Glossary of Insurance Terms

Bodily injury liability: This type of auto insurance coverage protects policyholders against bodily injury or death suffered by third parties and for which the former is responsible. A minimal amount of bodily injury liability insurance, which also provides coverage for legal fees, is required in most states.

Business interruption insurance: Commonly referred to as "business income protection insurance" or "loss of profits", this type of coverage protects policyholders against the loss of future earnings following suspended or interrupted business due to the occurrence of an insured event such as a fire.

Business owner's package policy (BOPs): This discounted commercial insurance policy offers both general liability and property insurance coverage. The general liability component of the BOP insures a company against injuries suffered by a client on its premises or against injuries or property damage caused by one of its employees at a client's location. Policyholders may usually obtain compensation through a BPO for up to one year of lost earnings due to a covered property loss.

Business property insurance: This insurance product protects a policyholder's business and assets such as valuable papers, computers, company buildings and equipment against loss or loss of use. Business property insurance safeguards a policyholder's property against acts of God, fire, theft, accidents, and explosions, among other covered perils.

Collision Damage Waivers (CDW): Also known as loss damage waivers, these provisions shift responsibility for physical damage to the rental vehicle from the renter to the auto rental company. To obtain a CDW, vehicle renters must pay an extra fee.

Collision insurance: This type of coverage insures policyholders against damage to their vehicle resulting from an accident caused by them. Collision insurance covers costs up to the vehicle's fair market value. If a third party is at fault in the accident, the insured may recover the cost of repairing his or her vehicle.

Comprehensive auto insurance: An auto insurance policy that covers non-collision damage to the policyholder's vehicle brought about by natural disasters and events such as storms, floods, tornados, theft, vandalism, robbery, and fire. A comprehensive auto insurance policy provides reimbursement up to the vehicle's fair market value, minus the policyholder's deductible.

Condominium insurance: Commonly referred to as an HO6 policy, condominium insurance provides 1) medical payment coverage, 2) liability protection against injuries to third parties, and 3) protection against damage or loss of personal property. Among the named perils that condo insurance covers are theft, lightning or fire, hail, vehicle damage, vandalism, and smoke damage. To determine how much coverage to purchase, prospective policyholders should review their condo association's master policy.

Consolidated Omnibus Budget Reconciliation Act (COBRA): Federal legislation that requires employers who have at least 20 employees and who sponsor group health plans to provide workers and their families the option of continuation coverage- namely an 18-month extension of their health insurance coverage. COBRA is available to qualifying employees coping with divorce, career transition, reduction of hours, involuntary or voluntary employment loss, or other hardships.

Co-insurance: This refers to the amount that a health insurance policyholder must pay once he or she has met the deductible. Co-insurance results in a decreased insurance cost for the policyholder since the insurance provider shares in the cost of the covered procedures in accordance with a specific formula.

Co-payment: In lieu of a deductible, the insured may choose to pay a specified amount for prescriptions or medical services rendered at a doctor's office. The health insurance carrier pays the balance.

Credit rating: Alternatively referred to as a credit score, this numerical figure is assigned to a consumer by a credit reporting agency such as Experian and Trans Union on the basis of information in the former's credit file. Specifically, a credit rating, which serves as an indicator of creditworthiness, is calculated by assessing such criteria as a borrower's payment history and ability to manage past and existing debts.

Credit-scoring system: A statistical method that involves evaluating credit applicants on the basis of several characteristics relating to creditworthiness and then assigning a credit score or objective number. Among the key factors utilized in the credit-scoring system are a borrower's payment history, unpaid balances against available credit lines, the number of inquiries made into his or her credit report in recent months, public records such as bankruptcies, and collection accounts.

Death benefit: This constitutes a payment, usually in the form of a lump sum, made by a life insurance carrier to a designated beneficiary upon the insured's death. A death benefit may include dividends, the original policy's death benefit, and additional benefits. Policy withdrawals, loan interest, benefits issued pursuant to accelerated benefit riders, and unpaid policy loans reduce the amount of the death benefit.

Deductible: This represents the portion of an insurance claim that the policyholder must pay before requesting reimbursement for the covered loss from his or her insurance provider.>

Disability insurance: This pays a policyholder a percentage of his or her monthly income, typically within the range of 45-60%, when he or she becomes disabled due to an illness or an accident. The two main types of disability insurance are long-term disability and short-term disability policies.

Dividend: This represents the monetary sum that an insurance provider issues to a policyholder as earnings from an investment.

Explanation of Benefits (EOB): The EOB refers to an insurance provider's written documentation of a claim, setting forth the amount paid and the sum owed by the client. A benefits check sometimes accompanies the EOB.

Extended replacement cost: This refers to insurance coverage which is 20 percent or more above the policy limit and is intended for rebuilding a home following a catastrophic event. Extended replacement cost provides a buffer against the rising cost of labor and building materials.

Family health insurance: This type of insurance is tailored to the specific needs of families and is available as an individual or group plan. There are different types of family health insurance, including PPOs, HMOs, and fee-for-services policies.

Federal Emergency Management Agency (FEMA): FEMA, which is an agency within the Department of Homeland Security, directs federal relief efforts following man-made and natural disasters. Its primary objective is to minimize loss of life and property and to safeguard the country from all types of hazards by offering protection and ensuring recovery through an emergency response system. FEMA oversees the National Flood Insurance Program and offers flood insurance tips and advice at http://www.fema.gov/.

First party claim: This involves the submission of a claim by a policyholder with his or her insurance provider, with whom he or she has a direct contract. First-party claims typically involve uninsured/underinsured motorist coverage, health insurance, business interruption insurance, property damage insurance, disability insurance, and medical payment coverage.

Flood insurance: This type of insurance, which protects businesses, homes, and their contents from overflowing or rising bodies of water (i.e. melting snow, storm surge, torrential rain), is required for properties situated in federally-designated flood zones. Also known as "single peril insurance", flood insurance must be purchased separately since it is not covered under home insurance policies. It is available through private insurers and is funded by the federal government.

Group health insurance: A form of insurance in which numerous individuals are written under one master policy. Group health insurance coverage is available through professional associations, student organizations, employers, religious groups, and other affiliations.

Health Insurance Profitability and Accountability Act (HIPAA): Federal legislation that requires health insurance carriers to safeguard their patients' medical records and disclose them only with the latter's consent. HIPAA grants patients increased access to their medical records and makes them automatically eligible for similar health insurance coverage upon a change of circumstances (i.e. new job).

Health Maintenance Organization (HMO): This pre-paid managed care plan offers medical services for a fixed monthly fee, regardless of the levels or types of services rendered. Members choose a primary care physician from the HMO's network, who in turn coordinates the former's medical treatment and refers him or her to a specialist if necessary. HMO plans benefit the insured by decreasing out-of-pocket health care expenses.   

Homeowners insurance: This package policy provides hazard coverage for 1) personal liability claims, 2) theft, 3) personal and real property damage or loss resulting from hazards such as storms or fire, 4) medical payments, and 5) supplemental living expenses.

International health insurance: This offers long-term, worldwide, comprehensive health insurance coverage for policyholders who live abroad. International health insurance is beneficial to teachers, missionaries, students, immigrants, families, corporations with overseas offices, groups, and individuals.

Liability insurance: As one of the key components of a standard homeowner's insurance policy, liability insurance provides three types of coverage: 1) property damage incurred by third parties, 2) bodily injury or death to third parties both on and off the policyholder's property, and 3) no-fault medical insurance.

Life insurance settlement: This type of transaction involves payment by a life settlement company of a lump sum to an individual with a shortened life expectancy- 20 years or less- in exchange for transfer of the policy's ownership to the former. The insured may suffer from a life-threatening medical condition or may be a senior citizen. The amount of the life insurance settlement depends on the policy's face value, premium requisites, and the insured's life expectancy. When the insured dies, the life settlement company receives the death benefit.

Long-term care insurance: This type of insurance offers a wide range of health and personal services to individuals suffering from a disability or a chronic illness. Long-term care includes custodial care, home health services such as assistance with daily activities such as bathing and dressing, and nursing care. It safeguards the insured's savings and investments and protects his or her family's financial security.

Malpractice insurance: Also known as personal liability insurance, this type of policy protects professionals such as lawyers and physicians from lawsuits filed by their clients in relation to the performance of professional services. Malpractice insurance is referred to as "errors and omissions" liability when legal responsibility is restricted to acts of negligence. Businesses who purchase this coverage are protected against negligence, omissions, errors, and malpractice.

Multi-line/multi-policy discount: A rebate generally in the range of 10-15% off the insurance premiums is available to consumers who purchase more than one type of policy (i.e. renters, homeowners, life, auto) from the same carrier.

National Association for the Self-Employed (NASE): This organization serves the self-employed by providing them the tools to successfully manage and grow their enterprises. The NASE offers self-employed business owners access to numerous benefits aimed at furthering and ensuring their financial security and their health.

National Flood Insurance Program (NFIP): This program offers federally-subsidized flood insurance to business owners, renters, and homeowners in almost 20,000 participating communities in the United States which adopt and implement flood management regulations to decrease damage caused by floods.

Personal accident insurance (PAI): Also referred to as Accidental Death and Dismemberment Insurance, this policy helps individuals pay certain expenses if their spouse or partner dies or is severely injured in a covered accident. A typical PAI policy pays emergency medical expense benefits and death benefits to renters and passengers in a rental vehicle. It also extends a partial or full benefit in cases involving loss of hearing or vision or dismemberment. 

Personal Injury Protection (PIP): Alternatively known as medical payments coverage, this type of policy typically covers most medical expenses, lost wages, hospitalization costs, funeral costs, and income continuation for policyholders and their passengers injured in an accident, regardless of who is at fault. PIP insurance also issues a death benefit. Drivers should obtain at minimum the medical payments coverage that their state requires.

Preferred Provider Options (PPOs): This managed care plan offers members the opportunity to pay discounted rates by choosing any physician from a pre-selected list. The insured pays for treatment as it is needed. PPOs offer flexibility and choice since they do not require their members to choose a primary physician or to obtain a referral from the latter to see a specialist.

Premium: This represents the sum of money that a policyholder must pay periodically- monthly or semi-annually- to an insurance company to keep the policy active and obtain coverage. Consumers may lower their insurance premium by improving their credit rating, buying all of their policies from the same insurer, and/or raising their deductible.

Primary care provider (PCP): This refers to a physician who is assigned to or selected by a patient and is in charge of monitoring the latter's general medical care needs. PCPs are authorized to refer patients to specialists.

Private mortgage insurance (PMI): Lenders require borrowers who make a down payment that is less than 20 percent of the purchase price to buy PMI. This protects lenders against default on mortgage payments by borrowers and covers any resulting legal and administrative expenses. PMI enables qualified borrowers to purchase their first home and build equity faster with a down payment as low as three to five percent.

Property damage liability: This type of coverage insures against damage to a third party's vehicle, home, fence or other property in an accident where the policyholder is at fault. Property damage liability also covers legal defense costs. Drivers are required in many states to take out a minimum level of property damage liability coverage.

Rental reimbursement coverage: This supplemental auto insurance coverage pays for rental car expenses incurred when the insured's vehicle is damaged in an accident and is undergoing repair. The accident may be caused by the policyholder or a covered peril such as an act of God (i.e. flood, hurricane). The auto insurer covers the cost of a rental car up to a pre-set amount and a specified period of time.

Renters insurance: A form of property insurance that protects tenants of an apartment or dwelling against property damage or personal liability injuries suffered by a third party as well as damage or loss to the former's personal property. Some of the common perils that renters insurance covers are vandalism, explosion, hail, windstorm, theft, and fire. It also provides loss-of-use coverage or additional living expenses in the event that the insured needs to vacate the premises while his or her home is undergoing repairs due to damage caused by a natural disaster.

Replacement value: This refers to the current cost of repairing or rebuilding damaged property in the same location with construction materials of the same type and quality. While a replacement value policy places a cap on the maximum dollar amount, it makes no deduction for depreciation

Short-term health insurance: This temporary insurance plan, which is generally effective for a duration of one to six months, offers policyholders health coverage that protects against exorbitant, emergency medical bills. Short-term health insurance allows individuals to choose their own hospitals and physicians and is optimal for those attending school, employed part-time or unemployed, or who are between jobs.

Small Business health insurance: Most businesses or organizations of 2-50 employees offer group plans that feature extensive coverage and reduced premiums owing to the fact that the risk is spread between the members. The most common types of small business health insurance offered by providers are 1) Health Maintenance Organization (HMO), 2) Point of Service (POS), 3) Preferred Provider Organization (PPO), 4) Fee for Service (FFS) or traditional plans, 5) Medicare, and 6) Health Savings Accounts. 

Student health insurance: This type of insurance is generally available to undergraduate, graduate, and international students under the age of 30. Policyholders may choose their own hospital or physician, renew their annual coverage, and continue being insured after college. Most student health insurance providers offer nationwide coverage.

Survivorship life insurance: Also referred to as last-to-die or second-to-die insurance, this type of policy covers the lives of two individuals, usually a couple, and its death benefit is paid to the beneficiary upon the second insured person's death. Survivorship life insurance, which usually takes the form of a universal or whole life policy, is less costly than two individual policies and serves to delay payment of estate taxes until the death of both spouses. 

Term life insurance: Also known as "pure insurance", this type of insurance offers death protection for a fixed period of time. In a term life insurance policy, named beneficiaries receive a death benefit upon the death of the insured while he or she is covered. Term life insurance, which is designed for short-term objectives such as payment of a loan, offers adjustable premiums, opportunity for renewal and for conversion to a permanent life insurance, and initial affordability.

Third party claim: A claim made by a policyholder (or his or her dependents in the case of death) who is injured or killed in an auto accident due to the other driver's negligence. The insured files the third party claim with the at fault driver's insurance carrier.

Tie-down discount: This discount, which typically reduces a homeowner's insurance premium by as much as 10%, is available to individuals whose mobile homes are bolted or anchored to the foundation or ground or "tied down".

Title insurance: Lenders usually require borrowers to take out title insurance to protect them against claims by third parties against the property for record defects such as unpaid real estate taxes and fraudulent deeds. The two key types of title insurance are the 1) homeowner's policy, which protects the purchaser and 2) lender's policy, which protects the mortgage creditor.

Travel health Insurance: This insurance product covers emergency medical expenses that a policyholder incurs while residing or traveling overseas. Many travel health insurance plans also offer repatriation of remains, emergency medical evacuation, and accidental death and dismemberment.

Uninsured and Underinsured Motorist Coverage: This type of coverage pays the property damage, personal injury, and funeral costs (if any) resulting from an accident caused by an uninsured or underinsured driver. Uninsured and underinsured motorist coverage pays an amount equivalent to what the insured's policy would have paid the other party if the accident was the insured's fault.

Universal life insurance: This type of policy, which accumulates savings or account value and combines term life and whole life, remains in effect until the insured's death. Policyholders may change the level of death benefits and amount of premiums in accordance with their needs. A universal life insurance policy pays a return on investment that depends on market interest rates. Beneficiaries receive the insurance proceeds tax-free.

Variable life insurance: A whole life insurance product that features a death benefit and an investment program known as a cash value. Policyholders may select the investment type and amount from among the various money market funds and stocks and bonds featured in the variable life insurance carrier's portfolio. The investments' performance determines the policy's death benefit and cash value.

Whole life insurance: A permanent life insurance product that covers the policyholder for the duration of his or her life, provided that the premiums are paid as set forth in the policy. Whole life insurance accumulates cash value, which may be withdrawn or borrowed against, and offers a death benefit. The amount of the premium remains fixed for the life of the contract, while the cash value grows over time. Upon the insured's death, a lump sum is paid to the beneficiary.

Workers' compensation insurance: Almost all states require employers to purchase this type of coverage which protects them against liability for work-related accidents or illnesses and offers lost income, disability and medical coverage to injured employees. Surviving spouses and dependents may also receive death benefits from their worker's compensation insurance policy.


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