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. (See 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. (See Double
indemnity benefit)
ACCOUNT RECEIVABLES
See Receivables
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. (See Dividend)
ACTUAL CASH VALUE
A form of insurance that pays damages equal to the replacement value
of damaged property minus depreciation. (See Replacement cost)
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. (See Dividend; Policy dividend options)
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. (See 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.
AFTERMARKET PARTS
See Crash parts; Generic auto parts
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. (See Payout options)
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. (See Gross annuity cost; Income
date; Net annuity cost)
ANNUITY DATE*
See Income date
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. (See Admitted assets)
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.
(See Residual 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. (See Absolute assignment; Collateral assignment)
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. (See Insurance score)
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.
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