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Insurance Terms

Our insurance glossary provides a comprehensive list of the most commonly used terms in insurance. This list of most common terms will help you while you are shopping for insurance and securities products.

Acceleration Clause: A loan provision that allows a lender, according to the terms of a mortgage or other loan contract, to make the entire unpaid balance of the loan (including principal and interest) due and payable if specified events of default should occur. Such conditions include failure to meet loan payments on time, insolvency, and nonpayment of taxes on mortgaged property.

Accident: Unintended external event.

Accidental Death Benefit: A life insurance policy option that provides policy proceeds to insured individuals over their lifetimes, in the event of a terminal illness. This is in lieu of a traditional policy that pays beneficiaries after the insured's death. Such benefits kick in if the insured becomes terminally ill, needs extreme medical intervention, or must reside in a nursing home. The payments made while the insured is living are deducted from any death benefits paid to beneficiaries.

Accrued Benefit: Pension benefits earned (vested) based on years of service at a company and credited to the employee using an actuarial method.

Actual Cash Value (ACV): An amount equivalent to the fair market value of property less depreciation.

Actuary: An insurance specialist skilled in the analysis, evaluation, and management of statistical information. Evaluates insurance firms' reserves, determines rates and rating methods, and determines other business and financial risks.

Additional Insured or Additional Interest: A person or an company, that may be specified in the insurance policy as an additional insured, if the person or the company that has an insurable interest in your car.

Adjuster: An individual employed by a property/casualty insurer to evaluate losses and settle policyholder claims. These adjusters differ from public adjusters, who negotiate with insurers on behalf of policyholders, and receive a portion of a claims settlement. Independent adjusters are independent contractors who adjust claims for different insurance companies.

Agent: Insurance is sold by two types of agents: independent agents and exclusive or captive agents. Independent agents are self-employed, represent several insurance companies and are paid on commission. Exclusive or captive agents represent only one insurance company and are either salaried or work on commission.

All-Risk: A type of homeowners insurance that covers losses resulting from each and every peril, except for those specifically excluded by the policy. Also known as open peril coverage.

Alternate Payee: According to the terms of a qualified domestic relations order (QDRO), an individual who has been granted the right to receive all or part of a participant's benefits under a qualified retirement plan. The alternate payee is generally a spouse, former spouse, child, or other dependent of the qualified plan participant.

Amortization: For loan purposes, the systematic process by which a lender calculates loan payments so as to liquidate a debt over time. Payments are made at specific time intervals to reduce the outstanding debt to zero at the end of the loan period.

Annuity: A contract sold by life insurance companies that allows you to pay a lump sum or accumulate money over time, and the issuing company guarantees payment to the buyer in the future, usually at retirement. You will not pay income taxes on the money until those payments are made.

Appraisal: A professional, formal, written estimation of the value of property.

Appreciation: When an investment increases in value, it appreciates.

Arbitration: Procedure in which an insurance company and the insured or a vendor agree to settle a claim dispute by accepting a binding or non-binding decision made by a third party.

Assigned Risk Plan: Facilities through which drivers can obtain auto insurance if they are unable to buy it in the regular or voluntary market. These are the most well-known type of residual auto insurance market, which exist in every state.

Automobile Insurance: A form of insurance that protects against losses related with vehicle.

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Beneficiary: A person who is named in a will, retirement plan, individual retirement account, or insurance policy and who will inherit money or other property left by the decedent. A trust or institution also can be named as a beneficiary.

Blanket Coverage: Insurance coverage for more than one item of property at a single location, or two or more items of property in different locations.

Bodily Injury Liability Coverage: Portion of an auto insurance policy that covers injuries the policyholder causes to someone else.

Broker: A licensed person or organization paid by you to look for insurance on your behalf.

Burglary and Theft Insurance: Insurance for the loss of property due to burglary, robbery or larceny. It is provided in a standard homeowners policy and in a business multiple peril policy.

Business Interruption Insurance: Commercial coverage that reimburses a business owner for lost profits and continuing fixed expenses during the time that a business must stay closed because of a covered peril, such as a fire.

Businessowners Policy / BOP: A policy that combines property, liability and business interruption coverages for small- to medium-sized businesses. Coverage is generally cheaper than if purchased through separate insurance policies.

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Capacity: The supply of insurance available to meet demand. Capacity depends on the industry's financial ability to accept risk. Reduced capacity leads to higher premiums, but higher premiums eventually attract more capacity to the market.

Captive Agent: Representative of a single insurer or fleet of insurers who is obliged to submit business only to that company, or at the very minimum, give that company first refusal rights on a sale. In exchange, that insurer usually provides its captive agents with an allowance for office expenses as well as an extensive list of employee benefits such as pensions, life insurance, health insurance and credit unions.

Carrier: Insurance company that actually underwrites and issues the insurance policy. The term refers to the fact that the company carries (or assumes) certain risks for the policyholder.

Cash Surrender Value: Amount available to the owner if a life insurance policy or annuity is surrendered. The amount represents the cash value minus surrender charges and any outstanding loans due upon cancellation of the policy.

Cash Value: The cash within a permanent life insurance policy. Cash value is the premium paid less the cost of insurance policy. Cash value is also adjusted by any investment performance within the insurance policy.

Cash Value Life Insurance: A permanent insurance policy that builds cash value, often described as a savings account within the policy.

Casualty: Liability or loss resulting from an accident.

Claim: Notice to an insurer that under the terms of a policy, a loss maybe covered.

Coinsurance: In property insurance, requires the policyholder to carry insurance equal to a specified percentage of the value of property to receive full payment on a loss. For health insurance, it is a percentage of each claim above the deductible paid by the policyholder. For a 20 percent health insurance coinsurance clause, the policyholder pays for the deductible plus 20 percent of his covered losses. After paying 80 percent of losses up to a specified ceiling, the insurer starts paying 100 percent of losses.

Collision Coverage: Collision coverage refers to the part of an automobile insurance policy that covers damage to a vehicle caused by an impact with another vehicle or object or a rollover.

Comission: Fee paid to an agent or insurance salesperson as a percentage of the policy premium. The percentage varies widely depending on coverage, the insurer, and the marketing methods.

Compensable Injury: An injury that qualifies for benefits paid under workers' compensation.

Comprehensive Coverage: Comprehensive coverage refers to the part of an automobile insurance policy that covers damage to a vehicle caused by miscellaneous hazards other than collision, such as fire, theft, explosion, windstorm, hail, water or contact with an animal.

Condo Insurance: A type of homeowner's insurance that meets the special needs of condominium owners.

Contents-Only Coverage: Coverage is for personal property items that are movable, that is, not attached to the building's structure (the home), such as television sets, radios, clothes and household goods. Not included under the coverage are animals, automobiles and boats.

Convertible Term Insurance: Term life insurance coverage that can be converted into permanent life insurance upon the policy's expiration. The insured generally cannot be denied permanent coverage or charged an additional premium because of health problems.

Cost Basis: The original price of an asset, plus any additions and reinvested earnings, that is used to determine capital gains or losses at the time of sale of the asset. In the case of an inheritance, the cost basis is the appraised value of the asset at the time of the donor's death.

Credit Life Insurance: Life insurance coverage on a borrower designed to repay the balance of a loan in the event the borrower dies before the loan is repaid. It may also include disablement and can be offered as an option in connection with credit cards and auto loans.

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Decline: The company refuses to accept the request for insurance coverage.

Deductible: The amount you have to pay out-of-pocket for expenses before the insurance company will cover the remaining costs.

Depreciation: A decrease in value due to age, wear and tear, etc.

Difference in Conditions Insurance (DIC): "All-risks" policy that covers other perils not insured by basic property insurance contracts, supplemental to and excluding the coverage provided by underlying contracts.

Diminution of Value: The idea that a vehicle loses value after it has been damaged in an accident and repaired.

Double Indemnity: Also called an accidental death benefit, a life insurance policy provision that doubles payment of a designated death benefit when death results from certain specified causes (usually certain types of accidents).

Driver Education Credit: Discount on auto insurance premiums for which young drivers become eligible upon completion of a driver education course.

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Escrow Account: Funds that a lender collects to pay monthly premiums in mortgage and homeowners insurance, and sometimes to pay property taxes.

Expense Ratio: Percentage of each premium dollar that goes to insurers' expenses including overhead, marketing, and commissions.

Extended Coverage: An endorsement added to an insurance policy, or clause within a policy, that provides additional coverage for risks other than those in a basic policy.

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Face Amount: The dollar amount to be paid to the beneficiary when the insured dies. It does not include other amounts that may be paid from insurance purchased with dividends or any policy riders.

FICA - Federal Insurance Contributions ACT: Commonly known as Social Security, it is a federal law that requires employers to withhold wages and make payments to finance the Old Age, Survivors, Disability, and Health Insurance (OASDHI) plan.

Fire Insurance: Coverage protecting property against losses caused by a fire or lightning that is usually included in homeowners or commercial multiple peril policies.

Fixed Annuity: A contract issued by an insurance company allowing for a fixed rate of interest in both the accumulation and income phases; periodically adjusted by the insurance company.

Fraud: Intentional lying or concealment by policyholders to obtain payment of an insurance claim that would otherwise not be paid, or lying or misrepresentation by the insurance company managers, employees, agents, and brokers for financial gain.

Fringe Benefits: Non-cash benefits (such as group health insurance, term life insurance, and disability insurance) made available to employees in addition to salary, but are generally not taxable to the employee.

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Gap Insurance: An automobile insurance option, available in some states, that covers the difference between a car's actual cash value when it is stolen or wrecked and the amount the consumer owes the leasing or finance company. Mainly used for leased cars.

Group Insurance: A single insurance policy covering a group of individuals, usually employees of the same company or members of the same association and their dependents.

Guaranteed Issue: A requirement that health plans must permit you to enroll regardless of your health status, age, gender, or other factors that might predict your use of health services. All health plans sold to small employers in Iowa are guaranteed issue.

Guaranteed Replacement Cost Coverage: Homeowners policy that pays the full cost of replacing or repairing a damaged or destroyed home, even if it is above the policy limit.

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Hard Market: A seller's market in which insurance is expensive and in short supply.

Health Insurance: A policy that will pay specified sums for medical expenses or treatments. Health policies can offer many options and vary in their approaches to coverage.

HIPAA: The Health Insurance Portability and Accountability Act, better known as Kassebaum-Kennedy, after the two senators who spearheaded the bill. Passed in 1996 to help people buy and keep health insurance, even when they have serious health conditions, the law sets basic requirements that health plans must meet. Since states can and have modified and expanded upon these provisions, consumers' protections vary from state to state.

Homeowner Insurance: An elective combination of coverages for the risks of owning a home. Can include losses due to fire, burglary, vandalism, earthquake, and other perils.

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Indemnify: Provide financial compensation for losses.

Independent Agent: A contractor who represents different insurance companies, is not controlled by any one company, and earns commissions from policies sold.

Individual Policy: An insurance policy (life, health, or disability) that provides coverage for an individual person (and, in some cases, his/her family members), as opposed to a group policy that provides coverage for a group of individuals.

Insurable: An individual applicant who qualifies for an insurance policy based on the coverage standards that are set by the insurance company.

Insurable Risk: Risks for which it is relatively easy to get insurance and that meet certain criteria. These include being definable, accidental in nature, and part of a group of similar risks large enough to make losses predictable. The insurance company also must be able to come up with a reasonable price for the insurance.

Insured: The policyholder - the person(s) protected in case of a loss or claim.

Insurer: The insurance company.

Insurance Premium: This is the amount you pay for your insurance policy.

Internet Insurer: An insurer that sells exclusively via the Internet.

Internet Liability Insurance: Coverage designed to protect businesses from liabilities that arise from the conducting of business over the Internet, including copyright infringement, defamation, and violation of privacy.

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Key Person Insurance: Insurance on the life or health of a key individual whose services are essential to the continuing success of a business and whose death or disability could cause the firm a substantial financial loss.

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Liability Insurance: Protection for your negligent acts that result in bodily injury and/or damage to another's property.

Lien: A creditor's claim against assets to secure a debt. Liens may also be granted by courts to satisfy judgments.

Life Annuity: An annuity that makes regular (e.g., monthly, quarterly, etc.) income payments for the life of a person (the annuitant). The annuitant cannot outlive the payments. Upon his/her death, however, all income payments cease and there are no beneficiary benefits.

Life Insurance: A policy that will pay a specified sum to beneficiaries upon the death of the insured.

Life Settlements: The purchase of life insurance contracts by a Viatical Settlement Company, for a fraction of the policy's face amount, from healthy individuals with a life expectancy of greater than two years These are also known as Senior Settlements, since the typical person selling his or her life insurance policy is at least 65 years old.

Limited Health Insurance: A health insurance contract that provides limited coverage in special circumstances.

Loan Value: The amount which can be borrowed at a specified rate of interest from the issuing company by the policyholder, using the value of the policy as collateral. In the event the policyholder dies with the debt partially or fully unpaid, then the amount borrowed plus any interest is deducted from the amount payable.

Long-Term Care Insurance: Coverage that, under specified conditions, provides skilled nursing, intermediate care, or custodial care for a patient (generally over age 65) in a nursing facility or his or her residence following an injury.

Long-Term Coverage: Disabilities that last more than two years are said to be long-term. Disability policies that pay benefits for long-term disabilities are said to offer long-term coverage.

Long-Term Disability Insurance: A disability insurance policy that provides coverage in the form of monthly income payments for as long as the insured remains disabled (usually up to age 65).

Loss Costs: The portion of an insurance rate used to cover claims and the costs of adjusting claims. Insurance companies typically determine their rates by estimating their future loss costs and adding a provision for expenses, profit, and contingencies.

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Malpractice Insurance: Professional liability coverage for physicians, lawyers, and other specialists against suits alleging negligence or errors and omissions that have harmed clients.

Medicaid: A national/state public assistance program created in 1965 and administered by the states for people whose income and resources are insufficient to pay for health care.

Medical Payments Insurance: A coverage in which the insurer agrees to reimburse the insured and others up to a certain limit for medical or funeral expenses as a result of bodily injury or death by accident. Payments are without regard to fault.

Medicare: Federal program for people 65 or older that pays part of the costs associated with hospitalization, surgery, doctors' bills, home health care, and skilled-nursing care.

Motor Vehicle Record (MVR): A report from the agency that issues your driver's license, listing accidents and violations that appear on your driving record. This report is used to verify information provided by insurance applicants and policyholders.

Motorcycle Insurance: Protects your motorcycle from loss or theft.

Mutual Insurance Company: A company owned by its policyholders that returns part of its profits to the policyholders as dividends. The insurer uses the rest as a surplus cushion in case of large and unexpected losses.

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Nursing Home Insurance: A form of long-term care policy that covers a policyholder's stay in a nursing facility.

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Ordinary Life Insurance: A life insurance policy that remains in force for the policyholder's lifetime.

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Package Policy: A single insurance policy that combines several coverages previously sold separately. Examples include homeowners insurance and commercial multiple peril insurance.

Payee: An insured individual or a beneficiary who receives a loss or benefit payment from an insurer.

Personal Liability Insurance: Part of a standard homeowners policy that covers financial losses you suffer when you accidentally cause bodily injuries to others or damage to their property.

Policy: The written contract of insurance.

Primary Insurance Amount (PIA): The monthly benefit payable to a retired or disabled worker under Social Security that is calculated using the average monthly earnings of the covered person while working.

Property Damage Liability Coverage: Part of a standard auto insurance policy that covers you (up to the policy limit) for losses that result when you damage or destroy someone else's personal property. This is required coverage in most states.

Property Insurance: Property Insurance indemnifies an insured whose property is stolen, damaged, or destroyed by a covered peril. The term property insurance includes direct or indirect property losses covered in several lines of insurance.

Pure Insurance: The difference between the face amount of a life insurance policy and and its cash value.

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Quote: An estimate of the cost of insurance, based on information supplied to the insurance company by the applicant.

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Rate: Cost per unit of insurance. When used to calculate a premium, it must be adequate enough to pay expected losses according to frequency and severity, reasonable to the point that insurers do not not earn an excessive profit and not discriminatory or inequitable. Based on the amount of coverage needed, an individual will purchase the appropriate number of units of insurance with the total cost reflected in a premium payment.

Reinsurance: Insurance bought by insurers. A reinsurer assumes part of the risk and part of the premium originally taken by the insurer, known as the primary company. Reinsurance effectively increases an insurer's capital and therefore its capacity to sell more coverage. The business is global and some of the largest reinsurers are based abroad. Reinsurers don't pay policyholder claims. Instead, they reimburse insurers for claims paid.

Renters Insurance: A form of insurance that covers a policyholder's belongings against perils such as fire, theft, windstorm, hail, explosion, vandalism, riots, and others. It also provides personal liability coverage for damage the policyholder or dependents cause to third parties. It also provides additional living expenses, known as loss-of-use coverage, if a policyholder must move while his or her dwelling is repaired. It also can include coverage for property improvements. Possessions can be covered for their replacement cost or the actual cash value that includes depreciation.

Replacement Value: The full cost to repair or replace the damaged property with no deduction for depreciation, subject to policy limits and contract provisions.

Rider: Usually known as an endorsement, a rider is an amendment to the policy used to add or delete coverage.

Risk: The chance of loss -or- the person or entity that is insured.

RV Insurance: Coverage designed for most recreational vehicles, including motor homes, trailers, travel trailers, mounted truck campers and more.

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Salvage: Damaged property an insurer takes over after paying a claim to reduce its loss. Insurers receive salvage rights over property on which they have paid claims, such as badly-damaged cars. Insurers that paid claims on cargoes lost at sea now have the right to recover sunken treasures. Salvage charges are the costs associated with recovering that property.

Short-Rate Cancellation: When the policy is terminated prior to the expiration date at the policyholder's request. Earned premium charged would be more than the pro-rata earned premium. Generally, the return premium would be approximately 90 percent of the pro-rata return premium. However, the company may also establish its own short-rate schedule.

Short-Term Coverage: Coverage that lasts less than one year in duration.

Short-Term Disability Insurance: A disability insurance policy that pays benefits only for a limited period of time (e.g., 26 weeks or one year).

SR-22: An SR-22 (CFR) is a certificate that shows that you have auto insurance (financial responsibility). A person will be notified by their state's DMV, if a person should have SR-22 (CFR).

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Term: The validity of the commitments.

Term Insurance: Protection against premature death that comes in a form of life insurance. It pays a benefit only when an insured dies within a specified period, and a designated beneficiary receives the death benefit. If the insured lives beyond the specified period, the beneficiary receives nothing.

Title Insurance: Insurance that indemnifies the owner of real estate in the event that his or her clear ownership of property is challenged by the discovery of faults in the title.

Tort: A wrongful act, resulting in injury or damage on which a civil action may be based.

Total Loss: The condition of an automobile or other property when damage is so extensive that repair costs would exceed the value of the vehicle or property.

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Umbrella Policy: Coverage for losses above the limit of an standard policy or policies such as homeowners and auto insurance.

Uninsurable Risk: Risks for which it is difficult for someone to get insurance.

Uninsured/Underinsured Motorists Coverage: The portion of an auto insurance policy that protects policyholders for their personal injury damages in the event of accidents with uninsured or underinsured drivers.

Universal Life Insurance: A flexible premium policy that combines protection against premature death with a savings account that typically earns a money market rate of interest. Premiums can be changed during the life of the policy within limits and the policy will lapse if there isn't enough money to cover mortality and administrative costs.

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Valued Policy: A policy under which the insurer pays a specified amount of money to or on behalf of the insured upon the occurrence of a defined loss. The money amount is not related to the extent of the loss. Life insurance policies are an example.

Variable Annuity: A type of annuity that has a variety of investment options available for your selection. The rate of return you receive will depend on the performance of the investments you choose.

Variable Life Insurance: A policy that combines protection against premature death with a savings account that can be invested in stocks, bonds, and money market mutual funds at the policyholder's discretion.

Vandalism: The malicious and often random destruction or spoilage of another person's property.

(VIN) Vehicle Identification Number: Unique serial number, which consists of 17 numbers. Since 1980, used by the automotive industry to identify individual motor vehicles.

Void: A policy contract that for some reason specified in the policy becomes free of all legal effect. One example under which a policy could be voided is when information a policyholder provided is proven untrue.

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Whole-Life Insurance: The insurance policy offers protection in case the insured dies, but it also builds up cash value over time. Under normal circumstances, the policy remains active for the lifetime of the insured or for until a specified age. The insured usually pays a level annual premium, and the earnings on the cash value in the policy accumulate tax-deferred. You may borrow against the premium.

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