Glossary

Defense costs endorsements are nonstandard commercial general liability (CGL) endorsements stating that if the insurer agrees to provide a defense to an insured, but it is later determined that the claim would not be covered by the policy, the insurer is entitled to reimbursement of defense costs incurred up to that point. The endorsement is intended to comply with court rulings in some states that the insurer's right to reimbursement must be preserved in the language of the insurance policy. Some of the endorsements require the insurer to give written notice that coverage may not apply (a reservation of rights letter) and of the insurer's intent to seek reimbursement of defense costs in the event the claim is determined to not be covered.

Defense within limits is a liability policy provision stating that amounts paid by the insurer to defend the insured against a claim or suit reduce the policy's applicable limit of insurance. General liability policies are ordinarily not subject to such a provision, although the standard commercial general liability (CGL) policy provides for defense of the named insured's indemnitee "within limits" when the named insured has a contractual obligation to provide such a defense. Defense within limits is more common in professional liability policies.

Deferred acquisition cost is the amount of an insurer's acquisition costs incurred as premium is written but earned and expensed over the term of the policy. The unearned portion is capitalized and recognized as an asset on the insurer's balance sheet. Under statutory accounting, all acquisition costs are 100 percent earned and expensed at inception of the policy, creating an immediate reduction in surplus. In life insurance, acquisition costs are recognized as premium is earned, creating a tax effect referred to as the "DAC tax."

A deferred compensation plan is an arrangement between an employee and their employer to defer some portion of the employee's current income or salary until a specified future date. These plans can be a qualified or unqualified plan as respects Internal Revenue Code deductibility and other tax benefits. Wages earned in one period are actually paid in a later period. Life insurance is a popular method to fund deferred compensation plans, as deferred amounts can be used to pay premiums on cash value life insurance. The cash value can then be available at retirement to supplement other income, or, if the insured dies before retirement, the insured's designated beneficiary would receive the insurance policy's death benefit.

Deferred group annuity refers to a retirement plan under which a paid-up annuity is purchased each year for each employee. The sum of these benefits is paid as monthly income at the time of retirement.

Deferred payment merchandise is coverage for merchants, distributors, and product manufacturers that sell their wares using time payment plans. This coverage can be on a vendors only form, which covers the insured for the unpaid balance due the vendor until the property is fully paid for, or on a vendors and vendees dual interest form, which covers the entire cost of the item until the final payment is made. The vendors and vendees dual interest form covers both the purchaser and the seller in the event there is a loss to the merchandise before it is fully paid off. The purchaser does not have to continue making payments on an item that is no longer in use, and the vendor can maintain the goodwill aspects of terminating the customer's payments.

Deferred premiums are periodic premium payments, usually monthly, at no interest. They are used most frequently with casualty coverages.

The deferred tax asset is the amount of loss reserves or unearned premium that is not deducted from an insurer's income when calculating income taxes. The deferral in the tax deduction arises because of the requirement to discount loss and unearned premium reserves. The insurer records an asset equal to the expected future amount of the tax deduction.

Deficit carry-forward or carry-back refers to the transfer of debit or loss from one accounting period to another under a reinsurance treaty.

A defined benefit plan is a pension plan providing a specific benefit for each employee. The employer is required to make adequate contributions to the plan to fund the promised benefits. No individual accounts are maintained as is done in defined contribution plans.