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Glossary of Insurance Terms
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- Face Amount: The amount stated on
the face of the policy that will be paid in
case of death or at the maturity of the
policy. It does not include additional amounts
payable under accidental death or other
special provisions, or acquired through the
application of policy dividends.
- Facility: A pooling mechanism for
insured not able to obtain insurance in the
voluntary market. Insurers write and issue
policies but cede premium and losses on those
policies to a central pool in which all
insurers share.
- Facility of Payment: A contractual
provision that allows the insurer, under
stated conditions, to pay insurance benefits
of up to $1,000 to a person or persons other
than the insured, the designated beneficiary,
or the insured's estate.
- Factory Mutual: Mutual insurance
company that aims to insure only properties
that meet high underwriting standards.
Emphasizes loss prevention.
- Facultative Reinsurance: A type of
reinsurance in which the reinsurer can accept
or reject any risk presented by an insurance
company seeking reinsurance.
- FAIR Plan: A facility, operating
under a government-insurance industry
cooperative program, to make fire insurance
and other forms of property insurance readily
available to persons or in locations that have
difficulty obtaining such coverage.
- Fair Rental Value: Amount payable
to an insured homeowner for loss of rental
income due to damage that makes an insured
premises uninhabitable.
- Family Expense Policy: A policy
which insures both the policyholder and
his/her immediate dependents (usually spouse
and children).
- Family Income Policy: Special life
insurance policy combining decreasing term and
whole life insurance that pays a reduced
monthly income (eg., $10 for each $1000 of
life insurance) if the insured dies within the
specified period. The monthly income is paid
to the end of the period, at which time the
face amount of insurance is paid.
- Family Policy: A life insurance
policy providing insurance on all or several
family members in one contract, generally
whole life insurance on the principal
breadwinner and small amounts of term
insurance on the other spouse and children,
including those born after the policy is
issued.
- Family Purpose Doctrine: Concept
that imputes negligence committed by immediate
family members while operating a family car to
the owner of the car.
- Farm Mutual: Local mutual insurance
company that insures farm property in a
limited geographical area primarily through
assessable policies.
- Farmowners-Ranchowners Policy: A
package policy for a farm or a ranch,
providing property and liability coverages
against personal and business losses.
- Federal Crime Insurance: Insurance
against burglary, larceny, and robbery losses
offered by the federal government where the
Federal Insurance Administration has
determined that an insurance availability
problem exists.
- Federal Crop Insurance:
Comprehensive coverage at rates subsidized by
the federal government for unavoidable crop
losses, including those that result from hail,
wind, excessive rain, drought, freezes, plant
disease, snow, floods, and earthquake.
- Federal Flood Insurance: Insurance
sold by private insurers with rates subsidized
by the federal government to persons who
reside in flood zones and whose community
joins the program and agrees to establish and
enforce flood control and land-use measures.
- Federal Surety Bond: Type of surety
bond required by federal agencies that
regulates the actions of business firms. It
guarantees that the bonded party will comply
with federal standards, pay all taxes or
duties accrued, or pay any penalty if the
bondholder fails to pay.
- Federal-servant Doctrine: Common
law defense blocking an injured employee from
collecting workers compensation benefits if he
or she sustained an injury caused in any way
by the negligence of a fellow worker.
- Fidelity Bond: A form of protection
which reimburses an employer for losses caused
by dishonest or fraudulent acts of employees.
- Fiduciary: A person who holds
something in trust for another.
- Fiduciary Liability Insurance:
Coverage designed to protect against loss for
any alleged wrongful act by an insured or by
any other person for whom the insured is
legally responsible. It also covers the
defense costs in connection with a covered
claim. The policy is written on a claims made
form. A wrongful act includes any violation of
the responsibilities, obligations, or duties
imposed on fiduciaries by the Employee
Retirement Income Security Act (ERISA), as
well as acts, errors, or omissions in the
performance of the duties of the plan
administrator. Also known as pension trust
liability.
- Fidelity Bond: Bond designed to
protect an employer against dishonest or
fraudulent acts of employees, such as
embezzlement, fraud, or theft of money.
- Final average formula: A pension
plan formula that bases retirement benefits on
earnings during the final years (eg., 3 years
or 5 years) of employment.
- Financial Responsibility Law: A
state law which may require motorists to
furnish evidence, either before or after
involvement in an auto accident (depending on
the individual state's law), of ability to pay
for damages up to certain minimum dollar
limits. These requirements commonly are met by
carrying auto liability insurance with
specified minimum limits or more.
- Fire: A combustion accompanied by a
flame or glow, which escapes its normal
confines to cause damage.
- Fire Insurance: Coverage designed
to protect against losses caused by fire and
lightning, plus resultant damage caused by
smoke and water.
- Fire Legal Liability: Liability of
a firm or person for fire or explosion damage
caused by negligence of and damage to property
of others. Coverage is needed for leased or
rented property for which the insured could be
held legally liable for damage to the
property.
- First party claim: A demand for
payment under an insurance policy made by a
policyholder reporting an insured event
directly to his company.
- First Party Coverage: An insurance
coverage under which the policyholder collects
for losses from the insured's own insurer
rather than from the insurer of the person who
caused an accident.
- Fixed Amount Option: Life insurance
settlement option in which the policy proceeds
are paid out in fixed amounts.
- Fixed Annuity: Annuity whose
periodic payment is a guarantied fixed amount.
- Fixed Period Option: Life insurance
settlement option in which the policy proceeds
are paid out in fixed amounts.
- Flat Schedule: A type of schedule
in group insurance under which everyone is
insured for the same benefits regardless of
salary, position, or other circumstances.
- Flexible Premium Policy or Annuity:
A life accident policy or annuity under which
the policyholder or contract holder may vary
the amounts or timing of premium payments.
- Flexible Premium Variable Life
Insurance: A life insurance policy that
combines the premium flexibility feature of
universal life insurance with the equity-based
benefit feature of variable life insurance.
- Flex-rating Law: Type of rating law
in which prior approval of the rates is
required only if the rates exceed a certain
percentage above and below the rates
previously filed.
- Floaters: Insurance policies
designed to cover property that can be moved
from one location to another for both
transportation perils and perils affecting
property at a fixed location.
- Flood Insurance: Coverage against
loss resulting from the flood peril, widely
available at low cost under a program
developed by the private industry and the
federal government.
- Foreign Insurer: An insurer is a
foreign company in any state other than the
one in which it is incorporated. See also
Domestic Insurer, Alien Insurer.
- Forfeitures: Amounts contributed on
behalf of terminated, non-vested participants.
In a pension plan, such amounts must be
applied to reducing future employer
contributions. In a profit-sharing plan, such
amounts may be allocated to the accounts of
remaining participants.
- Forgery or Alteration Insurance:
Coverage designed to protect from loss
sustained through forgery or alteration of
outgoing negotiable instruments made or drawn
by or on the accounts of the insured, or made
or drawn by one acting as the insured's agent.
This includes loss caused by (1) checks or
drafts made or drawn in the insured's name,
payable to a fictitious entity, (2) checks or
drafts, including payroll checks, executed
through forged endorsements, and (3)
alteration of the amount of a check or draft.
- Forgery or Alteration Coverage Form:
Commercial crime insurance form by the
Insurance Services Office that covers loss
resulting from the forgery or alteration of
checks, drafts, bills of exchange, promissory
notes, and similar instruments.
- Fortuitous Loss: Unforeseen and
unexpected loss that occurs as a result of
chance.
- 401(k) Plan: A salary reduction
plan that allows employees to contribute a
portion of their salaries on a tax-deferred
basis. See also Defined Contribution Plan.
- Franchise Deductible: Deductible
commonly found in marine insurance contracts
in which the insurer has no liability if the
loss is under a certain amount, but once this
amount is exceeded, the entire loss is paid in
full.
- Franchise Insurance: Insurance
under individual contracts issued to the
employees of a common employer or the members
of an association under an arrangement by
which the employer or association agrees to
collect the premiums and remit them to the
insurer.
- Fraternal Insurance: A cooperative
type of insurance provided by social
organizations for their members.
- Fraternal Life Insurance: Life
insurance provided by fraternal orders or
societies to their members.
- Fraternal Society: A social
organization that provides insurance for its
members.
- Fronting Company: A domestic
insurance company that provides claims or
administrative services to a captive.
- Fully Insured: Insured status of a
covered person under the Old-Age, Survivors,
and Disability Insurance (OASDI) program if he
or she meets certain criteria: forty quarters
of coverage or one quarter of coverage for
each year after 1950 (or after age twenty-one,
if later) up to the year of death, disability
or attainment of age sixty-two.
- Funded Retirement Plan: A plan
under which funds are set aside in advance to
provide expected benefits.
- Funding Agency: A financial
institution or individual that provides for
the accumulation or administration of the
pension contributions that will be used to pay
pension benefits.
- Funding Instrument: An insurance
contract or trust agreement that states the
terms under which the funding agency will
accumulate, administer, and disburse pension
funds.
- Future Increase Option: A provision
found in some policies that allows the insured
to purchase additional disability income
insurance at specified future dates regardless
of the insured's physical condition.
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