Getting Acquainted with Insurance Terminology

Insurance Term - A

• Accelerated Death Benefits: It is a benefit provided to life insurance owners where they can receive a significant portion (say 80%) of the death benefits in advance of the insured's death. This can pay for medical bills, or nursing home costs and other commitments so that others are not left with this responsibility.
• Accident and Health Insurance: Coverage for accidental injury, accidental death and to bear the associated health expenses. The insured might be rewarded with limited benefits in the form of preventative services, medical expenses, and catastrophic care.
• Accrual Taxation: A form of federal income taxation wherein a person who holds a life insurance policy gets taxed periodically on certain parts of the cash value accumulation of his policy.
• Actual Cash Value: A common method by which the amount for reimbursement for a loss is determined. It is the cost of replacing an item after loss minus the depreciation value.
• Auto insurance score: Similar to credit score there is an auto insurance score. A number used by auto insurance companies to determine how much premium you must pay. It is based generally on your driving record and also your credit score. Other important factors that influence the auto insurance costs are age, marital status, the type of car you use and whether you reside in a rural or urban society.

Insurance Term - B

• Bailee: An individual or entity who holds someone else's property. Examples are dry cleaners, jewelers, repairers.
• Beneficiary: A person or persons entitled to receive insurance proceeds at the event of death of the insured. This term is usually associated with life insurance.
• Boat Owners Package Policy: This policy allows the boat owners to avail a special contract that combines physical damage insurance, medical expense insurance, liability insurance, and other coverages at once.

Insurance Term - C

• Cash Surrender Value: The amount that a policyholder would receive in the event that his or her policy is being voluntarily ended before the date of maturity or if the insured event occurs.
• Cash Value: Also known as the policy equity value, the cash value is the amount for which the policy is worth at any given time. It is the value of a cancelled or surrendered policy while you are still alive.
• Cancellation: The process of terminating an insurance policy agreement prior to its date of maturity. Flat cancellation refers to the expiry of a policy on its effective date. It appears as if the policy has not been issued yet, no coverage was offered and hence there is no premium left to be paid.

Insurance Term - D

• Death Benefit: Whenever a person possessing a life insurance policy passes away, his legal heirs are supposed to get a sum of money termed as Death Benefit. This amount does not account for any adjustments towards outstanding policy loans, dividends, paid-up additions, or late premium payments.
• Debenture: This may be described as an unsecured debt which is supported by the general credit of the borrower or the issuing corporation. The loan does not necessitate any specific property to be posed as a security.
• Declaration: This segment of a property or liability insurance policy depicts the name and address of policyholder, the property which has been insured, its location and features, the policy period, premiums, and other associated information. Hence it is better known as the "declaration page".
• Deductible: This signifies any loss to be shared by the insured. Once the insured pays for his share of the loss, then a certain period of time has to be spent before the effect of a pre-mentioned dollar amount or a fraction of the claim comes into play.
• Deferred Annuity: This is an annuity agreement which gathers the premiums at an interest and lets the annuity income benefits commence only after the lapse of more than one annuity period since the date of annuity purchase.

Insurance Term - E

• Early Warning System: This system is developed by the insurance regulators to get a fair idea of the insurers financial stability. Depending on their calculations using the financial ratios, the Insurance Regulatory Information System (IRIS) is capable of identifying the insurers who need any regulatory attention.
• Earned Premium: A part of premium which can be implemented to that part of the policy period which is already over. The insurance premiums can be paid beforehand , but its not possible for the insurance company to achieve the accumulated amount until the expiry of the policy.
• Earthquake Insurance: This is designed to insure a building with all its contents, while it also assumes a large percentage deductible on each of them. Since most of the business policies and the standard homeowners are not contemplating on the Earthquakes, hence the importance of a specific policy or endorsement has become a necessity.
• Economic Loss: It can be defined as the accumulated cost in terms of all those factors such as property damage, funeral expenses, wage loss,insurance administration costs, and medical, hospital and legal costs, that are associated with both the insured and uninsured.
• Elimination Period: It depicts a stretch of time that passes between the duration of disability and the commencement of the disability income insurance coverage where in no benefits are offered. The Elimination Period may last for a few days or up to even a year or more.

Insurance Term - F

• Federal Funds: The balance amounts that the depository institutions borrow amongst themselves are just a kind of reserve balance known as the Federal Funds. Many other depository bodies and federal agencies are also involved in this process of lending each other.
• Federal Insurance Administration/ FIA: The FIA is a federal agency which is in command of the National Flood Insurance Program. But it is not aimed at controlling the insurance industry.
• Federal Reserve Board: A body comprising of seven members, who are in charge of the banking system and responsible for establishing rules that regulate the banking industry and the holding companies associated to banks. It also plays a leading role towards managing the U.S. monetary system and credit management.
• Fidelity Bond: This is a form of coverage which is offered to the policy holders to help them meet their losses resulting out of fraudulent acts committed by its employees who are con artists. This bond is beneficial towards protecting the business against those activities of its employees which are detrimental towards its growth and prosperity.
• Fiduciary Bond: This is a bond that ensures the responsibilities associated with certain fiduciaries as the executors and trustees. This is a kind of surety bond which is also known as a probate bond.

Insurance Term - G

• Gap Insurance: The Gap Insurance accounts for the cash value which is determined by the difference between a carÃÔ actual cash worth in the event it gets damaged or stolen and the amount which the insured owes the hiring company. This is a form of insurance mostly associated with the leased cars.
• Generally Accepted Accounting Principles (GAAP): These are a set of guidelines illustrating the various rules and practices of accounting laid down by the American Institute of Public Accountants. This is also done with a view to report business achievements and mistakes.
• Generic Auto Parts: These are cheaper auto parts which have still retained their original value after an auto crash. These auto parts are not offered by the car manufacturers and are considered by the insurers to be at par with the identical parts produced by the original equipment manufacturer(OEM).
• Glass Insurance: This is coverage towards any glass breakage resulting out of demolishing factors like fire, war etc. Such types of insurance are offered for a variety of options like the windows, structural glass, mirrors, leaded glass etc. inclusive or exclusive of a deductible.
• Grace Period: This period comes once the premium amount becomes due while the policy coverage still remains active. Under such circumstances the insured is naturally expected to pay for such a due.

Insurance Term - H

• Hacker Insurance: A coverage for the businesses associated with e-commerce, which could be looked upon as a precaution from the losses inflicted by the hackers.
• Hard Market: It can be termed as a market for the sellers where the insurance costs are higher and hard to procure.
• Homeowner's Policy: This is more of a collective insurance policy where the homeowners may avail a wide range of property and liability coverages relating to any domestic events or events far away.
• House Year: A house year is a standard measurement of insurance that covers only one house for a period of 365 days.
• Hurricane Deductible: It refers to a certain amount in terms of dollars which gets appended with a homeownerÃÔ policy just to make sure that the insurer is not subject to any loss as a result of a hurricane. It is sometimes calculated on a percentage basis. This amount varies depending on the scope of risk associated to a particular region. Hence it appears to be different depending on the insurer and the state where it belongs to.

Insurance Term - I

• Identity Theft Insurance: Coverage for expenses incurred as the result of an identity theft. Can include costs for notarizing fraud affidavits and certified mail, lost income from time taken off from work to meet with law-enforcement personnel or credit agencies, fees for reapplying for loans and attorney's fees to defend against lawsuits and remove criminal or civil judgments.
• Immediate Annuity: A product purchased with a lump sum, usually at the time retirement begins or afterwards. Payments begin within about a year. Immediate annuities can be either fixed or variable.
• Incurred Losses: Losses occurring within a fixed period, whether or not adjusted or paid during the same period.
• Indemnify: Provide financial compensation for losses.
• Independent Agent: Agent who is self-employed, is paid on commission, and represents several insurance companies.

Insurance Term: J

• Joint Underwriting Association (JUA): This is a group of insurers coming in collaboration to provide coverage for a specific volume of exposure or a certain risk-type that is otherwise not available in the market. This association also shares the profit loss ratio of the program. Homeowners insurance, auto insurance, medical malpractice coverage and several other commercial coverage plans may be provided through such associations.
• Junk Bonds: Corporate bonds that have BB credit ratings or less are called Junk Bonds. Junk bonds are so called because of their high default risks. These are also known as 'high yield bonds' or 'speculative bond' and are mostly taken for speculative reasons. They rate of interest charged in such bonds are normally 3-4% higher than the government issues. Since these bonds are highly subject to market risks and investors may be forced to sell off their bonds when the value goes down, most states have now put limits on the investment made by insurers in such bonds.
• Joint and Survivor Annuity: This an annuity that has 2 annuitants who are usually spouses. Here the payments continue till the time anyone of the 2 annuitants are alive.

Insurance Term - K

• Kidnap/Ransom Insurance: It is a type of insurance that provides coverage in the event of kidnapping, extortion, ransom demand as well as loss due to financial damages. The basic policy covers loss of income, bank loan interest, medical and psychiatric care. This policy is often taken up by the international corporations in order to cover their employees. Such policies mostly have high deductibles and also exclude specific geographic areas and also sometimes require that the holder of such a policy should not reveal the existence of such a coverage.
• Key Man Insurance: A life or health insurance on an individual who is an important entity and whose services are crucial for maintaining the success of a company or business. This individual is someone who must be a key individual of a company whose disability or death could lead to financial loss for the firm.

Insurance Term - L

• L-Share Variable Annuities: These are types of variable annuity contract that normally has short surrender terms while having higher charges for mortality and expense risks.
• Laddering: This is a technique used in investment where the investors are required to purchase multiple financial products at a time that have separate maturity dates.
• Lapse: A lapse is a break in the regularity of the payment of insurance premium even by the end of the grace period resulting in the termination of the insurance policy.
• Law of Large Numbers: The Law of Large Numbers is a theorem in probability that supports the insurance business. According to this theorem, bigger the number of uninsured people, the more accurate will be the prediction of loss.
• Level Premium Policies: These are premiums that remain the same every year that a particular policy is in force. It is the premium paid for a deferred annuity or for a life insurance policy.
• Liability Insurance: Insurance for the legal responsibility that the policy holder has towards another person for causing a bodily injury or property damage caused.
• Life Annuity with Period Certain: A contract guaranteeing the annuitant periodic income payments throughout his lifetime, also guaranteeing to continue payments till a specific period. In the event of the annuitant's death before the term the payments will go to a beneficiary designated in the contract until the term ends.
• Life Annuity: A contract that guarantees periodic returns to the annuitant throughout his lifetime. If, after the death of the annuitant, the annuity provides no returns, then it is called a straight life annuity. There are some life annuities that provide income payments either throughout the lifetime of the annuitant or for a specified term or even until a guaranteed amount has been paid.
• Life Income with Refund Annuity: This is a type of annuity contract where periodic income payments are received by the annuitant throughout his lifetime. This contract also guarantees that in the event of death of the annuitant before the total payment made matches the amount paid for annuity, a refund will be made.
• Life Insurance: An insurance where there is an agreement between the insurer and the insured, where the insurer (insurance company) agrees to pay a certain amount of money in the event of death of the policyholder or to the policy holder after a certain period of time.
• Limits: It is the highest amount of coverage that can be paid for a loss listed in the policy.
• Line: It is a kind of insurance. Example, personal lines.
• Liquidation: Recognizes the state insurance department or its appointed deputy as liquidator and who can wind up the affairs of an insurance company by settling the pending claims upon the remaining assets of the company. After the order for liquidation is passed, the insurance departments in other states along with the state guaranty funds are notified about the proceedings. Such proceedings are subject to only the individual state's liquidation statutes and not the Federal Bankruptcy Code.
• Liquidity: The speed of converting security into cash.
• Liquor Liability: Insurance coverage for damage to property or bodily injury by a person intoxicated on liquor served by a policyholder.
• Lloyd Of London: Originally a coffee house in London in the 1600s, it is today a market place to sell insurance. This is a place where mini-insurers and underwriting syndicates gather to sell insurance. The underwriters look after the functioning of the syndicates and they decide on the risk factors. The Lloyd's market plays a major role for marine insurance as well as other high risk markets.
• Lloyds: It is a corporation that promotes the services of a number of underwriters together. There is no issuance of policies but individual underwriters write the insurance policy with each one taking responsibility for a part of the risks involved. It is found in Texas and has no connection with Lloyd's of London.
• Long-Term Care Insurance: This is insurance for those who need care for a life time or a relatively long time. It is applicable for those who are unable to perform their daily activities without help or support, or those who need assistance as a result of a cognitive disease like Alzheimer's. This insurance is available either under an employer-sponsored plan or as an individual plan.
• Long-Term Disability Income Insurance: A type of income that provides benefits when an individual is unable to work for a long time due to a disability. It is the type of insurance that provides benefits until an individual is ready o work, dead or has become eligible for pension.
• Loss: Loss means the value or quality of a property or a legal liability going down.
• Loss Adjustement Expenses: The amount of money that the insurer pays to investigate a particular claim and settle it. This also includes the money paid to defend a lawsuit.
• Loss Costs: This is a certain portion from the insurance rate that is used in adjusting and covering claims. The rates that the insurance companies determine are typically after they have estimated any future loss costs and after addition of expenses, contingencies and profit amounts.
• Loss Of Use: The condition in home owners insurance or renters insurance that allows the insurance holder to get coverage for the cost of shifting and livelihood in a temporary home while their home is being rebuilt after a disaster.
• Loss Ratio: It is the ratio between the total claims that paid to the policy holder along with the adjustment and the total amount of premiums paid by the insured.
• Loss Reserves: The reserve or estimate that the company is ready to pay for claims. This amount may be timely adjusted.

Insurance Term - M

• Malpractice Insurance: Coverage for lawyers, physicians and other specialists for professional liability. Provides coverage for lawsuits arising out of negligence or any other error that has harmed the client.
• Managed Care: It is a type of health insurance plan that is in contract with different health care providers who in turn offer health care for individuals at a reduced cost. There is a rule to be followed which is made by the providers and how much the plan will provide for an individual depends on the rules set by the network.
• Manual: A book that highlights the rate, classifications and underwriting rules of an insurance or bonding company or a rating association or a bureau.
• Marine Insurance: Offers protection for goods in transit as well as the commercial vehicle transporting them through water over land. It generally applies to ocean marine and seldom to inland marine. Perils covered include damage to a ship's hull and cargo, collision, sinking, fire, piracy, capsizing, jettisoning cargo. Wear and tear, war, mold and dampness are excluded.
• Maturity Date: It is the date on which the insurer pays the face amount of the endowment policy to the policy holder in endowment insurance, if the owner is still living. For an investing plan, it is the date on which the issuer of the bond must repay the bondholder the borrowed amount.
• Mccarran-Ferguson Act: In 1945 the Congress made a declaration after signing a Federal law that the states would continue regulating the insurance business. This law was the McCarran-Furguson Act which grants the insurance companies a certain freedom from the federal anti-trust legislation.
• Mediation: A third party attempting to resolve any conflict that arises between two other groups.
• Medicaid: It is a federal government assisted program originated in 1965 where medical assistance is provided for people who are incapable to pay for health care.
• Medical Payment Insurance: It is the plan in which the insurance provider agrees to pay the policy holder a certain amount of money for medical or funeral expenses as needed for a bodily injury or death caused by accident. The payments made are independent of faults.
• Medical Utilization Review: It is the reviewing of claims for medical treatment by the insurance companies.
• Medicare: The Federal government program for senior citizens (65 years old or more) that pays for part of their treatment, hospitalization, doctor's bills, home health care as well as skilled nursing care.
• Medigap Or Medsup: It is a supplementary policy for Medicare and supplements benefits provided by federal insurance.
• MIB, INC: Formerly known as Medical Information Bureau, this non-profit organization was set to inform the insurers about any impairment that the individual has that is connected to the application for insurance put forth.
• Mine Subsidence Coverage: Available only in a few select states, this is an endorsement to home owners policy. It protects against losses caused to a home by the land under it sinking into a mine shaft.
• Misrepresentation: Falsely representing something. In selling insurance it means a statement that is false or misleading made by a sales agent to promote a product and induce sale.
  In the underwriting process it means a false or misleading statement made by the applicant that leads the insurance company to avoid the policy.
• Misstatement of Age or Sex Provision: This provision shows the way benefits for life insurance, health insurance and annuity policy will be adjusted if information like age and sex are misstated in the application for insurance.
• Modified Premium Policies: A policy where the insurance holder pays a lower premium compared to a similar policy of the same level for a specified period and then pays a higher premium compared to what he would pay in a similar policy of the same level.
• Money Supply: It is the total amount of money supplied to the economy. It composes of the circulating currency, savings deposits and checking accounts.
• Moral Hazard: It is the chances of a person becoming dishonest during an insurance transaction.
• Morbidity Rate: It is the factor on which insurers partly base the health insurance premiums for a proposed age group of insurance holders. It is the rate of occurrence of sickness and injury within a particular group of people.
• Mortality and Expense Risk Charge: The fee to cover annuity contract guarantees like death benefits.
• Mortality Rate: The percentage rate of occurrence of death among a specified group of people of a particular age group and sometimes even of a particular gender. The premium for life insurance is partly based on the mortality rate for a specific age group.
• Mortgage Gurantee Insuarnce: Also known as private mortgage insurance (PMI), this is a coverage for the mortgage provider in case a mortgage holder defaults a loan.
• Mortgage Insurance: It is the insurance policy that provides guaranteed repayment of the mortgage loan in the event of death or maybe any disability of the mortgagor. The more the debt the lesser becomes the coverage as the coverage is in decreasing term insurance.
• Mortgage-Backed Securities: The security based on a group of underlying mortgages guaranteed by a government agency for paying a timely principal.
• Multiple Peril Policy: It is a policy similar to a homeowner's policy that protects from different perils. It is a mixture of property as well as liability coverage.
• Municipal Bond Insurance: It provides coverage for bondholders to get payments when the issuer of bond defaults. Companies with high credit ratings offer such insurance. It is a form of financial guarantee insurance.
• Municipal Liability Insurance: It is the insurance for the liability of municipalities.
• Mutual Holding Company: It is a hybrid company between pure stock insurance and a mutual insurance company and derives attributes from both of them. The ownership of the company is retained by policyholders and the company owns a major portion of its stock subsidiary.
• Mutual Insurance Company: It is a company owned by its policyholders where part of the profits generated is returned as dividend. The remaining fund is used in the event of unexpected losses.

Insurance Term - N

• Named Peril: Peril listed in an insurance policy as covered.
• National Flood Insurance Program: It is flood insurance that is sold to homeowners as well as business owners under a Federal government-sponsored program.
• Net Annuity Cost: The amount of money that equals the value of the periodic installments payable under an annuity contract. It is calculated on a net basis and is in contrast with gross annuity cost.
• Net Payment Cost Comparison Index: This is a cost comparison index prepared to make comparisons between one life insurance policy and another considering the time value of money and the measurement of the cost value of a policy for over a period of 10 or 20 years. This total calculation is based on the assumption that the policyholder pays the premiums for the entire period.
• No-Fault: Auto coverage for drivers to pay for their own injuries regardless of who was at fault. This coverage varies from one state to another and refers to a liability system confining lawsuits to only serious cases.
• No-Fault Medical: Accident coverage included in homeowner’s insurance.
• No-Pay, No-Play: This plan is developed to prohibit uninsured drivers from claiming for benefits from insured drivers. This plan prohibits uninsured drivers from filing lawsuits for non-economic damages in many states. Some states require the drivers to pay an amount that is equivalent to a large deductible before they can sue for property damage and also another large sum of money before bodily injury claims.
• Non-Admitted Assets: Assets not mentioned in the balance sheet of the insurance company. Assets include fixtures, past due accounts receivable, furniture, agents’ as well as debt balances.
• Non-Admitted Insurer: Insurers who have license in some states but not all. However, these insurers sell coverage that not available with the licensed insurers of the state.
• Noncancellable and Guaranteed Renewable Policy: A health insurance policy for individuals that states a specific age (usually 65) for the policyholder until which the insurance company cannot cancel the policy, increase premiums or change any clause in the policy as long as the premiums are being paid within due time.
• Nonforfeiture Options: Different ways that can be used by a contract owner by which he can apply for cash surrender value of an insurance or annuity contract due to any lapse.
• Notice Of Loss: A notice in writing given to an insurance company immediately after an accident intimating about any loss that occurs.
• Nuclear Insurance: Coverage for the operators of nuclear reactors and other facilities for liability as well as property damage from any nuclear accident. Both private as well as federal government insurance companies are included.
• Nursing Home Insurance: Coverage for the nursing home stay of a policy holder. This is a form of long-term care policy.

Insurance Term - O

• Occupational Disease: Illness related to the factors in the workplace.
• Occurrence Policy: Coverage for any incident that occurs during the term of the policy even if the claim is filed several years later.
• Ocean Marine Insurance: Coverage for all types of vessels in the sea for property damage and loss/damage to cargo. It includes perils like piracy and other liabilities associated with marine life. War is not covered.
• Open Competition States: States where the insurance companies can change their rates and do not need any approval prior to the change. However, these changes in rate made by the insurance company can be disapproved by the state commissioner if they do not find it to be reasonable.
• Operating Expenses: The expenses borne to maintain business property like insurance, property taxes, rent and utilities. Income tax, depreciation and other financing expenses are excluded.
• Options: Contracts that only allows the owner but does not oblige him to buy or sell a property or an asset at a certain date and for a particular price.
• Ordinance or Law Coverage: An endorsement to property policy that compensates for the extra cost of reconstruction in compliance with the set laws that originally did not exist when the building was built for the first time.
• Ordinary Life Insurance: A normal life insurance policy that remains active for the entire lifetime of the policyholder.
• Original Equipment Manufacturer Parts / OEM: Original auto parts manufacturers. Parts made by the vehicle manufacturers.
• Over-The-Counter (OTC): Unlisted or non tradable securities. E.g. the New York Stock Exchange.

Insurance Term - P

• Package Policy: A pack of policies combined to be sold as a single policy. E.g. homeowners and commercial multiple peril insurance.
• Paid-up Additional Insurance Option: Option available to a life insurance policyholder to purchase additional insurance policies using the policy dividends. This additional insurance is issued on the same plan as the basic policy.
• Paid-up Policy: A policy for which all premiums has been paid but continues to provide benefits.
• Partial Disability: Inability to work due to an injury except some work or any other activity.
• Participating Policy: Also known as par policy, it is a type that allows the policyholders to receive dividends.
• Pay-at-the-Pump: Originally proposed in the 1990s, this system required auto insurance premiums to be paid to the state governments by means of a surcharge per gallon on gasoline.
• Payout Options: The options available to the annuity contract owner to distribute the accumulated value of the owner. Options include lump sum distribution method, the fixed period option, the fixed amount option and life annuity option.
• Pension Benefit Guaranty Corporation: The independent federal government agency that administers Pension Plan Termination Insurance Program. This plan ensures that the employees receive the due benefits as their pension plans get terminated. There are limits to the benefits that are paid.
• Pensions: Program that provides the employees with an income after retirement. Life insurers may hold some of these funds. There has been a shift in the responsibility for funding retirement largely from the employers to the employees since the 1970s.
• Per Capita Beneficiary Designation: Designation of the life insurance policy beneficiary in which the benefits are equally distributed amongst the surviving beneficiary/beneficiaries after the policyholder’s death.
• Per Stirpes Beneficiary Designation: A type of life insurance policy beneficiary designation in which the life insurance benefits are divided among a class of beneficiaries; for example, children of the insured. The living members of the class and the descendants of any deceased members of the class share in the benefits equally. Contrast with per capita beneficiary designation.
• Peril: A particular risk or cause of loss like fire, flood, theft or windstorm that is covered by the insurance policy. A named peril policy covers for only those risks mentioned in writing in the policy document. An all-risk policy covers all perils except for those specifically mentioned as excluded in the policy.
• Period Certain: The period over which the insurance provider pays periodic benefits under an annuity certain.
• Personal Articles Floater: An additional or a separate policy that provides coverage for personal valuables like jewelry or furs.
• Personal Injury Protection Coverage / PIP: An auto insurance coverage that compensates for treating injuries suffered by the driver and passengers of the policyholder’s car.
• Personal Lines: Property or casualty insurance products designed specifically for individuals. These products may be included in homeowners and auto insurance.
• Point-of-Service Plan: A policy in health insurance that allows an employee to make a choice between in-network and out-of-network care every time the individual needs medical treatment.
• Policy: A written insurance contract that mentions the details of coverage to be provided by the insurance company to its policyholder.
• Policy Dividend Options: The various options of receiving policy dividends those are open to the owner of an active insurance policy.
• Policyholders' Surplus: It is the remainder of the insurer’s liabilities subtracted from the assets. It is a protective financial cushion that protect policyholders in some kind of an unexpected crisis.
• Political Risk Insurance: Insurance coverage for any business that has its operations abroad against any financial loss caused by a political turmoil like war or confiscation of property.
• Pollution Insurance: Insurance that provides coverage for loss arising from pollution related damages. It is usually written on a claims-made basis.
• Pre-existing Condition: A condition for which an individual policyholder has received medical treatment preferably during the 3 months immediately prior to the effective coverage date. Some other health insurance policies may deem this period before the effective coverage date as 2 years.
• Preferred Provider Organization: Network of medical provides paid on a fee-for-service basis.Fees,however,may be negotiated and also discounted.
• Preferred Risk Class: A group of insurance owners who project a lower than average probability of loss. It is in contrast with declined risk class, standard risk class and substandard risk class.
• Premises: Specific location of the property (full or a portion) as mentioned in the insurance policy.
• Premium: The amount to be paid by the policyholder annually or semiannually on purchase of a policy in order to be able to receive the benefits when required.
• Premium Reduction Option: A choice available to active policyholders where they can use the policy dividends in paying for renewal premiums.
• Premium Tax: State tax levied on premiums paid by residents as well as businesses that is collected by the insurance companies.
• Premiums in Force: Dividend additions plus face value of life insurance policies outstanding at a given time.
• Premiums Written: The total premiums calculated on all policies by an insurer in writing during a particular time period irrespective of the portions earned. Premiums that are written after reinsurance transactions are known as net premiums.
• Primary Beneficiary: Also called the first beneficiary it is the individual or party nominated and entitled to receive benefits from a life insurance policy after the death of the policyholder.
• Primary Company: The insurance company that is reinsured in case of a reinsurance transaction.
• Primary Market: Market for new securities where the benefits are directly received by the issuer.
• Prime Rate: The rate of interest that the banks charge from their creditworthy customers on the basis of their cost of funds and market forces.
• Prior Approval States: The states in which the insurance providers need to get state approval from regulators prior to any change of rate that they propose to have in their policies.
• Private Mortgage Insurance: Mortgage insurance provided by private insurance companies for lenders to protect them if any borrower defaults.
• Private Placement: Securities sold directly to investors without being registered with the Securities and Exchange Commission.
• Product Liability: A section of Tort Law that helps determine who can file a lawsuit and who may be sued if there has been any damage due to a defective product. There is no uniform federal law that guides manufacturer’s liability and the party injured can accuse the manufacturer for any damage without the need to provide any proof of negligence or fault.
• Product Liability Insurance: Insurance for manufacturers and distributors to protect them from lawsuits by party/parties who have sustained any bodily injury/property damage as result of using their products.
• Professional Liability Insurance: Insurance coverage for professionals for any fault on their parts that cause any injury or damage to clients.
• Proof of Loss: Documents produced to an insurance company to show that a loss has occurred.
• Property/Casualty Insurance: Coverage for loss of property of the policyholder and legal liability arising from damages caused to a third party or their property. Homeowners insurance and commercial insurance includes this policy.
• Property/Casualty Insurance Cycle: An industry business cycle with periodic hard and soft market conditions. These cycles were regular and had 3 year period each of hard and soft markets conditions in the 1950s and 1960s.
• Purchasing Group: A body offering insurance coverage to groups of business involved in similar business and those that are exposed to similar types of risk factors.
• Pure Endowment: A life insurance agreement by which the owner of the annuity receives a regular income benefit throughout his lifetime. Payment can be received on a monthly,quarterly, semiannual or annual basis.
• Pure Life Annuity: A type of annuity where payments end with the death of the annuitant. These payments may be fixed or variable.

Insurance Term - Q

• Qualified Annuity: A type of annuity that an individual purchases with pre tax dollars. This is part of a retirement plan gaining benefits from a special tax treatment similar to a 401 (k) plan.

Insurance Term - R

• Rate: The cost of a unit of insurance which may be regulated by the state insurance offices.
• Rate Regulation: The state’s adopted process to monitor the rate changes of an insurance company either through prior approval or open competition models.
• Rated Policy: An insurance policy that is categorized as having more than average chance of loss. This policy usually has special exclusions, a higher than normal premium rate, a reduced face amount or any combination of these.
• Rating Agencies: These are the 6 major credit agencies that determine the financial strength and capability of the insurance companies to meet the claims from their clients. The rating agencies include names like: A.M Best Co., Duff & Phelps Inc.; Fitch, Inc.; Moody’s Investors Services; Standard & Poor’s Corp.; and Weiss Ratings, Inc. They rate an insurance company on the basis of capital adequacy, liquidity, investment, operating capacity, experience, integrity, reinsurance programs and the ability of the management.
• Real Estate Investments: Investments owned generally by the life insurance companies that include the commercial mortgage loan as well as real property.
• Receivables: Amounts that a business would receive for providing goods or any service.
• Reciprocal Exchange: An unincorporated organization that writes insurance policies for its members. Each member assumes a portion of the perils covered.
• Redlining: Drawing a red line on a map to distinguish areas that need special treatment. Refusing to issue insurance based only on the location of the applicant is illegal in all states. Denial must always be risk based.
• Reduced Paid-up Insurance Option: A non-forfeiture option in life insurance that enables a policyholder with cash values to cease payments. The policyholder can also use the net cash value to purchase paid-up insurance of the same plan in place as the original policy.
• Reinstatement: The process implemented to put an insurance policy, which has been either terminated for nonpayment or continued as extended term or reduced paid-up coverage, back into force by an insurer.
• Reinsurance: Insurers insuring a risk again. Multiple insurance companies share in a risk by purchasing policies from other insurance companies in order to restrict the total loss the primary insurer would otherwise experience in case of a disaster. Reinsurers do not pay policyholders their claim but instead they reimburse the primary insurers for claims that their policyholders have made.
• Relation of Earnings to Insurance Clause: A clause in few individual disability insurance policies restricting the benefit amount to be paid by the insurance company when the total amount of disability benefits from all insurers exceed the total earnings of the individual.
• Renewable Term Insurance Policy: A term life insurance policy that allows the policyholder to continue coverage after the end of a specific existing term without presenting any substantiation for insurability. The premiums in such a case may go higher based on the age of the individual.
• Renters Insurance: A type of insurance that provides coverage for damage to an individual’s belongings against risks like fire, storm, windstorm, hail theft, vandalism, riots and other dangers. Additional living coverage is also provided under this policy, also known as loss-of-use policy. The additional living coverage is provided if the policyholder needs to move to a different temporary location until his/her dwelling is repaired. The possessions may be covered for their replacement cost or the actual cash value.
• Replacement Cost: The amount of money needed to replace a lost or damaged property (personal or dwelling) without deducting the depreciation value and restricted by the maximum dollar value mentioned on the declarations page of the policy.
• Repurchase Agreement /'REPO': An agreement between a buyer and a seller in which the seller agrees and purchases securities at a time and price previously agreed upon.
• Reserves: An estimate made by a company regarding how much it will pay for claims.
• Residual Disability Benefits: Disability benefits based on the policyholder’s loss of earnings. Benefits are generally payable only if loss of earning is more than 80% when the insured is categorized as totally disabled.
• Residual Disability: A condition in disability insurance where the policyholder is not fully but only partially disabled and yet unable to function normally like prior to the injury or illness and hence suffers a loss of income. It is also known as partial disability.
• Retention: Risks retained by an insurance company which is not reinsured.
• Retrocession: Reinsurance purchased by reinsurers to safeguard their financial condition.
• Return on Equity: This is net income divided by total equity. Helps measure profitability.
• Revocable Beneficiary: In contrast to the irrevocable beneficiary, this beneficiary to a life insurance policy whose right to the policy proceeds can be cancelled or changed by the policy owner anytime before the death of the insured.
• Rider: An addition to the original policy that provides additional benefits.
• RISK: The probability of a disaster to happen. E.g. a natural calamity, an accident etc.
• Risk Management: Managing different risks associated with a business firm or an association. Management includes analyzing any exposure to factors like likelihood of loss and also picking out options that initiate better management of how to minimize loss.
• Risk Retention Groups: A group of insurance companies together forming a self insurance organization chartered and licensed in at least one state to handle liability insurance.
• Risk-Based Capital: The minimum amount of capital required by an insurance company in order to support its business. It is required to set capital requirements based on the degree of risk assumed by the insurer.