O - P

O

OAA. Old Age Assistance, a form of public assistance. See Public Assistance.

OASDHI. See Old Age, Survivors, Disability and Health Insurance.

Object. In boiler and machinery insurance, the name of the vessel insured; the object of insurance.

Obligatory Reinsurance. See Automatic Reinsurance.

Obligee. Broadly, anyone in whose favor an obligation runs. This term is used most frequently in surety bonds where it refers to the person, firm or corporation protected by the bond. The obligee under a bond is similar to the insured under an insurance policy. In the case of a construction bond, the person for whom the building is being built is the obligee.

Obligor. Commonly called the principal. One bound by an obligation. In the case of a construction bond, the contractor is the principal.

OBRA. See Omnibus Budget Reconciliation Act.

Occasional Use. See Automobile Use Classifications.

Occupancy. The type or character of use of the property in question. The type of occupancy has a bearing on its desirability and also effects the rate for the policy.

Occupational Accident. An accident arising out of or occurring in the course of one’s employment and caused by hazards inherent in or related to it.

Occupational Classification. A critical underwriting factor for disability insurance. Most insurance companies group jobs according to the degree of injury risk they pose. These groups are typically identified as classes 1, 2, 3 and 4 (or A, B, C and D). Class 1 occupations are the least hazardous and class 4 occupations are the most hazardous. Other forms of income insurance—particularly workers’ comp—also use occupational classifications.

Occupational Coverage. 24-hour-a-day disability income protection. The insured person is covered under the terms of the policy whether the sickness or injury occurs on the job or off the job. Some policies may be identified as non-occupational. Usually, individual policies provide occupational coverage in combination with workers’ comp benefits. See Non-Occupational Coverage.

Occupational Disease. Impairment of health caused by continued exposure to conditions inherent in an occupation or a disease caused by or resulting from the nature of an employment. State compensation laws cover this type of loss.

Occupational Hazard. A condition in an occupation that increases the risk of accident, sickness or death.

Occupational Manual. A book listing occupational classifications for various types of work.

Occupational Safety and Health Act (OSHA). A federal statute that establishes safety and health standards on a nationwide basis. The Act is enforced by Labor Department safety inspectors and also provides for the recordkeeping of statistics relevant to work injuries and illnesses.

Occupying. Includes most situations involving any injury as a result of the use or maintenance of an automobile, including entering or alighting from or getting on or off a vehicle. This includes such things as jumping from the bed of a pickup truck and injuring an ankle or slipping off a curb while getting into an automobile.

Occurrence. An event that results in an insured loss. In some lines of insurance, such as liability, it is distinguished from accident in that the loss does not have to be sudden and fortuitous and can result from continuous or repeated exposure that results in bodily injury or property damage neither expected nor intended by the insured. A situation must be deemed an occurrence before insurance applies.

Occurrence Coverage. A policy form providing liability coverage only for injury or damage that occurs during the policy period, regardless of when the claim is actually made (e.g., a claim made in the current policy year could be charged against a prior policy period, or may not be covered, if it arises from an occurrence prior to the effective date). Contrast with Claims-Made Coverage.

Ocean Marine Insurance. A general term used to indicate all types of insurance associated with coverage on vessels and their cargoes.

Odds. The probable frequency of incidence of a given occurrence in a statistical sample. It is expressed as a ratio to the probable number of non-occurrences or as a decimal fraction of the total occurrences. For example, a probability of .25 equals odds of three to one against. A probability of .75 equals odds of three to one for. See also Probability, Law of Large Numbers and Degree of Risk.

Off Premises. A clause in a property insurance contract extending coverage away from the premises listed in the policy. Coverage away from the premises is usually restricted to a percentage of the total coverage on the premises (e.g., 10 percent).

Offer. The terms of a contract proposed by one party to another. In property and casualty insurance, submitting an application to the company is usually considered an offer. In life insurance, the application plus the initial premium constitutes an offer.

Offeree. One to whom an offer is made.

Offeror. One who makes an offer.

Office Burglary and Robbery Policy. A special policy designed for offices. It usually consists of several crime coverages on office equipment and supplies which are purchased as a package. There is relatively low limit for each coverage and very little flexibility in that the policyholder must buy the complete package.

Office Visit. Services provided in the physician’s office.

Officers and Directors Liability Insurance. A type of insurance that protects the officers and directors of a corporation against damages resulting from negligent or wrongful acts that may harm the corporation or its stockholders.

Offset Rider. A rider in a health insurance policy designed to reduce the benefit by a portion of the Social Security benefits received.

OL&T. See Owners, Landlords and Tenants Liability Insurance.

Old Age, Survivors, Disability and Health Insurance. The system of social insurance benefits for the aged, surviving dependents and disabled workers set up by the Social Security Act of 1935, plus amendments and additions. See also Social Insurance and Social Security.

Old Line. A term generally applied to related insurers operating on a legal reserve basis. The term seems to have come into use at the time of the competition between newly acquired or formed insurers and older insurers to indicate the fact that the related companies were “newcomers.”

Omnibus Budget Reconciliation Act. A federal law that extends the minimum COBRA continuation of group health care coverage from 18 to 29 months for qualified beneficiaries who are disabled at the time of qualification.

Omnibus Clause. An agreement in most auto liability policies and some others that, by its definition of insured, extends the protection of the policy to others within the definition without the necessity of specifically naming them in the policy (e.g., a policy covering the named insured and “those residing with him or her”).

Omnibus Risk. A structure housing a number of tenants engaged in a variety of businesses.

Open Access. Allows a participant to see another participating provider without a referral. Also called Open Panel.

Open Cover. A reinsurance facility under which risks of a specified category are declared and insured.

Open Debit. A life and health insurance debit (territory) currently without an agent.

Open End Investment Company. An investment company managed by professional investment advisors who invest in stocks and bonds on behalf of shareholders. Also known as a mutual fund.

Open Enrollment Period. A period during which members can elect to come under an alternate plan, usually without providing evidence of insurability.

Open Panel. See Open Access.

Open Perils. Insurance against loss of or damage to property arising from any cause except those that are specifically excluded. See All-Risk Insurance. Contrast with Named Perils.

Open Policy. An insurance contract where the terms of the policy are not fixed at the inception nor is an expiration date specified, but limits of liability are set forth for the protection it offers. No deposit premium is required, but monthly reports are made and sent with premiums due at that time, and certificates of insurance are issued to indicate the property covered. Commonly used to cover goods in transit.

Open Rating. A system whereby a state allows an insurer to use rates without prior approval.

Open Stock Burglary Policy. See Mercantile Open Stock Burglary Coverage.

Option. A choice of methods of receiving policy dividends, nonforfeiture values, death benefits or cash values.

Optional Benefits. See Elective Benefits.

Optional Modes of Settlement. The different options from which the beneficiary can choose to receive the proceeds from a life insurance policy.

Optional Policy Benefits. Benefits beyond the basic disability benefits. Their inclusion most often is dependent on an insured’s needs and ability to pay the extra premium for these options. The options that appeal to most people include: future increase options, cost of living rider and lifetime accident and sickness benefit. See Elective Benefits.

Optionally Renewable. A contract of health insurance where an insurer reserves the unrestricted right to terminate coverage at any anniversary or, in some cases, at any premium due date. It may not do so in between.

Ordinance or Law Coverage. Coverage for the additional loss caused by the enforcement of laws that regulate building repair or construction. This coverage is added by endorsements and includes debris removal expenses.

Ordinary Agency. A life insurance agency handling only ordinary life. See also Ordinary Life Policy.

Ordinary Construction. A building with floors on wood joists, in which the interior finish usually conceals space where fire can spread, and which has little protection of stair shafts.

Ordinary Life Pension Trust. A pension plan funded by means of a trust that provides death benefits through the purchase of ordinary or whole life insurance contracts for covered employees. The trust pays the insurance premium until the employee reaches retirement age, and accumulates the additional sums necessary to purchase the retirement benefits, using the paid-up value of the life insurance policies.

Ordinary Life Policy. A whole life policy that pays premiums continuously as long as the insured lives. Same as Straight Life Policy. See also Whole Life Insurance.

Ordinary Living Expenses. Typical expenses such as groceries, regular evenings out or ordinary utility bills.

Ordinary Payroll. A business interruption term that means the entire payroll expense for all the employees of an insured except officers, executives, department managers, employees under contract and other important employees. This payroll can be excluded or limited from business interruption forms, reducing the amount of insurance and insured is required to carry.

Ordinary Register. The record book in a combination insurer or agency containing data on the ordinary policies in an agent’s account.

OSHA. See Occupational Safety and Health Act.

Other Insurance Clause. A provision found in almost every insurance policy except life and sometimes health stating what is to be done in case any other contract of insurance embraces the same property and/or hazards. See also Nonduplication of Benefits and Apportionment.

Other Insurance. The existence of other contracts covering the same interest and perils. See also Concurrent Insurance.

Other Structures. Structures, such as a garage or storage shed, that are separated from an insured dwelling by a clear space, or are connected only by a fence or utility line. Dwelling and homeowners policies provide coverage for other structures. This coverage is sometimes called “appurtenant structures” coverage.

Other than Collision Coverage. A broad category of coverage that includes many types of loss. The standard policy clearly spells out the losses that are not collision losses: missiles, falling objects, theft, explosion, earthquake, windstorm, hail, water, flood, malicious mischief, vandalism, riot, civil commotion, contact with a bird or animal. Historically, this has been known as comprehensive coverage.

Outage Insurance. Coverage against loss of earnings due to the failure of machinery to operate because of an insured peril causing damage to the premises. Similar to Extra Expense Insurance.

Outcomes Measurement. A method of keeping track of a patient’s treatment and the responses to that treatment.

Outline of Coverage. A document presented to applicants for life or health insurance that provides a brief description of proposed coverages, premiums, benefits, limitations and exclusions. It is a summary only and encourages the applicant to read the actual policy or certificate carefully. The outline may also include various disclosures, and inform the applicant of certain rights, such as the right to a “free look”—the right to return the policy and receive a full refund of premium within a stipulated time period if not satisfied.

Out-of-Area (OOA). Treatment given to a member outside of the normal area.

Out-of-Pocket Costs. The amount a covered person must pay out of his or her own pocket (e.g., for coinsurance, deductibles, etc.).

Out-of-Pocket Limit. The maximum coinsurance an individual is required to pay, after which the insurer pays 100 percent of covered expenses up to the policy limit.

Out-of-State Coverage. This means that if an insured drives into a state where no-fault benefits or other types of coverage are required, the policy will automatically provide the minimum amounts and types of coverage. Most personal auto policies restrict the policy territory to the United States, its territories and possessions, Puerto Rico and Canada. If an insured travels outside his home state, the policy will adjust to these laws by automatically increasing the liability limits to conform to that state’s laws with respect to a nonresident driving in the state.

Outpatient. A patient who is not a bed patient in the hospital where he or she is receiving treatment.

Outstanding Premiums. Premiums due but not yet collected.

Overage Insurance. Health insurance issued at ages above the usual limit—generally 65.

Overhead Expense Insurance. Coverage for such things as rent, utilities and employee salaries when a business owner becomes disabled. The insurance benefit is generally not a fixed amount, but pays the amount of expenses actually incurred.

Overinsured. The condition that exists when an insured has purchased coverage for more than the actual cash value or replacement cost of a subject of insurance. It is also describes a situation where so much insurance is in force as to constitute a moral or morale hazard, such as having so much disability income insurance in force that it becomes profitable to be disabled.

Overlapping Insurance. Coverage from two or more policies or insurers that duplicates coverage of certain risks. See also Concurrent Insurance.

Overline. (1) The amount of insurance or reinsurance exceeding an insurer’s or reinsurer’s normal capacity inclusive of any contractual reinsurance coverage. (2) A commitment by an insurer or reinsurer above and beyond normal facilities or capacities.

Overriding Commission. (1) A commission that an agent or broker receives on any business sold in his or her exclusive territory by subagents. Also sometimes called “overwriting” or “overriding.” (2) An allowance paid to a ceding company over and above the acquisition cost to allow for overhead expenses, often including a margin for profit.

Over-the-Counter Drugs (OTC). A drug that can be purchased without a prescription.

Owned Autos. Those “autos” an insured owns (and for liability coverage any “trailers” not owned while attached to power units that are owned). This includes those “autos” acquired after the policy begins.

Owned Private Passenger Autos. The private passenger autos an insured owns, including those private passenger autos acquired after the policy begins.

Owner of a Policy. An applicant for insurance agrees to pay the premiums, and has certain ownership rights. Generally, the policy owner has the right to elect or change the beneficiary, to elect settlement options and to assign ownership to another person. The owner of a policy may or may not be the insured person, and may or may not be the beneficiary. The same person cannot be both the insured and the beneficiary, but the insured’s estate can.

Owners and Contractors Protective Liability Policy. Protection against losses caused by the negligence of a hired contractor or subcontractor. Also called independent contractors insurance.

Owners, Landlords and Tenants Liability Insurance (OL&T). Coverage against legal liability for bodily injury or property damage caused to others by negligence and arising out of the ownership, maintenance or use of the premises designated in the policy and all operations necessary or incidental to those premises. The OL&T form has largely been replaced by the Commercial General Liability Coverage Form.

Ownership. (1) All rights, benefits and privileges under life insurance policies are controlled by their owners. Policy owners may or may not be the insureds. Ownership may be assigned or transferred by written request of the current owner. (2) Under the general eligibility rules, a private passenger auto must be owned or leased by an individual or married couple who live together. However, a personal auto policy may also be issued to cover an auto owned by relatives other than husband and wife, or an auto owned by unrelated individuals who reside together, if a joint ownership endorsement is attached to the policy.

Ownership of Expirations. An agreement by an insurer that certain information regarding the details of a policy, usually a property or liability form, are revealed to no agent or broker other than the originating agent.

Ownership Provision. A provision stating that the policy may be owned by a person other than the insured. This provision is often found in business or juvenile life insurance policies.

P

P&I. See Protection and Indemnity Insurance.

P.S. 58 Charges. An IRS table that identifies the cost of pure death protection. The taxable economic benefit to an employee under a split dollar plan and certain other plans is equal to the P.S. 58 charges less any employee contributions.

Package Policy. Any policy including two or more lines or types of coverages in the same contract. Personal and commercial package policies are very common. In fact, most policies sold are package policies.

Paid Business. Insurance for which the application has been signed, the medical examination completed and the settlement for the premium tendered.

Paid Claims. Amounts paid to providers based on the health plan.

Paid Claims Loss Ratio. Paid claims divided by total premiums.

Paid Losses. The amount paid in losses during a specified period of time, not including estimates of amounts that will be paid in the future for losses that occurred then.

Paid-For. Insurance on which the premium has been paid.

Paid-In Capital. The amount paid for the stock sold by a corporation.

Paid-In Surplus. Surplus paid in by stockholders, as contrasted with surplus earned through the operations of a business.

Paid-Up Additions (or Adds). See Dividend Additions.

Paid-Up Insurance. Insurance on which all premiums are paid but which has not yet matured by either death or endowment (e.g., a limited payment life policy for which the premium-paying period is over).

Pain and Suffering. Non-economic damages or intangible benefits, including not only physical discomfort and distress but also mental and emotional trauma. See Non-Economic Benefits.

Pair and Set Clause. A clause which states that if a part of a pair or set is lost or damaged the measure of the loss shall be a reasonable and fair proportion of the total value of the set, giving consideration to the importance of the article. The insurer is under no obligation to pay for the total loss of a set when one part is lost, damaged or destroyed.

Paper Accidents. An auto case in which no accident occurred but false accident reports were filed to support insurance claims.

Par. Abbreviation for participating. See Participating.

Parasol Policy. Another name for the difference in conditions policy. See Difference in Conditions.

Parcel Post Insurance. Coverage for damage to or loss of parcels while they are in the care of the United States Post Office Department. Packages can be insured by either the post office or by private insurance companies.

Parent Company. The senior company in a group or fleet of insurers. See also Fleet of Companies.

Parol. A legal term referring to oral statements as distinguished from written statements.

Parol Evidence Rule. This rule states that a written instrument or contract cannot be modified by an oral agreement. It is based on the concept that written contracts should contain all of the facts and agreements between the parties and, therefore, prevents contemporaneous oral declarations from being included in the contract.

Partial Disability. A condition in which, as a result of injury or sickness, the insured cannot perform all of the duties of his or her occupation but can perform some. Exact definitions vary from policy to policy. See also Permanent Partial Disability and Temporary Partial Disability.

Partial Hospitalization Services. Additional services provided to mental health or substance abuse patients that provides outpatient treatment as an alternative or follow-up to inpatient treatment.

Partial Loss. A covered loss that does not completely destroy or render worthless the insured property.

Participant. An employee or former employee who is eligible to receive benefits from an employee benefit plan or whose beneficiaries may be eligible to receive benefits from the plan.

Participating (Par). (1) Insurance that pays policy dividends. In other words, it entitles a policyowner to participate in allocations of the insurer’s surplus. In life insurance there are several options available for the use of such dividends. (2) Insurance that contributes proportionately with other insurance on the same risk.

Participating Physician. A health care provider approved by Medicare to receive payment directly from the Social Security Administration. See Non-Participating Physician.

Participating Policy. A policy where the policyholders share in dividends (if a dividend is declared).

Participating Provider. A health care provider approved by Medicare to participate in the program and receive benefit payments directly from carriers or fiscal intermediaries.

Participating Reinsurance. See Pro Rata Reinsurance.

Participation. The number of employees enrolled compared to the total number eligible for coverage. Many times, a minimum participation percentage is required.

Particular Average. A partial loss that must be borne entirely by the individual owning any property that is damaged or lost. It is often used synonymously with partial loss. See also Free of Particular Average.

Partnership Entity. A partnership considered as an entity and not in terms of its individual part-owners.

Partnership Insurance. Life or health insurance sold to a partnership, usually for guaranteeing business continuity in case of the death or disability of one of the partners. For example, two partners might buy life insurance on each other so that in the event of one partner’s death, the other can use the insurance proceeds to purchase the deceased partner’s share of the business from the heirs.

Party Wall. A common wall between two buildings.

Party-in-Interest. The parties to an employee benefit plan, including individuals serving as a fiduciary or counsel, or employees of an employee benefit plan; or any person providing service to the plan; or the employer who establishes the plan; or an employee organization whose members are covered by the plan; or an owner of 50 percent or more of a company that establishes an employee benefit plan.

Past Service Benefit. A term used in pension or retirement insurance policies that refers to credit given an employee for the amount of time the person was employed prior to the effective date of the retirement plan.

Past Service Liability. The monetary value at the start of a pension plan of all annuity credits vested prior to the effective date.

Patent Enforcement Insurance. Coverage for the costs of enforcing a patent against those who infringe. An insurer may or may not cover preexisting infringement.

Paul v. Virginia. The 1869 U.S. Supreme Court decision holding that insurance is not commerce and, hence, not subject to regulation by the government. This was the ruling decision with respect to insurance regulation until the SEUA case in 1944 which reversed that decision but which was later modified by Public Law 15. See also Southeastern Underwriters Association and Public Law 15.

Pay. An abbreviation for payment as in “20-Pay Life policy.”

Pay-As-You-Go. See Current Disbursement.

Payee. The person receiving money.

Paymaster Robbery Insurance. Coverage for payroll money against loss by robbery inside or outside the insured’s premises. The Simplified Commercial Crime Coverage Forms A through R have replaced this policy.

Payment Bond. A bond furnished by a contractor to guarantee payment for labor and materials used in a particular project or work under contract.

Payor Benefit. A rider or provision often found in juvenile policies that waives the premiums if the person paying the premium, usually one of the parents, becomes disabled or dies while the child is still a minor.

Payroll Audit. An examination of an insured’s payroll record by a representative of the insurer to determine the final premium due on a policy for the latest policy year.

Payroll Deduction Insurance. A plan whereby an employer is authorized by an employee to deduct insurance premiums for an individual life insurance policy he has purchased from an insurer. The employer pays the insurer the amount deducted on a periodic basis.

PD. See Physical Damage.

Peak Season Endorsement. An endorsement that provides increased amounts of coverage on inventories during peak seasons, beginning and ending on dates specified in the endorsement. The form protects an insured during seasonal fluctuations in value.

Peer Review. Review of health care provided by a medical staff with training equal to the staff that provided the treatment.

Peer Review Organization (PRO). Groups of physicians who are paid by the federal government to conduct pre-admission, continued stay and services reviews provided to Medicare patients by Medicare approved hospitals.

Penalty. The limit of an insurance company’s liability under a Fidelity Bond.

Pension Benefit Guaranty Corporation (Pen Ben). A non-profit corporation within the Department of Labor that insures participants in, and beneficiaries of covered plans against the loss of benefits arising from a premature termination of a retirement plan.

Pension Plan. A risk experienced by those who invest in securities identified as the uncertainty of the economy.

Pension Trust Fund. A fund consisting of money contributed by the employer, and, in some cases, the employee, to provide pension benefits.

Per Capita. Literally “by heads.” Distribution among survivors by persons on a share-and-share-alike basis that is often used in beneficiary designations. Contrast with Per Stirpes.

Per Diem Business Interruption. A business interruption policy that provides a stated amount to be paid for each day that the business is interrupted due to an insured peril.

Per Person Limit. The maximum amount payable to one person arising out of one occurrence. However, there is no limit on the number of claims arising out of an occurrence, nor is there an aggregate limit on the amount payable. See Liability Limit.

Per Risk Excess Reinsurance. Reinsurance in which the retention and the cession apply per risk rather than per accident, per event or on an aggregate basis.

Per Stirpes. Literally “by branches.” Distribution of property between or among two or more beneficiaries with the provision that if one dies before the insured, the beneficiary’s heirs shall have the beneficiary’s full share distributed among them. Contrast with Per Capita.

Percent Subject. See Amount Subject.

Percentage Participation. A provision in a health insurance contract that says the insurer will share losses in an agreed proportion with the insured. An example would be an 80-20 participation where the insurer pays 80 percent and the insured pays the other 20 percent of covered losses. Often erroneously referred to as coinsurance.

Percentage Test. A coverage test for a qualified plan that is a formula to determine if a plan benefits at least 70 percent of the lower paid employees.

Performance Bond. A bond guaranteeing the faithful performance of a contract. See also Contract Bond.

Performance Codes. Most rating tables include different secondary factors for standard, intermediate and high performance vehicles, and for sports vehicles. The four most common codes: “i” or intermediate, “h” or high performance, “s” or sports model, and “p” or sports premium model. If a car model doesn’t have a specific performance code, it is presumed to be a standard performance model.

Peril. The actual cause of a possible loss. Insurance policies distinguish between covered perils (also called perils insured against) and non-covered perils. Compare to Hazard and Risk.

Perils of the Sea. A term used in most ocean marine contracts. It refers to such perils as collision, sinking, stranding and burning.

Period. See Term.

Period Certain. See Guaranteed Period.

Period of Restoration. The period when business income coverage applies. It begins when the direct physical loss occurs and interrupts business operations, and ends on the date that the damaged property should be repaired, rebuilt or replaced with reasonable speed.

Periodic Payment Deferred Annuity. An annuity that is bought for its series of periodic payment the benefits are deferred until all payments have been made.

Permanent and Total Disability. Total disability from which the insured does not recover. When used as a definition in a policy (usually a life insurance policy rider), “permanent” is presumed after a stated period of time, commonly six months.

Permanent Life Insurance. A term loosely applied to life insurance policy forms other than group and term, usually cash value life insurance, such as endowments and whole or ordinary life policies.

Permanent Partial Disability. A condition where the injured party’s earning capacity is impaired for life, but he is able to work at reduced efficiency.

Permanent Total Disability. A condition where the injured party is not able to work at any gainful employment for the remaining lifetime.

Permit Bond. A bond guaranteeing that a person who has been issued a permit complies with the laws and ordinances regulating the privilege for which the permit was issued. A house movers permit bond is an example.

Persistency. (1) The tendency or likelihood of insurance business not lapsing or being replaced by another insurer’s product; an important underwriting factor. (2) The staying quality of insurance policies, i.e., the renewal quality. High persistency means that a high percentage of policies stay in force to the end of the period coverage, while low persistency means that a high percentage of policies lapse for nonpayment of premiums.

Personal Accident Insurance (PAI). (1) Coverage that provides a one-time payment for an insured or a passenger in a case of death or maiming from a car accident. This is generally covered under auto or health policies. (2) Coverage that provides limited accidental-death benefits for the car renter and—often—passengers.

Personal Articles Floater (PAF). Originally an inland marine policy, PAF can be sold as a separate policy or attached to an existing property insurance policy, such as a homeowners form. The PAF lists items to be covered, such as furs and jewelry, with an amount shown for each item. This is usually an open perils (all risk) form. See also Floater.

Personal Assets. Wealth and things of value accumulated and owned by an individual. These would include real estate, cash, investments and other items of value.

Personal Auto Policy. A revised edition of the Family Auto policy, with simplified wording used in the policy provisions. It is the most common auto insurance policy sold today. See Family Auto Policy.

Personal Credit Ratings. In general, this system is becoming an important element of rating auto premiums. Most large insurance companies use personal credit ratings as a secondary factor if a policy applicant meets some pre-determined risk profile.

Personal Effects Coverage. Coverage that provides limited reimbursement to the renter of an automobile for loss of baggage and other personal property during the rental period.

Personal Effects Floater. A policy covering personal effects usually carried by tourists. It can be written on either an open perils (all risk) or specified-peril form. It covers worldwide but excludes coverage at the insured’s residence, as it provides travel coverage only.

Personal Injury. Injury other than bodily injury arising out of false arrest or detention, malicious prosecution, wrongful entry or eviction, libel or slander or violation of a person’s right to privacy committed other than in the course of advertising, publishing, broadcasting or telecasting. Contrast with Advertising Injury.

Personal Injury Coverage. The typical underlying homeowners policy provides liability coverage for accidental bodily injury (meaning physical injury or death), but not for events involving libel, slander, false arrest and the like. See Drop Down Coverages.

Personal Injury Mills. A scam where lawyers and physicians—some working alone, some working together—submit claims for patients’ nonexistent or exaggerated injuries.

Personal Injury Protection (PIP). Coverage for treatment of injuries to a driver and any passengers in the car. Also known as no-fault benefits in states that have enacted mandatory or optional no-fault auto coverages. PIP usually includes benefits for medical expenses, loss of work income, essential services, accidental death and funeral expenses.

Personal Interview. After the insured submits an insurance application, a personal interview usually is performed by the insurance company or an independent third party to verify application information. Specifically, any application data regarding medical history, hobbies and occupational duties may have to be explained, or additional information may need to be gathered through this report.

Personal Liability Supplement. A form that provides personal liability insurance. It may be attached to a dwelling policy or written as a separate policy.

Personal Liability Umbrella Policy (PLUP). Stand-alone insurance that supplements most other liability insurance. An umbrella policy boosts the liability protection on an insured’s homeowners, auto and boat or vacation home policies.

Personal Lines. Refers to insurance for individuals and families, such as private passenger automobile insurance and homeowners policies. Contrast with Business Insurance and Commercial Lines.

Personal Property. Any property of an insured other than real property—such as furniture, linens, drapes, clothing, appliances, etc. Homeowners policies protect the personal property of family members, and commercial forms are used to protect the business personal property of an insured. Personal property of guests and residence employees may be covered at the insured’s request.

Personal Property Floater. A broad form policy covering all personal property worldwide, including any at the insured’s home. Similar coverage is available by endorsement as part of the “Special” homeowners policy form.

Personal Property Items. Items such as clothing, cameras, sporting equipment, tools, etc., carried around in a car. Most people have this coverage under a homeowners insurance policy, but coverage is also available under Personal Property Floaters and other specialized property insurance policy forms.

Personal Property of Others. Property, other than real property, that is not owned by an insured. Liability forms have traditionally excluded coverage for property of others in an insured’s care, custody or control. Modern homeowners forms and commercial property forms provide some coverage for property of others.

Personal Surety. An individual, as opposed to an insurance company or other corporate institution, acting as a surety or guarantor.

Personal Theft Policy. See Broad Form Personal Theft Policy.

Personal Umbrella Policy. Provides broad coverage and high limits of coverage that most commonly sold personal liability coverages, known as underlying policies, do not provide. Umbrella liability policies serve two major functions: They provide so-called “high limits of coverage” that protect against catastrophic losses not covered by standard insurance; and they provide broader coverage than underlying policies.

Personalty. Movable personal property items, as opposed to realty, such as land, buildings and mineral rights.

Phantom Vehicle Claim. A claim in which a motorist says he has suffered a loss from a hit-and-run driver who does not exist.

Pharmacy and Therapeutics (P&T) Committee. A panel of physicians—usually from different specialties —who advise the health plan regarding the proper use of prescription drugs.

Physical Damage. (1) Actual damage to property. (2) Damage from such perils as collision, comprehensive, fire and theft or any damage to the vehicle itself. See Damage to Your Auto Coverage.

Physical Exam and Autopsy. A standard health insurance policy provision allowing the insurer to examine the insured when a claim is pending, and in the event of death perform an autopsy where not prohibited by law.

Physical Hazard. Any hazard arising from the material, structural or operational features of the risk itself apart from the persons owning or managing it.

Physical Therapist. A trained medical person who provides rehabilitative services and therapy to help restore bodily functions such as walking, speech, the use of limbs, etc.

Physician Contingency Reserve (PCR). A portion of a claim that is deducted and withheld by the health plan before payment is made to the physician. It serves as an incentive for proper quality and utilization of health care. A portion of this reserve may be returned to the physician or to pay claims where the plan needs additional funds. It is also sometimes called “withhold.”

Physicians and Surgeons Equipment Form. A form used to cover equipment, materials, supplies and office furniture of individuals in the medical and dental professions.

Physicians and Surgeons Professional Liability Insurance. Malpractice insurance for physicians and surgeons. See Malpractice.

Physician’s Current Procedural Terminology (CPT). This terminology includes medical services and procedures performed by physicians and other providers of health care. The health care industry uses it as a standard for describing services and procedures.

PIA. Professional Insurance Agents. An association of independent agents involved in educational programs, consumer efforts and government and industry affairs pertaining to the insurance industry.

Pilferage. Petty theft, particularly theft of articles in small batches. It’s associated with the insuring of cargo under an inland marine insurance form.

PILR. See Property Insurance Loss Register.

Piracy. Unlawful seizure of a ship and/or its cargo on the high seas. Commonly covered by ocean marine contracts.

Place of Service. This designates where the actual health services are being performed, whether it be at a home, hospital, office, clinic, etc.

Plain Language Laws. Mandatory state law that requires policies to be written in everyday language so that they are easily understood. Technical terms with their technical meanings are used only where required by law or substitution would be misleading.

Plaintiff. The party who brings a legal action against another, called the defendant.

Plan, Excess. A retirement plan designed around the benefits of Social Security.

Plan, Formal. A retirement plan set forth in writing under which contractual and legally enforceable rights are granted to the participating employees.

Plan, Funded. All plans under which funds are deposited to provide for retirement benefits.

Plan, Informal. A retirement system under which the employer has no legal obligation and the employee has no legal rights. These plans have no standard of benefits to be paid, and have no special method of funding.

Plan, Insured. A retirement plan under which some kind of benefits are guaranteed by an insurance carrier.

Plan, Offset. A retirement plan in which each employee’s standard benefit is reduced by a portion of the Social Security benefits he or she will receive.

Plan, Point-of-Service. This health care plan allows a choice of whether to receive services from a participating or nonparticipating provider.

Plan, Qualified. A retirement plan where contributions by the employer are allowed as a deduction from taxable income, and provides that the deposits for employees’ future benefits are not to be considered as taxable income to them in the year in which they are made.

Plan Sponsor. An employer or other entity that establishes or maintains a retirement plan for its employees or members.

Plan, Unfunded. Any pension plan which follows a “pay-as-you-go” method. See Funding, Disbursement.

Plan, Uninsured. Any pension plan that is not funded through insurance products.

Plan, Unqualified. Any pension plan that does not meet the qualifications for special tax advantages as set forth in the IRS Code.

Plan Year. A calendar, policy or fiscal year on which the records of the plan are kept.

Plate Glass Insurance Policy. See Comprehensive Glass Insurance Policy and Glass Coverage Form.

Pluvious Insurance. Another name for Rain Insurance.

PML. See Probable Maximum Loss.

Point-of-Service Plan. A plan that allows an individual to choose whether to receive services from a participating or nonparticipating provider.

Poisson’s Law. See Theory of Probability.

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

Policy Anniversary. The anniversary of the date of issue of a policy.

Policy Change Endorsement. An endorsement that makes changes which are not specifically addressed by any preprinted form. This endorsement lists the policy number, effective date, named insured and coverage parts affected.

Policy Conditions. See Conditions.

Policy Date. See Effective Date.

Policy Dividend. The return of a portion of the premium paid on a participating policy. It represents the difference between the gross premium charged and the actual cost assessed against the policy by actuarial formula.

Policy Fee. (1) A one-time charge added to the first premium to help defray acquisition costs, now illegal in many states. (2) A flat, per policy charge that does not change with the size of the policy and thus serves as a form of quantity discount. Also known as quantity discount factor and quantity adjustment fee.

Policy Loan. A loan made by an insurer to a policyowner of a part or all of the cash value of the policy assigned as security for the loan. This is one of the usual nonforfeiture values.

Policy Number. All insurance companies file their policies by policy number rather than by the insured’s name. The number is typically found on the Declarations Page.

Policy Period (or Term). The period during which the policy contract affords protection (e.g., six months, one or three years).

Policy Proceeds. The amount actually paid on a life insurance policy at death or when the insured receives payment at surrender or maturity. It includes any dividends left on deposit and the value of any additional insurance purchased with dividends; and it excludes any loans not repaid, plus unpaid interest on those loans.

Policy Reserve. A reserve which exists because of the concept that each policy has a pro rata share of the total reserve established for all policies. See Unearned Premium Reserve.

Policy Summary. A summary of coverages, benefits, limitations, exclusions, cost and terms of a proposed life insurance policy. Cost and benefit information usually includes annual premiums, guaranteed amounts payable at death, guaranteed cash surrender values at the end of various years, life insurance cost indexes, and (if applicable), dividend information. In many jurisdictions, summaries are required to be delivered to applicants in connection with any solicitation or replacement transaction.

Policy Term. See Policy Period.

Policy Year. The period between policy anniversary dates.

Policy Year Experience. The measure of premiums and losses for each 12-month period a policy is in force. Losses occurring during this 12-month period are assigned to the period regardless of when they are actually paid.

Policyholder. (1) The person in actual possession of an insurance policy. (2) Loosely refers to the policyowner and/or insured. See also Insured.

Policyholder’s Surplus. The amount over and above liabilities available for an insurer to meet future obligations to its policyholders. In the case of a mutual insurer, it is the whole equity section of the balance sheet. In the case of a stock insurer, the equity section is divided into two parts: stockholder’s surplus and policyholder’s surplus.

Policyowner. (1) The person who owns an insurance policy and who may or may not be either the policyholder or the insured. (2) Loosely refers to the policyholder and/or the insured. See also Insured.

Policywriting Agent. An agent who has the authority to prepare and effect an insurer’s policy.

Pollutant. Any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.

Pollution Liability Coverage Form. Commercial form providing pollution insurance on a “claims made” basis, and coverage for clean-up costs. Contrast with Limited Pollution Liability Coverage

Form.

Pollution Liability Extension Endorsement. An endorsement to general liability insurance that removes part of the pollution exclusion, creating liability coverage for pollution injury or damage.

Pool (Association or Syndicate). An organization of insurers or reinsurers through which particular types of risks are written with the premiums, losses and expenses shared in agreed amounts among the insurers belonging to the pool. A pool is often the entity to write large values, such as those on commercial aircraft.

Pool (Risk Pool). A separate account that includes entries for income and expenses. It is used when a number of groups are put together for the purposes of combining their premium and paying their losses.

Pooling. Reinsurance where every member assumes a share of each risk written by every other member. Provisions may include a maximum limit to be borne by any member. See Quota Share Insurance and Quota Share Reinsurance.

Portfolio Entry. Part of the mechanics of instituting a reinsurance treaty. It may be arranged on varying bases, such as new and renewal business or business in force, any and all of which are referred to as the portfolio entry.

Portfolio Reinsurance. (1) A transfer of the portfolio of an insured via a cession of reinsurance. (2) Reinsurance where the reinsurer assumes a percentage of the entire book of the ceding company’s business either in a particular class or in all classes.

Portfolio Return. Reassumption by a ceding company of a portfolio which has formerly been reinsured.

Portfolio Runoff. Continuing the reinsurance of a portfolio until all ceded premiums are earned.

Position Schedule Bond. See Name Position Bond and Name Schedule Bond.

Postdated Check Plan. A premium-paying arrangement where the policyowner gives the insurer a series of checks, each dated ahead of the date on which premiums fall due for a year or more. The insurer then presents each check on its date.

Post-judgment Interest. Interest that accrues prior to actual payment. If a judgment is rendered against an insured, there usually is a time lapse between the rendering of the judgment and the payment of the damages awarded. The company pays any interest charges that accrue during this time period.

Postmortem Dividend. A policy dividend allotted after the death of an insured. It’s also called a mortuary dividend.

Pour Over Trust. A revocable living trust that serves as a receptacle for distributions from employee benefit plans.

Power Interruption Insurance. Indemnifies the insured in the event of loss due to the interruption of power supplied by a public utility and caused by any of the perils insured against.

Power of Agency. See Agent’s Authority.

Power of Appointment. The right or authority given by a donor to a donee, allowing the donee to select the ultimate beneficiary of property or gift(s).

Power of Attorney. (1) The authority given to one person or corporation to act for and obligate another to the extent set forth in the agreement creating the power. (2) The authority given to the chief administrator of a reciprocal insurance exchange, who is called an attorney in fact, by each subscriber. See also Attorney in Fact and Reciprocal Insurance Exchange.

Power Plant Insurance. Insures electricity generating plants against loss caused by certain specified perils.

PPO. See Preferred Provider Organization.

Practical Nurse. A licensed individual who provides custodial type care such as help in walking, bathing, feeding, etc. They do not administer medication or perform other medically-related services.

Pre-Admission Authorization. A cost containment feature of many group medical policies whereby the insured must contact the insurer prior to a hospitalization for authorization of admission.

Pre-Admission Certification. Criteria used to determine whether inpatient care is necessary.

Preauthorization Check Plan. A premium-paying arrangement where the policyowner authorizes the insurer to draft money from his or her bank account for monthly payments.

Precedent. In common law, previous cases used to prove the present case are called precedence.

Precertification Authorization. A cost containment technique requiring physicians to submit a treatment plan and an estimated bill prior to providing treatment. This allows the insurer to evaluate the appropriateness of the procedures, and lets the insured and physician know in advance which procedures are covered and at what rate benefits will be paid.

Pre-Disability Income. The average monthly income earned by the insured during the 12 months prior to the onset of total disability.

Preemptive Right. A current stockholder’s right to maintain proportionate ownership in a corporation through the exercising of this right to purchase new issues of stock before the general public.

Pre-Existing Condition. A physical condition that existed prior to the effective date of a policy. In many health policies these are not covered until after a stated period of time has elapsed.

Preferred Provider Option. Under these cost-containment plans, repair shops appraise cars and send the estimates to the insurance company via computer. This cuts several days from the typical time it takes to repair a damaged vehicle.

Preferred Provider Organization (PPO). An organization of hospitals and physicians who provide, for a set fee, services to insurance company clients. Providers are listed as preferred and the insured may select from any number of hospitals and physicians. Coverage is 100 percent, with a minimal co-payment for each office visit or hospital stay. Contrast with Health Maintenance Organization.

Preferred Risk. Any risk considered to be better than the standard risk on which the premium rate was calculated.

Prejudgment Interest. Additional damages awarded to a plaintiff to compensate for the delay between the time of injury or damage and the time a judgment is made. Because liability claims may take months or years to resolve, this amount is designed to replace the amount of interest the plaintiff would have earned had the damages been awarded at the time of injury or damage.

Prelicensing Education Requirement. Statutory requirement of many states that an applicant for an insurance license must complete a specified education program before being eligible for the license.

Preliminary Term. (1) A reserve system in life insurance where the entire first-year premium is used for acquisition costs. The effect is to reduce the first year’s premium, making it more attractive to the prospective buyer. (2) The period of a short-term insurance policy issued to cover a risk to a date which the policyowner wishes to establish as the anniversary date for future premiums.

Premises. The particular location of property or a portion of the property as designated in a policy. Used principally for private residential purposes (some incidental business occupancies, such as a studio or office, are permitted), and contains no more than two family living units (that means single family homes and duplexes are eligible).

Premises and Operations Liability Insurance. Liability coverage for exposures arising out of an insured’s premises and business operations. It is one of the two major sublines of general liability. Contrast with Products and Completed Operations Insurance.

Premises Burglary. A burglary that occurs on an insured premises. Various commercial insurance forms distinguish between coverage provided on and off an insured premises. The coverage may be written separately or as part of a broader package of crime coverages.

Premises Theft—Outside Robbery Coverage Form. A commercial crime coverage form that protects against loss of property other than money and security by theft on the premises or robbery outside the premises.

Premium. The price of insurance protection for a specified risk for a specified period of time.

Premium Adjustment Form. A form wherein a deposit premium is charged at the beginning of the policy period, periodic reports of exposures are made by the insured during the policy term or at the end of it, and premiums are adjusted as reports are received or at the end of the policy period.

Premium Advance. See Deposit Premium

Premium and Dispersion Credit Plan. A method of allowing certain credits to commercial property risks with two or more locations. Credits are based on the fact that there are several locations which are dispersed and, therefore, represent a reduced hazard. Efficiency of management in loss prevention, plus expense savings in handling large amounts of insurance under one policy are also considered.

Premium Base. See Subject Premium.

Premium Deposit. See Deposit Premium.

Premium Discount. (1) A discount on premiums paid in advance of one year, which is based on projected interest to be earned. (2) A discount allowed on certain workers’ comp and comprehensive general liability policies to allow for the fact that larger premium policies do not require the same percentage of the premium for basic insurer expenses such as policywriting. The discount percentage increases with the size of the premium.

Premium, Earned. See Earned Premium.

Premium Load. A universal life term, also called a “front-end load,” meaning the percentage of premium deducted from each premium payment to help cover expenses. Some policies provide for a “no load” feature.

Premium Loan. A loan made by the insurance company to the insured, with the cash value of the policy as security, to pay a premium due.

Premium Notice. A notice from an insurer or agency to a policyowner that a premium will be due on a given date.

Premium, Pure. See Pure Premium.

Premium Rate. The price per unit of insurance (e.g., a property insurance rate of 10 cents per $100 of the value of the property to be insured).

Premium Receipt. The receipt given a policyowner for the payment of a premium.

Premium Receipt Book. The policyowner’s record of premium paid, usually used for a weekly payment or monthly debit ordinary policy.

Premium Refund. A special provision allowing a beneficiary to collect the face amount of a policy plus all the premiums paid.

Premium Return. See Return Premium.

Premium, Unearned. See Unearned Premium.

Premiums Written. See Written Premiums.

Prepaid Legal Service Plan. An employee benefit whereby benefits are provided by the employer for certain legal services.

Prepayment of Premiums. Payment of future premiums through paying the present (discount) value of future premiums or having interest paid on the insured’s deposit.

Prescription Medication. A drug dispensed only by prescription and approved by the Food and Drug Administration.

Present Interest. Current use and enjoyment of personal property.

Present Value. (1) The amount of money that future amounts receivable are currently worth. A life insurance policy may provide for monthly payments for 10 years. The present value of that money would be less than the total amount of the monthly payments for 10 years because of the amount of interest that a present lump sum could earn during the term that the payments otherwise would have been made. (2) The present amount equivalent to an amount or series of amounts payable or receivable in the future adjusted for the time value of money (through discounts for interest).

Preservation of Property. Limited coverage for property removed from the described premises to protect it from a covered cause of loss. Also known as “removal” coverage. See Removal.

Pressure Vessel. Any vessel or container designed to hold liquids or gases under pressure.

Presumed Negligence. See Res Ipsa Loquitur.

Presumption of Agency. A legally binding agency relationship when, in fact, no formal agency agreement is in effect. If an insurer acts to give the appearance of agency, perhaps by furnishing letterhead and applications before a person has been licensed and appointed, an agency relationship exists under the law and the insurer may be legally bound by the acts of a person acting as agent.

Presumptive Disability. A disability involving loss of sight, hearing, speech or any two limbs, which is presumed to be a permanent and total disability. In such cases, the insurer does not require the insured to submit to periodic medical examinations to prove continuing disability.

Pretext Interview. An interview in which the party gathering information refuses to reveal their identity, pretends to be someone else, misrepresents the true purpose of the interview or pretends to represent someone who is not in fact represented. Federal and state laws prohibit pretext interviews in connection with insurance-related consumer reporting. They are permitted only in connection with investigations into suspected material misrepresentation, fraud or criminal activity.

Prevailing Charge. Used to determine Medicare benefit amounts; this usually means the typical charge in the area where the patient lives. See also Allowable Charge and Customary Charge.

Preventive Care. Care such as routine physical examinations and immunizations, that emphasizes preventing illnesses before they occur.

Prima Facie. Literally means “at first view.” It refers to evidence that is, according to law, sufficient to establish or prove a point, unless successfully rebutted by other evidence.

Primary Beneficiary. The beneficiary named as first to receive proceeds or benefits from a policy when they become due.

Primary Care. Basic health care provided by doctors who are in the practice of family care, pediatrics and internal medicine.

Primary Care Network (PCN). A group of primary care physicians who provide care to those members of a particular health plan.

Primary Care Physician. Some health insurance plans require members to select and seek treatment from a primary physician who either renders treatment or refers the member to an appropriate specialist within the approved health care network.

Primary Coverage. (1) Insurance coverage which covers from the first dollar, perhaps after a deductible, as distinguished from excess coverage which pays only after some primary coverage has been exhausted. Contrast with Excess Insurance. (2) Coverage that pays expenses first, without considering whether or not there is any other coverage. See also Coordination of Benefits.

Primary Insurance Amount (PIA). A Social Security calculation which serves as the principal element determining the amount of various Social Security benefits.

Primary Insurer. The company that originates business (e.g., the ceding company).

Primary Liability Responsibility. See Supplemental Liability Insurance.

Principal. The individual or corporation whose performance is guaranteed in a suretyship. See also Suretyship.

Principal Sum. The amount payable in one sum in the event of accidental death or dismemberments. When a contract provides benefits for both accidental death and dismemberment, each dismemberment benefit is an amount equal to the principal sum or some fraction thereof. Examples would be half the principal sum for loss of one arm, half the principal sum for the loss of one leg, etc.

Prior Approval Rating Forms. Indicates that an insurer must have rate changes formally approved by the state insurance department before it can use them.

Prior Authorization. A cost containment measure that provides full payment of health benefits only when hospitalization or medical treatment has been approved in advance.

Priority. Retention in some foreign reinsurance markets.

Private Carrier. A transportation company that contracts to carry goods for specific customers as opposed to a common carrier that carries goods for anyone who wishes to use its service.

Private Passenger Automobile. Four-wheeled motor vehicles of the private passenger, station wagon or van type, designed for use on public highways and subject to motor vehicle registration.

Pro Rata. (1) Distribution of the amount of insurance under one policy among several objects or places covered in proportion to their value or the amounts shown. (2) Distribution of liability among several insurers having policies on a risk, usually in the proportion that the amount of coverage in each policy bears to the total amount of coverage in all policies.

Pro Rata Cancellation. Termination of an insurance contract or bond, premium charge being adjusted in proportion to the exact time the protection has been in force. If a policy is canceled, the insurance company has to refund part of whatever premium was already paid. The refund is calculated on a pro rata basis, which means an even distribution of the premium based on the time coverage was in effect. See Short Rate Cancellations.

Pro Rata Distribution Clause. A provision used in writing blanket form policies under certain circumstances to divide the amount of insurance carried in the policy among several subjects of insurance, in the proportion that the value of each subject of insurance bears to the total of all items covered under the policy. Withdrawn from use in most states in 1978.

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

Pro Rata Liability Rule. See Limit of Liability Rule.

Pro Rata Rate. A rate charged for a period of coverage shorter than the normal period (e.g., if an insured had coverage for only one quarter of a year, the premium would be only one quarter of the annual premium).

Pro Rata Reinsurance. All forms of reinsurance in which the reinsurer shares a pro rata portion of the losses and premiums of the ceding company. Also called Share and Participating Reinsurance. Pro Rata Reinsurance includes Quota Share Reinsurance and Surplus Reinsurance. Contrast with Excess of Loss Reinsurance.

Probability. The likelihood or relative frequency of an event expressed in a number between zero and one (e.g., the throw of a die. The probability of throwing five is found by dividing the number of sides that have a five (1) by the total number of sides (6). That is a probability of one-sixth or one divided by six, which is .17). See also Degree of Risk, Law of Large Numbers and Odds.

Probable Maximum Loss (PML). The maximum amount of loss that one would expect under ordinary circumstances, such as fire departments responding, sprinklers working, etc. Contrast with Amount Subject.

Probate. The process of paying debts, taxes, expenses and disposing of property in accordance with a testator’s will and state laws.

Probate Bond. A bond required by a probate court to protect the administration of an estate or the assets of one person being cared for by another, such as assets in the hands of an executor or guardian. They fall within the classification of fiduciary bonds.

Probationary Period. A period of time between the effective date of a health insurance policy, and the date coverage begins for all or certain physical conditions.

Proceeds. The amount payable by a policy, usually in reference to the face amount of a life insurance policy, payable at the death of the insured.

Producer. An agent, solicitor or other person who sells insurance.

Product Failure Exclusion. See Business Risk Exclusion.

Product Recall Insurance. Indemnifies the insured for the cost of recalling products known or suspected to be defective.

Products and Completed Operations Insurance. A major general liability subline which provides coverage for an insured against claims arising out of products sold, manufactured, handled or distributed, or operations which are complete. Claims are covered only after a product has been sold and possession relinquished or operations have been completed or abandoned by the named insured. Manufacturers and contractors buy this coverage. Contrast with Premises and Operations Liability.

Professional Corporation. An artificial person or entity, governed by charter, engaged in a business which provides a professional service to the public such as medicine or law.

Professional Insurance Agents Association. A trade association of mutual insurance agents.

Professional Liability Coverage. Protection against legal liability resulting from negligence, errors and omissions, and other aspects of rendering or failing to render professional services. These exposures exist for many businesses, including travel agencies and telephone exchanges. See Malpractice Insurance. See Errors and Omissions Insurance.

Professional Partnership. An association of two or more individuals who operate and manage a business providing a professional service to the public such as medicine or law.

Profit and Loss Statement. Provides an easy-to-read source of how a firm performed over a period of time. Many profit and loss statements are accompanied by sources and uses of funds statement (cash flow statement).

Profit Commission. See Contingent Commission.

Profits and Commissions Insurance. Insurance with which a salesman or a sales agent whose income is tied to profits or commissions can insure against loss of income due to the destruction of property.

Profit-Sharing Plan. A plan whereby some of the profits of a company are set aside for distribution to qualified employees. The plan may provide for immediate distribution, or distribution upon death, disability, termination or attainment of a specific retirement age. Such plans are subject to special tax exemption if they meet the requirements of the Internal Revenue Code.

Progressive Underwriting. When insurance companies are aggressive in determining a person’s true risk. Instead of evaluating risk on a by-the-book basis, the insurer pursues questions to determine the cause of any abnormalities in a person’s claims history.

Prohibited List. A list of business risks that an insurance company will not insure. Also called the “undesirable list,” the “do not solicit list” and other designations.

Prohibited Risk. Any class of business that an insurance company will not insure under any condition.

Promulgate. (1) To develop, publish and put into effect insurance rates or forms. (2) To publish or announce that a statute or rule of court is a legal order or direction enforceable by law, and violation of such is punishable as provided by law.

Proof of Loss. A formal statement made by a policyowner to an insurer regarding a loss. It is intended to give information to the insurer to enable it to determine the extent of its liability. Upon receipt of the claim forms, an insured has 90 days to file proof of loss.

Proof of Loss Form. A form provided to an insured by the insurance company to document loss. This form generally tends to have uniformity with different insurance companies.

Property Coverage Forms. These forms establish the conditions for coverage and describe the types or kinds of property insured (e.g., buildings, contents, extra expense, structures in the course of construction, glass, leasehold interest, etc.). Each coverage form is designed to insure specific types of property or losses.

Property Damage. Injury to or destruction of tangible property and includes loss of use of the property. This coverage is broader than direct damage or destruction by a covered peril, because it also means loss of use.

Property Damage Liability Insurance. Protection against liability for damage to the property of another, including loss of the use of the property, as distinguished from liability for bodily injury to another. It is often written along with bodily injury liability protection. In most states, an insured must buy at least $5,000 worth of coverage. Many standard policies include a higher limit—often $25,000.

Property Insurance. Insurance that indemnifies a person with an interest in physical property for its loss or the loss of its income producing abilities. This definition encompasses all lines of insurance written by property and inland marine insurers and can also include certain kinds of insurance written by casualty insurers (e.g., burglary and plate glass coverages).

Property Insurance Loss Register (PILR). A computerized record of all fire losses over $500 established by the American Insurance Association (AIA). It enables companies to determine undisclosed duplicate insurance coverage and patterns of losses on submitted risks.

Property Other than Money and Securities. Under commercial crime insurance coverages, any tangible property other than money and securities that has intrinsic value, such as merchandise, supplies, raw materials and office equipment.

Proposal Bond. See Bid Bond.

Proration of Benefits. The adjustment of health insurance policy benefits by reason of the existence of other insurance covering the same contingency.

Prospect. A potential buyer of insurance.

Prospecting. The act of looking for prospects or potential insurance buyers.

Prospective Loss Costs. The ISO has begun to develop prospective loss costs for a number of lines of insurance, including auto insurance. Prospective loss costs are based on loss data and loss adjustment expenses, but not the other components of a final rate (such as an insurance company’s expenses and profit). See Loss Costs.

Prospective Payment System. A system of Medicare reimbursement for Part A benefits which bases most hospital payments on the patient’s diagnosis at the time of hospital admission.

Prospective Rating. A method used in arriving at the rate and premium for a specified future period, based in whole or in part on the loss experience of a prior specified period. See Experience Rating.

Prospective Rating Plan. A plan that uses a formula to determine premiums for a specified period on the basis, in whole or in part, of the loss experience of the previous period.

Prospective Reimbursement. A system where hospitals or other health care providers are paid annually according to a rate of payment that has been established ahead of time.

Prospective Reserve. A life or health insurance reserve estimated to be sufficient to pay future claims when probable future premiums, interest and survivorship benefits are added to it.

Protected Risk. A property risk that falls within the geographical area protected by a fire department.

Protection. (1) A term used interchangeably with “coverage” to denote insurance provided under a policy. (2) The fire-fighting facilities in the area in which a risk is located.

Protection and Indemnity (P&I) Insurance. Protection for a property owner against loss of life, illness or injury to employees, passengers or crew, plus property damage to the cargo, piers, docks, etc., caused by the insured’s negligence.

Protection Class. The grading of fire protection, determined by the grading schedule of cities and towns, for a given area. This designation is used for all fire rating except for dwellings, where the dwelling class is used.

Protective Liability Insurance. See Owners and Contractors Protective Liability.

Prototype Plan Defined. A standard retirement plan available from the sponsoring organization to an employer to use without charge.

Provider. Any individual or group of individuals that provide a health care service such as physicians, hospitals, etc.

Provisional Premium. See Deposit Premium.

Provisional Rate. Tentative rates, premiums or commissions that are subject to subsequent adjustment. See Commission and Premium.

Provisions. Statements contained in an insurance policy that explain the benefits, conditions and other features of the insurance contract.

Proximate Cause. The effective cause of loss or damage.

Public Adjuster. An insurance adjuster who represents an insured on a fee basis in claims settlement. Contrast with Independent Adjuster.

Public Assistance. The federal and state system for providing welfare payments to the aged, blind and disabled and to families with dependent children. See also Social Insurance.

Public Employees Dishonesty Coverage. Commercial crime coverage written for public entities to cover losses of money, securities or other property caused by employee dishonesty. Coverage is written on a “per loss” or “per employee” basis.

Public Law 15. A Congressional Act of 1945 exempting insurance from federal anti-trust laws to the extent that it is regulated properly by states. The law passed after the reversal of Paul v. Virginia by the Southeastern Underwiters Association decision.

Public Liability Insurance. A general term applied to forms of third party liability insurance with respect to both bodily injury and property damage liability. It protects the insured against suits brought by members of the public.

Public Official Bond. A surety bond whereby the company (surety) guarantees that the principal (public official) will faithfully perform his or her official duties and will account for all funds entrusted to his or her care.

Punitive Damages. Damages awarded over and above compensatory damages to punish a negligent party because of wanton, reckless or malicious acts or omissions. General liability policies cover punitive damages when included with compensatory damages in a lump sum, but it is up to the courts to decide whether or not they are to be awarded. Also known as Compensatory or Exemplary Damages.

Pure Endowment. An endowment payable if the designated person is alive at the end of the endowment period but not payable if the person is not alive at that time. Rarely used today.

Pure Loss Cost Ratio. (1) The ratio of reinsurance losses incurred to the ceding company’s subject premium. (2) The ratio of the reinsurance losses incurred and allocated, less expense to the ceding company’s gross earned premium.

Pure Mortality Cost. See Mortality Cost.

Pure No-Fault. A system under which virtually all lawsuits related to auto accidents are eliminated. The right to sue and a chance for a damage award are replaced with the right to guaranteed benefits. Lawsuits are retained only to punish convicted drunken drivers and others guilty of criminal conduct. There is no pure no-fault system in the United States.

Pure Premium. The portion of the total premium that is needed to pay expected losses. It does not take into account money needed for other company expenses.

Pure Risk. Uncertainty as to whether a loss will occur. Under a pure risk situation, there is no possibility for gain. Contrast with Speculative Risk.

Pyramiding. (1) An alleged practice of some consumer credit organizations whereby lenders add new credit insurance coverage for consolidation loans without canceling the old, thus producing a situation of overinsurance for the amount of the loan outstanding. (2) Liability insurance where the limits of liability in several policies may apply, and, in effect, “pyramid” into higher amounts of insurance than was originally intended.