Glossary of Insurance Terms
This page provides a glossary of insurance terms and
definitions that are commonly used in the insurance
business. New terms will be added to the glossary over
time.
The definitions in this glossary are developed by the
NAIC Research staff based on various insurance
reference sources available to the Research
Department. These definitions represent a common or
general use of the term. Some words and/or phrases may
be defined differently by other entities, or used in a
context such that the definition shown may not be
applicable.
(Click
on the letter to view terms beginning with that
alphabet.)
A
| B | C |
D | E |
F | G | H |
I | J |
K | L | M
N | O |
P | Q | R |
S | T |
U | V | W |
X | Y |
Z
A
ACT OF GOD - An unpreventable accident or event that
is the result of natural causes; for example, floods,
earthquakes, or lightning.
ANTISELECTION
– The tendency of individuals who believe they have a
greater than average likelihood of loss to seek
insurance protection to a greater extent than do those
who believe they have an average or a less than
average likelihood of loss.
APPRAISAL - A survey by a claims representative or
claims appraiser estimating the amount of damage to
property and the cost to repair or the determination
of a complete loss.
ASSESSED VALUE - The monetary worth of real or
personal property as a basis for its taxation. This
value, established by a governmental agency, is rarely
used by insurers as a means to determine
indemnification.
ASSET RISK – a measure of an asset's default of
principal or interest or fluctuation in market value
as a result of changes in the market.
AUTHORIZED
CONTROL LEVEL RISKED BASED CAPITAL – insurance
company’s theoretical capital amount and surplus that
is should maintain.
AVALANCHE
- A slippage of built-up snow down an
incline possibly mixed with ice, rock, and soil or
plant life in what is called a debris avalanche.
Avalanches are a major danger in the mountains during
the winter as a large one can run for miles, and can
create massive destruction of the lowered forest and
anything else in its path.
Back to the Top
BENEFICIARY – The person or party named by the owner
of a life insurance policy to receive the policy
benefit.
BCEGS - Building Code Effectiveness
Grading Schedule. A classification of communities by
the Insurance Services Office based on how well they
have implemented and enforced building codes in their
community.
BROAD FORM INSURANCE - Coverage for numerous perils.
Back to the Top
CASH VALUE – The savings element of a permanent life
insurance policy, which represents the policy owner’s
interest in the policy.
CATACLYSM
- Any great upheaval that causes sudden and
violent changes, as an earthquake, war, great flood,
etc. (New World)
CATASTROPHIC RISK - The risk of a
large loss by reason of the occurrence of a peril to
which a very large number of insured are subject.
(Gloss.)
CATASTROPHIC
LOSS- Damage resulting from a catastrophe.
CATEX
- An exchange through which insurers trade
"standardized catastrophe units."
COINSURANCE CLAUSE - A clause requiring the insured to
maintain insurance on the property at least equal to a
stipulated percentage of its value in order to collect
partial losses in full.
CONCENTRATION FACTOR – all companies are subject to an
asset concentration factor that reflects the
additional risk of high concentrations in single
exposures
CONSUMER PRICE INDEX - An index of consumer prices
based on the typical market basket of goods and
services consumed by all urban consumers during a base
period.
CONTINGENT BENEFICIARY – The party designated to
receive proceeds of a life insurance policy following
the insured’s death if the primary beneficiary
predeceased the insured.
CONVERTIBLE
TERM INSURANCE POLICY – A term life insurance policy
that gives the policy owner the right to convert the
policy to a permanent plan of insurance.
CORRECTIVE
ORDER – an order issued by the commissioner specifying
corrective actions that the commissioner has
determined are required.
CREDIT RISK –
a measure of the default risk on amounts that is due
from policyholders, reinsures or creditors.
Back to the Top
DIASTER - A natural or man-made event
that negatively affects life, property, livelihood or
industry often resulting in permanent changes to human
societies, ecosystems and the environment.
DECLINED RISK – A proposed insured who is considered
to present a risk that is too great for an insurer to
cover.
DIRECT WRITTEN PREMIUM - The total premiums received
by a property and liability insurance company without
any adjustments for the ceding of any portion of these
premiums to the reinsures.
DIRECT INCURRED LOSS - The property loss in which the
insured peril is the proximate cause of damage or
destruction.
DROUGHT - A drought is a long lasting
weather pattern consisting of dry conditions with very
little or no precipitation. During this period, food
and water supplies can run low, and other conditions,
such as famine, can result. Droughts can last for
several years and particularly damaging in areas where
residents depend on agriculture for survival.
Back to the Top
EARTHQUAKE - A sudden shift or
movement in the tectonic plate in the Earth’s crust.
On the surface, this is manifested by a moving and
shaking of the ground, and can be massively damaging
to poorly built structures.
EVIDENCE OF
INSURABILITY – Proof that a person is an insurable
risk.
EXCLUSIONS, HOMEOWNERS INSURANCE - Part of an
insurance contract that excludes coverage of certain
perils, persons, property or locations.
EXPERIENCE RATING – A method of calculating group
insurance premium rates by which the insurer considers
the particular group’s prior claims and expense
experience.
Back to the Top
FACE AMOUNT – The amount of the death benefit payable
under a life insurance policy.
FEMA -
Federal Emergency Management Agency - A former
independent agency that became part of the new
Department of Homeland Security in March 2003 - is
tasked with responding to, planning for, recovering
from and mitigating against disasters
FLOODPLAIN
- A land area adjacent to a river, stream,
lake, estuary or other water body that is subject to
flooding. These areas, if left undisturbed, act to
store excess floodwater.
FRIENDLY FIRE - Fire intentionally set in a fireplace,
stove, furnace or other containment that has not
spread beyond it.
FREE LOOK
PROVISION – An individual life insurance and annuity
provision that gives the policy owner a stated time,
usually 10 days after the policy is delivered, in
which to cancel the policy and receive a full refund
on the initial premium payment.
Back to the Top
GRACE PERIOD
– A specified length of time within which a renewal
premium that is due may be paid without penalty.
Back to the Top
HURRICANE - A hurricane is a low pressure cyclonic
storm system which forms over the oceans. It is
caused by evaporated water which comes off of the
ocean and becomes a storm. The Coriolis Effect causes
the storms to spin, and a hurricane is declared when
this spinning mass of storms attains a wind speed
greater than 74mph.
Back to the Top
INSURANCE TO VALUE - The amount of insurance written
on property is approximately equal to its value. An
insured most always wants to insure all property to
value.
INCONTESTABILITY PROVISION – An insurance and annuity
provision that limits the time within which the
insurer has the right to avoid the contract on the
ground of material misrepresentation in the
application for the policy.
IRREVOCABLE
BENEFICIARY – A life insurance policy beneficiary who
has a vested interest in the policy proceeds even
during the insured’s lifetime because the policy owner
has the right to change the beneficiary designation
only after obtaining the beneficiary’s consent.
INSURABLE
INTEREST – The interest an insurance policy owner has
in the risk that is insured. The owner of a life
insurance policy has an insurable interest in the
insured when the policy owner is likely to benefit if
the insured continues to live and is likely to suffer
some loss or detriment if the insured dies.
Back to the Top
Back to the Top
Back to the Top
LANDSLIDE - A disaster closely
related to an avalanche, but instead of occurring with
snow, it occurs involving actual elements of the
ground, including rocks, trees, parts of houses, and
anything else which may happen to be swept in.
LIABILITY INSURANCE - Insurance coverage that offers
protection against claims alleging that a property
owner’s negligence or inappropriate action resulted in
bodily injury or property damage to another party.
LIFE AND HEALTH GUARANTEE ASSOCIATION – An
organization that operates under the supervision of a
state insurance commissioner to protect policy owners,
insured's, beneficiaries, and specified others against
losses that result from the financial impairment or
insolvency of a life insurer that operates in the
state.
LIMNIC
ERUPTION - A sudden release of
asphyxiating or inflammable gas from a lake.
LOSS OF USE INSURANCE - Compensation for loss caused
because the policyholder has lost the use of his
property.
LOSS PAYABLE CLAUSE - A policy condition that enables
an insured to direct the company to pay any loss that
may be due to a third party.
Back to the Top
MATERIAL MISREPRESENTATION – A misrepresentation that
would effect the insurance company’s evaluation of a
proposed insured.
MORTALITY TABLES – Charts that show the death rates an
insurer may reasonably anticipate among a particular
group of insured lives at certain ages.
MORTGAGE INSURANCE - A contract that insures the
lender against loss caused by a mortgagor’s default on
a government mortgage or conventional mortgage.
MORTGAGEE CLAUSE - A clause in an insurance policy
that makes a claim jointly payable to the policyholder
and the party that holds a mortgage on the property.
MUDSLIDE - A mudslide is a slippage
of mud because of poor drainage of rainfall through
soil. An underlying cause is often deforestation or
lack of vegetation.
MULTI PERIL INSURANCE - Personal and business property
insurance that combines in one policy several types of
property insurance covering numerous perils.
Back to the Top
NAMED PERIL POLICY - The insurance contract under
which covered perils are listed. Benefits for a
covered loss are paid to the policy-owner. If an
unlisted peril strikes, no benefits are paid.
NATURAL AND PROBABLE CONSEQUENCES - Consequences from
a given act that a reasonable person could foresee.
NEGATIVE TREND – with respect to a life and/or health
insurer, negative trend over a period of time, as
determined in accordance with the “Trend Test
Calculation” included in the RBC instructions
NFIP-NATIONAL FLOOD INSURANCE PROGRAM (NFIP) - The
program of flood insurance coverage and floodplain
management administered under the Act and applicable
Federal regulations promulgated in Title 44 of the
Code of Federal Regulations, Subchapter B.
Back to the Top
OFF-BALANCE
SHEET RISK – a measure of risk due to excessive rates
of growth, contingent liabilities or other items not
reflected on the balance sheet.
100 YEAR
FLOOD - A flooding condition which
has a one percent chance of occurring each year. The
100-year flood level is used as the base planning
level for floodplain management in the National Flood
Insurance Program.
ORIGINAL AGE
CONVERSION – A conversion of a term life insurance
policy to a permanent plan of insurance at a premium
rate, based on the insured’s age when the original
term policy was purchased.
Back to the Top
PERMANENT
LIFE INSURANCE – Life insurance that provides coverage
throughout the insured’s lifetime and also provides a
savings element.
POLICY
ANNIVERSARY – As a general rule, the date on which
coverage under an insurance policy became effective.
POLICY RIDER
– An amendment to an insurance policy that becomes
part of the insurance contract and either expands or
limits the benefits payable under the contract.
PREFERRED
RISK – A proposed insured who presents a significantly
less than average likelihood of loss and who is
charged a lower than standard premium rate.
Back to the Top
Back to the Top
RETENTION LIMIT – A specified maximum amount of
insurance that a life insurer is willing to carry at
its own risk on any one life without transferring some
of the risk to a reinsurer.
REPLACEMENT COST - The cost of replacing property
without a reduction for depreciation. By this method
of determining value, damages for a claim would be the
amount needed to replace the property using new
materials.
RISK BASED
CAPITAL (RBC) – the amount of required capital that
the insurance company must maintain based on the
inherent risks in the insurer’s operations
.
RBC INSTRUCTIONS – the RBC Report including risked
based capital instruction adopted by the NAIC, as such
RBC Instructions may be amended by the NAIC from time
to time in accordance with procedures adopted by the
NAIC.
RBC RATIO – measurement of the amount of capital
(assets minus liabilities) an insurance company has as
a basis of support for the degree of risk associated
with it s company operations and investments. This
ratio identifies the companies that are inadequately
capitalized by dividing the company’s by the minimum
amount of capital that the regulatory authorities feel
is necessary to support the insurance operations.
RBC STATISTIC
– ratio of authorized control level risked based
capital of an insurance company to its total adjusted
capital. This statistic determines regulatory action
taken by the state’s insurance commissioner
Back to the Top
SAFFIR SIMPSON SCALE - A 1-5 rating based on a
hurricane’s present intensity. This is used to give an
estimate of the potential property damage and flooding
expected along the coast from a hurricane landfall.
Wind speed is the determining factor in the scale.
SCHEDULED PROPERTY - Listing specific personal
property for a stated insured value. This is usually
considered for valuable items that are subject to
limited coverage.
SINK HOLE - A
sinkhole is a localized depression in the surface
topography, usually caused by the collapse of a
subterranean structure, such as a
cave. Although rare, large sinkholes that develop
suddenly in populated areas can lead to the collapse
of buildings and other structures.
STORM SURGE - A storm surge is an onshore rush of
water associated with a low pressure weather system,
typically a tropical cyclone. Storm surge is caused
primarily by high winds pushing on the ocean’s
surface. The wind causes the water to pile up higher
than the ordinary sea level. Storm surges are
particularly damaging when they occur at the time of
high tide, combing the effects of the surge and the
tide.
SOLAR FLARE -
A solar flare is a violent explosion in the
Sun's atmosphere with an energy equivalent to tens
of millions of
hydrogen bombs. Solar flares take place in the
solar
corona and
chromosphere, heating the gas to tens of millions
of kelvins and accelerating electrons, protons and
heavier ions to near the speed of light. They produce
electromagnetic radiation across the spectrum at all
wavelengths from long-wave radio signals to the
shortest wavelength gamma rays. Solar flare emissions
are a danger to orbiting satellites, manned space
missions, communications systems, and power grid
systems.
SYNTHETIC
GUARANTEED INVESTMENT CONTRACT – modified guaranteed
investment contract in which the underlying assets of
the synthetic contract are owed by the plan itself
rather than the insurance company as is the case with
the GIC. This ownership rights is of particular
importance if there is a concern about the long term
financial soundness of an insurance company. The
synthetic plan segregates the plan’s assets from the
assets of the insurance company.
SUBROGATION - The circumstance where an insurance
company takes the place of an insured in bringing a
liability suit against a third party who caused injury
to the insured.
SUBSIDENCE - Movement of the land on which property is
situated. A structure built on a hillside may slide
down the hill due to earth movement caused by heavy
rains.
Back to the Top
TENANTS INSURANCE - Coverage for the contents of
renter’s home or apartment and for liability. Tenant
policies are similar to homeowners insurance, except
that they do not cover the structure.
Total Adjusted Capital - commonly refers to an
insurance company's capital base under Standard &
Poor's capital adequacy model. It includes
shareholders' funds and adjustments on equity, asset
values and reserves.
Back to the Top
UMBRELLA POLICY - Umbrella coverage is insurance
coverage that extends the terms of a regular insurance
policy once coverage limits for the regular policy
have been reached. Specifically, umbrella coverage is
for people who want protection against a large jury
award that is not covered in their standard policy.
UNDERWRITING – The process of identifying and
classifying the degree of risk represented by a
proposed insured.
UNDERWRITING RISK – a measure of the risk that arises
from under-estimating the liabilities from business
already written or inadequately pricing current or
prospective business.
UNFRIENDLY FIRE - A fire that escapes from its normal
contained area. For example, fire in the fireplace
leaps onto the sofa.
Back to the Top
Back to the Top
WRITTEN PREMIUMS - The total premiums generated from
all policies written by an insurance company within a
given period of time.
Back to the Top
Back to the Top
Back to the Top
Back to the Top
|
