Dictionary of Insurance Terms

A
• Absolute Liability: Liability for damages even though fault or negligence cannot be proven.
• Accident: An event or occurrence which is unforeseen and unintended.
• Accidental Bodily Injury: Injury to the body as the result of an accident.
• Accounting: The process of recording, summarizing, and allocating all items of income and expense of the company and analyzing, verifying, and reporting the results.
• Act of God: A flood, earthquake or other nonpreventable accident resulting from natural causes that occur without any human intervention.
• Activities of Daily Living: A list of activities, normally including mobility, dressing, bathing, toileting, transferring, and eating which are used to assess degree of impairment and determine eligibility for some types of insurance benefits.
• Actual Cash Value (ACV): 1) The cost of replacing or restoring property at prices prevailing at the time and place of the loss, less depreciation, however caused; 2) replacement cost minus depreciation.
• Actuarially Fair: The price for insurance which exactly represents the expected losses
• Actuary: A person professionally trained in the technical aspects of pensions, insurance and related fields. The actuary estimates how much money must be contributed to an insurance or pension fund in order to provide future
• Additional insured: A person, company or entity protected by an insurance policy in addition to the insured.
• Adjuster: A person who investigates and settles losses for an insurance carrier.
• Adjusting: The process of investigating and settling losses with or by an insurance carrier.
• Adjustment Bureau: Organization for adjusting insurance claims that is supported by insurers using the bureau's services.
• Administrative Services Only (AS0) Plan: An arrangement under which an insurance carrier or an independent organization will, for a fee, handle the administration of claims, benefits and other administrative functions for a selfinsured group.
• Advance Premium Mutual: Mutual insurance company owned by the policy owners that does not issue assessable policies but charges premiums expected to be sufficient to pay all claims and expenses.
• Adverse Selection: The tendency of persons who present a poorerthanaverage risk to apply for, or continue, insurance to a greater extent than do persons with average or betterthanaverage expectations of loss.
• Age Limits: Stipulated minimum and maximum ages below and above which the company will not accept applications or may not renew policies.
• Agent: An insurance company representative licensed by the state who solicits, negotiates or effects contracts of insurance, and provides service to the policyholder for the insurer.
• Aggregate Deductible: Deductible in some property and health insurance contracts in which all covered losses during a year are added together and the insurer pays only when the aggregate deductible amount is exceeded.
• Aggregate Indemnity: The maximum dollar amount that may be collected for any disability or period of disability under the policy.
• Alien Insurer: An insurance company domiciled in another country.
• Allied Lines: A term for forms of property insurance allied with fire insurance, covering such perils as windstorm, hail, explosion, and riot.
• Allocated Benefits: Benefits for which the maximum amount payable for specific services is itemized in the contract.
• Allrisks Policy: Coverage by an insurance contract that promises to cover all losses except those losses specifically excluded in the policy. See also: Risks of direct loss to property.
• Amendment: A formal document changing the provisions of an insurance policy signed jointly by the insurance company officer and the policy holder or his authorized representative.
• Amortization: Paying an interestbearing liability by gradual reduction through a series of installments, as opposed to one lumpsum payment.
• Annual Statement: The annual report, as of December 31, of an insurer to a state insurance department, showing assets and liabilities, receipts and disbursements, and other financial data.
• Application: A signed statement of facts made by a person applying for life insurance and then used by the insurance company to decide whether or not to issue a policy. The application becomes part of the insurance contract when the policy is issued.
• Arbitration: Arbitration: A form of alternative dispute resolution where an unbiased person or panel renders an opinion as to responsibility for or extent of a loss.
• Arson: The willful and malicious burning of, or attempt to burn, any structure or other property, often with criminal or fraudulent intent.
• Assessment Association: An insurer that does not charge a fixed premium for insurance, but rather assesses its members periodically to pay its losses. Assessment insurers usually collect an advance premium which is estimated to cover losses and expenses, but reserve the right to make additional assessments whenever the premium collected is insufficient.
• Assessment Mutual: Mutual insurance company that has the right to assess policy owners for losses and expenses.
• Assets: All funds, property, goods, securities, rights of action, or resources of any kind owned by an insurance company. Statutory accounting, however, excludes nonadmitted assets, such as deferred or overdue premiums, that would be considered assets under generally accepted accounting principles (GAAP).
• Assignment: The legal transfer of one person's interest in an insurance policy to another person.
• Association Captive: Type of captive insurer owned by members of a sponsoring organization or group, such as a trade association.
• Association Group: A group formed from members of a trade or a professional association for group insurance under one master health insurance contract.
• Assumption of Risk Doctrine: Defense against a negligence claim that bars recovery for damages if a person understands and recognizes the danger inherent in a particular activity or occupation.
• Attractive Nuisance: Condition that can attract and injure children. Occupants of land on which such a condition exists are liable for injuries to children.
• Automatic Reinsurance: An agreement that the insurer must cede and the reinsurer must accept all risks within certain explicitly defined limits. The reinsurer undertakes in advance to grant reinsurance to the extent specified in the agreement in every case where the ceding company accepts the application and retains its own limit.
• Automobile Insurance Plan: One of several types of "shared market" mechanisms where persons who are unable to obtain such insurance in the voluntary market are assigned to a particular company, usually at a higher rate than the voluntary market. Formerly called "Assigned Risk."
• Automobile Liability Insurance: Protection for the insured against financial loss because of legal liability for carrelated injuries to others or damage to their property.
• Automobile Physical Damage Insurance: Coverage to pay for damage to or loss of an insured automobile resulting from collision, fire, theft, or other perils.
• Automobile Reinsurance Facility: One of several types of "shared market" mechanisms used to make automobile insurance available to persons who are unable to obtain such insurance in the regular market.
• Aviation Insurance: Aircraft insurance including coverage of aircraft or their contents, the owner's liability, and accident insurance on the passengers. Beneficiary: The person designated or provided for by the policy terms to receive any benefits provided by the policy or plan upon the death of the insured.
• Average Indexed Monthly Earnings (AIME): Under the OASDI program, the person's actual earnings are indexed to determine his or her primary insurance amount (PIA).
• Avoidance: see Loss Avoidance.

B
• 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.
• 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.
• 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.
• Boat Owners Package Policy: A special package policy for boat owners that combines physical damage insurance, medical expense insurance, liability insurance, and other coverage's 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."
• 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 12month 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 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.
• BuySell 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 buyingandselling process are established before death or the beginning of disability.
C
• 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.
• Captive Insurance Company: A company owned solely or in large part by one or more noninsurance 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.
• Casualty Insurance: Insurance concerned with the insider'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.
• Causesofloss Form: Form added to commercial property insurance policy that indicates the causes of loss that are covered. There are four causesofloss 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 by the College of Financial Planning.
• 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.
• Chartered Life
• 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 nofault: Allows auto insureds the choice of remaining under the tort system or choosing nofault at a reduced premium.
• Claim: A request for payment of a loss which may come under the terms of an insurance contract.
• Claims Adjustor: Person who settles claims: an agent, company adjustor, independent adjustor, adjustment bureau, or public adjustor.
• Claimmade policy: A liability insurance policy under which coverage applies to claims filed during the policy period.
• Class Rating: Ratemaking method in which similar insureds are placed in the same underwriting class and each is charged the same rate. Also called manual rating.
• 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 claimsmade 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 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.
• Company Adjuster: Claims adjuster 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
• 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.
• Conditions: Provisions inserted in an insurance contract that qualify or place limitations on the insurer's promise to perform.
• 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.
• Contents Broad Form: See Homeowners 4 policy.
• 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.
• 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.
• 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. Seventyfive percent of the eligible employees must be insured. (See Noncontributory.)
• Contributory Negligence: Negligence of the damaged person that helped to cause the accident. Some states bar recovery to the plaintiff if the plaintiff was contributory negligent to any extent. Others apply comparative negligence.
• Convertible Bond: A bond that offers the holder the privilege of converting the bond into a specified number of shares of stock.
• 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
• 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 otherthancollision 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.
• 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 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.
• Crophail Insurance: Protection against damage to growing crops as a result of hail or certain other named perils.
• 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.
• Currently Insured: Status of a covered person under the Oldage, 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.
D
• Damage to Property of Others: Damage covered up to $500 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.
• 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.
• Dental Insurance: Individual or group plan that helps pay costs of normal dental care as well as damage to teeth from an accident.
• Dependent Benefits: Social Security benefits available to the spouse or children of a Social Security beneficiary.
• 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.
• 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)
• Difference in Conditions Insurance (DIC): "Allrisks" 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.
• 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 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.
• 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.
Dictionary of Insurance Terms
A
• Absolute Liability: Liability for damages even though fault or negligence cannot be proven.
• Accident: An event or occurrence which is unforeseen and unintended.
• Accidental Bodily Injury: Injury to the body as the result of an accident.
• Accounting: The process of recording, summarizing, and allocating all items of income and expense of the company and analyzing, verifying, and reporting the results.
• Act of God: A flood, earthquake or other nonpreventable accident resulting from natural causes that occur without any human intervention.
• Activities of Daily Living: A list of activities, normally including mobility, dressing, bathing, toileting, transferring, and eating which are used to assess degree of impairment and determine eligibility for some types of insurance benefits.
• Actual Cash Value (ACV): 1) The cost of replacing or restoring property at prices prevailing at the time and place of the loss, less depreciation, however caused; 2) replacement cost minus depreciation.
• Actuarially Fair: The price for insurance which exactly represents the expected losses
• Actuary: A person professionally trained in the technical aspects of pensions, insurance and related fields. The actuary estimates how much money must be contributed to an insurance or pension fund in order to provide future
• Additional insured: A person, company or entity protected by an insurance policy in addition to the insured.
• Adjuster: A person who investigates and settles losses for an insurance carrier.
• Adjusting: The process of investigating and settling losses with or by an insurance carrier.
• Adjustment Bureau: Organization for adjusting insurance claims that is supported by insurers using the bureau's services.
• Administrative Services Only (AS0) Plan: An arrangement under which an insurance carrier or an independent organization will, for a fee, handle the administration of claims, benefits and other administrative functions for a selfinsured group.
• Advance Premium Mutual: Mutual insurance company owned by the policy owners that does not issue assessable policies but charges premiums expected to be sufficient to pay all claims and expenses.
• Adverse Selection: The tendency of persons who present a poorerthanaverage risk to apply for, or continue, insurance to a greater extent than do persons with average or betterthanaverage expectations of loss.
• Age Limits: Stipulated minimum and maximum ages below and above which the company will not accept applications or may not renew policies.
• Agent: An insurance company representative licensed by the state who solicits, negotiates or effects contracts of insurance, and provides service to the policyholder for the insurer.
• Aggregate Deductible: Deductible in some property and health insurance contracts in which all covered losses during a year are added together and the insurer pays only when the aggregate deductible amount is exceeded.
• Aggregate Indemnity: The maximum dollar amount that may be collected for any disability or period of disability under the policy.
• Alien Insurer: An insurance company domiciled in another country.
• Allied Lines: A term for forms of property insurance allied with fire insurance, covering such perils as windstorm, hail, explosion, and riot.
• Allocated Benefits: Benefits for which the maximum amount payable for specific services is itemized in the contract.
• Allrisks Policy: Coverage by an insurance contract that promises to cover all losses except those losses specifically excluded in the policy. See also: Risks of direct loss to property.
• Amendment: A formal document changing the provisions of an insurance policy signed jointly by the insurance company officer and the policy holder or his authorized representative.
• Amortization: Paying an interestbearing liability by gradual reduction through a series of installments, as opposed to one lumpsum payment.
• Annual Statement: The annual report, as of December 31, of an insurer to a state insurance department, showing assets and liabilities, receipts and disbursements, and other financial data.
• Application: A signed statement of facts made by a person applying for life insurance and then used by the insurance company to decide whether or not to issue a policy. The application becomes part of the insurance contract when the policy is issued.
• Arbitration: Arbitration: A form of alternative dispute resolution where an unbiased person or panel renders an opinion as to responsibility for or extent of a loss.
• Arson: The willful and malicious burning of, or attempt to burn, any structure or other property, often with criminal or fraudulent intent.
• Assessment Association: An insurer that does not charge a fixed premium for insurance, but rather assesses its members periodically to pay its losses. Assessment insurers usually collect an advance premium which is estimated to cover losses and expenses, but reserve the right to make additional assessments whenever the premium collected is insufficient.
• Assessment Mutual: Mutual insurance company that has the right to assess policy owners for losses and expenses.
• Assets: All funds, property, goods, securities, rights of action, or resources of any kind owned by an insurance company. Statutory accounting, however, excludes nonadmitted assets, such as deferred or overdue premiums, that would be considered assets under generally accepted accounting principles (GAAP).
• Assignment: The legal transfer of one person's interest in an insurance policy to another person.
• Association Captive: Type of captive insurer owned by members of a sponsoring organization or group, such as a trade association.
• Association Group: A group formed from members of a trade or a professional association for group insurance under one master health insurance contract.
• Assumption of Risk Doctrine: Defense against a negligence claim that bars recovery for damages if a person understands and recognizes the danger inherent in a particular activity or occupation.
• Attractive Nuisance: Condition that can attract and injure children. Occupants of land on which such a condition exists are liable for injuries to children.
• Automatic Reinsurance: An agreement that the insurer must cede and the reinsurer must accept all risks within certain explicitly defined limits. The reinsurer undertakes in advance to grant reinsurance to the extent specified in the agreement in every case where the ceding company accepts the application and retains its own limit.
• Automobile Insurance Plan: One of several types of "shared market" mechanisms where persons who are unable to obtain such insurance in the voluntary market are assigned to a particular company, usually at a higher rate than the voluntary market. Formerly called "Assigned Risk."
• Automobile Liability Insurance: Protection for the insured against financial loss because of legal liability for carrelated injuries to others or damage to their property.
• Automobile Physical Damage Insurance: Coverage to pay for damage to or loss of an insured automobile resulting from collision, fire, theft, or other perils.
• Automobile Reinsurance Facility: One of several types of "shared market" mechanisms used to make automobile insurance available to persons who are unable to obtain such insurance in the regular market.
• Aviation Insurance: Aircraft insurance including coverage of aircraft or their contents, the owner's liability, and accident insurance on the passengers. Beneficiary: The person designated or provided for by the policy terms to receive any benefits provided by the policy or plan upon the death of the insured.
• Average Indexed Monthly Earnings (AIME): Under the OASDI program, the person's actual earnings are indexed to determine his or her primary insurance amount (PIA).
• Avoidance: see Loss Avoidance.
B
• 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.
• 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.
• 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.
• Boat Owners Package Policy: A special package policy for boat owners that combines physical damage insurance, medical expense insurance, liability insurance, and other coverage's 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."
• 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 12month 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 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.
• BuySell 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 buyingandselling process are established before death or the beginning of disability.
C
• 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.
• Captive Insurance Company: A company owned solely or in large part by one or more noninsurance 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.
• Casualty Insurance: Insurance concerned with the insider'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.
• Causesofloss Form: Form added to commercial property insurance policy that indicates the causes of loss that are covered. There are four causesofloss 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 by the College of Financial Planning.
• 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.
• Chartered Life
• 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 nofault: Allows auto insureds the choice of remaining under the tort system or choosing nofault at a reduced premium.
• Claim: A request for payment of a loss which may come under the terms of an insurance contract.
• Claims Adjustor: Person who settles claims: an agent, company adjustor, independent adjustor, adjustment bureau, or public adjustor.
• Claimmade policy: A liability insurance policy under which coverage applies to claims filed during the policy period.
• Class Rating: Ratemaking method in which similar insureds are placed in the same underwriting class and each is charged the same rate. Also called manual rating.
• 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 claimsmade 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 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.
• Company Adjuster: Claims adjuster 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
• 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.
• Conditions: Provisions inserted in an insurance contract that qualify or place limitations on the insurer's promise to perform.
• 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.
• Contents Broad Form: See Homeowners 4 policy.
• 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.
• 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.
• 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. Seventyfive percent of the eligible employees must be insured. (See Noncontributory.)
• Contributory Negligence: Negligence of the damaged person that helped to cause the accident. Some states bar recovery to the plaintiff if the plaintiff was contributory negligent to any extent. Others apply comparative negligence.
• Convertible Bond: A bond that offers the holder the privilege of converting the bond into a specified number of shares of stock.
• 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
• 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 otherthancollision 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.
• 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 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.
• Crophail Insurance: Protection against damage to growing crops as a result of hail or certain other named perils.
• 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.
• Currently Insured: Status of a covered person under the Oldage, 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.
D
• Damage to Property of Others: Damage covered up to $500 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.
• 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.
• Dental Insurance: Individual or group plan that helps pay costs of normal dental care as well as damage to teeth from an accident.
• Dependent Benefits: Social Security benefits available to the spouse or children of a Social Security beneficiary.
• 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.
• 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)
• Difference in Conditions Insurance (DIC): "Allrisks" 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.
• 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 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.
• 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.