Glossary of Insurance Terms

Business insurance

A policy that provides coverage to a business. It is often purchased to indemnify a business for the loss of services if a key employee (such as a partner) becomes disabled.

Business life insurance

Life insurance purchased by a business enterprise on the life of a member of the firm. It is often bought by partnerships to protect the surviving partners against loss caused by the death of a partner, or by a corporation to reimburse it for loss caused by the death of a key employee. (Also known as key person insurance.)

Bad faith

Accusations by policyholders that insurers took steps to deliberately delay, underpay, or deny a claim.

Ceding commission

A fee paid to the primary insurer by the reinsurer to compensate the primary insurer for underwriting expenses such as marketing, administration, premium tax, etc.

Certificate

A statement issued to individuals insured under a group policy, setting forth the essential provisions relating to their coverage.

CLAD

Commercial limited assigned distribution

Claim

Notification to an insurance company that payment of an amount is due under the terms of the policy. A claim is a demand by a person or business who is seeking to recover for a loss. A claim may be made against an individual. A claim may also be made against an insurance company, when an insured asks the insurance company to pay for a loss that may be covered by an insurance policy.

Co-insurance

Arrangement by which the insurer and the insured share, in a specific ratio, payment for losses covered by the policy, after the deductible is met.

COLI

Corporate owned life insurance

Combination plans

Life insurance policies that combine features of term and whole life policies.

Combined ratio

The sum of the loss ratio plus the expense ratio plus the policyholder dividend ratio.

Comprehensive medical expense insurance

Insurance that provides coverage, in one policy, for basic hospital expense and major medical expense.

Computer insurance

Covers computer equipment and peripherals beyond the normal coverage provided in homeowner's insurance policies. Usually, homeowner's policies only cover up to between $1,000 and $3,000 in computer equipment. With more people owning expensive computers and peripherals, and even using them for home-based businesses, riders and separate policies are becoming more popular. Some policies are also designed to cover damage and/or theft of portable equipment, such as laptop computers, and even the costs of data recovery.

Conditional claim rate

The number of mortgages of a given class that go to claim during a calendar year divided by the number of mortgages in that class outstanding at the beginning of the year.

Conforming mortgages

Mortgages of 'A' or 'prime' quality that meet GSE size requirements for purchase of guarantee.

Consideration clause

Stipulation that states the basis on which an insurer issues an insurance contract.

Consolidate Omnibus Budget Reconciliation Act (COBRA)

Requires employers with more than 20 employees to make group health care coverage available for 18 months, at the employee's expense, to employees who leave the employer for any reason other than gross misconduct.

Contingency reserve

A reserve for losses in excess of those that are expected. An insurer generally contributes up to 50% of premiums earned in any year to this reserve, and amounts contributed are to remain there for 10 years, subject to transfer to the surplus account either at the end of that period or before to the extent that the loss ratio exceeds 35% in any given year. Federal income taxes on amounts in the contingency reserve are deferred as long as the funds remain allocated there and are paid when they are transferred to surplus (see tax and loss bonds).

Contingency reserve

A statutory reserve established to absorb unexpected losses. Bond insurers are required to maintain reserves based on premiums written and principal insured. The contingency reserve may be used to pay claims when losses exceed 35% of earned premium for municipal and utility first mortgage obligations or 65% of earned premium for nonmunicipal obligations.

Contract underwriting

The analysis of and lending decision on loans by an insurer on behalf of a lender.

Contributory plan

Group plan under which the insured shares in the cost of the plan with the policyholder.

Conventional health plan

Plan that provides all benefits and issues certificates containing the insurance company's guarantees.

Conversion privilege

Right given to an insured person under a group insurance contract to change coverage, without evidence of medical insurability, to an individual policy upon termination of the group coverage. The conditions under which conversion can be made are defined in the master policy.

Convertible term insurance

Term insurance that offers the policyholder the option of exchanging it for a permanent plan of insurance without evidence of insurability.

Coordination of benefits (COB)

Method of integrating benefits payable under more than one health insurance plan so that the insured persons benefits from all sources do not exceed 100 percent of allowable medical expenses or eliminate incentives to contain costs.

Cost containment

Reduction of inefficiencies in the consumption, allocation, or production of health care services. Inefficiencies can occur when health services are used inappropriately; when health services could be delivered in less costly settings; and when the costs could be reduced by using a different combination of resources.

Cost index

A way to compare the costs of similar plans of life insurance. A policy with a smaller index number is generally a better buy than a comparable policy with a larger index number.

Cost-of-living rider

An option that permits the policyholder to purchase increasing term insurance coverage. The death proceeds increase by a stated amount each year to coincide with an estimated increase in the cost of living.

Coverage

The percentage of the original appraised value of a home that is covered by mortgage insurance. Government Sponsored Enterprise (GSE) corporations, such as Fannie Mae and Freddie Mac, require that all residential mortgages they guarantee have effective loan - to - value (LTV) of 80 pecent or less. Mortgage insurance is the primary method of reducing the effective LTVs.

Covered expenses

Health care charges that an insurer will consider paying under the terms of a health insurance policy.

Credit insurance

Optional coverage that pays off the balance of an outstanding loan in the event you become disabled, unemployed or die. Exact coverage depends on the particular policy. Variations include credit health or disability (pays if you get sick or become disabled) and credit unemployment insurance (pays if you involuntarily lose your job). Usually offered with credit cards, auto loans and mortgages.

Credit life insurance

Term life insurance issued through a lender or lending agency to cover payment of a loan, installment purchase or other obligation, in case of death.

Cumulative claim rate

The number of mortgages of a given class originated during the same year going to claim over a given period divided by the original number of mortgages in that class.

Current assumption whole life insurance

A variation of universal life insurance, this product involves fixed premiums and fixed death benefits. Its cash value growth depends on market conditions. If they are favorable and if premiums paid in the policy's first year are large enough, premiums for one or more years may be reduced to zero.

Churning

Whole life policies that are replaced by new ones, often at the urging of an agent, who gives the impression that the new policy is cheaper. In many instances, however, the buyer is not told that the cash value account, sometimes used to pay the new premium, must accumulate anew. It's not unusual for whole life policies to have no cash value in their first few policy years.

Collateral assignment

Designating a creditor as the beneficiary of a life insurance policy as security for a loan.

Co-payment

Partial payment of medical expenses, emergency room services, or prescription drugs required by an individual who is enrolled in a group health insurance plan. For example, a co-payment for a visit to a doctor's office might be $10.

Collision insurance

The part of an auto insurance policy that pays for the repair of a car after a crash.

Comprehensive insurance

The part of an auto insurance policy that pays out in the event of extensive physical damage (known as the totaling of a car) or theft of the car.

Class action lawsuit

Legal action filed in court by one or more people on behalf of themselves and others having an identical interest in the alleged wrong.

Deposit term insurance

A form of term insurance, not really involving a "deposit," in which the first-year premium is larger than subsequent premiums. Typically, a partial endowment is paid at the end of the term period. In many cases the partial endowment can be applied toward the purchase of a new term policy or, perhaps, a whole life policy.

Diagnosis-related groups (DRG)

System of determining reimbursement fees based on the medical diagnosis of a patient.

Direct first-year & single premiums

Direct first-year and single premiums, excluding annuity and fund deposits.

Disability

Physical or mental condition that prevents a person from performing one or more occupational duties temporarily (short-term), long-term, or totally (total disability).

Disability benefit

A feature added to some life insurance policies providing for waiver of premium, and sometimes payment of monthly income, if the policyholder becomes totally and permanently disabled.

Disability income insurance

Insurance that provides periodic payments when an insured person is unable to work as a result of illness or injury.

Disability insurance

A form of health insurance that pays the policyholder in place of his or her usual income if the policyholder can't work because of illness or accident. Usually, policies begin paying after a waiting period stipulated in the policy, and pay a certain percentage of the policyholder's usual income. Sometimes this is provided by employers, but it's also available as a separate coverage.

Dismemberment

Accidental loss of limb or sight.

Disposable personal income

Personal income less personal tax and nontax payments; the income available to people for spending and saving.

Dividend

An amount of money returned to the holder of a participating policy. The money is a partial refund of the premium paid. It results from actual mortality, interest and expenses that were more favorable than expected when the premiums were set.

Dividend addition

An amount of paid up insurance purchased with a policy dividend and added to the face amount of the policy.

DSR

Debt service reserve

Dual life insurance

Another name for second-to-die insurance.

Duplication of coverage

Coverage under two or more policies for the same potential loss.

Demutualization

The conversion of an insurance company from a mutual insurance company to a stock insurance company.

Endowment

Life insurance payable to the policyholder if living, on the maturity date stated in the policy, or to a beneficiary if the insured dies before that date.

Enrollment card

Document signed by an eligible person indicating a desire to participate in a group insurance plan. The document or card authorizes an employer to deduct contributions from an employee's pay. If life and accidental death and dismemberment coverage are involved, the card usually includes the beneficiary's name and relationship.

Equity assets

Common stock, real estate, and all other miscellaneous invested assets

Equity assets/capita

Common stock, real estate, and miscellaneous invested assets as a percentage of statutory capital.

Evidence of insurability

Under certain circumstances (e.g., late enrollment in a group health plan or a high benefit maximum), an employee must provide medical or financial information as proof to the insurance company that he or she is insurable.

Excess of loss reinsurance

Reinsurance wherein the insurer cedes liabilities, premiums, and losses on a nonproportional basis above the insurer's net retention of risk.

Exclusions (exceptions)

Conditions or circumstances, listed in the policy, for which the insurer will not provide benefits.

Exclusive provider organizations (EPO)

Form of managed care in which participants are reimbursed only for care received from affiliated providers.

Expectation of life

See life expectancy.

Expense ratio

The sum of general insurance expenses, direct commissions, and net commissions and expense allowances on reinsurance assumed and ceded, as a percentage of net premiums and annuity and fund deposits.

Experience

Relationship, usually expressed as a percent or ratio, of claims to premiums for a stated period.

Experience rating

Process of determining the premium rate for a group based wholly or partially on that risk's experience.

Experience refund

Amount returned by an insurer to a group policyholder when the financial experience of a particular group (or class to which the group belongs) has been more favorable than anticipated.

Exposure in force

Total principal and interest obligations currently outstanding under policies to date.

Extended term insurance

A form of insurance available as a non-forfeiture option. It provides the original amount of insurance for a limited period of time.

Flexible premium variable life insurance

A life insurance policy that combines the premium flexibility feature of universal life insurance with the equity-based benefit feature of variable life insurance.

Flood insurance

A regular homeowner?s policy will not pay for damages caused by flooding. In order to get the coverage, you?ll have to go to some outfit that writes for the National Flood Insurance Program. Outside of fire, flooding is the most widespread natural disaster. If your community participates in NFIP?s floodplain management program, you should be eligible to buy the coverage. The only people who may have trouble finding flood coverage are residents of "coastal barrier resource system" areas and communities that do not participate in NFIP?s programs. Flood insurance is also available to renters, condominium owners, and co-op owners.

Franchise insurance

Insurance contracts issued to members of a specific group (such as employees of a common employer or members of an association) under a group-like arrangement in which the employer or the association collects and remits premiums.

Fraternal life insurance

Life insurance provided by fraternal orders or societies to their members.

Frequency

The number of mortgages in a class that go to claim over a given period of time divided by the total original number of mortgages in that class.

FFS

Fee For Service plan, also called traditional indemnity. FFS coverage offers flexibility in exchange for higher out-of-pocket expenses, more paperwork, and higher premiums. You may choose your own doctors and hospitals. You may visit any specialist without getting permission. There's typically a deductible (anywhere from $500 to $1,500) before the insurance company starts paying claims, and then doctors are reimbursed about 80 percent of the bill while you pick up the remaining 20 percent. You may have to pay up front for medical services, then submit the bill for reimbursement. FFS plans only pay for "reasonable and customary" medical expenses. If your doctor charges more than the average for your area, you will have to pay the difference.

Fraud

Dishonest act by policyholders to obtain payment of an insurance claim that would otherwise not be covered by insurance. It also could involve lying or misrepresentation by an insurance company or its officials.

Financial strength

An insurer's financial security as determined by an independent ratings company. The ratings organization examines the insurer's ability to pay claims under the terms of its insurance policies and contracts.

Family care expenses

A employee on disability who has family care responsibilities may need extra help when trying to return to work. This type of benefit provides an incentive to the employee who is taking part in a rehabilitation program by allowing credit or partial reimbursement for certain expenses incurred for family care. This is generally an optional benefit under most long term disability policies.

Guaranteed renewable contract

Contract under which an insured has the right, commonly up to a certain age, to continue the policy by the timely payment of premiums. Under renewable contracts, the insurer reserves the right to change premium rates by policy class.

HO-3

HO-3 is extended or special homeowners insurance. Covers 17 stated perils plus any other peril not specified in your policy, except for flood, earthquake, war, and nuclear accident.

HO-4

HO-4 is renters insurance coverage. Covers only personal property from 17 listed perils.

HO-6

HO-6 is condominium coverage. Covers personal property from 17 listed perils along with certain building items in which the unit owner might have an insurance interest.

HO-8

HO-8 is basic home insurance for an older home. Covers dwelling and personal property from 11 perils. It differs from HO-1 (a basic home insurance policy) in that it covers repairs or actual cash values u not rebuilding costs. This is for homes where some historic or architectural aspects make the home's replacement cost significantly higher than its market value.

Insurable risk

The conditions that make a risk insurable are (1) the peril insured against must produce a definite loss not under the control of the insured, (2) there must be a large number of homogeneous exposures subject to the same perils, (3) the loss must be calculable and the cost of insuring it must be economically feasible, (4) the peril must be unlikely to affect all insureds simultaneously, and (5) the loss produced by a risk must be definite and have a potential to be financially serious.

Insurance

Risk management plan that, for a price, offers the insured an opportunity to share the costs of possible financial loss through an insurer.

Insurance examiner

The representative of a state insurance department assigned to participate in the official audit and examination of the affairs of an insurance company.

Insurance in force

The aggregate unpaid balance of loans insured.

Insured

The person on whose life the policy is issued.

Insuring clause

Stipulation in an insurance policy that states the type of loss the policy covers and lists the parties to the contract.

Integration

The combining of two or more benefit plans to prevent duplication of payments.

Invested assets

The sum of an insurance company's bond, stock, mortgage loan, real estate, collateral, loan, cash, and short-term investments.

ISO

Insurance Services Office, located online at http://www.iso.com.

Immediate annuity

An annuity that begins its payment stream to the policyholder after a single premium is paid.

Insurable interest

A financial reliance you have on someone (such as a spouse) that can be covered by insurance. For example, you need an "insurable interest" in someone in order to buy a life insurance policy on that person's life.

Identity fraud

The act of assuming another person's identity in order to gain access to a person's bank accounts or other personal financial information.

Life insurance in force

The sum of the face amounts, plus dividend additions, of life insurance policies outstanding at a given time. Additional amounts payable under accidental death or other special provisions are not included.

Lifetime disability benefit

A provision making benefits payable for an insured's lifetime as long as the insured person is totally disabled.

Limited payment life insurance

Whole life insurance on which premiums are payable for a specified number of years or until death, if death occurs before the end of the specified period.

Limited policy

Policy that covers only specified accidents or sicknesses.

Liquidity margin of safety

The ratio of liquidity resources (liquid investments, net operating cash flow, risk-adjusted soft capital) to liquidity exposure (unanticipated defaults on principal and interest, unanticipated draws on DSR surety policies, and municipal investment contracts (MICs) and deal-specific liquidity.)

Liquidity ratio

Standard & Poor's measure of an insurer's liquidity.

Living benefits

Some life insurance companies title their accelerated death benefits as a "living benefit" or "living needs benefit" because excercising that option allows the insured to receive a portion of the life insurance death benefit while living.

Load

Any sales fees or charges paid in purchasing an annuity contract.

LOB

Line of business

Long term care insurance

A health-insurance variation designed to cover the costs of long term care at home or in a nursing home. These policies may offer a specified nursing home benefit and home-care benefit. Some policies also account for inflation at additional cost. The popularity of long term care insurance has grown as federal laws have changed, making it less likely that Medicaid will pick up the tab for long term care. These policies are usually rather expensive, and grow even more costly as the policyholder ages.

Long term care

A continuum of maintenance, custodial, and health services for the chronically ill or disabled. Such services may be provided on an inpatient (rehabilitation facility, nursing home, mental hospital) or outpatient basis, or at home.

Long-term disability income insurance (LTD)

Plan that helps replace income lost through inability to work because of disability caused by an accident or illness.

Loss mitigation

Practices and procedures that usually do not involve foreclosure carried out with delinquent borrowers with the goal of reducing loss. Examples are pre-foreclosure sales and adding missed interest payments to the principal amount of the mortgage. Loss mitigation, and, more generally, claims handling are performed by lender-servicers, the GSEs and the insurers themselves.

Loss ratio

The ratio of losses incurred and loss expenses incurred to net premiums earned.

Loss reserve

The liability recorded on the balance sheet for unpaid losses. The loss reserve consists of the case basis reserve, the reserve for claims known to the company but not yet paid; and the reserve for incurred but not reported losses (IBNR). IBNR in residential mortgage insurance is a small amount compared to IBNR in many long-tail property-casualty lines of business and consists mainly of an estimate of the aggregate dollar amount of currently delinquent mortgages which will remain delinquent or go to claim in a short period of time, causing the establishment or increase of case basis reserves for those mortgages.

Liability insurance

Liability involves the cause of damage to someone's property and the bodily injury someone incurs as a result of the negligence of another party. Liability insurance provides coverage for either individuals or businesses.

Miscellaneous expense

Expenses connected with hospital insurance; hospital charges other than room and board such as x-rays, drugs, laboratory fees, and other charges.

Modified life insurance

A type of whole life policy with a premium that is relatively low in the first several years but that increases in later years.

Morbidity

Frequency and severity of sicknesses and accidents in a well-defined class or classes of persons.

Mortality table

A statistical table showing the death rate (probability of death) at each age.

Mortgage insurance

There are actually two types of mortgage insurance. Usually, people mean private mortgage insurance, or PMI, which protects a mortgage company against a defaulted loan. PMI does not benefit the homeowner. If you bought your home with a down payment of less than 20 percent of its value, your bank probably made you take out PMI. At some point, you won?t have to pay for PMI any more, but don?t expect the bank to let you know when that is. Mortgage insurance can also mean a type of life insurance, which pays off the balance of a mortgage when the policyholder dies or, in some cases, becomes disabled. As a homeowner, you want to get rid of the first type as soon as you can. You might want to consider the second type.

Multiline insurer

An insurer that writes financial guaranty and property/casualty insurance.

Multiple employer trust (MET)

A trust established by a sponsor that brings together a number of small, unrelated employers for the purpose of providing group medical coverage on an insured or self-funded basis.

Mutual life insurance company

A life insurance company owned by policyholders who share in the company's surplus earnings.

MSA

Medical savings account (MSA) set up as a tax-deferred trust or savings account, similar to an IRA, in which you set aside money for your routine, out-of-pocket health care expenses, and to build up savings for your future medical costs.

Medicare supplement insurance

Also known as Medigap, this health coverage pays for services that are not covered under the government's basic Medicare plan. Some Medigap policies sold before January 1, 2006 may include prescription drug coverage, but after that date new Medigap policies could not be sold with drug coverage. This time frame coincides with the introduction of the Medicare Part D benefit.

Multiline discount

When an insured buys more than one type of insurance (auto, home, or life) from an insurance company, the insurer may offer a discount of premiums for one or more of the policies.

Mutual holding company

A corporation structure that allows the insurance companies within it to sell stock for up to a 49 percent stake of the company without passing proceeds onto policyholders.

Mandatory rehabilitation

Based on the premise that most people want to work in order to lead active, productive lives, a "mandatory" rehabilitation provision in disability insurance contracts encourages disabled employees to participate in rehabilitation efforts whenever appropriate. Such a provision allows for termination of benefits if the employee refuses to cooperate or participate with a rehabilitation plan.

Maximum monthly benefit

The highest dollar amount a policyholder can receive on a monthly basis from the insurance policy.

Net reserves/gross reserves

Net reserves for life and accident & health policies as a percentage of gross reserves for life and accident & health policies.

No-fault insurance

No-fault insurance is designed to pay for the financial losses associated with minor accidents as quickly as possible. Under a no-fault system, which varies from state to state, your own insurance company will pay medical expenses and lost wages caused by an accident, regardless of who was at fault. In the long run, this system is designed to save time and money that would otherwise be spent litigating petty claims. Usually, that means less expensive auto insurance. In exchange, no-fault systems limit the right to sue under certain circumstances. Not every state has a no-fault system and they vary from state to state. In Michigan, there is no limit to the amount that you can collect under no-fault. In other states, you may only be able to collect $5,000. Once no-fault runs out, motorists can turn to their uninsured motorist/underinsured motorist coverage to make up the difference.

Noncancellable policy

A policy that can be maintained through timely payment of the premiums until the policyholder is at least age 50 or, in the case of a policy issued after age 44, for at least five years from the date of issue. The insurer may not unilaterally change any provision of the in-force policy, including premium rates.

Noncontributory plan

Group insurance plan under which the employer does not require employees to share in its cost.

Nondisabling injury

Any injury that may require medical care but does not result in the loss of working time or income.

Non-forfeiture option

One of the choices available if the policyholder discontinues payments on a policy with a cash value. This may be taken in cash as extended term insurance or as reduced paid-up insurance.

Non-forfeiture values

The value of the policy if canceled, either in cash or in another form of insurance. Also available to the policyholder if required premium payments are not paid.

Non-medical limit

The maximum face value of a policy that a given company will issue without the applicant taking a medical examination.

Nonoccupational policy

Policy that covers only non-job-related accidents or sicknesses not covered under any workers' compensation law.

Non-participating insurance

Insurance on which no dividends are paid.

Nonparticipating policy

Policy that does not provide for payment of a dividend.

Non-participating policy

A life insurance policy in which the company does not distribute to policyholders any part of its surplus. Note that premiums for non-participating policies are usually lower than for comparable participating policies. Note also that some non-participating policies have both a maximum premium and a current lower premium. The current premium reflects anticipated experience that is more favorable than the company is willing to guarantee, and it may be changed from time to time for the entire block of business to which the policy belongs.

Nonprofit insurers

Corporations organized under special state laws to provide medical benefits on a not-for-profit basis (for example, Blue Cross Blue Shield and Dental Service Corporations).

Nonrenewal clause

Provision in a policy that states the circumstances under which an insurer may elect not to renew someone's policy.

Physician's expense insurance

Coverage that provides benefits toward the cost of doctor's fees - for surgical care in the hospital, at home, or in a physician's office, and for x-rays or laboratory tests performed outside of a hospital. (Also called Regular Medical Expense Insurance).

Policy

The printed document issued to the policyholder by the company stating the terms of the insurance contract.

Policy loan

Under an insurance policy, the amount that can be borrowed at a specified rate of interest from the issuing company by the policyholder, who uses the value of the policy as collateral for the loan. In the event the policyholder dies with the debt partially or fully unpaid, the insurance company deducts the amount borrowed, plus any accumulated interest, from the amount payable.

Policy reserves

The measure of the funds that a life insurance company holds specifically for fulfillment of its policy obligations. Reserves are required by law to be calculated so that, together with future premium payments and anticipated interest earnings, they will enable the company to pay all future claims.

Policy term

The period for which an insurance policy provides coverage.

Policyholder

The person who owns a life insurance policy. This is usually the insured person, but it may also be a relative of the insured, a partnership or a corporation.

Policyholder dividend ratio

The ratio of dividends to policyholders paid to earned premiums.

Pool insurance

The insurance of pools of 'A' or 'prime' mortgages. The coverage is a percentage of the original aggregate unpaid balance of the pool. There are two types of pool insurance: traditional and modified. Traditional pool insurance pays 100% of all losses on individual defaulted mortgages after the equity in the home and any primary insurance is exhausted until the aggregate pool coverage amount is reached. Modified pool insurance pays 25%. Insurers offer GSE pool insurance, a thin layer of coverage between the equity in the mortgage and any primary insurance and the GSEs' guarantee.

PPO

Preferred provider organization. PPOs give policyholders a financial incentive u reasonable co-payments(also called co-pays) u to stay within the group's network of practitioners. You may go to any specialist without permission, as long as the doctor participates in the network. If you see an out-of-network doctor, you may have to pay the entire bill yourself, then submit it for reimbursement. You may have to pay a deductible if you choose to go outside the network, or pay the difference between what network doctors vs. out-of-network doctors charge.

Precertification

A utilization management program that requires the insured or the health care provider to notify the insurer prior to a hospitalization or surgical procedure. The notification allows the insurer to authorize payment, as well as to recommend alternate courses of action.

Pre-existing condition

Any physical and/or mental condition or conditions that exist prior to the effective date of health insurance coverage. Many disability policies and individual health plans exclude benefits for any illness or injury for which a person received medical treatment or consultation within a specified time period before becoming covered under the plan.

Preferred provider organization (PPO)

Plan through which a sponsoring group negotiates price discounts with providers in exchange for patients. The sponsor may be an insurer, employer, or third-party administrator.

Premium

The payment, or one of the regular periodic payments, that a policyholder makes to own an insurance policy.

Premium loan

A policy loan made for the purpose of paying premiums.

Premium revenue

Net premiums (direct premiums plus reinsurance assumed less reinsurance ceded) plus annuity and fund deposits.

Premiums earned, gross

The amount of premiums received for in advance that are earned by virtue of the expiration of risk.

Premiums earned, net

Gross premiums earned less premiums earned on business ceded to reinsurers

Premiums written, gross

Total premiums received from all sources including reinsurance assumed from other insurers.

Premiums written, net

Gross premiums written less premiums ceded to reinsurers.

Prepaid group practice plan

A plan under which specified health services are rendered by participating physicians to an enrolled group of persons, with a fixed periodic payment made in advance by (or on behalf of) each person or family. If a health insurance carrier is involved, a contract to pay in advance for the full range of health services to which the insured is entitled under the terms of the health insurance contract. An HMO is an example of a prepaid group practice plan.

Pretax income

Income after policyholder dividends, but before federal income taxes and excluding capital gains/losses.

Pretax operating income

Pretax income after policyholder dividends less realized capital gains.

Primary insurance

The insurance of an individual mortgage.

Primary insurer

An insurer that directly assumes liabilities by issuing an insurance policy to the insured.

Principal

The amount you pay into your annuity contract as distinguished from the interest that is credited to it.

Principal sum

Amount payable in a lump sum in the event of accidental death and, in some cases, accidental dismemberment.

Property/casualty

Covers damage to or loss of policyholders? property and legal liability for damages caused to other people or their property. Property/casualty insurance, which includes auto, homeowners and commercial insurance, is one segment of the insurance industry. The other sector is life/health. Outside the United States, property/casualty insurance is referred to as non-life or general insurance.

Proration

Modification of policy benefits because of changes in the insured's occupation or the purchase of other insurance.

Prospective payment

Payment of a lump-sum to an institution for care of an insured person based on a predetermined amount correlated with a diagnosis.

POS

POS (Point of Service) plans are more flexible than HMOs, but they also require you to select a Primary Care Physician (PCP). Depending on your insurance company's rules, you may choose to visit a doctor outside the network and still receive coverage u but the amount covered will be substantially less than if you went to a physician within your network These plans tend to offer more preventive care and well-being services, such as workshops on smoking cessation, and discounts to health clubs. You must choose a PCP. While you may choose to see a physician outside the network, if you don't receive permission from your PCP, you're likely to wind up submitting the bills yourself and receiving only a nominal reimbursement u if any.

Public adjuster

Representative hired by a policyholder to estimate damages and represent the policyholder in negotiations with an insurance company. Usually hired when there is extensive damage to a house, for example.

PIP

Personal injury protection (PIP), coverage to pay basic expenses for an insured and his or her family in states with no-fault auto insurance.

PEO

Professional employee organization (PEO) that small businesses may join in order to gain access to more affordable health insurance premiums.

Property casualty

Property insurance covers damage to or loss of the policyholder's property. Casualty covers the policyholder's legal liability for damages and injuries caused to others.

Pre-disability earnings

This is the amount of an employee's wages or salary that was in effect and covered by the plan on the day before the disability began.

Renewable term insurance

Term insurance providing the right to renew at the end of the term for another term or terms, without evidence of insurability. The premium rates increase at each renewal as the age of the insured increases.

Renewal

Continuance of coverage beyond original terms signified by acceptance of a premium payment for a new term.

Replacement vs. actual cash value

The actual cash value of an item can be depressingly small after only a brief period of ownership. And, if your homeowner's coverage entitles you to only the actual cash value of any damaged property, you could be out of luck when you go to replace the property with only your claim check as payment. Replacement-cost coverage permits you to claim the cost of replacing an insured item. Its most important use is on your home and, secondly, the personal property in your home.

Reserve

The amount required to be carried as a liability in the financial statement of an insurer to provide for future commitments under policies outstanding.

Reserves by line

Percentage distribution of net reserves for life and accident & health policies. The category labeled "other" includes supplementary contracts with life contingencies, accidental death, disability, and miscellaneous reserves for life policies.

Residual disability benefits

A provision that provides benefits in proportion to a reduction of earnings as a result of disability, as opposed to the inability to work fulltime.

Return on assets (ROA)

Net operating income as a percentage of average general account assets for the year. Average assets are calculated based on reported assets at the end of the current and prior fiscal years. Excludes capital gains/losses.

Return on revenue (ROR)

The ratio of pretax income to total revenue for the current year. Excludes capital gains/losses.

Return on statutory capital (ROE)

Net operating income as a percentage of average statutory capital outstanding for the year. Average capital is calculated based on reported capital at the end of the current and prior fiscal years. Excludes capital gains/losses

Return on statutory surplus

The ratio of net operating income to average statutory surplus.

Rider

An amendment to an insurance policy that modifies the policy by expanding or restricting its benefits or excluding certain conditions from coverage.

Risk classification

The process by which a company decides how its premium rates for life insurance should differ according to the risk characteristics of individuals insured (for example, age, occupation, sex, state of health) and then applies the resulting rules to individual applications. (See underwriting.)

Risk in force

The aggregate unpaid balance of loans insured multiplied by the average coverage.

Risk-based pricing

The setting of premiums based on the perceived credit quality of a borrower as well as the LTV of the mortgage. Currently the industry prices risk almost exclusively by LTV. Risk-based pricing represents a matching of premium to risk, which is superior to current practice. However, there is resistance to it because its full implementation would result in considerably lower premiums for the better risks and considerably higher premiums for lower-quality borrowers; this development could significantly reduce the size of the conforming market.

RPVA

Repetitive premium variable annuities

Ratings

Valuations of financial stability of a company, an individual, or an organization. Insurance ratings organizations include A.M. Best, Fitch, Moody's, and Standard & Poor's.

Redlining

Refusal by an insurance company to sell policies in a given geographic area -- specifically, minority or poor areas. The practice of redlining is discriminatory and illegal.

Risk

Uncertainty of financial loss; used to designate an insured or a peril insured against.

RICO

Racketeering Influenced and Corrupt Organization act, federal legislation from 1970, written to prosecute organized-crime syndicate members, but broadened by the courts to include big business. Some policyholders have sought to sue their health insurers under the RICO act.

Risk exposure

The possibility of financial loss based on the probability of an event occurring.

Risk management

Procedure to minimize the adverse effect of a possible financial loss. It involves identifying potential sources of loss, measuring the financial consequences of the loss, and using controls to minimize actual losses or their financial consequences.

Recurrent disability

The recurrent disability insurance provision is designed to protect an employee who tries to return to work but becomes disabled again from the same or a related cause. If this happens within a certain period of time, the employee will be considered disabled from the original disability, and will not be subject to a new elimination period. This encourages an employee to return to work without fear of losing benefits.

Return-to-work provision

To encourage employees to return to work as soon as they become physically able, an additional incentive is usually provided under disability insurance for a certain period of time, and is called a return to work provision. Under this provision, the employee can receive up to 100 percent of pre-disability earnings based on a combination of disability benefits and return-to-work earnings.

Rental reimbursement

A common auto insurance add-on, this covers vehicle rentals required because your car is damaged or stolen.

SPAC

Single premium annuity contract

SPDA

Single premium deferred annuity

Special risk insurance

Coverage for risks or hazards of a special or unusual nature.

Specified disease insurance

Insurance providing an unallocated benefit, subject to a maximum amount, for expenses in connection with the treatment of specified diseases, such as cancer, poliomyelitis, encephalitis, and spinal meningitis. These policies are designed to supplement major medical policies.

Standard provisions

Provisions setting forth the rights and obligations of and insurers and insured persons under health insurance policies. Originally introduced in 1912, these provisions were replaced by the Uniform Policy Provisions Law (UPPL).

Standard risk

Person who, according to an insurer's underwriting standards, is entitled to purchase insurance without paying an extra premium or special restrictions.

State (compulsory) disability plan

Plan of short-term income replacement required by some states to cover eligible persons employed within that state.

State insurance department

An administrative agency that licenses insurers to do business in that state and implements state insurance laws and supervises (within the scope of these laws) the activities of insurers operating within the state.

State regulation of insurance

The complexity and cost variations of insurance stems directly from state regulation of the industry. Unlike the securities and banking industries, the insurance industry does not have a strong federal oversight role. Instead, through the 1945 McCarran-Ferguson Act, the domestic industry faces 55 sets of overseers (the 50 states, the District of Columbia, Puerto Rico, the Virgin Islands, Guam and American Samoa). With so many different sites of regulation, and so many sources of local sales outlets for insurance policies, it?s not surprising that insurance policies are hardly the standardized commodities that you find when trading stocks or opening a bank account. This is particularly true in property/casualty coverage and less so in life insurance. Added to the maze of different products is the fact that state-based regulation means that insurers may base their rates in each state on their business profile in that state. Auto rates, for example, reflect accident and theft trends in local territories. The upshot is that there is great pricing variation along with lots of different types of policies. Lastly, insurers have increasing freedom to price their policies for whatever the market will bear. Even if an insurer has to file its rates in your state, you shouldn?t assume that state regulators are poring over the rates to review their fairness.

Statutory accounting

Accounting practices prescribed by the insurance department of the insurer's state of domicile based on standards set by the National Association of Insurance Commissioners (NAIC). The principal objective of statutory accounting is to provide a framework for a conservative measurement of an insurer's surplus.

Statutory capital

Sum of statutory surplus, capital, and mandatory securities valuation reserve (MSVR).

Statutory surplus

The sum of common stock plus preferred stock plus aggregate write-ins for other than special surplus funds plus gross paid-in and contributed surplus plus unassigned funds less treasury stock.

Stock life insurance company

A life insurance company owned by stockholders who share in the company's surplus earnings.

Stop-loss insurance

Protection purchased by self-funded buyers against the risk of large losses or a severe adverse claim experience.

Straight life annuity

An annuity whose periodic payments stop when the annuitant dies.

Substandard insurance

Insurance issued with an extra premium or special restriction to persons who do not qualify for insurance at standard rates.

Substandard risk

Persons who cannot meet the health requirements of a standard health insurance policy.

Supplementary contract

An agreement between a life insurance company and a policyholder or beneficiary by which the company retains the cash sum payable under an insurance policy and makes payments in accordance with the settlement option chosen.

Surgical expense insurance

Insurance policies that provide benefits toward physicians' or surgeons' operating fees. Benefits may consist of scheduled amounts for each procedure.

Surgical schedule

List of maximum amounts payable for various types of surgery; amounts are based on the complexity of the operation.

Surplus share reinsurance

Reinsurance wherein the insurer cedes a variable percentage of the liability, premiums, and losses for each policy covered on a pro rata basis.

Survivorship insurance

Another name for second-to-die insurance.

SVO

Securities valuation office, a division of NAIC

Surrender charge

The fee charged when a policyholder decides to end (or surrender) a life insurance policy or annuity. This fee reflects insurance company expenses incurred by placing the policy on its books. After a "surrender period" (usually several years) has elapsed, there is no charge for ending the contract.

SR-22

A form from the DMV that shows a driver holds auto insurance. Many states require it for high-risk drivers.

Subrogation

When an insurance company seeks payment from a third party who caused injury to the insured or damage to property.

Solvency

The minimum standard of financial health for an insurance company, when assets exceed liabilities.

Surcharge

An additional charge, cost, or tax.

Supplemental insurance

Additional insurance protection over the primary insurance coverage. An example is Medigap coverage, which can be purchased as a supplement to Medicare.

Total liabilities

Total general account liabilities. As reported in these analyses, mandatory securities valuation reserve (MSVR) is included as a liability item but is counted as a part of surplus for operating leverage and return on statutory capital calculations.

Total revenue

Primarily net premium revenue, annuity and fund deposits, considerations for supplementary contracts, net investment income, certain reinsurance adjustments, and miscellaneous income.

TPA

Third party administrators

Travel accident policies

In some states, limited contracts covering accidents that occur only while an insured person is traveling on business for an employer, away from the usual place of business, and on named conveyances.

Treaty reinsurance

Reinsurance covering broad groups of policies. All policies written by the primary insurer within the defined groups will be covered and ceded to the reinsurer until the policies' expiration. This occurs on an ongoing basis until the agreement is canceled.

Triple X

Legislation adopted Jan. 1, 2000, requiring life insurers to set aside certain levels of reserves in order to be able to pay claims.

Tort reform

An effort by state lawmakers to change court procedures in order to reduce the expense and delays in settling auto insurance claims. Reform also involves reducing the amount of damages some defendants are forced to pay.

Totaling

When an insurance company determines that damage to a vehicle is so extensive that the cost to repair the vehicle exceeds its value or is a substantial portion of its value.

Towing and labor coverage

Towing and labor coverage can be added as part of an auto insurance policy, in case of roadside breakdowns.

Universal life insurance

Unlike traditional cash-value policies (known as "whole life"), universal life policy returns were freed from long-term, fixed-rate contracts and replaced with policies whose returns were tied to short-term interest rates and periodically adjusted. In addition, premiums and death benefits can be changed by the policyholder.