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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.

Balance Sheet

The Balance Sheet is a snapshot of the company's assets, liabilities and shareholders' equity. It is a picture of the company's financial condition at that point in time. The assets and the liabilities (which also includes shareholders' equity) should balance out.

For insurance companies, this is important since this is part of the valuation made by the state insurance commission. Assets include investments and reinsurance. Liabilities include loss reserves (needed to pay future claims). The company's equity (which is also known as the policyholder surplus) is also another important indicator of the insurance company's financial standing.

Insurance companies are required to submit annual financial reports, including the balance sheet.

Bank Holding Company

A Bank Holding Company is a company that has ownership or control over one of more banks. Control would refer to the holding company's having a controlling interest in a bank.

The government (the Federal Reserve in particular) is responsible for supervising and regulating the activities of a bank holding company. This includes looking into and approving any acquisitions and mergers the bank holding company gets into, as well as inspecting the company and their operations. This responsibility is in place, even when the bank is supervised by the Federal Deposit Insurance Corporation (FDIC) or a different federal agency, such as the Comptroller of the Currency.

Basis Point

The basis point is the smallest measure used in quoting yields on bonds, notes, bills or mortgages. One basis point is equal to 0.01 percent or one one-hundredth of a percent of a yield. One hundred basis points are equal to 1% of the yield.

To illustrate, when you say that a bond's yield has decreased from 8.50% to 8.00%, that bond's yield has dropped by 50 basis points. Meanwhile, a bond whose yield to maturity increases from 9.00% to 9.25% has moved 25 basis points in yield.

Basis points are commonly used in the banking and insurance industries, as these make use of investment vehicles such as notes and bonds.

Beach and Windstorm Plans

Beach and Windstorm plans protect against losses due to windstorms and hurricanes.

This kind of insurance is usually sold by state-sponsored insurance pools, since the voluntary market does not sell this. Most insurance companies do not willingly sell this kind of plan because of the high risk exposure, especially in states where windstorms and hurricanes often occur. The insurance pools are made up of insurance companies that are licensed to operate in a specific state. The insurance companies are required to sell a certain part of the risk. However, the funding and the mechanics for beach and windstorm plans may vary from state to state.

Beneficiary

The beneficiary is the person or organization that stands to benefit from an insurance policy in the event that an insured loss happens.

That is, for a life insurance policy, the beneficiaries will get the death benefit when the insured person dies. There are certain guidelines covering the topic of who is allowed to become a beneficiary. These beneficiaries must survive the insured person's death in order to get the insurance proceeds.

There are different kinds of beneficiaries. There are primary and secondary beneficiaries. The primary beneficiaries are first in line to get the benefits. In the event that the primary beneficiaries all die before the death of the insured, the secondary beneficiaries will receive the insurance proceeds. A revocable beneficiary is one whose name can be removed from the beneficiary list while the irrevocable beneficiary can have his or her name removed from the list of beneficiaries only with his or her written consent.

Binder

A Binder is a temporary and immediate authorization of coverage. It can come in written or oral form and is given before the actual insurance policy is issued. The binder serves to bind both parties (the prospective policy owner and the insurance company) to the insurance contract. It provides temporary insurance coverage to the prospective policy owner until such time that the insurance company accepts or denies his application.

For example, while waiting for a person's information that is pertinent to the insurance policy (health documents, credit history and past insurance history), a binder is provided by Johnny's insurance agent. The binder effectively protects Johnny as a regular insurance policy would. However, the coverage will lose its effectiveness after 10 days.

The binder requires the following information:

  • the name of the prospective insured
  • the name of the insurance company
  • the kind of insurance coverage
  • the limits with respect to the face amount or the kind of insurance
  • the perils or hazards being covered
Blanket Insurance

A Blanket Insurance is a type of insurance that protects various types of property at one location or one type of property located in different locations.

For example, a chain store may have its different branches insured under one insurance policy. Even merchandise that is in transit from one store to the other can be covered. Another example would be homeowner's insurance, where not only the home (the structure) is insured, but all the property housed in that room (electronics, appliances, furniture, etc.).

Blanket insurance also refers to insurance where all the members of the association or group are not named but are covered nonetheless because of their membership to the group.

Bodily Injury Liability Coverage

The Bodily Injury Liability Coverage protects the insured from any losses or liability due to injury or death the driver (policyholder) causes to others. This coverage is part of the auto insurance policy.

The Bodily Injury Liability Coverage also provides for payments for claims such as loss of income, medical bills, compensation for pain and suffering that the injured party may demand from the policyholder.

This coverage provides a legal defense against lawsuits filed against the insured by the ones who were injured in the accident. Bodily Injury Liability Coverage does not protect losses incurred on your car, so it is best to have both kinds of coverage in an insurance policy.

Be also sure to check the limits of coverage a certain policy offers in terms of bodily injury liability. If the coverage is too small, you may have to be responsible for any claims above the limit.

Boiler and Machinery Insurance

Boiler and Machinery Insurance provides protection against damage and losses caused by equipment breakdown and malfunction, as well as sudden explosions. This equipment includes steam boilers, computer systems, telephone systems, heating, air conditioning and electrical system.

This covers damage to business property, as well as legal fees related to the incident.

This insurance is also called Systems Breakdown and Equipment Breakdown insurance. This is a type of commercial insurance that may be availed by a company or business. Most of the property insurance policies in the market do not cover these hazards so it is wise for a business to also buy this kind of insurance.

Bond

A Bond is a security that holds the issuer responsible for repaying the principal amount when the loan matures, as well as paying interest at a specified period within the duration of the loan.

For insurance, it is a form of surety, since insurance guarantees payment for losses. Insurance will reimburse and pay for financial losses because of failure to perform, dishonesty and other acts that affect the business.

The government, the different states, municipalities and companies make use of bond to fund their activities and projects. As such, bonds fall under the three main asset classes, which also include cash equivalents and stocks.

The interest offered depends on the duration of the bond as well as the credit quality. Bond maturities may last as quickly as 90 days (or Treasury bills) to 30 years (for government bonds). Typically, though, these last from 3 to 10 years.

Bond Rating

The Bond Rating provides an evaluation of the financial strength and credit quality of a bond that is being offered in the securities market. Most of these are conducted by major rating agencies such as Moody's Investors Service, Fitch Ratings and Standard & Poor's.

The Bond Rating provides a grade - the lowest being "C" or junk bonds, and the highest being "AAA".

The grades (in Standard & Poor's format) are as follows:

D - Bonds that are in default because of non-payment of the interest and sometimes even the principal.

C, CC, CCC, B, CC - Bonds that have low credit quality

BBB, A - Bonds with medium credit-quality investment grade

AA, AAA - Bonds with high credit-quality investment grade

Book of Business

The Book of Business provides information as to the total amount of insurance that an insurance company has in its books at a specific point in time. The Book of Business helps to determine the amount in client assets.

This lists the clients, their particular policies and the different details (face amount, cash values, etc.).

The Book of Business is used by other businesses such as insurance sales agents, financial advisors, investment bankers and private bankers, as well as financial planners. This refers to the list of client of the business or agent.

This is also called "accounts" or the list of "clients".

Broker

A broker is a type of intermediary between the insurance company and a customer (an individual or any legal entity). The insurance broker is licensed to sell insurance products, as well as possess a license as securities brokers/dealers in order for them to sell variable annuities.

A broker typically has access and license to sell the products of more than one insurance company. The broker picks which one he thinks will answer the client's needs best in terms of coverage and rates.

A broker usually earns by getting a commission from the premiums made towards the insurance company. Brokers concentrate more on commercial insurance, rather than personal insurance.

B-Share Variable Annuity

A B-Share Variable Annuity is a type of variable annuity that does not levy a sales charge at the start of the annuity contract. However, if the annuity owner decides to cancel the contract before it reaches its annuity date, he will have to pay the deferred sales charges. These charges depend on the period he surrendered the annuity. The rate is usually from 5% to 7% during the first year of the annuity. The surrender rate will slide down to 0 after about 5 to 7 years.

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.

Burglary and Theft Insurance

Burglary and Theft Insurance refers to coverage for the loss of property because or theft, robbery and burglary. This kind of insurance is usually available to businesses and homeowners. This coverage is provided in policies such as a business multiple peril policy and standard homeowners policy.

The insurance covers acts not just those made by employees, but other individuals as well. This includes theft of merchandise, losses caused by forgery (check forgery, forgery of warehouse receipts, credit card forgery), theft of office equipment, payroll robbery, wrongful obstruction of securities, robbery of materials inside the business premises and losses from safe deposit boxes.

Business Income and Extra Expense Insurance (Business Interruption Insurance)

Business Income and Extra Expense Insurance is paid to a business owner. This kind of commercial insurance protects the business owner in case something happens to the business. The peril must be covered under the insurance contract (i.e. a fire, a theft, etc.).

The insurance pays for financial losses the business owner may incur because he is unable to do business - there is physical damage to the business establishment, or civil authorities may ban access to an area so that customers are unable to go to the business establishment. The purpose of this insurance is to provide the business owner with the necessary funds to continue operating after experiencing a covered loss.

This kind of insurance usually has a waiting period, after which the insurance starts to pay for the benefits. These benefits may last for two weeks or more.

Businessowners Policy (BOP)

A Businessowners Policy provides extensive coverage and protection to business, especially small-to-medium-sized businesses. This includes protection of property, business interruption and liability.

This kind of policy is usually economical, as opposed to buying separate insurance policies for each kind of coverage.

The coverage includes (1) destruction or damage to a business property or (2) losses due to the negligence or mistakes of the representatives of the business that results in bodily injury to others.

To qualify, the business must have a building three stories or lower and has a floor area of not more than 100,000 square feet. It may also cover building that have no more than 7,500 square feet for commercial space and apartment buildings six stories or less.

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