Insurance Glossary

FACULTATIVE REINSURANCE

A type of reinsurance that covers specific, individual risks that are unusually large or unique and not included in standard reinsurance treaties. Each risk is evaluated separately, and the reinsurer has no obligation to accept it.

FAIR ACCESS TO INSURANCE REQUIREMENTS PLANS (FAIR PLANS)

State-mandated insurance pools that provide property insurance to individuals who cannot obtain coverage in the voluntary market due to high risk. Participating insurers share profits and losses according to state rules.

FARMOWNERS-RANCHOWNERS INSURANCE

A package insurance policy designed to protect farms and ranches, covering homes, personal property, barns, equipment, and liability exposures.

FEDERAL FUNDS

Reserve balances that depository institutions lend to each other, typically on an overnight basis, including certain borrowings from federal agencies.

FEDERAL INSURANCE ADMINISTRATION (FIA)

A federal agency responsible for administering the National Flood Insurance Program (NFIP), though it does not regulate the insurance industry.

FEDERAL RESERVE BOARD

The governing body of the U.S. Federal Reserve System, responsible for supervising banking institutions, regulating bank holding companies, and managing the nation’s monetary policy.

FIDELITY BOND

A bond that protects businesses against financial losses caused by fraudulent or dishonest acts committed by employees or other specified individuals.

FIDUCIARY BOND

A type of surety bond required of fiduciaries such as trustees or executors, guaranteeing the faithful performance of their duties.

FIDUCIARY LIABILITY

Legal responsibility arising from the management of assets on behalf of others. Fiduciary liability insurance covers claims related to breaches of fiduciary duty.

FILE-AND-USE STATES

States in which insurers must file rate changes with regulators but may implement them without prior approval.

FINANCIAL GUARANTEE INSURANCE

Insurance that guarantees payment of principal and interest on debt instruments, such as municipal bonds, thereby enhancing their credit rating.

FINANCIAL RESPONSIBILITY LAW

State laws requiring automobile drivers to demonstrate their ability to pay for damages resulting from auto accidents, typically through minimum liability insurance coverage.

FINITE RISK REINSURANCE

A reinsurance arrangement with limited risk transfer, where the reinsurer’s maximum liability is capped and investment income is considered part of the underwriting results.

FIRE INSURANCE

Coverage that protects property against losses caused by fire or lightning, commonly included in homeowners and commercial property policies.

FIRST-PARTY COVERAGE

Insurance coverage that pays for losses suffered directly by the policyholder, rather than liability to others.

FIXED ANNUITY

An annuity contract that guarantees a specified rate of return during the accumulation phase and fixed income payments during the payout phase.

FLOATER

An endorsement added to a homeowners policy that provides broad coverage for valuable movable property such as jewelry, musical instruments, or fine art.

FLOOD INSURANCE

Insurance covering flood damage, typically provided through the National Flood Insurance Program and excluded from standard homeowners and most commercial property policies.

FORCED PLACE INSURANCE

Insurance obtained by a lender on behalf of a borrower who fails to maintain required coverage, ensuring protection of the lender’s interest.

FOREIGN INSURANCE COMPANY

An insurance company considered foreign in any state other than the one in which it is incorporated.

FRAUD

Intentional misrepresentation or concealment by policyholders, insurers, or intermediaries for financial gain.

FREE-LOOK PERIOD

A time period during which an annuity buyer may cancel the contract without penalty. The length varies by state.

FREQUENCY

The number of times a loss occurs over a given period, used with severity to calculate insurance premiums.

FRONTING

An arrangement in which an insurer issues a policy but transfers the entire risk to a reinsurer, often used when the reinsurer is not licensed in a specific jurisdiction.

FUTURES

Financial contracts obligating the purchase or sale of an asset at a predetermined price on a specified future date.