Glossary (L through O)

L

LADDERING
A technique that consists of staggering the maturity dates and the mix of different types of bonds.

LAW OF LARGE NUMBERS
The theory of probability on which the business of insurance is based. Simply put, this mathematical premise says that the larger the group of units insured, such as sport-utility vehicles, the more accurate the predictions of loss will be.

LIABILITY INSURANCE
Insurance for what the policyholder is legally obligated to pay because of bodily injury or property damage caused to another person.

LIFE INSURANCE
See Ordinary life insurance; Term insurance; Variable life insurance; Whole life insurance

LIMITS
Maximum amount of insurance that can be paid for a covered loss.

LINE
Type or kind of insurance, such as personal lines.

LIQUIDATION
Enables the state insurance department as liquidator or its appointed deputy to wind up the insurance companys affairs by selling its assets and settling claims upon those assets. After receiving the liquidation order, the liquidator notifies insurance departments in other states and state guaranty funds of the liquidation proceedings. Such insurance company liquidations are not subject to the Federal Bankruptcy Code but to each states liquidation statutes.

LIQUIDITY
The ability and speed with which a security can be converted into cash.

LIQUOR LIABILITY
Coverage for bodily injury or property damage caused by an intoxicated person who was served liquor by the policyholder.

LLOYDS
Corporation formed to market services of a group of underwriters. Does not issue insurance policies or provide insurance protection. Insurance is written by individual underwriters, with each assuming a part of every risk. Has no connection to Lloyds of London, and is found primarily in Texas.

LLOYD'S OF LONDON
A marketplace where underwriting syndicates, or mini-insurers, gather to sell insurance policies and reinsurance. Each syndicate is managed by an underwriter who decides whether or not to accept the risk. The Lloyds market is a major player in the international reinsurance market as well as a primary market for marine insurance and large risks. Originally, Lloyds was a London coffee house in the 1600s patronized by shipowners who insured each others hulls and cargoes. As Lloyds developed, wealthy individuals, called Names, placed their personal assets behind insurance risks as a business venture.  Increasingly since the 1990s, most of the capital comes from corporations.

LONG-TERM CARE INSURANCE
Long-term care (LTC) insurance pays for services to help individuals who are unable to perform certain activities of daily living without assistance, or require supervision due to a cognitive impairment such as Alzheimers disease. LTC is available as individual insurance or through an employer-sponsored or association plan.

LOSS
A reduction in the quality or value of a property, or a legal liability.

LOSS ADJUSTMENT EXPENSES
The sum insurers pay for investigating and settling insurance claims, including the cost of defending a lawsuit in court.

LOSS COSTS
The portion of an insurance rate used to cover claims and the costs of adjusting claims. Insurance companies typically determine their rates by estimating their future loss costs and adding a provision for expenses, profit, and contingencies.

LOSS OF USE
A provision in homeowners and renters insurance policies that reimburses policyholders for any extra living expenses due to having to live elsewhere while their home is being restored following a disaster.

LOSS RATIO
Percentage of each premium dollar an insurer spends on claims.

LOSS RESERVES
The companys best estimate of what it will pay for claims, which is periodically readjusted. They represent a liability on the insurers balance sheet.

L-SHARE VARIABLE ANNUITIES
A form of variable annuity contract usually with short surrender periods and higher mortality and expense risk charges.

M

MALPRACTICE INSURANCE
Professional liability coverage for physicians, lawyers, and other specialists against suits alleging negligence or errors and omissions that have harmed clients.

MANAGED CARE
Arrangement between an employer or insurer and selected providers to provide comprehensive health care at a discount to members of the insured group and coordinate the financing and delivery of health care. Managed care uses medical protocols and procedures agreed on by the medical profession to be cost effective, also known as medical practice guidelines.

MANUAL
A book published by an insurance or bonding company or a rating association or bureau that gives rates, classifications, and underwriting rules.

MARINE INSURANCE
Coverage for goods in transit, and for the commercial vehicles that transport them, on water and over land. The term may apply to inland marine but more generally applies to ocean marine insurance. Covers damage or destruction of a ships hull and cargo and perils include collision, sinking, capsizing, being stranded, fire, piracy, and jettisoning cargo to save other property. Wear and tear, dampness, mold, and war are not included. (See <a href='/glossary/I/#265'>Inland marine insurance</a>, <a href='/glossary/O/#363'>Ocean marine insurance</a> )

MCCARRAN-FERGUSON ACT
Federal law signed in 1945 in which Congress declared that states would continue to regulate the insurance business. Grants insurers a limited exemption from federal antitrust legislation.

MEDIATION
Nonbinding procedure in which a third party attempts to resolve a conflict between two other parties.

MEDICAID
A federal/state public assistance program created in 1965 and administered by the states for people whose income and resources are insufficient to pay for health care.

MEDICAL MALPRACTICE INSURANCE
See Malpractice insurance

MEDICAL PAYMENTS INSURANCE
A coverage in which the insurer agrees to reimburse the insured and others up to a certain limit for medical or funeral expenses as a result of bodily injury or death by accident. Payments are without regard to fault.

MEDICAL UTILIZATION REVIEW
The practice used by insurance companies to review claims for medical treatment.

MEDICARE
Federal program for people 65 or older that pays part of the costs associated with hospitalization, surgery, doctors bills, home health care, and skilled-nursing care.

MEDIGAP/MEDSUP
Policies that supplement federal insurance benefits particularly for those covered under Medicare.

MINE SUBSIDENCE COVERAGE
An endorsement to a homeowners insurance policy, available in some states, for losses to a home caused by the land under a house sinking into a mine shaft. Excluded from standard homeowners policies, as are other forms of earth movement.

MONEY SUPPLY
Total supply of money in the economy, composed of currency in circulation and deposits in savings and checking accounts. By changing the interest rates the Federal Reserve seeks to adjust the money supply to maintain a strong economy.

MORTALITY AND EXPENSE (M&E) RISK CHARGE
A fee that covers such annuity contract guarantees as death benefits.

MORTGAGE GUARANTEE INSURANCE
Coverage for the mortgagee (usually a financial institution) in the event that a mortgage holder defaults on a loan. Also called private mortgage insurance (PMI).

MORTGAGE INSURANCE
A form of decreasing term insurance that covers the life of a person taking out a mortgage. Death benefits provide for payment of the outstanding balance of the loan. Coverage is in decreasing term insurance, so the amount of coverage decreases as the debt decreases. A variant, mortgage unemployment insurance pays the mortgage of a policyholder who becomes involuntarily unemployed.  (See <a href='/glossary/T/#500'>Term insurance</a> )

MORTGAGE-BACKED SECURITIES
Investment grade securities backed by a pool of mortgages. The issuer uses the cash flow from mortgages to meet interest payments on the bonds.

MULTIPLE PERIL POLICY
A package policy, such as a homeowners or business insurance policy, that provides coverage against several different perils. It also refers to the combination of property and liability coverage in one policy. In the early days of insurance, coverages for property damage and liability were purchased separately.

MUNICIPAL BOND INSURANCE
Coverage that guarantees bondholders timely payment of interest and principal even if the issuer of the bonds defaults. Offered by insurance companies with high credit ratings, the coverage raises the credit rating of a municipality offering the bond to that of the insurance company. It allows a municipality to raise money at lower interest rates. A form of financial guarantee insurance. (See <a href='/glossary/F/#207'>Financial guarantee insurance</a> )

MUNICIPAL LIABILITY INSURANCE
Liability insurance for municipalities.

MUTUAL HOLDING COMPANY
An organizational structure that provides mutual companies with the organizational and capital raising advantages of stock insurers, while retaining the policyholder ownership of the mutual.

MUTUAL INSURANCE COMPANY
A company owned by its policyholders that returns part of its profits to the policyholders as dividends. The insurer uses the rest as a surplus cushion in case of large and unexpected losses.

N

NAMED PERIL
Peril specifically mentioned as covered in an insurance policy.

NATIONAL FLOOD INSURANCE PROGRAM
Federal government-sponsored program under which flood insurance is sold to homeowners and businesses. (See <a href='/glossary/A/#21'>Adverse selection</a>, <a href='/glossary/F/#215'>Flood insurance</a> )

NEGLIGENCE
<p>Failure to act with the legally required degree of care for others, resulting in harm to them.</p>

NET PREMIUMS WRITTEN
See Premiums written

NO-FAULT
Auto insurance coverage that pays for each drivers own injuries, regardless of who caused the accident. No-fault varies from state to state. It also refers to an auto liability insurance system that restricts lawsuits to serious cases. Such policies are designed to promote faster reimbursement and to reduce litigation.

NO-FAULT MEDICAL
A type of accident coverage in homeowners policies.

NON-ADMITTED ASSETS
Assets that are not included on the balance sheet of an insurance company, including furniture, fixtures, past-due accounts receivable, and agents debt balances. (See <a href='/glossary/A/#57'>Assets</a> )

NON-ADMITTED INSURER
Insurers licensed in some states, but not others. States where an insurer is not licensed call that insurer non-admitted. They sell coverage that is unavailable from licensed insurers within the state.

NO-PAY, NO-PLAY
The idea that people who dont buy coverage should not receive benefits. Prohibits uninsured drivers from collecting damages from insured drivers. In most states with this law, uninsured drivers may not sue for noneconomic damages such as pain and suffering. In other states, uninsured drivers are required to pay the equivalent of a large deductible ($10,000) before they can sue for property damages and another large deductible before they can sue for bodily harm.

NOTICE OF LOSS
A written notice required by insurance companies immediately after an accident or other loss. Part of the standard provisions defining a policyholder's responsibilities after a loss.

NUCLEAR INSURANCE
Covers operators of nuclear reactors and other facilities for liability and property damage in the case of a nuclear accident and involves both private insurers and the federal government.

NURSING HOME INSURANCE
A form of long-term care policy that covers a policyholders stay in a nursing facility.

O

OCCUPATIONAL DISEASE
Abnormal condition or illness caused by factors associated with the workplace. Like occupational injuries, this is covered by workers compensation policies. (See <a href='/glossary/W/#547'>Workers compensation)</a> )

OCCURRENCE POLICY
Insurance that pays claims arising out of incidents that occur during the policy term, even if they are filed many years later. (See <a href='/glossary/C/#103'>Claims-made policy</a> )

OCEAN MARINE INSURANCE
Coverage of all types of vessels and watercraft, for property damage to the vessel and cargo, including such risks as piracy and the jettisoning of cargo to save the property of others. Coverage for marine-related liabilities. War is excluded from basic policies, but can be bought back.

OPEN COMPETITION STATES
States where insurance companies can set new rates without prior approval, although the states commissioner can disallow them if they are not reasonable and adequate or are discriminatory.

OPERATING EXPENSES
The cost of maintaining a businesss property, includes insurance, property taxes, utilities and rent, but excludes income tax, depreciation and other financing expenses.

OPTIONS
Contracts that allow, but do not oblige, the buying or selling of property or assets at a certain date at a set price.

ORDINANCE OR LAW COVERAGE
Endorsement to a property policy, including homeowners, that pays for the extra expense of rebuilding to comply with ordinances or laws, often building codes, that did not exist when the building was originally built. For example, a building severely damaged in a hurricane may have to be elevated above the flood line when it is rebuilt. This endorsement would cover part of the additional cost.

ORDINARY LIFE INSURANCE
A life insurance policy that remains in force for the policyholders lifetime.

ORIGINAL EQUIPMENT MANUFACTURER PARTS / OEM
Sheet metal auto parts made by the manufacturer of the vehicle. (See <a href='/glossary/G/#228'>Generic auto parts</a> )

OVER-THE-COUNTER (OTC)
Security that is not listed or traded on an exchange such as the New York Stock Exchange. Business in over-the-counter securities is conducted through dealers using electronic networks.