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Lost in the terminology insurance companies use? Our quick-reference insurance glossary provides easy-to-understand definitions and examples of the terms insurance professionals use.

Death Benefit

The Death Benefit is the amount paid to the beneficiaries in case the annuitant or the insured person dies.

For life insurance policies, this is basically the face amount of the insurance policy, plus additional riders or coverage that may apply. For example, Sam has a life insurance policy with a face amount of $50,000 and an accidental death rider. If Sam dies because of sickness, the beneficiaries will get $50,000. However, if Sam dies because of an accident, the death benefit will also pay an amount equal to the face amount. The beneficiaries will receive $100,000 in death benefits.

For annuity contracts, the death benefit is the money the beneficiaries will receive if the annuity owner dies before the annuity date and before the annuity payments begin.


The Declaration contains the policy's important information. This includes the policyholder's name and address, as well as the risk being insured. It also states the period when the policy is in force, as well as the premiums that are to be paid. For property insurance, the declaration will also describe the property in detail.

When receiving your insurance policy, it is important for you to check the declaration to ensure that there are no mistakes as to the coverage of your policy. It is important that the details are correct, or else there will be problems when it comes to claiming for the benefits.

Declined Risk Class

The Declined Risk Class refers to a group of people who are declined insurance coverage.

This group who applied for insurance has risks (anticipated extra mortality or impairments) that are such so that the insurance company is not able to cover their risks at affordable premiums. This kind of risk is called an uninsurable risk, since it present a high risk of the insurance company paying a large amount of claims. This means that the risk is inevitable.

There is usually only a small percentage of insurance applicants who fall under the declined risk class. Insurance companies, as a rule, try to offer some amount of affordable insurance to as many people.

Decreasing Term Life Insurance

Decreasing Term Life Insurance is the kind of insurance where, as time passes, the coverage becomes smaller and smaller. Although the premiums remain the same, the face amount decreases every year.

This is usually cheaper than other kinds of term life insurance. However, as you get older (and start to need more insurance) it becomes more expensive for you to add to your life insurance. And, if you outlive the coverage period, that means that your beneficiaries stands to receive nothing.

Decreasing Term Life Insurance only offers a temporary protection. This kind of insurance is usually taken for cases such as when you would like to secure payments for your mortgage. Your balance will naturally decrease as you make your regular payments.


The Deductible refers to the portion of the loss that is to be paid by the policyholder.

This comes either as a monetary amount or a period of time. The policyholder will have to pay a percentage of the benefit payment or as a specified amount. It can also be a waiting time before the insurance company will start paying the benefits.

For example, John has an auto insurance policy, with a $500 deductible. If John meets an accident and the damage amounts to $700, John would have to pay the $500 before the $200 is paid by the insurance company.

The deductible is the insurance company's way of keeping premiums affordable. It also keeps the insurance company from paying small claims for minor damages. The higher the deductible, the lower the premiums.

Deferred Annuity

A Deferred Annuity is a kind of annuity contract that makes income payments or a lump sum at the time when the annuitant specifies (like at the time of a person's retirement). It provides a time for the annuitant to save up by making deposits to the fund (called a savings phase). The time when the payments are due is called the income phase.

The annuity generally does not allow withdrawals. However, if you still want to make a withdrawal, it may be subject to a very heavy penalty, in addition to the income taxes you would normally pay.

Deferred annuities can either be fixed or variable. They are also called an investment annuity.

Defined Benefit Plan

A Defined Benefit Plan provides a schedule of benefits that are to be received by an employee when he retires.

This plan is a kind of retirement plan sponsored by employers. The benefit amount is usually computed based on the number of year the employee served the company multiplied by a certain percentage. Other factors that come into play include the age when the employee retires, as well as the employee's average salary before retirement.

The benefits may either be paid as a lump sum or as monthly payments for the retired employee's lifetime. There are also some plans that pay the beneficiaries death benefits.

These payments really depend on the company or the employer.

Defined Contribution Plan

A Defined Contribution Plan is a type of employer-sponsored plan that outlines the benefits and responsibilities of the employer and employee. It is a plan where both the employer and the employee make contributions. Usually, the employer makes payments equal the contributions of the employee, depending on a stated limit. This is essentially a pension or retirement plan.

Withdrawals are highly discouraged, so that to withdraw would mean having to put up with a considerable penalty.

The employer is in charge of collecting and investing the funds of the defined contribution plan. Companies may have a plan administrator. This can be done by having a full department to administer the plan or by outsourcing the administration to a company that are experienced in making investments.

Demand Deposit

A Demand Deposit refers to funds in bank accounts that the depositor can make and withdraw at his discretion. The most common examples of this would be savings or checking accounts, where depositors can issue checks or make withdrawals even right after a deposit is posted. Demand deposits are among the most popular savings vehicles and make up a considerable portion of the money supply of a country.

The depositor can withdraw by check as long as there are sufficient funds in his account. There is no need to make previous arrangements or preparation with the bank or institution.

The Demand Deposit can be contrasted with a term deposit, where access to the funds is restricted.


Demutualization is the process that coverts a mutual company into a shareholder owned company.

A mutually owned company is owned and controlled by a small number of investors. When the company has grown to a sufficient size such that it wants to expand, the company can decide to issue shares of stock.

To start the demutualization, the company can make an IPO or an initial public offering. Here, stocks are offered through the stock market. People can buy shares of the stock and this gives them the right to become the company's part owners.

Demutualization can take years or can be finished in a short period of time.

Depository Institution

A depository institution is a financial institution that the government has given the legal right to accept money deposits from their customers. These include banks, credit unions, thrift institutions, building societies and other groups that can accept savings and that will pay a certain interest rate. This is sometimes a fixed or a variable interest.

The depository institution can solicit deposits such as time deposits and demand deposits.

In the United States, the depository institutions fall under the regulation of the FDIC or the Federal Deposit Insurance Corporation. Depository Institutions are also required to put a specified portion of their deposits in reserves.


Deregulation, in the insurance industry, refers to the decrease of government control. This includes aspects such as how the insurance companies set their prices, as well as what products are sold and the forms used. For commercial insurance, deregulation has already been instated in some states.

Deregulation allows insurance companies with more leeway and freedom that allows them to compete with each other. This means that companies from different industries and sectors can work together to provide competitive products and services. It is still widely debated whether deregulation is helpful or harmful to the economy.

It must be noted, though, that although there is deregulation, the rules and regulations of the state insurance code are still enforced.


Derivatives are financial tools or instruments that get their value from a financial asset such as a good stock, foreign currencies or publicly traded securities. Instead of exchanging or trading the financial asset, the traders agree with each other to exchange cash based on that asset or for an agreement to buy or sell the asset as some future date that they specify.

Some examples of derivatives are:

  • Exchange-traded derivatives are traded through an exchange.
  • Over-the-counter derivatives, which are privately traded without using an intermediary or an exchange. These include swaps and forward contracts.

These cover weather derivatives, commodity derivatives, credit derivatives, interest rate derivatives, foreign exchange derivatives and equity derivatives. Derivatives are usually used to speculate and to hedge risk.

Difference in Conditions

Difference in Conditions in a policy provides protection for instances that are mostly not covered by the commercial property insurance of a business. The policy is tailor-made to fit the needs of the insured. This includes coverage for loss incurred because of flood collapses, subsidence strikes and earthquakes. This covers damage to merchandise, inventory, the physical structure, as well as machinery.

These policies usually do not include risks such as vandalism, boiler and machinery losses, fire, employee dishonesty and theft and sprinkler leakage, since these are usually covered in a primary property insurance policy.

This is also called a secondary insurance cover and is bought by a renter or a tenant to protect against risks not covered by the first insurance policy.

Diminution of Value

Diminution of value means that the financial worth of something is diminished due to damage.

Also called diminished value, this refers to property, vehicles and other financial investments that lose their value. The amount of the diminished value is dependent on the level of damage.

For example, a car can have diminution of value based on a problem that was inherent in the car (when it was manufactured and not directly caused by any accident) or based on the repairs made after damaged caused by an accident.

For auto insurance, diminution of value can be claimed when it was the other person who was at fault in the accident. This will be paid off by the other person's insurance company. If the driver is the one at fault, this will become a first-party claim.

Direct Premiums

Direct Premiums are premiums that the insurance company collects directly from the policy holders. Direct premiums refer to the premiums prior to any deductions or adjustments made. Premiums are money collected in order for the insurance company to provide continued coverage for a certain risk, such as the loss of a life or loss or damage to property of a person or entity.

The insurance companies will usually share the risk in one policy especially if the covered amount is substantial. It will ask other insurance companies to insure a portion of the risk. This is what is called reinsurance. The insurance company deducts from the direct premiums in order to pay the premiums of the reinsurers.

Direct Sales / Direct Response

Direct Sales or Direct Response is one way of selling a product such as life or property insurance. This method of sale can be by direct mail, through a newspaper or magazine advertisement, through the internet or the insurance company's own employees. Direct response is to be contrasted with insurance sales made by agents.

As the name suggests, it is the company reaching out directly to the customer and not through an intermediary. For example, there are certain products that can be sold by the insurance company sending out mailers to potential customers. There is usually a response form attached to the mailer. A customer who wants to avail of the product can send the mailer, along with payment and insurance details. The same thing happens for insurance sold through the Internet.

Direct Writers

Direct writers are insurance companies that sell their product through direct sales. These insurance companies make use of excusive agents, their employees or by other means like the Internet, mail or the telephone. Insurance companies are continuously looking for ways to effectively reach customers and sell products.

There are direct writers that prospective customers can call and the company employee will set up and issue the policy.

For reinsurance purposes, direct writers are reinsurance companies that sell their services directly to the insurance company, without going through a dealer or broker.

There is debate on whether getting products from a direct writer is better than getting it from an insurance agent. This really depends on the needs of a client and what level of service he wants.

Directors and Officers Liability Insurance

Directors and Officers Liability Insurance (also known as D&O) provides protection against losses brought about by the acts of a company's officers and directors. This can refer to liability damages when the company is sued because of officers' and directors' mistakes (whether by negligence or by omission). This coverage may also be expanded to include liability caused by employment practices.

This can also refer to payments made to the directors or officers when they face a lawsuit for alleged mistakes or wrongful acts. It is given to cover their defense costs or damages they will have to pay. In some U. S, states, employers are required to indemnify their directors or officers in the event of a lawsuit.

Lawsuits may come from different sides - from customers, shareholders and regulators. Even competitors may sue because of unfair trade practice or anti-trust allegations.

It must be noted that insurance companies will not pay for claims when the officers or directors commit an illegal act intentionally.

Disability Income Insurance

Disability Income Insurance refers to a kind of health insurance that pays a regular income to a person once he is declared disabled because of an illness or an accident. This is designed to provide the insured at least a portion of his lost income.

There are certain limits to the payments. There is usually a waiting period - a specified period starting from the first day of the disability which will have to pass before payments are made. These payments also shall not be more than 50% to 80% of the earnings of the insured person before the disability.

The payments from the Disability Income Insurance will pay for the benefits for the period that the insured is disabled. However, after one or two years, the insured must agree to undergo retraining for jobs that he can do.

There are also some policies that pay for partial disablement.


Disability refers to the person's inability to find employment because of sickness or injury. Basically, the injury, disease or disorder results in the body's failure to function at a certain level - it can mean physical disability or psychological disability. This can cover an inability to use a keyboard, to write or to climb the stairs. It can also mean the inability that limits his performance of a normal role.

The definitions of disability will vary from one insurance policy or company to another. Thus, it is recommended that you check your policy to know what it covers.

Some questions regarding the disability may be whether the disability was a result of his performance of his duties in his job or whether the disability was unpredictable.


The Dividend is money paid to stakeholders (like policyholders) from the earnings of an insurance company. For other cases, it is a return on the investment of stockholders.

For life insurance policies, dividends are paid to policy owners of participating policies. This allows owners of participating policies to earn more from their policies. Life insurance companies also give policy owners options as to what to do with the dividends the policy earns. The policy owner can opt to get the dividends in cash payments, use the dividends to buy more insurance coverage, or "reinvest" the dividends so that it can earn more interest. The policy owner can withdraw the accumulated dividends at any point in the life of the policy.

Dividend Accumulations Option

The Dividend Accumulations Option is an option that allows the policy owner to leave the dividends earned with the insurance company for it to earn interest.

This option is part of the dividend options available for participating life insurance policies. The company usually sets a guaranteed rate of interest.

All interest income is subject to taxes. The policy owner can choose to let the dividends stay with the company for the duration of the policy and get the accumulated dividends at the end of the policy. He can also choose to withdraw all or a portion of the dividends at any point. In the event that the insured person dies, the beneficiaries can also opt to reinvest the insurance proceeds and accumulated dividends to earn interest.

This is also called Accumulation at Interest Option.

Domestic Insurance Company

A Domestic Insurance Company is a company which is incorporated in the state where it operates.

Domestic Insurance Companies are bound by the laws and insurance code of the state where it is incorporated. These companies are also required to get a license from the state insurance commission in order for it to be able to sell policies and do other business activities connected with the insurance business.

The state will usually specify the amount of capital and surplus for the domestic insurance company to get a license. There is also usually a nonrefundable filing fee and a yearly renewal fee for the insurance license to be released.

Other requirements include a business plan and a list of insurance lines to be written, the sales channels the company plans to use, as well as evidence that the company has the resources and technical expertise. This includes underwriting and actuarial expertise.

Double Indemnity Benefit

The Double Indemnity Benefit is an accidental death benefit that is paid in the event of an insured person's accidental death. This is also called an Accidental Death Benefit. This is paid over and above the original death benefit. Hence, the name double indemnity benefit, since the beneficiaries stand to get double of the death benefit.

The Double Indemnity Benefit is an optional rider that you can add to your basic life insurance policy. In the event that the cause of death of the insured is not clear, the insurance company does not have to pay for the double indemnity until such a time that the accidental death is proven.

The Double Indemnity Benefit may also apply to other types of insurance, aside from life insurance. It may pay the insured or the beneficiaries double the coverage amount if a certain loss happens caused by a specified set of circumstances.

Dread Disease Coverage

Dread Disease Coverage is a kind of health insurance coverage that gives protection for a specific dread or catastrophic disease (like cancer or heart disease).

The coverage may pay a regular income or a lump sum cash payment when the insured person is diagnosed with a dread disease listed in the policy.

The Dread Disease Coverage often requires a waiting period - a specified number of days in which the insured person has to survive. The count for the waiting period starts from the day the diagnosis was made. For the benefit to be payable, the diagnosis has to be made by a doctor who is a specialist of that illness (i.e. an oncologist should make the diagnosis of cancer). There should also be some tests made.

The purpose of the dread disease period is to help the insured person by providing what he needs in order to prolong his life and to recover.

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