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Sabal Insurance Group, Inc.

805 East Broward Blvd, Ste 303

Fort Lauderdale, Florida, 33301

1-800-716-9948

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- Glossary

Glossary of Insurance Terminology

Following is a brief explanation of common coverage terms. This is not a contract or binder of coverage. The legal contract is contained only in the insurance policy.

If you have any questions, please contact one of our agents.

Click on the first letter of the Term you are looking for:

A

AAI: Accredited Adviser in Insurance, a designation awarded by the Insurance Institute of America to people who have completed a three-semester educational program designed for insurance producers.

accelerated benefits: Benefits available in some life insurance policies before death, usually triggered by long-term, catastrophic or terminal illness. Also known as living benefits.

accident: An event that is unforeseen, unexpected, and unintended.

accident report form: An accident report form is used to record key information about the accident.

accidental bodily injury: Physical injury sustained as the result of an accident.

accidental death benefits: A provision added to a life insurance policy for payment of an additional benefit in case of death that results from an accident. This provision is often called "double indemnity."

accounts receivable insurance: Pays for the cost of reconstructing accounts receivable records that have been damaged or destroyed by a covered peril. Even more important, it covers any payments that cannot be collected because records cannot be reconstructed.

accumulation period: The time during which a person pays money into an annuity contract and builds up a fund to provide a deferred annuity.

actual cash value (ACV): The value of property as figured by determining what it would cost to replace the property (see Replacement Cost) and then adjusting this replacement cost by subtracting an amount that reflects depreciation.

actuary: Someone professionally trained in the technical aspects of insurance and related fields, particularly in the mathematics of insurance (the calculation of premiums, reserves and other values). An actuary uses complex mathematical methods, often with the aid of computers, to analyze past loss data and other statistics and develop systems for determining future premiums.

ACV: See Actual Cash Value.

adjustable life insurance: A type of insurance that allows the policyholder to change the plan of insurance, raise or lower the face amount of the policy, increase or decrease the premium and lengthen or shorten the protection period.

adjuster: See Claims Adjuster.

administrative assistant: The administrative assistant supports the sales efforts of the producer. Other titles for this position include agency underwriter, insurance placer, customer service representative, marketing specialist, account analyst, and office manager.

administrative services only (ASO) agreement: Contract between an insurer (or its subsidiary) and a group employer, eligible group, trustee, or other party, in which the insurer provides certain administrative services. These services may include actuarial support, plan design, claims processing, data recovery and analysis, benefits communications, financial advice, medical care conversions, data preparation for governmental reports, and stop-loss coverage.

admitted assets: Assets recognized and accepted by state insurance laws in determining the solvency of insurers and reinsurers. To make it easier to assess an insurance company's financial position, state statutory accounting rules do not permit certain assets to be included on the balance sheet. Only assets that can be easily sold in the event of liquidation or borrowed against, and receivables for which payment can be reasonably anticipated, are included in admitted assets.

admitted company: An insurance company licensed and authorized to do business in a particular state.

adverse selection: When people with a very high probability of loss purchase insurance to a greater extent that people with average or below average probabilities of loss. Underwriters' major goal is to avoid adverse selection.

age limits: Ages below and above which an insurance company will not accept applications or renew policies.

agency billing: See Producer Billing.

agency underwriter: See Administrative Assistant.

agent: An authorized representative of an insurance company who sells and services insurance contracts. See Producer, Exclusive Agent, Independent Agent.

aggregate indemnity: The maximum amount that may be collected for any disability, or period of disability, under an insurance policy.

all-risks: "All Risks" property policies, often called "special" policies, cover any loss unless it is caused by an excluded peril listed in the policy.

allied lines: Property insurance that is usually bought in conjunction with fire insurance; it includes wind, water damage and vandalism coverage.

allocated benefits: Maximum amount for specific services as itemized in an insurance contract.

alternate delivery system: Health services that are more cost-effective than inpatient, acute-care hospitals, such as skilled and intermediary nursing facilities, hospice programs, and in-home services.

alternative markets: Nontraditional mechanisms used to finance risk. This includes captives, which are insurers owned by one or more non-insurers to provide owners with coverage. Risk-retention groups, formed by members of similar professions or businesses to obtain liability insurance and selfinsurance, are also included.

ambulatory care: Medical services provided on an outpatient (non-hospitalized) basis. Services may include diagnosis, treatment, surgery, and rehabilitation.

amendment: Document changing the provisions of an insurance contract signed jointly by the insurer and the policyholder.

annuitant: The person entitled to receive annuity payments or who now receives them.

annuities: Annuities are contracts sold by life insurance companies (the seller must be a licensed insurance entity in your state). In their simplest form, you pay a sum of money (either a lump sum or a series of payments) and the insurance company makes periodic payments to you, beginning on the date in your contract and continuing for the rest of your life. The earnings on your annuity payments are not taxable during the accumulation phase of your agreement; the annuity payments are taxable as income when you receive them. Variable annuities permit you to place your payments in professionally managed funds, similar to mutual funds, and to control how these payments are invested during the life of your contract. Unlike mutual funds, variable annuities have insurance provisions and guarantees to preserve the value of the principal you pay into the annuity. They also generally carry higher fees than mutual funds. Annuities may entail extensive taxation and estate issues, and annuity buyers should make sure they're aware of such issues.

annuity certain: A contract that provides an income for a specified number of years, regardless of life or death.

annuity consideration: The payment, or one of the regular periodic payments, an annuitant makes for an annuity.

antitrust laws: Laws that prohibit companies from working as a group to set prices, restrict supplies or stop competition in the marketplace. The insurance industry is subject to state antitrust laws but has a limited exemption from federal antitrust laws. This exemption, set out in the McCarran- Ferguson Act, permits insurers to jointly develop common insurance forms and share loss data to help them price policies.

application: A statement of information made by someone applying for life insurance. The information gathered helps the life insurance company assess whether the risk presented by the applicant is acceptable to underwriters.

apportionment: The dividing of a loss proportionately among two or more insurers that cover the same loss.

appraisal: A survey to determine a property's insurable value, or the amount of a loss.

approval: Signifies the legal acceptance of forms by a state when policy information is filed;Signifies the insurer's acceptance of risks as set forth in an application for insurance (as originally made or modified by the insurer); orSignifies the acceptance of a request from an applicant or policyholder for new insurance, reinstatement of a terminated policy, a policy loan, or other request.

arbitration: 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.

arson: The deliberate setting of a fire.

assigned risk plans: See Automobile Insurance Plans.

assignment: The legal transfer of one person's interest in an insurance policy to another person.

association group: A group formed from members of a trade or professional association for insurance under one master health insurance contract.

audit: During an audit, members of the home office staff underwriting department examine files to see whether the underwriting guidelines are being followed. Also see Premium Auditor.

audited premium: See Premium Auditor.

auto liability: Pays for damages that you cause to other people and their property. If you cause an accident and you bang up your car or yourself, your auto liability insurance will not pay for your medical bills or the repairs to your car. (Auto medical payments coverage would.) But it will pay for the other guy's, up to the limits of your policy. Without the coverage, your assets would be subject to seizure to pay the medical bills, car repairs and other damages that you caused in an accident. Once the insurance company pays out the limits of your policy, you're liable for the rest, which is why it's advisable to purchase higher limits than what your state requires. Auto liability coverage has three parts: bodily injury per person, bodily injury per accident, and property damage. Limits for liability are usually written like "20/40/10." That means a policy will pay bodily injury losses up to $20,000 per person, and up to $40,000 per accident (if more than one person was hurt). It will also pay property damage losses up to $10,000 per accident.

auto medical payments: If you cause an accident, the coverage works like this: Auto liability coverage pays the bodily injury and property damage losses of the other person. Collision coverage pays for repairs to your own vehicle. Auto medical payments coverage pays medical and funeral expenses for you and your passengers. If you already have health and disability insurance, the coverage may be redundant.

auto physical damage coverage: Insures against loss resulting from damage to an auto owned by the insured; also provides coverage if the car is stolen.

automatic premium loan: A provision in a life insurance policy that any premium not paid by the end of the grace period (usually 31 days) is automatically paid by a policy loan if there is sufficient cash value.

automobile insurance plans: Formerly known as assigned risk plans--are residual market programs providing auto insurance. See Residual Market.

B

beach and windstorm plans: State-sponsored insurance pools that sell property coverage for the peril of windstorm to people unable to buy it in the voluntary market because of their high exposure to risk. Seven states (AL, FL, LA, MS, NC, SC, TX) offer these plans to cover residential and commercial properties against hurricanes and other windstorms. Georgia and New York provide this kind of coverage for windstorm and hail in certain coastal communities through other property pools.

beneficiary: The person or financial instrument (for example, a trust fund), named in the policy as the recipient of insurance money in the event of the policyholder's death.

benefit: Amount payable by the insurance company to a claimant, assignee, or beneficiary when the insured suffers a loss.

binder: Temporary authorization of coverage issued prior to the actual insurance policy.

binding receipt: A receipt given for the payment which accompanies an application for insurance. If the policy is approved, the payment "binds" the company to make the policy effective from date of receipt.

blanket contract: Contract for health insurance that covers a class of persons. It is used for groups such as athletic teams and for employee travel.

blanket insurance: Coverage for more than one type of property at one location or one type of property at more than one location. Example: chain store

blanket medical expense: A provision that entitles the insured person to collect up to a maximum for all hospital and medical expenses, without limitations on specific types of medical expenses.

blue cross: Nonprofit corporation providing protection to its members against the cost of hospital care in a limited geographic area.

blue shield: Nonprofit corporation providing protection to its members against the cost of surgery and other items of medical care in a limited geographic area.

bodily injury liability coverage: Portion of an auto insurance policy that covers injuries the policyholder causes to someone else.

boiler and machinery insurance: Often called Equipment Breakdown, or Systems Breakdown insurance. Commercial insurance that covers damage caused by the malfunction or breakdown of boilers, and a vast array of other equipment including air conditioners, heating, electrical, telephone and computer systems.

bond: A security that obligates the issuer to pay interest at specified intervals and to repay the principal amount of the loan at maturity. In insurance, a form of suretyship. Bonds of various types guarantee a payment or a reimbursement for financial losses resulting from dishonesty, failure to perform and other acts.

bond rating: An evaluation of a bond's financial strength, conducted by such major ratings agencies as Standard & Poor's and Moody's Investors Service.

broker: A sales and service representative who handles insurance for clients, generally selling insurance of various kinds and for several companies. Brokers resemble agents, except for the fact that, in a legal sense, brokers represent the party seeking insurance rather than the insurance company. See Agent, Producer.

builders risk policy: A type of property insurance that protects against loss from fire and other named perils during construction.

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: 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. It 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. Also known as business interruption insurance.

business insurance: A policy that provides coverage to a business. It is often purchased to indemnify a business for the loss of services if a key employee (such as a partner) becomes disabled.

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. (Also known as key person insurance.)

businessowners policy (BOP): A policy that combines property, liability and business interruption coverages for small- to medium-sized businesses. Coverage is generally cheaper than if purchased through separate insurance policies.

C

cancer insurance: A very narrow form of health insurance that covers the policyholder in the event he or she contracts cancer. Policies often exclude skin cancer. Some policies won't pay for cancer treatments until several years after the policy was purchased. Consumer groups and insurance regulators have said cancer insurance policies are more expensive than they're worth, since the insurance companies pay out a rather small percentage of the premiums they collect.

capitation: Method of payment whereby a physician or hospital is paid a fixed amount for each person in a particular plan regardless of the frequency or type of service provided.

cargo coverage: An insurance policy protecting cargo being transported by a carrier.

cash value: The amount available in cash upon surrender of a policy before it becomes payable upon death or maturity.

catastrophe: Term used for statistical recording purposes to refer to a single incident or a series of closely related incidents causing severe insured property losses totaling more than a given amount, currently $25 million.

catastrophe reinsurance: Reinsurance for catastrophic losses. The insurance industry is able to absorb the multibillion dollar losses caused by natural and man-made disasters such as hurricanes, earthquakes and terrorist attacks because losses are spread among thousands of companies including catastrophe reinsurers who operate on a global basis. Insurers' ability and willingness to sell insurance fluctuates with the availability and cost of catastrophe reinsurance. After major disasters, such as Hurricane Andrew and the World Trade Center terrorist attack, the availability of catastrophe reinsurance becomes extremely limited. Claims deplete reinsurers' capital and, as a result, companies are more selective in the type and amount of risks they assume. In addition, with available supply limited, prices for reinsurance rise. This contributes to an overall increase in prices for property insurance.

certificate: A statement issued to individuals insured under a group policy, setting forth the essential provisions relating to their coverage.

claim: Notification to an insurance company that payment of an amount is due under the terms of the policy. A claim is a demand by a person or business who is seeking to recover for a loss. A claim may be made against an individual. A claim may also be made against an insurance company, when an insured asks the insurance company to pay for a loss that may be covered by an insurance policy.

claims made policy: A form of insurance that pays claims presented to the insurer during the term of the policy or within a specific term after its expiration. It limits liability insurers' exposure to unknown future liabilities. See occurrence policy.

co-insurance: Arrangement by which the insurer and the insured share, in a specific ratio, payment for losses covered by the policy, after the deductible is met.

collission coverage: Portion of an auto insurance policy that covers the damage to the policyholder's car from a collision.

combination plans: Life insurance policies that combine features of term and whole life policies.

commercial general liability (CGL): A broad commercial policy that covers all liability exposures of a business that are not specifically excluded. Coverage includes product liability, completed operations, premises and operations, and independent contractors.

commercial lines: Products designed for and bought by businesses. Among the major coverages are boiler and machinery, business income, commercial auto, comprehensive general liability, directors and officers liability, fire and allied lines, inland marine, medical malpractice liability, product liability, professional liability, surety and fidelity, and workers compensation. Most of these commercial coverages can be purchased separately except business income, which must be added to a fire insurance (property) policy.

commercial multiple peril policy: Package policy that includes property, boiler and machinery, crime and general liability coverages.

competitive state fund: A facility established by a state to sell workers compensation in competition with private insurers.

completed operations coverage: Pays for bodily injury or property damage caused by a completed project or job. Protects a business that sells a service against liability claims.

comprehensive coverage: Portion of an auto insurance policy that covers damage to the policyholder's car not involving a collision with another car (including damage from fire, explosions, earthquakes, floods and riots), and theft.

comprehensive medical expense insurance: Insurance that provides coverage, in one policy, for basic hospital expense and major medical expense.

compulsory auto insurance: The minimum amount of auto liability insurance that meets a state law. Financial responsibility laws in every state require all automobile drivers to show proof, after an accident, of their ability to pay damages up to the state minimum. In compulsory liability states this proof, which is usually in the form of an insurance policy, is required before you can legally drive a car.

computer insurance: Covers computer equipment and peripherals beyond the normal coverage provided in homeowner's insurance policies. Usually, homeowner's policies only cover up to between $1,000 and $3,000 in computer equipment. With more people owning expensive computers and peripherals, and even using them for home-based businesses, riders and separate policies are becoming more popular. Some policies are also designed to cover damage and/or theft of portable equipment, such as laptop computers, and even the costs of data recovery.

consideration clause: Stipulation that states the basis on which an insurer issues an insurance contract.

consolidate omnibus budget reconciliation act (COBRA): Requires employers with more than 20 employees to make group health care coverage available for 18 months, at the employee's expense, to employees who leave the employer for any reason other than gross misconduct.

contingent liability: Liability of individuals, corporations, or partnerships for accidents caused by people other than employees for whose acts or omissions the corporations or partnerships are responsible.

contributory plan: Group plan under which the insured shares in the cost of the plan with the policyholder.

conventional health plan: Plan that provides all benefits and issues certificates containing the insurance company's guarantees.

conversion privilege: Right given to an insured person under a group insurance contract to change coverage, without evidence of medical insurability, to an individual policy upon termination of the group coverage. The conditions under which conversion can be made are defined in the master policy.

convertible term insurance: Term insurance that offers the policyholder the option of exchanging it for a permanent plan of insurance without evidence of insurability.

coordination of benefits (COB): Method of integrating benefits payable under more than one health insurance plan so that the insured's benefits from all sources do not exceed 100 percent of allowable medical expenses or eliminate incentives to contain costs.

cost containment: Reduction of inefficiencies in the consumption, allocation, or production of health care services. Inefficiencies can occur when health services are used inappropriately; when health services could be delivered in less costly settings; and when the costs could be reduced by using a different combination of resources.

cost index: A way to compare the costs of similar plans of life insurance. A policy with a smaller index number is generally a better buy than a comparable policy with a larger index number.

cost-of-living rider: An option that permits the policyholder to purchase increasing term insurance coverage. The death proceeds increase by a stated amount each year to coincide with an estimated increase in the cost of living.

coverage: Synonym for insurance.

covered expenses: Health care charges that an insurer will consider paying under the terms of a health insurance policy.

credit insurance: Optional coverage that pays off the balance of an outstanding loan in the event you become disabled, unemployed or die. Exact coverage depends on the particular policy. Variations include credit life (pays if you die), credit health or disability (pays if you get sick or become disabled) and credit unemployment insurance (pays if you involuntarily lose your job). Usually offered with credit cards, auto loans and mortgages.

credit life insurance: Term life insurance issued through a lender or lending agency to cover payment of a loan, installment purchase or other obligation, in case of death.

crime insurance: Term referring to property coverages for the perils of burglary, theft and robbery.

current assumption whole life insurance: A variation of universal life insurance, this product involves fixed premiums and fixed death benefits. Its cash value growth depends on market conditions. If they are favorable and if premiums paid in the policy's first year are large enough, premiums for one or more years may be reduced to zero.

D

declaration: Part of a property or liability insurance policy that states the name and address of policyholder, property insured, its location and description, the policy period, premiums and supplemental information. Referred to as the "dec page."

declination: The rejection by a life insurance company of an application for life insurance, usually for reasons of health or occupation.

deductible: Amount that must be paid by the insured before benefits will be paid by the insurer.

deferred annuity: Annuity payments that will begin at some future date.

deferred group annuity: A type of group annuity providing for the purchase each year of a paid-up deferred annuity for each member of the group, the total amount received by the member at retirement being the sum of these deferred annuities.

defined benefit plan: A retirement plan under which pension benefits are fixed in advance by a formula based generally on years of service to the company multiplied by a specific percentage of wages, usually average earnings over that period or highest average earnings over the final years with the company.

defined contribution plan: An employee benefit plan under which the employer sets up benefit accounts and contributions are made to it by the employer and by the employee. The employer usually matches the employee's contribution up to a stated limit.

deposit administration group annuity: A type of group annuity providing for the accumulation of contributions in an undivided fund out of which annuities are purchased as the members of the group retire.

deposit term insurance: A form of term insurance, not really involving a "deposit," in which the first-year premium is larger than subsequent premiums. Typically, a partial endowment is paid at the end of the term period. In many cases the partial endowment can be applied toward the purchase of a new term policy or, perhaps, a whole life policy.

diagnosis-related groups (DRG): System of determining reimbursement fees based on the medical diagnosis of a patient.

difference in conditions: Policy designed to fill in gaps in a business's commercial property insurance coverage. There is no standard policy. Policies are specifically tailored to the policyholder's needs.

diminution of value: The idea that a vehicle loses value after it has been damaged in an accident and repaired.

directors and officers liability insurance (D&O): Directors and officers liability insurance (D&O) covers directors and officers of a company for negligent acts or omissions and for misleading statements that result in suits against the company. There are a variety of D&O coverages. Corporate reimbursement coverage indemnifies directors and officers of the organization. Side-A coverage provides D&O coverage for personal liability when directors and officers are not indemnified by the firm. Entity coverage, for claims made specifically against the company, is also available. D&O policies may be broadened to include coverage for employment practices liability.

disability: Physical or mental condition that prevents a person from performing one or more occupational duties temporarily (short-term), long-term, or totally (total disability).

disability benefit: A feature added to some life insurance policies providing for waiver of premium, and sometimes payment of monthly income, if the policyholder becomes totally and permanently disabled.

disability income insurance: Insurance that provides periodic payments when an insured person is unable to work as a result of illness or injury.

disability insurance: A form of health insurance that pays the policyholder in place of his or her usual income if the policyholder can't work because of illness or accident. Usually, policies begin paying after a waiting period stipulated in the policy, and pay a certain percentage of the policyholder's usual income. Sometimes this is provided by employers, but it's also available as a separate coverage.

dismemberment: Accidental loss of limb or sight.

disposable personal income: Personal income less personal tax and nontax payments; the income available to people for spending and saving.

dividend: An amount of money returned to the holder of a participating policy. The money is a partial refund of the premium paid. It results from actual mortality, interest and expenses that were more favorable than expected when the premiums were set.

dividend addition: An amount of paid up insurance purchased with a policy dividend and added to the face amount of the policy.

double indemnity: Payment of twice the policy normal benefit for specific kinds of losses under certain conditions.

dual life insurance: Another name for second-to-die insurance.

duplication of coverage: Coverage under two or more policies for the same potential loss.

E

earned premium: The portion of premium that applies to the expired part of the policy period. Insurance premiums are payable in advance but the insurance company does not fully earn them until the policy period expires.

earthquake insurance: Earthquake policies are similar to regular homeowner's policies but without the liability coverage. You choose a dollar ceiling for the dwelling coverage, and a percentage of this ceiling is then applied to coverages for personal property and additional living expenses (hotel expenses if your home becomes uninhabitable). Premiums for these policies are usually rather steep in the places where you would need to buy one. Until recently, the only place Californians could buy the coverage was from the California Earthquake Authority, which offered skimpy coverage. But the market is opening up again and some other companies are offering old-fashioned policies with better coverage (at higher rates, of course).

economic loss: Total financial loss resulting from the death or disability of a wage earner, or from the destruction of property. Includes the loss of earnings, medical expenses, funeral expenses, the cost of restoring or replacing property and legal expenses. It does not include noneconomic losses, such as pain caused by an injury.

effective date: Date when insurance coverage begins.

electronic commerce / e-commerce: The sale of products such as insurance over the Internet.

eligibility date: Date when a member of an insured group applies for insurance.

eligibility period: Time following the eligibility date (usually 31 days) during which a member of a group may apply for insurance without evidence of insurability.

eligible employees: Employees who meet the eligibility requirements for insurance set forth in a group policy.

elimination period: Days at the beginning of a period of disability when no benefits are paid.

employee dishonesty coverage: Covers direct losses and damage to businesses resulting from the dishonest acts of employees. (See Fidelity bond)

employee retirement income security act of 1974 (ERISA): Federal law that affects pension and profit-sharing plans. Among other provisions, this law specifies a published summary plan must be distributed to participants within 120 days after adoption of the plan and within 90 days after an employee becomes a participant. The law requires that a summary plan description be issued every 5 years.

employer's liability: Part B of the workers compensation policy that provides coverage for lawsuits filed by injured employees who, under certain circumstances, can sue under common law.

employment practices liability coverage: Liability insurance for employers that covers wrongful termination, discrimination and other violations of employees' legal rights.

endorsement: A written form attached to an insurance policy that alters the policy's coverage, terms, or conditions. Sometimes called a rider.

endowment: Life insurance payable to the policyholder if living, on the maturity date stated in the policy, or to a beneficiary if the insured dies before that date.

enrollment card: Document signed by an eligible person indicating a desire to participate in a group insurance plan. The document or card authorizes an employer to deduct contributions from an employee's pay. If life and accidental death and dismemberment coverage are involved, the card usually includes the beneficiary's name and relationship.

environmental impairment liability coverage: A form of insurance designed to cover losses and liabilities arising from damage to property caused by pollution.

evidence of insurability: A statement or proof of physical condition and/or other factual information affecting a person's eligibility for insurance. In group insurance, evidence of insurability is required only in specific situations: when a person fails to enroll during the open enrollment period; when a person applies for reinstatement after having previously withdrawn from the plan when receiving an overall maximum benefit; or when a person applies for excess amounts of group life or disability insurance.

excess and surplus lines: Property/casualty coverage that isn't available from insurers licensed by the state (called admitted insurers) and must be purchased from a nonadmitted carrier.

excess of loss reinsurance: A contract between an insurer and a reinsurer, whereby the insurer agrees to pay a specified portion of a claim and the reinsurer to pay all or a part of the claim above that amount.

exclusions (exceptions): Conditions or circumstances, listed in the policy, for which the insurer will not provide benefits.

exclusive provider organizations (EPO): Form of managed care in which participants are reimbursed only for care received from affiliated providers.

expectation of life: See life expectancy.

experience: Relationship, usually expressed as a percent or ratio, of claims to premiums for a stated period.

experience rating: Process of determining the premium rate for a group based wholly or partially on that risk's experience.

experience refund: Amount returned by an insurer to a group policyholder when the financial experience of a particular group (or class to which the group belongs) has been more favorable than anticipated.

exposure: Possibility of loss.

extended coverage: An endorsement added to an insurance policy, or clause within a policy, that provides additional coverage for risks other than those in a basic policy.

extended term insurance: A form of insurance available as a non-forfeiture option. It provides the original amount of insurance for a limited period of time.

F

face amount: The amount stated on the face of the insurance policy that will be paid in case of death or at maturity. It does not include dividend additions or additional amounts payable under accidental death or other special provisions.

family policy: A life insurance policy providing insurance on all or several family members in one contract, generally whole life insurance on the principal breadwinner and small amounts of term insurance on the other spouse and children, including those born after the policy is issued.

Federal Insurance Administration (FIA): Federal agency in charge of administering the National Flood Insurance Program. It does not regulate the insurance industry.

fidelity bond: A form of protection that covers policyholders for losses that they incur as a result of fraudulent acts by specified individuals. It usually insures a business for losses caused by the dishonest acts of its employees.

fiduciary liability: 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.

financial responsibility law: 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.

fire insurance: Coverage protecting property against losses caused by a fire or lightning that is usually included in homeowners or commercial multiple peril policies.

first-party coverage: Coverage for the policyholder's own property or person. In no-fault auto insurance it pays for the cost of injuries. In no-fault states with the broadest coverage, the personal injury protection (PIP) part of the policy pays for medical care, lost income, funeral expenses and, where the injured person is not able to provide services such as child care, for substitute services. (See No-fault; Third-party coverage)

flat schedule: A type of group insurance schedule under which everyone is insured for the same benefits regardless of salary, position, or other circumstances.

flexible premium: A premium payment method sometimes offered in connection with annuities and with some types of life insurance that allows the contract owner or policy owner to alter the amount and the frequency of payments, within specified boundaries defined by the insurer and the law.

flexible premium deferred annuity: An annuity contract that permits varying premium payments from year to year and is often used for individual retirement accounts.

flexible premium policy or annuity: A life insurance policy or annuity under which the policyholder or contract holder may vary the amounts or timing of premium payments.

flexible premium variable life insurance: A life insurance policy that combines the premium flexibility feature of universal life insurance with the equity-based benefit feature of variable life insurance.

flood insurance: Coverage for flood damage is available from the federal government under the National Flood Insurance Program but is sold by licensed insurance agents. Flood coverage is excluded under homeowners policies and many commercial property policies. However, flood damage is covered under the comprehensive portion of an auto insurance policy.

franchise insurance: Insurance contracts issued to members of a specific group (such as employees of a common employer or members of an association) under a group-like arrangement in which the employer or the association collects and remits premiums.

fraternal life insurance: Life insurance provided by fraternal orders or societies to their members.

fraud: Intentional lying or concealment by policyholders to obtain payment of an insurance claim that would otherwise not be paid, or lying or misrepresentation by the insurance company managers, employees, agents and brokers for financial gain.

G

gap insurance: An automobile insurance option, available in some states, that covers the difference between a car's actual cash value when it is stolen or wrecked and the amount the consumer owes the leasing or finance company. Mainly used for leased cars. (See Actual cash value)

grace period: (1) For insurance premium payments, a specified length of time following a premium due date within which the renewal premium may be paid without penalty. The length of the grace period is specified in a grace period provision that is found in a life insurance, health insurance, or annuity policy. (2) For purchases made on credit, a period of time between the date of a purchase and the date the lender begins to charge interest during which no interest accrues.

group annuity: A pension plan providing annuities at retirement to a group of people under a master contract. It is usually issued to an employer for the benefit of employees. The individual members of the group hold certificates as evidence of their annuities.

group insurance: A single policy covering a group of individuals, usually employees of the same company or members of the same association and their dependents. Coverage occurs under a master policy issued to the employer or association.

group life insurance: Life insurance that usually does not require medical examinations, on a group of people under a master policy. It is typically issued to an employer for the benefit of employees, or to members of an association, for example, a professional membership group. The individual members of the group hold certificates as evidence of their insurance.

guaranteed insurability: An option that permits the policyholder to buy additional stated amounts of life insurance at stated times in the future without evidence of insurability.

guaranteed renewable contract: Contract under which an insured has the right, commonly up to a certain age, to continue the policy by the timely payment of premiums. Under renewable contracts, the insurer reserves the right to change premium rates by policy class.

H

hacker insurance: A coverage that protects businesses engaged in electronic commerce from losses caused by hackers.

health insurance: Coverage that provides benefits as a result of sickness or injury. Policies include insurance for losses from accident, medical expense, disability, or accidental death and dismemberment.

health maintenance organization (HMO): Organization that provides a wide range of comprehensive health care services for a specified group for a fixed periodic prepayment.

hospice: Care provided to terminally ill patients and their families that emphasizes emotional needs and coping with pain and death rather than cure.

hospital indemnity insurance: Health insurance that provides a stipulated daily, weekly, or monthly payment to an insured person during hospital confinement, without regard to the actual confinement expense.

hospital medical insurance: Coverage that provides benefits for the cost of any or all hospital services normally covered under various health care plans.

hurricane deductible: A percentage or dollar amount added to a homeowner's insurance policy to limit an insurer's exposure to loss from a hurricane. Higher deductibles are instituted in higher risk areas, such as coastal regions. Specific details, such as the intensity of the storm for the deductible to be triggered and the extent of the high risk area, vary from insurer to insurer and state to state.

I

incurred claims: Claims paid during the policy year plus the claim reserves as of the end of the policy year, minus the corresponding reserves as of the beginning of the policy year. The difference between the year end and beginning of the year claim reserves is called the increase in reserves and may be added directly to the paid claims to produce the incurred claims.

indemnity: Benefits of a predetermined amount paid for a loss.

individual insurance: A policy that provides protection to a policyholder and/or his or her family; sometimes called personal insurance as distinct from group and blanket insurance.

individual policy pension trust: A type of pension plan, frequently used for small groups, administered by trustees who are authorized to purchase individual level premium policies or annuity contracts for each member of the plan. The policies usually provide both life insurance and retirement benefits.

individual retirement account (IRA): An account set up by an individual that in some cases allows contributions to be deducted from income and permits earnings on contributions to accumulate tax-deferred until retirement, regardless of whether the contributions are deductible. Under the 1986 tax law, only those who do not participate in a pension plan at work or who do participate and meet certain income guidelines can make tax-deductible contributions to an IRA. All others can make contributions to an IRA on a non-deductible basis.

industrial life insurance: Life insurance issued in small amounts, usually less than $1,000, with premiums payable on a weekly or monthly basis. The premiums are generally collected at the home by an agent of the company. Sometimes referred to as debit insurance.

injury independent of all other means: An injury resulting from an accident that was not caused by an illness.

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.

insurability: Acceptability to the company of an applicant for insurance.

insurable risk: The conditions that make a risk insurable are (1) the peril insured against must produce a definite loss not under the control of the insured, (2) there must be a large number of homogeneous exposures subject to the same perils, (3) the loss must be calculable and the cost of insuring it must be economically feasible, (4) the peril must be unlikely to affect all insureds simultaneously, and (5) the loss produced by a risk must be definite and have a potential to be financially serious.

insurance: Risk management plan that, for a price, offers the insured an opportunity to share the costs of possible financial loss through an insurer.

insurance examiner: The representative of a state insurance department assigned to participate in the official audit and examination of the affairs of an insurance company.

insured: The person on whose life the policy is issued.

insuring clause: Stipulation in an insurance policy that states the type of loss the policy covers and lists the parties to the contract.

integration: The combining of two or more benefit plans to prevent duplication of payments.

K

Keogh plan: A type of tax-favored retirement plan for self-employed people.

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.

key-person insurance: Insurance designed to protect a business against the loss of income resulting from the disability or death of an employee in a significant position.

kidnap / ransom insurance: Coverage up to specific limits for the cost of ransom or extortion payments and related expenses. Often bought by international corporations to cover employees. Most policies have large deductibles and may exclude certain geographic areas. Some policies require that the policyholder not reveal the existence of the coverage.

L

lapse: Termination of coverage because of nonpayment within a specified time period.

lapsed policy: A policy terminated at the end of the grace period because of non-payment of premiums.

legal reserve: The minimum reserve, as calculated under the state insurance code, which a company must keep to meet future claims and obligations.

legal reserve life insurance company: A life insurance company operating under state insurance laws specifying the minimum basis for the reserves the company must maintain on its policies.

level premium: Rating structure under which the premium level remains the same throughout the life of the policy.

level premium insurance: Insurance for which the cost is distributed evenly over the premium payment period. 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 to cover the higher cost in the later years.

liability insurance: Insurance for what the policyholder is legally obligated to pay because of bodily injury or property damage caused to another person.

life annuity: A contract that provides an income for life.

life expectancy: The average number of years of life remaining for a group of people of a given age according to a particular mortality table.

life insurance in force: The sum of the face amounts, plus dividend additions, of life insurance policies outstanding at a given time. Additional amounts payable under accidental death or other special provisions are not included.

lifetime disability benefit: A provision making benefits payable for an insured's lifetime as long as the insured person is totally disabled.

limited payment life insurance: Whole life insurance on which premiums are payable for a specified number of years or until death, if death occurs before the end of the specified period.

limited policy: Policy that covers only specified accidents or sicknesses.

limits: Maximum amount of insurance that can be paid for a covered loss.

living benefits: Another name for accelerated death benefits.

Lloyd's of London: A marketplace where underwriting syndicates, or mini-insurers, gather to sell insurance policies and reinsurance. Each syndicate is managed by an underwriter who decides whether or not to accept the risk. The Lloyd's market is a major player in the international reinsurance market as well as a primary market for marine insurance and large risks. Originally, Lloyd's was a London coffee house in the 1600s patronized by shipowners who insured each other's hulls and cargoes. As Lloyd's developed, wealthy individuals, called "Names," placed their personal assets behind insurance risks as a business venture. Increasingly since the 1990s, most of the capital comes from corporations.

Lloyds: Corporation formed to market services of a group of underwriters. Does not issue insurance policies or provide insurance protection. Insurance is written by individual underwriters, with each assuming a part of every risk. Has no connection to Lloyd's of London, and is found primarily in Texas.

load: Any sales fees or charges paid in purchasing an annuity contract.

Long term care insurance: A health-insurance variation designed to cover the costs of long term care at home or in a nursing home. These policies offer a specified nursing home benefit and home-care benefit. Some policies also account for inflation. The popularity of long term care insurance has grown as federal laws have changed, making it less likely that Medicaid will pick up the tab for long term care. These policies are usually rather expensive, and grow even more costly as the policyholder ages.

long-term care: A continuum of maintenance, custodial, and health services for the chronically ill or disabled. Such services may be provided on an inpatient (rehabilitation facility, nursing home, mental hospital) or outpatient basis, or at home.

long-term disability income insurance (LTD): Plan that helps replace income lost through inability to work because of disability caused by an accident or illness.

loss: A reduction in the quality or value of a property, or a legal liability.

M

major medical expense insurance: Insurance that provides benefits for most types of medical expenses up to a high maximum benefit. Such contracts often contain internal limits and usually are subject to deductibles and co-insurance.

malpractice insurance: Professional liability coverage for physicians, lawyers, and other specialists against suits alleging negligence or errors and omissions that have harmed clients.

managed care: Systems that integrate the financing and delivery of appropriate health care services by means of arrangements with selected providers to furnish a comprehensive set of health-care services to members; explicit criteria for the selection of health-care providers; formal programs for ongoing quality assurance and utilization review; and significant financial incentives for members to use providers and procedures associated with the plan.

manual premium rate: Premium for a group developed from the insurer's standard rate tables; it is the cost usually quoted in an insurer's underwriting manual.

marine insurance: Coverage for goods in transit, and for the commercial vehicles that transport them, on water and over land. The term may apply to inland marine but more generally applies to ocean marine insurance. Covers damage or destruction of a ship's hull and cargo and perils include collision, sinking, capsizing, being stranded, fire, piracy, and jettisoning cargo to save other property. Wear and tear, dampness, mold, and war are not included. (See Inland marine insurance; Ocean marine insurance)

Medicaid: Simply put, Medicaid is health insurance for the poor. It was created in 1965 as a joint federal/state public assistance program for those too poor to afford health care. Since the program is administered by the individual states under federal guidelines, the benefits offered and eligibility requirements vary widely. About 36 million people around the U.S., including children, the elderly, the blind and the disabled, are currently covered by Medicaid. Usually, Medicaid recipients pay no part of costs for covered medical expenses, although a co-payment is sometimes required.

Medicare: Medicare is a federal insurance program which primarily serves those over 65 years old and younger, disabled people and dialysis patients. It currently covers about 37 million Americans. Medicare is divided into Part A, which covers inpatient hospital services, nursing home care, home health care and hospice care; and Part B, which helps pay the cost of doctors' services, outpatient hospital services, medical equipment and supplies, and other health services and supplies. Recipients pay some part of the costs through deductibles. Since Medicare doesn't cover all expenses, recipients often supplement their coverage through separate Medigap policies.

medsup (aka: medigap): Private insurance that can be purchased to supplement Medicare.

minimum group: The fewest number of employees permitted under a state law to constitute a group for insurance purposes; the purpose of establishing minimums is to maintain a distinction between individual and group insurance.

minimum premium plan: The employer self-funds a fixed percentage (e.g. 90 percent) of the estimated monthly claims, and the insurer covers the remainder. This self-funded approach avoids payment of a premium tax required in most states.

miscellaneous expense: Expenses connected with hospital insurance; hospital charges other than room and board such as x-rays, drugs, laboratory fees, and other charges.

modified life insurance: A type of whole life policy with a premium that is relatively low in the first several years but that increases in later years.

morbidity: Frequency and severity of sicknesses and accidents in a well-defined class or classes of persons.

mortality table: A statistical table showing the death rate (probability of death) at each age.

mortgage insurance: There are actually two types of mortgage insurance. Usually, people mean private mortgage insurance, or PMI, which protects a mortgage company against a defaulted loan. PMI does not benefit the homeowner. If you bought your home with a down payment of less than 20 percent of its value, your bank probably made you take out PMI. At some point, you won't have to pay for PMI any more, but don't expect the bank to let you know when that is. Mortgage insurance can also mean a type of life insurance, which pays off the balance of a mortgage when the policyholder dies or, in some cases, becomes disabled. As a homeowner, you want to get rid of the first type as soon as you can. You might want to consider the second type.

multiple employer trust (MET): A trust established by a sponsor that brings together a number of small, unrelated employers for the purpose of providing group medical coverage on an insured or self-funded basis.

multiple peril policy: A package policy, such as a homeowners or business insurance policy, that provides coverage against several different perils. It also refers to the combination of property and liability coverage in one policy. In the early days of insurance, coverages for property damage and liability were purchased separately.

mutual life insurance company: A life insurance company owned by policyholders who share in the company's surplus earnings.

N

named peril: Peril specifically mentioned as covered in an insurance policy.

national association of insurance commissioners (NAIC): National organization of state officials charged with regulating insurance. It has no official power but wields significant influence. NAIC was formed to provide national uniformity in insurance regulations.

National Flood Insurance Program: Federal government-sponsored program under which flood insurance is sold to homeowners and businesses. (See Adverse selection; Flood insurance)

no-fault insurance: Auto insurance coverage that pays for each driver's own injuries, regardless of who caused the accident. No-fault varies from state to state. It also refers to an auto liability insurance system that restricts lawsuits to serious cases. Such policies are designed to promote faster reimbursement and to reduce litigation.

non-forfeiture option: One of the choices available if the policyholder discontinues payments on a policy with a cash value. This may be taken in cash as extended term insurance or as reduced paid-up insurance.

non-forfeiture values: The value of the policy if canceled, either in cash or in another form of insurance. Also available to the policyholder if required premium payments are not paid.

non-medical limit: The maximum face value of a policy that a given company will issue without the applicant taking a medical examination.

non-participating insurance: Insurance on which no dividends are paid.

noncancellable policy: A policy that can be maintained through timely payment of the premiums until the policyholder is at least age 50 or, in the case of a policy issued after age 44, for at least five years from the date of issue. The insurer may not unilaterally change any provision of the in-force policy, including premium rates.

noncontributory plan: Group insurance plan under which the employer does not require employees to share in its cost.

nondisabling injury: Any injury that may require medical care but does not result in the loss of working time or income.

nonoccupational policy: Policy that covers only non-job-related accidents or sicknesses not covered under any workers' compensation law.

nonparticipating policy: Policy that does not provide for payment of a dividend.

nonprofit insurers: Corporations organized under special state laws to provide medical benefits on a not-for-profit basis (for example, Blue Cross Blue Shield and Dental Service Corporations).

notice of loss: A written notice required by insurance companies immediately after an accident or other loss. Part of the standard provisions defining a policyholder's responsibilities after a loss.

O

occupational hazards: Factors inherent in the insured person's occupation that expose him or her to greater-than-normal physical danger.

occurrence policy: Insurance that pays claims arising out of incidents that occur during the policy term, even if they are filed many years later. (See Claims-made policy)

ocean marine insurance: Coverage of all types of vessels and watercraft, for property damage to the vessel and cargo, including such risks as piracy and the jettisoning of cargo to save the property of others. Coverage for marine-related liabilities. War is excluded from basic policies, but can be bought back.

operating expenses: The cost of maintaining a business's property, includes insurance, property taxes, utilities and rent, but excludes income tax, depreciation and other financing expenses.

optional renewable policy: Contract that grants the insurer the right to terminate a policy on any anniversary, or, in some cases, on a premium date.

ordinary life insurance: Life insurance usually issued in amounts of $1,000 or more with premiums payable on an annual, semi-annual, quarterly or monthly basis.

overhead expense insurance: Insurance for business owners to help offset continuing business expenses if the owner is disabled.

P

package policy: A single insurance policy that combines several coverages previously sold separately. Examples include homeowners insurance and commercial multiple peril insurance.

paid-up insurance: Insurance on which all required premiums have been paid.

partial disability: A disability that prevents a person from performing one or more functions of his or her regular job.

participating insurance: Insurance on which the policyholder is entitled to share in the surplus earnings of the company through policy dividends that reflect the difference between the premium charged and the cost to the company of providing the insurance.

participating policy: Policy under which the policyholder is eligible to receive dividends.

payout period: The period during which you receive the income from your annuity contract.

peril: A specific risk or cause of loss covered by an insurance policy, such as a fire, windstorm, flood, or theft. A named-peril policy covers the policyholder only for the risks named in the policy in contrast to an all-risk policy, which covers all causes of loss except those specifically excluded.

permanent life insurance: A phrase used to cover any form of life insurance except term; generally insurance that accrues cash value, such as whole life or endowment.

personal injury protection coverage (PIP): Portion of an auto insurance policy that covers the treatment of injuries to the driver and passengers of the policyholder's car.

personal lines: Property/casualty insurance products that are designed for and bought by individuals, including homeowners and automobile policies. (See Commercial lines)

physician's expense insurance: Coverage that provides benefits toward the cost of doctor's fees - for surgical care in the hospital, at home, or in a physician's office, and for x-rays or laboratory tests performed outside of a hospital. (Also called Regular Medical Expense Insurance).

point of service plan (POS): Plan that offers a full range of health services through a combination of HMO and PPO features. Members can choose to either use the defined managed care program (with 100 percent coverage) or go out-of-plan for services (with 80 percent coverage).

policy: The printed document issued to the policyholder by the company stating the terms of the insurance contract.

policy loan: Under an insurance policy, the amount that can be borrowed at a specified rate of interest from the issuing company by the policyholder, who uses the value of the policy as collateral for the loan. In the event the policyholder dies with the debt partially or fully unpaid, the insurance company deducts the amount borrowed, plus any accumulated interest, from the amount payable.

policy reserves: The measure of the funds that a life insurance company holds specifically for fulfillment of its policy obligations. Reserves are required by law to be calculated so that, together with future premium payments and anticipated interest earnings, they will enable the company to pay all future claims.

policy term: The period for which an insurance policy provides coverage.

policyholder: The person who owns a life insurance policy. This is usually the insured person, but it may also be a relative of the insured, a partnership or a corporation.

pollution insurance: 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. (See Claims-made policy)

precertification: A utilization management program that requires the insured or the health care provider to notify the insurer prior to a hospitalization or surgical procedure. The notification allows the insurer to authorize payment, as well as to recommend alternate courses of action.

preexisting condition: Any physical and/or mental condition or conditions that exist prior to the effective date of health insurance coverage.

preferred provider organization (PPO): Plan through which a sponsoring group negotiates price discounts with providers in exchange for patients. The sponsor may be an insurer, employer, or third-party administrator.

premises: The particular location of the property or a portion of it as designated in an insurance policy.

premium: The price of an insurance policy, typically charged annually or semiannually.

premium loan: A policy loan made for the purpose of paying premiums.

prepaid group practice plan: A plan under which specified health services are rendered by participating physicians to an enrolled group of persons, with a fixed periodic payment made in advance by (or on behalf of) each person or family. If a health insurance carrier is involved, a contract to pay in advance for the full range of health services to which the insured is entitled under the terms of the health insurance contract. An HMO is an example of a prepaid group practice plan.

principal: The amount you pay into your annuity contract as distinguished from the interest that is credited to it.

principal sum: Amount payable in a lump sum in the event of accidental death and, in some cases, accidental dismemberment.

product liability: A section of tort law that determines who may sue and who may be sued for damages when a defective product injures someone. No uniform federal laws guide manufacturer's liability, but under strict liability, the injured party can hold the manufacturer responsible for damages without the need to prove negligence or fault.

product liability insurance: Protects manufacturers' and distributors' exposure to lawsuits by people who have sustained bodily injury or property damage through the use of the product.

professional liability insurance: Covers professionals for negligence and errors or omissions that injure their clients.

professional standards review organization (PSRO): Organization responsible for determining whether care and services provided are necessary and meet standards for reimbursement under the Medicare and Medicaid programs.

proof of loss: Documents showing the insurance company that a loss occurred.

property / casualty insurance: Covers damage to or loss of policyholders' property and legal liability for damages caused to other people or their property. Property/casualty insurance, which includes auto, homeowners and commercial insurance, is one segment of the insurance industry. The other sector is life/health.

proration: Modification of policy benefits because of changes in the insured's occupation or the purchase of other insurance.

prospective payment: Payment of a lump-sum to an institution for care of an insured person based on a predetermined amount correlated with a diagnosis.

Q

qualified annuity: An annuity that is sold as part of a tax-qualified Keogh plan or company pension plan.

qualified impairment insurance: A form of substandard or special class insurance that restricts benefits for an insured person's particular condition.

R

rate: The cost of a unit of insurance, usually per $1,000. Rates are based on historical loss experience for similar risks and may be regulated by state insurance offices.

rated policy: An insurance policy that is classified as having a greater-than-average likelihood of loss, usually issued with special exclusions, a premium rate that is higher than the rate for a standard policy, a reduced face amount, or any combination of these.

rating agencies: Six major credit agencies determine insurers' financial strength and viability to meet claims obligations. They are A.M. Best Co.; Duff & Phelps Inc.; Fitch, Inc.; Moody's Investors Services; Standard & Poor's Corp.; and Weiss Ratings, Inc. Factors considered include company earnings, capital adequacy, operating leverage, liquidity, investment performance, reinsurance programs, and management ability, integrity and experience. A high financial rating is not the same as a high consumer satisfaction rating.

reasonable and customary charge (R & C): Amounts charged by health care providers that are consistent with charges from similar providers for identical or similar services in a given locale.

recurring claim provision: A provision in some health insurance policies that specifies a length of time during which the recurrence of a condition is considered to be a continuation of a previous period of disability or hospital confinement.

reduced paid-up insurance: A form of insurance available as a non-forfeiture option. It provides for continuation of the original insurance plan but for a reduced amount.

rehabilitation: Process and goal of restoring disabled persons to maximum physical, mental, and vocational independence and productivity (commensurate with their limitations). Rehabilitation is achieved by identifying and developing residual capabilities, job modification, or retraining. A "rehabilitation provision" appears in some long-term disability policies; this provides for continuation of benefits or other financial assistance during the rehabilitation period.

reinstatement: The restoration of a lapsed policy to full force and effect. The process by which an insurer puts back into force an insurance policy that has either been terminated for nonpayment of premiums or continued as extended term or reduced paid-up coverage.

reinsurance: Acceptance by one insurer (the reinsurer) of all or part of the risk or loss underwritten by another insurer (the ceding insurer).

renewable term insurance: Term insurance providing the right to renew at the end of the term for another term or terms, without evidence of insurability. The premium rates increase at each renewal as the age of the insured increases.

renewal: Continuance of coverage beyond original terms signified by acceptance of a premium payment for a new term.

replacement cost: Insurance that pays the dollar amount needed to replace damaged personal property or dwelling property without deducting for depreciation but limited by the maximum dollar amount shown on the declarations page of the policy.

replacement vs. actual cash value: The actual cash value of an item can be depressingly small after only a brief period of ownership. And, if your homeowner's coverage entitles you to only the actual cash value of any damaged property, you could be out of luck when you go to replace the property with only your claim check as payment. Replacement-cost coverage permits you to claim the cost of replacing an insured item. Its most important use is on your home and, secondly, the personal property in your home.

reserve: The amount required to be carried as a liability in the financial statement of an insurer to provide for future commitments under policies outstanding.

residual disability benefits: A provision that provides benefits in proportion to a reduction of earnings as a result of disability, as opposed to the inability to work full-time.

retention: The amount of risk retained by an insurance company that is not reinsured.

retrospective rating: A method of permitting the final premium for a risk to be adjusted, subject to an agreed-upon maximum and minimum limit based on actual loss experience. It is available to large commercial insurance buyers.

rider: An amendment to an insurance policy that modifies the policy by expanding or restricting its benefits or excluding certain conditions from coverage.

risk: The probable amount of loss foreseen by an insurer in issuing a contract. The term sometimes applies to the person insured or to the hazard insured against.

risk classification: The process by which a company decides how its premium rates for life insurance should differ according to the risk characteristics of individuals insured (for example, age, occupation, sex, state of health) and then applies the resulting rules to individual applications. (See underwriting.)

risk management: Management of the varied risks to which a business firm or association might be subject. It includes analyzing all exposures to gauge the likelihood of loss and choosing options to better manage or minimize loss. These options typically include reducing and eliminating the risk with safety measures, buying insurance, and self-insurance.

S

salvage: Damaged property an insurer takes over to reduce its loss after paying a claim. Insurers receive salvage rights over property on which they have paid claims, such as badly-damaged cars. Insurers that paid claims on cargoes lost at sea now have the right to recover sunken treasures. Salvage charges are the costs associated with recovering that property.

schedule: A list of individual items or groups of items that are covered under one policy or a listing of specific benefits, charges, credits, assets or other defined items.

second-to-die life insurance: A form of insurance, traditionally used as an estate planning tool, that pays a death benefit only upon the death of the insured who survives the longest. Its main purpose is to pay estate taxes upon the death of the second insured. Because it is based on joint life expectancy, its premium is less than the total premiums for individual policies on the same lives. This type of insurance is available in many forms, including policies with interest-rate features and flexible premiums.

self administration: Maintenance of all records and assumption of responsibility, by a group policyholder, for those covered under its insurance plan. Responsibilities include preparing the premium statement for each payment date and submitting it with a check to the insurer. The insurance company, in most instances, has the contractual prerogative to audit the policyholder's records.

self insurance: The concept of assuming a financial risk oneself, instead of paying an insurance company to take it on. Every policyholder is a self-insurer in terms of paying a deductible and co-payments. Large firms often self-insure frequent, small losses such as damage to their fleet of vehicles or minor workplace injuries. However, to protect injured employees state laws set out requirements for the assumption of workers compensation programs. Self-insurance also refers to employers who assume all or part of the responsibility for paying the health insurance claims of their employees. Firms that self insure for health claims are exempt from state insurance laws mandating the illnesses that group health insurers must cover.

senior citizens policies: Policies insuring persons 65 years of age or older; in most cases, these policies supplement the coverage provided under Medicare.

separate account: An asset account established by a life insurance company separate from other funds, used primarily for pension plans and variable life products. This arrangement permits wider latitude in the choice of investments, particularly in equities.

settlement options: One of several ways, other than immediate payment in a lump sum, in which the insured or beneficiary may choose to have policy proceeds paid.

short-term disability income insurance: Insurance that provides benefits only for loss from illness or disease and excludes loss from accident or injury.

single-premium whole life insurance: A whole life policy that provides protection for the duration of the insured's life in exchange for the payment of the total premium in one lump sum at the time of application.

social security freeze: A long-term disability provision that guarantees that Social Security benefits will not be changed regardless of changes in the Social Security law.

special risk insurance: Coverage for risks or hazards of a special or unusual nature.

specified disease insurance: Insurance providing an unallocated benefit, subject to a maximum amount, for expenses in connection with the treatment of specified diseases, such as cancer, poliomyelitis, encephalitis, and spinal meningitis. These policies are designed to supplement major medical policies.

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)

stacking: 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.

standard insurance: Insurance written on the basis of regular morbidity underwriting assumptions and issued at normal rates.

standard provisions: Provisions setting forth the rights and obligations of and insurers and insured persons under health insurance policies. Originally introduced in 1912, these provisions were replaced by the Uniform Policy Provisions Law (UPPL).

standard risk: Person who, according to an insurer's underwriting standards, is entitled to purchase insurance without paying an extra premium or special restrictions.

state (compulsory) disability plan: Plan of short-term income replacement required by some states to cover eligible persons employed within that state.

state insurance department: An administrative agency that implements state insurance laws and supervises (within the scope of these laws) the activities of insurers operating within the state.

state regulation of insurance: The complexity and cost variations of insurance stems directly from state regulation of the industry. Unlike the securities and banking industries, the insurance industry does not have a strong federal oversight role. Instead, through the 1945 McCarran-Ferguson Act, the domestic industry faces 55 sets of overseers (the 50 states, the District of Columbia, Puerto Rico, the Virgin Islands, Guam and American Samoa). With so many different sites of regulation, and so many sources of local sales outlets for insurance policies, it's not surprising that insurance policies are hardly the standardized commodities that you find when trading stocks or opening a bank account. This is particularly true in property/casualty coverage and less so in life insurance. Added to the maze of different products is the fact that state-based regulation means that insurers may base their rates in each state on their business profile in that state. Auto rates, for example, reflect accident and theft trends in local territories. The upshot is that there is great pricing variation along with lots of different types of policies. Lastly, insurers have increasing freedom to price their policies for whatever the market will bear. Even if an insurer has to file its rates in your state, you shouldn't assume that state regulators are poring over the rates to review their fairness.

stock life insurance company: A life insurance company owned by stockholders who share in the company's surplus earnings.

stop-loss insurance: Protection purchased by self-funded buyers against the risk of large losses or a severe adverse claim experience.

straight life annuity: An annuity whose periodic payments stop when the annuitant dies.

straight life insurance: Whole life insurance on which premiums are payable for life.

substandard insurance: Insurance issued with an extra premium or special restriction to persons who do not qualify for insurance at standard rates.

substandard risk: Persons who cannot meet the health requirements of a standard health insurance policy.

supplemental coverage: An amount of coverage that adds to the amount of coverage specified in a basic insurance policy.

supplementary contract: An agreement between a life insurance company and a policyholder or beneficiary by which the company retains the cash sum payable under an insurance policy and makes payments in accordance with the settlement option chosen.

surety bond: A contract guaranteeing the performance of a specific obligation. Simply put, it is a three-party agreement under which one party, the surety company, answers to a second party, the owner, creditor or "obligee," for a third party's debts, default or nonperformance. Contractors are often required to purchase surety bonds if they are working on public projects. The surety company becomes responsible for carrying out the work or paying for the loss up to the bond "penalty" if the contractor fails to perform.

surgical expense insurance: Insurance policies that provide benefits toward physicians' or surgeons' operating fees. Benefits may consist of scheduled amounts for each procedure.

surgical schedule: List of maximum amounts payable for various types of surgery; amounts are based on the complexity of the operation.

surplus lines: Property/casualty insurance coverage that isn't available from insurers licensed in the state, called admitted companies, and must be purchased from a non-admitted carrier. Examples include risks of an unusual nature that require greater flexibility in policy terms and conditions than exist in standard forms or where the highest rates allowed by state regulators are considered inadequate by admitted companies. Laws governing surplus lines vary by state.

survivorship insurance: Another name for second-to-die insurance.

T

tax treatment of life insurance payments: The death benefits of a life insurance policy are exempt from taxes. Even with recent tax-rate reductions and a phased-in increase in the amount of a person's estate that is exempt from estate taxes, the tax-free nature of life insurance benefits makes them a powerful financial planning and wealth-preservation tool. Annuity payments are not tax exempt, although these products may include insurance "wrappers" with exempt benefits.

term insurance: A plan of insurance that covers the insured for only a certain period of time (term), not for his or her entire life. The policy pays death benefits only if the insured dies during the term.

term rider: Term insurance that is added to a whole life policy at the time of purchase or that may be added in the future.

terrorism coverage: 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.

third-party administration (TPA): An outside person or firm (not a party to a contract) that maintains all records of persons covered under an insurance plan. The TPA also may pay claims using the draft book system.

time limit: A specified number of days in which a notice of claim or proof of a loss must be filed.

title insurance: Title insurance protects against the various financial losses associated with having the title on your home challenged, including court costs and loss of the property. For a one-time fee, most title insurers will investigate public records to make sure that your property is free of title defects. This coverage can benefit either the homeowner or the mortgage company, so you should know which kind you're paying for.

total disability: A disability that prevents a person from performing all occupational duties. The exact definition varies among policies.

total loss: 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.

transparency: 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.

travel accident policies: Limited contracts covering accidents that occur only while an insured person is traveling on business for an employer, away from the usual place of business, and on named conveyances.

U

umbrella policy: Coverage for losses above the limit of an underlying policy or policies such as homeowners and auto insurance. While it applies to losses over the dollar amount in the underlying policies, terms of coverage are sometimes broader than those of underlying policies

unallocated benefits: Benefits with a maximum amount but without specific limits on the extent of benefit for each service rendered.

underwriting: Examining, accepting, or rejecting insurance risks and classifying the ones that are accepted, in order to charge appropriate premiums for them.

unearned premium: That portion of a premium already received by the insurer for which protection has not yet been provided.

uninsurable risk: Risks for which it is difficult for someone to get insurance.

uninsured/underinsured motorists coverage: In the best of all possible worlds, everyone would have adequate auto liability coverage. But there are people who drive around (often illegally) with no insurance or not enough insurance. If one of these folks happens to cause an accident, you might not be able to collect damages. Uninsured/underinsured motorists coverage -- usually called UM/UIM coverage -- will pay bodily injury costs caused by an uninsured or underinsured motorist. It's a required coverage in some states, and a prudent coverage anywhere. Usually, the limits are the same as the bodily injury portion of your auto liability coverage. UM/UIM coverage can supplement the benefits you can receive under a no-fault system.

universal life insurance: Unlike traditional cash-value policies (known as "whole life"), universal life policy returns were freed from long-term, fixed-rate contracts and replaced with policies whose returns were tied to short-term interest rates and periodically adjusted. In addition, premiums and death benefits can be changed by the policyholder.

V

variable annuity: An annuity contract under which the monthly payments will vary because they are linked to the values of investments, such as common stocks. This contrasts with the fixed dollar annuity, which guarantees a fixed amount monthly.

variable life insurance: True investment characteristics were introduced with these policies, requiring that they be registered with the U.S. Securities and Exchange Commission. Policy investments are controlled by the policyholder and may be placed in a broad range of equity, bond and money-market instruments. Unlike universal life, premiums and death benefits are fixed in variable life policies.

variable universal life insurance: Investments, premiums and death benefits may all be controlled by the policyholder. If you know what you want and how to get there, variable universal life products are hard to beat, and many financial advisors rate them more highly than variable annuities.

W

waiting period: The time a person must wait from the date of acceptance into an eligible class (or from application) to the date the insurance becomes effective. While similar to elimination periods, waiting periods are often paid retroactively.

waiver (exclusion endorsement): An agreement, attached to the policy and accepted by the insured, to eliminate a specified preexisting physical condition or specified hazard.

waiver of premium: A provision that sets certain conditions under which an insurance policy will be kept in full force by the company without the payment of premiums. It is used most frequently for those policyholders who become totally and permanently disabled but may be available in certain other cases.

whole life insurance: A plan of insurance for life, with premiums payable for a person's entire life.

windstorm insurance: Windstorm coverage pays for losses to your property that result from a windstorm. The coverage acts like a flood or earthquake policy in that it pays for damage to the dwelling, and, in some cases, for damage to your personal property and for living expenses if your home becomes uninhabitable. If you live in a coastal area, you'll probably need to purchase separate windstorm coverage on your house. In areas where coverage is scarce, states sometime offer market assistance programs or joint underwriting associations to help homeowners find a carrier.

workers' compensation: Insurance that pays for medical care and physical rehabilitation of injured workers and helps to replace lost wages while they are unable to work. State laws, which vary significantly, govern the amount of benefits paid and other compensation provisions.

written premiums: The entire amount in premiums due in a year for all policies issued by an insurance company.

Please Note: The information contained in this Web site is provided solely as a source of general information and resource. It is a not a statement of contract and coverage may not apply in all areas or circumstances. For a complete description of coverages, always read the insurance policy, including all endorsements.

Glossary of Insurance Terminology

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