Glossary of Terms

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  • Accelerated Benefits
    A clause allowing life insurance policyholders to receive benefits before death. Normally reserved for terminal, long-term, high-cost illness where care facility replacement is required. Benefit must be purchased, and is not available from all underwriters. Offered with Universal life, term life, group term, group permanent and other permanent life insurances. Also referred to as living … Continue reading Accelerated Benefits
  • Acceleration Clause
    Clause in contract that stipulates when a loan may be declared due and payable in full before the contracted date. Usually triggered by a failure to pay or other breach of the terms of the contract.
  • Accidental Death Benefit
    Benefit paid in addition to a life insurance death benefit should death occur due to an accident. There may be exclusions and time or age requirements.
  • Active Participant
    Person whose absence from a planned event would cause a cancellation or postponement of the event.
  • Activities of Daily Living
    Activities necessary for independent living such as bathing, preparing and eating meals, moving from room to room, getting into and out of beds or chairs, dressing, using a toilet.
  • Actual Cash Value
    Cost of replacing damaged or stolen property, minus depreciation and obsolescence. For example, a 10-year-old television would not be replaced at the full value because of a depreciation and/or because the technology might be obsolete.
  • Actuary
    An insurance professional, who calculates rates, reserves, dividends and other mathematical statistics. Refered to as a mathematian in some countries
  • Adjustable Rate
    Interest rates that change based on a published market-rate index.
  • Adjuster
    Insurance professional that determines the amount that the insurer is liabile for in the claims process..
  • Admitted Assets
    Assets permitted by law in an insurance company’s annual statement. Used by insurance regulators to measure insurance company solvency and stability. Permitted assets can include mortgages, stocks, bonds and real estate depending on the laws of the state.
  • Adults Benefits Waiver (ABW )
    Funded by state general and federal title XIX funds, ABW provides basic health insurance coverage for uninsured, childless Michigan adults with incomes at or below 35% of the federal poverty level. http://www.michigan.gov/dhs/0,1607,7-124-5453_5530-69226–,00.html
  • Affordable Care Act (ACA).
    The Patient Protection and Affordable Care Act, is a federal law with provisions for the expansion of Medicaid eligibility, the establishment of health insurance exchanges and other measures to cover more Americans. Prohibits medical coverage denial based on pre-existing conditions.
  • Agent
    Individual who sells and services insurance policies for a commission. There are two classifications: Independent Agents that represent one or more agencies and Direct or Career agents which only represent one company.
  • Aggregate Limit
    Used in liability insurance policies, it indicates the total amounts of coverage available for a specified period of time, no matter how many separate accidents might occur.
  • Annual Administrative Fee
    Charges for the expense of administering a group employee benefit plan.
  • Annual Crediting Cap
    Maximum rate that an equity-indexed annuity can be credited per year. Ex: contract has a limit of 5 percent and the annuity’s index gains 5.4 percent, only 5 percent is credited to the annuity.
  • Annuitization
    Process of converting money from a qualified retirement plan or nonqualified annuity into the payment phase. Payments generally last for the life of the annuitants. Once the process is done, payment schedules and amounts are generally fixed and unalterable.
  • Annuitization Options
    Choices allowed for methods used to annuitize. . Selection of some options can reduces the amount of the periodic payment.
  • Annuity
    Insurance policy that will make regular payments to the beneficiaries upon maturation for either the lifetime of the insured or for a specified period of time. Policies may be purchased by either a lump sum (single-payment annuity) or on a payment plan (regular-payment annuity).
  • Approved for Reinsurance
    Indicates a company is approved (or accepted) to write reinsurance in this state. A license to write reinsurance might not be required in all states.
  • Approved or Not Disapproved for Surplus Lines
    Whether a company is approved (or not disapproved) to write excess or surplus lines in the state.
  • Assets
    All properties of an insurance company that can be used to pay its debts. The three classification of assets are: 1)Invested assets eg bonds, stocks, cash and income real estate. 2) All other assets eg nonincome producing possessions such as buildings the company occupies, furniture, and debts owed in the form of deferred and unpaid … Continue reading Assets
  • Attained Age
    1. The age at which the beneficiary or policy holder is eligible to collect life insurance or retirement benefits. 2. The age of a policy holder at the given moment in time, can be used to determine premium pricing
  • Authorized Under Federal Products Liability Risk Retention Act (Risk Retention Groups)
    Indicates companies that operate under the Federal Products Liability Risk Retention Act of 1981 and the Liability Risk Retention Act of 1986.
  • Automobile Liability Insurance
    Coverage for liabilities of bodily injury or property damage caused by an automobile. Required by Michigan state law.
  • Balance Sheet
    An accounting term refers to a list of a company’s assets, liabilities and other account balances as of a specific date.
  • Benefit Period
    In health insurance, the span of time that benefits are payable to the insured and/or dependents covered. Example: A calendar year consist of the days beginning on Jan. 1 and ending on Dec. 31 of each year.
  • Best’s Capital Adequacy Relativity (BCAR)
    AM Best measurement of a company’s relative capital strength compared to its industry peers. Calculated by dividing the capital adequacy ratio by the capital adequacy ratio of the median of the industry peer composite using Best’s proprietary capital mode. Capital adequacy ratios are calculated as the net required capital necessary to support components of underwriting, … Continue reading Best’s Capital Adequacy Relativity (BCAR)
  • Bodily Injury
    Physical injuries sustained by persons in an automobile accident.
  • Broker
    Insurance sales professional that searches the marketplace in the interest of clients, rather than insurance companies.
  • Broker Agent
    Independent insurance salesperson that can represent one or more insurance companies, but functions as a broker and searches the marketplace to place customer’s coverage to maximize protection and minimize cost. This professional is licensed as an agent and a broker.
  • Business Net Retention
    Percentage of an insurance company’s gross writings retained to its own financia account. Gross writings are the sum of direct writings and assumed writings, excluding affiliated writings.
  • Capital
    Equity of shareholders of a stock insurance company. The company’s capital and surplus are measured by the difference between its assets minus its liabilities. This value protects the interests of the company’s policyowners in the event it develops financial problems; the policyowners’ benefits are thus protected by the insurance company’s capital. Shareholders’ interest is second … Continue reading Capital
  • Capitalization or Leverage
    Measures the exposure of a company’s surplus to various operating and financial practices. A highly leveraged, or poorly capitalized, company can show a high return on surplus, but might be exposed to a high risk of instability.
  • Captive Agent
    Representative of a single insurer or fleet of insurers and can only submit business to that company, or at the very minimum, give the company first refusal rights. The insurance company usually provides captive agents with allowances for office expenses and an extensive list of employee benefits: pensions, life insurance, health insurance, and credit unions.
  • Case Management
    Health care approach that utilizes the coordination of medical services to treat patients, improve care, and reduce cost. Case managers coordinate health care services for patients with goals of best possible outcome for patients, to avoid treatment conflicts and control costs, while making sure that all disciplines involved are aware of any pertinent information that … Continue reading Case Management
  • Casualty
    Loss or liability from accidents or other covered events.
  • Casualty Insurance
    Coverage for losses caused by injuries to persons and legal liability imposed upon the insured for injuries or property damages. Covers a diverse range of hazards and risk, depenent on the business, industry or known hazards. Theft, losses from forgery, industrial machinery, Aviation and transportation, Many companies write both casualty and surety.
  • Ceded Reinsurance Leverage
    Portion of premiums that the original insurer signs over to a reinsurer to use as leverage or capitalization of debt, so that and the insurer can assume additional risk. A high level of Ceded Reinsurance Leverage implies that the company might have increased reliance on reinsurers stability, and possibly an increased risk of exposure to … Continue reading Ceded Reinsurance Leverage
  • Change in Net Premiums Written (IRIS)
    The annual percentage change in Net Premiums Written. A company should demonstrate its ability to support controlled business growth with quality surplus growth from strong internal capital generation.
  • Change in Policyholder Surplus (IRIS)
    Changes of policyholder surplus from prior year. Earnings, gains, net contributed capital and other assets are included in the calculation. Indicates a company’s a to increase policyholders’ security.
  • Chartered Property and Casualty Underwriter (CPCU)
    Designation of given to a professional who has passed ten examinations given by the American Institute for Property and Liability Underwriters. The examination covers advanced topics in insurance underwriting such as risk management and evaluation, economics, finance, accounting, and law. Candidates must also have at least 3 years work experience in the insurance business or … Continue reading Chartered Property and Casualty Underwriter (CPCU)
  • Claim
    The request for payment of a benefit from the insured party made to the insurer.
  • Class 3-6 Bonds – Percent of PHS
    Noninvestment grade bonds as a percentage of surplus. Usually, noninvestment grade bonds carry higher risks. The designation of quality classifications that coincide with different bond ratings assigned by major credit rating agencies is used to determine the amount of exposure to this risk.
  • Coinsurance
    In property insurance, requires insurance coverage for a specified percentage of the property value to receive full reimbursement of a loss. In health insurance, the percentage of a single claim that is not considered as the deductible paid by the policyholder. For 10% coverage, the insured pays the deductible plus 10% of the billed amounts … Continue reading Coinsurance
  • Collision Insurance
    Reimburses for physical damage to the vehicle of the policyholder not covered by comprehensive insurance that results from contact with inanimate objects.
  • Combined Ratio After Policyholder Dividends
    Sum of losses, expenses and policyholder dividend ratios not rincluding investment income or income taxes. Indicates a company’s overall underwriting profitability. A combined ratio of less than 100 indicates an underwriting profit.
  • Commercial Lines
    Insurance products for businesses, professionals and commercial establishments of any type. Looking for Commercial or Business Insurance? D. Beacom & Son’s Insurance can help! Call us today at 906-647-6435 and let us help you to find the right policies for all your business needs!
  • Commission
    Fees collected by agents or insurance salespersons that is based on a percentage of the policy premium. Percentages vary depending on coverage, insurer and marketing methods.
  • Common Carrier
    A business or agency that provides transportation of persons, goods or messages to the public. Includes trucking companies, bus lines and airlines.
  • Comprehensive Insurance
    Auto insurance that covers theft or physical damage other than collision, of the insured car.
  • Concurrent Periods
    When a patient is confined to a hospital due to more than one injury and/or illness at the same time, claims are paid as a single incident.
  • Conditional Reserves
    Aggregate of various reserves which are treated by companies as liabilities. These reserves are similar to free resources or surplus. Includes unauthorized reinsurance, excess of statutory loss reserves over statement reserves, dividends to policyholders undeclared and other reserves established either voluntarily or in compliance with statutory regulations.
  • Convertible
    Term life insurance coverage that may be converted into permanent insurance regardless of the physical condition and without a medical examination. Policy owners cannot be denied coverage or charged additional any additional amounts for health problems.
  • Coordinated health or accident benefits
    In Michigan’s mandatory no-fault personal injury coverage, opting to use your health or accident insurer as the primary payer for personal injury claims substained in an automobile accidents may lower your premium. Coordination must be added prior to any claims or deduction. Persons with Medicaid, Medicare or Medicare supplemental coverage are not eligible, and the … Continue reading Coordinated health or accident benefits
  • Copayment
    A flat fee paid by a patient for healthcare services provided in addition to what their insurance covers. The amounts of the co-payments to be paid for services are specified in the policy coverage.
  • Cost of Living Adjustment (COLA)
    Automatic adjustment applied to Social Security retirement payments when the consumer price index increases at least 3% from the first quarter of one year to the first quarter of the next year.
  • Coverage
    Extent of the protection provided by an insurance policy. Property insurance lists perils insured against, properties and locations covered, individuals insured, and the limits of indemnification. In life insurance living and death benefits are listed.
  • Coverage Area
    Geographic region covered by travel insurance.
  • Creditable Coverage
    Term that mean benefits provided by other drug plans are at least as good as those provided by Medicare Part D. Important to people eligible for Medicare Part D because members of Creditable Coverage plans can convert to Medicare Part D without paying higher premiums if they miss the open enrollment period.
  • Current Liquidity (IRIS)
    Sum of cash, unaffiliated invested assets and encumbrances on other properties compared to net liabilities plus ceded reinsurance balances payable. Expressed as a percentage, current liquidity measures the proportion of liabilities that can be met by unencumbered cash and unaffiliated investments. A percentage ratio is less than 100 indicates solvency is dependent on the collectiblilty … Continue reading Current Liquidity (IRIS)
  • Death Benefit
    Benefits that will be paid upon the death of the insured, amounts and limitiations are set according to contracted policy.
  • Deductible
    Amount of loss that the insured must pay before the insurance will pay a claim.
  • Developed to Net Premiums Earned
    Developed(written) premiums of the year compared to the to net premiums earned. If premium growth is steady, and the mixture of lines written do not change, this ratio indicates if a company’s loss reserves are keeping pace with premium growth.
  • Development to Policyholder Surplus (IRIS)
    Measures the reserve deficiency or redundancy in relation to policyholder surplus. Reflects how much of the year-end surplus was overstated or understated in previous years, and if the original reserves are restated to reflect development through year end.
  • Direct Premiums Written
    Year end total sums of recorded new premiums, other than reinsurance, written during the year, collected or not, plus retrospective audit premium collections, after deducting all return premiums.
  • Direct Writer
    An insurer whose distribution method is either direct selling, or exclusive agency system.
  • Disease Management
    Coordinated health-care interventions and communications with patients to better treat certain illnesses.
  • Dividend
    Return of part of a premium for policies issued on a participating basis by a mutual or a stock insurer. Portion of the surplus or profits paid to the stockholders of a corporation.
  • Earned Premium
    Premiums paid for in advance that have been “earned” because of the amount of time that has passed without claim. A 10 year policy paid in advance in it’s first year will have only earned part of the premium that was paid.
  • Elimination Period
    Amount of time that must pass before the insured is eligible to collect insurance benefits. Also known as “waiting period.”
  • Employers Liability Insurance
    Liability coverage for employers against employee accident or injury employees, as distinguished from a workers’ compensation liability.
  • Encumbrance
    A claim on property that reduces the interest of the property owner by the amount of the encumbrance.
  • Exclusions
    Items or conditions not covered by the insurance contract.
  • Expense Ratio
    Comparison of underwriting expenses (including commissions) to net premiums written. Measures the company’s operational efficiency.
  • Exposure
    Measure of vulnerability to loss, usually expressed in dollars or units.
  • Extended Replacement Cost
    Extends replacement cost loss coverage to personal property and items such as outdoor antennas, carpeting, appliances, awnings, and outdoor equipment. Subject to limitations of certain personal properties; includes inflation protection coverage.
  • File and Use Ratings Laws
    State laws that permits insurers to adopt new rates without prior approval by the state’s insurance depatrment. Insurers generally submit their new rates with supporting statistical data.
  • Financing Entity
    Individual or entity which provides money for purchases.
  • Floater
    Separate policy that covers goods beyond or outside the coverage of standard renters insurance policies including property like jewelry or sports equipment.
  • Future Purchase Option
    Guarantees insureds right to buy additional coverage without proving insurability. Also known as “guaranteed insurability option.”
  • General Account
    Premiums are paid into the insurer’s general account, because of this, buyers can be subject to credit-risk exposure to the insurance company, this risk is generally low but above zero.
  • General Liability Insurance
    Insurance offering a wide range of liability protection for businesses. Liabilities can include such things as accidents, product liability, and contractual liability.
  • Grace Period
    Length of time after a premium is due but remains unpaid before the policy expires. If a premium is paid during the grace period, the premium is considered to have been paid on time. Usually 30 days except in the case of Universal Life policies, which typically expires 60 days following the date cash value … Continue reading Grace Period
  • Gross Leverage
    Totals of net leverage and ceded reinsurance leverage. Measures company’s overall exposure to pricing errors in current business, to any errors of estimated liabilities, and exposure to reinsurers.
  • Guaranteed Insurability Option
    A guarantee which allows a policyholder to buy additional coverage without proving insurability. Also known as a Future Purchase Option.
  • Guaranteed Issue Right
    Insurance companies offering Medicare supplemental insurance (Medigap plans) are prohibited from denying coverage or increasing premiums based on the applicant’s health in certain situations.
  • Guaranteed Renewable
    A provision in many insurances guaranting the policy owner the right to renew coverage at each policy anniversary. The company cannot cancel coverage except for nonpayment of premiums; however, they are allowed to raise the rates.
  • Guaranty Association
    Organization of life insurance companies within a state that are responsible for covering any financial obligations of member companies that become insolvent.
  • Hazard
    Circumstance or object that increases the likelihood of the probable severity of a loss. For example, the storing of gasoline or other chemicals in a home is a hazard which increases the chance of an explosion.
  • Hazardous Activity
    Bungee jumping, scuba diving, parachute jumping and other activities not typically covered by standard insurance. Insurers that do provide cover for such activities, are unlikely to cover liability and personal accident, because it should be provided by the organization or host of the activity.
  • Health Maintenance Organization (HMO)
    Prepaid group health insurance which entitles it’s members to services to a network of participating physicians, hospitals and clinics. Members must use contracted health-care providers, who focus on preventative care.
  • Health Reimbursement Arrangement (HRA)
    Employer funded group benefit plans which reimburse employees for medical expenses paid out of pocket which are not eligible for reimbursement by other insurance plans. Deductibles and payments towards health insurance premiums may be claimed, depending on the plan agreement. Employers set terms such as maximums, caps on amounts in the account and whether you … Continue reading Health Reimbursement Arrangement (HRA)
  • Health Savings Account
    Portable health plan which allows employees to contribute pre-tax income for medical expenses. Must link to high-deductible health insurance policies.
  • High Risk
    A risk that is considered to be very likely to happen and/or has a potential for catastrophic results and/or great financial loss.
  • Hurricane Deductible
    Amounts paid out-of-pocket deducted from hurricane claims paid. Policies may be offered with percentage deductibles for storm damage, rather than traditional dollar amounts. Percentage deductibles can vary from 1% to 15%, depending on the state and the insurer.
  • Impaired Insurer
    Insurance companies unable to meet their financial obligations, and/or have questionable compliance of regulatory requirements
  • Income Taxes
    1) Taxes based on the income of the tax-payer less allowances for dependants, expenses and circumstances. Usually based on a percentage of the taxable income which is determined by the amount of income. 2) Insurance company annual statement reporting line that reflects the amount of incurred income taxes for the year.
  • Indemnity
    The reimbursement to policyholder for the loss or damages by means of a payment, repair or replacement. When used in a legal setting can also mean an exemption from liability.
  • Independent Insurance Agents & Brokers of America (IIABA)
    Formerly Independent Insurance Agents of America, this organization is made up of independent agents and brokers that monitor and influence industry issues.
  • Inflation Protection
    Option offered by select insurers that can increase the policy limits to keep pace with the inflation that occurs during the policy period.
  • Insurable Interest
    Required for most insurances by law; the policyowner or beneficiary of the policy must have financial interest in the insured individual or property, and would subject to loss in the case of damage or destruction of the property, or the death or the insured person. Their interest must be directly related to the continuation or … Continue reading Insurable Interest
  • Insurance Adjuster
    Insurance company representative who investigates the legitimacy and extent of damages or losses that are claimed, and then determines the amount or types of compensation that the insurer will pay.
  • Insurance Attorneys
    Attorneys which practice law as it relates to insurance whether they are retained by individuals, insurance firms, either as an employee or in independant practice. Insurance defense attorneys practice can include such things as coverage issues, bad faith, malpractice,and other types of insurance cases.
  • Insurance Institute of America (IIA)
    Organization that create educational programs and examination tests for insurance professional that cover subjects regarding general insurance, risk management, adusting, underwriting, and auditing.
  • Insurance Regulatory Information System (IRIS)
    Introduced by the National Association of Insurance Commissioners in 1974 to identify insurance companies that might require further regulatory review.
  • Interest-Crediting-Methods
    Accounting methods used by the insurer to credit interest earned to an annuity or insurance account. There are over 35 methods that are used, most companies use some combination of point-to-point, annual reset, yield spread, averaging, or high water mark.
  • Investment Income
    Reporting item that represents income from investment portfolios including interest, dividends and realized capital gains on stocks. Does not include the value stocks or bonds that a company currently owns.
  • Investments in Affiliates
    Bonds, stocks, collateral loans, short-term investments in affiliated and real estate properties occupied by the company.
  • Laddering
    Bond investments which mature in intervals to diversify the income across a period of time while taking advantage of differing market options.
  • Lapse Ratio
    The ratio of the number of life insurance policies that lapsed within a given period to the number in force at the beginning of that period.
  • Least Expensive Alternative Treatment
    Limitiation on medical or dental benefits that sets the amount that will be paid for treatment based on “the lowest priced professionally acceptable treatment available”.
  • Leverage or Capitalization
    Ratio that measures an insurance companies surplus exposure by comparing it’s use of leverage or use of debt to obtain funding, to its use of capitalization or the use of owner equity to operate. Companies can show a high return on surplus, but might be exposed to a high risk of instability if they are … Continue reading Leverage or Capitalization
  • Liability
    An obligation or debt. Commonly used in a pecuniary sense. Can also mean a known risk, weakness or disadvantageous element.
  • Liability Insurance
    Insurance that pays on behalf of the insured for specifed losses from negligence to others whether imposed by law or assumed by contract.
  • Licensed
    Indicates the company is incorporated (or chartered) in another state but is a licensed (admitted) insurer for this state to write specific lines of business for which it qualifies.
  • Licensed for Reinsurance Only
    Indicates the company is a licensed (admitted) insurer to write reinsurance on risks in this state.
  • Lifetime Reserve Days
    Additional days Medicare pays for if you are hospitalized more than 90 days during a benefit period. Medicare pays covered costs except for a daily coinsurance amount.The benefit provides 60 days and can only be used once during your lifetime.
  • Liquidity
    The ability of individuals or businesses to convert assets into cash without loss. Current liquidity includes all assets and possessions such as real estate which cannot be immediately liquidated, but can be sold and converted into cash. Current Liquidity also includes Quick liquidity, which refers to cash, investments, bonds or possessions which are immediately convertable … Continue reading Liquidity
  • Living Benefits
    This feature allows you, under certain circumstances, to receive the proceeds of your life insurance policy before you die. Such circumstances include terminal or catastrophic illness, the need for long-term care, or confinement to a nursing home. Also known as “accelerated death benefits.”
  • Lloyd’s
    Generally refers to Lloyd’s of London, England, an insurance marketplace institution in which individual underwriters accept or reject the risks offered to them to help spread and pool risk among insurers. Governed by the Lloyd’s act of 1871 and other parliamentary laws. The Lloyd’s Corp. provides the support facility for their activities.
  • Lloyds Organizations
    Voluntary unincorporated underwriting associations of individuals that each assume a specified portion of the liability of each policy. They operate through a common attorney-in-fact appointed for this purpose. Most state laws contain some regulation over the organizations, but these laws generally do not provide the same level of supervision and control as the laws governing … Continue reading Lloyds Organizations
  • Loss Adjustment Expenses
    Expenses incurred to investigate and settle losses.
  • Loss and Loss Adjustment Reserves to Policyholders surplus ratio
    Monitors the amount of loss and loss reserves against the surplus. The higher the loss reserves compared to surplus, the more dependent a company is on reserve adequacy to maintain solvency.
  • Loss Control
    All methods taken to reduce the frequency and/or severity of losses including exposure avoidance, loss prevention, loss reduction, segregation of exposure units and noninsurance transfer of risk. A combination of risk control techniques with risk financing techniques forms the nucleus of a risk management program. The use of appropriate insurance, avoidance of risk, loss control, … Continue reading Loss Control
  • Loss Ratio
    The ratio of incurred losses and loss-adjustment expenses to net premiums earned. This ratio measures the company’s underlying profitability, or loss experience, on its total book of business.
  • Loss Reserve
    The estimated liability, as it would appear in an insurer’s financial statement, for unpaid insurance claims or losses that have occurred as of a given evaluation date. Usually includes losses incurred but not reported (IBNR), losses due but not yet paid, and amounts not yet due. For individual claims, the loss reserve is the estimate … Continue reading Loss Reserve
  • Losses and Loss Adjustment Expense
    Adjustment Expenses – This represents the total reserves for unpaid losses and loss-adjustment expenses, including reserves for any incurred but not reported losses, and supplemental reserves established by the company. It is the total for all lines of business and all accident years.
  • Losses Incurred (Pure Losses)
    Net paid losses during the current year plus the change in loss reserves since the prior year end.
  • Mathematician
    A specialist in the mathematics of insurance who calculates rates, reserves, dividends and other statistics. See: Acutary
  • Medical Loss Ratio
    Total health benefits divided by total premium.
  • Member Month
    Total number of health plan participants who are members for each month.
  • Mortality and Expense Risk Fees
    A variable charge based on a percentage of the value of the annuity or policy. Covers such annuity contract guarantees as death benefits. Typically 1.25% annually.
  • Mortgage Insurance Policy
    In life and health insurance, a policy covering a mortgagor with benefits intended to pay off the balance due on a mortgage upon the insured’s death, or to meet the payments due on a mortgage in case of the insured’s death or disability.
  • Mutual Insurance Companies
    Companies owned by policyholders with no capital stock. Earnings of the company that exceed the payments of the losses, operating expenses and reserves are the property of the policyholders. A nonassessable mutual charges a fixed premium and the policyholders can’t be assessed further. Reserves and surplus provide payment of all claims. Assessable mutuals are companies … Continue reading Mutual Insurance Companies
  • Named Perils
    Perils specifically covered on insured property.
  • National Association of Insurance Commissioners (NAIC)
    Association of state insurance commissioners whose purpose is to promote uniformity of insurance regulation, monitor insurance solvency and develop model laws for passage by state legislatures.
  • Net Income
    The total after-tax earnings generated from operations and realized capital gains as reported in the company’s NAIC annual statement on page 4, line 16.
  • Net Investment Income
    This item represents investment income earned during the year less investment expenses and depreciation on real estate. Investment expenses are the expenses related to generating investment income and capital gains but exclude income taxes.
  • Net Leverage
    The sum of a company’s net premium written to policyholder surplus and net liabilities to policyholder surplus. This ratio measures the combination of a company’s net exposure to pricing errors in its current book of business and errors of estimation in its net liabilities after reinsurance, in relation to policyholder surplus.
  • Net Liabilities to Policyholder Surplus
    Net liabilities expressed as a ratio to policyholder surplus. Net liabilities equal total liabilities less conditional reserves, plus encumbrances on real estate, less the smaller of receivables from or payable to affiliates. This ratio measures company’s exposures to errors of estimation in its loss reserves and all other liabilities. Loss-reserve leverage is generally the key … Continue reading Net Liabilities to Policyholder Surplus
  • Net Premium
    The amount of premium minus the agent’s commission. Also, the premium necessary to cover only anticipated losses, before loading to cover other expenses.
  • Net Premiums Earned
    The adjustment of net premiums written for the increase or decrease of the company’s liability for unearned premiums during the year. When an insurance company’s business increases from year to year, the earned premiums will usually be less than the written premiums. With the increased volume, the premiums are considered fully paid at the inception … Continue reading Net Premiums Earned
  • Net Premiums Written
    Represents gross premium written, direct and reinsurance assumed, less reinsurance ceded.
  • Net Premiums Written to Policyholder Surplus (IRIS)
    This ratio measures a company’s net retained premiums written after reinsurance assumed and ceded, in relation to its surplus. This ratio measures the company’s exposure to pricing errors in its current book of business.
  • Net Underwriting Income
    Net premiums earned less incurred losses, loss-adjustment expenses, underwriting expenses incurred, and dividends to policyholders.
  • Non-Recourse Mortgage
    A home loan in which the borrower can never owe more than the home’s value at the time the loan is repaid.
  • Noncancellable
    Contract terms, including costs that can never be changed.
  • Nonstandard Auto (High Risk Auto or Substandard Auto)
    Insurance for motorists who have poor driving records or have been canceled or refused insurance. The premium is much higher than standard auto due to the additional risks.
  • Occurrence
    An event that results in an insured loss. In some lines of business, such as liability, an occurrence is distinguished from accident in that the loss doesn’t have to be sudden and fortuitous and can result from continuous or repeated exposure which results in bodily injury or property damage neither expected not intended by the … Continue reading Occurrence
  • Operating Cash Flow
    Measures the funds generated from insurance operations, which includes the change in cash and invested assets attributed to underwriting activities, net investment income and federal income taxes. This measure excludes stockholder dividends, capital contributions, unrealized capital gains/losses and various noninsurance related transactions with affiliates. This test measures a company’s ability to meet current obligations through … Continue reading Operating Cash Flow
  • Operating Ratio (IRIS)
    Combined ratio less the net investment income ratio (net investment income to net premiums earned). The operating ratio measures a company’s overall operational profitability from underwriting and investment activities. This ratio doesn’t reflect other operating income/expenses, capital gains or income taxes. An operating ratio of more than 100 indicates a company is unable to generate … Continue reading Operating Ratio (IRIS)
  • Other Income/Expenses
    This item represents miscellaneous sources of operating income or expenses that principally relate to premium finance income or charges for uncollectible premium and reinsurance business.
  • Out-of-Pocket Limit
    A predetermined amount of money that an individual must pay before insurance will pay 100% for an individual’s health-care expenses.
  • Overall Liquidity Ratio
    Total admitted assets divided by total liabilities less conditional reserves. This ratio indicates a company’s ability to cover net liabilities with total assets. This ratio doesn’t address the quality and marketability of premium balances, affiliated investments and other uninvested assets.
  • Own Occupation
    Insurance contract provision that allows policyholders to collect benefits if they can no longer work in their own occupation.
  • Paid-Up Additional Insurance
    An option that allows the policyholder to use policy dividends and/or additional premiums to buy additional insurance on the same plan as the basic policy and at a face amount determined by the insured’s attained age.
  • Participation Rate
    In equity-indexed annuities, a participation rate determines how much of the gain in the index will be credited to the annuity. For example, the insurance company may set the participation rate at 80%, which means the annuity would only be credited with 80% of the gain experienced by the index.
  • penalty deductible
    In Michigan’s no fault insurance requirements for personal injury policies, a deductible penalty may be imposed by an insurer when the insured does not have additional health or accident coverage from a co-ordinated coverage plan that the insured had attested to having previously. Penalty Deductibles must be approved by the commisioner prior, and the commisioner … Continue reading penalty deductible
  • Peril
    The cause of a possible loss.
  • Personal Injury Protection(PIP)
    Pays basic expenses for an insured and his or her family in states with no-fault auto insurance. No-fault laws generally require drivers to carry both liability insurance and personal injury protection coverage to pay for basic needs of the insured, such as medical expenses, in the event of an accident.
  • Personal Lines
    Insurance for individuals and families, such as private-passenger auto and homeowners insurance.
  • Point-of-Service Plan
    Health insurance policy that allows the employee to choose between in-network and out-of-network care each time medical treatment is needed.
  • Policy
    The written contract effecting insurance, or the certificate thereof, by whatever name called, and including all clause, riders, endorsements, and papers attached thereto and made a part thereof.
  • Policy or Sales Illustration
    Material used by an agent and insurer to illustrate how a policy may perform under different conditions over a period of time.
  • Policyholder Dividend Ratio
    The ratio of dividends to policyholders related to net premiums earned.
  • Policyholder Surplus
    Owned by policyholders. Sum of paid in capital plus paid in and contributed surplus plus net earned surplus, and voluntary contingency reserves. The difference between total admitted assets and total liabilities.
  • Pre-Existing Condition
    A coverage limitation included in many health policies which states that certain physical or mental conditions, either previously diagnosed or which would normally be expected to require treatment prior to issue, will not be covered under the new policy for a specified period of time.
  • Preferred Auto
    Auto coverage for drivers who have never had an accident and operates vehicles according to law. Drivers are not a risk for any insurance company that writes auto insurance, and no insurance company would be afraid to take them on as risk.
  • Preferred Provider Organization
    Network of medical providers who charge on a fee-for-service basis, but are paid on a negotiated, discounted fee schedule.
  • Premium
    The price of insurance protection for a specified risk for a specified period of time.
  • Premium Balances
    Premiums and agents’ balances in course of collection; premiums, agents’ balances and installments booked but deferred and not yet due; bills receivable, taken for premiums and accrued retrospective premiums.
  • Premium Earned
    The amounts of the premium collected in advance that has been “earned” because time has elapsed without a claim. A two -year policy paid in advance would have only partly earned the premium collected when it is one year old.
  • Premium to Surplus Ratio
    This ratio is designed to measure the ability of the insurer to absorb above-average losses and the insurer’s financial strength. The ratio is computed by dividing net premiums written by surplus. An insurance company’s surplus is the amount by which assets exceed liabilities. The ratio is computed by dividing net premiums written by surplus. For … Continue reading Premium to Surplus Ratio
  • Premium Unearned
    That part of the premium applicable to the unexpired part of the policy period.
  • Pretax Operating Income
    Pretax operating earnings before any capital gains generated from underwriting, investment and other miscellaneous operating sources.
  • Pretax Return on Revenue – ROR
    A measure of a company’s operating profitability and is calculated by dividing pretax operating earnings by net premiums earned.
  • Private-Passenger Auto Insurance Policyholder Risk Profile
    This refers to the risk profile of auto insurance policyholders and can be divided into three categories: standard, nonstandard and preferred. In the eyes of an insurance company, it is the type of business (or the quality of driver) that the company has chosen to taken on.
  • Profit
    The amount that is retained by a company or individual after paying expenses and adjusted for debt and other liabilities. It is an indication of the competence of management and company strength when underwriters can offer competitive prices and still maintain a profit for both policyholders and stockholders.
  • Property Protection Insurance -PPI
    One part of the basic no-fault auto insurance required by Michigan Law. Pays your medical expenses if you are hurt in an auto accident, including wage loss and replacement services up to three years.
  • Qualified High-Deductible Health Plan -HDHP
    A health plan with lower premiums that covers health-care expenses only after the insured has paid each year a large amount out of pocket or from another source. To qualify as a health plan coupled with a Health Savings Account, the Internal Revenue Code requires the deductible to be at least $1,000 for an individual … Continue reading Qualified High-Deductible Health Plan -HDHP
  • Qualified Versus Non-Qualified Policies
    Qualified plans are those employee benefit plans that meet Internal Revenue Service requirements as stated in IRS Code Section 401a. When a plan is approved, contributions made by the employer are tax deductible expenses.
  • Qualifying Event
    An occurrence that triggers an insured’s protection.
  • Quick Assets
    Assets that are quickly convertible into cash.
  • Quick Liquidity Ratio
    Quick assets divided by net liabilities plus ceded reinsurance balances payable. Quick assets are defined as the sum of cash, unaffiliated short-term investments, unaffiliated bonds maturing within one year, government bonds maturing within five years, and 80% of unaffiliated common stocks. These assets can be quickly converted into cash in the case of an emergency.
  • Re-Entry
    Re-entry, which is the allowance for level-premium term policyowners to qualify for another level-premium period, generally with new evidence of insurability.
  • Reciprocal Insurance Exchange
    An unincorporated groups of individuals, firms or corporations, commonly termed subscribers, who mutually insure one another, each separately assuming his or her share of each risk. Its chief administrator is an attorney-in-fact.
  • Reinsurance
    Insurance that an insurance company buys for its own protection. Risk of loss is spread to avoid disproportionately large losses under a single policy falling on one company. Reinsurance allows insurance companies to expand, stabilizes its underwriting results, finance expanding volume, protect against shock losses, or withdraw from a line of business or a geographical … Continue reading Reinsurance
  • Reinsurance Ceded
    The unit of insurance transferred to a reinsurer by a ceding company.
  • Reinsurance Recoverables to Policyholder Surplus
    Measures a company’s dependence upon its reinsurers and the potential exposure to adjustments on such reinsurance. Its determined from the total ceded reinsurance recoverables due from non-U.S. affiliates for paid losses, unpaid losses, losses incurred but not reported (IBNR), unearned premiums and commissions less funds held from reinsurers expressed as a percent of policyholder surplus.
  • Renewal
    The automatic re-establishment of in-force status effected by the payment of another premium.
  • Replacement Cost
    The dollar amount needed to replace damaged personal property or dwelling property without deducting for depreciation but limited by the maximum dollar amount shown on the declarations page of the policy.
  • Reserve
    An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders. A reserve is usually treated as a liability.
  • Residual Benefit
    In disability insurance, a benefit paid when you suffer a loss of income due to a covered disability or if loss of income persists. This benefit is based on a formula specified in your policy and it is generally a percentage of the full benefit. It may be paid up to the maximum benefit period.
  • Return on Policyholder Surplus (Return on Equity)
    Measures a company’s overall after-tax profitability from underwriting and investment activity.
  • Risk Class
    Risk class, in insurance underwriting, is a grouping of insureds with a similar level of risk. Typical underwriting classifications are preferred, standard and substandard, smoking and nonsmoking, male and female.
  • Risk Management
    Management of the risks that a company might be subject to. Analysis of exposure to the possibility of loss and forumlating a plan on how to handle the exposure through avoidance, retention reduction or tranferrance of the risk, usually by insurance.
  • Risk Retention Groups
    Liability insurance companies owned by their policyholders. Membership is limited to people in the same business or activity, which exposes them to similar liability risks. The purpose is to assume and spread liability exposure to group members and to provide an alternative risk financing mechanism for liability. These entities are formed under the Liability Risk … Continue reading Risk Retention Groups
  • Secondary Market
    The secondary market is populated by buyers willing to pay what they determine to be fair market value. In Automobile Parts: The market for used or resold automobile parts. Some states regulate or ban this market being used to obtain parts for auto repairs
  • Section 1035 Exchange
    This refers to a part of the Internal Revenue Code that allows owners to replace a life insurance or annuity policy without creating a taxable event.
  • Section 7702
    Part of the Internal Revenue Code that defines the conditions a life policy must satisfy to qualify as a life insurance contract, which has tax advantages.
  • Separate Account
    A separate account is an investment option that is maintained separately from an insurer’s general account. Investment risk associated with separate-account investments is born by the contract owner.
  • Solvency
    Having sufficient assets–capital, surplus, reserves–and being able to satisfy financial requirements–investments, annual reports, examinations–to be eligible to transact insurance business and meet liabilities.
  • Standard Auto
    Auto insurance for average drivers with relatively few accidents during lifetime.
  • State of Domicile
    The state in which the company is incorporated or chartered. The company also is licensed (admitted) under the state’s insurance statutes for those lines of business for which it qualifies.
  • Statutory Reserve
    A reserve, either specific or general, that is required by law.
  • Stock Insurance Company
    An incorporated insurer with capital contributed by stockholders, to whom earnings are distributed as dividends on their shares.
  • Stop Loss
    Any provision in a policy designed to cut off an insurer’s losses at a given point.
  • Subaccount Charge
    The fee to manage a subaccount, which is an investment option in variable products that is separate from the general account.
  • Subrogation
    The right of an insurer who has taken over another’s loss also to take over the other person’s right to pursue remedies against a third party.
  • Successive Periods
    In hospital income protection, when confinements in a hospital are due to the same or related causes and are separated by less than a contractually stipulated period of time, they are considered part of the same period of confinement.
  • Surplus
    The amount by which assets exceed liabilities.
  • Surrender Charge
    Fee charged to a policyholder when a life insurance policy or annuity is surrendered for its cash value. This fee reflects expenses the insurance company incurs by placing the policy on its books, and subsequent administrative expenses.
  • Surrender Period
    A set amount of time during which you have to keep the majority of your money in an annuity contract. Most surrender periods last from five to 10 years. Most contracts will allow you to take out at least 10% a year of the accumulated value of the account, even during the surrender period. If … Continue reading Surrender Period
  • Term Life Insurance
    Life insurance that provides protection for a specified period of time. Common policy periods are one year, five years, 10 years or until the insured reaches age 65 or 70. The policy doesn’t build up any of the nonforfeiture values associated with whole life policies.
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  • The Michigan Department of Insurance and Financial Services (DIFS)
    The branch of Michigan state’s governement that is charged with overseeing and enforcing insurance and finance laws.
  • Tort
    A private wrong, independent of contract and committed against an individual, which gives rise to a legal liability and is adjudicated in a civil court. A tort can be either intentional or unintentional, and liability insurance is mainly purchased to cover unintentional torts.
  • Total Admitted Assets
    This item is the sum of all admitted assets, and are valued in accordance with state laws and regulations, as reported by the company in its financial statements filed with state insurance regulatory authorities. This item is reported net as to encumbrances on real estate (the amount of any encumbrances on real estate is deducted … Continue reading Total Admitted Assets
  • Total Annual Loan Cost
    The projected annual average cost of a reverse mortgage including all itemized costs.
  • Total Loss
    A loss of sufficient size that it can be said no value is left. The complete destruction of the property. The term also is used to mean a loss requiring the maximum amount a policy will pay.
  • Umbrella Policy
    Coverage for losses above the limit of an underlying policy or policies such as homeowners and auto insurance. While it applies to losses over the dollar amount in the underlying policies, terms of coverage are sometimes broader than those of underlying policies.
  • Unaffiliated Investments
    These investments represent total unaffiliated investments as reported in the exhibit of admitted assets. It is cash, bonds, stocks, mortgages, real estate and accrued interest, excluding investment in affiliates and real estate properties occupied by the company.
  • Underwriter
    1) The person or company which provides insurance to businesses and individuals. 2)Professional trained in the evaluation of risks and determining the proper rates and coverages.
  • Underwriting
    The selection of risks and classification of them according to a standard of insurability to determine rates and reject unqualified riskl
  • Underwriting Expense Ratio
    This represents the percentage of a company’s net premiums written that went toward underwriting expenses, such as commissions to agents and brokers, state and municipal taxes, salaries, employee benefits and other operating costs. The ratio is computed by dividing underwriting expenses by net premiums written. The ratio is computed by dividing underwriting expenses by net … Continue reading Underwriting Expense Ratio
  • Underwriting Expenses Incurred
    Expenses, including net commissions, salaries and advertising costs, which are attributable to the production of net premiums written.
  • Underwriting Guide
    Outlines the underwriting practices of insurance companies and provides specific guidance for underwriters in analyzing all of the applicants they might encounter. Also called an underwriting manual, underwriting guidelines, or manual of underwriting policy.
  • Unearned Premiums
    That part of the premium applicable to the unexpired part of the policy period.
  • Uninsured Motorist Coverage
    Automobile insurance that covers an insured if they have a collision with a driver who does not have liability insurance.
  • Universal Life Insurance
    A combination flexible premium, adjustable rates/benefits life insurance policy.
  • Usual, Customary and Reasonable Fees
    An amount customarily charged for or covered for similar services and supplies which are medically necessary, recommended by a doctor or required for treatment.
  • Utilization
    How much a covered group uses a particular health plan or program.
  • Valuation
    A calculation of the policy reserve in life insurance. Also, a mathematical analysis of the financial condition of a pension plan.
  • Valuation Reserve
    Funds that life insurance underwriters are required to maintain to protect against losses should their investments lose value or under-perform.
  • Variable Annuitization
    The act of converting a variable annuity from the accumulation phase to the payout phase.
  • Variable Life Insurance
    A form of life insurance whose face value fluctuates depending upon the value of the dollar, securities or other equity products supporting the policy at the time payment is due.
  • Variable Universal Life Insurance
    A combination of the features of variable life insurance and universal life insurance under the same contract. Benefits are variable based on the value of underlying equity investments, and premiums and benefits are adjustable at the option of the policyholder.
  • Viatical Settlement Provider
    Someone who serves as a sales agent, but does not actually purchase policies.
  • Viator
    The terminally ill person who sells his or her life insurance policy.
  • Voluntary Reserve
    An allocation of surplus not required by law. Insurers often accumulate such reserves to strengthen their financial structure.
  • Waiting Period
    See “elimination period.”
  • Waiver of Premium
    A provision in some insurances that lets an insurance company to waive the collection of premiums while still keeping the policy in force if the insured becomes unable to work due to accident or injury. The waiver of premium for disability remains in effect as long as the ensured is disabled.
  • Whole Life Insurance
    Life insurance which can be kept in force for the lifetime of the insured, and pays a benefit upon death, whenever that might be.
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