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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.

Face Amount

The Face Amount refers to the amount of insurance that a policy covers.

For life insurance policies, it is the amount stated in the insurance policy, the minimum that will be paid upon the death of the person insured, when the policy matures, or the total disability of the insured person (if the policy has a disability provision). The actual death benefit or maturity may be greater depending on dividends and other interest earnings, when applicable.

This amount is stated in the declaration page of the policy.

The face amount is one of the factors that will determine how much the insured will pay as premiums.

Facultative Reinsurance

Facultative Reinsurance refers to the reinsurance policy that gives the insurance company coverage for a certain risk that might be so big or unusual. Examples of the risk that might be covered here would be property insurance for oil rigs or jumbo jets.

The insurance company is not bound to cede the insurance and the reinsurer is not bound to accept the reinsurance. They are free to act based on their best interest. This is different compared to the treaty reinsurance the insurance company or the reinsurance company might have, where there is a prior agreement that the reinsurance will always assume a proportion of the premiums.

Facultative reinsurance may either be proportional or non-proportional. For facultative reinsurance, the reinsurer gets a portion of the losses, as well as the premiums. For non-proportional facultative reinsurance, the reinsurance company will only pay for the losses that go above the insurance company's level of retention.

Fair Access to Insurance Requirements Plans / Fair Plans

Fair Access to Insurance Requirements Plans refers to insurance pools that provide insurance to those who cannot buy it from admitted insurance companies. These are for people with risks that they cannot control but are very likely to happen.

For example, those living in riot-prone areas may have a hard time buying insurance for their homes that will cover losses or damage incurred because of riots.

Also called FAIR Plans, this is state-sponsored. The government requires property insurance companies licensed with them to participate in the pool. FAIR Plans are sold in some states in the U.S., and sell windstorm, fire, riot and vandalism coverage. The products sold may vary from state to state.

Family Benefit Coverage

Family Benefit Coverage refers to the option that the insurance will also cover the spouse and the children of the main person being insured. This is mostly offered for accident and health coverage.

This type of coverage will cover the eligible family dependents. There is usually an age limit and some conditions that must be met. Once the child reaches the age limit, he is no longer eligible for the coverage.

The structure of the plan is also different for this kind of coverage and there is a maximum deductible per family for each year.

The premiums are the same regardless of the number of children, but this may also be subject to a maximum limit.

Farmowners-Ranchowners Insurance

Farmowners-Ranchowners Insurance is a policy that provides protection against risks and liabilities that may arise and will involve homes, barns, stables, silos and other structures. This means that the coverage is expanded to cover farm buildings, as well as farm-related equipment and machinery, stored hay and grain. The farmowners-ranchowners insurance is specially designed to meet the unique needs of those who operate ranches and farms.

The policy often includes dwelling coverage (which covers losses against weather, crime and fire for the owner's house and personal property, as well as addition living expenses) and farm personal property (where owners can choose between a blanket coverage or a scheduled coverage). It will also cover other structures found on the premises as well as liability and medical payments.

Federal Funds

Federal Funds refer to funds or reserve balances that banks and other depository institutions borrow and lend on an overnight basis.

Banks are required to keep a certain amount of money at the Federal Reserve as their bank reserves and to clear other financial transactions as well. However, there are times when banks have extra cash - more than what they are required to have in their reserve accounts. Banks either lend this to other banks overnight (with reserve deficiencies) or deposit the money in a Federal Reserve bank for a certain interest. This rate of interest is called the federal funds rate.

This process enables idle funds to yield a return.

Federal Funds also describe the money that is used to buy government securities in an effort to tighten money supply and prevent inflation. It does this by taking the money out of circulation.

Federal Insurance Administration (FIA)

The Federal Insurance Administration is the federal agency that maintains flood-related claims files in the United States. This federal agency functions not as a regulating body for the insurance industry but to administer the country's Federal Flood Insurance Program, the Fair Access to Insurance Requirement Plan, as well as the Federal Crime Insurance Program.

The FIA has thousands of records of claims, that may be accessed by insurance companies and other interested parties in order to analyze, sort and use the information for premiums computations and other insurance-related tools.

The Flood Insurance Program ensured that residents of flood-prone areas are able to get insurance coverage for their homes in case there is a flood, especially to communities which adopt floodplain management practices.

Federal Reserve Board

The Federal Reserve Board refers to the body that issues regulations as to the operations of banks and bank holding companies. It essentially helps in regulating these entities, as well as in controlling and overseeing the U.S. credit supply and money system abroad. Although it regulates and supervises the banking system in the country, it does not have complete responsibility over it.

The institutions that fall under its regulation include state-chartered banks, the activities of member banks abroad, the local activities of foreign banks, as well as companies that have controlling interest over banks.

There are times when the regulations issued by the board apply to member banks, and there are times when the regulations apply to the entire banking industry.

Fidelity Bond

A Fidelity Bond provides protection to companies in cases where they incur losses because of the fraudulent and dishonest acts of their employees.

The insurance company will pay for the losses and the employees may either be named or titles of the employees. These are mainly employees that hold positions of confidence in the company.

The fidelity bond will cover acts such as willful misapplication, theft (whether physical or intellectual theft), embezzlement, larceny, misappropriation, forgery or wrongful abstractions. The cover stays whether the employees commit the fraudulent act by themselves or as a team.

A Fidelity Bond is useful since it keeps records and will help companies thinking of hiring an individual to check whether there has been dishonesty in the prospective employee's work history.

Fiduciary Bond

A Fiduciary Bond, is a bond that ensures that people holding positions of trust and confidence perform their duties and responsibilities. The persons being covered in such a bond usually are trustees, executors or court-appointed guardians. These may have wide responsibilities, ranging from providing financial advice and services or managing an estate.

This bond is aimed to protect the interests of the person for whom the fiduciary is acting. This is especially true if the person is an invalid or a minor.

When applying for the bond, the fiduciary guarantees the payment of the amount of the bond purchased in the event that he fails to perform his responsibilities as a fiduciary. If the person for which the fiduciary is acting is over 18 years of age, that person can apply to say that the fiduciary bond requirement is waived.

Fiduciary Liability

The Fiduciary Liability refers to the legal responsibility of a person holding a position of trust to safeguard the assets of the persons for whom he is acting. Examples of a fiduciary may be executors or pension fund managers.

Fiduciary liability insurance provides beneficiaries with protection for losses they incur in cases the fiduciary fails in his duty, that is, there is a breach of trust. Examples of this may be providing the beneficiary with misleading statements of committing omissions or errors that will harm the interest of the beneficiary.

This kind of insurance may be taken by the fiduciaries themselves since there are cases where the fiduciaries are made personally liable for breaches. This is particularly true for fund managers handling ERISA funds.

The insurance will pay for legal liability arising from claims or alleged errors or failures on the part of the fiduciary to protect the interest of the beneficiary.

File-and-Use States

File-and-Use States refer to states where insurance companies can file for changes in their premiums and immediately put them into effect without having to wait for the approval of the state regulator such as the state insurance commission. This is in contrast with states that are not file-and-use states, where the insurance company has to wait for their new proposed premiums rates to be approved before they can apply these to their insurance policies.

The principle behind this is that the state believes that it is market competition that will regulate the rates, as insurance companies compete with each other for clients. The more attractive the rates these companies provide, the more clients they can get.

Financial Guarantee Insurance

Financial Guarantee Insurance provides protection so that the investor will receive the principal and the interest in case there is a default. This is applicable to financial transactions that involve debt instruments such as municipal bonds. In short, this is insurance to protect lenders in case a borrower fails to repay the loan on time.

Sometimes, it is those who sell debt instruments and asset-backed securities themselves who buy financial guarantee insurance in an effort to improve their credit rating and marketability.

This kind of insurance may also protect the insured from losses brought about by the decrease in interest rates.

Financial Responsibility Law

The Financial Responsibility Law is a state law that requires all drivers of automobiles in that state. These drivers should be able to prove that they have the means to pay damages up to the minimum amount prescribed by the state in case they get involved in an accident.

This is to ensure that claims arising from such events will be paid and that someone who is injured from an accident is compensated. The minimum amount may vary from state to state.

Also, since the financial responsibilities involved in automobile accident can sometimes be very high, very few drivers will have the ability to pay for the damages on their own. This is where insurance will come into play. Auto liability insurance will cover these financial responsibilities.

Finite Risk Reinsurance

Finite Risk Reinsurance refers to a reinsurance contract that has prescribed limits when it comes to the reinsurer's liabilities. Also, all investment income expected from the policy is part of the underwriting process in setting the premiums.

This kind of agreement enables the insurance company to improve or protect its bottom line by protecting the loss reserves of the company. It does this by transferring some of the risk to the reinsurer.

Finite Risk Reinsurance is characterized by a cap on the reinsurer's part (a limit on just how much of the risk it will assume) and a low risk margin (since reinsurers have the ability to recover its paid losses). But, in the vent that a policy provides a favorable loss experience, the reinsurer may provide profit commissions to the insurance company that ceded the risk.

Fire Insurance

Fire Insurance provides protection against losses resulting from an insured property being destroyed or damaged by fire. This is usually included in the homeowners insurance or from commercial multiple peril insurance. Fire insurance usually also covers fires caused by lightning.

The benefit payments that will be given depend on the type of policy. There are insurance policies that pay for the actual value of the property and there are some that pay the replacement value of the property. For replacement value, the insurance company will pay for the amount needed to replace the damaged property, less depreciation.

Your fire insurance coverage should be adjusted from time to time to account for increases and decreases in property values.

First-Party Coverage

First-Party Coverage refers to protection given for claims that the insured person will have for himself or for his property.

This means that for automobile insurance, it will pay for damages to your vehicle, as well as personal injury protection (if this is included). This is especially true for no-fault auto insurance.

First party coverage should include collision insurance (which will pay for repairs when the insured's car is damaged, regardless of who caused the accident). In the event that it was another person's fault, what will happen is that the insured's insurance company will go after the insurance company of the person who was at fault.

Please note, though, that some acts of nature may not be covered by the policy, so it is recommended that you check the policy to see what it covers.

Fixed Annuity

A Fixed Annuity is a type of annuity that provides a guaranteed rate of return.

A fixed annuity is also called an equal or flat annuity. This is because during the payment phase, the annuity will pay a guaranteed fixed amount depending on the schedule of the annuity.

With this kind of annuity, the annuitant can have the confidence that he will receive a fixed amount every time. This makes the fixed annuity more stable than the variable annuity, since the interest in variable annuities may be lower if the market performs badly. However, the fixed annuity as the disadvantage that it is less flexible than a variable annuity, in the event that there are improvements in market rates.

To decide, it really depends on the prospective annuitant's priorities - to have stable payments or to maximize the income (but will have to face the risk of lower interest).

Flexible Premium

A Flexible Premium refers to a premium payment type that allows the policy owner the freedom to change the amount of premiums he needs to pay at a certain time, as well as the frequency of the payments. This is subject to certain limits specified by the policy.

It is important, especially for life policies since these changes in the premium will have long term effects on the value of the policy. The policy owner has to insure that the cash value is adequate to cover for the cost of insurance. If the policy owner pays less regularly or at lesser amounts than expected, the policy may require higher payments the next time, in order to keep the policy in force.

What's best is to have annual reports from the insurance company so that the policy owner is updated as to the status of the policy and its cash value.

Floater

A Floater is an attachment to the policy that provides protection for property that is easily movable. A Floater provides additional protection that the standard insurance policy does not cover.

This is commonly used for property insurance such as homeowners' insurance. A person can attach a floater to his standard homeowners' insurance policy in order to provide coverage for pieces such as expensive jewelry, furs, electric appliances such as stereo equipment and musical instruments. These things are easily removed from a person's house.

You may need to specify the property that you want insured, so there may be a need to get a floater for each of the expensive equipment and jewelry you want protected.

Flood Insurance

Flood Insurance provides protection against losses and damage caused by flood. This is normally not covered by the standard homeowner's insurance or commercial property insurance since a huge percentage of applicants for these policies also pose a high risk to make flood-related claims. Instead, flood insurance is commonly sold by licensed insurance agents through the National Flood Insurance Program.

Floods can causes losses that may include damage to the home due to debris, silt and mud that entered or even filled the home. Homes may also be left more susceptible to mildew, rot and mold. Flood insurance can pay for the repairs and rebuilding of covered structures, as well as living expenses while the residents are forced to live in temporary shelters.

The cost of flood insurance is dependent on the location of the homes or property being insured. There are also some areas that have been designated as flood zones to help compute for the risk.

For automobile insurance, depending on the policy, flood damage may also be covered.

Forced Place Insurance

Forced Place Insurance refers to insurance that has been bought by a lender such as a bank in behalf of an uninsured borrower.

The lender buys this insurance for property in case the borrower fails to buy the coverage stipulated in the loan agreement. Forced Place Insurance is to protect the lender's interest on a property that has been bought using a loan. The lender wants to ensure that in case the property is damaged, there is a source of funds by which to repair or replace it.

Forced Placed Insurance will only cover the lender's interest in your property, and will not provide protection for financial responsibility requirements (this will be provided by a separate liability insurance).

Foreign Insurance Company

A Foreign Insurance Company is a company that is based outside of the country or outside of a state but would like to operate in a specific state. To be able to sell insurance in that state, a foreign insurance company must apply for a license and must comply with the laws and regulations of the state. The company will also be under the regulation of the state Insurance Commission.

The foreign insurance company must submit their application and pay a license fee (usually non-refundable). The applying insurance company must show that they have successfully conducted its business (by showing a net income for the last three consecutive years). The applying insurance company must also show that it has the manpower and the ability to run the business properly.

Fraternal Benefit Society

A Fraternal Benefit Society is an voluntary association or organization that exists for mutual aid or benefit. A fraternal benefit society is characterized by its established customs and charters and may also collect funds for payment of benefits provided by the fraternal benefit society.

Benefit societies exist mainly because of shared goals, occupation, religion, ethnic background or any other basis. Some of the goals that these societies may have are to preserve cultural traditions, acts of charity and benevolence, as well as mutual defense. It may provide benefits such as mutual support, a place to belong, assistance and money during a member's sickness, education, maternal benefits, and so on.

Some examples of these societies include self-help groups, trade unions, the Rotary, immigrant hometown societies and friendly societies.

Fraternal Insurer

A Fraternal Insurer is an organization that exists to provide insurance benefits for its members, as well as other benefits. Essentially, the beneficiaries of these benefits are only their own members. But there are also others that may also provide coverage for non-members.

Fraternal insurers also fall under the regulation of the state, even though they just comprise a small piece of the insurance market pie.

Fraternal insurers may be able to compete with other insurers, as they can also offer clients a good price. They also have the added attraction since people, especially those who belong to the same religious or civic group, perceive them a highly responsible in handling funds entrusted to them.

Fraternal life insurers also have the advantage of a open contract, where the insurers have the option to assess their policyholders during times of financial crisis.

Fraud

Fraud refers to the act of intentionally concealing or lying.

For the insurance industry, this can refer to receiving claims payment for something that should otherwise not be paid had the insurance company known the actual situation. On the part of the insurance company, it can mean misrepresentation or lying done by the company's agents and brokers, or employees and managers, all for the sake of financial gain.

Insurance claims fraud negatively impacts all clients, since the large losses due to fraudulent claims affect the company's profits, and subsequently the premiums offered to clients.

To prevent losses due to fraud, some large or potentially fraudulent claims are assigned to a claims adjuster or insurance professional who will review the claims. If the claims are discovered to be fraudulent, the insurance company will deny payment of the claim.

Free-Look period

A Free-Look period is a time given to the policyholder or annuitant owner to review the policy or annuitant and cancel it at any time with no penalty. The policyholder or annuitant does not have to give a reason as to why he decided to cancel. The company will refund premiums or initial payments.

The Free-Look Period may vary from company to company and from state to state. The purpose of this period is to provide transparency for the client to make him feel that the product is really something he really needs and not just something that he was talked into.

The length of this period may be from 10 days to 30 days. This is the time for the policy or annuity owner to go over the fine print of the contract.

Frequency

Frequency refers to the times an accident resulting to a loss happens. This is one of the important bases by which insurance premiums are computed.

The insurance company needs to know the frequency of the losses for a certain account, for a certain type of risk and for the entire book of accounts as well. This is one way the insurance company measures their performance in the year and will help in the prediction of future losses for the company within a given time frame. Premiums will be computed with contingencies, expense and profit loadings.

Frequency of losses also help the insurance company determine the pure cost of protection based on what losses are expected.

Fronting

Fronting refers to the process by which a primary insurer acts as the one listed in the policy contract but actually passes all of the risk to a reinsurer. The primary insurer does this for commissions on the premiums paid.

Fronting is often done when a reinsurer who wants the business is not licensed to operate in the state or place where the risk is situated. If an insurance company is licensed to this state, it may agree to be the named insurer. It may be also that the reinsurer is an independent or captive insurance company that is not allowed to get the business.

Futures

Futures refer to a financial agreement or contract where one party (the buyer) promises to buy an asset that the seller promises to sell at a specified date.

Futures usually involve financial futures, commodities ad indexes. The agreement outlines the amount and quality of the underlying asset. There are some futures contracts that settle the contract while some ask for the asset's physical delivery (but these instances re actually rare).

The advantage of futures is that it gives traders leverage, as compared to stock markets. Futures are also used as a hedge and also to speculate. This speculation is based on the price movements of the underlying assets.

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