Dictionary of Insurance Terms

First Edition

© Copyright 2009 by AskForInsurance.com

All inquiries should be addressed to: glossary@askforinsurance.com

www.AskForInsurance.com
A

ABANDONMENT AND SALVAGE - INSURANCE POLICY - A legal position allowing an

insurance company complete control and ownership of the insured's property. The ABANDONMENT
CLAUSE most often pertains to MARINE INSURANCE, very rarely involving property insurance like
HOMEOWNERS INSURANCE (SMP) policies. As a figurative example, an insured person/persons
may choose to abandon a marine vessel if the cost of repairing it exceeds it's overall value. Insured
person/persons must inform the insurance company of their intention to abandon a detrimental
property. The insurance company then makes an informed decision on whether or not to acquire these
questionable assets without being legally bound to accept them.

MARINE ABANDONMENT - INSURANCE CLAUSE - A clause within marine insurance policies

allowing an insured person/persons the legal right to forego lost or damaged property while still
claiming a full settlement amount from the insurance company. This full settlement amount is subject
to restrictions set within the original policy. Two different types of property losses are covered under
this particular abandonment clause.

1.. Complete and Total Loss Property - Property damaged beyond all hope of repair. Damage incurred
from fires, sinking, hail, wind and unaccountable disappearance are all included and insurable causes of
complete and total loss property. Many ships have sunk to the bottom of the sea, classified as
unrecoverable total losses because the retrieval costs exceed the value of the property. Losses and
disappearance involving various factions of circumstance including Bermuda Triangle and luxury
vessel hijackings by drug cartels are listed as insurable losses within the confines of complete and total
loss property insurance.

2. Rehabilitative Total Loss Property - A property damaged to a degree that the cost of rebuilding or
renewing it to original condition costs more than the properties restored value. Any marine vessel
damaged to this degree can be abandoned by insured person(s) if repair costs total more than 50% of
the properties total value, or the insurance company concurs with the decision to abandon the property
in regard to circumstantial variables.

ABSOLUTE LIABILITY - INSURANCE POLICY - A form of liability insurance not dependent on

fault. Absolute liability is used most frequently regarding actions of an individual or business
disregarding public policy. Actions insured do not have to be intentional or negligent. For example, a
product that causes an injury due to defective mechanics will hold the retailer liable for any damages
incurred to the product owner. Although the manufacturer or retailer is not directly related to the
defectiveness of the product, they can still be held strictly liable. Animal attacks, specifically regarding
animals without a prior history of violence, is another example of an insurable event within
ABSOLUTE LIABILITY INSURANCE.

ACCELERATED OPTION - POLICY PROVISION - Allows the POLICYHOLDER to use the

accrued cash value, by means of a single premium payment, to pay the cost of or mature the policy as
an asset.

ACCELERATION LIFE INSURANCE - INSURANCE POLICY - A portion of the guaranteed

DEATH BENEFIT (usually 25%) is awarded to the insured to pay for medical conditions present prior
to death. Specifically, the accelerated death benefit will provide funds to pay for life extension efforts
of the insured. Proof of alleged medical conditions are required, and upon presentation this proof will
enable the insurance company to pay 25% of the death benefit. If a portion of the death benefits
remain, this remainder sum is to be paid to a named BENEFICIARY, in the same structure as a
traditional life insurance policy.

ACCELERATIVE ENDOWMENT - INSURANCE POLICY - DIVIDENDS having ACCRUED

under the policy may be used to mature the policy. The policy then becomes known as
ENDOWMENT INSURANCE.

ACCEPTANCE - Mutual acceptance of an offer, bound by a contract, usually signifying understanding

between the insurance company and the applicant. A premium an applicant pays to enable the benefits
on a new policy is acknowledged through written ACCEPTANCE.

ACCIDENT - An unforeseeable event not regulated under the control of the insured, resulting in
damages. Any event deemed to be an accident happens by means of pure possibility, unable to be
purposefully caused by the insured. Odds and laws of probability are directly correlated
to ACCIDENT identification methods. As an example, a car accident that occurs while insured under a
PERSONAL AUTOMOBILE INSURANCE POLICY (PAP) will provide payments for losses
regardless of acts of negligence or omissions by the insured. Bodily injury, property damage, and
damage to outside parties may be covered as well.

ACCIDENTAL DEATH AND DISMEMBERMENT - INSURANCE POLICY - Insurance policy that

pays according to the insurance contract in the event of bodily harm or death due to accidental
circumstance (barring natural causes). For instance, an insured victim is decapitated in an accident. A
lump sum payment or predefined schedule of payments are used to compensate the insured's
BENEFICIARY.

Payment schedules vary in regards to amounts payable based on the part of body lost, as well as
fatalities caused by an accident.

ACCIDENTAL DEATH BENEFIT - INSURANCE CLAUSE - In addition to benefits paid in the

event of the insured's death, this clause pays an additional sum if the death occurs from direct
involvement in an accident. Double indemnity inclusions pay twice the original value of the policy,
payable to the beneficiary. Triple indemnity awards three times the original value of the policy, and so
on. Accidental death as a result of war, flight (except as a passenger on a commercial flight), and
illegal actions are most often exempt from inclusion. Age and time limits apply. In order for an
accidental death to be eligible for certain benefits,, the insured must die within a specific time frame
after the accident and as a direct result of the accident. An age group requirement is often enabled
within the policy, calling upon probability to ensure death is a direct result of the catastrophic event and
not old age.

ACCIDENTAL DEATH - INSURANCE POLICY - This policy provides payments to the insured if
he/she dies by means of an accident. Frequently, this policy is included as a multiple policy package
along with dismemberment insurance. The insured's beneficiary receives the accidental death payment
according to the terms outlined in the policy. If coupled with dismemberment insurance, and loss of
limb is sustained, payment amounts are awarded according to the policy terms.

ACCIDENTAL MEANS - An unexpected event, not under the direct control of the insured, causing
substantial bodily injury.

ACCIDENT AND HEALTH - INSURANCE POLICY - Policy coverage for accidental injury,
accidental death, and sickness. This policy is also known as Accident and Sickness Insurance. When
hospital stays, surgical expenses, and loss of income occurs due to accident or sickness, award
payments are made according to the terms outlined in the policy.

ACCIDENT AND SICKNESS - INSURANCE POLICY - Label previously used for a type of
insurance policy that covers accident and sickness.

ACCIDENT FREQUENCY - The total number of times an accident has occurred. Premiums are based
on mathematical equations that factor in the number of times an accident has happened.

ACCIDENT INSURANCE - INSURANCE POLICY- Policy coverage including injury and or death as
a result of accidental circumstance. Critical injuries resulting in death trigger this type of insurance to
award benefits and/or income according to the policy terms.

ACCIDENT SEVERITY - The extent of loss as a direct result of accidents. Accident severity is also
used to give insurance companies data to define their premium costs.

ACCIDENT- YEAR STATISTICS RECORD - Premiums and losses received for accident coverage
over a period of 12 months. This data is crucial in determining basic premium costs as well as the cost
to the insurance company. Overhead costs and variable financial factors must be included in the
calculations in order to produce premium costs that are financially feasible to the insurance company.
Predicting future losses are derived from accident year statistics.

ACCOMMODATION LINE AGREEMENT - Insurance companies insure business provided by an

AGENT or BROKER despite the business being sub par in quality. Insurance companies insure these
businesses to increase the probability of continued profitable business arrangements from the AGENT.

ACCOUNTANTS PROFESSIONAL LIABILITY INSURANCE POLICY - This policy covers an

accountants liability within the confines of their professional tasks. Any mistakes made within work
orders and tasks directly related to accounting are covered. However, if the insured accountant was to
get into an accident outside the realm of the working environment, completely unrelated to the job, this
and similar events would not be covered by this form of insurance.

ACCOUNTS RECEIVABLE INSURANCE POLICY - This form of insurance covers the expense
incurred when records are destroyed. Records directly related to the business, damaged by an insured
business risk, are covered by the policy to ensure proper record reconstruction and collection of
associated fees. The raw materials upon which the records are stored, however, are not insured by
this insurance policy.

ACCREDITED ADVISOR IN INSURANCE (AAI) - This is a professional certification awarded after

the completion of three national exams given by the Insurance Institute of America (IIA). The exams
cover multiple insurance and insurance related subjects requiring expert knowledge of each.

ACCRUE to gain or amass more, to increase or grow. For instance, the cash value of a life insurance
policy will ACCRUE at a certain rate, growing more valuable as the years progress.

ACCRUED BENEFIT COST METHOD (ACTUARIAL) - This is the calculation method used to
determine proper crediting of earned retirement benefits. For each year of work, the insured beneficiary
is awarded one unit of benefit. The current value of the unit of benefit is is calculated using variables
that change over time, such as life expectancy of the insured. The resulting amount of benefit, after
calculation, is assigned to the employees account. The assigned amount can take the form of a
percentage or flat dollar sum depending on the circumstances of the agreement. Amounts of 1.5%
compensation accreditation per year are commonly used in retirement benefit agreements.

ACCRUED BENEFIT COST METHOD actuarial method of crediting retirement benefits earned and
the costs associated with these earned retirement benefits. An increment (unit) of benefit is credited for
each year of recognized service that an employee has earned. Then the present value of these benefits
(including the employee's life expectancy) is calculated and assigned to the year earned. The benefit
earned by the employee can take the form of a flat dollar amount or a percentage of compensation. For
example, this may work out to 1 1/2% of an employee's compensation being credited to the employee's
account for each year of recognized service.

ACCRUED INTEREST AMOUNT - This interest amount has accrued, but has not yet been awarded.
This amount is to be paid upon the maturity of the next interest payment.

ACCUMULATED VALUE (MULTIPLIER) - In order for insurance companies to gain this figure, the
following calculation must be performed. The total number of ACCUMULATION UNITS is
multiplied by the ACCUMULATION UNIT VALUE for a VARIABLE ANNUITY. Current market
values are derived from a similar calculation method.

ACCUMULATION PERIOD TIME FRAME - This is the period of time when an ANNUITANT is
providing his or her premium payments to an insurance company. The insurance company is liable to
uphold certain obligations, depending on the terms of the PURE ANNUITY or REFUND ANNUITY
for which the premiums are being paid. Different factors must be considered for an annuity purchase.
Depending on the circumstances surrounding the purchase, either option can yield a more
advantageous position.

ACCUMULATION UNIT - Comparable in similarity to a mutual fund unit, an ACCUMULATION

UNIT is used to measure the policyholder's interest in a VARIABLE ANNUITY prior to the
ANNUITY DATE.

ACCUMULATION UNIT VALUE - This unit value defines how much each ACCUMULATION
UNIT is quoted to be worth at the end of the VALUATION PERIOD for a VARIABLE ANNUITY.
The NET ASSET VALUE in a mutual fund is similar to the ACCUMULATION UNIT VALUE for an
ANNUITY.

AIDS and Property/Casualty Insurance

Inclusion of the AIDS virus within property and casualty insurance agreements has a substantial impact
on the liability portion of homeowners, automobile, commercial general liability (CGL), and workers
compensation insurance policies.
1. HOMEOWNERS INSURANCE POLICY (COMMUNICABLE DISEASE) - THE INSURANCE
SERVICES OFFICE (ISO) policy form contains a communicable disease endorsement EXCLUSION.
Most property and casualty insurance companies utilize this form in it's entirety or through the use of
minor modifications. This exclusion has yet to be defeated in a court of law.

2. AUTOMOBILE INSURANCE - AIDS exposure can result from negligence and/or accidents
involving insured persons suffering from the AIDS virus. Personal and business automobile insurance
policies hold equal relevance.

(a) An injury victim who is unknowingly infected with the AIDS virus by means of a necessitated
blood transfusion may file a suit against the driver who caused the accident. This negligent driver is
negligent according to the TORT LIABILITY system. A similar example depicts a disease
exposure circumstance using a different situational variable.

During a car accident caused by a negligent driver, two passengers open wounds come in contact with
each other. One of the passengers has AIDS and subsequently infects the clean passenger with the
virus. A suit is now filed against the driver using simple logic as the aggressor. Common sense would
dictate that bodily fluid transmission would not have occurred had there been no accident.

(b) activation of a previously dormant AIDS virus (one capable of staying inactive within the host
whilst retaining the ability to reproduce at a later date) becomes active. The injured party may file suit
against the driver for stress related induction of AIDS progression. Justification of legal proceedings
are based upon the assumption that the accident acted as a catalyst to change the way the virus
survives. Had this not occurred, the progression of the virus into an active state may have not have
occurred for many years.

3. COMMERCIAL GENERAL LIABILITY FORM (CGL) - This form is used to safeguard employers
and/or employees against negligent acts or circumstances that occur within the confines of a business
site. Negligence may be related to the employees as well as the work environment itself.

(a) An AIDS exposure resulting from employee negligence or accidental circumstance, such as
product or service infection that is in direct contact with uninfected customers or fellow employees.
Using a figurative example, an AIDS-infected employee may cough upon a customer while suffering
from a bloody nose. Acts of vengeance, specifically intentional and malicious acts upon customers or
employees also pose a risk.

(b) AIDS exposure as a result of sexual assault by an AIDS-infected offender can be incurred by a
customer while he or she is within the confines of a business location. This customer may bring suit
against the business. It is the sole responsibility of the business to keep and provide a safe environment
for customer visitation. Cases of assault involving AIDS exposure pose a situational risk regardless of
an employees criminal record or past history of violent behavior.

(c) AIDS exposure as a result of negligent employer policies can provide the employee means to file
suit against an employer. Using the premise of libel, slander, and invasion of privacy, an employer
who discloses to their staff the status of an AIDS-infected employee is in violation of the employees
rights. This incorrect business practice also violates the confidentiality agreement with the employer.

4. WORKERS COMPENSATION POLICY - AIDS exposure may result from an injury at work
involving infected and non-infected parties, as well as necessitive on-site blood transfusion between
infected and uninfected employees. The resulting exposure is relevant to the worker compensation
policy.

Life/ Health Insurance

AIDS-related fatalities have substantial relevance in statistical claim patterns for GROUP LIFE
INSURANCE as well as INDIVIDUAL LIFE INSURANCE.
LIFE INSURANCE and HEALTH INSURANCE as a whole are also substantially affected by the
existence of AIDS related events.

1. Group Life, Medical, and Disability Insurance - All applicants must be accepted during the open
enrollment period. A person infected with the AIDS virus would be automatically insured. A
significant amount of claims while under the group policy may increase the required payment amount
for additional coverage. Insurance companies reserve the right to refuse renewal of any group's
coverage.

DEATH BENEFIT limitations are also relevant to group policies. An AIDS-infected employee is
restricted in how high of a coverage amount he or she can hold. Usually, the generally accepted policy
rate holds twice the employee's annual salary as a coverage limit. The subsequent reduction of
ADVERSE SELECTION by AIDS-infected employees is crucial to the employers financial well being.

2. Individual Life, Disability, and Medical Insurance - In individual coverages, unlike group
insurance, a multitude of variables are used to determine coverage eligibility. Age, gender, health
history, family health issues, vocation, interests, hobbies, lifestyle habits, and more are carefully
considered to create a fair statistical construction of the individual applying for benefits. All of the
above factors play a part in the actualization of whether or not high levels of benefit coverage are
available to the individual. Once INSURED, a insurance company is at the mercy of any future AIDS
infection that may occur with a currently and completely uninfected customer.

The inclusion of POLICY PURCHASE OPTION (PPO) allows the insured to automatically increase
coverage limits whenever certain events transpire. For example, a certain calendar date can be set to
trigger an increase in the coverage limit. An AIDS patient can set his or her policy to increase the
coverage amount according to a preset date schedule. AIDS patients who hold dividend paying
policies can use the dividends to pay up the policy without a physical examination or medical review.
This is known as a form of GUARANTEED INSURABILITY, whereas the insurer is not in control of
coverage distribution.

Many life insurance policies do not include AIDS related questions. This leaves a chronic insurance
susceptibility regarding overall benefit amounts paid to the increasing AIDS epidemic.

ACTS - The accomplishment of a task or ongoing function. Certain ACTS are excluded from
insurance coverage. This term usually involves criminal behaviors such as intentional destruction of
property. Any illegal ACTS committed release the insurance company from any responsibility
associated with the behavior.

ACTUAL/ EXPRESS AUTHORITY - Power the insurance company bestows upon an AGENT within
a written contract.

ACTUAL CASH VALUE - The cost to replace damaged or destroyed property with a new property
having a nearly identical value. Depreciation and obsolescence are used to determine an adequate
replacement. Items holding an appreciation value, one that grows over time, require separate
scheduling within the policy.

ACTUARIAL ADJUSTMENT MODIFICATION - Changes in value that reflect the true loss
experience, expenses, and upcoming benefits yet to be paid.
ACTUARIAL CONSULTANT (INDEPENDENT ADVISOR) - Insurance companies, federal, state,
and local governments, as well as labor unions and corporations are assisted with knowledge and
expertise provided by this type of advisor. Analysis of small insurance company liability, estimating
the structural integrity of a policy, as well as the design of information systems are all the responsibility
of the ACTUARIAL CONSULTANT .

ACTUARIAL COST METHOD SYSTEM - Used for figuring the financial benefit between a pension
plan's present cost and future benefits. This relationship outlines the degree to which a pension plan is
funded. The primary objective is to contrast the average cost of benefits accrued against the specific
year in question.

ACTUARIAL EQUIVALENT DETERMINATION - Mathematical calculation based on the likelihood

of unfortunate events and the benefits paid upon the materialization of these occurrences. The cost of
the premium is determined in accordance with the probability of loss.

ACTUARIAL GAINS/LOSSES - Experience applied to the annual costs associated with a pension
plan. The cost of the premium must be set according to assumptions concerning future loss and the
subsequent expenses. In terms of statistical data, if the experience (in terms of event occurrence) is
better, the result is an actuarial gain. If worse, an actuarial loss.

ACTUARY MATHEMATICIAN - Expert in mathematics pertaining to the field of insurance.

Actuaries are responsible for various statistical data including MORTALITY and MORBIDITY
TABLES. Reserves, premiums, and dividend calculation are also within their field of expertise.
 Product development, construction of annual reports, as well as overseeing overall financial function
are key job characteristics of an ACTUARY MATHEMATICIAN. Actuaries are most often required
to possess a strong business background and exceptional mathematical talent. Actuarial associations
provide certification by means of a qualification test.

ADDITIONAL CAR/CARS - A vehicle leased or purchased by an insured or his/her marital partner in

addition to the presently insured motor vehicle. In order for this vehicle to be covered under the
insureds current insurance policy, it must meet specific requirements. Vehicle must be a private
passenger car and must fit into a family of vehicles insured by the same insurance company. All
additional pickups and vans must also be insured under this same company in order to be eligible for
additional car/cars coverage.

ADDITIONAL DEATH BENEFITS - An added layer in addition to traditional life insurance coverage.
Double indemnity is most frequently associated with this term. Benefits in amounts of multiplied face
values are based upon certain variables. For example, if an insured dies within a certain age
classification while dependent family members are still living at home, a multiple benefit higher than
the original death benefit is awarded.

ADDITIONAL DEPOSIT PRIVILEGE CLAUSE - CURRENT ASSUMPTION WHOLE LIFE

INSURANCE policies allow unscheduled premiums to be paid at any point in time before the maturity
of policy. An outstanding loan forces the additional deposits to be applied to the loan first. A
minimum deposit amount is sometimes required for an additional deposit.

ADDITIONALLY INSURED INDIVIDUAL - Person(s) added to the insurance policy other than the
original and primarily insured individual. Logical financial reasoning is the prominent factor behind
the utilization of additional insureds. Adding to the current policy is usually much less expensive than
a completely separate policy purchase. Property and liability insurance are two forms of insurance
allowing for an additional policy member to enjoy the same benefits as the original insured.

ADDITIONAL LIVING EXPENSE INSURANCE COVERAGE - Homeowners, Condominium, and

Renter policy that will reimburse the costs associated with temporary living arrangements until the
originally insured home can be made livable again. Generally, 10-20% of the homes structural
coverage is provided as living expenses.

ADD TO CASH VALUE DIVIDEND OPTION - This option allows the policy owner to collect
dividends from a participating policy in order to apply them to the accumulation of CASH VALUES.

ADHESION INSURANCE CONTRACT AGREEMENT - An acceptance agreement created by an

insurance company to offer possible insureds using take-it-or-leave-it terms. Upon an insureds
misinterpretation of this contractual agreement, courts generally side with the insureds as they can not
alter the terms of this contract. All insurance contracts are classified within the court system to be
contracts of adhesion.

ADJACENT - Adjoining. The majority of insurance policies, such as a HOMEOWNERS

INSURANCE POLICY, offer structural coverage for an adjacent structure according to the same
contractual basis as the primary structure. .

ADJUSTABLE LIFE INSURANCE (INSURANCE POLICY) - Face value, premiums, and the plan of
insurance are variable and able to be modified according to a policy owners decision in the following
ways, without issuance of additional policies.

1. The face value of the policy can be either increased or decreased at the policy owners discretion (in
order to increase coverage amounts, evidence of up to date insurability must be presented to the
insurance company) The resulting cash value of the policy is calculated through the change in face
value and premium amount.

2. premiums can be increased or decreased along with the period of time in which they must be paid.
Unscheduled premiums can be paid using a lump sum method. Adjustable premiums can be
lengthened or shortened in order to customize the coverage period. Insureds may also lengthen or
shorten the allowable contractual time frame to make the premium payments. Using a figurative
example: John, a successfully career driven insured, originally purchases a term life policy with an
annual premium. Over the course of a year, he prospers financially and is able to financially sustain a
higher premium payment and subsequently pay the policy off in a shorter period of time.
ADJUSTABLE LIFE INSURANCE allows John the ability to alternate between a paid-up-at-65
policy and term life policy depending on the present status of his financial situation. It is at John's sole
discretion whether the policy remains a term or paid-up policy.

ADJUSTABLE PREMIUMS - Variable premiums that can increase or decrease. Specific insurance
policies allow the premium payment to change according to expenses incurred by the company.
Factors like experience, investment returns, and success of the insurance company determine whether
the premium costs reduce or inflate.

ADJUSTED LIABILITIES - These are calculated using: Legal liabilities minus INTEREST
MAINTENANCE RESERVE minus ASSET VALUATION RESERVE.

ADJUSTED PREMIUM (INSURANCE PREMIUM) - A premium reflecting the NET LEVEL

PREMIUM and it's modifications to include the cost involved with acquiring the first year of coverage.
This modification consists of a calculation involving the division of the acquisition expense by the
present day value of a LIFE ANNUITY DUE (spreading the payments due across a given premium pay
period). This newly calculated premium is used to produce the minimum CASH SURRENDER
VALUE included in the NON FORFEITURE PROVISION.

ADJUSTED PREMIUM CALCULATION METHOD - The method used to produce a life insurance
policy's cash surrender value (CSV) independent of the policy's RESERVE calculation. The CSV will
estimate the ASSET SHARE VALUE of the insurance policy according to requirements of the
STANDARD NON-FORFEITURE LAW. To determine the CSV, the following steps are followed in
sequence:
(1) Calculating the initial year expense allowance
(2) Calculating the ADJUSTED PREMIUM
(3) Replacing the adjusted premium with the NET LEVEL PREMIUM used in the calculation of the
PROSPECTIVE RESERVE.

ADJUSTED SURPLUS AMOUNT - This figure is derived from the following calculation method:
Statutory surplus plus INTEREST MAINTENANCE RESERVE plus ASSET VALUATION
RESERVE.

ADJUSTER EMPLOYEE - Individual hired by a property and casualty insurance company to settle the
claims filed by insureds. The adjuster employee assesses each claim in order to make informed
recommendation to the insurance company.

ADJUSTMENT INCOME FUNDING - Income awardable to a surviving spouse or beneficiary upon

death of the primary income earner. ADJUSTMENT INCOME provides a source of funding until a
beneficiary can render themselves self-reliant. Using a figurative example, ADJUSTED INCOME
FUNDING can be supplied to a beneficiary until such time as he or she is financially self reliant.
Adjustment income is directly dependent on the amount of life insurance purchased.

ADJUSTMENT PROVISION PERMISSION - This allows an Adjustable Life Insurance policy to

change in structure through the following means of modification:
(1) Increase or decrease of the premium
(2) Increase or decrease the FACE AMOUNT
(3) Lengthen or shorten protection periods
(4) Lengthen or shorten the premium payments allowable time frame period.

ADMINISTERING AGENCY EMPLOYER - An employer utilizing a self-administered insurance

plan; or, an insurer administering a group employee benefit plan. Employer administered plans are
produced using employer maintained records containing demographic and other pertinent information
from an employer's monthly reports.

ADMINISTRATION (OVERALL) The collective performance of management procedures in relation

to an EMPLOYEE BENEFIT INSURANCE PLAN. Actuarial services, booklet, contractual plan
designing, accounting, billing, and establishment of insurability are all included when reviewing the
efficacy of an administration.

ADMINISTRATIVE CHARGES - Charges relative to the ADMINISTERING AGENCYS expense

incurred from the administration of a group employee benefit plan.
ADMINISTRATIVE SERVICES ONLY (ASO) ASSISTANCE - Aid provided in accordance with an
employee benefit plan. A clerical staff is supplied by the employer in order to effectively operate the
plan, comparable in relativity to a custodian. This board of trustees provide directional influence over
the plan's funds, most often pertaining to self-directed investment accounts. Trustee plans are
achieving increased prevalence through employer and employee demand for stronger control over
pension funds. A self-insured or liability plan's group may hold an ASO contract with an insurance
company or third-party administration in order to handle their claims and processing efforts more
efficiently.

ADMINISTRATOR (APPOINTED) - Individual appointed by the court system to control the estate of
a deceased having declared no EXECUTOR or EXECUTRIX. An ADMINISTRATOR acts with
FIDUCIARY ability in relation to the estate

ADMIRALTY PROCEEDING CONDUCTION - Administration of maritime suits pertaining to

OCEAN MARINE INSURANCE claims presented before an admiralty court.

ADMITTED ASSETS (STATE ALLOWED) - These assets are permitted, in accordance with state
law, to be included in the ANNUAL STATEMENT of the insurance company. ADMITTED ASSETS
are crucial elements in the determination of an insurance companies financial competence. Stocks,
bonds, mortgages, and real estate are some of these key components. Long term mortgages made up a
large portion of admittable assets, historically speaking. The inception of current assumption whole
life insurance policies can make short term financial instruments the great majority of admittable
assets.

ADMITTED INSURANCE POLICY(S) - Insurance purchased from a licensed insurance company in

the state where the policy was originally secured. These state specific insurance policies are purchased
through a broker or agent licensed by the power of that particular state. The state determines the
marketing of the insurance policys and the forms used to procure the the business.

ADVANCED PENSION PLAN (FUNDED) - A retirement plan comprised of money allocated to fund
an employees' pension.

ADVANCED LIFE UNDERWRITING PROCESS - The analysis of intricate personal and business
cases in accordance with tax and estate planning to establish life insurance necessity. The advanced
life underwriter's expertise is utilized in elaborate business and personal cases focusing on areas of
understanding unknown to the family life agent or underwriter .

ADVANCE FUNDING PAYMENT(S) Premiums awarded before their established due date. Within
pension plans, premiums are assigned to cover the payment of future award benefits prior to their
availability.

ADVANCE PAYMENT(S) Payment or payments awarded to the insured by the insurance company
prior to the predefined settlement date. An insurance company may opt to pay a claim prior to the
scheduled payment date in light of variable circumstances.

ADVANCE PREMIUM PAYMENT - A premium paid before the originally specified due date. An
insured may complete the premium payment before it is actually due, resulting in a discount on the
premium.

ADVERSE FINANCIAL SELECTION PROCESS - This process is established as active when the
POLICY-HOLDER ends his or her policy due to the occurrence of the following circumstances:
(1) There are higher rates of return offered by a competing establishment
(2)An economic depression forces the insured to use his or her policy proceeds to combat financial
difficulties. Should this happen, a policy-holder may exercise their right to use the CASH
SURRENDER VALUE option. This may force a company to sell their assets at "fire sale" rates of
return, yielding lower amounts able to be invested at beneficial rates of return.

ADVERSE SELECTION PROCESS - This occurs when a high risk or uninsurable applicant applies
for a policy at the standard premium rate. Carefully screening is performed by all life insurance
companies in order to secure their own financial well being. Health and existence of hazardous
occupations are two commonly screened for determining factors..

ADVERTISERS LIABILITY INSURANCE COVERAGE - An advertiser's acts of negligence and/or

omissions (verbal or written) that result in civil suits having the premise of libel, slander, defamation of
character, and copyright infringement are covered.

ADVERTISING BY AN INSURANCE COMPANY - Prominent and attention getting marketing

efforts targeted to the public audience with the purpose of:
(1) Motivating agents and brokers to increase their selling efforts regarding insurance company
products
(2) Familiarize potential customers with the insurance companies existence, thereby making sales calls
less invasive.
(3) Promote a positive public opinion of how an insurance company is viewed by the mainstream
majority. .
(4) Allow for the debut of new product offerings.
(5) Sway judicial and public opinion regarding issues pertinent to insurance industries.

Real life examples of such advertising are defined as:

Product advertising portraying the benefits of particular products and the reason for their inception.
Institutional advertising used to promote the financial prowess and solidity of a company within certain
markets.
Depending on the area of focus, company advertising may be distributed nationally, locally, or
cooperatively.
Joint advertising campaigns launched using a combination of company and corporate resources.

ADVISORY COMMITTEE GROUP - A group dedicated to providing advice regarding employee

benefit plans and their relative processes. Benefit amounts, financing methods, and qualification
requirements determining eligibility (VESTING requirements) are all handled by this advisory
committee group. Their advice is only used as a means of influence. Never as a direct, authoritarian
line of command.

AFFILIATED COMPANIES - Insurers classified in a group under the same common stock ownership
or group of interlocking directorates. This structuring of insurer classification makes the exchange of
insurance products simpler and more efficient. There is also a notable reduction in the repetition of
duplicate efforts and lower costs in regards to research and development costs.

AGE CHANGE DATE - The date according to calendar year when a person turns one year older.
Varying across the choices in insurance companies, the premiums for life and health insurance
manuals are calculated using the nearest age according to calendar month approximation, or the age
according to the insureds last birthday.

AGE DISCRIMINATION IN EMPLOYMENT ACT(ADEA) - This act put into law a prohibition
stating employers may not force a mandatory retirement at the age of 70.

AGENT (INDIVIDUAL) - An individual involved in the sales and service of insurance polices
representing either of two categories:

1. Independent agent - This type of agent represents at least two different insurance companies
(according to accepted definition) and serves the customer as a market researcher to discover the most
beneficial coverage for the best price. The agent's salary is a commission derived from a percentage of
every premium from which a payment is received. Fees are included to cover the cost of maintaining
the insureds policy.

2. Direct writer - This type of agent is sanctioned by and sells policies from a specific insurance
company. He or she is paid using a continuous commission rate in the same mannerism as an
independent agent.

AGENT OF RECORD (INDIVIDUAL) - This agent forms a legally binding written agreement
(contract) with a policy holder. This agent is privilege to and has the legal right to collect any
commissions due as a direct result of the policy sale. .

AGENT (POLICY WRITING) - This type of agent uses the authority granted from the insurance
company to compose and activate any insurance policy offered by the company.

AGENT'S AUTHORITY - Power bestowed upon an agent through the legally binding terms of his or
her contract with the insurance company.

AGENT'S BALANCE - A statement of statistical data showing how much money is owed to the
agent as payment for his or her services. The total amount is calculated and dictated according to the
agent's contract with an insurance company.

AGENT'S QUALIFICATION LAWS (MINIMUMS) - This legislation establishes the bare minimum
education and experience required by state law for a person to be considered for a licensed AGENT
position. This minimum requirement is only a prerequisite in the determination of employment
consideration by the company.

AGE SETBACK ASSUMPTION - This is figured by subtracting a certain number of years from the
accepted table of life insurance rates using a probable assumption. A particular group of women will
outlive men and subsequently pay their premiums for a longer duration of time. Using a figurative
example, the same premium cost can hold true for a 33 year old man the same as a 36 year old woman
because of the assumption of female longevity. However, one state has already passed legislation
requiring men and women of the same age to be charged an identical rate for the insurance they
purchase.

AGE-WEIGHTED PROFIT-SHARING COMBINATION PLAN - This plan introduces the flexibility

of the traditional PROFIT-SHARING PLAN to the most valued features of the DEFINED BENEFIT
PLAN and TARGET BENEFIT PLAN. This combinations inclusion of age-weighing allows for higher
contributions for plan participants within older age group classifications. Best of all, these new
contributions are fully accepted by the IRS. Traditional profit-sharing plans are structured to provide
younger employees with larger employer contributions. These younger employees are demographically
less likely to consider using these funds for retirement. So, as a courtesy measure, cash is traditionally
offered as an immediate profit-sharing benefit.

These Age-Weighted Plans offer more options in regards to their contribution structure. Under the
terms of defined benefits plans and target benefit plans, a minimum contribution must be made each
year in comparison to profit-sharing plans. Age-Weighted Plans are similar to a traditional profit-
sharing system in terms of their restrictive maximum deductible contribution of 15% of the employee's
total compensation. The maximum allowable contribution of any employee participating in the plan
must be lesser or equal to 25% of the total compensation, or $30,000. This plan has no minimum
requirement for annual contributions or service charges to reflect fees paid on the PENSION BENEFIT
GUARANTY CORPORATION (PBGC) premiums, federal, or actuarial valuations. For instance, a
substantially smaller contribution amount a younger employee makes equals a substantially larger
contribution that an older employee makes. Logical mathematical reasoning defines this equation. The
rapidly increasing nature of COMPOUND INTEREST dictates that the contribution made by the
younger employee will purchase the same retirement benefit amount as the older employee.

AGGREGATE ANNUAL DEDUCTIBLE (YEARLY) - This deductible is applicable for the present
year. Using a figurative example, an organization pays the first $50,000 in losses payment to cover
their losses accrued over their year of business. After this amount is paid, the insurance company pays
for the rest of the losses (up to the LIMIT OF RECOVERY) as accepted upon in the insurance
policy's terms of service.

AGGREGATE EXCESS CONTRACT POLICY - If the total losses on a property or liability exceed
the preset limit during a POLICY year, the insurer agrees to pay this excess amount. Generally, the
insurer is responsible for the entire amount exceeding the insurance company's responsibility for loss
(80-100% in most cases)..

AGGREGATE INDEMNITY LIMIT - The coverage limit total, spanning all policies relevant to the
insured loss for which the policy holder can be reimbursed. Using a figurative example, if two
insurance policies are active for one individual, the AGGREGATE INDEMNITY LIMIT is the
combined amount of coverage provided by the primary policy along with the secondary policy.

AGGREGATE LEVEL COST CALCULATION METHOD - An actuarial means of determining

benefits as they pertain to all employees as a group instead of on an individual basis. Benefit costs are
shown as a percentage of total payments made to the employee group.

AGGREGATE COVERAGE LIMIT - This is the highest dollar amount of coverage available within
an insurance, property damage, or liability policy. This maximum dollar amount can be in effect using
an occurrence based plan, or for the entire life of the policy as well. The following examples show
how the AGGREGATE COVERAGE LIMIT functions within a policy:

1. Health insurance policy. If a policy is set with an AGGREGATE COVERAGE LIMIT of $200,000
dollars and medical costs pertaining to a serious medical implication reach $203,000, the remaining
$3,00 must be paid in full by the insured. Once hospital or medical expenses have reached the
AGGREGATE COVERAGE LIMIT, any future health expenses incurred are paid entirely out of
pocket by the insured.

2., Liability insurance policy. The AGGREGATE COVERAGE LIMIT in this policy example is
$150,000 An automobile accident revealing the insured at fault (single, isolated occurrence), causing
injury to a group of individuals whose combined medical bills total $200,000, leaves the insured to pay
the remaining $50,000 dollars that has exceeded the preset AGGREGATE COVERAGE LIMIT.

AGGREGATE PRODUCTS LIABILITY LIMITATION This is the largest sum of money that an
insurance company is willing to pay, in accordance with the PRODUCT LIABILITY
INSURANCE coverage period, for all product liability and related claims falling under insurable policy
coverage.

AGGREGATE STOP LOSS INSURANCE COVERAGE - This type of coverage is enabled when the
self insured employer's total group health insurance claims reach a certain mark, generally 125% of the
annual cost for predicted health claims.

AGREED AMOUNT CLAUSE (AS IT PERTAINS TO) PROPERTY INSURANCE - a contractual

agreement made with the insured and insurance company requiring the insurance coverage amount be
in legal abidance with the COINSURANCE requirement.

AGRICULTURAL EQUIPMENT INSURANCE COVERAGE - This insurance coverage handles

property damage sustained to agricultural equipment and their related machinery. Harnesses, saddles,
blankets, and liveries are all covered under this policy. Catalysts for damage covered include fire,
lightning, vandalism, malicious mischief, and removal. If there are perils that fall out of the scope of
general coverage, these may be added to the policy for an additional fee. Certain coverage exclusions
apply, such as crops, feed, hay, aircraft, watercraft, and grass. These are covered under separate
insurance policies to handle damage claims more efficiently.

AIR CARGO INSURANCE COVERAGE - This insurance type is used to cover the costs incurred by
an air carrier in relation to customer property and their legal liability for the responsibility of that
property. This coverage is designed on an ALL RISKS format with certain peril exclusions not
allowed in the policy. Air cargo insurance is a form of MARINE INSURANCE, insuring only property
traveling above bodies of water. As of the present day, this property may be insured regardless of the
method used for delivery.

AIRCRAFT HULL INSURANCE COVERAGE - This type of insurance coverage provides protection
for all risks regardless of whether or not the airplane is grounded or in flight. This insurance coverage
also goes by the name of hull aircraft insurance. Exclusions include illegal use of the aircraft, when the
aircraft is being used for activities against the terms set forth in the policy, normal wear and tear,
unauthorized piloting of the aircraft by an uninsured person(s), piloting or usage of the aircraft outside
preset geographical boundaries, damage or total destruction of the aircraft resulting from any one of the
following events: War, rioting, civil disruptions, workers on strike, mechanical failure loss, structural
integrity failure, and conversion. The overall value of the hull is comprised of the various instruments,
radio equipment, wings, aircraft engines, and qualifying equipment directly related to the plane. These
hull components are determined by the terms of the policy.

AIRCRAFT LIABILITY INSURANCE COVERAGE - Coverage provided for negligent

acts/omissions committed by an insured that results in damages directly connected with the ownership,
usage, or repair/maintenance of an aircraft covered under the policy. Liability insurance may be added
to cover a passengers bodily injuries and/or damage to the passengers property. Individuals who are not
passengers can also be covered. MEDICAL PAYMENTS INSURANCE can be added to the policy
and is completely optional.

AIRPORT LIABILITY INSURANCE COVERAGE - Private, municipal, or commercial airport

owners and operators/fixed-base operators may obtain this insurance to protect themselves against
claims based on injuries sustained to the general public and/or property owned by the general public.
The policy mandates that individuals must be within the confines of the airport or an area directly
related to the airport in order to fall under the coverage zone. The policy has multiple coverage
inclusions: (1) PREMISES AND OPERATIONS LIABILITY INSURANCE COVERAGE, (2)
PERSONAL INJURY COVERAGE (3) PREMISES MEDICAL PAYMENTS INSURANCE
COVERAGE (4) Contractual. This policy can be customized to meet the specific needs of the
INSURED.

ALEATORY CONTRACT TYPE - Usage of this type of contract can give more benefits than the
premiums paid and vice versa. The great majority of insurance contracts are aleatory in nature because
of the business blueprint insurance companies are formed upon. Insurance companies thrive depending
on the give/take relationship of premiums paid and benefits awarded.

ALIEN INSURER COMPANY - These insurance companies function based upon legal demands of a
foreign country. Although alien insurer companies are legally allowed to sell their products and
conduct business within the United States, they must also abide by state laws governing all insurance
companies within the particular state.

ALIMONY SUBSTITUTION TRUST AGREEMENT - Spouse A (required by a court of law to

provide alimony and/or child support provisions to spouse B) is forced to allocate assets into a TRUST.
From this TRUST, payments are awarded to spouse B. Under the terms of this trust agreement,
payments created from the income provided by the principal is considered taxable income in possession
of spouse B. Any sums paid from the corpus of this principal amount is not considered to be taxable
income as it pertains to spouse B. Spouse A is not eligible for a tax deduction on the payments made to
the trust's corpus principal, and is therefore not required to pay income taxes on any amount produced
by the principal of the trust.

ALLIANCE OF AMERICAN INSURERS (AAI) ORGANIZATION - Stationed in Chicago, Illinois,

this alliance is comprised mainly of property and casualty insurance companies. Primarily focused on
the persuasion of the general public and their political legislators on subject matter directly related to
property/casualty insurance industries, publish various documents, conduct investigational research,
and present a wide array of educational programs for member companies.

ALL LINES COMBINATION INSURANCE - Unified insurance coverage spanning property,

liability, health, and life policies stemming from a single insurance company.

ALLOCATED BENEFIT PAYMENTS - Awarded payments within a DEFINED BENEFIT PLAN.

Benefits are distributed to individuals assigned to a pension plan as the premiums are collected by the
insurance company. Because the pension plan benefits are paid for in full, the employee has now
locked in a guaranteed pension when he or she retires, regardless of whether or not the firm becomes
closed for business.

ALLOCATED FUNDING INSTRUMENT CONTRACT - A contract pertaining to insurance or

annuity terms within a pension plan used to purchase units of retirement benefits by paying a
contribution amount for each employee into a group fund. The benefits are guaranteed to be awarded
to employees upon retirement with the insurance company being bound by a legal contract requiring
them to award all benefits for which they have received premium payments. Pension plans that don't
have any funds available in which to purchase benefits before the retirement date involve
UNALLOCATED FUNDING INSTRUMENT CONTRACTS (benefits not purchased when premium
payments were applied)

ALLOCATION OF PLAN ASSETS UPON TERMINATION - Scheduled allocation of assets

upon cancellation of a pension plan. Asset distribution is performed in one of two ways:
1. The refund of the total contribution amount of an employee plus interest
2. Formation of employee classes and their associated beneficiaries in relation to entitlement of
benefits.

ALL RISKS INSURANCE - This type of insurance coverage includes every single loss minus certain
exclusions. In the event of a loss not registered to be excluded from the policy, it is covered by default.
This type of insurance policy covers the widest array of losses of any property policy. Using a
figurative scenario, if a lightning bolt causes sufficient damage and is not documented to be excluded
from the plan, the all inclusive nature of the coverage insures these losses regardless of whether or not
it is listed as an insured cause of loss.

ALTERNATIVE DISPUTE RESOLUTION (ADR) PROCESSES - This group of processes are made
up of many different, unofficial, and voluntary processes not related to a court of law, settling conflicts
involving the contract of insureds. Nonbinding arbitration, general negotiations involving the
insurance company and the insured, and conciliation by an impartial third party. The purpose of this
classification of dispute resolution is to avoid the considerable expenses of extended court hearings.

ALTERNATIVE MINIMUM COST PROCEDURE - Method of funding allowed under the

EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 (ERISA) An individual in control
of a pension plan can abide by the terms of the mandatory minimum funding requirement by delegating
a secondary cost method whereby the standard cost is the lesser of the standard cost. (1) In accordance
with the actuarial cost method of the pension plan (2) In accordance with the accrued benefit cost
method of the plan, minus benefit calculations.

ALTERNATIVE RISK FINANCING - These facilities offer mainstream coverage to their participants
which include corporations, public entities, and professionals. These facilities were orignally used and
created by organizations and people with mutual insurance coverage requirements not able to acquire
the coverage in commercial markets, could not acquire coverage at an acceptable rate, could not
efficiently perform the duty of CAPTIVE INSURANCE COMPANY, or not able to act as SELF-
INSURER. Policies include property, workers compensation, directors and officers liability, medical
malpractice liability, and primary and excess liability. Among the qualified and already insured are a
wide range of companies and singular people, medical employees, banks, manufacturers, public and
nonprofit entities, business contractors, transportation services and systems. The great majority of the
facilities reside in Bermuda.

AMBIGUITY LANGUAGE - System of words for communication within the insurance policy deemed
to be unclear or open to questionable interpretations. If the insurance policy can be interpreted in more
than one way, feasibly able to be misunderstood, a situational event of ambiguity exists. When cases of
ambiguity arise, the court system overwhelmingly takes the side of insured individuals rather than the
insurance companies because policies are primarily contracts of adhesion. Insurance companies have a
multitude of resources at their disposal to make the terms of a policy agreement perfectly understood.
Therefore, an obviously correctable misunderstand arising in a loss will generally side in favor of the
insured.

AMENDMENT (PROVISION) - These changes are added to the original terms of an insurance
agreement to effectively change the benefits and coverage conditions of the contract. Using a
figurative example, homeowners insurance can be changed to include an additional living area with the
risks associated with this living area covered under the policy.

AMERICAN INDEPENDENT AGENCY SYSTEM - This is a term used to describe the marketing of
insurance performed by independent agents. Independent agents most often offer insurance policies
from more than one company and are paid to provide their best coverage at the most affordable rate.
Independent agents are compensated using a commission based percentage system that comes from the
premiums paid on the policies they sell. The documented records of any policies sold become
the property of these independent agents, allowed by law to solicit policy renewals on the policies sold.
At the independent agent's discretion, policies may be transfered to new companies and renewed
according to the customer's request.

AMERICAN ANNUITY TABLE (1955) - This mortality table was originally introduced in 1955, used
to compute premium rates within deferred annuities as well as optional modes of settlement within life
insurance policies. The 1983 Table-a (mortality table representing annuity rates for male customers)
replaced this table to accurately represent the change in mortality statistics.

AMERICAN COLLEGE SCHOOL - This college was formerly known as the American College of
Life Underwriters for the CLU (Chartered Life Underwriter) and the ChFC (Chartered Financial
Consultant). Offering undergraduate, graduate, and the continuing education for students in the areas
of life insurance and financial service. Campus, as well as long distance learning are both available.
The subjects of: life insurance, pensions, insurance economics, finance, investing, business evaluating,
tax planning, as well as estate planning are all covered within the classes and offered as individual
courses. The American College school also provides the Master of Science in Financial Services
degree accreditation. Stationed in Bryn Mawr, Pennsylvania, this college is highly respected and
recognized source of insurance career education.

AMERICAN COUNCIL OF LIFE INSURANCE (ASSOCIATION) - Life insurance companies in

mutual association with each other to focus on a common goal of legislation and the public relation
analysis. Comprised of a membership base from stock and mutual life insurance agencies, this council
works to make the positions of the life insurance business well known to everyone in a position to
change the directly related laws and public views. This council also serves as a publicly accessible
source of life insurance information, stationed in Washington, D.C.
AMERICAN EXPERIENCE TABLE (CHART) - Originally published by Sheppard Homans (an
actuary that represented the Mutual Life Insurance Company of New York) in the year 1868, this table
provided data based on the lives of insured people(s) within the time period of 1843 to 1858. During
this time period, it was utilized in the calculation of life insurance premiums and figuring reserve
calculations. This chart has been subsequently replaced by the C.S.O. Table.

AMERICAN INSTITUTE FOR PROPERTY AND LIABILITY UNDERWRITERS - Officially

recognized body for the CPCU (Chartered Property and Casualty Underwriter) designation. This
institute supplies undergraduate and continuing education for property and casualty insurance using
correspondence courses. Course itinerary is comprised of insurance risk management, commercial
property insurance risk management, commercial insurance liability risk management, personal
insurance risk management, insurance company operations, insurance environment (from a legal
standpoint), management, accounting, finances, and economics. This highly respected institute is
stationed in Malvern, Pennsylvania.

AMERICAN INSURANCE ASSOCIATION (Also known as AIA) - Membership only organization

comprised of liability and property insurance companies. Promotes the financial, legislative, and
public standpoints of its members through their focus on accounting procedures, disaster and pollution
complications, auto insurance renovations, as well as a variety of other activities. The AIA is stationed
in New York City, New York.

AMERICAN RISK AND INSURANCE ASSOCIATION (ORGANIZATION) - Exclusive

membership comprised of companies, academic groups, and individuals within the insurance business
whose primary focus is to advance education and research efforts for insurance and risk management.
This association is the publisher of The Journal of Risk and Insurance, committed to academic writings
on insurance, risk management issues, and related areas of learning.

AMORTIZATION (PAYMENTS) - Sequential repayment of a debt owed. Amortization payments are

required to be paid on specific dates, thereby lessening the debt amount to zero upon completion of the
given time frame.

AMORTIZATION SCHEDULE (PAYMENT METHOD) - This term defines the payback of a

specified sum whose value has been discounted in some way, in accordance with a prearranged
schedule. Each of these fixed interval payments include a portion of the owed principal and interest.

AMOUNT RISKED

1. The differing financial worth in regards to the face value of a permanent life insurance policy and
the total cash value it has accrued thus far. Pure costs of protection are calculated according to the
amount of this difference. Using a figurative example, a given value of a life insurance policy is set at
$100,000, the cash value $80,000, creating a remaining risk total of $20,000. The Internal Revenue
Service states that the corridor of protection, or total risk amount, must be perfectly obvious in order
for the policy to reserve its tax privileged status.

2. As it pertains to property and liability insurance policies, the amount risked is the lesser of the
policy limit or the largest possible loss incurred by the insured.

AMOUNT OF INSURANCE COMPARED TO THE VALUE - The comparative balance between the
total insured and the properties total value.

ANALYSIS OF PROPERTY AND CASUALTY INSURANCE POLICIES - Evaluation of (1) The

property covered/excluded under the terms of the policy agreement, (2) risks included/excluded (3)
specific domains (areas) covered/excluded, (4) Time frame for which the policy is active (5)
individuals covered/excluded, (6) policy limits; and finally (7) specific coinsurance requirements.

ANCILLARY HEALTH INSURANCE BENEFITS - This coverage applies to miscellaneous medical

expenses incurred through a hospital stay. These coverage benefits are part of individual and group
health insurance policies and cover the cost of ambulance services to and from the hospital,
medications, blood, surgical materials, operating room occupancies, drugs, bandages and their related
materials, X-ray usage, diagnostic readings and tests, and anesthesia. Ancillary health insurance
benefits are shown as a multiplier of the daily hospitalization benefits. (10, 15, or 20 times)

ANNUAL AGGREGATE LIMIT (DOLLAR AMOUNT) - The pre-defined amount an insurance

policy will pay to cover an insured person yearly, despite the amount of claims made or defense fees
related to these claims. Using a figurative example, a policy coverage limit set at $1,000,000 requires
that the insurance company pay a maximum amount of $1,000,000 only, with the number of claims
filed during that particular year holding no significance to the total coverage amount .

ANNUAL EXPECTATION OF DOLLAR LOSS - These are the average losses an individual, group of
individuals, or organization can anticipate to accrue from a specific exposure over a long time span.

ANNUAL POLICY CONTRACT - This agreement is active for up to 12 months unless the coverage is
temporarily or completely canceled. After this period of 12 months, the policy may be renewed or
allowed to completely expire according to the wishes of the insurance company or insured
individual(s). This policy does not require annual payments. .

ANNUAL PREMIUM ANNUITY PAYMENTS - This term defines the series of premium payments
made to acquire an annuity. This payment method, comprised of a series of payments, is frequently
used to purchase level premium insurance as well.

ANNUAL RENEWAL AGREEMENT (MADE BY THE INSURANCE COMPANY) - This term

defines the agreement made by the insurance company to renew a policy in accordance with specific
contractual conditions being met by the insured.

ANNUAL REPORT STATEMENT - This term defines the declaration of an insurance companies
financial conditions, substantial events that have occurred within the year of an insurance companies
direct involvement, or events that have affected the insurance company substantially. The finalized
statement is presented to the stockholders (providing it's a stock insurance company) or policyholders
(for a mutual insurance company)

ANNUAL STATEMENT REPORT - This term describes the document an insurance company is
required to file with the State Insurance Commissioner in each and every state it conducts business.
Statistics within this document include the current status of reserves, assets, expenses, liability totals,
investment portfolios, and records of any employees who exceed $40,000 in earnings annually. This
information is used to gage the efficiency of an insurance company and provides accurate information
about the companies reserve levels. The information in this document also ensures that financial assets
are available to cover all benefit payments for which the company has been paid premiums. The
National Association of Insurance Commissioners (NAIC) approve of this form. The Annual
Convention Blank, as it is sometimes called, is the same form.
AUTHORIZED CONTROL LEVEL RISK-BASED CAPITAL (THEORY) - The capital and surplus
amount an insurance company theorizes they must maintain.

AUTHORIZED INSURER (COMPANY) - Officially licensed by the state, these insurance companies
conduct service and sales of specific types of insurance in the state they are licensed in.

AUTOMATIC COVERAGE (POLICY) - These policies are used to adjust the coverage amount in
order to provide continual coverage on an insured's appreciating real or personal property value. .

AUTOMATIC INCREASE IN BENEFIT PROVISION CLAUSE - This term defines the clause found
in a disability income insurance policy that readjusts the monthly income payment to a higher amount
in accordance with the stipulated annual percentage for a sequential number of years. The annual
premium payment amount is also increased according to the attained age to express the rising cost of
the increasing benefit.

AUTOMATIC NON-PROPORTIONAL REINSURANCE POLICY - This policy provides automatic

policy protection for an insurer in the event of losses that go beyond the preset loss limit.
This reinsurance policy can be partitioned in three principal types: excess of loss, catastrophe loss,
and stop loss.

AUTOMATIC PREMIUM LOAN PROVISION (LIFE INSURANCE CLAUSE) - This clause is

utilized in the event of a grace period coming to a close with the premium due left unpaid. When this
happens, a policy loan is automatically instated using the policy's cash value to make the premium
payment(s). The main goal of this clause is to counteract an unplanned break in policy coverage.. The
policy's cash value must be hold funds equivalent to the total of the loan amount and one year's interest.
Experts in the insurance business advise their customers to use this provision in order to ensure their
premium payments are paid in the event of illness, vacation, or unplanned absence.
AUTOMATIC PROPORTIONAL REINSURANCE COVERAGE - This type of coverage allows the
insurer the automatic benefit of reinsuring specific risks with it's reinsurer. An insurer is required to
transfer the specific risks to its reinsurer. The reinsurer must, in turn, accept this transfer. Both the
losses and the premiums are shared in the same manner as the total policy limits of the risks.. The
reinsurer awards the insurer a transfer commission based on the supposed equity value of the insurers
unearned premium reserve. This is designed to cover the acquisition expenses, premium taxes due, and
the cost of the insurer's management of the business. Automatic proportional reinsurance coverage is
able to be partitioned into two types: quota share and surplus.

AUTOMATIC REINSTATEMENT PROVISION CLAUSE - This provision is found in property or

liability policies, declaring that upon payment of a loss, the original limits of the policy are put back
into effect. Using a figurative example, an insurer incurs a loss of $40,000 under a homeowners
insurance policy with $100,000 worth of property damage coverage. As soon as the $40,000 loss is
paid, the original coverage amount of $100,000 is reinstated fully.

AUTOMATIC REINSURANCE (EVENT) - An automatic reinsuring process of an insurer's individual

risks through a reinsurer. In order for an automatic reinsurance event to take place, an insurer must
transfer his/her risks to the reinsurer. The reinsurer must subsequently accept this transfer for the
reinsurance to take effect. As soon as the risks are accepted, reinsurance occurs automatically.

AUTOMOBILE ASSIGNED RISK INSURANCE COVERAGE - This plan covers people without the
ability to acquire standard automobile liability insurance policies. Generally, the reason is most often a
flawed driving record These people are singled out and placed in a surplus insurance market.
Insurance companies are directed to create specialized polices for them, using higher premium rates to
reflect the risk factor. These higher premiums are directly proportionate to the cost of the premiums
within the specific state. While these plans cost more than standard insurance policies, they allow bad
drivers to protect fellow motorists from property damage or injury they may sustain because of their
negligent driving tendencies. Using standard rules, these negligent drivers would not be able to obtain
insurance.

AUTOMOBILE, BOAT, AND AIRCRAFT INSURANCE COVERAGE - These policies are made for
varying types of motor vehicles, with each type requiring different policies for their property damage
and liability coverage. Because motor vehicles are not allowed to be covered under a homeowners
insurance policy when operated away from the insured perimeter, these coverage policies are necessary
for operation outside the homeowners coverage area.

AUTOMOBILE LIABILITY INSURANCE COVERAGE - This coverage is used to cover an

insured's legally liability for physical injury or property damage that results from the use of an
automobile. The personal automobile policy (PAP) and business automobile policy (BAP) will cover
liability damages according to the terms of the policy (up to the maximum coverage limit of the
policy), court costs, and legal representation fees. Insurance companies recommend against operating a
motor vehicle without being covered under automobile liability insurance. State laws demand that
drivers carry automobile liability insurance coverage as their minimum requirement.

AUTOMOBILE PHYSICAL DAMAGE INSURANCE COVERAGE - These policies are used to

cover losses incurred from the damage of an insured's vehicle. Coverage includes automobiles
damaged, destroyed, or otherwise defective by means of fire, theft, vandalism, devious acts, collision,
or weather. Two forms of property damage coverage exist: Collision insurance and comprehensive
insurance.

AVERAGE ADJUSTER EMPLOYEE - This term defines an individual working for an ocean marine
insurance company to settle claims filed by insureds that directly relate to ocean marine insurance
events. This adjuster analyzes the validity of each claim and provides professional advice to the
insurance company.

AVERAGE INDEXED MONTHLY EARNINGS (AIME) METHOD - Process of gaging the primary
insurance amount (PIA) of current Social Security benefits. An employees' covered monthly income is
modified to express fluctuations in the national average annual earnings. Benefits typically rise in
relation to inflations within the national average of annual earnings.

AVERAGE MONTHLY WAGE (AMW) AMOUNT - The (AMW) is used in figuring a worker's
primary insurance amount (PIA) to determine Social Security benefits using the following process:

1. Compute the amount of years between the worker's twenty-first birthday and the year before the
workers 62nd birthday. (Within a maximum time period of 40 years)

2. Omit the five years having the smallest level of total earnings, in turn choosing the 35 highest
earning years automatically (a total of 420 months)

3. The total earnings of the 35 most financially productive years is then divided by 420 months to
determine the Average Monthly Wage.

A Social Security Administration table portrays the PIA for the Average Monthly Wage computed in
Step 3, above. The PIA is then raised to express the cost-of-living-adjustment (COLA) to decide the
correct benefit amount.

AVERAGE RATE - rate of each property, within a property insurance policy, of all locations
multiplied by the financial value of the real/personal properties at that place of activity, all combined,
and divided by the entire financial value of all real and/or personal property throughout all locations,
multiplied by their specific rates.

AVERAGE SEMIPRIVATE ROOM RATE in health insurance, this is the average rate charged for a
semiprivate room within the local area (geographically speaking).

AVERAGE WEEKLY WAGE RATE - This rate is used as a foundation for computing benefit
amounts in workers compensation insurance.

AVIATION ACCIDENT INSURANCE POLICY - This is life insurance policy coverage for
individuals or employee groups that provides protection for a passenger on a flight using a continually
scheduled airline.

AVIATION EXCLUSION (LIFE AND ACCIDENTAL DEATH INSURANCE) - This frequent

omission is found in life and accidental death insurance (double indemnity) policies, stating that unless
an insured is a passenger on an officially recognized or regular scheduled airline, policy coverage will
not apply to incurred losses. Using a figurative example, an insured is killed during a private plane
flight that is deemed to be different than a regularly scheduled and insured airline flight. The insurance
company is not liable to pay the insured's beneficiary the death benefit by means of the aviation
exclusion omission.

AVIATION HAZARD - This hazard is affiliated with aeronautics in a different genre than that of a
passenger flying a regularly scheduled, officially recognized airline. Thusly, an additional premium is
charged, and/or exclusions subjected to specific benefits affiliated with this risk. Using a figurative
example, a pilot flying small planes and not a regularly scheduled airline would be liable for this
hazard.

AVIATION INSURANCE (COMBINATION) - Coupling of a property insurance policy for an

airplane's hull and liability insurance through the use of the following formula:

1.Property coverage supplied using an all risks basis or specified perils basis relating to the hull,
autopilots, radios, instruments, as well as any and all equipment in the airplane that has been listed to
be included in the insurance policy.

2. Liability insurance coverage supplied to cover an insured's acts of negligence and/or absence that
results in bodily harm and/or property damage to the passengers as well as individuals deemed to not
be passengers.

AVIATION TRIP TERM LIFE INSURANCE - This insurance policy, typically bought at an airport by
a passenger, provides a death benefit sum to the passenger's beneficiary upon occurrence of a fatal
accident upon specific flights. This insurance policy goes into effect, providing coverage for the
insured,as soon as he or she boards the plane. Coverage ends upon exiting the plane. Ground
transportation within official airport grounds may also be covered. With the increasing prominence of
hijacking and terrorism occurring within airline systems, this has become a more frequently purchased
policy.

BACKDATING CALCULATION - The determination of insurance premiums using an age less than
the insured's present age.

BAILEE'S CUSTOMERS INSURANCE POLICY - This insurance policy covers any legal liability as
a result of damage or destruction of the bailor's property while it is under the temporary possession of
the bailee. This includes any property being transferred to and from the bailee's premises. Peril risks
covered are comprised of fire, theft, lightning, burglary, windstorm, robbery, flood, collision,
explosion, sprinkler leakage, strike, earthquake, and property damage incurred as a result of
transportation by a common carrier. This insurance is in active status as soon as a bailee provides a
receipt to the bailor for the item. Coverage omissions include the insured bailee's property and any
losses incurred from vermin and insect damage. Using a figurative example, a lawsuit scheduled to be
cleaned is considered to be under the temporary responsibility of the bailee (in this case, the cleaner).
The bailor is under the presumption that the suit will be returned to his possession in an acceptable
condition. If this suit is destroyed as a result of fire damage, this insurance policy is scheduled to cover
this loss.

BALANCE SHEET RESERVE AMOUNT - This sum is shown as a liability on the insurance
company's balance sheet to show benefits owed to insured people(s). These reserve amounts must be
managed using precise mathematical equations in order to guarantee all benefit award payments can be
made to cover policy claims for which premiums have been paid.

BAND CLASSIFICATION SYSTEM - This method of classifying the face amount of policies uses the
policies size (within a predetermined range) as it's determining classification factor. The premium rate
for a $1,000 face amount changes in a declining fashion. As the face amount adjusts to a higher dollar
value, the premium rate for $1,000 of face amount is reduced accordingly.

BANK BURGLARY AND ROBBERY INSURANCE COVERAGE - This policy coverage is used to
insure a bank's premises in the event of burglary/robbery in the following methods: Securities,
Monies, and other such valuables inside the banks vault(s), theft of monies and securities within bank
premises, vandalism and other forms of mischief that results in damage during a robbery or attempted
robbery.

BANKERS BLANKET BOND COVERAGE - This policy coverage applies to and covers a bank
should a loss occur because of treacherous acts of employees or individuals of no association to the
bank. Using a figurative example, a bank teller boards a flight with stolen bank monies. The bank is
then reimbursed for the loss under the terms of the bankers blanket bond coverage.

BARRATRY (VIOLATION OF DUTY) - Within marine insurance, the acts of the captain and crew
that cause substantial damage to the vessel. Covered damages include: deliberately running the vessel
aground, deviating the ship from it's scheduled course of direction, cargo theft, and completely
abandoning ship.

BASE PREMIUM - This is the ceding company's premium, pertinent to the reinsurance premium
factor used to determine the reinsurance premium amount.

BASIC BENEFITS or BASIC HOSPITAL PLAN - This term refers to the minimum payments given
within a given health insurance policy coverage.

BASIC LIMITS OF LIABILITY (REQUIRED COVERAGE AMOUNT) - This term defines the
mandatory minimum coverage amount an insurance company is willing to provide. Using a figurative
example, $25,000 dollars in auto liability insurance coverage is the bare minimum most insurance
companies are willing to provide. The great majority of liability coverages do not fall below this dollar
amount.

BASIC PREMIUM (WORKERS COMPENSATION/LIFE INSURANCE) - This premium is

applicable to both. In life insurance, the basic premium is the share of a premium assigned to express
an insured's expectation of loss, any administrative costs relative to the insurance company's
documentation of the insurance policy, as well as the agent's rightful commission.

BASIC TIME FRAME PERIOD - In life insurance policies, this is the time period the losses occur. In
order to accurately forecast the frequency and total impact of the future loss experience, this time frame
must be determined.

BENCH ERROR (DEFECT) - This is an error, happening somewhere during the production process of
a product, that causes the product to be inherently defective. These errors are insured within products
and completed operations insurance policies.

BENCHMARKING MANAGEMENT TOOL - This tool is utilized for evaluating, measuring, and
improving various aspects of the insurance establishments business. Insurance establishments can use
this tool to more effectively examine and determine market trends, gage the efficiency of their sales
efforts, gage market growth and expansion, and measure individual product effectiveness.

BENEFICIARY - Assigned by the life insurance policyholder, the beneficiary receives the
designated proceeds upon the death of the insured or maturity of the endowment. A beneficiary can be
anybody the policyholder designates (family member, complete stranger, an animal (pet), charity group
or organization, corporation, business partner/trustee, alliance, or anybody else). The primary
beneficiary is the first beneficiary named; he/she must still be living at the time of insured's death in
order to be awarded the proceeds. A contingent or secondary beneficiary, designated in the event of
the primary beneficiary's death prior to the insureds. A revocable beneficiary (either primary or
secondary) can be interchanged (replaced) by the beneficiary at his/her discretion at any time.An
irrevocable beneficiary (primary or secondary) can be interchanged by the policy owner through the
written authorization of the originally named beneficiary only. Upon naming an irrevocable
beneficiary, the policy is eliminated from the estate of the insured, thereby giving up any incidences of
ownership for purposes of estate taxes.

If a beneficiary is found guilty of the crime of the murder, and subsequently the insured is found dead,
the beneficiary is no longer privilege to the death benefit. The death benefit would be entitled to the
insured's estate.

BENEFICIARY CLAUSE PROVISION - This condition of agreement is found within life insurance
policies, allowing a policy owner to designate anybody to become the primary and secondary
beneficiaries. The policy owner is allowed to interchange the beneficiaries at their discretion, at any
time, by addressing the insurance company through a written document as well as sending the policy
for a written authorization upon request.

BENEFIT SUM - This financial amount is awarded or made payable to an awardee who has paid
premiums to the insurance company.

BENEFIT ALLOCATION METHOD - Process of providing money for a pension plan that requires a
solitary premium payment in order to fund an individual benefit unit for a single year of acknowledged
employment with the employer. Using a figurative example, an employee earning an $85 unit of
benefit for a year of acknowledged employment to start at age 60, a single premium deferred annuity
would be bought for that employee's account. After this initial year, for every year that passes an extra
single premium differed annuity would be acquired for each additional year of acknowledged
employment. Upon reaching the retirement threshold, these acquired annuities would be compounded
to supply a monthly income benefit amount to the employee.

BENEFIT FORMULA - This calculation method is found within employee benefit plans to compute
life insurance and retirement benefit award amounts for an employee. The employee is contractually
entitled to these benefits.

BENEFIT PERIOD (HEALTH INSURANCE) - This period is found within a health insurance policy,
and defines the total number of days that benefits are to be awarded to the named insured, as well as his
or her dependents. Using a figurative example, the total number of calendar days that benefits are
calculated during a calendar year are comprised of a specific period of time, January 1st through
December 31st of each year.

BENEFITS OF BUSINESS LIFE AND HEALTH INSURANCE also known as (KEY PERSON
INSURANCE) - Life insurance and long-term disability income insurance on major (key) employees,
with award benefits to be paid to the business. Key person insurance is an improved type of insurance
with the following advantageous features: 1. Key person insurance improves the ability of the business
to carry on their day to day proceedings, 2. Promotes the trouble free sale of a running business
between the estate and the purchaser, supplying funds needed to acquire all of the interest formerly in
possession of a deceased key person 3. Improves the morale of key employees to continue working, 4.
Lures new and valuable key employees 5. Supplies financial support to cover expenses related to
hiring and training substitute key employee 6. Supplies a line of credit (Permanent life insurance
policies have cash values that are obtainable for the use of loans at favorable rates.) 7. policy earnings,
deemed legally income free, are payable even in the event the key employee no longer works for the
company at the time of death. The policy also requires the business continue to pay the premium
amount even after the key employee's departure from the work force. 8. a life insurance coverage
policy may be cancelled in order to obtain it's cash value, or sold to the key insured person. Almost
always, barring any unforeseen circumstances, the business is ensured a recompensation for the total of
the premiums paid. 9. Long-term disability income insurance policies on a key person supply financial
support for salary continuance to the handicapped key person. (When dealing with temporary
disabilities, a business may decide on self insurance. The premium cost for disability income insurance
is quite high in comparison to the possible income benefits)

BILATERAL CONTRACT - Legal agreement comprised of an exchange. In a bilateral contract the

exchange is a promise for a promise. Insurance policies are not bilateral contracts, they are legally
certified to be unilateral contracts.

BILL OF LADING - When a loss is incurred during the transportation of goods, this written
declaration form must be produced when the claim for the loss is made. This form affirms factual
proof of the shippers care, custody, or control exercised over the goods at the time the loss happened.

BINDER (TEMPORARY CONTRACT) - This is a temporary insurance contract that supplies

coverage until such time as a permanent policy can be brought into effect. Within casualty and
property insurance, certain agents hold the power to legally bind an insurance company to temporarily
cover until a new policy can be purchased or issued. Using a figurative example, the buyer of a vehicle
can summon the agent, who can then fulfill the request of binding the insurance company to provide
temporary contractual coverage.

BINDING RECEIPT - This receipt is used as evidence of the temporary contractual agreement that
legally requires an insurance company to supply coverage for as long as the application is accompanied
by the premium. An agent within the property insurance field can legally bind an insurance company
to provide coverage for a particular risk. Certain agents have the legal power to serve an insurance
company an oral binder, which is ordinarily followed by a written binder

BLACK LIST STATES - These states within the USA inhibit the induction of surplus lines within
specific insurance companies.

BLACKOUT PERIOD (TIME INTERVAL) - This time period is defined by the date Social Security
benefits stop and the date they are re-enabled. Using a figurative example, survivor benefits are
awarded to a parent (who is less than 60 years old) caring for a child under the age of 16. Upon the
child's 16th birthday, the surviving parent will not receive Social Security benefits again until age 60.
The time period in between, where no benefit payments are awarded, is called the blackout period.

BLANKET CONTRACT POLICY - This insurance coverage is used to insure a policyholder's

property at numerous separate locations. This policy is used by business operating on a co-location
basis, subsequently more inclined to move their property to and from their separate business locations.

BLANKET CRIME INSURANCE POLICY - This type of insurance policy is used most often as an
inclusion in special multi-peril insurance (SMP), usually replaced by the commercial package
insurance policy, through the coupling of the Blanket Crime Endorsement. Perils and risks covered
involve dishonesty of a companies work force, loss of capital while inside as well as outside a
companies place of business, misplaced money orders, fraudulent crimes because of the actions of a
depositor, and the counterfeit production or use of paper currency. Because of the extensiveness of the
crime policy, it is described as providing a "blanket" of coverage for policyholders. This commercial
crime coverage form has taken the place of this insurance coverage to a large extent.

BLANKET INSURANCE POLICY (SINGLE) - This is an individual policy active for an insured's
property concerning the following areas 1. two or more separate types of property located in the same
area 2. the same type of property in two or more separate places of residence or activity, 3. two or
more separate types of property in two or more separate locations. Blanket coverage is notably fitting
for industry businesses such as chain stores, with all of the property is insured without any particular
limit specified for each individual property with it's location of no consequence (subsequently allowing
the business transfer merchandise to and from their various stores). This insurance policy is able to be,
but not required to be, activated on an all risks basis. Exclusions to this policy include war, nuclear
disaster, and general signs of use that make the merchandise less than mint condition.

BLANKET MAXIMUM LIMIT - This is the maximum amount of insurance coverage an insurance
company is willing to provide to a specific geographic area.
 BLANKET MEDICAL EXPENSE INSURANCE POLICY - This health insurance policy supplies
coverage for a policyholder's medical expenses with the exception of specific exclusions. This policy
is highly beneficial, possibly the most so of all medical policies, due to the fact that unless a particular
medical cost is excluded it is covered as an automatically insured expense.

BLANKET POSITION BOND - Covering all of a companies work force on a blanket basis, with the
highest applicable limit of coverage used for each separate work employee found guilty of committing
a crime.

BLANKET RATE PREMIUM - This is a premium required (and used on a constant basis) for
property insurance to cover numerous properties at numerous places of location. This rate is used
within a blanket insurance policy as a replacement for a particular rate assigned to each location or
specific type of property.

BLENDED OR INTEGRATED INSURANCE PROGRAM - These programs integrate finite risk

insurance, reinsurance, and standard insurance policies as an alternative option to self insurance. These
insurance programs are generally of a lengthy duration period (long term). The primary goal of this
insurance program is to combine the qualities of a finite risk program (regulation of cash flow and the
improvement of income and profit sharing efforts) with the qualities of risk transfer through standard
insurance.

BLOCK LIMITS INSURANCE TOTAL - This is the complete and total amount of insurance coverage
an insurer is willing to provide on any particular city block. Having these limits in place consequently
reduces the insurance companies risk of exposure to a possibly tragic occurrence. Hurricanes, floods,
fires, and tornadoes that could consume the entire block in multiple damages or complete destruction
are prime examples.

BLOCK OF POLICIES - This term defines the total number of insurance policies insured and
authorized by the insurance company that utilizes identical policy rates and forms.

BLOCK POLICY INSURANCE COVERAGE - This form of insurance coverage uses an all risks basis
to cover valuable goods while being transported, in bailment, and while they are in the possession and
on the grounds of another individual or group.

BLUE CROSS INSURANCE COVERAGE PLAN - This is an self sufficient, not for profit,
membership only hospital insurance plan. Offering a variety of risk benefits including: hospitalization
coverage for expenses incurred minus specific excluded costs (semiprivate room only, certain
surgeries, etc.) A participating hospital concurs on a preset schedule for named medical services and
inclusions. Participating hospitals are required to transfer any bills amassed to their Blue Cross
coverage plan location for indemnification. Other services covered include outpatient stays, extended
and private care services such as a nursing home or assisted living, as outlined in the terms of the
contract.

BLUE SHIELD INSURANCE COVERAGE PLAN - This is a self sufficient, not for profit,
membership only plan that covers primarily medical and surgical services. The acting physician and
surgeon are both required to bill the insured's Blue Shield insurance coverage plan in accordance with
the law, and not allowed to directly bill the patients. However, any deviation from the scheduled rates
and doctor expenses are the responsibility of the insured.

BOBTAIL LIABILITY INSURANCE COVERAGE - This is a specific insurance coverage insuring a

common transportation carrier for their liability while returning to their terminal after successfully
unloading their cargo. The insurance policy was created to insure drivers on their homecoming trip. A
business that hires the truck is liable for any damages incurred while the truck is full of cargo, but after
delivery is made the empty truck needs to be insured through bobtail liability insurance coverage,
consequently covering any damages incurred on the return to the terminal.

BODILY INJURY- This term defines the physical damage experienced by a specific person. Liability
(casualty) insurance was created to insure any bodily injury sustained by a third party because of an
insured's negligence or omission.

BOILER AND MACHINERY INSURANCE COVERAGE - This type of insurance coverage insurers
any losses incurred resulting from boiler and machinery breakdown. The majority of property
insurance policies do not cover these losses. So, an independent boiler and machinery policy (or
commercial package policy) is deemed a necessity. The insurance encompasses business property,
separate property having direct involvement, and any legal costs incurred.

BOND DEDICATION - This term defines the layering of a bond portfolio in which bonds that possess
a yield to maturity that is lower are sold, and bonds that possess a yield to maturity that is higher are
purchased in order to ensure that reserve funds are available to provide future benefit award payments
by the insurance establishment. .

BOOK OF BUSINESS - This term defines the complete amount of insurance within an insurer's log
books at any given time.

BORDEREAU - This term defines the specific form of reinsurance that depicts the loss
history/premium history in accordance with specific risk factors. A ceding company is required to
present the reinsurer with this particular information. Then, this information is utilized by the
reinsurance company to determine the cost of reinsurance premiums.

BORDERLINE RISK - A possible insurance applicant who is considered to have a less than perfect
underwriting description.

BOSTON PLAN - This term defines the agreement named and derived from the city of Boston. In this
plan, an insurance company must insure real properties within the lower socioeconomic areas,
regardless of their location, as long as all hazards and risk found upon inspection are brought up to
code.

BOTH-TO-BLAME CLAUSE (OCEAN MARINE INSURANCE) This insurance provision declares

that a wreck involving two or more ships in a collision, all sharing the same degree of fault, requires all
involved owners and shippers with a financial interest in the specific ship transport share in the
responsibility of losses as they coincide with the financial investments they had in the ships prior to
their colliding. This provisional clause overrides any other provision pertaining to the delegation of
losses amongst shippers and owners in ocean marine insurance policies.

BOTTOMRY - This term defines the means of delegating risks, widely known as the starting element
of the present day insurance policy agreement. Ancient Greece promoted and followed the idea of a
sea faring vessels loan being removed if the vessel did not return to it's assigned port. The concept was
continued and embraced by Lloyd's of London during the 1600s for the insurance of England's
merchant fleets while transporting goods to various colonies. The inception of casualty and property
insurance establishments across the globe began through the original insurance of merchandise being
transported across large bodies of water.

BREACH OF CONTRACT - This term defines a party's failure of compliance (without legal recourse)
with a promise they previously made. The modern day insurance policy operates on the basis of
upholding legally manageable promises created only by the insurance company. The insured are not
applicable to make promises. This is the basis for declaring all insurance policies to be a unilateral
contract, due to the exclusion of an insured from the promise making allowance.

BREAK IN SERVICE (PENSION PLAN FEATURE) - This term defines the specific element of a
pension plan that allows an employee incurring an interruption in service to have the period added to
their retirement.

BRIDGE INSURANCE COVERAGE - This term defines the insurance coverage applicable to the
damage or destruction of an insured bridge. Operating on an all risks basis with certain exclusions
inherent to the coverage. War, general wear and tear, standard defective mechanics, and nuclear
incurred destruction. Coverage is available to state and local governing bodies to restrict exposures to
the costs of an instantaneous tax hike to repair, rebuild, or reconstruct a damaged or devastated bridge.

BRIDGE INSURANCE FOR BRIDGES BEING CONSTRUCTED - This term defines the coverage
applicable to the construction of a bridge structure. If fire, lightning, rising water levels, flood damage,
windstorm damage, ice hazards, explosive damage, and earthquakes should be experienced, these risk
factors are all covered. This coverage is pertinent to the construction of the bridge, and being without it
could easily bankrupt a contractors fund reserves if no insurance is purchased to cover the possibly
catastrophic risks.

BROAD EVIDENCE RULING - This term defines the rule describing the method in which to
ascertain the actual cash value of property damaged, destroyed, stolen, or otherwise defected property.
The theoretical basis of this rule states that any evidence that can be presented to represent the actual
value of the property is allowable; the true insurable value of the property can be determined by all
means necessary that present an accurate depiction of the property's actual financial value. This is a
means of ascertaining the actual insurable worth of a structure consistent with any method available to
produce the most precise determination of that property's total value. This method of actual cash value
determination is becoming thoroughly accepted as an approved method of determining the actual cash
value.

BROAD FORM INSURANCE COVERAGE POLICY - This term defines the coverage of many risk
factors similar to what is found in broad form personal theft insurance.

BROAD FORM PERSONAL THEFT INSURANCE COVERAGE POLICY - This coverage provides
an all risks basis insurance coverage for any losses incurred as a result of theft or unaccountable
disappearances of personal property, property and premises damage incurred as a result of theft,
vandalism, and other malicious trouble making to the inside of a property or other property belonging
to the insured located away from than the insured grounds. Sublimits are active on specialty properties
that are especially vulnerable to theft. Examples include: monies, securities, works of art, coin
currencies, and precious jewelry. This insurance coverage is generally found in Part I Coverage C of
the homeowners insurance policy, shown as a percentage figure of the home's structural makeup.

BROAD FORM PROPERTY DAMAGE ENDORSEMENT ATTACHMENT - This addition to a

general liability insurance policy forces the elimination of property exclusion, subsequently including it
in the policy, of any property under the management, control, or custody of the insured. Foregoing this
endorsement as an optional coverage addition would result in the inability of general liability insurance
policy to cover damages incurred on property under the management, control, or custody of the
insured.

BROAD FORM STOREKEEPERS INSURANCE COVERAGE POLICY - This coverage is generally

supplied as an inclusion to storekeepers burglary and robbery insurance to cover any damages incurred
as a result of the theft and/or burglary of merchandise, fixtures, equipment, and furniture.

BROKERAGE GENERAL AGENT (INDEPENDENT CONTRACTOR) - This individual employee

of the insurance company has the power to assign brokers on the insurance companies behalf. This
supervisor like power figure has the goal and focus of selling an insurance establishment's products to
the delegated brokers who sell them at retail to the mainstream public.

BROKER-AGENT (INDEPENDENT INSURANCE) - This salesperson represents and sells

independent insurance from specific insurers, always reserving the right to serve as a broker
performing research in the complete insurance market to discover coverage providing maximum
efficiency. Legally licensed as an agent an broker, this individual is officially recognized.
CLAIMS OCCURENCE BASIS LIABILITY COVERAGE - A technique used to determine the
availability of coverage for specific claims. If an event transpires causing a claim to occur during the
time period in which the policy is active, then the insurance company is to be held responsible for the
debt, provided the debt is within the limits of insurance policy. The date of claims submission by the
business is irrelevant as long as these terms are met. Experts say it should be noted, when acquiring a
property or a new insurance policy, it is imperative to find out whether the claims are paid on a claims
made basis or claims occurrence basis.

CLAIMS RESERVE – capital pool founded to pay for claims that the insurance company knows about
(claims incurred or future claims) but has not yet settled. The claims reserve is crucial since it is an
accurate measure of a company's liabilities. This reserve does not cover INCURRED BUT NOT
REPORTED LOSSES (IBNR).

CLASH REINSURANCE - a kind of EXCESS OF LOSS REINSURANCE in which the insurance

company (CEDENT) is reimbursed in the event there is a casualty loss causing at least two INSUREDS
producing losses from the occurrence of a single casualty.

CLASS- a group of insureds with identical characteristics, created for the purposes of rate-making. I.E.,
all wood-frame houses within 300 feet of a fire-plug in the same geographical area would have similar
likeliness of incurring a total loss. See also RATE MAKING.

CLAUSE - in an insurance policy, paragraphs and sentences detailing different types of coverages,
duties of the insured ,exclusions, locations covered, and conditions that terminate or suspend coverage.

CLAUSES ADDED TO A LIFE INSURANCE POLICY - provisions, usually needing an extra

premium, that are added to an insurance contract. These include WAIVER OF PREMIUM (WP),
DISABILITY INCOME (DI), ACCIDENTAL DEATH CLAUSE, policy purchase option (PPO). A
youthful family with children may wish to consider these clauses since the leading income generator is
7-9 times more likely to become disabled than to die at a young age

CLEANUP FUND – a part of necessary coverage determined by the "needs approach" to life insurance
for a family. It is meant to cover last minute costs as well as those that arise after the death of an
insured, such as funeral costs, probate charges, and medical bills.

CLEAR-SPACE CLAUSE in PROPERTY INSURANCE - policies, a clause that demands that a

specific insured property be a stated distance from similar insured or noninsured property. I.E, stored
flammable devices should be at least 500 yards from an insured building.

COINSURANCE LIMIT - in a MERCANTILE OPEN-STOCK BURGLARY INSURANCE policy,

the $ amount of coverage as demanded by the COINSURANCE clause. This $ amount is the
MAXIMUM PROBABLE LOSS (MPL) of merchandise that the insurer estimates may result from a
single burglary. The indemnification of the insured merchant may not be more than the lesser of this
coinsurance limit or the COINSURANCE PERCENTAGE of the total monetary value of the product
that has been insured.

COINSURANCE PENALTY - A subtraction in the total that the insured is paid from the insurer, after
having incurred a property loss, because the insurer did not carry the amount of coverage demanded by
the COINSURANCE clause. See also COINSURANCE REQUIREMENT.
COINSURANCE PERCENTAGE - in many PROPERTY INSURANCE policies, it is required that
the insured carry insurance as a percentage of the total cash value of the insured property. If this
requirement is not met, then the insured is subject to the COINSURANCE PENALTY. See also
COINSURANCE; COINSURANCE REQUIREMENT

COINSURANCE REQUIREMENT - amount of insurance that the insured must have in order to be
reconciled for the total monetary amount of the loss. If this condition is met by the insured, the
COINSURANCE PENALTY does not go into effect. The amount of insurance needed is usually
expressed as a percentage of the value of the property insured at the moment the loss is incurred;
however, the amount may also be shown as a flat $ amount. See also COINSURANCE; COIN-
SURANCE PERCENTAGE.

COLLATERAL CREDITOR (ASSIGNEE) - person to whom rights to a benefit are given. A life
insurance policy is appointed by the COLLATERAL BORROWER (assignor) to the collateral creditor
(assignee) as protection for a loan. See also COLLATERAL BORROWER.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs) - bonds that are protected by mortgage
securities categorized as either interest only or principal only strips (separate trading of registered
interest and principal of securities). Insurance companies find CMOs advantageous because of their
foreseeable cash flow patterns.

COLLATERAL SOURCE RULE - legal rule of evidence under which no subtraction in damages
given by a court is allowed for accident, bodily injury, sickness, or illness merely because the plaintiff
has other income paying revenue such as HEALTH INSURANCE and DISABILITY INCOME
INSURANCE.

COLLEGE RETIREMENT EQUITIES FUND (CREF) - system preserved by the Teachers Insurance
Annuity Association. This capital pool is primarily for college faculties and staff, who pay premiums
through salary deductions toward a tax-sheltered retirement variable annuity.

COLLISION - physical contact of a vehicle with another inanimate object causing damage to the
insured automobile. Insurance coverage is accessible to provide security against this occurrence. See
also PERSONAL AUTOMOBILE POLICY (PAP).

COLLISION DAMAGE WAIVER - special property damage coverage bought by an individual renting
a vehicle under which the rental company cancels any right to regain property damage to the vehicle
from that individual, regardless of who is at fault. A substantial fee is paid by the insured to the
company providing the rental for this waiver for coverage that may already be given by a PERSONAL
AUTOMOBILE POLICY (PAP).

COLLISION INSURANCE - in automobile insurance, coverage offering security in the event of

physical damage to the insured's own vehicle (other than that protected under COMPREHENSIVE
INSURANCE) caused by COLLISION with another inanimate object. See also PERSONAL
AUTOMOBILE POLICY (PAP).

COMBINATION AGENT – an employee of an insurance company who sells industrial and ordinary
life insurance policies. In an attempt to move their field forces into the ordinary life business, many
industrial companies have systematically trained their agents to sell ordinary life policies.

COMMERCIAL CREDIT INSURANCE - coverage for an insured firm if its business debtors fail to
pay what they owe. The insured firm can be a service organization or a manufacturer but it cannot
offer its products or service on a retail level to be protected under commercial credit insurance. Under
this type of insurance, the insured firm takes the expected loss up to the retention amount and the
insurance company is responsible for anything above that amount, that is within the limits of the credit
insurance policy.

COMMERCIAL FORGERY POLICY - protection for an insured who accepts forged checks
unknowingly. Coverage can be found under the SPECIAL MULTIPERIL INSURANCE (SMP) policy
(SECTION III CRIME COVERAGE INSURING AGREEMENT 5DEPOSITORS FORGERY).

COMMERCIAL PACKAGE POLICY (CPP) – an insurance policy that is of COMMERCIAL LINES

in orientation and is made up of 2 or more of the following coverages: COMMERCIAL PROPERTY,
BUSINESS CRIME, BUSINESS AUTOMOBILE, BOILER AND MACHINERY, COMMERCIAL
GENERAL LIABILITY (CGL), INLAND MARINE INSURANCE, and FARMOWNERS and
RANCHOWNERS INSURANCE.

COMMISSIONER OF INSURANCE (INSURANCE COMMISSIONER, SUPERINTENDENT OF

INSURANCE) – the top state regulator of the insurance business who is either appointed to office by a
state to protect the interests of policy owners or elected to office.

COMMISSIONERS ANNUITY RESERVE VALUATION METHOD (CARVM) – a term for

statutory reserves for annuities that can be calculated using various methods but at the least, the reserve
must be at least equal to that of the CARVM. The CARVM is equal to the highest present value of
future promised benefits to include NONFORFEITURE BENEFITS in excess of future required
premiums. Expenses and policy lapses are not included in this calculation.

COMMISSIONERS STANDARD INDUSTRIAL MORTALITY TABLE (CSI) – a table designed to

calculate different types of nonforfeiture values for industrial life insurance policies. These tables show
the policy-owner the minimum values that need to be generated. The insured's life expectancy,
according to the Commissioners Standard Industrial Mortality Table, is shorter than the life expectancy
given in ordinary life tables such as the COMMISSIONERS STANDARD ORDINARY MORTALITY

COMMISSIONERS STANDARD ORDINARY MORTALITY TABLE (CSO) – a tabledesigned to

calculate the minimum policy reserves and nonforfeiture values for ordinary life insurance policies.
These tables, which give minimum values that must be guaranteed to policy-owners as accepted by the
NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS (NAIC), show how many people
die each year in the original population in age groups, not as individuals.

COMMISSIONERS VALUES – The specific values of securities calculated annually by the

NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS (NAIC) as procedures and rules
for insurance companies in listing of their securities in their annual statements. All insurers have the
same values. This gives insurance commissioners a basis for valuing securities and making sure a
company has enough assets to cover the requirements of the reserve.
COMMON DISASTER CLAUSE (SURVIVORSHIP CLAUSE) - a segment in life insurance policies
that determine the order of deaths when the beneficiary and the insured die in the same accident. I.E. -
if the insured is said to have died first, then the proceeds are then payable to a contingent beneficiary
that has been named. If not, then the proceeds are payable to the insured's estate and are subject to legal
fees and probate.

COMMUNITY PROPERTY - all property acquired after marriage, deemed to be the result of the joint
efforts of both spouses (not dependent upon whether or not only one spouse has earned income). Each
spouse has the right to one half of the property. Community property states are Arizona, California,
Hawaii, Idaho, Louisiana, New Mexico, Oklahoma, Texas, and Washington.

COMPARATIVE NEGLIGENCE - a law in active some states, a principle of tort law stating that in
the event of an accident each party's negligence is based on that person's contribution to the accident.
For example, if both parties fail to obey the yield sign in an auto accident, then they would be guilty of
the same amount of negligence, so neither party would be able to collect legal damages from the other
party.

COMPENSATING BALANCES PLAN – a premium paid to an insurance company by an insured

business from which the insurance company waives charges for the cost of putting a policy on its
books, and also waives the premium taxes, and profit. What is left of the premium is then deposited in
the bank account of the insured business from which the insured business can then make withdrawals.

COMPLETED OPERATIONS INSURANCE - a coverage for a contractor's liability for property

damage or injuries suffered by third parties because of the contractor's actions. The contractor has to
take proper care in deeming a project free from all reasonable hazards and fully safe. See also
COMMERCIAL GENERAL LIABILITY FORM (CGL).

COMPREHENSIVE CRIME ENDORSEMENT - attachment to a COMMERCIAL PACKAGE

POLICY to cover depositor's forgery, employee dishonesty, counterfeit currency,, and the loss of
money, money orders, and securities by the insured business. See also COMMERCIAL PACKAGE
POLICY for a listing of actual coverages available.

COMPREHENSIVE GENERAL LIABILITY INSURANCE (CGL) – protection for all liability lapses
of a business unless notably excluded. Coverage includes completed operations, products, elevators,
premises and operations, and independent contractors. This form is now known as the
COMMERCIAL GENERAL LIABILITY FORM (CGL).

COMPREHENSIVE GLASS INSURANCE – coverage on an ALL RISKS basis for glass breakage, in
any case other than cases of fire and war. So, if someone throws a rock through the window of an
insured's establishment, this coverage would apply.

COMPREHENSIVE HEALTH INSURANCE - complete coverage for physician charges and hospital
subject to coinsurance and deductibles . This coverage combines basic medical expense policy and
major medical policy. See also GROUP HEALTH INSURANCE; HEALTH MAINTENANCE
ORGANIZATION (HMO).

COMPREHENSIVE INSURANCE - coverage in vehicle insurance offering protection for physical

damage (other than COLLISION) or theft of the insured vehicle. I.E. - fire damage to an insured car
would be covered under the comprehensive section of the PERSONAL AUTOMOBILE POLICY
(PAP).

COMPREHENSIVE MEDICARE SUPPLEMENT - insurance policy that offers coverage for the
DEDUCTIBLE amount and the COINSURANCE amount that must be paid by the MEDICARE
recipient. Some of these policies will also continue offer coverage for hospital and nursing home
expenses for a significant amount or an limitless amount per period of confinement after Medicare
benefits have expired. See also MEDIGAP INSURANCE.

COMPREHENSIVE PERSONAL LIABILITY INSURANCE - coverage such as HOMEOWNERS

INSURANCE POLICYSECTION II on an ALL RISKS basis for personal acts and omissions by the
insured and residents of the insured's household. Included are, pet activities, sports activities and
miscellaneous events such as someone falling and damaging insured's cemetery plot.

COMPULSORY INSURANCE - coverage required by a particular state's laws . For example, many
states regulate minimum amounts of automobile liability insurance that is required to be carried. See
also FINANCIAL RESPONSIBILITY LAW.

CONDITIONAL - terms describing obligations of an insured to keep a policy active. For example, an
insured must pay the premiums due; in life insurance, if the insured becomes deceased, the beneficiary
or the insured's estate must provide proof of death; if there is a property loss, then the insured must
provide proof of loss.

CONDITIONAL RENEWABLE HEALTH INSURANC – automatic right of an insured to renew a

policy until a given age or date except under stated conditions. It is imperative for the purchaser to
review conditions for renewal in order to ensure their acceptability.

CONDITIONAL SALES FLOATER - protection for the seller of property on an installment or

conditional sales contract if it is destroyed or damaged. I.E. a stereo set is sold on an installment basis
but is destroyed by a customer. The seller would be indemnified for the loss.

CONFIDENCE LEVEL - percentage of confidence in a finding. I.E, if an insurance company's total

LOSS RESERVES should be $10,000,000 in order to attain an 80% confidence level that enough
money will be available to pay anticipated claims, then, in 8 times out of 10, after all claims have been
settled the total claims paid out will be less than $10,000,000. Conversely, in 2 times out of 10 the total
claims paid out will be greater than $10,000,000. In another example, a 70% confidence level of one's
house burning would mean that the house would burn about once every 3.33 years [1 ÷ (10.70) = 3.33].

CONFINING CONDITION - term describing sickness, disability, or illness suffered by the insured
causing the insured to be restricted to their home,a nursing home, or a hospital. Many HEALTH
INSURANCE policies offer benefits only if the insured is restricted in this way.

CONSERVATION - attempt to protect life insurance policies and to keep them from lapsing. Many
life insurance companies have conservation officers who contact lapsing policyowners explaining the
benefits of keeping their policies active. Often, the AGENT OF RECORD is made aware of policies
that are in danger or in the process of lapsing so that the agent can then contact policyowner.

CONSERVATOR - court-appointed or COMMISSIONER OF INSURANCE-appointed custodian that

handles the affairs of an insurance company whose management is believed to be unable deal with that
company the correct way. Usually such a company faces INSOLVENCY before the appointment of the
conservator.

CONSIGNMENT INSURANCE - coverage for items that are on consignment, including goods up for
auction, exhibits and items that are awaiting approval. The requirement for coverage is that these items
cannot be under the custody, care, and control of the owner.

CONSOLIDATED CAPTIVE - consolidation of a noninsurance parent company with its fully owned
subsidiary, thereby spawning a fully legal consolidated balance sheet. This consolidation of balance
sheets allows the offsetting of UNDERWRITING LOSSES with taxable income of a noninsurance
subsidiary.
CONSORTIUM UNDERWRITING - a method of underwriting in which a party of LLOYD'S
UNDERWRITERS write business on behalf of a number of Lloyd's syndicates and other insurance
companies. One of the benefits of underwriting in this manner are that potential earnings could equal
the SYNDICATE'S expenses and normalize the planning of staff and other general overhead
requirements.

CONSTRUCTION INSURANCE - property coverage for destruction or damage of structures in the

process of construction. I.E. a frame of a house that is destroyed by flames would be covered. See also
BUILDER'S RISK PROPERTY INSURANCE.

CONSTRUCTIVE RECEIPT – a specific date decided by the Internal Revenue Service on which a
beneficiary has received a death benefit from an insurance company, or a retiree has received a
retirement benefit, or an ANNUITANT has received an income benefit.

CONTINGENCY RESERVE - percentage of total surplus withheld, in insurance company operations,

that acts as a reserve to insure unexpected losses as well as to cover the deficit if the earned surplus in a
given year is not enough to maintain a company's predeclared dividend scale for participating policies.

CONTINGENT TRANSIT INSURANCE - coverage if an insured cannot collect on destruction losses

or property damage from the hired transporter. I.E. a truck moving appliances of the insured is involved
in a collision with another vehicle and the appliances are damaged. The truck owner denies
responsibility to compensate for insured's damages; the suggested recourse of the insured is to collect
damages from the insurance company.

CONTRACT OF INDEMNITY - liability and property insurance contracts that bring insured back to
his/her original financial condition after suffering a loss. The insured is not allowed to profit by the
loss; otherwise an unscrupulous homeowner, I.E. the insured could buy several fire insurance policies,
set fire to the house, and collect on all the policies.

CONTRACTORS EQUIPMENT FLOATER – a form of marine insurance that covers mobile

equipment of a contractor, including steam shovels, road building machinery, hoists, and derricks used
on the job by builders of tunnels, structures, roads, bridges, dams, and mines. Coverage is provided on
a specified peril or an ALL RISKS basis, exclusions include of wear and tear, work, and nuclear
disaster.

CONTRIBUTE-TO-LOSS STATUTE – a law in some states prevents an insurance company to deny

payment of a claim resulting from an insured loss because of breach of warranty or misrepresentation,
provided that the breach of warranty or misrepresentation made a material contribution to the loss.

CONTRIBUTING PROPERTY BUSINESS INCOME COVERAGE FORM – a form that covers an

insured business in the case that a manufacturer's operations are interrupted or suspended, thereby
resulting in a monetary loss because a supplier of the insured has had his facility damaged or destroyed
by an insured peril. See also CONTINGENT BUSINESS INCOME COVERAGE FORM.

CONVERTIBLE TERM LIFE INSURANCE - coverage that can be changed into permanent insurance
regardless of an insured's physical condition without a medical examination. The individual cannot be
refused the right to coverage or charged an additional premium for any health problems.

COPAYMENT - partial payment of medical service expenses that is required in group health
insurance, in addition to the membership fee. I.E. for each visit of a physician a member may be
required to pay five dollars, regardless of the expense of the services rendered. Or, for each prescription
for drugs and medicines, the member may have to pay a standard two dollars not dependent of the
actual cost.

CORPORATE-OWNED LIFE INSURANCE - insurance on the life of the employee, covered by the
company, with the company being the beneficiary under the policy. This insurance vehicle is being
used more and more to fund postretirement employee plans, in which the cash values are listed as
assets on the company's balance sheet.

CORRIDOR DEDUCTIBLE - type of major medical deductible amount that acts as a barrier between
benefits under a basic health insurance plan and benefits under a major medical insurance plan. After
benefits are paid under the basic plan, a fixed dollar per-loss deductible amount often is required of the
insured (benefits paid under the basic plan do not apply towards this deductible) before major medical
benefits are paid.

COST ALLOCATION METHOD - method of funding a pension plan through: (1) an aggregate level
cost basis (2) an individual level cost basis, where future benefits for the employee are estimated and
contributions are made periodically while the employee is working to fund these future benefits; or,
where future benefits for all current employees are estimated and aggregate contributions are made
periodically while the current employees are working to fund these future benefits.

COST CONTAINMENT PROVISION - in many HEALTH INSURANCE and DENTAL

INSURANCE policies, stipulation that, if the estimated cost of a recommended plan of treatment
exceeds a specified sum, the insured has to submit the plan of treatment to the insurance company for
review and predetermination of benefits before service starts. Usually, however, predetermination of
benefits is not needed for emergency treatment.

COST OF INSURANCE – the cost or value of the actual net protection, in life insurance, in any year
(face amount less reserve)judging by the yearly renewal term rate used by an insurance company. See
also INTEREST ADJUSTED COST

COST OF INSURANCE - value or cost of the actual net protection, in life insurance, in any year (face
amount less reserve) according to the yearly renewal term rate used by an insurance company. See also
INTEREST ADJUSTED COST

COST-OF-LIVING ADJUSTMENT (COLA) – an automatic adjustment that is applied to Social

Security retirement payments if the consumer price index increases at a rate of at least 3%, the first
quarter of 1 year to the 1st quarter of the next year. See also RIDERS, LIFE POLICIES.

COST-OF-LIVING PLAN plan providing benefits that are adjusted according to variations in a
specified index of prices. For example, some pension plans adjust retirement benefits yearly according
to the rise in the Consumer Price Index (CPI).

COST-OF-LIVING RIDER - usually term insurance for 1 year added to a basic life insurance policy.
Basically, this increases or decreases the face amount of the basic policy to reflect cost-of-living
fluctuations as measured by the Consumer Price Index (CPI). This rider can also be used in
combination with a disability income policy in which the income benefit is adjusted to show
fluctuations in the CPI.

COST PLUS - insured plan under which the insurance company promises to provide the insured with a
series of benefits on a benefits-paid basis plus administrative services on a stipulated-fee basis. This
plan enables the POLICYHOLDER to control more of its own cash flow than it can under traditional
insurance plans. While this plan is somewhat like the ADMINISTRATIVE SERVICES ONLY (ASO)
plan, it is different because it is an insured plan.

COTTON INSURANCE - coverage for property damage by a covered peril to insured cotton during
the time period from its weighing in at the gin until it is delivered to the buyer. Written either on a
specified peril basis or on an ALL RISKS basis. The reason for cotton insurance is similar to the
purchase of insurance by a merchant to protect business inventory prior to its sale, since in many
instances the primary asset is the inventory.

COUNTERSIGNATURE LAW – a state law that demands that an insurance policy given by an
insurance company in a particular state be signed by an AGENT of the company holding a LICENSE
in that state.

COUPON POLICY - nonparticipating life insurance (also called a guaranteed investment policy or
guaranteed dividend) offered by a stock life insurance company, normally in the form of a 20-payment
policy with coupons attached. The policyowner can redeem each coupon (which is actually one of a
series of pure endowments) for a stipulated sum at the time the annual premium must be payed.

COVERAGE - protection under an insurance policy. In property insurance, regarding coverage lists
perils insured against, locations covered, properties covered, individuals insured, and also the limits of
indemnification. In life insurance, living and death benefits.

COVERAGE PART - section of the INSURANCE POLICY that shows any provisions that are
applicable to the insurance coverage provided under that section. This section is a part of the policy
JACKET (which shows the provisions common to all the insurance coverages) to build the insurance
policy.

COVER NOTE - statement made by AGENT or BROKER in written form attesting to the INSURED
that the insurance policy is in effect. The cover note statement is brought forth by the agent or broker,
unlike a BINDER note, which is presented by the INSURANCE COMPANY (INSURER).

CREDIT CARD INSURANCE - a coverage part of a HOMEOWNERS INSURANCE POLICY to

offer coverage in the event that a credit card is fraudulently altered or used. Any form of theft and the
unauthorized use of a credit card constitute fraud charges.

CREDIT RISK – the possibility that a borrower will be unable to pay the debt (pay the interest on the
borrowed funds) or make the principal payments when due. The greater the credit risk, the higher the
yield.

CRIME INSURANCE - coverage for the perils of theft, burglary, and robbery. See also BURGLARY
INSURANCE; BUSINESS INSURANCE; HOMEOWNERS INSURANCE POLICY; PERSONAL
AUTOMOBILE POLICY (PAP); SIMPLIFIED COMMERCIAL LINES PORTFOLIO POLICY
(SCLP); COMMERCIAL PACKAGE POLICY (CPP).

CROP INSURANCE - coverage for crops in the event of damage or loss by insured perils including
fire, lightning, and hail. Prior to the passage of the Federal Crop Insurance Act in 1938 it was
practically impossible to acquire insurance protection against crop damage. Today coverage is
available from the Federal Crop Insurance Corporation and also from private sources. Exclusions from
coverage include nuclear disaster and the perils of war.

CROSS LIABILITY LIABILITY - incurred by one INSURED because they damaged another
insured's vehicle, when both insureds are covered with the same LIABILITY INSURANCE policy.
Each insured must be handled as a separate entity under a cross-liability clause in a liability insurance
policy.

CUMULATIVE LIABILITY - Reinsurance: total of the limits of liability of all reinsurance policies
that a reinsurer has outstanding on a single risk. The total of all such limits includes all ceding contracts
from all insurers representing all lines of coverage for the single risk.

CURRENT ASSUMPTIONS - basis for calculating life insurance benefits and premiums using
mortality rates and current interest, instead of historic rates. Current assumptions are critical to interest-
sensitive products such as Universal Life. When interest rates are high, benefits projections (such as
cash values) are high. These projections are not as alluring, when interest rates are low. The thesis of
current-assumption life insurance products is that policyowner earnings should indicate current market
conditions.

CURRENT INCOME - average earned monthly income of the insured wage earner after regular earned
income has been interrupted or terminated because of sickness, illness, or accident. This income
amount is important to the calculation of the MONTHLY INDEMNITY benefit and the LOSS OF
INCOME amount under the DISABILITY INCOME INSURANCE policy

CURRENTLY INSURED - according to SOCIAL SECURITY, currently insured are workers who
have at least six quarters of earnings of adequate amount to qualify for credit of the last 13 quarters
prior to the worker's death. If they are SURVIVOR BENEFITS will be paid by Social Security to the
dependents of the deceased worker. See also QUARTERS OF COVERAGE.

COURTESY INTEREST - the courtesy interest is the husband's interest in his wife's property at the
time of her death. A husband has an INSURABLE INTEREST in that property and can purchase a
property and casualty insurance policy to cover the EXPOSURES on it. See also DOWER INTEREST.
CUSTODIAL ACCOUNT - an account established to manage the assets of a minor. This account is
under the auspices on any yearly gifts to a minor.

CUSTODIAL CARE - assistance provided to a person in performing the basic daily necessities of life,
such as eating, dressing, using a toilet, walking, bathing, and getting in and out of bed. This type of
care does not require hospitalization for the treatment of a illness, disease, accident, or injury. Its cost
may be covered by health insurance.

CUT-THROUGH ENDORSEMENT (ASSUMPTION OF RISK) - a guarantee by a reinsurance

company that payment for losses incurred by a third party will be made even though that third party has
no contractual agreement with the reinsurance company.

DAILY FORM (REPORT) - a shortened report listing pertinent insurance policy information, copies of
this report are distributed in the insurance company's HOME OFFICE and BRANCH OFFICES, as
well as to AGENTS and BROKERS.

DATA PROCESSING INSURANCE - coverage on data processing media (such as magnetic tapes,
disks), data processing equipment, and extra expense involved in returning to usual business
conditions. The data processing media is usually written on an ALL RISKS basis. Whereas the data
processing equipment is usually written as ALL RISKS on a specifically scheduled basis. No
COINSURANCE is required for the data processing media and the extra expense coverage.

DATE OF PLAN TERMINATION – a stipulation of the exact time when the PENSION BENEFIT
GUARANTY CORPORATION assumes the legal liabilities for an insured pension plan that is being
discontinued. See also PENSION BENEFIT GUARANTY CORPORATION (PBGC).

DEALERS INSURANCE - coverage on an ALL RISKS basis, for personal property of the insured
dealer that is used in normal business activities, subject to listed exclusions . Goods that have been sold
on an installment basis contract upon leaving the custody, care, and control of the insured dealer;
fixtures and furniture used in the business activities of the insured dealer; securities, money; and items
that are in the process of being manufactured are usually excluded from coverage.

DEAN ANALYTIC SCHEDULE - rating method for commercial fire insurance according to a
predeclared schedule. Published by A. F. Dean in 1902, this method was the first comprehensive
qualitative analysis procedure to take into consideration the numerous physical factors impacting the
fire exposure. This type of schedule is no longer used frequently, because most companies have come
up with their own schedules or use schedules advocated by the INSURANCE SERVICES OFFICE
(ISO).

DEATH BENEFIT - the amount payable, as noted in a life insurance policy, at the time of the death of
the insured. This is the face value of the policy plus any riders, minus the interest accrued thereon and
any outstanding loans.

DEATH PLANNING – an estimate of the funds needed to maintain the life-style of a family after the
wage earner is deceased. See also HUMAN LIFE VALUE APPROACH (ECONOMIC VALUE OF
AN INDIVIDUAL LIFE).

DEBIT AGENT (HOME SERVICE AGENT) – an insurance company salesemen who sells debit life
insurance (industrial life insurance). A debit agent is usually more of a collector than a salesperson.
The debt agent collects small premium payments on a monthly, biweekly, and weekly basis.

DEBIT INSURANCE (HOME SERVICE INSURANCE, INDUSTRIAL INSURANCE) - life

insurance for which a premium is collected on a weekly, bi-weekly, or monthly basis, usually at the
house of a policyholder. The face value of the policy is usually one thousand dollars or less. See also
DEBIT; DEBIT AGENT.

DEBRIS REMOVAL CLAUSE - in property insurance, the debris removal clause is a contract section
allowing for reimbursement for the removal of debris caused by a disaster which is covered in the
insurance plan. The amount of reimbursement under the HOMEOWNERS INSURANCE POLICY
ranges from five to ten percent of the face value.

DECEPTIVE PRACTICE CONCEALMENT – a deceptive presentation of an actual fact. I.E., an

insurance agent tells a prospective insured that a policy provides a particular benefit when this benefit
is not actually written into the contract in any section of the contract.

DECLARATIONS SECTION - in casualty and property insurance, the declarations section is a

contract section containing such information as location, name, and description of the insured
property; address and name of the insured; the period in which a policy is in force; premiums payable;
and amount of coverage.

DECREASING TERM LIFE INSURANCE – insurance coverage in which the face amount of a life
insurance policy decreases by a regulated amount over a period of time. I.E. the initial face amount of a
one hundred thousand dollars decreasing term policy decreases by ten thousand dollars each year, until
after ten years the face value equals zero. The premium however does not decrease.

DEDUCTIBILITY OF EMPLOYER CONTRIBUTIONS - contributions (under qualified employee

benefit plans, such as pensions and health insurance) deducted as a business expense for tax purposes,
and then made by an employer on the behalf of employees. The employer's contributions are not
classified as current taxable income to the employee. Therefore significant tax advantages are available
to both an employee and an employer.

DEDUCTIBLE CLAUSE – an insurance policy provision that lists the DEDUCTIBLE. See also
COINSURANCE; SETTLEMENT OPTIONS, LOSS SETTLEMENT AMOUNT;PROPERTY AND
CASUALTY INSURANCE.

DEFENSE RESEARCH INSTITUTE (DRI) - an organization of trial attorneys who specialize in

representing defendants who become subject to TORT actions. Usually, these tort actions involve
personal injury or bodily injury claims filed against the defendant.

DEFERRED GROUP ANNUITY - deferred group annuities are emplyee retirement income payments
that begin after a stipulated future time period and continue for life. (A beneficiary of a deceased
annuitant may or may not receive further income, depending on whether the contract is a PURE
ANNUITY or REFUND ANNUITY). Every year, contributions are used to buy a paid-up single
premium deferred annuity. These increments, provide income payments at retirement when added
together.

DEFICIENCY RESERVE – an additional reserve of a life insurance company that is demanded by

various states laws if the VALUATION PREMIUM is greater than the GROSS PREMIUM. Without a
deficiency reserve, the normal reserve would not meet state requirement levels.

DEFICIT REDUCTION CONTRIBUTION - contribution whose purpose is to increase funding of

underfunded PENSION PLANS. It is part of the calculation that is made to arrive at the plan's
minimum funding requirement. Usually a pension plan requires such a contribution when the assets of
the plan become less than eighty to ninety percent of the current liabilities of the plan.

DEFINED CONTRIBUTION PENSION PLAN (MONEY PURCHASE PLAN) - retirement plan

under which benefits vary and contributions are fixed in advance by a specific formula. These plans
are often put to use by companies that need to know what the cost of employee benefits will be in the
future. I.E. nonprofit organizations such as charities need to project future pension expenses that will
not exceed a predeclared limit. This allows budgets to be established that give guidelines for their
solicitation of funds.

DELAY CLAUSE in CASH VALUE LIFE INSURANCE policies – a provision that lets the insurance
company refuse the POLICYHOLDER a loan on the cash value for a certain time period, normally
within six months, from the requested date. The only exception is for premium payments due on the
policy.

DELAYED PAYMENT CLAUSE - a life insurance policy provision denoting that after the death of an
insured, the proceeds from a policy are not immediately paid to the primary beneficiary; but are instead
delayed for a certain time period. This usually happens in common disaster scenarios.

DEMOLITION CLAUSE in PROPERTY INSURANCE policies – a provision that resigns the

insurance company's liability for indemnification of the insured, for any of insured's expenses incurred
in the demolition of undamaged property.

DEMOLITION INSURANCE - coverage that will repay the insured for the expenses, within the limits
of the policy, if a building is damaged by a peril such as inferno, and building codes and/or zoning
requirements mandate that the building be demolished.

DEMURRAGE - a compensation payable to the owner of a ship that is detained for reasons beyond the
shipowners control, in the situation that the shipowner incurs a loss of earnings because of the delay.
Detainment can be caused by a delay in the loading or unloading of the ship.
DEMUTUALIZATION (STOCKING A MUTUAL) - conversion of combing of ownership involving a
MUTUAL INSURANCE COMPANY to a STOCK INSURANCE COMPANY. Interest in
demutualization of life insurance companies surged in the early 80's among many large mutual
companies because they felt they needed new sources of capital to compete in the financial services
revolution.

DENTAL EXPENSE INSURANCE - insurance that usually follows the format of COMPREHENSIVE
HEALTH INSURANCE plans in that there is a COINSURANCE requirement of normally seventy to
eighty percent, and a limit on benefits for any 1 person per calendar year. In most cases, there is no
deductible for annual preventive oral examinations. Orthodontia benefits are generally provided
separately.

DEPARTMENT STORE INSURANCE FLOATER - coverage for items being delivered to a customer.
The means of transportation covered include such common carriers as trucks, aircraft, railroads,
express carrier, and other variations, as well as the department store's trucks and other delivery
vehicles. Coverage can be purchased on an ALL RISKS basis subject to excluded perils such as nuclear
disaster and war. Coverage applies on a blanket basis - therefore all location points of delivery are
covered.

DEPENDENT - a person who depends upon another person or party for financial support. For
insurance purposes, the following may be included: (1)any unmarried children younger than a specified
age who are dependent upon the insured for support (age requirements vary from plan to plan); (2) the
insured's legal spouse; (3) unmarried children between specified years of age who are dependent upon
the insured for support, and who are full-time students in an educational institution (age requirements
vary).

DEPENDENT COVERAGE - coverage under life and health insurance policies for dependents of a
named insured to include a spouse and unmarried children under a specified age. Under the terms of
some life insurance policies an insured's spouse and dependent children, unmarried and under age 21,
can be added at decent rates. Health insurance policies cover the same dependent individuals at a far
cheaper rate than the cost of separate policies for them.

DEPOSIT PREMIUM – a premium mandated by an insurance company for plans subject to premium
adjustment. The initial provisional premium is paid to put a commercial property or liability insurance
policy into force. The final premium is decided at the end of the policy period, based on an insured's
actual loss experience and exposures.

DEVIATED RATE - rates used by a casualty and property insurance company that are not the same as
those suggested by a RATING BUREAU. An insurance company may use deviated rates because it
feels they are more indicative of the company's experience.

DIFFERENCE IN CONDITIONS INSURANCE - coverage for, machinery, a physical structure

merchandise, and inventory within a physical structure in the event of flood collapses, earthquakes, and
subsidence strikes. Even though coverage is on an ALL RISKS basis, important perils are excluded
such as vandalism, fire, sprinkler leakage, employee dishonesty, boiler and machinery losses, and
mysterious disappearance, since it is assumed that the insured business already has coverage for these
perils under a business property insurance policy.

DIP-DOWN CLAUSE - provision in an UMBRELLA LIABILITY INSURANCE policy stating that

the policy will be responsible for debts that are within the retention limits of the primary policy, but
that the primary policy is unable pay because its aggregate limits have no further capacity.

DIRECT COVER AUTOMATIC NONPROPORTIONAL REINSURANCE a treaty or AUTOMATIC

PROPORTIONAL REINSURANCE treaty that offers coverage for losses upon which claims are made
while the treaty is active, regardless of when these losses actually occurred. See also CLAIMS MADE
BASIS LIABILITY COVERAGE; CLAIMS OCCURRENCE BASIS LIABILITY COVERAGE.

DIRECT LOSS - property loss in which the insured peril is the proximate cause (an unbroken chain of
events) of the damage or destruction. Most basic property insurance policies (such as the standard fire
policy) insure against only direct loss and not INDIRECT LOSS or CONSEQUENTIAL LOSS. For
example, a fire within the wall structure of a house causes the drapes to catch fire, which in turn fans
flames onto the furniture a direct loss. An indirect loss would be inconvenience of the inhabitants, who
would be unable to sleep in their home, thus causing a drop in their efficiency at work.

DIRECTORS AND OFFICERS LIABILITY INSURANCE - coverage when a director or officer of a

company commits a negligent act or omission, or misleading statement or misstatement, and a
successful label suit is brought against the company as a result. Normally a substantial deductible is
necessary. The policy offers coverage for officers' and directors' liability exposure if they are sued as
individuals. Coverage is also provided for the costs of defense such as legal fees and other court costs.

DIRECT PROPERTY EXPOSURES - circumstance in where there is a PROBABILITY loss to

PERSONAL PROPERTY or REAL PROPERTY caused by property damage, destruction, or
disappearance. See also COMMERCIAL PROPERTY FLOATER; COMMERCIAL PROPERTY
FORM; HOMEOWNERS INSURANCE POLICY; PERSONAL ARTICLES INSURANCE;
PERSONAL EFFECTS INSURANCE; PERSONAL PROPERTY FLOATER; COMMERCIAL
PACKAGE POLICY (CPP).

DIRECT RECOGNITION - immediate taking-into-account of mortality experience, present interest

rates and expenses in premiums currently charged. This is crucial to the calculation of CURRENT
ASSUMPTION WHOLE LIFE INSURANCE products. See also UNIVERSAL LIFE INSURANCE.

DISABILITY BENEFIT - income paid under a disability policy that is not covered under WORKERS
COMPENSATION BENEFITS. It is normally expressed as a percentage of the insured's income prior
to the disability, but there may be a limit on the amount and duration of benefits. The most
advantageous policy pays a monthly disability income benefit for as long as the insured is unable to
perform suitable job functions determined by education, experience, and training.

DISABILITY CLAUSE – a PROVISION within a LIFE INSURANCE POLICY that states that certain
benefits will be paid in the event the insured becomes permanently and totally disabled from a sickness
contracted or an injury incurred . See also WAIVER OF PREMIUM (WP).

DISABILITY - PARTIAL inability of the INSURED to perform one or more of the important daily
duties of that insured's occupation. The income payment to the insured is reduced from that of TOTAL
DISABILITY.

DISCLAIMER – a statement issued by the INSURANCE COMPANY refusing a claim under the
INSURANCE POLICY because a CONDITION or POLICY PROVISION has been breached.

DISCONTINUANCE OF CONTRIBUTIONS - the termination of premium payments by an employee

through their employer, to an employee benefit plan. See also GROUP DISABILITY INSURANCE;
GROUP HEALTH INSURANCE; GROUP LIFE INSURANCE; GROUP PAID-UP LIFE
INSURANCE; GROUP PERMANENT LIFE INSURANCE; GROUP TERM LIFE INSURANCE;
PENSION PLAN; PENSION PLAN FUNDING INSTRUMENTS.

DISCOUNTED PREMIUM – a lump sum premium that is paid in advance instead of being paid in
frequency of premium payments that is stipulated within the INSURANCE POLICY. This lump sum
premium payment will be less than the PRESENT VALUE of the single premium payments.

DISCOVERY PERIOD – a clause in a BOND policy that allows a principal who was formerly insured
by the bond to report a loss that occurred while the bond was in force, to the surety company. The time
period for reporting after the bond terminates is usually limited to one year.

DISCRETIONARY AUTHORITY – the legal power of the commissioner of Internal Revenue to

approve any classification of employees that does not discriminate in favor of a prohibited group. Such
approval is required before a retirement plan can be considered a qualified pension plan and thus
become subject to tax benefits.

DISEASE – an illness or sickness such as poliomyelitis, leukemia, cancer, diphtheria, smallpox, scarlet
fever, tetanus, spinal meningitis, hydrophobia, encephalitis, tularemia, and sickle cell anemia, all of
which are covered in health insurance policies as specified.

DISINTERMEDIATION - the flow of funds from one financial instrument, whose interest rates are
low, into another financial instrument, whose interest rates are higher. In the early 1980s, insurance
companies experienced disintermediation as whole life policies were surrendered for their cash values
and these sums were then transferred to higher interest-paying noninsurance products. Because of this
situation, INTEREST SENSITIVE POLICIES were created by INSURANCE COMPANIES.

DISMEMBERMENT BENEFIT - Dismemberment benefit is income paid under health insurance for
loss of use of various parts of the body due to an accident. A schedule of benefits available in a policy
lists payments for each part of the body that is dismembered.

DIVIDEND – a sum repaid to a policyowner by an insurance company under a participating policy.

Dividends are not deemed as taxable distributions, as the Internal Revenue Service interprets them as a
refund of a portion of the premium paid. There are multiple ways in which the policyowner may use
dividends. See also DIVIDEND OPTION.

DIVIDEND ACCUMULATION – an option within a participating life insurance policy in which

dividends are left on deposit with the company to accumulate at a specified interest rate. If this option
is decided upon, it is imperative to determine the interest rate. Interest on dividends left on deposit is
taxable.

DIVIDEND ADDITION – an option in a participating policy under which dividends are used to
purchase fully paid-up units of whole life insurance. This option deserves careful consideration by
young families since it allows the purchase of extra life insurance without having to take a physical
examination. Paid-up additions generate dividends and cash values that in turn will generate additional
dividends and cash values

DIVISIBLE CONTRACT CLAUSE in PROPERTY INSURANCE contracts – a provision that

denotes that the violation of one or more contract condition(s) at a particular location that is insured
will not forfeit coverage at other insured locations.

DOUBLE-PROTECTION POLICY - a life insurance contract that combines TERM LIFE

INSURANCE with WHOLE LIFE INSURANCE. The term portion of the contract expires after a
stated period of time. If the insured dies during this stipulated period of time, both the term portion and
the whole life portion of the contract will pay. If the insured dies after the stipulated time period, then
only the whole life portion of the contract will pay.
DOUBLE RECOVERY - payments in excess of the value of the lossa prohibited practice. When an
insured has more than one policy covering a risk, the full value cannot be collected from each policy if
a loss occurs. The most that can be collected is each policy's pro rata share of the loss. For example, a
home is insured under two policies of $100,000 each. If there is a fire loss of $100,000, the most that
can be collected from each policy is $50,000.

DOWER INTEREST – a wife's interest in her husband's property upon his death. The wife has an
insurable interest in that property and can purchase a casualty and property insurance policy to cover
the EXPOSURES faced by it. See also COURTESY INTEREST.

DRAM SHOP LAW - liquor liability legislation in twenty states under which a dispenser of alcoholic
beverages is held liable for bodily injury and/or property damage caused by its customers to a third
party. Insurance coverage is available, but at a high premium rate. See also DRAM SHOP LIABILITY
INSURANCE; LIQUOR LIABILITY LAWS.

DRAM SHOP LIABILITY INSURANCE - coverage for dispensers of alcoholic beverages against
suits due to property damage and/or bodily injury as a result of its customers actions to a third party.
Establishments covered include restaurants, bars, hotels, motels, or wherever the alcoholic beverages
are dispensed. These establishments are excluded from coverage under GENERAL LIABILITY
INSURANCE.

DREAD DISEASE INSURANCE - health insurance coverage only for a specified catastrophic disease
such as cancer. It is important to be sure of the waiting period necessary, maximum benefits and
maximum length of time they are payable, and the exact definition of the disease covered. Individual
and group health insurance usually cover all diseases, including dread diseases.

DRIVING WHILE INTOXICATED (DWI) - a term for operating a vehicle while under the influence
of alcoholic beverages so as to be unable to drive safely. An insurance company can suspend auto
coverage under a PERSONAL AUTOMOBILE POLICY (PAP).

DROP DOWN in REINSURANCE contracts – a clause that demands the REINSURER provide
coverage if an underlying carrier is not able to fulfill its obligations under the policy CEDED to the
reinsurer.

DUE CARE/DUE DILIGENCE - assurance by the agent that the recommended insurance plan for the
client is correct for that client's specific needs. This assurance arises from a careful analysis by the
agent of the insurance company's financial strength, the accuracy of the policy illustrations, and the
treatment of its previous and current policyowners.

DUPLICATION OF BENEFITS - coverage in health insurance by two or more policies for the same
insured loss. In such a circumstance, each policy pays its proportionate share of the loss, or one policy
becomes primary and the other policy secondary. See also COORDINATION OF BENEFITS.

DURATION AVERAGING - disciplined approach to managing an INSURANCE COMPANY'S bond

portfolio duration. When interest rates rise, the average maturity and duration of the bond portfolio is
lengthened, causing the portfolio becoming more aggressively positioned to take advantage of the
falling bond prices. Conversely, when interest rates fall, the average maturity and duration of the bond
portfolio is shortened, resulting in the portfolio becoming more defensively positioned to take
advantage of the rising bond prices.

DWELLING INSURANCE POLICY PROGRAM - coverage for a dwelling's structure; appurtenant

structures on the premises; household items within the dwelling and personal contents; and ten percent
of the coverage applicable to such personal contents and household items away from the premises, for
example at a hotel. Additional living expenses are covered because of the damage of an insured peril to
the dwelling and/or its contents, and loss of rental value of the dwelling and/or its contents.

EARLY RETIREMENT - term in pensions; leaving a job before normal retirement age, subject to the
minimum requirements of years of service and age. There usually is a reduction in the monthly
retirement benefit.

EARTHQUAKE INSURANCE - coverage that can be bought as an endorsement to many property

policies such as the Standard Fire Policy or as a separate policy. Coverage is for direct damage caused
by earthquake or volcanic eruption. If there is a lapse of at least 72 hours between earthquake shocks,
then each loss by a given earthquake is subject to a new claim. Excluded are losses resulting from fire,
explosion, flood, or tidal wave.

ECONOMIC OR USE VALUE – property valued according to its earnings potential. However,
property insurance contracts normally repay an insured on a REPLACEMENT COST LESS
PHYSICAL DEPRECIATION AND OBSOLESCENCE BASIS.

EDUCATIONAL FUND - factor considered in determining amount of life insurance to purchase in

order that funds will be available to pay for a child's education expenses in the case of the premature
death of the wage earner. See also NEEDS APPROACH.

ELECTRICAL (ELECTRICAL APPARATUS) EXEMPTION CLAUSE - common element in

property insurance that excludes electrical damage or destruction of an appliance unless the damage is
caused by a subsequent fire.

ELECTRONIC DATA INTERCHANGE (EDI) – a method used to reduce WORKERS

COMPENSATION INSURANCE costs by using a single database system to electronically link claims
medical claim costs, administration, RISK MANAGEMENT, and vendor services. EDI can reduce
errors in claims handling thereby making the process more efficient. Also, EDI permits the
comprehensive gathering of demographic claims data pinpointing the factors that affect the risk.

ELEMENTS OF AN INSURANCE CONTRACT - see ANALYSIS OF PROPERTY AND

CASUALTY POLICY; INSURANCE CONTRACT, GENERAL; INSURANCE CONTRACT,
HEALTH; INSURANCE CONTRACT, LIFE; INSURANCE CONTRACT, PROPERTY AND
CASUALTY.

ELIGIBLE RETIREMENT PLAN – a plan that states an employee may make a ROLLOVER
contribution. If that contribution is from a QUALIFIED TRUST, the employee is allowed to make
rollover contributions to an employer's qualified trust, INDIVIDUAL RETIREMENT ACCOUNT
(IRA), or an ANNUITY.

ELIGIBLE ROLLOVER DISTRIBUTIONS - payments from an employee's EMPLOYEE BENEFIT

INSURANCE PLAN that can be rolled over to an INDIVIDUAL RETIREMENT ACCOUNT (IRA)
or to another plan held by the employer that accepts rollovers.
ELIGIBILITY REQUIREMENTS - conditions stated within a employee benefit plans such as
pensions, under which minimum requirements, such as twenty years of service, must be met by an
employee to qualify for benefits.

EMPLOYER CREDITS – credits in a pension plan that an employer must make against future
contributions (other than a cash basis as required by the IRS). Such credits may develop when an
employee leaves an employer prior to being fully vested, works beyond normal retirement age.

EMPLOYERS CONTINGENT INSURANCE COVERAGE LIABILITY - coverage mandated by the

EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 (ERISA) under which employers
are called to purchase insurance to cover their contingent liability for unfunded employee pension
benefits in the event a pension plan is terminated. This requirement is maintained by the PENSION
BENEFIT GUARANTY CORPORATION (PBGC).

EMPLOYERS CONTINGENT LIEN AGAINST ASSETS LIABILITY - claim (lien) of the PENSION
BENEFIT GUARANTY CORPORATION (PBGC) against an employer's assets upon discontinuation
of a pension plan for the amount of an employee's unfunded benefits.

EMPLOYERS CONTINGENT NET WORTH LIABILITY DETERMINATION – a requirement upon

termination of a pension plan; an employer must reimburse the PENSION BENEFIT GUARANTY
CORPORATION (PBGC) for any loss that the PBGC incurs as the result of paying employee benefits
that were the responsibility of the employer. The law requires reimbursement of up to thirty percent of
the plan's net worth without regard to any contingent liability. This net worth is increased by escrowing
or transferring any assets by the employer in contemplation of the plan's termination.

EMPLOYERS LEGAL OBLIGATION TO FUND – a pension plan format stating that after deciding
how much to contribute, the employer can either reduce, suspend, or discontinue contributions during
the first 10 years only for reasons of business necessity; otherwise the employer will face a substantial
IRS tax penalty. If a plan is terminated or if contributions to the plan are discontinued, the employer is
only liable for benefit payments for which contributions were previously made.

EMPLOYERS NONOWNERSHIP LIABILITY INSURANCE - coverage for the employer in the

event of a TORT committed by an employee in the use of his or her own car while conducting business
on behalf of the employer.

EMPLOYMENT PRACTICES LIABILITY COVERAGE – a plan that offers protection in the case of
legal actions caused by charges of harassment, discrimination, wrongful termination of employment,
defamation, and invasion of privacy.

ENCUMBRANCE – a claim such as to a worker's lien, to property under the care, custody, and control
of another. This situation occurs when a worker is not paid for labor provided. For example, a carpenter
unable to collect payment for installing wood finishings seeks an encumbrance on the owner's property.

ENDORSEMENT - written agreement attached to a policy to add or subtract insurance coverages.

Once this agreement is attached, the endorsement takes precedence over the original provisions of the
policy. I.E. under a homeowners policy an inflation guard endorsement is used so that property damage
limits are increased automatically to show an increase in the cost of construction in the community.
Vandalism and malicious mischief can be added to the Standard Fire Policy through an endorsement.

ENDOWMENT ANNUITY INSURANCE INSURANCE POLICY – a policy that combines the

elements of a DEFERRED ANNUITY with the elements of DECREASING TERM LIFE
INSURANCE. This policy was originally designed to be used as a funding instrument for PENSION
PLANS but is rarely used today.

ENDOWMENT INSURANCE - life insurance policy within which an insured receives the face value
of a policy if the individual survives the endowment period. If the insured does not survive the
endowment period, then a beneficiary receives the face value of the policy. An endowment policy is the
most expensive type of life insurance.

ENGINEERING APPROACH – an approach in loss prevention that places emphasis on physical

features of the workplace as a potential cause of injuries. I.E. if a product is inherently hazardous in
design or during manufacture, an insurance company may assign an engineer to analyze the situation
and recommend changes that could heighten safety standards and lower insurance premiums.

ENTIRE CONTRACT CLAUSE - feature of life and health insurance policies that states that the
policy represents the whole agreement between the insurance company and the insured, and that there
are no other outstanding agreements

ENURE CLAUSE in an INSURANCE POLICY – a policy that states that the benefits under the
policy will accrue to the right of the INSURED. I.E if the insured leaves a violin at a repair shop and
that violin, which is insured under the HOMEOWNERS INSURANCE POLICY, is stolen, the
insurance company will pay the benefits to the insured and not to the repair shop.

ENVIRONMENTAL IMPAIRMENT LIABILITY - negligent acts and/or omissions by the

individual(s) and the organization(s) resulting in damage to the environment. I.E. pollution of the
environment suits against manufacturers are quite common today. The pollution risk is an excluded
uninsurable risk under most liability policies; however, insurance coverage in some instances is
becoming available under ENVIRONMENTAL IMPAIRMENT LIABILITY (EIL) INSURANCE
policies.

ENVIRONMENTAL IMPAIRMENT LIABILITY (EIL) INSURANCE - coverage in the event that

negligent acts and/or omissions by individual(s) and organization(s) result in damage to the
environment and a liability suit against these parties.

EQUIPMENT DEALERS INSURANCE - coverage on ALL RISKS basis for such items as, reapers,
binders, tractors, harvesters, plows,, pneumatic tools and compressors, bulldozers, and road scrapers.
Excluded from coverage are wear and tear, loss due to delay, loss of market, consequential loss such as
loss of income because of damage to the equipment, and mechanical breakdown. Property excluded
includes aircraft, water craft, motor vehicles, and property sold on an installment contract basis after it
has left the care, custody, and control of the insured dealer.

EQUIPMENT FLOATERS INSURANCE - coverage for property that moves from location to location
from lightning, the perils of fire, windstorm, explosion, earthquake, collapse of bridges, flood,
collision under one of the following forms: AGRICULTURAL EQUIPMENT INSURANCE;
CONTRACTORS EQUIPMENT FLOATER; LIVESTOCK INSURANCE; PHYSICIANS AND
SURGEONS EQUIPMENT INSURANCE.

EQUITY - fairness (as an objective of insurance pricing). Premium rates are set according to
expectation of loss among a classification of policyowners. The premise is that all insureds with the
same characteristics should have the same expectation of loss and should be included in the same
underwriting classification. For example, in life insurance, individuals with a good personal health
history, family health history, a job with no special hazards, and who are of good character, should be
classified as standard risks and thereby pay standard rates.

EQUITY AMONG POLICYOWNERS - grouping of applicants for life insurance according to

expected mortality, serving to produce an under-writing classification in which the spread between
health of the worst and best applicant is not large enough to skew the distribution curve.

ERRORS AND OMISSIONS LIABILITY INSURANCE - policies generally available to the various
professions that must have protection for negligent acts and/or omissions resulting in personal injury,
bodily injury, and/or property damage liability to a client. I.E. insurance agents are constantly exposed
to the claim that inadequate or improper coverage was recommended, resulting in the client suffering a
loss of indemnification. If sustained, the agent (or the carrier) would have to make good the claim of
the client without the adequate insurance coverage.

ESTATE SETTLEMENT COSTS - expenses connected with resolving an estate to include funeral
expenditures, medical expenditures, probate expenditures, legal fees, estate taxes, and other
administrative expenditures.

ESTIMATED PREMIUM – a method of premium payment in which a temporary premium is charged

based on projected loss experience. At the end of the year this premium is adjusted to reflect the actual
loss experience. See also RETROSPECTIVE RATING.

ESTOPPEL - stop or bar, such that one party makes a statement which a second party has every reason
to rely upon, thereby preventing the first party from denying the validity of that statement. I.E the
misleading actions of an agent of the insurance company result in the insured being stopped from
having to perform according to the provisions of the contract.

EVIDENCE CLAUSE - clause requiring an insured to cooperate with an insurance company by

producing all evidence requested in settlement of a claim. The company may have a hard time settling a
claim without the proper examination and documentation of evidence.

EVIDENCE OF INSURABILITY - documentation of physical fitness by an applicant for insurance.

Normally this takes the form of a medical examination. Group plans (life, health, disability) require
such evidence if the thirty day eligibility period were to expire before the employee has applied for
coverage. See also ELIGIBILITY PERIOD.

EXCESS DISTRIBUTIONS FROM SECTION 401(a), 403(a), 403(b) RETIREMENT PLAN OR IRA
- a plan under which total withdrawal or income payments from tax deferred savings plans exceed
$150,000 in any one year. An excess distribution tax of 15% of the amount greater than $150,000 must
be paid to the Internal Revenue Service.

EXCESS INSURANCE – liability, property, or health coverage above the primary amount of
insurance. I.E. the primary coverage is one hundred thousand dollars and the excess insurance is one
million. After the losses exceed one hundred thousand dollars, the excess insurance will pay for the
losses up to a total of one million dollars.
EXCESS INTEREST – an amount credited to the cash value of an insured's life insurance policy above
the minimum interest rate it guarantees. This payment is imperative to a policyowner because it will
directly affect the size of the cash value. See also CASH VALUE LIFE INSURANCE.

EXCESS LIMIT in a LIABILITY INSURANCE - policy, limit above the minimum amount of
coverage for which the policy can be written according to company or legal restrictions. See also
EXCESS INSURANCE.

EXCESS LINE BROKER (SURPLUS LINE BROKER) - aninsurance salesperson who is fully
licensed to place coverage with an insurance company that is not licensed to do business in the state of
domicile of the broker. The excess line coverage must be unavailable from a company licensed in the
broker's state.

EXCESS OF TIME REINSURANCE - term used in the reinsuring of DISABILITY INCOME

INSURANCE policies in that, after an extended period of time expires (in addition to the
ELIMINATION PERIOD found in the disability income policy), the REINSURER usually reimburses
the CEDING COMPANY for approximately 70 to 80% of the monthly disability income payment that
the ceding company is required to pay the POLICYHOLDER.

EXCESS POLICY – a policy that pays benefits only if coverage under other applicable insurance
policies has become exhausted. I.E. the personal umbrella liability policy pays after the liability limits
in the homeowners insurance policy have been exceeded.

EXCLUSIONS, BUSINESS LIABILITY INSURANCE – a provision enabled to prevent the

duplication of coverage in other policies; or to eliminate coverage for property under the custody, care,
and control of an insured business; as well as to avoid liability arising out of contractual obligations
between the insured business and another party; liability associated with recall of the insured business's
products; liability associated with the insured business's pollution and contamination exposure; and
liability that may arise if the insured business is found to be in conflict with state liquor regulations.

EXCLUSIONS, HOMEOWNERS INSURANCE - provision that excludes from coverage under Form
No. 3: flood damage, except if the flood causes a explosion, fire, water damage from the backup of
sewers, theft, earthquake, except if the earthquake causes a fire explosion, theft, or glass breakage; war;
nuclear exposure (hazard); wear and tear; vandalism and malicious mischief, or glass breakage if the
house has been vacant for more than thirty consecutive days before the day of the loss.

EXCLUSIVE REMEDY – an exclusive remedy is a procedure in which the employer has ABSOLUTE
LIABILITY for the injuries incurred by the employee and the employee does not have the right to sue
the employer for those injuries suffered. (For job related injuries under WORKERS COMPENSATION
INSURANCE, the sole source of funds for the injured employee is the WORKERS COMPENSATION
BENEFITS.)

EXECUTOR - fiduciary named in a will to settle an estate of a deceased person. The executor must act
as a reasonably prudent man in safeguarding that property in his custody, care, and control. Insurance
coverages are available for executors. See also FIDELITY BOND.

EXHIBITION INSURANCE - coverage provided on an ALL RISKS basis for an exhibitor whose
product, while being displayed at a public exhibition, is destroyed or damaged by a peril that is not
specifically excluded in the policy.
EXPECTED EXPENSE RATIO – a relationship between expected incurred insurance related costs
(not including claims) and expected written premiums. See also EXPENSE RATIO; MANUAL RATE;
RATE MAKING.

EXPEDITING EXPENSES - payment by an insurance company to a destroyed or damaged business

to quicken its return to normal business operations. I.E. if a kitchen of a restaurant is damaged by fire,
the insurance company may be willing to pay overtime wages to enable the restaurant to return to
normal operations as soon as possible.

EXPENSE CONSTANT – a flat dollar amount that is added to the PURE PREMIUM for an insured
risk that is smaller than that of the lowest EXPERIENCE RATING band. This dollar amount serves the
purpose of generating enough additional premium dollar to cover the cost of issuing and servicing an
insurance policy on a risk whose notability dos not openly allow it to be experience rated.

EXPENSE LIMITATION – the ceiling on an expense reimbursement allowance, as stated in New

York insurance law, that an insurance company licensed in New York State can give its agents. This is
one reason why a company that is admitted (licensed) in all states but New York may have a sister
company doing business only in New York State. If an insurance company is not admitted in New
York State, it can allocate greater expense allowances and commissions to agents, thereby attracting
more of their business.

EXPENSE LOADING – the amount added to the basic premium (expectation of loss) to cover an
insurance company's expenses. These expenses include agent commissions, premium taxes, marketing
support costs, costs of putting a policy on the books, and contingencies. CURRENT ASSUMPTIONS
products, in order to be competitive, must emphasize low expense loadings. Companies that offer these
products make special efforts to control expenses.

EXPENSE RATIO – a formula used by insurance companies to relate expenses and income:
This ratio is of critical importance to the insurance company since it reflects the percentage of the
premiums income that goes for expenses; that is, how much it costs the company to acquire the
premiums, a key element in today's competitive marketplace.

EXPERIENCE MODIFICATION – an adjustment of premiums resulting from the use of

EXPERIENCE RATINGS. Experience rating plans take the form of retrospective plans or prospective
plans. Under retrospective plans, premiums are modified after the fact. That is, once the policy period
ends, premiums are adjusted to reflect actual loss experience of an insured. In contrast, under
prospective plans, an insured's past experience (usually for the immediate preceding three years) is
used to determine the premium for the current year of coverage.
FINANCIAL RESPONSIBILITY CLAUSE – a policy provision in auto insurance, such as the PAP
(PERSONAL AUTOMOBILE POLICY), which states that said policy furnishes adequate coverage,
the least of which is at least equal to required coverage of the financial responsibility laws in the state
where the insured is driving.

FINANCIAL RESPONSIBILITY LAW – a law that requires the operator of an automobile to show
proof of the ability to pay for losses related to the automobile. . In various states proof usually is in the
form of carryinga minimum amount of automobile liability insurance.

FINANCIAL RISK MANAGEMENT – investment management of the risks associated with,

INTEREST RATE RISK, BUSINESS RISK, PURCHASING POWER RISK and POLITICAL RISK.
Usually instruments of fixed income financial, such as fixed dollar annuities, fixed dollar life
insurance, and bonds, are most susceptible to purchasing power, business, political risks and interest
rate. Variable dollar annuities, variable dollar life insurance, and common stocks are most subject to
market, business, and political risks.

FINE ART DEALERS INSURANCE - coverage for antiques, works of art, and like articles of value on
an ALL RISKS basis, which is subject to the exclusion of wear and tear, breakage, war, repairing, ,
mysterious disappearance and infidelity of the insured's employees. Fine Arts Insurance Policies are
written on a scheduled basis with destroyed or damaged articles being indemnified on a valued basis.
Similar coverage for fine arts is available through a Fine Arts Endorsement for an SM|P (SPECIAL
MULTIPERIL INSURANCE) policy.

FINE ARTS AND ANTIQUES INSURANCE - insurance coverage for pictures, paintings,
tapestries,etchings, antique furniture, art glass windows, stamp collections and coin collections owned
by individuals and business entities. These works are not covered if owned by auction firms ordealers.
Protection is on the ALL RISKS basis which is subject to exclusions of damage from wear and tear,
ordinary breakage, war, and nuclear disaster. Items to be claimed must be specifically listed and the
valuation must be included in the policy.

FINITE RISK REINSURANCE - expected income from investments is a major factor of the
UNDERWRITING process for contracts of REINSURANCE The ultimate liability of the reinsurer is
also limited. These contracts cannot be canceled by the, but the contract may be exchanged by
theCEDING COMPANY for another contract.

FIRE DEPARTMENT SERVICE CLAUSE in PROPERTY INSURANCE policies - a provision in

the policy that states the INSURED will receive INDEMNITY for expenses incurred which are the
result of acts the fire department took to save or reduce damage to the property of the insured. (i.e. if
the insured’s house is outside the fire district, the fire department could charge a fee for responding to a
fire call.

FIRE LEGAL LIABILITY INSURANCE – policy coverage for property loss liability resulting from
negligent acts and/or omissions of the insured that allows a fire that is spreading to damage the
another’s property. Omissions and negligent acts can result in fire legal liability. (i.e. The insured is
negligent and allows a fire to spread to the property of a neighbor. The neighbor then sues the insured
for negligence. Also, if a tenant is occupying the property of another and negligence causes serious fire
damage to that property.)
FIRE MAP – the detail showing the distribution of property coverages as written by the insurance
company. Delineates a potential danger of the concentration of insured risks.

FIRE MARK - historic emblem which represents evidence of coverage. It is placed on property
insured by a given insurance company. If the property was on fire and was devoid of the company's fire
mark, the fire would not be fought by its private fire department.

FIRST-DOLLAR COVERAGE – an insurance policy where payment is made for a loss which does not
carry a DEDUCTIBLE. Payment can be made up to the limits of the policy, after that an EXCESS
INSURANCE policy goes into effect. (i.e.the HOMEOWNERS INSURANCE POLICYSECTION II
(LIABILITY COVERAGE) would cover up to its limits for an insured loss, thereafter an UMBRELLA
LIABILITY INSURANCE policy takes effect.

FIVE PERCENT RULE – a coinsurance requirement that states if a loss is less than $10,000 and less
than 5% of the total of loss insurance coverage, then the insurance company will not require that any
property undamaged by the peril be appraised or inventoried.

FIXED DOLLAR ANNUITY - annuity that guarantees a specified sum of money will be paid in the
future, most commonly as monthly income, to the annuitant. (i.e. $1000 per month income will be a
paid benefit as long as the annuitant lives; the dollar amount will not vary regardless of changes that are
adverse in the insurance company's investment return, mortality, expenses and experience.

FIXED-PERIOD OPTION SETTLEMENT - beneficiary's choice, in an annuity or life insurance

policy, for a given period of time of receiving income payments. The number of payments is set by the
payee; the death proceeds determines the benefit amount. (i.e. an income benefit of $1000 per month is
paid over a period of 48 months, after which all income payments will cease.)

. FLAT CANCELLATION - an insurance policy cancellation on the policy effective date. No fees are
required to be paid to the insurance company with this type of cancellation.

FLEXIBLE FUNDING – a relatively small monthly premium payment is paid by arrangement

between the insured and the insurance company. The insurance company processes and pays claims
from a fund owned and maintained by the insured in exchange for this small premium payment,.
Should claims go over a stipulated limit, the insurance company agrees to pas the excess amount of
claims.

FLEXIBLE PREMIUM – a premium in which the amount of payment and frequency of payment
may fluctuate. See also FLEXIBLE PREMIUM ANNUITY; FLEXIBLE PREMIUM LIFE
INSURANCE; FLEXIBLE PREMIUM VARIABLE LIFE; UNIVERSAL LIFE INSURANCE;
UNIVERSAL VARIABLE LIFE INSURANCE.

FLEXIBLE PREMIUM ANNUITY - annuity that has no fixed schedule for premium payments. (i.e.
Premiums can be paid for 10 months, then not paid for the following 10 months, then paid every
second month, or any combination thereof.)

FLEXIBLE PREMIUM LIFE INSURANCE - policy that has flexible premiums which follow an
initial premium. Within given limits, a policy-owner can select both the frequency of premiums and
future amount, or can start and stop premium payments at his or her sole discretion. Subject only to
federal tax code restrictions, lump sum payment of premiums can be deposited.

FLEXIBLE SPENDING ACCOUNT LIFE INSURANCE – an account set up by the insurance

company specifically for life insurance policy beneficiaries where the beneficiary has the choice of
writing checks on the deposited amount or leaving the death benefit on deposit in the account earning
interest.

FLOATER – insurance coverage for property which moves from location to another location. The
move can be either on a scheduled or unscheduled basis. Coverage is listed for each item if the floater
covers scheduled property. All property is covered for the same limits of insurance if a floater covers
unscheduled property. See also PERSONAL ARTICLES INSURANCE; PERSONAL PROPERTY
FLOATER.

FLOOR PLAN INSURANCE - coverage for a lender who has accepted as security for a loan
property on the floor of a merchant. The lender is indemnified if the merchandise is damaged or
destroyed,. The policy is on an ALL RISKS basis.

FLOW-THROUGH COST (NO LOAD INSURANCE) – the net cost of insurance with no markup
to cover an intermediary's expenses or profit. An intermediary, for example a broker, sells an insurance
product net; which means, there is no loading for his profit margin or his own cost of soliciting
business.

FOREIGN INSURER – an insurance company whose state of domicile is in a state other than the one
in which the company is writing business.

FORFEITURE - the policy holder relinquishes rights in an insurance policy or pension plan. For
example,an employee forfeits future retirement benefits under that plan by withdrawing contributions
to a pension plan.

FORFEITURE OF VESTED BENEFITS – when an employee withdraws previous contributions to a

plan he or she relinquishes the of rights to benefits. An employee would have been entitled to full
benefits at normal retirement age or to a reduced benefit at early retirement if he or she had not
withdrawn these contributions, whether or not the employee in the service of the employer at that
time.

FORM 5500 – a form that reports the activity of retirement plans and their status to the Internal
Revenue Service (lRS). In order to determine whether a retirement plan is in compliance with all
requirements, the IRS uses this form. Form 5500 needs to be filed with the IRS by the last day of the
seventh month following the plan's year-end.

FORWARD COMMITMENT RISK – the risk incurred by the insurance company after it commits to
make a loan at some future time and at that time the borrower may not accept the loan.

FRANCHISE CLAUSE – a clause in a MARINE INSURANCE policy that states the policy will not
pay any CLAIMS less than a specified amount but will pay claims greater than that amount. This is a
form of deductible insurance and the purpose of this clause is to eliminate the costs involved in
processing small claims when their costs could easily exceed the actual amount of the claim..

FRANCHISE DEDUCTIBLE – a stipulation that no claim will be paid until a loss exceeds a given
percentage of the amount of insurance in force or a flat dollar amount. After the loss is in excess of this
percentage amount or dollar amount, the insurance company will pay 100% of the claim loss.

FRANCHISE INSURANCE (WHOLESALE INSURANCE) - coverage for small groups that are
unable meet the underwriting standards of true group insurance. Individual policies are written on each
insured person even though the franchise insurance covers an entire group. Each covered person has the
right to different coverage than other members. This is usually sold to groups of employesr.

FRAUDULENT CLAIM – a demand without foundation, such as a claim submitted to an insurance

company by an insured for a loss that never occurred or when the insured caused the loss.

FRAUDULENT MISREPRESENTATION – a dishonest statement to influence an insurance

company to write coverage for an applicant. The company would not accept the applicant if it knew the
truth. A property and casualty company has grounds to terminate a policy at any time if there has been
fraudulent misrepresentation. On the other hand, a life insurance company can only terminate a policy
on the grounds of fraudulent misrepresentation only during its first two years; after that period, the
INCONTESTABLE CLAUSE goes into effect.

FREE EXAMINATION "FREE LOOK" PERIOD – the right of the insured, in most states, to have
10 days in which to examine an insurance policy. If not satisfied, the insured has the right to return it
to the company for a full refund of the initial premium.

FREE OF PARTICULAR AVERAGE (FPA)- a marine insurance contract clause that limits the
liability an insurance company. The company agrees to pay only losses that are greater than a flat dollar
amount or percentage; partial losses (losses below this amount or percentage) are not paid. In effect, the
principle acts like the DEDUCTIBLE feature of other policies.

FREE ON BOARD (FOB) – a term that means that when the goods of an exporter are destroyed or
damaged during international shipment, the exporter relinquishes responsibility for the destruction or
damage once the goods reach their point of destination.

FREE TRADE ZONE – a geographical area where commerce can be conducted without the application
of tariffs. The idea was adopted into insurance through using a REINSURANCE FACILITY for the
buying and selling of insurance coverages without the application of a premium tax.

FREEZING OF SUPPLEMENTAL LIABILITY- a procedure where the employer's liability for the
supplemental cost of an employee's future benefits to be paid at retirement is not amortized. See also
INDIVIDUAL LEVEL COST METHOD WITH SUPPLEMENTAL LIABILITY.

FREQUENCY AND DISTRIBUTION OF LOSSES – the severity and the number of times losses
occur. These statistics measure the expectation of loss, and are critical in establishing the pure cost of
protection that is based on expectation of loss or a basic premium.

FRIENDLY FIRE – the kindling intentionally set in a stove, furnace, fireplace, or other containment
and has not spread beyond it. Damage from a friendly fire is not protected by property insurance.
Smoke damage to the inside of a fireplace is not covered, for example, because the fire is in its normal
habitat; to insure it would be insuring against a certainty. Coverage against fortuitous loss is the
purpose insurance is designe. See also HOSTILE FIRE.
 FRONTING (FRONTING COMPANY) – the procedure whereby the CEDING COMPANY
(fronting company or the primary company) cedes the underwritten risk to its reinsurer with the ceding
company retaining a very small portion or none of that risk for its own account. See also
REINSURANCE.

FRONT LOADING – the expenses which are added to the beginning of a premium payment period.
(For example, the 10% front load of an annuity would include $10 of expenses for each $100 premium
paid.)

FULL PRELIMINARY TERM RESERVE VALUATION – the mathematical combination of one-

year deferred permanent insurance and one-year term insurance such that no reserve has to be set up for
the first year the policy is in effect and an allowance is made for the adjustment of future reserves to
reflect this one-year lag.

FULL REPORTING CLAUSE – a provision in commercial property coverage under whereby in

order to preserve coverage up to values reported, an insured must report the value of an insured
property at periodic intervals. In effect, this clause requires the insured to maintain 100% coinsurance
or total insurance to the value of the property. If a loss takes place and the insured maintains less than
the 100% requirement, only a portion of that loss will be paid. See also COINSURANCE.

FULL VALUATION RESERVE – a method of valuing a reserve where no reserve is to be

established for a life insurance policy at the end of the first policy year, but reserves will be established
at the end of the second policy year. This approach enables more funds to be available to the company
during the first policy year to pay the expenses associated with selling the policy. See also FULL
PRELIMINARY TERM RESERVE PLAN.

FULL VALUE LOSS RESERVES - an adequate amount of undiscounted LOSS RESERVES that
must be maintained by property and casualty insurance companies in order to provide for the payment
of the settlement value of the outstanding claims of the companies. The expected return from any
investment considerations cannot reduce these reserves.

FULL VESTING – an entitlement to full pension benefits with no reduction, even should an
employee no longer be in the service of an employer at retirement. For example, under the TEN YEAR
VESTING rule, an employee is automatically credited with future retirement benefits after that
employee has worked 10 years for an employer. See also VESTING, CONDITIONAL.

FULLY INSURED STATUS - a provision in Social Security: whereby a participant must have
earned income on which Social Security taxes were paid for at least 10 years or 40 quarters to receive
retirement monthly income,.

FULLY PAID POLICY – a limited pay whole life policy where all premium payments have been
made. For example, no future premiums have to be made, and the policy remains in full force for the
life of the insured after the 20 pay policy is completely paid in 20 payments.

FUNDED COVER – a transaction in which the CEDING COMPANY pays a premium to be

guaranteed specific future payments to fund future losses. If losses are less than expected, the ceding
company receives a profit commission. Conversely, if a faster rate of catastrophic losses are occurring
than the investment return earned on the premium, the ceding company will not receive its full
recovery on its reinsurance. See also FINANCIAL REINSURANCE.

FUNDED PENSION PLAN – a plan in which retirement benefits are purchased by funds are
currently allocated. Even if the employer is no longer in business at the time the employee retires, an
employee is thereby assured of receiving retirement payments,. See also ALLOCATED FUNDING
INSTRUMENT.

FUNDING AGREEMENT – a private placement investment contract sold by insurance companies.

This product pays the investor a higher rate of return than commercial paper and has no registration
requirement. PUT OPTIONS that permit the investor to terminate the contract provided 7, 30, 90, or
180 days' notification is given are frequently associated with this product.

FUNDING COVER - refers to premiums that are paid into an account at a commercial bank by the
insured or reinsured that will be used to pay for future or past losse. Portions of the premiums which
are not required to pay for these losses are then refunded to the POLICYOWNER or CEDING
COMPANY.

FUNDING STANDARD ACCOUNT – a pension plan funding approach under which a separate
account is maintained for comparing actual contributions to the plan with the minimum of contributions
required to meet future employee benefit liabilities. This account acts as a reservoir because it can store
excess contributions above the minimum contributions required. It also allows excess contributions to
accumulate with interest and then applies these accrued contributions to reduce the future minimum
required contributions.

FUR AND JEWELRY FLOATER – the coverage for loss or damage to fur and jewelry at any
location on an ALL RISKS basis. In order to be covered, furs and jewelry must be scheduled.

FURRIERS CUSTOMERS POLICY – the coverage for fur garments belonging to customers of a
furrier on an ALL RISKS basis. See also FURRIERS BLOCK INSURANCE.

FURS INSURANCE – the coverage on clothes that have fur trim as well as fur coats. Protection is
provided at any location subject to the exclusions of wear and tear, war, and nuclear disaster on an ALL
RISKS basis. Each item must be specifically listed in the policy.

FUTURE BUY-OUT EXPENSE OPTION – an option clause in a DISABILITY BUY-OUT

INSURANCE POLICY whereby the owner of the policy is permitted to increase the limits of coverage
for the expenses associated with the buy-out process. Usually, the limits can be increased only on the
dates stipulated in this clause.

GAMBLING RISK – a device that creates risk as compared with INSURANCE, which is a risk-
reducing or risk-eliminating device. This is a form of speculative risk.
 GARAGE INSURANCE – the coverage for property damage, destruction, or bodily injury, resulting
from the operation of the garage for which the insured garage and/or its representatives become legally
liable. For example, negligent repair to a customer's automobile brakes cause them to fail, thereby
injuring the driver. The garage faces being sued for liability in perhaps three types of damages: special,
general, and punitive.

GENERAL ACCOUNT GUARANTEED INVESTMENTS CONTRACT (GIC) – a type of

GUARANTEED INVESTMENTS CONTRACT where funds for the contract are put in the general
account of the insurance company.

GENERAL ADJUSTMENT BUREAU (GAB) – the national agency supported by property

insurance companies. Companies that do not have their own claims adjusters use this bureau.

GENERAL AGENT (GA) – an individual responsible for the operation of an insurance agency in a
particular area, including recruiting and training agents, sale of life and health insurance, servicing
policies already sold, and providing administrative support. General agents are compensated on a
commission basis and usually pay all expenses of administering their agencies.

GENERAL AGENTS AND MANAGERS CONFERENCE (GAMC) – the association of managers

and general agents affiliated with the NATIONAL ASSOCIATION FOR LIFE UNDERWRITING
(NALU). Their objective is to seek solutions to common managerial problems. GAMC gives awards
for outstanding performance by members and provides a forum for the exchange of ideas.

GENERAL AVERAGE – the damages and expenses incurred as the result of the damage to a ship
and its cargo and/or of taking direct action to prevent initial or further damage to the ship and its cargo.
These expenses and damages are paid by interested parties in the ship and its cargo in proportion to
their values exposed to the common danger. Contrast with PARTICULAR AVERAGE.

GENERAL LIABILITY INSURANCE – the coverage for an insured when omissions and/or
negligent acts result in the bodily injury and/or property damage on the premises of a business, when
someone is injured when someone is injured in the general operation of a businessor as the result of
using the product manufactured or distributed by a business.

GENERAL OPERATING EXPENSE – the costs that are incurred by an insurance company other
than agent commissions and taxes; in other words, the administrative expense of running a company.

GIFT IN TRUST - value or property given by an individual to a trustee who holds and administers it
for the benefit of the donee (recipient of the gift). For example, a father entrusts a life insurance policy
with all ownership rights to a trustee. The trustee owns the policy, collects the proceeds, but
administers the proceeds for the benefit of the donee son. See also ESTATE PLANNING
DISTRIBUTION.

GIFT TAX EXCLUSION – an amount, not to exceed $10,000 per year, given to each of an
unlimited number of donees free of FEDERAL ESTATE TAX and GIFT TAX. Each individual can
give up to $10,000 to any one donee, or up to $10,000 each to an unlimited number of donees, provided
there are no conditions attached to the gift. A gift completed in this manner will not reduce the donor's
MARITAL DEDUCTION.
 GOLFERS EQUIPMENT INSURANCE – the coverage for golf clubs and golf equipment subject to
exclusions of wear and tear, war, and nuclear disaster on an ALL RISKS basis. Location of coverage is
a clubhouse locker or any other building used in golf activities. For example, if a golfer's clubs were in
the locker in the clubhouse and they were stolen, the golfer would be indemnified. There is usually no
coinsurance requirement, and coverage is provided on a replacement cost basis.

GOOD STUDENT DISCOUNT – a reduction in rate for automobile insurance for a student with a
good academic record. Some statistical studies suggest that good students have fewer automobile
accidents.

GOVERNMENT INSURANCE coverage under the auspices of a state or federal agency that can be
either elective or mandatory. See also SOCIAL INSURANCE.

GRACE PERIOD – a period after the due date of the premium during which the premium can be
paid with no interest charged and the the policy remains in force. This period is for 30 or 31 days. If the
insured dies during this period, the beneficiary would receive the full face amount of the policy minus
the premium owed. Thus the use of the grace period allows the financial technique of leveraging.

GRADED DEATH BENEFIT – the payment that increases with the age of an insured. Graded
benefits may increase gradually and then level off, or may increase sharply before leveling off. This
coverage is most common in juvenile life insurance.

GRADED POLICY - insurance premiums are charged according to the size of the FACE AMOUNT
of the policy, so that the greater the face amount, the lower the cost per $1000 unit of insurance.

GRADED PREMIUM, WHOLE LIFE INSURANCE – the coverage under which initial premiums
are lower than normal for the first few years, then are gradually increased for the next several years
until they become level for the duration of the policy.

GRADED VESTING - VESTING, DEFERRED or VESTING, IMMEDIATE whereby the accrued

benefits of the employee increases on a percentage basis (according to attained age and/or years of
service) until 100% VESTING is achieved.

GRANTOR RETAINED TRUST – a trust under which the grantor retains income from the ASSETS
that have been transferred to the trust. This trust protects the assets from creditors, permits the
avoidance of probate, and leads to the saving of substantial taxes. See also GRANTOR-RETAINED
INCOME TRUST (GRIT); SUPERGRIT.

GROSS LINE – the total limit on the amount of coverage on an individual RISK an INSURER
will underwrite. The amount underwritten includes the amount to be CEDED through a
REINSURANCE agreement.

GROSS NEGLIGENCE – a reckless action without regard to life, limb, and/or property; for
example, driving 100 miles per hour on a highway or road.

GROUP ANNUITY – a contract providing a monthly income benefit to members of a group of

employees. A group annuity which is underwritten on a group basis has the same characteristics as an
individual annuity . See also ANNUITY.
 GROUP ANNUITY TABLE, - a 1971 historical MORTALITY TABLE that replaced the GROUP
ANNUITY TABLE of 1951, whose statistics at that time were more current than the table it replaced.
This table was subsequently replaced by the 1983 GAM table (mortality table used to calculate male
annuity rates on a group basis).

GROUP CERTIFICATE – the summary certificate of benefits issued to an employee in lieu of a

policy. The master contract is retained by the employer. For example, an employee receives only a
summary certificate of benefits in group life insurance, while the master contract remains with the
employer.

GROUP CREDIT INSURANCE – the coverage issued to a creditor on the lives of debtors for
outstanding loans. The policy pays the remainder of the loan to the creditor if a debtor dies before
repayment,. The contract covers an entire group of debtors rather than each debtor separately.

GROUP DISABILITY INSURANCE - the coverage of an employee group whose members

receive a monthly disability income benefit if illness or accident prevents a member from performing
the normal functions of his or her job, subject to a maximum amount,. Benefits are usually limited to a
stated length of time, and the maximum monthly income benefit is usually no more than 50-60% of
earnings prior to the disability, or a flat dollar amount, whichever is less.

GROUP LONG-TERM DISABILITY POLICY – a group insurance contract where a periodic

(usually monthly) disability income benefit is paid to the insured as long as he or she remains disabled.

GROUP PRACTICE HEALTH MAINTENANCE ORGANIZATION - HEALTH

MAINTENANCE ORGANIZATION(HMO) that restricts to a relatively small amount the number of
medical providers from which a member may seek services. Usually, HMO members may select the
primary care physician of their choice from this number. After services are rendered to the HMO
member, the physician charges the HMO a predetermined fee. Frequently, this select group of medical
providers are exclusively employed by this particular HMO.

GROUP UNIVERSAL LIFE INSURANCE – a policy similar to an individual UNIVERSAL LIFE

INSURANCE policy except that coverage is provided (up to a limit) without the requirement of the
submission of EVIDENCE OF INSURABILITY.

GUARANTEE COST NONPARTICIPATING LIFE INSURANCE – a policy whose cash value,

face amount and premiums are guaranteed (all values are fixed and do not fluctuate according to the
loss experience, expenses, and investment returns of the insurance company). The advantage of this
policy to the POLICYOWNER is that, when the company experiences adverse conditions, they are not
passed on to the policy-owner. Conversely, the disadvantage of this policy to the policyowner is that
the policyowner does not reap the benefits when the company experiences good conditions.

GUARANTEED COST PREMIUM – a premium charged for an insurance policy whose coverage
does not vary according to the insured’s loss experience. The premium is calculated either on a
prospective basis (fixed or adjustable,) or on a specified rating basis.

GUARANTEED COST (TRADITIONAL) INSURANCE PROGRAM – an arrangement whereby

the insured pays a fixed premium to the insurance company in exchange for the total transfer of the risk
to that company.

GUARANTEED INVESTMENT CONTRACT (GIC) – an institutional investment sold by life

insurance companies that guarantees principle and offers flexibility of withdrawal. This conservative
investment, which can be used with a corporate qualified plan, became one of the most popular choices
in such salary reduction plans as the 401 (k) plan. Many of these plans offered employees three choices
for depositing their pre-tax retirement dollars: a bond fund, a stock fund, and a GIC. By 1987, about
40% of employees had elected GIC investments.

GUARANTEED ISSUE - the right to purchase insurance without a physical examination; the
present and past physical condition of the applicant are not considered.

GUARANTEED RENEWABLE CONTRACT (LIFE OR HEALTH) – an insurance policy

renewable at the option of the insured to a stated age or for a specified number of years. The insurance
company cannot refuse to renew the policy and cannot change any of its provisions except the
PREMIUM RATE. If the insurance company changes the premium, it must do so for the entire
policyholder classification, not just for one or a few members. See GUARANTEED INSURABILITY.

GUARANTOR – a term in surety coverage. Through the issue of a surety bond, a surety company is
in effect the guarantor. See also SURETY BOND.

GUARANTY FUND (INSOLVENCY FUND) - aggregate sums to pay claims of insolvent

insurance companies in certain states. These funds are maintained by contributions of companies
operating in a particular state in proportion to their business written in that state. A guaranty fund
insures the integrity of the insurance business.

GUARDIAN – an individual who is legally responsible for taking care of another individual(s) who
is deemed to be incapable of managing his/her own affairs. Children under the age of majority, for
example, are not assumed to be able to manage their own affairs.

GUEST LAW – the legal right of a passenger in an automobile involved in an accident to bring a
liability suit against the driver. It is deemed that a special standard of care is owed by an automobile
driver towards the passenger. This law bars suits only for ordinarynot gross or criminal negligence.
Such actions by a passenger are prohibited in many states and in other states, intentional misconduct of
the driver must be shown.

GUIDING PRINCIPLES – the title of a published set of rules that stipulate how losses should be
adjusted when the same loss is covered by more than one insurance company and adhered to by
member companies of major property and liability associations,. Particular emphasis is placed on how
the cost of the losses should be apportioned among the companies under various situations.

HAIL INSURANCE – the coverage against hail damage to crops. Coverage is on a proportionate
basis; such that, in the event of loss, a farmer will recover an amount based on the ratio of the damaged
part of a crop to the entire crop.

HANGARKEEPERS LEGAL LIABILITY INSURANCE - coverage for the owner of an airplane in

circumstances where use of the owner's premises as an aircraft hangar results in bodily injury or
property damage to a third party. Property under the care, custody, and control of the insured are
excluded from coverage. Another application of this policy covers the operator of a hangar for liability
from damage to an aircraft that the owner has placed under the operator's care, custody, and control for
storage or repair.

HARDSHIP – the existence of a financial need which permits in-service withdrawals of funds from
a SECTION 401 (k) PLAN or a SECTION 403 (b) PLAN to pay tuition for post secondary education
for a participant or the participant’s spouse, children, or other dependents.

HAZARD – a circumstance that increases the probable severity and/or likelihood of a loss. For
example, the storing of explosives in a home basement is a hazard that increases the probability of an
explosion.

HAZARD INCREASE RESULTING IN SUSPENSION OR EXCLUSION OF COVERAGE – a

provision commonly found in fire insurance contracts. Most property contracts permit the insurance
company to suspend or terminate coverage if the insured knows that a hazard is increased,. For
example, manufacture of drugs in the home would give the insurance company the right to invoke this
clause if it could show that the manufacturing process increases the probability of fire. See also
LOSSES PAID.

HEALTH CARE POWER OF ATTORNEY – the legal instrument that authorizes a person to make
medical decisions for another person should that person become temporarily or permanently incapable
of making those decisions. This power is usually coupled with a LIVING WILL to indicate the type of
health care desired if the person no longer has control of his or her faculties or is terminally ill.

HEALTH CERTIFICATE – a statement submitted to the INSURANCE COMPANY along with a

request for the REINSTATEMENT of an INSURANCE POLICY that has LAPSED. This statement
certifies that the INSURED'S health has not materially changed during the lapsed period.

HEALTH INSURANCE – there are three basic plans are available to cover the costs of health care:
PRIVATE NONCOMMERCIAL (BLUE CROSS/BLUE SHIELD COMMERCIAL HEALTH
INSURANCE,), and SOCIAL INSURANCE (Social Security). See also MEDICAID; MEDICARE;
WORKERS COMPENSATION INSURANCE.

HEALTH INSURANCE ASSOCIATION OF AMERICA (HIAA) – AN organization that seeks to

educate the public on the benefits of private health insurance coverage. Its membership consists of
private companies that sell health insurance. The HIAA lobbies federal and state legislatures in an
effort to support its objective and publishes materials. Based in Washington, D.C.
 HEDGING – a method of transferring RISK to allow the RISK BEARER to assume two offsetting
positions concurrently so that, regardless of the outcome of an event, the risk bearer is left in a no
win/no lose position. In the options market, for example, ,a stock owner of an underlying stock can
write calls or buy puts. In the same options market, the short sellers of the underlying stock can buy
calls or write puts.

HEDONIC DAMAGES - damages awarded to the plaintiff, in personal injury cases, for the loss of
joy of living. For example, if a person's negligent act results in damage to another person's leg, the
injured person claims that he/she can no longer walk his/her dog thus being deprived of one of the
greatest joys in the injured person's life.

HEINRICH, H. W. - executive of Travelers Insurance Company who developed the DOMINO

THEORY OF ACCIDENT CAUSATION. He studied over 75,000 industrial accidents and concluded
that most accidents would be preventable if only the acquired behavior of individuals could be altered.
Heinrich held that extensive programs should be conducted by industrial companies to convince
employees to act safely.

HIGHLY PROTECTED RISK - exposures where action has been taken to reduce the severity and
frequency of loss, such as adding sprinkler systems in public buildings. These actions could result in a
significant reduction in the fire insurance premium.

HOLD-HARMLESS AGREEMENT – the assumption of liability through a contractual agreement by

one party, thereby eliminating liability on the part of another party. An example would be a railroad
sidetrack agreement with a manufacturing company under which the manufacturer is held harmless for
damage to railroad equipment and tracks.

HOME OFFICE LIFE UNDERWRITERS ASSOCIATION (HOLUA) – the organization of home

office underwriters of life insurance companies. HOLUA offers national examinations and educational
material for home office life underwriters, the individuals who evaluate applications for insurance,
decide if an applicant meets the requirements of the company for issuing insurance, and determine the
rate classification into which the applicant falls.

HOMEOWNERS INSURANCE POLICY – a package policy that combines (1) coverage against the
insured's property being damaged or destroyed by various perils, and (2) coverage for liability exposure
of the insured.
Homeowners policies cover both property as well as individuals. In addition to the insured, those
covered include his or her spouse, their relatives, and any others under 21 who are residents of the
insured's household.

HOMESTEAD RIGHT – the use of a home, and the buildings and land surrounding that home, free
from the claim of creditors. This right gives rise to an INSURABLE INTEREST.

HOSPITAL CONFINEMENT INDEMNITY INSURANCE – a policy that pays fixed dollar

amounts for each day the insured is confined to the hospital. This method of payment is contrasted with
most other MEDICAL EXPENSE INSURANCE that reimburses the insured on the incurred costs.

HOSPITAL LIABILITY INSURANCE - form of insurance covering (1) ) injuring of a patient by

another patient; (2) liability arising out of the provision or nonprovision of hospital services so as to
have an action brought against the hospital for malpractice, error, or mistake; (3) food and other items
resulting in injury to the patients; (4) costs to defend the hospital even if the suit is groundless; and (5)
injury to a person treated in an ambulance.

HOSTILE FIRE – is unfriendly fire not confined to its normal habitat. For example, fire in the
fireplace escapes onto the sofa. Property contracts protect against damage from hostile fire, not from
damage from fire in the fireplace, its normal habitat. The insurance is designed to cover FORTUITOUS
LOSS, which the hostile fire is. See also FRIENDLY FIRE.

HOST LIABILITY – is exposure created when an individual acting as a host serving alcoholic
beverages at no charge to persons who are already intoxicated, resulting in these intoxicated individuals
causing property damage and/or bodily injury to third parties. See also DRAM SHOP LAW.

HOUSEHOLD INVENTORY – is a list and description of valuables, to be used in the event an

insurance claim needs to be filed. Included should be: (1) a detailed explanation of possessions that are
of special value, such as a piano or violin; (2) appraisals on expensive items such as jewelry, art, furs,
and antiques; (3) make and model numbers of appliances and electronic equipment. A photograph
and/or videotape should be taken of the important items in the home showing their condition and
quality.

HOW LONG A POLICY WILL BE IN FORCE – the duration of a policy. Property and casualty
coverages are usually written for one year, although a personal automobile policy can be for a six
month period. Life insurance can be written on (1) a term basis (1 year, 5 years, 20 years, to age 65),
(2) whole or life basis, or (3) any combination of the two. Health insurance can be written on a multiple
time period basis.

HULL MARINE INSURANCE – is coverage of the hull of a ship and its tackle, equipment,
passenger fittings, boats, stores, and ordnance. Coverage is provided under the following types of
policies: BUILDERS RISK HULL INSURANCE; NAVIGATION RISK INSURANCE, and PORT
RISK INSURANCE

HUMAN APPROACH – the technique of loss control and reduction of losses in insurance.
Supporters of this method believe that the safety attitudes of individuals determine the safety
precautions they take. The human approach seeks to convince people to want to be safe in order to
reduce loss severity and frequency. For example, campaigns encouraging the use of seat belts help
promote safety consciousness in society.

HURRICANE INSURANCE – is a part of windstorm coverage, usually one of a group of property

coverages that covers all kinds of winds such as tornadoes and storms. See also STORM INSURANCE
(WINDSTORM INSURANCE).

IMMEDIATE ANNUITY – an annuity that commences payments after a single premium is paid.
For example, the annuitant pays a single premium of $100,000 on June 1 of the current year and begins
receiving a monthly income of $1200 for life starting July 1.

IMMEDIATE NOTICE – a provision found in PROPERTY AND LIABILITY INSURANCE

policies that mandates that the insured notify his/her insurance company as soon as possible following
the occurrence of a loss covered under the policy.
 IMPAIRED RISK IMMEDIATE ANNUITIES – is income payments to be calculated based on the
ANNUITANT'S LIFE EXPECTANCY and adjusted to reflect the annuitant's medical circumstance.
For example, a person age 63 might have a medical impairment that gives him/her the same life
expectancy as that of a person age 73. The income payment can be increased accordingly to reflect the
shorter life expectancy.

IMPAIRED RISK (SUBSTANDARD RISK) - in life and health insurance, a person whose physical
condition is less than standard or who has a hazardous hobby or occupation. For example, an applicant
with a history of strokes is seen as an impaired risk. Some substandard insurance companies specialize
in insuring substandard risks, applying an additional premium (surcharge) to reflect the higher
probability of loss from a particular impairment.

IMPAIRMENT OF CAPITAL – a situation where the insurer of stock must invade its capital
account in order to meet its obligations. Most states do not allow insurers to do this and quickly rescind
their right to do business in their state.

IMPREST ACCOUNT – a fund established to pay specified losses, usually low severity property
losses. This type of account is an excellent device in conjunction with a SELF-INSURANCE plan, in
which the fund is infused with new capital as it goes to zero after paying property losses.

IMPROVEMENTS AND BETTERMENTS INSURANCE – is a tenant's modifications of leased

space to fit his specific needs. Up to 10% of contents covered inside the structure may be applied to
insure against damage or destruction of betterments or improvements made by a tenant who does not
carry coverage on the structure itself. For example, under the HOMEOWNERS INSURANCE
POLICY, if the contents of an apartment are insured for $25,000, then $2500 would apply to cabinets
that the tenant built into the kitchen.

INADMITTED ASSET – an asset excluded from the FINANCIAL STATEMENTS submitted to the
state INSURANCE EXAMINER because the asset has virtually without value in meeting claims in the
event the INSURANCE COMPANY must be liquidated. Also called NONADMITTED ASSET.

IN-AREA EMERGENCY SERVICES – a provision of HEALTH MAINTENANCE

ORGANIZATION (HMO) coverage. A member who is critically injured within the geographical
service area of the HMO can use the nearest hospital for emergency care, rather than a more distant
hospital authorized by the HMO.

INCENDIARISM – arson; an act of starting a fire;. Arson is a covered peril under a PROPERTY
INSURANCE contract, provided the owner of the property is not responsible for the arson.

INCHMAREE CLAUSE – a provision of MARINE INSURANCE. It protects property destroyed or

damaged as the result of the negligent acts of the crew. The name is derived from a steamer in which a
pump was damaged by the negligence of the crew.

INCIDENTAL CONTRACT – a secondary reason for forming a contract. In group insurance, the
group must be formed and maintained for other reasons than obtaining insurance. If the group were
formed primarily to obtain insurance, ADVERSE SELECTION would take place.

INCIDENTAL MALPRACTICE – is medical malpractice that is the legal responsibility of an

organization or a person not in the medical profession or business. It is usually covered under a
PROFESSIONAL LIABILITY INSURANCE policy.

INCIDENTS OF OWNERSHIP – a policyowner’s rights under a life insurance policy, including the
right to surrender the policy for its cash value and to name a new beneficiary at any time.

INCOME AND PRINCIPAL POLICY – a policy that provides upon the death of the INSURED an
income for life to the primary BENEFICIARY. The FACE AMOUNT of the policy becomes payable
to the secondary beneficiary upon the death of the primary beneficiary. If the primary beneficiary die
before the insured, the face amount of the policy is paid to the secondary beneficiary upon the death of
the insured.

INCOME IN RESPECT OF A DECEDENT (IRD) – a classification at death of all PENSION PLANS,

PROFIT-SHARING PLANS, INDIVIDUAL RETIREMENT ACCOUNTS (IRAs), ANNUITIES, and
installment payments to the extent to which the deceased was entitled to receive income and that
income was not included in the taxable income of the deceased in the year of the death. This income is
subject to income tax to the BENEFICIARY as well as ESTATE TAX to the heirs.

INCOME REPLACEMENT – a benefit in disability income insurance whereby an ill or injured

wage earner receives a monthly income payment as a replacement for a percentage of his or her lost
earnings. See also DISABILITY INCOME INSURANCE (Amount of Benefits).

INCORPORATION INTO FUNDING AGREEMENT – are factors taken into account with regard
to the instrument used in funding a pension plan. For example, an allocated funding instrument
guarantees that benefits will be paid for all premium payments received. This should eliminate
concerns of employees regarding the availability of funds to pay their benefits at retirement.

INCREASED COST ENDORSEMENT – is coverage for extra expenses associated with the
reconstruction of a destroyed or damaged building where zoning requirements mandate more costly
construction material. This endorsement is an attachment to property policies.

INCREASED COST OF CONSTRUCTION CLAUSE – is coverage if municipal or state law

requires that a destroyed or damaged building must be rebuilt at an increased cost to comply with
building code provisions that were not in effect when the building was originally constructed.

INCREASED HAZARD – a condition that increases the probability of a loss. For example, storing
flammable material next to a furnace in one's home increases the hazard with the knowledge of an
insured, and is grounds for the insurance company to suspend the policy.

INCURRED LOSS RATIO – the proportion of losses incurred to the premiums earned. This ratio
states the amount of a premium dollar that is being consumed by losses.

INDEMNITY AGREEMENT – a policy provision designed to restore an insured to his/ her original
financial position after an occurence of loss. The insured should neither be put at a monetary
disadvantage nor profit by incurring the loss. See also INSURANCE CONTRACT, GENERAL;
INSURANCE CONTRACT, LIFE; INSURANCE CONTRACT, PROPERTY AND CASUALTY.

INDEMNITY BOND – a coverage for loss incurred by an obligee should the principal fail to
perform according to standards agreed upon between the obligee and the principal.
 INDEMNITY OR FEE-FOR-SERVICE INSURANCE – a coverage for the percentage of the health
care costs that are paid by the health insurance company, (usually 80% above the insured's deductible
up to a dollar amount of approximately $5000.) The company then pays 100% of the costs up to the
limits of the policy. The insured may select a physician of his or her choice.

INDEPENDENT ADJUSTER – an independent contractor who adjusts claims for different

insurance companies. Such services are used by insurance companies whose financial resources or
volume of claims do not warrant employment of their own in-house adjusters.

INDEPENDENT AGENT – a contractor who represents different insurance companies and who also
searches the market for the best place for a client's business. The independent agent, who owns the
records of policies sold, pays agency's expenses out of the commissions earned, is not controlled by
any one company, and is responsible for maintaining employee benefits.

INDEPENDENT INSURANCE AGENTS OF AMERICA (IIAA) – the association of independent

agents whose objective is to further the interests of these agents through lobbying, education, and
professional ethics.

INDEPENDENT INSURER – an insurance company that is not under common ownership or

management with other companies or is not a member of a rating bureau. The insurance company is
said to stand alone. See also INDEPENDENT AGENCY SYSTEM; INDEPENDENT AGENT.

INDEPENDENT PRACTICE ASSOCIATION (IPA) – a type of HMO (HEALTH

MAINTENANCE ORGANIZATION) that issues contracts to independent physicians. These
physicians are to be paid a per visit fee for seeing an HMO member or are paid an annual fixed sum.
The HMO members are covered only when they use an HMO physician or hospital.

INDIRECT LOSS - a loss that is not the direct result of a peril. Damage to property of a business
firm would be a direct loss, for example, but the loss of business earnings because of a fire on its
premises would be an indirect loss.

INDIRECT PROPERTY EXPOSURES – a loss of income that results from the destruction or
damage of a person's property or a business' property. For example, if a store is damaged by fire and is
unable to sell its inventory to customers, a loss of income results.

INDIVIDUAL ANNUITY TABLE – the 1971 historical MORTALITY TABLE that replaced the
ANNUITY TABLE of 1949, used for the calculation of annuity rates with more-current mortality
experience at that time. This table was eventually replaced by the 1983 Table-a (mortality table used
for the calculation of annuity rates for males).
 INDIVIDUAL FIDELITY BOND – a bond that reimburses a business for loss caused by the
dishonest act of an employee. Since crime insurance policies do not cover dishonest acts of employees,
to have a fidelity bond is necessary for this protection. Fidelity bonds cover financial institutions and
mercantile business. See also FIDELITY BOND.

INDIVIDUAL HEALTH INSURANCE POLICY – a HEALTH INSURANCE CONTRACT which

is sold to an individual to provide coverage for medical expenses. Compare and contrast with GROUP
HEALTH INSURANCE.

INDIVIDUAL LEVEL COST METHOD - a projection is made in pension plans of benefits

credited to each employee's account at the age of retirement. Costs are then allocated on a level basis
over a specified future time period. This cost method can be classified according to whether there is or
is not a supplemental liability. See also INDIVIDUAL LEVEL COST METHOD SUPPLEMENTAL
WITHOUT LIABILITY; INDIVIDUAL LEVEL COST METHOD WITH SUPPLEMENTAL
LIABILITY.

INDIVIDUAL LEVEL COST METHOD WITHOUT SUPPLEMENTAL LIABILITY – is a means

of projecting the costs of pension plans on a level basis over a given future time period. The actuarial
value of each employee's future benefits to be paid at the age of retirement is calculated (including past
service benefits to be credited, if any), and their costs are spread equally over the remaining work
experience of the employee. This equation states that the present value of future benefits equals the
present value of future costs.

INDIVIDUAL LEVEL COST METHOD WITH SUPPLEMENTAL LIABILITY – is a means of

projecting the costs of pension plans on a level basis over a given future time period. The actuarial
value of each employee's future benefits to be paid at the time of retirement is calculated(it begins with
the first day an employee could have joined the pension plan, had it been in effect at that timethereby
creating a supplemental liability), and their costs are spread equally over the remaining work
experience of the employee.

INDIVIDUAL LIFE INSURANCE – in contrast to group life insurance which covers many lives, is
coverage of a single life. See also ENDOWMENT INSURANCE; LIFE INSURANCE; ORDINARY
LIFE INSURANCE; TERM LIFE INSURANCE.

INDIVIDUAL POLICY PENSION TRUST – a type of PENSION PLAN in which the employer (if
it is a NONCONTRIBUTORY plan) or the employer and employee (if with regards to a
CONTRIBUTORY plan) make level annual premium payments to fund the future benefits at
retirement, through an individual DEFERRED ANNUITY, of the employee. Also funded in this
manner is a separate life insurance policy on each employee. (This policy is usually held in the trust.)
See also PENSION PLAN FUNDING, INDIVIDUAL CONTRACT PENSION PLAN.

INDIVIDUAL PRACTICE ASSOCIATION HEALTH MAINTENANCE ORGANIZATION -

(HEALTH MAINTENANCE ORGANIZATION) HMO that provides medical services to members of
the HMO through an exclusive contract with specific hospitals and physicians. This selected group of
physicians and hospitals provide medical services to both HMO members and non-HMO members.
Generally, HMO members may select the primary care physician of their choice from the list of
specific physicians. After rendering services to the HMO member, the physician is paid a fee which is
predetermined by the HMO.
 INDIVIDUAL RETIREMENT ANNUITY – a type of INDIVIDUAL RETIREMENT ACCOUNT
(IRA) which is allowable by the EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974
(ERISA) where contributions in the form of premium payments are made on a FIXED DOLLAR
ANNUITY or VARIABLE DOLLAR ANNUITY or both.

INDIVIDUAL RISK PREMIUM MODIFICATION PLAN – an adjustment of premiums in group

insurance, because of reduced expenses due to economy of scale. Group life premiums are subject to
modification and negotiation because of administrative savings in dealing with large numbers of
people. In contrast, because each policy is handled individually, a single person cannot negotiate his or
her premium rate.

INDIVISIBLE CONTRACT – the inability to divide a CASH VALUE LIFE INSURANCE policy
into a protection element and a savings element because, in theory, if the POLICYOWNER withdraws
a portion or all of the cash value, there is a reduction in the DEATH BENEFIT.

INDUCEMENT TO ESTABLISHMENT OF PENSION PLANS – state of affairs that encourage the

organization of pension plans by employers. For example, employer contributions are tax deductible as
business expenses and not currently taxable income to employees. Pensions also help improve the
image of a business firm in its community, help attract employees, and maintain employee loyalty,.

INDUSTRIAL INSURED – is one who purchases insurance, usually liability and property and not
life or annuities, by using his or her own employee purchaser or licensed broker/agent at a minimum
annual premium of not less than six digits.

INDUSTRIAL INSURED CARRIER – an insurance company that sells casualty and property
insurance only to INDUSTRIAL INSUREDS. These companies are licensed separately and separately
capitalized to market insurance to cover the risks of industrial insureds.

INDUSTRIAL LIFE INSURANCE – where modest amounts of coverage are sold on a DEBIT basis.
The face amount is usually less than $1000. See also DEBIT INSURANCE (HOME SERVICE
INSURANCE, INDUSTRIAL INSURANCE).

INDUSTRIAL PROPERTY POLICY PROGRAM – a predecessor of a SPECIAL MULTIPERIL

INSURANCE (SMP) policy and COMMERCIAL PACKAGE POLICY, which covered property of
manufacturing installations, in at least two different locations, including equipment and machinery,
and, optionally, betterments and improvements.

INFLATION ENDORSEMENT – an attachment to a property insurance policy that adjusts

automatically its coverage according to the construction cost index in a community. This endorsement
is necessary in a property contract to maintain adequate coverage. Otherwise, it is advisable for a
policyowner, at time of renewal, to adjust the limits of coverage to reflect the market value of the
property and the increased cost of construction.

IN-FORCE BUSINESS – an aggregate amount of insurance policies that are paid in full (or are
being paid) that a health or life insurance company has on its books. The size of a health or life
insurance company is often measured by its in-force business. In a life insurance company, the measure
is expressed as a face amount of the insurer's portfolio. In a health insurance company, the measure is
expressed as premium volume.
 IN-FORCE REQUIREMENT – the need for an insurance policy to be paid in full or to be paid for a
minimum number of years before the insured is eligible to receive any benefits. This requirement is
typically found in LONG-TERM CARE (LTC) insurance policies.

INHERENT EXPLOSION CLAUSE – a provision of a property insurance policy which covers

conditions that are usually present in a specific location. For example, there is an inherent risk of
explosion in a flour mill.

INHERENT VICE EXCLUSION – a provision of a property policy that excludes construction that
has the probability to suffer a loss. For example, the roofing material used may not be able to withstand
a wind force of more than 15 miles per hour.

INHERITANCE TAX- a tax on the right to acquire ASSETS that are transferred to a
BENEFICIARY at the owner’s death of those assets.

INITIAL RESERVE - a reserve established at the beginning of the POLICY YEAR that is equal to
the TERMINAL RESERVE for the previous year plus the NET LEVEL PREMIUM for the current
year.

INJUNCTION BOND – a type of judicial bond in the event of a false injunction under which a
plaintiff is held liable for damages. The objective of this bond is to protect the party who has been
wrongly accused by a plaintiff and suffers financial loss.

INJURIES AND DISEASES COVERED – a specified list of diseases and injuries covered in a
health insurance policy. Consumers are advised to read and understand the definitions of diseases and
injuries in a health insurance policy. See also HEALTH INSURANCE.

INNKEEPERS LIABILITY - a liability arising out of the operation of a hotel or motel as it

pertains to the physical safety of guests and the property of guests.
INNKEEPERS LIABILITY INSURANCE – a coverage for omissions or negligent acts of an
operator of a hotel or motel resulting in bodily injury to guests and destruction of or damage to a guest's
property.

IN-PATIENT – a resident patient of a medical facility. Previously, health insurance benefits were
limited to in-patient treatment. Today health insurance policies provide an extensive list of out-patient
benefits. See also GROUP HEALTH INSURANCE; HEALTH MAINTENANCE ORGANIZATION
(HMO); OUTPATIENT.

INSOLVENCY – is bankruptcy. The circumstance does not relieve an insurance company of its
obligations under an insurance contract if an insured business firm becomes bankrupt.

INSOLVENCY CLAUSE – a provision of a reinsurance contract that states that even though the
primary insurance company is no longer in business ,the reinsurance company remains liable for its
predetermined share of a claim submitted by an insured.

INSPECTION REPORT – a statement that is prepared by an inspection bureau for a health or life
insurance company that summarizes information about an applicant for a policy, including morals,
habits, financial standing, physical condition, and other information. This report is used by a
company’s underwriter in evaluating an application for insurance; that is, whether the company should
classify an individual at standard insurance rates as a standard risk, as a substandard risk (charged an
extra rate), or as uninsurable.

INSTALLATION INSURANCE – is property coverage on a dealer's interest in equipment while it is

being installed. Material and labor are protected against such perils as lightning, windstorm, and fire.
For example, if an elevator was installed and it was destroyed or damaged before the buyer could take
possession, the contractor would lose the cost of labor and materials if there was no installation
insurance.

INSTALLMENT REFUND ANNUITY – an annuity contract. If the annuitant dies prior to receiving
income at least equal to the premiums paid, a beneficiary receives the difference in installments. If the
annuitant survives after the income paid equals the premiums paid, the insurance company continues to
make income payments to the annuitant for life.

INSTITUTE OF LONDON UNDERWRITERS – a trade association of insurance companies that

writes aviation,transportation, and marine insurance. The association commenced operation in the
1880s and it suggests standard clauses to be incorporated in policies written by the under-writers in
London.

INSURABILITY – a circumstance in which an insurance company can issue health or life insurance
to an applicant based on standards predetermined by the company.

INSURABLE RISK – is a condition in which an applicant has met an insurance company's required
standards. Requirements include a loss that is (1) fortuitous; (2) definable; (3) one of a large number of
homogeneous exposures; and (4) carries a premium reasonable in relation to a potential loss.

INSURANCE AGENT – is a representative of an insurance company in soliciting and servicing the

company’s policyholders. An agent's knowledge concerning an insurance transaction is said to be the
insurance company’s knowledge of as well. Wrongful acts of the agent are the responsibility of the
company; these bind the company to the customer. Notice given by an insured to the agent is the same
as notice to the company. See also AGENT; CAPTIVE AGENT; INDEPENDENT AGENT.

INSURANCE AGENTS AND BROKERS LIABILITY INSURANCE – is coverage for omissions

or acts committed by an broker or agent resulting in adequate insurance in the event of a liability suit or
property damage to a client.

INSURANCE AND SOCIETY – a phrase which refers to a constructive relationship, in which

insurance provides society with benefits such as savings, security, encouragement of investment, and
reduction in prices of goods to consumers.

INSURANCE BROKER – is not a representative of an insurance company but is the representative

of an insured,. Acts of a broker are not the responsibility of the company, and notice given by an
insured to a broker is not the same as notice to the company. . The broker is not limited to placing
business with any one company. The broker searches the insurance marketplace for a company in
which to place the business of the insured for the most coverage at the best price.

INSURANCE CONTRACT, GENERAL - a legally binding unilateral agreement between an

insurance company and an insured to indemnify the buyer of a contract under specified circumstances.
In exchange for a premium payment or payments the company covers stipulated perils. See also
ADHESION INSURANCE CONTRACT; ALEATORY CONTRACT; APPLICATION; CAPACITY
OF PARTIES; CONDITIONAL; CONSIDERATION; ENDORSEMENTS; INDEMNITY;
INSURABLE INTEREST; LEGAL PURPOSE; MUTUAL ASSENT; UTMOST GOOD FAITH.

INSURANCE CRIME PREVENTION INSTITUTE – an organization of over 300 property and

casualty insurance companies whereby their mission is to investigate fraudulent claims and bring to
justice those making fraudulent claims.

INSURANCE FORM – an attachment to a property and casualty policy that renders it operative. For
example, the Standard Fire Policy remains inoperative until a form is attached such as the Buildings
and Contents Form.

INSURANCE FRAUD PREVENTION ACT – is legislation that makes a federal crime of insurance
fraud. This act is part of the Omnibus Crime Bill. Under the act, it is a federal crime to misappropriate
funds or embezzle, money, or premiums from an insurance company, to knowingly file false financial
information with regulators, to obstruct the investigation of an insurance regulator, and to work or
allow such work in an insurance field after conviction of a felony involving dishonesty.

INSURANCE GUARANTY ACT - in several states, a law establishing a fund to guarantee benefits
under policies issued by insurance companies that become insolvent.

INSURANCE INFORMATION INSTITUTE – an organization whose objective is the education of

the general public concerning items of national concern of member property and casualty insurance
companies.

INSURANCE INSTITUTE FOR PROPERTY LOSS REDUCTION - an association of insurance

companies founded to reduce injuries, deaths, and the loss of property resulting from all types of
natural hazards in the United States. This institute concentrates on improving construction and building
techniques in order to minimize the damage resulting from natural hazards.

INSURANCE INSTITUTE OF AMERICA (IIA) – an organization that develops and publishes

educational material and administers national examinations in general insurance, supervisory
management, risk management, claims management, underwriting, loss control management,
accredited adviser in insurance, premium auditing, research and planning, and accounting and finance.

INSURANCE POLICY – is a written contract between an an insurance company and an insured

stating the responsibilities and obligations of each party. See also INSURANCE CONTRACT, LIFE;
INSURANCE CONTRACT, PROPERTY AND CASUALTY.

INSURANCE RATE – is the amount charged to an insured that reflects expectation of loss for a
covered risk; and insurance company profit and expenses. See also PREMIUM; PURE PREMIUM
RATING METHOD
::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
From Back to Front-

YEARLY RENEWABLE TERM PLAN OF REINSURANCE – a type of PROPORTIONAL

REINSURANCE under which the CEDING COMPANY (PRIMARY INSURER) cedes to a
REINSURER its NET AMOUNT AT RISK for the amount above its retention limit on a life insurance
policy. If the insured dies, the reinsurer must pay that part of the death benefit which is equivalent to
the net amount at risk.

YEARLY PROBABILITY OF LIVING - a figure in a MORTALITY TABLE produced by dividing

the number of people alive at the end of a stated year by the number of people alive at the beginning of
that same year.

YEARLY PROBABILITY OF DYING - figure in a MORTALITY TABLE produced by dividing

the number of people dying during a given year by the number of people alive at the beginning of the
same year. NOT SURE ON THIS TERM

WRITTEN BUSINESS - insurance for which (1) a life insurance policy that has not yet been
delivered to (2) an insured an application has been filed but the first premium has not yet been paid or .

WRAP-UP INSURANCE - liability policy that covers all liability exposures for a large group that has
something in common. I.E. wrap-up insurance can be written for all the various businesses working
together on a special project, to offer coverage for losses arising out of that work only.

WRAP-AROUND INSURANCE PROGRAM – a program designed as protection for political risk

(action taken by a foreign government causing financial loss to companies trading or investing
overseas). Coverage is provided for acts of government, deprivation, sanction, embargo, partial loss,
and forced abandonment.

WORLDWIDE COVERAGE – an endorsement to the COMMERCIAL GENERAL LIABILITY

INSURANCE (CGL) policy that provides liability coverage to an insured business for damages any
place world. Policies typically have territorial limits for liability coverage, but this endorsement
extends coverage worldwide, so long as a damage suit is brought in the U.S. or Canada.

WORKERS COMPENSATION INSURANCE - coverage providing four types of benefits (death,

disability, medical care, rehabilitation) for employee job-related injuries or diseases as a matter of right
(without regard to fault). This insurance is usually bought by the employer from an insurance company,
although in a few states there are monopolistic state funds through which the insurance must be bought.
The premium rate is based on a percentage of the employer's payroll and varies according to the
employee's occupation. See also WORKERS COMPENSATION BENEFITS.

WORKERS COMPENSATION, COVERAGE B - coverage under a commercial workers

compensation policy for situations in which an employee not covered under workers compensation
laws could sue for injuries suffered under common law liability.
WORK AND MATERIALS CLAUSE – a provision in most property insurance policies that allows a
policyholder to use the insured premises to store materials and handle them in the manner needed to
pursue their line of business. Without this clause, a policy may be voided for fraud, concealment, or
misrepresentation of an undisclosed INCREASED HAZARD. The clause offers a defense for a
policyholder against a charge of increasing the hazard of a workplace if the materials in question are
necessary to the business.

WOOL GROWERS FLOATER INLAND MARINE – a policy addition that provides coverage to
owners of sheep, wool in transit, and to warehouse owners who store wool.

WINTER RANGE FORM – a type of livestock insurance that covers for cattle and sheep on the range
from October 1 to May 1 in the Western states. Perils insured against are the weather, including most
natural disasters; freezing; riot and civil commotion; collision with vehicles; and theft.

WINDSTORM INSURANCE - additional coverage available on most property insurance policies

through the EXTENDED COVERAGE ENDORSEMENT. Windstorms, including hurricanes,
cyclones, and high winds, are not among the covered perils under most property insurance policies. See
also STORM INSURANCE (WINDSTORM INSURANCE).

WELLNESS PROGRAM- employee benefit program that emphasizes the pursuit of a lifestyle that
minimizes the occurrence of sickness through an organized program of preventive medicine. Such a
program includes screening for obesity, high blood pressure, and stress; breast cancer, a smoke-free
workplace; a systematized exercise and fitness approach for general health; and education and training
programs for employees concerning proper nutrition, weight control, stress management,
cardiopulmonary resuscitation, and prenatal care.

WELFARE AND PENSION PLANS DISCLOSURE ACT – a federal law that requires
administrators of pension plans with more than 25 participants to file a plan description with the U.S.
Department of Labor. A plan description includes schedules of benefits, type of administration, and
copies of the plan. If the plan has more than 100 participants, the administrator must also file an annual
financial report. This information must be made available to plan participants upon request, and the
person responsible for handling the funds must be bonded.

WEIGHT OF ICE, SNOW, OR SLEET INSURANCE - coverage for damage to a building or its
contents due to the weight of these elements. Outdoor property such as swimming pools, patios, and
sidewalks are normally excluded.

WEDDING PRESENTS FLOATER - personal property insurance that provides ALL-RISKS

coverage for wedding presents, wherever they may be in the world, until they are permanently located.
Because the new owners of wedding presents may not yet have a home or a HOMEOWNERS
INSURANCE POLICY, and because their gifts may be moved from place to place until they are
settled, this policy fills a gap in coverage, but it can be purchased only for as long as 90 days following
the wedding.

WEAR AND TEAR EXCLUSION - denial of coverage for damage, in INLAND MARINE insurance,
stemming from routine use of the property. Property can be expected to deteriorate somewhat over time
from regular use. This is not considered an insurable loss.
 WATER QUALITY INSURANCE SYNDICATE - a group of marine underwriters formed in 1971
to provide coverage for shipowners for WATER POLLUTION LIABILITY. The federal WATER
QUALITY IMPROVEMENT ACT OF 1970 made shipowners liable for dangerous substances
discharged by their ships into the water. This led to the Water Quality Insurance Syndicate. Coverage
extends to liabilities imposed by states. The syndicate vouches for the financial responsibility of those
it insures.

WATER POLLUTION LIABILITY - obligations of shipowners for water polluted by spills from their
ships. If a ship discharges polluting or hazardous substances or oil into the water, the shipowner is
responsible either for removing them, paying for their removal, or, if the substances cannot be
removed, paying a fine. Following passage of the WATER QUALITY IMPROVEMENT ACT OF
1970 establishing the liability of shipowners, marine underwriters formed the WATER QUALITY
INSURANCE SYNDICATE to provide insurance.

WATER EXCLUSION CLAUSE – a provision in many property insurance policies that excludes
coverage for floods and backup from sewers or drains and underground water. Because floods and
hurricanes are usually limited to certain areas, only policyholders in those areas need flood insurance.
Thus, it is impossible for underwriters to spread the risk, which is the basis of underwriting. But
because homeowners in the endangered areas need insurance, the U.S. government developed a special
FEDERAL FLOOD INSURANCE program.

WATER DAMAGE LEGAL LIABILITY INSURANCE - coverage for an insured's liability for
damage to another's property from overflow or leakage of water. Some liability policies specifically
exclude water damage, including that caused by rain or snow. Therefore, a special policy was necessary
to cover this exposure. However, most liability policies today have dropped this exclusion, and
coverage for water damage liability is part of the regular liability policy.

WATER DAMAGE INSURANCE - protection in the event of accidental leakage, discharge, or

overflow of water from plumbing systems, air conditioning, heating, and refrigerating systems, and
rain or snow through broken doors, open doors, windows, and skylights resulting in damage or
destruction of the property scheduled in the policy. This type of water damage coverage can also be
acquired through an endorsement of a standard property insurance policy.

WATERCRAFT NONOWNED INSURANCE - endorsement to COMMERCIAL GENERAL

LIABILITY INSURANCE (CGL) for a business responsible for boats it does not own. Whether the
boats are leased from another firm or owned by employees who operate them for the benefit of the
business owner, a business has a liability exposure that is not covered by a CGL policy; the special
endorsement is necessary for this coverage.

WATERCRAFT ENDORSEMENT - addition to the HOMEOWNERS INSURANCE POLICY AND

COMMERCIAL PACKAGE POLICY that provides liability and medical coverage for damages
resulting from the operation of motor boats too large to qualify for insurance under homeowners and
commercial package policies.

WAREHOUSE-TO-WAREHOUSE CLAUSE – a part of an ocean marine policy that provides

coverage of goods through all of the stages of a journey. Coverage begins when goods leave the
warehouse of a shipper, and continues until they reach the customer's warehouse.
WAREHOUSERS LIABILITY FORM – a special insurance that covers warehousers liability to
customers whose property is damaged by an insured peril while in the custody of an insured
warehouser. Policy deductibles may range from $50 to $10,000. Typical exclusions are war risks,
money, securities, and spoilage of perishable goods.

WAREHOUSE BOND – a type of surety bond that promises that goods stored in a warehouse will be
delivered upon presentation of a receipt.

WAR DAMAGE INSURANCE CORPORATION - government reinsurance program that provided

coverage for U.S. properties during World War II. Private insurers shared the first layer of coverage,
with the government providing catastrophic loss coverage. This is one of multiple government
insurance programs for exposures that private insurers cannot cover because techniques of spreading
the risk do not apply.

WAIVER OF PREMIUM (WP) - in life insurance, action by an insurance company canceling

premium payments by an insured who has been disabled for at least six months. The policy remains in
force and continues to build cash values and pay dividends (if it is a participating policy), just as if the
insured was still making premium payments. Experts suggest that this clause should be considered in a
life insurance policy since the probability of becoming disabled is 7 to 10 times greater than death at
younger or middle ages.

WAIVER OF PREMIUM FOR PAYER BENEFIT - a clause added to an insurance policy providing
WAIVER OF PREMIUM (WP) if the premium payer dies or becomes disabled. I.E. this option is
available on insurance policies on a child's life where the premium is paid by an adult, or on life and
health policies for adults.

WAGERING V. INSURANCE - common misunderstanding about insurance. In gambling a RISK is

created that did not exist prior to placing a bet. Under this insurance, a risk exists whether or not an
insurance policy is purchased .I.E the uncertainty of one's home burning exists independent of the
purchase of insurance; the purchase of insurance should not affect the probability of loss.

WAGE INDEX - table used, primarily to determine monthly Social Security benefit for a retired or
disabled worker and his or her dependents. The AVERAGE MONTHLY WAGE (AMW) of the
worker is computed, disregarding certain periods of low earnings. The AMW is used to determine the
PRIMARY INSURANCE AMOUNT (PIA). Then, benefits are produced from the table depending on
how old the worker is upon retirement, whether there are dependents or survivors, and when they will
retire.

VOYAGE POLICY OCEAN MARINE INSURANCE - covering one trip. Ocean marine insurance is
written either for a specific time period or per trip. A voyage policy is usually written for cargo,
whereas a time policy covers a ship.

VOLUNTEER PROTECTION LAWS - laws enacted by all of the 50 states whose purpose it is to
reduce or eliminate the volunteer's CIVIL LIABILITY exposure. An ideal law would exclude the
volunteer from civil liability resulting from actions taken within the volunteer's official capacity unless
the injury and/or damage caused was the result of a willful act by the volunteer.
 VOLUNTARY PLAN TERMINATION - ending a pension plan at the election of an employer or
sponsor. The employer has the unilateral right to change or terminate a pension plan at any time.
However, the termination must meet requirements set out by the EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974 (ERISA). Assets must be distributed to participants according to
federal guidelines.

VOLUNTARY LIFE INSURANCE - additional amount of life insurance above that provided by the
employee benefit plan (standard group life plan) that may be selected by the employee. A limit is
usually placed on this maximum and is expressed as a multiple of the employee's earnings.

VOLUNTARY DEDUCTIBLE EMPLOYEE CONTRIBUTION PLAN – a pension plan that allows an

employee to give back by electing to have money deducted from each paycheck. Some qualified plans
such as 401 (k) allow employees to contribute pre-tax dollars, while others require employees to put in
after-tax dollars.

VOLUNTARY ACCIDENTAL DEATH AND DISMEMBERMENT (AD&D) INSURANCE -

additional amount of ACCIDENTAL DEATH AND DISMEMBERMENT INSURANCE not provided
by the employee benefit plan (standard group life plan) that may be chosen by the employee. Generally,
the employee pays the entire premium that is deducted through the employer's payroll deduction
accounting system used for other employee benefit plans.

VOIDABLE CONTRACT VALID CONTRACT – a contract that can be canceled for cause by one or
more parties to the contract. An insurance contract can be voided by the insurer if the insured has used
fraudulent means to obtain it or has intentionally concealed information or misrepresented the risk.

VIATICATION – a process under which terminally ill people sell their life insurance policy for value
thereby excluding the policy from being subject to the transfer for value under the three-year rule.

VETERANS GROUP LIFE INSURANCE (VGLI) - five-year nonrenewable TERM LIFE

INSURANCE policy for veterans who were covered by SERVICEMENS GROUP LIFE INSURANCE
(SEGLI) while on active duty in the U.S. uniformed forces. At the end of the five-year term, the
insured may convert the policy to individual permanent life insurance with any company that
participates in the VGLI program.

VERMIN EXCLUSION – a section of some INLAND MARINE insurance (transportation insurance)

and many other property insurance policies excluding coverage for damage to shipped goods by vermin
such as rats. See also INSECT EXCLUSION.
VESTED BENEFIT entitlement of a PARTICIPANT in an EMPLOYEE BENEFIT INSURANCE
PLAN to receive benefits regardless of his or her employment status. See also VESTING.

VENDING MACHINE MARKETING – a sale of life insurance policies through vending machines.
This method of distribution is generally limited to TRAVEL ACCIDENT INSURANCE, disability
policies or supplemental health, or life insurance policies with a small face amount.

VARIABLE SURVIVORSHIP LIFE INSURANCE – a policy that combines life insurance coverage
on two lives and pays policy proceeds on the second person's death with the accumulation potential of
an underlying variable investment portfolio. This variable portfolio will allow the policy proceeds to
rise and fall just as in the single-life VARIABLE LIFE POLICY.

VARIABLE PREMIUM LIFE INSURANCE – a policy that allows premium payments to vary, within
the reasonable limits of the policy, at the option of the policyholder. In return, the death benefit and rate
of cash value accumulation vary with the premium payments. UNIVERSAL LIFE INSURANCE is the
most common type of policy offering variable premiums. See also FLEXIBLE PREMIUM LIFE
INSURANCE.

VARIABLE LIMIT - in property insurance coverages, a provision whereby the limit of the policy
automatically increases at each policy anniversary date, subject to the insured's rejection of such an
increase. The objective of the variable limit is to increase the amount of coverage in tandem with the
annual increase in the inflation rate so as to prevent less than adequate coverage in the event of a loss.
See also UNDERINSURANCE.

VANISHING PREMIUM PROVISION CLAUSE – a clause in a life insurance policy that provides
that once the CASH VALUE exceeds the NET SINGLE PREMIUM (based on current interest and
mortality rates) required for the policy to become PAID-UP INSURANCE, the POLICYOWNER may
elect not to make further premium payments. If the CASH VALUE falls below the amount necessary to
fund the net single premium, additional premium payments are required. See also VANISHING
PREMIUM.

VANISHING PREMIUM (PREMIUM OFFSET) – a life insurance policy within which there is rapid
buildup of cash values due to high initial premiums such that after a given point in time no further
premium payments are required (future premium payments are borrowed from the cash value).

VALUE REPORTING FORM – a form that offers coverage for a business whose inventory has
fluctuating values during the year. The amount of insurance coverage is adjusted monthly, quarterly, or
annually to reflect the changing monetary value of the inventory. The use of this FORM should
eliminate the problem of overinsurance as well as underinsurance.

VALUED POLICY LAW – a legislation in a number of states requiring insurers to pay the FACE
AMOUNT of a fire insurance policy in case of complete loss to a dwelling (or sometimes another
specified type of building), rather than the ACTUAL CASH VALUE of the loss. Such laws in effect
override the principle of INDEMNITY that normally governs property and liability insurance contracts.

VALUED BASIS INDEMNIFICATION – a benefit found in a DISABILITY INCOME INSURANCE

policy that endeavors to replace the insured wage earner's income with a monetary sum equal to the
actual lost income terminated because of sickness, illness, or accident.

VALUATION RESERVE (SECURITIES VALUATION RESERVE) – an amount set up as a cushion

against fluctuations in securities prices. See also MANDATORY VALUATION SECURITIES
RESERVE.

VALUATION CLAUSE – a provision in a MARINE INSURANCE policy in which agreement has

been come to between the insured and the insurance company concerning the worth of the property that
is to be covered under the policy.
VALUABLE PAPERS (RECORDS) INSURANCE – coverage in the event that papers of intrinsic
value are damaged or destroyed. Coverage is on an ALL RISKS basis. The limits of this coverage can
be quite high; but the insurance company will not pay an amount in excess of the actual cash value of
the loss, or the amount necessary to repair or replace the damaged or destroyed papers. Also, the papers
must be kept under lock and key.

USUAL, CUSTOMARY, AND REASONABLE CHARGES (UCR) - limits on reimbursement by an

insurance company. Health insurance plans pay a doctor's full charge for service if it does not exceed
the usual charge; that is, if it does not exceed the charge for the same service by other physicians in the
area or if it is reasonable.

USE AND OCCUPANCY INSURANCE – a type of BUSINESS INTERRUPTION INSURANCE that

offers indirect loss coverage by endorsement to BOILER AND MACHINERY INSURANCE. The
latter, sometimes called POWER PLANT INSURANCE, offers both direct and indirect loss coverage.
Direct loss would indemnify an insured for damage to property. Use and occupancy insurance covers
an insured for loss of use of the equipment due to damage from a named peril.

UNVALUED MARINE POLICY - coverage that does not put a dollar value on cargo or a hull that is
insured. A valued marine policy puts a specific value on the insured property. With unvalued property,
the value is determined at the time of loss.

UNSOLICITED APPLICATION – a request for life insurance coverage by a person, not through an
agent or broker. It is given extra scrutiny by an insurance company because of the possibility of SELF-
SELECTION, which is the likelihood that poorer risks will seek insurance on their own initiative. See
also ADVERSE SELECTION; RISK SELECTION.

UNSCHEDULED PROPERTY FLOATER - insurance that offers blanket coverage up to a certain

amount of money on all property of the classification covered by the policy. Floater policies, which
cover property wherever it happens to be and while it is in transit, can also be purchased as a
SCHEDULED POLICY where each individual item is listed.

UNSATISFIED JUDGMENT FUND - money set aside in some states to pay otherwise
uncompensated bodily injury claims to faultless victims of automobile accidents. The claimants must
prove that they were not at fault and that they cannot collect damages from the drivers who hit them.
The responsible drivers then lose their licenses until they reimburse the fund.

UNIVERSAL ACCESS – a stipulation that every participant in health care has the right according to
law to purchase health insurance from a private insurance entity. The participant's purchase is voluntary
and must not be eligible for a public health insurance program.

UNIFORM TRANSFERS TO MINORS ACT (UTMA)- an act in which a life insurance company is
permitted to transfer the DEATH BENEFIT from the policy to the custodian of a minor
BENEFICIARY provided the beneficiary designation has nominated the custodian to receive the death
benefit on behalf of the minor.
UNIFORM SIMULTANEOUS DEATH ACT – a statute in most states that stipulates if no evidence
exists in a common disaster (when an insured and beneficiary die within a short time of each other in
an accident for which determination cannot be made as to who died first), the presumption is that the
insured survived the beneficiary and the life insurance proceeds will either be paid to a secondary
beneficiary (if named in a policy) or, if not named, then to the insured's estate.

UNIFORM PROVISIONS – a language adopted by the NATIONAL ASSOCIATION OF

INSURANCE COMMISSIONERS (NAIC) and recommended or required by state law. While they
rarely dictate the language of policies, states often prescribe optional or mandatory policy minimums,
or may forbid certain provisions. Therefore, while life and health benefits may vary widely, for
example, policyholders are given certain uniform rights, like grace periods for paying premiums and
loan and surrender values.

UNIFORM GIFTS TO MINORS ACT – an act in which an irrevocable gift is made by the parent to
the child. For children less than age 14, the first six hundred dollars of annual investment earnings is
tax free and the next $600 is taxed at the child's 15% tax rate. If the child is at least age 14, all income
is taxed at the child's rate. Once the child reaches the age of majority, which in most states is 18 or 21,
the child can use the money in that account as desired.

UNIFORM FORMS – a group of widely accepted standard policy forms that have been developed by
various RATING BUREAUS or insurance companies. Some forms are mandated by state law, and
some are used by custom. In some cases provisions are mandated, but a form is not. Even so, many
companies use the same forms, which become widely recognized as the standard for certain types of
risk.

UNIFORM COMMERCIAL CODE - a standardized set of business laws that has been adopted by
most states. The Uniform Commercial Code governs a wide range of transactions including contracts,
borrowing, and many other everyday business practices. It is useful because it standardizes practices
from state to state.

UNFAIR CLAIMS PRACTICE - abuse by an insurer in an attempt to avoid paying a claim filed by an
insured, or to reduce the size of the payment. The NATIONAL ASSOCIATION OF INSURANCE
COMMISSIONERS (NAIC) has developed model legislation requiring that claims be handled fairly
and that there be free communication between policyholder and insurer. Most states have adopted
unfair claims practice laws.

UNEMPLOYMENT COMPENSATION - money paid through state and federal programs to workers
who are temporarily unemployed. The program, which was established by the SOCIAL SECURITY
ACT OF 1935, is managed by the individual states, which determine the level of benefits that will be
paid, and assess a payroll tax on employers to pay for the program. Employers may pay more or less
tax depending on the stability of their workforces. Weekly benefits vary greatly among the states.