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Cafeteria Plans. An employee benefit that provides a series of flexible health care benefits from which an employee may choose, including a cash only option.

Calendar Year. January 1 through December 31 of the same year. Many deductible amount provisions are on a calendar year basis under major medical plans. Also, benefits under basic hospital surgical and medical plans are usually stated as so much for each calendar year.

Calendar Year Experience. Measures the premiums and losses entered on accounting records during the 12-month calendar.

Cancelable. A contract of insurance that may be terminated by the insurer or insured at any time. Practically every form of insurance is cancelable, except life insurance and those health insurance policies designated as a “guaranteed renewable” or “non-cancelable and guaranteed renewable.” Some states also regulate when, or if, auto policies can be canceled. See Renewability.

Cancellation. Termination of a contract of insurance by voluntary act of the insurer or insured in accordance with the provisions in the contract or by mutual agreement. In most states, the reasons for which an insurance company is permitted to cancel a policy are limited—if the policy has been in effect for at least 60 days or is a renewal policy.

Cancellation Changes Endorsement. An endorsement that must be attached to every commercial property coverage part, unless it is in conflict with state law or is replaced by a special state endorsement that affects the cancellation clause of the common policy conditions.

Cancellation, Flat. See Flat Cancellation.

Cancellation, Pro Rata. See Pro Rata Cancellation.

Cancellation, Short-Rate. See Short Rate Cancellation.

Capacity. The largest amount of insurance or reinsurance available from a company. In a broader sense, it refers to the largest amount of insurance or reinsurance available in the marketplace.

Capital Stock Insurer. See Stock Insurer.

Capital Stock. The shares of ownership in a corporation.

Capital Sum. The maximum lump sum payable in the event of accidental death or dismemberment. See Principal Sum.

Capital Transaction. The sale of a capital asset, such as stock, which results in the transaction being taxed as ordinary income and not as a dividend.

Capitation (CAP). A rate paid, usually monthly, to a health care provider. In return, the provider agrees to deliver the health services agreed upon to any covered person.

Captive Agent. One who sells insurance for only one company as opposed to one who represents several. See also Exclusive Agency System.

Captive Insurer. A legally recognized insurance company organized and owned by a corporation or firm whose purpose is to use the captive to write its own insurance at rates lower than those of other insurers. Usually, it is a nonadmitted insurer that has the right, under special circumstances, to reinsure with an admitted insurer.

Care, Custody and Control. Most liability insurance policies exclude coverage for damage to property in the care, custody or control of the insured. In some cases this type of coverage can be purchased through certain forms of inland marine insurance, like installation floaters, and in other cases this exclusion can be made less restrictive by adding a broad form property damage endorsement.

Cargo Insurance. A policy covering cargo transported by a carrier.

Carpenter Cover. See Spread Loss Reinsurance.

Carrier Replacement. This refers to a situation where one carrier replaces one or more carriers.

Carrier. (1) Sometimes refers to the insurer. The term “insurer” is preferred because of the possible confusion of “carrier” with transportation. (2) Usually a commercial insurer contracted by the Department of Health and Human Services to process Medicare Part B claims payments. See also Insurer.

Carryover Provision. In major medical policies, allowing an insured who has submitted no claims during the year to apply any medical expenses incurred in the last three months of the year toward the new calendar year’s deductible.

CAS. See Casualty Actuarial Society.

Case Management. The assessment of a person’s long-term care needs and the appropriate recommendations for care, monitoring and follow-up as to the extent and quality of services to be provided.

Case Manager. A person, usually an experienced professional, who coordinates the services necessary under the case management approach.

Case Mix. The number of cases requiring different needs and uses of hospital resources.

Cash Flow Plans. Premium payment schemes that allow an insured to retain a large part of the premium and pay it out over a time period such as a year.

Cash Flow Underwriting. The use of rating and premium collection techniques by insurance companies to maximize interest earnings on premiums.

Cash Refund Annuity. An annuity contract which provides that if at the death of the annuitant installments paid out have not totaled the amount of the premium paid for the annuity, the difference will be paid to a designated beneficiary in a lump sum.

Cash Surrender Value. The amount of cash due an insured who surrenders cash value life insurance. Such surrender, with consequent termination of all insurance benefits, is often called “cashing out” or “cashing in” a policy. See Nonforfeiture Values.

Cash Value. (1) See Actual Cash Value. (2) See Cash Surrender Value.

Casualty Actuarial Society (CAS). A professional society for actuaries in areas of insurance work other than life insurance. This society grants the designation of Associate and Fellow of the Casualty Actuarial Society (ACAS and FCAS).

Casualty Insurance. Insurance that is primarily concerned with the legal liability for losses caused by injury to persons or damage to the property of others. Includes such diverse forms as plate glass insurance, crime insurance, boiler and machinery insurance and aviation insurance. Many casualty insurers also write surety bonds. Casualty insurers write forms of insurance not considered property forms. Contrast with Property Insurance.

Catastrophe Hazard/Loss. The hazard of large loss by reason of occurrence of a peril to which a very large number of insureds are subject (e.g., widespread loss due to a hurricane or tornado).

Catastrophe Models. Models used by insurance companies as a basis to estimate homeowner losses. (The models were originally developed by Applied Insurance Research (AIR) of Boston.)

Catastrophe Policy. An older name for major medical. See Major Medical.

Catastrophe Reinsurance. Excess of loss reinsurance which, subject to a specified limit, indemnifies the ceding company against an amount of loss in excess of a specified amount as the result of an accumulation of losses resulting from a catastrophic event or a series of catastrophic events.

Caused Accidents. An incident in which an innocent victim is made an unwitting participant in an actual accident to obtain insurance money, such as a sideswiping (law enforcement people call this scam swoop and squat”).

Causes of Loss. Under the latest commercial property, inland marine and crime coverage forms, this term replaces the earlier term “perils” insured against.

Causes of Loss Forms. Commercial property forms stating the perils insured against, additional coverages provided, and exclusions that apply. There are four causes of loss forms—basic, broad, special and earthquake.

Caveat Emptor. Let the buyer beware.

CCRCs. See Continuing Care Retirement Communities (CCRCs).

Cease and Desist Order. An order of the state Insurance Commissioner or of a court requiring that a company/ person stop engaging in a particular act or practice, usually involving insurance trade practices.

Cede. (1) The act of buying reinsurance. (2) To transfer to a reinsurer all or part of the insurance or reinsurance written by a ceding company.

Ceding Company. An insurer that cedes all or part of the insurance or reinsurance it has written to another insurer. A company that has placed reinsurance, distinguished from the company that accepts it.

Certificate. See Certificate of Insurance or Participation.

Certificate of Authority (COA). (1) A certificate issued by the state that licenses the operation of an HMO (Health Maintenance Organization). (2) A certificate showing the powers that an insurer grants to its agents. (3) A certificate issued by a state department of insurance showing the power of an insurer to write contracts of insurance in that state.

Certificate of Convenience. A temporary license or permit empowering a person to act as an agent even though not fully licensed according to the law. Usually this certificate is granted to an agent who is studying for a licensing examination. It may also be issued to the administrator or executor of the estate of an insurance agent, who must have the authority of an agent to settle the estate, or to someone acting for an agent during a disability or an absence such as military duty.

Certificate of Insurance. (1) A statement of the coverage and general provisions of a master contract in group insurance that is issued to individuals covered in the group. (2) A form that verifies that a policy has been written and states the coverage in general, often used as proof of insurance in loan transactions and for other legal requirements.

Certificate of Need (CON). A certificate issued by a governmental body, certifying that the proposed facility will meet the needs of those for whom it is intended. May include constructing a new health facility, offering a new or different health service or acquiring new medical equipment.

Certificate of Reinsurance. A short-form documentation of a reinsurance transaction.

Certiorari. A writ issued by a higher court to a lower court asking the lower court to forward the

record of a particular case in question.

Cession. The unit of insurance transferred to a reinsurer by a ceding company. It also refers to the process of ceding insurance to a reinsurer.

Cestui Que Vie. The person whose life measures the duration of a trust, gift, estate or insurance contract. In life and health insurance it is the person on whose life or health the policy is written (e.g., the insured, policyholder or policyowner).

CGL. See Commercial General Liability Coverage Part.

Change Endorsement. When adding an endorsement after a policy is in effect, in most cases a change endorsement must be issued. The endorsement lists the policy number and effective date of the change, and acts something like a cover letter, by providing information about an endorsement.

Change of Beneficiary. A mandatory provision that says the policyholder (usually the insured) has the right to name or change a beneficiary. Since a disability income policy may include an accidental death benefit, this provision is relevant—whether the policy comes from a health insurance company or a life insurance company. The only time when this is not the case is if the beneficiary was designated as an irrevocable beneficiary.

Change of Occupation Provision. (1) A provision in a health insurance policy that allows the insurer to adjust policy benefits if the insured has changed to a more hazardous occupation. (2) A provision that provides a method for handling disability income claims if the insured has changed occupations since the initial application. This provision allows the insurer to adjust benefits or premiums to reflect the change in occupation. If this provision is not in the policy, then no changes can be made.

Chapter 7. Also called liquidation, this is the most common type of bankruptcy proceeding. It involves the appointment of a trustee who collects the nonexempt property of the debtor, sells it and then distributes the proceeds to the creditors.

Charter. (1) To rent or lease a ship or boat. (2) Usually the same as articles of incorporation. This is the grant of rights from a state or federal government, such as the right to incorporate and transact business.

Chartered Life Underwriter (CLU). A designation granted by the American College of Life Underwriters upon successful completion of a series of examinations. This is a popular professional designation among people who sell life insurance.

Chartered Property and Casualty Underwriter (CPCU). A designation granted by the American Institute of Property and Casualty Underwriters upon successful completion of a series of examinations.

Chattel. Personal property items.

Chattel Mortgage. A mortgage where the collateral is personal property, rather than land or buildings.

Chemical Dependency Services. The services required in the treatment and diagnosis of chemical dependency, alcoholism and drug dependency.

Chemical Equivalents. Drugs that contain identical amounts of the same ingredients.

Christian Science Organization. A religious organization that is certified by the First Church of Christian Scientists. The organization may also be Medicare-certified as a hospital or skilled nursing facility.

Churning. An illegal practice where insurance agents unnecessarily replace existing life insurance for the purpose of earning additional (higher) first year commissions.

Civil Commotion. An uprising of a large number of people, usually resulting in damage to property. Generally describes one of the extended coverage perils in the extended coverage endorsement.

Civilian Health and Medical Program of the Uniformed Services (CHAMPUS). Part of the Uniformed Services Health Benefits Program that supplements medical care available for families of active, deceased and retired military personnel.

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

Claim Expense. The expense of adjusting a claim, such as investigation and attorneys’ fees. It does not include the cost of the claim itself. Other expenses incurred by the company, such as witness fees and any trial costs assessed against the insured are also covered.

Claim Report. A report filed by an agent setting forth the facts of a claim. Same as loss report.

Claim Representative. See Adjuster.

Claimant. The person making a demand for payment of benefits.

Claims Payment Provision. A provision that identifies to whom benefits will be paid. This, of course, is the insured person, or loss payee. It is possible that policy benefits may be paid to a third party, such as a doctor or hospital, if the insured person executes a proper assignment form.

Claims Reserve. Amounts set aside to meet costs of claims incurred but not yet finally settled (e.g., a workers’ compensation case where benefits are payable for several years. At any given point in time, the reserve would be the funds kept based on the estimate of what the claim will cost when finally settled).

Claims Tail. Claims that take place after the end of a policy period create an exposure known as a claims tail. Coverage is automatically built into the insuring agreements of occurrence forms.

Claims-Made Coverage. A policy providing liability coverage only if a written claim is made during the policy period or any applicable extended reporting period. For example, a claim made in the current year could be charged against the current policy even if the injury or loss occurred many years in the past. If the policy has a retroactive date, an occurrence prior to that date is not covered. Contrast with Occurrence Coverage.

Class (or Classification). A group of insureds having the same general characteristics who are grouped together for rating purposes. Class rates apply to dwellings and apartments, since they usually have the same general characteristics and are exposed to the same perils.

Class Action Suit. A legal device allowing a group of individuals with a claim against a company or an individual to join together as plaintiffs in a single suit.

Class Rate. A rate for risks of similar hazard. Class rates, for example, apply to dwellings.

Classified Insurance. Life or health insurance on risks which do not meet the standards for the regular manual rate. See also Substandard.

Clause. A section of a policy contract or endorsement dealing with a particular subject (e.g., a subrogation clause deals with the rights of the insurer in the event of payment of a loss under the contract).

Cleanup Fund. Policies whose express purpose is to pay final expenses of death.

Clear Space Clause. A clause requiring that insured property, such as stacks of lumber, be stored at some particular distance from each other or from other property.

Clerical Error. A provision in a group health insurance policy that provides if there is an error or omission in the administration of a group policy, the coverage is considered to be what it would be if there had been no error or omission.

Close Corporation. A corporate form of business controlled and operated by a small, close group of persons such as family members. The corporation’s stock is not sold to outsiders.

Closed Panel. A situation where covered insureds must select one primary care physician—the only one allowed to refer the patient to other health care providers within the plan. Also called closed access or gatekeeper model.

CLU. See Chartered Life Underwriter.

Cluster or Patio Homes. A group of houses similar in every way to single-family homes, except that the residents share ownership and maintenance of the land in the development—often a golf course or other recreation facility.

COB. Coordination of Benefits. See Nonduplication of Benefits.

COBRA. See Consolidated Omnibus Budget Reconciliation Act of 1986.

Codicil. A change or amendment to a will.

Coding. A method of putting information into a numerical form for statistical use. Most information on policies is coded and then put into reports.

Coercion. An unfair trade practice that occurs when someone in the insurance business applies a physical or mental force to persuade another to transact insurance.

Cognitive Impairment. A deficiency in the ability to think, perceive, reason or remember resulting in loss of the ability to take care of one’s daily living needs.

Coinsurance Clause. (1) A provision stating that the insured and the insurer will share all losses covered by the policy in a proportion agreed upon in advance. See also Percentage Participation. (2) A clause under which the insured shares in losses to the extent that he or she is underinsured at the time of loss. The insurer grants a reduced rate to the insured providing the insured carries insurance 80, 90 or 100 percent to value. If, at the time of loss, the insured carries less coverage than required, the loss must be shared. For example, if an insured has a building worth $100,000 and carries an 80 percent coinsurance clause, it means that the insured agrees to carry at least $80,000 of insurance. If the insurance carried is just $60,000, then any loss under the policy would be paid for on the basis of the comparison of $60,000 (amount carried) divided by $80,000 (amount agreed upon in advance) times the amount of the loss. Thus, in the event of a $10,000 loss the insured would only receive 75 percent of a loss or $7,500.

Cold Lead Advertising. An illegal method of marketing insurance policies (often associated with Medicare supplement policies) that fails to disclose in a conspicuous manner the solicitation of insurance or other similar coverage, and that further contact will be made by an insurance agent, other producer or insurer.

Collapse. Literally, to cave in or give way. Several court decisions have interpreted collapse as the “loss of structural integrity.” See Blasting and Explosion Exclusion.

Collateral Assignment. Assignment of a life insurance policy or its value as security for a loan. In the event of default, the creditor would receive proceeds or values only to the extent of the creditor’s interest.

Collateral Source. A rule allowing a plaintiff to recover damages even if the plaintiff has already recovered damages from a source other than the defendant.

Collateral Split Dollar. A split dollar plan in which the employee controls the policy and pledges it as collateral for a series of employer loans to pay the premiums.

Collection Book. The debit agent’s record book showing the amount collected on each policy, the week of the collection and the policy period for which the premium has been paid.

Collection Commission. A percentage of premiums collected that is paid to an agent as the commission on collections of debit life insurance premiums.

Collection Fee. An industrial life insurance agent’s fee. Serves as compensation for making policy premium collections for which no commission is paid.

College Retirement Equities Fund (CREF). An organization affiliated with the Teachers Insurance Annuity Association that sells a variable annuity to college and university personnel.

Collegia. Groups of associations in ancient Rome that were influential historically in the development of life insurance and pensions. (The forerunners of mutual benefit societies or friendly societies.)

Collision, Convertible. See Convertible Collision Insurance.

Collision Damage Waiver (CDW). A waiver offered by rental companies (also called loss damage waiver) that releases an insured from responsibility for damage to the rental car, provided the insured complies with the rental contract terms. CDW often duplicates coverage an insured already has.

Collision Insurance. Auto insurance that covers loss (direct or accidental) to the insured’s own vehicle caused by its collision with another vehicle or object or its upset. It does not cover bodily injury or property damage liability arising out of the collision.

Collusion. An agreement, usually secret, between two or more persons to defraud or deprive another or others of their property or rights.

Combination Annuity. A contract that combines both the guarantees of a fixed annuity and the nonguarantees and investment risk of a variable annuity.

Combination Business Interruption Extra Expense Insurance. A policy with both business interruption and extra expense coverages in a single contract. See Business Income Coverage Form.

Combination. An agent, agency or insurer that sells both industrial life and ordinary life policies.

Combination Crime Coverage Plan. Under the latest commercial lines program, two combination crime coverage plans are available. When written with a separate limits option, any combination of a variety of coverages may be included at different limits (coverage is similar to the earlier comprehensive dishonesty, disappearance and destruction (3D) policy). When written with a single limit, major coverages are mandatory, optional coverages maybe included, but one limit applies to all coverages purchased (coverage is similar to the earlier blanket crime policy).

Combination Plan. The combining of life insurance contracts with a fund called a side fund or auxiliary fund in order to increase the amount of money available for a pension or annuity at some future date.

Combination Plan Reinsurance. Combined reinsurance that provides that in consideration of a premium, which is a fixed percentage of the ceding company’s subject premium on the business covered, the reinsurer will indemnify the ceding company for the amount of loss of each risk in excess of a specified retention and subject to a specified limit and, after deducting the excess recoveries on each risk, the reinsurer will indemnify the ceding company against a fixed quota share percent of all remaining losses.

Combination Policy. A policy made up of the contracts of two or more insurers in which each provides a different kind of insurance. Once used in auto insurance when state law limited casualty companies to the writing of liability insurance and fire insurance companies to physical damage insurance, combination policies are rarely written today.

Combined Annuity Mortality Table. A mortality table published in 1928 for use in determining rates for group annuities.

Combined Ratio. The sum of an expense ratio and a loss ratio. An underwriting profit occurs when the combined ratio is under 100 percent and an underwriting loss occurs when the combined ratio is over 100 percent.

Combined Single Limit (CSL). The maximum amount that the insurance company must pay for all damages arising out of a single accident. The CSL is a single limit of protection for both bodily injury and/or property damage, contrasted with split limits, where specific limits apply to bodily injury and property damage separately.

Commercial Blanket Bond. A bond that covers the insured against the dishonesty of all regular employees. A single amount of coverage applies to any one loss, regardless of the number of employees involved in the loss. See also Blanket Bond, and contrast with Blanket Position Bond.

Commercial Carrier Regulations. Special regulations that apply to commercial carriers of both passengers and cargo because of the risk of common carrier accidents. State and federal laws have created minimum financial responsibility requirements for commercial carriers that may be met by purchasing insurance or obtaining a surety bond guaranteeing payment in amounts which at least equal the minimum limits. In some cases, full or partial self-insurance is permitted, if the carrier provides the necessary financial data to demonstrate the ability to fully or partially self-insure.

Commercial General Liability (CGL) Policy. General liability coverage that is written as a monoline policy or as part of a commercial package. The latest forms include all sublines, provide very broad coverage, and two variations are available—occurrence or claims-made coverage.

Commercial Lines. Insurance for businesses, professionals and commercial establishments. See also Business Insurance. Contrast with Personal Lines.

Commercial Package Policy (CPP). A commercial lines policy that contains more than one of the following coverage parts: commercial property, commercial general liability, commercial inland marine, commercial crime, boiler and machinery insurance, commercial auto insurance and farm coverage. In the late 1980s, ISO introduced a modular approach for constructing commercial property insurance policies. Instead of just updating old policies, ISO developed a series of specialized forms, with each form fulfilling a specific policy function. The right combination of forms would create a complete, custom-made policy.

Commercial Policy. Policies that do not guarantee renewability.

Commercial Property Coverage. Property coverage that is written as a monoline policy or part of a commercial package.

Commingling. An illegal practice that occurs when an agent mixes personal funds with the insured’s or insurer’s funds.

Commission. (1) An allowance made by the reinsurer to the original insurer for part of the original insurer’s acquisition and other costs. It may also include a profit factor. (2) That portion of the premium paid to the agent as compensation for services. See also First Year Commission, Renewal Commission, Level Commission System, Unlevel Commission System, Contingent Commission and Graded Commission.

Commission of Authority. A document outlining the powers delegated to an agent by an insurer.

Commissioner of Insurance. The head of most state insurance departments. In some states, the title Director or Superintendent of Insurance is used.

Commissioners’ Disability Table. A morbidity table approved by the National Association of Insurance Commissioners for use in setting legal minimums for disability income insurance policy reserves.

Commissioners’ Industrial Extended Term Mortality Table. An industrial mortality table approved by the NAIC for evaluation and computation of extended term insurance in industrial policies, where additional mortality margins are deemed necessary. This is a companion table to the CSI.

Commissioners’ Standard Industrial Mortality Table. An industrial mortality table approved by the NAIC as a standard for evaluation and for computation of nonforfeiture values for Industrial policies.

Commissioners’ Standard Ordinary (CSO). A mortality table approved by the NAIC as a standard for evaluation and for computation of nonforfeiture values for ordinary life policies.

Commissioners’ Values. An annual list of securities published by the NAIC. The values are to be used in recording security values on insurance company balance sheets.

Common Accident. An accident in which two or more persons are injured.

Common Carrier. An individual or organization that offers its services to the public for carrying persons or property from one place to another for payment. A common carrier cannot refuse to carry goods for one customer as opposed to another.

Common Disaster. A situation in which an insured and the beneficiary appear to die simultaneously with no clear evidence of who died first.

Common Disaster Clause. A clause sometimes added to a life insurance policy that provides a means for the insurer to distribute the proceeds of the policy in the event of a common disaster.

Common Law. The unwritten law developed primarily from judicial case decisions based on custom and precedent. It was developed in England and constitutes the basis for the legal systems of most of the states in the U.S.

Common Law Defenses. Pleas that can defeat an injured worker’s suit for injuries against the employer in the absence of a workers’ compensation law or employers liability legislation. The three defenses are contributory negligence, assumption of risk and fellow servant rule.

Common Law Liability. Responsibility based on common law for injury or damage to another’s person or property that rests on an individual because of the person’s actions or negligence. This is opposed to liability based on statutory law.

Common Policy Conditions. Under the latest commercial lines program, a form including six common conditions that apply to all coverage parts attached to a commercial policy.

Common Policy Declarations. A declaration page that is part of every commercial policy. It shows information applicable to the entire policy (policy number, insurer, insured, total premium, forms attached, etc.). Each individual coverage part may also have its own declarations page.

Common Stock. A security that provides an ownership or equity position in a company. Shareholders may receive dividends if declared by the board of directors.

Community Property. Common or statutory law that holds that husband and wife are each entitled to half of the total earnings and property of both parties to the marriage. It is applicable in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas and Washington state.

Community Rating. Under this rating system, the charge for insurance to all insureds depends on the medical and hospital costs in the community or area to be covered. Individual characteristics of the insureds are not considered at all.

Commutation. The exchange of one thing for another. In insurance it is usually the exchange of installment benefits for a lump sum.

Commutation Clause. A clause that provides for estimation, payment and complete discharge of all future obligations for reinsurance loss or losses incurred, regardless of the continuing nature of certain losses. Often found in Lloyd’s treaties.

Commutation Rights. The right of a beneficiary to receive in one sum the unpaid payments remaining under an installment option that was selected for the settlement of the proceeds or values of a life insurance policy.

Commute. To determine as of a given date the single sum that is the equivalent of a series of sums due at various future dates, with allowances for interest that would have been earned on the unpaid portion of the series of payments.

Commuted Value. The amount of a single sum payment as determined under the definition of commute.

Comparative Negligence. In some states the negligence of both parties to an accident is established in proportion to the degree of their contribution to the accident. Several states have comparative negligence laws, and each one varies somewhat from the others. This is in contrast to contributory negligence, which is a general common law rule. See Contributory Negligence.

Compensation Related Loan. A below market loan between an employer and employee.

Compensatory Damages. Compensation for the loss incurred. These may include specific damages (the documentable, actual expenses incurred by the injured party, such as medical bills, wages lost and property replacement), and general damages (monetary awards for more subjective, less quantifiable aspects of the loss, such as pain and suffering or loss of consortium). However, this does not include punitive damages.

Competency. One of the elements that must be present in order to have a legal contract. It relates to the fitness or ability of either of the parties to the contract. See also Incompetent.

Competitive Medical Plan (CMP). Refers to permission given by the federal government that allows an organization to write a Medicare risk contract.

Competitive State Fund. A fund established by a state to write workers’ compensation insurance in competition with private insurers.

Completed Operations Insurance. Insurance issued particularly to various types of contractors. It covers a contractor’s liability for accidents arising out of jobs or operations that have been completed. See Products and Completed Operations Insurance.

Completion Bond. A bond issued to a mortgagee. It guarantees that the construction for which the mortgagor has borrowed money will be completed and serve as collateral for the mortgage upon completion.

Composite Rate. (1) One rate for all members of the group regardless of their status as single or members of a family. (2) A single rate with a single basis of premium, e.g., payroll or sales. For this single rate the insured is covered for a variety of hazards, such as premises and operations, completed operations, products liability and automobile. Its primary value is to make it simpler for the policy’s premium to be computed. (AU

Composition Roof. A roof of either asbestos or asphalt shingles. Often used in connection with construction factors used in determining the rate for property insurance.

Comprehensive or Blanket Coverage. The traditional name for physical damage coverage for losses by fire, theft, vandalism, falling objects and various other perils. Personal auto policies now call this “other than collision” coverage. Commercial forms continue to call it “comprehensive” coverage.

Comprehensive General Liability. A policy covering a variety of general liability exposures, including premises and operations (OL&T or M&C), completed operations, products liability and owners and contractors protective. Contractual liability and broad form coverages may be added. In most jurisdictions, the comprehensive general liability policy has been replaced by the newer commercial general liability (CGL) forms. See also Commercial General Liability.

Comprehensive Glass Insurance Policy. Protection against loss by breakage of glass from almost any peril. Fire is usually excluded (it is covered under any basic property policy), and war is excluded. This policy has largely been replaced by a new commercial form. See Glass Coverage Form.

Comprehensive Major Medical. A plan of insurance with a low deductible, high maximum benefits and a coinsurance feature. It is a combination of basic coverage and major medical coverage which has virtually replaced separate hospital, surgical and medical policies with each having its own deductible requirements. Also see Major Medical Insurance.

Comprehensive Personal Liability. Protects individuals and families from liability for nearly all types of accidents caused by them in their personal lives as opposed to business lives. Most commonly provided by a homeowners policy.

Comprehensive Policy. In automobile and liability insurance, this is an open perils (all risk) coverage with certain named exclusions.

Comprehensive “3-D” Policy. See Dishonesty, Disappearance and Destruction Policy.

Compromise and Release Agreement. A settlement practice where an injured worker agrees to a compromised liability amount (usually a lump sum) in exchange for releasing the employer from further liability.

Compulsory Insurance. Any form of insurance required by law. For example, some states have compulsory automobile insurance laws, some have compulsory disability benefits laws, etc.

Computation Base Years. The total of the computation elapsed years less the five lowest earnings years for Social Security tax purposes.

Computation Elapsed Years. The total number of years since 1950 or attainment of age 21, if later, up to age 62, during which Social Security taxes have been paid.

Computer Fraud. Fraudulent theft or transfer of money, securities or other property resulting from the use of any computerized equipment or systems.

Computer Fraud Coverage Form. A commercial crime coverage form that protects against loss of money, securities and property other than money and securities resulting from computer fraud.

Concealment. The failure to disclose a material fact. See Material Fact.

Concurrent Causation. Two or more perils acting concurrently (at the same time or in sequence) to cause a loss.

Concurrent Insurance. Two or more policies with the same conditions and coverages that cover the same interest in the same property. If an insured has two or more property policies, the policies should be concurrent (similar) or the property will not be insured properly in the event of a loss.

Concurrent Review. A case management technique that allows insurers to monitor an insured’s hospital stay and to know in advance if there are any changes in the expected period of confinement and the planned release date.

Conditional Binding Receipt. A binding receipt that provides that if a premium accompanies an application, the coverage will be in force from the date of application or medical examination, if any, whichever is later, provided the insurer would have issued the coverage on the basis of the facts revealed on the application, medical examination and other usual sources of underwriting information. A life and health insurance policy without a conditional binding receipt is not effective until it is delivered to the insured and the premium is paid.

Conditional Sales Floater. A policy that covers property that has been sold on an installment or conditional sales basis. It covers the interest of the seller.

Conditional Vesting. A form of vesting in a contributory pension plan where entitlement to a vested benefit is conditional upon nonwithdrawal of the participant’s contribution. See also Vesting.

Conditionally Renewable. A contract that provides that the insured may renew it to a stated date or an advanced age, subject to the right of the insurer to decline renewal only under conditions stated in the contract.

Conditions. Provisions of an insurance policy that state either the rights and duties of the insured or the rights and duties of the insurer. Typical conditions have to do with such things as duties in the event of loss, cancellation provisions and the right of the insurer to inspect the property.

Condominium. Townhouses, manor homes or— most often—apartment flats.

Condominium Association Coverage Form. A commercial property form that covers the joint insurance needs of members of a condo association who collectively own commercial property.

Condominium Unit Owners Coverage Form. A commercial property form designed to cover the individual needs of commercial (not residential) condominium unit-owners.

Confining. A form of disability or sickness that confines the insured indoors, usually at home or in a hospital. Many policies state that coverage is afforded only if the insured is confined.

Consent Order. A disciplinary action in which the party at fault (usually an insurance company or agent) agrees to discontinue a particular practice (usually an unfair trade or claims practice) through a written agreement with the Insurance Department. Consent orders (also known as consent decrees) may or may not involve a fine.

Consequential Loss (or Damage). (1) An indirect loss arising out of the policyholder’s inability to use the property over a period of time, as opposed to a direct loss that happens almost instantaneously. Business interruption, extra expense, rents insurance and leasehold interest are the most common coverages under this category of loss. (2) A loss not directly caused by a peril insured against, such as spoilage of frozen foods caused by fire damage to refrigeration equipment. See also Indirect Loss, and contrast with Direct Loss.

Conservation. The insurance company’s efforts to prevent current policies from lapsing.

Conservator. Someone appointed to manage an insurer deemed by law or court action to be in danger of failure.

Consideration. For a contract to be binding each party to the contract must give what is known as consideration or the exchange of values on which a contract is based. In an insurance contract, the insured person makes a premium payment (consideration now) and promises to comply with the provisions of the policy (consideration future). In return, the insurance company promises to pay in accordance with the terms of the contract.

Consignee. The person to whom materials or goods are delivered for resale. The consignee pays the owner after the goods have been sold.

Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1986. Legislation providing for a continuation of group health benefits under the group plan for a period of time when benefits would otherwise terminate. Continuation rights apply to enrolled persons and their dependents in companies with 20 or more employees. Coverage may be continued for up to 18 months if the insured terminates employment or is no longer eligible. Coverage may be continued for up to 36 months in nearly all other cases, such as loss of dependent eligibility because of death of the enrolled person, divorce or attainment of the limiting age.

Consortium. Companionship of a spouse. If a spouse is injured through the fault of another, part of the damages could include the value of the spouse’s services or companionship that was lost due to the accident.

Conspiracy. A combination of two or more persons that by concerted action seek to accomplish an unlawful purpose or to accomplish a lawful purpose by unlawful means.

Construction Bond. A bond that protects the owner of a building or other structure under construction if the contractor cannot complete the job. If the contractor defaults, the insurer is obligated to see that the work is completed.

Constructive Delivery. Intentionally relinquishing control over a policy and turning it over to someone acting for the policyowner, such as when an insurer mails the policy to its own agent for delivery to the insured. Legally, an insurance policy is considered delivered when mailed or turned over to the policyowner or someone acting on his or her behalf.

Constructive Performance. A situation in which an act has not actually been completed but conduct has gone so far as to show intent to complete the act.

Constructive Total Loss. A partial loss of sufficient degree to make the cost of repairing the damaged property more than the property is worth (e.g., an old automobile might suffer damage that can be repaired, but the cost of repairs would be more than the actual cash value of the car).

Consumer Credit Insurance Association (CCIA). A trade association for insurers of credit insurance in the areas of life and health.

Consumer Protection Act. A law that protects a policyholder from the misconduct, misrepresentation or “sharp” trade practices of insurers, brokers and agents.

Consumer Report. A report ordered on an insured or applicant under which information about the person’s credit, character, reputation, personal characteristics or lifestyle is obtained primarily through institutional sources.

Contents. (1) In relation to car theft, it is the contents of a vehicle or personal effects.

Contents Coverage. Coverage for business personal property. Includes more than building contents because it applies to property located in or on the described building, or within 100 feet of the described premises while in a vehicle or out in the open.

Contents Rate. The fire insurance rate on the contents of a building rather than on the building itself.

Contestable Clause. A provision in a policy setting forth the conditions under which or the period of time during which the insurer may contest or void the policy. After that time has lapsed, normally two years, a policy cannot be contested.

Contingency Reserve. A reserve in an insurer’s annual statement, in addition to the legal requirements, to provide for unexpected contingencies or losses.

Contingency Surplus. See Contingency Reserve.

Contingent Annuitant. A person(s) named to receive annuity benefits if the primary annuitant is deceased at the time benefits become payable.

Contingent Annuity. An annuity in which payment of benefits is contingent upon the occurrence of an uncertain event, such as death of a person not an annuitant (e.g., an annuity purchased to pay benefits to a wife if her husband dies.)

Contingent Beneficiary. The person(s) entitled to receive policy benefits if the primary beneficiary is deceased when the benefits become payable.

Contingent Business Interruption Insurance. Coverage for the loss of earnings of an insured because of a loss to a business that is a major supplier or customer. Also known as business income from dependent properties. See Business Income Coverage Form and Dependent Properties.

Contingent (or Profit) Commission. An allowance payable to the ceding insurer, in addition to the normal ceding commission, based on the net profit derived from a reinsurance treaty.

Contingent Fund. A reserve to cover possible liabilities resulting from an unusual happening.

Contingent Interest. An interest in personal property that is dependent upon a future event.

Contingent Liability. A liability imposed due to accidents caused by persons other than employees for whose acts an individual, partnership or corporation may be responsible. For example, an insured who hires an independent contractor can, in some cases, be held liable for negligence.

Contingent Trust. A revocable living trust that only becomes operational upon a specified occurrence or contingency.

Contingent Vesting. In pensions, a form of vesting where entitlement to a vested interest is conditional upon circumstances surrounding the employee’s termination of service or conduct after termination. See also Vesting.

Continuation. Allows terminated employees to continue group health insurance coverage under certain conditions.

Continuing Care Retirement Communities (CCRCs). Residential communities that provide residents with easy access to health care.

Continuing Education Requirement. State-level requirement that insurance licensees periodically complete a minimum number of hours of insurance-related education to be eligible for license renewal.

Continuous Premium Whole Life Policy. A whole life policy that stretches the premium payments over the insured’s lifetime (to age 100). Also known as straight life. Compare with Limited Payment Whole Life and Single Premium Whole Life.

Contract. (1) An agreement entered into by two or more persons under which one or more of them agree, for a consideration, to do or refrain from doing acts in accordance with the wishes of the other party(s). (2) In insurance, the agreement by which an insurer agrees, for a consideration, to provide benefits, reimburse losses or provide services for an insured. (3) An agreement under which an agency or agent does business with an insurer.

Contract Bond. A guarantee of the faithful performance of a construction contract and the payment of all relevant material and labor bills. See also Performance Bond and Payment Bond.

Contract Carrier. A transportation company that carries, for payment, the goods of certain customers only, as contrasted with a common carrier who carries goods for the public in general.

Contract of Adhesion. A contract that one party must accept or reject in toto, without bargaining over the wording. An insurance contract, for example, is developed by the insurer, and the insured must accept it as it is.

Contract of Insurance. A contract under which an insurer agrees to indemnify an insured for losses, provide other benefits or render services to or on behalf of the insured. It is often called an insurance policy, but the policy is merely evidence of the agreement.

Contractual (or Assumed) Liability Insurance. Protects the insured in the event of a loss for which the insured has assumed liability, express or implied, under a written contract. For example, under most construction agreements with a municipality, the contractor agrees to “hold the municipality harmless” for any accidents arising out of the job. Contractual liability insurance would thus protect the contractor from any loss for which the municipality would be liable in connection with the construction.

Contract Year. The period of time from the effective date to the expiration date of the contract.

Contributing Location. A location upon which the insured depends as a source of materials or services. One type of dependent properties for which business income coverage may be written.

Contribution. (1) The share of a loss payable by an insurer when contracts with two or more insurers cover the same loss. See also Apportionment. (2) The insurer’s share of a loss under a coinsurance or similar provision. (3) The amount of the premium for group insurance or a pension plan paid by the employee.

Contribution Clause. See Coinsurance Clause. Both are similar in effect, but contribution clause is identified mostly with business interruption forms.

Contribution Formula. As used under a qualified profit-sharing trust or money-purchase plan, the formula that spells out when and in what amounts the employer will make contributions to the trust.

Contributory. An plan of employee coverage in which the employee pays at least a potion of the premium.

Contributory Negligence. If an injured party fails to exercise proper care and in some way contributes to his or her injury, the doctrine of contributory negligence will probably negate or defeat the claim, even though the other party is also negligent. Contrast with Comparative Negligence.

Contributory Retirement Plan. A plan in which the participant pays part of the cost of purchasing the annuity or building up the fund from which benefits are paid.

Control. Authority given to an agent or broker by a policyowner to place the insurance where the agent or broker sees it.

Control Provision. A policy provision found most frequently in juvenile contracts, providing that ownership control is to be exercised for a stated or indefinite duration by a person other than the one whose life is insured.

Controlled Business. The amount of insurance countersigned, issued or sold by a producer covering the life, property or interests of that producer, members of the producer’s immediate family or the producer’s employer or employees. Many states limit the amount of controlled business that may be written, and if the premium or commissions on controlled business exceed a given percentage (usually 50 percent) of all business, the producer’s license may be suspended, revoked or not renewed.

Controlled Insurance. (1) An insurance account that an agent or broker controls by influencing the buyer, as contrasted with controlling it by actual agreement. See Control and Control Provision.

Convention (or Statement) Blank. The uniform annual financial statement required by all U.S. insurance jurisdictions as prescribed by the NAIC. It must be filed annually in an insurer’s home state and every state in which it is licensed to do business. Nearly all insurance accounting practices are geared to it.

Convention Values. Values assigned to insurers’ assets in the convention blank.

Conversion. (1) Wrongful use of property by one in lawful possession of it. (2) Change of one policy form to another, usually without evidence of insurability. Usually refers to life or health insurance contracts.

Conversion Fund (Supplemental). A fund used with ordinary life or limited payment life insurance to augment the cash value at retirement to provide monthly retirement income.

Conversion Privilege. The right of an individual to convert a group health or life policy to an individual policy should the individual cease to be a member of the group.

Convertible. A policy that may be changed to another form by contractual provision and without evidence of insurability. Most term policies convert to permanent insurance.

Convertible Collision Insurance. Automobile collision insurance with a deductible that, after claims exceeding the deductible have been paid, converts to full coverage for all losses thereafter.

Cooperative. Ownership in the form of a corporation. Owners buy a share of stock in the corporation, which gives them the privilege of occupancy. Cooperatives can be more restrictive on who moves in. Taxes are paid on the building rather than on each unit.

Cooperative Insurance. Insurance issued by a mutual association such as a fraternal society, an employee association, an industrial association or a trade union.

Coordination of Benefits (COB). A group policy provision that helps determine the primary carrier in situations where an insured is covered by more than one policy. This provision prevents an insured from receiving claims overpayments. See Non-duplication of Benefits.

Co-pay. An arrangement where the covered person pays a specified amount for various services and the health care provider pays the remainder. The covered person usually must pay his or her share when the service is rendered. Similar to coinsurance, except that coinsurance is usually a percentage of certain charges where the co-payment is a dollar amount.

Co-payment(s). See Co-pay.

Co-pay Provision. Often used with major medical policies. This provision states what percentage of a claim the company will pay and what percentage the insured will pay (e.g., an 80 percent co-pay provision would provide that the insurer pay 80 percent of claims and the insured pay 20 percent).

Corridor. In universal life insurance, it is necessary to maintain a certain level of pure insurance protection in excess of the accumulation value in order to qualify as life insurance for income tax purposes. This portion of the pure insurance protection is a corridor.

Corridor Deductible. A major medical provision that provides for a deductible, or “corridor,” that applies after full payment of basic hospital and medical expenses up to a stated amount, and before additional expenses are shared on a coinsurance basis. For example, a policy might pay 100 percent of the first $2,000 of expenses, followed by a $500 corridor deductible paid by the insured, followed by a sharing of additional expenses on the basis of 80 percent payable by the insurer and 20 percent payable by the insured.

Cosmetic Procedures. Procedures that improve appearance, but are not medically necessary.

Cost Basis. Money that has already been taxed; used in reference to taxation of investment dollars.

Cost Contract. An agreement between a provider and the Health Care Financing Administration to provide health services to covered persons based on reasonable costs for service.

Cost of Insurance. The amount a policyowner pays to an insurer, minus what he or she gets back from the insurer. This expression is used when determining the true cost of permanent forms of life insurance to a policyowner. It considers the fact that premiums are paid in but also that an actual cash value is being built up, which is the portion that the insured will get back from the insurance.

Cost of Insurance Charge. Another term for the charge for the pure insurance protection element of a life insurance contract. See Mortality Charge.

Cost of Living Benefit. An optional disability benefit where the monthly benefit is increased annually after the insured is on claim for 12 months.

Cost-of-Living Rider. Adjusts policy benefits in relation to the change in the economic climate. The majority of such riders are tied to changes in the Consumer Price Index (CPI).

Cost Sharing. A situation where covered persons pay a portion of the health costs such as deductibles, coinsurance or co-payment amounts.

Co-Surety. One of a group of sureties directly participating in a bond with obligations joint and several.

Countersignature Law. Refers to state laws requiring that any insurance contract in a state be countersigned by a representative of the insurer located in that state.

Countersignature. The signature of a licensed agent or representative on a policy.

Countrywide Rates. For each major division of the commercial lines manual, a section called “countrywide rates” contains rates and minimum premiums. State rates are used for coverages for which there are no countrywide rates, or to modify countrywide rates.

Countrywide Rules. For each major division of the Commercial Lines Manual, a section called “Countrywide Rules” contains rules and rating factors applicable to coverages in that division.

Coupon Policy. A life insurance policy, usually 20-pay life or some other limited payment period, with attached coupons that may be cashed in for a specified amount at the time of the payment of each annual premium.

Court Bond. Any bond required of a litigant to enable him or her to pursue a remedy in court.

Cover. (1) A contract of insurance. (2) To effect insurance, that is, to “cover” an insured, for instance, for automobile insurance effective as of a given time. (3) To include within the coverage of a contract of insurance. For example, one could “cover” additional buildings under a property insurance contract.

Cover Note. Similar to a binder, but binders are usually issued by companies and delivered to agents. A cover note is usually written by an agent, and it informs the insured that coverage is in effect. See also Binder. In reinsurance, a cover note is a statement issued by an intermediary or broker indicating that coverage has been effected.

Coverage. The scope of protection provided by an insurance policy. The policy spells out many agreements, but perhaps most important, it specifies the type of losses that will be reimbursed by the insurance company.

Coverage Part. Any one of the individual commercial coverage parts that may be attached to a commercial policy. Under the latest commercial lines program, a coverage part may be issued as a monoline policy or may be combined with others as part of a package policy.

Coverage Trigger. A mechanism that determines whether a policy covers a particular claim for loss. For example, the difference between the coverage triggers of liability “occurrence” forms and “claims made” forms is that loss must occur during the policy period in the first case and the claim must be made during the policy period in the second case.

Covered Expenses. Health care expenses incurred by an insured or covered person that qualify for reimbursement under the terms of a policy contract.

Covered Loss. Illness, injury, death, property loss, legal liability, or any other situation or loss that is covered under a policy.

Covered Person. An insured person under a contract of insurance.

CPCU. See Chartered Property and Casualty Underwriter.

Crash Coverage. Optional coverage under an aviation policy that provides coverage for damage to an airplane caused by a crash, and is usually referred to as Hull coverage or physical damage coverage.

Crash Involvement Rate. The rate of accidents per million vehicle miles traveled. This rate is based on various age groups.

Credentialing. Approving a provider based on certain criteria to provide or participate in a health plan.

Credit Card Forgery Insurance. Protects the insured against losses caused by forgery in the use of credit cards or the alteration of them or of any other written instruments connected with them.

Credit Carried Forward. The transfer of credit or profit from one accounting period to another under a spread loss or other form of long-term reinsurance.

Credit Carryover. Each year an employer is allowed to contribute 15 percent of payroll towards a profit-sharing plan and deduct it from taxable income. If the contribution is less than 15 percent in a particular year, the unused percentage can be made up in succeeding years. However, deductible contributions are limited to a total amount not greater than 25 percent of the participants’ payroll: 15 percent for the current year’s contribution plus 10 percent for credit carryover.

Credit Health Insurance. A group disability income insurance contract whereby a creditor is protected in the event of the total disability of a debtor. The policy pays benefits equal to the monthly installment of the debtor.

Credit Insurance. Insurance on a debtor in favor of a creditor to pay off the balance due on a loan in the event of the death or disability of the debtor. Liability insurance for abnormal loss from bad debts. The coverage is limited to the total amount of indebtedness.

Credit Life Insurance. A group life insurance contract whereby a creditor is protected in the event of death of the insured prior to the indebtedness being paid in full.

Credit Report. A confidential report made by an independent individual or organization that has investigated the reputation and record of an applicant for insurance. See Consumer Report.

Creditor. The person to whom a debt is owed. See also Debtor.

CREF. See College Retirement Equities Fund.

Crime. A public wrong, a violation of criminal law. See also Tort.

Criticism. A correction suggested by a rating or auditing bureau to an insurer.

Cromie Rule. A method or guide used to apportion losses under policies which are nonconcurrent, that is, not identical as to coverage provided.

Crop Insurance. Protection against damage to growing crops by such perils as hail, windstorm and fire. Traditionally, crop-hail coverage was the most common coverage sold. In recent years, premiums for broad multi-peril crop insurance (MPCI) have exceeded those for crop-hail business.

Cross Purchase. Business life insurance where each party to a mutual agreement (usually to buy out a disabled or deceased co-owner) insures each of the other parties.

Cross Purchase Agreement. A binding buy-sell agreement usually used with a partnership where each partner agrees to purchase the business interest of a deceased or disabled partner.

Crude Death (or Mortality) Rate. The ratio of total deaths to total population during any given period. See also Mortality Rate.

Crummey Privilege. The annual withdrawal privilege offered by a trust to trust beneficiaries in order for the trust property to remain qualified for the gift tax exclusion.

CSI 1961. See Commissioner’s Standard Industrial Mortality Table, 1961.

CSO. See Commissioners’ Standard Ordinary.

Cumulative Liability. (1) The liability of a surety bonding company for the accumulation of loss under its own bond and under a bond that it replaced before a loss under the replaced bond was discovered. (2) The accumulation of the liability of a reinsurer that has been assumed under several policies from several ceding companies covering different lines of insurance, all of which are involved in a common event or disaster.

Current Disbursement. The funding and disbursement of pension benefits as they become due. Also known as “pay-as-you-go.” In the long run, this is the most costly method of funding pension plans.

Current Future Service. The amount of pension payable for each year of future participation in the pension plan.

Current Guarantee. A guaranteed interest that reflects current interest rates and is guaranteed at the beginning of each calendar year. The policy also has a minimum guaranteed interest rate (3 or 4 percent) that is paid even if the current rate falls below the policy’s guaranteed rate.

Current Ratio. The ratio of current assets to current liabilities. Bond underwriters like this ratio to be 2 to 1 on the balance sheets of contractors for whom they are considering contract bonds.

Current Service Benefit. The portion of a participant’s pension benefit that relates to credited service in a contemporary period, usually 12 months.

Current Service Cost. The cost in a pension plan to make provision for annuity credits earned by employees in the current year.

Current Value. The fair market value of a security or other property as determined by the trustees or a named beneficiary, according to the terms of the plan.

Currently Insured Status. A provision of old age, survivors, disability and health insurance. The requirements for being “currently insured” are less than those for being “fully insured,” and the former entitles a worker’s dependents to survivor benefits in the event of the worker’s death. See Fully Insured.

Custodial Care. Care that is provided for the purpose of meeting personal needs, such as walking, bathing, dressing, eating and other essential activities of daily living. Also known as personal care. It may be administered by licensed practical nurses, by non-medical personal, such as volunteer workers, therapists and, in some cases, other family members. The most common type of long-term care, it can be provided in a variety of settings—ranging from a nursing home to the patient’s own home. See also Activities of Daily Living.

Custodian. Under commercial crime insurance coverages, the named insured or any of the insured’s partners or employees while having care and custody of insured property inside the insured’s premises, but it does not include any person while acting as a watchperson or a janitor.

Custom House Bonds. Bonds required by U.S. customs in connection with the payment of duties or the production of bills of lading.

Customary Charge. Used to determine Medicare benefit amounts, the average fee charged for a particular medical service in the geographical area in the preceding year. See also Allowable Charge and Prevailing Charge.

Cut Rate. A term used when insurance companies charge premiums below a normal or average rate.

Cut-Off. The termination provision of a reinsurance contract stating that the reinsurer shall not be liable for loss as a result of occurrences taking place after the date of termination.

Cut-Through Clause. See Assumption Certificate.

D

D&B. See Dun and Bradstreet, Inc.

DA. See Deposit Administration.

Daily Reports (DR). (1) An abbreviated statement of pertinent policy information with copies for the insurer, the agent and others. It is usually the top page of a policy. (2) Monthly reports compiled on the last day of each month must show actual values at the end of each day during the month.

Damages. The amount required to pay for a loss. When someone is held liable for injury or property damage to another, that person must compensate the injured parties. See also Compensatory Damages and Punitive Damages.

Damage to Property of Others. Damage caused by an insured person to the property of others.

Damage to Your Auto Coverage. Physical damage coverage provided under an auto policy. The insurance company will “pay for direct and accidental loss to a covered auto, or any non-owned auto, including its equipment, minus any applicable deductible.” Includes collision and other than collision coverage.

Data Processing Coverage. Protection for loss due to the breakdown of data processing system, including coverage for the additional expense of putting the system back into operation.

Date of Issue. The date (stated in a policy) as the date the contract was issued by the insurer. This is not necessarily the effective date of the policy.

Date of Service. The date that the health service was provided.

DBL. See Disability Benefits Law.

Death Benefit. The amount stated in a policy as payable upon the death of the person whose life is being insured (cesti que vie). See Principal Sum.

Death Benefit Only (DBO) Plan. A plan that defers part of an employee’s salary and pays upon the contingency of death.

Death Rate. See Mortality Rate.

Debit. (1) The amount of premium charged or debited to an agent to be collected. (2) The book of business represented by such premiums. (3) The territory where most of the insureds are located. (4) The total number of individual or home service insureds assigned to a given agent for collection of weekly or monthly premiums and for servicing, commonly referred to as “people in my debit.”

Debit Agent. An agent who works on the debit system.

Debit Life Insurance. See Industrial Life Insurance.

Debit System. The system of collecting insurance premiums weekly or monthly by an agent.

Debris Removal Clause. A provision included in a property policy that provides indemnification for expenditures incurred in the removal of debris produced by the occurrence of an insured peril. These costs are included in the claim amount as long as there is sufficient coverage to pay for the damaged property plus debris removal. If combined loss exceeds the policy limit, then an additional amount of coverage equal to 5 percent of the limit of liability is made available for debris removal.

Debtor. One who owes a legal obligation or money to another. See also Creditor.

Debts and Restrictions. Mortgages, liens and other encumbrances on real estate property, including margin loans on capital investments and liquidation costs or penalties on accessible pension funds.

Decedent. The deceased.

Declaration. (1) A term used in insurance other than life or health to denote that portion of the contract that lists such information as the name and address of the insured, the property insured, its location and description, the policy period, the amount of insurance coverage, applicable premiums and supplemental representations by the insured. (2) A formal written statement in which an individual avows under oath certain facts as personally known to him or her specifying of the facts constituting the plaintiff’s cause of action against the defendant.

Declarations Page. Typically the first page of an insurance application. This page includes specific details relating to coverage: the names of the people covered by the policy; the dates it’s in effect; and the vehicles, boats, etc. covered. Also included are details on everything from policy limits and premiums due to any specific additions or exclusions based on personal circumstances. Also called the declarations sheet, dec sheet or dec page.

Declination. Rejection of an application for insurance by the insurer.

Decreasing Term. Life insurance that provides a death benefit that declines throughout the term of the contract, reaching zero at the end of the term.

Decreasing Term Insurance. Term life insurance where the death benefit decreases but the premium remains level for the policy term. See also Increasing Term Insurance, Level Term Insurance and Term Insurance.

Deductible. The portion of an insured loss to be borne by the insured before the insurance company takes over. Higher deductibles reduce the insurance company’s exposure. Small losses that do not exceed the deductible do not require a claim settlement, and large losses that exceed the deductible result in a smaller settlement.

Deductible Carryover Credit. During the last three months of a calendar year, charges incurred for health services can be used to satisfy the deductible for the following calendar year. These credits may be applied whether or not the prior calendar year’s deductible had been met.

Deductible, Calendar Year. A deductible that specifies that one deductible needs to be satisfied for a calendar year regardless of the number of claims.

Deductible Clause. A contract provision that sets forth the deductible.

Deductible, Disappearing. See Disappearing Deductible.

Deductible, Franchise. See Franchise Deductible.

Deductible, Per Cause. A deductible that must be satisfied for each separate claim.

“Deep Pockets” Liability. The legal doctrine of joint-and-several liability under which recovery can be sought from any of several codefendants based on ability to pay, rather than the degree of negligence. If A and B are jointly liable for an injury; A was 90 percent negligent and B was 10 percent negligent, but A has no assets; the claimant is permitted to reach into the “deep pockets” of B for the full amount of the award against A and B.

Defamation. (1) An unfair trade practice involving false, maliciously critical or derogatory statements intended to injure a person engaged in the insurance business. (2) Any derogatory statement that injures a person’s business or reputation. Defamation can be written (libel) or spoken (slander). See also Libel or Slander.

Defendant. The person being sued in a court action.

Defense Costs. An important part of liability insurance coverage. In some cases, the cost of defense is as much as, or more than, the amount ultimately awarded as damages.

Defensive Insurance. Pays the legal costs of defending against legal charges. Some defensive policies also cover damages incurred as a result of infringement or other specific activities.

Deferred Annuity. An annuity contract that provides for the initiation of payments at some designated future date in contrast to one in which payment begins immediately on purchase.

Deferred Compensation. A qualified or non-qualified plan that allows a key person to defer receipt of current income in accordance with a written agreement with the employer. Deferral is usually until death, disability or retirement.

Deferred Compensation Administrator. A company that provides services under a deferred compensation plan. Services include administration of self-insured plans, compensation planning, salary surveys, retirement planning, etc.

Deferred Group Annuity. A group annuity contract providing for the purchase each year of a paid-up deferred annuity for each person covered in the group. The total amount of the annuity payments starts at a deferred date, usually retirement, and is the sum of the individual paid-up annuities.

Deferred Premium. The unpaid and yet undue premiums on life insurance, paid on other than an annual premium basis.

Deferred Vesting. A form of vesting where rights to vested benefits are acquired by a participant commencing upon a fulfillment of specified requirements, usually, reaching a certain age or number of years of service/membership. See also Vesting.

Deficiency Reserve. A supplemental reserve that life insurers are required to show in their balance sheet if the gross premium charged on a class of insureds is less than the net level premium reserve or modified reserve.

Deficit. Any excess of debits over credits at the end of a given accounting period.

Deficit Carried Forward. The transfer of a debit balance from one accounting period to another.

Defined Benefit Pension Plan. A qualified retirement plan where the employer makes contributions on behalf of all eligible employees in order to provide a specific retirement benefit. The amount of the contribution is not specifically defined, but the amount of the retirement benefit is defined.

Defined Contribution Pension Plan. A type of pension plan under which contributions are fixed as flat amounts or flat percentages of an employee’s salary. Benefits consist of whatever amounts the accumulated contributions will produce.

Definitions Page. The page of an insurance policy that identifies who is covered, when and where coverage applies and what is covered (e.g., vehicles, property, etc.).

Deflation. An economic period characterized by falling prices, high unemployment and a generally sluggish or slow economy.

DEFRA. Deficit Reduction Act of 1984.

Degree of Care. A duty owed to others that depends on circumstances. Persons who invite others on their premises, invite children on their premises and sell what might be considered inherently dangerous products are all required to take different degrees of care to prevent harm to others.

Degree of Risk. The amount of uncertainty that exists in a given situation. For instance, if heads is chosen in a coin toss, the degree of risk present is 50 percent, since there is a 50 percent chance any coin toss will come up tails. See also Law of Large Number, Odds and Probability.

Delay Clause. (1) A contract provision that excludes liability as a result of damage or loss of market arising out of delayed voyages. (2) A contract provision permitting the insurer to defer granting a loan on the sole security of the policy for any other purpose than paying premiums on the policy for a stated interval of time, usually six months.

Delayed Payment Clause. In life insurance, a clause deferring payment to the beneficiary for a specified period after the death of the insured with proceeds to be paid to contingent beneficiaries or the estate if the primary beneficiary does not survive the delay. It is one method of handling common-disaster situations, such as the death of the insured and the primary beneficiary occurring in the same accident. The clause usually states that the beneficiary has to survive the death of the insured by a certain period of time in order to collect.

Delivered Business. Contracts issued by an insurer and delivered to an insured but not yet paid for. See also Examined Business, Paid Business and Written Business.

Delivery. The actual placing of a life or health insurance policy in the hands of an insured.

Demand Loan. Any loan with an indefinite maturity.

Demolition Clause. A provision that excludes liability for costs incurred in demolishing undamaged property, often necessitated by building ordinances requiring that structures must be demolished after a certain degree of damage has been sustained.

Demolition Cost Endorsement. Provides coverage for the cost of demolishing any undamaged part of the building and the cost of clearing the site if a covered building is damaged or destroyed by a covered peril. A specific amount of insurance must be purchased, and covered costs will be paid up to but not exceeding the amount stated on the form.

Demolition Insurance. Coverage for the cost of demolition excluded by a demolition clause. It may be endorsed to property insurance for an additional premium. See also Demolition Clause.

Demurrer. A formal statement in a court action which states that even if the other party’s facts are true, there is no cause of action.

Dental Insurance. A group health insurance contract that provides payment for certain enumerated dental services.

Dental Plan. Any contractual arrangement for dental services provided or arranged for on a prepaid or postpaid individual or group service basis.

Dental Plan Organization (DPO). A direct provider of dental services compensated on a prepaid or postpaid basis to individuals or groups. An arrangement for providing dental services indirectly through independent contractors or on a fee-for-service basis is not a DPO. A DPO is an arrangement for providing dental services through an agreement with providers or by employing dentists.

Dental Plan, Supplemental. An arrangement where a dentist or group of dentists agree to relieve patients of paying any patient charges or co-payments associated with dental insurance or other dental coverage for a predetermined fee. The term also refers to an arrangement that covers less than 50 percent of an enrollee’s dental expenses, regardless of whether the enrollee has other coverage.

Department of Health and Human Services. A federal department whose responsibility is primarily dealing with social service functions, such as administration and supervision of the Medicare program.

Dependent. An individual who depends on another for support and maintenance.

Dependent Care Plan. An employee benefit whereby the employee is reimbursed for dependent care expenses or an actual day care program provided by the employer on business premises.

Dependent Coverage. Insurance coverage on the head of a family that extends to his or her dependents, including only the lawful spouse and unmarried children (step, foster and adopted) who are not yet employed on a full-time basis.

Dependent Life Insurance. A life insurance benefit that is part of a group life insurance contract and provides death protection to the eligible dependents of a covered employee.

Dependent Properties. Properties that an insured business does not own, operate or control, but upon which the insured’s income depends. Examples include major suppliers or customers. Also known as “contingent” properties.

Deposit. The contributions or payments made to a fund by the employer; or, sometimes by both the employer and employee if there are employee contributions in the plan.

Deposit Administration (DA). A group annuity providing for the accumulation of contributions in an undivided fund out of which annuities are purchased for each covered person in the group for retirement purposes.

Deposit Administration Group Annuity. A group contract providing a deposit fund prior to retirement, with annuities bought from the fund at retirement.

Deposit (or Provisional) Premium. The premium paid at the inception of a contract that provides for future premium adjustments. It is based on an estimate of what the final premium will be. See also Basic Premium.

Deposition. A sworn statement of a witness or other party in a judicial proceeding, usually conducted in an oral question and answer format where attendance is compelled.

Depositor’s Forgery Insurance. Protection against the forgery or alteration of things such as checks, drafts and promissory notes purported to have been written by the insured. It is issued to individuals, firms and corporations, but not to banks or building and loan associations. It can be written to cover incoming items, but this is seldom done.

Depository Bond. A form of bond that guarantees to the government that its deposits with banks will not be subject to loss.

Depreciation. A decrease in the value of any type of tangible property over a period of time resulting from use, wear and tear or obsolescence.

Designated Mental Health Provider. The organization hired by a health plan to provide mental health and substance abuse services.

Detoxification. The process an individual goes through when withdrawing from alcohol. Usually is done under guidance of medical personnel.

Deviated Rate. Companies that adhere to rates promulgated by a bureau sometimes offer lower rates than those recommended in certain areas. The company is said to have “deviated” from the bureau rate for that area.

Deviation. (1) Voluntary departure, not brought about by necessity and not resulting from reasonable cause, from the customary, usual course between the port of shipment and the port of destination; or certain fundamental breaches of the carrier’s obligations under the contract of carriage. There are conditions where deviation is excused, such as when it is reasonably necessary for the safety of the ship and cargo or for humanitarian reasons, such as rescuing another ship in distress. (2) A rate that varies from the manual rate.

Deviation Clause. An ocean marine clause providing coverage in the event of a deviation en route beyond the insured’s control.

Devise. A gift of real property in accordance with a valid will.

Diagnosis. The process of identifying a disease.

Diagnosis Related Groups (DRGs). A method of classifying inpatient hospital services. It is used as a method of determining financing to reimburse various providers for services performed.

DIC. See Difference in Conditions.

Difference in Conditions (DIC). A separate contract that expands or supplements insurance on property written on a named perils basis so as to cover on an open perils (all risk) basis, subject to certain exclusions.

Direct Damage Form. A form that covers actual damage, directly resulting from a covered peril, to covered property.

Direct Loss (or Damage). A loss that is a direct consequence of a particular peril. Fire damage to a refrigerator constitutes a direct loss. Spoiling of food in the refrigerator as a result of the fire damage is an indirect loss. Contrast with Indirect Loss and Consequential Loss.

Direct Repair Programs. Plans that insurance companies began offering in the late 1980s that allow owners to choose a body shop recommended by the insurance firm. The owner also can go to a shop not on the list.

Direct Selling System. A distribution system where an insurer deals directly with its insureds through its own employees. This definition applies typically to property and liability insurance business. Included are mail-order insurance and the sale of insurance from vending machines at airport booths and elsewhere. Contrast with Independent Agency System.

Direct Writer. (1) The insurer that negotiates with the insured as distinguished from the reinsurer. (2) An insurer whose distribution mechanism is either the direct selling system or the exclusive agency system.

Direct Written Premium. The premiums collected, without any allowance for premiums ceded to reinsurers.

Directed Verdict. A verdict for the defendant based on the court’s decision that the plaintiff’s case has not been proven.

Director of Insurance. A title used in some states for the head of the department of insurance. See also Commissioner of Insurance.

Directors and Officers Liability Insurance. Insurance that protects directors and officers from liability claims arising out of alleged errors in judgment, breaches of duty, and wrongful acts related to their organizational activities.

Disability. A condition that curtails to a lesser or greater degree a person’s ability to carry on normal pursuits. A disability may be partial or total, and temporary or permanent.

Disability Benefit. The benefit payable under a disability income policy or a provision of some other policy, such as a life insurance contract.

Disability Benefits Law. A state law requiring an employer to provide disability benefits to covered employees for non-occupational injuries, in contrast to workers’ compensation, which pays for occupational injuries. These laws are currently in effect in New York, New Jersey, Rhode Island, California and Hawaii.

Disability Income Insurance. Also called loss of time insurance, this health insurance provides periodic payments to replace income, actually or presumptively lost, when the insured is unable to work as a result of sickness or injury.

Disability Insurance Training Council, Inc. The educational arm of the National Association of Health Underwriters, the health insurance agents’ professional society. It encourages agent educational projects by local health associations, conducts university seminars in advanced health underwriting areas and conducts annual seminars for home office executives in sociological social insurance and demographic trends that may affect future application of policy forms and health insurance.

Disability Insured. A Social Security insured status required to satisfy eligibility for disability income benefits. The status is based on having paid Social Security taxes in 20 of the 40 calendar quarters ending with the quarter in which a disability claim is submitted.

Disability, Long-Term. See Long-Term Disability.

Disability Pension. A pension paid to a disabled worker prior to the time of normal retirement.

Disability, Permanent Partial. See Permanent Partial Disability.

Disability, Permanent Total. See Permanent Total Disability.

Disability, Short-Term. See Short-Term Disability.

Disability, Temporary Partial. See Temporary Partial Disability.

Disability, Temporary Total. See Temporary Total Disability.

Disappearing Deductible. A deductible that gradually disappears as the loss gets larger. If the deductible is $50, the insurer will pay 111 percent of the loss that is in excess of $50. The deductible on losses between $50 and $500 is gradually reduced by this system, and if the loss reaches $500, the full amount is covered.

Discharge Planning. Determining what the patient’s medical needs will be after discharge from a hospital or other inpatient treatment facility.

Disclosure Authorization Form. A form authorizing the disclosure of personal information obtained in connection with an insurance transaction. Insurers must give applicants advance notice of their information practices. Among other things, the form must state the kind of information collected and to whom information may be disclosed.

Discount. The difference between an amount due at a future date and its present value at a specified rate of interest.

Discounted (Commuted) Value Table. A table showing the discounted or present value, for several interest rates, of dollars payable at various times in the future.

Discovery Cover. A reinsurance treaty covering losses that are discovered during the term of the treaty regardless of when they were sustained.

Discovery Period. The period of time allowed an insured who has canceled a bond to discover and report to the previous surety a loss that occurred during the term of that bond. Losses so reported are paid by the original surety even though another surety is on the risk at the time of the discovery. The usual discovery period is one year.

Discrimination. Refusal of an insurer to provide comparable insurance or use comparable rates for certain individuals or groups with basic characteristics the same as those to whom the coverage or rates are offered. This is prohibited by law.

Dishonesty, Disappearance and Destruction Policy (“3-D” Policy). A once-popular commercial crime insurance form used to protect money and securities against loss by employee dishonesty, robbery, depositor’s forgery and other causes of loss. The 3-D policy was replaced by modern commercial crime coverage forms. See Combination Crime Coverage Plan.

Dismemberment. The loss of, or loss of use of, specified parts of the body resulting from accidental bodily injury.

Dismemberment Benefit. The benefits payable for various types of dismemberment. See also AD&D and Dismemberment and Multiple Indemnity.

Dissent. This occurs when one or more judges disagrees with the majority decision.

Distribution Clause. See Pro Rata Distribution Clause.

Divided Cover. The placing of insurance on a given subject or object with more than one insurer.

Dividend Accumulation. An option in a life insurance policy that allows the policyholder to leave any premium dividends with the insurer to accumulate at compound interest.

Dividend Additions. An option whereby the insured can leave dividends with the insurer, and each dividend is used to buy a single premium life insurance policy for whatever amount it will purchase. Also called paid-up additions.

Dividend Option. Alternative ways in which insureds under participating life policies may elect to receive their policyholder dividends.

Dividend. (1) The return of part of the premium paid for a policy issued on a participating basis by either a mutual or stock insurer. (2) A portion of the surplus paid to a corporation’s stockholders.

Divisible Contract Clause. A clause providing that a violation of the conditions of the policy at one insured location will not void coverage at other locations.

DOC. See Drive-Other-Car Endorsement.

Domestic. See Residence Employee.

Domestic Insurer (or Company). An insurer formed under the laws of the state where the insurance is written.

Donee. The recipient of a gift.

Donor. The individual who gives a gift.

Double Dipping. Collecting money twice in an accident (e.g., from the at-fault driver and an insured’s no-fault policy, or from a personal health policy and an employer’s workers’ comp insurance).

Double Indemnity. Payment of twice the basic benefit in the event of loss resulting from specified causes or under specified circumstances. For example, a life insurance contract may provide for twice the basic benefit if death is due to accident. Accident policies may provide double indemnity coverage for death due to an elevator accident. See also Multiple Indemnity.

Double Protection. A form of life insurance combining whole life and an equivalent amount of term, with the term expiring at a stated future date, usually at 65 years of age. For example, an individual may purchase $50,000 worth of life insurance protection, $25,000 of it being term insurance and the other $25,000 whole life. The provision would state that the $25,000 of term insurance ceases when the insured reaches age 65.

Dram Shop Laws. Liquor liability laws that provide that a person serving someone who is intoxicated or contributing to the intoxication of another may be liable for injury or damage caused by the intoxicated person.

Dram Shop Liability Insurance. Insurance that protects the owners of an establishment in which alcoholic beverages are sold against liability arising out of accidents caused by intoxicated customers who have been served/sold alcoholic beverages.

“D” Ratio. A factor used in workers’ compensation experience rating plans. It is the ratio of smaller losses (those under $2,000), plus the discounted value of large losses, as compared to the total losses that are expected of an insured in a particular type of business.

Dread (or Specified) Disease Policy. Coverage, usually with a high maximum limit, for all types of medical expenses arising out of diseases named in the contract. Common diseases covered are poliomyelitis, diphtheria, multiple sclerosis, spinal meningitis and tetanus. Cancer is sometimes covered or may be added by a rider.

Drive-In Claim Service. A facility maintained by an automobile insurer in which the extent of damage to a claimant’s automobile can be determined and, in many cases, a settlement made.

Drive-Other-Car Endorsement (DOC). A coverage that may be added to an auto that protects the individuals named in the endorsement while they are driving cars not owned by the individuals and not named in the policy.

Drop Down Coverages. Coverages provided by a personal umbrella that are not provided by underlying liability policies, including: personal injury coverage; regularly furnished autos; contractual liability; and damage to property of others.

Drug Formulary. A schedule of prescription drugs approved for coverage under a plan and dispensed through participating pharmacies.

Drug Price Review (DPR). A procedure used to determine drug price maximums. It involves determining wholesale drug prices based on the American Druggist Blue Book.

Drug Utilization Review (DUR). A method for evaluating or reviewing the use of drugs to determine the appropriateness of the drug therapy and whether it will be paid for by insurance.

Druggists Liability Insurance. A contract that protects a druggist in case of a suit arising out of filling prescriptions, missed delivery of drugs and other operations normal to a drugstore.

Dual Choice. The federal requirement that employers having 25 or more employees who are within the service area of a federally qualified HMO, who are paying at least minimum wage and offer a health plan to their employees, must offer HMO coverage as well as an indemnity plan.

Dual Life Stock Company. A stock life insurer issuing both participating and nonparticipating policy contracts.

Dun and Bradstreet, Inc. (D&B). A corporation that furnishes insurance companies with financial reports to assist them in the underwriting of prospective policyholders.

Duplicate Coverage Inquiry (DCI). A request to determine whether or not other coverage exists. Used to apply the coordination of benefits provisions where two or more insurance companies are involved.

Duplication of Benefits. Identical or overlapping coverage exists between two or more insurance companies or service organizations.

Duties After a Loss. A clause that specifies what a person must do in order to recover for losses covered by the policy. Most insurance companies have no duty to provide coverage unless there has been full compliance with the following duties: The insurer must be notified promptly of how, when and where the accident or loss happened. Notice should also include the names and addresses of any injured persons or witnesses.

Duty to Defend. The insurance company has the right and the option to investigate and settle any lawsuit and claim. In the same process, it also accepts a duty to defend an insured person in any related lawsuit or claim—whether the insured is guilty or liable.

Dwelling Coverage/Forms. A policy form designed specifically to cover a dwelling building and the personal property in it plus other additional coverages. Coverage applies to the dwelling, attached structures and materials and supplies on or adjacent to the residence premises for use in the construction, alteration or repair of the dwelling or other structures.

Dynamo Clause. See Electrical Exemption Clause.