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General
LIFO.
Last in, first out. Refers to a method of keeping inventory records for
accounting purposes where the last item purchased for inventory is the first
item used.
Land Contract.
A type of instrument used in connection with the sale of real estate. It
differs from a mortgage in that title to the land remains with the seller
until the buyer has completed the payments, though possession rests with
the buyer. Specifically, a land contract is the instrument that conveys
the deed of land from one person to another upon full payment of the stated
purchase price.
Lapse.
Termination of a policy because of failure to pay the premium. In Life Insurance,
the term refers to nonpayment before the policy has developed any nonforfeiture
values. If it has, and the premium is not paid, it is said to have lapsed
"except as to any nonforfeiture benefits that may apply."
Lapsed Policy.
One which has been allowed to expire because of nonpayment of premiums.
Last In, First Out.
See LIFO.
Latent Defect.
A defect which is not immediately apparent.
Law of Large Numbers.
This law states that the larger the number of exposures considered, the
more closely the losses reported will match the underlying probability of
loss. The simplest example of this law is the flipping of a coin. The more
times the coin is flipped, the closer it will come to actually reaching
the underlying probability of 50% heads and 50% tails. See also Degree of
Risk, Odds, and Probability.
Leasehold.
An agreement which gives a person the right to use and occupy property.
Legislated Coverages.
Coverages provided through creation of facilities legislated into existence
by federal or state law. FAIR Plans, the Flood Insurance Program and the
assigned risk pools are examples.
Legislative Risk.
A risk faced by investors whereby changes in tax laws can result in adverse
effects on the individual's investment results.
Level Commission System.
A system of commissions in which the first year and all renewal commissions
are the same percentage of the premium.
Liabilities.
Money owed or expected to be owed. Insurance company financial statements,
for instance, show assets and liabilities.
License.
A certification of authority for an agent or insurer to operate, given by
the appropriate jurisdiction.
Limit, Aggregate.
See Aggregate Limit.
Limit, Basic.
See Basic Limit.
Limit, Standard.
See Basic Limit.
Limitations.
Exceptions to coverage and limitations of coverage as contained in an insurance
contract. For instance, a limit of liability would be one limitation on
an Automobile policy. Another example would be policies written to cover
only certain described automobiles, or, in the case of Liability Insurance,
certain described premises.
Limited Agent.
An agent authorized to transact only a limited form of insurance, such as
travel-accident or credit insurance. In many states, limited agents are
exempt from licensing examination and education requirements.
Limited Partnership.
An association of two or more persons who operate and manage a business
for profit; at least one the partners does not work in the business but
does have some management voice and financial investment. The limited partner
has limited liability.
Limits.
(1) Ages below or above which the insurer will not issue a policy or above
which it will not continue a policy presently in force. (2) The maximum
amount of benefits payable for a given situation or occurrence, e.g., a
limit of $50,000 on the contents of a home, or a $40,000 per accident limit
for Property Damage Liability. See also Limit of Liability.
Line.
A colloquial term with several meanings. It may be used to mean a particular
type of insurance, such as the Liability "line." It may be used
to describe all the various types of insurance written for a property owner,
e.g., carrying all "lines" of the XYZ Company. It is also used
to describe the amount of insurance on a given property, e.g., a $250,000
"line" on buildings of the XYZ Company.
Line of Business.
The classification of business as utilized in the insurance industry, e.g.,
Fire, Allied Lines and Homeowners.
Line Sheet.
A schedule showing the limits of liability to be written by an insurer for
different classes of risks. This kind of guide is also used by a ceding
company to define the limits of liability it will assume on various types
of exposures.
Liquidation of Insurer.
Action undertaken by a state Insurance Department to dissolve an impaired
or insolvent insurer which cannot be restored to sound financial standing.
Contrast with Rehabilitation of Insurer.
Liquidity.
The ability of an insurer to convert its assets into cash to pay claims
if necessary.
Lloyd's.
Generally refers to Lloyd's of London, England, an institution within which
individual underwriters accept or reject the risks offered to them. The
Lloyd's Corporation provides the support facility for their activities.
Lloyd's Association.
A group of individuals who band together to assume risks are sometimes called
a Lloyd's association. They are organized along the same lines as, though
not connected with, Lloyd's of London. Each person is responsible only for
the share of the risk that he assumes. There are a limited number of these
associations in the United States.
Lloyd's Broker.
A person who has the authority to negotiate insurance contracts with the
underwriters on the floor at Lloyd's. See also Lloyd's.
Lloyd's Syndicate.
A consortium of individual Lloyd's or London underwriters. Usually one person
acts for the syndicate in accepting risks or rejecting them.
Lloyd's Underwriter.
An individual who underwrites risks through the facility of Lloyd's. These
individuals are liable only for their own assumptions of risk and not those
assumed by others in the same syndicate or in the overall Lloyd's organization.
Loading.
The amount added to the pure insurance cost to cover the cost of the operations
of an insurer, the possibility that losses will be greater than statistically
expected, and fluctuating interest rates on the insurer's investments. The
"pure" insurance cost is that portion of the premium estimated
to be necessary for losses.
Local Agent.
An agent representing companies in a sales and service capacity as an independent
contractor on a commission basis. A local agent usually has a small territory,
and his powers are limited by contract.
Loss.
Generally refers to (1) the amount of reduction in the value of an insured's
property caused by an insured peril, (2) the amount sought through an insured's
claim, or (3) the amount paid on behalf of an insured under an insurance
contract.
Loss Adjustment Expense.
The cost of adjusting losses, excluding the amount of the loss itself.
Loss Constant.
A flat amount included in the premium for small Workers Compensation policies,
for dwellings in some jurisdictions, and for some prescribed Inland Marine
Insurance lines. The purpose of the Loss Constant is to offset the greater-than-average
loss experience which most small risks have when compared to all other risks
in a given classification.
Loss Control.
Any combination of actions taken to reduce the frequency or severity of
losses. Installing locks, burglar or fire alarms and sprinkler systems are
loss control techniques.
Loss Development.
The difference between the amount of losses initially estimated by the insurer
and the amount reported in an evaluation on a later date.
Loss Expectancy.
An underwriter's estimate of the probable maximum loss to be suffered on
an exposure being considered, with attention given to the expected level
of loss prevention activities on the part of the insured.
Loss Frequency.
The number of times a loss occurs over a specific period of time.
Loss Payee.
The party to whom money or insurance proceeds is to be paid in the event
of loss, such as the lienholder on an automobile or the mortgagee on real
property.
Loss Prevention Service.
Engineering and inspection work done by an insurance company or independent
organization with the aim of removing or reducing dangerous conditions in
order to prevent losses.
Loss Ratio.
The losses divided by the premiums paid. The numerator (losses) can be losses
incurred or losses paid, and the denominator (premium) can be earned premiums
or written premiums, depending on what use is going to be made of the loss
ratio.
Loss Report.
See Claim Report.
Loss Reserve.
The estimated liability for unpaid insurance claims or losses that have
occurred as of a given evaluation date. Usually includes losses incurred
but not reported (IBNR), losses due but not yet paid, and amount not yet
due. The above describes a loss reserve as it would appear in an insurer's
financial statement. As to individual claims, the loss reserve is the estimate
of what will ultimately be paid out on that case.
Loss Severity.
The amount of a loss expressed in financial terms.
Losses Incurred.
The total losses, whether paid or not, sustained by an insurer during a
given period, e.g., 12 months.
Losses Outstanding.
A summary statement prepared by Property, Life, and Liability insurers
showing claims not yet settled.
Losses Paid.
A summary of claims paid.
Lost Policy Release.
A statement signed by an insured releasing the insurer from all liability
for a lost or mislaid contract of insurance. It is usually signed after
the company has issued a replacement policy.
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