Glossary of Insurance Terms

Major medical policies - Health care policies that usually cover both hospital stays and physicians´ services in and out of the hospital.

Managed health care - A system that organizes physicians, hospitals, and other health care providers into networks with the goal of lowering costs while still providing appropriate medical services. Many managed care systems focus on preventive care and case management to avoid treating more costly illnesses.

Mandated benefits - Health care benefits that state or federal law says must be included in health care plans.

Mandated offerings - Health care benefits that must be offered to the employer or organization sponsoring a group policy. The sponsor is not required to include the benefits in its group plan.
Market value - The current value of your home, including the price of land.

Material misrepresentation - A significant misstatement on an application form. If a company had access to the correct information at the time of application, the company might not have agreed to accept the application.

Glossary of Insurance Terms

Laddering - Purchasing bond investments that mature at different time intervals. 

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 - The amount an insurance company will pay based on its determination of cost for a particular procedure. 

Leverage or Capitalization - 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.

Liability - Broadly, any legally enforceable obligation. The term is most commonly used in a pecuniary sense. 

Liability Insurance - Insurance that pays and renders service on behalf of an insured for loss arising out of his responsibility, due to negligence, to others imposed by law or assumed by contract.

Glossary of Insurance Terms

Key-Persons Insurance - a policy purchased by, for the benefit of, a business insuring the life or lives of personnel integral to the business operations.

Kidnap/Ransom Insurance - coverage for ransom or extortion costs and related expenses.

Glossary of Insurance Terms

Justified complaint - A complaint that exposes an apparent violation of a policy provision, contract provision, rule, or statute; or which indicates a practice or service that a prudent layperson would regard as below customary business or medical standards.



Joint and Last Survivor Annuity - retirement plan that continues to payout so long as at least one, of two or more, annuitants is alive. 

Joint Underwriting Association (JUA) - a loss-sharing mechanism combining several insurance companies to provide extra capacity due to type or size of exposure. 

Joint-Life Annuity - an annuity contract that ceases upon the death of the first of two or more annuitants.

Glossary of Insurance Terms

Impaired Insurer - An insurer which is in financial difficulty to the point where its ability to meet financial obligations or regulatory requirements is in question.

Indemnity - Restoration to the victim of a loss by payment, repair or replacement. 

Independent Insurance Agents & Brokers of America (IIABA) - Formerly the Independent Insurance Agents of America (IIAA), this is a member organization of independent agents and brokers monitoring and affecting industry issues. Numerous state associations are affiliated with the IIABA.

Income Taxes - Incurred income taxes (including income taxes on capital gains) reported in each annual statement for that year.

Inflation Protection - An optional property coverage endorsement offered by some insurers that increases the policy's limits of insurance during the policy term to keep pace with inflation.
Insurable Interest - Interest in property such that loss or destruction of the property could cause a financial loss. 

Glossary of Insurance Terms

Hazard - A circumstance that increases the likelihood or probable severity of a loss. For example, the storing of explosives in a home basement is a hazard that increases the probability of an explosion.

Hazardous Activity - Bungee jumping, scuba diving, horse riding and other activities not generally covered by standard insurance policies. For insurers that do provide cover for such activities, it is unlikely they will cover liability and personal accident, which should be provided by the company hosting the activity.

Health Maintenance Organization (HMO) - Prepaid group health insurance plan that entitles members to services of participating physicians, hospitals and clinics. Emphasis is on preventative medicine, and members must use contracted health-care providers.

Health Reimbursement Arrangement - Owners of high-deductible health plans who are not qualified for a health savings account can use an HRA. 

Health Savings Account - Plan that allows you to contribute pre-tax money to be used for qualified medical expenses. HSAs, which are portable, must be linked to a high-deductible health insurance policy. 

Hurricane Deductible - Amount you must pay out-of-pocket before hurricane insurance will kick in. Many insurers in hurricane-prone states are selling homeowners insurance policies with percentage deductibles for storm damage, instead of the traditional dollar deductibles used for claims such as fire and theft. Percentage deductibles vary from one percent of a home's insured value to 15 percent, depending on many factors that differ by state and insurer.

Glossary of Insurance Terms

General Account - All premiums are paid into an insurer's general account. Thus, buyers are subject to credit-risk exposure to the insurance company, which is low but not zero.

General Liability Insurance -Insurance designed to protect business owners and operators from a wide variety of liability exposures. Exposures could include liability arising from accidents resulting from the insured's premises or operations, products sold by the insured, operations completed by the insured, and contractual liability. 

Grace Period - The length of time (usually 31 days) after a premium is due and unpaid during which the policy, including all riders, remains in force. If a premium is paid during the grace period, the premium is considered to have been paid on time. In Universal Life policies, it typically provides for coverage to remain in force for 60 days following the date cash value becomes insufficient to support the payment of monthly insurance costs. 

Gross Leverage - The sum of net leverage and ceded reinsurance leverage. This ratio measures a company's gross exposure to pricing errors in its current book of business, to errors of estimating its liabilities, and exposure to its reinsurers.

Guaranteed Insurability Option - See "future purchase option."

Guaranteed Issue Right - The right to purchase insurance without physical examination; the present and past physical condition of the applicant are not considered.

Guaranteed Renewable - A policy provision in many products which guarantees the policyowner the right to renew coverage at every policy anniversary date. The company does not have the right to cancel coverage except for nonpayment of premiums by the policyowner; however, the company can raise rates if they choose.

Guaranty Association - An organization of life insurance companies within a state responsible for covering the financial obligations of a member company that becomes insolvent.

Glossary of Insurance Terms

File-and-Use Rating Laws - State-based laws which permit insurers to adopt new rates without the prior approval of the insurance department. Usually insurers submit their new rates with supporting statistical data. 

Financing Entity - Provides money for purchases.

Floater - A separate policy available to cover the value of goods beyond the coverage of a standard renters insurance policy including movable property such as jewelry or sports equipment. 

Future Purchase Option - Life and health insurance provisions that guarantee the insured the right to buy additional coverage without proving insurability. Also known as "guaranteed insurability option."

Glossary of Insurance Terms

 Earned Premium - The amount of the premium that as been paid for in advance that has been "earned" by virtue of the fact that time has passed without claim. A three-year policy that has been paid in advance and is one year old would have only partly earned the premium.

Elimination Period - The time which must pass after filing a claim before policyholder can collect insurance benefits. Also known as "waiting period."

Employers Liability Insurance - Coverage against common law liability of an employer for accidents to employees, as distinguished from liability imposed by a workers' compensation law.

Encumbrance - A claim on property, such as a mortgage, a lien for work and materials, or a right of dower. The interest of the property owner is reduced by the amount of the encumbrance.

Exclusions - Items or conditions that are not covered by the general insurance contract.

Expense Ratio - The ratio of underwriting expenses (including commissions) to net premiums written. This ratio measures the company's operational efficiency in underwriting its book of business.

Exposure - Measure of vulnerability to loss, usually expressed in dollars or units.

Extended Replacement Cost - This option extends replacement cost loss settlement to personal property and to outdoor antennas, carpeting, domestic appliances, cloth awnings, and outdoor equipment, subject to limitations on certain kinds of personal property; includes inflation protection coverage.