By the letter: Insurance industry acronyms – Part 1
Like most industries, the insurance industry has a language all its own, and industry-specific acronyms are a big part of that special language. They can give us a quick, simple way to communicate with other people in the industry – as long as you know what all the acronyms mean. If you don’t, things can get very confusing, very quickly.
This post is the first in an ongoing series that will explain the most important insurance industry acronyms so that you can join the conversation.
Accident and sickness insurance forms a large part of the insurance industry. This type of coverage is offered by private companies to cover many of the expenses their employees (and sometimes their families) could face in the event of a serious illness or injury. There are many types of A&S insurance, including disability, critical illness and long-term care insurance. A&S policies can also include extended health benefits, which may cover things like prescription drugs and dental care.
DB, DC and DPSP
These acronyms represent three common types of employer-sponsored retirement plans. With a defined benefit (DB) plan, the retirement benefit is defined in advance, usually as a percentage of earnings for every year of service.
With defined contribution (DC) plans, the employer and employee usually make matching contributions to the pension plan each year. The contributions are usually a fixed percentage of employment income.
Under a deferred profit sharing plan (DPSP), the employer contributes to the plan on behalf of an employee, and the size of the contribution is tied to the company’s profits. With a DPSP, neither the size of the contribution nor the size of the benefit is guaranteed.
Errors and omissions insurance protects companies and their employees against claims made by clients for problems caused by mistakes in their work or by negligence. Insurance agents must have E&O insurance. This type of insurance may cover court costs and financial settlements up to a pre-specified dollar amount.
Some employers offer disability insurance to protect employees in case of illness or injury. Short-term disability (STD) insurance generally pays benefits to those who are disabled for a shorter duration, usually less than one year. This type of insurance is meant to provide the employee time to recover. It’s not meant to provide permanent income replacement.
Long-term disability (LTD) insurance provides monthly benefits if the employee suffers a prolonged loss of income due to accident, sickness or mental illness. Benefits often start when STD coverage ends. The benefit period typically lasts two years, five years or until age 65.
An R&C policy is a term insurance policy that is both renewable and convertible. Convertible term insurance lets a policyowner convert a term policy to permanent insurance (usually whole life), without proving insurability. Renewable term insurance gives the policyowner the right to renew the policy at the end of the term for some predetermined period, without providing evidence of insurability.
Visit our Courses page to view our insurance industry courses, and check back soon for more insurance industry acronyms. Until then, brush up on some investment industry acronyms with The “ACBs” of the Investment Industry.