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Insurance Terms Glossary

Posted on Mar 10th, 2016 | Topic: Insurance

It is extremely important to get a good grip on the long list of terms insurers use in your coverage. Without such an understanding, you may not be getting the right coverage or, worse yet, you may think you’re getting coverage you are actually lacking.

That’s where this handy insurance glossary comes in. These insurance definitions will help you figure out your next policy and speak more knowledgeably with your insurance specialist.

A | B | C | D | E | F | G | H | I | L | M | N | O | P | Q | R | S | T | U | V | W

Acceleration Clause

Part of a contract that explains when a loan is due and payable.

Actual Cash Value

How much it will cost, minus depreciation, to replace damaged or destroyed property.

Actuary

The person who determines dividends, rates, reserves and any other relevant insurance statistics.

Adjustable Rate

An interest rate that varies depending on the published market-rate index.

Adjuster

The insurer’s representative, charged with calculating liability after a claim has been submitted.

Annual Administrative Fee

Small annual payment that subsidizes the cost of offering a group employee benefit plan.

Annuitization

Converting the money you have saved in a retirement plan or annuity contract into regular payments, which are fixed and cannot be changed once they have been set.

Annuity

Commitment by the insurer to make annuitization payments for a specified period.

Assets

All of an insurance company’s possessions, which may be divided into three categories:

  • Invested assets, i.e. stocks and bonds
  • Total admitted assets, i.e. every single thing the company owns
  • All other assets, i.e. possessions that do not produce income, such as office furniture

Automobile Liability Insurance

Coverage for injury or property damage sustained in an automobile accident.

Balance Sheet

A company’s liabilities, assets and surplus as of a certain date.

Benefit Period

The dates during which benefits are paid out to the policy holder and his or her dependents.

Broker

Someone who sells insurance and tries to match people up with policies that benefit them.

Capital

Shareholders’ equity in a stock-based insurance company.

Capitalization or Leverage

How much a company’s surplus is exposed to operating and financial practices. Instability is highly undesirable.

Captive Agent

An insurance company representative who gives the employer right of first refusal on all sales; agents generally get benefits and office expenses from the insurance company.

Casualty

Loss or liability stemming from an accident.

Casualty Insurance

Insurance covering losses caused by injury, as well as legal liability for injury or damaged property caused by an accident.

Claim

A request made for payment of benefits, submitted by either the insured or the insured’s beneficiary.

Coinsurance

Insurance that requires the insurer to pay part of a payment on a claim.

Collision Insurance

Covering the damage to an automobile resulting from a collision with an inanimate object, such as a tree.

Comprehensive Insurance

Auto insurance that covers physical damage aside from a collision, as well as theft of the car.

Concurrent Periods

Benefits paid out on multiple disability claims at the same time.

Convertible

Term life insurance that is changed to permanent insurance without a medical examination. There can be no denial of coverage or increase in premium for health problems.

Copayment

A flat fee paid by the insured with every health insurance transaction. All doctor’s office visits might carry a $20 copayment, for example.

Death Benefit

The amount paid out to a beneficiary upon the death of the insured.

Deductible

Dollar amount paid by an individual before insurance begins to foot the bill.

Earned Premium

When a policy paid for in advance ages without a claim, it’s said to have been earned or partially earned. For instance, a five-year policy that’s two years old has been partially earned.

Elimination Period

Also called the waiting period, this is the time between filing a claim and collecting insurance benefits.

Employers Liability Insurance

Coverage bought by employers and used in the case of accidents involving employees.

Encumbrance

A claim on a particular property, which may include a lien for work, a mortgage or a right of dower.

Exclusions

Things that a general insurance contract does not cover.

Expense Ratio

Underwriting expenses vs. net premiums, which helps to measure a company’s operating efficiency.

Exposure

Usually measured in dollars, this term expresses how vulnerable a company is to loss.

Financing Entity

Institution or individual who provides money for purchasing.

Floater

An add-on policy that goes beyond renters insurance to cover moveable property, including:

  • Art
  • Electronics
  • Jewelry
  • Sporting equipment – skis, high-tech bikes, canoes, etc.

Future Purchase Option

Provisions in life and health insurance policies offering the option of buying more coverage without proving insurability. Also called a guaranteed insurability option.

General Liability Insurance

Insurance to guard business owners and operators from liability from accidents, products they sell, and contracts.

Grace Period

Time after a premium is due when it remains unpaid, but the policy continues to be in full force, including riders. This period is usually 31 days, and if the bill is paid in full during this time, it’s still considered on time.

Guaranteed Issue Right

The right to buy insurance without undergoing a physical examination, because the condition of the insured is not considered in granting coverage.

Guaranteed Renewable

The policyholder’s right to renew coverage on the anniversary date of the policy. Rates on the policy may be raised, but the insurer cannot cancel.

Hazard

Something that jacks up the probability of a loss, such as storing a cardboard box full of paper near a wood-burning sources increasing the likelihood of a fire.

Health Maintenance Organization (HMO)

Prepaid group health insurance plan with designated doctors, hospitals and clinics focused on preventative medicine.

Health Reimbursement Arrangement

An alternative to Health Savings Accounts (see below), made available to high-deductible health plan owners who don’t qualify for HSAs.

Health Savings Account

Accounts available to high-deductible plans subscribers, where pre-tax money can be stored to be spent later on medical expenses.

Hurricane Deductible

Out-of-pocket expense a policyholder must pay for losses due to hurricane before insurance begins to cover it.

Impaired Insurer

Insurer facing such serious financial troubles it may not be able to meet its monetary or regulatory requirements.

Indemnity

Restoring the victim’s loss through payment, replacement or repair of what was destroyed or taken.

Inflation Protection

Optional extra property coverage that will up the limit of insurance protection to remain apace of inflation.

Insurable Interest

Interest in a property that would cause financial loss if that property was lost or destroyed.

Insurance Adjuster

The insurer’s representative who calculates the extent of damage and the amount of the insurer’s liability upon submission of a claim. These people are often contract employees who work for several insurance companies.

Investment Income

Money earned on investment portfolios, which may include:

  • Dividends
  • Interest
  • Capital gains

It does not, however, include the value of the company’s stocks or bonds.

Laddering

Buying bonds that mature at different times.

Liability

A legal obligation.

Liability Insurance

What is paid on the insured’s behalf for losses incurred by negligence or assumed through contact with someone else.

Licensed

A company chartered in another state but allowed to offer insurance in this state.

Lifetime Reserve Days

The amount of time – 60 days – Medicare will cover you after you’ve been hospitalized at least 90 days in a benefit period. This benefit can be used just once in a lifetime.

Liquidity

A person or business’s ability to turn assets into cash.

Living Benefits

Receiving the payout from your own life insurance policy before you die, in the case of terminal or catastrophic illness, or when you are being put in a nursing home. This is also called “accelerated death benefits.”

Loss Adjustment Expenses

Bills rung up while looking into and settling losses.

Loss Control

Everything done to decrease the recurrence or severity of losses, which may include:

  • Exposure avoidance
  • Noninsurance transfer of risk
  • Segregation of exposure units
  • Loss prevention
  • Loss reduction

Loss Reserve

Liability for unpaid insurance claims or losses as of a certain date, such as:

  • Losses that have not been reported
  • Losses due that haven’t been paid
  • Amounts that are not due yet

Medical Loss Ratio

Health benefits divided by total health premium.

Member Month

Number of participants on a health plan in a given month.

Mortality and Expense Risk Fees

The charge for annuity contract guarantees, such as death benefits.

Mortgage Insurance Policy

Benefits in a life or health insurance policy that will pay off the mortgage balance if the insured dies.

Mutual Insurance Companies

Companies owned by policyholders that have no capital stock.

Named Perils

Potential dangers on an insurance property specifically covered in the policy.

Net Income

Amount a company earns from operations and realized capital gains, after taxes.

Net Investment Income

Investment income minus investment expenses and real estate depreciation.

Net Premium

The premium, less the agent’s commission.

Nonstandard Auto (High Risk Auto or Substandard Auto)

Insurance available to those with bad driving records or previously cancelled or refused insurance. The premiums are much higher than standard because of the risk of insuring these people.

Non-Recourse Mortgage

A mortgage that does not allow the borrower to owe more than the house is worth at the time the loan is paid back.

Noncancellable

Unchangeable contract terms.

Occurrence

An event that leads to a loss. An occurrence is not the same as an accident.

Out-of-Pocket Limit

The predetermined dollar amount the insured must pay before insurance kicks in 100 percent for health care bills.

Own Occupation

A contract stipulation letting policyholders who cannot work in their own occupation a chance to collect benefits.

Peril

Cause of a potential loss.

Personal Injury Protection

Provision paying expenses for the insured and beneficiaries in states offering no-fault auto insurance.

Personal Lines

Family or individual insurance.

Point-of-Service Plan

The health insurance policy lets the employee pick in- or out-of-network care when medical treatment is needed.

Policy

The contract that puts insurance into effect.

Policy or Sales Illustration

A material agents and insurers employ to illustrate a policy’s performance under different conditions.

Pre-Existing Condition

In health insurance, coverage limitations specifying that previously diagnosed conditions are not covered under a new policy.

Preferred Auto

A “safe driver” bonus of sorts, offering coverage to low-risk drivers who obey the law and have never been in an accident.

Preferred Provider Organization

A network of medical providers offering fee-for-service billing who are paid based on a discounted schedule.

Premium

The price for insurance over a certain period of time.

Private-Passenger Auto Insurance Policyholder Risk Profile

An auto insurance company sorts policyholders into three categories, depending on the quality of the driver:

  • Standard
  • Nonstandard
  • Preferred

Qualified High-Deductible Health Plan

Low-premium health plan that kicks in for coverage of expenses after the insurer has met a high out-of-pocket expense. These are also called “catastrophic plans.”

Qualified Versus Non-Qualified Policies

Qualified employee benefit plans are in line with Internal Revenue Service Code Section 401a requirements, and the employer’s contributions are tax deductible.

Qualifying Event

An occurrence that causes insurance protection to kick in.

Quick Assets

Assets that can quickly be converted into cash.

Reciprocal Insurance Exchange

Subscribers who insure one another and each assume a share of risk; an unincorporated group of:

  • Individuals
  • Firms
  • Corporations

Re-Entry

Allowing level-premium term policyholders to become eligible for another level-premium policy.

Reinsurance

Insurance bought by an insurance company.

Replacement Cost

The price of replacing damaged personal or dwelling property without deducting for depreciation. It is limited by the max dollar amount on the policy’s declarations page.

Reserve

Value of actual or potential liabilities an insurer has on hand to cover policyholder debts.

Residual Benefit

A benefit paid out from disability insurance when loss of income continues.

Risk Class

A group of insured individuals with the same risk levels.

Risk Retention Groups

Policyholders in similar businesses or activities who own their liability insurance companies.

Secondary Market

A marketplace where buyers are willing to pay only what they deem fair market value.

Solvency

Being financially able to transact in the insurance business and pay for liabilities. Assets may include:

  • Capital
  • Reserves
  • Surplus

Standard Auto

Auto insurance held by the average, everyday driver with minimal accidents or claims.

State of Domicile

The state where a company has been chartered or incorporated.

Stop Loss

A stipulation that abruptly ends losses for an insurer.

Subrogation

When an insurer takes on another’s loss, they gain the right to pursue that person’s remedies against an outside party.

Surrender Charge

Fee paid by the insured for a life insurance or annuity being cashed out.

Surrender Period

Amount of time most of your money must stay in an annuity contract.

Term Life Insurance

Life insurance that offers protection over a certain amount of time, such as five or 10 years or until the policy holder reaches a designated age.

Tort

An intentional or unintentional wrong committed against someone, leading to legal liability and perhaps civil court.

Total Loss

A loss so complete that there is no monetary value left, such as a house and accompanying property being totally destroyed.

Umbrella Policy

Coverage that includes losses over the limit of the underlying policy.

Underwriter

Also known as an insurer. The person who evaluates risks, then determines coverage for them.

Underwriting

Classifying risks according to how insurable they are.

Uninsured Motorist Coverage

An auto insurance provision that protects the policyholder when involved in a crash with a driver without liability insurance.

Universal Life Insurance

A life insurance policy with a flexible premium and adjustable life.

Usual, Customary and Reasonable Fees

The average amount charged for similar doctor-recommended services or supplies.

Utilization

A measurement of how much a covered group uses the plan.

Valuation

The policy reserve value for life insurance.

Variable Annuitization

Going from the accumulation to the payout phase of a variable annuity.

Variable Life Insurance

Life insurance policy whose value goes up or down, depending on factors including:

  • The value of the dollar
  • Securities
  • Other equity products

Variable Universal Life Insurance

One contract that combines variable and universal life insurance features.

Viator

Someone with a terminal illness who sells their life insurance policy.

Waiver of Premium

When an insurance company waives premiums the policyholder is supposed to pay because the insured is out of work from accident or injury – but he or she keeps the policy active.

Whole Life Insurance

Policy that remains active for a person’s entire life, paying out upon their death.

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