Coverage (redirected from coverage year)

Coverage

See: Fixed-charge coverage

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Coverage

1. The specific insured events for which an insurance company will pay a benefit. For example, a life insurance policy provides coverage in the event of death. Likewise, a health insurance policy provides money in the event of illness. Generally speaking, an insurance policy outlines what it covers and the benefits it provides under different circumstances.

2. A measure of a company's ability to pay its fixed liabilities. It is calculated by determining by subtracting its fixed payments from its operating income. High coverage indicates that the company can easily make its payments and indeed is able to set funds aside to do so in the event its income declines. Low coverage means that the company can make its payments but that it has less flexibility in doing so. A negative number indicates that the company cannot pay its fixed liabilities. The payments included in this calculation are lease payments, dividends on preferred stock, and debt service. It is also called fixed-charge coverage.