General Insurance Glossary

Oct 17, 2011

Written by:
Al Hill

Accidental Death Benefit – If death is due to an accident, an insurance policy may pay out an accidental death benefit in addition to the death benefit normally paid to the beneficiary. Age and time limits may prompt exclusions.

Actuary – An American term for a mathematician who specializes in calculating insurance statistics, rates, reserves, and dividends.

Adjustable Rate – If the market-rate index fluctuates, then so does this interest rate.

Agent – An insurance company’s licensed representative authorized to sell and service their insurance policies. This agent can be an independent individual representing more than one insurance company to obtain the best pricing for a client. He usually works on commission which is a percentage of the premium which is paid by the client and a service fee. Also usually paid on commission is the direct agent who works exclusively for one company and sells only that company’s product.

Annuitization – Conversion process in which all or a portion of monies in a non-qualified annuity or a qualified retirement plan becomes a scheduled, fixed amount, regular income payment.

Assets – The invested, admitted, and other assets of an insurance company available to pay its debts. Invested assets include cash, real estate, stock and bonds. Other assets are the non-income producing assets such as office furniture and unpaid premiums. Admitted assets, or total admitted assets, represents everything owned by the company. It depends on the state to determine which assets are admissible.

Benefit Period – For health insurance purposes, the benefit period means a set number of days benefit payments are paid out to the insured.

Broker – A broker is paid by the client to search for the right insurance on the client’s behalf.

Business Net Retention – An insurance company’s writings, which are the sum of its direct and assumed, but not affiliated writings.

Capital  Shareholder equity of a traded insurance company. The stock protects the policy holders first, shareholders, second.

Captive Agent – Insurance company representative obliged to propose business to only to that one company so that the company at least has the right to refuse that business. In return, the insurance company provides benefits, including an expense allowance.

Claim – A claim is a notice that a loss may be covered under the terms of a policy.

Coinsurance – The amount of money a policy holder pays above the deductible. After the deductible is met, the insurer covers 100 percent.

Commission – The percentage of a policy premium paid to an insurance agent or other salesperson.

Coverage – The amount of protection that an insurance policy provides.

Deductible – The amount a policy holder pays before the insurance pays benefits. The higher the deductible, usually the lower the premium.

Direct Writer – An insurance company who directly sells its policies.

Dividend – The monetary return gained from stock.

Exclusions – Conditions not covered under an insurance policy.

Expense Ratio – The measure of the ratio of underwriting expense to net premium.

Floater – If the value of a certain amount of goods is not covered under a standard renter insurance policy, then a floater policy may be written in order to cover such things such as jewelry.

Grace Period – The period after the due date of a premium in which that premium may be paid without penalty.

Guaranteed Renewable – A guarantee that states a policy holder can renew his policy on the anniversary date of that policy. The insurance company has the right to raise the policy’s premium.

Guaranty Association – If an insurance company becomes insolvent, the guaranty association within the company’s state becomes responsible for its financial obligations.

Health Maintenance Organization – An HMO mandates that members must use only providers that participate in the HMO. It is prepaid group health insurance.

Indemnity – Loss reparation by replacement, payment, or repair.

Inflation Protection – Optional property insurance that keeps pace with inflation.

Insurance Adjuster – A representative of the policy holder’s insurance company who determines the company liability when a claim is sought.

Investment Income – Interest, capital gains, and dividends returned from an insurance company’s investment portfolio.

Laddering – Bond investments purchased so that they mature at different times.

Leverage – The exposure of an insurance company’s surplus is measured to operating and financial practices.

Liability – An insurance company’s legal, enforceable obligations, which are most often represented as pecuniary.

Liquidity – The ability of an insurance company to convert its assets to cash quickly.

Loss Control – The methodology used to reduce the severity or frequency of loss: prevention, reduction, segregation of exposure, transfer of risk, and avoiding loss.

Mutual Insurance Company – Policy holder owned companies with no capital stock.

Net Income – Total earnings, after taxes, from operations and capital gains as reported in the NAIC annual statement.

Net Leverage – The sum of the net premium written to policy holder surplus plus net liability to that surplus.

Net Premium – This amount is the policy holder’s premium minus the agent’s commission.

Out Of Pocket Limit – The total, predetermined amount of money that a healthcare policy holder must pay before the insurance kicks in 100 percent payment.

Participation Rate – The rate of gain in equity-indexed annuities that the annuity will earn.

Policy – The written insurance contract that holds all the particulars of that contract such as clauses, riders, and endorsements.

Pre-Existing Condition – A previously diagnosed medical condition that an insurance company may not cover.

Quick Assets – These assets are quickly converted to cash.

Reinsurance – An insurance company’s insurance policy bought for its protection to minimize loss.

Renewal – The automatic continuance of an insurance policy by premium payment.

Reserve – Treated as a liability, this is an amount representing actual or potential liabilities kept by an insurance company to cover policy holders debt.

Risk Management – The analysis of all risk exposure and how it affects the company.

Solvency – All the needed assets are available to satisfy all financial requirements of a company.

Statutory Reserve – A reserve that is statutory means that it is required by law to keep.

Subrogation – Substituting one claim for another, this covers the transfer of the right to receive debt payment although a company is not the original creditor.

Tort – A tort is a private loss in which the injured person seeks damages in civil court.

Total Loss – A substantial loss where there is no value left of a policy.

Umbrella Policy – An umbrella policy is usually a broader-termed policy covering more than one insurance type which covers losses above the limit of those policies.

Underwriting – The selection process for insurance applicants. Underwriters classify applicants according to their degree of insurability and set premiums accordingly. The process also weeds out unacceptable risks and rejects them.

Waiting Period – Also called an “elimination period” which is a set amount of time before a policy kicks in its coverage.


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