Glossary of Insurance Terms
Accelerated Death Benefit Rider – A rider that permits the Insured to collect up to half of the death benefit in advance if the Insured is in a rest home or expected to die soon.
Accident – A sudden and unexpected event that happens at a known time and place – the opposite of an occurrence which is slow, gradual and repeated. Property policies usually cover accidents but not occurrences (this is a property insurance concept, not a liability insurance concept).
Accidental Death Benefit – A life insurance provision that will double or triple the death benefit in the event of an accidental death. Also known as a Multiple Indemnity Rider.
Actual Cash Value – In property insurance, ACV is the depreciated value of property. It is calculated by deducting the amount of physical depreciation from the item’s replacement cost.
AD&D – An Accidental Death and Dismemberment policy pays only if the Insured dies or is dismembered due to an accident.
Additional Coverages – The section of a property policy providing coverage for Debris Removal, Removal/Preservation of Property, and Fire Department Service Charges.
Additional Insured Term Rider – Permits the policy owner to add other family members with convertible term insurance.
Adhesion – A contract law concept which refers to the fact that some contracts are “take it or leave it” contracts that give the consumer virtually now power to negotiate terms. The result is that any ambiguity in a contract of adhesion will be interpreted in favor of the consumer.
Adjustable Life – A life policy where the premiums, cash value, and the death benefit may be changed.
ADLs (Activities of Daily Living) – The activities which an Insured must show an inability to perform to be eligible for long term care payments.
Adverse Selection – The Insureds who are most likely to file claims are the ones most likely to purchase insurance. The underwriter tries to avoid these applicants.
Agent – The old name the insurance industry used to refer to a Producer. The problem with the old “agent” name was that the public thought that the “agent” had the authority to make changes in the policy terms. Thus, the industry changed the name to “Producer” so that the public wouldn’t be confused. However, some of the laws still incorrectly use the name “Agent,” and the exam sometimes accidentally uses the name – particularly in old test questions.
Agreed Value – The value of insured property is agreed to in advance by the Insurer and the Insured – often done with fine art and antiques.
Aleatory – A contract that may result in unequal benefit between the parties. An insurance policy is an example of an aleatory contract. The premiums paid by the Insured seldom exactly equal the claims benefits paid by the Insurer.
All Risk Policy (Also called Comprehensive, Open Perils, Extended coverage and Special) – A property policy which covers all perils except the listed exclusions. This is the opposite of a named peril policy.
Annual Stop-Loss Limit – also known as MOOP (Maximum Out Of Pocket), is a measure that limits the maximum amount for which the Insured can be responsible for in a stated time period (e.g., one year).
Annually Renewable Term – A term life insurance policy that may be renewed on a year by year basis, usually at a much higher premium. Also known as Renewable Term.
Annuity – An insurance product that is the opposite of life insurance because the annuity typically pays until the Insured dies. A life insurance license is needed to sell annuities.
Appraisal – The settlement of an insurance claim dispute by the use of a neutral third party.
Arbitration – See appraisal.
Assignment – The transfer of a policy (or just a policy’s benefits) to another party. Often done when commercial property is sold to a new owner who also “takes over” the commercial policy. Assignment may also refer to the transfer of a life insurance policy from one owner to another.
Aviation Exclusion Rider – Reduces life insurance premiums for high-risk pilots by excluding coverage for aviation deaths.
Aviation Rider – Increases the life insurance premium for high-risk pilots but provides coverage for deaths due to aviation accidents.
Base Plan – An older form of health insurance that has very low dollar limits of coverage (usually without a deductible, copay, or coinsurance charge).
Basic Form – Property insurance that insures against a list of 11 perils (the number may vary depending on the Insurer). See Broad Form
Beneficiary – The person receiving the claim payment from the Insurer.
Binder – An oral or written agreement by a Property or Casualty Producer to provide temporary property or liability coverage, usually while waiting for the customer to complete and application form. Binders are not used with Life or Health Insurance.
Blanket Policy – A limited health policy covering only accidents. This is a form of group coverage where the Insureds are not named in the policy and do not receive a certificate of coverage. For example, this may be used to cover kids at the horse camp.
Broad Form – A property policy that adds 5 perils to the list of 11 perils covered under a Basic Form policy. This is a named peril policy.
Building and Personal Property (BPP) – The commercial property policy for larger businesses. Smaller and less sophisticated businesses usually get the BOP (Business Owner Policy) that provides a combination of property and liability coverage.
Burglary – The illegal taking of property from a locked building after business hours – involves a breaking in or a breaking out by the burglar.
Business Income Policy – Under commercial property insurance – a commercial property policy covering the indirect loss of income following a covered event, such as a fire.
Business Overhead Expense Policy – Under health insurance – a type of Business Income policy that pays the disabled owner of a small business for the expense of keeping the business operational until the owner is able to return to work.
Cancellable – A health policy which may be terminated by the Insurer at any time without a reason. Usually this is illegal. In most states, this is an illegal provision in major health policies but may be permitted in minor policies, such as dental policies.
Cancellation – Termination of a policy during the policy period.
Capital Sum – Under health insurance – one half of the AD&D (Accidental Death and Disability) policy’s limit paid to the Insured as a result of a dismemberment.
Casualty Insurance – A broad term which includes all of the policy types that may be sold with a Casualty License – in most states, this includes auto, liability, work comp, commercial crime, and surety bonds.
Certificate of Insurance – Under property or casualty insurance – a A summary of the policy coverage given to a third party to show that coverage is in effect. Under group life or health insurance – a statement used by a group life or health insurer to show the individuals the coverage provided by the group policy.
Claims Made Form – A property or casualty policy that pays according to the coverage in effect in the year the claim is made rather than according to the coverage in effect at the time of the loss. Professional Liability policies are usually written on a Claims Made basis, while other liability policies are usually written on an Occurrence Basis.
COBRA – The federal law which provides for both continuation and conversion of health policies.
Coinsurance Clause (Health Insurance) – A health policy provision requiring the Insured to pay part of the claim. This usually requires the Insured to pay 20% of the claim. Beware – Property policies use a different definition.
Coinsurance Clause (Property Insurance) – A property insurance provision which encourages Insureds to insure property for its full value. If the Insured fails to provide coverage equal to at least a specified percentage (usually 80%) of the property’s value, the Insured will personally bear a proportionate amount of any partial loss. Also known as the “cheapskate” clause.
Collateral Assignment – Under life insurance – the temporary assignment of a life policy to a lender as collateral for a loan. The assignment is terminated when the loan is paid.
Commercial Package Policy (CPP) – A commercial policy that bundles two or more coverage parts into a single policy. A CPP will contain a common declarations section, a common conditions section, and coverage forms.
Competent Party – A person who is capable of entering into an insurance contract. Such a person must be sane, sober, and of age of majority (age 15 in most states).
Comprehensive Major Medical – A health insurance policy that combines a Base Plan to take care of minor claims and the deductible plus a Major Medical Policy to take care of more expensive claims.
Concealment – Intentionally hiding the truth or intentionally telling only a partial truth.
Conditional Receipt – Under life or health insurance – a special premium receipt given to the Applicant. If a Conditional Receipt is given to the Applicant in return for the premium, the Applicant is assured that the coverage MAY become effective even prior to delivery of the policy, The coverage will become effective when the Applicant takes the physical and pays the premium IF the application meets the underwriter’s requirements.
Conditionally Renewable – A health policy that may be terminated by the Insurer only one of several “trigger” events occurs. For example, a Disability Income policy might state that it is renewable each year only if the Insured complies with the condition of passing a new physical exam.
Conditions Section – Under property or casualty insurance – the part of the policy containing the details of the policy, including the duties of the Insured.
Consent to Settle Provision – Under liability insurance, the provision in an E&O policy or Employment Practices Liability Policy requiring the Insured’s consent prior to the Insurer settling a claim filed by a third party.
Consideration – Something of value given by each party in a contract. In insurance contracts, the Insurer provides a promise to pay and the Insured provides a premium payment.
Consumer Driven Health Care – A combination of a high deductible health policy with a tax advantaged savings account.
Contestable Clause – In individual or group life and group health insurance, a required provision prohibiting the Insurer from terminating the policy due to fraud, misrepresentation, concealment, or mistake after the policy has been in effect for 2 years. With individual health policies, the Contestable Clause is called a “Time Limit on Certain Defenses Clause” and prohibits the Insurer from canceling a policy after the first 2 years due to mistake but does permit the Insurer to cancel the individual health policy after the first 2 years due to fraud, misrepresentation, or concealment. The Contestable Clause is also known as an Incontestable Clause.
Contributory Group – Under group life or health – a group policy where the employees contribute at least a portion of the cost of the premium.
Conversion – Under life or health insurance – conversion may refer either to changing a Group Policy to an individual policy, or changing a Term Policy to a Whole Life Policy.
Convertible Term – A term life policy that may be changed to Whole Life during the early years.
Coordination of Benefits (COB) Clause – A group health insurance term that specifies how payments are made if an Insured is covered by two or more group health policies.
Critical Illness Policy – A sickness only Limited Policy that pays the Insured but the Insured does not need to use the money to pay a health care provider. The Insured is not required to use the money to treat the illness.
Currently Insured – One who hasn’t made the required 40 quarters worth of FICA payments to be fully insured under Social Security.
Declarations Section – Under property or casualty insurance – the “dec sheet” is the first page of the policy and includes the “fill-in-the-blanks” information obtained by the Producer, including the names of the parties, the description of the coverage, the policy’s limit of liability, the duration of the policy, the amount of the premium, and the amount of the deductible.
Decreasing Term – Under life insurance, a term policy which has a decreasing death benefit. Also known as Mortgage Protection Insurance.
Deductible – The amount of loss that the insured must pay before the policy will begin to pay.
Direct Loss – Under property insurance, damage to property from a covered peril (as contrasted with an Indirect Loss which refers to loss of income that results from the loss). Property policies typically cover Direct Losses and exclude Indirect Losses but may cover both.
Disability Insurance – A broad term used to refer to all types of health insurance policies, such as medical expense insurance, long-term care insurance, Medicare Supplement insurance, and disability income insurance.
Dividend Option – Under life insurance, a provision specifying how the mutual policy’s dividend is to be paid.
Dread Disease Policy – A limited health policy that indemnifies the Insured for medical expenses if a particular disease is contracted.
Employers Liability – The section of a Work Comp policy covering the employer for claims made by the injured worker’s family members.
Endorsement – An addition which changes the original policy (also known as a Rider or an Extension).
Endowment Life – A whole life policy that endows (face value equals cash value) prior to age 100.
Entire Contract Clause – Under life and health insurance, the required provision which states that only policy and the attached application are part of the agreement.
Equipment Breakdown – the new name for the Boiler policy.
Equity Indexed Annuity – An annuity with payments tied to a particular economic index.
Exclusion – Anything not covered by a policy.
Expediting Expenses – A boiler policy’s coverage for the expense of temporary repairs.
Expiration – Under term life insurance – termination of a term life policy at the end of the policy term. Some term life policies contain an Annually Renewable provision permitting coverage for at least one more year.
Extension – Any policy addition which changes the original policy (also known as a Rider or Endorsement).
Extra Expense Policy – Commercial property coverage to pay for the extra cost of continuing a business after a loss.
Fair Credit Reporting Act – A federal law protecting consumers when businesses obtain consumer reports.
Fair Market Value – What an item would sell for in the marketplace. This is extremely difficult to ascertain which is why Property Insurers prefer to cover insured property on a Replacement Cost, Actual Cash Value, or Agreed Value basis. As a general rule, Property Insurers will not use Fair Market Value to pay property claims, although Liability Insurers may use that method of claim payment.
Family Maintenance Policy – A whole life policy with a Level Term rider to provide a set amount of extra money (not a decreasing amount) if the Insured dies while the Insured’s children are still in the nest.
Family Policy – A whole life policy on the main breadwinner with smaller convertible term policies on the other family members.
Fee For Service – Under health insurance, a policy that only pays claims to health care providers if a service is provided. The problem with “Fee For Service” is that it encourages physicians to provide unnecessary services, thus increasing health care costs. HMOs are not Fee For Service policies.
FICA– Federal Insurance Contributions Act payroll deductions used to pay for Social Security and Medicare.
Fidelity Bond – Under casualty insurance – a contract sold by a Surety Producer to cover employee theft. Casualty Insurance Producers may accomplish virtually the same thing by selling an Employee Dishonest insurance policy. For our purposes, Fidelity Bonds and Employee Dishonesty policies are used interchangeably.
First Named Insured – Under property and casualty policies – the person listed first on the Declarations as an Insured – this person usually has the total control over policy decisions.
First Party Ownership – Under life and health insurance – a policy issued to the Insured who is the applicant rather than a policy issued to an applicant who is not the Insured. If I apply for a life insurance policy on myself, that is first party ownership. If my wife applies for a policy on my life, she is the third party owner.
First to Die Policy – A “Joint Life” policy that pays the benefits to the remaining spouse when the first spouse dies.
Floater – A policy sold by an Inland or Ocean Marine Insurer.
Fraud – A broad term used to refer to an Insured’s misrepresentation or concealment.
Free Look – Under individual life and health policies – a time period during which the Insured may return the policy for a full refund. Usually 10 days for individual life or individual health policies and 30 days for Long Term Care and Medicare Supplement policies. There is no Free Look provision in a group life or group health policy.
Friendly Fire – A fire which is not covered by a property policy because the fire was intentionally started and is burning where it was intended (such as a candle on the dining room table – the candle isn’t covered). However, if the candle causes the table to burn, this is covered as a hostile fire.
Fully Insured – A Social Security term used to refer to someone who has Social Security coverage after having made contributions for 40 quarters (10 years).
Grace Period – A life or health concept – typically a 31 day period where coverage continues after the Insured has failed to pay the premium. After the 31 days, the policy lapses. The Insured is still fully covered during the Grace Period.
Graded Premium Life – Another name for Modified Premium Whole Life where the Insured gets lower premiums in the early years in exchange for higher premiums later.
Gramm-Leach-Bliley Act – A federal law which protects consumer privacy and which encourages the states to adopt uniform licensing standards.
Guaranteed Insurability Rider – Under life and health insurance, this permits the Insured to purchase more life insurance or disability income insurance at stated times without proving insurability.
Guaranteed Renewable – A health insurance term referring to a policy that gives the Insured the right to renew each year regardless of health status but permits the Insurer to raise premiums for all Insureds of that class. Contrast this with Noncancellable policies where the Insured also has the right to renew each year regardless of health status but the Insurer cannot raise the premium each year.
Hazard – Any factor that increases the likelihood that a peril will occur. For example, an open can of gasoline stored next to a furnace is a hazard because it increases the likelihood of a fire.
HIPAA – Under health insurance – the federal law providing for group health insurance portability and consumer privacy (Health Insurance Portability and Accountability Act).
HMO (Health Maintenance Organization) – A health insurer that requires the Insureds to select a primary care physician (gatekeeper doc) and to stay within the HMO’s network of care providers. The traditional HMO has a minimal copay (such as $50) for each service but no deductible or coinsurance charge. The HMO is referred to a “prepaid healthcare” because the providers (such as the physicians) are prepaid on per person basis regardless of whether any care is actually provided. This is not an example of “fee for service.”
Hostile Fire – A fire which was not intended to cause the resulting damage. Property insurance policies cover hostile fires but will not cover friendly fires.
Impairment Rider – A pre-existing condition exclusion in a health insurance policy.
Incontestable Clause – Under life and health insurance, another name for a Contestable Clause. See
Increasing Term – A term life insurance policy where the death benefit increases in later years.
Indemnification – Using insurance to be “made whole” but not coming out ahead financially. Insurance companies generally want to cover only the loss but not enable someone to actually make money by filing insurance claims. As a general rule, health insurance and property insurance policies don’t permit an insured to “come out ahead.” Thus, health insurance and property insurance policies are indemnity policies. On the other hand, the life insurance industry knows that when it pays a claim, often the deceased was a relatively worthless individual. The life insurance industry will pay the claim anyway. The life insurance industry will even sell multiple policies on the relatively worthless individual. Thus, we say that health and property policies are indemnity policies that will reimburse you for a claim that you file. But, a life policy is considered to be a “valued” policy – it pays the policy amount even if the insured was a worthless individual and even if the worthless insured had multiple life insurance policies. Note that under property insurance, Replacement Cost policies are also considered to be “valued” policies and not “indemnity” policies.
Indemnity Agreement – The provision in a surety bond requiring the Principal to indemnify the Surety for any loss.
Indemnity Policy – An insurance policy which only pays for the Insured’s losses so that there is no chance of coming out ahead. Most health and property policies are usually indemnity policies whereas life policies and replacement cost property policies are “valued policies.”
Indirect Loss – Under property insurance, a financial loss that occurs as a result of a direct loss. For example, a business loses income after a fire destroys the building. Most property policies cover fires (direct losses) but do not cover indirect losses unless additional coverage is purchased.
Inherent Vice – A loss caused by natural deterioration. Property Insurers will not pay claims for inherent vice.
Insurable Interest – The interest an Insured has in the person or item being insured. In Life and Health insurance, the Insurable Interest must exist at the time of the application (at the inception of the policy). In Property and Casualty insurance, the Insurable Interest must exist at the time of the loss. The Insurable Interest may be either financial or involve love and affection.
Insurance – The transfer of risk from a customer to the insurance company. Insurance is also simply defined as the “transfer of risk.”
Insured – The person(s) protected by an insurance policy.
Insurer – The insurance company.
Insuring Agreement Section – The portion of the property or casualty insurance policy which describes the perils insured against.
Insuring Clause – The portion of the life or health policy which describes the perils insured against (death or sickness), has the Insurer’s promise to pay, names the parties, and specifies exclusions, such as pre-existing conditions. Huge test topic!
Interest Sensitive Whole Life – A whole life policy where the cash value account grows according to an index, such as Moody’s Bond Index. The return isn’t based on a guaranteed cash value chart nor is the return based on stock investments chosen by the insured.
IOLI – Investor Originated Life Insurance – The investor encourages an applicant to obtain life insurance with the intent of having the applicant later sell selling the policy to the investor. Same as STOLI. This is illegal in some states.
IRA – An Individual Retirement Account is a tax deductible, tax deferred retirement plan set up by individuals and not set up through employers.
Irrevocable Beneficiary – Under life insurance, a beneficiary who cannot be changed by the policy owner.
Joint Life Policy – A “first to die” policy that pays the benefits to the remaining spouse when the first spouse dies.
Key Employee Insurance – Life or Disability insurance on a key employee with the benefits paid to the employer.
Lapsation – Under life and health insurance, the termination of a policy at the end of the Grace Period due to nonpayment of premium.
Last to Die Policy – A survivorship life policy that pays the death benefit to the estate of the surviving spouse only upon the death of the surviving spouse. It does not pay upon death of the first spouse. Used primarily to pay estate death taxes. Contrast this with a First to Die Policy.
Law of Large Numbers – The fact that it is easier for an Insurer to predict losses and set premiums if the Insurer has a large number of policy holders.
Level Term – Under life insurance, a term policy where the death benefit does not increase or decrease over the life of the policy.
Liberalization Clause – Under property and casualty insurance, a policy provision stating that the policy will automatically be updated if the Insurer ever issues a new policy to other Insureds providing better coverage at the same premium.
Life Settlement Agreement – The sale of a life insurance policy by one who no longer needs it.
Limited Health Policy – A health policy which pays for either accidents or illnesses, but not both.
Limits of Liability – The maximum the policy will pay for any one loss – this amount will be stated on the Declarations.
Major Medical Policy – A health policy that pays higher amounts than a Base Plan and which usually has a deductible, a copay, and a coinsurance charge.
Marine Insurance – Primarily designed to provide coverage for property being transported over land or sea. Inland marine Insurance covers property in transport over land as well as property that facilitates transportation, and Ocean Marine Insurance covers property in transit over sea as well as losses to ships.
Master Contract – Under life and health insurance, this is the group insurance policy sold to the organizing entity. Each Insured then receives a Certificate of Insurance.
Material Fact – A fact which would have caused the Insurer to not issue the policy at the same premium if it had known the truth.
Medical Payments – A liability insurance term which refers to payment for a victim’s medical bills without regard to fault. The policy will have a specified Limit of Liability for “med pay.” Medical Payments are always paid to the victim and are never made to the Insured.
Medical Information Bureau (MIB) – Under life and health insurance, MIB refers to a private organization that provides Insurers with medical information regarding applicants.
Misrepresentation – An intentional misstatement (lie) made by the Insured to the Insurer.
Misstatement of Age or Gender Clause – A provision in a life or health policy that adjusts payments if the applicant misstated age or gender. With a Life Policy, Insurers adjust the death benefit rather than the premiums because life insurance premiums don’t change. In a Health Policy, the Insurer may adjust either the benefits or the premiums.
Modified Endowment Contract (MEC) – The language used by the IRS to refer to endowment life policies that may lose their insurance tax advantages and be taxed more like investments.
Modified Life – Another name for Graded Premium Whole Life where the Insured gets lower premiums in the early years in exchange for higher premiums later.
MOOP (Maximum Out Of Pocket) – Please see Annual Stop-Loss Limit.
Moral Hazard – Moral Hazard refers to the fact that we all act differently when we have insurance – we are simply less likely to prevent a loss if we know that the Insurer will pay the claim. Moral Hazard may also refer to a thief or arsonist who intentionally causes a loss.
Morbidity Tables – Under life and health insurance, morbidity tables are used by underwriters to predict accident claims.
Multiple Indemnity Rider – Double or Triple the policy limit paid in the event the Insured dies as a result of an accident. Also known as an Accidental Death Benefit.
Mutual Insurer – An insurance company owned by the policy holders (as opposed to a stock insurer which is owned by investors). Mutual Insurers pay dividends to the policy holders, not to stockholders.
Named Peril Policy – A Basic or Broad form property policy which covers only the listed perils (as opposed to an All Risk policy which covers all perils except the exclusions).
Negligence – The failure to do what a reasonable person would have done under the same circumstances. This is a Liability Insurance concept.
Noncancelable – A health policy that gives the Insured the right to renew each year at the same premium regardless of health status. The Insurer can’t raise the premiums each year, as is the case with a Guaranteed Renewable policy. “Noncancelable” is most commonly found in a disability income policies.
Noncontributory Group – Under group life or health, a policy where all of the premiums are paid by the organizing entity. Thus, 100% of the people in the group are automatically covered after the expiration of any waiting period.
Nonforfeiture Option – In a whole life insurance policy, the Insurer is required to include a Nonforfeiture Option specifies how the Insurer is to apply the payment of the cash value upon lapsation. In a Long Term Care policy, the Insurer is required to include a Nonforfeiture Option that will provide some coverage or refund if the Insured ceases to make premium payments.
Nonrenewal – Termination of a policy at the end of the policy period. Nonrenewal may be initiated by either the Insurer or the Insured, but the Insurer is required to provide advance notice to the Insured.
OASDI – Old Age, Survivors, and Disability Income – another name for Social Security.
Occupational Insurance – Accident insurance covering work-related injuries.
Occurrence – A property insurance concept describing slow, gradual, repeated events which cause a loss (such as the sun fading the paint). Property Insurers usually exclude occurrences from the policy’s coverage.
Optionally Renewable – A health policy that may be terminated by the Insurer only on the annual renewal date. Usually this is not permitted by state law.
Other Insurance Clause (Property and Casualty Insurance) – The provision which states that if the Insured has more than one policy, the policies will share in the loss (usually on a prorated basis). This concept applies to property, casualty, and health insurance but does not apply to life insurance. Coinsurance prevents the Insured from coming out ahead by filing one claim against multiple policies.
Other Insurance Clause (Health Insurance) – The Other Insurance Clause in a health policy permits the Insurers to each pay only a proportional (pro rata) share of a claim in the event that the Insured has more than one health policy covering the claim.
Other Than Collision (OTC) – A type of physical damage coverage available under an auto insurance policy that covers the insured auto against all perils other than collision and those specifically excluded in the policy. OTC is also known as Comprehensive Coverage.
Participating Policy – A life or health insurance policy issued by a mutual insurer. The policy holders may “participate” in the company’s surplus funds at the end of the year.
Payor Benefit Rider – a life insurance provision that requires the Insurer to pay the premium on a child’s policy if the policy owner becomes disabled or dies.
Peak Season Variable – Under commercial property and liability insurance, this Business Owner Policy provision provides an additional 25% coverage for personal property – the provision is designed to eliminate the need for the Insured to submit a monthly reporting form to the Insurer.
Penal Sum – The limit of liability under a surety bond.
Peril – The cause of a loss – if the peril isn’t covered by the policy, the Insurer won’t pay the claim.
Personal Articles Floater – Also known as a Scheduled Personal Property Endorsement – a Homeowner Policy rider which adds coverage for a particular item, such as a valuable painting. Usually there is no deductible and the Personal Articles Floater cancels out any coverage for the item under the Homeowner Policy.
Personal Injury – Injury to a person’s reputation or mental state – including false arrest, false imprisonment, malicious prosecution, wrongful entry or eviction, libel, slander, violation of a person’s right of privacy, and violation of another’s copyright or trademark.
Personal Injury Policy (PIP) – A term used to refer to a type of auto insurance coverage available in some states with no-fault auto insurance legislation. PIP covers the Insured’s medical bills without regard to fault.
Personal Liability – Section II of the Homeowner Policy. This is the personal liability policy section of the Homeowner Policy (Section I covers the Insured’s own property losses).
Physical Damage – An auto insurance term referring to coverage for damage to the Insured’s auto (as opposed to Property Damage Liability which covers the other guy’s auto if the Insured is negligent).
Physical Hazard – A tangible condition that makes the occurrence of a loss more likely, such as a slippery floor, a tree that may fall on a home, a loose handrail on a staircase, or an open can of gasoline stored next to a furnace.
PIA (Primary Insurance Amount) – The maximum amount paid by Social Security upon retirement. This refers to the “primary insurance amount.”
PPO (Preferred Provider Organization) – A health insurer that creates a network of providers who will give a discount if their services are used but will pay less if the Insured goes “out of network.”
Pre-existing Condition – Under health insurance, a medical condition which existed within a set time prior to a policy’s effective date. A pre-existing condition may be excluded, covered, or covered after a delayed time. The rules vary greatly from policy to policy and from state to state. Although federal law may prohibit a pre-existing condition provision in a major health policy, the federal laws do not apply to minor health policies, such as dental policies.
Premium Mode – The frequency with which premiums are paid.
Primary Beneficiary – A life insurance concept describing the first beneficiary in line when the Insured dies. The policy may name a contingent beneficiary to receive the death benefit if the primary beneficiary has died first.
Primary Insurance Amount (PIA) – The Social Security amount used to calculate benefits.
Principal – In a fidelity bond, the Principal is the person whose performance is being guaranteed (typically a contractor).
Principal Sum – The AD&D policy limit which is paid in the event the Insured dies within 90 days after an accident.
Pure Risk – The chance of a loss occurring without the possibility of any benefit or gain. An example is getting sick or dying. On the other hand, a speculative risk involves a loss combined with the possibility of a gain. An example of a speculative risk is starting a business – we could lose money or gain money. Another speculative risk is gambling. Insurance companies will insure a pure risk but won’t insure a speculative risk.
Rated Policy – A policy offered to a client at a higher than normal premium. For example, if our applicant has many illnesses, the Insurer may choose to not offer insurance at all. But, if the Insurer does offer a policy at a higher than normal rate, the policy is referred to as a “rated policy.”
Recurrent Disability Provision – A clause in a Disability Income Policy that will waive the elimination period if a recurrence of the same injury occurs within six months after returning to work.
Reinstatement Clause – Under life and health insurance, a policy provision describing the Insured’s rights (if any) to reinstate the policy following lapsation.
Renewable Term – A term life policy that has expired but may be renewed on a year by year basis, usually at a much higher premium. Also known as Annually Renewable Term.
Replacement Cost – A property insurance term referring to the cost of replacing insured property with new, similar property without any deduction for depreciation.
Reporting Form – Under commercial property insurance, the Reporting Form will permit and Insured to increase or decrease coverage for personal property (inventory) as inventory values change.
Representation – Statements that the applicant believes to be true to the best of the applicant’s knowledge and belief. Statements made on the application and proof of loss form are presumed to be representations (not warranties).
Residual Disability Provision – A clause in a Disability Income Policy that will pay for income lost due to a partial disability. Many Disability Income policies require the Insured to be totally disabled prior to payment of benefits.
Respite Care – A benefit under a Long Term Care policy that provides payment for a substitute caregiver.
Retroactive Date – Under liability insurance, this is a provision in a claims made policy specifies that the policy will not pay claims that occurred prior to the Retroactive Date. The farther back the Retroactive Date, the more expensive the premium.
Revocable Beneficiary – A beneficiary who can be dropped at the request of the policy owner.
Rider – Any policy addition which changes the original policy (also known as an Extension or Endorsement).
Risk – The chance of a loss occurring. Risk refers to the likelihood that a loss will occur. The greater the risk, the higher the premium should be. Risk may be either a Pure Risk (the chance of a loss with no chance of a gain) or Speculative Risk (the chance of either a loss or a gain).
Risk Retention – This is most likely to be a health insurance question. Risk Retention refers to covering a loss by not buying insurance. It is very common for big companies like Google to provide health insurance for its employees without buying insurance. Google simply sets aside enough money to pay the claims, that is, Google “retains the risk.”
Robbery – The taking of property by violence or threat of violence.
Salvage – Under property and liability insurance – the Insurer’s right to recover money paid for the claim by selling the damaged property.
Schedule of Indemnities – A method health Insurers use to pay claims by looking at a list of specific payments for specific illnesses. If the schedule says that the policy will only pay $1,200 for a broken toe, that is all the Insurer will pay. If the care provider charges more than the “schedule” amount, the Insured has to pay the balance (sometimes referred to as balance billing.
Scheduled Policy – A property policy covering only the listed items, such as a Scheduled Personal Property Floater.
Second Injury Fund – Under work comp insurance – state fund encouraging employers to hire workers previously injured in work-related accidents.
Self Insuring – Going bare, that is, not purchasing insurance, also known as risk retention.
SEP (Simplified Employee Pension) – Under health insurance, a Simplified Employee Pension retirement plan is used by small business owners and their employees. Contributions are tax deductible and grow on a tax deferred basis.
Service Fee – The premium paid for a surety bond.
Settlement Option – Under life insurance, this provision specifies how the death benefit is to be paid to the beneficiary.
Shared Benefit Endorsement – A provision in Long Term Care policies permitting spouses to share benefits.
Simultaneous Death Act – A statute that says that the Primary Beneficiary gets nothing if the Insured and the Primary Beneficiary die at the same time from the same event.
Special Cause of Loss Form – Under property insurance – a policy which pays for losses cause by all perils except those listed as exclusions. This is also referred to as an Open Perils, All Risk, Comprehensive, or Extended Coverage policy.
Speculative Risk – A risk that may produce either a loss or a gain. An example is the risk of gambling – we can either win or lose. Insurance won’t cover speculative risk. Insurance will cover pure risk but not speculative risk. Starting a new business and gambling are examples of speculative risks that won’t be covered by insurance.
Standard Mortgage Provision – A property insurance provision specifying that the mortgagee (lender) will also be covered by the policy.
Stated Value – A policy which pays a specified amount regardless of the value of the loss. Life insurance policies and property Replacement Cost policies are examples of stated value policies.
Statement of Continued Good Health – Under life or health insurance – when the Producer delivers the life or health policy to the applicant, some Insurers ask the Producer to have the applicant sign a “Statement of Continued Good Health” that verifies that the applicant’s health hasn’t deteriorated since the application was made. If the applicant says that his health has deteriorated, the Producer should not delivery the policy until the Insurer has reinvestigated the applicant’s health.
Stock Insurer – An Insurer owned by investors, as opposed to a mutual insurer which is owned by the policy holders.
STOLI (Stranger Originated Life Insurance) – The investor encourages an applicant to obtain life insurance with the intent of selling the policy to the investor. Same as IOLI.
Stop-Loss Limit – Please see Annual Stop-Loss Limit.
Strict Liability – A legal concept holding manufacturers, distributors, and retailers of products liable for products which are defective and unreasonably dangerous (even if no negligence was involved).
Subrogation – The Insured’s transfer to the Insurer of any claim against a third party. When a property, liability, or health Insurer pays a claim, the Insurer may then sue any responsible third party under the concept of subrogation.
Suicide Clause – A provision in a life policy requiring the Insurer to pay the claim if a suicide occurs after 2 years. For a suicide during the first 2 years, the Insurer must refund the premiums paid rather than pay the claim.
Supplementary Payments – The part of a liability policy which pays for the Insured’s defense costs.
Survivorship Life – A “last to die” life policy that pays the death benefit to the estate of the surviving spouse only upon the death of the surviving spouse. Used primarily to pay estate death taxes.
Tax Sheltered Annuity (TSA) – A slang term used to refer to a 403(b) retirement plan for government or nonprofit employees.
Terrorist Risk Insurance Act (TRIA) – A federal law requiring Insurers to offer insurance coverage for acts of foreign terrorism.
Theft – A broad term referring to any unauthorized taking of property. “Theft” includes robbery, burglary, shoplifting, etc.
Third Party Ownership – An insurance policy owned by one other than the Insured. For example, if my wife applies for a policy on my life, she is third party owner. If I apply for a policy on myself, I am the first party owner.
Time Limit on Certain Defenses Clause – Another name for the individual health policy’s Contestable Provision which states that the policy is generally not contestable after 2 years (except for fraud).
Underinsured Motor Vehicle – A vehicle driven by one who has the state required amount of liability insurance but who does not have adequate insurance to cover a particular liability claim.
Underwriting – The process of selecting and classifying risks. The underwriter determines whether the Insurer will offer a policy and what premium will be charged.
Unilateral Contract – A contract which contains only one promise. Insurance policies are unilateral because they contain the Insurer’s promise to pay a claim but do not contain a promise by the Insured to pay future premiums.
Uninsured Motor Vehicle –A vehicle driven by one who has no auto liability insurance, has less than the state required amount of liability insurance, or who is a hit and run driver.
Universal Life – A policy with a combination of flexible premiums, Insurer selected investments with interest sensitive cash value, and a type of permanent term insurance.
Usual, Reasonable and Customary (URC) – Under health insurance – a method of claim payment where the Insurer pays claims according to what is customary in a particular geographic area. Any balance still owing is the responsibility of the Insured.
Valued Policy – An insurance policy which pays a set amount regardless of the Insured’s losses. For example, a Life policy or a Critical Illness Policy or a Hospital Benefit Policy.
Variable – A policy where the benefits vary according to the stock market. The investments are select by the Insured. The Producer selling a variable policy needs a federal securities license from FINRA (Federal Investment Regulatory Authority) as well as a life license.
Variable Universal Life – A life insurance policy that combines Universal Life with investments selected by the Insured. This also requires the Producer to have a federal securities license from FINRA (Federal Investment Regulatory Authority).
Viatical Settlement – The sale of a life insurance policy by the policy owner who expects to die soon of a terminal illness.
Vicarious Liability – Liability for the wrongs of another. For example, an employer is vicariously liable for the negligent acts of on-the-job employees.
Waiver of Premium Rider – Waives the premium under a life or disability income policy after the Insured has been disabled for 6 months. Premiums paid during the 6 months are then refunded.
Warranty – An applicant’s statement on the application that is guaranteed to be absolutely true. In Property Insurance, the applicant may warrant that the applicant will modify the future condition of the property by installing a smoke alarm or fire alarm. This warranty is given in return for a lower premium. If the warranty is violated, state law may permit the Insurer to void the policy or refuse to pay a claim. Warranties are not permitted in life or health policy applications.