Actuary: An actuary is a professional who uses statistical and mathematical techniques to assess and manage financial risks. They are responsible for analyzing data and making predictions about future events such as accidents, natural disasters, or death. Actuaries are often employed by insurance companies to determine insurance premiums and create policies that are profitable for the company while remaining affordable for the insured.
Adjuster: An adjuster is a person who investigates insurance claims to determine the amount of compensation the insured should receive. They assess the damage or loss incurred by the policyholder and determine the appropriate amount of money to be paid out according to the terms of the policy. Adjusters can work for insurance companies or can be independent contractors hired by policyholders.
Agent: An agent is a licensed individual or organization that sells insurance policies on behalf of an insurance company. They are responsible for providing information and advice to potential customers, helping them choose the appropriate policies, and processing insurance applications. Agents are usually compensated by receiving a commission on the policies they sell.
Beneficiary: A beneficiary is a person or entity named in an insurance policy who is entitled to receive the benefits of the policy. This can include a payout of money in the event of death, disability, or other types of loss covered by the policy. Beneficiaries can be individuals, such as a spouse or child, or organizations, such as a charity.
Binder: A binder is a temporary insurance contract that provides coverage until a permanent policy can be issued. Binders are typically used in situations where a policyholder needs immediate coverage but does not yet have a finalized policy. Binders can be issued by agents, brokers, or insurers themselves and usually expire within a specific period of time.
Broker: A broker is a licensed individual or organization that represents the interests of insurance buyers rather than insurance companies. Brokers are responsible for providing advice and guidance to policyholders, helping them select appropriate policies, and negotiating with insurance companies on their behalf. Brokers are typically compensated by receiving a commission on the policies they sell.
Captive insurance: Captive insurance refers to a type of insurance where an organization creates a subsidiary company to provide coverage for itself or its affiliates. The main purpose of captive insurance is to help the parent company manage its risks and protect itself against losses. Captive insurance is usually used by large companies that have specific risk management needs, such as in the construction, transportation, or healthcare industries.
Claim: A claim refers to a request made by an insured party to an insurance company for payment or reimbursement of covered losses or damages. When a policyholder suffers a loss or incurs expenses covered under their insurance policy, they can file a claim to request compensation. Insurance companies typically have specific procedures and requirements for filing and processing claims.
Coinsurance: Coinsurance is a clause in an insurance policy that requires the policyholder to share a portion of the costs of covered losses or damages with the insurer. Under coinsurance, the policyholder is responsible for paying a percentage of the covered losses, while the insurer covers the remaining amount. Coinsurance is commonly used in property insurance policies, such as those for commercial buildings or homes.
Comprehensive coverage: Comprehensive coverage is a type of insurance that provides protection for a wide range of risks and perils, such as theft, fire, vandalism, or natural disasters. Comprehensive coverage is typically offered as an optional add-on to auto, homeowners, or commercial insurance policies. The cost of comprehensive coverage will depend on various factors, such as the insured value of the property, the level of risk, and the deductible amount.
Deductible: A deductible is the amount of money that a policyholder must pay out of pocket before their insurance coverage starts to apply. For example, in an auto insurance policy with a $500 deductible, the policyholder will need to pay the first $500 of any covered loss or damage, and the insurance company will pay the remaining amount. Deductibles are commonly used to reduce insurance premiums and discourage small or frivolous claims.
Endorsement: An endorsement is a written document attached to an insurance policy that changes the policy’s original terms and conditions. It is also known as a rider. Endorsements can be used to add or remove coverage, increase or decrease limits, or modify policy language. Endorsements may be added at the time of policy issuance or during the policy term.
Exclusion: An exclusion is a provision in an insurance policy that limits or eliminates coverage for certain types of losses or events. Common exclusions include intentional acts, war, nuclear hazards, and certain types of natural disasters. Exclusions are important to understand because they help policyholders understand the scope of coverage and potential gaps in coverage.
Flood insurance: Flood insurance is a type of insurance that protects property owners from losses due to flooding. Flood insurance policies are typically sold separately from standard homeowners or renters insurance policies. Flood insurance is important for property owners because standard insurance policies typically do not cover damage from flooding.
Grace period: A grace period is a specified period of time after an insurance premium is due during which the policy remains in force. The length of the grace period varies depending on the policy and the insurer but is typically around 30 days. If the premium is paid during the grace period, coverage continues without interruption. If the premium is not paid by the end of the grace period, coverage may be canceled.
Health Insurance: Health insurance is a type of insurance that provides coverage for medical expenses incurred by the insured individual. This can include expenses related to hospitalization, surgeries, doctor visits, and prescription drugs. Health insurance can be provided by an employer or purchased individually, and the cost of the insurance is usually paid through monthly premiums.
Indemnity: Indemnity is a type of insurance policy that provides reimbursement for losses that occur as a result of covered events. This type of insurance typically allows the insured individual to choose their healthcare provider, and the insurance company will then reimburse the insured for a portion of the cost of the healthcare services received. Indemnity insurance is also sometimes referred to as “fee-for-service” insurance.
Insurable Interest: Insurable interest is the financial stake that an individual or organization has in the life, health, or property of another individual or organization. In order to purchase insurance on someone or something, the policyholder must have an insurable interest in the insured party. This ensures that insurance policies are not used for speculative purposes or to create a financial incentive for the loss of the insured party or property.
Insurance: Insurance is a financial product that provides protection against the financial risks associated with unexpected events or losses. These events can include accidents, illness, damage to property, or death. Insurance policies are purchased by individuals and organizations, and the policyholder pays a premium to the insurance company in exchange for coverage.
Insurance policy: An insurance policy is a contract between an insurer and an insured that outlines the terms of coverage and the responsibilities of each party. It specifies the type and amount of coverage, the premiums to be paid, the duration of the coverage, and any conditions or limitations. The policy serves as evidence of the agreement and can be used as a reference in the event of a claim.
Insurance premium: An insurance premium is the amount of money an insured pays to an insurer in exchange for coverage under an insurance policy. It can be paid as a lump sum or in regular installments, such as monthly or annually. The amount of the premium is determined by a variety of factors, including the type and amount of coverage, the insured’s risk profile, and the insurer’s expenses and profit goals.
Insured: The insured is the person or entity that is covered by an insurance policy. They are the ones who purchase insurance to protect themselves against financial losses resulting from various risks, such as accidents, illnesses, or property damage. The insured may be an individual, a group, or a business.
Insurer: An insurer is a company or organization that provides insurance coverage to individuals or entities in exchange for premiums. Insurers assume the risk of financial losses that may be incurred by their insureds and pool the premiums they receive to pay for claims. They use actuarial science and underwriting to assess risk and determine the appropriate premiums to charge.
Liability insurance: Liability insurance is a type of insurance that provides financial protection to policyholders against claims made by a third party for damages caused by the policyholder’s actions or inactions. It covers legal fees, settlements, and judgments associated with bodily injury or property damage resulting from the policyholder’s negligence or wrongdoing. Liability insurance is typically purchased by businesses and individuals who may face potential lawsuits, such as professionals, contractors, and property owners.
Life insurance: Life insurance is a type of insurance that provides financial protection to a policyholder’s beneficiaries in the event of the policyholder’s death. It pays out a lump sum of money, known as a death benefit, to the policyholder’s designated beneficiaries upon the policyholder’s death. Life insurance can be term life insurance, which provides coverage for a specific period, or permanent life insurance, which provides coverage for the policyholder’s lifetime.
Limit: A limit, in insurance terms, is the maximum amount of coverage provided by an insurance policy. It represents the most the insurance company will pay out for a covered loss. Policyholders can choose their coverage limits based on their individual needs and risk tolerance. Limits can apply to different components of an insurance policy, such as liability coverage, property damage coverage, or medical payments coverage.
Loss: In the context of insurance, loss refers to any financial harm or damage suffered by the insured due to an unforeseen event or accident, such as a car accident or a fire. The loss can be total or partial, and the insured is compensated by the insurer based on the terms of the insurance policy. The amount of compensation is usually determined by the severity of the loss and the coverage limits of the policy.
Medical payments coverage: Medical payments coverage is a type of auto insurance that pays for medical expenses incurred by the driver and passengers of a covered vehicle in case of an accident, regardless of who is at fault. This coverage may also apply to injuries sustained by the policyholder while a passenger in another vehicle or as a pedestrian. The coverage is typically limited to a specific dollar amount per person or per accident, and it is often offered as an optional add-on to an auto insurance policy.
No-fault insurance: No-fault insurance is a type of auto insurance in which each driver’s insurance company pays for their own policyholder’s medical expenses and lost wages, regardless of who is at fault for the accident. This system is designed to reduce litigation and streamline the claims process, but it may also limit the ability of injured parties to sue for damages. No-fault insurance is mandatory in some states, while others allow drivers to choose between no-fault and traditional liability coverage.
Peril: In insurance, peril refers to the cause of damage or loss to the insured property. This can include natural disasters such as floods or earthquakes, as well as man-made events like theft or vandalism. Insurance policies often list specific perils that are covered, while excluding others that are considered too risky or unlikely to occur.
Policyholder: A policyholder is the person or entity that owns an insurance policy. This individual or organization has entered into a contract with an insurance company, agreeing to pay a premium in exchange for coverage for a particular risk or set of risks. The policyholder is entitled to make claims under the policy in the event of covered losses or damages.
Premium: The premium is the amount of money that a policyholder pays to an insurance company in exchange for coverage. It is typically paid on a regular basis, such as monthly or annually, and is calculated based on various factors such as the insured value of the property or the level of risk involved. The premium can be influenced by factors such as the policyholder’s age, health, and driving record.
Property insurance: Property insurance is a type of insurance that provides coverage for physical damage to property, including buildings, homes, and personal possessions. It is designed to protect property owners from financial loss in the event of damage or destruction due to perils such as fire, theft, or natural disasters. Property insurance policies can vary widely in terms of coverage, exclusions, and premiums.
Provisions: Provisions are clauses or terms included in an insurance policy that describe the rights and responsibilities of the insurer and the insured. These provisions can include details about coverage limits, deductibles, exclusions, and other aspects of the policy. It is important for policyholders to read and understand the provisions of their insurance policies in order to fully understand their coverage and any limitations or requirements that may apply.
Reinsurance: Reinsurance is a practice whereby an insurance company transfers some of its risk to another insurance company. This is done in order to reduce the amount of risk that the original insurer is exposed to, and to ensure that it can meet its obligations to policyholders in the event of a large or unexpected loss. Reinsurance can be used for a variety of purposes, including spreading risk across multiple companies or protecting against catastrophic events.
Replacement cost: Replacement cost is the amount of money that it would take to replace a damaged or destroyed item with a new one of similar kind and quality. In the context of insurance, replacement cost coverage is designed to provide reimbursement for the actual cost of replacing damaged property, rather than simply providing the market value of the property. Replacement cost can be an important factor in determining the premium for property insurance policies.
Rider: A rider is an add-on to an insurance policy that provides additional coverage for specific risks or events. Riders are typically used to customize a policy to the specific needs of the policyholder, and can be added or removed as needed. Common types of riders include those for high-value items like jewelry or artwork, or for specific events like floods or earthquakes.
Risk: Risk refers to the likelihood or probability of a loss or damage occurring. In insurance, risk is a central concept, as insurers must assess the level of risk associated with a particular policyholder or property in order to determine the appropriate premium and level of coverage. Factors that can affect risk include the type of property being insured, the location of the property, and the history of losses or claims.
Subrogation: Subrogation is the process by which an insurance company takes legal action against a third party in order to recover money it has paid out to its policyholder. This can occur when the third party is responsible for the loss or damage that the policyholder suffered. Subrogation allows insurance companies to minimize their losses and ensure that the party responsible for the loss is held accountable.
Surety bond: A surety bond is a type of contract in which a third party agrees to guarantee the performance of another party. In the context of insurance, surety bonds are often used to ensure that a contractor or other professional will fulfill their obligations to a client. If the contractor fails to do so, the surety company will step in and pay the client on the contractor’s behalf.
Term life insurance: Term life insurance is a type of life insurance policy that provides coverage for a specified period of time, typically ranging from one to 30 years. If the policyholder dies during the term of the policy, the beneficiaries named in the policy will receive a death benefit. Term life insurance is often used to provide coverage during a specific period of time, such as while children are growing up or while a mortgage is being paid off.
Third-party administrator: A third-party administrator (TPA) is a company that is hired by an employer to manage its employee benefits program. This can include tasks such as enrolling employees in health insurance plans, processing claims, and managing the payment of benefits. TPAs can be independent companies or subsidiaries of insurance companies.
Underwriter: An underwriter is an insurance professional who is responsible for evaluating insurance applications and determining whether to accept or reject them. This process is known as underwriting. Underwriters evaluate a variety of factors, including the applicant’s age, health, and occupation, as well as the type of property or event being insured. Based on this evaluation, the underwriter will determine the appropriate premium and level of coverage.
Underwriting: Underwriting is the process by which an insurance company evaluates insurance applications and determines whether to accept or reject them. The underwriting process typically involves evaluating a variety of factors, including the applicant’s age, health, and occupation, as well as the type of property or event being insured. Based on this evaluation, the insurer will determine the appropriate premium and level of coverage. Underwriting is a crucial part of the insurance industry, as it allows insurers to assess risk and price their policies accordingly.
Uninsured motorist coverage: Uninsured motorist coverage is a type of car insurance that provides protection to drivers who are involved in an accident with someone who does not have insurance. If an uninsured or underinsured driver causes an accident, the insured driver’s insurance company will pay for damages and injuries that the uninsured driver would have been responsible for.
Universal life insurance: Universal life insurance is a type of permanent life insurance that provides a death benefit and accumulates cash value over time. Unlike whole life insurance, which has a fixed premium and death benefit, universal life insurance allows policyholders to adjust the amount of their premium and death benefit as their needs change. This flexibility makes universal life insurance an attractive option for those who want to customize their coverage.
Utilization review: Utilization review is a process used by insurance companies to evaluate the medical necessity and appropriateness of healthcare services. The goal of utilization review is to ensure that patients receive the right care at the right time and in the most cost-effective manner possible. Utilization review is typically performed by medical professionals who review medical records and treatment plans to determine whether they meet established criteria.
Variable life insurance: Variable life insurance is a type of permanent life insurance that provides a death benefit and allows policyholders to invest the cash value of their policy in a variety of investment options. The performance of these investments can impact the value of the policy over time. Variable life insurance offers policyholders the potential for higher returns than traditional whole life insurance, but also carries more risk.
Waiting period: A waiting period is the amount of time that must pass before certain types of insurance coverage go into effect. For example, many disability insurance policies have a waiting period of several weeks or months before benefits begin. Waiting periods are designed to prevent individuals from purchasing insurance only when they need it, and then cancelling it once their need has passed.
Whole life insurance: Whole life insurance is a type of permanent life insurance that provides a death benefit and accumulates cash value over time. Whole life insurance policies typically have fixed premiums and death benefits, and are designed to provide coverage for an individual’s entire life. Whole life insurance policies also offer a guaranteed minimum interest rate on the cash value of the policy.
Test what you learned in this article:
1 – What does the term “endorsement” mean in the context of insurance?
a) The addition of coverage to an existing policy
b) The cancellation of a policy
c) The payment made to an insured party
d) The denial of a claim
2 – What is the meaning of “insurable interest” in insurance?
a) The extent to which an insurer is willing to provide coverage
b) The likelihood of a specific event occurring
c) The financial stake an insured party has in the policy’s subject matter
d) The probability of loss or damage
3 – What is “excess” insurance?
a) A type of insurance that covers losses exceeding a specific amount
b) A policy that covers damages caused by natural disasters
c) A policy that covers a specific event or incident
d) A policy that covers damage caused by faulty workmanship
4 – What is the definition of “moral hazard” in insurance?
a) The possibility of an insured party intentionally causing a loss to collect insurance proceeds
b) The likelihood of a specific event occurring
c) The financial stake an insured party has in the policy’s subject matter
d) The probability of loss or damage
5 – What is the meaning of “waiver” in insurance?
a) The exclusion of coverage for a specific event or incident
b) The reduction of the premium paid for a policy
c) The requirement that an insured party take certain precautions to prevent loss
d) The voluntary relinquishment of a right or privilege
6 – What is the definition of “retroactive date” in insurance?
a) The date on which a policy goes into effect
b) The date on which a claim is filed
c) The date on which a policy is renewed
d) The date before which a loss must occur to be covered by the policy
7 – What does the term “indemnification” mean in insurance?
a) The payment made to an insured party
b) The exclusion of coverage for a specific event or incident
c) The requirement that an insured party take certain precautions to prevent loss
d) The restoration of an insured party to the financial position they were in prior to a loss
8 – What is the meaning of “subrogation” in insurance?
a) The transfer of an insurer’s rights and remedies to another party
b) The reduction of the premium paid for a policy
c) The requirement that an insured party take certain precautions to prevent loss
d) The exclusion of coverage for a specific event or incident
9 – What is the definition of “schedule” in insurance?
a) A list of items covered by a policy and their corresponding values
b) The date before which a loss must occur to be covered by the policy
c) The likelihood of a specific event occurring
d) A policy that covers damages caused by natural disasters
10 – What does the term “endorsement” mean in the context of insurance?
a) The addition of coverage to an existing policy
b) The cancellation of a policy
c) The payment made to an insured party
d) The denial of a claim
Correct answers:
1 – a
2 – c
3 – a
4 – a
5 – d
6 – d
7 – d
8 – a
9 – a
10 – a
