Insurance Terms / Glossary • P - T
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P
PACKAGE POLICY
A single insurance policy that combines several coverages previously sold separately. Examples include homeowners insurance and commercial multiple peril insurance.
PAID-UP ADDITIONAL INSURANCE OPTION
An option, available to the owners of participating life insurance policies, that allows the policy owner to use policy dividends to purchase additional insurance on the insured’s life; the paid-up additional insurance is issued on the same plan as the basic policy and in whatever face amount the dividend can provide at the insured’s attained age. (See Dividend, Participating policy, Policy dividend options )
PAID-UP POLICY
An insurance policy that requires no further premium payments but continues to provide coverage.
PARTIAL DISABILITY
See Residual disability
PARTICIPATING POLICY
A type of insurance policy that allows policy owners to receive policy dividends. Also known as par policy. (See Dividend )
PAY-AT-THE-PUMP
A system proposed in the 1990s in which auto insurance premiums would be paid to state governments through a per-gallon surcharge on gasoline.
PAYOUT OPTIONS
The methods available to an annuity contract owner for the distribution of the annuity’s accumulated value. (1) The lump sum distribution method allows the contract owner to receive the balance of his account in a single payment. (2) The fixed period option provides that the annuity’s accumulated value will be paid out over a specified period of time. (3) The fixedamount option provides that the annuity’s accumulated value will be paid out in a pre-selected payment amount until the accumulated value is exhausted. (4) A life annuity option provides that periodic income payments will be tied in some manner to the life expectancy of a named individual. (See Life annuity )
PENSION BENEFIT GUARANTY CORPORATION
An independent federal government agency that administers the Pension Plan Termination Insurance program to ensure that vested benefits of employees whose pension plans are being terminated are paid when they come due. Only defined benefit plans are covered. Benefits are paid up to certain limits.
PENSIONS
Programs to provide employees with retirement income after they meet minimum age and service requirements. Life insurers hold some of these funds. Since the 1970s responsibility for funding retirement has increasingly shifted from employers (defined benefit plans that promise workers a specific retirement income) to employees (defined contribution plans financed by employees that may or may not be matched by employer contributions). (See Defined benefit plan, Defined contribution plan )
PER CAPITA BENEFICIARY DESIGNATION
A type of life insurance policy beneficiary designation in which the life insurance benefits are divided equally among the designated beneficiaries who survive the insured. For example, if the policy specifies two beneficiaries, but only one is surviving at the time of the insured’s death, then the remaining beneficiary receives the entire policy benefit. Contrast with per stirpes beneficiary designation.
PER STIRPES BENEFICIARY DESIGNATION
A type of life insurance policy beneficiary designation in which the life insurance benefits are divided among a class of beneficiaries; for example, children of the insured. The living members of the class and the descendants of any deceased members of the class share in the benefits equally. Contrast with per capita beneficiary designation.
PERIL
A specific risk or cause of loss covered by an insurance policy, such as a fire, windstorm, flood, or theft. A named-peril policy covers the policyholder only for the risks named in the policy in contrast to an all-risk policy, which covers all causes of loss except those specifically excluded.
PERIOD CERTAIN
The stated period over which an insurer makes periodic benefit payments under an annuity certain. (See Annuity certain )
PERSONAL ARTICLES FLOATER
A policy or an addition to a policy used to cover personal valuables, like jewelry or furs.
PERSONAL INJURY PROTECTION COVERAGE / PIP
Portion of an auto insurance policy that covers the treatment of injuries to the driver and passengers of the policyholder’s car.
PERSONAL LINES
Property/casualty insurance products that are designed for and bought by individuals, including homeowners and automobile policies. (See Commercial lines )
POINT-OF-SERVICE PLAN
Health insurance policy that allows the employee to choose between in-network and out-of-network care each time medical treatment is needed.
POLICY
A written contract for insurance between an insurance company and policyholder stating details of coverage.
POLICY DIVIDEND OPTIONS
Ways in which the owner of a participating insurance policy may receive policy dividends. (See Additional term insurance option, Cash dividend option, Dividend accumulations option, Paid-up additional insurance option, Premium reduction option )
POLICYHOLDERS' SURPLUS
The amount of money remaining after an insurer’s liabilities are subtracted from its assets. It acts as a financial cushion above and beyond reserves, protecting policyholders against an unexpected or catastrophic situation.
POLITICAL RISK INSURANCE
Coverage for businesses operating abroad against loss due to political upheaval such as war, revolution, or confiscation of property.
POLLUTION INSURANCE
Policies that cover property loss and liability arising from pollution-related damages, for sites that have been inspected and found uncontaminated. It is usually written on a claims-made basis so policies pay only claims presented during the term of the policy or within a specified time frame after the policy expires. (See Claims-made policy )
POOL
See Insurance pool
PRE-EXISTING CONDITION
(1) According to most group health insurance policies, a condition for which an individual received medical care during the three months immediately prior to the effective date of her coverage. (2) According to most individual health insurance policies, an injury that occurred or a sickness that first appeared or manifested itself within a specified period—usually two years—before the policy was issued and that was not disclosed on the application for insurance.
PREFERRED PROVIDER ORGANIZATION
Network of medical providers which charge on a fee-for-service basis, but are paid on a negotiated, discounted fee schedule.
PREFERRED RISK CLASS
In insurance underwriting, the group of proposed insureds who represent a significantly lower than average likelihood of loss within the context of the insurer’s underwriting practices. Contrast with declined risk class, standard risk class and substandard risk class.
PREMISES
The particular location of the property or a portion of it as designated in an insurance policy.
PREMIUM
The price of an insurance policy, typically charged annually or semiannually. (See Direct premiums, Earned premium, Unearned premium )
PREMIUM REDUCTION OPTION
An option, available to the owners of participating insurance policies, that allows the insurer to apply policy dividends toward the payment of renewal premiums. (See Dividend, Policy dividend options )
PREMIUM TAX
A state tax on premiums paid by its residents and businesses and collected by insurers.
PREMIUMS IN FORCE
The sum of the face amounts, plus dividend additions, of life insurance policies outstanding at a given time.
PREMIUMS WRITTEN
The total premiums on all policies written by an insurer during a specified period of time, regardless of what portions have been earned. Net premiums written are premiums written after reinsurance transactions.
PRIMARY BENEFICIARY
The party designated to receive the proceeds of a life insurance policy following the death of the insured. Also known as first beneficiary. (See Contingent beneficiary )
PRIMARY COMPANY
In a reinsurance transaction, the insurance company that is reinsured.
PRIMARY MARKET
Market for new issue securities where the proceeds go directly to the issuer.
PRIME RATE
Interest rate that banks charge to their most creditworthy customers. Banks set this rate according to their cost of funds and market forces.
PRIOR APPROVAL STATES
States where insurance companies must file proposed rate changes with state regulators, and gain approval before they can go into effect.
PRIVATE MORTGAGE INSURANCE
See Mortgage guarantee insurance
PRIVATE PLACEMENT
Securities that are not registered with the Securities and Exchange Commission and are sold directly to investors.
PRODUCT LIABILITY
A section of tort law that determines who may sue and who may be sued for damages when a defective product injures someone. No uniform federal laws guide manufacturer’s liability, but under strict liability, the injured party can hold the manufacturer responsible for damages without the need to prove negligence or fault.
PRODUCT LIABILITY INSURANCE
Protects manufacturers’ and distributors’ exposure to lawsuits by people who have sustained bodily injury or property damage through the use of the product.
PROFESSIONAL LIABILITY INSURANCE
Covers professionals for negligence and errors or omissions that injure their clients.
PROOF OF LOSS
Documents showing the insurance company that a loss occurred.
PROPERTY/CASUALTY INSURANCE
Covers damage to or loss of policyholders’ property and legal liability for damages caused to other people or their property. Property/casualty insurance, which includes auto, homeowners and commercial insurance, is one segment of the insurance industry. The other sector is life/health. Outside the United States, property/casualty insurance is referred to as nonlife or general insurance.
PROPERTY/CASUALTY INSURANCE CYCLE
Industry business cycle with recurrent periods of hard and soft market conditions. In the 1950s and 1960s, cycles were regular with three year periods each of hard and soft market conditions in almost all lines of property/casualty insurance. Since then they have been less regular and less frequent.
PROPOSITION 103
A November 1988 California ballot initiative that called for a statewide auto insurance rate rollback and for rates to be based more on driving records and less on geographical location. The initiative changed many aspects of the state’s insurance system and was the subject of lawsuits for more than a decade.
PURCHASING GROUP
An entity that offers insurance to groups of similar businesses with similar exposures to risk.
PURE ENDOWMENT
A life insurance contract that pays a periodic income benefit for the life of the owner of the annuity. The payment can be monthly, quarterly, semiannually or annually.
PURE LIFE ANNUITY
A form of annuity that ends payments when the annuitant dies. Payments may be fixed or variable.
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Q
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R
RATE
The cost of a unit of insurance, usually per $1,000. Rates are based on historical loss experience for similar risks and may be regulated by state insurance offices.
RATE REGULATION
The process by which states monitor insurance companies’ rate changes, done either through prior approval or open competition models. (See Open competition states, Prior approval states )
RATED POLICY
An insurance policy that is classified as having a greater-than-average likelihood of loss, usually issued with special exclusions, a premium rate that is higher than the rate for a standard policy, a reduced face amount, or any combination of these.
RATING AGENCIES
Six major credit agencies determine insurers’ financial strength and viability to meet claims obligations. They are A.M. Best Co.; Duff & Phelps Inc.; Fitch, Inc.; Moody’s Investors Services; Standard & Poor’s Corp.; and Weiss Ratings, Inc. Factors considered include company earnings, capital adequacy, operating leverage, liquidity, investment performance, reinsurance programs, and management ability, integrity and experience. A high financial rating is not the same as a high consumer satisfaction rating.
RATING BUREAU
The insurance business is based on the spread of risk. The more widely risk is spread, the more accurately loss can be estimated. An insurance company can more accurately estimate the probability of loss on 100,000 homes than on ten. Years ago, insurers were required to use standardized forms and rates developed by rating agencies. Today, large insurers use their own statistical loss data to develop rates. But small insurers, or insurers focusing on special lines of business, with insufficiently broad loss data to make them actuarially reliable depend on pooled industry data collected by such organizations as the Insurance Services Office (ISO) which provides information to help develop rates such as estimates of future losses and loss adjustment expenses like legal defense costs.
REAL ESTATE INVESTMENTS
Investments generally owned by life insurers that include commercial mortgage loans and real property.
RECEIVABLES
Amounts owed to a business for goods or services provided.
RECIPROCAL EXCHANGE
Unincorporated association organized to write insurance for its members, each of whom assumes a share of the risks covered.
REDLINING
Literally means to draw a red line on a map around areas to receive special treatment. Refusal to issue insurance based solely on where applicants live is illegal in all states. Denial of insurance must be risk-based.
REDUCED PAID-UP INSURANCE OPTION
One of several nonforfeiture options included in life insurance policies that allows the owner of a policy with cash values to discontinue premium payments and to use the policy’s net cash value to purchase paid-up insurance of the same plan as the original policy. (See Nonforfeiture options )
REGISTERED PRINCIPAL
An officer or manager of a National Association of Securities Dealers (NASD) member, who is involved in the day-to-day operation of the securities business, has qualified as a registered representative, and has an NASD Series 24 or 26 registration.
REGISTERED REPRESENTATIVE
A sales representative or other person who has registered with the National Association of Securities Dealers (NASD), disclosed the required background information, and passed one or more NASD examination. A registered representative engages in the securities business on behalf of a NASD member by soliciting the sale of securities or training securities salespeople.
REINSTATEMENT
The process by which an insurer puts back into force an insurance policy that has either been terminated for nonpayment of premiums or continued as extended term or reduced paid-up coverage.
REINSURANCE
Insurance bought by insurers. A reinsurer assumes part of the risk and part of the premium originally taken by the insurer, known as the primary company. Reinsurance effectively increases an insurer's capital and therefore its capacity to sell more coverage. The business is global and some of the largest reinsurers are based abroad. Reinsurers have their own reinsurers, called retrocessionaires. Reinsurers don’t pay policyholder claims. Instead, they reimburse insurers for claims paid. (See Treaty reinsurance, Facultative reinsurance) )
RELATION OF EARNINGS TO INSURANCE CLAUSE
A clause included in some individual disability policies that limits the amount of benefits that an insurer will pay when the total amount of disability benefits from all insurers exceeds the individual’s usual earnings.
RENEWABLE TERM INSURANCE POLICY
A term life insurance policy that gives the policy owner the option to continue the coverage at the end of the specified term without presenting evidence of insurability, although typically at a higher premium based on the insured’s attained age.
RENTERS INSURANCE
A form of insurance that covers a policyholder’s belongings against perils such as fire, theft, windstorm, hail, explosion, vandalism, riots, and others. It also provides personal liability coverage for damage the policyholder or dependents cause to third parties. It also provides additional living expenses, known as loss-of-use coverage, if a policyholder must move while his or her dwelling is repaired. It also can include coverage for property improvements. Possessions can be covered for their replacement cost or the actual cash value that includes depreciation.
REPLACEMENT COST
Insurance that pays the dollar amount needed to replace damaged personal property or dwelling property without deducting for depreciation but limited by the maximum dollar amount shown on the declarations page of the policy.
REPURCHASE AGREEMENT /'REPO'
Agreement between a buyer and seller where the seller agrees to repurchase the securities at an agreed upon time and price. Repurchase agreements involving U.S. government securities are utilized by the Federal Reserve to control the money supply.
RESERVES
A company’s best estimate of what it will pay for claims.
RESIDUAL DISABILITY INSURANCE
See Income protection insurance
RESIDUAL DISABILITY
In disability income insurance, a condition in which the insured is not totally disabled, but is still unable to function as before the sickness or injury, and therefore suffers a reduction in income of at least the percentage—typically 20 percent to 25 percent—specified in the disability income plan. Also known as partial disability.
RESIDUAL MARKET
Facilities, such as assigned risk plans and FAIR Plans, that exist to provide coverage for those who cannot get it in the regular market. Insurers doing business in a given state generally must participate in these pools. For this reason the residual market is also known as the shared market.
RETENTION
The amount of risk retained by an insurance company that is not reinsured.
RETROCESSION
The reinsurance bought by reinsurers to protect their financial stability.
RETROSPECTIVE RATING
A method of permitting the final premium for a risk to be adjusted, subject to an agreed-upon maximum and minimum limit based on actual loss experience. It is available to large commercial insurance buyers.
RETURN ON EQUITY
Net income divided by total equity. Measures profitability by showing how efficiently invested capital is being used.
REVOCABLE BENEFICIARY
A life insurance policy beneficiary whose right to the policy’s proceeds can be cancelled or reduced by the policy owner at any time before the insured’s death. Contrast with irrevocable beneficiary.
RIDER
An attachment to an insurance policy that alters the policy’s coverage or terms.
RISK
The chance of loss or the person or entity that is insured.
RISK MANAGEMENT
Management of the varied risks to which a business firm or association might be subject. It includes analyzing all exposures to gauge the likelihood of loss and choosing options to better manage or minimize loss. These options typically include reducing and eliminating the risk with safety measures, buying insurance, and self-insurance.
RISK RETENTION GROUPS
Insurance companies that band together as self-insurers and form an organization that is chartered and licensed as an insurer in at least one state to handle liability insurance.
RISK-BASED CAPITAL
The need for insurance companies to be capitalized according to the inherent riskiness of the type of insurance they sell. Higher-risk types of insurance, liability as opposed to property business, generally necessitate higher levels of capital.
ROLLOVER
A direct transfer of retirement funds from one qualified plan to another plan of the same type or to an individual retirement arrangement (IRA) that does not pass through the hands of the owner and thus does not incur any tax liability for the owner. Also known as direct rollover and direct transfer.
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S
SALVAGE
Damaged property an insurer takes over to reduce its loss after paying a claim. Insurers receive salvage rights over property on which they have paid claims, such as badly-damaged cars. Insurers that paid claims on cargoes lost at sea now have the right to recover sunken treasures. Salvage charges are the costs associated with recovering that property.
SCHEDULE
A list of individual items or groups of items that are covered under one policy or a listing of specific benefits, charges, credits, assets or other defined items.
SECONDARY MARKET
Market for previously issued and outstanding securities.
SECTION 1035 EXCHANGE
In the United States, a taxfree replacement of an insurance policy for another insurance contract covering the same person that is performed in accordance with the conditions of Section 1035 of the Internal Revenue Code.
SECTION 415
A section of the Internal Revenue Code that provides for dollar limitations on benefits and contributions under qualified retirement plans. Section 415 also requires that the Internal Revenue Service annually adjust these limits for cost-of-living increases.
SECURITIES AND EXCHANGE COMMISSION / SEC
The organization that oversees publicly-held insurance companies. Those companies make periodic financial disclosures to the SEC, including an annual financial statement (or 10K), and a quarterly financial statement (or 10-Q). Companies must also disclose any material events and other information about their stock.
SECURITIES OUTSTANDING
Stock held by shareholders.
SECURITIZATION OF INSURANCE RISK
Using the capital markets to expand and diversify the assumption of insurance risk. The issuance of bonds or notes to third-party investors directly or indirectly by an insurance or reinsurance company or a pooling entity as a means of raising money to cover risks. (See Catastrophe bonds) )
SEGREGATED ACCOUNT
In Canada, an investment account that insurers maintain separately from a general account to help manage the funds placed in variable insurance products such as variable annuities. (See Separate account )
SELF-INSURANCE
The concept of assuming a financial risk oneself, instead of paying an insurance company to take it on. Every policyholder is a self-insurer in terms of paying a deductible and co-payments. Large firms often self-insure frequent, small losses such as damage to their fleet of vehicles or minor workplace injuries. However, to protect injured employees state laws set out requirements for the assumption of workers compensation programs. Self-insurance also refers to employers who assume all or part of the responsibility for paying the health insurance claims of their employees. Firms that self insure for health claims are exempt from state insurance laws mandating the illnesses that group health insurers must cover.
SEPARATE ACCOUNT
In the United States, an investment account maintained separately from an insurer’s general account to help manage the funds placed in variable insurance products such as variable annuities. Contrast with general account. (See Segregated account )
SETTLEMENT OPTIONS
Choices given to the owner or beneficiary of a life insurance policy regarding the method by which the insurer will pay the policy’s proceeds when the policy owner does not receive the benefits in one single payment. Typically, the owner can elect (1) to leave the proceeds with the insurer and earn a specified interest rate, (2) to have the proceeds paid in a series of installments for a pre-selected period, (3) to have the proceeds paid in a pre-selected sum in a series of installments for as long as the proceeds last, or (4) to have the insurer tie payment of the proceeds to the life expectancy of a named individual through a life annuity. Also known as optional modes of settlement. (See Life annuity )
SEVERITY
Size of a loss. One of the criteria used in calculating premiums rates.
SEWER BACK-UP COVERAGE
An optional part of homeowners insurance that covers sewers.
SHARED MARKET
See Residual market
SHORT-TERM DISABILITY INCOME INSURANCE
A type of disability income coverage that provides disability income benefits for a maximum benefit period of from one to five years. Contrast with long-term disability income insurance.
SINGLE PREMIUM ANNUITY
An annuity that is paid in full upon purchase.
SINGLE PREMIUM POLICIES
A type of life insurance or annuity contract that is purchased by the payment of one lump sum. (1) A single-premium deferred annuity (SPDA) is an annuity contract purchased with a single premium payment whose periodic income payments generally do not begin until several years in the future. (2) A single premium immediate annuity (SPIA) contract is an annuity contract that is purchased with a single premium payment and that will begin making periodic income payments one annuity period after the contract’s issue date.
SOFT MARKET
An environment where insurance is plentiful and sold at a lower cost, also known as a buyers’ market. (See Property/casualty insurance cycle )
SOLVENCY
Insurance companies’ ability to pay the claims of policyholders. Regulations to promote solvency include minimum capital and surplus requirements, statutory accounting conventions, limits to insurance company investment and corporate activities, financial ratio tests, and financial data disclosure.
SPECIFIED DISEASE COVERAGE
A type of health insurance coverage that provides benefits for the diagnosis and treatment of a specifically named disease or diseases, such as cancer. Also known as dread disease coverage. Contrast with critical illness (CI) insurance.
SPENDTHRIFT TRUST CLAUSE
Life insurance provision that protects policy payouts from the beneficiary’s creditors.
SPLIT-DOLLAR LIFE INSURANCE PLAN
An agreement under which a business provides individual life insurance policies for certain employees, who share in paying the cost of the policies.
SPREAD OF RISK
The selling of insurance in multiple areas to multiple policyholders to minimize the danger that all policyholders will have losses at the same time. Companies are more likely to insure perils that offer a good spread of risk. Flood insurance is an example of a poor spread of risk because the people most likely to buy it are the people close to rivers and other bodies of water that flood. (See Adverse selection )
STACKING
Practice that increases the money available to pay auto liability claims. In states where this practice is permitted by law, courts may allow policyholders who have several cars insured under a single policy, or multiple vehicles insured under different policies, to add up the limit of liability available for each vehicle.
STANDARD RISK CLASS
In insurance underwriting, the group of proposed insureds who represent average risk within the context of the insurer’s underwriting practices and therefore pay average premiums in relation to others of similar insurability. Contrast with declined risk class, preferred risk class and substandard risk class.
STATE FUND
A mechanism administered by a state to provide insurance coverage, sometimes for high-risk policyholders
STATUTORY ACCOUNTING PRINCIPLES / SAP
More conservative standards than under GAAP accounting rules, they are imposed by state laws that emphasize the present solvency of insurance companies. SAP helps ensure that the company will have sufficient funds readily available to meet all anticipated insurance obligations by recognizing liabilities earlier or at a higher value than GAAP and assets later or at a lower value. For example, SAP requires that selling expenses be recorded immediately rather than amortized over the life of the policy. (See GAAP accounting, Admitted assets )
STOCK INSURANCE COMPANY
An insurance company owned by its stockholders who share in profits through earnings distributions and increases in stock value.
STRAIGHT LIFE ANNUITY
A type of life annuity contract that provides periodic income payments for as long as the annuitant lives but provides no benefit payments after the annuitant’s death. (See Life annuity )
STRUCTURED SETTLEMENT
Legal agreement to pay a designated person, usually someone who has been injured, a specified sum of money in periodic payments, usually for his or her lifetime, instead of in a single lump sum payment. (See Annuity )
SUBROGATION
The legal process by which an insurance company, after paying a loss, seeks to recover the amount of the loss from another party who is legally liable for it.
SUBSTANDARD PREMIUM RATES
The premium rates charged insureds who are classified as substandard risks. Also known as special class rates.
SUBSTANDARD RISK CLASS
In insurance underwriting, the group of proposed insureds who represent a significantly greater-than-average likelihood of loss within the context of the insurer’s underwriting practices. Also known as special class risk. Contrast with declined risk class, preferred risk class and standard risk class.
SUICIDE EXCLUSION PROVISION
A life insurance policy provision stating that policy proceeds will not be paid if the insured dies as the result of suicide as defined within the policy within a specified period following the date of policy issue.
SUPERFUND
A federal law enacted in 1980 to initiate cleanup of the nation’s abandoned hazardous waste dump sites and to respond to accidents that release hazardous substances into the environment. The law is officially called the Comprehensive Environmental Response, Compensation, and Liability Act.
SUPPLEMENTAL COVERAGE
An amount of coverage that adds to the amount of coverage specified in a basic insurance policy.
SURETY BOND
A contract guaranteeing the performance of a specific obligation. Simply put, it is a three-party agreement under which one party, the surety company, answers to a second party, the owner, creditor or “obligee,” for a third party’s debts, default or nonperformance. Contractors are often required to purchase surety bonds if they are working on public projects. The surety company becomes responsible for carrying out the work or paying for the loss up to the bond “penalty” if the contractor fails to perform.
SURPLUS
The remainder after an insurer’s liabilities are subtracted from its assets. The financial cushion that protects policyholders in case of unexpectedly high claims. (See Capital, Risk-based capital )
SURPLUS LINES
Property/casualty insurance coverage that isn’t available from insurers licensed in the state, called admitted companies, and must be purchased from a non-admitted carrier. Examples include risks of an unusual nature that require greater flexibility in policy terms and conditions than exist in standard forms or where the highest rates allowed by state regulators are considered inadequate by admitted companies. Laws governing surplus lines vary by state.
SURRENDER CHARGE
A charge for withdrawals from an annuity contract before a designated surrender charge period, usually from five to seven years.
SURRENDER COST COMPARISON INDEX
A cost comparison index, used to compare insurance policies, which takes into account the time value of money and measures the cost of a policy over a 10- or 20-year period assuming the policy owner surrenders the policy for its cash value at the end of the period. Contrast with net payment cost comparison index.
SWAPS
The simultaneous buying, selling or exchange of one security for another among investors to change maturities in a bond portfolio, for example, or because investment goals have changed.
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TAX SHELTERED ANNUITY (TSA)
In the United States, a retirement annuity sold only to organizations offering qualified retirement plans under section 403(b) of the U.S. Internal Revenue Code. (See 403(b) plan )
TAX-DEFERRED BASIS
Accumulation of investment income on which income taxes are not payable until money is withdrawn from the investment vehicle.
TEN-DAY FREE LOOK PROVISION
See Free-look period
TERM CERTAIN ANNUITY
An form of annuity that pays out over a fixed period rather than when the annuitant dies.
TERM LIFE INSURANCE
A form of life insurance that covers the insured person for a certain period of time, the “term” that is specified in the policy. It pays a benefit to a designated beneficiary only when the insured dies within that specified period which can be one, five, 10 or even 20 years. Term life policies are renewable but premiums increase with age.
TERRITORIAL RATING
A method of classifying risks by geographic location to set a fair price for coverage. The location of the insured may have a considerable impact on the cost of losses. The chance of an accident or theft is much higher in an urban area than in a rural one, for example.
TERRORISM COVERAGE
Included as a part of the package in standard commercial insurance policies before September 11, 2001 virtually free of charge. Since September 11, terrorism coverage prices have increased substantially to reflect the current risk.
THIRD-PARTY ADMINISTRATOR
Outside group that performs clerical functions for an insurance company.
THIRD-PARTY COVERAGE
Liability coverage purchased by the policyholder as a protection against possible lawsuits filed by a third party. The insured and the insurer are the first and second parties to the insurance contract. (See First-party coverage )
TIME DEPOSIT
Funds that are held in a savings account for a predetermined period of time at a set interest rate. Banks can refuse to allow withdrawals from these accounts until the period has expired or assess a penalty for early withdrawals.
TIME LIMIT ON CERTAIN DEFENSES PROVISION
An individual health insurance policy provision that limits the time during which the insurer may contest the validity of the contract on the ground of misrepresentation in the application or may reduce or deny a claim on the ground it results from a preexisting condition. (See Incontestability provision )
TITLE INSURANCE
Insurance that indemnifies the owner of real estate in the event that his or her clear ownership of property is challenged by the discovery of faults in the title.
TORT
A legal term denoting a wrongful act resulting in injury or damage on which a civil court action, or legal proceeding, may be based.
TORT LAW
The body of law governing negligence, intentional interference, and other wrongful acts for which civil action can be brought, except for breach of contract, which is covered by contract law.
TORT REFORM
Refers to legislation designed to reduce liability costs through limits on various kinds of damages and through modification of liability rules.
TOTAL DISABILITY
For disability insurance purposes, an insured’s disability that meets the requirements of the definition of total disability included in the disability insurance policy or policy rider and that qualifies for payment of the specified disability benefits. When a disability begins, total disability is usually the complete and continuous inability of an insured to perform the essential duties of his regular occupation. After a disability has existed for a specified period, total disability usually exists only if the insured is prevented from working at any occupation for which he is reasonably fitted by education, training or experience. (See Disability, Residual disability )
TOTAL LOSS
The condition of an automobile or other property when damage is so extensive that repair costs would exceed the value of the vehicle or property.
TRANSPARENCY
A term used to explain the way information on financial matters, such as financial reports and actions of companies or markets, are communicated so that they are easily understood and frank.
TRAVEL INSURANCE
Insurance to cover problems associated with traveling, generally including trip cancellation due to illness, lost luggage and other incidents.
TREASURY SECURITIES
Interest-bearing obligations of the U.S. government issued by the Treasury as a means of borrowing money to meet government expenditures not covered by tax revenues. Marketable Treasury securities fall into three categories—bills, notes and bonds. Marketable Treasury obligations are currently issued in book entry form only; that is, the purchaser receives a statement, rather than an engraved certificate.
TREATY REINSURANCE
A standing agreement between insurers and reinsurers. Under a treaty each party automatically accepts specific percentages of the insurer’s business.
TWISTING
An illegal insurance sales practice, in which a sales agent misrepresents the features of a contract in order to induce the contract owner to replace his current contract, often to the disadvantage of the contract owner. (See Misrepresentation )
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Glossary & Terms borrowed from the Insurance Information Institute
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