CS Professional Insurance Law and Practice Notes Important Terms
Abstract: A brief history of title to land.
Accelerated Death Benefit:
A percentage of the policy’s lace amount discounted for interest that can be paid to the insured prior to death, under specified circumstances. This is In lieu of a traditional policy that pays beneficiaries after the death of the insured. Such benefits kick in if the insured becomes terminally ill, needs extreme medical intervention, or must reside in a nursing home, The payments made while the insured is living are deducted from any death benefits paid to beneficiaries.
Accident and Health Insurance:
Coverage for accidental injury, accidental death, and related health expenses. Benefits will pay for preventative services, medical expenses. and catastrophic care, with limits,
Accidental Death Benefit:
An endorsement that pays the beneficiary an additional benefit if the insured dies from an accident
Accounts Receivable (Debtors) Insurance:
Indemnities for losses that are due to an inability lo collect from open commercial account debtors because records have been destroyed by an insured peril.
Activities of Daily Living:
Activities-such as eating. bathing. toileting, dressing, and continence-that trigger payment in a long-term care Insurance policy. li at least some of them cannot be performed by the insured.
Aggregate Deductible:
A type of deductible that applies by an entire year which the insured absorbs all losses until the deductible level is reached, at which point the Insurance pays for all losses over the specified amount.
Aggregate Limits:
A yearly limit, rather than a per occurrence’ limit. Once an insurance company has paid up lo the limit, it will pay no more during that year.
Aleatory Contract:
A legal contract in which the outcome depends on an uncertain event. Insurance contracts are abealory In nature.
All-risk Agreement:
A properly or liability insurance contract in which all risks of loss are covered except those specifically excluded: also called ‘open perils policy.’
Alternative Dispute Resolution (ADR):
Alternative lo going lo court to settle disputes.
Methods include arbitration. where disputing parties agree to be bound to the decision of an independent third party, and mediation, where a third party tries to arrange a settlement between the two sides.
Alternative Markets:
Mechanisms used to fund self-insurance. This includes captives, which are insurers owned by one or more non-insurers to provide owners with coverage. Risk-retention groups, formed by members of similar professions or businesses to obtain liability insurance. are also a for ro of self-insurance.
Ancillary Charges:
In hospital insurance, covered charges other than room and board.
Annual Statement:
Summary of an insurer’s or reinsurer’s financial operations for a particular year, including a balance sheet.
Annual-Premium Annuity:
An annuity whose purchase price is paid in annual instalments.
Annuitant: An individual receiving benefits under an annuity.
Annuity:
A life insurance company contract that pays periodic income benefits 1er a specific period of time or over the course of the annuitant’s lifetime. These payments can be made annually, quarterly or monthly. From a life insurer’s viewpoint, an annuity presents the opposite of mortality risk from a life insurance policy. Life insurance pays a benefit when the policyholder dies. An annuity pays benefits as long as the annuitant lives. With both products, the insurer’s profit or loss depends on whether it made correct assumptions about the policyholder’s life expectancy and the company’s future
investment returns.
Annuity Certain:
An annuity that is payable for a specified period of time, without regard to the life or death of the annuitant.
Annuity Units:
A measure used in valuing a variable annuity during the time it is being paid to the annuitant.
Each unit’s value fluctuates with the performance of an investment portfolio.
Apportionment:
The dividing of a loss proportionately among two or more insurers that cover the same loss.
Appraisal:
A survey to determine a property’s insurable value or the amount of a loss.
Arbitration:
Procedure in which an insurance company and the insured or a vendor agree to settle a claim dispute by accepting a decision made by a third party.
Arson:
The deliberate setting of a fire
Assessable Policy:
A policy subject to additional charges, or assessments, on all policyholders in the company.
Asset-Backed Securities:
Bonds that represent pools of loans of similar types, duration and interest rates. Almost any loan with regular repayments of principal and interest can be securitized, from auto loans and equipment leases to credit card receivables and mortgages.
Assets:
Property owned, in this “case by an insurance company, including stocks, bonds, and real estate. insurance accounting is concerned with solvency and the ability to pay claims. Insurance laws, therefore, require a conservative valuation of assets.
Assign:
To use life insurance policy benefits as collateral for a loan.
Assignee:
The party to whom the rights of the insured under a policy are transferred.
Assignment:
A clause that allows the transfer of rights under a policy from one person to another, usually by means of a written document.
Assignor:
The party granting the transfer of the insured’s rights to the assignee.
Asymmetric Information:
An insured’s knowledge of likely losses that is unavailable to insurers.
Auto Insurance Premium:
The price an insurance company charges for coverage, based on the frequency and cost of potential accidents, theft and other losses.
Automatic Coverage:
An insurer agrees to cover accidents from all machinery of the same type as that specifically listed in the endorsement.
Automatic Treaty:
An agreement whereby the ceding company is required to cede some certain amounts of business and the reinsurer ¡s required to accept them.
Average Adjusters:
A name applied to claims adjusters in the field of marine insurance.
Aviation Insurance:
Commercial airlines hold property insurance on airplanes and liability insurance for negligent acts that result in injury or property damage to passengers or others. Damage is covered on the ground and in the air. The policy limits the
geographical area and individual pilots covered.
Bailment:
A situation in which one has entrusted personal property to another.
Balance Sheet:
Provides a snapshot of a company’s financial condition at one point in time.
Basic Health Insurance Policy:
Hospital insurance, surgical insurance and regular medical expense insurance.
Beneficiary:
A person named in a life insurance policy to receive the death proceeds.
Bind:
In property and liability insurance, the agent customarily is given the authority to accept offers from prospective insured without consulting the insurer; in such cases, the agent is said to bind the insurer.
Binder:
Temporary authorization of coverage issued prior to the actual insurance policy.
Blanket Bond:
A fidelity bond that covers all employees of a given class and may also cover perils other than infidelity
Blanket Coverage:
Insurance coverage for more than one item of property at a single location, or two or more items of properly in different locations.
Boiler and Machinery Insurance:
Often called Equipment Breakdown, or Systems Breakdown insurance. Commercial insurance that covers damage caused by the malfunction or breakdown of boilers, and a vast array of other equipment including air conditioners, heating, electrical, telephone, and computer systems. Prevention of loss is emphasized even more than indemnification of loss.
Bond:
A security that obligates the issuer to pay interest at specified intervals and to repay the principal amount of the loan at maturity. In insurance, a form of surety ship. Bonds of various types guarantee a payment or & reimbursement forfinancial losses resulting from dishonesty, failure to perform and other acts.
Book of Business:
Total amount of insurance on an insurer’s books at a particular point in time.
Broker:
An intermediary between a customer and an insurance company. Brokers typically search the market for coverage appropriate to their clients. They work on commission and usually sell commercial, not personal, insurance. In life insurance, agents must be licensed as securities brokers/dealers to sell variable annuities, which are similar to stock
market-based investments.
Burglary:
The unlawful taking of property from within premises, entry to which has been obtained by force, leaving visible marks of entry.
Burglary and Theft Insurance:
Insurance for the loss of property due to burglary, robbery or larceny. It is provided in a standard homeowners policy and in a business multiple peril policy.
Business Income Insurance:
Coverage for the reduction in revenue in the event of an insured peril.
Business Interruption Insurance:
Commercial coverage that reimburses business owners br lost profits and continuing fixed expenses during the time that a business must stay closed while the premises are being restored because of physical damage from a covered peril, such as a fire. Business interruption insurance also may cover financial losses that may occur if civil authorities limit access to an area after a disaster and their actions prevent customers from reaching the business premises. Depending on the policy, civil authorities coverage may start after a waiting period and last for two or more weeks.
Business Pursuit:
Continued or regular activity for the purpose of earning a livelihood.
Business Owners Policy:
A policy that combines property, liability and business interruption coverage by small to medium-sized businesses. Coverage is generally cheaper than if purchased through separate insurance policies.
Cancelable:
A health policy that can be cancelled by the insurer at any time for any reason.
Capacity:
The supply of insurance available to meet demand. Capacity depends on the industry’s financial ability to accept risk. For an individual insurer, the maximum amount of risk it can underwrite based on its financial condition. The adequacy of an insurer’s capital relative to its exposure to loss is an important measure of solvency.
Captive Agent:
A person who represents only one insurance company and is restricted by agreement from submitting business to any other company, unless it is first rejected by the agent’s captive company.
Captive Insurer:
A type of insurer that ¡s generally formed and owned by potential insured to meet their own distinctive needs.
Captives:
Insurers that are created and wholly-owned by one or more non-insurers, to provide owners with coverage. A form of self-insurance.
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 savings element that accumulates with some life insurance policies.
Cash Value Option:
An option in life insurance policies permitting the insured to take the cash value of the policy on surrender.
Catastrophe:
Term used for statistical recording purposes to refer to a single incident or a series of closely related incidents causing severe insured property losses totalling more than a given amount.
Catastrophe Bonds:
Risk-based securities that pay high-interest rates and provide insurance companies with a form of reinsurance to pay losses from a catastrophe such as those caused by a major hurricane. They allow insurance risk to be sold to institutional investors in the form of bonds, thus spreading the risk.
Catastrophe Deductible:
A percentage or fixed monetary amount that a homeowner must pay before the insurance policy kicks in when a major natural disaster occurs. These large deductibles limit an insurer’s potential losses in such cases, allowing to insure more property. A property insurer may not be able to buy reinsurance to protect its own bottom line unless it keeps its potential maximum losses under a certain level.
Catastrophe Factor:
Probability of catastrophic loss, based on the total number of catastrophes in a state (or region) over a 40-year period.
Catastrophe Model:
Using computers, a method to mesh long-term disaster information with current demographic, building and other data to determine the potential cost of natural disasters and other catastrophic losses for a given geographic area.
Catastrophe Reinsurance:
Reinsurance (insurance for insurers) for catastrophic losses. The insurance industry is able to absorb the huge losses caused by natural and man-made disasters such as hurricanes, earthquakes and terrorist attacks because losses are spread among thousands of companies including catastrophe reinsurers who operate on a global basis.
Ceding Company:
An insurer, also called a primary insurer, that passes on to other insurers some part of its risk under insurance policies it has accepted.
Cession:
A reinsurance term meaning that portion of a risk that is passed on to reinsurers by ceding companies.
Chance of Loss:
The long-term chance of occurrence or relative frequency of loss. Expressed by the ratio of the number of losses likely to occur compared to the larger number of possible losses in a given group.
Chief Risk Officer (CRO):
New position within some organizations, denoting the responsibility for coordinating an enterprise risk management strategy.
Civil Law:
Legal proceedings directed towards wrongs against individuals and organizations. Breach of contract is an example of a civil wrong.
Claims Management:
The functions performed in handling loss claims
Claims-Made Policy:
A form of insurance that pays claims presented to the insurer during the term of the policy or within a specific term after its expiration. It limits liability insurers’ exposure to unknown future liabilities.
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 policy-holder. For a 20 per cent health insurance coinsurance clause, the policyholder pays for the deductible plus 20 per cent of his covered losses. After paying 80 per cent of losses up to a specified ceiling, the insurer starts paying 100 per cent of losses.
Collateral:
Property that is offered to secure a loan or other credit and that becomes subject to seizure on
default. (Also called security.)
Collision Coverage:
Portion of an auto insurance policy that covers the damage to the policyholder’s car from a collision.
Combined Ratio:
Percentage of each premium rupee a property/casualty insurer spends on claims and expenses. A decrease in the combined ratio means financial results are improving; an increase means they are deteriorating. When the ratio is over 100, the insurer has an underwriting loss.
Commercial General Liability (CGL):
A broad commercial policy that covers all liability exposures of a business that are not specifically excluded. Coverage includes product liability, completed operations, premises and operations, and independent contractors.
Commercial Lines:
Products designed for and bought by businesses. Among the major coverages are boiler and machinery, business interruption, commercial auto, comprehensive general liability, directors and officers liability, fire and allied lines, inland marine, medical malpractice liability, product liability, professional liability, surety and fidelity, and workers compensation. Most of these commercial coverages can be purchased separately except business interruption which must be added to a fire insurance (property) policy.
Commercial Paper:
Short-term, unsecured, and usually discounted promissory note issued by commercial firms and financial companies often to finance current business. Commercial paper, which is rated by debt rating agencies, is sold through dealers or directly placed with an investor.
Commercial Umbrella:
A liability policy designed to cover catastrophic losses.
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.
Common Disaster Clause:
A life insurance clause stating what happens to life insurance proceeds if named beneficiaries die in a common accident.
Common-Law:
The unwritten law that is based on custom, usage, and court decisions; different from statutory law, which consists of laws passed by legislatures.
Completed Operations Coverage:
Pays for bodily injury or property damage caused by a completed project or job. Protects a business that sells a service against liability claims.
Comprehensive Coverage:
Portion of an auto insurance policy that covers damage to the policyholder’s car not involving a collision with another car (including damage from fire, explosions, earthquakes, floods, and riots), and theft.
Compulsory Auto Insurance:
The minimum amount of auto liability insurance that is statutorily required.
Concealment:
The failure of an applicant to reveal, before the insurance contract is made, a fact that is material to the risk.
Concurrent Causation:
A legal doctrine that says if two perils (one excluded and one not excluded) occur and cause a loss, coverage applies.
Concurrent Loss Control:
Activities that take place at the same time as losses to reduce their severity.
Conditional Contract:
A contract, such as an insurance contract, requiring that certain acts be performed if recovery is to be made.
Conditional Receipt:
A document given to an applicant for life insurance stating that the company’s acceptance is contingent upon determination of the applicant’s insurability.
Conditionally Renewable:
A policy that can be cancelled or have the premiums raised by the insurer on a specific anniversary date, subject to certain reasons written into the policy.
Conditions:
Circumstances under which an insurance contract is in force. Breach of the conditions is grounds for refusal to pay the loss.
Consequential Damage Endorsement:
Coverage for losses incurred as a result of the failure of an insured object on the insured’s premises.
Consequential:
Losses other than property damage that occur as a result of physical loss to a business, for example, the cost of maintaining key employees to help reorganize after a fire.
Consideration:
In an insurance contract, the specified premium and an agreement to the provisions and stipulations that follow.
Constructive Total Loss:
Loss occurring when property is not completely destroyed but when it would cost more to restore it than it is worth.
Contingent Beneficiary:
A person named in a life insurance contract to receive the benefits of the policy if other named beneficiaries are not living.
Contingent Business Income Insurance:
Coverage for losses that result from losses to a supplier or customer on whom the firm depends.
Contingent Liability:
Liability of individuals, corporations, or partnerships for accidents caused by people other than employees for whose acts or omissions the corporations or partnerships are responsible.
Contract:
An agreement embodying a set of promises that are enforceable by law.
Contract Construction Bond:
A surety bond guaranteeing that the principles will complete their work in accordance with the terms of the construction contracts.
Contract of Adhesion:
A contract, such as an insurance contract, in which any ambiguities or uncertainties in the wording will be construed against the drafter (the insurer).
Contractors’ Equipment Floater:
Insures mobile equipment, such as tractors, steam shovels, drilling equipment, etc., whether it is owned, leased, or borrowed.
Contracts Without Time Element:
Insure losses resulting from fire in which the loss cannot be measured either by direct damage by fire or in terms of elapsed time.
Contractual Liability :
Liability arising from contractual agreements in which it is stated that some losses, if they occur, are to be borne by specific parties.
Contributory Negligence:
Partial guilt or negligence in a civil lawsuit where both parties are to blame.
Convertible:
A term policy that can be converted to permanent coverage rather than expinng on a specific date.
Cost of Risk:
The sum of (1) outlays to reduce risks, (2) the opportunity cost of activities forgone due to risk considerations, (3) expenses of strategies to finance potential losses, and (4) the cost of reimbursed losses.
Cost-of-living Rider:
An, endorsement that automatically increases the amount of coverage by the same percentage the Consumer Price Index has risen since policy issue.
Cost-to-repair Basis:
The cost to replace property after a loss but perhaps not with like materials and labor.
Coverage:
Synonym for insurance.
Credit:
The promise to pay in the future in order to buy or borrow in the present. The right to defer payment of debt.
Credit Derivatives:
A contract that enables a user, such as a bank, to better manage its credit risk. A way of transferring credit risk to another party.
Credit Enhancement:
A technique to lower the interest payments on a bond by raising the issue’s credit rating, often through insurance in the form of a financial guarantee or with standby letters of credit issued by a bank.
Credit Insurance:
Commercial coverage against losses resulting from the failure of business debtors to pay their obligation to the insured, usually due to insolvency. The coverage is geared to manufacturers, wholesalers, and service providers who may be dependent on a few accounts and therefore could lose significant income in the event of insolvency. Sometimes called bad-debt insurance.
Credit Life Insurance Life insurance coverage on a borrower designed to repay the balance of a loan in the event the borrower dies before the loan is repaid. It may also include disablement and can be offered as an option in connection with credit cards and auto loans.
Criminal Law:
Legal proceedings directed towards wrongs against society, such as rape, murder, and robbery. Charges are made by a government body, and the guilty party is subject to fine and imprisonment.
Declaration:
Part of a property or liability insurance policy that states the name and address of policy-holder, property insured its location and description, the policy period, premiums, and supplemental information.
Decreasing Term:
Term life insurance in which the amount of coverage declines during the period for which it is issued.
Deductible:
The amount of loss borne or paid by the policyholder. Either a specified rupee amount, a percentage of the claim amount, or a specified amount of time that must elapse before benefits are paid. The bigger the deductible, the lower the premium charged for the same coverage.
Defensive Medicine:
The practice of performing extra procedures and tests in addition to those that are probably necessary for a given patient in an attempt to avoid malpractice litigation.
Deferred Annuity:
Benefits that begin at some specified time after the annuity is purchased.
Degree of Risk:
Relative variation of actual from expected losses.
Dependent Life:
Group term life insurance covering an employee’s dependent.
Derivatives:
Contracts that derive their value from an underlying financial asset, such as publicly traded securities and foreign currencies. Often used as a hedge against changes in value.
Diminution of Value:
The idea that a vehicle (or any other asset) loses value after it has been damaged in an accident and repaired.
Direct Loss:
A loss that stems directly from an unbroken chain of events leading from an insured peril to the loss.
Direct Premiums:
Property/casualty premiums collected by the insurer from policyholders, before reinsurance premiums are deducted. Insurers share some direct premiums and the risk involved with their reinsurers.
Direct Response:
A system to distribute insurance to customers through direct mail, telephone, television, or other methods without the use of intermediaries.
Direct Sales/ Direct Response:
Method of selling insurance directly to the insured through an insurance company’s own employees, through the mail, or via the Internet. This is in lieu of using captive or exclusive agents.
Direct Writers:
Insurance companies that sell directly to the public using exclusive agents or their own employees, through the mail, or via Internet. Large insurers, whether predominately direct writers or agency companies are increasingly using many different channels to sell insurance. In reinsurance, denotes reinsurers that deal directly with the insurance companies they reinsure without using a broker.
Directors and Officers Liability Insurance (D&O):
Covers directors and officers of a company for negligent acts or omissions, and for misleading statements that result in suits against the company, often by shareholders.
Disability Income Insurance:
Health insurance that provides periodic payments if the insured becomes disabled as a result of illness or accident.
Disability Loss:
The inability of a person to work because of an illness or injury.
Disappearing Deductible:
A deductible used in property insurance in which the size of the deductible decreases as the size of the loss increases. At a given level of loss, the deductible completely disappears.
Diversification:
Process of spreading risk through a firm’s involvement in various businesses or through the location of its operations in different geographic areas.
Dividends:
Money returned to policyholders from an insurance company’s earnings. Considered a partial premium refund rather than a taxable distribution, reflecting the difference between the premium charged and actual losses. Many life insurance policies and some property/casualty policies pay dividends to their owners. Life insurance policies that pay dividends are called participating policies.
Dynamic Risks:
Uncertainties, either pure or speculative, that are produced because of societal changes.
Earned Premium:
The portion of premium that applies to the expired part of the policy period. Insurance premiums are payable in advance but the insurance company does not fully earn them until the policy period expires.
Earnings Form:
A commercial property form without a 50 per cent or more coinsurance coverage.
Earnings Multiple Approach:
A group life plan in which an employee receives one or two times salary in life insurance coverage.
Earthquake Insurance:
Covers a bu1lding and its contents, but includes a large percentage deductible on each. A special policy or endorsement exists because earthquakes are not covered by standard homeowners or most business policies.
Economic Loss:
Total financial loss resulting from the death or disability of a wage earner, or from the destruction of property. includes the loss of earnings, medical expenses, funeral expenses, the cost of restoring or replacing property, and legal expenses. it does not include non-economic losses, such as pain caused by an injury.
Electronic Commerce/ E-commerce:
The sale of products such as insurance over the Internet.
Elimination Period:
The period that must elapse before disability income is payable under a health insurance policy covering disability income loss.
Employee Stock Ownership Plans (Esops):
Deferred profit-sharing plans in which investment ¡s usually in stock issued by the employer.
Employment Practices Liability Coverage:
Liability insurance for employers that covers wrongful termination, discrimination, or sexual harassment toward the insured’s employees or former employees.
Endorsement:
A written form attached to an insurance policy that alters the policy’s coverage, terms, or conditions. Sometimes called a rider.
Endowment Insurance:
Life insurance that pays the face amount at the end of a specified time period if the insured is alive; the face amount is payable in the event of death before the end of the period.
Enterprise Risk Management:
Approach for managing both pure and speculative risks together, another name for integrated risk management.
Entire Contract Clause:
A life insurance contract stating that the policy and the application form constitute the entire contract between the parties.
Environmental Impairment Liability Coverage:
A form of insurance designed to cover losses and liabilities arising from damage to property caused by pollution.
Equal Shares:
A method of apportionment in which insurers covering the same loss-share that loss equally, up to their respective limits of liability.
Equity:
In investments, the ownership interest of shareholders. In a corporation, stocks as opposed to bonds.
Errors and Omissions Coverage (E&o):
A professional liability policy covering the policyholder for negligent acts and omissions that may harm his or her clients.
Escrow Account:
Funds that a lender collects to pay monthly premiums in mortgage and home-owners insurance, and sometimes to pay property taxes.
Estoppel:
A legal doctrine in which a person may be required to do something or be prevented from doing something that is inconsistent with previous behaviour; may prevent an insurer from denying liability after a loss.
Excess of Loss Reinsurance:
A contract between an insurer and a reinsurer, whereby the insurer agrees to pay a specified portion of a claim and the reinsurer to pay all or a part of the claim above that amount
Exclusions:
A provision in an insurance policy that eliminates coverage for certain risks, people, property classes, or locations.
Exclusion:
Percentage of each premium rupee that goes to insurers’ expenses including overhead, marketing, and commissions.
Exclusive Agent:
Restrictions for the coverage provided by an insurance policy.
Expected Loss Ratio:
A captive agent, or a person who represents only one insurance company and is restricted by agreement from submitting business to any other company unless it is first rejected by the agent’s company.
Expediting Expenses:
The ratio of losses incurred to premiums earned; anticipated when rates are first formulated.
Expense Ratio:
The insurer agrees to pay reasonable extra cost for expediting the repair of machinery, including overtime and express transportation.
Experience: Record of losses.
Experience Rating:
The system of rating or pricing insurance in which the future premium reflects past loss experience of the insured.
Exposure:
Possibility of loss.
Exposure Doctrine:
A liability limit that provides coverage when a person is exposed to a product or dangerous substance.
Express Warranty:
A warranty actually stated in a contract.
Extended Coverage:
An endorsement added to an insurance policy, or clause within a policy, that provides additional coverage for risks other than those in a basic policy.
Extra Expense Insurance:
The consequential property insurance that covers the extra expense incurred by the interruption of a business; the policy pays if the business does not close down but continues in alternative facilities, with higher than normal costs.
Face Amount:
In a life insurance contract, the stated sum of money to be paid to the beneficiary upon the insured’s death.
Facultative Reinsurance:
A reinsurance policy that provides an insurer with coverage for specific individual risks that are unusual or so large that they aren’t covered in the insurance company’s reinsurance treaties. This can include policies for jumbo jets or oil rigs. Reinsurers have no obligation to take on facultative reinsurance but can assess each risk individually. By contrast, under treaty reinsurance, the reinsurer agrees to assume a certain percentage of entire classes of business, such as various kinds of auto, up to preset limits.
Fair Rental Value:
In a dwelling policy, the rent the building could have earned at the time of the loss whether or not it was actually rented.
Fidelity Bond:
A form of protection that covers policyholders for losses that they incur as a result of fraudulent acts by specified individuals. It usually insures a business for losses caused by the dishonest acts of its employees.
Fiduciary Bond:
A type of surety bond sometimes called a probate bond, which is required of certain fiduciaries, such as executors and trustees, that guarantees the performance of their responsibilities.
Fiduciary Liability:
Lega’ responsibility of a fiduciary to safeguard assets of beneficiaries. A fiduciary, for example, a pension fund manager, is required to manage investments held in trust in the best interest of beneficiaries. Fiduciary liability insurance covers breaches of fiduciary duty such as misstatements or misleading statements, errors and omissions.
Financial Planning:
A process involving the establishment of financial goals, the development and implementation of a plan for achieving those goals, and the periodic review and revision of the overall plan.
Financial Risks:
Risk involving credit, foreign exchange, commodity trading, and interest rate; may involve chance for gain as well as loss.
Financial Statement Analysis:
A method of risk identification in which each item on a firm’s balance sheet and income statement is analysed regarding potential risks.
Financing:
The function of planning and controlling the supply of funds.
Fire:
Combustion in which oxidation takes place so rapidly that a flame or glow is produced.
Fire Insurance:
Coverage protecting property against losses caused by a fire or lightning that is usually included in homeowners or commercial multiple peril policies.
Fixed Annuity:
An annuity that pays the annuitant a guaranteed, fixed return every month for a fixed premium. The guarantee is based on the expected return of the underlying investments of the insurance company. (See Annuity).
Fixed-amount Option:
A life insurance option allowing the beneficiary to take the proceeds in the form of a fixed periodic payment.
Fixed-period Option:
Payment of a death benefit in equal instalments over a specified time period.
Floater:
Attached to a home-owners policy, a floater insures movable property, covering losses wherever they may occur. Among the items often insured with a floater are expensive jewellery, musical instruments, and expensive apparel. it provides broader coverage than a regular homeowners policy for these items.
Floater Policy:
An inland marine insurance policy that covers property subject to movement from one location to another.
Flood:
- An overflow of inland or tidal waves,
- unusual and rapid accumulation of runoff of surface waters,
- landslides or mudslides,
- excessive erosion along the shore of a lake or any other body of water, or
- erosion or undermining caused by a body of water exceeding its anticipated cyclical levels.
Floor-of-Protection Concept:
An underlying principle of social insurance specifying that the goal of social insurance is to provide only limited protection, not one’s entire need.
Fraud:
Intentional lying or concealment by policyholders to obtain payment of an insurance claim that would otherwise not be paid, or lying or misrepresentation by the insurance company managers, employees, agents, and brokers for financial gain.
Free-of-capture-and Seizure (FC&S) Clause:
A clause in ocean marine insurance that excludes war as a covered peril.
Freight:
Money paid for the transportation of goods. Freight insurance is a common coverage In marine insurance, purchased by the owners of transporting vessels.
Frequency:
Number of times a loss occurs. One of the criteria used In calculating premium rates.
Frequency Reduction:
A method of loss control that lessens the chance that a peril will occur.
Friendly Fire:
A tire confined to the area of a boiler, stove, or other place designed to contain it.
Fronting:
A procedure in which a primary insurer acts as the insurer of record by issuing a policy, but then passes the entire risk to a reinsurer in exchange for a commission. Often, the fronting insurer is licensed to do business in a country where the risk is located, but the reinsurer is not. The reinsurer in this scenario is often a captive or an independent insurance company that cannot sell insurance directly in a particular country.
Futures:
Agreement to buy a security for a set price at a certain date. Futures contracts usually involve commodities, indexes or financial futures.
General Average Clause:
A clause in ocean marine insurance that requires ship and freight interests other than the insured to respond to losses suffered by the insured interest when those losses result from voluntary, necessary, and successful sacrifice of the insured’s freight because of shipping peril.
General Insurance:
Another term for property insurance.
Grace Period Clause:
A clause in life insurance giving the insured an extra 30 days to pay a premium due before lapse takes place.
Gross Premium:
The premium charge for insurance that includes anticipated cost of losses, overhead, and profit.
Group Insurance:
A single policy covering a group of individuals, usually employees of the same company or members of the same association and their dependents. Coverage occurs under a master policy issued to the employer or association.
Guaranteed Renewable:
A policy that cannot be cancelled by the insurer prior to a specified age. Premiums may be increased only for an entire class of insured.
Hacker Insurance:
A coverage that protects businesses engaged in electronic commerce from losses caused by hackers.
Hard Market:
A seller’s market in which insurance is expensive and in short supply.
Hazards:
Conditions that introduce or increase the probability of loss stemming from the existence of a given peril.
Hedger:
The transferor of a speculative risk via a hedging contract
Hedging:
A transfer of risk from one party to another; similar to speculation and may be used to handle risks not subject to insurance, such as price fluctuations.
Home-owners Insurance Policy:
The typical homeowner’s Insurance policy covers the house, the garage and other structures on the property, as well as personal possessions inside the house such as furniture, appliances and clothing, against a wide variety of perils including windstorms, fire and theft. The extent of the perils covered depends on the type policy. An all-risk policy files ‘‘broadest coverage. This covers all perils except those specifically excluded in the policy.
Hospice:
A health care organization that provides humane, dignified care for dying patients.
Hospital insurance:
An insurance contract designed to pay hospital room and board, laboratory fees, nursing care, use of the operating room, and medicines and similar expenses.
Hostile Fire:
A fire that occurs outside of its normal confines.
Hull Insurance:
Property insurance policy covering a sea-going vessel.
Human Life Value:
The sum of money that when paid in instalments of both principal and interest over the individual’s remaining working life, will produce the same income the person would have earned, minus taxes and personal expenses
Identity Theft Insurance:
Coverage for expenses incurred as the result of an identity theft. Can include costs for notarizing fraud affidavits and certified mail, lost income from time taken off from work to meet with law-enforcement personnel or credit agencies, fees for reapplying for loans and attorney’s fees to defend against lawsuits and remove criminal or civil judgments.
Immediate Annuity:
An annuity in which benefits begin soon after the annuity is purchased.
Implied Warranties:
Warranties not stated in a contract but assumed by the parties to be true.
Imputed Acts:
Acts committed by one person but for which responsibility has been transferred or imputed’ to another.
Inboard Watercraft:
A type of watercraft whose motor is a permanent part of it.
incontestability Clause:
A life insurance clause that prevents the insurer, after two years, from denying liability under the policy for misrepresentations or concealments by the insured.
Increasing Term:
Term life insurance in which the face amount of the policy increases periodically on a predetermined basis.
Incurred But Not Reported Losses (labour):
Losses that are not tiled with the Insurer or reinsurer until years after the policy is sold. Some liability claims may be filed long after the event that caused the injury to occur. Asbestos-related diseases, for example, do not show up until decades after the exposure.
IBNR also refers to estimates made about claims already reported but where the actual extent of the injury is not yet known, such as a workers’ compensation claim where the degree to which work-related injuries prevents a worker from earning what he or she earned before the injury unfolds over time. Insurance companies regularly adjust reserves for such losses as new information becomes available.
Incurred Losses:
Losses occurring within a fixed period, whether or not adjusted or paid during the same period.
Indemnify:
Provide financial compensation for losses.
Indemnify:
To restore insured to the situations that existed prior to a loss.
Independent Adjuster:
An individual or firm employed by an insurer to settle loss claims.
Independent Agent:
Agent who is self-employed is paid on commission and represents several insurance companies.
indirect Loss:
A loss that occurs indirectly as a consequence of a given peril.
Inflation Guard Clause:
A provision added to a home-owners insurance policy that automatically adjusts the coverage limit on the dwelling each time the policy is renewed to reflect current construction costs.
Inherent Nature of the Goods:
A cause of loss that stems from the product itself. A loss due to this cause releases the carrier from liability.
Inland Marine Insurance:
This broad type of coverage was developed for shipments that do not involve ocean transport. Covers articles in transit by all forms of land and air transportation as well as bridges, tunnels and other means of transportation and communication. Floaters that cover expensive personal items such as fine art and jewellery are included in this category.
Inland Transit Policy:
A bass contract covering domestic shipments shipped primarily by land transportation systems.
Insolvency Insurer’s inability to pay debts. Insurance insolvency standards and the regulatory actions taken vary from country to country.
Insurable Interest:
A legal principle in which an insured must demonstrate a personal loss; prevents the insurance from becoming a gambling contract.
Insurable Risk:
Risks for which it is relatively easy to get insurance and that meet certain criteria. These include being definable, accidental in nature, and part of a group of similar risks large enough to make losses predictable. The insurance company also must be able to come up with a reasonable price for the insurance.
Insurable Value:
In business income coverage, the amount obtained by deducting variable costs and expenses (those that may be discontinued in the event of a shutdown) from the total sales.
Insurance:
A system to make large financial losses more affordable by pooling the risks of many individuals and business entities and transferring them to an insurance company or other large group in return for a premium.
Insurance Rate:
The price of insurance is expressed as a price per unit of coverage.
Insured Pension Plans:
Employee benefit plans managed by an insurance company.
Insurer:
The transferee; the person or agency providing insurance.
Insuring Agreement:
The part of an insurance contract that states what the insurer agrees to do and the conditions under which it so agrees.
Integrated Risk Management:
Approach for managing both pure and speculative risks together; another name for enterprise risk management.
Internet Insurer:
An insurer that sells exclusively via the Internet.
Internet Liability Insurance:
Coverage designed to protect businesses from liabilities that arise from the conducting of business over the Internet, including copyright infringement, defamation, and violation of privacy.
Intestacy Laws:
Laws governing the distribution of an estate not disposed of by a will.
Intestate:
Without a valid will.
Investment Income:
Income generated by the investment of assets. Insurers have two sources of income, underwriting (premiums less claims and expenses) and investment income. The latter can offset underwriting operations, which are frequently unprofitable.
Involuntary Coverage:
Government insurance required to be purchased by certain groups and under certain conditions.
Irrevocable Beneficiary:
A beneficiary designation that may not be changed without the written consent of the named beneficiary.
Joint and Several Liability:
The legal doctrine that allows a plaintiff to collect in full from one negligent party in an accident where there are two or more negligent parties.
Joint and Survivor Annuity:
An annuity issued on two lives that guarantees that the annuity in whole or in part will be paid as long as either party shall live.
Joint and X Percent Survivor Annuity:
A joint and survivor annuity in which the payment after the first annuitant dies equals X per cent of the benefit while both were alive.
Key Employee:
An employee whose services would be difficult to replace if the employee were to die or become disabled.
Key Person Insurance:
Insurance on the life or health of a key individual whose services are essential to the continuing success of a business and whose death or disability could cause the firm a substantial financial loss.
KIdnap/ransom Insurance:
Coverage up to specific limits for the cost of ransom or extortion payments and related expenses. Often bought by international corporations to cover employees. Most policies have large deductibles and may exclude certain geographic areas. Some policies require that the policyholder not reveal the coverage’s existence.
Lack of Privity:
A defence in product liability cases, alleging that no liability exists because no contractual relationship exists between the manufacturer or vendor and the injured party.
Larceny:
Wrongful or fraudulent taking and carrying a away by any person of the personal property of another.
Large-loss Principle:
A rule for buying insurance such that serious loss exposures receive priority over less serious loss exposures.
Last Clear Chanco Rule:
In a case of contributory negligence, the negligent plaintiff may have a cause of action against the defendant if the defendant had a last clear chance to avoid the accident but failed to do so.
Law of Large Numbers:
The theory of probability on which the business of insurance is based. Simply put, this mathematical premise says that the larger the group of units insured, such as sport-utility vehicles, the more accurate the predictions of loss will be.
Leasehold:
An interest in real property is created by an agreement (a lease) that gives the lessee (the tenant) the right of enjoyment and use of the property o a period of time.
Legal Injury:
Wrongful violation of a person’s rights.
Liability insurance:
Insurance for what the policyholder is legally obligated to pay because of bodily injury or property damage caused to another person.
Libel:
Written, printed, Gr pictorial material that damages a person’s reputation by defaming or ridiculing the person.
Lite Insurance:
See Ordinary life insurance; Term insurance; Whole life insurance
Lifetime Maximum:
A limit that applies to all benefits payable under an insurance plan. The maximum can often be restored over time, eventually allowing an insured to collect more than the stated maximum.
Limits:
Maximum amount of insurance that can be paid for a covered loss.
Liquidity:
The ability and speed with which a security can be converted into cash.
Lloyd’s of London:
A marketplace where underwriting syndicates, or mini-insurers, gather to sell Insurance policies and reinsurance. Each syndicate is managed by an underwriter who decides whether or not to accept the risk. The Lloyd’s market is a major player in the international reinsurance market as well as a primary market for marine insurance and large risks.
Originally, Lloyd’s was a London coffee house in the 1600s patronized by shipowners who insured each other’s hulls and cargoes. As Lloyd’s developed, wealthy individuals, called ‘Names,’ placed their personal assets behind insurance risks as a business venture, Increasingly since the 1 990s, most of the capital comes from corporations.
Loading:
The overhead or administrative expenses of an insurer that is included in the cost of a policy.
Long-term Care:
Care and service provided to the elderly to assist them with day-to-day living.
Long-term Care Insurance:
Coverage that, under specified conditions, provides skilled nursing, intermediate care, or custodial care for a patient (generally over age 65) in a nursing facility or his or her residence following an injury.
Long-term Care Rider:
An accelerated death benefit specifically for insured’s long-term care needs.
Loss:
A reduction in the quality or value of a property, or a legal liability.
Loss Adjustment Expenses:
The sum insurers pay for investigating arid settling insurance claims, including the cost of defending a lawsuit in court.
Loss Control:
Actions taken to reduce the frequency and/or severity of losses.
Loss Costs:
The portion of an insurance rate used to cover claims and the costs of adjusting claims. Insurance companies typically determine their rates by estimating their future loss costs and adding a provision (or expenses, profit, and contingencies.
Loss Exposure:
A potential loss that may be associated with a specific type of risk.
Loss Exposure Checklist:
A risk identification tool used by businesses and individuals that lists many different potential losses. The user can determine which of the potential losses is relevant.
Loss of Use:
A provision in homeowners and renters insurance policies that reimburses policyholders for any extra living expenses due to having to live elsewhere while their home is being restored following a disaster.
Loss Ratio:
Percentage of each premium rupee an insurer spends on claims.
Loss Reserves:
The company’s best estimate of what it will pay for claims, which is periodically readjusted. They represent a liability on the insurers balance sheet.
Loss Settlement Clause:
A provision that helps determine if items will be valued at actual cash value or at replacement Cost after a loss.
Manifestation:
A liability limit that provides coverage when a Doctrine claimant’s disease or injury is discovered.
Malpractice Insurance:
Professional liability coverage for physicians, lawyers, and other specialists against suits alleging negligence or errors and omissions that have harmed clients.
Marine Insurance:
Coverage for goods in transit, and for the commercial vehicles that transport them, on water and overland. The term may apply to inland marine but more generally applies to ocean marine insurance. Covers damage or destruction of a ships hull and cargo and perils include collision, sinking, capsizing, being stranded, fire, piracy, and jettisoning cargo to save other property. Wear and tear, dampness. mould and war are not usually included.
Material:
Describes misrepresentations that, had they been known at the time 01 a contract’s issuance. would have caused it not to be issued at all or issued on different terms.
Maximum Possible Loss:
An estimate of the worst loss that might result from a given occurrence.
Maximum Probable Loss:
An estimate of the likely severity of loss that might result from a given occurrence.
Mediation:
Non-binding procedure in which a third party attempts to resolve a conflict between two other parties.
Medical Payments:
Reasonable and necessary medical expenses caused by an accident and sustained by the insured. Such expenses must occur within three years of the accident.
Medical Payments Insurance:
A coverage in which the insurer agrees to reimburse the insured and others up to a certain limit for medical or funeral expenses as a result of bodily injury or death by accident. Payments are without regard to fault.
Mine Subsidence Coverage:
An endorsement to a homeowners insurance policy, available in some states, for losses to a home caused by the land under a house sinking into a mine shalt. Excluded from standard homeowners policies, as are other terms of earth movement.
Misrepresentation:
A practice, usually prohibited by law, in which an insurance agent makes a misleading statement in the sale of insurance.
Misstatement-of-age Clause:
A clause in life insurance requiring an adjustment of the amount of insurance payable in the event the age of the insured has been misrepresented.
Misstatement-of-sex Clause:
If a person’s sex has been misrepresented, the insurer adjusts the amount of proceeds payable rather than cancelling the policy altogether.
Money Supply:
Total supply of money in the economy, composed of currency in circulation and deposits in savings and checking accounts.
Moral Hazard:
A hazard resulting from (ho indifferent or dishonest attitude of an individual in relation to insured property.
Mortality Table:
A table that shows the number of deaths per thousand and the expectation of life at various ages.
Mortgage Clause:
A clause in insurance contracts that gives first right of recovery to the mortgagor of property that is covered.
Mortgage Insurance:
A form of decreasing term insurance that covers the life of a person taking out a mortgage. Death benefits provide for payment of the outstanding balance of the loan. Coverage is in decreasing term insurance, so the amount of coverage
Mine Subsidence Coverage:
An endorsement to a homeowners insurance policy, available in some states, for losses to a home caused by the land under a house sinking into a mine shaft. Excluded from standard homeowners policies, as are other forms of earth movement.
Misrepresentation:
A practice, usually prohibited by law, in which an insurance agent makes a misleading statement in the sale of insurance.
Misstatement-of-age Clause:
A clause in life insurance requiring an adjustment of the amount of insurance payable in the event the age of the insured has been misrepresented.
Misstatement-of-sex Clause:
If a person’s sex has been misrepresented, the insurer adjusts the amount of proceeds payable rather than cancelling the policy altogether.
Money Supply:
Total supply of money in the economy, composed of currency in circulation and deposits in savings and checking accounts.
Moral Hazard:
A hazard resulting from the indifferent or dishonest attitude of an individual in relation to insured property.
Mortality Table:
A table that shows the number of deaths per thousand and the expectation of life at various ages.
Mortgage Clause:
A clause in insurance contracts that gives first right of recovery to the mortgagor of property that is covered.
Mortgage Insurance:
A form of decreasing term insurance that covers the life of a person taking out a mortgage. Death benefits provide for payment of the outstanding balance of the loan. Coverage is in decreasing term insurance, so the amount of coverage decreases as the debt decreases. A variant, mortgage unemployment insurance pays the mortgage of a policyholder who becomes involuntarily unemployed.
Mortgage-Backed Securities:
Investment grade securities backed by a pool of mortgages. The issuer uses the cash flow from mortgages to meet interest payments on the bonds.
Mortgagee:
A person or organization holding a mortgage.
Multiple Peril Policy:
A package policy, such as a home-owners or business insurance policy, that provides coverage against several different perils. It also refers to the combination of property and liability coverage in one policy.
Name:
A member of a Lloyd’s association; essentially an investor and underwriter.
Named insured:
An individual in whose name the insurance contract is issued and who is specifically identified as the person being covered.
Named Peril:
Peril specifically mentioned as covered in an insurance policy.
Named-perils Agreement:
An insurance contract that lists perils to be insured; perils not listed are not covered.
Negative Act:
A negligent act that consists of a party’s failure to do something he or she should have done.
Negligence:
The failure to exercise the degree of care required by law.
Net Present Value:
The present value of the cash inflow minus the present value of the cash outflow.
No-fault:
Auto insurance coverage that pays for each driver’s own injuries, regardless of who caused the accident. It also refers to an auto liability insurance system that restricts lawsuits to serious cases. Such policies are designed to promote faster reimbursement and to reduce litigation.
Non-admitted Insurer:
Insurers licensed in some states or countries, but not others. Countries where an insurer is not licensed call that insurer non-admitted. They sell coverage that is unavailable from licensed insurers within the country or state.
Noncancellable:
A policy that cannot be cancelled by the insurer prior to a certain age. Premiums may be increased only by the amounts specified at the time the policy is issued.
Non-owned Auto:
Any private passenger auto, pickup truck, van, or trailer nor owned by or furnished for the regular use of the insured or any family member while in the custody of or being operated by the insured or any family member.
No-pay, No-play:
The idea that people who don’t buy coverage should not receive benefits. Prohibits uninsured drivers from collecting damages from insured drivers.
Notice of Loss:
A written notice required by insurance companies immediately after an accident or other loss. Part of the standard provisions defining a policyholder’s responsibilities after a loss.
Objective Risk:
The probable variation of actual from expected experience.
Obligee:
In a bond, the party to be reimbursed if he or she suffers a loss because of some failure by the obligor.
Occupational Disease:
Abnormal condition or illness caused by factors associated with the workplace. Like occupational injuries, this is covered by workers compensation policies.
Occurrence Policy:
Insurance that pays claims arising out of incidents that occur during the policy term, even it they are tiled many years later.
Ocean Marine Insurance:
Coverage of all types of vessels and watercraft, for property damage to the vessel and cargo, including such risks as piracy and the jettisoning of cargo to save the property of others. Coverage for marine-related liabilities. War is excluded from basic policies but can be bought back.
Open-perils Agreement:
States that ¡lis the insurer’s intention to cover risks of accidental loss to the described property except due to that penls specifically excluded; also called ‘all risks.’
Operating Expenses:
The cost of maintaining a business’s property, includes insurance, property taxes, utilities and rent, but excludes ìncome tax, depreciation and other financing expenses.
Opportunity Cost:
The cost of keeping monies liquid in a loss reserve fund rather than using them as working capital.
Optionally Renewable:
A policy that can be cancelled by the insurer on the anniversary date. No restrictions, other than the time, are placed on the insurer.
Options:
Contracts that allow, but do not oblige, the buying or selling of property or assets at a certain date at a set price.
Ordinary Life Insurance:
A life insurance policy that remains iii force for the policyholder’s lifetime. It contrasts with term insurance, which only lasts for a specified number of years but is renewable.
Other Insurance Clauses:
Clauses in practically all contracts of indemnity and valued contracts that limit the insurer’s liability in case additional insurance contracts also cover the loss.
Package Policy:
A single insurance policy that combines several coverages previously sold separately. Examples include homeowners insurance and commercial multiple peril insurance.
Pain and Suffering Damages:
Non-economic damages designed to compensate the injured party for the pain endured due to the negligent behaviour of the defendant. Often greater than economic losses, such as loss of income and medical expenses.
Pair-and-set Clause:
Used to determine the loss payment when part of a set or one of a pair is lost. The insurance company will pay only the difference in the actual cash value of the item before and after the loss.
Partial Disability:
An illness or injury that decreases an individual’s ability to perform some of the major duties of his or her job, but does not cause complete cessation of employment.
Participating:
A type of life insurance policy in which a dividend (considered a return or a premium overcharge) is payable to the insired.
Pensions:
Programs to provide employees with retirement income after they meet minimum age and service requirements. Life insurers hold some of these funds.
Per-cause Deductible:
A deductible that is assessed for each new sickness or accidental injury.
Peril:
A specific risk or cause of loss covered by an insurance policy, such as a fire, windstorm, flood, or theft. A named. peril policy covers the policyholder only for the risks named in the policy in contrast to an all-risk policy, which covers all causes of loss except those specifically excluded.
Permanent Disability:
An illness or injury that prevents a person from working for the rest of his or her life.
Per-service Deductible:
A fee that is charged for each service or visit to the physician.
Personal Articles Floater:
A policy or an addition to a policy used to cover personal valuables, like jewellery.
Personal Coverages:
Those lines of insurance designed to cover the risk of perils that may interrupt an individual’s income.
Physical Hazard:
A condition stemming from the material characteristics of an object. e.g. wet or icy street (increasing chance of car collision) and earth faults (hazard for earthquakes)
Planned Retention:
A conscious and deliberate assumption of recognized risk.
Policy:
A written contract for insurance between an insurance company and policyholder stating details of coverage.
Policy Writing:
The function of creating a specific insurance policy for a client, usually by the agent.
Policy Holder:
The insured in an tnsurance policy.
Policyholders’ Surplus:
The amount of money remaining after an insurer’s liabilities are subtracted from its assets. It acts as a financial cushion above and beyond reserves, protecting policyholders against an unexpected or catastrophic situation.
Political Risk Insurance:
Coverage for businesses operating abroad against loss due to political upheavals such as war, revolution, or confiscation of property.
Pollution Insurance:
Policies that cover property loss and liability arising from pollution-related damages, for sites that have been inspected and found uncontaminated. It is usually written on a claims-made basis so policies pay only claims presented during the term of the policy or within a specified time frame after the policy expires.
Pooling:
Sharing total losses among a group.
Positive Act:
Action often leading to legal injury.
Post-loss Activities:
Severity-reduction measures such as salvaging damaged property rather than discarding it.
Pre-certification:
A cost-containment measurement requiring that certain non-emergency medical services be authorized prior to delivery of treatment.
Preexisting Condition:
A health problem that exists prior to the time when health coverage becomes effective.
Pre-loss Activities
Loss control methods implemented before any losses occur. All measures with a frequency-reduction focus, as well as some
based on severity reduction, are of this type.
Premature Death:
Death that occurs before the stage where it is accepted by society as part of the natural, expected order of life.
Premises:
The particular location of the property or a portion of it as designated in an insurance policy.
Premium:
The price of an insurance policy.
Premiums In Force:
The sum of the face amounts, plus dividend additions, of life insurance policies outstanding at a given time.
Premiums Written:
The total premiums on all policies written by an insurer during a specified period of time, regardless of what portions have been earned. Net premiums written are premiums written after reinsurance transactions.
Primary:
Describes policies that will pay up to their limits before any other coverage becomes payable.
Primary Company:
In a reinsurance transaction, the insurance company that is reinsured.
Prime Rate:
Interest rate that banks charge to their most creditworthy customers. Banks set this rate according to their cost of funds and market forces.
Principal:
Another name for the obligor, the person bonded, in a fidelity or security bond.
Principle of Indemnity:
A doctrine that limits the amount that an insured may collect to the actual cash value of the property insured.
Private Insurance:
Insurance coverage is written by firms in the private sector of the economy (as opposed to government insurers).
Probate:
A court process under which property is distributed and the terms of the will are carried out at the owner’s death.
Product Liability:
A section of tort law that determines who may sue and who may be sued for damages when a defective product injures someone.
Product Liability Insurance:
Protects manufacturers and distributors’ exposure to lawsuits by people who have sustained bodily injury or property damage through the use of the product.
Production:
The selling function in insurer operations.
Professional Liability:
Liability that arises out of the error of a professional person in performance of his or her duties.
Professional Liability Insurance:
Covers professionals for negligence and errors or omissions that injure their clients.
Profits Insurance:
Coverage for the loss of the profit element in goods already manufactured but destroyed before they could be sold.
Promissory Warranty:
An assurance that a certain condition, fact, or circumstance will be true for the entire term of a contract.
Property Coverages:
Insurance lines designed to cover perils that may destroy property.
Property/ Casualty Insurance:
Covers damage to or loss of policyholders’ property and legal liability for damages caused to other people or their property.
Property/casualty insurance, which includes auto, homeowners and commercial insurance, is one segment of the insurance industry. The other sector is life/health. Property/casualty insurance is referred to as non-life or general insurance.
Pro-rata Clause:
A clause that requires each insurer covering a risk to share pro-rata any losses, in the proportion that its particular coverage bears to the total coverage on the risk.
Private Treaties:
Reinsurance agreements under which premiums and losses are shared in some stated proportion.
Protection and Indemnity (P&i) Clause:
Marine liability insurance covering ocean-going vessels.
Proximate Cause:
The direct cause of loss; exists if there is no unbroken chain of events leading from one act to a resulting injury or loss.
Public Adjuster, An individual or firm hired by the insured to obtain satisfactory settlement of a loss claim.
Public Insurance:
Insurance coverage written by government bodies or operated by private agencies under government supervision and control.
Punitive Damages:
Assessed when it is deemed that the defendant acted in a grossly negligent manner and deserves to have an example made of his or her behaviour so as to discourage others from acting that way. Usually imposed in addition to other damages.
Pure Premium:
The portion of an insurance premium that reflects the basic costs of loss, not including over-head or profit.
Pure Risk:
Uncertainty as to whether a loss will occur.
Quota Share Treaties:
Reinsurance arrangements in which each insurer accepts a certain percentage of premiums and losses in a given line of insurance.
Rate:
The cost of a unit of insurance. Rates are based on historical loss experience for similar risks and may be regulated.
Rate Making: The process of developing pricing structures for insurance.
Ratification:
A method by which an agent gains authority to write insurance. The agent writes a policy and, after the fact, presents it to the insurance company. If the insurance company approves the policy, the agent’s authority is ratified.
Reasonable and Customary:
A test used to judge what expenses an insurance policy will pay. The fee is compared to prevailing fees in the area.
Reasonable Expectations:
An extension of the concept of adhesion, this doctrine makes the proposition that coverage should be interpreted to be what the insured can reasonably expect.
Rebating :
A practice, usually prohibited by law or the regulator, in which a sales agent in insurance returns part of the commission to the purchaser.
Receivables:
Amounts owed to a business for goods or services provided.
Reciprocal:
A form of insurer owned by policy-holders who exchange coverage with each other; commonly found in the field of automobile insurance.
Reinstatement:
Clause A contract in life insurance that allows a policy that has lapsed to be reinstated.
Reinsurance:
Insurance bought by insurers. A reinsurer assumes part of the risk and part of the premium originally taken by the insurer, known as the primary company. Reinsurance effectively increases an insurer’s capital and therefore it’s capacity to sell more coverage. The business is global and the largest reinsurers are based abroad. Reinsurers have their own reinsurers, called retrocessionaires.
Reinsurance:
The shifting of risk by a primary answer (known as the ceding company) to another insurer (known as the reinsurer).
Reinsurance Pool:
Provides reinsurance for a specific class of business.
Renewable Term:
A life insurance policy initially written from a specified number of years and subsequently renewable for similar periods of time.
Rental Income:
Rents collected from others who occupy property owned by the insured.
Rental Value:
Consequential coverage that insures the loss of rents in the event of the destruction of the insured property.
Renters Insurance :
A form of insurance that covers a policyholder’s belongings against perils such as fire, theft, windstorm, hail, explosion, vandalism, riots, and others. It also provides personal liability coverage for damage the policyholder or dependents cause to third parties. It also provides additional living expenses, known as loss-of-use coverage, if a policy-holder must move while his or her dwelling is repaired.
Replacement Cost:
Insurance that pays the amount needed to replace damaged personal property or dwelling property without deducting for depreciation but limited by the maximum amount shown on the declarations page of the policy.
Representation:
A statement made by an applicant for insurance, before the contract is made, which affects the willingness of the insurer to accept the risk.
Requisites of Insurable Risks:
From the view of the insurer, there must be a sufficient number of similar objects, the loss must be accidental and measurable, and the objects must not be subject to simultaneous destruction. From the view of the insured, the potential loss must be large enough to cause financial hardship, and the probability of loss must not be too high.
Res Ipsa Loquitur:
‘The thing speaks for itself’ – a legal doctrine that enables a plaintiff to collect for losses without proving negligence on the part of the defendant.
Reserves:
A company’s best estimate of what it will pay for claims.
Respondent Superior:
A legal doctrine under which a principal is responsible for the acts of his or her agent.
Retention:
The amount of risk retained by an insurance company that is not reinsured.
Retrocession:
The reinsurance bought by reinsurers to protect their financial stability.
Retrospective Rating :
A method of permitting the final premium for a risk to be adjusted, subject to an agreed-upon maximum and minimum limit based on actual loss experience. It is available to large commercial insurance buyers.
Revocable Beneficiary:
A life insurance beneficiary designation that may be changed by the owner.
Rider:
An attachment to an insurance policy that alters the policy’s coverage or terms.
Right of Survivorship:
Ownership of property automatically transfers to surviving owners when one of the owners dies.
Risk :
The chance of loss or the person or entity that is insured.
Risk:
Uncertainty as to economic loss. Risk Avoidance A conscious decision not to expose oneself or one’s firm to a particular risk of loss.
Risk Management:
Management of the varied risks to which a business firm or association might be subject. It includes analysing all exposures to gauge the likelihood of loss and choosing options to better manage or minimize loss. These options typically include reducing and eliminating the risk with safety measures, buying insurance, and self-insurance.
Risk Management Policy:
A plan, procedure, or rule of action followed for the purpose of securing consistent action over a period of time.
Risk Management Process:
- Identify risks;
- evaluate risks as to frequency and severity;
- select risk management techniques: and
- implement and review decisions.
Risk Manager:
An individual charged with minimizing the adverse impact of losses on the achievement of a company’s goals.
Risk Mapping (Risk Profiling):
Method of risk identification and assessment by arranging all risks in a matrix reflecting frequency, severity, and existing insurance coverage.
Risk Reduction:
A decrease in the total amount of uncertainty present in a particular situation.
Risk Retention:
Handling risk by bearing the results of risk, rather than employing other methods of handling it, such as transfer or avoidance.
Risk Transfer:
A risk management technique whereby one party (transferor) pays another (transferee) to assume a risk that the transferor desires to escape.
Risk-based Capital:
The need for insurance companies to be capitalized according to the inherent riskiness of the type of insurance they sell. Higher-risk types of insurance, liability as opposed to property business, generally necessitate higher levels of capital.
Robbery:
Unlawful taking of property from another person by force, threat of force, or violence.
Salvage:
Damaged property an insurer takes over to reduce its loss after paying a claim. Insurers receive salvage rights over property on which they have paid claims, such as badly damaged cars. Insurers that paid claims on cargoes lost at sea now have the right to recover sunken treasures. Salvage charges are the costs associated with recovering that property.
Schedule:
A list of individual items or groups of items that are covered under one policy or a listing of specific benefits, charges, credits, assets or other defined items.
Second-to-die Lite Insurance:
Life insurance policy covering two insured, with proceeds payable only after both persons are dead.
Securities Outstanding:
Stock held by shareholders.
Securitization of Insurance Risk:
Using the capital markets to expand and diversify the assumption of insurance risk. The issuance of bonds or notes to third-party investors directly or indirectly by an insurance or reinsurance company or a pooling entity as a means of raising money to cover risks.
Self-insurance:
The concept of assuming a financial risk oneself, instead of paying an insurance company to take it on. Every policyholder is a self-insurer in terms of paying a deductible and co-payments. Also, a special form of risk retention in which a firm can establish a fund to pay for losses because it has a group of exposure units large enough to reduce risk and thereby predict losses.
Severity:
Size of a loss. One of the criteria used in calculating premiums rates.
Severity Reduction:
A method of loss control that will reduce the seriousness and extent of damage should a loss occur.
Single-premium Annuity:
An annuity whose purchase price is paid in one lump sum.
Single-premium Life:
A whole life policy paid for with one premium.
Slander:
Spoken words that are defamatory and/or injurious to a person’s reputation.
Social Insurance:
Insurance plans operated by public agencies, usually on a compulsory basis.
Soft Market:
An environment where insurance is plentiful and sold at a lower cost, also known as a buyers’ market.
Solvency:
Insurance companies’ ability to pay the claims of policyholders. Regulations to promote solvency include minimum capital and surplus requirements, statutory accounting conventions, limits to insurance company Investment and corporate activities, financial ratio tests, and financial data disclosure.
Special Agent:
A person who is authorized to perform only a specific ad or function and who has no general powers within the insurance company.
Speculative Risk:
The uncertainty of an event that could produce either a profit or a loss, such as a business venture or a gambling transaction
Speculator:
A third party to which the risk of price fluctuations is transferred during hedging.
Spread of Risk:
The selling of insurance in multiple areas to multiple policyholders to minimize the danger that all policyholders will have losses at the same time. Companies are more likely to insure perils that offer a good spread of risk. Flood insurance is an example of a poor spread of risk because the people most likely to buy it are the people close to rivers and other bodies of water that flood.
Spread-of-loss Treaty:
A type of reinsurance wherein losses are spread over a five-year period with little or no risk transfer after the five-year period ends.
Standard Premium:
What an employer would pay at manual rates after adjustment for experience rating but before adjustment for retrospective rating.
State-mandated Benefits:
Benefits that the state requires be offered to employees by employers.
Static Risks:
Uncertainties, either pure or speculative, that stem from an unchanging society that is in stable equilibrium.
Straight Deductible:
A deductible that applies to each loss and is subtracted before any loss payment is made.
Straight Life:
A whole life policy in which premiums are payable as long as the insured lives.
Straight Life Annuity:
A life annuity in which there is no refund to any beneficiary at the death of the annuitant.
Straight Term:
Term insurance that covers a specific period of time and which cannot be renewed.
Structured Settlement:
Legal agreement to pay a designated person, usually someone who has been injured, a specified sum of money in periodic payments, usually for his or her lifetime, instead of in a single lump-sum payment.
Subjective Risk:
The risk-based on the mental state of an individual who experiences uncertainty or doubt as to the outcome of a given event.
Subrogation:
The legal process by which an insurance company, after paying a toss, seeks to recover the amount of the loss from another party who is legally liable for it.
Suicide Clause:
A clause in life insurance that requires payment by the insurer, even in the event of suicide, it the suicide occurs after a two-year period from the date the policy was issued.
Surety:
In a bond, the party who agrees to reimburse the obligee.
Surety Bond:
A contract guaranteeing the performance of a specific obligation. Simply put, it is a three-party agreement under which one party, the surety company, answers to a second party, the owner, creditor or ‘obligee,’ for a third party’s debts, default or nonperformance. Contractors are often required to purchase surety bonds if they are working on public projects. The surety company becomes responsible for carrying out the work or paying for the toss-up to the bond ‘penalty’ if the contractor fails to perform.
Surplus:
The remainder after an insurer’s liabilities are subtracted from its assets. The financial cushion that protects policyholders in case of unexpectedly high claims.
Survivorship Benefit:
That amount of money that becomes available for distribution to living annuitants as a result of the death of other annuitants.
Temporary Disabilities:
Illnesses or injuries that prevent a person from working for a limited time.
Temporary Life Annuity:
An annuity that pays benefits until the expiration of a specified period of years or until the annuitant dies.
Term Contract:
A health policy that expires at the end of a specified time and which cannot be renewed.
Term Insurance:
A form of life insurance that covers the insured person for a certain period of time, the ‘term’ that is specified in the policy. It pays a benefit to a designated beneficiary only when the insured dies within that specified period which can be
one, five, 10 or even 20 years. Term life policies are renewable but premiums increase with age.
Theft:
Any act of stealing.
Theft Insurance:
Coverage against loss through stealing by individuals, not in a position of trust.
Third-party Administrator:
An administrator hired by an employer to handle claims and other administrative functions associated with employee benefits. May also refer to and outside group that performs clerical functions for an insurance company.
Title Insurance
Insurance that indemnities the owner of real estate in the event that his or her clear ownership of property is challenged by the discovery of faults in the title.
Tort:
A legal term denoting a wrongful act resulting in injury or damage on which a civil court action, or legal proceeding, may be based.
Tort Law:
The body of taw governing negligence, intentional interference, and other wrongful acts for which civil action can be brought, except for breach of contract, which is covered by contract law.
Tortfeasor:
A wrongdoer; one who commits a tort.
Total Disability:
An illness or injury that renders a person completely incapable of gainful employment during the period of disability.
Total Loss:
The condition of an automobile or other property when damage is so extensive that repair costs would exceed the value of the vehicle or property.
Treaties:
Reinsurance contracts.
Treaty Reinsurance:
A standing agreement between insurers and reinsurers. Under a treaty, each party automatically accepts specific percentages of the insurer’s business.
Trustee:
The person having legal ownership of the trust property; required by law to manage and distribute it in accordance with the instructions specified in the test agreement.
Twisting:
The acts of a life insurance agent to persuade a client to drop one life policy and accept another, by misrepresenting the terms of other the present policy or the new policy, or both, to the detriment of the insured.
Umbrella Policy:
Coverage for losses above the limit of an underlying policy or policies such as homeowners and auto insurance. While it applies to losses over the amount stated in the underlying policies, terms of coverage are sometimes broader than those of underlying policies.
Under Insurance:
The result of the policyholder’s failure to buy sufficient insurance. An underinsured policyholder may only receive part of the cost of replacing or repairing damaged items covered in the policy.
UnderwritIng:
Examining, accepting, or rejecting insurance risks and classifying the ones that are accepted, in order to charge appropriate premiums for them.
Underwriting Income:
The insurer’s proht on the insurance sale after all expenses and losses have been paid. When premiums aren’t sufficient to cover claims and expenses, the result is an underwriting loss. Underwriting losses are typically offset by investment income.
Unearned Premium:
The portion of a premium already received by the insurer under which protection has not yet been provided. The entire premium is not earned until the policy period expires, even though premiums are typically paid in advance.
Unfunded Retention:
Absorbing the expense of losses as they occur, rather than making any special advance arrangements to pay for them.
Unilateral Contract:
A contract, such as an insurance contract, in which only one of the parties makes promises that are legally enforceable.
Uninsurable Risk:
Risks for which it is difficult for someone to get insurance.
Unplanned Retention:
The implicit assumption of risk by a firm or individual that does not recognize that a risk is acknowledged to exist but the maximum possible loss associated with it is significantly underestimated.
Utmost Good Faith:
A legal doctrine in which a higher standard of honesty is imposed on parties to an insurance agreement than is imposed through ordinary commercial contracts.
Valued Policy:
A policy under which the insurer pays a specified amount of money to or on behalf of the insured upon the occurrence of a defined loss. The money amount is not related to the extent of the loss. Life insurance policies are an example.
Vandalism:
The malicious and often random destruction or spoilage of another person’s property.
Variable Annuity:
An annuity whose value may fluctuate according to the value of underlying securities in which the funds are invested.
Viatical Settlement:
The purchase of a life insurance policy from a terminally Ill individual by an unrelated third party.
Vicarious Liability:
Legal responsibility for the wrongs committed by another person.
Vicarious Liability Laws:
Laws requiring that parents assume liability for the acts of their children and that bar owner assume liability for the acts of their patrons. Also makes car owners liable for acts of drivers of their cars.
Void:
A policy contract that for some reason specified in the policy becomes free of all legal effect. One example under which a policy could be voided is when information a policyholder provided is proven untrue.
Voluntary Act:
A characteristic of a negligent act- the person committing the act chose to do so and could have chosen not to.
Voluntary Coverage:
Insurance coverage purchased at the discretion of the buyer.
Waiver:
The surrender of a right or privilege. In life insurance, a provision that sets certain conditions, such as disablement, which allow coverage to remain in force without payment of premiums.
War Hazard Exclusion:
Eliminates insurance coverage for death that is a direct result of war or other hostile action.
War Risk:
Special coverage on cargo in overseas ships against the risk of being confiscated by a government in wartime. It is excluded from standard ocean marine insurance and can be purchased separately. it often excludes cargo awaiting shipment on a wharf or on ships after 15 days of arrival in port.
Warranty:
A clause in Insurance contract that requires certain conditions, circumstances, or facts to be true before or after the contract is in torce.
Weather Insurance:
A type of business interruption insurance that compensates for financial losses caused by adverse weather conditions, such as constant rain on the day scheduled for a major outdoor concert.
Whole Life Insurance:
The oldest kind of cash value life insurance that combines protection against premature death with a savings account. Premiums are fixed and guaranteed and remain level throughout the policy’s lifetime.
Will:
A way to transfer ownership of property at death.
Workers Compensation:
Insurance that pays for medical care and physical rehabilitation of injured workers and helps to replace lost wages while they are unable to work.
Write:
To insure, underwrite, or accept an application for insurance.