Life Insurance Definitions

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Risk

Back 1

The chance of loss.

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Loss

Back 2

An unwelcomed and unplanned reduction in economic value.

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Risk Management

Back 3

How one deals with losse

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Hazard

Back 4

A condition that increases the number of or the severity of losses.

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Pure Risk

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That which can result only in a loss to the person at risk.

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Speculative Risk

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Risk that can result in loss or gain.

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Exposure

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The state of being subject to a possible loss.

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Premium

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The charge to the policyowner for the risk the insurance contract covers. The greater the risk, the higher the premium.

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Peril

Back 9

A condition that involves danger or risk and is the cause of a loss.

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Risk Avoidance

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One of the ways we manage risks.

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Risk Reduction

Back 11

Taking measures to reduce a certain risk; reducing a risk does not remove the possibility of suffering a financial loss.

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Risk Retention

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Choosing to use existing assets to pay for any losses if the risk becomes a reality; also known as the 'do nothing' option.

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Deductible

Back 13

A stated sum of money that the insured must pay before any major medical or property policy benefits are paid.

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Risk Sharing

Back 14

One of the oldest ways to manage risks; similiar to buying insurance in that a part of the risk is transferred to others.

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Risk Transfer

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An individual or business transfers the risk of loss to an insurance company in return for a premium.

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Insurable risk

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An applicant is an insurable risk to the insurer if he or she meets certain criteria for insurability; if these criteria are met, then the applicant is insurable.

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Underwriting

Back 17

The process that determine if the risk proposed for insurance should be accepted or rejected.

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Agent's Report

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Includes information about the client that would be useful to the underwriter; written from the agent's perspective.

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Law of Large Numbers

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A method of predicting future losses with great accuracy. it is based on the principle that the greater the number of incidents of a random process, the more the expected number of incidents and the actual numbers of incidents ten to become the same. It is the mathematical principle of probability on which insurance rests.

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Mortality

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The rate of death in the target population; it is a significant factor in calculating life insurance premiums.

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Morbidity

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Used by insureres in pricing health insurance policies. Morbidity rates indicate the average number of persons at various ages who can be expected to become disable because of sickness or accident. Morbidity rates also indicate how long a disability is expected to last.

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Adverse Selections

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The tendency of those who most need insurance (most at risk) to buy insurance. Those who don't have as much of a need for a particular type of insurance (least at risk) are less likely to buy it.

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Health Insurance

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Broadly covers many risks, such as the loss of income because of disability; the costs of medical care and treatment; and the costs of care not covered by government plans.

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NAIC - National Association of Insurance Commissioners

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Represents the insurance department of every state, Washington D.C and several US territories. They review insurance issues and promote uniformity by developing model insurance regulations. The states are not required to accept their recommendations.

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NCOIL - National Conference of Insurance Legislators

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Has state legislators from every state. Works with the NAIC to help the state legislators understand the NAIC regulations and how it would benefit and/or protect their constituents.

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Stock Insurance Companies

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Owned by stockholders, these companies pay dividends, when declared to their stockholders.

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Mutual Insurance Companies

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Owned by policyowners; mutual companies have no stockholders.

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Policy Dividends

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An amount returned to the owner of a participating insurance policy out of an insurance company's surplus funds.

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Lloyd's Associations

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The individual members that offer insurance services through Lloyd's of London.

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Self Insureres

Back 30

Refers to a large company that is willing and financially able to retain certain risks and to self-fund for that purpose.

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PPO's

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A managed care arrangement made up of a network of health care providers. This group contracts with a sponsoring organization and employer, an insurer, or a third party administrator - to provide health care services. These services are offered at negotiated reduced fees to the sponsoring organization's members or employees.

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Fraternal Benefit Society

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An organization composed of individuals who typically share a common ethnic or religious affiliation

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Fraternal Insurers

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Mainly life insurance providers whose insureds are also members of lodges or fraternal organizations.

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Annuity

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A cash contract between a person (the annuity owner) and a life insurance company (the annuity issuer). The annuity is set up to accumulate and/or distribute a sum of money.

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Ordinary Life Insurance

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A class of individual life insurance that offers individual coverage in a variety of term (temporary) or permanent plans, in any face amount.

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Agent

Back 36

Anyone who sells insurance for another and gets a policy from the insurer; also called a producer.

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Face Amounts

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The amount of the death benefit stated in a life insurance policy. In a universal life policy, the face amount is called the 'specified amount.'

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Lloyd's of London

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An insurance market; it provides: a meeting place for transacting insurance business; underwriting information; a forum for settling disputes and claims, and other regulatory and administrative services.

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Purchasing Groups

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A group of persons or entities with similar risks who form an organization for the purpose of buying insurance on a group basis.

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Surplus Lines Insurance

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A specialized insurance coverage that is offered when either of these conditions arises.
1.) A risk or part of a risk is identified for which there is no marked available through the original or producing agent
2.) a state bars the sale of a specific type of coverage or otherwise prevents insurance companies form providing coverage for a particular risk or restricts them for charging adequate rates.

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Reinsurance

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An insurer that sells insurance to the public enters into an agreement with another insurance company to accept some of its risk. The insurer accepting some of the risk being transferred is known as the reinsurance company.

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OASDI

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AKA Social Security Insurance
Provides monthly benefits to qualified retired and disabled workers and their dependents, and to survivors of insured workers. Eligibility and benefit amounts are determined by the worker's contributions to Social Security.

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Workers' compensations

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State administered program that protects people who are injured or become sick on the job.

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Admitted Insurer

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A company that has received a certificate of authority from the state. This certificate permits the company to transact insurance within the state. It certifies that the company has met the state's requirements for conducting the business of insurance. Admitted insurers are also called 'authorized insures.'

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Domestic Insurers

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The insurance company's domicile (home office) is its state of incorporation. Insurers doing business in the state in which they are domiciled.

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Foreign Insurers

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Any company that does business in a state other than the one in which it is domiciled.

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Alien Insurers

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A company that is incorporated in a country outside the United States and is doing business in the United States.

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Alien Company

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A company that is incorporated in a country outside the United States and is doing business in the United States

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Career Agency System (Captive Agency System)

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The agency system under which the agent is employed by one insurance company. The agent works at a branch of the company under the supervision of a general agent. The agent receives 50% or more in commissions as compensation for an initial sale, and an additional reduced commission at the time of each yearly renewal.

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Managerial System

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One of three distribution systems to bring an insurer's policies to market; in a managerial system, the agency head is an employee of the insurer. The insurer is responsible for agency expenses and staffing.

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General Agency System

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One of the three distribution systems to bring an insurer's policies to market; in a general agency system, the agency head is an independent contractor. The contractor is responsible for agency expenses and staffing, and is not an employee of the insurer.

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Underwriting

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The process that determines if the risk proposed for insurance should be accepted or rejected.

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Insurable Risks

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An applicant is an insurable risk to the insurer if he or she meets certain criteria for insurability; if these criteria re met, then the applicant is insurable.