- Agent
A representative
appointed by an insurance company to solicit, negotiate, and enter into contracts with
consumers on its behalf.
The legal intermediary between the insurer and the insured.
- Annual Percentage
Rate (APR)
The cost of credit
computed as a percentage at a yearly rate. Use the APR to compare the cost of different
types of credit.
- Broker
A person who
represents and acts on behalf of the insured. A broker may also be an agent of the insurer
for such purposes as policy delivery or collection of premium.
- Cancellation
Termination of the
insurance contract. Cancellation may be requested by the insurer (in certain
circumstances) the insured, or by a lender for nonpayment of premium if the policy is
premium financed.
- Collateral
What a lender accepts
as security for a loan.
- Contract
A legally binding
agreement between two or more parties.
- Disclosure
Statement
The section of the
finance agreement which illustrates the total premium, fees, amount financed, finance
charge, annual percentage rate, total of payments and amount of each payment.
- Effective Date
The date shown on a
policy or binder when insurance coverage begins.
- Insurance Policy
The contract between
insurer and insured containing information regarding the risk, policyholder, contractual
conditions and
rate assessed.
- Insurance Premium
Cost of insurance
coverage assessed by the insurer to the insured for coverage for a specified period.
- Lender
A financial
institution that loans money, such as a bank, premium finance or insurance company.
- Loan
A sum of money which
is lent for a specified period of time, and repayable with interest and fees.
- Payment Options
Disclosure Form
A written statement
required of the agent or broker that informs the insured of his right to be given
information on all the options available for the payment of the premium. The statement
must be signed by the insured indicating the insured has been given enough information to
make an informed choice.
- Premium Finance
A process where a
lender pays an insurance premium to an insurer on behalf of an insured. The policyholder
repays the lender for the amount of the loan (principal) plus interest and any assessable
fees and charges. Process is initiated at the agent/broker's office when the coverage is
originally applied for and the down payment is made.
- Rescind
Cancellation of any
contract as of the effective date. When a premium finance contract is rescinded, coverage
is cancelled and all monies are returned. This may occur when misrepresentations are made
to the insurance company regarding the insured or the insured's coverage.
- Rule of 78
A method of figuring
interest on a financed insurance premium where interest is paid first, resulting in a
smaller returned premium (refund) to the insured when a finance agreement is cancelled
early. This rule is not used when figuring an insurance premium refund--this must always
be done based on the time coverage was in force (pro-rata).
- Underwriting
The process used by
insurance companies where risks are accepted or rejected for coverage. The process
includes the proper classification of the risk so an adequate premium is charged by the
insurer.
- Unearned Premium
The portion of the
premium which has not been used to provide coverage. This portion is returned when a
policy is cancelled prior to the expiration date.
