Insurance Terms Glossary

By

Dzeyzn (Financeliberty.com)

Assured - Those insured under the terms of an insurance policy.

Benefit - The money paid to the policyholder when a claim is made.

Bid Price - The selling price or cash-in value of your unit holdings.

Bonus - Relates to a with-profits policy. The amount of money added to the benefit
payable under the policy. The amount is dependent upon the profits made by the
insurance company. Added bonuses cannot be taken away.

Convertible Term Assurance - A term insurance policy which gives you the option to
convert your current policy to a whole-life or endowment insurance policy, without
having to take further medical examinations.

Critical Illness Insurance - A policy that pays out a lump sum on the diagnosis of life
threatening illnesses indicated in the terms of the plan.

Decreasing Term - A form of term life insurance where the death benefit decreases each
year as per your policy. Premiums remain level. This type of certificate is frequently sold
as mortgage insurance. There is no surrender value for this policy.

Endowment Insurance - An insurance policy that pays a stated amount at the end of a
specified period or upon the death of the insured if it occurs within that period.

Family Income Benefit - Term assurance which pays money to the life assured's
dependants for a set period, rather than paying a lump sum.

Guaranteed Bond - A bond in which principal and interest are guaranteed by an entity
other than the issuer. Guaranteed Bonds can be income or growth.

Increasing Term - The cover and the amount you pay into the policy are increased by a
specific percentage each year calculated on the original sum insured. Designed as a way
to increase your life cover as your earnings increase.

Investment Bond - Combines investment with some life cover. The payments you make
into an insurance policy or investment bond, usually a lump sum, are invested in the
insurance company's with-profits or unit-linked funds (Life Funds). Different types of
bonds include the guaranteed bond and unit-linked single premium bond. Not to be
confused with a company or government bond, an investment that offers a fixed rate of
interest and an area where your chosen Life Funds may be invested.

Life Fund - This usually refers to Unit linked Investment Funds. These are funds run by
Life Assurance or Pension Companies. Such funds are used for individuals holding life
assurance policies to invest in. The assets held within the fund are divided into a number
of units. When an investor contributes to a Life Fund, units are allocated to investors in
proportion to their investment.

Maturity - An agreed date when an endowment policy ends and the proceeds, including
any bonuses, are payable.

Mutual - A life insurance company that is owned by its with-profits policyholders.

Offer Price - The price at which fund units are bought.

Premium - The amount of money paid into an insurance policy.

Proprietary - A life insurance company that issues its profits to its shareholders.

Qualifying Policy - A life assurance based savings plan that has to be written for a
minimum of 10 years and must fulfil certain qualifying policy criteria to ensure the final
payout is tax free.

Renewable Term - Term Insurance that may be renewed for another term without
evidence of insurability.

Single Premium Policy - Where a single lump sum is paid for an insurance policy.

Sum Insured - The amount of money that is guaranteed to be paid under an insurance
policy, before any bonuses are added.

Surrender Value - Not applicable to all life insurance policies. The amount that an
insurance policyholder is entitled to receive when he or she discontinues coverage

Term Insurance - Provides policyholder with protection only. Life insurance payable to a
beneficiary only when an insured dies within a specified number of years (the term). If
you live beyond the term you do not receive any payment. This is thought to be the
cheapest type of insurance.

Terminal Bonus - This is an extra bonus determined when a death or maturity claim is
paid. Terminal bonus is often only paid if the policy has been in-force for a minimum
number of years at claim time. The amount is dependent upon the profits made by the
insurance company.
Unitised With Profits Fund - Also known as a Unit-Linked With Profits Fund. A type of
Life Fund that can invest in UK and overseas shares, property, fixed interest securities
and cash. When you invest in this fund through an insurance policy, you buy 'units'.
When an annual bonus is declared, you can either receive more units or it is added to the
unit price on a daily basis. Due to the addition of bonuses the unit price does not reflect
the value of the underlying investments.

Unit-Linked - Also called Unitised. If your insurance policy is unit-linked, some of your
money is used to purchase 'units' in a fund. The value of your policy at maturity is
dependent upon the growth of the fund in which the policy is invested. Generally refers to
policies that offer protection and saving such as endowment insurance, whole life
insurance and investment bonds.

Unit-Linked Single Premium Bond - A single lump sum life insurance policy where your
investment is spread over a number of Life Funds.

Whole Life Insurance - Whole life insurance provides a death benefit for the policyholder
as it builds up cash value. The policy remains in force for the lifetime of the insured, as
long as premiums are paid according to the policy agreement. You can choose insurance
that pays out on death a guaranteed sum only, the sum plus any bonuses that have been
added, or the sum plus any additional value from the growth of the funds invested in.

Without Profits - When a policy reaches maturity or the policyholder dies, the amount
paid out is the basic guaranteed sum only. You would not be entitled to any bonuses.

With Profits - Relates to insurance policies that combine investment with protection. This
type of policy is entitled to a share of the profits made by the insurance company.
Premiums are invested in the with profit fund, reversionary bonuses are applied usually
on an annual basis which reflect the investment growth of the fund assets. On death
and/or maturity a further terminal bonus might be applied to the fund value.

With Profits Bond - An insurance policy where your lump sum is in most cases invested
in a Unitised With Profits Fund (which is listed under the Life Funds section).

Additional Terms:

Attorney Specialization- Lawyers who specialize in a particular branch of the law are
held to a higher standard of conduct than a general practitioner.

California Policy Cancellation and Non-Renewal - The Cancellation and Non-Renewal

Condition found in your policy form states the circumstances under which a policy may
be terminated. The reasons for cancellation, the time notices required, the procedures to
be followed, and the computation of return premium will all be outlined for your use.
After having read the Condition you now turn to the California Amendatory Endorsement
regarding policy termination. Here you may find that important parts of the Policy
Condition have been deleted or expanded to be brought in line with the California
Insurance Code. The point is that you must read both the policy condition and the
Amendatory Endorsement to have a clear understanding of your rights and obligations.

Claim - A representative policy definition of Claim is a demand for money upon the
insured, including service of suit, or institution of arbitration proceedings against any
insured. However, depending on the policy the "Demand" may be defined as written or
verbal or may simply be the insureds knowledge of an incident or circumstance that may
lead to a claim. In the latter case insureds may be reluctant to report an incident to their
carrier fearing a increase in premium or a non-renewal of their policy. However, in my
opinion it is better to put your carrier on notice, than have your coverage put in question
over a matter you will have to report in any case the next time you fill out an application.

Claims Made Policy - The claims made policy is the vehicle by which nearly all
professional liability insurance is made available. Coverage must be in force not only
when the claim is made but also when the alleged act, error or omission that results in a
claim occurred, or there is no coverage.

Covered Damages - Means a monetary judgment, award or settlement for which the
insured is legally liable resulting from the rendering of professional services. However,
punitive or exemplary damages, multiplied portion of multiplied damage award, fines,
penalties, sanctions, and return of insured’s fees. are excluded from coverage.

Covered Defense Costs - Fees charged by any lawyer designated by the insurance carrier
and other authorized fees, costs and expenses to investigate, adjust, defend or appeal of
the claim against the insured. Claim expenses do not include salary charges or benefits of
regular employees of the insurer or supervisory counsel designated by the insurer.

Coverage for Past Partners or Employees- If an attorney leaves an ongoing firm that
maintains its professional liability insurance he or she will still have coverage for his
professional services performed on behalf of his old firm. If on the other hand, the old
firm dissolves or fails to maintain a current policy or obtain tail coverage there is no
longer any coverage for a subsequent claim.

Deductibles - Deductibles generally apply to both claim expenses and indemnity

payments made by the insurance company on behalf of the insured. It is hoped by the
insurance company that the presence of a deductible will induce a positive effect on the
loss prevention activities of the firm as it would have to share in any loss with the carrier.
On the other hand, the insurer would not want to impose so large a deductible that the
insured would find it difficult to pay. A higher deductible also has the effect of reducing
the premium to the benefit of the insured. Some carriers offer Aggregate Deductibles
where there is a maximum per policy year the insured will have to pay regardless of the
number of claims. A few carriers have at time offered was is known as First Dollar
Defense where the deductible applies only to covered damages but not to defense costs.
Defense and Settlement Procedures - Within policy limits the insurer has a duty to
defend claims even if the are "false, groundless or Fraudulent." Any settlement or
compromise negotiated by the insurer and acceptable to the claimant requires the consent
of the insured. However, if the insured refuses to accept the settlement recommended by
the insurance carrier, he is then responsible for any additional damages and claim
expenses in excess of the amount the insurer and claimant had previously agreed upon.
The selection of defense counsel is made by the insurance carrier. However as a practical
matter, most carriers will consider the views of the insured regarding choice of counsel.

Exclusions - Exclusions are an important part of any insurance policy and often
determine the choice of one policy over another. Even when exclusions deal with the
same subject matter, the treatment may differ significantly from one policy to the next.
The exclusions commonly found in attorney’s professional liability insurance policies
where coverage shall not apply are:

1. Intentional Dishonest, Fraudulent, Criminal or Malicious Acts - In connection

with this exclusion it is important to find out if your policy will provide defense if
such a claim is made against you, and secondly, coverage for Innocent Insureds
remains in force.
2. A claim by any insured person or entity against any other insured person or
entity - It was never the intended purpose of professional liability insurance to be
involved in conflicts within a law firm. Law firms may wish to consider
Employment Practices Liability Insurance if their is concern regarding issues of
wrongful termination or sexual harassment.
3. A claim against any insured as the beneficiary or distributee of a trust or
estate.
4. A claim for bodily injury or injury to or destruction of tangible property or
resulting loss of use. - However, this exclusion does not apply to personal injury
or bodily injury arising from personal injury in the rendering of professional
services. Coverage for claims of bodily injury or property damage more properly
fall under the Commercial General Liability policy.
5. Claims arising out of any insured’s services or capacity as:
a. an officer, director, shareholder, partner, manager, trustee, owner or
employee of a business enterprise, non-profit organization, charitable
organization or pension, welfare, profit-sharing, mutual or investment
fund or trust. -These firms or entities should maintain there own
professional liability policies or be named on the insured’s policy.
b. Public Officials, or an employee of a governmental body, subdivision or
agency.
c. Continued - These organizations should obtain there own Professional
liability insurance, except where a policy exclusion allows a lawyer to
provide legal services to public service organization on a fee basis.
d. A fiduciary under ERISA of 1974 and its amendments or any regulation or
order issued issued pursuant thereto, except if an insured is deemed to be a
fiduciary solely by reason of legal advise rendered with respect to am
 employee benefit plan.- Attorneys who are involved in the investment of
funds however require separate fiduciary liability coverage.
6. Discrimination - to any claim based on or arising out of the various forms of
discrimination as defined in the policy.- Depending on the form, this exclusion
may be broadly applied or limited to employment situations. Claims involving
discrimination in employment would properly be covered under Employment
Practices Liability Insurance. Some policies do not contain this exclusion but
would deny a discrimination claim contending that discrimination has nothing to
do with the rendering of professional legal services.
7. Other Exclusions - A number of other exclusions on a broad range of topics will
be found in professional liability policies dealing with everything from investment
advice to nuclear energy. You should contact your agent or broker for underwriter
clarification should there be any question as to their application with regard to
your practice or firm.

Extended Reporting Option - The extended reporting option, also known as tail
coverage is available for the attorney who retires from the practice of law. This allows an
attorney coverage for claims that are made after the policy has expired. However the
claim resulting incident must have occurred before policy the policy expired. The policy
limit available for claims is not reinstated and is limited to the available remaining limit.
The premium for the ERO is based on the premium for the last policy year. It is a sliding
scale based on the number of years tail coverage the attorney thinks is necessary.

Insured Individuals and Entities - The insured as defined in most policies is the Named
Insured and any Predecessor Firm. It is extended to include any lawyer or professional
corporation who is or was an owner, partner, officer, director, stockholder or employee,
but only for professional services rendered on behalf of the Named Insured or
Predecessor Firm. Any lawyer or professional corporation designated as "Of Counsel" or
independent contractor while acting solely on behalf of the named insured may be
covered with the permission of the insurance carrier. Lastly, coverage is provided for the
estate, heirs, executors, administrators legal representatives of each Insured in the event
of death, incapacity, or bankruptcy but only to the extent that the Insured would have
been provided coverage by the policy.

Lapsed Coverage- Once a policy has lapsed for any reason all policy coverage ends
regardless of whether or not coverage was in force at the time a claim triggering incident
occurred. If at a latter date a new policy is obtained it will be difficult if not impossible to
regain the lost prior acts coverage from the new carrier because of the potential moral
hazard.

Lawyers Professional Liability Insurance - Insurance is provided in the form of a

Claims Made Policy that covers monetary loss and expense of an insured attorney or law
firm for legal liability in the rendering of professional services as defined by the policy.
The policy also includes coverage for claims of unintended personal injury.
Policy Limits - It important that policy limits are adequate to cover both the cost of
Defense and Damages. In choosing a limit the insured must consider any number of
factors including size of firm, areas of practice, claims history, case size, and any other
circumstance that will help him determine the maximum loss the firm may suffer in a
worse case situation. Of course, higher limits increase the policy premium. However,
since few claims rise to the level of maximum possible loss the extra charge for higher
limits is on a sliding scale and therefore affordable. Policy limits are available on both a
Single Limit and on a Per Claim and Aggregate basis. The latter allows for multiple
claims up to a per claim limit that the insured has determined adequate for any one claim,
and is less expensive than choosing a single limit to cover multiple claims, where no one
claim exceeds the per claim limit. In other words, a single limit of $3,000,000 would cost
more than a per claim and aggregate limit of $1,000,000/$3,000,000 and would serve no
better in the described example. One final thought in choosing an adequate limit is that
multiple claims that result from a single or related group of incidents will be considered
as one claim under your policy.

Prior Acts Date - policies either contain a Prior Acts Date or are designated as having
Full Prior Acts. The prior acts date is usually the same date from which continuous
coverage was first obtained by the current or predecessor firm. Claims triggered by
events occurring before this date are not insured. If a firm changes insurance carriers, it is
important that the same prior acts date appears on the new policy. The Prior Acts date is
also referred to as Retroactive Date.

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