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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.


Laddering refers to the method where investors have a mixture of different types of bonds and different maturity dates.

Laddering is based on the notion of not putting all your eggs in one basket. It prevents the risk of reinvesting a large portion of the assets in a financial environment that may not provide good returns on the investment (for instance, if an investor has two CDs - one maturing at 2015 and the other at 2018). Even if the rates of returns for 2015 drops to a low when the CD that matures at 2015 needs to be renewed, the funds locked with the 2018 CD does not need to be reinvested at that rate of interest.

Another advantage of laddering is that it can free up capital at the times the investor will need it. Someone can purchase a mixture of short-term and long-term bonds. The short-term bonds may be for payments needed soon (like the tuition of that person's child) while the long-term bonds may provide the funds that the investor will need for his retirement.


"Lapse" refers to the end of the coverage by virtue of unpaid premiums.

An insurance policy is considered lapsed when the renewal premiums are not paid and the grace period has ended. When a policy lapses it no longer provides the insurance coverage that was stated in the policy.

The insurance owner whose policy lapsed still has the option to reinstate the policy if he pays back past due premiums plus any penalties and processing fees incurred. The insured may also need to provide proof of insurability. If it is proven that there are no adverse changes to the condition, insurability status, or health of the insured person, the policy can be reinstated and the coverage can resume.

Law of Large Numbers

The Law of Large Numbers is an essential part of computing the premiums of an insurance policy.

This aspect of the theory of probability points to the fact that the larger the number of units involved, the greater the probability that the predictions will be more accurate. In the insurance industry, when there are a large number of people insured for the same risk, actuaries are more able to predict loss with more accuracy.

This is the reason why insurance companies are hesitant about covering risks that are fairly new, since there is little statistics and loss experience to base the premiums upon.

The Law of Large Numbers more or less "guarantees" stable results for events that happen at random.

Level Premium Policies

Level Premium Policies are policies that pay the same premium for the entire duration that the policy is in force.

This is commonly used for whole life insurance, as well as some term life insurance.

Level premium policies are different from level term policies. Level term policies are policies where the benefits remain the same. With level premium policies, the policy owner is able to create his long-term budgets and gauge whether he can afford the insurance coverage, since he already knows that the premiums will not increase.

It is important to note that the policy may be more expensive (with regards to premium payments vis-a-vis coverage) at the early part of the policy, that during the later years. However, this is expected to level out across the entire life of the policy.

Liability Insurance

Liability Insurance is the type of insurance, which provides protection for any legal liabilities and obligations in the event that the insured person causes bodily injury or damage to property to another person.

Liability insurance, for property coverage, only answers for the losses incurred by the other party and not the losses incurred by the insured person. That means that if this is the only coverage a person has, his person and property is not protected in the event of loss or damage. That is why liability insurance is cheaper than comprehensive coverage.

Liability insurance may also refer to protection from third party claims, or liabilities borne by employers or professionals.

Life Annuity with Period Certain

Life Annuity with Period Certain is a life annuity that involves a guaranteed period where annuity payments will be made.

The Life Annuity with Period Certain guarantees that the income payments will keep coming for a certain length of time. That means the annuity will continue to pay for the income benefits even when the annuitant is already dead. The beneficiaries will be the one who will receive the payments until the end of the period specified in the contract. There are also cases where the annuitant outlives the guaranteed payment period. This will mean that the payments will continue until his death.

The guaranteed payment period may be from 10 to 20 years. But this really depends on when the annuity was bought, as well as the average life expectancy of someone who retires at 65 years of age.

Life Annuity

A Life Annuity is a kind of annuity contract that promises continual income payments while the annuitant is alive.

The annuitant is required to make regular payments during the savings phase (for regular-payment annuities) or a large one-time payment (single-payment annuity). When the annuity date arrives, the annuity starts to make the income payments to the annuitant.

There are various kinds of annuities. A straight life annuity keeps on providing income payments while the annuitant is still alive. A Life Annuity with Period Certain pays for a guaranteed period or until the annuitant dies, whichever comes last.

A life annuity is more or less longevity insurance, where the annuitant makes the most of his investment if he lives longer.

Life Income with Refund Annuity

The Life Income with Refund Annuity refers to a life annuity that provides income payments while the annuitant is still alive and will also pay a refund if the annuitant dies before the guaranteed amount is fully paid.

The guaranteed amount is approximately no less than the amount the annuitant paid during the savings phase, but may be more depending on the performance of the investments.

In the event of the death of the annuitant, the beneficiary will receive the balance of the guaranteed amount via a cash payment or via installment payments.

The Life Income with Refund Annuity is also called a Refund Annuity.

Life Insurance

Life Insurance is the kind of insurance that pays for a benefit in the event of the insured person's death.

The insurance company pays death benefits to the beneficiaries of the insured person as long as the policy remains in force and the premium payments are current.

Life insurance is taken out by people or businesses for several reasons. A breadwinner may want to ensure that his family is not burdened with financial loss at the event of his untimely death. Businesses may also want to insure key employees since their death may mean economic losses for the company.

Life insurance may be bought by individuals or may be offered by employers to their employees. The premiums associated with this type of coverage are based on mortality tables, as well as other factors - such the insured person's occupation and health.


Limits, in insurance parlance, refer to the largest amount that the insurance company will pay for the loss it agreed to cover. Limits state just how much the insurance company is obligated to pay. Deductibles may also apply before the insurance company will pay.

Limits are commonly stated in the policy and are linked with the delivery or purchase of services or goods. These may fall under terms and conditions.

For example, if Johnny bought a homeowners insurance policy with a collision limit of $100,000 with a $500 deductible. If Johnny's house is destroyed, and he discovers that he needs $200,000 to rebuild the house, the insurance company will pay for the $100,000 minus the deductible. It will not answer for the entire $200,000.

Limits may vary from coverage to coverage and may reset for each event or risk.


Line, in insurance language, is used to refer to the kind or type of insurance being offered.

For individual insurance or personal lines, this would mean life and health/disability insurance. Under the life insurance line, products may include term life, universal life, variable life, whole life, variable universal life, Credit life, industrial life, annuities and other life insurance products.

For Health and disability lines, products may include specified disease coverage, medical expense insurance, disability insurance, along with accidental death and travel accident insurance.

For commercial lines, the insurance industry will usually offer "sub"-lines, such as commercial property, earthquake, inland marine, flood, and ocean marine insurance.

There is actually a host of insurance lines since insurance companies can offer a long list of products for their clients.


Liquidation refers to the process where the real assets of the business is sold and turned into cash. For the insurance industry, this may happen when an insurance company becomes insolvent. The state insurance department will step in and act as liquidator. It facilitates the sale of the company's assets in order to have the funds to pay for the claims and unearned premiums of the insurance company's policyholders.

The state regulator releases a liquidation order to give it the legal right to start the liquidation process. The state insurance commission also informs other states about the liquidation of the insurance company. This will help other states know the status of a certain insurance company.

Liquidation may either be voluntary or compulsory.


Liquidity refers to the capacity of a business to sell its assets to obtain cash. This is done ideally without any penalties or discounts so as to protect and preserve the asset's price.

Assets that are quickly sold or bought, without no or little discounts are called liquid assets. The more liquid assets a company has, the higher the liquidity will be.

It is also to be noted that too much liquidity may not be good. This will mean that the individual or company is not making good use of their funds by investing it where it can earn a better rate of return.

Liquidity is an important measure in insurance companies, as this provides an idea of how fast it can sell its assets in order to pay for the claims.

Liquor Liability

Liquor Liability refers to the protection provided for damage to property or bodily injury resulting from a person being intoxicated because of the acts or business activities of the policyholder.

When a drunk or intoxicated person hurts someone else or causes damage to property, the liability for the damage does not end with the intoxicated person. It can be expanded to include the person or establishment that provided the liquor.

Liquor liability protects against the legal doctrine that those who manufacture, distribute and sell intoxicating drinks are also responsible for what their drunk customers do - to others, to property and even to themselves.

Liquor liability is to be bought as a separate policy, since the standard liability policies do not cover this kind of risk.


Lloyds is a corporation formed by underwriters as a way to market their services. Lloyds is similar in concept to Lloyd's of London, but it has no connection to this counterpart. However, Lloyd's of London is the first organization to be established. Lloyds is the US counterpart and is located in Texas.

This organization is not an insurance company - it does not accept businesses to cover certain risks and it does not write or issue insurance policies. Instead, Lloyds allow members to assume the risk and be responsible for whatever business they accept and assume.

Lloyds was established mainly to assume risks in Surplus lines.

Lloyd’s of London

Lloyd's of London is a market place where insurance and reinsurance policies are sold and bought. This is where mini-insurers or underwriting agents, brokers and syndicates meet and decide whether to assume a certain risk. Members of Lloyd's of London accept risks for oil, shipping, manufacturing and financial businesses. They also are the ones that set the premium rates for the chosen risks.

Lloyd's of London comprises a huge chunk of the reinsurance market, as well as the primary market for large risks and marine insurance risks. This marketplace started in the 1600s and grew into the huge entity it has become.

Long-Term Care Insurance

Long-Term Care Insurance refers to protection where the insured person receives payments for long-term care (such as nursing home care). This is when the individual cannot do certain daily activities without some help or supervision and needs to be admitted to a nursing home or a similar facility.

The premiums for this kind of insurance are computed based on applicant's age, as well as his current health status. The payments stop once the insured person is diagnosed of an illness that needs long term care or if the person meets the qualifications specified in the policy. The diseases involved are usually debilitating but non-life threatening.

The benefit payments for this insurance may be on a per diem, weekly or monthly basis. Long-Term Care Insurance may be bought by an individual or may be provided to employees via an association plan or an employer-sponsored plan.

Long-Term Disability Income Insurance

Long-Term Disability Income Insurance refers to the insurance that pays disability income benefits for long-term disability.

The payments for this insurance start once the benefit payments for short-term disability income cease. Long-Term Disability Income payments will continue for as long as the insured person is disabled. However, the payments stop once the insured person is able to go back to work, becomes qualified for pension benefits, or if the person dies.

The disability income payouts are usually computed as a percentage (about 60 to 70%) of the insured person's gross income.

This coverage is important as it protects the insured person and his family from the loss of income that results from his being disabled and unable to keep his employment.


A loss, when it comes to the insurance industry, refers to the reduction (total or partial) in the value or quality of a certain property. "Loss" may also be used to refer to one's legal liability.

There are events that result to a loss. Insurance is bought to protect against the loss in case the covered event happens. For instance, life insurance is bought to protect against the death of the breadwinner. The loss, in this case, would be the loss of income earned by the breadwinner. Other events that may be insured for losses would include earthquakes, automobile accidents, fires and injuries in the work place.

There are basically important elements in a loss that is insurable. One, it has to be accidental, or out of the control of the one who stands to benefit with the insurance. Two, the loss has to be large enough to warrant insurance. This is because there are also other costs related in issuing an insurance policy, and it may not be cost-effective to buy insurance when it will only cover small losses.

Loss Adjustment Expenses

Loss Adjustment Expenses refer to the expenses insurance companies have in the process of verifying the veracity of a claim, as well as paying for it.

The insurance company may have to hire a claims adjuster to protect it from false claims and to appraise the accurate value of the claims to be paid. There may also be associated costs related to filing police reports, defending the company against a lawsuit, as well as in administering the claim.

The loss adjustment expenses will vary widely, depending on the type of claim, as well as the size of the claim. The claims expenses also have an allocation for overhead and office expenses such as the salaries of the employees, materials used and so on.

Loss Costs

Loss Costs refer to the percentage or portion of the premium that is used to pay for claims, as well as the cost for verifying, appraising and administering those claims.

Loss costs serve as one of the factors in the premiums computation process, as the insurance company would want to predict the approximate amount it would have pay for claims if it agrees to cover a certain risk.

Of course, to be profitable, premiums must be greater than loss costs and other related expenses related to a particular policy, a particular client or a particular line.

Insurance companies usually make use of a pre-determined loss cost multiplier to compute for the premium rates.

Loss of Use

Loss of Use refers to the protection provided to homeowners and home renters in the event that the place they were living in is damaged and they were forced to live somewhere else while they are waiting for their original residence to be repaired.

Of course, there will be living expenses associated with using a temporary home. Most of the time, these expenses will be greater than the expenses the homeowners will have had they been able to stay at their own house.

For example, if a portion of house is destroyed because of a fire, the family living there may have to stay in a hotel or rent a temporary house. They will have to spend for food ordered as takeout or eaten in restaurants because they are unable to cook in their temporary dwelling.

Loss of use may be also used to apply to other kinds of property - like a car.

Loss Ratio

The Loss Ratio refers to the portion or percentage of the premiums that are used to pay for claims. Included in the expense loading are the expenses involved in verifying, appraising and paying for the claim.

For example, if an auto insurance policy paid $100 in premiums and made a claim of $80, then the loss ratio for that policy is 80%.

The usual loss ratios for property and casualty insurance ranges from 40 to 60%, while health insurance loss ratios are from 60 to 110%. High loss ratios would mean that the insurance company is not making money on the policies or lines, or may be even servicing these policies or lines at a loss. If the loss ratios, meanwhile, are overly low, this might mean that the insurance company is charging overly high premiums.

Loss Reserves

Loss Reserves refer to what the insurance company sets aside as funds to pay for claims, based on the estimates of the possible claims the company may have to pay in a given period. The loss reserves are regularly updated and readjusted to give an accurate projection based on the possible number and size of claims presented.

Loss reserves are listed as part of an insurance company's liabilities. It is set aside to ensure that the insurance company has enough funds to honor any claims made by the clients.

Other business and financial institutions also maintain loss reserves for expenses.

L-Share Variable Annuity

An L-Share Variable Annuity is a type of variable annuity that is characterized by high mortality and expense risk charges and short and declining surrender periods.

L-Share Variable Annuities are aimed towards meeting the long-term investment needs of savers. It is best for investments where the client would need money in the long term - such as the case for a retirement savings fund. Withdrawals are made subject to ordinary income tax and a tax penalty.

The variable component of the annuity refers to the fact that the return rate is also tied to the performance of the market. The annuity issuer will just guarantee a low interest rate, and the rate of return above this guaranteed rate depends on whether the investments perform well or not.

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