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USEFUL INSURANCE TERMS. 'L' Labor-Management Relations Act of 1947 (Taft-Hartley Act): This law controls conditions under which an employer may pay any money to a representative of employees.
Lapse: The termination or discontinuance of an insurance policy due to non-payment of a premium.
Lapsed Policy: A policy terminated for non-payment of premiums. The term is sometimes limited to a termination occurring before the policy has a cash or other surrender value.
Larceny-theft: The unlawful taking, carrying, leading or riding away of another person's property.
Last Clear Chance Rule: Statutory modification of the contributory negligence law allowing the claimant endangered by his or her own negligence to recover damages from a defendant if the defendant has a last clear chance to avoid the accident but fails to do so.
Law of Large Numbers: Concept that the greater the number of exposures, the more closely will actual results approach the probable results expected from an infinite number of exposures.
Legal Reserve: The minimum reserve which a company must keep to meet future claims and obligations as they are calculated under the state insurance code.
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.
Level Commission Scale: A commission scale providing for payment of commissions at the same rate every year the policy is in force.
Level Premium: A premium which remains unchanged throughout the life of a policy.
Level Premium Life Insurance: Life insurance for which the premium remains the same from year to year. The premium is more than the actual cost of protection during the earlier years of the policy and less than the actual cost in the later years. The building of a reserve is a natural result of level premiums. The overpayments in the early years, together with the interest that is to a earned, serve to balance out the underpayments of the later years.
Liability: Any legally enforceable obligation.
Liability Insurance: Insurance covering the policyholder's legal liability resulting from injuries to other persons or damage to their property.
Liability Insurance: Provides protection for the insured against loss arising out of legal liability to third parties.
Liability Limits: The stipulated sum or sums beyond which an insurance company is not liable to protect the insured.
Liability Without Fault: Principle on which workers compensation is based, holding the employer absolutely liable for occupational injuries or disease suffered by workers, regardless of who is at fault.
License and Permit Bond: Type of surety bond guaranteeing that the person bonded will comply with all laws and regulations that govern his or her activities.
Life Annuity: A series of payments under which payments, once begun, continue throughout the remaining lifetime of the annuitant but not beyond.
Life Annuity: A contract that provides an income for life.
Life Annuity With 10 Years Certain: An annuity which pays an income to the annuitant for as long as he or she lives, but if death occurs within 10 years after the annuity payments begin, payments are continued to a named beneficiary for the remainder of the 10 years.
Life Expectancy: The average number of years of life remaining for a group of persons of a given age according to a particular mortality table.
Life Income Option: Life insurance settlement option in which the policy proceeds are paid during the lifetime of the beneficiary. A certain number of guaranteed payments may also be payable.
Life Insurance: Insurance providing for payment of a specified amount on the insured's death, either to his or her estate or to a designated beneficiary; or in the case of an endowment policy, to the policy holder at a specified date.
Life Insurance in Force: The sum of the face amounts, plus dividend additions, of life insurance polices outstanding at a given time. Additional amounts payable under accidental death or other special provisions are not included.
Life Insurance Programming: Systematic method of determining the insured's financial goals, which are translated into specific amounts of life insurance, then periodically reviewed for possible changes.
Lifetime Disability Benefit: A benefit to help replace income lost by an insured person as long as he/she is totally disabled, even for a lifetime.
Lifetime Disability Benefit: Disability income payable for the life of the insured as long as he 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: A contract which covers only certain specified diseases or accidents.
Limited Policy: One that covers only specified accidents or sicknesses.
Liquidation: Dissolving a company by selling its assets for cash.
Liquor Liability Law: See Dramshop Law.
Living Benefits Rider: A rider that allows insureds who are terminally ill or who suffer from certain catastrophic diseases to collect part of their life insurance benefits before they die, primarily to pay for the care they require.
Living Trust: A trust created while the creator of the trust is living. Also known as an inter vivos trust.
LLoyd's of London: insurance marketplace where brokers, representing clients with insurable risks, deal with Lloyd's underwriters, who in turn represent investors. The investors are grouped together into syndicates that provide capital to insure the risks.
Loading: The amount that must be added to the pure premium for expenses, profit, and a margin for contingencies. See Expense Loading
Long-Term Care: The continuum of broad-ranged maintenance and health services to the chronically ill, disabled, or retarded. Services may be provided on an inpatient (rehabilitation facility, nursing home, mental hospital), outpatient, or at-home basis.
Long-Term Disability Income Insurance: Insurance issued to an employer (group) or individual to provide a reasonable replacement of a portion of an employee's earned income lost through serious and prolonged illness or injury during the normal work career. (See also Integration.)
Loss: The happening of the event for which insurance pays.
Loss Adjustment Expense: expenses incurred in the process of evaluating, defending and paying claims.
Loss Avoidance: A risk management technique whereby a situation or activity that may result in a loss for a firm is avoided or abandoned.
Loss control: any conscious action (or decision not to act) intended to reduce the frequency, severity, or unpredictability of accidental losses.
Loss Expense - Allocated: Handling expenses, such as legal or independent adjuster fees, paid by an insurance company in settling a claim which can be definitely charged to that particular claim.
Loss Expense - Unallocated: Salaries and other expenses incurred in connection with the operation of a claim department of an insurance carrier which cannot be charged to individual claims.
Loss of use: value assigned to not having damaged property available, e.g., the cost of renting a replacement vehicle while one's car is being repaired
Loss Payable Clause: Means of protecting a mortgagee's interest in property by directing the insurer to make a loss payment to the mortgagee in the event of a loss.
Loss Prevention: Any measure which reduces the probability or frequency of a particular loss but does not eliminate completely all possibility of that loss
Loss Ratio: A ratio calculated by divinding claims into premiums. It may be calculated in several different ways, using paid premiums or earned premiums, and using paid claims with or without changes in claim reserves and with or without changes in active reserves.
Loss Reserve: The amount set up as the estimated cost of a claim. (See IBNR Reserve)
Loss Reserve Development: how the latest estimate of an insurance company's claim obligations compares to an earlier projection.
Lump-Sum Distribution: Payment within one taxable year of the entire balance payable to an employee from a trust which forms part of a qualified pension or employee annuity plan on account of that person's death, separation from service or attainment of age 59.
'M'
Mail Order Insurer: Type of insurance company that sells policies through the mail or other mass media, eliminating need for agents.
Major Medical Expense Insurance: A form of health insurance that provides benefits for most types of medical expense up to a high maximum benefit, such as ,000 or higher after a substantial deductible, such as or more. Such contracts may contain internal limits and are normally subject to coinsurance.
Major Medical Insurance: Health insurance to finance the expense of major illness and injury. Characterized by large benefit maximums ranging up to ,000 or no limit, the insurance, above an initial deductible, reimburses the major part of all charges for hospital, doctor, private nurses, medical appliances, prescribed out-of-hospital treatment, drugs, and medicines. The insured person as coinsurer pays the remainder.
Malingering: The practice of feigning illness or inability to work in order to collect insurance benefits.
Malpractice: Improper care or treatment by a physician, hospital, or other provider of health care.
Malpractice Insurance: Coverage for a professional practitioner, such as a doctor or a lawyer, against liability claims resulting from alleged malpractice in the performance of professional services.
Managed Care: Health care systems that integrate the financing and delivery of appropriate health care services to covered individuals by arrangements with selected providers to furnish a comprehensive set of health care services, explicit standards for 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 Rate: The premium rate developed for a group insurance coverage from the company's standard rate tables normally referred to as its rate manual or underwriting manual.
Manuscript Policy: Policy designed for a firm's specific needs and requirements.
Marine Insurance: A form of insurance primarily concerned with means of transportation and communication, and with goods in transit (see "Inland Marine Insurance" and "Ocean Marine Insurance").
Marital deduction: A reduction of an estate for estate tax purposes, which is available if the decedent is survived by his or her spouse, can be as large as the administrator or executor elects so long as it does not exceed the value of qualifying property passing to the surviving spouse.
Market Price (or Market Value): The price at which a security can be bought or sold at any particular time.
Mass Merchandising: Plan for insuring individual members of a group, such as employees of firms or members of labor unions, under a single program of insurance at reduced premiums. Property and liability insurance is sold to individual members using group insurance marketing methods.
Master Policy: A policy that is issued to an employer or trustee, establishing a group insurance plan for designated members of an eligible group.
Master Policy (or Master Contract): The policy issued to a group policyholder setting forth the provisions of the group insurance plan. The individuals insure under the policy are then issued certificates of insurance.
Material Damage: Insurance against damage to a vehicle itself. It includes automobile comprehensive, collision, fire and theft. Material damage and physical damage are terms that often are used inter- changeably.
Maximum family benefit: The largest amount in Social Security benefits that will be paid to any family unit.
McCarran-Ferguson Act: Federal law passed in 1945 stating that continued regulation of the insurance industry by the states is in the public interest and that federal antitrust laws apply to insurance only to the extent that the industry is not regulated by state law.
Medicaid: State programs of public assistance to persons whose income and resources are insufficient to pay for health care. Title XIX of the federal Social Security Act provides matching federal funds for financing state Medicaid programs, effective January 1, 1966.
Medical Examination: The examination given by a qualified physician to determine to the insurability of an applicant. A medical examination may also be used to determine whether an insured claiming disability is actually disabled.
Medical Expense Insurance: A form of health insurance that provides benefits for expenses incurred for medical care. This form of health insurance provides benefits for expenses of physicians, hospital, nursing, and related health services, and supplies. These benefits may be related to actual expense, specified sums, or services rendered. Such insurance sometimes includes benefits for prevention and diagnosis as well as treatment.
Medical malpractice: Improper care or treatment by a physician, hospital, or other provider of health care.
Medical Payments Insurance: A coverage, available in various liability insurance policies, in which their insurer agrees to reimburse the insured and others, without regard for the insured's liability, for medical or funeral expenses incurred as the result of bodily injury or death by accident under specified conditions.
Medicare: A program of Hospital Insurance (Part A) and Supplementary Medical Insurance (Part B) protection provided under the Social Security Act.
Medigap: A term sometimes applied to private insurance products that supplement Medicare insurance benefits.
Minimum Benefits: A provision that a minimum amount of annuity will be paid if the regular benefit formula produces less. This minimum is usually payable only if certain service requirements are met at retirement.
Minimum Group: The least number of employees permitted under a state law to effect a group for insurance purposes; the purpose is to maintain some sort of proper division between individual policy insurance and the group forms.
Minimum Premium Plan (MPP): An arrangement under which an insurance carrier will, for a fee, handle the administration of claims and insure against large claims for a self- insured group.
Miscellaneous Expenses: Expenses in connection with hospital insurance, hospital charges other than room and board, such as X-rays, drugs, laboratory fees, and other ancillary charges. (Sometimes referred to as ancillary charges.)
Miscellaneous Hospital Expense Benefit: A provision in a hospital expense policy providing for the payment of a benefit for expenses for necessary hospital services and supplies during a period of hospital confinement. Expenses commonly covered under this benefit include those for x-ray examinations, laboratory tests, medicines, surgical dressings, anesthetics (including administration thereof), and use of operating room.
Misrepresentation: A false, incorrect, improper, or incomplete statement of a material fact, made in the application for a policy.
Mode of Premium Payment: The frequency with which premiums are paid monthly, quarterly, semiannually, or annually.
Money purchase plan: a pension plan design in which a plan sponsor obligation is defined in terms of the contribution it makes on behalf of the employee
Moral Hazard: Hazard arising from any nonphysical, personal characteristic of a risk that increases the possibility of loss or may intensify the severity of loss for instance, bad habits, low integrity, poor financial standing.
Morbidity: The incidence and severity of sicknesses and accidents in a well-defined class or classes or persons.
Morbidity Tables: Actuarial statistics showing the frequency and duration of disability.
Mortality Table: A table showing how many members of a group, starting at a certain age, will be alive at each succeeding age. It is used to calculate the probability of dying in, or surviving through, any period, and for the valuation of an annuity. To be appropriate for a specific group, it should be based on the experience of individuals having common characteristics, such as sex or occupation.
Mortality Table: A statistical table showing the death rate at each age, usually expressed as so many per thousand.
Multi-Employer Plan: A plan maintained according to a collective bargaining agreement, to which more than one employer contributes. Under ERISA, at the beginning of the plan, no single employer may contribute as much as 50% of the total, and thereafter as much as 75%. An employee may change employers within the group without losing retirement benefits unless a break in service (under the plan) cancels credits earned before the break.
Multi-Peril Policy: A package policy which provides protection against a number of separate perils. Multi-peril policies are not necessarily multiple line policies, since the combined perils may be all within one insurance line.
Multiple Employer Trust (MET): A legal trust established by a plan 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 Insurance Company: An insurance company in which the ownership and control is vested in the policyholders and a portion of surplus earnings may return to policyholders in the form of dividends. No capital stock exists.
MVR: motor vehicle report
'N'
Named Perils: Coverage in a property policy that provides protection against loss from only the perils specifically listed in the policy rather than protection from physical loss. Examples of named perils are fire, windstorm, theft, smoke, etc.
National Association of Insurance Commissioners (NAIC): The association of insurance commissioners of various states formed to promote national uniformity in the regulation of insurance.
Negligence: Failure to use the care that a reasonable and prudent person would have used under the same or similar circumstances.
Net Premium: The portion of the premium rate which is designed to cover benefits of the policy, but not expenses, contingencies, or profit. The term is also used to describe the portion of the premium remitted to the home office by an agent after deduction of the agent's commission.
Net written premiums: premium income retained by insurance companies, directly or through reinsurance, after payments made for reinsurance.
No-Fault: A type of auto insurance mechanism whereby the right to sue another party for damages caused by negligence is limited and, in exchange, expanded first party benefits are offered.
No-fault Automobile Insurance: A form of insurance by which a person's financial losses resulting from an automobile accident are paid by his or her own insurer regardless of who was at fault.
Non-admitted Insurance Company: An insurance company not licensed to do business in a particular state; such a company, however, may sell excess and surplus insurance in that state if admitted insurers lack the capacity or expertise.
Noncancellable: A contract that the insured has the right to continue in force by the timely payments of premiums set forth in the contract (1) until at least age 50 or (2) in the case of a policy issued after age 44 for at least five years from its date of issue, during which period the insurer has no right to make unilaterally any change in any provision of the contract while the contract is in force.
Noncancellable Guaranteed Renewable Policy: An individual policy which the insured person has the right to continue to force until a specified age, such as to age 65, by the timely payment of premiums. During this period, the insurer has no right to unilaterally make any changes in any provision of the policy while it is in force.
Nonconfining Sickness: A sickness that disables the insured person but does not confine him to his home or a hospital.
Noncontributory: A term applied to employee benefit plans under which the employer bears the full cost of the benefits for the employees. One hundred percent of the eligible employees must be insured.
Nondisabling Injury: An injury which may require medical care, but does not result in loss of working time or income.
Nondisabling Injury Benefit: A benefit in some disability income policies providing payment for medical expense due to injury when medical care is necessary but the insured is not totally disabled.
Nonforfeiture Option: One of the choices available if the policyholder discontinues premium payments on a policy with a cash value. This, if any, may be taken in cash, as extended term insurance or as reduced paid-up insurance.
Nonmedical Limit: The maximum face value of a policy that a given company will issue without the applicant taking a medical examination.
Nonoccupational Policy: Contract which insures a person against off-the-job accident or sickness. It does not cover disability resulting from injury or sickness covered by Workers' Compensation. Group accident and sickness policies are frequently non- occupational.
Nonoccupational Policy: One that provides off-the-job coverage only; it does not cover loss resulting from accidents or sickness arising out of or in the course of employment or covered under any workers' compensation law.
Nonparticipating Insurance: Plan of insurance under which the policy-holder is not entitled to share in the dividend distribution of the company.
Nonparticipating Policy: A life insurance policy in which the company does not distribute to policyholders any part of its surplus. Note should be taken that premiums for nonparticipating polices are usually lower than for comparable participating polices. Note should also be taken that some nonparticipating polices 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. (See also: Participating policy)
Nonparticipating Policy: One that does not provide for the payment of a dividend.
Nonprofit Insurers: Persons organized under special state laws to provide hospital, medical, or dental insurance on a nonprofit basis. The laws exempt them from certain types of taxes.
'O'
Occupational Hazards: Occupations which expose the insured to greater than normal physical danger by the very nature of the work in which the insured is engaged, and the varying periods of absence from the occupation, due to the disability, that can be expected.
Occurrence: An accident, including continuous or repeated exposure to substantially the same general, harmful conditions, that results in bodily injury or property damage during the period of an insurance policy.
Occurrence policy: A liability insurance policy that covers claims arising out of occurrences that take place during the policy period, regardless of when the claim is filed.
Ocean Marine Insurance: Insurance for sea-going vessels, including liabilities connected with them, and their cargoes.
Ocean Marine Insurance: Coverage on all types of vessels, including liabilities connected with them, and on their cargoes.
Operating Ratio: The sum of expenses and losses expressed as a percent of earned premium.
Optionally Renewable Contract: A contract of health insurance in which the insurer reserves the right to terminate the coverage at any anniversary or, in some cases, at any premium due date, but does not have the right to terminate coverage between such dates.
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.
Ordinary Life: Synonymous With Whole Life and Straight Life: The three terms are applied to the type of policy which continues during the whole of the insured's life and provides for the payment of amount insured at this death.
Overhead Expense Insurance: A special form of health insurance designed to help offset overhead expenses such as office rent, utilities, employees' wages, and auditors' fees, incurred during total disability. The monthly payments during disability is not a fixed amount of indemnity as on regular disability polices, but the amount of overhead expense actually incurred, or a percentage thereof, up to the limit specified in the policy.
Overhead Insurance: A type of short-term disability income contract that reimburses the insured person for specified, fixed monthly expenses, normal and customary in the operation and conduct of his/her business or office.
Over-the Counter Market: A means of buying and selling securities that are not listed on a stock exchange. Negotiations are carried out by telephone or computer network.
Overriding Commission (Overwrite): A commission paid to general agents or agency managers in addition to the commission paid the soliciting agent or broker.
'P'
Package Policy: A combination of two or more individual polices or coverages into a single policy. A homeowners policy, for example, is a package combining property, liability and theft coverages for the homeowner.
Paid-up Insurance: Insurance on which all required premiums have been paid. The term is frequently used to mean the reduced paid-up insurance available as a nonforfeiture option.
Paramedical Examination: Physical examination of an applicant by a trained person other than a physician.
Partial Disability: The result of an illness or injury which prevents an insured from performing one or more of the functions of his/her regular job.
Partial Disability: A benefit sometimes found in disability income policies providing for the payment of reduced monthly income in the event the insured cannot work full time and/or is prevented from performing one or more important daily duties pertaining to his occupation.
Participating Insurance: Insurance issued by an insurance company providing participation in dividend distribution.
Participating Policy: A life insurance policy under which the company agrees to distribute to policyholders the part of its surplus which its Board of Directors determines is not needed at the end of the business year. Such a distribution serves to reduce the premium the policyholder had paid. (See also: Policy dividend; Nonparticipating policy)
Participating Policy: One under which the policy owner is entitled to receive shares of the divisible surplus of the insurer. Such shares are commonly called dividends.
Pension Benefit Guaranty Corporation (PBGC): The Federal body responsible for administering the plan termination insurance program under ERISA.
Pension Benefits: A series of payments to be provided in accordance with the plan of benefits.
Pension Plan: A plan established and maintained by an employer, group of employers, union or any combination, primarily to provide for the payment of definitely determinable benefits to participants after retirement.
Percentage Participation: A provision in a health insurance contract that the insurer and insured will share covered losses in agreed proportions. Also see Coinsurance.
Peril: The cause of a loss insured against in a policy.
Peril: The cause of a possible loss, such as fire, windstorm, theft, explosion, or riot.
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.
Persistency: A term used to refer to the length of time insurance remains continuously in force.
Persistency: The degree to which policies stay in force through the continued payment of renewal premiums.
Personal Articles Floater: A form of coverage designed to meet the needs for insurance on property of a moveable nature. The coverage usually protects against all physical loss, subject to special exclusions and conditions. Examples of property covered include jewelry, furs, silverware, fine arts.
Personal Injury Protection (PIP): First-party no-fault coverage in which an insurer pays, within the specified limits, the wage loss, medical, hospital and funeral expenses of the insured.
Personal Lines: Those types of insurance, such as auto or home insurance, for individuals or families rather than for businesses or organizations.
Personal representative:A person appointed through the will of a deceased or by a court to settle the estate of one who dies.
Physical Damage: Damage to or loss of the auto resulting from collision, fire, theft or other perils.
Physician's Expense Insurance: Coverage which provides benefits toward the cost of such services as doctor's fees for nonsurgical care in the hospital, at home or in a physician's office, and X-rays or laboratory tests performed outside the hospital. (Also called Regular Medical expense Insurance.)
Plan Administrator: The person or persons controlling the money or property contributed to the plan, usually designated in the plan agreement.
Point-of-Service Plans: Often known as open-ended HMOs or PPOs, these plans permit insureds to choose providers outside the plan yet are designed to encourage the use of network providers.
Policy: The printed legal document stating the terms of the insurance contract that is issued to the policyholder by the company.
Policy: A contract of insurance.
Policy: The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance; also called the policy contract or the contract.
Policy Dividend: A refund of part of the premium on a participating life insurance policy reflecting the difference between the premium charged and actual experience.
Policy Loan: A loan made by a life insurance company from its general funds to a policyholder on the security of the cash value of a policy.
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 so calculated that, together with future premium payments and anticipated interest earnings, they will enable the company to pay all future claims.
Policy Term: That 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: A person who pays a premium to an insurance company in exchange for the insurance protection provided by a policy of insurance.
Policyholders' Surplus: Sum left after liabilities are deducted from assets. Sums such as paid-in capital and special voluntary reserves are also included in this term. This surplus is an additional financial protection to policyholders in the event a company suffers unexpected or catastrophic losses. In effect, it is the financial base that permits a company to sell insurance.
Pollution Liability: Exposure to lawsuits for injury or cleanup costs that result from pollution damage
Pool: An organization of insurers or reinsurers through which particular types of risk are underwritten and premiums, losses and expenses are shared in agreed-upon amounts.
Pooling arrangement: An agreement to divide any losses that might occur equally among two or more people, typically with each paying the average loss.
Portability: The transfer of pension rights and credits when a worker changes jobs.
Preadmission Certification: Process in which a health care professional evaluates an attending physician's request for a patient's admission to a hospital by using established medical criteria.
Preexisting Condition: A physical and/or mental condition of an insured which first manifested itself prior to the issuance of his/her policy or which existed prior to issuance and for which treatment was received.
Preexisting Condition: A physical condition that existed before the effective date of coverage.
Preferred Provider Organization (PPO): An arrangement whereby a third-party payer contracts with a group of medical care providers who furnish services at lower than usual fees in return for prompt payment and a certain volume of patients.
Preferred Stock: Evidence of ownership which entitles the owners to receive dividends from the corporation before the common stockholders and which usually also provides a prior claim to corporate assets if the corporation is dissolved.
Premium: The sum paid by a policyholder to keep an insurance policy in force.
Premium finance: allows the insured to pay part of the premium when coverage takes effect and pay the rest during the policy period.
Premium Loan: A policy loan made for the purpose of paying premiums.
Premium Tax: A tax, imposed by each state, on the premium income of insurers doing business in the state.
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 in advance made 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. Such a plan is one form of Health Maintenance Organization (HMO).
Primary Beneficiary: See Beneficiary.
Primary Insurance: Insurance that pays compensation for a loss ahead of any other insurance coverages the policyholder may have.
Principal Sum: The amount payable in one sum in the event of accidental death and in, some cases, accidental dismemberment. When a contract provides benefits for both accidental death and accidental dismemberment, each dismemberment benefit is an amount equal to the principal sum or some fraction thereof.
Probate: The court-supervised process of validating or establishing a distribution for assets of a deceased including the payment of outstanding obligations.
Probate estate That portion of the assets and liabilities whose distribution is supervised by the courts in the probate process.
Probationary Period: A period from the policy date to a specified time, usually 15 to 30 days, during which no sickness coverage is effective. It is designed to eliminate a sickness actually contracted before the policy went into effect.
Product Liability: legal liability incurred by a manufacturer, merchant, or distributor because of injury or damage resulting from the use of its product.
Product Liability Insurance: Protection against financial loss arising out of the legal liability incurred by a manufacturer, merchant, or distributor because of injury or damage resulting from the use of a covered product.
Professional Review Organization (PRO): An organization in which practicing physicians assume responsibility for reviewing the propriety and quality of health care services provided under Medicare and Medicaid.
Proof of Loss: Documentation presented to the insurance company by the insured in support of a claim so that the insurer can determine its liability under the policy.
Proof of Loss: Documentary evidence required by an insurer to prove a valid claim exists. It usually consists of a claim form completed by the insured and the insured's attending physician. For medical expense insurance itemized bills must also be included.
Property Damage Coverage: An agreement by an insurance carrier to protect an insured against legal liability for damage by an insured automobile to the property of another.
Property Insurance: Insurance providing financial protection against the loss of, or damage to, real and personal property caused by such perils as fire, theft, windstorm, hail, explosion, riot, aircraft, motor vehicles, vandalism, malicious mischief, riot and civil commotion, and smoke.
Property Insurance: Provides financial protection against loss or damage to the insured's property caused by such perils as fire, windstorm, hail, etc.
Proration: The adjustment of benefits paid because of a mistake in the amount of the premiums paid or the existence of other insurance covering the same accident or disability.
Proscription: A claim not covered by an insurance policy because it is filed after the time required in the language of the contract.
Prospective Payment: An advancement of payment for health care charges that are likely to occur.
Prototype Plan: A standardized plan, approved and qualified as to its concept by the Internal Revenue Service, which is made available by life insurance companies, banks and mutual funds for employers' use.
Provision: A part (clause, sentence, paragraph, etc.) of an insurance contract that describes or explains a feature, benefit, condition, requirement, etc. of the insurance protection afforded by the contract.
Proximate Cause: The dominating cause of loss or damage; an unbroken chain of events between the occurrence and damage.
Punitive Damages: a court-awarded amount that exceeds the economic losses and general damages of a defendant and is intended solely to punish the plaintiff
'Q'
Qualification Period: The period during which the insured must be totally disabled before becoming eligible for residual disability benefits.
Qualified Impairment Insurance: A form of substandard or special class insurance, which restricts benefits for the insured person's particular condition.
Qualified Plan: A plan which the Internal Revenue Service approves as meeting the requirements of Section 401(a) of the 1954 Internal Revenue Code. Such plans receive tax advantages.
Qualified terminable interest property: A category of property, created by the Economic Recovery Tax Act, which by a deceased spouse's will entitles the surviving spouse to all income from the property for life, with that income payable at least annually, and precludes anyone including the spouse from appointing the property to anyone else during the spouse's life.
Quote: a price estimate given to the potential consumer as he/she decides to which company a formal application will be submitted. Company may be legally bound to honor this quote in some jurisdictions and/or lines of business.
'R'
Rate: The pricing factor upon which the insurance buyer's premium is based.
Rated Policy: Sometimes called an "extra-risk" policy, an insurance policy issued at a higher-than-standard premium rate to cover the extra risk where, for example, an insured has impaired health or a hazardous occupation.
Ratemaking: The statistical process by which insurers determine risks and pricing for the basic classes of insurance.
Rating Territory: A geographical grouping in which like hazards tend to equalize and permit the establishment of an equitable rate for the territory.
Reasonable and Customary Charge: A charge for health care, which is consistent with the going rate or charge in a certain geographical area for identical or similar services.
Rebating: Giving any valuable consideration, usually all or part of the commission, to the prospect or insured as an inducement to buy or renew. Rebating is prohibited by law.
Recurring Claim Provision: A provision in some health insurance policies which 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.
Recurring Clause: A provision in some health insurance policies, which specifies a period of time during which the recurrence of a condition is considered a continuation of a prior period of disability or hospital confinement.
Reduced Paid-up Insurance: A form of insurance available as a nonforfeiture option. It provides for continuation of the original insurance plan, but for a reduced amount.
Regulation: Supervision of business practices by a governmental entity.
Rehabilitation: (1) Restoration of a totally disabled person to a meaningful occupation, (2) a provision in some long- term disability policies that provides for continuation of benefits or other financial assistance while a totally disabled insured is retraining or attempting to resume productive employment.
Reimbursement: The payment of the expenses actually incurred as a result of an accident or sickness, but not to exceed any amount specified in the policy.
Reinstatement: The resumption of coverage under a policy which has lapsed.
Reinsurance: Assumption by one insurance company of all or part of a risk undertaken by another insurance company.
Reinsurance: The acceptance by one or more insurers, called reinsurers, of a portion of the risk underwritten by another insurer who has contracted for the entire coverage.
Reinsurance : The purchase of insurance by an insurance company from another insurance company (reinsurer) to provide it protection against large losses on cases it has already insured.
Reinsurance Facility: An alternative mechanism to service those insureds that cannot obtain insurance in the voluntary market. Premiums and losses for the business that is ceded to the facility are pooled and all insurers share according to their proportion of the voluntary market.
Release: See Final Release.
Renewable Term Insurance: Term insurance which can be renewed at the end of the term, at the option of the policyholder and without evidence of insurability, for a limited number of successive terms. The rates increase at each renewal as the age of the insured increases.
Renewal: Continuance of coverage under a policy beyond its original term by the insurer's acceptance of the premium for a new policy term.
Renter's Policy: A package type of insurance that includes coverage similar to a homeowners policy to cover the personal property of a renter or tenant in a building.
Replacement: The substitution of health insurance coverage from one policy contract to another.
Replacement Cost: The cost to repair or replace property at construction costs prevailing at time of loss; the cost to repair or rebuild property without considering depreciation. (See Actual Cash Value)
Replacement ratio: The percentage of income before retirement that is required to be replaced to maintain the same standard of living after retirement.
Representation: Statements made by an applicant in the application, which he represents as being substantially true to the best of his knowledge and belief, but which are not warranted as exact in every detail.
Rescission: Termination of an insurance contract by the insurer on the grounds of material misstatement on the application for insurance. The action of rescission must take place within the contestable period or Time Limit on Certain Defenses but takes effect as of the date of issue of the policy, thus voiding the contract from its inception.
Reservation of Rights: An arrangement whereby an insurer defends a case without commitment to provide coverage in the event that the facts disclosed during the trial reveal that the occurrence is not covered.
Reserve: (1) An amount representing liabilities kept by an insurer to provide for future commitments under policies outstanding. (2) An amount allocated for a special purpose. Note that a reserve is usually a liability and not an extra fund.
Residual Disability: A period of partial disability that immediately follows a period of total disability. Benefits for residual disability are paid on a pro-rata basis, depending on the percentage of earnings loss.
Residual Disability Benefits: A provision in an insurance policy that provides benefits in proportion to a reduction of earnings as a result of disability, as opposed to the inability to work full-time.
Residual Market: A system through which insurance is made available to buyers that represent unusually high risks.
Residual Market: A source of insurance available to applicants who are unable to obtain insurance through ordinary methods in the voluntary market. (See AIP, JUA, Facility)
Retention: The net amount of risk retained by an insurance company for its own account or that of specified others, and not reinsured.
Retention: The amount of the risk kept for oneself, as opposed to the amount it insures (or reinsures) with another.
Retrocession: The process by which a reinsurer obtains reinsurance from another company.
Retrospective Date: The first date for which claims will be paid under a claims-made policy of liability insurance.
Retrospective Rating: Rating procedure which allows adjustment of an insured's final rate on the basis of the insured's own loss experience.
Revocable Trust: A trust that can be terminated or revoked by its creator.
Rider: A document which amends the policy or certificate. It may increase or decrease benefits, waive the condition of coverage or in any other way amend the original contract.
Rider: A special policy provision or group of provisions that may be added to a policy to expand or limit the benefits otherwise payable.
Rider: A document that modifies the policy. It may increase or decrease benefits, waive a condition or coverage, or in any other way amend the original contract.
Right of Survivorship:At the death of one co-owner of property, that person's interest in the property automatically passes to the surviving joint tenant or tenants.
Risk: The chance of loss. Also used to refer to the insured or to property covered by a policy.
Risk: Any chance of loss.
Risk: A term used to refer to a person or the peril insured.
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 (e.g., age, occupation, sex, state of health) and then applies the resulting rules to individual applications. (See: Underwriting)
Risk control: any conscious action (or decision not to act) intended to reduce the frequency, severity, or unpredictability of accidental losses.
Risk pooling arrangement: see Pooling arrangement.
Risk Retention Group: An alternative form of insurance in which members of a similar profession or business band together to self insure their risks.
Robbery: The taking of property from a person by force or threat of violence.
Rollover: Transfer of IRA or other qualified pension funds from one financial institution (trustee) to another.
Roth IRA: An special type of individual retirement account to which an individual can make contributions with after-tax dollars. Funds can be withdrawn tax-free at retirement.
Run-off company: An insurance company that is being wound up or otherwise not underwriting business in a particular line. It is thus letting its present insurance policies run to their expiration dates.
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'S'
Salvage: Recovery made by an insurance company by the sale of property which has been taken over from the insured as a part of loss settlement.
Self- Administered (Trusteed or Directly Invested) Plan: A plan funded through a fiduciary, generally a bank, but sometimes a group of individuals, which directly invests the accumulated funds. Retirement payments are made from the fund as they fall due.
Self-Administration: The procedure where an employer maintains all records regarding the employees covered under a group insurance plan.
Self-Insured Retention: A form of risk financing through which a firm assumes all or a part of its own losses.
Senior Citizen Policies: Contracts insuring persons 65 years of age or more. In most cases, these policies supplement the coverage afforded by the government under the Medicare program.
Separate Account: A fund held by a life insurance company which is separate and apart from its general assets and is generally used for investment of pension assets in common stocks.
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.
Service-Type Plans: Plans that provide their benefits in the form of services rendered rather than cash (for example, Blue Cross and Blue Shield).
Settlement Options: The several ways, other than immediate payment in cash, which a policyholder or beneficiary may choose to have policy benefits paid.
Severability of interest: a potential liabilitybetween different entities named on a single insurance policy
Short-Term Disability Income Insurance: The provision to pay benefits to a covered disabled person as long as he/she remains disabled up to a specified period not exceeding two years.
Sickness Insurance: A form of health insurance providing benefits for loss resulting from illness or disease.
Skip person: a beneficiary who is at least two generations younger than the person making the transfer.
Social Security Freeze: A long- term disability policy provision which establishes that the offset from benefits paid by Social Security will not be changed regardless of subsequent changes in the Social Security law.
Social Security Option: An option under which the employee may elect that monthly payments of an annuity before a specified age (62 or 65) be increased, and that payments thereafter be decreased to produce, as nearly as practical, a level total annual annuity to the employee, including Social Security benefits when they become due.
Soft Market: That part of the insurance sales cycle in which competition is at a maximum as insurance companies use their excess capacity to sell more policies at lower prices (see "Hard market").
Sovereign Immunity
Special Damages: Compensation awarded for actual economic losses, such as medical expenses and lost wages. (See general damages)
Special Risk Insurance: Coverage for risks or hazards of a special or unusual nature.
Split Funding: The use of two or more funding agencies for the same pension plan. An arrangement whereby a portion of the contributions to the pension plan are paid to a life insurance company and the remainder of the contributions invested through a corporate trustee, primarily in equities.
Spouse's Benefit: Payments to the surviving spouse of a deceased employee, usually in the form of a series of payments upon meeting certain requirements and usually terminating with the survivor's remarriage or death.
Standard Insurance: Insurance written on the basis of regular morbidity underwriting assumption used by an insurance company and issued at normal rates.
Standard Markets: insurance companies for which the vast majority of people qualify
Standard Provision: Those contract provisions generally required by state statutes until superseded by the uniform policy provision.
Standard Provisions: A set of policy provisions prescribed by former laws setting forth certain rights and obligations of both the insured and the company under an individual policy of health insurance. These were originally introduced in 1912 and have now been replaced by the Uniform Provisions.
Standard Risk: A person who, according to a company's underwriting standards, is entitled to purchase insurance protection without extra rating or special restrictions.
State Disability Plan: A plan for accident and sickness, or disability insurance required by state legislation of those employers doing business in that particular state.
State Fund: A fund set up by a state government to provide a specific line or lines of insurance. Some state permit private insurers to compete with the state fund.
State Insurance Department: A department of a state government whose duty is to regulate the business of insurance and give the public information on insurance.
State-of-the-Art Defense: An argument used in product liability cases that the technology needed to avoid the loss in a particular case did not exist at the time of the product's manufacture
Statutory Accounting: Special accounting practices for insurance companies required by state law and designed to provide greater protection for the public against potential insolvency of these essential institutions.
Statutory Accounting Principles (SAP): Principles required by statute which must be followed by an insurance company when submitting its financial statements to the various state insurance departments. Such principles differ from the Generally Accepted Accounting Principles (GAAP).
Statutory Surplus: the amount left after a company's liabilities are subtracted from assets when both those values are computed using Statutory Accounting Principles (SAP)
Statutory Underwriting Profit or Loss: Premiums earned less losses and expenses.
Step-Rate Premium: A rating structure in which the premiums increase periodically at pre-determined times such as policy years or attained ages.
Step-up in basis:An increase in the tax basis of property to the value claimed in the taxable estate of a decedent.
Stock Company: A company organized and owned by stockholders, as distinguished from the mutual form of company which is owned by its policyholders.
Stock Exchange: An organization that provides a facility for buyers and sellers of listed securities to come together to make grades in those securities.
Stockholder (or shareholder): A person who owns shares of stock in a corporation.
Stock Insurance Company: A company in which the legal ownership and control is vested in the stockholders.
Stock Life Insurance Company: A life insurance company owned by stockholders who elect a board to direct the company's management. Stock companies, in general, issue nonparticipating insurance, but may also issue participating insurance. Stock Redemption Plan: an entity purchase form of buy-sell agreement within a corporation that involves the corporation buying back shares from a departing owner.
Straight Life Insurance: Whole life insurance on which premiums are payable for life.
Strict Liability: Liability for damages even though fault or negligence cannot be proven.
Subrogation: Process by which one insurance company seeks reimbursement from another company or person for a claim it has already paid.
Substandard (Impaired Risk): A risk that cannot meet the normal health requirements of a standard health insurance policy. Protection is provided in consideration of a waiver, a special policy form, or a higher premium charge. Substandard risks may include those persons who engage in certain sports and persons who are rated because of poor habits or morals.
Substandard Insurance: Insurance issued with an extra premium or special restriction to those persons who do not qualify for insurance at standard rates.
Substandard Risk: An individual, who, because of health history or physical limitations, does not measure up to the qualification of a standard risk.
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.
Surety Bond: An agreement providing for monetary compensation in the event of a failure to perform specified acts within a stated period. The surety company, for example, becomes responsible for fulfillment of a contract if the contractor defaults.
Surgical Expense Insurance: Health insurance policies, which provide benefits toward the physician's or surgeon's operating fees. Benefits may consist of scheduled amounts for each surgical procedure.
Surgical Schedule: A list of cash allowances attached to the policy, which are payable for various types of surgery, with a maximum amount based upon the severity of the operation.
Surgical Schedule: A list of maximum amounts payable by the policy for various types of surgery, with the amount based on the severity of the operation.
Surplus: The amount by which the value of an insurer's assets exceeds its liabilities, i.e., the net worth of an insurance company.
Surplus Lines: (1) A risk or a part of a risk for which there is no normal insurance market available. (2) Insurance written by non-admitted insurance companies.
Surrender charge: an amount retained by the issuer of a life insurance policy when a policy is canceled, typically assessed only during the first five to ten years of a policy.
'T'
Table of multiples: The life expectancy figures provided by the Internal Revenue Service to be used in calculating the exclusion ratio for life contingent annuities after June 30, 1986. Separate tables provide the figures for joint and last survivor annuities, annuities that contain a refund or minimum payment guarantee, and for annuities that pay quarterly, semiannually, or annually.
Tax Basis:The cost from which your profits or losses are calculated for income tax purposes.
Taxable estate: The value upon which estate taxes are calculated by the federal government.
Temporary Life Annuity: An annuity payable while the annuitant lives but not beyond a specified period, such as five years. No payments are to be made after the end of the stipulated temporary period or the death of the annuitant.
Tenants in common: A form of joint property ownership in which the owners may have unequal shares and which does not involve a right of survivorship.
"Ten Day "Free Look": A notice on the first page of health insurance policies that the insured has ten days in which to examine the policy and return it for a refund of premium if he is not satisfied with the policy.
Term Insurance: Life insurance payable to a beneficiary only when an insured dies within a specified period.
Term Insurance: Life or health insurance protection during a limited number of years but expiring without value if the insured survives the stated period.
Testamentary trust" A trust created through the will of its creator.
Third Party: The claimant under a liability policy. So called because the person making the claim is not one of the two parties, insured and insurer, to the insurance contract. Third party claim: a demand made by a person against a policyholder of another company and any payment that will be made by that company.
Third-party over suit: a lawsuit where a third party tries to recover damages assessed against that party by bringing suit against the employer.
Threshold (No-Fault): The point, measured in money, time or other ways, beyond which tort liability can be established. Until that point is reached, reparations must be paid within the provisions of the no-fault plan, with no recourse to the courts.
Time Limit: The period of time during which a notice of claim or proof of loss must be filed.
Time Limit on Certain Defenses: The 2-year or 3-year time period in health policies after which the insurer cannot deny a claim or void the policy because of pre-existing conditions or misstatements on the application.
Tornado: A whirling wind over land, accompanied by a funnel-shaped cloud. It is usually very violent and destructive in a narrow path, often for many miles.
Tort: A civil wrong, other than a breach of contract, for which a court of law will afford legal relief, i.e. harming another by an act of negligence in driving an auto.
Tort Law
Total Disability: An illness or injury which prevents an insured person from continuously performing every duty pertaining to his/her occupation or engaging in any other type of work. (This wording varies among insurance companies.)
Transferability: Any arrangement under which the accumulated benefit credits of a terminating participant, or their actuarial value, are transmitted from one plan to another, or to a central agency.
Travel Accident Policy: A limited contract covering only accidents while an insured person is traveling, usually on a commercial carrier.
Treaty: An agreement between a reinsurer and a ceding insurer setting forth details of the reinsurance arrangement.
Trust: A legal instrument allowing one party to control property for the benefit of another.
Turnover Rate: The rate at which employees terminate covered service other than by death or retirement. Expected future turnover can be taken into account in translating contributions into benefits.
Twisting: The practice of inducing by misrepresentation, or inaccurate or incomplete comparison, a policyholder in one company to lapse, forfeit or surrender his insurance for the purpose of taking out a policy in another company.
'U'
Umbrella Liability: Insures losses in excess of amounts covered by other liability insurance policies; also protects the insured in many situations not covered by the usual liability polices.
UMPD: See uninsured motorist property damage
Unallocated Benefit: A policy provision providing reimbursement up to a maximum amount for the cost of all extra miscellaneous hospital services, but not specifying how much will be paid for each type of service.
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 process of selecting risks for insurance and determining in what amounts and on what terms the insurance company will accept the risk.
Underwriting Profit or Loss: The amount of money which an insurance company gains or loses as a result of its insurance operations. It excludes investment transactions and federal income taxes.
Unearned Premium: The portion of a premium that a company has collected but has yet to earn because the policy still has unexpired time to run.
Underwriting Result: see Underwriting Profit or Loss
Unified Credit: a one-time credit of ,800, usually applied against Federal Estate Taxes, that is available to every individual's estate. The credit also can be used for payment of Federal Gift Taxes during that individual's lifetime.
Uniform Premium: A rating structure in which one premium applies to all insureds, regardless of age, sex, or occupation.
Uniform Provisions: Statutory policy provisions of health insurance policies which specify some of the rights and obligations of the insured and the company. These provisions, with some modifications, are part of the insurance laws of all 50 states and the District of Columbia.
Uninsurable Risk: One not acceptable for insurance due to excessive risk.
Uninsured/Underinsured Motorist Coverage: A form of insurance that pays the policy holder and passengers in his/her car for bodily injury caused by the owner or operator of an uninsured or inadequately insured automobile.
Uninsured Motorist Property Damage: vehicle insurance available in some jurisdictions to physical pay for damage due to uninsured motorists (only)
Universal Life Insurance: A flexible premium life insurance policy under which the policyholder may change the death benefit from time to time (with satisfactory evidence of insurability for increases) and vary the amount or timing of premium payments. Premiums (less expense charges) are credited to a policy account from which mortality charges are deducted and to which interest is credited at rate which may change from time to time.
'v'
Variable Annuity: An annuity contract in which the amount of each periodic income payment may fluctuate. The fluctuation may be related to securities market values, a cost of living index, or some other variable factor.
Variable Annuity: An annuity under which the benefit varies according to the investment results of a life insurance company's separate account (usually invested primarily in common stocks).
Variable Life Insurance: Life insurance under which the benefits relate to the value of assets behind the contract at the time the benefit is paid. The amount of death benefit payable would, under variable life policies that have been proposed, never be less than the initial death benefit payable under the policy.
Verbal Threshold: In no-fault auto insurance states with a verbal threshold, victims are allowed to sue in tort only if their injuries meet certain verbal descriptions of the types of injuries that render one eligible to recover for pain and suffering.
Vested Commissions: Renewal commissions payable to the writing agent or his estate, whether or not he remains with the company.
Vest: A provision that a pension participant will, after meeting certain requirements, retain a right to all or part of the accrued benefits, even though the employee may leave the job before retirement.
Viatical Settlement: Payment of a portion of the proceeds from life insurance to an insured who is terminally ill.
Voluntary Market: The market where one seeking insurance obtains insurance in the open market with no help from the state, through an insurer of his or her own selection.
'W'
Waiting Period: The length of time an employee must wait from his/her date of employment or application for coverage, to the date his/her insurance is effective.
Waiting Period: (see "Elimination Period")
Waiver: An agreement attached to a policy which exempts from coverage certain disabilities or injuries that otherwise would be covered by the policy.
Waiver of Premium: A provision in some policies to relieve the insured of premium payments falling due during a period of continuous total disability that has lasted for a specified length of time, such as three or six months.
Whole Life Insurance: Life insurance payable to a beneficiary at the death of the insured whenever that occurs. Premiums may be payable for a specified number of years (limited payment life) or for life (straight life).
Whole Life Insurance: A plan of insurance for the whole of life. It includes straight life on which premiums are payable until death.
Will: The legal statement of a person's wishes concerning the disposal of his or her property after death.
Workers Compensation: A system established under state law that provides payments, without regard to fault, to employees injured in the course and scope of their employment.
Workers' Compensation Insurance: Insurance against liability imposed on certain employers to pay benefits and furnish care to employees injured, and to pay benefits to dependents of employees killed in the course of or arising out of their employment.
Written Premiums: The entire amount of premiums due in a year for all polices issued by an insurance company.
MORE TERMS SHALL BE ADDED SHORTLY...
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