Glossary of insurance terms

beneficiary

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

benefit

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

binding receipt

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

blanket contract

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

blanket medical expense

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

Blue Cross

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

Blue Shield

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

bond insurance

Insurance issued by a private insurance company for either an entire issue or specific maturities that guarantees to pay principal and interest when due. This will provide a credit rating of triple-A and thus a lower borrowing cost for the issuer.

bond portfolio average maturity

A weighted average of the maturity distribution of long-term bonds owned at fiscal year-end.

broker

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

business insurance

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

business life insurance

Life insurance purchased by a business enterprise on the life of a member of the firm. It is often bought by partnerships to protect the surviving partners against loss caused by the death of a partner, or by a corporation to reimburse it for loss caused by the death of a key employee. (Also known as key person insurance.)

bad faith

Accusations by policyholders that insurers took steps to deliberately delay, underpay, or deny a claim.

cancer insurance

A very narrow form of health insurance that covers the policyholder in the event he or she contracts cancer. Policies often exclude skin cancer. Some policies won't pay for cancer treatments until several years after the policy was purchased.

capita

The sum of policyholder surplus plus contingency reserve.

capital adequacy ratio

Standard & Poor's risk-adjusted measure of capital adequacy.

capital and surplus

The sum of paid up capital, gross paid in and contributed surplus and unassigned surplus.

capital charge

A measure of portfolio risk based on an expected loss, considering the default frequency (relative likelihood of default in severe economic depression) and loss severity (relative duration and magnitude).

capitation

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

case base reserve

A discrete reserve established for the payment of expected claims on individual issues that are in default or have a reasonable expectation of defaulting.

cash & short-term investments

Cash on hand and on deposit and short-term investments

cash value

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

cede

To reinsure the liabilities associated with insurance policies by passing a portion of the risk exposure and the related premium to a reinsurer.

ceding commission

A fee paid to the primary insurer by the reinsurer to compensate the primary insurer for underwriting expenses such as marketing, administration, premium tax, etc.

certificate

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

CLAD

Commercial limited assigned distribution

claim

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

co-insurance

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

COLI

Corporate owned life insurance

combination plans

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

combined ratio

The sum of the loss ratio plus the expense ratio plus the policyholder dividend ratio.

comprehensive medical expense insurance

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

computer insurance

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

conditional claim rate

The number of mortgages of a given class that go to claim during a calendar year divided by the number of mortgages in that class outstanding at the beginning of the year.

conforming mortgages

Mortgages of 'A' or 'prime' quality that meet GSE size requirements for purchase of guarantee.

consideration clause

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

Consolidate Omnibus Budget Reconciliation Act (COBRA)

Requires employers with more than 20 employees to make group health care coverage available for 18 months, at the employee's expense, to employees who leave the employer for any reason other than gross misconduct.

contingency reserve

A reserve for losses in excess of those that are expected. An insurer generally contributes up to 50% of premiums earned in any year to this reserve, and amounts contributed are to remain there for 10 years, subject to transfer to the surplus account either at the end of that period or before to the extent that the loss ratio exceeds 35% in any given year. Federal income taxes on amounts in the contingency reserve are deferred as long as the funds remain allocated there and are paid when they are transferred to surplus (see tax and loss bonds).

contingency reserve

A statutory reserve established to absorb unexpected losses. Bond insurers are required to maintain reserves based on premiums written and principal insured. The contingency reserve may be used to pay claims when losses exceed 35% of earned premium for municipal and utility first mortgage obligations or 65% of earned premium for nonmunicipal obligations.

contract underwriting

The analysis of and lending decision on loans by an insurer on behalf of a lender.

contributory plan

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

conventional health plan

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

conversion privilege

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

convertible term insurance

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

coordination of benefits (COB)

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

cost containment

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

cost index

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

cost-of-living rider

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

coverage

The percentage of the original appraised value of a home that is covered by mortgage insurance. Government Sponsored Enterprise (GSE) corporations, such as Fannie Mae and Freddie Mac, require that all residential mortgages they guarantee have effective loan - to - value (LTV) of 80 pecent or less. Mortgage insurance is the primary method of reducing the effective LTVs.

covered expenses

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

credit insurance

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

credit life insurance

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

cumulative claim rate

The number of mortgages of a given class originated during the same year going to claim over a given period divided by the original number of mortgages in that class.

current assumption whole life insurance

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

churning

Whole life policies that are replaced by new ones, often at the urging of an agent, who gives the impression that the new policy is cheaper. In many instances, however, the buyer is not told that the cash value account, sometimes used to pay the new premium, must accumulate anew. It's not unusual for whole life policies to have no cash value in their first few policy years.

collateral assignment

Designating a creditor as the beneficiary of a life insurance policy as security for a loan.

co-payment

Partial payment of medical expenses, emergency room services, or prescription drugs required by an individual who is enrolled in a group health insurance plan. For example, a co-payment for a visit to a doctor's office might be $10.

collision insurance

The part of an auto insurance policy that pays for the repair of a car after a crash.

comprehensive insurance

The part of an auto insurance policy that pays out in the event of extensive physical damage (known as the totaling of a car) or theft of the car.

class action lawsuit

Legal action filed in court by one or more people on behalf of themselves and others having an identical interest in the alleged wrong.

D&O

Directors and officers liability insurance. D&O insurance covers financial liability claims against a company's officers and directors, including the CEO, chief financial officer, vice presidents, and shareholder-elected directors.

debt leverage

The ratio of borrowed money to total capital.

debt/capitalization ratio

The ratio of debt to debt plus equity, at a holding company level, for debt (or debt-like securities) of an issuer's holding company.

declination

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

deductible

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

deferred annuity

Annuity payments that will begin at some future date.

deferred group annuity

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

delegated underwriting

The delegation of the insurance underwriting decision to a lender on loans made by that lender. Contract underwriting is a variant of delegated underwriting.

delinquency

Failure to comply with the terms and conditions of a mortgage, usually by not making payments on time. A delinquency rate is the sum of delinquencies at a point in time divided by the total of outstanding mortgages at that time.

deposit administration group annuity

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

deposit term insurance

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

diagnosis-related groups (DRG)

System of determining reimbursement fees based on the medical diagnosis of a patient.

direct first-year & single premiums

Direct first-year and single premiums, excluding annuity and fund deposits.

disability

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

disability benefit

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

disability income insurance

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

disability insurance

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

dismemberment

Accidental loss of limb or sight.

disposable personal income

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

dividend

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

dividend addition

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

DSR

Debt service reserve

dual life insurance

Another name for second-to-die insurance.

duplication of coverage

Coverage under two or more policies for the same potential loss.

demutualization

The conversion of an insurance company from a mutual insurance company to a stock insurance company.

E&O

Errors and omissions insurance. Errors and omissions coverage (E&O) pays your defense costs if you're sued for negligence in providing a product or service to a client. It can also cover (at least partially, depending on your policy) your costs if you're found liable and have to pay damages.

earned premium

Portion of a premium for which protection has already been provided by the insurer.

earnings adequacy ratio

Standard & Poor's risk-adjusted measure of earnings performance.

earthquake insurance

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

effective date

Date when insurance coverage begins.

eligibility date

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

eligibility period

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

eligible employees

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

elimination period

The period of time between the date the illness or disability commences and the beginning of the benefit payment period. It is sometimes referred to as the Qualifying Period.

ERISA

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that affects pension and profit-sharing plans. Among other provisions, this law specifies a published summary plan must be distributed to participants within 120 days after adoption of the plan and within 90 days after an employee becomes a participant. The law requires that a summary plan description be issued every 5 years.

endowment

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

enrollment card

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

equity assets

Common stock, real estate, and all other miscellaneous invested assets

equity assets/capita

Common stock, real estate, and miscellaneous invested assets as a percentage of statutory capital.

evidence of insurability

Under certain circumstances (e.g., late enrollment in a group health plan or a high benefit maximum), an employee must provide medical or financial information as proof to the insurance company that he or she is insurable.

excess of loss reinsurance

Reinsurance wherein the insurer cedes liabilities, premiums, and losses on a nonproportional basis above the insurer's net retention of risk.

exclusions (exceptions)

Conditions or circumstances, listed in the policy, for which the insurer will not provide benefits.

exclusive provider organizations (EPO)

Form of managed care in which participants are reimbursed only for care received from affiliated providers.

expectation of life

See life expectancy.

expense ratio

The sum of general insurance expenses, direct commissions, and net commissions and expense allowances on reinsurance assumed and ceded, as a percentage of net premiums and annuity and fund deposits.

experience

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

experience rating

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

experience refund

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

exposure in force

Total principal and interest obligations currently outstanding under policies to date.

extended term insurance

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

face amount

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

facultative reinsurance

Reinsurance negotiated on an individual issue-by-issue basis rather than on a treaty basis.

family policy

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

financial intermediation

The use of debt to finance investment in high-quality assets in the transaction; both the investments and supporting debt are duration matched and cash flow matched.

financial leverage

The ratio of debt and debt-like instruments to capitalization

fixed charge coverage

The ratio of the sum of pretax operating income plus interest expense to interest expense.

fixed-income assets

Bonds, preferred stock, mortgage loans on real estate, and policy loans.

flat schedule

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

flexible premium deferred annuity

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

flexible premium policy or annuity

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

flexible premium variable life insurance

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

flood insurance

A regular homeowner?s policy will not pay for damages caused by flooding. In order to get the coverage, you?ll have to go to some outfit that writes for the National Flood Insurance Program. Outside of fire, flooding is the most widespread natural disaster. If your community participates in NFIP?s floodplain management program, you should be eligible to buy the coverage. The only people who may have trouble finding flood coverage are residents of "coastal barrier resource system" areas and communities that do not participate in NFIP?s programs. Flood insurance is also available to renters, condominium owners, and co-op owners.

franchise insurance

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

fraternal life insurance

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

frequency

The number of mortgages in a class that go to claim over a given period of time divided by the total original number of mortgages in that class.

FFS

Fee For Service plan, also called traditional indemnity. FFS coverage offers flexibility in exchange for higher out-of-pocket expenses, more paperwork, and higher premiums. You may choose your own doctors and hospitals. You may visit any specialist without getting permission. There's typically a deductible (anywhere from $500 to $1,500) before the insurance company starts paying claims, and then doctors are reimbursed about 80 percent of the bill while you pick up the remaining 20 percent. You may have to pay up front for medical services, then submit the bill for reimbursement. FFS plans only pay for "reasonable and customary" medical expenses. If your doctor charges more than the average for your area, you will have to pay the difference.

fraud

Dishonest act by policyholders to obtain payment of an insurance claim that would otherwise not be covered by insurance. It also could involve lying or misrepresentation by an insurance company or its officials.

financial strength

An insurer's financial security as determined by an independent ratings company. The ratings organization examines the insurer's ability to pay claims under the terms of its insurance policies and contracts.

family care expenses

A employee on disability who has family care responsibilities may need extra help when trying to return to work. This type of benefit provides an incentive to the employee who is taking part in a rehabilitation program by allowing credit or partial reimbursement for certain expenses incurred for family care. This is generally an optional benefit under most long term disability policies.

GAAP accounting

Generally Accepted Accounting Principles as promulgated by the Financial Accounting Standards Board (FASB).

GAC

Guaranteed accumulation contract

general expense ratio

General expenses as a percentage of the sum of direct premiums and annuity and fund deposits.

general expenses

General insurance expenses excluding agent commissions

GIC

Guaranteed investment contract

grace period

Contrary to popular belief, there is often no grace period for insurance premiums, such as auto insurance. So, if your payment has not been received and cashed by your insurer, you are likely not insured.

group annuity

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

group life insurance

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

GSE

Government-sponsored enterprises (Freddie Mac and Fannie Mae)

guaranteed insurability

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

guaranteed renewable contract

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

health insurance

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

health maintenance organization (HMO)

Organization that provides a wide range of comprehensive health care services for a specified group for a fixed periodic prepayment.

HMO

Health maintenance organization. HMOs are the least expensive, but also the least flexible of all the health insurance plans. They are geared more toward members of a group seeking health insurance. HMO advantages:They offer their customers low co-payments, minimal paperwork, and coverage for many preventive-care and health improvement programs.HMO disadvantages:You must choose a primary care physician, also known as a PCP; HMOs require that you see only network doctors; you must get a referral from your PCP to see a specialist.

hospice

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

hospital indemnity insurance

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

hospital medical insurance

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

HIPAA

Health Insurance Portability and Accountability Act, also known as the Kassebaum-Kennedy Act of 1996. See insure.com's story on HIPAA here: http://www.insure.com/health/hipaa.htm

high risk pools

State plans that provide insurance coverage for those who are unable to purchase it on the open market due to high risk factors. For example, some states have high-risk pools for health and auto insurance.

HO-1

HO-1 is basic homeowners insurance. It covers your dwelling and personal property against losses from 11 types of perils: fire or lightning; windstorm or hail; explosion; riot or civil commotion; aircraft; vehicles; smoke; vandalism or malicious mischief; theft; damage by glass or safety glazing material that is part of a building; and volcanic eruption.

HO-2

HO-2 is basic homeowners plus extras. Covers dwelling and personal property against 11 perils plus six more: falling objects; weight of ice, snow or sleet; three categories of water-related damage from home utilities or appliances; and electrical surge damage.

HO-3

HO-3 is extended or special homeowners insurance. Covers 17 stated perils plus any other peril not specified in your policy, except for flood, earthquake, war, and nuclear accident.

HO-4

HO-4 is renters insurance coverage. Covers only personal property from 17 listed perils.

HO-6

HO-6 is condominium coverage. Covers personal property from 17 listed perils along with certain building items in which the unit owner might have an insurance interest.

HO-8

HO-8 is basic home insurance for an older home. Covers dwelling and personal property from 11 perils. It differs from HO-1 (a basic home insurance policy) in that it covers repairs or actual cash values u not rebuilding costs. This is for homes where some historic or architectural aspects make the home's replacement cost significantly higher than its market value.

incontestable clause

A provision in a policy that the insurer may not contest the validity of an insurance contract after it has been in force for two (sometimes three) years.

incurred claims

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

indemnity

Benefits of a predetermined amount paid for a loss.

individual insurance

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

individual policy pension trust

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

individual retirement account (IRA)

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

industrial life insurance

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

injury independent of all other means

An injury resulting from an accident that was not caused by an illness.

inland marine insurance

A broad type of insurance, generally covering articles that may be transported from one place to another as well as bridges, tunnels and other means of transportation. It includes goods in transit (generally excepting transoceanic) as well as numerous "floater" policies such as personal effects, personal property, jewelry, furs, and other such items.

insurability

Acceptability to the company of an applicant for insurance.

insurable risk

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

insurance

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

insurance examiner

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

Insurance in force

The aggregate unpaid balance of loans insured.

insured

The person on whose life the policy is issued.

insuring clause

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

integration

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

invested assets

The sum of an insurance company's bond, stock, mortgage loan, real estate, collateral, loan, cash, and short-term investments.

ISO

Insurance Services Office, located online at http://www.iso.com.

immediate annuity

An annuity that begins its payment stream to the policyholder after a single premium is paid.

insurable interest

A financial reliance you have on someone (such as a spouse) that can be covered by insurance. For example, you need an "insurable interest" in someone in order to buy a life insurance policy on that person's life.

identity fraud

The act of assuming another person's identity in order to gain access to a person's bank accounts or other personal financial information.

key-person insurance

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

lapse

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

lapse ratio

Surrenders and lapses as a percentage of average insurance in force for the year.

lapsed policy

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

legal reserve

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

legal reserve life insurance company

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

lender captive reinsurance

Reinsurance of an insurer by a captive reinsurance subsidiary of a lender. The captive typically reinsures only business produced by its parent and insured by one insurer. Trusts are established to control the flow of funds into and out of the captive. As with contract underwriting and GSE pool insurance, lender captive relationships are offered by insurers as a means of protecting primary business.

level premium

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

level premium insurance

Insurance for which the cost is distributed evenly over the premium payment period. The premium remains the same from year to year and is more than the actual cost of protection in the earlier years of the policy and less than the actual cost in the later years. The excess paid in the early years builds up a reserve to cover the higher cost in the later years.

life annuity

A contract that provides an income for life.

life expectancy

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

life insurance in force

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

lifetime disability benefit

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

limited payment life insurance

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

limited policy

Policy that covers only specified accidents or sicknesses.

liquidity margin of safety

The ratio of liquidity resources (liquid investments, net operating cash flow, risk-adjusted soft capital) to liquidity exposure (unanticipated defaults on principal and interest, unanticipated draws on DSR surety policies, and municipal investment contracts (MICs) and deal-specific liquidity.)

liquidity ratio

Standard & Poor's measure of an insurer's liquidity.

living benefits

Some life insurance companies title their accelerated death benefits as a "living benefit" or "living needs benefit" because excercising that option allows the insured to receive a portion of the life insurance death benefit while living.

load

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

LOB

Line of business

long term care insurance

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

long term care

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

long-term disability income insurance (LTD)

Plan that helps replace income lost through inability to work because of disability caused by an accident or illness.

loss mitigation

Practices and procedures that usually do not involve foreclosure carried out with delinquent borrowers with the goal of reducing loss. Examples are pre-foreclosure sales and adding missed interest payments to the principal amount of the mortgage. Loss mitigation, and, more generally, claims handling are performed by lender-servicers, the GSEs and the insurers themselves.

loss ratio

The ratio of losses incurred and loss expenses incurred to net premiums earned.

loss reserve

The liability recorded on the balance sheet for unpaid losses. The loss reserve consists of the case basis reserve, the reserve for claims known to the company but not yet paid; and the reserve for incurred but not reported losses (IBNR). IBNR in residential mortgage insurance is a small amount compared to IBNR in many long-tail property-casualty lines of business and consists mainly of an estimate of the aggregate dollar amount of currently delinquent mortgages which will remain delinquent or go to claim in a short period of time, causing the establishment or increase of case basis reserves for those mortgages.

liability insurance

Liability involves the cause of damage to someone's property and the bodily injury someone incurs as a result of the negligence of another party. Liability insurance provides coverage for either individuals or businesses.

major medical expense insurance

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

managed care

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

manual premium rate

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

margin of safety

The ratio of depression losses incurred plus statutory capital at the end of a "four year" depression divided by depression losses incurred.

master policy

A policy that is issued to an employer or trustee, establishing a group insurance plan for designated members of an eligible group.

Medicaid

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

Medicare

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

Medigap

Private insurance that can be purchased to supplement Medicare. The federal government defines to 12 types of medigap plans that may be offered, but prices vary among insurers.

minimum group

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

minimum premium plan

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

miscellaneous expense

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

modified life insurance

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

morbidity

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

mortality table

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

mortgage insurance

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

multiline insurer

An insurer that writes financial guaranty and property/casualty insurance.

multiple employer trust (MET)

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

mutual life insurance company

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

MSA

Medical savings account (MSA) set up as a tax-deferred trust or savings account, similar to an IRA, in which you set aside money for your routine, out-of-pocket health care expenses, and to build up savings for your future medical costs.

Medicare supplement insurance

Also known as Medigap, this health coverage pays for services that are not covered under the government's basic Medicare plan. Some Medigap policies sold before January 1, 2006 may include prescription drug coverage, but after that date new Medigap policies could not be sold with drug coverage. This time frame coincides with the introduction of the Medicare Part D benefit.

multiline discount

When an insured buys more than one type of insurance (auto, home, or life) from an insurance company, the insurer may offer a discount of premiums for one or more of the policies.

mutual holding company

A corporation structure that allows the insurance companies within it to sell stock for up to a 49 percent stake of the company without passing proceeds onto policyholders.

mandatory rehabilitation

Based on the premise that most people want to work in order to lead active, productive lives, a "mandatory" rehabilitation provision in disability insurance contracts encourages disabled employees to participate in rehabilitation efforts whenever appropriate. Such a provision allows for termination of benefits if the employee refuses to cooperate or participate with a rehabilitation plan.

maximum monthly benefit

The highest dollar amount a policyholder can receive on a monthly basis from the insurance policy.

NAIC

National Association of Insurance Commissioners, on the Web at http://www.naic.org. National organization of state officials charged with regulating insurance. It has no official power but wields significant influence. NAIC was formed to provide national uniformity in insurance regulations.

NCCI

National Council on Compensation Insurance, located online at http://www.ncci.com.

net capital gains

Realized and unrealized capital gains on investments.

net exposure to capital and surplus ratio

The ratio of net exposure in force to capital and surplus.

net exposure to statutory capital ratio

The ratio of net exposure in force to statutory capital.

net income

Income after dividends and taxes (including realized capital gains).

net investment income ratio

Net investment income divided by net premiums earned.

net operating income

Income after dividends and taxes (excluding realized capital gains).

net premiums written

Total premiums written minus premiums ceded.

net premiums/gross premiums

Net premiums incurred as a percentage of gross premiums incurred

net reserves/gross reserves

Net reserves for life and accident & health policies as a percentage of gross reserves for life and accident & health policies.

no-fault insurance

No-fault insurance is designed to pay for the financial losses associated with minor accidents as quickly as possible. Under a no-fault system, which varies from state to state, your own insurance company will pay medical expenses and lost wages caused by an accident, regardless of who was at fault. In the long run, this system is designed to save time and money that would otherwise be spent litigating petty claims. Usually, that means less expensive auto insurance. In exchange, no-fault systems limit the right to sue under certain circumstances. Not every state has a no-fault system and they vary from state to state. In Michigan, there is no limit to the amount that you can collect under no-fault. In other states, you may only be able to collect $5,000. Once no-fault runs out, motorists can turn to their uninsured motorist/underinsured motorist coverage to make up the difference.

noncancellable policy

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

noncontributory plan

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

nondisabling injury

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

non-forfeiture option

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

non-forfeiture values

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

non-medical limit

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

nonoccupational policy

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

non-participating insurance

Insurance on which no dividends are paid.

nonparticipating policy

Policy that does not provide for payment of a dividend.

non-participating policy

A life insurance policy in which the company does not distribute to policyholders any part of its surplus. Note that premiums for non-participating policies are usually lower than for comparable participating policies. Note also that some non-participating policies have both a maximum premium and a current lower premium. The current premium reflects anticipated experience that is more favorable than the company is willing to guarantee, and it may be changed from time to time for the entire block of business to which the policy belongs.

nonprofit insurers

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

nonrenewal clause

Provision in a policy that states the circumstances under which an insurer may elect not to renew someone's policy.

occupational hazards

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

operating cash flow

Operating income received less disbursements.

operating cash flow/benefits paid

Operating cash flow as a percentage of total cash benefits paid to policyholders.

operating leverage

The ratio of net premiums written to statutory surplus.

operating leverage adjusted for policy loans

Total general account liabilities minus AVR and policy loans as a percentage of the sum of statutory surplus, capital, and AVR.

operating ratio

Combined ratio minus net investment income ratio.

optional renewable policy

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

ordinary life insurance

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

overhead expense insurance

Insurance for business owners to help offset continuing business expenses if the owner is disabled.

paid-up insurance

Insurance on which all required premiums have been paid.

par in force

Total par value of obligations currently outstanding under policies written to date.

par written, gross

Total par value of obligations insured, including obligations insured both as a primary insurer and as a reinsurer.

par written, net

Gross par written less par value of obligations ceded to reinsurers.

partial disability

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

participating insurance

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

participating policy

Policy under which the policyholder is eligible to receive dividends.

payout period

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

performance notes

Notes issued by insurer holding companies to lenders whose repayment terms are geared to the performance of an associated book of mortgage risk. For example, the rate of interest on a note might rise or fall depending on how well or poorly losses developed. Performance notes are generally issued to smaller, regional lenders.

permanent life insurance

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

physician's expense insurance

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

policy

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

policy loan

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

policy reserves

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

policy term

The period for which an insurance policy provides coverage.

policyholder

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

policyholder dividend ratio

The ratio of dividends to policyholders paid to earned premiums.

pool insurance

The insurance of pools of 'A' or 'prime' mortgages. The coverage is a percentage of the original aggregate unpaid balance of the pool. There are two types of pool insurance: traditional and modified. Traditional pool insurance pays 100% of all losses on individual defaulted mortgages after the equity in the home and any primary insurance is exhausted until the aggregate pool coverage amount is reached. Modified pool insurance pays 25%. Insurers offer GSE pool insurance, a thin layer of coverage between the equity in the mortgage and any primary insurance and the GSEs' guarantee.

PPO

Preferred provider organization. PPOs give policyholders a financial incentive u reasonable co-payments(also called co-pays) u to stay within the group's network of practitioners.You may go to any specialist without permission, as long as the doctor participates in the network. If you see an out-of-network doctor, you may have to pay the entire bill yourself, then submit it for reimbursement. You may have to pay a deductible if you choose to go outside the network, or pay the difference between what network doctors vs. out-of-network doctors charge.

precertification

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

pre-existing condition

Any physical and/or mental condition or conditions that exist prior to the effective date of health insurance coverage. Many disability policies and individual health plans exclude benefits for any illness or injury for which a person received medical treatment or consultation within a specified time period before becoming covered under the plan.

preferred provider organization (PPO)

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

premium

The payment, or one of the regular periodic payments, that a policyholder makes to own an insurance policy.

premium loan

A policy loan made for the purpose of paying premiums.

premium revenue

Net premiums (direct premiums plus reinsurance assumed less reinsurance ceded) plus annuity and fund deposits.

premiums earned, gross

The amount of premiums received for in advance that are earned by virtue of the expiration of risk.

premiums earned, net

Gross premiums earned less premiums earned on business ceded to reinsurers

premiums written, gross

Total premiums received from all sources including reinsurance assumed from other insurers.

premiums written, net

Gross premiums written less premiums ceded to reinsurers.

prepaid group practice plan

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

pretax income

Income after policyholder dividends, but before federal income taxes and excluding capital gains/losses.

pretax operating income

Pretax income after policyholder dividends less realized capital gains.

primary insurance

The insurance of an individual mortgage.

primary insurer

An insurer that directly assumes liabilities by issuing an insurance policy to the insured.

principal

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

principal sum

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

property/casualty

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. Outside the United States, property/casualty insurance is referred to as non-life or general insurance.

proration

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

prospective payment

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

POS

POS (Point of Service) plans are more flexible than HMOs, but they also require you to select a Primary Care Physician (PCP). Depending on your insurance company's rules, you may choose to visit a doctor outside the network and still receive coverage u but the amount covered will be substantially less than if you went to a physician within your network These plans tend to offer more preventive care and well-being services, such as workshops on smoking cessation, and discounts to health clubs. You must choose a PCP. While you may choose to see a physician outside the network, if you don't receive permission from your PCP, you're likely to wind up submitting the bills yourself and receiving only a nominal reimbursement u if any.

public adjuster

Representative hired by a policyholder to estimate damages and represent the policyholder in negotiations with an insurance company. Usually hired when there is extensive damage to a house, for example.

PIP

Personal injury protection (PIP), coverage to pay basic expenses for an insured and his or her family in states with no-fault auto insurance.

PEO

Professional employee organization (PEO) that small businesses may join in order to gain access to more affordable health insurance premiums.

property casualty

Property insurance covers damage to or loss of the policyholder's property. Casualty covers the policyholder's legal liability for damages and injuries caused to others.

pre-disability earnings

This is the amount of an employee's wages or salary that was in effect and covered by the plan on the day before the disability began.

qualified annuity

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

qualified impairment insurance

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

quota share reinsurance

Reinsurance wherein the insurer ceded an agreed fixed percentage of liabilities, premiums, and losses for each policy covered on a pro rata basis.

rated policy

Sometimes called an "extra-risk" policy, an insurance policy issued at a higher-than-standard premium rate to cover the extra risk where, for example, an insured has impaired health or a hazardous occupation.

RBC

Risk-based capital (NAIC formula)

reasonable and customary charge

Amounts charged by health care providers that are consistent with charges from similar providers for identical or similar services in a given locale.

recurring claim provision

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

reduced paid-up insurance

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

rehabilitation

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

reinstatement

The restoration of a lapsed policy to full force and effect. The company requires evidence of insurability and payment of past due premiums plus interest.

reinsurance

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

reinsurance utilization

The ratio of reinsurance ceded to gross premiums written.

reinsurer

An insurance company that assumes risk initially assumed by another insurer

renewable term insurance

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

renewal

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

replacement vs. actual cash value

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

reserve

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

reserves by line

Percentage distribution of net reserves for life and accident & health policies. The category labeled "other" includes supplementary contracts with life contingencies, accidental death, disability, and miscellaneous reserves for life policies.

residual disability benefits

A provision that provides benefits in proportion to a reduction of earnings as a result of disability, as opposed to the inability to work fulltime.

return on assets (ROA)

Net operating income as a percentage of average general account assets for the year. Average assets are calculated based on reported assets at the end of the current and prior fiscal years. Excludes capital gains/losses.

return on revenue (ROR)

The ratio of pretax income to total revenue for the current year. Excludes capital gains/losses.

return on statutory capital (ROE)

Net operating income as a percentage of average statutory capital outstanding for the year. Average capital is calculated based on reported capital at the end of the current and prior fiscal years. Excludes capital gains/losses

return on statutory surplus

The ratio of net operating income to average statutory surplus.

rider

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

risk classification

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

risk in force

The aggregate unpaid balance of loans insured multiplied by the average coverage.

risk-based pricing

The setting of premiums based on the perceived credit quality of a borrower as well as the LTV of the mortgage. Currently the industry prices risk almost exclusively by LTV. Risk-based pricing represents a matching of premium to risk, which is superior to current practice. However, there is resistance to it because its full implementation would result in considerably lower premiums for the better risks and considerably higher premiums for lower-quality borrowers; this development could significantly reduce the size of the conforming market.

RPVA

Repetitive premium variable annuities

ratings

Valuations of financial stability of a company, an individual, or an organization. Insurance ratings organizations include A.M. Best, Fitch, Moody's, and Standard & Poor's.

redlining

Refusal by an insurance company to sell policies in a given geographic area -- specifically, minority or poor areas. The practice of redlining is discriminatory and illegal.

risk

Uncertainty of financial loss; used to designate an insured or a peril insured against.

RICO

Racketeering Influenced and Corrupt Organization act, federal legislation from 1970, written to prosecute organized-crime syndicate members, but broadened by the courts to include big business. Some policyholders have sought to sue their health insurers under the RICO act.

risk exposure

The possibility of financial loss based on the probability of an event occurring.

risk management

Procedure to minimize the adverse effect of a possible financial loss. It involves identifying potential sources of loss, measuring the financial consequences of the loss, and using controls to minimize actual losses or their financial consequences.

recurrent disability

The recurrent disability insurance provision is designed to protect an employee who tries to return to work but becomes disabled again from the same or a related cause. If this happens within a certain period of time, the employee will be considered disabled from the original disability, and will not be subject to a new elimination period. This encourages an employee to return to work without fear of losing benefits.

return-to-work provision

To encourage employees to return to work as soon as they become physically able, an additional incentive is usually provided under disability insurance for a certain period of time, and is called a return to work provision. Under this provision, the employee can receive up to 100 percent of pre-disability earnings based on a combination of disability benefits and return-to-work earnings.

rental reimbursement

A common auto insurance add-on, this covers vehicle rentals required because your car is damaged or stolen.

SAP

Statutory accounting principles

second-to-die life insurance

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

self-administration

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

self-insurance

A program financed entirely by the employer for insuring employees instead of purchasing coverage from a commercial carrier.

separate account

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

settlement options

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

severity

The ultimate loss on a mortgage incurred by an insurer as a percentage of the insurer's exposure.

short-term disability income insurance

Insurance that provides benefits only for loss from illness or disease and excludes loss from accident or injury.

single-premium whole life insurance

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

social security freeze

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

SPAC

Single premium annuity contract

SPDA

Single premium deferred annuity

special risk insurance

Coverage for risks or hazards of a special or unusual nature.

specified disease insurance

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

standard provisions

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

standard risk

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

state (compulsory) disability plan

Plan of short-term income replacement required by some states to cover eligible persons employed within that state.

state insurance department

An administrative agency that licenses insurers to do business in that state and implements state insurance laws and supervises (within the scope of these laws) the activities of insurers operating within the state.

state regulation of insurance

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

statutory accounting

Accounting practices prescribed by the insurance department of the insurer's state of domicile based on standards set by the National Association of Insurance Commissioners (NAIC). The principal objective of statutory accounting is to provide a framework for a conservative measurement of an insurer's surplus.

statutory capital

Sum of statutory surplus, capital, and mandatory securities valuation reserve (MSVR).

statutory surplus

The sum of common stock plus preferred stock plus aggregate write-ins for other than special surplus funds plus gross paid-in and contributed surplus plus unassigned funds less treasury stock.

stock life insurance company

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

stop-loss insurance

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

straight life annuity

An annuity whose periodic payments stop when the annuitant dies.

substandard insurance

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

substandard risk

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

supplementary contract

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

surgical expense insurance

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

surgical schedule

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

surplus share reinsurance

Reinsurance wherein the insurer cedes a variable percentage of the liability, premiums, and losses for each policy covered on a pro rata basis.

survivorship insurance

Another name for second-to-die insurance.

SVO

Securities valuation office, a division of NAIC

surrender charge

The fee charged when a policyholder decides to end (or surrender) a life insurance policy or annuity. This fee reflects insurance company expenses incurred by placing the policy on its books. After a "surrender period" (usually several years) has elapsed, there is no charge for ending the contract.

SR-22

A form from the DMV that shows a driver holds auto insurance. Many states require it for high-risk drivers.

subrogation

When an insurance company seeks payment from a third party who caused injury to the insured or damage to property.

solvency

The minimum standard of financial health for an insurance company, when assets exceed liabilities.

surcharge

An additional charge, cost, or tax.

supplemental insurance

Additional insurance protection over the primary insurance coverage. An example is Medigap coverage, which can be purchased as a supplement to Medicare.

tax treatment of life insurance payments

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

term insurance

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

term rider

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

third-party administration (TPA)

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

time limit

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

title insurance

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

total assets

Total general account admitted assets (excluding separate accounts).

total capital

The sum of borrowed money plus statutory surplus.

total cash flow ratio

The sum of premiums collected net of reinsurance plus other underwriting income plus investment income net of investment expense plus other income divided by the sum of loss and loss adjustment expense paid plus underwriting expenses paid plus other expenses plus dividends to policyholders paid.

total disability

A disability that prevents a person from performing all occupational duties. The exact definition varies among policies. Own Occupation (Own Occ): Under this definition, an insured will be considered disabled only if he or she is unable to perform the duties of his or her occupation.Any Occupation (Any Occ): Under this definition, an insured will be considered disabled only if he/she is unable to work in any occupation for which he/she is qualified by education, training, or experience. This is closely related to the definition that the Social Security Administration uses in determining disability.

total liabilities

Total general account liabilities. As reported in these analyses, mandatory securities valuation reserve (MSVR) is included as a liability item but is counted as a part of surplus for operating leverage and return on statutory capital calculations.

total revenue

Primarily net premium revenue, annuity and fund deposits, considerations for supplementary contracts, net investment income, certain reinsurance adjustments, and miscellaneous income.

TPA

Third party administrators

travel accident policies

In some states, limited contracts covering accidents that occur only while an insured person is traveling on business for an employer, away from the usual place of business, and on named conveyances.

treaty reinsurance

Reinsurance covering broad groups of policies. All policies written by the primary insurer within the defined groups will be covered and ceded to the reinsurer until the policies' expiration. This occurs on an ongoing basis until the agreement is canceled.

Triple X

Legislation adopted Jan. 1, 2000, requiring life insurers to set aside certain levels of reserves in order to be able to pay claims.

tort reform

An effort by state lawmakers to change court procedures in order to reduce the expense and delays in settling auto insurance claims. Reform also involves reducing the amount of damages some defendants are forced to pay.

totaling

When an insurance company determines that damage to a vehicle is so extensive that the cost to repair the vehicle exceeds its value or is a substantial portion of its value.

towing and labor coverage

Towing and labor coverage can be added as part of an auto insurance policy, in case of roadside breakdowns.

umbrella liability

If your auto and home are insured with the same carrier, you probably can get supplemental liability coverage from your insurer. This is generally a very good and affordable idea, but only if you have underlying wealth that needs to be shielded from lawsuits. By insuring your car and home, it is cost-effective for your insurer to extend bigger-dollar liability coverage to both areas (hence the "umbrella" concept). If, for example, you have 100/300 auto liability ($100,000 liability for each person insured in an accident; $300,000 total liability for the accident) and $100,000 liability on your homeowner's insurance, you can usually extend this to $1 million for a few hundred bucks a year (premiums vary by company and its assessment of your own risk).

unallocated benefits

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

underwriter

(1) A company that receives the premiums and accepts responsibility for the fulfillment of the policy contract(2) The company employee who decides whether or not the company should assume a particular risk (3) The agent who sells the policy

underwriting

The underwriting process evaluates the likelihood an insured event will occur, determines its likely cost and develops an appropriate premium for the coverage that is competitive in the marketplace and remunerative to the insurance company writing the policy. For some standardized coverage's that are highly competitive, underwriting may be somewhat besides the point -- the policy has to be priced according to marketplace pressures if the insurer wishes to remain in that line of coverage. Underwriting still plays a substantial role for many coverage's, however, even those in the increasingly competitive businesses of auto, home and term life insurance. Insurance companies don?t all target the same slice of the market in the same states, and thus often have different objectives in their underwriting efforts as well as different cost structures that determine operating profit margins in their underwriting calculations. Underwriting differences account in part for the substantial differences in insurance premiums for comparable coverage's.

underwriting cash flow ratio

The sum of premiums collected net of reinsurance plus other underwriting income divided by the sum of loss and loss adjustment expenses paid plus underwriting expenses paid plus other underwriting expenses.

underwriting profitability ratio

The ratio of net earned premiums less underwriting expenses and losses divided by net earned premiums.

unearned premium

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

unearned premium reserve

A reserve equal to an amount of net premium written but not yet earned.

uninsurables

High-risk persons who do not have health care coverage through private insurance and who fall outside the parameters of risks of standard health underwriting practices.

uninsured/underinsured motorists coverage

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

universal life insurance

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

variable annuity

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

variable life insurance

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

vanishing premium

When a life insurance policy rapidly builds cash value, sometimes the value is sufficient enough to pay the premiums. So, given a certain amount of time, no more premium payments are necessary. This is also known as a "premium offset." In illegal "vanishing premium" schemes, an agent promises that the premium will vanish but it doesn't.

waiting period

In order to become eligible for coverage under some group health and disability insurance policies, an individual must satisfy a certain number of continuous days of service as an active, full-time employee. This is known as the waiting period. (In addition, a waiting period can also be the time period between when a disability occurs and when payments from the disability insurance policy begin.)

waiver (exclusion endorsement)

An agreement, attached to the policy and accepted by the insured, to eliminate a specified preexisting physical condition or specified hazard.

waiver of premium

When an individual becomes eligible for benefits (such as disability or long term care), no further disability premium payments are required as long as benefits are being paid out.

whole life insurance

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

windstorm insurance

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

workers' compensation

Liability insurance requiring certain employers to pay benefits and furnish medical care to employees for on-the-job injuries, and to pay benefits to dependents of employees killed by occupational accidents.

written premiums

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

workplace modification or accommodation

This disability insurance benefit is designed to provide assistance to an employer when a disabled employee requires modification of the workplace or special adaptive equipment in order to return to work. The employer will usually be reimbursed up to a set amount for the cost of such modifications.

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yield on invested assets

Ratio of net investment income to mean invested assets.

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