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Return |
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A |
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A-SHARE VARIABLE ANNUITY |
A form of variable annuity
contract where the contract holder pays sales charges up
front rather than eventually having to pay a surrender
charge.
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ABSOLUTE ASSIGNMENT* |
An irrevocable transfer of
complete ownership of a life insurance policy or an
annuity from one party to another. Contrast with
collateral assignment. (See
Assignment)
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ACCELERATED DEATH BENEFITS |
A life insurance policy option
that provides policy proceeds to insured individuals
over their lifetimes, in the event of a terminal
illness. This is in lieu of a traditional policy that
pays beneficiaries after the insured’s death. Such
benefits kick in if the insured becomes terminally ill,
needs extreme medical intervention, or must reside in a
nursing home. The payments made while the insured is
living are deducted from any death benefits paid to
beneficiaries.
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ACCIDENT AND HEALTH INSURANCE |
Coverage for accidental injury,
accidental death, and related health expenses. Benefits
will pay for preventative services, medical expenses and
catastrophic care, with limits.
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ACCIDENTAL DEATH AND
DISMEMBERMENT (AD&D) BENEFIT* |
A supplementary life insurance
policy benefit that provides for an amount of money in
addition to the policy’s basic death benefit. This
additional amount is payable if the insured dies as the
result of an accident or if the insured loses any two
limbs or the sight in both eyes as the result of an
accident.
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ACCIDENTAL DEATH BENEFIT (ADB)* |
A supplementary life insurance
policy benefit that provides a death benefit in addition
to the policy’s basic death benefit if the insured’s
death occurs as the result of an accident. (See
Double indemnity
Benefit)
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ACCOUNT RECEIVABLES |
See
Receivables
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ACCUMULATION AT INTEREST
DIVIDEND OPTION* |
An option, available to the owners
of participating insurance policies, that allows a
policy owner to leave policy dividends on deposit with
the insurer and earn interest. (See
Dividend)
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ACTUAL CASH VALUE |
A form of insurance that pays
damages equal to the replacement value of damaged
property minus depreciation. (See
Replacement cost)
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ACTUARY |
An insurance professional skilled
in the analysis, evaluation and management of
statistical information. Evaluates insurance firms’
reserves, determines rates and rating methods, and
determines other business and financial risks.
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ADDITIONAL LIVING EXPENSES |
Extra charges covered by
homeowners policies over and above the policyholder’s
customary living expenses. They kick in when the insured
requires temporary shelter due to damage by a covered
peril that makes the home temporarily uninhabitable.
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ADDITIONAL TERM INSURANCE
OPTION* |
An option available to owners of
participating insurance policies under which the insurer
uses a policy dividend as a net single premium to
purchase one-year term insurance on the insured’s life.
Also known as fifth dividend option. (See
Dividend;
Policy dividend
options)
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ADJUSTABLE LIFE INSURANCE* |
A form of life insurance that
allows policy owners to vary the type of coverage
provided by their policies as their insurance needs
change.
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ADJUSTER |
An individual employed by a
property/casualty insurer to evaluate losses and settle
policyholder claims. These adjusters differ from public
adjusters, who negotiate with insurers on behalf of
policyholders, and receive a portion of a claims
settlement. Independent adjusters are independent
contractors who adjust claims for different insurance
companies.
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Return |
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ADMITTED ASSETS |
Assets recognized and accepted by
state insurance laws in determining the
solvency of insurers and
reinsurers. To make it easier to assess an insurance
company’s financial position, state statutory accounting
rules do not permit certain assets to be included on the
balance sheet. Only assets that can be easily sold in
the event of liquidation or borrowed against, and
receivables for which payment can be reasonably
anticipated, are included in admitted assets. (See
Assets)
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ADMITTED COMPANY |
An insurance company licensed and
authorized to do business in a particular state.
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ADVERSE SELECTION |
The tendency of those exposed to a
higher risk to seek more insurance coverage than those
at a lower risk. Insurers react either by charging
higher premiums or not insuring at all, as in the case
of floods. (Flood insurance
is provided by the federal government but sold mostly
through the private market.) In the case of natural
disasters, such as earthquakes,
adverse selection
concentrates risk instead of spreading it. Insurance
works best when risk is shared among large numbers of
policyholders.
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AFFINITY SALES |
Selling insurance through groups
such as professional and business associations.
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AFTERMARKET PARTS |
See Crash
parts; Generic
auto parts)
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AGENCY COMPANIES |
Companies that market and sell
products via independent agents.
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AGENT |
Insurance is sold by two types of
agents: independent agents, who are self-employed,
represent several insurance companies and are paid on
commission; and exclusive or captive agents, who
represent only one insurance company and are either
salaried or work on commission. Insurance companies that
use exclusive or captive agents are called direct
writers.
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ALEATORY CONTRACT* |
A contract in which one party
provides something of value to another party in exchange
for a conditional promise, which is a promise that the
other party will perform a stated act upon the
occurrence of an uncertain event. Insurance contracts
are aleatory because the policy owner pays premiums to
the insurer, and in return the insurer promises to pay
benefits if the event insured against occurs. Contrast
with commutative contract.
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ALIEN INSURANCE COMPANY |
An insurance company incorporated
under the laws of a foreign country, as opposed to a
“foreign” insurance company which does business in
states outside its own.
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ALLIED LINES |
Property insurance that is usually
bought in conjunction with fire insurance; it includes
wind, water damage and vandalism coverage.
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ALTERNATIVE DISPUTE RESOLUTION
/ ADR |
An alternative to going to court
to settle disputes. Methods include arbitration, where
disputing parties agree to be bound to the decision of
an independent third party, and mediation, where a third
party tries to arrange a settlement between the two
sides.
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ALTERNATIVE MARKETS |
Nontraditional mechanisms used to
finance risk. This includes captives, which are insurers
owned by one or more non-insurers to provide owners with
coverage. Risk-retention groups, formed by members of
similar professions or businesses to obtain liability
insurance and self-insurance, are also included.
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ANNUAL ANNUITY CONTRACT FEE |
Covers the cost of administering
an annuity contract.
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ANNUAL STATEMENT |
Summary of an insurer’s or
reinsurer’s financial operations for a particular year,
including a balance sheet. It is filed with the state
insurance department of each jurisdiction in which the
company is licensed to conduct business.
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ANNUITANT |
The person who receives the income
from an annuity contract. Usually the owner of the
contract or his or her spouse.
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Return |
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ANNIHILATION |
The conversion of the account
balance of a deferred
annuity contract to income payments.
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ANNUITY |
A life insurance product that pays
periodic income benefits for a specific period of time
or over the course of the annuitant’s lifetime. There
are two basic types of annuities: deferred and
immediate. Deferred annuities allow assets to grow
tax-deferred over time before being converted to
payments to the annuitant. Immediate annuities allow
payments to begin within about a year of purchase.
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ANNUITY ACCUMULATION PHASE OR
PERIOD |
The period during which the owner
of a deferred annuity
makes payments to build up assets.
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ANNUITY ADMINISTRATIVE CHARGES |
Covers the cost of customer
services for owners of variable annuities.
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ANNUITY BENEFICIARY |
In certain types of annuities, a
person who receives annuity contract payments if the
annuity owner or annuitant dies while payments are still
due.
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ANNUITY CERTAIN* |
A type of annuity contract that
pays periodic income benefits for a stated period of
time, regardless of whether the annuitant lives or dies.
Also known as period certain annuity. Contrast with
straight life annuity. (See
payout options)
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ANNUITY CONTRACT |
An agreement similar to an
insurance policy for other insurance products such as
auto insurance.
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ANNUITY CONTRACT OWNER |
The person or entity that
purchases an annuity and has all rights to the contract.
Usually, but not always, the annuitant (the person who
receives incomes from the contract).
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ANNUITY COST* |
A monetary amount that is equal to
the present value of future periodic income payments
under an annuity. (See
Gross annuity cost;
income date;
Net annuity cost)
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ANNUITY DATE* |
See Income
date
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ANNUITY DEATH BENEFITS |
The guarantee that if an annuity
contract owner dies before annihilation (the switchover
from the savings to the payment phase) the beneficiary
will receive the value of the annuity that is due.
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ANNUITY INSURANCE CHARGES |
Covers administrative and
mortality and expense risk costs.
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ANNUITY INVESTMENT MANAGEMENT
FEE |
The fee paid for the management of
variable annuity invested assets.
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ANNUITY ISSUER |
The insurance company that issues
the annuity.
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Return |
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ANNUITY PROSPECTUS |
Legal document providing detailed
information about variable annuity contracts. Must be
offered to each prospective buyer.
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ANNUITY PURCHASE RATE |
The cost of an annuity based on
such factors as the age and gender of the contract
owner.
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ANTISELECTION* |
The tendency of individuals who
suspect or know they are more likely than average to
experience loss to apply for or renew insurance to a
greater extent than people who lack such knowledge of
probable loss. Also known as
adverse selection and
selection against the company.
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ANTITRUST LAWS |
Laws that prohibit companies from
working as a group to set prices, restrict supplies or
stop competition in the marketplace. The insurance
industry is subject to state antitrust laws but has a
limited exemption from federal antitrust laws. This
exemption, set out in the McCarran- Ferguson Act,
permits insurers to jointly develop common insurance
forms and share loss data to help them price policies.
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APPORTIONMENT |
The dividing of a loss
proportionately among two or more insurers that cover
the same loss.
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APPRAISAL |
A survey to determine a property’s
insurable value, or the amount of a loss.
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ARBITRATION |
Procedure in which an insurance
company and the insured or a vendor agree to settle a
claim dispute by accepting a decision made by a third
party.
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ARSON |
The deliberate setting of a fire.
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ASSET-BACKED SECURITIES |
Bonds that represent pools of
loans of similar types, duration and interest rates.
Almost any loan with regular repayments of principal and
interest can be securitized, from auto loans and
equipment leases to credit card receivables and
mortgages.
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ASSETS |
Property owned, in this case by an
insurance company, including stocks, bonds and real
estate. Insurance accounting is concerned with
solvency and the ability to pay
claims. State insurance laws therefore require a
conservative valuation of assets, prohibiting insurance
companies from listing assets on their balance sheets
whose values are uncertain, such as furniture, fixtures,
debit balances and accounts receivable that are more
than 90 days past due. (See
Admitted assets)
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ASSIGNED RISK PLANS |
Facilities through which drivers
can obtain auto insurance if they are unable to buy it
in the regular or voluntary market. These are the most
well-known type of residual auto insurance market, which
exist in every state. In an assigned risk plan, all
insurers selling auto insurance in the state are
assigned these drivers to insure, based on the amount of
insurance they sell in the regular market. (See
Residual market)
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ASSIGNMENT* |
An agreement under which one
party—the assignor—transfers some or all of his
ownership rights in a particular property, such as a
life insurance policy or an annuity contract, to another
party—the assignee. (See
Absolute assignment;
Collateral assignment)
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ASSOCIATION GROUP* |
A type of group that generally is
eligible for group insurance and that consists of
members of an association of individuals formed for a
purpose other than to obtain insurance coverage, such as
teachers’ associations and physicians’ associations.
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AUTO INSURANCE POLICY |
-
There are basically six different
types of coverage's. Some may be required by law. Others
are optional. They are:
- Bodily injury liability, for injuries the
policyholder causes to someone else.
- Medical payments or Personal Injury
Protection (PIP) for treatment of injuries to the
driver and passengers of the policyholder’s car.
- Property damage liability, for damage the
policyholder causes to someone else’s property.
- Collision, for damage to the policyholder’s
car from a collision.
- Comprehensive, for damage to the
policyholder’s car not involving a collision with
another car (including damage from fire, explosions,
earthquakes, floods, and riots), and theft.
- Uninsured motorists coverage, for costs
resulting from an accident involving a hit-and-run
driver or a driver who does not have insurance.
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AUTO INSURANCE PREMIUM |
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The price an insurance company
charges for coverage, based on the frequency and cost of
potential accidents, theft and other losses. Prices vary
from company to company, as with any product or service.
Premiums also vary depending on the amount and type
of coverage purchased; the make and model of the car;
and the insured’s driving record, years of driving and
the number of miles the car is driven per year. Other
factors taken into account include the driver’s age and
gender, where the car is most likely to be driven and
the times of day—rush hour in an urban neighborhood or
leisure time driving in rural areas, for example. Some
insurance companies may also use credit history related
information. (See Insurance
score)
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AVIATION INSURANCE |
Commercial airlines hold property
insurance on airplanes and liability insurance for
negligent acts that result in injury or property damage
to passengers or others. Damage is covered on the ground
and in the air. The policy limits the geographical area
and individual pilots covered.
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B |
Return |
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B-SHARE VARIABLE ANNUITY |
A form of variable annuity
contract with no initial sales charge but if the
contract is cancelled the holder pays deferred sales
charges (usually from 5 to 7 percent the first year,
declining to zero after from 5 to 7 years). The most
common form of annuity contract.
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BALANCE SHEET |
Provides a snapshot of a company’s
financial condition at one point in time. It shows
assets, including investments and reinsurance, and
liabilities, such as loss reserves to pay claims in the
future, as of a certain date. It also states a company’s
equity, known as policyholder surplus.
Changes in that surplus are one indicator of an
insurer’s financial standing.
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BANK HOLDING COMPANY |
A company that owns or controls
one or more banks. The Federal Reserve has
responsibility for regulating and supervising bank
holding company activities, such as approving
acquisitions and mergers and inspecting the operations
of such companies. This authority applies even though a
bank owned by a holding company may be under the primary
supervision of the Comptroller of the Currency or the
FDIC.
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BASIS POINT |
0.01 percent of the yield of a
mortgage, bond or note. The smallest measure used.
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BEACH AND WINDSTORM PLANS |
State-sponsored insurance pools
that sell property coverage for the peril of windstorm
to people unable to buy it in the voluntary market
because of their high exposure to risk. Seven states
(AL, FL, LA, MS, NC, SC, TX) offer these plans to cover
residential and commercial properties against hurricanes
and other windstorms. Georgia and New York provide this
kind of coverage for windstorm and hail in certain
coastal communities through other property pools.
Insurance companies that sell property insurance in the
state are required to participate in these plans.
Insurers share in profits and losses. (See
Fair access to insurance requirements plans / FAIR plans;
Residual market)
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BENEFICIARY* |
The person or legal entity the
owner of an insurance policy names to receive the policy
benefit if the event insured against occurs. (See
Annuity beneficiary;
Contingent beneficiary;
irrevocable
beneficiary)
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BINDER |
Temporary authorization of
coverage issued prior to the actual insurance policy.
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BLANKET INSURANCE |
Coverage for more than one type of
property at one location or one type of property at more
than one location. Example: chain store
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BODILY INJURY LIABILITY
COVERAGE |
Portion of an auto insurance
policy that covers injuries the policyholder causes to
someone else.
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BOILER AND MACHINERY INSURANCE |
Often called Equipment Breakdown,
or Systems Breakdown insurance. Commercial insurance
that covers damage caused by the malfunction or
breakdown of boilers, and a vast array of other
equipment including air conditioners, heating,
electrical, telephone and computer systems.
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BOND |
A security that obligates the
issuer to pay interest at specified intervals and to
repay the principal amount of the loan at maturity. In
insurance, a form of suretyship. Bonds of various types
guarantee a payment or a reimbursement for financial
losses resulting from dishonesty, failure to perform and
other acts.
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BOND RATING |
An evaluation of a bond’s
financial strength, conducted by such major ratings
agencies as Standard & Poor’s and Moody’s Investors
Service.
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BOOK OF BUSINESS |
Total amount of insurance on an
insurer’s books at a particular point in time.
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BROKER |
An intermediary between a customer
and an insurance company. Brokers typically search the
market for coverage appropriate to their clients. They
work on commission and usually sell commercial, not
personal, insurance. In life insurance, agents must be
licensed as securities brokers/dealers to sell variable
annuities, which are similar to stock market-based
investments.
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BURGLARY AND THEFT INSURANCE |
Insurance for the loss of property
due to burglary, robbery or larceny. It is provided in a
standard homeowners policy and in a business multiple
peril policy.
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BUSINESS INCOME INSURANCE (also
known as BUSINESS INTERRUPTION INSURANCE) |
Commercial coverage that
reimburses a business owner for lost profits and
continuing fixed expenses during the time that a
business must stay closed while the premises are being
restored because of physical damage from a covered
peril, such as a fire. Business income insurance also
may cover financial losses that may occur if civil
authorities limit access to an area after a disaster and
their actions prevent customers from reaching the
business premises. Depending on the policy, civil
authorities coverage may start after a waiting period
and last for two or more weeks. Also known as business
interruption insurance.
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BUSINESS OWNERS POLICY / BOP |
A policy that combines property,
liability and business interruption coverage's for
small- to medium-sized businesses. Coverage is generally
cheaper than if purchased through separate insurance
policies.
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C |
Return |
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C-SHARE VARIABLE ANNUITIES |
A form of variable annuity
contract where the contract holder pays no sales fee up
front or surrender charges. Owners can claim full
liquidity at any time.
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CAPACITY |
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The supply of insurance available
to meet demand. Capacity depends on the industry’s
financial ability to accept risk. For an individual
insurer, the maximum amount of risk it can underwrite
based on its financial condition. The adequacy of an
insurer’s capital relative to its exposure to loss is an
important measure of solvency.
A property/casualty insurer must maintain a certain
level of capital and policyholder
surplus to underwrite risks. This capital is known
as capacity. When the industry is hit by high losses,
such as after the World Trade Center terrorist attack,
capacity is diminished. It can be restored by increases
in net income, favorable investment returns, reinsuring
more risk and or raising additional capital. When there
is excess capacity, usually because of a high return on
investments, premiums tend to decline as insurers
compete for market share. As premiums decline,
underwriting losses are likely to grow, reducing
capacity and causing insurers to raise rates and tighten
conditions and limits in an effort to increase
profitability. Policyholder surplus is sometimes used as
a measure of capacity.
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CAPITAL |
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Shareholder’s equity (for publicly
traded insurance companies) and retained earnings (for
mutual insurance companies). There is no general measure
of capital adequacy for property/casualty insurers.
Capital adequacy is linked to the riskiness of an
insurer’s business. A company underwriting medical
device manufacturers needs a larger cushion of capital
than a company writing Main Street business, for
example. (See
Risk-based capital; Solvency;
Surplus) |
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CAPITAL MARKETS |
The markets in which equities and
debt are traded. (See
Securitization
of insurance risk)
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CAPTIVE AGENT |
A person who represents only one
insurance company and is restricted by agreement from
submitting business to any other company, unless it is
first rejected by the agent’s captive company. (See
Exclusive agent)
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CAPTIVES |
Insurers that are created and
wholly owned by one or more non-insurers, to provide
owners with coverage. A form of self-insurance.
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CAR YEAR |
Equal to 365 days of insured
coverage for a single vehicle. It is the standard
measurement for automobile insurance.
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CASE MANAGEMENT |
A system of coordinating medical
services to treat a patient, improve care and reduce
cost. A case manager coordinates health care delivery
for patients.
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CASH DIVIDEND OPTION* |
For participating insurance
policies, a dividend option under which the insurer
sends the policy owner a check in the amount of the
policy dividend. (See Dividend;
Policy dividend
options)
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CASH PAYMENT OPTION* |
One of several
nonforfeiture options
included in life insurance policies and some annuity
contracts that allows a policy owner to receive the cash
surrender value of a life insurance policy or an annuity
contract in a single payment. Also known as cash
surrender option. (See
Cash surrender value;
Nonforfeiture options)
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CASH SURRENDER VALUE* |
- For life insurance, the amount, before
adjustments for factors such as policy loans, that
the owner of a permanent life insurance policy is
entitled to receive if the policy does not remain in
force until the insured’s death.
- For annuities, the amount of a
deferred annuity’s
accumulated value, less any surrender charges, that
the contract holder is entitled to receive if the
policy is surrendered during its accumulation
period. Also known as cash value and surrender
value.
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CASH VALUE* |
(See
Cash surrender value)
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|
CATASTROPHE |
Term used for statistical
recording purposes to refer to a single incident or a
series of closely related incidents causing severe
insured property losses totaling more than a given
amount, currently $25 million
|
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CATASTROPHE BONDS |
Risk-based securities that pay
high interest rates and provide insurance companies with
a form of reinsurance to pay losses from a catastrophe
such as those caused by a major hurricane. They allow
insurance risk to be sold to institutional investors in
the form of bonds, thus spreading the risk. See
Scuritzation
of insurance risk).
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CATASTROPHE DEDUCTIBLE |
A percentage or dollar amount that
a homeowner must pay before the insurance policy kicks
in when a major natural disaster occurs. These large
deductibles limit an insurer’s potential losses in such
cases, allowing it to insure more property. A property
insurer may not be able to buy reinsurance to protect
its own bottom line unless it keeps its potential
maximum losses under a certain level.
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|
Return |
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CATASTROPHE FACTOR |
Probability of catastrophic loss,
based on the total number of catastrophes in a state
over a 40-year period.
|
|
CATASTROPHE MODEL |
Using computers, a method to mesh
long-term disaster information with current demographic,
building and other data to determine the potential cost
of natural disasters and other catastrophic losses for a
given geographic area.
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CATASTROPHE REINSURANCE |
Reinsurance for catastrophic
losses. The insurance industry is able to absorb the
multibillion dollar losses caused by natural and
man-made disasters such as hurricanes, earthquakes and
terrorist attacks because losses are spread among
thousands of companies including catastrophe reinsurers
who operate on a global basis. Insurers’ ability and
willingness to sell insurance fluctuates with the
availability and cost of catastrophe reinsurance. After
major disasters, such as Hurricane Andrew and the World
Trade Center terrorist attack, the availability of
catastrophe reinsurance becomes extremely limited.
Claims deplete reinsurers’ capital and, as a result,
companies are more selective in the type and amount of
risks they assume. In addition, with available supply
limited, prices for reinsurance rise. This contributes
to an overall increase in prices for property insurance.
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CELL PHONE INSURANCE |
Separate insurance provided to
cover cell phones for damage or theft. Policies are
often sold with the cell phones themselves.
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|
CHARTERED FINANCIAL CONSULTANT
/ ChFC |
A professional designation given
by The American College to financial services
professionals who complete courses in financial
planning.
|
|
CHARTERED LIFE UNDERWRITER /
CLU |
A professional designation by The
American College for those who pass business
examinations on insurance, investments and taxation, and
have life insurance planning experience.
|
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CHARTERED PROPERTY/CASUALTY
UNDERWRITER / CPCU |
A professional designation given
by the American Institute for Chartered Property
Casualty Underwriters. National examinations and three
years of work experience are required.
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CLAIMS MADE POLICY |
A form of insurance that pays
claims presented to the insurer during the term of the
policy or within a specific term after its expiration.
It limits liability insurers’ exposure to unknown future
liabilities. See Occurrence
policy
|
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COBRA |
Short for Consolidated Omnibus
Budget Reconciliation Act. A federal law under which
group health plans sponsored by employers with 20 or
more employees must offer continuation of coverage to
employees who leave their jobs and their dependents. The
employee must pay the entire premium. Coverage can be
extended up to 18 months. Surviving dependents can
receive longer coverage.
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COINSURANCE |
In property insurance, requires
the policyholder to carry insurance equal to a specified
percentage of the value of property to receive full
payment on a loss. For health insurance, it is a
percentage of each claim above the deductible paid by
the policyholder. For a 20 percent health insurance
coinsurance clause, the policyholder pays for the
deductible plus 20 percent of his covered losses. After
paying 80 percent of losses up to a specified ceiling,
the insurer starts paying 100 percent of losses.
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COLLATERAL |
Property that is offered to secure
a loan or other credit and that becomes subject to
seizure on default. Also called security.
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COLLATERAL ASSIGNMENT* |
A temporary transfer of some of
the ownership rights in a particular property, such as a
life insurance policy or an annuity contract, as
collateral for a loan. The transfer is made on the
condition that upon payment of the debt for which the
contract is collateral, all transferred rights shall
revert back to the original owner. Contrast with
absolute assignment.
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|
COLLATERAL SOURCE RULE |
Bars the introduction of
information that indicates a person has been compensated
or reimbursed by a source other than the defendant in
civil actions related to negligence or other liability.
|
|
COLLISION COVERAGE |
Portion of an auto insurance
policy that covers the damage to the policyholder’s car
from a collision.
|
|
Return |
|
COMBINED RATIO |
Percentage of each premium dollar
a property/casualty insurer spends on claims and
expenses. A decrease in the combined ratio means
financial results are improving; an increase means they
are deteriorating.
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COMMERCIAL GENERAL LIABILITY
INSURANCE / CGL |
A broad commercial policy that
covers all liability exposures of a business that are
not specifically excluded. Coverage includes product
liability, completed operations, premises and
operations, and independent contractors.
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COMMERCIAL LINES |
Products designed for and bought
by businesses. Among the major coverage's are boiler and
machinery, business income, commercial auto,
comprehensive general liability, directors and officers
liability, fire and allied lines, inland marine, medical
malpractice liability, product liability, professional
liability, surety and fidelity, and
workers compensation.
Most of these commercial coverage's can be purchased
separately except business income, which must be added
to a fire insurance (property) policy. (see
Commercial
multiple peril policy)
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|
COMMERCIAL MULTIPLE PERIL
POLICY |
Package policy that includes
property, boiler and machinery, crime and general
liability coverage's.
|
|
COMMERCIAL PAPER |
Short-term, unsecured, and usually
discounted promissory note issued by commercial firms
and financial companies often to finance current
business. Commercial paper, which is rated by debt
rating agencies, is sold through dealers or directly
placed with an investor.
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|
COMMISSION |
Fee paid to an agent or insurance
salesperson as a percentage of the policy premium. The
percentage varies widely depending on coverage, the
insurer, and the marketing methods.
|
|
COMMUNITY RATING LAWS |
Enacted in several states on
health insurance policies. Insurers are required to
accept all applicants for coverage and charge all
applicants the same premium for the same coverage
regardless of age or health. Premiums are based on the
rate determined by the geographic region’s health and
demographic profile.
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|
COMMUTATIVE CONTRACT* |
An agreement under which the
contracting parties specify the values that they will
exchange; moreover, the parties generally exchange items
or services that they think are of relatively equal
value. Contrast with aleatory contract.
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|
COMPETITIVE REPLACEMENT PARTS |
(See crash
parts; generic auto
parts)
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|
COMPETITIVE STATE FUND |
A facility established by a state
to sell workers
compensation in competition with private insurers.
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|
COMPLAINT RATIO |
A measure used by some state
insurance departments to track consumer complaints
against insurance companies. Generally, it is stated as
the number of complaints upheld against an insurance
company, as a percentage of premiums written. In some
states, complaints from medical providers over the
promptness of payments may also be included.
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|
COMPLETED OPERATIONS COVERAGE |
Pays for bodily injury or property
damage caused by a completed project or job. Protects a
business that sells a service against liability claims.
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|
COMPREHENSIVE COVERAGE |
Portion of an auto insurance
policy that covers damage to the policyholder’s car not
involving a collision with another car (including damage
from fire, explosions, earthquakes, floods and riots),
and theft.
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|
COMPULSORY AUTO INSURANCE |
The minimum amount of auto
liability insurance that meets a state law. Financial
responsibility laws in every state require all
automobile drivers to show proof, after an accident, of
their ability to pay damages up to the state minimum. In
compulsory liability states this proof, which is usually
in the form of an insurance policy, is required before
you can legally drive a car.
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|
CONTESTABLE PERIOD* |
The time during which an insurer
has the right to cancel or rescind an insurance policy
if the application contained a material
misrepresentation. (See
incontestability
provision)
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|
CONTINGENT BENEFICIARY* |
The party designated to receive
the proceeds of a life insurance policy following the
insured’s death if the primary beneficiary predeceased
the insured. Also known as secondary beneficiary and
successor beneficiary. (See
primary beneficiary)
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|
Return |
|
CONTINGENT LIABILITY |
Liability of individuals,
corporations, or partnerships for accidents caused by
people other than employees for whose acts or omissions
the corporations or partnerships are responsible.
|
|
CONVERTIBLE TERM INSURANCE
POLICY* |
A term life insurance policy that
gives the policy owner the right to convert the policy
to a permanent plan of insurance.
|
|
COVERAGE |
Synonym for insurance.
|
|
CRASH PARTS |
Sheet metal parts that are most
often damaged in a car crash. (See
generic auto parts
|
|
CREDIT |
The promise to pay in the future
in order to buy or borrow in the present. The right to
defer payment of debt.
|
|
CREDIT DERIVATIVES |
A contract that enables a user,
such as a bank, to better manage its credit risk. A way
of transferring credit risk to another party.
|
|
CREDIT ENHANCEMENT |
A technique to lower the interest
payments on a bond by raising the issue’s credit rating,
often through insurance in the form of a financial
guarantee or with standby letters of credit issued by a
bank.
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|
CREDIT INSURANCE |
Commercial coverage against losses
resulting from the failure of business debtors to pay
their obligation to the insured, usually due to
insolvency. The coverage is geared to manufacturers,
wholesalers and service providers who may be dependent
on a few accounts and therefore could lose significant
income in the event of an insolvency.
|
|
CREDIT LIFE INSURANCE |
Life insurance coverage on a
borrower designed to repay the balance of a loan in the
event the borrower dies before the loan is repaid. It
may also include disablement and can be offered as an
option in connection with credit cards and auto loans.
|
|
CREDIT RATING |
See Bond
rating
|
|
CREDIT SCORE |
The number produced by an analysis
of an individual’s credit history. The use of credit
information affects all consumers in many ways,
including getting a job, finding a place to live,
securing a loan, getting telephone service and buying
insurance. Credit history is routinely reviewed by
insurers before issuing a commercial policy because
businesses in poor financial condition tend to cut back
on safety, which can lead to more accidents and more
claims. Auto and home insurers may use information in a
credit history to produce an insurance score. Insurance
scores may be used in underwriting and rating insurance
policies. (See insurance
score)
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|
CRIME INSURANCE |
Term referring to property
coverage's for the perils of burglary, theft and robbery.
|
|
CRITICAL ILLNESS (CI)
INSURANCE* |
A type of individual health
insurance that pays a lump-sum benefit when the insured
is diagnosed with a specified illness. Also known as
critical diagnosis insurance. Contrast with specified
disease coverage.
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|
CROP-HAIL INSURANCE |
Protection against damage to
growing crops from hail, fire or lightning provided by
the private market. By contrast, multiple peril crop
insurance covers a wider range of yield reducing
conditions, such as drought and insect infestation, and
is subsidized by the federal government.
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|
CURRENT ASSUMPTION WHOLE LIFE
INSURANCE* |
See
Interest-sensitive insurance
|
|
|
| |
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|
D |
Return |
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DEATH BENEFIT* |
(1) For a life insurance contract,
the amount of money paid by an insurer to a beneficiary
when a person insured under the life insurance policy
dies. (2) For an annuity contract, the amount of money
paid to a beneficiary if the contract owner dies before
the annuity payments begin.
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|
DECLARATION |
Part of a property or liability
insurance policy that states the name and address of
policyholder, property insured, its location and
description, the policy period, premiums and
supplemental information. Referred to as the “dec page.”
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DECLINED RISK CLASS* |
In insurance underwriting, the
group of proposed insured's whose impairments or
anticipated extra mortality are so great that an insurer
cannot provide insurance coverage to them at an
affordable cost. Also known as uninsurable class.
Contrast with preferred risk class, standard risk class
and substandard risk class.
|
|
DECREASING TERM LIFE INSURANCE* |
Term life insurance that provides
a death benefit that decreases in amount over the policy
term. Contrast with increasing term life insurance.
|
|
DEDUCTIBLE |
The amount of loss paid by the
policyholder. Either a specified dollar amount, a
percentage of the claim amount, or a specified amount of
time that must elapse before benefits are paid. The
bigger the deductible, the lower the premium charged for
the same coverage.
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|
DEFERRED ANNUITY |
An annuity contract, also referred
to as an investment annuity, that is purchased either
with a single tax-deferred premium or with periodic
tax-deferred premiums over time. Payments begin at a
predetermined point in time, such as retirement. Money
contributed to such an annuity is intended primarily to
grow tax-deferred for future use.
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|
DEFINED BENEFIT PLAN |
A retirement plan under which
pension benefits are fixed in advance by a formula based
generally on years of service to the company multiplied
by a specific percentage of wages, usually average
earnings over that period or highest average earnings
over the final years with the company.
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|
DEFINED CONTRIBUTION PLAN |
An employee benefit plan under
which the employer sets up benefit accounts and
contributions are made to it by the employer and by the
employee. The employer usually matches the employee’s
contribution up to a stated limit.
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|
DEMAND DEPOSIT |
Customer assets that are held in a
checking account. Funds can be readily withdrawn by
check, “on demand.”
|
|
DEMUTUALIZATION |
The conversion of insurance
companies from mutual companies owned by their
policyholders into publicly traded stock companies.
|
|
DEPOSITORY INSTITUTION |
Financial institutions that obtain
their funds mainly through deposits from the public.
They include commercial banks, savings and loan
associations, savings banks and credit unions.
|
|
DEREGULATION |
In insurance, reducing regulatory
control over insurance rates and forms. Commercial
insurance for businesses of a certain size has been
deregulated in many states.
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|
DERIVATIVES |
Contracts that derive their value
from an underlying financial asset, such as publicly
traded securities and foreign currencies. Often used as
a hedge against changes in value.
|
|
DIFFERENCE IN CONDITIONS |
Policy designed to fill in gaps in
a business’s commercial property insurance coverage.
There is no standard policy. Policies are specifically
tailored to the policyholder’s needs.
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|
DIMINUTION OF VALUE |
The idea that a vehicle loses
value after it has been damaged in an accident and
repaired.
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|
DIRECT PREMIUMS |
Property/casualty premiums
collected by the insurer from policyholders, before
reinsurance premiums are deducted. Insurers share some
direct premiums and the risk involved with their
reinsurers.
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|
Return |
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DIRECT SALES/ DIRECT RESPONSE |
Method of selling insurance
directly to the insured through an insurance company’s
own employees, through the mail, by telephone or via the
Internet. This is in lieu of using captive or
exclusive agents.
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|
DIRECT WRITERS |
Insurance companies that sell
directly to the public using exclusive agents or their
own employees, through the mail, by telephone or via the
Internet. Large insurers, whether predominately direct
writers or agency companies, are increasingly using many
different channels to sell insurance. In reinsurance,
denotes reinsurers that deal directly with the insurance
companies they reinsure without using a broker.
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|
DIRECTORS AND OFFICERS
LIABILITY INSURANCE/D&O |
Directors and officers liability
insurance (D&O) covers directors and officers of a
company for negligent acts or omissions and for
misleading statements that result in suits against the
company. There are a variety of D&O coverage's. Corporate
reimbursement coverage indemnifies directors and
officers of the organization. Side-A coverage provides
D&O coverage for personal liability when directors and
officers are not indemnified by the firm. Entity
coverage, for claims made specifically against the
company, is also available. D&O policies may be
broadened to include coverage for employment practices
liability.
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|
DISABILITY INCOME INSURANCE* |
A type of health insurance
designed to compensate an insured person for a portion
of the income lost because of a disabling injury or
illness. Benefit payments are made either weekly or
monthly for a specified period during the continuance of
an insured’s disability. (See
income protection
insurance)
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DISABILITY* |
In disability insurance, the
inability of an insured person to work due to an injury
or sickness. Each disability policy has a definition of
disability that must be satisfied in order for the
insured to receive the policy’s benefits. (See
Residual disability;
Total disability)
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DIVIDEND |
Money returned to policyholders
from an insurance company’s earnings. Considered a
partial premium refund rather than a taxable
distribution, reflecting the difference between the
premium charged and actual losses. Many life insurance
policies and some property/casualty policies pay
dividends to their owners. Life insurance policies that
pay dividends are called participating policies.
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|
DIVIDEND ACCUMULATIONS OPTION* |
See Accumulation at interest
option.
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|
DOMESTIC INSURANCE COMPANY |
Term used by a state to refer to
any company incorporated there.
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DOUBLE INDEMNITY BENEFIT* |
An accidental death benefit that
is equal to the face amount of a life insurance policy’s
basic death benefit and is paid when the insured’s death
is the result of an accident as defined in the policy.
(See Accidental death benefit/ADB)
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|
DREAD DISEASE COVERAGE* |
See
Specified disease
coverage
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| |
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E |
Return |
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EARLY WARNING SYSTEM |
EARLY WARNING SYSTEM A system of
measuring insurers’ financial stability set up by
insurance industry regulators. An example is the
Insurance Regulatory Information System (IRIS), which
uses financial ratios to identify insurers in need of
regulatory attention.
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|
EARNED PREMIUM |
The portion of premium that
applies to the expired part of the policy period.
Insurance premiums are payable in advance but the
insurance company does not fully earn them until the
policy period expires.
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|
EARTHQUAKE INSURANCE |
Covers a building and its
contents, but includes a large percentage deductible on
each. A special policy or endorsement exists because
earthquakes are not covered by standard homeowners or
most business policies.
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|
ECONOMIC LOSS |
Total financial loss resulting
from the death or disability of a wage earner, or from
the destruction of property. Includes the loss of
earnings, medical expenses, funeral expenses, the cost
of restoring or replacing property and legal expenses.
It does not include noneconomic losses, such as pain
caused by an injury.
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|
ELECTRONIC COMMERCE /
E-COMMERCE |
The sale of products such as
insurance over the Internet.
|
|
ELIMINATION PERIOD |
A kind of deductible or waiting
period usually found in disability
policies. It is counted in days from the beginning
of the illness or injury.
|
|
EMPLOYEE DISHONESTY COVERAGE |
Covers direct losses and damage to
businesses resulting from the dishonest acts of
employees. (See Fidelity bond)
|
|
EMPLOYEE RETIREMENT INCOME
SECURITY ACT / ERISA |
Federal legislation that protects
employees by establishing minimum standards for private
pension and welfare plans.
|
|
EMPLOYER’S LIABILITY |
Part B of the
workers compensation
policy that provides coverage for lawsuits filed by
injured employees who, under certain circumstances, can
sue under common law. (See Exclusive remedy)
|
|
EMPLOYMENT PRACTICES LIABILITY
COVERAGE |
Liability insurance for employers
that covers wrongful termination, discrimination and
other violations of employees’ legal rights.
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|
ENDORSEMENT |
A written form attached to an
insurance policy that alters the policy’s coverage,
terms, or conditions. Sometimes called a rider.
|
|
ENDOWMENT INSURANCE* |
Life insurance that provides a
policy benefit payable either when the insured dies or
on a stated date if the insured is still alive on that
date.
|
|
ENVIRONMENTAL IMPAIRMENT
LIABILITY COVERAGE |
A form of insurance designed to
cover losses and liabilities arising from damage to
property caused by pollution.
|
|
EQUITY |
In investments, the ownership
interest of shareholders. In a corporation, stocks as
opposed to bonds.
|
|
EQUITY INDEXED ANNUITY |
Nontraditional fixed annuity. The
specified rate of interest guarantees a fixed minimum
rate of interest like traditional fixed annuities. At
the same time, additional interest may be credited to
policy values based upon positive changes, if any, in an
established index such as the S&P 500. The amount of
additional interest depends upon the particular design
of the policy. They are sold by licensed insurance
agents and regulated by state insurance departments.
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|
ERRORS AND OMISSIONS COVERAGE /
E&O |
A professional liability policy
covering the policyholder for negligent acts and
omissions that may harm his or her clients.
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|
Return |
|
ESCROW ACCOUNT |
Funds that a lender collects to
pay monthly premiums in mortgage and homeowners
insurance, and sometimes to pay property taxes.
|
|
EXCESS AND SURPLUS LINES |
Property/casualty coverage that
isn’t available from insurers licensed by the state
(called admitted insurers) and must be purchased from a
nonadmitted carrier.
|
|
EXCESS OF LOSS REINSURANCE |
A contract between an insurer and
a reinsurer, whereby the insurer agrees to pay a
specified portion of a claim and the reinsurer to pay
all or a part of the claim above that amount.
|
|
EXCLUSION |
A provision in an insurance policy
that eliminates coverage for certain risks, people,
property classes, or locations.
|
|
EXCLUSIVE AGENT |
A captive agent, or a person who
represents only one insurance company and is restricted
by agreement from submitting business to any other
company unless it is first rejected by the agent’s
company. (See Captive agent)
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|
EXCLUSIVE REMEDY |
Part of the social contract that
forms the basis for
workers compensation statutes under which employers
are responsible for work-related injury and disease,
regardless of whether it was the employee’s fault and in
return the injured employee gives up the right to sue
when the employer’s negligence causes the harm.
|
|
EXPENSE RATIO |
Percentage of each premium dollar
that goes to insurers’ expenses including overhead,
marketing and commissions.
|
|
EXPERIENCE |
Record of losses.
|
|
EXPOSURE |
Possibility of loss.
|
|
EXTENDED COVERAGE |
An endorsement added to an
insurance policy, or clause within a policy, that
provides additional coverage for risks other than those
in a basic policy.
|
|
EXTENDED REPLACEMENT COST
COVERAGE |
Pays a certain amount above the
policy limit to replace a damaged home, generally 120
percent or 125 percent. Similar to a guaranteed
replacement cost policy, which has no percentage limits.
Most homeowner policy limits track inflation in building
costs. Guaranteed and extended replacement cost policies
are designed to protect the policyholder after a major
disaster when the high demand for building contractors
and materials can push up the normal cost of
reconstruction. (See
Guaranteed replacement cost coverage)
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|
EXTENDED TERM INSURANCE OPTION* |
One of several
nonforfeiture options
included in life insurance policies that allows the
owner of a policy with a cash value to discontinue
premium payments and to use the policy’s net cash value
to purchase term insurance for the full coverage amount
provided under the original policy for as long a term as
the net cash value can provide. (See
nonforfeiture options)
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|
| |
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|
F |
Return |
|
FACE AMOUNT* |
For a fixed-amount whole life
insurance policy, the amount of the death benefit
payable if the insured person dies while the policy is
in force.
|
|
FACULTATIVE REINSURANCE |
A reinsurance policy that provides
an insurer with coverage for specific individual risks
that are unusual or so large that they aren’t covered in
the insurance company’s reinsurance treaties. This can
include policies for jumbo jets or oil rigs. Reinsurers
have no obligation to take on
facultative
reinsurance, but can assess each risk individually.
By contrast, under treaty
reinsurance, the reinsurer agrees to assume a
certain percentage of entire classes of business, such
as various kinds of auto, up to preset limits.
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|
FAIR ACCESS TO INSURANCE
REQUIREMENTS PLANS / FAIR PLANS |
Insurance pools that sell property
insurance to people who can’t buy it in the voluntary
market because of high risk over which they may have no
control. FAIR Plans, which exist in 28 states and the
District of Columbia, insure fire, vandalism, riot and
windstorm losses, and some sell homeowners insurance
which includes liability. Plans vary by state, but all
require property insurers licensed in a state to
participate in the pool and share in the profits and
losses. (See residual market)
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|
FAMILY BENEFIT COVERAGE* |
A type of supplementary benefit
rider offered in conjunction with a life insurance
policy that insures the lives of the insured’s spouse
and children. Also known as dependent life insurance and
spouse and children’s insurance rider.
|
|
FARMOWNERS-RANCHOWNERS
INSURANCE |
Package policy that protects the
policyholder against named perils and liabilities and
usually covers homes and their contents, along with
barns, stables and other structures.
|
|
FEDERAL FUNDS |
Reserve balances that depository
institutions lend each other, usually on an overnight
basis. In addition, Federal funds include certain other
kinds of borrowing by depository institutions from each
other and from federal agencies.
|
|
FEDERAL INSURANCE
ADMINISTRATION / FIA |
Federal agency in charge of
administering the National Flood Insurance Program. It
does not regulate the insurance industry.
|
|
FEDERAL RESERVE BOARD |
Seven member board that supervises
the banking system by issuing regulations controlling
bank holding companies and federal laws over the banking
industry. It also controls and oversees the U.S.
monetary system and credit supply.
|
|
FIDELITY BOND |
A form of protection that covers
policyholders for losses that they incur as a result of
fraudulent acts by specified individuals. It usually
insures a business for losses caused by the dishonest
acts of its employees.
|
|
FIDUCIARY BOND |
A type of surety bond, sometimes
called a probate bond, which is required of certain
fiduciaries, such as executors and trustees, that
guarantees the performance of their responsibilities.
|
|
FIDUCIARY LIABILITY |
Legal responsibility of a
fiduciary to safeguard assets of beneficiaries. A
fiduciary, for example a pension fund manager, is
required to manage investments held in trust in the best
interest of beneficiaries. Fiduciary liability insurance
covers breaches of fiduciary duty such as misstatements
or misleading statements, errors and omissions.
|
|
FILE-AND-USE STATES |
States where insurers must file
rate changes with their regulators, but don’t have to
wait for approval to put them into effect.
|
|
FINANCIAL GUARANTEE INSURANCE |
Covers losses from specific
financial transactions and guarantees that investors in
debt instruments, such as municipal bonds, receive
timely payment of principal and interest if there is a
default. Raises the credit rating of debt to which the
guarantee is attached. Investment bankers who sell
asset-backed securities, securities backed by loan
portfolios, use this insurance to enhance marketability.
(See municipal bond
insurance)
|
|
FINANCIAL RESPONSIBILITY LAW |
A state law requiring that all
automobile drivers show proof that they can pay damages
up to a minimum amount if involved in an auto accident.
Varies from state to state but can be met by carrying a
minimum amount of auto liability insurance. (See
compulsory auto
insurance)
|
|
FINITE RISK REINSURANCE |
Contract under which the ultimate
liability of the reinsurer is capped and on which
anticipated investment income is expressly acknowledged
as an underwriting component. Also known as financial
reinsurance because this type of coverage is often
bought to improve the balance sheet effects of statutory
accounting principles.
|
|
Return |
|
FIRE INSURANCE |
Coverage protecting property
against losses caused by a fire or lightning that is
usually included in homeowners or commercial multiple
peril policies.
|
|
FIRST-PARTY COVERAGE |
Coverage for the policyholder’s
own property or person. In no-fault auto insurance it
pays for the cost of injuries. In no-fault states with
the broadest coverage, the personal injury protection
(PIP) part of the policy pays for medical care, lost
income, funeral expenses and, where the injured person
is not able to provide services such as child care, for
substitute services. (See
No-fault;
Third-party coverage)
|
|
FIXED ANNUITY |
An annuity that guarantees a
specific rate of return. In the case of a
deferred annuity, a
minimum rate of interest is guaranteed during the
savings phase. During the payment phase, a fixed amount
of income, paid on a regular schedule, is guaranteed.
|
|
FLEXIBLE PREMIUM* |
A premium payment method sometimes
offered in connection with annuities and with some types
of life insurance that allows the contract owner or
policy owner to alter the amount and the frequency of
payments, within specified boundaries defined by the
insurer and the law.
|
|
FLOATER |
Attached to a homeowners policy, a
floater insures movable property, covering losses
wherever they may occur. Among the items often insured
with a floater are expensive jewelry, musical
instruments and furs. It provides broader coverage than
a regular homeowners policy for these items.
|
|
FLOOD INSURANCE |
Coverage for flood damage is
available from the federal government under the National
Flood Insurance Program but is sold by licensed
insurance agents. Flood coverage is excluded under
homeowners policies and many commercial property
policies. However, flood damage is covered under the
comprehensive portion of an auto insurance policy. (See
adverse selection)
|
|
FORCED PLACE INSURANCE |
Insurance purchased by a bank or
creditor on an uninsured debtor’s behalf so if the
property is damaged, funding is available to repair it.
|
|
FOREIGN INSURANCE COMPANY |
Name given to an insurance company
based in one state by the other states in which it does
business.
|
|
FRATERNAL BENEFIT SOCIETY* |
See
Fraternal Insurer
|
|
FRATERNAL INSURER* |
A nonprofit organization that is
operated solely for the benefit of its members and that
provides its members with social and insurance benefits.
Also known as fraternal benefit society.
|
|
FRAUD |
Intentional lying or concealment
by policyholders to obtain payment of an insurance claim
that would otherwise not be paid, or lying or
misrepresentation by the insurance company managers,
employees, agents and brokers for financial gain.
|
|
FREE-LOOK PERIOD |
A period of up to one month during
which the purchaser of an annuity can cancel the
contract with no penalty. Rules vary by state.
|
|
FREQUENCY |
Number of times a loss occurs. One
of the criteria used in calculating premium rates.
|
|
FRONTING |
A procedure in which a primary
insurer acts as the insurer of record by issuing a
policy, but then passes the entire risk to a reinsurer
in exchange for a commission. Often, the fronting
insurer is licensed to do business in a state or country
where the risk is located, but the reinsurer is not. The
reinsurer in this scenario is often a captive or an
independent insurance company that cannot sell insurance
directly in a particular country.
|
|
FUTURES |
Agreement to buy a security for a
set price at a certain date. Futures contracts usually
involve commodities, indexes or financial futures.
|
|
|
| |
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|
G |
Return |
|
GAP INSURANCE |
An automobile insurance option,
available in some states, that covers the difference
between a car’s actual cash value when it is stolen or
wrecked and the amount the consumer owes the leasing or
finance company. Mainly used for leased cars. (See
actual cash value)
|
|
GENERAL ACCOUNT* |
An undivided investment account in
which insurers maintain funds that support contractual
obligations for guaranteed insurance products such as
whole life insurance or fixed-rate annuities. Contrast
with separate account.
|
|
GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES/GAAP |
Generally accepted accounting
principles (GAAP) accounting is used in financial
statements that publicly held companies prepare for the
Securities and Exchange Commission. (See Statutory
accounting principles/SAP)
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GENERIC AUTO PARTS |
Auto crash parts produced by firms
that are not associated with car manufacturers. Insurers
consider these parts, when certified, at least as good
as those that come from the original equipment
manufacturer (OEM). They are often cheaper than the
identical part produced by the OEM. (See
crash parts;
aftermarket parts;
competitive
replacement parts;
Original equipment
parts)
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GLASS INSURANCE |
Coverage for glass breakage caused
by all risks; fire and war are sometimes excluded.
Insurance can be bought for windows, structural glass,
leaded glass and mirrors. Available with or without a
deductible.
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GRACE PERIOD* |
(1) For insurance premium
payments, a specified length of time following a premium
due date within which the renewal premium may be paid
without penalty. The length of the grace period is
specified in a grace period provision that is found in a
life insurance, health insurance, or annuity policy. (2)
For purchases made on credit, a period of time between
the date of a purchase and the date the lender begins to
charge interest during which no interest accrues.
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GRADED PREMIUM POLICY* |
A type of modified-premium whole
life policy that calls for three or more levels of
annual premium payment amounts, increasing at specified
points in time - such as every three years - until
reaching the amount to be paid as a level premium for
the rest of the life of the policy.
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GRADUATED DRIVER LICENSES |
Licenses for younger drivers that
allow them to improve their skills. Regulations vary by
state, but often restrict nighttime driving. Young
drivers receive a learner’s permit, followed by a
provisional license, before they can receive a standard
driver’s license.
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GRAMM-LEACH-BLILEY ACT |
Financial services legislation,
passed by Congress in 1999, that removed Depression era
prohibitions against the combination of commercial
banking and investment banking activities. It allows
insurance companies, banks and securities firms to
engage in each others’ activities and own one another.
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GROSS ANNUITY COST* |
A monetary amount equal to the
present value of future periodic income payments under
an annuity contract, calculated on a gross basis, with a
specific provision for expense loading. Contrast with
net annuity cost.
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GROUP INSURANCE |
A single policy covering a group
of individuals, usually employees of the same company or
members of the same association and their dependents.
Coverage occurs under a master policy issued to the
employer or association.
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GUARANTEE PERIOD |
Period during which the level of
interest specified under a fixed annuity is guaranteed.
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GUARANTEED DEATH BENEFIT |
Basic death benefits guaranteed
under variable annuity contracts.
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GUARANTEED INCOME CONTRACT /
GIC |
Often an option in an
employer-sponsored retirement savings plan. Contract
between an insurance company and the plan that
guarantees a stated rate of return on invested capital
over the life of the contract.
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GUARANTEED INSURABILITY (GI)
BENEFIT* |
A supplementary life insurance
policy benefit often provided through a policy rider
that gives the policy owner the right to purchase
additional insurance of the same type as the life
insurance policy that provides the GI benefit on
specified option dates. Also known as guaranteed
insurability option (GIO).
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GUARANTEED LIVING BENEFIT |
A guarantee in a variable annuity
that a certain level of annuity payment will be
maintained. Serves as a protection against investment
risks. Several types exist.
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GUARANTEED RENEWABLE POLICY* |
An individual health insurance
policy that requires the insurer to renew the policy—as
long as premium payments are made—at least until the
insured attains a specified age. The insurer can change
premium rates for broad classes of insured's but not for
an individual insured. Contrast with noncancellable and
guaranteed renewable policy.
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GUARANTEED REPLACEMENT COST
COVERAGE |
Homeowners policy that pays the
full cost of replacing or repairing a damaged or
destroyed home, even if it is above the policy limit.
(See
extended replacement cost coverage)
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GUARANTY FUND |
The mechanism by which solvent
insurers ensure that some of the policyholder and
third-party claims against insurance companies that fail
are paid. Such funds are required in all 50 states, the
District of Columbia and Puerto Rico, but the type and
amount of claim covered by the fund varies from state to
state. Some states pay policyholders’ unearned
premiums—the portion of the premium for which no
coverage was provided because the company was insolvent.
Some have deductibles. Most states have no limits on
workers compensation
payments. Guaranty funds are supported by assessments on
insurers doing business in the state.
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GUN LIABILITY |
A legal concept that holds gun
manufacturers liable for the cost of injuries caused by
guns. Several cities have filed lawsuits based on this
concept.
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H |
Return |
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HACKER INSURANCE |
A coverage that protects
businesses engaged in electronic commerce from losses
caused by hackers.
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HARD MARKET |
A seller’s market in which
insurance is expensive and in short supply. (See
property
casualty insurance cycle)
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|
HOMEOWNERS INSURANCE POLICY |
|
The typical homeowners insurance
policy covers the house, the garage and other structures
on the property, as well as personal possessions inside
the house such as furniture, appliances and clothing,
against a wide variety of perils including windstorms,
fire and theft. The extent of the perils covered depends
on the type of policy. An all-risk policy offers the
broadest coverage. This covers all perils except those
specifically excluded in the policy.
Homeowners insurance also covers additional living
expenses. Known as Loss of Use, this provision in the
policy reimburses the policyholder for the extra cost of
living elsewhere while the house is being restored after
a disaster. The liability portion of the policy covers
the homeowner for accidental injuries caused to third
parties and/or their property, such as a guest slipping
and falling down improperly maintained stairs. Coverage
for flood and earthquake damage is excluded and must be
purchased separately. (See
flood insurance;
Earthquake insurance)
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HOUSE YEAR |
Equal to 365 days of insured
coverage for a single dwelling. It is the standard
measurement for homeowners insurance.
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HURRICANE DEDUCTIBLE |
A percentage or dollar amount
added to a homeowner’s insurance policy to limit an
insurer’s exposure to loss from a hurricane. Higher
deductibles are instituted in higher risk areas, such as
coastal regions. Specific details, such as the intensity
of the storm for the deductible to be triggered and the
extent of the high risk area, vary from insurer to
insurer and state to state.
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I |
Return |
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IDENTITY THEFT INSURANCE |
Coverage for expenses incurred as
the result of an identity theft. Can include costs for
notarizing fraud affidavits and certified mail, lost
income from time taken off from work to meet with
law-enforcement personnel or credit agencies, fees for
reapplying for loans and attorney's fees to defend
against lawsuits and remove criminal or civil judgments.
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IMMEDIATE ANNUITY |
A product purchased with a lump
sum, usually at the time retirement begins or
afterwards. Payments begin within about a year.
Immediate annuities can be either fixed or variable.
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INCOME DATE* |
The date on which an insurer
begins or is scheduled to begin making annuity benefit
payments under an annuity contract. Also known as
maturity date and annuity date.
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INCOME PROTECTION INSURANCE* |
A type of disability income
coverage that provides an income benefit both, while the
insured is totally disabled and unable to work and while
he is able to work, but because of a disability, is
earning less than he earned before being disabled. Also
known as residual disability insurance.
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INCONTESTABILITY PROVISION* |
An insurance and annuity policy
provision that limits the time within which an insurer
has the right to avoid the contract on the ground of
material misrepresentation in the application for the
policy. Also known as incontestable clause. (See
contestable period;
time
limit on certain defenses provision)
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INCREASING TERM LIFE INSURANCE* |
A type of term life insurance that
provides a death benefit that increases by some
specified amount or percentage at stated intervals over
the policy term. Contrast with decreasing term life
insurance.
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INCURRED BUT NOT REPORTED
LOSSES / IBNR |
Losses that are not filed with the
insurer or reinsurer until years after the policy is
sold. Some liability claims may be filed long after the
event that caused the injury to occur. Asbestos-related
diseases, for example, do not show up until decades
after the exposure. IBNR also refers to estimates made
about claims already reported but where the full extent
of the injury is not yet known, such as a
workers compensation
claim where the degree to which work-related injuries
prevents a worker from earning what he or she earned
before the injury unfolds over time. Insurance companies
regularly adjust reserves for such losses as new
information becomes available.
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INCURRED LOSSES |
Losses occurring within a fixed
period, whether or not adjusted or paid during the same
period.
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INDEMNIFY |
Provide financial compensation for
losses.
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INDEPENDENT AGENT |
Agent who is self-employed, is
paid on commission, and represents several insurance
companies. (See Captive agent)
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INDETERMINATE PREMIUM LIFE
INSURANCE POLICY* |
A type of nonparticipating whole
life policy that specifies two premium rates—both a
maximum guaranteed rate and a lower rate. The insurer
charges the lower premium rate when the policy is
purchased and guarantees that rate for at least a stated
period of time, after which the insurer uses its actual
mortality, interest, and expense experience to establish
a new premium rate that may be higher or lower than the
previous premium rate. Also known as nonguaranteed
premium life insurance policy and variable premium life
insurance policy.
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INDEXED LIFE INSURANCE
CONTRACT* |
An arrangement similar to a
universal life contract. Death benefit amounts are based
on the amount selected by the policyholder plus the
account value. The policyholder’s account value is
linked to cumulative returns based on the S&P 500 index
or some other tied index. An essential component of the
contract is that the
cash surrender value is also linked to a tied index.
Typically, the tied index doesn’t include dividends.
There may be additional constraints on the amount that
the insurance company will credit as interest under this
policy.
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INDIVIDUAL RETIREMENT
ACCOUNT/IRA |
A tax-deductible savings plan for
those who are self-employed, or those whose earnings are
below a certain level or whose employers do not offer
retirement plans. Others may make limited contributions
on a tax-deferred basis. The Roth IRA, a special kind of
retirement account created in 1997, may offer greater
tax benefits to certain individuals.
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INFLATION GUARD CLAUSE |
A provision added to a homeowners
insurance policy that automatically adjusts the coverage
limit on the dwelling each time the policy is renewed to
reflect current construction costs.
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INLAND MARINE INSURANCE |
This broad type of coverage was
developed for shipments that do not involve ocean
transport. Covers articles in transit by all forms of
land and air transportation as well as bridges, tunnels
and other means of transportation and communication.
Floaters that cover expensive personal items such as
fine art and jewelry are included in this category. See
Floater)
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Return |
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INSOLVENCY |
Insurer’s inability to pay debts.
Insurance insolvency standards and the regulatory
actions taken vary from state to state. When regulators
deem an insurance company is in danger of becoming
insolvent, they can take one of three actions: place a
company in conservatorship or rehabilitation if the
company can be saved or liquidation if salvage is deemed
impossible. The difference between the first two options
is one of degree – regulators guide companies in
conservatorship but direct those in rehabilitation.
Typically the first sign of problems is inability to
pass the financial tests regulators administer as a
routine procedure. See
liquidation;
risk-based capital)
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INSTITUTIONAL INVESTOR |
An organization such as a bank or
insurance company that buys and sells large quantities
of securities.
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INSURABLE INTEREST* |
In insurance, a person exhibits an
insurable interest in a potential loss if that person
will suffer a genuine economic loss if the event insured
against occurs. Without the presence of insurable
interest, an insurance contract is not formed for a
lawful purpose and, thus, is not a valid contract.
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INSURABLE RISK |
Risks for which it is relatively
easy to get insurance and that meet certain criteria.
These include being definable, accidental in nature, and
part of a group of similar risks large enough to make
losses predictable. The insurance company also must be
able to come up with a reasonable price for the
insurance.
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INSURANCE |
A system to make large financial
losses more affordable by pooling the risks of many
individuals and business entities and transferring them
to an insurance company or other large group in return
for a premium.
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INSURANCE POOL |
A group of insurance companies
that pool assets, enabling them to provide an amount of
insurance substantially more than can be provided by
individual companies to ensure large risks such as
nuclear power stations. Pools may be formed voluntarily
or mandated by the state to cover risks that can’t
obtain coverage in the voluntary market such as coastal
properties subject to hurricanes. (See
beach and windstorm
plan;
fair access to insurance requirement plans / fair plans;
joint
underwriting association/ JUA)
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INSURANCE REGULATORY
INFORMATION SYSTEM / IRIS |
Uses financial ratios to measure
insurers’ financial strength. Developed by the National
Association of Insurance Commissioners. Each individual
state insurance department chooses how to use IRIS.
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INSURANCE SCORE |
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Insurance scores are confidential
rankings based on credit information. This includes
whether the consumer has made timely payments on loans,
the number of open credit card accounts and whether a
bankruptcy filing has been made. An insurance score is a
measure of how well consumers manage their financial
affairs, not of their financial assets. It does not
include information about income or race.
Studies have shown that people who manage their money
well tend also to manage their most important asset,
their home, well. And people who manage their money
responsibly also tend to handle driving a car
responsibly. Some insurance companies use insurance
scores as an insurance underwriting and rating tool.
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INSURANCE-TO-VALUE |
Insurance written in an amount
approximating the value of the insured property.
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INTEGRATED BENEFITS |
Coverage where the distinction
between job-related and non-occupational illnesses or
injuries is eliminated and
workers compensation
and general health coverage are combined. Legal
obstacles exist, however, because the two coverage's are
administered separately. Previously called twenty-four
hour coverage.
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INTEREST-ADJUSTED COST
COMPARISON INDEX* |
A cost comparison index used to
compare life insurance policy costs that takes into
account the time value of money. By comparing the index
numbers derived for similar life insurance policies, a
consumer has some basis on which to compare the costs of
the policies. (See
Net
payment cost comparison index;
surrender
cost comparison index)
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INTEREST-SENSITIVE INSURANCE* |
A general category of insurance
products in which the face amount and/or the cash value
vary according to the insurer’s investment earnings.
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INTERMEDIATION |
The process of bringing savers,
investors and borrowers together so that savers and
investors can obtain a return on their money and
borrowers can use the money to finance their purchases
or projects through loans.
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INTERNET INSURER |
An insurer that sells exclusively
via the Internet.
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INTERNET LIABILITY INSURANCE |
Coverage designed to protect
businesses from liabilities that arise from the
conducting of business over the Internet, including
copyright infringement, defamation, and violation of
privacy.
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INVESTMENT ANNUITY* |
ee
deferred annuity
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INVESTMENT INCOME |
Income generated by the investment
of assets. Insurers have two sources of income,
underwriting (premiums less claims and expenses) and
investment income. The latter can offset underwriting
operations, which are frequently unprofitable.
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IRREVOCABLE BENEFICIARY* |
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A life insurance policy
beneficiary who has a vested interest in the policy
proceeds even during the insured’s lifetime because the
policy owner has the right to change the beneficiary
designation only after obtaining the beneficiary’s
consent. Contrast with revocable beneficiary. |
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J |
Return |
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JOINT AND SURVIVOR ANNUITY |
An annuity with two annuitants,
usually spouses. Payments continue until the death of
the longest living of the two.
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JOINT UNDERWRITING ASSOCIATION
/ JUA |
Insurers which join together to
provide coverage for a particular type of risk or size
of exposure, when there are difficulties in obtaining
coverage in the regular market, and which share in the
profits and losses associated with the program. JUAs may
be set up to provide auto and homeowners insurance and
various commercial coverage's, such as medical
malpractice. (See
Assigned risk plans;
residual market)
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JUNK BONDS |
Corporate bonds with credit
ratings of BB or less. They pay a higher yield than
investment grade bonds because issuers have a higher
perceived risk of default. Such bonds involve market
risk that could force investors, including insurers, to
sell the bonds when their value is low. Most states
place limits on insurers’ investments in these bonds. In
general, because property/casualty insurers can be
called upon to provide huge sums of money immediately
after a disaster, their investments must be liquid. Less
than 2 percent are in real estate and a similarly small
percentage are in junk bonds.
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K |
Return |
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KEY PERSON INSURANCE |
Insurance on the life or health of
a key individual whose services are essential to the
continuing success of a business and whose death or
disability could cause the firm a substantial financial
loss.
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KIDNAP/RANSOM INSURANCE |
Coverage up to specific limits for
the cost of ransom or extortion payments and related
expenses. Often bought by international corporations to
cover employees. Most policies have large deductibles
and may exclude certain geographic areas. Some policies
require that the policyholder not reveal the existence
of the coverage.
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L |
Return |
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L-SHARE VARIABLE ANNUITIES |
A form of variable annuity
contract usually with short surrender periods and higher
mortality and expense risk charges.
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LADDERING |
A technique that consists of
staggering the maturity dates and the mix of different
types of bonds.
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LAPSE* |
The termination of an insurance
policy because a renewal premium is not paid by the end
of the grace period.
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LAW OF LARGE NUMBERS |
The theory of probability on which
the business of insurance is based. Simply put, this
mathematical premise says that the larger the group of
units insured, such as sport-utility vehicles, the more
accurate the predictions of loss will be.
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LEVEL PREMIUM POLICIES* |
Premiums paid for a life insurance
policy or for a deferred
annuity that remain the same each year that the
contract is in force. Contrast with modified premium
policies and single premium policies.
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LIABILITY INSURANCE |
Insurance for what the
policyholder is legally obligated to pay because of
bodily injury or property damage caused to another
person.
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LIFE ANNUITY WITH PERIOD
CERTAIN* |
A type of annuity contract that
guarantees periodic income payments throughout the
lifetime of a named individual—the annuitant—and
guarantees that the payments will continue for at least
a specified period. If the annuitant dies before the end
of that specified period, the payments will continue to
be paid until the end of the period to a beneficiary
designated by the annuitant. (See
life annuity)
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LIFE ANNUITY* |
A type of annuity contract that
guarantees periodic income payments throughout the
lifetime of a named individual—the annuitant. If a life
annuity provides no further benefits after the death of
the annuitant, the annuity is known as a straight life
annuity. However, some life annuities provide that
income payments will be paid either for the life of the
annuitant or for a guaranteed period—life income with
period certain—or at least until a guaranteed amount has
been paid—life income with refund annuity. (See
life annuity
with period certain;
life income
with refund annuity;
straight life annuity)
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LIFE INCOME WITH REFUND
ANNUITY* |
A type of annuity contract that
guarantees specified periodic income payments throughout
the lifetime of a named individual—the annuitant— and
guarantees that a refund will be made if the annuitant
dies before the total of the periodic payments made
equals the amount paid for the annuity. Also known as
refund annuity. (See life annuity)
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LIFE INSURANCE |
See
Ordinary life
insurance; Term life
insurance;
Variable Life Insurance;
Whole life insurance |
|
LIMITS |
Maximum amount of insurance that
can be paid for a covered loss.
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|
LINE |
Type or kind of insurance, such as
personal lines.
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LIQUIDATION |
Enables the state insurance
department as liquidator or its appointed deputy to wind
up the insurance company’s affairs by selling its assets
and settling claims upon those assets. After receiving
the liquidation order, the liquidator notifies insurance
departments in other states and state guaranty funds of
the liquidation proceedings. Such insurance company
liquidations are not subject to the Federal Bankruptcy
Code but to each state’s liquidation statutes.
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LIQUIDITY |
The ability and speed with which a
security can be converted into cash.
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LIQUOR LIABILITY |
Coverage for bodily injury or
property damage caused by an intoxicated person who was
served liquor by the policyholder.
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Return |
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LLOYD'S OF LONDON |
A marketplace where underwriting
syndicates, or mini-insurers, gather to sell insurance
policies and reinsurance. Each syndicate is managed by
an underwriter who decides whether or not to accept the
risk. The Lloyd’s market is a major player in the
international reinsurance market as well as a primary
market for marine insurance and large risks. Originally,
Lloyd’s was a London coffee house in the 1600s
patronized by shipowners who insured each other’s hulls
and cargoes. As Lloyd’s developed, wealthy individuals,
called “Names,” placed their personal assets behind
insurance risks as a business venture. Increasingly
since the 1990s, most of the capital comes from
corporations.
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LLOYDS |
Corporation formed to market
services of a group of underwriters. Does not issue
insurance policies or provide insurance protection.
Insurance is written by individual underwriters, with
each assuming a part of every risk. Has no connection to
Lloyd’s of London, and is found primarily in Texas.
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LONG-TERM CARE INSURANCE |
Long-term care (LTC) insurance
pays for services to help individuals who are unable to
perform certain activities of daily living without
assistance, or require supervision due to a cognitive
impairment such as Alzheimer’s disease. LTC is available
as individual insurance or through an employer-sponsored
or association plan.
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LONG-TERM DISABILITY INCOME
INSURANCE* |
A type of disability income
insurance that provides disability income benefits after
short-term disability income benefits terminate and
continues until the earlier of the date when the insured
person returns to work, dies, or becomes eligible for
pension benefits. Contrast with short-term disability
income insurance.
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LOSS |
A reduction in the quality or
value of a property, or a legal liability.
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LOSS ADJUSTMENT EXPENSES |
The sum insurers pay for
investigating and settling insurance claims, including
the cost of defending a lawsuit in court.
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LOSS COSTS |
The portion of an insurance rate
used to cover claims and the costs of adjusting claims.
Insurance companies typically determine their rates by
estimating their future loss costs and adding a
provision for expenses, profit, and contingencies.
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LOSS OF USE |
A provision in homeowners and
renters insurance policies that reimburses policyholders
for any extra living expenses due to having to live
elsewhere while their home is being restored following a
disaster.
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LOSS RATIO |
Percentage of each premium dollar
an insurer spends on claims.
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|
LOSS RESERVES |
|
The company’s best estimate of
what it will pay for claims, which is periodically
readjusted. They represent a liability on the insurer’s
balance sheet. |
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M |
Return |
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MALPRACTICE INSURANCE |
Professional liability coverage
for physicians, lawyers, and other specialists against
suits alleging negligence or errors and omissions that
have harmed clients.
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MANAGED CARE |
Arrangement between an employer or
insurer and selected providers to provide comprehensive
health care at a discount to members of the insured
group and coordinate the financing and delivery of
health care. Managed care uses medical protocols and
procedures agreed on by the medical profession to be
cost effective, also known as medical practice
guidelines.
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MANUAL |
A book published by an insurance
or bonding company or a rating association or bureau
that gives rates, classifications, and underwriting
rules.
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MARINE INSURANCE |
|
Coverage for goods in transit, and
for the commercial vehicles that transport them, on
water and over land. The term may apply to inland marine
but more generally applies to ocean marine insurance.
Covers damage or destruction of a ship’s hull and cargo
and perils include collision, sinking, capsizing, being
stranded, fire, piracy, and jettisoning cargo to save
other property. Wear and tear, dampness, mold, and war
are not included. (See
Inland marine
insurance; Ocean
marine insurance) |
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MATURITY DATE* |
(1) For endowment in insurance,
the date on which an insurer will pay the face amount of
an endowment policy to the policy owner if the insured
is still living. (2) In investing, the date on which a
bond issuer must repay to the bondholder the amount
originally borrowed. (3) For an annuity, the date on
which the insurer begins to make annuity payments. Also
known as income date.
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MCCARRAN-FERGUSON ACT |
Federal law signed in 1945 in
which Congress declared that states would continue to
regulate the insurance business. Grants insurers a
limited exemption from federal antitrust legislation.
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MEDIATION |
Nonbinding procedure in which a
third party attempts to resolve a conflict between two
other parties.
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MEDICAID |
A federal/state public assistance
program created in 1965 and administered by the states
for people whose income and resources are insufficient
to pay for health care.
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MEDICAL INFORMATION BUREAU* |
See MIB, INC.
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MEDICAL MALPRACTICE INSURANCE |
See
Malpractice insurance
|
|
MEDICAL PAYMENTS INSURANCE |
A coverage in which the insurer
agrees to reimburse the insured and others up to a
certain limit for medical or funeral expenses as a
result of bodily injury or death by accident. Payments
are without regard to fault.
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MEDICAL UTILIZATION REVIEW |
The practice used by insurance
companies to review claims for medical treatment.
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MEDICARE |
Federal program for people 65 or
older that pays part of the costs associated with
hospitalization, surgery, doctors’ bills, home health
care, and skilled-nursing care.
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MEDIGAP/MEDSUP |
Policies that supplement federal
insurance benefits particularly for those covered under
Medicare.
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MIB, INC.* |
A nonprofit organization
established to provide information to insurers about
impairments that applicants have admitted to, or that
other insurers have detected, in connection with
previous applications for insurance. Formerly known as
Medical Information Bureau.
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Return |
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MINE SUBSIDENCE COVERAGE |
An endorsement to a homeowners
insurance policy, available in some states, for losses
to a home caused by the land under a house sinking into
a mine shaft. Excluded from standard homeowners
policies, as are other forms of earth movement.
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|
MISREPRESENTATION* |
A false or misleading statement.
(1) In insurance sales, a false or misleading statement
made by a sales agent to induce a customer to purchase
insurance is a prohibited sales practice. (2) In
insurance underwriting, a false or misleading statement
by an insurance applicant may provide a basis for the
insurer to avoid the policy.
|
|
MISSTATEMENT OF AGE OR SEX
PROVISION* |
A life insurance, health
insurance, and annuity policy provision that describes
how policy benefits will be adjusted if the age or sex
of the insured has been misstated in the insurance
application. Typically, the benefits payable will be
those that the premiums paid would have purchased for
the correct age or sex.
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|
MODIFIED PREMIUM POLICIES* |
An insurance policy for which the
policy owner first pays a lower premium than she would
for a similar level premium policy for a specified
initial period and then pays a higher premium than she
would for a similar level premium policy. Contrast with
level premium policies and single premium policies.
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|
MONEY SUPPLY |
Total supply of money in the
economy, composed of currency in circulation and
deposits in savings and checking accounts. By changing
the interest rates the Federal Reserve seeks to adjust
the money supply to maintain a strong economy.
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|
MORAL HAZARD* |
The possibility that a person may
act dishonestly in an insurance transaction.
|
|
MORBIDITY RATE* |
The rate at which sickness and
injury occur within a defined group of people. Insurers
base health insurance premiums in part on the morbidity
rate for a proposed insured’s age group. Contrast with
mortality rate.
|
|
MORTALITY AND EXPENSE (M&E)
RISK CHARGE |
A fee that covers such annuity
contract guarantees as death benefits.
|
|
MORTALITY RATE* |
A percentage rate at which death
occurs among a defined group of people of a specified
age and sometimes of a specified gender. Insurers base
the premiums for life insurance in part on the mortality
rate for a proposed insured’s age group. Contrast with
morbidity rate.
|
|
MORTGAGE GUARANTEE INSURANCE |
Coverage for the mortgagee
(usually a financial institution) in the event that a
mortgage holder defaults on a loan. Also called private
mortgage insurance (PMI).
|
|
MORTGAGE INSURANCE |
A form of decreasing term
insurance that covers the life of a person taking out a
mortgage. Death benefits provide for payment of the
outstanding balance of the loan. Coverage is in
decreasing term insurance, so the amount of coverage
decreases as the debt decreases. A variant, mortgage
unemployment insurance pays the mortgage of a
policyholder who becomes involuntarily unemployed. (See
Term insurance)
|
|
MORTGAGE-BACKED SECURITIES |
Investment grade securities backed
by a pool of mortgages. The issuer uses the cash flow
from mortgages to meet interest payments on the bonds.
|
|
MULTIPLE PERIL POLICY |
A package policy, such as a
homeowners or business insurance policy, that provides
coverage against several different perils. It also
refers to the combination of property and liability
coverage in one policy. In the early days of insurance,
coverage's for property damage and liability were
purchased separately.
|
|
MUNICIPAL BOND INSURANCE |
Coverage that guarantees
bondholders timely payment of interest and principal
even if the issuer of the bonds defaults. Offered by
insurance companies with high credit ratings, the
coverage raises the credit rating of a municipality
offering the bond to that of the insurance company. It
allows a municipality to raise money at lower interest
rates. A form of financial guarantee insurance. (See
financial
guarantee insurance)
|
|
MUNICIPAL LIABILITY INSURANCE |
Liability insurance for
municipalities.
|
|
MUTUAL HOLDING COMPANY |
An organizational structure that
provides mutual companies with the organizational and
capital raising advantages of stock insurers, while
retaining the policyholder ownership of the mutual.
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|
MUTUAL INSURANCE COMPANY |
|
A company owned by its
policyholders that returns part of its profits to the
policyholders as dividends. The insurer uses the rest as
a surplus cushion in case of large and unexpected
losses. |
|
|
| |
|
|
N |
Return |
|
NAMED PERIL |
Peril specifically mentioned as
covered in an insurance policy.
|
|
NATIONAL FLOOD INSURANCE
PROGRAM |
Federal government-sponsored
program under which flood
insurance is sold to homeowners and businesses. See
adverse selection;
flood insurance)
|
|
NET ANNUITY COST* |
A monetary amount equal to the
present value of future periodic payments under an
annuity contract, calculated on a net basis, without any
specific provision for expense loading. Contrast with
gross annuity cost.
(See annuity cost)
|
|
NET PAYMENT COST COMPARISON
INDEX* |
A cost comparison index used to
compare life insurance policies that takes into account
the time value of money and that measures the cost of a
policy over a 10- or 20-year period assuming the policy
owner pays premiums over the entire period. Contrast
with
surrender cost comparison index.
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|
NET PREMIUMS WRITTEN |
See
premiums written
|
|
NO-FAULT |
Auto insurance coverage that pays
for each driver’s own injuries, regardless of who caused
the accident. No-fault varies from state to state. It
also refers to an auto liability insurance system that
restricts lawsuits to serious cases. Such policies are
designed to promote faster reimbursement and to reduce
litigation.
|
|
NO-FAULT MEDICAL |
A type of accident coverage in
homeowners policies.
|
|
Return |
|
NO-PAY, NO-PLAY |
The idea that people who don’t buy
coverage should not receive benefits. Prohibits
uninsured drivers from collecting damages from insured
drivers. In most states with this law, uninsured drivers
may not sue for noneconomic damages such as pain and
suffering. In other states, uninsured drivers are
required to pay the equivalent of a large deductible
($10,000) before they can sue for property damages and
another large deductible before they can sue for bodily
harm.
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|
NON-ADMITTED ASSETS |
Assets that are not included on
the balance sheet of an insurance company, including
furniture, fixtures, past-due accounts receivable, and
agents’ debt balances. (See Assets)
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|
NON-ADMITTED INSURER |
Insurers licensed in some states,
but not others. States where an insurer is not licensed
call that insurer non-admitted. They sell coverage that
is unavailable from licensed insurers within the state.
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|
NON-CANCELLABLE AND GUARANTEED
RENEWABLE POLICY* |
An individual health insurance
policy, which stipulates that, until the insured reaches
a specified age (usually age 65), the insurer will not
cancel the coverage, increase the premiums, or change
the policy provisions as long as the premiums are paid
when due. Also known as noncancellable policy. Contrast
with guaranteed renewable policy.
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|
NON-FORFEITURE OPTIONS* |
The various ways in which a
contract owner may apply the
cash surrender value
of an insurance or an annuity contract if the contract
lapses. In the United States, the typical nonforfeiture
options for life insurance are the
cash payment option,
the extended
term insurance option and the reduced paid-up
insurance option. (See
cash payment option;
cash surrender value;
extended term
insurance option;
reduced
paid-up insurance option)
|
|
NOTICE OF LOSS |
A written notice required by
insurance companies immediately after an accident or
other loss. Part of the standard provisions defining a
policyholder's responsibilities after a loss.
|
|
NUCLEAR INSURANCE |
Covers operators of nuclear
reactors and other facilities for liability and property
damage in the case of a nuclear accident and involves
both private insurers and the federal government.
|
|
NURSING HOME INSURANCE |
A form of long-term care policy
that covers a policyholder’s stay in a nursing facility.
|
|
|
| |
|
|
O |
Return |
|
OCCUPATIONAL DISEASE |
Abnormal condition or illness
caused by factors associated with the workplace. Like
occupational injuries, this is covered by workers
compensation policies. (See
workers compensation)
|
|
OCCURRENCE POLICY |
Insurance that pays claims arising
out of incidents that occur during the policy term, even
if they are filed many years later. (See Claims-made
policy)
|
|
OCEAN MARINE INSURANCE |
Coverage of all types of vessels
and watercraft, for property damage to the vessel and
cargo, including such risks as piracy and the
jettisoning of cargo to save the property of others.
Coverage for marine-related liabilities. War is excluded
from basic policies, but can be bought back.
|
|
OPEN COMPETITION STATES |
States where insurance companies
can set new rates without prior approval, although the
state’s commissioner can disallow them if they are not
reasonable and adequate or are discriminatory.
|
|
OPERATING EXPENSES |
The cost of maintaining a
business’s property, includes insurance, property taxes,
utilities and rent, but excludes income tax,
depreciation and other financing expenses.
|
|
OPTIONS |
Contracts that allow, but do not
oblige, the buying or selling of property or assets at a
certain date at a set price.
|
|
ORDINANCE OR LAW COVERAGE |
Endorsement to a property policy,
including homeowners, that pays for the extra expense of
rebuilding to comply with ordinances or laws, often
building codes, that did not exist when the building was
originally built. For example, a building severely
damaged in a hurricane may have to be elevated above the
flood line when it is rebuilt. This endorsement would
cover part of the additional cost.
|
|
ORDINARY LIFE INSURANCE |
A life insurance policy that
remains in force for the policyholder’s lifetime.
|
|
ORIGINAL EQUIPMENT MANUFACTURER
PARTS / OEM |
Sheet metal auto parts made by the
manufacturer of the vehicle. (See
generic auto parts)
|
|
OVER-THE-COUNTER (OTC) |
Security that is not listed or
traded on an exchange such as the New York Stock
Exchange. Business in over-the-counter securities is
conducted through dealers using electronic networks.
|
|
|
| |
|
|
P |
Return |
|
PACKAGE POLICY |
A single insurance policy that
combines several coverage's previously sold separately.
Examples include homeowners insurance and commercial
multiple peril insurance.
|
|
PAID-UP ADDITIONAL INSURANCE
OPTION* |
An option, available to the owners
of participating life insurance policies, that allows
the policy owner to use policy dividends to purchase
additional insurance on the insured’s life; the paid-up
additional insurance is issued on the same plan as the
basic policy and in whatever face amount the dividend
can provide at the insured’s attained age. (See
dividend;
participating policy;
policy dividend
options)
|
|
PAID-UP POLICY* |
An insurance policy that requires
no further premium payments but continues to provide
coverage.
|
|
PARTIAL DISABILITY* |
See
residual disability
|
|
PARTICIPATING POLICY* |
A type of insurance policy that
allows policy owners to receive policy dividends. Also
known as par (See dividend)
|
|
PAY-AT-THE-PUMP |
A system proposed in the 1990s in
which auto insurance premiums would be paid to state
governments through a per-gallon surcharge on gasoline.
|
|
PAYOUT OPTIONS* |
The methods available to an
annuity contract owner for the distribution of the
annuity’s accumulated value. (1) The lump sum
distribution method allows the contract owner to receive
the balance of his account in a single payment. (2) The
fixed period option provides that the annuity’s
accumulated value will be paid out over a specified
period of time. (3) The fixed amount option provides that
the annuity’s accumulated value will be paid out in a
pre-selected payment amount until the accumulated value
is exhausted. (4) A life annuity
option provides that periodic income payments will be
tied in some manner to the life expectancy of a named
individual. (See life annuity)
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|
PENSION BENEFIT GUARANTY
CORPORATION |
An independent federal government
agency that administers the Pension Plan Termination
Insurance program to ensure that vested benefits of
employees whose pension plans are being terminated are
paid when they come due. Only defined benefit plans are
covered. Benefits are paid up to certain limits.
|
|
PENSIONS |
Programs to provide employees with
retirement income after they meet minimum age and
service requirements. Life insurers hold some of these
funds. Since the 1970s responsibility for funding
retirement has increasingly shifted from employers
(defined benefit plans that promise workers a specific
retirement income) to employees (defined contribution
plans financed by employees that may or may not be
matched by employer contributions). (See
Defined benefit plan;
Defined
contribution plan)
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|
PER CAPITA BENEFICIARY
DESIGNATION* |
A type of life insurance policy
beneficiary designation in which the life insurance
benefits are divided equally among the designated
beneficiaries who survive the insured. For example, if
the policy specifies two beneficiaries, but only one is
surviving at the time of the insured’s death, then the
remaining beneficiary receives the entire policy
benefit. Contrast with per stripes beneficiary
designation.
|
|
PER STRIPES BENEFICIARY
DESIGNATION* |
A type of life insurance policy
beneficiary designation in which the life insurance
benefits are divided among a class of beneficiaries; for
example, children of the insured. The living members of
the class and the descendants of any deceased members of
the class share in the benefits equally. Contrast with
per capita beneficiary designation.
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|
PERIL |
A specific risk or cause of loss
covered by an insurance policy, such as a fire,
windstorm, flood, or theft. A named-peril policy covers
the policyholder only for the risks named in the policy
in contrast to an all-risk policy, which covers all
causes of loss except those specifically excluded.
|
|
PERIOD CERTAIN* |
The stated period over which an
insurer makes periodic benefit payments under an annuity
certain. See annuity certain)
|
|
PERSONAL ARTICLES FLOATER |
A policy or an addition to a
policy used to cover personal valuables, like jewelry or
furs.
|
|
PERSONAL INJURY PROTECTION
COVERAGE / PIP |
Portion of an auto insurance
policy that covers the treatment of injuries to the
driver and passengers of the policyholder’s car.
|
|
Return |
|
PERSONAL LINES |
Property/casualty insurance
products that are designed for and bought by
individuals, including homeowners and automobile
policies. See Commercial
lines)
|
|
POINT-OF-SERVICE PLAN |
Health insurance policy that
allows the employee to choose between in-network and
out-of-network care each time medical treatment is
needed.
|
|
POLICY |
A written contract for insurance
between an insurance company and policyholder stating
details of coverage.
|
|
POLICY DIVIDEND OPTIONS* |
Ways in which the owner of a
participating insurance policy may receive policy
dividends. (See
additional
term insurance option;
cash dividend option;
dividend
accumulations options;
paid-up
additional insurance option;
premium reduction
option)
|
|
POLICYHOLDERS' SURPLUS |
The amount of money remaining
after an insurer’s liabilities are subtracted from its
assets. It acts as a financial cushion above and beyond
reserves, protecting policyholders against an unexpected
or catastrophic situation.
|
|
POLITICAL RISK INSURANCE |
Coverage for businesses operating
abroad against loss due to political upheaval such as
war, revolution, or confiscation of property.
|
|
POLLUTION INSURANCE |
Policies that cover property loss
and liability arising from pollution-related damages,
for sites that have been inspected and found
uncontaminated. It is usually written on a claims-made
basis so policies pay only claims presented during the
term of the policy or within a specified time frame
after the policy expires. (See Claims-made policy)
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|
POOL |
See
insurance pool
|
|
PRE-EXISTING CONDITION* |
(1) According to most group health
insurance policies, a condition for which an individual
received medical care during the three months
immediately prior to the effective date of her coverage.
(2) According to most individual health insurance
policies, an injury that occurred or a sickness that
first appeared or manifested itself within a specified
period—usually two years—before the policy was issued
and that was not disclosed on the application for
insurance.
|
|
PREFERRED PROVIDER ORGANIZATION |
Network of medical providers which
charge on a fee-for-service basis, but are paid on a
negotiated, discounted fee schedule.
|
|
PREFERRED RISK CLASS* |
In insurance underwriting, the
group of proposed insured's who represent a significantly
lower than average likelihood of loss within the context
of the insurer’s underwriting practices. Contrast with
declined risk class, standard risk class and substandard
risk class.
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|
PREMISES |
The particular location of the
property or a portion of it as designated in an
insurance policy.
|
|
PREMIUM |
The price of an insurance policy,
typically charged annually or semiannually. See
Direct premiums;
Earned premium;
Unearned premium)
|
|
PREMIUM REDUCTION OPTION* |
|
An option, available to the owners
of participating insurance policies, that allows the
insurer to apply policy dividends toward the payment of
renewal premiums. (See
dividend; policy
dividend options) |
|
PREMIUM TAX |
A state tax on premiums paid by
its residents and businesses and collected by insurers.
|
|
PREMIUMS IN FORCE |
The sum of the face amounts, plus
dividend additions, of life insurance policies
outstanding at a given time.
|
|
Return |
|
PREMIUMS WRITTEN |
The total premiums on all policies
written by an insurer during a specified period of time,
regardless of what portions have been earned. Net
premiums written are premiums written after reinsurance
transactions.
|
|
PRIMARY BENEFICIARY* |
The party designated to receive
the proceeds of a life insurance policy following the
death of the insured. Also known as first beneficiary.
((See Contingent
beneficiary)
|
|
PRIMARY COMPANY |
In a reinsurance transaction, the
insurance company that is reinsured.
|
|
PRIMARY MARKET |
Market for new issue securities
where the proceeds go directly to the issuer.
|
|
PRIME RATE |
Interest rate that banks charge to
their most creditworthy customers. Banks set this rate
according to their cost of funds and market forces.
|
|
PRIOR APPROVAL STATES |
States where insurance companies
must file proposed rate changes with state regulators,
and gain approval before they can go into effect.
|
|
PRIVATE MORTGAGE INSURANCE |
See
mortgage
guarantee insurance
|
|
PRIVATE PLACEMENT |
Securities that are not registered
with the Securities and Exchange Commission and are sold
directly to investors.
|
|
PRODUCT LIABILITY |
A section of tort law that
determines who may sue and who may be sued for damages
when a defective product injures someone. No uniform
federal laws guide manufacturer’s liability, but under
strict liability, the injured party can hold the
manufacturer responsible for damages without the need to
prove negligence or fault.
|
|
PRODUCT LIABILITY INSURANCE |
Protects manufacturers’ and
distributors’ exposure to lawsuits by people who have
sustained bodily injury or property damage through the
use of the product.
|
|
PROFESSIONAL LIABILITY
INSURANCE |
Covers professionals for
negligence and errors or omissions that injure their
clients.
|
|
PROOF OF LOSS |
Documents showing the insurance
company that a loss occurred.
|
|
PROPERTY/CASUALTY INSURANCE |
Covers damage to or loss of
policyholders’ property and legal liability for damages
caused to other people or their property.
Property/casualty insurance, which includes auto,
homeowners and commercial insurance, is one segment of
the insurance industry. The other sector is life/health.
Outside the United States, property/casualty insurance
is referred to as nonlife or general insurance.
|
|
PROPERTY/CASUALTY INSURANCE
CYCLE |
Industry business cycle with
recurrent periods of hard and soft market conditions. In
the 1950s and 1960s, cycles were regular with three year
periods each of hard and soft market conditions in
almost all lines of property/casualty insurance. Since
then they have been less regular and less frequent.
|
|
PROPOSITION 103 |
A November 1988 California ballot
initiative that called for a statewide auto insurance
rate rollback and for rates to be based more on driving
records and less on geographical location. The
initiative changed many aspects of the state’s insurance
system and was the subject of lawsuits for more than a
decade.
|
|
PURCHASING GROUP |
An entity that offers insurance to
groups of similar businesses with similar exposures to
risk.
|
|
PURE ENDOWMENT* |
A life insurance contract that
pays a periodic income benefit for the life of the owner
of the annuity. The payment can be monthly, quarterly,
semiannually or annually.
|
|
PURE LIFE ANNUITY |
A form of annuity that ends
payments when the annuitant dies. Payments may be fixed
or variable.
|
| |
|
|
|
Q |
Return |
|
QUALIFIED ANNUITY |
A form of annuity purchased with
pretax dollars as part of a retirement plan that
benefits from special tax treatment, such as a 401(k)
plan
|
|
|
| |
|
|
R |
Return |
|
RATE |
The cost of a unit of insurance,
usually per $1,000. Rates are based on historical loss
experience for similar risks and may be regulated by
state insurance offices.
|
|
RATE REGULATION |
The process by which states
monitor insurance companies’ rate changes, done either
through prior approval or open competition models. See
open competition
states; Prior
approval states)
|
|
RATED POLICY* |
An insurance policy that is
classified as having a greater-than-average likelihood
of loss, usually issued with special exclusions, a
premium rate that is higher than the rate for a standard
policy, a reduced face amount, or any combination of
these.
|
|
RATING AGENCIES |
Six major credit agencies
determine insurers’ financial strength and viability to
meet claims obligations. They are A.M. Best Co.; Duff &
Phelps Inc.; Fitch, Inc.; Moody’s Investors Services;
Standard & Poor’s Corp.; and Weiss Ratings, Inc. Factors
considered include company earnings, capital adequacy,
operating leverage, liquidity, investment performance,
reinsurance programs, and management ability, integrity
and experience. A high financial rating is not the same
as a high consumer satisfaction rating.
|
|
RATING BUREAU
|
The insurance business is based on
the spread of risk. The more widely risk is spread, the
more accurately loss can be estimated. An insurance
company can more accurately estimate the probability of
loss on 100,000 homes than on ten. Years ago, insurers
were required to use standardized forms and rates
developed by rating agencies. Today, large insurers use
their own statistical loss data to develop rates. But
small insurers, or insurers focusing on special lines of
business, with insufficiently broad loss data to make
them actuarially reliable depend on pooled industry data
collected by such organizations as the Insurance
Services Office (ISO) which provides information to help
develop rates such as estimates of future losses and
loss adjustment expenses like legal defense costs.
|
|
REAL ESTATE INVESTMENTS |
Investments generally owned by
life insurers that include commercial mortgage loans and
real property.
|
|
RECEIVABLES |
Amounts owed to a business for
goods or services provided.
|
|
REDLINING |
Literally means to draw a red line
on a map around areas to receive special treatment.
Refusal to issue insurance based solely on where
applicants live is illegal in all states. Denial of
insurance must be risk-based.
|
|
REDUCED PAID-UP INSURANCE
OPTION* |
One of several nonforfeiture
options included in life insurance policies that allows
the owner of a policy with cash values to discontinue
premium payments and to use the policy’s net cash value
to purchase paid-up insurance of the same plan as the
original policy. (See
nonforfeiture options)
|
|
REGISTERED PRINCIPAL* |
An officer or manager of a
National Association of Securities Dealers (NASD)
member, who is involved in the day-to-day operation of
the securities business, has qualified as a registered
representative, and has an NASD Series 24 or 26
registration.
|
|
REGISTERED REPRESENTATIVE* |
A sales representative or other
person who has registered with the National Association
of Securities Dealers (NASD), disclosed the required
background information, and passed one or more NASD
examination. A registered representative engages in the
securities business on behalf of a NASD member by
soliciting the sale of securities or training securities
salespeople.
|
|
REINSTATEMENT* |
The process by which an insurer
puts back into force an insurance policy that has either
been terminated for nonpayment of premiums or continued
as extended term or reduced paid-up coverage.
|
|
REINSURANCE |
Insurance bought by insurers. A
reinsurer assumes part of the risk and part of the
premium originally taken by the insurer, known as the
primary company. Reinsurance effectively increases an
insurer's capital and therefore its capacity to sell
more coverage. The business is global and some of the
largest reinsurers are based abroad. Reinsurers have
their own reinsurers, called retrocessionaires.
Reinsurers don’t pay policyholder claims. Instead, they
reimburse insurers for claims paid. (See
treaty insurance;
faculative reinsurance)
|
|
RELATION OF EARNINGS TO
INSURANCE CLAUSE* |
A clause included in some
individual disability policies that limits the amount of
benefits that an insurer will pay when the total amount
of disability benefits from all insurers exceeds the
individual’s usual earnings.
|
|
RENEWABLE TERM INSURANCE
POLICY* |
A term life insurance policy that
gives the policy owner the option to continue the
coverage at the end of the specified term without
presenting evidence of insurability, although typically
at a higher premium based on the insured’s attained age.
|
|
Return |
|
RENTERS INSURANCE |
A form of insurance that covers a
policyholder’s belongings against perils such as fire,
theft, windstorm, hail, explosion, vandalism, riots, and
others. It also provides personal liability coverage for
damage the policyholder or dependents cause to third
parties. It also provides additional living expenses,
known as loss-of-use coverage, if a policyholder must
move while his or her dwelling is repaired. It also can
include coverage for property improvements. Possessions
can be covered for their replacement cost or the actual
cash value that includes depreciation.
|
|
REPLACEMENT COST |
Insurance that pays the dollar
amount needed to replace damaged personal property or
dwelling property without deducting for depreciation but
limited by the maximum dollar amount shown on the
declarations page of the policy.
|
|
REPURCHASE AGREEMENT /'REPO' |
Agreement between a buyer and
seller where the seller agrees to repurchase the
securities at an agreed upon time and price. Repurchase
agreements involving U.S. government securities are
utilized by the Federal Reserve to control the money
supply.
|
|
RESERVES |
A company’s best estimate of what
it will pay for claims.
|
|
RESIDUAL DISABILITY INSURANCE* |
See
Income protection
insurance
|
|
RESIDUAL DISABILITY* |
In disability income insurance, a
condition in which the insured is not totally disabled,
but is still unable to function as before the sickness
or injury, and therefore suffers a reduction in income
of at least the percentage—typically 20 percent to 25
percent—specified in the disability income plan. Also
known as partial disability.
|
|
RESIDUAL MARKET |
Facilities, such as assigned risk
plans and FAIR Plans, that exist to provide coverage for
those who cannot get it in the regular market. Insurers
doing business in a given state generally must
participate in these pools. For this reason the
residual market is also
known as the shared market.
|
|
RETENTION |
The amount of risk retained by an
insurance company that is not reinsured.
|
|
RETROCESSION |
The reinsurance bought by
reinsurers to protect their financial stability.
|
|
RETROSPECTIVE RATING |
A method of permitting the final
premium for a risk to be adjusted, subject to an
agreed-upon maximum and minimum limit based on actual
loss experience. It is available to large commercial
insurance buyers.
|
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RETURN ON EQUITY |
Net income divided by total
equity. Measures profitability by showing how
efficiently invested capital is being used.
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REVOCABLE BENEFICIARY* |
A life insurance policy
beneficiary whose right to the policy’s proceeds can be
cancelled or reduced by the policy owner at any time
before the insured’s death. Contrast with
irrevocable
beneficiary.
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RIDER |
An attachment to an insurance
policy that alters the policy’s coverage or terms.
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RISK |
The chance of loss or the person
or entity that is insured.
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RISK MANAGEMENT |
Management of the varied risks to
which a business firm or association might be subject.
It includes analyzing all exposures to gauge the
likelihood of loss and choosing options to better manage
or minimize loss. These options typically include
reducing and eliminating the risk with safety measures,
buying insurance, and self-insurance.
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RISK RETENTION GROUPS |
Insurance companies that band
together as self-insurers and form an organization that
is chartered and licensed as an insurer in at least one
state to handle liability insurance.
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RISK-BASED CAPITAL |
The need for insurance companies
to be capitalized according to the inherent riskiness of
the type of insurance they sell. Higher-risk types of
insurance, liability as opposed to property business,
generally necessitate higher levels of capital.
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ROLLOVER* |
A direct transfer of retirement
funds from one qualified plan to another plan of the
same type or to an individual retirement arrangement
(IRA) that does not pass through the hands of the owner
and thus does not incur any tax liability for the owner.
Also known as direct rollover and direct transfer.
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S |
Return |
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SALVAGE |
Damaged property an insurer takes
over to reduce its loss after paying a claim. Insurers
receive salvage rights over property on which they have
paid claims, such as badly-damaged cars. Insurers that
paid claims on cargoes lost at sea now have the right to
recover sunken treasures. Salvage charges are the costs
associated with recovering that property.
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SCHEDULE |
A list of individual items or
groups of items that are covered under one policy or a
listing of specific benefits, charges, credits, assets
or other defined items.
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SECONDARY MARKET |
Market for previously issued and
outstanding securities.
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SECTION 1035 EXCHANGE* |
In the United States, a taxfree
replacement of an insurance policy for another insurance
contract covering the same person that is performed in
accordance with the conditions of Section 1035 of the
Internal Revenue Code.
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SECTION 415* |
A section of the Internal Revenue
Code that provides for dollar limitations on benefits
and contributions under qualified retirement plans.
Section 415 also requires that the Internal Revenue
Service annually adjust these limits for cost-of-living
increases.
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SECURITIES AND EXCHANGE
COMMISSION / SEC |
The organization that oversees
publicly-held insurance companies. Those companies make
periodic financial disclosures to the SEC, including an
annual financial statement (or 10K), and a quarterly
financial statement (or 10-Q). Companies must also
disclose any material events and other information about
their stock.
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SECURITIES OUTSTANDING |
Stock held by shareholders.
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SECURITIZATION OF INSURANCE
RISK |
Using the capital markets to
expand and diversify the assumption of insurance risk.
The issuance of bonds or notes to third-party investors
directly or indirectly by an insurance or reinsurance
company or a pooling entity as a means of raising money
to cover risks. (See
catastrophe bonds)
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SEGREGATED ACCOUNT* |
In Canada, an investment account
that insurers maintain separately from a general account
to help manage the funds placed in variable insurance
products such as variable annuities. (See
segregated account)
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SELF-INSURANCE |
The concept of assuming a
financial risk oneself, instead of paying an insurance
company to take it on. Every policyholder is a
self-insurer in terms of paying a deductible and
co-payments. Large firms often self-insure frequent,
small losses such as damage to their fleet of vehicles
or minor workplace injuries. However, to protect injured
employees state laws set out requirements for the
assumption of workers
compensation programs. Self-insurance also refers to
employers who assume all or part of the responsibility
for paying the health insurance claims of their
employees. Firms that self insure for health claims are
exempt from state insurance laws mandating the illnesses
that group health insurers must cover.
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SEPARATE ACCOUNT* |
In the United States, an
investment account maintained separately from an
insurer’s general account to help manage the funds
placed in variable insurance products such as variable
annuities. Contrast with general account. (See
Segregated account)
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SETTLEMENT OPTIONS* |
Choices given to the owner or
beneficiary of a life insurance policy regarding the
method by which the insurer will pay the policy’s
proceeds when the policy owner does not receive the
benefits in one single payment. Typically, the owner can
elect (1) to leave the proceeds with the insurer and
earn a specified interest rate, (2) to have the proceeds
paid in a series of installments for a pre-selected
period, (3) to have the proceeds paid in a pre-selected
sum in a series of installments for as long as the
proceeds last, or (4) to have the insurer tie payment of
the proceeds to the life expectancy of a named
individual through a life annuity. Also known as
optional modes of settlement. (See
Life annuity
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SEVERITY |
Size of a loss. One of the
criteria used in calculating premiums rates.
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SEWER BACK-UP COVERAGE |
An optional part of homeowners
insurance that covers sewers.
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Return |
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SHARED MARKET |
See
residual market
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SHORT-TERM DISABILITY INCOME
INSURANCE* |
A type of disability income
coverage that provides disability income benefits for a
maximum benefit period of from one to five years.
Contrast with long-term disability income insurance.
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SINGLE PREMIUM ANNUITY |
An annuity that is paid in full
upon purchase.
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SINGLE PREMIUM POLICIES* |
A type of life insurance or
annuity contract that is purchased by the payment of one
lump sum. (1) A single-premium deferred annuity (SPDA)
is an annuity contract purchased with a single premium
payment whose periodic income payments generally do not
begin until several years in the future. (2) A single
premium immediate annuity (SPIA) contract is an annuity
contract that is purchased with a single premium payment
and that will begin making periodic income payments one
annuity period after the contract’s issue date.
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SOFT MARKET |
An environment where insurance is
plentiful and sold at a lower cost, also known as a
buyers’ market. (See
property
casualty insurance cycle)
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SOLVENCY |
Insurance companies’ ability to
pay the claims of policyholders. Regulations to promote
solvency include minimum capital
and surplus requirements, statutory accounting
conventions, limits to insurance company investment and
corporate activities, financial ratio tests, and
financial data disclosure.
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SPECIFIED DISEASE COVERAGE* |
A type of health insurance
coverage that provides benefits for the diagnosis and
treatment of a specifically named disease or diseases,
such as cancer. Also known as dread disease coverage.
Contrast with critical illness (CI) insurance.
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SPENDTHRIFT TRUST CLAUSE* |
Life insurance provision that
protects policy payouts from the beneficiary’s
creditors.
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SPLIT-DOLLAR LIFE INSURANCE
PLAN* |
An agreement under which a
business provides individual life insurance policies for
certain employees, who share in paying the cost of the
policies.
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SPREAD OF RISK |
The selling of insurance in
multiple areas to multiple policyholders to minimize the
danger that all policyholders will have losses at the
same time. Companies are more likely to insure perils
that offer a good spread of risk.
Flood insurance is an
example of a poor spread of risk because the people most
likely to buy it are the people close to rivers and
other bodies of water that flood. (See
adverse selection)
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STACKING |
Practice that increases the money
available to pay auto liability claims. In states where
this practice is permitted by law, courts may allow
policyholders who have several cars insured under a
single policy, or multiple vehicles insured under
different policies, to add up the limit of liability
available for each vehicle.
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STANDARD RISK CLASS* |
In insurance underwriting, the
group of proposed insured's who represent average risk
within the context of the insurer’s underwriting
practices and therefore pay average premiums in relation
to others of similar insurability. Contrast with
declined risk class, preferred risk class and
substandard risk class.
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STATUTORY ACCOUNTING PRINCIPLES
/ SAP |
More conservative standards than
under GAAP accounting rules, they are imposed by state
laws that emphasize the present
solvency of insurance companies. SAP helps ensure
that the company will have sufficient funds readily
available to meet all anticipated insurance obligations
by recognizing liabilities earlier or at a higher value
than GAAP and assets later or at a lower value. For
example, SAP requires that selling expenses be recorded
immediately rather than amortized over the life of the
policy. (See admitted assets)
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STOCK INSURANCE COMPANY |
An insurance company owned by its
stockholders who share in profits through earnings
distributions and increases in stock value.
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STRAIGHT LIFE ANNUITY* |
A type of life annuity contract
that provides periodic income payments for as long as
the annuitant lives but provides no benefit payments
after the annuitant’s death. (See
life annuity)
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STRUCTURED SETTLEMENT |
Legal agreement to pay a
designated person, usually someone who has been injured,
a specified sum of money in periodic payments, usually
for his or her lifetime, instead of in a single lump sum
payment. See annuity)
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Return |
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SUBROGATION |
The legal process by which an
insurance company, after paying a loss, seeks to recover
the amount of the loss from another party who is legally
liable for it.
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SUBSTANDARD PREMIUM RATES* |
The premium rates charged
insured's
who are classified as substandard risks. Also known as
special class rates.
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SUBSTANDARD RISK CLASS* |
In insurance underwriting, the
group of proposed insured's who represent a significantly
greater-than-average likelihood of loss within the
context of the insurer’s underwriting practices. Also
known as special class risk. Contrast with declined risk
class, preferred risk class and standard risk class.
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SUICIDE EXCLUSION PROVISION* |
A life insurance policy provision
stating that policy proceeds will not be paid if the
insured dies as the result of suicide as defined within
the policy within a specified period following the date
of policy issue.
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SUPERFUND |
A federal law enacted in 1980 to
initiate cleanup of the nation’s abandoned hazardous
waste dump sites and to respond to accidents that
release hazardous substances into the environment. The
law is officially called the Comprehensive Environmental
Response, Compensation, and Liability Act.
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SUPPLEMENTAL COVERAGE* |
An amount of coverage that adds to
the amount of coverage specified in a basic insurance
policy.
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SURETY BOND |
A contract guaranteeing the
performance of a specific obligation. Simply put, it is
a three-party agreement under which one party, the
surety company, answers to a second party, the owner,
creditor or “obligee,” for a third party’s debts,
default or nonperformance. Contractors are often
required to purchase surety bonds if they are working on
public projects. The surety company becomes responsible
for carrying out the work or paying for the loss up to
the bond “penalty” if the contractor fails to perform.
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SURPLUS |
The remainder after an insurer’s
liabilities are subtracted from its assets. The
financial cushion that protects policyholders in case of
unexpectedly high claims. (See
capital; risk-based
capital)
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SURPLUS LINES |
Property/casualty insurance
coverage that isn’t available from insurers licensed in
the state, called admitted companies, and must be
purchased from a non-admitted carrier. Examples include
risks of an unusual nature that require greater
flexibility in policy terms and conditions than exist in
standard forms or where the highest rates allowed by
state regulators are considered inadequate by admitted
companies. Laws governing surplus lines vary by state.
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SURRENDER CHARGE |
A charge for withdrawals from an
annuity contract before a designated surrender charge
period, usually from five to seven years.
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SURRENDER COST COMPARISON
INDEX* |
A cost comparison index, used to
compare insurance policies, which takes into account the
time value of money and measures the cost of a policy
over a 10- or 20-year period assuming the policy owner
surrenders the policy for its cash value at the end of
the period. Contrast with
net
payment cost comparison index.
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SWAPS |
The simultaneous buying, selling
or exchange of one security for another among investors
to change maturities in a bond portfolio, for example,
or because investment goals have changed.
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T |
Return |
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TAX SHELTERED ANNUITY (TSA)* |
In the United States, a retirement
annuity sold only to organizations offering qualified
retirement plans under section 403(b) of the U.S.
Internal Revenue Code. (See 403(b) plan)
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TAX-DEFERRED BASIS* |
Accumulation of investment income
on which income taxes are not payable until money is
withdrawn from the investment vehicle.
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TEN-DAY FREE LOOK PROVISION* |
See
Free look period
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TERM CERTAIN ANNUITY |
An form of annuity that pays out
over a fixed period rather than when the annuitant dies.
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TERM LIFE INSURANCE |
A form of life insurance that
covers the insured person for a certain period of time,
the “term” that is specified in the policy. It pays a
benefit to a designated beneficiary only when the
insured dies within that specified period which can be
one, five, 10 or even 20 years. Term life policies are
renewable but premiums increase with age.
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TERRITORIAL RATING |
A method of classifying risks by
geographic location to set a fair price for coverage.
The location of the insured may have a considerable
impact on the cost of losses. The chance of an accident
or theft is much higher in an urban area than in a rural
one, for example.
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TERRORISM COVERAGE |
Included as a part of the package
in standard commercial insurance policies before
September 11, 2001 virtually free of charge. Since
September 11, terrorism coverage prices have increased
substantially to reflect the current risk.
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THIRD-PARTY ADMINISTRATOR |
Outside group that performs
clerical functions for an insurance company.
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THIRD-PARTY COVERAGE |
Liability coverage purchased by
the policyholder as a protection against possible
lawsuits filed by a third party. The insured and the
insurer are the first and second parties to the
insurance contract.
(See
first party coverage) |
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TIME DEPOSIT |
Funds that are held in a savings
account for a predetermined period of time at a set
interest rate. Banks can refuse to allow withdrawals
from these accounts until the period has expired or
assess a penalty for early withdrawals.
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TIME LIMIT ON CERTAIN DEFENSES
PROVISION* |
An individual health insurance
policy provision that limits the time during which the
insurer may contest the validity of the contract on the
ground of misrepresentation
in the application or may reduce or deny a claim on the
ground it results from a preexisting condition.
(See
incontestability provision)
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TITLE INSURANCE |
Insurance that indemnifies the
owner of real estate in the event that his or her clear
ownership of property is challenged by the discovery of
faults in the title.
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TORT |
A legal term denoting a wrongful
act resulting in injury or damage on which a civil court
action, or legal proceeding, may be based.
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TORT LAW |
The body of law governing
negligence, intentional interference, and other wrongful
acts for which civil action can be brought, except for
breach of contract, which is covered by contract law.
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TORT REFORM |
Refers to legislation designed to
reduce liability costs through limits on various kinds
of damages and through modification of liability rules.
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Return |
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TOTAL DISABILITY* |
For disability insurance purposes,
an insured’s disability that meets the requirements of
the definition of total disability included in the
disability insurance policy or policy rider and that
qualifies for payment of the specified disability
benefits. When a disability begins, total disability is
usually the complete and continuous inability of an
insured to perform the essential duties of his regular
occupation. After a disability has existed for a
specified period, total disability usually exists only
if the insured is prevented from working at any
occupation for which he is reasonably fitted by
education, training or experience. (See
Disability;
Residual disability)
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TOTAL LOSS |
The condition of an automobile or
other property when damage is so extensive that repair
costs would exceed the value of the vehicle or property.
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TRANSPARENCY |
A term used to explain the way
information on financial matters, such as financial
reports and actions of companies or markets, are
communicated so that they are easily understood and
frank.
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TRAVEL INSURANCE |
Insurance to cover problems
associated with traveling, generally including trip
cancellation due to illness, lost luggage and other
incidents.
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TREASURY SECURITIES |
Interest-bearing obligations of
the U.S. government issued by the Treasury as a means of
borrowing money to meet government expenditures not
covered by tax revenues. Marketable Treasury securities
fall into three categories — bills, notes and bonds.
Marketable Treasury obligations are currently issued in
book entry form only; that is, the purchaser receives a
statement, rather than an engraved certificate.
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TREATY REINSURANCE |
A standing agreement between
insurers and reinsurers. Under a treaty each party
automatically accepts specific percentages of the
insurer’s business.
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TWISTING* |
An illegal insurance sales
practice, in which a sales agent misrepresents the
features of a contract in order to induce the contract
owner to replace his current contract, often to the
disadvantage of the contract owner. (See
Misrepresentation)
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U |
Return |
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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.
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UNBUNDLED CONTRACTS |
A form of annuity contract that
gives purchasers the freedom to choose among certain
optional features in their contract.
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UNDERINSURANCE |
The result of the policyholder’s
failure to buy sufficient insurance. An underinsured
policyholder may only receive part of the cost of
replacing or repairing damaged items covered in the
policy.
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UNDERWRITING |
Examining, accepting, or rejecting
insurance risks and classifying the ones that are
accepted, in order to charge appropriate premiums for
them.
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UNDERWRITING INCOME |
The insurer’s profit on the
insurance sale after all expenses and losses have been
paid. When premiums aren’t sufficient to cover claims
and expenses, the result is an underwriting loss.
Underwriting losses are typically offset by investment
income.
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UNEARNED PREMIUM |
The portion of a premium already
received by the insurer under which protection has not
yet been provided. The entire premium is not earned
until the policy period expires, even though premiums
are typically paid in advance.
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UNINSURABLE RISK |
Risks for which it is difficult
for someone to get insurance. (See
Insurable risk) (See
Insurable risk)
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UNINSURED MOTORISTS COVERAGE |
Portion of an auto insurance
policy that protects a policyholder from uninsured and
hit-and-run drivers.
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UNIVERSAL LIFE INSURANCE |
A flexible premium policy that
combines protection against premature death with a type
of savings vehicle, known as a cash value account, that
typically earns a money market rate of interest. Death
benefits can be changed during the life of the policy
within limits, generally subject to a medical
examination. Once funds accumulate in the cash value
account, the premium can be paid at any time but the
policy will lapse if there isn’t enough money to cover
annual mortality charges and administrative costs.
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UTILIZATION REVIEW |
See
medical
utilization review
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V |
Return |
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VALUED POLICY |
A policy under which the insurer
pays a specified amount of money to or on behalf of the
insured upon the occurrence of a defined loss. The money
amount is not related to the extent of the loss. Life
insurance policies are an example.
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VANDALISM |
The malicious and often random
destruction or spoilage of another person’s property.
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VARIABLE ANNUITY |
An annuity whose contract value or
income payments vary according to the performance of the
stocks, bonds and other investments selected by the
contract owner.
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VARIABLE LIFE INSURANCE |
A policy that combines protection
against premature death with a savings account that can
be invested in stocks, bonds, and money market mutual
funds at the policyholder’s discretion.
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VARIABLE PREMIUM LIFE INSURANCE
POLICY* |
See
intermediate premium life insurance policy
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VARIABLE UNIVERSAL LIFE (VUL)
INSURANCE* |
A form of permanent life insurance
that combines the premium and death benefit flexibility
of universal life insurance with the investment
flexibility and risk of variable life insurance. With
this type of policy, the death benefit and the cash
value fluctuate according to the contract’s investment
performance. Also known as universal life II.
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VIATICAL SETTLEMENT COMPANIES |
Insurance firms that buy life
insurance policies at a steep discount from
policyholders who are often terminally ill and need the
payment for medications or treatments. The companies
provide early payouts to the policyholder, assume the
premium payments, and collect the face value of the
policy upon the policyholder’s death.
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VOID |
A policy contract that for some
reason specified in the policy becomes free of all legal
effect. One example under which a policy could be voided
is when information a policyholder provided is proven
untrue.
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VOLATILITY |
A measure of the degree of
fluctuation in a stock’s price. Volatility is
exemplified by large, frequent price swings up and down.
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VOLCANO COVERAGE |
Most homeowners policies cover
damage from a volcanic eruption.
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VOLUME |
Number of shares a stock trades
either per day or per week.
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W |
Return |
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WAITING PERIOD* |
For a health insurance policy, the
period of time that must pass from the date of policy
issue before benefits are payable to an insured. Also
known as elimination period and probationary period.
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WAIVER |
The surrender of a right or
privilege. In life insurance, a provision that sets
certain conditions, such as disablement, which allow
coverage to remain in force without payment of premiums.
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WAIVER OF PREMIUM FOR
DISABILITY (WP) BENEFIT* |
A supplementary life insurance
policy or annuity contract benefit under which the
insurer promises to give up its right to collect
premiums that become due while the insured is disabled
according to the policy or rider’s definition of
disability.
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WAR RISK |
Special coverage on cargo in
overseas ships against the risk of being confiscated by
a government in wartime. It is excluded from standard
ocean marine insurance and can be purchased separately.
It often excludes cargo awaiting shipment on a wharf or
on ships after 15 days of arrival in port.
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WATER-DAMAGE INSURANCE COVERAGE |
Protection provided in most
homeowners insurance policies against sudden and
accidental water damage, from burst pipes for example.
Does not cover damage from problems resulting from a
lack of proper maintenance such as dripping air
conditioners. Water damage from floods is covered under
separate flood insurance
policies issued by the federal government.
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WEATHER DERIVATIVE |
An insurance or securities product
used as a hedge by energy-related businesses and others
whose sales tend to fluctuate depending on the weather.
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WEATHER INSURANCE |
A type of business interruption
insurance that compensates for financial losses caused
by adverse weather conditions, such as constant rain on
the day scheduled for a major outdoor concert.
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WHOLE LIFE INSURANCE |
The oldest kind of cash value life
insurance that combines protection against premature
death with a savings account. Premiums are fixed and
guaranteed and remain level throughout the policy’s
lifetime.
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WORKERS COMPENSATION |
Insurance that pays for medical
care and physical rehabilitation of injured workers and
helps to replace lost wages while they are unable to
work. State laws, which vary significantly, govern the
amount of benefits paid and other compensation
provisions.
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WRAP-UP INSURANCE |
Broad policy coordinated to cover
liability exposures for a large group of businesses that
have something in common. Might be used to insure all
businesses working on a large construction project, such
as an apartment complex.
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WRITE |
To insure, underwrite, or accept
an application for insurance.
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WRITTEN PREMIUMS |
See
Premiums written
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X |
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XXX REGULATION* |
The National Association of
Insurance Commissioner’s current model valuation law for
life insurance policies, adopted in March 1999. The law
tells insurance companies how much they should hold as a
reserve for each term life insurance policy. The model
has been adopted by most of the states.
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Y |
Return
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YEARLY RENEWABLE TERM (YRT)
INSURANCE* |
One-year term life insurance that
is renewable at the end of the policy term. Also known
as annually renewable term (ART) insurance. (See
Term life insurance)
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400 |
Return |
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401(K) PLAN |
An employer-sponsored retirement
savings plan funded by employee contributions, which may
or may not be matched by the employer. Federal laws
allow employees to invest pretax dollars, up to a stated
maximum each year.
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403(B) PLAN* |
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In the United States, an
arrangement that allows not-for-profit employers and
their employees to make contributions to a tax-deferred
retirement savings plan established for the benefit of
employees. |
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500 |
Return |
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529 SAVINGS PLANS |
State-administered plans designed
to encourage households to save for college education.
Named after a part of the Internal Revenue tax code,
these saving plans allow earnings to accumulate free of
federal income tax and sometimes to be withdrawn to pay
for college costs tax-free. There are two types of
plans: savings and prepaid tuition. Plan assets are
managed either by the state’s treasurer or an outside
investment company. Most offer a range of investment
options.
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| *Terms
marked with an asterisk are from LOMA’s Glossary of Insurance
and Financial Services Terms. Copyright © 2002 LOMA (Life Office
Management Association, Inc.). Used with permission from LOMA.
Click here for more information. |
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