L

LAD. See Limited Assigned Distribution System.

Lapse. Termination of an insurance policy because of failure to pay a premium or lack of sufficient cash value to maintain the policy's in-force status. A policy that has lapsed is referred to as a "lapsed policy."

Lapse Ratio. The face amount of in-force business that lapses in a given year, expressed as a percentage of in-force business at the beginning of the year. In certain circumstances, this ratio is expressed for the number of policies that lapse without reference to the face amounts of lapsed policies.

Laser Exclusion. An endorsement under a claims-made insurance policy that excludes coverage for the risks, persons, classes of property or locations listed in the endorsement. The term refers to zeroing in with sharp focus to exclude specific exposures.

Last Clear Chance Rule. A legal doctrine that qualifies a contributory negligence defense by permitting a claimant to prevail in a claim, notwithstanding the claimant's own negligence, if the defendant had a last clear chance to avoid an accident but failed to do so.

Last to Die. A form of life insurance policy in which the benefit is payable upon the second death to occur of the two insured lives. This form of policy is used as an estate planning device.

Law of Large Numbers. A concept in probability and statistics that the larger the number of units exposed to loss, the greater the ability to predict loss results accurately.

Layer. The interval between the attachment point and the maximum limit of an excess-of-loss reinsurance policy.

Lead Insurer. An insurer that sets the terms of coverage and pools a portion of the risk with other insurers.

Letter of Credit. A form of credit enhancement provided by banks that competes with surety bonds and other forms of financial guarantees provided by insurers.

Level Commission Life Insurance. A form of life insurance in which commissions remain constant throughout the term of the policy. In such a policy, an agent receives a smaller commission in the first year of a policy than is normal for other life insurance products.

Level Premium Life Insurance. A form of life insurance in which premium levels remain constant throughout the term of the policy. In such a policy, more than the cost of protection is paid in earlier years to compensate for underpayment in later years.

Leverage Ratios. Ratios that are used to analyze various aspects of a company's operating performance. See Chapter 8.

Liability Insurance. A form of insurance that covers an insured's liability to third parties, plus associated expenses.

Liability Risk Retention Act of 1986. Legislation enacted by the federal government to respond to the lack of insurance availability during the hard cycle period of the mid-1980s. This legislation made it possible for purchasing groups to act collaboratively and to circumvent state admission laws.

License. Certificate of authority issued by a state to an insurer or an insurance agent granting permission to act as such within the state.

License and Permit Surety Bond. A surety bond that guarantees that the principal will comply with the laws and regulations governing its activities.

Life Annuity. A form of annuity that produces income during the annuitant's lifetime.

Life Expectancy. The estimated average number of years of life remaining for a group of persons of a particular age, as set forth in a mortality table.

Life Insurance. A form of insurance on the life of a human being; may include related coverages.

LIMRA International. A Farmington, Connecticut-based trade organization providing research for the life insurance industry. Formerly known as Life Insurance Marketing and Research Association.

Lifestyle Fund. Asset allocation fund that is designed to simplify and encourage participants' selection of the mix of assets most appropriate to their financial situation, by offering a portfolio of funds that are designed for different phases of their lifecycle, e.g., funds with a higher proportion of equities for younger participants, some with more conservative asset mix for those nearer retirement. Also known as a lifecycle fund.

Lifetime Disability Benefit. A benefit to replace lost income throughout the insured's lifetime as long as disability exists.

Limited Assigned Distribution (LAD) System. A system of assigned risk allocation, used primarily in private passenger automobile insurance, in which some carriers buy the assignments of other carriers at a premium and take on full underwriting risk.

Limits. An insurer's aggregate liability for policies in force as of a given date.

Line. A class of business written by an insurer; also refers to the limit of insurance an insurer is willing to underwrite either for a particular risk or class of risks.

Line Slip. See Slip.

Link Ratio. The ratio determined by dividing loss amounts at one development point (for example, 60 months) by the loss amount of a previous point (for example, 48 months). This ratio is used as a tool by actuaries in estimating loss development during comparable development periods in the future.

Liquidated Damages. The amount of damages to be awarded in the case of a breach of a contract agreed upon in advance by both parties.

Little Miller Acts. State legislation patterned after the federal Miller Act requiring surety bonds for those providing goods and services to state governments. See Miller Act.

Living Benefits Rider. An optional provision of a life insurance policy that offers an insured the option to collect all or a portion of available life insurance benefits upon the occurrence of terminal or other catastrophic illness. See Viatical Settlement Companies.

Lloyd's. A London-based insurance marketplace, whose underwriting members (or Names) have considerable worldwide influence in property-casualty markets, particularly those dealing with marine and aviation insurance. Approximately one-third of Lloyd's premiums is derived from the United States.

Lloyd's American Trust Fund. A trust fund maintained with an American bank as security for the payment of claims by Lloyd's of London arising within the United States.

LMX. See London Market Excess.

LMX Spiral. The practice once prevalent within Lloyd's and other London markets of retroceding a portion of the reinsurance assumed. Thus, once a loss occurs, it works its way (or "spirals") through the various layers of retrocessionaires.

Loading. An insurer's marketing and administrative expenses added to the pure premium being charged. See also Pure Premium.

Lock-In Provisions. State laws or regulations that impede the ability of insurers to withdraw from unprofitable lines of business.

London Market Excess (LMX). This term is used to refer to an excess-of-loss reinsurance treaty written in the Lloyd's market or in other London markets.

"Long-Tail" Business. A class of business in which claims take a long period of time to occur or be settled.

Long-Term Care. Health care service provided to chronically ill or incompetent persons, whether provided on an inpatient or outpatient basis or at home.

Long-Term Disability. Similar to disability income, but the coverage is for an employed group and is offered as an employee benefit.

Loss. The amount an insurer is required to pay to a claimant.

Loss Adjuster. See Claim Adjuster.

Loss Adjustment Expense (LAE). Expenses related to the settlement of an insurer's claims, including legal and other fees and expenses, and the portion of an insurer's general expenses allocated to claim settlement costs. Subdivided into Allocated (ALAE) and Unallocated (ULAE). Allocated LAE are expenses that relate directly to a particular claim; Unallocated LAE are general, or overhead, expenses that cannot be assigned directly to a claim.

Loss Control. Activities designed to minimize losses through the design and implementation of safety prevention programs.

Loss Cost. Losses incurred divided by the number of units insured. For example, if an insurer incurs $10,000 in losses on its book of automobile insurance business and it insured 1,000 automobiles in a given period, its loss cost per unit would be $10.

Loss Development. See Development.

Loss Frequency. See Frequency.

Loss Portfolio Transfer. See Portfolio Transfer.

Loss Prevention. See Loss Control.

Loss Ratio. The ratio of incurred losses and loss adjustment expenses to earned premiums; may also refer to individual components. The ratio of incurred losses to earned premium is the Pure Loss Ratio.

Loss Reserve. An amount set aside by an insurer to cover outstanding claims - those that have been reported to the insurer, as well as those incurred but not yet reported.

Loss Severity. See Severity.

Lump Sum. Money provided in a single payment.

Lump Sum Distribution. A defined contribution plan participant's taking the assets in his or her account as a single sum, instead of as an annuity (upon retirement), or rolling the assets over into an IRA or a new employer's plan. A few defined benefit plans allow participants to take their assets as a lump sum, as well.