Legal Terms

stipulated insurance

An insurance policy that allows the insurance company to assess an amount on the insured, above the standard premium payments, if the company experiences losses worse than had been calculated into the standard premium. This is a way for both the insurance company and the policy-holder to gamble on the risk, mutually betting on low losses. Also called assessment, mutual assessment or mutual life insurance. Example: A shipping company buys an insurance policy to protect against loss or damage to its cargo. During the first few years, the company never pays more than the low fixed premiums because it suffers no losses. Later, however, the company's luck turns and one of its shipping liners sinks in the Bermuda Triangle. In response to the huge losses, the insurance company assess penalty payments and higher premiums.