Insurance Dictionary

What Means What When It Comes to

Life, Health, Business, Home, Auto and

Other Coverages

First edition, third printing 2008

Copyright © 2002-2008 by Silver Lake

Publishing

Silver Lake Publishing

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The Silver Lake Editors

Insurance Dictionary

Pages: 486

ISBN: 978-1-56343-749X

 

 

The Silver Lake Editors who have contributed to

this book are Kristin Loberg, Christina Schlank,

Megan Thorpe and James Walsh.

Many of the standard insurance policy forms referenced

in this book are developed by and remain the

property of the New York-based Insurance Services

Office (ISO). Standard policy forms produced by

ISO are updated and modified regularly. Our references

—either direct or indirect—to the forms are intended

solely to illustrate issues common to insurance.

Check with an insurance company or agent

or broker if you need current policy information.

Diligent efforts have been made by Silver Lake Publishing

staff to provide timely and comprehensive

terms and definitions in this dictionary. However,

this dictionary is not put forth as a final authority

on any specific term or definition. Insurance terminology

is subject to industry-specific quirks and eccentricities—as

well as a never-ending development and refinement

process, which may cause definitions and usages to

change over time.

 

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is made available to select insurance professionals

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© 2008 Silver Lake Publishing www.silverlakepub.com

 

 

 

© 2008 Silver Lake Publishing www.silverlakepub.com

 

A

“A” (or Judgment) Rates. Rates that are not

backed up by loss experience statistics. They are

based on the judgment of the underwriter on an

individual risk basis.

A&H, A&S. Accident and Health Insurance, Accident

and Sickness Insurance. Once commonly

used as generic designations for the entire field now

called health insurance. See Health Insurance.

AAI. See Alliance of American Insurers.

AAIS. See American Association of Insurance Services.

AB. ACAS. Associate of the Casualty Actuarial Society.

See Fellow of the Casualty Actuarial Society.

Abandonment. Relinquishing ownership of lost or

damaged property by the insured to the insurance

company so that a total loss may be claimed. This is

prohibited in most types of property insurance.

Abandonment Clause or Condition. A clause that

prohibits the abandonment of partially damaged

property to the insurer in order to claim a total loss.

The company may choose to acquire damaged property

which can be sold for salvage and choose to

pay a total loss, but the insured cannot insist that

the insurer take possession of any property.

Absolute Assignment. Assignment by a policyowner

of all control of and rights in the policy to a

third party.

Absolute Beneficiary. See Irrevocable Beneficiary.

Absolute Liability. A liability that arises from extremely

dangerous operations, such as the use of

explosives (e.g., a contractor would almost certainly

be liable for damages caused by vibrations of the

earth following an explosive detonation). With absolute

liability it is usually not necessary to establish

that the operation is dangerous. See also Strict

Liability.

Accelerated Benefits. Riders on life insurance policies

that allow the policy’s death benefits to be used

to offset expenses incurred in a convalescent or nursing

home facility. Any living benefits paid by the

insurance company reduce the remaining death

benefit. The government does not currently consider

accelerated benefits to be taxable income, and

the policyowner can get between 50 and 95 percent

of the policy’s face value. See Living Needs

Benefits.

Accelerated Endowment. A dividend option allowing

dividend accumulations to be applied to convert

a life insurance policy into an endowment, or

to shorten the endowment term.

Accelerated Option. A provision whereby an insured

may use accumulated policy dividends and

the cash value of a life insurance contract to pay up

the policy or to mature it as an endowment.

Acceptance. Insurance acceptance occurs when an

applicant for insurance receives the policy from the

company and, in the case of general insurance, pays

the premium. In life insurance, since the initial premium

is often submitted with the application, issuance

of the policy constitutes acceptance.

Acceptance of the Risk. Once all the underwriting

information has been reviewed, an insurance

company makes a decision about the acceptance of

the risk. Most applicants are classified as standard

risks. Occasionally, an applicant for disability income

will be classified as a substandard risk.

Access. The availability of medical care to a patient.

This can be determined by location, transportation,

type of medical services in the area, etc.

Accident and Health Insurance (A&H). An older

name for health insurance. See Health Insurance.

Accident and Sickness Insurance (A&S). An older

name for health insurance. See Health Insurance.

Accident Frequency. The rate of the occurrence of

accidents, often expressed in terms of the number

of accidents over a period of time. It is one method

used for measuring the effectiveness of loss prevention

services. Contrast with Accident Severity.

Accident Insurance. Insurance against loss by accidental

bodily injury to the insured.

Accident Only Insurance. Insurance that provides

coverage for injury from accident, and excludes sickness.

Benefits may be paid for all or any of the following:

death, disability, dismemberment or hospital

and medical expenses.

Accident Prevention. See Loss Prevention Service.

Accident Severity. A measure of the severity or

seriousness of losses, rather than the number of losses.

It is measured in terms of time lost from work rather

than the number of individual accidents. It is another

way of measuring the effectiveness of loss prevention

services. Contrast with Accident Frequency.

Accident Year Experience. Measures premiums and

losses relating to accidents which occurred during

a 12-month period.

Accident. An unintended and unforeseen event,

which occurs suddenly and at a definite place, resulting

in bodily injury. An accident is also any

injury caused by accidental means—the cause was

accidental versus intentional. If the cause is accidental,

then benefits are payable. If it is intentional,

then the claim would be denied. See also Occurrence

and Accidental Bodily Injury.

Accidental Bodily Injury. An injury to the body

(the result of an accident), of external origin, unintentional

and unforeseen by the injured person. Contrast

with Accidental Means.

Accidental Death and Dismemberment (AD&D).

A policy or a provision in a disability income policy

which pays either a specified amount or a multiple

of the weekly disability benefit if the insured dies,

loses his or her sight, or loses two limbs as the result

of an accident. A lesser amount is payable for

the loss of one eye, arm, leg, hand or foot. Although

technically a health insurance product, AD&D coverage

is frequently provided as part of an individual

or group life insurance contract.

Accidental Death Benefit. An extra benefit which

generally equals the face of the contract or principal

sum, payable in addition to other benefits in

the event of death as the result of an accident. See

also Double Indemnity and Multiple Indemnity.

Accidental Death Insurance. A form that provides

payment if the death of the insured results from an

accident. Often combined with dismemberment

insurance in a form called accidental death and dismemberment.

Accidental Means. Unexpected or undesigned

cause of an accidental bodily injury. The mishap

itself must be accidental, not just the resulting injury,

(e.g., a person chopping wood: If the axe

slipped out of his hand and cut his foot, it would

have been accidental means. However, if his finger

got in the way of the axe, it would not have been).

Accommodation Line. Business accepted from an

agent or broker which would normally be rejected

according to strict underwriting standards but

which is accepted because of the overall profitability

of the agent’s or customer’s other business, (e.g.,

an insurer might accept coverage on property that

would not normally meet its underwriting standards,

if the other lines of insurance which it carries

for the customer were profitable.

Account Current. A monthly financial statement

provided to an agent by an insurer showing premiums

written, cancellations endorsements and commissions.

Account Premium Modification Plan. A rating

plan for fire, property damage and time element

coverages. The maximum credit or surcharge is 25

percent, and it is available to risks which develop a

three-year premium of at least $5,000.

Accounts Receivable Insurance. Insurance against

loss that occurs when an insured is unable to collect

outstanding accounts because of damage to or destruction

of the accounts receivable records by a peril

covered in the policy.

Accredited Service. All service, by an employee,

recognized under a pension plan as being allowable

or creditable in calculating the benefits due.

Accrete. A Medicare term which means the process

of adding new members to a health plan.

Accrued Benefit. The amount of retirement benefit

accumulated by a participating employee.

Accrued Liability. The amount of money needed

to offset accumulated benefits under a retirement

plan. Accrued liability equals the difference between

the present value of the future benefits and the

present value of future contributions.

Accumulated Actuarial Benefit. The sum of benefits

assigned to credited service before a specified

date, and which is determined pursuant to the actuarial

valuation method in use.

Accumulated Earnings Tax. A tax penalty imposed

on corporate earnings that are retained by the corporation

for non-business related needs.

Accumulated Plan Benefit. That portion of a retirement

benefit that is attributable pursuant to the

plan to the participant’s period of credited service

before a specified date.

Accumulation at Interest. A dividend option

where interest is paid on accumulated dividends

and compounded annually at a guaranteed minimum

interest rate.

Accumulation Period. The period of time, prior

to retirement, during which an annuitant is making

payments or investments in an annuity. Such

payments will accumulate on a tax deferred basis.

Accumulation Units. These are issued to owners

of variable annuities during the accumulation period,

as evidence of the annuitant’s participation in

the separate account.

Accumulation Value. A term used in universal life

policies to describe the total of all premiums paid

and interest credited to the account before deductions

for any expenses, loans or surrenders.

Accumulations (or Accumulation Benefits). Percentage

additions to policy benefits when the contract

is continuously renewed.

Acquired Immunodeficiency Syndrome (AIDS).

An infectious and incurable disease, commonly referred

to as AIDS, which is caused by the human

immunodeficiency virus, or HIV.

Acquired Locations. Locations acquired after inception

of the coverage and during the coverage

period.

Acquisition Cost. Expenses incurred by an insurer

or reinsurance company that are directly related to

putting a business on the books (acquiring a customer),

including clerical work, medical examiners

fees, inspection costs, etc. The largest portion of

this cost is usually the agent’s or sales representative’s

commission or bonus.

Act of God. An event arising out of natural causes

(with no human intervention) which could not have

been prevented by reasonable care or foresight (e.g.,

flood, lightning and earthquake).

Action. A lawsuit involving the right of one party

to recover from another person in a court of law.

Active Malfunction. When a product, instead of

bringing a benefit to the user, actually damages the

user’s property (e.g., if a bug killer, which is intended

to protect a crop, damages the crop instead).

Actively-at-Work. Most group health insurance

policies state that if an employee is not actively at

work when the policy goes into effect, the coverage

will not begin until the employee does return to

work.

Activities of Daily Living (ADL). Everyday living

functions and activities performed by individuals

without assistance, including moving about, dressing,

attending to personal hygiene and eating.

Activities of Daily Living (ADL) Standards. Standards

used to assess the ability of a person to live

independently, measured by the ability to perform

unaided such activities as eating, bathing, toiletry,

dressing and walking. Sometimes used to measure

or define eligibility for long-term care.

Actual Cash Value (ACV). An amount equal to

the replacement cost of lost or damaged property at

the time of loss, less depreciation. With regard to

buildings, there is a tendency for the ACV to closely

parallel the market value of the property. If there is

a covered loss to the insured dwelling, the insurance

company will pay either the depreciated value

of the damaged dwelling at the time of loss or the

cost of repairing the property with like construction,

but only up to the policy’s limit of liability.

ACV also refers to the maximum limit of auto insurance

coverage. The insurer will usually only pay

the ACV or the cost to repair or replace the damaged

or stolen property, whichever is less. Depreciation

and the condition of the vehicle are also considered

in determining the ACV. See also Market

Value.

Actual Charge. The actual amount charged by a

physician for medical services rendered.

Actual Total Loss. See Total Loss.

Actuarial. Having to do with insurance mathematics

or actuaries—people hired by insurance companies

to create formulas and tables that calculate the

present value of future payments and risks related

to those payments.

Actuarial Equivalence. Two different series of payments

or values are in actuarial equivalence when

they have an equal actuarial present value under a

given set of actuarial assumptions. See Actuarial

Present Value.

Actuarial Experience Gain or Loss. The effect on

an actuarial value of deviations between the past

events that would have occurred according to the

actuarial assumptions and those which actually occurred.

Actuarial Present Value. The single amount as of

a given evaluation date that results from applying

actuarial assumptions to an amount or series of

amounts payable or receivable at various times; with

the amount(s) adjusted to reflect expected changes

from the valuation date to the date of expected payment

or receipt by reason of expected salary changes,

cost of living adjustments, etc.; and adjusted to reflect

the time value of money (through discounts

for interest) and the probability of payment (by means

of decrements such as for death, disability, withdrawal

or retirement) between the valuation date and the

expected date of payment or receipt.

Actuarial Valuation Method. A procedure, using

actuarial assumptions, for measuring the expected

value of benefits and assigning such value to time

periods. Also called actuarial analysis.

Actuarially Sound. When the amount of money

in a pension fund, and the current level of contributions

to the fund, are sufficient to meet the liabilities

that have already accrued and that are accruing

on a current basis.

Actuary. A specialist trained in mathematics, statistics

and accounting who is responsible for rate,

reserve and dividend calculations as well as other

statistical studies.

Acute Care. Skilled, medically necessary care provided

by medical and nursing personnel in order to

restore a person to good health.

AD&D. See Accidental Death and Dismemberment

Insurance.

Added Expense. Extra expenses incurred relative

to a disabling injury or sickness, including additional

medication, doctor’s bills, the need for prosthetic

appliances, such as braces, and possible hospital

bills that are not fully covered by hospitalization

insurance.

Additional Coverages. Limited amounts of coverage

for specific types of losses or expenses that are

provided in addition to the major coverages (e.g.,

personal liability coverage provides three kinds of

insurance in addition to the stated limits of liability:

claim expenses, first aid to others and damage

to the property of others).

Additional Drug Benefit List. Prescription drugs

listed as commonly prescribed by physicians for

patients’ long-term use. Subject to review and

change by the health plan involved. Also called drug

maintenance list.

Additional Indemnity Riders. These riders provide

additional amounts of indemnity for short periods

of time, such as six or 12 months. The primary

purpose of these riders is to supplement or

coordinate with other disability benefits, such as

Social Security or group disability benefits.

Additional Insured. A person other than the named

insured who is protected under the terms of the

contract. Usually, additional insureds are added by

endorsement or referred to in the wording of the

definition of “insured” in the policy. See Named

Insured.

Additional Living Expense Insurance. A contract

to reimburse the insured for increased living costs

when loss of property forces the insured to maintain

temporary residence elsewhere, including the

costs for a hotel or motel, for restaurant meals or for

using a laundromat. The term extra expense insurance

refers to additional expenses incurred by businesses.

See also Loss of Use.

Additional Living Expenses. Any necessary increase

in living expenses—such as rent for alternative housing

—incurred so that the household can maintain

its normal standard of living.

Additional Monthly Benefit (AMB) Rider. A rider

added to a disability income policy to provide additional

benefits during the first year of a claim while

the insured is waiting for Social Security benefits to

begin. Also used to complement other disability

income sources, such as short-term group disability

benefits provided through the employer. Also

called a Social Security Rider.

Additional Premium. When endorsements are

added to a policy, there is almost always an additional

premium (cost) charged. See Premium.

Additur. A situation where the court increases a

previous jury award. Compare to Remittitur.

Adhesion. A characteristic of a unilateral contract

that is offered on a “take it or leave it” basis. Most

insurance policies are contracts of “adhesion,” because

the terms are drawn up by the insurer and

the insured simply “adheres” to the policy provisions.

For this reason ambiguous provisions are often

interpreted by courts in favor of the insured.

Contrast with Manuscript Policy.

Adjustable Life. A form of life insurance that allows

changes on the policy face amount, the amount

of premium, period of protection and the length of

the premium payment period. See also Flexible Premium

Adjustable Life Insurance Policy.

Adjustable Premium. The right of an insurer to

change the premium rate on classes of insureds, or

blocks of business at the time of policy renewal.

Adjusted Community Rating (ACR). Community

rating adjusted by factors specific to a particular

group. Also known as factored rating.

Adjusted Gross Estate. In the calculation of federal

estate taxes, it is equal to the gross estate less

specific deductions.

Adjusted Net Worth. The capital, surplus and voluntary

reserves of an insurer, plus an estimated value

for business on the books and unrealized capital

gains, less the potential income tax on such gains.

Adjuster. A representative of the insurer who seeks

to determine the extent of the firm’s liability for

loss when a claim is submitted. Same as Claim Representative.

Adjuster, Average. See Average Adjuster.

Adjuster, Independent. See Independent Adjuster.

Adjuster, Public. See Public Adjuster.

Adjustment Bureau. A firm organized to provide

adjustment services to insurers not wishing to create

their own claims division.

ADL. See Activities of Daily Living Standards.

Administration Bond. A bond furnished by the

executor or administrator of an estate. It guarantees

that the estate will be settled in accordance with

the terms of the will, or, if there is no will, in accordance

with the law. It guarantees the fidelity of the

executor or administrator.

Administrative Services Only. Services provided

by an insurer, such as providing claim forms and

processing claims, when the insurer is not the party

funding the loss payments. See also Self Funded

Plan.

Administrator. A person appointed by a court as a

fiduciary to settle the financial affairs and the estate

of a deceased person. Compare to Executor.

Admiralty Liability. All laws relating to liability

resulting from any kind of maritime activity. This

includes common law and statutory law, such as

the Jones’ Act and the Seamen’s Remedies.

Admiralty Proceeding. A type of proceeding involving

questions of maritime suit. Any insurance

claims involving ocean marine insurance would

generally be settled by an admiralty court.

Admissions/1,000. The number of hospital admissions

for each 1,000 members of the health plan.

Admits. The number of admissions to a hospital

(including outpatient and inpatient facilities).

Admitted (or Allowed) Assets. Assets whose values

are permitted by state law to be included in the

annual statement of the insurer.

Admitted Company. An insurance company authorized

and licensed to do business in a given state.

Admitted Liability. Coverage for guests in an aircraft.

In the event of an accident, with this coverage

guests can recover without having to go through

a determination as to whether or not the insured

was liable. It is written with a limit per seat in the

aircraft.

Adult Day Care. An optional group program for

functionally impaired adults, designed to meet

health, social and functional needs in a setting away

from home. Available under LTC insurance.

Advance Funding. Periodically setting aside a predetermined

sum of money to fund future retirement

benefits of a pension plan.

Advance Payment. Premiums paid in advance of

the current policy period, including the amount

tendered with an application for life insurance.

Advance Premium. See Deposit Premium.

Adverse Selection. The tendency of poorer than

average risks to buy and maintain insurance. Adverse

selection occurs when insureds select only those

coverages that are most likely to have losses.

Adverse Underwriting Decision. Any decision

involving individually underwritten coverages resulting

in termination of existing insurance, declination

of an application or writing the coverage only

at higher rates. For property and casualty insurance,

it also includes placing the coverage with a residual

market mechanism or unauthorized insurer.

Advertising Injury. Injury arising out of libel or

slander, violation of the right to privacy, misappropriation

of advertising ideas or infringement of copyright,

title or slogan committed in the course of

advertising goods, products or services. Contrast

with Personal Injury.

Affiant. The person who executes an affidavit.

Affidavit. A written or printed declaration or statement

of fact, made voluntarily and confirmed by

the oath or affirmation of the party making it, and

taken before an officer having authority to administer

such oath.

Affiliated Companies. Insurers linked together

through common stock ownership or through interlocking

directorates.

Affirmed. When an appellate court declares that a

judgment, decree or order is valid and right, and

must stand as rendered in the lower court.

After Charge. A charge often included in fire rates

for commercial buildings. It is usually added for conditions

that can be corrected by an insured, such as

failure to have the proper fire extinguishers.

Aftercare. Individualized patient services required

after hospitalization or rehabilitation.

Age Change. The date on which a person’s age, for

insurance purposes, changes. In most life policies

this is the date midway between the insured’s natural

birth dates. Health insurers frequently use the

age of the previous birth date for rate determinations.

On the date of age change, a person’s age

may change to that of the last birth date, the nearer

birth date or the next birth date, depending upon

the way in which the rating structure has been established

by that particular insurer.

Age Limits. The ages below which or above which

an insurer will not write certain forms of insurance

or above which it will not continue a policy presently

in force.

Age/Sex Factor. Compares the age and sex risk of

medical costs of one group relative to another. An

age/sex factor above 1.00 indicates higher than average

risk of medical costs due to that factor. Conversely,

a factor below 1.00 indicates a lower than

average risk. This measurement is used in underwriting.

Age/Sex Rates (ASR). Separate rates are established

for each grouping of age and sex categories. Preferred

over single and family rating because the rates

and premiums automatically reflect changes in age

and sex content of the group. Also called table rates.

Agency Company. An insurance company that produces

business through an agency network. Contrast

with Direct Writer.

Agency Contract (or Agreement). A document

that establishes the legal relationship between an

agent and an insurer.

Agency Plant. The total force of agents representing

an insurer.

Agency System. See Independent Agency System.

Agency. (1) An insurance sales office which is directed

by a general agent, manager, independent

agent or company manager. (2) When one person

acts on behalf of another person, an agency is created

with the first person being the agent and the

second person being the principal. The principal

generally can be held responsible for acts of its

agents.

Agent. One who solicits, negotiates or effects contracts

of insurance on behalf of an insurer. The agent’s

right to exercise various functions, authority and

obligations, and the obligations of the insurer to

the agent are subject to the agency contract with the

insurer, to statutory law and to common law.

Agent’s Appointment. Official authorization from

an insurance company granting an agent the authority

to act as its agent. In most states, agents

must be appointed by at least one insurer in addition

to being licensed by the state.

Agent’s Authority. The authority and power

granted to an agent by the agency contract. The

agent also has additional power under the legal concept

of apparent agency. See Presumption of Agency.

Agent’s Balance. A periodic statement of the sums

due and owed to an agent under contract.

Agent’s Commission. What an insurance company

pays its agents for placing insurance. Commission

is usually a percentage of the premium for the policy.

See also Commission.

Agent, General. See General Agent.

Agent, Independent. See Independent Agent.

Agent’s License. A certificate of authority from the

state which permits the agent to conduct business.

Agent, Policywriting. See Policywriting Agent.

Agent’s Qualification Laws. Education, experience

and other requirements imposed by the state upon

persons desiring to be licensed as agents.

Agent, Recording. See Recording Agent.

Agent, Special. See Special Agent.

Agent, State. See State Agent.

Aggregate Excess of Loss Reinsurance. A form

of excess of loss reinsurance that indemnifies the

ceding company against the amount by which its

losses incurred during a specific period, usually 12

months, exceed either: a predetermined dollar

amount; or a percentage of the company’s premiums

(loss ratio) for that period. Commonly referred

to as stop loss reinsurance or excess of loss ratio reinsurance.

Aggregate Funding Method. Accumulating

money for a pension plan by actuarially determining

the present value of all future benefit payments,

deducting whatever funds may be on hand with

the trustee or insurance company and distributing

the balance as a cost over the future.

Aggregate Indemnity. A maximum dollar amount

that may be collected by the claimant for any disability,

for any period of disability or under the

policy as a whole.

Aggregate Limit. Usually refers to liability insurance

and indicates the amount of coverage that the

insured has under the contract for a specific period

of time, usually the contract period, no matter how

many separate accidents may occur.

Aggregate Products Liability Limit. Indicates the

amount of money that the insurer will pay during

the term of a policy for all products liability claims

that it covers.

Agreed Amount Clause. Under this clause, the

insured and the insurer agree that the amount of

insurance carried will automatically satisfy the coinsurance

clause. This eliminates the necessity of

determining whether or not the amount carried is

equal to the stated percentage of the actual cash

value indicated in the coinsurance clause.

Agreement. One element of a legal contract. When

an offer made by one party has been accepted by

the other, with mutual understanding by both, an

agreement exists.

AIA. See American Insurance Association.

AIDS Related Complex (ARC). A variety of symptoms

and opportunistic infections and conditions

which frequently manifest themselves in patients

suffering from AIDS, or acquired immunodeficiency

syndrome, which is caused by the human immunodeficiency

virus.

AIDS. See Acquired Immunodeficiency Syndrome.

Alcoholic Beverage Control Laws. See Dram Shop

Laws.

Alcoholic Beverage Liability Insurance. See Dram

Shop Liability Insurance.

Aleatory Contract. A contract in which the number

of dollars to be given up by each party is not

equal. Insurance contracts are of this type, as the

policyholder pays a premium and may collect nothing

from the insurer or may collect a great deal more

than the amount of the premium if a loss occurs.

Alien Insurer. An insurer formed under the laws

of a country other than the U.S. A U.S. company

selling in other countries is also an alien insurer.

Alienated. Property to which an insured no longer

owns or holds title. Generally, a public liability

policy covers the insured’s liability for premises

alienated by him or her.

All or Nothing Rider. A rider to a health insurance

policy that provides additional benefits in the

event no benefits are payable under Social Security.

All Risk Insurance. Special coverage forms. See

Open Peril. Contrast with Named Perils.

Alliance of American Insurers (AAI). An association

of insurance companies working together

in the following areas of common interest: 1) government

affairs affecting insurance; 2) education of

the employees of member companies; 3) loss prevention;

and 4) other insurance activities.

Allied Health Personnel. Health personnel who

perform duties which would otherwise have to be

performed by physicians, optometrists, dentists,

podiatrists, nurses and chiropractors. Also called

paramedical personnel.

Allied Lines. Various insurance coverages for additional

types of losses, and against loss by additional

perils, which are closely associated with and usually

sold with fire insurance. Includes coverage against

loss by perils other than fire, coverage for sprinkler

leakage damage and business interruption coverage.

The fire insurance field consists of coverages

for “fire and allied lines.”

Allocated Benefits. Payments authorized for specific

purposes with a maximum specified for each.

In hospital policies, for instance, there may be scheduled

benefits for X-rays, drugs, dressings, etc.

Allocated Funds. Qualified plan funds which are

identified in the name of specific plan participants.

Allocation Formula. In a profit-sharing trust, the

formula under which the employer’s contributions

are credited to the employees.

Allowable Charge. The lesser of the actual charge,

the customary charge and the prevailing charge. It

is the amount on which Medicare will base its Part

B payment. The Medicare allowable amount is basically

Medicare’s version of reasonable and customary

charges (e.g., if a doctor charges a Medicare patient

$600 for certain services, Medicare may only

approve a portion of the benefits.)

Allowable Costs. Charges which qualify as covered

expenses.

Allowed Assets. See Admitted Assets.

Alternative Delivery Systems. Systems which

cover health care costs, other than on the usual feefor-

service basis. Includes HMOs, IPAs, PPOs.

Alzheimer’s Disease. A progressive, irreversible disease

characterized by degeneration of the brain cells

and severe loss of memory causing the individual

to become dysfunctional and dependent upon others

for basic living needs.

Ambiguity. Terms or words in an insurance policy

which make the meaning unclear or which can be

interpreted in more than one way. The general rule

of law is that any ambiguity in the policy is construed

against the insurer and in favor of the insured.

This is because the contract is one of adhesion;

that is, the insured must adhere to what the

insurer has written. If the insurer does not make its

contract clear, it is responsible.

Ambulatory Care. Outpatient treatment that does

not require hospitalization.

Ambulatory Setting. Surgery centers, clinics or

other outpatient facilities which provide health care

on an outpatient basis.

Amendment. A formal document that corrects or

revises an insurance master policy. See also Endorsement

and Rider.

American Academy of Actuaries. A society concerned

with the development of education and standards

in the actuarial field. Members may use the

designation MAAA (Member, American Academy

of Actuaries).

American Agency System. See Independent

Agency System.

American Association of Insurance Services

(AAIS). An association of insurance companies performing

various technical functions for its members

and subscribers. Licensed to operate in all states,

the District of Columbia and the Commonwealth

of Puerto Rico, AAIS offers program services, files

rates, rules and forms on behalf of member and subscriber

companies, acts as an official statistical agent

and offers a variety of professional services for its

member companies.

American College. An educational institution

within the life insurance business. It confers the

Chartered Life Underwriter designation and is concerned

with continuing agents’ training and with

research and publication in areas related to the life

insurance business. It also sponsors specialty life

insurance courses and offers a college degree in financial

services. Formerly known as the American

College of Life Underwriters (ACLU).

American Council of Life Insurance, Inc. An association

made up of several previously independent

insurance groups that is concerned with legislative

matters, intercompany communications and

the exchange of information.

American Experience Table of Mortality. A statement

of expected mortality rates based upon data

accumulated in 1868 from a large number of insured

persons. Widely used by life insurers until

the 1950s to establish rates.

American Institute for Chartered Property and

Casualty Underwriters, Inc. An insurance educational

organization that establishes insurance standards

and fosters educational work. Properly qualified

individuals who pass a series of examinations

given by this body receive the designation Chartered

Property and Casualty Underwriter (CPCU).

American Insurance Association (AIA). The informational,

educational, technical and legislative organization

of the capital stock insurance companies in the

property and liability fields. See Capital Stock.

American Lloyd’s. See Lloyd’s Association.

American Risk and Insurance Association. An

association of insurance educators and others interested

in insurance study and research.

Amortization. A method of spreading a fixed sum,

together with accumulating interest, over a period

of years.

Amortized Value. The value of bonds purchased

by an insurance company that are eligible for amortization.

For example, if a 10-year bond were purchased

at $50 more than its face value, that $50

would be “amortized” or spread over the 10-year

period. Each year the bonds would be valued at $5

less than the year before.

Amount at Risk. The difference between the face

amount of a whole life insurance contract and the

cash value which it has built up. The net amount at

risk declines throughout the life of the contract,

while the policy reserve increases along with the

cash value. It is the amount the insurer would have

to draw from its own funds rather than the policy

reserve were the contract to become a death claim.

Amount Subject. The maximum amount which

underwriters estimate can possibly be lost under

the most unfavorable circumstances in any given

loss, such as a fire or tornado. Contrast with Probable

Maximum Loss.

Ancillary Benefits. Benefits for miscellaneous hospital

charges.

Ancillary. Additional services (other than room and

board charges) such as x-rays, anesthesia, lab work,

etc. Fees charged for ancillary care such as x-rays

and lab work. This term may also be used to describe

the charge made by a pharmacy for prescriptions

which exceed the health insurance plan’s maximum

allowable cost (MAC).

Anniversary. See Policy Anniversary.

Annual (or Yearly) Renewable Term (ART). (1)

term life insurance that may be renewed annually

without evidence of insurability until a stated age.

(2) A form of life, and sometimes health, reinsurance

in which the reinsurer assumes only the mortality

risk, which is usually calculated as the face

amount of reinsurance minus the terminal reserve.

Annual Additions. The total of employer contributions,

voluntary employee contributions and forfeited

additions of terminated participants that equal

the total annual contribution to a qualified retirement

plan.

Annual Payment Annuity. An annuity which was

purchased by the payment of annual premiums for

a specified period of time.

Annual Report. The insurer’s published statement

to its stockholders (or policyholders in the case of a

mutual insurance company), reviewing pertinent financial

information about the year’s activities.

Annual Return/Report (Form 5500). A required

annual report reflecting the pension plan’s operation

for the year; to be submitted to the IRS and

the DOL.

Annual Statement. A report to the state insurance

department of the year’s financial results. Reports

insurer’s income and expenses as well as its assets

and liabilities.

Annuitant. The person who is covered by an annuity

and who triggers payments of a policy. The

owner of the contract may or may not be the annuitant,

but the annuitant is usually the intended recipient

of the annuity payments.

Annuity. (1) An amount of money payable yearly,

or by extension, at other regular intervals. (2) An

agreement by an insurer to make periodic payments

that continue during the lifetime of the annuitant(s)

or for a specified period. Protects against the risk of

living too long. (Sometimes referred to as upside

down life insurance. There are two principal types

of annuities: fixed and variable.

Annuity Certain. An annuity that pays income for

a fixed number of years regardless of whether the

insured lives or dies. If it pays for life after the certain

period, it is called an “annuity certain and for

life thereafter.”

Annuity Due. An annuity that pays benefits at the

beginning of the benefit period rather than at the

end.

Annuity Option. A method of liquidating and distributing

an annuity’s principal and interest so that

it lasts for the lifetime of the annuitant.

Annuity Payment. See Endowment.

Annuity Period. The period of time, usually at retirement,

when the annuitant begins to receive annuity

payments or benefits.

Annuity with Period Certain. An annuity that

pays throughout the life of the insured, but also guarantees

to pay income for a specific number of years

regardless of whether the insured lives or dies. If

the insured is living at the end of the time specified

in the policy, benefits continue beyond the guaranteed

period until the death of the insured.

Answer. A statement made by the defendant and

filed with a court to respond to a complaint or action

brought against the defendant. It states why

the defendant should not be held liable.

Anti-Coercion Law. A provision usually contained

in a section of the state code entitled “Unfair Trade

Practices” or a similar name, declaring the use of

coercion an unfair practice and, hence, a violation

of the state law.

Anti-Selection. See Adverse Selection.

Apartment Flat. A multi-story building subdivided

into one-story units, with each unit usually having

one owner. Residents share a common entrance.

Commonly bought as a condominium or cooperative.

App. A trade expression for the insurance application.

See Application.

Apparent Agency. See Presumption of Agency.

Apparent Authority. Authority of an agent that is

created when the agent oversteps actual authority,

and when inaction by the insurer does nothing to

counter the public impression that such authority

exists.

Appeal. The right of a party who has received an

adverse decision to take the case to a higher court

for review.

Appellant. The person appealing to the higher

court.

Appellate. Refers to courts that hear appeals for

review of decisions rendered by a lower court.

Appellee. The respondent, or the person against

whom the appellant is making an appeal.

Application. A form on which the prospective insured

states facts requested by the insurer on the

basis of which, together with information from other

sources, the insurer decides whether to accept the

risk, modify the coverage offered or decline the risk.

See App.

Appointment. See Agent’s Appointment.

Apportionment. The method of dividing a loss

among insurers in the same proportions as their

participation when two or more companies cover

the same loss.

Appraisal. An evaluation of property made to ascertain

either the appropriate amount of insurance

to write or the amount of loss to pay. If the parties

involved disagree on the value of the property or

the amount of loss, either may ask for an appraisal

of the loss. In this event, each party selects a competent

and impartial appraiser. The two appraisers

select an umpire. If they cannot agree, selection may

be made by a judge of a court having jurisdiction.

The appraisers state separately the value of the property

and amount of loss. If they fail to agree, they

submit their differences to the umpire. A decision

agreed to by any two is binding.

Approved. The condition which exists when the

person or object to be insured meets the underwriting

standards of the insurer.

Approved Charge. Amounts paid under Medicare

as the maximum fee for a covered service.

Approved Health Care Facility or Program. A

facility or program that is approved by a health care

plan as described in the contract.

Approved Pension Plan. A pension plan qualifying

for tax exemptions under provisions of the Internal

Revenue Code.

Approved Roof. A term used in building construction

that indicates a roof made of fire-resistive materials,

such as tile or asphalt shingles.

Appurtenant Structures. Buildings on the same

premises as the main building insured under a property

insurance policy. Most dwelling policies cover

appurtenant structures under most circumstances.

Arbitration. Negotiation by impartial persons when

the insured and the insurance company cannot agree

on settling a claim. Disagreement might concern

whether an insured is legally entitled to recover

damages or might concern the amount of recovery.

Both parties must agree to arbitration. If so agreed,

each party selects an arbitrator. The two arbitrators

select a third. Each party pays the cost of its own

arbitrator and splits the cost of the third arbitrator.

If they cannot agree within 30 days, either may

request that selection be made by a judge of a court

having jurisdiction.

Arbitration Clause/Provision. The provision in a

property insurance contract which states that if the

insurer and insured cannot agree on an appropriate

claim settlement, each will appoint an appraiser,

and these will select a neutral umpire. A decision

by any two of the three prescribes a settlement and

binds both parties to it.

ARC. See AIDS Related Complex.

ARIA. See American Risk and Insurance Association.

ARM. See Associate in Risk Management.

Armstrong Investigation. A study authorized by

the New York state legislature in 1905 which reviewed

the operations and practices of life insurers

operating in the state. Numerous changes in policy

forms and investment practices came from the study

and were eventually reflected in other state codes.

Arson. The willful and deliberate burning of property.

ASO. See Administrative Services Only.

Assailing Thieves. Those other than the crew using

force or violence to steal a ship or its cargo.

Such action is an insured peril under an Ocean

Marine contract.

Assessed Value. The value of real estate or personal

property as determined by a governmental

unit, such as a city, for the purpose of determining

taxes.

Assessment Company, Society or Insurer. An insurer

who retains the right to assess policyholders

additional amounts if premiums are insufficient for

operations. In some cases, an assessment insurer may

not charge a stipulated premium at all but will

merely assess participants in the plan a pro rata share

of each claim filed plus expenses.

Asset Share Value. The value of a book of business

to an insurer, assuming that the business has

been in force long enough to show true mortality

rates. This value must be known by the insurer in

order to make rates and to sell the business. If assets

share values do not grow properly, either the rates

have been too low or expenses too high.

Assets. The items on the balance sheet of the insurer

which show the book value of property owned.

Under state regulations, not all property or other

resources can be admitted in the statement of the

insurer. See also Nonadmitted Assets.

Assigned Risk. A risk that is not ordinarily acceptable

to insurers and that is, therefore, assigned

to insurers participating in an assigned risk pool or

plan. Each participating company agrees to accept

its share of these risks. Assigned-risk programs are

most often associated with auto insurance, and apply

to any state-run program that helps high-risk

property owners find insurance. See Fair Access to

Insurance Requirements.

Assigned Risk Plan. A cooperative enterprise that

all insurance companies doing business in the state

must join. The plan constructs a policy (again, usually

expensive and limited) for people whose driving

records or location disqualify them from standard

coverage. It then forces the participating insurance

companies to take a number of assigned

risk policies.

Assignee. A person to whom policy rights are assigned

in whole or in part by the original

policyowner.

Assignment. (1) An authorization to pay Medicare

benefits directly to the provider. Medicare payments

may be assigned to participating providers only. (2)

The transfer of the ownership rights of a life insurance

policy from one person to another. Also refers

to the document that effects the transfer. (3) Transfer

by the policyowner of legal rights or interest in

the policy contract to a third party. Most policies

cannot be assigned without the permission of the

insurer.

Assignment of Benefits. A method where the person

receiving the medical benefits assigns the payment

of those benefits to a physician or hospital.

Associate in Risk Management. A professional designation

granted by the American Institute for Property

and Casualty Underwriters to those who have

completed a series of examinations.

Association. See Pool and Syndicate.

Association Group Coverage. Technically, group

insurance issued to an association rather than to an

employer or a union. If the association offers a guaranteed-

issue plan, then there is no medical underwriting,

as all members are guaranteed a policy.

However, most association plans require some medical

underwriting, or what is sometimes referred to

as simplified or progressive underwriting.

Association of Life Insurance Counsel. An organization

of life company attorneys that seeks to increase

knowledge in areas of the law affecting life

insurance.

Assume. To accept from another insurer all or part

of the risk of an insured loss.

Assumed Interest Rate (AIR). An assumed value

assigned to the annuitant’s account during the annuity

period. It is an estimated return for the separate

account. Monthly annuity payments are based

on the AIR in relation to the actual rate of return

experienced by the separate account of a variable

annuity.

Assumed Liability. See Contractual Liability.

Assumption Certificate. A statement of coverage

by the reinsurer that guarantees payment to a party

not in privity with the reinsurance contract. Same

as cut-through clause.

Assumption. An amount accepted by the reinsurer.

Assumption of Risk. One of the common law defenses

available to an individual. For instance, one

person riding with another in a vehicle has generally

“assumed the risk” and, therefore, has no action

against the driver of the vehicle should an accident

occur. This common law concept has been

modified by recent case law and by statute in some

jurisdictions.

Assurance. Same as Insurance.

Assured. Same as Insured.

Assurer. Same as Insurer.

Atomic Energy Reinsurance. See Mutual Atomic

Energy Reinsurance Pool.

Attached Structures. The standard homeowners

policy covers not only the house but also structures

attached to it—such as an attached garage, breezeway,

patio, etc. This coverage also extends to building

materials and supplies used to expand the house,

build a facility like a pool or make repairs to the

existing structure. This material is covered in the

event of a fire, etc.

Attachment. A court order allowing one person to

take something of value belonging to another into

custody for a particular purpose. For example: An

insured accidentally drives his car into the wall of

someone else’s garage. The garage owner has the

right to attach the insured’s car (take it into custody)

as a way of guaranteeing that the insured will

pay for repairing the damage. An attachment ensures

that something of value is available to settle

the claim if the individual is held liable.

Attained Age. The age an insured has reached on

a given date.

Attending Physician’s Statement (APS). A source

of medical information used when underwriting a

life or health insurance policy; usually obtained from

the proposed insured’s doctor. This report provides

detailed information about an insured’s medical history

or current physical condition.

Attested Will. A formal will that is produced (handwritten,

typed, etc.), signed by the testator and

witnessed.

Attorney-in-Fact. The individual who manages a

reciprocal insurance exchange and to whom each

subscriber gives authority to exchange insurance

on the subscriber’s behalf with other subscribers.

See also Reciprocal Insurance Exchange.

Attractive Nuisance. The law states that an individual

owes no duty of care to a trespasser upon

that individual’s property. However, the law states

that a special duty of care is required of a person

with respect to conditions that attract children. Attractive

nuisances includes swimming pools, jungle

gyms, etc.

Audit. A survey of the insured’s payroll records to

determine the premium that should be paid for the

coverage furnished. Used in workers’ compensation

and general liability policies.

Audit Bureau. A central office or bureau to which

agents and companies send certain daily reports and

endorsements for auditing before transmittal to the

insurer.

Authorization. The amount of insurance an underwriter

agrees to accept on a risk of a given class

on specific property. It is given for the guidance

and information of agents.

Authorized Insurer. An insurer authorized by the

state to transact business in that state for specific

types of insurance.

Automatic Cover. Coverage given automatically

by a policy, usually for a specified period and limited

amount, to cover increasing values and newly

acquired and changing interests.

Automatic Increase in Insurance Endorsement.

See Inflation Guard Coverage.

Automatic Premium Loan. A provision in a life

policy authorizing the insurer to use the loan value

to pay any premiums still due at the end of the

grace period.

Automatic Reinstatement Clause. A stipulation

in a property insurance policy which states that after

a partial loss covered by the policy has been paid,

the original limit of the policy will be automatically

reinstated. Same as Loss Clause.

Automatic Reinsurance. (1) This form of reinsurance,

also known as treaty reinsurance, is one

whereby an insurer must cede that portion of a risk

that is above the limit established by contract, and

the reinsurer must accept all risks ceded to it. (2)

Reinsurance of specified types of risks which is automatically

ceded and accepted within the terms of

the contract, called a treaty, without consideration

of each one individually. The reinsurance takes effect

as soon as the original contract is in force. Same

as Obligatory Reinsurance. Contrast with Facultative

Reinsurance.

Automobile Fleet. Refers to a number of automobiles

under the same ownership. For insurance purposes

a fleet usually consists of five or more self-propelled

units and generally qualifies for certain

premium reductions and rating plans.

Automobile Insurance Plans. A name used to identify

assigned risk plans. See Assigned Risk.

Automobile Insurance. Insurance that protects the

insured against losses involving automobiles. Different

coverages can be purchased depending on

the needs and wants of the insured (e.g., the liability

coverages of bodily injury liability, property

damage liability and medical payments, and the

physical damage coverages of collision and comprehensive).

Automobile Use Classifications. An insured’s

needs and the insurance company’s risk analysis

coincide in the question of how an insured uses his

vehicles. The insurance company’s primary rating

factors include use classifications. These include

“pleasure use,” “business use,” “farm use” and “driving

to work.” If a car is used only for pleasure (this

is sometimes called occasional use), premiums are

lower than if the car is driven every day to work.

Cars claimed for business use tend to be more expensive

to insure.

Average Adjuster. One whose primary work is the

adjusting of ocean marine losses.

Average Benefit Test. A coverage or discrimination

test for a qualified plan that states that at least

50 percent of the lower paid employees must benefit

from the plan and the average benefit provided

must be at least 70 percent of the benefit provided

for the higher-paid employees.

Average Clause. A clause providing that similar

items in one location or several locations that are

insured by a policy shall be covered in the propor-

tion that the value of each bears to the value of all.

Also known as the average distribution clause. See

also Pro Rata Distribution Clause.

Average Cost Per Claim. The total cost of administrative

and/or medical services divided by the number

of units of exposure such as costs divided by

number of admissions or by number of outpatient

claims, etc.

Average Earnings Clause. See Relation of Earning

to Insurance Provision.

Average Indexed Monthly Earnings (AIME). A

wage indexing formula based on earnings listed in

the records of the Social Security Administration;

used to compute Social Security benefits for retirement,

survivors benefits and disability income benefits.

Average Length of Stay (ALOS). The total number

of patient days divided by the number of admissions

and discharges during a specified period

of time. This gives the average number of days in

the hospital for each person admitted.

Average Rate. A rate for a policy established by

multiplying the rate for each location by the value

at that location and dividing the sum of the results

by the total value.

Average Weekly Wage. A term generally used in

workers’ compensation laws that is the basis for determining

weekly benefits under such laws.

Aviation Accident Insurance. Insurance that protects

individuals as passengers or pilots, usually on

scheduled aircraft, or that covers the flight travel of

the employees of a company under a master policy.

Aviation Hazard. The extra hazard of death or injury

resulting from participation in aeronautics,

usually as other than a fare-paying passenger in licensed

aircraft. This generally requires an extra premium

rating or waiver of certain benefits or coverage.

Aviation Insurance. Insurance that protects an insured

against losses connected with the use of an

airplane. Coverage depends upon the needs and

desires of the insured and can include the liability

coverages of bodily injury, property damage, passenger

bodily injury and medical payments, as well

as physical damage or hull coverage. Hull coverage

can be written to provide either broad or limited

coverage. Coverage can also be written for airports,

aircraft dealers, airlines and hangarkeepers’ liability.

Avocation Questionnaire. A form that an insured

must fill out if he or she is engaged in a hazardous

hobby. Provides more specific information concerning

the hobby.

Avoidance of Risk. Taking steps to remove a hazard,

engage in an alternative activity or otherwise

end a specific exposure. One of the four major risk

management techniques. See Risk Management.

 

© 2008 Silver Lake Publishing www.silverlakepub.com

 

 

 

© 2008 Silver Lake Publishing www.silverlakepub.com

 

B

Backdating. A procedure for making the effective

date of a policy earlier than the application date.

Often used to make the age at issue lower than it

actually was in order to get a lower premium. State

laws often limit (to six months) the time to which

policies can be backdated.

Bad Faith. Lawsuits or regulatory complaints relating

to delays or denials usually allege bad faith

on the part of the insurer. This is one of the heaviest

clubs a policyholder can wield to strike back at an

insurance company. One way an insurance company

can act in bad faith is by investigating a claim with

an eye toward not providing coverage.

Bail Bond. A bond that guarantees that a person

released from legal confinement will appear as required

in court, or the penalty of the bond will be

forfeited to the court. In insurance policies, bail bond

fees are covered under an auto policy.

Bailee. A person or concern having possession of

personal property entrusted to that person by the

owner (e.g., a laundry that has custody of customers’

clothing for washing or dry cleaning). Bailees

must exercise the same care with the property of

others as they would with their own property.

Bailees Customer Insurance. Insurance purchased

by a bailee to protect the personal property of customers

against loss caused by specific perils (e.g., a carpet

cleaner who buys coverage to protect customers

against loss or damage to their carpets while

in the store’s care.

Bailees Liability Coverage. Coverage that meets

the needs of a bailee’s liability. The bailee’s legal

responsibility is to exercise care appropriate to the

circumstances of the bailment. (Most bailees want

to carry enough insurance to make good any loss to

property in their custody whether or not they are

legally liable.)

Bailment. The personal property of one person being

held by another with the intent of its being

returned to the original owner (e.g., cars in a garage

for repairs).

Bailor. A person who owns property that is entrusted

to another (e.g., the owner of a fur coat who has

entrusted it to a furrier for storage).

Balance Sheet. A listing of the assets, liabilities

and surplus of a company or individual as of a specific

date.

Bank Loan Plan. See Financed Insurance.

Bankers Blanket Bond. Insurance purchased by

banks to pay for losses due to the dishonesty of employees

as well as losses caused by people other than

employees due to burglary, robbery, larceny, theft,

forgery and mysterious disappearance.

Barratry. A fraudulent breach of duty on the part

of a master of a ship causing loss to the owner of the

ship or the owner of the cargo.

Base Capitation. The total amount which covers

the cost of health care per person, minus any mental

health or substance abuse services, pharmacy and

administrative charges.

Base Premium. See Subject Premium.

Base Rate. The cost of a given unit of insurance for

each specific type of auto coverage, such as bodily

injury and property damage liability. For example,

a base rate might be $300 for $100,000 of liability

coverage. A driver with a poor driving record must

be charged an increased amount to reflect the poor

record. This increased amount is computed by

multiplying the base rate by a rating factor. See

also Rating Process.

Basic Auto Policy. Once used to insure commercial

vehicles, motorcycles, motorscooters and a variety

of substandard risks. This policy had broad

eligibility rules, but the scope of coverage was narrower

than modern auto policies. Most automobile

risks today are insured by business or personal auto

policies, with appropriate endorsements.

Basic Coverage Form. A commercial or personal

lines property form that provides basic coverages.

These forms generally provide the most limited coverage,

which is surpassed by broad forms and special

forms.

Basic Extended Reporting Period. An automatic

“tail” for reporting claims after expiration of a

“claims-made” liability policy. It is provided without

charge and consists of two parts: a mini-tail

covers claims made within 60 days after the end of

the policy; a midi-tail covers claims made within

five years after the end of the policy period arising

out of occurrences reported not later than 60 days

after the end of the policy. See also Tail.

Basic Form Rates. Under the latest commercial

lines program, Basic Form Rates are arrived at by

adding Group I and Group II rates together. See

Group I Rates and Group II Rates.

Basic Hospital Expense Insurance. Hospital coverage

providing benefits for room and board and

miscellaneous hospital expenses for a specified number

of days during hospital confinement.

Basic Limit. Usually refers to liability policies and

indicates the lowest amount for which a policy can

be written. This amount is either prescribed by law

or company policy.

Basic Limits of Liability. Minimum amounts of

insurance. This usually refers to bodily injury and

property damage limits that are either the lowest

amounts which can be written at the published or

manual rates, the minimum amount of insurance

an insurer is willing to underwrite or the minimum

amount of insurance required by law (e.g., auto insurance

financial responsibility laws).

Basic Medical Expense Insurance. Basic medical

coverage for doctor visits, diagnostic x-rays, lab tests

and emergency treatments. Usually written without

deductibles and coinsurance provisions, but

benefits are limited to specified dollar amounts.

Contrast with Major Medical Insurance.

Basic Premium. A fixed cost charged in a retrospective

rating plan. It is a percentage of the standard premium

and gives the insurer the money needed for

administrative expenses and the agent’s commission

plus an insurance charge. See also Retrospective

Rating.

Basic Rate. The manual rate from which discounts

are taken or to which charges are added to reflect

the individual circumstances of a risk.

Bed Days/1,000. The number of inpatient hospital

days per 1,000 members of a health plan.

Below Market Loan. A demand loan with interest

paid below the federal rate; typically, part of an executive

loan program provided by an employer.

Bench Error. A loss that occurs in the production

process (e.g., if production workers mistakenly use

the wrong ingredients in a chemical formula). Bench

errors are covered by products insurance.

Beneficiary. A person who may become eligible to

receive or is receiving benefits under an insurance

policy other than a participant. There may be one

or more designated beneficiaries, including primary

beneficiaries who are entitled to the proceeds if they

are living, and contingent beneficiaries who are entitled

to the proceeds if there is no surviving primary

beneficiary when an insured dies. See also Irrevocable

Beneficiary, Revocable Beneficiary, Primary

Beneficiary, Secondary Beneficiary and Contingent

Beneficiary.

Benefit. The amount paid to a participant of a retirement

plan or to the participant’s beneficiary at

retirement, death or termination of service.

Benefit, Flat Dollar. A monthly benefit given to

all employees regardless of length of service or standard

of living. (Everyone receives the same amount.)

Benefit, Flat Percentage. A monthly pension benefit

determined by a fixed percentage of compensation.

Although recognizing the employee’s standard

of living, it still ignores length of service.

Benefit Levels. The maximum amount a person is

entitled to receive for a particular service or services

under a contract with a health plan or insurer.

Benefits of Survivorship. See Survivorship Benefits.

Benefit Package. A description of the services an

insurer or health plan offers to those covered under

the terms of a health insurance contract.

Benefit Period (BP). The period during which a

Medicare beneficiary is eligible for Part A benefits.

A benefit period is 90 days and begins the day the

patient is admitted to a hospital and ends when the

individual has not been hospitalized for a period of

60 consecutive days.

Benefits. The financial reimbursement and other

services provided to insureds by insurers under the

terms of an insurance contract (e.g., the benefits

listed under a life or health policy or benefits as

prescribed by a workers’ compensation law).

Benefit Stacking. Adding the uninsured motorists

limits from insurance on several different cars

to apply to a single claim.

Betterment. See Improvements and Betterments

Insurance.

BI. (1) Bodily Injury Liability. (2) Business Interruption

Insurance and Business Income Coverage

Form. This is what these letters most often refer to

in the property field.

Bid Bond. A bond filed with a bid for a construction

or other project that guarantees that if the

contractor has the low bid and is awarded the job, the

required performance bond will be furnished.

Billed Claims. The amounts submitted by a health

care provider for services provided to a covered individual.

Binder. An agreement executed by an agent or insurer

(usually the latter) putting insurance into force

before the contract is written or premium is paid.

Not used in life insurance. See Cover Note.

Binding Receipt. See Conditional Binding Receipt.

Birth Rate. The number of births related to the

total population in a given group during a period

of time. (Usually expressed as births per 100,000

people in one year.)

Birthday Rule. A method of determining which

parent’s medical coverage is primary for dependent

children: the parent whose birthday falls earliest in

the year usually has the primary plan.

Blackout Period. The period of time during which

a surviving spouse no longer receives survivors

benefits (after the youngest child is no longer eligible)

and before he or she is eligible for retirement benefits.

Blanket Bond. A fidelity bond that covers losses

caused by the dishonesty of all employees as opposed

to a bond that specifically identifies only certain

employees to be covered. See also Blanket Position

Bond and Commercial Blanket Bond, and

contrast with Name Position Bond and Name

Schedule Bond.

Blanket Contract. See Blanket Insurance.

Blanket Crime Policy. A policy that once provided

a package of coverages for employee dishonesty, loss

of money and securities inside and outside the premises,

depositor’s forgery, loss of money orders and

loss due to counterfeit paper currency. It has been

replaced by modern commercial crime coverage.

Blanket Fidelity Bond. See Blanket Bond.

Blanket Honesty Bond. See Commercial Blanket

Bond.

Blanket Insurance. (1) Health insurance that covers

all of a class of persons not individually identified

in the contract. (2) Property insurance that covers,

in a single contract, either multiple types of

property at a single location or one or more types of

property at multiple locations.

Blanket Medical Expense. A policy or provision

in a health insurance contract that pays all medical

costs, including hospitalization, drugs and treatments,

without limitation on any item except pos-

sibly for a maximum aggregate benefit under the

policy. It is often written with an initial deductible

amount.

Blanket Position Bond. A Blanket Fidelity Bond

where the amount of coverage applies separately to

each position covered. Contrast with Commercial

Blanket Bond (offers a single amount of coverage

for any one loss, regardless of the number of employees

involved). See also Blanket Bond.

Blasting and Explosion Exclusion. Exclusion of

liability for damages from blasting or explosions.

An additional rate is charged.

Block Policy. An open perils (all risk) policy that

derives its name from the French term en bloc meaning

“all together.” It provides coverage on stock,

property being transported or in bailment and on

the premises of others.

Blowout and Cratering. Accidents that can arise

from drilling operations. Generally includes damage

to property above the surface of the earth arising out

of blowout or cratering of any well. Usually added

by endorsement for an additional premium.

Blue Cross. Blue Cross plans are hospital expense

prepayment plans designed primarily to provide

benefits for hospitalization coverage, with certain

restrictions on the type of accommodations.

Blue Plan. A generic designation for those companies,

usually writing a service rather than a reimbursement

contract, who are authorized to use the

designation Blue Cross or Blue Shield and the insignia

of either.

Blue Shield. Blue Shield plans are prepayment plans

offered by service organizations covering medical

and surgical expenses.

Board Certified. A physician or other professional

certified as a specialist in a particular medical area.

Board Eligible. A professional or physician who is

eligible to become certified as a specialist.

Bobtailing. Using the truck/tractor after unloading

the trailer and not driving for trucking purposes.

Bodily Injury. Coverage for bodily harm, sickness

or disease. Includes the costs of required care, loss

of services or death resulting from an injury.

Bodily Injury Liability (BI). A legal liability that

may arise as a result of the injury or death of another

person. This coverage pays the other person’s

medical and rehabilitation expenses and any damages

for which they may sue.

Boiler and Machinery Coverage. Insurance against

the sudden and accidental breakdown of boilers,

machinery, and electrical equipment. Coverage is

provided on: 1) damage to the equipment; 2) expediting

expenses; 3) property damage to the property

of others; 4) supplementary payments; and 5)

additional objects. Coverage can be extended to

cover consequential losses and loss from business

interruption.

Bond. A three-party contract guaranteeing that if

one person, the principal, fails to perform as speci-

fied or proves to be dishonest, the person to whom

the duty is owed, the obligee, will be financially

protected by the issuer of the bond, the surety.

Bond, Contract. See Contract Bond.

Bond, Court. See Court Bond.

Bond, Fidelity. See Fidelity Bond.

Bond, Fiduciary. See Fiduciary Bond.

Bond, Forgery. See Forgery Bond.

Bond, Maintenance. See Maintenance Bond.

Bond, Performance. See Contract Bond.

Bond, Permit. See Permit Bond.

Bond, Public Official. See Public Official Bond.

Bond, Surety. See Suretyship.

Book of Business. A total of all insurance accounts

written by a company or agent, including: an

insurer’s book of automobile business; an agent’s

overall book of business; an agent’s book of business

with each insurer; etc.

Book Value. The value of assets as shown in the

official accounting records of the company.

Bordereau. (1) A written report of individual cessions,

usually detailed to show such items as reinsurance

premiums or reinsurance losses with respect

to specific risks. (2) A memorandum containing

information concerning documents that accompany

it. Used extensively in passing reinsurance from one

insurer to another under a reinsurance agreement

and by property and liability general agents for

passing information to various insurers on coverages

written.

Borderline Risk. An insurance prospect of doubtful

quality from an underwriting point of view.

Boston Plan. A plan where insurers agree that they

will not reject property coverage on residential buildings

in a slum area. Insurers agree to accept the

coverage until there has been an inspection and the

owner has had an opportunity to correct any faults.

Boston was the first city to originate such a plan.

Other cities have followed, including New York,

Oakland, Cleveland and Buffalo.

Bottomry. A contract of insurance by which a ship

or its cargo is pledged as collateral for a loan required

to support a maritime venture. If the ship or

cargo is lost, the loan is canceled and the borrower

would not have to repay the loan.

Boycott. A trade practice that occurs when someone

refuses to have business dealings with another

until he or she complies with certain conditions or

concessions.

Branch Manager. An executive who manages a

branch office for an insurer or an agency. See also

Regional Office.

Branch Office. See Regional Office.

Breach of the Duty to Act. When a tortfeasor does

not act in a reasonably prudent manner toward another.

See Negligence.

Brick Construction. A building with at least 75

percent of the exterior walls made of some type of

masonry construction (e.g., brick, stone or hollow

masonry tile, poured concrete or reinforced concrete,

or hollow masonry block).

Brick Veneer Construction. A building with outside

walls constructed of wood and a facing of a

single layer of brick.

Brief. A statement—prepared by an attorney to be

filed with a court—that highlights the principal

issues of a case.

Broad Form. Policies that provide insurance for

multiple types of perils over and above the usual

basic perils, or additional coverages beyond standard

coverages.

Broad Form Nuclear Energy Liability Exclusion

Endorsement. A form attached to every general liability

coverage part that excludes coverage for any

loss resulting from the hazardous properties of

nuclear material related to the operations of a

nuclear facility.

Broad Form Personal Theft Policy. Theft coverage

on personal property at private residences, usually

on an open perils (all risk) basis. A limited form

of the Broad Form Personal Theft policy is known

as the Personal Theft policy.

Broad Form Property Damage Endorsement. An

endorsement to a general liability policy that deletes

the exclusion referring to property in the care,

custody or control of the insured and replaces it

with a less restrictive exclusion.

Broad Form Storekeepers Insurance. Coverage

for small storekeepers that includes several specific

crime perils on the same basis as a storekeepers burglary

and robbery policy, plus open perils (all risk)

protection on money and securities, depositors’ forgery

and a small limit on employee dishonesty. See

Storekeepers Burglary and Robbery Insurance.

Broad Theft Coverage Endorsement. A form attached

to a dwelling policy that provides theft coverage

for a named insured who is an owner occupant.

Provides coverage for loss by theft, including

attempted theft, and vandalism and malicious mischief

as a result of theft or attempted theft.

Broker. One who represents an insured in the solicitation,

negotiation or procurement of contracts

of insurance, and who may render services incidental

to those functions. A broker may also be an agent

of the insurer for certain purposes such as delivery

of the policy or collection of the premium.

Brokerage. (1) The fee or commission received by

a broker. (2) Insurance placed by brokers contrasted

with that placed by agents.

Broker of Record. A broker who has been designated

to handle certain insurance contracts for the

policyholder.

Brokerage Business. Business offered to an insurer

by a broker. Also called excess or surplus business.

Brokerage Department. A department of an insurer

whose purpose is to deal with brokers in the

placing of insurance.

Broker-Agent. One acting as an agent of one or

more insurers and as a broker in dealing with one

or more other insurers.

Builder’s Risk Coverage Form. A commercial property

coverage form specifically designed for buildings

in the course of construction.

Building Additions and Alterations. Coverage for

improvements to a rental property (apartment or

house) that have not been reimbursed by the landlord.

Falls under renters insurance. Also called leasehold

improvement insurance.

Building and Personal Property Coverage Form.

A commercial property coverage form designed to

insure most types of commercial property (buildings,

contents or both). It is the most frequently

used commercial property form, and has replaced

the General Property form, Special Building form,

Special Personal Property form and others.

Building Code. Municipal or other governmental

ordinances regulating the type of construction of

buildings within its jurisdiction.

Building Code Upgrade Coverage. Also known

as ordinance or law coverage, provides up to

$10,000 of coverage for the additional costs required

to bring a damaged dwelling up to current building

code requirements. Without this coverage, a

policy would pay only the amount needed to repair

or replace the damaged dwelling to restore it to the

condition it was in prior to the loss, and would not

cover any additional costs due to changes required

by current building codes.

Bullion. Refers to precious metals, such as gold, in

the form of ingots or bars.

Bumbershoot Policy. A liability policy (similar to

the umbrella policy) that includes coverage related

to ocean marine risks. Includes general liability coverage,

protection and indemnity, as well as liability

coverage under the Longshoremen’s and Harbor

Workers’ Act. Collision coverage can be provided

and general average and salvage charges can be included.

Provides coverage for shipyards.

Bureau, Rating. See Rating Bureau.

Burglary. Breaking and entering into the premises

of another with felonious intent. Visible marks or

damage at the point of entry or exit are needed to

confirm the burglary.

Burglary Insurance. Insurance against loss caused

by burglars. In personal lines, burglary insurance is

provided by homeowners policies and theft endorsements

that are added to dwelling policies. In commercial

lines, a variety of commercial crime coverage

forms include burglary insurance.

Burning Cost Ratio. See Pure Loss Cost Ratio.

Burning Ratio. The ratio of losses suffered to the

amount of insurance in effect.

Business. (1) Any trade, profession or occupation.

(2) In property, liability and health lines, it usually

refers to the volume of premiums. (3) The face

amount of life insurance written.

Business Activities. Any agreement, contract,

transaction or other interaction that advances a

person’s occupation. See Business Liability.

Business Auto Coverage Form. The latest commercial

automobile insurance coverage form, which

may be written as a monoline policy or as part of a

commercial package. This form has largely replaced

the business auto policy.

Business Auto Policy. A policy that provides liability

and physical damage coverages on commercial

vehicles. In most jurisdictions, this has been

replaced by the business auto coverage form.

Business Income Coverage Form. A commercial

property form providing coverage for “indirect

losses” resulting from property damage, such as loss

of business income and extra expenses incurred.

(Replaced earlier business interruption and extra

expense forms.)

Business Insurance. (1) Insurance for businesses

or commercial establishments. (2) Life and health

policies written for business purposes, such as key

employee, sole proprietorship, partnership and corporation.

Business Interruption Insurance. A time element

coverage that pays for loss of earnings when operations

are curtailed or suspended because of property

loss due to an insured peril. Now referred to as

business income insurance. See Business Income

Coverage Form.

Business Interruption Insurance, Contingent.

Coverage for business income from dependent properties.

See Business Income Coverage Form and

Dependent Properties.

Business Liability. Liability coverages provided by

the businessowners liability coverage form. It includes

liability for bodily injury, property damage,

personal injury, advertising injury and fire damage.

Business Overhead Expense (BOE) Policy. A disability

income policy which indemnifies the business

(not the businessowner) for certain overhead

expenses incurred when the businessowner is totally

disabled. Often has an elimination period of

30 to 90 days and a benefit period of one or two

years.

Business Personal Property. Traditionally known

as contents, this includes furniture, fixtures, equipment,

machinery, merchandise, materials and any

other personal property owned by the insured and

used in the insured’s business.

Business Risk Exclusion. Also known as the (product)

failure to perform exclusion. In products insurance,

no coverage is provided for a product that does

not meet the level of performance, quality, fitness or

durability warranted or represented by the insured.

Coverage is provided, however, if liability results

from a bench error or an active malfunction.

Businessowner Policies (BOP). A package policy

that provides broad property and liability coverage

in a single contract and is designed for small and

medium-sized mercantile, office or apartment risks.

“Buy-Back” Deductible. A deductible that may

be eliminated for an additional premium in order

to provide “first-dollar” coverage—coverage that

doesn’t have a deductible.

Buyers Guide. A consumer publication that describes

the type of coverage offered, and provides

general information to help an applicant for life or

health insurance compare different policies to reach

a decision about whether the proposed coverage is

appropriate. Also called a shoppers guide.

Buy-Sell Agreement. (1) An agreement among

part-owners of a business that says that under stated

conditions (i.e., disability or death), the person withdrawing

from the business or the person’s heirs are

legally obligated to sell their interest to the remaining

part-owners, and the remaining part-owners are

legally obligated to buy at a price fixed in the agreement;

(2) a similar agreement between an owner or

part-owner of a business and a nonowner, such as a

key employee.

Bypass Trust. Also referred to as the B trust; a trust

which contains estate assets that will bypass the surviving

spouse and pass directly to other family members.

 

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C

Cafeteria Plans. An employee benefit that provides

a series of flexible health care benefits from which

an employee may choose, including a cash only

option.

Calendar Year. January 1 through December 31

of the same year. Many deductible amount provisions

are on a calendar year basis under major medical

plans. Also, benefits under basic hospital surgical

and medical plans are usually stated as so much

for each calendar year.

Calendar Year Experience. Measures the premiums

and losses entered on accounting records during

the 12-month calendar.

Cancelable. A contract of insurance that may be

terminated by the insurer or insured at any time.

Practically every form of insurance is cancelable,

except life insurance and those health insurance

policies designated as a “guaranteed renewable” or

non-cancelable and guaranteed renewable.” Some

states also regulate when, or if, auto policies can be

canceled. See Renewability.

Cancellation. Termination of a contract of insurance

by voluntary act of the insurer or insured in accordance

with the provisions in the contract or by

mutual agreement. In most states, the reasons for

which an insurance company is permitted to cancel

a policy are limited—if the policy has been in effect

for at least 60 days or is a renewal policy.

Cancellation Changes Endorsement. An endorsement

that must be attached to every commercial

property coverage part, unless it is in conflict with

state law or is replaced by a special state endorsement

that affects the cancellation clause of the common

policy conditions.

Cancellation, Flat. See Flat Cancellation.

Cancellation, Pro Rata. See Pro Rata Cancellation.

Cancellation, Short-Rate. See Short Rate Cancellation.

Capacity. The largest amount of insurance or reinsurance

available from a company. In a broader sense,

it refers to the largest amount of insurance or reinsurance

available in the marketplace.

Capital Stock Insurer. See Stock Insurer.

Capital Stock. The shares of ownership in a corporation.

Capital Sum. The maximum lump sum payable in

the event of accidental death or dismemberment.

See Principal Sum.

Capital Transaction. The sale of a capital asset, such

as stock, which results in the transaction being taxed

as ordinary income and not as a dividend.

Capitation (CAP). A rate paid, usually monthly, to

a health care provider. In return, the provider agrees

to deliver the health services agreed upon to any

covered person.

Captive Agent. One who sells insurance for only

one company as opposed to one who represents several.

See also Exclusive Agency System.

Captive Insurer. A legally recognized insurance

company organized and owned by a corporation or

firm whose purpose is to use the captive to write its

own insurance at rates lower than those of other

insurers. Usually, it is a nonadmitted insurer that

has the right, under special circumstances, to reinsure

with an admitted insurer.

Care, Custody and Control. Most liability insurance

policies exclude coverage for damage to property

in the care, custody or control of the insured.

In some cases this type of coverage can be purchased

through certain forms of inland marine insurance,

like installation floaters, and in other cases this exclusion

can be made less restrictive by adding a

broad form property damage endorsement.

Cargo Insurance. A policy covering cargo transported

by a carrier.

Carpenter Cover. See Spread Loss Reinsurance.

Carrier Replacement. This refers to a situation

where one carrier replaces one or more carriers.

Carrier. (1) Sometimes refers to the insurer. The

term “insurer” is preferred because of the possible

confusion of “carrier” with transportation. (2) Usually

a commercial insurer contracted by the Department

of Health and Human Services to process

Medicare Part B claims payments. See also Insurer.

Carryover Provision. In major medical policies,

allowing an insured who has submitted no claims

during the year to apply any medical expenses incurred

in the last three months of the year toward

the new calendar year’s deductible.

CAS. See Casualty Actuarial Society.

Case Management. The assessment of a person’s

long-term care needs and the appropriate recommendations

for care, monitoring and follow-up as

to the extent and quality of services to be provided.

Case Manager. A person, usually an experienced

professional, who coordinates the services necessary

under the case management approach.

Case Mix. The number of cases requiring different

needs and uses of hospital resources.

Cash Flow Plans. Premium payment schemes that

allow an insured to retain a large part of the premium

and pay it out over a time period such as a

year.

Cash Flow Underwriting. The use of rating and

premium collection techniques by insurance companies

to maximize interest earnings on premiums.

Cash Refund Annuity. An annuity contract which

provides that if at the death of the annuitant installments

paid out have not totaled the amount of

the premium paid for the annuity, the difference

will be paid to a designated beneficiary in a lump

sum.

Cash Surrender Value. The amount of cash due

an insured who surrenders cash value life insurance.

Such surrender, with consequent termination of all

insurance benefits, is often called “cashing out” or

“cashing in” a policy. See Nonforfeiture Values.

Cash Value. (1) See Actual Cash Value. (2) See

Cash Surrender Value.

Casualty Actuarial Society (CAS). A professional

society for actuaries in areas of insurance work other

than life insurance. This society grants the designation

of Associate and Fellow of the Casualty Actuarial

Society (ACAS and FCAS).

Casualty Insurance. Insurance that is primarily

concerned with the legal liability for losses caused

by injury to persons or damage to the property of

others. Includes such diverse forms as plate glass

insurance, crime insurance, boiler and machinery

insurance and aviation insurance. Many casualty

insurers also write surety bonds. Casualty insurers

write forms of insurance not considered property

forms. Contrast with Property Insurance.

Catastrophe Hazard/Loss. The hazard of large loss

by reason of occurrence of a peril to which a very

large number of insureds are subject (e.g., widespread

loss due to a hurricane or tornado).

Catastrophe Models. Models used by insurance

companies as a basis to estimate homeowner losses.

(The models were originally developed by Applied

Insurance Research (AIR) of Boston.)

Catastrophe Policy. An older name for major medical.

See Major Medical.

Catastrophe Reinsurance. Excess of loss reinsurance

which, subject to a specified limit, indemnifies

the ceding company against an amount of loss

in excess of a specified amount as the result of an

accumulation of losses resulting from a catastrophic

event or a series of catastrophic events.

Caused Accidents. An incident in which an innocent

victim is made an unwitting participant in an

actual accident to obtain insurance money, such as

a sideswiping (law enforcement people call this scam

swoop and squat”).

Causes of Loss. Under the latest commercial property,

inland marine and crime coverage forms, this

term replaces the earlier term “perils” insured

against.

Causes of Loss Forms. Commercial property forms

stating the perils insured against, additional coverages

provided, and exclusions that apply. There are

four causes of loss forms—basic, broad, special and

earthquake.

Caveat Emptor. Let the buyer beware.

CCRCs. See Continuing Care Retirement Communities

(CCRCs).

Cease and Desist Order. An order of the state Insurance

Commissioner or of a court requiring that a company/

person stop engaging in a particular act or practice,

usually involving insurance trade practices.

Cede. (1) The act of buying reinsurance. (2) To transfer

to a reinsurer all or part of the insurance or reinsurance

written by a ceding company.

Ceding Company. An insurer that cedes all or part

of the insurance or reinsurance it has written to another

insurer. A company that has placed reinsurance,

distinguished from the company that accepts

it.

Certificate. See Certificate of Insurance or Participation.

Certificate of Authority (COA). (1) A certificate

issued by the state that licenses the operation of an

HMO (Health Maintenance Organization). (2) A certificate

showing the powers that an insurer grants

to its agents. (3) A certificate issued by a state department

of insurance showing the power of an insurer

to write contracts of insurance in that state.

Certificate of Convenience. A temporary license

or permit empowering a person to act as an agent

even though not fully licensed according to the law.

Usually this certificate is granted to an agent who

is studying for a licensing examination. It may also

be issued to the administrator or executor of the

estate of an insurance agent, who must have the

authority of an agent to settle the estate, or to someone

acting for an agent during a disability or an

absence such as military duty.

Certificate of Insurance. (1) A statement of the

coverage and general provisions of a master contract

in group insurance that is issued to individuals

covered in the group. (2) A form that verifies

that a policy has been written and states the coverage

in general, often used as proof of insurance in

loan transactions and for other legal requirements.

Certificate of Need (CON). A certificate issued by

a governmental body, certifying that the proposed

facility will meet the needs of those for whom it is

intended. May include constructing a new health

facility, offering a new or different health service or

acquiring new medical equipment.

Certificate of Reinsurance. A short-form documentation

of a reinsurance transaction.

Certiorari. A writ issued by a higher court to a

lower court asking the lower court to forward the

record of a particular case in question.

Cession. The unit of insurance transferred to a reinsurer

by a ceding company. It also refers to the

process of ceding insurance to a reinsurer.

Cestui Que Vie. The person whose life measures

the duration of a trust, gift, estate or insurance contract.

In life and health insurance it is the person on

whose life or health the policy is written (e.g., the

insured, policyholder or policyowner).

CGL. See Commercial General Liability Coverage

Part.

Change Endorsement. When adding an endorsement

after a policy is in effect, in most cases a

change endorsement must be issued. The endorsement

lists the policy number and effective date of

the change, and acts something like a cover letter,

by providing information about an endorsement.

Change of Beneficiary. A mandatory provision that

says the policyholder (usually the insured) has the

right to name or change a beneficiary. Since a disability

income policy may include an accidental

death benefit, this provision is relevant—whether

the policy comes from a health insurance company

or a life insurance company. The only time when

this is not the case is if the beneficiary was designated

as an irrevocable beneficiary.

Change of Occupation Provision. (1) A provision

in a health insurance policy that allows the insurer

to adjust policy benefits if the insured has changed

to a more hazardous occupation. (2) A provision

that provides a method for handling disability income

claims if the insured has changed occupations

since the initial application. This provision allows

the insurer to adjust benefits or premiums to reflect

the change in occupation. If this provision is not in

the policy, then no changes can be made.

Chapter 7. Also called liquidation, this is the most

common type of bankruptcy proceeding. It involves

the appointment of a trustee who collects the nonexempt

property of the debtor, sells it and then distributes

the proceeds to the creditors.

Charter. (1) To rent or lease a ship or boat. (2) Usually

the same as articles of incorporation. This is the

grant of rights from a state or federal government,

such as the right to incorporate and transact business.

Chartered Life Underwriter (CLU). A designation

granted by the American College of Life Underwriters

upon successful completion of a series of

examinations. This is a popular professional designation

among people who sell life insurance.

Chartered Property and Casualty Underwriter

(CPCU). A designation granted by the American

Institute of Property and Casualty Underwriters

upon successful completion of a series of examinations.

Chattel. Personal property items.

Chattel Mortgage. A mortgage where the collateral

is personal property, rather than land or buildings.

Chemical Dependency Services. The services required

in the treatment and diagnosis of chemical

dependency, alcoholism and drug dependency.

Chemical Equivalents. Drugs that contain identical

amounts of the same ingredients.

Christian Science Organization. A religious organization

that is certified by the First Church of

Christian Scientists. The organization may also be

Medicare-certified as a hospital or skilled nursing

facility.

Churning. An illegal practice where insurance

agents unnecessarily replace existing life insurance

for the purpose of earning additional (higher) first

year commissions.

Civil Commotion. An uprising of a large number

of people, usually resulting in damage to property.

Generally describes one of the extended coverage

perils in the extended coverage endorsement.

Civilian Health and Medical Program of the Uniformed

Services (CHAMPUS). Part of the Uniformed

Services Health Benefits Program that

supplements medical care available for families of

active, deceased and retired military personnel.

Claim. A demand made by the insured, or the

insured’s beneficiary, for payment of the benefits

provided by the contract.

Claim Expense. The expense of adjusting a claim,

such as investigation and attorneys’ fees. It does not

include the cost of the claim itself. Other expenses

incurred by the company, such as witness fees and

any trial costs assessed against the insured are also

covered.

Claim Report. A report filed by an agent setting

forth the facts of a claim. Same as loss report.

Claim Representative. See Adjuster.

Claimant. The person making a demand for payment

of benefits.

Claims Payment Provision. A provision that identifies

to whom benefits will be paid. This, of course,

is the insured person, or loss payee. It is possible

that policy benefits may be paid to a third party,

such as a doctor or hospital, if the insured person

executes a proper assignment form.

Claims Reserve. Amounts set aside to meet costs

of claims incurred but not yet finally settled (e.g., a

workers’ compensation case where benefits are payable

for several years. At any given point in time,

the reserve would be the funds kept based on the

estimate of what the claim will cost when finally

settled).

Claims Tail. Claims that take place after the end of

a policy period create an exposure known as a claims

tail. Coverage is automatically built into the insuring

agreements of occurrence forms.

Claims-Made Coverage. A policy providing liability

coverage only if a written claim is made during

the policy period or any applicable extended reporting

period. For example, a claim made in the

current year could be charged against the current

policy even if the injury or loss occurred many years

in the past. If the policy has a retroactive date, an

occurrence prior to that date is not covered. Contrast

with Occurrence Coverage.

Class (or Classification). A group of insureds having

the same general characteristics who are

grouped together for rating purposes. Class rates

apply to dwellings and apartments, since they usually

have the same general characteristics and are

exposed to the same perils.

Class Action Suit. A legal device allowing a group

of individuals with a claim against a company or an

individual to join together as plaintiffs in a single

suit.

Class Rate. A rate for risks of similar hazard. Class

rates, for example, apply to dwellings.

Classified Insurance. Life or health insurance on

risks which do not meet the standards for the regular

manual rate. See also Substandard.

Clause. A section of a policy contract or endorsement

dealing with a particular subject (e.g., a subrogation

clause deals with the rights of the insurer

in the event of payment of a loss under the contract).

Cleanup Fund. Policies whose express purpose is

to pay final expenses of death.

Clear Space Clause. A clause requiring that insured

property, such as stacks of lumber, be stored

at some particular distance from each other or from

other property.

Clerical Error. A provision in a group health insurance

policy that provides if there is an error or

omission in the administration of a group policy,

the coverage is considered to be what it would be if

there had been no error or omission.

Close Corporation. A corporate form of business

controlled and operated by a small, close group of

persons such as family members. The corporation’s

stock is not sold to outsiders.

Closed Panel. A situation where covered insureds

must select one primary care physician—the only

one allowed to refer the patient to other health care

providers within the plan. Also called closed access

or gatekeeper model.

CLU. See Chartered Life Underwriter.

Cluster or Patio Homes. A group of houses similar

in every way to single-family homes, except that

the residents share ownership and maintenance of

the land in the development—often a golf course

or other recreation facility.

COB. Coordination of Benefits. See Nonduplication

of Benefits.

COBRA. See Consolidated Omnibus Budget Reconciliation

Act of 1986.

Codicil. A change or amendment to a will.

Coding. A method of putting information into a

numerical form for statistical use. Most information

on policies is coded and then put into reports.

Coercion. An unfair trade practice that occurs when

someone in the insurance business applies a physical

or mental force to persuade another to transact

insurance.

Cognitive Impairment. A deficiency in the ability

to think, perceive, reason or remember resulting in

loss of the ability to take care of one’s daily living

needs.

Coinsurance Clause. (1) A provision stating that

the insured and the insurer will share all losses covered

by the policy in a proportion agreed upon in

advance. See also Percentage Participation. (2) A

clause under which the insured shares in losses to

the extent that he or she is underinsured at the time

of loss. The insurer grants a reduced rate to the insured

providing the insured carries insurance 80,

90 or 100 percent to value. If, at the time of loss,

the insured carries less coverage than required, the

loss must be shared. For example, if an insured has

a building worth $100,000 and carries an 80 percent

coinsurance clause, it means that the insured

agrees to carry at least $80,000 of insurance. If the

insurance carried is just $60,000, then any loss

under the policy would be paid for on the basis of

the comparison of $60,000 (amount carried) divided

by $80,000 (amount agreed upon in advance) times

the amount of the loss. Thus, in the event of a

$10,000 loss the insured would only receive 75

percent of a loss or $7,500.

Cold Lead Advertising. An illegal method of marketing

insurance policies (often associated with

Medicare supplement policies) that fails to disclose

in a conspicuous manner the solicitation of insurance

or other similar coverage, and that further contact

will be made by an insurance agent, other producer

or insurer.

Collapse. Literally, to cave in or give way. Several

court decisions have interpreted collapse as the “loss

of structural integrity.” See Blasting and Explosion

Exclusion.

Collateral Assignment. Assignment of a life insurance

policy or its value as security for a loan. In the

event of default, the creditor would receive proceeds

or values only to the extent of the creditor’s interest.

Collateral Source. A rule allowing a plaintiff to

recover damages even if the plaintiff has already recovered

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

premiums.

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

Insurance.

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

crime policy).

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

date.

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

losses.

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-

made policy.

Commercial Policy. Policies that do not guarantee

renewability.

Commercial Property Coverage. Property coverage

that is written as a monoline policy or part of a

commercial package.

Commingling. An illegal practice that occurs when

an agent mixes personal funds with the insured’s or

insurer’s funds.

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

Graded Commission.

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

balance sheets.

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

policy.

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

of directors.

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

insurance policy.

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

Contributory Negligence.

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

damages.

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

completion.

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

property insurance.

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

Liability.

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

liability.

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

seller.

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

contract.

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

unit-owners.

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

of failure.

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

accident.

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

the act.

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

and agents.

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

institutional sources.

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

open.

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

losses.

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

contingency.

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

conditions.

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

agreement.

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

construction.

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

employee.

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

premium.

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

each unit.

Cooperative Insurance. Insurance issued by a mutual

association such as a fraternal society, an employee

association, an industrial association or a trade

union.

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

of Benefits.

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.

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

insured.

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

rates.

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

annual premium.

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

company.

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

package policy.

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

of insurance.

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

plan.

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

also Debtor.

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

other parties.

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

pension plan.

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

months.

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

plan.

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

Prevailing Charge.

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 Lake Publishing www.silverlakepub.com

 

 

 

© 2008 Silver Lake Publishing www.silverlakepub.com

 

D

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

collision coverage.

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

was provided.

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

system.

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

the defendant.

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

Insurance.

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,

property, etc.).

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

Written Business.

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 services.

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

“contingent” properties.

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

purposes.

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

Basic Premium.

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

is compelled.

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

valid will.

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

exclusions.

Direct Damage Form. A form that covers actual

damage, directly resulting from a covered peril, to

covered property.

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

Consequential Loss.

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

System.

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

system.

Direct Written Premium. The premiums collected,

without any allowance for premiums ceded to

reinsurers.

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

and Hawaii.

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.

Disability, Permanent Total. See Permanent Total

Disability.

Disability, Short-Term. See Short-Term Disability.

Disability, Temporary Partial. See Temporary Partial

Disability.

Disability, Temporary Total. See Temporary Total

Disability.

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

Coverage Plan.

Dismemberment. The loss of, or loss of use of,

specified parts of the body resulting from accidental

bodily injury.

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

Clause.

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

is written.

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

Multiple Indemnity.

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

intoxicated person.

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

of business.

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

policy contracts.

Dun and Bradstreet, Inc. (D&B). A corporation

that furnishes insurance companies with financial

reports to assist them in the underwriting of prospective

policyholders.

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

involved.

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

structures.

Dynamo Clause. See Electrical Exemption Clause.

 

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E

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

the economy.

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

basis.

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

liability policies.

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

for benefits.

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

contract.

Eligible Expenses. Expenses as defined in the health

plan as being eligible for coverage, including specified

health services fees or “customary and reasonable

charges.”

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,

union, etc.)

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

Services Center.

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

policy.

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

plan.

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

and securities.

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

business.

Employment Benefit Plan. Any plan that is both

an employee welfare plan and an employee pension

plan.

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

contracts.

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

endorsement.

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

rating information.

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

insurance plan.

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

partner.

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

Act.

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

physician’s statement.

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

specified exclusions.

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

expectancy.

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’

compensation policies.

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

Allowance.

Expense Reserve. A liability for incurred but unpaid

expenses.

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

Rating.

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

morbidity.

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

effective.

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,

Maxi 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

Values.

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

captive.

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. Removal of an extra premium

when the cause for it ceases to exist.

Extraordinary Medical Benefits. This coverage

pays when an insured’s medical and rehabilitation

expenses exceed the limits in his or her policy. It

provides $1 million of coverage.

 

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