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INSURANCE WEB DESIGNS
Insurance Glossary
Online Insurance Glossary - Select the letter
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| ACCELERATED DEATH BENEFITS |
A life insurance policy option that provides policy proceeds to insured individuals over their lifetimes, in the event of a terminal illness. This is in lieu of a traditional policy that pays beneficiaries after the insured’s death. Such benefits kick in if the insured becomes terminally ill, needs extreme medical intervention, or must reside in a nursing home. The payments made while the insured is living are deducted from any death benefits paid to beneficiaries.
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| ACCIDENT AND HEALTH INSURANCE |
Coverage for accidental injury, accidental death, and related health expenses. Benefits will pay for preventative services, medical expenses, and catastrophic care, with limits.
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| ACCOUNT RECEIVABLES |
See Receivables
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| ACTUAL CASH VALUE |
A form of insurance that pays damages equal to the replacement value of damaged property minus depreciation. (See Replacement cost)
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| ACTUARY |
An insurance professional skilled in the analysis, evaluation, and management of statistical information. Evaluates insurance firms’ reserves, determines rates and rating methods, and determines other business and financial risks.
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| ADDITIONAL LIVING EXPENSES |
Extra charges covered by homeowners policies over and above the policyholder's customary living expenses. They kick in when the insured requires temporary shelter due to damage by a covered peril that makes the home temporarily uninhabitable.
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| ADJUSTER |
An individual employed by a property/casualty insurer to evaluate losses and settle policyholder claims. These adjusters differ from public adjusters, who negotiate with insurers on behalf of policyholders, and receive a portion of a claims settlement. Independent adjusters are independent contractors who adjust claims for different insurance companies.
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| ADMITTED ASSETS |
Assets recognized and accepted by state insurance laws in determining the solvency of insurers and reinsurers. To make it easier to assess an insurance company’s financial position, state statutory accounting rules do not permit certain assets to be included on the balance sheet. Only assets that can be easily sold in the event of liquidation or borrowed against, and receivables for which payment can be reasonably anticipated, are included in admitted assets. (See Assets)
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| ADMITTED COMPANY |
An insurance company licensed and authorized to do business in a particular state.
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| ADVERSE SELECTION |
The tendency of those exposed to a higher risk to seek more insurance coverage than those at a lower risk. Insurers react either by charging higher premiums or not insuring at all, as in the case of floods. (Flood insurance is provided by the federal government but sold mostly through the private market.) In the case of natural disasters, such as earthquakes, adverse selection concentrates risk instead of spreading it. Insurance works best when risk is shared among large numbers of policyholders.
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| AFFINITY SALES |
Selling insurance through groups such as professional and business associations.
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| AFTERMARKET PARTS |
See Crash parts; Generic auto parts
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| AGENCY COMPANIES |
Companies that market and sell products via independent agents.
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| AGENT |
Insurance is sold by two types of agents: independent agents, who are self-employed, represent several insurance companies and are paid on commission, and exclusive or captive agents, who represent only one insurance company and are either salaried or work on commission. Insurance companies that use exclusive or captive agents are called direct writers.
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| ALIEN INSURANCE COMPANY |
An insurance company incorporated under the laws of a foreign country, as opposed to a foreign insurance company that does business in states outside its own.
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| ALLIED LINES |
Property insurance that is usually bought in conjunction with fire insurance; it includes wind, water damage, and vandalism coverage.
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| ALTERNATIVE DISPUTE RESOLUTION / ADR |
Alternative to going to court to settle disputes. Methods include arbitration, where disputing parties agree to be bound to the decision of an independent third party, and mediation, where a third party tries to arrange a settlement between the two sides.
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| ALTERNATIVE MARKETS |
Mechanisms used to fund self-insurance. This includes captives, which are insurers owned by one or more non-insurers to provide owners with coverage. Risk-retention groups, formed by members of similar professions or businesses to obtain liability insurance, are also a form of self-insurance.
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| ANNUAL STATEMENT |
Summary of an insurer’s or reinsurer’s financial operations for a particular year, including a balance sheet. It is filed with the state insurance department of each jurisdiction in which the company is licensed to conduct business.
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| ANNUITY |
| A life insurance company contract that pays periodic income benefits for a specific period of time or over the course of the annuitant’s lifetime. These payments can be made annually, quarterly or monthly.
From a life insurer’s viewpoint, an annuity presents the opposite mortality risk from a life insurance policy. Life insurance pays a benefit when the policyholder dies. An annuity pays benefits as long as the annuitant lives. With both products, the insurer’s profit or loss depends on whether it made correct assumptions about the policyholder’s life expectancy and the company’s future investment returns.
Annuity investments are tax-deferred; taxes are not due until income payments begin. Annuities are often used as a form of retirement savings and some allow tax-free loans. They can be bought on a periodic schedule or through a one-time payment. There are fixed-income annuities, which invest in a general insurer’s account and offer a fixed benefit payment, and variable annuities, where individuals can choose their own investments from a menu of funds offered by the insurance company including bond and stock funds. The account value of a variable annuity reflects the performance of the investments offered by the company and selected by the annuitant whereas fixed annuity payments are guaranteed, regardless of the performance of the insurance company’s investments.
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| ANTITRUST LAWS |
Laws that prohibit companies from working as a group to set prices, restrict supplies or stop competition in the marketplace. The insurance industry is subject to state antitrust laws but has a limited exemption from federal antitrust laws. This exemption, set out in the McCarran-Ferguson Act, permits insurers to jointly develop common insurance forms and share loss data to help them price policies.
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| APPORTIONMENT |
The dividing of a loss proportionately among two or more insurers that cover the same loss.
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| APPRAISAL |
A survey to determine a property’s insurable value, or the amount of a loss.
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| ARBITRATION |
Procedure in which an insurance company and the insured or a vendor agree to settle a claim dispute by accepting a decision made by a third party.
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| ARSON |
The deliberate setting of a fire.
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| ASSET-BACKED SECURITIES |
Bonds that represent pools of loans of similar types, duration and interest rates. Almost any loan with regular repayments of principal and interest can be securitized, from auto loans and equipment leases to credit card receivables and mortgages.
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| ASSETS |
Property owned, in this case by an insurance company, including stocks, bonds, and real estate. Insurance accounting is concerned with solvency and the ability to pay claims. State insurance laws therefore require a conservative valuation of assets, prohibiting insurance companies from listing assets on their balance sheets whose values are uncertain, such as furniture, fixtures, debit balances, and accounts receivable that are more than 90 days past due. (See Admitted assets)
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| ASSIGNED RISK PLANS |
Facilities through which drivers can obtain auto insurance if they are unable to buy it in the regular or voluntary market. These are the most well-known type of residual auto insurance market, which exist in every state. In an assigned risk plan, all insurers selling auto insurance in the state are assigned these drivers to insure, based on the amount of insurance they sell in the regular market. (See Residual market)
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| AUTO INSURANCE POLICY |
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There are basically six different types of coverages. Some may be required by law. Others are optional. They are:
- Bodily injury liability, for injuries the policyholder causes to someone else.
- Medical payments or Personal Injury Protection (PIP) for treatment of injuries to the driver and passengers of the policyholder’s car.
- Property damage liability, for damage the policyholder causes to someone else’s property.
- Collision, for damage to the policyholder’s car from a collision.
- Comprehensive, for damage to the policyholder’s car not involving a collision with another car (including damage from fire, explosions, earthquakes, floods, and riots), and theft.
- Uninsured motorists coverage, for costs resulting from an accident involving a hit-and-run driver or a driver who does not have insurance.
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| AUTO INSURANCE PREMIUM |
| The price an insurance company charges for coverage, based on the frequency and cost of potential accidents, theft and other losses. Prices vary from company to company, as with any product or service.
Premiums also vary depending on the amount and type of coverage purchased; the make and model of the car; and the insured’s driving record, years of driving and the number of miles the car is driven per year. Other factors taken into account include the driver’s age and gender, where the car is most likely to be driven and the times of day – rush hour in an urban neighborhood or leisure-time driving in rural areas, for example. Some insurance companies may also use credit history-related information. (See Insurance score)
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| AVIATION INSURANCE |
Commercial airlines hold property insurance on airplanes and liability insurance for negligent acts that result in injury or property damage to passengers or others. Damage is covered on the ground and in the air. The policy limits the geographical area and individual pilots covered.
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| B Back To Top |
| BALANCE SHEET |
Provides a snapshot of a company’s financial condition at one point in time. It shows assets, including investments and reinsurance, and liabilities, such as loss reserves to pay claims in the future, as of a certain date. It also states a company’s equity, known as policyholder surplus. Changes in that surplus are one indicator of an insurer’s financial standing.
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| BANK HOLDING COMPANY |
A company that owns or controls one or more banks. The Federal Reserve has responsibility for regulating and supervising bank holding company activities, such as approving acquisitions and mergers and inspecting the operations of such companies. This authority applies even though a bank owned by a holding company may be under the primary supervision of the Comptroller of the Currency or the FDIC.
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| BASIS POINT |
0.01 percent of the yield of a mortgage, bond or note. The smallest measure used.
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| BEACH AND WINDSTORM PLANS |
State-sponsored insurance pools that sell property coverage for the peril of windstorm to people unable to buy it in the voluntary market because of their high exposure to risk. Seven states (AL, FL, LA, MS, NC, SC, TX) offer these plans to cover residential and commercial properties against hurricanes and other windstorms. Georgia and New York provide this kind of coverage for windstorm and hail in certain coastal communities through other property pools. Insurance companies that sell property insurance in the state are required to participate in these plans. Insurers share in profits and losses. (See Fair access to insurance requirements plans / FAIR plans; Residual market)
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| BINDER |
Temporary authorization of coverage issued prior to the actual insurance policy.
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| BLANKET COVERAGE |
Insurance coverage for more than one item of property at a single location, or two or more items of property in different locations.
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| BODILY INJURY LIABILITY COVERAGE |
Portion of an auto insurance policy that covers injuries the policyholder causes to someone else.
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| BOILER AND MACHINERY INSURANCE |
Often called Equipment Breakdown, or Systems Breakdown insurance. Commercial insurance that covers damage caused by the malfunction or breakdown of boilers, and a vast array of other equipment including air conditioners, heating, electrical, telephone, and computer systems.
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| BOND |
A security that obligates the issuer to pay interest at specified intervals and to repay the principal amount of the loan at maturity. In insurance, a form of suretyship. Bonds of various types guarantee a payment or a reimbursement for financial losses resulting from dishonesty, failure to perform and other acts.
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| BOND RATING |
An evaluation of a bond’s financial strength, conducted by such major ratings agencies as Standard & Poor’s and Moody’s Investors Service.
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| BOOK OF BUSINESS |
Total amount of insurance on an insurer's books at a particular point in time.
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| BROKER |
An intermediary between a customer and an insurance company. Brokers typically search the market for coverage appropriate to their clients. They work on commission and usually sell commercial, not personal, insurance. In life insurance, agents must be licensed as securities brokers/dealers to sell variable annuities, which are similar to stock market-based investments.
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| BURGLARY AND THEFT INSURANCE |
Insurance for the loss of property due to burglary, robbery or larceny. It is provided in a standard homeowners policy and in a business multiple peril policy.
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| BUSINESS INTERRUPTION INSURANCE |
Commercial coverage that reimburses a business owner for lost profits and continuing fixed expenses during the time that a business must stay closed while the premises are being restored because of physical damage from a covered peril, such as a fire. Business interruption insurance also may cover financial losses that may occur if civil authorities limit access to an area after a disaster and their actions prevent customers from reaching the business premises. Depending on the policy, civil authorities coverage may start after a waiting period and last for two or more weeks.
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| BUSINESSOWNERS POLICY / BOP |
A policy that combines property, liability and business interruption coverages for small- to medium-sized businesses. Coverage is generally cheaper than if purchased through separate insurance policies.
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| C Back To Top |
| CAPACITY |
| The supply of insurance available to meet demand. Capacity depends on the industry’s financial ability to accept risk. For an individual insurer, the maximum amount of risk it can underwrite based on its financial condition. The adequacy of an insurer’s capital relative to its exposure to loss is an important measure of solvency.
A property/casualty insurer must maintain a certain level of capital and policyholder surplus to underwrite risks. This capital is known as capacity. When the industry is hit by high losses, such as after the World Trade Center terrorist attack, capacity is diminished. It can be restored by increases in net income, favorable investment returns, reinsuring more risk and or raising additional capital. When there is excess capacity, usually because of a high return on investments, premiums tend to decline as insurers compete for market share. As premiums decline, underwriting losses are likely to grow, reducing capacity and causing insurers to raise rates and tighten conditions and limits in an effort to increase profitability. Policyholder surplus is sometimes used as a measure of capacity.
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| CAPITAL |
Shareholder’s equity (for publicly-traded insurance companies) and retained earnings (for mutual insurance companies). There is no general measure of capital adequacy for property/casualty insurers. Capital adequacy is linked to the riskiness of an insurer’s business. A company underwriting medical device manufacturers needs a larger cushion of capital than a company writing Main Street business, for example. (See Risk-based capital; Surplus; Solvency)
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| CAPITAL MARKETS |
The markets in which equities and debt are traded. (See Securitization of insurance risk)
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| CAPTIVE AGENT |
A person who represents only one insurance company and is restricted by agreement from submitting business to any other company, unless it is first rejected by the agent’s captive company. (See Exclusive agent)
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| CAPTIVES |
Insurers that are created and wholly-owned by one or more non-insurers, to provide owners with coverage. A form of self-insurance.
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| CAR YEAR |
Equal to 365 days of insured coverage for a single vehicle. It is the standard measurement for automobile insurance.
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| CASE MANAGEMENT |
A system of coordinating medical services to treat a patient, improve care, and reduce cost. A case manager coordinates health care delivery for patients.
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| CATASTROPHE |
Term used for statistical recording purposes to refer to a single incident or a series of closely related incidents causing severe insured property losses totaling more than a given amount, currently $25 million.
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| CATASTROPHE BONDS |
Risk-based securities that pay high interest rates and provide insurance companies with a form of reinsurance to pay losses from a catastrophe such as those caused by a major hurricane. They allow insurance risk to be sold to institutional investors in the form of bonds, thus spreading the risk. (See Securitization of insurance risk)
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| CATASTROPHE DEDUCTIBLE |
A percentage or dollar amount that a homeowner must pay before the insurance policy kicks in when a major natural disaster occurs. These large deductibles limit an insurer’s potential losses in such cases, allowing it to insure more property. A property insurer may not be able to buy reinsurance to protect its own bottom line unless it keeps its potential maximum losses under a certain level.
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| CATASTROPHE FACTOR |
Probability of catastrophic loss, based on the total number of catastrophes in a state over a 40-year period.
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| CATASTROPHE MODEL |
Using computers, a method to mesh long-term disaster information with current demographic, building and other data to determine the potential cost of natural disasters and other catastrophic losses for a given geographic area.
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| CATASTROPHE REINSURANCE |
| Reinsurance (insurance for insurers) for catastrophic losses. The insurance industry is able to absorb the multibillion dollar losses caused by natural and man-made disasters such as hurricanes, earthquakes and terrorist attacks because losses are spread among thousands of companies including catastrophe reinsurers who operate on a global basis. Insurers’ ability and willingness to sell insurance fluctuates with the availability and cost of catastrophe reinsurance.
After major disasters, such as Hurricane Andrew and the World Trade Center terrorist attack, the availability of catastrophe reinsurance becomes extremely limited. Claims deplete reinsurers’ capital and, as a result, companies are more selective in the type and amount of risks they assume. In addition, with available supply limited, prices for reinsurance rise. This contributes to an overall increase in prices for property insurance.
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| CELL PHONE INSURANCE |
Separate insurance provided to cover cell phones for damage or theft. Policies are often sold with the cell phones themselves.
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| CHARTERED FINANCIAL CONSULTANT / ChFC |
A professional designation given by The American College to financial services professionals who complete courses in financial planning.
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| CHARTERED LIFE UNDERWRITER / CLU |
A professional designation by The American College for those who pass business examinations on insurance, investments, and taxation, and have life insurance planning experience.
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| CHARTERED PROPERTY/CASUALTY UNDERWRITER / CPCU |
A professional designation given by the American Institute for Property and Liability Underwriters. National examinations and three years of work experience are required.
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| CLAIMS-MADE POLICY |
A form of insurance that pays claims presented to the insurer during the term of the policy or within a specific term after its expiration. It limits liability insurers’ exposure to unknown future liabilities. (See Occurrence policy)
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| COBRA |
Short for Consolidated Omnibus Budget Reconciliation Act. A federal law under which group health plans sponsored by employers with 20 or more employees must offer continuation of coverage to employees who leave their jobs and their dependents. The employee must pay the entire premium. Coverage can be extended up to 18 months. Surviving dependents can receive longer coverage.
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| COINSURANCE |
In property insurance, requires the policyholder to carry insurance equal to a specified percentage of the value of property to receive full payment on a loss. For health insurance, it is a percentage of each claim above the deductible paid by the policyholder. For a 20 percent health insurance coinsurance clause, the policyholder pays for the deductible plus 20 percent of his covered losses. After paying 80 percent of losses up to a specified ceiling, the insurer starts paying 100 percent of losses.
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| COLLATERAL |
Property that is offered to secure a loan or other credit and that becomes subject to seizure on default. (Also called security.)
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| COLLATERAL SOURCE RULE |
Bars the introduction of information that indicates a person has been compensated or reimbursed by a source other than the defendant in civil actions related to negligence or other liability.
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| COLLISION COVERAGE |
Portion of an auto insurance policy that covers the damage to the policyholder’s car from a collision.
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| COMBINED RATIO |
Percentage of each premium dollar a property/casualty insurer spends on claims and expenses. A decrease in the combined ratio means financial results are improving; an increase means they are deteriorating. When the ratio is over 100, the insurer has an underwriting loss.
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| COMMERCIAL GENERAL LIABILITY INSURANCE / CGL |
A broad commercial policy that covers all liability exposures of a business that are not specifically excluded. Coverage includes product liability, completed operations, premises and operations, and independent contractors.
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| COMMERCIAL LINES |
Products designed for and bought by businesses. Among the major coverages are boiler and machinery, business interruption, commercial auto, comprehensive general liability, directors and officers liability, fire and allied lines, inland marine, medical malpractice liability, product liability, professional liability, surety and fidelity, and workers compensation. Most of these commercial coverages can be purchased separately except business interruption which must be added to a fire insurance (property) policy. (See Commercial multiple peril policy)
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| COMMERCIAL MULTIPLE PERIL POLICY |
Package policy that includes property, boiler and machinery, crime, and general liability coverages.
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| COMMERCIAL PAPER |
Short-term, unsecured, and usually discounted promissory note issued by commercial firms and financial companies often to finance current business. Commercial paper, which is rated by debt rating agencies, is sold through dealers or directly placed with an investor.
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| COMMISSION |
Fee paid to an agent or insurance salesperson as a percentage of the policy premium. The percentage varies widely depending on coverage, the insurer, and the marketing methods.
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| COMMUNITY RATING LAWS |
Enacted in several states on health insurance policies. Insurers are required to accept all applicants for coverage and charge all applicants the same premium for the same coverage regardless of age or health. Premiums are based on the rate determined by the geographic region’s health and demographic profile.
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| COMPETITIVE REPLACEMENT PARTS |
See Crash parts; Generic auto parts
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| COMPETITIVE STATE FUND |
A facility established by a state to sell workers compensation in competition with private insurers.
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| COMPLAINT RATIO |
A measure used by some state insurance departments to track consumer complaints against insurance companies. Generally, it is written as the number of complaints upheld against an insurance company, as a percentage of premiums written. In some states, complaints from medical providers over the promptness of payments may also be included.
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| COMPLETED OPERATIONS COVERAGE |
Pays for bodily injury or property damage caused by a completed project or job. Protects a business that sells a service against liability claims.
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| COMPREHENSIVE COVERAGE |
Portion of an auto insurance policy that covers damage to the policyholder’s car not involving a collision with another car (including damage from fire, explosions, earthquakes, floods, and riots), and theft.
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| COMPULSORY AUTO INSURANCE |
The minimum amount of auto liability insurance that meets a state law. Financial responsibility laws in every state require all automobile drivers to show proof, after an accident, of their ability to pay damages up to the state minimum. In compulsory liability states this proof, which is usually in the form of an insurance policy, is required before you can legally drive a car.
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| CONTINGENT LIABILITY |
Liability of individuals, corporations, or partnerships for accidents caused by people other than employees for whose acts or omissions the corporations or partnerships are responsible.
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| COVERAGE |
Synonym for insurance.
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| CRASH PARTS |
Sheet metal parts that are most often damaged in a car crash. (See Generic auto parts)
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| CREDIT |
The promise to pay in the future in order to buy or borrow in the present. The right to defer payment of debt.
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| CREDIT DERIVATIVES |
A contract that enables a user, such as a bank, to better manage its credit risk. A way of transferring credit risk to another party.
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| CREDIT ENHANCEMENT |
A technique to lower the interest payments on a bond by raising the issue’s credit rating, often through insurance in the form of a financial guarantee or with standby letters of credit issued by a bank.
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| CREDIT INSURANCE |
Commercial coverage against losses resulting from the failure of business debtors to pay their obligation to the insured, usually due to insolvency. The coverage is geared to manufacturers, wholesalers, and service providers who may be dependent on a few accounts and therefore could lose significant income in the event of an insolvency.
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| CREDIT LIFE INSURANCE |
Life insurance coverage on a borrower designed to repay the balance of a loan in the event the borrower dies before the loan is repaid. It may also include disablement and can be offered as an option in connection with credit cards and auto loans.
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| CREDIT RATING |
See Bond rating
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| CREDIT SCORE |
The number produced by an analysis of an individual’s credit history. The use of credit information affects all consumers in many ways, from getting a job, finding a place to live, securing a loan, getting a telephone, and buying insurance. Credit history is routinely reviewed by insurers before issuing a commercial policy because businesses in poor financial condition tend to cut back on safety which can lead to more accidents and more claims. Auto and home insurers may use information in a credit history to produce an insurance score. Insurance scores may be used in underwriting and rating insurance policies. (See Insurance score.)
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| CROP-HAIL INSURANCE |
Protection against damage to growing crops from hail, fire, or lightning provided by the private market. By contrast, multiple peril crop insurance covers a wider range of yield-reducing conditions, such as drought and insect infestation, and is subsidized by the federal government.
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| D Back To Top |
| DECLARATION |
Part of a property or liability insurance policy that states the name and address of policyholder, property insured, its location and description, the policy period, premiums, and supplemental information. Referred to as the “dec page.”
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| DEDUCTIBLE |
The amount of loss paid by the policyholder. Either a specified dollar amount, a percentage of the claim amount, or a specified amount of time that must elapse before benefits are paid. The bigger the deductible, the lower the premium charged for the same coverage.
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| DEFINED BENEFIT PLAN |
A retirement plan under which pension benefits are fixed in advance by a formula based generally on years of service to the company multiplied by a specific percentage of wages, usually average earnings over that period or highest average earnings over the final years with the company.
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| DEFINED CONTRIBUTION PLAN |
An employee benefit plan under which the employer sets up benefit accounts and contributions are made to it by the employer and by the employee. The employer usually matches the employee's contribution up to a stated limit.
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| DEMAND DEPOSIT |
Customer assets that are held in a checking account. Funds can be readily withdrawn by check, “on demand.”
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| DEMUTUALIZATION |
The conversion of insurance companies from mutual companies owned by their policyholders into publicly-traded stock companies.
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| DEPOSITORY INSTITUTION |
Financial institution that obtains its funds mainly through deposits from the public. Includes commercial banks, savings and loan associations, savings banks, and credit unions.
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| DEREGULATION |
In insurance, reducing regulatory control over insurance rates and forms. Commercial insurance for businesses of a certain size has been deregulated in many states.
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| DERIVATIVES |
Contracts that derive their value from an underlying financial asset, such as publicly-traded securities and foreign currencies. Often used as a hedge against changes in value.
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| DIMINUTION OF VALUE |
The idea that a vehicle loses value after it has been damaged in an accident and repaired.
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| DIRECT PREMIUMS |
Property/casualty premiums collected by the insurer from policyholders, before reinsurance premiums are deducted. Insurers share some direct premiums and the risk involved with their reinsurers.
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| DIRECT SALES/ DIRECT RESPONSE |
Method of selling insurance directly to the insured through an insurance company’s own employees, through the mail, or via the Internet. This is in lieu of using captive or exclusive agents.
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| DIRECT WRITERS |
Insurance companies that sell directly to the public using exclusive agents or their own employees, through the mail, or via Internet. Large insurers, whether predominately direct writers or agency companies, are increasingly using many different channels to sell insurance. In reinsurance, denotes reinsurers that deal directly with the insurance companies they reinsure without using a broker.
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| DIRECTORS AND OFFICERS LIABILITY INSURANCE/D&O |
Covers directors and officers of a company for negligent acts or omissions, and for misleading statements that result in suits against the company, often by shareholders. Directors and officers insurance policies usually contain two coverages: personal coverage for individual directors and officers who are not indemnified by the corporation for their legal expenses or judgments against them – some corporations are not required by their corporate or state charters to provide indemnification; and corporate reimbursement coverage for indemnifying directors and officers. Entity coverage for claims made specifically against the company may also be available.
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| DIVIDENDS |
Money returned to policyholders from an insurance company’s earnings. Considered a partial premium refund rather than a taxable distribution, reflecting the difference between the premium charged and actual losses. Many life insurance policies and some property/casualty policies pay dividends to their owners. Life insurance policies that pay dividends are called participating policies.
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| DOMESTIC INSURANCE COMPANY |
Term used by a state to refer to any company incorporated there.
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| E Back To Top |
| EARLY WARNING SYSTEM |
A system of measuring insurers’ financial stability set up by insurance industry regulators. An example is the Insurance Regulatory Information System (IRIS), which uses financial ratios to identify insurers in need of regulatory attention.
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| EARNED PREMIUM |
The portion of premium that applies to the expired part of the policy period. Insurance premiums are payable in advance but the insurance company does not fully earn them until the policy period expires.
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| EARTHQUAKE INSURANCE |
Covers a building and its contents, but includes a large percentage deductible on each. A special policy or endorsement exists because earthquakes are not covered by standard homeowners or most business policies.
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| ECONOMIC LOSS |
Total financial loss resulting from the death or disability of a wage earner, or from the destruction of property. Includes the loss of earnings, medical expenses, funeral expenses, the cost of restoring or replacing property, and legal expenses. It does not include noneconomic losses, such as pain caused by an injury.
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| ELECTRONIC COMMERCE / E-COMMERCE |
The sale of products such as insurance over the Internet.
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| ELIMINATION PERIOD |
A kind of deductible or waiting period usually found in disability policies. It is counted in days from the beginning of the illness or injury.
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| EMPLOYEE RETIREMENT INCOME SECURITY ACT / ERISA |
Federal legislation that protects employees by establishing minimum standards for private pension and welfare plans.
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| EMPLOYMENT PRACTICES LIABILITY COVERAGE |
Liability insurance for employers that covers wrongful termination, discrimination, or sexual harassment toward the insured’s employees or former employees.
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| ENDORSEMENT |
A written form attached to an insurance policy that alters the policy’s coverage, terms, or conditions. Sometimes called a rider.
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| ENVIRONMENTAL IMPAIRMENT LIABILITY COVERAGE |
A form of insurance designed to cover losses and liabilities arising from damage to property caused by pollution.
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| EQUITY |
In investments, the ownership interest of shareholders. In a corporation, stocks as opposed to bonds.
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| ERRORS AND OMISSIONS COVERAGE / E&O |
A professional liability policy covering the policyholder for negligent acts and omissions that may harm his or her clients.
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| ESCROW ACCOUNT |
Funds that a lender collects to pay monthly premiums in mortgage and homeowners insurance, and sometimes to pay property taxes.
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| EXCESS AND SURPLUS LINES |
Property/casualty coverage that isn’t available from insurers licensed by the state (called admitted insurers) and must be purchased from a non-admitted carrier.
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| EXCLUSION |
A provision in an insurance policy that eliminates coverage for certain risks, people, property classes, or locations.
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| EXCLUSIVE AGENT |
A captive agent, or a person who represents only one insurance company and is restricted by agreement from submitting business to any other company unless it is first rejected by the agent’s company. (See Captive agent)
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| EXPENSE RATIO |
Percentage of each premium dollar that goes to insurers’ expenses including overhead, marketing, and commissions.
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| EXPERIENCE |
Record of losses.
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| EXPOSURE |
Possibility of loss.
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| EXTENDED COVERAGE |
An endorsement added to an insurance policy, or clause within a policy, that provides additional coverage for risks other than those in a basic policy.
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| EXTENDED REPLACEMENT COST COVERAGE |
Pays a certain amount above the policy limit to replace a damaged home, generally 120 percent or 125 percent. Similar to a guaranteed replacement cost policy, which has no percentage limits. Most homeowner policy limits track inflation in building costs. Guaranteed and extended replacement cost policies are designed to protect the policyholder after a major disaster when the high demand for building contractors and materials can push up the normal cost of reconstruction. (See Guaranteed replacement cost coverage)
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| FACULTATIVE REINSURANCE |
A reinsurance policy that provides an insurer with coverage for specific individual risks that are unusual or so large that they aren’t covered in the insurance company's reinsurance treaties. This can include policies for jumbo jets or oil rigs. Reinsurers have no obligation to take on facultative reinsurance, but can assess each risk individually. By contrast, under treaty reinsurance, the reinsurer agrees to assume a certain percentage of entire classes of business, such as various kinds of auto, up to preset limits.
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| FAIR ACCESS TO INSURANCE REQUIREMENTS PLANS / FAIR PLANS |
Insurance pools that sell property insurance to people who can’t buy it in the voluntary market because of high risk over which they may have no control. FAIR Plans, which exist in 28 states and the District of Columbia, insure fire, vandalism, riot, and windstorm losses, and some sell homeowners insurance which includes liability. Plans vary by state, but all require property insurers licensed in a state to participate in the pool and share in the profits and losses. (See Residual market)
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| FARMOWNERS-RANCHOWNERS INSURANCE |
Package policy that protects the policyholder against named perils and liabilities and usually covers homes and their contents, along with barns, stables, and other structures.
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| FEDERAL FUNDS |
Reserve balances that depository institutions lend each other, usually on an overnight basis. In addition, Federal funds include certain other kinds of borrowings by depository institutions from each other and from federal agencies.
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| FEDERAL INSURANCE ADMINISTRATION / FIA |
Federal agency in charge of administering the National Flood Insurance Program. It does not regulate the insurance industry.
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| FEDERAL RESERVE BOARD |
Seven-member board that supervises the banking system by issuing regulations controlling bank holding companies and federal laws over the banking industry. It also controls and oversees the U.S. monetary system and credit supply.
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| FIDELITY BOND |
A form of protection that covers policyholders for losses that they incur as a result of fraudulent acts by specified individuals. It usually insures a business for losses caused by the dishonest acts of its employees.
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| FIDUCIARY BOND |
A type of surety bond, sometimes called a probate bond, which is required of certain fiduciaries, such as executors and trustees, that guarantees the performance of their responsibilities.
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| FIDUCIARY LIABILITY |
Legal responsibility of a fiduciary to safeguard assets of beneficiaries. A fiduciary, for example a pension fund manager, is required to manage investments held in trust in the best interest of beneficiaries. Fiduciary liability insurance covers breaches of fiduciary duty such as misstatements or misleading statements, errors and omissions.
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| FILE-AND-USE STATES |
States where insurers must file rate changes with their regulators, but don’t have to wait for approval to put them into effect.
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| FINANCIAL GUARANTEE INSURANCE |
Covers losses from specific financial transactions and guarantees that investors in debt instruments, such as municipal bonds, receive timely payment of principal and interest if there is a default. Raises the credit rating of debt to which the guarantee is attached. Investment bankers who sell asset-backed securities, securities backed by loan portfolios, use this insurance to enhance marketability. (See Municipal bond insurance)
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| FINANCIAL RESPONSIBILITY LAW |
A state law requiring that all automobile drivers show proof that they can pay damages up to a minimum amount if involved in an auto accident. Varies from state to state but can be met by carrying a minimum amount of auto liability insurance. (See Compulsory auto insurance)
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| FINITE RISK REINSURANCE |
Contract under which the ultimate liability of the reinsurer is capped and on which anticipated investment income is expressly acknowledged as an underwriting component. Also known as Financial Reinsurance because this type of coverage is often bought to improve the balance sheet effects of statutory accounting principles.
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| FIRE INSURANCE |
Coverage protecting property against losses caused by a fire or lightning that is usually included in homeowners or commercial multiple peril policies.
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| FIRST-PARTY COVERAGE |
Coverage for the policyholder’s own property or person. In no-fault auto insurance it pays for the cost of injuries. In no-fault states with the broadest coverage, the personal injury protection (PIP) part of the policy pays for medical care, lost income, funeral expenses and, where the injured person is not able to provide services such as child care, for substitute services. (See No-fault; Third-party coverage)
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| FIXED ANNUITY |
An annuity that pays the annuitant a guaranteed, fixed return every month for a fixed premium. The guarantee is based on the expected return of the underlying investments of the insurance company. (See Annuity)
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| FLOATER |
Attached to a homeowners policy, a floater insures movable property, covering losses wherever they may occur. Among the items often insured with a floater are expensive jewelry, musical instruments, and furs. It provides broader coverage than a regular homeowners policy for these items.
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| FLOOD INSURANCE |
Coverage for flood damage is available from the federal government under the National Flood Insurance Program but is sold by licensed insurance agents. Flood coverage is excluded under homeowners policies and many commercial property policies. However, flood damage is covered under the comprehensive portion of an auto insurance policy. (See Adverse selection)
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| FORCED PLACE INSURANCE |
Insurance purchased by a bank or creditor on an uninsured debtor’s behalf so if the property is damaged, funding is available to repair it.
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| FOREIGN INSURANCE COMPANY |
Name given to an insurance company based in one state by the other states in which it does business.
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| FRAUD |
Intentional lying or concealment by policyholders to obtain payment of an insurance claim that would otherwise not be paid, or lying or misrepresentation by the insurance company managers, employees, agents, and brokers for financial gain.
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| FREQUENCY |
Number of times a loss occurs. One of the criteria used in calculating premium rates.
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| FRONTING |
A procedure in which a primary insurer acts as the insurer of record by issuing a policy, but then passes the entire risk to a reinsurer in exchange for a commission. Often, the fronting insurer is licensed to do business in a state or country where the risk is located, but the reinsurer is not. The reinsurer in this scenario is often a captive or an independent insurance company that cannot sell insurance directly in a particular country.
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| FUTURES |
Agreement to buy a security for a set price at a certain date. Futures contracts usually involve commodities, indexes or financial futures.
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| GAP INSURANCE |
An automobile insurance option, available in some states, that covers the difference between a car’s actual cash value when it is stolen or wrecked and the amount the consumer owes the leasing or finance company. Mainly used for leased cars. (See Actual cash value)
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| GENERALLY ACCEPTED ACCOUNTING PRINCIPLES/GAAP |
Generally accepted accounting principles (GAAP) accounting is used in financial statements that publicly-held companies prepare for the Securities and Exchange Commission. (See Statutory accounting principles / SAP)
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| GENERIC AUTO PARTS |
Auto crash parts produced by firms that are not associated with car manufacturers. Insurers consider these parts, when certified, at least as good as those that come from the original equipment manufacturer (OEM). They are often cheaper than the identical part produced by the OEM. (See Crash parts; Aftermarket parts; Competitive replacement parts; Original equipment manufacturer parts / OEM)
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| GLASS INSURANCE |
Coverage for glass breakage caused by all risks; fire and war are sometimes excluded. Insurance can be bought for windows, structural glass, leaded glass, and mirrors. Available with or without a deductible.
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| GRADUATED DRIVER LICENSES |
Licenses for younger drivers that allow them to improve their skills. Regulations vary by state, but often restrict night time driving. Young drivers receive a learner’s permit, followed by a provisional license, before they can receive a standard drivers license.
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| GRAMM-LEACH-BLILEY ACT |
Financial services legislation, passed by Congress in 1999, that removed Depression-era prohibitions against the combination of commercial banking and investment-banking activities. It allows insurance companies, banks, and securities firms to engage in each others’ activities and own one another.
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| GROUP INSURANCE |
A single policy covering a group of individuals, usually employees of the same company or members of the same association and their dependents. Coverage occurs under a master policy issued to the employer or association.
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| GUARANTEED INCOME CONTRACT / GIC |
Often an option in an employer-sponsored retirement savings plan. Contract between an insurance company and the plan that guarantees a stated rate of return on invested capital over the life of the contract.
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| GUARANTEED REPLACEMENT COST COVERAGE |
Homeowners policy that pays the full cost of replacing or repairing a damaged or destroyed home, even if it is above the policy limit. (See Extended replacement cost coverage)
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| GUARANTY FUND |
The mechanism by which solvent insurers ensure that some of the policyholder and third party claims against insurance companies that fail are paid. Such funds are required in all 50 states, the District of Columbia and Puerto Rico, but the type and amount of claim covered by the fund varies from state to state. Some states pay policyholders’ unearned premiums – the portion of the premium for which no coverage was provided because the company was insolvent. Some have deductibles. Most states have no limits on workers compensation payments. Guaranty funds are supported by assessments on insurers doing business in the state.
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| GUN LIABILITY |
A new legal concept that holds gun manufacturers liable for the cost of injuries caused by guns. Several cities have filed lawsuits based on this concept.
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| HACKER INSURANCE |
A coverage that protects businesses engaged in electronic commerce from losses caused by hackers.
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| HARD MARKET |
A seller’s market in which insurance is expensive and in short supply. (SeeProperty/casualty insurance cycle)
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| HOMEOWNERS INSURANCE POLICY |
| The typical homeowners insurance policy covers the house, the garage and other structures on the property, as well as personal possessions inside the house such as furniture, appliances and clothing, against a wide variety of perils including windstorms, fire and theft. The extent of the perils covered depends on the type of policy. An all-risk policy offers the broadest coverage. This covers all perils except those specifically excluded in the policy.
Homeowners insurance also covers additional living expenses. Known as Loss of Use, this provision in the policy reimburses the policyholder for the extra cost of living elsewhere while the house is being restored after a disaster. The liability portion of the policy covers the homeowner for accidental injuries caused to third parties and/or their property, such as a guest slipping and falling down improperly maintained stairs. Coverage for flood and earthquake damage is excluded and must be purchased separately. (See Flood insurance; Earthquake insurance)
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| HOUSE YEAR |
Equal to 365 days of insured coverage for a single dwelling. It is the standard measurement for homeowners insurance.
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| HURRICANE DEDUCTIBLE |
A percentage or dollar amount added to a homeowner’s insurance policy to limit an insurer’s exposure to loss from a hurricane. Higher deductibles are instituted in higher risk areas, such as coastal regions. Specific details, such as the intensity of the storm for the deductible to be triggered and the extent of the high risk area, vary from insurer to insurer and state to state.
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