GLOSSARY
Insurance terms, defined and cited
Every definition is plain English and carries the governing statutory passage it comes from, so you can confirm it against the law. Covers Life, Health, Property, Casualty, and Claims Adjuster exams.
19 terms
- Actual Cash Value (ACV)ACVProperty & CasualtyA property valuation method defined as replacement cost minus accrued physical depreciation and obsolescence at the time of loss.
- Coinsurance (Health)Cost SharingHealth & DisabilityThe percentage of covered healthcare expenses that an insured must pay out-of-pocket after the deductible is met, commonly 20% in an 80/20 cost-sharing structure.
- Coinsurance Clause (Property)80% Coinsurance RuleProperty & CasualtyA commercial property policy clause requiring the insured to maintain coverage equal to at least a specified percentage (typically 80%) of the property value to receive full payment on partial losses.
- Contract of AdhesionAdhesionGeneral PrinciplesA contract prepared by one party (the insurer) on a take-it-or-leave-it basis without negotiation. Any ambiguities are interpreted in favor of the insured.
- Elimination PeriodWaiting PeriodHealth & DisabilityA contractual waiting period in disability income or long-term care insurance between the onset of a covered disability and the commencement of benefit payouts.
- Fiduciary DutyFiduciary ResponsibilityStatutes & RegulationsA position of special financial trust and confidence held by an insurance producer with respect to premium funds collected on behalf of insurers or policyholders.
- Grace PeriodPremium Grace PeriodLife & AnnuitiesA specified window (typically 30 or 31 days) following a premium due date during which the policy remains in full force even if the premium has not yet been remitted.
- Incontestable ClauseIncontestabilityLife & AnnuitiesA mandatory life policy provision stating that after the policy has been in force for two years during the insured's lifetime, the insurer cannot dispute statements made in the application.
- Insurable InterestFinancial InterestGeneral PrinciplesA legitimate financial or emotional interest in the life, health, or property being insured such that the policyholder would suffer a genuine loss if destruction or death occurred.
- Nonforfeiture OptionsNonforfeiture ValuesLife & AnnuitiesStatutory guarantees ensuring that a permanent life insurance policyholder does not forfeit accrued cash value upon policy lapse: Cash Surrender, Reduced Paid-Up, and Extended Term.
- Principle of IndemnityIndemnityGeneral PrinciplesThe core insurance principle stating that insurance is designed to restore the insured to approximately the same financial position held before the loss, without allowing a financial gain.
- Proof of LossSworn Statement in Proof of LossClaims & AdjustingA formal sworn document submitted by an insured to the insurer providing specific details of the damages, property value, encumbrances, and cause of loss within a required timeframe.
- RebatingRebateStatutes & RegulationsAn illegal unfair trade practice in which an agent offers any valuable consideration, discount, or return of commission to induce an applicant to purchase an insurance policy.
- Reservation of Rights LetterReservation of Rights, RORClaims & AdjustingA formal notice from an insurer advising an insured that the insurer is investigating a claim or defending a lawsuit while reserving its right to deny coverage later based on policy exclusions.
- Strict LiabilityAbsolute LiabilityProperty & CasualtyLegal liability imposed by law without requiring proof of negligence or fault, typically applied to inherently dangerous activities, wild animals, or defective manufactured products.
- SubrogationTransfer of Recovery RightsGeneral PrinciplesThe legal process wherein an insurer, after paying a covered claim, assumes the insured's legal rights to pursue compensation against a negligent third party responsible for the loss.
- TwistingIllegal ReplacementStatutes & RegulationsAn unfair trade practice involving misrepresentation or incomplete policy comparisons to persuade a policyholder to drop or lapse an existing policy to buy another, to the policyholder's detriment.
- Universal Life InsuranceFlexible Premium Adjustable LifeLife & AnnuitiesA permanent life insurance policy offering flexible premiums, adjustable death benefits, and an unbundled cash value account accumulating interest at current market rates.
- Utmost Good FaithUberrimae FideiGeneral PrinciplesA legal standard requiring both the insurer and the policy applicant to disclose all material facts honestly and without concealment or fraudulent misrepresentation.