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| A-SHARE
VARIABLE ANNUITY |
A form of
variable annuity contract where the contract holder pays sales charges
up front rather than eventually having to pay a surrender charge.
|
|
ACCELERATED DEATH BENEFITS |
A life
insurance policy option that provides policy proceeds to insured
individuals over their lifetimes, in the event of a terminal illness.
This is in lieu of a traditional policy that pays beneficiaries after
the insured’s death. Such benefits kick in if the insured becomes
terminally ill, needs extreme medical intervention, or must reside in a
nursing home. The payments made while the insured is living are deducted
from any death benefits paid to beneficiaries.
|
| ACCIDENT
AND HEALTH INSURANCE |
Coverage
for accidental injury, accidental death, and related health expenses.
Benefits will pay for preventative services, medical expenses, and
catastrophic care, with limits.
|
| ACCOUNT
RECEIVABLES |
See
Receivables
|
| ACTUAL
CASH VALUE |
A form of
insurance that pays damages equal to the replacement value of damaged
property minus depreciation.
|
| ACTUARY |
An
insurance professional skilled in the analysis, evaluation, and
management of statistical information. Evaluates insurance firms’
reserves, determines rates and rating methods, and determines other
business and financial risks.
|
|
ADDITIONAL LIVING EXPENSES |
Extra
charges covered by homeowners policies over and above the policyholder's
customary living expenses. They kick in when the insured requires
temporary shelter due to damage by a covered peril that makes the home
temporarily uninhabitable.
|
| ADJUSTER |
An
individual employed by a property/casualty insurer to evaluate losses
and settle policyholder claims. These adjusters differ from public
adjusters, who negotiate with insurers on behalf of policyholders, and
receive a portion of a claims settlement. Independent adjusters are
independent contractors who adjust claims for different insurance
companies.
|
| ADMITTED
ASSETS |
Assets
recognized and accepted by state insurance laws in determining the
solvency of insurers and reinsurers. To make it easier to assess an
insurance company’s financial position, state statutory accounting rules
do not permit certain assets to be included on the balance sheet. Only
assets that can be easily sold in the event of liquidation or borrowed
against, and receivables for which payment can be reasonably
anticipated, are included in admitted assets.
|
| ADMITTED
COMPANY |
An
insurance company licensed and authorized to do business in a particular
state.
|
| ADVERSE
SELECTION |
The
tendency of those exposed to a higher risk to seek more insurance
coverage than those at a lower risk. Insurers react either by charging
higher premiums or not insuring at all, as in the case of floods. (Flood
insurance is provided by the federal government but sold mostly through
the private market.) In the case of natural disasters, such as
earthquakes, adverse selection concentrates risk instead of spreading
it. Insurance works best when risk is shared among large numbers of
policyholders.
|
| AFFINITY
SALES |
Selling
insurance through groups such as professional and business associations.
|
| AGENCY
COMPANIES |
Companies
that market and sell products via independent agents.
|
| AGENT |
Insurance
is sold by two types of agents: independent agents, who are
self-employed, represent several insurance companies and are paid on
commission, and exclusive or captive agents, who represent only one
insurance company and are either salaried or work on commission.
Insurance companies that use exclusive or captive agents are called
direct writers.
|
| ALIEN
INSURANCE COMPANY |
An
insurance company incorporated under the laws of a foreign country, as
opposed to a foreign insurance company that does business in states
outside its own.
|
| ALLIED
LINES |
Property
insurance that is usually bought in conjunction with fire insurance; it
includes wind, water damage, and vandalism coverage.
|
|
ALTERNATIVE DISPUTE RESOLUTION / ADR |
Alternative
to going to court to settle disputes. Methods include arbitration, where
disputing parties agree to be bound to the decision of an independent
third party, and mediation, where a third party tries to arrange a
settlement between the two sides.
|
|
ALTERNATIVE MARKETS |
Mechanisms
used to fund self-insurance. This includes captives, which are insurers
owned by one or more non-insurers to provide owners with coverage.
Risk-retention groups, formed by members of similar professions or
businesses to obtain liability insurance, are also a form of
self-insurance.
|
| ANNUAL
ANNUITY CONTRACT FEE |
Covers the
cost of administering an annuity contract.
|
| ANNUAL
STATEMENT |
Summary of
an insurer’s or reinsurer’s financial operations for a particular year,
including a balance sheet. It is filed with the state insurance
department of each jurisdiction in which the company is licensed to
conduct business.
|
|
ANNUITANT |
The
person(s) who receives the income from an annuity contract. Usually the
owner of the contract or his or her spouse.
|
|
ANNUITIZATION |
The
conversion of the account balance of a deferred annuity contract to
income payments.
|
| ANNUITY |
A life
insurance product that pays periodic income benefits for a specific
period of time or over the course of the annuitant’s lifetime. There are
two basic types of annuities: deferred and immediate: Deferred annuities
allow assets to grow tax deferred over time before being converted to
payments to the annuitant. Immediate annuities allow payments to begin
within about a year of purchase.
|
| ANNUITY
ACCUMULATION PHASE OR PERIOD |
The period
during which the owner of a deferred annuity makes payments to build up
assets.
|
| ANNUITY
ADMINISTRATIVE CHARGES |
Covers the
cost of customer services for owners of variable annuities.
|
| ANNUITY
BENEFICIARY |
In certain
types of annuities, a person who receives annuity contract payments if
the annuity owner or annuitant dies while payments are still due.
|
| ANNUITY
CONTRACT |
An
agreement similar to an insurance policy for other insurance products
such as auto insurance.
|
| ANNUITY
CONTRACT OWNER |
The person
or entity that purchases an annuity and has all rights to the contract.
Usually, but not always, the annuitant (the person who receives incomes
from the contract).
|
| ANNUITY
DEATH BENEFITS |
The
guarantee that if an annuity contract owner dies before annuitization
(the switchover from the savings to the payment phase) the beneficiary
will receive the value of the annuity that is due.
|
| ANNUITY
INSURANCE CHARGES |
Covers
administrative and mortality and expense risk costs.
|
| ANNUITY
INVESTMENT MANAGEMENT FEE |
The fee
paid for the management of variable annuity invested assets.
|
| ANNUITY
ISSUER |
The
insurance company that issues the annuity.
|
| ANNUITY
PROSPECTUS |
Legal
document providing detailed information about variable annuity
contracts. Must be offered to each prospective buyer.
|
| ANNUITY
PURCHASE RATE |
The cost of
an annuity based on such factors as the age and gender of the contract
owner.
|
|
ANTITRUST LAWS |
Laws that
prohibit companies from working as a group to set prices, restrict
supplies or stop competition in the marketplace. The insurance industry
is subject to state antitrust laws but has a limited exemption from
federal antitrust laws. This exemption, set out in the McCarran-Ferguson
Act, permits insurers to jointly develop common insurance forms and
share loss data to help them price policies.
|
|
APPORTIONMENT |
The
dividing of a loss proportionately among two or more insurers that cover
the same loss.
|
|
APPRAISAL |
A survey to
determine a property’s insurable value, or the amount of a loss.
|
|
ARBITRATION |
Procedure
in which an insurance company and the insured or a vendor agree to
settle a claim dispute by accepting a decision made by a third party.
|
| ARSON |
The
deliberate setting of a fire.
|
|
ASSET-BACKED SECURITIES |
Bonds that
represent pools of loans of similar types, duration and interest rates.
Almost any loan with regular repayments of principal and interest can be
securitized, from auto loans and equipment leases to credit card
receivables and mortgages.
|
| ASSETS |
Property
owned, in this case by an insurance company, including stocks, bonds,
and real estate. Insurance accounting is concerned with solvency and the
ability to pay claims. State insurance laws therefore require a
conservative valuation of assets, prohibiting insurance companies from
listing assets on their balance sheets whose values are uncertain, such
as furniture, fixtures, debit balances, and accounts receivable that are
more than 90 days past due. (See
Admitted assets)
|
| ASSIGNED
RISK PLANS |
Facilities
through which drivers can obtain auto insurance if they are unable to
buy it in the regular or voluntary market. These are the most well-known
type of residual auto insurance market, which exist in every state. In
an assigned risk plan, all insurers selling auto insurance in the state
are assigned these drivers to insure, based on the amount of insurance
they sell in the regular market. (See
Residual market)
|
| AUTO
INSURANCE POLICY |
There are
basically six different types of coverages. Some may be required by law.
Others are optional. They are:
- Bodily injury liability, for injuries the policyholder causes to
someone else.
- Medical payments or Personal Injury Protection (PIP) for
treatment of injuries to the driver and passengers of the
policyholder’s car.
- Property damage liability, for damage the policyholder causes to
someone else’s property.
- Collision, for damage to the policyholder’s car from a
collision.
- Comprehensive, for damage to the policyholder’s car not
involving a collision with another car (including damage from fire,
explosions, earthquakes, floods, and riots), and theft.
- Uninsured motorists coverage, for costs resulting from an
accident involving a hit-and-run driver or a driver who does not
have insurance.
|
| AUTO
INSURANCE PREMIUM |
| The price
an insurance company charges for coverage, based on the frequency and
cost of potential accidents, theft and other losses. Prices vary from
company to company, as with any product or service.
Premiums also vary depending on the amount and type of coverage
purchased; the make and model of the car; and the insured’s driving
record, years of driving and the number of miles the car is driven per
year. Other factors taken into account include the driver’s age and
gender, where the car is most likely to be driven and the times of day –
rush hour in an urban neighborhood or leisure-time driving in rural
areas, for example. Some insurance companies may also use credit
history-related information.
|
| AVIATION
INSURANCE |
| Commercial
airlines hold property insurance on airplanes and liability insurance
for negligent acts that result in injury or property damage to
passengers or others. Damage is covered on the ground and in the air.
The policy limits the geographical area and individual pilots covered.
|
| B-SHARE
VARIABLE ANNUITY |
A form of
variable annuity contract with no initial sales charge but if the
contract is cancelled the holder pays deferred sales charges (usually
from 5 to 7 percent the first year, declining to zero after from 5 to 7
years). The most common form of annuity contract.
|
| BALANCE
SHEET |
Provides a
snapshot of a company’s financial condition at one point in time. It
shows assets, including investments and reinsurance, and liabilities,
such as loss reserves to pay claims in the future, as of a certain date.
It also states a company’s equity, known as policyholder surplus.
Changes in that surplus are one indicator of an insurer’s financial
standing.
|
| BANK
HOLDING COMPANY |
A company
that owns or controls one or more banks. The Federal Reserve has
responsibility for regulating and supervising bank holding company
activities, such as approving acquisitions and mergers and inspecting
the operations of such companies. This authority applies even though a
bank owned by a holding company may be under the primary supervision of
the Comptroller of the Currency or the FDIC.
|
| BASIS
POINT |
0.01
percent of the yield of a mortgage, bond or note. The smallest measure
used.
|
| BEACH
AND WINDSTORM PLANS |
State-sponsored insurance pools that sell property coverage for the
peril of windstorm to people unable to buy it in the voluntary market
because of their high exposure to risk. Seven states (AL, FL, LA, MS,
NC, SC, TX) offer these plans to cover residential and commercial
properties against hurricanes and other windstorms. Georgia and New York
provide this kind of coverage for windstorm and hail in certain coastal
communities through other property pools. Insurance companies that sell
property insurance in the state are required to participate in these
plans. Insurers share in profits and losses.
|
| BINDER |
Temporary
authorization of coverage issued prior to the actual insurance policy.
|
| BLANKET
INSURANCE |
Coverage
for more than one type of property at one location or one type of
property at more than one location. Example: chain stores.
|
| BODILY
INJURY LIABILITY COVERAGE |
Portion of
an auto insurance policy that covers injuries the policyholder causes to
someone else.
|
| BOILER
AND MACHINERY INSURANCE |
Often
called Equipment Breakdown, or Systems Breakdown insurance. Commercial
insurance that covers damage caused by the malfunction or breakdown of
boilers, and a vast array of other equipment including air conditioners,
heating, electrical, telephone, and computer systems.
|
| BOND |
A security
that obligates the issuer to pay interest at specified intervals and to
repay the principal amount of the loan at maturity. In insurance, a form
of suretyship. Bonds of various types guarantee a payment or a
reimbursement for financial losses resulting from dishonesty, failure to
perform and other acts.
|
| BOND
RATING |
An
evaluation of a bond’s financial strength, conducted by such major
ratings agencies as Standard & Poor’s and Moody’s Investors Service.
|
| BOOK OF
BUSINESS |
Total
amount of insurance on an insurer's books at a particular point in time.
|
| BROKER |
An
intermediary between a customer and an insurance company. Brokers
typically search the market for coverage appropriate to their clients.
They work on commission and usually sell commercial, not personal,
insurance. In life insurance, agents must be licensed as securities
brokers/dealers to sell variable annuities, which are similar to stock
market-based investments.
|
| BURGLARY
AND THEFT INSURANCE |
Insurance
for the loss of property due to burglary, robbery or larceny. It is
provided in a standard homeowners policy and in a business multiple
peril policy.
|
| BUSINESS
INCOME INSURANCE (also known as BUSINESS INTERRUPTION INSURANCE) |
Commercial
coverage that reimburses a business owner for lost profits and
continuing fixed expenses during the time that a business must stay
closed while the premises are being restored because of physical damage
from a covered peril, such as a fire. Business interruption insurance
also may cover financial losses that may occur if civil authorities
limit access to an area after a disaster and their actions prevent
customers from reaching the business premises. Depending on the policy,
civil authorities coverage may start after a waiting period and last for
two or more weeks.
|
|
BUSINESSOWNERS POLICY / BOP |
A policy
that combines property, liability and business interruption coverages
for small- to medium-sized businesses. Coverage is generally cheaper
than if purchased through separate insurance policies.
|
| C-SHARE
VARIABLE ANNUITIES |
A form of
variable annuity contract where the contract holder pays no sales up
front or surrender charges. Owners can claim full liquidity at any time.
|
| CAPACITY |
| The supply
of insurance available to meet demand. Capacity depends on the
industry’s financial ability to accept risk. For an individual insurer,
the maximum amount of risk it can underwrite based on its financial
condition. The adequacy of an insurer’s capital relative to its exposure
to loss is an important measure of solvency.
A property/casualty insurer must maintain a certain level of capital
and policyholder surplus to underwrite risks. This capital is known as
capacity. When the industry is hit by high losses, such as after the
World Trade Center terrorist attack, capacity is diminished. It can be
restored by increases in net income, favorable investment returns,
reinsuring more risk and or raising additional capital. When there is
excess capacity, usually because of a high return on investments,
premiums tend to decline as insurers compete for market share. As
premiums decline, underwriting losses are likely to grow, reducing
capacity and causing insurers to raise rates and tighten conditions and
limits in an effort to increase profitability. Policyholder surplus is
sometimes used as a measure of capacity.
|
| CAPITAL |
Shareholder’s equity (for publicly-traded insurance companies) and
retained earnings (for mutual insurance companies). There is no general
measure of capital adequacy for property/casualty insurers. Capital
adequacy is linked to the riskiness of an insurer’s business. A company
underwriting medical device manufacturers needs a larger cushion of
capital than a company writing Main Street business, for example.
|
| CAPITAL
MARKETS |
The markets
in which equities and debt are traded.
|
| CAPTIVE
AGENT |
A person
who represents only one insurance company and is restricted by agreement
from submitting business to any other company, unless it is first
rejected by the agent’s captive company.
|
| CAPTIVES |
Insurers
that are created and wholly-owned by one or more non-insurers, to
provide owners with coverage. A form of self-insurance.
|
| CAR YEAR |
Equal to
365 days of insured coverage for a single vehicle. It is the standard
measurement for automobile insurance.
|
| CASE
MANAGEMENT |
A system of
coordinating medical services to treat a patient, improve care, and
reduce cost. A case manager coordinates health care delivery for
patients.
|
|
CATASTROPHE |
Term used
for statistical recording purposes to refer to a single incident or a
series of closely related incidents causing severe insured property
losses totaling more than a given amount, currently $25 million.
|
|
CATASTROPHE BONDS |
Risk-based
securities that pay high interest rates and provide insurance companies
with a form of reinsurance to pay losses from a catastrophe such as
those caused by a major hurricane. They allow insurance risk to be sold
to institutional investors in the form of bonds, thus spreading the
risk.
|
|
CATASTROPHE DEDUCTIBLE |
A
percentage or dollar amount that a homeowner must pay before the
insurance policy kicks in when a major natural disaster occurs. These
large deductibles limit an insurer’s potential losses in such cases,
allowing it to insure more property. A property insurer may not be able
to buy reinsurance to protect its own bottom line unless it keeps its
potential maximum losses under a certain level.
|
|
CATASTROPHE FACTOR |
Probability
of catastrophic loss, based on the total number of catastrophes in a
state over a 40-year period.
|
|
CATASTROPHE MODEL |
Using
computers, a method to mesh long-term disaster information with current
demographic, building and other data to determine the potential cost of
natural disasters and other catastrophic losses for a given geographic
area.
|
|
CATASTROPHE REINSURANCE |
| Reinsurance
(insurance for insurers) for catastrophic losses. The insurance industry
is able to absorb the multibillion dollar losses caused by natural and
man-made disasters such as hurricanes, earthquakes and terrorist attacks
because losses are spread among thousands of companies including
catastrophe reinsurers who operate on a global basis. Insurers’ ability
and willingness to sell insurance fluctuates with the availability and
cost of catastrophe reinsurance.
After major disasters, such as Hurricane Andrew and the World Trade
Center terrorist attack, the availability of catastrophe reinsurance
becomes extremely limited. Claims deplete reinsurers’ capital and, as a
result, companies are more selective in the type and amount of risks
they assume. In addition, with available supply limited, prices for
reinsurance rise. This contributes to an overall increase in prices for
property insurance.
|
| CELL
PHONE INSURANCE |
Separate
insurance provided to cover cell phones for damage or theft. Policies
are often sold with the cell phones themselves.
|
|
CHARTERED FINANCIAL CONSULTANT / ChFC |
A
professional designation given by The American College to financial
services professionals who complete courses in financial planning.
|
|
CHARTERED LIFE UNDERWRITER / CLU |
A
professional designation by The American College for those who pass
business examinations on insurance, investments, and taxation, and have
life insurance planning experience.
|
|
CHARTERED PROPERTY/CASUALTY UNDERWRITER / CPCU |
A
professional designation given by the American Institute for Property
and Liability Underwriters. National examinations and three years of
work experience are required.
|
|
CLAIMS-MADE POLICY |
A form of
insurance that pays claims presented to the insurer during the term of
the policy or within a specific term after its expiration. It limits
liability insurers’ exposure to unknown future liabilities. (See
Occurrence policy)
|
| COBRA |
Short for
Consolidated Omnibus Budget Reconciliation Act. A federal law under
which group health plans sponsored by employers with 20 or more
employees must offer continuation of coverage to employees who leave
their jobs and their dependents. The employee must pay the entire
premium. Coverage can be extended up to 18 months. Surviving dependents
can receive longer coverage.
|
|
COINSURANCE |
In property
insurance, requires the policyholder to carry insurance equal to a
specified percentage of the value of property to receive full payment on
a loss. For health insurance, it is a percentage of each claim above the
deductible paid by the policyholder. For a 20 percent health insurance
coinsurance clause, the policyholder pays for the deductible plus 20
percent of his covered losses. After paying 80 percent of losses up to a
specified ceiling, the insurer starts paying 100 percent of losses.
|
|
COLLATERAL |
Property
that is offered to secure a loan or other credit and that becomes
subject to seizure on default. (Also called security.)
|
|
COLLATERAL SOURCE RULE |
Bars the
introduction of information that indicates a person has been compensated
or reimbursed by a source other than the defendant in civil actions
related to negligence or other liability.
|
|
COLLISION COVERAGE |
Portion of
an auto insurance policy that covers the damage to the policyholder’s
car from a collision.
|
| COMBINED
RATIO |
Percentage
of each premium dollar a property/casualty insurer spends on claims and
expenses. A decrease in the combined ratio means financial results are
improving; an increase means they are deteriorating.
|
|
COMMERCIAL GENERAL LIABILITY INSURANCE / CGL |
A broad
commercial policy that covers all liability exposures of a business that
are not specifically excluded. Coverage includes product liability,
completed operations, premises and operations, and independent
contractors.
|
|
COMMERCIAL LINES |
Products
designed for and bought by businesses. Among the major coverages are
boiler and machinery, business interruption, commercial auto,
comprehensive general liability, directors and officers liability, fire
and allied lines, inland marine, medical malpractice liability, product
liability, professional liability, surety and fidelity, and workers
compensation. Most of these commercial coverages can be purchased
separately except business interruption which must be added to a fire
insurance (property) policy.
|
|
COMMERCIAL MULTIPLE PERIL POLICY |
Package
policy that includes property, boiler and machinery, crime, and general
liability coverages.
|
|
COMMERCIAL PAPER |
Short-term,
unsecured, and usually discounted promissory note issued by commercial
firms and financial companies often to finance current business.
Commercial paper, which is rated by debt rating agencies, is sold
through dealers or directly placed with an investor.
|
|
COMMISSION |
Fee paid to
an agent or insurance salesperson as a percentage of the policy premium.
The percentage varies widely depending on coverage, the insurer, and the
marketing methods.
|
|
COMMUNITY RATING LAWS |
Enacted in
several states on health insurance policies. Insurers are required to
accept all applicants for coverage and charge all applicants the same
premium for the same coverage regardless of age or health. Premiums are
based on the rate determined by the geographic region’s health and
demographic profile.
|
|
COMPETITIVE STATE FUND |
A facility
established by a state to sell workers compensation in competition with
private insurers.
|
|
COMPLAINT RATIO |
A measure
used by some state insurance departments to track consumer complaints
against insurance companies. Generally, it is written as the number of
complaints upheld against an insurance company, as a percentage of
premiums written. In some states, complaints from medical providers over
the promptness of payments may also be included.
|
|
COMPLETED OPERATIONS COVERAGE |
Pays for
bodily injury or property damage caused by a completed project or job.
Protects a business that sells a service against liability claims.
|
|
COMPREHENSIVE COVERAGE |
Portion of
an auto insurance policy that covers damage to the policyholder’s car
not involving a collision with another car (including damage from fire,
explosions, earthquakes, floods, and riots), and theft.
|
|
COMPULSORY AUTO INSURANCE |
The minimum
amount of auto liability insurance that meets a state law. Financial
responsibility laws in every state require all automobile drivers to
show proof, after an accident, of their ability to pay damages up to the
state minimum. In compulsory liability states this proof, which is
usually in the form of an insurance policy, is required before you can
legally drive a car.
|
|
CONTINGENT LIABILITY |
Liability
of individuals, corporations, or partnerships for accidents caused by
people other than employees for whose acts or omissions the corporations
or partnerships are responsible.
|
| COVERAGE |
Synonym for
insurance.
|
| CRASH
PARTS |
Sheet metal
parts that are most often damaged in a car crash.
|
| CREDIT |
The promise
to pay in the future in order to buy or borrow in the present. The right
to defer payment of debt.
|
| CREDIT
DERIVATIVES |
A contract
that enables a user, such as a bank, to better manage its credit risk. A
way of transferring credit risk to another party.
|
| CREDIT
ENHANCEMENT |
A technique
to lower the interest payments on a bond by raising the issue’s credit
rating, often through insurance in the form of a financial guarantee or
with standby letters of credit issued by a bank.
|
| CREDIT
INSURANCE |
Commercial
coverage against losses resulting from the failure of business debtors
to pay their obligation to the insured, usually due to insolvency. The
coverage is geared to manufacturers, wholesalers, and service providers
who may be dependent on a few accounts and therefore could lose
significant income in the event of an insolvency.
|
| CREDIT
LIFE INSURANCE |
Life
insurance coverage on a borrower designed to repay the balance of a loan
in the event the borrower dies before the loan is repaid. It may also
include disablement and can be offered as an option in connection with
credit cards and auto loans.
|
| CREDIT
SCORE |
The number
produced by an analysis of an individual’s credit history. The use of
credit information affects all consumers in many ways, from getting a
job, finding a place to live, securing a loan, getting a telephone, and
buying insurance. Credit history is routinely reviewed by insurers
before issuing a commercial policy because businesses in poor financial
condition tend to cut back on safety which can lead to more accidents
and more claims. Auto and home insurers may use information in a credit
history to produce an insurance score. Insurance scores may be used in
underwriting and rating insurance policies.
|
| CRIME
INSURANCE |
Term
referring to property coverages for the perils of burglary, theft and
robbery.
|
|
CROP-HAIL INSURANCE |
Protection
against damage to growing crops from hail, fire, or lightning provided
by the private market. By contrast, multiple peril crop insurance covers
a wider range of yield-reducing conditions, such as drought and insect
infestation, and is subsidized by the federal government.
|
|