Insurance Glossary

A

acceleration clause– The part of a contract that says when a loan may be declared due and payable.

accident benefits– the part of auto insurance that provides medical care and income replacement benefits to insured persons injured in a car collision, regardless of who caused the accident.

accidental death benefit– In a life insurance policy, benefit in addition to the health benefit paid, should the death occur due to an accident.

active participant– Person whose absence from a planned event would trigger a benefit if the event needs to be canceled or postponed.

actual cash value– Cost of replacing damaged or destroyed property with comparable new property, minus depreciation and obsolescence.

actuary– A specialist in the mathematics of insurance who calculates rates, reserves, dividends, and other statistics.

additional living expense insurance– this insurance pays the extra amount it costs to live elsewhere until home repairs are made after your dwelling has suffered damage as a result of an insured peril.

adjustable rate– An interest rate that changes, based on changes in a published market-rate index.

adjuster– A representative of the insurer who seeks to determine the extent of the insurers liability for loss when a claim is submitted.

agent– An individual who sells and services insurance policies in either of two classifications:

Independent agent represents at least two insurance companies and services clients by searching the market for the most advantageous price for the most coverage.
Direct or career agent represents only one company and sells only its policies.
aggregate limit– Refers to liability insurance and indicates the amount of coverage that the insured has under the contract for a specific period of time, no matter how many separate accidents might occur.

annuity– An agreement by an insurer to make periodic payments that continue during the survival of the annuitant or for a specific period.

assets– Refers to all the available properties of every kind or possession of an insurance company that might be used to pay its debts. There are three classifications of assets:

invested assets– Bonds, stocks, cash, and income-producing real estate
all other assets– Refers to non-income producing possessions such as the building the company occupies
total admitted assets– Everything a company owns
automobile liability insurance– Coverage if an insured is legally liable for bodily injury or property damage caused by an automobile.

B

balance sheet– An accounting term referring to a listing of a company’s assets, liabilities, and surplus as of a specific date.

broker-agent– Independent insurance salesperson that represents particular insurers but also might function as a broker by searching the entire insurance market to place an applicants coverage to maximize protection and minimize cost. This person is licensed as an agent and a broker (hence the name).

business net retention– This item represents the percentage of a company’s gross writings that are retained for its own account. Gross writings are the sum of direct writings and assumed writings. This measure excludes affiliated writings. (Dear Reader: You’re still awake?)

C

capital– Equity of shareholders of a stock insurance company. The company’s capital surplus is measured by the difference between its assets minus its liabilities. This value protects the interests of the company’s policy owners in the event it develops financial problems. The policy owners benefits are thus protected by the insurance company’s capital.

capitalization or leverage– Measures the exposure of a company’s surplus to various operating and financial practices. A highly leveraged, or poorly capitalized company can show a high return on surplus, but might be exposed to high risk of instability.

captive agent– Representative of a single insurer or fleet of insurers who is obliged to submit business only to that company, or at the very minimum, give that company first refusal rights on a sale. In exchange, that insurer usually provides its captive agents (Dear Reader: Please note, you are not captive.) with an allowance for office expenses as well as an extensive list of employee benefits such as pensions, life insurance, health insurance, and credit unions.

case management– A system of coordinating medical services to treat a patient, improve care, and reduce cost.

casualty– Liability or loss resulting from an accident.

casualty insurance– That type of insurance that is primarily concerned with losses caused by injuries to persons and legal liability imposed upon the insured for such injury or for damage to property by others. It also includes such diverse forms as plate glass, insurance against crime, boiler and machinery insurance and Aviation Insurance. Many casualty companies also write surety business.

change in net premiums written– The annual percentage change in Net Premiums Written. A company should demonstrate its ability to support controlled business growth with quality surplus from strong internal capital generation.

change in policyholder surplus– The percentage change in policyholder surplus from the prior year-end derived from operating earnings, investment gains, net contributed capital, etc. This ratio measures a company’s ability to increase policy holders’ security.

claim– A demand made by the insured, or the insured’s beneficiary, for payment of the benefits as provided by the policy.

coinsurance– In property insurance, requites the policy holder to carry insurance equal to a specified percentage of the value of property to receive full payment on a loss.

collision insurance– Covers physical damage to the insured’s automobile (other than that covered under comprehensive insurance) resulting from contact with another inanimate object.

combined ratio after policy holder dividends– The sum of the loss, expense, and policy holder dividend ratios not reflecting investment income or income taxes. This ratio measures the company’s overall underwriting profitability, and a combined ratio of less than 100 indicates an underwriting profit.

commercial lines– Refers to insurance for businesses, professionals, and commercial establishments.

commission– Fee paid to an agent or insurance salesperson as a percentage of the policy premium. The premium varies widely depending on coverage, the insurer, and marketing methods.

comprehensive insurance– Auto insurance coverage providing protection in the event of physical damage (other than collision) or theft of the insured car.

conditional reserves– This item represents the aggregate of various reserves which, for technical reasons, are treated by companies as liabilities. Such reserves, which are similar to free resources or surplus, include unauthorized reinsurance, excess of statutory loss reserves over statement reserves, dividends to policy holders undeclared and other similar reserves established voluntarily or in compliance with statutory regulations.

coverage– The scope of protection provided under an insurance policy. In property insurance, coverage lists perils insured against, properties covered, locations covered, individuals insured, and the limits of indemnification. In life insurance living and death benefits are listed.

convertible– Term life insurance coverage that can e converted into permanent insurance regardless of an insured’s physical condition and without a medical exam. The individual cannot be denied coverage or charged an additional premium for any health problems.

copayment– A predetermined, flat fee an individual pays for health care services, in addition to what insurance covers.

coverage area– The geographic region covered by travel insurance.

D

death benefit– The limit of insurance or the amount of benefit that will be paid in the event of the death of a covered person.

deductible– Amount of loss that the insured pays before the insurance kicks in.

direct premium written– The aggregate amount of recorded originated premiums, other than reinsurance, written during the year, whether collected or not, at the close of the year, plus retrospective audit premium collections, after deducting all return premiums.

direct writer– An insurer whose distribution mechanism is either the direct selling system or the exclusive agency system.

dividend– The return of part of the policy’s premium for a policy issued on a participating basis by either a mutual or stock insurer. A portion of the surplus paid to the stockholders of a corporation.

E

earned premium– The amount of the premium that has been paid for in advance that has been “earned” because time has passed without a claim.

elimination period– The time which must pass after filing a claim before the policyholder can collect insurance benefits. AKA “waiting period”.

employers liability insurance– Coverage against common law liability of an employer for accidents to employees, as distinguished from liability imposed by a Workers Compensation law.

encumbrance– A claim on property, such as a mortgage, a lien for work and materials, or a right of dower. The interest of the property owner is reduced by the amount of the encumbrance.

exclusions– Items or conditions that are not covered by the general insurance contract.

expense ratio– The ratio of underwriting expenses (including commissions) to net premiums written. This ratio measures the company’s operational efficiency in underwriting its business book.

exposure– Measure of vulnerability to loss, usually expressed in dollars or units.

extended replacement cost– This option extends replacement cost loss settlement to personal property to outdoor antennas, carpeting, domestic appliances,, cloth awnings, and outdoor equipment subject to limitations on certain kinds of personal property; includes inflation protection coverage.

F

financing entity– Provides money for purchases.

future purchase option– Life and health insurance provisions that guarantee the insured’s right to buy additional coverage, AKA “guaranteed insurability option”.

G

general account– All premiums are paid into an insurers general account. This means that buyers are subject to credit risk exposure to the insurance company.

general liability coverage– Insurance designed to protect business owners and operators from a wide variety of liability. This includes liability from accidents on the insured’s premises, products sold by the insured, operations completed by the insured, and contractual liability.

grace period– The length of period (usually a month, or 31 days) after a premium is due and unpaid during which the policy, including riders, remains in force. In Universal Life policies, the grace period is 60 days following the days that the cash value becomes insufficient to support the payment of monthly insurance costs.

guaranteed renewable– A policy provision that guarantees the policy owner the right to renew coverage at every policy anniversary date. The company does not have the right to cancel coverage except for nonpayment, however, the company can raise premium prices if they choose.

H

hazard– A circumstance that increases the likelihood of a loss. For example, storing explosives in your home increases the probability of explosion.

hazardous activity– Bungee jumping, scuba diving, horseback riding, and other activities not covered by standard insurance policies. These activities are usually covered by the company hosting them.

I

impaired insurer– An insurer which is in financial difficulty, where its ability to meet financial obligations is in question.

income tax– Incurred income taxes (including those on capital gains) reported in each annual statement for that year.

inflation protection– Optional property coverage endorsement offered by some insurers that increases the policy’s limits of insurance during the policy term to keep pace with the rate of inflation.

insurance adjuster– In insurance company representative who seeks to determine the extent of the insurer’s liability for loss when a claim is submitted. Independent insurance adjusters are hired by insurance companies on an “as needed” basis, and might work for several insurance companies. Independent adjusters charge insurance companies both by the hour and by miles traveled.

insurance attorney– An attorney who practices law as it relates to insurance matters. They might work as part of a law firm, or independently. Insurance companies who retain attorneys to defend them against law suits might hire staff attorneys to work for them in-house, or retain attorneys on an as-needed basis.

interest-credit methods– There are over 35 interest-crediting methods that insurers use. They typically involve point-to-point, annual reset, yield spread, averaging, or high water mark.

investment income– The return received by insurers from their investment portfolios, including interest, dividends, and realized capital gains on stock. It doesn’t include the value of any stocks or bonds the company currently owns.

L

laddering– Purchasing bond investments that mature at different time intervals.

lapse ratio– The ratio of the number of life insurance policies that lapsed within a given period to the number in force at the beginning of the period.

least expensive alternative treatment– The amount an insurance company will pay based on its determination of cost for a particular procedure.

leverage or capitalization—Measures the exposure of a company’s surplus to various operating and financial practices. A highly leveraged, or poorly capitalized, company can show a high return on surplus, but might be exposed to a high risk of instability.

liability– Broadly, any legally enforceable obligation. The term is most commonly used in a pecuniary sense.

liability insurance– Insurance that pays and renders service on behalf of an insured for loss arising out of his responsibility, due to negligence, to others imposed by law or assumed by contract.

liquidity– The ability of an individual or business to quickly convert assets into cash without incurring a considerable loss. There are two kinds of liquidity: quick and current:

Quick- refers to funds– cash, short-term investments, and government bonds
Current– refers to current liquidity plus possessions such as real estate which cannot be immediately liquidated, but eventually can be sold and converted into cash.
living benefits– This feature allows you to receive the proceeds of your life insurance policy before you die. Such circumstances include terminal or catastrophic illness, the need for long-term care, or confinement to a nursing home. Also known as “accelerated death benefits”.

Lloyd’s-Generally refers to Lloyds of London, an institution with which several individual underwriters accept or reject the risks offered to them. Lloyd’s Corporation provides the support facility for their activities.

Lloyds organizations– These organizations are voluntarily unincorporated associations of individuals. Each individual assumes a specified portion of the liability under each policy insured. The underwriters operate through a common attorney-in-fact appointed for this purpose by the underwriters.

loss adjustment expenses– Expenses incurred to investigate and settle losses.

loss and loss-adjustment reserves to policyholder surplus ratio– The higher the multiple of loss reserves to surplus, the more a company’s solvency is dependent upon having and maintaining reserve adequacy.

loss and loss-adjustment expenses– This represents the total reserves for unpaid losses and loss-adjusted expenses, including reserves for any incurred but not reported losses, and supplemental reserves established by the company. It is the total for all lines of business and all accident years.

loss control– All methods taken to reduce the frequency and/or severity of losses including exposure avoidance, loss prevention, loss reduction, segregation of exposure units, and noninsurance of transferable risk. A combination of risk control techniques with risk financing techniques form the nucleus of a risk management program. The use of appropriate insurance, avoidance of risk, loss control, risk retention, self insuring, and other techniques the minimize the risks of a business, individual, or organization.

loss ratio– The ratio of incurred losses and loss-adjustment expenses to net premiums earned. This ratio measures the company’s underlying profitability, or loss experience, on its total book of business.

loss reserve– The estimated liability, as it would appear in an insurer’s financial statement, for unpaid insurance claims or losses that have occurred as of a given evaluation date. Usually includes losses incurred but not reported, losses due but not yet paid, and amounts not yet due. For individual claims, the loss reserve is the estimate of what will ultimately be paid out for that claim.

losses incurred (pure losses)– Net paid losses during the current year plus the change in loss reserves since the prior year end.

M

mortality and expense risk fees– A charge that covers such annuity contract guarantees as death benefits.

mortgage insurance policy-In like and health insurance, a policy covering a mortgagor with benefits intended to pay off the balance due on a mortgage upon the insured’s death,, or to meet the payments due on a mortgage in case of the insured’s death or disability.

mutual insurance companies-Companies with no capital stock, and owned by policyholders. The earnings of the company—over and above the payments of the losses, operating expenses, and reserves—are the property of the policyholders. There are two types of mutual insurance companies: non-assessable and assessable:

Non-assessable mutual charges a fixed premium and the policyholders cannot be assessed further. Legal reserves and surplus are maintained to provide payment of all claims.
Assessable mutuals are companies that charge an initial fixed premium and, if that isn’t sufficient, might assess policyholders to need losses in excess of the premiums that have been charged.
N

named perils– Perils specifically covered on insured property.

net income– The total after-tax earnings generated from operations, and realized capital gains

net investment Income– Represents investment income earned during the year less investment expenses, and depreciation on real estate. Investment expenses are expenses related to generating investment income and capital gains, but exclude income taxes.

net leverage– The sum of a company’s net premium written to policyholder surplus and net liabilities to policyholder surplus. This ratio measures the combination of a company’s net exposures to pricing errors in its current book of business and errors of estimation in its net liabilities after reinsurance, in relation to policyholder surplus.

net liabilities to policyholder surplus– Net liabilities expressed as a ratio to a policyholder surplus. Net liabilities equal total liabilities less conditional reserves, plus encumbrances on real estate, less the smaller of receivables from or payable to affiliates. This ratio measures company’s exposures to errors of estimation in its loss reserves and all other liabilities. Loss-reserve leverage is generally the key component of net liability leverage. The higher the loss-reserve leverage the more critical a company’s solvency depends upon maintaining a reserve adequacy.

net premium– The amount of premium minus the agent’s commission. Also, the premium necessary to cover only anticipated losses, before loading to cover other expenses.

net premium earned– The adjustment of net premiums written for the increase or decrease of the company’s liability for unearned premiums during the year. When an insurance company’s business increases from year to year, the earned premiums will usually be less than the written premiums. With the increased volume, the premiums are considered fully paid at the inception of the policy so that, at the end of a calendar period, the company must set up premiums representing the unexpired terms of the policies. On a decreasing volume, the reverse is true.

net premiums written– Represents gross premium written, direct and reinsurance assumed, underwriting expenses incurred, and dividends to policyholders.

nonstandard auto (high risk auto or substandard auto)– Insurance for motorists who have had poor driving records or have been canceled or refused insurance. The premium is much higher than standard auto insurance due to risks.

net premiums written to policyholder surplus– This ratio measures a company’s net retained premiums written after reinsurance and ceded, in relation to its surplus. This ratio measures the company’s exposure to pricing errors in its current book of business.

non-recourse mortgage– A home loan in which the borrower can never owe more than the home’s value at the time the loan is repaid.

noncancellable– Contract terms, including costs that can never be changed.

O

occurrence– An event that results in an insured loss. In some lines of business, such as liability, an occurrence is distinguished from accident in that the loss doesn’t have to be sudden or fortuitous and can result from continuous or repeated exposure which results in bodily injury or property damage, neither expected nor intended by the insured.

operating cash flow– Measures the funds generated from insurance operations, which includes the change in cash and invested assets attributed to underwriting activities, net investment income and income taxes. This measure excludes stockholder dividends, capital contributions, unrealized gains/losses and various noninsurance related transactions with affiliates. This test measures a company’s ability to meet current obligations through the internal generation of funds from insurance operations. Negative balances might indicate unprofitable underwriting or low yielding results.

operating ratio– Combined ratio less the net investment income ratio. The operating ratio measures a company’s overall operational profitability from underwriting and investment activities. This ratio doesn’t reflect other operating income/expenses, capital gains, or income taxes. An operating ratio of more than 100 indicates a company is unable to generate profits from its underwriting and investment activities.

other income/expenses– Represents miscellaneous sources of income or expenses that principally relate to premium finance income or charges for uncontrollable premium and reinsurance business.

out of pocket limit– A predetermined amount of money than an individual must pay before insurance will pay 100% for an individual’s health care expenses.

overall liquidity ratio– Total admitted assets divided by total liabilities less conditional reserves. This ratio indicates a company’s ability to cover net liabilities with total assets. This ratio doesn’t address the quality or marketability of premium balances, affiliated investments, and other un-invested assets.

own occupation– Insurance contract provision that allows policyholders to collect benefits if they can no longer work in their own occupation.

P

paid-up additional insurance– An option that allows the policyholder to use policy dividends and/or additional premiums to buy additional insurance on the same plan as the basic policy and at a face amount determined by the insured’s attained age.

participation rate– In equity-induced annuities, a participation rate determines how much of the gain in the index will be credited to the annuity. For example, the insurance company set the participation rate at 80%, which means the annuity would only be credited with 80% of the gain experienced by the index.

peril– The cause of a possible loss.

personal lines– Insurance for individuals and families, such as private passenger auto insurance and homeowners insurance.

policy– The written contract effecting insurance, or the certificate thereof, by whatever name called, and including all clause, riders, endorsements, and papers attache3d thereto and made a part thereof.

policyholder dividend ratio– The ratio of dividends to policyholders related to net premiums earned.

policyholder surplus-The sun of paid in capital, pain in and contributed surplus, and net earned surplus, including voluntary contingency reserves. It is also the difference between total admitted assets and liabilities.

policy or sales illustration-Material used by an agent and insurer to show how a policy may perform under a variety of conditions and over a number of years.

pre-existing condition– A coverage limitation included in many health policies which states that certain physical and mental conditions, either previously diagnosed or which would normally be expected to require treatment prior to issue, will not be covered under the new policy for a specified period of time.

preferred auto insurance– Auto coverage for drivers who have never had an accident and operates vehicles according to law. Drivers are not a risk for any insurance company that writes auto insurance, and no insurance company would be afraid to take them on as risk.

premium– The price of insurance protection for a specified risk for a specified period of time.

premium balances-Premiums and agents’ balances in course of collection; premiums, agents’ balances, and installments booked but deferred and not yet due; bills receivable, taken for premiums and accrued retrospective premiums.

premium earned– The amount of the premium that has been paid for in advance that has been “earned” by virtue of the fact that time has passed without a claim. A three-year policy that has been pain in advance and is one year old would have only partly earned the premium.

premium to surplus ratio– This ratio is designed to measure the ability of the insurer to absorb above average losses and the insurers’ financial strength. The ratio is completed by dividing net premiums written by surplus. An insurance company’s surplus is the amount by which assets exceed liabilities. The ratio is computed by dividing net premiums written by surplus. For example, a company with $2 in net premiums written for every $1 of surplus has a 2:1 premium to surplus ratio. The lower the ratio, the greater the company’s financial strength.

premium unearned– The part of the premium applicable to the unexpired part of the policy period.

pre-tax operating income– Pre-tax operating earnings before any capital gains generated from underwriting, investment, and other miscellaneous operating sources.

pre-tax return on revenue– A measure of a company’s operating profitability and is calculated by dividing pretax operating earnings by net premiums earned.

private passenger auto insurance policyholder risk profile– This refers to the risk profile of auto insurance policyholders and can be divided into three categories- standard, nonstandard, and preferred, in the eyes of an insurance company. It is the type of business (or the quality of driver) that the company has chosen to take on.

profit– A measure of the competence and ability of management to provide viable insurance products at competitive prices and maintain a financially strong company for both policyholders and stockholders.

protected cell company– A Protected Cell Company (PCC) is a single legal entity that operates segregated accounts, or cells, each of which is legally protected from the liabilities of the company’s other accounts. An individual client’s account is insulated from the gains and losses of other accounts, such that the PCC sponsor and each client are protected against liquidation activities by creditors in the event of insolvency of another client.

Q

qualifying event– An occurrence that triggers an insureds’ protection.

quick assets-Assets that are quickly converted into cash.

quick liquidity ratio– Quick assets divided by net liabilities plus ceded reinsurance balances payable.

quick assets-Quick assets are defined as the sum of cash, unaffiliated short-term investments, unaffiliated bonds maturing within one year, government bonds maturing within five years, and 80% of unaffiliated stocks. These assets can be quickly converted into cash in case of an emergency.

R

reciprocal insurance exchange– An unincorporated group of individuals, firms, or corporations, commonly known as subscribers, who mutually insure one another, each separately assuming his share of each risk. Its chief administrator is an attorney-in-fact.

re-entry– The allowance for level-premium term policy owners to qualify for another level-premium period, generally with new evidence of insurability.

reinsurance– Insurance than an insurance company buys for its own protection. The risk of loss is spread so a disproportionately large loss under a single policy doesn’t fall on one company. Reinsurance enables an insurance company to expand its capacity, stabilize its underwriting results; finance its expanding volume secure catastrophe protection against shock losses; withdraw from a line of business or geographical area within a specified time period.

reinsurance ceded– The unit of insurance transferred to a reinsurer by ceding the company.

renewal– The automatic re-establishment of in-force status effected by the payment of another premium.

replacement cost-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.

reserve-An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders. A reserve is usually treated as a liability.

residual benefit– In disability insurance, a benefit paid when you suffer a loss of income due to a covered disability or if loss of income persists. This benefit is based on a formula specified in your policy and it is generally a percentage of the full benefit. It may be paid up to the maximum benefit period.

return on policyholder surplus (return on equity)-The sun of after-tax net income and unrealized capital gains, to the mean of prior and current year-end policyholder surplus, expressed as a percent. This ratio measures a company’s overall after-tax profitability from underwriting and investment activity.

risk class– Management of the pure risks to which a company might be subject. It involves analyzing all exposures to the possibility of loss and determining how to handle these exposures through practices such as avoiding the risk, reducing the risk, or transferring the risk, usually by insurance.

risk retention groups-Liability insurance companies owned by their policyholders. Membership is limited to people in the same business or activity, which exposes them to similar liability risks. The purpose is to assume and spread liability exposure to group members and to provide an alternative risk financing mechanism for liability.

S

secondary market-Populated by buyers willing to pay what they determine to be fair market value.

separate account– A separate account is an investment option that is maintained separately from an insurers general account. Investment risk associated with separate-account investments is born by the contract owner.

solvency– Having sufficient assets- capital, surplus, reserves- and being able to satisfy financial requirements- investments, annual reports, examinations- to be eligible to transact insurance business and meet liabilities.

standard auto– Auto insurance for average drivers with relatively few accidents during a lifetime.

statutory reserve– A reserve required by law.

stock insurance company– An incorporated insurer with capital contributed by stockholders to whom earnings are distributed as dividends on their shares.

stop loss-Any provision in a policy designed to cut off an insurer’s losses at a given point.

subaccount charge– The fee to manage a subaccount, which is an investment option in variable products that is separate from the general account.

subrogation-The right of an insurer who has taken over another’s loss also to take over the other person’s right to pursue remedies against a third party.

surplus– The amount by which assets exceed liabilities.

surrender charge– Fee charged to a policyholder when a life insurance p9olicy or annuity is surrendered for its cash value. This fee reflects expenses the insurance company incurs by placing the policy on its books, and subsequent administrative expenses.

surrender period– A set amount of time which you have to keep the majority of your money in an annuity contract. Most surrender periods last from 5-10 years. Most contracts will allow you to take out at least 10% of accumulated value of the account, even during the surrender period. If you take out more then 10%, you will have to pay a surrender charge on the amount that you have withdrawn above 10%.

T

term life insurance-Life Insurance that provides protection for a specified period of time. Common policy periods are one year, five years, ten years or until the insured reaches age 65 or 70, The policy doesn’t build up any of the non-forfeiture values associated with whole life insurance policies.

tort– A private wrong, independent of contract, and committed against an individual, which gives rise to a legal liability and is adjudicated in civil court. A tort can be either intentional or unintentional, and liability insurance is mainly purchased to cover unintentional torts.

total admitted assets– This item is the sum of all admitted assets, and are valued in accordance with laws and regulations, as reported by the company in its financial statements. This item is reported net as to encumbrances on real estate, and net to amounts recoverable from reinsurance.

total annual loan cost– The projected annual average cost of a reverse mortgage including all itemized costs.

total loss– A loss of sufficient size that it can be said no value is left. The complete destruction of property. The term is also used to mean a loss requiring the maximum amount a policy will pay.

U

umbrella policy-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 an underlying policy.

unaffiliated investments– Represent total unaffiliated investments reported in the exhibit of admitted assets. It is cask, bonds, stocks, mortgages, real estate, and accrued interest, exclusive investment in affiliates and real estate properties occupied by the company.

underwriter– The individual trained in evaluating risks and determining rates and coverage.

underwriting– The process of selecting risks for insurance and classifying them according to their degrees of insurability so that the appropriate rates may be assigned. The process also includes rejection of those risks that do not qualify.

underwriting expenses incurred– Expenses, including net commissions, salaries, advertising costs, which are attributable to the production of net premiums written.

underwriting expense ratio– The percentage of a company’s net premiums written that went toward underwriting expenses, such as commissions to agents and brokers, taxes, salaries, employee benefits and other operating costs. The ratio is computed by dividing the underwriting expenses by net premiums written. A company with an underwriting expense ratio of 31.3% is spending more than 31 cents of every dollar of net premiums written to pay underwriting costs. It should be noted that different lines of business have intrinsically differing expense rations.

underwriting guide– Details the underwriting practices of an insurance company and provides specific guidance as to how underwriters should analyze all the various types of applicants they might encounter. Also called an underwriting manual, underwriting guidelines, or manual of underwriting policy.

unearned premiums– The part of the premium applicable to the unexpired part of the policy period.

uninsured motorist coverage– Endorsement to a personal automobile policy that covers an insured collision with a driver who does not have liability insurance.

universal life insurance coverage– A combination flexible premium, adjustable life insurance policy.

usual, customary, and reasonable fees– An amount customarily charged for or covered for similar services and supplies which are recommended by a doctor.

utilization– How much a covered group uses a particular health plan or program.

V

valuation– A calculation of the policy reserve in life insurance. Also, a mathematical analysis of the financial condition of a pension plan.

valuation reserve-A reserve against the contingency that the valuation of assets, particularly investments, might be higher than what can be actually realized or that a liability may turn out to be greater than the valuation placed on it.

variable life insurance-A form of life insurance whose face value fluctuates depending on the value of the dollar, securities, or other equity products supporting the policy at the time payment is due.

variable universal life insurance– A combination of the features of variable life insurance and universal life insurance under the same contract. Benefits are variable based on the value of underlying equity investments, and premiums and benefits are adjustable at the option of the policyholder.

voluntary reserve– An allocation of surplus not required by law. Insurers often accumulate such reserves to strengthen their financial structure.

W

waiting period– The time which must pass after filing a claim before the policyholder can collect insurance benefits.

waiver of premium– A provision in some insurance contracts which enables an insurance company to waive the collection of premiums while keeping the po9licy in force if the policyholder becomes unable to work because of an accident or injury. The waiver of premium for disability remains in effect for as long as the insured is disabled.

whole life insurance– Life insurance which might be kept in force for a person’s whole life and which pays a benefit upon the person’s death, whenever that might be.

Y

yield on invested assets– Annual net investment income after expenses, divided by the mean of cash and net invested assets. This ratio measures the average run on a company’s invested assets. This ratio is before capital gains/losses and income taxes.

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