Understanding insurance terms
We at Brewer Insurance Services, Inc. know the language used by the insurance industry can be confusing. We want to make sure that you clearly understand your options and know precisely what you’re paying for.
Here are some terms and their definitions that we use for types of coverage. There are also a variety of other terms that might be unfamiliar to you. We hope this glossary helps make the world of insurance easier to understand.
ACCIDENT AND HEALTH INSURANCE - Coverage for accidental injury, accidental death, and related health expenses. Benefits will pay for preventative services, medical expenses and catastrophic care, with limits.
ACTUAL CASH VALUE - A form of insurance that pays damages equal to the replacement value of damaged property minus depreciation. (See Replacement cost)
Additional Living Expenses - If you can’t live in your home because of a covered loss, your insurance company may pay the necessary increase in living expenses while damage is assessed and your home is repaired or rebuilt.
- Extra charges covered by homeowners policies over and above the policyholder's customary living expenses. They kick in when the insured requires temporary shelter due to damage by a covered peril that makes the home temporarily uninhabitable.
ADJUSTER - An individual employed by a property/casualty insurer to evaluate losses and settle policyholder claims. These adjusters differ from public adjusters, who negotiate with insurers on behalf of policyholders, and receive a portion of a claims settlement. Independent adjusters are independent contractors who adjust claims for different insurance companies.
ADMITTED COMPANY - An insurance company licensed and authorized to do business in a particular state.
AGENT - Insurance is sold by two types of agents: independent agents, who are self-employed, represent several insurance companies and are paid on commission, and exclusive or captive agents, who represent only one insurance company and are either salaried or work on commission. Insurance companies that use exclusive or captive agents are called direct writers.
ALTERNATIVE MARKETS - Nontraditional mechanisms used to finance risk. This includes captives, which are insurers owned by one or more non-insurers to provide owners with coverage. Risk-retention groups, formed by members of similar professions or businesses to obtain liability insurance and selfinsurance, are also included.
ANNUITY - A life insurance product that pays periodic income benefits for a specific period of time or over the course of the annuitant’s lifetime. There are two basic types of annuities: deferred and immediate. Deferred annuities allow assets to grow tax-deferred over time before being converted to payments to the annuitant. Immediate annuities allow payments to begin within about a year of purchase.
Annuitant - Another term you should be familiar with is annuitant. You can guess the meaning of this term quite easily. It is the person who receives the benefits of an annuity or a pension. This also makes him the beneficiary of the annuity. An annuitant can also be the person on which a life insurance contract is based.
Annuity Unit - This is defined by financial experts as the accummulation unit which acts like a sub-account of the person's total annuities. It is a pre-determined and fixed ownership share of the annuitant's portfolio.
To cite an example: Mr. Jones will be retiring shortly. This means, among other things, that he will no longer be earning a salary and therefore needs to withdraw funds from his savings and retirement accounts to pay for his cost of living. Before he retired, he was making regular payments to his life insurance company in order to buy shares of a very large fund portfolio managed by the company. When Mr. Jones wishes to start withdrawing money, he has to convert his total savings into income, but to do this, he has to purchase annuity units with his money - the money that prior to his retirement he was saving as annuity units.
Annuity Contract - The written agreement between an insurance company and a customer outlining each party's obligations is an annuity coverage agreement. This document deals with precise arrangements relating to the type of annuity structure, early withdrawal penalties, provisions for the spouse and other such clauses that typically are covered in the annuity contract.
Like any financial agreement, an insured person benefits significantly from an annuity contract because it is legally binding on both insurer and insured. The insurer is obliged by law to make periodic and regular payments to the insured once the latter reaches retirement age. An annuity contract spells out the terms and conditions of the annuity, hence constitutes good protection for both parties.
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.
403(b) Plan - This is a type of annuity that qualifies as a 403(b) plan. Annuity contracts under this plan are also known as tax-sheltered annuities or tax deferred annuities. People who qualify for this plan are individuals who work for public schools, certain tax-exempt entities and certain religious ministers. This particular plan is also called a tax-sheltered annuity (TSA) plan and can be in the form of an annuity contract (with an insurance company), a custodial account (mutual fund investments) or a retirement income fund set up especially for church workers and employees.
Immediate Payment Annuity - This is a type of annuity contract where a person makes one full payment for a specified payment plan which takes effect immediately. An immediate payment annuity is usually purchased by people who have retired or are close to retiring (around age 65).
APPORTIONMENT - The dividing of a loss proportionately among two or more insurers that cover the same loss.
APPRAISAL - A survey to determine a property’s insurable value, or the amount of a loss.
ARSON - The deliberate setting of a fire.
ASSETS - Property owned, in this case by an insurance company, including stocks, bonds and real estate. Insurance accounting is concerned with solvency and the ability to pay claims. State insurance laws therefore require a conservative valuation of assets, prohibiting insurance companies from listing assets on their balance sheets whose values are uncertain, such as furniture, fixtures, debit balances and accounts receivable that are more than 90 days past due.
At Fault – This definition is pretty straightforward. “At fault” describes the person (or persons) who were at fault for any accident. Typically, the individual found to be at fault (or their insurance company) will pay for the majority of damages to each vehicle.
AUTO INSURANCE POLICY
There are basically six different types of coverages. Some may be required by law. Others are optional. They are:
- Bodily injury liability, for injuries the policyholder causes to someone else.
- Medical payments or Personal Injury Protection (PIP) for treatment of injuries to the driver and passengers of the policyholder’s car.
- Property damage liability, for damage the policyholder causes to someone else’s property.
- Collision, for damage to the policyholder’s car from a collision.
- Comprehensive, for damage to the policyholder’s car not involving a collision with another car (including damage from fire, explosions, earthquakes, floods, and riots), and theft.
- Uninsured motorists coverage, for costs resulting from an accident involving a hit-and-run driver or a driver who does not have insurance.
AVIATION INSURANCE - Commercial airlines hold property insurance on airplanes and liability insurance for negligent acts that result in injury or property damage to passengers or others. Damage is covered on the ground and in the air. The policy limits the geographical area and individual pilots covered.
BINDER - Temporary authorization of coverage issued prior to the actual insurance policy.
BLANKET INSURANCE - Coverage for more than one type of property at one location or one type of property at more than one location. Example: chain store
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.
BOND - A security that obligates the issuer to pay interest at specified intervals and to repay the principal amount of the loan at maturity. In insurance, a form of suretyship. Bonds of various types guarantee a payment or a reimbursement for financial losses resulting from dishonesty, failure to perform and other acts.
BOOK OF BUSINESS - Total amount of insurance on an insurer’s books at a particular point in time.
Broad Form Liability Coverage - Helps protect you from expenses related to injuries or property damage you or your watercraft cause in an accident. Some policies also cover certain accidental fuel spill liabilities and wreckage removal.
BROKER - An intermediary between a customer and an insurance company. Brokers typically search the market for coverage appropriate to their clients. They work on commission and usually sell commercial, not personal, insurance. In life insurance, agents must be licensed as securities brokers/dealers to sell variable annuities, which are similar to stock market-based investments.
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.
BUSINESSOWNERS POLICY / BOP - A policy that combines property, liability and business interruption coverages for small- to medium-sized businesses. Coverage is generally cheaper than if purchased through separate insurance policies.
CAPTIVE AGENT - A person who represents only one insurance company and is restricted by agreement from submitting business to any other company, unless it is first rejected by the agent's captive company. (See Exclusive agent)
CATASTROPHE - Term used for statistical recording purposes to refer to a single incident or a series of closely related incidents causing severe insured property losses totaling more than a given amount, currently $25 million
C.L.U.E. (Comprehensive Loss Underwriting Exchange) is a claims history database created by ChoicePoint that enables insurance companies to access consumer claims information when they are underwriting or rating an insurance policy. It typically contains up to five years of personal auto or personal property claims history.
You can order a C.L.U.E. report:
LexisNexis Personal Reports
Call toll free 1-866-312-8076
Or you can request a copy from the seller of a home you are purchasing.
COLLATERAL - Property that is offered to secure a loan or other credit and that becomes subject to seizure on default. (Also called security.)
Collision Coverage - Pays to repair your auto, classic auto, motorcycle, RV damages caused by an accident. Your agent can help you determine the limits you need based on the agreed value of your vehicle.
COMMERCIAL GENERAL LIABILITY INSURANCE - 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.
COMMERCIAL LINES - 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. (See Commercial multiple peril policy)
COMMERCIAL MULTIPLE PERIL POLICY - Package policy that includes property, boiler and machinery, crime, and general liability coverages.
Comprehensive Coverage - Pays to repair or replace your vehicle if it is stolen, vandalized or damaged in some way other than in a collision. May include loss from fire, cracked windshields, floods, falling objects, and wind.
Continuously Insured – Like the term states, this means that your vehicle has been insured continuously without any break or lapse in coverage.
COVERAGE - Synonym for insurance.
CREDIT - The promise to pay in the future in order to buy or borrow in the present. The right to defer payment of debt.
CREDIT SCORE - The number produced by an analysis of an individual’s credit history. The use of credit information affects all consumers in many ways, including getting a job, finding a place to live, securing a loan, getting telephone service and buying insurance. Credit history is routinely reviewed by insurers before issuing a commercial policy because businesses in poor financial condition tend to cut back on safety, which can lead to more accidents and more claims. Auto and home insurers may use information in a credit history to produce an insurance score. Insurance scores may be used in underwriting and rating insurance policies. (See Insurance score )
CROP-HAIL INSURANCE - Protection against damage to growing crops from hail, fire or lightning provided by the private market. By contrast, multiple peril crop insurance covers a wider range of yield reducing conditions, such as drought and insect infestation, and is subsidized by the federal government.
Custom Parts & Equipment Coverage - Many motorcycle owners like to customize their rides, and some policies pay for customized parts and equipment, often at no extra charge. Ask Brewer Insurance Services, Inc. for details.
DECLARATION - Part of a property or liability insurance policy that states the name and address of policyholder, property insured, its location and description, the policy period, premiums and supplemental information. Referred to as the “dec page.”
DEDUCTIBLE - The amount of loss paid by the policyholder. Either a specified dollar amount, a percentage of the claim amount, or a specified amount of time that must elapse before benefits are paid. The bigger the deductible, the lower the premium charged for the same coverage.
- When you get insurance, you agree to pay up to a certain amount out-of-pocket in case of a loss. This amount is called your “deductible.” The deductible you choose often affects how much you pay for your premium. For example, a higher deductible usually means a lower premium. In the case of a covered loss, you’ll only be required to pay your deductible, and the insurance company usually covers the excess, up to the applicable limit for that loss under your policy.
DEFERRED ANNUITY - An annuity contract, also referred to as an investment annuity, that is purchased either with a single tax-deferred premium or with periodic tax-deferred premiums over time. Payments begin at a predetermined point in time, such as retirement. Money contributed to such an annuity is intended primarily to grow tax-deferred for future use.
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.
Depreciation – This means that the value of your car becomes less over time due to use. Your premiums should also decrease as the age of your car increases.
DIRECT PREMIUMS - Property/casualty premiums collected by the insurer from policyholders, before reinsurance premiums are deducted. Insurers share some direct premiums and the risk involved with their reinsurers.
DIVIDEND - Money returned to policyholders from an insurance company’s earnings. Considered a partial premium refund rather than a taxable distribution, reflecting the difference between the premium charged and actual losses. Many life insurance policies and some property/casualty policies pay dividends to their owners. Life insurance policies that pay dividends are called participating policies.
EARNED PREMIUM - The portion of premium that applies to the expired part of the policy period. Insurance premiums are payable in advance but the insurance company does not fully earn them until the policy period expires.
- The price of an insurance policy, typically charged annually or semiannually.
EARTHQUAKE INSURANCE - Covers a building and its contents, but includes a large percentage deductible on each. A special policy or endorsement exists because earthquakes are not covered by standard homeowners or most business policies.
ECONOMIC LOSS - Total financial loss resulting from the death or disability of a wage earner, or from the destruction of property. Includes the loss of earnings, medical expenses, funeral expenses, the cost of restoring or replacing property and legal expenses. It does not include noneconomic losses, such as pain caused by an injury.
ELIMINATION PERIOD - A kind of deductible or waiting period usually found in disability policies. It is counted in days from the beginning of the illness or injury.
Emergency & Roadside Assistance - For auto, boat and personal watercraft, emergency assistance pays for the cost of towing or emergency service. For RVs, it also covers housing and transportation costs if your RV becomes uninhabitable and covers the loss of personal property in your RV. Some policies also provide roadside assistance for motorcycles.
ENDORSEMENT - A written form attached to an insurance policy that alters the policy's coverage, terms, or conditions. Sometimes called a rider.
EQUITY - In investments, the ownership interest of shareholders. In a corporation, stocks as opposed to bonds.
ESCROW ACCOUNT - Funds that a lender collects to pay monthly premiums in mortgage and homeowners insurance, and sometimes to pay property taxes.
Excess Liability - Sometimes used interchangeably with "umbrella", "excess liability" refers to extended liability coverage. This coverage is meant to supplement your insurance coverage if the damages exceed your liability coverage. Be sure to talk to Brewer Insurance Services, Inc. about what your excess liability covers.
EXCLUSION - A provision in an insurance policy that eliminates coverage for certain risks, people, property classes, or locations.
EXCLUSIVE AGENT - A captive agent, or a person who represents only one insurance company and is restricted by agreement from submitting business to any other company unless it is first rejected by the agent's company. (see captive agent)
EXPERIENCE - Record of losses.
EXPOSURE - Possibility of loss.
EXTENDED COVERAGE - An endorsement added to an insurance policy, or clause within a policy, that provides additional coverage for risks other than those in a basic policy.
EXTENDED REPLACEMENT COST COVERAGE - Pays a certain amount above the policy limit to replace a damaged home, generally 120 percent or 125 percent. Similar to a guaranteed replacement cost policy, which has no percentage limits. Most homeowner policy limits track inflation in building costs. Guaranteed and extended replacement cost policies are designed to protect the policyholder after a major disaster when the high demand for building contractors and materials can push up the normal cost of reconstruction. (See Guaranteed replacement cost coverage)
FARMOWNERS-RANCHOWNERS INSURANCE - Package policy that protects the policyholder against named perils and liabilities and usually covers homes and their contents, along with barns, stables and other structures.
FEDERAL INSURANCE ADMINISTRATION / FIA - Federal agency in charge of administering the National Flood Insurance Program. It does not regulate the insurance industry.
FIDELITY BOND - A form of protection that covers policyholders for losses that they incur as a result of fraudulent acts by specified individuals. It usually insures a business for losses caused by the dishonest acts of its employees.
Fidelity Coverage - Companies and businesses often purchase this coverage to protect them against loss from employee dishonesty (such as theft of money, equipment, or other assets).
FIDUCIARY BOND - A type of surety bond, sometimes called a probate bond, which is required of certain fiduciaries, such as executors and trustees, that guarantees the performance of their responsibilities.
FINANCIAL RESPONSIBILITY LAW - A state law requiring that all automobile drivers show proof that they can pay damages up to a minimum amount if involved in an auto accident. Varies from state to state but can be met by carrying a minimum amount of auto liability insurance.
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.
FIRST-PARTY COVERAGE - Coverage for the policyholder’s own property or person. In no-fault auto insurance it pays for the cost of injuries. In no-fault states with the broadest coverage, the personal injury protection (PIP) part of the policy pays for medical care, lost income, funeral expenses and, where the injured person is not able to provide services such as child care, for substitute services.
FIXED ANNUITY - An annuity that guarantees a specific rate of return. In the case of a deferred annuity, a minimum rate of interest is guaranteed during the savings phase. During the payment phase, a fixed amount of income, paid on a regular schedule, is guaranteed.
FLOATER - Attached to a homeowners policy, a floater insures movable property, covering losses wherever they may occur. Among the items often insured with a floater are expensive jewelry, musical instruments, and furs. It provides broader coverage than a regular homeowners policy for these items.
FLOOD INSURANCE - Coverage for flood damage is available from the federal government under the National Flood Insurance Program but is sold by licensed insurance agents. Flood coverage is excluded under homeowners policies and many commercial property policies. However, flood damage is covered under the comprehensive portion of an auto insurance policy.
FORCED PLACE INSURANCE - Insurance purchased by a bank or creditor on an uninsured debtor's behalf so if the property is damaged, funding is available to repair it.
FRAUD- Intentional lying or concealment by policyholders to obtain payment of an insurance claim that would otherwise not be paid, or lying or misrepresentation by the insurance company managers, employees, agents and brokers for financial gain.
GAP INSURANCE- An automobile insurance option, available in some states, that covers the difference between a car’s actual cash value when it is stolen or wrecked and the amount the consumer owes the leasing or finance company. Mainly used for leased cars. (See Actual cash value )
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.
GLASS INSURANCE - Coverage for glass breakage caused by all risks; fire and war are sometimes excluded. Insurance can be bought for windows, structural glass, leaded glass and mirrors. Available with or without a deductible.
GRADUATED DRIVER LICENSES - Licenses for younger drivers that allow them to improve their skills. Regulations vary by state, but often restrict nighttime driving. Young drivers receive a learner’s permit, followed by a provisional license, before they can receive a standard driver’s license.
GROUP INSURANCE - A single policy covering a group of individuals, usually employees of the same company or members of the same association and their dependents. Coverage occurs under a master policy issued to the employer or association.
GUARANTEE PERIOD - Period during which the level of interest specified under a fixed annuity is guaranteed.
GUARANTEED DEATH BENEFIT - Basic death benefits guaranteed under variable annuity contracts.
GUARANTEED LIVING BENEFIT - A guarantee in a variable annuity that a certain level of annuity payment will be maintained. Serves as a protection against investment risks. Several types exist.
GUARANTEED REPLACEMENT COST COVERAGE - Homeowners policy that pays the full cost of replacing or repairing a damaged or destroyed home, even if it is above the policy limit. (See Extended replacement cost coverage)
GUN LIABILITY - A legal concept that holds gun manufacturers liable for the cost of injuries caused by guns. Several cities have filed lawsuits based on this concept.
HURRICANE DEDUCTIBLE - A percentage or dollar amount added to a homeowners 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.
Identity Theft - Identity theft occurs when someone steals your personal information and uses it to open accounts or incur charges without your permission. Thieves can access your personal information in a variety of ways, such as stealing your personal mail, your wallet, or hacking your computer files. The thief then uses your identity to rack up debt in your name or perhaps to issue fake IDs. For more information on identity theft and tips on prevention visit the FTC’s Identity Theft Site.
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.
IMMEDIATE ANNUITY - A product purchased with a lump sum, usually at the time retirement begins or afterwards. Payments begin within about a year. Immediate annuities can be either fixed or variable.
INCURRED LOSSES - Losses occurring within a fixed period, whether or not adjusted or paid during the same period.
Indemnity - Providing indemnity means to financially restore someone after a loss, through payment, repair or replacement.
INDEPENDENT AGENT - Agent who is self-employed, is paid on commission, and represents several insurance companies. (See Captive agent)
INDIVIDUAL RETIREMENT ACCOUNT/IRA - A tax-deductible savings plan for those who are self-employed, or those whose earnings are below a certain level or whose employers do not offer retirement plans. Others may make limited contributions on a tax-deferred basis. The Roth IRA, a special kind of retirement account created in 1997, may offer greater tax benefits to certain individuals.
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.
Insurance Score - An Credit Based Insurance Score (CBIS) is derived from information on your credit report. It is a number that measures likelihood of having an insurance claim—not a measure of credit worthiness. Insurers use CBIS along with a number of other factors, including driving records, claims history, and the type of home or vehicle owned, to evaluate new and renewal auto and homeowner insurance policies.
Most states have rules about how credit information can be used in insurance. Contact your state’s Department of Insurance for the latest information on your state’s rules.
INLAND MARINE INSURANCE - This broad type of coverage was developed for shipments that do not involve ocean transport. Covers articles in transit by all forms of land and air transportation as well as bridges, tunnels and other means of transportation and communication. Floaters that cover expensive personal items such as fine art and jewelry are included in this category. (See Floater)
INSOLVENCY - Insurer’s inability to pay debts. Insurance insolvency standards and the regulatory actions taken vary from state to state. When regulators deem an insurance company is in danger of becoming insolvent, they can take one of three actions: place a company in conservatorship or rehabilitation if the company can be saved or liquidation if salvage is deemed impossible. The difference between the first two options is one of degree – regulators guide companies in conservatorship but direct those in rehabilitation. Typically the first sign of problems is inability to pass the financial tests regulators administer as a routine procedure.
INSURABLE RISK - Risks for which it is relatively easy to get insurance and that meet certain criteria. These include being definable, accidental in nature, and part of a group of similar risks large enough to make losses predictable. The insurance company also must be able to come up with a reasonable price for the insurance.
INSURANCE - A system to make large financial losses more affordable by pooling the risks of many individuals and business entities and transferring them to an insurance company or other large group in return for a premium.
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-TO-VALUE - Insurance written in an amount approximating the value of the insured property.
INTEGRATED BENEFITS - Coverage where the distinction between job-related and non-occupational illnesses or injuries is eliminated and workers compensation and general health coverage are combined. Legal obstacles exist, however, because the two coverages are administered separately. Previously called twenty-four hour coverage.
INTERMEDIATION - The process of bringing savers, investors and borrowers together so that savers and investors can obtain a return on their money and borrowers can use the money to finance their purchases or projects through loans.
INTERNET INSURER - 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.
INVESTMENT INCOME - Income generated by the investment of assets. Insurers have two sources of income, underwriting (premiums less claims and expenses) and investment income. The latter can offset underwriting operations, which are frequently unprofitable.
JOINT AND SURVIVOR ANNUITY - 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.
JUNK BONDS - Corporate bonds with credit ratings of BB or less. They pay a higher yield than investment grade bonds because issuers have a higher perceived risk of default. Such bonds involve market risk that could force investors, including insurers, to sell the bonds when their value is low. Most states place limits on insurers’ investments in these bonds. In general, because property/casualty insurers can be called upon to provide huge sums of money immediately after a disaster, their investments must be liquid. Less than 2 percent are in real estate and a similarly small percentage are in junk bonds.
Liability Insurance – Liability coverage is automobile insurance that covers property damage and injuries to another party that are result of an accident that was your fault. Essentially, this is required in every state in one form or another. While most states specifically require you to obtain liability insurance, other states require drivers to show “proof of financial responsibility,” effectively making liability insurance required everywhere in the U.S.
Liability Limits – Although you may be covered by car insurance, your policy doesn’t include a blank check. Each policy sets a limit on the amount of money it will pay for damages and injuries. These can vary from policy to policy (and from company to company). Most basic liability coverage is 25/50/25, which means that your insurance company will pay up to $25,000 per injured person, $50,000 per incident, and $25,000 for damaged property. Of course, you can raise your limits, which will also raise your premiums. Each state is different.
Liability & Personal Liability Coverage - For homeowners, this coverage applies if someone is injured or property is damaged and you are to blame. The coverage applies anywhere in the world. When choosing liability coverage for your home, auto, boat, personal watercraft, or RV, consider things like how much money you make and what you own. Your liability coverage should be high enough to protect your belongings if you are sued.
LIMITS - Maximum amount of insurance that can be paid for a covered loss
LINE - Type or kind of insurance, such as personal lines.
LIQUIDATION - Enables the state insurance department as liquidator or its appointed deputy to wind up the insurance company’s affairs by selling its assets and settling claims upon those assets. After receiving the liquidation order, the liquidator notifies insurance departments in other states and state guaranty funds of the liquidation proceedings. Such insurance company liquidations are not subject to the Federal Bankruptcy Code but to each state’s liquidation statutes.
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.
LLOYDS - Corporation formed to market services of a group of underwriters. Does not issue insurance policies or provide insurance protection. Insurance is written by individual underwriters, with each assuming a part of every risk. Has no connection to Lloyd’s of London, and is found primarily in Texas.
LONG-TERM CARE INSURANCE - Coverage that, under specified conditions, provides skilled nursing, intermediate care, or custodial care for a patient (generally over age 65) in a nursing facility or his or her residence.
LOSS- 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.
LOSS COSTS - The portion of an insurance rate used to cover claims and the costs of adjusting claims. Insurance companies typically determine their rates by estimating their future loss costs and adding a provision for expenses, profit, and contingencies.
LOSS OF USE - A provision in homeowners and renters insurance policies that reimburses policyholders for any extra living expenses due to having to live elsewhere while their home is being restored following a disaster.
LOSS RATIO - Percentage of each premium dollar an insurer spends on claims.
LOSS RESERVES - The company’s best estimate of what it will pay for claims, which is periodically readjusted. They represent a liability on the insurer’s balance sheet.
MALPRACTICE INSURANCE - Professional liability coverage for physicians, lawyers, and other specialists against suits alleging negligence or errors and omissions that have harmed clients.
MANAGED CARE - Arrangement between an employer or insurer and selected providers to provide comprehensive health care at a discount to members of the insured group and coordinate the financing and delivery of health care. Managed care uses medical protocols and procedures agreed on by the medical profession to be cost effective, also known as medical practice guidelines.
MANUAL - A book published by an insurance or bonding company or a rating association or bureau that gives rates, classifications, and underwriting rules.
MARINE INSURANCE - Coverage for goods in transit, and for the commercial vehicles that transport them, on water and over land. The term may apply to inland marine but more generally applies to ocean marine insurance. Covers damage or destruction of a ship's hull and cargo and perils include collision, sinking, capsizing, being stranded, fire, piracy, and jettisoning cargo to save other property. Wear and tear, dampness, mold, and war are not included. (See Inland marine and Ocean marine)
MEDIATION - Nonbinding procedure in which a third party attempts to resolve a conflict between two other parties.
MEDICAID - A federal/state public assistance program created in 1965 and administered by the states for people whose income and resources are insufficient to pay for health care.
Medical Coverage (Home) - Covers medical expenses for guests if they are injured on your property, and in certain cases covers people who are injured off of your property. It does not cover healthcare costs for you or other members of your household.
Medical Coverage (Auto, Boat & Personal Watercraft, Motorcycle, RV) - Provides for your passenger and your medical expenses that are the result of an accident.
Medical Payments Coverage (MedPay) – MedPay is very similar to PIP coverage but is available in different states. It will pay for limited medical and funeral expenses that are incurred due to a car accident.
MEDICAL MALPRACTICE INSURANCE - See Malpractice insurance
MEDICAL PAYMENTS INSURANCE - A coverage in which the insurer agrees to reimburse the insured and others up to a certain limit for medical or funeral expenses as a result of bodily injury or death by accident. Payments are without regard to fault.
MEDICAL UTILIZATION REVIEW - The practice used by insurance companies to review claims for medical treatment.
MEDICARE - Federal program for people 65 or older that pays part of the costs associated with hospitalization, surgery, doctors’ bills, home health care, and skilled-nursing care.
MEDIGAP/MEDSUP - Policies that supplement federal insurance benefits particularly for those covered under Medicare.
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).
MORTGAGE-BACKED SECURITIES - Investment grade securities backed by a pool of mortgages. The issuer uses the cash flow from mortgages to meet interest payments on the bonds.
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.NAMED PERIL - Peril specifically mentioned as covered in an insurance policy.
Named Insured/Primary Driver – This is the person (or persons) who are covered to drive the vehicle under the insurance policy. Most of the time, this includes all members of the household who are old enough to drive. “Occasional drivers” are drivers who drive the vehicle occasionally and are also covered under the policy.
NATIONAL FLOOD INSURANCE PROGRAM - Federal government-sponsored program under which flood insurance is sold to homeowners and businesses. (See Adverse selection, Flood insurance )
NEGLIGENCE - Failure to act with the legally required degree of care for others, resulting in harm to them.
NET PREMIUMS WRITTEN - See Premiums written
NO-FAULT - Auto insurance coverage that pays for each driver’s own injuries, regardless of who caused the accident. No-fault varies from state to state. It also refers to an auto liability insurance system that restricts lawsuits to serious cases. Such policies are designed to promote faster reimbursement and to reduce litigation.
NO-FAULT MEDICAL - A type of accident coverage in homeowners policies.
NO-PAY, NO-PLAY - The idea that people who don’t buy coverage should not receive benefits. Prohibits uninsured drivers from collecting damages from insured drivers. In most states with this law, uninsured drivers may not sue for noneconomic damages such as pain and suffering. In other states, uninsured drivers are required to pay the equivalent of a large deductible ($10,000) before they can sue for property damages and another large deductible before they can sue for bodily harm.
NON-ADMITTED ASSETS - Assets that are not included on the balance sheet of an insurance company, including furniture, fixtures, past-due accounts receivable, and agents’ debt balances. (See Assets )
NON-ADMITTED INSURER - Insurers licensed in some states, but not others. States where an insurer is not licensed call that insurer non-admitted. They sell coverage that is unavailable from licensed insurers within the state.
NOTICE OF LOSS - A written notice required by insurance companies immediately after an accident or other loss. Part of the standard provisions defining a policyholder's responsibilities after a loss.
NUCLEAR INSURANCE - Covers operators of nuclear reactors and other facilities for liability and property damage in the case of a nuclear accident and involves both private insurers and the federal government.
NURSING HOME INSURANCE - A form of long-term care policy that covers a policyholder’s stay in a nursing facility
OCCUPATIONAL DISEASE - Abnormal condition or illness caused by factors associated with the workplace. Like occupational injuries, this is covered by workers compensation policies. (See Workers compensation)
OCCURRENCE POLICY - Insurance that pays claims arising out of incidents that occur during the policy term, even if they are filed many years later. (See Claims-made policy )
OCEAN MARINE INSURANCE - Coverage of all types of vessels and watercraft, for property damage to the vessel and cargo, including such risks as piracy and the jettisoning of cargo to save the property of others. Coverage for marine-related liabilities. War is excluded from basic policies, but can be bought back.
OPERATING EXPENSES - The cost of maintaining a business’s property, includes insurance, property taxes, utilities and rent, but excludes income tax, depreciation and other financing expenses.
OPTIONS - Contracts that allow, but do not oblige, the buying or selling of property or assets at a certain date at a set price.
ORDINANCE OR LAW COVERAGE - Endorsement to a property policy, including homeowners, that pays for the extra expense of rebuilding to comply with ordinances or laws, often building codes, that did not exist when the building was originally built. For example, a building severely damaged in a hurricane may have to be elevated above the flood line when it is rebuilt. This endorsement would cover part of the additional cost.
ORDINARY LIFE INSURANCE - A life insurance policy that remains in force for the policyholder’s lifetime.
ORIGINAL EQUIPMENT MANUFACTURER PARTS / OEM - Sheet metal auto parts made by the manufacturer of the vehicle.(See Generic auto parts)
PACKAGE POLICY - A single insurance policy that combines several coverages previously sold separately. Examples include homeowners insurance and commercial multiple peril insurance.
PENSION BENEFIT GUARANTY CORPORATION - An independent federal government agency that administers the Pension Plan Termination Insurance program to ensure that vested benefits of employees whose pension plans are being terminated are paid when they come due. Only defined benefit plans are covered. Benefits are paid up to certain limits.
PENSIONS - Programs to provide employees with retirement income after they meet minimum age and service requirements. Life insurers hold some of these funds. Since the 1970s responsibility for funding retirement has increasingly shifted from employers (defined benefit plans that promise workers a specific retirement income) to employees (defined contribution plans financed by employees that may or may not be matched by employer contributions).
PERIL - A specific risk or cause of loss covered by an insurance policy, such as a fire, windstorm, flood, or theft. A named-peril policy covers the policyholder only for the risks named in the policy in contrast to an all-risk policy, which covers all causes of loss except those specifically excluded.
PERSONAL ARTICLES FLOATER - A policy or an addition to a policy used to cover personal valuables, like jewelry or furs.
Personal Injury Protection (PIP) – If you carry PIP coverage, your car insurance company will pay for the costs of medical and funeral expenses (within specified limits) of the insured driver, passengers in the driver’s car, or pedestrians struck by the insured.
POINT-OF-SERVICE PLAN - Health insurance policy that allows the employee to choose between in-network and out-of-network care each time medical treatment is needed.
POLICY - A written contract for insurance between an insurance company and policyholder stating details of coverage.
POLICYHOLDERS' SURPLUS - The amount of money remaining after an insurer’s liabilities are subtracted from its assets. It acts as a financial cushion above and beyond reserves, protecting policyholders against an unexpected or catastrophic situation.
POLITICAL RISK INSURANCE - Coverage for businesses operating abroad against loss due to political upheaval such as war, revolution, or confiscation of property.
PREMISES - The particular location of the property or a portion of it as designated in an insurance policy.
PREMIUM - The price of an insurance policy, typically charged annually or semiannually. (See Direct premiums; Earned premium; Unearned premium)
PREMIUM TAX - A state tax on premiums paid by its residents and businesses and collected by insurers.
PREMIUMS IN FORCE - The sum of the face amounts, plus dividend additions, of life insurance policies outstanding at a given time.
PREMIUMS WRITTEN - The total premiums on all policies written by an insurer during a specified period of time, regardless of what portions have been earned. Net premiums written are premiums written after reinsurance transactions.
PRIMARY COMPANY - In a reinsurance transaction, the insurance company that is reinsured.
PRIMARY MARKET - Market for new issue securities where the proceeds go directly to the issuer.
PRIME RATE - Interest rate that banks charge to their most creditworthy customers. Banks set this rate according to their cost of funds and market forces.
PRIOR APPROVAL STATES - States where insurance companies must file proposed rate changes with state regulators, and gain approval before they can go into effect.
PRIVATE MORTGAGE INSURANCE - See Mortgage guarantee insurance
PRIVATE PLACEMENT - Securities that are not registered with the Securities and Exchange Commission and are sold directly to investors.
PRODUCT LIABILITY - A section of tort law that determines who may sue and who may be sued for damages when a defective product injures someone. No uniform federal laws guide manufacturer’s liability, but under strict liability, the injured party can hold the manufacturer responsible for damages without the need to prove negligence or fault.
PRODUCT LIABILITY INSURANCE - Protects manufacturers’ and distributors’ exposure to lawsuits by people who have sustained bodily injury or property damage through the use of the product.
PROFESSIONAL LIABILITY INSURANCE - Covers professionals for negligence and errors or omissions that injure their clients.
PROOF OF LOSS - Documents showing the insurance company that a loss occurred.
PROPERTY/CASUALTY INSURANCE - Covers damage to or loss of policyholders’ property and legal liability for damages caused to other people or their property. Property/casualty insurance, which includes auto, homeowners and commercial insurance, is one segment of the insurance industry. The other sector is life/health. Outside the United States, property/casualty insurance is referred to as nonlife or general insurance.
PROPERTY/CASUALTY INSURANCE CYCLE - Industry business cycle with recurrent periods of hard and soft market conditions. In the 1950s and 1960s, cycles were regular with three year periods each of hard and soft market conditions in almost all lines of property/casualty insurance. Since then they have been less regular and less frequent.
PURCHASING GROUP - 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.
Personal Injury Protection (PIP) – If you carry PIP coverage, your car insurance company will pay for the costs of medical and funeral expenses (within specified limits) of the insured driver, passengers in the driver’s car, or pedestrians struck by the insured.
PERSONAL LINES - Property/casualty insurance products that are designed for and bought by individuals, including homeowners and automobile policies. (See Commercial lines)
Personal Property Coverage - Your home is filled with furniture, clothes, sports equipment, and other items that mean a lot to you. This coverage helps repair or replace these items if they are lost, stolen or destroyed as a result of an insured event.
Personal Watercraft (PWC) - A personal watercraft (PWC) is a recreational watercraft that the rider sits or stands on, rather than inside of, as in a boat. Models have an inboard engine driving a pump jet that has a screw-shaped impeller to create thrust for propulsion and steering.
Physical Damage Coverage for Watercraft - Pays to repair the damage done to your watercraft due to an accident. It also generally pays to repair or replace your watercraft for insured situations such as theft, fire, vandalism or other non-collision damages that occur in or out of the water.
Policy Period or Term – This represents the time period for which the insurance policy stays in effect.
Premium - Simply put, a premium is the payment you make in exchange for one term of policy coverage.
PROOF OF LOSS - Documents showing the insurance company that a loss occurred.
Property or Dwelling Coverage -Typically pays to repair or rebuild your home if it’s damaged or destroyed by an insured event.
RATE REGULATION - 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.
RENTERS INSURANCE - A form of insurance that covers a policyholder's belongings against perils such as fire, theft, windstorm, hail, explosion, vandalism, riots, and others. It also provides personal liability coverage for damage the policyholder or dependents cause to third parties. It also provides additional living expenses, known as loss-of-use coverage, if a policyholder must move while his or her dwelling is repaired. It also can include coverage for property improvements. Possessions can be covered for their replacement cost or the actual cash value that includes depreciation.
REPLACEMENT COST - Insurance that pays the dollar amount needed to replace damaged personal property or dwelling property without deducting for depreciation but limited by the maximum dollar amount shown on the declarations page of the policy.
Rider – Also known as an “endorsement,” this is a written agreement attached to the basic policy that could either increase or decrease the amount of benefits that would typically be covered under the policy.
Roadside Assistance – This is usually an addition to your auto insurance policy that provides benefits such as towing, jump-starts, locksmith, and other services in the event that you need them.
SALVAGE - Damaged property an insurer takes over to reduce its loss after paying a claim. Insurers receive salvage rights over property on which they have paid claims, such as badly-damaged cars. Insurers that paid claims on cargoes lost at sea now have the right to recover sunken treasures. Salvage charges are the costs associated with recovering that property.
Scheduled Personal Property Coverage - If you have special possessions such as jewelry, art, antiques or collectibles, you may want to talk to your agent about this additional coverage.
Surcharge - A surcharge is an increase in premium charged by the insurance company which is typically due to at fault accidents or traffic violations.
Umbrella Insurance - Umbrella insurance is the coverage that may kick in when your losses under other insurance policies, such as homeowner’s and auto coverage, have exceeded policy limits.
UNEARNED PREMIUM - The portion of a premium already received by the insurer under which protection has not yet been provided. The entire premium is not earned until the policy period expires, even though premiums are typically paid in advance.
Underwriter/underwriting - Underwriting is the process of assessing risks when deciding whether to issue a policy of insurance.
Uninsured Motorist Coverage (UM) – If another driver is at fault for an accident that results in injuries or death and does not have auto insurance, your uninsured motorist coverage can help you pay for those expenses. Covered persons include you, your passengers and relatives living with you. Limits may apply.
Underinsured Motorist Coverage (UIM) – This type of coverage is basically the same as UM, however it applies when the other driver who is at fault does not have enough insurance to cover the bills. UIM is also subject to the limits that you choose.
Uninsured/Underinsured Motorist Coverage (UMPD) - Pays for damages associated with bodily injury or death from an accident caused by an uninsured, underinsured or hit-and-run driver, as defined by the law in the jurisdiction where the accident occurred, who is at fault. It also covers you if you are hit as a pedestrian.
Unattached Equipment Coverage - Pays to repair or replace equipment that isn’t permanently attached to your boat or personal watercraft. This includes items like life jackets and water-skis.
Glossary of Whole Life Insurance Terms
- Dividends: money paid back from a premium. There are a number of reasons an insurer will pay out a dividend, but usually it is money left over after the fees, charges, and investment goals have been met for the policy in a given period.
- Death benefits: the money the beneficiary receives upon the death of the insured. Most policies have a guaranteed death benefit amount that is supplemented by investment income overtime.
- Estate Planning: taking out a whole life insurance policy in order to cover real estate costs. Many people worry that their family members won't be able to pay outstanding debt on a property or afford the taxes on a property after their passing. Some whole life insurance plans can be used to offset thee costs.
- Indeterminate Premium: an adjustable premium. Under these contracts, the premium can be calculated based on a number of factors. These usually include mortality estimates and investment projections. Most of these plans have a limit that the premium cannot exceed.
- Level Premium: a fixed premium. In this case, the premium is slightly higher in the initial years of the policy but never goes up. The extra money paid at the beginning is used to cover the cost of the policy in later years.
- Limited Payment Insurance: a plan in which premiums are only required for a few years. The policy still covers the insured for life, but they only have to pay a certain number of premiums. For this reason, the premiums are much higher than in other whole life insurance plans.
- Living Benefits: policy money used by the insured. This refers to the withdrawals made by the insured when their need for insurance goes down or they are in need of funds. Living benefits may be paid back as loans or deducted from death benefits.
- Non-Participating Insurance: a low maintenance plan with fixed premiums. Since the cost of this plan is level and relatively low, it does not pay dividends.
- Participating Insurance: a policy that pays out dividends. These plans can have different types of premiums.
- Retirement Funding: the dissolution of the policy to supplement retirement income. Those who no longer need death benefits because of the death of a family member or other circumstances can use their policy to fund their retirement.
- Single Premium: an outright purchase of a policy. A policy can rarely be obtained with only one premium. Obviously, the amount of the payment is rather large, but can vary. Benefits and loans are immediately available to the insured in this case, but the benefits will grow overtime as the money is invested.
- Split Dollar Agreement: a policy placed on an employee by their employer. The employer receives the greater of their premiums or the cash value of the policy. The beneficiary receives the remaining funds.
Sources include Insurance Information Institute