Glossary of Terms

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.

ACCOUNTS RECEIVABLE COVERAGE: Insures against loss to accounts receivable which may be uncollectible through damage to records caused by an insured peril. Included in this coverage is interest on loans to offset collections and additional expense resulting from impaired records. This coverage may be written on a monthly reporting basis for large risks or on a non-reporting form for smaller firms.

ACTUAL CASH VALUE: Where the amount payable under the insurance is the current replacement cost of the property new, reduced by an allowance for depreciation, wear and tear.

ACTUARY: A highly specialized mathematician professionally trained in the risk of aspects of insurance, whose functions include the calculations involved in determining insurance rates, evaluating reserves, and other aspects of insurance research.

ADDITIONAL INSURED: A person or entity other than the named insured who is covered under the policy, often for a specific interest.

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.

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 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.

ADVERTISERS’ LIABILITY: A general liability endorsement, frequently written in conjunction with personal injury, that covers all forms of advertising used by a business firm, and indemnifies to the extent of any final judgment for money damages resulting from libel, slander or defamation, infringement of copyright, title or slogan, piracy, unfair competition or misappropriation of ideas; an invasion of privacy alleged to have been committed in any public article, broadcast or telecast, all subject to policy exclusions.

AGENCY COMPANIES: That market and sell products via independent agents.

AGENT: All states have laws requiring all insurance agents to be licensed by the state to sell insurance. Agents may be one of two types: (1) An Exclusive Agent, who is a sales representative or sales employee of one and only one insurance company or its affiliated group of insurance companies, and seeks and services business exclusively for that company or group. (2) An Independent Agent, who usually represents two or more insurance companies or groups in a sales and service capacity as an independent businessperson.

AGGREGATE: Cumulative; when the total of all claims reaches the specified aggregate limit of a policy, coverage ceases at that limit.

“ALL RISKS” INSURANCE: Insurance that covers loss caused by all perils except those specifically excluded in the contract. The burden of proof that the peril causing the loss was excluded falls on the insurer.

ALTERNATIVE DISPUTE RESOLUTION / ADR:  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.

ANNUITANT: The person(s) 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 CONTRACT: A written agreement between an insurance company and a customer outlining each party’s obligations in an annuity coverage agreement. This document will include the specific details of the contract, such as the structure of the annuity (variable or fixed), any penalties for early withdrawal, spousal provisions such as a survivor clause and rate of spousal coverage, and more.

APPLICATION: The statement of information that a prospective insured gives when applying for an insurance policy and that an insurance company uses to help decide if it will issue the policy and what premium rate will be charged.

APPRAISAL: A determination of the value of property, or of the extent of damage, usually by impartial experts.

ARBITRATION: Determination by impartial experts of the value of property or the extent of damage. Many insurance policies provide for appraisals where the company and the insured cannot agree on the amount or the extent of a loss. Arbitration also may be used to resolve liability and policy coverage issues in certain situations.

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.

ATTRACTIVE NUISANCE: A dangerous place or instrumentality attractive to children, the owner of which has the legal duty of taking unusual care to guard them from it.

AUDIT: An examination of the books of accounts, vouchers and other records of a person, corporation, firm or other organization for the purpose of ascertaining the accuracy or inaccuracy of the records.

AVIATION INSURANCE: Coverage against aviation perils, primarily involving operation of aircraft and characterized by a constant exposure to potential catastrophe loss. Types of coverages include insurance for damage to the aircraft or bodily injury or death, Airport Liability, Hangarkeeper’s Liability, and Aviation Products Liability insurance.

BENEFITS: Amounts to be paid by the insurer under an insurance contract.

BINDER: A written or oral contract issued temporarily to place insurance in force immediately prior to issuance of a new policy or endorsement of an existing one. A binder is subject to payment of the premium and provides coverage under the terms of the policy to be issued, unless otherwise specified.

BLANKET COVERAGE: A Blanket form is one under which property is insured under a single amount applying to several different pieces of property rather than a specific amount of insurance on each property.

BODILY INJURY LIABILITY COVERAGE: This coverage protects an insured against legal liability for injury to another person arising from an accident.

BOILER AND MACHINERY INSURANCE: Often called Equipment Breakdown, or Systems Breakdown insurance. Commercial insurance that covers damage caused by the malfunction or breakdown of boilers, and a vast array of other equipment including air conditioners, heating, electrical, telephone, and computer systems.

BOND: A security that obligates the issuer to pay interest at specified intervals and to repay the principal amount of the loan at maturity. In insurance, a form of suretyship. Bonds of various types guarantee a payment or a reimbursement for financial losses resulting from dishonesty, failure to perform and other acts.

BROKER: A representative of the insured in placing insurance with companies. He or she is paid a commission by the company or its agent.

BURGLARY: The loss of property due to theft when there is visible evidence of forcible entry to the exterior of the building.

BUSINESS AUTOMOBILE COVERAGE: Insurance for motor vehicles. This includes ordinarily both physical damage and liability coverage.

BUSINESS INTERRUPTION: Coverage for business income if a fire or other insured peril forces closure.

BUSINESSOWNERS POLICY / BOP: A policy that combines property, liability and business interruption coverages for small- to medium-sized businesses. Coverage is generally cheaper than if purchased through separate insurance policies

CAPTIVES: Insurers that are created and wholly-owned by one or more non-insurers, to provide owners with coverage. A form of self-insurance.

CARRIER: The insurance company or the one who agrees to pay the losses. The carrier may be organized as a stock or mutual company, a reciprocal exchange, as an association of underwriters, or a state fund.

CASUALTY INSURANCE: Insurance primarily concerned with the legal liability for losses caused by injury to persons or damage to property of others.

CASTROPHE: A single event causing numerous insured losses exceeding a large specified total-cost level set by the individual insurance company. Normally a company would have reinsurance for loss payments in excess of the specified amount. Tornadoes, hurricanes and other violent weather are the most common catastrophe causes.

CERTIFICATE OF INSURANCE: A document serving as evidence that the policy referenced thereon is in existence.

CLAIMS-MADE POLICY A: form of insurance that pays claims presented to the insurer during the term of the policy or within a specific term after its expiration. It limits liability insurers’ exposure to unknown future liabilities.

COBRA: Short for Consolidated Omnibus Budget Reconciliation Act. A federal law under which group health plans sponsored by employers with 20 or more employees must offer continuation of coverage to employees who leave their jobs and their dependents. The employee must pay the entire premium. Coverage can be extended up to 18 months. Surviving dependents can receive longer coverage.

COINSURANCE: In property insurance, requires the policyholder to carry insurance equal to a specified percentage of the value of property to receive full payment on a loss. For health insurance, it is a percentage of each claim above the deductible paid by the policyholder. For a 20 percent health insurance coinsurance clause, the policyholder pays for the deductible plus 20 percent of his covered losses. After paying 80 percent of losses up to a specified ceiling, the insurer starts paying 100 percent of losses.

COLLISION COVERAGE: Portion of an auto insurance policy that covers the damage to the policyholder’s car from a collision.

COMMERCIAL GENERAL LIABILITY INSURANCE/CGL: A broad commercial policy that covers all liability exposures of a business that are not specifically excluded. Coverage includes product liability, completed operations, premises and operations, and independent contractors.

COMPETITIVE STATE FUND: A facility established by a state to sell workers compensation in competition with private insurers.

COMPREHENSIVE COVERAGE: Portion of an auto insurance policy that covers damage to the policyholder’s car not involving a collision with another car (including damage from fire, explosions, earthquakes, floods, and riots), and theft.

CONTINGENT LIABILITY: Liability of individuals, corporations, or partnerships for accidents caused by people other than employees for whose acts or omissions the corporations or partnerships are responsible.

DECLARATION:  Part of a property or liability insurance policy that states the name and address of policyholder, property insured, its location and description, the policy period, premiums, and supplemental information. Referred to as the “dec page.”

DEDUCTIBLE: The amount of loss paid by the policyholder. Either a specified dollar amount, a percentage of the claim amount, or a specified amount of time that must elapse before benefits are paid. The bigger the deductible, the lower the premium charged for the same coverage.

DIRECT WRITERS: Insurance companies that sell directly to the public using exclusive agents or their own employees, through the mail, or via Internet. Large insurers, whether predominately direct writers or agency companies, are increasingly using many different channels to sell insurance. In reinsurance, denotes reinsurers that deal directly with the insurance companies they reinsure without using a broker.

DIRECTORS AND OFFICERS LIABILITY INSURANCE/D&O: Covers directors and officers of a company for negligent acts or omissions, and for misleading statements that result in suits against the company, often by shareholders. Directors and officers insurance policies usually contain two coverages: personal coverage for individual directors and officers who are not indemnified by the corporation for their legal expenses or judgments against them – some corporations are not required by their corporate or state charters to provide indemnification; and corporate reimbursement coverage for indemnifying directors and officers. Entity coverage for claims made specifically against the company may also be available.

EARNED PREMIUM: The portion of premium that applies to the expired part of the policy period. Insurance premiums are payable in advance but the insurance company does not fully earn them until the policy period expires.

ECONOMIC LOSS: Total financial loss resulting from the death or disability of a wage earner, or from the destruction of property. Includes the loss of earnings, medical expenses, funeral expenses, the cost of restoring or replacing property, and legal expenses. It does not include noneconomic losses, such as pain caused by an injury.

ELIMINATION PERIOD: A kind of deductible or waiting period usually found in disability policies. It is counted in days from the beginning of the illness or injury.

EMPLOYEE DISHONESTY COVERAGE: Covers direct losses and damage to businesses resulting from the dishonest acts of employees.

EMPLOYEE RETIREMENT INCOME SECURITY ACT/ERISA: Federal legislation that protects employees by establishing minimum standards for private pension and welfare plans.

EMPLOYER’S LIABILITY: Part B of the workers compensation policy that provides coverage for lawsuits filed by injured employees who, under certain circumstances, can sue under common law.

EMPLOYMENT PRACTICES LIABILITY COVERAGE: Liability insurance for employers that covers wrongful termination, discrimination, or sexual harassment toward the insured’s employees or former employees.

ENDORSEMENT: A written form attached to an insurance policy that alters the policy’s coverage, terms, or conditions. Sometimes called a rider.

ENVIRONMENTAL IMPAIRMENT LIABILITY COVERAGE: A form of insurance designed to cover losses and liabilities arising from damage to property caused by pollution.

EQUITY INDEXED ANNUITY: Non-traditional fixed annuity. The specified rate of interest guarantees a fixed minimum rate of interest like traditional fixed annuities. At the same time, additional interest may be credited to policy values based upon positive changes, if any, in an established index such as the S&P 500. The amount of additional interest depends upon the particular design of the policy. They are sold by licensed insurance agents and regulated by state insurance departments.

ERRORS AND OMISSIONS COVERAGE / E&O: A professional liability policy covering the policyholder for negligent acts and omissions that may harm his or her clients.

EXCESS AND SURPLUS LINES: Property/casualty coverage that isn’t available from insurers licensed by the state (called admitted insurers) and must be purchased from a non-admitted carrier.

EXCLUSION: A provision in an insurance policy that eliminates coverage for certain risks, people, property classes, or locations.

EXPERIENCE: Record of losses.

EXPOSURE: Possibility of loss.

FIDELITY BOND: A form of protection that covers policyholders for losses that they incur as a result of fraudulent acts by specified individuals. It usually insures a business for losses caused by the dishonest acts of its employees.

FIDUCIARY BOND: A type of surety bond, sometimes called a probate bond, which is required of certain fiduciaries, such as executors and trustees, that guarantees the performance of their responsibilities.

FIRST-PARTY COVERAGE: Coverage for the policyholder’s own property or person. In no-fault auto insurance it pays for the cost of injuries. In no-fault states with the broadest coverage, the personal injury protection (PIP) part of the policy pays for medical care, lost income, funeral expenses and, where the injured person is not able to provide services such as child care, for substitute services.

FIXED ANNUITY: An annuity that guarantees a specific rate of return. In the case of a deferred annuity, a minimum rate of interest is guaranteed during the savings phase. During the payment phase, a fixed amount of income, paid on a regular schedule, is guaranteed.

FLOATER: Attached to a homeowners policy, a floater insures movable property, covering losses wherever they may occur. Among the items often insured with a floater are expensive jewelry, musical instruments, and furs. It provides broader coverage than a regular homeowners policy for these items.

FLOOD INSURANCE: Coverage for flood damage is available from the federal government under the National Flood Insurance Program but is sold by licensed insurance agents. Flood coverage is excluded under homeowners policies and many commercial property policies. However, flood damage is covered under the comprehensive portion of an auto insurance policy

FRAUD: Intentional lying or concealment by policyholders to obtain payment of an insurance claim that would otherwise not be paid, or lying or misrepresentation by the insurance company managers, employees, agents, and brokers for financial gain.

INCURRED BUT NOT REPORTED LOSSES / IBNR: Losses that are not filed with the insurer or reinsurer until years after the policy is sold. Some liability claims may be filed long after the event that caused the injury to occur. Asbestos-related diseases, for example, do not show up until decades after the exposure. IBNR also refers to estimates made about claims already reported but where the full extent of the injury is not yet known, such as a workers compensation claim where the degree to which work-related injuries prevents a worker from earning what he or she earned before the injury unfolds over time. Insurance companies regularly adjust reserves for such losses as new information becomes available.

INCURRED LOSSES: Losses occurring within a fixed period, whether or not adjusted or paid during the same period.

INDEMNIFY: Provide financial compensation for losses.

INDEPENDENT AGENT who is self-employed, is paid on commission, and represents several insurance companies.

INSURABLE RISK: Risks for which it is relatively easy to get insurance and that meet certain criteria. These include being definable, accidental in nature, and part of a group of similar risks large enough to make losses predictable. The insurance company also must be able to come up with a reasonable price for the insurance.

INSURANCE: A system to make large financial losses more affordable by pooling the risks of many individuals and business entities and transferring them to an insurance company or other large group in return for a premium.

KEY PERSON INSURANCE: Insurance on the life or health of a key individual whose services are essential to the continuing success of a business and whose death or disability could cause the firm a substantial financial loss.

LIABILITY INSURANCE: Insurance for what the policyholder is legally obligated to pay because of bodily injury or property damage caused to another person

LIMITS: Maximum amount of insurance that can be paid for a covered loss.

LLOYD’S OF LONDON: A marketplace where underwriting syndicates, or mini-insurers, gather to sell insurance policies and reinsurance. Each syndicate is managed by an underwriter who decides whether or not to accept the risk. The Lloyd’s market is a major player in the international reinsurance market as well as a primary market for marine insurance and large risks. Originally, Lloyd’s was a London coffee house in the 1600s patronized by shipowners who insured each other’s hulls and cargoes. As Lloyd’s developed, wealthy individuals, called “Names,” placed their personal assets behind insurance risks as a business venture. Increasingly since the 1990s, most of the capital comes from corporations.

LONG-TERM CARE INSURANCE: Long-term care (LTC) insurance pays for services to help individuals who are unable to perform certain activities of daily living without assistance, or require supervision due to a cognitive impairment such as Alzheimer’s disease. LTC is available as individual insurance or through an employer-sponsored or association plan.

LOSS: A reduction in the quality or value of a property, or a legal liability.

LOSS OF USE: A provision in homeowners and renters insurance policies that reimburses policyholders for any extra living expenses due to having to live elsewhere while their home is being restored following a disaster.

LOSS RATIO: Percentage of each premium dollar an insurer spends on claims.

MARINE INSURANCE: Coverage for goods in transit, and for the commercial vehicles that transport them, on water and over land. The term may apply to inland marine but more generally applies to ocean marine insurance. Covers damage or destruction of a ship’s hull and cargo and perils include collision, sinking, capsizing, being stranded, fire, piracy, and jettisoning cargo to save other property. Wear and tear, dampness, mold, and war are not included. (See Inland marine and Ocean marine)

NOTICE OF LOSS: A written notice required by insurance companies immediately after an accident or other loss. Part of the standard provisions defining a policyholder’s responsibilities after a loss.

OCCURRENCE POLICY: Insurance that pays claims arising out of incidents that occur during the policy term, even if they are filed many years later.

OCEAN MARINE INSURANCE: Coverage of all types of vessels and watercraft, for property damage to the vessel and cargo, including such risks as piracy and the jettisoning of cargo to save the property of others. Coverage for marine-related liabilities. War is excluded from basic policies, but can be bought back.

PACKAGE POLICY: A single insurance policy that combines several coverages previously sold separately. Examples include homeowners insurance and commercial multiple peril insurance.

PENSION BENEFIT GUARANTY CORPORATION: An independent federal government agency that administers the Pension Plan Termination Insurance program to ensure that vested benefits of employees whose pension plans are being terminated are paid when they come due. Only defined benefit plans are covered. Benefits are paid up to certain limits

PERSONAL LINES: Property/casualty insurance products that are designed for and bought by individuals, including homeowners and automobile policies.

POLICY: A written contract for insurance between an insurance company and policyholder stating details of coverage.

POLLUTION INSURANCE: Policies that cover property loss and liability arising from pollution-related damages, for sites that have been inspected and found uncontaminated. It is usually written on a claims-made basis so policies pay only claims presented during the term of the policy or within a specified time frame after the policy expires.

PREFERRED PROVIDER ORGANIZATION: Network of medical providers which charge on a fee-for-service basis, but are paid on a negotiated, discounted fee schedule.

PRODUCT LIABILITY: A section of tort law that determines who may sue and who may be sued for damages when a defective product injures someone. No uniform federal laws guide manufacturer’s liability, but under strict liability, the injured party can hold the manufacturer responsible for damages without the need to prove negligence or fault.

PRODUCT LIABILITY INSURANCE: Protects manufacturers’ and distributors’ exposure to lawsuits by people who have sustained bodily injury or property damage through the use of the product.

PROFESSIONAL LIABILITY INSURANCE: Covers professionals for negligence and errors or omissions that injure their clients.

PROOF OF LOSS: Documents showing the insurance company that a loss occurred.

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

PURCHASING GROUP: An entity that offers insurance to groups of similar businesses with similar exposures to risk.

RATE: The cost of a unit of insurance, usually per $1,000. Rates are based on historical loss experience for similar risks and may be regulated by state insurance offices.

RATING AGENCIES: Six major credit agencies determine insurers’ financial strength and viability to meet claims obligations. They are A.M. Best Co.; Duff & Phelps Inc.; Fitch, Inc.; Moody’s Investors Services; Standard & Poor’s Corp.; and Weiss Ratings, Inc. Factors considered include company earnings, capital adequacy, operating leverage, liquidity, investment performance, reinsurance programs, and management ability, integrity and experience. A high financial rating is not the same as a high consumer satisfaction rating

REINSURANCE: Insurance bought by insurers. A reinsurer assumes part of the risk and part of the premium originally taken by the insurer, known as the primary company. Reinsurance effectively increases an insurer’s capital and therefore its capacity to sell more coverage. The business is global and some of the largest reinsurers are based abroad. Reinsurers have their own reinsurers, called retrocessionaires. Reinsurers don’t pay policyholder claims. Instead, they reimburse insurers for claims paid.

RISK MANAGEMENT: Management of the varied risks to which a business firm or association might be subject. It includes analyzing all exposures to gauge the likelihood of loss and choosing options to better manage or minimize loss. These options typically include reducing and eliminating the risk with safety measures, buying insurance, and self-insurance.

RISK RETENTION GROUPS: Insurance companies that band together as self-insurers and form an organization that is chartered and licensed as an insurer in at least one state to handle liability insurance.

SALVAGE: Damaged property an insurer takes over to reduce its loss after paying a claim. Insurers receive salvage rights over property on which they have paid claims, such as badly-damaged cars. Insurers that paid claims on cargoes lost at sea now have the right to recover sunken treasures. Salvage charges are the costs associated with recovering that property.

SELF-INSURANCE: The concept of assuming a financial risk oneself, instead of paying an insurance company to take it on. Every policyholder is a self-insurer in terms of paying a deductible and co-payments. Large firms often self-insure frequent, small losses such as damage to their fleet of vehicles or minor workplace injuries. However, to protect injured employees state laws set out requirements for the assumption of workers compensation programs. Self-insurance also refers to employers who assume all or part of the responsibility for paying the health insurance claims of their employees. Firms that self insure for health claims are exempt from state insurance laws mandating the illnesses that group health insurers must cover.

STRUCTURED SETTLEMENT: Legal agreement to pay a designated person, usually someone who has been injured, a specified sum of money in periodic payments, usually for his or her lifetime, instead of in a single lump sum payment

SUBROGATION: The legal process by which an insurance company, after paying a loss, seeks to recover the amount of the loss from another party who is legally liable for it.

SURETY BOND: A contract guaranteeing the performance of a specific obligation. Simply put, it is a three-party agreement under which one party, the surety company, answers to a second party, the owner, creditor or “obligee,” for a third party’s debts, default or nonperformance. Contractors are often required to purchase surety bonds if they are working on public projects. The surety company becomes responsible for carrying out the work or paying for the loss up to the bond “penalty” if the contractor fails to perform.

SURPLUS: The remainder after an insurer’s liabilities are subtracted from its assets. The financial cushion that protects policyholders in case of unexpectedly high claims

SURPLUS LINES: Property/casualty insurance coverage that isn’t available from insurers licensed in the state, called admitted companies, and must be purchased from a non-admitted carrier. Examples include risks of an unusual nature that require greater flexibility in policy terms and conditions than exist in standard forms or where the highest rates allowed by state regulators are considered inadequate by admitted companies. Laws governing surplus lines vary by state.

SURRENDER CHARGE: A charge for withdrawals from an insurance based contract before a designated surrender charge period.

TERM INSURANCE: A form of life insurance that covers the insured person for a certain period of time, the “term” that is specified in the policy. It pays a benefit to a designated beneficiary only when the insured dies within that specified period which can be one, five, 10 or even 20 years. Term life policies are renewable but premiums increase with age.

TERRITORIAL RATING: A method of classifying risks by geographic location to set a fair price for coverage. The location of the insured may have a considerable impact on the cost of losses. The chance of an accident or theft is much higher in an urban area than in a rural one, for example.

TERRORISM COVERAGE: Included as a part of the package in standard commercial insurance policies before September 11, 2001 virtually free of charge. Since September 11, terrorism coverage prices have increased substantially to reflect the current risk.

THIRD-PARTY ADMINISTRATOR: Outside group that performs clerical functions for an insurance company.

THIRD-PARTY COVERAGE: Liability coverage purchased by the policyholder as a protection against possible lawsuits filed by a third party. The insured and the insurer are the first and second parties to the insurance contract.

TITLE INSURANCE: Insurance that indemnifies the owner of real estate in the event that his or her clear ownership of property is challenged by the discovery of faults in the title.

TORT: A legal term denoting a wrongful act resulting in injury or damage on which a civil court action, or legal proceeding, may be based.

TORT LAW: The body of law governing negligence, intentional interference, and other wrongful acts for which civil action can be brought, except for breach of contract, which is covered by contract law.

TORT REFORM: Refers to legislation designed to reduce liability costs through limits on various kinds of damages and through modification of liability rules.

TOTAL LOSS: The condition of an automobile or other property when damage is so extensive that repair costs would exceed the value of the vehicle or property.

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.

UNDERWRITING: Examining, accepting, or rejecting insurance risks and classifying the ones that are accepted, in order to charge appropriate premiums for them.

UNEARNED PREMIUM: The portion of a premium already received by the insurer under which protection has not yet been provided. The entire premium is not earned until the policy period expires, even though premiums are typically paid in advance.

UNIVERSAL LIFE INSURANCE: A flexible premium policy that combines protection against premature death with a type of savings vehicle, known as a cash value account, that typically earns a money market rate of interest. Death benefits can be changed during the life of the policy within limits, generally subject to a medical examination. Once funds accumulate in the cash value account, the premium can be paid at any time but the policy will lapse if there isn’t enough money to cover annual mortality charges and administrative costs.

VARIABLE ANNUITY:  An annuity whose contract value or income payments vary according to the performance of the stocks, bonds and other investments selected by the contract owner.

VARIABLE LIFE INSURANCE: A policy that combines protection against premature death with a savings account that can be invested in stocks, bonds, and money market mutual funds at the policyholder’s discretion.

WAIVER: The surrender of a right or privilege. In life insurance, a provision that sets certain conditions, such as disablement, which allow coverage to remain in force without payment of premiums.

WATER-DAMAGE INSURANCE COVERAGE: Protection provided in most homeowners insurance policies against sudden and accidental water damage, from burst pipes for example. Does not cover damage from problems resulting from a lack of proper maintenance such as dripping air conditioners. Water damage from floods is covered under separate flood insurance policies issued by the federal government.

WHOLE LIFE: Insurance which provides coverage for an individual’s whole life, rather than a specified term. The oldest kind of cash value life insurance that combines protection against premature death with a savings account. Premiums are fixed and guaranteed and remain level throughout the policy’s lifetime.

WORKERS COMPENSATION: Insurance that pays for medical care and physical rehabilitation of injured workers and helps to replace lost wages while they are unable to work. State laws, which vary significantly, govern the amount of benefits paid and other compensation provisions.

WRAP-UP INSURANCE: Broad policy coordinated to cover liability exposures for a large group of businesses that have something in common. Might be used to insure all businesses working on a large construction project, such as an apartment complex.

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