Common Insurance Terms and Definitions
A form of variable annuity contract where the contract holder pays sales charges up front rather than eventually having to pay a surrender charge.
Accelerated Death Benefits
A benefit that can be attached to a life insurance policy that enables the policy holder to receive cash advances against the death benefit in the case of being diagnosed with a terminal illness. Many individuals who choose the accelerated death benefit have less than one year to live and use the money for treatments and other costs needed to stay alive.
An unexpected, unforeseen event not under the control of an insured and resulting in a loss.
In most states, customers who have not had an at-fault accident in the previous five years qualify for this program. Accident forgiveness means that some insurance carriers won’t add a surcharge to your premium after your next at-fault accident.
The number of times an accident occurs. Used by actuaries to predict losses and appropriately base premiums.
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.
Coverage for accidental injury, accidental death, and related health expenses. Benefits will pay for preventative services, medical expenses, and catastrophic care, with limits.
Act of God
Natural occurrence beyond human control or influence. Such acts of nature include hurricanes, earthquakes, and floods.
Actual Cash Value
The fair market value of property; technically, replacement cost less depreciation.
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.
Additional Insured or Additional Interest
A person or an organization, other than the named insured or covered person, who is protected under the named insured’s auto policy. If an auto is leased, the leasing company may want to be listed as an Additional Insured as well as a lien holder or loss payee. This protects the leasing company if it’s named in a lawsuit for an accident caused by a policyholder.
Additional Living Expenses
Extra charges covered by homeowners policies over and above the policyholder’s customary living expenses. They begin when the insured requires temporary shelter due to damage by a covered peril that makes the home temporarily uninhabitable.
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.
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.
An insurance company authorized to do business in the state.
Term used to refer to the other party’s insurance company.
The tendency of those exposed to a higher risk to seek more insurance coverage than those at a lower risk.
Parts or accessories that are not a part of the original factory installed parts.
Agency Management System
A Management Systems is systematic framework designed to manage an organization’s policies, procedures and processes to ensure that the it can fulfill all tasks required to achieve its objectives. Visit Agency Matrix’s website for more information.
An individual who acts as a representative for the company and sells insurance, usually on a commission basis. This individual could be an ‘exclusive’ or ‘non-exclusive’ agent.
The price or cost of repairs agreed to by the Auto Damage adjuster or independent appraiser and the body shop representative.
Alien Insurance Company
An insurance company incorporated under the laws of a foreign country.
Property insurance that is usually bought in conjunction with fire insurance; it includes wind, water damage, and vandalism coverage.
Alternative Dispute Resolution/ADR
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.
Mechanisms used to fund self-insurance. 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, are also a form of self-insurance.
A change to the basic policy contract. An amendment alters the policy; an endorsement adds to it.
Annual Annuity Contract Fee
Covers the cost of administering an annuity contract
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.
The person(s) who receives the income from an annuity contract. Usually the owner of the contract or his or her spouse.
The conversion of the account balance of a deferred annuity contract to income payments.
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.
Annuity Accumulation Phase or Period
The period during which the owner of a deferred annuity makes payments to build up assets.
Annuity Administrative Charges
Covers the cost of customer services for owners of variable annuities.
In certain types of annuities, a person who receives annuity contract payments if the annuity owner or annuitant dies while payments are still due.
A written agreement between an insurance company and a customer outlining each party’s obligations in an annuity coverage agreement. This document will include the specific details of the contract, such as the structure of the annuity (variable or fixed), any penalties for early withdrawal, spousal provisions such as a survivor clause and rate of spousal coverage, and more.
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).
Annuity Death Benefits
The guarantee that if an annuity contract owner dies before annuitization (the switchover from the savings to the payment phase) the beneficiary will receive the value of the annuity that is due.
Annuity Insurance Charges
Covers administrative and mortality and expense risk costs.
Annuity Investment Management Fee
The fee paid for the management of variable annuity invested assets.
The insurance company that issues the annuity.
Legal document providing detailed information about variable annuity contracts. Must be offered to each prospective buyer.
Annuity Purchase Rate
The cost of an annuity based on such factors as the age and gender of the contract owner.
Anti-Lock Braking system (ABS)
A computer-controlled high pressure system that assists the vehicle’s normal braking system. ABS allows all wheels to slow at the same rate, thereby preventing loss of control.
Devices designed either to reduce the chance an auto will be vandalized or stolen, or assist in its recovery. Examples include car alarms, keyless entry, starter disablers, motion detectors, parts of the vehicle etched with the Vehicle Identification Number, and recovery systems.
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.
A signed statement by a prospective insured requested insurance. This can be signed electronically.
The dividing of a loss proportionately among two or more insurers that cover the same loss.
Process that determines the value of property, or the extent of damage, usually performed by an impartial expert.
A process of settling a dispute through an impartial party. It is used as an alternative to litigation.
The deliberate setting of a fire.
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.
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.
A driver or vehicle owner who cannot qualify for insurance in the regular market. He or she must get coverage through a state assigned risk plan which specifies that each company must accept a proportionate share of these drivers/owners.
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.
Means the same as an insured, policyholder, or someone who has an insurance policy.
The party that is legally liable for the damages in an accident.
Auto Damage Adjuster
The auto damage adjuster is responsible for writing the repair estimate for your vehicle. This adjuster will also answer your questions about the repair process, your rental vehicle, or your total loss settlement.
Auto Damage Division
Division of a claims department that handles auto claims.
Auto Insurance Policy
There are basically six different types of coverages. Some may be required by law. Others are optional. They are:
1. Bodily injury liability, for injuries the policyholder causes to someone else.
2. Medical payments or Personal Injury Protection (PIP) for treatment of injuries to the driver and passengers of the policyholder’s car.
3. Property damage liability, for damage the policyholder causes to someone else’s property.
4. Collision, for damage to the policyholder’s car from a collision.
5. 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.
6. Uninsured motorists coverage, for costs resulting from an accident involving a hit-and-run driver or a driver who does not have insurance.
Auto Insurance Premium
The price an insurance company charges for coverage, based on the frequency and cost of potential accidents, theft and other losses. Prices vary from company to company, as with any product or service.
Premiums also vary depending on the amount and type 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
Auto Repair/Claim Repairs
Insurance carriers have programs that maximize convenience when you have an auto insurance claim. It allows you to complete your vehicle’s repair process at one location. Rental vehicle arrangements are available on-site through a rental car agency.
The theft of an auto is a type of loss that is covered under comprehensive coverage.
A form of insurance that protects against losses involving autos. Auto insurance provides protection from losses resulting from owning and operating an auto. The insurance covers losses to the insured’s property and losses for which the insured is liable as a result of owning or operating an auto. (See Car Insurance)
Automobile Insurance Plans
The name for “assigned risk” plans. These are plans set up and monitored by the state to help people who are unable to secure auto insurance through standard insurance carriers. See Assigned Risk.
Automobile Insurance Premium Discounts
A discount offered to drivers for such safeguards as air bags, seat belts, good driving record, anti-theft devices, multiple vehicles, training courses, good grades, group membership, employment or degrees, pre-purchasing, low mileage, and renewal or prior 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.
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.
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.
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.
Basic Auto Policy
Although still used today to insure substandard risks, two-wheel motorized vehicles, and commercial autos, the Basic Auto Policy has been primarily replaced by the Personal Auto Policy, which combines both physical damage coverage and liability insurance for claims arising out of the ownership or use of a vehicle.
0.01 percent of the yield of a mortgage, bond or note. The smallest measure used.
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
A temporary agreement declaring that the policy is in effect. Used in certain cases to protect a policyholder when it is not possible to issue or endorse the policy immediately.
Coverage for more than one type of property at one location or one type of property at more than one location. Example: chain stores.
A publication used for the determination of values for used automobiles and trucks.
An injury sustained by a person.
Bodily Injury Liability Coverage
Portion of an auto insurance policy that covers injuries the policyholder causes to someone else.
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.
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.
An evaluation of a bond’s financial strength, conducted by such major ratings agencies as Standard & Poor’s and Moody’s Investors Service.
Book of Business
Total amount of insurance on an insurer’s books at a particular point in time.
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
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.
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 interruption 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.
A policy that combines property, liability and business interruption coverages for
small- to medium-sized businesses. Coverage is generally cheaper than if purchased through separate insurance policies.
A form of variable annuity contract where the contract holder pays no sales up front or surrender charges. Owners can claim full liquidity at any time.
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.
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.
The markets in which equities and debt are traded.
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.
Insurers that are created and wholly-owned by one or more non-insurers, to provide owners with coverage. A form of self-insurance.
Termination of an insurance contract before the end of the policy period, by the insured or insurer.
A form of insurance that protects against losses involving cars. Car insurance provides protection from losses resulting from owning and operating a car or vehicle. The insurance covers losses to the insured’s property and losses for which the insured is liable as a result of owning or operating a car.
Equal to 365 days of insured coverage for a single vehicle. It is the standard measurement for automobile insurance.
The insurance company or insurer.
A system of coordinating medical services to treat a patient, improve care, and reduce cost. A case manager coordinates health care delivery for patients
1.) A disaster affecting a specific geographic area. Catastrophes often cause injury or even death; most result in extensive property damage. Hurricanes, floods, tornadoes, and even large hailstorms are typical examples of catastrophes.
2.) 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 (per the Insurance Information Institute, iii.org).
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.
A percentage or dollar amount that a homeowner must pay before the insurance policy begins 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.
Probability of catastrophic loss, based on the total number of catastrophes in a state over a 40-year period.
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.
Reinsurance (insurance for insurers) 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.
Cell Phone Insurance
Separate insurance provided to cover cell phones for damage or theft. Policies are often sold with the cell phones themselves.
Certificate of Financial Responsibility
Depending on the state and Motor Vehicle requirement, this is a form certifying that specific coverage has been purchased to meet the state’s Financial Responsibility laws. This could be an SR-22, FR-44, SR-50, or any other State Requirement certification form.
Certificate of Satisfaction
A form signed by the insured when he or she takes delivery of the car from the repairer. It certifies that he or she is satisfied with the vehicle operations, appearance, and visible quality of the repairs.
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.
Chartered Property/Casualty Underwriter/CPCU
A professional designation given by the American Institute for Property and Liability Underwriters. National examinations and three years of work experience are required.
Any request or demand for payment under the terms of the insurance policy.
A person responsible for investigating and settling a claim.
Individual or entity presenting a claim.
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.
A section in an insurance policy that explains, defines or clarifies the conditions of coverage.
Comprehensive Loss Underwriting Exchange (CLUE) report; provides claim history information.
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.
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.
Property that is offered to secure a loan or other credit and that becomes subject to seizure on default. (Also called security.)
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.
Portion of an auto insurance policy that covers the damage to the policyholder’s car from a collision.
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.
Combined Single Limit
Bodily Injury and Property Damage coverage expressed as one single amount of coverage.
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.
Products designed for and bought by businesses. Among the major coverages are boiler and machinery, business interruption, 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 coverages can be purchased separately except business interruption which must be added to a fire insurance (property) policy.
Commercial Multiple Peril Policy
Package policy that includes property, boiler and machinery, crime, and general liability coverages.
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.
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.
A doctrine of law that, in some states, may enable claimants to recover a portion of their damages even when they are partially at fault, or negligent. Each party’s negligence is compared to the others and a claimant’s recovery can be reduced by the percentage of his or her own negligence.
Competitive Auto Repair Parts
Parts made by a company other than the manufacturer of the auto. Parts meet or exceed the quality of the manufacturer’s parts, but cost less. Most insurance carriers guarantee these parts for as long as you own the car.
A term used when an insurance company requests that you submit multiple repair estimates for consideration.
Competitive Sate Fund
A facility established by a state to sell workers compensation in competition with private insurers.
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.
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.
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.
The portion of the insurance contract which outlines the duties and responsibilities of both the insured and the insurance company.
A type of homeowner’s insurance that meets the special needs of condominium owners.
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.
Continuous Coverage or Continuous Liability Insurance
Continuous coverage refers to the length of time you have maintained insurance on your vehicle.
A legal agreement between two parties promising a certain performance in exchange for a certain consideration.
A doctrine of law that, in some states, may prevent claimants from recovering any portion of their damages if they are even partially at fault, or negligent.
Protection and benefits provided in an insurance contract; Synonym for insurance.
This refers to the individuals (named insured, spouse, resident relatives, etc.) insured under a policy contract.
Sheet metal parts that are most often damaged in a car crash.
The promise to pay in the future in order to buy or borrow in the present. The right to defer payment of debt.
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.
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
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.
The number produced by an analysis of an individual’s credit history. The use of credit information affects all consumers in many ways, from getting a job, finding a place to live, securing a loan, getting a telephone, 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.
Term referring to property coverages for the perils of burglary, theft and robbery.
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.
Customized Equipment/Special Equipment
Items not included in standard insurance options available for cars. These may include extra electronic equipment, special paint or exterior items, or amenities added to the inside of a van or truck.
A vehicle that has been altered or has equipment or accessories not typically found in a personal vehicle.
Loss or harm to a person or property.
That page of the insurance policy which lists the insurance company, its address, name of the policyholder, starting and ending dates of coverage, and the actual coverages given in the contract, including the covered locations and amounts.
The part of your policy that includes your name and address; the property that is being insured, its location and description; the policy period; the amount of insurance coverage and the applicable premiums. Referred to as the “dec page.”
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.
Defensive Driver Course
These are classes either offered through or approved by Departments of Motor Vehicles to enhance driving skills. These courses may make drivers eligible for discounts on their premiums. Courses taken for traffic school because of a moving violation are not eligible.
Defensive Driver Discount
Certain drivers (usually over age 50) who have voluntarily taken a defensive driving course may qualify for this discount on their auto insurance premiums.
An annuity under which the annuity payment period is scheduled to begin at some future date.
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.
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.
Customer assets that are held in a checking account. Funds can be readily withdrawn by check, “on demand.”
The conversion of insurance companies from mutual companies owned by their policyholders into publicly-traded stock companies.
Financial institution that obtains its funds mainly through deposits from the public. Includes commercial banks, savings and loan associations, savings banks, and credit unions.
The decrease in value of any property due to wear, tear, and/or time. Generally, depreciation is not an insurable loss.
In insurance, reducing regulatory control over insurance rates and forms. Commercial insurance for businesses of a certain size has been deregulated in many states.
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.
Diminution of Value
The idea that a vehicle loses value after it has been damaged in an accident and repaired.
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.
Direct Sales/Direct Response
Method of selling insurance directly to the insured through an insurance company’s own employees, through the mail, or via the Internet. This is in lieu of using captive or exclusive agents.
Insurance companies that sell directly to the public using exclusive agents or their own employees, through the mail, or via 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.
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, often by shareholders. Directors and officers insurance policies usually contain two coverages: personal coverage for individual directors and officers who are not indemnified by the corporation for their legal expenses or judgments against them – some corporations are not required by their corporate or state charters to provide indemnification; and corporate reimbursement coverage for indemnifying directors and officers. Entity coverage for claims made specifically against the company may also be available.
A reduction in your premium if you or your car meets certain conditions that are likely to reduce the insurer’s losses or expenses. For example, auto insurance discounts are given for cars with auto theft devices and for drivers and passengers who use seat belts.
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.
Domestic Insurance Company
An insurer domiciled in this state.
Optional coverage that broadens the definition of a covered auto to include non-owned vehicles the insured person operates.
State accredited educational course that consist of at least 30 hours of professional classroom instruction.
Driver Improvement Course
A voluntary refresher course available for drivers age fifty-five (55) and older to enhance their driving skills.
State accredited training course that consists of time spent behind-the-wheel with professional instruction.
Driver Training Discount
A discount for people who have taken an approved driver training course. This discount is not available in all states or for all individuals.
An electronic version of your bill that you can review online. Most utility services and banks offer these services.
The sale of products such as insurance over the Internet.
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.
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.
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.
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.
The date that coverage begins on an insurance policy.
The sale of products such as insurance over the Internet.
Electronic Funds Transfer (EFT)
EFT is an electronic payment method that lets you pay your premiums with automatic deductions from your checking account.
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.
Emergency Road Service Coverage
Protection for problems that are not typically handled by your auto insurance, such as: being locked out of your car, towing not related to an accident, having a dead battery
re-charged, inflating a flat tire, filling an empty gas tank. (Also referred to as Towing and Labor)
Employee Dishonesty Coverage
Covers direct losses and damage to businesses resulting from the dishonest acts of employees.
Employee Retirement Income Security Act/ERISA
Federal legislation that protects employees by establishing minimum standards for private pension and welfare plans.
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.
Employment Practices Liability Coverage
Liability insurance for employers that covers wrongful termination, discrimination, or sexual harassment toward the insured’s employees or former employees.
A document, which is attached to the policy and modifies or changes the original policy in some way. Sometimes called a rider.
Environmental Impairment Liability Coverage
A form of insurance designed to cover losses and liabilities arising from damage to property caused by pollution.
In investments, the ownership interest of shareholders. In a corporation, stocks as opposed to bonds
Equity Indexed Annuity
Non-traditional 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.
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.
Funds that a lender collects to pay monthly premiums in mortgage and homeowners insurance, and sometimes to pay property taxes.
As assessment of the cost to repair your damaged property.
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 non-admitted 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.
Section of the insurance policy, which lists property, perils, person, or situations which are not covered under the policy.
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
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 is 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.
Percentage of each premium dollar that goes to insurers’ expenses including overhead, marketing, and commissions.
Can refer to many items such as driving record history or record of losses.
Determination of the premium rate for an individual risk, made partially or wholly on the basis of that risk’s own past claim experience.
The date your coverage ends. There is usually a time of day associated with this date, for example, an expiration date of 5/1/2002 at 12:01am. This means your coverage ends one minute after midnight on the date listed.
Possibility of loss. Insurance companies set rates based upon exposure.
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 Non-Owner Liability
An endorsement that provides broader liability coverage for specifically named people operating any non-owned automobile or trailer. It covers non-owned autos, use of autos to carry people or property for a fee, and individuals driving employer-furnished cars who do not own vehicles themselves.
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.
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.
Fair Access to Insurance Requirement 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.
Family Automobile Policy
Now replaced by the Personal Auto Policy, the Family Auto Policy was a package policy in which both liability and physical damage protection to an insured’s vehicle was offered on one policy.
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.
Reserve balances that depository institutions lend each other, usually on an overnight basis. In addition, Federal funds include certain other kinds of borrowings 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.
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.
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.
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.
An insurance adjuster who works primarily outside of an office and often meets personally with the public. Field adjusters can conduct face-to-face meetings, negotiations with claimants, scene investigations, and damage inspections.
States where insurers must file rate changes with their regulators, but don’t have to wait for approval to put them into effect.
A vehicle financed by a loan. The lender retains a lien on the auto until it has been paid off.
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.
Financial ratings reflect a rating organization’s opinion on the financial strength and ability to meet ongoing obligations to policyholders. The ratings organizations most commonly identified with the insurance industry are AM Best, Standard & Poor’s and Moody’s.
Financial Responsibility Law
Financial responsibility laws require owners and operators of autos to maintain enough money to compensate those they injure. Liability insurance is the most common way to satisfy these requirements.
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.
Coverage protecting property against losses caused by a fire or lightning that is usually included in homeowners or commercial multiple peril policies.
Term used to refer to an insured.
First Party Benefits
This pays policyholders and others covered by the policy in the event of injury, no matter who caused the accident. The benefits can include medical expenses, loss of income, funeral and death benefits. This may also be called Personal Injury Protection.
First Party Claims
A claim for damage, loss or injury made by an insured.
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.
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.
Flat Rate Cancellation
Termination of an insurance contract at inception. This policy is never in effect.
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.
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
Forced Placed Insurance
Insurance purchased by a bank or creditor on an uninsured debtor’s behalf to cover the property, so that the creditor receives payment if the property is damaged or destroyed.
Foreign Insurance Company
An insurer domiciled in another state.
This can be any part of your insurance policy. This may be an SR-22 form or a policy form like your application, declaration page or policy jacket. Typically, all are available in Adobe’s PDF format.
A false statement intended to deceive the insurer and induce it to part with something of value or surrender a legal right. May void a policy.
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.
Number of times a loss occurs. One of the criteria used in calculating premium rates.
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.
Agreement to buy a security for a set price at a certain date. Futures contracts usually involve commodities, indexes or financial futures.
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.
The zip code where your vehicle is parked when not in use and usually corresponds to your primary residence.
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.
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
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.
Graduated Driver Licenses
Licenses for younger drivers that allow them to improve their skills. Regulations vary by state, but often restrict night time driving. Young drivers receive a learner’s permit, followed by a provisional license, before they can receive a standard drivers license.
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.
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.
Good Student Discount
May be awarded to full-time students who maintain a grade average of “B” or better. Each carrier has specific rules that may apply.
All 50 states, the District of Columbia and Puerto Rico require licensed insurers to assume some of an insolvent insurance company’s policyholder liabilities. These funds are used to bail out the policyholders of companies that fail.
Period during which the level of interest specified under a fixed annuity is guaranteed.
Guaranteed Death Period
Basic death benefits guaranteed under variable annuity contracts.
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.
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 exists.
Guaranteed Replacement Cost of 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.
A new legal concept that holds gun manufacturers liable for the cost of injuries caused by guns. Several cities have filed lawsuits based on this concept.
A coverage that protects businesses engaged in electronic commerce from losses caused by hackers.
A seller’s market in which insurance is expensive and in short supply.
Anything that increases the chance of an accident occurring.
Hit and Run
An accident caused by someone who does not stop to assist or provide information.
Homeowners Insurance Policy
The typical homeowners insurance policy covers the house, the garage and other structures on the property, as well as personal possessions inside the house such as furniture, appliances and clothing, against a wide variety of perils including windstorms, 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.
Equal to 365 days of insured coverage for a single dwelling. It is the standard measurement for homeowners insurance.
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.
A card issued by your insurer containing basic information about your insurance policy. Some states require you to keep an ID card in your vehicle.
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.
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.
The date that coverage begins on an insurance policy.
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.
Losses occurring within a fixed period, whether or not adjusted or paid during the same period.
The act of providing compensation for a loss with the intent to restore an individual or entity to the approximate financial position prior to the loss.
Provide financial compensation for losses
A principle of insurance which provides that when a loss occurs, the insured should be restored to the approximate financial condition occupied before the loss occurred, no better, no worse.
An individual who estimates losses on behalf of an insurance company, but is not an employee of that company.
Agent who is self-employed, is paid on commission, and represents several insurance companies.
Individual Retirement Account
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.
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.
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.
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.
Verification of a vehicle’s physical condition.
An organization such as a bank or insurance company that buys and sells large quantities of securities.
Exists when an individual would suffer an economic loss as the result of damage to property or bodily injury.
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.
1.) A system in which groups of people who have similar chances of suffering a loss transfer their risk of loss to an insurer who pools the risk of many people together. In exchange for payment of premium, the insurer promises to reimburse the person for their covered losses.
2.) 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.
The act of falsifying or exaggerating the facts of an accident to an insurance company to obtain payment that would not otherwise be made. Common types of insurance fraud are staged accidents, exaggerated injuries, and inflated medical bills.
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.
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.
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 (1) 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.
Related Study – The Relationship of Credit-Based Insurance Scores to Private Passenger Automobile Insurance Loss Propensity, by EPIC Actuaries, LLC, June 2003
Insurance written in an amount approximating the value of the insured property.
A person or organization covered by an insurance policy.
An organization that provides insurance.
Coverage where the distinction between job-related and non-occupational illnesses or injuries is eliminated and workers compensation and general health coverage are combined. Legal obstacles exist, however, because the two coverages are administered separately. Previously called twenty-four hour coverage.
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.
An insurer that sells exclusively via the Internet.
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.
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.
An annuity with two annuitants, usually spouses. Payments continue until the death of the longest living of the two.
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 coverages, such as medical malpractice
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.
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.
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 coverage’s existence.
A form of variable annuity contract usually with short surrender periods and higher mortality and expense risk charges.
A technique that consists of staggering the maturity dates and the mix of different types of bonds.
Lapse in Coverage
A point in time when a policy has been canceled or terminated for failure to pay the premium, or when the policy contract is void for other reasons.
A vehicle rented under a long-term contract (lease). The leasing company retains ownership of the vehicle and must be shown on your insurance policy as an insured.
Liability imposed by law, as opposed to liability arising from an agreement or contract.
Your lender is the institution to which you make car payments.
Your lessor is the institution to which you make your lease payments.
Any legally enforceable obligation or responsibility for the injury or damage suffered by another person.
The liability adjuster handles the investigation of the accident. These adjusters’ responsibilities can include collision payments, property damage payments, and bodily injury settlements. In some states, these adjusters may also handle the medical portion of your claim.
Insurance providing money on behalf of the policyholder to pay because of bodily injury or property damage caused to another person and covered in the policy.
The process of gathering information to determine the cause of an accident.
A claim, charge, or encumbrance on property as a security for the payment of a debt.
A person or organization with a financial interest in property up to the amount of money borrowed or still owed on the property.
The maximum amount of protection purchased by the insured for a specific coverage.
Limits of Liability
The maximum amount of insurance the insurance company will pay for a particular loss, or for a loss during a period of time.
Line of insurance/Line
The type or kind of insurance such as personal lines, life insurance or homeowners.
Enables the state insurance department as liquidator or its appointed deputy to conclude 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.
The ability and speed with which a security can be converted into cash.
Coverage for bodily injury or property damage caused by an intoxicated person who was served liquor by the policyholder.
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.
Corporation formed to market services of a group of underwriters. May 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.
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.
1.) Any measurable dollar cost of damage and/or injury suffered by a person.
2.) A reduction in the quality or value of a property, or a legal liability.
Loss Adjustment Expenses
The sum insurers pay for investigating and settling insurance claims, including the cost of defending a lawsuit in court.
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.
Loss of Use
Compensation to a third-party claimant for financial consequences resulting from the inability to use property as the result of accident-related damage.
A person or entity with a legally secured insurable interest in another’s property, usually a financial institution that loaned money to buy a car. The car is the loan collateral. If the auto is damaged in an accident, loss payments will be made to you and to the loss payee on your policy.
Percentage of each premium dollar an insurer spends on claims.
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.
Intentional damage of personal property with malice of forethought.
Professional liability coverage for physicians, lawyers, and other specialists against suits alleging negligence or errors and omissions that have harmed clients.
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.
A Management Systems is systematic framework designed to manage an organization’s policies, procedures and processes to ensure that the it can fulfill all tasks required to achieve its objectives. Visit Agency Matrix’s website for more information.
A book published by an insurance or bonding company or a rating association or bureau that gives rates, classifications, and underwriting rules.
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 and Ocean marine)
All property-related damage losses covered by the policy. This includes the following: Property Damage (PD), Comprehensive damage (COMP), Collision damage (COLL), Fire/Theft Combined Additional Coverage (FTCA), Rental Reimbursement (RREUN), or Uninsured Motorist Property Damage (UMPD).
The policyholder/applicant makes a false statement of any material (important) fact on his/her application. For instance, the policyholder provides false information regarding the location where the vehicle is garaged or fails to disclose all the residents in a household.
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.
Mechanical Breakdown Insurance
Covers repairs to all mechanical parts of the car.
Nonbinding procedure in which a third party attempts to resolve a conflict between two other parties.
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.
The medical adjuster is responsible for reviewing all medical bills, replacement/essential services, and lost wages submitted to the company for injuries sustained by you and/or the passengers in your vehicle (depending upon the state in which you live and the coverage on your policy).
Medical Payments Coverage
Pays medical expenses related to an automobile accident. This coverage is subject to the terms, limits and conditions of your policy contract.
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.
Medical Utilization Review
The practice used by insurance companies to review claims for medical treatment.
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.
Policies that supplement federal insurance benefits particularly for those covered under Medicare.
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.
Minimum Limits of Liability
The least amount of liability coverage that can be purchased, which is generally equivalent to the minimum amount required by state law. In determining rates, a carrier will use the basic limits to develop the base rates. If an insured person wants higher limits, the carrier applies an increased limits factor to the base rate in calculating the new premium for the increased coverage.
To make written or verbal statements that are untrue or misleading.
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.
Mortality and Expense (M&E) Risk Charge
A fee that covers such annuity contract guarantees as death benefits.
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).
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.
Investment grade securities backed by a pool of mortgages. The issuer uses the cash flow from mortgages to meet interest payments on the bonds.
Motor Vehicle Record (MVR)
A report from the agency that issues your driver’s license, listing accidents and violations that appear on your driving record. This report is used to verify information provided by insurance applicants and policyholders.
Motorcycle Safety Foundation (MSF)
An international non-profit organization dedicated to motorcycle safety training, research and awareness.
A discount offered by some insurance companies for those with more than one vehicle insured on the same policy. In some cases, if you drive a company car insured by your company, your own insurance company may give you the multi-car discount.
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.
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
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.
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.
Any person, firm or corporation designated by name as the insured person(s) in a policy. Others may be protected by policy definition even though their names aren’t on the policy, such as other drivers operating (with consent) the named insured’s covered auto.
Named Non-Owner Policy
A policy endorsement for one who operates any non-owned automobile on a regular basis, such as driving a car provided by one’s employer.
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.
National Insurance Crime Bureau (NICB)
A not-for-profit organization that partners with insurers and law enforcement agencies to facilitate the identification, detection, and prosecution of insurance criminals. The NICB receives support from over 1,000 property/casualty insurance companies.
The failure to exercise the care that is expected of a reasonable person in similar circumstances.
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. This coverage is not available in all states, check with us to find out more.
A type of accident coverage in homeowners policies.
A statement that is a signed form telling the insurance company there have not been any losses since a certain date. The document usually includes a cancellation date, expiration date, and reinstatement date. etc.
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.
Assets that are not included on the balance sheet of an insurance company, including furniture, fixtures, past-due accounts receivable, and agents’ debt balances
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.
Any vehicle that is not owned, borrowed, or leased by the insured, and which is used primarily for a business purpose.
When an insurer decides not to renew a policy at the end of its policy period.
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.
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.
The person who is not the primary or principal driver of the vehicle.
Abnormal condition or illness caused by factors associated with the workplace. Like occupational injuries, this is covered by workers compensation policies.
An event, or repeated exposure to conditions, which unexpectedly causes injury or damage during the policy period.
Insurance that pays claims arising out of incidents that occur during the policy term, even if they are filed many years later.
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.
The cost of maintaining a business’s property, includes insurance, property taxes, utilities and rent, but excludes income tax, depreciation and other financing expenses.
Contracts that allow, but do not oblige, the buying or selling of property or assets at a certain date at a set price.
Original Equipment Manufacturer Parts/OEM
Auto parts obtained from the original manufacturer of the car or the supplier of the original part.
Ordinance 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.
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.
A single insurance policy that combines several coverages previously sold separately. Examples include homeowners insurance and commercial multiple peril insurance.
Passive Restraint System
A passenger safety system, such as an air-bag, that activates automatically in the event of an accident.
A system proposed in the 1990s in which auto insurance premiums would be paid to state governments through a per-gallon surcharge on gasoline
Your auto insurance premium can be paid using one of our installment payment plans; you make several smaller payments but incur a service fee.
If your car is damaged because of another driver’s negligence and you ask your insurance carrier to settle the claim for damage to your vehicle, we will seek to recover your deductible and our payments from the other party. This process of payment recovery is also called subrogation.
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
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).
Per Occurrence Limit
This refers to the cap amount an insurance company will pay for all claims arising from a single incident. In an automobile accident, it comprises bodily injuries sustained by all parties. When Bodily Injury coverage is purchased in split limits, the second limit is the “per occurrence” limit: e.g. $100,000(per person)/$300,000(per occurrence)
Per Person Limit
This refers to the cap amount an insurance company will pay for any one person’s injuries arising from a single incident. In an automobile accident, it comprises bodily injuries sustained by each person. When Bodily Injury is purchased in split limits, the first limit is the “per person” limit: e.g. $100,000(per person)/$300,000(per occurrence)
A danger or hazard that can cause a loss, for example, a car collision with an object, or a fire. 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.
Personal Articles Floater
A policy or an addition to a policy used to cover personal valuables, like jewelry or furs.
Personal Auto Policy
The most common auto insurance policy sold today. Often referred to as “PAP,” this policy is written in simple wording and provides coverage for liability, medical payments, uninsured/underinsured motorist coverage, and physical damage protection.
Personal Injury Protection
1.) May pay for your medical treatment, lost wages, or other accident-related expenses regardless of who caused the accident. This coverage is subject to the terms, limits and conditions of your policy contract.
2.) Portion of an auto insurance policy that covers the treatment of injuries to the driver and passengers of the policyholder’s car.
Property/casualty insurance products that are designed for and bought by individuals, including homeowners and automobile policies.
Property that is not land or connected to land (real estate), such as furniture or jewelry.
Damage to your covered vehicle from perils including (but not limited to) collision or upset with another vehicle object, fire, vandalism and theft. See our coverage definitions page for more information.
Physical Damage Coverage
Pays for damage to your car; this could be through Collision Coverage or Comprehensive Coverage (Also referred to as Other Than Collision)
Health insurance policy that allows the employee to choose between in-network and out-of-network care each time medical treatment is needed.
The written documents of a contract for insurance between the insurance company and the insured. Such documents include forms, endorsements, riders and attachments.
Any change made to your insurance policy during the period that the policy is in force.
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.
A point in time when a policy has been canceled or terminated for failure to pay the premium, or when the policy contract is void for other reasons.
The maximum amount a policy will pay, either overall or under a particular coverage.
The period of time in which a policy is in effect. (For example, six months or one year).
The length of time that the policy is in force. Most companies offer annual and
One who maintains ownership in an insurance policy. This may refer to the policy owner or those covered under the policy. See also Named Insured.
Political Risk Insurance
Coverage for businesses operating abroad against loss due to political upheaval such as war, revolution, or confiscation of property.
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.
The state of the vehicle before the accident, including damage not related to the accident, mileage, options, and other factors.
Any risk considered to be better than the standard risk on which the premium rate was calculated.
Preferred Provider Organization
Network of medical providers which charge on a fee-for-service basis, but are paid on a negotiated, discounted fee schedule.
The particular location of the property or a portion of it as designated in an insurance policy.
The price of insurance an insured person pays for a specified risk for a specified period of time.
When a policyholder contracts with a lender to pay the insurance premium on his/her behalf. The policyholder agrees to repay the lender for the cost of the premium, plus interest and fees.
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.
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.
In a reinsurance transaction, the insurance company that is reinsured.
Insurance that must be maintained as a condition of the most Personal Umbrella Policies. Primary insurance acts as the first layer of coverage on common types of losses. This usually includes auto, motorcycle and homeowner insurance, but may also include boat insurance, commercial liability or some other policy. Please check your insurance policy documents for more detailed information.
Market for new issue securities where the proceeds go directly to the issuer.
What your vehicle is mainly used for (pleasure, to and from work, business, commercial, or farm).
Interest rate that banks charge to their most creditworthy customers. Banks set this rate according to their cost of funds and market forces.
The person who drives the car most often.
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 Passenger Automobile
A four-wheeled motor vehicle that is subject to motor vehicle registration and used for private personal use.
Securities that are not registered with the Securities and Exchange Commission and are sold directly to investors
Private Passenger Autos
Ordinary cars, station wagons and jeeps, utility autos (pick-ups, panel trucks and delivery vans of 1,500 lbs. or less, not used commercially) and utility trailers designed to be pulled by a private passenger auto.
Pro Rata Cancellation
Termination of an insurance contract before the policy expiration date on which the premium returned to the insured person is adjusted in proportion to the amount of time the policy was in effect.
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
A statement made regarding the extent of the claim; it may be requested in accordance with the conditions of the policy.
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.
Property Damage Liability Coverage
Pays for damage to someone else’s property resulting from an accident for which you are at fault and provides you with a legal defense. This coverage is subject to the terms, limits and conditions of your policy contract.
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.
An act or omission initiating an unbroken sequence of events resulting in injury to a person or damage to property.
An entity that offers insurance to groups of similar businesses with similar exposures to risk.
Pure Life Annuity
A form of annuity that ends payments when the annuitant dies. Payments may be fixed or variable.
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.
A statement of the premium that will be charged for insurance coverages based on specific information provided by the person requesting the quote including drivers, vehicles, and driving record.
1.) Often used as a synonym for premium but actually refers to the base rating units that are used to determine the final premium.
2.) 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.
The process by which states monitor insurance companies’ rate changes, done either through prior approval or open competition models.
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
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.
The rules that determine the cost of your insurance premium. These rules modify the base rates by applying discounts and surcharges based on your personal characteristics, for example, using your seat belt.
Real Estate Investments
Investments generally owned by life insurers that include commercial mortgage loans and real property.
A reduction of a premium.
Amounts owed to a business for goods or services provided.
A publication used for the determination of values for used automobiles and trucks.
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.
A review of an estimate or appraisal done by an adjuster during or after repairs to a vehicle. This is done to guarantee the accuracy of staff or independent auto damage personnel, and to guarantee that the work required in an estimate or appraisal is being completed by the body shop.
The restoring of a cancelled policy to full force and effect. The reinstatement may be effective after the cancellation date, creating a lapse of coverage. Some companies require evidence of insurability and payment of past due premiums plus interest. They may also require a signed no-loss form.
1.) A form of insurance that insurance companies buy for their own protection, used and required to pay for losses and claims.
2.) 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.
Legally binding contract stating that all obligations past, present or future arising from a particular accident or occurrence have been fulfilled.
The process of keeping an active policy in force through the issuance of a renewal policy.
The date that your insurance policy expires and the date that your renewed policy will begin.
Optional coverage that helps pay rental vehicle costs when your insured vehicle is disabled as the result of a covered accident or loss. Available to most policyholders for an additional premium.
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.
1.) The cost to repair or replace an insured item. Some insurance only pays the actual cash or market value of the item at the time of the loss, not what it would cost to fix or replace it. This will pay the full cost to repair an item or buy a new one to replace the damaged item.
2.) 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.
Several types of parts may be used when your vehicle is repaired: new parts, both original equipment manufacturer and after-market; and recycled parts. New or after-market parts will be used if a carrier can’t find like-kind and quality recycled parts. A 5-year-old car, for instance, would be repaired with parts at least as good as the parts that had been in the car.
The full cost to repair or replace the damaged property with no deduction for depreciation, subject to policy limits and contract provisions.
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.
A company’s best estimate of what it will pay for claims.
Staff adjuster who handles claims in remote areas of a region.
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.
The amount of risk retained by an insurance company that is not reinsured.
The reinsurance bought by reinsurers to protect their financial stability.
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.
Return of Equity
Net income divided by total equity. Measures profitability by showing how efficiently invested capital is being used.
1.) In motorcycle insurance, a rider is someone who will operate the insured motorcycle.
2.) In life and health insurance, the term “rider” is often used to refer to an endorsement to an insurance policy.
The chance of suffering a loss.
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.
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.
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.
A rating system that assigns points for traffic convictions and certain accidents. Similar to a merit-rating plan, each point increases the surcharge percentage to the baseline rates.
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 goods. Salvage charges are the costs associated with recovering that property.
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.
Market for previously issued and outstanding securities.
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.
Stock held by shareholders.
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.
Select Repair Shops
Body shops chosen by your insurance carrier that are authorized to handle the repair of insured vehicles without the need for an inspection by an assigned adjuster. Vehicle owners should always have the right to choose the body shop of their choice.
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.
In umbrella insurance, self-insured retention is similar to a deductible in other types of insurance. The self-insured retention is the amount of damages for which the policyholder is responsible before the umbrella coverage begins to cover a loss.
Size of a loss. One of the criteria used in calculating premiums rates.
Sewer Back-Up COVERAGE
An optional part of homeowners insurance that covers sewers.
Short Rate Cancellation
A policy termination in which the refunded premium is not proportional to the amount of time remaining in the policy period due to the fixed expenses incurred by the company. The insured will generally pay more for each day of coverage than if the policy had remained in force throughout the entire policy period.
Single Premium Annuity
An annuity that is paid in full upon purchase.
An environment where insurance is plentiful and sold at a lower cost, also known as a buyers’ market.
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.
Special Investigation Units
Your insurance carrier helps fight fraud through its special investigation unit, staffed with experts in fraud detection and investigation.
Any insurance coverage with separately stated limits for different types of coverage. Example: an automobile liability policy of 100/300/50 provides a maximum of $100,000 bodily injury coverage per person, $300,000 bodily injury coverage per accident, and a property damage limit of $50,000 per accident.
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.
An SR-22 (CFR) is a certificate mandated by the state to verify that an individual is maintaining auto insurance liability coverage. If a person needs an SR-22 (CFR), they will usually be notified by their state’s Motor Vehicle Department.
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.
Stacking of Limits
The application of more than one policy limit to the same loss or occurrence. In some jurisdictions, courts have required stacking of limits when multiple policies, or multiple policy periods, cover an occurrence. For example, Uninsured motorist bodily injury limits of $100,000/300,000 on two policies owned by the same person may be added together to pay a loss. In this event, the total amount of coverage available for an accident would be $200,000/600,000.
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.
Stock Insurance Company
An insurance company owned by its stockholders who share in profits through earnings distributions and increases in stock value.
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.
A non-contract or per-job adjuster that is typically employed by your insurance carrier to handle claims.
If your car is damaged because of another driver’s negligence and you ask your insurance carrier to settle the claim for damage to your car, we will seek payment recovery (including your deductible) from the other party.
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.
Used to cover damage not included in the original estimate. Most claims settlements do their best to estimate costs, if they are wrong you are entitled to any additional money to settle your claim. This is paid with a supplement.
An extra charge applied by the insurer. For automobile insurance, a surcharge is usually charged for items like accidents, moving violations, or specific risks not handled by normal rating factors.
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.
The remainder after an insurer’s liabilities are subtracted from its assets. The financial cushion that protects policyholders in case of unexpectedly high claims.
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.
A charge for withdrawals from an insurance-based contract before a designated surrender charge period.
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.
The length of time for which a policy or bond is in force.
Term Certain Annuity
A form of annuity that pays out over a fixed period rather than when the annuitant dies.
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.
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.
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.
The unlawful taking of another’s property with the intent to permanently deprive the owner of its use or possession.
Person or entity not party to an agreement but with an interest in the agreement.
Outside group that performs clerical functions for an insurance company.
Third Party Claim
Claims for injury or damage to property of a third party alleged to have been caused by the insured.
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.
Under some no-fault insurance laws, the threshold level represents the degree of injury a claimant must establish before being allowed to sue the negligent party. The threshold may be verbal (regarding the severity of the injuries) or a dollar amount ($10,000), or both. For example, with a threshold of $5,000, an injured person may sue if his/her injuries and other economic damages (rehabilitation expenses, loss of income, etc.) exceed $5,000.
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.
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.
A private wrong or harm (other than a breach of contract) committed against another, resulting in legal liability. A tort is either intentional or accidental (negligent). Automobile liability insurance is purchased to protect one from suits arising from unintentional torts.
One who commits a tort (see the definition of tort).
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.
Refers to legislation designed to reduce liability costs through limits on various kinds of damages and through modification of liability rules.
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.
Towing and Labor Costs
This endorsement, which is added to the physical damage coverage, provides reimbursement up to a specified limit to tow your vehicle or pay for on-site labor costs.
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.
Subject to a daily and maximum dollar limit, this coverage (under the physical damage portion of an automobile policy) pays for transportation expenses incurred by the named insured only in the event of theft of an entire covered auto. Coverage generally begins after a stated minimum waiting period.
Insurance to cover problems associated with traveling, generally including trip cancellation due to illness, lost luggage and other incidents.
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.
A standing agreement between insurers and reinsurers. Under a treaty each party automatically accepts specific percentages of the insurer’s business.
Provides high limits of additional liability coverage above the limits of your homeowner’s and auto policy. In addition, it provides coverage that may be excluded by other liability policies.
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.
A form of annuity contract that gives purchasers the freedom to choose among certain optional features in their contract.
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.
The process an insurer goes through to determine whether or not it will provide coverage for an applicant.
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.
The portion of your premium remaining on your policy term. For example, with a six-month premium, at the end of the first month of the premium period, five-sixths of the premium is unearned by the insurance company. The entire premium is not earned until the policy period expires, even though premiums are typically paid in advance.
Risks for which it is difficult for someone to get insurance.
Uninsured Motorists Coverage
Portion of an auto insurance policy that protects a policyholder from uninsured and
Unsatisfied Judgment Fund
Select state’s laws that reimburse those injured in auto accidents that have been unable to collect from the responsible party.
This refers to the primary function or purpose in which you intend to operate your vehicle. For example, if you primarily drive your car to and from work, the usage is considered “commute; “if you’re self-employed and you primarily drive to see customers, the usage is considered “business;” if you’re retired, your usage is considered “pleasure.”
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.
Destruction or defacement of property.
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.
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.
Vehicle Identification Number (VIN)
A 17-digit number assigned to each vehicle manufactured in the United States after 1980. This number is used for identification purposes and is visible on the dashboard when viewed from the outside of the car. It indicates many identifiers including make, model, options, and year in official records (similar to a social security number).
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.
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.
A measure of the degree of fluctuation in a stock’s price. Volatility is exemplified by large, frequent price swings up and down.
Most homeowners policies cover damage from a volcanic eruption.
Number of shares a stock trades either per day or per week.
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.
Waiver of Collision Deductible
This option pays your collision deductible when you carry collision coverage on a vehicle that is damaged by an uninsured or hit-and-run motorist who is at fault. Coverage applies only when there is actual physical contact and when you can identify the uninsured driver or vehicle.
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.
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.
An insurance or securities product used as a hedge by energy-related businesses and others whose sales tend to fluctuate depending on the weather.
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.
Whole Dollar Premium
Generally, insurance premiums are rounded to the nearest dollar; an amount of 51 cents or more being rounded up to the next dollar, and any amount less than that the cents are dropped.
Insurance which provides coverage for an individual’s whole life, rather than a specified term. 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.
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.
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.
To insure, underwrite, or accept an application for insurance.