Terms Flashcards
Actuarial Department
This is the department that calculates policy rates, reserves, and dividends.
🔹 Memory Tip: Think: “Insurance Math Experts.”
🔹 Real-World Connection: Actuaries are like financial fortune-tellers—they use math, statistics, and risk analysis to predict how much the company needs to charge to stay profitable.
🔹 Anecdote: Ever wonder why younger people pay lower premiums? Actuaries analyze risk—since younger people are less likely to pass away soon, their rates are lower.
🔹 Popular Tip: If you’re good at math and love data, actuarial science is one of the highest-paying careers in insurance!
Alien Insurer
In the United States, this is the insurer whose principal office and domicile location is outside this country
🔹 Memory Tip: Think: “Foreign Company Operating in the U.S.”
🔹 Real-World Connection: If a life insurance company is headquartered in Canada but sells policies in the U.S., it is considered an alien insurer in the U.S.
🔹 Popular Tip: Not to be confused with a foreign insurer, which is based in another U.S. state but operates outside its home state.
Adjuster
This is the person who investigates claims and arranges for them to be settled or denied
🔹 Memory Tip: Think: “Claims Investigator.”
🔹 Real-World Connection: Like a referee in a game—adjusters review the situation, check the facts, and make a final decision based on the rules (policy terms).
🔹 Popular Tip: Adjusters may work for the insurance company (staff adjusters) or independently (independent adjusters). If there’s a dispute, policyholders can hire a public adjuster to negotiate on their behalf.
Admitted Insurer
This is an insurer who has received a certificate of authority from a state’s department of insurance which authorizes them to conduct insurance business in that state.
🔹 Memory Tip: Think: “State-Approved Insurer.”
🔹 Real-World Connection: Just like a licensed driver needs a state-issued driver’s license, an insurer needs state approval to operate legally.
🔹 Popular Tip: Policies from admitted insurers are protected by the state’s Guaranty Association, meaning if the insurer goes bankrupt, policyholders may still receive coverage up to state limits.
Agent
This is an individual or organization that’s authorized to solicit, sell, and transact (bind) coverage for specific insurance providers under the terms of one or more agent contracts.
🔹 Memory Tip: Think: “Middleman Between Insurer & Customer.”
🔹 Real-World Connection: Like a car dealership that sells vehicles from specific manufacturers, an insurance agent sells policies from specific insurance companies.
Authorized Insurer
This is an admitted insurer.
Definition: Another term for an admitted insurer, meaning the insurance company has received a certificate of authority from the state’s Department of Insurance to legally operate in that state.
🔹 Memory Tip: Think: “State-Approved & Regulated.”
🔹 Real-World Connection: Just like a restaurant needs a health permit to operate legally, an authorized insurer needs state approval to sell insurance.
🔹 Popular Tip: Authorized (admitted) insurers are backed by the State Guaranty Association, which helps cover claims if the insurer goes bankrupt.
Broker
A person who represents the insured (client) rather than the insurance company. Brokers help clients find the best policy but cannot bind coverage because they are not directly appointed by an insurer.
🔹 Memory Tip: Think: “Shopping Assistant for Insurance.”
🔹 Real-World Connection: Like a mortgage broker who shops around for the best loan, an insurance broker compares policies from different companies to find the best fit for the client.
🔹 Popular Tip: Unlike agents, who represent insurance companies, brokers work for the client and must obtain coverage through an authorized insurer.
Captive Insurer
An insurance company that is owned and controlled by a parent company to insure the parent company’s risks.
🔹 Memory Tip: Think: “In-House Insurance Company.”
🔹 Real-World Connection: Large corporations sometimes create their own insurance companies instead of buying policies from traditional insurers. For example, Amazon could set up a captive insurer to cover risks for its warehouses and delivery operations.
🔹 Popular Tip: Captive insurers help companies save money and customize coverage, but they must still comply with insurance regulations.
Certificate of Authority
A license issued by a state’s Department of Insurance that allows an insurer to legally conduct business in that state.
🔹 Memory Tip: Think: “Insurance Company’s Business License.”
🔹 Real-World Connection: Just like a doctor needs a medical license to practice in a state, an insurance company needs a certificate of authority to sell policies in that state.
🔹 Popular Tip: Insurers with this certificate are called admitted (authorized) insurers and are backed by the State Guaranty Association for policyholder protection.
Claims Department
This is the department that’s responsible for processing, investigating, and paying claims.
🔹 Memory Tip: Think: “Where Claims Get Approved or Denied.”
🔹 Real-World Connection: When a policyholder files a claim (e.g., after a car accident or a death in the family), the claims department reviews the details, checks policy coverage, and determines if and how much will be paid.
🔹 Popular Tip: The adjuster (from the claims department) investigates claims to prevent fraud and ensure fair payouts.
Divisible Surplus
The portion of an insurance company’s earnings that is left over after setting aside money for reserves, operating expenses, and other obligations. This surplus is then paid to policyowners as dividends (for participating policies).
Domestic Insurer
An insurance company that is incorporated, headquartered, and authorized in the same state where it conducts business.
🔹 Memory Tip: Think: “Home-State Insurer.”
🔹 Real-World Connection: If an insurance company is founded in California and sells policies there, it is considered a domestic insurer in California.
🔹 Popular Tip: A domestic insurer follows the regulations of its home state, even if it operates in other states. If it sells policies outside its home state, it may be considered a foreign insurer in those states.
Foreign Insurer
An insurance company that is domiciled in one U.S. state but is authorized to do business in a different state.
🔹 Memory Tip: Think: “Out-of-State Insurer.”
🔹 Real-World Connection: If an insurer is domiciled in Montana but sells policies in California, it is considered a foreign insurer in California.
🔹 Popular Tip: A foreign insurer must obtain a certificate of authority from the state where it wants to do business. However, it still follows the financial regulations of its home state.
Fraternal Benefit Society
A non-profit, member-based organization that provides insurance benefits only to its members. These societies are often based on a common religious, ethnic, or professional affiliation.
🔹 Memory Tip: Think: “Member-Only Insurance Club.”
🔹 Real-World Connection: Groups like the Knights of Columbus or Modern Woodmen of America offer life insurance to their members as part of their fraternal benefits.
🔹 Popular Tip: Since they are non-profit, fraternal insurers are not subject to all the same regulations as commercial insurers, and their policies are typically considered participating (eligible for dividends).
Independent Insurance Agency
An insurance agency that can represent multiple insurance companies through contractual agreements, rather than being tied to just one insurer.
🔹 Memory Tip: Think: “Many Companies, More Options.”
🔹 Real-World Connection: Similar to a travel agent who can book flights with multiple airlines, an independent insurance agency can shop around and offer clients policies from different insurers.
🔹 Popular Tip: Unlike a captive agency (which sells policies for only one insurer), an independent agency can compare multiple policies to find the best fit for the client.
Insurance
This is the transfer of risk through the pooling or accumulation of funds.
🔹 Memory Tip: Think: “Sharing the Risk.”
🔹 Real-World Connection: Just like a GoFundMe helps a group of people collectively cover someone’s unexpected expenses, insurance spreads financial risk among many policyholders so no one person bears the full burden.
🔹 Popular Tip: Insurance follows the law of large numbers—the more people insured, the more predictable losses become, allowing insurers to set fair premiums.
Insurer
An insurance company that provides coverage and assumes financial risk in exchange for premiums.
🔹 Memory Tip: Think: “The Risk Taker.”
🔹 Real-World Connection: If you buy life insurance from XYZ Insurance Co., that company is the insurer—it collects premiums and agrees to pay out claims if a covered event occurs.
🔹 Popular Tip: The insurer issues the policy, while the insured is the person or entity covered by it.
Lloyds of London
This is NOT an insurer but a group of individuals and companies that underwrite unusual insurance policies.
🔹 Memory Tip: Think: “Insurance Stock Market.”
🔹 Real-World Connection: Lloyd’s is known for insuring unusual risks, like a celebrity’s vocal cords, an athlete’s legs, or even a space mission.
🔹 Popular Tip: The actual insurers within Lloyd’s are called “syndicates”, and they specialize in high-risk or specialty insurance that traditional insurers may avoid.
Marketing Division
The department responsible for attracting potential customers and promoting insurance products through advertising, branding, and sales strategies.
🔹 Memory Tip: Think: “Getting Customers In the Door.”
🔹 Real-World Connection: Just like a restaurant markets its menu to attract diners, an insurance company’s marketing division promotes policies through TV ads, social media, agents, and direct mail.
🔹 Popular Tip: The marketing division works closely with the sales team and agents/brokers to generate leads and convert prospects into policyholders.
Monoline Insurer
An insurance company that specializes in selling only one type (line) of insurance instead of offering multiple coverage options
🔹 Memory Tip: Think: “One Specialty, One Focus.”
🔹 Real-World Connection: A company that only sells workers’ compensation insurance or only provides auto insurance would be considered a monoline insurer.
🔹 Popular Tip: Monoline insurers focus on expertise in a single area, while multi-line insurers offer a variety of coverages (e.g., auto, home, and life insurance).
Multi-Line Insurer
An insurance company or agent that offers multiple types (lines) of insurance, providing a one-stop shop for customers’ coverage needs.
🔹 Memory Tip: Think: “Bundle & Save!”
🔹 Real-World Connection: Companies like State Farm, Allstate, and Nationwide sell auto, home, life, and health insurance, allowing customers to get all their coverage from one place.
🔹 Popular Tip: Many multi-line insurers offer multi-policy discounts (e.g., bundling auto and home insurance for a lower rate).
Mutual Insurance Company
An insurance company owned by its policyholders rather than stockholders. It has no capital stock and typically issues participating policies, which may pay dividends to policyholders.
🔹 Memory Tip: Think: “Owned by Policyholders, Not Investors.”
🔹 Real-World Connection: Companies like New York Life and Northwestern Mutual are mutual insurers—since they don’t have stockholders, any profits are either reinvested or returned to policyholders as dividends.
🔹 Popular Tip: Mutual insurers typically sell participating policies, meaning policyholders may receive dividends, but dividends are never guaranteed.
Not-Admitted (Unauthorized) Insurer
An insurance company that does not have a certificate of authority to operate in a specific state. It cannot sell standard policies but may offer specialty or high-risk coverage through surplus lines brokers.
🔹 Memory Tip: Think: “Not State-Approved, But Still Available.”
🔹 Real-World Connection: If someone needs earthquake insurance in California but standard insurers won’t cover them, they might turn to a non-admitted insurer for a specialized policy.
🔹 Popular Tip: Non-admitted insurers are NOT backed by the State Guaranty Association, meaning if they go bankrupt, policyholders are not protected by the state.
Nonparticipating Policy
This is a policy that’s typically issued by stock companies. This type of policy doesn’t allow policy owners to participate in dividends or to elect the board of directors.
🔹 Memory Tip: Think: “No Dividends, No Voting.”
🔹 Real-World Connection: Just like stockholders control public companies, in a stock insurance company, only shareholders—not policyowners—receive profits (dividends).
🔹 Popular Tip: Nonparticipating policies usually have lower premiums compared to participating policies because they don’t include potential dividend payouts.
Participating Policy
A life insurance policy issued by mutual insurance companies that pays dividends to policyowners and allows them to elect the company’s board of directors.
🔹 Memory Tip: Think: “Dividends & Voting Rights.”
🔹 Real-World Connection: Since mutual insurance companies are owned by policyholders, they share company profits (divisible surplus) by paying dividends—just like stock companies pay dividends to shareholders.
🔹 Popular Tip: Dividends from participating policies are not guaranteed and are usually considered a return of excess premium, making them tax-free in most cases.
Personal Producing General Agency (PPGA)
This is an agency that represents one or more specific insurers. A PPGA is a similar agency system, but PPGAs don’t recruit, train, or supervise career agents.
🔹 Memory Tip: Think: “Solo Sales, No Recruiting.”
🔹 Real-World Connection: Unlike a traditional general agency, where agents recruit and manage a sales team, a PPGA focuses on personal production, meaning they mainly sell policies themselves.
🔹 Popular Tip: PPGAs often work with multiple insurance companies but operate independently, setting their own goals and sales strategies.
Policy owner
The person or entity who owns the insurance policy, has all contractual rights, and is responsible for paying the premiums. The policyowner is often the insured but can be a different person.
🔹 Memory Tip: Think: “The One in Control.”
🔹 Real-World Connection: A parent can buy a life insurance policy for their child—in this case, the parent is the policyowner, while the child is the insured.
🔹 Popular Tip: Only the policyowner (not the insured or beneficiary) can change beneficiaries, take loans against the policy, or surrender it for cash value.
Private (Commercial) Insurer
An insurance company owned by private individuals or groups that offers one or more lines of insurance. Unlike government insurers, commercial insurers operate for profit.
🔹 Memory Tip: Think: “For-Profit, Not Government-Owned.”
🔹 Real-World Connection: Companies like State Farm, Allstate, and Prudential are private (commercial) insurers, meaning they compete in the market and aim to make a profit.
🔹 Popular Tip: Private insurers can be stock or mutual companies, while government insurers (like Medicare or state-run workers’ comp) provide coverage for high-risk situations or social programs.
Producer
A licensed individual who can sell, solicit, or negotiate insurance policies in one or more states. This term generally refers to agents and brokers.
🔹 Memory Tip: Think: “Licensed to Sell Insurance.”
🔹 Real-World Connection: Just like a real estate agent needs a license to sell houses, an insurance producer must be licensed in the state where they conduct business.
Proposed Insured
The person who is applying for life insurance coverage and will be the insured if the policy is approved and issued.
🔹 Memory Tip: Think: “Applicant Waiting for Approval.”
🔹 Real-World Connection: When someone applies for life insurance, they are the proposed insured until the insurer reviews their application, approves coverage, and issues the policy—at which point they become the insured.
🔹 Popular Tip: The proposed insured is often the policyowner, but in cases like a parent buying a policy for a child, the policyowner and proposed insured are different people.
Public Adjuster
A licensed professional who represents the policyholder (consumer) in the claims process, negotiating with the insurance company to ensure a fair settlement.
🔹 Memory Tip: Think: “Claims Advocate for the Policyholder.”
🔹 Real-World Connection: If a homeowner’s insurance company offers a low settlement after a fire, the homeowner may hire a public adjuster to negotiate for a higher payout.
🔹 Popular Tip: Unlike insurance company adjusters (who work for the insurer), a public adjuster works only for the policyholder and typically gets paid a percentage of the final claim payout.
Reciprocal Insurer
An unincorporated insurance organization where members (subscribers) insure one another through an exchange of risk. It is managed by an attorney-in-fact who handles policies, claims, and funds.
🔹 Memory Tip: Think: “Members Cover Each Other.”
🔹 Real-World Connection: Think of it like a group of businesses pooling money together to insure each other instead of buying insurance from a traditional company. If one member has a claim, the funds come from the group.
🔹 Popular Tip: Reciprocal insurers are often used for auto insurance, business liability, and specialty risks. One well-known example is USAA (originally created for military officers to insure each other).
Reinsurance
The process where one insurance company (the primary insurer) transfers part of its risk to another insurance company (the reinsurer) to reduce its exposure to large losses.
🔹 Memory Tip: Think: “Insurance for Insurance Companies.”
🔹 Real-World Connection: If an insurer issues a $50 million life insurance policy, it may not want to take on the entire risk. It can transfer part of that risk to a reinsurer, so if a claim occurs, both companies share the payout.
Reinsurer
A company that provides financial protection to insurance companies by taking on a portion of their risk. This allows insurers to cover larger risks and write more policies than they could on their own.
🔹 Memory Tip: Think: “Insurance for Insurers.”
🔹 Real-World Connection: If an insurance company issues a $100 million policy, it may not want to handle the entire risk alone. A reinsurer helps by sharing part of the liability, reducing financial strain on the primary insurer.
🔹 Popular Tip: Reinsurers operate globally—one of the largest is Munich Re, which provides reinsurance coverage to insurers worldwide.
Risk Retention Group
A group-owned liability insurance company that spreads commercial liability risks (such as product liability) among its members, who are typically businesses in the same industry
🔹 Memory Tip: Think: “Businesses Insuring Themselves.”
🔹 Real-World Connection: A group of medical professionals might form an RRG to provide malpractice insurance, allowing them to control costs and customize coverage instead of relying on traditional insurers.
🔹 Popular Tip: Risk Retention Groups are regulated under federal law (Liability Risk Retention Act of 1986) and are only required to be licensed in one state, but they can operate in multiple states.
Self-Insurer
A company or organization that sets aside its own funds to cover potential losses instead of purchasing insurance from an insurer.
🔹 Memory Tip: Think: “Covering Your Own Risk.”
🔹 Real-World Connection: Large corporations like Walmart or Google may choose to self-insure for employee health benefits or workers’ compensation instead of paying premiums to an insurance company.
🔹 Popular Tip: Self-insurance works best for businesses with strong financial reserves because they must be able to cover unexpected losses without external help.
Sales Department
The department responsible for acquiring clients by meeting with consumers, explaining policy options, and helping them complete insurance applications.
🔹 Memory Tip: Think: “Closing the Deal.”
🔹 Real-World Connection: Just like real estate agents guide buyers through home purchases, insurance sales agents help clients find policies that fit their needs and budget.
🔹 Popular Tip: The Sales Department works closely with the Marketing Division, which generates leads, while sales agents focus on personalized interactions to convert prospects into policyholders.
Service Representatives
Customer service employees who assist policyholders with non-sales-related insurance inquiries but do not sell, solicit, or bind coverage, so they are not required to be licensed.
🔹 Memory Tip: Think: “Support, Not Sales.”
🔹 Real-World Connection: If a policyholder calls to update their address, request billing information, or ask about policy details, a service representative handles the request. However, if they want to buy a new policy or increase coverage, they must speak with a licensed agent.
🔹 Popular Tip: Service representatives play a key role in customer retention, ensuring policyholders stay satisfied and continue their coverage.
Solicitors
Individuals who solicit potential clients and schedule sales meetings for licensed insurance producers (agents or brokers). Some states require solicitors to have a separate license, but they cannot sell or bind coverage themselves.
🔹 Memory Tip: Think: “Appointment Setters for Agents.”
🔹 Real-World Connection: Similar to a real estate assistant who books client meetings for a realtor, an insurance solicitor helps generate leads and set up sales appointments but does not finalize policy sales.
🔹 Popular Tip: Solicitors typically work for agents, brokers, or agencies, handling the first step of the sales process by contacting potential clients.
Stock Insurance Company
An insurance company owned by stockholders (shareholders) who invest capital into the company. It issues nonparticipating (non-par) policies, meaning policyholders do not receive dividends or voting rights—only shareholders do.
🔹 Memory Tip: Think: “Owned by Investors, Not Policyholders.”
🔹 Real-World Connection: Companies like AIG and MetLife are stock insurance companies—they operate for profit, and excess earnings are distributed to shareholders, not policyholders.
🔹 Popular Tip: Unlike mutual insurance companies, which may pay dividends to policyholders, stock insurers pay dividends only to shareholders (if declared).
Surplus Lines Insurance
A non-traditional insurance option for high-risk, unique, or hard-to-insure situations that cannot be covered by standard (admitted) insurers. This coverage is provided by non-admitted (unauthorized) insurers through specially licensed surplus lines brokers
🔹 Memory Tip: Think: “Insurance for the Uninsurable.”
🔹 Real-World Connection: If a celebrity wants to insure their vocal cords or a business needs coverage for a fireworks show, standard insurers may not cover it—so they turn to surplus lines insurers instead.
🔹 Popular Tip: Because surplus lines insurers are non-admitted, their policies are not backed by the State Guaranty Association, meaning there’s no state protection if the insurer fails.
Unauthorized Insurer
A non-admitted insurer that does not have a certificate of authority to operate in a particular state. These insurers can still provide coverage through surplus lines brokers for risks that standard insurers won’t cover.
🔹 Memory Tip: Think: “Not State-Approved, But Still Legal for Certain Risks.”
🔹 Real-World Connection: If a business needs flood insurance but standard insurers in the state don’t offer it, they may turn to an unauthorized (non-admitted) insurer for coverage.
🔹 Popular Tip: Policies from unauthorized insurers are NOT backed by the State Guaranty Association, meaning policyholders could lose coverage if the insurer becomes insolvent.
Underwriting Department:
The department responsible for reviewing insurance applications, assessing risk, and deciding whether to approve, modify, or decline coverage. They also assign risk classifications, which determine premium rates.
🔹 Memory Tip: Think: “Risk Evaluators of the Insurance World.”
🔹 Real-World Connection: Just like a bank reviews credit scores before approving a loan, the underwriting department analyzes an applicant’s health, driving record, or financial history to determine if they qualify for coverage and at what cost.
🔹 Popular Tip: Higher-risk applicants may be approved with higher premiums, exclusions, or modified terms, while extreme risks may be declined altogether.
Indemnity Contracts vs Valued Contracts
Insurance policies that reimburse the insured for actual financial losses but do not allow them to profit from the claim. The goal is to restore the insured to their pre-loss financial condition.
vs.
Insurance policies that pay a fixed, predetermined amount, regardless of the actual financial loss.
Primary Insurer / Ceding Company
The insurance company that transfers its loss exposure (risk) to another insurer (the reinsurer)
Reinsurer / Assuming Company
An insurance company that takes on the loss exposure of another insurance company
Treaty reinsurance
The contract by which a reinsurer (assuming company) takes on the loss exposure of the primary insurer (ceding company
