Insurance Dictionary

Insurance Dictionary

What Means What When It Comes to

Life, Health, Business, Home, Auto and

Other Coverages

First edition, third printing 2008

Publishing

Silver Lake Publishing

111 East Wishkah Street

Aberdeen, WA 98520

Box 29460

Los Angeles, California 90029

For a list of other publications or for more

information from Silver Lake Publishing,

please call 1.360.532.5758. Find our

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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 Lake Publishing. Also, Silver Lake

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

Aberdeen, WA

“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.