Termination of a policy because of failure to pay the premium. In Life Insurance, the term refers to nonpayment before the policy has developed any nonforfeiture values. If it has, and the premium is not paid, it is said to have lapsed "except as to any nonforfeiture benefits that may apply."

Lapsed Policy

One which has been allowed to expire because of nonpayment of premiums.


An agreement which gives a person the right to use and occupy property.

Legislated Coverages

Coverages provided through creation of facilities legislated into existence by federal or state law. FAIR Plans, the Flood Insurance Program and the assigned risk pools are examples.

Legislative Risk

A risk faced by investors whereby changes in tax laws can result in adverse effects on the individual's investment results.

Letter of Credit

A financial guaranty issued by a bank that permits the party to which it is issued to draw funds from the bank in the event of a valid unpaid claim against the other party; in reinsurance, typically used to permit reserve credit to be taken with respect to non-admitted reinsurance; and alternative to funds withheld and modified coinsurance.

Level Commission System

A system of commissions in which the first year and all renewal commissions are the same percentage of the premium.


Money owed or expected to be owed. Insurance company financial statements, for instance, show assets and liabilities.


A certification of authority for an agent or insurer to operate, given by the appropriate jurisdiction.


Exceptions to coverage and limitations of coverage as contained in an insurance contract. For instance, a limit of liability would be one limitation on an Automobile policy. Another example would be policies written to cover only certain described automobiles, or, in the case of Liability Insurance, certain described premises.

Limited Agent

An agent authorized to transact only a limited form of insurance, such as travel-accident or credit insurance. In many states, limited agents are exempt from licensing examination and education requirements.

Limited Partnership

An association of two or more persons who operate and manage a business for profit; at least one the partners does not work in the business but does have some management voice and financial investment. The limited partner has limited liability.


Ages below or above which the insurer will not issue a policy or above which it will not continue a policy presently in force. The maximum amount of benefits payable for a given situation or occurrence, e.g., a limit of $50,000 on the contents of a home, or a $40,000 per accident limit for Property Damage Liability.

Liquidation of Insurer

Action undertaken by a state Insurance Department to dissolve an impaired or insolvent insurer which cannot be restored to sound financial standing. Contrast with Rehabilitation of Insurer.


The ability of an insurer to convert its assets into cash to pay claims if necessary.


The amount added to the pure insurance cost to cover the cost of the operations of an insurer, the possibility that losses will be greater than statistically expected, and fluctuating interest rates on the insurer's investments. The "pure" insurance cost is that portion of the premium estimated to be necessary for losses.


Generally refers to:

  1. the amount of reduction in the value of an insured's property caused by an insured peril,
  2. the amount sought through an insured's claim, or
  3. the amount paid on behalf of an insured under an insurance contract.

Loss Adjustment Expense

The cost of adjusting losses, excluding the amount of the loss itself.

Loss Constant

A flat amount included in the premium for small Workers Compensation policies, for dwellings in some jurisdictions, and for some prescribed Inland Marine Insurance lines. The purpose of the Loss Constant is to offset the greater-than-average loss experience which most small risks have when compared to all other risks in a given classification.

Loss Control

Any combination of actions taken to reduce the frequency or severity of losses. Installing locks, burglar or fire alarms and sprinkler systems are loss control techniques.

Loss Development

The difference between the amount of losses initially estimated by the insurer and the amount reported in an evaluation on a later date.

Loss Expectancy

An underwriter's estimate of the probable maximum loss to be suffered on an exposure being considered, with attention given to the expected level of loss prevention activities on the part of the insured.

Loss Frequency

The number of times a loss occurs over a specific period of time.

Loss Payee

The party to whom money or insurance proceeds is to be paid in the event of loss, such as the lienholder on an automobile or the mortgagee on real property.

Loss Prevention Service

Engineering and inspection work done by an insurance company or independent organization with the aim of removing or reducing dangerous conditions in order to prevent losses.

Loss Ratio

The losses divided by the premiums paid. The numerator (losses) can be losses incurred or losses paid, and the denominator (premium) can be earned premiums or written premiums, depending on what use is going to be made of the loss ratio.

Loss Reserve

The estimated liability for unpaid insurance claims or losses that have occurred as of a given evaluation date. Usually includes losses incurred but not reported (IBNR), losses due but not yet paid, and amount not yet due. The above describes a loss reserve as it would appear in an insurer's financial statement. As to individual claims, the loss reserve is the estimate of what will ultimately be paid out on that case.

Loss Severity

The amount of a loss expressed in financial terms.

Losses Incurred

The total losses, whether paid or not, sustained by an insurer during a given period, e.g., 12 months.

Losses Outstanding

A summary statement prepared by Property, Life, and Liability insurers showing claims not yet settled.

Losses Paid

A summary of claims paid.

Lost Policy Release

A statement signed by an insured releasing the insurer from all liability for a lost or mislaid contract of insurance. It is usually signed after the company has issued a replacement policy.