What Means What When It Comes to
Life, Health, Business, Home, Auto and
First edition, third printing 2008
Copyright © 2002-2008 by
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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
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© 2008 Silver
“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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
Affiliated Companies. Insurers linked together
through common stock ownership or through interlocking
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
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
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
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
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
AIDS. See Acquired Immunodeficiency Syndrome.
Alcoholic Beverage Control Laws. See Dram Shop
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
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
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
with the development of education and standards
in the actuarial field. Members may use the
designation MAAA (Member, American Academy
American Agency System. See Independent
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
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
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
Ancillary Benefits. Benefits for miscellaneous hospital
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
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
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
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
Annuity Due. An annuity that pays benefits at the
beginning of the benefit period rather than at the
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.
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
Appeal. The right of a party who has received an
adverse decision to take the case to a higher court
Appellant. The person appealing to the higher
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.
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
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
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
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
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
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
Assignee. A person to whom policy rights are assigned
in whole or in part by the original
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
Branch Manager. An executive who manages a
branch office for an insurer or an agency. See also
Branch Office. See Regional Office.
Breach of the Duty to Act. When a tortfeasor does
not act in a reasonably prudent manner toward another.
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
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
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
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
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
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
Business Interruption Insurance, Contingent.
Coverage for business income from dependent properties.
See Business Income Coverage Form and
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
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
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
Cafeteria Plans. An employee benefit that provides
a series of flexible health care benefits from which
an employee may choose, including a cash only
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
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
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
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
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
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
Caveat Emptor. Let the buyer beware.
CCRCs. See Continuing Care Retirement Communities
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
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
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
Churning. An illegal practice where insurance
agents unnecessarily replace existing life insurance
for the purpose of earning additional (higher) first
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
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
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
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
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
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
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
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
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
Collapse. Literally, to cave in or give way. Several
court decisions have interpreted collapse as the “loss
of structural integrity.” See Blasting and Explosion
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
damages from a source other than the defendant.
Collateral Split Dollar. A split dollar plan in which
the employee controls the policy and pledges it as
collateral for a series of employer loans to pay the
Collection Book. The debit agent’s record book
showing the amount collected on each policy, the
week of the collection and the policy period for
which the premium has been paid.
Collection Commission. A percentage of premiums
collected that is paid to an agent as the commission
on collections of debit life insurance premiums.
Collection Fee. An industrial life insurance agent’s
fee. Serves as compensation for making policy premium
collections for which no commission is paid.
College Retirement Equities Fund (CREF). An
organization affiliated with the Teachers Insurance
Annuity Association that sells a variable annuity to
college and university personnel.
Collegia. Groups of associations in ancient Rome
that were influential historically in the development
of life insurance and pensions. (The forerunners of
mutual benefit societies or friendly societies.)
Collision, Convertible. See Convertible Collision
Collision Damage Waiver (CDW). A waiver offered
by rental companies (also called loss damage
waiver) that releases an insured from responsibility
for damage to the rental car, provided the insured
complies with the rental contract terms. CDW often
duplicates coverage an insured already has.
Collision Insurance. Auto insurance that covers
loss (direct or accidental) to the insured’s own
vehicle caused by its collision with another vehicle or
object or its upset. It does not cover bodily injury
or property damage liability arising out of the collision.
Collusion. An agreement, usually secret, between
two or more persons to defraud or deprive another
or others of their property or rights.
Combination Annuity. A contract that combines
both the guarantees of a fixed annuity and the nonguarantees
and investment risk of a variable annuity.
Combination Business Interruption Extra Expense
Insurance. A policy with both business interruption
and extra expense coverages in a single contract.
See Business Income Coverage Form.
Combination. An agent, agency or insurer that sells
both industrial life and ordinary life policies.
Combination Crime Coverage Plan. Under the latest
commercial lines program, two combination
crime coverage plans are available. When written
with a separate limits option, any combination of a
variety of coverages may be included at different
limits (coverage is similar to the earlier comprehensive
dishonesty, disappearance and destruction (3-
D) policy). When written with a single limit, major
coverages are mandatory, optional coverages may
be included, but one limit applies to all coverages
purchased (coverage is similar to the earlier blanket
Combination Plan. The combining of life insurance
contracts with a fund called a side fund or aux-
iliary fund in order to increase the amount of money
available for a pension or annuity at some future
Combination Plan Reinsurance. Combined reinsurance
that provides that in consideration of a premium,
which is a fixed percentage of the ceding
company’s subject premium on the business covered,
the reinsurer will indemnify the ceding company
for the amount of loss of each risk in excess of
a specified retention and subject to a specified limit
and, after deducting the excess recoveries on each
risk, the reinsurer will indemnify the ceding company
against a fixed quota share percent of all remaining
Combination Policy. A policy made up of the contracts
of two or more insurers in which each provides
a different kind of insurance. Once used in
auto insurance when state law limited casualty companies
to the writing of liability insurance and fire
insurance companies to physical damage insurance,
combination policies are rarely written today.
Combined Annuity Mortality Table. A mortality
table published in 1928 for use in determining rates
for group annuities.
Combined Ratio. The sum of an expense ratio and
a loss ratio. An underwriting profit occurs when
the combined ratio is under 100 percent and an
underwriting loss occurs when the combined ratio
is over 100 percent.
Combined Single Limit (CSL). The maximum
amount that the insurance company must pay for
all damages arising out of a single accident. The
CSL is a single limit of protection for both bodily
injury and/or property damage, contrasted with split
limits, where specific limits apply to bodily injury
and property damage separately.
Commercial Blanket Bond. A bond that covers
the insured against the dishonesty of all regular employees.
A single amount of coverage applies to any
one loss, regardless of the number of employees involved
in the loss. See also Blanket Bond, and contrast
with Blanket Position Bond.
Commercial Carrier Regulations. Special regulations
that apply to commercial carriers of both passengers
and cargo because of the risk of common
carrier accidents. State and federal laws have created
minimum financial responsibility requirements
for commercial carriers that may be met by purchasing
insurance or obtaining a surety bond guaranteeing
payment in amounts which at least equal
the minimum limits. In some cases, full or partial
self-insurance is permitted, if the carrier provides
the necessary financial data to demonstrate the ability
to fully or partially self-insure.
Commercial General Liability (CGL) Policy. General
liability coverage that is written as a monoline
policy or as part of a commercial package. The latest
forms include all sublines, provide very broad
coverage, and two variations are available—occurrence
or claims-made coverage.
Commercial Lines. Insurance for businesses, professionals
and commercial establishments. See also
Business Insurance. Contrast with Personal Lines.
Commercial Package Policy (CPP). A commercial
lines policy that contains more than one of the
following coverage parts: commercial property, commercial
general liability, commercial inland marine,
commercial crime, boiler and machinery insurance,
commercial auto insurance and farm coverage. In
the late 1980s, ISO introduced a modular approach
for constructing commercial property insurance
policies. Instead of just updating old policies, ISO
developed a series of specialized forms, with each
form fulfilling a specific policy function. The right
combination of forms would create a complete, custom-
Commercial Policy. Policies that do not guarantee
Commercial Property Coverage. Property coverage
that is written as a monoline policy or part of a
Commingling. An illegal practice that occurs when
an agent mixes personal funds with the insured’s or
Commission. (1) An allowance made by the reinsurer
to the original insurer for part of the original
insurer’s acquisition and other costs. It may also
include a profit factor. (2) That portion of the premium
paid to the agent as compensation for services.
See also First Year Commission, Renewal Commission,
Level Commission System, Unlevel Commission
System, Contingent Commission and
Commission of Authority. A document outlining
the powers delegated to an agent by an insurer.
Commissioner of Insurance. The head of most state
insurance departments. In some states, the title Director
or Superintendent of Insurance is used.
Commissioners’ Disability Table. A morbidity
table approved by the National Association of Insurance
Commissioners for use in setting legal minimums
for disability income insurance policy reserves.
Commissioners’ Industrial Extended Term Mortality
Table. An industrial mortality table approved
by the NAIC for evaluation and computation of
extended term insurance in industrial policies, where
additional mortality margins are deemed necessary.
This is a companion table to the CSI.
Commissioners’ Standard Industrial Mortality
Table. An industrial mortality table approved by
the NAIC as a standard for evaluation and for computation
of nonforfeiture values for Industrial policies.
Commissioners’ Standard Ordinary (CSO). A mortality
table approved by the NAIC as a standard for
evaluation and for computation of nonforfeiture
values for ordinary life policies.
Commissioners’ Values. An annual list of securities
published by the NAIC. The values are to be
used in recording security values on insurance company
Common Accident. An accident in which two or
more persons are injured.
Common Carrier. An individual or organization
that offers its services to the public for carrying persons
or property from one place to another for payment.
A common carrier cannot refuse to carry goods
for one customer as opposed to another.
Common Disaster. A situation in which an insured
and the beneficiary appear to die simultaneously
with no clear evidence of who died first.
Common Disaster Clause. A clause sometimes
added to a life insurance policy that provides a means
for the insurer to distribute the proceeds of the policy
in the event of a common disaster.
Common Law. The unwritten law developed primarily
from judicial case decisions based on custom
and precedent. It was developed in England and
constitutes the basis for the legal systems of most of
the states in the U.S.
Common Law Defenses. Pleas that can defeat an
injured worker’s suit for injuries against the employer
in the absence of a workers’ compensation
law or employers liability legislation. The three defenses
are contributory negligence, assumption of
risk and fellow servant rule.
Common Law Liability. Responsibility based on
common law for injury or damage to another’s person
or property that rests on an individual because
of the person’s actions or negligence. This is opposed
to liability based on statutory law.
Common Policy Conditions. Under the latest commercial
lines program, a form including six common conditions
that apply to all coverage parts attached to a commercial
Common Policy Declarations. A declaration page
that is part of every commercial policy. It shows
information applicable to the entire policy (policy
number, insurer, insured, total premium, forms attached,
etc.). Each individual coverage part may also
have its own declarations page.
Common Stock. A security that provides an ownership
or equity position in a company. Shareholders
may receive dividends if declared by the board
Community Property. Common or statutory law
that holds that husband and wife are each entitled
to half of the total earnings and property of both
parties to the marriage. It is applicable in Arizona,
California, Idaho, Louisiana, Nevada, New Mexico,
Texas and Washington state.
Community Rating. Under this rating system, the
charge for insurance to all insureds depends on the
medical and hospital costs in the community or area
to be covered. Individual characteristics of the
insureds are not considered at all.
Commutation. The exchange of one thing for another.
In insurance it is usually the exchange of installment
benefits for a lump sum.
Commutation Clause. A clause that provides for
estimation, payment and complete discharge of all
future obligations for reinsurance loss or losses incurred,
regardless of the continuing nature of certain
losses. Often found in Lloyd’s treaties.
Commutation Rights. The right of a beneficiary to
receive in one sum the unpaid payments remaining
under an installment option that was selected for
the settlement of the proceeds or values of a life
Commute. To determine as of a given date the single
sum that is the equivalent of a series of sums due at
various future dates, with allowances for interest that
would have been earned on the unpaid portion of
the series of payments.
Commuted Value. The amount of a single sum payment
as determined under the definition of commute.
Comparative Negligence. In some states the negligence
of both parties to an accident is established
in proportion to the degree of their contribution to
the accident. Several states have comparative negligence
laws, and each one varies somewhat from the
others. This is in contrast to contributory negligence,
which is a general common law rule. See
Compensation Related Loan. A below market loan
between an employer and employee.
Compensatory Damages. Compensation for the
loss incurred. These may include specific damages
(the documentable, actual expenses incurred by the
injured party, such as medical bills, wages lost and
property replacement), and general damages (monetary
awards for more subjective, less quantifiable
aspects of the loss, such as pain and suffering or loss
of consortium). However, this does not include punitive
Competency. One of the elements that must be
present in order to have a legal contract. It relates
to the fitness or ability of either of the parties to the
contract. See also Incompetent.
Competitive Medical Plan (CMP). Refers to permission
given by the federal government that allows
an organization to write a Medicare risk contract.
Competitive State Fund. A fund established by a
state to write workers’ compensation insurance in
competition with private insurers.
Completed Operations Insurance. Insurance issued
particularly to various types of contractors. It covers a
contractor’s liability for accidents arising out of jobs
or operations that have been completed. See Products
and Completed Operations Insurance.
Completion Bond. A bond issued to a mortgagee.
It guarantees that the construction for which the
mortgagor has borrowed money will be completed
and serve as collateral for the mortgage upon
Composite Rate. (1) One rate for all members of
the group regardless of their status as single or members
of a family. (2) A single rate with a single basis
of premium, e.g., payroll or sales. For this single
rate the insured is covered for a variety of hazards,
such as premises and operations, completed operations,
products liability and automobile. Its primary
value is to make it simpler for the policy’s premium
to be computed. (AU
Composition Roof. A roof of either asbestos or asphalt
shingles. Often used in connection with con-
struction factors used in determining the rate for
Comprehensive or Blanket Coverage. The traditional
name for physical damage coverage for losses
by fire, theft, vandalism, falling objects and various
other perils. Personal auto policies now call this
“other than collision” coverage. Commercial forms
continue to call it “comprehensive” coverage.
Comprehensive General Liability. A policy covering
a variety of general liability exposures, including
premises and operations (OL&T or M&C), completed
operations, products liability and owners and
contractors protective. Contractual liability and
broad form coverages may be added. In most jurisdictions,
the comprehensive general liability policy
has been replaced by the newer commercial general
liability (CGL) forms. See also Commercial General
Comprehensive Glass Insurance Policy. Protection
against loss by breakage of glass from almost
any peril. Fire is usually excluded (it is covered under
any basic property policy), and war is excluded.
This policy has largely been replaced by a new commercial
form. See Glass Coverage Form.
Comprehensive Major Medical. A plan of insurance
with a low deductible, high maximum benefits
and a coinsurance feature. It is a combination
of basic coverage and major medical coverage which
has virtually replaced separate hospital, surgical and
medical policies with each having its own deductible
requirements. Also see Major Medical Insurance.
Comprehensive Personal Liability. Protects individuals
and families from liability for nearly all types
of accidents caused by them in their personal lives
as opposed to business lives. Most commonly provided
by a homeowners policy.
Comprehensive Policy. In automobile and liability
insurance, this is an open perils (all risk) coverage
with certain named exclusions.
Comprehensive “3-D” Policy. See Dishonesty, Disappearance
and Destruction Policy.
Compromise and Release Agreement. A settlement
practice where an injured worker agrees to a
compromised liability amount (usually a lump sum)
in exchange for releasing the employer from further
Compulsory Insurance. Any form of insurance required
by law. For example, some states have compulsory
automobile insurance laws, some have compulsory
disability benefits laws, etc.
Computation Base Years. The total of the computation
elapsed years less the five lowest earnings years
for Social Security tax purposes.
Computation Elapsed Years. The total number of
years since 1950 or attainment of age 21, if later,
up to age 62, during which Social Security taxes
have been paid.
Computer Fraud. Fraudulent theft or transfer of
money, securities or other property resulting from
the use of any computerized equipment or systems.
Computer Fraud Coverage Form. A commercial
crime coverage form that protects against loss of
money, securities and property other than money
and securities resulting from computer fraud.
Concealment. The failure to disclose a material fact.
See Material Fact.
Concurrent Causation. Two or more perils acting
concurrently (at the same time or in sequence) to
cause a loss.
Concurrent Insurance. Two or more policies with
the same conditions and coverages that cover the
same interest in the same property. If an insured
has two or more property policies, the policies should
be concurrent (similar) or the property will not be
insured properly in the event of a loss.
Concurrent Review. A case management technique
that allows insurers to monitor an insured’s hospital
stay and to know in advance if there are any
changes in the expected period of confinement and
the planned release date.
Conditional Binding Receipt. A binding receipt
that provides that if a premium accompanies an application,
the coverage will be in force from the date
of application or medical examination, if any, whichever
is later, provided the insurer would have issued
the coverage on the basis of the facts revealed
on the application, medical examination and other
usual sources of underwriting information. A life
and health insurance policy without a conditional
binding receipt is not effective until it is delivered
to the insured and the premium is paid.
Conditional Sales Floater. A policy that covers
property that has been sold on an installment or
conditional sales basis. It covers the interest of the
Conditional Vesting. A form of vesting in a contributory
pension plan where entitlement to a vested
benefit is conditional upon nonwithdrawal of the
participant’s contribution. See also Vesting.
Conditionally Renewable. A contract that provides
that the insured may renew it to a stated date or an
advanced age, subject to the right of the insurer to
decline renewal only under conditions stated in the
Conditions. Provisions of an insurance policy that
state either the rights and duties of the insured or
the rights and duties of the insurer. Typical conditions
have to do with such things as duties in the
event of loss, cancellation provisions and the right
of the insurer to inspect the property.
Condominium. Townhouses, manor homes or—
most often—apartment flats.
Condominium Association Coverage Form. A
commercial property form that covers the joint insurance
needs of members of a condo association
who collectively own commercial property.
Condominium Unit Owners Coverage Form. A
commercial property form designed to cover the
individual needs of commercial (not residential) condominium
Confining. A form of disability or sickness that confines
the insured indoors, usually at home or in a
hospital. Many policies state that coverage is afforded
only if the insured is confined.
Consent Order. A disciplinary action in which the
party at fault (usually an insurance company or
agent) agrees to discontinue a particular practice
(usually an unfair trade or claims practice) through
a written agreement with the Insurance Department.
Consent orders (also known as consent decrees) may
or may not involve a fine.
Consequential Loss (or Damage). (1) An indirect
loss arising out of the policyholder’s inability to use
the property over a period of time, as opposed to a
direct loss that happens almost instantaneously.
Business interruption, extra expense, rents insurance
and leasehold interest are the most common
coverages under this category of loss. (2) A loss not
directly caused by a peril insured against, such as
spoilage of frozen foods caused by fire damage to
refrigeration equipment. See also Indirect Loss, and
contrast with Direct Loss.
Conservation. The insurance company’s efforts to
prevent current policies from lapsing.
Conservator. Someone appointed to manage an insurer
deemed by law or court action to be in danger
Consideration. For a contract to be binding each
party to the contract must give what is known as
consideration or the exchange of values on which a
contract is based. In an insurance contract, the insured
person makes a premium payment (consideration
now) and promises to comply with the provisions
of the policy (consideration future). In return,
the insurance company promises to pay in accordance
with the terms of the contract.
Consignee. The person to whom materials or goods
are delivered for resale. The consignee pays the owner
after the goods have been sold.
Consolidated Omnibus Budget Reconciliation
Act (COBRA) of 1986. Legislation providing for a
continuation of group health benefits under the
group plan for a period of time when benefits would
otherwise terminate. Continuation rights apply to
enrolled persons and their dependents in companies
with 20 or more employees. Coverage may be
continued for up to 18 months if the insured terminates
employment or is no longer eligible. Coverage
may be continued for up to 36 months in
nearly all other cases, such as loss of dependent eligibility
because of death of the enrolled person, divorce
or attainment of the limiting age.
Consortium. Companionship of a spouse. If a spouse
is injured through the fault of another, part of the
damages could include the value of the spouse’s services
or companionship that was lost due to the
Conspiracy. A combination of two or more persons
that by concerted action seek to accomplish an unlawful
purpose or to accomplish a lawful purpose
by unlawful means.
Construction Bond. A bond that protects the owner
of a building or other structure under construction
if the contractor cannot complete the job. If the
contractor defaults, the insurer is obligated to see
that the work is completed.
Constructive Delivery. Intentionally relinquishing
control over a policy and turning it over to someone
acting for the policyowner, such as when an insurer
mails the policy to its own agent for delivery to the
insured. Legally, an insurance policy is considered delivered
when mailed or turned over to the policyowner
or someone acting on his or her behalf.
Constructive Performance. A situation in which
an act has not actually been completed but conduct
has gone so far as to show intent to complete
Constructive Total Loss. A partial loss of sufficient
degree to make the cost of repairing the damaged
property more than the property is worth (e.g.,
an old automobile might suffer damage that can be
repaired, but the cost of repairs would be more than
the actual cash value of the car).
Consumer Credit Insurance Association (CCIA).
A trade association for insurers of credit insurance
in the areas of life and health.
Consumer Protection Act. A law that protects a
policyholder from the misconduct, misrepresentation
or “sharp” trade practices of insurers, brokers
Consumer Report. A report ordered on an insured
or applicant under which information about the
person’s credit, character, reputation, personal characteristics
or lifestyle is obtained primarily through
Contents. (1) In relation to car theft, it is the contents
of a vehicle or personal effects.
Contents Coverage. Coverage for business personal
property. Includes more than building contents
because it applies to property located in or on the
described building, or within 100 feet of the described
premises while in a vehicle or out in the
Contents Rate. The fire insurance rate on the contents
of a building rather than on the building itself.
Contestable Clause. A provision in a policy setting
forth the conditions under which or the period
of time during which the insurer may contest
or void the policy. After that time has lapsed, normally
two years, a policy cannot be contested.
Contingency Reserve. A reserve in an insurer’s annual
statement, in addition to the legal requirements,
to provide for unexpected contingencies or
Contingency Surplus. See Contingency Reserve.
Contingent Annuitant. A person(s) named to receive
annuity benefits if the primary annuitant is
deceased at the time benefits become payable.
Contingent Annuity. An annuity in which payment
of benefits is contingent upon the occurrence
of an uncertain event, such as death of a person not
an annuitant (e.g., an annuity purchased to pay
benefits to a wife if her husband dies.)
Contingent Beneficiary. The person(s) entitled to
receive policy benefits if the primary beneficiary is
deceased when the benefits become payable.
Contingent Business Interruption Insurance.
Coverage for the loss of earnings of an insured because
of a loss to a business that is a major supplier
or customer. Also known as business income from
dependent properties. See Business Income Coverage
Form and Dependent Properties.
Contingent (or Profit) Commission. An allowance
payable to the ceding insurer, in addition to the
normal ceding commission, based on the net profit
derived from a reinsurance treaty.
Contingent Fund. A reserve to cover possible liabilities
resulting from an unusual happening.
Contingent Interest. An interest in personal property
that is dependent upon a future event.
Contingent Liability. A liability imposed due to
accidents caused by persons other than employees
for whose acts an individual, partnership or corporation
may be responsible. For example, an insured
who hires an independent contractor can, in some
cases, be held liable for negligence.
Contingent Trust. A revocable living trust that only
becomes operational upon a specified occurrence or
Contingent Vesting. In pensions, a form of vesting
where entitlement to a vested interest is conditional
upon circumstances surrounding the
employee’s termination of service or conduct after
termination. See also Vesting.
Continuation. Allows terminated employees to continue
group health insurance coverage under certain
Continuing Care Retirement Communities
(CCRCs). Residential communities that provide residents
with easy access to health care.
Continuing Education Requirement. State-level
requirement that insurance licensees periodically
complete a minimum number of hours of insurance-
related education to be eligible for license renewal.
Continuous Premium Whole Life Policy. A whole
life policy that stretches the premium payments over
the insured’s lifetime (to age 100). Also known as
straight life. Compare with Limited Payment Whole
Life and Single Premium Whole Life.
Contract. (1) An agreement entered into by two or
more persons under which one or more of them
agree, for a consideration, to do or refrain from doing
acts in accordance with the wishes of the other
party(s). (2) In insurance, the agreement by which
an insurer agrees, for a consideration, to provide
benefits, reimburse losses or provide services for an
insured. (3) An agreement under which an agency
or agent does business with an insurer.
Contract Bond. A guarantee of the faithful performance
of a construction contract and the payment
of all relevant material and labor bills. See also Performance
Bond and Payment Bond.
Contract Carrier. A transportation company that
carries, for payment, the goods of certain customers
only, as contrasted with a common carrier who carries
goods for the public in general.
Contract of Adhesion. A contract that one party
must accept or reject in toto, without bargaining
over the wording. An insurance contract, for example,
is developed by the insurer, and the insured
must accept it as it is.
Contract of Insurance. A contract under which
an insurer agrees to indemnify an insured for losses,
provide other benefits or render services to or on
behalf of the insured. It is often called an insurance
policy, but the policy is merely evidence of the
Contractual (or Assumed) Liability Insurance.
Protects the insured in the event of a loss for which
the insured has assumed liability, express or implied,
under a written contract. For example, under
most construction agreements with a municipality,
the contractor agrees to “hold the municipality
harmless” for any accidents arising out of the
job. Contractual liability insurance would thus protect
the contractor from any loss for which the municipality
would be liable in connection with the
Contract Year. The period of time from the effective
date to the expiration date of the contract.
Contributing Location. A location upon which the
insured depends as a source of materials or services.
One type of dependent properties for which business
income coverage may be written.
Contribution. (1) The share of a loss payable by an
insurer when contracts with two or more insurers
cover the same loss. See also Apportionment. (2)
The insurer’s share of a loss under a coinsurance or
similar provision. (3) The amount of the premium
for group insurance or a pension plan paid by the
Contribution Clause. See Coinsurance Clause. Both
are similar in effect, but contribution clause is identified
mostly with business interruption forms.
Contribution Formula. As used under a qualified
profit-sharing trust or money-purchase plan, the
formula that spells out when and in what amounts
the employer will make contributions to the trust.
Contributory. An plan of employee coverage in
which the employee pays at least a potion of the
Contributory Negligence. If an injured party fails
to exercise proper care and in some way contributes
to his or her injury, the doctrine of contributory
negligence will probably negate or defeat the claim,
even though the other party is also negligent. Contrast
with Comparative Negligence.
Contributory Retirement Plan. A plan in which
the participant pays part of the cost of purchasing
the annuity or building up the fund from which
benefits are paid.
Control. Authority given to an agent or broker by
a policyowner to place the insurance where the agent
or broker sees it.
Control Provision. A policy provision found most
frequently in juvenile contracts, providing that ownership
control is to be exercised for a stated or indefinite
duration by a person other than the one
whose life is insured.
Controlled Business. The amount of insurance
countersigned, issued or sold by a producer covering
the life, property or interests of that producer,
members of the producer’s immediate family or the
producer’s employer or employees. Many states limit
the amount of controlled business that may be written,
and if the premium or commissions on controlled
business exceed a given percentage (usually
50 percent) of all business, the producer’s license
may be suspended, revoked or not renewed.
Controlled Insurance. (1) An insurance account that
an agent or broker controls by influencing the
buyer, as contrasted with controlling it by actual
agreement. See Control and Control Provision.
Convention (or Statement) Blank. The uniform
annual financial statement required by all U.S. insurance
jurisdictions as prescribed by the NAIC. It
must be filed annually in an insurer’s home state
and every state in which it is licensed to do business.
Nearly all insurance accounting practices are
geared to it.
Convention Values. Values assigned to insurers’
assets in the convention blank.
Conversion. (1) Wrongful use of property by one
in lawful possession of it. (2) Change of one policy
form to another, usually without evidence of insurability.
Usually refers to life or health insurance contracts.
Conversion Fund (Supplemental). A fund used
with ordinary life or limited payment life insurance
to augment the cash value at retirement to provide
monthly retirement income.
Conversion Privilege. The right of an individual
to convert a group health or life policy to an individual
policy should the individual cease to be a
member of the group.
Convertible. A policy that may be changed to another
form by contractual provision and without
evidence of insurability. Most term policies convert
to permanent insurance.
Convertible Collision Insurance. Automobile collision
insurance with a deductible that, after claims
exceeding the deductible have been paid, converts
to full coverage for all losses thereafter.
Cooperative. Ownership in the form of a corporation.
Owners buy a share of stock in the corporation,
which gives them the privilege of occupancy.
Cooperatives can be more restrictive on who moves
in. Taxes are paid on the building rather than on
Cooperative Insurance. Insurance issued by a mutual
association such as a fraternal society, an employee
association, an industrial association or a trade
Coordination of Benefits (COB). A group policy
provision that helps determine the primary carrier
in situations where an insured is covered by more
than one policy. This provision prevents an insured
from receiving claims overpayments. See Non-duplication
Co-pay. An arrangement where the covered person
pays a specified amount for various services and the
health care provider pays the remainder. The covered
person usually must pay his or her share when
the service is rendered. Similar to coinsurance, except
that coinsurance is usually a percentage of certain
charges where the co-payment is a dollar amount.
Co-payment(s). See Co-pay.
Co-pay Provision. Often used with major medical
policies. This provision states what percentage of a
claim the company will pay and what percentage
the insured will pay (e.g., an 80 percent co-pay provision
would provide that the insurer pay 80 percent
of claims and the insured pay 20 percent).
Corridor. In universal life insurance, it is necessary
to maintain a certain level of pure insurance protection
in excess of the accumulation value in order to
qualify as life insurance for income tax purposes.
This portion of the pure insurance protection is a
Corridor Deductible. A major medical provision
that provides for a deductible, or “corridor,” that
applies after full payment of basic hospital and medical
expenses up to a stated amount, and before additional
expenses are shared on a coinsurance basis.
For example, a policy might pay 100 percent of the
first $2,000 of expenses, followed by a $500 corridor
deductible paid by the insured, followed by a sharing
of additional expenses on the basis of 80 percent
payable by the insurer and 20 percent payable by the
Cosmetic Procedures. Procedures that improve
appearance, but are not medically necessary.
Cost Basis. Money that has already been taxed; used
in reference to taxation of investment dollars.
Cost Contract. An agreement between a provider
and the Health Care Financing Administration to
provide health services to covered persons based on
reasonable costs for service.
Cost of Insurance. The amount a policyowner pays
to an insurer, minus what he or she gets back from
the insurer. This expression is used when determining
the true cost of permanent forms of life insurance
to a policyowner. It considers the fact that premiums
are paid in but also that an actual cash value
is being built up, which is the portion that the insured
will get back from the insurance.
Cost of Insurance Charge. Another term for the
charge for the pure insurance protection element of
a life insurance contract. See Mortality Charge.
Cost of Living Benefit. An optional disability benefit
where the monthly benefit is increased annually
after the insured is on claim for 12 months.
Cost-of-Living Rider. Adjusts policy benefits in
relation to the change in the economic climate. The
majority of such riders are tied to changes in the
Consumer Price Index (CPI).
Cost Sharing. A situation where covered persons
pay a portion of the health costs such as deductibles,
coinsurance or co-payment amounts.
Co-Surety. One of a group of sureties directly participating
in a bond with obligations joint and several.
Countersignature Law. Refers to state laws requiring
that any insurance contract in a state be countersigned
by a representative of the insurer located
in that state.
Countersignature. The signature of a licensed agent
or representative on a policy.
Countrywide Rates. For each major division of the
commercial lines manual, a section called “countrywide
rates” contains rates and minimum premiums.
State rates are used for coverages for which
there are no countrywide rates, or to modify countrywide
Countrywide Rules. For each major division of the
Commercial Lines Manual, a section called “Countrywide
Rules” contains rules and rating factors
applicable to coverages in that division.
Coupon Policy. A life insurance policy, usually 20-
pay life or some other limited payment period, with
attached coupons that may be cashed in for a specified
amount at the time of the payment of each
Court Bond. Any bond required of a litigant to
enable him or her to pursue a remedy in court.
Cover. (1) A contract of insurance. (2) To effect insurance,
that is, to “cover” an insured, for instance,
for automobile insurance effective as of a given time.
(3) To include within the coverage of a contract of
insurance. For example, one could “cover” additional
buildings under a property insurance contract.
Cover Note. Similar to a binder, but binders are
usually issued by companies and delivered to
agents. A cover note is usually written by an agent,
and it informs the insured that coverage is in effect.
See also Binder. In reinsurance, a cover note is a
statement issued by an intermediary or broker indicating
that coverage has been effected.
Coverage. The scope of protection provided by an
insurance policy. The policy spells out many agreements,
but perhaps most important, it specifies the
type of losses that will be reimbursed by the insurance
Coverage Part. Any one of the individual commercial
coverage parts that may be attached to a
commercial policy. Under the latest commercial lines
program, a coverage part may be issued as a monoline
policy or may be combined with others as part of a
Coverage Trigger. A mechanism that determines
whether a policy covers a particular claim for loss.
For example, the difference between the coverage
triggers of liability “occurrence” forms and “claims
made” forms is that loss must occur during the
policy period in the first case and the claim must be
made during the policy period in the second case.
Covered Expenses. Health care expenses incurred
by an insured or covered person that qualify for
reimbursement under the terms of a policy contract.
Covered Loss. Illness, injury, death, property loss,
legal liability, or any other situation or loss that is
covered under a policy.
Covered Person. An insured person under a contract
CPCU. See Chartered Property and Casualty Underwriter.
Crash Coverage. Optional coverage under an aviation
policy that provides coverage for damage to an
airplane caused by a crash, and is usually referred to
as Hull coverage or physical damage coverage.
Crash Involvement Rate. The rate of accidents per
million vehicle miles traveled. This rate is based on
various age groups.
Credentialing. Approving a provider based on certain
criteria to provide or participate in a health
Credit Card Forgery Insurance. Protects the insured
against losses caused by forgery in the use of
credit cards or the alteration of them or of any other
written instruments connected with them.
Credit Carried Forward. The transfer of credit or
profit from one accounting period to another under
a spread loss or other form of long-term reinsurance.
Credit Carryover. Each year an employer is allowed
to contribute 15 percent of payroll towards a profit-sharing
plan and deduct it from taxable income. If
the contribution is less than 15 percent in a particular
year, the unused percentage can be made up
in succeeding years. However, deductible contributions
are limited to a total amount not greater
than 25 percent of the participants’ payroll: 15 percent
for the current year’s contribution plus 10 percent
for credit carryover.
Credit Health Insurance. A group disability income
insurance contract whereby a creditor is protected
in the event of the total disability of a debtor.
The policy pays benefits equal to the monthly installment
of the debtor.
Credit Insurance. Insurance on a debtor in favor
of a creditor to pay off the balance due on a loan in
the event of the death or disability of the debtor.
Liability insurance for abnormal loss from bad debts.
The coverage is limited to the total amount of indebtedness.
Credit Life Insurance. A group life insurance contract
whereby a creditor is protected in the event of
death of the insured prior to the indebtedness being
paid in full.
Credit Report. A confidential report made by an
independent individual or organization that has
investigated the reputation and record of an applicant
for insurance. See Consumer Report.
Creditor. The person to whom a debt is owed. See
CREF. See College Retirement Equities Fund.
Crime. A public wrong, a violation of criminal law.
See also Tort.
Criticism. A correction suggested by a rating or
auditing bureau to an insurer.
Cromie Rule. A method or guide used to apportion
losses under policies which are nonconcurrent,
that is, not identical as to coverage provided.
Crop Insurance. Protection against damage to
growing crops by such perils as hail, windstorm
and fire. Traditionally, crop-hail coverage was the
most common coverage sold. In recent years, premiums
for broad multi-peril crop insurance (MPCI)
have exceeded those for crop-hail business.
Cross Purchase. Business life insurance where each
party to a mutual agreement (usually to buy out a
disabled or deceased co-owner) insures each of the
Cross Purchase Agreement. A binding buy-sell
agreement usually used with a partnership where
each partner agrees to purchase the business interest
of a deceased or disabled partner.
Crude Death (or Mortality) Rate. The ratio of total
deaths to total population during any given period.
See also Mortality Rate.
Crummey Privilege. The annual withdrawal privilege
offered by a trust to trust beneficiaries in order
for the trust property to remain qualified for the
gift tax exclusion.
CSI 1961. See Commissioner’s Standard Industrial
Mortality Table, 1961.
CSO. See Commissioners’ Standard Ordinary.
Cumulative Liability. (1) The liability of a surety
bonding company for the accumulation of loss under
its own bond and under a bond that it replaced
before a loss under the replaced bond was discovered.
(2) The accumulation of the liability of a reinsurer
that has been assumed under several policies
from several ceding companies covering different
lines of insurance, all of which are involved in a
common event or disaster.
Current Disbursement. The funding and disbursement
of pension benefits as they become due. Also
known as “pay-as-you-go.” In the long run, this is
the most costly method of funding pension plans.
Current Future Service. The amount of pension
payable for each year of future participation in the
Current Guarantee. A guaranteed interest that reflects
current interest rates and is guaranteed at the
beginning of each calendar year. The policy also
has a minimum guaranteed interest rate (3 or 4
percent) that is paid even if the current rate falls
below the policy’s guaranteed rate.
Current Ratio. The ratio of current assets to current
liabilities. Bond underwriters like this ratio to
be 2 to 1 on the balance sheets of contractors for
whom they are considering contract bonds.
Current Service Benefit. The portion of a
participant’s pension benefit that relates to credited
service in a contemporary period, usually 12
Current Service Cost. The cost in a pension plan
to make provision for annuity credits earned by employees
in the current year.
Current Value. The fair market value of a security
or other property as determined by the trustees or a
named beneficiary, according to the terms of the
Currently Insured Status. A provision of old age,
survivors, disability and health insurance. The requirements
for being “currently insured” are less than
those for being “fully insured,” and the former entitles
a worker’s dependents to survivor benefits in the
event of the worker’s death. See Fully Insured.
Custodial Care. Care that is provided for the purpose
of meeting personal needs, such as walking,
bathing, dressing, eating and other essential activities
of daily living. Also known as personal care. It
may be administered by licensed practical nurses,
by non-medical personal, such as volunteer workers,
therapists and, in some cases, other family members.
The most common type of long-term care, it
can be provided in a variety of settings—ranging
from a nursing home to the patient’s own home.
See also Activities of Daily Living.
Custodian. Under commercial crime insurance coverages,
the named insured or any of the insured’s
partners or employees while having care and custody
of insured property inside the insured’s premises,
but it does not include any person while acting
as a watchperson or a janitor.
Custom House Bonds. Bonds required by U.S. customs
in connection with the payment of duties or
the production of bills of lading.
Customary Charge. Used to determine Medicare
benefit amounts, the average fee charged for a particular
medical service in the geographical area in
the preceding year. See also Allowable Charge and
Cut Rate. A term used when insurance companies
charge premiums below a normal or average rate.
Cut-Off. The termination provision of a reinsurance
contract stating that the reinsurer shall not be
liable for loss as a result of occurrences taking place
after the date of termination.
Cut-Through Clause. See Assumption Certificate.
© 2008 Silver
© 2008 Silver
D&B. See Dun and Bradstreet, Inc.
DA. See Deposit Administration.
Daily Reports (DR). (1) An abbreviated statement
of pertinent policy information with copies for the
insurer, the agent and others. It is usually the top
page of a policy. (2) Monthly reports compiled on
the last day of each month must show actual values
at the end of each day during the month.
Damages. The amount required to pay for a loss.
When someone is held liable for injury or property
damage to another, that person must compensate
the injured parties. See also Compensatory Damages
and Punitive Damages.
Damage to Property of Others. Damage caused
by an insured person to the property of others.
Damage to Your Auto Coverage. Physical damage
coverage provided under an auto policy. The
insurance company will “pay for direct and accidental
loss to a covered auto, or any non-owned
auto, including its equipment, minus any applicable
deductible.” Includes collision and other than
Data Processing Coverage. Protection for loss due
to the breakdown of data processing system, including
coverage for the additional expense of putting
the system back into operation.
Date of Issue. The date (stated in a policy) as the
date the contract was issued by the insurer. This is
not necessarily the effective date of the policy.
Date of Service. The date that the health service
DBL. See Disability Benefits Law.
Death Benefit. The amount stated in a policy as
payable upon the death of the person whose life is
being insured (cesti que vie). See Principal Sum.
Death Benefit Only (DBO) Plan. A plan that defers
part of an employee’s salary and pays upon the
contingency of death.
Death Rate. See Mortality Rate.
Debit. (1) The amount of premium charged or debited
to an agent to be collected. (2) The book of
business represented by such premiums. (3) The
territory where most of the insureds are located. (4)
The total number of individual or home service
insureds assigned to a given agent for collection of
weekly or monthly premiums and for servicing,
commonly referred to as “people in my debit.”
Debit Agent. An agent who works on the debit
Debit Life Insurance. See Industrial Life Insurance.
Debit System. The system of collecting insurance
premiums weekly or monthly by an agent.
Debris Removal Clause. A provision included in
a property policy that provides indemnification for
expenditures incurred in the removal of debris produced
by the occurrence of an insured peril. These
costs are included in the claim amount as long as
there is sufficient coverage to pay for the damaged
property plus debris removal. If combined loss exceeds
the policy limit, then an additional amount
of coverage equal to 5 percent of the limit of liability
is made available for debris removal.
Debtor. One who owes a legal obligation or money
to another. See also Creditor.
Debts and Restrictions. Mortgages, liens and other
encumbrances on real estate property, including
margin loans on capital investments and liquidation
costs or penalties on accessible pension funds.
Decedent. The deceased.
Declaration. (1) A term used in insurance other
than life or health to denote that portion of the
contract that lists such information as the name and
address of the insured, the property insured, its location
and description, the policy period, the
amount of insurance coverage, applicable premiums
and supplemental representations by the insured.
(2) A formal written statement in which an
individual avows under oath certain facts as personally
known to him or her specifying of the facts
constituting the plaintiff’s cause of action against
Declarations Page. Typically the first page of an
insurance application. This page includes specific
details relating to coverage: the names of the people
covered by the policy; the dates it’s in effect; and
the vehicles, boats, etc. covered. Also included are
details on everything from policy limits and premiums
due to any specific additions or exclusions based
on personal circumstances. Also called the declarations
sheet, dec sheet or dec page.
Declination. Rejection of an application for insurance
by the insurer.
Decreasing Term. Life insurance that provides a
death benefit that declines throughout the term of
the contract, reaching zero at the end of the term.
Decreasing Term Insurance. Term life insurance
where the death benefit decreases but the premium
remains level for the policy term. See also Increasing
Term Insurance, Level Term Insurance and Term
Deductible. The portion of an insured loss to be
borne by the insured before the insurance company
takes over. Higher deductibles reduce the insurance
company’s exposure. Small losses that do not exceed
the deductible do not require a claim settlement,
and large losses that exceed the deductible
result in a smaller settlement.
Deductible Carryover Credit. During the last
three months of a calendar year, charges incurred
for health services can be used to satisfy the deductible
for the following calendar year. These credits
may be applied whether or not the prior calendar
year’s deductible had been met.
Deductible, Calendar Year. A deductible that
specifies that one deductible needs to be satisfied
for a calendar year regardless of the number of claims.
Deductible Clause. A contract provision that sets
forth the deductible.
Deductible, Disappearing. See Disappearing Deductible.
Deductible, Franchise. See Franchise Deductible.
Deductible, Per Cause. A deductible that must
be satisfied for each separate claim.
“Deep Pockets” Liability. The legal doctrine of
joint-and-several liability under which recovery can
be sought from any of several codefendants based
on ability to pay, rather than the degree of negligence.
If A and B are jointly liable for an injury; A
was 90 percent negligent and B was 10 percent
negligent, but A has no assets; the claimant is permitted
to reach into the “deep pockets” of B for the
full amount of the award against A and B.
Defamation. (1) An unfair trade practice involving
false, maliciously critical or derogatory statements
intended to injure a person engaged in the
insurance business. (2) Any derogatory statement
that injures a person’s business or reputation. Defamation
can be written (libel) or spoken (slander).
See also Libel or Slander.
Defendant. The person being sued in a court action.
Defense Costs. An important part of liability insurance
coverage. In some cases, the cost of defense
is as much as, or more than, the amount ultimately
awarded as damages.
Defensive Insurance. Pays the legal costs of defending
against legal charges. Some defensive policies
also cover damages incurred as a result of infringement
or other specific activities.
Deferred Annuity. An annuity contract that provides
for the initiation of payments at some designated
future date in contrast to one in which payment
begins immediately on purchase.
Deferred Compensation. A qualified or non-qualified
plan that allows a key person to defer receipt of
current income in accordance with a written agreement
with the employer. Deferral is usually until
death, disability or retirement.
Deferred Compensation Administrator. A company
that provides services under a deferred compensation
plan. Services include administration of
self-insured plans, compensation planning, salary
surveys, retirement planning, etc.
Deferred Group Annuity. A group annuity contract
providing for the purchase each year of a paid-up
deferred annuity for each person covered in the
group. The total amount of the annuity payments
starts at a deferred date, usually retirement, and is
the sum of the individual paid-up annuities.
Deferred Premium. The unpaid and yet undue
premiums on life insurance, paid on other than an
annual premium basis.
Deferred Vesting. A form of vesting where rights
to vested benefits are acquired by a participant commencing
upon a fulfillment of specified requirements,
usually, reaching a certain age or number of
years of service/membership. See also Vesting.
Deficiency Reserve. A supplemental reserve that
life insurers are required to show in their balance
sheet if the gross premium charged on a class of
insureds is less than the net level premium reserve
or modified reserve.
Deficit. Any excess of debits over credits at the end
of a given accounting period.
Deficit Carried Forward. The transfer of a debit
balance from one accounting period to another.
Defined Benefit Pension Plan. A qualified retirement
plan where the employer makes contributions
on behalf of all eligible employees in order to provide
a specific retirement benefit. The amount of
the contribution is not specifically defined, but the
amount of the retirement benefit is defined.
Defined Contribution Pension Plan. A type of pension
plan under which contributions are fixed as
flat amounts or flat percentages of an employee’s
salary. Benefits consist of whatever amounts the accumulated
contributions will produce.
Definitions Page. The page of an insurance policy
that identifies who is covered, when and where coverage
applies and what is covered (e.g., vehicles,
Deflation. An economic period characterized by
falling prices, high unemployment and a generally
sluggish or slow economy.
DEFRA. Deficit Reduction Act of 1984.
Degree of Care. A duty owed to others that depends
on circumstances. Persons who invite others
on their premises, invite children on their premises
and sell what might be considered inherently dangerous
products are all required to take different
degrees of care to prevent harm to others.
Degree of Risk. The amount of uncertainty that
exists in a given situation. For instance, if heads is
chosen in a coin toss, the degree of risk present is
50 percent, since there is a 50 percent chance any
coin toss will come up tails. See also Law of Large
Number, Odds and Probability.
Delay Clause. (1) A contract provision that excludes
liability as a result of damage or loss of market arising
out of delayed voyages. (2) A contract provision
permitting the insurer to defer granting a loan
on the sole security of the policy for any other purpose
than paying premiums on the policy for a stated
interval of time, usually six months.
Delayed Payment Clause. In life insurance, a clause
deferring payment to the beneficiary for a specified
period after the death of the insured with proceeds
to be paid to contingent beneficiaries or the estate
if the primary beneficiary does not survive the delay.
It is one method of handling common-disaster
situations, such as the death of the insured and the
primary beneficiary occurring in the same accident.
The clause usually states that the beneficiary has to
survive the death of the insured by a certain period
of time in order to collect.
Delivered Business. Contracts issued by an insurer
and delivered to an insured but not yet paid for.
See also Examined Business, Paid Business and
Delivery. The actual placing of a life or health insurance
policy in the hands of an insured.
Demand Loan. Any loan with an indefinite maturity.
Demolition Clause. A provision that excludes liability
for costs incurred in demolishing undamaged
property, often necessitated by building ordinances
requiring that structures must be demolished
after a certain degree of damage has been sustained.
Demolition Cost Endorsement. Provides coverage
for the cost of demolishing any undamaged part of
the building and the cost of clearing the site if a
covered building is damaged or destroyed by a covered
peril. A specific amount of insurance must be
purchased, and covered costs will be paid up to but
not exceeding the amount stated on the form.
Demolition Insurance. Coverage for the cost of
demolition excluded by a demolition clause. It may
be endorsed to property insurance for an additional
premium. See also Demolition Clause.
Demurrer. A formal statement in a court action
which states that even if the other party’s facts are
true, there is no cause of action.
Dental Insurance. A group health insurance contract
that provides payment for certain enumerated
Dental Plan. Any contractual arrangement for dental
services provided or arranged for on a prepaid or
postpaid individual or group service basis.
Dental Plan Organization (DPO). A direct provider
of dental services compensated on a prepaid
or postpaid basis to individuals or groups. An arrangement
for providing dental services indirectly
through independent contractors or on a fee-for-service
basis is not a DPO. A DPO is an arrangement
for providing dental services through an agreement
with providers or by employing dentists.
Dental Plan, Supplemental. An arrangement
where a dentist or group of dentists agree to relieve
patients of paying any patient charges or co-payments
associated with dental insurance or other dental coverage
for a predetermined fee. The term also refers
to an arrangement that covers less than 50 percent
of an enrollee’s dental expenses, regardless of whether
the enrollee has other coverage.
Department of Health and Human Services. A
federal department whose responsibility is primarily
dealing with social service functions, such as
administration and supervision of the Medicare program.
Dependent. An individual who depends on another
for support and maintenance.
Dependent Care Plan. An employee benefit
whereby the employee is reimbursed for dependent
care expenses or an actual day care program provided
by the employer on business premises.
Dependent Coverage. Insurance coverage on the
head of a family that extends to his or her dependents,
including only the lawful spouse and unmarried
children (step, foster and adopted) who are
not yet employed on a full-time basis.
Dependent Life Insurance. A life insurance benefit
that is part of a group life insurance contract
and provides death protection to the eligible dependents
of a covered employee.
Dependent Properties. Properties that an insured
business does not own, operate or control, but upon
which the insured’s income depends. Examples include
major suppliers or customers. Also known as
Deposit. The contributions or payments made to a
fund by the employer; or, sometimes by both the
employer and employee if there are employee contributions
in the plan.
Deposit Administration (DA). A group annuity
providing for the accumulation of contributions in
an undivided fund out of which annuities are purchased
for each covered person in the group for retirement
Deposit Administration Group Annuity. A group
contract providing a deposit fund prior to retirement,
with annuities bought from the fund at retirement.
Deposit (or Provisional) Premium. The premium
paid at the inception of a contract that provides for
future premium adjustments. It is based on an estimate
of what the final premium will be. See also
Deposition. A sworn statement of a witness or other
party in a judicial proceeding, usually conducted
in an oral question and answer format where attendance
Depositor’s Forgery Insurance. Protection against
the forgery or alteration of things such as checks,
drafts and promissory notes purported to have been
written by the insured. It is issued to individuals,
firms and corporations, but not to banks or building
and loan associations. It can be written to cover
incoming items, but this is seldom done.
Depository Bond. A form of bond that guarantees
to the government that its deposits with banks will
not be subject to loss.
Depreciation. A decrease in the value of any type
of tangible property over a period of time resulting
from use, wear and tear or obsolescence.
Designated Mental Health Provider. The organization
hired by a health plan to provide mental
health and substance abuse services.
Detoxification. The process an individual goes
through when withdrawing from alcohol. Usually
is done under guidance of medical personnel.
Deviated Rate. Companies that adhere to rates promulgated
by a bureau sometimes offer lower rates
than those recommended in certain areas. The company
is said to have “deviated” from the bureau
rate for that area.
Deviation. (1) Voluntary departure, not brought
about by necessity and not resulting from reasonable
cause, from the customary, usual course between
the port of shipment and the port of destination;
or certain fundamental breaches of the carrier’s
obligations under the contract of carriage. There
are conditions where deviation is excused, such as
when it is reasonably necessary for the safety of the
ship and cargo or for humanitarian reasons, such as
rescuing another ship in distress. (2) A rate that
varies from the manual rate.
Deviation Clause. An ocean marine clause providing
coverage in the event of a deviation en route
beyond the insured’s control.
Devise. A gift of real property in accordance with a
Diagnosis. The process of identifying a disease.
Diagnosis Related Groups (DRGs). A method of
classifying inpatient hospital services. It is used as a
method of determining financing to reimburse various
providers for services performed.
DIC. See Difference in Conditions.
Difference in Conditions (DIC). A separate contract
that expands or supplements insurance on property
written on a named perils basis so as to cover
on an open perils (all risk) basis, subject to certain
Direct Damage Form. A form that covers actual
damage, directly resulting from a covered peril, to
Direct Loss (or Damage). A loss that is a direct
consequence of a particular peril. Fire damage to a
refrigerator constitutes a direct loss. Spoiling of food
in the refrigerator as a result of the fire damage is
an indirect loss. Contrast with Indirect Loss and
Direct Repair Programs. Plans that insurance
companies began offering in the late 1980s that
allow owners to choose a body shop recommended
by the insurance firm. The owner also can go to a
shop not on the list.
Direct Selling System. A distribution system where
an insurer deals directly with its insureds through
its own employees. This definition applies typically
to property and liability insurance business. Included
are mail-order insurance and the sale of insurance
from vending machines at airport booths
and elsewhere. Contrast with Independent Agency
Direct Writer. (1) The insurer that negotiates with
the insured as distinguished from the reinsurer. (2)
An insurer whose distribution mechanism is either
the direct selling system or the exclusive agency
Direct Written Premium. The premiums collected,
without any allowance for premiums ceded to
Directed Verdict. A verdict for the defendant based
on the court’s decision that the plaintiff’s case has
not been proven.
Director of Insurance. A title used in some states
for the head of the department of insurance. See
also Commissioner of Insurance.
Directors and Officers Liability Insurance. Insurance
that protects directors and officers from liability
claims arising out of alleged errors in judgment,
breaches of duty, and wrongful acts related
to their organizational activities.
Disability. A condition that curtails to a lesser or
greater degree a person’s ability to carry on normal
pursuits. A disability may be partial or total, and
temporary or permanent.
Disability Benefit. The benefit payable under a disability
income policy or a provision of some other
policy, such as a life insurance contract.
Disability Benefits Law. A state law requiring an
employer to provide disability benefits to covered
employees for non-occupational injuries, in contrast
to workers’ compensation, which pays for occupational
injuries. These laws are currently in effect in
New York, New Jersey, Rhode Island, California
Disability Income Insurance. Also called loss of
time insurance, this health insurance provides periodic
payments to replace income, actually or presumptively
lost, when the insured is unable to work
as a result of sickness or injury.
Disability Insurance Training Council, Inc. The
educational arm of the National Association of
Health Underwriters, the health insurance agents’
professional society. It encourages agent educational
projects by local health associations, conducts university
seminars in advanced health underwriting
areas and conducts annual seminars for home office
executives in sociological social insurance and demographic
trends that may affect future application
of policy forms and health insurance.
Disability Insured. A Social Security insured status
required to satisfy eligibility for disability income
benefits. The status is based on having paid
Social Security taxes in 20 of the 40 calendar quarters
ending with the quarter in which a disability
claim is submitted.
Disability, Long-Term. See Long-Term Disability.
Disability Pension. A pension paid to a disabled
worker prior to the time of normal retirement.
Disability, Permanent Partial. See Permanent Partial
Disability, Permanent Total. See Permanent Total
Disability, Short-Term. See Short-Term Disability.
Disability, Temporary Partial. See Temporary Partial
Disability, Temporary Total. See Temporary Total
Disappearing Deductible. A deductible that
gradually disappears as the loss gets larger. If the
deductible is $50, the insurer will pay 111 percent
of the loss that is in excess of $50. The deductible
on losses between $50 and $500 is gradually reduced
by this system, and if the loss reaches $500,
the full amount is covered.
Discharge Planning. Determining what the
patient’s medical needs will be after discharge from
a hospital or other inpatient treatment facility.
Disclosure Authorization Form. A form authorizing
the disclosure of personal information obtained
in connection with an insurance transaction.
Insurers must give applicants advance notice of their
information practices. Among other things, the
form must state the kind of information collected
and to whom information may be disclosed.
Discount. The difference between an amount due
at a future date and its present value at a specified
rate of interest.
Discounted (Commuted) Value Table. A table
showing the discounted or present value, for several
interest rates, of dollars payable at various times
in the future.
Discovery Cover. A reinsurance treaty covering
losses that are discovered during the term of the
treaty regardless of when they were sustained.
Discovery Period. The period of time allowed an
insured who has canceled a bond to discover and
report to the previous surety a loss that occurred
during the term of that bond. Losses so reported
are paid by the original surety even though another
surety is on the risk at the time of the discovery.
The usual discovery period is one year.
Discrimination. Refusal of an insurer to provide
comparable insurance or use comparable rates for
certain individuals or groups with basic characteristics
the same as those to whom the coverage or
rates are offered. This is prohibited by law.
Dishonesty, Disappearance and Destruction
Policy (“3-D” Policy). A once-popular commercial
crime insurance form used to protect money
and securities against loss by employee dishonesty,
robbery, depositor’s forgery and other causes of loss.
The 3-D policy was replaced by modern commercial
crime coverage forms. See Combination Crime
Dismemberment. The loss of, or loss of use of,
specified parts of the body resulting from accidental
Dismemberment Benefit. The benefits payable for
various types of dismemberment. See also AD&D
and Dismemberment and Multiple Indemnity.
Dissent. This occurs when one or more judges disagrees
with the majority decision.
Distribution Clause. See Pro Rata Distribution
Divided Cover. The placing of insurance on a given
subject or object with more than one insurer.
Dividend Accumulation. An option in a life insurance
policy that allows the policyholder to leave
any premium dividends with the insurer to accumulate
at compound interest.
Dividend Additions. An option whereby the insured
can leave dividends with the insurer, and each
dividend is used to buy a single premium life insurance
policy for whatever amount it will purchase.
Also called paid-up additions.
Dividend Option. Alternative ways in which
insureds under participating life policies may elect
to receive their policyholder dividends.
Dividend. (1) The return of part of the premium
paid for a policy issued on a participating basis by
either a mutual or stock insurer. (2) A portion of
the surplus paid to a corporation’s stockholders.
Divisible Contract Clause. A clause providing that
a violation of the conditions of the policy at one
insured location will not void coverage at other locations.
DOC. See Drive-Other-Car Endorsement.
Domestic. See Residence Employee.
Domestic Insurer (or Company). An insurer
formed under the laws of the state where the insurance
Donee. The recipient of a gift.
Donor. The individual who gives a gift.
Double Dipping. Collecting money twice in an
accident (e.g., from the at-fault driver and an insured’s
no-fault policy, or from a personal health policy and
an employer’s workers’ comp insurance).
Double Indemnity. Payment of twice the basic benefit
in the event of loss resulting from specified
causes or under specified circumstances. For example,
a life insurance contract may provide for twice
the basic benefit if death is due to accident. Accident
policies may provide double indemnity coverage
for death due to an elevator accident. See also
Double Protection. A form of life insurance combining
whole life and an equivalent amount of term,
with the term expiring at a stated future date, usually
at 65 years of age. For example, an individual
may purchase $50,000 worth of life insurance protection,
$25,000 of it being term insurance and
the other $25,000 whole life. The provision would
state that the $25,000 of term insurance ceases
when the insured reaches age 65.
Dram Shop Laws. Liquor liability laws that provide
that a person serving someone who is intoxicated
or contributing to the intoxication of another
may be liable for injury or damage caused by the
Dram Shop Liability Insurance. Insurance that
protects the owners of an establishment in which
alcoholic beverages are sold against liability arising
out of accidents caused by intoxicated customers
who have been served/sold alcoholic beverages.
“D” Ratio. A factor used in workers’ compensation
experience rating plans. It is the ratio of smaller
losses (those under $2,000), plus the discounted
value of large losses, as compared to the total losses
that are expected of an insured in a particular type
Dread (or Specified) Disease Policy. Coverage,
usually with a high maximum limit, for all types of
medical expenses arising out of diseases named in
the contract. Common diseases covered are poliomyelitis,
diphtheria, multiple sclerosis, spinal meningitis
and tetanus. Cancer is sometimes covered or
may be added by a rider.
Drive-In Claim Service. A facility maintained by
an automobile insurer in which the extent of damage
to a claimant’s automobile can be determined
and, in many cases, a settlement made.
Drive-Other-Car Endorsement (DOC). A coverage
that may be added to an auto that protects the
individuals named in the endorsement while they
are driving cars not owned by the individuals and
not named in the policy.
Drop Down Coverages. Coverages provided by a
personal umbrella that are not provided by underlying
liability policies, including: personal injury
coverage; regularly furnished autos; contractual liability;
and damage to property of others.
Drug Formulary. A schedule of prescription drugs
approved for coverage under a plan and dispensed
through participating pharmacies.
Drug Price Review (DPR). A procedure used to
determine drug price maximums. It involves determining
wholesale drug prices based on the American
Druggist Blue Book.
Drug Utilization Review (DUR). A method for
evaluating or reviewing the use of drugs to determine
the appropriateness of the drug therapy and
whether it will be paid for by insurance.
Druggists Liability Insurance. A contract that protects
a druggist in case of a suit arising out of filling
prescriptions, missed delivery of drugs and other
operations normal to a drugstore.
Dual Choice. The federal requirement that employers
having 25 or more employees who are within
the service area of a federally qualified HMO, who
are paying at least minimum wage and offer a health
plan to their employees, must offer HMO coverage
as well as an indemnity plan.
Dual Life Stock Company. A stock life insurer issuing
both participating and nonparticipating
Dun and Bradstreet, Inc. (D&B). A corporation
that furnishes insurance companies with financial
reports to assist them in the underwriting of prospective
Duplicate Coverage Inquiry (DCI). A request to
determine whether or not other coverage exists.
Used to apply the coordination of benefits provisions
where two or more insurance companies are
Duplication of Benefits. Identical or overlapping
coverage exists between two or more insurance companies
or service organizations.
Duties After a Loss. A clause that specifies what a
person must do in order to recover for losses covered
by the policy. Most insurance companies have
no duty to provide coverage unless there has been
full compliance with the following duties: The insurer
must be notified promptly of how, when and
where the accident or loss happened. Notice should
also include the names and addresses of any injured
persons or witnesses.
Duty to Defend. The insurance company has the
right and the option to investigate and settle any
lawsuit and claim. In the same process, it also accepts
a duty to defend an insured person in any
related lawsuit or claim—whether the insured is
guilty or liable.
Dwelling Coverage/Forms. A policy form designed
specifically to cover a dwelling building and the
personal property in it plus other additional coverages.
Coverage applies to the dwelling, attached
structures and materials and supplies on or adjacent
to the residence premises for use in the construction,
alteration or repair of the dwelling or other
Dynamo Clause. See Electrical Exemption Clause.
© 2008 Silver
© 2008 Silver
Earned Income. The money individuals earn as a
result of working at some job or occupation for
which they are paid a salary. Insurance companies
base this number on an insured’s salary and other
earned income. An insurer typically asks for some
kind of proof of income—like an IRS W-2 form or
other tax document.
Earned Premium. The amount of the premium that
has been “used up” during the term of a policy (i.e.,
if a one-year policy has been in effect six months,
half of the total premium has been earned.)
Earnings Figure. An indexed or adjusted figure,
that changes annually due to increases in wages.
Thus, in most years, the earnings figure will be higher
than the year before—and, consequently, the requirements
for a quarter of coverage are higher.
Earnings Insurance. A form of gross earnings business
interruption insurance that lacks a coinsurance
clause. Designed for small risks, the maximum amount
of loss an insured can collect in any 30-day period
is established when the policy is written.
Earth Movement. A peril including landslide, mudflow,
earth sinking, rising or shifting and earthquake.
Usually excluded on homeowners’ and commercial
property policies. If direct loss by fire, explosion
or breakage of glass, storm door or storm
window follow earth movement, the policies cover
the additional loss, and that loss only.
Earthquake Insurance. Insurance covering damage
caused by an earthquake. Homeowners insurance
does not automatically cover losses caused by
an earthquake—but earthquake coverage for the
residence, other structures and personal property
may be attached by endorsement. Several earthquake-
prone states—most notably California—require
insurance companies that write homeowners
coverage to also write earthquake coverage.
Easement. An interest in land owned by another that
entitles its easement holder to specific uses.
EC. See Extended Coverage.
Economic Risk. A risk experienced by those who
invest in securities identified as the uncertainty of
Educational Assistance Plan. An employee benefit
whereby certain educational expenses incurred
by the employee are reimbursed on a tax-favorable
basis by the employer.
Educational Fund. A fund that provides money
for a child’s education should the breadwinner of
the family die.
Effective Date. The start date of an insurance
policy, or the date on which the protection of an
insurance policy or bond goes into effect.
Elective Benefits. Lump sum payments that the
insured may choose in lieu of periodic payments for
certain injuries, such as fractures and dislocations.
Elective Deferral Plan. A qualified plan (401(k)
or tax sheltered annuity) whereby participants voluntarily
elect to defer amounts of compensation for
placement in a retirement plan on a tax favorable
Elective Indemnities. See Elective Benefits.
Electrical (or Electrical Apparatus) Exemption
Clause. A clause providing that damage to electrical
appliances caused by artificially generated electrical
currents is recoverable only if fire ensues and
then only for the damage caused by the fire.
Electronic Data Processing (EDP) Coverage. Insurance
that covers computer equipment, data systems,
information storage media and expenses or
income loss related to EDP losses.
Elevator Collision Coverage. Coverage for damage
caused by collision of an elevator without regard
to fault. Includes damage to personal property,
the building and the elevator itself. Liability
coverage is usually provided automatically by business
Eligibility. Particular people, vehicles and situations
are eligible for coverage under a policy for a number
of different reasons. The conditions of eligibility
are sprinkled throughout the policy and the
manual rules that govern how and when a policy
may be written.
Eligibility Date. The date that a person is eligible
Eligibility Period. (1) The period of time during
which potential members of a group life or health
program may enroll without providing evidence of
insurability. (2) The period of time under a Major
Medical policy during which reimbursable expenses
may be accrued.
Eligibility Requirements. Requirements imposed
for eligibility for coverage, usually in a group insurance
or pension plan.
Eligible Dependent. A dependent of an insured
person who is eligible for coverage according to the
requirements set forth in the contract.
Eligible Employee. An employee who is eligible
based on the requirements as indicated in the group
Eligible Expenses. Expenses as defined in the health
plan as being eligible for coverage, including specified
health services fees or “customary and reasonable
Eligible Person. Similar to eligible employee except
it could cover people who are not employees of
a specified employer ( e.g., members of an association,
Elimination Period. A loosely used term, sometimes
designating the probationary period, but
most often designating the waiting period in a
health insurance policy. See also Probationary Period
and Waiting Period.
Embezzlement. Fraudulent use of money or property
that has been entrusted to one’s care.
Emergency Accident Benefit. A group medical
benefit that reimburses the insured for expenses incurred
for emergency treatment of accidents.
Emergency. An injury or disease that occurs suddenly
and requires treatment within 24 hours.
Emergency Fund. A fund that provides money for
the emergency expenses of a deceased’s family prior
to the final settlement of the estate.
Emergi-Center. See Freestanding Emergency Medical
Emotional Distress. See Mental Distress.
Employee Benefit Program. Benefits offered to
employees, covering such contingencies as medical
expenses, disability, retirement and death, usually
paid for wholly or in part by the employer. These
benefits are usually insured.
Employee Certificate of Insurance. Evidence of
participation in a group insurance plan, consisting
of a brief summary of plan benefits. The employee
receives this certificate rather than the actual insurance
Employee Contribution. (1) The employee’s share
of the premium costs. (2) Deduction from
employee’s pay to apply toward the cost of a retirement
Employee Dishonesty. Any dishonest act by an
employee that contributes to a loss for the employer.
Fidelity bonds usually protect against such losses.
Employee Dishonesty Coverage Form. A commercial
crime coverage form, which is actually a
fidelity bond, providing coverage for losses resulting
from employee dishonesty. It covers losses of
money, securities and property other than money
Employee Pension Benefit Plan or Pension Plan.
Any program established and maintained by an employer
or an employee organization that provides
retirement benefits to employees or deferred income
until employment is terminated.
Employee Retirement Income Security Act of
1974 (ERISA). An act that prescribes federal standards
for funding, participation, vesting, termination,
disclosure, fiduciary responsibility and tax
treatment of private pension plans. ERISA also applies
to retirement plans and to “employee welfare
benefit plans” (any plan of group medical, surgical,
hospital or other health care benefits and group accident,
sickness and disability benefit plans).
Employee Stock Ownership Plan (ESOP). A qualified
employee plan that provides eligible employees
with part ownership in the corporation for which
they work. Stock is issued and held in trust for the
benefit of the employees.
Employee Welfare Benefit Plan. Any program established
or maintained by an employer or an employee
organization to provide medical, surgical,
or hospital care or benefits in the event of sickness,
accident, disability, death or unemployment.
Employees’ Trust. One way for a pension or profit-sharing
plan to be financed and given effect.
Employer Contribution. The portion of the cost of
a health insurance plan borne by the employer.
Employers Liability Coverage. Provides coverage
against the common law liability of an employer
for injuries to employees as distinguished from the
liability imposed by a workers’ compensation law.
Employers liability applies in situations where a
worker does not come under these laws.
Employers Nonownership Liability Insurance.
Protects the employer for liability arising from the
use by employees of their own cars on company
Employment Benefit Plan. Any plan that is both
an employee welfare plan and an employee pension
Encounter. Each time a person meets with a health
care provider to receive services.
Encumbrance. A claim on property, such as a mortgage,
a lien for work and materials or a right of
dower. The interest of the property owner is reduced
by the amount of the encumbrance.
Endorsement. A written or printed form attached
to the policy that alters provisions of the contract.
Endorsements and riders serve as addenda—adding
coverage or conditions to standard insurance
Endorsement Extending Period of Indemnity. An
endorsement attached to business interruption policies
that extends coverage to the period during
which a business has reopened for business but has
not reached the level of business activity that existed
prior to the business interruption loss.
Endorsement Split Dollar. A split dollar plan in
which the employer owns and controls a life policy
on the life of an employee. The employee’s rights to
certain policy benefits are protected by an employer
Endowment Insurance. Life insurance where the
face amount is payable to the insured at the end of
the contract period or to a beneficiary if the insured
dies before that (e.g., an insured purchasing an endowment
payable at age 65. Upon reaching that
age, the proceeds would be payable to the insured.
If the insured dies prior to that age, the proceeds
would be payable to the designated beneficiary as a
life insurance benefit).
Engineer (Loss Prevention Engineer or Safety
Consultant). The employee of an insurance company
who has the responsibility of loss prevention
and who assists in the securing of underwriting and
Enrollee. An eligible individual enrolled in a health
plan—does not include an eligible dependent.
Enrolling Unit. An organization (such as an employer)
that contracts for participation in a health
Enrollment. The total number of enrollees in a
health plan. Also refers to the process of enrolling
people in a health plan.
Enrollment Period. The amount of time an employee
has to sign up for a contributory health plan.
Entire Contract Clause. A provision in an insurance
contract stating that the entire agreement between
the insured and the insurer is contained in
the contract, including the application if it is attached,
declarations, insuring agreements, exclusions,
conditions and endorsements.
Entity Agreement. A buy-sell agreement usually
used with a partnership in which the partnership
agrees to purchase the interest of a deceased or disabled
Entrustment. When an insured person rents or
lends property to a non-insured person.
Entry Age. The age when an employee satisfies all
the age, service and other eligibility requirements
for participation in a pension plan.
Entry Date into Claims-Made. Initial effective date
of a “claims-made” liability policy. It determines the
extent of maturity for rating purposes. If claims-made
coverage is interrupted and reestablished, or
if a retroactive date is changed on renewal, the entry
date will change.
Environmental Restoration. Restitution for the
loss, damage or destruction of natural resources arising
out of the accidental discharge or escape of any
commodity transported by a motor carrier, including
the cost of removal and measures to minimize
damage to human health, the natural environment,
fish, shellfish and wildlife. Federal regulations re-
quire common carriers of hazardous materials to
maintain minimum liability coverages for BI, PD
and environmental restoration.
Equifax. One of three major credit reporting companies.
Equipment Floater. A form covering various types
of equipment (e.g., construction equipment, against
specified perils or occasionally on an all-risk basis
subject to exclusions).
Equity. The money value of an insurance company
that is over and above its liabilities. Liabilities include
almost all of its reserves.
ERISA. See Employee Retirement Income Security
ERISA Liability. Liability imposed by law upon
officers or other employees operating in a fiduciary
capacity for the proper handling of pension funds
and other employee benefits. It is excluded from
most general liability policies. See Employee Retirement
Income Security Act (ERISA).
Errors and Omissions Clause. A clause usually
found in an obligatory reinsurance treaty that provides
that if an error or an omission takes place in
describing a risk that falls within the automatic reinsurance
coverage of the treaty, it shall not invalidate
the liability of the reinsurer for the risk.
Errors and Omissions Insurance. (1) Insurance
that indemnifies an insured for a loss sustained because
of an error/oversight on his or her part (e.g.,
an insurer purchases this coverage to protect itself
against losses from such things as failing to issue a
policy). (2) Coverage for losses resulting from financial
institutions failing to effect coverage.
Estate Plan. A plan for the disposition of one’s property
at death, including the handling of property
in the event of the incompetency or total disability
of the estate owner. A will is part of an estate plan.
Estate Planning. The process of accumulation, conservation,
distribution and administration of an estate
in order to minimize the impact of taxation
and estate shrinkage.
Estate Tax. A tax payable to the federal government.
The amount is based on the value of the estate
of the decedent.
Estimated Premium. A provisional premium that
is adjusted at the end of the year (e.g., in workers’
comp insurance an estimated premium is based on
estimated payrolls for the coming year. At the end
of the year, final payrolls are determined and the
final premium is computed).
Estoppel. The legal principle whereby a person loses
the right to deny that a certain condition exists by
virtue of having acted in such a way as to persuade
others that the condition does exist (e.g., if an insurer
allows an insured to violate a condition of the
policy, the insurer cannot at a later date void the
policy because the condition was violated. The insurer
has acted in such a way as to lead the insured
to believe that the violation did not void the coverage).
Evidence Clause. A clause that requires the insured
to cooperate in the investigation of a claim by producing
records and submitting to examinations.
This helps the adjuster establish the validity of a
claim. In a health policy, this clause requires the
insured to submit to physical examinations.
Evidence of Coverage. See Certificate of Insurance.
Evidence of Insurability. Any information concerning
health status required to satisfy underwriting
standards, such as a medical examination or
Ex Gratia Payment. Latin for “from favor.” A payment
by an insurer to an insured for which there is
no liability under the contract. In some cases, an
insurer may feel there has been a mistake or a misunderstanding,
and may pay a claim even though
it does not appear to be liable.
Examination. An examination of an insurance company
by the state insurance department.
Examiner. (1) An employee assigned by the state
insurance department to audit insurers’ records.
(2) A physician appointed by the medical director
of a life or health insurer to examine applicants.
Excepted Period. See Probationary Period.
Exception. A provision in an insurance policy that
eliminates coverage. See also Exclusion.
Excess Coverage/Insurance. Coverage in excess
of one or more primary coverages that does not pay
a loss until the loss amount exceeds a certain sum.
If an accident is covered by more than one policy,
the second policy is said to be excess.
Excess Interest. Interest credited to an insured’s
contract in excess of the amount guaranteed by the
terms of the contract.
Excess Limit. (1) That limit provided in a policy
that is in excess of the basic limit. See Basic Limit.
(2) A limit provided in a separate policy with another
insurer that is in excess of the limit provided
in the basic policy.
Excess Line Broker. A person licensed to place insurance
not available in his or her state through insurers
not licensed to do business in the state. A person
licensed to deal with non-admitted insurers.
Excess Loss Premium Factor. Used in connection
with retrospective rating plans, this factor compensates
the insurer for the fact that the insured has
elected to limit the effects of any one large loss under
the retrospective rating formula (e.g., the insured
elects a loss limitation of $50,000, which mean
that would be the maximum amount of any one
loss that would go into the retrospective calculation).
Excess of Loss Ratio Reinsurance. See Aggregate
Excess of Loss Reinsurance.
Excess of Loss Reinsurance. (1) Reinsurance
which, subject to a specified limit, indemnifies the
ceding company against the amount of loss in
excess of the specified retention. It includes various
types of reinsurance, such as catastrophe, per risk,
per account and aggregate excess of loss. Contrast
with Pro Rata Reinsurance. (2) Reinsurance which
indemnifies the ceding company for that portion of
the loss resulting from a single occurrence, however
defined, that exceeds a predetermined amount,
which is referred to as a first loss retention or deductible.
Excess Per Risk Reinsurance. A form of excess of
loss reinsurance which, subject to a specified limit,
indemnifies the ceding company against the amount
of loss in excess of a specified retention with respect
to each risk involved in each occurrence.
Excess Plan. A retirement plan designed around
the benefits of Social Security.
Excluded Period. See Probationary Period.
Exclusion. A contractual provision in an insurance
policy that denies coverage for certain perils, persons,
property or locations. Most exclusions exist
simply to remove coverage for above-average risks
which are not anticipated in average rates and premiums.
In some cases, the coverage is available for
an additional charge. Common policy exclusions
include: war and acts of war, self-inflicted injury
and aviation. Other exclusions limit the insurer’s
exposure to events that may have been caused intentionally
or events that dramatically increase the
chance of loss. See also Exception.
Exclusion Ratio. The relationship or ratio of the
total investment in the contract (cost basis) to the
total expected return from an annuity (calculated
based on average life expectancy tables); used to calculate
the percentage of each annuity payment which
is considered to be a return of cost basis.
Exclusive Agency System. An insurance distribution
system that allows agents to sell and service
insurance contracts that limit representation to one
insurer and reserve to the insurer the ownership,
use and control of policy records and expiration date.
See also Captive Agent and Direct Writer, and contrast
with Independent Agency System.
Exclusive Provider Organization (EPO). A preferred
provider organization where individual members
use particular preferred providers rather than
choosing from a variety of preferred providers. In
an EPO, a primary physician monitors care and
makes referrals to a network of providers.
Exculpatory. The portion of a contract or agreement
that relieves one party to the agreement of
the consequences of his or her own acts.
Executor. The person or entity specified by will
who is responsible for the probating of an individual’s
will and the settlement of an estate.
Exemplary Damages. See Punitive Damages.
Exhibitions Insurance. A policy for people who
display their products through public exhibitions.
Usually written on an all-risk basis with certain
Expectation of Life. The average number of years
of life remaining for persons of a given age according
to a particular mortality table. Also called life
Expected Claims. Estimated claims for a person/
group for a contract year based on actuarial data.
Expected Morbidity. The expected incidence of
sickness or injury within a given group during a
given period of time as shown on a morbidity table.
Expected Mortality. The expected incidence of
death within a given group during a given period
of time as shown on a mortality table.
Expediting Expenses. Expenses incurred in order
to speed up repair or replacement to reduce the
amount of loss by a peril covered in a policy. Most
commonly used in connection with business interruption
and boiler and machinery insurance. Expediting
expenses are generally covered if they reduce
the amount of the loss that the insurer would otherwise
have to pay.
Expense. (1) The cost of conducting an insurance
operation aside from the amount paid for losses. (2)
A policy’s share of the company’s operating costs,
fees for medical examinations and inspection reports,
underwriting, printing costs, commissions, advertising,
agency expenses, premium taxes, salaries,
rent, etc. Such costs are important in determining
dividends and premium rates.
Expense Allowance. A compensation paid to an
insurance agent in excess of prescribed commissions.
Expense Constant. A flat charge added to the premium
of small accounts where the premium is so
low that the cost of issuing and servicing the policy
cannot be recovered. Most often used with workers’
Expense Guarantee. One of the guarantees of all
annuities; that is, the guarantee that expenses, the
cost of doing business, will not increase or exceed a
certain percentage of the annuity contributions.
Expense Incurred Basis. Some long-term care policies
are issued on an expense incurred basis, which
means the contracts reimburse a proportion of the
actual expenses incurred. These benefits function
much like some forms of hospital and medical insurance
because the insurance pays only a percentage
of the costs (usually 50 to 80 percent), and the
insured is responsible for the remainder—a requirement
known as coinsurance.
Expense Incurred. See Incurred Expense.
Expense Loading. The amount added to the rate
during the ratemaking process to cover expenses.
Expense Ratio. The percentage of the premium
dollar devoted to paying the expenses of an insurer,
other than losses.
Expense Reimbursement Allowance. See Expense
Expense Reserve. A liability for incurred but unpaid
Experian. One of three major credit reporting companies.
Experience. (1) The loss record of an insured, an
agent, a territory, a type of insurance written, etc.
(2) A statistical compilation relating losses to premiums.
Experience Modification. The increase or decrease
in premiums resulting from the application of an
experience rating plan, usually expressed as a percentage.
See Experience Rating.
Experience, Policy Year. See Policy Year Experience.
Experience Rating. A method of adjusting the premium
for a risk based on past loss experience for
that risk compared to loss experience for an average
risk. See also Prospective Rating and Retrospective
Experience Refund. In life reinsurance, a predetermined
percentage of the net reinsurance profit
that the reinsurer returns to the ceding company as
a form of profit sharing at year’s end.
Experienced Mortality or Morbidity. The actual
mortality or morbidity experienced in a group of
insureds as compared to the expected mortality or
Experimental or Unproven Procedures. Any
health care services, supplies, procedures, therapies
or devices that the health plan determines regarding
coverage for a particular case to be either (1)
not proven by scientific evidence to be effective, or
(2) not accepted by health care professionals as being
Expiration Card. A way of recording the date that
a policy terminates. It reminds the agent or sales
representative of a policy coming up for renewal.
Expiration Date. The date indicated as the end of
the coverage period. If a policy is not renewed by
this date, premiums and coverage are terminated.
However, expiration is not absolute—it does not
affect payments for loss of use. If a loss occurs just
before the expiration date and continues for two
months after this date, the loss is fully covered.
Expiration File. A record kept by agents or insurers
of the dates that policies they have written or
are servicing expire.
Expiration Notice. Notification to the insured of
the impending termination of the insurance contract.
Expiry. The termination of a term life insurance
policy at the end of its period of coverage.
Explanation of Benefits (EOB). The statement sent
to a participant in a health plan listing services,
amounts paid by the plan and total amount billed
to the patient.
Explanation of Medicare Benefits. A notice which
is sent to the Medicare patient providing information
about how the claim is to be paid.
Explosion, Collapse and Underground Damage
(XCU). See XCU.
Explosion Insurance. Insurance against loss of
property due to explosion but not including explosion
of steam boilers, pipes and certain pressure instruments.
Most commonly written as part of the
extended coverage endorsement.
Exports. Materials and goods shipped to other countries.
Exposure. (1) The state of being subject to the possibility
of loss. (2) The extent of risk as measured by
payroll, gate receipts, area or other standards. (3)
The possibility of loss to a risk being caused by its
surroundings. This is used in property insurance
rating. (4) Surroundings producing a loss to the
insured property. (An example of definitions (3) and
(4): an insured building suffering loss because a
dynamite factory next to it exploded.)
Exposure Units. (1) Individuals or property which
may be subject to loss or damage on which a monetary
value may be placed. When these exposure
units have similar characteristics they meet the requirement
of insurability as homogeneous exposure
units. (2) Also refers to the premium base, in the
sense that the exposure units times the rate equals
the premium (e.g., in workers’ compensation, each
$100 of payroll is an exposure unit.)
Express Authority. Authority of an agent that is
specifically granted by the insurer in the agency
contract or agreement.
Extended Care Facility. A facility such as a nursing
home that is licensed to provide 24-hour nursing
care in accordance with state and local laws.
Three levels of care may be provided—skilled, intermediate,
custodial or any combination.
Extended Coverage (EC). A common extension of
property insurance beyond coverage for fire and
lightning that includes coverage for loss by the perils
of windstorm, hail, explosion, riot and riot attending
a strike, aircraft damage, vehicle damage and
smoke damage. At one time EC was added by endorsement.
In recent years it has been included on
many forms as either an optional coverage or as part
of the minimum coverages provided.
Extended Death Benefit. A group policy provision
that pays the life benefit when: 1) the insured
is totally and continuously disabled at the time the
policyholder stops paying premium until the
insured’s death; and 2) the insured dies within one
year of the date the premium payments stopped, or
prior to age 65.
Extended Non-Owner Liability. An endorsement
attached to a personal auto policy to provide broader
liability coverage only for specifically named individuals.
When attached, it covers non-owned autos
furnished for the regular use of an insured, use of
vehicles to carry persons or property for a fee and
broader coverage for business use of vehicles.
Extended Period of Indemnity. A business income
coverage that continues coverage for income losses
for a period of time after operations have resumed.
Extended Reporting Period (ERP). A period allowing
claims after expiration of a “claims-made”
liability policy. Also known as a “tail.” See also Basic
ERP, Supplemental ERP, Mini Tail, Midi Tail,
Extended Term Insurance. A provision in most
policies that provides the option of continuing the
existing amount of insurance as term insurance for
as long a period of time as the contract’s cash value
will purchase. This is one of the nonforfeiture options
available to the insured in case a premium is
not paid within the grace period. See also Nonforfeiture
Extended Wait. A form of reinsurance whereby after
the ceding insurer has paid monthly benefits to
the claimant for a given number of months under a
disability insurance contract, further benefits are
paid by the reinsurer.
Extension of Benefits. A condition that allows
coverage to continue beyond the expiration date of
the policy in the case of employees who are not actively
at work or dependents who are hospitalized
on that date. The extension applies only if the employee
or dependent is disabled as of that date and
continues only until the employee returns to work
or the dependent leaves the hospital.
Extortion. The surrender of property away from an
insured’s premises as a result of a threat to do bodily
harm to an insured, employee or to a relative or
invitee of either, who is or allegedly is being held
Extortion Coverage Form. A commercial crime
coverage form that protects against loss of money,
securities and property other than money and securities,
resulting from extortion.
Extra Expense Coverage Form. A commercial
property form designed to cover extra expenses incurred
by a business so it can remain in operation
following a property loss. See Extra Expense Insurance.
Extra Expense Insurance. A form that provides
reimbursement for the extra expenses reasonably
incurred to continue the operation of a business
when the described property has been damaged by
a peril covered by the contract. It is normally used
by businesses where continuity of operation, regardless
of cost, is a necessity as, for example, any business
that would permanently lose customers if there
were any suspension of operations.
Extra Percentage Tables. Mortality or morbidity
tables showing the extra premium for certain impaired
health conditions. Usually this premium is
shown as a percentage of the standard premium. A
form of substandard rating.
Extra Premium. An added premium charge for extra
hazardous exposures that is levied because the
normal rate does not take these into account.
Extra Premium Removal