Glossary of Insurance Terms

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. (See Replacement cost)

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. (See 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.

AFTERMARKET PARTS

See Crash parts; Generic auto parts

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 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.

ANNUITY

A life insurance company contract that pays periodic income benefits for a specific period of time or over the course of the annuitant’s lifetime. These payments can be made annually, quarterly or monthly.

From a life insurer’s viewpoint, an annuity presents the opposite mortality risk from a life insurance policy. Life insurance pays a benefit when the policyholder dies. An annuity pays benefits as long as the annuitant lives. With both products, the insurer’s profit or loss depends on whether it made correct assumptions about the policyholder’s life expectancy and the company’s future investment returns.

Annuity investments are tax-deferred; taxes are not due until income payments begin. Annuities are often used as a form of retirement savings and some allow tax-free loans. They can be bought on a periodic schedule or through a one-time payment. There are fixed-income annuities, which invest in a general insurer’s account and offer a fixed benefit payment, and variable annuities, where individuals can choose their own investments from a menu of funds offered by the insurance company including bond and stock funds. The account value of a variable annuity reflects the performance of the investments offered by the company and selected by the annuitant whereas fixed annuity payments are guaranteed, regardless of the performance of the insurance company’s investments.

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. (See Insurance score)

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.

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