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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.

Tax Sheltered Annuity (TSA)

A Tax Sheltered Annuity (TSA) refers to an annuity that allows the employee to use his income make "tax-free" contributions towards a retirement plan.

Since the contributions come directly from the income of the employee, the contributions and the related benefits it buys will not be taxed as long as the employee does not withdraw these funds from the plan. Once a withdrawal is made, tax is tacked on to the contributions.

This only refers to annuities that are bought by organizations that provide retirement plans based on the Internal Revenue Code's section 403(b). According to the IRS Code, there are maximum limits as to how much money an employee can pay towards the plan.

Tax-Deferred Basis

Tax-Deferred Basis is the method by which investment income grows and that there are no income taxes payable except when money is withdrawn from the investment vehicle (such as a tax-sheltered annuity).

The government would like to encourage investment as wells as savings towards retirement. It does this by providing tax incentives to investment or savings-related activity by allowing the investor to invest money before taxes are even deducted from it.

However, when the money is taken out of the investment (such as a retirement fund), tax is applied to the amount being withdrawn. Still, there are lower tax brackets during the time the investor withdraws the money.

Ten-Day Free Look Provision

The Ten-Day Free Look Provision provides the insured the opportunity to study the policy for 10 days. He can decide to cancel the policy within those 10 days, no questions asked, and receive a full refund for the premiums paid.

The ten days are given for the individual who just bought an insurance policy to evaluate and study the policy provisions underlined in the policy contract and make the necessary research. This is so that the policyowner is assured that he really needs the product and was not just talked into it by the agent.

Some states even provide longer free-look periods. The provision is commonly called the "right to examine" in most policies.

Term Certain Annuity

Term Certain Annuity refers to an annuity that provides income payment over a specified time period, regardless of whether the annuitant still lives within that period or not.

The annuity contract, in this case, guarantees the number of years for its payment period. However, after the guaranteed payment period has elapsed, there will be no payments in the future even when the annuitant is alive since the annuity is considered as spent.

Term certain annuities may not work best if it's to be used to fund retirement. This is because there is the possibility that the annuitant will outlive the annuity. In this case, he has no money left to use.

Term Life Insurance

Term Life Insurance is a type of life insurance that provides coverage to the insured period for up to a specified length of time; hence, the word "term".

If the insured person dies within that term, the beneficiaries will receive the death benefit. However, once the term expires, there is no coverage for the insured person. Term life insurance is renewable but the premiums will be higher as the insured person increases in age.

The advantage of term life insurance is that it is considerably cheaper than whole life products. However, there is no cash value accumulated over the term, since this product is designed to only provide insurance protection and has no savings component.

Territorial Rating

Territorial Rating refers to the method by which risk is classified according to where the proposed insured or asset is located. This becomes the basis on how insurance premiums are set.

Territorial rating is provided for cases where the geographic location of the insured or asset may pose or present a considerable impact on losses and its associated cost. For instance, insuring a home located in the city is more expensive compared to premiums for home of the same value that are located in a rural area. This is because the possibility of theft or accident is considerably greater in urban areas.

Considerations that come into play when formulating territorial rating include the environmental, physical, political and general loss potential of a given location.

Terrorism Coverage

Terrorism Coverage provides protection against losses due to acts of terrorism.

This coverage used to be part of the protection provided by standard commercial insurance policies. However, after September 11, 2001, premiums for terrorism coverage have increased.

Terrorism coverage comes in various forms. There are coverages that will pay claims against being kidnapped and ransomed or against property being damaged. There are also companies that provide terrorism travel insurance.

Insurance companies have been concerned about the possible claims acts of terrorism can produce, since damage can reach millions or even billions of dollars. Thus, some governments have made the move to help insurance companies make the payments in the event that such acts happen. In the US, the 2007 Terrorism Risk Insurance Program Reauthorization Act was passed to address the need for insurance companies to lessen their exposure against the risk on terroristic acts.

Third-Party Administrator

A Third-Party Administrator is an independent entity that processes claims or performs related tasks for an insurance company or employer. This is mainly for tasks involving employee benefit plans.

The insurance company or any self-insured company that has an employee benefits package can outsource some services such as the management of membership and claims processing, perform utilization review, establish medical provider networks. TPAs also help in processing flexible spending accounts and retirement plans.

Third-party administrators do not assume any risk - the insurance company or self-insured employer does.

For some, outsourcing to a TPA makes sense, as employee benefits can be very technical and difficult to administer. A TPA already has the expertise and the experience, so it may be more cost-effective to hire a TPA.

Third-Party Coverage

Third-Party Coverage refers to protection provided against losses due to potential lawsuits that a third party may file against the insured. The first and second party (that is being referred to in the insurance contract) would be the insured and the insurance company, respectively. "Third party" may refer to any other person or entity aside from these two.

Third-party coverage pays for damages awarded due to personal injury or damaged property suffered by a third party, as a result of the negligence of the insured person. The insurance may also pay for defense costs. These payments are subject to a maximum limit.

Time Deposit

A Time Deposit refers to funds that are placed inside a bank or a depository institution, which is "locked" for a specified period and cannot be withdrawn without a penalty or without prior notice by the depositor. There is a set interest rate that would be paid for funds kept for that period.

Once the time has expired, the depositor has the choice of either withdrawing the funds or depositing it in the bank for another time period.

Time deposits generally provide interest rates that are higher than the interest rates given to demand deposits (which the depositor can withdraw without prior notice or penalty).

Time Limit on Certain Defenses Provision

The Time Limit on Certain Defenses Provision states that the insurance company can only contest a claim or the contract itself within that time limit. This gives the insurance company the right to cancel a policy, reduce a claim or even deny the claim once it is discovered that the claims springs from a preexisting condition.

Once the specified time has passed, the insurance policy cannot use preexisting condition and the act of misrepresentation as defenses against rejecting a claim or cancelling the policy.

The time limit is usually two years and is also called the contestability period.

This provision is applicable for misstatement or misrepresentation of key insurance facts, such as the insured person's health condition, his age, and so on.

Title Insurance

Title Insurance provides protection to a homeowner or owner of a piece of real estate in case his clear ownership of the real estate (as evidenced by his title to that real estate) is being contested because there is something wrong with the title, as well as when mortgage liens are either made invalid or unenforceable.

There are some cases when there may be problems with the existing title (especially when the property has changed ownership for a number of times). This may include unpaid real estate taxes, or the fact that when the title was transferred, a signature was forged.

Title insurance is designed to protect the insured person against lawsuits, as well as to protect the interest of the owner or mortgage issuer on the property.

Tort

Tort refers to the legal basis for lawsuits demanding indemnities due to injury or damage.

This is a harmful act that a person does that causes him to be open to a lawsuit. This is really very wide-ranging, and includes the negligence to properly inform customers about a potential danger with the product, driving drunk and hitting someone, neglecting to fix a step in your deck that results in someone's injury. A tort may also involve a betrayal of common expectations, such as a customer's expectation that the food you sell is safe to eat.

Once it is proven that someone is guilty of a tort (also known as a civil wrong), that person is to pay damages to the victim. There may also be a criminal aspect (that may result to the accused person going to jail).

Tort Law

Tort Law is that part of law that deals with wrongful acts that can result in a tort, and for which a lawsuit can be brought against. This includes acts of negligence, intentional interference and any other act that can result in injury or damage. However, this excludes breach of contract, as this aspect is governed by contract law.

Tort law states that a lawsuit can be brought to court by someone who suffers from physical, economic or legal harm because of someone else's act.

This can be divided into three general categories - strict liability torts, intentional torts and negligent torts (which also includes professional and medical malpractice).

Tort Reform

Tort Reform refers to changes proposed to tort law in order to decrease liability costs by placing limits to damages, particularly punitive or exemplary damages. Tort reform also refers to proposed changes in liability rules, especially regarding payments for non-economic loss such as the pain and suffering caused by an accident.

Tort reform aims to do away with frivolous million-dollar lawsuits. There are also some professions, such as the medical profession, that limits the services it provides because of the high incidence of lawsuits. Tort reform is designed to prevent professionals from providing defensive medical services. To defend themselves against lawsuits, doctors and other professionals also have themselves covered with malpractice insurance, the cost of which is also passed on to their clients or patients. Tort reform components believe that putting a cap on damages paid in lawsuits will eventually mean lowered service fees.

Total Disability

Total Disability refers to a person's continuous and complete inability to perform common and essential tasks and duties that are expected for him to do his job.

The insurance company will only pay if the insured person meets the criteria for total disability.

Under insurance policies, total disability is also described as the loss of both limbs, both eyes or the sense of hearing. It can also mean that the person cannot do his job (his job prior to the injury or illness) and has no expectation of being able to come back. This applies to any job where the insured person has had sufficient training, education, or experience.

There is usually a waiting period, counted from the day the disability is diagnosed, before the insurance company starts to pay for the total disability benefits.

Total Loss

Total Loss is refers to the condition of a property or automobile where the damage is such that the repairs would cost as much, or more, than the value of the property (based on its pre-accident condition). The insurance company also takes into account salvage value (the money the damaged property would bring if it were sold). It also means that the property cannot be rebuilt or repaired so that it is back to its state immediately before the accident.

Insurance companies would usually pay the insured the maximum limit (face amount covered) in the event of a total loss.

Transparency

Transparency refers to the way financial information (including accounting and financial reports) is provided to shareholders, as well as the actions of a company. These should be done in such a way that these are easily understood by all parties concerned.

The ability to evaluate a company and to make financial decisions (whether to invest or not) highly depends on the clarity by which information is presented to the investor. The financial reports provided by the company are important tools and should not hide key facts about the company.

An investor should take care if the company in question is not as transparent with its financial information. This may be a red flag, serving as a warning about the company's way of dealing with shareholders.

Travel Insurance

Travel Insurance provides coverage and protection against loss while the insured person is travelling. This can include costs associated with lost luggage, trip cancellation because of illness, as well as being a victim of theft while traveling.

There are several types of coverages available for travel insurance. There is coverage for medical emergencies (which reimburses expenses for doctor's fees, medication, as well as emergency transport out of the country). There is also trip cancellation/interruption coverage, which covers the cost of cancellations (flight, hotel, etc.) due to sudden illness or death, bankruptcy of the cruise line or airline and weather. Some plans also cover missed connecting flights, in the event that there is a flight delay.

Treasury Securities

Treasury Securities are debt obligations of the government. These include Treasury bills, bonds, and notes that are interest bearing and are issued as the government's way of raising money to fund government projects and expenditures. These expenditures are usually not covered by tax revenues.

Treasury securities are among the safest investment options, as it is the government itself that guarantees it. Hence, these are sometimes dubbed default-fee securities. These are also usually exempt from local and state taxes.

However, it is important to note that while these are risk-free, treasury securities may cause you to lose money because of shifts and changes in the exchange rate, as well as the time-value of money (especially when there is an investment instrument that offers a more attractive yield).

Treaty Reinsurance

Treaty Reinsurance refers to an established agreement between the insurance company and the reinsurers.

Under the terms of the treaty, the insurance company is obligated to pass on a certain percentage of its business to the reinsurer and the reinsurer is to automatically accept this portion of the business.

This is usually composed of a class of policies from the reinsurer. For example, the treaty agrees to cover casualty insurance policies. What happens is that the insurance company automatically passes on casualty risk to the reinsurance company.

This can be contrasted to another type of reinsurance contract - the facultative policy, where the reinsurer makes a decision whether to accept a risk or not.

Twisting

Twisting refers to the practice where an insurance agent or broker induces (often by way of misrepresentation) an existing policyholder to surrender his policy and in order to get a new one from the insurance agent. The new policy is usually from another insurance company.

Sometimes, an unscrupulous agent or broker will show impressive projections about how much a new policy will earn, that the new policy present a better offer by way of a quicker accumulation of cash value, a higher death benefit and lower premiums. This may induce the policyholder to cash in his old policy or allow it to lapse, only to find out that the cash value of the new policy is considerably lower than the cash value of the old policy.

This is considered illegal, since surrendering an existing policy will usually be to the policyholder's disadvantage.

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