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Glossary of Insurance Terms
The language surrounding the insurance industry can be quite confusing. PremierQuotes.com has provided this glossary of insurance terms in an effort to help our customers understand the concepts and terms relating to the insurance industry.
Absolute Assignment: The transfer of ownership of a life insurance policy to a separate entity. The assignee becomes the new policy owner. Commonly used when banks require life insurance as collateral for a loan.
Accelerated Death Benefit: This benefit is included with many policies today. It provides for the payment of a portion of the death benefit prior to the insured's death should the insured be diagnosed as terminally ill. The specific requirements vary by company.
Acceleration Clause: The part of a contract that says when a loan may be declared due and payable.
Accidental Death Benefit (ADB): This benefit is optional with many policies today. It provides an additional death benefit when the insured's death is caused by an accident.
Active Participant: Person whose absence from a planned event would trigger a benefit if the event needs to be canceled or postponed.
Activities of Daily Living: Bathing, preparing and eating meals, moving from room to room, getting into and out of beds or chairs, dressing, using a toilet.
ACT OF GOD: An unpreventable accident or event that is the result of natural causes; for example, floods, earthquakes, or lightning.
Actual Age: A method of calculating an applicant's insurance age. This method uses the insured's actual age and is sometimes called Age Last Birthday or Attained Age.
Actual Cash Value: Cost of replacing damaged or destroyed property with comparable new property, minus depreciation and obsolescence. For example, a 10-year-old sofa will not be replaced at current full value because of a decade of depreciation.
Actuary: An individual employed by an insurance company to calculate premium rates, reserves, dividends and other important figures using risk factors obtained from experience tables.
Adjustable Life Insurance: A form of life insurance which allows the policy owner to change various benefits of the policy including the face amount, the premium amount, the length of coverage and the length of the premium payment period.
Adjustable Rate: An interest rate that changes, based on changes in a published market-rate index.
Adjuster: A representative of the insurer who seeks to determine the extent of the insurer's liability for loss when a claim is submitted.
Admitted Asset: Assets permitted by state law to be included in an insurance company's annual statement. These assets are an important factor when regulators measure insurance company solvency. They include mortgages, stocks, bonds and real estate.
Adverse Selection: The tendency of persons with poorer-than-average health expectations (higher risk) to apply for or continue insurance coverage to a greater extent than persons with average or better-than-average health expectations (lesser risk).
Age Change: The date on which an insured's age changes. In most life insurance contracts this is the date midway between the insured's birthdays. The date of age change depends on whether the insurer uses an age nearest birthday or age last birthday calculation for determining premium rates.
Age Last Birthday: A method of calculating an applicant's insurance age. This method uses the insured's actual age and is sometimes called Actual Age or Attained Age.
Age Limits: The ages above or below which an insurer will not issue and insurance policy or continue a policy presently in force.
Age Nearest Birthday: A method of calculating an applicant's insurance age. This method is based on a person's nearest birth date for rate calculations. If the person's birth date is within the next six months, they are considered the next age.
Agent: An authorized and licensed representative of an insurance company who sells and services insurance policies. Agents represent the insurance company and typically only sell policies from that company.
Agent -individual who sells and services insurance policies in either of two classifications:
- Independent agent represents at least two insurance companies and (at least in theory) services clients by searching the market for the most advantageous price for the most coverage. The agent's commission is a percentage of each premium paid and includes a fee for servicing the insured's policy.
- Direct or career agent represents only one company and sells only its policies. This agent is paid on a commission basis in much the same manner as the independent agent.
Aggregate Limit: Usually refers to liability insurance and indicates the amount of coverage that the insured has under the contract for a specific period of time, usually the contract period, no matter how many separate accidents might occur.
Allowable Charge: Charges for medical services or supplies provided by a hospital or physician which qualify as covered expenses as stated in the health plan's certificate of coverage.
Ambulatory Services: Health care services provided to patients who are able to return home without an overnight stay in a medical facility. Typically, ambulatory services include preventive, diagnostic, and treatment services provided on an outpatient basis.
Ambulatory Surgery: Intermediate level surgical procedures that usually are too complex to be performed in a physician's office but do not require inpatient hospitalization.
Amendment: A formal document which corrects or revises an insurance policy. When authorized by the insurer and the policy owner, the amendment attaches to or becomes part of the policy.
Annual Administrative Fee: Charge for expenses associated with administering a group employee benefit plan.
Annual Crediting Cap: The maximum rate that the equity-indexed annuity can be credited in a year. If a contract has an upper limit, or cap, of 7 percent and the index linked to the annuity gained 7.2 percent, only 7 percent would be credited to the annuity.
Annuitize: To begin a series of payments from an annuity. This term also refers to the settlement of a life insurance policy under the contract's annuity options.
Annuitization: Process by which you convert part or all of the money in a qualified retirement plan or nonqualified annuity contract into a stream of regular income payments, either for your lifetime or the lifetimes of you and your joint annuitant. Once you choose to annuitize, the payment schedule and the amount is generally fixed and can't be altered.
Annuitization Options: Choices in the way to annuitize. For example, life with a 10-year period certain means payouts will last a lifetime, but should the annuitant die during the first 10 years, the payments will continue to beneficiaries through the 10th year. Selection of such an option reduces the amount of the periodic payment.
Annuity: A contract sold by a life insurance company that provides fixed or variable payments to an annuitant, either immediately or at a future date.
Antiselection: The tendency of individuals who believe they have a greater than average likelihood of loss to seek insurance protection to a greater extent than do those who believe they have an average or a less than average likelihood of loss.
Applicant: The person applying for the insurance policy. The applicant may be different from the proposed insured or the policy owner.
Application: Forms required by the insurance company which the proposed insured completes when requesting coverage from an insurer.
Appraisal: A survey by a claims representative or claims appraiser estimating the amount of damage to property and the cost to repair or the determination of a complete loss.
Approved: A status that indicates the insurance company has completed underwriting and agrees to issue a policy to the proposed insured.
Assessed Value: The monetary worth of real or personal property as a basis for its taxation. This value, established by a governmental agency, is rarely used by insurers as a means to determine indemnification.
Assets: Assets refer to "all the available properties of every kind or possession of an insurance company that might be used to pay its debts." There are three classifications of assets: invested assets, all other assets, and total admitted assets. Invested assets refer to things such as bonds, stocks, cash and income-producing real estate. All other assets refer to nonincome producing possessions such as the building the company occupies, office furniture, and debts owed, usually in the form of deferred and unpaid premiums. Total admitted assets refer to everything a company owns. All other plus invested assets equals total admitted assets. By law, some states don't permit insurance companies to claim certain goods and possessions, such as deferred and unpaid premiums, in the all other assets category, declaring them "nonadmissable."
Asset Risk: A measure of an asset's default of principal or interest or fluctuation in market value as a result of changes in the market.
Assignment: The transfer of the ownership rights of a life insurance policy from one person to another.
Attained Age: Insured's age at a particular time. For example, many term life insurance policies allow an insured to convert to permanent insurance without a physical examination at the insured's then attained age. Upon conversion, the premium usually rises substantially to reflect the insured's age and diminished life expectancy.
Attending Physician's Statement (APS): Information provided by a proposed insured's physician covering medical history and results of medical examinations. It is used to determine the appropriate underwriting classification for the proposed insured.
Authorized Control Level Risked Based Capital: Insurance company’s theoretical capital amount and surplus that is should maintain.
Automobile Liability Insurance: Coverage if an insured is legally liable for bodily injury or property damage caused by an automobile.
Authorized Under Federal Products Liability Risk Retention Act (Risk Retention Groups): Indicates companies operating under the Federal Products Liability Risk Retention Act of 1981 and the Liability Risk Retention Act of 1986.
Avalanche: A slippage of built-up snow down an incline possibly mixed with ice, rock, and soil or plant life in what is called a debris avalanche. Avalanches are a major danger in the mountains during the winter as a large one can run for miles, and can create massive destruction of the lowered forest and anything else in its path.
Aviation Hazard: The increased risk of death or injury resulting from participation in aviation, usually as a pilot. The presence of aviation hazard will often result in extra premium or the exclusion of certain benefits.
Avocation: This refers to either an occupation or an activity the insured participates in.
Backdating: A procedure used to make the effective date of a policy earlier than the application date. Backdating is commonly used to make the insurance age of the insured at policy issue lower than it actually is in an effort to receive a lower premium. Most policies can be backdated up to six months. Backdating is also commonly referred to as Saving Age.
Balance Sheet: An accounting term referring to a listing of a company's assets, liabilities and surplus as of a specific date.
BCEGS: Building Code Effectiveness Grading Schedule. A classification of communities by the Insurance Services Office based on how well they have implemented and enforced building codes in their community.
Beneficiary: A person(s) designated by the policy owner to receive the proceeds of an insurance policy upon the death of the insured.
Benefit: For life insurance, it is the amount of money specified in a life insurance contract to be paid to the beneficiary upon the death of the insured. It is commonly referred to as the Death Benefit. For health insurance, it is the amount of money payable by a health plan for the cost of covered services, as defined in the Certificate of Coverage.
Benefit Period: In health insurance, the number of days for which benefits are paid to the named insured and his or her dependents. For example, the number of days that benefits are calculated for a calendar year consist of the days beginning on Jan. 1 and ending on Dec. 31 of each year.
Best's Capital Adequacy Relativity (BCAR): This percentage measures a company's relative capital strength compared to its industry peer composite. A company's BCAR, which is an important component in determining the appropriateness of its rating, is calculated by dividing a company's capital adequacy ratio by the capital adequacy ratio of the median of its industry peer composite using Best's proprietary capital mode. Capital adequacy ratios are calculated as the net required capital necessary to support components of underwriting, asset, and credit risks in relation to economic surplus.
Binder: Temporary insurance contract providing coverage until a permanent policy is issued.
Blood Chemistry Panel: A series of blood tests that an insurance company may require of applicants during the underwriting process.
Broad Form Insurance: Coverage for numerous perils.
Broker: A licensed representative who sells and services insurance policies. Brokers represent their customers and are usually contracted to offer insurance products from several different insurance companies.
Broker-Agent: Independent insurance salesperson who represent particular insurers but also might function as a broker by searching the entire insurance market to place an applicant's coverage to maximize protection and minimize cost. This person is licensed as an agent and a broker.
Business Life Insurance: Life insurance purchased for business rather than personal purposes. Examples are insurance owned by a business on the life of a key employee and insurance owned by a business partner on the life of another partner.
Business Net Retention: This item represents the percentage of a company's gross writings that are retained for its own account. Gross writings are the sum of direct writings and assumed writings. This measure excludes affiliated writings.
Burial Insurance: A life insurance policy designed to provide just enough insurance to cover funeral and burial expenses.
Buy Sell Agreement: An agreement for the transfer of business ownership to the remaining owners at the death or retirement of an owner. The transaction is typically funded through a life insurance policy carried on the lives of each individual owner.
Calendar Year: Earned premiums and loss transactions occurring with the calendar year beginning Jan. 1, irrespective of the contractual dates of the policies to which the transactions relate and regardless of the dates of the accidents.
Capital: Equity of shareholders of a stock insurance company. The company's capital and surplus are measured by the difference between its assets minus its liabilities. This value protects the interests of the company's policy owners in the event it develops financial problems; the policy owners' benefits are thus protected by the insurance company's capital. Shareholders' interest is second to that of policy owners.
Capitalization or Leverage: Measures the exposure of a company's surplus to various operating and financial practices. A highly leveraged, or poorly capitalized, company can show a high return on surplus, but might be exposed to a high risk of instability.
Captive Agent: Representative of a single insurer or fleet of insurers who is obliged to submit business only to that company, or at the very minimum, give that company first refusal rights on a sale. In exchange, that insurer usually provides its captive agents with an allowance for office expenses as well as an extensive list of employee benefits such as pensions, life insurance, health insurance, and credit unions.
Carrier: Another name for an insurance company.
Case Management: A system of coordinating medical services to treat a patient, improve care and reduce cost. A case manager coordinates health care delivery for patients.
Cash Value: The amount of cash accumulated inside some types of permanent life insurance policies. The cash value typically grows over time and often earns a rate of interest, depending on the type of policy. It can be borrowed by the insured or withdrawn when the policy is surrendered.
Casualty: Liability or loss resulting from an accident.
Casualty Insurance: That type of insurance that is primarily concerned with losses caused by injuries to persons and legal liability imposed upon the insured for such injury or for damage to property of others. It also includes such diverse forms as plate glass, insurance against crime, such as robbery, burglary and forgery, boiler and machinery insurance and Aviation insurance. Many casualty companies also write surety business.
Cataclysm: Any great upheaval that causes sudden and violent changes, as an earthquake, war, great flood, etc. (New World)
Catastrophic Loss: Damage resulting from a catastrophe.
Catastrophic Risk: The risk of a large loss by reason of the occurrence of a peril to which a very large number of insured are subject. (Gloss.)
CATEX: An exchange through which insurer’s trade "standardized catastrophe units."
Ceded Reinsurance Leverage: The ratio of the reinsurance premiums ceded, plus net ceded reinsurance balances from non-US affiliates for paid losses, unpaid losses, incurred but not reported (IBNR), unearned premiums and commissions, less funds held from reinsurers, plus ceded reinsurance balances payable, to policyholders' surplus. This ratio measures the company's dependence upon the security provided by its reinsurers and its potential exposure to adjustment on such reinsurance.
Change in Net Premiums Written (IRIS): The annual percentage change in Net Premiums Written. A company should demonstrate its ability to support controlled business growth with quality surplus growth from strong internal capital generation.
Change in Policyholder Surplus (IRIS): The percentage change in policyholder surplus from the prior year-end derived from operating earnings, investment gains, net contributed capital and other miscellaneous sources. This ratio measures a company's ability to increase policyholders' security.
Change of Beneficiary: A contract provision that allows the policy owner to change the beneficiary whenever desired, unless the beneficiary has been designated as irrevocable. Changes to an irrevocable beneficiary require written permission of the beneficiary.
Change of Beneficiary Form: A form provided by the insurer that the policy owner must complete in order to change the beneficiary on a policy.
Chartered Property and Casualty Underwriter (CPCU): Professional designation earned after the successful completion of 10 national examinations given by the American Institute for Property and Liability Underwriters. Covers such areas of expertise as insurance, risk management, economics, finance, management, accounting, and law. Three years of work experience also are required in the insurance business or a related area.
Children Rider: An optional policy provision that provides a small amount of life insurance coverage on the lives of the primary insured's children. The amount of coverage varies by company and one rider typically covers all of the insured's eligible children.
Claim: Notification to an insurance company that payment of the benefit is due under the terms of the policy.
Class 3-6 Bonds (% of PHS): This test measures exposure to noninvestment grade bonds as a percentage of surplus. Generally, noninvestment grade bonds carry higher default and illiquidity risks. The designation of quality classifications that coincide with different bond ratings assigned by major credit rating agencies.
Clause: An article or added provision in a life insurance contract, such as a Suicide Clause.
COBRA (Consolidated Omnibus Budget Reconciliation Act): A federal law which, among other things, requires employers to offer employees and their dependents that would otherwise lose their group health plan eligibility, continuation of coverage under the firm's group plan. Employers are required to make health plans available for periods ranging from 18 to 36 months.
Coinsurance: In property insurance, requires the policyholder to carry insurance equal to a specified percentage of the value of property to receive full payment on a loss. For health insurance, it is a percentage of each claim above the deductible paid by the policyholder. For a 20% health insurance coinsurance clause, the policyholder pays for the deductible plus 20% of his covered losses. After paying 80% of losses up to a specified ceiling, the insurer starts paying 100% of losses.
Collateral Assignment: The pledge of a life insurance policy or its value as security for the repayment of a loan. The assignee receives rights that are superior to the rights of the original policy owner and beneficiary, to the extent of the obligation owed to the assignee.
Collision Insurance: Covers physical damage to the insured's automobile (other than that covered under comprehensive insurance) resulting from contact with another inanimate object.
Combined Ratio After Policyholder Dividends: The sum of the loss, expense and policyholder dividend ratios not reflecting investment income or income taxes. This ratio measures the company's overall underwriting profitability, and a combined ratio of less than 100 indicates an underwriting profit.
Commercial Lines: Insurance coverage for businesses, commercial institutions, and professional organizations.
Commission: Fee paid to an agent or insurance salesperson as a percentage of the policy premium. The percentage varies widely depending on coverage, the insurer and the marketing methods.
Commissions: A fee or percentage of premium allowed to a salesperson or agent for services rendered.
Common Carrier: A business or agency that is available to the public for transportation of persons, goods or messages. Common carriers include trucking companies, bus lines and airlines.
Commutation Right: The right of a beneficiary to receive in a single lump-sum the remaining payments under an installment option which was selected for the settlement of the proceeds of life insurance policy.
Comprehensive Insurance: Auto insurance coverage providing protection in the event of physical damage (other than collision) or theft of the insured car. For example, fire damage or a cracked windshield would be covered under the comprehensive section.
Concentration Factor: All companies are subject to an asset concentration factor that reflects the additional risk of high concentrations in single exposures
Concurrent Periods: In hospital income protection, when a patient is confined to a hospital due to more than one injury and/or illness at the same time, benefits are paid as if the total disability resulted from only one cause.
Conditional Premium Receipt: A receipt given to an applicant when a payment accompanies an application for insurance. If conditions of the conditional coverage are met, the receipt verifies the coverage will be in force from the date of application, provided the insurer would have issued the coverage on the basis of the facts revealed on the application, medical examination and other usual sources of underwriting.
Conditional Reserves: This item represents the aggregate of various reserves which, for technical reasons, are treated by companies as liabilities. Such reserves, which are similar to free resources or surplus, include unauthorized reinsurance, excess of statutory loss reserves over statement reserves, dividends to policyholders undeclared and other similar reserves established voluntarily or in compliance with statutory regulations.
Consumer Price Index: An index of consumer prices based on the typical market basket of goods and services consumed by all urban consumers during a base period.
Contestability Period: The time period during which the insurer is can deny a claim if it finds material misrepresentations were made in the application. This period usually covers the first two years a policy is in force. A policy becomes "incontestable" when the contestability period is over.
Contingent Beneficiary: A person(s) designated by the policy owner to receive policy proceeds if the Primary Beneficiary is deceased at the time benefits become payable. This is often referred to as a secondary beneficiary.
Conversion Benefit: This allows the policy owner to change one policy type for another. An example is exchanging a term life insurance policy for a permanent life insurance policy. Most term life insurance policies offer this benefit.
Conversion Credit: A one-time credit given when converting term life insurance to permanent life insurance.
Convertible: Term life insurance coverage that can be converted into permanent insurance regardless of an insured's physical condition and without a medical examination. The individual cannot be denied coverage or charged an additional premium for any health problems.
Coordination of Benefits (COB): When the covered person is covered by another plan or plans, the benefits under the policy and the other Plan(s) will be coordinated so benefits from all sources do not exceed 100 percent of allowable medical expenses. This means one Plan pays its full benefits, then the other Plan(s) pay(s).
Copayment: A predetermined, flat fee an individual pays for health-care services, in addition to what insurance covers. For example, some HMOs require a $10 copayment for each office visit, regardless of the type or level of services provided during the visit. Copayments are not usually specified by percentages.
Corrective Order: An order issued by the commissioner specifying corrective actions that the commissioner has determined are required.
Cost-of-Living Adjustment (COLA): Automatic adjustment applied to Social Security retirement payments when the consumer price index increases at a rate of at least 3%, the first quarter of one year to the first quarter of the next year.
Coverage: The scope of protection provided under an insurance policy. In property insurance, coverage lists perils insured against, properties covered, locations covered, individuals insured, and the limits of indemnification. In life insurance, living and death benefits are listed.
Coverage Area: The geographic region covered by travel insurance.
Covered Expenses: All medical services that are covered by an insurance policy. Some health insurance plans will have a list of medical services they do not cover. It would be wise to make sure you are not in need of any service excluded by any given health insurance plan.
Creditable Coverage: Term means that benefits provided by other drug plans are at least as good as those provided by the new Medicare Part D program. This may be important to people eligible for Medicare Part D but who do not sign up at their first opportunity because if the other plans provide creditable coverage, plan members can later convert to Medicare Part D without paying higher premiums than those in effect during their open enrollment period.
Credit Life Insurance: Insurance issued to a creditor (lender) to cover the life of a debtor (borrower) for an outstanding loan.
Credit Risk: A measure of the default risk on amounts that is due from policyholders, reinsures or creditors.
Current Liquidity (IRIS): The sum of cash, unaffiliated invested assets and encumbrances on other properties to net liabilities plus ceded reinsurance balances payable, expressed as a percent. This ratio measures the proportion of liabilities covered by unencumbered cash and unaffiliated investments. If this ratio is less than 100, the company's solvency is dependent on the collectability or marketability of premium balances and investments in affiliates. This ratio assumes the collectability of all amounts recoverable from reinsurers on paid and unpaid losses and unearned premiums.
Death Benefit: The dollar amount of coverage that is paid to the designated beneficiary(s) of a life insurance policy upon the insured's death.
Declined Risk: A proposed insured who is considered to present a risk that is too great for an insurer to cover.
Decreasing Term Life Insurance: A type of term life insurance with a death benefit that decreases each year or policy anniversary. This type of life insurance is typically used to cover a loan balance that decreases over time.
Deductible: The amount of out-of-pocket expenses that must be paid for health services by the covered person before the health plan benefit payment begins. This is usually based on a calendar year.
Degree Of Care: Minimum of care owed by one party for the physical safety of another.
Dental Care: The evaluation, diagnosis, prevention and/or treatment (nonsurgical, surgical or related procedures) of diseases, disorders and/or conditions of the oral cavity, maxillofacial area and/or the adjacent and associated structures and their impact on the human body; provided by a dentist, within the scope of his/her education, training and experience, in accordance with the ethics of the profession and applicable law.
Dependent: An individual other than a health plan subscriber who is eligible to receive health care services under the subscriber's contract. Generally, dependents are limited to the subscriber's spouse and minor children.
Developed to Net Premiums Earned: The ratio of developed premiums through the year to net premiums earned. If premium growth was relatively steady, and the mix of business by line didn't materially change, this ratio measures whether or not a company's loss reserves are keeping pace with premium growth.
Development to Policyholder Surplus (IRIS): The ratio measures reserve deficiency or redundancy in relation to policyholder surplus. This ratio reflects the degree to which year-end surplus was either overstated (+) or understated (-) in each of the past several years, if original reserves had been restated to reflect subsequent development through year end.
Diagnostic Tests: Tests and procedures ordered by a physician to determine if the patient has a certain condition or disease based upon specific signs or symptoms demonstrated by the patient. Such diagnostic tools include, but are not limited to radiology, ultrasound, nuclear medicine, laboratory, pathology services or tests.
Disaster: A natural or man-made event that negatively affects life, property, livelihood or industry often results in permanent changes to human societies, ecosystems and the environment.
Direct Incurred Loss: The property loss in which the insured peril is the proximate cause of damage or destruction.
Direct Premiums Written: The aggregate amount of recorded originated premiums, other than reinsurance, written during the year, whether collected or not, at the close of the year, plus retrospective audit premium collections, after deducting all return premiums.
Direct Writer: An insurer whose distribution mechanism is either the direct selling system or the exclusive agency system.
Disability Insurance (DI): A form of insurance coverage that provides a portion of income lost as the result of a total or partial disability caused by either an accident or an illness.
Disease Management: A system of coordinated health-care interventions and communications for patients with certain illnesses.
Dividend: The return of part of the policy's premium for a policy issued on a participating basis by either a mutual or stock insurer. A portion of the surplus paid to the stockholders of a corporation.
Double Indemnity: The payment of twice the basic benefit in the event of loss resulting from a specific cause or under specific circumstances. This is commonly referred to as an Accidental Death Benefit.
Drought: A drought is a long lasting weather pattern consisting of dry conditions with very little or no precipitation. During this period, food and water supplies can run low, and other conditions, such as famine, can result. Droughts can last for several years and particularly damaging in areas where residents depend on agriculture for survival.
Drug Formulary: A listing of prescription medications which are approved for use and /or coverage by a Health Plan and which will be dispensed through participating pharmacies to a covered person. The list is subject to periodic review and modification by the Health Plan.
Durable Medical Equipment: Medically necessary equipment that is able to withstand repeated or prolonged use; primarily and customarily used to serve a medical purpose; not generally useful to a person in the absence of injury or sickness; and is suited for use in the home. This included supplies that are necessary for use with the equipment. This is commonly referred to as Medical Equipment.
Earned Exposures: The portion of the total amount of exposure (risk) corresponding to the coverage provided during a given time period.
Earned Premium: The amount of the premium that as been paid for in advance that has been "earned" by virtue of the fact that time has passed without claim. A three-year policy that has been paid in advance and is one year old would have only partly earned the premium.
Effective Date: The date an insurance policy goes into effect. This is sometimes referred to as the Policy Date.
Electronic Funds Transfer (EFT): An arrangement in which premium payments are drawn from an insured's bank account. This is also referred as Auto-Draft or Pre-Arranged Withdrawal (PAW or PAC).
Elimination Period: The time which must pass after filing a claim before policyholder can collect insurance benefits. Also known as "waiting period."
Emergency Care: Care for a person with a medical condition or behavioral condition of sudden onset that manifests itself by acute symptoms of sufficient severity (including sever pain) such that a person who possesses an average knowledge of health and medicine could reasonably expect the absence of immediate medical attention to result in placing the health of the insured person in serious jeopardy, serious impairment to bodily functions, serious disfigurement of the insured person, serious impairment of any bodily organ or part of the insured person, or in the case of behavioral condition, placing the health of the insured person or other persons in serious jeopardy.
Employee Participation: An insurance company will usually require a certain percentage of eligible employees to participate in the employer offered group health insurance plan. This percentage varies by company and by group size. If this percentage is not met the insurance company may not offer coverage.
Employer Contribution: The total amount of premium an employer is required to pay for each employee covered under the employer offered group health insurance coverage. An employer is usually required to contribute at least 50% of each enrolled employee's premium. Employers are usually only required to contribute to the employee cost and not the cost for an employee's dependents.
Employers Liability Insurance: Coverage against common law liability of an employer for accidents to employees, as distinguished from liability imposed by a workers' compensation law.
Encumbrance: A claim on property, such as a mortgage, a lien for work and materials, or a right of dower. The interest of the property owner is reduced by the amount of the encumbrance.
Endorsement: Used to clarify or make revisions to particular provisions of a health or life insurance policy.
Enrollee: An individual who is enrolled and eligible for coverage under a health insurance policy. This is also referred to as a Member, Insured or Participant.
Estate Planning: The planning for the administration of an estate upon the death of an individual. Estate planning typically involves establishing wills and/or trusts to minimize the loss of estate value due to estate taxes and is often funded with life insurance.
Evidence of Insurability: Factual information used by insurance companies to determine an applicant’s qualification for insurance. Examples of information used may include paramedical exams, medical records, application statements, and motor vehicle reports among others.
Examiner: A health care professional designated to provide medical exams on insurance applicants.
Exclusions: Specific conditions or circumstances listed in an insurance policy for which the policy will not provide benefit payments.
Expense Ratio: The ratio of underwriting expenses (including commissions) to net premiums written. This ratio measures the company's operational efficiency in underwriting its book of business.
Expiration Date: The date on which an insurance policy ceases to provide coverage on the insured.
Explanation of Benefits: A statement sent by a health plan to a covered person who files a claim. The explanation of benefits (EOB) lists the services provided, the amount billed, and the payment made. The EOB statement must also explain why a claim was or was not paid, and provide information about the individual's rights of appeal.
Exposure: Measure of vulnerability to loss, usually expressed in dollars or units.
Extended Replacement Cost: This option extends replacement cost loss settlement to personal property and to outdoor antennas, carpeting, domestic appliances, cloth awnings, and outdoor equipment, subject to limitations on certain kinds of personal property; includes inflation protection coverage.
Extra Premium: The amount charged in addition to the regular premium to cover any extra hazard or special risk such as aviation or hazardous activities. This is commonly referred to as Flat Extra.
Exclusions, Homeowners Insurance: Part of an insurance contract that excludes coverage of certain perils, persons, property or locations.
Experience Rating: A method of calculating group insurance premium rates by which the insurer considers the particular group’s prior claims and expense experience.
Face Amount: The amount of coverage provided by a life insurance policy. This is also referred to as Coverage Amount.
Face Page: One of the first pages of a life insurance policy. This page lists the policy specifications such as the name of the insured, the policy owner, the beneficiary, the policy number, the amount of insurance and the premium amount among other things.
FEMA: Federal Emergency Management Agency - A former independent agency that became part of the new Department of Homeland Security in March 2003 - is tasked with responding to, planning for, recovering from and mitigating against disasters
File-and-Use Rating Laws: State-based laws which permit insurers to adopt new rates without the prior approval of the insurance department. Usually insurers submit their new rates with supporting statistical data.
Final Expenses: Expenses incurred at the time of a person's death including funeral costs, probate costs, current liabilities and taxes.
Financing Entity: Provides money for purchases.
Fixed Benefit: An insurance policy benefit that remains the same and does not change.
Flat Extra: An extra dollar amount per $1,000 of insurance that is charged to cover any extra hazard or special risk such as aviation or hazardous activities. This is commonly referred to as Extra Premium.
Flexible Premium Policy: A type of permanent life insurance policy in which the policy owner may vary the amount or timing of premium payments.
Flexible Premium Variable Life Insurance: A type of permanent life insurance policy in which the policy owner may vary the amount or timing of premium payments. Policy values are variable and depend on the performance of a separate investment account.
Floater: A separate policy available to cover the value of goods beyond the coverage of a standard renter’s insurance policy including movable property such as jewelry or sports equipment.
Floodplain: A land area adjacent to a river, stream, lake, estuary or other water body that is subject to flooding. These areas, if left undisturbed, act to store excess floodwater.
Free Look Period: The period of time in which a policy owner has the legal right to examine a newly issued policy and return it for a full refund of premium if not satisfied for any reason. The period of time varies by state and is usually between 10 and 30 days with 10 being the most common.
Friendly Fire: Fire intentionally set in a fireplace, stove, furnace or other containment that has not spread beyond it.
Future Purchase Option: Life and health insurance provisions that guarantee the insured the right to buy additional coverage without proving insurability. Also known as "guaranteed insurability option."
General Account: All premiums are paid into an insurer's general account. Thus, buyers are subject to credit-risk exposure to the insurance company, which is low but not zero.
General Liability Insurance: Coverage for an insured when negligent acts and/or omissions result in bodily injury and/or property damage on the premises of a business, when someone is injured as the result of using the product manufactured or distributed by a business, or when someone is injured in the general operation of a business.
Generic Drugs: Drugs which are chemically equivalent to Brand Name Drugs whose patent has expired and which are approved by the Federal Food and Drug Administration (FDA).
Grace Period: The length of time (usually 31 days) after a premium is due and unpaid during which the policy, including all riders, remains in force. If a premium is paid during the grace period, the premium is considered to have been paid on time. In Universal Life policies, it typically provides for coverage to remain in force for 60 days following the date cash value becomes insufficient to support the payment of monthly insurance costs.
Gross Leverage: The sum of net leverage and ceded reinsurance leverage. This ratio measures a company's gross exposure to pricing errors in its current book of business, to errors of estimating its liabilities, and exposure to its reinsurers.
Gross Negligence: Reckless action without regard to life, limb, and/or property.
Group Life Insurance: A life insurance policy issued to a group of people, usually through an employer, union or association.
Guaranteed Insurability: An insurance policy provision that allows the insured to buy additional fixed amounts of life insurance at fixed time intervals without evidence of insurability.
Guaranteed Issue: An insurance policy provision that allows a certain amount of insurance or type of insurance to be issued without medical evidence of insurability.
Guaranteed Rates: A life insurance policy provision that guarantees the premium rates will not change during the entire term of the policy. Most guaranteed term life insurance policies have guaranteed rates.
Guaranteed Renewable: An insurance policy provision that guarantees an insurance policy will continue in force provided the policy premiums are paid on time. An insurance company can typically only cancel a guaranteed renewable insurance policy for non-payment of premium.
Guaranteed Term Life Insurance: A type of renewable term life insurance that remains in force provided the policy premiums are paid on time.
Guaranty Association: An organization of life insurance companies within a state responsible for covering the financial obligations of a member company that becomes insolvent
Hazard: A circumstance that increases the likelihood or probable severity of a loss. For example, the storing of explosives in a home basement is a hazard that increases the probability of an explosion.
Hazardous Activities: These are activities that, if participated in may make you ineligible for coverage from the insurance carrier. Examples include, but are not limited to scuba diving, jet, snow, and water skiing, snowboarding, hang gliding, skydiving, paragliding, bungee jumping, mountain climbing, and amateur racing. Be sure to check the specific insurance company details and / or brochure for exact specifics.
Health Benefit Plan: The health insurance product offered by a health plan.
Health Maintenance Organization (HMO): A legal entity that provides or arranges for a comprehensive range of basic and supplemental health care services. HMO's typically have a network of providers from which the insured must seek services. HMO's also tend to have lower out-of-pocket expenses than traditional insurance plans.
Health Reimbursement Arrangement: Owners of high-deductible health plans who are not qualified for a health savings account can use an HRA.
Health Savings Account: Plan that allows you to contribute pre-tax money to be used for qualified medical expenses. HSAs, which are portable, must be linked to a high-deductible health insurance policy.
Hearing Services: The study, examination, and treatment of defects and diseases of the ear, by inspection, medical treatment and/or devices.
HIV Consent Form: A required form completed by the applicant and submitted with the application for insurance. The form discloses to the applicant that the insurance company may test for the presence of HIV in the applicant's blood. By signing, the applicant acknowledges this and provides authorization for the test.
Home Health Care: Medical care provided by trained personnel in the patient's home for patients who do not need the more extensive treatment provided by a hospital, skilled nursing facility, or extended care facility, or for patients who are not capable of going to a medical facility for outpatient care
Home Office: The headquarters of an insurance company.
Home Office Urine Specimen (HOS): A full-screen urine test that an insurance company may require of applicants during the underwriting process. The HOS typically tests for the presence of alcohol, drugs or nicotine in the system, as well as medical disorders.
Hospice: A program that provides care to the terminally ill.
Hospital: A facility which is licensed by the proper authority in the jurisdiction in which they are located and provides inpatient services for the care and treatment of patients.
Hurricane Deductible: Amount you must pay out-of-pocket before hurricane insurance will kick in. Many insurers in hurricane-prone states are selling homeowners insurance policies with percentage deductibles for storm damage, instead of the traditional dollar deductibles used for claims such as fire and theft. Percentage deductibles vary from one percent of a home's insured value to 15 percent, depending on many factors that differ by state and insurer.
Identification Card: A card issued to a covered person of a health insurance plan. The card is typically presented by the insured to heath care providers when seeking services.
Impaired Insurer: An insurer which is in financial difficulty to the point where its ability to meet financial obligations or regulatory requirements is in question.
Incidents of Ownership: Various rights that may be exercised under the policy contract by the policy owner. Some of the incidents of ownership may include rights: (1) to cash-in the policy, (2) to receive a loan on the cash value of the policy, and (3) to change the beneficiary designation.
Income Taxes: Incurred income taxes (including income taxes on capital gains) reported in each annual statement for that year.
Incontestability Clause: A life insurance policy provision that states after the policy has been in force for a specified period of time, the company cannot deny a claim based on a material misrepresentation made in the application. The typical period of time for the clause is two years.
Incurred But Not Reported Losses (IBNR): Insured losses that have occurred but have not been reported to a primary insurance company.
Incurred Claims: The total number of claims associated with insured events/situations occurring during a given time period.
Incurred Losses: The total dollar amount of losses associated with insured events/situations occurring during a given time period. A portion of incurred claims and losses represent insurers’ estimates of the final costs of pending claims that are still open during the reporting period, as well as estimates of losses associated with claims that have yet to be reported.
Indemnity: Restoration to the victim of a loss by payment, repair or replacement.
Indemnity Plan: A type of traditional health insurance in which the covered person is reimbursed for covered expenses without regard to choice of provider. Also known as fee-for-service plans.
Independent Insurance Agents & Brokers of America (IIABA): Formerly the Independent Insurance Agents of America (IIAA), this is a member organization of independent agents and brokers monitoring and affecting industry issues. Numerous state associations are affiliated with the IIABA.
Inflation Protection: An optional property coverage endorsement offered by some insurers that increases the policy's limits of insurance during the policy term to keep pace with inflation.
In-Network: Refers to the use of providers who participate in the health plan's provider network. Many benefit plans encourage enrollees to use participating (in-network) providers to reduce the enrollee's out-of-pocket expense.
Inpatient Services: Services rendered to a person who is admitted to a hospital for medical care, is assigned a bed designated for routine, special, psychiatric, or rehabilitation care, and occupies the bed for 24 hours or more.
Inspection Report: A report sometimes required by an insurance company in conjunction with the underwriting of an application for coverage. The report typically includes information pertaining to the applicant's occupation, health history and financial status. The report is usually completed by the insurance company or an investigative agency.
Insurability: General acceptability by an insurance company of an applicant for insurance based on underwriting review, which may include items such as the applicant's current health status, medical history and driving record among others.
Insurable Interest: The interest an insurance policy owner has in the risk that is insured. The owner of a life insurance policy has an insurable interest in the insured when the policy owner is likely to benefit if the insured continues to live and is likely to suffer some loss or detriment if the insured dies.
Insurance: A system for reducing risk by transferring the risks of several individual entities to one entity, such as an insurance company. Each individual entity contributes monetarily (premiums) to cover the risk assumed by the insurance company.
Insurance Adjuster: A representative of the insurer who seeks to determine the extent of the insurer's liability for loss when a claim is submitted. Independent insurance adjusters are hired by insurance companies on an "as needed" basis and might work for several insurance companies at the same time. Independent adjusters charge insurance companies both by the hour and by miles traveled. Public adjusters work for the insured in the settlement of claims and receive a percentage of the claim as their fee. A.M. Best's Directory of Recommended Insurance Attorneys and Adjusters lists independent adjusters only.
Insurance Attorneys: An attorney who practices the law as it relates to insurance matters. Attorneys might be solo practitioners or work as part of a law firm. Insurance companies who retain attorneys to defend them against law suits might hire staff attorneys to work for them in-house or they might retain attorneys on an as-needed basis. A.M. Best's Directory of Recommended Attorneys and Adjusters lists insurance defense attorneys who concentrate their practice in insurance defense such as coverage issues, bad faith, malpractice, products liability, and workers' compensation.
Insurance Company: A company that provides insurance coverage through the issuance of insurance policies. This is also referred to as the Insurer.
Insurance Department: An area within each state's government that administers and regulates the insurance industry within the state.
Insurance Institute of America (IIA): An organization which develops programs and conducts national examinations in general insurance, risk management, management, adjusting, underwriting, auditing and loss control management.
Insurance Needs Estimator: A proprietary software program developed by QuickQuote to estimate the amount of life insurance protection an individual needs
Insurance Policy: The physical, written document issued by an insurance company to the policy owner. The insurance policy represents the written contract between the insurance company and the policy owner.
Insurance Regulatory Information System (IRIS): Introduced by the National Association of Insurance Commissioners in 1974 to identify insurance companies that might require further regulatory review.
Insurance to Value: The amount of insurance written on property is approximately equal to its value. An insured most always wants to insure all property to value.
Insured: The individual covered by an insurance policy.
Interest-Crediting Methods: There are at least 35 interest-crediting methods that insurers use. They usually involve some combination of point-to-point, annual reset, yield spread, averaging, or high water mark.
Investment Income: The return received by insurers from their investment portfolios including interest, dividends and realized capital gains on stocks. It doesn't include the value of any stocks or bonds that the company currently owns.
Investments in Affiliates: Bonds, stocks, collateral loans, short-term investments in affiliated and real estate properties occupied by the company.
Irrevocable Beneficiary: A life insurance policy beneficiary who has a vested interest in the policy proceeds even during the insured’s lifetime because the policy owner has the right to change the beneficiary designation only after obtaining the beneficiary’s consent.
Irrevocable Trust: A trust that cannot be revoked or amended by the party who establishes it. This type of trust is often established when life insurance is purchased to protect an estate.
Issue Date: The actual date an insurance policy is issued. This may also be the effective date of the policy.
Juvenile Insurance: Life insurance issued on the life of a child. This type of life insurance policy is typically whole life insurance.
Key Person Insurance: An insurance policy placed on the life of an important person within a company. The policy proceeds are used to offset the loss experienced by the company due to the person's death.
Laddering: Purchasing bond investments that mature at different time intervals.
Landslide: A disaster closely related to an avalanche, but instead of occurring with snow, it occurs involving actual elements of the ground, including rocks, trees, parts of houses, and anything else which may happen to be swept in.
Lapse: The termination of an insurance policy due to non-payment of premium.
Lapse Notice: The notice provided in writing to the policy owner that the policy has lapsed.
Lapse Ratio: The ratio of the number of life insurance policies that lapsed within a given period to the number in force at the beginning of that period.
Least Expensive Alternative Treatment: The amount an insurance company will pay based on its determination of cost for a particular procedure.
Length of Coverage : The length of time you will be covered by an insurance policy. Length of coverage is typically applied to term life insurance products. Below is an explanation of length of coverage as used on the PremierQuotes.com website. PremierQuotes.com has partnered with approximately 30 different term life insurance companies over the years. These companies offer a variety of coverage options, including the length of coverage. Our selection of companies offers the following coverage lengths:
- 5 years
- 10 years
- 15 years
- 20 years
- 25 years
- 30 years
When selecting the length of coverage, it is important to choose a period that will cover you through life's important events, or personal milestones. We all have reasons for purchasing life insurance and it's important to keep these core reasons in mind when selecting the length of coverage. Some items to consider include:
- Years left on your mortgage
- Years left until your children graduate high school, college, medical school, etc.
- Years left until retirement
- Business succession planning
- Estate taxes
- Establishing a trust for grandchildren
- Providing for dependent relatives
- Funeral expenses
Level Premium: A premium that remains the same throughout the period specified in the insurance policy.
Level Term Insurance: A type of term life insurance policy where the face value remains the same throughout the period specified in the insurance policy.
Leverage or Capitalization: Measures the exposure of a company's surplus to various operating and financial practices. A highly leveraged, or poorly capitalized, company can show a high return on surplus, but might be exposed to a high risk of instability.
Liability: Broadly, any legally enforceable obligation. The term is most commonly used in a pecuniary sense.
Liability Insurance: Insurance coverage that offers protection against claims alleging that a property owner’s negligence or inappropriate action resulted in bodily injury or property damage to another party.
Licensed: Indicates the company is incorporated (or chartered) in another state but is a licensed (admitted) insurer for this state to write specific lines of business for which it qualifies.
Licensed for Reinsurance Only: Indicates the company is a licensed (admitted) insurer to write reinsurance on risks in this state.
Life and Health Guarantee Association: An organization that operates under the supervision of a state insurance commissioner to protect policy owners, insured's, beneficiaries, and specified others against losses that result from the financial impairment or insolvency of a life insurer that operates in the state.
Life Expectancy: The average number of years of life remaining for persons of a given age according to a particular mortality table.
Life Insurance: Coverage placed on the life of an individual whereas an insurance company issues a policy and pays a stated death benefit in the event of the insured's death.
Life Insurance Trust: A type of life insurance policy where a trust company is named as the beneficiary and distributes the proceeds of the policy under the terms of the trust agreement.
Lifetime Benefit: The total amount of medical dollars per insured that the insurance company would pay for covered expenses. A lifetime benefit of $1,000,000 means the insurance company will pay their portion of all medical expenses for the life of the policy up to $1,000,000.
Lifetime Reserve Days: Sixty additional days Medicare pays for when you are hospitalized for more than 90 days in a benefit period. These days can only be used once during your lifetime. For each lifetime reserve day, Medicare pays all covered costs except for a daily coinsurance amount.
Liquidity: Liquidity is the ability of an individual or business to quickly convert assets into cash without incurring a considerable loss. There are two kinds of liquidity: quick and current. Quick liquidity refers to funds--cash, short-term investments, and government bonds--and possessions which can immediately be converted into cash in the case of an emergency. Current liquidity refers to current liquidity plus possessions such as real estate which cannot be immediately liquidated, but eventually can be sold and converted into cash. Quick liquidity is a subset of current liquidity. This reflects the financial stability of a company and thus their rating.
Living Benefits: This feature allows you, under certain circumstances, to receive the proceeds of your life insurance policy before you die. Such circumstances include terminal or catastrophic illness, the need for long-term care, or confinement to a nursing home. Also known as "accelerated death benefits."
Lloyd's: Generally refers to Lloyd's of London, England, an institution within which individual underwriters accept or reject the risks offered to them. The Lloyd's Corp. provides the support facility for their activities.
Lloyds Organizations: These organizations are voluntary unincorporated associations of individuals. Each individual assumes a specified portion of the liability under each policy issued. The underwriters operate through a common attorney-in-fact appointed for this purpose by the underwriters. The laws of most states contain some provisions governing the formation and operation of such organizations, but these laws don't generally provide as strict a supervision and control as the laws dealing with incorporated stock and mutual insurance companies.
Long Tail Liability: One where an injury or other harm takes time to become known and a claim may be separated from the circumstances that caused it by as many as 25 years or more.
Loss: The dollar amount associated with a claim.
Losses and Loss-Adjustment Expenses: This represents the total reserves for unpaid losses and loss-adjustment expenses, including reserves for any incurred but not reported losses, and supplemental reserves established by the company. It is the total for all lines of business and all accident years.
Loss and Loss-Adjustment Reserves to Policyholder Surplus Ratio: The higher the multiple of loss reserves to surplus, the more a company's solvency is dependent upon having and maintaining reserve adequacy.
Loss Control: All methods taken to reduce the frequency and/or severity of losses including exposure avoidance, loss prevention, loss reduction, segregation of exposure units and noninsurance transfer of risk. A combination of risk control techniques with risk financing techniques forms the nucleus of a risk management program. The use of appropriate insurance, avoidance of risk, loss control, risk retention, self insuring, and other techniques that minimize the risks of a business, individual, or organization.
Losses Incurred (Pure Losses): Net paid losses during the current year plus the change in loss reserves since the prior year end.
Loss of Use Insurance: Compensation for loss caused because the policyholder has lost the use of his property.
Loss Payable Clause: A policy condition that enables an insured to direct the company to pay any loss that may be due to a third party.
Loss Ratio: The ratio of incurred losses and loss-adjustment expenses to net premiums earned. This ratio measures the company's underlying profitability, or loss experience, on its total book of business.
Loss Reserve: The estimated liability, as it would appear in an insurer's financial statement, for unpaid insurance claims or losses that have occurred as of a given evaluation date. Usually includes losses incurred but not reported (IBNR), losses due but not yet paid, and amounts not yet due. For individual claims, the loss reserve is the estimate of what will ultimately be paid out on that claim.
Lump Sum: The primary method of the settlement of a life insurance policy. The policy proceeds are paid to the beneficiary(s) all at once rather than in installment payments
Managed Care: A system of managing and financing health care delivery to ensure that services provided to manage care plan members are necessary, efficiently provided, and appropriately priced.
Material Misrepresentation: A statement made by an applicant or proposed insured in the policy's application which is not factually correct. If the truth had been disclosed, the insurance company would not have issued the policy, would have issued it differently, or would have issued it with limited benefits or a higher premium.
Maternity Care: Care that promotes the overall health of mother and child from conception, during pregnancy and delivery, and through the post partum period after delivery.
Mediation: situation in which parties agree to take part in a structured settlement negotiation through the guidance of a neutral expert. By participating in this process, the parties do not agree that they will actually settle and the mediator does not have the authority to impose such a settlement.
Medical Examination: An exam completed by a physician. The exam may be required as a part of medical underwriting.
Medical Information Bureau (MIB): A service that compiles medical information and application history of individuals who have applied for insurance in the past. Most insurance companies check an applicant's MIB report during underwriting.
Medically Necessary: Those covered services required to preserve and maintain the health status of a covered person in accordance with the accepted standards of medical practice in the medical community in the area where services are rendered. In other words, services or treatments are considered medically necessary and appropriate if they could not have been omitted without adversely affecting the patient's condition or the quality of medical care provided.
Medical Loss Ratio: Total health benefits divided by total premium.
Member: An individual or dependent who is enrolled in and covered by a managed health care plan. Also referred to as an Enrollee, Beneficiary, Participant, Covered Person, Subscriber, and Eligible Individual.
Member Month: Total number of health plan participants who are members for each month.
Mental Health/Behavioral Health: A condition or disease regardless of its cause, listed in the most recent edition of the American Psychiatric Association's Diagnostic and Statistical Manual of Mental Disorders.
Misrepresentation: The act of making, issuing, circulating, or causing to be issued or circulated any written or verbal statement that does not accurately represent the correct policy terms.
Mode: The term of premium payments for an insurance policy. Typical modes include monthly, quarterly, semi-annual and annual.
Moral Hazard: A condition of morals or habits that could affect an individual's insurability.
Mortality: The frequency of deaths in proportion to a specific population.
Mortality and Expense Risk Fees: A charge that covers such annuity contract guarantees as death benefits.
Mortality Table: A table or chart listing the probabilities of death occurring at various ages. This is often used by insurance companies to establish rating and underwriting guidelines.
Mortality Rate: The number of deaths in a group of people, usually expressed as deaths per thousand.
Mortgagee Clause: A clause in an insurance policy that makes a claim jointly payable to the policyholder and the party that holds a mortgage on the property.
Mortgage Insurance: A contract that insures the lender against loss caused by a mortgagor’s default on a government mortgage or conventional mortgage.
Mortgage Insurance Policy: In life and health insurance, a policy covering a mortgagor with benefits intended to pay off the balance due on a mortgage upon the insured's death, or to meet the payments due on a mortgage in case of the insured's death or disability.
Multi Peril Insurance: Personal and business property insurance that combines in one policy several types of property insurance covering numerous perils.
Multi-Year Premium Mode: A premium payment option where future annual premiums are paid in advance at a discount.
Mutual Insurance Companies: Companies with no capital stock, and owned by policyholders. The earnings of the company--over and above the payments of the losses, operating expenses and reserves--are the property of the policyholders. There are two types of mutual insurance companies. A nonassessable mutual charges a fixed premium and the policyholders cannot be assessed further. Legal reserves and surplus are maintained to provide payment of all claims. Assessable mutuals are companies that charge an initial fixed premium and, if that isn't sufficient, might assess policyholders to meet losses in excess of the premiums that have been charged.
Named Peril Policy: The insurance contract under which covered perils are listed. Benefits for a covered loss are paid to the policy-owner. If an unlisted peril strikes, no benefits are paid.
National Association of Insurance Commissioners (NAIC): Association of state insurance commissioners whose purpose is to promote uniformity of insurance regulation, monitor insurance solvency and develop model laws for passage by state legislatures.
Natural and Probable Consequences: Consequences from a given act that a reasonable person could foresee.
Negative Trend: With respect to a life and/or health insurer, negative trend over a period of time, as determined in accordance with the “Trend Test Calculation” included in the RBC instructions
Negligence: Failure to act within the legally required degree of care for others, resulting in harm to them.
Net Income: The total after-tax earnings generated from operations and realized capital gains as reported in the company's NAIC annual statement on page 4, line 16.
Net Investment Income: This item represents investment income earned during the year less investment expenses and depreciation on real estate. Investment expenses are the expenses related to generating investment income and capital gains but exclude income taxes.
Net Leverage: The sum of a company's net premium written to policyholder surplus and net liabilities to policyholder surplus. This ratio measures the combination of a company's net exposure to pricing errors in its current book of business and errors of estimation in its net liabilities after reinsurance, in relation to policyholder surplus.
Net Liabilities to Policyholder Surplus: Net liabilities expressed as a ratio to policyholder surplus. Net liabilities equal total liabilities less conditional reserves, plus encumbrances on real estate, less the smaller of receivables from or payable to affiliates. This ratio measures company's exposures to errors of estimation in its loss reserves and all other liabilities. Loss-reserve leverage is generally the key component of net liability leverage. The higher the loss-reserve leverage the more critical a company's solvency depends upon maintaining reserve adequacy.
Net Premium: The amount of premium minus the agent's commission. Also, the premium necessary to cover only anticipated losses, before loading to cover other expenses.
Net Premiums Earned: The adjustment of net premiums written for the increase or decrease of the company's liability for unearned premiums during the year. When an insurance company's business increases from year to year, the earned premiums will usually be less than the written premiums. With the increased volume, the premiums are considered fully paid at the inception of the policy so that, at the end of a calendar period, the company must set up premiums representing the unexpired terms of the policies. On a decreasing volume, the reverse is true.
Net Premiums Written: Represents gross premium written, direct and reinsurance assumed, less reinsurance ceded.
Net Premiums Written to Policyholder Surplus (IRIS): This ratio measures a company's net retained premiums written after reinsurance assumed and ceded, in relation to its surplus. This ratio measures the company's exposure to pricing errors in its current book of business.
Net Underwriting Income: Net premiums earned less incurred losses, loss-adjustment expenses, underwriting expenses incurred, and dividends to policyholders.
Network: The doctors, clinics, hospitals, and other medical providers that a health plan contracts with to provide health care to its members. Members are generally limited to network providers for full coverage of their health costs.
Network Providers: The doctors, clinics, hospitals, and other medical providers that are in the network(s) of the health plan.
NFIP-National Flood Insurance Program (NFIP): The program of flood insurance coverage and floodplain management administered under the Act and applicable Federal regulations promulgated in Title 44 of the Code of Federal Regulations, Subchapter B.
Non-Cancellable: Contract terms, including costs that can never be changed.
Non-Contributory: A group benefit plan typically through an employer, in which the employer pays all of the premiums.
Non-Participating Provider: A provider that has not contracted with a health plan to provide health care services to covered persons. Generally health care benefits are reduced when a non-participating provider is utilized.
Non-Recourse Mortgage: A home loan in which the borrower can never owe more than the home's value at the time the loan is repaid.
Nonstandard Auto (High Risk Auto or Substandard Auto): Insurance for motorists who have poor driving records or have been canceled or refused insurance. The premium is much higher than standard auto due to the additional risks.
Non-Tobacco/Non-Smoker: A rating class assigned to an insurance policy in which the insured has been classified as a non-user of tobacco and/or nicotine products.
Occupational Hazards: Hazards associated with an insured's occupation that increases the possibility of injury, illness or death. Such hazards may have an impact on the insurability of an applicant.
Occurrence: An event that results in an insured loss. In some lines of business, such as liability, an occurrence is distinguished from accident in that the loss doesn't have to be sudden and fortuitous and can result from continuous or repeated exposure which results in bodily injury or property damage neither expected not intended by the insured.
Off-Balance Sheet Risk: A measure of risk due to excessive rates of growth, contingent liabilities or other items not reflected on the balance sheet.
Operating Cash Flow: Measures the funds generated from insurance operations, which includes the change in cash and invested assets attributed to underwriting activities, net investment income and federal income taxes. This measure excludes stockholder dividends, capital contributions, unrealized capital gains/losses and various noninsurance related transactions with affiliates. This test measures a company's ability to meet current obligations through the internal generation of funds from insurance operations. Negative balances might indicate unprofitable underwriting results or low yielding assets.
Operating Ratio (IRIS): Combined ratio less the net investment income ratio (net investment income to net premiums earned). The operating ratio measures a company's overall operational profitability from underwriting and investment activities. This ratio doesn't reflect other operating income/expenses, capital gains or income taxes. An operating ratio of more than 100 indicates a company is unable to generate profits from its underwriting and investment activities.
Optional Coverage: These types of coverage are usually purchased and added to the base policy. Examples include, but are not limited to dental, prescriptions, maternity, and term life accidental death & disability (AD&D).
Other Income/Expenses: This item represents miscellaneous sources of operating income or expenses that principally relate to premium finance income or charges for uncollectible premium and reinsurance business.
Original Age Conversion: A conversion of a term life insurance policy to a permanent plan of insurance at a premium rate, based on the insured’s age when the original term policy was purchased.
Orphan: A policy owner who is not currently being serviced by the writing agent/broker.
Out-of-Network: The use of health care providers who have not contracted with the health plan to provide services. HMO members are generally not covered for out-of-network services except in emergency situations. Members enrolled in Preferred Provider Organizations (PPO) and Point-Of-Service (POS) coverage can go out-of-network, but will pay some additional costs.
Out-of-Pocket Maximum: The amount which a covered person must pay for deductibles, coinsurance and copays in a defined time period (generally calendar year) before the health plan covers all remaining medical services at 100%.
Outpatient: A patient who received medical services at a health facility without being admitted to the facility for an overnight stay.
Outpatient Surgery: Surgery performed in a facility or center devoted primarily to the performance of one day or same day surgery without anticipation of the overnight say of patients.
Overall Liquidity Ratio: Total admitted assets divided by total liabilities less conditional reserves. This ratio indicates a company's ability to cover net liabilities with total assets. This ratio doesn't address the quality and marketability of premium balances, affiliated investments and other un-invested assets.
Overhead Expense Insurance: Insurance for business owners to help offset continuing business expenses if the owner becomes disabled.
Own Occupation: Insurance contract provision that allows policyholders to collect benefits if they can no longer work in their own occupation.
PAC: See Pre-Authorized Check.
Paid-Up Additional Insurance: An option that allows the policyholder to use policy dividends and/or additional premiums to buy additional insurance on the same plan as the basic policy and at a face amount determined by the insured's attained age.
Paid-Up Insurance: An insurance policy that does not require future premium payments to provide the death benefit of the insured person.
Paramedical Exam/Paramed Exam: A brief physical examination the insurer typically requires of applicants during the underwriting process. The exam is usually performed by a registered nurse at a time and location convenient to the applicant. The exam usually consists of measurements (e.g. height/weight, blood pressure, and heart rate), body fluid samples (e.g. urine, blood) and a medical history questionnaire. The insurance company pays for the exam.
Partial Day Treatment: A program offered by appropriately licensed psychiatric facilities that includes either a day or evening treatment program for mental health or substance abuse.
Participating Provider: A provider who has contracted with a managed care plan to provide medical services to plan members. The provider may be a hospital or other medical facility, a pharmacy, a physician, or other practitioner who has contractually accepted the terms and conditions as set forth by the plan. This is commonly referred to as a Preferred Provider.
Participation Rate: In equity-indexed annuities, a participation rate determines how much of the gain in the index will be credited to the annuity. For example, the insurance company may set the participation rate at 80%, which means the annuity would only be credited with 80% of the gain experienced by the index.
Payment Mode: Most insurance companies allow you to choose from the following payment modes:
There are some things to consider when selecting payment mode:
Annually is actually less expensive in the long run. Although you pay the entire amount up front, over the course of a year you will pay less. The reason is that insurance companies build in a 'factor' for modal premiums to cover their cost of billing administration. For example, assume your annual premium is $1,000.
- Annual premium = $1,000. Annual cost = $1,000.
- Semi-annual premium = $520. Annual cost = $1,040.
- Quarterly premium = $265. Annual cost = $1,060.
- Monthly premium = $87.50. Annual cost = $1,050.
* All numbers are hypothetical. Actual modal factors vary by company.
* Monthly payments can be made by automatic deduction from your checking account. In fact, if you choose monthly payments, it is a requirement. Almost all insurance companies require automatic deduction for the monthly payment mode. Although this option does not appeal to everyone, it can be a convenient way to budget for and pay your premiums.
Payor: The person making premium payments on a policy
PCP: See Primary Care Physician.
Peril: The cause of a possible loss.
Permanent Life Insurance: The type of life insurance that may provide coverage for the insured's entire lifetime. Permanent life insurance policies may include cash value accounts, policy loans, surrender options/fees, etc. Examples are Whole Life Insurance and Universal Life Insurance. Most term life insurance policies can be converted to permanent life insurance policies.
Personal Injury Protection: Pays basic expenses for an insured and his or her family in states with no-fault auto insurance. No-fault laws generally require drivers to carry both liability insurance and personal injury protection coverage to pay for basic needs of the insured, such as medical expenses, in the event of an accident.
Personal Lines: Insurance for individuals and families, such as private-passenger auto and homeowners insurance.
Physical Therapy: Rehabilitation concerned with the restoration of function and the prevention of disability following surgery, injury, disease or the loss of a body part.
Plan Benefit Maximum: The maximum amount that a health insurance plan will pay toward the cost of services incurred by an individual or family within a specified period of time, usually a calendar year.
- HMO: A Health Maintenance Organization. A HMO plan requires you to select a Primary Care Physician (PCP) to coordinate your care. Visits to specialists require a PCP referral. There is generally no coverage for care received outside of the HMO network, with certain exceptions for emergencies and urgent care.
- POS: A Point of Service plan. A POS plan combines features of a Health Maintenance Organization (HMO) and Preferred Provider Organization (PPO). You decide whether to use HMO or PPO benefits at the time of service.
- PPO: A Preferred Provider Organization. A PPO plan offers flexibility in physician and facility choice. As a member of a PPO, you can use the physicians and hospitals within the PPO network, or go outside of the network for care at a higher cost to you. You do not need a referral to see a specialist.
- Major Medical: A plan commonly known as a fee-for-service or a traditional plan. This type of plan allows you the freedom to visit any medical provider. There are no networks and you do not need referrals to see specialists.
Point of Service (POS): A health care plan that permits covered persons to choose providers outside the plan's network, yet is designed to encourage the use of providers in the network. A POS plan may have an HMO component and a PPO component. The member chooses where to seek services at the point of service, rather than choosing at the time of enrollment.
Policy: The written contract effecting insurance, or the certificate thereof, by whatever name called, and including all clause, riders, endorsements, and papers attached thereto and made a part thereof.
Policy Anniversary: As a general rule, the date on which coverage under an insurance policy became effective.
Policy Date: The date the insurance policy becomes effective.
Policy Fee: A charge for policy administration expenses incurred by the insurance company. The policy fee is usually included in the premium.
Policyholder Dividend Ratio: The ratio of dividends to policyholders related to net premiums earned.
Policyholder Surplus: Excess of an insurance company’s assets above its legal obligations to meet the benefits (liabilities) payable to its policyholders. Also, the net worth in an insurance company adjusted for the overstatement of liabilities.
Policy Loan: A loan from the insurance company to the policy owner secured by the policy's cash value.
Policy Owner: The individual who owns an insurance policy and who has all contractual rights related to the insurance policy. The policy owner may or may not be the same person as the insured, payor or beneficiary.
Policy Rider: An amendment to an insurance policy that becomes part of the insurance contract and either expands or limits the benefits payable under the contract.
Pool: A method of distributing insurance risk in which the individual participants share overall risk with the other participants.
Pooling: Method by which each member of an insurance pool shares in each and every risk written by the other members of the pool.
Pre-Authorization: The process of obtaining prior approval as to the appropriateness of a service or medication. Prior authorization does not guarantee coverage.
Pre-Authorized Check (PAC): A premium-payment arrangement in which the policy owner authorizes the insurer to withdraw the premium payments from a bank account. This arrangement is usually required for the monthly payment mode.
Pre-Certification: An administrative procedure whereby a health provider submits a treatment plan to a third party before treatment is initiated. The third party usually reviews the treatment plan, indicating one or more of the following: patient's eligibility, guarantee of eligibility time, covered services, amounts payable, application of appropriate deductibles, copayment factors and maximums.
Pre-Existing Condition: A coverage limitation included in many health policies which states that certain physical or mental conditions, either previously diagnosed or which would normally be expected to require treatment prior to issue, will not be covered under the new policy for a specified period of time.
Preferred Auto: Auto coverage for drivers who have never had an accident and operates vehicles according to law. Drivers are not a risk for any insurance company that writes auto insurance, and no insurance company would be afraid to take them on as risk.
Preferred Plus Rating Class: The best premium rate class available on life insurance policies for applicants that are determined by underwriting to be in better than average health Preferred Provider Organization- Network of medical providers who charge on a fee-for-service basis, but are paid on a negotiated, discounted fee schedule.
Preferred Provider Organization (PPO): A type of managed care plan which contracts with independent providers (hospitals, physicians, ancillary providers) for negotiated discounted fees for services provided to covered persons. The covered persons usually have free choice of providers but have a financial incentive (e.g., reduced copayments, lower deductibles) to use participating providers.
Preferred Rating Class: One of the best premium rate classes available on life insurance policies for applicants that are determined by underwriting to be in better than average health.
Preferred Risk: A proposed insured who presents a significantly less than average likelihood of loss and who is charged a lower than standard premium rate.
Premium: The amount of money to be paid by the policy owner to the insurance company for the benefits provided under an insurance policy.
Premium Balances: Premiums and agents' balances in course of collection; premiums, agents' balances and installments booked but deferred and not yet due; bills receivable, taken for premiums and accrued retrospective premiums.
Premium Earned: The amount of the premium that as been paid for in advance that has been "earned" by virtue of the fact that time has passed without claim. A three-year policy that has been paid in advance and is one year old would have only partly earned the premium.
Premium Mode: The frequency of premium payments elected by the policy owner. Typical premium modes include monthly, quarterly, semi-annual and annual.
Premium Notice: A notice from an insurance company to a policy owner that a premium will be due on a given date.
Premium Rate: The price per unit of insurance.
Premium Rate Class: The appropriate price category to which an applicant qualifies according to an insurance company's underwriting guidelines. Common rate classes are Preferred Plus, Preferred, Standard Plus, Standard and Substandard.
Premium Receipt: The receipt given a policy owner for the payment of a premium.
Premium to Surplus Ratio: This ratio is designed to measure the ability of the insurer to absorb above-average losses and the insurer's financial strength. The ratio is computed by dividing net premiums written by surplus. An insurance company's surplus is the amount by which assets exceed liabilities. The ratio is computed by dividing net premiums written by surplus. For example, a company with $2 in net premiums written for every $1 of surplus has a 2-to-1 premium to surplus ratio. The lower the ratio, the greater the company's financial strength. State regulators have established a premium-to-surplus ratio of no higher than 3-to-1 as a guideline.
Premium Unearned: That part of the premium applicable to the unexpired part of the policy period.
Prescription: A written order or refill notice issued by a licensed medical professional for drugs which are only available through a pharmacy.
Prescription Card: Provides coverage for prescription drugs. Benefits vary by insurance plan and may include coverage for generic and brand name prescription drugs.
Pretax Operating Income: Pretax operating earnings before any capital gains generated from underwriting, investment and other miscellaneous operating sources.
Pretax Return on Revenue: A measure of a company's operating profitability and is calculated by dividing pretax operating earnings by net premiums earned.
Preventive Care: Comprehensive health care that emphasizes priorities for prevention, early detection, and early treatment of disease or its consequences. Preventive care usually includes routine physical examinations, immunizations, and wellness programs
Primary Beneficiary: The person(s) designated by the policy owner to which the proceeds of a life insurance policy will be paid upon the death of the insured.
Primary Care Physician (PCP): The physician a member must contact before having access to medical care benefits. The PCP provides basic health care services and serves as a manager of the delivery of all other health care for which benefits may be payable in accordance with the utilization review and quality assurance programs of the plan.
Primary Insurance: First layer property or liability coverage carried by the insured that provides benefits up to the limits of a policy, regardless of other insurance policies in effect.
Private-Passenger Auto Insurance Policyholder Risk Profile: This refers to the risk profile of auto insurance policyholders and can be divided into three categories: standard, nonstandard and preferred. In the eyes of an insurance company, it is the type of business (or the quality of driver) that the company has chosen to taken on.
Proceeds: The amount payable under the terms of a life insurance policy upon the insured's death or upon the maturity of an endowment.
Profit: A measure of the competence and ability of management to provide viable insurance products at competitive prices and maintain a financially strong company for both policyholders and stockholders.
Proposed Insured: The person named in a life insurance application as the person whose life is to be covered by the insurance.
Prosthetic Devices: An artificial substitute for a missing body part used for functional reasons, because a part of the body is permanently damaged, is absent or is malfunctioning.
Protected Cell Company (PCC): A PCC is a single legal entity that operates segregated accounts, or cells, each of which is legally protected from the liabilities of the company's other accounts. An individual client's account is insulated from the gains and losses of other accounts, such that the PCC sponsor and each client are protected against liquidation activities by creditors in the event of insolvency of another client.
Provider: An individual or organization that provides health care services. Providers may include but not limited to: physicians, hospitals, physical therapists, medical equipment suppliers, and pharmacists.
Provider Network: The set of providers contracted with a health plan to provide services to the covered person(s).
Provision: A statement or clause, found in an insurance policy, to establish some term of the contract.
Qualified High-Deductible Health Plan: A health plan with lower premiums that covers health-care expenses only after the insured has paid each year a large amount out of pocket or from another source. To qualify as a health plan coupled with a Health Savings Account, the Internal Revenue Code requires the deductible to be at least $1,000 for an individual and $2,000 for a family. High-deductible plans are also known as catastrophic plans.
Qualified Versus Non-Qualified Policies: Qualified plans are those employee benefit plans that meet Internal Revenue Service requirements as stated in IRS Code Section 401a. When a plan is approved, contributions made by the employer are tax deductible expenses.
Qualifying Event: An occurrence that triggers an insured's protection.
Quick Assets: Assets that are quickly convertible into cash.
Quick Liquidity Ratio: Quick assets divided by net liabilities plus ceded reinsurance balances payable. Quick assets are defined as the sum of cash, unaffiliated short-term investments, unaffiliated bonds maturing within one year, government bonds maturing within five years, and 80% of unaffiliated common stocks. These assets can be quickly converted into cash in the case of an emergency.
Quote: The estimated premium amount for an applicant based on several factors including type of insurance, coverage amount, length of coverage, age, gender, health and medical history, family history, build and approximate rating class. All quotes are preliminary estimates with final rates determined by insurance company underwriting.
Radiation Therapy: The use of ionizing radiation in the treatment of disease, usually cancer. These services are provided by a radiation therapies or a physician qualified in therapeutic radiology.
Rate Banding: The process of grouping term life insurance death benefit amounts. The rate per thousand typically changes at certain death benefit levels or band breaks.
Rated Policy: A policy issued at a substandard rating class based on underwriting guidelines.
Rate Per Thousand: The price per unit (or $1,000) of death benefit. Term life insurance premiums are calculated by multiplying the rates per thousand of death benefit, then adding the policy fee.
Rating Class: The appropriate price category to which an applicant qualifies according to an insurance company's underwriting guidelines. Common rate classes are Preferred Plus, Preferred, Standard Plus, Standard and Substandard
RBC Ratio: Measurement of the amount of capital (assets minus liabilities) an insurance company has as a basis of support for the degree of risk associated with it s company operations and investments. This ratio identifies the companies that are inadequately capitalized by dividing the company’s by the minimum amount of capital that the regulatory authorities feel is necessary to support the insurance operations.
RBC Statistic: Ratio of authorized control level risked based capital of an insurance company to its total adjusted capital. This statistic determines regulatory action taken by the state’s insurance commissioner
Reasonable and Customary Fee: The average fee charged by a particular type of health care practitioner within a geographic area.
Rebating: The act of giving something of value to an applicant by the agent/broker in return for purchasing a life insurance policy (e.g. sharing commissions). Rebating is illegal in most states.
Reciprocal Insurance Exchange: An unincorporated groups of individuals, firms or corporations, commonly termed subscribers, who mutually insure one another, each separately assuming his or her share of each risk. Its chief administrator is an attorney-in-fact.
Re-Entry: A policy provision that allows an insured to renew their term life insurance policy at the end of the term based on their attained age and health status. Evidence of insurability is required for re-entry.
Referral: A recommendation by a physician and/or managed care plan for a covered person to be evaluated and/or treated by a different physician.
Reinstatement: A policy provision that allows a policy to be restored from a lapsed status. This is usually allowed during the 31 days following the expiration of an insurance policy's grace period.
Reinsurance: In effect, insurance that an insurance company buys for its own protection. The risk of loss is spread so a disproportionately large loss under a single policy doesn't fall on one company. Reinsurance enables an insurance company to expand its capacity; stabilize its underwriting results; finance its expanding volume; secure catastrophe protection against shock losses; withdraw from a line of business or a geographical area within a specified time period.
Reinsurance Ceded: The unit of insurance transferred to a reinsurer by a ceding company.
Reinsurance Recoverables to Policyholder Surplus: Measures a company's dependence upon its reinsurers and the potential exposure to adjustments on such reinsurance. Its determined from the total ceded reinsurance recoverables due from non-U.S. affiliates for paid losses, unpaid losses, losses incurred but not reported (IBNR), unearned premiums and commissions less funds held from reinsurers expressed as a percent of policyholder surplus.
Reinsurer: Insurance company that assumes all or part of an Insurance or Reinsurance policy written by a primary insurance company.
Renewal: The automatic re-establishment of in-force status affected by the payment of another premium.
Renewable Term Insurance: Term life insurance that may be renewed for another term without evidence of insurability.
Replacement: The act of terminating a policy with an insurance company and replacing it with a new insurance policy. An internal replacement involves both policies from the same company while and external replacement involves two separate policies, each from a different insurance company. Replacement transactions are highly regulated for the benefit of consumer protection.
Replacement Cost: The cost of replacing property without a reduction for depreciation. By this method of determining value, damages for a claim would be the amount needed to replace the property using new materials.
Replacement Form: A required form that must be completed if the applicant is replacing existing coverage. The replacement form notifies the existing insurer that the applicant is replacing their policy with a policy from another company.
Reserve: The amount of money an insurance company holds which, with future premiums and an assumed rate of interest, will pay all contractual obligations as they become due. Insurance company reserves are an important factor used to establish a company's industry ratings.
Residual Benefit: In disability insurance, a benefit paid when you suffer a loss of income due to a covered disability or if loss of income persists. This benefit is based on a formula specified in your policy and it is generally a percentage of the full benefit. It may be paid up to the maximum benefit period.
Residual Market: Consists of insurance consumers unable to obtain coverage in the voluntary market.
Respiratory Therapy: Treatment to preserve or improve lung function.
Retention Limit: A specified maximum amount of insurance that a life insurer is willing to carry at its own risk on any one life without transferring some of the risk to a reinsurer.
Return on Policyholder Surplus (Return on Equity): The sum of after-tax net income and unrealized capital gains, to the mean of prior and current year-end policyholder surplus, expressed as a percent. This ratio measures a company's overall after-tax profitability from underwriting and investment activity.
Revocable Beneficiary: A type of beneficiary designation that can be changed without the beneficiary's consent.
Rider: A special provision attached to a policy that either expands or restricts the benefits of the policy. Exclusion riders typically exclude certain conditions from coverage.
Ridered: A ridered insurance policy is one in which a specific condition is excluded from coverage.
Risk: The probability of injury, illness or death associated with an insured.
Risk Based Capital (RBC): The amount of required capital that the insurance company must maintain based on the inherent risks in the insurer’s operations Risk Classification: The process by which underwriting determines the risk associated with an applicant and assigns an appropriate rating class to the policy.
Risk Class: Risk class, in insurance underwriting, is a grouping of insureds with a similar level of risk. Typical underwriting classifications are preferred, standard and substandard, smoking and nonsmoking, male and female.
Risk Management: Management of the pure risks to which a company might be subject. It involves analyzing all exposures to the possibility of loss and determining how to handle these exposures through practices such as avoiding the risk, retaining the risk, reducing the risk, or transferring the risk, usually by insurance.
Risk Retention Groups: Liability insurance companies owned by their policyholders. Membership is limited to people in the same business or activity, which exposes them to similar liability risks. The purpose is to assume and spread liability exposure to group members and to provide an alternative risk financing mechanism for liability. These entities are formed under the Liability Risk Retention Act of 1986. Under law, risk retention groups are precluded from writing certain coverage, most notably property lines and workers' compensation. They predominately write medical malpractice, general liability, professional liability, products liability and excess liability coverage. They can be formed as a mutual or stock company, or a reciprocal.
Saffir Simpson Scale: A 1-5 rating based on a hurricane’s present intensity. This is used to give an estimate of the potential property damage and flooding expected along the coast from a hurricane landfall. Wind speed is the determining factor in the scale.
Saving Age: A procedure used to make the effective date of a policy earlier than the application date. Saving age is commonly used to make the insurance age of the insured at policy issue lower than it actually is in an effort to receive a lower premium. Most policies can be backdated up to six months. Saving age is commonly referred to as backdating.
Scheduled Property: Listing specific personal property for a stated insured value. This is usually considered for valuable items that are subject to limited coverage.
Secondary Beneficiary: A person(s) designated by the policy owner to receive policy proceeds if the Primary Beneficiary is deceased at the time benefits become payable. This is often referred to as a contingent beneficiary.
Secondary Market: The secondary market is populated by buyers willing to pay what they determine to be fair market value.
Second-To-Die Life Insurance: A type of life insurance policy that insures the lives of two people, typically a husband and wife. The death benefit proceeds are payable upon the second death.
Section 1035 Exchange: This refers to a part of the Internal Revenue Code that allows owners to replace a life insurance or annuity policy without creating a taxable event.
Section 7702: Part of the Internal Revenue Code that defines the conditions a life policy must satisfy to qualify as a life insurance contract, which has tax advantagesSettlement: The process of receiving the proceeds from a life insurance policy. Settlement choices usually include lump sum payments or annuitization.
Separate Account: A separate account is an investment option that is maintained separately from an insurer's general account. Investment risk associated with separate-account investments is born by the contract owner.
Service Area: The geographical area covered by a health plan within which it provides direct service benefits.
Simplified Underwriting: An underwriting process that applies a less strict analysis of risk factors.
Single Premium Life Insurance: A life insurance policy that requires only one premium and is guaranteed to remain paid-up throughout the insured's lifetime.
Skilled Nursing Facility (SNF): A facility, either free-standing or part of a hospital, with a professionally trained staff that provides medical treatment, continuous nursing, rehabilitation, and various other health and social services to patients who are not in an acute phase of illness, but who require skilled care on an inpatient basis in lieu of hospital inpatient services.
Solvency: Having sufficient assets--capital, surplus, reserves--and being able to satisfy financial requirements--investments, annual reports, examinations--to be eligible to transact insurance business and meet liabilities.
Specialist: A physician trained and/or certified to treat a specific body system, such as a cardiologist (heart), gynecologist (woman's reproductive system), or dermatologist (skin).
Speech Therapy: The study, examination, and treatment of defects and diseases of the voice, speech, and spoken and written language, and the use of appropriate devices and treatment.
Split Dollar Plan: An arrangement in which two parties, usually an employer and employee, jointly purchase the policy, pay premiums and share in the policy's benefits.
Spousal Discount: A discount for purchasing life insurance coverage together with a spouse from the same insurance company. Typically, the second policy fee is waived. Spousal discounts are more often seen on permanent life insurance policies.
Standard Auto: Auto insurance for average drivers with relatively few accidents during lifetime.
Standard Plus Rating Class: The premium rate class available on life insurance policies for applicants that are determined by underwriting to be of slightly better than average health.
Standard Risk: An average risk as determined by underwriting.
State of Domicile: The state in which the company is incorporated or chartered. The company also is licensed (admitted) under the state's insurance statutes for those lines of business for which it qualifies.
Statutory Reserve: A reserve, either specific or general, required by law.
Stock Insurance Company: An incorporated insurer with capital contributed by stockholders, to whom earnings are distributed as dividends on their shares.
Stop Loss: The total dollar amount up to which you share medical costs with the insurance company. For example, if the stop loss is $5,000 and your share is 20%, you pay $1,000 and the company pays 100% thereafter up to the lifetime benefit.
Subaccount Charge: The fee to manage a subaccount, which is an investment option in variable products that is separate from the general account.
Subrogation: The circumstance where an insurance company takes the place of an insured in bringing a liability suit against a third party who caused injury to the insured.
Subscriber: The individual who is responsible for payment of premiums or whose employment is the basis for eligibility for membership in a group health plan. This is also referred to as a member or enrollee.
Subsidence: Movement of the land on which property is situated. A structure built on a hillside may slide down the hill due to earth movement caused by heavy rains.
Sub-Standard Risk: A below average risk as determined by underwriting. Insurance policies can be issued to individuals with sub-standard risk and are referred to as table rated or modified Successive Periods - In hospital income protection, when confinements in a hospital are due to the same or related causes and are separated by less than a contractually stipulated period of time, they are considered part of the same period of confinement.
Suicide Clause: A life insurance policy provision that states if the insured dies by suicide within a certain period of time from the date of issue (usually two years) the amount payable would be limited to the total premiums paid minus any policy loans or outstanding premiums.
Supplemental Accident: Provides first-dollar coverage for accidental injuries. This benefit is usually not subject to copayments, deductibles, or coinsurance.
Surplus: The amount by which assets exceed liabilities.
Surrender: The cancellation of a life insurance policy.
Surrender Charge: Fee charged to a policyholder when a life insurance policy or annuity is surrendered for its cash value. This fee reflects expenses the insurance company incurs by placing the policy on its books, and subsequent administrative expenses.
Surrender Period: A set amount of time during which you have to keep the majority of your money in an annuity contract. Most surrender periods last from five to 10 years. Most contracts will allow you to take out at least 10% a year of the accumulated value of the account, even during the surrender period. If you take out more than that 10%, you will have to pay a surrender charge on the amount that you have withdrawn above that 10%.
Synthetic Guaranteed Investment Contract: Modified guaranteed investment contract in which the underlying assets of the synthetic contract are owed by the plan itself rather than the insurance company as is the case with the GIC. This ownership rights is of particular importance if there is a concern about the long term financial soundness of an insurance company. The synthetic plan segregates the plan’s assets from the assets of the insurance company.
Tenants Insurance: Coverage for the contents of renter’s home or apartment and for liability. Tenant policies are similar to homeowners insurance, except that they do not cover the structure.
Term Conversion: A policy provision that allows a term life insurance policy to be converted to a permanent life policy offered by the company for a specified period of time. Usually the insured can convert to a permanent policy at the same amount of coverage without providing evidence of insurability.
Term Life Insurance: Life insurance that provides protection for a specified period of time. Common policy periods are one year, five years, 10 years or until the insured reaches age 65 or 70. The policy doesn't build up any of the no forfeiture values associated with whole life policies.
Third-Party Owner: A policy owner who is not the insured.
Tobacco: Examples include, but are not limited to cigarettes, cigars, chewing tobacco, and snuff. Use of these products can have an impact on the rating class you receive.
Tort: A private wrong, independent of contract and committed against an individual, which gives rise to a legal liability and is adjudicated in a civil court. A tort can be either intentional or unintentional, and liability insurance is mainly purchased to cover unintentional torts.
Total Adjusted Capital: Commonly refers to an insurance company's capital base under Standard & Poor's capital adequacy model. It includes shareholders' funds and adjustments on equity, asset values and reserves.
Total Admitted Assets: This item is the sum of all admitted assets, and are valued in accordance with state laws and regulations, as reported by the company in its financial statements filed with state insurance regulatory authorities. This item is reported net as to encumbrances on real estate (the amount of any encumbrances on real estate is deducted from the value of the real estate) and net as to amounts recoverable from reinsurers (which are deducted from the corresponding liabilities for unpaid losses and unearned premiums).
Total Annual Loan Cost: The projected annual average cost of a reverse mortgage including all itemized costs.
Total Loss: A loss of sufficient size that it can be said no value is left. The complete destruction of the property. The term also is used to mean a loss requiring the maximum amount a policy will pay.
Twisting: The illegal practice of inducing a policy owner to replace a policy by providing inaccurate, incomplete or misleading information.
Umbrella Policy: Umbrella coverage is insurance coverage that extends the terms of a regular insurance policy once coverage limits for the regular policy have been reached. Specifically, umbrella coverage is for people who want protection against a large jury award that is not covered in their standard policy.
Unaffiliated Investments: These investments represent total unaffiliated investments as reported in the exhibit of admitted assets. It is cash, bonds, stocks, mortgages, real estate and accrued interest, excluding investment in affiliates and real estate properties occupied by the company.
Underwriter: The individual or team within a life insurance company who is trained to evaluate the insurability and determine the classification of applicants for insurance protection.
Underwriting: The process of evaluating applications for insurance based on an established set of guidelines. Underwriting determines the risk associated with an applicant and either assigns the appropriate rating class for the policy or declines to offer a policy.
Underwriting Expense Ratio: This represents the percentage of a company's net premiums written that went toward underwriting expenses, such as commissions to agents and brokers, state and municipal taxes, salaries, employee benefits and other operating costs. The ratio is computed by dividing underwriting expenses by net premiums written. The ratio is computed by dividing underwriting expenses by net premiums written. A company with an underwriting expense ratio of 31.3% is spending more than 31 cents of every dollar of net premiums written to pay underwriting costs. It should be noted that different lines of business have intrinsically differing expense ratios. For example, boiler and machinery insurance, which requires a corps of skilled inspectors, is a high expense ratio line. On the other hand, expense ratios are usually low on group health insurance.
Underwriting Expenses Incurred: Expenses, including net commissions, salaries and advertising costs, which are attributable to the production of net premiums written.
Underwriting Risk: A measure of the risk that arises from under-estimating the liabilities from business already written or inadequately pricing current or prospective business.
Unearned Premiums: That part of the premium applicable to the unexpired part of the policy period.
Uninsurable Risk: An individual who is not acceptable for insurance due to excessive risk related to current health, medical history, occupation, avocations, etc.
Uninsured Motorist Coverage: Endorsement to a personal automobile policy that covers an insured collision with a driver who does not have liability insurance. Underwriting Guide - Details the underwriting practices of an insurance company and provides specific guidance as to how underwriters should analyze all of the various types of applicants they might encounter. Also called; an underwriting manual, underwriting guidelines, or manual of underwriting policy.
Universal Life Insurance: A type of permanent life insurance that combines term life insurance and an investment feature into one contract. Universal Life insurance policies generally offer flexible premium payments.
Urgent Care: Care for injury, illness, or another type of condition (usually not life threatening) which should be treated within 24 hours. This is also referred to as after-hours care.
Usual, customary and Reasonable (UCR): Usual Fee: The fee usually charged for a given service by an individual provider to his or her private patient, that is, his or her own usual fee. Customary Fee, the range of usual fees charged by providers of similar training and experience in an area. Reasonable Fee, a fee that meets the two previous criteria or, in the opinion of the responsible medical or dental association's review committee, is justifiable considering the special circumstances of the particular case in question.
Utilization: How much a covered group uses a particular health plan or program.
Utilization Management (UM): A management tool used by managed care plans involving the systematic process of reviewing and controlling patients' use of medical services and providers' use of medical resources in order to optimize efficiency and appropriateness of care. UM includes an array of techniques, such as second surgical opinion, preadmission certification, concurrent review, case management, discharge planning, and retrospective chart review.
Utilization Review: The assessment of treatment in accordance with guidelines and standards that are established and accepted by health care professionals using medical necessity criteria. The assessment occurs before and during the delivery of health care. Its purpose is to enhance the cost-effectiveness of health care through reviewing its appropriateness.
Valuation: A calculation of the policy reserve in life insurance. Also, a mathematical analysis of the financial condition of a pension plan.
Valuation Reserve: A reserve against the contingency that the valuation of assets, particularly investments, might be higher than what can be actually realized or that a liability may turn out to be greater than the valuation placed on it.
Variable Annuitization: The act of converting a variable annuity from the accumulation phase to the payout phase.
Variable Life Insurance: A form of life insurance whose face value fluctuates depending upon the value of the dollar, securities or other equity products supporting the policy at the time payment is due.
Variable Universal Life Insurance: A combination of the features of variable life insurance and universal life insurance under the same contract. Benefits are variable based on the value of underlying equity investments, and premiums and benefits are adjustable at the option of the policyholder.
Viatical Settlement Provider: Someone who serves as a sales agent, but does not actually purchase policies.
Viator: The terminally ill person who sells his or her life insurance policy.
Voluntary Market: Consists of insurance consumers that insurers select to be provided coverage, using underwriting guidelines that are not unfairly discriminatory. The voluntary market is also called the normal or regular market.
Voluntary Reserve: An allocation of surplus not required by law. Insurers often accumulate such reserves to strengthen their financial structure.
Waiver of Premium: A provision in some insurance contracts which enables an insurance company to waive the collection of premiums while keeping the policy in force if the policyholder becomes unable to work because of an accident or injury. The waiver of premium for disability remains in effect as long as the ensured is disabled.
War Clause: A provision in a life insurance policy excluding the liability of an insurance company if the insured's death is the direct result of a war.
Whole Life Insurance: A type of permanent life insurance which provides a level death benefit upon the insured's death, or a cash endowment upon policy maturity that is equal to the death benefit. Whole life insurance policies also accumulate cash values.
Written Exposure: The total number of exposures of all policies issued during a given time period.
Written Premiums: The total premiums generated from all policies written by an insurance company within a given period of time.
Yearly Renewable Term (YRT): A type of term life insurance policy that provides a level death benefit with premiums that increases each year with the insured's age. YRT is also referred to as annually renewable term.
Yield on Invested Assets (IRIS): Annual net investment income after expenses, divided by the mean of cash and net invested assets. This ratio measures the average return on a company's invested assets. This ratio is before capital gains/losses and income taxes.