| A-SHARE VARIABLE ANNUITY |
| A
form of variable annuity contract where the contract holder pays sales
charges up front rather than eventually having to pay a surrender
charge. |
| ABSOLUTE ASSIGNMENT |
| An
irrevocable transfer of complete ownership of a life insurance policy
or an annuity from one party to another. Contrast with collateral
assignment. |
| ACCELERATED DEATH BENEFITS |
| A
life insurance policy option that provides policy proceeds to insured
individuals over their lifetimes, in the event of a terminal illness.
This is in lieu of a traditional policy that pays beneficiaries after
the insured’s death. Such benefits kick in if the insured becomes
terminally ill, needs extreme medical intervention, or must reside in a
nursing home. The payments made while the insured is living are
deducted from any death benefits paid to beneficiaries. |
| ACCIDENT AND HEALTH INSURANCE |
| Coverage for accidental injury, accidental death, and related health expenses. Benefits will pay
for preventative services, medical expenses and catastrophic care, with limits. |
| ACCIDENTAL DEATH AND DISMEMBERMENT (AD&D) BENEFIT |
| A
supplementary life insurance policy benefit that provides for an amount
of money in addition to the policy’s basic death benefit. This
additional amount is payable if the insured dies as the result of an
accident or if the insured loses any two limbs or the sight in both
eyes as the result of an accident. |
| ACCIDENTAL DEATH BENEFIT (ADB) |
| A
supplementary life insurance policy benefit that provides a death
benefit in addition to the policy’s basic death benefit if the
insured’s death occurs as the result of an accident. |
| ACCUMULATION AT INTEREST DIVIDEND OPTION |
| An
option, available to the owners of participating insurance policies,
that allows a policy owner to leave policy dividends on deposit with
the insurer and earn interest. |
| ACTUAL CASH VALUE |
| A form of insurance that pays damages equal to the replacement value of damaged property minus depreciation. |
| ACTUARY |
| An
insurance professional skilled in the analysis, evaluation and
management of statistical information. Evaluates insurance firms’
reserves, determines rates and rating methods, and determines other
business and financial risks. |
| ADDITIONAL LIVING EXPENSES |
| Extra
charges covered by homeowners policies over and above the
policyholder’s customary living expenses. They kick in when the insured
requires temporary shelter due to damage by a covered peril that makes
the home temporarily uninhabitable. |
| ADDITIONAL TERM INSURANCE OPTION |
| An
option available to owners of participating insurance policies under
which the insurer uses a policy dividend as a net single premium to
purchase one-year term insurance on the insured’s life. Also known as
fifth dividend option. |
| ADJUSTABLE LIFE INSURANCE |
| A
form of life insurance that allows policy owners to vary the type of
coverage provided by their policies as their insurance needs change. |
| ADJUSTER |
| An
individual employed by a property/casualty insurer to evaluate losses
and settle policyholder claims. These adjusters differ from public
adjusters, who negotiate with insurers on behalf of policyholders, and
receive a portion of a claims settlement. Independent adjusters are
independent contractors who adjust claims for different insurance
companies. |
| ADMITTED ASSETS |
| Assets
recognized and accepted by state insurance laws in determining the
solvency of insurers and reinsurers. To make it easier to assess an
insurance company’s financial position, state statutory accounting
rules do not permit certain assets to be included on the balance sheet.
Only assets that can be easily sold in the event of liquidation or
borrowed against, and receivables for which payment can be reasonably
anticipated, are included in admitted assets. |
| ADMITTED COMPANY |
| An insurance company licensed and authorized to do business in a particular state. |
| ADVERSE SELECTION |
| The tendency of those exposed to a higher risk to seek more insurance
coverage than those at a lower risk. Insurers react either by charging
higher premiums or not insuring at all, as in the case of floods.
(Flood insurance is provided by the federal government but sold mostly
through the private market.) In the case of natural disasters, such as
earthquakes, adverse selection concentrates risk instead of spreading
it. Insurance works best when risk is shared among large numbers of
policyholders. |
| AFFINITY SALES |
| Selling insurance through groups such as professional and business associations. |
| AGENCY COMPANIES |
| Companies that market and sell products via independent agents. |
| AGENT |
| Insurance
is sold by two types of agents: independent agents, who are
self-employed, represent several insurance companies and are paid on
commission; and exclusive or captive agents, who represent only one
insurance company and are either salaried or work on commission.
Insurance companies that use exclusive or captive agents are called
direct writers. |
| ALEATORY CONTRACT |
| A
contract in which one party provides something of value to another
party in exchange for a conditional promise, which is a promise that
the other party will perform a stated act upon the occurrence of an
uncertain event. Insurance contracts are aleatory because the
policyowner pays premiums to the insurer, and in return the insurer
promises to pay benefits if the event insured against occurs. Contrast
with commutative contract. |
| ALIEN INSURANCE COMPANY |
| An
insurance company incorporated under the laws of a foreign country, as
opposed to a “foreign” insurance company which does business in states
outside its own. |
| ALLIED LINES |
| Property
insurance that is usually bought in conjunction with fire insurance; it
includes wind, water damage and vandalism coverage. |
| ALTERNATIVE DISPUTE RESOLUTION / ADR |
| An
alternative to going to court to settle disputes. Methods include
arbitration, where disputing parties agree to be bound to the decision
of an independent third party, and mediation, where a third party tries
to arrange a settlement between the two sides. |
| ALTERNATIVE MARKETS |
| Nontraditional
mechanisms used to finance risk. This includes captives, which are
insurers owned by one or more non-insurers to provide owners with
coverage. Risk-retention groups, formed by members of similar
professions or businesses to obtain liability insurance and
selfinsurance, are also included. |
| ANNUAL ANNUITY CONTRACT FEE |
| Covers the cost of administering an annuity contract. |
| ANNUAL STATEMENT |
| Summary
of an insurer’s or reinsurer’s financial operations for a particular
year, including a balance sheet. It is filed with the state insurance
department of each jurisdiction in which the company is licensed to
conduct business. |
| ANNUITANT |
| The person who receives the income from an annuity contract. Usually the owner of the contract or his or her spouse. |
| ANNUITIZATION |
| The conversion of the account balance of a deferred annuity contract to income payments. |
| ANNUITY |
| A
life insurance product that pays periodic income benefits for a
specific period of time or over the course of the annuitant’s lifetime.
There are two basic types of annuities: deferred and immediate.
Deferred annuities allow assets to grow tax-deferred over time before
being converted to payments to the annuitant. Immediate annuities allow
payments to begin within about a year of purchase. |
| ANNUITY ACCUMULATION PHASE OR PERIOD |
| The period during which the owner of a deferred annuity makes payments to build up assets. |
| ANNUITY ADMINISTRATIVE CHARGES |
| Covers the cost of customer services for owners of variable annuities. |
| ANNUITY BENEFICIARY |
| In
certain types of annuities, a person who receives annuity contract
payments if the annuity owner or annuitant dies while payments are
still due. |
| ANNUITY CERTAIN |
| A
type of annuity contract that pays periodic income benefits for a
stated period of time, regardless of whether the annuitant lives or
dies. Also known as period certain annuity. Contrast with straight life
annuity. |
| ANNUITY CONTRACT |
| An agreement similar to an insurance policy for other insurance products such as auto insurance. |
| ANNUITY CONTRACT OWNER |
| The
person or entity that purchases an annuity and has all rights to the
contract. Usually, but not always, the annuitant (the person who
receives incomes from the contract). |
| ANNUITY COST |
| A monetary amount that is equal to the present value of future periodic income payments under an annuity. |
| ANNUITY DEATH BENEFITS |
| The
guarantee that if an annuity contract owner dies before annuitization
(the switchover from the savings to the payment phase) the beneficiary
will receive the value of the annuity that is due. |
| ANNUITY INSURANCE CHARGES |
| Covers administrative and mortality and expense risk costs. |
| ANNUITY INVESTMENT MANAGEMENT FEE |
| The fee paid for the management of variable annuity invested assets. |
| ANNUITY ISSUER |
| The insurance company that issues the annuity. |
| ANNUITY PROSPECTUS |
| Legal document providing detailed information about variable annuity contracts. Must be offered to each prospective buyer. |
| ANNUITY PURCHASE RATE |
| The cost of an annuity based on such factors as the age and gender of the contract owner. |
| ANTISELECTION |
| The
tendency of individuals who suspect or know they are more likely than
average to experience loss to apply for or renew insurance to a greater
extent than people who lack such knowledge of probable loss. Also known
as adverse selection and selection against the company. |
| ANTITRUST LAWS |
| Laws
that prohibit companies from working as a group to set prices, restrict
supplies or stop competition in the marketplace. The insurance industry
is subject to state antitrust laws but has a limited exemption from
federal antitrust laws. This exemption, set out in the McCarran-
Ferguson Act, permits insurers to jointly develop common insurance
forms and share loss data to help them price policies. |
| APPORTIONMENT |
| The dividing of a loss proportionately among two or more insurers that cover the same loss. |
| APPRAISAL |
| A survey to determine a property’s insurable value, or the amount of a loss. |
| ARBITRATION |
| Procedure
in which an insurance company and the insured or a vendor agree to
settle a claim dispute by accepting a decision made by a third party. |
| ARSON |
| The deliberate setting of a fire. |
| ASSET-BACKED SECURITIES |
| Bonds
that represent pools of loans of similar types, duration and interest
rates. Almost any loan with regular repayments of principal and
interest can be securitized, from auto loans and equipment leases to
credit card receivables and mortgages. |
| ASSETS |
| Property
owned, in this case by an insurance company, including stocks, bonds
and real estate. Insurance accounting is concerned with solvency and
the ability to pay claims. State insurance laws therefore require a
conservative valuation of assets, prohibiting insurance companies from
listing assets on their balance sheets whose values are uncertain, such
as furniture, fixtures, debit balances and accounts receivable that are
more than 90 days past due. |
| ASSIGNED RISK PLANS |
| Facilities
through which drivers can obtain auto insurance if they are unable to
buy it in the regular or voluntary market. These are the most
well-known type of residual auto insurance market, which exist in every
state. In an assigned risk plan, all insurers selling auto insurance in
the state are assigned these drivers to insure, based on the amount of
insurance they sell in the regular market. |
| ASSIGNMENT |
| An
agreement under which one party—the assignor—transfers some or all of
his ownership rights in a particular property, such as a life insurance
policy or an annuity contract, to another party—the assignee. |
| ASSOCIATION GROUP |
| A
type of group that generally is eligible for group insurance and that
consists of members of an association of individuals formed for a
purpose other than to obtain insurance coverage, such as teachers’
associations and physicians’ associations. |
| AUTO INSURANCE POLICY |
There are basically six different types of coverages. Some may be required by law. Others are optional. They are: 1. Bodily injury liability, for injuries the policyholder causes to someone else. 2. Medical payments or Personal Injury Protection (PIP) for treatment of injuries to the driver and passengers of the policyholder’s car. 3. Property damage liability, for damage the policyholder causes to someone else’s property. 4. Collision, for damage to the policyholder’s car from a collision. 5. Comprehensive, for damage to the policyholder’s car not involving a collision with another car (including damage from fire, explosions, earthquakes, floods, and riots), and theft. 6. Uninsured motorists coverage, for costs resulting from an
accident involving a hit-and-run driver or a driver who does not have
insurance. |
| AUTO INSURANCE PREMIUM |
| The
price an insurance company charges for coverage, based on the frequency
and cost of potential accidents, theft and other losses. Prices vary
from company to company, as with any product or service.
Premiums also vary depending on the amount and type of coverage
purchased; the make and model of the car; and the insured’s driving
record, years of driving and the number of miles the car is driven per
year. Other factors taken into account include the driver’s age and
gender, where the car is most likely to be driven and the times of
day—rush hour in an urban neighborhood or leisure time driving in rural
areas, for example. Some insurance companies may also use credit
history related information. |
| AVIATION INSURANCE |
| Commercial airlines hold property insurance on airplanes and liability
insurance for negligent acts that result in injury or property damage
to passengers or others. Damage is covered on the ground and in the
air. The policy limits the geographical area and individual pilots
covered. |