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ABSOLUTE ASSIGNMENT – The transfer of ownership of a life insurance policy to a separate entity. The assignee becomes the new policy owner. Commonly used when banks require life insurance as collateral for a loan.
ACCELERATED DEATH BENEFIT – This benefit is included with many policies today. It provides for the payment of a portion of the death benefit prior to the insured’s death should the insured be diagnosed as terminally ill. The specific requirements vary by company.
ACCELERATION CLAUSE – The part of a contract that says when a loan may be declared due and payable.
ACCIDENTAL DEATH AND DISMEMBERMENT (AD&D) RIDER – A supplement to many life insurance policies that provides an additional cash benefit to the insured or his/her beneficiaries if an accident causes either the death of the insured or causes the insured to lose any two limbs or the sight in both eyes.
ACCIDENTAL DEATH BENEFIT – In a life insurance policy, benefit in addition to the death benefit paid to the beneficiary, should death occur due to an accident. There can be certain exclusions as well as time and age limits.
ACT OF GOD – An unpreventable accident or event that is the result of natural causes; for example, floods, earthquakes, or lightning.
ACTIVE PARTICIPANT – Person whose absence from a planned event would trigger a benefit if the event needs to be canceled or postponed.
ACTIVITIES OF DAILY LIVING – Bathing, preparing and eating meals, moving from room to room, getting into and out of beds or chairs, dressing, using a toilet.
ACTUAL CASH VALUE – The value of property based on the cost of repairing or replacing it with property of the same kind and quality. Typically, actual cash value equals the current replacement cost minus depreciation (age, condition, length of time in use, and obsolescence).
ACTUARY – A specialist in the mathematics of insurance who calculates rates, reserves, dividends and other statistics.
ADJUSTER – A person who investigates and settles losses for an insurance carrier.
ADMITTED ASSETS – Assets permitted by state law to be included in an insurance company’s annual statement. These assets are an important factor when regulators measure insurance company solvency. They include mortgages, stocks, bonds and real estate.
AGENT – In insurance, the person authorized to represent the insurer in negotiating, servicing, or effecting insurance policies.
AGGREGATE LIMIT – Usually refers to liability insurance and indicates the amount of coverage that the insured has under the contract for a specific period of time, usually the contract period, no matter how many separate accidents might occur.
ANNUAL ADMINISTRATIVE FEE – Charge for expenses associated with administering a group employee benefit plan.
ANNUAL OUT-OF-POCKET MAXIMUM – A dollar amount set by a health insurance plan which puts a cap on the amount of money the insured must pay out of his or her own pocket for covered expenses over the course of a calendar year.
ANNUITIZATION – Process by which you convert part or all of the money in a qualified retirement plan or nonqualified annuity contract into a stream of regular income payments, either for your lifetime or the lifetimes of you and your joint annuitant. Once you choose to annuitize, the payment schedule and the amount is generally fixed and can’t be altered.
ANNUITY – A contract that provides for a series of periodic payments to be made or received at regular intervals.
ANTISELECTION – The tendency of individuals who believe they have a greater than average likelihood of loss to seek insurance protection to a greater extent than do those who believe they have an average or a less than average likelihood of loss.
APPLICANT – The party applying for an insurance policy.
APPLICATION – A printed form developed by an insurer that includes questions about the prospective insured and the desired insurance coverage and limits.
APPRAISAL – A survey by a claims representative or claims adjuster estimating the amount of damage to property and the cost to repair or the determination of a complete loss.
ASSIGNED RISK – A risk insured through a pool of insurers and assigned to a specific insurer. These risks are generally considered undesirable by underwriters, but due to state law or otherwise, they must be insured.
ATTAINED AGE – Insured’s age at a particular time. For example, many term life insurance policies allow an insured to convert to permanent insurance without a physical examination at the insured’s then attained age. Upon conversion, the premium usually rises substantially to reflect the insured’s age and diminished life expectancy.
AUTOMOBILE LIABILITY INSURANCE – Coverage if an insured is legally liable for bodily injury or property damage caused by an automobile.
AUTOMATIC PREMIUM LOAN – A provision in some life insurance policies that authorizes a policy loan using the cash value accumulated by the Insurance policy to pay for past due premiums at the end of the grace period. This prevents a lapse of coverage.
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BENEFICIARY – Any person, persons, or other entity designated to receive the policy benefits upon the death of the policyholder.
BENEFIT PERIOD – In health insurance, the number of days for which benefits are paid to the named insured and his or her dependents. For example, the number of days that benefits are calculated for a calendar year consist of the days beginning on Jan. 1 and ending on Dec. 31 of each year.
BINDER – A written or oral contract issued temporarily to place insurance In force when it is not possible to issue a new policy or endorse the existing policy immediately. A binder is subject to the premium and all the terms of the policy to be issued.
BINDING RECEIPT – A premium receipt acknowledging temporary insurance coverage immediately until the insurance company rejects the application or approves it and issues a policy.
BODILY INJURY LIABILITY COVERAGE (BI) – If an insured person is legally liable for an accident, BI coverage pays for injuries / death to people involved in the accident other than the insured driver. BI also pays for legal defense costs if you are sued. Certain exclusions may apply.
BOILER & MACHINERY INSURANCE – Boiler and machinery insurance, sometimes referred to as “equipment breakdown” or “mechanical breakdown coverage,” provides coverage for the accidental breakdown of boilers, machinery, and equipment. This type of coverage usually will reimburse you for property damage and business interruption losses. For example, this coverage would cover fire damage to computers.
BROKER – Insurance salesperson that searches the marketplace in the interest of clients, not insurance companies.
BUILDER’S RISK INSURANCE – Builder’s risk insurance covers buildings while they are being constructed. For example, a Builder’s risk policy would cover losses if a windstorm takes down your partially constructed condominium complex.
BUSINESS INTERRUPTION INSURANCE – Business interruption insurance covers lost income and expenses resulting from property damage or loss. For example, if a fire forces you to close your doors for two months, this insurance would reimburse you for salaries, taxes, rents, and net profits that would have been earned during the two-month period.
BUSINESS PERSONAL PROPERTY – Any property owned by the business and kept on site can be included in business personal property. This includes office equipment/supplies, desks, computers, inventory/stock, machinery, etc.
BUY-SELL AGREEMENTS – Agreement that a deceased business owner’s interest will be sold and purchased at a predetermined price or at a price according to a predetermined formula.
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CALENDAR YEAR DEDUCTIBLE – The amount of health care expenses that the insured person must pay before insurance payments for covered eligible expenses.
CANCELLATION – The discontinuance of an insurance policy before its normal expiration date, either by the insured or the company.
CAPTIVE AGENT – Representative of a single insurer or fleet of insurers who is obliged to submit business only to that company, or at the very minimum, give that company first refusal rights on a sale. In exchange, that insurer usually provides its captive agents with an allowance for office expenses as well as an extensive list of employee benefits such as pensions, life insurance, health insurance, and credit unions. CASE MANAGEMENT – A utilization management technique that addresses the medical necessity of care as well as alternative treatments or solutions, especially when the patient is likely to require very expensive treatment.
CASH SURRENDER VALUE – The cash amount payable to a life insurance policyowner in the event of termination or cancellation of the policy before its maturity or the insured event.
CASUALTY – Liability or loss resulting from an accident.
CASUALTY INSURANCE – That type of insurance that is primarily concerned with losses caused by injuries to persons and legal liability imposed upon the insured for such injury or for damage to property of others. It also includes such diverse forms as plate glass, insurance against crime, such as robbery, burglary and forgery, boiler and machinery insurance and Aviation insurance. Many casualty companies also write surety business.
CERTIFICATE OF INSURANCE – A statement of coverage issued to an individual insured under a group insurance contract, outlining the insurance benefits and principal provisions applicable to the member.
CHARTERED PROPERTY AND CASUALTY UNDERWRITER (CPCU) – Professional designation earned after the successful completion of 10 national examinations given by the American Institute for Property and Liability Underwriters. Covers such areas of expertise as insurance, risk management, economics, finance, management, accounting, and law. Three years of work experience also are required in the insurance business or a related area.
CLAIM – A person’s request for payment from an insurer for a loss covered by the insurance policy.
COBRA (Consolidated Omnibus Budget Reconciliation Act) – COBRA requires organizations with twenty or more employees to offer the continuation of group health benefits (Medical, Dental, Vision, and Medical Reimbursement Account) to employees (and covered dependents) upon experiencing a “Qualifying Event.”
Employers are required to provide initial COBRA notification to covered employees and dependents. A letter detailing an individual’s rights upon experiencing a “qualifying event” and an explanation of the conversion privilege. The legislation defines the following six situations as “Qualifying Events” that require COBRA continuation:
- Termination of Employment
- Reduction of Work Hours
- Employee’s Death
- Employee’s Divorce (or legal separation in some states)
- Medicare Entitlement
- Change in “Dependent” Status
COINSURANCE PROVISION – In property insurance, requires the policyholder to carry insurance equal to a specified percentage of the value of property to receive full payment on a loss. For health insurance, it is a percentage of each claim above the deductible paid by the policyholder. For a 20% health insurance coinsurance clause, the policyholder pays for the deductible plus 20% of his covered losses. After paying 80% of losses up to a specified ceiling, the insurer starts paying 100% of losses.
COLLISION COVERAGE – Optional auto insurance which pays for physical damage to your car caused by collision with another car or object, or by rolling the car over. Frequently required if you have a car loan.
COMMERCIAL AUTO INSURANCE – A commercial auto policy is required any vehicle title to the business. It is also required for certian types of vehicles or operations such as delivery, tow trucks, large trucks, dump trucks, transportation, and many others. Sometimes its allowed for a business owner to keep the vehicle they use for business on a personal policy and have their personal policy endorsed for “business use”. Many times contractors are required to have their vehicles on a commercial policy, even if they aren’t “work” vehicles, if the general contractor hiring them requires it.
COMMERCIAL LINES – Refers to insurance for businesses, professionals and commercial establishments.
COMMISSION – The amount of money, usually a percentage of the premiums that is paid to an insurance agent for selling an insurance policy.
COMMON CARRIER – A business or agency that is available to the public for transportation of persons, goods or messages. Common carriers include trucking companies, bus lines and airlines.
COMPREHENSIVE COVERAGE – If your insured vehicle is damaged due to an event other than a collision, Comprehensive coverage will pay for the damage. This includes damages from fire, theft, windstorm, flood and vandalism. If your vehicle is stolen, Comprehensive covers transportation and loss of use expenses when applicable.
COMPULSORY AUTO LIABILITY INSURANCE – Insurance laws in some states require motorists to carry at least certain minimum auto coverages. This is called “compulsory” insurance.
CONCURRENT PERIODS – In hospital income protection, when a patient is confined to a hospital due to more than one injury and/or illness at the same time, benefits are paid as if the total disability resulted from only one cause.
CONDITIONS – The part of your insurance policy that states the obligations of the person insured and those of the insurance company.
CONTINGENT BENEFICIARY – In a life insurance policy, the person designated to receive the policy benefits if the primary beneficiary dies before the insured.
CONTRACT – A legally enforceable agreement between two or more parties.
Conversion Privilege – The right to convert or change insurance coverage from an individual term insurance policy to an individual whole life Insurance policy.
CONVERTIBLE TERM LIFE INSURANCE – A type of term life insurance that offers the policyowner the option to exchange the term policy for a form of permanent insurance.
COPAY – The fee you pay for certain medical services or for each prescription. For example, you may pay $20 for an office visit or $10 to fill a prescription and the health plan covers the balance of the charges. (1) A fee that many insurance plans require an insured to pay for certain medical services (such as a physician’s office visit). (2) An amount that the insured must pay toward the cost of each prescription under a prescription drug plan.
COST-OF-LIVING ADJUSTMENT (COLA) – Automatic adjustment applied to Social Security retirement payments when the consumer price index increases at a rate of at least 3%, the first quarter of one year to the first quarter of the next year.
COVERAGE – The scope of protection provided under an insurance policy. In property insurance, coverage lists perils insured against, properties covered, locations covered, individuals insured, and the limits of indemnification. In life insurance, living and death benefits are listed.
CREDITABLE COVERAGE – The pre-existing condition exclusion is reduced one month for every month that a person had coverage in a previous qualifying plan as long as the gap in coverage between the previous plan and the new plan is 63 days or less.
CRIME INSURANCE (COMMERCIAL APPLICATION) – Crime insurance covers theft, burglary, and robbery of money, securities, stock, and fixtures from employees and outsiders.
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DEATH BENEFIT – The limit of insurance or the amount of benefit that will be paid in the event of the death of a covered person.
DEBRIS REMOVAL INSURANCE – Debris removal insurance covers the cost of removing debris after a fire, flood, windstorm, etc. For example, a fire burns your building to the ground. Before you can start rebuilding, the remains of the old building have to be removed. Your property insurance will cover the costs of rebuilding, but not of removing the debris.
DECLARATION PAGE (DEC PAGE) – Also known as an auto insurance coverage summary, this page is provided by your insurance company and lists the following:
- Types of coverage you have elected
- Limit for each coverage
- Cost for each coverage
- Specified vehicles covered by the policy
- Types of coverage for each vehicle covered by the policy
- Other information applicable to the policy
DECLINATION – The insurer’s refusal to insure an individual after careful evaluation of the application for insurance and any other pertinent factors.
DEDUCTIBLES – The portion of the loss that the policyholder agrees to pay out of pocket, before the insurance company pays the amount they are obligated to cover. For example, if the covered claim is $1000 and your deductible is $250, you pay $250 and your company will pay $750. Deductibles help to keep insurance rates reasonable. Raising the amount of the deductible lowers the cost of insurance.
DEPENDENT – A person for whom the insured has some legal obligation to. For most plans, it is the insured’s spouse and/or children. Some plans also allow non-traditional spousal relationships (significant other, life-partner, etc.) to be considered a dependent with some additional certifying paperwork.
DEPRECIATION – Reduction in the value of property due to age and use.
DIRECT WRITER – An insurer whose distribution mechanism is either the direct selling system or the exclusive agency system.
DIRECTORS’ AND OFFICERS’ LIABILITY – This type of insurance is generally purchased by corporations and nonprofit organizations to cover the costs of lawsuits against directors and officers.
DIVIDEND – The return of part of the policy’s premium for a policy issued on a participating basis by either a mutual or stock insurer. A portion of the surplus paid to the stockholders of a corporation.
DOUBLE INDEMNITY – A provision in a life insurance policy, subject to specified conditions and exclusions, under the terms of which double the face amount of the policy is payable if the death of the insured is the result of an accident. In general, the conditions are that the insured’s death occurs prior to a specified age and results from bodily injury effected solely through external, violent and accidental means independently and exclusively of all other cause, within 60 or 90 days after such injury.
DWELLING COVERAGE (COVERAGE A) -This is the amount the insurance company will pay to have your home or dwelling rebuilt in the event of a covered cause of loss.
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ELIMINATION PERIOD – The time which must pass after filing a claim before policyholder can collect insurance benefits. Also known as “waiting period.”
EMERGENCY ROOM VISIT – A visit to a hospital for treatment of an accidental injury or for emergency medical care. To qualify as an emergency, the symptoms must be sudden, severe and require immediate medical attention. Some states judge emergencies by the “prudent layperson” law, meaning that the health plan must cover a trip to the emergency room “if a prudent layperson, acting reasonably, would have believed that an emergency medical condition existed.” Keep in mind that some plans won’t cover a trip to the emergency room if the symptoms appeared more than 24 hours earlier.
ENDORSEMENT – Attachment or addendum to an insurance policy; an endorsement changes the contract’s original terms.
ERRORS & OMISSIONS INSURANCE – Errors and omissions (“E & O”) insurance covers inadvertent mistakes or failures that cause injury to a third party. The act must actually be an inadvertent error, and not merely poor judgment or intentional acts. For example, an E & O policy would cover damages arising from an insurance agent failing to file policy applications, or a notary forgetting to fill out notarization’s properly.
EXCLUSIONS AND LIMITATIONS – Conditions, situations and services not covered by an insurance policy or health plan. Items or conditions that are not covered by the general insurance contract.
EXPENSE RATIO – The ratio of underwriting expenses (including commissions) to net premiums written. This ratio measures the company’s operational efficiency in underwriting its book of business.
EXPOSURE – Measure of vulnerability to loss, usually expressed in dollars or units.
EXTENDED REPLACEMENT COST – This option extends replacement cost loss settlement to personal property and to outdoor antennas, carpeting, domestic appliances, cloth awnings, and outdoor equipment, subject to limitations on certain kinds of personal property; includes inflation protection coverage.
EXTENDED TERM LIFE INSURANCE – A nonforfeiture benefit under which the net cash value of the policy is used to purchase term insurance for the amount of coverage available under the original policy.
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FACE AMOUNT – The amount stated in the life insurance policy as the death benefit.
FIDELITY BONDS – A bond company covers losses due to a bonded employee’s theft of business property and money.
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GENERAL LIABILITY INSURANCE – Insurance designed to protect business owners and operators from a wide variety of liability exposures. Exposures could include liability arising from accidents resulting from the insured’s premises or operations, products sold by the insured, operations completed by the insured, and contractual liability.
GLASS INSURANCE – Glass insurance covers broken store windows and plate glass windows.
GRACE PERIOD – The specified length of time, after an insurance premium payment is due in which the insured may make the payment and keep the policy in force. Not all policies have grace periods.
GROUP HEALTH INSURANCE – An insurance plan designed for a group, such as employees of a single employer. Insurance is provided to them under a single policy.
GUARANTEED ISSUE RIGHT – The right to purchase insurance without physical examination; the present and past physical condition of the applicant are not considered.
GUARANTEED RENEWABLE POLICY – A health insurance policy that the insurer is required to renew — as long as premiums are paid — at least until the insured attains the age limit specified in the policy, or the policy is cancelled by the insured. The insurer may increase the premium rate for any class of guaranteed renewable policies.
GUARANTY ASSOCIATION – Established by each state to support insurers and protect consumers in the case of insurer insolvency, guaranty associations are funded by insurers through assessments.
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HAZARD – A circumstance that increases the likelihood or probable severity of a loss. For example, the storing of explosives in a home basement is a hazard that increases the probability of an explosion.
HEALTH CARE REFORM – The “Clinton Plan”, proposed by President Bill & First Lady Hillary Clinton in 1993, to revamp and address inequities in US health care. A political platform for politicians for several years. In 2009, President Barack Obama’s plan reportedly offers more security and stability to those already insured, quality and affordable choices for those who are not insured and for all Americans, the Obama plan reins in the cost of health care. The first year of his presidency has resulted in much debate and it is predicted that nothing will be passed until at least 2010.
HIPPA – Health Insurance Portability and Accountability Act of 1996 – Under this federal law (known as HIPAA), group health plans cannot deny coverage based solely on an individual’s health status. This law also gives employees who change or lose their jobs better access to health coverage, guarantees renewability and availability to certain employees and limits exclusions for pre-existing conditions. For example, under this law, group health plans must credit any employee the amount of time that they spent on any health plan prior to the new plan, which is known as “prior credible coverage.” A pre-existing condition will be covered without a waiting period when an employee joins a new group plan if the employee has been insured for the previous 12 months with credible health insurance, with no lapse in coverage of 63 days or more. This means that if an employee has been insured for 12 months or more, the employee will be able to go from one job to another and his or her pre-existing coverage will remain intact — without additional waiting periods. However, if an employee has a pre-existing condition and was not covered previously for 12 months before joining a new plan, the longest the employee will have to wait for their pre-existing coverage to be covered is 12 months.
HMO (Health Maintenance Organization) – A health care financing and delivery system that provides comprehensive health care for subscribing members in a particular geographic area using managed care techniques. Most HMOs require that you only utilize physicians within their network, often going so far as to require you to choose a primary care physician who directs most courses of your treatment.
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INCONTESTABLE CLAUSE – A life insurance policy wording that provides a time limit (e.g. two years) on the insurer’s right to dispute a policy’s validity based on material misstatements in the application.
INDEMNIFICATION – Compensation to the victim of a loss, in whole or in part, by payment, repair, or replacement. Indemnity. Legal principle that specifies an insured should not collect more than the actual cash value of a loss but should be restored to approximately the same financial position as existed before the loss.
INDEPENDENT INSURANCE AGENTS & BROKERS OF AMERICA (IIABA) – Formerly the Independent Insurance Agents of America (IIAA) – this is a member organization of independent agents and brokers monitoring and affecting industry issues. Numerous state associations are affiliated with the IIABA.
INFLATION PROTECTION – An optional property coverage endorsement offered by some insurers that increases the policy’s limits of insurance during the policy term to keep pace with inflation.
INLAND MARINE INSURANCE – If you property that is in transit then you need an Inland Marine policy. This covers tools and equipment that go with you to a job site. Once the property leaves your place of business it is no longer covered under Business Personal Property.
INSOLVENT– Having insufficient financial resources (assets) to meet financial obligations (liabilities).
INSURABLE INTEREST– Any interest a person has in property that is the subject of insurance, so that damage to this property would cause the insured a financial loss.
INSURABLE RISK– The conditions that make a risk insurable are (a) the peril insured against must produce a definite loss not under the control of the insured, (b) there must be a large number of homogeneous exposures subject to the same perils, (c) the loss must be calculable and the cost of insuring it must be economically feasible, (d) the peril must be unlikely to affect all insureds simultaneously, and (e) the loss produced by a risk must be definite and have a potential to be financially serious.
INSURANCE COMPANY– An organization that has been chartered by a governmental entity to transact the business of insurance.
INSURANCE INSTITUTE OF AMERICA (IIA) – An organization which develops programs and conducts national examinations in general insurance, risk management, management, adjusting, underwriting, auditing and loss control management.
INSURANCE REGULATORY INFORMATION SYSTEM (IRIS)– Introduced by the National Association of Insurance Commissioners in 1974 to identify insurance companies that might require further regulatory review.
INSURED– A person or organization covered by an insurance policy, including the “named insured” and any other parties for whom protection is provided under the policy terms.
INSURER – The party to the insurance contract who promises to pay losses or benefits. Also, any corporation engaged primarily in the business of furnishing insurance to the public.
IRREVOCABLE BENEFICIARY – A named beneficiary whose rights to life insurance policy proceeds cannot be canceled or changed by the policyowner unless the beneficiary consents.
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KEY EMPLOYEE – Insurance Protection of a business against financial loss caused by the death or disablement of a vital member of the company, usually individuals possessing special managerial or technical skill or expertise. Also called key executive insurance.
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LAPSE – Termination of a policy due to nonpayment of premiums.
LIABILITY – A legal obligation to compensate a person harmed by one’s acts or omissions.
LIABILITY COVERAGE – Insurance that provides compensation for a harm or wrong to a third party for which an insured is legally obligated to pay.
LIFE INSURANCE – Insurance that pays a specified sum of money to designated beneficiaries if the insured person dies during the policy term.
LIFETIME MAXIMUM – The maximum amount of money a plan will pay towards healthcare services over the course of the insured’s lifetime.
LIQUOR LIABILITY INSURANCE – This would cover someone the produces and/or sells an alcoholic beverage that would impair or increase the impairment of an individual. For example this policy would provide defense and settlement costs if a person blames their car accident on you for selling them alcohol when they were already intoxicate. As crazy as that sounds, businesses that provide alcohol are not allowed to sell to someone already intoxicated so this coverage is a must for any bar, convenience store, restaurant, caterer, etc.
LIVING BENEFITS – This feature allows you, under certain circumstances, to receive the proceeds of your life insurance policy before you die. Such circumstances include terminal or catastrophic illness, the need for long-term care, or confinement to a nursing home. Also known as “accelerated death benefits.”
LOSS – The happening of the event for which insurance pays.
LOSS CONTROL– All methods taken to reduce the frequency and/or severity of losses including exposure avoidance, loss prevention, loss reduction, segregation of exposure units and noninsurance transfer of risk. A combination of risk control techniques with risk financing techniques forms the nucleus of a risk management program. The use of appropriate insurance, avoidance of risk, loss control, risk retention, self insuring, and other techniques that minimize the risks of a business, individual, or organization.
LOSS EXPENSE – ALLOCATED – Handling expenses, such as legal or independent adjuster fees, paid by an insurance company in settling a claim which can be definitely charged to that particular claim.
LOSS EXPENSE – UNALLOCATED – Salaries and other expenses incurred in connection with the operation of a claim department of an insurance carrier which cannot be charged to individual claims.
LOSS RATIO – The ratio of incurred losses and loss-adjustment expenses to net premiums earned. This ratio measures the company’s underlying profitability, or loss experience, on its total book of business.
LOSS RESERVE – The estimated liability, as it would appear in an insurer’s financial statement, for unpaid insurance claims or losses that have occurred as of a given evaluation date. Usually includes losses incurred but not reported (IBNR), losses due but not yet paid, and amounts not yet due. For individual claims, the loss reserve is the estimate of what will ultimately be paid out on that claim.
LOSS OF USE (COVERAGE D) – covers the additional expenses that the policy owner may incur when the residence cannot be used because of an insured loss. Typically the policy limit for Coverage D is equal to 20% of the policy limit on Coverage A. This covers extra costs to rent a hotel room, set up utilities etc.
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MALPRACTICE INSURANCE – Malpractice insurance, or professional liability insurance, pays for losses resulting from injuries to third parties when a professional’s conduct falls below the profession’s standard of care. For example, if a doctor makes a mistake that other doctors of his specialty would not have made, his patient might sue him. A malpractice policy will pay his defense costs and any judgment or settlement. Malpractice insurance is available for doctors, dentists, accountants, real estate agents, architects, and other professionals.
MEDICAID – Enacted in 1965 as part of the Social Security Act, Medicaid is a federal entitlement program that provides health and long-term care coverage to certain categories of low-income Americans. States design their own Medicaid programs within broad federal guidelines.
MEDICAL PAYMENTS COVERAGE – Medical and funeral expense coverage for bodily injuries sustained from or while occupying an insured vehicle, regardless of the insured’s negligence.
MEDICARE – A federal health insurance program for people age 65 and older and some disabled people. Medicare is a fee-for-service program that allows patients to see any participating doctor or hospital. Medicare then pays the provider directly for eligible services. Medicare has two primary parts: Part A, which covers hospital services, and Part B, which covers doctor services.
MISREPRESENTATION – Act of making, issuing, circulating or causing to be issued or circulated an estimate, an illustration, a circular or a statement of any kind that does not represent the correct policy terms, dividends or share of surplus or the name or title for any policy or class of policies that does not in fact reflect its true nature.
MORTGAGE INSURANCE POLICY – In life and health insurance, a policy covering a mortgagor with benefits intended to pay off the balance due on a mortgage upon the insured’s death, or to meet the payments due on a mortgage in case of the insured’s death or disability.
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NAMED PERILS – Perils specifically covered on insured property.
NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS (NAIC) – Association of state insurance commissioners whose purpose is to promote uniformity of insurance regulation, monitor insurance solvency and develop model laws for passage by state legislatures.
NEGLIGENCE – Failure to use a generally acceptable level of care and caution.
NETWORK – A group of doctors, hospitals and other health-care providers contracting with a health plan, usually to provide care at special rates and to handle paperwork with the health plan.
NO-FAULT INSURANCE – A system of compensation enacted by law in many states under which indemnification is made by the insured’s own insurance company regardless of who is at fault. Details of this system vary significantly from state to state.
NON-FORMULARY DRUGS – Non-formulary drugs often require a higher copayment. Non-formulary drugs are those that have not yet been reviewed or have been denied formulary status, typically because they offer no extra benefit over the drugs already on a plan’s formulary list.
NONSTANDARD AUTO – Insurance for motorists who have poor driving records or have been canceled or refused insurance. The premium may be higher than standard auto due to the additional risks.
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OCCURRENCE – An event that results in an insured loss. In some lines of business, such as liability, an occurrence is distinguished from accident in that the loss doesn’t have to be sudden and fortuitous and can result from continuous or repeated exposure which results in bodily injury or property damage neither expected nor intended by the insured.
OFFER AND ACCEPTANCE – The offer may be made by the applicant by signing the application, paying the first premium and, if necessary, submitting to physical examination. Policy issuance, as applied for, constitutes acceptance by the company. Or the offer may be made by the company when no premium payment is submitted with the application. Premium payment on the offered policy then constitutes acceptance by the applicant.
ORDINANCE OR LAW INSURANCE – Ordinance or law insurance covers the costs associated with having to demolish and rebuild to code when your building has been partially destroyed (usually 50 percent). For example, your three-story building is 100 years old. A flood destroys the basement and first two stories. Because more than 50 percent of your building has to be rebuilt, a local ordinance requires that the building be completely demolished and rebuilt according to current building codes. Property insurance covers only the replacement value, not the upgrade.
OTHER STRUCTURES (COVERAGE B) – This is the amount the insurance company will pay to have your free standing structures in the event of a covered cause of loss. Examples include, but are not limited to; sheds, detached garages. A standard home policy comes with 10% of the dwelling coverage for this coverage.
OTHER THAN COLLISION COVERAGE – See Comprehensive coverage.
OUT-OF-NETWORK – Health care services received outside the HMO, POS or PPO network.
OUT-OF-POCKET EXPENSE – Any medical care costs not covered by insurance, which must be paid by the insured.
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PAID-UP ADDITIONAL INSURANCE – An option that allows the policyholder to use policy dividends and/or additional premiums to buy additional insurance on the same plan as the basic policy and at a face amount determined by the insured’s attained age.
PAID-UP POLICY – An in-force life insurance policy for which no further premium payments are required.
PERIL – The cause of loss or damage.
PERMANENT INSURANCE – A general term for ordinary life and whole life insurance policies that remain in effect as long as their premiums are paid.
PERSONAL INJURY PROTECTION – First-party no-fault coverage in which an insurer pays, within the specified limits, the wage loss, medical, hospital and funeral expenses of the insured.
PERSONAL LIABILITY COVERAGE (COVERAGE E) – This is coverage for events where you can be found personally negligent. Liability options are usually $100,000, $300,000, $500,000 and $1,000,000. It is best to discuss with an agent how much liability insurance to buy.
PERSONAL LINES – Insurance for individuals and families, such as private-passenger auto and homeowners insurance.
PERSONAL PROPERTY INSURANCE – Protects against the loss of, or damage to property other than real property (real estate) caused by specific perils.
PET INJURY COVERAGE – Unique benefit from Progressive. With Progressive, coverage for dogs and cats is included with Collision coverage. If your dog or cat is ever injured when you’re in a car accident, Progressive will cover your vet bills up to $1,000.
PHYSICAL DAMAGE – Damage to or loss of the automobile resulting from collision, fire, theft or other perils.
POINT-OF-SERVICE PLAN – An HMO plan that also incorporates an indemnity plan option allowing members to obtain medical care from providers outside of the HMO network at a reduced benefit and at greater out-of-pocket expense.
POLICY – The written forms that make up the insurance contract between an insured and insurer. A policy includes the terms and conditions of the coverage, the perils insured or excluded, etc.
POLICY DECLARATIONS – The part of the insurance contract that lists basic underwriting information, including the insured’s name, address and description of insured locations as well as policy limits.
POLICY LIMITS – The maximum amount an insured may collect or for which an insured is protected, under the terms of the policy.
POLICY LOAN – A loan from a life insurer to the owner of a policy that has a cash value.
POLICY OR SALES ILLUSTRATION – Material used by an agent and insurer to show how a policy may perform under a variety of conditions and over a number of years.
POLICYHOLDER – The person who buys insurance.
POLICYOWNER – An individual with an ownership interest in an insurance policy.
POLICY PERIOD – The amount of time an insurance contract or policy lasts.
PPO (Preferred Provider Organization) – An organization where providers are under contract to an insurance company or health plan to provide care at a discounted or negotiated rate. Typically, you can see any doctor in the PPO network without requiring special approval, and you usually do not need to choose a primary care physician. Most PPOs will also allow you to seek care outside of the PPO network; however, the benefits are usually reduced and the insured has a greater out-of-pocket expense.
PRE-EXISTING CONDITION – (1) According to most individual health insurance policies, an injury that occurred or a sickness that first appeared or manifested itself before the policy was issued and that was not disclosed on the application for insurance. (2) According to most group health insurance policies, a condition (excluding pregnancy) for which an individual received medical care during the three months to six month immediately prior to the enrollment of his coverage.
PRE-EXISTING CONDITIONS PROVISION – A health insurance policy provision stating that benefits will not be paid for any illness and/or condition that existed prior to one becoming an insured under the particular health plan in question, until the insured has been covered under the policy for a specified period.
PREFERRED AUTO – Auto coverage for drivers who have never had an accident and operate vehicles according to law. Drivers are not a risk for any insurance company that writes auto insurance, and no insurance company would be afraid to take them on as risk.
PREFERRED RISK – A risk whose physical condition, occupation, mode of living and other characteristics indicate a prospect for longevity superior to that of the average longevity of unimpaired lives of the same age.
PREMIUM – The price for insurance coverage as described in the insurance policy for a specific period of time.
PRIMARY BENEFICIARY – The person designated as the first to receive the proceeds of a life insurance policy upon the death of the insured.
PRIMARY CARE PHYSICIAN (PCP) – A general or family practitioner who serves as the insured’s personal physician and first contact with a managed care system. The PCP will usually direct the course of your treatment and/or refer you to other doctors and/or specialists in the network.
PRIVATE-PASSENGER AUTO INSURANCE POLICYHOLDER RISK PROFILE – This refers to the risk profile of auto insurance policyholders and can be divided into three categories: standard, nonstandard and preferred. In the eyes of an insurance company, it is the type of business (or the quality of driver) that the company has chosen to take on.
PROBATIONARY PERIOD – The length of time that a new group member must wait before becoming eligible to enroll in a group insurance plan.
PROFESSIONAL LIABILITY INSURANCE – See Malpractice insurance.
PROFIT – A measure of the competence and ability of management to provide viable insurance products at competitive prices and maintain a financially strong company for both policyholders and stockholders.
PROOF OF LOSS – A sworn statement that usually must be furnished by the insured to an insurer before any loss under a policy may be paid.
PROPERTY DAMAGE COVERAGE – An agreement by an insurance carrier to protect an insured against legal liability for damage by an insured automobile to the property of another.
PROTECTION AMOUNT – The face amount of a life insurance policy, or amount of money that will be paid to a beneficiary upon the death of an insured. This amount will be reduced by the amount of any outstanding policy loan.
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QUALIFIED HIGH-DEDUCTIBLE HEALTH PLAN – A health plan with lower premiums that covers health-care expenses only after the insured has paid each year a large amount out of pocket or from another source. To qualify as a health plan coupled with a Health Savings Account, the Internal Revenue Code requires the deductible to be at least $1,000 for an individual and $2,000 for a family. High-deductible plans are also known as catastrophic plans.
QUALIFIED VERSUS NON-QUALIFIED POLICIES – Qualified plans are those employee benefit plans that meet Internal Revenue Service requirements as stated in IRS Code Section 401a. When a plan is approved, contributions made by the employer are tax deductible expenses.
QUALIFYING EVENT – An occurrence that triggers an insured’s protection.
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RATE – The pricing factor upon which the insurance buyer’s premium is based.
RATED POLICY – Sometimes called an “extra-risk” policy, an insurance policy issued at a higher-than-standard premium rate to cover the extra risk where, for example, an insured has had a DUI or other traffic violations.
REBATING – Giving any valuable consideration, usually all or part of the commission, to the prospect or insured as an inducement to buy or renew. Insurance rebating is prohibited by law.
REIMBURSEMENT – The payment of an amount of money by an insurance policy for a covered loss.
REINSTATEMENT – The process by which a life insurance company puts back in force a policy that has lapsed or has been canceled for nonpayment of premium.
REINSURANCE – In effect, insurance that an insurance company buys for its own protection. The risk of loss is spread so a disproportionately large loss under a single policy doesn’t fall on one company. Reinsurance enables an insurance company to expand its capacity; stabilize its underwriting results; finance its expanding volume; secure catastrophe protection against shock losses; withdraw from a line of business or a geographical area within a specified time period.
RENEWABLE TERM LIFE INSURANCE – A renewable life policy permits the owner of the policy to automatically renew the policy beyond its original term by acceptance of a premium for a new policy term without evidence of insurability.
RENEWAL – The automatic continuation of a policy effected by the payment of another premium.
REPLACEMENT COST – 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.
RESERVE – An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders. A reserve is usually treated as a liability.
RESIDUAL BENEFIT – In disability insurance, a benefit paid when you suffer a loss of income due to a covered disability or if loss of income persists. This benefit is based on a formula specified in your policy and it is generally a percentage of the full benefit. It may be paid up to the maximum benefit period.
REVOCABLE BENEFICIARY – A life insurance policy whose designation as beneficiary can be revoked or changed by the policyowner at any time prior to the insured’s death.
RIDERS – An addition to an insurance policy that becomes a part of the contract.
RISK – The possibility or chance of loss or injury.
RISK CLASS – Risk class, in insurance underwriting, is a grouping of insureds with a similar level of risk. Typical underwriting classifications are preferred, standard and substandard, smoking and nonsmoking, male and female.
RISK MANAGEMENT – Management of the pure risks to which a company might be subject. It involves analyzing all exposures to the possibility of loss and determining how to handle these exposures through practices such as avoiding the risk, retaining the risk, reducing the risk, or transferring the risk, usually by insurance.
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SALVAGE – Recovery made by an insurance company by the sale of property which has been taken over from the insured as a part of loss settlement.
SECTION 1035 EXCHANGE – This refers to a part of the Internal Revenue Code that allows owners to replace a life insurance or annuity policy without creating a taxable event.
SECTION 7702 – Part of the Internal Revenue Code that defines the conditions a life policy must satisfy to qualify as a life insurance contract, which has tax advantages.
SETTLEMENT – An agreement between a claimant or beneficiary to an insurance policy and the insurance company regarding the amount and method of a claim or benefit payment.
SINGLE-PAYER SYSTEM – A health care system in which a single entity pays for health care services. This entity collects health care fees and pays for all health care costs, but is not involved in the delivery of health care.
STANDARD AUTO – Auto insurance for average drivers with relatively few accidents during their lifetime.
STANDARD INDUSTRIAL CLASSIFICATION (SIC) – The Standard Industrial Classification (SIC) system is a series of number codes that attempts to classify all business establishments by the types of products or services they make available. Establishments engaged in the same activity, whatever their size or type of ownership, are assigned the same SIC code. These definitions are important for standardization. Insurance companies use SIC codes to determine specific rates for various industries.
STANDARD RISK – A person who, according to a company’s underwriting standards, is entitled to purchase insurance protection without extra rating or special restrictions.
STANDARD RISK RATE – The risk category that is composed of proposed insureds who have a likelihood of loss that is not significantly greater than average.
STOP-LOSS PROVISION – A major medical policy provision under which the insurer will pay 100 percent of the insured’s eligible medical expenses after the insured has incurred a specified amount of out-of-pocket expenses in deductible and coinsurance payments.
SUBROGATION – The right of an insurer who has taken over another’s loss also to take over the other person’s right to pursue remedies against a third party.
SUBSTANDARD RISK – A risk that cannot meet the normal requirements of an auto insurance policy. Protection is provided in consideration of a waiver, a special policy form, or a higher premium charge. Substandard risks may include those persons who are rated because of poor driving habits.
SUCCESSIVE PERIODS – In hospital income protection, when confinements in a hospital are due to the same or related causes and are separated by less than a contractually stipulated period of time, they are considered part of the same period of confinement.
SURRENDER CHARGE – Fee charged to a policyholder when a life insurance policy or annuity is surrendered for its cash value. This fee reflects expenses the insurance company incurs by placing the policy on its books, and subsequent administrative expenses.
SURRENDER PERIOD – A set amount of time during which you have to keep the majority of your money in an annuity contract. Most surrender periods last from five to 10 years. Most contracts will allow you to take out at least 10% a year of the accumulated value of the account, even during the surrender period. If you take out more than that 10%, you will have to pay a surrender charge on the amount that you have withdrawn above that 10%.
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TENANT’S INSURANCE (COMMERCIAL APPLICATION) – Commercial leases often require tenants to carry a certain amount of insurance. A renter’s commercial policy covers damages to improvements you make to your rental space and damages to the building caused by the negligence of your employees.
TERM INSURANCE – Life insurance under which the benefit is payable only if the insured dies during a specified period. If the insured survives beyond that period, coverage ceases. This type of policy does not build up any cash or nonforfeiture values.
THEFT LIMIT (or Inside Policy Limits) – The highest amount an insurance company will pay on certain items of personal property. For instance, some policies have a $5,000 limit for computers. If an item would cost more than the limit to replace.
TORT – A private wrong, independent of contract and committed against an individual, which gives rise to a legal liability and is adjudicated in a civil court. A tort can be either intentional or unintentional, and liability insurance is mainly purchased to cover unintentional torts.
TOTAL LOSS – A loss of sufficient size that it can be said no value is left. The complete destruction of the property. The term also is used to mean a loss requiring the maximum amount a policy will pay.
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UMBRELLA POLICY – Coverage for losses above the limit of an underlying policy or policies such as homeowners and auto insurance. While it applies to losses over the dollar amount in the underlying policies, terms of coverage are sometimes broader than those of underlying policies.
UNDERWRITER – (a) A company that receives the premiums and accepts responsibility for the fulfillment of the policy contract; (b) the company employee who decides whether or not the company should assume a particular risk; (c) the agent who sells the policy.
UNDERWRITING – The process of reviewing applications for coverage. Applications that are accepted are then classified by the underwriter according to the type and degree of risk.
UNDERWRITING GUIDE – Details the underwriting practices of an insurance company and provides specific guidance as to how underwriters should analyze all of the various types of applicants they might encounter. Also called an underwriting manual, underwriting guidelines, or manual of underwriting policy.
UNILATERAL – A distinguishing characteristic of a life insurance contract in that it is only the insurance company that pledges anything. The policyowner does not even promise to pay premiums; therefore, it is really a one-sided contract favoring the policyowner.
UNINSURED,UNDERINSURED MOTORIST COVERAGE – A form of insurance that pays the policy holder and passengers in his/her car for bodily injury caused by the owner or operator of an uninsured or inadequately insured automobile.
UNINSURABLE RISK – One not acceptable for insurance due to excessive risk.
UNIVERSAL LIFE – Flexible premium, two-part contract containing renewable term insurance and a cash value account that generally earns interest at a higher rate than a traditional policy. The interest rate varies. Premiums are deposited in the cash value accounts after the company deducts its fee and a monthly cost for the term coverage.
URGENT CARE– Urgent care is appropriate when a medical urgency arises which necessitates immediate care, but has not reached the level of extreme emergency. Most managed care plans require you to seek urgent care at a participating urgent care facility or hospital.
USUAL, CUSTOMARY AND REASONABLE FEE – An amount customarily charged for or covered for similar services and supplies which are medically necessary, recommended by a doctor or required for treatment.
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VARIABLE ANNUITIZATION – The act of converting a variable annuity from the accumulation phase to the payout phase.
VARIABLE LIFE INSURANCE – A form of life insurance whose face value fluctuates depending upon the value of the dollar, securities or other equity products supporting the policy at the time payment is due.
VARIABLE UNIVERSAL LIFE INSURANCE – A combination of the features of variable life insurance and universal life insurance under the same contract. Benefits are variable based on the value of underlying equity investments, and premiums and benefits are adjustable at the option of the policyholder.
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WAITING PERIOD – The time which must pass after filing a claim before policyholder can collect insurance benefits. Also known as “elimination period.”
WAIVER – An agreement attached to a policy which exempts from coverage certain disabilities or injuries that otherwise would be covered by the policy.
WAIVER OF PREMIUM – A provision in some insurance contracts which enables an insurance company to waive the collection of premiums while keeping the policy in force if the policyholder becomes unable to work because of an accident or injury. The waiver of premium for disability remains in effect as long as the insured is disabled.
WHOLE LIFE INSURANCE – Life insurance which might be kept in force for a person’s whole life and which pays a benefit upon the person’s death, whenever that might be.
WORKERS COMPENSATION INSURANCE – As a business onwer if you have employees then by law you must have workers compensation insurance. This provides medical costs, rehabilitation expenses, and lost wages to employees injured while on the job. The cost of this insurance depends on the dangers associated with the type of work. An important section of this coverage is Employer Liability. This covers you as the employer for a lawsuit claiming their injuries were the result of your negligence.