Insurance Glossary of Terms

Act of God – Is an unpreventable accident or event that is the result of natural causes; examples would be floods, earthquakes, or lightning.

Annuity – Is a contract sold by insurance companies that pays a monthly, 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 – Is a survey by a claims representative estimating the amount of damage to property and the cost to repair or the determination of a complete loss.

Asset Risk – Is a measure of an asset's default of principal or interest and fluctuation in market value as a result of changes in the market.

Avalanche – Is a slippage of built-up snow down an incline possibly mixed with ice, rock, and soil and plant life. Avalanches are a major danger in the mountains during the winter and can create major destruction of the lower forest or anything else in its path.

Beneficiary – The person or party named by the owner of a life insurance policy to receive the policy benefit.

Binder – A temporary insurance contract providing coverage until a permanent policy is issued.

Broad Form Insurance – Is coverage for numerous perils.

Calendar Year – Is from the year beginning January 1st and ending on December 31st.

Cash Value – Is the savings element of a permanent life insurance policy, which represents the policy owner’s interest or value in the policy.

Cataclysm – Is any great upheaval that causes sudden and violent changes such as an earthquake, war, a flood, etc.

Catastrophic Risk – Is the risk of a large loss by reason of the occurrence of a peril to which a very large number of insured are subject.

Catastrophic Loss – Is damage resulting from a catastrophe.

Claim – Is a formal request for payment related to an event or situation that is covered under an in force insurance policy.

Coinsurance Clause – Is 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 – Is insurance coverage for businesses, commercial institutions, and professional organizations.

Concentration Factor – Are all companies are subject to an asset concentration factor that reflects the additional risk of high concentrations in single exposures

Consumer Price Index – Is an index of consumer prices based on the typical amount of goods and services consumed by all urban consumers during a certain period.

Contingent Beneficiary – Is 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 Life Insurance Policy – Is a term life insurance policy that gives the policy owner the right to convert the policy to permanent life insurance.

Corrective Order – Is an order issued by the commissioner specifying corrective actions that the commissioner has determined are required.

Credit Life Insurance – Is insurance issued to a creditor (mortgage lender) to cover the life of a debtor (borrower) for the outstanding mortgage loan.

Declined Risk – Is a proposed insured that is considered to present a risk that is too great for an insurer to cover.

Degree of Care – Is the minimum of care owed by one party for the physical safety of another.

Direct Written Premium – Is the total premiums received by a property and liability insurance company without any adjustments for the surrendering of any portion of the premiums.

Direct Incurred Loss – Is the property loss in which the insured peril is the immediate cause of damage or destruction.

Disaster – Is 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.

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.

Earned Exposures – Is the portion of the total amount of exposure (risk) corresponding to the coverage provided during a given time period.

Earned Premiums – Is the portion of the total premium amount corresponding to the coverage provided during a given time period.

Earthquake – Is 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 – Is proof that a person is an insurable risk.

Exclusions (Homeowners Insurance) – Is part of a homeowners insurance contract that excludes coverage of certain perils, persons, property or locations.

Experience Rating – Is a method of calculating group insurance premium rates by which the insurer considers the particular group’s prior claims and expense experience.

Face Amount – Is the amount of the death benefit payable under a life insurance policy.

Fema (Federal Emergency Management Agency) – Is a agency part of the department of homeland security and is tasked with responding to and planning for while recovering from and mitigating against disasters

Flood Plain – Is 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.

Free Look Provision – Is 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.

General Liability Insurance – Is 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 – Is a specified length of time within which a renewal premium that is due may be paid without penalty.

Gross Negligence – Is a reckless action without regard to life, limb, and/or property.

Hazard – Is a 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.

Insurance to value – Is 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 – Is 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 – The insured has losses that have happened, but have not been reported to a primary insurance company.

Incurred Claims – Is the total number of claims that are associated with an insured events occurring during a given time period.

Incurred Losses – Is the total dollar amount of losses associated with insured events occurring during a given time period. A portion of incurred claims and losses represent the insurers estimates of the final costs of pending claims that are still open or pending or not reported during the reporting period.

Irrevocable Beneficiary – Is 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 – Is 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 will benefit if the insured continues to live and will suffer some loss if the insured dies.

Landslide – Is a disaster closely related to an avalanche, but instead of occurring with snow as it occurs involving actual elements of the ground, including rocks, trees, debris and anything else swept in the slide.

Liability Insurance – Is 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.

Long Tail Liability – Is where an injury or other harm takes time to become known and a claim may be separated from the circumstances that caused by many years.

Loss – Is the dollar amount associated with a claim.

Loss Adjustment Expense – Is a cost involved in an insurance company’s adjustment of losses under a policy.

Loss of Use Insurance – Is compensation for loss caused because the policyholder has lost the use of his property.

Loss Payable Clause – Is a policy condition that enables an insured to direct the company to pay any loss that may be due to a third party. Material Misrepresentation – Is a misrepresentation that would effect the insurance company’s evaluation of a proposed insured.

Mediation – Is a 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, but the mediator try’s to have the parties reach a settlement.

Mortality tables – Are the charts that show the death rates an insurer may reasonably anticipate among a particular group of insured lives at certain ages.

Mortgage Insurance – Is a contract that insures the mortgage lender against loss caused by a mortgagor’s default on a government mortgage or conventional mortgage.

Mortgagee Clause – Is 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 the soil. The underlying cause is usually deforestation or lack of vegetation.

Multi-Peril Insurance – Is personal or business property insurance that combines in one policy several types of property insurance covering numerous perils.

Named Peril Policy – Is the insurance contract under which covered perils that are listed. The benefits for a covered loss are paid to the policy owner. If a peril is unlisted then no benefits are paid for loss.

Negative Trend – In respect to a life insurance or health insurance a negative trend over a period of time such as determined in accordance with a trend test.

Negligence – Is the failure to act within the legally required degree of care for others resulting in harm to them.

Original Age Conversion – Is a conversion of a term life insurance policy to a permanent life insurance policy at the premium rate based on the insured’s age when the original term policy was purchased.

Permanent Life Insurance – Is life insurance that provides coverage throughout the insured’s lifetime and usually have cash value for savings.

Policy Anniversary – Is as a general rule that the date on which coverage under an insurance policy became effective.

Policyholder Surplus – Is excess of an insurance company’s assets above its legal obligations to meet the benefits payable to its policyholders. Also is the net worth in an insurance company adjusted for the overstatement of liabilities. Policy Rider – Is an amendment to an insurance policy that becomes part of the insurance contract and either expands or limits the benefits payable under the contract.

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 – Is the dollar amount paid for an insurance policy.

Primary Insurance – Is the first layer property insurance or liability insurance coverage carried by the insured that provides benefits up to the limits of a policy.

Reinsurance – Is a form of insurance that insurance companies buy for their own protection and is a sharing of insurance. An insurer reduces its possible maximum loss on either an individual risk or a large number of risks by giving a portion of liability to another insurance company.

Reinsurer – insurance company that assumes all or part of an insurance or reinsurance policy written by a primary insurance company.

Replacement Cost – Is 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 – It consists of insurance consumers unable to obtain coverage in the voluntary market.

Retention Limit – Is 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 another company.

Risk – Is the uncertainty of a financial loss. A term used to designate an insured or a peril insured against.

Risk Based Capital – Is the amount of required capital that the insurance company must maintain based on the inherent risks in the insurer’s operations . Scheduled Property – A list of specific personal property for insured. This is usually considered for valuable items that are subject to limited coverage.

Sink Hole – A sink hole is a localized depression in the surface topography usually caused by the collapse of a subterranean structure. 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. A 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 increasing the effects of the surge and the tide.

Subrogation – Is 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 – Is the 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.

Tenants Insurance – Is 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 – It commonly refers to an insurance company's capital base under a capital adequacy model. It includes shareholders' funds and adjustments on equity, asset values and reserves.

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 – Is the process of identifying and classifying the degree of risk represented by a proposed insured.

Underwriting Risk – Is a measure of the risk that arises from under estimating the liabilities from business already written or inadequately pricing current or prospective business.

Voluntary Market – It consists of insurance consumers that insurers select to be provided coverage by using underwriting guidelines that are not unfairly discriminatory. The voluntary market is also called the regular market.

Written Exposure – Is the total number of exposures of all policies issued during a given time period.

Written Premiums – Is the total premiums generated from all policies written by an insurance company within a given period of time.

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