Protects against liability for damages other than physical injury arising out of false arrest, detention or imprisonment, or malicious prosecution; libel, slander or defamation of character; invasion of privacy, wrongful eviction or wrongful entry.
Accident and Health Insurance
See Health Insurance.
Accidental Death Benefit (Auto or Health Insurance)
Provision for payment of a dollar amount
Accidental Death Benefit (Life Insurance)
Provision under a life insurance policy for payment of an additional amount
Act of God (Act of Nature)
Perils that occur naturally such as tornadoes, earthquakes and hurricanes.
Actual Cash Value
Insurance under which the amount payable is the current replacement cost of the property new; reduced by an allowance for depreciation, wear and obsolescence.
A highly specialized mathematician professionally trained in the risk aspects of insurance, whose functions include the calculations involved in determining proper insurance rates, evaluating reserves, and in various aspects of insurance research.
Additional Living Expense
A property coverage which pays for the increased expense of living while the insured
A person who investigates and settles losses for an insurance carrier.
Federal agency in charge of administering the National Flood Insurance Program. It does not regulate the insurance industry.
Assets recognized and accepted by state insurance laws in determining the solvency of insurers and reinsurers. To make it easier to assess an insurance company
Admitted Company (Carrier)
An insurance company licensed and authorized to do business in a particular state.
The tendency of those exposed to a higher risk to seek more insurance coverage than those at a lower risk. Insurers react either by charging higher premiums or not insuring at all, as in the case of floods. (Flood insurance is provided by the federal government but sold mostly through the private market.) In the case of natural disasters, such as earthquakes, adverse selection concentrates risk instead of spreading it. Insurance works best when risk is shared among large numbers of policyholders.
Selling insurance through groups such as professional and business associations.
See Crash Parts; Generic Auto Parts.
Companies that market and sell products via independent agents.
Laws of all states require all insurance agents to be licensed by the state to sell insurance. Agents may be categorized as (1) An Exclusive Agent, who is a sales employee or sales representative of one and only one insurance company or its affiliated group of insurance companies, and seeks and services business exclusively for that company or group. (See Direct Writer.) (2) An Independent Agent, who usually represents two or more insurance companies or groups in a sales and service capacity as an independent business person.
Alien Insurance Company
An insurance company incorporated under the laws of a foreign country.
Alternative Dispute Resolution (ADR)
Alternative to going to court to settle disputes. Methods include arbitration, where disputing parties agree to be bound to the decision of an independent third party, and mediation, where a third party tries to arrange a settlement between the two sides.
Mechanisms used to fund self-insurance. This includes captives, which are insurers owned by one or more non-insurers to provide owners with coverage. Risk-retention groups, formed by members of similar professions or businesses to obtain liability insurance, are also a form of self-insurance.
Insurance policy written for a term of one year or renewed one year at a time.
A report made by a company at the close of its fiscal year. It is the primary financial report required by state insurance departments to be submitted by insurers annually.
The person during whose life an annuity is payable, usually the person to receive the annuity.
A contract that provides an income for life, a specified number of years, or a combination of the two.
Laws that prohibit companies from working as a group to set prices, restrict supplies or stop competition in the marketplace. The insurance industry is subject to state antitrust laws but has a limited exemption from federal antitrust laws. This exemption, set out in the McCarranFerguson Act, permits insurers to jointly develop common insurance forms and share loss data to help them price policies.
The statement of information that a prospective insured gives when applying for an insurance policy and that an insurance company uses to help decide if it will issue the policy and what premium rate will be charged.
The dividing of a loss proportionately among two or more insurers that cover the same loss. Appraisal A survey to determine a property
In insurance, a specialist that evaluates the size and cost of an object, such as jewelry or art; or the extent of damage based on a claim. Often works with a claims adjuster.
Buildings on the same premises as the main building insured under a property insurance policy.
Procedure in which an insurance company and the insured or a vendor agree to settle a claim dispute by accepting a decision made by a third party.
The deliberate setting of a fire. Asset-Backed Securities Bonds that represent pools of loans of similar types, duration and interest rates. Almost any loan with regular repayments of principal and interest can be securitized, from auto loans and equipment leases to credit card receivables and mortgages.
The extra premium a mutual or reciprocal insurer
(1) All of the property owned by a carrier. (2) The items on the balance sheet of the insurer that show the book value of property owned. Under state regulations, not all property or other resources can be admitted on the statement of the insurer. This gives rise to the term
Assigned Risk Plan (Automobile Insurance Plans)
A mechanism used in some states requiring a company to insure people who cannot obtain insurance in the voluntary market. There is one rate level and the individual policies are assigned to specific companies according to the percentage of the market they insure.
These terms are today generally accepted as synonymous, although not originally so. The term
An examination of the books of accounts, vouchers or other records of a person, corporation, firm or other organization for the purpose of ascertaining the accuracy or inaccuracy of the record.
Auto Insurance Premium
The price an insurance company charges for coverage, based on the frequency and cost of potential accidents, theft and other losses. Prices vary from company to company, as with any product or service. Premiums also vary depending on the amount and type of coverage purchased; the make and model of the car; and the insured
Automobile Death Indemnity Coverage
Provides limited life insurance protection to insured persons specifically named in the policy in the event of a death that is a direct result of a vehicle accident. Payment is not contingent upon the establishment of negligence, but death by an intentional act of the insured is not covered.
Automobile Disability Income Coverage
Provides persons specifically named in the policy with the weekly benefit shown in the policy in the event of continuous total disability as a direct result of bodily injury, sickness, or infection caused by an auto accident.
Automobile Insurance (Coverages)
For definitions of specific types available, see following auto insurance coverages listed alphabetically throughout the Glossary
Automobile Liability Insurance
Protection for the insured against loss arising out of legal liability when his or her car injures others or damages their property. (Includes Bodily Injury Liability and Property Damage Liability Coverages.)
Automobile Physical Damage Insurance
The Collision and Comprehensive coverages in the automobile insurance policy.
Coverage against aviation perils, primarily involving operation of aircraft and characterized by a constant exposure to potential catastrophe loss. Types of coverages include insurance for damage to the aircraft or contents, aircraft owner
A representative of the buyer of property and liability insurance who deals with either agents or companies in arranging for the coverage required by the customer. A broker is paid a commission by the company or its agent.
The loss of property due to theft when there is visible evidence of forcible entry to the exterior of the building. Burglary and Theft Insurance Insurance for the loss of property due to burglary, robbery or larceny. It is provided in a standard homeowners policy and in a business multiple peril policy.
Business Income Insurance (Business Interruption Insurance)
Commercial coverage that reimburses a business owner for lost profits and continuing fixed expenses during the time that a business must stay closed while the premises are being restored because of physical damage from a covered peril, such as a fire. Business interruption insurance also may cover financial losses that may occur if civil authorities limit access to an area after a disaster and their actions prevent customers from reaching the business premises. Depending on the policy, civil authorities coverage may start after a waiting period and last for two or more weeks.
Business Interruption Insurance
See Business Income Insurance.
Business Owners 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.
A professional liability policy covering future claims resulting from incidents which occurred during the period that an expired claims-made policy was in force.
A policy which may be cancelled by the company at any time by giving advance notice in compliance with state requirements to the insured citing the reasons such insurance is being cancelled and refunding any unearned premium. (Term is not usually applicable to life or health insurance.)
The discontinuance of an insurance policy before its normal expiration date.
The supply of insurance available to meet demand. Capacity depends on the industry
The markets in which equities and debt are traded. (See Securitization of Insurance Risk.)
Capital Stock Insurance Company
An insurance company which is owned and controlled by stockholders or investors.
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
Insurers that are created and wholly-owned by one or more non-insurers, to provide owners with coverage. A form of self-insurance.
Equal to 365 days of insured coverage for a single vehicle. It is the standard measurement for automobile insurance.
A broad classification of marine insurance providing coverage on cargo, as opposed to hulls, to protect shippers by sea from loss or damage to goods for which they would be unlikely to collect from the carriers themselves. Whether cargoes are insured for a particular voyage or under open policies which are in the nature of reporting-form policies depends upon the volume and regularity with which a shipper uses ocean transit. Cargo insurance also can cover goods transported by train or truck.
The insurance company or the one who agrees to pay the losses. The carrier may be organized as a stock or mutual company, a reciprocal exchange, as an association of underwriters or as a state fund.
The cash amount a life insurance policy accumulates after the first or second year the policy has been in force. It is available when the policy is surrendered or may be borrowed earlier as a policy loan.
Insurance primarily concerned with the legal liability for losses caused by injury to persons or damage to property of others. Also includes, among other coverages automobile, Workers
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.
Risk-based securities that pay high interest rates and provide insurance companies with a form of reinsurance to pay losses from a catastrophe such as those caused by a major hurricane. They allow insurance risk to be sold to institutional investors in the form of bonds, thus spreading the risk. (See Securitization of Insurance Risk.)
A percentage or dollar amount that a homeowner must pay before the insurance policy kicks in when a major natural disaster occurs. These large deductibles limit an insurer
Probability of catastrophic loss, based on the total number of catastrophes in a state over a 40-year period.
Using computers, a method to mesh long-term disaster information with current demographic, building and other data to determine the potential cost of natural disasters and other catastrophic losses for a given geographic area.
Reinsurance (insurance for insurers) for catastrophic losses. The insurance industry is able to absorb the multibillion dollar losses caused by natural and man-made disasters such as hurricanes, earthquakes and terrorist attacks because losses are spread among thousands of companies including catastrophe reinsurers who operate on a global basis. Insurers
To transfer all or part of a risk written by an insurer (the ceding, or primary company) to a reinsurer.
Cell Phone Insurance
Separate insurance provided to cover cell phones for damage or theft. Policies are often sold with the cell phones themselves.
The unit of insurance passed to the reinsurer by the ceding company. The unit (cession) may accordingly be the whole or a portion of (a) single risks, (b) defined type or class of policies or (c) defined divisions of a policy as agreed.
Chartered Life Underwriter (CLU)
A designation conferred in recognition of the attainment of certain standards of education and proficiency in the uses of life insurance to satisfy the financial needs of the insured in light of current tax and other laws. A Chartered Life Underwriter is normally an agent or someone responsible for sales or marketing activities.
Chartered Property Casualty Underwriter (CPCU)
A designation conferred in recognition of the attainment of certain standards of education and proficiency in the art and science of property and casualty insurance underwriting.
A request for payment for a loss which may come under the terms of an insurance contract. There are two types of claims. A first-party claim is one made by the policyholder for reimbursement by his or her company. A third-party claim is one by a person against a policyholder of another company and the payment, if any, will be made by that company.
The number of claims occurring under a given coverage divided by the number of earned exposures for the given coverage. It is usually expressed as the number of claims paid per 100 of such exposures. Example For auto bodily injury (BI), the frequency of 2.50% means that bodily injury accidents were incurred at the rate of 2-1/2 for every 100 cars insured for BI for one year. Claim
A type of liability policy which covers claims which occur and are reported while the policy is in effect.
The combining of policyholders or properties into groups with the same general characteristics so that the various groups
Coinsurance (Health Insurance)
A provision in a medical-expense insurance policy which requires that the insured person pay part of the expense and the insurance company will pay the remaining part. (Also see Coinsurance [Property Insurance].)
Coinsurance (Property Insurance)
A provision in a property insurance policy which requires the insured to carry insurance equal to a certain specified percentage of the value of the property for the insured to receive full payment on a loss up to the amount of the policy. Otherwise, payment would be only a percentage of the actual loss, that percentage determined by the amount of insurance carried relative to the amount that is required to be carried by the policy for full protection up to policy limits. (Also see Coinsurance [Health Insurance].)
Property that is offered to secure a loan or other credit and that becomes subject to seizure on default. (Also called security.)
Collateral Source Rule
Bars the introduction of information that indicates a person has been compensated or reimbursed by a source other than the defendant in civil actions related to negligence or other liability.
Protection against loss resulting from any damage to the policyholder
The sum of the ratio of losses incurred to premiums earned and the ratio of commissions and expenses incurred to premiums written.
Combined Single Limit
A liability coverage limit that combines both bodily injury and property damage into one aggregate amount.
Commercial Blanket Bond
A fidelity bond for operators of commercial establishments, etc. (See Fidelity Bond.)
Commercial Credit Insurance
A guarantee to manufacturers, wholesalers and service organizations that they will be paid for goods shipped or services rendered. It is a guarantee of that part of their working capital that is represented by accounts receivable.
Commercial General Liability Policy
Often referred to as the CGL, this policy provides broad protection against situations in which a business must defend itself against lawsuits or pay damages for personal injury or property damage to third parties.
Commercial Insurance (Coverages)
Definitions of many commercial coverages are listed alphabetically throughout the Glossary. Among these coverages are Aviation Insurance, Cargo Insurance, Commercial Credit Insurance, Commercial Multiple-Line Policy, Crop-Hail Insurance, Employers
The various kinds of insurance which are written for businesses. (Also see Commercial Insurance [Coverages].)
Commercial Multiple-Line Policy
Package type of policy that includes a wide range of essential property and liability coverages for businesses.
A percentage of an insurance premium paid to an agent or broker for producing and servicing the business.
Commissioner of Insurance
Title of the head of the state insurance department who is responsible for the enforcement of insurance laws and for promulgating regulations dealing with the insurance industry.
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. There are various forms of comparative negligence, such as
Competitive Replacement Parts
See Crash Parts; Generic Auto Parts.
Competitive State Fund
A facility established by a state to sell workers compensation in competition with private insurers.
A measure used by some state insurance departments to track consumer complaints against insurance companies. Generally, it is written as the number of complaints upheld against an insurance company, as a percentage of premiums written. In some states, complaints from medical providers over the promptness of payments may also be included.
Completed Operations Coverage
Completed Ops is coverage that pays for bodily injury or property damage caused by a completed project or job. This insurance protects a business that sells a service against liability claims.
Comprehensive Automobile Insurance
Protection against loss resulting from damage to the insured auto, commonly referred to as
Comprehensive Personal Liability Insurance
Protection for an insured against loss arising out of his or her legal liability to pay money for damage or injury he or she has caused to others. This does not include automobile liability, but includes almost every activity of the insured except
Compulsory Auto Liability Insurance
Insurance laws in some states require motorists to carry at least certain minimum auto liability coverages for bodily injury and property damage.
Normally means the willful withholding of material fact which could affect an insurer
Provisions of an insurance policy which state the rights and duties of the insured and insurer.
A policy designed for the special needs of condominium unit owner-occupants to cover personal property and liability, to complement the insurance normally purchased by the condominium association for the building, structures and liability. Additional coverages are offered unit owners by many insurers.
A loss resulting from, but not caused directly by, another insured loss. A
Contingent Liability Insurance
Covers the insured individual or business in cases of indirect or
A bond which guarantees faithful performance of a construction contract and payment of all material and labor bills related to that contract. A Performance Bond covers faithful performance only; a Payment Bond guarantees payment of material and labor expenses.
Contractual Liability Insurance
Provides coverage for claims arising out of liability that has been assumed by the insured under a written or oral contract.
Carelessness of the injured person that helped cause the accident in which he or she was injured. Some states bar recovery to the plaintiff if the plaintiff was contributorily negligent.
The scope of the protection provided under a contract of insurance; any of several risks covered by a policy.
The perils of loss you are protected against by an insurance policy. Examples of perils include fire, lightning, theft, vandalism and the threat of a lawsuit.
Sheet metal parts that are most often damaged in a car crash. (See Generic Auto Parts.)
The promise to pay in the future in order to buy or borrow in the present. The right to defer payment of debt.
A contract that enables a user, such as a bank, to better manage its credit risk. A way of transferring credit risk to another party.
Credit Disability Insurance
Disability insurance on the borrower, payable to the creditor while the borrower is disabled, to cover the loan payment (usually small loans repayable in installments). This insurance is usually issued through the creditor (a lender or lending agency) and is provided by an insurance company under a group credit disability policy. Credit disability insurance also can be purchased by an individual directly from an insurance company. (Also see Credit Life Insurance.)
A technique to lower the interest payments on a bond by raising the issue
Credit Insurance (Commercial)
See Commercial Credit Insurance.
Credit Life Insurance
Term life insurance on the life of a borrower, payable to the creditor, to repay a loan (usually small loans repayable in installments) in case of death. This insurance is usually issued through the creditor (a lender or lending agency) and is provided by a life insurance company under a group credit life insurance policy to insure the lives of those who borrow from the creditor. Credit life insurance also can be purchased by an individual directly from a life insurance company. (Also see Credit Disability Insurance.)
See Bond Rating.
The number produced by an analysis of an individual
Term referring to property coverages for the perils of burglary, theft and robbery.
Protection against hail damage to growing crops. Coverage is often afforded under such policies for crop damage due to fire, windstorm, drought, frost, snow, etc.
Customer Service Representative
The assistant that supports the sales efforts of the sales agent or producer. Other titles include administrative assistant, agency underwriter and marketing specialist. CSR is also a designation for a certified customer service representative.
That part of the policy describing the named insured, address, effective date, term of the policy, applicable coverages, the amount of insurance and the premium.
Decreasing Term Life Insurance
Term insurance, the face value of which decreases each year over a stated period. Family income and mortgage cancellation are common types of decreasing term insurance.
A provision in an insurance contract stating that the insurer will pay that amount of any insured loss that is in excess of a specified amount. The specified amount is the deductible.
Deductible Collision and Deductible Comprehensive Coverages
Forms of collision or comprehensive auto insurance coverages which specify that an insurance company will pay the damage less a specified amount under the particular coverage. For example For $100 Deductible Collision Coverage, the company would deduct $100 from the total damage under the collision coverage and be liable for the amount in excess of $100. Rates are reduced as the amount of the deductible is increased.
The conversion of insurance companies from mutual companies owned by their policyholders into publicly-traded stock companies.
A decrease in the value of property due to age, wear and tear.
In insurance, reducing regulatory control over insurance rates and forms. Commercial insurance for businesses of a certain size has been deregulated in many states.
Diminution of Value
The idea that a vehicle loses value after it has been damaged in an accident and repaired.
Direct Premiums Written
Property/casualty premiums collected by the insurer from policyholders, before reinsurance premiums are deducted. Insurers share some direct premiums and the risk involved with their reinsurers.
Direct Sales/Direct Response
Method of selling insurance directly to the insured through an insurance company
An insurer whose distribution mechanism is either the direct selling system or the exclusive agent system. (See Agent.)
Directors and Officers Liability Insurance (D&O)
Coverage for directors and officers of firms or organizations against liability claims arising out of alleged errors in judgment, breaches of duty, and wrongful acts related to their organizational activities.
In no-fault insurance states with the disability threshold, it provides that a victim may not sue in tort unless he/she has been disabled (defined differently in various state plans) from an accident for a specific period of time.
(1) Policyholder Dividend
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 Insurance Company
An insurance company organized or domiciled in a given state is referred to in that state as a domestic carrier.
See Accidental Death Benefit (Life Insurance).
Early Warning System
A system of measuring insurers
The part of the total property/casualty policy premium earned by the insurance company which applies to the expired portion of the policy period.
Covers a building and its contents, but includes a large percentage deductible on each. A special policy or endorsement exists because earthquakes are not covered by standard homeowners or most business policies.
Total financial loss resulting from the death or disability of a wage earner, or from the destruction of property. Includes the loss of earnings, medical expenses, funeral expenses, the cost of restoring or replacing property, and legal expenses. It does not include non economic losses, such as pain caused by an injury.
Electronic Commerce (E-Commerce)
The sale of products such as insurance over the Internet.
A kind of deductible or waiting period usually found in disability policies. It is counted in days from the beginning of the illness or injury.
Employee Dishonesty Coverage
Covers direct losses and damage to businesses resulting from the dishonest acts of employees. (See Fidelity Bond.)
Provides protection for the employer for those injuries arising out of and in the course of employment which were not covered under the workers
An additional piece of paper, not a part of the original contract, which cites certain terms and which becomes a legal part of that insurance contract. Additions to life insurance contracts are accomplished through the use of riders, which are similar to endorsements.
Environmental Impairment Insurance
A form of insurance designed to cover losses and liabilities arising from damages to property by pollution.
Equipment Breakdown Insurance
See Boiler and Machinery Insurance.
In investments, the ownership interest of shareholders. In a corporation, stocks as opposed to bonds.
Errors and Omissions Insurance (E&O)
A type of professional liability insurance which indemnifies insured professionals
Funds that a lender collects to pay monthly premiums in mortgage and homeowners insurance, and sometimes to pay property taxes.
discrimination, wrongful discharge, contract disputes and patent disputes. Level
Excess and Surplus Lines
Property/casualty coverage that isn
Coverage against losses in excess of a specified dollar limit.
Excess of Loss Reinsurance
A contract between an insurer and a reinsurer, whereby the insurer agrees to pay a specified portion of a claim and the reinsurer to pay all or a part of the claim above that amount.
A provision in an insurance policy that eliminates coverage for certain risks, people, property classes, or locations.
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
Part of the social contract that forms the basis for workers compensation statutes under which employers are responsible for work-related injury and disease, regardless of whether is was the employee
The ratio of a company
The loss record of an insured or of a particular class of coverage.
The date shown on the declarations page of the policy when coverage will stop. It may be a specific date or a statement that coverage is continuous until cancelled.
This term in the insurance field may have several meanings (1) possibility of loss; (2) a loss potential as measured by type of construction, area or values; (3) a possibility of a loss being communicated to an insurance risk from its surroundings; or (4) a unit of measure of the amount of risk a company assumes (for example, one car insured for one year).
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 Coverage Property Insurance
An extension of the fire insurance policy to protect the insured against property damage caused by the additional perils of windstorm, hail, explosion, or riot, civil commotion, aircraft, vehicle and smoke.
Extended Replacement Cost Coverage
Pays a certain amount above the policy limit to replace a damaged home, generally 120% or 125%. 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 Replacement Cost Coverage.)
See Protection Amount.
Reinsurance on an individual policy basis wherein each risk which an insurance company wishes to reinsure is reviewed by the reinsurer, which has the
Family Auto Insurance
The automobile policy (most common in the industry) which provides protection for the insured and resident relatives in the same household.
Family Plan Insurance
This is insurance in which the head of the household has one master policy on his/her life (usually whole life) and term coverage for wife/husband and children in lesser amounts.
Farm-Ranch Owners 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 Crime Insurance
Insurance against burglary, larceny and robbery losses offered by the federal government where the Federal Insurance Administration has determined that such insurance is not otherwise readily available. Federal Insurance
Federal Reserve Board
Seven-member board that supervises the banking system by issuing regulations controlling bank holding companies and federal laws over the banking industry. It also controls and oversees the U.S. monetary system and credit supply.
Fee For Service (FFS)
Formerly a standard health insurance policy. Now a form of health insurance that allows the insured to go to any doctor, hospital or other provider which would bill for each service given, and the insurer and the patient share in the cost of the services provided.
A form of protection that covers policyholders for losses that they incur as a result of fraudulent acts by specified individuals. It usually insures a business for losses caused by the dishonest acts of its employees.
A type of surety bond, sometimes called a probate bond, which is required of certain fiduciaries, such as executors and trustees, that guarantees the performance of their responsibilities.
Legal responsibility of a fiduciary to safeguard assets of beneficiaries. A fiduciary, for example a pension fund manager, is required to manage investments held in trust in the best interest of beneficiaries. Fiduciary liability insurance covers breaches of fiduciary duty such as misstatements or misleading statements, errors and omissions.
States where insurers must file rate changes with their regulators, but don
Financial Guarantee Insurance
Covers losses from specific financial transactions and guarantees that investors in debt instruments, such as municipal bonds, receive timely payment of principal and interest if there is a default. Raises the credit rating of debt to which the guarantee is attached. Investment bankers who sell asset-backed securities, securities backed by loan portfolios, use this insurance to enhance marketability. (See Municipal Bond Insurance.)
Financial Responsibility Law
A state law which may require motorists to furnish evidence, either before or after involvement in an auto accident (depending on the individual state
Finite Risk Reinsurance
Contract under which the ultimate liability of the reinsurer is capped and on which anticipated investment income is expressly acknowledged as an underwriting component. Also known as Financial Reinsurance because this type of coverage is often bought to improve the balance sheet effects of statutory accounting principles.
Coverage protecting property against losses caused by a fire or lightning that is usually included in homeowners or commercial multiple peril policies.
Coverage for the policyholder
An auto policy covering a number of vehicles owned by a single insured.
A form of insurance that applies to movable property, whatever its location, within the territorial limits imposed by the contract. The coverage
Coverage against loss resulting from the flood peril, widely available under a program developed in 1968 by the private insurance industry and the federal government.
Forced Place Insurance
Insurance purchased by a bank or creditor on an uninsured debtor
Foreign Insurance Company
In a given state, an insurer domiciled in another state.
Fraternal Benefit Society
An organization that exists to provide social and insurance benefits to its members. In such a society, members often share a common religious, ethnic or vocational background, although some fraternals are open to the general public.
Intentional concealment or misrepresentation with the objective of forcing an insurer to provide a benefit (such as paying a claim) which otherwise would not be provided.
Number of times a loss occurs. One of the criteria used in calculating premium rates.
A procedure in which a primary insurer acts as the insurer of record by issuing a policy, but then passes the entire risk to a reinsurer in exchange for a commission. Often, the fronting insurer is licensed to do business in a state or country where the risk is located, but the reinsurer is not. The reinsurer in this scenario is often a captive or an independent insurance company that cannot sell insurance directly in a particular country.
Bookkeeping account of sums set aside periodically by a business for the purpose of paying for losses as they occur. Usually, the sums are invested conservatively.
An automobile insurance option, available in some states, that covers the difference between a car
In ocean marine insurance, a concept which provides that, where a portion of a vessel or cargo is jettisoned to save the entire venture from peril at sea, the resulting loss is shared by all parties involved. The owners of property that is saved contribute in proportion to the interests suffering loss, provided the latter are free of fault in the danger and the venture ultimately is successful. (Distinct from Particular Average.)
In auto insurance, typically refers to awards for pain and suffering.
General Liability Insurance
A broad term meaning liability insurance, other than automobile liability or employers
Generally Accepted Accounting Principles (GAAP)
Generally accepted accounting principles (GAAP) accounting is used in financial statements that publicly-held companies prepare for the Securities and Exchange Commission. (See Statutory Accounting Principles
Generic Auto Parts
Auto crash parts produced by firms that are not associated with car manufacturers. Insurers consider these parts, when certified, at least as good as those that come from the original equipment manufacturer (OEM). They are often cheaper than the identical part produced by the OEM. (See Crash Parts; Aftermarket Parts; Competitive Replacement Parts; Original Equipment Manufacturer Parts
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.
Good Driver Plan
An auto insurance rating program that reflects the insured
The number of days (31 in most cases) a life insurance policy will remain in force when a payment is overdue.
Graduated Drivers License
Licenses for younger drivers that allow them to improve their skills. Regulations vary by state, but often restrict night time driving. Young drivers receive a learner
Financial services legislation, passed by Congress in 1999, that removed Depression-era prohibitions against the combination of commercial banking and investment-banking activities. It allows insurance companies, banks, and securities firms to engage in each others
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.
Period during which the level of interest specified under a fixed annuity is guaranteed.
Guaranteed Cost Insurance
The life insurance sold by some companies, with all cost factors guaranteed at the time of issue. Policies of this type usually have lower premiums than the pre-divided premiums of comparable participating policies.
A fund, derived from assessment against solvent insurance companies, to absorb losses of claimants against insolvent insurers.
A new legal concept that holds gun manufacturers liable for the cost of injuries caused by guns. Several cities have filed lawsuits based on this concept.
A coverage that protects businesses engaged in electronic commerce from losses caused by hackers.
See Crop-Hail Insurance.
The presence of a condition that could cause loss or injury to property or persons. For example, smoking in bed increases the chance for loss of property and life resulting from fire.
There are two major types Disability income insurance pays for loss of income due to disability; medical expense insurance pays for hospital, doctor and other medical expenses. Both of these generally pay for losses arising from sickness or accidents. Some policies, referred to as
Health Maintenance Organization (HMO)
The oldest form of managed health care. In exchange for a monthly fee, HMOs offer members a comprehensive range of health services, usually including preventive medical care.
Hold Harmless Agreement
A contract under which one party
A package policy for the homeowner that combines
Equal to 365 days of insured coverage for a single dwelling. It is the standard measurement for homeowners insurance.
An ocean marine or aviation insurance contract covering damage to or loss of a ship or plane, but not the contents.
A tropical storm with sustained winds of 75 or more miles an hour that is usually accompanied by rain and abnormally high tides.
A percentage or dollar amount added to a homeowners insurance policy to limit an insurer
Identity Theft Coverage
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
Incurred But Not Reported Losses (IBNR)
Losses that are not filed with the insurer or reinsurer until years after the policy is sold. Some liability claims may be filed long after the event that caused the injury to occur. Asbestos-related diseases, for example, do not show up until decades after the exposure. IBNR also refers to estimates made about claims already reported but where the full extent of the injury is not yet known, such as a workers compensation claim where the degree to which work-related injuries prevents a worker from earning what he or she earned before the injury unfolds over time. Insurance companies regularly adjust reserves for such losses as new information becomes available.
Losses occurring within a fixed period, whether or not adjusted or paid during the same period.
Provide financial compensation for losses.
In general, means reimbursement for loss, but also is used to mean a benefit provided by a policy. In health insurance it sometimes is used to designate an amount paid regardless of actual loss or expense incurred.
Agent who is self-employed, is paid on commission, and represents several insurance companies. (See Captive Agent.)
Inflation Guard Clause
A provision added to a homeowners insurance policy that automatically adjusts the coverage limit on the dwelling each time the policy is renewed to reflect current construction costs.
Inland Marine Insurance
This broad type of coverage was developed for shipments that do not involve ocean transport. Covers articles in transit by all forms of land and air transportation as well as bridges, tunnels and other means of transportation and communication. Floaters that cover expensive personal items such as fine art and jewelry are included in this category. (See Floater.)
A report filed by an investigator employed by the insurance company or a credit agency, giving general information on the health and finances of the applicant and the physical condition of the property (if property is to be insured).
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.
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.
A group of insurance companies that pool assets, enabling them to provide an amount of insurance substantially more than can be provided by individual companies to ensure large risks such as nuclear power stations. Pools may be formed voluntarily or mandated by the state to cover risks that can
Insurance Regulatory Information System (IRIS)
Uses financial ratios to measure insurers
Insurance scores are confidential rankings based on credit information. This includes whether the consumer has made timely payments on loans, the number of open credit card accounts and whether a bankruptcy filing has been made. An insurance score is a measure of how well consumers manage their financial affairs, not of their financial assets. It does not include information about income or race. Studies have shown that people who manage their money well tend also to manage their most important asset, their home, well. And people who manage their money responsibly also tend to handle driving a car responsibly. Some insurance companies use insurance scores as an insurance underwriting and rating tool.
Insurance written in an amount approximating the value of the insured property.
A person covered by an insurance policy.
An act of deception or strategy used to deceive or cheat an insurer by an employee, including misrepresentation or concealment.
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.
The income generated by a company
Joint Underwriting Association (JUA)
A device used to provide insurance to those who cannot obtain insurance in the voluntary market. Certain companies issue policies at one rate level and handle claims, but the ultimate costs are borne by all companies writing insurance in that state.
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
Key Person Insurance
Insurance on the life or health of a key individual whose services are essential to the continuing success of a business and whose death or disability could cause the firm a substantial financial loss.
Kidnap and Ransom Insurance
Written for financial institutions and other corporations, this insurance covers named employees for individual or aggregate amounts paid as ransom, with deductibles requiring the insured to participate in approximately 10% of any loss.
A life or health insurance policy terminated as a result of non payment of a premium before the end of the grace period.
Law of Large Numbers
The theory of probability on which the business of insurance is based. Simply put, this mathematical premise says that the larger the group of units insured, such as sport-utility vehicles, the more accurate the predictions of loss will be.
Legal Expense Insurance
Insurance to reimburse policyholders for legal fees incurred for defense from lawsuits involving areas of civil law not covered by standard liability insurance.
An insurance company
Provides protection for the insured against loss arising out of his/her legal liability to third parties.
The stipulated sum or sums beyond which an insurance company is not liable to protect the insured.
Certification issued by a state
The maximum amount of benefits that an insurer agrees to pay in the event of a loss.
A type or kind of insurance.
Enables the state insurance department as liquidator or its appointed deputy to wind up the insurance company
The ability and speed with which a security can be converted into cash.
Coverage for bodily injury or property damage caused by an intoxicated person who was served liquor by the policyholder.
The process of a lawsuit.
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
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
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 following an injury.
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 Control Representative
Insurance company employees, also called safety engineers, that perform loss control surveys or inspections, and prepare written loss control reports that outline their findings.
Loss Control Service
Engineering or inspection service which assists the insured in reducing its exposure to loss.
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.
Salaries and other expenses incurred in connection with the operation of a claims department of a property and liability insurance carrier which cannot be charged to individual claims.
The possibility that a loss may occur.
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.
In property and liability insurance, the percent that losses bear to premiums for a given period.
The estimated liability on an insurer
The willful or intentional damage to or destruction of another
Coverage afforded to a professional practitioner, such as a doctor or a lawyer, against liability claims for damages resulting from alleged negligence in the performance of the insured
A book published by an insurance company, rating association or bureau, containing its rates, classifications and rules for rating a policy.
See Inland Marine Insurance and Ocean Marine Insurance.
Insurance against damage to a vehicle or boat itself. It includes automobile comprehensive, collision, fire and theft. Material damage and physical damage are terms that are often used interchangeably.
The date at which the endowment amount of a life policy becomes payable.
Federal law signed in 1945 in which Congress declared that states would continue to regulate the insurance business. Grants insurers a limited exemption from federal antitrust legislation.
Nonbinding procedure in which a third party attempts to resolve a conflict between two other parties.
Medical Payments Automobile Insurance
Coverage in non-no-fault states, which pays medical and hospital expenses and the expense of funeral services resulting from an automobile accident, regardless of the liability of the insured. This is a first-party coverage.
Mine Subsidence Coverage
An endorsement to a homeowners insurance policy, available in some states, for losses to a home caused by the land under a house sinking into a mine shaft. Excluded from standard homeowners policies, as are other forms of earth movement.
(1) A basic type of life insurance or disability insurance purchased for the specific purpose of paying off any mortgage balance outstanding at death or paying mortgage payments while the insured is disabled. (2)
A package policy that provides protection against a number of separate perils. Multi-peril policies are not necessarily multiple-line policies, since the combined perils may be all within one insurance line, such as property. (See Multiple-Line Policy.)
A company that writes a variety of basic or traditional lines of insurance known as property and casualty (liability) insurance, such as auto, boat owners, homeowners, commercial, etc. Multiple-Line Policy A package policy which combines coverages from both the traditional property and liability insurance lines.
Municipal Bond Insurance
Coverage that guarantees bondholders timely payment of interest and principal even if the issuer of the bonds defaults. Offered by insurance companies with high credit ratings, the coverage raises the credit rating of a municipality offering the bond to that of the insurance company. It allows a municipality to raise money at lower interest rates. A form of financial guarantee insurance. (See Financial guarantee insurance.)
Peril specifically mentioned as covered in an insurance policy.
No-Fault Automobile Insurance
A form of insurance by which a person
No-Pay, No Play
The idea that people who don
Non-Admitted Company (Carrier)
An insurance company not licensed to do business in the state in question.
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.
The choices available to an insured as to how the cost value of a life insurance policy will be received
See Guaranteed Cost Insurance.
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
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
A person, firm, corporation or government agency protected by a surety bond. 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
Dangers inherent in an occupation which increase the risk of sickness or injury.
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.
An automobile policy provision that covers persons driving the named insured
Open Competition States
States where insurance companies can set new rates without prior approval, although the state
The cost of maintaining a business
Contracts that allow, but do not oblige, the buying or selling of property or assets at a certain date at a set price.
Ordinance of 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.
Original Equipment Manufacturer Parts (OEM)
Sheet metal auto parts made by the manufacturer of the vehicle. (See Generic Auto Parts.)
Other than Collision Coverage
See Comprehensive Automobile Insurance.
A combination of two or more individual policies or coverages into a single policy. A homeowners policy, for example, is a package combining property, liability and theft coverages for the homeowner.
The actual dollar total that has been paid on incurred losses by issuing checks or drafts to claimants.
An impairment that prevents the insured from performing one or more, but not all, important duties of his/her job.
The life insurance, sold by some life companies, on which dividends may be payable to policy owners. The amount and timing of the dividend payments are determined by the company board of directors.
In ocean marine insurance, a concept providing that, where a portion of vessel or cargo is jettisoned to save the entire venture from peril at sea, the resulting loss is borne entirely by that individual owning the property that is damaged or sacrificed. No other interests contribute to payment of the loss. (Distinct from General Average.)
A system proposed in the 1990s in which auto insurance premiums would be paid to state governments through a per-gallon surcharge on gasoline.
The cause of a possible loss, such as fire, windstorm, theft, explosion or riot.
The type of life insurance that develops cash value and includes whole life, endowment, universal life and variable life insurance.
An insurance term used to refer to the probability of insurance remaining in force.
Personal Articles Floater
A form of coverage designed to meet the needs for insurance on property of a movable nature. The coverage usually protects against all physical loss, subject to special exclusions and conditions. Examples of property covered include jewelry, furs, silverware and fine arts.
Personal Injury Protection Automobile Insurance (PIP)
First-party coverage in no-fault states that usually pays for medical expenses, loss of income and certain other expenses resulting from an auto accident. Coverage
Types of insurance written for individuals or families, rather than for businesses.
This type of property is usually movable and easily transportable. On the other hand, real property generally is considered to be immovable, such as land and things affixed to it. A rule of thumb definition for personal property is
This refers to the material, structural or operational features of the risk itself, apart from the persons owning or managing it. Electrical wiring, building construction and type of heating system are examples of physical hazards.
Physical Loss Form
This property coverage protects against loss from risk of physical loss to buildings except as limited or excluded in the form.
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.
Point of Service (POS) Plan
An HMO that offers an indemnity-type option. The primary care doctors in a POS plan make referrals to other providers in the plan. However, members can refer themselves outside the plan and still get some coverage as well.
Policies written and recorded on the books of the carrier which are unexpired as of a given date. Usually applies to property and liability insurance.
The name generally used to mean the written contract of insurance.
The borrowing against a life insurance policy
One who owns an insurance policy. A mortgagee often is issued a copy of an insurance policy or certificate of insurance at the request of the insured, but it is not a policyholder.
The sum an insurance company has remaining after all liabilities are deducted from all assets. Sums such as paid-in capital and special voluntary reserves are also included in this term. This surplus is one form of financial protection to policyholders in the event a company suffers unexpected or catastrophic losses.
Political Risk Insurance
Coverage for businesses operating abroad against loss due to political upheaval such as war, revolution, or confiscation of property.
Policies that cover property loss and liability arising from pollution-related damages, for sites that have been inspected and found uncontaminated. It is usually written on a claims-made basis so policies pay only claims presented during the term of the policy or within a specified time frame after the policy expires.
An organization of insurers or reinsurers through which particular types of risks are underwritten with premiums, losses and expenses shared in agreed ratios.
A physical condition that existed prior to the issuance of an insurance policy.
The building, other structures and land where the insurance protection is applicable. It is usually described and defined in the property and casualty policy.
The amount of money charged a policyholder for an insurance policy. (Also see Direct Premiums Written, Earned Premium, Net Premiums Written, Unearned Premium.)
A person who examines a liability insurance policyholder
Premium Life Insurance
Insurance for which the cost is distributed evenly over the period during which premiums are paid. The premium remains the same from year to year and is more than the actual cost of protection in the earlier years of the policy and less than the actual cost in the later years. The excess paid in the early years builds up a reserve which helps meet the costs in later years.
A state tax on premiums paid by its residents and businesses and collected by insurers.
Premiums in Force
The sum of the face amounts, plus dividend additions, of life insurance policies outstanding at a given time.
The total premiums on all policies written by an insurer during a specified period of time, regardless of what portions have been earned. Net premiums written are premiums written after reinsurance transactions.
In a reinsurance transaction, the insurance company that is reinsured.
Market for new issue securities where the proceeds go directly to the issuer.
Interest rate that banks charge to their most creditworthy customers. Banks set this rate according to their cost of funds and market forces.
In suretyship, the party whose honesty or performance is guaranteed.
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 Insurance.
Securities that are not registered with the Securities and Exchange Commission and are sold directly to investors.
Any person directly involved in the sale of insurance.
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
Product Liability Insurance
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 Damage Liability Insurance
Protection against loss from legal liability for damage to the property of another.
Provides financial protection against loss or damage to the insured
Covers damage to or loss of policyholders
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.
A November 1988 California ballot initiative that called for a statewide auto insurance rate rollback and for rates to be based more on driving records and less on geographical location. The initiative changed many aspects of the state
The face amount of a life insurance policy, or amount of money that will be paid to a beneficiary upon the death of an insured
The dominating cause of loss or damage; an unbroken chain of events between the occurrence of an insured peril and damage to property. As an illustration, weather damage occurring from fire-fighting activities is covered under the fire policy because fire was the proximate cause of the loss.
Public Liability Insurance
A broad term meaning insurance to cover professional and commercial risks against liability exposures other than those involving employees or arising out of ownership or use of autos or airplanes.
An entity that offers insurance to groups of similar businesses with similar exposures to risk.
Insurance protection against loss due to rain, hail, snow or sleet, which causes cancellation or reduced earnings of an outdoor event.
A charge per unit in determining insurance premiums.
The process by which states monitor insurance companies
Six major credit agencies determine insurers
An organization that gathers statistics, makes rates and/or creates policy forms and provides other services for the property and casualty insurers affiliated with the bureau.
In various property and casualty lines, a geographical grouping within which insureds are likely to share an exposure to similar risks. Grouping of insureds within a territory helps establish equitable rates for the territory.
Real Estate Investments
Investments generally owned by life insurers that include commercial mortgage loans and real property.
Amounts owed to a business for goods or services provided.
An illegal act to refuse to lend money or issue insurance based only on geographic area.
The restoration of a lapsed life or health insurance policy to its original premium-paying status
An arrangement by which one insurer transfers all or a portion of its risk under a policy or group of policies to another insurer (reinsurer). Thus reinsurance is insurance purchased by an insurance company from another insurer, to reduce risk for the original insurer.
An alternative mechanism to service those insureds who cannot obtain insurance in the voluntary market. Premiums and losses for the business that is ceded to the facility are pooled and all insurers share according to their proportion of the voluntary market.
A package type of insurance that includes coverage similar to a homeowners policy to cover the personal property of a renter or tenant in a building.
Rents or Rental Value Coverages
Insurance against loss of the rental value of a property; protects against loss of rents resulting from an insured peril.
Replacement Cost Property Coverage
Insurance under which the amount payable is the current replacement cost of the property new, rather than the depreciated value. Applies to the building structures (in most cases) and can apply to contents in some policies.
(1) An amount representing actual or potential liabilities kept by an insurer to cover obligations to policyholders and third-party claimants. (2) An amount allocated for a special purpose. Note that a reserve is usually a liability and not an extra fund. On occasion, a reserve may be an asset, such as a reserve for taxes not yet due.
A general term describing the total of all consumers who have had difficulty purchasing insurance through normal channels. Automobile Insurance Plans, FAIR Plans, Reinsurance Facilities and Joint Underwriting Associations all service this market.
The net amount of risk retained by an insurance company for its own account or that of specified others, and not reinsured.
The reinsurance bought by reinsurers to protect their financial stability.
Rating procedure that allows adjustment of an insured
Additional provision added to a policy by issuance of an amending document. (See Endorsement.)
Chance of loss with respect to person, liability or the property of the insured. Also is used to mean
The management of the various risks that might affect a business firm. Its purpose is to identify potential loss situations and control or reduce them through insurance, elimination of risk, or improved or additional safety practices.
Risk Retention Groups
Insurance companies that band together as self-insurers and form an organization that is chartered and licensed as an insurer in at least one state to handle liability insurance.
The need for insurance companies to be capitalized according to the inherent riskiness of the type of insurance they sell. Higher-risk types of insurance, liability as opposed to property business, generally necessitate higher levels of capital
The loss of property due to theft when a person is threatened with physical harm or injury.
Compensation of agents, advertising expense and other costs related to selling insurance policies.
Property damaged to the extent that it is not economical to perform repairs, taken over by an insurer after it has paid a claim, to reduce its loss by
A list describing the property or items insured under the policy and the extent to which they are insured.
Market for previously issued and outstanding securities.
Securities and Exchange Commission (SEC)
The organization that oversees publicly-held insurance companies. Those companies make periodic financial disclosures to the SEC, including an annual financial statement (or 10K), and a quarterly financial statement (or 10-Q). Companies must also disclose any material events and other information about their stock.
Stock held by shareholders.
Securitization of Insurance Risk
Using the capital markets to expand and diversify the assumption of insurance risk. The issuance of bonds or notes to third-party investors directly or indirectly by an insurance or reinsurance company or a pooling entity as a means of raising money to cover risks. (See Catastrophe Bonds.)
A form of risk financing through which a firm assumes all or a part of its own losses. Self-insurers may purchase insurance to cover excess losses.
The average cost per claim.
Sewer-Drain Back-Up Coverage
An optional part of homeowners insurance that covers sewers.
See Residual Market.
A condition where insurance premiums are lowered and the availability of insurance is high. Opposite of a hard insurance market.
A person authorized by an agent to solicit and receive applications for insurance.
Special Multi-Peril Policy (SMP)
A business policy which combines in one contract the coverages normally purchased under several policies. Many options and endorsements are available to tailor it to the policyholder
See Named Peril.
A type of risk with three possible outcomes gain, loss or no change.
Spread of Risk
The selling of insurance in multiple areas to multiple policyholders to minimize the danger that all policyholders will have losses at the same time. Companies are more likely to insure perils that offer a good spread of risk. Flood insurance is an example of a poor spread of risk because the people most likely to buy it are the people close to rivers and other bodies of water that flood. (See Adverse Selection.)
Practice that increases the money available to pay auto liability claims. In states where this practice is permitted by law, courts may allow policyholders who have several cars insured under a single policy, or multiple vehicles insured under different policies, to add up the limit of liability available for each vehicle.
Policy provisions required by law.
A person who according to a company
Statutory Accounting Principles (SAP)
Those principles required by statute that must be followed by an insurance company when submitting its financial statements to the various state insurance departments. Such principles differ from Generally Accepted Accounting Principles (GAAP) in some important respects. For example, SAP requires that expenses must be recorded immediately and cannot be deferred to track with premiums as they are earned and taken into revenue.
Statutory Underwriting Profit or Loss
Earnings or losses as shown by an insurer on its Statutory Income Statement (convention blank) as required by state insurance departments. More specifically (1) the profit or loss realized from insurance operations as distinct from that realized from investments; (2) the excess of premiums over losses and expenses (profit), or the excess of losses and expenses over premiums (loss).
A company organized and owned by stockholders, as distinguished from the mutual form of company, which is owned by its policyholders.
Provides employer liability coverage for work-related injury arising out of incidental operations or exposure in the monopolistic fund states.
Legal agreement to pay a designated person, usually someone who has been injured, a specified sum of money in periodic payments, usually for his or her lifetime, instead of in a single lump sum payment. (See Annuity.)
A principle of law incorporated in insurance policies that enables an insurance company, after paying a loss to its insured, to recover the amount of the loss from another who is legally liable for it.
Substandard or Extra Risk
An individual who, because of health history or physical limitations, does not measure up to the qualifications of a standard life or health insurance risk.
A federal law enacted in 1980 to initiate cleanup of the nation
An agreement providing for monetary compensation should there be a failure to perform specified acts within a stated period. The surety company, for example, becomes responsible for fulfillment of a contract if the contractor defaults.
Contractual relationship in which one party (surety) guarantees another party (obligee) against the default or misperformance of a third party (principal). (See Fidelity Bond and Surety Bond.)
A term originating in property/casualty insurance, used to describe any risk or part thereof for which insurance is not available through a company licensed in the applicant
A charge for withdrawals from an annuity contract before a designated surrender charge period, usually from five to seven years.
The simultaneous buying, selling or exchange of one security for another among investors to change maturities in a bond portfolio, for example, or because investment goals have changed.
A group of insurers or underwriters that join to insure certain property that may be of such value or high hazard or so expensive to underwrite that it can be covered more safely or efficiently on a cooperative basis.
See Renters Policy.
A period of time for which a policy is issued.
Life insurance protection during a limited number of years but expiring without value if the insured survives the stated period.
A method of classifying risks by geographic location to set a fair price for coverage. The location of the insured may have a considerable impact on the cost of losses. The chance of an accident or theft is much higher in an urban area than in a rural one, for example.
Included as a part of the package in standard commercial insurance policies before September 11, 2001 virtually free of charge. Since September 11, terrorism coverage prices have increased substantially to reflect the current risk.
Protection for loss of property due to stealing, including burglary, robbery and larceny.
Outside group that performs clerical functions for an insurance company.
Liability coverage purchased by the policyholder as a protection against possible lawsuits filed by a third party. The insured and the insurer are the first and second parties to the insurance contract. (See First-Party Coverage.)
Used in no-fault auto insurance to remove non-serious cases from the tort system by establishing a point of
An insurance contract relating to real estate described in the policy which protects the insured landowner against loss or damage by reason of defects, liens or encumbrances in the insured title, if these faults exist at the date of the policy and are not expressly excluded from its terms.
Any wrongful act, damage or injury done willfully, negligently or in circumstances involving strict liability, but not involving breach of contract, for which a civil lawsuit can be brought.
The body of law governing negligence, intentional interference, and other wrongful acts for which civil action can be brought, except for breach of contract, which is covered by contract law.
Refers to legislation designed to reduce liability costs through limits on various kinds of damages and through modification of liability rules.
Disability that prevents a person from performing (a) any of his/her occupational duties, or (b) any duties for which he/she is reasonably qualified. Definitions vary within policies.
The condition of an automobile or other property when damage is so extensive that repair costs would exceed the value of the vehicle or property.
Insures against charges for towing and road service at the place of disablement, with a maximum amount stipulated for each occurrence.
A term used to explain the way information on financial matters, such as financial reports and actions of companies or markets, are communicated so that they are easily understood and frank.
Insurance to cover problems associated with traveling, generally including trip cancellation due to illness, lost luggage and other incidents.
A general reinsurance agreement between the ceding or primary company and the reinsurer containing the contractual terms under which a portion or all of the primary company
Umbrella Liability Policy
A form of insurance protection against losses in excess of amounts covered by other liability insurance policies; also protects the insured in many situations not covered by the usual liability policies. This policy is available for both personal and commercial lines coverage.
A form of annuity contract that gives purchasers the freedom to choose among certain optional features in their contract.
The result of the policyholder
Underinsured Motorists Coverage (UIM)
Coverage is intended to cover you and passengers in your car for losses unpaid because sufficient bodily injury liability limits are not available from the policy of an at-fault driver. How and under what circumstances the coverage becomes operative varies in different states.
An employee of an insurance company who is a selector of risks. The underwriter is expected to select business that will produce an average risk of loss no greater than anticipated for the class of business. In the life insurance industry,
The process of selecting risks for insurance and determining in what amounts and on what terms the insurance company accepts the risk.
Underwriting Profit or Loss
The profit or loss experienced by a property/casualty insurance company after deducting from earned premiums the incurred losses and expenses of doing business, but before provision of federal income tax. It excludes investment income.
The portion of a property/casualty insurance premium that applies to the unexpired portion of the policy period.
Risks for which it is difficult for someone to get insurance. (See Insurable Risk.)
Uninsured Motorists Coverage
Pays the policyholder and passengers in his/her car for losses sustained by reason of bodily injury, sickness, disease or death caused by the owner or operator of an uninsured automobile or a
Uninsured Motorists Property Damage Coverage (UMPD)
Provides coverage to a vehicle involved in an accident with an uninsured motorist. UMPD is similar to
The process of determining a company
An insurance policy under which the insurance company is obligated to pay the full amount of the policy written to insure real property against loss by fire (and, sometimes, other perils) when the property insured is totally destroyed. Several states have laws that are known as Valued Policy Laws.
Willful, intentional, often random, destruction or defacement of private or public property. Insurance against the vandalism peril is usually combined with the malicious mischief peril.
Variable Life Insurance
A type of permanent life insurance in which the death benefit and the policy value vary in relation to the investment experience of a selected fund in which the policy values are invested.
In no-fault auto insurance states with the verbal threshold, victims are allowed to sue in tort only if their injuries meet certain verbal descriptions of the types of injuries that should, as a matter of policy, render one eligible to seek to recover for pain and suffering in a cause of action in tort.
Viatical Settlement Companies
Insurance firms that buy life insurance policies at a steep discount from policyholders who are often terminally ill and need the payment for medications or treatments. The companies provide early payouts to the policyholder, assume the premium payments, and collect the face value of the policy upon the policyholder
A policy contract that for some reason specified in the policy becomes free of all legal effect. One example under which a policy could be voided is when information a policyholder provided is proven untrue.
A measure of the degree of fluctuation in a stock
Most homeowners policies cover damage from a volcanic eruption.
Number of shares a stock trades either per day or per week.
The market where a person seeking insurance obtains it with no help from the state, through an insurer of his or her own selection.
The surrender of a right or privilege. In life insurance, a provision that sets certain conditions, such as disablement, which allow coverage to remain in force without payment of premiums.
Special coverage on cargo in overseas ships against the risk of being confiscated by a government in wartime. It is excluded from standard ocean marine insurance and can be purchased separately. It often excludes cargo awaiting shipment on a wharf or on ships after 15 days of arrival in port.
Water-Damage Insurance Coverage
Protection provided in most homeowners insurance policies against sudden and accidental water damage, from burst pipes for example. Does not cover damage from problems resulting from a lack of proper maintenance such as dripping air conditioners. Water damage from floods is covered under separate flood insurance policies issued by the federal government.
An insurance or securities product used as a hedge by energy-related businesses and others whose sales tend to fluctuate depending on the weather.
A type of business interruption insurance that compensates for financial losses caused by adverse weather conditions, such as constant rain on the day scheduled for a major outdoor concert.
A system (established under state laws) under which employers provide insurance for benefit payments to employees for their work-related injury, death and disease regardless of fault. Not to be mistaken as health insurance.
Broad policy coordinated to cover liability exposures for a large group of businesses that have something in common. Might be used to insure all businesses working on a large construction project, such as an apartment complex.
To insure, underwrite or accept an application for insurance.
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