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DECLARATION |
Part of a property or
liability insurance policy that states the name
and address of policyholder, property insured,
its location and description, the policy period,
premiums, and supplemental information. Referred
to as the “dec page.”
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DEDUCTIBLE |
The amount of loss paid by
the policyholder. Either a specified dollar
amount, a percentage of the claim amount, or a
specified amount of time that must elapse before
benefits are paid. The bigger the deductible,
the lower the premium charged for the same
coverage.
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DEFERRED ANNUITY |
An annuity contract that
is purchased either with a single tax-deferred
premium or with periodic tax-deferred premiums
over time. Payments begin at a predetermined
point in time, such as retirement.
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DEFINED BENEFIT PLAN |
A retirement plan under
which pension benefits are fixed in advance by a
formula based generally on years of service to
the company multiplied by a specific percentage
of wages, usually average earnings over that
period or highest average earnings over the
final years with the company.
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DEFINED CONTRIBUTION
PLAN |
An employee benefit plan
under which the employer sets up benefit
accounts and contributions are made to it by the
employer and by the employee. The employer
usually matches the employee's contribution up
to a stated limit.
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DEMAND DEPOSIT |
Customer assets that are
held in a checking account. Funds can be readily
withdrawn by check, “on demand.”
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DEMUTUALIZATION |
The conversion of
insurance companies from mutual companies owned
by their policyholders into publicly-traded
stock companies.
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DEPOSITORY INSTITUTION |
Financial institution that
obtains its funds mainly through deposits from
the public. Includes commercial banks, savings
and loan associations, savings banks, and credit
unions.
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DEREGULATION |
In insurance, reducing
regulatory control over insurance rates and
forms. Commercial insurance for businesses of a
certain size has been deregulated in many
states.
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DERIVATIVES |
Contracts that derive
their value from an underlying financial asset,
such as publicly-traded securities and foreign
currencies. Often used as a hedge against
changes in value.
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DIFFERENCE IN
CONDITIONS |
Policy designed to fill in
gaps in a business’s commercial property
insurance coverage. There is no standard policy.
Policies are specifically tailored to the
policyholder’s needs.
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DIMINUTION OF VALUE |
The idea that a vehicle
loses value after it has been damaged in an
accident and repaired.
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DIRECT PREMIUMS |
Property/casualty premiums
collected by the insurer from policyholders,
before reinsurance premiums are deducted.
Insurers share some direct premiums and the risk
involved with their reinsurers.
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DIRECT SALES/ DIRECT
RESPONSE |
Method of selling
insurance directly to the insured through an
insurance company’s own employees, through the
mail, or via the Internet. This is in lieu of
using captive or exclusive agents.
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DIRECT WRITERS |
Insurance companies that
sell directly to the public using exclusive
agents or their own employees, through the mail,
or via Internet. Large insurers, whether
predominately direct writers or agency
companies, are increasingly using many different
channels to sell insurance. In reinsurance,
denotes reinsurers that deal directly with the
insurance companies they reinsure without using
a broker.
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DIRECTORS AND OFFICERS
LIABILITY INSURANCE/D&O |
Covers directors and
officers of a company for negligent acts or
omissions, and for misleading statements that
result in suits against the company, often by
shareholders. Directors and officers insurance
policies usually contain two coverages: personal
coverage for individual directors and officers
who are not indemnified by the corporation for
their legal expenses or judgments against them –
some corporations are not required by their
corporate or state charters to provide
indemnification; and corporate reimbursement
coverage for indemnifying directors and
officers. Entity coverage for claims made
specifically against the company may also be
available.
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DIVIDENDS |
Money returned to
policyholders from an insurance company’s
earnings. Considered a partial premium refund
rather than a taxable distribution, reflecting
the difference between the premium charged and
actual losses. Many life insurance policies and
some property/casualty policies pay dividends to
their owners. Life insurance policies that pay
dividends are called participating policies.
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DOMESTIC INSURANCE
COMPANY |
Term used by a state to
refer to any company incorporated there.
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EARLY WARNING SYSTEM |
A system of measuring
insurers’ financial stability set up by
insurance industry regulators. An example is the
Insurance Regulatory Information System (IRIS),
which uses financial ratios to identify insurers
in need of regulatory attention.
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EARNED PREMIUM |
The portion of premium
that applies to the expired part of the policy
period. Insurance premiums are payable in
advance but the insurance company does not fully
earn them until the policy period expires.
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EARTHQUAKE INSURANCE |
Covers a building and its
contents, but includes a large percentage
deductible on each. A special policy or
endorsement exists because earthquakes are not
covered by standard homeowners or most business
policies.
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ECONOMIC LOSS |
Total financial loss
resulting from the death or disability of a wage
earner, or from the destruction of property.
Includes the loss of earnings, medical expenses,
funeral expenses, the cost of restoring or
replacing property, and legal expenses. It does
not include noneconomic losses, such as pain
caused by an injury.
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ELECTRONIC COMMERCE /
E-COMMERCE |
The sale of products such
as insurance over the Internet.
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ELIMINATION PERIOD |
A kind of deductible or
waiting period usually found in disability
policies. It is counted in days from the
beginning of the illness or injury.
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EMPLOYEE DISHONESTY
COVERAGE |
Covers direct losses and
damage to businesses resulting from the
dishonest acts of employees. (See
FIDELITY BOND)
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EMPLOYEE RETIREMENT
INCOME SECURITY ACT / ERISA |
Federal legislation that
protects employees by establishing minimum
standards for private pension and welfare plans.
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EMPLOYER’S LIABILITY |
Part B of the workers
compensation policy that provides coverage for
lawsuits filed by injured employees who, under
certain circumstances, can sue under common law.
(See
EXCLUSIVE REMEDY)
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EMPLOYMENT PRACTICES
LIABILITY COVERAGE |
Liability insurance for
employers that covers wrongful termination,
discrimination, or sexual harassment toward the
insured’s employees or former employees.
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ENDORSEMENT |
A written form attached to
an insurance policy that alters the policy’s
coverage, terms, or conditions. Sometimes called
a rider.
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ENVIRONMENTAL
IMPAIRMENT LIABILITY COVERAGE |
A form of insurance
designed to cover losses and liabilities arising
from damage to property caused by pollution.
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EQUITY |
In investments, the
ownership interest of shareholders. In a
corporation, stocks as opposed to bonds.
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EQUITY INDEXED ANNUITY |
Non-traditional fixed
annuity. The specified rate of interest
guarantees a fixed minimum rate of interest like
traditional fixed annuities. At the same time,
additional interest may be credited to policy
values based upon positive changes, if any, in
an established index such as the S&P 500. The
amount of additional interest depends upon the
particular design of the policy. They are sold
by licensed insurance agents and regulated by
state insurance departments.
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ERRORS AND OMISSIONS
COVERAGE / E&O |
A professional liability
policy covering the policyholder for negligent
acts and omissions that may harm his or her
clients.
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ESCROW ACCOUNT |
Funds that a lender
collects to pay monthly premiums in mortgage and
homeowners insurance, and sometimes to pay
property taxes.
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EXCESS AND SURPLUS
LINES |
Property/casualty coverage
that isn’t available from insurers licensed by
the state (called admitted insurers) and must be
purchased from a non-admitted carrier.
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EXCESS OF LOSS
REINSURANCE |
A contract between an
insurer and a reinsurer, whereby the insurer
agrees to pay a specified portion of a claim and
the reinsurer to pay all or a part of the claim
above that amount.
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EXCLUSION |
A provision in an
insurance policy that eliminates coverage for
certain risks, people, property classes, or
locations.
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EXCLUSIVE AGENT |
A captive agent, or a
person who represents only one insurance company
and is restricted by agreement from submitting
business to any other company unless it is first
rejected by the agent’s company. (See
Captive agent)
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EXCLUSIVE REMEDY |
Part of the social
contract that forms the basis for workers
compensation statutes under which employers are
responsible for work-related injury and disease,
regardless of whether is was the employee’s
fault and in return the injured employee gives
up the right to sue when the employer’s
negligence causes the harm.
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EXPENSE RATIO |
Percentage of each premium
dollar that goes to insurers’ expenses including
overhead, marketing, and commissions.
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EXPERIENCE |
Record of losses.
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EXPOSURE |
Possibility of loss.
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EXTENDED COVERAGE |
An endorsement added to an
insurance policy, or clause within a policy,
that provides additional coverage for risks
other than those in a basic policy.
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EXTENDED REPLACEMENT
COST COVERAGE |
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Pays a certain amount
above the policy limit to replace a damaged
home, generally 120 percent or 125 percent.
Similar to a guaranteed replacement cost policy,
which has no percentage limits. Most homeowner
policy limits track inflation in building costs.
Guaranteed and extended replacement cost
policies are designed to protect the
policyholder after a major disaster when the
high demand for building contractors and
materials can push up the normal cost of
reconstruction. |
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FACULTATIVE REINSURANCE |
A reinsurance policy that
provides an insurer with coverage for specific
individual risks that are unusual or so large
that they aren’t covered in the insurance
company's reinsurance treaties. This can include
policies for jumbo jets or oil rigs. Reinsurers
have no obligation to take on facultative
reinsurance, but can assess each risk
individually. By contrast, under treaty
reinsurance, the reinsurer agrees to assume a
certain percentage of entire classes of
business, such as various kinds of auto, up to
preset limits.
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FAIR ACCESS TO
INSURANCE REQUIREMENTS PLANS / FAIR PLANS |
Insurance pools that sell
property insurance to people who can’t buy it in
the voluntary market because of high risk over
which they may have no control. FAIR Plans,
which exist in 28 states and the District of
Columbia, insure fire, vandalism, riot, and
windstorm losses, and some sell homeowners
insurance which includes liability. Plans vary
by state, but all require property insurers
licensed in a state to participate in the pool
and share in the profits and losses. (See
Residual market)
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FARMOWNERS-RANCHOWNERS
INSURANCE |
Package policy that
protects the policyholder against named perils
and liabilities and usually covers homes and
their contents, along with barns, stables, and
other structures.
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FEDERAL FUNDS |
Reserve balances that
depository institutions lend each other, usually
on an overnight basis. In addition, Federal
funds include certain other kinds of borrowings
by depository institutions from each other and
from federal agencies.
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FEDERAL INSURANCE
ADMINISTRATION / FIA |
Federal agency in charge
of administering the National Flood Insurance
Program. It does not regulate the insurance
industry.
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FEDERAL RESERVE BOARD |
Seven-member board that
supervises the banking system by issuing
regulations controlling bank holding companies
and federal laws over the banking industry. It
also controls and oversees the U.S. monetary
system and credit supply.
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FIDELITY BOND |
A form of protection that
covers policyholders for losses that they incur
as a result of fraudulent acts by specified
individuals. It usually insures a business for
losses caused by the dishonest acts of its
employees.
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FIDUCIARY BOND |
A type of surety bond,
sometimes called a probate bond, which is
required of certain fiduciaries, such as
executors and trustees, that guarantees the
performance of their responsibilities.
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FIDUCIARY LIABILITY |
Legal responsibility of a
fiduciary to safeguard assets of beneficiaries.
A fiduciary, for example a pension fund manager,
is required to manage investments held in trust
in the best interest of beneficiaries. Fiduciary
liability insurance covers breaches of fiduciary
duty such as misstatements or misleading
statements, errors and omissions.
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FILE-AND-USE STATES |
States where insurers must
file rate changes with their regulators, but
don’t have to wait for approval to put them into
effect.
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FINANCIAL GUARANTEE
INSURANCE |
Covers losses from
specific financial transactions and guarantees
that investors in debt instruments, such as
municipal bonds, receive timely payment of
principal and interest if there is a default.
Raises the credit rating of debt to which the
guarantee is attached. Investment bankers who
sell asset-backed securities, securities backed
by loan portfolios, use this insurance to
enhance marketability. (See
Municipal bond insurance)
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FINANCIAL
RESPONSIBILITY LAW |
A state law requiring that
all automobile drivers show proof that they can
pay damages up to a minimum amount if involved
in an auto accident. Varies from state to state
but can be met by carrying a minimum amount of
auto liability insurance. (See
Compulsory auto insurance)
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FINITE RISK REINSURANCE |
Contract under which the
ultimate liability of the reinsurer is capped
and on which anticipated investment income is
expressly acknowledged as an underwriting
component. Also known as Financial Reinsurance
because this type of coverage is often bought to
improve the balance sheet effects of statutory
accounting principles.
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FIRE INSURANCE |
Coverage protecting
property against losses caused by a fire or
lightning that is usually included in homeowners
or commercial multiple peril policies.
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FIRST-PARTY COVERAGE |
Coverage for the
policyholder’s own property or person. In
no-fault auto insurance it pays for the cost of
injuries. In no-fault states with the broadest
coverage, the personal injury protection (PIP)
part of the policy pays for medical care, lost
income, funeral expenses and, where the injured
person is not able to provide services such as
child care, for substitute services. (See
No-fault;
Third-party coverage)
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FIXED ANNUITY |
An annuity that guarantees
a specific rate of return. In the case of a
deferred annuity, a minimum rate of interest is
guaranteed during the savings phase. During the
payment phase, a fixed amount of income, paid on
a regular schedule, is guaranteed.
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FLOATER |
Attached to a homeowners
policy, a floater insures movable property,
covering losses wherever they may occur. Among
the items often insured with a floater are
expensive jewelry, musical instruments, and
furs. It provides broader coverage than a
regular homeowners policy for these items.
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FLOOD INSURANCE |
Coverage for flood damage
is available from the federal government under
the National Flood Insurance Program but is sold
by licensed insurance agents. Flood coverage is
excluded under homeowners policies and many
commercial property policies. However, flood
damage is covered under the comprehensive
portion of an auto insurance policy. (See
Adverse selection)
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FORCED PLACE INSURANCE |
Insurance purchased by a
bank or creditor on an uninsured debtor’s behalf
so if the property is damaged, funding is
available to repair it.
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FOREIGN INSURANCE
COMPANY |
Name given to an insurance
company based in one state by the other states
in which it does business.
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FRAUD |
Intentional lying or
concealment by policyholders to obtain payment
of an insurance claim that would otherwise not
be paid, or lying or misrepresentation by the
insurance company managers, employees, agents,
and brokers for financial gain.
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FREE-LOOK PERIOD |
A period of up to one
month during which the purchaser of an annuity
can cancel the contract with no penalty. Rules
vary by state.
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FREQUENCY |
Number of times a loss
occurs. One of the criteria used in calculating
premium rates.
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FRONTING |
A procedure in which a
primary insurer acts as the insurer of record by
issuing a policy, but then passes the entire
risk to a reinsurer in exchange for a
commission. Often, the fronting insurer is
licensed to do business in a state or country
where the risk is located, but the reinsurer is
not. The reinsurer in this scenario is often a
captive or an independent insurance company that
cannot sell insurance directly in a particular
country.
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FUTURES |
Agreement to buy a
security for a set price at a certain date.
Futures contracts usually involve commodities,
indexes or financial futures.
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GAP INSURANCE |
An automobile insurance
option, available in some states, that covers
the difference between a car’s actual cash value
when it is stolen or wrecked and the amount the
consumer owes the leasing or finance company.
Mainly used for leased cars. (See
Actual cash value)
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GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES/GAAP |
Generally accepted
accounting principles (GAAP) accounting is used
in financial statements that publicly-held
companies prepare for the Securities and
Exchange Commission. (See
Statutory accounting principles / SAP)
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GENERIC AUTO PARTS |
Auto crash parts produced
by firms that are not associated with car
manufacturers. Insurers consider these parts,
when certified, at least as good as those that
come from the original equipment manufacturer
(OEM). They are often cheaper than the identical
part produced by the OEM. (See
Crash parts;
Aftermarket parts;
Competitive replacement parts;
Original equipment manufacturer parts / OEM)
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GLASS INSURANCE |
Coverage for glass
breakage caused by all risks; fire and war are
sometimes excluded. Insurance can be bought for
windows, structural glass, leaded glass, and
mirrors. Available with or without a deductible.
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GRADUATED DRIVER
LICENSES |
Licenses for younger
drivers that allow them to improve their skills.
Regulations vary by state, but often restrict
night time driving. Young drivers receive a
learner’s permit, followed by a provisional
license, before they can receive a standard
drivers license.
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GRAMM-LEACH-BLILEY ACT |
Financial services
legislation, passed by Congress in 1999, that
removed Depression-era prohibitions against the
combination of commercial banking and
investment-banking activities. It allows
insurance companies, banks, and securities firms
to engage in each others’ activities and own one
another.
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GROUP INSURANCE |
A single policy covering a
group of individuals, usually employees of the
same company or members of the same association
and their dependents. Coverage occurs under a
master policy issued to the employer or
association.
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GUARANTEE PERIOD |
Period during which the
level of interest specified under a fixed
annuity is guaranteed.
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GUARANTEED DEATH
BENEFIT |
Basic death benefits
guaranteed under variable annuity contracts.
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GUARANTEED INCOME
CONTRACT / GIC |
Often an option in an
employer-sponsored retirement savings plan.
Contract between an insurance company and the
plan that guarantees a stated rate of return on
invested capital over the life of the contract.
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GUARANTEED LIVING
BENEFIT |
A guarantee in a variable
annuity that a certain level of annuity payment
will be maintained. Serves as a protection
against investment risks. Several types exists.
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GUARANTEED REPLACEMENT
COST COVERAGE |
Homeowners policy that
pays the full cost of replacing or repairing a
damaged or destroyed home, even if it is above
the policy limit. (See
Extended replacement cost coverage)
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GUARANTY FUND |
The mechanism by which
solvent insurers ensure that some of the
policyholder and third party claims against
insurance companies that fail are paid. Such
funds are required in all 50 states, the
District of Columbia and Puerto Rico, but the
type and amount of claim covered by the fund
varies from state to state. Some states pay
policyholders’ unearned premiums – the portion
of the premium for which no coverage was
provided because the company was insolvent. Some
have deductibles. Most states have no limits on
workers compensation payments. Guaranty funds
are supported by assessments on insurers doing
business in the state.
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GUN LIABILITY |
A new legal concept that
holds gun manufacturers liable for the cost of
injuries caused by guns. Several cities have
filed lawsuits based on this concept.
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