SALVAGE - Damaged property an insurer takes over to reduce its loss after paying a claim. Insurers receive salvage rights over property on which they have paid claims, such as badly-damaged cars. Insurers that paid claims on cargoes lost at sea now have the right to recover sunken treasures. Salvage charges are the costs associated with recovering that property.
SCHEDULE - A list of individual items or groups of items that are covered under one policy or a listing of specific benefits, charges, credits, assets or other defined items.
SECONDARY MARKET - Market for previously issued and outstanding securities.
SECTION 1035 EXCHANGE* - In the United States, a taxfree replacement of an insurance policy for another insurance contract covering the same person that is performed in accordance with the conditions of Section 1035 of the Internal Revenue Code.
SECTION 415* - A section of the Internal Revenue Code that provides for dollar limitations on benefits and contributions under qualified retirement plans. Section 415 also requires that the Internal Revenue Service annually adjust these limits for cost-of-living increases.
SECURITIES AND EXCHANGE COMMISSION / SEC - The organization that oversees publicly-held insurance companies. Those companies make periodic financial disclosures to the SEC, including an annual financial statement (or 10K), and a quarterly financial statement (or 10-Q). Companies must also disclose any material events and other information about their stock.
SECURITIES OUTSTANDING - Stock held by shareholders.
SECURITIZATION OF INSURANCE RISK - Using the capital markets to expand and diversify the assumption of insurance risk. The issuance of bonds or notes to third-party investors directly or indirectly by an insurance or reinsurance company or a pooling entity as a means of raising money to cover risks. (See Catastrophe bonds) )
SEGREGATED ACCOUNT* - In Canada, an investment account that insurers maintain separately from a general account to help manage the funds placed in variable insurance products such as variable annuities. (See Separate account )
SELF-INSURANCE - The concept of assuming a financial risk oneself, instead of paying an insurance company to take it on. Every policyholder is a self-insurer in terms of paying a deductible and co-payments. Large firms often self-insure frequent, small losses such as damage to their fleet of vehicles or minor workplace injuries. However, to protect injured employees state laws set out requirements for the assumption of workers compensation programs. Self-insurance also refers to employers who assume all or part of the responsibility for paying the health insurance claims of their employees. Firms that self insure for health claims are exempt from state insurance laws mandating the illnesses that group health insurers must cover.
SEPARATE ACCOUNT* - In the United States, an investment account maintained separately from an insurer‘s general account to help manage the funds placed in variable insurance products such as variable annuities. Contrast with general account. (See Segregated account )
SETTLEMENT OPTIONS* - Choices given to the owner or beneficiary of a life insurance policy regarding the method by which the insurer will pay the policy‘s proceeds when the policy owner does not receive the benefits in one single payment. Typically, the owner can elect (1) to leave the proceeds with the insurer and earn a specified interest rate, (2) to have the proceeds paid in a series of installments for a pre-selected period, (3) to have the proceeds paid in a pre-selected sum in a series of installments for as long as the proceeds last, or (4) to have the insurer tie payment of the proceeds to the life expectancy of a named individual through a life annuity. Also known as optional modes of settlement. (See Life annuity )
SEVERITY - Size of a loss. One of the criteria used in calculating premiums rates.
SEWER BACK-UP COVERAGE - An optional part of homeowners insurance that covers sewers.
SHARED MARKET - See Residual market
SHORT-TERM DISABILITY INCOME INSURANCE* - A type of disability income coverage that provides disability income benefits for a maximum benefit period of from one to five years. Contrast with long-term disability income insurance.
SINGLE PREMIUM ANNUITY - An annuity that is paid in full upon purchase.
SINGLE PREMIUM POLICIES* - A type of life insurance or annuity contract that is purchased by the payment of one lump sum. (1) A single-premium deferred annuity (SPDA) is an annuity contract purchased with a single premium payment whose periodic income payments generally do not begin until several years in the future. (2) A single premium immediate annuity (SPIA) contract is an annuity contract that is purchased with a single premium payment and that will begin making periodic income payments one annuity period after the contract‘s issue date.
SOFT MARKET - An environment where insurance is plentiful and sold at a lower cost, also known as a buyers‘ market. (See Property/casualty insurance cycle )
SOLVENCY - Insurance companies‘ ability to pay the claims of policyholders. Regulations to promote solvency include minimum capital and surplus requirements, statutory accounting conventions, limits to insurance company investment and corporate activities, financial ratio tests, and financial data disclosure.
SPECIFIED DISEASE COVERAGE* - A type of health insurance coverage that provides benefits for the diagnosis and treatment of a specifically named disease or diseases, such as cancer. Also known as dread disease coverage. Contrast with critical illness (CI) insurance.
SPENDTHRIFT TRUST CLAUSE* - Life insurance provision that protects policy payouts from the beneficiary‘s creditors.
SPLIT-DOLLAR LIFE INSURANCE PLAN* - An agreement under which a business provides individual life insurance policies for certain employees, who share in paying the cost of the policies.
SPREAD OF RISK - The selling of insurance in multiple areas to multiple policyholders to minimize the danger that all policyholders will have losses at the same time. Companies are more likely to insure perils that offer a good spread of risk. Flood insurance is an example of a poor spread of risk because the people most likely to buy it are the people close to rivers and other bodies of water that flood. (See Adverse selection )
STACKING - Practice that increases the money available to pay auto liability claims. In states where this practice is permitted by law, courts may allow policyholders who have several cars insured under a single policy, or multiple vehicles insured under different policies, to add up the limit of liability available for each vehicle.
STANDARD RISK CLASS* - In insurance underwriting, the group of proposed insureds who represent average risk within the context of the insurer‘s underwriting practices and therefore pay average premiums in relation to others of similar insurability. Contrast with declined risk class, preferred risk class and substandard risk class.
STATUTORY ACCOUNTING PRINCIPLES / SAP - More conservative standards than under GAAP accounting rules, they are imposed by state laws that emphasize the present solvency of insurance companies. SAP helps ensure that the company will have sufficient funds readily available to meet all anticipated insurance obligations by recognizing liabilities earlier or at a higher value than GAAP and assets later or at a lower value. For example, SAP requires that selling expenses be recorded immediately rather than amortized over the life of the policy. (See GAAP accounting, Admitted assets )
STOCK INSURANCE COMPANY - An insurance company owned by its stockholders who share in profits through earnings distributions and increases in stock value.
STRAIGHT LIFE ANNUITY* - A type of life annuity contract that provides periodic income payments for as long as the annuitant lives but provides no benefit payments after the annuitant‘s death. (See Life annuity )
STRUCTURED SETTLEMENT - Legal agreement to pay a designated person, usually someone who has been injured, a specified sum of money in periodic payments, usually for his or her lifetime, instead of in a single lump sum payment. (See Annuity )
SUBROGATION - The legal process by which an insurance company, after paying a loss, seeks to recover the amount of the loss from another party who is legally liable for it.
SUBSTANDARD PREMIUM RATES* - The premium rates charged insureds who are classified as substandard risks. Also known as special class rates.
SUBSTANDARD RISK CLASS* - In insurance underwriting, the group of proposed insureds who represent a significantly greater-than-average likelihood of loss within the context of the insurer‘s underwriting practices. Also known as special class risk. Contrast with declined risk class, preferred risk class and standard risk class.
SUICIDE EXCLUSION PROVISION* - A life insurance policy provision stating that policy proceeds will not be paid if the insured dies as the result of suicide as defined within the policy within a specified period following the date of policy issue.
SUPERFUND - A federal law enacted in 1980 to initiate cleanup of the nation‘s abandoned hazardous waste dump sites and to respond to accidents that release hazardous substances into the environment. The law is officially called the Comprehensive Environmental Response, Compensation, and Liability Act.
SUPPLEMENTAL COVERAGE* - An amount of coverage that adds to the amount of coverage specified in a basic insurance policy.
SURETY BOND - A contract guaranteeing the performance of a specific obligation. Simply put, it is a three-party agreement under which one party, the surety company, answers to a second party, the owner, creditor or "obligee," for a third party‘s debts, default or nonperformance. Contractors are often required to purchase surety bonds if they are working on public projects. The surety company becomes responsible for carrying out the work or paying for the loss up to the bond "penalty" if the contractor fails to perform.
SURPLUS - The remainder after an insurer‘s liabilities are subtracted from its assets. The financial cushion that protects policyholders in case of unexpectedly high claims. (See Capital, Risk-based capital )
SURPLUS LINES - Property/casualty insurance coverage that isn‘t available from insurers licensed in the state, called admitted companies, and must be purchased from a non-admitted carrier. Examples include risks of an unusual nature that require greater flexibility in policy terms and conditions than exist in standard forms or where the highest rates allowed by state regulators are considered inadequate by admitted companies. Laws governing surplus lines vary by state.
SURRENDER CHARGE - A charge for withdrawals from an annuity contract before a designated surrender charge period, usually from five to seven years.
SURRENDER COST COMPARISON INDEX* - A cost comparison index, used to compare insurance policies, which takes into account the time value of money and measures the cost of a policy over a 10- or 20-year period assuming the policy owner surrenders the policy for its cash value at the end of the period. Contrast with net payment cost comparison index.
SWAPS - The simultaneous buying, selling or exchange of one security for another among investors to change maturities in a bond portfolio, for example, or because investment goals have changed.
These plans are otherwise known as a "cafeteria plan" offered pursuant to Section 125 of the Internal Revenue Code. Its name comes from a set of benefit plans that allows employees to choose between different types of benefits, similar to the ability of a customer to choose among available items in a cafeteria, and the employees' pretax contributions are not subject to federal, state, or Social Security taxes.
The employer assumes the financial responsibility of health care benefits for its employees in a self-insured or self-funded plan. Employer sponsored self-insured plans typically contract with a third-party administrator to provide administrative services for the plan.
The health reform law includes a tax credit equal to 50 percent (35 percent in the case of tax-exempt eligible small employers) for qualified small employers that provide health coverage to their employees. The tax credit is available to employers with 25 or fewer employees with average annual wages of less than $50,000.
Businesses with typically 2-50 employees, or eligible employees depending on applicable state law, can purchase health insurance for their employees through this market, which is regulated by states.