Complete Glossary of Insurance Terminology

Complete Glossary of Insurance Terminology
A
1. AAI
Accreditied Adviser in Insurance, a designation awarded by the Insurance
Institute of America to people who have completed a three-semester
educational program designed for insurance producers.
2. accelerated benefits
Benefits available in some life insurance policies before death, usually
triggered by long-term, catastrophic or terminal illness. Also known as living
benefits.
3. accident
An event that is unforeseen, unexpected, and unintended.
4. accidental bodily injury
Physical injury sustained as the result of an accident.
5. accident report form
An accident report form is used to record key information about the accident.
6. accidental death benefits
A provision added to a life insurance policy for payment of an additional
benefit in case of death that results from an accident. This provision is often
called "double indemnity."
7. account analyst
See Administrative Assistant.
8. account current
An account current is the billing statement an insurance company sends to its
producer.
9. account selling
Account selling is trying to handle all of a client's insurance needs, rather than
providing for only a portion of those needs.
10. accounts receivable insurance
Pays for the cost of reconstructing accounts receivable records that have been
damaged or destroyed by a covered peril. Even more important, it covers any
payments that cannot be collected because records cannot be reconstructed.
11. accredited adviser in insurance
See AAI.
12. actual cash value (ACV)
The value of property as figured by determining what it would cost to replace
the property (see Replacement Cost) and then adjusting this replacement
cost by subtracting an amount that reflects depreciation.
13. ACV
See Actual Cash Value.
14. accumulation period
The time during which a person pays money into an annuity contract and
builds up a fund to provide a deferred annuity.
15. actuary
Someone professionally trained in the technical aspects of insurance and
related fields, particularly in the mathematics of insurance (the calculation of
premiums, reserves and other values). An actuary uses complex
mathematical methods, often with the aid of computers, to analyze past loss
data and other statistics and develop systems for determining future
premiums.
16. adjuster
See Claims Adjuster.
17. adjustable life insurance
A type of insurance that allows the policyholder to change the plan of
insurance, raise or lower the face amount of the policy, increase or decrease
the premium and lengthen or shorten the protection period.
18. administrative assistant
The administrative assistant supports the sales efforts of the producer. Other
titles for this position include agency underwriter, insurance placer, customer
service representative, marketing specialist, account analyst, and office
manager.
19. administrative services only (ASO) agreement
Contract between an insurer (or its subsidiary) and a group employer, eligible
group, trustee, or other party, in which the insurer provides certain
administrative services. These services may include actuarial support, plan
design, claims processing, data recovery and analysis, benefits
communications, financial advice, medical care conversions, data preparation
for governmental reports, and stop-loss coverage.
20. adverse selection
When people with a very high probability of loss purchase insurance to a
greater extent that people with average or below average probabilities of loss.
Underwriters' major goal is to avoid adverse selection.
21. age limits
Ages below and above which an insurance company will not accept
applications or renew policies.
22. agency billing
See Producer Billing.
23. agency underwriter
See Administrative Assistant.
24. agent
An authorized representative of an insurance company who sells and services
insurance contracts. See Producer, Exclusive Agent, Independent Agent.
25. aggregate indemnity
The maximum amount that may be collected for any disability, or period of
disability, under an insurance policy.
26. allocated benefits
Maximum amount for specific services as itemized in an insurance contract.
27. "all-risks"
"All Risks" property policies, often called "special" policies, cover any loss
unless it is caused by an excluded peril listed in the policy.
28. alternate delivery system
Health services that are more cost-effective than inpatient, acute-care
hospitals, such as skilled and intermediary nursing facilities, hospice
programs, and in-home services.
29. ambulatroy care
Medical services provided on an outpatient (non-hospitalized) basis. Services
may include diagnosis, treatment, surgery, and rehabilitation.
30. amendment
Document changing the provisions of an insurance contract signed jointly by
the insurer and the policyholder.
31. annuitant
The person entitled to receive annuity payments or who now receives them.
32. annuities
Annuities are contracts sold by life insurance companies (the seller must be a
licensed insurance entity in your state). In their simplest form, you pay a sum
of money (either a lump sum or a series of payments) and the insurance
company makes periodic payments to you, beginning on the date in your
contract and continuing for the rest of your life. The earnings on your annuity
payments are not taxable during the accumulation phase of your agreement;
the annuity payments are taxable as income when you receive them. Variable
annuities permit you to place your payments in professionally managed funds,
similar to mutual funds, and to control how these payments are invested
during the life of your contract. Unlike mutual funds, variable annuities have
insurance provisions and guarantees to preserve the value of the principal
you pay into the annuity. They also generally carry higher fees than mutual
funds. Annuities may entail extensive taxation and estate issues, and annuity
buyers should make sure they’re aware of such issues.
33. annuity certain
A contract that provides an income for a specified number of years,
regardless of life or death.
34. annuity consideration
The payment, or one of the regular periodic payments, an annuitant makes
for an annuity.
35. application
A statement of information made by someone applying for life insurance. The
information gathered helps the life insurance company assess whether the
risk presented by the applicant is acceptable to underwriters.
36. approval
Signifies the legal acceptance of forms by a state when policy information is
filed;
Signifies the insurer's acceptance of risks as set forth in an application for
insurance (as originally made or modified by the insurer); or
Signifies the acceptance of a request from an applicant or policyholder for
new insurance, reinstatement of a terminated policy, a policy loan, or other
request.
37. assigned risk plans
See Automobile Insurance Plans.
38. assignment
The legal transfer of one person's interest in an insurance policy to another
person.
39. association group
A group formed from members of a trade or professional association for
insurance under one master health insurance contract.
40. audit
During an audit, members of the home office staff underwriting department
examine files to see whether the underwriting guidelines are being followed.
Also see Premium Auditor.
41. audited premium
See Premium Auditor.
42. auto liability
Pays for damages that you cause to other people and their property. If you
cause an accident and you bang up your car or yourself, your auto liability
insurance will not pay for your medical bills or the repairs to your car. (Auto
medical payments coverage would.) But it will pay for the other guy’s, up to
the limits of your policy. Without the coverage, your assets would be subject
to seizure to pay the medical bills, car repairs and other damages that you
caused in an accident. Once the insurance company pays out the limits of
your policy, you’re liable for the rest, which is why it’s advisable to purchase
higher limits than what your state requires. Auto liability coverage has three
parts: bodily injury per person, bodily injury per accident, and property
damage. Limits for liability are usually written like "20/40/10." That means a
policy will pay bodily injury losses up to $20,000 per person, and up to
$40,000 per accident (if more than one person was hurt). It will also pay
property damage losses up to $10,000 per accident.
43. automatic premium loan
A provision in a life insurance policy that any premium not paid by the end of
the grace period (usually 31 days) is automatically paid by a policy loan if
there is sufficient cash value.
44. automobile insurance plans
Formerly known as assigned risk plans--are residual market programs
providing auto insurance. See Residual Market.
45. auto medical payments
If you cause an accident, the coverage works like this: Auto liability coverage
pays the bodily injury and property damage losses of the other person.
Collision coverage pays for repairs to your own vehicle. Auto medical
payments coverage pays medical and funeral expenses for you and your
passengers. If you already have health and disability insurance, the coverage
may be redundant.
46. auto physical damage coverage
Insures against loss resulting from damage to an auto owned by the insured;
also provides coverage if the car is stolen.
B
1. beneficiary
The person or financial instrument (for example, a trust fund), named in the
policy as the recipient of insurance money in the event of the policyholder's
death.
2. benefit
Amount payable by the insurance company to a claimant, assignee, or
beneficiary when the insured suffers a loss.
3. binding receipt
A receipt given for the payment which accompanies an application for
insurance. If the policy is approved, the payment "binds" the company to
make the policy effective from date of receipt.
4. blanket contract
Contract for health insurance that coves a class of persons. It is used for
groups such as athletic teams and for employee travel.
5. blanket medical expense
A provision that entitles the insured person to collect up to a maximum for all
hospital and medical expenses, without limitations on specific types of
medical expenses.
6. blue cross
Nonprofit corporation providing protection to its members against the cost of
hospital care in a limited geographic area.
7. blue shield
Nonprofit corporation providing protection to its members against the cost of
surgery and other items of medical care in a limited geographic area.
8. broker
A sales and service representative who handles insurance for clients,
generally selling insurance of various kinds and for several companies.
Brokers resemble agents, except for the fact that, in a legal sense, brokers
represent the party seeking insurance rather than the insurance company.
See Agent, Producer.
9. business insurance
A policy that provides coverage to a business. It is often purchased to
indemnify a business for the loss of services if a key employee (such as a
partner) becomes disabled.
10. business life insurance
Life insurance purchased by a business enterprise on the life of a member of
the firm. It is often bought by partnerships to protect the surviving partners
against loss caused by the death of a partner, or by a corporation to
reimburse it for loss caused by the death of a key employee. (Also known as
key person insurance.)
C
1. cancer insurance
A very narrow form of health insurance that covers the policyholder in the
event he or she contracts cancer. Policies often exclude skin cancer. Some
policies won't pay for cancer treatments until several years after the policy
was purchased. Consumer groups and insurance regulators have said cancer
insurance policies are more expensive than they're worth, since the insurance
companies pay out a rather small percentage of the premiums they collect.
2. capitation
Method of payment whereby a physician or hospital is paid a fixed amount for
each person in a particular plan regardless of the frequency or type of service
provided.
3. cash value
The amount available in cash upon surrender of a policy before it becomes
payable upon death or maturity.
4. certificate
A statement issued to individuals insured under a group policy, setting forth
the essential provisions relating to their coverage.
5. claim
Notification to an insurance company that payment of an amount is due under
the terms of the policy. A claim is a demand by a person or business who is
seeking to recover for a loss. A claim may be made against an individual. A
claim may also be made against an insurance company, when an insured asks
the insurance company to pay for a loss that may be covered by an insurance
policy.
6. co-insurance
Arrangement by which the insurer and the insured share, in a specific ratio,
payment for losses covered by the policy, after the deductible is met.
7. combination plans
Life insurance policies that combine features of term and whole life policies.
8. comprehensive medical expense insurance
Insurance that provides coverage, in one policy, for basic hospital expense
and major medical expense.
9. computer insurance
Covers computer equipment and peripherals beyond the normal coverage
provided in homeowner's insurance policies. Usually, homeowner's policies
only cover up to between $1,000 and $3,000 in computer equipment. With
more people owning expensive computers and peripherals, and even using
them for home-based businesses, riders and separate policies are becoming
more popular. Some policies are also designed to cover damage and/or theft
of portable equipment, such as laptop computers, and even the costs of data
recovery.
10. consolidate omnibus budget reconciliation act (COBRA)
Requires employers with more than 20 employees to make group health care
coverage available for 18 months, at the employee's expense, to employees
who leave the employer for any reason other than gross misconduct.
11. consideration clause
Stipulation that states the basis on which an insurer issues an insurance
contract.
12. contributory plan
Group plan under which the insured shares in the cost of the plan with the
policyholder.
13. conventional health plan
Plan that provides all benefits and issues certificates containing the insurance
company's guarantees.
14. conversion privilege
Right given to an insured person under a group insurance contract to change
coverage, without evidence of medical insurability, to an individual policy
upon termination of the group coverage. The conditions under which
conversion can be made are defined in the master policy.
15. convertible term insurance
Term insurance that offers the policyholder the option of exchanging it for a
permanent plan of insurance without evidence of insurability.
16. coordination of benefits (COB)
Method of integrating benefits payable under more than one health insurance
plan so that the insured's benefits from all sources do not exceed 100 percent
of allowable medical expenses or eliminate incentives to contain costs.
17. cost containment
Reduction of inefficiencies in the consumption, allocation, or production of
health care services. Inefficiencies can occur when health services are used
inappropriately; when health services could be delivered in less costly
settings; and when the costs could be reduced by using a different
combination of resources.
18. cost index
A way to compare the costs of similar plans of life insurance. A policy with a
smaller index number is generally a better buy than a comparable policy with
a larger index number.
19. covered expenses
Health care charges that an insurer will consider paying under the terms of a
health insurance policy.
20. cost-of-living rider
An option that permits the policyholder to purchase increasing term insurance
coverage. The death proceeds increase by a stated amount each year to
coincide with an estimated increase in the cost of living.
21. credit insurance
Optional coverage that pays off the balance of an outstanding loan in the
event you become disabled, unemployed or die. Exact coverage depends on
the particular policy. Variations include credit life (pays if you die), credit
health or disability (pays if you get sick or become disabled) and credit
unemployment insurance (pays if you involuntarily lose your job). Usually
offered with credit cards, auto loans and mortgages.
22. credit life insurance
Term life insurance issued through a lender or lending agency to cover
payment of a loan, installment purchase or other obligation, in case of death.
23. current assumption whole life insurance
A variation of universal life insurance, this product involves fixed premiums
and fixed death benefits. Its cash value growth depends on market
conditions. If they are favorable and if premiums paid in the policy's first year
are large enough, premiums for one or more years may be reduced to zero.
D
1. deductible
Amount that must be paid by the insured before benefits will be paid by the
insurer.
2. declination
The rejection by a life insurance company of an application for life insurance,
usually for reasons of health or occupation.
3. deferred annuity
Annuity payments that will begin at some future date.
4. deferred group annuity
A type of group annuity providing for the purchase each year of a paid-up
deferred annuity for each member of the group, the total amount received by
the member at retirement being the sum of these deferred annuities.
5. deposit administration group annuity
A type of group annuity providing for the accumulation of contributions in an
undivided fund out of which annuities are purchased as the members of the
group retire.
6. deposit term insurance
A form of term insurance, not really involving a "deposit," in which the firstyear premium is larger than subsequent premiums. Typically, a partial
endowment is paid at the end of the term period. In many cases the partial
endowment can be applied toward the purchase of a new term policy or,
perhaps, a whole life policy.
7. diagnosis-related groups (DRG)
System of determining reimbursement fees based on the medical diagnosis of
a patient.
8. disability
Physical or mental condition that prevents a person from performing one or
more occupational duties temporarily (short-term), long-term, or totally (total
disability).
9. disability benefit
A feature added to some life insurance policies providing for waiver of
premium, and sometimes payment of monthly income, if the policyholder
becomes totally and permanently disabled.
10. disability income insurance
Insurance that provides periodic payments when an insured person is unable
to work as a result of illness or injury.
11. disability insurance
A form of health insurance that pays the policyholder in place of his or her
usual income if the policyholder can't work because of illness or accident.
Usually, policies begin paying after a waiting period stipulated in the policy,
and pay a certain percentage of the policyholder's usual income. Sometimes
this is provided by employers, but it's also available as a separate coverage.
12. dismemberment
Accidental loss of limb or sight.
13. disposable personal income
Personal income less personal tax and nontax payments; the income available
to people for spending and saving.
14. dividend
An amount of money returned to the holder of a participating policy. The
money is a partial refund of the premium paid. It results from actual
mortality, interest and expenses that were more favorable than expected
when the premiums were set.
15. dividend addition
An amount of paid up insurance purchased with a policy dividend and added
to the face amount of the policy.
16. double indemnity
Payment of twice the policy normal benefit for specific kinds of losses under
certain conditions.
17. dual life insurance
Another name for second-to-die insurance.
18. duplication of coverage
Coverage under two or more policies for the same potential loss.
E
1. earned premium
Portion of a premium for which protection has already been provided by the
insurer.
2. earthquake insurance
Earthquake policies are similar to regular homeowner's policies but without
the liability coverage. You choose a dollar ceiling for the dwelling coverage,
and a percentage of this ceiling is then applied to coverages for personal
property and additional living expenses (hotel expenses if your home
becomes uninhabitable). Premiums for these policies are usually rather steep
in the places where you would need to buy one. Until recently, the only place
Californians could buy the coverage was from the California Earthquake
Authority, which offered skimpy coverage. But the market is opening up again
and some other companies are offering old-fashioned policies with better
coverage (at higher rates, of course).
3. effective date
Date when insurance coverage begins.
4. eligible employees
Employees who meet the eligibility requirements for insurance set forth in a
group policy.
5. eligibility date
Date when a member of an insured group applies for insurance.
6. eligibility period
Time following the eligibility date (usually 31 days) during which a member of
a group may apply for insurance without evidence of insurability.
7. elimination period
Days at the beginning of a period of disability when no benefits are paid.
8. employee retirement income security act of 1974 (ERISA)
Federal law that affects pension and profit-sharing plans. Among other
provisions, this law specifies a published summary plan must be distributed to
participants within 120 days after adoption of the plan and within 90 days
after an employee becomes a participant. The law requires that a summary
plan description be issued every 5 years.
9. endowment
Life insurance payable to the policyholder if living, on the maturity date stated
in the policy, or to a beneficiary if the insured dies before that date.
10. enrollment card
Document signed by an eligible person indicating a desire to participate in a
group insurance plan. The document or card authorizes an employer to
deduct contributions from an employee's pay. If life and accidental death and
dismemberment coverage are involved, the card usually includes the
beneficiary's name and relationship.
11. evidence of insurability
A statement or proof of physical condition and/or other factual information
affecting a person's eligibility for insurance. In group insurance, evidence of
insurability is required only in specific situations: when a person fails to enroll
during the open enrollment period; when a person applies for reinstatement
after having previously withdrawn from the plan when receiving an overall
maximum benefit; or when a person applies for excess amounts of group life
or disability insurance.
12. exclusions (exceptions)
Conditions or circumstances, listed in the policy, for which the insurer will not
provide benefits.
13. exclusive provider organizations (EPO)
Form of managed care in which participants are reimbursed only for care
received from affiliated providers.
14. expectation of life
See life expectancy.
15. experience
Relationship, usually expressed as a percent or ratio, of claims to premiums
for a stated period.
16. experience rating
Process of determining the premium rate for a group based wholly or partially
on that risk's experience.
17. experience refund
Amount returned by an insurer to a group policyholder when the financial
experience of a particular group (or class to which the group belongs) has
been more favorable than anticipated.
18. extended term insurance
A form of insurance available as a non-forfeiture option. It provides the
original amount of insurance for a limited period of time.
F
1. face amount
The amount stated on the face of the insurance policy that will be paid in case
of death or at maturity. It does not include dividend additions or additional
amounts payable under accidental death or other special provisions.
2. family policy
A life insurance policy providing insurance on all or several family members in
one contract, generally whole life insurance on the principal breadwinner and
small amounts of term insurance on the other spouse and children, including
those born after the policy is issued.
3. flat schedule
A type of group insurance schedule under which everyone is insured for the
same benefits regardless of salary, position, or other circumstances.
4. flexible premium deferred annuity
An annuity contract that permits varying premium payments from year to
year and is often used for individual retirement accounts.
5. flexible premium policy or annuity
A life insurance policy or annuity under which the policyholder or contract
holder may vary the amounts or timing of premium payments.
6. flexible premium variable life insurance
A life insurance policy that combines the premium flexibility feature of
universal life insurance with the equity-based benefit feature of variable life
insurance.
7. flood insurance
A regular homeowner’s policy will not pay for damages caused by flooding. In
order to get the coverage, you’ll have to go to some outfit that writes for the
National Flood Insurance Program. Outside of fire, flooding is the most
widespread natural disaster. If your community participates in NFIP’s
floodplain management program, you should be eligible to buy the coverage.
The only people who may have trouble finding flood coverage are residents of
"coastal barrier resource system" areas and communities that do not
participate in NFIP’s programs. Flood insurance is also available to renters,
condominium owners, and co-op owners.
8. franchise insurance
Insurance contracts issued to members of a specific group (such as
employees of a common employer or members of an association) under a
group-like arrangement in which the employer or the association collects and
remits premiums.
9. fraternal life insurance
Life insurance provided by fraternal orders or societies to their members.
G
1. grace period
A period (usually 31 days) following each premium due date, other than the
2.
3.
4.
5.
first due date, during which an overdue premium may be paid. All provisions
of the policy remain in force throughout this period.
group annuity
A pension plan providing annuities at retirement to a group of people under a
master contract. It is usually issued to an employer for the benefit of
employees. The individual members of the group hold certificates as evidence
of their annuities.
group life insurance
Life insurance that usually does not require medical examinations, on a group
of people under a master policy. It is typically issued to an employer for the
benefit of employees, or to members of an association, for example, a
professional membership group. The individual members of the group hold
certificates as evidence of their insurance.
guaranteed insurability
An option that permits the policyholder to buy additional stated amounts of
life insurance at stated times in the future without evidence of insurability.
guaranteed renewable contract
Contract under which an insured has the right, commonly up to a certain age,
to continue the policy by the timely payment of premiums. Under renewable
contracts, the insurer reserves the right to change premium rates by policy
class.
H
1. health insurance
Coverage that provides benefits as a result of sickness or injury. Policies
include insurance for losses from accident, medical expense, disability, or
accidental death and dismemberment.
2. health maintenance organization (HMO)
Organization that provides a wide range of comprehensive health care
services for a specified group for a fixed periodic prepayment.
3. hospice
Care provided to terminally ill patients and their families that emphasizes
emotional needs and coping with pain and death rather than cure.
4. hospital indemnity insurance
Health insurance that provides a stipulated daily, weekly, or monthly payment
to an insured person during hospital confinement, without regard to the
actual confinement expense.
5. hospital medical insurance
Coverage that provides benefits for the cost of any or all hospital services
normally covered under various health care plans.
I
1. incurred claims
Claims paid during the policy year plus the claim reserves as of the end of the
policy year, minus the corresponding reserves as of the beginning of the
policy year. The difference between the year end and beginning of the year
claim reserves is called the increase in reserves and may be added directly to
the paid claims to produce the incurred claims.
2. indemnity
Benefits of a predetermined amount paid for a loss.
3. individual insurance
A policy that provides protection to a policyholder and/or his or her family;
sometimes called personal insurance as distinct from group and blanket
insurance.
4. individual policy pension trust
A type of pension plan, frequently used for small groups, administered by
trustees who are authorized to purchase individual level premium policies or
annuity contracts for each member of the plan. The policies usually provide
both life insurance and retirement benefits.
5. individual retirement account (IRA)
An account set up by an individual that in some cases allows contributions to
be deducted from income and permits earnings on contributions to
accumulate tax-deferred until retirement, regardless of whether the
contributions are deductible. Under the 1986 tax law, only those who do not
participate in a pension plan at work or who do participate and meet certain
income guidelines can make tax-deductible contributions to an IRA. All others
can make contributions to an IRA on a non-deductible basis.
6. industrial life insurance
Life insurance issued in small amounts, usually less than $1,000, with
premiums payable on a weekly or monthly basis. The premiums are generally
collected at the home by an agent of the company. Sometimes referred to as
debit insurance.
7. injury independent of all other means
An injury resulting from an accident that was not caused by an illness.
8. inland marine insurance
A broad type of insurance, generally covering articles that may be transported
from one place to another as well as bridges, tunnels and other means of
transportation. It includes goods in transit (generally excepting transoceanic)
as well as numerous "floater" policies such as personal effects, personal
property, jewelry, furs, fine arts and other such items.
9. insurability
Acceptability to the company of an applicant for insurance.
10. insurable risk
The conditions that make a risk insurable are (1) the peril insured against
must produce a definite loss not under the control of the insured, (2) there
must be a large number of homogeneous exposures subject to the same
perils, (3) the loss must be calculable and the cost of insuring it must be
economically feasible, (4) the peril must be unlikely to affect all insureds
simultaneously, and (5) the loss produced by a risk must be definite and have
a potential to be financially serious.
11. insurance
Risk management plan that, for a price, offers the insured an opportunity to
share the costs of possible financial loss through an insurer.
12. insuring clause
Stipulation in an insurance policy that states the type of loss the policy covers
and lists the parties to the contract.
13. insurance examiner
The representative of a state insurance department assigned to participate in
the official audit and examination of the affairs of an insurance company.
14. insured
The person on whose life the policy is issued.
15. integration
The combining of two or more benefit plans to prevent duplication of
payments.
J
K
1. Keogh plan
A type of tax-favored retirement plan for self-employed people.
2. key-person insurance
Insurance designed to protect a business against the loss of income resulting
from the disability or death of an employee in a significant position.
L
1. lapse
Termination of coverage because of nonpayment within a specified time
period.
2. lapsed policy
A policy terminated at the end of the grace period because of non-payment of
premiums.
3. legal reserve
The minimum reserve, as calculated under the state insurance code, which a
company must keep to meet future claims and obligations.
4. legal reserve life insurance company
A life insurance company operating under state insurance laws specifying the
minimum basis for the reserves the company must maintain on its policies.
5. level premium
Rating structure under which the premium level remains the same throughout
the life of the policy.
6. level premium insurance
Insurance for which the cost is distributed evenly over the premium payment
period. The premium remains the same from year to year and is more than
the actual cost of protection in the earlier years of the policy and less than the
actual cost in the later years. The excess paid in the early years builds up a
reserve to cover the higher cost in the later years.
7. life annuity
A contract that provides an income for life.
8. lifetime disability benefit
A provision making benefits payable for an insured's lifetime as long as the
insured person is totally disabled.
9. life expectancy
The average number of years of life remaining for a group of people of a
given age according to a particular mortality table.
10. life insurance in force
The sum of the face amounts, plus dividend additions, of life insurance
policies outstanding at a given time. Additional amounts payable under
accidental death or other special provisions are not included.
11. limited payment life insurance
Whole life insurance on which premiums are payable for a specified number of
years or until death, if death occurs before the end of the specified period.
12. limited policy
Policy that covers only specified accidents or sicknesses.
13. living benefits
Another name for accelerated death benefits.
14. load
Any sales fees or charges paid in purchasing an annuity contract.
15. long-term care
A continuum of maintenance, custodial, and health services for the chronically
ill or disabled. Such services may be provided on an inpatient (rehabilitation
facility, nursing home, mental hospital) or outpatient basis, or at home.
16. Long term care insurance
A health-insurance variation designed to cover the costs of long term care at
home or in a nursing home. These policies offer a specified nursing home
benefit and home-care benefit. Some policies also account for inflation. The
popularity of long term care insurance has grown as federal laws have
changed, making it less likely that Medicaid will pick up the tab for long term
care. These policies are usually rather expensive, and grow even more costly
as the policyholder ages.
17. long-term disability income insurance (LTD)
Plan that helps replace income lost through inability to work because of
disability caused by an accident or illness.
M
1. major medical expense insurance
Insurance that provides benefits for most types of medical expenses up to a
high maximum benefit. Such contracts often contain internal limits and
usually are subject to deductibles and co-insurance.
2. managed care
Systems that integrate the financing and delivery of appropriate health care
services by means of arrangements with selected providers to furnish a
comprehensive set of health-care services to members; explicit criteria for the
selection of health-care providers; formal programs for ongoing quality
assurance and utilization review; and significant financial incentives for
members to use providers and procedures associated with the plan.
3. manual premium rate
Premium for a group developed from the insurer's standard rate tables; it is
the cost usually quoted in an insurer's underwriting manual.
4. Medicaid
Simply put, Medicaid is health insurance for the poor. It was created in 1965
as a joint federal/state public assistance program for those too poor to afford
health care. Since the program is administered by the individual states under
federal guidelines, the benefits offered and eligibility requirements vary
widely. About 36 million people around the U.S., including children, the
elderly, the blind and the disabled, are currently covered by Medicaid.
Usually, Medicaid recipients pay no part of costs for covered medical
expenses, although a co-payment is sometimes required.
5. Medicare
Medicare is a federal insurance program which primarily serves those over 65
years old and younger, disabled people and dialysis patients. It currently
covers about 37 million Americans. Medicare is divided into Part A, which
covers inpatient hospital services, nursing home care, home health care and
hospice care; and Part B, which helps pay the cost of doctors' services,
outpatient hospital services, medical equipment and supplies, and other
health services and supplies. Recipients pay some part of the costs through
deductibles. Since Medicare doesn't cover all expenses, recipients often
supplement their coverage through separate Medigap policies.
6. medsup (aka: medigap)
Private insurance that can be purchased to supplement Medicare.
7. minimum group
The fewest number of employees permitted under a state law to constitute a
group for insurance purposes; the purpose of establishing minimums is to
maintain a distinction between individual and group insurance.
8. minimum premium plan
The employer self-funds a fixed percentage (e.g. 90 percent) of the estimated
monthly claims, and the insurer covers the remainder. This self-funded
approach avoids payment of a premium tax required in most states.
9. miscellaneous expense
Expenses connected with hospital insurance; hospital charges other than
room and board such as x-rays, drugs, laboratory fees, and other charges.
10. modified life insurance
A type of whole life policy with a premium that is relatively low in the first
several years but that increases in later years.
11. morbidity
Frequency and severity of sicknesses and accidents in a well-defined class or
classes of persons.
12. mortality table
A statistical table showing the death rate (probability of death) at each age.
13. mortgage insurance
There are actually two types of mortgage insurance. Usually, people mean
private mortgage insurance, or PMI, which protects a mortgage company
against a defaulted loan. PMI does not benefit the homeowner. If you bought
your home with a down payment of less than 20 percent of its value, your
bank probably made you take out PMI. At some point, you won’t have to pay
for PMI any more, but don’t expect the bank to let you know when that is.
Mortgage insurance can also mean a type of life insurance, which pays off the
balance of a mortgage when the policyholder dies or, in some cases, becomes
disabled. As a homeowner, you want to get rid of the first type as soon as you
can. You might want to consider the second type.
14. multiple employer trust (MET)
A trust established by a sponsor that brings together a number of small,
unrelated employers for the purpose of providing group medical coverage on
an insured or self-funded basis.
15. mutual life insurance company
A life insurance company owned by policyholders who share in the company's
surplus earnings.
N
1. national association of insurance commissioners (NAIC)
National organization of state officials charged with regulating insurance. It
has no official power but wields significant influence. NAIC was formed to
provide national uniformity in insurance regulations.
2. no-fault insurance
No-fault insurance (sometimes known as PIP or PPI) is designed to pay for
the financial losses associated with minor accidents as quickly as possible.
Under a no-fault system, your own insurance company will pay medical
expenses and lost wages caused by an accident, regardless of who was at
fault. In the long run, this system saves time and money that would
otherwise be spent litigating petty claims. Usually, that means less expensive
auto insurance. In exchange, no-fault systems limit the right to sue under
certain circumstances. Not every state has no-fault, and systems vary quite a
bit from state to state. In Michigan, there is no limit to the amount that you
can collect under no-fault. In other states, you may only be able to collect
$5,000. Once no-fault runs out, motorists can turn to their uninsured
motorist/underinsured motorist coverage to make up the difference.
3. noncancellable policy
A policy that can be maintained through timely payment of the premiums
until the policyholder is at least age 50 or, in the case of a policy issued after
age 44, for at least five years from the date of issue. The insurer may not
unilaterally change any provision of the in-force policy, including premium
rates.
4. noncontributory plan
Group insurance plan under which the employer does not require employees
to share in its cost.
5. nondisabling injury
Any injury that may require medical care but does not result in the loss of
working time or income.
6. non-forfeiture option
One of the choices available if the policyholder discontinues payments on a
policy with a cash value. This may be taken in cash as extended term
insurance or as reduced paid-up insurance.
7. non-forfeiture values
The value of the policy if canceled, either in cash or in another form of
insurance. Also available to the policyholder if required premium payments
are not paid.
8. non-medical limit
The maximum face value of a policy that a given company will issue without
the applicant taking a medical examination.
9. nonoccupational policy
Policy that covers only non-job-related accidents or sicknesses not covered
under any workers' compensation law.
10. non-participating insurance
Insurance on which no dividends are paid.
11. nonparticipating policy
Policy that does not provide for payment of a dividend.
12. nonprofit insurers
Corporations organized under special state laws to provide medical benefits
on a not-for-profit basis (for example, Blue Cross Blue Shield and Dental
Service Corporations).
O
1. occupational hazards
Factors inherent in the insured person's occupation that expose him or her to
greater-than-normal physical danger.
2. optional renewable policy
Contract that grants the insurer the right to terminate a policy on any
anniversary, or, in some cases, on a premium date.
3. ordinary life insurance
Life insurance usually issued in amounts of $1,000 or more with premiums
payable on an annual, semi-annual, quarterly or monthly basis.
4. overhead expense insurance
Insurance for business owners to help offset continuing business expenses if
the owner is disabled.
P
1. paid-up insurance
Insurance on which all required premiums have been paid.
2. partial disability
A disability that prevents a person from performing one or more functions of
his or her regular job.
3. participating insurance
Insurance on which the policyholder is entitled to share in the surplus
earnings of the company through policy dividends that reflect the difference
between the premium charged and the cost to the company of providing the
insurance.
4. participating policy
Policy under which the policyholder is eligible to receive dividends.
5. payout period
The period during which you receive the income from your annuity contract.
6. permanent life insurance
A phrase used to cover any form of life insurance except term; generally
insurance that accrues cash value, such as whole life or endowment.
7. physician's expense insurance
Coverage that provides benefits toward the cost of doctor's fees - for surgical
care in the hospital, at home, or in a physician's office, and for x-rays or
laboratory tests performed outside of a hospital. (Also called Regular Medical
Expense Insurance).
8. point of service plan (POS)
Plan that offers a full range of health services through a combination of HMO
and PPO features. Members can choose to either use the defined managed
care program (with 100 percent coverage) or go out-of-plan for services (with
80 percent coverage).
9. policy
The printed document issued to the policyholder by the company stating the
terms of the insurance contract.
10. policy loan
Under an insurance policy, the amount that can be borrowed at a specified
rate of interest from the issuing company by the policyholder, who uses the
value of the policy as collateral for the loan. In the event the policyholder dies
with the debt partially or fully unpaid, the insurance company deducts the
amount borrowed, plus any accumulated interest, from the amount payable.
11. policy reserves
The measure of the funds that a life insurance company holds specifically for
fulfillment of its policy obligations. Reserves are required by law to be
calculated so that, together with future premium payments and anticipated
interest earnings, they will enable the company to pay all future claims.
12. policyholder
The person who owns a life insurance policy. This is usually the insured
person, but it may also be a relative of the insured, a partnership or a
corporation.
13. policy term
The period for which an insurance policy provides coverage.
14. precertification
A utilization management program that requires the insured or the health
care provider to notify the insurer prior to a hospitalization or surgical
procedure. The notification allows the insurer to authorize payment, as well as
to recommend alternate courses of action.
15. preexisting condition
Any physical and/or mental condition or conditions that exist prior to the
effective date of health insurance coverage.
16. preferred provider organization (PPO)
Plan through which a sponsoring group negotiates price discounts with
providers in exchange for patients. The sponsor may be an insurer, employer,
or third-party administrator.
17. premium
The payment, or one of the regular periodic payments, that a policyholder
makes to own an insurance policy.
18. premium loan
A policy loan made for the purpose of paying premiums.
19. prepaid group practice plan
A plan under which specified health services are rendered by participating
physicians to an enrolled group of persons, with a fixed periodic payment
made in advance by (or on behalf of) each person or family. If a health
insurance carrier is involved, a contract to pay in advance for the full range of
health services to which the insured is entitled under the terms of the health
insurance contract. An HMO is an example of a prepaid group practice plan.
20. principal
The amount you pay into your annuity contract as distinguished from the
interest that is credited to it.
21. principal sum
Amount payable in a lump sum in the event of accidental death and, in some
cases, accidental dismemberment.
22. professional standards review organization (PSRO)
Organization responsible for determining whether care and services provided
are necessary and meet standards for reimbursement under the Medicare and
Medicaid programs.
23. proration
Modification of policy benefits because of changes in the insured's occupation
or the purchase of other insurance.
24. prospective payment
Payment of a lump-sum to an institution for care of an insured person based
on a predetermined amount correlated with a diagnosis.
Q
1. qualified annuity
An annuity that is sold as part of a tax-qualified Keogh plan or company
pension plan.
2. qualified impairment insurance
A form of substandard or special class insurance that restricts benefits for an
insured person's particular condition.
R
1. rated policy
Sometimes called an "extra-risk" policy, an insurance policy issued at a
higher-than-standard premium rate to cover the extra risk where, for
example, an insured has impaired health or a hazardous occupation.
2. reasonable and customary charge (R & C)
Amounts charged by health care providers that are consistent with charges
from similar providers for identical or similar services in a given locale.
3. recurring claim provision
A provision in some health insurance policies that specifies a length of time
during which the recurrence of a condition is considered to be a continuation
of a previous period of disability or hospital confinement.
4. reduced paid-up insurance
A form of insurance available as a non-forfeiture option. It provides for
continuation of the original insurance plan but for a reduced amount.
5. rehabilitation
Process and goal of restoring disabled persons to maximum physical, mental,
and vocational independence and productivity (commensurate with their
limitations). Rehabilitation is achieved by identifying and developing residual
capabilities, job modification, or retraining. A "rehabilitation provision"
appears in some long-term disability policies; this provides for continuation of
benefits or other financial assistance during the rehabilitation period.
6. reinstatement
The restoration of a lapsed policy to full force and effect. The company
requires evidence of insurability and payment of past due premiums plus
interest.
7. reinsurance
Acceptance by one insurer (the reinsurer) of all or part of the risk or loss
underwritten by another insurer (the ceding insurer).
8. renewal
Continuance of coverage beyond original terms signified by acceptance of a
premium payment for a new term.
9. renewable term insurance
Term insurance providing the right to renew at the end of the term for
another term or terms, without evidence of insurability. The premium rates
increase at each renewal as the age of the insured increases.
10. replacement vs. actual cash value
The actual cash value of an item can be depressingly small after only a brief
period of ownership. And, if your homeowner's coverage entitles you to only
the actual cash value of any damaged property, you could be out of luck
when you go to replace the property with only your claim check as payment.
Replacement-cost coverage permits you to claim the cost of replacing an
insured item. Its most important use is on your home and, secondly, the
personal property in your home.
11. reserve
The amount required to be carried as a liability in the financial statement of
an insurer to provide for future commitments under policies outstanding.
12. residual disability benefits
A provision that provides benefits in proportion to a reduction of earnings as a
result of disability, as opposed to the inability to work full-time.
13. rider
An amendment to an insurance policy that modifies the policy by expanding
or restricting its benefits or excluding certain conditions from coverage.
14. risk
The probable amount of loss foreseen by an insurer in issuing a contract. The
term sometimes applies to the person insured or to the hazard insured
against.
15. risk classification
The process by which a company decides how its premium rates for life
insurance should differ according to the risk characteristics of individuals
insured (for example, age, occupation, sex, state of health) and then applies
the resulting rules to individual applications. (See underwriting.)
S
1. second-to-die life insurance
A form of insurance, traditionally used as an estate planning tool, that pays a
death benefit only upon the death of the insured who survives the longest. Its
main purpose is to pay estate taxes upon the death of the second insured.
Because it is based on joint life expectancy, its premium is less than the total
premiums for individual policies on the same lives. This type of insurance is
available in many forms, including policies with interest-rate features and
flexible premiums.
2. self administration
Maintenance of all records and assumption of responsibility, by a group
policyholder, for those covered under its insurance plan. Responsibilities
include preparing the premium statement for each payment date and
submitting it with a check to the insurer. The insurance company, in most
instances, has the contractual prerogative to audit the policyholder's records.
3. self insurance
A program financed entirely by the employer for insuring employees instead
of purchasing coverage from a commercial carrier.
4. senior citizens policies
Policies insuring persons 65 years of age or older; in most cases, these
policies supplement the coverage provided under Medicare.
5. separate account
An asset account established by a life insurance company separate from other
funds, used primarily for pension plans and variable life products. This
arrangement permits wider latitude in the choice of investments, particularly
in equities.
6. settlement options
One of several ways, other than immediate payment in a lump sum, in which
the insured or beneficiary may choose to have policy proceeds paid.
7. short-term disability income insurance
Insurance that provides benefits only for loss from illness or disease and
excludes loss from accident or injury.
8. single-premium whole life insurance
A whole life policy that provides protection for the duration of the insured's
life in exchange for the payment of the total premium in one lump sum at the
time of application.
9. social security freeze
A long-term disability provision that guarantees that Social Security benefits
will not be changed regardless of changes in the Social Security law.
10. special risk insurance
Coverage for risks or hazards of a special or unusual nature.
11. specified disease insurance
Insurance providing an unallocated benefit, subject to a maximum amount,
for expenses in connection with the treatment of specified diseases, such as
cancer, poliomyelitis, encephalitis, and spinal meningitis. These policies are
designed to supplement major medical policies.
12. state regulation of insurance
The complexity and cost variations of insurance stems directly from state
regulation of the industry. Unlike the securities and banking industries, the
insurance industry does not have a strong federal oversight role. Instead,
through the 1945 McCarran-Ferguson Act, the domestic industry faces 55 sets
of overseers (the 50 states, the District of Columbia, Puerto Rico, the Virgin
Islands, Guam and American Samoa). With so many different sites of
regulation, and so many sources of local sales outlets for insurance policies,
it’s not surprising that insurance policies are hardly the standardized
commodities that you find when trading stocks or opening a bank account.
This is particularly true in property/casualty coverage and less so in life
insurance. Added to the maze of different products is the fact that statebased regulation means that insurers may base their rates in each state on
their business profile in that state. Auto rates, for example, reflect accident
and theft trends in local territories. The upshot is that there is great pricing
variation along with lots of different types of policies. Lastly, insurers have
increasing freedom to price their policies for whatever the market will bear.
Even if an insurer has to file its rates in your state, you shouldn’t assume that
state regulators are poring over the rates to review their fairness.
13. standard insurance
Insurance written on the basis of regular morbidity underwriting assumptions
and issued at normal rates.
14. standard provisions
Provisions setting forth the rights and obligations of and insurers and insured
persons under health insurance policies. Originally introduced in 1912, these
provisions were replaced by the Uniform Policy Provisions Law (UPPL).
15. standard risk
Person who, according to an insurer's underwriting standards, is entitled to
purchase insurance without paying an extra premium or special restrictions.
16. state (compulsory) disability plan
Plan of short-term income replacement required by some states to cover
eligible persons employed within that state.
17. state insurance department
An administrative agency that implements state insurance laws and
supervises (within the scope of these laws) the activities of insurers operating
within the state.
18. stock life insurance company
A life insurance company owned by stockholders who share in the company's
surplus earnings.
19. stop-loss insurance
Protection purchased by self-funded buyers against the risk of large losses or
a severe adverse claim experience.
20. straight life annuity
An annuity whose periodic payments stop when the annuitant dies.
21. straight life insurance
Whole life insurance on which premiums are payable for life.
22. substandard insurance
Insurance issued with an extra premium or special restriction to persons who
do not qualify for insurance at standard rates.
23. substandard risk
Persons who cannot meet the health requirements of a standard health
insurance policy.
24. supplementary contract
An agreement between a life insurance company and a policyholder or
beneficiary by which the company retains the cash sum payable under an
insurance policy and makes payments in accordance with the settlement
option chosen.
25. surgical expense insurance
Insurance policies that provide benefits toward physicians' or surgeons'
operating fees. Benefits may consist of scheduled amounts for each
procedure.
26. surgical schedule
List of maximum amounts payable for various types of surgery; amounts are
based on the complexity of the operation.
27. survivorship insurance
Another name for second-to-die insurance.
T
1. tax treatment of life insurance payments
The death benefits of a life insurance policy are exempt from taxes. Even with
recent tax-rate reductions and a phased-in increase in the amount of a
person’s estate that is exempt from estate taxes, the tax-free nature of life
insurance benefits makes them a powerful financial planning and wealthpreservation tool. Annuity payments are not tax exempt, although these
products may include insurance "wrappers" with exempt benefits.
2. term insurance
A plan of insurance that covers the insured for only a certain period of time
(term), not for his or her entire life. The policy pays death benefits only if the
insured dies during the term.
3. term rider
Term insurance that is added to a whole life policy at the time of purchase or
that may be added in the future.
4. third-party administration (TPA)
An outside person or firm (not a party to a contract) that maintains all
records of persons covered under an insurance plan. The TPA also may pay
claims using the draft book system.
5. time limit
A specified number of days in which a notice of claim or proof of a loss must
be filed.
6. title insurance
Title insurance protects against the various financial losses associated with
having the title on your home challenged, including court costs and loss of the
property. For a one-time fee, most title insurers will investigate public records
to make sure that your property is free of title defects. This coverage can
benefit either the homeowner or the mortgage company, so you should know
which kind you’re paying for.
7. total disability
A disability that prevents a person from performing all occupational duties.
The exact definition varies among policies.
8. travel accident policies
Limited contracts covering accidents that occur only while an insured person
is traveling on business for an employer, away from the usual place of
business, and on named conveyances.
U
1. umbrella liability
If your auto and home are insured with the same carrier, you probably can
get supplemental liability coverage from your insurer. This is generally a very
good and affordable idea, but only if you have underlying wealth that needs
to be shielded from lawsuits. By insuring your car and home, it is costeffective for your insurer to extend bigger-dollar liability coverage to both
areas (hence the "umbrella" concept). If, for example, you have 100/300 auto
liability ($100,000 liability for each person insured in an accident; $300,000
total liability for the accident) and $100,000 liability on your homeowner's
insurance, you can extend this to $1 million for a few hundred bucks a year.
2. unallocated benefits
Benefits with a maximum amount but without specific limits on the extent of
benefit for each service rendered.
3. underwriter
(1) A company that receives the premiums and accepts responsibility for the
fulfillment of the policy contract
(2) The company employee who decides whether or not the company should
assume a particular risk
(3) The agent who sells the policy
4. underwriting
The underwriting process evaluates the likelihood an insured event will occur,
determines its likely cost and develops an appropriate premium for the
coverage that is competitive in the marketplace and remunerative to the
insurance company writing the policy. For some standardized coverages that
are highly competitive, underwriting may be somewhat besides the point --
5.
6.
7.
8.
the policy has to be priced according to marketplace pressures if the insurer
wishes to remain in that line of coverage. Underwriting still plays a substantial
role for many coverages, however, even those in the increasingly competitive
businesses of auto, home and term life insurance. Insurance companies don’t
all target the same slice of the market in the same states, and thus often
have different objectives in their underwriting efforts as well as different cost
structures that determine operating profit margins in their underwriting
calculations. Underwriting differences account in part for the substantial
differences in insurance premiums for comparable coverages.
unearned premium
That portion of a premium already received by the insurer for which
protection has not yet been provided.
uninsured/underinsured motorists coverage
In the best of all possible worlds, everyone would have adequate auto liability
coverage. But there are people who drive around (often illegally) with no
insurance or not enough insurance. If one of these folks happens to cause an
accident, you might not be able to collect damages. Uninsured/underinsured
motorists coverage -- usually called UM/UIM coverage -- will pay bodily injury
costs caused by an uninsured or underinsured motorist. It’s a required
coverage in some states, and a prudent coverage anywhere. Usually, the
limits are the same as the bodily injury portion of your auto liability coverage.
UM/UIM coverage can supplement the benefits you can receive under a nofault system.
uninsurables
High-risk persons who do not have health care coverage through private
insurance and who fall outside the parameters of risks of standard health
underwriting practices.
universal life insurance
Unlike traditional cash-value policies (known as "whole life"), universal life
policy returns were freed from long-term, fixed-rate contracts and replaced
with policies whose returns were tied to short-term interest rates and
periodically adjusted. In addition, premiums and death benefits can be
changed by the policyholder.
V
1. variable annuity
An annuity contract under which the monthly payments will vary because
they are linked to the values of investments, such as common stocks. This
contrasts with the fixed dollar annuity, which guarantees a fixed amount
monthly.
2. variable life insurance
True investment characteristics were introduced with these policies, requiring
that they be registered with the U.S. Securities and Exchange Commission.
Policy investments are controlled by the policyholder and may be placed in a
broad range of equity, bond and money-market instruments. Unlike universal
life, premiums and death benefits are fixed in variable life policies.
3. variable universal life insurance
Investments, premiums and death benefits may all be controlled by the
policyholder. If you know what you want and how to get there, variable
universal life products are hard to beat, and many financial advisors rate
them more highly than variable annuities.
W
1. waiting period
The time a person must wait from the date of acceptance into an eligible class
(or from application) to the date the insurance becomes effective. While
similar to elimination periods, waiting periods are often paid retroactively.
2. waiver (exclusion endorsement)
An agreement, attached to the policy and accepted by the insured, to
eliminate a specified preexisting physical condition or specified hazard.
3. waiver of premium
A provision that sets certain conditions under which an insurance policy will
be kept in full force by the company without the payment of premiums. It is
used most frequently for those policyholders who become totally and
permanently disabled but may be available in certain other cases.
4. whole life insurance
A plan of insurance for life, with premiums payable for a person's entire life.
5. windstorm insurance
Windstorm coverage pays for losses to your property that result from a
windstorm. The coverage acts like a flood or earthquake policy in that it pays
for damage to the dwelling, and, in some cases, for damage to your personal
property and for living expenses if your home becomes uninhabitable. If you
live in a coastal area, you’ll probably need to purchase separate windstorm
coverage on your house. In areas where coverage is scarce, states sometime
offer market assistance programs or joint underwriting associations to help
homeowners find a carrier.
6. workers' compensation
Liability insurance requiring certain employers to pay benefits and furnish
medical care to employees for on-the-job injuries, and to pay benefits to
dependents of employees killed by occupational accidents.
7. written premiums
The entire amount in premiums due in a year for all policies issued by an
insurance company.
X
Y
Z