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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.

Umbrella Policy

An Umbrella Policy provides cover for losses, usually for amounts that are above the limit of a standard coverage of an existing or underlying policy. This is especially applicable to auto insurance policies and homeowners policies.

It may cover for risks that are not covered by a standard policy (which includes invasion of privacy, slander, libel and vandalism), unless a risk is specifically excluded from the coverage. Thus, an umbrella policy provides extra liability insurance, particularly if the insured person or entity is sued by someone who suffered injury or damage to property due to an accident.

Umbrella policies usually involve a deductible, but may prove helpful one the insured is sued and the original policy has already exhausted its limit.

Unbundled Contracts

Unbundled Contracts are annuities that provide the annuity owners the freedom to select the special features that they want included in their contract.

This includes death benefit protection (where the annuitant's beneficiaries stand to receive at least the total investment amount at the death of the annuitant) and the living benefit guarantees (which are optional benefits that serve to add value to the annuity). Living benefit guarantees take the form of a guaranteed lifetime income, a guaranteed return of the principal (whether the market performs well or not), as well as principal protection.

Owners of unbundled contracts may also have the option to invest in a selection of investment instruments (including stocks and bonds).


Underinsurance refers to the fact that the policyholder has insufficient insurance coverage. This will result in the insured person's having to fork in additional money to repair or replace damaged items that are covered in the policy, since the damages cost more than the policies' maximum limits.

Simply put, underinsurance is buying insurance coverage for less than the value of the asset or property or for less medical benefits than what the insured actually needs. This may also mean that the insured has to deal with skimpy benefits, high out-of-pocket expenses, as well as high co-payments and deductibles.

To avoid underinsurance, it is best to buy coverage for the replacement value, rather than for the purchase amount.


Underwriting refers to the process of examining the acceptability of an insurance risk, and then forming the decision of whether to accept or reject the risk, as well as how much insurance should be offered. If a risk is accepted, it also involves computing for the right premiums or providing a premium rating according to the risk presented.

The job of the underwriter is to "write" or obtain business for the insurance company, the type that will result in profit for the company. The underwriter aims to avoid issuing insurance policies for risks that are most likely to result in a loss for the company.

There is usually a set of underwriting rules that each insurance company prescribes. This is to standardize the underwriting process as well as to provide guidelines that will help the underwriter issue policies to the "optimal" risks.

Underwriting Income

Underwriting Income refers to the profit that the insurance company gets from premiums after all related expenses as well as claims have been paid.

When premium income is bigger than total losses and expenses, there is an underwriting income. Otherwise, the result is considered an underwriting loss. The premium being considered in underwriting income would be earned premium.

Underwriting income is one of the two streams by which the insurance company earns money from its policies. The other source of income would be investment income, which is what the company earns from its investment activities. The insurance company usually gets a bulk of its income from investment income and not from underwriting income.

Unearned Premium

Unearned Premium refers to that part of the premium that has been paid by the policyowner, but for which protection or coverage has not been provided. This pertains to that portion of the covered period that still has not expired.

For instance, John paid premiums for insurance coverage from January to December. He paid $1,200. At the end of March of that year, when three months' worth of insurance coverage has been provided, and there is still nine months left to the policy, the unearned premium will be $900, the portion of the premium where insurance protection has not yet been given. When the insurance expires at the end of December of that year, the entire policy is considered as earned premium.

For property insurance, unearned premium is refunded to the policyowner when a property that has been insured is deemed a total loss. This is because insurance coverage is no longer needed for that property, as it has zero value when it was declared a total loss.

Uninsurable Risk

An Uninsurable Risk is a risk that insurance companies are unwilling to assume.

In this case, the act of providing insurance is illegal, or the possibility for loss is much too high. It may also be that the risk involves a criminal aspect or that assuming the risk is prohibited by public policy.

For life and health insurance, an uninsurable risk is someone who is terminally ill or whose medical examination shows the possibility that this person will have a lot of claims. Of course, an insurance company would be unwilling to insure a terminally ill patient, since the potential that the insurance company will pay for death benefits is very high and imminent.

Also, insurance companies will not provide protection for businesses such as illegal drug trafficking or insurance of stolen goods.

Uninsured Motorists Coverage

Uninsured Motorists Coverage refers to the coverage provided in auto insurance policies that pay when the driver does not have insurance. This is also applied to hit-and-run victims, who cannot go after the driver to sue for damages.

Although the government requires all drivers to carry liability insurance coverage, not all drivers comply, or, when they do, they just get themselves covered with the minimum amount allowed. The other party would want to be protected from such drivers, so that if the accident is caused by the uninsured driver, the victim of the damage can still get some benefits because of his uninsured motorists' coverage.

This may also be the case for drivers who are uninsured. Here, the insurance company pays for the difference between the maximum limit of the underinsured driver (who is the one at fault) and the actual cost of the damage or medical bills that the other driver incurred.

Universal Life Insurance

Universal Life Insurance refers to a permanent life insurance policy that has a life insurance and a savings component. The savings component makes use of a cash value account that provides interest rates. These interest rates are either set by the insurance company or are based on a financial index.

When the policyowner pays his premiums, any amount exceeding the cost of insurance and other fees goes to the cash value account. In turn, the cash value account can be used to pay for the premiums when the policyowner is not able to make the payments for a certain month.

Utilization Review

A Utilization Review refers to the process of looking at medical insurance expenses, reviewing services and medications claimed to see whether these are reasonable and necessary for the treatment of the insured person.

To control costs involving medical claims, the insurance company routinely makes a review of its claims. It looks at the different services and benefits provided in a health insurance plan and looks at the charges, quantities and types of medical services that may account for the increase in the cost of claims.

During a utilization review, a medical practitioner such as a doctor or a nurse will go over the treatments provided to check for the existence of claims fraud, as well as to ensure that costs are managed properly.

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