Glossary of Insurance Terms
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Accidental Death Benefit
An extra death benefit amount that is paid out in addition to the face amount of the policy if the insured dies as the result of an accident. It costs extra to get this benefit, and usually cannot exceed the face amount of the policy.
Accelerated Death Benefit Option
In the event of terminal illness, usually within one year or less, the insured has the option to withdraw some of the death benefit for his personal use. Usually no more than 25% nor exceeding $250,000. This option is usually free and is offered by some insurance companies.
Age
Most insurance companies calculate age by using the age you are nearest to. Example: Insured is 45 and it is January, and the insured's birthday is in March. If the insurance company was calculating age nearest, the insured would be considered age 46 for the purpose of calculating rates.
Assignment
The transfer of the ownership rights of a Life Insurance policy from one person to another.
Aviation Hazard
The extra hazard of death or injury resulting from participation in aeronautics. It usually does not include fare-paying passengers in licensed aircraft. This generally will require paying extra premium or the waiving of certain benefits of coverage.
Backdating
A procedure for making the effective date of a policy earlier than the application date. Backdating is often used to make the age at issue lower than it actually was in order to get lower premium. State laws often limit to six months the time to which policies can be backdated.
Beneficiary
The person designated to receive the death benefit when the insured dies.
Business Insurance
Policies written for business purposes, such as key employee, buy-sell, business loan protection, etc.
Buy-Sell Agreement
An agreement among owners in a business which states the under certain conditions, i.e., disability or death, the person leaving the business or in case of death, his heirs are legally obligated to sell their interest to the remaining owners, and the remaining owners are legally obligated to buy at a price fixed in the Buy-Sell agreement. The funding vehicles are either disability or life insurance or both.
Capitation
A method of paying medical providers through a pre-paid, flat monthly fee for each covered person. The payment is independent of the number of services received or the costs incurred by a provider in furnishing those services.
Children's Term Insurance Rider
Provides term insurance to the insured's dependents. It is a flat premium for all his dependents and the benefit usually is not less than $1,000 or more than $10,000.
COBRA
The Consolidated Omnibus Budget Reconciliation Act 1985, commonly known as COBRA, requires group health plans with 20 or more employees to offer continued health coverage for you and your dependents for 18 months after you leave your job. Longer durations of continuance are available under certain circumstances. If you opt to continue coverage, you must pay the entire premium, plus a two percent administration charge.
Coinsurance
The amount you are required to pay for medical care in fee-for-service plan or preferred provider organization (PPO) after you have met your deductible. The coinsurance rate is usually expressed as a percentage of billed charges. For example, if the insurance company pays 80 percent of the claim, you pay 20 percent.
Collateral Assignment
Assign all or part of a life insurance policy as security for a loan. If the insured dies the creditor would receive only the amount due on the loan.
Conditional Binding Receipt
This is the more exact terminology for what is often called a binding receipt. It provides that if premium accompanies an application, the coverage will be in force from the date of application, or medical examination, if any, whichever is later, provided the insurer would have issued the coverage on the basis of the facts revealed on the application, medical examination and other usual sources of underwriting information. This coverage usually has a limit until the policy is delivered and all delivery requirements are met. A life and health insurance policy without a conditional binding receipt is not effective until it is delivered to the insured and the premium is paid.
Contestable Clause
A provision in an insurance policy setting forth the conditions under which or the period of time during which the insurer may contest or void the policy. After that time has lapsed, normally two years, the policy cannot be contested. Example: Suicide.
Contingent Beneficiary
A person or persons named to receive policy benefits if the primary beneficiary is deceased at the time the benefits become payable.
Convertible (conversion)
A policy that may be changed to another form by contractual provision and without evidence of insurability. Most term policies are convertible into permanent insurance.
Co-payment
A cost sharing arrangement in which a person pays a specific charge for a specific medical service -- say $10 for an office visit or $5 for a prescription.
Credit Insurance
Insurance on a debtor in favor of a creditor to pay off the balance due on a loan in the event of the death of the debtor.
Cross Purchase
A form of business life insurance in which each party purchases life insurance on each other.
Decreasing Term
A form of life insurance that provides a death benefit which declines throughout the term of the contract, reaching zero at the end of the term. Almost never sold any more because level term insurance is so much less expensive.
Deductible
The amount of money you must pay upfront each year to cover your medical care expenses before your insurance policy starts paying.
Delivery
The actual placing of a life insurance policy in the hands of an insured.
Double Indemnity
Payment of twice the basic benefit in the event of loss resulting from specified causes or under specified circumstances.
Entity Agreement
A buy-sell agreement in which the company agrees to purchase the interest of a deceased or disabled partner.
Evidence of Insurability
The statement of information needed for the underwriting of an insurance policy.
Examination
The medical examination of an applicant for Life Insurance.
Examiner
A physician, nurse, or para-med appointed by the medical director of a life insurance company to examine applicants.
Exclusions
Specific conditions or circumstances for which the policy will not provide benefits.
Expiry
The termination of a term life insurance policy at the end of its period of coverage.
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Face
The first page of a life insurance policy.
Face Amount
The amount of insurance provided by the terms of an insurance contract, usually found on the face of the policy. In a life insurance policy, the death benefit.
Fee-for-Service
A payment system for health care where the provider is paid for each service rendered.
Fixed Benefit
A benefit, the dollar amount of which does not vary.
Free Look
A period of time(usually 10, 20, or 30 days) during which a policyholder may examine a newly issued individual life insurance policy, and surrender it in exchange for a full refund of premium if not satisfied for any reason.
Health Maintenance Organization (HMO)
Prepaid health plans in which you pay a monthly premium and the HMO covers your doctor's visits, hospital stays, emergency care, surgery, preventive care, checkups, lab tests, X-rays, and therapy. You must choose a primary care physician who coordinates all of your care and makes referrals to any specialists you might need. In an HMO, you must use the doctors, hospitals and clinics that participate in your plan's network.
Incontestable Clause
A clause in a policy providing that a policy has been in effect for a given length of time (two or three years), the insurer shall not be able to contest the statements contained in the application. In life policies, if an insured lied as to the condition of his health at the time the policy was taken out, that lie could not be used to contest payment under the policy if death occurred after the time limit stated in the incontestable clause.
Insurability
Acceptability to the insurer of an application for insurance.
Insurable Interest
You have an insurable interest in the insured if upon the death of the insured you would suffer financial loss.
Insurance
A formal social device for reducing risk by transferring the risks of several individual entities to an insurer. The insurer agrees, for a consideration, to pay for the loss in the amount specified in the contract.
Insurance Policy
The printed form which serves as the contract between an insurer and an insured.
Insured
The party, who is being insured. In life insurance, it is the person because of his or her death the insurance company would pay out a death benefit to a designated beneficiary.
Insurer
The company that pays out the death benefits if the insured dies.
Irrevocable Beneficiary
A beneficiary that cannot be changed without his or her consent.
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Key Person (Key Man) Insurance
Insurance on the life of a key employee whose death would cause the employer financial loss. The policy is owned and payable to the employer.
Lapsed Policy
An Insurance policy which has been allowed to expire because of nonpayment of premiums. In a cash value life insurance policy such as Whole Life or Universal Life the policy could expire because the cash value account reached a zero balance and no premium payments are being made to replenish it.
Lifetime Limit
A cap on the benefits paid under a policy. Many policies have a lifetime limit of $1 million, which means that the insurer agrees to cover up to $1 million in covered services over the life of the policy.
Life Expectancy
The average number of years remaining for a person of a given age to live as shown on the mortality or annuity table used as a reference.
Life Insurance
An agreement that guarantees the payment of a stated amount of monetary benefits upon the death of the insured.
Managed Care
An organized way to manage costs, use, and quality of the health care system. The major types of managed care plans are health maintenance organizations (HMOs), point-of-service (POS) plans and preferred provider organizations (PPO).
Medicaid
A joint federal-state health insurance program that is run by the states and covers certain low-income people (especially children and pregnant women), and disabled people.
Medical Information Bureau (MIB)
A data service that stores coded information on the health histories of persons who have applied for insurance from subscribing companies in the past. Most Life insurers subscribe to this bureau to get more complete underwriting information.
Medical Savings Accounts (MSA)
These health insurance plans provide incentives for individuals to replace high premium, low-deductible policies with affordable, high deductible catastrophic coverage. Premiums for this coverage are lower and the savings may be used to fund a tax-preferred medical savings account from which you can pay on a pre-tax basis for qualified medical care and expenses, including annual deductibles and copayments.
Medicare
The federally sponsored health insurance program of hospital and medical insurance primarily for people age 65 and over.
Mortality Charge
The charge for the element of pure insurance protection in a life insurance policy.
Mortality Cost
The first factor considered in life insurance premium rates. Insurers have an idea of the probability that any person will die at any particular age; this is the information shown on a mortality table.
Mortality Rate
The number of deaths in a group of people, usually expressed as deaths per thousand.
Mortality Table
A table showing the incidence of death at specified ages.
Mortgage Insurance
A life policy covering a mortgagor from which the benefits are intended to pay off the balance due on a mortgage upon the death of the insured.
Nonmedical (Non-Med)
A contract of life insurance underwritten on the basis of an insured's statement of his health with no medical examination required.
Not Taken
Policies applied for and issued but rejected by the proposed owner and not paid for.
Occupational Hazard
A condition in an occupation that increases the peril of accident, sickness, or death. It usually will mean higher premiums.
Out-of-Pocket Maximum
The most money you will be required to pay in a year for deductibles and coinsurance. It is a stated dollar amount set by the insurance company, in addition to regular premiums.
Ownership
All rights, benefits and privileges under life insurance policies are controlled by their owners. Policy owners may or may not be the insured. Ownership may be assigned or transferred by written request of current owner.
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Permanent Life Insurance
A term loosely applied to Life Insurance policy forms other than Group and Term, usually Cash Value Life Insurance, such as Whole Life Insurance or Universal Life.
Point-of-Service (POS) Plan
A type of managed care plan combining features of health maintenance organizations (HMOs) and preferred provider organizations (PPOs), in which individuals decide whether to go to a network provider and pay a flat dollar copayment (say $10 for a doctor's visit), or to an out-of-network provider and pay a deductible and/or coinsurance charge.
Policy Fee
There are two calculations to determine the premium for term insurance. The Policy Fee which is a flat fee added to each policy and the rate per thousand times the number of thousands of death benefit. The policy fee is usually the same for all ages and amounts.
Portability
The ability for an individual to transfer from one health insurer to another health insurer with regard to pre-existing conditions or other risk factors.
Pre-authorization
A cost containment feature of many group medical policies whereby the insured must contact the insurer prior to a hospitalization or surgery and receive authorization for the service.
Preauthorized Check Plan
A premium-paying arrangement by which the policy owner authorizes the insurer to draft money from his or her bank account for the payments. This is usually done on a monthly basis.
Pre-existing Condition
A health problem that existed before the date your insurance became effective. Many insurance plans will not cover preexisting conditions. Some will cover them only after a waiting period.
Preferred Provider Organization (PPO)
A network of health care providers with which a health insurer has negotiated contracts for its insured population to receive health services at discounted costs. Health care decisions generally remain with the patient as he she selects providers and determines his or her own need for services. Patients have financial incentives to select providers within the PPO network.
Preferred Risk
Any risk considered to be better than the standard risk on which the premium rate was calculated. Some companies are now offering degrees of preferred to reduce their rates even more. An extremely healthy person can now get extraordinary low rates.
Premium
The price of insurance protection for a specified risk for a specified period of time.
Primary Beneficiary
The beneficiary named as first in line to receive proceeds or benefits from a policy when they become due.
Primary Care Physician
Under a health maintenance organization (HMO) or point-of-service (POS) plan, usually your first contact for health care. This is often a family physician, internist, or pediatrician. A primary care physician monitors your health, treats most health problems, and refers you to specialists if necessary.
Provider
Any person (doctor or nurse) or institution (hospital, clinic, or laboratory) that provides medical care.
Provisions
Statements contained in an insurance policy which explain the benefits, conditions and other features of the insurance contract.
Rated
Coverage's issued at a higher rate than standard because of some health condition, or impairment of the insured.
Renewable Term
Term insurance that may be renewed for another term without evidence of insurability. Level term usually turns into renewable term with increasing premiums after the level premium period.
Replacement
A new policy written to take the place of one currently in force.
Revocable Beneficiary
The beneficiary in a life insurance policy in which the owner reserves the right to revoke or change the beneficiary. Most policies are written with a revocable beneficiary.
Rider
An attachment to a policy that modifies its conditions by expanding or restricting benefits or excluding certain conditions from coverage.
Standard Risk
A risk that is on a par with those on which the rate has been based in the areas of health, physical condition, and morals. An average risk, not subject to rate loading or restrictions because of health. At one time the best class of risk was the standard class. As the insurers improved their underwriting skills, they were able to define those in very good health and offer them better rates with the new preferred class. Now some insurers have even developed different levels of preferred.
Stock Purchase Agreement
A formal buy-sell agreement whereby each stockholder is bound by the agreement to purchase the shares of a deceased stockholder and the heirs are obligated to sell. This agreement is usually funded with life insurance.
Stock Redemption Agreement
A formal buy-sell agreement whereby the corporation is bound by the agreement to purchase the shares of a deceased stockholder and the heirs are obliged to sell. This agreement is usually funded with life insurance.
Term Insurance
It is the type of life insurance that provides protection for a specified period of time. It usually has no real cash build up.
Third-Party Payer
Any payer of health care services other than you. This can be an insurance company, an HMO, a PPO, or the federal government.
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Underwriter
A technician trained in evaluating risks and determining rates and coverage for them. When an application is submitted to the insurer, it is the underwriter who gathers all the necessary information to determine whether a person is a preferred risk, a standard risk, or rated.
Underwriting
It is what the underwriter does to determine the class of risk an applicant will be placed in.
Universal Life
An interest sensitive life insurance policy that builds cash values. The premium payer has control on how the policy is structured. He has the flexibility to vanish the premiums (pay no more premiums based on assumptions that are not guaranteed) or have the premiums continue for life. It is a matter of juggling 3 variables. The assumed interest rate, the cash value and the premium payment plan. The policy is interest sensitive , and if interest rates change from the assumed interest, it will effect the other two variables. In the past, many Universal Life Policies were structured assuming a higher interest rate then was actually received, therefore, most of them have under performed. If you have a Universal Life Policy, you should have it evaluated to see if it needs to have the premiums adjusted to get it back on track. A fourth variable that has not been a factor but could be in the future, and the owner should be aware of, is the Mortality variable. Universal Life policies are usually structured assuming current mortality rates. The insurance companies reserve the right to change those rates.
Usual and Customary Charge
The amount a health plan will recognize for payment for a particular medical procedure. It is typically based on what is considered "reasonable" for that procedure in your service area.
Utilization Review
A cost control mechanism by which the appropriateness, necessity, and quality of health care services are monitored by both insurers and employers.
Waiver of Premium
A provision of a life insurance policy which continues the coverage without further premium payments if the insured becomes totally disabled.
Whole Life Insurance
Life insurance that is kept in force for a person's whole life as long as the scheduled premiums are maintained. All Whole Life policies build up cash values. Most Whole Life policies are guaranteed as long as the scheduled premiums are maintained. The variable in a whole life policy is the dividend which could vary depending on how well the insurance company is doing. If the company is doing well and the policies are not experiencing a higher mortality than projected, premiums are paid back to the policyholder in the form of dividends. Policyholders can use the cash from dividends in many ways. The three main uses are: It can be used to lower or vanish premiums, it can be used to purchase more insurance or it can be used to pay for term insurance.
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