July 2005 Archives

What's the best life insurance to buy? The simple answer is: it depends on your short- and longer-term needs and preferences for flexibility and risk.

There are two kinds of life insurance - term life insurance and permanent insurance. They are two very different kinds of protection that satisfy very different life insurance needs.

Term (which covers you for a specific period of time) may be all the insurance you ever need, or it may be used as an interim step before purchasing permanent life insurance (which protects you for a lifetime). Possibly a combination of term and permanent in the same policy may be the best solution for you.

Let's look at the strengths of each, and their differences.

Basic Autoplan is the minimum amount of insurance any vehicle must carry to legally operate in British Columbia. For more description, see Getting started with Basic Autoplan.

Generally, Basic Autoplan provides coverage to protect you as a person in five different ways:

Business interruption insurance can be as vital to your survival as a business as fire insurance. Most people would never consider opening a business without buying insurance to cover damage due to fire and windstorms. But too many small businessowners fail to think about how they would manage if a fire or other disaster damaged their business premises so that they were temporarily unusable. Business interruption coverage is not sold separately. It is added to a property insurance policy or included in a package policy.

A business that has to close down completely while the premises are being repaired may lose out to competitors. A quick resumption of business after a disaster is essential.

Business interruption insurance compensates you for lost income if your company has to vacate the premises due to disaster-related damage that is covered under your property insurance policy, such as a fire. Business interruption insurance covers the profits you would have earned, based on your financial records, had the disaster not occurred. The policy also covers operating expenses, like electricity, that continue even though business activities have come to a temporary halt.

Make sure the policy limits are sufficient to cover your company for more than a few days. After a major disaster, it can take more time than many people anticipate to get the business back on track. There is generally a 48-hour waiting period before business interruption coverage kicks in.

The price of the policy is related to the risk of a fire or other disaster damaging your premises. All other things being equal, the price would probably be higher for a restaurant than a real estate agency, for example, because of the greater risk of fire. Also, a real estate agency can more easily operate out of another location.

When an apartment building owner are approached, some questions will be asked. These answers will affect the premium very much.
To save your money, take care your property and investment first.

1. Name of principal(s).
2. Total square footage (floor area) of the strata property, and of each structure.
3. What kind of building is it, regular private apartment building, subsidized housing, co-ops., or senior homes?
4. What’s the present vacancy rate?
5. Please provide a sketch of the property showing the location and the distance between the various structures.
6. Any updating done? (especially for those over 35yrs old)
7. Any building cost calculator?
8. Any recent appraisal?
9. If stated amount co-insurance is required, please provide appraisal within the last 3 yers.
10. If bylaw coverage is required, please provide separate limits for increase in cost of construction, demolition & debris removal, and undamaged portion of building.
11. Is there sprinkler system in the property?
12. Are there smoke detectors in each unit?
13. Is the property managed by professional property management company?
14. Any caretaker on site? or property manager on site?
15. Does the caretaker/property manager have keys to all the units?
16. Any swimming pool or gym?
17. Any precautions taken after loss (if any) ?

There are many factors an insurance company uses to determine the price of your policy:

*The square footage of the house and any additional structures.
*Building costs in your area.
*Your home's construction, materials and features.
*Amount of crime in your neighborhood.
*The likelihood of damage from natural disasters, such as hurricanes and hail storms.
*The proximity of your home to a fire hydrant (or other source of water) and to a fire station, whether your community has a professional or volunteer fire service and other factors that can affect the time it takes to put out fires.
*The condition of the plumbing, heating and electrical system.

If you rent your home or own a condo/co-op, your insurer will not consider the size of the dwelling or building costs. However, it will take into account factors that make damage to your possessions more likely.

MISSISSAUGA, March 9, 2005 - Canadians are planning much-anticipated vacations. While it's easy to get carried away in the excitement, keeping a few helpful hints in mind can make for a safer and happier vacation throughout the year.

You need enough insurance to cover the following:

1)The structure of your home.
2)Your personal possessions.
3)The cost of additional living expenses if your home is damaged and you have to live elsewhere during repairs.
4)Your liability to others.

Many financial experts consider life insurance to be the cornerstone of sound financial planning. It is generally a cost-effective way to provide for your loved ones after you are gone. It can be an important tool in the following ways:

1) Income replacement
For most people, their key economic asset is their ability to earn a living. If you have dependents, then you need to consider what would happen to them if they no longer have your income to rely on. Proceeds from a life insurance policy can help supplement retirement income. This can be especially useful if the benefits of your surviving spouse or domestic partner will be reduced after your death.

2) Pay outstanding debts and long-term obligations
Consider life insurance so that your loved ones have the money to offset burial costs, credit card debts and medical expenses not covered by health insurance. In addition, life insurance can be used to pay off the mortgage, supplement retirement savings and help pay college tuition.

3) Estate planning
The proceeds of a life insurance policy can be structured to pay estate taxes so that your heirs will not have to liquidate other assets.

4) Charitable contributions
If you have a favorite charity, you can designate some of the proceeds from your life insurance to go to this organization.

If you are travelling outside Canada and have limited or no supplementary out-of-country coverage through a group plan or credit card, it is wise to buy an individual travel insurance policy.
When you need medical care while in another country, your provincial or territorial health insurance plan pays for the same services it covers when you are at home, at the same rate it pays for those services at home, and in Canadian dollars.
Moreover, if you extend your stay to more than six months, your government coverage may lapse (check with your provincial or territorial government to find out how long you can be away before losing your benefits).

A few companies offer individual long-term care insurance plans, which pay for stays in nursing homes and chronic care facilities, or for the services of a caregiver in your own home.
When deciding whether to purchase such insurance you should consider your age, health and financial resources, along with any support you could expect from family and friends should you need long-term care.
There are variations among longterm care policies. Inquire about the
maximum lifetime payout, inflation protection, and the length of time you must pay premiums.You should also find out whether your premiums are waived, or discontinued, whenyou make a claim and are receiving
benefits.

If you become terminally ill, you may need extra cash to pay medical bills and living expenses.
Many companies provide living or accelerated benefits to individual life insurance policy holders who suffer a life-threatening illness.
When you apply for living benefits from your life insurance policy, you must provide your insurance company with a medical opinion that you are in the terminal stages of an illness and have 24 months or less to live.
The insurance company must also ascertain that the proceeds from your policy have not been assigned to pay off a loan or debt, or left irrevocably to someone who might sue for full benefits once you die.
If these two conditions are met, the company typically pays you a percentage of the value of your policy, not exceeding 50 per cent.
Some companies pay predetermined maximum dollar amounts in living benefits. Others treat the living benefits payment as an advance or loan and charge interest on it. Still others require you to pay regular premiums to keep your policy in force after you receive the benefits.
When you die, the amount that is left in your life insurance policy, less any interest charges, will be paid to your beneficiary or estate.

Disability insurance is designed to replace lost income while you are disabled and unable to earn enough to meet your expenses.
You can buy an individual policy that is tailored to your particular needs.

Critical illness plans and/or riders on other types of individual or group plans pay you a cash lump sum if you are diagnosed with a life-threatening illness such as cancer, heart disease requiring surgery, heart attack or stroke. Some critical illness policies also cover kidney failure, blindness,organ transplant, paraplegia, quadriplegia, and/or dementia (including Alzheimer’s disease).
You can use the money for anything you want: to pay off debts, to finance expensive medical equipment or special home care, to pay for child care, to change careers or to start a small business.

A few companies sell health care policies for visitors and returning Canadians. These policies are designed for individuals who are not covered by public health insurance because they are returning to Canada after a prolonged absence, are living here temporarily or do not yet qualify for public health insurance coverage.

Visitors and returning Canadians policies typically cover medically necessary doctors’ services, hospital services and supplies.
Many offer coverage on an emergency-only basis. Others include semi-private hospital accommodation and pay for some additional benefits, such as an emergency return home if you are completely disabled or die. Treatments for pre-existing conditions are often excluded.

Hospital cash plans or hospital indemnity insurance plans pay you cash (typically limited to $100 a day) should you be confined to hospital.You may want to use the cash to pay for everyday living expenses such as baby-sitting and housekeeping services or for items such as travel to and from the hospital.
The cost of hospital cash plans depends on the rate per day at which you choose to be reimbursed during your hospital stay.
These plans generally exclude the same claims that are disallowed by extended health plans. They may also limit benefits based on your age.

Individual plans are policies that you purchase for yourself, and your dependents from an insurance agent, broker or company.
You may want to consider buying an individual plan if you are not eligible for a group plan, or need additional coverage to meet special needs – if, for example, your group plan does not include a type of coverage that is important to you.

Supplementary health insurance coverage is most commonly available under group insurance plans. Group plans cover all members of a specific group and their eligible dependents. If you or your spouse / partner are employed, you probably have an insurance plan sponsored by your employer or your union as part of your employee benefits program.
Alternatively, you may be able to purchase group insurance through a professional association or group such as an alumni association.

Claims are simple to file, but the procedure varies from one plan to another. Some plans require you to pay the health care providers and submit your receipts with a paper or electronic claim form to the insurer for reimbursement. Other plans provide you with a drug card or dental identification card, which allows the pharmacist or dentist to submit the bill to the insurer electronically and receive payment directly. In either case, the confidentiality of your information is protected.
Typically, you must file claims within one year after you incur the eligible expenses, although the filing period may vary. Life and health insurance companies are committed to considerate and prompt payment of claims and they continually make changes to speed up the process. A straightforward health or dental claim may be processed within a week or two; more complicated claims, such as claims for disability benefits, may take longer.

Supplementary plans typically provide coverage for the individual
who is a member, along with eligible dependents such as his/her spouse or partner and children under 19 (or older if they are full-time students or disabled).
Eligibility criteria vary, so check your plan for details.

Deductibles, Coinsurance and Maximums
Supplementary plans typically do not pay 100 per cent of eligible expenses.You may have to pay for a small amount of your expenses and those of any covered dependents at the beginning of each plan year, called a deductible.

Government or public plans provide comprehensive coverage of core
health care services such as wardlevel hospital acute care and most
physician services. Supplementary plans, the subject of Canadian health insurance, focus on non-core services that are not covered–or not fully covered–by government plans. They may be group plans sponsored by employers, unions and associations or individual plans that consumers purchase for themselves.

Insurance is a way of spreading, or sharing, financial risk.The idea of insurance dates back to the days of the Romans, but it wasn’t formalized until the 18th century. It’s a simple concept: a large number of people pay into a fund or pool. When one of them suffers an unexpected misfortune, he or she is compensated by the fund.
The payout is called a benefit. Health insurance pays part or all of
your expenses when you see a health care professional, spend time in a
hospital or purchase covered health care services and products.

Following are some key questions to ask your insurance provider BEFORE you purchase your health insurance.

What does the plan cover? What does it provide that my provincial health-care plan doesn't?
What does it not cover?
Can I choose from among a variety of different coverages?
What limitations or conditions apply?
Does it cover drugs for a pre-existing condition?
Do I need a medical examination?
Is there a deductible? If so, how much?
How much will my premiums go up for the same coverage as I get older?

When you have a claim . . .

How do I make a claim?
Can my health care provider bill the insurance company directly? If not, how long does it take for me to be reimbursed?

The preceding questions are intended as a guideline only, and are not meant to be exhaustive.

[ Excerpted from The Insurance Book: What Canadians really need to know before buying insurance]

When you want to buy some commercial insurance or business insurance, you will be asked to fill in a application form. Maybe two pages or three pages. There are a lot of questions.

The most important five questions will affect your premium.
1) The age of building you occupied.

2) The operation of your business.

3) Location of your business.

4) Annual Gross receipts.

5) Loss history of last five years.

Homeowners insurance provides financial protection against disasters. A standard policy insures the home itself and the things you keep in it.

Homeowners insurance is a package policy. This means that it covers both damage to your property and your liability or legal responsibility for any injuries and property damage you or members of your family cause to other people. This includes damage caused by household pets.

Damage caused by most disasters is covered but there are exceptions. The most significant are damage caused by floods, earthquakes and poor maintenance. You must buy two separate policies for flood and earthquake coverage. Maintenance-related problems are the homeowners' responsibility.

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.

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.

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.

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.

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.

Portion of an auto insurance policy that covers injuries the policyholder causes to someone else.

Coverage for more than one type of property at one location or one type of property at more than one location. Example: chain stores.

Temporary authorization of coverage issued prior to the actual insurance policy.

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.

Term referring to property coverages for the perils of burglary, theft and robbery.

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.

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.

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.

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.

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.

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.

Portion of an auto insurance policy that covers the damage to the policyholder’s car from a collision.

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.

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.

The markets in which equities and debt are traded.

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.

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.

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.

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.

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.

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.

Possibility of loss.

A provision in an insurance policy that eliminates coverage for certain risks, people, property classes, or locations.

A professional liability policy covering the policyholder for negligent acts and omissions that may harm his or her clients.

A written form attached to an insurance policy that alters the policy’s coverage, terms, or conditions. Sometimes called a rider.

Part B of the workers compensation policy that provides coverage for lawsuits filed by injured employees who, under certain circumstances, can sue under common law.

Covers direct losses and damage to businesses resulting from the dishonest acts of employees.

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.

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.

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.

Number of times a loss occurs. One of the criteria used in calculating premium rates.

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.

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.

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.

Coverage protecting property against losses caused by a fire or lightning that is usually included in homeowners or commercial multiple peril policies.

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.

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.

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.

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.

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.

A seller’s market in which insurance is expensive and in short supply.

Income generated by the investment of assets. Insurers have two sources of income, underwriting (premiums less claims and expenses) and investment income. The latter can offset underwriting operations, which are frequently unprofitable.

A system to make large financial losses more affordable by pooling the risks of many individuals and business entities and transferring them to an insurance company or other large group in return for a premium.

Risks for which it is relatively easy to get insurance and that meet certain criteria. These include being definable, accidental in nature, and part of a group of similar risks large enough to make losses predictable. The insurance company also must be able to come up with a reasonable price for the insurance.

Insurer’s inability to pay debts. Insurance insolvency standards and the regulatory actions taken vary from state to state. When regulators deem an insurance company is in danger of becoming insolvent, they can take one of three actions: place a company in conservatorship or rehabilitation if the company can be saved or liquidation if salvage is deemed impossible. The difference between the first two options is one of degree – regulators guide companies in conservatorship but direct those in rehabilitation. Typically the first sign of problems is inability to pass the financial tests regulators administer as a routine procedure.

This broad type of coverage was developed for shipments that do not involve ocean transport. Covers articles in transit by all forms of land and air transportation as well as bridges, tunnels and other means of transportation and communication. Floaters that cover expensive personal items such as fine art and jewelry are included in this category.

A provision added to a homeowners insurance policy that automatically adjusts the coverage limit on the dwelling each time the policy is renewed to reflect current construction costs.

Agent who is self-employed, is paid on commission, and represents several insurance companies.

Provide financial compensation for losses.

Losses occurring within a fixed period, whether or not adjusted or paid during the same period.

Losses that are not filed with the insurer or reinsurer until years after the policy is sold. Some liability claims may be filed long after the event that caused the injury to occur. Asbestos-related diseases, for example, do not show up until decades after the exposure. IBNR also refers to estimates made about claims already reported but where the full extent of the injury is not yet known, such as a workers compensation claim where the degree to which work-related injuries prevents a worker from earning what he or she earned before the injury unfolds over time. Insurance companies regularly adjust reserves for such losses as new information becomes available.

A product purchased with a lump sum, usually at the time retirement begins or afterwards. Payments begin within about a year. Immediate annuities can be either fixed or variable.

Corporate bonds with credit ratings of BB or less. They pay a higher yield than investment grade bonds because issuers have a higher perceived risk of default. Such bonds involve market risk that could force investors, including insurers, to sell the bonds when their value is low. Most states place limits on insurers’ investments in these bonds. In general, because property/casualty insurers can be called upon to provide huge sums of money immediately after a disaster, their investments must be liquid. Less than 2 percent are in real estate and a similarly small percentage are in junk bonds.

The company’s best estimate of what it will pay for claims, which is periodically readjusted. They represent a liability on the insurer’s balance sheet.

Percentage of each premium dollar an insurer spends on claims.

A provision in homeowners and renters insurance policies that reimburses policyholders for any extra living expenses due to having to live elsewhere while their home is being restored following a disaster.

The portion of an insurance rate used to cover claims and the costs of adjusting claims. Insurance companies typically determine their rates by estimating their future loss costs and adding a provision for expenses, profit, and contingencies.

The sum insurers pay for investigating and settling insurance claims, including the cost of defending a lawsuit in court.

A reduction in the quality or value of a property, or a legal liability.

Coverage that, under specified conditions, provides skilled nursing, intermediate care, or custodial care for a patient (generally over age 65) in a nursing facility or his or her residence.

Corporation formed to market services of a group of underwriters. Does not issue insurance policies or provide insurance protection. Insurance is written by individual underwriters, with each assuming a part of every risk. Has no connection to Lloyd’s of London, and is found primarily in Texas.

A marketplace where underwriting syndicates, or mini-insurers, gather to sell insurance policies and reinsurance. Each syndicate is managed by an underwriter who decides whether or not to accept the risk. The Lloyd’s market is a major player in the international reinsurance market as well as a primary market for marine insurance and large risks. Originally, Lloyd’s was a London coffee house in the 1600s patronized by shipowners who insured each other’s hulls and cargoes. As Lloyd’s developed, wealthy individuals, called “Names,” placed their personal assets behind insurance risks as a business venture. Increasingly since the 1990s, most of the capital comes from corporations.

Coverage for bodily injury or property damage caused by an intoxicated person who was served liquor by the policyholder.

The ability and speed with which a security can be converted into cash.

Enables the state insurance department as liquidator or its appointed deputy to wind up the insurance company’s affairs by selling its assets and settling claims upon those assets. After receiving the liquidation order, the liquidator notifies insurance departments in other states and state guaranty funds of the liquidation proceedings. Such insurance company liquidations are not subject to the Federal Bankruptcy Code but to each state’s liquidation statutes.

Maximum amount of insurance that can be paid for a covered loss.

Insurance for what the policyholder is legally obligated to pay because of bodily injury or property damage caused to another person.

The theory of probability on which the business of insurance is based. Simply put, this mathematical premise says that the larger the group of units insured, such as sport-utility vehicles, the more accurate the predictions of loss will be.

A company owned by its policyholders that returns part of its profits to the policyholders as dividends. The insurer uses the rest as a surplus cushion in case of large and unexpected losses.

A package policy, such as a homeowners or business insurance policy, that provides coverage against several different perils. It also refers to the combination of property and liability coverage in one policy. In the early days of insurance, coverages for property damage and liability were purchased separately.

A form of decreasing term insurance that covers the life of a person taking out a mortgage. Death benefits provide for payment of the outstanding balance of the loan. Coverage is in decreasing term insurance, so the amount of coverage decreases as the debt decreases. A variant, mortgage unemployment insurance pays the mortgage of a policyholder who becomes involuntarily unemployed.

Coverage for goods in transit, and for the commercial vehicles that transport them, on water and over land. The term may apply to inland marine but more generally applies to ocean marine insurance. Covers damage or destruction of a ship’s hull and cargo and perils include collision, sinking, capsizing, being stranded, fire, piracy, and jettisoning cargo to save other property. Wear and tear, dampness, mold, and war are not included. (See Inland marine and Ocean marine)

A book published by an insurance or bonding company or a rating association or bureau that gives rates, classifications, and underwriting rules.

Covers operators of nuclear reactors and other facilities for liability and property damage in the case of a nuclear accident and involves both private insurers and the federal government.

A written notice required by insurance companies immediately after an accident or other loss. Part of the standard provisions defining a policyholder's responsibilities after a loss.

The idea that people who don’t buy coverage should not receive benefits. Prohibits uninsured drivers from collecting damages from insured drivers. In most states with this law, uninsured drivers may not sue for noneconomic damages such as pain and suffering. In other states, uninsured drivers are required to pay the equivalent of a large deductible ($10,000) before they can sue for property damages and another large deductible before they can sue for bodily harm.

Auto insurance coverage that pays for each driver’s own injuries, regardless of who caused the accident. No-fault varies from state to state. It also refers to an auto liability insurance system that restricts lawsuits to serious cases. Such policies are designed to promote faster reimbursement and to reduce litigation.

A life insurance policy that remains in force for the policyholder’s lifetime. It contrasts with term insurance, which only lasts for a specified number of years but is renewable.

Endorsement to a property policy, including homeowners, that pays for the extra expense of rebuilding to comply with ordinances or laws, often building codes, that did not exist when the building was originally built. For example, a building severely damaged in a hurricane may have to be elevated above the flood line when it is rebuilt. This endorsement would cover part of the additional cost.

Contracts that allow, but do not oblige, the buying or selling of property or assets at a certain date at a set price.

The cost of maintaining a business’s property, includes insurance, property taxes, utilities and rent, but excludes income tax, depreciation and other financing expenses.

Coverage of all types of vessels and watercraft, for property damage to the vessel and cargo, including such risks as piracy and the jettisoning of cargo to save the property of others. Coverage for marine-related liabilities. War is excluded from basic policies, but can be bought back.

Insurance that pays claims arising out of incidents that occur during the policy term, even if they are filed many years later.

The Insurance Corporation of British columbia says that B.C. motorists saved more than $70 million in 2004 thanks to its anti-fraud programs. ICBC explains that the figure is based on the estimated value of fraudulent claims that were denied, money recovered and savings fenerated through fraud prevention. The public insurer points out that its fraud-fighting efforts led ot 84 criminal charges against 56 people last year, with 61 convictions being obtained to date.

From "CANADIAN INSURANCE"

Industry business cycle with recurrent periods of hard and soft market conditions. In the 1950s and 1960s, cycles were regular with three year periods each of hard and soft market conditions in almost all lines of property/casualty insurance. Since then they have been less regular and less frequent.

Covers damage to or loss of policyholders’ property and legal liability for damages caused to other people or their property. Property/casualty insurance, which includes auto, homeowners and commercial insurance, is one segment of the insurance industry. The other sector is life/health. Outside the United States, property/casualty insurance is referred to as nonlife or general insurance.

Documents showing the insurance company that a loss occurred.

Covers professionals for negligence and errors or omissions that injure their clients.

Protects manufacturers’ and distributors’ exposure to lawsuits by people who have sustained bodily injury or property damage through the use of the product.

A section of tort law that determines who may sue and who may be sued for damages when a defective product injures someone. No uniform federal laws guide manufacturer’s liability, but under strict liability, the injured party can hold the manufacturer responsible for damages without the need to prove negligence or fault.

Interest rate that banks charge to their most creditworthy customers. Banks set this rate according to their cost of funds and market forces.

Market for new issue securities where the proceeds go directly to the issuer.

In a reinsurance transaction, the insurance company that is reinsured.

The total premiums on all policies written by an insurer during a specified period of time, regardless of what portions have been earned. Net premiums written are premiums written after reinsurance transactions.

The sum of the face amounts, plus dividend additions, of life insurance policies outstanding at a given time.

The price of an insurance policy, typically charged annually or semiannually.

The particular location of the property or a portion of it as designated in an insurance policy.

Network of medical providers which charge on a fee-for-service basis, but are paid on a negotiated, discounted fee schedule.

Policies that cover property loss and liability arising from pollution-related damages, for sites that have been inspected and found uncontaminated. It is usually written on a claims-made basis so policies pay only claims presented during the term of the policy or within a specified time frame after the policy expires.

Coverage for businesses operating abroad against loss due to political upheaval such as war, revolution, or confiscation of property.

The amount of money remaining after an insurer’s liabilities are subtracted from its assets. It acts as a financial cushion above and beyond reserves, protecting policyholders against an unexpected or catastrophic situation.

A written contract for insurance between an insurance company and policyholder stating details of coverage.

Health insurance policy that allows the employee to choose between in-network and out-of-network care each time medical treatment is needed.

Property/casualty insurance products that are designed for and bought by individuals, including homeowners and automobile policies.

Portion of an auto insurance policy that covers the treatment of injuries to the driver and passengers of the policyholder’s car.

A policy or an addition to a policy used to cover personal valuables, like jewelry or furs.

A specific risk or cause of loss covered by an insurance policy, such as a fire, windstorm, flood, or theft. A named-peril policy covers the policyholder only for the risks named in the policy in contrast to an all-risk policy, which covers all causes of loss except those specifically excluded.

Programs to provide employees with retirement income after they meet minimum age and service requirements. Life insurers hold some of these funds. Since the 1970s responsibility for funding retirement has increasingly shifted from employers (defined benefit plans that promise workers a specific retirement income) to employees (defined contribution plans financed by employees that may or may not be matched by employer contributions).

An independent federal government agency that administers the Pension Plan Termination Insurance program to ensure that vested benefits of employees whose pension plans are being terminated are paid when they come due. Only defined benefit plans are covered. Benefits are paid up to certain limits.

A system proposed in the 1990s in which auto insurance premiums would be paid to state governments through a per-gallon surcharge on gasoline.

The need for insurance companies to be capitalized according to the inherent riskiness of the type of insurance they sell. Higher-risk types of insurance, liability as opposed to property business, generally necessitate higher levels of capital.

Insurance companies that band together as self-insurers and form an organization that is chartered and licensed as an insurer in at least one state to handle liability insurance.

Management of the varied risks to which a business firm or association might be subject. It includes analyzing all exposures to gauge the likelihood of loss and choosing options to better manage or minimize loss. These options typically include reducing and eliminating the risk with safety measures, buying insurance, and self-insurance.

The chance of loss or the person or entity that is insured.

An attachment to an insurance policy that alters the policy’s coverage or terms.

Net income divided by total equity. Measures profitability by showing how efficiently invested capital is being used.

A method of permitting the final premium for a risk to be adjusted, subject to an agreed-upon maximum and minimum limit based on actual loss experience. It is available to large commercial insurance buyers.

The reinsurance bought by reinsurers to protect their financial stability.

The amount of risk retained by an insurance company that is not reinsured.

Facilities, such as assigned risk plans and FAIR Plans, that exist to provide coverage for those who cannot get it in the regular market. Insurers doing business in a given state generally must participate in these pools. For this reason the residual market is also known as the shared market.

A company’s best estimate of what it will pay for claims.

Agreement between a buyer and seller where the seller agrees to repurchase the securities at an agreed upon time and price. Repurchase agreements involving U.S. government securities are utilized by the Federal Reserve to control the money supply.

Insurance that pays the dollar amount needed to replace damaged personal property or dwelling property without deducting for depreciation but limited by the maximum dollar amount shown on the declarations page of the policy.

A form of insurance that covers a policyholder’s belongings against perils such as fire, theft, windstorm, hail, explosion, vandalism, riots, and others. It also provides personal liability coverage for damage the policyholder or dependents cause to third parties. It also provides additional living expenses, known as loss-of-use coverage, if a policyholder must move while his or her dwelling is repaired. It also can include coverage for property improvements. Possessions can be covered for their replacement cost or the actual cash value that includes depreciation.

Insurance bought by insurers. A reinsurer assumes part of the risk and part of the premium originally taken by the insurer, known as the primary company. Reinsurance effectively increases an insurer's capital and therefore its capacity to sell more coverage. The business is global and some of the largest reinsurers are based abroad. Reinsurers have their own reinsurers, called retrocessionaires. Reinsurers don’t pay policyholder claims. Instead, they reimburse insurers for claims paid.

Literally means to draw a red line on a map around areas to receive special treatment. Refusal to issue insurance based solely on where applicants live is illegal in all states. Denial of insurance must be risk-based.

Investments generally owned by life insurers that include commercial mortgage loans and real property.

The insurance business is based on the spread of risk. The more widely risk is spread, the more accurately loss can be estimated. An insurance company can more accurately estimate the probability of loss on 100,000 homes than on ten. Years ago, insurers were required to use standardized forms and rates developed by rating agencies. Today, large insurers use their own statistical loss data to develop rates. But small insurers, or insurers focusing on special lines of business, with insufficiently broad loss data to make them actuarially reliable depend on pooled industry data collected by such organizations as the Insurance Services Office (ISO) which provides information to help develop rates such as estimates of future losses and loss adjustment expenses like legal defense costs.

Six major credit agencies determine insurers’ financial strength and viability to meet claims obligations. They are A.M. Best Co.; Duff & Phelps Inc.; Fitch, Inc.; Moody’s Investors Services; Standard & Poor’s Corp.; and Weiss Ratings, Inc. Factors considered include company earnings, capital adequacy, operating leverage, liquidity, investment performance, reinsurance programs, and management ability, integrity and experience. A high financial rating is not the same as a high consumer satisfaction rating.

The process by which states monitor insurance companies’ rate changes, done either through prior approval or open competition models.

The simultaneous buying, selling or exchange of one security for another among investors to change maturities in a bond portfolio, for example, or because investment goals have changed.

A charge for withdrawals from an annuity contract before a designated surrender charge period, usually from five to seven years.

Property/casualty insurance coverage that isn’t available from insurers licensed in the state, called admitted companies, and must be purchased from a non-admitted carrier. Examples include risks of an unusual nature that require greater flexibility in policy terms and conditions than exist in standard forms or where the highest rates allowed by state regulators are considered inadequate by admitted companies. Laws governing surplus lines vary by state.

The remainder after an insurer’s liabilities are subtracted from its assets. The financial cushion that protects policyholders in case of unexpectedly high claims.

A contract guaranteeing the performance of a specific obligation. Simply put, it is a three-party agreement under which one party, the surety company, answers to a second party, the owner, creditor or “obligee,” for a third party’s debts, default or nonperformance. Contractors are often required to purchase surety bonds if they are working on public projects. The surety company becomes responsible for carrying out the work or paying for the loss up to the bond “penalty” if the contractor fails to perform.

A federal law enacted in 1980 to initiate cleanup of the nation’s abandoned hazardous waste dump sites and to respond to accidents that release hazardous substances into the environment. The law is officially called the Comprehensive Environmental Response, Compensation, and Liability Act.

The legal process by which an insurance company, after paying a loss, seeks to recover the amount of the loss from another party who is legally liable for it.

Legal agreement to pay a designated person, usually someone who has been injured, a specified sum of money in periodic payments, usually for his or her lifetime, instead of in a single lump sum payment.

An insurance company owned by its stockholders who share in profits through earnings distributions and increases in stock value.

More conservative standards than under GAAP accounting rules, they are imposed by state laws that emphasize the present solvency of insurance companies. SAP helps ensure that the company will have sufficient funds readily available to meet all anticipated insurance obligations by recognizing liabilities earlier or at a higher value than GAAP and assets later or at a lower value. For example, SAP requires that selling expenses be recorded immediately rather than amortized over the life of the policy.

Practice that increases the money available to pay auto liability claims. In states where this practice is permitted by law, courts may allow policyholders who have several cars insured under a single policy, or multiple vehicles insured under different policies, to add up the limit of liability available for each vehicle.

The selling of insurance in multiple areas to multiple policyholders to minimize the danger that all policyholders will have losses at the same time. Companies are more likely to insure perils that offer a good spread of risk. Flood insurance is an example of a poor spread of risk because the people most likely to buy it are the people close to rivers and other bodies of water that flood.

Insurance companies’ ability to pay the claims of policyholders. Regulations to promote solvency include minimum capital and surplus requirements, statutory accounting conventions, limits to insurance company investment and corporate activities, financial ratio tests, and financial data disclosure.

An environment where insurance is plentiful and sold at a lower cost, also known as a buyers’ market.

An annuity that is paid in full upon purchase.

An optional part of homeowners insurance that covers sewers.

Size of a loss. One of the criteria used in calculating premiums rates.

The concept of assuming a financial risk oneself, instead of paying an insurance company to take it on. Every policyholder is a self-insurer in terms of paying a deductible and co-payments. Large firms often self-insure frequent, small losses such as damage to their fleet of vehicles or minor workplace injuries. However, to protect injured employees state laws set out requirements for the assumption of workers compensation programs. Self-insurance also refers to employers who assume all or part of the responsibility for paying the health insurance claims of their employees. Firms that self insure for health claims are exempt from state insurance laws mandating the illnesses that group health insurers must cover.

Using the capital markets to expand and diversify the assumption of insurance risk. The issuance of bonds or notes to third-party investors directly or indirectly by an insurance or reinsurance company or a pooling entity as a means of raising money to cover risks.

Stock held by shareholders.

The organization that oversees publicly-held insurance companies. Those companies make periodic financial disclosures to the SEC, including an annual financial statement (or 10K), and a quarterly financial statement (or 10-Q). Companies must also disclose any material events and other information about their stock.

Market for previously issued and outstanding securities.

A list of individual items or groups of items that are covered under one policy or a listing of specific benefits, charges, credits, assets or other defined items.

A standing agreement between insurers and reinsurers. Under a treaty each party automatically accepts specific percentages of the insurer’s business.

Interest-bearing obligations of the U.S. government issued by the Treasury as a means of borrowing money to meet government expenditures not covered by tax revenues. Marketable Treasury securities fall into three categories — bills, notes and bonds. Marketable Treasury obligations are currently issued in book entry form only; that is, the purchaser receives a statement, rather than an engraved certificate.

Insurance to cover problems associated with traveling, generally including trip cancellation due to illness, lost luggage and other incidents.

A term used to explain the way information on financial matters, such as financial reports and actions of companies or markets, are communicated so that they are easily understood and frank.

The condition of an automobile or other property when damage is so extensive that repair costs would exceed the value of the vehicle or property.

Refers to legislation designed to reduce liability costs through limits on various kinds of damages and through modification of liability rules.

The body of law governing negligence, intentional interference, and other wrongful acts for which civil action can be brought, except for breach of contract, which is covered by contract law.

A legal term denoting a wrongful act resulting in injury or damage on which a civil court action, or legal proceeding, may be based.

Insurance that indemnifies the owner of real estate in the event that his or her clear ownership of property is challenged by the discovery of faults in the title.

Funds that are held in a savings account for a predetermined period of time at a set interest rate. Banks can refuse to allow withdrawals from these accounts until the period has expired or assess a penalty for early withdrawals.

Liability coverage purchased by the policyholder as a protection against possible lawsuits filed by a third party. The insured and the insurer are the first and second parties to the insurance contract.

Outside group that performs clerical functions for an insurance company.

Included as a part of the package in standard commercial insurance policies before September 11, 2001 virtually free of charge. Since September 11, terrorism coverage prices have increased substantially to reflect the current risk.

A method of classifying risks by geographic location to set a fair price for coverage. The location of the insured may have a considerable impact on the cost of losses. The chance of an accident or theft is much higher in an urban area than in a rural one, for example.

A form of life insurance that covers the insured person for a certain period of time, the “term” that is specified in the policy. It pays a benefit to a designated beneficiary only when the insured dies within that specified period which can be one, five, 10 or even 20 years. Term life policies are renewable but premiums increase with age.

A flexible premium policy that combines protection against premature death with a type of savings vehicle, known as a cash value account, that typically earns a money market rate of interest. Death benefits can be changed during the life of the policy within limits, generally subject to a medical examination. Once funds accumulate in the cash value account, the premium can be paid at any time but the policy will lapse if there isn’t enough money to cover annual mortality charges and administrative costs.

Portion of an auto insurance policy that protects a policyholder from uninsured and hit-and-run drivers.

Risks for which it is difficult for someone to get insurance.

The portion of a premium already received by the insurer under which protection has not yet been provided. The entire premium is not earned until the policy period expires, even though premiums are typically paid in advance.

The insurer’s profit on the insurance sale after all expenses and losses have been paid. When premiums aren’t sufficient to cover claims and expenses, the result is an underwriting loss. Underwriting losses are typically offset by investment income.

Examining, accepting, or rejecting insurance risks and classifying the ones that are accepted, in order to charge appropriate premiums for them.

The result of the policyholder’s failure to buy sufficient insurance. An underinsured policyholder may only receive part of the cost of replacing or repairing damaged items covered in the policy.

A form of annuity contract that gives purchasers the freedom to choose among certain optional features in their contract.

Number of shares a stock trades either per day or per week.

Most homeowners policies cover damage from a volcanic eruption.

A measure of the degree of fluctuation in a stock’s price. Volatility is exemplified by large, frequent price swings up and down.

A policy contract that for some reason specified in the policy becomes free of all legal effect. One example under which a policy could be voided is when information a policyholder provided is proven untrue.

Insurance firms that buy life insurance policies at a steep discount from policyholders who are often terminally ill and need the payment for medications or treatments. The companies provide early payouts to the policyholder, assume the premium payments, and collect the face value of the policy upon the policyholder’s death.

Insurance firms that buy life insurance policies at a steep discount from policyholders who are often terminally ill and need the payment for medications or treatments. The companies provide early payouts to the policyholder, assume the premium payments, and collect the face value of the policy upon the policyholder’s death.

A policy that combines protection against premature death with a savings account that can be invested in stocks, bonds, and money market mutual funds at the policyholder’s discretion.

An annuity whose contract value or income payments vary according to the performance of the stocks, bonds and other investments selected by the contract owner.

The malicious and often random destruction or spoilage of another person’s property.

To insure, underwrite, or accept an application for insurance.

Broad policy coordinated to cover liability exposures for a large group of businesses that have something in common. Might be used to insure all businesses working on a large construction project, such as an apartment complex.

Insurance that pays for medical care and physical rehabilitation of injured workers and helps to replace lost wages while they are unable to work. State laws, which vary significantly, govern the amount of benefits paid and other compensation provisions.

The oldest kind of cash value life insurance that combines protection against premature death with a savings account. Premiums are fixed and guaranteed and remain level throughout the policy’s lifetime.

A type of business interruption insurance that compensates for financial losses caused by adverse weather conditions, such as constant rain on the day scheduled for a major outdoor concert.

An insurance or securities product used as a hedge by energy-related businesses and others whose sales tend to fluctuate depending on the weather.

Protection provided in most homeowners insurance policies against sudden and accidental water damage, from burst pipes for example. Does not cover damage from problems resulting from a lack of proper maintenance such as dripping air conditioners. Water damage from floods is covered under separate flood insurance policies issued by the federal government.

Special coverage on cargo in overseas ships against the risk of being confiscated by a government in wartime. It is excluded from standard ocean marine insurance and can be purchased separately. It often excludes cargo awaiting shipment on a wharf or on ships after 15 days of arrival in port.

The surrender of a right or privilege. In life insurance, a provision that sets certain conditions, such as disablement, which allow coverage to remain in force without payment of premiums.

A policy under which the insurer pays a specified amount of money to or on behalf of the insured upon the occurrence of a defined loss. The money amount is not related to the extent of the loss. Life insurance policies are an example.

Coverage for losses above the limit of an underlying policy or policies such as homeowners and auto insurance. While it applies to losses over the dollar amount in the underlying policies, terms of coverage are sometimes broader than those of underlying policies.

An form of annuity that pays out over a fixed period rather than when the annuitant dies.

Damaged property an insurer takes over to reduce its loss after paying a claim. Insurers receive salvage rights over property on which they have paid claims, such as badly-damaged cars. Insurers that paid claims on cargoes lost at sea now have the right to recover sunken treasures. Salvage charges are the costs associated with recovering that property.

The cost of a unit of insurance, usually per $1,000. Rates are based on historical loss experience for similar risks and may be regulated by state insurance offices.

A form of annuity purchased with pretax dollars as part of a retirement plan that benefits from special tax treatment, such as a 401(k) plan.

A single insurance policy that combines several coverages previously sold separately. Examples include homeowners insurance and commercial multiple peril insurance.

Abnormal condition or illness caused by factors associated with the workplace. Like occupational injuries, this is covered by workers compensation policies.

Peril specifically mentioned as covered in an insurance policy.

Professional liability coverage for physicians, lawyers, and other specialists against suits alleging negligence or errors and omissions that have harmed clients.

A form of variable annuity contract usually with short surrender periods and higher mortality and expense risk charges.

Insurance on the life or health of a key individual whose services are essential to the continuing success of a business and whose death or disability could cause the firm a substantial financial loss.

An annuity with two annuitants, usually spouses. Payments continue until the death of the longest living of the two.

Coverage for expenses incurred as the result of an identity theft. Can include costs for notarizing fraud affidavits and certified mail, lost income from time taken off from work to meet with law-enforcement personnel or credit agencies, fees for reapplying for loans and attorney's fees to defend against lawsuits and remove criminal or civil judgments.

A coverage that protects businesses engaged in electronic commerce from losses caused by hackers.

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.

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.

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.

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.”

A form of variable annuity contract where the contract holder pays no sales up front or surrender charges. Owners can claim full liquidity at any time.

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A form of variable annuity contract with no initial sales charge but if the contract is cancelled the holder pays deferred sales charges (usually from 5 to 7 percent the first year, declining to zero after from 5 to 7 years). The most common form of annuity contract.

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.

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.

There are basically six different types of coverages. Some may be required by law. Others are optional. They are:

1)Bodily injury liability, for injuries the policyholder causes to someone else.
2)Medical payments or Personal Injury Protection (PIP) for treatment of injuries to the driver and passengers of the policyholder’s car.
3)Property damage liability, for damage the policyholder causes to someone else’s property.
4)Collision, for damage to the policyholder’s car from a collision.
5)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.
6)Uninsured motorists coverage, for costs resulting from an accident involving a hit-and-run driver or a driver who does not have insurance.

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.

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.

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.

The deliberate setting of a fire.

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.

A survey to determine a property’s insurable value, or the amount of a loss.

The dividing of a loss proportionately among two or more insurers that cover the same loss.

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.

The cost of an annuity based on such factors as the age and gender of the contract owner.

Legal document providing detailed information about variable annuity contracts. Must be offered to each prospective buyer.

The insurance company that issues the annuity.

The fee paid for the management of variable annuity invested assets.

Covers administrative and mortality and expense risk costs.

The guarantee that if an annuity contract owner dies before annuitization (the switchover from the savings to the payment phase) the beneficiary will receive the value of the annuity that is due.

The person or entity that purchases an annuity and has all rights to the contract. Usually, but not always, the annuitant (the person who receives incomes from the contract).

An agreement similar to an insurance policy for other insurance products such as auto insurance.

In certain types of annuities, a person who receives annuity contract payments if the annuity owner or annuitant dies while payments are still due.

Covers the cost of customer services for owners of variable annuities.

The period during which the owner of a deferred annuity makes payments to build up assets.

A life insurance product that pays periodic income benefits for a specific period of time or over the course of the annuitant’s lifetime. There are two basic types of annuities: deferred and immediate: Deferred annuities allow assets to grow tax deferred over time before being converted to payments to the annuitant. Immediate annuities allow payments to begin within about a year of purchase.

The conversion of the account balance of a deferred annuity contract to income payments.

The person(s) who receives the income from an annuity contract. Usually the owner of the contract or his or her spouse.

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.

Covers the cost of administering an annuity contract.

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.

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.

Property insurance that is usually bought in conjunction with fire insurance; it includes wind, water damage, and vandalism coverage.

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.

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.

Companies that market and sell products via independent agents.

Selling insurance through groups such as professional and business associations.

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.

An insurance company licensed and authorized to do business in a particular state.

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.

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.

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.

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.

A form of insurance that pays damages equal to the replacement value of damaged property minus depreciation.

Amounts owed to a business for goods or services provided.

Coverage for accidental injury, accidental death, and related health expenses. Benefits will pay for preventative services, medical expenses, and catastrophic care, with limits.

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.

A form of variable annuity contract where the contract holder pays sales charges up front rather than eventually having to pay a surrender charge.