III IC-29 key terms

A legal relationship in which the policyholder would suffer genuine financial loss, or lose a valued non-financial interest, if the insured person or property were damaged. It must exist when the policy is formed and, for life coverage, when a loss occurs.

The rule that a property or liability claim payment should restore the policyholder to roughly the same financial position as before the loss, without creating profit. Life insurance is generally treated as an exception because a human life has no measurable monetary value.

The mutual duty of applicant and insurer to deal honestly and disclose material facts that would influence the other party's decision to accept or price the risk. Breach by the applicant can allow the insurer to avoid the contract.

Information that a reasonable and prudent underwriter would treat as relevant when deciding whether to accept a risk, how to rate it, or what terms to impose. Applicants must disclose such facts, usually in response to questions asked.

A policy drafted entirely by the insurer and offered to the applicant on a take-it-or-leave-it basis, with little or no negotiation over wording. Because of this imbalance, ambiguous language is generally construed against the party that drafted it.

An agreement in which the amounts exchanged by the parties are unequal and depend on chance. The policyholder pays a modest premium while the insurer may have to pay a much larger benefit if an uncertain event occurs.

An agreement in which the insurer's duty to pay depends on the policyholder meeting stated conditions, such as timely premium payment, prompt notice of loss, and cooperation during the claims investigation. Failure to satisfy a condition can reduce or defeat recovery.

A rule of contract interpretation under which ambiguous policy wording is read against the party that drafted it, normally the insurer. It applies only when the language is genuinely capable of more than one reasonable meaning.

The voluntary giving up of a known contractual right by an insurer, such as accepting a late premium without objection. Once waived, the right may be lost, particularly where the other party relied on the insurer's conduct.

A legal bar that prevents a party from asserting a right after its earlier words or conduct led the other party to act to their detriment. In insurance it often works alongside waiver to stop an insurer denying coverage it appeared to accept.

A false or misleading statement of fact made by an applicant or insurer. If it is material and the other party relied on it, the contract may be rescinded or coverage denied, depending on the governing law and the applicant's intent.

The failure to reveal a material fact when answering application questions or otherwise communicating with the insurer. Consequences range from an adjusted premium to rescission, depending on the jurisdiction and whether the omission was innocent or deliberate.

A statement or promise in the contract that must be strictly true or performed for coverage to apply. Modern regulation often softens this rule so that only a breach increasing the risk of loss affects the claim.

A statement made by the applicant during negotiations that is believed to be true to the best of their knowledge. It generally need only be substantially correct rather than strictly exact, unlike a warranty.

The amount of each covered loss the policyholder must absorb before the insurer pays anything. Choosing a higher deductible lowers the premium because the insurer bears less of the small, frequent losses.

A property policy condition requiring the insured to carry coverage equal to a stated percentage of the property's value. If the limit falls short, the claim is reduced proportionally, penalizing underinsurance.

A valuation method that pays the cost to replace damaged property minus depreciation and minus any deductible. It reflects what the used item was worth immediately before the loss rather than the price of a new one.

A settlement basis that pays what it would cost today to buy or rebuild equivalent new property, without deducting depreciation. Policies often cap this amount at a percentage of the limit and require repair or replacement to trigger full payment.

The insurer's right, after paying a claim, to step into the policyholder's shoes and pursue the responsible third party for the loss. It supports the indemnity principle by preventing double recovery.

Damaged property that the insurer takes over after paying a total or partial loss, or the value recovered by selling it. The insurer may keep that recovery or credit it against the claim, depending on policy wording.

A loss where the property is destroyed or damaged so severely that repair is impossible or uneconomic. It may be treated as an actual total loss or a constructive total loss, with different valuation rules.

A formal, usually signed statement from the policyholder detailing the date, cause, and amount of a loss, supported by documentation. Insurers may require it within a set period as a condition of payment.

The insurer's process of verifying that a reported loss is covered, establishing its cause and value, and detecting fraud or exaggeration. It can include recorded statements, site inspection, and review of financial and medical records.

A written notice in which the insurer states that it is still investigating a claim and has not yet decided on coverage, while preserving its right to deny later. It protects the insurer from later claims that it waived a coverage defense.

The process of evaluating an applicant's risk against the insurer's acceptance standards and deciding whether to issue coverage and at what premium, terms, or exclusions. It aims to keep premiums fair across groups of similar risks.

Grouping applicants with similar expected loss characteristics so that each group pays a premium reflecting its own risk. Factors must be actuarially justified and must not rely on prohibited discriminatory criteria.

The tendency of people with higher-than-average risk to seek or retain insurance more eagerly than low-risk people. Insurers counter it through underwriting, exclusions, waiting periods, and experience-rated pricing.

The added risk that arises because insurance may change a person's behavior, making them less careful or more likely to exaggerate a claim. Underwriting and claims controls, such as deductibles and investigations, help limit it.

The amount the policyholder pays, usually monthly, quarterly, or annually, in exchange for insurance coverage. It is calculated from expected claims, operating expenses, and a margin for profit or contingencies.

Incurred losses divided by earned premiums over a period, expressed as a percentage. It shows how much of each premium dollar goes to paying claims and is a core measure of underwriting performance and pricing adequacy.

The excess of an insurer's admissible assets over its required liabilities and capital, which regulators use to confirm it can meet obligations. Falling below the required level can trigger supervisory intervention.

Insurance bought by an insurer to transfer part of its risk to another insurer. It protects solvency against large or catastrophic claims and lets the primary insurer write more business than its own capital would otherwise allow.

The portion of risk an insurer keeps for its own account rather than ceding to a reinsurer. Setting retention balances the cost of reinsurance against the protection it provides.

A window after a premium due date, commonly 30 or 31 days in life insurance, during which the policy stays in force even though payment is late. If the insured dies in that window, the overdue premium is usually deducted from the benefit.

A life insurance provision barring the insurer from contesting the policy, for example over misrepresentation, after it has been in force for a set period, usually two years from issue. It gives beneficiaries long-term certainty.

Choices available when a policyholder stops paying premiums on a cash-value life policy, such as taking reduced paid-up coverage, extended term insurance, or the surrender value. They preserve value already built up.

The savings component that builds inside permanent life policies and belongs to the policyholder if the policy is surrendered. It can also serve as collateral for a policy loan and is distinct from the death benefit.

The person or entity named to receive the death benefit. A primary beneficiary is paid first, while a contingent beneficiary takes the proceeds only if the primary one dies before the insured.

A health plan rule that determines the order in which two or more plans pay when a person is covered by more than one. It prevents duplicate payment by ensuring total benefits do not exceed the actual expense.

A medical condition diagnosed or treated before a health policy's effective date. Insurers may limit or exclude coverage for it, subject to statutory limits on look-back periods and exclusion durations.

A specified time after the policy starts, or after a disabling event, during which benefits are not payable. It reduces claims for short-lived conditions and helps control adverse selection.