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401(K) PLAN An employer-sponsored retirement savings plan funded by employee contributions, which may or may not be matched by the employer. Federal laws allow employees to invest pretax dollars, up to a stated maximum each year. More Information
403(B) PLAN* In the United States, an arrangement that allows not-for-profit employers and their employees to make contributions to a tax-deferred retirement savings plan established for the benefit of employees.More Information
529 SAVINGS PLANS State-administered plans designed to encourage households to save for college education. Named after a part of the Internal Revenue tax code, these saving plans allow earnings to accumulate free of federal income tax and sometimes to be withdrawn to pay fMore Information
ABSOLUTE ASSIGNMENT* An irrevocable transfer of complete ownership of a life insurance policy or an annuity from one party to another. Contrast with collateral assignment. (See Assignment)More Information
ACCELERATED DEATH BENEFITS A life insurance policy option that provides policy proceeds to insured individuals over their lifetimes, in the event of a terminal illness. This is in lieu of a traditional policy that pays beneficiaries after the insured’s death. Such benefits kick in
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ACCIDENT AND HEALTH INSURANCE Coverage for accidental injury, accidental death, and related health expenses. Benefits will pay for preventative services, medical expenses and catastrophic care, with limits.More Information
ACCIDENTAL DEATH AND DISMEMBERMENT (AD&D) BENEFIT* A supplementary life insurance policy benefit that provides for an amount of money in addition to the policy’s basic death benefit. This additional amount is payable if the insured dies as the result of an accident or if the insured loses any two limbs orMore Information
ACCIDENTAL DEATH BENEFIT (ADB)* A supplementary life insurance policy benefit that provides a death benefit in addition to the policy’s basic death benefit if the insured’s death occurs as the result of an accident. (See Double indemnity benefit)More Information
ACCOUNT RECEIVABLES See ReceivablesMore Information
ACCUMULATION AT INTEREST DIVIDEND OPTION* An option, available to the owners of participating insurance policies, that allows a policy owner to leave policy dividends on deposit with the insurer and earn interest. (See Dividend)More Information
ACTUAL CASH VALUE A form of insurance that pays damages equal to the replacement value of damaged property minus depreciation. (See Replacement cost)More Information
ACTUARY An insurance professional skilled in the analysis, evaluation and management of statistical information. Evaluates insurance firms’ reserves, determines rates and rating methods, and determines other business and financial risks.More Information
ADDITIONAL LIVING EXPENSES Extra charges covered by homeowners policies over and above the policyholder’s customary living expenses. They kick in when the insured requires temporary shelter due to damage by a covered peril that makes the home temporarily uninhabitable.More Information
ADDITIONAL TERM INSURANCE OPTION* An option available to owners of participating insurance policies under which the insurer uses a policy dividend as a net single premium to purchase one-year term insurance on the insured’s life. Also known as fifth dividend option. (See Dividend; Policy
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ADJUSTABLE LIFE INSURANCE* A form of life insurance that allows policy owners to vary the type of coverage provided by their policies as their insurance needs change.More Information
ADJUSTER An individual employed by a property/casualty insurer to evaluate losses and settle policyholder claims. These adjusters differ from public adjusters, who negotiate with insurers on behalf of policyholders, and receive a portion of a claims settlement. InMore Information
ADMITTED ASSETS Assets recognized and accepted by state insurance laws in determining the solvency of insurers and reinsurers. To make it easier to assess an insurance company’s financial position, state statutory accounting rules do not permit certain assets to be incluMore Information
ADMITTED COMPANY An insurance company licensed and authorized to do business in a particular state.More Information
ADVERSE SELECTION The tendency of those exposed to a higher risk to seek more insurance coverage than those at a lower risk. Insurers react either by charging higher premiums or not insuring at all, as in the case of floods. (Flood insurance is provided by the federal goveMore Information
AFFINITY SALES Selling insurance through groups such as professional and business associations.More Information
AFTERMARKET PARTS See Crash parts; Generic auto partsMore Information
AGENCY COMPANIES Companies that market and sell products via independent agents.More Information
AGENT Insurance is sold by two types of agents: independent agents, who are self-employed, represent several insurance companies and are paid on commission; and exclusive or captive agents, who represent only one insurance company and are either salaried or worMore Information
ALEATORY CONTRACT* A contract in which one party provides something of value to another party in exchange for a conditional promise, which is a promise that the other party will perform a stated act upon the occurrence of an uncertain event. Insurance contracts are aleatoryMore Information
ALIEN INSURANCE COMPANY An insurance company incorporated under the laws of a foreign country, as opposed to a “foreign” insurance company which does business in states outside its own.More Information
ALLIED LINES Property insurance that is usually bought in conjunction with fire insurance; it includes wind, water damage and vandalism coverage.More Information
ALTERNATIVE DISPUTE RESOLUTION / ADR An alternative to going to court to settle disputes. Methods include arbitration, where disputing parties agree to be bound to the decision of an independent third party, and mediation, where a third party tries to arrange a settlement between the two sidMore Information
ALTERNATIVE MARKETS Nontraditional mechanisms used to finance risk. This includes captives, which are insurers owned by one or more non-insurers to provide owners with coverage. Risk-retention groups, formed by members of similar professions or businesses to obtain liabilityMore Information
ANNUAL ANNUITY CONTRACT FEE Covers the cost of administering an annuity contract.More Information
ANNUAL STATEMENT Summary of an insurer’s or reinsurer’s financial operations for a particular year, including a balance sheet. It is filed with the state insurance department of each jurisdiction in which the company is licensed to conduct business.More Information
ANNUITANT The person who receives the income from an annuity contract. Usually the owner of the contract or his or her spouse.More Information
ANNUITIZATION The conversion of the account balance of a deferred annuity contract to income payments.More Information
ANNUITY A life insurance product that pays periodic income benefits for a specific period of time or over the course of the annuitant’s lifetime. There are two basic types of annuities: deferred and immediate. Deferred annuities allow assets to grow tax-deferred
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ANNUITY ACCUMULATION PHASE OR PERIOD The period during which the owner of a deferred annuity makes payments to build up assets.More Information
ANNUITY ADMINISTRATIVE CHARGES Covers the cost of customer services for owners of variable annuities.More Information
ANNUITY BENEFICIARY In certain types of annuities, a person who receives annuity contract payments if the annuity owner or annuitant dies while payments are still due.More Information
ANNUITY CERTAIN* A type of annuity contract that pays periodic income benefits for a stated period of time, regardless of whether the annuitant lives or dies. Also known as period certain annuity. Contrast with straight life annuity. (See Payout options)More Information
ANNUITY CONTRACT An agreement similar to an insurance policy for other insurance products such as auto insurance.More Information
ANNUITY CONTRACT OWNER The person or entity that purchases an annuity and has all rights to the contract. Usually, but not always, the annuitant (the person who receives incomes from the contract).More Information
ANNUITY COST* A monetary amount that is equal to the present value of future periodic income payments under an annuity. (See Gross annuity cost; Income date; Net annuity cost)More Information
ANNUITY DATE* See Income dateMore Information
ANNUITY DEATH BENEFITS The guarantee that if an annuity contract owner dies before annuitization (the switchover from the savings to the payment phase) the beneficiary will receive the value of the annuity that is due.More Information
ANNUITY INSURANCE CHARGES Covers administrative and mortality and expense risk costs.More Information
ANNUITY INVESTMENT MANAGEMENT FEE The fee paid for the management of variable annuity invested assets.More Information
ANNUITY ISSUER The insurance company that issues the annuity.More Information
ANNUITY PROSPECTUS Legal document providing detailed information about variable annuity contracts. Must be offered to each prospective buyer.More Information
ANNUITY PURCHASE RATE The cost of an annuity based on such factors as the age and gender of the contract owner.More Information
ANTISELECTION* The tendency of individuals who suspect or know they are more likely than average to experience loss to apply for or renew insurance to a greater extent than people who lack such knowledge of probable loss. Also known as adverse selection and selection agMore Information
ANTITRUST LAWS Laws that prohibit companies from working as a group to set prices, restrict supplies or stop competition in the marketplace. The insurance industry is subject to state antitrust laws but has a limited exemption from federal antitrust laws. This exemptionMore Information
APPORTIONMENT The dividing of a loss proportionately among two or more insurers that cover the same loss.More Information
APPRAISAL A survey to determine a property’s insurable value, or the amount of a loss.More Information
ARBITRATION Procedure in which an insurance company and the insured or a vendor agree to settle a claim dispute by accepting a decision made by a third party.More Information
ARSON The deliberate setting of a fire.More Information
A-SHARE VARIABLE ANNUITY A form of variable annuity contract where the contract holder pays sales charges up front rather than eventually having to pay a surrender charge.More Information
ASSET-BACKED SECURITIES Bonds that represent pools of loans of similar types, duration and interest rates. Almost any loan with regular repayments of principal and interest can be securitized, from auto loans and equipment leases to credit card receivables and mortgages.More Information
ASSETS Property owned, in this case by an insurance company, including stocks, bonds and real estate. Insurance accounting is concerned with solvency and the ability to pay claims. State insurance laws therefore require a conservative valuation of assets, prohibMore Information
ASSIGNED RISK PLANS Facilities through which drivers can obtain auto insurance if they are unable to buy it in the regular or voluntary market. These are the most well-known type of residual auto insurance market, which exist in every state. In an assigned risk plan, all insMore Information
ASSIGNMENT* An agreement under which one party—the assignor—transfers some or all of his ownership rights in a particular property, such as a life insurance policy or an annuity contract, to another party—the assignee. (See Absolute assignment; Collateral assignment)More Information
ASSOCIATION GROUP* A type of group that generally is eligible for group insurance and that consists of members of an association of individuals formed for a purpose other than to obtain insurance coverage, such as teachers’ associations and physicians’ associations.More Information
AUTO INSURANCE POLICY There are basically six different types of coverages. Some may be required by law. Others are optional. They are: 1. 1. Bodily injury liability, for injuries the policyholder causes to someone else. 2. 2. Medical payments or Personal Injury Protection (PIMore Information
AUTO INSURANCE PREMIUM The price an insurance company charges for coverage, based on the frequency and cost of potential accidents, theft and other losses. Prices vary from company to company, as with any product or service. Premiums also vary depending on the amount and type oMore Information
AVIATION INSURANCE Commercial airlines hold property insurance on airplanes and liability insurance for negligent acts that result in injury or property damage to passengers or others. Damage is covered on the ground and in the air. The policy limits the geographical area aMore Information
BALANCE SHEET Provides a snapshot of a company’s financial condition at one point in time. It shows assets, including investments and reinsurance, and liabilities, such as loss reserves to pay claims in the future, as of a certain date. It also states a company’s equitMore Information
BANK HOLDING COMPANY A company that owns or controls one or more banks. The Federal Reserve has responsibility for regulating and supervising bank holding company activities, such as approving acquisitions and mergers and inspecting the operations of such companies. This authMore Information
BASIS POINT 0.01 percent of the yield of a mortgage, bond or note. The smallest measure used.More Information
BEACH AND WINDSTORM PLANS State-sponsored insurance pools that sell property coverage for the peril of windstorm to people unable to buy it in the voluntary market because of their high exposure to risk. Seven states (AL, FL, LA, MS, NC, SC, TX) offer these plans to cover residentMore Information
BENEFICIARY* The person or legal entity the owner of an insurance policy names to receive the policy benefit if the event insured against occurs. (See Annuity beneficiary; Contingent beneficiary; Irrevocable beneficiary)More Information
BINDER Temporary authorization of coverage issued prior to the actual insurance policy.More Information
BLANKET INSURANCE Coverage for more than one type of property at one location or one type of property at more than one location. Example: chain storeMore Information
BODILY INJURY LIABILITY COVERAGE Portion of an auto insurance policy that covers injuries the policyholder causes to someone else.More Information
BOILER AND MACHINERY INSURANCE Often called Equipment Breakdown, or Systems Breakdown insurance. Commercial insurance that covers damage caused by the malfunction or breakdown of boilers, and a vast array of other equipment including air conditioners, heating, electrical, telephone andMore Information
BOND A security that obligates the issuer to pay interest at specified intervals and to repay the principal amount of the loan at maturity. In insurance, a form of suretyship. Bonds of various types guarantee a payment or a reimbursement for financial losses rMore Information
BOND RATING An evaluation of a bond’s financial strength, conducted by such major ratings agencies as Standard & Poor’s and Moody’s Investors Service.More Information
BOOK OF BUSINESS Total amount of insurance on an insurer’s books at a particular point in time.More Information
BROKER An intermediary between a customer and an insurance company. Brokers typically search the market for coverage appropriate to their clients. They work on commission and usually sell commercial, not personal, insurance. In life insurance, agents must be licMore Information
B-SHARE VARIABLE ANNUITY A form of variable annuity contract with no initial sales charge but if the contract is cancelled the holder pays deferred sales charges (usually from 5 to 7 percent the first year, declining to zero after from 5 to 7 years). The most common form of annuiMore Information
BURGLARY AND THEFT INSURANCE Insurance for the loss of property due to burglary, robbery or larceny. It is provided in a standard homeowners policy and in a business multiple peril policy.More Information
BUSINESS INCOME AND EXTRA EXPENSE INSURANCE (also known as BUSINESS INTERRUPTION INSURANCE) Commercial coverage that reimburses a business owner for lost profits and continuing fixed expenses during the time that a business must stay closed while the premises are being restored because of physical damage from a covered peril, such as a fire. It
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BUSINESSOWNERS POLICY / BOP A policy that combines property, liability and business interruption coverages for small- to medium-sized businesses. Coverage is generally cheaper than if purchased through separate insurance policies.More Information
CAPACITY The supply of insurance available to meet demand. Capacity depends on the industry’s financial ability to accept risk. For an individual insurer, the maximum amount of risk it can underwrite based on its financial condition. The adequacy of an insurer’s cMore Information
CAPITAL Shareholder’s equity (for publicly traded insurance companies) and retained earnings (for mutual insurance companies). There is no general measure of capital adequacy for property/casualty insurers. Capital adequacy is linked to the riskiness of an insureMore Information
CAPITAL MARKETS The markets in which equities and debt are traded. (See Securitization of insurance risk)More Information
CAPTIVE AGENT A person who represents only one insurance company and is restricted by agreement from submitting business to any other company, unless it is first rejected by the agent’s captive company. (See Exclusive agent)More Information
CAPTIVES Insurers that are created and wholly owned by one or more non-insurers, to provide owners with coverage. A form of self-insurance.More Information
CAR YEAR Equal to 365 days of insured coverage for a single vehicle. It is the standard measurement for automobile insurance.More Information
CASE MANAGEMENT A system of coordinating medical services to treat a patient, improve care and reduce cost. A case manager coordinates health care delivery for patients.More Information
CASH DIVIDEND OPTION* For participating insurance policies, a dividend option under which the insurer sends the policy owner a check in the amount of the policy dividend. (See Dividend; Policy dividend options)More Information
CASH PAYMENT OPTION* One of several nonforfeiture options included in life insurance policies and some annuity contracts that allows a policy owner to receive the cash surrender value of a life insurance policy or an annuity contract in a single payment. Also known as cash suMore Information
CASH SURRENDER VALUE* 1. For life insurance, the amount, before adjustments for factors such as policy loans, that the owner of a permanent life insurance policy is entitled to receive if the policy does not remain in force until the insured’s death. 2. For annuities, the amouMore Information
CASH VALUE* See Cash surrender valueMore Information
CATASTROPHE Term used for statistical recording purposes to refer to a single incident or a series of closely related incidents causing severe insured property losses totaling more than a given amount, currently $25 millionMore Information
CATASTROPHE BONDS Risk-based securities that pay high interest rates and provide insurance companies with a form of reinsurance to pay losses from a catastrophe such as those caused by a major hurricane. They allow insurance risk to be sold to institutional investors in thMore Information
CATASTROPHE DEDUCTIBLE A percentage or dollar amount that a homeowner must pay before the insurance policy kicks in when a major natural disaster occurs. These large deductibles limit an insurer’s potential losses in such cases, allowing it to insure more property. A property iMore Information
CATASTROPHE FACTOR Probability of catastrophic loss, based on the total number of catastrophes in a state over a 40-year period.More Information
CATASTROPHE MODEL Using computers, a method to mesh long-term disaster information with current demographic, building and other data to determine the potential cost of natural disasters and other catastrophic losses for a given geographic area.More Information
CATASTROPHE REINSURANCE Reinsurance for catastrophic losses. The insurance industry is able to absorb the multibillion dollar losses caused by natural and man-made disasters such as hurricanes, earthquakes and terrorist attacks because losses are spread among thousands of companMore Information
CELL PHONE INSURANCE Separate insurance provided to cover cell phones for damage or theft. Policies are often sold with the cell phones themselves.More Information
CHARTERED FINANCIAL CONSULTANT / ChFC A professional designation given by The American College to financial services professionals who complete courses in financial planning.More Information
CHARTERED LIFE UNDERWRITER / CLU A professional designation by The American College for those who pass business examinations on insurance, investments and taxation, and have life insurance planning experience.More Information
CHARTERED PROPERTY/CASUALTY UNDERWRITER / CPCU A professional designation given by the American Institute for Chartered Property Casualty Underwriters. National examinations and three years of work experience are required.More Information
CLAIMS MADE POLICY A form of insurance that pays claims presented to the insurer during the term of the policy or within a specific term after its expiration. It limits liability insurers’ exposure to unknown future liabilities. (See Occurrence policy)More Information
COBRA Short for Consolidated Omnibus Budget Reconciliation Act. A federal law under which group health plans sponsored by employers with 20 or more employees must offer continuation of coverage to employees who leave their jobs and their dependents. The employeMore Information
COINSURANCE In property insurance, requires the policyholder to carry insurance equal to a specified percentage of the value of property to receive full payment on a loss. For health insurance, it is a percentage of each claim above the deductible paid by the policyhMore Information
COLLATERAL Property that is offered to secure a loan or other credit and that becomes subject to seizure on default. Also called security.More Information
COLLATERAL ASSIGNMENT* A temporary transfer of some of the ownership rights in a particular property, such as a life insurance policy or an annuity contract, as collateral for a loan. The transfer is made on the condition that upon payment of the debt for which the contract is
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COLLATERAL SOURCE RULE Bars the introduction of information that indicates a person has been compensated or reimbursed by a source other than the defendant in civil actions related to negligence or other liability.More Information
COLLISION COVERAGE Portion of an auto insurance policy that covers the damage to the policyholder’s car from a collision.More Information
COMBINED RATIO Percentage of each premium dollar a property/casualty insurer spends on claims and expenses. A decrease in the combined ratio means financial results are improving; an increase means they are deteriorating.More Information
COMMERCIAL GENERAL LIABILITY INSURANCE / CGL A broad commercial policy that covers all liability exposures of a business that are not specifically excluded. Coverage includes product liability, completed operations, premises and operations, and independent contractors.More Information
COMMERCIAL LINES Products designed for and bought by businesses. Among the major coverages are boiler and machinery, business income, commercial auto, comprehensive general liability, directors and officers liability, fire and allied lines, inland marine, medical malpractMore Information
COMMERCIAL MULTIPLE PERIL POLICY Package policy that includes property, boiler and machinery, crime and general liability coverages.More Information
COMMERCIAL PAPER Short-term, unsecured, and usually discounted promissory note issued by commercial firms and financial companies often to finance current business. Commercial paper, which is rated by debt rating agencies, is sold through dealers or directly placed with aMore Information
COMMISSION Fee paid to an agent or insurance salesperson as a percentage of the policy premium. The percentage varies widely depending on coverage, the insurer, and the marketing methods.More Information
COMMUNITY RATING LAWS Enacted in several states on health insurance policies. Insurers are required to accept all applicants for coverage and charge all applicants the same premium for the same coverage regardless of age or health. Premiums are based on the rate determined by
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COMMUTATIVE CONTRACT* An agreement under which the contracting parties specify the values that they will exchange; moreover, the parties generally exchange items or services that they think are of relatively equal value. Contrast with aleatory contract.More Information
COMPETITIVE REPLACEMENT PARTS See Crash parts; Generic auto partsMore Information
COMPETITIVE STATE FUND A facility established by a state to sell workers compensation in competition with private insurers.More Information
COMPLAINT RATIO A measure used by some state insurance departments to track consumer complaints against insurance companies. Generally, it is stated as the number of complaints upheld against an insurance company, as a percentage of premiums written. In some states, compMore Information
COMPLETED OPERATIONS COVERAGE Pays for bodily injury or property damage caused by a completed project or job. Protects a business that sells a service against liability claims.More Information
COMPREHENSIVE COVERAGE Portion of an auto insurance policy that covers damage to the policyholder’s car not involving a collision with another car (including damage from fire, explosions, earthquakes, floods and riots), and theft.More Information
COMPULSORY AUTO INSURANCE The minimum amount of auto liability insurance that meets a state law. Financial responsibility laws in every state require all automobile drivers to show proof, after an accident, of their ability to pay damages up to the state minimum. In compulsory liaMore Information
CONTESTABLE PERIOD* The time during which an insurer has the right to cancel or rescind an insurance policy if the application contained a material misrepresentation. (See Incontestability provision)More Information
CONTINGENT BENEFICIARY* The party designated to receive the proceeds of a life insurance policy following the insured’s death if the primary beneficiary predeceased the insured. Also known as secondary beneficiary and successor beneficiary. (See Primary beneficiary)More Information
CONTINGENT LIABILITY Liability of individuals, corporations, or partnerships for accidents caused by people other than employees for whose acts or omissions the corporations or partnerships are responsible.More Information
CONVERTIBLE TERM INSURANCE POLICY* A term life insurance policy that gives the policy owner the right to convert the policy to a permanent plan of insurance.More Information
CREDIT DERIVATIVES A contract that enables a user, such as a bank, to better manage its credit risk. A way of transferring credit risk to another party.More Information
CREDIT ENHANCEMENT A technique to lower the interest payments on a bond by raising the issue’s credit rating, often through insurance in the form of a financial guarantee or with standby letters of credit issued by a bank.More Information
CREDIT INSURANCE Commercial coverage against losses resulting from the failure of business debtors to pay their obligation to the insured, usually due to insolvency. The coverage is geared to manufacturers, wholesalers and service providers who may be dependent on a few aMore Information
CREDIT LIFE INSURANCE Life insurance coverage on a borrower designed to repay the balance of a loan in the event the borrower dies before the loan is repaid. It may also include disablement and can be offered as an option in connection with credit cards and auto loans.More Information
CREDIT RATING See Bond ratingMore Information
CREDIT SCORE The number produced by an analysis of an individual’s credit history. The use of credit information affects all consumers in many ways, including getting a job, finding a place to live, securing a loan, getting telephone service and buying insurance. CredMore Information
CRIME INSURANCE Term referring to property coverages for the perils of burglary, theft and robbery.More Information
CRITICAL ILLNESS (CI) INSURANCE* A type of individual health insurance that pays a lump-sum benefit when the insured is diagnosed with a specified illness. Also known as critical diagnosis insurance. Contrast with specified disease coverage.More Information
CROP-HAIL INSURANCE Protection against damage to growing crops from hail, fire or lightning provided by the private market. By contrast, multiple peril crop insurance covers a wider range of yield reducing conditions, such as drought and insect infestation, and is subsidizedMore Information
C-SHARE VARIABLE ANNUITIES A form of variable annuity contract where the contract holder pays no sales fee up front or surrender charges. Owners can claim full liquidity at any time.More Information
CURRENT ASSUMPTION WHOLE LIFE INSURANCE* See Interest-sensitive insuranceMore Information
DEATH BENEFIT* (1) For a life insurance contract, the amount of money paid by an insurer to a beneficiary when a person insured under the life insurance policy dies. (2) For an annuity contract, the amount of money paid to a beneficiary if the contract owner dies beforeMore Information
DECLARATION Part of a property or liability insurance policy that states the name and address of policyholder, property insured, its location and description, the policy period, premiums and supplemental information. Referred to as the “dec page.”More Information
DECLINED RISK CLASS* In insurance underwriting, the group of proposed insureds whose impairments or anticipated extra mortality are so great that an insurer cannot provide insurance coverage to them at an affordable cost. Also known as uninsurable class. Contrast with preferrMore Information
DECREASING TERM LIFE INSURANCE* Term life insurance that provides a death benefit that decreases in amount over the policy term. Contrast with increasing term life insurance.More Information
DEDUCTIBLE The amount of loss paid by the policyholder. Either a specified dollar amount, a percentage of the claim amount, or a specified amount of time that must elapse before benefits are paid. The bigger the deductible, the lower the premium charged for the sameMore Information
DEFERRED ANNUITY An annuity contract, also referred to as an investment annuity, that is purchased either with a single tax-deferred premium or with periodic tax-deferred premiums over time. Payments begin at a predetermined point in time, such as retirement. Money contriMore Information
DEFINED BENEFIT PLAN A retirement plan under which pension benefits are fixed in advance by a formula based generally on years of service to the company multiplied by a specific percentage of wages, usually average earnings over that period or highest average earnings over thMore Information
DEFINED CONTRIBUTION PLAN An employee benefit plan under which the employer sets up benefit accounts and contributions are made to it by the employer and by the employee. The employer usually matches the employee’s contribution up to a stated limit.More Information
DEMAND DEPOSIT Customer assets that are held in a checking account. Funds can be readily withdrawn by check, “on demand.”More Information
DEMUTUALIZATION The conversion of insurance companies from mutual companies owned by their policyholders into publicly traded stock companies.More Information
DEPOSITORY INSTITUTION Financial institutions that obtain their funds mainly through deposits from the public. They include commercial banks, savings and loan associations, savings banks and credit unions.More Information
DEREGULATION In insurance, reducing regulatory control over insurance rates and forms. Commercial insurance for businesses of a certain size has been deregulated in many states.More Information
DERIVATIVES Contracts that derive their value from an underlying financial asset, such as publicly traded securities and foreign currencies. Often used as a hedge against changes in value.More Information
DIFFERENCE IN CONDITIONS Policy designed to fill in gaps in a business’s commercial property insurance coverage. There is no standard policy. Policies are specifically tailored to the policyholder’s needs.More Information
DIMINUTION OF VALUE The idea that a vehicle loses value after it has been damaged in an accident and repaired.More Information
DIRECT PREMIUMS Property/casualty premiums collected by the insurer from policyholders, before reinsurance premiums are deducted. Insurers share some direct premiums and the risk involved with their reinsurers.More Information
DIRECT SALES/ DIRECT RESPONSE Method of selling insurance directly to the insured through an insurance company’s own employees, through the mail, by telephone or via the Internet. This is in lieu of using captive or exclusive agents.More Information
DIRECT WRITERS Insurance companies that sell directly to the public using exclusive agents or their own employees, through the mail, by telephone or via the Internet. Large insurers, whether predominately direct writers or agency companies, are increasingly using many dMore Information
DIRECTORS AND OFFICERS LIABILITY INSURANCE/D&O Directors and officers liability insurance (D&O) covers directors and officers of a company for negligent acts or omissions and for misleading statements that result in suits against the company. There are a variety of D&O coverages. Corporate reimbursemeMore Information
DISABILITY INCOME INSURANCE* A type of health insurance designed to compensate an insured person for a portion of the income lost because of a disabling injury or illness. Benefit payments are made either weekly or monthly for a specified period during the continuance of an insured’sMore Information
DISABILITY* In disability insurance, the inability of an insured person to work due to an injury or sickness. Each disability policy has a definition of disability that must be satisfied in order for the insured to receive the policy’s benefits. (See Residual disabilMore Information
DIVIDEND Money returned to policyholders from an insurance company’s earnings. Considered a partial premium refund rather than a taxable distribution, reflecting the difference between the premium charged and actual losses. Many life insurance policies and some prMore Information
DIVIDEND ACCUMULATIONS OPTION* See Accumulation at interest option.More Information
DOMESTIC INSURANCE COMPANY Term used by a state to refer to any company incorporated there.More Information
DOUBLE INDEMNITY BENEFIT* An accidental death benefit that is equal to the face amount of a life insurance policy’s basic death benefit and is paid when the insured’s death is the result of an accident as defined in the policy. (See Accidental death benefit/ADB)More Information
DREAD DISEASE COVERAGE* See Specified disease coverageMore Information
EARLY WARNING SYSTEM EARLY WARNING SYSTEM A system of measuring insurers’ financial stability set up by insurance industry regulators. An example is the Insurance Regulatory Information System (IRIS), which uses financial ratios to identify insurers in need of regulatory atteMore Information
EARNED PREMIUM The portion of premium that applies to the expired part of the policy period. Insurance premiums are payable in advance but the insurance company does not fully earn them until the policy period expires.More Information
EARTHQUAKE INSURANCE Covers a building and its contents, but includes a large percentage deductible on each. A special policy or endorsement exists because earthquakes are not covered by standard homeowners or most business policies.More Information
ECONOMIC LOSS Total financial loss resulting from the death or disability of a wage earner, or from the destruction of property. Includes the loss of earnings, medical expenses, funeral expenses, the cost of restoring or replacing property and legal expenses. It does nMore Information
ELECTRONIC COMMERCE / E-COMMERCE The sale of products such as insurance over the Internet.More Information
ELIMINATION PERIOD A kind of deductible or waiting period usually found in disability policies. It is counted in days from the beginning of the illness or injury.More Information
EMPLOYEE DISHONESTY COVERAGE Covers direct losses and damage to businesses resulting from the dishonest acts of employees. (See Fidelity bond)More Information
EMPLOYEE RETIREMENT INCOME SECURITY ACT / ERISA Federal legislation that protects employees by establishing minimum standards for private pension and welfare plans.More Information
EMPLOYER’S LIABILITY Part B of the workers compensation policy that provides coverage for lawsuits filed by injured employees who, under certain circumstances, can sue under common law. (See Exclusive remedy)More Information
EMPLOYMENT PRACTICES LIABILITY COVERAGE Liability insurance for employers that covers wrongful termination, discrimination and other violations of employees’ legal rights.More Information
ENDORSEMENT A written form attached to an insurance policy that alters the policy’s coverage, terms, or conditions. Sometimes called a rider.More Information
ENDOWMENT INSURANCE* Life insurance that provides a policy benefit payable either when the insured dies or on a stated date if the insured is still alive on that date.More Information
ENVIRONMENTAL IMPAIRMENT LIABILITY COVERAGE A form of insurance designed to cover losses and liabilities arising from damage to property caused by pollution.More Information
EQUITY In investments, the ownership interest of shareholders. In a corporation, stocks as opposed to bonds.More Information
EQUITY INDEXED ANNUITY Nontraditional fixed annuity. The specified rate of interest guarantees a fixed minimum rate of interest like traditional fixed annuities. At the same time, additional interest may be credited to policy values based upon positive changes, if any, in an esMore Information
ERRORS AND OMISSIONS COVERAGE / E&O A professional liability policy covering the policyholder for negligent acts and omissions that may harm his or her clients.More Information
ESCROW ACCOUNT Funds that a lender collects to pay monthly premiums in mortgage and homeowners insurance, and sometimes to pay property taxes.More Information
EXCESS AND SURPLUS LINES Property/casualty coverage that isn’t available from insurers licensed by the state (called admitted insurers) and must be purchased from a nonadmitted carrier.More Information
EXCESS OF LOSS REINSURANCE A contract between an insurer and a reinsurer, whereby the insurer agrees to pay a specified portion of a claim and the reinsurer to pay all or a part of the claim above that amount.More Information
EXCLUSION A provision in an insurance policy that eliminates coverage for certain risks, people, property classes, or locations.More Information
EXCLUSIVE AGENT A captive agent, or a person who represents only one insurance company and is restricted by agreement from submitting business to any other company unless it is first rejected by the agent’s company. (See Captive agent)More Information
EXCLUSIVE REMEDY Part of the social contract that forms the basis for workers compensation statutes under which employers are responsible for work-related injury and disease, regardless of whether it was the employee’s fault and in return the injured employee gives up theMore Information
EXPENSE RATIO Percentage of each premium dollar that goes to insurers’ expenses including overhead, marketing and commissions.More Information
EXPERIENCE Record of losses.More Information
EXPOSURE Possibility of loss.More Information
EXTENDED COVERAGE An endorsement added to an insurance policy, or clause within a policy, that provides additional coverage for risks other than those in a basic policy.More Information
EXTENDED REPLACEMENT COST COVERAGE Pays a certain amount above the policy limit to replace a damaged home, generally 120 percent or 125 percent. Similar to a guaranteed replacement cost policy, which has no percentage limits. Most homeowner policy limits track inflation in building costs.
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EXTENDED TERM INSURANCE OPTION* One of several nonforfeiture options included in life insurance policies that allows the owner of a policy with a cash value to discontinue premium payments and to use the policy’s net cash value to purchase term insurance for the full coverage amount proMore Information
FACE AMOUNT* For a fixed-amount whole life insurance policy, the amount of the death benefit payable if the insured person dies while the policy is in force.More Information
FACULTATIVE REINSURANCE A reinsurance policy that provides an insurer with coverage for specific individual risks that are unusual or so large that they aren’t covered in the insurance company’s reinsurance treaties. This can include policies for jumbo jets or oil rigs. ReinsureMore Information
FAIR ACCESS TO INSURANCE REQUIREMENTS PLANS / FAIR PLANS Insurance pools that sell property insurance to people who can’t buy it in the voluntary market because of high risk over which they may have no control. FAIR Plans, which exist in 28 states and the District of Columbia, insure fire, vandalism, riot and wMore Information
FAMILY BENEFIT COVERAGE* A type of supplementary benefit rider offered in conjunction with a life insurance policy that insures the lives of the insured’s spouse and children. Also known as dependent life insurance and spouse and children’s insurance rider.More Information
FARMOWNERS-RANCHOWNERS INSURANCE Package policy that protects the policyholder against named perils and liabilities and usually covers homes and their contents, along with barns, stables and other structures.More Information
FEDERAL FUNDS Reserve balances that depository institutions lend each other, usually on an overnight basis. In addition, Federal funds include certain other kinds of borrowing by depository institutions from each other and from federal agencies.More Information
FEDERAL INSURANCE ADMINISTRATION / FIA Federal agency in charge of administering the National Flood Insurance Program. It does not regulate the insurance industry.More Information
FEDERAL RESERVE BOARD Seven member board that supervises the banking system by issuing regulations controlling bank holding companies and federal laws over the banking industry. It also controls and oversees the U.S. monetary system and credit supply.More Information
FIDELITY BOND A form of protection that covers policyholders for losses that they incur as a result of fraudulent acts by specified individuals. It usually insures a business for losses caused by the dishonest acts of its employees.More Information
FIDUCIARY BOND A type of surety bond, sometimes called a probate bond, which is required of certain fiduciaries, such as executors and trustees, that guarantees the performance of their responsibilities.More Information
FIDUCIARY LIABILITY Legal responsibility of a fiduciary to safeguard assets of beneficiaries. A fiduciary, for example a pension fund manager, is required to manage investments held in trust in the best interest of beneficiaries. Fiduciary liability insurance covers breachesMore Information
FILE-AND-USE STATES States where insurers must file rate changes with their regulators, but don’t have to wait for approval to put them into effect.More Information
FINANCIAL GUARANTEE INSURANCE Covers losses from specific financial transactions and guarantees that investors in debt instruments, such as municipal bonds, receive timely payment of principal and interest if there is a default. Raises the credit rating of debt to which the guarantee
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FINANCIAL RESPONSIBILITY LAW A state law requiring that all automobile drivers show proof that they can pay damages up to a minimum amount if involved in an auto accident. Varies from state to state but can be met by carrying a minimum amount of auto liability insurance. (See CompulsMore Information
FINITE RISK REINSURANCE Contract under which the ultimate liability of the reinsurer is capped and on which anticipated investment income is expressly acknowledged as an underwriting component. Also known as financial reinsurance because this type of coverage is often bought to
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FIRE INSURANCE Coverage protecting property against losses caused by a fire or lightning that is usually included in homeowners or commercial multiple peril policies.More Information
FIRST-PARTY COVERAGE Coverage for the policyholder’s own property or person. In no-fault auto insurance it pays for the cost of injuries. In no-fault states with the broadest coverage, the personal injury protection (PIP) part of the policy pays for medical care, lost income,More Information
FIXED ANNUITY An annuity that guarantees a specific rate of return. In the case of a deferred annuity, a minimum rate of interest is guaranteed during the savings phase. During the payment phase, a fixed amount of income, paid on a regular schedule, is guaranteed.More Information
FLEXIBLE PREMIUM* A premium payment method sometimes offered in connection with annuities and with some types of life insurance that allows the contract owner or policy owner to alter the amount and the frequency of payments, within specified boundaries defined by the insuMore Information
FLOATER Attached to a homeowners policy, a floater insures movable property, covering losses wherever they may occur. Among the items often insured with a floater are expensive jewelry, musical instruments and furs. It provides broader coverage than a regular homMore Information
FLOOD INSURANCE Coverage for flood damage is available from the federal government under the National Flood Insurance Program but is sold by licensed insurance agents. Flood coverage is excluded under homeowners policies and many commercial property policies. However, flMore Information
FORCED PLACE INSURANCE Insurance purchased by a bank or creditor on an uninsured debtor’s behalf so if the property is damaged, funding is available to repair it.More Information
FOREIGN INSURANCE COMPANY Name given to an insurance company based in one state by the other states in which it does business.More Information
FRATERNAL BENEFIT SOCIETY* See Fraternal insurerMore Information
FRATERNAL INSURER* A nonprofit organization that is operated solely for the benefit of its members and that provides its members with social and insurance benefits. Also known as fraternal benefit society.More Information
FRAUD Intentional lying or concealment by policyholders to obtain payment of an insurance claim that would otherwise not be paid, or lying or misrepresentation by the insurance company managers, employees, agents and brokers for financial gain.More Information
FREE-LOOK PERIOD A period of up to one month during which the purchaser of an annuity can cancel the contract with no penalty. Rules vary by state.More Information
FREQUENCY Number of times a loss occurs. One of the criteria used in calculating premium rates.More Information
FRONTING A procedure in which a primary insurer acts as the insurer of record by issuing a policy, but then passes the entire risk to a reinsurer in exchange for a commission. Often, the fronting insurer is licensed to do business in a state or country where the rMore Information
FUTURES Agreement to buy a security for a set price at a certain date. Futures contracts usually involve commodities, indexes or financial futures.More Information
GAP INSURANCE An automobile insurance option, available in some states, that covers the difference between a car’s actual cash value when it is stolen or wrecked and the amount the consumer owes the leasing or finance company. Mainly used for leased cars. (See Actual cMore Information
GENERAL ACCOUNT* An undivided investment account in which insurers maintain funds that support contractual obligations for guaranteed insurance products such as whole life insurance or fixed-rate annuities. Contrast with separate account.More Information
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES/GAAP Generally accepted accounting principles (GAAP) accounting is used in financial statements that publicly held companies prepare for the Securities and Exchange Commission. (See Statutory accounting principles/SAP)More Information
GENERIC AUTO PARTS Auto crash parts produced by firms that are not associated with car manufacturers. Insurers consider these parts, when certified, at least as good as those that come from the original equipment manufacturer (OEM). They are often cheaper than the identicalMore Information
GLASS INSURANCE Coverage for glass breakage caused by all risks; fire and war are sometimes excluded. Insurance can be bought for windows, structural glass, leaded glass and mirrors. Available with or without a deductible.More Information
GRACE PERIOD* (1) For insurance premium payments, a specified length of time following a premium due date within which the renewal premium may be paid without penalty. The length of the grace period is specified in a grace period provision that is found in a life insurMore Information
GRADED PREMIUM POLICY* A type of modified-premium whole life policy that calls for three or more levels of annual premium payment amounts, increasing at specified points in time - such as every three years - until reaching the amount to be paid as a level premium for the rest oMore Information
GRADUATED DRIVER LICENSES Licenses for younger drivers that allow them to improve their skills. Regulations vary by state, but often restrict nighttime driving. Young drivers receive a learner’s permit, followed by a provisional license, before they can receive a standard driver’sMore Information
GRAMM-LEACH-BLILEY ACT Financial services legislation, passed by Congress in 1999, that removed Depression era prohibitions against the combination of commercial banking and investment banking activities. It allows insurance companies, banks and securities firms to engage in eaMore Information
GROSS ANNUITY COST* A monetary amount equal to the present value of future periodic income payments under an annuity contract, calculated on a gross basis, with a specific provision for expense loading. Contrast with net annuity cost.More Information
GROUP INSURANCE A single policy covering a group of individuals, usually employees of the same company or members of the same association and their dependents. Coverage occurs under a master policy issued to the employer or association.More Information
GUARANTEE PERIOD Period during which the level of interest specified under a fixed annuity is guaranteed.More Information
GUARANTEED DEATH BENEFIT Basic death benefits guaranteed under variable annuity contracts.More Information
GUARANTEED INCOME CONTRACT / GIC Often an option in an employer-sponsored retirement savings plan. Contract between an insurance company and the plan that guarantees a stated rate of return on invested capital over the life of the contract.More Information
GUARANTEED INSURABILITY (GI) BENEFIT* A supplementary life insurance policy benefit often provided through a policy rider that gives the policy owner the right to purchase additional insurance of the same type as the life insurance policy that provides the GI benefit on specified option datesMore Information
GUARANTEED LIVING BENEFIT A guarantee in a variable annuity that a certain level of annuity payment will be maintained. Serves as a protection against investment risks. Several types exist.More Information
GUARANTEED RENEWABLE POLICY* An individual health insurance policy that requires the insurer to renew the policy—as long as premium payments are made—at least until the insured attains a specified age. The insurer can change premium rates for broad classes of insureds but not for an
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GUARANTEED REPLACEMENT COST COVERAGE Homeowners policy that pays the full cost of replacing or repairing a damaged or destroyed home, even if it is above the policy limit. (See Extended replacement cost coverage)More Information
GUARANTY FUND The mechanism by which solvent insurers ensure that some of the policyholder and third-party claims against insurance companies that fail are paid. Such funds are required in all 50 states, the District of Columbia and Puerto Rico, but the type and amountMore Information
GUN LIABILITY A legal concept that holds gun manufacturers liable for the cost of injuries caused by guns. Several cities have filed lawsuits based on this concept.More Information
HACKER INSURANCE A coverage that protects businesses engaged in electronic commerce from losses caused by hackers.More Information
HARD MARKET A seller’s market in which insurance is expensive and in short supply. (See Property/casualty insurance cycle)More Information
HOMEOWNERS INSURANCE POLICY The typical homeowners insurance policy covers the house, the garage and other structures on the property, as well as personal possessions inside the house such as furniture, appliances and clothing, against a wide variety of perils including windstorms,
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HOUSE YEAR Equal to 365 days of insured coverage for a single dwelling. It is the standard measurement for homeowners insurance.More Information
HURRICANE DEDUCTIBLE A percentage or dollar amount added to a homeowner’s insurance policy to limit an insurer’s exposure to loss from a hurricane. Higher deductibles are instituted in higher risk areas, such as coastal regions. Specific details, such as the intensity of the
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IDENTITY THEFT INSURANCE Coverage for expenses incurred as the result of an identity theft. Can include costs for notarizing fraud affidavits and certified mail, lost income from time taken off from work to meet with law-enforcement personnel or credit agencies, fees for reapplyiMore Information
IMMEDIATE ANNUITY A product purchased with a lump sum, usually at the time retirement begins or afterwards. Payments begin within about a year. Immediate annuities can be either fixed or variable.More Information
INCOME DATE* The date on which an insurer begins or is scheduled to begin making annuity benefit payments under an annuity contract. Also known as maturity date and annuity date.More Information
INCOME PROTECTION INSURANCE* A type of disability income coverage that provides an income benefit both, while the insured is totally disabled and unable to work and while he is able to work, but because of a disability, is earning less than he earned before being disabled. Also knownMore Information
INCONTESTABILITY PROVISION* An insurance and annuity policy provision that limits the time within which an insurer has the right to avoid the contract on the ground of material misrepresentation in the application for the policy. Also known as incontestable clause. (See Contestable
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INCREASING TERM LIFE INSURANCE* A type of term life insurance that provides a death benefit that increases by some specified amount or percentage at stated intervals over the policy term. Contrast with decreasing term life insurance.More Information
INCURRED BUT NOT REPORTED LOSSES / IBNR Losses that are not filed with the insurer or reinsurer until years after the policy is sold. Some liability claims may be filed long after the event that caused the injury to occur. Asbestos-related diseases, for example, do not show up until decades aftMore Information
INCURRED LOSSES Losses occurring within a fixed period, whether or not adjusted or paid during the same period.More Information
INDEMNIFY Provide financial compensation for losses.More Information
INDEPENDENT AGENT Agent who is self-employed, is paid on commission, and represents several insurance companies. (See Captive agent)More Information
INDETERMINATE PREMIUM LIFE INSURANCE POLICY* A type of nonparticipating whole life policy that specifies two premium rates—both a maximum guaranteed rate and a lower rate. The insurer charges the lower premium rate when the policy is purchased and guarantees that rate for at least a stated period ofMore Information
INDETERMINATE PREMIUM LIFE INSURANCE POLICY* A type of nonparticipating whole life policy that specifies two premium rates—both a maximum guaranteed rate and a lower rate. The insurer charges the lower premium rate when the policy is purchased and guarantees that rate for at least a stated period ofMore Information
INDEXED LIFE INSURANCE CONTRACT* An arrangement similar to a universal life contract. Death benefit amounts are based on the amount selected by the policyholder plus the account value. The policyholder’s account value is linked to cumulative returns based on the S&P 500 index or some othMore Information
INDIVIDUAL RETIREMENT ACCOUNT/IRA A tax-deductible savings plan for those who are self-employed, or those whose earnings are below a certain level or whose employers do not offer retirement plans. Others may make limited contributions on a tax-deferred basis. The Roth IRA, a special kind
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INFLATION GUARD CLAUSE A provision added to a homeowners insurance policy that automatically adjusts the coverage limit on the dwelling each time the policy is renewed to reflect current construction costs.More Information
INLAND MARINE INSURANCE This broad type of coverage was developed for shipments that do not involve ocean transport. Covers articles in transit by all forms of land and air transportation as well as bridges, tunnels and other means of transportation and communication. Floaters tMore Information
INSOLVENCY Insurer’s inability to pay debts. Insurance insolvency standards and the regulatory actions taken vary from state to state. When regulators deem an insurance company is in danger of becoming insolvent, they can take one of three actions: place a company iMore Information
INSTITUTIONAL INVESTOR An organization such as a bank or insurance company that buys and sells large quantities of securities.More Information
INSURABLE INTEREST* In insurance, a person exhibits an insurable interest in a potential loss if that person will suffer a genuine economic loss if the event insured against occurs. Without the presence of insurable interest, an insurance contract is not formed for a lawful
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INSURABLE RISK Risks for which it is relatively easy to get insurance and that meet certain criteria. These include being definable, accidental in nature, and part of a group of similar risks large enough to make losses predictable. The insurance company also must be abMore Information
INSURANCE A system to make large financial losses more affordable by pooling the risks of many individuals and business entities and transferring them to an insurance company or other large group in return for a premium.More Information
INSURANCE POOL A group of insurance companies that pool assets, enabling them to provide an amount of insurance substantially more than can be provided by individual companies to ensure large risks such as nuclear power stations. Pools may be formed voluntarily or mandaMore Information
INSURANCE REGULATORY INFORMATION SYSTEM / IRIS Uses financial ratios to measure insurers’ financial strength. Developed by the National Association of Insurance Commissioners. Each individual state insurance department chooses how to use IRIS.More Information
INSURANCE SCORE Insurance scores are confidential rankings based on credit information. This includes whether the consumer has made timely payments on loans, the number of open credit card accounts and whether a bankruptcy filing has been made. An insurance score is a meMore Information
INSURANCE-TO-VALUE Insurance written in an amount approximating the value of the insured property.More Information
INTEGRATED BENEFITS Coverage where the distinction between job-related and non-occupational illnesses or injuries is eliminated and workers compensation and general health coverage are combined. Legal obstacles exist, however, because the two coverages are administered separMore Information
INTEREST-ADJUSTED COST COMPARISON INDEX* A cost comparison index used to compare life insurance policy costs that takes into account the time value of money. By comparing the index numbers derived for similar life insurance policies, a consumer has some basis on which to compare the costs of theMore Information
INTEREST-SENSITIVE INSURANCE* A general category of insurance products in which the face amount and/or the cash value vary according to the insurer’s investment earnings.More Information
INTERMEDIATION The process of bringing savers, investors and borrowers together so that savers and investors can obtain a return on their money and borrowers can use the money to finance their purchases or projects through loans.More Information
INTERNET INSURER An insurer that sells exclusively via the Internet.More Information
INTERNET LIABILITY INSURANCE Coverage designed to protect businesses from liabilities that arise from the conducting of business over the Internet, including copyright infringement, defamation, and violation of privacy.More Information
INVESTMENT ANNUITY* See Deferred annuityMore Information
INVESTMENT INCOME Income generated by the investment of assets. Insurers have two sources of income, underwriting (premiums less claims and expenses) and investment income. The latter can offset underwriting operations, which are frequently unprofitable.More Information
IRREVOCABLE BENEFICIARY* A life insurance policy beneficiary who has a vested interest in the policy proceeds even during the insured’s lifetime because the policy owner has the right to change the beneficiary designation only after obtaining the beneficiary’s consent. Contrast wMore Information
JOINT AND SURVIVOR ANNUITY An annuity with two annuitants, usually spouses. Payments continue until the death of the longest living of the two.More Information
JOINT UNDERWRITING ASSOCIATION / JUA Insurers which join together to provide coverage for a particular type of risk or size of exposure, when there are difficulties in obtaining coverage in the regular market, and which share in the profits and losses associated with the program. JUAs may beMore Information
JUNK BONDS Corporate bonds with credit ratings of BB or less. They pay a higher yield than investment grade bonds because issuers have a higher perceived risk of default. Such bonds involve market risk that could force investors, including insurers, to sell the bondMore Information
KEY PERSON INSURANCE Insurance on the life or health of a key individual whose services are essential to the continuing success of a business and whose death or disability could cause the firm a substantial financial loss.More Information
KIDNAP/RANSOM INSURANCE Coverage up to specific limits for the cost of ransom or extortion payments and related expenses. Often bought by international corporations to cover employees. Most policies have large deductibles and may exclude certain geographic areas. Some policies rMore Information
LADDERING A technique that consists of staggering the maturity dates and the mix of different types of bonds.More Information
LAPSE* The termination of an insurance policy because a renewal premium is not paid by the end of the grace period.More Information
LAW OF LARGE NUMBERS The theory of probability on which the business of insurance is based. Simply put, this mathematical premise says that the larger the group of units insured, such as sport-utility vehicles, the more accurate the predictions of loss will be.More Information
LEVEL PREMIUM POLICIES* Premiums paid for a life insurance policy or for a deferred annuity that remain the same each year that the contract is in force. Contrast with modified premium policies and single premium policies.More Information
LIABILITY INSURANCE Insurance for what the policyholder is legally obligated to pay because of bodily injury or property damage caused to another person.More Information
LIFE ANNUITY WITH PERIOD CERTAIN* A type of annuity contract that guarantees periodic income payments throughout the lifetime of a named individual—the annuitant—and guarantees that the payments will continue for at least a specified period. If the annuitant dies before the end of that spMore Information
LIFE ANNUITY* A type of annuity contract that guarantees periodic income payments throughout the lifetime of a named individual—the annuitant. If a life annuity provides no further benefits after the death of the annuitant, the annuity is known as a straight life annuiMore Information
LIFE INCOME WITH REFUND ANNUITY* A type of annuity contract that guarantees specified periodic income payments throughout the lifetime of a named individual—the annuitant— and guarantees that a refund will be made if the annuitant dies before the total of the periodic payments made equalMore Information
LIFE INSURANCE See Ordinary life insurance; Term insurance; Variable life insurance; Whole life insuranceMore Information
LIMITS Maximum amount of insurance that can be paid for a covered loss.More Information
LINE Type or kind of insurance, such as personal lines.More Information
LIQUIDATION Enables the state insurance department as liquidator or its appointed deputy to wind up the insurance company’s affairs by selling its assets and settling claims upon those assets. After receiving the liquidation order, the liquidator notifies insurance dMore Information
LIQUIDITY The ability and speed with which a security can be converted into cash.More Information
LIQUOR LIABILITY Coverage for bodily injury or property damage caused by an intoxicated person who was served liquor by the policyholder.More Information
LLOYDS Corporation formed to market services of a group of underwriters. Does not issue insurance policies or provide insurance protection. Insurance is written by individual underwriters, with each assuming a part of every risk. Has no connection to Lloyd’s of
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LLOYD'S OF LONDON A marketplace where underwriting syndicates, or mini-insurers, gather to sell insurance policies and reinsurance. Each syndicate is managed by an underwriter who decides whether or not to accept the risk. The Lloyd’s market is a major player in the internMore Information
LONG-TERM CARE INSURANCE Long-term care (LTC) insurance pays for services to help individuals who are unable to perform certain activities of daily living without assistance, or require supervision due to a cognitive impairment such as Alzheimer’s disease. LTC is available as indMore Information
LONG-TERM DISABILITY INCOME INSURANCE* A type of disability income insurance that provides disability income benefits after short-term disability income benefits terminate and continues until the earlier of the date when the insured person returns to work, dies, or becomes eligible for pensionMore Information
LOSS A reduction in the quality or value of a property, or a legal liability.More Information
LOSS ADJUSTMENT EXPENSES The sum insurers pay for investigating and settling insurance claims, including the cost of defending a lawsuit in court.More Information
LOSS COSTS The portion of an insurance rate used to cover claims and the costs of adjusting claims. Insurance companies typically determine their rates by estimating their future loss costs and adding a provision for expenses, profit, and contingencies.More Information
LOSS OF USE A provision in homeowners and renters insurance policies that reimburses policyholders for any extra living expenses due to having to live elsewhere while their home is being restored following a disaster.More Information
LOSS RATIO Percentage of each premium dollar an insurer spends on claims.More Information
LOSS RESERVES The company’s best estimate of what it will pay for claims, which is periodically readjusted. They represent a liability on the insurer’s balance sheet.More Information
L-SHARE VARIABLE ANNUITIES A form of variable annuity contract usually with short surrender periods and higher mortality and expense risk charges.More Information
MALPRACTICE INSURANCE Professional liability coverage for physicians, lawyers, and other specialists against suits alleging negligence or errors and omissions that have harmed clients.More Information
MANAGED CARE Arrangement between an employer or insurer and selected providers to provide comprehensive health care at a discount to members of the insured group and coordinate the financing and delivery of health care. Managed care uses medical protocols and procedurMore Information
MANUAL A book published by an insurance or bonding company or a rating association or bureau that gives rates, classifications, and underwriting rules.More Information
MARINE INSURANCE Coverage for goods in transit, and for the commercial vehicles that transport them, on water and over land. The term may apply to inland marine but more generally applies to ocean marine insurance. Covers damage or destruction of a ship’s hull and cargo aMore Information
MATURITY DATE* (1) For endowment in insurance, the date on which an insurer will pay the face amount of an endowment policy to the policy owner if the insured is still living. (2) In investing, the date on which a bond issuer must repay to the bondholder the amount origMore Information
MCCARRAN-FERGUSON ACT Federal law signed in 1945 in which Congress declared that states would continue to regulate the insurance business. Grants insurers a limited exemption from federal antitrust legislation.More Information
MEDIATION Nonbinding procedure in which a third party attempts to resolve a conflict between two other parties.More Information
MEDICAID A federal/state public assistance program created in 1965 and administered by the states for people whose income and resources are insufficient to pay for health care.More Information
MEDICAL INFORMATION BUREAU* See MIB, Inc.More Information
MEDICAL MALPRACTICE INSURANCE See Malpractice insuranceMore Information
MEDICAL PAYMENTS INSURANCE A coverage in which the insurer agrees to reimburse the insured and others up to a certain limit for medical or funeral expenses as a result of bodily injury or death by accident. Payments are without regard to fault.More Information
MEDICAL UTILIZATION REVIEW The practice used by insurance companies to review claims for medical treatment.More Information
MEDICARE Federal program for people 65 or older that pays part of the costs associated with hospitalization, surgery, doctors’ bills, home health care, and skilled-nursing care.More Information
MEDIGAP/MEDSUP Policies that supplement federal insurance benefits particularly for those covered under Medicare.More Information
MIB, INC.* A nonprofit organization established to provide information to insurers about impairments that applicants have admitted to, or that other insurers have detected, in connection with previous applications for insurance. Formerly known as Medical InformationMore Information
MINE SUBSIDENCE COVERAGE An endorsement to a homeowners insurance policy, available in some states, for losses to a home caused by the land under a house sinking into a mine shaft. Excluded from standard homeowners policies, as are other forms of earth movement.More Information
MISREPRESENTATION* A false or misleading statement. (1) In insurance sales, a false or misleading statement made by a sales agent to induce a customer to purchase insurance is a prohibited sales practice. (2) In insurance underwriting, a false or misleading statement by an
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MISSTATEMENT OF AGE OR SEX PROVISION* A life insurance, health insurance, and annuity policy provision that describes how policy benefits will be adjusted if the age or sex of the insured has been misstated in the insurance application. Typically, the benefits payable will be those that the pMore Information
MODIFIED PREMIUM POLICIES* An insurance policy for which the policy owner first pays a lower premium than she would for a similar level premium policy for a specified initial period and then pays a higher premium than she would for a similar level premium policy. Contrast with leveMore Information
MONEY SUPPLY Total supply of money in the economy, composed of currency in circulation and deposits in savings and checking accounts. By changing the interest rates the Federal Reserve seeks to adjust the money supply to maintain a strong economy.More Information
MORAL HAZARD* The possibility that a person may act dishonestly in an insurance transaction.More Information
MORBIDITY RATE* The rate at which sickness and injury occur within a defined group of people. Insurers base health insurance premiums in part on the morbidity rate for a proposed insured’s age group. Contrast with mortality rate.More Information
MORTALITY AND EXPENSE (M&E) RISK CHARGE A fee that covers such annuity contract guarantees as death benefits.More Information
MORTALITY RATE* A percentage rate at which death occurs among a defined group of people of a specified age and sometimes of a specified gender. Insurers base the premiums for life insurance in part on the mortality rate for a proposed insured’s age group. Contrast with mMore Information
MORTGAGE GUARANTEE INSURANCE Coverage for the mortgagee (usually a financial institution) in the event that a mortgage holder defaults on a loan. Also called private mortgage insurance (PMI).More Information
MORTGAGE INSURANCE A form of decreasing term insurance that covers the life of a person taking out a mortgage. Death benefits provide for payment of the outstanding balance of the loan. Coverage is in decreasing term insurance, so the amount of coverage decreases as the debMore Information
MORTGAGE-BACKED SECURITIES Investment grade securities backed by a pool of mortgages. The issuer uses the cash flow from mortgages to meet interest payments on the bonds.More Information
MULTIPLE PERIL POLICY A package policy, such as a homeowners or business insurance policy, that provides coverage against several different perils. It also refers to the combination of property and liability coverage in one policy. In the early days of insurance, coverages forMore Information
MUNICIPAL BOND INSURANCE Coverage that guarantees bondholders timely payment of interest and principal even if the issuer of the bonds defaults. Offered by insurance companies with high credit ratings, the coverage raises the credit rating of a municipality offering the bond to tMore Information
MUNICIPAL LIABILITY INSURANCE Liability insurance for municipalities.More Information
MUTUAL HOLDING COMPANY An organizational structure that provides mutual companies with the organizational and capital raising advantages of stock insurers, while retaining the policyholder ownership of the mutual.More Information
MUTUAL INSURANCE COMPANY A company owned by its policyholders that returns part of its profits to the policyholders as dividends. The insurer uses the rest as a surplus cushion in case of large and unexpected losses.More Information
NAMED PERIL Peril specifically mentioned as covered in an insurance policy.More Information
NATIONAL FLOOD INSURANCE PROGRAM Federal government-sponsored program under which flood insurance is sold to homeowners and businesses. (See Adverse selection; Flood insurance)More Information
NET ANNUITY COST* A monetary amount equal to the present value of future periodic payments under an annuity contract, calculated on a net basis, without any specific provision for expense loading. Contrast with gross annuity cost. (See Annuity cost)More Information
NET PAYMENT COST COMPARISON INDEX* A cost comparison index used to compare life insurance policies that takes into account the time value of money and that measures the cost of a policy over a 10- or 20-year period assuming the policy owner pays premiums over the entire period. Contrast wiMore Information
NET PREMIUMS WRITTEN See Premiums writtenMore Information
NO-FAULT Auto insurance coverage that pays for each driver’s own injuries, regardless of who caused the accident. No-fault varies from state to state. It also refers to an auto liability insurance system that restricts lawsuits to serious cases. Such policies are
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NO-FAULT MEDICAL A type of accident coverage in homeowners policies.More Information
NON-ADMITTED ASSETS Assets that are not included on the balance sheet of an insurance company, including furniture, fixtures, past-due accounts receivable, and agents’ debt balances. (See Assets)More Information
NON-ADMITTED INSURER Insurers licensed in some states, but not others. States where an insurer is not licensed call that insurer non-admitted. They sell coverage that is unavailable from licensed insurers within the state.More Information
NONCANCELLABLE AND GUARANTEED RENEWABLE POLICY* An individual health insurance policy, which stipulates that, until the insured reaches a specified age (usually age 65), the insurer will not cancel the coverage, increase the premiums, or change the policy provisions as long as the premiums are paid wheMore Information
NONFORFEITURE OPTIONS* The various ways in which a contract owner may apply the cash surrender value of an insurance or an annuity contract if the contract lapses. In the United States, the typical nonforfeiture options for life insurance are the cash payment option, the extendMore Information
NO-PAY, NO-PLAY The idea that people who don’t buy coverage should not receive benefits. Prohibits uninsured drivers from collecting damages from insured drivers. In most states with this law, uninsured drivers may not sue for noneconomic damages such as pain and sufferiMore Information
NOTICE OF LOSS A written notice required by insurance companies immediately after an accident or other loss. Part of the standard provisions defining a policyholder's responsibilities after a loss.More Information
NUCLEAR INSURANCE Covers operators of nuclear reactors and other facilities for liability and property damage in the case of a nuclear accident and involves both private insurers and the federal government.More Information
NURSING HOME INSURANCE A form of long-term care policy that covers a policyholder’s stay in a nursing facility.More Information
OCCUPATIONAL DISEASE Abnormal condition or illness caused by factors associated with the workplace. Like occupational injuries, this is covered by workers compensation policies. (See Workers compensation)More Information
OCCURRENCE POLICY Insurance that pays claims arising out of incidents that occur during the policy term, even if they are filed many years later. (See Claims-made policy)More Information
OCEAN MARINE INSURANCE Coverage of all types of vessels and watercraft, for property damage to the vessel and cargo, including such risks as piracy and the jettisoning of cargo to save the property of others. Coverage for marine-related liabilities. War is excluded from basic pMore Information
OPEN COMPETITION STATES States where insurance companies can set new rates without prior approval, although the state’s commissioner can disallow them if they are not reasonable and adequate or are discriminatory.More Information
OPERATING EXPENSES The cost of maintaining a business’s property, includes insurance, property taxes, utilities and rent, but excludes income tax, depreciation and other financing expenses.More Information
OPTIONS Contracts that allow, but do not oblige, the buying or selling of property or assets at a certain date at a set price.More Information
ORDINANCE OR LAW COVERAGE Endorsement to a property policy, including homeowners, that pays for the extra expense of rebuilding to comply with ordinances or laws, often building codes, that did not exist when the building was originally built. For example, a building severely damaMore Information
ORDINARY LIFE INSURANCE A life insurance policy that remains in force for the policyholder’s lifetime.More Information
ORIGINAL EQUIPMENT MANUFACTURER PARTS / OEM Sheet metal auto parts made by the manufacturer of the vehicle. (See Generic auto parts)More Information
OVER-THE-COUNTER (OTC) Security that is not listed or traded on an exchange such as the New York Stock Exchange. Business in over-the-counter securities is conducted through dealers using electronic networks.More Information
PACKAGE POLICY A single insurance policy that combines several coverages previously sold separately. Examples include homeowners insurance and commercial multiple peril insurance.More Information
PAID-UP ADDITIONAL INSURANCE OPTION* An option, available to the owners of participating life insurance policies, that allows the policy owner to use policy dividends to purchase additional insurance on the insured’s life; the paid-up additional insurance is issued on the same plan as the baMore Information
PAID-UP POLICY* An insurance policy that requires no further premium payments but continues to provide coverage.More Information
PARTIAL DISABILITY* See Residual disabilityMore Information
PARTICIPATING POLICY* A type of insurance policy that allows policy owners to receive policy dividends. Also known as par policy. (See Dividend)More Information
PAY-AT-THE-PUMP A system proposed in the 1990s in which auto insurance premiums would be paid to state governments through a per-gallon surcharge on gasoline.More Information
PAYOUT OPTIONS* The methods available to an annuity contract owner for the distribution of the annuity’s accumulated value. (1) The lump sum distribution method allows the contract owner to receive the balance of his account in a single payment. (2) The fixed period optiMore Information
PENSION BENEFIT GUARANTY CORPORATION An independent federal government agency that administers the Pension Plan Termination Insurance program to ensure that vested benefits of employees whose pension plans are being terminated are paid when they come due. Only defined benefit plans are coverMore Information
PENSIONS Programs to provide employees with retirement income after they meet minimum age and service requirements. Life insurers hold some of these funds. Since the 1970s responsibility for funding retirement has increasingly shifted from employers (defined benefMore Information
PER CAPITA BENEFICIARY DESIGNATION* A type of life insurance policy beneficiary designation in which the life insurance benefits are divided equally among the designated beneficiaries who survive the insured. For example, if the policy specifies two beneficiaries, but only one is surviving
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PER STIRPES BENEFICIARY DESIGNATION* A type of life insurance policy beneficiary designation in which the life insurance benefits are divided among a class of beneficiaries; for example, children of the insured. The living members of the class and the descendants of any deceased members of tMore Information
PERIL A specific risk or cause of loss covered by an insurance policy, such as a fire, windstorm, flood, or theft. A named-peril policy covers the policyholder only for the risks named in the policy in contrast to an all-risk policy, which covers all causes of
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PERIOD CERTAIN* The stated period over which an insurer makes periodic benefit payments under an annuity certain. (See Annuity certain)More Information
PERSONAL ARTICLES FLOATER A policy or an addition to a policy used to cover personal valuables, like jewelry or furs.More Information
PERSONAL INJURY PROTECTION COVERAGE / PIP Portion of an auto insurance policy that covers the treatment of injuries to the driver and passengers of the policyholder’s car.More Information
PERSONAL LINES Property/casualty insurance products that are designed for and bought by individuals, including homeowners and automobile policies. (See Commercial lines)More Information
POINT-OF-SERVICE PLAN Health insurance policy that allows the employee to choose between in-network and out-of-network care each time medical treatment is needed.More Information
POLICY A written contract for insurance between an insurance company and policyholder stating details of coverage.More Information
POLICY DIVIDEND OPTIONS* Ways in which the owner of a participating insurance policy may receive policy dividends. (See Additional term insurance option; Cash dividend option; Dividend accumulations option; Paid-up additional insurance option; Premium reduction option)More Information
POLICYHOLDERS' SURPLUS The amount of money remaining after an insurer’s liabilities are subtracted from its assets. It acts as a financial cushion above and beyond reserves, protecting policyholders against an unexpected or catastrophic situation.More Information
POLITICAL RISK INSURANCE Coverage for businesses operating abroad against loss due to political upheaval such as war, revolution, or confiscation of property.More Information
POLLUTION INSURANCE Policies that cover property loss and liability arising from pollution-related damages, for sites that have been inspected and found uncontaminated. It is usually written on a claims-made basis so policies pay only claims presented during the term of the
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POOL See Insurance poolMore Information
PRE-EXISTING CONDITION* (1) According to most group health insurance policies, a condition for which an individual received medical care during the three months immediately prior to the effective date of her coverage. (2) According to most individual health insurance policies, aMore Information
PREFERRED PROVIDER ORGANIZATION Network of medical providers which charge on a fee-for-service basis, but are paid on a negotiated, discounted fee schedule.More Information
PREFERRED RISK CLASS* In insurance underwriting, the group of proposed insureds who represent a significantly lower than average likelihood of loss within the context of the insurer’s underwriting practices. Contrast with declined risk class, standard risk class and substandarMore Information
PREMISES The particular location of the property or a portion of it as designated in an insurance policy.More Information
PREMIUM The price of an insurance policy, typically charged annually or semiannually. (See Direct premiums; Earned premium; Unearned premium)More Information
PREMIUM REDUCTION OPTION* An option, available to the owners of participating insurance policies, that allows the insurer to apply policy dividends toward the payment of renewal premiums. (See Dividend; Policy dividend options)More Information
PREMIUM TAX A state tax on premiums paid by its residents and businesses and collected by insurers.More Information
PREMIUMS IN FORCE The sum of the face amounts, plus dividend additions, of life insurance policies outstanding at a given time.More Information
PREMIUMS WRITTEN The total premiums on all policies written by an insurer during a specified period of time, regardless of what portions have been earned. Net premiums written are premiums written after reinsurance transactions.More Information
PRIMARY BENEFICIARY* The party designated to receive the proceeds of a life insurance policy following the death of the insured. Also known as first beneficiary. (See Contingent beneficiary)More Information
PRIMARY COMPANY In a reinsurance transaction, the insurance company that is reinsured.More Information
PRIMARY MARKET Market for new issue securities where the proceeds go directly to the issuer.More Information
PRIME RATE Interest rate that banks charge to their most creditworthy customers. Banks set this rate according to their cost of funds and market forces.More Information
PRIOR APPROVAL STATES States where insurance companies must file proposed rate changes with state regulators, and gain approval before they can go into effect.More Information
PRIVATE MORTGAGE INSURANCE See Mortgage guarantee insuranceMore Information
PRIVATE PLACEMENT Securities that are not registered with the Securities and Exchange Commission and are sold directly to investors.More Information
PRODUCT LIABILITY A section of tort law that determines who may sue and who may be sued for damages when a defective product injures someone. No uniform federal laws guide manufacturer’s liability, but under strict liability, the injured party can hold the manufacturer resMore Information
PRODUCT LIABILITY INSURANCE Protects manufacturers’ and distributors’ exposure to lawsuits by people who have sustained bodily injury or property damage through the use of the product.More Information
PROFESSIONAL LIABILITY INSURANCE Covers professionals for negligence and errors or omissions that injure their clients.More Information
PROOF OF LOSS Documents showing the insurance company that a loss occurred.More Information
PROPERTY/CASUALTY INSURANCE Covers damage to or loss of policyholders’ property and legal liability for damages caused to other people or their property. Property/casualty insurance, which includes auto, homeowners and commercial insurance, is one segment of the insurance industry.
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PROPERTY/CASUALTY INSURANCE CYCLE Industry business cycle with recurrent periods of hard and soft market conditions. In the 1950s and 1960s, cycles were regular with three year periods each of hard and soft market conditions in almost all lines of property/casualty insurance. Since then tMore Information
PROPOSITION 103 A November 1988 California ballot initiative that called for a statewide auto insurance rate rollback and for rates to be based more on driving records and less on geographical location. The initiative changed many aspects of the state’s insurance system
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PURCHASING GROUP An entity that offers insurance to groups of similar businesses with similar exposures to risk.More Information
PURE ENDOWMENT* A life insurance contract that pays a periodic income benefit for the life of the owner of the annuity. The payment can be monthly, quarterly, semiannually or annually.More Information
PURE LIFE ANNUITY A form of annuity that ends payments when the annuitant dies. Payments may be fixed or variable.More Information
QUALIFIED ANNUITY A form of annuity purchased with pretax dollars as part of a retirement plan that benefits from special tax treatment, such as a 401(k) plan.More Information
RATE The cost of a unit of insurance, usually per $1,000. Rates are based on historical loss experience for similar risks and may be regulated by state insurance offices.More Information
RATE REGULATION The process by which states monitor insurance companies’ rate changes, done either through prior approval or open competition models. (See Open competition states; Prior approval states)More Information
RATED POLICY* An insurance policy that is classified as having a greater-than-average likelihood of loss, usually issued with special exclusions, a premium rate that is higher than the rate for a standard policy, a reduced face amount, or any combination of these.More Information
RATING AGENCIES Six major credit agencies determine insurers’ financial strength and viability to meet claims obligations. They are A.M. Best Co.; Duff & Phelps Inc.; Fitch, Inc.; Moody’s Investors Services; Standard & Poor’s Corp.; and Weiss Ratings, Inc. Factors considMore Information
RATING BUREAU The insurance business is based on the spread of risk. The more widely risk is spread, the more accurately loss can be estimated. An insurance company can more accurately estimate the probability of loss on 100,000 homes than on ten. Years ago, insurers wMore Information
REAL ESTATE INVESTMENTS Investments generally owned by life insurers that include commercial mortgage loans and real property.More Information
RECEIVABLES Amounts owed to a business for goods or services provided.More Information
RECIPROCAL EXCHANGE Unincorporated association organized to write insurance for its members, each of whom assumes a share of the risks covered.More Information
REDLINING Literally means to draw a red line on a map around areas to receive special treatment. Refusal to issue insurance based solely on where applicants live is illegal in all states. Denial of insurance must be risk-based.More Information
REDUCED PAID-UP INSURANCE OPTION* One of several nonforfeiture options included in life insurance policies that allows the owner of a policy with cash values to discontinue premium payments and to use the policy’s net cash value to purchase paid-up insurance of the same plan as the originMore Information
REGISTERED PRINCIPAL* An officer or manager of a National Association of Securities Dealers (NASD) member, who is involved in the day-to-day operation of the securities business, has qualified as a registered representative, and has an NASD Series 24 or 26 registration.More Information
REGISTERED REPRESENTATIVE* A sales representative or other person who has registered with the National Association of Securities Dealers (NASD), disclosed the required background information, and passed one or more NASD examination. A registered representative engages in the securiMore Information
REINSTATEMENT* The process by which an insurer puts back into force an insurance policy that has either been terminated for nonpayment of premiums or continued as extended term or reduced paid-up coverage.More Information
REINSURANCE Insurance bought by insurers. A reinsurer assumes part of the risk and part of the premium originally taken by the insurer, known as the primary company. Reinsurance effectively increases an insurer's capital and therefore its capacity to sell more coveraMore Information
RELATION OF EARNINGS TO INSURANCE CLAUSE* A clause included in some individual disability policies that limits the amount of benefits that an insurer will pay when the total amount of disability benefits from all insurers exceeds the individual’s usual earnings.More Information
RENEWABLE TERM INSURANCE POLICY* A term life insurance policy that gives the policy owner the option to continue the coverage at the end of the specified term without presenting evidence of insurability, although typically at a higher premium based on the insured’s attained age.More Information
RENTERS INSURANCE A form of insurance that covers a policyholder’s belongings against perils such as fire, theft, windstorm, hail, explosion, vandalism, riots, and others. It also provides personal liability coverage for damage the policyholder or dependents cause to thirdMore Information
REPLACEMENT COST Insurance that pays the dollar amount needed to replace damaged personal property or dwelling property without deducting for depreciation but limited by the maximum dollar amount shown on the declarations page of the policy.More Information
REPURCHASE AGREEMENT /'REPO' Agreement between a buyer and seller where the seller agrees to repurchase the securities at an agreed upon time and price. Repurchase agreements involving U.S. government securities are utilized by the Federal Reserve to control the money supply.More Information
RESERVES A company’s best estimate of what it will pay for claims.More Information
RESIDUAL DISABILITY INSURANCE* See Income protection insuranceMore Information
RESIDUAL DISABILITY* In disability income insurance, a condition in which the insured is not totally disabled, but is still unable to function as before the sickness or injury, and therefore suffers a reduction in income of at least the percentage—typically 20 percent to 25 pMore Information
RESIDUAL MARKET Facilities, such as assigned risk plans and FAIR Plans, that exist to provide coverage for those who cannot get it in the regular market. Insurers doing business in a given state generally must participate in these pools. For this reason the residual markMore Information
RETENTION The amount of risk retained by an insurance company that is not reinsured.More Information
RETROCESSION The reinsurance bought by reinsurers to protect their financial stability.More Information
RETROSPECTIVE RATING A method of permitting the final premium for a risk to be adjusted, subject to an agreed-upon maximum and minimum limit based on actual loss experience. It is available to large commercial insurance buyers.More Information
RETURN ON EQUITY Net income divided by total equity. Measures profitability by showing how efficiently invested capital is being used.More Information
REVOCABLE BENEFICIARY* A life insurance policy beneficiary whose right to the policy’s proceeds can be cancelled or reduced by the policy owner at any time before the insured’s death. Contrast with irrevocable beneficiary.More Information
RIDER An attachment to an insurance policy that alters the policy’s coverage or terms.More Information
RISK The chance of loss or the person or entity that is insured.More Information
RISK MANAGEMENT Management of the varied risks to which a business firm or association might be subject. It includes analyzing all exposures to gauge the likelihood of loss and choosing options to better manage or minimize loss. These options typically include reducing aMore Information
RISK RETENTION GROUPS Insurance companies that band together as self-insurers and form an organization that is chartered and licensed as an insurer in at least one state to handle liability insurance.More Information
RISK-BASED CAPITAL The need for insurance companies to be capitalized according to the inherent riskiness of the type of insurance they sell. Higher-risk types of insurance, liability as opposed to property business, generally necessitate higher levels of capital.More Information
ROLLOVER* A direct transfer of retirement funds from one qualified plan to another plan of the same type or to an individual retirement arrangement (IRA) that does not pass through the hands of the owner and thus does not incur any tax liability for the owner. AlsoMore Information
SALVAGE Damaged property an insurer takes over to reduce its loss after paying a claim. Insurers receive salvage rights over property on which they have paid claims, such as badly-damaged cars. Insurers that paid claims on cargoes lost at sea now have the right tMore Information
SCHEDULE A list of individual items or groups of items that are covered under one policy or a listing of specific benefits, charges, credits, assets or other defined items.More Information
SECONDARY MARKET Market for previously issued and outstanding securities.More Information
SECTION 1035 EXCHANGE* In the United States, a taxfree replacement of an insurance policy for another insurance contract covering the same person that is performed in accordance with the conditions of Section 1035 of the Internal Revenue Code.More Information
SECTION 415* A section of the Internal Revenue Code that provides for dollar limitations on benefits and contributions under qualified retirement plans. Section 415 also requires that the Internal Revenue Service annually adjust these limits for cost-of-living increasMore Information
SECURITIES AND EXCHANGE COMMISSION / SEC The organization that oversees publicly-held insurance companies. Those companies make periodic financial disclosures to the SEC, including an annual financial statement (or 10K), and a quarterly financial statement (or 10-Q). Companies must also discloseMore Information
SECURITIES OUTSTANDING Stock held by shareholders.More Information
SECURITIZATION OF INSURANCE RISK Using the capital markets to expand and diversify the assumption of insurance risk. The issuance of bonds or notes to third-party investors directly or indirectly by an insurance or reinsurance company or a pooling entity as a means of raising money to coMore Information
SEGREGATED ACCOUNT* In Canada, an investment account that insurers maintain separately from a general account to help manage the funds placed in variable insurance products such as variable annuities. (See Separate account)More Information
SELF-INSURANCE The concept of assuming a financial risk oneself, instead of paying an insurance company to take it on. Every policyholder is a self-insurer in terms of paying a deductible and co-payments. Large firms often self-insure frequent, small losses such as damaMore Information
SEPARATE ACCOUNT* In the United States, an investment account maintained separately from an insurer’s general account to help manage the funds placed in variable insurance products such as variable annuities. Contrast with general account. (See Segregated account)More Information
SETTLEMENT OPTIONS* Choices given to the owner or beneficiary of a life insurance policy regarding the method by which the insurer will pay the policy’s proceeds when the policy owner does not receive the benefits in one single payment. Typically, the owner can elect (1) to
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SEVERITY Size of a loss. One of the criteria used in calculating premiums rates.More Information
SEWER BACK-UP COVERAGE An optional part of homeowners insurance that covers sewers.More Information
SHARED MARKET See Residual marketMore Information
SHORT-TERM DISABILITY INCOME INSURANCE* A type of disability income coverage that provides disability income benefits for a maximum benefit period of from one to five years. Contrast with long-term disability income insurance.More Information
SINGLE PREMIUM ANNUITY An annuity that is paid in full upon purchase.More Information
SINGLE PREMIUM POLICIES* A type of life insurance or annuity contract that is purchased by the payment of one lump sum. (1) A single-premium deferred annuity (SPDA) is an annuity contract purchased with a single premium payment whose periodic income payments generally do not begiMore Information
SOFT MARKET An environment where insurance is plentiful and sold at a lower cost, also known as a buyers’ market. (See Property/casualty insurance cycle)More Information
SOLVENCY Insurance companies’ ability to pay the claims of policyholders. Regulations to promote solvency include minimum capital and surplus requirements, statutory accounting conventions, limits to insurance company investment and corporate activities, financialMore Information
SPECIFIED DISEASE COVERAGE* A type of health insurance coverage that provides benefits for the diagnosis and treatment of a specifically named disease or diseases, such as cancer. Also known as dread disease coverage. Contrast with critical illness (CI) insurance.More Information
SPENDTHRIFT TRUST CLAUSE* Life insurance provision that protects policy payouts from the beneficiary’s creditors.More Information
SPLIT-DOLLAR LIFE INSURANCE PLAN* An agreement under which a business provides individual life insurance policies for certain employees, who share in paying the cost of the policies.More Information
SPREAD OF RISK The selling of insurance in multiple areas to multiple policyholders to minimize the danger that all policyholders will have losses at the same time. Companies are more likely to insure perils that offer a good spread of risk. Flood insurance is an examplMore Information
STACKING Practice that increases the money available to pay auto liability claims. In states where this practice is permitted by law, courts may allow policyholders who have several cars insured under a single policy, or multiple vehicles insured under different pMore Information
STANDARD RISK CLASS* In insurance underwriting, the group of proposed insureds who represent average risk within the context of the insurer’s underwriting practices and therefore pay average premiums in relation to others of similar insurability. Contrast with declined risk cMore Information
STATUTORY ACCOUNTING PRINCIPLES / SAP More conservative standards than under GAAP accounting rules, they are imposed by state laws that emphasize the present solvency of insurance companies. SAP helps ensure that the company will have sufficient funds readily available to meet all anticipatedMore Information
STOCK INSURANCE COMPANY An insurance company owned by its stockholders who share in profits through earnings distributions and increases in stock value.More Information
STRAIGHT LIFE ANNUITY* A type of life annuity contract that provides periodic income payments for as long as the annuitant lives but provides no benefit payments after the annuitant’s death. (See Life annuity)More Information
STRUCTURED SETTLEMENT Legal agreement to pay a designated person, usually someone who has been injured, a specified sum of money in periodic payments, usually for his or her lifetime, instead of in a single lump sum payment. (See Annuity)More Information
SUBROGATION The legal process by which an insurance company, after paying a loss, seeks to recover the amount of the loss from another party who is legally liable for it.More Information
SUBSTANDARD PREMIUM RATES* The premium rates charged insureds who are classified as substandard risks. Also known as special class rates.More Information
SUBSTANDARD RISK CLASS* In insurance underwriting, the group of proposed insureds who represent a significantly greater-than-average likelihood of loss within the context of the insurer’s underwriting practices. Also known as special class risk. Contrast with declined risk classMore Information
SUICIDE EXCLUSION PROVISION* A life insurance policy provision stating that policy proceeds will not be paid if the insured dies as the result of suicide as defined within the policy within a specified period following the date of policy issue.More Information
SUPERFUND A federal law enacted in 1980 to initiate cleanup of the nation’s abandoned hazardous waste dump sites and to respond to accidents that release hazardous substances into the environment. The law is officially called the Comprehensive Environmental ResponsMore Information
SUPPLEMENTAL COVERAGE* An amount of coverage that adds to the amount of coverage specified in a basic insurance policy.More Information
SURETY BOND A contract guaranteeing the performance of a specific obligation. Simply put, it is a three-party agreement under which one party, the surety company, answers to a second party, the owner, creditor or “obligee,” for a third party’s debts, default or nonpeMore Information
SURPLUS The remainder after an insurer’s liabilities are subtracted from its assets. The financial cushion that protects policyholders in case of unexpectedly high claims. (See Capital; Risk-based capital)More Information
SURPLUS LINES Property/casualty insurance coverage that isn’t available from insurers licensed in the state, called admitted companies, and must be purchased from a non-admitted carrier. Examples include risks of an unusual nature that require greater flexibility in poMore Information
SURRENDER CHARGE A charge for withdrawals from an annuity contract before a designated surrender charge period, usually from five to seven years.More Information
SURRENDER COST COMPARISON INDEX* A cost comparison index, used to compare insurance policies, which takes into account the time value of money and measures the cost of a policy over a 10- or 20-year period assuming the policy owner surrenders the policy for its cash value at the end of tMore Information
SWAPS The simultaneous buying, selling or exchange of one security for another among investors to change maturities in a bond portfolio, for example, or because investment goals have changed.More Information
TAX SHELTERED ANNUITY (TSA)* In the United States, a retirement annuity sold only to organizations offering qualified retirement plans under section 403(b) of the U.S. Internal Revenue Code. (See 403(b) plan)More Information
TAX-DEFERRED BASIS* Accumulation of investment income on which income taxes are not payable until money is withdrawn from the investment vehicle.More Information
TEN-DAY FREE LOOK PROVISION* See Free-look periodMore Information
TERM CERTAIN ANNUITY An form of annuity that pays out over a fixed period rather than when the annuitant dies.More Information
TERM LIFE INSURANCE A form of life insurance that covers the insured person for a certain period of time, the “term” that is specified in the policy. It pays a benefit to a designated beneficiary only when the insured dies within that specified period which can be one, five,More Information
TERRITORIAL RATING A method of classifying risks by geographic location to set a fair price for coverage. The location of the insured may have a considerable impact on the cost of losses. The chance of an accident or theft is much higher in an urban area than in a rural oneMore Information
TERRORISM COVERAGE Included as a part of the package in standard commercial insurance policies before September 11, 2001 virtually free of charge. Since September 11, terrorism coverage prices have increased substantially to reflect the current risk.More Information
THIRD-PARTY ADMINISTRATOR Outside group that performs clerical functions for an insurance company.More Information
THIRD-PARTY COVERAGE Liability coverage purchased by the policyholder as a protection against possible lawsuits filed by a third party. The insured and the insurer are the first and second parties to the insurance contract. (See First-party coverage)More Information
TIME DEPOSIT Funds that are held in a savings account for a predetermined period of time at a set interest rate. Banks can refuse to allow withdrawals from these accounts until the period has expired or assess a penalty for early withdrawals.More Information
TIME LIMIT ON CERTAIN DEFENSES PROVISION* An individual health insurance policy provision that limits the time during which the insurer may contest the validity of the contract on the ground of misrepresentation in the application or may reduce or deny a claim on the ground it results from a preeMore Information
TITLE INSURANCE Insurance that indemnifies the owner of real estate in the event that his or her clear ownership of property is challenged by the discovery of faults in the title.More Information
TORT A legal term denoting a wrongful act resulting in injury or damage on which a civil court action, or legal proceeding, may be based.More Information
TORT LAW The body of law governing negligence, intentional interference, and other wrongful acts for which civil action can be brought, except for breach of contract, which is covered by contract law.More Information
TORT REFORM Refers to legislation designed to reduce liability costs through limits on various kinds of damages and through modification of liability rules.More Information
TOTAL DISABILITY* For disability insurance purposes, an insured’s disability that meets the requirements of the definition of total disability included in the disability insurance policy or policy rider and that qualifies for payment of the specified disability benefits. WMore Information
TOTAL LOSS The condition of an automobile or other property when damage is so extensive that repair costs would exceed the value of the vehicle or property.More Information
TRANSPARENCY A term used to explain the way information on financial matters, such as financial reports and actions of companies or markets, are communicated so that they are easily understood and frank.More Information
TRAVEL INSURANCE Insurance to cover problems associated with traveling, generally including trip cancellation due to illness, lost luggage and other incidents.More Information
TREASURY SECURITIES Interest-bearing obligations of the U.S. government issued by the Treasury as a means of borrowing money to meet government expenditures not covered by tax revenues. Marketable Treasury securities fall into three categories — bills, notes and bonds. MarkeMore Information
TREATY REINSURANCE A standing agreement between insurers and reinsurers. Under a treaty each party automatically accepts specific percentages of the insurer’s business.More Information
TWISTING* An illegal insurance sales practice, in which a sales agent misrepresents the features of a contract in order to induce the contract owner to replace his current contract, often to the disadvantage of the contract owner. (See Misrepresentation)More Information
UMBRELLA POLICY Coverage for losses above the limit of an underlying policy or policies such as homeowners and auto insurance. While it applies to losses over the dollar amount in the underlying policies, terms of coverage are sometimes broader than those of underlying pMore Information
UNBUNDLED CONTRACTS A form of annuity contract that gives purchasers the freedom to choose among certain optional features in their contract.More Information
UNDERINSURANCE The result of the policyholder’s failure to buy sufficient insurance. An underinsured policyholder may only receive part of the cost of replacing or repairing damaged items covered in the policy.More Information
UNDERWRITING Examining, accepting, or rejecting insurance risks and classifying the ones that are accepted, in order to charge appropriate premiums for them.More Information
UNDERWRITING INCOME The insurer’s profit on the insurance sale after all expenses and losses have been paid. When premiums aren’t sufficient to cover claims and expenses, the result is an underwriting loss. Underwriting losses are typically offset by investment income.More Information
UNEARNED PREMIUM The portion of a premium already received by the insurer under which protection has not yet been provided. The entire premium is not earned until the policy period expires, even though premiums are typically paid in advance.More Information
UNINSURABLE RISK Risks for which it is difficult for someone to get insurance. (See Insurable risk)More Information
UNINSURED MOTORISTS COVERAGE Portion of an auto insurance policy that protects a policyholder from uninsured and hit-and-run drivers.More Information
UNIVERSAL LIFE INSURANCE A flexible premium policy that combines protection against premature death with a type of savings vehicle, known as a cash value account, that typically earns a money market rate of interest. Death benefits can be changed during the life of the policy witMore Information
UTILIZATION REVIEW See Medical utilization reviewMore Information
VALUED POLICY A policy under which the insurer pays a specified amount of money to or on behalf of the insured upon the occurrence of a defined loss. The money amount is not related to the extent of the loss. Life insurance policies are an example.More Information
VANDALISM The malicious and often random destruction or spoilage of another person’s property.More Information
VARIABLE ANNUITY An annuity whose contract value or income payments vary according to the performance of the stocks, bonds and other investments selected by the contract owner.More Information
VARIABLE LIFE INSURANCE A policy that combines protection against premature death with a savings account that can be invested in stocks, bonds, and money market mutual funds at the policyholder’s discretion.More Information
VARIABLE PREMIUM LIFE INSURANCE POLICY* See Indeterminate premium life insurance policyMore Information
VARIABLE UNIVERSAL LIFE (VUL) INSURANCE* A form of permanent life insurance that combines the premium and death benefit flexibility of universal life insurance with the investment flexibility and risk of variable life insurance. With this type of policy, the death benefit and the cash value flucMore Information
VIATICAL SETTLEMENT COMPANIES Insurance firms that buy life insurance policies at a steep discount from policyholders who are often terminally ill and need the payment for medications or treatments. The companies provide early payouts to the policyholder, assume the premium payments,
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VOID A policy contract that for some reason specified in the policy becomes free of all legal effect. One example under which a policy could be voided is when information a policyholder provided is proven untrue.More Information
VOLATILITY A measure of the degree of fluctuation in a stock’s price. Volatility is exemplified by large, frequent price swings up and down.More Information
VOLCANO COVERAGE Most homeowners policies cover damage from a volcanic eruption.More Information
VOLUME Number of shares a stock trades either per day or per week.More Information
WAITING PERIOD* For a health insurance policy, the period of time that must pass from the date of policy issue before benefits are payable to an insured. Also known as elimination period and probationary period.More Information
WAIVER The surrender of a right or privilege. In life insurance, a provision that sets certain conditions, such as disablement, which allow coverage to remain in force without payment of premiums.More Information
WAIVER OF PREMIUM FOR DISABILITY (WP) BENEFIT* A supplementary life insurance policy or annuity contract benefit under which the insurer promises to give up its right to collect premiums that become due while the insured is disabled according to the policy or rider’s definition of disability.More Information
WAR RISK Special coverage on cargo in overseas ships against the risk of being confiscated by a government in wartime. It is excluded from standard ocean marine insurance and can be purchased separately. It often excludes cargo awaiting shipment on a wharf or on sMore Information
WATER-DAMAGE INSURANCE COVERAGE Protection provided in most homeowners insurance policies against sudden and accidental water damage, from burst pipes for example. Does not cover damage from problems resulting from a lack of proper maintenance such as dripping air conditioners. Water daMore Information
WEATHER DERIVATIVE An insurance or securities product used as a hedge by energy-related businesses and others whose sales tend to fluctuate depending on the weather.More Information
WEATHER INSURANCE A type of business interruption insurance that compensates for financial losses caused by adverse weather conditions, such as constant rain on the day scheduled for a major outdoor concert.More Information
WHOLE LIFE INSURANCE The oldest kind of cash value life insurance that combines protection against premature death with a savings account. Premiums are fixed and guaranteed and remain level throughout the policy’s lifetime.More Information
WORKERS COMPENSATION Insurance that pays for medical care and physical rehabilitation of injured workers and helps to replace lost wages while they are unable to work. State laws, which vary significantly, govern the amount of benefits paid and other compensation provisions.More Information
WRAP-UP INSURANCE Broad policy coordinated to cover liability exposures for a large group of businesses that have something in common. Might be used to insure all businesses working on a large construction project, such as an apartment complex.More Information
WRITE To insure, underwrite, or accept an application for insurance.More Information
WRITTEN PREMIUMS See Premiums writtenMore Information
XXX REGULATION* The National Association of Insurance Commissioner’s current model valuation law for life insurance policies, adopted in March 1999. The law tells insurance companies how much they should hold as a reserve for each term life insurance policy. The model haMore Information
YEARLY RENEWABLE TERM (YRT) INSURANCE* One-year term life insurance that is renewable at the end of the policy term. Also known as annually renewable term (ART) insurance. (See Term life insurance)More Information
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