Glossary

Insurance glossary

409 definitions · page 3 of 7.

DIMINUTION OF VALUE: The idea that a vehicle loses value after it has been damaged in an accident and repaired.
DIRECT PREMIUMS: Property/casualty premiums collected by the insurer from policyholders, before reinsurance premiums are deducted. Insurers share some direct premiums and the risk involved with their reinsurers.
DIRECT SALES DIRECT RESPONSE: Method of selling insurance directly to the insured through an insurance company’s own employees, through the mail, or via the Internet. This is in lieu of using captive or exclusive agents.
DIRECT SALES/ DIRECT RESPONSE: Method of selling insurance directly to the insured through an insurance company’s own employees, through the mail, or via the Internet. This is in lieu of using captive or exclusive agents.
DIRECT WRITERS: Insurance companies that sell directly to the public using exclusive agents or their own employees, through the mail, or via Internet. Large insurers, whether predominately direct writers or agency companies, are increasingly using many different channels to…
DIRECTORS AND OFFICERS LIABILITY INSURANCE D&O: Covers directors and officers of a company for negligent acts or omissions, and for misleading statements that result in suits against the company, often by shareholders. Directors and officers insurance policies usually contain two coverages: personal…
DIVIDENDS: Money returned to policyholders from an insurance company’s earnings. Considered a partial premium refund rather than a taxable distribution, reflecting the difference between the premium charged and actual losses. Many life insurance policies and some…
DOMESTIC INSURANCE COMPANY: Term used by a state to refer to any company incorporated there.
EARLY WARNING SYSTEM: A system of measuring insurers’ financial stability set up by insurance industry regulators. An example is the Insurance Regulatory Information System (IRIS), which uses financial ratios to identify insurers in need of regulatory attention.
EARNED PREMIUM: The portion of premium that applies to the expired part of the policy period. Insurance premiums are payable in advance but the insurance company does not fully earn them until the policy period expires.
EARTHQUAKE INSURANCE: Covers a building and its contents, but includes a large percentage deductible on each. A special policy or endorsement exists because earthquakes are not covered by standard homeowners or most business policies.
ECONOMIC LOSS: Total financial loss resulting from the death or disability of a wage earner, or from the destruction of property. Includes the loss of earnings, medical expenses, funeral expenses, the cost of restoring or replacing property, and legal expenses. It does not…
ELECTRONIC COMMERCE E-COMMERCE: The sale of products such as insurance over the Internet.
ELIMINATION PERIOD: A kind of deductible or waiting period usually found in disability policies. It is counted in days from the beginning of the illness or injury.
EMPLOYEE DISHONESTY COVERAGE: Covers direct losses and damage to businesses resulting from the dishonest acts of employees. (See FIDELITY BOND)
EMPLOYEE RETIREMENT INCOME SECURITY ACT ERISA: Federal legislation that protects employees by establishing minimum standards for private pension and welfare plans.
EMPLOYER S LIABILITY: Part B of the workers compensation policy that provides coverage for lawsuits filed by injured employees who, under certain circumstances, can sue under common law. (See EXCLUSIVE REMEDY)
EMPLOYMENT PRACTICES LIABILITY COVERAGE: Liability insurance for employers that covers wrongful termination, discrimination, or sexual harassment toward the insured’s employees or former employees.
ENDORSEMENT: A written form attached to an insurance policy that alters the policy’s coverage, terms, or conditions. Sometimes called a rider.
ENVIRONMENTAL IMPAIRMENT LIABILITY COVERAGE: A form of insurance designed to cover losses and liabilities arising from damage to property caused by pollution.
EQUITY: In investments, the ownership interest of shareholders. In a corporation, stocks as opposed to bonds.
EQUITY INDEXED ANNUITY: Non-traditional fixed annuity. The specified rate of interest guarantees a fixed minimum rate of interest like traditional fixed annuities. At the same time, additional interest may be credited to policy values based upon positive changes, if any, in an…
ERRORS AND OMISSIONS COVERAGE E&O: A professional liability policy covering the policyholder for negligent acts and omissions that may harm his or her clients.
ESCROW ACCOUNT: Funds that a lender collects to pay monthly premiums in mortgage and homeowners insurance, and sometimes to pay property taxes.
EXCESS AND SURPLUS LINES: Property/casualty coverage that isn’t available from insurers licensed by the state (called admitted insurers) and must be purchased from a non-admitted carrier.
EXCESS OF LOSS REINSURANCE: A contract between an insurer and a reinsurer, whereby the insurer agrees to pay a specified portion of a claim and the reinsurer to pay all or a part of the claim above that amount.
EXCLUSION: A provision in an insurance policy that eliminates coverage for certain risks, people, property classes, or locations.
EXCLUSIVE AGENT: A captive agent, or a person who represents only one insurance company and is restricted by agreement from submitting business to any other company unless it is first rejected by the agent’s company. (See Captive agent)
EXCLUSIVE REMEDY: Part of the social contract that forms the basis for workers compensation statutes under which employers are responsible for work-related injury and disease, regardless of whether is was the employee’s fault and in return the injured employee gives up the…
EXPENSE RATIO: Percentage of each premium dollar that goes to insurers’ expenses including overhead, marketing, and commissions.
EXPERIENCE: Record of losses.
EXPOSURE: Possibility of loss.
EXTENDED COVERAGE: An endorsement added to an insurance policy, or clause within a policy, that provides additional coverage for risks other than those in a basic policy.
EXTENDED REPLACEMENT COST COVERAGE: Pays a certain amount above the policy limit to replace a damaged home, generally 120 percent or 125 percent. Similar to a guaranteed replacement cost policy, which has no percentage limits. Most homeowner policy limits track inflation in building costs…
FACULTATIVE REINSURANCE: A reinsurance policy that provides an insurer with coverage for specific individual risks that are unusual or so large that they aren’t covered in the insurance company's reinsurance treaties. This can include policies for jumbo jets or oil rigs. Reinsurers…
FAIR ACCESS TO INSURANCE REQUIREMENTS PLANS FAIR PLANS: Insurance pools that sell property insurance to people who can’t buy it in the voluntary market because of high risk over which they may have no control. FAIR Plans, which exist in 28 states and the District of Columbia, insure fire, vandalism, riot, and…
FAIR ACCESS TO INSURANCE REQUIREMENTS PLANS / FAIR PLANS: Insurance pools that sell property insurance to people who can’t buy it in the voluntary market because of high risk over which they may have no control. FAIR Plans, which exist in 28 states and the District of Columbia, insure fire, vandalism, riot, and…
FARMOWNERS-RANCHOWNERS INSURANCE: Package policy that protects the policyholder against named perils and liabilities and usually covers homes and their contents, along with barns, stables, and other structures.
FEDERAL FUNDS: Reserve balances that depository institutions lend each other, usually on an overnight basis. In addition, Federal funds include certain other kinds of borrowings by depository institutions from each other and from federal agencies.
FEDERAL INSURANCE ADMINISTRATION FIA: Federal agency in charge of administering the National Flood Insurance Program. It does not regulate the insurance industry.
FEDERAL RESERVE BOARD: Seven-member board that supervises the banking system by issuing regulations controlling bank holding companies and federal laws over the banking industry. It also controls and oversees the U.S. monetary system and credit supply.
FIDELITY BOND: A form of protection that covers policyholders for losses that they incur as a result of fraudulent acts by specified individuals. It usually insures a business for losses caused by the dishonest acts of its employees.
FIDUCIARY BOND: A type of surety bond, sometimes called a probate bond, which is required of certain fiduciaries, such as executors and trustees, that guarantees the performance of their responsibilities.
FIDUCIARY LIABILITY: Legal responsibility of a fiduciary to safeguard assets of beneficiaries. A fiduciary, for example a pension fund manager, is required to manage investments held in trust in the best interest of beneficiaries. Fiduciary liability insurance covers breaches of…
FILE-AND-USE STATES: States where insurers must file rate changes with their regulators, but don’t have to wait for approval to put them into effect.
FINANCIAL GUARANTEE INSURANCE: Covers losses from specific financial transactions and guarantees that investors in debt instruments, such as municipal bonds, receive timely payment of principal and interest if there is a default. Raises the credit rating of debt to which the guarantee is…
FINANCIAL RESPONSIBILITY LAW: A state law requiring that all automobile drivers show proof that they can pay damages up to a minimum amount if involved in an auto accident. Varies from state to state but can be met by carrying a minimum amount of auto liability insurance. (See Compulsory…
FINITE RISK REINSURANCE: Contract under which the ultimate liability of the reinsurer is capped and on which anticipated investment income is expressly acknowledged as an underwriting component. Also known as Financial Reinsurance because this type of coverage is often bought to…
FIRE INSURANCE: Coverage protecting property against losses caused by a fire or lightning that is usually included in homeowners or commercial multiple peril policies.
FIRST-PARTY COVERAGE: Coverage for the policyholder’s own property or person. In no-fault auto insurance it pays for the cost of injuries. In no-fault states with the broadest coverage, the personal injury protection (PIP) part of the policy pays for medical care, lost income…
FIXED ANNUITY: An annuity that guarantees a specific rate of return. In the case of a deferred annuity, a minimum rate of interest is guaranteed during the savings phase. During the payment phase, a fixed amount of income, paid on a regular schedule, is guaranteed.
FLOATER: Attached to a homeowners policy, a floater insures movable property, covering losses wherever they may occur. Among the items often insured with a floater are expensive jewelry, musical instruments, and furs. It provides broader coverage than a regular…
FORCED PLACE INSURANCE: Insurance purchased by a bank or creditor on an uninsured debtor’s behalf so if the property is damaged, funding is available to repair it.
FOREIGN INSURANCE COMPANY: Name given to an insurance company based in one state by the other states in which it does business.
FRAUD: Intentional lying or concealment by policyholders to obtain payment of an insurance claim that would otherwise not be paid, or lying or misrepresentation by the insurance company managers, employees, agents, and brokers for financial gain.
FREE-LOOK PERIOD: A period of up to one month during which the purchaser of an annuity can cancel the contract with no penalty. Rules vary by state.
FREQUENCY: Number of times a loss occurs. One of the criteria used in calculating premium rates.
FRONTING: A procedure in which a primary insurer acts as the insurer of record by issuing a policy, but then passes the entire risk to a reinsurer in exchange for a commission. Often, the fronting insurer is licensed to do business in a state or country where the risk…
FUTURES: Agreement to buy a security for a set price at a certain date. Futures contracts usually involve commodities, indexes or financial futures.
GAP INSURANCE: An automobile insurance option, available in some states, that covers the difference between a car’s actual cash value when it is stolen or wrecked and the amount the consumer owes the leasing or finance company. Mainly used for leased cars. (See Actual cash…