Glossary of insurance terms by alphabet
Click on a letter to check out our insurance dictionary with examples:
Click on a term to see its definition: A
Lost in the terminology insurance companies use? Our quick-reference insurance glossary provides easy-to-understand definitions and examples of the terms insurance professionals use.
- Absolute Assignment
An Absolute Assignment is an owner's act of completely transferring all of his rights, benefits and liabilities to a life insurance policy or annuity. The ownership of the policy or annuity changes hands from the owner to another person or institution. This act is usually irreversible and binding.
For example, a person applying for a loan from a bank is asked to take on life insurance and then assign the policy to the bank. This is to protect the bank in case the debtor dies before the loan is completely paid. The bank stands to get a part of the death benefit - the amount equal to the outstanding loan. The rest of the death benefit goes to the beneficiary/beneficiaries of the debtor.
Another example would be when a company insures a key person and names itself as the beneficiary. When that key person leaves the company, the company may decide to sell the insurance policy to the employee in exchange for the cash value of the policy. The transfer is done using an absolute assignment. The former employee will fully own all the benefits, rights and obligations of the sold insurance policy.
- Accelerated Death Benefits
Accelerated death benefits are a portion of the death benefits given even before the insured person dies.
Usually, death benefits are given when an insured person dies. However, there is an option that people can take so that they can benefit from a portion of the death benefit even when they are still alive. This is when the insured person is diagnosed of a terminal illness, requires extreme medical care or is admitted into a nursing home. The purpose of Accelerated Death Benefits is to help the insured person get the necessary funds that he needs in order for him to prolong his life.
The list of the illnesses covered under accelerated death benefits are specified in the insurance contract. Once he shows the company proof that he is diagnosed with an illness that is covered by the Accelerated Death Benefits, the company will give a portion of the death benefit. When the insured person dies, the remaining balance of the death benefit is paid to his beneficiaries.
- Accident and Health Insurance
Accident and Health Insurance covers expenses incurred because of accidents and health problems. It will also pay the death benefit in the event that the insured person dies because of an accident. There are also some plans that pay out a portion of the death benefit when an insured person loses a limb, an eye or another specified body part, where the loss resulted from an accident.
Other benefits include hospitalization expenses such as hospital Room and Board, Doctor's Fees, Surgical Fees and Expenses for Medicines. There are also some plans that provide a daily or monthly income. Each of these benefits is subject to a limit, with an overall limit capping the expenses incurred from any one accident. These limits are reset if the insured person suffers from another accident within the coverage period.
- Accidental Death and Dismemberment (AD&D) Benefit
The Accidental Death and Dismemberment Benefit is a supplementary benefit in addition to the basic death benefit in a life insurance policy. The Accidental Death and Dismemberment Benefit will provide an additional amount (usually the same amount as the original death benefit) in the event that the insured person dies because of an accident. That means that the beneficiaries will receive twice the death benefit. This is what is called double indemnity.
The Accidental Death and Dismemberment benefit will also pay a specified percentage of the death benefit if the insured person is dismembered - that is, he loses one or more limbs (arms and legs), the sight of one or both eyes and the loss of hearing as a result of an accident.
- Accidental Death Benefit (ADB)
The Accidental Death Benefit is a rider which will pay out an additional amount over and above the death benefit when the cause of death is an accident. This is why this benefit is also called double indemnity since the rider effectively doubles what the beneficiaries stand to receive in the event of the insured person's death.
However, there are some life insurance companies that provide an option to buy multiples of this benefit. This means that you can purchase twice or more times the face amount of the policy as your Accidental Death Benefit.
For example, John bought a life insurance policy of $30,000 plus twice the Accidental Death Benefit. That means that in the event that John dies because of an accident, his beneficiaries will receive $90,000 - $30,000 for the death benefit and $60,000 for the accidental death benefit.
- Account Receivables
The account receivables is the amount that is owed to the company. Individuals or organizations owe the company a certain amount for goods and services that the company provided on credit. On a company's balance sheet, accounts receivables are considered as part of the current asset.
Once a sale is generated, the customer is sent an invoice and that is when it is treated as an Account Receivable. The customer is given a certain time in which to fully pay for the account.
Sometimes, to protect the company, credit insurance is taken so that in the event that the debtor becomes insolvent, a portion of the accounts receivables will still be paid.
- Accumulation at Interest Dividend Option
The Accumulation at Interest Dividend Option is one of the dividend options that a life insurance owner has. The policy owner can decide that whatever dividends the policy owner may receive will be left with the insurance policy so that it may earn interest.
A participating life insurance policy provides the policy holder with dividends, which the policy owner can withdraw at any time. He can also leave it on deposit with the insurance company. These dividends earn interest based on a specified interest rate. There is a guaranteed minimum interest rate. The money earned because of the interest is subject to state and federal income taxes.
Upon the death of the insured person, the company will pay the beneficiaries the death benefit, as well as any interest earned.
- Actual Cash Value
The Actual Cash Value is the amount that approximates the cost to replace an item that has been lost or damaged after the cost of obsolescence and accumulated depreciation are subtracted. The actual cash value is computed when someone is being reimbursed for a loss.
For example, a fire destroys John's house, which is insured. The insurance company will compute for the amount needed to pay for the items in the home, say a television. To compute, the insurance company will first determine the current value of a television of the same kind. Then, it will subtract other factors such as how long John has owned the television, as well as wear and tear on the television.
For insurance policies, this is the amount that the policy owner will receive when a life insurance policy is surrendered.
An Actuary is someone who is an expert at mathematics and statistics. He computes the premium rates, reserve, risks and dividends that will be offered in a specific insurance policy. The insurance company hires an actuary to formulate their products. An actuary can also help in the administration of pension funds.
The actuary uses complicated statistical models to predict the likelihood of a certain event (such as death or sickness). He bases his computations on experience tables (death rates, crime rates and other statistical tools) to try to assess the life expectancy of a certain group. An actuary will sometimes include in his computations considerations such as health habits (smokers vs. non-smokers) and gender (male vs. female) to give fair rates for insurance premiums.
- Additional Living Expenses
Additional Living Expenses refer to the amount paid, over and above what is normally needed, while the home is being repaired.
When a house is insured and is damaged because of a covered event (fire, earthquake, and other natural disasters), the person or family living there may have to live somewhere else while the house is being repaired. During that time, the insured will need a temporary home. Additional living expenses will usually cover what is needed such as the rent expense, and even the cost of renting furniture and electrical appliances. Other costs that may be covered by additional living expenses are renter's insurance, increases in the food bill because of the need to eat at restaurants, utility deposits and other related costs that are required during the temporary relocation.
- Additional Term Insurance Option
The Additional Term Insurance Option allows the insurance policy owner of a participating insurance policy to use the year's policy dividend to pay for additional insurance. The additional insurance bought covers one year. This option is also called the fifth dividend option. The amount of insurance bought for the year depends on the amount of dividends available, as well as other pricing factors, such as the insured's age. Depending on the policy, there may also be limitations to the amount of additional insurance you can buy.
This option may also allow the insured person to buy term insurance for his/her the spouse and children.
- Adjustable Life Insurance
Adjustable Life Insurance enables the policy owner to avail of different types of insurance throughout the life of the policy. That means that the policy owner does not need to buy new policies, even as his insurance needs change.
Since it is adjustable, not only does the coverage change. The premiums, the plan, the amount of insurance coverage will also change.
The following changes often occur for adjustable life insurance:
- Face Values changes. When there are changes to the face value, the insured person must provide proof that he is still insurable (particularly if the change is to increase the coverage). The change in face value will also impact the amount of cash value the policy has.
- Premium payment changes. The premiums and the number of months or years that these have to be paid will also increase of decrease.
An Adjuster is a person who works for an insurance company. He is responsible for evaluating the losses incurred covered by a certain policy. He looks at the extent of the damage and how much it will cost to replace the lost items that were insured. He also investigates whether the claims are true and valid. He does this by making a visit to the site and looking at the items being insured. He then consults with the claimants, as well as other witnesses and experts. In other words, he computes just how much the insurance company has to pay to settle the claims of policyholders.
An adjuster is different from public adjusters. Public adjusters work basically for the policyholder, trying to settle a claim in exchange for a percentage of the insurance claims payment or settlement.
- Admitted Assets
Admitted Assets are the assets that the state law allows an insurance company to declare in their financial statements. A declaration of these assets is very important in showing that the insurance company is solvent (meaning it can pay for its obligations such as insurance claims).
The state accounting rules may vary for the different states, but in general, there are some assets that are not allowed to be included in the financial statements, such as the balance sheet. What's allowed are assets that the insurance company can easily sell or use as collateral. These include bonds, real estate, stocks and mortgages.
- Admitted Company
An Admitted Company is an insurance company that holds a license to conduct business in a specific state. The license and authority gives the admitted company the right to sell insurance and other related products in the state that issued the license. It also includes other activities of the company in that state - such as advertising and recruiting of agents.
The license is under the state insurance commission and the company is expected to comply with the insurance code in that state. The state insurance commission reserves the right to cancel the license if the company fails to comply with state insurance laws.
An admitted company is sometimes also called an admitted insurer or an admitted market.
- Adverse Selection
Adverse Selection refers to the tendency of people who carry more risk to have themselves insured. Of course, it is more likely for a person who thinks he needs insurance to look for insurance as compared to those who are exposed to lower risk. Those who are exposed to more risk include people who have high risk lifestyles (i.e. sky divers, bungee jumpers) or who have risky jobs (i.e. policemen, firemen).
What the insurance companies do is to try to spread the risk among a large number of policyholders. They do this by putting limits on the level of insurance coverage given to high risk persons. They can also raise the premiums for those who are exposed to more hazards.
- Affinity Sales
Affinity Sales are insurance products sold to affinity groups. When you say affinity groups, this refers to a group of individuals that have something in common - such as a group of doctors, members of a professional organization or employees of a certain company. The affinity of these groups is usually based on business and professional associations.
The insurance can be sold to an affinity group usually by an employee of an insurance company instead of an independent agent. There are also affinity sales generated through the Internet and mail.
These products may be life insurance products, as well as health and accident insurance products.
- Aftermarket Parts
Aftermarket Parts are parts that are produced by companies that did not produce the original equipment. For example, a motor vehicle is manufactured by Company A. When you replace a certain part, you may use parts that are manufactured by Company B. The parts produced by Company B are aftermarket parts.
These parts include plastic or metal components that form the motor vehicle's exterior, including the outer and inner panels.
Of course, since these parts are not from the original manufacturers, they are cheaper than original parts. Insurance companies, in a bid to control claim costs, prefer using aftermarket parts as opposed to original parts. However, aftermarket parts may be inferior in quality and may not provide a perfect fit with the motor vehicle.
- Agency Companies
Agency Companies are companies that sell insurance products using independent agents. These independent agents "sign up" and fall under the management of a branch manager or a general agent.
An agency company is usually independent and may carry products from various insurance companies. It would be the agents who have "ownership" of the policies that they sell. They also have the freedom to choose which insurance product to sell to their clients. This means that the agency company is able to give their client a better deal, as, in theory, they can compare products from different insurance companies side by side and choose the product that will best fit their client's needs.
An Agent (insurance agent) is someone who sells insurance and other related products. There are two kinds of agents - the independent agents and the exclusive or captive agents. Independent agents are "freelancers", so to speak. They may carry a number of products from more than one insurance company. They are self-employed and only earn on commission. Captive or exclusive agents, on the other hand, are recruited by the insurance company and sell its products exclusively. These captive agents may either be directly employed by the insurance company and are salaried, or they may also work on a commission basis. Captive agents may also earn using a combination of salary and commission.
For an agent to be able to sell insurance, he has to have a license from the state.
- Aleatory Contract
An Aleatory Contract is a contract where one party sells a promise or a guarantee in exchange for something of value (such as money). This promise is linked to the occurrence of an event that is not certain to happen.
An insurance product or contract is an example of an aleatory contract. In exchange for premiums from the policy holders, the insurance company provides a promise that it will pay benefits in cases something happens. For example, an insurance company promises to pay death benefits upon the death of the insured person, when that death falls under the coverage period of the insurance contract. Another example would be a person paying premiums to cover the possibility of a fire or any disastrous event happening on their home. The insurance company will pay the policy owner when his house is destroyed by fire.
- Alien Insurance Company
An Alien Insurance Company is a foreign company that operates in a state or country outside its own. For example, it is a company that is based outside of the United States that decides to put up shop in different states in the U.S.A.
This insurance company is incorporated in keeping with the laws of the country or state they want to operate in.
The Alien Insurance Company gets a license from the state so that it can do business there, such as advertise and sell their products. In return, the insurance company promises to conform to the rules and regulations of the state insurance code. When the insurance company fails to comply with state laws and the state insurance code, it may receive sanctions and may even lose its license.
- Allied Lines
Allied lines are property insurance that are closely related with standard fire insurance. When you buy fire insurance coverage, there may be several add-ins that cover various events. These allied products may include coverage for demolition charges, sprinkler and water damage (flood or rain), damage caused by vandalism, hail, tornado and windstorm. In addition, the allied lines may cover risks related to sprinkler leakage, earthquakes, riots and other civil commotions, data processing and the increased cost of construction.
Allied lines allow coverage for a wider range of losses, over and above fire insurance. This means that the policy and home owner enjoys protection not just from fires but from other risks as well - risks that are also likely to occur to his home.
- Alternative Dispute Resolution (ADR)
Alternative Dispute Resolution refers to actions made by the insurance companies and the claimants as they strive to resolve a dispute. These actions are voluntary, unofficial and are performed with the view of avoiding costly litigation.
In essence, it is coming up with a win-win solution for both parties without having to resort to going to court.
Some alternative dispute resolutions include arbitration (where an independent and neutral third party provides a decision for both parties) and mediation (where a third party attempts to have both sides talk and amicably settle the dispute). The disputing parties may also turn to neutral evaluations where the third party looks at each party's side and gives his opinion on the dispute. Mind you, these actions are non-binding. If you are not satisfied with the resolution, you can still go to court but this will involve considerable expenses of money and time.
- Alternative Markets
Alternative markets are non-traditional means that are used to finance risk, especially for self-insurance. Some businesses have specific needs that may not be covered by traditional products offered by the insurance company. Thus, companies have to turn to other means to answer their coverage needs.
For example, businesses such as the construction business and the nursing home business are usually very hard to insure using traditional products. Often, the premiums for such groups are extremely expensive and prohibitive. Sometimes, the groups are not insurable at all. So what these groups do is to pool their own money as a form of self-insurance.
There are captive and non-captive types. Reinsurance falls under the captive options. Non-captive options include having a deductible plan (where insurance benefit payments are paid less the deductible).
- Annual Annuity Contract Fee
The Annual Annuity Contract Fee is the yearly fee charged for managing an annuity contract. Managing an annuity contract is usually a complicated matter and will require experts to ensure that annuities are well-managed and that the features and details stated in the annuity contracts are fully followed.
The Annual Annuity Contract Fee usually covers the cost for the sponsor to watch out for the investments, as well as generate reports that the annuity holder can understand. This is, on average, around 1 percent of the fund. Aside from this, the Annual Annuity Contract Fee pays for maintaining the records of the annuity.
- Annual Statement
The Annual Statement provides the concise snapshot or summary of the insurance company's finances for a given year of operation. The State Insurance Commission in the state where the insurance company operates requires that this report be submitted every year.
The Annual Statement shows not just what the company earned, but pertinent information such as the amount of reserves it has, its assets, its expenses and liabilities. It also provides information on its investment portfolio, as well as a list of employees that are paid over a certain limit in annual salaries and benefits.
The Annual Statement is the state insurance commission's way of checking whether an insurance company is able to pay for claims against insurance policies they have. The Annual Statement is also used to provide statistics for the insurance industry in that specific state.
An Annuitant is the beneficiary of the annuity contract. In most cases, he receives the annuity payments related to that annuity. The life-insurance policy included in the annuity covers his life and its premiums. Other insurance-related details are based on his life as well. Simply put, the annuitant is considered the beneficiary of a specific annuity. The regular payment he stands to receive is part of a contract and based on the agreement. The benefits the annuitant receives will either be for an indefinite period of time or for a specified period of time.
There will also be times when the annuity owner is not the same as the one receiving the annuity. The annuity owner has the option to annuitize the purchases an annuity and has all rights to the contract.
Annuitization refers to the process of changing an annuity investment and turning it into a succession of periodic payments. These payments may be done either annually, quarterly or monthly. Depending on the kind of annuity selected, the payments may continue for life, for a number of years, or a combination of both. For lifetime annuities, there is also the option of having the regular payments for up to the lifetimes of two annuitants (such as a husband and wife). That means that the annuitants have a guaranteed income that they cannot outlive. The payment only stops when the annuitants pass away.
The regular payments may not necessarily be paid out to the annuity owner - it may go to that person's estate, to the insurance company or to a selected trust.
An annuity is a special kind of insurance contract. It works like an investment account and it usually provides regular payments (often monthly) until the annuitant dies.
Annuities come in two major kinds - the deferred and immediate.
- Deferred annuities - These don't give the regular payments to the annuitant immediately. It comes with an income phase and the savings phase. For the saving phase, the annuity owner pays the company a specified amount for a specified length of time, allowing the annuity value to increase through the years. Then, when the annuitant reaches a certain age (i.e. retirement age), the payments start.
- Immediate annuities are contracts which require a lump sum cash payment and that will provide the annuitant with his regular "income" within 1 year.
- Annuity Accumulation Phase or Period
The Annuity Accumulation Phase or Period is the time by which the annuity owner makes his payments so as to build up the annuity value. This phase is used for deferred annuities. When this phase is over, the annuity payments start.
During the annuity accumulation phase, the investor decides as to how the payments will be spread apart and used in a number of investments. He may also transfer funds from one investment vehicle to another without having to pay for capital gains or income taxes.
The annuity accumulation phase is important since this has an impact on the amount of annuity payments he will get when these payments start. The fact that the investor also has the option to move funds from one investment to the other will also affect the amount of annuity payments as well.
- Annuity Administrative Charges
Annuity Administrative Charges refer to the costs associated for the owner to administer the annuity. These are more or less fees for the customer service they provide such as record keeping and providing you with regular updates as to the status of the annuity.
Annuity administrative charges and other charges related to the annuity make the annuity attractive as a long term investment, when compared to other investment vehicles such as the mutual funds. You see, the benefit of the deferred taxes will exceed the administrative expenses of the annuity for a long time (sometimes as long as over 15 years).
- Annuity Beneficiary
The Annuity Beneficiary is the person who gets the annuity contract payments in the event that the annuity owner dies while he still stands to receive guaranteed payments. The annuity beneficiary is very much the same as the beneficiary of a life insurance policy. It is only after the death of the annuitant that the beneficiary has "rights" or "status" with regards to the annuity.
An annuity beneficiary can either be a person, a partnership, a corporation or a trust. But, unlike the beneficiary of an insurance policy, the annuity beneficiary does not need to have any relationship with the annuitant - they may be virtual strangers, as long as it is the annuitant who chooses that annuity beneficiary. The annuity can also have multiple beneficiaries with a specific percentage assigned to a specific beneficiary.
In most cases, the beneficiary of the annuity would be the spouse of the annuity owner.
- Annuity Certain
An Annuity Certain refers to the type of contract that provides regular payments whether or not the annuitant is alive or dead at the time. The number of payments has already been fixed upon at the beginning of the contract and this period of time will be followed.
The annuity certain also pays out a specified monthly payment amount, again, for a specified time period. Thus, the payments are guaranteed by the insurance company. When the annuitant dies before the specified time is over, the annuity beneficiaries will be the ones who will receive the payments.
This is also called a life annuity certain and continuous or a life annuity certain.
- Annuity Contract
An Annuity Contract is the written agreement between an individual and an insurance company. The contract (like any other contract) states each of the party's responsibilities and benefits. The contract specifies how much the annuitant will pay and for how long, and it specifies the minimum amount that the insurance company will pay once the payment period starts. Thus, the contract serves as the annuitant's guarantee that he will be paid the amount since the insurance company is bound by the contract to do so. This makes the annuity a risk-free retirement income for the annuitant. This contract may exist under a 403 (b) plan.
An annuity contract belongs to what are called tax-sheltered annuities or tax-deferred annuities.
- Annuity Contract Owner
The Annuity Contract Owner has all the rights and responsibilities specified in the annuity contract. He is also usually the annuitant (or the person who gets the regular annuity payments). However, the annuity contract owner may also specify a different annuitant but will just pay the fees required by the insurance company. The Annuity Contract Owner may also select the beneficiary/beneficiaries who will receive the annuity payments in the event that the annuitant dies.
The Annuity owner also has additional rights - like the right to surrender the annuity, make withdrawals from it or change the designated beneficiary. He may also make changes to other terms of the annuity contract.
- Annuity Cost
The Annuity Cost refers to the present value of the future regular payments. These regular payments (as specified by the annuity contract) are computed for and a mathematical model is provided to determine their present value.
The annuity cost may either be net or gross:
- Net: The present value of the future payments minus the provision for expenses (charges that the investor may levy on the annuity).
- Gross: The present value of the future regular payments with a provision for how much the annuity charges will be. Some of the charges may include life insurance component cost, administrative cost and other related costs.
- Annuity Date
The Annuity Date found in the Annuity Contract tells when the first annuity payment is to be made. Simply put, this is the time when the regular payments start to kick in. Now, the annuity date does not prevent the annuity owner to enjoy access to the annuity, even before the annuity date arrives. As an annuity owner, you can still apply for a lump sum payment of your annuity (as computed by the annuity's present value less charges such as surrender fees). You can also select to have a periodic income that will be paid even before the annuity date. You may also make withdrawals from the annuity, subject to certain withdrawal fees.
This is also sometimes called the Maturity Date.
- Annuity Death Benefits
The Annuity Death Benefits provides the beneficiaries with a guarantee that they will receive the value of annuity that the insurance company still owes to the annuitant.
The requirement for these annuity death benefits to be paid to the spouse (if the spouse is the beneficiary) is that the beneficiary spouse should be living with the deceased annuitant at the time of his/her death. Now, if there is no spouse who will receive the annuities, the children can be made eligible. They stand to receive a regular social security stipend. This is usually a percentage of the "pension" the annuitant should have been receiving had he been alive.
Annuity Death Benefits are subject to taxes on the interest accrued.
- Annuity Insurance Charges
The Annuity Insurance Charges pays for the life insurance component of the annuity. This means the cost regarding mortality, as well as expense risk costs and other administrative insurance charges. The life insurance component of the annuity usually charges around 1% of the annuity's value.
The Annuity Insurance Charges form part of the basic fees levied by annuities. Other charges include administrative charges, sales commissions, management charges and so on. These fees are part of the computation in finding out the annuity payment amounts as well as the interest. It would do good to look at these expenses when determining the best annuity.
- Annuity Investment Management Fee
The Annuity Investment Management Fee is the fee charged for the service of managing the annuity's invested assets. In the same way that a management fee is paid to a mutual fund, you are also charged a management fee for someone to look after the investments, particularly when the annuity provides you with regular and intensive monitoring and management reports.
This fee is usually deducted from the returns you get from the annuity, along with other basic fees such as administrative fees, mortality fees (payment for the life insurance component of the annuity) and other related fees. These fees are usually computed and specified in the annuity contract.
- Annuity Issuer
The Annuity Issuer is the Insurance Company that sold and issued a specific annuity. The Annuity Issuer is bound by law and responsible in ensuring that whatever amount they have promised in the annuity contract is paid at the annuity payments should start. The stability, financial soundness and strength of the annuity issuer are important for you to ensure that you get the money you need, when you need it.
Also, when determining the annuity issuer, check that company's solvency (or its ability to pay off its claims) and reserve level. Check the present and maturing obligations to see whether it is at a surplus. It is also important for the company to show how it invests the money entrusted to them. The annuity issuer should also have a firm reputation for integrity and the commitment to put the needs of the customer (that is, you) first.
- Annuity Prospectus
The Annuity Prospectus provides the prospective buyer with detailed information as to how the annuity will go. This is a legal document that shows the responsibilities and benefits of the annuity - how much the annuitant needs to pay and for how long, as well as how much the annuitant should expect when the annuity payments are about to start.
More than just a marketing tool, the annuity prospectus provides the details such as the stocks that are to be invested in (their companies), as well as other fundamentals and technical data. The prospectus should also show the company's goals (in terms of their investments), as well as how (and to what extent) they were successful in obtaining those investment goals.
- Annuity Purchase Rate
The Annuity Purchase Rate refers to the cost of the annuity. This is based on the annuitant's age and gender, as well as the length of time left before the annuitant reaches Retirement Age. These are based on the insurance mortality tables, as well as other factors such as interest rate.
The Annuity Purchase Rate is also used to compute for how much the annuity owner has to pay and for how long, as well as the monthly (or regular) annuity payments he or she stands to receive when the payment period starts.
The Insurance Company's actuarial team is responsible for computing the Annuity Purchase Rate.
Antiselection refers to the tendency of people who need insurance to buy insurance. Meaning, those who are likely to make claims are the ones that seek to be insured. This includes people who live dangerous lifestyles (motor cross bikers, scuba divers) and those who have dangerous jobs (racecar drivers).
Those who fall under antiselection also have the tendency to falsify their insurance declarations or conceal relevant information that would otherwise prevent the insurance company from accepting their application.
To prevent antiselection from happening, insurance companies can raise the premiums or limit coverage for a specified group of people. Antiselection will have an adverse effect on profitability, since insurance works at its best when risk is spread to a large group of people and to an extended period of time.
- Antitrust Laws
Antitrust laws work to protect consumers from high prices brought about by unfair business practices and anti-competitive behavior. This means that companies selling the same product or service are not allowed to talk with each other and agree on a set price, which will result in a disadvantage to their customers.
Antitrust laws aim to encourage a healthy competition among the business establishments, so that they will offer customers quality service at a reasonable price.
Insurance Companies are exempted from the Antitrust laws and they are allowed to work together in developing insurance forms that will be offered to the public. They are also allowed to share pertinent information such as experience loss data which will help them determine the premiums for their insurance policies.
Apportionment refers to the equitable or proportional division of loss (from a claim made) among more than one insurer. Meaning if there are two or more insurers that cover the exact same loss, they will proportionately divide the amount to be paid to the claimant, based on the amount of loss they cover.
For example, a house is insured under different insurance policies and companies. Policy A covers $80,000, Policy B covers $50,000, Policy C has a coverage of $70,000 and Policy D covers $60,000, with the total coverage amounting to $260,000. When the insured makes a claim because of damage to the house, Policy A will pay 30.77% of the loss, Policy B will pay 19.23%, Policy C will pay 26.92% and Policy D will pay 21.43% of the loss being claimed.
An Appraisal provides the value of the property or the amount of the loss to be claimed when that insured property is damaged.
The appraisal provides a report as to:
- The estimated value of the property or asset: This happens when a piece of art work, a precious metal, a building is being insured. An appraisal is needed so that the insurance company knows how much to insure the property. Having your property appraised before you insure it prevents under-insuring. You more or less are able to insure your property for the amount that it is currently worth in the market. Otherwise, you may have to fork more money to rebuild or replace that property when it is lost.
- The estimated value of the claims to be paid: When a claim is made, an appraisal is also needed to determine just how much the insurance company has to pay in claims. When a loss is incurred, such as a loss of a building because of a covered hazard like a fire, the appraisal will compute how much it would take to replace the building (this includes materials, labor costs, taxes, etc.).
Arbitration refers to the process by which a third party helps to resolve a dispute between the insurance company and the insured.
Sometimes, when an insured person makes a claim against losses towards himself or his property (if these are insured), the insurance company does not always agree on the validity of the claim. Or, the insured may not agree on the amount of benefits/claims payment given by the insurance company. Thus, an impartial third party is called upon to make a finding or to help both parties to come to an amicable agreement.
Arbitration is often non-binding, meaning you can still go to court if you are unsatisfied with the result. However, the consideration would be the crippling costs of suing someone, as well as the time it will take you, time that you can use for other more profitable activities.
Arson refers to the act of deliberately setting a fire. Arson may be attempted or an actual act that causes the loss of property of another party. That means the insurance company will pay for damages to the insured property that is caused by arson. However, payments will not be made if it is proven that it is the policy owner or the insured that committed the arson. This is to prevent people from burning their insured properties just to file a claim against that property. There are some states, however, that eliminated this rule.
Arson is a criminal offense subject to penalties imposed by the state. Penalties may go to as high as death penalty. The degree of the penalty depends on whether the arson was caused by recklessness or by criminal intent or malice. Also, the penalty is at its most severe when a human life is killed or endangered.
- A-Share Variable Annuity
An A-Share Variable Annuity is a variable annuity that requires the annuity owner to pay sales charges at the start of the contract. The sales charges are paid in lieu of a surrender charge that is levied if ever the annuity owner decides to surrender the annuity.
As for its variable component, this refers to the fact that the annuity payments are not guaranteed - they will depend on the performance of the investments. The insurance company will only guarantee a minimum return, the remaining income payments may change. This is contrasted with the fixed annuity, which guarantees the payments of the annuity, whether the investments perform well or not.
- Asset-Backed Securities
Asset-Backed Securities are bonds or financial securities that are backed by a loan, or a pool of loan. These may also be backed by receivables against assets (other than real estate), as well as a lease, royalties and credit card debt.
Called an ABS for short, this is very similar to a mortgage-backed security, except that these do not use mortgage-based securities to back it up.
With asset-backed securities, the company that originated the underlying loans or receivables does not stand as the guarantor or the obligor. Thus, it is important for those looking to invest in asset-backed securities to evaluate the standing of the insurer or the guarantor, as well as the extent of investment protection they will provide.
Assets are the property owned by the insurance company and that are part of the evaluation of the company's standing, stability, solvency and ability to pay its claims and obligations. The insurance company is required to give the state insurance commission a thorough listing of their assets (which they will put in their balance sheet).
The state insurance commission requires that the valuation of the company's assets should be conservative. That means that any company asset that has an uncertain value (accounts receivables of over 90 days past due, furniture, fixtures and debit balances are to be excluded from the list of assets. The assets that are allowed to be included in the balance sheet are called Admitted Assets.
- Assigned Risk Plans
Assigned Risk Plans are ways in which drivers can buy auto insurance in case they are not able to buy it in the regular market. The state will assign the auto-insurance to be sold to this group of drivers to an insurance company. Each insurance company that is licensed to operate in a certain state are required to take on the insurance assigned to them. What happens is that when the premium rates for these drivers are too high (because they may have a history of vehicular accidents, or have bad driving records, etc.), the company will have to make up for the difference in the premium by passing on the costs to all of their customers. This means that the insurance company can set their own rate, but the rest of the insurance company's customers will have to shoulder the difference.
For life insurance policies, an assignment refers to the transfer of the benefits and proceeds of the policy to another person or entity. The policy owner signs off the rights and claims to the policy to someone else (usually a creditor). The person who accepts the transfer is called an assignee. If the insured person dies while the assignment is in place, the assignee will receive a portion of the death benefit.
For example, John transfers his life insurance policy (which has a coverage of $50,000) and assigns it to Credit Company A (to whom John owes $30,000). If John dies during the time that the life insurance policy is assigned to Credit Company A, the company will receive the $30,000 that John owes to them. The rest of the balance ($20,000) is given the John's beneficiaries.
- Association Group
An Association Group is a type of group that has members because of a specific affinity. For example, a group of teachers band together to form a teachers' association that will support the needs of their members, as well as protect their members from unfair labor practices. Association groups may be comprised of people with the same profession, religious organizations, a group of small businesses and trade associations. Most of these groups may offer insurance (such as group life and health insurance) as part of the membership benefits.
However, the law dictates that the association group should be formed because of a specific set of reasons, and not just for the purpose of obtaining insurance coverage for their members. This prevents antiselection.
- Auto Insurance Policy
Auto Insurance policy protects the policy owner against losses and liability caused by vehicular accidents. An auto insurance policy may cover a list of hazards:
- Bodily injury liability: when a policy owner has to pay for injuries he caused to someone else as a result of a vehicular accident.
- Property damage liability: when a policy owner has to pay for damage to someone else's property (i.e. the cost to repair another vehicle, the cost to repair the glass front in a store hit by the policy owner's vehicle, etc.)
- Personal Injury Protection (PIP) or Medical Payments Protection: when a policy owner needs to pay for the hospitalization and recovery of the driver and passengers riding in the policy owner's car.
- Collision: Pays for any damage to the policy owner's car because of a collision.
- Uninsured motorists coverage: Pays for any costs incurred involving a hit-and-run accident and the driver of the other car is uninsured.
- Comprehensive insurance: protects the policy owner against losses other than a collision (this includes riots, earthquakes, floods, explosions and fire).
- Auto Insurance Premium
Auto Insurance Premium refers to the charges levied by the insurance company in exchange for auto insurance coverage. The premiums may change from company to company, as well as customer to customer.
A number of factors are taken into consideration when computing for the auto insurance commission. This includes previous loss experience (whether the driver has a record of vehicular accidents that the company paid for), the model and make of the car, the driver's driving record (including the years he has been driving), and so on.
The premiums for those who have already made costly claims will be higher than those who haven't made a claim at all.
- Aviation Insurance
Aviation Insurance refers to the property insurance that commercial airlines hold on their airplanes. Aviation insurance protects against loss because of an aviation accident, as well as liability insurance for acts of negligence that caused harm and damage to property of the passengers and to others.
Aviation insurance covers the plane both when it is in the ground, and on the air. The policy will look into the geographical area by which the planes are routed, as well as the individual pilots that pilot the plane.
Aviation insurance protects against:
- damage and loss to the insured plane - the hull of the plane, as well as other parts (radios, Autopilots, instruments);
- liability due to loss to negligence on the part of the insured and its representatives. This includes accidents due to negligent acts and bodily injury and property damage to passengers and other people.