Insurance Term Glossary


Let's not let insurance jargon confuse us anymore. Get some helpful and straightforward definitions of some oft perplexing insurance terms.

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Insurance Definitions Q - R - S


Q

Quote: The rate at which an insurance company indicates its willingness to assume certain liabilities or provide coverage under an insurance policy. A quote is an approximation of the premium for a given policy.

R

Rate: The premium charge for specific coverage for the regular policy period. Also, the cost of a unit of insurance for a specified period of time.

Rated: A term used to describe insurance issued to a person, who is a substandard risk, at a premium rate which is higher than that charged for a standard risk.

Rebating: Giving a premium reduction or another financial advantage not stated in the policy as an inducement to purchase the policy. The offer of sharing commissions with the applicant is an inducement that is not part of the insurance policy and, therefore, is considered rebating. Rebates include not only cash but also personal services and items of value. Rebating is considered a violation of the Unfair Trade Practices Acts in most states.

Reciprocal or interinsurance exchange: An unincorporated group of individuals, firms, corporations or entities who are commonly termed as subscribers or members, mutually agree to exchange contracts of insurance or insurance policies and share their insurance risks among themselves within their Exchange. Each insured subscriber or member of the Exchange individually appoints and authorizes a common attorney-in-fact to manage certain affairs of the Exchange.

Recreational Vehicle (RV) Insurance: Insurance coverage specially designed for Class A, B, and C recreational motorhomes, coaches, camper vans, trailers, pop-up, and haulers.

Redlining: Unfair discrimination against a risk based on its location, not on the risk's characteristics.

Reduced paid-up insurance: One of the nonforfeiture options contained in certain policies; it provides that the insured may elect to have the cash surrender value of the policy used to purchase a paid-up policy for a reduced amount of insurance.

Registration: A mandatory documentation of a vehicle with a governing agency, typically the state’s Department of Motor Vehicles (DMV). It is important to keep this vehicle registration document in the registered vehicle at all times.

Reinstatement: A process for making a coverage applicable again after it has been canceled or suspended, but before the original normal expiration date of the policy in question.

Reinsurance: An agreement by which one insurance company transfers to another carrier part or all of its risk of loss under its policies by means of a separate contract or treaty with another insurance company. The company providing reinsurance protection is the "reinsuring company" or "reinsurer." The one receiving reinsurance protection is the "ceding company."

Under the common form of reinsurance known as excess reinsurance, the reinsurer covers losses exceeding a certain limit specified in advance, and then only for the excess of the amount of the loss over the fixed limit. There are also quota share (pro rata) and stop loss (excess) types as well as facultative, which is specific for a given risk and may be of any type. The liability retained by the ceding company is known as its "retention."

Release: An instrument signed by an insured or a third party claimant relieving the insurance carrier of any further liability (or any liability at all) with respect to a specific claim.

Renewable term: Term insurance that may be renewed for another term without evidence of insurability.

Rental value insurance: Insurance which reimburses an owner of a building for loss of income as a landlord or, if he/she occupies the building, for loss of such comparable value.

Renters insurance: Personal property insurance and some types of liability coverage for house, apartment or condominium lessees.

Rental reimbursement: Also known as the "Extended Transportation Expense Coverage," this option pays $30 per day, for up to 30 days (for a maximum of $900) towards the cost of a replacement or rental vehicle, if the insured vehicle is temporarily disabled for more than one day due to a covered accident. Higher daily limits exist, and vary by state.

Replacement: A new policy written to take the place of one currently in force or recently terminated.

Replacement cost: The cost of replacing or repairing property using new materials of like kind and quality without deduction for depreciation.

Reporting form policy: A policy covering property with varying values, such as inventory, which contains a provision that requires reported values at stated intervals.

Representations: Statements made by the proposed insured in the process of securing coverage. Coverage may be voided if the representation is false and material to the determination of risk. The standard of truth in representation is substantial, that is, "to the best of knowledge and belief," but not exact to detail.

Retroactive date: A date that may be entered by the insurer on the Declarations Page of a "claims made" policy. This provision establishes that no claims for injury of damage that occurred before the retroactive date will be covered by that policy.

Revocable beneficiary: This designation means the policy owner can change the beneficiary without the beneficiary's consent.

Rider: A document that amends or changes the policy. In life insurance, a rider usually adds coverage to the basic policy.

Risk: The hazard or chance of loss on any particular item of insurance. The term "risk" usually is used in a general way to designate the entire subject matter of insurance covered under a policy or upon which an application for insurance has been received. Risk is also sometimes used to designate a policyholder.

Roth IRA: An individual retirement plan that features nondeductible contributions and tax-free withdrawals pursuant to qualified distributions.

S

SR-22 / FR-44 & SR-26/ FR-46 Forms: Forms required to reinstate driving privileges for any driver convicted of a serious violation (DUI, DWI, etc.), involved in a serious accident without insurance, or one who has failed to satisfy a judgment following an accident. Upon the expiration or cancelation of a SR-22/FR-44/, an insurance company provides a SR-26/FR-46 form to certify this policy cancellation.

Salvage: Property transferred to an insurer to reduce its loss. The insurer secures an ownership interest from paying a claim for total loss or damage based on the true value of the property in its undamaged state or before the loss occurred.

Self-insurance: Periodically setting aside sums of money which in time will cover losses as they occur. Only very large concerns with widely scattered property can safely afford to self-insure.

Self-insured retention (SIR) (also known as retained limit): In an umbrella policy, this is a deductible that applies to liability losses not covered by other underlying policies.

Settlement options: Nearly all life insurance policies issued provide for several optional modes of settlement in lieu of payments in a lump sum. The usual options are:
(1) interest,
(2) installments for a period certain,
(3) life income with specified number of years' payment certain,
(4) fixed income as long as proceeds and interest will last.

Short rate cancellation: A cancellation by the insured that refunds the unearned premium minus administrative expenses.

Short term policy: A policy written for less time than is normal for that type of policy.

Simplified employee pension plan (SEP): A written arrangement (a plan) that allows an employer to make contributions to an employee's retirement. Contributions can be made to an employee's individual retirement account or annuity (IRA).

Split limits: In auto insurance, where rather than one liability amount applying on a per accident (occurrence) basis, separate amounts apply to bodily injury and property damage liability. For example, a liability limit of 100/300/100 means bodily injury limits of $100,000 per person, $300,000 per accident and a property damage limit of $100,000 per accident.

Sprinkler leakage insurance: A fire policy covers damage caused by discharge of water from a sprinkler system when the operation of the system is due to fire, but not otherwise. Damage caused by a fault in the system may be covered by a sprinkler leakage policy.

Stacking: Application of the limits of more than one policy to a claim or loss. Some courts have required stacking of limits when multiple policies cover an accident or occurrence.

Standard risk: A person who, according to a company's underwriting standards, is entitled to insurance protection without extra rating or special restrictions.

Stated value policy: A policy of property insurance which states the maximum amount the insurer will pay in case of loss.

Statute of limitations: The time limit set by law within which a person must bring legal action on a claim.

Stock insurer: A corporation owned by stockholders who participate in the profits and losses of the insurer.

Subrogation: When the insurer pays the insured for a loss, the insurer takes over the insured's right to collect damages from the other party responsible for the loss. Subrogation upholds the principle of indemnity by preventing the insured from collecting twice for a given accident.

Substandard risk: A risk that does not measure up to the company's underwriting requirements.

Suicide provision: Most life policies provide that if the insured commits suicide within a specified period, usually two years, after the date of issue, the company's liability will be limited to a return of premiums paid.

Surety: In bonds, this means the company which provides the bond is guaranteeing the behavior of the principal.

Surety bond: A bond guaranteeing the faithful performance of a contract, or the faithful performance of a duty or trust.

Surrender: Occurs when a policy owner requests termination of his/her policy with cash value. The insurer pays the policy owner any cash value that the policy has built up.