Insurance Handbook

(Draft)

Released On:

Table Of Contents:

1. INTRODUCTION...........................................................................4
1.1 WHAT IS INSURANCE?.............................................................................4
1.2 WHY IS INSURANCE REQUIRED?..................................................................4
1.3 TYPES OF INSURANCE - BASIS OF CLASSIFICATION...........................................5
2. HOW INSURANCE WORKS?..........................................................6
2.1 HOW ARE PREMIUMS DECIDED?..................................................................6
2.2 WHAT DO INSURANCE COMPANIES DO WITH THE PREMIUMS THEY COLLECT?..............6
3. MOST FREQUENTLY USED TERMS.................................................7

4. INSURANCE LIFE CYCLE.............................................................11

4.1 SELLING INSURANCE:............................................................................12
4.2 UNDERWRITING:..................................................................................13
4.3 RATING SYSTEM:.................................................................................14
4.4 POLICY ISSUANCE:...............................................................................14
4.5 BILLING OF THE PREMIUM:......................................................................14
4.5.1 Producer Billing (Agency Billing)..................................................................14
4.5.2 Direct Billing.............................................................................................14
4.6 REINSURANCE:....................................................................................15
4.6.1 Proportional contracts:...............................................................................15
4.6.2 Non-proportional contracts:........................................................................15
4.6.3 Facultative:..............................................................................................16
4.6.4 Treaty:....................................................................................................16
4.7 CANCELLATION OF INSURANCE..................................................................17
4.7.1 Flat Cancellation:......................................................................................17
 4.7.2 Pro-Rata/ Short-Rate Cancellation...............................................................17
4.8 CLAIMS.............................................................................................17
4.9 POLICY RENEWAL.................................................................................20
5. TYPES OF INSURERS..................................................................21
5.1 PRIVATE INSURERS...............................................................................21
5.1.1 Stock Insurance companies:.......................................................................21
5.1.2 Mutual Insurance Companies:.....................................................................21
5.1.3 Captive Insurance Companies:....................................................................21
5.1.4 Reinsurance Companies.............................................................................21
5.1.5 Lloyds Associations....................................................................................21
5.2 FEDERAL AND STATE GOVERNMENT INSURANCE PROGRAMS................................21
5.2.1 Flood Insurance........................................................................................21
5.2.2 Crop Insurance.........................................................................................22
5.2.3 Workers Compensation Insurance...............................................................22

6. TYPES OF INSURANCE................................................................23
6.1 AUTO INSURANCE.................................................................................23
6.2 LIFE INSURANCE..................................................................................24
6.3 HEALTH INSURANCE..............................................................................24
6.4 HOME INSURANCE................................................................................25
6.5 DISABILITY INSURANCE..........................................................................26
6.6 PROPERTY INSURANCE...........................................................................26
6.7 BUSINESS INSURANCE...........................................................................27
6.8 OTHERS............................................................................................27
6.8.1 Umbrella Liability Insurance........................................................................27
6.8.2 Annuity Insurance.....................................................................................28
6.8.3 Travel Insurance.......................................................................................28
6.8.4 War and Terrorism Insurance......................................................................29
6.8.5 Motorcycle, RV or Boat Insurance................................................................29

7. INSURANCE PRODUCTS..............................................................30
7.1 AUTO INSURANCE PRODUCTS...................................................................30
7.1.1 Bodily Injury Liability.................................................................................30
7.1.2 Medical Payments or Personal Injury Protection (PIP).....................................30
7.1.3 Property Damage Liability...........................................................................30
7.1.4 Collision...................................................................................................30
7.1.5 Comprehensive ........................................................................................31
7.1.6 Uninsured and Underinsured Motorist Coverage............................................31
7.2 LIFE INSURANCE..................................................................................31
7.2.1 Term Life Insurance...................................................................................31
7.2.1.1 Renewable term insurance....................................................................31
7.2.1.2 Convertible Term Insurance..................................................................32
7.2.1.3 Level Term Insurance...........................................................................32
7.2.1.4 Decreasing Term Insurance...................................................................32
7.2.1.5 Increasing Term Insurance....................................................................32
7.2.2 Permanent Insurance.................................................................................32
7.2.2.1 Whole life or Ordinary Life.....................................................................32
7.2.2.2 Adjustable life insurance.......................................................................32
7.2.2.3 Universal life.......................................................................................32
7.2.2.4 Variable life.........................................................................................33
7.3 HEALTH INSURANCE..............................................................................33
7.3.1 Traditional Indemnity (fee for service).........................................................33
7.3.2 Managed care plans...................................................................................33

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 7.3.2.1 Health Maintenance Organizations (HMO)...............................................34
7.3.2.2 Preferred Provider Organizations (PPO)...................................................34
7.3.2.3 Point-Of-Service (POS).........................................................................34
7.4 PERSONAL PROPERTY INSURANCE..............................................................35
7.4.1 Home Owners Insurance............................................................................35
7.4.1.1 The structure of your house..................................................................35
7.4.1.2 Your personal Belongings......................................................................35
7.4.1.3 Liability protection...............................................................................35
7.4.1.4 Additional living expenses.....................................................................35
7.4.2 Umbrella or excess liability policy................................................................36
7.4.3 No-fault medical coverage..........................................................................36
7.4.4 Guaranteed or extended replacement cost....................................................36
7.5 COMMERCIAL PROPERTY INSURANCE:..........................................................37
7.5.1 Bailees Customer Insurance Coverage.........................................................37
7.6 BUSINESS POLICY INSURANCE..................................................................37
7.6.1 Business owner’s policy (BOP):...................................................................37
7.6.2 Business interruption insurance:.................................................................37
7.6.3 Extra Expenses Insurance..........................................................................38
7.6.4 Employee Dishonesty Insurance:.................................................................38
7.6.5 Employment Practices Liability Insurance (EPLI):..........................................38
7.6.6 Fiduciary Liability Insurance........................................................................39
7.6.7 Miscellaneous Professional Liability Insurance (MPL)......................................39
7.6.8 Property Managers Errors And Omissions.....................................................40
7.6.9 Nonprofit Directors and Officers (D&O) Liability Insurance (DONP)..................40
7.6.10 For Profit Directors and Officers Liability (DO)............................................40
7.6.11 Worker’s Compensation...........................................................................41
7.6.12 Limited Liability Companies, Partnerships, Etc............................................41
7.6.13 Accounts Receivable................................................................................42
7.6.14 Package policy.......................................................................................42

8. APPENDIX - INSURANCE PRODUCTS..........................................43

9. GLOSSARY..................................................................................48

REFERENCES...................................................................................78
10.1 REFERENCE SITES:...............................................................................78
10.2 REFERENCE BOOKS...............................................................................78

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1. Introduction

1 What is Insurance?
Insurance is a system by which a person, business, or organization transfers a risk to the
insurance company, which reimburses the insured for covered losses. A risk could include
events like your house burning down, your car being pulverized, or your spouse and
children being left to fend for them because a bus hit you.

The three vital elements of insurance are:

 Risk: Everyone is subject to risks all the time; there is always a possibility of a financial
loss by accidents, calamities, etc. Insurance helps reduce uncertainty about the
possibility of financial losses.
 Transfer: Through insurance, a risk is transferred from an insured to an insurance
company.
 Sharing: In effect, all the people insured by an insurance share the costs of losses to
other people. They pay premiums to the insurance company, which pools the premiums
into a large fund. Insured people who suffer losses are paid from this pool of money.

For instance, Bill pays $1000 to insure his car for one year. He is aware that the risk of an
accident anytime in the future would cause him a large financial loss. Fortunately, Bill has
no accidents.

Similarly, William also pays $1,000 to insure his car. During a rainstorm, his car skids into
another car, and he is injured. William's auto insurance pays $2,250 to repair his car,
$4,200 to repair the other car, and $5,000 for William's medical bills.

The insurance company can pay this loss because it has collected adequate premiums from
Bill and many other people who bought insurance that did not have losses. In effect, all of
the premiums went into a pool from which William's loss was paid; in this sense, Bill and
others shared the cost of William's loss.

A person could insure himself against many kinds of risks with various types of
insurance, such as property and liability insurance, auto insurance, life insurance, health
insurance, and many others.

2 Why is insurance required?

The emotional losses due to any undesirable event cannot be recovered, but you still
need to move ahead in life. For this you should be able to recover financial losses that
you may incur due to any loss. Insurance helps you to do just that.

 Every person who owns a home faces the risk of his/her home being destroyed partially
or totally by a fire, tornado, or some other cause. The cost of repairing or replacing the
home and its contents could easily amount to thousands of dollars.
 A manufacturer could be held legally liable for the costs of damage to someone else's
property or bodily injury, if defects in the manufacturer's products cause the damage.
 By transferring risks to insurance companies, people exchange the possibility of losses
with potentially devastating financial effects for smaller, certain and manageable costs
(insurance premiums).
 Anxiety is reduced if the insured knows insurance will provide indemnification when a
loss occurs. Even if a loss never occurs, insurance reduces worry.

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 Moreover, insurance exists to pay the losses that result from accidents. Insurance
companies are naturally interested in lowering the costs of accidental losses. The
insurers engage in a variety of accident prevention activities that prevent accidents
from happening. Society benefits when losses are controlled - lives are saved.

3 Types of Insurance - Basis of Classification

There are several ways in which the various kinds of insurance can be classified.

1. Insurance protecting individuals, insurance protecting business organizations

2. Voluntary or involuntary, depending upon whether or not it is required by law.
3. Insurance protecting against loss of income (by death, disability or unemployment)
insurance that pays for damage to property.
4. Insurance provided by private insurance companies, insurance provided by the
Government.

Insurance

Private Government

Life Health Property Social Unemploym

Liability Security ent

Medical Disability Property Liability

Life Expense Income Insurance Insurance
Insurance Insurance Insurance

Annuities

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2. How Insurance works?

An insurance company sells insurance policies that protect the insured against financial
hardship caused by financial losses. Insurers accept the risks of insured, collect premiums,
and pay losses.

The funds used by the insurance company to pay for the various costs are generated from
the following sources:
 Investments made by stockholders who have purchased shares of stock insurance
companies.
 Premiums from policyholders
 Profits from investments that the insurer makes for generating profits and contingency
allowances.

4 How are premiums decided?

The insurance company identifies the loss exposures (situations that could lead to an
accidental loss) faced by the consumer and decides whether to insure the prospect and if
yes, then decides the premium for the policy.
Premiums are based on rates; rates are prices per unit of exposure. Exposure units are the
quantitative units used in insurance pricing.
Premium = RATE * EXPOSURE UNITS.

5 What do insurance companies do with the premiums they

collect?
Insurance companies basically do three things with the premiums they receive from
policyholders:
 Pay Claims: About 80% of the premium income collected by insurance companies is
used to pay claims and the expenses of handling them.
 Pay expenses: About 20% of the premium incomes of the insurance companies are
spent to cover the costs of operations necessary to sell, issue, and service insurance
policies.
 Generate Profits and Contingency allowances: Money that is left over, after paying
claims and expenses, serves to build a fund for contingencies and also to pay dividends
to the insurance company's stockholders or policyholders.

The insurance company uses some ratios to determine whether it is financially successful.
These ratios are:
Loss Ratio: The percent of premiums that goes to pay claims.
Expense Ratio: The percent of premiums that goes to pay the insurance company's
operating expenses.
Combined Loss and expense ratio: Sum of the loss and expense ratio.

When the combined ratio is greater than 100 percent, an underwriting loss occurs,
otherwise an underwriting profit occurs.

In the case of an underwriting loss, staffs underwriters find out the causes by evaluating
the underwriting guide and changes are made to the guide.

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3. Most Frequently Used Terms

Actuary
An insurance professional skilled in the analysis, evaluation, and management of statistical
information. Evaluates insurance firms’ reserves, determines rates and rating methods, and
determines other business and financial risks.

Adjuster
An individual employed by a property/casualty insurer to evaluate losses and settle
policyholder claims. These adjusters differ from public adjusters, who negotiate with
insurers on behalf of policyholders, and receive a portion of a claims settlement.
Independent adjusters are independent contractors who adjust claims for different
insurance companies

Annuity
A life insurance company contract that pays periodic income benefits for a specific period of
time or over the course of the annuitant’s lifetime. These payments can be made annually,
quarterly or monthly.

Broker
One who represents an insured in the solicitation, negotiation or procurement of contracts
of insurance, and who may render services incidental to those functions. By law the broker
may also be an agent of the insurer for certain purposes such as delivery of the policy or
collection of the premium.

Claim
A demand made by the insured, or the insured's beneficiary, for payment of the benefits
provided by the contract.

Claimant
A claimant is the person who has suffered a loss and is claiming for the loss from the
insurance company.

Coinsurance
In property insurance, requires the policyholder to carry insurance equal to a specified
percentage of the value of property to receive full payment on a loss. For health insurance,
it is a percentage of each claim above the deductible paid by the policyholder. For a 20
percent health insurance coinsurance clause, the policyholder pays for the deductible plus
20 percent of his covered losses. After paying 80 percent of losses up to a specified ceiling,
the insurer starts paying 100 percent of losses.

Coverage
The scope of the protection provided under a contract of insurance

Declaration
Part of a property or liability insurance policy that states the name and address of
policyholder, property insured, its location and description, the policy period, premiums,
and supplemental information. Referred to as the “dec page.”

Deductible
The portion of an insured loss to be borne by the insured before he is entitled to recovery
from the insurer.

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Dividend
(1) The return of part of the premium paid for a policy issued on a participating basis by
either a mutual or a stock insurer.
(2) A portion of the surplus paid to the stockholders of a corporation.
(3) Life insurance policies that pay dividends are called participating policies

Exclusion
A provision in an insurance policy that eliminates coverage for certain risks, people,
property classes, or locations.

Form and Endorsement A preprinted document, often several pages long, containing
standard wording that makes up the bulk of an insurance policy is called a form. A
document used to amend the coverage in an otherwise complete policy is called an
endorsement. For example, a form might contain a clause stating that a $500 deductible
applies; an endorsement might amend this to provide a $1000 deductible in exchange of a
reduced premium.

Incurred Losses
Account of money paid out for claims, and money in reserve for known outstanding losses
and incurred but not reported losses (IBNR). For example: The incurred loss for a insurer
for a period of 3 months would include the claim amounts paid by the insurer in that
period, as well as the losses that have occurred but not reported by it's clients within those
3 months, and those claims that have been reported but are still in process of being closed.

Indemnify
To restore the victim of a loss to the same position as before the loss occurred.

Insurance
A contractual relationship which exists when one party (the insurer), for a consideration
(the premium), agrees to reimburse another party (the insured) for loss to a specified
subject (the risk) caused by designated contingencies (hazards) or perils. The term
“assurance” commonly used in England is ordinarily considered identical to, and
synonymous with, “insurance.”

Insurance Company
An organization chartered under state or provincial laws to act as an insurer. Many
company charters have now been broadened to include several types of insurance.

Insured
The party to an insurance arrangement whom the insurer agrees to indemnify for losses,
provide benefits for, or render services to. This term is preferred to such terms as
policyholder, policy owner, and assured

Layering
The building of an insurance contract by steps, utilizing the excess of loss approach,
whereby one insurer writes in excess of lower limits accepted by other carriers. . For
example: For a policy with limit of $4,000, an insurer 'A' agrees to pay for all losses below
$1,000 for a client and a reinsurer 'B' agrees to pay for losses above the $1,000 limit of
insurer 'A'. Thus if a client incurs a loss of $3,000, 'A' would pay $1,000 and 'B' would pay
$2,000 for the loss suffered by the client. Any number of reinsurer could participate in such
layering.

Liability Liabilities are financial obligations, such as unpaid debts, bills that come due in
the future, loss reserves, and unearned premium reserves. A person, organization, or
group of people is legally responsible, or liable for, the injury or damage suffered by
another person, organization, or group of people.

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Limits
Maximum amount of insurance that can be paid for a covered loss

Line of Business
Type or kind of insurance offered by carriers. The general classification of business as
utilized in the insurance industry, e.g., Personal, Fire, and Homeowners.
The general classification of business as utilized in the insurance industry, e.g., Fire, Allied
Lines and Homeowners.

Loss
Generally refers to (1) the amount of reduction in the value of an insured's property caused
by an insured peril, (2) the amount sought through an insured's claim, or (3) the amount
paid on behalf of an insured under an insurance contract.

Package Policy
A single insurance policy that includes several coverages. For example, a Homeowners
Policy includes both property and liability coverages.

Policy
The written statement of a contract effecting insurance, or certificates thereof, by whatever
name called, and including all clauses, riders, endorsements, and papers attached thereto
and made a part thereof

Policy Form
Most states require filing their policy forms with the state insurance department in manner
similar to the method used for rate filings. Whenever the insurance company wishes to
change the wording of a particular policy, the new form must be resubmitted for approval.
By checking the language in policies, the state insurance department prevents insurers
from including unfair provisions in policies.

Premium
The sum paid for an insurance policy. Net premium written represents premium retained
by insurance companies, direct or after insurance transactions. Direct written premiums
are the amounts actually paid by policyholders.

Producer
A term applied to an agent, solicitor or other person who sells insurance

Quote
A quote, or quotation is a statement regarding the premium that will be charged for certain
coverage. A quote is given to the prospective client after the producer and underwriter
evaluate the risk factors.

Reinsurance
An agreement by one insurer (the primary insurer) with another insurer (the reinsurer)
with which a risk is shared is called reinsurance. Reinsurance is a risk sharing mechanism
for an insurer.

Renewal
The reestablishment of the in-force status of a policy, the term of which has expired or will
expire unless it is renewed.

Retention
(a) The amount of liability assumed but not reinsured by an insurance company.

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(b) A risk management form which means to retain a risk rather than insuring or
transferring it.

Risk
The uncertainty of loss. Loss may include loss of property, life, illness or bodily injury.
Risk is often used to describe something the company is insuring, such as a person, home,
an airplane or automobile.

Self-Insurance
Making financial preparations to meet pure risks by appropriating sufficient funds in
advance to meet estimated losses, including enough to cover possible losses in excess of
those estimated. Few organizations are large or dispersed enough to make this a sound
alternative to insurance.

Self-Insured Retention (SIR)

An amount of liability for a given risk or exposure which is assumed or retained by the
insured.

Submission
The package of information that will go to the underwriter as part of a request for a quote
(or a request to for insurance). An application is usually the most important part of the
submission

Underwriter
A technician trained in evaluating risks and determining rates and coverages for them. The
term derives from the practice at Lloyd's of each person willing to accept a portion of the
risk writing his name under the description of the risk.

Workers Compensation
Insurance that pays for medical care and physical rehabilitation of injured workers and
helps to replace lost wages while they are unable to work.

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4. Insurance Life Cycle

The insurance policy life cycle involves the following necessary activities:
 Selling Insurance
 Underwrite the policy
 Rating of policy
 Policy Issuance
 Billing of the premium
 Reinsure the policy
 Policy cancellation
 Renewal of the policy
 Claims

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6 Selling Insurance:
The first step in getting a policy written is to convince people to purchase and pay for a
promise of protection and security. The person who sells insurance is called a Producer
(also referred to as insurance agent, insurance broker, and sales representative). A
producer may sell for only one company and might be an employee of that company, or
may sell insurance for many different insurers and work as independent
businessperson.

A producer participates in the insurance life cycle for the following:

 Helps a prospective client decide whether certain types of insurance should be
purchased. The producer also helps clients by pointing out what other insurance is
available.
 Identify the loss exposures faced by the consumer. Producers, to help identify their
business clients’ loss exposure, often use inspections of the business operation and
detailed survey questionnaires.
 Select insurance policies that will cover the exposures identified earlier.
 Answer the clients’ queries, resolve billing problems, and handle changing insurance
requirements, such as changes in covered cars or insured drivers.
 Producer can also act as Claim adjuster

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7 Underwriting:
The Submission materials provide the first information used by the underwriter. An
underwriter evaluates requests for insurance. Underwriters determine which
applicants for insurance are accepted and which are rejected. If an application is
accepted, the underwriter also determines how much coverage the insurer is willing to
provide and at what price.

Example:
For Bill the premium is $3,000, Limit is $20,000 and Deductible is $500

Endorsements can be used to amend the coverage that are the rules set up by the
state authority for insurance business.
All Policies need not have endorsements. Endorsements are basically attachments to
the policy that specifies any difference in the coverage than those mentioned in the
standard pre-printed form

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8 Rating System:
Rating System is used by most of the insurance company for calculating premium
amounts using the submission information. After getting policy and premium level
Information from Underwriter, the Rating system validates the policy information sent
by various underwriting system for the edit rules as imposed by corporate (Insurance
Company) and also the rules set up by the state authority for insurance business.
Premium depends upon the information given by the insured
For E.g. if one wants to insure his business against war and terrorism then the amount
of premium will go high.
Rating methods may vary according to the underwriter making the quotation, all
underwriters observe some general principles to arrive at a premium which ware as
follows:
1. The normal amount of losses to be expected on the cover.
2. A reserve towards a worsening of the loss experience.
3. Provision for the catastrophe loss.
4. Acquisition costs
5. A margin for profit.

9 Policy Issuance:
Producer prepares an insurance proposal that highlights the important features of the
proposed coverage and related services and states the premium. The producer presents
the proposal to the client and if the quote is favorable for the client, the sale concludes
and the policy is issued to the client.
Policy issue involves following steps:
 The policy declarations must be computer printed or typed,
 The policy declarations must be combined with the appropriate printed forms and
endorsements,
 The assembled policy must be checked for accuracy.
 Copies must be distributed to the policyholder and other parties.

10 Billing of the premium:

The Billing can be broadly divided into the following Categories:

 Producer Billing (Agency Billing)
 Direct Billing

4.1.1 Producer Billing (Agency Billing)

This type of billing is directly prepared at the Producers office. The Bill Normally
indicates the insurance premium that is due till date.
Insurance Company bills the producer for the premiums due on all the policies the
producer has sold.

4.1.2 Direct Billing

In this the policyholder is billed directly from the insurance company, and the
payment of premium is also done to the insurance company.
On the other hand the insurance company pays commission or other compensation
for producing new business and servicing renewal business to the producer on a
monthly check basis.

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11 Reinsurance:
Reinsurance can be defined as sharing the risk with other Insurance company's i.e.
Insurance of Insurance.

 A Letter Of Credit from Bank is required for Reinsurer to be eligible for Reinsurance.
 This allows Insurance Company to insure large risks.
 An insurance company buys reinsurance for the same reasons that individuals and
businesses purchase insurance to reduce uncertainty by transferring some risks and
sharing losses.
 Using reinsurance, one insurance company can transfer some of the risk to another
insurance company, and it will pay a portion of the premium to the reinsurer who
shares the risk.
 However, policyholders are seldom aware of the transaction. In fact, they have little
need to think about reinsurance since they will look to their own insurance company
to pay any claims. Their insurance company will directly pay any claims under a
reinsured policy. However, the insurer will share the cost of "reinsured" losses with
the reinsurer.

Reinsurance can be classified under various Heads viz:

 Proportional/pro-data and non-proportional contracts
 Facultative and Treaty.
 Reciprocal and non-reciprocal
 Marine and non-marine treaties.
 Inward and outward treaties/facultative.

4.1.3 Proportional contracts:

These are contracts where in the event of a loss; the amounts payable by a direct
insurer and the reinsurer are in proportions, which are arranged before the loss.
A quota share reinsurance treaty is a reinsurance contract that provides protection
on a proportional basis.

Example:
In this the ceding company signs a contract with the reinsurer before loss which
states that in an event of loss the loss will be shared by both the company in 1:3
ratio. That is out of total loss ceding company will be the 25% and reinsurer will pay
75%

Loss Insured Ceding company Reinsurer

$20000 $500 $3750 $11250

4.1.4 Non-proportional contracts:

In these contracts, the distribution of liability between the ceding company and the
reinsurer are on the basis of losses rather than sums insured. The reinsurer is
responsible for the amounts of losses incurred by the ceding company in excess of
certain pre-determined figure up to a stated amount.

Example:
Bill has a loss of $20000
The ceding company wants to keep the first $5000 of loss, but would like to
reinsure losses above $5000. The ceding company may purchase an excess-of-loss
reinsurance treaty where the reinsurers cover 100% of all losses in excess of $5000
up to $500,000. Here, the reinsurance is not on a proportional basis as the
reinsurers only pay losses when a certain attachment point is breached.

Loss Insured Ceding Company Reinsurer

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 $20000 $500 $5000 $14500

Similarly when Bill has a loss of $5000:

Loss Insured Ceding Company Reinsurer
$5000 $500 $4500 -

4.1.5 Facultative:
In this type reinsurer has the option accept or decline any risk offered to him.
Facultative reinsurance plays an important role in large risks and classes like space,
oil risks.
This type of reinsurance is used when the automatic covers in the form of treaties
are fully utilized with a balance of the risk still to be reinsured.

4.1.6 Treaty:

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 In this type, reinsurer is obliged to accept cessions within the scope of the
agreement. Any number of risks can be ceded within the scope of the treaty and no
individual details are provided, except as agreed.
This type of reinsurance is useful for a small company or when a company starts
writing business in a new class or a new territory for which there are no previous
statistics.
Treaties may be either proportional or non-proportional.
Now if John (Underwriter) feels that the risk in insuring Bill’s (client) car is too high
then he reinsures the associated risk with other insurance companies thus sharing
the risk with other Insurance companies.

12 Cancellation of Insurance.
Either Insured or Insurer can cancel a policy.

Insurance companies can cancel an issued policy in following situations:

 If insured fail to pay the premium.
 Insured has committed fraud or made serious misrepresentations on application.

There can be many reasons why an Insured will cancel a policy, like poor service,
better offer, problems in claim settlement etc.

In order to determine settlement amounts, there are few types of cancellation:

4.1.7 Flat Cancellation:

It is the cancellation of a policy as of its effective date, without any premium
charge.

Example:
If Bill’s policy is to be flat-canceled, he will receive entire $3,000 back.

4.1.8 Pro-Rata/ Short-Rate Cancellation

When the policy is terminated midterm by the insurance company, the earned
premium is calculated only for the period coverage was provided.

Example:
If Bill decides to cancel his policy 6 months after in effect, he will receive $1500
back from the insurance co.

13 Claims
Claims are a demand by a person or business seeking to recover for a loss. A claim can
be made against a person; a claim can be made against an insurance company when the
insured asks the insurance company to pay for a loss that might be covered by an
insurance policy

-----------------------------------------------------------------------------------------

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Claimant:
A Claimant is anyone who presents a claim. He/she needs to notify the insurer as
soon as possible. Investigation of the claim can best take place when the evidence is
fresh. This is one of the responsibilities of the Insured as mentioned in the Insurance
Policy.

Claims Adjuster:
The person who is directly responsible for investigating and settling insurance claims
is known as a Claims Adjuster.
A claim adjuster’s job is to:
 Settle claim quickly and fairly
 Contact claimant in order to pay “covered losses” as soon as possible
 Protect the interest of the insurance company by making sure that claims that are
not covered are not paid and covered claims are paid are only to the extent
promised by the insurance company.

A Claims Adjuster needs to find out:

 Does the Insurance policy covers the claimed losses.

 How much will be paid according to the policy

The factors that need to be considered in calculating the amount to be paid are.
 Policy limits: indicates the maximum amount that will be paid.

18
 Loss valuation procedure: indicates the procedure that will be used to place a
value on damaged property.
 Deductibles: The amount that is to be deducted from the claim amount.

Types of Adjusters:

Insurance Company Claims Representative:

Full time employees of the insurance company handle most claims. Most of them
work from a branch or a regional office. There may be separate claims offices, if the
branch covers larger territory.
Claims adjusters from branch office will report claim information to home office.

Independent Adjusters:
These are independent contractors who provide claims services to various insurance
companies. Independent or Third Party Adjusters (TPA), as they are also known,
charge insurance companies a fee for each claim that they handle.
Independent Adjusters may be needed for following situations/reasons:
 Employees are already too busy to handle all the claims. For example, in a big
disaster situation when few hundreds or even thousands of claims will be filed.
 Some special skills are needed, such as investigating aircraft accidents.
 Setting up remote office is not cost-effective
 To perform all the field activity, like preparing accident report.

Producers as Adjusters:
In some cases, producers themselves will settle the claim, may be only claims not
exceeding certain amounts. Producer has to decide which category the claim falls:
 Loss is not covered:
For example, insured might inform producer for claim due to collision. Producer
discovers that the policy does not cover collision insurance.

 Coverage amount is within deductible:

Insured has incurred loss of $400. Where as, the deductible for the insurance
policy is $500. Entire claim amount will be paid by the insured.

 Loss is covered:
Producer sets up the claims file and informs the insurance company claims
department.

Claim File:
A claim file is a record of the claim, which is created when a claim is made. Format
and information to capture in Claim file is more or less standardized for each type of
coverage. This makes it easier for all the related parties to find out the required
information easily.

Coverage Verification and Loss Investigation:

After receiving the claim file, the insurance company assigns a person to verify the
policy coverage to make sure that the claim is covered by the insurance in effect.
Next thing is to investigate the accident to get the facts. Accident report form is
prepared and all the evidences or supporting are gathered as required.

Subrogation:
The process of recovering the loss payments is called subrogation.
When the insurer pays the insured for a loss, the insurer takes over the insured’s
right to collect damages from any other person responsible for the loss.

19
 Otherwise, if an insured could collect from his or her own insurance company and
also from the party responsible for the accident.
The insurance companies overcome this potential problem by stating that the
insurance company takes over the right of recovery.

After confirming the claim, the insurance company pays the outstanding amounts to
the concerned parties.

Example:
As we know, for Bill the premium is $3,000, Limit is $20,000 and Deductible is $500

Following is the explanation for Bill:

Loss Amount Insurer Paid Insured Paid
$400 (< Deductible) 0 $400
$10,000 (>Deductible And < Limit) $9,500 $500
$21,000 (> Limit) $20,000 $1,000

14 Policy Renewal
This refers to continuing the policy in force for another period after the expiration of its
present term.
Underwriting a policy for renewal is very similar as a new business for the underwriter.
The underwriter studies the previous claims history (if any) for the policy to be renewed.
And also find more information about the past Coverage period.
Whether the Coverage previously provided still continues in the region (State)
Once the policy is renewed and before the premium for the renewed policy is
Issued the old policy should have premium auditing done.
A premium auditor examines the policyholder’s records at the end of the policy period to
determine the audited premium.
Underwriter gets a notification 30-90 days prior to policy expiration.

20
5. Types of Insurers

15 Private Insurers

5.1.1 Stock Insurance companies:

Owned by the stockholders, who have invested in the company by purchasing
shares of stock. Their reason for making this investment is to earn a return on the
investment. They receive a share of the profits earned by the insurance company’s
underwriting and investment activities. Stock Insurance companies profits
distributed to stockholders are referred to as dividends.

5.1.2 Mutual Insurance Companies:

Owned by their policyholders. Profits earned by a mutual insurance company might
be returned to policyholders. Mutual Insurance companies profits distributed to
stockholders are also referred to as dividends.

5.1.3 Captive Insurance Companies:

It is an insurance company owned and operated by the corporation it insures. Some
captives are owned by more than one corporation, in which case the owners, to
some extent share each other’s losses.

5.1.4 Reinsurance Companies

It is an insurance company that shares the risk in an agreement with the primary
insurance company. This is done to reduce uncertainty by transferring some risks
and sharing losses. Using reinsurance one insurance company can transfer (‘cede’)
some of the risk to another insurance company and it will pay a portion of the
premium to the reinsurer, who shares the risk.
To policyholder all this is transparent. The insurance company will pay their claims.
The insurer will share the cost of “reinsured” losses with the reinsurer.

5.1.5 Lloyds Associations

Corporation formed to market services of a group of underwriters. Does not issue
insurance policies or provide insurance protection. Individual underwriters, with
each assuming a part of every risk write insurance.

16 Federal and State Government Insurance Programs

5.1.6 Flood Insurance

Federal government-sponsored program under which flood insurance is sold to
homeowners and businesses.
Coverage for flood damage is available from the federal government under the
National Flood Insurance Program but is sold by licensed insurance agents.

21
5.1.7 Crop Insurance
Protection against damage to growing crops from hail, fire, or lightning provided by
the private market. By contrast, multiple peril crop insurance covers a wider range
of yield-reducing conditions, such as drought and insect infestation, and is
subsidized by the federal government.

5.1.8 Workers Compensation Insurance

Insurance that pays for medical care and physical rehabilitation of injured workers
and helps to replace lost wages while they are unable to work. State laws, which
vary significantly, govern the amount of benefits paid and other compensation
provisions.

22
6. Types Of Insurance

17 Auto Insurance
If you drive, you know how crazy it gets out there. Accidents happen, fenders get bent,
people get hurt. Or you're innocently parked in your driveway and a tree limb crashes
through your windshield. When disaster strikes, auto insurance is there to protect you.

Auto insurance provides property, liability and medical coverage:

 Property coverage pays for damage to or theft of your car.

 Liability coverage pays for your legal responsibility to others for bodily injury or
property damage.
 Medical coverage pays for the cost of treating injuries, rehabilitation and
sometimes-lost wages and funeral expenses.

Why to buy auto insurance?

 Auto insurance protects you against the financial risk associated with personal
injuries and property damage caused by auto accidents, theft, vandalism, or natural
disasters.

 All states require you to purchase at least a minimum amount of liability coverage.
Other types of auto insurance coverage may be optional or required, depending on
state regulations.

 If you have a car loan outstanding, you'll generally be required by the lender to
purchase at least a minimum amount of auto insurance.

You'll be required by state law to purchase a minimum amount of some or all types of
coverages. The different coverages are explained in detail at Types of coverages.

Here are some things you'll always need to cover yourself:

 Deductibles: The amount of money that you've agreed to pay out of your own
pocket before your insurance coverage kicks in.

 Exclusions: Events or situations your policy specifically omits from coverage,

such as property damage or personal injury you intentionally cause to others, or
damage to your own car due to mechanical failure.

 Costs above limitations: Any expenses for which you're responsible that
exceed the caps on the dollar amounts of coverage you're entitled to receive
under your policy.

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18 Life Insurance
The main purpose of life insurance is to provide financial help to your family if you die
unexpectedly. The money your dependents, such as your spouse and children, will receive
from life insurance is called a death benefit.
Having a life insurance policy protects your family from having to sell assets to pay
outstanding bills. Your family will not have to pay federal income taxes on the proceeds of
your life insurance policy. All insurances are classified under two basic categories, Term
and Permanent life insurance.

Why buy life insurance?

While it’s difficult to face our own mortality, planning for it can ease the burden our loved
ones will face later. Purchasing life insurance can help make a difficult situation easier by
providing death benefits for:

 Unpaid medical bills

 Income replacement for survivors
 Final expenses like burial costs
 Unplanned or emergency expenses
 Your mortgage balance
 Future education funds for your children

How much will it cost?

How much you pay for life insurance will depend on a number of risk factors, including your
age, your health, whether you use tobacco, your family health history, and the type and
amount of insurance you're buying.

19 Health Insurance
The rising cost of medical care and the resulting pressure on health insurance premiums
makes health insurance top priority if you want to have your health expenses covered at a
reasonable cost.
Health insurance provides financial security for your family by providing financial resources
for health expenses in times of life's uncertainties. With health insurance, you protect
yourself and your family in case you need medical care that could be very expensive.
Health insurance plans generally fall into one of two categories: indemnity plans (also
known as reimbursement plans) and managed care plans such as health maintenance
organizations (HMOs), preferred provider organizations (PPOs), and point of service (POS)
plans.

Why buy health insurance?

You buy health insurance for the same reason you buy other kinds of insurance, to
protect yourself financially. You can't predict what your medical bills will be. In a good
year, your costs may be low. But if you become ill, your bills could be very high. If you
have insurance, a third-party payer covers many of your costs, not by you. A third-
party payer can be an insurance company or, in some cases, it can be your employer.

24
What should be covered?

A good health insurance policy must contain following types of coverage.

 Hospital expense insurance pays your room, board, and incidental services costs if
you're hospitalized.
 Surgical expense insurance covers surgeons' fees and related costs associated with
surgery.
 Physicians' expense insurance pays for visits to a doctor's office or for a doctor's
hospital visits.
 Major medical insurance offers extremely broad coverage with a very high
maximum benefit that's designed to protect you against losses from catastrophic
illness or injury.

Before going for the policy

Check to see if the health insurance plan you're considering requires you to pay any or
all of the following:
 CO-payment: The amount you'll have to pay each time you visit a health insurance
provider (generally required by HMOs).
 Deductible: The amount you'll have to pay toward your medical expenses (usually
annually) before the insurance company begins to pay claims (generally required by
indemnity plans).
 Coinsurance: The percentage of your medical costs you'll have to pay after you
reach any deductibles that apply.

20 Home Insurance
Homeowners insurance provides financial protection against disasters. A standard policy
insures the home itself and the things you keep in it.
Homeowners insurance is a package policy. This means that it covers both damage to
your property and your liability or legal responsibility for any injuries and property
damage you or members of your family cause to other people. This includes damage
caused by household pets.
Damage caused by most disasters is covered but there are exceptions. The most
significant are damage caused by floods, earthquakes and poor maintenance.
Homeowners’ policies are fairly standard throughout the country.

Why buy home insurance?

Buying a home is one of the single largest investments that most people ever make. If you
need to protect that investment, your main line of defense is homeowners insurance.

What is generally covered?

Most standard policies will provide coverage for damage to your home (and many of the
items in your home) caused by:
 Theft
 Fire and lightning
 Smoke
 Frozen pipes

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  Ice and snow
Homeowners insurance also provides coverage for liability claims, medical payments to
third parties, and legal costs if a lawsuit is brought against you.

What is generally not covered in home insurance?

Most insurers exclude damages caused by an act of war, nuclear accident, flood,
earthquake, and terrorism, although you may be able to purchase special policies or
endorsements that will cover these events.

21 Disability Insurance
Becoming disabled through an injury or sickness can mean a significant loss of income.
Disability insurance is a form of health insurance that provides a person who becomes
disabled with income to cover living expenses that continue in spite of the disability.
There are two types of disability policies:

 Short-term Disability policies (STD)

They have maximum benefit period no longer than two years.

 Long-term Disability policies (LTD)

They have maximum benefit period ranging from a few years to the rest of your life.

Why buy disability insurance?

Although many people own life insurance because they're aware of the risk of dying, most
people ignore the risk of disability. Yet in fact, disability is a greater risk for young people:
between the ages of 25 and 55, you're more than twice as likely to become disabled as you
are to die. Think for a moment about the financial impact on your life if you were unable to
work. Could you live without your salary for six months, a year -- perhaps longer? If not,
you need disability income insurance.

22 Property Insurance
Your home is a significant investment, not only in dollars but in terms of your time and
effort. It makes sense to do everything in your power to protect that investment by
insuring your home and personal property against accidents and unexpected situations.

Property insurance, be it personal property insurance, rental property insurance, or

commercial property insurance, is absolutely vital in the event of a disaster. Without it, you
could lose everything. The different types of property insurance are specified in Types of
Coverages document.

Why buy property insurance?

Property Insurance helps provide peace of mind when:

 Bad things happen.

Simply put, insurance provides a safety net for you and your family when certain
unfortunate events happen like theft, fire, burglary and vandalism…You need liability and
guest medical protection too. For example, if your neighbor slips and falls in your kitchen,
you might need these coverages to help pay for medical expenses.

26
  You need to replace, repair or rebuild.
If your home were destroyed by fire today, you'd need the financial resources to replace or
repair it.

 Your lender requires it.

When you buy your house, you'll probably need to provide your policy "in hand" at your
closing. If you're building a new home, you may need to have special coverage while your
new home is being built.

 You have special items.

Protect more than your home; protect special items such as jewelry, silverware, business
property, cameras, cellular phones and more with extended coverage options.

23 Business Insurance
The success of a business, whether it's a tiny enterprise run out of a basement or a large
corporation, is largely dependent on hard work and ingenuity. However, no matter how
industrious you are, one disaster can wipe out all your profits and even destroy your
business.
The coverage covers employer and employee related coverages. The most frequently used
coverages are specified in the document Types Of Coverages.

Why buy business insurance?

To make sure that all the effort and money you have invested in a business doesn't
disappear when a disaster strikes.

24 Others
A well-balanced insurance plan goes beyond the basics of auto, life, home, health, business
and property insurance. When you're crafting a plan, there are many factors to consider.
Given below are some of the important insurance

6.1.1 Umbrella Liability Insurance

Personal umbrella liability insurance is designed to protect you against a catastrophic
lawsuit or judgment. Personal umbrella liability insurance can be purchased as a separate
policy. However, your insurer will require that you have underlying basic liability coverage
(homeowners/renters insurance, auto insurance, or both) before you can purchase an
umbrella liability policy.
If you are found to be legally responsible for injuring someone or damaging someone's
property, the umbrella policy will either pay the part of the claim in excess of the limits of
your basic liability coverage, or pay for certain losses not covered by your basic personal
liability insurance.
Liability insurance pays for injuries to other people or damage to their property for which
you are legally responsible. Umbrella liability insurance is an expansion of the basic liability
coverage provided by your homeowners and automobile insurance policies for example.

Your coverage can be expanded in two ways:

 By providing a higher dollar coverage amount for claims against you;
 By providing coverage for exposures that are not covered under your basic policies,
such as slander, defamation of character, invasion of privacy and damages caused by
your use of non-owned property while it is in your care.

27
6.1.2 Annuity Insurance
Annuities can offer you an opportunity to provide for a more secure future for you and your
loved ones. An annuity is simply a series of periodic payments. It is an insurance policy
that promises to pay a series of payments for a fixed period or over a person's lifetime.
Basically an annuity is defined as a
contract (in the form of a policy) between an insurer and the insured whereby the insurer
promises to pay a stipulated income to the annuitant for a long period of time, often life.

Why buy annuity insurance?

 You can grow money tax-deferred and, when needed, set up a monthly income that
you can't out live, or choose a specific number of years during which you want to
receive payments.

 The purpose of an annuity is to protect against the possibility of outliving one's

income.

 The possibility of death implies that the annuitant may not receive what he/she has
contributed. Therefore, the return from an annuity is often higher than that of a
savings account.

6.1.3 Travel Insurance

Travel insurance can protect you while traveling with services including international
medical insurance, travel protection, emergency evacuation & repatriation, and assistance
services with 24-hour worldwide medical coverage.

There are four major types of travel insurance

Trip Cancellation Insurance

This would reimburse you if the cruise line or tour operator goes out of business. It would
also provide coverage if you have to cancel the trip due to sickness, a death in the family
or other calamity listed in the policy.
In addition, if you or an immediate family member becomes seriously ill or is injured during
the trip most policies would reimburse you for the unused portion of the vacation.

Baggage Insurance or Personal Effects Coverage

This would provide coverage if your personal belongings are lost, stolen or damaged during
the trip. Before purchasing this type of coverage, find out how much insurance the airline
or trip operator provides for your belongings. If you are traveling with expensive electronic
equipment, jewelry or sporting gear, it might be more cost-effective to purchase a floater
or endorsement to your homeowners or renters policy. The cost to insure a $1,000 ring
would be between $10 and $40 annually. This would provide full coverage for the item,
anywhere in the world, usually for one year.
Note: Before purchasing this coverage, check your homeowners or renters policy. It will
usually provide coverage for off-premises theft. Therefore, if your luggage is stolen, your
insurer will pay to replace it, less the deductible.

28
Emergency Medical Assistance
This provides insurance and medical assistance for travelers. It would cover you if you had
to be airlifted off a mountain due to a skiing or hiking accident or had to stay for a
prolonged period of time in a foreign hospital. It would also provide coverage if you got
seriously sick or were injured and needed to be flown home.

Accidental Death
This would provide a variety of coverages if you or a family member dies on the trip. If you
have a good life insurance plan or made other financial provisions for your loved ones, this
may be duplicate insurance.

6.1.4 War and Terrorism Insurance

Terrorism Risk Insurance Act of 2002, (hereinafter called "TRIA"), has defined a law to
offer coverage to all insured for an "act of terrorism".
This landmark law holds private insurers responsible for billions of dollars in future
terrorism losses, and includes significant protections for both consumers and taxpayers.
Underwriters are required to issue a separate notice in conjunction with all quote and
binder letters to provide coverage of an act of terrorism as defined by TRIA, and the
additional premium associated with the coverage. In addition all quote and binder letters
insurer need to clearly identify the additional premium being charged for the terrorism
coverage, which is separate and distinct from the traditional premium documentation.

Who benefits from the terrorism insurance?

People, who own, build, work in, and visit skyscrapers and other landmark properties in big
cities. In addition, the backstop benefits everyone who works in or relies on hospitals,
public transit systems, bridges, tunnels, airports, stadiums manufacturing plants,
universities, and shopping malls.
The federal terrorism insurance provides protection; that protection provides security; that
security provides confidence that businesses of all kinds need to carry on in this uncertain
and frightening time. Terrorism insurance provides a financial safety net to keep American
business - and cities and states - in business both before and after a terrorist attack.

6.1.5 Motorcycle, RV or Boat Insurance

As the new owner of a motorcycle, RV, or boat, you face risks similar to those faced by the
owner of a home or an automobile. You face the risk that your motorcycle, RV, or boat
could be damaged in some way. You also face the risk of causing property damage or
personal injury. You need to protect yourself and, unfortunately, your homeowners policy
and auto policy will provide you with only limited coverage in most cases. You need special
policies to cover these types of vehicles.

29
7. Insurance Products
You can't stop someone from bringing a suit against you but you can arm yourself with an
Insurance policy that will help you defer the costs involved!

25 Auto Insurance Products

7.1.1 Bodily Injury Liability

This coverage applies to injuries you, the designated driver or policyholder cause to
someone else. You and family members listed on the policy are also covered when driving
someone else’s car with their permission.

It’s very important to have enough liability insurance, because if you are involved in a
serious accident, you may be sued for a large sum of money. Definitely consider buying
more than the state-required minimum to protect assets such as your home and savings.

7.1.2 Medical Payments or Personal Injury Protection (PIP)

This coverage pays for the treatment of injuries to the driver and passengers of the
policyholder's car. At its broadest, PIP can cover medical payments, lost wages and the
cost of replacing services normally performed by someone injured in an auto accident. It
may also cover funeral costs

7.1.3 Property Damage Liability

This coverage pays for damage you (or someone driving the car with your permission) may
cause to someone else's property. Usually, this means damage to someone else’s car, but
it also includes damage to lamp posts, telephone poles, fences, buildings or other
structures your car hit.

7.1.4 Collision

This coverage pays for damage to your car resulting from a collision with another car,
object or as a result of flipping over. It also covers damage caused by potholes. Collision
coverage is generally sold with a deductible of $250 to $1,000—the higher your deductible,
the lower your premium.
 Even if you are at fault for the accident, your collision coverage will reimburse you for
the costs of repairing your car, minus the deductible.
 If you're not at fault, your insurance company may try to recover the amount they paid
you from the other driver’s insurance company. If they are successful, you'll also be
reimbursed for the deductible.

30
7.1.5 Comprehensive

This coverage reimburses you for loss due to theft or damage caused by something other
than a collision with another car or object, such as fire, falling objects, missiles, explosion,
earthquake, windstorm, hail, flood, vandalism, riot, or contact with animals such as birds
or dear.
 Comprehensive insurance is usually sold with a $100 to $300 deductible, though you
may want to opt for a higher deductible as a way of lowering your premium.
 Comprehensive insurance will also reimburse you if your windshield is cracked or
shattered. Some companies offer glass coverage with or without a deductible.

States do not require that you purchase collision or comprehensive coverage, but if you
have a car loan, your lender may insist you carry it until your loan is paid off.

7.1.6 Uninsured and Underinsured Motorist Coverage

This coverage will reimburse you, a member of your family, or a designated driver if one of
you is hit by an uninsured or hit-and-run driver.
Underinsured motorist coverage comes into play when an at-fault driver has insufficient
insurance to pay for your total loss. This coverage will also protect you if you are hit as a
pedestrian.

26 Life Insurance

7.2.1 Term Life Insurance

Term insurance provides protection for a specific period of time. It pays a benefit only if
you die during the term. Some term insurance policies can be renewed when you reach the
end of the term, which can be from one to 30 years. The premium rates increase at each
renewal date. Many policies require that you present evidence of insurability at renewal to
qualify for the lowest rates.

The following points can help you determine if term insurance best suits your needs.
Advantages
• Initial premiums generally are lower than those for permanent insurance, allowing you to
buy higher levels of coverage at a younger age when the need for protection often is
greatest
• It’s good for covering needs that will disappear in time, such as mortgages or car loans
Disadvantages
• Premiums increase, as you grow older.
• Coverage may terminate at the end of the term or become too expensive to continue.
• The policy generally doesn’t offer cash value or paid-up insurance

There are several different types of term insurance you can consider:

7.2.1.11 Renewable term insurance

These policies have a provision allowing you to renew coverage at the end of the term
without having to show evidence of insurability. The company has to renew your policy
even if your medical condition has deteriorated. However, the premium rate will rise with
each renewal.

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7.2.1.2 Convertible Term Insurance
These policies allow you to convert your term coverage into a permanent policy without
providing evidence of insurability. Premiums for convertible policies are usually higher than
for non-convertible policies. Once converted, the premiums for the permanent coverage
will be higher than those of the term policy with the same death benefit. However, the
permanent policy premiums will remain the same while the term premiums will rise.

7.2.1.3 Level Term Insurance

These policies provide a fixed premium for a certain number of years, usually 10 or 20
years, while the death benefit remains unchanged. The death benefit is the amount the life
insurance Company will pay, as stated in the policy, when the insured person dies.
The advantage is that you lock in a certain rate for the period of the policy.
The disadvantage is that the premiums will tend to cost more than the earlier years of the
renewable policy, and when the level policy expires, premium rates will jump considerably
if you want to renew with another level policy.

7.2.1.4 Decreasing Term Insurance

The death benefit in this type of policy decreases over its term. For example, you might
start with $100,000 of coverage and the amount of coverage decreases by $10,000 each
year for 10 years. The premium usually remains the same over the term of the policy. This
type of insurance allows you to pay the same premium for less insurance over time, rather
than have your premium increase for the same amount of insurance.

7.2.1.5 Increasing Term Insurance

This kind of policy starts at one level of death benefit, which gradually increases over the
life of the policy. You may start with a $100,000 policy and increase the death benefit
$10,000 each year for 10 years. The premium will increase each year. This kind of policy
may be appropriate if you see your insurance needs growing in coming years because, for
example, you expect to have more children.

7.2.2 Permanent Insurance

Permanent insurance provides lifelong protection. As long as you pay the premiums, the
death benefit will be paid. These policies are designed and priced for you to keep over a
long period of time. If you don’t intend to keep the policy for the long term, this may be
the wrong type of insurance for you.
These are most commonly used Permanent Insurance Coverages

7.2.2.11 Whole life or Ordinary Life

Whole life or ordinary life is the most common type of permanent insurance. The premiums
generally remain constant over the life of the policy and must be paid periodically in the
amount indicated in the policy.

7.2.2.21 Adjustable life insurance

Adjustable life insurance premiums are recalculated at set time periods, typically every
five, or even ten, years, to reflect current interest rates. While five years is the most
common readjustment period, some policies may be based on three or even ten years

7.2.2.31 Universal life

Allows you, after your initial payment, to pay premiums at any time, in virtually any
amount, subject to certain minimums and maximums. You also can reduce or increase the

32
death benefit more easily than under a traditional whole life policy. (To increase your death
benefit, the insurance company usually requires you to furnish satisfactory evidence of
your continued good health.)

7.2.2.41 Variable life

Provides deaths benefits and cash values that vary with the performance of a portfolio of
investments. You can allocate your premiums among a variety of investments offering
different degrees of risk and reward: stocks, bonds, combinations of both, or accounts that
guarantee interest and principal. You will receive a prospectus in conjunction with the sale
of this product.

27 Health Insurance

7.1.7 Traditional Indemnity (fee for service)

These plans generally assume that the medical professional will be paid a fee for each
service provided to the patient. A doctor of their choice sees patients and either the
medical provider or the patient files the claim.
With this plan, the insurer only pays for part of your doctor and hospital bills.

This is what you pay:

A monthly fee called a premium.
A certain amount of money each year, known as the deductible, before the insurance
payments begin. In a typical plan, the deductible might be $250 for each person in your
family, with a family deductible of $500 when at least two people in the family have
reached the individual deductible.
The deductible requirement applies each year of the policy. Also, not all health expenses
you have count toward your deductible. Only those covered by the policy do. You need to
check the insurance policy to find out which ones are covered.
After you have paid your deductible amount for the year, you share the bill with the
insurance company. For example, you might pay 20 percent while the insurer pays 80
percent. Your portion is called coinsurance.
To receive payment for fee-for-service claims, you may have to fill out forms and send
them to your insurer. Sometimes your doctor's office will do this for you. You also need to
keep receipts for drugs and other medical costs. You are responsible for keeping track of
your medical expenses.

There are limits as to how much insurance company will pay for your claim if both you and
your spouse file for it under two different group insurance plans. A coordination of benefit
clause usually limits benefits under two plans to no more than 100 percent of the claim.

Most fee-for-service plans have a "cap," the most you will have to pay for medical bills in
any one year. You reach the cap when your out-of-pocket expenses (for your deductible
and your coinsurance) total a certain amount. It may be as low as $1,000 or as high as
$5,000. Then the insurance company pays the full amount in excess of the cap for the
items your policy says it will cover. The cap does not include what you pay for your
monthly premium.

7.1.8 Managed care plans

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Managed care plans generally provide comprehensive health services to their members and
offer financial incentives for patients to use the providers who belong to the plan. There are
three major types of managed care plans: health maintenance organizations (HMOs),
point-of-service (POS) plans, and preferred provider organizations (PPOs).

1.8.1.1 Health Maintenance Organizations (HMO)

HMOs are the oldest form of managed care plan. In an HMO, instead of paying for each
service that you receive separately, your coverage is paid in advance. This is called prepaid
care.
For a set monthly fee, HMOs offer members a range of health benefits, including preventive
care, but typically your primary care physician must authorize care.
HMOs will give you a list of doctors from which to choose a primary care physician. This
doctor coordinates your care, which means that generally you must contact him or her to
be referred to any specialist. This is often called physician-directed care, as self-referrals to
specialists or unauthorized care is not covered.
Typically, with most HMOs there is a CO-payment for office visits, hospitalizations, and
other health services.

7.3.2.2 Preferred Provider Organizations (PPO)

A PPO is the form of managed care closest to an indemnity plan. A PPO negotiates
discounts with doctors, hospitals, and other providers of care who will accept lower fees
from the insurer for their services. As a result, the premiums are lower because some of
the provider payments will be discounted.
If you go to a doctor within the PPO network, you will pay a co-payment (a set amount you
pay for certain services -- say, $10 for a doctor or $5 for a prescription). In addition, your
coinsurance will be based on the negotiated discounted charges for PPO members. For
example, the insurer may reimburse you for 90 percent of the cost if you go to a provider
within the network.
If you choose to go a provider out of the network, the insurer might only reimburse you
for, say, 70 percent of the cost. In addition, with an out-of-network provider, you may
have to pay the difference between what the provider charges and what the plan will
recognize as a reasonable charge.
Another characteristic of PPOs is the ability to make self-referrals. In essence, plan
members can refer themselves to doctors of their choice, including specialists inside and
outside the PPO network. However, as described above, plan members may incur higher
co-payments for using out-of-network providers.

7.3.2.3 Point-Of-Service (POS)

Many HMOs offer plan members the option to self direct care, as one would under an
indemnity or PPO plan, rather than get referrals from primary care physicians. An HMO
with this opt-out provision is known as a point-of-service (POS) plan.
This is how these plans typically work. When medical care is needed, the individual plan
member essentially has up to two or three choices, depending on the particular health
plan:
 The plan member can choose to go through his or her primary care physician, in which
case services will be covered under HMO guidelines (i.e., usually a co-payment will be
required).
 Alternatively, the plan member can access care through a PPO provider and the
services will be covered under in-network PPO rules (i.e., usually a co-payment and
coinsurance will be required).
 Lastly, if the plan member chooses to obtain services from a provider outside of the
HMO and PPO networks, the services will be reimbursed according to out-of-network
rules (i.e., usually a CO-payment and higher coinsurance charge will be required).

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Because people who belong to POS plans are responsible for deciding how to access care
within the various options, it is important that they understand the financial implications of
these choices.

28 Personal Property Insurance

It covers accidental losses to personal property, such as house of insured. Property can be
destroyed, damaged, or stolen – in which case the property owner suffers a financial loss
related to the value of the lost property. Often, damaged or destroyed property cannot be
used until it is replaced or repaired.
Most Homeowners, Condominium, Mobile home or Renters can also be covered under this.
It can provide coverage to properties like stereo, bicycle, furniture, clothing, or swimming
pool etc.

7.1.9 Home Owners Insurance

7.4.1.1 The structure of your house

This part of your policy pays to repair or rebuild your home if it is damaged or destroyed by
fire, hurricane, hail, lightning or other disaster listed in your policy. It will not pay for
damage caused by a flood, earthquake or routine wear and tear. When purchasing
coverage for the structure of your home, it is important to buy enough to rebuild your
home.
Most standard policies also cover structures that are detached from your home such as a
garage, tool shed or gazebo. Generally, these structures are covered for about 10% of the
amount of insurance you have on the structure of your home.

7.4.1.2 Your personal Belongings

Your furniture, clothes, sports equipment and other personal items are covered if they are
stolen or destroyed by fire, hurricane or other insured disaster. Most companies provide
coverage for 50% to 70% of the amount of insurance you have on the structure of your
home.
Expensive items like jewelry, furs and silverware are covered, but there are usually dollar
limits, if they are stolen. Generally, you are covered for between $1,000 to $2,000 for all of
your jewelry and furs. To insure these items to their full value purchase a special personal
property endorsement or floater and insure the item for it's appraised value. Coverage
includes “accidental disappearance,” meaning coverage if you simply lose that item. And
there is no deductible.

7.4.1.3 Liability protection

This covers you against lawsuits for bodily injury or property damage that you or family
members cause to other people. It also pays for damage caused by your pets. So, if your
son, daughter or dog accidentally ruins your neighbor’s expensive rug, you are covered.
However, if they destroy your rug, you are not covered.
The liability portion of your policy pays for both the cost of defending you in court and any
court awards -- up to the limit of your policy. You are also covered not just in your home,
but anywhere in the world.

7.4.1.4 Additional living expenses

This pays the additional costs of living away from home if you can't live there due to
damage from a fire, storm or other insured disaster. It covers hotel bills, restaurant meals
and other living expenses incurred while your home is being rebuilt.

35
Coverage for additional living expenses differs from company to company. Many policies
provide coverage for about 20% of the insurance on your house. You can increase this
coverage, however, for an additional premium.
Some companies sell a policy that provides an unlimited amount of loss-of-use coverage --
for a limited amount of time.
If you rent out part of your house, this coverage also reimburses you for the rent that you
would have collected from your tenant if your home had not been destroyed

7.1.10 Umbrella or excess liability policy

You can purchase an umbrella or excess liability policy, which provides broader coverage,
including claims against you for libel and slander, as well as higher liability limits.
Generally, umbrella policies cost between $200 to $350 for $1 million of additional liability
protection.

7.1.11 No-fault medical coverage

This policy provides no-fault medical coverage. In the event a friend or neighbor is injured
in your home, he or she can simply submit medical bills to your insurance company. This
way, expenses are paid without their filing a liability claim against you. You can generally
get $1,000 to $5,000 worth of this coverage. It does not, however, pay the medical bills
for your family or your pet.
Regardless of whether you are an owner or renter, you have the following three options:

7.1.12 Guaranteed or extended replacement cost

This policy offers the highest level of protection. A guaranteed replacement cost policy pays
whatever it costs to rebuild your home as it was before the fire or other disaster – even if it
exceeds the policy limit.
This gives you protection against sudden increases in construction costs due to a shortage
of building materials after a widespread disaster or other unexpected situations. It
generally won't cover the cost of upgrading the house.
Some insurance companies offer an extended, rather than a guaranteed replacement cost
policy. An extended policy pays a certain percentage over the limit to rebuild your home.
Generally, it is 20% to 25% more than the limit of the policy. For example, if you took out
a policy for $100,000, you could get up to an extra $20,000 or $25,000 of coverage.

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29 Commercial Property Insurance:

Commercial property owners, both those operating a business on their property and those
leasing property to another entity, can purchase policies that protect the building and
associated structures.
A property owner's policy, however, will not protect tenants from loss. Business owners
who lease their property may buy policies that protect the building's contents, such as
machinery, furniture and stored or displayed merchandise

Most of the Commercial Property coverage options are similar to personal property
coverage options.

7.1.13 Bailees Customer Insurance Coverage

It covers losses to customer’s property in the custody of bailee. Most policies provide
coverage regardless of whether the insured is liable for the loss.
Laundries and dry cleaners, who have a great deal of customer property in their custody,
are among the types of the business that usually buy bailees customers insurance.

30 Business Policy Insurance

7.1.14 Business owner’s policy (BOP):

BOP is a insurance package which combines coverage from all major property and liability
risks. This is purchased by small and mid-sized business.

BOPs include:
 Property insurance for buildings and contents owned by the company -- there are
two different forms, standard and special, which provides more comprehensive
coverage.

 Business interruption insurance, which covers the loss of income resulting from a
fire or other catastrophe that disrupts the operation of the business. It can also
include the extra expense of operating out of a temporary location.
 Liability protection, which covers your company's legal responsibility for the harm it
may cause to others. This harm is a result of things that you and your employees do
or fail to do in your business operations that may cause bodily injury or property
damage due to defective products, faulty installations and errors in services
provided.

7.1.15 Business interruption insurance:

 Business interruption insurance compensates you for lost income if your company
has to vacate the premises due to disaster-related damage that is covered under
your property insurance policy, such as a fire.
 Business interruption insurance covers the profits you would have earned, based on
your financial records, had the disaster not occurred.
 The policy also covers operating expenses like electricity that continue even though
business activities have come to a temporary halt.
 There is generally a 48-hour waiting period before business interruption coverage
kicks in.

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  The price of the policy is related to the risk of a fire or other disaster damaging your
premises. All other things being equal, the price would probably be higher for a
restaurant than a real estate agency, for example, because of the greater risk of
fire. Also, a real estate agency can easily operate out of another location.

7.1.16 Extra Expenses Insurance

Extra expense insurance reimburses your company for a reasonable sum of money that it
spends, over and above normal operating expenses, to avoid having to shut down during
the restoration period. Usually extra expenses will be paid if they help to decrease business
interruption costs. In some instances, extra expense insurance alone may provide sufficient
coverage, without the purchase of business interruption insurance.

7.1.17 Employee Dishonesty Insurance:

Every year, millions of dollars are lost due to employee dishonesty. Many businesses suffer
severe financial damage and, in a number of cases, even end up in bankruptcy. Many
employers do not realize how vulnerable they are to financial loss caused by the fraudulent
acts of their employees
An employer needs to purchase employee dishonesty insurance to provide coverage for any
losses that do occur.
For a loss to be covered the employer must suffer financial loss and the employee must
either obtain financial benefit from the act or direct financial benefit to another person or
organization. The loss can be the result of the employee's theft of money, securities, or
other property of the insured. Most employee dishonesty insurance policies are written on a
blanket basis so that all employees are covered.

Restrictions:
 This does not include people such as independent contractors. A special request for
coverage for this type of worker would have to be made and the policy endorsed
accordingly
 There is also no coverage for the owners or partners of the business. In businesses
where there are several partners involved, such as law firms or accounting firms,
special endorsements are available that are designed to provide partners coverage, but
they must be specifically requested
 When choosing a coverage limit, it is important to understand that it will apply on a
"per loss" basis. Multiple acts of dishonesty by one or more employees, even if they
occur over the course of several years, are considered to be one loss.

Example:
An employee at cash registers of a grocery store, walking away with all the money he had
collected on thanks-giving weekend.
A bank employee giving security login-password and some big money account numbers to
unauthorized personal. The “outsider” uses that information to transfer money to his
account.

7.1.18 Employment Practices Liability Insurance (EPLI):

Employment related practices liability is one of the hottest issues affecting employers
today, involving issues such as sexual harassment, wrongful termination, and
discrimination.
Employment related practices lawsuits have escalated substantially in the last few years.
This is regarding discrimination (related to sex, age, race, religion, etc.), harassment,
wrongful termination, failure to promote, failure to employ

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Insurance industry has responded to a need for employer protection and has created an
insurance policy designed to respond to employment related practices claims.
Defense costs are included in the new employment related practice liability programs
available from most insurers.

Example:
A woman working at her desk overhears two young men in her department swapping
stories about their "conquest" of the weekend. Several weeks go by and the same thing
happens every Monday. One day the woman quits and hires an attorney. She files a suit
against the employer citing a hostile work environment.

7.1.19 Fiduciary Liability Insurance

What is Fiduciary?
A fiduciary is any person so named in a plan or any person who exercises any discretionary
authority or control with respect to the management or administration of the plan or its
assets. This will normally include the plan sponsor, the plan administrator, trustees, and
investment managers along with any other persons, including employees who are involved
with any aspect of handling the plan or its assets.

Who is covered?
Strict standards are in place for fiduciaries and any breach of their responsibilities can
result in lawsuits and statutory penalties. Individual fiduciaries are held personally liable for
plan losses resulting from their breach of duties which can result in serious personal
financial consequences. This insurance covers all of that.
A fiduciary can also be held liable for the acts of a co-fiduciary. This means that the plan
sponsor and individual fiduciaries can be subject to claims that arise out of the actions of
various organizations that provide services to the plan. These can include consulting firms,
professional administration firms, investment management companies, accounting firms,
law firms, etc.

What is covered?
Several insurance companies are writing fiduciary liability or pension trust liability
insurance. This coverage provides protection for losses that the insured is legally obligated
to pay because of a claim made for a wrongful act. By most policy definitions, a wrongful
act includes any violation of the responsibilities, obligations, or duties imposed on
fiduciaries by ERISA, as well as acts, errors, or omissions involved in plan administration.
The policy also includes coverage for defense costs in connection with a covered claim.

7.1.20 Miscellaneous Professional Liability Insurance (MPL)

Professionals are expected to have extensive technical knowledge or training in their
particular area of expertise. They are also expected to perform the services for which they
were hired, according to the standards of conduct in their profession. If they fail to use the
degree of skill expected of them, they can be held responsible in a court of law for any
harm they cause to another person or business. Professional liability insurance covers is
used to cover these types of loss.
Examples of these are architects, bankers, clergy, engineers, insurance agents, and
stockbrokers.
Two well-known ways of managing professional liability risks are to
(1) Transfer them to an insurance company
(2) Implement a comprehensive loss prevention program.

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7.1.21 Property Managers Errors And Omissions
Property managers are involved in many activities that often result in professional liability
to owners and others.
Some of the responsibilities of property managers may include the activities outlined
below:
 Development of management plans for complexes
 Processing of service requests on routine and emergency services
 Development of detailed purchase specifications for all contractors
 Development of preventive maintenance programs
 Development of internal controls/administration
 Maintenance of security for all association documents/records
 Preparation of monthly management reports for boards or owners
 Minimization of violations of rules and regulations
Careful supervision of all these activities is absolutely essential for any property manager
or management firm in order to avoid errors and omissions claims!

7.1.22 Nonprofit Directors and Officers (D&O) Liability Insurance

(DONP)
Persons who are directors, trustees, and officers of nonprofit organizations are subject to
personal liability and lawsuits due to failure to properly perform their duties. Nonprofit
directors and officers liability insurance is an excellent way to transfer many of these loss
exposures to another party (an insurance company).
Many actions by persons within the nonprofit organization can trigger a lawsuit in today's
legal climate. For example, over 50% of all D&O claims against nonprofits involve improper
employment related practices, such as wrongful termination, discrimination, breach of
contract, and sexual harassment.

Who is covered?
The "insured" in the most comprehensive policies includes both the nonprofit itself (in D&O
parlance, the "entity") and its subsidiaries, plus its directors, trustees, officers, employees,
volunteers, and committee members. The protection applies to wrongful acts, as defined in
the various policies, plus defense costs, which are covered whether or not a judgment or
settlement results from the litigation.

7.1.23 For Profit Directors and Officers Liability (DO)

Corporate Directors and Officers are being watched more closely than ever by stockholders
and other interested parties. Wise management must protect its key executives against
personal liability with effective insurance coverage when they act in the name of the
company
Then there is the vast majority of stockholders. They simply want to make sure "their"
corporation is being managed properly. It doesn't matter how much (or how little) stock
they own. Or how much they know about your company. They do know their rights. And
they take those rights very seriously.

The events those triggers usage of this policy:

 As a director or officer of "their" corporation, your stockholders watch every move
you make. Some are convinced they could run the company better than you. Others
don't see you as a person; they see you as a target for a lawsuit
 Your competition: who can bring suit against you for allegedly unfair competition in
the marketplace.

40
  Government authorities: such as The Securities & Exchange Commission and the
Federal Trade Commission who can bring action against you

Your protection:
Directors & Officers Liability insurance protects Directors or Officers against losses resulting
from suits originating in any quarter brought against a Director or Officer for an allegedly
"wrongful act." Wrongful acts can include:
 Failure to stop action resulting in damage to the company
 Unwarranted dividend payments, salaries or compensations
 Failure to attend meeting of Directors or Officers
 Misuse of company funds
 Imprudent loans resulting in loss to the company
 Inefficient administration resulting in losses and MANY MORE

Minimum coverage that it should cover:

Depending on the risk, special features can include:
 Continuity of coverage
 Severability of coverage with respect to unknowing Directors and Officers
 Worldwide coverage
 Outside Directorship coverage
 Automatic Coverage of Created or Acquired Subsidiaries

7.1.24 Worker’s Compensation

Employers have a legal responsibility to their employees to make the workplace safe.
However, accidents happen even when every reasonable safety measure has been taken.

Who is covered?
To protect employers from lawsuits resulting from workplace accidents and to provide
medical care and compensation for lost income to employees hurt in workplace accidents,
in almost every state, businesses are required to buy workers compensation insurance.

What is covered?
Workers compensation insurance covers workers injured on the job, whether they're hurt
on the workplace premises or elsewhere, or in auto accidents while on business. It also
covers work-related illnesses.

How it works?
Workers compensation provides payments to injured workers, without regard to who was
at fault in the accident, for time lost from work and for medical and rehabilitation services.
It also provides death benefits to surviving spouses and dependents.
Workers compensation insurance must be bought as a separate policy.

7.1.25 Limited Liability Companies, Partnerships, Etc.

A Limited Partnership Liability policy is necessary to provide D&O coverage to a limited
liability partnership

Who is an Insured?
As respects Comprehensive General Liability (CGL) coverage, it is essential that the
aforementioned business entities be listed and specifically designated as to type in the
policy declarations.

41
No person or organization is an insured with respect to the conduct of current or past
partnership or joint venture that is not shown as a Named Insured in the Declaration.
All current and past limited partnerships, joint ventures, etc., must be named in the
policy.

7.1.26
Accounts Receivable
It pays for the cost of reconstructing accounts receivable records that have been damaged
or destroyed by a coverage peril.
Even more important, it covers any payments that cannot be collected because records
cannot be reconstructed.

7.1.27 Package policy

A package policy combines a number of property and liability insurance coverages into a
single policy. It offers convenience for the insured, the producer and the insurance
company because it reduces the number of policies that would otherwise have to be dealt
with.
Package policies also receive a package discount. Insurance companies are willing to
reduce premium costs when they sell a number of coverages as part of a package.
Example:
Consider a package policy combining EPLI and DONP coverages in following proportion:

Premium Limit Deductible

Product
EPLI $10,000 $100,000 $1,000
DONP $5,000 $50,000 $500

By this, the total limit is $150,000 under one policy. So loss amounts can be paid for EPLI
and well as DONP coverages.

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8. Appendix - Insurance Products

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9. Glossary

A B C D E F G H I J K
L MN O P Q R
S T U V W X
YZ

Accident Year Experience

Reinsurance experience calculated by matching the total value of all losses occurring during
a given twelve-month period (i.e., the dates of loss fall within the period) with the
premiums earned for the same period.

Accounts Receivable Coverage

This coverage provides protection for the following losses:
1. All sums due you from customers, providing you are unable to effect collection thereof
as a direct result of loss or damage to records of account receivable.
2. Interest charges on any loan to offset impaired collections pending repayment of such
sums made uncollectable by such loss or damage.
3. Collection expense in excess of normal collection cost made necessary because of such
loss or damage.
4. Other expense, when reasonably incurred by you in re-establishing records of accounts
receivable following loss or damage

Acquisition Costs

All expenses directly related to acquiring insurance or reinsurance accounts, i.e.,

commissions paid to agents, brokerage fees paid to brokers, and expenses associated with
marketing, underwriting, contract insurance and premium collection.

Actual Cash Value (Acv)

"Actual Cash Value" is the replacement cost of property damaged or destroyed at the time
of loss, with deduction for depreciation. Actual cash value cannot exceed the applicable
limit of liability shown in the declarations of the policy.

Additional Insured
An individual or entity that is not automatically included, as an insured under the policy of
another, but for whom the named insured's policy provides a certain degree of protection.
An endorsement is typically required to effect additional insured status. (E.g. customers or
owners of property leased by the named insured).

Back To Glossary
Additional Named Insured

48
1. An individual or entity, other than the first named insured, identified as an insured in the
policy declarations or an addendum to the policy declarations.
2. An individual or entity who is added to a policy with the status of named insured after
the policy is written. Such an individual or entity would have the same rights and
responsibilities as an individual or entity named as an insured in the policy declarations
(other than those rights and responsibilities reserved to the first named insured).

Admitted Company
An insurance company licensed and authorized to do business in a particular state.

Agency Companies
Companies that market and sell product via independent agents.

Agent
Insurance is sold by two types of agents: independent agents, who are self-employed,
represent several insurance companies and are paid on commission, and exclusive or
captive agents, who represent only one insurance company and are either salaried or work
on commission. Insurance companies that use exclusive or captive agents are called direct
writers.

Aggregate
1. A limit in an insurance policy stipulating the most it will pay for all covered losses
sustained during a specified period of time, usually one year. Aggregate limits are
commonly included in liability policies. While not often used in property insurance,
aggregates are sometimes included with respect to certain catastrophic exposures, e.g.,
earthquake and flood.
2. The dollar amount of reinsurance coverage during one specified period, usually 12
months, for all reinsurance losses sustained under a treaty during such period.

Agreed Amount Endorsement

This endorsement is an agreement made by the insurance company wherein it waives the
coinsurance clause on the specified property. As long as this endorsement is in effect, there
would be no coinsurance penalty at the time of a claim.
By combining an Agreed Amount Endorsement with a Replacement Cost Endorsement, you
can obtain an unusually high quality of insurance coverage!

Allied Lines
Property insurance that is usually bought in conjunction with fire insurance; it includes
wind, water damage, and vandalism coverage.

Allowed Expenses
The maximum amount a plan pays for a covered service.

Annual Statement
Summary of an insurer’s or reinsurers financial operations for a particular year, including a
balance sheet. It is filed with the state insurance department of each jurisdiction in which
the company is licensed to conduct business.

Back To Glossary

Arbitration

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Procedure in which an insurance company and the insured or a vendor agrees to settle a
claim dispute by accepting a decision made by a third party.

Assets
Property owned, in this case by an insurance company, including stocks, bonds, and real
estate. Insurance accounting is concerned with solvency and the ability to pay claims.
State insurance laws therefore require a conservative valuation of assets, prohibiting
insurance companies from listing assets on their balance sheets whose values are
uncertain, such as furniture, fixtures, debit balances, and accounts receivable that are
more than 90 days past due.

Assigned Risk Plans

Facilities through which drivers can obtain auto insurance if they are unable to buy it in the
regular or voluntary market. These are the most well known types of residual auto
insurance market, which exist in every state. In an assigned risk plan, all insurers selling
auto insurance in the state are assigned these drivers to insure, based on the amount of
insurance they sell in the regular market.

Aviation Insurance
Commercial airlines hold property insurance on airplanes and liability insurance for
negligent acts that result in injury or property damage to passengers or others. Damage is
covered on the ground and in the air. The policy limits the geographical area and individual
pilots covered.

Benefits
Medical services for which your insurance plan will pay, in full or in part.

Binder
A binder is a legal agreement that serves to effect insurance coverage for a specified period
of time until the actual insurance policy can be issued. A binder can be issued by either an
insurance agent or company and must provide the following information:
* Name of insured
* Type of insurance coverage
* Limits of insurance
* Covered perils
* Name of insurance company

Blanket Insurance
Blanket insurance provides coverage under a single limit for the following:
* Two or more items (e.g., Building and/or Contents)
* Two or more locations (e.g., Location A and/or Location B)
A combination of items and/or locations

Block Policy
A block policy provides a form of inland marine insurance. It covers loss to the property of
a merchant, wholesaler, or manufacturer including:
* Property of others in the insured's care, custody, or control
* Property on consignment
* Property sold but not delivered
Back To Glossary

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A block policy will cover loss caused by most perils (including transportation), subject to
certain limitations as specified in the policy exclusions. Common block policies are jeweler’s
block and furriers block policies.

Bodily Injury Liability Coverage

Portion of an auto insurance policy that covers injuries the policyholder causes to someone
else.

Boiler and Machinery Insurance

Often called Equipment Breakdown, or Systems Breakdown insurance. Commercial
insurance that covers damage caused by the malfunction or breakdown of boilers, and a
vast array of other equipment including air conditioners, heating, electrical, telephone, and
computer systems.

Bond
A security that obligates the issuer to pay interest at specified intervals and to repay the
principal amount of the loan at maturity. In insurance, a form of suretyship. Bonds of
various types guarantee a payment or a reimbursement for financial losses resulting from
dishonesty, failure to perform and other acts.

Book Of Business
Total amount of insurance on an insurer's books at a particular point in time.

Branch Office
A typical insurance company has smaller offices called Branch Offices or Regional Offices –
located throughout the states where it does business. Most of the important functions
dealing with inureds might be handled in a local branch or regional office. Some of the
important functions that may be performed at Branch Office:
Underwriting
Policy Issuance
Investigating and paying claims
Conducting Loss Control inspections

Broker Market
The collective reference to those reinsurance companies, which accept business mainly
from reinsurance brokers.

Business Interruption Insurance

Commercial coverage that reimburses a business owner for lost profits and continuing fixed
expenses during the time that a business must stay closed while the premises are being
restored because of physical damage from a covered peril, such as a fire. Business
interruption insurance also may cover financial losses that may occur if civil authorities
limit access to an area after a disaster and their actions prevent customers from reaching
the business premises. Depending on the policy, civil authority coverage may start after a
waiting period and last for two or more weeks

Business Owners Policy / Bop

A policy that combines property, liability and business interruption coverages for small- to
medium-sized businesses. Coverage is generally cheaper than if purchased through
separate insurance policies
Back To Glossary

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C

Capitation
A flat monthly fee that a health plan pays to a provider (doctor, hospital, lab, etc.) to take
care of a patient's needs. Capitation is part of the provider reimbursement mechanism in
HMOs and some Point of Service (POS) plans.

Captive Agent
A person who represents only one insurance company and is restricted by agreement from
submitting business to any other company, unless it is first rejected by the agent’s captive
company.

Captives
Insurers that are created and wholly owned by one or more non-insurers, to provide
owners with coverage. A form of self-insurance.

Catastrophe Reinsurance
A form of excess of loss reinsurance which, subject to a specific limit, indemnifies the
ceding company in excess of a specified retention with respect to an accumulation of losses
resulting from a catastrophic event or series of events arising from one occurrence.

Cede
When a company reinsures its liability with another company it "cedes" business.

Claim Adjuster
A claim adjuster is a person responsible for investigating and settling claims on behalf of
the insurance company

Claims-Made Coverage
A "claims made Coverage" covers those losses, which are reported during the policy period
regardless of when the incident that resulted in the loss occurred, providing the insured
has been continuously covered by claims made policies with the same company.
When a claim made policy expires, coverage ceases to exist for any loss, which was not
reported before it expired.
Example:
To use a simplified example, assume that with respect to the "occurrence year" 1990, the
statistical analysis suggests that claims arising out of occurrences in that year will be
reported in the following pattern:
Cumulative Percent
Year reported Percent Reported
Reported
1990 30% 30%
1991 25% 55%
1992 15% 70%
1993 10% 80%
1994 10% 90%
1995 5% 95%
1996 5% 100%

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This table would then provide a basis for calculating the premium for each year's
renewal policy.
 The 1990 policy would, of course, be priced to reflect the 30% of claims expected to
be reported in that year.
 The 1991 policy would reflect not only the 30% of expected claims attributable to
the 1991 occurrence year, but also the additional 25% expected to be reported in
1991 for the 1990 occurrence year. Since more losses are expected to be reported,
the premium for the second-year claims made policy is higher.
 The process would continue for each renewal until that for the 1997 occurrence
year. At that point, under these assumptions, there are no more residual claims
relating to 1990 occurrences, so no charge is made for them.
 At this point, for premium rating purposes, the policy is considered "mature" with
respect to the 1990 occurrence year and premiums will be calculated for future
renewals on the basis of a rolling seven-year period of exposure. For coverage
purposes, of course, claims arising out of 1990 are still covered.

Claims-Made Policy
A form of insurance that pays claims presented to the insurer during the term of the policy
or within a specific term after its expiration. It limits liability insurers’ exposure to unknown
future liabilities.

CO-Payment
The insured individual's portion of the cost, usually a flat predictable dollar amount, like
$10 per office visit, for example. Under many plans, co-payments are made at the time of
the service and the health plan pays for the remainder of the fee. Generally, a plan will
either require co-payments without a deductible, (HMO, POS plans) or co-insurance and a
deductible, (indemnity, PPO plans).

COBRA
Short for Consolidated Omnibus Budget Reconciliation Act. A federal law under which group
health plans sponsored by employers with 20 or more employees must offer continuation of
coverage to employees who leave their jobs and their dependents. The employee must pay
the entire premium. Coverage can be extended up to 18 months. Surviving dependents can
receive longer coverage.

Collision Coverage
Portion of an auto insurance policy that covers the damage to the policyholder’s car from a
collision

Commercial General Liability Insurance / CGL

A broad commercial policy that covers all liability exposures of a business that are not
specifically excluded. Coverage includes product liability, completed operations, premises
and operations, and independent contractors.

Commercial Multiple Peril Policy

Package policy that includes property, boiler and machinery, crime, and general liability
coverages

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Completed Operations Coverage

53
Pays for bodily injury or property damage caused by a completed project or job. Protects a
business that sells a service against liability claims.

Consequential Loss Or Damage

Consequential loss or damage -- as opposed to direct loss or damage -- is indirect loss or
damage resulting from loss or damage caused by a covered peril, such as fire or
windstorm.
Example:
In the case of loss caused where windstorm is a covered peril, if a tree is blown down and
cuts electricity used to power a freezer and the food in the freezer spoils, If the insurance
policy extends coverage for consequential loss or damage then the food spoilage would be
a covered loss.

Contingent Liability
Liability of individuals, corporations, or partnerships for accidents caused by people other
than employees for whose acts or omissions the corporations or partnerships are
responsible.

Contract
In insurance, the agreement, by which an insurer agrees, for a consideration, to provide
benefits, reimburse losses or provide services for an insured. A "policy" is the written
statement of the terms of the contract.

Contractual Liability Coverage

It is common in construction and other agreements (written or oral) for one party to
"assume" the liability of another. This is sometimes referred to as a "hold harmless"
agreement. The extent to which one holds another harmless varies from contract to
contract, job to job, etc.
To assume the liability of another, regardless of extent, is a voluntary undertaking which
increases your exposure to loss. A standard Commercial General Liability policy does cover
this additional exposure subject to certain exclusions.

Coverage
What the health plan does and does not pay for, dependent upon any authorization
requirements and benefit plan.

Covered Expenses
What the insurance company will consider paying for as defined in the contract. For
example, under some plans generic prescriptions are covered expenses while brand name
prescriptions are not.

Credit Insurance
Commercial coverage against losses resulting from the failure of business debtors to pay
their obligation to the insured, usually due to insolvency. The coverage is geared to
manufacturers, wholesalers, and service providers who may be dependent on a few
accounts and therefore could lose significant income in the event of insolvency.

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Credit Life Insurance
Life insurance coverage on a borrower designed to repay the balance of a loan in the event
the borrower dies before the loan is repaid. It may also include disablement and can be
offered as an option in connection with credit cards and auto loans.

Defined Benefit Plan

A retirement plan under which pension benefits are fixed in advance by a formula based
generally on years of service to the company multiplied by a specific percentage of wages,
usually average earnings over that period or highest average earnings over the final years
with the company.

Defined Contribution Plan

An employee benefit plan under which the employer sets up benefit accounts and
contributions are made to it by the employer and by the employee. The employer usually
matches the employee's contribution up to a stated limit.

Difference In Conditions (DIC) Coverage

DIC insurance provides coverage designed to close specific gaps in standard insurance
policies and is usually available only for larger industrial or commercial risks. It allows
coverage to be customized to extend to such exposures as water damage, flood, collapse,
earthquake, landslide, etc., according to the insured's needs. DIC coverage may be
provided by means of a separate insurance policy or it may be added by endorsement to
the basic policy.

Direct Premiums
Property/casualty premiums collected by the insurer from policyholders, before reinsurance
premiums are deducted. Insurers share some direct premiums and the risk involved with
their reinsurers.

Direct Sales/ Direct Response

Method of selling insurance directly to the insured through an insurance company’s own
employees, through the mail, or via the Internet. This is in lieu of using captive or
exclusive agents.

Direct Writers
Insurance companies that sell directly to the public using exclusive agents or their own
employees, through the mail, or via Internet. Large insurers, whether predominately direct
writers or agency companies, are increasingly using many different channels to sell
insurance. In reinsurance, denotes reinsurers that deal directly with the insurance
companies they reinsure without using a broker.

Domestic Insurance Company

Term used by a state to refer to any company incorporated there.

Drive Other Car Coverage

Coverage applicable to employees or executives of a company or any other person who is
supplied a company vehicle, but who does not own a personal vehicle, thereby not having
personal automobile coverage.

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Effective Date
The date on which the protection of an insurance policy or bond goes into effect.

Equity
In investments, the ownership interest of shareholders. In a corporation, stocks as opposed
to bonds.

Errors And Omissions Coverage / E&O

A professional liability policy covering the policyholder for negligent acts and omissions that
may harm his or her clients

Excess And Surplus Lines

Property/casualty coverage that isn’t available from insurers licensed by the state (called
admitted insurers) and must be purchased from a non-admitted carrier.

Excess Of Loss Reinsurance

A contract between an insurer and a reinsurer, whereby the insurer agrees to pay a
specified portion of a claim and the reinsurer to pay all or a part of the claim above that
amount.

Exclusive Agent
Same as Captive Agent

Expense Ratio
Percentage of each premium dollar that goes to insurers’ expenses including overhead,
marketing, and commissions.

Exposure
Possibility of loss.

Extended Coverage
An endorsement added to an insurance policy, or clause within a policy, that provides
additional coverage for risks other than those in a basic policy.

Extended Replacement Cost Coverage

Pays a certain amount above the policy limit to replace a damaged home, generally 120
percent or 125 percent.

Extra Expense Coverage For Computers

If your computer/EDP equipment was damaged or destroyed by fire or any other insured
peril, it would probably be necessary to incur certain extra expenses to continue your
business operations. While your equipment is being repaired or replaced, you might have
to rent temporary equipment, hire additional personnel, pay overtime wages, and rent
additional space.

Likewise, you might have to "recapture" and "re-enter" lost information after your
equipment is repaired or replaced. This would be in addition to your normal, ongoing day-
to-day operations.

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Extra Expense insurance for computers covers these and similar expenses resulting from a
covered loss.

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F

Fidelity Bond
A form of protection that covers policyholders for losses that they incur as a result of
fraudulent acts by specified individuals. It usually insures a business for losses caused by
the dishonest acts of its employees.

Fiduciary Bond
A type of surety bond, sometimes called a probate bond, which is required of certain
fiduciaries, such as executors and trustees, that guarantees the performance of their
responsibilities.

Fire Legal Liability Coverage

Coverage needed if you occupy leased or rented property for which you could be held
legally liable for damage to the property due to fire or explosion.

First-Party Coverage
Coverage for the policyholder’s own property or person. In no-fault auto insurance it pays
for the cost of injuries. In no-fault states with the broadest coverage, the personal injury
protection (PIP) part of the policy pays for medical care, lost income, funeral expenses and,
where the injured person is not able to provide services such as child care, for substitute
services.

Floater
Attached to a homeowner’s policy, a floater insures movable property, covering losses
wherever they may occur. Among the items often insured with a floater are expensive
jewelry, musical instruments, and furs. It provides broader coverage than a regular
homeowners’ policy for these items.

Forgery Or Alteration Coverage

This type of insurance covers loss sustained through forgery or alteration of outgoing
negotiable instruments made or drawn by you, or drawn on your account(s), or made or
drawn by one acting as your agent. This includes loss caused by any of the following:
 Checks or drafts made or drawn in your name, payable to a fictitious entity.
 Checks or drafts, including payroll checks, executed through forged
endorsements.
Alteration of the amount of a check or draft.

Futures
Agreement to buy a security for a set price at a certain date. Futures contracts usually
involve commodities, indexes or financial futures

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Gap Insurance

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An automobile insurance option, available in some states, that covers the difference
between a car’s actual cash value when it is stolen or wrecked and the amount the
consumer owes the leasing or finance company. Mainly used for leased cars.

Garage Keepers Legal Liability

Provides coverage to owners of storage garages, parking lots, etc. for liability as
Belies with respect to damage to automobiles left in their custody. Coverage is contingent
upon establishing liability on the part of the insured.

General Partners' Liability Coverage

This type of insurance is also known as General Partners' Liability and Limited Partnership
Reimbursement coverage.
A general partner's management and fiduciary responsibilities to a limited partnership
closely parallel the director's or officers to a corporation. Exposure occurs when general
partners become the financial managers of a limited partnership. The directors and officers
of corporate general partners share this type of exposure.

Hard Market
A seller’s market in which insurance is expensive and in short supply

Home Office
Headquarters of an insurance company. All branch or regional offices are directly under
control of Home Office. For settlement of big claims amount or providing insurance beyond
certain limit amounts etc. cannot be handled without home office intervention

Identity Theft Insurance

Coverage for expenses incurred as the result of an identity theft. Can include costs for
notarizing fraud affidavits and certified mail, lost income from time taken off from work to
meet with law-enforcement personnel or credit agencies, fees for reapplying for loans and
attorney's fees to defend against lawsuits and remove criminal or civil judgments.

Impaired Insurer
An insurer, which is in financial difficulty to the point where its ability to meet financial
obligations or regulatory requirements is in question.

International Insurance Coverages/Exposures

Companies that conduct business overseas need foreign Coverage. This includes importers
and exporters. To qualify, you must be a U.S. commercial business selling, traveling or
consulting overseas.
Examples of Overseas exposures:
1. Export/Import
a. Sales overseas
b. Exhibitions or trade shows

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2. Overseas Deputation of employees

In force
When a policy is valid.

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Inception Date
The beginning date of period of coverage,. The inception date may refer to policies, which
are new, renewed, continuous, installment; installment (related), audits, endorsed, or
canceled.

Increased Limits Coverage

Those limits provided in a policy in excess of the basic limits of insurance. An increased
limit coverage or extended policy pays a certain percentage over the limit to rebuild your
home. Generally, it is 20% to 25% more than the limit of the policy. For example: An
extended policy pays you an additional 20% to 25% to pay for the costs to rebuild your
home as it was before the fire or other disaster – even if it exceeds the policy limit.

Incurred But Not Reported Losses / IBNR

Losses that are not filed with the insurer or reinsurer until years after the policy is sold.
Some liability claims may be filed long after the event that caused the injury to occur.
Asbestos-related diseases, for example, do not show up until decades after the exposure.
IBNR also refers to estimates made about claims already reported but where the full extent
of the injury is not yet known, such as a workers compensation claim where the degree to
which work-related injuries prevents a worker from earning what he or she earned before
the injury unfolds over time. Insurance companies regularly adjust reserves for such
losses, as new information becomes available.

Indemnification
When insurance policies are written on an "indemnification" basis, the insurance company
will reimburse the insured for claim costs already paid. Technically, the insured must not
only suffer a loss, but must also pay the loss before being reimbursed (indemnified) by the
company.

Indemnity Loss
The amount payable by the carrier to the insured, or to some third party on behalf of the
insured, for reimbursement of actual damages sustained. Such losses, therefore, do not
include adjustment expenses. For example: Due to an accident, an insured vehicle collides
'A' with another vehicle 'B', the insurance company would bear an indemnity loss to
compensate the owner of the vehicle 'B', on behalf of the owner of the insured vehicle 'A',
to bring 'B' back to it's original condition.

Independent Agency System

The method of sales, service and distribution of insurance through agents who own their
‘renewals’ and are compensated on a commission basis. The agents usually represent
more than one insurer and have binding authority.

Indivisible Premium Package

A package policy, usually multiple lines in nature, for policy, which the premium is not
allocated to each coverage in the policy. Such policies include farm owners and business
owners.
For example, Package Coverage may include EPLI along with DOP coverage. So that
insured can get risk covered for both under one policy.

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59
Initial Premium
An amount paid at the inception of an insurance contract, usually subject to adjustment at
the end of the policy period.

Inland Marine Coverage

Inland marine insurance indemnifies loss to moving or moveable property and is an
outgrowth of ocean marine insurance. Historically, ocean marine insurance held the
transporter responsible for property loss before, during, and after the completion of the
voyage. In the 1800's, the non-ocean portion of the journey grew as cargoes were
transferred to barge, etc., and the term "inland marine" was coined. Inland marine policies
became known as "floaters" since the property to which coverage was originally extended
was essentially "floating."

Inland Marine Insurance

This broad type of coverage was developed for shipments that do not involve ocean
transport. Covers articles in transit by all forms of land and air transportation as well as
bridges, tunnels and other means of transportation and communication. Floaters that cover
expensive personal items such as fine art and jewelry are included in this category.

Inspection Report
A summary statement of the physical, financial, and moral attributes of an insured or an
applicant for insurance on his property. Inspection bureaus, specialized organizations, and
insurers prepare such reports.

Insurable Interest
Any interest a person has in possible subject of insurance, such as a car or home, of such a
nature that a certain happening might cause him financial loss.

Insurable Risk
Risks for which it is relatively easy to get insurance and that meet certain criteria. These
include being definable, accidental in nature, and part of a group of similar risks large
enough to make losses predictable. The insurance company also must be able to come up
with a reasonable price for the insurance.

Insurance Department
A governmental bureau in each state or territory charged with the administration of the
insurance laws including licensing of agents and insurance companies and regulation and
examination of them. In some jurisdictions, a division of some other state department or
bureau.

Insurance Pool
A group of insurance companies that pool assets, enabling them to provide an amount of
insurance substantially more than can be provided by individual companies to ensure large
risks such as nuclear power stations. Pools may be formed voluntarily or mandated by the
state to cover risks that can’t obtain coverage in the voluntary market such as coastal
properties subject to hurricanes.

Insurance Regulatory Information System / Iris

Uses financial ratios to measure insurers’ financial strength. Developed by the National
Association of Insurance Commissioners. Each individual state insurance department
chooses how to use IRIS.

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60
Insurance Score
Insurance scores are confidential rankings based on credit information. This includes
whether the consumer has made timely payments on loans, the number of open credit card
accounts and whether a bankruptcy filing has been made. An insurance score is a measure
of how well consumers manage their financial affairs, not of their financial assets. It does
not include information about income or race.
Studies have shown that people who manage their money well tend also to manage their
most important asset, their home, well. And people who manage their money responsibly
also tend to handle driving a car responsibly. Some insurance companies use insurance
scores as insurance underwriting and rating tool.

Insurance To Value
Insurance written in an amount approximating the value of the property insured.

Insured name
The covered insured party on the policy.

Insuring Clause
That part of an insurance policy or bond, which states the agreement of the insurer to
protect the insured against some form of loss or damage. Also known as ‘Insuring
Agreement.’

Integrated Benefits
Coverage where the distinction between job-related and non-occupational illnesses or
injuries is eliminated and workers compensation and general health coverage are
combined. Legal obstacles exist, however, because the two coverages are administered
separately. Previously called twenty-four hour coverage.

Joint Loss Agreement

This endorsement is intended to facilitate payment of insurance proceeds when there are
two different carriers for the property and the boiler and machinery coverage and there is a
disagreement as to the amount of loss to be paid by each carrier.

Judgment Rates
Rates established by the judgment of the underwriter with or without the application of a
formal set of rules or a schedule.

Key Location
Used on property reservations to identify the business being reserved. The key location is
defined in one of the following ways:
 Highest value of the property
 Highest exposure

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Knowledge and Notice of Occurrence

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If an insured’s employee or agent fail to notify the carrier of any covered accident
that they have knowledge of it will not invalidate the coverage afforded under the
policy with respects the insured.

Lapse
Termination of a policy because of failure to pay the premium. In Life Insurance, the term
refers to nonpayment before the policy has developed any non-forfeiture values. If it has,
and the premium is not paid, it is said to have lapsed "except as to any non-forfeiture
benefits that may apply."

Lapsed Policy
One, which has been allowed to expire because of nonpayment of premiums.

Liability Coverage Extensions

(1) Knowledge of Accident
It is hereby understood and agreed that knowledge of an accident by the agent,
servant, or employee of the insured shall not in itself constitute knowledge by the insured,
unless the insured shall have received such notice from its agent, servant, or employee.
(2) Notice of Accident
It is further agreed that failure of any agent, servant, or employee of the insured
(other than the insured) to notify the company of any accident of which he/she has
knowledge shall not invalidate the insurance afforded by this policy as respects the named
insured.
(3) Unintentional Errors or Omissions
Coverage afforded by this policy shall not be invalidated or affected by any
inadvertent errors, omissions, or improper descriptions of premises, elevators, or other
descriptions mentioned in this policy.
(4) Broadened Named Insured Wording
These coverages will automatically apply to ". . . any affiliated, associated, allied or
subsidiary company or entity (including subsidiaries thereof), now held or hereinafter
acquired or constituted . . ."
(5) Liability Waiver of Subrogation
Carrier agrees that it shall accept no rights of subrogation against any grossly
negligent employee or executive officer of any named insured.
(6) Voluntary Workers' General Liability
The word "insured" has been amended to include these individuals for General
Liability coverages.

Limit Aggregate
The maximum amount of damages that the insurer will pay under a contract, or section of
a contract, during the contract period.

Limit Basic
The limit of liability for which the basic rates on a liability contract is quoted.
Generally in bodily injury liability insurance, $5,000 in respect of one person, and $10,000
in respect of one accident or occurrence; in property damage liability insurance, $1,000 (in
automobile insurance, $5,000) in respect of one accident or occurrence.

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Limit Excess
A limit higher than the basic limit.

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Limits of Liability
The maximum amount for which an insurer is liable as set forth in the insurance contract.
For example: For an auto policy which has a limit of $1,000 per person insured in case of a
loss, the insurer would be paying a maximum of $1,000 per person regardless of the actual
loss suffered by the insured. Limits could be specified in many ways: in terms of amount
paid per person, or in terms of the total amount per event.

Line
Type or kind of insurance, such as personal lines.

Loading
An amount added to the basic rate or premium to cover expense to the insurance company
in securing and maintaining the business. This term is also used in connection with inland
marine insurance as the amount added to the fire rate to cover additional perils.

Loss Adjustment Expense (LAE)

The expense incurred by the ceding insurer in the defense and settlement of claims under
its policies but not the insurer's overhead expenses. The definition of LAE depends on the
terms of the reinsurance contract.

Loss Control
Any activity designed either to prevent losses from occurring or to reduce the size of losses
that have already occurred.

Loss Costs
The portion of an insurance rate used to cover claims and the costs of adjusting claims.
Insurance companies typically determine their rates by estimating their future loss costs
and adding a provision for expenses, profit, and contingencies.

Loss Expectancy
An underwriter's estimate of the probable maximum loss to be suffered on an exposure
being considered, with attention given to the expected level of loss prevention activities on
the part of the insured.

Loss Frequency
The number of times a loss occurs over a specific period of time.

Loss of Maintenance Fees Coverage

This coverage protects the association against the loss of maintenance fees when
occupancies have been interrupted or impaired by the occurrence of any insured peril.
This is a form of Business Interruption insurance for the association. It assures continuous
income while the building is untenantable.

Loss of Use
A provision in homeowners and renters insurance policies that reimburses policyholders for
any extra living expenses due to having to live elsewhere while their home is being
restored following a disaster.

Back To Glossary
Loss Payee
The party to whom money or insurance proceeds is to be paid in the event of loss, such as
the line-holder on an automobile or the mortgagee on real property.

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Loss Ratio
The percentage of incurred losses to premiums earned by the insurer.

Loss Reserves
The company’s best estimate of what it will pay for claims, which is periodically readjusted.
They represent a liability on the insurer’s balance sheet.

Losses Incurred
The total losses, whether paid or not, sustained by an insurer during a given period, e.g.,
12 months.

Losses Outstanding
A summary statement prepared by Property, Life, and Liability insurers showing claims not
yet settled.

Losses Paid
A summary of claims paid.

Lost Policy Release

A statement signed by the insured releasing insurance company from all liability under a
lost or mislaid contract of insurance.

Manufacturer's Output Policy

A contract that provides coverage for personal property of (MOP) the manufacturer on an
all-risk basis, while the property is away from the premises of the insured.

Medical Payments Insurance

A liability coverage in which the insurer agrees to reimburse the insured and others,
without regard for the insured's liability, for medical or funeral expenses incurred as the
result of bodily injury or death by accident.

Minimum Premium
The smallest premium, which insurance company will accept for writing a particular policy
or bond for a designated period.

Multi-Peril Policy
A policy, which is a combination of fire and casualty (or fire, casualty and marine
coverage's) in a single contract.

Back To Glossary
Municipal Bond Insurance
Coverage that guarantees bondholders timely payment of interest and principal even if the
issuer of the bonds defaults. Offered by insurance companies with high credit ratings, the
coverage raises the credit rating of a municipality offering the bond to that of the insurance

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company. It allows a municipality to raise money at lower interest rates. A form of financial
guarantee insurance.

Municipal Liability Insurance

Liability insurance for municipalities.

Mutual Holding Company

An organizational structure that provides mutual companies with the organizational and
capital raising advantages of stock insurers, while retaining the policyholder ownership of
the mutual.

Mutual Insurance Company

A company owned by its policyholders that return part of its profits to the policyholders as
dividends. The insurer uses the rest as a surplus cushion in case of large and unexpected
losses.

Named Insured
That person, partnership, or organization for whom an insurance contract is written, and is
specifically designated as being 'insured' in the contract.

Named Perils
Perils specified in a policy as those against which the policyholder is insured.

No-fault Insurance
A law permitting the individual automobile victim to collect directly from his/her own
insurance company for medical and hospital expenses, regardless of who was at fault in
accident.

Non-admitted Carrier/Insurance
An insurer or Insurance Co. that has not been licensed to write insurance in a given
jurisdiction.

Non-Fleet Rating
Refers to the situation in commercial automobile insurance when the insured own four or
less vehicles and is, therefore, not eligible for fleet rating.

Nonresident Agent
An agent licensed in a state in which he does not live.

Notice Of Loss
A written notice required by insurance companies immediately after an accident or other
loss. Part of the standard provisions defining a policyholder's responsibilities after a loss.

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O

Occupancy
Refers to the activity or property of the insured, i.e., what the building is used for or the
nature of its contents.

Occurrence Coverage
Liability coverage, which protects the insured against, claims arising from all occurrences
that take place during the policy period, regardless how far into the future such claims are
filed or reported.

Ordinance Or Law Coverage

Endorsement to a property policy, including homeowners, that pays for the extra expense
of rebuilding to comply with ordinances or laws, often building codes, that did not exist
when the building was originally built. For example, a building severely damaged in a
hurricane may have to be elevated above the flood line when it is rebuilt. This endorsement
would cover part of the additional cost.

Other-Insurance Clause
A provision stating what is to be done at the time of loss in case any other contract of
insurance protection includes the same property and perils.

Outstanding Losses
Estimates of all payments yet to be made on a claim, at the time of accounting or
reporting; synonymous with 'Loss Reserves.'

Out of state license

Issued to producer who is allowed to deal with business outside the state they are
registered in.

Over-Insurance
A risk insured for more than its fair or reasonable value is over-insured.

Over-Line
An amount of liability larger than the amount the company wishes to underwrite.

Overriding Commission
In reinsurance, the broker who receives a commission for placing a retrocession of a
reinsurer through yet another broker receives and overriding commission.

Partial Loss
A loss, which does not completely destroy or render useless the insured property nor
exhaust the insurance applied to it.

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Participating or Pro Rata Reinsurance
A form of reinsurance under which the reinsurer participates in all premiums and losses
much a quota share, first surplus and second surplus. It is also called "pro rata
reinsurance."

Peril
A cause of possible damage or loss, such as fire, hail, aircraft, riot and civil commotion,
smoke, vandalism, sprinkler leakage, sinkhole collapse and mine subsidence, volcanic
action, explosion, burglary, collision, flood or windstorm. Also certain other so-called
'broad form' perils.
Broad form policies add coverage against an additional group of perils including:
 Breakage of glass
 Falling objects
 Weight of snow, ice or sleet
 Water damage - accidental discharges or overflows of water or steam
 Sudden and accidental tearing apart, cracking, burning or bulging
 Freezing
 Sudden and accidental damage from artificially generated electric current
 Volcanic eruption
Most of perils affect property by leaving it in an altered state. A collision may change a car
to dented scrap. A peril may also affect a person's ability to possess or use piece of
property. E.g., when property is lost or stolen.

Per Risk Excess Reinsurance

Reinsurers’ liability under any type of excess of loss reinsurance is for the balance of any
loss in excess of a specified sum.

Example:

Consider a contract where the reinsurers’ liability is for $100,000 to $50,000.

Loss Loss Paid by ceding Paid by Balance ($)

amount($) company($) reinsurer ($)
A 40000 40000 Nil Nil
B 60000 50000 10000 Nil
C 160000 50000 100000 10000

In loss B as the reinsures’ liability is above $50000 so the ceding company will pay any loss
below 50000 and the reinsurer will pay rest.
As loss C exhaust the treaty capacity, the balance of 10000 will fall back to ceding
company.

Physical Damage Coverage (PD)

Section III of the Business Auto Policy (BAP) covers the insured's own vehicles when
damaged from such perils as fire, collision, comprehensive etc.

PIP
Personal Injury Protection (for automobile insurance). This refers to first-party, no-fault
coverage for damages due to an automobile accident. In property, this refers to 'Public
and Institutional Risk Rating Plan.'

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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.

Policyholder
(1) The person in actual possession of an insurance policy.
(2) Often used loosely to refer to the policy owner and/or insured

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.

Pool
An organization of insurers or reinsurers through which particular types of risks are under
written with premiums, losses, and expenses shared in agreed ratios.

Premises
The particular location of the property or a portion of it as designated in an insurance
policy.

Premium Advance
Certain policies are written under conditions that provide that the final premium is not
determined until the policy has expired. The premium charged at the start of the policy is
the "advance," or
"Provisional" or "deposit" premium.

Premium Discount Plan

A formal rating plan that provides for a percentage reduction in premium the highest the
premium, the higher the percentage discount. Such a plan is constructed in recognition
that carrier expenses are not necessarily proportional to increasing premium size.

Premium Earned
That part of the premium applicable to the expired part of the policy period; including the
short-rate premium on cancellation, the entire premium on the account of loss paid under
some contracts and the entire premium on the contract on the expiration of the policy
period.

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.

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Prepaid Policy

68
A policy for which the premium is full term and is due in one lump sum at or near the
policy inception date. A contrasting situation occurs with installment payments, deferred
premium payments, or when the initial premium is provisional.

Primary Insurance Policy

A policy that provides coverage up to limits of liability, which underline those of existing
excess insurance policies.

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.

Professional Liability Insurance

Covers professionals for negligence and errors or omissions that injure their clients.

Proof of Loss
A formal statement made by the insured to the insurance company regarding a claim, so
that the company may determine its liability under the policy or bond.

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 are one segment of the insurance industry. The
other sector is life/health. Outside the United States, property/casualty insurance is
referred to as non-life 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.

Pro Rata Liability Clause

Policy provision that ensures that losses will be paid in the proportion that the amount of
the policy bears to the entire amount of insurance on all policies covering the loss. This
provides for insurance companies to appropriately share in the loss when more than one
policy exists, yet prevents the insured from collecting in total from several insurance
companies and making a profit.

Product Liability Insurance

Protection against financial loss arising out of the legal liability incurred by manufacturer,
merchant or distributor because of injury or damage resulting from the use of a covered
product.

Prospect:
The term commonly used to refer to a potential buyer of insurance

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Prospective Rating

69
A method of experience rating whereby the rate is fixed prior to the policy period and is
based on the experience of risk over a prior period of time (usually three years).
Prospective Experience Rating is referred to simply as 'Experience Rating.'

Proximate Clause
The effective cause of loss or damage; an unbroken chain of cause and effect between the
occurrence of an insured peril and damage to property; e.g., fire is the proximate cause of
damage done by water used in extinguishing it.

Pure Loss Cost

Reinsurance losses and allocated loss expense expressed as a percentage of the ceding
company's gross earned premiums for a specified period of time.

Quota Share Reinsurance

A form of reinsurance whereby the reinsurer accepts a stated percentage of each exposure
written by the ceding company on a defined class of business.

Rate
The cost of a given unit of insurance. For example, in Ordinary Life Insurance, it is the
price of $1,000 of the face amount. In Disability Income Insurance, it is usually the price
per $10 or per $100 of monthly benefits. In Property Insurance, it is the rate per $100 of
value to be insured. The premium, then, is the rate multiplied by the number of units of
insurance purchased.

Reciprocal Insurance
Insurance provided by subscribers at a reciprocal exchange. Each subscriber agrees to
become liable for his share of the losses and expenses of all subscribers and authorizes the
attorney-infact to effect his exchange of insurance with the other subscribers. A separate
account is often maintained with each subscriber, to which are credited his premium
disbursements.

Example:
If a group of people come together and decide to contract with each other to spread the
risks and losses inherent in their activities. If one member of the group suffers a loss, the
others contribute to the payment of that loss based on a pre-agreed formula

Regional Office
Same as Branch Office

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70
Renewal Certificate
A policy designed for use when values of the insured property fluctuate during the policy
term. Usually an adequate limit of liability is set, and then the insured reports the values
actually on hand on a given day of each month. At the end of the year or policy term,
these reported values are verified and the premium adjusted accordingly.

Replacement Cost
The cost of replacing property without a deduction for depreciation. i.e. to replace an item
with a new one of a like kind.

Reporting Contract
An insurance contract covering stocks of goods and often other types of property in their
actual amounts, these amounts’ being reported periodically by the insured, and the
premium is based on them.

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.

Retrospective Rating
A method of Experience Rating whereby the final premium for coverage is determined at
the end of the policy period and is based on the loss experience of the risk during that
period. Minimum and Maximum premium limitations are established prior to the policy
inception date. Retrospective rating is usually superimposed upon Prospective Experience
Rating.

Return Premium
The portion of the premium returned to policy owner as a result of cancellation, rate
adjustment or a calculation than an advance premium was in excess of the actual
premium.

Rider
An attachment to an insurance policy that alters the policy’s coverage or terms.

Risk and Insurance Management Society (RIMS)

A society of individuals involved in the profession of risk management and the insurance
buying.

Risk Management
Management of the varied risks to which business firms or corporation might be subject. It
involve analyzing all exposures to gauge the possibility of loss and determining how to
minimize these exposures by using such methods as reducing or eliminating the risk,
practice safety and security measures or transferring the risk, usually through 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.

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S

Salvage
The value of property after it has been damaged by fire or other perils. It may also be
considered to be the property itself, which an insurance company secures after making
payment on a claim.

Schedule of Insurance
List of individual items covered under one policy.

Schedule Rating
Under Liability and Automobile Insurance, the schedule-rating plan allows credits and
debits for various good or bad features of a commercial risk. An example in automobile
schedule rating would be allowing credits for driver training classes or fleets maintenance
programs. Within established limits, modifications depend entirely on the judgment or the
underwriter. Schedule rating in liability is usually more flexible and is frequently used for
competitive leverage.

Short Rate Cancellation

In insurance and bonding, this term is used to describe the charge required for insurance
or bonds taken for less than one year. Also, in some cases, it denotes the earned premium
of insurance or bonds canceled by the insured before then end of the policy period or term
of bond.

Specific Rate
In fire and allied lines of insurance, it is a rate for an individual building or occupancy
reflecting the individual characteristics as determined by an inspection and application of a
rating schedule. Most specific rates can be found in the ISOTEL system.

Specific Perils Policy

A policy, which specifically states the perils, covered by the insurance contract. The
opposite of an 'All Risk Policy.'

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.

..0000000000000000000Sprinkler Leakage Insurance

Insurance against damage done by the accidental discharge of water from an automatic
sprinkler system, as contrasrance Fund
A fund set up by a state government to provide insurance. Some statutes permit
competition by private insurers, while others may exclude competition from private
insurers.

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Statutory Underwriting
Also known as 'Underwriting Gain or Loss.' It is the Profit or Loss insurance company's
profitability from an insurance operations standpoint. It does not take other sources of
income, such as investments, into account. To calculate, subtract the losses and expenses
from the premiums earned during the year.

Stock Insurance Company

An insurance company owned and controlled by stockholders, usually for the purpose of
making profits.

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.

Subrogation
An insurance carrier may reserve the "right of subrogation" in the event of a loss. This
means that the company may choose to take action to recover the amount of a claim paid
to a covered insured if a third party caused the loss. After expenses, the amount recovered
must be divided proportionately with the insured to cover any deductible for which the
insured was responsible.

Subrogation Clause
A clause giving an insurer the right to pursue any course of action, in its name or the name
of the policy owner, against a third party who is liable for a loss, which has been paid by
the insurer. One of its purposes is to make sure that an insured does not make any profit
from his insurance. This clause prevents him from collecting from both his insurer and a
third party.

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.

Term
The length of a policy period. It also may refer to the length of time for which a specific
coverage is provided, as in those situations where the term of the coverage is less than
that of the entire policy.

Third-Party Administrator
Outside group that performs clerical functions for an insurance company.

Third Party Contract

Protection of the insured against liability for damage to or destruction of the bodies or
property of others. The third party is the person injured or whose property is damaged;
the other two parties being the insured and the insurance company.

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Time Element Insurance

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Insurance that covers expenses resulting from damage or destruction by a covered cause
of loss that continues over a period of time. The amount paid depends on the length of
time during which the expenses accumulate. Examples include Business Income insurance,
Rental Value insurance and extra insurance.

Tort
A tort is an unintentional violation of another person's rights, usually due to negligence. It
is different than a crime, which generally is an intentional violation of others’ rights. A tort
is subject to civil action and subsequent judgment for damages payable to the wronged
party, whereas a crime is subject to criminal action and subsequent penalty.

Transaction Date
The date when a specific transaction such as new business, endorsement, cancellation,
etc., is entered into a system.

Treaty Reinsurance
A treaty is merely a reinsurance contract that reinsures more than a specific risk.

Example:
If your insurer is writing a national book of truckers workers’ compensation insurance, the
insurer may purchase a reinsurance contract to share a portion of the risk of the entire
book of business – as opposed to a specific insured risk. If the risk reinsured is a program
or book of business covering a variety of insured’s in various locations, the reinsurance
agreement most likely is a treaty.

Umbrella Insurance Policy

A policy with its own grant of coverage, which provides limits of liability over Specified
underlying policies and/or self-insured retention, in areas not covered by such underlying
insurance.

Umbrella Liability Coverage

This type of liability insurance provides excess liability protection. Your business needs this
coverage for the following three reasons:
It provides excess coverage over the "underlying" liability insurance you carry.
It provides coverage for all other liability exposures, excepting a few specifically excluded
exposures. This is subject to a large deductible of $10,000.
It provides automatic replacement coverage for underlying policies that have been reduced
or exhausted by loss.

Under-insurance
The result of the policyholder’s failure to buy sufficient insurance. An underinsured
policyholder may only receive part of the cost of replacing or repairing damaged items
covered in the policy.

Underinsured Motorist
A coverage in Business Auto Policy (BAP) under which Coverage the insurer pays damages
to the insured up to specified policy limits, for bodily injury caused by another driver who is
not adequately insured.

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Unearned Premium

74
That portion of the written premium applicable to the un-expired or unused part of the
period for which the premium has been paid. For example, if the one-year premium is
$1200, at the end of the first month of the policy period, the company will have an earned
premium of $100 and have an unearned premium of $1100.

Uninsurable Risk
Risks for which it is difficult for someone to get insurance.

Uninsured Motorist Coverage

A coverage in BAP under which the insurer pays damages to the insured for which another
motorist is liable if that motorist is unable to pay because he/she is uninsured. This
coverage usually applies to Bodily Injury damages only; injuries to the insured caused by a
hit-and -run driver also are covered.

Unintentional Errors And Omissions

Coverage will not be invalidated by any inadvertent errors, omissions or improper
description of premises or elevators.

Unit Assessment Coverage

Unit assessment coverage pays up to $50,000 for your share of an assessment charged
against all unit owners as a result of a covered loss.

Unit Owners' Excess Coverage

This type of insurance expands your insurance coverage to include damage or loss to
alterations, fixtures, and improvements within individual units owned by the unit owner,
caused by the insured perils. This includes damage to air conditioners, clothes washers,
clothes dryers, cooking ovens, cooking ranges, dishwashers, floor coverings, countertops,
kitchen cabinets, refrigerators, and freezers.
This coverage applies only as excess insurance over any other valid and collectible
insurance that would apply in the absence of this policy.

Valuable Papers Coverage

The term "valuable papers" refers to written, printed, or otherwise inscribed documents
and records, including books, maps, films, drawings, abstracts, deeds, mortgages, and
manuscripts.
An "all risk" insurance coverage that covers the cost of research to reconstruct damaged
records, as well as the cost of new paper and transcription.

Valued Policy
A policy under which the insurer pays a specified amount of money to or on behalf of the
insured upon the occurrence of a defined loss. The money amount is not related to the
extent of the loss. Life insurance policies are an example.

Vandalism
The malicious and often random destruction or spoilage of another person’s property.

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Variable Life Insurance

75
A policy that combines protection against premature death with a savings account that can
be invested in stocks, bonds, and money market mutual funds at the policyholder’s
discretion.

Void
A policy contract that for some reason specified in the policy becomes free of all legal
effect. One example under which a policy could be voided is when information a
policyholder provided is proven untrue.

Volcano Coverage
Most homeowners’ policies cover damage from a volcanic eruption.

Waiver
The surrender of a right or privilege. In life insurance, a provision that sets certain
conditions, such as disablement, which allow coverage to remain in force without payment
of premiums.

War Risk
Special coverage on cargo in overseas ships against the risk of being confiscated by a
government in wartime.

Water-Damage Insurance Coverage

Protection provided in most homeowners’ insurance policies against sudden and accidental
water damage, from burst pipes for example. Water damage from floods is covered under
separate flood insurance policies issued by the federal government.

Weather Insurance
A type of business interruption insurance that compensates for financial losses caused by
adverse weather conditions, such as constant rain on the day scheduled for a major
outdoor concert.

Whole Life Insurance

The oldest kind of cash value life insurance that combines protection against premature
death with a savings account. Premiums are fixed and guaranteed and remain level
throughout the policy’s lifetime.

Wrap-Up Insurance
Broad policy coordinated to cover liability exposures for a large group of businesses that
have something in common.

Write
To insure, underwrite, or accept an application for insurance.

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X

X, C, And U Exclusions

Explosion ("X") Hazard

Includes property damage rising out of blasting or explosion.

Collapse ("C") Hazard

Includes structural property damage and property damage to any other property rising out
of the following:
 Grading of land, excavating, burrowing, filling or back-filling, tunneling, pile driving,
or coffer dam or caisson work.
 Moving, shoring, underpinning, razing, or demolition of any building or structure.

Underground ("U") Damage

Includes damage to wires, conduits, pipes, mains, sewers, tanks, tunnels, or any similar
property beneath the surface of the ground or water caused by and occurring during the
use of mechanical equipment for the purpose of grading land, paving, excavating, drilling,
burrowing, filling, back-filling, or pile driving.

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References

10.1 Reference Sites:

www.iii.org

www.coverageglossary.com

www.insurance.com

www.aicpcu.org

10.2 Reference Books

Name Of Book Author

HOW INSURANCE WORKS Barry D. Smith, Eric A. Wiening
GLOSSARY OF INSURANCE TERMS ED.THOMAS E. GREEN
THE COMPLETE IDIOT'S GUIDE TO BUYING INSURANCE AND
BRIAN H. BREUEL
ANNUITIES
SUCCESS IN INSURANCE S.R. DIACON, R.L. CARTER
REINSURANCE MANUAL
411111111111111111111111111111111111111111111111111111111111111111111111
111111111111111111111111111111111111111111111111111111111111111111111111
111111111111111111111111111111111111111111111111111111111111111111111111
111111111111111111111111111111111111111111111111111111111111111111111111
111111111111111111111111111111111111111111111111111111111111111111111111
111111111111111111111111111111111111111111111111111111111111111111111111
1111111111111111111111111111111111111111111111111111111111111111111

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