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Insurance Glossary - Understanding Common Terms

Our glossary is divided alphabetically by insurance term in a quick reference guide to assist understanding the language commonly used by insurance companies. Policy documents contain a number of these terms because they typically define the limitations of risk and liability on the insured and any exclusions of coverage.

If you plan to start a new policy or renew your current policy with a different carrier or agency, it is important to review and understand the policy differences behind individual quotes from multiple carriers.  Lower policy premiums may be the result of decreased payout benefits, higher deductibles, or maximum damages allowed.  It is important to identify these unique features in any policy comparison, otherwise a lower price may come at a much higher cost when you have to file a claim for loss or damages in the future.

Select the first letter of the word or term to locate a definition and brief description.  For example, to get help with the terms "Automobile Liability Insurance" or "Premium", select either the letter A or P from the menu bar below: 

Insurance Glossary: Terms that Begin with the Letter 'l'

Labor-Management Relations Act of 1947 (Taft-Hartley Act)

Law which controls conditions under which an employer may pay any money to a representative (eg., union representative) of employees.


The termination or discontinuance of an insurance policy due to non-payment of a premium.

Lapsed Policy

(1) A policy terminated for non-payment of premiums. (2) A policy terminated for non-payment occurring before the policy has a cash or other surrender value.


The unlawful taking, carrying, leading or riding away of another person's property.

Last Clear Chance Rule

Statutory modification of the contributory negligence law allowing the claimant endangered by his or her own negligence to recover damages from a defendant if the defendant has a last clear chance to avoid the accident but fails to do so.

Law of Large Numbers

Concept that the greater the number of exposures, the more closely will actual results approach the probable results expected from an infinite number of exposures.

Leasehold Interest Insurance

Coverage designed to protect a tenant in the event his or her lease is terminated. It is a form of time element coverage that serves to provide coverage for the difference between the old rental and a new, likely more expensive rental.

Legal Reserve

The minimum reserve which a company must keep to meet future claims and obligations as they are calculated under state insurance regulations.

Legal Reserve Life Insurance Company

A life insurance company operating under state insurance laws specifying the minimum basis for the reserves the company must maintain on its policies.

Level Commission Scale

A commission scale providing for payment of commissions at the same rate every year the policy is in force.

Level Premium

A premium that remains unchanged throughout the life of a policy.

Level Premium Life Insurance

Life insurance for which the premium remains the same from year to year. The premium is more than the actual cost of protection during the earlier years of the policy and less than the actual cost in the later years. The building of a reserve is a natural result of level premiums. The overpayments in the early years, together with the interest that is earned, serve to balance out the underpayments of the later years.


Portion of an insurer's balance sheet which denotes legal obligations of the company, including anticipated future payments of losses covered under policies issued.


Any legally enforceable obligation.

Liability Insurance

Insurance designed to protect the policyholder from financial loss due to liability resulting from injuries to other persons or damage to their property.

Liability Limits

The sum or sums stipulated in an insurance contract beyond which an insurance company is not liable to protect the insured.

Liability Without Fault

Principle on which workers compensation is based, holding the employer absolutely liable for occupational injuries or disease suffered by workers, regardless of who is at fault.

License and Permit Bond

Type of surety bond guaranteeing that the person bonded will comply with all laws and regulations that govern his or her activities.

Life Annuity

A contract that provides for a series of payments under which payments, once begun, continue throughout the remaining lifetime of the annuitant but not beyond.

Life Annuity With 10 Years Certain

A annuity contract which pays an income for as long as the annuitant lives, but if death occurs within 10 years after the annuity payments begin, payments are continued to a named beneficiary for the remainder of the 10 years.

Life Expectancy

The average number of years of life remaining for a group of persons of a given age according to a particular mortality table.

Life Income Option

Life insurance settlement option in which the policy proceeds are paid during the lifetime of the beneficiary. A certain number of guaranteed payments may also be payable.

Life Insurance

Insurance providing for payment of a specified amount on the insured's death, either to his or her estate or to a designated beneficiary; or in certain cases to the policyholder at a specified date.

Life Insurance in Force

Amount reported in an insurance company's financial statements that sets out the sum of the face amounts, plus dividend additions, of life insurance polices outstanding at a given time. Additional amounts payable under accidental death or other special provisions are not included.

Life Insurance Programming

Systematic method of determining the insured's financial goals, which are translated into specific amounts of life insurance, then periodically reviewed for possible changes.

Lifetime Disability Benefit

A benefit to help replace income lost by an insured person as long as he/she is totally disabled.

Limited Payment Life Insurance

Whole life insurance on which premiums are payable for a specified number of years or until death (if death occurs before the end of the specified period).

Limited Policy

An insurance contract which covers only certain specified diseases or accidents.


The process of dissolving a company by selling its assets for cash.

Liquor Liability Insurance

Coverage designed to protect an individual or entity for bodily injury or property damage to another for which an insured may be held liable by reason of causing or contributing to the intoxication of any person; furnishing alcoholic beverages to a person under the legal drinking age or under the influence of alcohol; or violating any statute, ordinance, or regulation relating to the sale, gift, distribution, or use of alcoholic beverages.

Liquor Liability Law

See Dramshop Law.

Living Benefits Rider

A rider that allows insureds who are terminally ill or who suffer from certain catastrophic diseases to collect part of their life insurance benefits before they die, primarily to pay for the care they require.

Living Trust

A trust created while the creator of the trust is living. Also known as an inter vivos trust.


The amount that must be added to the pure premium for expenses, profit, and a margin for contingencies.

Long-Term Care

The continuum of broad-ranged maintenance and health services to the chronically ill, disabled, or retarded. Services may be provided on an inpatient (rehabilitation facility, nursing home, mental hospital), outpatient, or at-home basis.

Long-Term Disability Income Insurance

Insurance issued to an employer (group) or individual to provide a reasonable replacement of a portion of an employee's earned income lost through serious and prolonged illness or injury during the normal work career. See also Integration.


The occurrence of the event for which insurance pays.

Loss Avoidance

A risk management technique whereby a situation or activity that may result in a loss for a firm is avoided or abandoned.

Loss Control

Any conscious action (or decision not to act) intended to reduce the frequency, severity, or unpredictability of accidental losses.

Loss Expense Allocated

Handling expenses, such as legal or independent adjuster fees, paid by an insurance company in settling a claim which can be definitely charged to that particular claim.

Loss of Maintenance Fees Insurance

Coverage designed to protect an association (such as a condominium association) against the loss of maintenance fees when occupancies have been interrupted or impaired by the occurrence of any insured peril. This is a form of business interruption insurance for the association. It assures continuous income while a building is untenantable.

Loss Payable Clause

Means of protecting a mortgagee's interest in property by directing the insurer to make a loss payment to the mortgagee in the event of a loss.

Loss Prevention

Any measure which reduces the probability or frequency of a particular loss but does not eliminate completely all possibility of that loss

Loss Ratio

The percent which losses bear to premiums (either earned or written) for a given period.

Loss Reserve

The amount set up as the estimated cost of a claim. See IBNR Reserve.

Lump-Sum Distribution

Payment within one taxable year of the entire balance payable to an employee from a trust which forms part of a qualified pension or employee annuity plan on account of that person's death, separation from service or attainment of age 59 1/2.

Don't see an insurance term listed here?  Ask Customer Service for assistance.