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A

AAI® - Accredited Advisor in Insurance.

ABS - Antilock Brakes

ACLI - American Council of Life Insurance.

ACV - See Actual Cash Value.

AD&D - Accidental Death and Dismemberment.

ADPL - See Accidental Direct Physical Loss.

AIDS - Acquired Immunodeficiency Syndrome.

AIPSO - Automobile Insurance Plans Service Office.

AMTC - Agency Management Training Course.

ARM - See Associate in Risk Management.

ABANDONMENT - Surrender to an insurer the insured property after the event insured against has occurred. Not permitted under most property insurance contracts.

ABSOLUTE ASSIGNMENT - Assignment by the policyowner of all control and rights to a third party.

ACCIDENT - An unforeseen and unintentional act identifiable in time and place.

ACCIDENT AND HEALTH INSURANCE - Insurance under which benefits are payable in case of disease, accidental injury, or accidental death. Also called health insurance, personal health insurance, sickness and accident insurance.

ACCIDENTAL BODILY INJURY - A bodily injury which is not intentionally self-inflicted.

ACCIDENTAL DEATH BENEFIT - A form of insurance that provides payment if death of the insured results from an accident, subject to the conditions of the specific policy. Accidental death insurance is often combined with dismemberment insurance in a form called Accidental Death & Dismemberment (AD&D).

ACCIDENTAL DIRECT PHYSICAL LOSS (ADPL) - Property insurance that covers an insured against essentially all perils except those specifically excluded.

ACCOMMODATION LINE - Insurance that by itself would not be acceptable to an insurer, but written as an accommodation where the possibility of securing other desirable business seems to justify it.

ACCUMULATION ACCOUNT - An account to which funds are added and from which risk charges are deducted. The balance earns interest.

ACQUISITION COST - The cost to a company of securing business, including commissions, inspection costs, etc.

ACT OF GOD - An occurrence which results from natural causes without any human intervention and could not have been prevented by reasonable care or foresight (e.g., flood, lightning, earthquake, hurricane).

ACTUAL CASH VALUE (ACV) - The amount that the property in question could have been sold for by the insured on the date of the loss. Computed on the basis of replacement value less its depreciation by obsolescence or general wear.

ACTUARY - A person trained in mathematics whose job is to apply the theory of probability to the business of insurance to develop insurance rates. This is done largely from past experience, though future probable trends are also taken into account.

ADDITIONAL INSURED/ADDITIONAL INTEREST - Some person, other than the original named insured, who is entitled to protection under a policy either by virtue of the wording of the basic policy or because the policy has been modified to protect such interest.

ADDITIONAL LIVING EXPENSE CLAUSE - A type of coverage that may be included in a policy; it provides funds to pay for increased living costs that result from damage covered by the policy.

ADJUSTABLE PREMIUM - The contractual right of a company to modify a policyowner's premium payments under certain specified conditions.

ADJUSTER - An individual representing the insurance company and acting for the company in working on agreements as to the amount of a loss and the liability of the company in same.

ADJUSTMENT INCOME - One of the basic uses for life insurance. Also called "Readjustment Income." An added, "step down" income, over and above that required to cover the family's minimum needs, to help adjustment to the shock of lower income following the insured's death.

ADMITTED COMPANY - An insurance company authorized and licensed to transact business in a given state.

ADVANCE PREMIUM, OR DEPOSIT PREMIUM - The premium for many policies depends on payroll or some other factor which can only be determined accurately at the end of the policy period. In such cases, an estimated premium is charged in advance and an adjustment is made at the close of the policy term.

ADVERSE SELECTION - Selection "against the company." The tendency of less favorable insurance risks to seek or continue insurance to a greater extent than others. Also, the tendency of policyowners to take advantage of favorable options in insurance contracts. Adverse selection may result in high loss ratios.  

AGE LIMITS - Set ages contained in a specific policy for the insuring of new applicants or for the renewal of that policy.  

AGENCY - 1) A situation wherein one party (an agent) has the power to act for another (the principal) in dealing with third parties. 2) An insurance sales office.  

AGENT - An individual appointed by an insurance company to solicit, negotiate, effect or countersign insurance contracts, and to provide policyholder services on its behalf.  

ALIEN COMPANY - An insurance company incorporated or organized under the laws of a foreign nation, province, or territory.  

ALL-RISK COVERAGE - See Accidental Direct Physical Loss.  

ALLIED LINES INSURANCE - Coverage for such miscellaneous perils as floods, earthquakes, and sprinkler leakage, all of which have no immediate relationship to fire insurance but are normally associated with it. Some of these perils are written by endorsement to the fire contract; others are written in separate policies.  

AMOUNT SUBJECT - The total value which is exposed to loss at any one location or from any one event.  

ANNUITANT - The person whose life is measured to determine the timing and amount of annuity payments.  

ANNUITY - A contract that provides for a stipulated sum payable at certain regular intervals during the lifetime of one or more persons, or payable for a specified period.  

APPLICATION - A form designed to show whether the person seeking insurance meets the company's underwriting requirements and to establish proper price or rating. Requested coverage may be accepted, modified, or declined.  

APPORTIONMENT CLAUSE - This clause provides that if there is other insurance covering the loss, the policy to which the clause is attached will not pay more than its pro rata share of the loss.  

APPRAISAL CLAUSE - Used when the insured and insurer agree that the loss is covered, but the amount of the loss is in dispute. In general, each party selects its own appraiser. If the appraisers cannot agree, they select an umpire. An agreement by any two is binding on all parties.  

APPURTENANT STRUCTURES - Buildings on the same premises as the main building insured under a property policy (e.g., a tool shed).  

ARBITRATION CLAUSE - In a property insurance contract, a clause that provides that if the policyholder and the company cannot agree on the settlement amount on a claim, they both select a neutral arbitrator. Any differences between the arbitrators are submitted to an umpire. The amount agreed to by any two of the three will be the amount of reimbursement.  

ARSON - The willful and malicious burning of any property.  

ASSIGNED RISK - A risk which is not ordinarily acceptable to insurers and, thus, is "assigned" to an insurer by an assigned risk pool or plan. Each participating company agrees to accept its share of these risks.  

ASSIGNEE - The person, firm or corporation to whom a right or rights under a policy are transferred by means of an assignment.  

ASSIGNMENT - The transfer of a policy or certain policy rights from one party to another.  

ASSOCIATE IN RISK MANAGEMENT (ARM) - A designation granted by the American Institute for Property and Casualty Underwriters to qualified persons who successfully pass a series of examinations.  

ASSOCIATION GROUP INSURANCE - Group insurance issued to an association rather than to an employer or union.  

ASSUMED EXPENSE - Refers to the amount of money that will be spent to get a policy into the hands of the policyholder. These costs include such items as commissions, underwriting expenses, salaries for company employees, state insurance filing fees and product development costs.  

ASSUMED INTEREST - Assumed interest is an estimate of how much a company will earn on the money it receives from policyholders.  

ASSUMED LIABILITY - See Contractual Liability.  

ASSUMED MORTALITY - An estimate of when a policyholder is likely to die and is based primarily on age, but it can be influenced by health. Mortality tables, covering large cross sections of people in varying degrees of health, different occupations and multiple lifestyles, have been developed to help insurance companies determine the average number of people of any given age who will die within a certain year.  

ATTAINED AGE - The age an insured has reached on a given date.  

ATTORNEY-IN-FACT - A person or entity given the power of performing stated acts for another person. This is done by a written contract, called a power of attorney. Often used to define the powers of the person or entity which operates a reciprocal or interinsurance exchange.  

ATTRACTIVE NUISANCE - Any object, place or condition that is attractive to children and may prove harmful to them. People may be held liable for injuries to children caused by an attractive nuisance, even if the children were trespassing when they got hurt.  

AUDIT - A survey or examination of the insured's books (payroll records) or other records to determine the premium due the carrier for coverage provided.  

AUTHORIZATION - The amount of insurance which an insurer will accept from a broker; also the limit of authority for a claims adjuster in settling losses on his/her own initiative.  

AUTOMATIC COVERAGE - Subject to contract terms, coverage of additional property or other risk by an existing contract without specific request by the insured.  

AUTOMATIC PREMIUM LOAN - An option which may be available on certain policies to automatically pay premiums in default at the end of the grace period by charging the amount against the policy as a policy loan.  

AUTOMATIC REINSTATEMENT CLAUSE - In a property insurance contract, a clause providing for the automatic restoration of the full face value of the policy after the payment of a loss.  

AVERAGE RATE - A rate used in fire insurance to determine the premium for a policy or policies covering more than one location or more than one type of property. It is obtained by multiplying the rate for each location by the value at that location, totaling the premium for all locations, and dividing the  sum of the results by the total value.

B  

BI - See Bodily Injury.

BOP - Businessowners Policy.  

BAILEE - A person who has lawful, temporary possession of the personal property of another in trust for a specific purpose, and who is obligated to return it.  

BAILOR - The person who gives or entrusts their personal property to another person.  

BENEFICIARY - The party to whom the proceeds of a life insurance policy or the values of an annuity policy are payable when the insured or annuitant dies. There are, however, various types of beneficiaries, including the following which are defined in this glossary:
   • Contingent beneficiary
   • Irrevocable beneficiary
   • Primary beneficiary
   • Revocable beneficiary  

BENEFIT PERIOD - In health insurance, the length of time money will be payable by the insurer to the insured under the provisions of an insurance policy.  

BENEFITS - The money provided by an insurance policy to be paid for covered losses.  

BINDER - A statement that coverage is in force; a preliminary, temporary agreement between the carrier and the insured to provide immediate coverage. The purpose of the binder is to provide temporary coverage until the policy arrives.  

BLANKET INSURANCE - A type of property insurance that covers, through a single contract, more than one type of property in one location or one or more types of property at more than one location.  

BODILY INJURY - Refers to physical injury, sickness, or disease, or death resulting therefrom, subject to any definitions or limitations in the policy.  

BODILY INJURY LIABILITY - The legal obligation that stems from the injury or death of another person.  

BOND - See Fidelity Bond and Surety Bond.  

BORDEREAU - Memorandum containing detailed information regarding the passing of reinsurance from one insurance company to another under a reinsurance agreement.  

BROKER - A person who acts as the representative of the applicant for insurance. Although brokers are compensated with a commission from the insurance company (just like agents), they do not represent the insurer. Their sole duty is to get the best possible coverage for their clients at the lowest possible cost.  

BUSINESS INSURANCE; PARTNERSHIP INSURANCE; CORPORATION INSURANCE - Insurance concerned primarily with the protection of an insured's business or vocation. Business insurance protects a business against the loss of its valuable lives or key people; stabilizes the business through the establishment of better credit relations; and can provide a practical plan for the retirement of business interests in the event of the death of one of the owners.  

BUSINESS INTERRUPTION INSURANCE - Protects against the loss of prospective earnings because of the interruption or suspension of business caused by an insured peril.  

BUY-BACK DEDUCTIBLE - A deductible that may be eliminated for an additional premium, thereby providing first dollar coverage.
 

C  

CAARP - California Automobile Assigned Risk Plan.  

CEA - California Earthquake Authority.  

CFP® - Certified Financial Planner®.  

CGL - Commercial General Liability.  

ChFC - Chartered Financial Consultant.  

CIC - Certified Insurance Counselor.  

CLF- Chartered Leadership Fellow.  

CLU - Chartered Life Underwriter.  

COBRA - See Consolidated Omnibus Budget Reconciliation Act of 1985.  

CPCU® - See Chartered Property and Casualty Underwriter.  CPL - See Comprehensive Personal Liability.  

CANCELLATION - The termination of a policy prior to the expiration date stated in the policy. A policy may be canceled at the request of the insured or by the carrier.  

FLAT - Cancellation of an insurance policy as of its date of inception, without premium charge.
  
PRO-RATA - Termination of an insurance contract or bond by the insurance company, with the premium charge then adjusted in proportion to the exact time the protection has been in force.  

SHORT RATE - A cancellation by the insured that refunds the unearned premium minus administrative expenses.   

CAPITAL SUM - The amount paid to an insured under an accident or disability policy if the insured suffers the loss of limb, sight or hearing.

CAPITATION - A rate paid, usually monthly, to a health care provider. In return, the provider agrees to deliver the health services agreed upon to any covered person.  

CASH SURRENDER VALUE - The amount, if any, available to the policyowner when certain life policies are surrendered.  

CASUALTY INSURANCE - This is a broad term which includes nearly every form of insurance except life, fire and its allied lines and marine and inland marine.  

CATASTROPHE - An event or occurrence that causes a loss of extraordinarily large values.  

CAUSES OF LOSS - A substitute term in the Commercial Property forms that replaces the old term “perils.”  

CERTIFICATE OF INSURANCE - A memorandum stating that a policy has been issued. The certificate states the coverage afforded in general terms. A mortgagee usually insists upon holding the fire insurance policy on the mortgaged property, so a certificate of insurance is sent to the mortgagor.  

CHARTERED PROPERTY CASUALTY UNDERWRITER (CPCU)- A designation awarded to qualified persons who successfully pass a series of examinations involving, in addition to insurance knowledge, the broad range of related business subjects such as accounting, economics, law, management and finance. Offered by the American Institute for Chartered Property and Casualty Underwriters.  

CLAIM - A demand or notice of a right or alleged right of any party to recover from an insurance company due to a loss covered by the policy.  

CLAIMANT - The person making a demand for payout of benefits.  

CLAIMS ADJUSTER (or CLAIMS REPRESENTATIVE) - The person responsible for investigating and settling claims covered by insurance.  

CLAIMS MADE - Policies on a “claims made” basis cover claims reported during the policy terms, regardless of the date of occurrence. In contrast, “occurrence” policies cover claims which occur during the policy term, regardless of when reported.  

CLASS RATING - A rate-making method in which similar insureds are placed in the same underwriting class and each is charged the same rate.  

CLAUSE - Any specific part or provision of a policy or endorsement.  

CODING - The process of inputting numerical and/or alphabetic data to represent policy information.  

COINSURANCE CLAUSE - A clause which requires the policyholder to maintain at all times a certain percentage of insurance to the actual value of the property insured. If they fail to maintain the required percentage, they have to pay part of every loss themselves.  

COINSURER - An insurer or insured that shares losses under a coinsurance agreement  

COLLATERAL ASSIGNMENT - The assignment of a policy to a creditor as security for a debt. Under a collateral assignment, the creditor is entitled to be reimbursed out of policy proceeds for the amount owed. The beneficiary is entitled to any excess of policy proceeds over the amount due the creditor in the event of the insured's death.  

COLLUSION - A secret agreement between two or more persons to defraud a third party. Collusion with intent to defraud an insurance company voids coverage under a policy of insurance.  

COMBINED RATIO - The sum of the expense ratio and the loss ratio. A combined ratio under 100% indicates an underwriting profit; a combined ratio over 100% indicates an underwriting loss.  

COMMERCIAL LINES - Used to refer to insurance for businesses, professionals, and commercial establishments.  

COMMERCIAL PACKAGE POLICY - A policy containing two or more of the following coverage parts: Commercial Property, Commercial General Liability, Commercial Crime, Commercial Inland Marine, Boiler and Machinery or Commercial Auto.  

COMMISSION - That portion of the premium paid to the agent in return for his/her sales and service activities.  

COMMON CARRIER - An individual or corporation that offers its services to the public for the carrying of persons or property from one place to another for payment.  

COMMON DISASTER CLAUSE - A clause sometimes added to a life policy which is designed to provide an alternate beneficiary in the event that the insured and the original beneficiary meet death as the result of a common accident.  

COMMON LAW - Law based upon custom, usage and case law of the courts during the past several hundred years, as distinguished from Statute Law which is passed by State Legislatures or congress.  

COMPREHENSIVE COVERAGE - This means having a wide scope, including many things. It does not mean including everything. Thus, a comprehensive liability policy is not an all-risk liability policy; there are a number of exclusions. However, it does provide far more protection than a scheduled policy. Often referred to as “Comp.”  

COMPREHENSIVE PERSONAL LIABILITY (CPL) - This coverage protects individuals and families from liability for nearly all types of accidents occurring in their personal lives.  

COMPULSORY ISSUANCE - Any form of insurance required by law.  

CONCEALMENT - Withholding material facts concerning a risk or a loss. Concealment usually voids coverage.  

CONCURRENT INSURANCE - Two or more policies covering the same interest in exactly the same manner are said to be concurrent. It is extremely important that all fire policies covering the same risk should be concurrent as to forms and clauses.  

CONDITIONAL BINDING RECEIPT - A receipt given to an applicant in exchange for an initial premium, sufficient to bind the company under certain circumstances.  CONDITIONS - A section in an insurance contract that lists the duties and responsibilities of both the insured and insurer.  

CONSEQUENTIAL LOSS (OR INDIRECT LOSS) - A financial loss that results indirectly from the occurrence of a direct physical damage or theft loss (e.g., loss of rent or rental value if a building burns).  

CONSERVATION - Efforts to prevent current policies from lapsing.  

CONSIDERATION - An exchange of something of value between two parties. This is one of the requirements of a valid contract. Payment of the premium is an applicant's consideration. The company's promise to pay proceeds is its consideration.  

CONSOLIDATED OMNIBUS BUDGET RECONCILIATION ACT OF 1985 (COBRA) - Federal legislation mandating that participants in health care plans be allowed to continue their coverage under certain circumstances for a specific period of time after it would normally end.  

CONSTRUCTIVE TOTAL LOSS - A partial loss of such severity that the cost of repairing the damaged property plus salvage value is more than the property is worth in a repaired state.  

CONTINGENT BENEFICIARY - A person entitled to receive policy benefits if the primary beneficiary is deceased at the time benefits become payable.

CONTRACT - An agreement entered into by two or more persons under which one or more of them agree, for a consideration, to do or refrain from doing acts in accordance with the wishes of the other party(s).  

CONTRACT CARRIER - A transportation company that carries the goods of only certain customers, and not the public in general (as in the case of a common carrier).

CONTRACTUAL LIABILITY - Liability assumed under any written or oral contract. This kind of liability is excluded by the automobile liability policy and most other liability policies.  

CONTRIBUTION CLAUSE - See Coinsurance Clause.  

CONTRIBUTORY NEGLIGENCE - Lack of care by the injured person when such lack of care helps to cause the accident. Under common law, contributory negligence may bar the right to recover damages.  

CONTROLLED BUSINESS - Business written by a producer covering the life, property or interests of that producer and members of his or her immediate family.  

CONVERSION - 1). The wrongful use of disposition of another person's property by someone who is in lawful possession of it. 2). In life insurance: changing a life policy, at the policyowner's request, from a term policy to a permanent policy without new evidence of insurability. Conditions and limitations in the original term policy vary by plan.  

COUNTERSIGNATURE - Signature of an insurer's representative validating an insurance contract.  

COVERAGE - The specific protection provided by the policy against the results of the hazards insured against.  

CREDIT LIFE INSURANCE - Usually written as decreasing term life insurance on a group or an individual. The amount of coverage is based on the amount of a loan. If the insured borrower dies, the balance due is canceled.  

CREDIT REPORT (OR CONSUMER REPORT) - A confidential report obtained from a professional reporting agency on the financial, physical and moral status of an applicant or insured.  

CUSTOMER - A person who secures insurance through an agent or broker and depends on the agent or broker for help and advice.  

D  

DEBRIS REMOVAL - A clause often added to the policy under which the company assumes liability for the removal of debris resulting from damage to the property covered by the peril insured against.  

DECLARATIONS - Statements made by the applicant relating to the risk. In casualty insurance, the declarations are frequently made a part of the policy - included in this portion of the contract is descriptive information relating to the subject covered, insured, policy period, policy limits, deductible and premium.  

DECLINATION - Rejection of an application for insurance by the insurer.  

DEDUCTIBLE - A certain dollar amount beyond which insurance protection begins. The insured assumes the loss up to the deductible limit and the insurer pays the remainder, up to the policy limit.  

DEFERRED ANNUITY - An annuity contract which provides for the postponement of the commencement of annuitized payments until after a specified period or until the annuitant attains a specified age. Deferred annuities may be purchased either on the single premium or annual premium basis. Deferred annuities are sometimes known as “retirement annuities.”  

DEMOLITION CLAUSE - Used to insure against loss resulting from laws or ordinances regulating construction or repair. Requires additional premium.  

DEPOSIT PREMIUM (DEP. PREM.) - That premium paid at the inception of the policy based on known or expected exposures. Premium is adjusted following an audit, to reflect the actual exposures during the policy period.  

DEPRECIATION - The decline in value of property due to age, use, wear and tear, etc. Depreciation is a very important item in the adjusting of property losses.  

DIRECT LOSS - Loss of, or damage to, the primary subject of the insurance agreement which is the immediate result of a hazard insured against. It is frequently very difficult to determine whether a loss is direct or consequential.  

DIRECT-RESPONSE INSURER - An insurer that sells through the mail or other mass media (e.g., newspapers, magazines, radio). No agents are used to sell the insurance.  

DIRECT WRITER - An insurer in which the salesperson is an employee, not an independent contractor.  

DISABILITY INCOME INSURANCE - A form of insurance that provides periodic payments to replace income if the insured is unable to work due to injury or illness.  

DISCOVERY PERIOD - A term used in the bonding business. An employee might misappropriate money during the term of a fidelity bond but the employer might not discover this until several months after the termination of the bond. Bonds usually provide a definite period of time after their expiration during which the employer may discover dishonest acts committed while the bond was in force.  

DIVIDEND - In insurance, this means a refund to the policyholder of that portion of their premium which is not needed to pay their share of the losses and expenses incurred during the policy period. Dividends are paid by mutual, participating stock companies and sometimes by reciprocals.  

DIVIDEND ADDITIONS - Participating policies provide that policy dividends may be used as single premiums at the insured's attained age to purchase paid-up insurance as additions to the amount of insurance specified on the face of the contract. See Paid-up Additions.  

DOMESTIC INSURANCE COMPANY - An insurer organized under the law of the state of domicile.  

DOUBLE INDEMNITY - Payment of twice the basic benefit if the loss results from specified causes or under specified circumstances.  

DRAFT - An instrument, similar in appearance to a check, directing the payment of money subject to approval by the payor when presented for payment. Most often used for payment of insurance losses.

E  

E&O - Errors & Omissions.  

EPL (or EPLI) - See Employment Practices Liability Insurance.  

ERISA - See Employee Retirement Income Security Act.  

EARNED PREMIUM - The portion of the premium that represents coverage already provided. For example, if you paid $600 for a six-month automobile insurance policy one month ago, the earned premium on the policy is $100 (or 1/6 of $600).  

EFFECTIVE DATE - The date upon which the insurance policy goes into effect.  

ELIMINATION PERIOD - The time interval (waiting period) between events specified in the policy. Examples include the time between the occurrence of a disability and when the first benefit is paid; and the time between the issue date of a health insurance policy and the date when certain coverages become effective.  

EMBEZZLEMENT - The fraudulent use of money or property that has been entrusted to one's care.  

EMPLOYEE RETIREMENT INCOME SECURITY  ACT (ERISA) - Legislation applying to most private pension and welfare plans that requires certain standards (for funding, participation, vesting, termination, disclosure, fiduciary responsibility, and tax treatment) to protect participating employees.  

EMPLOYMENT PRACTICES LIABILITY (EPL) INSURANCE - A specialized form of insurance specifically designed to protect against loss incurred in litigating and settling wrongful employment practices liability claims. This is also commonly called "EPLI."  

ENCUMBRANCE - Any outside interest in property, such as a mortgagee, conditional sales contract or mechanic's lien.  

ENDORSEMENT - A written provision that adds to, deletes, or modifies the provisions in the original contract.  

ENDOWMENT - A life insurance contract which provides for the payment of the face amount at the end of a fixed period, or at a specified age of the insured, or at the death of the insured before the end of the stated period.  

ESTOPPEL - A legal doctrine that prevents a person from denying the truth of a previous representation of fact, especially when the representation has been relied on by the one to whom the statement was made.  

EVIDENCE OF INSURABILITY - Any information concerning the proposed insured required to satisfy underwriting standards, such as a medical examination or physician's statement.  

EXCESS INSURANCE - Coverage which becomes available to the insured only above a stipulated amount of loss, or only after any other applicable insurance has been exhausted.  

EXCESS INTEREST - The difference between the rate of interest the company guarantees to pay on proceeds left under settlement options and the interest actually allowed on such funds by the company.  

EXCLUSION - Something not covered by the policy and specifically so stated in the policy contract.  

EXCLUSIONS - The section of the policy contract that specifies the losses not protected by the policy.  

EXPECTED MORTALITY - The number of deaths which theoretically should occur among a group of insured persons during a given period according to the mortality table in use.  

EXPENSE CONSTANT - A flat amount sometimes imposed in workers' compensation insurance if the estimated premium is less than the specified amount. Intended to pay the cost of issuing and servicing a small policy.  

EXPENSE RATIO - A measure of a company's expenses; it is determined by dividing the company's expenses by its written premiums.  

EXPERIENCE - This refers to the loss ratio status of a particular risk, or of a particular coverage, or of a particular carrier, etc. over a specified period of time.  

EXPERIENCE MODIFICATION - A percentage increase or reduction in rates produced by application of the experience rating plan.  

EXPIRATION DATE - The date on which coverage ceases; exact dates and times vary by policy.  

EXPIRY - The end of coverage under a term life insurance policy at the end of its stated term period.  

EXPOSURE UNIT - A unit of measurement used in insurance pricing; it varies by line of insurance.  

EXTENDED COVERAGE ENDORSEMENT - An endorsement added to the standard fire policy giving protection against the perils: Windstorm and hail, explosion, riot, civil commotion, aircraft, vehicles and smoke.  

EXTENDED REPORTING PERIOD - Also know as a “tail,” it is a period of time allowed for making claims after a claims-made liability policy expires.  

EXTENDED TERM INSURANCE - One of the nonforfeiture options contained in most whole life and endowment policies; it provides that the policyowner may elect to have the cash surrender value of the policy used to extend the coverage for whatever term period the cash value will purchase.  

EXTRA EXPENSE COVERAGE - This protects the policyholder against the extra expense that may be involved in carrying on his/her business after the occurrence of a loss. For example, if a newspaper plant was damaged by fire, the publishing company might have to get their paper published by a rival plant until their own could be restored. Thus, they could carry on their business but at extra expense to themselves.

F  

FAIR PLAN - See Fair Access to Insurance requirements.  

FCAS - See Fellow of the Casualty Actuarial Society.  

FDIC - See Federal Deposit Insurance Corporation.  

FEMA - Federal Emergency Management Agency.  

FLMI - Fellow of the Life Management Institute. See Life Office Management Association.  

FACE AMOUNT - The principal amount of insurance provided at the time of issue by an insurance policy. The term derives from the fact that the amount of insurance is usually indicated on the first page or "face" of the policy.  

FACE SHEET - A form attached to the policy identifying the insured, the subject matter of the insurance, the policy limits, etc. In casualty insurance, the face sheet is very often a copy of the declarations.  

FACILITY OF PAYMENT - Many weekly premium policies contain a provision that the company may pay the sum due on the policy to a relative, by blood or marriage, or to any person appearing to be entitled to the payment by reason of having incurred expenses on behalf of the insured or expenses for his or her burial.  

FAIR ACCESS TO INSURANCE REQUIREMENTS (FAIR) PLAN - A state run property insurance plan that makes basic property insurance available to those in high risk areas who cannot obtain insurance through normal markets.  

FAIR CREDIT REPORTING ACT - An act requiring that an applicant be informed in advance if an inspection/consumer report may be ordered. If insurance is declined due to information contained in that report, the applicant has the right to ask the inspection company about the information it obtained.  

FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) - A federal government agency that insures bank deposits up to a stated maximum.  

FEDERAL ESTATE TAX - An excise tax currently levied upon the transfer of property or interests in property at death. Life insurance proceeds are taxable if payable to the decedent's estate, or if payable to named beneficiaries and the insured possessed at death any incidents of ownership in the policy or policies. The value of life insurance policies owned by the decedent on the lives of others is also taxable.

FELLOW OF THE CASUALTY ACTUARIAL SOCIETY (FCAS) - Awarded by the completion of a series of examinations and other requirements.  

FIDELITY BOND - A bond which will reimburse an employer for loss up to the amount of the bond, sustained by the employer named in the bond (the insured), due to any dishonest act of a covered employee.  

FIDUCIARY - Holding in trust. A person upon whom a trust has been handed down. When an agent collects an insurance premium, he/she holds the money in a fiduciary capacity. The money does not belong to them, and they should remit the premium as soon as possible.  

FILE-AND-USE LAW - A law for regulating insurance rates under which insurance companies are required only to file the rates with state insurance department before putting them into effect.  

FINANCIAL RESPONSIBILITY LAW - A law requiring motorists to furnish proof of their ability to pay damages up to a stipulated amount following a loss.  

FIRE - A combustion accompanied by a flame or glow that escapes its normal confines to cause damage.  

FLAT CANCELLATION - Cancellation of a policy at or before it becomes effective. All premium is refunded to the insured.  

FLEET POLICY - A policy which provides insurance for a number of vehicles owned by one insured.  

FLOATER POLICY - A policy that covers property that can be moved from one location to another.  

FOREIGN INSURER - An insurance company chartered by one state but licensed to do business in another state(s).  

FORGERY - Imitating the signature of some other person with fraudulent intent.  

FORM - The insurance policy itself , the application, and any endorsements or riders which may be attached are each considered a "form" by the Departments of Insurance.  

401(K) PLAN - A qualified profit-sharing or thrift plan that allows eligible employees the option of putting money into the plan or receiving the funds as cash. This tax-deferred savings plan, authorized by Section 401(k) of the Internal Revenue Code, can be established with or without employer contributions.  

FRATERNAL ORGANIZATION - A society or order that is organized solely for the benefit of its members and their beneficiaries, not for profit. This organization offers insurance only to its members.  

FRAUD - A false representation of a matter of fact (whether by words or conduct, by false or misleading allegations, or by concealment of that which should have been disclosed) which deceives and is intended to deceive another to his/her legal injury.   

FREE LOOK - A period of time during which a policyowner may examine a newly issued policy and, if not satisfied, surrender it in exchange for a full refund of premium.

 

G  

GAMA International - A worldwide professional association serving field managers in the life and financial services industry. It provides a wide variety of education and training programs, including publications, seminars and resources to facilitate the sharing of ideas and techniques on recruiting, selecting, training and supervising sales associates and professional development of field managers.  

GARAGE LIABILITY (GL) - A special policy written to cover auto salesrooms, used car lots, service stations, or repair garages for Bodily Injury and Property Damage with premiums based on payroll of the business.  

GENERAL AGENT - An agent who supervises other agents in a given territory and acts as an exclusive agent in this territory.  

GENERAL DAMAGES - Money paid to a claimant for losses that cannot be specifically measured, such as pain and suffering.  

GRACE PERIOD - Prescribed period of time after the premium due date during which the coverage remains in force and the late premium may be paid.  

GROSS EARNINGS - Revenue from operating sources, before deducting expenses incurred in gaining such revenue.  

GROUP INSURANCE - An insurance plan by which a large number of persons are protected under one master policy.  

GUARANTEED INSURABILITY (GUARANTEE ISSUE) - An arrangement, usually provided by rider under an existing policy, whereby additional insurance may be purchased at various times, without a new medical examination or other evidence of insurability.

H  

HIV - Human Immunodeficiency Virus.  

HMO - Health Maintenance Organization.  

HAZARD - Any factor that creates or increases the chance of loss. A physical hazard is created by the condition, occupancy or use of the property itself. Examples include faulty brakes increasing the chance of collision and faulty electrical wiring increasing the chance of fire. A moral hazard is a subjective characteristic of the insured that increases the chance of loss. Examples include arranging an accident to collect the insurance and inflating the amount of a claim. A morale hazard is carelessness or indifference to a loss because of the existence of insurance. An example is leaving the car keys in an unlocked car.  

HEALTH INSURANCE - This term has become accepted by the industry for the branch which includes all types of loss of time and medical expense insurance. It is also known as accident and health insurance, sickness and accident insurance, etc.  

HIRED CAR - An automobile of which the exclusive use and control has been temporarily given to another for a consideration. This should be distinguished from contract hauling, since in the latter case the owner retains control of the movements of the vehicle and simply agrees to furnish transportation.  

HOLD-HARMLESS AGREEMENT - An agreement by which one party assumes the liability another. Hold-Harmless agreements are often found in leases; the lessee (tenant) agreeing to assume the lessor's (landlord's) liability if members of the public are injured through some faulty condition in the premises occupied by the lessee.  

HOSPITAL BENEFITS - Additional benefits payable under an accident, health or disability policy in case the insured is confined to a hospital.

I  

IBNR - See Incurred But Not Reported.  

IIA - See Insurance Institute of America, Inc.  

IIAA - See Independent Insurance Agents of America.  

III - Insurance Information Institute.  

IMSA - See Insurance Marketplace Standards Association.  

IRA - See Individual Retirement Account. (Also referred to as Individual Retirement Arrangement.)  

ISO - See Insurance Services Office.  

IMMEDIATE ANNUITY - An annuity contract which provides for the first annuitized payment immediately after issue.  

IMPAIRED RISK - One which presents an unduly high probability of loss.  

IMPROVEMENTS AND BETTERMENTS INSURANCE - Additions or changes, made by a lessee at his/her own cost to a building which he/she is occupying, which enhances its value. These become part of the realty and require special insurance consideration.  

INCIDENTS OF OWNERSHIP - The rights to exercise any of the privileges in the policy: to change the beneficiary, withdraw cash values, make loans on the policy, assign it, etc.  

INCONTESTABILITY CLAUSE - A clause in an insurance contract that provides the company may not void the policy after it has been in force more than the specified period, usually two years after issue. The policy may be voided only under certain conditions (for example, a misstatement in the application).  

INCURRED BUT NOT REPORTED (IBNR) RESERVE - The liability for future payments on losses which have already occurred but have yet been reported in the insurer's records.  

INCURRED LOSS RATIO - This is calculated by applying incurred losses to the earned premium to determine the percentage of losses.  

INDEMNIFY - To restore an individual to the approximate financial position occupied before the loss.  

INDEMNITY - A type of contract, such as insurance, that serves to restore the individual to the approximate financial position occupied prior to the loss.

INDEPENDENT CONTRACTOR - One who agrees to perform services or supply commodities under a contract. In carrying out his/her contract, he/she is not under the control of, or an employee, of the party with whom he/she contracts.  

INDEPENDENT INSURANCE AGENTS OF AMERICA (IIAA) - An association of independent insurance agents. Members in this association are also members of their state associations.  

INDIRECT LOSS - See Consequential Loss.  

INDIVIDUAL RETIREMENT ACCOUNT (IRA) - A qualified retirement plan established under ERISA for individuals with earned income. An IRA plan enjoys favorable income tax advantages. (Also referred to as Individual Retirement Arrangement.)  

INHERENT EXPLOSION - An explosion caused by some condition existing in, and natural to, the premises or property (for example, a dust explosion in a grain elevator).  

INHERENT VICE - A condition which is in the very nature of the property and results in damage. For example, if you fill an ordinary glass vessel with very hot water, it will crack. This is an inherent vice. It is in the very nature of ordinary glasses to crack under such conditions.  

INLAND MARINE INSURANCE - Coverage for goods shipped on land, including insurance on imports and exports, domestic shipments, and means of transportation, such as bridges and tunnels. It is also used to insure fine art, jewelry, furs, and other similar property.  

INSPECTION OF RISK - Examination of property to decide as to its desirability.  

INSURABLE INTEREST - A relationship or condition such that loss or destruction of life or property would cause a financial loss. For property insurance, such interest must exist at the time of loss.  

INSURANCE - Transferring the risk of a loss to an insurer under the terms and conditions of an insurance contract. The insurer will indemnify said person against loss, damage, or liability arising from a contingent or unknown event.  

INSURANCE CARRIER - The insurer, incorporated or otherwise.  

INSURANCE COMMISSIONER - (known in some states as the Superintendent of Insurance.) The official who presides over the regulation of the business of insurance within the state.  

INSURANCE INSTITUTE OF AMERICA (IIA) - Offers a number of study programs for which special diplomas or designations can be earned in property and liability insurance, risk management, insurance adjusting and management.  

INSURANCE MARKETPLACE STANDARDS ASSOCIATION (IMSA) - An industry organization aimed at promoting ethical life sales practices.  

INSURANCE POLICY - The document which is the contract between the insured and the insurer; it defines the rights and duties of the contracting parties.  

INSURANCE SERVICES OFFICE, INC. (ISO) - A leading supplier of statistical, actuarial, and underwriting information for and about the property/casualty insurance industry. ISO provides advisory services to participating insurers and their agents.  

INSURED - The person to be indemnified in case of loss or liability. In life insurance, the person whose life is covered by the policy.  

INSURER - The person guaranteeing to provide indemnity in case of loss or liability.   

INSURING AGREEMENTS - This section of the insurance policy sets forth the specific obligations assumed by the insurance company. Here is where the coverages of the policy are defined.  

INTER-INSURANCE EXCHANGE - See Reciprocal Insurance Exchange.  

IRREVOCABLE BENEFICIARY - A designation allowing no change to be made in the beneficiary of a policy without the beneficiary's consent. 

J

JUA - See Joint Underwriting Association.  

JOINT LIFE AND SURVIVORSHIP ANNUITY - An annuity contract covering two or more lives and continuing in force as long as any one of them survives.  

JOINT LIFE ANNUITY - An annuity contract covering the lives of two or more persons and terminating at the first death among the lives covered.  

JOINT LIFE POLICY - A contract which covers two or more lives; the payment of proceeds varies by plan.  

JOINT UNDERWRITING ASSOCIATION (JUA) - An organization of automobile insurers operating in a state that makes automobile insurance available to high risk drivers. Underwriting losses are shared proportionately by insurers based on premiums written in the state.  

JUDGMENT RATES - Rates established by the judgement of the underwriter with or without the application of a formal set of rules or rate schedule.  

JUVENILE INSURANCE - Life insurance policies written on the lives of children who are within specified age limits.

K  

KEOGH PLAN (for self-employed - HR-10 Plan) - A retirement plan individually adopted by self employed persons that allows a tax deductible contribution to a deferred contribution or defined benefit plan.

KEY-EXECUTIVE (OR KEY-PERSON) INSURANCE - Protection of a business firm against the financial loss caused by the death of or disablement of a vital member of a firm. A means of protecting a business from the adverse results of the loss of individuals possessing special managerial or technical skill or experience.

L

LIMRA - See LIMRA International.

LOMA - See Life Office Management Association.

LUTC - See Life Underwriting Training Council.

LAPSE - The termination of a policy because of the failure of the insured to pay the renewal premium.

LAW OF LARGE NUMBERS - A mathematical principle of probability stating that the actual losses in a given category of insurance will come closer to a predictable number as the number of units of exposure increases. In insurance, a prediction must be made from actuarial experience or statistical analysis of the number of losses to be expected in a group of exposures. (The larger the sample, the more accurate the prediction.)

LEASE - A contract for the use and possession of land; buildings or parts thereof for a specified time and cost.

LEASEHOLD INSURANCE - Protection against loss of a leasehold in case the lease is terminated as a result of fire, etc.

LEGAL RESERVE COMPANY - An advance premium company which maintains loss reserves, unearned premium reserves, and other miscellaneous reserves as prescribed by the laws of the states. Practically all insurance companies are legal reserve companies.

LEGAL RESERVES - The amount of money which most insurance carriers are required by law to set aside for the payment of claims and for unearned premiums.

LESSEE