Insurance
A contract (policy) in which an individual or entity receives financial protection or reimbursement against losses from an insurance company. The company pools clients' risks to make payments more affordable for the insured.
When shopping around for an insurance policy, look for the best priced package that is right for you - prices can vary from one insurance company to the next. And make sure you know what you want. Some individuals, for example, prefer 24-hour claims service or face-to-face contact with an insurance representative. Also consider the claims settlement process, the amount of the deductible and the extent of the replacement coverage. Insurance companies and the policies they offer are not all the same, so think about more than just the price.
Insurance Bond
An investment instrument that is offered by life insurance companies. The investment is provided in the form of a single premium life insurance policy. These bonds are often used as investments in the U.K. and other countries. Insurance Bond is also known as an "investment bond".
Insurance bonds are very simple investments that allow investors to save for the long term. Investors who hold their bonds for more than 10 years without making any withdrawals in that time are able to receive their earnings tax free.
Insurance Claim
A formal request to an insurance company asking for a payment based on the terms of the insurance policy. Insurance claims are reviewed by the company for their validity and then paid out to the insured or requesting party (on behalf of the insured) once approved.
Insurance claims cover everything from death benefits on life insurance policies to routine health exams at your local doctor. In many cases, claims are filed by third parties on behalf of the insured person, but usually only the person(s) listed on the policy is entitled to claims payment.
Insurance Derivative
A financial instrument that derives its value from an underlying insurance index or the characteristics of an event related to insurance. Insurance derivatives are useful for insurance companies that want to hedge their exposure to catastrophic losses due to exceptional events, such as earthquakes or hurricanes.
Unlike financial derivatives, which typically use marketable securities as their underlying assets, insurance derivatives base their value on a predetermined insurance-related statistic. For example, an insurance derivative could offer a cash payout to its owner if a specific index of hurricane losses reached a target level. This would protect an insurance company from catastrophic losses if an exceptional hurricane caused unforeseen amounts of damage.
Insurance Score
A rating computed and used by insurance companies that represents the probability of a client filing an insurance claim during his or her coverage. The score is based on the client's credit rating and will impact the premiums he or she pays for the insurance coverage - a higher score will result in lower premiums, and vice versa.
Individual insurance scores are based on credit ratings because historical data reveals a positive correlation between poor credit ratings and insurance claims. A perfect insurance score represents a client with the lowest risk of filing a claim. Very few people have perfect scores; however, it is possible to have a very good score.
Insurance Trust
An irrevocable trust set up with a life insurance policy as the asset, allowing the granter of the policy to exempt asset away from his or her taxable estate.
Once the life insurance policy is placed in the trust, the insured person no longer owns the policy, which will be managed by the trustee on behalf of the policy beneficiaries when the insured person dies.
The insurance trust, or irrevocable life insurance trust (ILIT), is often used to set aside cash proceeds that can be used to pay estate taxes, as the life insurance policy should be exempt from the taxable estate of the decedent.
One catch on the insurance trust is that the life insurance policy must be transferred to the trust at least three years before the death of the insured. To get around this rule, a new policy can be taken out with a spouse as owner, then placed in the trust.
As an irrevocable trust, changes can only be made by beneficiaries; the owner gives up all control to the trustee. If the size of the taxable estate is below the maximum exclusion figure, it is generally not necessary to set up an insurance trust; in this case the life insurance will be included in the decedent’s taxable estate.
Insurance Underwriter
A financial professional that evaluates the risks of insuring a particular person or asset and uses that information to set premium pricing for insurance policies. Insurance underwriters are employed by insurance companies to help price life insurance, health insurance, property/casualty insurance and homeowners insurance, among others.
Underwriters use computer programs and actuarial data to determine the likelihood and magnitude of a payout over the life of the policy. Higher-risk individuals and assets will have to pay more in premiums to receive the same level of protection as a (perceived) lower-risk person or asset.
Insurance underwriting is big business – just ask Warren Buffett, who for years has used insurance and reinsurance premiums to fund his investments at Berkshire Hathaway.
Insurance companies walk a tightrope between being too aggressive or too conservative in their underwriting duties. If they are too aggressive, greater-than-expected claims could cut into company earnings; if they are too conservative, they will be outpriced by the competition and lose business.
Insured Bond
A bond with interest and principle payments insured by a third party. Insured bonds are usually found as a feature of municipal bonds; they are purchased, underwritten and repackaged by a financial guarantee company who then sells the issue to investors.
Insured bonds have higher credit ratings than bonds that are uninsured. The premium cost paid to the financial guarantee firm is passed along through lower coupon yields in the final issue.
Among the largest guarantee companies are Ambac Financial Group and MBIA, which underwrite thousands of municipal issues every year and have extremely high credit ratings. Very few default cases over the past 20 years have made insuring bonds a relatively inexpensive option for bond issuers.
An insured bond will be clearly noted in its description on most quote systems, such as the Bloomberg Terminal.
A contract (policy) in which an individual or entity receives financial protection or reimbursement against losses from an insurance company. The company pools clients' risks to make payments more affordable for the insured.
When shopping around for an insurance policy, look for the best priced package that is right for you - prices can vary from one insurance company to the next. And make sure you know what you want. Some individuals, for example, prefer 24-hour claims service or face-to-face contact with an insurance representative. Also consider the claims settlement process, the amount of the deductible and the extent of the replacement coverage. Insurance companies and the policies they offer are not all the same, so think about more than just the price.
Insurance Bond
An investment instrument that is offered by life insurance companies. The investment is provided in the form of a single premium life insurance policy. These bonds are often used as investments in the U.K. and other countries. Insurance Bond is also known as an "investment bond".
Insurance bonds are very simple investments that allow investors to save for the long term. Investors who hold their bonds for more than 10 years without making any withdrawals in that time are able to receive their earnings tax free.
Insurance Claim
A formal request to an insurance company asking for a payment based on the terms of the insurance policy. Insurance claims are reviewed by the company for their validity and then paid out to the insured or requesting party (on behalf of the insured) once approved.
Insurance claims cover everything from death benefits on life insurance policies to routine health exams at your local doctor. In many cases, claims are filed by third parties on behalf of the insured person, but usually only the person(s) listed on the policy is entitled to claims payment.
Insurance Derivative
A financial instrument that derives its value from an underlying insurance index or the characteristics of an event related to insurance. Insurance derivatives are useful for insurance companies that want to hedge their exposure to catastrophic losses due to exceptional events, such as earthquakes or hurricanes.
Unlike financial derivatives, which typically use marketable securities as their underlying assets, insurance derivatives base their value on a predetermined insurance-related statistic. For example, an insurance derivative could offer a cash payout to its owner if a specific index of hurricane losses reached a target level. This would protect an insurance company from catastrophic losses if an exceptional hurricane caused unforeseen amounts of damage.
Insurance Score
A rating computed and used by insurance companies that represents the probability of a client filing an insurance claim during his or her coverage. The score is based on the client's credit rating and will impact the premiums he or she pays for the insurance coverage - a higher score will result in lower premiums, and vice versa.
Individual insurance scores are based on credit ratings because historical data reveals a positive correlation between poor credit ratings and insurance claims. A perfect insurance score represents a client with the lowest risk of filing a claim. Very few people have perfect scores; however, it is possible to have a very good score.
Insurance Trust
An irrevocable trust set up with a life insurance policy as the asset, allowing the granter of the policy to exempt asset away from his or her taxable estate.
Once the life insurance policy is placed in the trust, the insured person no longer owns the policy, which will be managed by the trustee on behalf of the policy beneficiaries when the insured person dies.
The insurance trust, or irrevocable life insurance trust (ILIT), is often used to set aside cash proceeds that can be used to pay estate taxes, as the life insurance policy should be exempt from the taxable estate of the decedent.
One catch on the insurance trust is that the life insurance policy must be transferred to the trust at least three years before the death of the insured. To get around this rule, a new policy can be taken out with a spouse as owner, then placed in the trust.
As an irrevocable trust, changes can only be made by beneficiaries; the owner gives up all control to the trustee. If the size of the taxable estate is below the maximum exclusion figure, it is generally not necessary to set up an insurance trust; in this case the life insurance will be included in the decedent’s taxable estate.
Insurance Underwriter
A financial professional that evaluates the risks of insuring a particular person or asset and uses that information to set premium pricing for insurance policies. Insurance underwriters are employed by insurance companies to help price life insurance, health insurance, property/casualty insurance and homeowners insurance, among others.
Underwriters use computer programs and actuarial data to determine the likelihood and magnitude of a payout over the life of the policy. Higher-risk individuals and assets will have to pay more in premiums to receive the same level of protection as a (perceived) lower-risk person or asset.
Insurance underwriting is big business – just ask Warren Buffett, who for years has used insurance and reinsurance premiums to fund his investments at Berkshire Hathaway.
Insurance companies walk a tightrope between being too aggressive or too conservative in their underwriting duties. If they are too aggressive, greater-than-expected claims could cut into company earnings; if they are too conservative, they will be outpriced by the competition and lose business.
Insured Bond
A bond with interest and principle payments insured by a third party. Insured bonds are usually found as a feature of municipal bonds; they are purchased, underwritten and repackaged by a financial guarantee company who then sells the issue to investors.
Insured bonds have higher credit ratings than bonds that are uninsured. The premium cost paid to the financial guarantee firm is passed along through lower coupon yields in the final issue.
Among the largest guarantee companies are Ambac Financial Group and MBIA, which underwrite thousands of municipal issues every year and have extremely high credit ratings. Very few default cases over the past 20 years have made insuring bonds a relatively inexpensive option for bond issuers.
An insured bond will be clearly noted in its description on most quote systems, such as the Bloomberg Terminal.
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