Glossary
of Insurance Terms
LADDERING
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A technique that
consists of staggering the maturity dates and the mix of different types
of bonds.
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LAW OF LARGE NUMBERS
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The theory of probability
on which the business of insurance is based. Simply put, this mathematical
premise says that the larger the group of units insured, such as sport-utility
vehicles, the more accurate the predictions of loss will be.
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LIABILITY INSURANCE
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Insurance for what the policyholder is legally
obligated to pay because of bodily injury or property damage caused
to another person.
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LIFE INSURANCE
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See Ordinary
life insurance;
Term
insurance;
Variable
life insurance;
Whole
life insurance
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LIMITS
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Maximum amount of insurance that can be paid
for a covered loss.
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LINE
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Type or kind of
insurance, such as personal lines.
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LIQUIDATION
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Enables the state insurance department as liquidator
or its appointed deputy to wind up the insurance company’s affairs by
selling its assets and settling claims upon those assets. After receiving
the liquidation order, the liquidator notifies insurance departments
in other states and state guaranty funds of the liquidation proceedings.
Such insurance company liquidations are not subject to the Federal Bankruptcy
Code but to each state’s liquidation statutes.
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LIQUIDITY
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The ability and
speed with which a security can be converted into cash.
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LLOYD'S OF LONDON
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A marketplace where
underwriting syndicates, or mini-insurers, gather to sell insurance
policies and reinsurance. Each syndicate is managed by an underwriter
who decides whether or not to accept the risk. The Lloyd’s market is
a major player in the international reinsurance market as well as a
primary market for marine insurance and large risks. Originally, Lloyd’s
was a London coffee house in the 1600s patronized by shipowners who
insured each other’s hulls and cargoes. As Lloyd’s developed, wealthy
individuals, called “Names,” placed their personal assets behind insurance
risks as a business venture. Increasingly since the 1990s, most of the
capital comes from corporations.
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LLOYDS
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Corporation formed to market services of a group
of underwriters. Does not issue insurance policies or provide insurance
protection. Insurance is written by individual underwriters, with each
assuming a part of every risk. Has no connection to Lloyd’s of London,
and is found primarily in Texas.
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LONG-TERM CARE INSURANCE
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Coverage that, under specified conditions, provides
skilled nursing, intermediate care, or custodial care for a patient
(generally over age 65) in a nursing facility or his or her residence
following an injury.
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LOSS
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A reduction in the
quality or value of a property, or a legal liability.
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LOSS ADJUSTMENT EXPENSES
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The sum insurers
pay for investigating and settling insurance claims, including the cost
of defending a lawsuit in court.
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LOSS COSTS
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The portion of an
insurance rate used to cover claims and the costs of adjusting claims.
Insurance companies typically determine their rates by estimating their
future loss costs and adding a provision for expenses, profit, and contingencies.
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LOSS OF USE
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A provision in homeowners
and renters insurance policies that reimburses policyholders for any
extra living expenses due to having to live elsewhere while their home
is being restored following a disaster.
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LOSS RATIO
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Percentage of each premium dollar an insurer
spends on claims.
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LOSS RESERVES
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The company’s best
estimate of what it will pay for claims, which is periodically
readjusted. They represent a liability on the insurer’s balance
sheet.
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