Glossary of Insurance Terms
This is a list of terms designed to assist you while shopping or learning about insurance. It is not meant to be all inclusive, but should help with your understanding of the most common terms.
Accidental Death and Dismemberment (AD&D) Rider: A supplement to many life insurance policies that provides an additional cash benefit to the insured or his/her beneficiaries if an accident causes either the death of the insured or causes the insured to lose any two limbs or the sight in both eyes.
Actual Cash Value: The value of property based on the cost of repairing or replacing it with property of the same kind and quality. Typically, actual cash value equals the current replacement cost minus depreciation (age, condition, length of time in use, and obsolescence).
Adjuster: A person who investigates and settles losses for an insurance carrier.
Agent: In insurance, the person authorized to represent the insurer in negotiating, servicing, or effecting insurance policies.
Annual Out-of-Pocket Maximum: A dollar amount set by the plan which puts a cap on the amount of money the insured must pay out of his or her own pocket for covered expenses over the course of a calendar year.
Annuity: A contract that provides for a series of periodic payments to be made or received at regular intervals.
Applicant: The party applying for an insurance policy.
Application: A printed form developed by an insurer that includes questions about the prospective insured and the desired insurance coverage and limits.
Assigned Risk: A risk insured through a pool of insurers and assigned to a specific insurer. These risks are generally considered undesirable by underwriters, but due to state law or otherwise, they must be insured.
Auto Collision Coverage: Optional auto insurance which pays for damage to your car caused by collision with another car or object, or by rolling the car over. Frequently required if you have a car loan.
Auto Comprehensive Physical Damage Coverage: Optional auto insurance which pays for damage to your auto caused by things other than collision or rolling the car over, such as fire, theft, vandalism, flood or hail. Frequently required if you have a car loan.
Automatic Premium Loan: A provision in some life insurance policies that authorizes a policy loan using the cash value accumulated by the insurance policy to pay for past due premiums at the end of the grace period. This prevents a lapse of coverage.
Beneficiary: Any person, persons, or other entity designated to receive the policy benefits upon the death of the policyholder.
Binder: A written or oral contract issued temporarily to place insurance in force when it is not possible to issue a new policy or endorse the existing policy immediately. A binder is subject to the premium and all the terms of the policy to be issued.
Binding Receipt: A premium receipt acknowledging temporary insurance coverage immediately until the insurance company rejects the application or approves it and issues a policy.
Broker: A marketing specialist who represents insurance organizations and who deals with either agents or companies in arranging for the coverage required by the customer.
Buy-Sell Agreement: Agreement that a deceased business owner’s interest will be sold and purchased at a predetermined price or at a price according to a predetermined formula.
Calendar Year Deductible: The amount of health care expenses that the insured person must pay before insurance payments for covered eligible expenses.
Cancellation: The discontinuance of an insurance policy before its normal expiration date, either by the insured or the company.
Case Management: A utilization management technique that addresses the medical necessity of care as well as alternative treatments or solutions, especially when the patient is likely to require very expensive treatment.
Cash Value (cash surrender value): The cash amount payable to a life insurance policyowner in the event of termination or cancellation of the policy before its maturity or the insured event.
Certificate of Insurance: A statement of coverage issued to an individual insured under a group insurance contract, outlining the insurance benefits and principal provisions applicable to the member.
Claim: A person’s request for payment from an insurer for a loss covered by the insurance policy.
COBRA (Consolidated Omnibus Budget Reconciliation Act): COBRA requires organizations with twenty or more employees to offer the continuation of group health benefits (Medical, Dental, Vision, and Medical Reimbursement Account) to employees (and covered dependents) upon experiencing a “Qualifying Event.”
Employers are required to provide initial COBRA notification to covered employees and dependents, a letter detailing an individual’s rights upon experiencing a “qualifying event,” and an explanation of the conversion privilege. The legislation defines the following six situations as “Qualifying Events” that require COBRA continuation:
- Termination of Employment
- Reduction of Work Hours
- Employee’s Death
- Employee’s Divorce (or legal separation in some states)
- Medicare Entitlement
- Change in “Dependent” Status
Coinsurance Provision: A specified percentage of the cost of treatment the insured is required to pay for all covered medical expenses remaining after the policy’s deductible has been met.
Collision Insurance: Protection against loss resulting from any damage to the policyholder’s car caused by collision with another vehicle or object, or by upset of the insured car, whether it was the insured’s fault or not.
Commission: The amount of money, usually a percentage of the premiums that is paid to an insurance agent for selling an insurance policy.
Comprehensive Auto Insurance: Protection against loss resulting from damage to the insured auto, other than loss by collision or upset.
Compulsory Auto Liability Insurance: Insurance laws in some states required motorists to carry at least certain minimum auto coverages. This is called “compulsory” insurance.
Conditions: The part of your insurance policy that states the obligations of the person insured and those of the insurance company.
Contingent Beneficiary: In a life insurance policy, the person designated to receive the policy benefits if the primary beneficiary dies before the insured.
Contract: A legally enforceable agreement between two or more parties.
Conversion Privilege: The right to convert or change insurance coverage from an individual term insurance policy to an individual whole life insurance policy.
Convertible Term Life Insurance: A type of term life insurance that offers the policyowner the option to exchange the term policy for a form of permanent insurance.
Copay: The fee you pay for certain medical services or for each prescription. For example, you may pay $20 for an office visit or $10 to fill a prescription and the health plan covers the balance of the charges. (1) A fee that many insurance plans require an insured to pay for certain medical services (such as a physician’s office visit). (2) An amount that the insured must pay toward the cost of each prescription under a prescription drug plan.
Creditable Coverage: The pre-existing condition exclusion is reduced one month for every month that a person had coverage in a previous qualifying plan as long as the gap in coverage between the previous plan and the new plan is 63 days or less.
Declination: The insurer’s refusal to insure an individual after careful evaluation of the application for insurance and any other pertinent factors.
Deductibles: The portion of the loss that the policyholder agrees to pay out of pocket, before the insurance company pays the amount they are obligated to cover. For example, if the covered claim is $1000 and your deductible is $250, you pay $250 and your company will pay $750. Deductibles help to keep insurance rates reasonable. Raising the amount of the deductible lowers the cost of insurance.
Dependent: A person for whom the insured has some legal obligation to. For most plans, it is the insured’s spouse and/or children. Some plans also allow non-traditional spousal relationships (significant other, life-partner, etc.) to be considered a dependent with some additional certifying paperwork.
Depreciation: Reduction in the value of property due to age and use.
Double Indemnity: A provision in a life insurance policy, subject to specified conditions and exclusions, under the terms of which double the face amount of the policy is payable if the death of the insured is the result of an accident. In general, the conditions are that the insured’s death occurs prior to a specified age and results from bodily injury effected solely through external, violent and accidental means independently and exclusively of all other causes, within 60 or 90 days after such injury.
Emergency Room Visit: A visit to a hospital for treatment of an accidental injury or for emergency medical care. To qualify as an emergency, the symptoms must be sudden, severe and require immediate medical attention. Some states judge emergencies by the “prudent layperson” law, meaning that the health plan must cover a trip to the emergency room “if a prudent layperson, acting reasonably, would have believed that an emergency medical condition existed.” Keep in mind that some plans won’t cover a trip to the emergency room if the symptoms appeared more than 24 hours earlier.
Endorsement: Attachment or addendum to an insurance policy; an endorsement changes the contract’s original terms.
Exclusions and Limitations: Conditions, situations and services not covered by the health plan.
Extended Term Life Insurance: A nonforfeiture benefit under which the net cash value of the policy is used to purchase term insurance for the amount of coverage available under the original policy.
Face Amount: The amount stated in the life insurance policy as the death benefit.
Floater: Additional coverage for items not otherwise included in the basic policy (such as jewelry or antiques).
Grace Period: The specified length of time, after a Life or Health premium payment is due in which the insured may make the payment and keep the policy in force. (Usually 30 days.)
Group Health Insurance: An insurance plan designed for a group, such as employees of a single employer. Insurance is provided to them under a single policy.
Guaranteed Renewable Policy: A health insurance policy that the insurer is required to renew — as long as premiums are paid — at least until the insured attains the age limit specified in the policy, or the policy is cancelled by the insured. The insurer may increase the premium rate for any class of guaranteed renewable policies.
Guaranty Association: Established by each state to support insurers and protect consumers in the case of insurer insolvency, guaranty associations are funded by insurers through assessments.
HIPPA – Health Insurance Portability and Accountability Act of 1996: Under this federal law (known as HIPAA), group health plans cannot deny coverage based solely on an individual’s health status. This law also gives employees who change or lose their jobs better access to health coverage, guarantees renewability and availability to certain employees and limits exclusions for pre-existing conditions. For example, under this law, group health plans must credit any employee the amount of time that they spent on any health plan prior to the new plan, which is known as “prior credible coverage.” A pre-existing condition will be covered without a waiting period when an employee joins a new group plan if the employee has been insured for the previous 12 months with credible health insurance, with no lapse in coverage of 63 days or more. This means that if an employee has been insured for 12 months or more, the employee will be able to go from one job to another and his or her pre-existing coverage will remain intact — without additional waiting periods. However, if an employee has a pre-existing condition and was not covered previously for 12 months before joining a new plan, the longest the employee will have to wait for their pre-existing coverage to be covered is 12 months.
HMO (Health Maintenance Organization): A health care financing and delivery system that provides comprehensive health care for subscribing members in a particular geographic area using managed care techniques. Most HMOs require that you only utilize physicians within their network, often going so far as to require you to choose a primary care physician who directs most courses of your treatment.
Indemnification: Compensation to the victim of a loss, in whole or in part, by payment, repair, or replacement. Indemnity. Legal principle that specifies an insured should not collect more than the actual cash value of a loss but should be restored to approximately the same financial position as existed before the loss.
Insolvent: Having insufficient financial resources (assets) to meet financial obligations (liabilities).
Insurable Risk: The conditions that make a risk insurable are (a) the peril insured against must produce a definite loss not under the control of the insured, (b) there must be a large number of homogeneous exposures subject to the same perils, (c) the loss must be calculable and the cost of insuring it must be economically feasible, (d) the peril must be unlikely to affect all insureds simultaneously, and (e) the loss produced by a risk must be definite and have a potential to be financially serious.
Incontestable Clause: A life insurance policy wording that provides a time limit (e.g., two years) on the insurer’s right to dispute a policy’s validity based on material misstatements in the application.
Insurable Interest: Any interest a person has in property that is the subject of insurance, so that damage to this property would cause the insured a financial loss.
Insurance Company: An organization that has been chartered by a governmental entity to transact the business of insurance.
Insured: A person or organization covered by an insurance policy, including the “named insured” and any other parties for whom protection is provided under the policy terms.
Insurer: The party to the insurance contract who promises to pay losses or benefits. Also, any corporation engaged primarily in the business of furnishing insurance to the public.
Irrevocable Beneficiary: A named beneficiary whose rights to life insurance policy proceeds cannot be canceled or changed by the policyowner unless the beneficiary consents.
Key Employee: Insurance protection of a business against financial loss caused by the death or disablement of a vital member of the company, usually individuals possessing special managerial or technical skill or expertise. Also called key executive insurance.
Lapse: Termination of a policy due to nonpayment of premiums.
Liability: A legal obligation to compensate a person harmed by one’s acts or omissions.
Liability Coverage: Insurance that provides compensation for a harm or wrong to a third party for which an insured is legally obligated to pay.
Life Insurance: Insurance that pays a specified sum of money to designated beneficiaries if the insured person dies during the policy term.
Lifetime Maximum: The maximum amount of money a plan will pay towards healthcare services over the course of the insured’s lifetime.
Loss: The happening of the event for which insurance pays.
Loss Expense – Allocated: Handling expenses, such as legal or independent adjuster fees, paid by an insurance company in settling a claim which can be definitely charged to that particular claim.
Loss Expense – Unallocated: Salaries and other expenses incurred in connection with the operation of a claim department of an insurance carrier which cannot be charged to individual claims.
Medical Payments Coverage: Medical and funeral expense coverage for bodily injuries sustained from or while occupying an insured vehicle, regardless of the insured’s negligence.
Misrepresentation: Act of making, issuing, circulating or causing to be issued or circulated an estimate, an illustration, a circular or a statement of any kind that does not represent the correct policy terms, dividends or share of surplus or the name or title for any policy or class of policies that does not in fact reflect its true nature.
Negligence: Failure to use a generally acceptable level of care and caution.
Network: A group of doctors, hospitals and other health-care providers contracting with a health plan, usually to provide care at special rates and to handle paperwork with the health plan.
No-fault Insurance: A system of compensation enacted by law in many states under which indemnification is made by the insured’s own insurance company regardless of who is at fault. Details of this system vary significantly from state to state.
Non-Formulary Drugs: Non-formulary drugs often require a higher copayment. Non-formulary drugs are those that have not yet been reviewed or have been denied formulary status, typically because they offer no extra benefit over the drugs already on a plan’s formulary list.
Offer and Acceptance: The offer may be made by the applicant by signing the application, paying the first premium and, if necessary, submitting to physical examination. Policy issuance, as applied for, constitutes acceptance by the company. Or the offer may be made by the company when no premium payment is submitted with the application. Premium payment on the offered policy then constitutes acceptance by the applicant.
Out-of-Network: Health care services received outside the HMO, POS or PPO network.
Out-of-Pocket Expense: Any medical care costs not covered by insurance, which must be paid by the insured.
Paid-up Policy: An in-force life insurance policy for which no further premium payments are required.
Peril: The cause of loss or damage.
Personal Injury Protection: First-party no-fault coverage in which an insurer pays, within the specified limits, the wage loss, medical, hospital and funeral expenses of the insured.
Physical Damage: Damage to or loss of the automobile resulting from collision, fire, theft or other perils.
Permanent Insurance: A general term for ordinary life and whole life insurance policies that remain in effect as long as their premiums are paid.
Personal Property Insurance: Protects against the loss of, or damage to property other than real property (real estate) caused by specific perils.
Point-of-Service Plan: An HMO (see Health Maintenance Organization) plan that also incorporates an indemnity plan option allowing members to obtain medical care from providers outside of the HMO network at a reduced benefit and at greater out-of-pocket expense.
Policy: The written forms that make up the insurance contract between an insured and insurer. A policy includes the terms and conditions of the coverage, the perils insured or excluded, etc.
Policy Declarations: The part of the insurance contract that lists basic underwriting information, including the insured’s name, address and description of insured locations as well as policy limits.
Policy Limits: The maximum amount an insured may collect or for which an insured is protected, under the terms of the policy.
Policy Loan: A loan from a life insurer to the owner of a policy that has a cash value.
Policyholder: The person who buys insurance.
Policyowner: An individual with an ownership interest in an insurance policy.
Policy Period: The amount of time an insurance contract or policy lasts.
PPO (Preferred Provider Organization): An organization where providers are under contract to an insurance company or health plan to provide care at a discounted or negotiated rate. Typically, you can see any doctor in the PPO network without requiring special approval, and you usually do not need to choose a primary care physician. Most PPOs will also allow you to seek care outside of the PPO network; however, the benefits are usually reduced and the insured has a greater out-of-pocket expense.
Pre-Existing Condition: (1) According to most individual health insurance policies, an injury that occurred or a sickness that first appeared or manifested itself before the policy was issued and that was not disclosed on the application for insurance. (2) According to most group health insurance policies, a condition (excluding pregnancy) for which an individual received medical care during the three months to six month immediately prior to the enrollment of his coverage.
Pre-Existing Conditions Provision: A health insurance policy provision stating that benefits will not be paid for any illness and/or condition that existed prior to one becoming an insured under the particular health plan in question, until the insured has been covered under the policy for a specified period.
Preferred Risk: A risk whose physical condition, occupation, mode of living and other characteristics indicate a prospect for longevity superior to that of the average longevity of unimpaired lives of the same age.
Premium: The price for insurance coverage as described in the insurance policy for a specific period of time.
Primary Beneficiary: The person designated as the first to receive the proceeds of a life insurance policy upon the death of the insured.
Primary Care Physician (PCP): A general or family practitioner who serves as the insured’s personal physician and first contact with a managed care system. The PCP will usually direct the course of your treatment and/or refer you to other doctors and/or specialists in the network.
Policyholder: The person who buys insurance.
Probationary Period: The length of time that a new group member must wait before becoming eligible to enroll in a group insurance plan.
Proof of Loss: A sworn statement that usually must be furnished by the insured to an insurer before any loss under a policy may be paid.
Property Damage Coverage: An agreement by an insurance carrier to protect an insured against legal liability for damage by an insured automobile to the property of another.
Protection Amount: The face amount of a life insurance policy, or amount of money that will be paid to a beneficiary upon the death of an insured. This amount will be reduced by the amount of any outstanding policy loan.
Rate: The pricing factor upon which the insurance buyer’s premium is based.
Rated Policy: Sometimes called an “extra-risk” policy, an insurance policy issued at a higher-than-standard premium rate to cover the extra risk where, for example, an insured has had a DUI (Driving Under the Influence) or other traffic violations.
Rebating: Giving any valuable consideration, usually all or part of the commission, to the prospect or insured as an inducement to buy or renew. Insurance rebating is prohibited by law.
Reimbursement: The payment of an amount of money by an insurance policy for a covered loss.
Reinstatement: The process by which a life insurance company puts back in force a policy that has lapsed or has been canceled for nonpayment of premium.
Replacement Cost Coverage: In the event of a covered loss, you may be reimbursed for the cost you incur to replace many of your damaged contents with similar property, brand new. The total amount you’d be reimbursed is subject to the terms and conditions of your particular policy, including applicable deductible and coverage limits.
Renewable Term Life Insurance: A renewable life policy permits the owner of the policy to automatically renew the policy beyond its original term by acceptance of a premium for a new policy term without evidence of insurability.
Revocable Beneficiary: A life insurance policy whose designation as beneficiary can be revoked or changed by the policyowner at any time prior to the insured’s death.
Rider: An addition to an insurance policy that becomes a part of the contract.
Risk: The possibility or chance of loss or injury.
Salvage: Recovery made by an insurance company by the sale of property which has been taken over from the insured as a part of loss settlement.
Settlement: An agreement between a claimant or beneficiary to an insurance policy and the insurance company regarding the amount and method of a claim or benefit payment.
Standard Industrial Classification (SIC): The Standard Industrial Classification (SIC) system is a series of number codes that attempts to classify all business establishments by the types of products or services they make available. Establishments engaged in the same activity, whatever their size or type of ownership, are assigned the same SIC code. These definitions are important for standardization. Insurance companies use SIC codes to determine specific rates for various industries. HealthInsurance.com uses these codes to ensure that you receive the best possible rate for your occupation.
Standard Risk: A person who, according to a company’s underwriting standards, is entitled to purchase insurance protection without extra rating or special restrictions.
Standard Risk Rate: The risk category that is composed of proposed insureds who have a likelihood of loss that is not significantly greater than average.
Subrogation: Subrogation refers to an insurance company seeking reimbursement from the person or entity legally responsible for an accident after the insurer has paid out money on behalf of its insured. The general rule is that, after paying your claim, your insurer is “subrogated” to the rights of your policy and can “step into your shoes” to go after or sue the negligent party on your behalf.
Substandard Risk: A risk that cannot meet the normal requirements of an auto insurance policy. Protection is provided in consideration of a waiver, a special policy form, or a higher premium charge. Substandard risks may include those persons who are rated because of poor driving habits.
Stop-Loss Provision: A major medical policy provision under which the insurer will pay 100 percent of the insured’s eligible medical expenses after the insured has incurred a specified amount of out-of-pocket expenses in deductible and coinsurance payments.
Term Insurance: Life insurance under which the benefit is payable only if the insured dies during a specified period. If the insured survives beyond that period, coverage ceases. This type of policy does not build up any cash or non-forfeiture values.
Theft Limit (or Inside Policy Limits): The highest amount an insurance company will pay on certain items of personal property. For instance, some policies have a $5,000 limit for computers.If an item would cost more than the limit to replace, you may need to purchase supplementary coverage.
Umbrella Liability Insurance: Umbrella liability insurance is becoming more popular as people are realizing how inexpensive an umbrella policy and umbrella coverage can be. See how umbrella liability protection can be a nice added cushion of insurance on top of your existing policies.
Underwriter: (a) A company that receives the premiums and accepts responsibility for the fulfillment of the policy contract; (b) the company employee who decides whether or not the company should assume a particular risk; (c) the agent who sells the policy.
Underwriting: The process of reviewing applications for coverage. Applications that are accepted are then classified by the underwriter according to the type and degree of risk.
Unilateral: A distinguishing characteristic of a life insurance contract in that it is only the insurance company that pledges anything. The policyowner does not even promise to pay premiums; therefore, it is really a one-sided contract favoring the policyowner.
Uninsured (Under-insured) Motorist Coverage: A form of insurance that pays the policyholder and passengers in his/her car for bodily injury caused by the owner or operator of an uninsured or inadequately insured automobile.
Uninsurable Risk: One not acceptable for insurance due to excessive risk.
Universal Life: Flexible premium, two-part contract containing renewable term insurance and a cash value account that generally earns interest at a higher rate than a traditional policy. The interest rate varies. Premiums are deposited in the cash value accounts after the company deducts its fee and a monthly cost for the term coverage.
Urgent Care: Urgent care is appropriate when a medical urgency arises which necessitates immediate care, but has not reached the level of extreme emergency. Most managed care plans require you to seek urgent care at a participating urgent care facility or hospital.
Usual, Customary and Reasonable Fee: The maximum dollar amount of a covered expense that is considered eligible for reimbursement under a major medical policy.
Waiver: An agreement attached to a policy which exempts from coverage certain disabilities or injuries that otherwise would be covered by the policy.
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What are the differences among the major types of insurers in the United States?
The insurance industry is typified by insurers with a number of different organizational forms. Stock insurers are corporations owned by the shareholders of the firm. The shareholders hire managers to run the company and the insurance product is sold to customers who may or may not be shareholders in the firm. Mutual insurers are companies which are owned by their customers. Any policy-owner of the company also owns a portion of the company. Reciprocal insurers or reciprocal exchanges are insurance companies where the policy-owners of the exchange agree to insure one another. They are very similar to mutual companies.
Lloyd’s associations are insurance companies where the manager who makes the decisions for the firm also has his/her own personal wealth at stake in the firm. Blue Cross/Blue Shield insurers are typically nonprofit (some may now be for profit), community oriented health insurance providers. Blue Cross/Blue Shield companies typically offer traditional indemnity health insurance. HMO’s or Health Maintenance Organizations are companies which provide comprehensive health care coverage to their customers. HMOs, in their simplest form, provide prepaid health care coverage. Once you pay your premium you can use the services of the HMO at little or no further cost to you.
Should I care which type of insurer I purchase insurance from?
From the customer’s point of view, the company which offers you the product and service you want, at the quality you desire, for the lowest cost should be the company you purchase insurance from regardless of their organizational form. Economists have tried in numerous studies to identify which one of its organizational forms can provide the insurance product at the lowest cost and the answers are mixed. Therefore, potential customers should probably base their purchasing decisions on other factors such as the financial quality of the firm.
Some insurance agents I talk to say they are paid employees of the insurance company while other agents says they are independent business people -- why the difference? Should I care which one I purchase insurance from?
Insurers deliver their insurance products to policy-owners primarily through independent agents or through exclusive agents. Historically, almost all insurance agents were independent business people paid on commission. More recently, many insurance companies have adopted a system where the agent is a paid employee of the firm rather than an independent business person. These agents are referred to as exclusive agents.
Independent agents have the freedom to shop your insurance for you with multiple insurance companies. The reason some companies have paid employee agents is obvious. The exclusive agent companies do not want their agents to be able to compare their policies with other insurance companies. Also since independent agents are not employees of the company, they have the freedom to offer more objective claims advice and more personal claims service. Many exclusive agent companies require their policyholders to call an 800 number rather than call their agent. Once this number is called, the potential claim goes on a claim record whether or not it is covered by the policy. The personal, customized service provided by independent agents has stood the test of time as the number of independent agencies has grown dramatically in the 21st century.
What do I give up by not using an agent to purchase insurance?
Many property-casualty and life insurance products can be purchased without the use of an agent. Typically potential policyholders will either be contacted through mail or Internet ads, or they can call a 1-800 number to apply for the insurance product. These companies claim to have better pricing, but many times they do not. They claim to save you money by “cutting out the middleman”, but what they do not tell the consumer is they are spending hundreds of millions of dollars on TV, radio, mail, and newspaper ads on their distribution system, as well as employee expenses. Instead of receiving personal, customized, quality local service from a highly trained insurance professional, the consumer is many times buying an inferior product that is based on price only and impersonal service from distant and minimally trained employees. By purchasing one’s insurance from an independent agent, a consumer can talk to the same people every time
I understand there are organizations that assign financial ratings to insurance companies. Who are they and what do they do?
Insurance is a product where the insurance company promises to make future loss payments in return for a premium you pay today. It is therefore important that you know the financial health of the insurer when you are deciding how much you are willing to pay for the product. For example, holding all other things equal, people should pay slightly more for a life insurance policy from an insurance company with a higher financial rating, or should pay slightly less for the same policy from a company which is not as financially strong.
In order to make this kind of informed purchasing decision, a number of private organizations, called rating agencies, rate the financial stability of insurance companies. Major insurance rating agencies include the A.M. Best Company, Standard & Poor’s, Weiss Research, Duff and Phelps, and Moody’s. Each of these companies uses data obtained from various sources to rate the financial strength of insurance companies. It should be noted, however, that each organization has its own rating standards and therefore the financial grades from two different rating agencies may be different. The best advice usually given to insureds is to check the financial rating of the insurer from as many rating agencies as possible to determine the range of opinions of the financial health of the company.
Where can information be found on the largest insurance companies in the United States?
The monthly publication Best’s Review (Life and Health Edition) periodically contains information on assets, premium income and products sold by most of the largest life insurance companies operating in the U.S. The sister publication, Best’s Review (Property and Casualty Edition) provides certain statistical information on large property-casualty companies. Both magazines are published by the A. M. Best Company in Oldewick, N.J. Public libraries in cities of medium to large size frequently subscribe to one or both of these magazines.
What kinds of questions should I be expected to answer when I am applying for an insurance policy? Why do insurers ask all of these questions?
When you apply for an insurance policy, you will be asked a number of questions. For example, the agent will ask you a number of demographic questions such as your name, age, sex, address, etc. In addition to these demographic questions, you will be asked a number of other questions which will be used to determine what type of risk you are. For example, when an insurance company is deciding whether or not to offer auto insurance to a potential policyowner, it will want to know about the person’s previous driving record, whether there have any recent accidents or tickets, what type of car is to be insured and various other types of information.
All of this information will be used for two purposes. First, based upon the responses to these questions, the insurance company will decide whether the profile of the applicant is consistent with the type of risks the insurer is trying to attract. Some insurers specialize in offering insurance to only very safe drivers and therefore will only accept applications from people who fit the profile of a safe driver. Second, once the insurer has decided that your risk profile is consistent with the types of risks it accepts, the answers to the questions will be used to determine which rate to charge you. For example, the insurance company will decide whether you should be offered insurance at the high risk driver rate or the low risk driver rate.
Collectively, this entire process is known as the underwriting process. The primary function of the underwriting department in an insurance company is to decide whether or not to offer insurance to a person who has completed an application. If the answer is yes, then the underwriting department seeks to determine the “quality” of that risk so that the proper premium can be charged. That is, high risk people should pay more than low risk people.
What can I do to lower my auto premium?
Be sure to talk to your insurance agent about available discounts on car or auto insurance such as: multi-car, renewal, claim-free, student discounts, driver training, defense driver course, anti-lock brakes, air bags, anti-theft devices, and auto/home discounts. Ask how much you can save by increasing your deductibles.
How can I lower my homeowner insurance premium?
Insurers frequently award lower rates to homeowners who guard against theft, accidents and other losses. And companies may provide discounts to premium for multiple-customers (home and auto). Here are some things you can do that generally qualify for lower premiums:
- Secure your home with dead bolts and window locks.
- Install a security system with outside signal and connection to local police.
- Install and maintain smoke detectors.
- Install a sprinkler system for fire.
- Install a fire alarm that automatically alerts the local fire department.
- Purchase your auto and home insurance from the same company.
How can I lower my Boat Insurance premium?
Safety Equipment Discounts are available for safety equipment. If your boat is equipped with any of the following, check with your agent or broker to see if you qualify: GPS, Ship to Shore, VHF, Depth Sounder, Halon system, Fume detector, Alarm System Loran, and Boating Safety Courses. If you have taken the Coast Guard certification course, check with your current company as to the availability of a discount.
What is "full coverage"?
The term “full coverage” is a term that means the legally required or most commonly requested coverages. The term “full coverage” does not mean that everything is covered no matter what happens. “Full coverage” typically includes Bodily Injury, Property Damage, Uninsured and Underinsured Motorist, Damage to a covered vehicle (also known as Comprehensive and Collision), and any other coverages available such as: rental car, towing, road service, or additional equipment coverage. Your auto insurance policy declaration page lists the coverages you have selected.
Am I covered if I drive someone else's vehicle?
The coverage provided varies from state to state and you should consult with your insurance agent for details. Generally, you are covered only for liability to the third parties unless the owner is a resident of your household, or the vehicle is furnished for your regular use. In many states, you are not covered for physical damage to the borrowed vehicle. Any coverage provided is over and above the collectible coverage provided by the owner of the vehicle.
What kinds of records are needed to substantiate a homeowner claim?
It is recommend that you keep a booklet detailing the items or a videotape of your personal property. Having a complete inventory record at the time of loss could save you thousands of dollars because no one remembers everything, and unless written down, lost items will go unclaimed. The booklet should be kept in a safe place, preferably not at home. Keep it in a safe deposit box or with your insurance agent. It is also a good idea to retain all bills for major purchases and additions to the structure of your home. These could serve as proof of purchase in the event of a claim and should also be kept in a safe place. Finally, take pictures of or videotape all these items. Lay china and silverware on a table so that the picture will show the number of pieces and other details such as the design. Keep the pictures and all receipts in a safe place.
When renting a vehicle, should I buy the insurance coverage offered by the car rental company?
If you have auto insurance protection on your personal vehicles, you do not need to buy extra insurance.
If my car is in the shop and I need to rent a temporary vehicle, is the rental car covered on my auto insurance policy?
Rental car coverage is only for vehicles that have been in an accident, not for cars experiencing mechanical failure.
When my child gets his/her driver's license must I add him/her to my insurance policy?
Yes. All licensed drivers living in the household need to be listed on the auto policy unless they have their own auto insurance elsewhere.
Who is usually covered under an auto insurance liability policy?
An auto insurance liability policy usually covers the following people:
- Named insured — the person or persons named in the policy, no matter what car they are driving.
- Spouse — even if the spouse of the named insured is not named on a policy, liability insurance almost always covers him or her, unless the couple does not live together.
- Other relative — anyone living in the household with the named insured related to the insured by blood, marriage or adoption, usually including a legal ward or foster child.
- Anyone driving the insured vehicle with permission — someone who steals the car is not covered.
What are adequate liability limits for my business?
This question has received considerable attention over the years by insurance professionals and legal advisers without resulting in definite answers. The question is somewhat akin to posing the query “How high is up?” Nevertheless, there are some perspectives which may be helpful in determining the amount of liability insurance limits to purchase. These might include:
- Attempt to ascertain the largest judgment rendered against your type of business within the judicial area in which you are located or in which you sell your product or service. (Even then, you may not be willing or able to afford the cost of purchasing insurance to provide sufficient liability limits to cover any such awards.)
- Examine your balance sheet (assets vs. liabilities) to determine what you have to lose and thus need to protect. Remember, however, that liability losses resulting in judgments or out-of-court settlements generally have no respect for wealth or lack of it.
- Similar to setting liability limits based on your balance sheet, use your income statement for the same purpose. However, the same concern regarding losses vs. wealth still applies.
- Consider liability limits you can afford or with which you feel comfortable. Unfortunately, this practical approach does not provide “a quiet night’s sleep” for most business owners, especially if you realize that the next verdict could easily exceed your limits several times over.
- Review all business contracts you have signed, including premises and/or equipment leases, etc. for their specific liability limit requirements — most contracts will have them! This may determine at least the minimum liability limits you should carry just to comply with the contract provisions.
- Consider what level of liability protection is being carried by other area businesses and competitors similar to yours. While we cannot disclose confidential client information, our agency is a good source of general information of this nature because of the number and cross-section of businesses we insure.
All of this causes one to ask what a business owner can do to determine proper liability limits if the techniques previously listed are filled with uncertainty. There is no one acceptable and simple method. It requires an examination of the legal climate, or perhaps various legal climates, the type of exposures presented, and all of the previously suggested parameters.
In Commercial Insurance, are there policies that provide or combine the various kinds of coverages like a Homeowners policy does with personal insurance?
Yes, there are various “package” policies available. Programs such as the Business Owners Package (BOP), Special Multi Peril (SMP) and insurance company designed packages are constantly being marketed. Many insurers design packages to meet specialized needs, such as, auto garages, auto dealers, jewelers, furriers, barbers and beauty salons, and apartment buildings.
What is Workers' Compensation Insurance?
In general, the current Workers’ Compensation system represents a compromise between employers and employees regarding employment-related injuries or illnesses. Basically, employees relinquish their right to sue employers if they suffer some job-related injury or illness. In return, employers agree to provide state-mandated benefits if such injuries or illnesses occur. To ensure employers will have the money to pay these mandated benefits, most states require that employers demonstrate that they have the financial ability to pay any claims that may arise. Typically, this financial ability is demonstrated through the purchase of Workers’ Compensation insurance.
I’ve read that employees are suing their own companies for discrimination, wrongful termination, and violations of the Disability Act, etc. I try to be careful, but what if one of my supervisors commits the violation or my file is not properly documented? What can I do?
Your Business Liability coverage and your workers’ compensation insurance do not pay these types of claims, but you can buy insurance coverage called Employment Practices Liability Insurance or EPLI. This insurance protects your business from employees’ allegations against you and your business. Especially important is the legal defense aspect of the policy, because the legal bills can often be higher than the amount of the claim itself.
Do I have to take a physical exam in order to get life insurance?
Many life insurance companies issue non-medical life insurance, where you simply have to answer a series of questions in an application. However, depending on your answers, the company might require you to take a physical examination for any of the following: seriously impaired health, existence of a terminal illness, or a request for an unusually large amount of coverage. If you refuse to take an examination, then the company has the right not to sell you a policy.
Can an insurance company refuse to insure me if I have a preexisting condition?
Yes, a company can reject you for a preexisting condition with almost no exceptions. A preexisting condition is a medical condition that the insured knows about before applying for coverage. Such a condition might affect either insurability or premium amount.
How much life insurance do I need?
Before buying life insurance, you should assemble personal financial information and review your family’s needs. There are a number of factors to consider when determining how much protection you should have. These include:
- Any immediate needs at the time of death, such as final illness expenses, burial costs and estate taxes;
- Funds for a readjustment period, to finance a move or to provide time for family members to find a job; and
- Ongoing financial needs, such as monthly bills and expenses, day-care costs, college tuition or retirement.
Although there is no substitute for a careful evaluation of the amount of coverage needed to meet your needs, one rule of thumb is to buy life insurance that is equal to five to seven times your annual gross income.
If I develop a serious illness or become disabled; how can I protect my family?
People in their prime working years are more likely to become disabled than to be fatally injured. Thus, depending on your personal circumstances, one potentially excellent way to protect you, your family, and even your business, is to acquire disability insurance. In essence, disability insurance provides a “backup” income if you are temporarily out of work. Most disability insurance plans are somewhat flexible, and you can buy coverage for a variety of illnesses or injuries, or exclude specific injuries, such as a bad back.
How many participants does it take to purchase group health insurance?
Within certain participation guidelines, two participants is the minimum number required to set up a group health policy.
What should I do if I have a loss?
- Report the loss to your insurance agent as soon as possible, providing date of loss and description.
- Take photos or videotape of the damage.
- Keep records of your expenses for emergency or temporary repairs. Separate the damaged items from the undamaged items. The insurance company adjuster will want to inspect the damaged items, so don’t dispose of them without the adjuster’s consent.
- Make a detailed list of all damaged or lost property, including when and where they were purchased. If possible, provide the original receipts for each item.
- Obtain estimates for repairs and/or replacement of the damaged or missing items. Should the loss involve theft or vandalism, contact your police department immediately.
Auto / Car
- When possible, report the accident to the presiding police department and forward a copy of the report to your agent.
- Contact your agent , providing date of accident and details surrounding the incident. Obtain a written estimate for damages from the body shop of your choice.
- You will be contacted by your insurance company to make arrangements for an inspection of your vehicle. No repairs should be made without the insurance company’s authorization.
- Contact your agent, providing date, time, description of incident, names and addresses of all injured parties and/or owners of property damage. Also provide names and addresses of any witnesses.
- Should you be served with suit papers or any other legal document, forward them immediately to your agent.
- Provide for immediate medical services as required by workers’ compensation law.
- Contact you agent for claim reporting procedures. You will need to provide the date, address and Social Security number of the employee, nature of the injury, etc.
- Upon notification of the claim, the insurance company will contact you with further instructions.
- Note: If the claim involves a death, be sure to file OSHA reports within eight hours.
What to do in case of an auto accident?
If anyone is injured, immediately render any possible first aid assistance and call emergency services.
Exchange name, address, and insurance information with the driver of the other car. Record the following information: date, time, and place of accident, name and address of owner of the other car, if different from driver driver’s Social Security number and driver’s license number, names and addresses of passengers and witnesses, license number of the other car and the cars of witnesses. Report the accident to the nearest police station and file any necessary reports. Cooperate fully with the police, but do not make any admissions about your liability. Don’t sign any statements for anyone other than an authorized representative of your insurance company. Promptly report the claim to your agent. Note: If you plan to travel by car in Canada or Mexico, check with your agent for insurance requirements.
What to Do in Case of a Property Claim?
If anyone is injured, immediately render any possible first aid assistance and call emergency services. Take appropriate steps to avoid further damage to the property. Promptly report the claim to your insurance agent.