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About Insurance Terminologies
- It is sometimes difficult to understand the terms related to insurance. But it is essential to know and understand the meaning of a particular term. So that the understanding of an Insurance policy becomes easier. AmPmInsure believes in community participation to make the World of Insurance more comfortable for both the Insurer and the Insured. The Insurance Terminology page is a step further towards the effort. Anyone can edit, add or modify the insurance terminologies.
A
- Acclerated Death Benefits: Most life insurance policies provide the insured with an Accelerated Benefit Rider (also called a Living Benefit Rider). This rider advances a portion of the eligible proceeds prior to the covered person’s death due to a terminal condition or terminal confinement in a nursing home facility as defined in the rider.
This often gives the insured the ability to give some of the life insurance proceeds to loved ones while they are still able.
They can have the enjoyment of using a portion of the life insurance funds to take a trip or make special purchases.
They can help pay medical bills, or nursing home costs and other commitments so that others are not left with this responsibility.
An Accelerated Benefit may be paid due to a Terminal Condition or Confinement in a Nursing Home Facility for each Covered Person, but the benefit will not be paid for both occurrences even if more than one occurrence is due to the same cause. An Accelerated Benefit is usually not paid if the Terminal Condition results from intentionally self-inflicted injuries.
Accelerated benefit due to a terminal condition:
Paid out in a lump sum if expected to die within 12 months
Minimum benefit amount - $12,500
Maximum benefit amount - 50% of the Death Benefit (minus any outstanding loans and/or outstanding premium) not to exceed $300,000
Accelerated benefit due to a confinement in a nursing home facility:
The Covered Person must be a certain age (usually less than age 90) on the date the Terminal Condition was diagnosed; or, on the 181st day of confinement in a Nursing Home Facility.
Confinement must start after age 60 and with at least 5 years remaining in the policy.
Must be continuously confined 180 days and expected to remain until death.
Proceeds are typically paid out monthly over a 5 year period.
Monthly payment must be $200 or more to be eligible for advancement.
Maximum monthly benefit is based on 50% of eligible proceeds, not to exceed $5,000.
Eligible proceeds is an actuarially equivalent amount that is determined by a company at the time of confinement.
- After advancement all premiums and policy values are pro-rated accordingly.
- A one-time administrative charge is usually assessed at the time of claim. Only one Accelerated Benefit will be paid per covered person.
- Accident and Health Insurance:-This insurance assures a protection from accidental injury, accidental death and to bear the associated health expenses. The insured might be rewarded with limited benefits in the form of preventative services, medical expenses, and catastrophic care.
- Accrual Taxation: A form of federal income taxation where in a person who holds a life insurance policy gets taxed periodically on certain parts of the cash value accumulation of his policy.
- Actual Cash Value: There are several different methods by which your insurance company may calculate the amount it will pay you for a loss. Payment based on the replacement cost of damaged or stolen property is usually the most favorable figure from your point of view, because it compensates you for the actual cost of replacing property. If your camera is stolen, a replacement cost policy will reimburse you the full cost of replacing it with a new camera of like kind. The insurer will not take into consideration the fact that you ran three rolls of film through the camera every day for the last two years, causing a considerable amount of wear and tear.
In contrast, actual cash value (ACV), also known as market value, is the standard that insurance companies arguably prefer when reimbursing policyholders for their losses. Actual cash value is equal to the replacement cost minus any depreciation (ACV = replacement cost - depreciation). It represents the dollar amount you could expect to receive for the item if you sold it in the marketplace. The insurance company determines the depreciation based on a combination of objective criteria (using a formula that takes into account the category and age of the property) and subjective assessment (the insurance adjuster's visual observations of the property or a photograph of it). In the case of the stolen camera, the insurance company would deduct from its replacement cost an amount for all the wear and tear it endured prior to the time it was stolen.
- Auto insurance score:This is a score which is similar to a credit score and is derived from a consumerÃÔ credit file information. The insurance scores play a decisive role towards helping the insurers at fixing their policy prices. Negative marks in credit report indicate a sharp rise in terms of a personÃÔ auto insurance costs. Some of the vital factors that influence the auto insurance costs are age, marital status, driving record, the type of car you use and whether you reside in a rural or urban society.
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B
- Bailee: An individual or entity who holds someone else's property. Examples are dry cleaners, jewelers, repairers.
- Beneficiary: The beneficiary is the person or persons to whom the insurance proceeds are payable when the insured dies. A policy owner may also name a contingent beneficiary to become the beneficiary if all the beneficiary's die while the insured is alive. If no beneficiary or contingent beneficiary is named, or if none is alive when the insured dies, the owner (or the owner's estate) will be the beneficiary.
If more than one the beneficiary is alive when the insured dies, the insurance company will usually pay them in equal shares, unless the insured has chosen otherwise.
- Boat Owners Package Policy: This policy allows the boat owners to avail a special contract that combines physical damage insurance, medical expense insurance, liability insurance, and other coverages at once.
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C
- Cash Surrender Value: The amount payable to a life insurance policyholder or deferred annuity contract holder in the event of termination or cancellation of the policy or annuity before its maturity or the insured event. The cash value (sometimes called the policyholder's equity) may be specified in a table attached to the policy, and there may be a waiting period before payment is made. Premiums paid in the early years of a permanent (whole or universal) life insurance policy are greater than actuarially required to provide coverage, and they accumulate earnings over the years, building a reserve for a time late in the policy term when premium payments become less than required to provide the coverage. If a policy is canceled or surrendered before maturity, the premiums and accumulations are greater than the coverage actually purchased by the insured. The cash surrender value represents this amount minus a surrender charge and any outstanding balance on a policy loan the insured may have taken.
- Cash Value: The cash value of an insurance contract, also called policy equity value, is the cash amount available to the policy owner by the life insurance company issuing the contract. Although not generally available prior to the cancellation of the policy, it can also be used as a living benefit.
To receive the cash value, the policyholder is normally required to surrender the policy to the issuing life insurance company as documentation of rights under the contract (see cash surrender value).
Cash values are usually available in the case of premature cancellations in those forms of life insurance contracts in which a portion of the premiums go toward an investment, like whole, universal, endowment life insurance and other forms of permanent life insurance. Such amounts are often certain to be paid, either in case of death or survival, and are therefore not at risk. The cash value is the value of the investments in that account at any particular time. Such cash value credited to an individual account during the policy’s lifespan keeps growing with every premium. It also earns interest.
The policyholder may also be able to use the cash value as collateral on a loan.
Since the initial premiums are often not invested but instead cover initial costs associated with selling the contract (up front or front-end fee), the amount available may be significantly lower than the sum of premiums paid for some time, initially even zero. Later, interest credited will usually compensate that initial loss.
The value of the investment is often subject to a surrender charge in determining the cash value. A surrender charge offsets the costs associated with selling the contract and allows these contracts to be sold with little or no up-front fees. Surrender charges are imposed when a contract is cancelled within a set time frame. Cancellation after that time is not subject to a surrender charge. Typically surrender charges decrease on an annual schedule until they disappear altogether.
- Cancellation: This is all about expiry of an insurance coverage within the policy period. A Flat cancellation refers to the expiry of a policy on its effective date. It appears as if the policy has not been issued yet, no coverage was offered and hence there is no premium left to be paid.
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D
- Death Benefit: Whenever a person possessing a life insurance policy passes away, his legal heirs are supposed to get a sum of money termed as Death Benefit. This amount does not account for any adjustments towards outstanding policy loans, dividends, paid-up additions, or late premium payments.
- Debenture:-' This may be described as an unsecured debt which is supported by the general credit of the borrower or the issuing corporation. The loan does not necessitate any specific property to be posed as a security.-'
- Declaration:-' This segment of a property or liability insurance policy depicts the name and address of policyholder, the property which has been insured, its location and features, the policy period, premiums, and other associated information. Hence it is better known as the "declaration page".
- Deductible: This signifies any loss to be shared by the insured. Once the insured pays for his share of the loss, then a certain period of time has to be spent before the effect of a pre-mentioned dollar amount or a fraction of the claim comes into play.
- Deferred Annuity: This is an annuity agreement which gathers the premiums at an interest and lets the annuity income benefits commence only after the lapse of more than one annuity period since the date of annuity purchase.
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E
- Early Warning System:-' This system is developed by the insurance regulators to get a fair idea of the insurers financial stability. Depending on their calculations using the financial ratios, the Insurance Regulatory Information System (IRIS) is capable of identifying the insurers who need any regulatory attention.-'
- Earned Premium:- A part of premium which can be implemented to that part of the policy period which is already over. The insurance premiums can be paid beforehand , but its not possible for the insurance company to achieve the accumulated amount until the expiry of the policy.
- Earthquake Insurance:- This is designed to insure a building with all its contents, while it also assumes a large percentage deductible on each of them. Since most of the business policies and the standard homeowners are not contemplating on the Earthquakes, hence the importance of a specific policy or endorsement has become a necessity.
- Economic Loss:-' It can be defined as the accumulated cost in terms of all those factors such as property damage, funeral expenses, wage loss, insurance administration costs, and medical, hospital and legal costs, that are associated with both the insured and uninsured.
- Elimination Period:-' It depicts a stretch of time that passes between the duration of disability and the commencement of the disability income insurance coverage where in no benefits are offered. The Elimination Period may last for a few days or up to even a year or more.
- Explore the Insurance Discussion Forum
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F
- Federal Funds: The balance amounts that the depository institutions borrow amongst themselves are just a kind of reserve balance known as the Federal Funds. Many other depository bodies and federal agencies are also involved in this process of lending each other.
- Federal Insurance Administration/ FIA: The FIA is a federal agency which is in command of the National Flood Insurance Program. But it is not aimed at controlling the insurance industry.
- Federal Reserve Board: A body comprising of seven members, who are in charge of the banking system and responsible for establishing rules that regulate the banking industry and the holding companies associated to banks. It also plays a leading role towards managing the U.S. monetary system and credit management.
- Fidelity Bond:This is a form of coverage which is offered to the policy holders to help them meet their losses resulting out of fraudulent acts committed by its employees who are con artists. This bond is beneficial towards protecting the business against those activities of its employees which are detrimental towards its growth and prosperity.
- Fiduciary Bond: This is a bond that ensures the responsibilities associated with certain fiduciaries as the executors and trustees. This is a kind of surety bond which is also known as a probate bond.
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G
- Gap Insurance: The Gap Insurance accounts for the cash value which is determined by the difference between a carÃÔ actual cash worth in the event it gets damaged or stolen and the amount which the insured owes the hiring company. This is a form of insurance mostly associated with the leased cars.
- Generally Accepted Accounting Principles (GAAP): These are a set of guidelines illustrating the various rules and practices of accounting laid down by the American Institute of Public Accountants. This is also done with a view to report business achievements and mistakes.
- Generic Auto Parts: These are cheaper auto parts which have still retained their original value after an auto crash. These auto parts are not offered by the car manufacturers and are considered by the insurers to be at par with the identical parts produced by the original equipment manufacturer(OEM).
- Glass Insurance: This is coverage towards any glass breakage resulting out of demolishing factors like fire, war etc. Such types of insurance are offered for a variety of options like the windows, structural glass, mirrors, leaded glass etc. inclusive or exclusive of a deductible.
- Grace Period: This period comes once the premium amount becomes due while the policy coverage still remains active. Under such circumstances the insured is naturally expected to pay for such a due.
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H
- Hacker Insurance: A coverage for the businesses associated with e-commerce, which could be looked upon as a precaution from the losses inflicted by the hackers.
- Hard Market: It can be termed as a market for the sellers where the insurance costs are higher and hard to procure.
- Homeowner's Policy: This is more of a collective insurance policy where the homeowners may avail a wide range of property and liability coverages relating to any domestic events or events far away.
- House Year: A house year is a standard measurement of insurance that covers only one house for a period of 365 days.
- Hurricane Deductible: It refers to a certain amount in terms of dollars which gets appended with a homeownerÃÔ policy just to make sure that the insurer is not subject to any loss as a result of a hurricane. It is sometimes calculated on a percentage basis. This amount varies depending on the scope of risk associated to a particular region. Hence it appears to be different depending on the insurer and the state where it belongs to.
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I
- Identity Theft Insurance: Coverage for expenses incurred as the result of an identity theft. Can include costs for notarizing fraud affidavits and certified mail, lost income from time taken off from work to meet with law-enforcement personnel or credit agencies, fees for reapplying for loans and attorney's fees to defend against lawsuits and remove criminal or civil judgments.
- Immediate Annuity: A product purchased with a lump sum, usually at the time retirement begins or afterwards. Payments begin within about a year. Immediate annuities can be either fixed or variable.
- Incurred Losses: Losses occurring within a fixed period, whether or not adjusted or paid during the same period.
- Indemnify: Provide financial compensation for losses.
- Independent Agent: Agent who is self-employed, is paid on commission, and represents several insurance companies.
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