Sometimes your insurance policy can be confusing. We here at WIN Group are here to help you with anything we can. We have provided this glossary of insurance terms to help you, our customers, understand some terms and concepts that pertain to the insurance industry.
(Click on the letter to view terms
beginning with that alphabet.)
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| E | F | G | H
| I | J | K | L
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| Q | R | S | T
| U | V | W | X
| Y | Z
ACT OF GOD - An unpreventable accident or event that is the result of natural causes;
for example, floods, earthquakes, or lightning.
AGENT - An authorized and licensed representative of an insurance company who sells
and services insurance policies. Agents represent the insurance company and typically
only sell policies from that company.
ANTISELECTION – The tendency of individuals who believe they have a greater
than average likelihood of loss to seek insurance protection to a greater extent
than do those who believe they have an average or a less than average likelihood
of loss.
ANNUITY – contract sold by insurance companies that pays a monthly (or quarterly,
semiannual, or annual) income benefit for the life of a person (annuitant), for
the lives of two or more persons, or for a specified period of time.
APPRAISAL - A survey by a claims representative or claims appraiser estimating the
amount of damage to property and the cost to repair or the determination of a complete
loss.
ASSESSED VALUE - The monetary worth of real or personal property as a basis for
its taxation. This value, established by a governmental agency, is rarely used by
insurers as a means to determine indemnification.
ASSET RISK – a measure of an asset's default of principal or interest or fluctuation
in market value as a result of changes in the market.
AUTHORIZED CONTROL LEVEL RISKED BASED CAPITAL – insurance company’s
theoretical capital amount and surplus that is should maintain.
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BCEGS - Building Code Effectiveness Grading Schedule. A classification
of communities by the Insurance Services Office based on how well they have implemented
and enforced building codes in their community.
BENEFICIARY – The person or party named by the owner of a life insurance policy
to receive the policy benefit.
BINDER – temporary insurance contract providing coverage until a permanent
policy is issued.
BROAD FORM INSURANCE - Coverage for numerous perils.
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CALENDAR YEAR – Earned premiums and loss transactions occurring with the calendar
year beginning Jan. 1, irrespective of the contractual dates of the policies to
which the transactions relate and regardless of the dates of the accidents.
CALENDAR/ACCIDENT YEAR – The accumulation of loss data on all accidents with
the date of occurrence falling within a given calendar year. The earned premium
is the same as in calendar year.
CASH VALUE – The savings element of a permanent life insurance policy, which
represents the policy owner’s interest in the policy.
CATACLYSM - Any great upheaval that causes sudden and violent changes,
as an earthquake, war, great flood, etc. (New World)
CATASTROPHIC RISK - The risk of a large loss by reason of the occurrence
of a peril to which a very large number of insured are subject. (Gloss.)
CATASTROPHIC LOSS- Damage resulting from a catastrophe.
CATEX - An exchange through which insurers trade "standardized
catastrophe units."
CLAIM – A formal request for payment related to an event or situation that
is covered under an in-force insurance policy.
COINSURANCE CLAUSE - A clause requiring the insured to maintain insurance on the
property at least equal to a stipulated percentage of its value in order to collect
partial losses in full.
COMMERCIAL LINES – insurance coverages for businesses, commercial institutions,
and professional organizations.
CONCENTRATION FACTOR – all companies are subject to an asset concentration
factor that reflects the additional risk of high concentrations in single exposures
CONSUMER PRICE INDEX - An index of consumer prices based on the typical market basket
of goods and services consumed by all urban consumers during a base period.
CONTINGENT BENEFICIARY – The party designated to receive proceeds of a life
insurance policy following the insured’s death if the primary beneficiary
predeceased the insured.
CONVERTIBLE TERM INSURANCE POLICY – A term life insurance policy that gives
the policy owner the right to convert the policy to a permanent plan of insurance.
CORRECTIVE ORDER – an order issued by the commissioner specifying corrective
actions that the commissioner has determined are required.
CREDIT LIFE INSURANCE – insurance issued to a creditor (lender) to cover the
life of a debtor (borrower) for an outstanding loan.
CREDIT RISK – a measure of the default risk on amounts that is due from policyholders,
reinsures or creditors.
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DIASTER - A natural or man-made event that negatively affects life,
property, livelihood or industry often resulting in permanent changes to human societies,
ecosystems and the environment.
DECLINED RISK – A proposed insured who is considered to present a risk that
is too great for an insurer to cover.
DEGREE OF CARE – minimum of care owed by one party for the physical safety
of another.
DIRECT WRITTEN PREMIUM - The total premiums received by a property and liability
insurance company without any adjustments for the ceding of any portion of these
premiums to the reinsures.
DIRECT INCURRED LOSS - The property loss in which the insured peril is the proximate
cause of damage or destruction.
DROUGHT - A drought is a long lasting weather pattern consisting
of dry conditions with very little or no precipitation. During this period,
food and water supplies can run low, and other conditions, such as famine, can result.
Droughts can last for several years and particularly damaging in areas where residents
depend on agriculture for survival.
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EARNED EXPOSURES – The portion of the total amount of exposure (risk) corresponding
to the coverage provided during a given time period.
EARNED PREMIUMS – The portion of the total premium amount corresponding to
the coverage provided during a given time period.
EARTHQUAKE - A sudden shift or movement in the tectonic plate in
the Earth’s crust. On the surface, this is manifested by a moving and
shaking of the ground, and can be massively damaging to poorly built structures.
EVIDENCE OF INSURABILITY – Proof that a person is an insurable risk.
EXCLUSIONS, HOMEOWNERS INSURANCE - Part of an insurance contract that excludes coverage
of certain perils, persons, property or locations.
EXPERIENCE RATING – A method of calculating group insurance premium rates
by which the insurer considers the particular group’s prior claims and expense
experience.
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FACE AMOUNT – The amount of the death benefit payable under a life insurance
policy.
FEMA - Federal Emergency Management Agency - A former independent agency that became
part of the new Department of Homeland Security in March 2003 - is tasked with responding
to, planning for, recovering from and mitigating against disasters
FLOODPLAIN
- A land area adjacent to a river, stream, lake, estuary
or other water body that is subject to flooding. These areas, if left undisturbed,
act to store excess floodwater.
FRIENDLY FIRE - Fire intentionally set in a fireplace, stove, furnace or other containment
that has not spread beyond it.
FREE LOOK PROVISION – An individual life insurance and annuity provision that
gives the policy owner a stated time, usually 10 days after the policy is delivered,
in which to cancel the policy and receive a full refund on the initial premium payment.
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GENERAL LIABILITY INSURANCE – coverage for an insured when negligent acts
and/or omissions result in bodily injury and/or property damage on the premises
of a business, when someone is injured as the result of using the product manufactured
or distributed by a business, or when someone is injured in the general operation
of a business.
GRACE PERIOD – A specified length of time within which a renewal premium that
is due may be paid without penalty.
GROSS NEGLIGENCE – reckless action without regard to life, limb, and/or property.
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HAZARD – circumstance that increases the likelihood or probable severity of
a loss.
HURRICANE - A hurricane is a low pressure cyclonic storm system which forms over
the oceans. It is caused by evaporated water which comes off of the ocean
and becomes a storm. The Coriolis Effect causes the storms to spin, and a
hurricane is declared when this spinning mass of storms attains a wind speed greater
than 74mph.
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INSURANCE TO VALUE - The amount of insurance written on property is approximately
equal to its value. An insured most always wants to insure all property to value.
INCONTESTABILITY PROVISION – An insurance and annuity provision that limits
the time within which the insurer has the right to avoid the contract on the ground
of material misrepresentation in the application for the policy.
INCURRED BUT NOT REPORTED LOSSES (IBNR) – insured losses that have occurred
but have not been reported to a primary insurance company.
INCURRED CLAIMS – The total number of claims associated with insured events/situations
occurring during a given time period.
INCURRED LOSSES – The total dollar amount of losses associated with insured
events/situations occurring during a given time period. A portion of incurred claims
and losses represent insurers’ estimates of the final costs of pending claims
that are still open during the reporting period, as well as estimates of losses
associated with claims that have yet to be reported.
IRREVOCABLE BENEFICIARY – A life insurance policy beneficiary who has a vested
interest in the policy proceeds even during the insured’s lifetime because
the policy owner has the right to change the beneficiary designation only after
obtaining the beneficiary’s consent.
INSURABLE INTEREST – The interest an insurance policy owner has in the risk
that is insured. The owner of a life insurance policy has an insurable interest
in the insured when the policy owner is likely to benefit if the insured continues
to live and is likely to suffer some loss or detriment if the insured dies.
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LANDSLIDE - A disaster closely related to an avalanche, but instead
of occurring with snow, it occurs involving actual elements of the ground, including
rocks, trees, parts of houses, and anything else which may happen to be swept in.
LIABILITY INSURANCE - Insurance coverage that offers protection against claims alleging
that a property owner’s negligence or inappropriate action resulted in bodily
injury or property damage to another party.
LIFE AND HEALTH GUARANTEE ASSOCIATION – An organization that operates under
the supervision of a state insurance commissioner to protect policy owners, insured's,
beneficiaries, and specified others against losses that result from the financial
impairment or insolvency of a life insurer that operates in the state.
LIMNIC ERUPTION - A sudden release of asphyxiating or inflammable
gas from a lake.
LONG TAIL LIABILITY – one where an injury or other harm takes time to become
known and a claim may be separated from the circumstances that caused it by as many
as 25 years or more.
LOSS – The dollar amount associated with a claim.
LOSS ADJUSTMENT EXPENSE – cost involved in an insurance company’s adjustment
of losses under a policy.
LOSS OF USE INSURANCE - Compensation for loss caused because the policyholder has
lost the use of his property.
LOSS PAYABLE CLAUSE - A policy condition that enables an insured to direct the company
to pay any loss that may be due to a third party.
LOSS RATIO – relationship of incurred losses plus loss adjustment expense
to earned premiums.
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MATERIAL MISREPRESENTATION – A misrepresentation that would effect the insurance
company’s evaluation of a proposed insured.
MEDIATION – situation in which parties agree to take part in a structured
settlement negotiation through the guidance of a neutral expert. By participating
in this process, the parties do not agree that they will actually settle and the
mediator does not have the authority to impose such a settlement.
MORTALITY TABLES – Charts that show the death rates an insurer may reasonably
anticipate among a particular group of insured lives at certain ages.
MORTGAGE INSURANCE - A contract that insures the lender against loss caused by a
mortgagor’s default on a government mortgage or conventional mortgage.
MORTGAGEE CLAUSE - A clause in an insurance policy that makes a claim jointly payable
to the policyholder and the party that holds a mortgage on the property.
MUDSLIDE - A mudslide is a slippage of mud because of poor drainage
of rainfall through soil. An underlying cause is often deforestation or lack
of vegetation.
MULTI PERIL INSURANCE - Personal and business property insurance that combines in
one policy several types of property insurance covering numerous perils.
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NAMED PERIL POLICY - The insurance contract under which covered perils are listed.
Benefits for a covered loss are paid to the policy-owner. If an unlisted peril strikes,
no benefits are paid.
NATURAL AND PROBABLE CONSEQUENCES - Consequences from a given act that a reasonable
person could foresee.
NEGATIVE TREND – with respect to a life and/or health insurer, negative trend
over a period of time, as determined in accordance with the “Trend Test Calculation”
included in the RBC instructions
NEGLIGENCE – failure to act within the legally required degree of care for
others, resulting in harm to them.
NFIP-NATIONAL FLOOD INSURANCE PROGRAM (NFIP) - The program of flood insurance coverage
and floodplain management administered under the Act and applicable Federal regulations
promulgated in Title 44 of the Code of Federal Regulations, Subchapter B.
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OFF-BALANCE SHEET RISK – a measure of risk due to excessive rates of growth,
contingent liabilities or other items not reflected on the balance sheet.
100 YEAR FLOOD - A flooding condition which has a one percent chance
of occurring each year. The 100-year flood level is used as the base planning
level for floodplain management in the National Flood Insurance Program.
ORIGINAL AGE CONVERSION – A conversion of a term life insurance policy to
a permanent plan of insurance at a premium rate, based on the insured’s age
when the original term policy was purchased.
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PERMANENT LIFE INSURANCE – Life insurance that provides coverage throughout
the insured’s lifetime and also provides a savings element.
POLICY ANNIVERSARY – As a general rule, the date on which coverage under an
insurance policy became effective.
POLICYHOLDER SURPLUS – excess of an insurance company’s assets above
its legal obligations to meet the benefits (liabilities) payable to its policyholders.
Also, the net worth in an insurance company adjusted for the overstatement of liabilities.
POLICY RIDER – An amendment to an insurance policy that becomes part of the
insurance contract and either expands or limits the benefits payable under the contract.
POOLING – method by which each member of an insurance pool shares in each
and every risk written by the other members of the pool.
PREFERRED RISK – A proposed insured who presents a significantly less than
average likelihood of loss and who is charged a lower than standard premium rate.
PREMIUM - The dollar amount paid for an insurance policy.
PRIMARY INSURANCE – first layer property or liability coverage carried by
the insured that provides benefits up to the limits of a policy, regardless of other
insurance policies in effect.
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REINSURANCE – form of insurance that insurance companies buy for their own
protection, “a sharing of insurance.” An insurer (the reinsured) reduces
its possible maximum loss on either an individual risk or a large number of risks
by giving (ceding) a portion of liability to another insurance company (reinsurer).
REINSURER – insurance company that assumes all or part of an Insurance or
Reinsurance policy written by a primary insurance company.
REPLACEMENT COST - The cost of replacing property without a reduction for depreciation.
By this method of determining value, damages for a claim would be the amount needed
to replace the property using new materials.
RESIDUAL MARKET – Consists of insurance consumers unable to obtain coverage
in the voluntary market.
RETENTION LIMIT – A specified maximum amount of insurance that a life insurer
is willing to carry at its own risk on any one life without transferring some of
the risk to a reinsurer.
RISK – uncertainty of a financial loss; term used to designate an insured
or a peril insured against.
RISK BASED CAPITAL (RBC) – the amount of required capital that the insurance
company must maintain based on the inherent risks in the insurer’s operations
.
RBC INSTRUCTIONS – the RBC Report including risked based capital instruction
adopted by the NAIC, as such RBC Instructions may be amended by the NAIC from time
to time in accordance with procedures adopted by the NAIC.
RBC RATIO – measurement of the amount of capital (assets minus liabilities)
an insurance company has as a basis of support for the degree of risk associated
with it s company operations and investments. This ratio identifies the companies
that are inadequately capitalized by dividing the company’s by the minimum
amount of capital that the regulatory authorities feel is necessary to support the
insurance operations.
RBC STATISTIC – ratio of authorized control level risked based capital of
an insurance company to its total adjusted capital. This statistic determines
regulatory action taken by the state’s insurance commissioner
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SAFFIR SIMPSON SCALE - A 1-5 rating based on a hurricane’s present intensity.
This is used to give an estimate of the potential property damage and flooding expected
along the coast from a hurricane landfall. Wind speed is the determining factor
in the scale.
SCHEDULED PROPERTY - Listing specific personal property for a stated insured value.
This is usually considered for valuable items that are subject to limited coverage.
SINK HOLE - A sinkhole is a localized depression in the surface topography, usually
caused by the collapse of a subterranean structure, such as a cave. Although rare, large sinkholes that develop suddenly
in populated areas can lead to the collapse of buildings and other structures.
STORM SURGE - A storm surge is an onshore rush of water associated with a low pressure
weather system, typically a tropical cyclone. Storm surge is caused primarily
by high winds pushing on the ocean’s surface. The wind causes the water
to pile up higher than the ordinary sea level. Storm surges are particularly
damaging when they occur at the time of high tide, combing the effects of the surge
and the tide.
SOLAR FLARE - A solar flare is a violent explosion in the Sun's atmosphere with an energy equivalent to tens of millions
of hydrogen
bombs. Solar flares take place in the solar corona and chromosphere, heating the gas to tens of millions
of kelvins and accelerating electrons, protons and heavier ions to near the speed
of light. They produce electromagnetic radiation across the spectrum at all wavelengths
from long-wave radio signals to the shortest wavelength gamma rays. Solar flare
emissions are a danger to orbiting satellites, manned space missions, communications
systems, and power grid systems.
SYNTHETIC GUARANTEED INVESTMENT CONTRACT – modified guaranteed investment
contract in which the underlying assets of the synthetic contract are owed by the
plan itself rather than the insurance company as is the case with the GIC.
This ownership rights is of particular importance if there is a concern about the
long term financial soundness of an insurance company. The synthetic plan
segregates the plan’s assets from the assets of the insurance company.
SUBROGATION - The circumstance where an insurance company takes the place of an
insured in bringing a liability suit against a third party who caused injury to
the insured.
SUBSIDENCE - Movement of the land on which property is situated. A structure built
on a hillside may slide down the hill due to earth movement caused by heavy rains.
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TENANTS INSURANCE - Coverage for the contents of renter’s home or apartment
and for liability. Tenant policies are similar to homeowners insurance, except that
they do not cover the structure.
Total Adjusted Capital - commonly refers to an insurance company's capital base
under Standard & Poor's capital adequacy model. It includes shareholders' funds
and adjustments on equity, asset values and reserves.
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UMBRELLA POLICY - Umbrella coverage is insurance coverage that extends the terms
of a regular insurance policy once coverage limits for the regular policy have been
reached. Specifically, umbrella coverage is for people who want protection against
a large jury award that is not covered in their standard policy.
UNDERWRITING – The process of identifying and classifying the degree of risk
represented by a proposed insured.
UNDERWRITING RISK – a measure of the risk that arises from under-estimating
the liabilities from business already written or inadequately pricing current or
prospective business.
UNFRIENDLY FIRE - A fire that escapes from its normal contained area. For example,
fire in the fireplace leaps onto the sofa.
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VOLUNTARY MARKET – Consists of insurance consumers that insurers select to
be provided coverage, using underwriting guidelines that are not unfairly discriminatory.
The voluntary market is also called the normal or regular market.
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WRITTEN EXPOSURE – The total number of exposures of all policies issued during
a given time period.
WRITTEN PREMIUMS - The total premiums generated from all policies written by an
insurance company within a given period of time.
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