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USEFUL INSURANCE TERMS:
'B'
Bad faith: the allegation that insurers have failed to act in good faith, i.e., that they have acted in a manner inconsistent with what a reasonable policyholder would have expected
Bailees Customers Policy: Policy that covers the loss or damage to property of customers regardless of a bailee's legal liability.
Basic Form: see Dwelling Property 1.
Basis: An amount attributed to an asset for income tax purposes; used to determine gain or loss on sale or transfer; used to determine the value of a gift.
Benefit Period: A period of time typically one to three years during which major medical benefits are paid after the deductible is satisfied. When the benefit period ends, the insured must then satisfy a new deductible in order to establish a new benefit period.
Benefits: The amount payable by the insurance company to a claimant, assignee or beneficiary under each coverage.
Binder: A written or oral contract issued temporarily to place insurance in force when it is not possible to issue a new policy or endorse the existing policy immediately. A binder is subject to the premium and all the terms of the policy to be issued.
Binding Receipt: A receipt given for a premium payment accompanying the application for insurance. If the policy is approved, this binds the company to make the policy effective from the date of the receipt.
Blackout Period: The period during which Social Security benefits are not paid to a surviving spouse- between the time the youngest child reaches age sixteen and the widow's sixtieth birthday.
Blanket Contract: A contract of health insurance affording benefits, such as accidental death and dismemberment, for all of a class of persons not individually identified. It is used for such groups as athletic teams, campers, travel policy for employees, etc.
Blanket Medical Expense: A provision which entitles the insured person to collect up to a maximum established in the policy for all hospital and medical expenses incurred, without any limitations on individual types of medical expenses.
Blue Cross: An independent, nonprofit membership corporation providing protection on a service basis against the cost of hospital care in a limited geographical area.
Blue Shield: An independent, non-profit membership corporation providing protection on a service basis against the cost of surgical and medical care in a limited geographical area.
Boat Owners Package Policy: A special package policy for boat owners that combines physical damage insurance, medical expense insurance, liability insurance, and other coverages in one contract.
Boiler and Machinery Insurance: Coverage for loss arising out of the operation of pressure, mechanical, and electrical equipment. It covers loss of the boiler and machinery itself, damage to other property, and business interruption losses.
Bond: A certificate issued by a government or corporation as evidence of a debt. The issuer of the bond promises to pay the bondholder a specified amount of interest for a specified period and to repay the loan on the expiration (maturity) date.
Book of Business: the number, size and type of accounts (policyholders) that an agent "owns."
Book Value: the purchase price minus accounting depreciation
Bordereau: An itemized statement of transactions, today resembling a spreadsheet format, commonly used in reinsurance.
Branch Office System: Type of life insurance marketing system under which branch offices are established in various areas. Salaried branch managers, who are employees of the company, are responsible for hiring and training new agents.
Break in Service: A calendar year, plan year or other consecutive 12-month period designated by the plan during which a plan participant does not complete more than 500 hours of service.
Broad Form: see Dwelling Property 2; Homeowners 2 Policy.
Broker: A marketing specialist who represents buyers of property and liability insurance and who deals with either agents or companies in arranging for the coverage required by the customer.
Burglary: Breaking and entering into another person's property with felonious intent.
Burglary and Theft Insurance: Coverage against property losses due to burglary, robbery, or larceny.
Business income exposure: lost profits resulting from damage to property that halts the business
Business interruption exposure: see Business income exposure
Business Insurance: A policy which primarily provides coverage of benefits to a business as contrasted to an individual. It is issued to indemnify a business for the loss of services of a key employee or a partner who becomes disabled.
Business Interruption Insurance: Protection for a business owner against losses resulting from a temporary shutdown because of fire or other insured peril. The insurance provides reimbursement for lost net profits and necessary continuing expenses.
Business Life Insurance: Life insurance purchased by a business enterprise on the life of a member of the firm. It is often bought by partnerships to protect the surviving partners against loss caused by the death of a partner, or by a corporation to reimburse it for loss caused by the death of a key employee.
Buy-Sell Agreement: An agreement made by the owners of a business to purchase the share of a disabled or deceased owner. The value of each owner's share of the business and the exact terms of the buying-and-selling process are established before death or the beginning of disability.
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'C'
Cafeteria Plan: Generic term for an employee benefit plan that allows employees to select among the various group life, medical expense, disability, dental, and other plans that best meet their specific needs. Also called flexible benefit plans.
Calendar-year Deductible: Amount payable by an insured during a calendar year before a group or individual health insurance policy begins to pay for medical expenses.
Cancelable: A contract of health insurance that may be canceled during the policy term by the insurer or insured.
Cancellation: The discontinuance of an insurance policy before its normal expiration date, either by the insured or the company.
Capacity: The amount of capital available to an insurance company or to the industry as a whole for underwriting general insurance coverage or coverage for specific perils.
Capital Gain: Profit realized on the sale of securities. An unrealized capital gain is an increase in the value of securities that have not been sold.
Capital Retention Approach: A method used to estimate the amount of life insurance to own. Under this method, the insurance proceeds are retained and are not liquidated.
Capitation: A method of payment for health services in which a physician or hospital is paid a fixed, per capita amount for each person served regardless of the actual number of services provided to each person.
Captive Insurance Company: A company owned solely or in large part by one or more non- insurance entities for the primary purpose of providing insurance coverage to the owner or owners.
Captive Insurer: Insurance company established and owned by a parent firm in order to insure its loss exposures while reducing premium costs, providing easier access to a reinsurer, and perhaps easing tax burdens. See also Association captive; Pure captive.
Cargo Insurance: Type of ocean marine insurance that protects the shipper of the goods against financial loss if the goods are damaged or lost.
Career average formula: A pension plan formula that bases retirement benefits on earnings during all years of service to the employer.
Cash Surrender Value: The amount available in cash upon voluntary termination of a policy by its owner before it becomes payable by death or maturity.
Casualty Insurance: Insurance concerned with the insured's legal liability for injuries to others or damage to other persons' property; also encompasses such forms of insurance as plate glass, burglary, robbery and workers' compensation.
Catastrophe: Event which causes a loss of extraordinary magnitude, such as a hurricane or tornado.
Causes-of-loss Form: Form added to commercial property insurance policy that indicates the causes of loss that are covered. There are four causes-of-loss forms: basic, broad, special, and earthquake.
Cede: To transfer all or part of a risk written by an insurer (the ceding, or primary company) to a reinsurer.
Certificate of Insurance: A statement of coverage issued to an individual insured under a group insurance contract, outlining the insurance benefits and principal provisions applicable to the member.
Certified Financial Planner (CFP): Professional who has attained a high degree of technical competency in financial planning and has passed a series of professional examinations. Follow these links for further information in the U.S., Canada, and other countries.
Certified Insurance Counselor (CIC): Professional in property and liability insurance who has passed a series of examinations by the Society of Certified Insurance Counselors.
Cession: Amount of the insurance ceded to a reinsurer by the original insuring company in a reinsurance operation.
Change of Occupation Clause: Provision in a health insurance policy stipulating that if the insured changes to a more hazardous occupation, the benefits are reduced based on the amount of benefits the premium would have purchased for the more hazardous occupation.
Chartered Financial Consultant (ChFC): An individual who has attained a high degree of technical competency in the fields of financial planning, investments, and life and health insurance and has passed ten professional examinations administered by The American College.
Chartered Life Underwriter (CLU): An individual who has attained a high degree of technical competency in the fields of life and health insurance and who is expected to abide by a code of ethics. Must have minimum of three years of experience in life or health insurance sales and have passed ten professional examinations administered by The American College.
Chartered Property and Casualty Underwriter (CPCU): Professional who has attained a high degree of technical competency in property and liability insurance and has passed ten professional examinations administered by the American Institute for Property and Liability Underwriters.
Choice No-Fault: Allows auto insureds the choice of remaining under the tort system or choosing no-fault at a reduced premium.
Claim: A request for payment of a loss which may come under the terms of an insurance contract.
Civil law: the portion of law that deals with interactions between individual. The two branches of civil law are contract law and tort law.
Claims Adjustor: Person who settles claims: an agent, company adjustor, independent adjustor, adjustment bureau, or public adjustor.
Claim-made policy: A liability insurance policy under which coverage applies to claims filed during the policy period.
Class Rating: Rate-making method in which similar insureds are placed in the same underwriting class and each is charged the same rate. Also called manual rating.
Cliff vesting: a pension design in which an employee becomes entitled to full retirement benefits after participating in the plan for the specified period, e.g., five years.
CLU: See Chartered Life Underwriter.
Coinsurance: 1) A provision under which an insured who carries less than the stipulated percentage of insurance to value, will receive a loss payment that is limited to the same ratio which the amount of insurance bears to the amount required; 2) a policy provision frequently found in medical insurance, by which the insured person and the insurer share the covered losses under a policy in a specified ratio, i.e., 80 percent by the insurer and 20 percent by the insured.
Collateral Source Rule: Under this rule, the defendant cannot introduce any evidence that shows the injured party has received compensation from other collateral sources.
Collision Insurance: Protection against loss resulting from any damage to the policyholder's car caused by collision with another vehicle or object, or by upset of the insured car, whether it was the insured's fault or not.
Combined Ratio: Basically, a measure of the relationship between dollars spent for claims and expenses and premium dollars taken in; more specifically, the sum of the ratio of losses incurred to premiums earned and the ratio of commissions and expenses incurred to premiums written. A ratio above 100 means that for every premium dollar taken in, more than a dollar went for losses, expenses, and commissions.
Commercial General Liability Policy (CGL): Commercial liability policy drafted by the Insurance Services Office containing two coverage forms-an occurrence form and a claims-made form.
Commercial Lines: Insurance for businesses, organizations, institutions, governmental agencies, and other commercial establishments.
Commercial Multiple Peril Policy: A package of insurance that includes a wide range of essential coverages for the commercial establishment.
Commercial Package Policy (CPP): A commercial policy that can be designed to meet the specific insurance needs of business firms. Property and liability coverage forms are combined to form a single policy.
Commission: The part of an insurance premium paid by the insurer to an agent or broker for his services in procuring and servicing the insurance.
Commissioner: A state officer who administers the state's insurance laws and regulations. In some states, this regulator is called the director or superintendent of insurance.
Common law: the law that has evolved over time as a result of previous court decisions, rather than having been enacted by a legislative body
Common Stock: Securities that represent an ownership interest in a corporation.
Community Property: A special ownership form requiring that one-half of all property earned by a husband or wife during marriage belongs to each. Community property laws do not generally apply to property acquired by gift, by will, or by descent.
Commutation function: a notation as defined by actuaries to combine various elements of an actuarial computation in a manner that makes a formula look simpler.
Commutation table: a table that combine elements (e.g., interest and mortality) into a single value to facilitate further computations
Company Adjustor: Claims adjustor who is a salaried employee representing only one company.
Comparative Negligence: Under this concept a plaintiff (the person bringing suit) may recover damages even though guilty of some negligence. His or her recovery, however, is reduced by the amount or percent of that negligence.
Completed Operations: Liability arising out of faulty work performed away from the premises after the work or operations are completed. Applicable to contractors, plumbers, electricians, repair shops, and similar firms.
Comprehensive Automobile Insurance: Protection against loss resulting from damage to the insured auto, other than loss by collision or upset.
Comprehensive Major Medical Insurance: A policy designed to give the protection offered by both a basic and a major medical health insurance policy. It is characterized by a low deductible amount, a coinsurance feature, and high maximum benefits.
Comprehensive Medical Expense Insurance: A form of health insurance which provides, in one policy, protection for both basic hospital expense and major medical expense coverages. The major medical part of a comprehensive policy is characterized by a deductible amount, coinsurance, and high maximum benefits.
Comprehensive Personal Liability Insurance: Protection against loss arising out of legal liability to pay money for damage or injury to others for which the insured is responsible. It does not include automobile or business operation liabilities.
Compulsory Auto Liability Insurance: Insurance laws in some states required motorists to carry at least certain minimum auto coverages. This is called "compulsory" insurance.
Compulsory Insurance: Any form of insurance which is required by law.
Compulsory Insurance Law: Law protecting accident victims against irresponsible motorists by requiring owners and operators of automobiles to carry certain amounts of liability insurance in order to license the vehicle and drive legally within the state.
Concealment: Deliberate failure of an applicant for insurance to reveal a material fact to the insurer.
Concurrent Causation: Legal doctrine that states when a property loss is due to two causes, one that is excluded and one that is covered, the policy provides coverage.
Conditional Receipt: A receipt given for premium payments accompanying an application for insurance. If the application is approved as applied for, the coverage is effective as of the date of the prepayment or the date on which the last of the underwriting requirements, such as a medical examination, has been fulfilled.
Conditionally Renewable: Continuance provision of a health insurance policy under which the company cannot cancel the policy during its term but can refuse to renew under certain conditions stated in the contract.
Conditions: Provisions inserted in an insurance contract that qualify or place limitations on the insurer's promise to perform.
Confining Sickness: An illness that confines an insured person to his home or to a hospital.
Conservation: The attempt by the insurer to prevent the lapse of a policy.
Consideration: One of the elements for a binding contract. Consideration is acceptance by the insurance company of the payment of the premium and the statement made by the prospective policyholder in the application.
Consideration Clause: The clause that stipulates the basis on which the company issues the insurance contract. In health policies, the consideration is usually the statements in the application and the payment of premium.
Consequential Loss: Financial loss occurring as the consequence of some other loss. Often called an indirect loss.
Constructive Total Loss: an insurance claim where the value to repair the property exceeds the market value of that property
Contents Broad Form: See Homeowners 4 policy.
Contingent Annuity Option: An option under which an employee may elect to receive, under certain conditions, a reduced amount of annuity with the same income, or a specified fraction, to be paid after his death to another person designated as his contingent annuitant, for that person's lifetime. The contingent annuitant is usually the husband or the wife. (See Joint and Survivor Annuity)
Contingent Beneficiary: The person or persons designated to receive the benefits of a policy or plan if the primary beneficiary dies while the insured is living.
Contingent Employers Liability Insurance: provides payment on behalf of the employer for bodily injury to an employee if that person is ineligible to receive workers compensation benefits, e.g., an "occasional" employee.
Contingent Liability: Liability arising out of work done by independent contractors for a firm. A firm may be liable for the work done by an independent contractor if the activity is illegal, the situation does not permit delegation of authority, or the work is inherently dangerous.
Contingent Owner: The person to succeed as owner of a life insurance policy if the original owner dies.
Contract: A binding agreement between two or more parties for the doing or not doing of certain things. A contract of insurance is embodied in a written document called the policy.
Contract law: the portion of civil law that interprets written agreements between parties and resolves disputes between them.
Contract Holder: The group, entity or person to whom a group annuity contract is issued.
Contract of adhesion: occurs when one party to the contract writes it and offers other parties only the option of acceptance or rejection. In such a circumstance the law interprets any ambiguities in the contract against the party writing it.
Contract Law
Contractual Liability: Legal liability of another party that the business firm agrees to assume by a written or oral contract.
Contribution by Equal Shares: Type of other-insurance provision often found in liability insurance contracts that requires each company to share equally in the loss until the share of each insurer equals the lowest limit of liability under any policy or until the full amount of loss is paid.
Contributory: A group insurance plan issued to an employer under which both the employer and employee contribute to the cost of the plan. Seventy-five percent of the eligible employees must be insured. (See Noncontributory.)
Contractual risk transfer: a major method of loss financing through which a legal agreement is used to transfer risk to another party
Contributory Negligence: Negligence of the damaged person that helped to cause the accident. Some states bar recovery to the plaintiff if the plaintiff was contributorily negligent to any extent. Others apply comparative negligence.
Conversion Privilege: A privilege granted in an insurance policy to convert to a different plan of insurance without providing evidence of insurability. The privilege granted by a group policy is to convert to an individual policy upon termination of group coverage.
Conversion Privilege: The right given to an insured person to change insurance without evidence of medical insurability, usually to an individual policy upon termination of coverage under a group contract.
Convertible Bond: A bond that offers the holder the privilege of converting the bond into a specified number of shares of stock.
Convertible Term Insurance: Term insurance which can be exchanged, at the option of the policyholder and without evidence of insurability, for another plan of insurance. Credit life insurance. Term life insurance issued through a lender or lending agency to cover payment of a loan, installment purchase, or other obligation, in case of death.
Coordination of Benefits (COB): The mechanism used in group health insurance to designate the order in which the multiple carriers are to pay benefits and to prevent duplicate payments.
Corridor Deductible: Major medical plan deductible that excludes benefits provided by a basic plan if both a basic and a supplemental group major medical expense policy are in force.
Cost Basis: An amount attributed to an asset for income tax purposes; used to determine gain or loss on sale or transfer; used to determine the value of a gift
Cost Containment: The controller reduction of inefficiencies in the consumption, allocation, or production of health care services that contribute to higher than necessary costs.
Cost-of-Living Rider: Benefit that can be added to a life insurance policy under which the policyowner can purchase one-year term insurance equal to the percentage change in the consumer price index with no evidence of insurability.
Cost of pure risk: all costs related to pure risk which includes, from the perspective of shareholders, retained risk, loss prevention costs, insurance costs, and more.
Cost of risk: the reduction in business value that arises as a result of risk
Coverage: The scope of protection provided under a contract of insurance; any of several risks covered by a policy.
Coverage for Damage to Your Auto: That part of the personal auto policy insuring payment for damage or theft of the insured automobile. This optional coverage can be used to insure both collision and other-than-collision losses.
Covered: A person covered by a pension plan is one who has fulfilled the eligibility requirements in the plan, for whom benefits have accrued, or are accruing, or who is receiving benefits under the plan.
Covered Expenses: Hospital, medical, and miscellaneous health care expenses incurred by the insured that entitle him/her to a payment of benefits under a health insurance policy. Found most often in connection with major medical plans, the term defines, by either description, reasonableness, or necessity to specify the type and amount of expense which will be considered in the calculation of benefits.
Covered Participant: A person covered by a pension plan is one who has fulfilled the eligibility requirements in the plan, for whom benefits have accrued, or are accruing, or who is receiving benefits under the plan.
CPCU: See Chartered Property and Casualty Underwriter.
Credibility: A statistical measure of the degree to which past results make good forecasts of future results.
Credibility Factor The weight given to an individual insured's past experience in computing premiums for future coverage.
Credit Health Insurance: A form of health insurance on a borrower, usually under an installment purchase agreement. The benefits cover the obligations of the borrower and are payable to the creditor.
Credit Insurance: A guarantee to manufacturers, wholesalers, and service organizations that they will be paid for goods shipped or services rendered. Applies to that part of working capital which is represented by accounts receivable.
Crop-hail Insurance: Protection against damage to growing crops as a result of hail or certain other named perils.
Cross liability clause: obligates an insurer to protect each insured separately.
Cross Purchase Agreement: specifies the terms for the surviving partners or shareholders to buy a deceased's share of the business's ownership.
CSR: Customer service representatives support the work of insurance agents with a variety of tasks that must be done within a company or agency to deliver services to and handle requests from clients.
Current Assumption Whole Life Insurance: Nonparticipating whole life policy in which the cash values are based on the insurer's current mortality, investment, and expense experience. An accumulation account is credited with a current interest rate that changes over time. Also called interest-sensitive whole life insurance.
Currently Insured: Status of a covered person under the Old-age, survivors, and Disability Insurance (OASDI) program who has at least six quarters of coverage out of the last thirteen quarters, ending with the quarter of death, disability, or entitlement to retirement benefits.
Cut-through endorsement: an endorsement to an insurance contract stating that reinsurance proceeds will be paid directly to the named payee in the event of an insurer's insolvency.
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'D'
Damage to Property of Others: Damage covered up to per occurrence for an insured who damages another's property. Payment is made despite the lack of legal liability. Coverage is included in Section II of the homeowners policy.
Death Benefit: A payment made to a designated beneficiary upon the death of the employee annuitant.
Debenture: A bond that is backed only by the general credit of the issuing corporation. No specific property is pledged as security behind the loan.
Declarations: Statements in an insurance contract that provide information about the property or life to be insured and used for underwriting and rating purposes and identification of the property or life to be insured.
Declination: The insurer's refusal to insure an individual after careful evaluation of the application for insurance and any other pertinent factors.
Deductible: An amount which a policyholder agrees to pay, per claim or per accident, toward the total amount of an insured loss.
Deferred Annuity: An annuity providing for the income payments to begin at some specified future date.
Deferred Compensation: Arrangements by which compensation to employees for past or current services is postponed until some future date.
Deferred Group Annuity: A type of group annuity providing for the purchase each year of a paid-up deferred annuity for each member of the group, the total amount received by the member at retirement being the sum of these deferred annuities.
Defined Benefit Plan: A pension plan stating either (1) the benefits to be received by employees after retirement or (2) the method of determining such benefits. The employer's contributions under such a plan are actuarially determined.
Defined Contribution Plan: A plan under which the contribution rate is fixed and benefits to be received by employees after retirement depend to some extent upon the contributions and their earnings.
Dental Insurance: Individual or group plan that helps pay costs of normal dental care as well as damage to teeth from an accident.
Demutualization: the process of changing the legal structure of an insurance company from a mutual form of ownership to a stock form of ownership.
Dependency Period: Period of time following the readjustment period during which the surviving spouse's children are under eighteen and therefore dependent of the parent.
Dependent Benefits: Social Security benefits available to the spouse or children of a Social Security beneficiary.
Deposit Administration Group Annuity: A type of group annuity providing for the accumulation of contributions in an undivided fund out of which annuities are purchased as the individual members of the group retire.
Deposit Premium: The premium deposit paid by a prospective policy holder when an application is made for an insurance policy. It is usually equal, at least, to the first month's estimate premium and is applied toward the actual premium when billed.
Deposit Term Insurance: A form of term insurance, not really involving a "deposit," in which the first-year premium is larger than subsequent premiums. Typically, a partial endowment is paid at the end of the term period. In many cases the partial endowment can be applied toward the purchase of a new term policy, or, perhaps, a whole life policy.
Depreciation: A decrease in the value of property over a period of time due to wear and tear or obsolescence. Depreciation is used to determine the actual cash value of property at time of loss. (See Actual Cash Value)
Diagnosis-Related Groups (DRGs): System that reimburses health cared providers fixed amounts for all care given in connection with standard diagnostic categories.
Difference in Conditions Insurance (DIC): "All-risks" policy that covers other perils not insured by basic property insurance contracts, supplemental to and excluding the coverage provided by underlying contracts.
Direct Loss: Financial loss that results directly from an insured peril.
Direct Placement: Sale of an entire issue of bonds or stock by the issuer to one or a few large institution customers such as an insurance company without trying to market the issue publicly.
Direct Premiums Written: Property and casualty insurance premiums written (less return premiums), without any allowance for premiums for assumed or ceded reinsurance.
Direct Response System: A marketing method where insurance is sold without the services of an agent. Potential customers are solicited by advertising in the mail, newspapers, magazines, television, radio, and other media.
Direct Writer: The industry term for a company which uses its own sales employees to write its policies. Sometimes refers to companies which contract with exclusive agents.
Direct Written Premiums: see Direct Premiums Written
Directors' and Officers' Liability: the exposure of corporate managers to claims from shareholders, government agencies, and employees, and others alleging mismanagement.
Disability: a physical or a mental impairment that substantially limits one or more major life activities of an individual. It may be partial or total. (See Partial Disability; Total Disability.)
Disability Benefit: Periodic payments, usually monthly, payable to participants under some retirement plans, if such participants are eligible for the benefits and become totally and permanently disabled prior to the normal retirement date.
Disability Benefit: A feature added to some life insurance policies providing for waiver of premium, and sometimes payment of monthly income, if the policy holder becomes totally and permanently disabled.
Disability Income Insurance: A form of health insurance that provides periodic payments to replace income when an insured person is unable to work as a result of illness, injury, or disease.
Disability Insured: Status of an individual who is insured for disability benefits under the Old-Age, Survivors, and Disability Insurance (OASDI) program. The covered person must be fully insured and have at least twenty quarters of coverage out of the last forty, ending with the quarter in which the disability occurs. Fewer quarters are required for persons under age thirty.
Disappearing Deductible: Deductible in an insurance contract that provides for a decreasing deductible amount as the size of the loss increases, so that small claims are not paid but large losses are paid in full.
Dismemberment: Loss of body members (limbs), or use thereof, or loss of sight due to injury.
Dismemberment Insurance: A form of health insurance that provides payment in case of loss by bodily injury of one or more body members (such as hands or feet) or the sight of one or both eyes.
Disposable Personal Income: The personal income less personal tax and nontax payments. It is the income available to people for spending and saving.
Diversifiable risk: risk that can be eliminated by investors by holding diversified portfolios
Dividend: A return of part of the premium on participating insurance to reflect he difference between the premium charged and the combination of actual mortality, expense and investment experience. Such premiums are calculated to provide some margin over the anticipated cost of the insurance protection.
Dividend: (1) An amount returned to a policyholder by an insurance company out of its earnings. (2) In capital stock companies, a share of the profits distributed to stockholders.
Dividend: Portion of the premium which is returned to the insured because of favorable experience by the company.
Dividend: A policy holder's share in the insurer's divisible surplus fund apportioned for distribution, which may take the form of a refund of part of the premium on a participating policy. The term is also used for a stockholder's share of the portion of a corporation's earnings that is distributed in cash or additional stock.
Dividend Addition: An amount of paid-up insurance purchased with a policy dividend and added to the face amount of the policy.
Doctrine of reasonable expectations: a legal doctrine that holds policies will be interpreted according to how a reasonable person who is not trained in the law would expect
Dollar Threshold: In no-fault auto insurance states with the dollar threshold, it prevents individuals from suing in tort to recover for pain and suffering unless their medical expenses exceed a certain dollar amount.
Domestic Insurer: An insurance company is a domestic company in the state in which it is incorporated.
Donor: The person making a gift.
Double Indemnity: A policy provision usually associated with death, which doubles payment of a designated benefit when certain kinds of accidents occur.
Double Indemnity: Payment of twice the policy's normal benefit in case of loss resulting from specified causes or under specified circumstances.
Dramshop Law: Law that imputes negligence to the owner of a business that sells liquor in the case that an intoxicated customer causes injury or property damage to another person. Usually excluded from general liability policies.
Dread Disease Insurance: Insurance providing an unallocated benefit, subject to a maximum amount, for expenses incurred in connection with the treatment of specified diseases, such as cancer, poliomyelitis, encephalitis and spinal meningitis.
Driver Education Credit: Student discount or reduction in premium amount for which young drivers become eligible on completion of a driver education course.
Duplication of Benefits: Overlapping or identical coverage of the same, insured under two or more health plans, usually the result of contracts of different insurance companies, service organizations, or pre-payment plans; also known as multiple coverage.
Dwelling Property 1: Property insurance policy that insures the dwelling at actual cash value, other structures, personal property, fair rental value, and certain other coverages. Covers a limited number of perils.
Dwelling Property 2: Property insurance policy that insures the dwelling and other structures at replacement cost. It adds additional coverages and has a greater list of covered perils than the Dwelling Property 1 policy.
Dwelling Property 3: Property insurance policy that covers the dwelling and other structures against direct physical loss from any peril except for those perils otherwise excluded. However, personal property is covered on a named-perils basis.
'E'
Early Retirement: Retirement of a participant prior to the normal retirement date, usually with a reduced amount of annuity. Early retirement is generally allowed at any time during a period of 5 to 10 years preceding the normal retirement date.
Earned Income: Employment income derived from salary, wages, commissions, or fees.
Earned Premium: The part of the total property/casualty policy premium which applies to the portion of the policy period which has already expired.
Earned Premium: The portion of a premium which is the property of an insurance company, based on the expired portion of the policy period. E.g., a premium for a one-year policy beginning July 1 would amount to an earned premium of the following January 1.
Earned Premium: That portion of a policy's premium payment for which the protection of the policy has already been given. For example, an insurance company is considered to have earned 75 percent of an annual premium after a period of nine months of an annual term has elapsed.
Earnings Test (retirement test): Determination of the amount of Social Security benefits payable to a beneficiary after adjusting for earnings. The amount of earnings allowed before his or her benefits is indexed annually; benefits are reduced by $1 for every of earnings (beginning in 1990) above the earnings test threshold.
Economic Loss: The estimated total cost, both insured and uninsured, of mishaps (such as motor vehicle accidents, work accidents, and fires); includes such factors as property damage, funeral expenses, wage loss, insurance administration costs, and medical, hospital and legal costs.
Economic Policy: Special type of participating whole life insurance in which the dividends are used to buy term insurance or paid-up additions equal to the difference between the face amount of the policy and some guaranteed amount.
Effective Date: The date on which the insurance under a policy begins.
Efficient level of risk: the amount of risk remaining after an individual or business pursues activities such as loss control, loss financing, and internal risk reduction, to the point where marginal benefit equals marginal cost
Elements of a Negligent Act: Four elements an injured person must show to prove negligence: existence of a legal duty to use reasonable care, failure to perform that duty, damages or injury to the claimant, and proximate cause relationship between the negligent act and the infliction of damages.
Eligibility Date: The date on which an individual member of a specified group becomes eligible to apply for insurance under the (group life or health) insurance plan.
Eligibility Period: A specified length of time, frequently 31 days, following the eligibility date during which an individual member of a particular group will remain eligible to apply for insurance under a group life or health insurance policy without evidence of insurability.
Eligibility Requirements: This term refers to (1) the conditions which an employee must satisfy to participate in a retirement plan, one such condition begin the completion from 1 to 3 years of service with the employer, another the attainment of a specified age, such as 25, or (2) conditions which an employee must satisfy to obtain a retirement benefit, such as the completion of 15 years of service and the attainment of age 65.
Eligible Employees: Those members of a group who have met the eligibility requirements under a group life or health insurance plan.
Elimination Period: A period of time between the period of disability and the start of disability income insurance benefits, during which no benefits are payable. (See Waiting Period.)
Elimination Period: A specified number of days at the beginning of each period of disability during which no disability income benefits are paid. The elimination period may be as short as a few days or as long as one year or more.
Embedded Value: the sum of these two elements: (1) shareholders' equity considering the assets at market value and (2) in-force life insurance business valued at the present value of future after-tax statutory profits
Embezzlement: Fraudulent use or taking of another's property or money which has been entrusted to one's care.
Employee Dishonesty Coverage Form: Commercial crime insurance form drafted by the Insurance Services Office that covers the loss of money, securities, and other covered property because of any dishonest act of a covered employee or employees.
Employee Retirement Income Security Act (ERISA): Legislation passed in 1974 applying to most private pension and welfare plans that requires certain minimum standards to protect participating employees.
Employers contingent liability insurance: protects the employer for injuries sustained by an employee in the course of employment where he is otherwise not eligible for coverage under a Workers Compensation Act in a jurisdiction where the injury took place.
Employment Stock Ownership Plan (ESOP): A defined contribution pension plan which is designed to invest primarily in employer securities.
Endorsements: An additional piece of paper, not a part of the original contract, which cites certain terms and which, when attached to the original contract, becomes a legal part of that contract.
Endorsement: An amendment of the policy usually by means of a rubber stamp or rider.
Endowment: Life insurance payable to the policyholder if living, on the maturity date stated in the policy, or to a beneficiary if the insured dies prior to that date.
Enrolled Actuary: A person who performs actuarial service for a plan and who is enrolled with the Federal Joint Board for the Enrollment of Actuaries.
Enrollment Card: A document signed by an employee as notice of his/her desire to participate in the benefits of a group insurance plan.
Entire Contract Clause: Provision in life insurance policies stating that the life insurance policy and attached application constitute the entire contract between the parties. Entity Purchase Agreement: specifies the terms for the business to buy back a deceased's share of the business's ownership.
Environmental Impairment Liability Insurance: A form of insurance designed to cover losses and liabilities arising from damage to property by pollution.
Equities: Investments in the form of ownership of property, usually common stocks, as distinguished from fixed income bearing securities, such as bonds or mortgages.
Equity in the Unearned Premium Reserve: Amount by which an unearned premium reserve is overstated because it is established on the basis of gross primium rather than net premium.
ERISA: See Employee Retirement Income Security Act.
Errors and Omissions Insurance: Liability insurance policy that provides protection against loss incurred by a client because of some negligent act, error, or omission by the insured.
Estate: The assets and liabilities of a person left at death.
Estate Planning: Developing a plan to transfer all of your property from one generation to the next or within a generation .
Estoppel: Legal doctrine that prevents a person from denyng the truth of a previous representation of fact, especially when such representation has been relied on by the one to whom the statement was made. Employee Stock Ownership Plan:
Errors and Omissions Insurance: A form of insurance that indemnifies the insured for any loss sustained because of an error or oversight on his or her part.
Evidence of Insurability: Any statement of proof of a person's physical condition and/or other factual information affecting his/her acceptance for insurance.
Excess and Surplus Insurance: (1) Insurance to cover losses above a certain amount, with losses below that amount usually covered by a regular policy. (2) Insurance to cover an unusual or one-time risk, e.g., damage to a musician's hands or the multiple perils of a convention, for which coverage is unavailable in the normal market. (See also "Umbrella liability" and "surplus lines.")
Exclusions: Specific conditions or circumstances listed in the policy for which the policy will not provide benefit payments.
Exclusive Agent: An agent who is employed by one and only one insurance company and who solicits business exclusively for that company.
Exclusive Remedy Doctrine: Doctrine in workers compensation insurance which states that workers compensation benefits should be the exclusive or sole source of recovery for workers who have a job-related accident or disease; doctrine has been eroded by legal decisions.
Exclusion or Exception: Specified conditions or circumstances, listed in the policy, for which the policy will not provide benefits.
Exclusion ratio: The portion of an annuity payment, considered by the tax law to be a return of your initial investment, that is not subject to income tax when received.
Exclusive Provider Organization (EPO): People who belong to an EPO must receive their care from affiliated providers; services rendered by unaffiliated providers are not reimbursed.
Expected claim cost: the expected value of the loss distribution for a particular group of insurance contracts
Expected value: The sum of losses divided by the number of exposures; the average.
Expense Loading: See Loading.
Expense Ratio: The ratio of a company's operating expenses to premiums.
Experience: A term used to describe the relationship, usually expressed as a percent or ratio, of premium to claims for a plan, coverage, or benefits for a stated time period.
Experience Modification Factor: Used in workers compensation rating to reflect the degree to which a particular employer has experience that is better or worse that expected for that industry. Weighted by employer's credibility factor.
Experience Rating: The process of determining the premium rate for a group risk, wholly or partially on the basis of that group's experience.
Experience Refund: A provision in most group policies for the return of premium to the policyholder because of lower than anticipated claims.
Exposure Unit: Unit of measurement used in insurance pricing.
Extended Coverage Insurance: Protection for the insured against property damage caused by windstorm, hail, smoke, explosion, riot, riot attending a strike, civil commotion, vehicle and aircraft. This is provided in conjunction with the fire insurance policy and the various "package" policies.
Extended Nonowned Coverage: Endorsement that can be added to an automobile liability insurance policy that covers the insured while driving any nonowned automobile on a regular basis.
Extended Reporting Period: An additional period of time after policy expiration during which valid claims will be paid under a claims-made policy of liability insurance
Extended Reporting Period Endorsement: Added to a claims-made policy of liability insurance to provide additional period of time during which valid claims will be paid
Extended Term Insurance: A form of insurance available as a nonforfeiture option. It provides the original amount of insurance for a limited period of time.
Extended Unemployment Insurance Benefits: Additional cash benefits paid by federal-state unemployment insurance programs to workers who are involuntarily unemployed and who have exhausted their regular weekly cash benefits during periods oh high unemployent.
Extortion: Surrender of property away from the premises as a result of a threat to do bodily harm to the named insured, relative, or invitee who is being held captive.
Extra Expense Insurance: Type of business income insurance that covers the extra expenses incurred to continue operations after a loss has occurred.
'F'
Face Amount: The amount stated on the face of the policy that will be paid in case of death or at the maturity of the policy. It does not include additional amounts payable under accidental death or other special provisions, or acquired through the application of policy dividends.
Facility: A pooling mechanism for insureds not able to obtain insurance in the voluntary market. Insurers write and issue policies but cede premium and losses on those policies to a central pool in which all insurers share.
Facility of Payment: A contractual provision that allows the insurer, under stated conditions, to pay insurance benefits of up to $1,000 to a person or persons other than the insured, the designated beneficiary, or the insured's estate.
Factory Mutual: Mutual insurance company insuring only properties that meet high underwriting standards. Emphasizes loss prevention.
Facultative Reinsurance: A type of reinsurance in which the reinsurer can accept or reject any risk presented by an insurance company seeking reinsurance.
FAIR Plan: A facility, operating under a program of the government and the insurance industry, to make fire insurance and other forms of property insurance readily available to persons and businesses for whom such insurance is not easily available or affordable.
FAIR Plan: A facility, operating under a government-insurance industry cooperative program, to make fire insurance and other forms of property insurance readily available to persons who have difficulty obtaining such coverage.
Fair premium: the premium level that is just sufficient to fund an insurerط·آ£ط¢آ¢ط£آ¢أ¢â‚¬ع‘ط¢آ¬ط£آ¢أ¢â‚¬â€چط¢آ¢s expected costs and provide insurance company owners with a fair return on their invested capital.
Fair Rental Value: Amount payable to an insured homeowner for loss of rental income due to damage that makes the premises uninhabitable.
Family Expense Policy: A policy which insures both the policyholder and his/her immediate dependents (usually spouse and children).
Family Income Policy: Special life insurance policy combining decreasing term and whole life insurance that pays a monthly income of for each of life insurance if the insured dies within the specified period. The monthly income is paid to the end of the period, at which time the face amount of insurance is paid.
Family Policy: A life insurance policy providing insurance on all or several family members in one contract, generally whole life insurance on the principal breadwinner and small amounts of term insurance on the other spouse and children, including those born after the policy is issued.
Family Purpose Doctrine: Concept that imputes negligence committed by immediate family members while operating a family car to the owner of the car.
Farm Mutual: Local mutual insurance company that insures farm property in a limited geographical area primarily through assessable policies.
Farmowners-Ranchowners Policy: A package policy for a farm or a ranch, providing property and liability coverages against personal and business losses.
Federal Crime Insurance: Insurance against burglary, larceny, and robbery losses offered by the federal government where the Federal Insurance Administration has determined that an insurance availability problem exists.
Federal Crop Insurance: Comprehensive coverage at rates subsidized by the federal government for unavoidable crop losses, including those that result from hail, wind, excessive rain, drought, freezes, plant disease, snow, floods, and earthquake.
Federal Flood Insurance: Insurance sold by private insurers with rates subsidized by the federal government to persons who reside in flood zones and whose community joins the program and agrees to establish and enforce flood control and land-use measures.
Federal Surety Bond: Type of surety bond required by federal agencies that regulates the actions of business firms. It guarantees that the bonded party will comply with federal standards, pay all taxes or duties accrued, or pay any penalty if the bondholder fails to pay.
Federal-servant Doctrine: Common law defense blocking an injured employee from collecting workers compensation benefits if he or she sustained an injury caused in any way by the negligence of a fellow worker.
Fidelity Bond: A form of protection which reimburses an employer for losses caused by dishonest or fraudulent acts of employees.
Fiduciary: A person who holds something in trust for another.
Fidelity Bond: Bond that protects an employer against dishonest or fraudulent acts of employees, such as embezzlement, fraud, or theft of money.
Final average formula: A pension plan formula that bases retirement benefits on earnings during recent years of employment.
Final Release: a legal contract, between two or more parties, acknowledging the termination of a claimant's right to sue against the released party. Typically issued in exchange for a settlement payment.
Financial Responsibility Law: A state law under which a person involved in an automobile accident may be required to furnish security up to certain minimum dollar limits.
Financial Responsibility Law: A state law which may require motorists to furnish evidence, either before or after involvement in an auto accident (depending on the individual state's law), of ability to pay for damages up to certain minimum dollar limits. These requirements commonly are met by carrying auto liability insurance with specified minimum limits or more.
Fire: A combustion accompanied by a flame or glow, which escapes its normal confines to cause damage.
Fire Insurance: Coverage for losses caused by fire and lightning, plus resultant damage caused by smoke and water.
Fire Legal Liability: Liability of a firm or person for fire damage caused by negligence of and damage to property of others. First party claim: a demand made by a policyholder reporting an insured event directly to his company.
First Party Coverage: An insurance coverage under which the policyholder collects compensation for losses from the insured's own insurer rather than from the insurer of the person who caused the accident.
Fixed Amount Option: Life insurance settlement option in which the policy proceeds are paid out in fixed amounts..
Fixed Annuity: Annuity whose periodic payment is a quaranteed fixed amount.
Fixed Period Option: Life insurance settlement option in which the policy proceeds are paid out in fixed amounts.
Flat Schedule: A type of schedule in group insurance under which everyone is insured for the same benefits regardless of salary, position, or other circumstances.
Flexible Premium Policy or Annuity: A life accident policy or annuity under which the policyholder or contractholder may vary the amounts or timing of premium payments.
Flexible Premium Variable Life Insurance: A life insurance policy that combines the premium flexibility feature of universal life insurance with the equity-based benefit feature of variable life insurance.
Flex-rating Law: Type of rating law in which prior approval of the rates is required only if the rates exceed a certain percentage above and below the rates previously filed.
Floaters: Insurance policies that cover property that can be moved from one location to another for both transportation perils and perils affecting property at a fixed location.
Flood Insurance: Coverage against loss resulting from flood.
Flood Insurance: Coverage against loss resulting from the flood peril, widely available at low cost under a program developed by the private industry and the federal government.
Foreign Insurer: An insurer is a foreign company in any state other than the one in which it is incorporated.
Forfeitures: Amounts contributed on behalf of terminated, non-vested participants. In a pension plan, such amounts must be applied to reducing future employer contributions. In a profit-sharing plan, such amounts may be allocated to the accounts of remaining participants.
Forgery or Alteration Coverage Form: Commercial crime insurance form by the Insurance Services Office that covers loss resulting from the forgery or alteration of checks, drafts, bills of exchange, promissory notes, and similar instrments.
Fortuitous Loss: Unforeseen and unexpected loss that occurs as a result of chance.
401(k) Plan: A salary reduction plan that allows employees to contribute a portion of their salaries on a tax-deferred basis.
Franchise Deductible: Deductible commonly found in marine insurance contracts in which the insurer has no liability if the loss is under a certain amount, but once this amount is exceeded, the entire loss is paid in full.
Franchise Insurance: A form of insurance in which individual polices are issued to the employees of a common employer or the members of an association under an arrangement by which the employer or association agrees to collect the premiums and remit them to the insurer.
Franchise Insurance: Insurance under individual contracts issued to the employees of a common employer or the members of an association under an arrangement by which the employer or association agrees to collect the premiums and remit them to the insurer. The insurer usually agrees to waive its right to discontinue or modify any individual policy, unless its simultaneously discontinues or modifies all other policies in the same group.
Fraternal Insurance: A cooperative type of insurance provided by social organizations for their members.
Fraternal Life Insurance: Life insurance provided by fraternal orders or societies to their members.
Fraternal Society: A social organization that provides insurance for its members.
Fronting Company: A domestic insurance company that provides claims or administrative services to a captive
Fully Insured: Insured status of a covered person under the Old-Age, Survivors, and Disability Insurance (OASDI) program if he or she meets certain criteria: forty quarters of coverage or has one quarter of coverage for each year after 1950 (or after age twenty-one, if later) up to the year of death. disability. Or attainment of age sixty-two.
Funded Retirement Plan: A plan under which funds are set aside in advance to provide expected benefits
Funding Agency: A financial institution or individual that provides for the accumulation or administration of the pension contributions that will be used to pay pension benefits.
Funding Instrument: An insurance contract or trust agreement that states the terms under which the funding agency will accumulate, administer, and disburse the pension funds.
Future Increase Option: A provision found in some policies that allows the insured to purchase additional disability income insurance at specified future dates regardless of the insured's physical condition.
Future Service Benefits: Benefits accruing for service after the effective date of coverage under the plan.
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