INSURANCE TERMS - A

ABSOLUTE LIABILITY - liability without fault; also known as liability without regard to fault or strict liability. Absolute liability is imposed in various states when actions of an individual or business are deemed contrary to public policy, even though an action may not have been intentional or negligent.

ABUSIVE TAX SHELTER - illegal tax deduction (as determined by the IRS) taken under the auspices of a limited partner-ship.

ACCELERATED OPTION - life insurance POLICY PROVISION under which the POLICYHOLDER may apply the accumulated cash value, in the form of a single premium payment, to pay up the policy or to mature the policy as an endowment.

ACCELERATED LIFE INSURANCE - policy under which a portion of the DEATH BENEFIT (generally 25%) becomes payable to the insured for a specified medical condition prior to death. The purpose of the accelerated death benefit is to provide funds necessary to finance medical costs to extend the life of the insured.

ACCELERATIVE ENDOWMENT - life insurance policy option under which the DIVIDENDS that have ACCRUED may be applied to mature the policy as ENDOWMENT INSURANCE.

ACCEPTANCE - agreement to an offer, in contract law, thus forming a contract. For insurance contracts, the insurer usually acknowledges willingness to underwrite a risk by issuing a policy in exchange for a premium from an applicant.

ACCIDENT - unexpected, unforeseen event not under the control of the insured and resulting in a loss.

ACCIDENTAL DEATH AND DISMEMBERMENT INSURANCE - form of accident insurance that indemnifies or pays a stated benefit to insured or his/her beneficiary in the event of bodily injury or death due to accidental means (other than natural causes).

ACCIDENTAL DEATH CLAUSE - in a life insurance policy, benefit in addition to the death benefit paid to the beneficiary, should death occur due to an accident.

ACCIDENTAL DEATH INSURANCE - coverage in the event of death due to accident, usually in combination with dismemberment insurance.

ADDITIONAL CAR - automobile purchased or leased by the insured or the insured's spouse that is in additon to the insured or the insured spouse's present car as covered under the PERSONAL AUTOMOBILE POLICY (PAP)

ADDITIONAL DEATH BENEFIT - extra layer of life insurance coverage. This term is often applied to double indemnity.

ADDITIONAL INSURED - individual added to a life insurance policy other than the insured named in the policy. For example, an insured father can have a dependent son and daughter added to the policy as additional insureds.

ADJUSTABLE PREMIUM - premium that can vary up or down. Some life insurance polices permit the company to change the premiums after the policy is in force.

AFFILIATED COMPANIES - group that advises on employee benefit plans as to amount of benefits to be paid, how benefits are to be financed, and how employees are to qualify for benefits (VESTING requirements).

AGE DISCRIMINATION IN EMPLOYMENT ACT (ADEA) - act that prohibits employers from requiring employees to retire at age 70.

AGENT - individual who sells and services policies in either of two classifications:

• Independent agent represents at least two insurance companies and (at least in theory) services clients by searching the market for the most advantageous price for the most coverage.
• Direct writer represents only one company and sells only its policies. This agent is paid on a commission basis in much the same manner as the independent agent.

ALEATORY CONTRACT - contract that may or may not provide more in benefits than premiums paid. For example, with only one premium payment on a property policy an insured can recieve hundreds of thousands of dollars should the protected entity be destroyed.

ALIEN INSURER - insurance company formed according to the legal requirements of a foreign country.

AMBIGUITY - language in the insurance policy that can be considered unclear or subject to different interpretations.

ANNUAL POLICY - contract remaining in force for up to 12 months unless canceled earlier. After 12 months the policy can either be renewed or not renewed by the insurance company or the insured.

ANNUITANT - person who receives an income benefit from an ANNUITY for life or for a specified period.

ANNUITY - contract sold by insurance companies that pays a monthly (or quarterly, semiannual, or annual) income benefit for the life of a person (the annuitant), for the lives of two or more persons, or for a specified period of time.

ANNUITY CD - product that guarantees the initial interest rate for funds on deposit for the length of the maturity, whether it is for a period of 1, 3, 5, 10 or 15 years.

ANNUITY DATE - date of the initial annuity payment.

ANNUITY DUE - annuity under which payments are made in the beginning of each period (month, quarter, or year).

ANNUITY UNIT - share of a VARIABLE DOLLAR ANNUITY paid to an ANNUITANT as an income payment.

APPLICANT - prospective insured who completes and signs a written form containing personal statements about himself/herself.

APPICATION - written statements on a form by a prospective insured about himself, including assets and other personal information.

APPRAISAL - valuation of property for damage resulting from an insured peril or for establishing the base amount of insurance coverage to be purchased.

AUDIT - in WORKERS COMPENSATION INSURANCE policies and several business property and liability policies, review of the payroll of a business firm in order to determine the premium for coverage.

AVIATION INSURANCE - combination of PROPERTY INSURANCE on the hull of an airplance and LIABILITY INSURANCE in the following manner.

• property coverage - provided on an all risks basis or on a specified perils basis for the hull, autopilots, instruments, radios, and any other equipment in the airplane as described in the policy.
• liability coverage - provided in the event that the insured's negligent acts and/or omissions result in bodily injury and/or property damage to passengers and individuals who are not passengers.