Asset

Property and resources, such as cash and investments, comprise a person's assets; i.e., anything that has value and can be traded. Examples include stocks, bonds, real estate, bank accounts, and jewelry.

Arson

The deliberate setting of a fire.

Arrearage

Amount of any past due obligation. This term is used to refer to the amount of interest on bonds or dividends on cumulative preferred stock that is due and unpaid.

Arbitration

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

Appreciation

When an investment increases in value, it appreciates. For example, a stock whose price goes from $20 a share to $25 a share, it has appreciated by $5.

Appraisal

A survey to determine a property's insurable value, or the amount of a loss.

Apportionment

The dividing of a loss proportionately among two or more insurers that cover the same loss.

Antitrust Laws

Laws that prohibit companies from working as a group to set prices, restrict supplies or stop competition in the marketplace. The insurance industry is subject to state antitrust laws but has a limited exemption from federal antitrust laws. This exemption, set out in the McCarran-Ferguson Act, permits insurers to jointly develop common insurance forms and share loss data to help them price policies.

Annuity Payments

Periodic payments made to an annuitant or to the annuitant's designated beneficiary. The payments may be made on an annual, semiannual, quarterly, or monthly basis, and may last for life or for a specified period. Moreover, depending on whether the annuity in question is a fixed annuity or a variable annuity, the annuitant (or his/her beneficiary) may receive either payments of a fixed dollar amount or payments that vary in amount according to the value of the underlying securities.

Annuity

A contract sold by life insurance companies that allows you to pay a lump sum or accumulate money over time, and the issuing company guarantees payment to the buyer in the future, usually at retirement. You will not pay income taxes on the money until those payments are made.

Annual Statement

Summary of an insurer's or reinsurer's 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.

Amortization

For loan purposes, the systematic process by which a lender calculates loan payments so as to liquidate a debt over time. Payments are made at specific time intervals to reduce the outstanding debt to zero at the end of the loan period.

Alternate Payee

According to the terms of a qualified domestic relations order (QDRO), an individual who has been granted the right to receive all or part of a participant's benefits under a qualified retirement plan. The alternate payee is generally a spouse, former spouse, child, or other dependent of the qualified plan participant.

All-risk

A type of homeowners insurance that covers losses resulting from each and every peril, except for those specifically excluded by the policy. Also known as open peril coverage.

Aggressive Investment

Such an investment focuses more on increasing the value of the original investment as an investing priority than on price stability or income. As a result, aggressive investments involve more investment risk.

Agent

Insurance is sold by two types of agents: independent agents and exclusive or captive agents. Independent agents are self-employed, represent several insurance companies and are paid on commission. Exclusive or captive agents represent only one insurance company and are either salaried or work on commission.

Affiliation Period

The time an HMO may require you to wait after you enroll and before your coverage begins. HMOs that require an affiliation period cannot exclude coverage of preexisting conditions. Premiums cannot be charged during HMO affiliation periods. Iowa law allows for the use of HMO affiliation periods in small group health plans. See also HMO, Small Group Health Plans.

Adverse Selection

The tendency of those exposed to a higher risk to seek more insurance coverage than those at a lower risk. Insurers react either by charging higher premiums or not insuring at all, as in the case of floods. (Flood insurance is provided by the federal government but sold mostly through the private market.)

Admitted Company

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

Admitted Assets

Assets recognized and accepted by state insurance laws in determining the solvency of insurers and reinsurers.

Administrator

An individual or professional organization, such as a bank's trust department, appointed by the probate court to administer an estate when the owner dies without having made a will or without nominating an executor. An executor may also be appointed if the named executor declines to serve.

Adjustment Period

For adjustable-rate loans, the period of time between interest rate changes. For example, a mortgage with an adjustment period of one year is called a one-year ARM, and the interest rate can change once each year.

Adjusted Gross Income

For federal income tax purposes, gross income less adjustments (e.g., IRA deductible contributions, self-employment health insurance deductions, etc.), but before standard or itemized deductions and personal exemptions.

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.

Additions and Alterations

Improvements made to a home (e.g., a new bathroom or a remodeled kitchen) that increase the home's value and that may require additional homeowners insurance coverage.

Additional Living Expenses

Extra charges covered by homeowners policies over and above the policyholder's customary living expenses. They kick in when the insured requires temporary shelter due to damage by a covered peril that makes the home temporarily uninhabitable.

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.

Actual Cash Value

An amount equivalent to the fair market value of the stolen or damaged property immediately preceding the loss. For real property, this amount can be based on a determination of the fair market value of the property before and after the loss. For vehicles, this amount can be determined by local area private party sales and dealer quotations for comparable vehicles.

Accrued Benefit

Pension benefits earned (vested) based on years of service at a company and credited to the employee using an actuarial method.

Accident and Health Insurance

Coverage for accidental injury, accidental death, and related health expenses. Benefits will pay for preventative services, medical expenses, and catastrophic care, with limits.

Accelerated Death Benefit Rider (ADB)

A rider added to a life insurance policy to protect the insured against financial loss in the event of a terminal illness. An ADB makes living benefits payable to the insured for medical expenses prior to death. Accelerated (or living) benefits paid reduce the death benefit payable to the beneficiary(ies) upon death.

Accelerated Death Benefits

A life insurance policy option that provides policy proceeds to insured individuals over their lifetimes, in the event of a terminal illness. This is in lieu of a traditional policy that pays beneficiaries after the insured's death. Such benefits kick in if the insured becomes terminally ill, needs extreme medical intervention, or must reside in a nursing home. The payments made while the insured is living are deducted from any death benefits paid to beneficiaries.

Acceleration Clause

A loan provision that allows a lender, according to the terms of a mortgage or other loan contract, to make the entire unpaid balance of the loan (including principal and interest) due and payable if specified events of default should occur. Such conditions include failure to meet loan payments on time, insolvency, and nonpayment of taxes on mortgaged property.

457(f)

Under Section 457(f) of the Internal Revenue Code, an employer can set aside money to supplement retirement income for a select group of employees in their organization. Since these programs are designed to attract and retain key employees and do not provide a benefit for all employees, these programs do not qualify for all of the tax advantages that are made available to 401(a) plans, for example.

457

Under section 457 of the Internal Revenue Code, employees of state or local governments, their agencies, and tax-exempt employers can set aside money for retirement on a pre-tax basis through a plan sponsored by their employer. To encourage saving for retirement through these plans, the federal government created special tax advantages for 457 contributions. Different from a 401(k) or other type of qualified retirement plans, a 457 has no requirement to be non-discriminatory.

403(b)

Under Section 403(b) of the Internal Revenue Code, employees of 501(c)(3) non-profit institutions (such as colleges and universities, hospitals, museums, research institutes, and foundations and public schools) can set aside money for retirement on a pre-tax basis through a plan offered by their employer. To encourage saving for retirement through these plans, the federal government created special tax advantages for 403(b) contributions.

401(k)

Under section 401(k) of the Internal Revenue Code, employees of private corporations and, beginning in 1997, some tax-exempt organizations, can set aside money for retirement on a pre-tax basis through a plan sponsored by their employer. To encourage saving for retirement through these plans, the federal government created special tax advantages for 401(k) contributions.

401(a)

This retirement plan meets the qualification requirements of Internal Revenue Code Section 401(a). In this type of plan, employers determine the amount of money that they may contribute on your behalf each year, the requirements that you must meet to receive those contributions, and under what circumstances the money may be made available to you. Some 401(a) plans may allow for employee after-tax contributions or, in the case of a 401(k) plan, employee pre-tax contributions. Types of 401(a) plans include profit sharing plans, pension plans, and money purchase plans.

Types of Life Insurance

Before you get a life insurance agent quote, you will need to know what type of policy you want. Here is an explanation of the two basic

types of life insurance, permanent and term.

Term Life Insurance

Your first option when you get a life insurance agent quote is a term life policy. Term life insurance is the most basic and least expensive type of coverage. Term life provides coverage over a certain period of time, or term, that ranges anywhere from one to 30 years. If you die while the policy is in force, your beneficiary will receive a death benefit. If you are still alive when the term expires, your coverage ceases and your policy has no further value. Usually, you can renew your policy upon expiration, but the premiums will increase as you age and may become unaffordable later in life. If you want to get a life insurance agent quote on a policy that is the least expensive in the short-run, term life is a wise option.

Permanent Life Insurance

Permanent life insurance is the second type of policy on which you can get a life insurance agent quote. Permanent life insurance usually comes in three forms:

• Whole life insurance. Whole life provides insurance protection as well as cash value. With whole life, your premiums will remain fixed for the duration of the policy. Your policy will also accrue cash value on a tax-deferred basis over time. Some whole life policies also provide dividends, though this is not guaranteed. When you get a life insurance agent quote, keep in mind the cash value of this type of policy may be withdrawn from or borrowed against to help you cover major life expenses.
• Universal life insurance. This is a flexible life insurance plan. Universal policies allow you to adjust the death benefit and premium payments (within certain limits) to fit your changing needs. Like whole life insurance, universal life also accrues cash value that can be withdrawn from or borrowed against. You may also use the cash value to pay your premiums. You should consider universal life when you get a life insurance agent quote if you need flexibility in your plan and/or expect your needs to change over time.
• Variable life insurance. If you would like to invest the cash value of your policy in funding options that, in turn, invest in stocks and bonds, you might consider a variable life policy when you get a life insurance agent quote. With variable life, you decide how your cash value is invested, and you also assume the investment risk. Thus, market performance will directly influence the amount of your death benefit.

Term life insurance

Life insurance policy that provides temporary protection, does not build cash value over time, and whose premiums increase as the insured ages.

Premiums

Payments you make to an insurance company to purchase a policy and keep it in effect. When you get a life insurance agent quote, it will estimate your policy's premiums.

Permanent Life Insurance

Any form of life insurance other than term. This type of coverage provides and lifetime of protection and also usually accumulates cash value over time. Consider permanent life when you get a life insurance agent quote if you would like a lifetime of coverage with stable premiums and the opportunity for tax-deferred cash growth.

Insurability

How acceptable an applicant is for insurance.

Death benefit

The proceeds of a life insurance policy. The money that is paid to the beneficiary upon the death of the insured.

Cash Value

The amount of money available in cash for loans or withdrawals. Keep in mind when you get a life insurance agent quote that some policies do not have cash value.

Beneficiary

The person(s) selected by the policyholder to receive the death benefit (life insurance proceeds) upon the death of the insured.

Broker Agent

Independent insurance salesperson who represents particular insurers but also might function as a broker by searching the entire insurance market to place an applicant's coverage to maximize protection and minimize cost. This person is licensed as an agent and a broker.

Broker

Insurance salesperson that searches the marketplace in the interest of clients, not insurance companies.

Best's Capital Adequacy Relativity (BCAR)

This percentage measures a company's relative capital strength compared to its industry peer composite. A company's BCAR, which is an important component in determining the appropriateness of its rating, is calculated by dividing a company's capital adequacy ratio by the capital adequacy ratio of the median of its industry peer composite using Best's proprietary capital mode. Capital adequacy ratios are calculated as the net required capital necessary to support components of underwriting, asset, and credit risks in relation to economic surplus.

Benefit Period

In health insurance, the number of days for which benefits are paid to the named insured and his or her dependents. For example, the number of days that benefits are calculated for a calendar year consist of the days beginning on Jan. 1 and ending on Dec. 31 of each year.

Balance Sheet

An accounting term referring to a listing of a company's assets, liabilities and surplus as of a specific date.