Insurance Information

Absolute liability
A legal doctrine causing one party always to be responsible for payment of damage claims, regardless of the circumstances causing the loss. This doctrine has been applied to those using explosives or keeping dangerous animals as pets.

Acceptance
A required act in the formation of a contract. Acceptance of a contractual offer means complete agreement with the proposed terms.

Accumulation period
The time period when payments flow from the owner of a deferred annuity to the insurance company and remain on deposit, prior to the liquidation period.

Act of God A misnomer
A natural disaster such as a flood or tornado.

Activities of daily living (ADLs)
The usual activities of mobile individuals, including bathing, eating, and dressing, The typical insured peril in long term care insurance is the inability to perform a specified number of ADLs.

Actual cash value
An amount typically calculated as the replacement cost of property at the time of the loss, less an allowance for depreciation. Using this definition, property that could be replaced for $100, that had been used for one quarter of its expected life, would have an actual cash value of $75 ($100 $25).

Actuary
An insurance company mathematician who compiles statistics of losses, develops insurance rates, calculates dividends, and evaluates the financial standing of the insurance company.

Additional living expenses (loss of use)
The extra costs of food and lodging incurred after an insured loss, while the homeowner's property is being replaced or repaired.

Adjuster
The person an insurance company appoints to determine the value of an insured's claim for loss recovery.

Admitted assets
Those assets the state allows an insurer to use in meeting tests of solvency. Typically, these assets can be easily realized as cash and used to pay claims. Nonadmitted assets are those, such as home office furniture, that ordinarily could not be used to satisfy insured’s' claims.

Admitted insurer
An insurer licensed to conduct business in a state. See also: Surplus line.

Adverse selection
Selection against the insurer. The tendency of less desirable exposures to loss, such as people in poor health, to try to purchase insurance protection at standard (average) rates. One possible result of asymmetric possession of information.

Agent
A person authorized to act for another person known as a principal. In the typical insurance transaction the individual dealing with the consumer is an agent acting for the insurer, the principal.

Aleatory contract
A contract in which both parties know from the inception that the monetary value exchanged will not be equal. Insurance is an aleatory contract in which the insured can receive more or less than the premium paid for the coverage.

Alien
Insurance company An insurer from another country. A foreign insurance company is one doing business in a state other than the one in which it is incorporated. An Ohio based insurer doing business in Indiana is a foreign insurer in Indiana. A Canadian insurer doing business in Indiana is an alien insurer.

All risks policy
A policy covering all fortuitous causes of loss, except those specifically excluded. The term open perils is now being used to describe these policies.

Allocated funding
If a worker's pension benefit balance is funded for each individual and the worker has a claim on specific assets while the benefit is accumulating, insurers call the pension benefit an allocated benefit. When an employer purchases an annuity or a life insurance policy for each employee, this is called allocated funding of a pension’ plan.

Ambiguity
A word or phrase that can have more than one meaning. For example, the word war may mean "fighting by large groups of armed men" to some, but it may be interpreted to mean a "fight between two or more sovereign powers" to others. The rule in insurance is that ambiguities are construed against the party writing the contract.

American Lloyds
An insurance organization permitted in some states, patterned after Lloyd's of London.

Amount at risk
The amount of the insurer's exposure to loss. This amount may be different from the face amount of insurance in cash value life insurance contracts, because some of the death benefits received by the beneficiary may be considered as arising from the savings value of the contract. Thus, the amount at risk ($700) is the difference between the face amount of insurance ($1,000) and the cash value ($300).

Annual transit policy
An inland marine policy covering all shipments made during a specified year.

Annuity
A regular series of payments (sometimes called rent). If payments are made for a lifetime, the contract is called a pure annuity or a straight life annuity. If payments are guaranteed for a specified period, regardless of the annuitant's survival or death, the arrangement is called an annuity certain. If payments are guaranteed for a lifetime or a certain period, whichever event is last, the arrangement is called a life annuity, period certain.

Annuities
covering two or more lives are called joint life annuities if payments end at the first death. If payments end at the second of two deaths, the contract is called a joint and last survivor annuity.

Antirebating laws
Laws forbidding agents from sharing their commissions with an insured.

Appleton rule
A part of the New York insurance code that states that insurance companies doing any business in New York State must be in substantial compliance with all of New York's rules in whatever state they do business.

Arson
The deliberate destruction of property by fire. Arson for profit involves fraud against an insurer. Arson losses may also be caused by vandals or children. .

Assessment mutual
An insurer with the legal right to demand additional premium payments from its insured’s if insufficient funds are available to meet the insurer's obligations to claimants. These mutuals are sometimes called farm mutuals.

Assigned risk
An applicant for insurance that could not get coverage in the voluntary market and was thus assigned by state law to an insurer that otherwise would not accept the insured. This arrangement is found predominantly in the high risk automobile insurance market.

Assignment
The legal transfer of contractual rights and duties from one party to another. Assignment may or may not involve consideration. Assignment of insurance contracts is governed by policy language. Assignment of fire insurance policies is possible only with the consent of the insurer. Assignment of life insurance policies requires only the proper notification of the insurer.

Assumption of the risk
A legal defense in negligence litigation. When the plaintiff knew, or should have known, that a course of behavior could lead to his or her own injury, and despite this knowledge persisted in such behavior, the defendant can assert this defense in attempting to avoid compensating the plaintiff for injuries sustained.

Automatic premium loan (APQ)
An optional contractual feature of cash value life insurance policies. The insurer agrees to make a loan equal to any missed premiums to keep a policy in force. The total amount of loans made, plus interest thereon, must be supported by the available cash values of the contract.

Automobile insurance plans
The result of state rules forcing insurers to insure some percentage of poor drivers unable to buy insurance from other sources. The percentage of bad drivers assigned to an insurer by the automobile insurance plan typically is determined by the insurance written' voluntarily Some plans are known as assigned risk plans.

Basic medical expense insurance
Medical expense insurance policies historically providing' coverage only when the insured was hospitalized; now most policies cover outpatient treatment.

Beneficiary
The person who is designated to receive the proceeds of a life insurance policy. Binder A temporary insurance contract used to provide property insurance coverage until the actual contract can be issued. See: Conditional receipt for a comparable life insurance term.

Blanket coverage
An insurance policy covering more than one item of property at one or more locations.

Bond
A contractual arrangement, similar to insurance, in which one party (the surety) agrees to provide payment to another party (the obligee) if this party is injured by the acts, omissions, or dishonesty of one who owes the obligee a duty (the principal, or an employee). If a bond guarantees the performance of a principal, it is called a surety bond If the bond guarantees the honesty of an employee or a fiduciary, it is called a fidelity bond. Breach of contract A failure, without legal excuse, to fulfill one's contractual duties.

Broker
An agent of the applicant for insurance. The broker may be authorized to design coverage and/ or shop for insurance coverage.

Burglary
Breaking and entering a person's property to commit a crime such as theft.

Burial insurance
Life insurance sold in relatively small amounts to fund funeral expenses. See: Industrial life insurance.

Business income (interruption) insurance
This coverage provides protection from indirect losses, such as lost profits or extra expenses, that arise after a direct loss of property.

Buy and sell agreement
An arrangement made to allow the continuation of a partnership or a close corporation after the death of one of the owners. The agreement sets the price at which the sale will be made. It also forces the owners to sell and the buyers to buy the property at this price. Such an agreement is often accompanied by the purchase of life insurance, which provides the funds to complete the transaction.

Capacity
(1) The legal ability to make a binding contract. (2) The amount of insurance an insurance company can write.

Captive insurer
An insurance company operated by a (manufacturing) company, or group of companies, to insure its own risks. A part of a self insurance plan.

Cash value
The saving feature associated with permanent life insurance. The result of an initial period when premium payments exceed mortality and other charges.

Cash refund annuity See:Annuity.

Catastrophe
An extraordinarily large loss. Floods, earthquakes, and volcanoes can produce natural catastrophes, which makes them generally uninsurable by private insurers.

Catastrophe reinsurance
An excess of loss reinsurance arrangement, distinguished by very high retentions by the primary insurer before the reinsurer becomes liable. Catastrophe reinsurance also has very high upper limits on the reinsurance policy, with increments of coverage often being expressed in the millions of dollars.

Ceding company
The insurer purchasing reinsurance, also known as the primary insurer.

Claim
A demand for payment made for a covered loss by an insured on an insurer.

Claims made form
A type of liability policy in which the insurer agrees to pay only for claims made during the period covered by the policy. Thus, this format is designed to eliminate coverage for incidents that occur during the policy period but which result in litigation after the policy period expires. This format is the opposite of an occurrence basis liability policy. The occurrence basis policy pays for losses occurring during the policy period regardless of when the claim is filed.

Coinsurance
A requirement in an insurance policy that the insured pay a portion of a claim if an inadequate amount of insurance was purchased.

Collision
In automobile insurance this term means contact of the vehicle with another object. However, several types of vehicle/object contacts, such as contact with a bird or animal, are deemed not to be collision in the personal auto policy. These events arc covered by the other than collision provisions.

Combined ratio
The sum of the loss and the expense ratio. It is calculated roughly as the sum of the losses and expenses divided by the premiums for a given period of time.

Commercial general liability insurance (CGQ)
An Insurance Services Office package policy covering many different liability exposures of small and large business firms.

Commercial insurance
Insurance for business firms, governmental units, or nonprofit organizations.

Comparative negligence
A modification of the contributory negligence doctrine. The comparative negligence doctrine allows the plaintiff some recovery for injuries sustained, despite a slight contribution to the loss.

Concealment Silence when obligated to speak
A duty is imposed on applicants for insurance to reveal all material facts even if specific information is not requested by the insurer. Neglect of this duty is called concealment. Condition precedent A duty required to be fulfilled by one party to a contract before the other party is required to perform. For example, the insured must file a timely notice of loss with the insurer before the insurer must pay a claim.

Condition subsequent Actions
(or lack of action) that destroy contractual rights. For example, the failure of an insured to begin a lawsuit against an insurer within the time specified by the contract destroys the right of the insured to sue the insurer.

Conditional receipt

An arrangement used in life insurance to provide coverage to an applicant before an actual contract can be issued. These agreements typically require the applicant to submit the first premium payment and are conditioned on the insured meeting all the requirements for acceptance by the insurer, including passing a medical examination.

Consolidated Omnibus
Budget Reconciliation Act of 1986 (COBRA) A federal law affecting a large number of matters, including rules requiring employers to extend group health insurance coverage to qualified employees for up to 36 months after a qualifying event such as a spouse's death, divorce, or separation from employment.

Consideration
The amount of economic value given up in making a valid contract.

Continuing care retirement community
A group living arrangement for the elderly with independent living units and a nursing facility. Admission usually involves a large front end fee.

Contract
A valid contract is one whose terms a court will enforce. A void contract lacks one or more requirements of a valid contract. A voidable contract is one that has been breached by one of the parties.

Contract of adhesion rule
A rule pertaining to insurance law that construes any ambiguities found in an insurance contract against the writer of the contract.

Contributory negligence
A legal doctrine applied in negligence litigation allowing the defendant to avoid payment for the plaintiff's injuries once it is established that some action of the plaintiff (however slight) contributed to the loss.

Conversion privilege
A contractual right of the employee to convert group life insurance into an individual (permanent) policy after terminating employment. This privilege also applies to some group health contracts.

Convertible term life insurance
A term insurance policy allowing the insured to convert to a permanent form of insurance without providing evidence of insurability.

Coordination of benefits
(COS) clause A clause found in health insurance policies that prevents insured’s from collecting a full insurance recovery from each of several insurers covering the same loss exposure. The COB clause is designed to limit the total recovery to the amount of damage sustained and determines which insurance contract(s) pays for the loss.

Countersignature law
A state law requiring that a licensed resident agent sign policy forms sold to in state residents by out of state agents.

Covered earnings
A social security term describing the amount of earnings subject to taxation. In recent years this amount has been indexed for inflation.

Credibility
An actuarial concept used in experience rated group insurance. The more reliable an employer's loss data, the more its peculiar results are reflected in its premium calculations.

Credit life insurance
A type of group life insurance covering all the debtors of one creditor a retail store or automobile financing company, for example. The purpose of this coverage is to repay unpaid credit balances if the debtor dies with an outstanding loan balance on an unpaid automobile loan, for example.

Credit risk
Loss potential caused by a borrower defaulting on a loan.

Crime insurance
Insurance providing payments when crime loss (such as theft or burglary) is caused by no employees. Fidelity bonds cover employee caused crime loss.

Criminal act
An act in violation of penal law. An offense against the state.

Currency risk
The risk of loss associated with fluctuations in one currency's value against other currencies. Importers and exporters face this risk.

Currently insured
An insured status category of the social security program providing survivor benefits to dependents of workers with covered earnings in 6 of the 13 quarters prior to death. See: Fully insured.

Custodial care
Care for the activities of daily living (bathing, dressing, and toileting, for example). There is no expectation this care will improve a person's health. It is designed to maintain a person at his or her current level. Providing this care requires no medical training. To be covered by insurance, it requires a doctor's orders.

Debit life insurance
(Also known as home service life insurance and burial life insurance.) A form of life insurance typically sold in amounts of less than $1,000, with premiums collected at the insured's home on a weekly or monthly basis.

Declarations
The (first) part of the insurance policy which the property, people, and insurance coverage purchased are set forth.

Decreasing term life insurance
A term insurance policy having a level premium but providing regular reductions in the face amount of coverage. This coverage is often used to repay the decreasing balance on home mortgage loans if the homeowner prematurely.

Deductible
The first dollars of loss that the insurance contract causes to be borne by the insured. I example, if a policy has a $250 deductible and is a covered loss amounting to $ 10,000, the insurance collects $9,750. Deductibles may be worded in of a dollar amount or as a percentage of the loss Deep pocket defendant A defendant in a liability suit with large financial resources or large amounts of insurance.

Defendant
The party allegedly causing the plaintiff's loss in a negligence suit.

Defensive medicine
Medical procedures or tests that would not be carried out in the absence of potential legal liability litigation.

Deferred annuity
A contract in which payments to the annuitant begin some time after the premium payments to the insurer have ended. Thus, a person age 40 who purchases an annuity with payments to begin on his 65th birthday has purchased a deferred annuity

Defined benefit plan
A pension plan in which the employee's benefit is predetermined by formula. The defined benefit in turn determines the actuarial contributions required to fund the benefit.

Defined contribution plan
A pension plan in which the employer's contribution is established by formula but no predetermined benefit amount is guaranteed. Demutualization The process of converting a mutual insurance company to the stock form of ownership.

Dependent properties
A nonowned property whose loss would interrupt or reduce an insured's profitability. For example. the loss at a supplier's (or customer's) premises could interrupt an insured's operations if inputs could not be delivered or out¬ put could not be shipped. This exposure can be insured with dependent properties coverage.

Difference in conditions
(DIC) insurance A separate I insurance policy. often used in providing international coverage. that fills in gaps in underlying alien insurance coverage. This urnbrella type coverage provides a level of uniformity when property is owned in several different foreign locations and insured with several different foreign insurers.

Direct liability
Legal liability arising from one's own actions.

Direct loss
The physical damage that occurs as a consequence of a covered peril, such as the damage to property done by a fire.

Direct writer
An insurer marketing products that uses employees as agents.

Disability
(total) This term is subject to different definitions by different insurers and in different policies. One of the strictest definitions is "the inability to engage in any gainful employment." A more liberal definition would be "the inability to engage in the employment one is trained for."

Disability income riders
An extra cost option that can be added to life insurance policies providing payment if an insured meets the definition of disability found in the contract. For example, a disability income rider may provide $10/month of income for each $1,000 face amount of life insurance.

Disability insurance
This coverage replaces lost income while an insured is unable to work (meets the definition of disability found in the contract).

Dividend
An amount paid on participating insurance policies. When dividends are paid to policyholders of mutual insurers, the dividends represent a nontaxable return. Dividends are also paid to owners of stock insurers; such dividends are a taxable return on their investment.

Double indemnity
An option on some life insurance contracts causing the insurer to pay twice the face of the policy if death is caused by a specified circumstance, such as an accident. This coverage is also called an accidental death benefit.

Dram Shop Act
A law providing that establishments serving liquor can be sued if they allow intoxicated patrons to leave the premises and subsequent injury results.

Earned premium
The percentage of an advanced premium belonging to the insurer, based on the passage of time. For example, if the insured pays an annual premium in advance, the insurer earns one twelfth of the premium each month.

Elimination period
A time specified by disability income insurance policies that must pass before the insured is entitled to benefits.

Embezzlement
Fraudulent taking of another's property entrusted to one's care.

Employee benefits
Any nonwage benefit provided by an employer to employees, including pensions, life, health, and disability insurance.

Employment Retirement Security Act of 1974
(ERISA) Federal legislation designed to guarantee certain aspects of pension plans of private employers.

Endorsement
A written modification of an insurance policy that changes the original (often standardized) contract of insurance. Endorsements may either broaden or narrow the original policy language.

Endowment life insurance
A contract promising to pay proceeds to a beneficiary if the insured dies before the end of the endowment period or to pay the insured if the insured survives the specified period. A pure endowment promises payment only if the insured survives the specified period.

Entire contract provision
A clause required by state law to appear in life insurance policies making the printed contract and the application attached thereto the entire contract between the parties. The purpose of this provision is to prevent incorporation of other documents (such as a corporate charter) by reference.

Environmental impairment insurance (EIL)
A coverage providing protection to manufacturers, transporters, disposal firms, municipalities, or others for legal liability arising from activities resulting in the destruction of the environment.

Errors and omissions insurance
Liability coverage designed to protect professionals. such as accountants or insurance agents, from claims that their professional actions resulted in losses to their clients.

Estate planning
The development of a financial plan designed to cover the liquidation and disposal of assets before and at a person's death. Such a plan may involve living considerations (gifts), death con¬ siderations (identifying in a will which people will receive property), and tax considerations (including the federal unified transfer tax).

Estoppel
A common law doctrine preventing a person from asserting a known right when such an assertion is inconsistent with the person's past actions. For example, if an insurer issues a policy knowing that the insured is ineligible for the coverage, it may be estopped from denying a claim because of the initial ineligibility.

Evidence of insurability
In life insurance, whatever evidence an applicant for insurance must provide to induce an insurer to offer a life insurance contract. The term includes, but is not limited to, good health.

Excess of loss reinsurance
A contract in which the reinsurer must pay the primary insurer only for the amount of loss in excess of the primary insurer's (ceding company) retention limit. For example, if the primary insurer retains $40,000 of a $100,000 exposure, ceding the remainder on an excess of loss basis, and. if a $60,000 loss occurs, then the reinsurer must pay only $20,000 ($60,000 $40,000).

Exclusion
A clause in an insurance policy in which the insurer specifies losses (circumstances, types of property, ineligible people, etc.) not covered by the policy.

Exclusive remedy
A workers' compensation rule making workers' compensation the sole source of funds for injured workers. This rule provides for the absolute liability of employers and eliminates the Fire need (ability) of employees to recover damages by litigation.

Expense ratio
The ratio of all the expenses (such as sales commissions or credit investigations but not the costs of covered losses) incurred in writing insurance, divided by the premiums realized from selling the insurance.

Experience rating
A plan found in group insurance that gives recognition in premium costs to the specific claims of the particular group being insured.

Extended term option
A nonforfeiture option found in life insurance policies, providing for the continuation of the face amount of coverage for a period funded by available cash values.

Face amount
The initial amount of life insurance scheduled to be paid at the insured's death. The face amount may not be the amount received by the beneficiary because of outstanding loans at the time of the insured's death (which decreases the death benefit) or because of the inclusion of paid up additions in the proceeds (which increases the death benefit).

Factory mutual
An insurer specializing in highly protected risks. These organizations put great emphasis on loss prevention technology and inspections.

Facultative reinsurance
A reinsurance arrangement in which the reinsurer has the right to reject submissions of business from the primary insurer.

FAIR (Fair Access to Insurance Requirements) plan
A plan adopted in several states requiring insurers to offer insurance if applicants meet specific requirements. Reasons for rejecting business must be stated and are limited by state law.

Family and Medical Leave Act of 1993 (FMLA)
This law requires employers with 50 or more employees to offer up to 12 weeks of unpaid leave to eligible employees for the birth or adoption of a child. to care for a sick family member, or for the employee's own illness.

Federal Insurance Contributions Act (FICA)
Provides for the familiar social security tax deduction on paychecks.

Fiduciary
A person who acts on behalf of another per. son. A fiduciary is held by law to the highest standards of ethical conduct. Examples of fiduciaries are trustees and executors.

Financial responsibility laws
State laws requiring drivers to show proof that they can satisfy legal judgements arising out of negligence in operating their motor vehicles.

Financial risk management
A branch of risk management dealing with loss exposures associated with fluctuations in financial markets, in particular, losses associated with interest rate changes and currency fluctuations. For insurance purposes a fire is a chemical reaction producing heat, light, or a glow and must be considered hostile when doing damage. Hostile means the fire has gone beyond designated boundaries. Fires that are not hostile are designated friendly and even though friendly fires may do considerable damage insurance policies often do not provide compensation for such claims. Damage done by a proper, functioning stove, when left unattended for a Iona period of time, is an example of damage done by friendly fire.

Flexible premium deferred annuity
An annuity in which accumulations result from a series of payments prior to liquidation. For example, some policies allow owners to make monthly payments (of irregular amounts) for many years prior to liquidation during retirement.

Floater
An inland marine insurance policy type. covering mobile property. Floaters may be scheduled (specific property is identified, as by serial number) or nonscheduled (the type of property covered is identified. but individual items are not).

Foreign Credit Insurance Association (FCIA)
Established in 1961 as part of the Export Import Bank. The FCIA is the most important source of export credit insurance for small American exporters.

Fortuitous
Occurring by chance.

Forward contracts
Contracts similar to futures contracts, but forward contracts are not traded on organized exchanges.

Fraud
An act, such as lying. or other deception, designed to cheat an insurer. Fraud against an insurer generally allows the insurer to void the insurance contract.

Fronting arrangement
An agreement typically involving a self insurance risk financing plan. Under the agreement the frontinginsurance company agrees to issue a Policy but cedes all or most of the business to a reinsurer.

Fully insured

A category of the social security program providing a broad range of benefits to workers accumulating at least 40 quarters of covered earnings. Special rules allow younger workers to attain fully insured status before acquiring 40 quarters of coverage. See: Currently insured.

Futures contracts
Orders are placed in advance to buy or sell a commodity or financial asset at a specified price.

Grace period
A limited period of time, such as 30 days, in which an insured can pay a past due life insurance premium without having to go through the formalities of reinstating the policy.

Gramm Leach Bliley Act (1999)
Federal legislation that allows the formation of financial service holding companies with component parts that may include commercial banks, insurance companies, and securities dealers. This act revoked the GlassSteagall Act that from its passage in the 1930s separated commercial banking from other financial services.

Gross estate
The property owned by a decedent at death. For federal estate tax purposes, this amount may include some transfers made within three years of death.

Gross premium
A mathematical concept recognizing all costs of marketing the coverage, including a reserve for unexpected losses. See: Net premium.

Guaranteed insurability option
A life insurance provision allowing insured’s to purchase additional coverage regardless of their insurability, at specified intervals (for example, the fifth policy anniversary) or at specified events (for example, the birth of a child or a marriage).

Guaranteed renewable
A health insurance term recognizing the insurer's limited rights to cancel inforce contracts. These are renewable at the insured's option to a certain age, but the premium can be changed (for the entire class of insured’s) by the insurer.

Hazard
A circumstance increasing either the frequency or severity of losses.

Health Insurance Portability and Accountability Act (HIPAA)
This federal act, passed in 1996, was designed to promote labor mobility. One main feature of the act was to allow workers to change jobs without the pre existing conditions exclusion of group health insurance to be applied.

Hedging
Taking two simultaneous and offsetting positions so that an increase in one position is matched by a decrease in the other position.

Highly protected risk
An exposure to loss, such as a warehouse or factory, that incorporates a significant amount of loss prevention and loss reduction technology.

HMO (health maintenance organization)
A medical organization that typically allows subscribers (usually members of employee groups) to pay one annual fee in exchange for the right to all needed health care services. HMOs stress preventive care (loss prevention).

Hold harmless agreement
A contract transferring one party's legal liability to another. For example, a railroad may ask a lumberyard to sign a hold harmless agreement before building a spur on the yard's site. The agreement would transfer the railroad's liability for accidents on the spur to the lumberyard.

Home office
The headquarters of an insurance company. The home office of an insurer determines the state in which it is domiciled.

Hospice
A facility caring for the terminally ill.

Hull coverage
Marine and aircraft insurance providing payment for direct losses of the ship or aircraft. Separate coverage is needed for losses of cargo or liability losses.

Immediate annuity
A contract in which the first payment begins after only a short delay, such as one payment period.

Immediate notice
A property and liability insurance policy provision requiring insured’s to notify the insurer as soon as practicable that a covered event has occurred. Determining whether the insured has satisfied this provision sometimes requires litigation.

Incidents of ownership
Any economic benefit in a life insurance policy, including the right to designate a beneficiary, make a policy loan, or receive the cash surrender value (if any exists) from a life insurance policy.

Incontestable clause
A part of the life insurance contract that prevents the insurer from denying a claim for alleged fraud occurring at the policy's inception. The insurer has a limited period of time to discover any such fraud, after which time there can be no defense for nonpayment by the insurer. This means the insurer must pay even if fraud can be proved.

Increase in hazard
An action by the insured that materially increases the chance of loss. In fire insurance, increases of hazard suspend the coverage.

Indemnity
A payment by the insurer to the insured that leaves the insured in the same financial position occupied before the covered loss took place.

Independent adjuster
A person acting as an agent for an insurer but not an employee of the insurer. Insurers use independent adjusters because it would not be practical or cost effective to send employees to all loss locations.

Independent agent (independent agency system)
An approach to marketing property insurance in which the selling agent is not an employee of an insurance company, but rather represents several insurers and owns the business placed with any one company. See also: Direct writer

Indirect loss
The loss of income following a direct loss. For example, if fire destroys a motel, the structural damage is the direct loss; the lost income, continuing expenses, or extra expenses to keep operating are the indirect losses.

Injury
A wrong done to another, including damaging a person's body, property, reputation, or rights.

Inland marine insurance
Provides coverage on property to be exported or imported, small valuable items (such as furs and jewelry), property being transported, and bridges and tunnels (instruments of transportation). Insolvency (guaranty) funds State operated insurance funds, the purpose of which is to guarantee the promises of insolvent insurers. The money to operate the fund comes from assessments on solvent insurers.

Insurable interest
The ability to demonstrate that the insured event is capable of causing a financial loss to the person owning the insurance. To collect from a property insurance contract, the insurable interest must be demonstrated at the time of the loss. In life insurance the insurable interest must exist when the policy is begun.

Insurance
(1)A contractual relationship between two parties in which one party, the insurer, is paid a premium by the other party, the insured. In return for the premium, the insurer promises to indemnify the insured in the event of a covered loss. (2) A money transfer scheme, in which those exposed to a loss voluntarily put money into a pool from which losses are paid to those pool members experiencing loss.

Insurance Services Office (ISO)
National property and liability rate making organization. The ISO develops policy forms and develops rates for its member companies.

Insuring agreement
That part of the insurance contract describing the insurer's duty to indemnify the insured.

Intentional injury
Also known as intentional interference. A deliberate act resulting in another's injury. False imprisonment of suspected shoplifters and libelous advertising are business examples of intentional injuries.

Interest adjusted method
A mathematical procedure for calculating a cost index, allowing the logical comparison of cash value life insurance policies.

Interest option
A life insurance settlement option providing payments to the beneficiary, derived from the interest earned on the death benefit. Any remaining principal (if principal amounts were withdrawn) is paid to a second beneficiary at the first beneficiary's death.

Interest rate risk
An exposure to losses caused by changes in prevailing interest rates. See: Financial risk management.

Intermediate care
Occasional nursing and rehabilitative care, ordered by a physician. This level of care is performed under the supervision of skilled medical personnel.

Interpleader
In insurance, a legal method for an insurance company to avoid litigation by remitting insurance proceeds to a court, allowing the court to determine rightful ownership of the proceeds. Irrevocable beneficiary A beneficiary in a life insurance policy whose rights cannot be impaired by the policyowner without the beneficiary's permission.

Joint and several liability

A legal rule allowing a plaintiff to collect the full amount of damages from one defendant if other defendants have inadequate resources to pay the judgment. The defendant from whom the damages are collected will be one of several parties responsible for injuring the plaintiff. This rule allows complete recovery even from defendants whose contribution to the injury was slight, if the other defendants have inadequate resources to pay the claim.

Joint life annuity
An annuity in which payments end at the death of the first of two covered lives. See: Annuity.

Judgment
The finding of the court in a (negligence) lawsuit. Jumping juvenile policy A life insurance policy issued to a minor in which the face value increases by some multiple when a specified age (such as 21) is reached.

Key employee life insurance
Coverage purchased by a business to indemnify it if a key employee dies prematurely.

Lapse
The expiration of a life insurance policy because of nonpayment of the premium.

Lapse ratio
The number of policies lapsed in a year divided by the number of policies in force at the beginning of the year.

Last clear chance
A legal doctrine creating liability for the party with the "last clear chance" to avoid injuring another. The rule is applied. for example, after a defendant establishes the plaintiff contributed to a loss. The last clear chance doctrine allows the plain¬ tiff to collect if the defendant had the last clear chance to avoid the injury.

Law of large numbers
When an event based on chance Loss is observed, the larger the number of observations the more likely is the actual result to coincide with the expected result.

Lease
A legal agreement giving one party (the tenant) the right to enjoy another party's (landlords) property for a predetermined length of time. Possession of a leasehold interest can create an insurable interest in property.

Legal liability
A liability recognized and enforced by a court. In insurance, legal liability often results from an insured's (defendant's) negligence that results in a court awarded judgment for an injured third party (plaintiff). The liability insurer agrees to pay its insured's legal judgment.

Legal reserve
The reserve (liability) required by state law to promote the solvency of life insurers. The reserve may be calculated on a prospective or retrospective basis and is a function of the insurer's contractual liabilities under the policies it has written.

Level premium whole life insurance
A form of permanent, cash value life insurance requiring equal annual (or more frequent) premium payments for the insured's life or until the policy matures, for example, at age 100.

Life income option
A life insurance settlement option providing annuity payments.

Life insurance trust
A form of trust often used in estate planning cases to decrease the federal transfer tax liability. The trust is the owner and beneficiary of a life insurance policy.

Limited payment whole life insurance
A form of permanent, cash value life insurance in which the number of premium payments is limited to a number of years (for example, eight years) or until a specified age (often age 65) is reached. When the payment period ends, the policy is designated.

Liquidation period
The period when payments flow from the insurer to the annuitant. See: Accumulation period.

Liquidity risk
Loss potential caused by having to take a substantial discount to liquidate an investment quickly.

Lloyd's of London
An association of independent underwriters operating in England. Lloyd's of London is not an insurance company; rather it is a marketplace for insurance where brokers representing applicants for insurance are able to contract with underwriters offering insurance.

Long tail claims
In liability insurance, the result of occurrence basis policies, in which the injury is discovered after the policy period ended, but the policy continues to provide coverage if the insured event or injury occurred during the period when the policy was in force.

Loss of use
A homeowners insurance provision providing payment for the additional living expense property owners experience after a covered loss. The term loss of use is also used to distinguish between direct and indirect losses.

Loss prevention
An activity designed to reduce the chance (frequency) of loss. Examples of loss prevention include driver training programs, better design of equipment, and better lighting in factories.

Loss ratio
The amount of losses experienced in a year divided by the premiums earned from writing the insurance.

Loss reduction
An activity designed to reduce the severity of losses. Examples of loss reduction include automatic fire sprinklers, directions for first aid found on containers of poisons, and separating a large exposure to loss into smaller units.

Major medical health insurance
A contract typified by a large upper limit of coverage (such as $50,000), a participation provision (causing the insured to pay some percentage of the claim, such as 20 percent), and a deductible provision (such as $500).

Managed care
A term used in health insurance to describe a system to provide health care with an emphasis on cost efficiency. Typical features of a managed care system include preventive examinations and controlled access to medical specialists often through use of a "gatekeeper."

Market risk
Loss potential caused by having to liquidate an investment during a downturn in the business cycle.

Maximum family benefit
A social security provision limiting the total benefits received by a family unit with several eligible beneficiaries of one wage earner.

Medicaid
A joint federal/state program providing Medical Information Bureau (MIB) A nonprofit trade association of life insurance companies formed to conduct a confidential interchange of underwriting information. The purpose of the MIB is to prevent fraud,

Medicare
A part of the social security program (see: OASDI HI) providing health insurance to those receiving retirement benefits. See: Medigap insurance.

Medigap insurance
Private insurance designed to supplement Medicare, filling in some of the Medicare limitations and participation features.

Misstatement of age provision
A mandatory feature of life insurance contracts causing insurers to adjust the amount of coverage to the appropriate benefit (given the paid premium) after a misstatement of age is discovered.

Modified whole life insurance
A permanent life insurance type with the premiums increasing in a stair step fashion during the early policy years. The initial premium will be less than the comparable level premium. but the modified premium climbs above the comparable level premium before leveling out for the duration of the contract.

Money purchase plan
The most popular type of defined contribution pension plan. The employer's responsibility ends after the contribution is made, and no guaranteed benefit is provided.

Moral hazard
A person who deliberately causes a loss to defraud an insurer. A person who exaggerates the size of a claim to defraud an insurer.

Morale hazard
A person made indifferent to loss because of the purchase of insurance, thus causing the chance of loss to increase. The difference between the moral hazard and the morale hazard is seen in the difference between the arsonist who intentionally destroys property to defraud an insurer (moral hazard) and the individual who does little or nothing to protect property before a loss or to conserve property after a loss, thinking the insurance will cover the loss.

Mortgage clause
A homeowners (and other property) insurance provision providing coverage for a lender by creating special rights and duties relative to the mortgaged property. For example, this clause precludes the insured's actions from depriving the lender of coverage; it also commits the lender to paying unpaid premiums if the lender wants the coverage to continue.

Multiple line insurers
Insurers offering several distinct lines of insurance such as fire, marine, liability, and workers' compensation.

Mysterious disappearance
Loss of property from a known location, with the loss being without a known cause. For example, assume a dress is left in a motel room. When the owner returns, the dress is missing, without explanation.

Named insured
The individual insured(s) whose name(s) appear(s) on the declarations page.

Negligence
Doing something a reasonable person would not do (for example, speeding in a car) or failing to do something a reasonable person would do (for example, removing a hazardous amount of snow or ice from a sidewalk), which act or omission results in injury to another.

Net premium
A mathematical concept used to illustrate only the loss costs in developing insurance premiums. No overhead or other expenses are included.

No fault insurance
A first party compensation scheme in which the insurer agrees to compensate its own insured regardless of whose negligence caused a loss. Various forms of no fault automobile insurance plans operate in about 16 states. Noncancellable A health insurance term recognizing the insurers' limited rights to cancel in force contracts.’ The contract must be renewed to a specified age at the insured's option, and premiums may not be changed. See: Guaranteed renewable.

Nonforfeiture value
The amount to which the insured is entitled upon surrender of a cash value life insurance policy. The nonforfeiture options include a lump sum of cash (the cash surrender value), extended term insurance, or a reduced amount of paid up whole life insurance.

Nonparticipating (nonpar) insurance
A profitmaking insurance scheme that does not provide for dividend payments to policyholders. Nonpar insurance uses more realistic projections of losses and expenses than does participating insurances thus initial premiums for nonpar insurance are typically lower than participating premiums. See also: Participating insurance.

Nonqualified pension plan
A pension plan not meeting federal requirements for tax advantages. In most cases these plans discriminate in favor of the highly compensated employees. Because they are nonqualified, the year in which the employer recognizes the compensation expense is the year the employee must report taxable income.

Obliges
The party protected by a bond. See also: Bond.

Occupational illness (disease)
Sickness arising out of employment. Some occupational disease has long been recognized, such as black lung disease. Stressrelated complaints are a newer form of occupational illness recognized in some states.

Old Age, Survivors, Disability Insurance Hospital Insurance (OASDI HI)
Better known as social security. A federal insurance program, begun in 1935, providing death, retirement, survivors', disability, and health insurance benefits to qualified recipients.

Open cargo marine insurance policies
These policies provide automatic coverage for importers or exporters for all shipments reported to the insurer. Premiums may be calculated based on monthly reports or may require a year end adjustment of the initial premium.

Open perils
A term used in newer property insurance contracts to replace the term all risk. These policies cover a broad range of perils on a nonspecified basis but contain explicit exclusions restricting coverage for specific reasons.

Ordinance or law exclusion
A property insurance provision that excludes coverage for losses to undamaged portions of buildings when total destruction of property is required by law, or if current zoning laws prevent rebuilding.

Ordinary life insurance
A term describing individual life insurance purchases in relatively large amounts paid for with annual (or more frequent) premiums. Ordinary life insurance is distinguished from debit or group life insurance.

Paid up life insurance
A whole life policy having no additional premium payments due.

Participating insurance
An insurance scheme allowing the policyholder to share in the favorable or unfavorable operating results of the insurance company. The policyholder/owner is entitled to an annual distribution of dividends based on the company's operating results. Typically, unrealistically high initial estimates are made of expected losses and expenses; when actual results are more favorable than the initial estimates, dividends are paid to the policyholders.

Participation provision
A major medical insurance policy clause causing insured’s to pay a portion of each claim. Sometimes identified as a coinsurance provision, but the parallels are not exact, because the coinsurance penalty (property insurance) can be avoided while the participation provision (health insurance) payments cannot.

Pension Benefit Guarantee Corporation (PBGC)
A federal agency established by the Employee Retirement Income Security Act of 1974, whose purpose is to guarantee payments are made to retired workers covered by defined benefit pension plans.

Pension plan
A benefit plan designed primarily to provide retirement income to individuals, These plans are commonly tied to employment and included in an employee's benefit plan. Some pension plans include ancillary benefits, but the main focus of pension plans is providing income to retirees.

Permanent disability
A term defined in a disability income policy. Some definitions can be relatively liberal (e.g., unable to engage in one's own profession), while other definitions can be relatively strict (e.g., unable to engage in any profession).

Perpetual mutuals
A relatively rare type of insurer providing an indeterminate period of coverage in exchange for one large initial premium. Earnings on the premium deposit fund loss payments.

Personal injuries
A broader description of injuries sustained by victims of negligence than bodily injuries. Personal injuries can include lost wages and economic damage to reputations, while bodily injury pertains closely to medical expenses and related losses.

Personal property floater
An inland marine coverage protecting the insured for loss of valuable items, such as furs, jewelry, guns, and silverware.

Plaintiff
The individual alleging injury in a negligence lawsuit.

Policy
The contract between the insurer and insured.

Preexisting conditions
A health insurance policy provision excluding coverage for health care problems experienced (diagnosed) before the policy became effective.

Premium
The payment made by insured’s to insurers.

Price Anderson Act
A federal law determining the legal liability of nuclear power plant operators in the event of a catastrophic loss.

Primary insurance amount
A social security term describing the basis of all a worker's benefits. That is, benefits are described as a percentage of the worker's PIA. For example, a retirement benefit at age 65 is 100 percent of the worker's PIA.

Primary insurer
The insurer who first markets the insurance to a consumer/insured. The primary insurer, also known as the ceding company, in turn purchases insurance in an arrangement known as reinsurance.

Principal
The party that must perform a duty for the obligee in a bonding arrangement. See also: Bond.

Prior approval
An approach to state insurance rate regulation requiring insurers to gain approval for proposed rates before implementing them.

Products liability (Sometimes called product liability).
The liability of manufacturers and vendors arising from products that injure people using the products. Products liability claims arise from claims of negligent design, manufacture, or failure to provide adequate warnings, packaging, or instructions.

Professional liability
The legal liability of people with special knowledge, training, or a license to practice who injure clients in the course of providing their service.

Proximate cause
The first cause in an unbroken chain of events leading to a loss. The cause without which the loss would not have occurred.

Public adjuster
An individual working for an insured after a loss has occurred to arrive at a fair claims settlement.

Punitive damages
Damages awarded by courts in addition to the compensatory damages in cases in which the defendant's outrageous conduct requires special punishment, in part to discourage similar future conduct.

Pure risk
A loss exposure in which the only outcome is a loss or no change in condition.

Qualified pension plan
A pension plan meeting federal nondiscrimination, funding requirements, and other requirements. Qualified pension plans receive valuable tax benefits not available to nonqualified plans, such as allowing the employer to recognize the pension plan payment as an expense in the year made, but not requiring the beneficiary to recognize income until the year received.

Rating bureau
An organization that collects insurance data from member companies and which uses these data to develop insurance rates for the member companies. In other industries this action would be considered a violation of antitrust laws, but it is allowed in insurance.

Real property
Land and anything permanently attached to the land.

Reasonable person
A legal standard applied in negligence cases, allowing the court to evaluate the facts in particular cases.

Reciprocal exchange
A type of insurer that is unincorporated and operates on a nonprofit basis. Each insured is providing insurance to all other members of the reciprocal exchange.

Recision
Canceling a contract by mutual consent, or because one party made an obvious mistake. In cases of obvious mistakes the law allows the contract to be canceled to prevent the other party from taking unfair advantage of the mistake. See also: Reformation.

Reduced paid up life insurance option
A nonforfeiture option providing the policyowner (of a permanent life insurance contract having a cashsurrender value) with a lower face amount of life insurance but no further need to pay premiums.

Reformation
Rewriting a contract when the written document does not reflect the intentions of both parties.

Reinstatement
The right of a life insurance policyholder to return a lapsed contract (see: Lapse) to its original terms. Reinstatement must occur within the specified time limits provided in the policy. Reinstatement requires evidence of insurability (see: Evidence of insurability) and payment of all policy financial bligations, such as outstanding loan balances and missed premium payments.

Reinsurance
The purchase of insurance on some portion of a covered exposure by an insurance company. The company purchasing the insurance is called the primary insurer or ceding company; the company providing the insurance is called the reinsurer Two typical reinsurance arrangements are pro rata reinsurance (both the premiums and losses are shared on a proportional basis) and excess of loss reinsurance (the reinsurer pays only when covered losses exceed some predetermined amount, and then only the excess above this amount).

Renewable term life insurance
A policy the insured can renew without presenting evidence of insurability.

Replacement cost insurance
A property insurance policy in which the insured provides payment for the replacement cost of the insured property rather than the actual cash value. A typical requirement causes the insured to actually repair or replace the damaged property to receive this amount.

Replacement ratio
The ratio of retirement to preretirement income.

Representation
A statement made by an applicant in an insurance application. The insurer relies on the truth of the applicant's representations in underwriting the policy. A material misrepresentation generally allows the insurer to avoid the contract.

Reservation of rights
Notice from the insurer to the insured that the insurer is not certain coverage exists, but plans to proceed with the loss adjustment, and perhaps the legal defense, as if the coverage existed, but that certain events may occur in the future that may cause the insurer to reevaluate its position.

Resipsa loquitur "The thing speaks for itself."
A legal doctrine applied in negligence cases in which the only explanation for the plaintiff's injuries is the defendant's actions. For example, the doctrine is often applied in commercial airplane accidents, in which passengers could not conceivably have contributed to the less. The application of the doctrine relieves the plaintiff of the duty to establish the defendant's negligence. It does not preclude the defendant from establishing a defense.

Retention
The amount of insurance kept by the primary insurer (see: Primary insurer) in a reinsurance (see: Reinsurance) arrangement.

Retroactive date
In a claims made liability policy, the retroactive date determines the first point in time where a covered loss may occur. The retroactive date may be subject to change or negotiation.

Retrocession
The purchase of reinsurance by a reinsurer.

Robbery
A felony involving the taking of another's property by force or threat of force.

Salvage
The amount recovered from the sale of damaged property. Schedule rating An approach to property insurance rate making in which the specific characteristics of the covered property are compared to standard, and then credits or charges are applied for above or below standard features when developing a final rate.

Scheduled property
The specifically identified property (such as cameras or jewelry) in an inland marine personal property floater or other policy requiring a listing of property.

Short rate cancellation schedule
The short rate cancellation schedule applies when an insured cancels a property insurance policy. The short rates are higher than pro rata cancellation rates to allow the insurer to recover the acquisition expenses and give recognition to the potential for adverse selection. For example, the short rates may credit the insurer with earning 5 percent of the premium after one day of coverage, while the pro rata rates would credit the insurer with only 1/365 of the premium for the Same period.

Skilled nursing care
Daily nursing and rehabilitative care, ordered by a physician. This level of care is performed under the supervision of skilled medical personnel.

Speculative risk
An exposure to loss that could result in a loss, gain, or no change as a result of fortuitous circumstances, Investing in common stocks creates a speculative risk.

Split dollar life insurance
A method of paying for permanent life insurance coverage in which two parties (often an employer and employee) each pay a portion of the annual premium, with one party paying an amount equal to the increase in cash value in a given year (the employer) and the other party (the employee) paying the remainder.

Stare decisis
To abide by already decided cases. This is the legal principle providing continuity to legal decisions. The decision of the court when it first encounters a particular set of circumstances sets a precedent for deciding future cases involving similar circumstances.

Statute of limitations
A law defining a specific period of time during which a lawsuit can be brought. For example, the law may allow an injured party three years from the time an injury was discovered to file suit. If the injuredparty does not begin the lawsuit within the specified time period, the right to bring the suit is lost.

Stock insurance company
An insurer organized as a profit making venture, with owners who are not necessarily policyholders.

Strict liability
Liability without fault. A rule of law creating a heavy burden for defendants in liability suits.

Structured settlements
In negligence cases, instead of the defendant paying a lump sum to a plaintiff, the defendant (using the services of an insurer) promises a series of annuity payments to the injured party.

Subrogation
The substitution of one party (the insurer) for another party (the insured) in that party's rights. The substitution occurs because the first party has made a payment for which another is responsible. In insurance, subrogation occurs when the insurer pays a claim while the insured has a right of action against a third party for causing a loss. After making the claims payment, the insurer is subrogated to the insured's right to sue the third party.

Subsidization
A result of insurance operations when one group of insured’s pays more than its mathematically fair share of losses, while another group pays less than its mathematically fair share.

Surplus line
Insurance on an exposure for which no coverage is available in the normal market.

Survivor life insurance (Also known as second to die life insurance.)
A life insurance policy covering two lives that provides a death payment at the second death. (If more than two lives are covered, payment is made at the last death.) Survivor life insurance is frequently used in estate planning cases based on plans leaving the entire estate at the first death to thesurviving spouse, with life insurance proceeds providing liquidity for estate taxes at the second death.

Swaps
Two companies lend to each other different currencies (currency swaps) or at different interest rates, one fixed and one floating (interest rate swaps).

Theft

A broad term describing the taking of another's property with the intent of depriving the owner of the property. Burglary and embezzlement are types of theft.

Tontine
A money transfer scheme, now illegal in the United States, where all money transferred to a pool is given to the last survivor(s) of the pool.

Tort A
Wrongful act, other than a breach of contract, resulting in another's injury.

Traded options
Create a legal right to buy or sell a commodity or a financial asset at an agreed upon price for a specific time period.

Twisting
An illegal replacement of life insurance based on incomplete or deceptive comparisons between existing and proposed policies.

Uberrima fides "Utmost good faith."
The standard of behavior imposed on the insured by an insurance contract. The requirement that at the insured deal with the insurer without making material misrepresentations or concealing material facts.

Umbrella liability policy
A policy, usually with large limits, covering losses in excess of the limits provided by underlying liability insurance. For example, a personal umbrella liability insurance policy provides people with excess coverage over the liability coverage provided by their homeowners and automobile insurance.

Underinsurance
Having less insurance than is required by the policy provisions, especially the coinsurance provision. See: Coinsurance.

Underinsured motorists' insurance
An automobile insurance policy option providing payment when the insured is injured by a negligent motorist having less insurance than the insured, and because of the defendant's inadequate coverage the insured cannot recover for all damage sustained.

Underwriting
The process of selecting and rating (calculating a premium) applicants for insurance.

Unearned premium
The percentage of an advance premium not yet earned by the insurer by the passage of time. For example, if an insured pays a one year premium in advance, after the policy has been in force for two months, ten twelfths of the premium remains unearned.

Uniform transfer tax
The combination of the federal gift and estate taxes.

Universal life insurance
A type of life insurance policy allowing the insured flexibility in choosing premium payments and death benefits during the contract period.

Unlimited marital deduction
A provision of the federal estate tax allowing the first spouse to die to transfer an unlimited amount of assets to the surviving spouse without incurring an estate tax liability.

Unoccupied
A situation arising when an insured leaves possessions in a residence but is temporarily absent from the premises. Not to be confused with vacant, which means both property and persons have been removed from the premises.

Valued policy
A type of insurance policy in which the insurer agrees to pay the face amount in the event of a total loss, regardless of the actual damage sustained. Valued insurance policies are often used to insure artwork and similar items, because the market value at the time of loss may be difficult to estimate when the insurance policy begins.

Vandalism
The malicious destruction of another's property.

Variable annuity
An annuity with a flexible liquidation payment determined by the performance of an underlying (common stock) investment portfolio.

Variable life insurance
A type of cash value life insurance policy giving the insured flexibility in choosing the underlying investment media.

Vested benefit
The right of an employee to the employer's contribution to a pension plan. Federal law specifies vesting schedules for qualified pension plans.

Vicarious liability
Legal liability arising out of another's actions. For example, a contractor may have vicarious liability if a subcontractor injures another party.

Waiver
Giving up a known contractual right.

Waiver of premium option
An extra cost life insurance policy provision providing for the insurer to forgo collecting premiums while the insured is permanently disabled. Despite the forgone premiums, the policy remains in force with benefits calculated as if premiums had been paid.

Warranty
A statement made by an insured that induces the insurer to enter into the insurance contract. The statement must be absolutely true or the insurer can avoid its contractual obligations. If the statement covers the future (for example, "there will always be at least two guards on duty"), it is a promissory warranty. If the statement represents a current condition (for example, "this ship is seaworthy"), it is an affirmative warranty.

Whole life insurance
A contract promising payment whenever death occurs, or at age 100. Whole life contracts involve savings and are often called permanent insurance.

Wrongful death lawsuits
Litigation arising when the defendant's alleged actions resulted in the plaintiffs death.