A form of variable
annuity contract usually with short
surrender periods and higher mortality and
expense risk charges.
LADDERING
A technique that
consists of staggering the maturity dates
and the mix of different types of bonds.
LAW OF LARGE
NUMBERS
The theory of
probability on which the business of
insurance is based. Simply put, this
mathematical premise says that the larger
the group of units insured, such as
sport-utility vehicles, the more accurate
the predictions of loss will be.
LIABILITY INSURANCE
Insurance for what the
policyholder is legally obligated to pay
because of bodily injury or property damage
caused to another person.
Maximum amount of
insurance that can be paid for a covered
loss.
LINE
Type or kind of
insurance, such as personal lines.
LIQUIDATION
Enables the state
insurance department as liquidator or its
appointed deputy to wind up the insurance
company’s affairs by selling its assets and
settling claims upon those assets. After
receiving the liquidation order, the
liquidator notifies insurance departments in
other states and state guaranty funds of the
liquidation proceedings. Such insurance
company liquidations are not subject to the
Federal Bankruptcy Code but to each state’s
liquidation statutes.
LIQUIDITY
The ability and speed
with which a security can be converted into
cash.
LIQUOR LIABILITY
Coverage for bodily
injury or property damage caused by an
intoxicated person who was served liquor by
the policyholder.
LLOYD'S OF LONDON
A marketplace where
underwriting syndicates, or mini-insurers,
gather to sell insurance policies and
reinsurance. Each syndicate is managed by an
underwriter who decides whether or not to
accept the risk. The Lloyd’s market is a
major player in the international
reinsurance market as well as a primary
market for marine insurance and large risks.
Originally, Lloyd’s was a London coffee
house in the 1600s patronized by shipowners
who insured each other’s hulls and cargoes.
As Lloyd’s developed, wealthy individuals,
called “Names,” placed their personal assets
behind insurance risks as a business
venture. Increasingly since the 1990s, most
of the capital comes from corporations.
LLOYDS
Corporation formed to
market services of a group of underwriters.
Does not issue insurance policies or provide
insurance protection. Insurance is written
by individual underwriters, with each
assuming a part of every risk. Has no
connection to Lloyd’s of London, and is
found primarily in Texas.
LONG-TERM CARE
INSURANCE
Coverage that, under
specified conditions, provides skilled
nursing, intermediate care, or custodial
care for a patient (generally over age 65)
in a nursing facility or his or her
residence.
LOSS
A reduction in the
quality or value of a property, or a legal
liability.
LOSS ADJUSTMENT
EXPENSES
The sum insurers pay
for investigating and settling insurance
claims, including the cost of defending a
lawsuit in court.
LOSS COSTS
The portion of an
insurance rate used to cover claims and the
costs of adjusting claims. Insurance
companies typically determine their rates by
estimating their future loss costs and
adding a provision for expenses, profit, and
contingencies.
LOSS OF USE
A provision in
homeowners and renters insurance policies
that reimburses policyholders for any extra
living expenses due to having to live
elsewhere while their home is being restored
following a disaster.
LOSS RATIO
Percentage of each
premium dollar an insurer spends on claims.
LOSS RESERVES
The company’s best
estimate of what it will pay for claims,
which is periodically readjusted. They
represent a liability on the insurer’s
balance sheet
MALPRACTICE
INSURANCE
Professional liability
coverage for physicians, lawyers, and other
specialists against suits alleging
negligence or errors and omissions that have
harmed clients.
MANAGED CARE
Arrangement between an
employer or insurer and selected providers
to provide comprehensive health care at a
discount to members of the insured group and
coordinate the financing and delivery of
health care. Managed care uses medical
protocols and procedures agreed on by the
medical profession to be cost effective,
also known as medical practice guidelines.
MANUAL
A book published by an
insurance or bonding company or a rating
association or bureau that gives rates,
classifications, and underwriting rules.
MARINE INSURANCE
Coverage for goods in
transit, and for the commercial vehicles
that transport them, on water and over land.
The term may apply to inland marine but more
generally applies to ocean marine insurance.
Covers damage or destruction of a ship’s
hull and cargo and perils include collision,
sinking, capsizing, being stranded, fire,
piracy, and jettisoning cargo to save other
property. Wear and tear, dampness, mold, and
war are not included. (See Inland marine and
Ocean marine)
MCCARRAN-FERGUSON
ACT
Federal law signed in
1945 in which Congress declared that states
would continue to regulate the insurance
business. Grants insurers a limited
exemption from federal antitrust
legislation.
MEDIATION
Nonbinding procedure
in which a third party attempts to resolve a
conflict between two other parties.
MEDICAID
A federal/state public
assistance program created in 1965 and
administered by the states for people whose
income and resources are insufficient to pay
for health care.
A coverage in which
the insurer agrees to reimburse the insured
and others up to a certain limit for medical
or funeral expenses as a result of bodily
injury or death by accident. Payments are
without regard to fault.
MEDICAL UTILIZATION
REVIEW
The practice used by
insurance companies to review claims for
medical treatment.
MEDICARE
Federal program for
people 65 or older that pays part of the
costs associated with hospitalization,
surgery, doctors’ bills, home health care,
and skilled-nursing care.
MEDIGAP/MEDSUP
Policies that
supplement federal insurance benefits
particularly for those covered under
Medicare.
MINE SUBSIDENCE
COVERAGE
An endorsement to a
homeowners insurance policy, available in
some states, for losses to a home caused by
the land under a house sinking into a mine
shaft. Excluded from standard homeowners
policies, as are other forms of earth
movement.
MONEY SUPPLY
Total supply of money
in the economy, composed of currency in
circulation and deposits in savings and
checking accounts. By changing the interest
rates the Federal Reserve seeks to adjust
the money supply to maintain a strong
economy.
MORTALITY AND
EXPENSE (M&E) RISK CHARGE
A fee that covers such
annuity contract guarantees as death
benefits.
MORTGAGE GUARANTEE
INSURANCE
Coverage for the
mortgagee (usually a financial institution)
in the event that a mortgage holder defaults
on a loan. Also called private mortgage
insurance (PMI).
MORTGAGE INSURANCE
A form of decreasing
term insurance that covers the life of a
person taking out a mortgage. Death benefits
provide for payment of the outstanding
balance of the loan. Coverage is in
decreasing term insurance, so the amount of
coverage decreases as the debt decreases. A
variant, mortgage unemployment insurance
pays the mortgage of a policyholder who
becomes involuntarily unemployed. (See
Term insurance)
MORTGAGE-BACKED
SECURITIES
Investment grade
securities backed by a pool of mortgages.
The issuer uses the cash flow from mortgages
to meet interest payments on the bonds.
MULTIPLE PERIL
POLICY
A package policy, such
as a homeowners or business insurance
policy, that provides coverage against
several different perils. It also refers to
the combination of property and liability
coverage in one policy. In the early days of
insurance, coverages for property damage and
liability were purchased separately.
MUNICIPAL BOND
INSURANCE
Coverage that
guarantees bondholders timely payment of
interest and principal even if the issuer of
the bonds defaults. Offered by insurance
companies with high credit ratings, the
coverage raises the credit rating of a
municipality offering the bond to that of
the insurance company. It allows a
municipality to raise money at lower
interest rates. A form of financial
guarantee insurance. (See
Financial guarantee insurance)
MUNICIPAL LIABILITY
INSURANCE
Liability insurance
for municipalities.
MUTUAL HOLDING
COMPANY
An organizational
structure that provides mutual companies
with the organizational and capital raising
advantages of stock insurers, while
retaining the policyholder ownership of the
mutual.
MUTUAL INSURANCE
COMPANY
A company owned by its
policyholders that returns part of its
profits to the policyholders as dividends.
The insurer uses the rest as a surplus
cushion in case of large and unexpected
losses
NAMED PERIL
Peril specifically
mentioned as covered in an insurance policy.
NATIONAL FLOOD
INSURANCE PROGRAM
Federal
government-sponsored program under which
flood insurance is sold to homeowners and
businesses. (See
Adverse selection;
Flood insurance)
Auto insurance
coverage that pays for each driver’s own
injuries, regardless of who caused the
accident. No-fault varies from state to
state. It also refers to an auto liability
insurance system that restricts lawsuits to
serious cases. Such policies are designed to
promote faster reimbursement and to reduce
litigation.
NO-FAULT MEDICAL
A type of accident
coverage in homeowners policies.
NO-PAY, NO-PLAY
The idea that people
who don’t buy coverage should not receive
benefits. Prohibits uninsured drivers from
collecting damages from insured drivers. In
most states with this law, uninsured drivers
may not sue for noneconomic damages such as
pain and suffering. In other states,
uninsured drivers are required to pay the
equivalent of a large deductible ($10,000)
before they can sue for property damages and
another large deductible before they can sue
for bodily harm.
NON-ADMITTED ASSETS
Assets that are not
included on the balance sheet of an
insurance company, including furniture,
fixtures, past-due accounts receivable, and
agents’ debt balances. (See
Assets)
NON-ADMITTED
INSURER
Insurers licensed in
some states, but not others. States where an
insurer is not licensed call that insurer
non-admitted. They sell coverage that is
unavailable from licensed insurers within
the state.
NOTICE OF LOSS
A written notice
required by insurance companies immediately
after an accident or other loss. Part of the
standard provisions defining a
policyholder's responsibilities after a
loss.
NUCLEAR INSURANCE
Covers operators of
nuclear reactors and other facilities for
liability and property damage in the case of
a nuclear accident and involves both private
insurers and the federal government.
NURSING HOME
INSURANCE
A form of long-term
care policy that covers a policyholder’s
stay in a nursing facility
OCCUPATIONAL
DISEASE
Abnormal condition or
illness caused by factors associated with
the workplace. Like occupational injuries,
this is covered by workers compensation
policies. (See
Workers compensation)
OCCURRENCE POLICY
Insurance that pays
claims arising out of incidents that occur
during the policy term, even if they are
filed many years later. (See
Claims-made policy)
OCEAN MARINE
INSURANCE
Coverage of all types
of vessels and watercraft, for property
damage to the vessel and cargo, including
such risks as piracy and the jettisoning of
cargo to save the property of others.
Coverage for marine-related liabilities. War
is excluded from basic policies, but can be
bought back.
OPEN COMPETITION
STATES
States where insurance
companies can set new rates without prior
approval, although the state’s commissioner
can disallow them if they are not reasonable
and adequate or are discriminatory.
OPERATING EXPENSES
The cost of
maintaining a business’s property, includes
insurance, property taxes, utilities and
rent, but excludes income tax, depreciation
and other financing expenses.
OPTIONS
Contracts that allow,
but do not oblige, the buying or selling of
property or assets at a certain date at a
set price.
ORDINANCE OR LAW
COVERAGE
Endorsement to a
property policy, including homeowners, that
pays for the extra expense of rebuilding to
comply with ordinances or laws, often
building codes, that did not exist when the
building was originally built. For example,
a building severely damaged in a hurricane
may have to be elevated above the flood line
when it is rebuilt. This endorsement would
cover part of the additional cost.
ORDINARY LIFE
INSURANCE
A life insurance
policy that remains in force for the
policyholder’s lifetime. It contrasts with
term insurance, which only lasts for a
specified number of years but is renewable.
(See
Term insurance)
ORIGINAL EQUIPMENT
MANUFACTURER PARTS / OEM
Sheet metal auto parts
made by the manufacturer of the vehicle.
(See
Generic auto parts)
OVER-THE-COUNTER
(OTC)
Security that is not
listed or traded on an exchange such as the
New York Stock Exchange. Business in
over-the-counter securities is conducted
through dealers using electronic networks.
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