HS 311 Insurance Fundamentals of Insurance Planning

Term Definition
Inside Buildup The increase in the cash value of a permanent life insurance policy
Modified Endowment Contract (MEC) A life insurance policy that fails to meet the IRS code 7-pay test. Distributions, therefore, receives less favorable tax treatment than other life insurance contracts receive.
Gift Tax A tax imposed on transfers of property by gift during the donor's lifetime.
Viatical Settlement The sale of a terminally ill insured's life insurance policy in exchange for a percentage of the the face amount.
Life Settlement An arrangement that involves transferring the ownership of a life insurance policy to a third-party investor, much like a viatical settlement, but in cases where the insured is not chronically or terminally ill.
Key Employee Life Insurance Insurance on the life of a key employee to cover the possibility of an income loss/or an increase in expenses resulting from the key employee's death
Buy-sell Agreement A contract binding the owner of a business interest to sell the business interest for a specified or determinable price at his or her death or disability and binding a designated purchaser to buy at that time.
Entity Agreement A business buy-sell agreement for partnerships and corporations in which the business itself is the designated purchaser of the deceased's business interest
Cross-Purchase Agreement A business buy-sell agreement for partnerships and corporations in which the surviving co-owners will be the purchasers of the business interest of a deceased owner.
Split-dollar Life Insurance A plan under which two parties, usually an employer and an insured employee, share the premium costs, death proceeds, and perhaps the cash value of a life insurance policy pursuant to a prearranged agreement
Transfer-for-Value Rule A rule that specifies that, subject to certain exceptions, if a life insurance policy is transferred from one owner to another for valuable consideration, the death proceeds will be subject to federal income taxation.
Financial Needs Analysis A system for determining how much life insurance a client needs if the principal sum to be liquidated in the process of meeting the client's financial objectives for his or her survivors.
Capital Needs Analysis A system for determining how much life insurance a client needs if the principal sum is to be preserved in the process of meeting the financial objectives for his or her survivors.
Surrender Cost Index A method of estimating the net cost of life insurance on a time-value-adjusted basis, assuming the policy will be surrendered at the end of a specified time period.
Net payment Cost Index A method of estimating the net cost of life insurance on a time value adjusted basis, assuming that the policy's death benefit will be paid at the end of a specified time period.
Illustration A presentation or depiction that includes non guaranteed elements of a life insurance policy over a period of years.
Replacement Replacing one life insurance policy with another. To prevent financial harm to the policyowner, agents and insurers must follow prescribed procedures.
Rate-up Age Method A method of treating a substandard applicant for life insurance that bases the premium rate and policy values on an age older than the actual age
Extra Percentage Tables Tables used in treating substandard applicants for life insurance in which separate,higher-than-normal mortality rates are used in calculating the premium for the coverage
Flat extra premium A method of treating substandard life insurance applicants by charging a specified extra premium per $1,000 of insurance, regardless of age
Lien A method of treating substandard applicants for life insurance in which the policy is issued as standard except that the death proceeds are reduced if death occurs within the first few years of coverage.
Guideline Premium and Corridor Test A two-pronged test to determine whether an insurance policy meets the definition of policy for federal income tax purposes. The test relates to both the size of the total premium paid and the size of the death benefit relative to the cash value.
Cash value accumulation test A test to determine whether an insurance policy meets the definition of a life insurance policy for federal income tax purposes. To qualify under this test, the cash value must not exceed the net single premium that would fund the death benefit
Gift For federal gift tax purposes, a completed transfer and acceptance of property for less than full and adequate consideration
Annual Exclusion The dollar amount of a gift exempt from federal transfer taxation. This amount can be doubled if the donor is married and the donor's spouse elects to split the gift on a timely filed gift tax return
Estate Tax A tax imposed upon the transfer of property at a person's death. The federal government and many states levy such taxes.
Gross Estate For federal estate tax purposes, the property of a decedent that passes by will and by other means
Incident of Ownership An element of ownership or degree of control over a policy, such as a life insurance policy
Annuity A Periodic payment to begin at a specified or contingent date and to continue for a fixed period or for the duration of a designated life or lives
Annuitant The person whose life governs the duration of benefit payments under a life annuity, usually also the person who receives periodic annuity payments
Annuity Certain An annuity with benefit payments that continue for a definite period of time without being linked to the duration of a specified human life.
Life (Whole Life) annuity An annuity whose benefit payments continue for the duration of a designated life
Temporary Life Annity An annuity whose benefit payments continue until the earlier of the death of a designated person or the end of a specified period of time
Joint (Joint-Life) Annuity An annuity with benefit payments that continue only until the first death among specified lives.
Joint and last survivor annuity An annuity with benefit payments that continue until the last death among specified lives
Immediate Annuity An annuity with benefit payments that begin one payment interval (For example, 1 month) after the date of purchase
Deferred Annuity An annuity for which benefit payments begin more than one payment interval after the date of purchase
Accumulation period The period of time in a deferred annuity during which the purchase price is deposited with the insurer and accumulated at interest
Liquidation Period The period of time during which annuity benefit payments are made
Pure( Straight Life) annuity A life annuity that provides no guaranteed minimum number of benefit payments or refund of the purchase price. Also known as a pure annuity.
Refund Annuity A life annuity that promises to return in some manner a portion or all of the purchase price
Fixed Annuity An annuity that provides a stated periodic dollar benefit, regardless of the insurer's investment return
Variable Annuity An annuity with benefit payments that vary depending on the performance of selected blocks of the insurer's invested assets
Life Annuity Certain A life annuity that provides a guaranteed minimum number of benefit payments whether the annuitant lives or dies. It is a combination of an annuity certain and a pure deferred life annuity.
Installment Refund Annuity A refund annuity specifying that if the annuitant dies before receiving total benefit payments equal to the purchase price of the annuity, the difference will be refunded in the form of continuing benefit payments.
Cash Refund Annuity A refund annuity that specifies if the annuitant dies before receiving total benefit payments equal to the purchase price of the annuity, all or a stated percentage of the difference will be refunded in cash
50 Percent Refund Annuity A refund annuity that pays a benefit to a beneficiary if the annuitant dies before receiving benefits equal to half the cost of the annuity. Installments continue until the total benefits paid equal half the cost of the annuity.
Cash Option An option that allows an annuitant, at the start of the liquidation period, to withdraw the funds in cash, rather than as an annuity.
Accumulation Unit A unit of a variable annuity that is purchased during the annuity's accumulation stage. Units are revalued each month.
Annuity Unit A variable annuity's accumulation units are converted to a fixed number of annuity units at the beginning of the liquidation period. The dollar value of each unit fluctuates with the investment performance of the separate account underlying the annuity.
Equity-Indexed annuity An annuity that guarantees a minimum fixed rate of interest credits but also provides higher credits if a specified common stock index rises sufficiently
Structured Settlement An agreement to pay a specified set of periodic benefits in lieu of (or in addition to) a single lump-sum amount
Step-rate annuity An annuity for which future benefits increase, possibly at a compound annual rate. Step-rate annuities are often used in structured settlements.
Impaired Risk Annuity An annuity that considers the annuitant's reduced life expectancy in the underwriting process and increases the annuity payments (or lower the premium) accordingly
Health Insurance Protection against the financial consequences of poor health
Medical Expense Insurance Protection against financial losses that result from medical bills because of an accident or illness
Major Medical Insurance A medical insurance plan designed to provide substantial protection against catastrophic medical expenses. There are few exclusions and limitations, but deductibles and coinsurance are common.
Preexisting-Conditions Provision A provision that excludes coverage for a limited period of time for a physical or mental condition for which a covered person in a benefit plan received treatment or medical advice within a specified time period before becoming eligible for coverage.
Deductible The Initial amount or portion of covered losses that is borne by the insured, rather than by the insurance company.
Common Accident Provision A provision in a major medical expense contract whereby if two or more members of the same family are injured in the same accident, the covered medical expenses for all family members , be subject to a single deductible,= individual deductible amount
Coinsurance (Medical Expense Insurance) The Percentage of covered expenses under a medical insurance plan that is paid by the insurance company once a deductible is satisfied. Eighty percent is common.
Stop-Loss Limit The maximum amount of out-of-pocket medical expenses that a covered person must pay in a given period (usually 1 year. After this limit is reached, future co payments and deductibles are waived for the remainder of the period.
Preadmission Certification A requirement under many medical expense plains that a covered person or his or her physician obtain prior authorization for any nonemergency hospitalization.
Second Surgical Opinion A cost-containment strategy under which covered persons are to obtain the opinion of another physician after certain categories or surgery have been recommended. If a second opinion is mandatory, benefits are reduced if the second opinion is obtained.
Extended Care Facility A health care facility for a person who no longer requires the full level of medical care provided by a hospital but does need a period of convalescence under supervised medical care. Also known as a skilled-nursing facility.
Home Health Care Medical care that is received at home. Care is usually part-time and performed under a plan prescribed by a physician
Hospice Care A health care facility or service that provides benefits to terminally ill persons. The emphasis is on easing the physical and psychological pain associated with dying rather than on curing a medial condition.
Birthing Center A facility, separate from a hospital, designed to provide a homelike atmosphere for the delivery of babies. Deliveries are performed by nurse-midwives, and mothers and babies are released shortly after birth.
Managed Care A process to deliver cost-effective health care without sacrificing quality or access. Common characteristics include controlled access to providers, comprehensive case management, preventive care, risk sharing, and high-quality care.
Health Maintenance Organization (HMO) A managed system of health care that provides a comprehensive medical services on a prepaid basis to voluntarily enrolled persons living within a specific geographic region. HMOs both finance health care and deliver health services.Preventive care.
Preferred-provider Organization Benefit plan that contracts with preferred providers to obtain lower-cost care for plan members. Also refers to health care providers that contract with employers or others to provide medical care services at a reduced fee.
Exclusive-provider Organization A variation of preferred-provider organization in which coverage is not provided outside the preferred-provider network except in those infrequent cases where the network does not have an appropriate specialist
Point-of-Service (POS) Plan A hybrid arrangement that combines aspects of a traditional medical expense plan with HMO or a PPO. At the time of medical treatment, a participant can elect whether to receive treatment within the plan's network or outside the network.
Consumer – directed medical expense care An approach to medical expense insurance that gives employees increased choices and responsibilities involving their health care.
High-Deductible Health Plan Medical expense plan with a deductible as high as $5,000 or more. The employer contributes a lower or equal amount to a savings account from which employees can pay medical expenses not covered not covered because of the deductible.
Defined-contribution medical expense plan A plan under which the employer makes a fixed-dollar contribution that an employee can use toward paying the cost of medical expense coverage, regardless of the premium
Health reimbursement arrangement An account funded with employer dollars from which an employee can withdraw amounts to pay medical expenses that are not covered under a high-deductible medical expense plan
Carve-out (Medical Expense Insurance) Coverage under a medical expense plan that has been singled out for individual management by a party other than the employer or the employee's primary health plan provider
Coordination-of-benefits (COB) Provision A provision in most group medical expense plans under which priorities are established for the payment of benefits if an individual is covered under more than one plan. Coverage as an employee is generally primary to coverage as a dependent.
Medicare Carve-out An employer-provided medical expense plan for persons over age 65 under which benefits are reduced to the extent that hey are payable under Medicare for the same expense.
Medicare Supplement An individual or employer-provided medical expense plan for persons aged 65 or older under which benefits are provided for certain specific expenses not covered under Medicare.
COBRA A provision of the Consolidated Omnibus Budget Reconciliation ACT of 1985 that requires group health plans to allow employees and certain beneficiaries to extend their current health insurance coverage at group rates for up to 36 months qualified event
Qualified Beneficiary Any employee, spouse or dependent child who, on the day before a qualifying COBRA event, was covered under the employer's group health plan
Qualifying Event In life insurance a condition or event that triggers the payment of accelerated benefits, such as an illness that is expected to reduce the insured's life expectancy to 24 or less under COBRA, Employee's death or termination, reduction in hours
Extension of Benefits A provision in a medical expense plan under which benefits are extended for any covered employee or dependent who is totally disabled at the time coverage would otherwise terminate. The disability must have resulted from an injury or illness that occurred
Medigap Insurance An individual or employer-provided medical expense plan for persons aged 65 or older under which benefits are provided for certain specific expenses not covered under Medicare. These can include a portion of expenses not paid by Medicare deductibles
Hospital Indemnity Insurance A medical expense policy that pays a fixed dollar amount for each day a person is hospitalized, regardless of other insurance.
Specified Disease Insurance A type of medical expense coverage that provides benefits for persons who have certain specified diseases or medical events, such as cancer or heart attacks. The policy may pay for actual medical expenses or, more likely pay specified dollar amount
Critical Illness Insurance A form of supplemental medical expense insurance that provides a substantial one-time lump-sum cash benefit for listed critical illnesses.
Medicare SELECT Policy A medigap policy that pays benefits for non emergency services only if care is received from network providers
Temporary medical insurance Short-term medical insurance that generally provides coverage for periods between 30 days and 1 year while a person is between medical expense plans
International travel medical insurance Interim medical insurance for international travelers. It is usually folded into a broader policy to cover many non-health-related travel contingencies
Hospital-surgical Policy An individual medical expense policy that provides limited coverage for hospital, surgical, and certain other medical expenses. It is less comprehensive than a major medical policy.
Health Savings Account (HSA) A savings account for use with a high-deductible medical expense plan and from which certain unreimbursed medical expenses can be paid. Successors to and more attractive than Archer MSAs.
Archer MSA A type of personal savings account from which unreimbursed medical expenses can be paid. It can be used for employees of small employers or the self-employed and is established in conjunction with a high-deductible health plan. No longer available
Short-term Disability Income Plan Insured or uninsured disability income benefit with a typical duration of 6 months or less
Long-term Disability Income Insurance Disability income coverage that provides extended benefits after a person has been disabled for 6 months or longer
Buy-up plan An example benefit plan under which a covered person can purchase additional coverage (Life insurance or disability insurance)at his or her own expense. Also referred to as a supplemental plan.
Carve-Out (Benefit Plan) The practice of excluding certain classes of employees from a benefit plan and providing benefits to them under an alternative arrangement. Carve-outs are generally used to contain employee costs or provide broader or tax favored benefits to key employees
Any-Occupation A strict definition of disability that requires a person to be so severely disabled that he or she cannot engage in any occupation
Partial Disability The inability to perform some stated percentage of job duties or taking a longer-than-normal amount of time in which to complete job duties.
Residual-Disability Benefits A provision for the replacement of lost earnings due to less-than-total disability. The benefit is based on a person's reduction in earnings rather than his or her physical condition.
Sick-leave Plan An uninsured arrangement for an employer to replace lost income for a limited time period, often starting on the first day of disability.
Paid time off (PTO) Program A benefit program that combines sick leave and other types of payments for time not worked into a single program
Own-Occupation A definition of total disability that requires a disabled person to be unable to perform each and every duty (or material duties) of his or her regular occupation.
Waiting (elimination) Period A period of time that an employee must be disabled before benefits commence under an employee benefit plan, such as disability income insurance, Social Security, worker's compensation insurance, and long-term care insurance.
Cost-of-living-Adjustment (COLA) Rider Increases in benefit levels because of changes in some apply Social Security income benefits and sometimes to benefits under private insurance and retirement programs.
Rehabilitation Benefit A benefit under worker's compensation laws or disability income plans that provides rehabilitative services for disable workers. Benefits may be given for medical rehabilitation and for vocational rehabilitation,training, counseling, and job placement
Presumptive-disability Provision A provision in a disability income contract by which an individual is presumed to be totally disabled as long as certain circumstances exist. Examples include loss of sight or one hand. This person maybe able to return to work.
Social Security Rider A disability income policy amendment to provide additional disability income benefits payable when an individual is disabled but does not qualify for Social Security disability benefits.
Possiblity Something could occur. A possibility either exists or does not exist; it cannot be measured.
Risk The possibility of loss.
Probability The proportion of times that events will occur in the long run. The probability of some occurrence can be expressed numerically as a number between 0 and 1 or as percentage from 0.0 percent to 100 percent.
Loss A decline in value, usually in an unexpected or relatively unpredictable manner.
Loss exposure A loss that might occur
Direct loss The first loss or losses that arise immediately from the occurrence of a peril. For example, the cost to repair a dented fender is a direct loss following an auto accident.
Indirect Loss A loss that occurs only as a secondary result following the occurrence of a peril. An example is the additional living expenses a family might incur to pay for substitute living accommodations following fire damage to their home.
Uncertainty A state of mind that arises from the presence of risk and is characterized by not being sure about something. Uncertainty often is characterized by worry and fear.
Peril A cause of loss. Fire, earthquake, and flood are examples.
Hazard An act or condition that increases the likelihood of the occurrence of a loss and/or increases the severity of a loss. The three types of hazards are physical hazards, moral hazards, and attitudinal hazards.
Physical Hazard A physical condition relating to location, structure, occupancy, exposure, and the like
Moral Hazard A dishonest tendency that is likely to increase loss frequency and/or severity
Attitudinal Hazard A condition of carelessness or indifference on the part of an individual as to whether a loss occurs and/or the size of a loss if one does occur.
Law of large numbers A mathematical principal stating that as the number of independent trials or events is increased, the actual results from those trials or events will come closer and closer to the results that one would expect to occur based on the underlying probability.
Mass As a characteristic of a statistical group or an insured group, sufficient size within such a group as to allow the true underlying probability to emerge
Homogeneity The quality or state of being of the same or similar kind or nature
Independence A requirement of the law of large numbers that the occurrence of a loss to one exposure unit should not affect the likelihood of loss to another exposure unit.
Financial Risk A category of risk for which the possibility of loss involves a decrease or a disappearance of
Nonfinancial Risk A category of risk for which the possibility of loss does not represent a reduction in monetary value, although sometimes such losses are compensated by the award of money. An example is pain and suffering.
Particular Risk A loss possibility that affects only individuals or small groups of individuals at the same time, rather than a large segment of society. An example is the possibility of loss due to the theft of one's wallet.
Fundamental Risk A loss possibility that can affect a large segment of society at the same time. An example is the possibility of widespread unemployment during an economic downturn.
Static Risk In contrast with dynamic risk, a possibility of loss that exists even in the absence of changes in society. Hurricanes are an example.
Dynamic Risk A possibility of loss that results from changes in society or in the economy. An example of a dynamic risk is the possibility that a retailer's inventory will become obsolete because of a sudden changes in consumer tastes.
Pure Risk A possibility of loss that involves only two outcomes, loss or no loss.
Speculative Risk A possibility of loss with three possible outcomes: loss, no loss/no gain, or gain
Hedging A procedure to protect against losses from price fluctuations. An example of hedging is the simultaneous taking of a "long" position and a "short" position in shares of common stock.
Gambling The deliberate creation of a speculative risk by betting on an uncertain outcome. Playing poker for money is an example of gambling.
Personal Risk A loss possibility associated with death, injury, illness, old age, or unemployment.
Property Risk A loss possibility associated with the loss or destruction of property
Liability Risk A possibility of loss as a result of being held legally responsible for an injury to another, usually for bodily injury or damage to his or her property.
Insurable Risk A risk that substantially meets the following requirements: 1) The amount of the loss must be important, 2) The loss must be of an accidental nature 3) Future loss must be calculable, 4) The loss must be definite 5) the risk cannot be excessive
Risk-tolerance Level The degree to which an individual is attracted to or averse to the possibility of loss
Insurance An economic system that reduces financial risks when policyowners transfer risks to an insurer that combines their potential losses.
Adverse Selection Selection against the insurance company. It is the tendency for those who know that they are highly vulnerable to specific pure risks to be most likely to acquire and to retain insurance to cover related losses.
Private Insurance All forms of insurance that privately owned insurers provided. Contrast with government insurance.
Government Insurance Various types of insurance operated by state or federal governments. Includes both social insurance programs and other programs.
Social Insurance Government-run or government-regulated insurance programs designed primarily to solve major social problems that affect a large portion of society. Distinguishing characteristics are compulsory employment-related coverage, partial or total employer financ
Social Adequacy A principal emphasized by social insurance programs in which benefit are designed to provide a minimum floor of benefits to all beneficiaries,regardless of their economic status.
Individual Equity The principle that each individual's insurance premium payments are based on an actuarial analysis that reflects the insurer's cost of providing benefits for the risks faced by the individual
Individual Insurance In contrast with group insurance, insurance purchased and owned by individuals and families
Group Insurance In contrast with individual insurance, all types of private insurance that cover many people under one master contract issued to a sponsoring organization, such as an employer
Master Contract A contract issued to someone other than the persons insured that provides benefits to a group of individuals who have a specific relationship to the policyowner
Certificate of Insurance A description of the group insurance coverage provided to employees. It is given to the employees, but it is not part of the master contract.
Evidence of Insurability Documentation or other evidence submitted to the insurance company regarding the physical condition or other attributes of the applicant for insurance coverage, which is taken into account when the insurer determines weather to accept the risk.
Applicant The person or organization that applies for insurance.
Policyowner The person or entity that owns an insurance policy. The policyowner generally has the right to change, renew, or cancel the policy and the obligation to comply with policy conditions, such as premium payments.
Insured A party to whom or on whose behalf insurance benefits may be payable.
Line of Insurance A type of insurance, such as life, medical expense, disability income, homeowners, or auto liability
Risk Management A systematic process for treating risks based on risk identification, risk measurement, choice and use of methods of treatment, and administration
Risk Control Risk management techniques used to minimize losses through such activities as avoidance, loss prevention, loss reduction, and noninsurance transfers
Risk Financing Risk management techniques used to pay for losses through such means as risk retention in various ways and risk transfer, including insurance
Risk Avoidance A risk control method that involves not incurring certain types of risks or eliminating existing risks.
Loss Prevention Risk control measures intended to lower the probability of loss or the frequency with which a given type of loss occurs. Loss prevention measures must obviously be put in place before loss occurs.
Loss Reduction Risk control measures that aim to reduce the severity of loss. Loss reduction measures may be taken either before or after the loss occurs.
Noninsurance Transfer The contractual transfer of risk by a contract other than an insurance contract. Subcontracting is an example.
Risk Retention The risk financing method used when a person or organization keeps, or retains, the financial burden of any losses that occur rather than transferring them to an insurer or some other party.
Deductible The initial amount or portion of covered losses that is borne by the insured, rather than by the insurance company.
Self-insurance A formal program of risk retention usually characterized by factors necessary for a sound insurance enterprise, including funding based on actuarial calculations
Captive Insurer An insurance company owned by a parent corporation and formed primarily to insure the lss exposures of the parent corporation
Risk Transfer The loss financing method that shifts as much as possible of the financial consequences of a risk to some other party through insurance or noninsurance transfer, such as a credit arrangement.
Hold-harmless agreement An agreement in which one party, such as a tenant, accepts the responsibility of another party, such a landlord, for losses that would otherwise fall on that other party.
Insurance Equation An equation that shows that an insurance company's sources of income (premiums, investment earnings, and other income) equal its cost factors (covered losses, cost of doing business, and profit)
Credibility The degree of reliability one can place on past results as an indicator of likely future results
Mortality The relative incidence of death
Morbidity The relative incidence of disease
Risk Identification The first step in the risk management process, involving the careful and systematic discovery of all the risks that confront a household or organization
Maximum Possible Loss The worst loss that could happen
Third-party administrator (TPA) A firm that administers self-insurance programs for a fee
Voluntary Benefits A plan offered to employees under which they may purchase insurance coverages with premiums paid through payroll deductions. The employer does not share in the premium cost.
Cafeteria Plan An employee benefit plan under which an employee can use a specified amount of employer funds and/or salary reductions to design his or her own benefit package from an array of available benefits
Premium-conversion Plan A cafeteria plan provision that allows employees to elect a before-tax salary reduction to pay for their contributions to an employee-sponsored health plan or certain other types of employee benefits
Flexible spending account (FSA) A cafeteria plan provision that allows an employee to fund certain types of unreimbursed medical expenses on a before-tax basis
Domestic Insurer An insurer incorporated in the state where it does business
Foreign Insurer An insurer that writes business in a state but is incorporated in another state
Alien insurer An insurer that is formed in a country other than the United States but that writes business in the United States
Nonadmitted Insurer An insurer that does not have a license to conduct insurance business in a particular state. Nonadmitted insurance typically provide surplus lines insurance.
Stock Insurance Company An insurance company owned by stockholders
Mutual Insurance Company A not-for-profit insurance company owned by its policyowners, who elect its board of directors
Advance-premium mutual A mutual insurance company that establishes the full premium for coverage at the start of the policy period
Assessment Mutual A mutual insurance company that reserves the right to levy assessments on its policyowners to cover adverse underwriting experience
Demutualization The process of converting a mutual insurance compnay into a stock company
Mutual Holding Company A holding company controlled by policyowners that owns a controlling interest in a new stock insurance company that takes over a mutual insurer's business
Fraternal Insurer A not-for-profit insuring organization that writes mainly life insurance on members of a fraternal society
Reciprocal Exchange A type of insurer organized as an unincorporated pool of funds owned by policyowners and managed by an attorney-in-fact. The insured/insurer relationship is governed by a Suscribers Agreement or Power of Attorney.
Blue Cross and Blue Shield Plans Organizations formed for the purpose of prepaying subscribers' medical care expenses. Blue Cross plans provide coverage primarily for hospital expenses, and Blue Shield plans provide coverage primarily for physicians' services.
Lloyd's Association An association of individual insurers in which insurance is underwritten by its members rather than by the association itself
Agent A legal representative of an insurance company with authority to act on behalf of the insurer
Binder A temporary written or oral agreement between an agent and an applicant for insurance whereby the principal-insurer is committed to provide the desired insurance
Broker A marketing intermediary between the insurer and policyowner who represents the policyowner
Nonadmitted Insurer An insurer that does not have a license to conduct insurance business in a particular state. Nonadmitted insurers typically provide surplus lines insurance.
Direct-response marketing A method of marketing insurance without the intermediary of an agent or broker
General Agency System In life insurance marketing, the term used to describe a marketing system whereby a general agent is granted a franchise by an insurer to build an agency force for marketing the insurer's products in a given geographic area
Branch Office System In life insurance, a marketing system whereby insurers establish branch offices in the areas where they write business. The offices are headed by branch managers.
Personal Producing General Agent (PPGA) An agent of a life insurance company who is the insurer's general agent in a given territory but whose primary task is to sell the insurer's products, rather than to build an agency force for the insurer.
Independent Agency System A marketing system in property and liability insurance in which an agent represents several insurers or groups of insurers and has ownership rights over the business written by the agency
Exclusive Agency System A marketing system in property and liability insurance in which the agent represents only one insurer (or group of affiliated insurers), and the insurer has ownership rights over the business written by the agents.
Underwriiting The selection (acceptance or rejection) and pricing of applicants for insurance.
Field Underwriting The initial screening of applicants for insurance performed by the agent or broker.
Reinsurance An arrangement in which an insurance company transfers to another insurance company some or all of the risks it has taken on by writing primary insurance.
Treaty (automatic) reinsurance Reinsurance that is obligatory for the original or primary insurer and the re insurer with respect to every loss exposure covered by the treaty or agreement
Facilitative Reinsurance Reinsurance that is optional for both the primary insurer and the re insurer.
Independent Adjuster A claim adjuster or claims adjusting firm that is not an employee or an insurance company
Public Adjuster A person who represents a claimant for a fee in negotiating the settlement of a claim against an insurance company
Rate Making The process of determining the price to be charged for insurance. It involves the determination of future loss costs and adding the necessary margins for expenses and profit.
Rate The price charged for each unit of insurance coverage.
Premium The price charged for a period of coverage provided by an insurance policy and found by multiplying the rate by the number of units of coverage.
Pure (Net) Rate That portion of an insurance rate that is designed to cover future loss costs.
Loading That portion of an insurance rate or premium that covers the insurer's expected operating expenses and provides a margin for profits and contingencies
Gross Rate An insurance rate that includes loading for profits and contingencies as well as a provision for expected future loss costs.
Advisory Organization An organization that assists insurance companies in such areas as gathering and analyzing statistical information for rate-making purposes and drafting recommended policy language.
Class Rates An average price per unit of insurance that applies to a category or classification of similar insureds.
Specific Rate Property rates for a particular building developed by applying a schedule that measures the relative quantity of fire hazard to the particular loss exposure.
Net Level Annual Premium In life insurance, the actuarial spreading of the net single premium on a level basis over a policy's premium-paying period.
Loss Ratio Most commonly, the ratio of incurred losses and loss adjustment expenses to premiums earned.
NAIC National Association of Insurance Commissioners (NAIC) A voluntary association of state insurance regulatory officials that is involved in financial examinations of insurers and develops model insurance laws and regulations
Model Law A draft bill-the suggested wording of a new law – for consideration by state legislators. Any state may choose to adopt a model bill or to adopt it with modifications.
Model Regulation A draft that may be implemented by a state insurance department if a model law is passed.
Prior Approval Law A law regulating insurance rates that requires proposed rates be approved by the regulatory authority before they may be used by the insurer
File-and-use law `A law regulating insurance rates that allow insurers to file their rates with the regulatory authority and immediately begin to use those rates unless/until the regulatory authority disapproves the rates.
Use-and-file law A rating law which rates are filed with the insurance commissioner within a specified time after the rates are first used. The insurance commissioner may, however, disapprove the rates.
Flex-rating law A law regulating insurance rates that requires regulatory approval of new rates only if they differ from the existing rates by at least some specified percentage, such as 5 or 10 percent.
Open Competition The reliance mainly on competitive forces in the insurance marketplace to produce acceptable insurance rates.
Legal Reserve The minimum amount of the reserve, as specified by state law, that a life insurer must maintain to meet its assumed future claim costs under a block of policies. It is discounted for future premium and investment income under those policies.
Unearned Premium Reserve In property and liability insurance, an insurer's liability for future claims or premium refunds, as measured by the proportion of the written premiums for those polices that the insurer has not yet earned by providing protection for full policy period
Loss Reserve In property and liability insurance, an insurer's liability for losses that have already occurred but have not yet been paid or otherwise settled.
Non admitted Asset An asset of an insurer that is not permitted by regulatory authorities to be counted as an asset for Annual Statement purposes.
Unfair Trade Practices Insurance practices prohibited by a state unfair trade practices act, such as rebating, twisting, misappropriation, commingling of funds, and misleading advertising. Violators are subject to penalties that include suspension or revocation of licenses.
Rebating The usually illegal practice of returning a part of the premium to the policy owner (except as a dividend) as a price-cutting sales inducement.
Twisting The illegal practice in life insurance of using misrepresentation to induce a policy owner to his or her disadvantage, to replace a life insurance policy with a new one.
Misappropriation The unlawful retention of funds that belong to someone else.
Commingling of Funds An unfair trade practice that occurs when an agent mixes the insured's or insurer's funds with personal funds.
Unauthorized Entity An insurance company ( or other organization, either real or fictitious) that has not gained approval to place insurance business from a department of insurance in the jurisdiction where it or a producer wants to sell insurance.
Premium Tax A tax levied by a state on gross insurance premiums.
Rehabilitation The process, overseen by an insurance commissioner, of restoring an insurance company to financial stability.
Liquidation The process, overseen by an insurance commissioner, of dissolving a financially troubled insurance company.
Guaranty Fund A state fund that at least partially protects consumers against the insolvency of insurers. The typical fund assesses solvent insurers to pay the unpaid claims of insolvent companies.
Unilateral Contract A contract in which only one of the parties to it makes a binding promise that, if broken, gives rise to an action against that party for breach of contract.
Conditional Contract An agreement in which one party has an obligation to perform only if the other party meets certain conditions specified in the agreement.
Contract of Adhesion A contract that is prepared in all of its details by one party, rather than having its terms bargained over between the parties to the contract. Because insurance policies are generally contracts of adhesion, if ambiguity exists in the terms, insured wins
Parol Evidence Rule A legal principal that specifies that oral contemporaneous evidence may not be used to contradict or to vary the term of a valid written contract.
Contract of Indemnity A policy in which the insurer agrees, if a covered loss occurs, to pay an amount directly related to the amount of the loss.
Principle of Indemnity Legal principle that the purpose of insurance is to indemnify (financially compensate) people entitled to insurance benefits in an attempt to make them financially whole, however, people should not profit from an insured loss.
Valued Contract An insurance contract in which the amount of recovery does not depend on the financial amount of the loss but rather on the limit specified in the contract.
Insurable Interest A right or relationship with regard to the subject matter of an insurance contract such that the insured will suffer financial loss from damage, loss, or destruction to that subject matter.
Subrogation A process by which an insurer that has paid a claim takes over the legal rights of recovery its insured might have against a responsible third party
Concealment Failure by one party to a contract to affirmatively disclose to the other party all of the important facts that are the exclusive knowledge of the first party. Even if it is not intentional or fraudulent, concealment can make a contract voidable.
Misrepresentation A false and material statement made by an applicant for insurance. It is the basis for the insurer to make the contract voidable.
Voidable Contract A contract that can be affirmed or rejected to the option of one of the parties but is binding on the other party
Void Contract A contract that is entirely without legal effect and, therefore, unenforceable by either party. In essence, a void contract never was a contract.
Fraud Intentional deception or intentional misleading of another person. In order to constitute fraud, intent must be shown, and the information concealed or misrepresented must be relied upon by and injure the other party.
Warranty A statement that becomes a part of an insurance contract and that must be strictly complied with. A warranty, if false, makes the policy voidable, even if the false statement if the false statement is not material.
Declarations Factual statements that are a part of an insurance policy and that identify the specific person, property, or activity being insured; the parties to the insurance transaction; and other descriptive information about the insurance being provided.
Definitions Explanations of the meaning of key terms in an insurance policy to clarify the coverage.
Insuring Agreement A provision in an insurance contract that spells out the basic promise of the insurance company to pay benefits according to the terms of the policy
Exclusions Provisions in an insurance contract that indicate what the insurer does not cover. Exclusions can apply to perils, types of losses, types of property, or types of activities.
Noncancelable In an insurance contract, the right of the insured to renew the coverage at each policy anniversary date, usually up to some stated age. The coverage may not be terminated by the insurer during the term of coverage. The rates are guaranteed not level
Guaranteed Renewable A characteristic of an insurance contract in which the insured retains the right to renew the coverage at each policy anniversary date, usually up to a stated age. Also, the insurer is not allowed to cancel the coverage during the period of protection.
Endorsement A provision added to a property or liability insurance policy, sometimes for an extra or reduced premium charge, by which the scope of the policy's coverage is clarified, restricted or enlarged.
Rider The term used in life insurance in place of the term endorsement.
OASDHI The old age, survivors, disability, and heath insurance program of the federal government. This program consists of Social Security and Medicare.
Fully Insured An insured status under Social Security. This status requires either (1) 40 credits or (2) at least as many credits (but a minimum of six) as there are years elapsing after 1950 ( or after the year in which age 21 is reached, if later) before person dies
Currently Insured An insured status under Social Security that requires a person to have at least six credits during the thirteen calender quarters ending with the quarter in which death occurs.
Disability Insured The insured status under Social Security necessary to receive disability benefits. It requires that a worker (1) be fully insured and (2) have had a minimum amount of work under Social Security within a recent period.
Full Retirement Age The age at which a worker can retire under Social Security and receive nonreduced benefits equal to his or her primary insurance amount (PIA). Also referred to as normal retirement age.
Primary Insurance Amount (PIA) The amount a worker will receive under Social Security if he or she retires at full retirement age or becomes disabled. It is also the amount on which all other Social Security income benefits are based.
Earnings Test The process for determining whether income benefits of Social Security beneficiaries under the full retirement age should be reduced because of earned income that exceeds a specified amount that is subject to annual indexing.
Social Security Statement An annual statement automatically issued by the Social Security Administration that enables an employee to verify his or her contributions to the Social Security and Medicare programs. The statement also contains an estimate of benefits available.
Medicare Part A Part of Medicare program that provides benefits for expenses incurred in hospitals, skilled-nursing facilities, and hospices.
Medicare Part B Part of Medicare program that provides benefits for most medical expenses not covered under Part A
Original Medicare The term used to describe the traditional Medicare Parts A and B.
Medicare Advantage Part C of Medicare program, previously known as Medicare+Choice, that allows beneficiaries to select HMOs and other alternatives to the traditional Medicare program
Medicare Part D Part of Medicare program that provides for prescription drug coverage
Coverage Gap (Doughnut Hole) Medicare prescription drug plans range beneficiary must pay the full cost of prescription drugs. Standard benefit: gap begins after a beneficiary has incurred a specified dollar amount of expenses and continues until the plan begins paying again
Formulary A list of preferred medications that a prescription drug plan will cover.
Creditable Prescription Drug Coverage A prescription drug coverage under other plans that is deemed to be equivalent to or better than the standard benefit plan for Medicare prescription drug coverage.
State Health Assistance Plan (SHIP) A state program that gets money from the federal government to give free health insurance counseling and assistance to people with Medicare.
Partial Advance Funding The funding method used by Social Security and Medicare whereby taxes are more than sufficient to pay current benefits and thous provide some accumulation of assets for the payment of future benefits.
Unemployment Insurance Joint federal and state programs to provide income benefits to unemployed workers who meet the specific program requirements. In most states, these programs are financed entirely by employer contributions.
Temporary Disability Law A law in a few states that requires employers to provide short-term disability income benefits to employees for non-work-related disability law.
Workers' Compensation Law A type of law enacted in all states under which employers are required to provide benefits to employees for losses that result from work-related accidents or diseases. Benefits include medical care, disability income, income for survivors, rehabilitation.
Human Life Value The present value of that portion of a person's estimated future earnings that will be used to support dependents.
Yearly Renewable Term Insurance A plan that provides a level amount of insurance for 1 year, renewable for a stated number of years, with the premium at each renewal date rising at an increasing rate that reflects the rise in the mortality rate over time.
Cash Value Life Insurance A type of life insurance under which premiums are sufficient not only to pay the insurer's death claims and expenses but also to build up a savings fund within the policy.
Legal Reserve The minimum amount of the reserve, as specified by state law, that a life insurer must maintain to meet its assumed future claim costs under a block of policies. It is discounted for future premium and investment income under those polices.
Net Amount at Risk In a life insurance policy, the difference between the policy's face amount and the reserve at any point in time.
Modified Whole Life Insurance A form of whole life insurance in which a level premium lower than that for conventional whole life insurance is charged for the first few policy years and a higher level premium is charged thereafter.
Renewability A feature frequently found in individual term life insurance that allows the policy owner to renew the policy for another period or protection. up to a stated point in time, without having to show evidence of insurability.
Ordinary Life Insurance A form of whole life insurance for which premiums are base on the assumption that they will be paid until the insured's death and that provides a guaranteed cash value
Limited-payment life Insurance A form of whole life insurance for which premiums are based on the assumption that they will be paid for only a specified number of years or until a specified age of the insured.
Single-premium whole life policy A form of whole life insurance that is fully paid-up upon the payment of a single premium.
Vanishing Premium Whole life insurance approach designed so that if experience is favorable, the accumulation account eventually equals or exceeds the net single premium necessary to pay up the contract.
Endowment Life Insurance A type of life insurance policy that pays the face amount if the insured dies during a specified period of time and also pays the face amount if he or she lives to the end of that period
Current-Assumption Whole-Life Insurance A nonparticipating whole life insurance policy in which premium rates are redetermined by the insurer periodically, based on its then-current assumptions as to mortality, interest, and expenses.
Whole Life Insurance A form of life insurance that provides death benefits upon the death of the insured, no matter when that occurs, if the policy is kept in force by the policyowner.
Surrender Charge A fee imposed on the owners of certain types of life insurance policies and annuities at the time they surrender their contracts.
Reentry Term Insurance A form of renewable term life insurance under which one renewal rate schedule is used if the inured can prove continuing insurability, and a higher schedule is used if the insured cannot prove continuing insurability.
Convertibility term insurance allows the policyowner to convert to permanent individual life insurance without having to show evidence of insurability. In group insurance, the right is available only at certain times. Termination
Decreasing Term Insurance A form of term life insurance in which the amount of insurance systematically decreases from year to year
Increasing Term Insurance A form of term life insurance in which the amount of insurance systematically increases from year to year
Participating Policy A type of life insurance policy that can pay dividends to the policyowner
Nonparticipating Policy A type of life insurance policy that pays no dividends to the policyowner
Variable Life Insurance A type of life insurance in which the policyowner directs how the cash value will be invested and bears the investment risk, and in which the death benefit is linked to the investment performance of the policy.
Variable Life Insurance A type of life insurance in which the policyowner directs how the cash value will be invested and bears the investment risk, and in which the death benefit is linked to the investment performance of the policy
Universal Life Insurance A type of life insurance policy characterized by flexible premiums, a shift of some investment risk to the policyowner even though the policyowner is not allowed to direct the investment portfolio, the ability to withdraw part of the cash value
Variable Universal Life Insurance A type of life insurance that combines the premium flexibility features of universal life insurance with the policyowner- directed investment aspects of variable life insurance.
Indexed Universal Life Insurance A type of universal life insurance in which interest is credited based on an external index, such as Standard and Poor's 500.
Survivorship (Second to Die) policy A type of life insurance policy that covers two or more persons in which the proceeds are payable on the death of the last person to die.
Probationary Period In group insurance, a period at the start of a person's employment during which the person is not eligible to participate in the group insurance plan.
Beneficiary The person or entity designated to receive the death proceeds of a life insurance policy
Standard Policy Provisions Laws State laws that require life and health insurance policies to include certain provisions but allow insurers to select the actual wording as long as it is at least as favorable to the policyowner as the statutory language.
Grace Period An additional period of time, usually 30 or 31 days, granted in some types of insurance for the pollcyowner to pay the premium after it has become due. During the grace period, the coverage remains in force.
Policy Loan An advance of money available to a life insurance policyowner from the policy's cash value
Automatic Premium Loan Option Life insurance policy provision by which a delinquent premium is automatically paid by a policy loan.
Incontestable Clause A provision in life and health insurance that specifies that, except for nonpayment of the premium, the insurer will not contest the policy after it has been in force for specified period (usually 2 years) during the insured's lifetime.
Divisible Surplus That portion of an insurer's surplus that is declared as a dividend to be distributed to policyowners and/or stockholders of the insurer.
Dividend Options A set of provisions in a participating life insurance policy that describe how the policywoner can use the dividends, usually to reduce the premium payment, to buy additional paid-up permanent insurance, to accumulate at interest, to buy term insurance
Fifth Dividend Option A provision in cash value life insurance whereby dividends can be used to purchase insurance.
Entire Contract Provision In life and health insurance, a provision that specifies that the policy and the attached application constitute the entire agreement between the parties.
Reinstatement Provision In life insurance, a clause giving the owner of a lapsed policy the right to reacquire the coverage under certain conditions.
Representation A statement in an insurance application that is substantially true to the best of the applicant's knowledge and belief.
Misstatement of Age or Gender Clause A life insurance policy provision that specifies that if the insured's age or gender has been misstated, the benefits payable under the policy will be adjusted to what the premium paid would have purchased at the correct age or gender.
Non forfeiture Options A set of choices available regarding how a life insurance policyowner can use the policy's cash value. These choices include the options to surrender for cash, buy a reduced amount of paid-up whole life insurance or buy extended term insurance.
Settlement Options Ways in which a life insurance policy's death proceeds can be taken, typically in cash, under an interest option, under a fixed-period or fixed-amount option, or under a life-income option.
Backdating Issuance of a life insurance policy as if it had been purchased when the insured was younger in order to obtain a lower periodic premium
Primary Beneficiary The person or organization that is to receive the proceeds of a life insurance policy if he, she, or it survives the insured.
Contingent Beneficiary The person or entity designed to receive the death proceeds of a life insurance policy if the primary beneficiary predeceases the insured.
Suicide Provision An optional life insurance policy provision that specifies that if the insured, whether sane or insane, commits suicide during the first 1 or 2 years of the policy, the insurer will be be liable nly for a return of the premium.
Ownership Provision In life insurance, a clause that specifies that the insured is the owner of the policy (unless the application states otherwise)and that the owner can change the beneficiary (unless named irrevocably) assign the policy, and exercise other ownership rights
Assignment Provision A clause that specifies the conditions under which a policyowner can transfer some or all of his or her ownership rights in the policy to another.
Plan Change Provision An insurance policy provision that states the parties may agree to change the terms of the content.
Accelerated Benefits Provision A provision in a life insurance policy that allows death benefits to be paid to the policyowner prior to the insured's death under certain circumstances such as if the insured is terminally ill.
Accidental Death A death that is caused by an unintentional event that is sudden and unexpected.
Waiver-Premium Rider A rider under which, if the insured becomes totally disabled, the insurer will waive the premiums on the policy during the continuance of the disability. It is commonly used in life and health insurance.
Guaranteed Purchase (Insurability) Option A rider to a life insurance policy that gives the insured the right to buy additional insurance in specified amounts at specified times or ages without having to provide evidence of insurability.
Look-Back Period A specific time period prior to Medicad eligibility during which Medicaid benefits are reduced (or their onset postponed) if the individual's assets were disposed of at less than their fair market value.
Continuing Care Retirement Community A facility that provides lifetime care for older adults. Initial occupancy is in an independent living unit, but a resident must move to an assisted-living or nursing home unit if health deteriorates.
Long Term Care Insurance A form of health insurance that usually provides coverage for custodial care, intermediate care, and skilled nursing care. Benefits may also be available for home health care, adult day care, and assisted living.
Qualified Long-Term Care Insurance Contract A long-term care contract that meets specified standards and qualifies for favorable tax treatment under the Health Insurance Portability and Accountability Act (HIPAA). Also called tax-qualified policy.
Qualified Long-Term Care Services Services that must be provided by a qualified long term care insurance contract. These include necessary diagnostic, preventive,therapeutic, curative, treatment, and rehabilitative services and maintenance or personal care services that are required.
Chronically Ill Individual A person who, for purposes of long-term care insurance, is expected to be unable to perform at least two activities of daily living (ADLs) for at least 90 days or who needs substantial services to protect the individual from threats to health and safety
Activities of Daily Living (ADLs) Activities such as eating, bathing, and dressing. The inability to perform a specified number of these activities triggers eligibility for benefits in a long-term care insurance contract.
Nursing Home Care A term that encompasses skilled-nursing care, intermediate care, and custodial care in a licensed facility.
Custodial Care Nursing home care given to help with personal needs, such as walking, bathing dressing, eating, or taking medicine. Such care can usually by provided by someone without professional medical skills or training. Sometimes called personal care.
Bed Reservation Benefit A benefit under a long-term care insurance policy that continues to pay a long-term care facility for a limited time if a patient must temporarily leave because of hospitalization. Without continuation of benefits, the bed might be rented to someone else
Assisted-Living Care Care provided in facilities that provide care for the frail elderly who are no longer able to care for themselves but who do not need the level of care provided in a nursing home
Adult Day Care Center Day care at centers specifically designed for the elderly who live at home but whose spouses or families cannot stay home to care for them during the day.
Care Coordinator A licensed health care practitioner who assesses a person's condition, evaluates care options, and develops an individualized plan of care that provides the most appropriate services.
Facility-only Policy A long-term care insurance policy that provides benefits for care in a nursing home and other settings, such as an assisted-living facility and hospice.
Home-health-care-only policy A long-term care insurance policy designed to provide benefits only for care outside an institutional setting, although some policies may provide benefits for care in assisted-living facilities.
Comprehensive Long-term Care Insurance Policy A long-term care insurance policy that combines benefits for facility care and benefits for home health care services into a single contract. Also known as an integrated policy.
Reimbursement Basis The method of paying long-term care insurance benefits that reimburses the insured for actual expenses incurred up to the specified policy limit.
Per Diem Basis A method of paying under long-term care insurance polices in which the insured receives a specified daily or weekly benefit amount, regardless of the actual cost of care.
Disability-Based Policy A long-term care insurance policy with a per diem basis of payment that provides benefits even if no care is being received as long as the insured satisfies the policy's benefit trigger.
Pool of Money Long-term care insurance approach to benefits in which a sum, based on the daily benefit amount times days in the benefit period, can be used to make benefit payments as long as the pool of money lasts, subject to the daily benefit limit
Shared Benefit Long-term care insurance approach to benefits in which a husband and wife are insured under the same policy or with the same insurer and can access each other's unused benefits.
Real Property Land and anything that is growing on it, erected on it, or affixed to it, and the bundle of rights inherent in the ownership
Personal Property An asset, other than real property, that is subject to ownership.
Mortgage Clause A provision in property insurance policies that protects a lender's insurable interest in real property. If a covered loss occurs, the lender receives payments to the extent of its insurable interest, even if a policyowner's claim is denied.
Loss Payable Clause A provision in property insurance policies that protects a lender's insurable interest in personal property. If a covered loss occurs, the lender receives payment to the extent of its insurable interest.
Actual Cash Value A method of valuing property. Usually, it is defined as replacement cost minus depreciation but in some cases is defined as fair market value.
Replacement Cost The cost to repair or replace damaged or destroyed property with new property of like kind and quality, with no deduction for depreciation.
Agreed Value A method of valuing property in which is determined before loss and the agreed value is paid in the event of a total loss.
Stated Amount An approach to valuing property found in some property insurance policies. At the time of the loss, the insurer will pay the least of the stated amount, the actual cash value, or the cost to repair or replace the property.
Valued Policy Law A law in a few states that requires insurers to pay the full coverage amount when real property is totally destroyed by certain perils.
Named-Perils Coverage An insurance contract that covers only losses that arise from one of a series of listed perils. If the peril is not listed, it is not covered by the policy.
Open-Perils Coverage An insurance coverage that covers all types of losses except those that are specifically excluded by the policy's terms.
Other Insurance Clause A provision in property and liability insurance policies that specifies how losses are shared if more than one policy covers a loss.
Coinsurance (Property Insurance) A provision whereby a property owner must share in a loss if the amount of insurance carried is less than a specified percentage of the property's insurable value.
Compensatory Damages Damages designed to financially compensate or reimburse a claimant who has suffered a loss for which another party is legally responsible.
Punitive Damages Damages awarded in addition to bodily injury or property damage when a defendant's behavior is so severe that the legal system feels an example should be made of the behavior.
Bodily Injury Bodily harm, sickness, or disease, it includes required care loss of services, and death that results.
Property Damage Destruction or damage to real or personal property, including loss of use
Personal Injury A group of legal liability offenses that typically include libel, slander, invasion of privacy, false arrest, and defamation of character.
Contractual Liability The assumption of legal liability of others a written or oral contract.
Tort A civil wrong other than breach of contract.
Strict Liability Liability under law, regardless of whether fault or negligence can be proved.
Negligence Failure to exercise the proper degree of care required by the circumstances.
Contributory Negligence The legal principle whereby an injured person cannot recover damages for injuries from another negligent party if the injured party was also negligent.
Last Clear Chance Doctrine The legal principal that holds that although a claimant is negligent, the defendant is liable if he or she had the last clear chance to avoid an accident and failed to take advantage of that chance.
Comparative Negligence The legal principle whereby an injured party can recover a portion of the damages for his or her injuries if he or she was also negligent. In some jurisdictions, a plaintiff can recover only if his or her negligence is less (or not more) than defendant's
Imputed Negligence Legal responsibility extended by the courts to persons other than those who cause injury directly.
Homeowners Policy A policy that provides coverage for a family's home, personal possessions, and liability that arises out of the many activites of family members. Several homeowners forms provide varying degrees of coverage for different types of homeowners and tenants.
ISA (Insurance Services Office) An advisory organization that provides various services to insurance companies, including the development and filing of standardized insurance forms.
Additional Living Expenses The extra costs of maintaining a family's standard of living while the family's residence is being repaired or rebuilt following a covered loss. Covered by homeowners policies.
Functional Replacement Cost The cost to repair or replace damaged real property with less costly construction materials and methods that are functionally equivalent to the old construction.
Dwelling Policy One of a series of policies for the insurance of dwellings. The forms are somewhat less comprehensive than homeowners polices and can be used for dwelling that do not meet certain homeowners standards.
Mobilehome insurance Insurance coverage, similar to homeowners insurance, that provides coverage to owner-occupants of mobile homes.
National Flood Insurance A federal program that provides subsidized insurance for the peril of flood.
FAIR (Fair Access to Insurance Requirements) plans A state-run program to provide property insurance, within limits, if a property owner is unable to obtain coverage in the standard marketplace. The actual coverage is usually written by a pool or syndicate of private insurers.
Floater A property insurance policy to provide broad insurance protection on property that is subject to being moved.
Personal Articles Floater An open-perils policy for certain scheduled and valuable items of personal property owned by an individual or a family
Personal Property Floater A policy to provide open-perils coverage for unscheduled personal property worldwide.
Personal Effects Floater A policy to provide open-perils worldwide coverage for baggage, clothes, cameras, and other items commonly worn or carried by tourists.
Title Insurance Protection for the purchaser of real estate against defects in title that occurred prior to the effective date of coverage but are discovered after the effective date.
Financial Responsibility Law A law in all states that requires proof of future auto insurance after certain circumstances occur. These can include an auto accident, conviction for certain traffic offenses, or failure to pay a legal judgement that arises from an auto accident.
Unsatisfied Judgment Fund A fund in some states to compensate victims who are unable to collect a legal judgement that results from an auto accident. The maximum amount that can be received is usually equal to a state's financial responsibility limits.
Uninsured Motorists Coverage An auto insurance coverage that enables an insured to collect from his or her own insurance company for bodily injury (and property damage in a few states) that is caused by a legally liable but uninsured driver.
Underinsured Motorists Coverage An auto insurance coverage that enables an insured to collect from his or her own insurance company for bodily injury (and property damage in a few states) that is caused by a legally liable but underinsured driver. Bridges the gap
Pure No-Fault A no-fault system with no right to sue a negligent party. No state has a pure no-fault law.
Modified no-fault A no-fault system with the right to sue another party once certain monetary or verbal thresholds are exceeded.
Add-on Plan A no-fault type of auto insurance system that makes first-party benefits available but does not restrict the right to sue for damages
Choice No-Fault A modified no-fault law that allows an insurance applicant either to elect traditional tort coverage or to elect no-fault coverage at a reduced premium
Personal Injury Protection (PIP) Endorsement The usual name for an endorsement that provides a state's no-fault auto insurance benefits.
Covered Auto A vehicle specifically listed in the policy declarations of an auto insurance policy. In the Personal Auto Policy. "Your covered auto" also includes newly acquired autos, trailers, and temporary substitute vehicles.
Newly Acquired Auto In personal auto insurance, an auto that meets a policy's eligibility requirements but is acquired after the effective date of the policy.
Temporary Substitute Vehicle In personal auto insurance, a vehicle not owned by the insured while it is used temporarily in place of a covered auto that is out of normal use because of breakdown, repair, servicing, loss, or destruction.
Split Limits In auto liability insurance, separate limits that apply to any one person for bodily injury, to the aggregate for all bodily injury claims in an accident, and to property damage liability claims.
Collision In auto insurance, the upset of an auto or its impact with another vehicle or object
Other than Collision The term used in auto insurance to refer to physical damage to a vehicle that is not caused by collision. Formerly referred to as comprehensive.
Residual Market Specialty insurers and government programs that provide insurance for hard-to-insure drivers or property.
Automobile Insurance Plan A stable plan that assigns drivers who have been unable to obtain auto insurance to insurance companies in proportion to their volume of business in a state. Formerly called assigned risk.
Umbrella Liability Policy A personal or business liability policy that provides high limits for a broad range of liability situations. The policyowner is required to have underlying liability coverage of specified amounts.
Self-insured Retention The initial portion of a loss under an umbrella policy that must be assumed by the policyowner when there is no underlying policy to cover the loss.
Commercial Property Insurance Coverage for losses to real and personal business property. As commonly used, the term applies to policies that cover losses from most perils other than those that relate to crime, transportation, and equipment breakdown.
Business Income Insurance (Business Interruption Insurance) Insurance that covers business losses after the occurrence of a direct physical damage loss that results in the suspension of business operations. the three basic types of losses covered include net income, normal ongoing business expenses.
Extra Expense Income Commercial insurance that provides coverage for expenses to avoid or minimize the suspension of operations following damage to property
Burglary The removal of property from inside a premises by a person who enters or leaves the premises unlawfully as evidenced by marks of forcible entry or exit
Robbery The removal of property from one person by someone else who haw either caused harm or threatened to cause harm to the person. It also includes situations in which property is taken in an unlawful act that a person has witnessed.
Theft A broad term that encompasses robbery, burglary, shoplifting, and any other act of stealing
Computer Fraud The use of a computer to fraudulently transfer property from its rightful owner to someone else
Inland Marine Insurancce A specialized type of insurance used for goods in transit, property held by bailees, mobile equipment and property, property of certain dealers, and instrumentalities of transportation and communication.
Difference in conditions (DIC) insurance A separate insurance policy that provides open-perils coverage to fill in the gaps left by the insured's other commercial property insurance policies
Commercial General Liability (CGL) Insurance Commercial liability insurance designed to cover a wide variety of liability loss exposures that can face an organization, including premises, business operations, products, completed operations, contractual and contingent liability
Worker's compensation insurance Insurance under which the insurer agrees to pay all compensation required by worker's compensation laws
Employer Liability Insurance A type of insurance that protects an employer when it can be sued because of injuries to employees. Usually accompanies workers' compensation coverage.
Professional Liability Insurance Insurance that protects against liability for the failure to use the degree of skill expected of a person in particular occupation
Directors and Officers D&O) Liability Insurance Insurance that covers directors and officers of a corporation and that is purchased by a corporation. The policy covers directors and officer for their personal liability from wrongful acts. Reimbursement as indemnification
Employment practices liability insurance A liability policy that covers against specified employment practices, such as discrimination, sexual harassment, and wrongful termination
Employee Benefits Liability Insurance Insurance that covers claims arising out of improper advice or other errors or omissions in the administration of employee benefit plans
Fiduciary Liability Insurance Insurance that covers claims that result from the breach of fiduciary duties, such as pension plan losses because of improper investments
Excess Liability Insurance A policy written to provide additional liability limits for claims that are covered by specified underlying coverage
Surety Bond An agreement in which a surety provides a guarantee of indemnity if a second party, the principal, fails to perform a specified act or fulfill an obligation in the obligee
4 Steps in the risk management process 1) Risk Identification2) Risk Measurement3) Choice & Use of alternative methods of treatment4) Risk Administration
Methods of Risk Financing Risk retention risk management techniques uses to pay for losses through such means as risk retention in various ways and risk transfer including insurance. 1) Pay for losses2) Risk retention3) Risk transfer/insurance

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