Insurance Dictionary
What Means What When It
Comes to
Life, Health, Business,
Home, Auto and
Other Coverages
First edition, third
printing 2008
Copyright © 2002-2008 by
Publishing
Silver
.
For a list of other
publications or for more
information from Silver Lake
Publishing,
please call 1.360.532.5758.
Find our
Web site at www.silverlakepub.com.
All rights reserved. No part
of this book
may be reproduced, stored in
a retrieval
system or transcribed in any
form or by
any means (electronic,
mechanical, photocopy,
recording or otherwise)
without the
prior written permission of
Silver Lake
Publishing.
The Silver Lake Editors
Insurance Dictionary
Pages: 486
ISBN: 978-1-56343-749X
The Silver Lake Editors who
have contributed to
this book are Kristin
Loberg, Christina Schlank,
Megan Thorpe and James
Walsh.
Many of the standard
insurance policy forms referenced
in this book are developed
by and remain the
property of the New York-based
Insurance Services
Office (ISO). Standard
policy forms produced by
ISO are updated and modified
regularly. Our references
—either direct or
indirect—to the forms are intended
solely to illustrate issues
common to insurance.
Check with an insurance
company or agent
or broker if you need
current policy information.
Diligent efforts have been
made by Silver Lake Publishing
staff to provide timely and
comprehensive
terms and definitions in
this dictionary. However,
this dictionary is not put
forth as a final authority
on any specific term or
definition. Insurance terminology
is subject to industry-specific
quirks and eccentricities—as
well as a never-ending
development and refinement
process, which may cause
definitions and usages to
change over time.
This electronic version
of the Insurance Dictionary
is made available to
select insurance professionals
to use and reproduce on
Internet web sites and in
other forums for
educational purposes only. It may
not be resold and its
rights may not be reassigned
or transferred in any
way with the written permis-
sion of Silver
Publishing retains all
ownership rights and inter-
ests in this material
and may act as it deems
appropriate to protect
and maintain those rights.
The Silver Lake Editors
welcome any feedback. Please
call us at 1.360.532.5758
during regular business
hours, Pacific time.
Finally, you can e-mail us at
TheEditors@silverlakepub.com.
James Walsh, Publisher
© 2008 Silver
© 2008 Silver
A
“A” (or Judgment) Rates. Rates that are not
backed up by loss experience
statistics. They are
based on the judgment of the
underwriter on an
individual risk basis.
A&H, A&S.
Accident and Health Insurance, Accident
and Sickness Insurance. Once commonly
used as generic designations
for the entire field now
called health insurance. See
Health Insurance.
AAI. See Alliance of American
Insurers.
AAIS. See American Association
of Insurance Services.
AB. ACAS. Associate of the
Casualty Actuarial Society.
See Fellow of the Casualty
Actuarial Society.
Abandonment. Relinquishing ownership of
lost or
damaged property by the
insured to the insurance
company so that a total loss
may be claimed. This is
prohibited in most types of
property insurance.
Abandonment Clause or
Condition.
A clause that
prohibits the abandonment of
partially damaged
property to the insurer in
order to claim a total loss.
The company may choose to
acquire damaged property
which can be sold for
salvage and choose to
pay a total loss, but the
insured cannot insist that
the insurer take possession
of any property.
Absolute Assignment. Assignment by a
policyowner
of all control of and rights
in the policy to a
third party.
Absolute Beneficiary. See Irrevocable
Beneficiary.
Absolute Liability. A liability that arises
from extremely
dangerous operations, such
as the use of
explosives (e.g., a
contractor would almost certainly
be liable for damages caused
by vibrations of the
earth following an explosive
detonation). With absolute
liability it is usually not
necessary to establish
that the operation is
dangerous. See also Strict
Liability.
Accelerated Benefits. Riders on life insurance
policies
that allow the policy’s
death benefits to be used
to offset expenses incurred
in a convalescent or nursing
home facility. Any living
benefits paid by the
insurance company reduce the
remaining death
benefit. The government does
not currently consider
accelerated benefits to be
taxable income, and
the policyowner can get
between 50 and 95 percent
of the policy’s face value.
See Living Needs
Benefits.
Accelerated Endowment. A dividend option allowing
dividend accumulations to be
applied to convert
a life insurance policy into
an endowment, or
to shorten the endowment
term.
Accelerated Option. A provision whereby an
insured
may use accumulated policy
dividends and
the cash value of a life
insurance contract to pay up
the policy or to mature it
as an endowment.
Acceptance. Insurance acceptance
occurs when an
applicant for insurance
receives the policy from the
company and, in the case of
general insurance, pays
the premium. In life
insurance, since the initial premium
is often submitted with the
application, issuance
of the policy constitutes
acceptance.
Acceptance of the Risk. Once all the underwriting
information has been
reviewed, an insurance
company makes a decision
about the acceptance of
the risk. Most applicants
are classified as standard
risks. Occasionally, an
applicant for disability income
will be classified as a
substandard risk.
Access. The availability of
medical care to a patient.
This can be determined by
location, transportation,
type of medical services in
the area, etc.
Accident and Health
Insurance (A&H).
An older
name for health insurance.
See Health Insurance.
Accident and Sickness
Insurance (A&S).
An older
name for health insurance.
See Health Insurance.
Accident Frequency. The rate of the occurrence
of
accidents, often expressed
in terms of the number
of accidents over a period
of time. It is one method
used for measuring the
effectiveness of loss prevention
services. Contrast with
Accident Severity.
Accident Insurance. Insurance against loss by
accidental
bodily injury to the
insured.
Accident Only Insurance. Insurance that provides
coverage for injury from
accident, and excludes sickness.
Benefits may be paid for all
or any of the following:
death, disability,
dismemberment or hospital
and medical expenses.
Accident Prevention. See Loss Prevention
Service.
Accident Severity. A measure of the severity
or
seriousness of losses,
rather than the number of losses.
It is measured in terms of
time lost from work rather
than the number of
individual accidents. It is another
way of measuring the
effectiveness of loss prevention
services. Contrast with
Accident Frequency.
Accident Year
Experience.
Measures premiums and
losses relating to accidents
which occurred during
a 12-month period.
Accident. An unintended and
unforeseen event,
which occurs suddenly and at
a definite place, resulting
in bodily injury. An accident
is also any
injury caused by accidental
means—the cause was
accidental versus
intentional. If the cause is accidental,
then benefits are payable.
If it is intentional,
then the claim would be
denied. See also Occurrence
and Accidental Bodily
Injury.
Accidental Bodily
Injury. An
injury to the body
(the result of an accident),
of external origin, unintentional
and unforeseen by the
injured person. Contrast
with Accidental Means.
Accidental Death and
Dismemberment (AD&D).
A policy or a provision in a
disability income policy
which pays either a
specified amount or a multiple
of the weekly disability
benefit if the insured dies,
loses his or her sight, or
loses two limbs as the result
of an accident. A lesser
amount is payable for
the loss of one eye, arm,
leg, hand or foot. Although
technically a health
insurance product, AD&D coverage
is frequently provided as
part of an individual
or group life insurance
contract.
Accidental Death
Benefit. An
extra benefit which
generally equals the face of
the contract or principal
sum, payable in addition to
other benefits in
the event of death as the
result of an accident. See
also Double Indemnity and
Multiple Indemnity.
Accidental Death
Insurance.
A form that provides
payment if the death of the
insured results from an
accident. Often combined
with dismemberment
insurance in a form called
accidental death and dismemberment.
Accidental Means. Unexpected or undesigned
cause of an accidental
bodily injury. The mishap
itself must be accidental,
not just the resulting injury,
(e.g., a person chopping
wood: If the axe
slipped out of his hand and
cut his foot, it would
have been accidental means.
However, if his finger
got in the way of the axe,
it would not have been).
Accommodation Line. Business accepted from an
agent or broker which would
normally be rejected
according to strict
underwriting standards but
which is accepted because of
the overall profitability
of the agent’s or customer’s
other business, (e.g.,
an insurer might accept
coverage on property that
would not normally meet its
underwriting standards,
if the other lines of
insurance which it carries
for the customer were
profitable.
Account Current. A monthly financial
statement
provided to an agent by an
insurer showing premiums
written, cancellations endorsements
and commissions.
Account Premium
Modification Plan.
A rating
plan for fire, property
damage and time element
coverages. The maximum
credit or surcharge is 25
percent, and it is available
to risks which develop a
three-year premium of at
least $5,000.
Accounts Receivable
Insurance.
Insurance against
loss that occurs when an
insured is unable to collect
outstanding accounts because
of damage to or destruction
of the accounts receivable
records by a peril
covered in the policy.
Accredited Service. All service, by an
employee,
recognized under a pension
plan as being allowable
or creditable in calculating
the benefits due.
Accrete. A Medicare term which
means the process
of adding new members to a
health plan.
Accrued Benefit. The amount of retirement benefit
accumulated by a
participating employee.
Accrued Liability. The amount of money needed
to offset accumulated
benefits under a retirement
plan. Accrued liability
equals the difference between
the present value of the
future benefits and the
present value of future
contributions.
Accumulated Actuarial
Benefit.
The sum of benefits
assigned to credited service
before a specified
date, and which is
determined pursuant to the actuarial
valuation method in use.
Accumulated Earnings
Tax. A tax
penalty imposed
on corporate earnings that
are retained by the corporation
for non-business related
needs.
Accumulated Plan
Benefit.
That portion of a retirement
benefit that is attributable
pursuant to the
plan to the participant’s
period of credited service
before a specified date.
Accumulation at
Interest. A
dividend option
where interest is paid on
accumulated dividends
and compounded annually at a
guaranteed minimum
interest rate.
Accumulation Period. The period of time, prior
to retirement, during which
an annuitant is making
payments or investments in
an annuity. Such
payments will accumulate on
a tax deferred basis.
Accumulation Units. These are issued to owners
of variable annuities during
the accumulation period,
as evidence of the
annuitant’s participation in
the separate account.
Accumulation Value. A term used in universal
life
policies to describe the
total of all premiums paid
and interest credited to the
account before deductions
for any expenses, loans or
surrenders.
Accumulations (or
Accumulation Benefits). Percentage
additions to policy benefits
when the contract
is continuously renewed.
Acquired
Immunodeficiency Syndrome (AIDS).
An infectious and incurable
disease, commonly referred
to as AIDS, which is caused
by the human
immunodeficiency virus, or
HIV.
Acquired Locations. Locations acquired after
inception
of the coverage and during
the coverage
period.
Acquisition Cost. Expenses incurred by an
insurer
or reinsurance company that
are directly related to
putting a business on the
books (acquiring a customer),
including clerical work,
medical examiners
fees, inspection costs, etc.
The largest portion of
this cost is usually the
agent’s or sales representative’s
commission or bonus.
Act of God. An event arising out of
natural causes
(with no human intervention)
which could not have
been prevented by reasonable
care or foresight (e.g.,
flood, lightning and
earthquake).
Action. A lawsuit involving the
right of one party
to recover from another
person in a court of law.
Active Malfunction. When a product, instead of
bringing a benefit to the
user, actually damages the
user’s property (e.g., if a
bug killer, which is intended
to protect a crop, damages
the crop instead).
Actively-at-Work. Most group health
insurance
policies state that if an employee
is not actively at
work when the policy goes
into effect, the coverage
will not begin until the
employee does return to
work.
Activities of Daily
Living (ADL).
Everyday living
functions and activities
performed by individuals
without assistance, including
moving about, dressing,
attending to personal
hygiene and eating.
Activities of Daily
Living (ADL) Standards. Standards
used to assess the ability
of a person to live
independently, measured by
the ability to perform
unaided such activities as
eating, bathing, toiletry,
dressing and walking.
Sometimes used to measure
or define eligibility for
long-term care.
Actual Cash Value (ACV). An amount equal to
the replacement cost of lost
or damaged property at
the time of loss, less depreciation.
With regard to
buildings, there is a
tendency for the ACV to closely
parallel the market value of
the property. If there is
a covered loss to the
insured dwelling, the insurance
company will pay either the
depreciated value
of the damaged dwelling at
the time of loss or the
cost of repairing the
property with like construction,
but only up to the policy’s
limit of liability.
ACV also refers to the
maximum limit of auto insurance
coverage. The insurer will
usually only pay
the ACV or the cost to
repair or replace the damaged
or stolen property,
whichever is less. Depreciation
and the condition of the
vehicle are also considered
in determining the ACV. See
also Market
Value.
Actual Charge. The actual amount charged
by a
physician for medical
services rendered.
Actual Total Loss. See Total Loss.
Actuarial. Having to do with
insurance mathematics
or actuaries—people hired by
insurance companies
to create formulas and
tables that calculate the
present value of future
payments and risks related
to those payments.
Actuarial Equivalence. Two different series of
payments
or values are in actuarial
equivalence when
they have an equal actuarial
present value under a
given set of actuarial
assumptions. See Actuarial
Present Value.
Actuarial Experience
Gain or Loss.
The effect on
an actuarial value of
deviations between the past
events that would have
occurred according to the
actuarial assumptions and
those which actually occurred.
Actuarial Present Value. The single amount as of
a given evaluation date that
results from applying
actuarial assumptions to an
amount or series of
amounts payable or
receivable at various times; with
the amount(s) adjusted to
reflect expected changes
from the valuation date to
the date of expected payment
or receipt by reason of
expected salary changes,
cost of living adjustments,
etc.; and adjusted to reflect
the time value of money
(through discounts
for interest) and the
probability of payment (by means
of decrements such as for
death, disability, withdrawal
or retirement) between the
valuation date and the
expected date of payment or
receipt.
Actuarial Valuation
Method. A
procedure, using
actuarial assumptions, for
measuring the expected
value of benefits and
assigning such value to time
periods. Also called
actuarial analysis.
Actuarially Sound. When the amount of money
in a pension fund, and the
current level of contributions
to the fund, are sufficient
to meet the liabilities
that have already accrued
and that are accruing
on a current basis.
Actuary. A specialist trained in
mathematics, statistics
and accounting who is
responsible for rate,
reserve and dividend
calculations as well as other
statistical studies.
Acute Care. Skilled, medically
necessary care provided
by medical and nursing
personnel in order to
restore a person to good
health.
AD&D. See Accidental Death and
Dismemberment
Insurance.
Added Expense. Extra expenses incurred
relative
to a disabling injury or
sickness, including additional
medication, doctor’s bills,
the need for prosthetic
appliances, such as braces,
and possible hospital
bills that are not fully
covered by hospitalization
insurance.
Additional Coverages. Limited amounts of
coverage
for specific types of losses
or expenses that are
provided in addition to the major
coverages (e.g.,
personal liability coverage
provides three kinds of
insurance in addition to the
stated limits of liability:
claim expenses, first aid to
others and damage
to the property of others).
Additional Drug Benefit
List.
Prescription drugs
listed as commonly
prescribed by physicians for
patients’ long-term use.
Subject to review and
change by the health plan
involved. Also called drug
maintenance list.
Additional Indemnity
Riders.
These riders provide
additional amounts of
indemnity for short periods
of time, such as six or 12
months. The primary
purpose of these riders is
to supplement or
coordinate with other
disability benefits, such as
Social Security or group
disability benefits.
Additional Insured. A person other than the
named
insured who is protected
under the terms of the
contract. Usually,
additional insureds are added by
endorsement or referred to
in the wording of the
definition of “insured” in
the policy. See Named
Insured.
Additional Living
Expense Insurance.
A contract
to reimburse the insured for
increased living costs
when loss of property forces
the insured to maintain
temporary residence
elsewhere, including the
costs for a hotel or motel,
for restaurant meals or for
using a laundromat. The term
extra expense insurance
refers to additional
expenses incurred by businesses.
See also Loss of Use.
Additional Living
Expenses.
Any necessary increase
in living expenses—such as
rent for alternative housing
—incurred so that the
household can maintain
its normal standard of living.
Additional Monthly
Benefit (AMB) Rider.
A rider
added to a disability income
policy to provide additional
benefits during the first
year of a claim while
the insured is waiting for
Social Security benefits to
begin. Also used to
complement other disability
income sources, such as
short-term group disability
benefits provided through
the employer. Also
called a Social Security
Rider.
Additional Premium. When endorsements are
added to a policy, there is
almost always an additional
premium (cost) charged. See
Premium.
Additur. A situation where the
court increases a
previous jury award. Compare
to Remittitur.
Adhesion. A characteristic of a
unilateral contract
that is offered on a “take
it or leave it” basis. Most
insurance policies are
contracts of “adhesion,” because
the terms are drawn up by
the insurer and
the insured simply “adheres”
to the policy provisions.
For this reason ambiguous
provisions are often
interpreted by courts in
favor of the insured.
Contrast with Manuscript
Policy.
Adjustable Life. A form of life insurance
that allows
changes on the policy face
amount, the amount
of premium, period of
protection and the length of
the premium payment period.
See also Flexible Premium
Adjustable Life Insurance
Policy.
Adjustable Premium. The right of an insurer to
change the premium rate on
classes of insureds, or
blocks of business at the
time of policy renewal.
Adjusted Community
Rating (ACR).
Community
rating adjusted by factors
specific to a particular
group. Also known as
factored rating.
Adjusted Gross Estate. In the calculation of
federal
estate taxes, it is equal to
the gross estate less
specific deductions.
Adjusted Net Worth. The capital, surplus and
voluntary
reserves of an insurer, plus
an estimated value
for business on the books
and unrealized capital
gains, less the potential
income tax on such gains.
Adjuster. A representative of the
insurer who seeks
to determine the extent of
the firm’s liability for
loss when a claim is
submitted. Same as Claim Representative.
Adjuster, Average. See Average Adjuster.
Adjuster, Independent. See Independent Adjuster.
Adjuster, Public. See Public Adjuster.
Adjustment Bureau. A firm organized to
provide
adjustment services to
insurers not wishing to create
their own claims division.
ADL. See Activities of Daily
Living Standards.
Administration Bond. A bond furnished by the
executor or administrator of
an estate. It guarantees
that the estate will be
settled in accordance with
the terms of the will, or,
if there is no will, in accordance
with the law. It guarantees
the fidelity of the
executor or administrator.
Administrative Services
Only.
Services provided
by an insurer, such as
providing claim forms and
processing claims, when the
insurer is not the party
funding the loss payments.
See also Self Funded
Plan.
Administrator. A person appointed by a
court as a
fiduciary to settle the
financial affairs and the estate
of a deceased person.
Compare to Executor.
Admiralty Liability. All laws relating to
liability
resulting from any kind of
maritime activity. This
includes common law and
statutory law, such as
the Jones’ Act and the
Seamen’s Remedies.
Admiralty Proceeding. A type of proceeding
involving
questions of maritime suit.
Any insurance
claims involving ocean
marine insurance would
generally be settled by an
admiralty court.
Admissions/1,000. The number of hospital
admissions
for each 1,000 members of
the health plan.
Admits. The number of admissions
to a hospital
(including outpatient and
inpatient facilities).
Admitted (or Allowed)
Assets.
Assets whose values
are permitted by state law
to be included in the
annual statement of the
insurer.
Admitted Company. An insurance company
authorized
and licensed to do business
in a given state.
Admitted Liability. Coverage for guests in an
aircraft.
In the event of an accident,
with this coverage
guests can recover without
having to go through
a determination as to
whether or not the insured
was liable. It is written
with a limit per seat in the
aircraft.
Adult Day Care. An optional group program
for
functionally impaired
adults, designed to meet
health, social and
functional needs in a setting away
from home. Available under
LTC insurance.
Advance Funding. Periodically setting aside
a predetermined
sum of money to fund future
retirement
benefits of a pension plan.
Advance Payment. Premiums paid in advance
of
the current policy period,
including the amount
tendered with an application
for life insurance.
Advance Premium. See Deposit Premium.
Adverse Selection. The tendency of poorer
than
average risks to buy and
maintain insurance. Adverse
selection occurs when
insureds select only those
coverages that are most
likely to have losses.
Adverse Underwriting
Decision.
Any decision
involving individually
underwritten coverages resulting
in termination of existing
insurance, declination
of an application or writing
the coverage only
at higher rates. For
property and casualty insurance,
it also includes placing the
coverage with a residual
market mechanism or
unauthorized insurer.
Advertising Injury. Injury arising out of
libel or
slander, violation of the
right to privacy, misappropriation
of advertising ideas or
infringement of copyright,
title or slogan committed in
the course of
advertising goods, products
or services. Contrast
with Personal Injury.
Affiant. The person who executes an
affidavit.
Affidavit. A written or printed
declaration or statement
of fact, made voluntarily
and confirmed by
the oath or affirmation of
the party making it, and
taken before an officer
having authority to administer
such oath.
Affiliated Companies. Insurers linked together
through common stock
ownership or through interlocking
directorates.
Affirmed. When an appellate court
declares that a
judgment, decree or order is
valid and right, and
must stand as rendered in
the lower court.
After Charge. A charge often included in
fire rates
for commercial buildings. It
is usually added for conditions
that can be corrected by an
insured, such as
failure to have the proper
fire extinguishers.
Aftercare. Individualized patient
services required
after hospitalization or
rehabilitation.
Age Change. The date on which a
person’s age, for
insurance purposes, changes.
In most life policies
this is the date midway
between the insured’s natural
birth dates. Health insurers
frequently use the
age of the previous birth
date for rate determinations.
On the date of age change, a
person’s age
may change to that of the
last birth date, the nearer
birth date or the next birth
date, depending upon
the way in which the rating structure
has been established
by that particular insurer.
Age Limits. The ages below which or
above which
an insurer will not write
certain forms of insurance
or above which it will not
continue a policy presently
in force.
Age/Sex Factor. Compares the age and sex
risk of
medical costs of one group
relative to another. An
age/sex factor above 1.00
indicates higher than average
risk of medical costs due to
that factor. Conversely,
a factor below 1.00
indicates a lower than
average risk. This
measurement is used in underwriting.
Age/Sex Rates (ASR). Separate rates are
established
for each grouping of age and
sex categories. Preferred
over single and family
rating because the rates
and premiums automatically
reflect changes in age
and sex content of the
group. Also called table rates.
Agency Company. An insurance company that
produces
business through an agency
network. Contrast
with Direct Writer.
Agency Contract (or
Agreement).
A document
that establishes the legal
relationship between an
agent and an insurer.
Agency Plant. The total force of agents
representing
an insurer.
Agency System. See Independent Agency
System.
Agency. (1) An insurance sales
office which is directed
by a general agent, manager,
independent
agent or company manager.
(2) When one person
acts on behalf of another
person, an agency is created
with the first person being
the agent and the
second person being the
principal. The principal
generally can be held
responsible for acts of its
agents.
Agent. One who solicits,
negotiates or effects contracts
of insurance on behalf of an
insurer. The agent’s
right to exercise various
functions, authority and
obligations, and the
obligations of the insurer to
the agent are subject to the
agency contract with the
insurer, to statutory law
and to common law.
Agent’s Appointment. Official authorization
from
an insurance company
granting an agent the authority
to act as its agent. In most
states, agents
must be appointed by at
least one insurer in addition
to being licensed by the
state.
Agent’s Authority. The authority and power
granted to an agent by the
agency contract. The
agent also has additional
power under the legal concept
of apparent agency. See
Presumption of Agency.
Agent’s Balance. A periodic statement of
the sums
due and owed to an agent
under contract.
Agent’s Commission. What an insurance company
pays its agents for placing
insurance. Commission
is usually a percentage of
the premium for the policy.
See also Commission.
Agent, General. See General Agent.
Agent, Independent. See Independent Agent.
Agent’s License. A certificate of authority
from the
state which permits the
agent to conduct business.
Agent, Policywriting. See Policywriting Agent.
Agent’s Qualification
Laws.
Education, experience
and other requirements
imposed by the state upon
persons desiring to be
licensed as agents.
Agent, Recording. See Recording Agent.
Agent, Special. See Special Agent.
Agent, State. See State Agent.
Aggregate Excess of
Loss Reinsurance.
A form
of excess of loss
reinsurance that indemnifies the
ceding company against the
amount by which its
losses incurred during a
specific period, usually 12
months, exceed either: a
predetermined dollar
amount; or a percentage of
the company’s premiums
(loss ratio) for that
period. Commonly referred
to as stop loss reinsurance
or excess of loss ratio reinsurance.
Aggregate Funding
Method.
Accumulating
money for a pension plan by
actuarially determining
the present value of all
future benefit payments,
deducting whatever funds may
be on hand with
the trustee or insurance
company and distributing
the balance as a cost over
the future.
Aggregate Indemnity. A maximum dollar amount
that may be collected by the
claimant for any disability,
for any period of disability
or under the
policy as a whole.
Aggregate Limit. Usually refers to
liability insurance
and indicates the amount of
coverage that the
insured has under the
contract for a specific period
of time, usually the
contract period, no matter how
many separate accidents may
occur.
Aggregate Products
Liability Limit.
Indicates the
amount of money that the
insurer will pay during
the term of a policy for all
products liability claims
that it covers.
Agreed Amount Clause. Under this clause, the
insured and the insurer
agree that the amount of
insurance carried will
automatically satisfy the coinsurance
clause. This eliminates the
necessity of
determining whether or not
the amount carried is
equal to the stated
percentage of the actual cash
value indicated in the
coinsurance clause.
Agreement. One element of a legal
contract. When
an offer made by one party
has been accepted by
the other, with mutual
understanding by both, an
agreement exists.
AIA. See American Insurance
Association.
AIDS Related Complex
(ARC). A
variety of symptoms
and opportunistic infections
and conditions
which frequently manifest
themselves in patients
suffering from AIDS, or
acquired immunodeficiency
syndrome, which is caused by
the human immunodeficiency
virus.
AIDS. See Acquired
Immunodeficiency Syndrome.
Alcoholic Beverage Control
Laws. See
Dram Shop
Laws.
Alcoholic Beverage
Liability Insurance.
See Dram
Shop Liability Insurance.
Aleatory Contract. A contract in which the
number
of dollars to be given up by
each party is not
equal. Insurance contracts
are of this type, as the
policyholder pays a premium
and may collect nothing
from the insurer or may
collect a great deal more
than the amount of the
premium if a loss occurs.
Alien Insurer. An insurer formed under
the laws
of a country other than the
U.S. A U.S. company
selling in other countries
is also an alien insurer.
Alienated. Property to which an
insured no longer
owns or holds title.
Generally, a public liability
policy covers the insured’s
liability for premises
alienated by him or her.
All or Nothing Rider. A rider to a health
insurance
policy that provides
additional benefits in the
event no benefits are
payable under Social Security.
All Risk Insurance. Special coverage forms.
See
Open Peril. Contrast with
Named Perils.
Alliance of American
Insurers (AAI).
An association
of insurance companies
working together
in the following areas of
common interest: 1) government
affairs affecting insurance;
2) education of
the employees of member
companies; 3) loss prevention;
and 4) other insurance
activities.
Allied Health Personnel. Health personnel who
perform duties which would
otherwise have to be
performed by physicians,
optometrists, dentists,
podiatrists, nurses and
chiropractors. Also called
paramedical personnel.
Allied Lines. Various insurance coverages
for additional
types of losses, and against
loss by additional
perils, which are closely
associated with and usually
sold with fire insurance.
Includes coverage against
loss by perils other than
fire, coverage for sprinkler
leakage damage and business
interruption coverage.
The fire insurance field
consists of coverages
for “fire and allied lines.”
Allocated Benefits. Payments authorized for
specific
purposes with a maximum
specified for each.
In hospital policies, for
instance, there may be scheduled
benefits for X-rays, drugs,
dressings, etc.
Allocated Funds. Qualified plan funds which
are
identified in the name of
specific plan participants.
Allocation Formula. In a profit-sharing trust,
the
formula under which the
employer’s contributions
are credited to the
employees.
Allowable Charge. The lesser of the actual
charge,
the customary charge and the
prevailing charge. It
is the amount on which
Medicare will base its Part
B payment. The Medicare
allowable amount is basically
Medicare’s version of reasonable
and customary
charges (e.g., if a doctor
charges a Medicare patient
$600 for certain services,
Medicare may only
approve a portion of the
benefits.)
Allowable Costs. Charges which qualify as
covered
expenses.
Allowed Assets. See Admitted Assets.
Alternative Delivery
Systems.
Systems which
cover health care costs,
other than on the usual feefor-
service basis. Includes
HMOs, IPAs, PPOs.
Alzheimer’s Disease. A progressive,
irreversible disease
characterized by
degeneration of the brain cells
and severe loss of memory
causing the individual
to become dysfunctional and
dependent upon others
for basic living needs.
Ambiguity. Terms or words in an
insurance policy
which make the meaning
unclear or which can be
interpreted in more than one
way. The general rule
of law is that any ambiguity
in the policy is construed
against the insurer and in
favor of the insured.
This is because the contract
is one of adhesion;
that is, the insured must
adhere to what the
insurer has written. If the
insurer does not make its
contract clear, it is
responsible.
Ambulatory Care. Outpatient treatment that
does
not require hospitalization.
Ambulatory Setting. Surgery centers, clinics
or
other outpatient facilities
which provide health care
on an outpatient basis.
Amendment. A formal document that
corrects or
revises an insurance master
policy. See also Endorsement
and Rider.
with the development of
education and standards
in the actuarial field.
Members may use the
designation MAAA (Member,
American Academy
of Actuaries).
American Agency System. See Independent
Agency System.
American Association of
Insurance Services
(AAIS). An association of
insurance companies performing
various technical functions
for its members
and subscribers. Licensed to
operate in all states,
the District of Columbia and
the Commonwealth
of Puerto Rico, AAIS offers
program services, files
rates, rules and forms on
behalf of member and subscriber
companies, acts as an
official statistical agent
and offers a variety of
professional services for its
member companies.
American College. An educational institution
within the life insurance
business. It confers the
Chartered Life Underwriter
designation and is concerned
with continuing agents’
training and with
research and publication in
areas related to the life
insurance business. It also
sponsors specialty life
insurance courses and offers
a college degree in financial
services. Formerly known as
the American
College of Life Underwriters
(ACLU).
American Council of
Life Insurance, Inc.
An association
made up of several
previously independent
insurance groups that is
concerned with legislative
matters, intercompany
communications and
the exchange of information.
American Experience Table
of Mortality.
A statement
of expected mortality rates
based upon data
accumulated in 1868 from a
large number of insured
persons. Widely used by life
insurers until
the 1950s to establish
rates.
American Institute for
Chartered Property and
Casualty Underwriters,
Inc. An
insurance educational
organization that
establishes insurance standards
and fosters educational
work. Properly qualified
individuals who pass a
series of examinations
given by this body receive
the designation Chartered
Property and Casualty
Underwriter (CPCU).
American Insurance
Association (AIA).
The informational,
educational, technical and
legislative organization
of the capital stock
insurance companies in the
property and liability
fields. See Capital Stock.
American Lloyd’s. See Lloyd’s Association.
American Risk and
Insurance Association.
An
association of insurance
educators and others interested
in insurance study and
research.
Amortization. A method of spreading a
fixed sum,
together with accumulating
interest, over a period
of years.
Amortized Value. The value of bonds
purchased
by an insurance company that
are eligible for amortization.
For example, if a 10-year
bond were purchased
at $50 more than its face
value, that $50
would be “amortized” or
spread over the 10-year
period. Each year the bonds
would be valued at $5
less than the year before.
Amount at Risk. The difference between the
face
amount of a whole life
insurance contract and the
cash value which it has
built up. The net amount at
risk declines throughout the
life of the contract,
while the policy reserve
increases along with the
cash value. It is the amount
the insurer would have
to draw from its own funds
rather than the policy
reserve were the contract to
become a death claim.
Amount Subject. The maximum amount which
underwriters estimate can
possibly be lost under
the most unfavorable
circumstances in any given
loss, such as a fire or
tornado. Contrast with Probable
Maximum Loss.
Ancillary Benefits. Benefits for miscellaneous
hospital
charges.
Ancillary. Additional services (other
than room and
board charges) such as
x-rays, anesthesia, lab work,
etc. Fees charged for
ancillary care such as x-rays
and lab work. This term may
also be used to describe
the charge made by a
pharmacy for prescriptions
which exceed the health
insurance plan’s maximum
allowable cost (MAC).
Anniversary. See Policy Anniversary.
Annual (or Yearly)
Renewable Term (ART).
(1)
term life insurance that may
be renewed annually
without evidence of
insurability until a stated age.
(2) A form of life, and
sometimes health, reinsurance
in which the reinsurer
assumes only the mortality
risk, which is usually
calculated as the face
amount of reinsurance minus
the terminal reserve.
Annual Additions. The total of employer
contributions,
voluntary employee
contributions and forfeited
additions of terminated
participants that equal
the total annual
contribution to a qualified retirement
plan.
Annual Payment Annuity. An annuity which was
purchased by the payment of
annual premiums for
a specified period of time.
Annual Report. The insurer’s published
statement
to its stockholders (or
policyholders in the case of a
mutual insurance company),
reviewing pertinent financial
information about the year’s
activities.
Annual Return/Report
(Form 5500).
A required
annual report reflecting the
pension plan’s operation
for the year; to be
submitted to the IRS and
the DOL.
Annual Statement. A report to the state
insurance
department of the year’s
financial results. Reports
insurer’s income and
expenses as well as its assets
and liabilities.
Annuitant. The person who is covered
by an annuity
and who triggers payments of
a policy. The
owner of the contract may or
may not be the annuitant,
but the annuitant is usually
the intended recipient
of the annuity payments.
Annuity. (1) An amount of money
payable yearly,
or by extension, at other
regular intervals. (2) An
agreement by an insurer to
make periodic payments
that continue during the
lifetime of the annuitant(s)
or for a specified period. Protects
against the risk of
living too long. (Sometimes
referred to as upside
down life insurance. There
are two principal types
of annuities: fixed and
variable.
Annuity Certain. An annuity that pays
income for
a fixed number of years
regardless of whether the
insured lives or dies. If it
pays for life after the certain
period, it is called an
“annuity certain and for
life thereafter.”
Annuity Due. An annuity that pays
benefits at the
beginning of the benefit
period rather than at the
end.
Annuity Option. A method of liquidating
and distributing
an annuity’s principal and
interest so that
it lasts for the lifetime of
the annuitant.
Annuity Payment. See Endowment.
Annuity Period. The period of time,
usually at retirement,
when the annuitant begins to
receive annuity
payments or benefits.
Annuity with Period
Certain. An
annuity that
pays throughout the life of
the insured, but also guarantees
to pay income for a specific
number of years
regardless of whether the
insured lives or dies. If
the insured is living at the
end of the time specified
in the policy, benefits
continue beyond the guaranteed
period until the death of
the insured.
Answer. A statement made by the
defendant and
filed with a court to
respond to a complaint or action
brought against the defendant.
It states why
the defendant should not be
held liable.
Anti-Coercion Law. A provision usually
contained
in a section of the state
code entitled “Unfair Trade
Practices” or a similar
name, declaring the use of
coercion an unfair practice
and, hence, a violation
of the state law.
Anti-Selection. See Adverse Selection.
Apartment Flat. A multi-story building
subdivided
into one-story units, with
each unit usually having
one owner. Residents share a
common entrance.
Commonly bought as a
condominium or cooperative.
App. A trade expression for the
insurance application.
See Application.
Apparent Agency. See Presumption of Agency.
Apparent Authority. Authority of an agent that
is
created when the agent
oversteps actual authority,
and when inaction by the insurer
does nothing to
counter the public
impression that such authority
exists.
Appeal. The right of a party who
has received an
adverse decision to take the
case to a higher court
for review.
Appellant. The person appealing to
the higher
court.
Appellate. Refers to courts that hear
appeals for
review of decisions rendered
by a lower court.
Appellee. The respondent, or the
person against
whom the appellant is making
an appeal.
Application. A form on which the
prospective insured
states facts requested by the
insurer on the
basis of which, together
with information from other
sources, the insurer decides
whether to accept the
risk, modify the coverage
offered or decline the risk.
See App.
Appointment. See Agent’s Appointment.
Apportionment. The method of dividing a
loss
among insurers in the same
proportions as their
participation when two or
more companies cover
the same loss.
Appraisal. An evaluation of property
made to ascertain
either the appropriate
amount of insurance
to write or the amount of
loss to pay. If the parties
involved disagree on the
value of the property or
the amount of loss, either
may ask for an appraisal
of the loss. In this event,
each party selects a competent
and impartial appraiser. The
two appraisers
select an umpire. If they
cannot agree, selection may
be made by a judge of a
court having jurisdiction.
The appraisers state
separately the value of the property
and amount of loss. If they
fail to agree, they
submit their differences to
the umpire. A decision
agreed to by any two is binding.
Approved. The condition which exists
when the
person or object to be
insured meets the underwriting
standards of the insurer.
Approved Charge. Amounts paid under
Medicare
as the maximum fee for a
covered service.
Approved Health Care Facility
or Program.
A
facility or program that is
approved by a health care
plan as described in the
contract.
Approved Pension Plan. A pension plan qualifying
for tax exemptions under
provisions of the Internal
Revenue Code.
Approved Roof. A term used in building
construction
that indicates a roof made
of fire-resistive materials,
such as tile or asphalt
shingles.
Appurtenant Structures. Buildings on the same
premises as the main
building insured under a property
insurance policy. Most
dwelling policies cover
appurtenant structures under
most circumstances.
Arbitration. Negotiation by impartial
persons when
the insured and the
insurance company cannot agree
on settling a claim.
Disagreement might concern
whether an insured is
legally entitled to recover
damages or might concern the
amount of recovery.
Both parties must agree to
arbitration. If so agreed,
each party selects an
arbitrator. The two arbitrators
select a third. Each party
pays the cost of its own
arbitrator and splits the
cost of the third arbitrator.
If they cannot agree within
30 days, either may
request that selection be
made by a judge of a court
having jurisdiction.
Arbitration
Clause/Provision.
The provision in a
property insurance contract
which states that if the
insurer and insured cannot
agree on an appropriate
claim settlement, each will
appoint an appraiser,
and these will select a
neutral umpire. A decision
by any two of the three
prescribes a settlement and
binds both parties to it.
ARC. See AIDS Related Complex.
ARIA. See American Risk and
Insurance Association.
ARM. See Associate in Risk
Management.
Armstrong Investigation. A study authorized by
the New York state
legislature in 1905 which reviewed
the operations and practices
of life insurers
operating in the state.
Numerous changes in policy
forms and investment
practices came from the study
and were eventually
reflected in other state codes.
Arson. The willful and deliberate
burning of property.
ASO. See Administrative
Services Only.
Assailing Thieves. Those other than the crew
using
force or violence to steal a
ship or its cargo.
Such action is an insured
peril under an Ocean
Marine contract.
Assessed Value. The value of real estate
or personal
property as determined by a
governmental
unit, such as a city, for
the purpose of determining
taxes.
Assessment Company,
Society or Insurer.
An insurer
who retains the right to
assess policyholders
additional amounts if
premiums are insufficient for
operations. In some cases,
an assessment insurer may
not charge a stipulated
premium at all but will
merely assess participants
in the plan a pro rata share
of each claim filed plus
expenses.
Asset Share Value. The value of a book of
business
to an insurer, assuming that
the business has
been in force long enough to
show true mortality
rates. This value must be
known by the insurer in
order to make rates and to
sell the business. If assets
share values do not grow
properly, either the rates
have been too low or
expenses too high.
Assets. The items on the balance
sheet of the insurer
which show the book value of
property owned.
Under state regulations, not
all property or other
resources can be admitted in
the statement of the
insurer. See also
Nonadmitted Assets.
Assigned Risk. A risk that is not
ordinarily acceptable
to insurers and that is,
therefore, assigned
to insurers participating in
an assigned risk pool or
plan. Each participating
company agrees to accept
its share of these risks.
Assigned-risk programs are
most often associated with
auto insurance, and apply
to any state-run program
that helps high-risk
property owners find
insurance. See Fair Access to
Insurance Requirements.
Assigned Risk Plan. A cooperative enterprise
that
all insurance companies
doing business in the state
must join. The plan
constructs a policy (again, usually
expensive and limited) for
people whose driving
records or location
disqualify them from standard
coverage. It then forces the
participating insurance
companies to take a number
of assigned
risk policies.
Assignee. A person to whom policy
rights are assigned
in whole or in part by the
original
policyowner.
Assignment. (1) An authorization to
pay Medicare
benefits directly to the
provider. Medicare payments
may be assigned to
participating providers only. (2)
The transfer of the
ownership rights of a life insurance
policy from one person to
another. Also refers
to the document that effects
the transfer. (3) Transfer
by the policyowner of legal
rights or interest in
the policy contract to a
third party. Most policies
cannot be assigned without
the permission of the
insurer.
Assignment of Benefits. A method where the person
receiving the medical
benefits assigns the payment
of those benefits to a
physician or hospital.
Associate in Risk
Management.
A professional designation
granted by the American
Institute for Property
and Casualty Underwriters to
those who have
completed a series of
examinations.
Association. See Pool and Syndicate.
Association Group
Coverage.
Technically, group
insurance issued to an
association rather than to an
employer or a union. If the
association offers a guaranteed-
issue plan, then there is no
medical underwriting,
as all members are
guaranteed a policy.
However, most association
plans require some medical
underwriting, or what is sometimes
referred to
as simplified or progressive
underwriting.
Association of Life
Insurance Counsel.
An organization
of life company attorneys
that seeks to increase
knowledge in areas of the
law affecting life
insurance.
Assume. To accept from another insurer
all or part
of the risk of an insured
loss.
Assumed Interest Rate
(AIR). An
assumed value
assigned to the annuitant’s
account during the annuity
period. It is an estimated
return for the separate
account. Monthly annuity
payments are based
on the AIR in relation to
the actual rate of return
experienced by the separate
account of a variable
annuity.
Assumed Liability. See Contractual Liability.
Assumption Certificate. A statement of coverage
by the reinsurer that
guarantees payment to a party
not in privity with the
reinsurance contract. Same
as cut-through clause.
Assumption. An amount accepted by the
reinsurer.
Assumption of Risk. One of the common law
defenses
available to an individual.
For instance, one
person riding with another
in a vehicle has generally
“assumed the risk” and,
therefore, has no action
against the driver of the
vehicle should an accident
occur. This common law
concept has been
modified by recent case law
and by statute in some
jurisdictions.
Assurance. Same as Insurance.
Assured. Same as Insured.
Assurer. Same as Insurer.
Atomic Energy
Reinsurance.
See Mutual Atomic
Energy Reinsurance Pool.
Attached Structures. The standard homeowners
policy covers not only the
house but also structures
attached to it—such as an
attached garage, breezeway,
patio, etc. This coverage
also extends to building
materials and supplies used
to expand the house,
build a facility like a pool
or make repairs to the
existing structure. This
material is covered in the
event of a fire, etc.
Attachment. A court order allowing one
person to
take something of value
belonging to another into
custody for a particular
purpose. For example: An
insured accidentally drives
his car into the wall of
someone else’s garage. The
garage owner has the
right to attach the insured’s
car (take it into custody)
as a way of guaranteeing
that the insured will
pay for repairing the
damage. An attachment ensures
that something of value is
available to settle
the claim if the individual
is held liable.
Attained Age. The age an insured has
reached on
a given date.
Attending Physician’s
Statement (APS).
A source
of medical information used
when underwriting a
life or health insurance
policy; usually obtained from
the proposed insured’s
doctor. This report provides
detailed information about
an insured’s medical history
or current physical
condition.
Attested Will. A formal will that is
produced (handwritten,
typed, etc.), signed by the
testator and
witnessed.
Attorney-in-Fact. The individual who manages
a
reciprocal insurance
exchange and to whom each
subscriber gives authority
to exchange insurance
on the subscriber’s behalf
with other subscribers.
See also Reciprocal
Insurance Exchange.
Attractive Nuisance. The law states that an
individual
owes no duty of care to a
trespasser upon
that individual’s property.
However, the law states
that a special duty of care
is required of a person
with respect to conditions
that attract children. Attractive
nuisances includes swimming
pools, jungle
gyms, etc.
Audit. A survey of the insured’s
payroll records to
determine the premium that
should be paid for the
coverage furnished. Used in
workers’ compensation
and general liability
policies.
Audit Bureau. A central office or bureau
to which
agents and companies send
certain daily reports and
endorsements for auditing
before transmittal to the
insurer.
Authorization. The amount of insurance an
underwriter
agrees to accept on a risk
of a given class
on specific property. It is
given for the guidance
and information of agents.
Authorized Insurer. An insurer authorized by
the
state to transact business
in that state for specific
types of insurance.
Automatic Cover. Coverage given
automatically
by a policy, usually for a
specified period and limited
amount, to cover increasing
values and newly
acquired and changing
interests.
Automatic Increase in
Insurance Endorsement.
See Inflation Guard
Coverage.
Automatic Premium Loan. A provision in a life
policy authorizing the
insurer to use the loan value
to pay any premiums still
due at the end of the
grace period.
Automatic Reinstatement
Clause. A
stipulation
in a property insurance
policy which states that after
a partial loss covered by
the policy has been paid,
the original limit of the
policy will be automatically
reinstated. Same as Loss
Clause.
Automatic Reinsurance. (1) This form of
reinsurance,
also known as treaty
reinsurance, is one
whereby an insurer must cede
that portion of a risk
that is above the limit
established by contract, and
the reinsurer must accept
all risks ceded to it. (2)
Reinsurance of specified
types of risks which is automatically
ceded and accepted within
the terms of
the contract, called a
treaty, without consideration
of each one individually.
The reinsurance takes effect
as soon as the original
contract is in force. Same
as Obligatory Reinsurance.
Contrast with Facultative
Reinsurance.
Automobile Fleet. Refers to a number of
automobiles
under the same ownership.
For insurance purposes
a fleet usually consists of
five or more self-propelled
units and generally qualifies
for certain
premium reductions and
rating plans.
Automobile Insurance
Plans. A
name used to identify
assigned risk plans. See
Assigned Risk.
Automobile Insurance. Insurance that protects
the
insured against losses
involving automobiles. Different
coverages can be purchased
depending on
the needs and wants of the
insured (e.g., the liability
coverages of bodily injury
liability, property
damage liability and medical
payments, and the
physical damage coverages of
collision and comprehensive).
Automobile Use
Classifications.
An insured’s
needs and the insurance
company’s risk analysis
coincide in the question of
how an insured uses his
vehicles. The insurance
company’s primary rating
factors include use
classifications. These include
“pleasure use,” “business
use,” “farm use” and “driving
to work.” If a car is used
only for pleasure (this
is sometimes called
occasional use), premiums are
lower than if the car is
driven every day to work.
Cars claimed for business
use tend to be more expensive
to insure.
Average Adjuster. One whose primary work is
the
adjusting of ocean marine
losses.
Average Benefit Test. A coverage or
discrimination
test for a qualified plan
that states that at least
50 percent of the lower paid
employees must benefit
from the plan and the
average benefit provided
must be at least 70 percent
of the benefit provided
for the higher-paid
employees.
Average Clause. A clause providing that
similar
items in one location or
several locations that are
insured by a policy shall be
covered in the propor-
tion that the value of each
bears to the value of all.
Also known as the average
distribution clause. See
also Pro Rata Distribution
Clause.
Average Cost Per Claim. The total cost of
administrative
and/or medical services
divided by the number
of units of exposure such as
costs divided by
number of admissions or by
number of outpatient
claims, etc.
Average Earnings Clause. See Relation of Earning
to Insurance Provision.
Average Indexed Monthly
Earnings (AIME).
A
wage indexing formula based
on earnings listed in
the records of the Social
Security Administration;
used to compute Social
Security benefits for retirement,
survivors benefits and
disability income benefits.
Average Length of Stay
(ALOS). The
total number
of patient days divided by
the number of admissions
and discharges during a
specified period
of time. This gives the
average number of days in
the hospital for each person
admitted.
Average Rate. A rate for a policy
established by
multiplying the rate for each
location by the value
at that location and
dividing the sum of the results
by the total value.
Average Weekly Wage. A term generally used in
workers’ compensation laws
that is the basis for determining
weekly benefits under such
laws.
Aviation Accident
Insurance.
Insurance that protects
individuals as passengers or
pilots, usually on
scheduled aircraft, or that
covers the flight travel of
the employees of a company
under a master policy.
Aviation Hazard. The extra hazard of death
or injury
resulting from participation
in aeronautics,
usually as other than a
fare-paying passenger in licensed
aircraft. This generally
requires an extra premium
rating or waiver of certain
benefits or coverage.
Aviation Insurance. Insurance that protects an
insured
against losses connected
with the use of an
airplane. Coverage depends
upon the needs and
desires of the insured and
can include the liability
coverages of bodily injury,
property damage, passenger
bodily injury and medical
payments, as well
as physical damage or hull
coverage. Hull coverage
can be written to provide
either broad or limited
coverage. Coverage can also
be written for airports,
aircraft dealers, airlines
and hangarkeepers’ liability.
Avocation Questionnaire. A form that an insured
must fill out if he or she
is engaged in a hazardous
hobby. Provides more
specific information concerning
the hobby.
Avoidance of Risk. Taking steps to remove a
hazard,
engage in an alternative
activity or otherwise
end a specific exposure. One
of the four major risk
management techniques. See
Risk Management.
© 2008 Silver
© 2008 Silver
B
Backdating. A procedure for making the
effective
date of a policy earlier
than the application date.
Often used to make the age
at issue lower than it
actually was in order to get
a lower premium. State
laws often limit (to six
months) the time to which
policies can be backdated.
Bad Faith. Lawsuits or regulatory
complaints relating
to delays or denials usually
allege bad faith
on the part of the insurer.
This is one of the heaviest
clubs a policyholder can
wield to strike back at an
insurance company. One way
an insurance company
can act in bad faith is by
investigating a claim with
an eye toward not providing
coverage.
Bail Bond. A bond that guarantees
that a person
released from legal
confinement will appear as required
in court, or the penalty of
the bond will be
forfeited to the court. In
insurance policies, bail bond
fees are covered under an
auto policy.
Bailee. A person or concern having
possession of
personal property entrusted
to that person by the
owner (e.g., a laundry that
has custody of customers’
clothing for washing or dry
cleaning). Bailees
must exercise the same care
with the property of
others as they would with
their own property.
Bailees Customer
Insurance.
Insurance purchased
by a bailee to protect the
personal property of customers
against loss caused by specific
perils (e.g., a carpet
cleaner who buys coverage to
protect customers
against loss or damage to their
carpets while
in the store’s care.
Bailees Liability
Coverage.
Coverage that meets
the needs of a bailee’s
liability. The bailee’s legal
responsibility is to
exercise care appropriate to the
circumstances of the
bailment. (Most bailees want
to carry enough insurance to
make good any loss to
property in their custody
whether or not they are
legally liable.)
Bailment. The personal property of
one person being
held by another with the
intent of its being
returned to the original
owner (e.g., cars in a garage
for repairs).
Bailor. A person who owns property
that is entrusted
to another (e.g., the owner
of a fur coat who has
entrusted it to a furrier
for storage).
Balance Sheet. A listing of the assets,
liabilities
and surplus of a company or
individual as of a specific
date.
Bank Loan Plan. See Financed Insurance.
Bankers Blanket Bond. Insurance purchased by
banks to pay for losses due
to the dishonesty of employees
as well as losses caused by
people other than
employees due to burglary,
robbery, larceny, theft,
forgery and mysterious
disappearance.
Barratry. A fraudulent breach of
duty on the part
of a master of a ship
causing loss to the owner of the
ship or the owner of the
cargo.
Base Capitation. The total amount which
covers
the cost of health care per
person, minus any mental
health or substance abuse
services, pharmacy and
administrative charges.
Base Premium. See Subject Premium.
Base Rate. The cost of a given unit
of insurance for
each specific type of auto
coverage, such as bodily
injury and property damage
liability. For example,
a base rate might be $300
for $100,000 of liability
coverage. A driver with a
poor driving record must
be charged an increased
amount to reflect the poor
record. This increased amount
is computed by
multiplying the base rate by
a rating factor. See
also Rating Process.
Basic Auto Policy. Once used to insure
commercial
vehicles, motorcycles,
motorscooters and a variety
of substandard risks. This
policy had broad
eligibility rules, but the
scope of coverage was narrower
than modern auto policies.
Most automobile
risks today are insured by
business or personal auto
policies, with appropriate
endorsements.
Basic Coverage Form. A commercial or personal
lines property form that
provides basic coverages.
These forms generally
provide the most limited coverage,
which is surpassed by broad
forms and special
forms.
Basic Extended
Reporting Period.
An automatic
“tail” for reporting claims
after expiration of a
“claims-made” liability policy.
It is provided without
charge and consists of two
parts: a mini-tail
covers claims made within 60
days after the end of
the policy; a midi-tail
covers claims made within
five years after the end of
the policy period arising
out of occurrences reported
not later than 60 days
after the end of the policy.
See also Tail.
Basic Form Rates. Under the latest
commercial
lines program, Basic Form
Rates are arrived at by
adding Group I and Group II
rates together. See
Group I Rates and Group II
Rates.
Basic Hospital Expense
Insurance.
Hospital coverage
providing benefits for room
and board and
miscellaneous hospital
expenses for a specified number
of days during hospital
confinement.
Basic Limit. Usually refers to
liability policies and
indicates the lowest amount
for which a policy can
be written. This amount is
either prescribed by law
or company policy.
Basic Limits of
Liability.
Minimum amounts of
insurance. This usually
refers to bodily injury and
property damage limits that
are either the lowest
amounts which can be written
at the published or
manual rates, the minimum
amount of insurance
an insurer is willing to
underwrite or the minimum
amount of insurance required
by law (e.g., auto insurance
financial responsibility
laws).
Basic Medical Expense Insurance. Basic medical
coverage for doctor visits,
diagnostic x-rays, lab tests
and emergency treatments.
Usually written without
deductibles and coinsurance
provisions, but
benefits are limited to
specified dollar amounts.
Contrast with Major Medical
Insurance.
Basic Premium. A fixed cost charged in a
retrospective
rating plan. It is a
percentage of the standard premium
and gives the insurer the money
needed for
administrative expenses and the agent’s commission
plus an insurance charge. See
also Retrospective
Rating.
Basic Rate. The manual rate from which
discounts
are taken or to which
charges are added to reflect
the individual circumstances
of a risk.
Bed Days/1,000. The number of inpatient
hospital
days per 1,000 members of a
health plan.
Below Market Loan. A demand loan with
interest
paid below the federal rate;
typically, part of an executive
loan program provided by an
employer.
Bench Error. A loss that occurs in the
production
process (e.g., if production
workers mistakenly use
the wrong ingredients in a
chemical formula). Bench
errors are covered by
products insurance.
Beneficiary. A person who may become
eligible to
receive or is receiving
benefits under an insurance
policy other than a
participant. There may be one
or more designated beneficiaries,
including primary
beneficiaries who are
entitled to the proceeds if they
are living, and contingent
beneficiaries who are entitled
to the proceeds if there is
no surviving primary
beneficiary when an insured
dies. See also Irrevocable
Beneficiary, Revocable
Beneficiary, Primary
Beneficiary, Secondary
Beneficiary and Contingent
Beneficiary.
Benefit. The amount paid to a
participant of a retirement
plan or to the participant’s
beneficiary at
retirement, death or
termination of service.
Benefit, Flat Dollar. A monthly benefit given to
all employees regardless of
length of service or standard
of living. (Everyone
receives the same amount.)
Benefit, Flat
Percentage.
A monthly pension benefit
determined by a fixed
percentage of compensation.
Although recognizing the
employee’s standard
of living, it still ignores
length of service.
Benefit Levels. The maximum amount a
person is
entitled to receive for a
particular service or services
under a contract with a
health plan or insurer.
Benefits of Survivorship. See Survivorship Benefits.
Benefit Package. A description of the
services an
insurer or health plan
offers to those covered under
the terms of a health
insurance contract.
Benefit Period (BP). The period during which a
Medicare beneficiary is
eligible for Part A benefits.
A benefit period is 90 days
and begins the day the
patient is admitted to a
hospital and ends when the
individual has not been
hospitalized for a period of
60 consecutive days.
Benefits. The financial
reimbursement and other
services provided to
insureds by insurers under the
terms of an insurance
contract (e.g., the benefits
listed under a life or
health policy or benefits as
prescribed by a workers’
compensation law).
Benefit Stacking. Adding the uninsured
motorists
limits from insurance on
several different cars
to apply to a single claim.
Betterment. See Improvements and
Betterments
Insurance.
BI. (1) Bodily Injury
Liability. (2) Business Interruption
Insurance and Business
Income Coverage
Form. This is what these
letters most often refer to
in the property field.
Bid Bond. A bond filed with a bid
for a construction
or other project that
guarantees that if the
contractor has the low bid
and is awarded the job, the
required performance bond
will be furnished.
Billed Claims. The amounts submitted by a
health
care provider for services
provided to a covered individual.
Binder. An agreement executed by
an agent or insurer
(usually the latter) putting
insurance into force
before the contract is
written or premium is paid.
Not used in life insurance.
See Cover Note.
Binding Receipt. See Conditional Binding
Receipt.
Birth Rate. The number of births
related to the
total population in a given
group during a period
of time. (Usually expressed
as births per 100,000
people in one year.)
Birthday Rule. A method of determining
which
parent’s medical coverage is
primary for dependent
children: the parent whose
birthday falls earliest in
the year usually has the
primary plan.
Blackout Period. The period of time during
which
a surviving spouse no longer
receives survivors
benefits (after the youngest child
is no longer eligible)
and before he or she is
eligible for retirement benefits.
Blanket Bond. A fidelity bond that
covers losses
caused by the dishonesty of
all employees as opposed
to a bond that specifically
identifies only certain
employees to be covered. See
also Blanket Position
Bond and Commercial Blanket
Bond, and
contrast with Name Position
Bond and Name
Schedule Bond.
Blanket Contract. See Blanket Insurance.
Blanket Crime Policy. A policy that once
provided
a package of coverages for
employee dishonesty, loss
of money and securities
inside and outside the premises,
depositor’s forgery, loss of
money orders and
loss due to counterfeit
paper currency. It has been
replaced by modern commercial
crime coverage.
Blanket Fidelity Bond. See Blanket Bond.
Blanket Honesty Bond. See Commercial Blanket
Bond.
Blanket Insurance. (1) Health insurance that
covers
all of a class of persons
not individually identified
in the contract. (2) Property
insurance that covers,
in a single contract, either
multiple types of
property at a single
location or one or more types of
property at multiple
locations.
Blanket Medical Expense. A policy or provision
in a health insurance
contract that pays all medical
costs, including
hospitalization, drugs and treatments,
without limitation on any
item except pos-
sibly for a maximum
aggregate benefit under the
policy. It is often written
with an initial deductible
amount.
Blanket Position Bond. A Blanket Fidelity Bond
where the amount of coverage
applies separately to
each position covered.
Contrast with Commercial
Blanket Bond (offers a
single amount of coverage
for any one loss, regardless
of the number of employees
involved). See also Blanket
Bond.
Blasting and Explosion
Exclusion.
Exclusion of
liability for damages from
blasting or explosions.
An additional rate is
charged.
Block Policy. An open perils (all risk)
policy that
derives its name from the
French term en
bloc meaning
“all together.” It provides
coverage on stock,
property being transported
or in bailment and on
the premises of others.
Blowout and Cratering. Accidents that can arise
from drilling operations.
Generally includes damage
to property above the
surface of the earth arising out
of blowout or cratering of
any well. Usually added
by endorsement for an
additional premium.
Blue Cross. Blue Cross plans are
hospital expense
prepayment plans designed
primarily to provide
benefits for hospitalization
coverage, with certain
restrictions on the type of
accommodations.
Blue Plan. A generic designation for
those companies,
usually writing a service
rather than a reimbursement
contract, who are authorized
to use the
designation Blue Cross or
Blue Shield and the insignia
of either.
Blue Shield. Blue Shield plans are
prepayment plans
offered by service
organizations covering medical
and surgical expenses.
Board Certified. A physician or other
professional
certified as a specialist in
a particular medical area.
Board Eligible. A professional or physician
who is
eligible to become certified
as a specialist.
Bobtailing. Using the truck/tractor
after unloading
the trailer and not driving
for trucking purposes.
Bodily Injury. Coverage for bodily harm,
sickness
or disease. Includes the
costs of required care, loss
of services or death
resulting from an injury.
Bodily Injury Liability
(BI). A
legal liability that
may arise as a result of the
injury or death of another
person. This coverage pays
the other person’s
medical and rehabilitation
expenses and any damages
for which they may sue.
Boiler and Machinery
Coverage.
Insurance against
the sudden and accidental
breakdown of boilers,
machinery, and electrical
equipment. Coverage is
provided on: 1) damage to
the equipment; 2) expediting
expenses; 3) property damage
to the property
of others; 4) supplementary
payments; and 5)
additional objects. Coverage
can be extended to
cover consequential losses
and loss from business
interruption.
Bond. A three-party contract
guaranteeing that if
one person, the principal,
fails to perform as speci-
fied or proves to be
dishonest, the person to whom
the duty is owed, the
obligee, will be financially
protected by the issuer of
the bond, the surety.
Bond, Contract. See Contract Bond.
Bond, Court. See Court Bond.
Bond, Fidelity. See Fidelity Bond.
Bond, Fiduciary. See Fiduciary Bond.
Bond, Forgery. See Forgery Bond.
Bond, Maintenance. See Maintenance Bond.
Bond, Performance. See Contract Bond.
Bond, Permit. See Permit Bond.
Bond, Public Official. See Public Official Bond.
Bond, Surety. See Suretyship.
Book of Business. A total of all insurance
accounts
written by a company or
agent, including: an
insurer’s book of automobile
business; an agent’s
overall book of business; an
agent’s book of business
with each insurer; etc.
Book Value. The value of assets as
shown in the
official accounting records
of the company.
Bordereau. (1) A written report of
individual cessions,
usually detailed to show
such items as reinsurance
premiums or reinsurance losses
with respect
to specific risks. (2) A
memorandum containing
information concerning
documents that accompany
it. Used extensively in
passing reinsurance from one
insurer to another under a
reinsurance agreement
and by property and
liability general agents for
passing information to
various insurers on coverages
written.
Borderline Risk. An insurance prospect of
doubtful
quality from an underwriting
point of view.
Boston Plan. A plan where insurers
agree that they
will not reject property
coverage on residential buildings
in a slum area. Insurers
agree to accept the
coverage until there has
been an inspection and the
owner has had an opportunity
to correct any faults.
Boston was the first city to
originate such a plan.
Other cities have followed,
including New York,
Oakland, Cleveland and
Buffalo.
Bottomry. A contract of insurance by
which a ship
or its cargo is pledged as
collateral for a loan required
to support a maritime
venture. If the ship or
cargo is lost, the loan is
canceled and the borrower
would not have to repay the
loan.
Boycott. A trade practice that
occurs when someone
refuses to have business
dealings with another
until he or she complies
with certain conditions or
concessions.
Branch Manager. An executive who manages a
branch office for an insurer
or an agency. See also
Regional Office.
Branch Office. See Regional Office.
Breach of the Duty to
Act. When a
tortfeasor does
not act in a reasonably
prudent manner toward another.
See Negligence.
Brick Construction. A building with at least
75
percent of the exterior
walls made of some type of
masonry construction (e.g.,
brick, stone or hollow
masonry tile, poured
concrete or reinforced concrete,
or hollow masonry block).
Brick Veneer
Construction.
A building with outside
walls constructed of wood
and a facing of a
single layer of brick.
Brief. A statement—prepared by an
attorney to be
filed with a court—that
highlights the principal
issues of a case.
Broad Form. Policies that provide
insurance for
multiple types of perils
over and above the usual
basic perils, or additional
coverages beyond standard
coverages.
Broad Form Nuclear
Energy Liability Exclusion
Endorsement. A form attached to every
general liability
coverage part that excludes
coverage for any
loss resulting from the hazardous
properties of
nuclear material related to
the operations of a
nuclear facility.
Broad Form Personal
Theft Policy.
Theft coverage
on personal property at
private residences, usually
on an open perils (all risk)
basis. A limited form
of the Broad Form Personal
Theft policy is known
as the Personal Theft
policy.
Broad Form Property
Damage Endorsement.
An
endorsement to a general
liability policy that deletes
the exclusion referring to
property in the care,
custody or control of the
insured and replaces it
with a less restrictive
exclusion.
Broad Form Storekeepers
Insurance.
Coverage
for small storekeepers that
includes several specific
crime perils on the same
basis as a storekeepers burglary
and robbery policy, plus
open perils (all risk)
protection on money and
securities, depositors’ forgery
and a small limit on
employee dishonesty. See
Storekeepers Burglary and
Robbery Insurance.
Broad Theft Coverage
Endorsement.
A form attached
to a dwelling policy that
provides theft coverage
for a named insured who is
an owner occupant.
Provides coverage for loss
by theft, including
attempted theft, and
vandalism and malicious mischief
as a result of theft or
attempted theft.
Broker. One who represents an
insured in the solicitation,
negotiation or procurement
of contracts
of insurance, and who may
render services incidental
to those functions. A broker
may also be an agent
of the insurer for certain
purposes such as delivery
of the policy or collection
of the premium.
Brokerage. (1) The fee or commission
received by
a broker. (2) Insurance
placed by brokers contrasted
with that placed by agents.
Broker of Record. A broker who has been
designated
to handle certain insurance
contracts for the
policyholder.
Brokerage Business. Business offered to an
insurer
by a broker. Also called
excess or surplus business.
Brokerage Department. A department of an insurer
whose purpose is to deal
with brokers in the
placing of insurance.
Broker-Agent. One acting as an agent of
one or
more insurers and as a
broker in dealing with one
or more other insurers.
Builder’s Risk Coverage
Form. A
commercial property
coverage form specifically
designed for buildings
in the course of
construction.
Building Additions and
Alterations.
Coverage for
improvements to a rental
property (apartment or
house) that have not been
reimbursed by the landlord.
Falls under renters
insurance. Also called leasehold
improvement insurance.
Building and Personal
Property Coverage Form.
A commercial property
coverage form designed to
insure most types of
commercial property (buildings,
contents or both). It is the
most frequently
used commercial property
form, and has replaced
the General Property form,
Special Building form,
Special Personal Property
form and others.
Building Code. Municipal or other
governmental
ordinances regulating the
type of construction of
buildings within its
jurisdiction.
Building Code Upgrade
Coverage.
Also known
as ordinance or law
coverage, provides up to
$10,000 of coverage for the
additional costs required
to bring a damaged dwelling
up to current building
code requirements. Without
this coverage, a
policy would pay only the
amount needed to repair
or replace the damaged
dwelling to restore it to the
condition it was in prior to
the loss, and would not
cover any additional costs
due to changes required
by current building codes.
Bullion. Refers to precious metals,
such as gold, in
the form of ingots or bars.
Bumbershoot Policy. A liability policy
(similar to
the umbrella policy) that
includes coverage related
to ocean marine risks.
Includes general liability coverage,
protection and indemnity, as
well as liability
coverage under the
Longshoremen’s and Harbor
Workers’ Act. Collision
coverage can be provided
and general average and
salvage charges can be included.
Provides coverage for
shipyards.
Bureau, Rating. See Rating Bureau.
Burglary. Breaking and entering into
the premises
of another with felonious
intent. Visible marks or
damage at the point of entry
or exit are needed to
confirm the burglary.
Burglary Insurance. Insurance against loss
caused
by burglars. In personal
lines, burglary insurance is
provided by homeowners
policies and theft endorsements
that are added to dwelling
policies. In commercial
lines, a variety of
commercial crime coverage
forms include burglary
insurance.
Burning Cost Ratio. See Pure Loss Cost Ratio.
Burning Ratio. The ratio of losses
suffered to the
amount of insurance in
effect.
Business. (1) Any trade, profession
or occupation.
(2) In property, liability
and health lines, it usually
refers to the volume of
premiums. (3) The face
amount of life insurance
written.
Business Activities. Any agreement, contract,
transaction or other
interaction that advances a
person’s occupation. See
Business Liability.
Business Auto Coverage
Form. The
latest commercial
automobile insurance
coverage form, which
may be written as a monoline
policy or as part of a
commercial package. This
form has largely replaced
the business auto policy.
Business Auto Policy. A policy that provides
liability
and physical damage
coverages on commercial
vehicles. In most
jurisdictions, this has been
replaced by the business
auto coverage form.
Business Income
Coverage Form.
A commercial
property form providing
coverage for “indirect
losses” resulting from
property damage, such as loss
of business income and extra
expenses incurred.
(Replaced earlier business
interruption and extra
expense forms.)
Business Insurance. (1) Insurance for
businesses
or commercial
establishments. (2) Life and health
policies written for
business purposes, such as key
employee, sole
proprietorship, partnership and corporation.
Business Interruption
Insurance.
A time element
coverage that pays for loss
of earnings when operations
are curtailed or suspended
because of property
loss due to an insured
peril. Now referred to as
business income insurance.
See Business Income
Coverage Form.
Business Interruption
Insurance, Contingent.
Coverage for business income
from dependent properties.
See Business Income Coverage
Form and
Dependent Properties.
Business Liability. Liability coverages
provided by
the businessowners liability
coverage form. It includes
liability for bodily injury,
property damage,
personal injury, advertising
injury and fire damage.
Business Overhead
Expense (BOE) Policy.
A disability
income policy which
indemnifies the business
(not the businessowner) for
certain overhead
expenses incurred when the
businessowner is totally
disabled. Often has an
elimination period of
30 to 90 days and a benefit
period of one or two
years.
Business Personal
Property.
Traditionally known
as contents, this includes
furniture, fixtures, equipment,
machinery, merchandise,
materials and any
other personal property
owned by the insured and
used in the insured’s
business.
Business Risk Exclusion. Also known as the
(product)
failure to perform
exclusion. In products insurance,
no coverage is provided for
a product that does
not meet the level of
performance, quality, fitness or
durability warranted or
represented by the insured.
Coverage is provided,
however, if liability results
from a bench error or an
active malfunction.
Businessowner Policies
(BOP). A
package policy
that provides broad property
and liability coverage
in a single contract and is
designed for small and
medium-sized mercantile, office
or apartment risks.
“Buy-Back” Deductible. A deductible that may
be eliminated for an
additional premium in order
to provide “first-dollar”
coverage—coverage that
doesn’t have a deductible.
Buyers Guide. A consumer publication
that describes
the type of coverage
offered, and provides
general information to help
an applicant for life or
health insurance compare
different policies to reach
a decision about whether the
proposed coverage is
appropriate. Also called a
shoppers guide.
Buy-Sell Agreement. (1) An agreement among
part-owners of a business
that says that under stated
conditions (i.e., disability
or death), the person withdrawing
from the business or the
person’s heirs are
legally obligated to sell
their interest to the remaining
part-owners, and the
remaining part-owners are
legally obligated to buy at
a price fixed in the agreement;
(2) a similar agreement
between an owner or
part-owner of a business and
a nonowner, such as a
key employee.
Bypass Trust. Also referred to as the B
trust; a trust
which contains estate assets
that will bypass the surviving
spouse and pass directly to
other family members.
© 2008 Silver
© 2008 Silver
C
Cafeteria Plans. An employee benefit that
provides
a series of flexible health
care benefits from which
an employee may choose,
including a cash only
option.
Calendar Year. January 1 through December
31
of the same year. Many
deductible amount provisions
are on a calendar year basis
under major medical
plans. Also, benefits under
basic hospital surgical
and medical plans are
usually stated as so much
for each calendar year.
Calendar Year
Experience.
Measures the premiums
and losses entered on
accounting records during
the 12-month calendar.
Cancelable. A contract of insurance
that may be
terminated by the insurer or
insured at any time.
Practically every form of
insurance is cancelable,
except life insurance and
those health insurance
policies designated as a
“guaranteed renewable” or
“non-cancelable
and guaranteed renewable.” Some
states also regulate when,
or if, auto policies can be
canceled. See Renewability.
Cancellation. Termination of a contract
of insurance
by voluntary act of the
insurer or insured in accordance
with the provisions in the
contract or by
mutual agreement. In most
states, the reasons for
which an insurance company
is permitted to cancel
a policy are limited—if the
policy has been in effect
for at least 60 days or is a
renewal policy.
Cancellation
Changes Endorsement. An endorsement
that must be attached to
every commercial
property coverage part,
unless it is in conflict with
state law or is replaced by
a special state endorsement
that affects the cancellation
clause of the common
policy conditions.
Cancellation,
Flat. See Flat Cancellation.
Cancellation,
Pro Rata. See Pro Rata Cancellation.
Cancellation,
Short-Rate. See Short Rate Cancellation.
Capacity. The largest amount of
insurance or reinsurance
available from a company. In
a broader sense,
it refers to the largest amount
of insurance or reinsurance
available in the
marketplace.
Capital Stock Insurer. See Stock Insurer.
Capital Stock. The shares of ownership in
a corporation.
Capital Sum. The maximum lump sum
payable in
the event of accidental
death or dismemberment.
See Principal Sum.
Capital Transaction. The sale of a capital
asset, such
as stock, which results in
the transaction being taxed
as ordinary income and not
as a dividend.
Capitation (CAP). 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.
Captive
Agent. One who sells insurance for
only
one company as opposed to
one who represents several.
See also Exclusive Agency
System.
Captive Insurer. A legally recognized
insurance
company organized and owned
by a corporation or
firm whose purpose is to use
the captive to write its
own insurance at rates lower
than those of other
insurers. Usually, it is a
nonadmitted insurer that
has the right, under special
circumstances, to reinsure
with an admitted insurer.
Care, Custody and
Control.
Most liability insurance
policies exclude coverage
for damage to property
in the care, custody or
control of the insured.
In some cases this type of
coverage can be purchased
through certain forms of
inland marine insurance,
like installation floaters,
and in other cases this exclusion
can be made less restrictive
by adding a
broad form property damage
endorsement.
Cargo Insurance. A policy covering cargo
transported
by a carrier.
Carpenter Cover. See Spread Loss
Reinsurance.
Carrier Replacement. This refers to a situation
where one carrier replaces
one or more carriers.
Carrier. (1) Sometimes refers to
the insurer. The
term “insurer” is preferred
because of the possible
confusion of “carrier” with
transportation. (2) Usually
a commercial insurer
contracted by the Department
of Health and Human Services
to process
Medicare Part B claims
payments. See also Insurer.
Carryover
Provision. In major medical policies,
allowing an insured who has
submitted no claims
during the year to apply any
medical expenses incurred
in the last three months of
the year toward
the new calendar year’s
deductible.
CAS. See Casualty Actuarial
Society.
Case Management. The assessment of a
person’s
long-term care needs and the
appropriate recommendations
for care, monitoring and
follow-up as
to the extent and quality of
services to be provided.
Case Manager. A person, usually an
experienced
professional, who
coordinates the services necessary
under the case management
approach.
Case Mix. The number of cases
requiring different
needs and uses of hospital
resources.
Cash Flow Plans. Premium payment schemes
that
allow an insured to retain a
large part of the premium
and pay it out over a time
period such as a
year.
Cash Flow Underwriting. The use of rating and
premium collection
techniques by insurance companies
to maximize interest
earnings on premiums.
Cash Refund Annuity. An annuity contract which
provides that if at the
death of the annuitant installments
paid out have not totaled
the amount of
the premium paid for the
annuity, the difference
will be paid to a designated
beneficiary in a lump
sum.
Cash
Surrender Value. The amount of cash due
an insured who surrenders
cash value life insurance.
Such surrender, with
consequent termination of all
insurance benefits, is often
called “cashing out” or
“cashing in” a policy. See
Nonforfeiture Values.
Cash Value. (1) See Actual Cash Value.
(2) See
Cash Surrender Value.
Casualty Actuarial
Society (CAS).
A professional
society for actuaries in
areas of insurance work other
than life insurance. This
society grants the designation
of Associate and Fellow of
the Casualty Actuarial
Society (ACAS and FCAS).
Casualty Insurance. Insurance that is
primarily
concerned with the legal
liability for losses caused
by injury to persons or
damage to the property of
others. Includes such
diverse forms as plate glass
insurance, crime insurance,
boiler and machinery
insurance and aviation
insurance. Many casualty
insurers also write surety
bonds. Casualty insurers
write forms of insurance not
considered property
forms. Contrast with
Property Insurance.
Catastrophe Hazard/Loss. The hazard of large loss
by reason of occurrence of a
peril to which a very
large number of insureds are
subject (e.g., widespread
loss due to a hurricane or
tornado).
Catastrophe Models. Models used by insurance
companies as a basis to
estimate homeowner losses.
(The models were originally
developed by Applied
Insurance Research (AIR) of
Boston.)
Catastrophe Policy. An older name for major
medical.
See Major Medical.
Catastrophe
Reinsurance. Excess of loss reinsurance
which, subject to a
specified limit, indemnifies
the ceding company against
an amount of loss
in excess of a specified
amount as the result of an
accumulation of losses
resulting from a catastrophic
event or a series of
catastrophic events.
Caused Accidents. An incident in which an
innocent
victim is made an unwitting
participant in an
actual accident to obtain
insurance money, such as
a sideswiping (law
enforcement people call this scam
swoop and squat”).
Causes of Loss. Under the latest
commercial property,
inland marine and crime
coverage forms, this
term replaces the earlier
term “perils” insured
against.
Causes of Loss Forms. Commercial property forms
stating the perils insured
against, additional coverages
provided, and exclusions
that apply. There are
four causes of loss
forms—basic, broad, special and
earthquake.
Caveat Emptor. Let the buyer beware.
CCRCs. See Continuing Care
Retirement Communities
(CCRCs).
Cease and Desist Order. An order of the state Insurance
Commissioner or of a court
requiring that a company/
person stop engaging in a
particular act or practice,
usually involving insurance
trade practices.
Cede. (1) The act of buying
reinsurance. (2) To transfer
to a reinsurer all or part
of the insurance or reinsurance
written by a ceding company.
Ceding
Company. An insurer that cedes all
or part
of the insurance or
reinsurance it has written to another
insurer. A company that has
placed reinsurance,
distinguished from the
company that accepts
it.
Certificate. See Certificate of
Insurance or Participation.
Certificate of
Authority (COA).
(1) A certificate
issued by the state that
licenses the operation of an
HMO (Health Maintenance
Organization). (2) A certificate
showing the powers that an
insurer grants
to its agents. (3) A
certificate issued by a state department
of insurance showing the
power of an insurer
to write contracts of
insurance in that state.
Certificate of
Convenience.
A temporary license
or permit empowering a
person to act as an agent
even though not fully
licensed according to the law.
Usually this certificate is
granted to an agent who
is studying for a licensing
examination. It may also
be issued to the
administrator or executor of the
estate of an insurance
agent, who must have the
authority of an agent to
settle the estate, or to someone
acting for an agent during a
disability or an
absence such as military
duty.
Certificate of
Insurance.
(1) A statement of the
coverage and general provisions
of a master contract
in group insurance that is
issued to individuals
covered in the group. (2) A
form that verifies
that a policy has been
written and states the coverage
in general, often used as
proof of insurance in
loan transactions and for other
legal requirements.
Certificate
of Need (CON). A certificate issued by
a governmental body,
certifying that the proposed
facility will meet the needs
of those for whom it is
intended. May include
constructing a new health
facility, offering a new or
different health service or
acquiring new medical
equipment.
Certificate of
Reinsurance.
A short-form documentation
of a reinsurance
transaction.
Certiorari. A writ issued by a higher
court to a
lower court asking the lower
court to forward the
record of a particular case
in question.
Cession. The unit of insurance
transferred to a reinsurer
by a ceding company. It also
refers to the
process of ceding insurance
to a reinsurer.
Cestui Que Vie. The person whose life
measures
the duration of a trust,
gift, estate or insurance contract.
In life and health insurance
it is the person on
whose life or health the
policy is written (e.g., the
insured, policyholder or
policyowner).
CGL. See Commercial General
Liability Coverage
Part.
Change Endorsement. When adding an endorsement
after a policy is in effect,
in most cases a
change endorsement must be
issued. The endorsement
lists the policy number and
effective date of
the change, and acts
something like a cover letter,
by providing information
about an endorsement.
Change of Beneficiary. A mandatory provision that
says the policyholder
(usually the insured) has the
right to name or change a
beneficiary. Since a disability
income policy may include an
accidental
death benefit, this
provision is relevant—whether
the policy comes from a
health insurance company
or a life insurance company.
The only time when
this is not the case is if
the beneficiary was designated
as an irrevocable
beneficiary.
Change of Occupation
Provision.
(1) A provision
in a health insurance policy
that allows the insurer
to adjust policy benefits if
the insured has changed
to a more hazardous
occupation. (2) A provision
that provides a method for
handling disability income
claims if the insured has
changed occupations
since the initial
application. This provision allows
the insurer to adjust
benefits or premiums to reflect
the change in occupation. If
this provision is not in
the policy, then no changes
can be made.
Chapter 7. Also called liquidation,
this is the most
common type of bankruptcy
proceeding. It involves
the appointment of a trustee
who collects the nonexempt
property of the debtor,
sells it and then distributes
the proceeds to the creditors.
Charter. (1) To rent or lease a
ship or boat. (2) Usually
the same as articles of
incorporation. This is the
grant of rights from a state
or federal government,
such as the right to
incorporate and transact business.
Chartered Life
Underwriter (CLU).
A designation
granted by the American
College of Life Underwriters
upon successful completion
of a series of
examinations. This is a
popular professional designation
among people who sell life
insurance.
Chartered Property and
Casualty Underwriter
(CPCU). A designation granted by
the American
Institute of Property and
Casualty Underwriters
upon successful completion
of a series of examinations.
Chattel. Personal property items.
Chattel Mortgage. A mortgage where the
collateral
is personal property, rather
than land or buildings.
Chemical Dependency
Services.
The services required
in the treatment and
diagnosis of chemical
dependency, alcoholism and
drug dependency.
Chemical Equivalents. Drugs that contain
identical
amounts of the same
ingredients.
Christian Science
Organization.
A religious organization
that is certified by the
First Church of
Christian Scientists. The
organization may also be
Medicare-certified as a
hospital or skilled nursing
facility.
Churning. An illegal practice where
insurance
agents unnecessarily replace
existing life insurance
for the purpose of earning
additional (higher) first
year commissions.
Civil Commotion. An uprising of a large
number
of people, usually resulting
in damage to property.
Generally describes one of
the extended coverage
perils in the extended
coverage endorsement.
Civilian Health and
Medical Program of the Uniformed
Services (CHAMPUS). Part of the Uniformed
Services Health Benefits
Program that
supplements medical care
available for families of
active, deceased and retired
military personnel.
Claim. A demand made by the
insured, or the
insured’s beneficiary, for
payment of the benefits
provided by the contract.
Claim Expense. The expense of adjusting a
claim,
such as investigation and
attorneys’ fees. It does not
include the cost of the
claim itself. Other expenses
incurred by the company,
such as witness fees and
any trial costs assessed
against the insured are also
covered.
Claim Report. A report filed by an agent
setting
forth the facts of a claim.
Same as loss report.
Claim Representative. See Adjuster.
Claimant. The person making a demand
for payment
of benefits.
Claims Payment
Provision.
A provision that identifies
to whom benefits will be
paid. This, of course,
is the insured person, or
loss payee. It is possible
that policy benefits may be
paid to a third party,
such as a doctor or
hospital, if the insured person
executes a proper assignment
form.
Claims Reserve. Amounts set aside to meet
costs
of claims incurred but not
yet finally settled (e.g., a
workers’ compensation case
where benefits are payable
for several years. At any
given point in time,
the reserve would be the
funds kept based on the
estimate of what the claim
will cost when finally
settled).
Claims Tail. Claims that take place
after the end of
a policy period create an exposure
known as a claims
tail. Coverage is
automatically built into the insuring
agreements of occurrence
forms.
Claims-Made Coverage. A policy providing
liability
coverage only if a written
claim is made during
the policy period or any
applicable extended reporting
period. For example, a claim
made in the
current year could be
charged against the current
policy even if the injury or
loss occurred many years
in the past. If the policy
has a retroactive date, an
occurrence prior to that
date is not covered. Contrast
with Occurrence Coverage.
Class (or
Classification).
A group of insureds having
the same general
characteristics who are
grouped together for rating
purposes. Class rates
apply to dwellings and
apartments, since they usually
have the same general
characteristics and are
exposed to the same perils.
Class Action Suit. A legal device allowing a
group
of individuals with a claim
against a company or an
individual to join together
as plaintiffs in a single
suit.
Class Rate. A rate for risks of
similar hazard. Class
rates, for example, apply to
dwellings.
Classified Insurance. Life or health insurance
on
risks which do not meet the
standards for the regular
manual rate. See also
Substandard.
Clause. A section of a policy
contract or endorsement
dealing with a particular
subject (e.g., a subrogation
clause deals with the rights
of the insurer
in the event of payment of a
loss under the contract).
Cleanup Fund. Policies whose express
purpose is
to pay final expenses of
death.
Clear Space Clause. A clause requiring that
insured
property, such as stacks of
lumber, be stored
at some particular distance
from each other or from
other property.
Clerical Error. A provision in a group
health insurance
policy that provides if
there is an error or
omission in the
administration of a group policy,
the coverage is considered
to be what it would be if
there had been no error or
omission.
Close Corporation. A corporate form of
business
controlled and operated by a small,
close group of
persons such as family
members. The corporation’s
stock is not sold to
outsiders.
Closed Panel. A situation where covered
insureds
must select one primary care
physician—the only
one allowed to refer the
patient to other health care
providers within the plan.
Also called closed access
or gatekeeper model.
CLU. See Chartered Life
Underwriter.
Cluster or Patio Homes. A group of houses similar
in every way to
single-family homes, except that
the residents share
ownership and maintenance of
the land in the
development—often a golf course
or other recreation
facility.
COB. Coordination of Benefits.
See Nonduplication
of Benefits.
COBRA. See Consolidated Omnibus
Budget Reconciliation
Act of 1986.
Codicil. A change or amendment to a
will.
Coding. A method of putting
information into a
numerical form for
statistical use. Most information
on policies is coded and
then put into reports.
Coercion. An unfair trade practice
that occurs when
someone in the insurance
business applies a physical
or mental force to persuade
another to transact
insurance.
Cognitive Impairment. A deficiency in the
ability
to think, perceive, reason
or remember resulting in
loss of the ability to take
care of one’s daily living
needs.
Coinsurance Clause. (1) A provision stating
that
the insured and the insurer
will share all losses covered
by the policy in a
proportion agreed upon in
advance. See also Percentage
Participation. (2) A
clause under which the
insured shares in losses to
the extent that he or she is
underinsured at the time
of loss. The insurer grants
a reduced rate to the insured
providing the insured
carries insurance 80,
90 or 100 percent to value.
If, at the time of loss,
the insured carries less coverage
than required, the
loss must be shared. For
example, if an insured has
a building worth $100,000
and carries an 80 percent
coinsurance clause, it means
that the insured
agrees to carry at least
$80,000 of insurance. If the
insurance carried is just
$60,000, then any loss
under the policy would be paid
for on the basis of
the comparison of $60,000
(amount carried) divided
by $80,000 (amount agreed
upon in advance) times
the amount of the loss.
Thus, in the event of a
$10,000 loss the insured
would only receive 75
percent of a loss or $7,500.
Cold Lead Advertising. An illegal method of
marketing
insurance policies (often
associated with
Medicare supplement
policies) that fails to disclose
in a conspicuous manner the
solicitation of insurance
or other similar coverage,
and that further contact
will be made by an insurance
agent, other producer
or insurer.
Collapse. Literally, to cave in or
give way. Several
court decisions have
interpreted collapse as the “loss
of structural integrity.”
See Blasting and Explosion
Exclusion.
Collateral Assignment. Assignment of a life
insurance
policy or its value as
security for a loan. In the
event of default, the
creditor would receive proceeds
or values only to the extent
of the creditor’s interest.
Collateral Source. A rule allowing a
plaintiff to
recover damages even if the
plaintiff has already recovered