Our insurance terms glossary is divided alphabetically by insurance terms in a quick reference guide to assist understanding the language commonly used by insurance companies. Policy documents contain a number of insurance terms because they typically define the limitations of risk and liability on the insured and any exclusions of coverage.
If you plan to start a new policy or renew your current policy with a carrier or agency, it is important to review and understand the policy differences behind individual quotes from multiple carriers. Lower policy premiums may be the result of decreased payout benefits, higher deductibles, or maximum damages allowed. It is important to identify these unique features in any policy comparison, otherwise a lower price may come at a much higher cost when you have to file a claim for loss or damages in the future.
The amount stated on the face of the policy that will be paid in case of death or at the maturity of the policy. It does not include additional amounts payable under accidental death or other special provisions, or acquired through the application of policy dividends.
A pooling mechanism for insureds not able to obtain insurance in the voluntary market. Insurers write and issue policies but cede premium and losses on those policies to a central pool in which all insurers share.
Facility Of Payment
A contractual provision that allows the insurer, under stated conditions, to pay insurance benefits of up to $1,000 to a person or persons other than the insured, the designated beneficiary, or the insured’s estate.
Mutual insurance company that aims to insure only properties that meet high underwriting standards. Emphasizes loss prevention.
A type of reinsurance in which the re-insurer can accept or reject any risk presented by an insurance company seeking reinsurance.
A facility, operating under a government-insurance industry cooperative program, to make fire insurance and other forms of property insurance readily available to persons or in locations that have difficulty obtaining such coverage.
Fair Rental Value
Amount payable to an insured homeowner for loss of rental income due to damage that makes an insured premises uninhabitable.
Family And Medical Leave Act (FMLA)
Federal Law that guarantees certain employees up to 12 weeks of unpaid leave each year, without the threat of losing their jobs.
Family Expense Policy
A policy that insures both the policyholder and his/her immediate dependents (usually spouse and children).
Family Income Policy
Special life insurance policy combining decreasing term and whole life insurance that pays a reduced monthly income (e.g., $10 for each $1,000 of life insurance) if the insured dies within the specified period. The monthly income is paid to the end of the period, at which time the face amount of insurance is paid.
A life insurance policy providing insurance on all or several family members in one contract, generally whole life insurance on the principal breadwinner and small amounts of term insurance on the other spouse and children, including those born after the policy is issued.
Family Purpose Doctrine
Concept that imputes negligence committed by immediate family members while operating a family car to the owner of the car.
Local mutual insurance company that insures farm property in a limited geographical area primarily through assessable policies.
A package policy for a farm or a ranch, providing property and liability coverages against personal and business losses.
Federal Crime Insurance
Insurance against burglary, larceny, and robbery losses offered by the federal government where the Federal Insurance Administration has determined that an insurance availability problem exists.
Federal Crop Insurance
Comprehensive coverage at rates subsidized by the federal government for unavoidable crop losses, including those that result from hail, wind, excessive rain, drought, freezes, plant disease, snow, floods, and earthquake. See also Crop Hail Insurance.
Federal Deposit Insurance Company (FDIC)
Government corporation that provides deposit insurance to U.S. banks.
Federal Flood Insurance
Insurance sold by private insurers with rates subsidized by the federal government to persons who reside in flood zones and whose community joins the program and agrees to establish and enforce flood control and land-use measures.
Federally Qualified Health Center (FQHC)
FQHCs are federally funded, community-based healthcare providers that provide primary care services to under-served areas.
Federal Surety Bond
Type of surety bond required by federal agencies that regulates the actions of business firms. It guarantees that the bonded party will comply with federal standards, pay all taxes or duties accrued, or pay any penalty if the bondholder fails to pay.
Common law defense blocking an injured employee from collecting workers’ compensation benefits if he or she sustained an injury caused in any way by the negligence of a fellow worker.
Fee For Service
A payment model that un-bundles services, so they can be paid separately.
A Fidelity Bond is a form of insurance protection, not to be confused with a surety bond. The fidelity bond covers policyholders for losses that they incur as a result of fraudulent acts by specified individuals. In a bank for example, it usually insures the bank for losses caused by the dishonest acts of its employees.
A person who holds something in trust for another.
Fiduciary Liability Insurance
Fiduciary Liability Insurance protects the fiduciaries from mistakes and wrongful acts. It covers claims arising from: (1) a breach of the responsibilities or duties imposed on a fiduciary such as a plan administrator; or
(2) a negligent act, error, or omission of the administrator or fiduciary. Example: directors, and officers of employee welfare plans (group insurance, pension plans, 401k plans) are covered for actual or alleged wrongful acts.
Final Average Formula
A pension plan formula that bases retirement benefits on earnings during the final few years of employment.
Financial Responsibility Law
A state law that may require motorists to furnish evidence, either before or after involvement in an auto accident (depending on the individual state’s law), of ability to pay for damages up to certain minimum dollar limits. These requirements commonly are met by carrying auto liability insurance with specified minimum limits or more.
A combustion accompanied by a flame or glow, which escapes its normal confines to cause damage.
Coverage designed to protect against losses caused by fire and lightning, plus resultant damage caused by smoke and water.
Fire Legal Liability
Liability of a firm or person for fire or explosion damage caused by negligence of and damage to property of others. Coverage is needed for leased or rented property for which the insured could be held legally liable for damage to the property.
First Party Claim
A demand for payment under an insurance policy made by a policyholder reporting an insured event directly to his company.
First Party Coverage
An insurance coverage under which the policyholder collects for losses from the insured‘s own insurer rather than from the insurer of the person who caused an accident.
One of the Big Three credit rating agencies that analyze the financial strength of companies in the insurance industry.
Fixed Amount Option
Life insurance settlement option in which the policy proceeds are paid out in fixed amounts.
Annuity whose periodic payment is a guaranteed fixed amount.
Fixed Period Option
Life insurance settlement option in which the policy proceeds are paid out in fixed amounts.
A type of schedule in group insurance under which everyone is insured for the same benefits regardless of salary, position, or other circumstances.
Type of rating law in which prior approval of the rates is required only if the rates exceed a certain percentage above and below the rates previously filed. · Floaters: Insurance policies designed to cover property that can be moved from one location to another for both transportation perils and perils affecting property at a fixed location.
Flexible Benefits Plan
Plans that employees can use to pay for out-of-pocket health or dependent care expenses. Plans include retirement benefits, reimbursement accounts, health insurance and others.
Flexible Premium Annuity
Also known as a Flexible Premium Policy. A life insurance policy or annuity under which the policyholder or contract holder may vary the amounts or timing of premium payments.
Flexible Premium Policy
See Flexible Premium Annuity.
Flexible Premium Variable Life Insurance
A life insurance policy that combines the premium flexibility feature of universal life insurance with the equity-based benefit feature of variable life insurance.
Flexible Spending Account (FSA)
Also known as a flexible spending arrangement, is an account that you contribute tax-free dollars to, and can use to pay certain out-of-pocket healthcare costs.
Insurance policies designed to cover property that can be moved from one location to another for both transportation perils and perils affecting property at a fixed location.
Coverage against loss resulting from the flood peril, widely available at low cost under a program developed by the private industry and the federal government.
An insurer is a foreign company in any state other than the one in which it is incorporated. See also Domestic Insurer, Alien Insurer.
Amounts contributed on behalf of terminated, non-vested participants. In a pension plan, such amounts must be applied to reducing future employer contributions. In a profit-sharing plan, such amounts may be allocated to the accounts of remaining participants.
Forgery Coverage Form
Commercial crime insurance form by the Insurance Services Office that covers loss resulting from the forgery or alteration of checks, drafts, bills of exchange, promissory notes, and similar instruments.
Coverage designed to protect from loss sustained through forgery or alteration of outgoing negotiable instruments made or drawn by or on the accounts of the insured, or made or drawn by one acting as the insured’s agent. This includes loss caused by (1) checks or drafts made or drawn in the insured’s name, payable to a fictitious entity,
(2) checks or drafts, including payroll checks, executed through forged endorsements, and
(3) alteration of the amount of a check or draft.
A list of medicines.
Unforeseen and unexpected loss that occurs as a result of chance.
Deductible commonly found in marine insurance contracts in which the insurer has no liability if the loss is under a certain amount, but once this amount is exceeded, the entire loss is paid in full.
Insurance under individual contracts issued to the employees of a common employer or the members of an association under an arrangement by which the employer or association agrees to collect the premiums and remit them to the insurer.
A cooperative type of insurance provided by social organizations for their members.
Fraternal Life Insurance
Life insurance provided by fraternal orders or societies to their members.
A social organization that provides insurance for its members.
A domestic insurance company that provides claims or administrative services to a captive.
Full Coverage typically refers to an auto policy which has comprehensive, collision, and liability coverage, and every insurance company usually has its own definition for it.
Insured status of a covered person under the Old-Age, Survivors, and Disability Insurance (OASDI) program if he or she meets certain criteria: forty quarters of coverage or one quarter of coverage for each year after 1950 (or after age twenty-one, if later) up to the year of death, disability or attainment of age sixty-two.
Funded Retirement Plan
A plan under which funds are set aside in advance to provide expected benefits.
A financial institution or individual that provides for the accumulation or administration of the pension contributions that will be used to pay pension benefits.
An insurance contract or trust agreement that states the terms under which the funding agency will accumulate, administer, and disburse pension funds.
Future Increase Option
A provision found in some policies that allows the insured to purchase additional disability income insurance at specified future dates regardless of the insured’s physical condition.
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