists by requiring owners and operators of automobiles to carry certain amounts of liability insurance in order to license the vehicle and drive legally within the state.

Computer Extra Expense Insurance

Coverage designed to provide protection if computer or EDP equipment is damaged or destroyed by fire or any other insured peril. In such an event it would probably be necessary to incur certain extra expenses to continue business operations.

Concealment

Deliberate failure of an applicant for insurance to reveal a material fact to the insurer.

Concurrent Causation

Legal doctrine that states when a property loss is due to two causes, one that is excluded and one that is covered, the policy provides coverage.

Conditional Receipt

A receipt given for premium payments accompanying an application for insurance. If the application is approved as applied for, the coverage is effective as of the date of the prepayment or the date on which the last of the underwriting requirements, such as a medical examination, has been fulfilled.

Conditionally Renewable

Continuance provision of a Health Insurance Policy under which the company cannot cancel the policy during its term but can refuse to renew under certain conditions stated in the contract.

Confining Sickness

An illness that confines an Insured person to his home or to a hospital.

Consequential Loss

Financial loss occurring as the consequence of some other loss, often called an indirect loss. Consequential loss or damage is indirect loss or damage resulting from loss or damage caused by a covered peril, such as fire or windstorm. In the case of loss caused where windstorm is a covered peril, if a tree is blown down and cuts electricity used to power a freezer and the food in the freezer spoils, if the insurance policy extends coverage for consequential loss or damage then the food spoilage would be a covered loss. Business Interruption Insurance, extends consequential loss or damage coverage for such items as extra expenses, rental value, profits and commissions, etc.

Conservation

The attempt by the insurer to prevent the lapse of a policy.

Consideration

One of the elements for a binding contract. Consideration for an insurance policy is acceptance by the insurance company of the payment of the premium and the statement made by the prospective policyholder in the application, balanced by the insurance company's promise to provide benefits in the case of loss.

Consideration Clause

The clause that stipulates the basis on which the company issues the insurance contract. In Health Policies, the consideration is usually the statements in the application and the payment of premium.

Contents Broad Form

See Homeowners policy.

Contingent Annuity Option

An option under which an employee may elect to receive, under certain conditions, a reduced amount of annuity with the same income, or a specified fraction, to be paid after his death to another person designated as his contingent annuitant, for that person's lifetime. The contingent annuitant is usually the husband or the wife. See also: Joint and Survivor Annuity.

Contingent Beneficiary

The person or persons designated to receive the benefits of a policy or plan if the primary beneficiary dies while the Insured is living.

Contingent Owner

The person to succeed as owner of a Life Insurance Policy if the original owner dies.

Contract Holder

The group, entity or person to whom a group annuity contract is issued.

Contractors Liability Insurance

Coverage designed to provide protection for: (1) Premises/Operations. The premises portion provides for payment on the Insured's behalf of all sums he or she becomes liable to pay, resulting from bodily injury and/or property damage caused by an insured peril and rising out of the ownership, maintenance, or use of premises and operations in progress. The operations portion covers operations in progress and is intended for situations where your principal business operations are performed away from your premises. (2) Completed Operations. This portion of Liability Insurance provides for possible liability for bodily injury and/or property damage after work is complete and the Insured has left the job site.

Contractual Liability

Legal liability of another party that the business firm agrees to assume by a written or oral contract. It is common in construction and other agreements (written or oral) for one party to assume the liability of another. This is sometimes referred to as a hold harmless agreement. The extent to which one holds another harmless varies from contract to contract, job to job, etc.

Contribution by Equal Shares

Type of other-insurance provision often found in Liability Insurance contracts that requires each company to share equally in the loss until the share of each insurer equals the lowest limit of liability under any policy or until the full amount of loss is paid.

Contributory Negligence

Negligence of the damaged person that helped to cause the accident. Some states bar recovery to the plaintiff if the plaintiff was contributorily negligent to any extent. Others apply comparative negligence.

Conversion Privilege

The right given to an insured person to change insurance without evidence of medical insurability, usually to an individual policy upon termination of coverage under a group contract.

Convertible Bond

A bond that offers the holder the privilege of converting the bond into a specified number of shares of stock.

Convertible Term Insurance

Term Insurance which can be exchanged, at the option of the policyholder and without evidence of insurability, for another plan of insurance.

Coordination of Benefits (COB)

The mechanism used in group Health Insurance to designate the order in which the multiple carriers are to pay benefits and to prevent duplicate payments.

Corridor Deductible

Major medical plan deductible that excludes benefits provided by a basic plan if both a basic and a supplemental group major Medical Expense Policy are in force.

Cost Basis

An amount attributed to an asset for income tax purposes; used to determine gain or loss on sale or transfer; used to determine the value of a gift

Cost Containment

The controller reduction of inefficiencies in the consumption, allocation, or production of health care services that contribute to higher than necessary costs.

Cost-of-Living Rider

Benefit that can be added to a Life Insurance Policy under which the policy owner can purchase one-year term insurance equal to the percentage change in the consumer price index with no evidence of insurability.

Coverage for Damage to Your Auto

That part of the personal Auto Policy insuring payment for damage or theft of the insured automobile. This optional coverage can be used to insure both collision and other-than-collision losses.

Covered

A person covered by a pension plan is one who has fulfilled the eligibility requirements in the plan, for whom benefits have accrued, or are accruing, or who is receiving benefits under the plan.

Covered Expenses

Hospital, medical, and miscellaneous health care expenses incurred by the Insured that entitle him/her to a payment of benefits under a Health Insurance Policy. Found most often in connection with major medical plans, the term defines, by either description, reasonableness, or necessity to specify the type and amount of expense which will be considered in the calculation of benefits.

Covered Participant

A person covered by a pension plan is one who has fulfilled the eligibility requirements in the plan, for whom benefits have accrued, or are accruing, or who is receiving benefits under the plan.

Credibility

A statistical measure of the degree to which past results make good forecasts of future results.

Credibility Factor

The weight given to an individual Insured's past experience in computing premiums for future coverage.

Credit Health Insurance

A form of Health Insurance on a borrower, usually under an installment purchase agreement. The benefits cover the obligations of the borrower and are payable to the creditor.

Credit Insurance

A guarantee to manufacturers, wholesalers, and service organizations that they will be paid for goods shipped or services rendered. Applies to that part of working capital which is represented by accounts receivable.

Credit Life Insurance

Term Life Insurance issued through a lender or lending agency to cover payment of a loan, installment purchase, or other obligation, in case of death.

Crop Hail Insurance

Coverage designed to provide financial protection against damage to growing crops as a result of hail or certain other named perils.

Cross Liability Endorsement

In the event of claim by one Insured for which another Insured covered by the same policy may be held liable, this endorsement covers the Insured against whom the claim is made in the same manner as if separate policies had been issued. However, it does not operate to increase the insurance company's overall limit of liability.

Cross Purchase Agreement

Specifies the terms for the surviving partners or shareholders to buy a deceased's share of the business's ownership.

Current Assumption Whole Life Insurance

Nonparticipating Whole Life Policy in which the cash values are based on the Insurer's current mortality, investment, and expense experience. An accumulation account is credited with a current interest rate that changes over time. Also called interest-sensitive Whole Life Insurance.

Currently Insured

Status of a covered person under the Old-age, Survivors, and Disability Insurance (OASDI) program who has at least six quarters of coverage out of the last thirteen quarters, ending with the quarter of death, disability, or entitlement to retirement benefits.

Damage to Property of Others

Coverage for an Insured who damages another's property. Payment is made despite the lack of legal liability. Coverage is included in Section II of the Homeowners Policy.

Death Benefit

A payment made to a designated beneficiary upon the death of the employee annuitant.

Debenture

A bond that is backed only by the general credit of the issuing corporation. No specific property is pledged as security behind the loan.

Debit Insurance

See Industrial Life Insurance.

Debris Removal Clause

This clause extends insurance coverage to include the cost of debris removal resulting from damage caused by a covered loss up to a specified limit of loss. The clause is an additional Property Insurance coverage.

Declarations

Statements in an insurance contract that provide information about the property or life to be insured and used for underwriting and rating purposes and identification of the property or life to be insured.

Deductible

An amount which a policyholder agrees to pay, per claim or per accident, toward the total amount of an insured loss.

Deferred Annuity

An annuity providing for the income payments to begin at some specified future date.

Deferred Compensation

Arrangements by which compensation to employees for past or current services is postponed until some future date.

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 stating either (1) the benefits to be received by employees after retirement or (2) the method of determining such benefits. The employer's contributions under such a plan are actuarially determined.

Defined Contribution Plan

A plan under which the contribution rate is fixed and benefits to be received by employees after retirement depend to some extent upon the contributions and their earnings.

Dental Insurance

Individual or group plan that helps pay costs of normal dental care as well as damage to teeth from an accident.

Dependency Period

Period of time following the readjustment period during which the surviving spouse's children are under eighteen and therefore dependent of the parent.

Dependent Benefits

Social Security benefits available to the spouse or children of a Social Security beneficiary.

Deposit Administration Group Annuity

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

The money paid by a prospective policy holder when an application is made for an insurance policy. It is usually equal, at least, to the first month's estimate premium and is applied toward the actual premium when billed.

Deposit Term Insurance

A form of Term Insurance, not really involving a deposit, in which the first-year premium is larger than subsequent premiums. Typically, a partial endowment is paid at the end of the term period. In many cases the partial endowment can be applied toward the purchase of a new Term Policy, or, perhaps, a Whole Life Policy.

Depreciation

A decrease in the value of property over a period of time due to wear and tear or obsolescence. Depreciation is used to determine the actual cash value of property at time of loss. See also: Actual Cash Value

Diagnosis-Related Groups (DRGs)

System that reimburses health care providers fixed amounts for all care given in connection with standard diagnostic categories.

Dictionary of Insurance Terms

Please select one of the terms below to receive an explanation.

Difference in Conditions Insurance (DIC)

All-Risks Policy that covers other perils not insured by basic Property Insurance contracts, supplemental to and excluding the coverage provided by underlying contracts. DIC insurance provides coverage designed to close specific gaps in standard insurance policies and is usually available only for larger industrial or commercial risks. It allows coverage to be customized to extend to such exposures as water damage, flood, collapse, earthquake, landslide, etc., according to the Insured's needs. DIC coverage may be provided by means of a separate insurance policy or it may be added by endorsement to the basic policy.

Direct Loss

Financial loss that results directly from an insured peril.

Direct Placement

Sale of an entire issue of bonds or stock by the issuer to one or a few large institutional customers such as an insurance company without trying to market the issue publicly.

Direct Premiums Written

Property and Casualty Insurance premiums written (less return premiums) without any allowance for premiums for assumed or ceded reinsurance.

Direct Response System

A marketing method where insurance is sold without the services of an agent. Potential customers are solicited by advertising in the mail, newspapers, magazines, television, radio and other media.

Direct Writer

The industry term for a company which uses its own sales employees to write its policies. Sometimes refers to companies which contract with exclusive agents.

Directors' and Officers' Liability

The exposure of corporate managers to claims from shareholders, government agencies, and employees, and others alleging mismanagement.

Disability Benefit

A feature added to some life insurance policies providing for waiver of premium, and sometimes payment of monthly income, if the policy holder becomes totally and permanently disabled.

Disability Income Insurance

A form of Health Insurance that provides periodic payments to replace income when an insured person is unable to work as a result of illness, injury, or disease.

Disability Insurance

Disability Insurance can produce a reliable source of tax-free income should you become temporarily or permanently disabled. This benefit is available as a personal product and as a group product.

Jim Quinlan is a Registered Representative of and offering securities through Foresters Equity Services, Inc
Member FINRA, SIPC
6640 Lusk Boulevard, Suite A202, San Diego, CA, 92121 800.350.9885

Disability Insured

Status of an individual who is insured for disability benefits under the Old-Age, Survivors, and Disability Insurance (OASDI) program. The covered person must be fully insured and have at least twenty quarters of coverage out of the last forty, ending with the quarter in which the disability occurs. Fewer quarters are required for persons under age thirty.

Disappearing Deductible

Deductible in an insurance contract that provides for a decreasing deductible amount as the size of the loss increases, so that small claims are not paid but large losses are paid in full.

Dismemberment

Loss of body members (limbs), or use thereof, or loss of sight due to injury.

Dismemberment Insurance

A form of Health Insurance that provides payment in case of loss by bodily injury of one or more body members (such as hands or feet) or the sight of one or both eyes.

Disposable Personal Income

Personal income less personal tax and basic non-tax payments. It is the income available to people for discretionary spending and saving.

Dividend

(1) A return of part of the premium on participating insurance to reflect he difference between the premium charged and the combination of actual mortality, expense and investment experience. Such premiums are calculated to provide some margin over the anticipated cost of the insurance protection. (2) In capital stock companies, a share of the profits distributed to stockholders.

Dividend Addition

An amount of paid-up insurance purchased with a policy dividend and added to the face amount of the policy.

Dollar Threshold

In no-fault Auto Insurance states with the dollar threshold, it prevents individuals from suing in tort to recover for pain and suffering unless their medical expenses exceed a certain dollar amount.

Domestic Insurer

An insurance company is a domestic company in the state in which it is incorporated. See also Foreign Insurer, Alien Insurer.

Double Indemnity

A policy provision usually associated with death, which doubles payment of a designated benefit when certain kinds of accidents occur.

Dramshop Law

Law that imputes negligence to the owner of a business that sells liquor in the case that an intoxicated customer causes injury or property damage to another person. Usually excluded from General Liability Policies.

Dread Disease Insurance

Insurance providing an unallocated benefit, subject to a maximum amount, for expenses incurred in connection with the treatment of specified diseases, such as cancer, poliomyelitis, encephalitis and spinal meningitis.

Driver Education Credit

Student discount or reduction in premium amount for which young drivers become eligible on completion of a driver education course.

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 pre-payment plans; also known as multiple coverage.

Dwelling Property 1

Property Insurance policy that insures the dwelling at actual cash value, other structures, personal property, fair rental value, and certain other coverages. Covers a limited number of perils.

Dwelling Property 2

Property Insurance policy that insures the dwelling and other structures at replacement cost. It adds additional coverages and has a greater list of covered perils than the Dwelling Property 1 policy.

Dwelling Property 3

Property Insurance policy that covers the dwelling and other structures against direct physical loss from any peril except for those perils otherwise excluded. However, personal property is covered on a named-perils basis.

Early Retirement

Retirement of a participant prior to the normal retirement date, usually with a reduced amount of annuity. Early retirement is generally allowed at any time during a period of 5 to 10 years preceding the normal retirement date.

Earned Income

Employment income derived from salary, wages, commissions, or fees.

Earned Premium

The portion of a premium which is the property of an insurance company, based on the expired portion of the policy period. For example, an insurance company is considered to have earned 75 percent of an annual premium after a period of nine months of an annual policy has elapsed.

Earnings Test (Retirement Test)

Determination of the amount of Social Security benefits payable to a beneficiary after adjusting for earnings.

Economic Loss

The estimated total cost, both insured and uninsured, of mishaps (such as motor vehicle accidents, work accidents, and fires); includes such factors as property damage, funeral expenses, wage loss, insurance administration costs, and medical, hospital and legal costs.

Economic Policy

Special type of participating Whole Life Insurance in which the dividends are used to buy Term Insurance or paid-up additions equal to the difference between the face amount of the policy and some guaranteed amount.

Effective Date

The date on which the insurance under a policy begins.

Elements of a Negligent Act

Four elements an injured person must show to prove negligence: existence of a legal duty to use reasonable care, failure to perform that duty, damages or injury to the claimant, and proximate cause relationship between the negligent act and the infliction of damages.

Eligibility Date

The date on which an individual member of a specified group becomes eligible to apply for insurance under an (group Life or Health) insurance plan.

Eligibility Period

A specified length of time, such as one month, following the eligibility date during which an individual member of a particular group will remain eligible to apply for insurance under a group Life or Health Insurance policy without evidence of insurability.

Eligibility Requirements

For retirement plans, (1) The conditions which an employee must satisfy to participate in a retirement plan, for instance completion of 1 to 3 years of service with the employer, the attainment of a specified age, such as 25, or (2) Conditions which an employee must satisfy to obtain a retirement benefit, such as the completion of 15 years of service and the attainment of age 65.

Eligible Employees

Those members of a group who have met the eligibility requirements under a group Life or Health Insurance plan.

Elimination Period

A period of time between the period of disability and the start of Disability Income Insurance benefits, during which no benefits are payable. The elimination period may be as short as a few days or as long as one year or more. See also: Waiting Period.

Embezzlement

Fraudulent use or taking of another's property or money which has been entrusted to one's care.

Employee Benefit Plan Insurance

Coverage designed to protect the employer against claims by employees or former employees resulting from negligent acts or omissions in the administration of the Insured's employee benefits programs. Coverage is intended to extend to the administration of these plans, including counseling employees, interpreting employee benefits programs, handling records, enrolling, terminating or cancelling employees in specified plans on a timely basis, etc.

Employee Benefit Programs

Programs designed to benefit employees, arranged by the employer, which are not paid for primarily or directly by the employee, including for instance group Life Insurance and group Accident and/or Health Insurance; profit sharing plans; employee stock subscription plans; Workers' Compensation; Unemployment Insurance; Social Security benefits; disability benefits, etc.

Employee Dishonesty Coverage Form

Commercial Crime Insurance form drafted by the Insurance Services Office that covers the loss of money, securities, and other covered property because of any dishonest act of a covered employee or employees.

Employee Dishonesty Insurance

Coverage designed to protect an employer from financial loss due to the fraudulent activities of one or more employees. The coverage includes protection for loss of money, securities, and other property of the Insured. Some scheduled policies are still available, but the majority are written on a blanket basis. This provides coverage for all employees, subject to the policy definitions. The limit of liability is per loss and is applied on an occurrence basis. All acts involving the same employee or group of employees is considered one occurrence.

Employee Retirement Income Security Act (ERISA)

Legislation passed in 1974 applying to most private pension and welfare plans that requires certain minimum standards to protect participating employees.

Employment Practices Liability Insurance

Coverage designed to protect the corporation, directors & officers and employees for claims resulting from wrongful termination, discrimination, sexual harassment, wrongful discipline and failure to employ or promote.

Employment Stock Ownership Plan (ESOP)

A defined contribution pension plan which is designed to invest primarily in securities of the employer, such as common stock and debentures.

Endorsements

An additional piece of paper, not a part of the original contract, which cites certain terms and which, when attached to the original contract, becomes a legal part of that contract. See Rider.

Endowment

Life Insurance payable to the policyholder if living, on the maturity date stated in the policy, or to a beneficiary if the Insured dies prior to that date.

Enrolled Actuary

A person who performs actuarial service for a plan and who is enrolled with the Federal Joint Board for the Enrollment of Actuaries.

Enrollment Card

A document signed by an employee as notice of his/her desire to participate in the benefits of a Group Insurance plan.

Entire Contract Clause

Provision in Life Insurance policies stating that the policy and attached application constitute the entire contract between the parties.

Entity Purchase Agreement

The terms for the business to buy back a deceased's share of the business's ownership.

Environmental Damage

The injurious presence in or on land, the atmosphere, or any water course or body of water of solid, liquid, gaseous, or thermal contaminants, irritants, or pollutants.

Environmental Impairment Liability Insurance

Coverage designed to cover losses and liabilities arising from damage to property by pollution.

Equities

Investments in the form of ownership of property, usually common stocks, as distinguished from fixed income bearing securities, such as bonds or mortgages.

Equity in the Unearned Premium Reserve

Amount by which an unearned premium reserve is overstated because it is established on the basis of gross premium rather than net premium.

Errors and Omissions Insurance

Coverage designed to protect an Insured against loss due to a claim of some negligent act, error, or omission by the Insured.

Estate Planning

The process of developing a plan to transfer property from one generation to the next, or within a generation (e.g., from husband to wife).

Estoppel

Legal doctrine that prevents a person from denying the truth of a previous representation of fact, especially when such representation has been relied on by the one to whom the statement was made.

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 and Surplus Insurance

(1) Coverage designed to protect against losses above a certain amount, with losses below that amount usually covered by a regular policy. (2) Insurance for a risk for which coverage is unavailable in the normal market. Such risks are frequently unusual, e.g., damage to a musician's hands or the multiple perils of a convention. See also: Umbrella Liability, Surplus Lines.

Exclusion or Exception

Specified conditions or circumstances, listed in the policy, for which the policy will not provide benefits.

Exclusion ratio

The portion of an annuity payment, considered by tax law to be a return of your initial investment, that is not subject to income tax when received.

Exclusions

Specific conditions or circumstances listed in the policy for which the policy will not provide benefit payments.

Exclusive Agent

An agent who is employed by one and only one insurance company and who solicits business exclusively for that company.

Exclusive Provider Organization (EPO)

People who belong to an EPO must receive their care from affiliated providers; services rendered by unaffiliated providers are not reimbursed. See also: Health Maintenance Organization.

Exclusive Remedy Doctrine

Doctrine in Workers Compensation Insurance which states that Workers Compensation benefits should be the exclusive or sole source of recovery for workers who have a job-related accident or disease. The doctrine has been eroded by legal decisions.

Expense Loading

See Loading.

Experience Modification Factor

Used in Workers Compensation rating to reflect the degree to which a particular employer has experience that is better or worse than expected for that industry. Weighted by employer's credibility factor.

Experience Rating

The process of determining the premium rate for a group risk, wholly or partially on the basis of that group's experience.

Experience Refund

A provision in most group policies for the return of premium to the policyholder because of lower than anticipated claims.

Explosion

A violent expansion, with force and noise, generally due to rapid chemical change; term covered under various Property/Casualty Insurance policies.

Exposure Unit

Unit of measurement used in insurance pricing.

Extended Coverage Insurance

Protection for the Insured against property damage caused by windstorm, hail, smoke, explosion, riot, riot attending a strike, civil commotion, vehicle and aircraft. This is provided in conjunction with the Fire Insurance policy and the various Package Policies.

Extended Nonowned Coverage

Endorsement that can be added to an Automobile Liability Insurance policy that covers the Insured while driving any non-owned automobile on a regular basis.

Extended Reporting Period

An additional period of time after policy expiration during which valid claims will be paid under a claims-made policy of Liability Insurance

Extended Reporting Period Endorsement

Added to a claims-made policy of Liability Insurance to provide an additional period of time during which valid claims will be paid

Extended Term Insurance

A form of insurance available as a non-forfeiture option. It provides the original amount of insurance for a limited period of time.

Extended Unemployment Insurance Benefits

Additional cash benefits paid by federal-state Unemployment Insurance programs to workers who are involuntarily unemployed and who have exhausted their regular weekly cash benefits during periods of high unemployment.

Extra Expense Insurance

Type of Business Income Insurance that covers the extra expenses incurred to continue operations after a loss has occurred.

Face Amount

The amount stated on the face of the policy that will be paid in case of death or at the maturity of the policy. It does not include additional amounts payable under accidental death or other special provisions, or acquired through the application of policy dividends.

Facility

A pooling mechanism for Insureds not able to obtain insurance in the voluntary market. Insurers write and issue policies but cede premium and losses on those policies to a central pool in which all insurers share.

Facility of Payment

A contractual provision that allows the insurer, under stated conditions, to pay insurance benefits of up to $1,000 to a person or persons other than the Insured, the designated beneficiary, or the Insured's estate.

Factory Mutual

Mutual insurance company that aims to insure only properties that meet high underwriting standards. Emphasizes loss prevention.

Facultative Reinsurance

A type of reinsurance in which the reinsurer can accept or reject any risk presented by an insurance company seeking reinsurance.

FAIR Plan

A facility, operating under a government-insurance industry cooperative program, to make Fire Insurance and other forms of property insurance readily available to persons or in locations that have difficulty obtaining such coverage.

Fair Rental Value

Amount payable to an insured homeowner for loss of rental income due to damage that makes an insured premises uninhabitable.

Family Expense Policy

A policy which insures both the policyholder and his/her immediate dependents (usually spouse and children).

Family Income Policy

Special Life Insurance Policy combining decreasing Term and Whole Life Insurance that pays a reduced monthly income (e.g., $10 for each $1000 of Life Insurance) if the Insured dies within the specified period. The monthly income is paid to the end of the period, at which time the face amount of insurance is paid.

Family Policy

A Life Insurance Policy providing insurance on all or several family members in one contract, generally Whole Life Insurance on the principal breadwinner and small amounts of Term Insurance on the other spouse and children, including those born after the policy is issued.

Family Purpose Doctrine

Concept that imputes negligence committed by immediate family members while operating a family car to the owner of the car.

Farm Mutual

Local mutual insurance company that insures farm property in a limited geographical area primarily through assessable policies.

Farmowners-Ranchowners Policy

A Package Policy for a farm or a ranch, providing Property and Liability coverages against personal and business losses.

Federal Crime Insurance

Insurance against burglary, larceny, and robbery losses offered by the federal government where the Federal Insurance Administration has determined that an insurance availability problem exists.

Federal Crop Insurance

Comprehensive coverage at rates subsidized by the federal government for unavoidable crop losses, including those that result from hail, wind, excessive rain, drought, freezes, plant disease, snow, floods, and earthquake. See also: Crop Hail Insurance.

Federal Flood Insurance

Insurance sold by private insurers with rates subsidized by the federal government to persons who reside in flood zones and whose community joins the program and agrees to establish and enforce flood control and land-use measures.

Federal Surety Bond

Type of Surety Bond required by federal agencies that regulates the actions of business firms. It guarantees that the bonded party will comply with federal standards, pay all taxes or duties accrued, or pay any penalty if the bondholder fails to pay.

Federal-Servant Doctrine

Common law defense blocking an injured employee from collecting Workers Compensation benefits if he or she sustained an injury caused in any way by the negligence of a fellow worker.

Fidelity Bond

Bond designed to protect an employer against dishonest or fraudulent acts of employees, such as embezzlement, fraud or theft of money.

Fiduciary Liability Insurance

Coverage designed to protect against loss for any alleged wrongful act by an Insured or by any other person for whom the Insured is legally responsible. It also covers the defense costs in connection with a covered claim. The policy is written on a claims made form. A wrongful act includes any violation of the responsibilities, obligations, or duties imposed on fiduciaries by the Employee Retirement Income Security Act (ERISA), as well as acts, errors, or omissions in the performance of the duties of the plan administrator. Also known as Pension Trust Liability.

Final Average Formula

A pension plan formula that bases retirement benefits on earnings during the final years (e.g., 3 years or 5 years) of employment.

Financial Responsibility Law

A state law which may require motorists to furnish evidence, either before or after involvement in an auto accident (depending on the individual state's law), of ability to pay for damages up to certain minimum dollar limits. These requirements commonly are met by carrying Auto Liability Insurance with specified minimum limits or more.

Fire Insurance

Coverage designed to protect against losses caused by fire and lightning, plus resultant damage caused by smoke and water.

Fire Legal Liability

Liability of a firm or person for fire or explosion damage caused by negligence of and damage to property of others. Coverage is needed for leased or rented property for which the Insured could be held legally liable for damage to the property.

First Party Claim

A demand for payment under an insurance policy made by a policyholder reporting an insured event directly to his company.

First Party Coverage

An insurance coverage under which the policyholder collects for losses from the Insured's own insurer rather than from the insurer of the person who caused an accident.

Fixed Amount Option

Life Insurance settlement option in which the policy proceeds are paid out in fixed amounts.

Fixed Annuity

Annuity whose periodic payment is a guaranteed fixed amount.

Fixed Period Option

Life Insurance settlement option in which the policy proceeds are paid out in fixed amounts.

Flat Schedule

A type of schedule in Group Insurance under which everyone is insured for the same benefits regardless of salary, position, or other circumstances.

Flex-Rating Law

Type of rating law in which prior approval of the rates is required only if the rates exceed a certain percentage above and below the rates previously filed.

Flexible Premium Policy or Annuity

A Life Accident Policy or Annuity under which the policyholder or contract holder may vary the amounts or timing of premium payments.

Flexible Premium Variable Life Insurance

A Life Insurance Policy that combines the premium flexibility feature of Universal Life Insurance with the equity-based benefit feature of Variable Life Insurance.

Flood Insurance

Coverage against loss resulting from the flood peril, widely available at low cost under a program developed by the private industry and the federal government.

Foreign Insurer

An insurer is a foreign company in any state other than the one in which it is incorporated. See also: Domestic Insurer; Alien Insurer.

Forfeitures

Amounts contributed on behalf of terminated, non-vested participants. In a pension plan, such amounts must be applied to reducing future employer contributions. In a profit-sharing plan, such amounts may be allocated to the accounts of remaining participants.

Forgery or Alteration Coverage Form

Commercial Crime Insurance form by the Insurance Services Office that covers loss resulting from the forgery or alteration of checks, drafts, bills of exchange, promissory notes, and similar instruments.

Forgery or Alteration Insurance

Coverage designed to protect from loss sustained through forgery or alteration of outgoing negotiable instruments made or drawn by or on the accounts of the Insured, or made or drawn by one acting as the Insured's agent. This includes loss caused by (1) checks or drafts made or drawn in the Insured's name, payable to a fictitious entity, (2) checks or drafts, including payroll checks, executed through forged endorsements, and (3) alteration of the amount of a check or draft.

Fortuitous Loss

Unforeseen and unexpected loss that occurs as a result of chance.

Franchise Deductible

Deductible commonly found in Marine Insurance contracts in which the insurer has no liability if the loss is under a certain amount, but once this amount is exceeded, the entire loss is paid in full.

Franchise Insurance

Insurance under individual contracts issued to the employees of a common employer or the members of an association under an arrangement by which the employer or association agrees to collect the premiums and remit them to the insurer.

Fraternal Insurance

A cooperative type of insurance provided by social organizations for their members.

Fraternal Life Insurance

Life Insurance provided by fraternal orders or societies to their members.

Fraternal Society

A social organization that provides insurance for its members.

Fronting Company

A domestic insurance company that provides claims or administrative services to a captive.

Fully Insured

Insured status of a covered person under the Old-Age, Survivors, and Disability Insurance (OASDI) program if he or she meets certain criteria: forty quarters of coverage or one quarter of coverage for each year after 1950 (or after age twenty-one, if later) up to the year of death, disability or attainment of age sixty-two.

Funded Retirement Plan

A plan under which funds are set aside in advance to provide expected benefits.

Funding Agency

A financial institution or individual that provides for the accumulation or administration of the pension contributions that will be used to pay pension benefits.

Funding Instrument

An insurance contract or trust agreement that states the terms under which the funding agency will accumulate, administer, and disburse pension funds.

Future Increase Option

A provision found in some policies that allows the Insured to purchase additional Disability Income Insurance at specified future dates regardless of the Insured's physical condition.

General Agency System

Type of Life Insurance marketing system in which the General Agent is an independent businessperson who represents only one insurer, is in charge of a territory, and is responsible for hiring, training, and motivating new agents.

General Average

In Ocean Marine Insurance, a loss incurred for the common good that is shared by all parties to the venture.

General Damages

Damages awarded to an injured person for intangible loss which cannot be measured directly by dollars. Frequently called pain and suffering. General damages are distinguished from special damages which are awarded for actual economic loss, such as medical costs, loss of income, etc.

General Liability Insurance

Coverage that pertains, for the most part, to claims arising out of the Insured's liability for injuries or damage caused by ownership of property, manufacturing operations, contracting operations, sale or distribution of products, and the operation of machinery, as well as professional services.

General Partner Liability Insurance

Coverage designed to protect against claims of loss against a general partner, for failure to properly exercise his fiduciary duty. Also known as General Partners' Liability and Limited Partnership Reimbursement coverage. A general partner's management and fiduciary responsibilities to a limited partnership closely parallel the director's or officer's to a corporation. Exposure occurs when general partners become the financial managers of a limited partnership. The directors and officers of corporate general partners share this type of exposure.

Generally Accepted Accounting Principles (GAAP)

Principles of accounting and reporting business results developed by the American Institute of Public Accountants.

Generation Skipping Tax

A transfer tax imposed on gift or inheritance to those at least two generations younger than the person making the transfer

Glass Insurance

Protection for loss of or damage to glass and its appurtenances.

Good Student Discount

Reduction of automobile premium for a young driver at least sixteen who ranks in the upper 20 percent of his or her class, has a B or 3.0 average, or is on the Dean's List or Honor Roll. It is based on the premise that good students are better drivers.

Grace Period

A specified period after a premium payment is due, in which the policyholder may make such payment, and during which the protection of the policy continues.

Graded Commission Scale

A commission scale providing for payment of a high first-year commission and lower renewal commissions.

Gross Estate

All of the assets and liabilities owned at death.

Gross Negligence

The intentional failure to perform a manifest duty in reckless disregard of the consequences as affecting the life or property of another.

Gross Premium

The premium paid by the policyholder.

Gross Rate

The sum of the pure premium and a loading element.

Group Annuity

A pension plan providing annuities at retirement to a group of people under a master contract. It is usually issued to an employer for the benefit of employees. The individual members of the group hold certificates as evidence of their annuities.

Group Annuity Contract

A contract issued by a Life Insurance company that may be used as the funding instrument for benefits to be made in accordance with a pension plan. A single master contract provides that the group of persons participating in the plan will receive annuities during retirement. Individual certificates stating coverage may be issued to members of the group.

Group Contract

A contract of insurance made with an employer or other entity that covers a group of persons identified as individuals by reference to their relationship to the entity.

Group Creditor Life Insurance

Life Insurance provided to debtors by a lending institution to provide for the cancellation of any outstanding debt should the borrower die. Normally Term Insurance limited to the amount of the loan.

Group Health Insurance

Group benefits are an important way to attract and retain quality employees, but can also be a major expense for an employer. We represent all of the major carriers and can find you the plan or plans that best fit the needs of your company and of your employees.

Group Insurance

Insurance written on a number of people under a single master policy, issued to their employer or to an association with which they are affiliated.

Group Life Insurance

Life Insurance usually without medical examination, on a group of people under a master policy. It is typically issued to an employer for the benefit of employees, or to members of an association, for example a professional membership group. The individual members of the group hold certificates as evidence of their insurance.

Group Ordinary Life Insurance

Group Insurance plan providing Life Insurance for employees. Traditional Whole Life policy is split into decreasing insurance protection and increasing cash values.

Group Paid-Up Life Insurance

Accumulating units of single premium Whole Life Insurance and decreasing Term Insurance, which together equal the face amount of the policy. Provided through a Group Life Insurance plan.

Group Permanent Plan

Type of pension plan in which cash value Life Insurance is issued on a group basis and cash values in each policy are used to pay retirement benefits when a worker retires.

Group Term Life Insurance

Most common form of Group Life Insurance. Yearly renewable Term Insurance on employees during their working careers.

Group Universal Life Products (GULP)

Universal Life Insurance plans sold to members of a group, such as individual employees of an employer. There are some differences between GULP plans and individual Universal Life plans; for instance, GULP expense charges generally are lower than those assessed against individual policies.

Guaranteed Insurability Option

See: Future Increase Option.

Guaranteed Investment Contract

An investment contract with an insurer in which the insurer guarantees both principal and interest on a pension contribution.

Guaranteed Purchase Option

Benefit that can be added to a Life Insurance policy permitting the Insured to purchase additional amounts of life insurance at specified times in the future without requiring evidence of insurability.

Guaranteed Renewable Contract

A provision in an insurance policy that gives the Insured the right to continue the policy in force by the timely payment of premiums for a substantial period of time, during which period the insurer is prohibited from making unilaterally any change in any provision of the contract, while the contract is in force, other than a change in the premium rate for classes of policyholders.

Guaranty Fund

A fund, derived from assessments against solvent insurance companies, to absorb losses of claimants against insolvent insurance companies.

Hard Market

That part of the insurance sales cycle in which competitive pricing is at a minimum as companies charge the premiums necessary to meet their underwriting losses in order to avoid insolvency and boost capacity; usually associated with a sharp decline in capacity. See also: Soft Market.

Health Insurance

Coverage designed to protect against financial losses resulting from sickness or accidental bodily injury. Health Insurance coverages include Accident Insurance, Disability Income Insurance, Medical Expense Insurance, and Accidental Death and Dismemberment Insurance.

Health Maintenance Organization (HMO)

An organization that provides a wide range of comprehensive health care services for a specified group at a fixed periodic payment. The HMO can be contracted with and sponsored by the government, medical schools, hospitals, employers, labor unions, consumer groups, insurance companies, and hospital-medical plans.

High-Risk Automobile Insurer

Company that specializes in insuring motorists who have poor driving records or have been canceled or refused insurance.

Hold-Harmless Clause

Clause written into a contract by which one party agrees to release another party from all legal liability, such as a retailer who agrees to release the manufacturer from legal liability if the product injures someone.

Home Service Life Insurance

Industrial Life Insurance and monthly debit ordinary Life Insurance contracts that are serviced by agents who call on the policyowners at their homes to collect the premiums. The amount of Life Insurance per policy generally is larger than $1,000.

Homeowners Policy

A package of insurance designed to provide homeowners with a broad range of Property and Liability coverages, pertaining to events at home as well as away from home (although not automobile-related).

Hospital Admissions Program

An arrangement to facilitate admission of persons covered by Health Insurance to hospitals and to assure the prompt payment of applicable insurance benefits to hospitals.

Hospital Expense Insurance

A form of Health Insurance designed to provide specific benefits for daily hospital room and board and hospital services during hospital confinement. Generally the policy also provides benefits for surgical operations and for in-hospital doctor's visits, in which case the policy is referred to as a Hospital and Surgical Expense Policy.

Hospital Indemnity

A form of Health Insurance which provides a stipulated daily, weekly, or monthly indemnity during hospital confinement. The indemnity is payable on an unallocated basis without regard to the actual expense of hospital confinement.

Hospital Medical Insurance

A term used to indicate protection which provides benefits for the cost of any or all of the numerous health care services normally covered under various health care plans.

Hospital Miscellaneous Services

Services other than room and board and general nursing services provided by a hospital during hospital confinement. Included are such items as x- ray examinations, laboratory tests, medicines, surgical dressings, anesthetics (including the administration thereof), and use of operating room.

Hull Insurance

(1) Class of Ocean Marine Insurance that covers physical damage to the ship or vessel insured. Typically written on an all-risks basis. (2) Physical Damage Insurance on aircraft, similar to Collision Insurance in an Automobile Policy.

Human Life Value

For purposes of Life Insurance, the net present value of the family's share of the deceased breadwinner's future earnings.

Hurricane

A tropical storm marked by extremely low barometric pressure and circular winds with a velocity of 75 miles an hour or more.

Immediate Annuity

An annuity providing for payment to begin immediately.

Immediate Participation Guarantee Plan (IPG)

Type of pension plan in which all pension contributions are deposited in an unallocated fund and used directly to pay benefits to retirees.

Imputed Negligence

Case in which responsibility for damage can be transferred from the negligent party to another person, such as an employer.

Incontestability

A provision in Life Insurance policies that states that, except for non-payment of premiums and certain other circumstances, the policy shall be incontestable during the lifetime of the Insured after the policy has been in force for two years .

Incontestable Clause

An optional clause which may be used in noncancelable or guaranteed renewable Health Insurance contracts providing that the insurer may not contest the validity of the contract after it has been in force for two (sometimes three) years.

Incurred Losses

Expense account in an insurance company's Income Statement reflecting the claims paid during the policy year plus the loss reserves as of the end of the policy year, minus the corresponding reserves as of the beginning of the policy year. The difference between the year end and beginning of the year claim reserves is called the increase in reserves and may be added directly to the paid claims to produce the incurred losses.

Incurred-but-not-Reported (IBNR) Reserves

Liability account on an insurer's balance sheet reflecting claims that are expected based upon statistical projections but which have not yet been reported to the insurer.

Indemnification

Compensation to the victim of a loss, in whole or in part, by payment, repair, or replacement.

Independent Adjustor

Claims adjustor who offers his or her services to insurance companies and is compensated by a fee.

Independent Agency System

Type of Property and Liability Insurance marketing system, sometimes called the American Agency System, in which the agent is an independent business person representing several companies. The Agency has legal right to income from the expirations and renewal rights to the business, and the agent is compensated by commissions.

Independent Agent

An independent business person who usually represents two or more insurance companies in a sales and service capacity and who is compensated by commissions.

Indeterminate Premium Whole Life Insurance

Nonparticipating Whole Life Policy that permits the insurer to adjust premiums based on anticipated future experience. Initial premiums are guaranteed for a certain period. After the initial guaranteed period expires, the insurer can increase premiums up to some maximum limit.

Indirect Loss

See: Consequential Loss.

Individual Contract

A contract of Health Insurance made with an individual called the policyholder or the Insured, which normally covers the individual and, in certain instances, members of his family.

Individual Deductible

Amount that an Insured and each person of his or her family covered by the policy must pay before the group or individual Medical Insurance policy begins to pay for medical expenses.

Individual Health Insurance

Lost your job? No more company benefits? Age out as a dependent on your parent's coverage? Have to wait a period of time before becoming eligible for Group Coverage with your employer? We can help! Individual Health Insurance is a product that can be put in place quickly so you don't have to worry about being without medical coverage. There are a variety of plans available, all backed by the State of New Jersey Department of Banking and Insurance. The plans range from less expensive Catastrophic Coverage to pricey Indemnity Coverage; we can help you decide which plan is right for you and your circumstances. By New Jersey law, brokers can only sell you Oxford and Horizon individual plans; all other carriers require you to deal directly with them. But these Oxford and Horizon plans are well priced and offer a good selection of options. We will be glad to provide you with contact numbers for other carriers if you prefer.

Individual Insurance

Policies which provide protection to the policyholder and/or his/her family. Sometimes called Personal Insurance as distinct from Group and Blanket Insurance.

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 polices usually provide both Life Insurance and retirement benefits.

Individual Retirement Account (IRA)

An account to which an individual can make annual contributions of 100% of earnings up to $2,000 ($2,250 for a one-income married couple). These contributions are tax deductible for most workers, and income earned in the account is deferred until withdrawn.

Industrial Life Insurance

Life Insurance issued in small amounts with premiums payable on a weekly or monthly basis. The premiums are generally collected at the Insured's home each week by an agent of the company. Sometimes referred to as Debit Insurance.

Inflation-Guard Endorsement

Endorsement added at the Insured's request to a Homeowners Policy to increase periodically the face amount of insurance of the dwelling and other policy coverages by a specified percentage.

Inheritance Tax

A tax on the estate of a deceased person.

Initial Past Service Liability

The actuarial value (single sum) of the past service benefits as of the effective date of the establishment of a retirement plan, or at the date of the latest adjustment.

Initial Reserve

In Life Insurance, the reserve at the beginning of any policy year.

Inland Marine Insurance

A form of insurance designed to cover articles in transit as well as bridges, tunnels and other means of transportation and communication. Besides goods in transit (generally excepting ocean cargo), it includes numerous Floater Policies, such as those covering personal effects, personal property, jewelry, furs, fine arts, and other items.

Inspection Report

A report (usually written) of an investigation of an applicant, generally conducted by an independent agency that specializes in insurance investigations. The report covers such matters as occupation, financial status, health history, and moral problems.

Insurable Risk

The conditions that make a risk insurable are (a) the peril insured against must produce a definite loss not under the control of the Insured, (b) there must be a large number of homogeneous exposures subject to the same perils, (c) the loss must be calculable and the cost of insuring it must be economically feasible, (d) the peril must be unlikely to affect all Insureds simultaneously, and (e) the loss produced by a risk must be definite and have a potential to be financially serious.

Insurance Commissioner

The top insurance regulatory official in a state.

Insurance Company

(1) An organization chartered to operate as an insurer. (2) Any corporation primarily engaged in the business of furnishing insurance protection to individuals or organizations.

Insurance Examiner

The representative of a state insurance department assigned to participate in the official audit and examination of the affairs of an insurance company.

Insurance Exchange

Term used to describe a facility that exists in a few states to provide a market for reinsurance and for the insurance of large or unusual domestic and foreign risks that are difficult to insure in the normal markets. Examples are the New York Insurance Exchange, the Insurance Exchange of the Americas, and the Illinois Insurance Exchange.

Insurance Guaranty Funds

State Funds that provide for the payment of unpaid claims of insolvent insurers. Such funds are frequently notional, in that they are commingled as part of a state government's general funds.

Insurance Services Offices (ISO)

Major rating organization in Property and Liability Insurance that drafts policy forms for Personal and Commercial Lines of insurance and provides rate data on loss costs for Property and Liability Insurance lines.

Insured Life

The person on whose life the policy is issued.

Insuring Agreement

That part of an insurance contract that states the promises of the insurer.

Insuring Clause

The clause in an insurance contract which sets forth the type of loss being covered by the policy and the parties to the insurance contract.

Integration

A coordination of pension, disability or other benefit with the other sources of income, such as Social Security benefit, through a specific formula designed to ensure reasonable income replacement. Qualified plans must integrate so that total benefits are non-discriminatory between rank and file employees and owners, officers or highly compensated employees.

Inter vivos Trust

A trust created while the creator of the trust is living. Also known as a Living Trust.

Interest Option

Life Insurance settlement option in which the principal is retained by the insurer and interest is paid periodically.

Interest-Adjusted Method

Method of determining cost to an Insured of a Life Insurance policy that considers the time cost of money by applying an interest factor to each element of cost.

Investment Income

Line reported in the Income Statement of a company's financial statements that states the income generated by a company's portfolio of investments (such as in bonds, stocks, or other financial ventures).

Investment Only Contract

Type of funding instrument that uses only the investment services of an insurer.

IPG Plan

See: Immediate Participation Guarantee Plan.

Irrevocable Beneficiary

Beneficiary designation allowing no change to be made in the beneficiary of an insurance policy without the beneficiary's consent.

Irrevocable Trust

A trust in which the creator does not reserve the right to reacquire the trust property.

Jettison

Hazard covered under a Marine Cargo Insurance policy, defined as the throwing overboard of cargo when done to preserve property from loss. Coverage is not provided under this clause for goods jettisoned because of spoilage, such as foods, plants, hides, etc. (The spoilage may be covered under another clause, or another policy, which can be determined by consulting with your insurance agent). See also: Marine Cargo Insurance.

Jeweler's Block Insurance

Coverage designed to protect the Insured's stock, property left with the Insured for repair or other purposes, and the Insured's interest in and legal liability for property on consignment from others in the jewelry trade. The policy is written on a special form. Some of the more prevalent perils covered are fire, open stock burglary, inside and outside holdup, safe burglary, theft, pilferage, kidnapping, shoplifting, window smashing, damage or loss of salesman's samples in transit, loss in transit by registered mail, water damage, sprinkler leakage, and smoke damage. See also: Bailee Risk.

Joint Tenants

A form of joint property ownership with right of survivorship, i.e., in which the survivors automatically own the share of a deceased co-owner.

Joint Underwriting Association

A device used to provide insurance to those who cannot obtain insurance in the voluntary market. Certain companies (called carriers) issue policies at one rate and handle claims, but the ultimate costs are borne by all companies writing insurance in that state.

Joint-and-Several Liability

A legal principle that permits the injured party in a tort action to recover the entire amount of compensation due for injuries from any defendant who is able to pay, regardless of the degree of that party's negligence, once any liability by that defendant has been established.

Joint-and-Survivor Annuity

A contract that provides income periodically, payable during the longer lifetime of two persons. The amount payable may decrease at the death of one or the other. See also: Contingent Annuity Option.

Judgment Rating

Rate-making method for which each exposure is individually evaluated and the rate is determined largely by the underwriter's judgment.

Judicial Bond

Type of Surety Bond used for court proceedings and guaranteeing that the party bonded will fulfill certain obligations specified by law, for example, fiduciary responsibilities.

Jumbo Risk

A risk involving exceptionally high limits.

Jumping Juvenile Insurance Policy

Life Insurance purchased by parents for children under a specified age. Provides permanent Life Insurance that increases in face value five times at age 21, with no increase in premium.

Kenney Rule

Concept permitting a Property/Casualty insurer to write $2 of new net premiums for each $1 of policyholders surplus.

Keogh (HR 10) Account

An account to which a self-employed person can make annual tax deductible contributions and which may be withdrawn without penalty after the age of 59 1/2. Income generated in the account accumulates tax-deferred.

Key-Person Insurance

Insurance designed to protect a business firm against the loss of income resulting from the death or disability of a key employee.

Labor-Management Relations Act of 1947 (Taft-Hartley Act)

Law which controls conditions under which an employer may pay any money to a representative (e.g., union representative) of employees.

Lapsed Policy

(1) A policy terminated for non-payment of premiums. (2) A policy terminated for non-payment occurring before the policy has a cash or other surrender value.

Last Clear Chance Rule

Statutory modification of the contributory negligence law allowing the claimant endangered by his or her own negligence to recover damages from a defendant if the defendant has a last clear chance to avoid the accident but fails to do so.

Law of Large Numbers

Concept that the greater the number of exposures, the more closely will actual results approach the probable results expected from an infinite number of exposures.

Leasehold Interest Insurance

Coverage designed to protect a tenant in the event his or her lease is terminated. It is a form of Time Element Coverage that serves to provide coverage for the difference between the old rental and a new, likely more expensive rental.

Legal Reserve

The minimum reserve which a company must keep to meet future claims and obligations as they are calculated under state insurance regulations.

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 Commission Scale

A commission scale providing for payment of commissions at the same rate every year the policy is in force.

Level Premium

A premium which remains unchanged throughout the life of a policy.

Level Premium Life Insurance

Life Insurance for which the premium remains the same from year to year. The premium is more than the actual cost of protection during the earlier years of the policy and less than the actual cost in the later years. The building of a reserve is a natural result of level premiums. The overpayments in the early years, together with the interest that is earned, serve to balance out the underpayments of the later years.

Liability

Any legally enforceable obligation.

Liability Insurance

Insurance designed to protect the policyholder from financial loss due to liability resulting from injuries to other persons or damage to their property.

Liability Limits

The sum or sums stipulated in an insurance contract beyond which an insurance company is not liable to protect the Insured.

Liability Without Fault

Principle on which Workers Compensation is based, holding the employer absolutely liable for occupational injuries or disease suffered by workers, regardless of who is at fault.

License and Permit Bond

Type of Surety Bond guaranteeing that the person bonded will comply with all laws and regulations that govern his or her activities.

Life Annuity

A contract that provides for a series of payments under which payments, once begun, continue throughout the remaining lifetime of the annuitant but not beyond.

Life Annuity With 10 Years Certain

A annuity contract which pays an income for as long as the annuitant lives, but if death occurs within 10 years after the annuity payments begin, payments are continued to a named beneficiary for the remainder of the 10 years.

Life Expectancy

The average number of years of life remaining for a group of persons of a given age according to a particular mortality table.

Life Income Option

Life Insurance settlement option in which the policy proceeds are paid during the lifetime of the beneficiary. A certain number of guaranteed payments may also be payable.

Life Insurance

Insurance providing for payment of a specified amount on the Insured's death, either to his or her estate or to a designated beneficiary; or in certain cases to the policyholder at a specified date.

Life Insurance in Force

Amount reported in an insurance company's financial statements that sets out the sum of the face amounts, plus dividend additions, of Life Insurance polices outstanding at a given time. Additional amounts payable under accidental death or other special provisions are not included.

Life Insurance Programming

Systematic method of determining the Insured's financial goals, which are translated into specific amounts of Life Insurance, then periodically reviewed for possible changes.

Lifetime Disability Benefit

A benefit to help replace income lost by an insured person as long as he/she is totally disabled.

Limited Payment Life Insurance

Whole Life Insurance on which premiums are payable for a specified number of years or until death (if death occurs before the end of the specified period).

Limited Policy

An insurance contract which covers only certain specified diseases or accidents.

Liquidation

The process of dissolving a company by selling its assets for cash.

Liquor Liability Insurance

Coverage designed to protect an individual or entity for bodily injury or property damage to another for which an Insured may be held liable by reason of causing or contributing to the intoxication of any person; furnishing alcoholic beverages to a person under the legal drinking age or under the influence of alcohol; or violating any statute, ordinance, or regulation relating to the sale, gift, distribution, or use of alcoholic beverages.

Liquor Liability Law

See: Dramshop Law.

Living Benefits Rider

A rider that allows Insureds who are terminally ill or who suffer from certain catastrophic diseases to collect part of their Life Insurance benefits before they die, primarily to pay for the care they require.

Living Trust

A trust created while the creator of the trust is living. Also known as an Inter Vivos Trust.

Long Term Care Insurance

In the event of a medical situation, Long Term Care Insurance can provide financial assistance for in-home care, an assistant-living residence, or a nursing home. This product is becoming more popular as the population ages and we find that we need additional services for ourselves or for our parents. Long Term Care plans are very flexible and how they can be set up: you can pick and choose what you want covered, and the duration of level of benefits.

Long-Term Care

The continuum of broad-ranged maintenance and health services to the chronically ill, disabled, or retarded. Services may be provided on an inpatient (rehabilitation facility, nursing home, mental hospital), outpatient, or at-home basis.

Long-Term Disability Income Insurance

Insurance issued to an employer (group) or individual to provide a reasonable replacement of a portion of an employee's earned income lost through serious and prolonged illness or injury during the normal work career. See also: Integration.

Loss Avoidance

A risk management technique whereby a situation or activity that may result in a loss for a firm is avoided or abandoned.

Loss control

Any conscious action (or decision not to act) intended to reduce the frequency, severity, or unpredictability of accidental losses.

Loss Expense--Allocated

Handling expenses, such as legal or independent adjuster fees, paid by an insurance company in settling a claim which can be definitely charged to that particular claim.

Loss Expense--Unallocated

Salaries and other expenses incurred in connection with the operation of a claim department of an insurance carrier which cannot be charged to individual claims.

Loss of Maintenance Fees Insurance

Coverage designed to protect an association (such as a condominium association) against the loss of maintenance fees when occupancies have been interrupted or impaired by the occurrence of any insured peril. This is a form of Business Interruption Insurance for the association. It assures continuous income while a building is untenantable.

Loss Payable Clause

Means of protecting a mortgagee's interest in property by directing the insurer to make a loss payment to the mortgagee in the event of a loss.

Loss Prevention

Any measure which reduces the probability or frequency of a particular loss but does not eliminate completely all possibility of that loss

Loss Ratio

The percent which losses bear to premiums (either earned or written) for a given period.

Loss Reserve

The amount set up as the estimated cost of a claim. See also: IBNR Reserve.

Lump-Sum Distribution

Payment within one taxable year of the entire balance payable to an employee from a trust which forms part of a qualified pension or employee annuity plan on account of that person's death, separation from service or attainment of age 59 1/2.

Mail Order Insurer

Type of insurance company that sells policies through the mail or other mass media, eliminating need for agents.

Major Medical Expense Insurance

A form of Health Insurance that provides benefits for most types of medical expense up to a high maximum benefit, such as $250,000 or higher after a substantial deductible, such as $500 or more. Such contracts may contain internal limits and are normally subject to coinsurance.

Major Medical Insurance

Health Insurance designed to finance the expense of major illness and injury. Characterized by large benefit maximums ranging up to $250,000 or higher above an initial deductible, which reimburses the major part of all charges for hospital, doctor, private nurses, medical appliances, prescribed out-of-hospital treatment, drugs, and medicines. The insured person pays the remainder.

Malingering

The practice of feigning illness or inability to work in order to collect insurance benefits.

Malpractice Insurance

Coverage for a professional practitioner, such as a doctor or a lawyer, against liability claims resulting from alleged malpractice in the performance of professional services.

Managed Care

Health care systems that integrate the financing and delivery of appropriate health care services to covered individuals by arrangements with selected providers to furnish a comprehensive set of health care services.

Manual Rate

The premium rate developed for a group's insurance coverage from the company's standard rate tables normally referred to as its rate manual or underwriting manual.

Manuscript Policy

Policy designed for a firm's specific needs and requirements.

Marine Insurance

A form of insurance primarily concerned with means of transportation and communication, and with goods in transit. See also: Inland Marine Insurance and Ocean Marine Insurance.

Marital Deduction

A reduction of an estate for estate tax purposes, which is available if the deceased is survived by his or her spouse.

Market Price (or Market Value)

The price at which a security can be bought or sold at any particular time.

Master Policy

A policy that is issued to an employer or trustee, establishing a group insurance plan for designated members of an eligible group.

Material Damage

Automobile Insurance designed to provide financial protection against damage to an insured vehicle. It includes automobile comprehensive, collision, fire and theft. Material damage and physical damage are terms that often are used interchangeably.

Maximum Family Benefit

The largest amount in Social Security benefits that will be paid to any family unit.

McCarran-Ferguson Act

Federal law passed in 1945 stating that continued regulation of the insurance industry by the states is in the public interest and that federal antitrust laws apply to insurance only to the extent that the industry is not regulated by state law.

Medical Examination

The examination given by a qualified physician to determine the insurability of an applicant. A medical examination may also be used to determine whether an Insured claiming disability is actually disabled.

Medical Expense Insurance

A form of Health Insurance that provides benefits for expenses incurred for medical care. This form of Health Insurance provides benefits for expenses of physicians, hospital, nursing, and related health services, and supplies. These benefits may be related to actual expense, specified sums, or services rendered. Such insurance sometimes includes benefits for prevention and diagnosis as well as treatment.

Medical Expense Liability Insurance

A General Liability Coverage in which the insurer reimburses, without regard to the Insured's liability, the Insured and others (as specifically provided in the policy) for medical and funeral expenses incurred by such persons as a result of bodily injury or death sustained by accident under the conditions specified in the policy.

Medical Malpractice

Improper care or treatment by a physician, hospital, or other provider of health care.

Medical Payments Insurance

A coverage, available in various Liability Insurance policies, in which their insurer agrees to reimburse the Insured and others, without regard for the Insured's liability, for medical or funeral expenses incurred as the result of bodily injury or death by accident under specified conditions.

Minimum Benefits

A provision that a minimum amount of annuity will be paid if the regular benefit formula produces less. This minimum is usually payable only if certain service requirements are met at retirement.

Minimum Group

The least number of employees permitted under a state law to effect a group for insurance purposes; the purpose is to maintain some sort of proper division between individual policy insurance and the group forms.

Minimum Premium Plan (MPP)

An arrangement under which an insurance carrier will, for a fee, handle the administration of claims and insure against large claims for a self-insured group.

Miscellaneous Expenses

Expenses in connection with Hospital Insurance, hospital charges other than room and board, such as X-rays, drugs, laboratory fees, and other ancillary charges. (Sometimes referred to as ancillary charges.)

Miscellaneous Hospital Expense Benefit

A provision in a Hospital Expense Policy providing for the payment of a benefit for expenses for necessary hospital services and supplies during a period of hospital confinement. Expenses commonly covered under this benefit include those for x-ray examinations, laboratory tests, medicines, surgical dressings, anesthetics (including administration thereof), and use of operating room.

Misrepresentation

A false, incorrect, improper, or incomplete statement of a material fact, made in the application for an insurance policy.

Mode of Premium Payment

The frequency with which premiums are paid: monthly, quarterly, semiannually, or annually.

Moral Hazard

Hazard arising from any nonphysical, personal characteristic of a risk that increases the possibility of loss or may intensify the severity of loss, for instance, bad habits, low integrity or poor financial standing.

Morbidity

The incidence and severity of sicknesses and accidents in a defined class or classes or persons.

Morbidity Tables

Actuarial statistics showing the frequency and duration of disability.

Mortality

The rate at which members of a group die in a specified period of time. Actual mortality rates are compared to the mortality table.

Mortality Table

A chart showing how many members of a group, starting at a certain age, will be alive at each succeeding age. It is used to calculate the probability of dying in, or surviving through, any period, and for determining the value of an annuity. To be appropriate for a specific group, it should be based on the experience of individuals having common characteristics, including such variables as sex and occupation.

Multi-Employer Plan

A plan maintained according to a collective bargaining agreement, to which more than one employer contributes (e.g. multiple insurance_school districts). Under ERISA, at the beginning of the plan, no single employer may contribute as much as 50% of the total, and thereafter as much as 75%. An employee may change employers within the group without losing retirement benefits unless a break in service (under the plan) cancels credits earned before the break.

Multi-Peril Policy

A Package Policy which provides protection against a number of separate perils. Multi-Peril Policies are not necessarily multiple line policies, since the combined perils may be all within one insurance line.

Multiple Employer Trust

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.

Mutual Insurance Company

An insurance company in which ownership and control is vested in the policyholders and a portion of surplus earnings may return to policyholders in the form of dividends. No capital stock (e.g., common stock) exists.

Named Perils

Coverage in a Property Policy that provides protection against loss from only the perils specifically listed in the policy (rather than protection from physical loss). Examples of named perils are fire, windstorm, theft, smoke, etc. See also: Basic Form, Special Risk Insurance.

National Association of Insurance Commissioners (NAIC)

The association of insurance commissioners of various states formed to promote national uniformity in the regulation of insurance.

Net Premium

(1) The portion of the premium rate which is designed to cover benefits of the policy, but not expenses, contingencies, or profit. (2)The portion of the premium remitted to the home office by an agent after deduction of the agent's commission. (3) Net written premium.

Net Present Value

The value today of an asset to be received in the future, either as a single payment or a series of payments (such as an annuity). The value is considered to be different if received at a later date because of the time value of money.

Net Written Premiums

Premium income retained by insurance companies, directly or through reinsurance, after payments made for reinsurance.

No-Fault Automobile Insurance

A form of insurance by which a person's financial losses resulting from an automobile accident are paid by his or her own insurer regardless of who was at fault.

Non-Admitted Insurance Company

An insurance company not licensed to do business in a particular state; such a company may sell excess and surplus insurance in the state if admitted insurers decline to write a risk.

Noncancellable

A clause stating that the Insured has the right to continue a policy in force by the timely payments of premiums set forth in the contract for some extended period of time specified, during which period the insurer has no right to make unilaterally any change in any provision of the contract while the contract is in force.

Nonconfining Sickness

A sickness that disables the insured person but does not confine him to his home or a hospital.

Noncontributory

A term applied to employee benefit plans under which the employer bears the full cost of the benefits for the employees. Generally, under noncontributory policies one hundred percent of the eligible employees must be insured.

Nondisabling Injury

An injury which may require medical care, but does not result in loss of working time or income.

Nondisabling Injury Benefit

A benefit in some Disability Income Policies providing payment for medical expense due to injury when medical care is necessary but the Insured is not totally disabled.

Nonforfeiture Option

One of the choices available in many Life Insurance policies if the policyholder discontinues premium payments on a policy with a cash value. This, if any, may be taken in cash, as extended Term Insurance or as reduced paid-up insurance.

Nonmedical Limit

The maximum face value of a policy that a given company will issue without the applicant taking a medical examination.

Nonoccupational Disability Policy

Contract which insures a person against off-the-job accident or sickness. It does not cover disability resulting from injury or sickness covered by Workers' Compensation. Group accident and sickness policies are frequently non-occupational.

Nonparticipating Insurance

Plan of insurance under which the policyholder is not entitled to share in the dividend distribution of the company.

Nonparticipating Policy

A Life Insurance policy, generally issued only by mutual insurance companies, in which the company does not distribute to policyholders any part of its surplus. Premiums for nonparticipating polices are usually initially lower than for comparable participating polices, but premiums can be varied. The current premium reflects anticipated experience that is more favorable than the company is willing to guarantee, and it may be changed from time to time. See also: Participating policy

Nonprofit Insurers

Persons organized under special state laws to provide hospital, medical, or dental insurance on a nonprofit basis. The laws exempt them from certain types of taxes.

Occupational Hazards

Occupations which expose the Insured to greater than normal physical danger by the very nature of the work in which the Insured is engaged, and the varying periods of absence from the occupation, due to the disability, that can be expected.

Occurrence policy

A Liability Insurance policy that covers claims arising out of occurrences that take place during the policy period, regardless of when the claim is filed.

Ocean Marine Insurance

Coverage on all types of vessels, including liabilities connected with them, and on their cargoes.

Operating Ratio

The sum of expenses and losses expressed as a percent of earned premium.

Optionally Renewable Contract

A contract of Health Insurance in which the insurer reserves the right to terminate the coverage at any anniversary or, in some cases, at any premium due date, but does not have the right to terminate coverage between such dates.

Ordinance or Law Insurance

Coverage designed to provide protection against financial loss for (1) the loss of value of an undamaged portion of the existing building which must be demolished and/or removed to conform with municipal ordinance, code, etc.; (2) the cost of demolition of the undamaged portions of the building necessitated by the enforcement of building, zoning or land use ordinance or law; (3) any increased expenses incurred to replace the building with one conforming to building laws or ordinances, or to repair the damaged building so that it meets the specifications of current building laws or ordinances.

Ordinary Life Insurance

Life Insurance usually issued in amounts of $1,000 or more with premiums payable on an annual, semi-annual, quarterly or monthly basis. Compare Whole Life and Straight Life. The three terms are applied to the type of policy which continues during the whole of the Insured's life and provides for the payment at death of an amount insured.

Other Car Insurance

Coverage designed to protect employees or executives of a company or any other person who is supplied a company vehicle, but who does not own a his or her own vehicle, therefore not having personal automobile coverage. The coverage is generally added by endorsement to the Automobile Policy of the company that furnishes the automobile, giving protection while the named individual or a member of his family is driving a car borrowed from a third party (other than the vehicle named in the policy).

Over-the Counter Market

A means of buying and selling securities that are not listed on a stock exchange. Negotiations are carried out by telephone or computer network.

Overhead Expense Insurance

A special form of Health Insurance designed to help offset overhead expenses such as office rent, utilities, employees' wages, and auditors' fees, incurred during total disability. The monthly payments during disability are not a fixed amount of indemnity as on regular disability polices, but the amount of overhead expense actually incurred, or a percentage thereof, up to the limit specified in the policy.

Overhead 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.

Overriding Commission (Overwrite)

A commission paid to General Agents or agency managers in addition to the commission paid to the soliciting agent or broker.

Owner's or Contractor's Protective Liability Insurance

Coverage designed to provide for payment on behalf of the Insured all damages the Insured becomes legally obligated to pay due to bodily injury or property damage caused by an occurrence arising from (1) operations performed for the named Insured by independent contractors, (2) acts or omissions of the named Insured in connection with his/her general supervision of such operations. This does not include maintenance and repair at premises owned by or rented to the named Insured, or structural alterations at such premises that do not involve changing the size of or moving buildings or other structures.

Package Policy

A combination of two or more individual policies or coverages into a single policy. A homeowners policy, for example, is a package combining property, liability and theft coverages for the homeowner.

Paid-up Insurance

(1) Insurance on which all required premiums have been paid. (2)The reduced paid-up insurance available as a nonforfeiture option.

Paramedical Examination

Physical examination of an applicant by a trained person other than a physician.

Partial Disability

The result of an illness or injury which prevents an Insured from performing one or more of the functions of his/her regular job. See also: Disability.

Partial Disability Benefits

A benefit sometimes found in Disability Income Policies providing for the payment of reduced monthly income in the event the Insured cannot work full time and/or is prevented from performing one or more important daily duties pertaining to his occupation.

Participating Insurance

Life Insurance under which an insurance company agrees to distribute to policyholders the part of its surplus which its Board of Directors determines is not needed at the end of the business year. Such a distribution serves to reduce the premium the policyholder had paid. See also: Policy Dividend, Nonparticipating Policy

Pension Benefit Guaranty Corporation (PBGC)

The Federal body responsible for administering retirement insurance programs, under ERISA.

Pension Benefits

A series of payments to be provided to past employees in accordance with the rules of pension plan of a company or other organization.

Pension Plan

A plan established and maintained by an employer, group of employers, union or any combination, primarily to provide for the payment of definitely determinable benefits to participants after retirement.

Percentage Participation

A provision in a Health Insurance contract that the insurer and Insured will share covered losses in agreed proportions. See also: Coinsurance.

Performance Bond

Bond issued by a surety or insurance company to guarantee performance under or in conjunction with a contract.

Perils of the Sea

All perils which are unique to transportation and which could not be prevented by reasonable efforts, including sinking of the vessel, stranding, heavy weather, lightning, collision with other vessels or submerged objects (such as Titanic's iceberg), and damage by sea water when caused by an insured peril.

Permanent Life Insurance

A phrase used to cover any form of Life Insurance except Term Life; generally accrues cash value, such as Whole Life or Endowment.

Persistency

A term used to refer to the length of time insurance remains continuously in force.

Personal Articles Floater

A form of coverage designed to meet the needs for insurance on moveable property. The coverage usually protects against all physical loss, subject to specific exclusions and conditions. Examples of property that can be covered include jewelry, furs, silverware and fine arts.

Personal Injury Liability Insurance

Coverage designed to protect against false arrest, detention or imprisonment, or malicious prosecution; libel, slander, defamation, or violation of right of privacy; and wrongful entry, eviction, or other invasion of right of private occupancy.

Personal Injury Protection (PIP)

First-party no-fault coverage in an Automobile Insurance Policy in which an insurer pays, within the specified limits, the wage loss, medical, hospital and funeral expenses of the Insured.

Personal Lines

Those types of insurance, such as Auto or Home Insurance, for individuals or families rather than for businesses or organizations.

Personal Representative

A person appointed through the will of a deceased or by a court to settle the estate of one who dies.

Physical Damage

Damage to or loss of the auto resulting from collision, fire, theft or other perils.

Physician's Expense Insurance

Coverage which provides benefits toward the cost of such services as doctor's fees for nonsurgical care in the hospital, at home or in a physician's office, and X-rays or laboratory tests performed outside the hospital. Also called Regular Medical Expense Insurance.

Plan Administrator

The person or persons controlling the money or property contributed to a pension, health or other plan, usually designated in the plan agreement.

Plate Glass Insurance

Coverage designed to provide special protection, except for the perils of war, nuclear reaction and fire. (Fire is covered under the building policy.) This coverage is for full replacement cost and covers the expense of repairing frames, installing temporary plates or boarding up openings of plate glass windows.

Point-of-Service Plans

Often known as open-ended HMOs or PPOs, these plans permit Insureds to choose providers outside the plan yet are designed to encourage the use of network providers.

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 Loan

A loan made by a Life Insurance company from its general funds to a policyholder on the security of the cash value of a policy.

Policy Reserves

The measure of the funds that a Life Insurance company holds specifically for fulfillment of its policy obligations. Reserves are required by law to be so calculated that, together with future premium payments and anticipated interest earnings, they will enable the company to pay all future claims. See also: Reserves.

Policy Term

That period for which an insurance policy provides coverage.

Policyholder

A person who pays a premium to an insurance company in exchange for the insurance protection provided by a policy of insurance.

Policyholders' Surplus

Sum left after liabilities are deducted from assets. Sums such as paid-in capital and special voluntary reserves are included in this term. This surplus is an additional financial protection to policyholders in the event a company suffers unexpected or catastrophic losses.

Pollution Legal Liability Insurance

Coverage designed (1) to protect all sums the Insured is legally obligated to pay as a result of emission, discharge, release, or escape of any contaminants, irritants, or pollutants into or on land, the atmosphere, or any water course or body of water, provided this results in environmental damage; (2) to reimburse reasonable and necessary cleanup costs incurred in the discharge of a legal obligation validly imposed through governmental action, provided such expense is incurred because of environmental damage; and (3) for the defense of any claim or suit that is the subject of this insurance.

Pollution Liability

Exposure to lawsuits for injury or cleanup costs that result from pollution damage.

Portability

The right to transfer pension rights and credits when a worker changes jobs.

Preadmission Certification

Process in which a health care professional evaluates an attending physician's request for a patient's admission to a hospital by using established medical criteria.

Preexisting Condition

A physical and/or mental condition of an Insured which first manifested itself prior to the issuance of his/her policy or which existed prior to issuance and for which treatment was received.

Preferred Provider Organization (PPO)

An arrangement whereby a third-party payer contracts with a group of medical care providers who furnish services at lower than usual fees in return for prompt payment and a certain volume of patients.

Preferred Stock

Evidence of ownership which entitles the holders to receive dividends from the corporation before the common stockholders, but after bondholders, and which usually also provides a claim prior to common holders to corporate assets if the corporation is dissolved.

Premium finance

Payment terms that allow the insured to pay part of the premium when coverage takes effect and pay the rest during the policy period.

Premium Loan

A loan, sometimes made by a third party, made for the purpose of paying premiums to the insurer.

Premium Tax

A tax, imposed by each state, on the premium income of insurers doing business in the state.

Prepaid Group Practice Plan

A plan under which specified health services are rendered by participating physicians to an enrolled group of persons, with a fixed periodic payment in advance made by or on behalf of each person or family. If a health insurance carrier is involved, a contract to pay in advance for the full range of health services to which the Insured is entitled under the terms of the Health Insurance contract. Such a plan is one form of Health Maintenance Organization (HMO).

Primary Insurance

Insurance that pays compensation for a loss ahead of any other insurance coverages the policyholder may have.

Principal Sum

The amount payable, under Life and Health Insurance policies, in one sum in the event of accidental death and in, some cases, accidental dismemberment. When a contract provides benefits for both accidental death and accidental dismemberment, each dismemberment benefit is an amount equal to the principal sum or some fraction thereof.

Probate Estate

That portion of the assets and liabilities whose distribution is supervised by the courts in the probate process.

Probationary Period

A period from the policy date to a specified time, usually 15 to 30 days, during which no sickness coverage is effective. It is designed to eliminate a sickness actually contracted before the policy went into effect.

Product Liability

Legal liability incurred by a manufacturer, merchant, or distributor because of injury or damage resulting from the use of its product.

Product Liability Insurance

Coverage designed to provide protection against financial loss arising out of the legal liability incurred by a manufacturer, merchant, or distributor because of injury or damage resulting from the use of a covered product.

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.

Proof of Loss

Documentary evidence required by an insurer to prove a valid claim exists. It usually consists of a claim form completed by the Insured, and for Health Insurance claims by the Insured's attending physician. For Medical Expense Insurance itemized bills must also be included.

Property Damage Coverage

An agreement by an insurance carrier to protect an Insured against legal liability for damage by an insured automobile to the property of another.

Property Insurance

Insurance providing financial protection against the loss of, or damage to, real and personal property caused by such perils as fire, theft, windstorm, hail, explosion, riot, aircraft, motor vehicles, vandalism, malicious mischief, riot and civil commotion and smoke. Available on Special and All-risk forms depending on the property being insured.

Property Management Errors and Omissions Insurance

Coverage designed to pay on behalf of the Insured all sums he/she becomes legally obligated to pay by reason of any act, error, or omission arising out of services rendered or that were failed to be rendered. Such services include arranging for property maintenance, renting or leasing, construction, alteration, land development, etc. Coverage also provides for defense of any claim or suit that is the subject of this insurance.

Prospective Payment

An advancement of payment for health care charges that are likely to occur.

Prototype Plan

A standardized Life Insurance plan, approved and qualified as to its concept by the Internal Revenue Service, which is made available by companies, banks and mutual funds for employers' use.

Provision

A clause, sentence or paragraph of an insurance contract that describes or explains a feature, benefit, condition, requirement, etc. of the insurance protection afforded by the contract.

Proximate Cause

(1) The principal cause of loss or damage; (2) An unbroken chain of events between an event and damage.

Punitive Damages

A court-awarded amount that exceeds the economic losses and general damages of a defendant and is intended solely to punish the plaintiff.

Qualification Period

The period during which the Insured must be totally disabled before becoming eligible for Residual Disability benefits.

Qualified Impairment Insurance

A form of Substandard or Special Class Insurance, which restricts benefits for the insured person's particular condition.

Qualified Plan

A plan which the Internal Revenue Service approves as meeting the requirements of Section 401(a) of the 1954 Internal Revenue Code. Such plans receive tax advantages.

Qualified terminable Interest Property

A category of property, created by the Economic Recovery Tax Act, which by a deceased spouse's will entitles the surviving spouse to all income from the property for life, with that income payable at least annually, and precludes anyone including the spouse from appointing the property to anyone else during the spouse's life.

Rated Policy

An insurance policy issued at a higher-than-standard premium rate to cover a higher-than-standard risk; for example, for an Insured who has impaired health or a hazardous occupation.

Ratemaking

The statistical process by which insurers determine probability of loss and pricing for the basic classes of insurance.

Rating Territory

A geographical grouping in which like hazards tend to equalize and permit the establishment of an equitable rate for the territory.

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.

Rebating

Giving any valuable consideration, usually all or part of the commission, to the prospect or Insured as an inducement to buy or renew. Rebating is illegal.

Recurring Claim Provision

A provision in some Health Insurance policies which specifies a length of time during which the recurrence of a condition is considered to be a continuation of a previous period of disability or hospital confinement. Also known as a Recurring Clause.

Reduced Paid-Up Insurance

A form of insurance available as a nonforfeiture option. It provides for continuation of the original insurance plan, but at reduced amount.

Rehabilitation

(1) Restoration of a totally disabled person to a meaningful occupation. (2) A provision in some Long-Term Disability Policies that provides for continuation of benefits or other financial assistance while a totally disabled insured is retraining or attempting to resume productive employment.

Reimbursement

The payment of the expenses actually incurred as a result of an accident or sickness, but not to exceed any amount specified in the policy.

Reinstatement

The resumption of coverage under a policy which has lapsed.

Reinsurance

The acceptance by one or more insurers, called reinsurers, of a portion of the risk accepted by another insurer who has contracted for the entire coverage. Reinsurance can be treaty or facultative.

Reinsurance Facility

An alternative mechanism to service those Insureds who cannot obtain insurance in the voluntary market. Premiums and losses for the business that is ceded to the facility are pooled and all insurers share according to their proportion of the voluntary market. See also: Residual Market.

Renewable Term Insurance

Term Insurance which 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.

Rent Insurance

A form of Business Interruption Insurance for a landlord, designed to protect building owners against loss of income when rentals have been interrupted or rental value has been impaired by the occurrence of any of the insured perils. It assures continuous income while an Insured's building is untenantable.

Renter's Policy

A package type of insurance that includes coverage similar to a homeowners policy to cover the personal property of a renter or tenant in a building.

Replacement Cost

(1)The cost to repair or replace property at construction costs prevailing at time of loss; (2) the cost to repair or rebuild property without considering depreciation. See also: Actual Cash Value.

Replacement Cost Insurance

Insurance designed to provide coverage on the basis of full replacement cost without deduction for depreciation on any loss sustained subject to the terms of the co-insurance clause. This coverage applies to both building and contents items as specified on the face of the policy. No deduction is taken for depreciation in arriving at the proper amount of insurance needed to comply with the coinsurance clause.

Replacement Ratio

The percentage of income before retirement that is required to be replaced to maintain the same standard of living after retirement.

Representation

Statements made by an applicant in an insurance application, which he represents as being substantially true to the best of his knowledge and belief, but which are not warranted as exact in every detail.

Rescission

Termination of an insurance contract by the insurer on the grounds of material misstatement on the application for insurance. The action of rescission must take place within the contestable period or Time Limit on Certain Defenses clause set forth in the policy, but takes effect as of the effective date of the policy, thus voiding the contract from its inception.

Reservation of Rights

An arrangement whereby an insurer defends a case without commitment to provide coverage in the event that the facts disclosed during the trial reveal that the occurrence is not covered.

Residual Disability

A period of partial disability that immediately follows a period of total disability. Benefits for residual disability are paid on a pro-rata basis, depending on the percentage of earnings loss.

Residual Disability Benefits

A provision in an insurance policy that provides benefits in proportion to a reduction of earnings as a result of disability, as opposed to the inability to work full-time.

Residual Market

A source of insurance available to applicants who are unable to obtain insurance through ordinary methods in the voluntary market. See also: Automobile Insurance Plan, Joint Underwriting Association,.

Retrocession

The process by which a reinsurer obtains reinsurance from another company.

Retrospective Date

The first date for which claims will be paid under a Claims-Made Policy of Liability Insurance.

Retrospective Rating

Rating procedure which allows adjustment of an Insured's final rate on the basis of the Insured's own loss experience.

Revocable Trust

A trust that can be terminated or revoked by its creator.

Right of Survivorship

Legal rule which states that at the death of one co-owner of property, that person's interest in the property automatically passes to the surviving joint tenant or tenants.

Risk Classification

The process by which a company decides how its premium rates for Life Insurance should differ according to the risk characteristics of individuals insured (e.g., age, occupation, sex, state of health) and then applies the resulting rules to individual applications. See also: Underwriting.

Risk Control

Any conscious action (or decision not to act) intended to reduce the frequency, severity, or unpredictability of accidental losses.

Risk Retention Group

An alternative form of insurance in which members of a similar profession or business band together to self insure their risks.

Robbery

The taking of property from a person by force or threat of violence.

Rollover

Transfer of IRA or other qualified pension funds from one financial institution to another.

Sales Cycle

Condition seen in the selling of insurance in which premium prices rise and fall over time in relation to capacity. The sales cycle is generally completed over several of years.

Scheduled Insurance

An insurance policy amendment or endorsement that specifies items covered, in contrast to blanket coverage, which would cover all items fitting a given description. Auto Insurance is the principal scheduled insurance purchased by consumers.

Self- Administered (Trusteed or Directly Invested) Plan

A plan funded through a fiduciary, generally a bank but sometimes a group of individuals, which directly invests the accumulated funds. Retirement payments are made from the fund as they fall due.

Self-Administration

The procedure where an employer maintains all records regarding the employees covered under a Group Insurance Plan.

Self-Insurance

A form of risk management through which a firm assumes all or a part of its own losses.

Selling Price Insurance

Coverage which applies to the value of goods which have been damaged or destroyed by an insured peril. The purpose is to assure the profit that would have been incurred through a sale. It defines the insurable value of merchandise which has been sold, but not delivered, at the amount at which it was sold, less any charges not incurred.

Senior Citizen Policies

Contracts insuring persons 65 years of age or more. In most cases, these policies supplement the coverage afforded by the government under the Medicare program. See also: Medigap.

Separate Account

An asset account established by a Life Insurance company separate from other funds, used to match specific assets with corresponding liabilities such as pension plans and Variable Life products. This arrangement permits wider latitude in the choice of investments, particularly in equities.

Service-Type Plans

Plans that provide their benefits in the form of services rendered rather than cash (for example, Blue Cross and Blue Shield).

Settlement Options

The ways, other than immediate payment in cash, which a policyholder or beneficiary may choose to have policy benefits paid.

Short-Term Disability Income Insurance

Coverage designed to cover a disabled person as long as he/she remains disabled up to a specified period not exceeding two years.

Sickness Insurance

A form of Health Insurance providing benefits for loss resulting from illness or disease.

Skip Person

A beneficiary who is at least two generations younger than the person making the transfer.

Social Security Freeze

A Long-Term Disability Policy provision which establishes that the subtraction from benefits paid by Social Security will not be changed regardless of subsequent changes in the Social Security law.

Social Security Option

An option available in some annuity contracts under which the employee may elect that monthly payments of an annuity before a specified age (62 or 65) be increased, and that payments thereafter be decreased to produce, as nearly as practical, level total annual payments, including Social Security benefits when they become due.

Soft Market

That part of the insurance sales cycle in which competition is at a maximum as insurance companies use their excess capacity to sell more policies at lower prices. See also: Hard Market.

Special Damages

Compensation awarded for actual economic losses, such as medical expenses and lost wages. See also: General Damages.

Special Risk Insurance

Coverage designed to provide financial protection against risks or hazards of a special or unusual nature.

Split Funding

The use of two or more funding agencies for the same pension plan. An arrangement whereby a portion of the contributions to the pension plan are paid to a Life Insurance company and the remainder of the contributions invested through a corporate trustee, primarily in equities.

Spouse's Benefit

Payments to the surviving spouse of a deceased employee, usually in the form of a series of payments upon meeting certain requirements and usually terminating with the survivor's remarriage or death.

Standard Insurance

Life Insurance written on the basis of regular morbidity underwriting assumptions used by an insurance company and issued at normal rates.

Standard Markets

Insurance companies for which the majority of people or organizations qualify. See also: Domestic Insurers.

Standard Provisions

A set of provisions set forth in laws that prescribed certain rights and obligations of both the Insured and the company under personal Health Insurance policies. 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 purchase insurance protection without extra rating or special restrictions.

State Disability Plan

A plan for accident and sickness, or Disability Insurance required by state legislation of those employers doing business in that particular state.

State Fund

A fund set up by a state government to provide a specific line or lines of insurance.

State Insurance Department

A department of a state government whose duty is to regulate the business of insurance and give the public information on insurance. See also: Insurance Commissioner.

State-of-the-Art Defense

An argument used in product liability cases that the technology needed to avoid the loss in a particular case did not exist at the time of the product's manufacture.

Statutory Accounting

Special accounting practices for insurance companies, required by state law, prescribing a greater level of detail than required by GAAP and designed to provide greater protection for the public against potential insolvency of these essential institutions.

Statutory Accounting Principles (SAP)

Rules of financial computation and presentation required by statute which must be followed by an insurance company when submitting its financial statements to state insurance departments. Such principles differ from Generally Accepted Accounting Principles (GAAP).

Statutory Underwriting Profit or Loss

Premiums earned less losses and expenses, as calculated under Statutory Accounting Principles.

Step-Rate Premium

A rating structure in which the premiums increase periodically at pre-determined times such as policy years or attained ages.

Step-Up In Basis

An increase in the tax basis of property to the value claimed in the taxable estate of a decedent.

Stock Company

A company organized and owned by stockholders as distinguished from the mutual form of company which is owned by its policyholders.

Stock Exchange

An organization that provides a facility for buyers and sellers of listed securities to come together to make trades in those securities.

Stock Insurance Company

A company in which the legal ownership and control is vested in the stockholders.

Stock Life Insurance Company

A Life Insurance company owned by stockholders who elect a board to direct the company's management. Stock companies, in general, issue Nonparticipating Insurance but may also issue Participating Insurance.

Stock Redemption Plan

An entity purchase form of Buy-Sell Agreement within a corporation that involves the corporation buying back shares from a departing owner.

Stockholder

A person who owns shares of stock in a corporation.

Straight Life Insurance

Whole Life Insurance on which premiums are payable for life.

Strict Liability

Liability for damages even though fault or negligence cannot be proven.

Subrogation

Process by which one insurance company seeks reimbursement from another company or person for a claim it has already paid.

Substandard (Impaired) Risk

A risk that cannot meet the normal requirements of a standard insurance policy. Protection is provided in consideration of a waiver, a special policy form or a higher premium charge.

Substandard Insurance

Insurance issued with an extra premium or special restriction to those persons who do not qualify for insurance at standard rates.

Supplementary Contract

An agreement between a Life Insurance company and a policyholder or beneficiary by which the company retains the cash sum payable under an insurance policy and makes payments in accordance with the settlement option chosen.

Surety Bond

An agreement providing for monetary compensation in the event of a failure to perform specified acts within a stated period. The surety company, for example, becomes responsible for fulfillment of a contract if the contractor defaults.

Surgical Expense Insurance

Health Insurance which provide benefits toward the physician's or surgeon's operating fees. Benefits may consist of scheduled amounts for each surgical procedure.

Surgical Schedule

A list of maximum amounts payable by the policy for various types of surgery, with the amount based on the severity or complexity of the operation.

Surplus Lines

(1) A risk or a part of a risk for which there is no standard insurance market available. (2) Insurance written by non-admitted insurance companies.

Table of Multiples

The life expectancy figures provided by the Internal Revenue Service to be used in calculating the exclusion ratio for life contingent annuities after June 30, 1986. Separate tables provide the figures for joint and last survivor annuities, annuities that contain a refund or minimum payment guarantee, and for annuities that pay quarterly, semi-annually or annually.

Tax Basis

The cost from which your profits or losses are calculated for income tax purposes.

Taxable Estate

The value upon which estate taxes are calculated by the federal government.

Temporary Life Annuity

An annuity payable while the annuitant lives but not beyond a specified period, such as five years. No payments are to be made after the end of the stipulated temporary period or the death of the annuitant.

Ten Day Free Look

A notice on the first page of Health Insurance policies that the Insured has ten days in which to examine the policy and return it for a refund of premium if he is not satisfied with the policy.

Tenants In Common

A form of joint property ownership in which the owners may have unequal shares and which does not involve a right of survivorship. See also: Joint Tenants

Term Insurance

Life Insurance payable to a beneficiary only when an Insured dies within a specified period. The coverage expires without value if the Insured survives the stated period.

Testamentary Trust

A trust created through the will of its creator.

Theft, Disappearance and Destruction of Money and Securities Insurance

Coverage designed to provide protection against financial loss for loss of money and securities resulting directly from theft (any act of stealing), disappearance and destruction. Coverage applies while the money and securities are on the Insured's premises, while in the custody of the Insured or the Insured's messenger while conducting business at the bank, and while off the Insured's premises in the custody of the Insured or the Insured's messenger.

Third Party

The claimant under a Liability Policy. So called because the person making the claim is not one of the two parties (Insured and insurer) to the insurance contract.

Third Party Claim

A demand made by a third party against a policyholder of an insurer and any payment that will be made by that company.

Third-Party Over Suit

A lawsuit where a third party tries to recover damages assessed against that party by bringing suit against his or her employer.

Threshold

The point measured in money, time or other ways, beyond which tort liability can be established. Until that point is reached, reparations must be paid within the provisions of the no-fault plan, with no recourse to the courts.

Time Element Insurance

Coverage designed to provide insurance for a covered incident resulting in the loss of the use of property for a period of time. For example, Business Interruption and Extra Expense Insurance.

Time Limit

The period of time during which a notice of claim or proof of loss must be filed.

Time Limit on Certain Defenses

The 2-year or 3-year time period in Health Insurance policies after which the insurer cannot deny a claim or void a policy because of pre-existing conditions or misstatements on the application.

Time Value of Money

The income that can be gained over time by holding money, such as interest income or dividends.

Total Disability

An illness or injury which prevents an insured person from continuously performing every duty pertaining to his/her occupation or engaging in any other type of work.

Transferability

Any arrangement under which the accumulated benefit credits of a terminating participant, or their actuarial value, are transmitted from one plan to another, or to a central agency.

Transit Insurance

Coverage of the Insured's property while in transit over land from one location to another. Property Insurance Policies typically provide coverage only at locations identified in the policy. See also: Inland Marine Insurance.

Travel Accident Policy

A limited contract covering only accidents while an insured person is traveling, usually on a commercial airline carrier.

Trust

A legal instrument allowing one party to control property for the benefit of another.

Twisting

The practice of inducing by misrepresentation, or inaccurate or incomplete comparison, a policyholder in one company to lapse, forfeit or surrender his insurance for the purpose of taking out a policy in another company.

Umbrella Liability Insurance

Coverage designed to protect for losses in excess of amounts covered by other Liability Insurance Policies; in some cases, may also protect the Insured not covered by the usual Liability Polices. This type of Liability Insurance provides excess liability protection. Businesses and individuals need this coverage for its provision of excess coverage over the underlying Liability Insurance they maintain. Various extensions are available for Umbrella Coverages.

Unallocated Benefit

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.

Underwriting Profit or Loss

The amount of money which an insurance company gains or loses as a result of its insurance operations. It excludes investment transactions and federal income taxes.

Unearned Premium

The portion of a premium that a company has collected but has yet to earn because the policy still has unexpired time to run.

Unified Credit

A one-time credit, usually applied against Federal Estate Taxes, that is available to every individual's estate. The credit also can be used for payment of Federal Gift Taxes during that individual's lifetime.

Uniform Premium

A rating structure in which one premium applies to all Insureds, regardless of age, sex or occupation.

Uniform Provisions

Statutory policy provisions of Health Insurance Policies which specify some of the rights and obligations of the Insured and the company. These provisions, with some modifications, are part of the insurance laws of all 50 states and the District of Columbia.

Uninsurable Risk

A risk that is not acceptable for insurance due to excessive risk, moral hazard or other factor.

Uninsured/Underinsured Motorist Coverage

A form of insurance that pays the policyholder and passengers for bodily injury caused by the owner or operator of an uninsured or inadequately insured automobile.

Unit Owner's Excess Insurance

Coverage, generally added by endorsement, which expands the Insured's coverage to include damage or loss to alterations, fixtures, and improvements within individual units owned by the unit owner, caused by the insured perils. This includes damage to air conditioners, clothes washers, clothes dryers, cooking ovens, cooking ranges, dishwashers, floor coverings, countertops, kitchen cabinets, refrigerators and freezers. This coverage applies as excess insurance over any other valid and collectible insurance that would apply in the absence of this policy.

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 amount or timing of 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 a rate which may change from time to time.

Valuable Papers

Written, printed, or otherwise inscribed documents and records, including books, maps, films, drawings, abstracts, deeds, mortgages, and manuscripts.

Valuable Papers Insurance

An All Risk Insurance coverage that is designed to cover the cost of research to reconstruct damaged records, as well as the cost of new paper and transcription.

Variable Annuity

An annuity contract in which the amount of each periodic income payment may fluctuate. The fluctuation may be related to securities market values, a cost of living index, or some other variable factor. Variable annuity contracts are generally designed to minimize current taxes on the income derived from the investments in them; income taxes are then incurred when withdrawals are made from the annuity. For instance beginning after age 59 1/2.

Variable Life Insurance

Life Insurance under which the benefits relate to the value of assets behind the contract at the time the benefit is paid. The amount of death benefit payable would generally not be less than the initial death benefit payable under the policy, depending on the terms outlined in the policy.

Verbal Threshold

Term in No-Fault Auto Insurance, applicable in some states, which states that victims are allowed to sue in tort only if their injuries meet certain verbal descriptions of the types of injuries that render one eligible to recover for pain and suffering.

Vested Commissions

Renewal commissions, generally related to Life Insurance policies, payable to the writing agent or his estate, whether or not he remains with the company.

Viatical Settlement

Payment of a portion of the proceeds from Life Insurance to an Insured who is terminally ill.

Voluntary Market

An open market where one obtains insurance with no help from the state, through an insurer of his or her own selection.

Waiting Period

The length of time an employee must wait from his/her date of employment or application for coverage for their insurance to be effective.

Waiver of Premium

A provision in some policies to relieve the Insured of premium payments falling due during a period of continuous total disability that has lasted for a specified length of time, such as three or six months.

Whole Life Insurance

Life Insurance payable to a beneficiary at the death of the Insured, whenever that occurs. Premiums may be payable for a specified number of years (Limited Payment Life) or for life (Straight Life).

Workers' Compensation

A system established under state law that provides payments, without regard to fault, to employees injured in the course and scope of their employment.

Workers' Compensation Insurance

Coverage designed to protect against financial loss to employers to pay benefits and furnish care to employees injured, and to pay benefits to dependents of employees killed in the course of or arising out of their employment.

Written Premiums

The total of all premiums due in a year for all polices bound or issued by an insurance company.

X, C and U Exclusions

Exclusions to Property Liability forms aimed principally at contractors and excavators. The exclusions deny payment for loss due to Explosion (X), Collapse (C) or Underground Damage (U). Explosion includes property damage arising from blasting or explosion. Collapse includes structural property damage and property damage to any other property rising out of grading of land, excavating, burrowing, filling or backfilling, tunneling, pile driving, coffer dam or caisson work, moving, shoring, underpinning or razing/demolishing any building or structure. Underground damage includes damage to wires, conduits, pipes, mains, sewers, tanks, tunnels, any similar property beneath the surface of the ground or water caused by and occurring during the use of mechanical equipment for the purpose of grading land, paving, excavating, drilling, burrowing, filling, backfilling, or pile driving.