Secured with SHA-256 Encryption
Select Page

Insurance Definitions

FREE Insurance Comparison

Compare quotes from the top insurance companies and save!

Secured with SHA-256 Encryption

Eric Stauffer is a former insurance agent and banker turned consumer advocate. His priority is to help educate individuals and families about the different types of insurance they need, and assist them in finding the best...

Full Bio →

Written by

UPDATED: Apr 10, 2020

Advertiser Disclosure

It’s all about you. We want to help you make the right coverage choices.

Advertiser Disclosure: We strive to help you make confident insurance decisions. Comparison shopping should be easy. We partner with top insurance providers. This doesn't influence our content. Our opinions are our own.

Editorial Guidelines: We are a free online resource for anyone interested in learning more about insurance. Our goal is to be an objective, third-party resource for everything insurance related. We update our site regularly, and all content is reviewed by insurance experts.

Absolute Beneficiary
Actual Cash Value
Adhesion Contract
Adjuster
Affordable Care Act
Aggregate Limit
Alternative Dispute Resolution
Annuitant
Annuitization
Assurance
Auto Insurance
Beneficiary Clause
Blue Book
Burial Insurance
Business Insurance
Business Liability Insurance
Captive Agent
Cash-Value Life Insurance
Casualty Insurance
Certificate Of Insurance
Cession
Claims Adjuster
Co-Insurance
Collision Insurance

Commutation
Comparative Negligence
Concealment
Death Benefit
Deductible
Disability Income (DI) Insurance
Disability Insurance
Exoneration
Fidelity Bond
Floater
Flood Insurance
Gap Insurance
Gatekeeper
Hazard Insurance
Health Insurance
Homeowners Insurance
Indemnity
Indemnity Insurance
Insurance
Insurance Fraud
Irrevocable Beneficiary
Liability Insurance
Life Insurance

Life Settlement
Lump Sum
Malpractice Insurance
Medicare Part D
Permanent Life Insurance
Personal Auto Policy
Pre-Existing Condition
Professional Liability Insurance
Property Insurance
Reinstatement
Respite Care
Rider
Rider Insurance
Self-insure
Subrogation
Survival Analysis
Term Life Insurance
Travel Insurance
Uninsurable Risk
Universal Life Insurance
Values
Viator
Waiver Of Subrogation


Actual Cash Value (ACV)

The term actual cash value or ACV represents the cost of replacing an item minus depreciation. The best way to understand ACV is that it covers the amount for which an item could be sold, not necessarily for what it could be replaced for, which is often higher.

Insurance companies often write policies with actual cash value replacement as the method used when determining a particular item’s value. It is important to read the details of an insurance policy as to understand what liabilities the insured will have if a loss occurs.

A car is a good example of an ACV replacement structure since typically an insurance company will cover the value of the car minus the depreciation associated with the particular model. Therefore, if the policy owner purchased a car for $20,000 and drove it for 5 years at which time it had depreciated to $10,000, the insurance company would cover the loss up to $10,000 under an actual cash value term.

An alternative to actual cash value is replacement cost, which will cover the entire replacement amount of the insured item under the terms of the policy.

Back to Top ↑

Adhesion Contract

An adhesion contract is a contract in which one of the contractual parties has significantly more power in drafting the contract than the other. When an adhesion contract exists, the party offering the contact must provide the customer with a standard set of terms and conditions; these must be identical to the terms and conditions that are offered to other customers whom the offeror enters into contracts with. The terms and conditions cannot be negotiable.

Insurance policy contracts are often examples of adhesion contracts. The insurance company, or its representative, has all the power in drafting the contract. The potential insured party only has the power to accept or refuse the contract; they cannot negotiate terms, counter the insurance company’s offer or produce a new contract to offer the insurer. When entering into an adhesion contract, it’s important that the signee read all set terms and conditions carefully before agreeing to it.

In the insurance business, an adjuster is a claims agent that will determine the amount of liability an insurance company will have after a loss according to the policy. There are different types of adjusters and some can even be hired for a specific job. Some adjusters work for an insurance company directly, while others are hired on a job-by-job basis to act as a neutral third party.

For a customer going through the claims process, the adjuster can be a cause of concern when the value determined comes in below the expectation. On the other hand, they can be a saving grace when they find a coverage clause that was not apparent to the policyholder in the beginning.

Back to Top ↑

Affordable Care Act

The Patient Protection and Affordable Care Act became law in March of 2010 and when it was signed by President Barrack Obama. The plan is nowunofficially referred to as Obamacare. The law requires that all individuals not covered by an employee or government sponsored healthcare program to purchase or obtain health insurance themselves. There are certain bypasses that allow an individual to forgo the coverage, such as religious beliefs and financial hardship. Anyone who is not exempt and does not carry minimum insurance is subject to a fine.

The Affordable Care Act has been a subject of debate since it was first passed into law. Many states have filed their own federal court actions claiming the law is unconstitutional. The results of these court appearances have been mixed as well, with some being upheld and others being declared unconstitutional.

The law rolls out over nearly a decade, with all pieces of it becoming effective by 2020. The law has caused many people’s insurance premiums to go up, their benefits go down, or a combination of both. This is caused primarily due to the new law, which will not allow insurance companies to drop people with preexisting conditions. This has become a major political hot button, and remains an unsure outcome.

Back to Top ↑

Aggregate Limit

The aggregate limit on an insurance policy is the maximum amount the insurance company will pay over the course of a specified period, usually the policy period. This is a sum of all covered losses during the specified period.  Sometimes referred to as an annual aggregate limit, this is the amount covered in any one year.

This limit is different than the per occurrence limit, which dictates the maximum amount an insurance company will pay out per incident. If a car insurance policy owner had a per occurrence limit of $100k and an aggregate limit of $250k, if the policy owner was in three accidents within the policy term and was liable for $100k in each incident, the insurance company would only pay up to a maximum of $250k.

Back to Top ↑

Alternative Dispute Resolution

Alternative dispute resolution includes a variety of strategies and processes that insurance carriers used to settle claim and contractual disputes with policyholders. When insured parties are denied a claim by their insurance carrier, they are often offer alternative dispute resolution as an option to further discuss their claim without taking legal recourse. This helps policyholders and insurance carriers to avoid expensive and lengthy litigation and arbitration proceedings.

There are many different methods of alternative dispute resolution employed by insurance carriers. Some of the more common types include non-binding arbitration and direct negotiation between the policyholder and the providing insurance carrier. Sometimes, the carrier may even bring in a neutral third party or mediator to help in the negotiations process. The mediator will lead any discussions between the carrier and the policyholder, suggest negotiations and secessions, and ensure both parties can come to an agreeable, satisfying solution that is mutually beneficial.

Back to Top ↑

Annuitant

In the insurance industry, the term annuitant can have a variety of meanings. First, it can refer to the individual who is on the receiving end of an annuity or pension policy. Essentially, it is the person who actually reaps the benefits of an annuity or pension payout upon its conclusion; it is not the person who holds the annuity or pension policy.

Second, the term annuitant can refer to the individual whom a life insurance policy is based on. In this case, the annuitant can either be the actual life insurance contract holder themselves or the person whom the life insurance policy was designated to cover. When the named life insurance annuitant dies, the benefits of the policy go to what’s called a beneficiary; this person is named in the policy itself. The beneficiary is given the life insurance policy payout upon the annuitant’s passing, protecting them from financial loss.

Back to Top ↑

Annuitization

Annuitization is defined as the process in which an annuity is converted into payments and paid out on a structured term. The payment terms can be long, short, one-time, etc.

Annuities are a very common addition to many financial portfolios, as well as a powerful tool for managing incoming cash for certain individuals. A typical annuity is paid into over time or funded in one or a few lump sums. Once a person reaches a particular age or event as defined by the annuity contract, annuitization will begin and payments will start going to the recipient.

There are many different types of annuities and they can be used to serve many different needs. One may purchase an annuity with a term life insurance benefit that pays out a specific sum until the recipient dies. This ensures they will not outlive their money. Others may be for a specified amount of time or a specific amount of payment until the funds run out.

Annuities are also common in estate settlements. Often times a life insurance policy benefit may be used to purchase an annuity and provide structured payments over a specified time or indefinitely for the beneficiary. This is particularly useful for children that are unable to manage an entire lump sum.

Back to Top ↑

Assurance

Assurance is a type of coverage that provides protection for an event that is going to occur. It is similar in concept to insurance coverage, although instead of covering policyholders from events that are just a possibility, assurance covers them for something that is, without a doubt, going to happen.

To protect one’s beneficiaries in the event of death, a person can decide to purchase a life assurance policy or term life insurance. Term life insurance simply covers the policyholder if they die within a set time period. If they hold a 30-year term life insurance policy, their beneficiaries will receive the insurance payment if they die within those 30 years. If they do not die within the 30-year term, no payment is made. With life assurance, however, the policyholder is covered indefinitely. Because their death is certain at some point in time, the assurance policy covers the event and pays out upon death, whenever that may happen. The key difference between an assurance policy and an insurance policy is simply the element of certainty.

Back to Top ↑

Auto Insurance

Car insurance is an agreement between a policy owner and an insurance company that provides protection for the policy owner in the event of a loss to their automobile in exchange for a payment (called a premium). An auto insurance contract will outline in detail all of the events which can occur and still be covered under the policy.

Auto insurance is one of the most popular types of insurance today because nearly every state in the United States mandates it in order to operate a car on government paid-for roads. Car insurance allows a policy owner to leverage the size and financial strength of an insurance company to ensure they are not financially ruined in the event of an auto accident.

Most individuals do not have the financial ability to pay for a major accident without finding themselves in financial trouble. An insurance company helps to mitigate this risk by pooling together multiple auto policy premiums and then paying claims out to the few that actually get into accidents. By leveraging a large group of people all paying a little into the middle, car drivers can continue to operate their vehicles with relatively little overall cost to the individual.

Back to Top ↑

Beneficiary Clause

The beneficiary clause allows a policyholder to name primary and secondary beneficiaries. This is typically found on investment and insurance products and is reserved for the owner of the policy. This does not always mean the person or entity being insured, but often times they are the same.

In the event of an insurance payout after a covered loss, the funds would usually go to the policy owner first. If that person were not able to receive the funds because of something like death, then the primary beneficiary would receive payment. If the primary beneficiary were unable to receive the funds as well, then it would go the next on the list, and so on. Policy owners are also able to divide payout amounts among the beneficiaries by determining the percentage each would receive in the event of a covered loss.

Back to Top ↑

Blue Book

Blue Book has historically been a guide for new and used car prices. Adjusted on a regular basis, it provides the most accurate pricing for people and dealerships looking to buy and sell cars.

Typically referred to as Kelley Blue Book, the guide breaks car pricing down by make, model, features, miles, etc. It gives a very comprehensive overview of each car type and what an individual can expect to pay in different scenarios such as buying from a dealer, buying from a private party, or trading in their vehicle.

With prices for cars changing on a frequent basis, the blue book is the best source for up to date information about car pricing. Often the only resource and individual has for selling their own car, it is important to have a full understanding of the value before speaking with a dealer.

Back to Top ↑

Burial Insurance

Burial insurance is a standard kind of life insurance that can be used to go toward funeral services, merchandise costs and other burial expenses. It is often called final expense insurance or funeral insurance. This type of policy typically covers the insured until they turn 100 years old. Burial insurance coverage does not require individuals undergo a health exam before they can be approved for a policy. In most cases, the individual seeking coverage is asked to swear that they are not currently in a nursing home or seriously ill.

A burial insurance policy is a type of cash policy, meaning it builds up cash value as time goes on. Although the value of the policy may change, the premium for a burial insurance policy does not. These types of policies provide permanent coverage for a set premium for the course of a policyholder’s entire life (prior to age 100.) Expenses that a burial insurance policy can help cover include cemetery plots, funeral services, headstones, coffins, funeral processions, and many other costs associated with the burial and funeral of a deceased policyholder.

Back to Top ↑

Business Insurance

Business insurance covers organizational losses that can occur due to everyday business operations. The scope of business insurance is very broad but is often defined very specifically for an individual policy. Business liability can present itself in many different forms, such as workers compensation, premises liability, product liability, etc.

Businesses can also elect property coverage and income protection coverage that helps keep an organization running in the event of a loss.

Insurance is especially important for small businesses since their assets are often too small to cover a substantial loss or exposure to certain liabilities. Business insurance allows these organizations to pass much of the risk on to the insurance company in exchange for a premium.

Business insurance can be much more complicated than typical personal insurance since each organization can have unique risk exposures. For example, a manufacturing business may need product liability protection that covers them in the event that an item they sell hurts someone after it is purchased, where a retail store may need coverage if someone slips and falls on their premises. Because of how complicated business insurance can be, it is important for an organization to consult with a licensed professional before purchasing coverage.

Back to Top ↑

Business Liability Insurance

Business liability insurance is a type of insurance coverage designed to protect a company or its owner if they are sued by a client, customer or other third party. In the event of a lawsuit, a business liability policy would cover any legal expenses related to the company’s defense, as well as any payouts. There are three basic kinds of business liability insurance available to companies: professional liability insurance, general liability insurance and product liability insurance. The type of insurance coverage a company opts for depends on its line of business and the likelihood of claims associated with that sector.

When a business owner is sued, it often puts their own personal finances in jeopardy. Even if the company is structured as a limited liability corporation, or LLC, there could still be significant personal risk associated with any potential lawsuits. A business liability insurance policy would help safeguard a business owner in this case, providing them with additional protection to cover any legal costs and expenses. When business liability insurance is added on to other insurance policies, these should also include exclusion clauses in order to ensure there is no overlap or duplication of coverage that is provided elsewhere in policies.

Back to Top ↑

Captive Agent

A captive agent is an individual that works for one specific insurance company as either an independent contractor or an employee. This person is typically paid through a combination of salary and commission or just straight commission. Captive agents are usually not allowed to sell insurance products of other companies or refer customers to outside sources. This can become a problem when a customer does not qualify for the captive agent’s products or has needs that are outside the scope of the particular organization.

Captive agents sometimes form alliances with outside reps and refer customers to one another. The agent of record then can reimburse the referrer for the new business. Some companies forbid this practice, while others may look the other way as an understanding of doing business.

Back to Top ↑

Cash-value Life Insurance

Cash-value life insurance is a type of life insurance coverage that, in addition to paying out upon the death of the policyholder, also gains cash value during the course of the policyholder’s life. As the insurance policy increases in value, the policyholder has the option to use the policy as a tax-sheltered investment, as the policy’s interest and earnings are not taxable. They also may choose to borrow against the cash value, in order to pay future policy premiums, or pass the cash value on to designated beneficiaries upon their death.

Types of cash-value life insurance policies include whole life, variable life and universal life; term life insurance is not a type of cash-value life insurance. Often known as permanent life insurance , because it does not expire until the policyholder’s death, cash-value life insurance comes with higher premiums than term life insurance policies. This is because the premiums must go not only toward potential death payouts, but also toward the policy’s cash value.

Back to Top ↑

Casualty Insurance

Casualty insurance is a category of insurance coverage designed to provide compensation in the event of property loss, damage or other related property liabilities. Typical types of casualty insurance include elevator insurance, car insurance, medical malpractice insurance and theft insurance. In fact, in many states, drivers are required by law to carry a minimum amount of casualty insurance in order to operate a vehicle.

Many businesses and companies commonly carry a type of casualty insurance coverage that’s called worker’s compensation. This coverage protects a company from losses and liability in the event that an employee is injured while on the job or at the workplace. Homeowners and car owners also typically opt for a type of casualty insurance coverage, as damage done to these pieces of property can often be substantial and costly. Casualty insurance protects property owners from having to suffer the large financial losses and expenses of this damage.

Back to Top ↑

Certificate of Insurance

A certificate of insurance is simply a document produced by an insurance company or insurance brokerage firm that affirms the existence of an insurance coverage policy. This certificate typically lists the names of the individuals covered, the type of insurance coverage provided through the policy, the effective date for the policy, and the amounts of each type of coverage and liability.

Many times, companies will require a certificate of insurance before hiring a new employee for any position that involves the possibility of a large loss or liability. For example, if a business owner was looking to hire a trucking company to transport its goods and merchandise, they may demand a certificate of insurance first. This asserts that, in the event the trucking company or one of its drivers makes a mistake that results in the loss of products or merchandise, the business can expect to be compensated for its loss.

Back to Top ↑

Cession

When an insurance policy portfolio is transferred from an insurance company to a reinsurer, the obligations contained in the portfolio are referred to as a cession. Cession can be passed to the reinsuring company either proportionally or non-proportionally. When transferred proportionally, the original insurance company and the reinsurer agree to pay a set percentage of all premiums and losses on the cession. When transferred non-proportionally, the reinsuring company only pays for losses when they exceed a certain amount.

Reinsurance is a system that allows both insurance companies and reinsurers an opportunity to profit at the expense of the other. For example, if a reinsurer recognizes that an insurance company is overcharging for its coverage and that, in the event of a loss, it will actually be less than insurance company is expecting, they may offer the company a lower rate for the same coverage. Then, the insurance company will continue charging the customer the higher rate, taking the profit between the two policies.

Back to Top ↑

Claims Adjuster

A claims adjuster is an insurance representative charged with investigating reported claims. Often, in property claims in which structures or other property damage has occurred or in liability claims in which there have been personal injuries or third-person property damage, the adjuster will need to investigate to determine the extent to which the insurance is liable for damage caused. The investigation process typically involves a variety of tasks, including: reviewing the details of the accident and damage; speaking to the claimant, as well as any witnesses to the incident; inspecting any damaged property, vehicles or structures; and seeking police and medical records. Once a claims adjuster has reviewed the claim, they will verify its validity and determine a settlement amount to offer the claimant.

Claims adjusters are often involved in car accident claims. When a car accident is reported, the claims adjuster will speak to the claimant and any other drivers or witnesses, inspect the damage done to the insured vehicle and then evaluate the costs of repairing or replacing the vehicle. Then, the adjuster will document the claim with the insurance company and make recommendations as to the total settlement amount the claimant should receive.

Back to Top ↑

Co-Insurance

Co-insurance is a type of health insurance policy that allows for some coverage of expenses, but not all. Typically, when a co-insurance agreement is in place, the insured individual will be responsible for the up-front deductible. Then, once the deductible has been paid, the insurance company and the insured party will split the subsequent costs according to assigned percentages. So, if an individual was insured on an 70/30 co-insurance plan, once they have paid their $200 deductible, all related costs that follow would be paid 70 percent by the insurance company and 30 percent by the insured individual.

Co-insurance is similar in theory to co-pay insurance except, instead of requiring the insured person pay a set dollar amount for a specific service, they pay a percentage of the total cost. Because medical costs are on the rise, many employers and businesses have opted to switch from co-pay insurance plans to co-insurance plans, in order to cut down on expenditures.

Back to Top ↑

Collision Insurance

Collision insurance is a specific type of auto insurance coverage that covers physical damage to the insured vehicle in the event of a wreck or accident with another vehicle. It is often purchased as an extension of a driver’s basic car insurance policy and, in many states, drivers are required to carry a minimum amount of this coverage.

If an accident occurs that is the fault of the insured individual, collision insurance will provide the insured party compensation for the physical damage done to their car in the incident. If another driver’s car is damaged in the accident, collision will also cover this, as long as the accident was the insured person’s fault. Collision insurance will not cover any damage that is paid for by another driver’s policy, and it will not provide compensation for damages done by theft or vandalism. This type of coverage only insures drivers in the event an actual collision occurs.

Back to Top ↑

Commutation

Commutation is a right retained by the beneficiaries of annuities and life insurance policies. It refers to the option a beneficiary has to, when receiving the funds from an annuity or policy, choose a lump-sum payment instead of receiving several payments spread out over time. When a beneficiary chooses commutation as an option, the present net value of all future payments is determined. Then, this amount is combined into one large lump-sum payment and awarded to the beneficiary.

Commutation, as it provides a much larger payment, is often chosen by beneficiaries who are in immediate financial need. Beneficiaries who have outstanding medical bills or other expenses may choose commutation to help pay these off. Not every annuity or life insurance policy offers commutation as an option to its beneficiaries, however. The right to commutation must be specifically awarded in the policy in order for a beneficiary to choose this form of payment.

Back to Top ↑

Comparative Negligence

Comparative negligence is a principle of tort law that applies in many U.S. states. The principle affirms that, when an accident or damaging event occurs, the level of fault and liability each party carries lies in the amount they contributed to the incident.

Comparative negligence is often used to determine settlement amounts in car accident claims. Each driver is assigned a percentage of fault based on their actions during the accident. If Driver 1 slammed on the brakes, causing Driver 2 in the car behind them to crash, then Driver 1 will likely hold most of the fault in the claim and Driver 2 will be awarded the full amount of damages. However, if Driver 2 was following too closely, it could be said that they hold some level of liability as well. In this case, Driver 1 may be determined to carry 70 percent of the blame, while the Driver 2 holds 30. Because Driver 2 holds 30 percent of the liability in this case, the amount of compensation they could get from the claim would go down proportionally.

Back to Top ↑

Concealment

In the insurance world, concealment refers to the act of an insured individual intentionally concealing or not reporting information that is vital to either the issuance of an insurance policy or the determining of the policy’s premiums or rates. If the insured individual knows information that is vital to insurance policy and it is not possible for the insurance company to know otherwise, the concealment of this information could lead to the insurer terminating the insured’s coverage policy or cause them to refuse to pay out on any claims related to the concealed information.

If an insured individual lies when asked a question or misrepresents themselves during initial discussions with the insurance provider, this could be considered concealment. Additionally, if the information is simply withheld, avoided or omitted during the drafting of the policy, this is also considered concealment and could give the insurance company grounds for nullifying or voiding the individual’s contract.

Back to Top ↑

Death Benefit

A death benefit is a predetermined sum paid out to a beneficiary after the death of an insured. Death benefits can be part of a life insurance or disability policy, and are often tied to investment and pension benefits.

In life insurance a death benefit is often paid in a lump sum to a designated beneficiary (or multiple ones) after death. The beneficiary can also elect a settlement option that allows them to receive the money over a specified amount of time. This is typically the case when a spouse dies or a child inherits the money. People can also purchase an annuity with the death benefit, which gives them structured payments over certain amount of time or until their death.

Disability polices can come with a death benefit as well. Though usually not as high as a life insurance policy, the disability policy may pay one or more years of disability payments all at once to the beneficiary.

Some pension plans also offer death benefits in the form of extended payments to the beneficiary. A pension benefit may be setup in a way that gives the beneficiary a certain percentage, say 70%, of the total monthly pension payment before the death of the participant. Social Security also has a death benefit similar to many pension plans, though it is referred to as a survivor benefit.

Back to Top ↑

Deductible

When referring to insurance, a deductible is the amount a policy owner (insured) is responsible to pay before the insurance company will pay for a covered loss.

A deductible will generally have a direct impact on the cost of a particular policy since it determines when an insurance company becomes liable for a loss. For example, on an auto policy the lower the deductible the higher the premium will be since the insurance company is more likely to cover smaller charges such as fender benders or door dings.

If someone is looking to save money on insurance, increasing the deductible will generally lower the premium. This should be considered carefully, however, since the policy owner will be responsible for more costs. A $1000 deductible may reduce the insurance cost, but in the event of a covered loss, the insured will be required to come up with the first $1000.

Example: If Ben is in a covered car accident and is liable for $5000 worth of damage, and also carries an auto policy with a $500 deductible, Ben will be responsible for the first $500 and his insurance company will pay the remaining $4500.

Deductibles can be written on a per-occurrence or based on a specific time frame. A per-occurrence policy would require the insured to pay the deductible every time there is a covered loss. This is common in things like auto insurance policies. Specific time frame deductibles require the insured to pay the deductible over a specific period of time, regardless of the number of covered losses. Once the deductible is met, then the insurance company covers the amount of agreed costs. This type of coverage is common in health insurance where the insured pays all costs throughout the year until the total deductible is reached, at which point the insurance kicks in.

See Also: What is a Car Insurance Deductible? (VIDEO)

Back to Top ↑

Disability Income (DI) Insurance

Disability Income Insurance (or DI) is supplemental insurance designed to offset the loss income of an individual that becomes temporarily or permanently disabled. Not to be confused with disability insurance, which is issued through the Social Security Administration, disability income insurance is most often bought by an individual or paid for by an employer.

Each State regulates disability income insurance differently and has different requirements and terms. Some states allow for people to buy DI that will cover them for the reminder of their lives, until they are 65, or even for 5 years. It is totally State dependent.

Additionally, States regulate the amount of insurance you can actually buy. California, for example, allows individuals to buy DI that will pay out up to 60% of their income. That means someone making $5,000 a month could purchase disability income insurance that would pay up to $3,000 a month at the maximum.

The reason for the discrepancy between actual income earned and total amount of disability income insurance allowed is because the coverage is designed to help support an individual while they are disabled, not replace their entire income. Disabilities can be faked, and paying out 100% of income could potentially incentivize more people to commit disability fraud.

Back to Top ↑

Disability Insurance

Disability Insurance is a program run by the Social Security Administration that pays out steady income to individuals who have become temporarily or permanently disabled and unable to perform their typical job functions or find new work because of the disability. In order to qualify for disability insurance, a person must have paid enough into the program through the FICA taxes typically taken out of their paycheck.

Disability insurance terms vary, and are dependent on the actual disability of the individual. In order to receive disability payments, an individual must apply with the Social Security Administration. Once approved, the Social Security Administration will issue monthly payments that are determined by the type of disability and the amount paid into the plan by the individual.

Back to Top ↑

Exoneration

Exoneration is the act of freeing an individual from blame, guilt or responsibility. It is often used to describe an alleged criminal after they have been proven innocent of all charges. In regards to the financial industry, exoneration is typically used to relieve an individual of a financial duty or obligation. This could refer to taxes, mortgages or other forms of financial responsibilities.

The U.S. government currently provides various financial aid programs designed to exonerate homeowners of obligations related to their mortgage and home loans. Using these programs, homeowners who have been delinquent in paying their mortgage can be exonerated of these financial commitments and given new ones, ones that are more manageable for their household finances. When referring to taxes, if a taxpayer shows the Internal Revenue Service that they do not owe taxes on a certain item or piece of income, they could be exonerated from paying said taxes.

Back to Top ↑

Fidelity Bond

A fidelity bond, sometimes known as an “honesty bond,” is a type of insurance designed for businesses and employers. It offers the insured business protection from damage caused by its employees. Specifically, it covers the company in the event an employee’s fraudulent or dishonest behaviors lead to a financial or physical loss for the business. Typically, behaviors covered under a fidelity bond including theft, forgery and fraudulent trading.

Fidelity bonds are commonly utilized by insurance and brokerage firms, as they are legally required to carry an amount of protection equal to the company’s total net capital. While its name may sounds like a tradable stock or bond, a fidelity bond is simply an insurance policy for businesses. It does not accrue interest and it cannot be traded. The fidelity bond goes by different names in other countries, being referred to as “employee dishonesty insurance” in Australia and “fidelity guarantee insurance” in the United Kingdom.

Back to Top ↑

Floater

Floater insurance is a specific coverage that is designed to protect one individual item that is not covered fully by a traditional policy. Often associated with homeowners and renters policies, floater insurance provides protection against loss for things such as jewelry or expensive electronics equipment.

Usually reserved for items that are movable and valuable, floater insurance must be purchased for each individual item. Homeowners insurance will often have a separate limit for things like jewelry or computer equipment since they are easily lost or stolen. This allows for reduced premiums by forcing only the policy owners that want to cover these items to purchase floater insurance for each specific piece.

The cost of floater insurance varies dramatically depending on what type of item is being covered and the value associated with it. The most popular items to cover are jewelry, since the standard homeowner and renter insurance policies have a very low maximum coverage for these.

Back to Top ↑

Flood Insurance

Flood insurance is a type of insurance coverage that protects home and property owners in the event of water or flood damage. With flood insurance coverage, policyholders can seek payment to cover any water damage done to a home, structure or any other contents of the property, including furniture, clothing and more, if a flood occurs. Although property owners can purchase flood insurance coverage from a variety of different insurance carriers, prices of flood insurance policies do not vary. Flood insurance coverage is federally regulated, so all policies will carry the same costs no matter what carrier it is purchased from.

Most standard hazard insurance policies do not provide coverage for flood damage. Flood insurance coverage is an optional, additional coverage that a home or property owner must opt to carry. In some cases, a mortgage lender may require home owners purchase flood insurance coverage before approving a home loan, if the property is located in a high-risk area particularly prone to flooding. This assures the lender that the structure and property is safe in the event a flood occurs.

Back to Top ↑

Gap Insurance

Gap insurance is an optional type of car insurance designed to protect a policyholder in the event the balance remaining on a vehicle’s lease agreement or loan is more than the blue book value of the car itself. In the event the car is totaled, stolen or lost, the payout the policyholder receives will equal less than the amount still owed on the car’s lease or financed loan. Gap insurance will go toward covering the “gap,” or the difference between the funds received from the standard insurance policy and the total amount still owed on the car.

If a vehicle is worth $20,000 according to the blue book and the car is completely written off because it was stolen, lost or totaled in a wreck, the standard auto insurance policy will pay the $20,000 to reimburse the policyholder for the losses. If $25,000 was still owed on the policyholder’s car loan or lease agreement at the time of the loss, that means there is a $5,000 difference that the insured party would need to pay out of pocket. If the policyholder also carries gap insurance, though, they would not. Gap insurance would go toward covering this remaining $5,000.

Back to Top ↑

Gatekeeper

Gatekeeper is a term used in health insurance to refer to the designated person who is put in charge of a patient’s health care and medical treatment. Individuals who have health insurance coverage from a managed care plan or a Health Maintenance Organization plan (also known as an HMO) is assigned gatekeeper upon initiating the policy. Often, insured individuals are allowed to choose their gatekeeper from an approved list or they are required to select a primary care physician who will be then become their official gatekeeper.

The duty of the gatekeeper is to manage the medical treatment of the insured person. The will approve and authorize any referrals, lab studies and hospitalizations that the insured may require. In the event the insured person is injured, hurt or disabled and requires the care of a specialist, the gatekeeper is responsible for referring the patient to the appropriate medical professionals in the plan’s network. These individuals are referred to as “gatekeepers” because they create a “gate” between the insured person and the benefits of their policy (their health care services.)

Back to Top ↑

Hazard Insurance

Hazard insurance is a type of insurance coverage designed specifically for property owners. It protects the property owner in the event the property is damaged in storms, floods, fires, earthquakes, hurricanes and other natural disasters. Most hazard insurance policies do not provide blanket coverage for these events, however; they only insure for damage caused by a select few. So, if property is damaged in flood, for example, the insured party must have hazard insurance that specifically covers flood damage in order to receive compensation for the incident. Typically, when purchasing hazard insurance, the property owner will need to pay for one year’s worth of insurance premiums up front.

Often, when property owners are located in areas that have a high risk for a certain type of event, such as hurricanes or storms, the typical hazard insurance policy will not cover this type of damage. The property or homeowner will likely need to purchase a separate insurance policy to specifically cover the hurricane or storm damage.

Back to Top ↑

Health Insurance

Health insurance offers coverage for the insured that pays for health related care such as doctor visits, surgeries and hospital care. The scope of health insurance can be very extensive, with many different types of coverage depending on the policy.

Health care costs can be either reimbursable or direct pay. When an insured has a reimbursement plan the insurance company will reimburse the individual for costs incurred that is covered by the policy. The insured is responsible for paying the initial cost and submitting forms to the insurance company. The company will then issue payment directly to the insured for the amount covered. Direct pay policies will pay the health care provider directly and bypass the insured. The insured is still responsible to pay any copay or deductible.

Many people receive health insurance through their employers as part of their benefit package, and have the option of choosing between different plans to meet their specific needs. It is important for a participant to read the details of the health insurance policies very closely because each plan will offer different coverage. For example, some may offer prescription coverage while others may not. It is also important to pay attention to the deductibles assigned to each plan, as this will be the out-of-pocket cost the insured must incur before the insurance company will pay anything.

Back to Top ↑

Homeowners Insurance

Homeowners insurance is a type of property insurance that covers an insured home from loss to the property itself, property inside or around the premises (and in some cases off-site) and provides liability coverage in the event of an accident happening to others at the location.

Homeowners insurance has a wide array of coverage that is specific to each policy and generally comes in eight types of forms called HO-1 to HO-8. Here is a summary of each:

HO-1 – Basic Form Homeowner

HO-2 – Broad Form Homeowner

HO-3 – Special Form Homeowner

HO-4 – Renter’s Insurance

HO-5 – Premier Homeowner

HO-6 – Condominium

HO-7 – Mobile Homes

HO-8 – Older Homes

The main difference with HO-1 – HO-3 is the types of losses covered. The HO-1, basic form, covers the typical fire and lightening, vandalism and windstorm damage. HO-2 will cover additional perils plus what are called “named perils” which can be found in the specific policy. HO-3 will cover all of the HO-1 and HO-2 perils plus additional ones. This is the broadest form of the three.

HO-4 renter’s insurance is slightly different because it typically does not cover the unit itself. Instead it covers the insured possessions as well as offer liability should an accident happen on the premises or damage to the building is deemed to be the responsibility of the tenant. This will help pay the liability cost.

Whichever policy type is selected, it is extremely important that the policy owner read the details carefully. Just because there is insurance on a home does not mean that any damage or liability arising will be covered. The insured is only protected as outlined in the policy.

Back to Top ↑

Indemnity

The term indemnity means to compensate or “make whole.” In insurance terms, it is when an insurance company pays a policyholder a monetary sum in exchange for a covered loss. For example, if an individual was in an auto accident and had an auto insurance policy which covered the loss, the insurance company would indemnify the individual by paying to repair or replace their car.

The saying “to make whole” is important when it comes to indemnity and insurance, because it is the basis for what an insurance policy does and what the core definition of indemnity is. Insurance is responsible to get an individual or business back to where they were before the loss, minus any deductible or copay.

Indemnity insurance plans pay back a policyholder after they have incurred a financial burden due to a covered loss, up to the stated amount on the policy. Whereas a typical insurance policy will pay for things prior to the cost actually occurring, indemnity insurance plans reimburse for costs already occurred.

Back to Top ↑

Indemnity Insurance

Indemnity insurance is a type of insurance policy designed specifically for business owners and their employees. When one of these a business owner or employee is found to be at fault for an error or misjudgment, this type of insurance policy will cover the damages caused by those actions. There are many types of indemnity insurance policies, including errors and omissions insurance, which is commonly sought by businesses and companies within the financial sector, as well as many insurance policies aimed at specific professions or occupations, such as medical malpractice insurance.

Deferred compensation indemnity insurance is another common type of indemnity insurance. It allows business owners and executives to protect any future monetary gains, even if the company were to go bankrupt. In the health insurance world, indemnity insurance is often used to cover individuals in between health plans, offering coverage that pays out for select health expenses, though not all.

Back to Top ↑

Insurance

Insurance is an agreement typically between an individual (or company) and an insurance company that protects the signer against a covered loss. The contract signed by both parties will outline what is covered and what will be reimbursed for in the event of a loss. The reimbursement typically takes place with money, rather than replacing the actual lost or damaged item (or person).

Insurance works by pooling many people’s money together and then covering the handful of individuals that experience a loss. The insurance company then will take a percentage of the overall monies paid in, while at the same time determining on an ongoing basis exactly how much each person should be paying every term. This is determined my examining data over a large pool of people and calculating the likelihood each person will experience a loss.

Purchasing insurance allows an individual with limited resources to leverage the size of the insurance pool with only a few dollars. For example, if 10 people all owned a car that cost $10,000, and they all needed it to get to work, without insurance they would all need to have access to another $10,000 in the event their car is destroyed. However, if they all paid $2,000 into the middle because on average, 2 of them will destroy their car in a given time period, they can use their other $8,000 elsewhere and still be covered if they do lose their car.

Back to Top ↑

Insurance Fraud

Insurance fraud is an illegal practice performed by either the buyer or seller of an insurance policy. From the standpoint of the seller, it can include failing to submit paid premiums, issuing policies from insurance carriers that don’t exist, and churning policies, which involves convincing policyholders to sell their life insurance for its actual cash value and then using those funds toward a new policy. This creates more commission for the seller. From the standpoint of the buyer, insurance fraud can include falsified or exaggerated claims, post-dated policies, viatical fraud, falsified medical history, faked death or other incidents, and many more instances.

Essentially, insurance fraud is the attempt of a buyer or seller to exploit an insurance policy for personal gain. While insurance is intended to protect its policyholders in the event of damage or loss, it is not meant to be used to benefit the insured without basis.  In most cases of insurance fraud, the buyer or policyholder attempts to garner money by falsifying a claim or get more money by exaggerating the details surrounding a claim. In serious cases, policyholders have been known to fake their own deaths or kill someone in order to receive the associated insurance money for the claim.

Back to Top ↑

Irrevocable Beneficiary | Absolute Beneficiary

An irrevocable beneficiary (or absolute) is a beneficiary that cannot be removed without written permission from that party. The party can be an individual, a trust, or any other organization that is entitled to be named as a beneficiary.

There are many situations where naming an absolute or irrevocable beneficiary is commonplace. One particular situation that can occur is during a divorce settlement. This ensures that the party is given their proper position as beneficiary without concern of being removed.

It is highly recommended that any individual or organization seek appropriate counsel before naming someone or something as an irrevocable or absolute beneficiary. Once this contract as been put in place, it will require the signature of that party in order to change or remove them.

Back to Top ↑

Liability Insurance

Liability insurance is a type of insurance policy designed to protect a person, business or organization in the event that they are sued. If a policyholder is sued and found to be legally liable for injury, malpractice or some other type of negligence, liability insurance will cover the legal costs and any payouts associated with that claim. While liability insurance provides coverage for incidents of negligence and accidental damage, it typically does not cover policyholders in cases of intentional harm or for violations of contractual obligations.

Liability insurance coverage is crucial for individuals and organizations that are especially vulnerable to lawsuits, such as medical professionals and other types of business owners. Liability insurance is also helpful for product manufacturers and can used to cover damages if a product is found to be faulty, harmful or dangerous to users or other third parties. Additionally, organizations that have extensive staff can choose to purchase a liability insurance policy to protect them from possible lawsuits from employees or other people who may be hurt on site.

Back to Top ↑

Life Insurance

Life insurance is an agreement usually between an insurance company and an individual that protects against loss of potential income in the event of a death. A life insurance contract will specify the details of the agreement and outline any types of accidents that are not covered, as well as listing who will receive the funds in the event of a death.

Life insurance comes in many different forms and can have many different features depending on which product is purchased. Regardless, the core function of life insurance is to soften the financial blow an individual or family would receive by the loss of a particular individual. Families often carry life insurance on the primary income earner because of the devastation it could cause if their income source suddenly went away.

Families can also carry life insurance on individuals that do not necessarily bring vital income into the household, but perform important tasks that would need to be replaced in the event of a death. If one person were in charge of raising kids, for example, if they were to pass away then childcare would need to be taken care of. In this case a family may insure the individual enough to cover the cost of additional childcare.

Life insurance works by pooling money together from many different policy owners and paying out to the ones that experience a covered loss. By doing so, individuals can leverage the financial resources of the insurance company while protecting their family or business.

Back to Top ↑

Life Settlement

Life settlement is the process of selling a life insurance policy to a third party in exchange for a lump sum payout. Once the policy has been sold, the purchaser becomes the beneficiary of the policy and typically continues making the policy payments on behalf of the insured. The insured remains on the policy, but the purchaser and new beneficiary becomes the owner of the policy.

The business of life settlement has become popular in recent years because the cash value of many permanent life insurance policies can be relatively low. Once life insurance polices are sold through a life settlement company, they are often packaged together and sold to investors. The packaged investments then receive the value of paid out death benefits.

Life settlement has been a controversial topic because investors are betting on the insured dying. The ideal contract is one that is signed over and then the insured immediately dies before any payments are made. On the flip side, they often give the original insurance policy owner a larger amount than a cash payout would be. This option can offer seniors a significant increase in their liquid assets that would not be attainable by cashing out their policy through their life insurance company.

Back to Top ↑

Lump Sum

A lump sum is a single payout of a particular benefit to a recipient. In insurance terms it often refers to a settlement paid to a beneficiary, particularly in life insurance claims.

When an insured dies, the beneficiary (or beneficiaries) often has a choice of receiving a one-time death benefit or a scheduled payout over a specific period of time. Depending on what the recipient wants or needs to use the money for, often times they will choose a lump sum payment so they can do what it is they wish with the funds.

Lump sum payments are particularly beneficial when a life insurance policy was setup in order to pay something off or buy someone out after the death of the insured. Many spouses who are financially secure may buy life insurance that tracks to their mortgage, for example. If the insured spouse passes away before the mortgage is paid off, the beneficiary will be paid a lump sum payment in order to pay off the balance.

Another scenario where lump sums are utilized is when two business partners insure each other in case one was to die. Often times a business could not continue operating normally if one of the partners dies. Or the remaining partner would need to buy out the other’s interest in the company with a spouse or estate. A life insurance policy with a lump sum payment would provide protection in this scenario.

Back to Top ↑

Malpractice Insurance

Malpractice insurance is a kind of liability insurance designed to protect professionals in the medical and health care fields. Malpractice insurance provides protection for a medical professional against potential patient lawsuits. If a patient sues a doctor or physician and claims they were harmed due to the physician’s negligent or intentionally damaging actions, malpractice insurance will help cover the legal costs and payouts associated with this claim.

Premiums for malpractice insurance are determined by the expertise of the doctor and the geographic area they are located in. Premiums do not reflect claims experience, meaning that any past legal claims against a physician will not affect the malpractice insurance premium costs they will be charged. Premiums for this type of liability insurance can often be very high, depending on how much coverage is needed, how often claims can be expected, the severity of the claims filed, the location of the physician’s practice and any local applicable laws. Malpractice insurance is also often used by other professionals, including lawyers and attorneys.

Back to Top ↑

Medicare Part D

Medicare part D is a federal program that helps offset the cost of prescription drugs for those individuals on Medicare. The “D” stands for “drugs.” As part of the Medicare Modernization Act of 2003, Medicare part D became active at the beginning of the year in 2006.

The intent of Medicare part D is to subside some of the extremely high costs of prescription drugs, especially for seniors.  But the program has been criticized many times with people and organizations claiming it is not extensive enough. When enrolled in Medicare part D, individuals get their choice of different prescription plans, each of which cover different things. It is very important for individuals to choose wisely to ensure they pick a plan that best suits their needs.

In order to enroll in Medicare Part D, a participant must be eligible to receive benefits under Medicare part A or Medicare part B. Open enrollment occurs towards the end of the year, and is usually open for close to two months. This is when participants will pick which coverage they want for the following year.

Back to Top ↑

Permanent Life Insurance

Permanent life insurance is a term that refers to a life insurance policy that does not expire. There are two types of permanent life insurance: whole life insurance and universal life insurance. Term life insurance, which expires at a certain point, is not a type of permanent life insurance.

Permanent life insurance policies also combine the insured individual’s death benefit with a savings portion, which can build cash value over time. The individual is permitted to borrow from this savings portion or even withdraw the total value under certain circumstances, such as paying the tuition for a child’s college education. To withdraw from or borrow against the savings portion of this type of policy, the insured individual will typically have to endure a waiting period before the cash value has been built up.

Taxes are generally deferred on the cash value of a permanent life insurance policy. As long as the policy is active, the insured individual will not have to pay any taxes on its value. Withdrawals are typically not taxed either, as long as they are equal to or less than the policy’s premiums.

Back to Top ↑

Personal Auto Policy

One of the most common insurance policies sold in the US, the personal auto insurance policy protects drivers from liability in the event of getting in an accident with another person or property, as well as offers optional coverage to repair the insured’s property. Drivers in all 50 states are required to carry minimum liability coverage amounts (varies by state) to protect others in the event of an at-fault accident.

Personal Auto Policies are typically divided into three main categories; liability, collision and comprehensive.

Liability – Covers other parties involved in an accident when the insured person or car is determined to be at-fault.

Collision – Covers the policy owner’s automobile regardless of fault. This protection is optional, but most banks require it if the owner is making payments for the car or it is a lease.

Comprehensive – Coverage designed to pay for repairs or replacement of the policy owner’s automobile in the event of damage as a result of anything except an accident. This can include theft, fire, wind damage, etc. There are exclusions, which can be found in each specific policy.

Back to Top ↑

Pre-Existing Condition

A pre-existing condition is an illness or health condition that either existed or was known about by the insured individual before an insurance policy was written and signed. In general, insurance companies typically do not wish to cover conditions or illnesses that existed before the policy. To prevent this, many will require that customers undergo a medical exam and certify that they have no pre-existing conditions before drafting a health or life insurance policy for them. If a pre-existing condition is found to exist, the new policy will likely be drafted to exclude that specific condition or, it will exclude that condition for a set period of time.

Pre-existing conditions don’t just apply in cases of health and life insurance, though. They can also play into other types of insurance, as well. If a homeowner was seeking insurance coverage for flooding, and the home was previously damaged or destroyed by a flood, this could be considered a pre-existing condition. In this case, the insurance company may be unwilling to provide insurance coverage to the homeowner.

Back to Top ↑

Professional Liability Insurance

Professional liability insurance is a type of insurance coverage that protects professionals in the event they are sued for negligence, malpractice or other damages by a customer or client. For professionals who have a specific area of expertise, liability insurance is essential. General liability insurance policies do not cover policyholders if they are sued for damages resulting from a business or professional relationship. Professionals who typically require liability insurance include lawyers, doctors and accountants.

Professional liability insurance can have various names, depending on the profession it is covering. For doctors and physicians, it is called medical malpractice insurance; for real estate agents, it is errors and omissions insurance. Professional liability insurance is not offered under homeowners’ endorsements, business-owners’ policies or in-home business policies. It is an additional, specialty coverage that a policyholder must opt for. Additionally, professional insurance coverage only covers claims if they are made during the policy period.

Back to Top ↑

Property Insurance

Property insurance is a type of policy that offers financial protection to the owner or renter of a property. It covers any structures on the property and its contents in the case of theft or damage. Various types of this coverage include homeowners insurance, flood insurance, renters insurance, and earthquake insurance. In the event the property is robbed or damaged, these policies will reimburse policyholders for the total value of the damage done or they will provide funds to cover the replacement costs of anything stolen or damaged. A typical homeowners or renters insurance policy will also cover personal property and contents of the structure, unless it is of significant value. For high-value items, property owners can opt to purchase an addition to their policy, also called a rider.

Property insurance will usually cover damage done by weather, including wind, hail, ice, snow and lightning, as well as theft, fire, smoke and other threats. As a general rule, most property insurance policies do not cover any damage caused by water. This includes anything done by floods, drain backups, tsunamis, standing water, groundwater seepage and other nearby water sources. Instances of mold, earthquakes, acts of war and nuclear events are also not covered by these policies. A property insurance policy also typically provides coverage in the event an individual is injured on the covered property and they file claim against the property owner.

Back to Top ↑

Reinstatement

Reinstatement allows an insured party to resume an insurance policy that was previously terminated or forfeited. By reinstating the policy, the insured individual would then be privy to all the benefits and coverage options provided in the original policy.

If the original policy was terminated because the insured party failed to pay premiums, then they may be required to provide additional compensation to the insurance company before resuming their policy will be allowed. The amount due will likely include any missed premium dates, as well as any other fees the insurer wishes to charge. Additionally, in the event the reinstatement is for a health or life insurance policy, the insured person may be asked to provide evidence of eligibility or submit to a medical exam before their policy can reinstated.

In addition to failure to pay, there may be other forms of termination that warrant compensation before the insurance company will allow reinstatement.

Back to Top ↑

Respite Care

Respite care is a type of short term or temporary health care designed to provide relief to the caregiver of a sick, disabled or injured person. Typically, respite care lasts anywhere from a few hours to weeks at a time, in order to give regular caregivers a brief break from taking care of their injured or disabled loved one.

Caregivers experience much stress, tension and anxiety as a result of their required duties. Although a caregiver may be hesitant to leave their sick or injured loved one in the care of another person for even a short period of time, it is often recommended to ensure the health of both the caregiver and the injured person. There is evidence that shows caregivers who are given regular breaks and relief from their stressful daily duties are less likely to commit abuse or be negligent of the individuals they are in charge of caring for.

Back to Top ↑

Rider

A rider is a provision of an insurance policy that, for an extra cost, provides added benefits to the policyholder. It is purchased separately from the basic policy and allows for insured parties to create and customize a comprehensive policy that meets their individual needs and demands. Insurance policies typically allow little room for customization and modification; a rider gives policyholders more options in creating their policy.

A common rider to a life insurance policy is the accelerated death benefit. In the event the insured party suffers a terminal illness, they will receive a death payout while he or she is still alive. The funds from this payout can be used toward any medical costs or expenses, as well as any services, products or treatments that may increase the quality of the policyholder’s remaining life. Upon the policyholder’s death, their beneficiaries will be given a reduced amount of life insurance benefits, as the rider has already paid out a portion of the policy prior to the death.

Back to Top ↑

Rider Insurance

A rider is a provision of an insurance policy that, for an extra cost, provides added benefits to the policyholder. It is purchased separately from the basic policy and allows for insured parties to create and customize a comprehensive policy that meets their individual needs and demands. Insurance policies typically allow little room for customization and modification; a rider gives policyholders more options in creating their policy.

A common rider to a life insurance policy is the accelerated death benefit. In the event the insured party suffers a terminal illness, they will receive a death payout while he or she is still alive. The funds from this payout can be used toward any medical costs or expenses, as well as any services, products or treatments that may increase the quality of the policyholder’s remaining life. Upon the policyholder’s death, their beneficiaries will be given a reduced amount of life insurance benefits, as the rider has already paid out a portion of the policy prior to the death.

Back to Top ↑

Self-insure

Self insuring is a process by which an individual sets aside money to protect against loss rather than purchasing insurance through a third party. In theory anyone can self insure, and often do when it comes to smaller things. For example, one could theoretically purchase insurance to cover something like a favorite pair of shoes, but on something that is relatively low cost it makes more sense to self insure. If the shoes are lost or stolen, using cash reserves to buy a new pair is more realistic.

Wealthier individuals may also elect to self insure when it comes to larger risks or liabilities such as auto insurance. Many states allow for self insuring, as long as the appropriate requirements are met. However, since the cost of insurance is fairly low due to the sheer number of people that buy insurance, most people with the means to self insure still choose to purchase from a third party.

Back to Top ↑

Subrogation

Subrogation is the legal right of an insurance carrier to seek payment from a third party in the event that a policyholder experiences losses or damage. When an insured party suffers losses, their insurance coverage will go toward the damages and payouts associated with any claims. If the losses were the fault of a third party, and not the insured, then the insurance carrier may seek to payment to recover the funds paid out on the policyholder’s claim. To do this, they will take legal action against the third party for recompense.

Subrogation is commonly used in cases of car accident claims. If a policyholder is the victim of a car accident, the insurance carrier will cover the damages associated with the accident as per the insured’s policy. Then, in order to recoup those costs, the insurance carrier will pursue legal action against the at-fault driver. In the event the carrier is successful in seeking damages from the driver, the claim’s payout must be divided up proportionally between the carrier and the policyholder in order to pay for any deductibles that may have been incurred.

Back to Top ↑

Survival Analysis

Survival analysis uses statistics to determine the amount of time before a specific event occurs. For health insurance providers, this is often used to determine a policy holder’s expected time of death, so an accurate insurance premium can be calculated. Survival analysis is commonly used by insurance companies in determining life insurance and health insurance premiums.

When utilizing survival analysis as part of the life insurance process, analysts will use current death rates, as well as information regarding specific health conditions and ages, to compute whether or not the insured individual would become deceased during the life of the insurance policy. Then, considering any required payouts of the policy, the insurance company can accurately set a premium for the insured.
Survival analysis is often difficult to do accurately, as many studies involving death rates, ages and health conditions are unsuccessful, either because subjects drop out or outlive the length of the study.

Back to Top ↑

Term Life Insurance

Term life insurance is a form of life insurance that offers a specific coverage amount for a set amount of time. Over the “term” of the policy, the policyholder will pay the same annual premium as originally determined when the policy was issued.

Term life insurance policies are guaranteed for the duration of the term, as long as the premiums are continued to be paid. That means someone with a term policy that is diagnosed with something cannot have their premiums changed while the term policy is still in effect.

When a term life insurance policy expires, it is generally over. There are forms of term insurance that allow you to renew, but a typical term policy ends at the end of the stated term. In order to continue coverage, an individual must reapply for a new policy, and pay the current rates based on their new age and health status.

Term is often the cheapest form of insurance and provides the most coverage, dollar for dollar. However, there is also no guaranteed payout at the end, so when the policy expires there is nothing given back to the policyholder.

Back to Top ↑

Travel Insurance

Travel insurance protects individuals against the unknown perils they may experience when traveling away from home, such as a foreign country. When visiting places outside the US, costs for certain things like medical treatment can be extremely high when compared to the rates in the States.

Travel insurance generally covers two things, medical and personal property. Personal property can be things like luggage or a rental car. If a personal item is lost or stolen during transit or while on a trip, the travel insurance company will reimburse the policy owner up to the agreed amount as stated in the contract or the value of the item(s), whichever is lower.

It is important to read the details of any travel insurance contract prior to signing because each one can be very different, depending on the company that is offering it. Some may only protect items in transit or will not cover preexisting conditions as it pertains to medical payments. It is also important to see if they cover ransom payments if you are traveling to a high conflict location.

Back to Top ↑

Uninsurable Risk

An uninsurable risk is one that is determined by the insurance company to be too high of a risk and therefore likely to become a loss, or something that could be considered illegal.

Insurance is based around pooling risk into similar categories that are quantifiable. This allows an insurance company to estimate losses and determine policy prices to cover expected losses and plan administrative costs.

In order to avoid consistently paying out more than they bring in through premium payments, insurance companies try to avoid high-risk exposures. Covering these exposures could drive a company to insolvency if a lot of these losses came due over a short period of time.

A lot of states cover high-risk exposures through the use of high-risk pools. Since states have larger assets to cover a loss, their risk of insolvency is greatly reduced. However, coverage in these high-risk pools is often limited or capped.

An example of an uninsurable risk is a terminally ill person. The likelihood of the insurance company paying more out in health care costs than receiving in premium payments is greatly increased and therefore not sustainable.

Back to Top ↑

Universal Life Insurance

Universal life insurance is a kind of permanent life insurance that offers policyholders the benefit of low-cost term life insurance coverage in addition to a savings element that can be invested in order to build up the policy’s cash value. As a policyholder’s circumstances change over time, a universal life insurance policy’s death benefit, premiums and savings portion can also be changed and altered to better fit the policyholder’s new needs. Universal life insurance differs from whole life insurance in that the insured may use any premiums acquired by the policy’s savings element in order to pay the associated premiums.

In comparison with whole life insurance, universal life insurance provides an element of flexibility to the policyholder, allowing them to easily exchange funds between the savings and insurance portions of the policy. Because premiums are broken down by the carrier to go into the insurance and savings components, the policyholder can make alterations and adjustments depending on their personal circumstances and needs. If, for example, a policyholder’s saving component is bringing in a particularly low return, the insured may decide to use those funds instead to pay off the policy’s premiums. Universal life insurance also allows for the cash value of savings to grow at a variable rate, which is adjusted on a monthly basis.

Back to Top ↑

Values

Values are the total worth of a life insurance policy’s nonforfeiture clause. If a life insurance policy is canceled or the policyholder fails to make premium payments, the insured party is due the total equity value of the policy. This payment can be delivered to the policyholder in a variety of ways, including through a partial refund of paid premiums or through a portion of the policy’s benefits.

When initially setting up a life insurance policy, there are four nonforfeiture benefit options that a policyholder can choose from: cash surrender value, which will pay out the total value of the policy’s savings component; extended term insurance, which will use the policy’s cash value toward a new life insurance policy; loan value, which will pay out the cash value that can be borrowed on the policy; and paid-up insurance; which will use the cash value to pay off the remaining policy premium. Whichever option the policyholder elects will determine how values are paid out if the policy is canceled or surrendered. If the policyholder fails to choose one of the four options initially, the insurance provider will get to dictate how nonforfeiture values are paid out when the policy is terminated.

Back to Top ↑

Viator

A viator is a person who is currently suffering from a terminal or life-threatening illness or condition that opts to sell their life insurance policy at a reduced cost. When selling their policy, a viator will typically do so at a very steep discount. Then, they will use the funds received in order to pay for medical expenses and treatment costs. They also may use the money to go toward other items that could help improve the quality of their remaining life.

Usually, a viator will sell their life insurance policy to a reputable insurance firm at a percentage of the policy’s total face value. Most viators can expect to receive about 50 to 70 percent of the value when selling their policy. Once the policy is sold and the payout has been completed, the viator can use the funds to help with medical coverage, treatment expenses and other end-of-life costs.

Back to Top ↑

Waiver of Subrogation

A waiver of subrogation is a special endorsement included on a property-casualty insurance coverage policy. It forbids the insurance carrier from seeking subrogation, or losses caused by a third party to the policyholder. This type of waiver is often implemented in cases in which the insured person could be held liable for a claim’s payout.

Waivers of subrogation are often used in rental insurance policies. If a tenant rents an apartment from a landlord, they may opt to seek rental insurance coverage. Because of the insurance coverage, the landlord could enter into an agreement with the tenant, declaring that he or she will not hold the tenant liable if there is any type of damage or harm done to the apartment. In the event the apartment is damaged, the rental insurance would pay the claim to the landlord for the losses and then seek to recover the payout from the tenant by filing a lawsuit. If a waiver of subrogation was included as part of the rental insurance policy, the carrier would be prohibited from taking action against the tenant.

Back to Top ↑