Glossary

Premium reserve is accounting process allocating the premium paid for an insurance policy over the life of the policy. In other words, one-twelfth of an annual premium is earned each month. An unearned premium reserve is maintained on an insurer's balance sheet to reflect the unearned premiums that would be returned to policyholders if all policies were canceled on the date the balance sheet was prepared.

Premium tax refers to a tax, imposed by each state, on gross premium (GWP) written by insurers allocable to risks located in that state. GWP means before reinsurance ceded but after salvage and subrogation.

A prepaid legal plan is an employee benefit plan that provides free or low-cost legal services to employees.

Preponderance of evidence is an amount of evidence in support of a cause that, on the whole, is more convincing than the evidence offered in opposition to it. It is the burden of proof that must be met to prevail in a civil case.

The present value is the value today of a future payment, or payments, discounted at an appropriate interest rate. Given the time value of money, the present value of $1 today is greater than the present value of $1 a year from today. Due to the earning power of funds on hand compared to funds received in the future, delaying loss and/or premium payments generates cash flow and increases the present value of funds held. Present value analysis can be used for a variety of purposes including (1) calculating loss funding needs for risk retention programs and (2) comparing risk financing alternatives having different loss and premium payment streams.

A presumption is an assumption that a factual conclusion can be made if specified conditions are met. It is usually meant to establish the burden of proof in a particular situation.

The presumptive indemnification provision, found in most directors and officers (D&O) liability policies, states that, in a claim situation, it is presumed that the corporate organization has indemnified its directors and officers to the fullest extent permitted by law, regardless of whether the corporation does, in fact, indemnify them. The provision is significant because the typical D&O liability policy includes a substantial self-insured retention (SIR) for corporate reimbursement (Side B) coverage but no retention for "direct" (Side A) D&O coverage. At one time, corporations attempted to avoid paying the Side B retention by simply electing not to indemnify the insured directors and officers, forcing the insurer to provide first dollar coverage for the directors and officers. To prevent this, D&O insurers began to insert presumptive indemnification provisions within their forms.

Primary and noncontributory is a term commonly used in contract insurance requirements to stipulate the order in which multiple policies triggered by the same loss are to respond. For example, a contractor may be required to provide liability insurance that is primary and noncontributory. This means that the contractor's policy must pay before other applicable policies (primary) and without seeking contribution from other policies that also claim to be primary (noncontributory).

The primary beneficiary is the beneficiary named as being first to receive proceeds or benefits when they come due or are payable. If the primary beneficiary is not living at the time the proceeds are payable, the benefits are paid to the secondary beneficiary.

Primary cover refers to the policy that responds first to an insured loss, either on a first-dollar basis or after allowing for a deductible. When the primary coverage limits are paid, any remaining loss is covered by whatever excess layer of insurance may be in place.