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Life Insurance Terms
Rates that are based on the judgment of the underwriter on an individual risk basis and
not supported by loss experience.
AD&D
See Accidental Death and Dismemberment Insurance.
ALC
American Life Convention. A former intercompany life insurer association, now merged into a new association called the American Council of Life Insurance, Inc. See American Council of Life Insurance, Inc.
ASA
Association of the Society of Actuaries. See Society of Actuaries.
Absolute Beneficiary
See Irrevocable Beneficiary
Absolute Liability
The performance of an act so dangerous as to be sufficient to trigger liability regardless of the degree of negligence i.e. triggering explosives would be an example. Sending workers aloft for construction or repair at elevated heights is another example. Strict liability is another term that is sometimes used for absolute liability.
Accelerated Endowment
A dividend option allowing dividend accumulations to be applied to convert life insurance policy into an endowment or to shorten the endowment term before the regular maturity date.
Accident
An unforeseen, unintended, and unexpected event which occurs suddenly and at a definite place. See Occurrence.
Accidental Death Benefit
An extra benefit which generally equals the face of the contract or principal sum, payable in addition to other benefits in the event of death as the result of an accident. See also Double Indemnity and Multiple Indemnity.
Accident Frequency
The rate of occurrence of accidents. Along with accident severity, it is taken into account in determining rate.
Accident Severity
The measure of the seriousness of a claim, measured in, for example, dollars. Along with frequency, it is taken into account in determining policy rates.
Measures premiums and losses relating to accidents which occurred during a 12 month period.
Accommodation Line
Normally an unacceptable risk that is written as an accommodation to an agent or broker who has an overall profitable relationship with the insurer. For example: a personal auto risk with a teenager of a sports car might be written if the other lines of insurance which is carried for the customer is profitable for the agency.
Accrued Income
Income that has been earned but not yet received. For instance, if you have a non-registered Guaranteed Investment Certificate (GIC), Mutual Fund or segregated Equity Fund, growth accrues annually or semi-annually and is taxable annually even though the gain is only paid at maturity of your investment.
Accumulated Earnings Tax
A federal tax imposed on earnings accumulated inside a corporation above specified levels. Purpose is to discourage such accumulations as a device to avoid distribution of (taxable) dividends to stockholders.
Actuary
A person highly trained in mathematics and skilled in analysis evaluates and manages statistical information. Who calculates rates and dividends for determining rates, and provides other statistical information for an insurance company.
A-Share Variable Annuity
A form of variable annuity contract where the contract holder pays sales charges up front rather than eventually having to pay a surrender charge.
Accelerated Death Benefits
A life insurance policy option that provides policy proceeds to insured individuals over their lifetimes, in the event of terminal illness. This is in lieu of a traditional policy that pays extreme medical intervention, or must reside in a nursing home. The payments made while the insured is living are deducted from any death benefits paid to beneficiaries.
Accident and Health Insurance
Coverage for accidental injury, accidental death, and related health expenses. Benefits will pay for preventative services, medical expenses, and catastrophic care, with limits.
A term used in Universal Life policies to describe the total of all premiums paid and interest credited to the account before deductions for any expenses, loans or surrenders.
Accumulations (or Accumulation Benefits)
Percentage additions to policy benefits when the contract is continuously renewed.
Acquisition Cost
The expense undertaken to acquire a new business. The concept applies to both agents and companies. The largest portion of an insurer's acquisition cost is the agents' commission or bonus paid to sales representative.
Act of God
Acts of nature - the term was once widely used to distinguish between man-made events and natural events i.e. fire, wind and floods.
Admitted Assets
Assets recognized and accepted by state insurance laws in determining the solvency of insurers and reinsurers. To make it easier to assess an insurance company's financial position, state statutory accounting rules do not permit certain assets to be included on the balance sheet. Only assets that can be easily sold in event of liquidation or borrowed against, and receivables for which payment can be reasonably anticipated, are included in admitted assets.
Additional Insured
One who qualifies as "insured" under the terms of a policy even though not named as insured. Officers of a corporation may be included as insured under the terms of a policy written in the name of a corporation.
Adjustable Life
A form of life insurance which allows changes on the policy face amount, the amount of premium, period of protection, and the length of the premium payment period. See also Flexible Premium Adjustable Life Insurance Policy.
Adjustable Premium
The right of an insurer to change the premium rate on classes of insureds, or blocks of business at the time of policy renewal.
Administrative Services Only
The services provided by an insurer, such as providing claim forms and processing claims, when the insurer is not the party funding the loss payment. Also see Self Funded Plan.
Admitted Company
An insurance company that is licensed (admitted) to conduct business within a given state.
The range of insurance available through admitted companies.
Advance Premium
Also called "deposit premium" an advance premium is a down payment on what will be the final premium, in policies where the final premium is subject to audit.
Adverse Selection
The tendency of poorer than average risks to buy and maintain insurance. Adverse selection occurs when insureds select only those coverages that are most likely to have losses.
Adverse Underwriting Decision
Any decision made by an underwriter that is not favorable to the insured. Such decisions involve termination, declination, higher rates, or reduction in coverage. Another example is placing of a risk in a residual market or with an unauthorized insurer.
Affinity Marketing
Targeting marketing efforts towards on group or category of client. Examples: Grocery Stores; All the employees of one Company; or employees of one industry. Group business is a type of affinity marketing or focusing on CPA firms is also a type of affinity marketing.
Affinity Sales
Selling insurance through groups such as professional and business associations.
Agency Company
An insurance company that produces business through an agency network. Also see, Direct Writer.
Age Change
The date on which a person's age, for insurance purposes, changes. In most Life Insurance contracts this is the date midway between the insured's natural birth dates. Health insurers frequently use the age of the previous birth date for rate determinations. On the date of age change, a person's age may change to that of the last birth date, the nearer birth date, or the next birth date, depending upon the way in which the rating structure has been established by that particular insurer.
Agency Company
Company that markets and sells products via independent agents.
Insurance is sold by two types of agents; Independent agents, who are self-employed, represent several insurance companies and are paid on commission or Exclusive or captive agents, who represent only one insurance company and are either salaried or work on commission. Insurance companies that use exclusive or captive agents are called direct writers. An agent will solicit and negotiate contracts of insurance on behalf of an insurer. His/Her right to exercise various functions, authority, and his /her obligations of insurer to the agent are subject to the terms of the agency contract with the insurer, statutory law and common law.
Agent's Appointment
The act by an insurer that grants an agent the authority to act as an agent for the insurer. In most states, agents must be licenses and appointed, prior to selling insurance.
Agent's Authority
The authority of an insurance agent to act on behalf of the insurer he or she represents. There are several types including: express authority- authority to act on specific instructions only. Implied authority- actions taken in accordance with prevailing customs. Apparent Authority- actions based on appearances created by the agent and acquiesced to by the principal.
Agency Contract
The legal agreement between an insurance agency and the insurer detailing the terms of representation.
Agents Error and Omissions Insurance
Insurance obtained by the insurance agent to guard against loss caused by an unintentional failure to properly insure (or recommend insurance to) a client.
Agent, General
See General Agent
Agent's License
A certificate of authority from the state that permits the agent to conduct business.
Agency Plant
The total force of agents representing an insurer.
Aggregate Excess Reinsurance
A type of excess reinsurance that sometimes is called stop loss or excess of loss ratio reinsurance. The retention in this type of agreement is calculated based on all losses over the period of time that is stated in the agreement. The reinsurer is responsible for the amount of losses between the retention and the limit on the policy.
The maximum amount an insurer will pay under a policy in any one policy period.
Agreed Amount Clause
An agreement between the underwriter and insured whereby, in exchange for the purchase of coverage in an amount specified by the underwriter, the insured is protected from a coinsurance penalty. Agreed value clause, though rare, some policies cover for a value agreed upon at the time of writing; if the property is lost because of an insured peril, the amount stated in the policy will be paid. Fine arts insured under a personal articles floater or homeowners scheduled personal property endorsement are examples.
Agreed Dollar Value
A business valuation method in which the parties set the price of a business interest based on what each would be willing to sell or purchase it for.
Aircraft Coverage
Though aircraft have long been an important element in the lives of most Americans, insurance of aircraft exposures has remained outside the mainstream of property and liability insurance markets. Aircraft hull and liability insurance is the counterpart of personal or commercial auto policies coverage. Aircraft products insurance is the counterpart of products liability coverage. Air cargo insurance is mirrored in motor truck cargo. Hangar Keepers liability is similar to Garage Keepers insurance. As with any specialty line of insurance, the absence of standardized forms limits practice to specialists in the line.
Alcoholic Beverage Control (ABC) Laws
See Dram Shop Laws
Aleatory Contract
A contract in which the number of dollars to be given up by each party is not equal. Not to be confused with contract of adhesion.
Alien Insurer
An insurance company formed under the laws of a country other than the one it is doing business.
Alienated Premises
Property that has been sold by an insured.
All Risks
A property policy expression now out of fashion. It was used to designate contracts that promised coverage against "all risks of direct physical loss" in contrast to forms that covered for specific name risks. The word All came to perceived as open to broader interpretation than insurers intended and it was replace with "risks of physical loss". See Named Perils and also Open Perils.
Methods other than lawsuits that are designed to resolve legal disputes outside of a court. i.e. Arbitration and Mediation.
Alternative Markets
Mechanisms used to fund self-insurance. This includes captives, which are insurers owned by one or more non-insurers to provide owners with coverage. Risk-retention groups, formed by members of similar professions or businesses obtaining liability insurance are also a form of self-insurance.
Alternative Minimum Tax
A federal tax application to both individuals and corporations. The tax reaches so-called "preference items"; items of income treated favorably by the regular income tax, but subject to abuse when accumulated in large amounts by taxpayers.
Ambiguity
A standard policy provision that proves to be ambiguous may be interpreted in the most favorable to the insured.
American Association of Insurance Services (AAIS)
An association of insurance companies providing filing and various technical services on behalf of its member companies.
Americans with Disabilities Act (ADA)
Passed by Congress in 1990, this act requires that "reasonable accommodation" be made in public accommodations, including the workplace, for those with physical and mental disability.
American College, The
An educational institute within the Life Insurance industry. It confers the Chartered Life Underwriter (CLU) designation and is concerned with continuing insurance agents training, insurance research and publications in areas related to the Life Insurance business. It sponsors specialty Life Insurance courses and offers a college degree in financial services. It was formerly know as The American College of Life Underwriters (ACLU)
American Council of Life Insurance, Inc.
An association made up of several previously independent insurance groups. It is concerned with legislative matters, inter-company communications, and the exchange of information.
American Experience Table of Mortality
A statement of expected mortality rates based on upon data accumulated in 1868 from a large number of insured persons. This table was widely used by life insurers until the 1950s to establish premiums.
A former association of Life Insurance Companies that is now part of the American Council of Life Insurance. See American Council of Life Insurance, Inc.
Amount At Risk
The difference between the face amount of a Whole Life Insurance contract and the cash value which it has built up. The net amount at risk declines throughout the life of the contract, while the policy reserve increases along with the cash value. It is the amount the insurer would have to draw from its own funds rather than the policy reserves were the contract to become a death claim.
American Lloyds
Non-incorporated associations of individual underwriters who assume specified portions of liability under each policy issued. There is no connection with Lloyd's of London.
Anniversary Date
The anniversary of the original date of issue of a policy as shown in the declaration.
Annual Payment Annuity
An annuity that was purchased by the payment of annual premiums for a specified period of time.
Annual Annuity Contract Fee
Covers the cost of administration & customer service for an owner of a variable annuity contract.
Annual Aggregate Deductible
A deductible applied annually to the total amount paid in claims during a policy period. Claims are generally subject to a per-occurrence deductible; the aggregate is the limit beyond which no further deductibles are applied.
Annual Statement
Summary of an insurer's financial operation for a particular year including their balance sheet. It is filed with the state insurance department of each jurisdiction in which the company is licensed to conduct business.
Annuitant
The person(s) who receives the income from an annuity contract. Usually the owner of the contract or his/her spouse.
A contract which provides an income for a specified period of time or over the annuitant's lifetime. An annuity is like a life insurance policy in reverse. The purchaser gives the life insurance company a lump sum of money and the life insurance company pays the purchaser a regular income, usually monthly. There are two basic types of annuities: Deferred annuities allow assets to grow tax deferred over time before being converted to payments to the annuitant or Immediate annuities that allow payments to begin within a year of purchase.
Annuity Accumulation Phase or Period
The period during which the owner of a deferred annuity makes payments to build up assets.
Annuitization
The conversion of the account balance of a deferred annuity contract to income payments.
Annuity Beneficiary
In certain types of annuities, a person who receives annuity contract payments if the annuity owner or annuitant dies while payments are still due.
Annuity Contract Owner
The person or entity that purchases an annuity and has all rights to the contract. Usually, but not always, the annuitant (the person who receives income from the contract).
Annuity Death Benefits
The guarantee that if an annuity contract owner dies before annuitization (the switchover from the savings to the payment phase) the beneficiary will receive the value of the annuity that is due.
Annuity Insurance Charges
Covers administrative and mortality and expense risk costs.
Annuity Investment Management Fee
The fee paid for the management of variable annuity invested assets.
Annuity Issuer
The insurance company that issues the annuity.
Annuity Prospectus
A legal document providing detailed information about variable annuity contract. Prospectus must be offered to each prospective buyer.
Annuity Purchase Rate
The cost of an annuity based on such factors as the age and gender of the contract owner.
Usually contained in a section of the state code entitled "Unfair Trade Practices," these provision s define the use of coercion as an unfair practice and hence, a violation of the state law.
Anti-Rebating Laws
Laws found in all but two states which prohibit an agent's refunding part of commission to an applicant as an inducement for placing insurance through the agent. California and Florida allow rebating of commissions on limited bases.
Anti-Trust Laws
Laws that prohibit companies from working as a group to set prices, supplies, or stop competition in the marketplace. The insurance industry is subject to state antitrust laws but has limited exemption from federal antitrust laws. This exemption, set out in the McCarran-Ferguson Act, permits insurers to jointly develop common insurance forms and share loss date to help them price policies.
Apparent Authority
The perceived ability of an agent to bind an insurance contract to an insurance company. If an agent or agency holds themselves out as representing a particular company it is reasonable for the public to assume that such authority is established contractually, even if it is not.
Application
A signed statement of facts made by a person applying for life insurance and then used by the insurance company to decide whether or not to issue a policy. The application becomes part of the insurance contract when the policy is issued.
Apportionment
The dividing of a loss proportionately among two or more insurers that cover the same loss.
Arbitration
Procedure in which an insurance company and the insured or a vendor agrees to settle a claim dispute by accepting a decision made by a third party.
Arbitration Clause
The clause in an insurance policy that spells out how disagreements over a claim are settled.
Armstrong Investigation
A study authorized by the New York state legislature in 1905 which reviewed the operations and practices of life insurers operating in the state. Numerous changes in policy forms
Property owned, in this case by an insurance company, including stocks, bonds, and real estate. Insurance accounting is concerned with solvency and the ability to pay claims. State insurance laws therefore require a conservative valuation of assets, prohibiting insurance companies from listing assets on their balance sheets whose values are uncertain, such as furniture, debit balances, and accounts receivable that are more than 90 days past due.
Asset-Backed Securities
Bonds that represent pools of loans of similar types, duration and interest rates. Almost any loan with regular repayments of principal & interest can be securitized, from auto loans and equipment leases to credit card receivables and mortgages.
Asset Share Value
The value of a book of business to an insurer, assuming that the business has been in force long enough to show true mortality rates. This value must be known by the insurer in order to make rates and also in order to sell the business. If assets share values do not grow properly, either the rates have been too low or expenses too high.
Assigned Risk
A risk generally not acceptable to any insurance company but for which the laws says that insurance must be acquired. Personal auto liability is one such necessary coverage. Insurance companies doing personal auto business in a state can be required to accept assignment of a portion of the state's unacceptable drivers as insureds.
Assignment
The transfer of the ownership rights of a Life Insurance policy from one person to another. The term also refers to the legal document that affects this legal transfer. An example would b e to a bank to qualify for a loan.
Association Group Insurance
Technically, group life insurance issued to an association rather than to an employer or a union.
Association of Life Insurance Council
An organization of Life company attorneys which seeks to increase knowledge in areas of the law affecting Life Insurance.
Assumed Liability
Liability assumed under contract or agreement. More commonly known as contractual liability.
Assured
A party who is a potential beneficiary of an insurance contract. The synonym "insured" is more commonly used.
A tax rule that limits an investor's tax deduction for losses in certain types of businesses to the amount of capital that the investor has at risk in the business.
Attained Age
The age an insured has reached on a given date.
Attorney-In-Fact
An individual who is given authority to execute legal documents, including bonds, or the manager of a reciprocal exchange, which is an insurance arrangement whereby risk is transferred to other members. The attorney-in-fact need not be a lawyer.
Attractive Nuisance
A condition that can attract and injure children. The occupants of land on which such a condition exists are liable for injuries to children. Examples of attractive nuisance; swimming pools, earth moving equipment, playground equipment.
Attribution Rules
A set o f tax rules that treats a stockholder as if he or she owned the stock actually held by certain family members or by certain trusts and other businesses in which he or she has an interest. Legislation under which interest, dividends, or capital gains earned on assets you transfer to your spouse will be treated as your own for tax purposes. Interest or dividends relating to property transferred to children under 18 also will be attributed back you. The exception to this rule is that capital gains relating to property transferred to children under 18 will not be attributed back to you.
Some policies (such as workers compensation) are written subject to an audit. Since workers compensation premium is based on the insured's payroll, the insurer is entitled to audit the insured's records at the end of the policy to verify that it has collected an adequate premium for the amount of payroll to which it was exposed.
Authorized Insurer
An insurer granted permission by a state to sell specific lines of insurance within that state.
Automatic Premium Loan
A provision in a Life policy authorizing the insurer to use the loan value to pay any premiums still due at the end of the grace period.
Automatic Reinsurance
This form of reinsurance, also known as Treaty Reinsurance, is one whereby an insurer must cede that portion of a risk that is above the limit established by contract, and the reinsurer must accept all risks ceded to it.
Aviation Accident Insurance
A form of insurance that protects individuals as passengers or pilots, usually on scheduled aircraft, or which covers the flight travel of the employees of a company under a master policy.
Aviation Hazard
The extra hazard of death or injury resulting from participation
in aeronautics, usually as other than a fare-paying passenger
in licensed aircraft. This generally requires an extra premium
rating or waiver of certain benefits or coverage.
A procedure for making the effective date of a policy earlier
than the application date. Backdating is often used to make the
age of the consumer at policy issue lower than it actually was
in order to get a lower premium
Back to Back Annuity
This term refers to the simultaneous issue of a life annuity
with a non-guaranteed period and a guaranteed life insurance policy
(usually whole life to term to age 100). The face value of the
life insurance would be the same amount that was used to purchase
the annuity. This combination of life annuity providing the highest
payout of all types of annuities, along with a guaranteed life
insurance policy allowed an uninsurable person to convert his/her
RRSP into the best choice of annuity and guarantee that upon his/her
death, the full value of the annuity would be paid tax free though
the life insurance policy to his family members. However, in the
early 1990's, the Federal Tax authorities put a stop to the issuing
of standard life rates to rated or uninsurable applicants. Insuring
a life annuity in this manner is still an excellent way to provide
guaranteed tax free funds to family members but the application
for the annuity and the application for the life insurance are
separate transactions and today, most likely conducted through
two different insurance companies so that there is no suspicion
of preferential treatment given to the life insurance application.
Bad Boy Clauses
Clauses in a planned executive compensation or nonqualified incentive
program has conditions (bad boy clauses) that deal with requirements
and prohibitions on the employee to relieve the employer from
paying benefits (sometimes funded by Life Insurance) in the event
the employee violates the employer's trust or policies. i.e. A
so-called noncompetitive clause, in which the employee is not
to engage in any business activity during employment or retirement
that would be deemed competition with the employer. Violation
would result in forfeiture of benefits from that date on.
One who is charged with the care of the property of another.
For example, a garage is bailee of a customer's (bailor's) car
(the bailment) and a jeweler is a bailee of customers jewelry
while in for repair.
Bailee Customers Insurance
Insurance designed to reimburse a bailee's customers for loss
without regard to liability.
Bailees Floater
A Bailee's interest in personal property of others.
Bailees Liability Insurance
Insurance covering damage negligently caused by a bailee or employee
to goods left in their care.
Bailment
The act of delivering property in trust to another for a limited
time and specific purpose.
Bailor
The person delivering property to another in trust.
A financial snapshot of a company's assets, liabilities and net
worth at a particular point in time.
Bankers Blanket Bond
A bond designed to indemnify for loss of money, securities, etc.,
caused by: dishonesty of employees; robbery or theft from the
premises, robbery or theft while the insured property is in transit.
Bank Loan Plan
See Financed Insurance
Beneficiary
This is a person who benefits from the terms of a trust, a will,
an annuity or a life insurance policy. A person may become eligible
to receive benefits under an insurance policy other than a participant.
See also Irrevocable Beneficiary, Revocable Beneficiary, Primary
Beneficiary, Secondary Beneficiary, Tertiary Beneficiary, and
Contingent Beneficiary.
Bench Error
A mistaken in the production process of a product that causes
a loss. Such losses are usually covered.
BI
A shorthand expression for "bodily injury"
Bid Bond
Guarantees an owner, the oblige that the accepted contractor
will actually undertake the work and the contractor will furnish
performance, payment, and perhaps, maintenance bonds - or that
the contractor will pay the owner the difference between the amount
of the contractor's accepted bid and the bid of another contractor
who has be called in to complete the project.
An insurer's agreement by wan an agent to provide non-life insurance
on the spot, pending issuance of the policy contract.
Binding Authority
The authority extended to an agent by an insurer to provide insurance,
usually on a temporary basis, until a policy can be written.
Blackout Period
The period of time during which a surviving spouse no longer
receives survivors benefits (after the youngest child is no longer
eligible) and before he or she is eligible for retirement benefits.
Blanket Bond
An employee dishonesty or fidelity bond covering all persons
of a group or class, as opposed to bonds naming specific individuals
(name schedule) or positions (position schedule).
Blanket Coverage
A means of insuring various items of property under on limit
liability.
Blanket Insurance
Insurance covering multiple items of property as a group. Covered
property may be at one location or several.
Bobtailing
Trucking term that means the driving of the tractor portion of
a semi after the trailer has been delivered and removed. A special
trucking endorsement, Truckers Insurance for Non-Trucking Use,
may be necessary when bobtailing.
Bodily Injury
A term that refers to physical injury, sickness, or disease,
or death resulting there from. In some jurisdictions, "bodily
injury" includes emotional injury.
Legal Obligation that flows from the injury or death of another
person. This insurance is commonly limited to bodily injury liability
derived by way of negligence, but coverage of liability by way
of contract (holding another harmless) is also possible.
Bond
A document for expressing surety. A bond engages three entities;
the surety bonding company sells the bond to the principal for
the purpose of paying the amount the principal will owe to the
oblige upon failure of the principal to perform some act or provide
some service under agreed terms.
Bond Fidelity
A bond that guarantees the principal's honesty.
Bond Surety
A surety bond is the financial assumption of responsibility by
one or more persons for fulfilling another's obligation.
Book of Business
The accounts written by an agent or company. It can be expressed
in a number of ways such as total book of business, book of auto
business i.e. homeowners business, etc.
Book Value
The value at which an asset is carried on the financial statements
of a business; usually, original cost less depreciation (if any).
In business valuation, the net worth of the business, or the difference
between the firm's assets and its liabilities.
Book Value With Capitalized Goodwill
In business valuation, the book value plus a dollar value for
goodwill.
BOP
Business Owners Policy.
A written schedule of insured's, premiums, and losses submitted
to reinsurers under certain types of reinsurance agreements.
Bottom Line
This refers to business income & is the result of subtracting
all the costs of doing business (including taxes) from all the
income the business generated, the result being called net profit,
also known as net income.
Boycott
Another practice defined as unfair under most state codes. Such
a practice which occurs when someone in the insurance business
refuses to do business with someone else until that person complies
with certain conditions or concessions.
Broker
One who represents the insured in arranging insurance. A broker
may also serve as the agent of an insurance company. Typically,
a broker does not have a binding authority.
Business Income Coverage
Insurance protecting the income derived from an insured's business
activities when curtailed by a covered peril. Coverage includes
reasonable extra expense the insured undertakes to expedite return
to business operations.
Business Income, dependent properties
Covering loss to an insured when the operations of a key supplier,
customer, or leader property on which the insured's operation
are dependent, is shut down by a covered peril. Also referred
to as contingent business income.
A term relating to contents of a commercial enterprise. It may
include furniture, fixtures, machinery and equipment as well as
stock, all other chattels owned by the insured, and even use interest
in building improvements and betterments.
Business Owners Policy (BOP)
A package of property and liability insurance for small and medium
size businesses, the BOP owes its origin to the success of the
homeowners policy.
Buy Back Deductible
A deductible that may be eliminated for an additional premium
in order to provide first-dollar coverage.
Buy Sell Agreement
A legal contract in which one party agrees to sell, and the other
agrees to buy an interest in a business upon the occurrence of
specified events. An agreement among part-owners of a business
which says that under stated conditions, i.e., disability or death,
the person withdrawing from the business or his heirs are legally
obligated to sell their interest to the remaining part-owners,
and the remaining part-owners are legally obligated to buy a
price fixed in the agreement, such as a key employee. Life insurance,
critical illness coverage, and disability insurance are major
considerations to help fund this type of agreement and ease the
transition.
Buy-Sell Agreement: Advantages to Business
" The agreement provides evidence to customers, creditors and
banks that this is an on-going business and it will continue to
be, even if the owner should unexpectedly die. " The business
gains by retention of key employee. This happens because the employee,
through the promise of future ownership. Will feel greater loyalty
to the firm. And this question of loyalty can easily spread through
other employees, who see that even if the present owner dies, the
company will continue (in familiar hands) and they will not be forced
to seek other employment due to a closing down of operations.
Buy-Sell Agreement and Retirement
Business owners may desire to work until they die but certainly
not all do. Some may be physically unable to continue; others
may simply wish to retire and enjoy life without further work.
If this is a possibility, provisions to effect a lifetime sale
of business can be included at the end of this a formal Buy-Sell
Agreement. It is highly recommended that such documents must be
drawn up by a qualified attorney.
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