Resources

TermDefinition
Accident

An event that is unforeseen, unexpected, and unintended.

Accidental death benefits

A provision added to a life insurance policy for payment of an additional benefit in case of death that results from an accident. This provision is often called "double indemnity."

Acquisition Costs

Costs incurred by an insurer or their agent in attracting customers. These costs typically include: sales force salaries and overhead, marketing and advertising costs and other costs incurred prior to when a prospect agrees to purchase a policy.

Actuary

A person who calculates insurance and annuity premiums, reserves, and dividends.

Advance Premium Mutual

Mutual insurance company owned by the policyholders that does not issue assessable policies but charges premiums expected to be sufficient to pay all claims and expenses.

Adverse Selection

Tendency of persons with a higher-than-average chance of loss to seek insurance at standard (average) rates, which, if not controlled by underwriting, results in higher-than-expected loss levels

Agent

An insurance company representative who solicits, negotiates or effects contracts of insurance, and provides service to the policyholder for the insurer, usually for a commission on the premium payments.

Aggregate excess policy

In an aggregate excess policy, the reinsurer will pay claims beyond a certain value

Alternate delivery system

Health services that are more cost-effective than inpatient, acute-care hospitals, such as skilled and intermediary nursing facilities, hospice programs, and in-home services.

Annuities

Annuities are contracts sold by life insurance companies. In their simplest form, one pays a sum of money (either a lump sum or a series of payments) and the insurance company makes periodic payments to the policy holder, beginning on the date contracted and continuing for the rest of the insured`s life. Unlike mutual funds or unit trusts, variable annuities have insurance provisions and guarantees to preserve the value of the principal paid into the annuity. They also generally carry higher fees than mutual funds.

Association group

A group formed from members of a trade or professional association for insurance under one master health insurance contract

Beneficiary

The person or financial instrument (for example, a trust fund), named in the policy as the recipient of insurance money in the event of the occurrence of an insured event.

Benefits

The amount payable by the insurance company to a claimant, assignee or beneficiary under each coverage.

Broker

A sales and service representative who handles insurance for clients, generally selling insurance of various kinds and for several companies. Brokers resemble agents, except for the fact that, in a legal sense, brokers represent the party seeking insurance rather than the insurance company.

Cancellation

The discontinuance of an insurance policy before its normal expiration date.

Capitation

Method of payment whereby a physician or hospital is paid a fixed amount for each person in a particular plan regardless of the frequency or type of service provided.

Cede

To transfer all or part of a risk written by an insurer to a reinsurer.

Ceding company

An insurance company that yields part of its risk to a reinsurers.

Claim

A request for payment of a loss that may come under the terms of an insurance contract.

Clawbacks

Commission paid out to an agent and retrieved by the insurer due to policy cancellation of the original commission resultant policy prior to full payment of the policy by the policyholder. Commission The part of an insurance premium paid by the insurer to an agent or broker for services in procuring and servicing the insurance policy(ies).

Co-payment

Mechanism, used by insurers to share risk with policyholders and reduce moral hazard, which establishes a formula for dividing the payment of losses between the insurer and the policyholder. For example, a co-payment arrangement might require a policyholder to pay 30% of all losses while the insurer covers the remainder.

Comprehensive medical expense insurance

Insurance that provides coverage, in one policy, for basic hospital expense and major medical expense.

Cost containment

Reduction of inefficiencies in the provision, consumption, allocation, production or servicing of insurance services. For example, inefficiencies can occur when health services are used inappropriately; when insurance policy servicing could be delivered in a less costly manner; or when using a different combination of resources could reduce costs.

Covariance

The tendency for either i) many households to be affected by a risk at the same time or ii) several risks to consistently occur together (at the same time or under the same circumstances).

Covariant risk

A risk, or combination of risks, that effects a large number of the insured items/people at the same, for example an earthquake, or a major flood.

Coverage

The scope of protection provided under a contract of insurance, and any of several risks covered by a policy. Credibility theory A branch of actuarial science that tests the validity of data.

Credit Life Insurance or Outstanding Bal

Insurance coverage that repays the outstanding balance on loans in default due to the death of the borrower. Occasionally, partial or complete disability coverage is also included.

Deductible(s) or Excess

Mechanism, used by insurers to share risk with policyholders and reduce moral hazard, which establishes an amount or percentage which a policyholder agrees to pay, per claim or insured event, toward the total amount of an insured loss.

Delegated underwriting

The delegation of the insurance underwriting decision to a lender, on loans made by that lender. "Contract underwriting" is a variant of delegated underwriting.

Disability

Physical or mental condition that prevents a person from performing one or more occupational duties temporarily (short-term), permanently (long-term), and / or totally (total disability).

Disability benefit

A feature added to some life insurance policies providing for waiver of premium, and sometimes payment of monthly or lump sum income, if the policyholder becomes temporarily, totally and / or permanently disabled.

Dismemberment

Accidental loss of limb or sight.

Distribution Channel

Type of process used to deliver insurance policies to clients. Direct marketing and agents are two examples of different distribution channels

Distributor

Institution that handles the sales and servicing of insurance policies, but does not necessarily produce the products themselves, or retain the risk of the insurance policies.

Endowment

Life insurance payable to the policyholder if living, on the maturity date stated in the policy, or to a beneficiary if the insured dies before that date.

Estate

The assets and liabilities of a person left at death.

Excess (or Deductible)

Mechanism, used by insurers to share risk with policyholders and reduce moral hazard, that establishes an amount or percentage which a policyholder agrees to pay, per claim or insured event, toward the total amount of an insured loss.

Exclusions (or exceptions)

Specific conditions or circumstances listed in the policy for which the policy will not provide benefit payments.

Experience

The record of claims made or paid within a specified time period.

Experience rating

The process of determining the premium rate for a group risk, wholly or partially on the basis of that group`s experience.

Experience refund

Amount returned by an insurer to a group policyholder when the financial experience of a particular group (or class to which the group belongs) has been more favourable than anticipated.

Face Value

Amount to be paid out by an insurance policy if either the insured event occurs or the policy matures (for endowment policies)

Flat schedule

A type of group insurance schedule under which everyone is insured for the same benefits regardless of salary, position, or other circumstances.

Fraud

Intentional perversion of truth in order to induce another to part with something of value.

Grace period

A specified period after a premium payment is due, in which the policyholder may make such payment, and during which the protection of the policy continues.

Group Creditor Life Insurance

Life insurance provided to debtors by a lending institution to provide for the cancellation of any outstanding debt should the borrower die. Normally term insurance limited to the amount of the loan.

Group Insurance

Insurance written on a number of people under a single master policy, issued to their employer or to an association or other organization with which they are affiliated.

Group life insurance

Life insurance on a group of people under a master policy that usually does not require medical examinations. It is typically issued to an employer for the benefit of employees, or to members of an association or some other related group, for example, a professional membership group. The individual members of the group generally hold evidence of their insurance.

Health insurance

Coverage that provides benefits as a result of sickness or injury. Policies include insurance for losses from accident, medical expense, disability, or accidental death and dismemberment.

Health maintenance organization (HMO)

Organization that provides a wide range of comprehensive health care services for a specified group for a fixed periodic prepayment.

Home Service

Form of insurance distribution system in which all aspects of insurance provision (marketing, sales, premium collections, claims verification and distribution) are performed by a roaming agent who visits customers in their homes or place of work. Home service distribution was popular in North American and Western European countries in the early 1900`s.

Hospital indemnity insurance

Health insurance that provides a stipulated daily, weekly, or monthly payment to an insured person during hospital confinement, without regard to the actual confinement expense.

Individual insurance

A policy that provides protection to a policyholder and/or his or her family; sometimes called personal insurance as distinct from group and blanket insurance.

Industrial Life Insurance

One name for life insurance policies sold to middle and low-income customers in small policy amounts with weekly or monthly premium collection at the policy owner`s home.

Institutional Risk

Risks faced by insurer as a consequence of offering insurance. For example, insurers risk experiencing losses on their portfolio if claims or administration costs exceed expectations or if premium revenues fall below expected levels.

Insurable interest

A financial reliance you have on someone (such as a spouse) or something that can be covered by insurance. For example, you need an "insurable interest" in someone in order to buy a life insurance policy on that person`s life.

Insurable risk

The conditions that make a risk insurable are (1) the peril insured against must produce a definite loss not under the control of the insured, (2) there must be a large number of homogeneous exposures subject to the same perils, (3) the loss must be calculable and the cost of insuring it must be economically feasible, (4) the peril must be unlikely to affect all insureds simultaneously, and (5) the loss produced by a risk must be definite and have a potential to be financially serious.

Insurance

A risk management system under which individuals, businesses, and other organizations or entities, in exchange for payment of a sum of money (a premium), offers an opportunity to share the risk of possible financial loss through guaranteed compensation for losses resulting from certain perils under specified conditions.

Insured

The policyholder - the individual(s), businesses, other organizations or entities protected by an insurance policy in case of a loss or claim.

Insurer

The party to the insurance contract who promises to pay losses or benefits.

Lapse

The termination or discontinuance of an insurance policy due to non-payment of a premium. Lapsed policy A policy terminated for non-payment of premiums.

Law of Large Numbers

Concept that the greater the number of exposures (for example, lives insured), the more closely will actual results approach the results expected from an infinite number of exposures. Thus, the larger the number of people in the insured risk pool, the more stabile the likely results of risk event occurrences.

Life expectancy

The average number of years of life remaining for a group of people of a given age according to a particular mortality table.

Limited Policy

A contract that covers only certain specified diseases, accidents, or other losses.

Loan Insurance

Insurance coverage that repays the outstanding balance on loans in default beyond a specified period, regardless of the cause of default. Also called "credit insurance" but not to be confused with outstanding balance life insurance.

Master policy

A policy that is issued to an employer or trustee, establishing a group insurance plan for designated members of an eligible group.

Moral hazard

Hazard arising from any non-physical, personal characteristic of a risk that increases the possibility of loss or may intensify the severity of loss for instance bad habits or low integrity. An example might include failing to properly care for an insured goat because it is insured, thereby increasing the chance it will die of disease.

Morbidity

The relative incidence of disease.

Mortality

The proportion of deaths to population.

Mortality table

An actuarial table based on mortality statistics over a number of years.

Mutual Insurer

Insurance in which the ownership and control is vested in the policyholders, who elect a management team to conduct day-to-day operations.

Non-contributory plan

Group insurance plan under which the holder of the master policy does not require the insured to share in the cost of the policy.

Outsourcing

The practice of subcontracting work to outside individuals or firms. Many insurance activities are effectively and efficiently outsourced, such as sales and service, actuarial evaluation, and even some risk (to reinsurance).

Outstanding Balance Life Insurance(Credit Life Insurance)

Insurance coverage that repays the outstanding balance on loans in default due to death of the borrower. Occasionally, partial or complete disability coverage is also included.

Partial disability

A disability that prevents a person from performing one or more functions of his or her regular economic activity.

Payment delay

Average days from the submission of an insurance claim to payment of that claim.

Payout period

The period during which one receives the income from an annuity contract.

Policy

The printed document issued to the policyholder by the company stating the terms and conditions of the insurance contract.

Policy term

The period for which an insurance policy provides coverage.

Premium

The sum paid by a policyholder to keep an insurance policy in force.

Primary insurer

An insurer that directly assumes liabilities by issuing an insurance policy to the insured.

Property insurance

Insurance providing financial protection against the loss of, or damage to, real and personal property caused by such perils as fire, theft, windstorm, hail, explosion, riot, aircraft, motor vehicles, vandalism, malicious mischief, riot and civil commotion, and smoke.

Protection

Ability of an insurance product to provide compensation for losses incurred. Protection can be full or partial.

Rate-Making

The process of estimating the expected costs involved in providing insurance coverage in order to set appropriate premium rates.

Reimbursement

Often related to health insurance, reimbursement is the payment by an insurer of the expenses actually incurred and paid by the insured as a result of an accident or sickness, but not to exceed any amount specified in the policy, and covering only those expenses noted in the policy. Reimbursement is usually based on receipts.

Reinsurance

A form of insurance that insurance companies buy for their own protection. One or more insurance companies assumes all or part of a risk undertaken by another insurance company.

Reporting delay

Average number of days from the occurrence of the insured event to the submission of the completed claim covering that event.

Reserves

An amount representing liabilities kept by an insurer to provide for future commitments under policies outstanding.

Rider

An amendment to an insurance policy that modifies the policy by expanding or restricting its benefits or excluding certain conditions from coverage.

Risk

The chance of loss. Also used to refer to the insured or to property covered by a policy.

Risk classification

The process by which a company decides how its premium rates for insurance should differ according to the risk characteristics of individuals or items insured (for example, by age, occupation, sex, state of health) and then applies the resulting rules to individual applications. (See underwriting.)

Risk exposure

The possibility of financial loss based on the probability of an event occurring.

Risk Management

Systematic process for the identification and evaluation of pure loss exposures faced by an organization or individual, and for the selection and implementation of the most appropriate techniques for treating such exposures.

Risk Pooling

Spreading of losses incurred by a few over a larger group, so that in the process, each individual group members losses are limited to the average loss (premium payments) rather than the potentially larger actual loss that might be sustained by an individual. Risk pooling effectively disperses losses incurred by a few over a larger group.

Risk Premium

The portion of the premium that is used to fund claims and is equal to the expected claims.

Self-administration

Maintenance of all records and assumption of responsibility, by a group policyholder, for those covered under its insurance plan. Responsibilities include preparing the premium statement for each payment date and submitting it with a check to the insurer. The insurance company, in most instances, has the contractual prerogative to audit the policyholder`s records

Settlement

Payment of the benefits specified in an insurance policy.

Stop-loss policy

An agreement from a reinsurer to cover total claims over a certain agreed upon value of an aggregate pool of policies

Term insurance

A plan of insurance that covers the insured for only a certain period of time (term), not for his or her entire life. The policy pays death benefits only if the insured dies during the term.

Time limit

The period of time during which a notice of claim or proof of loss must be filed.

Total disability

A disability that prevents a person from performing any and all occupational duties. The exact definition varies among policies.

Underwriter

1) A company that receives the premiums and accepts responsibility for the fulfilment of the policy contract. 2) The company employee who decides whether or not the company should assume a particular risk. 3) The agent who sells the policy.

Underwriting

Process of selecting risks for insurance and determining in what amounts and on what terms the insurance company will accept the risk.

Unearned Premium

The portion of a premium that a company has collected but has yet to earn because the policy still has unexpired time to run.

Uninsurable

High-risk persons, items, or activities, which fall outside the parameters of risks of standard underwriting practices.

Unit(s)

That which is being insured.

Universal life insurance

Unlike traditional cash-value policies (known as "whole life"), universal life policy returns were freed from long-term, fixed-rate contracts and replaced with policies whose returns were tied to short-term interest rates and periodically adjusted. In addition, the policyholder can change premiums and death benefits.

Waiting period

The length of time an insurance client must wait before their insurance becomes effective.

Whole life insurance

A plan of insurance for life, with premiums payable for a person`s entire life.

Quote of the Day

"With microinsurance, you must think with your calculator, not with your heart." -- Aris Alip | CARD MRI

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