Insurance Glossary
A
Actual Cash
Value:
The value of property based on the cost of repairing or replacing
it with property of the same kind and quality. Typically, actual
cash value equals the current replacement cost minus depreciation
(age, condition, length of time in use, and obsolescence).
Adjuster:
A person who investigates and settles losses for an insurance
carrier.
Agent:
In insurance, the person authorized to represent the insurer in
negotiating, servicing, or effecting insurance policies.
Annuity:
A contract that provides for a series of periodic payments to be
made or received at regular intervals.
Applicant:
The party applying for an insurance policy.
Application:
A printed form developed by an insurer that includes questions about
the prospective insured and the desired insurance coverage and
limits.
Assigned Risk:
A risk insured through a pool of insurers and assigned to a specific
insurer. These risks are generally considered undesirable by
underwriters, but due to state law or otherwise, they must be
insured.
Auto Collision Coverage:
Optional auto insurance which pays for damage to your car caused by
collision with another car or object, or by rolling the car over.
Frequently required if you have a car loan.
Auto Comprehensive Physical Damage Coverage:
Optional auto insurance which pays for damage to your auto caused
by things other than collision or rolling the car over, such as
fire, theft, vandalism, flood or hail. Frequently required if you
have a car loan.
Automatic Premium Loan:
A provision in some life insurance policies that authorizes a policy
loan using the cash value accumulated by the insurance policy to pay
for past due premiums at the end of the grace period. This prevents
a lapse of coverage.
B
Beneficiary:
Any person, persons, or other entity designated to receive the
policy benefits upon the death of the policyholder.
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 premium receipt acknowledging temporary insurance coverage
immediately until the insurance company rejects the application or
approves it and issues a policy.
Broker:
A marketing specialist who represents insurance organizations and
who deals with either agents or companies in arranging for the
coverage required by the customer.
Buy-Sell
Agreements:
Agreement that a deceased business owner's interest will be sold and
purchased at a predetermined price or at a price according to a
predetermined formula.
C
Cancellation: The discontinuance of an insurance policy before its normal
expiration date, either by the insured or the company.
Cash Value
(cash surrender value):
The cash amount payable to a life insurance policyowner in the event
of termination or cancellation of the policy before its maturity or
the insured event.
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.
Claim: A person's request for payment from an insurer for a loss
covered by the insurance policy.
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.
Comprehensive Automobile Insurance:
Protection against loss resulting from damage to the insured auto,
other than loss by collision or upset.
Compulsory
Auto Liability Insurance:
Insurance laws in some states required motorists to carry at least
certain minimum auto coverages. This is called "compulsory"
insurance.
Conditions:
The part of your insurance policy that states the obligations of the
person insured and those of the insurance company.
Contingent Beneficiary:
In a life insurance policy, the person designated to receive the
policy benefits if the primary beneficiary dies before the insured.
Contract:
A legally enforceable agreement between two or more parties.
Conversion Privilege:
The right to convert or change insurance coverage from an individual
term insurance policy to an individual whole life insurance policy.
Convertible Term Life Insurance: A type of term life insurance that offers the policyowner the
option to exchange the term policy for a form of permanent
insurance.
D
Declination: The insurer's refusal to insure an individual after careful
evaluation of the application for insurance and any other pertinent
factors.
Deductibles:
The portion of the loss that the policyholder agrees to pay out of
pocket, before the insurance company pays the amount they are
obligated to cover. For example, if the covered claim is $1000 and
your deductible is $250, you pay $250 and your company will pay
$750. Deductibles help to keep insurance rates reasonable. Raising
the amount of the deductible lowers the cost of insurance.
Depreciation: Reduction in the value of property due to age and use.
Double
Indemnity:
A provision in a life insurance policy, subject to specified
conditions and exclusions, under the terms of which double the face
amount of the policy is payable if the death of the insured is the
result of an accident. In general, the conditions are that the
insured's death occurs prior to a specified age and results from
bodily injury effected solely through external, violent and
accidental means independently and exclusively of all other cause,
within 60 or 90 days after such injury.
E
Endorsement: Attachment or addendum to an insurance policy; an endorsement
changes the contract's original terms.
Extended Term Life Insurance: A nonforfeiture benefit under which the net cash value of the
policy is used to purchase term insurance for the amount of coverage
available under the original policy.
F
Face Amount: The amount stated in the life insurance policy as the death
benefit.
G
Grace
Period:
The specified length of time, after a Life or Health premium
payment is due in which the insured may make the payment and keep
the policy in force. (Usually 30 days.)
Group Health
Insurance: An insurance plan designed for a group, such as employees of a
single employer. Insurance is provided to them under a single
policy.
Guaranty
Association:
Established by each state to support insurers and protect consumers
in the case of insurer insolvency, guaranty associations are funded
by insurers through assessments.
H
I
Indemnification: Compensation to the victim of a loss, in whole or in part, by
payment, repair, or replacement. Indemnity. Legal principle that
specifies an insured should not collect more than the actual cash
value of a loss but should be restored to approximately the same
financial position as existed before the loss.
Insolvent:
Having insufficient financial resources (assets) to meet financial
obligations (liabilities).
Insurable
Risk:
The conditions that make a risk insurable are (a) the peril insured
against must produce a definite loss not under the control of the
insured, (b) there must be a large number of homogeneous exposures
subject to the same perils, (c) the loss must be calculable and the
cost of insuring it must be economically feasible, (d) the peril
must be unlikely to affect all insureds simultaneously, and (e) the
loss produced by a risk must be definite and have a potential to be
financially serious.
Incontestable Clause:
A life insurance policy wording that provides a time limit (e.g. two
years) on the insurer's right to dispute a policy's validity based
on material misstatements in the application.
Insurable Interest:
Any interest a person has in property that is the subject of
insurance, so that damage to this property would cause the insured a
financial loss.
Insurance Company:
An organization that has been chartered by a governmental entity to
transact the business of insurance.
Insured:
A person or organization covered by an insurance policy, including
the "named insured" and any other parties for whom protection is
provided under the policy terms.
Insurer:
The party to the insurance contract who promises to pay losses or
benefits. Also, any corporation engaged primarily in the business of
furnishing insurance to the public.
Irrevocable Beneficiary:
A named beneficiary whose rights to life insurance policy proceeds
cannot be canceled or changed by the policyowner unless the
beneficiary consents.
J
K
Key
Employee:
Insurance Protection of a business against financial loss caused by
the death or disablement of a vital member of the company, usually
individuals possessing special managerial or technical skill or
expertise. Also called key executive insurance.
L
Lapse:
Termination of a policy due to nonpayment of premiums.
Liability:
A legal obligation to compensate a person harmed by one's acts or
omissions.
Liability Coverage:
Insurance that provides compensation for a harm or wrong to a third
party for which an insured is legally obligated to pay.
Life Insurance:
Insurance that pays a specified sum of money to designated
beneficiaries if the insured person dies during the policy term.
Loss: The happening of the
event for which insurance pays.
Loss Expense
- Allocated:
Handling expenses, such as legal or independent adjuster fees, paid
by an insurance company in settling a claim which can be definitely
charged to that particular claim.
Loss Expense
- Unallocated:
Salaries and other expenses incurred in connection with the
operation of a claim department of an insurance carrier which cannot
be charged to individual claims.
M
Medical
Payments Coverage: Medical and funeral expense coverage for bodily injuries
sustained from or while occupying an insured vehicle, regardless of
the insured's negligence.
Misrepresentation:
Act of making, issuing, circulating or causing to be issued or
circulated an estimate, an illustration, a circular or a statement
of any kind that does not represent the correct policy terms,
dividends or share of surplus or the name or title for any policy or
class of policies that does not in fact reflect its true nature.
N
Negligence: Failure to use a generally acceptable level of
care and caution.
No-fault Insurance: A system of compensation enacted by law in many states under
which indemnification is made by the insured's own insurance company
regardless of who is at fault. Details of this system vary
significantly from state to state.
O
Offer and
Acceptance:
The offer may be made by the applicant by signing the application,
paying the first premium and, if necessary, submitting to physical
examination. Policy issuance, as applied for, constitutes acceptance
by the company. Or the offer may be made by the company when no
premium payment is submitted with the application. Premium payment
on the offered policy then constitutes acceptance by the applicant.
P
Paid-up
Policy: An in-force life insurance policy for which no further premium
payments are required.
Peril:
The cause of loss or damage.
Personal
Injury Protection:
First-party no-fault coverage in which an insurer pays, within the
specified limits, the wage loss, medical, hospital and funeral
expenses of the insured.
Physical
Damage:
Damage to or loss of the automobile resulting from collision, fire,
theft or other perils.
Permanent Insurance:
A general term for ordinary life and whole life insurance policies
that remain in effect as long as their premiums are paid.
Personal Property Insurance:
Protects against the loss of, or damage to property other than real
property (real estate) caused by specific perils.
Policy:
The written forms that make up the insurance contract between an
insured and insurer. A policy includes the terms and conditions of
the coverage, the perils insured or excluded, etc.
Policy Declarations:
The part of the insurance contract that lists basic underwriting
information, including the insured's name, address and description
of insured locations as well as policy limits.
Policy Limits:
The maximum amount an insured may collect or for which an insured is
protected, under the terms of the policy.
Policy Loan:
A loan from a life insurer to the owner of a policy that has a cash
value.
Policyholder:
The person who buys insurance.
Policyowner:
An individual with an ownership interest in an insurance policy.
Policy Period:
The amount of time an insurance contract or policy lasts.
Preexisting
Condition: A physical illness or disability that existed before the health
or life insurance policy effective date and generally, which was not
disclosed on the application.
Preferred
Risk:
A risk whose physical condition, occupation, mode of living and
other characteristics indicate a prospect for longevity superior to
that of the average longevity of unimpaired lives of the same age.
Premium:
The price for insurance coverage as described in the insurance
policy for a specific period of time.
Primary Beneficiary:
The person designated as the first to receive the proceeds of a life
insurance policy upon the death of the insured.
Proof of Loss: A sworn statement that usually must be furnished by the insured
to an insurer before any loss under a policy may be paid.
Property
Damage Coverage:
An agreement by an insurance carrier to protect an insured against
legal liability for damage by an insured automobile to the property
of another.
Protection Amount: The face amount of a life insurance policy, or amount of money
that will be paid to a beneficiary upon the death of an insured.
This amount will be reduced by the amount of any outstanding policy
loan.
Q
R
Rate: The pricing factor upon which the insurance buyer's premium is
based.
Rated
Policy:
Sometimes called an "extra-risk" policy, an insurance policy issued
at a higher-than-standard premium rate to cover the extra risk
where, for example, an insured has had a DUI or other traffic
violations.
Rebating:
Giving any valuable consideration, usually all or part of the
commission, to the prospect or insured as an inducement to buy or
renew. Insurance rebating is prohibited by law.
Reimbursement:
The payment of an amount of money by an insurance policy for a
covered loss.
Reinstatement:
The process by which a life insurance company puts back in force a
policy that has lapsed or has been canceled for nonpayment of
premium.
Renewable Term Life Insurance: A renewable life policy permits the owner of the policy to
automatically renew the policy beyond its original term by
acceptance of a premium for a new policy term without evidence of
insurability.
Revocable Beneficiary:
A life insurance policy whose designation as beneficiary can be
revoked or changed by the policyowner at any time prior to the
insured's death.
Riders:
An addition to an insurance policy that becomes a part of the
contract.
Risk: The possibility or
chance of loss or injury.
S
Salvage:
Recovery made by an insurance company by the sale of property which
has been taken over from the insured as a part of loss settlement.
Settlement:
An agreement between a claimant or beneficiary to an insurance
policy and the insurance company regarding the amount and method of
a claim or benefit payment.
Standard
Risk:
A person who, according to a company's underwriting standards, is
entitled to purchase insurance protection without extra rating or
special restrictions.
Substandard
Risk:
A risk that cannot meet the normal requirements of an auto insurance
policy. Protection is provided in consideration of a waiver, a
special policy form, or a higher premium charge. Substandard risks
may include those persons who are rated because of poor driving
habits.
T
Term
Insurance: Life insurance under which the benefit is payable only if the
insured dies during a specified period. If the insured survives
beyond that period, coverage ceases. This type of policy does not
build up any cash or nonforfeiture values.
Theft Limit (or
Inside Policy Limits): The highest amount an
insurance company will pay on certain items of personal property.
For instance, some policies have a $5,000 limit for computers. If an
item would cost more than the limit to replace.
U
Underwriter:
(a) A company that receives the premiums and accepts responsibility
for the fulfillment of the policy contract; (b) the company employee
who decides whether or not the company should assume a particular
risk; (c) the agent who sells the policy.
Underwriting:
The process of reviewing applications for coverage. Applications
that are accepted are then classified by the underwriter according
to the type and degree of risk.
Unilateral:
A distinguishing characteristic of a life insurance contract in that
it is only the insurance company that pledges anything. The
policyowner does not even promise to pay premiums; therefore, it is
really a one-sided contract favoring the policyowner.
Uninsured
(Underinsured) Motorist Coverage:
A form of insurance that pays the policy holder and passengers in
his/her car for bodily injury caused by the owner or operator of an
uninsured or inadequately insured automobile.
Uninsurable
Risk:
One not acceptable for insurance due to excessive risk.
Universal
Life:
Flexible premium, two-part contract containing renewable term
insurance and a cash value account that generally earns interest at
a higher rate than a traditional policy. The interest rate varies.
Premiums are deposited in the cash value accounts after the company
deducts its fee and a monthly cost for the term coverage.
V
W
Waiver: An agreement attached to a policy which exempts from coverage
certain disabilities or injuries that otherwise would be covered by
the policy.
XYZ
