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Recommended, glossary of insurance terms.

This page provides a glossary of insurance terms and definitions that are commonly used in the insurance business. New terms will be added to the glossary over time.

The definitions in this glossary are developed by the Research and Actuarial Department staff based on various insurance references. These definitions represent a common or general use of the term. Some words and/or phrases may be defined differently by other entities, or used in a context such that the definition shown may not be applicable.

Click on the letter to view the associated terms and definitions, or find a term using the search bar below.

Accident  - an unexpected event or circumstance without deliberate intent.

Accident Insurance  - insurance for unforeseen bodily injury.

Accident Only  - an insurance contract that provides coverage, singly or in combination, for death, dismemberment, disability, or hospital and medical care caused by or necessitated as a result of accident or specified kinds of accident.

Accident Only or AD&D  - policies providing coverage, singly or in combination, for death, dismemberment, disability, or hospital and medical care caused by or necessitated as a result of accident or specified kinds of accidents. Types of coverage include student accident, sports accident, travel accident, blanket accident, specific accident or accidental death and dismemberment (AD&D).

Accidental Bodily Injury  - unexpected injury to a person.

Accidental Death & Dismemberment  - an insurance contract that pays a stated benefit in the event of death and/or dismemberment caused by accident or specified kinds of accidents.

Accumulation Period  - period of time insured must incur eligible medical expenses at least equal to the deductible amount in order to establish a benefit period under a major medical expense or comprehensive medical expense policy.

Actual Cash Value  - repayment value for indemnification due to loss or damage of property; in most cases it is replacement cost minus depreciation

Actuarial Report  - ( PC Insurance) a document or other presentation, prepared as a formal means of conveying to the state regulatory authority and the Board of Directors, or its equivalent, the actuary's professional conclusions and recommendations, of recording and communicating the methods and procedures, of assuring that the parties addressed are aware of the significance of the actuary's opinion or findings and that documents the analysis underlying the opinion. (In Life and Health) this document would be called an "Actuarial Memorandum."

Actuary  - business professional who analyzes probabilities of risk and risk management including calculation of premiums, dividends and other applicable insurance industry standards.

Adjuster  - a person who investigates claims and recommends settlement options based on estimates of damage and insurance policies held.

Admission  - hospital inpatient care for any medical condition.

Admitted Assets  - insurer assets which can be valued and included on the balance sheet to determine financial viability of the company.

Admitted Company  - an insurance company licensed to do business in a state(s), domiciled in an alternative state or country.

Advance Premiums  - occur when a policy has been processed, and the premium has been paid prior to the effective date. These are a liability to the company and not included in written premium or the unearned premium reserve.

Adverse Selection  - the social phenomenon whereby persons with a higher than average probability of loss seek greater insurance coverage than those with less risk.

Advisory Organization  - a group supported by member companies whose function is to gather loss statistics and publish trended loss costs.

Affiliate  - a person or entity that directly, or indirectly, through one or more other persons or entities, controls, is controlled by or is under common control with the insurer.

Agent  - an individual who sells, services, or negotiates insurance policies either on behalf of a company or independently.

Aggregate  - the maximum dollar amount or total amount of coverage payable for a single loss, or multiple losses, during a policy period, or on a single project.

Aggregate Cost Payments  - method of reimbursement of a health plan with a corporate entity that directly provides care, where (1) the health plan is contractually required to pay the total operating costs of the corporate entity, less any income to the entity from other users of services, and (2) there are mutual unlimited guarantees of solvency between the entity and the health plan that put their respective capital and surplus at risk in guaranteeing each other.

Aircraft  - coverage for aircraft (hull) and their contents; aircraft owners' and aircraft manufacturers liability to passengers, airports and other third parties.

ALAE  - an estimate of the claims settlement associated with a particular claim or claims.

Alien Company  - an insurance company formed according to the laws of a foreign country. The company must conform to state regulatory standards to legally sell insurance products in that state.

Allied Lines  - coverages which are generally written with property insurance, e.g., glass, tornado, windstorm and hail; sprinkler and water damage; explosion, riot, and civil commotion; growing crops; flood; rain; and damage from aircraft and vehicle, etc.

All-Risk  - also known as open peril, this type of policy covers a broad range of losses. The policy covers risks not explicitly excluded in the policy contract.

Alternative Workers' Compensation  - other than standard workers' compensation coverage, employer's liability and excess workers' compensation (e.g., large deductible, managed care).

Ambulatory Services  - health services provided to members who are not confined to a health care institution. Ambulatory services are often referred to as "outpatient" services.

Annual Statement  - an annual report required to be filed with each state in which an insurer does business. This report provides a snapshot of the financial condition of a company and significant events which occurred throughout the reporting year.

Annuitant  - the beneficiary of an annuity payment, or person during whose life and annuity is payable.

Annuities – Immediate Non-variable  - an annuity contract that provides for the fixed payment of the annuity at the end of the first interval of payment after purchase. The interval may vary, however the annuity payouts must begin within 13 months.

Annuity  - a contract providing income for a specified period of time, or duration of life for a person or persons.

Appraisal  - an estimate of value.

Arbitration  - a binding dispute resolution tactic whereby a conciliator with no interest in the outcome intercedes.

Assessed Value  - estimated value for real or personal property established by a taxing entity

Asset  - probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. An asset has three essential characteristics: It embodies a probable future benefit that involves a capacity, singly or in combination with other assets, to contribute directly or indirectly to future net cash inflows; A particular entity can obtain the benefit and control others' access to it; and The transaction or other event-giving rise to the entity's right to or control of the benefit has already occurred.

Asset Risk  - in the risk-based capital formula, risk assigned to the company's assets.

Assigned Risk  - A governmental pool established to write business declined by carriers in the standard insurance market.

Assisted Living Care  - a policy or rider that provides coverage only while a policyholder is confined to an assisted living facility and meets the policy requirements for coverage.

Assumed Reinsurance  - the assumption of risk from another insurance entity within a reinsurance agreement or treaty.

Authorized Company  - an insurer licensed or admitted to do business in a particular state.

Authorized Control Level Risk Based Capital  - theoretical amount of capital plus surplus an insurance company should maintain.

Authorized Reinsurance  - reinsurance placed with a reinsurer who is licensed or otherwise allowed to conduct reinsurance within a state.

Auto Liability  - coverage that protects against financial loss because of legal liability for motor vehicle related injuries (bodily injury and medical payments) or damage to the property of others caused by accidents arising out of ownership, maintenance or use of a motor vehicle (including recreational vehicles such as motor homes). Commercial is defined as all motor vehicle policies that include vehicles that are used primarily in connection with business, commercial establishments, activity, employment, or activities carried on for gain or profit. No Fault is defined by the state concerned.

Auto Physical Damage  - motor vehicle insurance coverage (including collision, vandalism, fire and theft) that insures against material damage to the insured's vehicle. Commercial is defined as all motor vehicle policies that include vehicles that are used in connection with business, commercial establishments, activity, employment, or activities carried on for gain or profit.

Automobile Liability Insurance  - coverage for bodily injury and property damage incurred through ownership or operation of a vehicle.

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Balance Sheet  - accounting statement showing the financial condition of a company at a particular date.

BCEGS - Building Code Effectiveness Grading Schedule  - classification system for assessment of building codes per geographic region with special emphasis on mitigation of losses from natural disasters.

Beneficiary  - an individual who may become eligible to receive payment due to will, life insurance policy, retirement plan, annuity, trust, or other contract.

Benefits (Medical & Hospital Expenses)  - total expenditures for health care services paid to or on behalf of a member.

Blanket coverage  - coverage for property and liability that extends to more than one location, class of property or employee.

Boatowners/Personal Watercraft  - covers damage to pleasure boats, motors, trailers, boating equipment and personal watercraft as well as bodily injury and property damage liability to others.

Bodily Injury  - physical injury including sickness or disease to a person.

Boiler & Machinery or Equipment Breakdown & Machinery  - coverage for the failure of boilers, machinery and other electrical equipment. Benefits include (i) property of the insured, which has been directly damaged by the accident; (ii) costs of temporary repairs and expediting expenses; and (iii) liability for damage to the property of others. Coverage also includes inspection of the equipment.

Bonds  - a form of debt security whereby the debt holder has a creditor stake in the company. Obligations issued by business units, governmental units and certain nonprofit units having a fixed schedule for one or more future payments of money; includes commercial paper, negotiable certificates of deposit, repurchase agreements and equipment trust certificates.

Book Value  - original cost, including capitalized acquisition costs and accumulated depreciation, unamortized premium and discount, deferred origination and commitment fees, direct write-downs, and increase/decrease by adjustment.

Broker  - an individual who receives commissions from the sale and service of insurance policies. These individuals work on behalf of the customer and are not restricted to selling policies for a specific company but commissions are paid by the company with which the sale was made.

Builders' Risk Policies  - typically written on a reporting or completed value form, this coverage insures against loss to buildings in the course of construction. The coverage also includes machinery and equipment used in the course of construction and to materials incidental to construction.

Burglary and Theft  - coverage for property taken or destroyed by breaking and entering the insured's premises, burglary or theft, forgery or counterfeiting, fraud, kidnap and ransom, and off-premises exposure.

Business Auto  - coverage for motor vehicles, other than those in the garage business, engaged in commerce. Business auto filings include singularly or in any combination coverage such as the following: Auto Liability, PIP, MP, Uninsured Motorist and/or Underinsured Motorists (UM/UIM); Specified Causes of Loss, Comprehensive, and Collision.

Business Interruption  - loss of income as a result of property damage to a business facility.

Business owners Policy  - business insurance typically for property, liability and business interruption coverage.

Calendar Year Deductible  - in health insurance, the amount that must be paid by the insured during a calendar year before the insurer becomes responsible for further loss costs.

Capital and Surplus  - a company's assets minus its liabilities.

Capital and Surplus Requirement  - statutory requirement ordering companies to maintain their capital and surplus at an amount equal to or in excess of a specified amount to help assure the solvency of the company by providing a financial cushion against expected loss or misjudgments and generally measured as a company's admitted assets minus its liabilities, determined on a statutory accounting basis.

Capital Gains (Loss)  - excess (deficiency) of the sales price of an asset over its book value. Calculated on the basis of original cost adjusted, as appropriate, for accrual of discount or amortization of premium and for depreciation.

Capitation Arrangement  - a compensation plan used in connection with some managed care contracts where a physician or other medical provider is paid a flat amount, usually on a monthly basis, for each subscriber who has elected to use that physician or medical provider. Capitated payments are sometimes expressed in terms of a "per member/per month" payment. The capitated provider is generally responsible, under the conditions of the contract, for delivering or arranging for the delivery of all contracted health services required by the covered person.

Captive Agent  - an individual who sells or services insurance contracts for a specific insurer or fleet of insurers.

Captive Insurer  - an insurance company established by a parent firm for the purpose of insuring the parent's exposures.

Carrying Value (Amount)  - the SAP book value plus accrued interest and reduced by any valuation allowance and any nonadmitted adjustment applied to the individual investment.

Cash  - a medium of exchange.

Cash Equivalent  - short-term, highly liquid investments that are both (a) readily convertible to known amounts of cash, and (b) so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Investments with original maturities of three months or less qualify under this definition.

Cash Value  - amount due to the policyholder upon surrender of the insurance or annuity product

Casualty Insurance  - a form of liability insurance providing coverage for negligent acts and omissions such as workers compensation, errors and omissions, fidelity, crime, glass, boiler, and various malpractice coverages.

Catastrophe Bonds  - Bonds issued by an insurance company with funding tied to the company's losses from disasters, or acts of God. A loss exceeding a certain size triggers a reduction in the bond value or a change in the bond structure as loss payments are paid out of bond funds.

Catastrophe Loss  - a large magnitude loss with little ability to forecast.

Ceded Premium  - amount of premium (fees) used to purchase reinsurance.

Ceding Company  - an insurance company that transfers risk by purchasing reinsurance.

Centers for Medicare & Medicaid Services (CMS)  - U.S. governmental agency responsible for the licensing of federally qualified HMOs. This was formerly the Health Care Financing Administration.

Change in Valuation Basis  - a change in the interest rate, mortality assumption or reserving method or other factors affecting the reserve computation of policies in force.

Chartered Life Underwriter (CLU)  - a professional designation awarded by the American College to persons in the life insurance field who pass a series of exams in insurance, investment, taxation, employee benefit plans, estate planning, accounting, management, and economics.

Chartered Property Casualty Underwriter (CPCU)  - a professional designation awarded by the American Institute of Property and Casualty Underwriters to persons in the property and liability insurance field who pass a series of exams in insurance, risk management, economics, finance, management, accounting, and law. Designates must also have at least three years experience in the insurance business or related field.

Claim  - a request made by the insured for insurer remittance of payment due to loss incurred and covered under the policy agreement.

Claims Adjustment Expenses  - costs expected to be incurred in connection with the adjustment and recording of accident and health, auto medical and workers' compensation claims.

Claims-made Form  - A type of liability insurance form that only pays if the both event that causes (triggers)the claim and the actual claim are submitted to the insurance company during the policy term

Class Rating  - a method of determining rates for all applicants within a given set of characteristics such as personal demographic and geographic location.

Coinsurance  - A clause contained in most property insurance policies to encourage policy holders to carry a reasonable amount of insurance. If the insured fails to maintain the amount specified in the clause (Usually at least 80%), the insured shares a higher proportion of the loss. In medical insurance a percentage of each claim that the insured will bear.

Collar  - an agreement to receive payments as the buyer of an Option, Cap or Floor and to make payments as the seller of a different Option, Cap or Floor.

Collateral Loans  - unconditional obligations for the payment of money secured by the pledge of an investment.

Collateralized Bond Obligations (CBOs)  - an investment-grade bond backed by a pool of low-grade debt securities, such as junk bonds, separated into tranches based on various levels of credit risk.

Collateralized Mortgage Obligations (CMOs)  - a type of mortgage-backed security (MBS) with separate pools of pass-through security mortgages that contain varying classes of holders and maturities (tranches) with the advantage of predictable cash flow patterns.

Combinations  - a special form of package policy composed of personal automobile and homeowners insurance.

Combined Ratio  - an indication of the profitability of an insurance company, calculated by adding the loss and expense ratios.

Commencement Date  - date when the organization first became obligated for any insurance risk via the issuance of policies and/or entering into a reinsurance agreement. Same as "effective date" of coverage.

Commercial Auto  - coverage for motor vehicles owned by a business engaged in commerce that protects the insured against financial loss because of legal liability for motor vehicle related injuries, or damage to the property of others caused by accidents arising out of the ownership, maintenance, use, or care-custody & control of a motor vehicle. This includes Commercial Auto Combinations of Business Auto, Garage, Truckers and/or Other Commercial Auto.

Commercial Earthquake  - earthquake property coverage for commercial ventures.

Commercial Farm and Ranch  - a commercial package policy for farming and ranching risks that includes both property and liability coverage. Coverage includes barns, stables, other farm structures and farm inland marine, such as mobile equipment and livestock.

Commercial Flood  - separate flood insurance policy sold to commercial ventures.

Commercial General Liability  - flexible & broad commercial liability coverage with two major sub-lines: premises/operations sub-line and products/completed operations sub-line.

Commercial Mortgage-Backed Securities  - a type of mortgage-backed security that is secured by the loan on a commercial property.

Commercial Multiple Peril  - policy that packages two or more insurance coverages protecting an enterprise from various property and liability risk exposures. Frequently includes fire, allied lines, various other coverages (e.g., difference in conditions) and liability coverage. Such coverages would be included in other annual statement lines, if written individually. Include under this type of insurance multi-peril policies (other than farmowners, homeowners and automobile policies) that include coverage for liability other than auto.

Commercial Package Policy  - provides a broad package of property and liability coverages for commercial ventures other than those provided insurance through a business owners policy.

Commercial Property  - property insurance coverage sold to commercial ventures.

Commission  - a percentage of premium paid to agents by insurance companies for the sale of policies.

Community Rating  - a rating system where standard rating is established and usually adjusted within specific guidelines for each group on the basis of anticipated utilization by the group's employees.

Company Code  - a five-digit identifying number assigned by NAIC, assigned to all insurance companies filing financial data with NAIC.

Completed Operations Liability  - policies covering the liability of contractors, plumbers, electricians, repair shops, and similar firms to persons who have incurred bodily injury or property damage from defective work or operations completed or abandoned by or for the insured, away from the insured's premises.

Comprehensive (Hospital and Medical)  - line of business providing for medical coverages; includes hospital, surgical, major medical coverages; does not include Medicare Supplement, administrative services (ASC) contracts, administrative services only (ASO) contracts, federal employees health benefit plans (FEHBP), medical only programs, Medicare and Medicaid programs, vision only and dental only business.

Comprehensive General Liability (CGL)  - coverage of all business liabilities unless specifically excluded in the policy contract.

Comprehensive Personal Liability  - comprehensive liability coverage for exposures arising out of the residence premises and activities of individuals and family members. (Non-business liability exposure protection for individuals.)

Comprehensive/Major Medical  - policies that provide fully insured indemnity, HMO, PPO, or Fee for Service coverage for hospital, medical, and surgical expenses. Coverage excludes Short-Term Medical Insurance, the Federal Employees Health Benefit Program and non-comprehensive coverage such as basic hospital only, medical only, hospital confinement indemnity, surgical, outpatient indemnity, specified disease, intensive care, and organ and tissue transplant coverage.

Concurrent Causation  - property loss incurred from two or more perils in which only one loss is covered but both are paid by the insurer due to simultaneous incident.

Conditions  - requirements specified in the insurance contract that must be upheld by the insured to qualify for indemnification.

Condos  - homeowners insurance sold to condominium owners occupying the described property.

Construction and Alteration Liability  - covering the liability of an insured to persons who have incurred bodily injury or property damage from alterations involving demolition, new construction or change in size of a structure on the insured's premises.

Contingency Reserves  - required by some jurisdictions as a hedge against adverse experience from operations, particularly adverse claim experience.

Contingent Liability  - the liability of an insured to persons who have incurred bodily injury or property damage from work done by an independent contractor hired by the insured to perform work that was illegal, inherently dangerous, or directly supervised by the insured

Continuation of Care Requirement  - statutory or contractual provision requiring providers to deliver care to an enrollee for some period following the date of a Health Plan Company's insolvency.

Continuing Care Retirement Communities  - senior housing arrangements that in addition to housing include some provision for skilled nursing care.

Contract Reserves  - reserves set up when, due to the gross premium structure, the future benefits exceed the future net premium. Contract reserves are in addition to claim and premium reserves.

Contractual Liability  - liability coverage of an insured who has assumed the legal liability of another party by written or oral contract. Includes a contractual liability policy providing coverage for all obligations and liabilities incurred by a service contract provider under the terms of service contracts issued by the provider.

Convertible Term Insurance Policy  - an insurance policy that can be converted into permanent insurance without a medical assessment. The insurer is required to renew the policy regardless of the health of the insured subject to policy conditions.

Coordination of Benefits (COB)  - provision to eliminate over insurance and establish a prompt and orderly claims payment system when a person is covered by more than one group insurance and/or group service plan.

Copay  - a cost sharing mechanism in group insurance plans where the insured pays a specified dollar amount of incurred medical expenses and the insurer pays the remainder.

Corrective Order  - commissioner's directive of action to be completed by an insurer.

Covered Lives  - The total number of lives insured, including dependents, under individual policies and group certificates.

Credit  - individual or group policies that provide benefits to a debtor for full or partial repayment of debt associated with a specific loan or other credit transaction upon disability or involuntary unemployment of debtor, except in connection with first mortgage loans.

Credit – Assumption Agreement  - an insurance certificate issued on an existing insurance contract indicating that another insurer has assumed all of the risk under the contract from the ceding insurance company.

Credit - Credit Default  - coverage purchased by manufacturers, merchants, educational institutions, or other providers of goods and services extending credit, for indemnification of losses or damages resulting from the nonpayment of debts owed to them for goods or services provided in the normal course of their business.

Credit – Involuntary Unemployment  - makes loan/credit transaction payments to the creditor when the debtor becomes involuntarily unemployed.

Credit Accident and Health (group and individual)  - coverage provided to or offered to borrowers in connection with a consumer credit transaction where the proceeds are used to repay a debt or an installment loan in the event the consumer is disabled as the result of an accident, including business not exceeding 120 months duration.

Credit Disability  - makes monthly loan/credit transaction payments to the creditor upon the disablement of an insured debtor.

Credit Health Insurance  - policy assigning creditor as beneficiary for insurance on a debtor thereby remitting balance of payment to creditor should the debtor become disabled.

Credit Involuntary Unemployment  - credit insurance that provides a monthly or lump sum benefit during an unpaid leave of absence from employment resulting from specified causes, such as layoff, business closure, strike, illness of a close relative and adoption or birth of a child. This insurance is sometimes referred to as Credit Family Leave.

Credit Life Insurance  - policy assigning creditor as beneficiary for insurance on a debtor thereby remitting balance of payment to creditor upon death of debtor.

Credit Personal Property Insurance  - insurance written in connection with a credit transaction where the collateral is not a motor vehicle, mobile home or real estate and that covers perils to the goods purchased through a credit transaction or used as collateral for a credit transaction and that concerns a creditor's interest in the purchased goods or pledged collateral, either in whole or in part; or covers perils to goods purchased in connection with an open-end transaction.

Credit Placed Insurance  - insurance that is purchased unilaterally by the creditor, who is the named insured, subsequent to the date of the credit transaction, providing coverage against loss, expense or damage to property as a result of fire, theft, collision or other risks of loss that would either impair a creditor's interest or adversely affect the value of collateral. "Creditor Placed Home" means "Creditor Placed Insurance" on homes, mobile homes and other real estate. "Creditor Placed Auto" means insurance on automobiles, boats or other vehicles.

Credit Risk  - part of the risk-based capital formula that addresses the collectability of a company's receivables and the risk of losing a provider or intermediary that has received advance capitation payments.

Creditor-Placed Auto  - single interest or dual interest credit insurance that is purchased unilaterally by the creditor, who is the named insured, subsequent to the date of the credit transaction, providing coverage against loss to property that would either impair a creditor's interest or adversely affect the value of collateral on automobiles, boats, or other vehicles.

Creditor-Placed Home  - single interest or dual interest credit insurance purchased unilaterally by the creditor, who is the named insured, subsequent to the date of the credit transaction, providing coverage against loss to property that would either impair a creditor's interest or adversely affect the value of collateral on homes, mobile homes, and other real estate.

Crop  - coverage protecting the insured against loss or damage to crops from a variety of perils, including but not limited to fire, lightening, loss of revenue, tornado, windstorm, hail, flood, rain, or damage by insects.

Crop-Hail Insurance  - coverage for crop damage due to hail, fire or lightning.

Date of Issue  - date when an insurance company issues a policy.

Declarations  - policy statements regarding the applicant and property covered such as demographic and occupational information, property specifications and expected mileage per year .

Deductible  - Portion of the insured loss (in dollars) paid by the policy holder

Deferred Annuity  - annuity payment to be made as a single payment or a series of installments to begin at some future date, such as in a specified number of years or at a specified age.

Deferred Annuities  - a contract providing income at a specified point in the future, either for a defined duration of time or for the remaining life or lives of the annuitant(s)

Demutualization  - conversion of a mutual insurance company to a capital stock company.

Dental Insurance  - policies providing only dental treatment benefits such as routine dental examinations, preventive dental work, and dental procedures needed to treat tooth decay and diseases of the teeth and jaw.

Dental Only  - line of business providing dental only coverage; coverage can be on a stand-alone basis or as a rider to a medical policy. If the coverage is as a rider, deductibles or out-of-pocket limits must be set separately from the medical coverage. Does not include self-insured business as well as FEHBP or Medicare and Medicaid programs.

Derivative  - securities priced according to the value of other financial instruments such as commodity prices, interest rates, stock market prices, foreign or exchange rates.

Difference In Conditions (DIC) Insurance  - special form of open-peril coverage written in conjunction with basic fire coverage and designed to provide protection against losses not reimbursed under the standard fire forms. Examples are flood and earthquake coverage.

Direct Incurred Loss  - loss whereby the proximate cause is equivalent to the insured peril.

Direct Loss  - Damage to covered real or personal property caused by a covered peril.

Direct Writer  - an insurance company that sells policies to the insured through salaried representatives or exclusive agents only; reinsurance companies that deal directly with ceding companies instead of using brokers.

Direct Written Premium  - total premiums received by an insurance company without any adjustments for the ceding of any portion of these premiums to the Reinsurer.

Directors & Officers Liability  - liability coverage protecting directors or officers of a corporation from liability arising out of the performance of their professional duties on behalf of the corporation.

Disability Income  - a policy designed to compensate insured individuals for a portion of the income they lose because of a disabling injury or illness.

Disability Income - Long-Term  - policies that provide a weekly or monthly income benefit for more than five years for individual coverage and more than one year for group coverage for full or partial disability arising from accident and/or sickness.

Disability Income - Short-Term  - policies that provide a weekly or monthly income benefit for up to five years for individual coverage and up to one year for group coverage for full or partial disability arising from accident and/or sickness.

Dividend  - a refund of a portion of the premium paid by the insured from insurer surplus.

Domestic Insurer  - an insurance company that is domiciled and licensed in the state in which it sells insurance.

Dual Interest  - insurance that protects the creditor's and the debtor's interest in the collateral securing the debtor's credit transaction. "Dual Interest" includes insurance commonly referred to as "Limited Dual Interest."

Dwelling Property/Personal Liability  - a special form of package policy composed of dwelling fire and/or allied lines, and personal liability insurance.

Early warning system  - a system designed by insurance industry regulators of identifying practices and risk-related trends that contribute to systemic risk by measuring insurer' financial stability.

Earned Premium  - portion of insured's prepaid premium allocated to the insurance company's loss experience, expenses, and profit year- to -date.

Earthquake  - property coverages for losses resulting from a sudden trembling or shaking of the earth, including that caused by volcanic eruption. Excluded are losses resulting from fire, explosion, flood or tidal wave following the covered event.

EBNR - Earned but not reported  - premium amount insurer reasonably expects to receive for which contracts are not yet final and exact amounts are not definite.

EDP Policies  - coverage to protect against losses arising out of damage to or destruction of electronic data processing equipment and its software.

Effective Date  - date at which an insurance policy goes into force.

Elevators and Escalators Liability  - liability coverage for bodily injury or property damage arising from the use of elevators or escalators operated, maintained or controlled by the insured.

Employee Benefit Liability  - liability protection for an employer for claims arising from provisions in an employee benefit insurance plan provided for the economic and social welfare of employees. Examples of items covered are pension plans, group life insurance, group health insurance, group disability income insurance, and accidental death and dismemberment.

Employee Retirement Income Security Act of 1974 (ERISA)  - a federal statute governing standards for private pension plans, including vesting requirements, funding mechanisms, and plan design.

Employers Liability  - employers' liability coverage for the legal liability of employers arising out of injuries to employees. This code should be used when coverage is issued as an endorsement, or as part of a statutory workers' compensation policy.

Employment Practices Liability Coverage  - liability insurance for employers providing coverage for wrongful termination, discrimination, or sexual harassment of the insured's current or former employees.

Encumbrance  - outstanding mortgages or other debt related to real estate and any unpaid accrued acquisition or construction costs.

Endorsement  - an amendment or rider to a policy adjusting the coverages and taking precedence over the general contract.

Enrollment  – The total number of plans, not the total number of covered lives, providing coverage to the enrollee and their dependents.

Environmental Impairment Liability (EIL)  - coverage for negligence or omission resulting in pollution or environmental contamination.

Environmental Pollution Liability  - liability coverage of an insured to persons who have incurred bodily injury or property damage from acids, fumes, smoke, toxic chemicals, waste materials or other pollutants.

Equity Indexed Annuity  - a fixed annuity that earns interest or provides benefits that are linked to an external reference or equity index, subject to a minimum guarantee.

Errors and Omissions Liability | Professional Liability other than Medical  - liability coverage of a professional or quasi professional insured to persons who have incurred bodily injury or property damage, or who have sustained any loss from omissions arising from the performance of services for others, errors in judgment, breaches of duty, or negligent or wrongful acts in business conduct.

Event Cancellation  - coverage for financial loss because of the cancellation or postponement of a specific event due to weather or other unexpected cause beyond the control of the insured.

Excess and Umbrella Liability  - liability coverage of an insured above a specific amount set forth in a basic policy issued by the primary insurer; or a self insurer for losses over a stated amount; or an insured or self insurer for known or unknown gaps in basic coverages or self insured retentions.

Excess of Loss Reinsurance  - loss sharing mechanism where an insurer pays all claims up to a specified amount and a reinsurance company pays any claims in excess of stated amount.

Excess Workers' Compensation  - either specific and/or aggregate excess workers' compensation insurance written above an attachment point or self-insured retention.

Expense Ratio  - percentage of premium income used to attain and service policies. Derived by subtracting related expenses from incurred losses and dividing by written premiums.

Experience Rating  - rating system where each group is rated entirely on the basis of its own expected claims in the coming period, with retrospective adjustments for prior periods. This method is prohibited under the conditions for federal qualification.

Exposure  - risk of possible loss.

Extra Expense Insurance  - a type of property insurance for extraordinary expenses related to business interruption such as a back-up generator in case of power failure.

Face Amount  - the value of a policy to be provided upon maturity date or death.

Facultative Reinsurance  - reinsurance for a specific policy for which terms can be negotiated by the original insurer and reinsurer.

FAIR Plan - Fair Access to Insurance Requirements  - state pools designed to provide insurance to property owners who are unable to obtain property insurance through conventional means.

Fair Value  - the amount at which an asset (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties, that is, other than in a forced or liquidation sale. Quoted market prices in active markets are the best evidence of fair value and shall be used as the basis for the measurement, if available. If a quoted market price is available, the fair value is the product of the number of trading units times market price.

Farmowners Insurance  - farmowners insurance sold for personal, family or household purposes. This package policy is similar to a homeowners policy, in that it has been developed for farms and ranches and includes both property and liability coverage for personal and business losses. Coverage includes farm dwellings and their contents, barns, stables, other farm structures and farm inland marine, such as mobile equipment and livestock.

Federal Flood Insurance  - coverage for qualifying residents and businesses in flood prone regions through the National Flood Insurance Act, a federally subsidized flood insurance program enacted in 1968.

Federally Reinsured Crop  - crop insurance coverage that is either wholly or in part reinsured by the Federal Crop Insurance Corporation (FCIC) under the Standard Reinsurance Agreement (SRA). This includes the following products: Multiple Peril Crop Insurance (MPCI); Catastrophic Insurance, Crop Revenue Coverage (CRC); Income Protection and Revenue Assurance.

Fees Payable  - fees incurred but not yet paid.

FEMA - Federal Emergency Management Agency  - an independent agency, tasked with responding to, planning for, mitigating and recovery efforts of natural disasters.

Fidelity  - a bond or policy covering an employer's loss resulting from an employee's dishonest act (e.g., loss of cash, securities, valuables, etc.).

Financial Guaranty  - a surety bond, insurance policy, or an indemnity contract (when issued by an insurer), or similar guaranty types under which loss is payable upon proof of occurrence of financial loss to an insured claimant, obligee or indemnitee as a result of failure to perform a financial obligation or any other permissible product that is defined as or determined to be financial guaranty insurance.

Financial Reporting  - insurance companies are required to maintain records and file annual and quarterly financial statements with regulators in accordance with statutory accounting principles (SAP). Statutory rules also govern how insurers should establish reserves for invested assets and claims and the conditions under which they can claim credit for reinsurance ceded.

Financial Responsibility Law  - a statute requiring motorists to show capacity to pay for automobile-related losses.

Financial Statement  - balance sheet and profit and loss statement of an insurance company. This statement is used by the NAIC, and by State Insurance Commissioners to regulate an insurance company according to reserve requirements, assets, and other liabilities.

Fire  - coverage protecting the insured against the loss to real or personal property from damage caused by the peril of fire or lightning, including business interruption, loss of rents, etc.

Fire Legal Liability  - coverage for property loss liability as the result of separate negligent acts and/or omissions of the insured that allows a spreading fire to cause bodily injury or property damage of others. An example is a tenant who, while occupying another party's property, through negligence causes fire damage to the property.

Fixed Deferred Annuities  - a specific type of deferred annuity where the account value increases based on the relatively stable performance of an annuity provider's general account investments and often subject to a guaranteed minimum return in each year.

Flood  - coverage protecting the insured against loss or damage to real or personal property from flood. (Note: If coverage for flood is offered as an additional peril on a property insurance policy, file it under the applicable property insurance filing code.)

Foreign Insurer  - an insurance company selling policies in a state other than the state in which they are incorporated or domiciled.

Foreign Investment  - an investment in a foreign jurisdiction, or an investment in a person, real estate or asset domiciled in a foreign jurisdiction. An investment shall not be deemed to be foreign if the issuing person, qualified primary credits source or qualified guarantor is a domestic jurisdiction or a person domiciled in a domestic jurisdiction, unless: a) The issuing person is a shell business entity; and b) The investment is not assumed, accepted, guaranteed or insured or otherwise backed by a domestic jurisdiction or a person, that is not a shell business entity, domiciled in a domestic jurisdiction.

Foreign jurisdiction  - a jurisdiction outside of the United States, Canada or any province or political subdivision of the foregoing.

Fraternal Insurance  - a form of group coverage or disability insurance available to members of a fraternal organization.

Fronting  - an arrangement 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 is located, but the reinsurer is not.

Generally Accepted Accounting Principles (GAAP)  - an aggregate of the accounting standards, principles and best practices for the preparation of financial statements allowing for consistency in reporting.

Gramm-Leach Bliley Act (GLBA)  - act, repealing Glass-Steagal Act of 1933, allows consolidation of commercial banks, investment institutions and insurance companies. Established a framework of responsibilities of federal and state regulators for these financial industries. It permits financial services companies to merge and engage in a variety of new business activities, including insurance, while attempting to address the regulatory issues raised by such combinations.

Goodwill  - the difference between the cost of acquiring the entity and the reporting entity's share of the book value of the acquired entity.

Gross Paid-in and Contributed Surplus  - amount of capital received in excess of the par value of the stock issued.

Gross Premium  - the net premium for insurance plus commissions, operating and miscellaneous commissions. For life insurance, this is the premium including dividends.

Group Accident and Health  - coverage written on a group basis (e.g., employees of a single employer and their dependents) that pays scheduled benefits or medical expenses caused by disease, accidental injury or accidental death. Excludes amounts attributable to uninsured accidents and health plans and the uninsured portion of partially insured accident and health plans.

Group Annuities – Deferred Non- Variable and Variable  - an annuity contract that provides an accumulation based on both (1) funds that accumulate based on a guaranteed crediting interest rates or additional interest rate applied to designated considerations, and (2) funds where the accumulation vary in accordance with the rate of return of the underlying investment portfolio selected by the policyholder. The contract provides for the initiation of payments at some designated future date.

Group Annuities – Deferred Variable  - an annuity contract that provides an accumulation based fund where the accumulation varies in accordance with the rate of return of the underlying investment portfolio selected by the policyholder. Must include at least one option to have the accumulation vary in accordance with the rate of return of the underlying investment portfolio selected by the policyholder and may include at least one option to have the series of payments vary in accordance with the rate of return of the underlying investment portfolio selected by the policyholder. This annuity contract provides for the initiation of payments at some designated future date.

Group Annuities – Immediate Non-Variable and Variable  - an annuity contract that provides an accumulation based on both (1) funds that accumulate based on a guaranteed crediting interest rates or additional interest rate applied to designated considerations, and (2) funds where the accumulation vary in accordance with the rate of return of the underlying investment portfolio selected by the policyholder. The contract provides for the initiation of payments at some interval that may vary, however the annuity payouts must begin within 13 months.

Group Annuities – Immediate Variable  - an annuity contract that provides for the first payment of the annuity at the end of the fixed interval of payment after purchase. The interval may vary, however the annuity payouts must begin within 13 months. The amount varies with the value of equities (separate account) purchased as investments by the insurance companies.

Group Annuities – Unallocated  - annuity contracts or portions thereof where the Insurer purchases an annuity for the retirees.

Group Annuity  - a contract providing income for a specified period of time, or duration of life for a person or persons established to benefit a group of employees.

Group Health  - health insurance issued to employers, associations, trusts, or other groups covering employees or members and/or their dependents, to whom a certificate of coverage may be provided.

Group Code  - a unique three to five digit number assigned by the NAIC to identify those companies that are part of a larger group of insurance companies.

Group Credit – Life  - contracts sold in connection with loan/credit transactions or other credit transactions, which do not exceed a stated duration and/or amount and provide insurance protection against death.

Group Health Organizations – Health Maintenance (HMO)  - a plan under which an enrollee pays a membership fixed fee in advance in return for a wide range of comprehensive health care services with the HMO's approved providers in a designated service area.

Guaranty Fund  - funding mechanism employed by states to provide funds to cover policyholder obligations of insolvent reporting entities.

Hard Market  - a market characterized by high demand and low supply.

Hazard  - circumstance which tends to increase the probability or severity of a loss.

Health – Excess/Stop Loss  - this type of insurance may be extended to either a health plan or a self-insured employer plan. Its purpose is to insure against the risk that any one claim will exceed a specific dollar amount or that an entire plan's losses will exceed a specific amount.

Health Insurance  - a generic term applying to all types of insurance indemnifying or reimbursing for losses caused by bodily injury or illness including related medical expenses.

Health Maintenance Organization (HMO)  - a medical group plan that provides physician, hospital, and clinical services to participating members in exchange for a periodic flat fee.

Health Plan  - written promise of coverage given to an individual, family, or group of covered individuals, where a beneficiary is entitled to receive a defined set of health care benefits in exchange for a defined consideration, such as a premium.

Hold-Harmless Agreement  - A risk transfer mechanism whereby one party assumes the liability of another party by contract

Homeowners Insurance  - a package policy combining real and personal property coverage with personal liability coverage. Coverage applicable to the dwelling, appurtenant structures, unscheduled personal property and additional living expense are typical. Includes mobile homes at a fixed location.

Hospital Indemnity Coverage  - coverage that provides a pre-determined, fixed benefit or daily indemnity for contingencies based on a stay at a hospital or intensive care facility.

Hull Insurance  - coverage for damage to a vessel or aircraft and affixed items.

Incontestability Provision  - a life insurance and annuity provision limiting the time within which the insurer has the legal right to void the contract on grounds of material misrepresentation in the policy application.

Incurred But Not Reported (IBNR)  - (Pure IBNR) claims that have occurred but the insurer has not been notified of them at the reporting date. Estimates are established to book these claims. May include losses that have been reported to the reporting entity but have not yet been entered into the claims system or bulk provisions. Bulk provisions are reserves included with other IBNR reserves to reflect deficiencies in known case reserves. IBNR can sometimes include estimates of incurred but Not Enough Reported (IBNER)

Incurred Claims  - paid claims plus amounts held in reserve for those that have been incurred but not yet paid.

Incurred Losses  - sustained losses, paid or not, during a specified time period. Incurred losses are typically found by combining losses paid during the period plus unpaid losses sustained during the time period minus outstanding losses at the beginning of the period incurred in the previous period.

Indemnity, Principle of  - a general legal principle related to insurance that holds that the individual recovering under an insurance policy should be restored to the approximate financial position he or she was in prior to the loss. Legal principle limiting compensation for damages be equivalent to the losses incurred.

Independent Adjuster  - freelance contractor paid a fee for adjusting losses on behalf of companies.

Independent Agent  - a representative of multiple insurance companies who sells and services policies for records which they own and operate under the American Agency System.

Independent Contractor  - an individual who is not employed for a company but instead works for themselves providing goods or services to clients for a fee.

Index Annuity  - an interest bearing fixed annuity tied to an equity index, such as the Dow Jones Industrial Average or S & P 500.

Individual Annuities – Deferred Variable  - an annuity contract that provides an accumulation based fund where the accumulation varies in accordance with the rate of return of the underlying investment portfolio selected by the policyholder. Must include at least one option to have the accumulation vary in accordance with the rate of return of the underlying investment portfolio selected by the policyholder and may include at least one option to have the series of payments vary in accordance with the rate of return of the underlying investment portfolio selected by the policyholder. This annuity contract provides for the initiation of payments at some designated future date.

Individual Annuities – Immediate Variable  - an annuity contract that provides for the first payment of the annuity at the end of the fixed interval of payment after purchase. The interval may vary, however the annuity payouts must begin within 13 months. The amount varies with the value of equities (separate account) purchased as investments by the insurance companies.

Individual Annuities – Special  - contracts with certain noteworthy attributes.

Individual Annuities- Deferred Non-Variable and Variable  - an annuity contract that provides an accumulation based on both (1) funds that accumulate based on a guaranteed crediting interest rates or additional interest rate applied to designated considerations, and (2) funds where the accumulation vary in accordance with the rate of return of the underlying investment portfolio selected by the policyholder. The contract provides for the initiation of payments at some designated future date.

Individual Annuities- Deferred Non-Variable  - an annuity contract that provides an accumulation based on funds that accumulate based on a guaranteed crediting interest rate or additional interest rate. This annuity contract provides for the initiation of payments at some designated future date.

Individual Annuities- Immediate Non-Variable  - an annuity contract that provides for the fixed payment of the annuity at the end of the first interval of payment after purchase. The interval may vary, however the annuity payouts must begin within 13 months.

Individual Annuities- Immediate Non-Variable and Variable  - an annuity contract that provides an accumulation based on both (1) funds that accumulate based on a guaranteed crediting interest rates or additional interest rate applied to designated considerations, and (2) funds where the accumulation vary in accordance with the rate of return of the underlying investment portfolio selected by the policyholder. The contract provides for the initiation of payments at some interval that may vary, however the annuity payouts must begin within 13 months.

Individual Health  - health insurance where the policy is issued to an individual covering the individual and/or their dependents in the individual market. This includes conversions from group policies.

Individual Credit – Credit Disability  - makes monthly loan/credit transaction payments to the creditor upon the disablement of an insured debtor.

Individual Credit – Life  - contracts sold in connection with loan/credit transactions or other credit transactions, which do not exceed a stated duration and/or amount and provide insurance protection against death.

Industrial Life  - Industrial life insurance, also called "debit" insurance, is insurance under which premiums are paid monthly or more often, the face amount of the policy does not exceed a stated amount, and the words "industrial policy" are printed in prominent type on the face of the policy.

Inland Marine  - coverage for property that may be in transit, held by a bailee, at a fixed location, a movable good that is often at different locations (e.g., off road constructions equipment), or scheduled property (e.g., Homeowners Personal Property Floater) including items such as live animals, property with antique or collector's value, etc. This line also includes instrumentalities of transportation and communication, such as bridges, tunnels, piers, wharves, docks, pipelines, power and phone lines, and radio and television towers.

Insurable Interest  - A right or relationship in regard to the subject matter of the insured contract such that the insured can suffer a financial loss from damage, loss or destruction to it. (Bickelhaupt and Magee )

Insurance  - an economic device transferring risk from an individual to a company and reducing the uncertainty of risk via pooling.

Insurance Holding Company System  - consists of two or more affiliated persons, one or more of which is an insurer.

Insurance Regulatory Information System (IRIS)  - a baseline solvency screening system for the National Association of Insurance Commissioners (NAIC) and state insurance regulators established in the mid-1970s.

Insurance to Value  - Amount of insurance purchased vs. the actual replacement cost of the insured property expressed as a ratio.

Insured  - party(ies) covered by an insurance policy.

Insurer  - an insurer or reinsurer authorized to write property and/or casualty insurance under the laws of any state.

Intermediary  - a person, corporation or other business entity (not licensed as a medical provider) that arranges, by contracts with physicians and other licensed medical providers, to deliver health services for a health insurer and its enrollees via a separate contract between the intermediary and the insurer.

International  - includes all business transacted outside the U.S. and its territories and possessions where the appropriate line of business is not determinable.

Internet Liability Insurance/Cyber Insurance  - coverage for cyber commerce including copyright infringement, libel, and violation of privacy.

Investment grade  - the obligation has been determined to be in one of the top four generic lettered rating classifications by a securities rating agency acceptable to the commissioner, that the obligation has been identified in writing by such a rating agency to be of investment grade quality, or, if the obligation has not been submitted to any such rating agency, that the obligation has been determined to be investment grade (Class 1 and Class 2) by the Securities Valuation Office of the National Association of Insurance Commissioners.

Investment Income Accrued  - investment income earned as of the reporting date but not legally due to be paid to the reporting entity until subsequent to the reporting date.

Investment Income Due  - investment income earned and legally due to be paid to the reporting entity as of the reporting date.

Investment Income Gross  - shall be recorded as earned and shall include investment income collected during the period, the change in investment income due and accrued, the change in unearned investment income plus any amortization (e.g., discounts or premiums on bonds, origination fees on mortgage loans, etc.)

Irrevocable Beneficiary  - a life insurance policy beneficiary who has a vested interest in the policy proceeds even during the insured's lifetime because the policy owner has the right to change the beneficiary designation only after obtaining the beneficiary's consent.

Joint and Last Survivor Annuity  - retirement plan that continues to payout so long as at least one, of two or more, annuitants is alive.

Joint Underwriting Association (JUA)  - a loss-sharing mechanism combining several insurance companies to provide extra capacity due to type or size of exposure.

Joint-Life Annuity  - an annuity contract that ceases upon the death of the first of two or more annuitants.

Key-Persons Insurance  - a policy purchased by, for the benefit of, a business insuring the life or lives of personnel integral to the business operations.

Kidnap/Ransom Insurance  - coverage for ransom or extortion costs and related expenses.

Lapse  - termination of a policy due to failure to pay the required renewal premium.

Level Premium Insurance  - life insurance policy for which the cost is equally distributed over the term of the premium period, remaining constant throughout.

Liability  - a certain or probable future sacrifice of economic benefits arising from present obligations of a particular entity to transfer assets or to provide services to other entities in the future as a result of a past transactions(s) or event(s). three essential characteristics: a)    It embodies a present duty or responsibility to one or more other entities that entails settlement by probable future transfer or use of assets at a specified or determinable date, on occurrence of a specified event, or on demand; b)    The duty or responsibility obligates a particular entity, leaving it little or no discretion to avoid the future sacrifice; and c)    The transaction or other event obligating the entity has already happened.

Life – Endowment  - insurance that pays the same benefit amount should the insured die during the term of the contract, or if the insured survives to the end of the specified coverage term or age.

Life – Flexible Premium Adjustable Life  - a group life insurance that provides a face amount that is adjustable to the certificate holder and allows the certificate holder to vary the modal premium that is paid or to skip a payment so long as the certificate value is sufficient to keep the certificate in force, and under which separately identified interest credits (other than in connection with dividend accumulation, premium deposit funds or other supplementary accounts) and mortality and expense charges are made to individual certificates while providing minimum guaranteed values.

Life Settlements  - a contract or agreement in which a policyholder agrees to sell or transfer ownership in all or part of a life insurance policy to a third party for compensation that is less than the expected death benefit of a policy.

Lifetime Disability Benefit  - a provision in some disability income policies to recoup lost wages for the term of disability or remainder of insured's life in case of permanent disability.

Limited Benefit  - policies that provide coverage for vision, prescription drug, and/or any other single service plan or program. Also include short-term care policies that provide coverage for less than one year for medical and other services provided in a setting other than an acute care unit of the hospital.

Limited Payment Life Insurance  - a form of whole-life insurance with a pre-defined number of premiums to be paid.

Limited Policies  - health insurance coverage for a certain ailment, such as cancer.

Limits  - maximum value to be derived from a policy.

Line of Business  - classification of business written by insurers.

Liquor Liability  - coverage for the liability of an entity involved in the retail or wholesale sales of alcoholic beverages, or the serving of alcoholic beverages, to persons who have incurred bodily injury or property damage arising from an intoxicated person.

Living benefits rider  - a rider attached to a life insurance policy providing long term care for the terminally ill.

Lloyd's of London  - association offering membership in various syndicates of wealthy individuals organized for the purpose of writing insurance for a particular hazard.

Loan-backed Securities  - pass-through certificates, collateralized mortgage obligations (CMOs), and other securitized loans not included in structured securities where payment of interest and/or principal is directly proportional to the interest and/or principal received by the issuer from the mortgage pool or other underlying securities.

Long Duration Contracts  - contracts, excluding financial guaranty contracts, mortgage guaranty contracts and surety contracts, that fulfill both of the following conditions: (1) the contract term is greater than or equal to thirteen months and (2) the insurer can neither cancel nor increase the premium during the contract term.

Long-Term Care  - policies that provide coverage for not less than one year for diagnostic, preventive, therapeutic, rehabilitative, maintenance, or personal care services provided in a setting other than an acute care unit of a hospital, including policies that provide benefits for cognitive impairment or loss of functional capacity. This includes policies providing only nursing home care, home health care, community based care, or any combination. The policy does not include coverage provided under comprehensive/major medical policies, Medicare Advantage, or for accelerated death benefit-type products.

Long-Term Disability Income Insurance  - policy providing monthly income payments for insureds who become disabled for an extensive length of time, typically two years or longer.

Loss  - physical damage to property or bodily injury, Including loss of use or loss of income

Loss Adjustment Expense (LAE)  - expected payments for costs to be incurred in connection with the adjustment and recording of losses. Can be classified into two broad categories: Defense and Cost Containment (DCC) and Adjusting and Other (AO). Can also be separated into (Allocated Loss Adjustment Expense) and (Unallocated Loss Adjustment Expense for ratemaking purposes.

Loss Frequency  - incidence of claims on a policy during a premium period.

Loss of Use Insurance  - policy providing protection against loss of use due to damage or destruction of property.

Loss Payable Clause  - coverage for third party mortgagee in case of default on insured property, secured by a loan, that has been lost or damaged.

Loss Ratio  - the percentage of incurred losses to earned premiums.

Loss Reserve  - the amount that insurers set aside to cover claims incurred but not yet paid.

Loss Reserves  - an estimate of liability or provision in an insurer's financial statement, indicating the amount the insurer expects to pay for losses incurred but not yet reported or reported claims that haven't been paid.

Losses Incurred  - Includes claims that have been paid and/or have amounts held in reserve for future payment

Losses Incurred But Not Reported (IBNR)  - An estimated amount set aside by the insurance company to pay claims that may have occurred, but for some reason have not yet been reported to the insurance company.

Major Medical  - a hospital/surgical/medical expense contract that provides comprehensive benefits as defined in the state in which the contract will be delivered.

Malpractice  - alleged misconduct or negligence in a professional act resulting in loss or injury.

Managed Care  - system of health care delivery that attempts to influence the utilization, quality, and cost of services provided.

Mandated benefits  - insurance required by state or federal law.

Manufacturers Output Policies  - provides broad form coverage of personal property of an insured manufacturer including raw material, goods in process, finished goods and goods shipped to customers.

Margin Premium  - a deposit that an organization is required to maintain with a broker with respect to the Futures Contracts purchased or sold.

Market Value  - fair value or the price that could be derived from current sale of an asset.

Mechanical Breakdown Insurance  - premiums attributable to policies covering repair or replacement service, or indemnification for that service, for the operational or structural failure of property due to defects in materials or workmanship, or normal wear and tear. (May cover motor vehicles, mobile equipment, boats, appliances, electronics, residual structures, etc.)

Medicaid  - policies issued in association with the Federal/State entitlement program created by Title XIX of the Social Security Act of 1965 that pays for medical assistance for certain individuals and families with low incomes and resources.

Medical & Hospital Expenses (Benefits or Claims)  - total expenditures for health care services paid to or on behalf of members.

Medical Malpractice  - insurance coverage protecting a licensed health care provider or health care facility against legal liability resulting from the death or injury of any person due to the insured's misconduct, negligence, or incompetence, in rendering or failure to render professional services.

Medical Only  - line of business that provides medical only benefits without hospital coverage. An example would be provider-sponsored organizations where there is no coverage for other than provider (non-hospital) services. Does not include self-insured business, FEHBP, Medicare and Medicaid programs, or dental only business.

Medical Professional Liability  - insurance coverage protecting a licensed health care provider or health care facility against legal liability resulting from the death or injury of any person due to the insured's misconduct, negligence, or incompetence in rendering professional services. Medical Professional Liability is also known as Medical Malpractice.

Medicare  - a state assistance program, passed under Title XVIII of the Social Security Amendments of 1965, to provide hospital and medical expense insurance to those over 65 years of age.

Medicare + Choice  - a major initiative in the Balanced Budget Act of 1997 (also called Medicare Part C), under which Medicare beneficiaries may select from among several managed care options or a Medicare system.

Medicare Advantage Plan  - an HMO, PPO, or Private Fee-For Service Plan that contracts with Medicare Advantage Prescription Drug Plan also includes drug benefits. The plan may provide extra coverage such as vision, hearing, dental, and/or health and wellness programs. Medicare pays a fixed amount for insured's care every month to the companies offering Medicare Advantage plans.

Medicare Cost  - contract with Center for Medicare and Medicaid Services (CMS) for Medicare coverage. These contracts with CMS provide reimbursement through pre-determined monthly amount per member based on a total estimated budget. The beneficiary may use providers outside the provider network. Does not include stand alone Medicare Part D Plans.

Medicare Part D - Stand-Alone  - stand-alone Part D coverage written through individual contracts; stand-alone Part D coverage written through group contracts and certificates; and Part D coverage written on employer groups where the reporting entity is responsible for reporting claims to the Centers for Medicare & Medicaid Services (CMS).

Medicare Supplement  - Insurance coverage sold on an individual or group basis to help fill the "gaps" in the protections granted by the federal Medicare program. This is strictly supplemental coverage and cannot duplicate any benefits provided by Medicare. It is structured to pay part or all of Medicare's deductibles and co-payments. It may also cover some services and expenses not covered by Medicare. Also known as Medigap" insurance.

Medigap  - supplementary private health insurance products to Medicare insurance benefits.

Minimum Premium Plan  - an arrangement under which an insurance carrier will, for a fee, handle the administration of claims and insure against large claims for a self-insured group. The employer self-funds a fixed percentage (e.g. 90%) of the estimated monthly claims, and the insurer covers the remainder.

Mobile Homes - Homeowners  - homeowners insurance sold to owners occupying the described mobile home.

Mobile Homes under Transport  - coverage for mobile homes while under transport for personal or commercial use.

Modified Guaranteed  - an annuity that contains a provision that adjusts the value of withdrawn funds based on a formula in the contract. The formula reflects market value adjustments.

Member  - A person who has enrolled as a subscriber or an eligible dependent of a subscriber and for whom the health organization has accepted the responsibility for the provision of health services as may be contracted for.

Moral Hazard  - personality characteristics that increase probability of losses. For example not taking proper care to protect insured property because the insured knows the insurance company will replace it if it is damaged or stolen.

Morale Hazard  - negligence or disregard on the part of the insured which could lead to probable loss.

Morbidity  - the frequency or severity of disease or illness within a subset of the population.

Morbidity Risk  - the potential for a person to experience illness, injury, or other physical or psychological impairment, whether temporary or permanent. Morbidity risk excludes the potential for an individual's death, but includes the potential for an illness or injury that results in death.

Morbidity Table  - a statistical record of the rate of illness among the defined age groups.

Mortality Table  - chart that shows the death rates of a particular population at each age displayed as the number of deaths per thousand.

Mortgage  - a note used to secure a loan for real property.

Mortgage Guaranty  - insurance that indemnifies a lender for loss upon foreclosure if a borrower fails to meet required mortgage payments.

Mortgage Insurance  - a form of life insurance coverage payable to a third party lender/mortgagee upon the death of the insured/mortgagor for loss of loan payments.

Mortgage-Backed Securities  - a type of asset-backed security that is secured by a mortgage or collection of mortgages. These securities must also be grouped in one of the top two ratings as determined by an accredited credit rating agency, and usually pay periodic payments that are similar to coupon payments. Furthermore, the mortgage must have originated from a regulated and authorized financial institution.

Multi-Peril Insurance  - personal and business property coverage combining several types of property insurance in one policy.

Municipal Bond Guarantee Insurance  - coverage sold to municipalities to guarantee the principle payment on bonds issued.

Municipal Liability  - liability coverage for the acts of a municipality.

Municipal obligation bond  - any security, or other instrument, including a state lease but not a lease of any other governmental entity, under which a payment obligation is created, issued by or on behalf of a governmental unit to finance a project servicing a substantial public purpose, and 1) Payable from tax revenues, but not tax allocations, within the jurisdiction of such governmental unit; 2) Payable or guaranteed by the United States of America or any agency, department or instrumentality thereof, or by a state housing agency; 3) Payable from rates or charges (but not tolls) levied or collected in respect of a non-nuclear utility project, public transportation facility (other than an airport facility) or public higher education facility; or 4) With respect to lease obligations, payable from future appropriations.

Mutual Insurance Company  - a privately held insurer owned by its policyholders, operated as a non-profit that may or may not be incorporated.

Mutual Insurance Holding Company  - a company organized as a mutual and owning a capital stock insurer or insurers for the benefit of pooling risk for many people, typically those in the same industry.

Named Insured  - the individual defined as the insured in the policy contract. .

Named Peril Coverage  - insurance for losses explicitly defined in the policy contract.

National Association of Insurance Commissioners (NAIC)  - the U.S. standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer review, and coordinate their regulatory oversight. NAIC staff supports these efforts and represents the collective views of state regulators domestically and internationally. NAIC members, together with the central resources of the NAIC, form the national system of state-based insurance regulation in the U.S.

Negligence  - failure to exercise reasonable consideration resulting in loss or damage to oneself or others.

Net Admitted Assets  - total of assets whose values are permitted by state law to be included in the annual statement of the insurer.

Net Income  - total revenues from an insurer's operations less total expenses and income taxes

Net Premiums Earned  - premiums on property/casualty or health policies that will not have to be returned to the policyholder if the policy is cancelled.

NFIP - National Flood Insurance Program  - flood insurance and floodplain management for personal and business property administered under the National Flood Act of 1968. Encourages participation by private insurers through a flood insurance pool .

Nonadmitted Assets  - assets having economic value other than those which can be used to fulfill policyholder obligations, or those assets which are unavailable due to encumbrances or other third party interests and should not be recognized on the balance sheet.

Nonadmitted Insurer  - insurance company not licensed to do business within a given state.

Non-controlled stock insurers  - insurers in which a parent company has: 1) a financial interest represented by the direct or indirect ownership of less than 50% of voting shares, and 2) does not have the ability to exercise control over the insurer, e.g., through voting stock or management contract

Non-proportional Reinsurance  - reinsurance that is not secured on individual lives for specific individual amount of reinsurance, but rather reinsurance that protects the ceding company's overall experience on its entire portfolio of business, or at least a broad segment of it. The most common forms of non-proportional reinsurance are stop loss and catastrophe.

Notional Value  - the principal value upon which future payments are based in a derivative transaction as at a specific period in time (the "as of" reporting date) in the reporting currency.

Nationally Recognized Statistical Rating Organization (NRSRO)  - refers to rating organizations so designated by the SEC whose status has been confirmed by the Securities Valuation Office. Examples are: Moody's Investors Service, Inc., Standard & Poor's (S&P), A.M. Best Company (A.M. Best) and Fitch Ratings and Dominion Bond Rating Service (DBRS).

Nuclear Energy Liability  - coverage for bodily injury and property damage liability resulting from the nuclear energy material (whether or not radioactive) on the insured business's premises or in transit.

Occurrence  - an accident , including injurious exposure to conditions, which results, during the policy period in bodily injury or property damage neither expected or intended from the standpoint of the insured. (Bickelhaupt and Magee)

Ocean Marine  - coverage for ocean and inland water transportation exposures; goods or cargoes; ships or hulls; earnings; and liability.

Officer  - a president, vice-president, treasurer, actuary, secretary, controller and any other person who performs for the company functions corresponding to those performed by the foregoing officers.

Option  - an agreement giving the buyer the right to buy or receive, sell or deliver, enter into, extend or terminate, or effect a cash settlement based on the actual or expected price, level, performance or value of one or more Underlying Interests.

Other Accident and Health  - accident and health coverages not otherwise properly classified as Group Accident and Health or Credit Accident and Health (e.g., collectively renewable and individual non-cancelable, guaranteed renewable, non-renewable for stated reasons only, etc.). Include all Medicare Part D Prescription Drug Coverage, whether sold on a stand-alone basis or through a Medicare Advantage product and whether sold directly to an individual or through a group.

Other Considerations  - Unallocated annuity considerations and other unallocated deposits that incorporate any mortality or morbidity risk and are not reported as direct premiums, direct annuity considerations or deposit-type contract funds.

Other Liability  - coverage protecting the insured against legal liability resulting from negligence, carelessness, or a failure to act resulting in property damage or personal injury to others.

Other Underwriting Expenses  - allocable expenses other than loss adjustment expenses and investment expenses.

Owner Occupied  - homeowners insurance sold to owners occupying the described property.

Package Policy  - two or more distinct policies combined into a single contract.

Par Value  - the nominal or face value of a stock or bond.

Peril  - the cause of property damage or personal injury, origin of desire for insurance. "Cause of Loss"

Permanent Life Insurance  - policy that remains active for the life of the insured.

Personal Auto Policy  - coverage designed to insure private passenger automobiles and certain types of trucks owned by an individual or husband and wife.

Personal Earthquake  - earthquake property coverage for personal, family or household purposes.

Personal Flood  - separate flood insurance policy sold for personal, family or household purposes.

Personal GAP Insurance  - credit insurance that insures the excess of the outstanding indebtedness over the primary property insurance benefits in the event of a total loss to a collateral asset.

Personal Injury Liability  - liability coverage for those who have been discriminated against, falsely arrested, illegally detained, libeled, maliciously prosecuted, slandered, suffered from identity theft, mental anguish or alienation of affections, or have had their right of privacy violated.

Personal Injury Protection Coverage/PIP  - automobile coverage available in states that have enacted no-fault laws or other auto reparation reform laws for treatment of injuries to the insured and passengers of the insured.

Personal Property  - single interest or dual interest credit insurance (where collateral is not a motor vehicle, mobile home, or real estate) that covers perils to goods purchased or used as collateral and that concerns a creditor's interest in the purchased goods or pledged collateral either in whole or in part; or covers perils to goods purchased in connection with an open-end credit transaction.

Pet Insurance Plans  - veterinary care plan insurance policy providing care for a pet animal (e.g., dog or cat) of the insured owner in the event of its illness or accident.

Policy  - a written contract ratifying the legality of an insurance agreement.

Policy Dividend  - a refund of part of the premium on a participating life insurance policy. Amount of payment is determined by subtracting the actual premium expense from the premium charged. The payment can be taken as cash, applied to a purchase an increment of paid-up insurance, left on deposit with the insurance company or applied to purchase term insurance for one year.

Policy Period  - time period during which insurance coverage is in effect.

Policy Reserve  - the amount of money allocated specifically for the fulfillment of policy obligations by a life insurance company; reserves are in place to safeguard that the company is able to pay all future claims.

Policyholders Surplus  - assets in excess of the liabilities of a company or net income above any monies indebted to legal obligation.

Pollution  - environmental contamination.

Pool  - an association organized for the purpose of absorbing losses through a risk-sharing mechanism thereby limiting individual exposures.

Preferred Provider Organization (PPO)  - arrangement, insured or uninsured, where contracts are established by Health Plan Companies (typically, commercial insurers, and, in some circumstances, by self-insured employers) with health care providers. The Health Plans involved will often designate these contracted providers as "preferred" and will provide an incentive, usually in the form of lower deductibles or co-payments, to encourage covered individuals to use these providers. Members are allowed benefits for non-participating provider services on an indemnity basis with significant copayments and providers are often, but not always, paid on a discounted fee for service basis.

Preferred Risk  - insured, or applicant for insurance, who presents likelihood of risk lower than that of the standard applicant.

Premises and Operations  - policies covering the liability of an insured to persons who have incurred bodily injury or property damage on an insured's premises during normal operations or routine maintenance, or from an insured's business operations either on or off of the insured's premises.

Premium  - Money charged for the insurance coverage reflecting expectation of loss.

Premiums Earned  - the portion of premium for which the policy protection or coverage has already been given during the now-expired portion of the policy term.

Premiums Net  - is the amount calculated on the basis of the interest and mortality table used to calculate the reporting entity's statutory policy reserves.

Premiums Written  - total premiums generated from all policies (contracts) written by an insurer within a given period of time.

Primary Insurance  - coverage that takes precedence when more than one policy covers the same loss.

Prior Approval Law  - a state regulatory requirement for pre-approval of all insurance rates and forms.

Private Passenger Auto (PPA)  - filings that include singularly or in any combination coverage such as the following: Auto Liability, Personal Injury Protection (PIP), Medical Payments (MP), Uninsured/Underinsured (UM/UIM); Specified Causes of Loss, Comprehensive, and Collision.

Producer  - an individual who sells, services, or negotiates insurance policies either on behalf of a company or independently.

Product Liability  - insurance coverage protecting the manufacturer, distributor, seller, or lessor of a product against legal liability resulting from a defective condition causing personal injury, or damage, to any individual or entity, associated with the use of the product.

Professional Errors and Omissions Liability  - coverage available to pay for liability arising out of the performance of professional or business related duties, with coverage being tailored to the needs of the specific profession. Examples include abstracters, accountants, insurance adjusters, architects, engineers, insurance agents and brokers, lawyers, real estate agents, stockbrokers.

Property  - coverage protecting the insured against loss or damage to real or personal property from a variety of perils, including but not limited to fire, lightening, business interruption, loss of rents, glass breakage, tornado, windstorm, hail, water damage, explosion, riot, civil commotion, rain, or damage from aircraft or vehicles.

Pro-rata (proportional) Reinsurance  - portion of the losses and premium reinsurer shares with the ceding entity.

Protected Cell  - an insurance-linked security retained within the insurance or reinsurance company and is used to insulate the proceeds of the securities offering from the general business risks of the insurer, granting an additional comfort level for investors of the securitized instrument.

Protection and Indemnity (P&I) Insurance  - a broad form of marine legal liability insurance coverage.

Provider Sponsored Network (PSN)  - formal affiliations of providers, sometimes called "integrated delivery systems", organized and operated to provide an integrated network of health care providers with which third parties, such as insurance companies, HMOs, or other Health Plan Companies, may contract for health care services to covered individuals. Some models of integration include Physician Hospital Organizations, Management Service Organizations, Group Practices Without Walls, Medical Foundations, and Health Provider Cooperatives.

Provisions  - contingencies outlined in an insurance policy.

Proximate Cause  - event covered under insured's policy agreement.

Public Adjuster  - independent claims adjuster representing policyholders instead of insurance companies.

Pure Premium  - that portion of the premium equal to expected losses void of insurance company expenses, premium taxes, contingencies, or profit margin.

Pure Risk  - circumstance including possibility of loss or no loss but no possibility of gain.

Qualified Actuary  - a person who meets the basic education, experience and continuing education requirements (these differ by line of business) of the Specific Qualification Standard for Statements of Actuarial Opinion, NAIC Property and Casualty Annual Statement, as set forth in the Qualification Standards for Actuaries Issuing Statements of Actuarial Opinion in the United States, promulgated by the American Academy of Actuaries, and is in good standing of the American Academy of Actuaries who has been approved as qualified for signing casualty loss reserve opinions by the Casualty Practice Council of the American Academy of Actuaries.

Rate  - value of insured losses expressed as a cost per unit of insurance.

Risk Based Capital (RBC) Ratio  - ratio used to identify insurance companies that are poorly capitalized. Calculated by dividing the company's capital by the minimum amount of capital regulatory authorities have deemed necessary to support the insurance operations.

Rebate  - a refund of part or all of a premium payment.

Reinsurance  - a transaction between a primary insurer and another licensed (re) insurer where the reinsurer agrees to cover all or part of the losses and/or loss adjustment expenses of the primary insurer. The assumption is in exchange for a premium. Indemnification is on a proportional or non-proportional basis.

Reinsurer  - company assuming reinsurance risk.

Renewable Term Insurance  - insurance that is renewable for a limited number of successive terms by the policyholder and is not contingent upon medical examination.

Renters Insurance  - liability coverage for contents within a renter's residence. Coverage does not include the structure but does include any affixed items provided or changed by the renter.

Replacement Cost  - the cost of replacing property without a reduction for depreciation due to normal wear and tear.

Reported Losses  - Includes both expected payments for losses relating to insured events that have occurred and have been reported to the insurance company, but not yet paid.

Reserve  - A portion of the premium retained to pay future claims

Reserve Credit  - reduction of reserve amounts for reinsurance ceded. Reductions may include the claim reserve and/or the unearned premium reserve.

Residence  - the domicile location of a member as shown by his or her determination as a resident.

Residual Market Plan  - method devised for coverage of greater than average risk individuals who cannot obtain insurance through normal market channels.

Retention  - a mechanism of internal fund allocation for loss exposure used in place of or as a supplement to risk transfer to an insurance company.

Retention Limit  - maximum amount of medical and hospital expense an insurer will carry on its own. The limit can be for an individual claim and/or for the insurers total claims, depending upon the terms of the reinsurance contract.

Retrocession  - the portion of risk that a reinsurance company cedes or amount of insurance the company chooses not to retain.

Retrospective Rating  - the process of determining the cost of an insurance policy based on the actual loss experience determined as an adjustment to the initial premium payment.

Rider  - an amendment to a policy agreement.

Risk  - Uncertainty concerning the possibility of loss by a peril for which insurance is pursued.

Risk Retention Act  - a 1986 federal statute amending portions of the Product Liability Risk Retention Act of 1981 and enacted to make organization of Risk Retention Groups and Purchasing Groups more efficient.

Risk Retention Group  - group-owned insurer organized for the purpose of assuming and spreading the liability risks to its members.

Salvage  - value recoverable after a loss.

Statutory Accounting Principles (SAP)  - a set of accounting principles set forth by the National Association of Insurance Commissioners used to prepare statutory financial statements for insurance companies.

Securitization of Insurance Risk  - a method for insurance companies to access capital and hedge risks by converting policies into securities that can be sold in financial markets.

Security  - a share, participation, or other interest in property or in an enterprise of the issuer or an obligation of the issuer.

Self-Insurance  - type of insurance often used for high frequency low severity risks where risk is not transferred to an insurance company but retained and accounted for internally.

Separate Account  - segregated funds held and invested independently of other assets by an insurer for the purpose of a group retirement fund.

Short-term Disability  - a company standard defining a period of time employees are eligible for short-term disability coverage, typically for 2 years or less.

Short-Term Medical  - policies that provide major medical coverage for a short period of time, typically 30 to 180 days. These policies may be renewable for multiple periods.

Situs of Contract  - the jurisdiction in which the contract is issued or delivered as stated in the contract.

Social Insurance  - compulsory insurance plan administered by a federal or state government agency with the primary emphasis on social adequacy.

Soft Market  - a buyer's market characterized by abundant supply of insurance driving premiums down.

Special revenue bond  - any security, or other instrument under which a payment obligation is created, issued by or on behalf of a governmental unit to finance a project serving a substantial public purpose and not payable from the sources in connection with the payment of municipal obligation bonds.

Specified Disease Coverage  - coverage that provides primarily pre-determined benefits for expenses of the care of cancer and/or other specified diseases.

Specified/Named Disease  - policies that provide benefits only for the diagnosis and/or treatment of a specifically named disease or diseases. Benefits can be paid as expense incurred, per diem or as a principal sum.

Standard Risk  - a person who, according to a company's underwriting standards, is considered a normal risk and insurable at standard rates. High or low risk candidates may qualify for extra or discounted rates based on their deviation from the standard.

State Children's Health Insurance Program  - policies issued in association with the Federal/State partnership created by title XXI of the Social Security Act.

State of Domicile  - the state where a company's home office is located.

State Page  - Exhibit of Premiums and Losses for each state a company is licensed. The state of domicile receives a schedule for each jurisdiction the company wrote direct business, or has amounts paid, incurred or unpaid.

Statement Type  - refers to the primary business type under which the company files its annual and quarterly statement, such as Life, Property, Health, Fraternal, Title.

Statement Value  - the Statutory Accounting Principle book value reduced by any valuation allowance and non-admitted adjustment applied to an individual investment or a similar group of investments, e.g., bonds, mortgage loans, common stock.

Statutory Accounting  - method of accounting standards and principles used by state regulatory authorities to measure the financial condition of regulated companies and other insurance enterprises. This method tends to be more conservative than the Generally Accepted Accounting Principles used by most businesses. Compliance with solvency and other standards is determined using financial documents prepared in accordance with Statutory Accounting Principles.

Stock Insurance Company  - business owned by stockholders.

Stop Loss/Excess Loss  - individual or group policies providing coverage to a health plan, a self-insured employer plan, or a medical provider providing coverage to insure against the risk that any one claim or an entire plan's losses will exceed a specified dollar amount.

Structured Securities  - loan-backed securities that have been divided into two or more classes of investors where the payment of interest and/or principal of any class of securities has been allocated in a manner that is not proportional to interest and/or principal received by the issuer from the mortgage pool or other underlying securities.

Structured Settlements  - periodic fixed payments to a claimant for a determinable period, or for life, for the settlement of a claim.

Subrogation  - situation where an insurer, on behalf of the insured, has a legal right to bring a liability suit against a third party who caused losses to the insured. Insurer maintains the right to seek reimbursement for losses incurred by insurer at the fault of a third party.

Subrogation Clause  - section of insurance policies giving an insurer the right to take legal action against a third party responsible for a loss to an insured for which a claim has been paid.

Subsequent Event  - events or transactions that occur subsequent to the balance sheet date, but before the issuance of the statutory financial statements and before the date the audited financial statements are issued, or available to be issued.

Substandard Risk  - (impaired risk) risks deemed undesirable due to medical condition or hazardous occupation requiring the use of a waiver, a special policy form, or a higher premium charge.

Superfund  - federal act mandating retroactive liability for environmental pollution where responsible party maintains accountability for environmental clean-up regardless of length of time since polluting event occurred.

Surety Bond  - a three-party agreement whereby a guarantor (insurer) assumes an obligation or responsibility to pay a second party (obligee) should the principal debtor (obligor) become in default.

Surplus  - insurance term referring to retained earnings.

Surplus Line  - specialized property or liability coverage available via nonadmitted insurers where coverage is not available through an admitted insurer, licensed to sell that particular coverage in the state.

Swap  - an agreement to exchange or net payments as the buyer of an Option, Cap or Floor and to make payments as the seller of a different Option, Cap or Floor.

Tenants  - homeowners insurance sold to tenants occupying the described property.

Term  - period of time for which policy is in effect.

Term Insurance  - life insurance payable only if death of insured occurs within a specified time, such as 5 or 10 years, or before a specified age.

Third Party  - person other than the insured or insurer who has incurred losses or is entitled to receive payment due to acts or omissions of the insured.

Title Insurance  - coverage that guarantees the validity of a title to real and personal property. Buyers of real and personal property and mortgage lenders rely upon the coverage to protect them against losses from undiscovered defects in existence when the policy is issued.

Total Liabilities  - total money owed or expected to be owed by the insurance company.

Total Revenue  - premiums, revenue, investment income, and income from other sources.

Travel Coverage  - covers financial loss due to trip cancellation/interruption; lost or damaged baggage; trip or baggage delays; missed connections and/or changes in itinerary; and casualty losses due to rental vehicle damage.

Treaty  - a reinsurance agreement between the ceding company and reinsurer.

Unallocated Loss Adjustment Expense (ULAE)  - loss adjustment expenses that cannot be specifically tied to a claim.

Umbrella and Excess (Commercial)  - coverage for the liability of a commercial venture above a specific amount set forth in a basic policy issued by the primary insurer; or a self-insurer for losses over a stated amount; or an insured or self-insurer for known or unknown gaps in basic coverages or self-insured retentions.

Umbrella and Excess (Personal)  - non-business liability protection for individuals above a specific amount set forth in a basic policy issued by the primary insurer; or a self-insurer for losses over a stated amount; or an insured or self-insurer for known or unknown gaps in basic coverages or self-insured retentions.

Unauthorized Reinsurance  - reinsurance placed with a company not authorized in the reporting company's state of domicile.

Underinsured Motorist Coverage  - policy option for bodily injury or property losses caused by a motorist with coverage insufficient to cover total dollar amount of losses. Compensation for the injured party is equal to the difference between the losses incurred and the liability covered by the motorist at fault.

Underlying Interest  - the asset(s), liability(ies) or other interest(s) underlying a derivative instrument, including, but not limited to, any one or more securities, currencies, rates indices, commodities, derivative instruments, or other financial market instruments.

Underwriter  - person who identifies, examines and classifies the degree of risk represented by a proposed insured in order to determine whether or not coverage should be provided and, if so, at what rate.

Underwriting  - the process by which an insurance company examines risk and determines whether the insurer will accept the risk or not, classifies those accepted and determines the appropriate rate for coverage provided.

Underwriting Risk  - section of the risk-based capital formula calculating requirements for reserves and premiums.

Unearned Premium  - amount of premium for which payment has been made by the policyholder but coverage has not yet been provided.

Unearned Premium Reserve  - all premiums (fees) received for coverage extending beyond the statement date; appears as a liability on the balance sheet.

Universal Life Insurance  - adjustable life insurance under which premiums and coverage are adjustable, company expenses are not specifically disclosed to the insured but a financial report is provided to policyholder's annually.

Unpaid Losses  - claims that are in the course of settlement. The term may also include claims that have been incurred but not reported.

Valued Policy  - an insurance contract for which the value is agreed upon in advance and is not related to the amount of the insured loss.

Valued Policy Law  - state legislation which specifies that the insured shall receive the face amount of the policy in the event of a total loss to a dwelling rather than the actual cash value regardless of the principle of indemnity.

Variable Annuity  - an annuity contract under which the premium payments are used to purchase stock and the value of each unit is relative to the value of the investment portfolio.

Variable Life Insurance  - life insurance whose face value and/or duration varies depending upon the value of underlying securities.

Variable Universal Life  - combines the flexible premium features of universal life with the component of variable life in which excess credited to the cash value of the account depends on investment results of separate accounts. The policyholder selects the accounts into which the premium payments are to be made.

Viatical Settlements  - contracts or agreements in which a buyer agrees to purchase all or a part of a life insurance policy.

Vision  - limited benefit expense policies. Provides benefits for eye care and eye care accessories. Generally provides a stated dollar amount per annual eye examination. Benefits often include a stated dollar amount for glasses and contacts. May include surgical benefits for injury or sickness associated with the eye.

Warrant  - an agreement that gives the holder the right to purchase an underlying financial instrument at a given price and time or at a series of prices and times according to a schedule or warrant agreement.

Warranty  - coverage that protects against manufacturer's defects past the normal warranty period and for repair after breakdown to return a product to its originally intended use. Warranty insurance generally protects consumers from financial loss caused by the seller's failure to rectify or compensate for defective or incomplete work and cost of parts and labor necessary to restore a product's usefulness. Includes but is not limited to coverage for all obligations and liabilities incurred by a service contract provider, mechanical breakdown insurance and service contracts written by insurers.

Whole Life  - life insurance that may be kept in force for a person's entire life and that pays a benefit upon the person's death, whenever that may be.

Whole Life Insurance  - life insurance that may be kept in force for the duration of a person's life and pays a benefit upon the person's death. Premiums are made for same time period.

Workers' Compensation  - insurance that covers an employer's liability for injuries, disability or death to persons in their employment, without regard to fault, as prescribed by state or federal workers' compensation laws and other statutes.

Written Premium  - the contractually determined amount charged by the reporting entity to the policyholder for the effective period of the contract based on the expectation of risk, policy benefits, and expenses associated with the coverage provided by the terms of the insurance contract.

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• Life Insurance
• Definitions

What Is a Collateral Assignment of Life Insurance?

Investopedia contributors come from a range of backgrounds, and over 25 years there have been thousands of expert writers and editors who have contributed.

Charlene Rhinehart is a CPA , CFE, chair of an Illinois CPA Society committee, and has a degree in accounting and finance from DePaul University.

A collateral assignment of life insurance is a conditional assignment appointing a lender as an assignee of a policy. Essentially, the lender has a claim to some or all of the death benefit until the loan is repaid. The death benefit is used as collateral for a loan.

The advantage to using a collateral assignee over naming the lender as a beneficiary is that you can specify that the lender is only entitled to a certain amount, namely the amount of the outstanding loan. That would allow your beneficiaries still be entitled to any remaining death benefit.

Lenders commonly require that life insurance serve as collateral for a business loan to guarantee repayment if the borrower dies or defaults. They may even require you to get a life insurance policy to be approved for a business loan.

Key Takeaways

• The borrower of a business loan using life insurance as collateral must be the policy owner, who may or may not be the insured.
• The collateral assignment helps you avoid naming a lender as a beneficiary.
• The collateral assignment may be against all or part of the policy's value.
• If any amount of the death benefit remains after the lender is paid, it is distributed to beneficiaries.
• Once the loan is fully repaid, the life insurance policy is no longer used as collateral.

How a Collateral Assignment of Life Insurance Works

Collateral assignments make sure the lender gets paid only what they are due. The borrower must be the owner of the policy, but they do not have to be the insured person. And the policy must remain current for the life of the loan, with the policy owner continuing to pay all premiums . You can use either term or whole life insurance policy as collateral, but the death benefit must meet the lender's terms.

A permanent life insurance policy with a cash value allows the lender access to the cash value to use as loan payment if the borrower defaults. Many lenders don't accept term life insurance policies as collateral because they do not accumulate cash value.

Alternately, the policy owner's access to the cash value is restricted to protect the collateral. If the loan is repaid before the borrower's death, the assignment is removed, and the lender is no longer the beneficiary of the death benefit.

Insurance companies must be notified of the collateral assignment of a policy. However, other than their obligation to meet the terms of the contract, they are not involved in the agreement.

Example of Collateral Assignment of Life Insurance

For example, say you have a business plan for a floral shop and need a $50,000 loan to get started. When you apply for the loan, the bank says you must have collateral in the form of a life insurance policy to back it up. You have a whole life insurance policy with a cash value of $65,000 and a death benefit of $300,000, which the bank accepts as collateral.

So, you then designate the bank as the policy's assignee until you repay the $50,000 loan. That way, the bank can ensure it will be repaid the funds it lent you, even if you died. In this case, because the cash value and death benefit is more than what you owe the lender, your beneficiaries would still inherit money.

Alternatives to Collateral Assignment of Life Insurance

Using a collateral assignment to secure a business loan can help you access the funds you need to start or grow your business. However, you would be at risk of losing your life insurance policy if you defaulted on the loan, meaning your beneficiaries may not receive the money you'd planned for them to inherit.

Consult with a financial advisor to discuss whether a collateral assignment or one of these alternatives may be most appropriate for your financial situation.

Life insurance loan (policy loan) : If you already have a life insurance policy with a cash value, you can likely borrow against it. Policy loans are not taxed and have less stringent requirements such as no credit or income checks. However, this option would not work if you do not already have a permanent life insurance policy because the cash value component takes time to build.

Surrendering your policy : You can also surrender your policy to access any cash value you've built up. However, your beneficiaries would no longer receive a death benefit.

Other loan types : Finally, you can apply for other loans, such as a personal loan, that do not require life insurance as collateral. You could use loans that rely on other types of collateral, such as a home equity loan that uses your home equity.

What Are the Benefits of Collateral Assignment of Life Insurance?

A collateral assignment of a life insurance policy may be required if you need a business loan. Lenders typically require life insurance as collateral for business loans because they guarantee repayment if the borrower dies. A policy with cash value can guarantee repayment if the borrower defaults.

What Kind of Life Insurance Can Be Used for Collateral?

You can typically use any type of life insurance policy as collateral for a business loan, depending on the lender's requirements. A permanent life insurance policy with a cash value allows the lender a source of funds to use if the borrower defaults. Some lenders may not accept term life insurance policies, which have no cash value. The lender will typically require the death benefit be a certain amount, depending on your loan size.

Is Collateral Assignment of Life Insurance Irrevocable?

A collateral assignment of life insurance is irrevocable. So, the policyholder may not use the cash value of a life insurance policy dedicated toward collateral for a loan until that loan has been repaid.

What is the Difference Between an Assignment and a Collateral Assignment?

With an absolute assignment , the entire ownership of the policy would be transferred to the assignee, or the lender. Then, the lender would be entitled to the full death benefit. With a collateral assignment, the lender is only entitled to the balance of the outstanding loan.

The Bottom Line

If you are applying for life insurance to secure your own business loan, remember you do not need to make the lender the beneficiary. Instead you can use a collateral assignment. Consult a financial advisor or insurance broker who can walk you through the process and explain its pros and cons as they apply to your situation.

Progressive. " Collateral Assignment of Life Insurance ."

Fidelity Life. " What Is a Collateral Assignment of a Life Insurance Policy? "

Kansas Legislative Research Department. " Collateral Assignment of Life Insurance Proceeds ."

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At TruStage, we believe insurance should be simple, straightforward and easy to understand. That’s why we created this insurance glossary with the terms you need to know, in plain English. We want to help you make smarter, more informed decisions about protecting yourself, your family and your finances.

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z #

Absolute assignment, accelerated death benefits, accidental death and dismemberment insurance, accidental death insurance, accrued interest.

Interest that has been earned but not yet paid out. Some annuities, for instance, have a feature where a portion of the payment goes to investments. Over time, these investments will build up accrued interest.

Accumulated Value

Whole life insurance usually includes a death benefit as well as an accumulated value. This is the cash value that has built up over time plus any dividend value (including interest). As you pay your premiums over the years and earn more of a return, the accumulated value of your policy may grow.

Actual Cash Value

The amount something is worth in its current condition. It’s a way to determine the value of an item when it got damaged or destroyed by considering its original cost minus depreciation from wear and tear.

Administrative Expense

An insurance company's operating costs. It covers things like salaries, underwriting, advertising, printing costs, agency expenses and premium taxes. These expenses get lumped into what you pay and are used to calculate dividends and premium rates.

Advance Directive

Amount of insurance, annual renewable term, annuity certain.

An investment that provides a series of payments for a set period of time (say, five, 10 or 30 years). If you die before the end of the period, your beneficiary will receive the remainder of the payments for the guaranteed period.

Anti Theft Device

Any mechanism or system installed in a vehicle such as alarms, steering wheel locks, or GPS tracking systems to help prevent theft or unauthorized access. Often, there’s a discount on insurance premiums for vehicles equipped with approved devices.

American Memorial Life Insurance Company (AMLIC)

Application.

Transferring benefits of a life insurance policy to another person or financial institution as collateral for a loan. If the insured dies, the lender is paid first and the balance (if any) is paid to the policy’s beneficiary.

Automatic Premium Loan (APL) Provision

Let’s say you miss a payment on your whole life policy. Rather than cancelling your policy, the insurance company withdraws money from the policy’s cash value and uses it as a loan to pay the owed premium. Your insurance stays in force thanks to the Automatic Premium Loan Provision.

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Beneficiary

The person or persons who will receive the death benefit of your life insurance policy or annuity. Beneficiaries can be anyone … spouse or partner, child, a church or charity. Not sure if you're a life insurance beneficiary? Here's how to find out.

Benefit Period

The length of time that services are covered under your plan. It has a start and an end date. Most people are familiar with the benefit period for medical insurance, but term life insurance, disability, long-term care, homeowner's, and auto insurance policies will also carry a benefit period.

Bodily Injury Coverage

A component of auto insurance designed to help you financially if you're held responsible for injuries to others in a car accident. It covers things like medical bills, rehabilitation, and even legal costs if you're sued for injuries caused to others while operating your vehicle.

The act of purchasing multiple insurance policies (like car and home insurance) from a single provider that could help you save money. In addition to potential savings, bundling can also offer convenience by helping you manage all your policies in one place, saving time and effort.

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Car Liability Insurance

A type of auto insurance that covers costs if you're found responsible for injuries or property damage to others in an accident. It helps pay for the other driver's expenses if you’re at fault in a car accident. This video can help explain it more.

Cash Surrender Value

If you cancel your whole life policy and take the cash value, the amount you may be able to walk away with is an amount known as the cash surrender value. This amount equals the cash value minus a surrender charge, any outstanding loans and interest on those loans.

Typically when you have whole life insurance, a portion of your premiums go into an investment account, or the cash value. This money grows with interest over time. You can do many things with the cash value, including taking out a loan, using it for any needs that arise or funding the policy. The longer you’ve had the policy, the higher the cash value will be. Please remember that loans do accrue interest and any outstanding loan balance reduces the death benefit at the time of claim. Learn more about cashing out a life insurance policy.

Collateral Assignment

Transferring ownership of an asset from the borrower to the lender until the loan gets fully paid. The transferred asset can be the borrower's life insurance. If the borrower is unable to pay, the lender can cash in the life insurance policy and recover what is owed.

Collision Insurance

If you’re at fault, this type of auto insurance coverage helps pay for repairs or vehicle replacement if it's damaged in an accident with another vehicle (or even an object such as a fence or a tree). It’s typically required if you lease or finance your car and can also be used when another driver is at fault but doesn't have enough liability insurance to cover your costs.

Comprehensive Insurance

This type of auto insurance helps pay for damage that occurs due to non-collision events outside of your control such as theft, vandalism, natural disasters, and accidents involving animals. Many people add it to an existing policy because it’s often considered an affordable option.

Condo Insurance

Also known as HO-6, this type of insurance covers the interior structure of condo units including personal belongings, liability protection, and additional living expenses when the unit becomes uninhabitable due to covered events such as fire or theft. It can also pay for temporary housing in certain circumstances, and it may be more affordable than you think.

Contingent Beneficiary

Contingent owner, conversion right, cost of insurance, coverage end date, coverage period.

The period of time (with a start and end date) an insurance policy covers the policyholder. Learn more about how life insurance works.

Coverage Start Date

Your coverage start date – also called the “effective date” – is the day your coverage officially kicks in. Remember, your policy won’t pay any benefits until that exact date.

Covered Perils

Any event or situation that causes property damage or loss. Fire, theft, vandalism, windstorms, and certain types of water damage are good examples that insurance can cover.

Death Benefit

The amount of money paid to the beneficiary of a life insurance policy when the insured dies. Learn more about life insurance death benefits.

Deceased Identity Theft

The crime of stealing the identity of a deceased individual. Also known as ‘ghosting,’ brings risk to their overall estate, including financial assets, credit cards, tax returns, etc.

Declarations Page

A document with important details of an insurance policy like your policy number, coverage limits, deductibles, premium amounts, dates of the policy, and more. Think of it as a quick reference to help you understand everything you need to know about your insurance coverage.

The amount of money a policyholder must pay out of pocket before their coverage kicks in to cover a claim. For example, if you have a $500 deductible on your car insurance and you're involved in an accident causing $2,500 in damages, you would pay the first $500, and then your insurance would cover the remaining $2,000.

Deferred Annuity

A type of annuity that delays, or defers, income payments until a later date of your choosing. There are two main phases: the savings phase, which is when you invest money into the account, and the income phase, which is when the plan begins paying you. Generally, the money earned on a deferred annuity is taxed only when you withdraw it.  Learn more about TruStage Annuity products.

Depreciation

The decrease in value of something over time due to age, becoming obsolete, or normal wear and tear. It’s helps figure out the value of property or belongings at the time of a claim to determine its replacement cost.

Disclosure Statement

An official statement that outlines the terms, conditions, risks and rules of a financial transaction, such as an insurance policy, loan or investment.

Direct Response

Insurance sold directly to you by an insurance company, usually by mail or online. Learn more about TruStage.

A partial refund of premiums paid on permanent life insurance. Similar to the dividends paid by a company to its shareholders, the amount paid to policyholders depends on the insurance company’s profits.

Dividend Option

Not all life insurance policies pay out dividends. But for those that do, the policyholder is given different options on how to use them. The dividend can earn interest, reduce the premium, purchase additional paid-up insurance, or be taken in cash.

The date on which your monthly payment is due. You’ll want to keep track of this to make sure your policy doesn’t lapse! What is the grace period on a life insurance policy?

Endorsement

A change to your insurance policy that adjusts your coverage. Also known as a “rider” or “floater,” endorsements are designed to tailor insurance policies to better meet your needs by helping you decide how much insurance you really need.

Estate Planning

End-of-life planning that is done in advance. An estate plan may include a will, identified beneficiary, and a power of attorney.

Evidence of Insurability (EOI)

Part of the application process for a life or health insurance policy where an applicant provides health information, such as medical history. The EOI can determine whether you’re approved for coverage and how much your premiums will be. Learn more about applying for life insurance.

An event or situation not covered by an insurance policy to avoid risks that may be too high or unpredictable. Exclusions help clarify the scope of coverage and define the limits of protection so you know exactly what you’re protected against.

An individual named by the insurer who manages the estate of the deceased and executes the terms identified in a will.

Your insurance policy’s share of the company’s operating costs. This includes things like medical exams, underwriting, printing costs, advertising, agency expenses, premium taxes and salaries. These costs figure in to your dividends and premium rates.

Extended Term

A nonforfeiture option in a whole life policy that uses cash value to purchase term insurance equal to the existing amount of life insurance. This allows you to continue receiving coverage for a limited time without paying premiums. What is term life insurance ?

Face Amount

Family benefit, final expense insurance.

Final Expense I nsurance is a funeral insurance policy meant to provide funds for the insured’s final expenses after death.  Final Expense Insurance is life insurance sold through licensed insurance producers that do not usually have specific relationships with funeral homes.  The policy funds are directed to the identified beneficiary and may be used to cover funeral expenses, debt, or other outstanding needs.

Financial Needs Analysis

Fixed Amount Option

Fixed period annuity, fixed period option, free look provision.

A certain amount of time (usually 30 days) to examine an insurance policy and return it to the company for a full refund if not satisfied.

Full Life Insurance

A phrase sometimes used to refer to permanent life insurance or whole life insurance. Learn more about TruStage Whole Life Insurance .

Funeral Preplanning Insurance

Sometimes referred to as funeral insurance, funeral preplanning insurance is an insurance policy purchased and assigned to a funeral home to cover the costs associated with preplanning a funeral.

Goods & Services Contract/Agreement

An agreement between the funeral home and customer that details the items and services selected for burial and/or funeral. A Goods & Services agreement may include (but is not limited to) the casket, cost of the funeral, flowers, transportation, preparation of the body, etc.

Grace Period

The period of time a policy stays in force even after a premium payment is due and goes unpaid. It’s usually a month so don’t wait too long to make things right. Learn more about life insurance life insurance grace periods.

Group Life Insurance

Life insurance that covers an entire group of people (as opposed to individual coverage).  Employers usually offer group life insurance to their workers as part of a larger benefit package. Typically, the coverage ends when you leave the company.  Is your employer’s provided life insurance enough?

Guaranteed Auto Protection (GAP)

An insurance option designed to help pay off your auto loan or lease if your vehicle is totaled or stolen and the insurance payout isn’t enough to cover the outstanding balance. Simply put, you won’t have to pay a remaining balance that’s above what your standard insurance covers.

Guaranteed Insurability Option (aka Guaranteed Purchase Option)

A rider that ensures you will be able to buy more insurance in the future as your need for coverage increases. Generally, you will be allowed to purchase additional life insurance at specified ages without having to provide evidence of insurability.  What are life insurance riders?

Guaranteed Renewable

The right to continue your insurance each year as long as premiums are paid. Even if you develop a serious health condition and have a lot of claims, you have the assurance that your insurance will stay put.

Home Insurance

Sometimes referred to as “homeowners insurance,” this type of policy helps pays for losses and damage to your property if something unexpected happens like a fire or burglary. Most lenders require proof of home insurance and you can learn more about it here.

Home Warranty

A service contract covering the repair or replacement of major home systems and appliances that fail due to normal wear and tear. Keep in mind, it’s not the same as home insurance, so you may want to learn more about the differences.

Immediate Annuity

Incontestable clause, insurable interest, insurance policy, interest option, irrevocable beneficiary.

A life insurance policy beneficiary who cannot be removed from a policy unless they agree to be, and who also has the power to prevent the policy holder from canceling the policy without their approval. For example, if a spouse is an irrevocable beneficiary , that person cannot be removed as a beneficiary even if the couple divorces. 

Juvenile Insurance Policy

No current definitions.

Termination of coverage due to nonpayment of premiums within a specified time period. A lapsed policy no longer pays benefits or provides coverage.

The rate at which insurance policies are cancelled because of unpaid premiums. Not surprisingly, the more expensive a policy is, the higher the lapse rate.

Last Conversion Date

The last day a policy can be converted from term life insurance to whole life insurance to avoid losing money paid on premiums.

Leased Vehicle

A car used for a specified period of time where the person leasing the car makes regular payments (typically to a car dealership) for the right to use the vehicle. Some people prefer leasing a car instead of buying it, but each has its advantages you can read about here.

Life Expectancy

The number of years someone is expected to live, based on statistical research. Insurers factor in life expectancy when determining the premium for certain policies, particularly life insurance.

Life Income with Period Certain Annuity

A type of annuity that guarantees income for a certain number of years. This allows you to specify when the benefit will start and how long it will last to meet your retirement and estate planning needs, as well as your lifespan expectations. Common time frames for a period certain annuity are 10, 15, or 20 years.

Life Insurance

Life insurance is a contract with an insurance company that helps financially protect your loved ones if you pass away. You pay your premiums, and, if you pass away while coverage is in place, the company pays a lump sum (called a death benefit) to your beneficiaries. This money can help them with things like funeral costs, rent or mortgage, day-to-day living expenses, education costs and more. Get a free life insurance quote from TruStage.

Lifetime Coverage

An insurance policy that lasts for your entire life, as long as premiums are paid. Whole life insurance is a type of permanent life insurance designed to provide lifetime coverage. 

Living Benefits

Part of a life insurance policy that lets you access funds while you’re still living, usually to cover the cost of care if you were to have a terminal or catastrophic illness.

Living Will

A legal document that specifies the type of medical care an individual does or does not want in the event they are no longer able to communicate their wishes.

Mechanical Repair Coverage

Insurance that covers the costs of unexpected vehicle repairs and replacements of parts that fail due to normal wear and tear. It’s typically offered as an optional add-on to auto insurance policies that only cover accidents. Learn what makes it different than Liability Insurance.

Medical Information Bureau (MIB)

A computer database that stores medical and some non-medical information for fraud detection purposes. This information is used by insurance companies to assess an applicant’s risk and eligibility for life and health insurance.

Medical Report

A report on the health of a life insurance applicant that is filled out by a doctor following a physical examination. Learn more about physical exams and life insurance.

Misstatement of Age

If an applicant for life insurance misstates their age, the insurer, during a length of time known as the "contestability period," may choose to cancel the policy, increase the premiums or adjust the policy amount.  Why are some life insurance claims not paid out?

Mortality Rate

The frequency of death at each attained age. Life insurance companies use mortality rates to determine life insurance rates that make sense for both the consumer and the company.

A type of loan provided by a bank or financial institution to help someone purchase a home. The person borrowing the money agrees to make regular payments over a set period of time, and we offer a calculator  to help you figure out how much you can afford.

Mortgage Life Insurance

As the name implies, mortgage life insurance is a policy that pays off the balance of your mortgage should you die. The payout goes to the mortgage lender, not your family.

Non-Forfeiture

Non-forfeiture clause, non-forfeiture provisions, non-participating life insurance policy.

A life insurance policy that does not share in the insurance company’s surplus earnings and does not pay dividends. If you want to own a participating policy with dividends, you will likely need to buy whole life insurance .

Non-Smoker Rates

Paid-up additions.

Using dividends earned by a whole life insurance policy to purchase additional coverage and grow additional cash value.

Paid-Up Insurance

A whole life policy that is paid in full, remains in force, and you no longer have to pay any premiums. It’s a great option for someone who has recently received an inheritance or has come into money.

Participating Insurance

A life insurance policy that pays dividends to the policyholder. Dividends are generated from the profits of the insurance company and are typically paid out on an annual basis over the life of the policy. If you want to own a participating policy, you will likely need to buy whole life insurance.

Payout Option (annuities)

When you invest in an annuity, you choose the term of the payments you’ll receive. Three of the most common payout options are lifetime payments (which continue for as long as you live), period certain (say, five years or 30 years) and joint-life payments (which continue for as long as either you or your spouse lives).

Payout Phase (annuities)

The period during which the money accumulated in an annuity is paid out as regular income payments. You can choose to receive these payments for a specific period of time (such as five or 30 years) or for the rest of your life.

Period Certain (annuities)

An annuity that provides guaranteed income for a set period of time (say, five years or 30 years). If you die before the end of the period your beneficiary will receive the remainder of the payments for the period. Learn more about TruStage Annuity products.

Permanent Life Insurance

A life insurance policy that lasts your entire lifetime, as long as premiums are paid. One of the most common types of permanent life insurance is one you’ve likely heard of: whole life insurance . It can build cash value over time, as well as provide a death benefit to your beneficiaries.

Personal Injury Protection (PIP)

A type of auto insurance that helps pay for medical expenses, lost wages, cleaning services, and other related costs (even funerals) for you and your passengers if you're injured in a car accident. It’s often required by some states in addition to liability insurance.

A written contract between you and the insurance company stating the terms of insurance. Learn how to read a life insurance policy,

Policy Dividend

Many whole life insurance policies provide dividends representing a portion of the insurance company’s profits that are paid to policyholders; policyholders are not typically guaranteed dividends. The dividend amount often depends on the amount of money paid into the policy. Dividends are typically not guaranteed and are subject to the financial performance of the insurance company.

Policy Loan

Let’s say you own a whole life insurance policy and need emergency cash. One option is to get a policy loan, which accesses the cash value of your life insurance. You’re not actually withdrawing the cash value, it’s simply being used as collateral on the loan. Keep in mind that loans accrue interest and if the money isn't paid back, the money is withdrawn from the policy’s death benefit. Learn more about how to cash out a life insurance policy.

Policy Proceeds

The amount of money actually paid on a life insurance policy at death, or when the policyowner receives payment at surrender or maturity.

Policyowner

Also known as the policyholder, this is the person who owns an insurance policy. It’s usually the insured person, but it may also be a relative of the insured, a partnership or a corporation.

Power of Attorney

A document that allows you to appoint someone to manage your affairs if you become unable to do so. This may include performing financial transactions with your resources, making decisions regarding your medical treatment, or both. You can name anyone you want to be power of attorney, but it should be someone you trust completely.

Preferred Rates

The healthiest people with the safest lifestyles are the least risky to the insurance company, so they are placed in the categories that qualify them for the lowest rates, called preferred rates. Considerations include health, gender, smoking habits, occupation and hobbies. Learn more about what factors affect life insurance premiums.

The amount of money you pay for an insurance policy. Depending on the policy, premiums can be paid monthly, quarterly, semi-annually or annually. Factors such as your age, health, gender and coverage amount all determine your premium amount. 

Primary Beneficiary

The first person in line to receive the insurance policy death benefit. This is often a spouse, sibling or child. With most policies, you can change your beneficiary at any time.

A legal document that describes a security, such as a stock, bond or mutual fund, to potential investors. A prospectus contains facts about the company (or fund), its finances, management, and other information that can help investors make an informed decision.

Qualified Annuity

An annuity purchased with pre-tax dollars. The money that you put into the plan is tax deductible when you contribute it, but all of the money you later receive from the annuity payouts will be taxable, since you haven't yet paid tax on it. Learn more about TruStage Annuity products .

The basis for an additional charge to the standard premium because the person insured is classified as a greater than normal risk. This usually results from impaired health or a hazardous occupation. Learn more about the factors that affect life insurance premiums.

Reduced Paid-Up

If you own a whole life policy , the reduced paid-up option would allow you to give up your existing coverage and instead receive a reduced death benefit that needs no additional payment of premiums. That reduced amount is based on the cash value at the time you stop the policy.

Reinstatement

Restoring a policy that had previously lapsed due to unpaid premiums. This is usually allowed during the 31 days following the expiration of an insurance policy's grace period . Reinstatement requires payment of all overdue premiums plus interest, and may require evidence of insurability.

Renters Insurance

A policy designed to protect people living in a rented apartment, condo, or home. It helps pay for personal property after unexpected circumstances such as a theft or fire and can even protect against liability if someone gets hurt where you’re renting. Learn more by researching prices.

Repatriation

The process of returning remains of a loved one to the legal residence of the deceased, then typically to their preferred funeral home.

Replacement

The act of terminating a policy with an insurance company and replacing it with a new policy. Policyholders sometimes replace their policy with a new one to get more or less coverage, to lower the premium payment, or to switch to a policy better suited to their needs. Replacement transactions are highly regulated to help protect consumers.

Replacement Cost Insurance

Coverage that reimburses the full cost of damaged or destroyed property with a new item that’s similar in type and quality. It’s designed to make sure your possessions are replaced at today's market prices instead of their depreciated value.

Revocable Beneficiary

A type of beneficiary designation that can be changed without the beneficiary's consent.

An optional add-on to an insurance policy that provides additional benefits for an increased cost. Examples of life insurance riders include accelerated death benefits and critical illness riders. Learn more about life insurance riders.

Settlement Options

A settlement is the way your life insurance policy proceeds are paid out. Options include a lump-sum cash payment, life income, or periodic payments for a certain amount of time. As a policyholder, you can usually choose the settlement method you prefer though your beneficiary may also get to choose.

Suicide Clause

A provision in a life insurance policy that denies payment if the insured person takes his or her own life within a set period after the policy is issued, typically two years. Is suicide covered by life insurance ?  

Supplementary Contract

An agreement between a life insurance company and a policyholder or beneficiary in which the policy’s proceeds are paid over a period of time instead of as a lump sum. For example, a beneficiary may decide that he wants to be paid $1,000 a month by the life insurance company. The insurance company could then set up a supplementary contract with the beneficiary reflecting this payout method.

Surrender Charge

The fee deducted from a life insurance policy or annuity payout when a policyholder cancels (or “surrenders”) the policy. Surrender charges typically decline over time, though some policies impose surrender fees for as long as 15 to 20 years after you buy a policy.

Term Conversion

Term life insurance, trustage life of canada.

Someone who lacks any form of insurance coverage. As a result, they won’t be able to offer financial compensation for damages, injuries, or losses unless they pay for it out of their own pocket.

Underinsured Motorist Insurance

A type of auto insurance that protects you if you're in an accident caused by a someone who doesn’t have any or doesn’t have enough coverage to pay for the damages or injuries they caused. Essentially, it helps pay the actual cost of your injuries and property damage when the person at fault can’t.

Underwriter

The person in an insurance company who reviews the application for insurance and decides if the applicant is acceptable and at what premium rate. For life insurance, the underwriter will look at a number of data points, including your lifestyle, occupation, medical record, financial history, and driving record. Learn more about what impacts the cost of life insurance.

Underwriting

The process by which an insurance company reviews your application and other information and decides whether to insure you and if so, how much you’ll pay for coverage. For life insurance, the underwriter looks at data like your age, health and medical history as well as lifestyle information like your hobbies and driving record.

Union Security Insurance Company (USIC)

Universal life insurance.

A type of life insurance that can protect you for your entire life, while offering the flexibility to change your premium or benefit amount as life takes twists and turns. Universal life insurance also allows you to build cash value over time that you can use for unexpected expenses that come up.

Variable Annuity

Variable life insurance, waiver of premium, whole life insurance, withdrawal charge, 10, 15, 20, 30-year insurance policy.

A life insurance policy that covers you for 10, 15, 20 or 30 years, known as the term. If the insured passes away during this time, the insurance company will pay his or her beneficiaries. Once the term ends, so does the policy. Learn more about term life insurance .

1035 Exchange

Think of it as a way of trading in your life insurance policy or annuity for a new one without any tax penalties. The exchange must meet the requirements of Section 1035 of the Internal Revenue Code for the transaction to be tax-free. Learn more about life insurance and taxes .

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Insurance Policy Assignment Provisions: What They Are and When Insurers Have to Consent

Many policyholders forget that their insurance policy is a contract and is subject, with exceptions, to the usual laws of contract. An issue that frequently arises is whether the named insured is able to assign insurance proceeds under the policy to another. The answer to that question is dependent on the type of coverage sought.

What Is an Assignment Provision?

An assignment provision is a contractual clause that allows the policyholder to transfer their rights and obligations under the policy to another party. Assignment provisions enable things like transferring property insurance from one homeowner to another in case of a sale or assigning a life insurance policy to a beneficiary as a gift. Assignment provisions also allow business insurance to be assigned as part of a merger.

Can I Assign My Insurance Policy Without the Insurer’s Consent?

You cannot assign an insurance policy without the insurer’s consent before a loss has occurred. Because insurance policies are a contract, each party must consent to the terms of the contract. In fact, most insurance policies have a “consent to assignment clause” that typically provides that: “Assignment of interest under this policy shall not bind the Company until its consent is endorsed hereon.” 1 This clause is designed to protect the insurer from having to extend coverage to an entity it never agreed to cover. There are, of course, exceptions .

Can an Insurance Company Refuse to Honor an Assignment?

Yes, an insurance company can refuse to honor an assignment, though the exact circumstances vary by state and by policy. In California, for instance, the enforceability of the clause depends on both the timing of the assignment and whether the claim is a first party loss — where the insured is seeking benefits for, say, a sunk ship or a burned building — or a third party claim, which protects insured in certain instances when the insured might be liable to another.

With respect to first-party claims, insurers have a vested interest in their personal relationships with the named insureds, and before a loss , a legally recognized need to prevent non-consensual assignments to less responsible insureds. 2 Remember that a policy is a contract; the insurer has the right to understand and agree to any underwriting risks they may be taking on with the transference of the policy.

After a first-party loss , however, the insurer’s need to consent dissipates, because any assignment is only of money already due under the contract; any right of the insured as a result of the loss may be assigned with or without the consent of the insurer . Thus, the consent to assignment clause is deemed unenforceable after a first-party loss has occurred. 3

In a 2003 California Supreme Court Case, Henkel Corp. v. Hartford Accident & Indemnity Co. , the Court determined that a company that acquired a policyholder’s assets and liabilities could not receive the benefits of the policyholder’s liability coverage in the absence of an insurer-approved assignment regardless of when the assignment took place. 4 However, the court overturned that precedent in 2015’s Fluor Corp. v. Superior Ct. , in which the Court found that “after personal injury (or property damage) resulting in loss occurs within the time limits of the policy, an insurer is precluded from refusing to honor an insured’s assignment of the right to invoke defense or indemnification coverage regarding that loss.” 5

Are Assignment Clauses Enforceable?

As we saw above, the enforceability of “consent-to-assignment” clauses is dependent on the law of each particular state . Always check with an attorney before making an assignment of policy benefits to another, regardless of the situation.

What Is an Anti-Assignment Clause in an Insurance Policy?

An anti-assignment clause is a contractual provision that prohibits or restricts the policyholder from transferring their rights or obligations under the policy to another party. There can be exceptions; for example, some policies may allow assignments in certain circumstances in case of the death or incapacitation of the policyholder. Like assignment provisions, anti-assignment clauses vary by policy, state , and circumstance; it is a good idea to consult an experienced attorney when dealing with insurance.

Further Resources on Insurance Coverage Law

Navigating the complexities of insurance claims can feel overwhelming. Whether you’re facing unpaid claims or simply filing for the first time, our eBooks equip you with the crucial information you need to advocate for yourself with confidence.

• Filing A Property Insurance Claim
• Insurance Company Response Time
• What To Do When You Have a Denied/Underpaid Claim
• Wildfire Claims
• Flood Claims Handbook
• More Information on Hurricane Deductible and Policy Limits
• Condominium Hurricane Preparedness

Why Merlin?

Are you fighting an insurance company that won’t pay up on claims? With nearly 40 years of practice and $2 billion in recovered claims, our team stands by your side to ensure you can face any insurance challenge with confidence. Contact us today for a consultation, or read more about how we’re your trusted advocate .

1 Henkel Corp. v. Hartford Accident & Indemnity Co. (2003) 29 Cal.4th 934 , 934. 2 Bergson v. Builders Ins. Co. (1869) 38 Cal. 541, 545. 3 Vierneisel v. Rhode Island Ins. Co. (1946) 77 Cal.App.2d 229 , 232 [house destroyed by fire before close of escrow; affirming assignment by sellers to buyers of right to recover proceeds under fire insurance policy]. 4 Henkel Corp. v. Hartford Accident & Indemnity Co. (2003) 29 Cal.4th 934 , 934. 5 Fluor Corp. v. Superior Ct. , 61 Cal. 4th 1175, 1183, 354 P.3d 302, 305 (2015).

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What Is Collateral Assignment of Life Insurance?

Collateral assignment of life insurance designates a lender as the assignee of a policy, granting them the right to part or all of the death benefit until the loan is repaid.

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Updated: October 3, 2024

• How It Works
• Overview of Application Process

Pros and Cons

• Impact on Beneficiaries
• Alternatives

Related Content

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Collateral assignment of life insurance is an arrangement where a policyholder uses the face value of their life insurance policy, which can be a term or permanent life insurance policy, as collateral to secure a loan. If the policyholder dies before they pay off the loan, the lender is prioritized to receive a portion of the death benefit equivalent to the outstanding loan balance. The remaining benefit then goes to the policy's beneficiaries. This agreement ensures that life insurance collateral assignment acts as a safety net for both the lender and the beneficiaries.

• Collateral assignment involves using a life insurance policy as security for a loan, where the lender has a claim on the death benefit if the borrower defaults or passes away before repaying the loan.
• The lender receives priority over the death benefit, which means they are paid first from the policy's payout before any beneficiaries if the loan remains unpaid.
• Various life insurance policies, including term, whole and universal, can be used for collateral assignment, depending on the insurance company's policies and the policy's value.
• If a life insurance policy lapses or is canceled during a collateral assignment, it can breach the loan agreement, potentially resulting in immediate repayment demands.

How Collateral Assignment of Life Insurance Works

The collateral assignment allows you to use your life insurance policy as security for a loan. The process involves legally designating your policy as collateral, which means if you pass away before fully repaying the loan, the lender can claim the death benefit to cover the remaining balance. You start by choosing either a term policy or whole life insurance and then complete a collateral assignment agreement. This agreement is legally binding and sets the terms for the lender to access the death benefit .

For your beneficiaries, the assignment of your life insurance policy as collateral could reduce the death benefit they receive. If you die with an outstanding loan balance, the lender is paid first from the policy's proceeds. Any remaining amount goes to your beneficiaries only after the loan is settled.

For example, a policyholder with a $500,000 policy uses their life insurance as collateral for a $200,000 loan. If the policyholder dies before settling the loan, the lender will receive $200,000 from the policy's death benefit. Meanwhile, the remaining $300,000 gets disbursed to the policy's beneficiaries.

Roles of the Policyholder, Lender and Insurance Provider

Role of the Policyholder

• Ensure consistent premium payments to keep the policy active and in force.
• Inform the lender of any policy changes, such as lapses or surrenders.
• Understand that active management upholds the collateral agreement's integrity.

Role of the Lender

• Accept the life insurance policy as collateral.
• Right to recover owed amounts from the policy's death benefit if the policyholder dies before loan repayment.
• Priority claim on the death benefit, with remaining funds disbursed to beneficiaries.
• Responsible for releasing the assignment after full loan repayment.

Role of the Insurance Provider

• Approve or reject the collateral assignment of the policy.
• Evaluate and ensure compliance with policy terms.
• Officially record the assignment as part of the policy.

Applying for Collateral Assignment

Applying for collateral assignment is a process moderated by your life insurance company designed to secure loans using your life insurance policy as collateral. It involves a series of steps:

Obtain a Collateral Assignment Form

Request a collateral assignment form from your life insurance provider. This form is vital for designating the lender as a collateral beneficiary for the loan amount. Ensure you obtain the correct form, as forms vary based on policy type and insurer.

Fill Out the Form Correctly

Complete the form with accurate details, including policy number, loan amount and lender information. Pay close attention to all sections to avoid errors that could delay or invalidate the assignment. Incomplete or incorrect information can lead to processing delays or rejection.

Sign the Paperwork

Ensure both the policyholder and lender sign the form, confirming the agreement. This dual signature legally binds both parties to the terms of the collateral assignment. Any discrepancy in signatures may question the form's validity.

Submit the Completed Form

Submit the signed form back to the insurance company for processing. Consider using a traceable delivery method for submission to confirm receipt. Delays in submission can impact the timeline of the loan approval process.

Await Approval or Rejection From the Insurance Company

Wait for the insurer to review and approve or reject the collateral assignment. The insurer may request additional information or clarification, which can extend the approval timeline.

Receive a Letter of Acknowledgment

You and your lender will receive a letter of acknowledgment from the insurer if your collateral assignment application is approved.

Obtaining Required Documentation

The required documentation for collateral assignment of life insurance is straightforward. Typically, you'll need to provide two main types of documents for the assignment of a life insurance policy as collateral:

• Collateral Assignment Form: This form is critical because it officially transfers a portion of your life insurance policy benefits to the lender as collateral. It demonstrates to the lender that you have taken the steps to secure your loan against your life insurance policy.
• Original Life Insurance Policy and Proof of Loan: Lenders may require your original life insurance policy to ensure it is valid and enforceable. Proof of the loan agreement or obligation, such as a mortgage note or other loan document, is also commonly required. This establishes the legitimacy of your loan and substantiates the life insurance collateral assignment.

If you need more clarification about documentation requirements, contact your lender to confirm the necessary details to avoid process delays.

Pros and Cons of Collateral Assignment

Using life insurance as collateral can offer a range of benefits and potential drawbacks. Collateral assignment of a policy allows you to secure loans and is often safer than using physical assets as collateral. However, you should also note the inherent risks, primarily that the lender retains the first right to your policy’s death benefit upon your death.

• Lower interest rates on loans.
• Allows you to use the policy and not physical assets as collateral.
• The cash value of your insurance policy continues to grow.
• The lender has the first right to the death benefit.
• Failure to repay the loan can reduce or even eliminate the death benefit.
• Any lapse or cancellation of the policy may lead to violating the loan terms.

Impact of Collateral Assignment on Beneficiaries

While the collateral assignment of life insurance has its benefits, it’s important to remember that it can impact the amount your beneficiaries receive. If you pass away with an outstanding balance on your loan:

Your Lender Will Be Paid First

In the collateral assignment arrangement, the lender is designated as the collateral beneficiary holding the primary claim to the death benefit for the outstanding loan amount. This means if you pass away before fully repaying the loan, the lender is entitled to receive payment from the death benefit first. The amount collected by the lender is limited to the remaining loan balance.

Any Remaining Death Benefit Will Be Disbursed to Your Beneficiaries

After the lender's claim is satisfied, the remaining death benefit is disbursed to your policy’s designated beneficiaries. The amount they receive depends on the loan balance at the time of your death. If the loan balance is substantial, your beneficiaries will receive significantly less than the policy's total death benefit.

This structure underscores the importance of carefully considering life insurance collateral loans and their impact on future financial planning. Policyholders using life insurance as collateral need to understand the terms set forth by loan companies that accept it.

Alternatives to Collateral Assignment

Alternatives to collateral assignment include personal loans , home equity loans or surrendering the life insurance policy for its cash value. None of these options require using life insurance as collateral, and each offers different benefits and risks compared to using life insurance as collateral.

FAQ About Collateral Assignment

These questions cover various topics related to collateral assignments, including their requirements, implications for beneficiaries and what happens in different scenarios.

A collateral assignment is a contractual arrangement in which a borrower uses their life insurance policy as collateral for a loan. This agreement grants the lender rights to the policy’s death benefit. The lender is prioritized over other beneficiaries until the loan is repaid in full.

In the context of a life insurance collateral assignment, the collateral is the policy's death benefit. This setup allows lenders to be listed as collateral beneficiaries, guaranteeing that they can recover the outstanding loan balance from the death benefit in the event of the borrower’s death before the debt is fully paid.

In a life insurance contract, a collateral assignment allocates the policy's death benefit as security for a loan. This means that if the borrower dies before repaying the loan, the lender, as the collateral assignee of the life insurance, can claim the owed amount from the death benefit. The remaining balance, if any, goes to the designated beneficiaries, ensuring the loan is covered without affecting other assets.

Collateral assignment allows a lender to claim the life insurance death benefit for an outstanding loan amount while naming a life insurance beneficiary designated who receives the death benefit. The lender's claim is prioritized over the beneficiaries' in collateral assignment.

Most types of life insurance policies , including term, whole and universal life, can be used for collateral assignment, provided the insurance company allows it and the policy has sufficient value.

Yes, the policyholder can change beneficiaries after a collateral assignment, but the lender's right to the death benefit amount remains until the loan is repaid. This ensures the lender's position as a collateral beneficiary.

Canceling your life insurance policy before repaying the debt can lead to a breach of the collateral assignment loan agreement. This action may prompt the lender to increase your interest rate or demand immediate repayment of the outstanding loan balance.

These related sections offer additional insights into concepts and alternatives connected to collateral assignments and life insurance:

Using Collateral for a Personal Loan — This link explains how to use various types of collateral for securing a personal loan, providing a broader context to the specific use of life insurance as collateral.

Term vs. Permanent Life Insurance — This resource compares term and permanent life insurance, helping to understand which policies can be used for collateral assignments.

Permanent Life Insurance — This page details permanent life insurance, a type commonly used in collateral assignments due to its cash value component.

Life Insurance Calculator — This page helps you calculate the appropriate amount of life insurance coverage needed, which is crucial when considering using a policy for collateral.

About Nathan Paulus

Nathan Paulus is the Head of Content Marketing at MoneyGeek, with nearly 10 years of experience researching and creating content related to personal finance and financial literacy.

Paulus has a bachelor's degree in English from the University of St. Thomas, Houston. He enjoys helping people from all walks of life build stronger financial foundations.

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