Find Your Secure Future With Us
HEALTH AND LIFE INSURANCE GLOSSARY (TERMS & DEFINITIONS)
Use this informative health and life insurance glossary to understand the definitions of many commonly used insurance terms. Learn insurance industry vocabulary that will help you better understand your insurance policies.
Health And Life Insurance Glossary
Every industry has its own jargon, and the health and life insurance business is no exception.
We’ve curated a list of life and health insurance terms – and their definitions – to help you better understand the confusing language of insurance. Also see the Property And Casualty Insurance Glossary, Small Business Insurance Glossary and Terminologies Used In Insurance And Their Meanings.
Following is the health and life insuranceglossary of terms and definitions that are commonly used in the insurance industry:
A
Absolute Assignment An absolute assignment in insurance refers to a policy assignment where the assignee gains complete control over the policy and its benefits. Typically, when a policy is assigned to secure a debt, the owner still retains rights beyond the debt, despite the assignment being absolute in form.
Accelerated Benefits Rider An accelerated benefits rider is an addition to a life insurance policy that allows for the early payment of a portion of the policy’s face amount if the insured suffers from a terminal illness or injury.
Acceptance Acceptance, within the context of insurance, is the agreement to the terms of an offer, forming a binding contract. It involves the agreement by the insured to the terms and conditions presented by the insurer.
Accident and Health Insurance Accident and health insurance, also known as health insurance or personal health insurance, provides benefits in cases of disease, accidental injury, or accidental death. It offers financial protection against unexpected medical expenses.
Accidental Bodily Injury Provision This provision in disability income or accident policies stipulates that benefits are payable only if the injury is accidental in nature. It requires the occurrence of an unforeseen event for benefits to be eligible.
Accidental Death and Dismemberment (AD&D) AD&D insurance provides benefits if the insured’s death results from an accident or if the insured experiences accidental dismemberment, such as the loss of limbs or eyesight, as specified in the policy.
Accidental Death Benefit Rider An accidental death benefit rider is an additional feature in a life insurance policy that provides an extra benefit if death occurs due to accidental means, beyond the regular death benefit.
Accidental Dismemberment Accidental dismemberment typically refers to the severance of limbs at or above the wrists or ankle joints or the irreversible loss of sight. Whether loss of use constitutes dismemberment varies based on policy definitions.
Accidental Means Provision This provision in an accident-based policy stipulates that the cause of the accident must be accidental for a claim to be payable. It defines the unforeseen, unintended cause of an accident.
Accumulation Unit In a variable annuity, accumulation units represent the premiums paid by the annuitant. These units are later converted to annuity units at the end of the accumulation period.
Acquired Immune Deficiency Syndrome (AIDS) AIDS is a life-threatening condition resulting from the human immunodeficiency virus (HIV). Insurers adhere to strict guidelines regarding underwriting and claims related to AIDS risks and AIDS-related conditions.
Acute Illness An acute illness is a severe condition, such as pneumonia, from which the body can fully recover with proper medical attention. It typically has a sudden onset and short duration.
Adhesion A life insurance policy is considered a contract of adhesion because policy buyers must adhere to the terms set by the insurer. Policyholders have limited negotiation power and must accept the terms as presented.
Adjustable Life Insurance Adjustable life insurance combines features of both term and whole life coverage, allowing flexibility in coverage length and cash value accumulation. Premiums can be adjusted based on changing needs.
Administrative Services Only (ASO) Plan An ASO plan involves an insurance company or independent organization handling claims, benefits, and administrative functions for a self-insured group, for a fee.
Admitted Insurer An admitted insurer is an insurance company that meets the legal and financial requirements to operate within a specific state.
Adult Day Care Adult day care offers custodial care for individuals requiring assistance with daily activities while their primary caregivers are unavailable. It is provided in care centers.
Adverse Selection Adverse selection refers to the tendency of less favorable insurance risks to seek coverage to a greater extent than others. It also encompasses policyholders’ tendency to exploit favorable options in insurance contracts.
Agency Agency involves one party (an agent) acting on behalf of another (the principal) in dealings with third parties. Agents have the authority to represent the principal in insurance transactions.
Agent An agent is a licensed individual who solicits insurance, assists in placing risks, delivers policies, or collects premiums on behalf of an insurance company. Agents play a vital role in the insurance distribution process.
Agent’s Report The agent’s report is a section of an insurance application where the agent provides personal observations about the applicant. It helps the underwriting department assess the risk associated with the applicant.
Aleatory Insurance contracts are considered aleatory because they involve an element of chance for both parties. The premiums paid by the policyholder and the benefits received from the insurer may not be equal.
Alien Insurer An alien insurer is a company incorporated or organized under the laws of a foreign nation, providence, or territory. It operates outside the jurisdiction of the policyholder’s country.
Ambulatory Surgery Ambulatory surgery refers to surgical procedures performed on an outpatient basis, where patients do not require overnight hospitalization.
Annually Renewable Term (ART) ART insurance provides coverage for one year and allows policyowners to renew coverage annually without evidence of insurability. It offers flexibility and renewable protection.
Annuitant An annuitant is an individual to whom an annuity is payable. Payments are made at regular intervals during the annuitant’s lifetime or for a specified period.
Annuity An annuity is a contract that provides regular payments to the annuitant over a specified period or for the duration of their life. It offers a stream of income, often used for retirement planning.
Annuity Unit An annuity unit represents the share of funds an annuitant will receive from a variable annuity account after the accumulation period ends. It determines the annuity payments during the distribution phase.
Any Occupation Any occupation refers to a definition of total disability requiring the insured to be unable to perform any job for which they are reasonably suited by education, training, or experience to receive disability income benefits.
Apparent Authority Apparent authority refers to the authority an agent appears to have based on the actions, words, or deeds of the principal (insurer). It may arise from circumstances created by the principal.
Application An application is a form supplied by the insurance company, filled out by the agent and applicant, providing information for underwriting purposes. It helps determine policy issuance, classification, and premium rates.
Appointment Appointment refers to the authorization or certification of an agent to act for or represent an insurance company in selling insurance products.
Approval Receipt An approval receipt is a conditional receipt type, rarely used today, that provides coverage effective as of the date the application is approved, before the policy is delivered.
Assessment Insurance Assessment insurance involves variable insurance amounts or assessment numbers, typically offered by assessment associations, either pure or advance.
Assignee An assignee is a person or entity to whom a right or rights under an insurance policy are transferred by means of an assignment.
Assignment Assignment is the signed transfer of policy benefits from an insured to another party. The company does not guarantee the validity of an assignment.
Assignment Provision An assignment provision in health contracts allows policyowners to assign benefit payments directly to healthcare providers, facilitating claims processing.
Assignor An assignor is a person or entity transferring a right or rights under an insurance policy to another party through an assignment.
Attained Age Attained age refers to the insured’s current age concerning insurance.
Authority Authority encompasses the actions and deeds an agent is authorized to conduct on behalf of an insurance company, as specified in the agent’s contract.
Authorized Company An authorized company is duly certified by the insurance department to operate within a specific state.
Automatic Premium Loan Provision An automatic premium loan provision authorizes the insurer to pay any premium in default at the end of the grace period and charge the amount as a policy loan against the life insurance policy.
Average Indexed Monthly Earnings (AIME) AIME serves as the basis for calculating the primary insurance amount (PIA) for Social Security benefits, considering a worker’s average earnings over their career, adjusted for inflation.
Aviation Exclusion An aviation exclusion, included in insurance policies, excepts certain deaths or disabilities due to aviation-related incidents from coverage, such as accidents involving non-fare-paying passengers.
This rewrite organizes the information into clear, concise definitions, making it easier to understand the terminology used in insurance contexts.
B
Backdating Backdating refers to the practice of making a policy effective at an earlier date than the present. It allows for coverage to start retroactively, often to the date of application or another specified date.
Basic Medical Expense Policy A basic medical expense policy is a type of health insurance that offers “first dollar” benefits for specific healthcare services, such as hospitalization, surgery, or physician visits. It typically features limited benefit periods and relatively modest coverage limits.
Beneficiary A beneficiary is the individual designated to receive the proceeds of a life or accident policy upon the insured’s death. There are various types of beneficiaries, including primary beneficiaries (first entitled to proceeds), secondary beneficiaries (entitled if no primary beneficiary survives), and tertiary beneficiaries (entitled if neither primary nor secondary beneficiaries survive).
Benefit A benefit refers to either monetary compensation or a right conferred upon the policyowner upon the occurrence of specified conditions outlined in the policy.
Benefit Period The benefit period denotes the maximum duration during which insurance benefits will be paid for a single accident, illness, or hospitalization.
Binding Receipt A binding receipt is issued by an insurance company upon the applicant’s initial premium payment. It indicates that if the policy is approved, coverage will be effective from the date of the receipt.
Blackout Period A blackout period is the duration following the death of a family breadwinner during which no Social Security benefits are available to the surviving spouse.
Blanket Policy A blanket policy provides coverage for multiple individuals exposed to similar risks, such as members of a sports team or company officials traveling together on a company plane.
Broker A broker is a licensed insurance representative who does not represent a specific insurance company but places business with various insurers. Legally, brokers are often considered representatives of the insured rather than the insurer.
Business Continuation Plan A business continuation plan outlines arrangements between business owners for the sale and purchase of shares owned by a deceased or disabled owner. It ensures the smooth transition of ownership in such circumstances.
Business Overhead Expense Insurance Business overhead expense insurance is a form of disability income coverage designed to cover necessary business overhead expenses, such as rent, in the event that the insured business owner becomes disabled.
Buyer’s Guides Buyer’s guides are informational consumer guidebooks that explain insurance policies and concepts. In many states, they are required to be provided to applicants when considering certain types of coverage.
Buy-Sell Agreement A buy-sell agreement is a contractual arrangement stipulating that a deceased business owner’s interest will be sold and purchased at a predetermined price or according to a predetermined formula. It helps facilitate the orderly transfer of ownership in the event of death.
C
Cafeteria Plan A cafeteria plan is an employee benefit arrangement that offers employees the flexibility to choose from a range of benefits based on their individual needs and preferences.
Cancellable Contract A cancellable contract in health insurance is a contract that can be terminated by the insurer or renewed at its discretion. It provides flexibility for the insurer to adjust or terminate coverage as needed.
Capital Sum The capital sum refers to the amount provided for accidental dismemberment or loss of eyesight. It represents the indemnity for the loss of one member or the sight of one eye, usually calculated as a percentage of the total sum.
Case Management Case management involves the professional coordination of health services through assessment, service plan development, and monitoring. It ensures efficient and effective healthcare delivery for individuals in need.
Cash or Deferred Arrangements (401(k) Plans) Cash or deferred arrangements, commonly known as 401(k) plans, are qualified employer retirement plans that allow employees to defer portions of their salaries into a retirement account. These deferrals are tax-deferred until withdrawal.
Cash Refund Annuity A cash refund annuity provides that if the annuitant dies before receiving payments totaling the purchase price, the excess amount paid by the purchaser over the total annuity payments received will be paid in a lump sum to designated beneficiaries.
Cash Surrender Option A cash surrender option is a nonforfeiture option available in whole life insurance policies, allowing policyowners to receive a payout of the policy’s cash values.
Cash Surrender Value The cash surrender value is the amount available to the policyowner when surrendering a life insurance policy to the company. It includes the policy’s reserve value, less any applicable surrender charges.
Cash Value The cash value represents the equity or “savings” accumulation within a whole life insurance policy. It can be accessed by the policyowner through loans or withdrawals.
Churning Churning refers to the practice of using the values in an existing life insurance policy or annuity contract to purchase another policy or contract with the same insurer, primarily to earn additional premiums or commissions without a reasonable basis for benefitting the policyholder.
Class Designation A class designation allows the policyowner to designate a group or class of beneficiaries rather than specifying individual beneficiaries by name. For example, beneficiaries may be designated as “my children.”
Classification Classification refers to the occupational category of a risk, which insurers use to assess the level of risk associated with an insurance policy.
Close Corporation A close corporation is a corporation owned by a small group of stockholders, each of whom typically has a voice in operating the business. It is characterized by a limited number of shareholders and a more intimate organizational structure.
COBRA (Consolidated Omnibus Budget Reconciliation Act) COBRA extends group health coverage to terminated employees and their families for up to 18 or 36 months, allowing them to continue coverage temporarily under the group health plan.
Coinsurance (Percentage Participation) Coinsurance is a principle under which the insurer covers only a portion of the potential loss, with the policyholder responsible for paying the remaining portion. For example, in a major medical policy, the insurer may agree to pay 75% of covered expenses, while the policyholder pays the remaining 25%.
Collateral Assignment A collateral assignment involves assigning a life insurance policy to a creditor as security for a debt. The creditor is entitled to be reimbursed from the policy proceeds for the amount owed, with any excess going to the beneficiary upon the insured’s death.
Commercial Health Insurers Commercial health insurers are insurance companies that operate on the reimbursement approach, allowing policyholders to seek medical treatment and then submit charges to the insurer for reimbursement.
Commissioner The commissioner is the head of a state insurance department, responsible for supervising the insurance business within the state and administering insurance laws.
Commissioner’s Standard Ordinary (CSO) Table The CSO table is a mortality table based on intercompany experience, legally recognized as the basis for computing maximum reserves on policies issued within specific years. It provides a standardized mortality basis for insurers.
Common Disaster Provision A common disaster provision is added to a policy to provide an alternative beneficiary if both the insured and the original beneficiary die as a result of a common accident.
Competent Parties Competent parties refer to individuals capable of understanding and entering into a contract. To be enforceable, a contract must be entered into by competent parties.
Comprehensive Major Medical Insurance Comprehensive major medical insurance offers protection similar to both basic medical expense and major medical policies. It typically features a low deductible, a coinsurance clause, and high maximum benefits.
Concealment Concealment occurs when the insured fails to disclose a material fact to the insurer at the time of application, which could impact the acceptance of the risk.
Conditional Contract A conditional contract is characteristic of an insurance contract in that the payment of benefits is dependent on the occurrence of the insured risk.
Conditionally Renewable Contract A conditionally renewable health insurance policy allows the insured to renew the contract from period to period or continue it until a specified date or advanced age, subject to conditions defined in the contract.
Conditional Receipt A conditional receipt is given to policyowners when they pay a premium at the time of application. It binds the insurance company if the risk is approved as applied for, subject to any conditions stated on the receipt.
Consideration Consideration is an essential element of a binding contract, representing the payment of premiums and the statements made by the prospective insured in the application.
Consideration Clause The consideration clause in an insurance contract specifies the initial and renewal premiums, as well as the frequency of future payments.
Contestable Period The contestable period is the duration during which the insurance company may contest a claim on a policy due to misleading or incomplete information in the application.
Contingent Beneficiary A contingent beneficiary is a person named to receive policy proceeds if the original beneficiary is not alive at the time of the insured’s death. Also known as a secondary or tertiary beneficiary.
Continuing Care Continuing care provides comprehensive health and medical care for elderly individuals living in retirement communities. It addresses both social and medical needs on a full-time basis, ensuring a high quality of life for residents.
Contract A contract is a legally enforceable agreement whereby one party binds itself to certain promises or deeds. In insurance, contracts outline the terms and conditions of coverage between the insurer and the insured.
Contract of Agency A contract of agency is a legal document containing the terms of the agreement between the agent and the insurance company. It outlines the authority, responsibilities, and compensation of the agent in representing the insurer.
Contributory Plan A contributory plan is a group insurance plan in which both the employer and employees contribute to the cost of coverage. Generally, a certain percentage of eligible employees must participate in the plan for it to be valid.
Conversion Factor The conversion factor is a stated dollar-per-point amount used to determine benefit amounts paid for the cost of a medical procedure under a health insurance plan.
Conversion Privilege The conversion privilege allows the policyowner to convert an original insurance policy into a new policy before the original policy expires, ensuring continued insurance coverage. Conversion may be effected at attained age or original age, depending on the terms of the policy.
Convertible Term A convertible term policy is a contract that may be converted into a permanent form of insurance without the need for a medical examination.
Coordination of Benefits (COB) Provision The coordination of benefits provision prevents duplication of group insurance benefits by limiting the total benefits payable from multiple group health insurance policies to 100% of covered expenses. It also specifies the order in which multiple carriers are to pay benefits.
Corridor Deductible In superimposed major medical plans, a corridor deductible is an amount between the benefits paid by the basic plan and the beginning of the major medical benefits.
Cost of Living (COL) Rider A cost of living rider is available with some insurance policies, providing for an automatic increase in benefits tied to the Consumer Price Index to offset the effects of inflation.
Credit Accident and Health Insurance Credit accident and health insurance covers policy premiums or loan repayments if the insured becomes totally disabled due to an accident or illness. It may be offered as an individual or group policy.
Credit Life Insurance Credit life insurance is typically written as decreasing term insurance on a small, decreasing balance installment loan. If the borrower dies, the policy pays off the remaining balance due. It may be offered as an individual or group policy.
Credit Report A credit report summarizes an insurance applicant’s credit history, providing information about their creditworthiness and financial stability.
Cross-Purchase Plan A cross-purchase plan is an agreement among business owners stipulating that upon the death of one owner, the surviving owners will purchase the deceased owner’s interest in the business. Life insurance policies owned by each principal on the lives of all other principals often fund these purchases.
Currently Insured Under Social Security, currently insured status provides limited eligibility, offering only death benefits.
Custodial Care Custodial care involves providing assistance with daily personal needs, such as dressing, bathing, and mobility, for individuals who require support but do not necessarily need medical treatment. It is often administered under a physician’s order and may be provided in various settings, including home care facilities.
This revision aims to clarify complex insurance terms and concepts, making them more accessible to readers.
D
Debit Insurer A debit insurer, also known as a home service insurer, specializes in providing insurance services directly to clients at their homes. This personalized approach is often used for selling small policies with frequent premium payments.
Decreasing Term Insurance Decreasing term insurance is a type of life insurance where the face value gradually decreases over time, typically in scheduled steps, while the premium remains level. This insurance is often used to cover specific debts or financial obligations that decrease over time, such as a mortgage.
Deductible A deductible is the amount of expense or loss that the insured must pay out of pocket before their health insurance policy begins to pay benefits. It helps to mitigate the insurer’s risk and is commonly found in various types of insurance policies, including health and property insurance.
Deferred Annuity A deferred annuity is an annuity contract that postpones the commencement of payments until a specified future date or until the annuitant reaches a certain age. It can be purchased with either a single premium or through flexible premium payments.
Deferred Compensation Plan A deferred compensation plan allows employees to defer a portion of their compensation to a future date, often to provide additional retirement income or other fringe benefits. These plans are commonly used to attract and retain key employees.
Defined Benefit Plan A defined benefit plan is a type of pension plan where the retirement benefits are determined by a specific formula, usually based on factors such as salary history and years of service. The employer bears the investment risk and is responsible for providing the promised benefits to retirees.
Defined Contribution Plan A defined contribution plan is a retirement plan where the employer and/or employee make contributions based on a predetermined formula outlined in the plan. The retirement benefits depend on the amount contributed and the investment performance of the plan’s assets.
Delayed Disability Provision A delayed disability provision is a feature in a disability income policy that allows a certain amount of time after an accident for a disability to manifest before the insured becomes eligible for benefits. It provides a waiting period to ensure that only genuine disabilities are covered.
Dental Insurance Dental insurance is a form of health insurance that covers the costs of routine dental care, as well as more extensive procedures such as oral surgery and root canal therapy. It is often offered as part of employee benefits packages or as standalone policies.
Dependency Period The dependency period refers to the time following the death of the primary breadwinner during which the surviving family members, particularly children, rely on financial support until they reach maturity or become self-sufficient.
Deposit Term A deposit term policy combines elements of term and endowment insurance. It typically has a higher premium in the first year, known as a “deposit,” and provides coverage for a specified term. If the policy lapses, the insured forfeits the deposit with no refund.
Disability Disability refers to a physical or mental impairment that prevents an individual from performing one or more duties of their occupation. Disability insurance provides financial protection by replacing lost income if the insured is unable to work due to disability.
Disability Buy-Sell Agreement A disability buy-sell agreement is a legal arrangement between business co-owners that stipulates the terms for the sale and purchase of shares owned by a disabled owner. Disability income insurance funds the buyout, ensuring a smooth transition of ownership.
Disability Income Insurance Disability income insurance is a type of health insurance that provides regular income payments to the insured if they become disabled due to illness or injury and are unable to work. It helps replace lost income and maintain financial stability during periods of disability.
Disability Income Rider A disability income rider is an additional provision attached to a life insurance policy that provides benefits in the form of regular income payments if the insured becomes totally disabled. It enhances the policy’s coverage by offering financial protection against disability.
Discrimination Discrimination in insurance refers to the unfair treatment of certain groups of people in the sale or pricing of insurance policies. It is prohibited by most state insurance codes to ensure fair and equal access to insurance coverage for all individuals.
Dividend A dividend is the policyowner’s share of the divisible surplus of an insurance company operating on a participating plan. It represents a portion of the company’s profits that is distributed to policyholders based on the performance of their policies.
Dividend Options Dividend options are various ways in which the insured under a participating life insurance policy can choose to receive surplus earnings. These options may include receiving dividends in cash, as a reduction of premiums, as additional paid-up insurance, or as additional term insurance.
Domestic Insurer A domestic insurer is an insurance company that is chartered and headquartered within the state in which it operates. It is regulated by the insurance department of that state and must comply with its laws and regulations.
Dread Disease Policy A dread disease policy, also known as a limited risk policy, provides coverage for specific critical illnesses or diseases listed in the policy. It offers financial protection against the high costs associated with medical treatment for these conditions.
E
Elimination Period The elimination period is the duration of time between the onset of an insured individual’s disability and the beginning of the period for which benefits are payable. It serves as a waiting period before disability benefits become effective.
Employee Benefit Plans Employee benefit plans are programs established by employers to provide various benefits to their employees, such as medical coverage, disability insurance, retirement plans, and death benefits.
Employee Stock Ownership Plan (ESOP) An ESOP is a type of defined contribution profit-sharing plan in which employees become partial owners of the company by acquiring its stock. It is designed to align the interests of employees with those of the company’s shareholders.
Endowment An endowment is a life insurance contract that pays out the face amount of the policy at the end of a specified period, upon reaching a certain age, or upon the insured’s death before the end of the stated period.
Endowment Period The endowment period is the duration specified in an endowment policy during which the beneficiary receives a death benefit if the insured dies. If the insured survives beyond the endowment period, they receive the endowment as a living benefit.
Enrollment Period The enrollment period is the designated timeframe during which new employees can enroll in a group insurance plan provided by their employer. It allows eligible individuals to sign up for coverage or make changes to their existing coverage.
Entire Contract Provision An entire contract provision is a clause in an insurance policy stating that the application and policy together constitute the entire agreement between the insured and the insurer, encompassing all provisions and terms of the contract.
Entity Plan An entity plan is an agreement in which a business entity assumes the responsibility of purchasing a deceased owner’s interest in the business, thereby redistributing ownership among surviving owners.
Equity Indexed Annuity An equity indexed annuity is a type of fixed deferred annuity that offers a guaranteed minimum interest rate along with additional interest based on the performance of an external equities market index.
Errors and Omissions Insurance Errors and omissions insurance, also known as professional liability insurance, protects insurance producers against claims arising from errors or omissions in the services they provide.
Estate The estate refers to the total value of an individual’s wealth or property at the time of their death, including assets, liabilities, and any applicable taxes.
Estate Tax The estate tax is a federal tax imposed on the transfer of property from a deceased individual’s estate to their heirs. It is based on the total value of the estate and is subject to certain exemptions and deductions.
Estoppel Estoppel is a legal principle that prevents a person from denying the consequences of their actions or representations if those actions or representations led another party to rely on them to their detriment.
Evidence of Insurability Evidence of insurability refers to any information or documentation regarding a person’s health, occupation, or other relevant factors that may affect their eligibility for insurance coverage.
Examiner An examiner is a physician authorized by an insurance company’s medical director to conduct medical examinations as part of the underwriting process. They assess the health status of applicants to determine their insurability.
Excess Interest Excess interest is the difference between the guaranteed interest rate promised by an insurance company on proceeds left under settlement options and the actual interest earned on those funds.
Exclusion Ratio The exclusion ratio is a fraction used to determine the portion of annual annuity income that is exempt from federal income tax. It is calculated by dividing the total contribution or investment in the annuity by the expected ratio.
Exclusion Rider An exclusion rider is a provision in a health insurance policy that excludes coverage for specific pre-existing conditions or hazards. It limits the insurer’s liability for future claims related to those exclusions.
Exclusions Exclusions are hazards or risks specifically listed in an insurance policy for which benefits will not be paid. They define the scope of coverage and outline situations or conditions that are not covered by the policy.
Exclusive Provider Organization (EPO) An EPO is a type of managed care organization that contracts with a limited number of physicians and typically one hospital to provide services to members. Members who seek care outside the EPO network may not receive benefits.
Expected Mortality Expected mortality refers to the anticipated number of deaths among a group of insured individuals during a given period, based on mortality tables and historical data. It helps insurers assess risk and determine premium rates.
Experience Rating Experience rating involves reviewing the claims experience of a group insurance contract from the previous year to establish premium rates for the upcoming period. It allows insurers to adjust rates based on the group’s past claims history.
Express Authority Express authority refers to specific authorization given in writing to an agent in the contract of agency. It outlines the agent’s duties, responsibilities, and limitations as specified in the agreement.
Extended Term Insurance Extended term insurance is a nonforfeiture option that allows the cash surrender value of a policy to be used as a net single premium to purchase term insurance for the face amount of the original policy, less any indebtedness.
F
Face Amount The face amount refers to the principal sum specified in an insurance contract. This amount may be subject to adjustments due to loans or additional benefits payable under specific conditions outlined in the policy or in a rider.
Facility-of-Payment Provision A facility-of-payment provision is a clause found in certain insurance policies, typically health insurance policies, which allows the insurer to pay up to a specified amount of benefits to a relative who appears entitled to it in cases where there is no designated beneficiary, or when the designated beneficiary is a minor or legally incompetent.
Fair Credit Reporting Act The Fair Credit Reporting Act is a federal law that requires individuals to be informed if they are being investigated by a consumer reporting agency. It regulates the collection, dissemination, and use of consumer credit information.
Family Plan Policy A family plan policy provides protection for an entire family under a single policy. Typically, the primary wage earner is insured for a larger amount with permanent insurance, while the spouse and children are covered for lesser amounts, often with term insurance, all included for one premium payment.
FICA FICA stands for Federal Insurance Contributions Act, which mandates contributions made by both employees and employers to fund Social Security benefits, including Old Age, Survivors, and Disability Insurance (OASDI).
Fiduciary A fiduciary is a person entrusted with a position of special trust and confidence, such as handling or supervising the affairs or funds of another party. They are legally obligated to act in the best interests of the party they represent.
Fixed-Amount Settlement Option A fixed-amount settlement option is a life insurance settlement option where the beneficiary chooses to receive proceeds in regular installments of a fixed dollar amount. The number of payments is determined based on the policy’s face amount, the amount of each payment, and any accrued interest.
Fixed Annuity A fixed annuity is a type of annuity that guarantees a fixed benefit amount, payable for the life of the annuitant. The benefit amount remains constant and is not affected by market fluctuations.
Fixed-Period Settlement Option A fixed-period settlement option is a life insurance settlement option where the payee selects a fixed number of payments, with the amount of each payment determined by the total proceeds and the chosen duration of the payment period.
Flat Deductible A flat deductible is a fixed amount of covered expenses that the insured must pay out of pocket before the insurance policy begins to provide benefits. It is typically applied to medical insurance policies.
Foreign Insurer A foreign insurer is an insurance company that operates in a state where it is not chartered and does not have its home office located. It conducts business outside of its home state.
Franchise Insurance Franchise insurance is a type of insurance plan that covers groups of individuals with individual policies having uniform provisions, though possibly offering different benefits. It is often solicited with the employer’s consent and is designed for groups that are too small to qualify for regular group coverage.
Fraternal Benefit Insurer A fraternal benefit insurer is a nonprofit benevolent organization that provides insurance to its members. It operates under a fraternal structure and offers insurance as a benefit to its members.
Fraud Fraud refers to an intentional act of deceit or misrepresentation of a material fact with the intention of causing another person to rely on that fact and suffer financial harm as a result.
Free Look A free look provision is a requirement in many states whereby policyholders have a specified period, typically 10 or 20 days, to examine their new insurance policies with no obligation. During this period, they can review the policy terms and conditions and decide whether to keep the policy or cancel it without penalty.
Fully Insured Fully insured refers to a status of complete eligibility for the full range of Social Security benefits, including death benefits, retirement benefits, disability benefits, and Medicare benefits.
Funding In a retirement plan, funding refers to the setting aside of funds for the payment of benefits to plan participants. It involves the allocation of resources to ensure that the plan can meet its financial obligations.
G
General Agent A general agent is an independent agent who has the authority, under contract with the company, to appoint soliciting agents within a specified territory and determine their compensation.
Government Insurer A government insurer is an organization, often an extension of the federal or state government, that provides social insurance programs to the public.
Grace Period The grace period is the period of time after the due date of a premium during which the policy remains in force without penalty.
Graded Premium Whole Life Graded premium whole life insurance is a variation of traditional whole life insurance where premiums start at lower rates during the initial policy years and gradually increase each year. After the initial period, premiums level off and remain constant.
Gross Premium The gross premium is the total premium paid by the policy owner, consisting of the net premium plus operational expenses, minus any interest.
Group Credit Insurance Group credit insurance is a form of insurance issued by insurance companies to cover the lives of debtors for the amounts of their loans. It is typically provided to creditors to protect against default on loans.
Group Insurance Group insurance provides coverage for a group of individuals, usually employees of a company, under a single master contract. It offers benefits such as health insurance, life insurance, and disability insurance to members of the group.
Guaranteed Insurability (Guaranteed Issue) Guaranteed insurability, often provided by a rider, allows policyholders to purchase additional insurance at various times without providing evidence of insurability.
Guaranteed Renewable Contract A guaranteed renewable health insurance contract allows the insured to continue the coverage by paying premiums for a specified period, during which the insurer cannot unilaterally change any provision other than the premium rate for insured classes.
Guaranty Association A guaranty association, established by each state, supports insurers and protects consumers in the event of insurer insolvency. It is funded by insurers through assessments and provides financial assistance to policyholders affected by insurer insolvency.
H
Hazard A hazard refers to any factor that increases the likelihood of a peril occurring.
Health Insurance Health insurance provides coverage against financial loss resulting from sickness or accidental bodily injury. It may also be referred to as accident and health insurance, accident and sickness insurance, sickness and accident insurance, or disability insurance.
Health Maintenance Organization (HMO) An HMO is a healthcare management system that emphasizes preventive care, early diagnosis, and outpatient treatment. Individuals typically enroll voluntarily by paying a fixed fee periodically.
Home Health Care Home health care involves skilled or unskilled care provided in an individual’s home, usually on a part-time basis.
Home Service Insurer A home service insurer offers relatively small insurance policies with premiums payable on a weekly basis, collected by agents at the policyowner’s home.
Hospital Benefits Hospital benefits are payments made for charges incurred while the insured is confined to or treated in a hospital, as defined in a health insurance policy.
Hospital Expense Insurance Hospital expense insurance provides benefits subject to a specified daily maximum for a specified period while the insured is confined to a hospital. It also includes a limited allowance for miscellaneous hospital expenses such as operating room fees, anesthesia, and laboratory fees. It may also be referred to as hospitalization insurance.
Hospital Indemnity Hospital indemnity insurance provides a predetermined daily, weekly, or monthly indemnity during hospital confinement. Payments are made on an unallocated basis without regard to actual hospital expenses.
Human Life Value Human life value represents an individual’s economic worth, calculated based on the sum of the individual’s future earnings that contribute to the individual’s family.
I
Immediate Annuity
An immediate annuity provides for the payment of annuity benefits at one payment interval from the date of purchase and can only be acquired with a single payment.
Implied Authority
Implied authority refers to authority not explicitly granted to the agent in the contract of agency but is understood to be necessary for the agent to fulfill routine responsibilities.
Incontestable Clause
An incontestable clause stipulates that, for certain reasons such as misstatements on the application, the insurance company may void a life insurance policy after it has been in force during the insured’s lifetime, typically within one or two years after issue.
Increasing Term Insurance
Increasing term insurance is a type of term life insurance where the death benefit rises periodically over the policy’s term. It is often purchased as a cost-of-living rider to a whole life policy.
Indemnity Approach
The indemnity approach is a method of paying health insurance benefits to insured individuals based on a predetermined fixed rate set for the medical services provided, regardless of the actual expenses incurred.
Independent Agency System
The independent agency system is a method of marketing, selling, and distributing insurance where independent brokers are not affiliated with any single insurer but represent multiple insurers.
Indexed Whole Life
Indexed whole life insurance is a policy with a death benefit that increases according to the rate of inflation, often tied to the Consumer Price Index (CPI).
Individual Insurance
Individual insurance policies provide protection to the policyowner, distinct from group and blanket insurance. Also known as personal insurance.
Individual Retirement Account (IRA)
An individual retirement account (IRA) is a personal qualified retirement account that allows eligible individuals to accumulate tax-deferred income up to a certain amount each year, depending on their tax bracket.
Industrial Insurance
Industrial insurance is a type of life insurance policy providing modest benefits and a relatively short benefit period. Premiums are typically collected weekly or monthly by agents visiting insured individuals’ homes.
J
Joint and Last Survivor Policy
A joint and last survivor policy is a variant of the joint life policy that insures two lives but pays the benefit only upon the death of the second insured.
Joint and Survivor Annuity
A joint and survivor annuity covers two or more lives and remains in force as long as any one of the annuitants survives.
Joint Life Policy
A joint life policy covers two or more lives and disburses the proceeds upon the death of the first insured individual, terminating the policy automatically at that point.
Juvenile Insurance
Juvenile insurance is written on the lives of children within specified age limits and typically under parental control.
K
Keogh Plans
Keogh plans are tailored to support the retirement needs of self-employed individuals. Named after the author of the Keogh Act (HR-10), these plans offer favorable tax treatment for contributions.
Key-Person Insurance
Key-person insurance shields businesses from financial setbacks resulting from the death or disability of crucial members, typically those with specialized managerial or technical expertise.
L
Lapse
A policy terminates when the policyholder fails to pay the premium within the grace period.
Law of Large Numbers
This fundamental principle of insurance states that the greater the number of individual risks pooled together into a group, the more accurately one can predict the extent or amount of loss that will occur within a given period.
Legal Purpose
In contract law, it’s required that the objective or rationale behind a contract must be lawful.
Legal Reserve
Policy reserves are maintained according to standardized levels set by insurance laws in various states.
Level Premium Funding Method
This insurance plan, used by regular life insurance companies, involves paying a consistent premium instead of an increasing one over time. Reserves accumulated from excess early premiums offset later inadequate ones.
Level Term Insurance
A type of term coverage where the face value remains constant from the policy’s inception to its expiry.
License
Certification issued by a state insurance department, validating an individual’s qualification to solicit insurance applications for a specific duration, typically renewable annually.
Licensed Insurer
An insurer that holds a valid license issued by the regulatory authority, allowing them to conduct insurance business in a specific jurisdiction.
Life Annuity
An annuity paid throughout the annuitant’s lifetime, with no provision for the return of the unused premium amount.
Life Expectancy
The average duration of remaining life for a group of individuals of a certain age, as per a given mortality table.
Life Income Settlement Option
An option where life insurance or annuity proceeds are used to purchase an annuity payable to the beneficiary for life, sometimes with specific guarantees or refunds.
Life Insurance
Coverage against the financial loss resulting from the death of an insured individual, with the insurer agreeing to pay a specified amount or income to the beneficiary upon the insured’s death.
Life Settlement Transaction
The transfer of ownership of a life insurance policy to a third party for compensation, usually less than the policy’s death benefit.
Limited Pay Life Insurance
Whole life insurance characterized by premium payments being made for a set number of years only.
Limited Policies
Insurance policies that offer benefits only for specific accidents or diseases, such as travel or dread disease policies.
Limited Risk Policy
Provides coverage for particular accidents or illnesses, such as those resulting from travel accidents or specified diseases.
Lloyd’s of London
An association of individuals and companies that underwrite insurance on their own accounts, offering specialized coverages.
Loading
The amount added to net premiums to cover operating expenses, contingencies, and management expenses.
Loan Value
The amount that can be borrowed from the insurer using the life insurance policy as collateral.
Long-term Care
A range of medical and personal services for individuals, often the elderly, who need assistance with daily activities for an extended period.
Long-term Care Policy
Health insurance policies providing daily benefits for extended care confinement.
Loss Sharing
Pooling risks to distribute potential losses among a group, reducing the impact on any single member.
Lump Sum
Payment of the entire insurance proceeds in a single sum, unless an alternative settlement option is chosen.
M
Major Medical Expense Policy
A health insurance policy offering comprehensive coverage and high benefits for hospitalization, surgery, and physician services. Typically includes deductibles and coinsurance cost-sharing.
Managed Care
A healthcare delivery system characterized by arrangements with selected providers, quality control programs, and financial incentives for members to use covered providers and procedures.
Master Contract
A policy issued to the employer in a group plan, outlining all employee benefits. Individual employees receive certificates summarizing coverage details. Also known as a master policy.
McCarran-Ferguson Act
Also known as Public Law 15, this 1945 act exempts insurance from federal antitrust laws to the extent it’s regulated by states.
Medicaid
A joint federal-state program providing medical care for the needy, often referred to as the Kerr-Mills Act.
Medical Examination
Typically conducted by a licensed physician as part of the application process for insurance coverage. The medical report becomes part of the policy contract and is attached to the policy.
Medical Expense Insurance
Coverage paying for nonsurgical doctors’ fees typically incurred in hospitals, and sometimes covering home and office visits.
Medical Information Bureau (MIB)
An organization collecting medical data on life and health insurance applicants for member companies.
Medical Report
A document completed by a physician or approved examiner, submitted to an insurer as evidence of medical history or in relation to a claim.
Medicare
A federally sponsored health insurance program for individuals aged 65 or older, administered under the Social Security Act.
Medicare Part A
Compulsory hospitalization insurance financed by workers covered by Social Security through a portion of their FICA tax.
Medicare Part B
A voluntary program providing supplementary medical insurance to cover services not included under Medicare Part A.
Medicare Part C
Also known as Medicare Advantage, this program offers various managed care plans and private fee-for-service plans.
Medicare Part D
A program providing prescription drug coverage for Medicare beneficiaries, available through private prescription drug plans or Medicare Advantage plans.
Medicare Supplement Policy
Insurance covering gaps in Medicare coverage.
Minimum Deposit Insurance
A cash value life insurance policy allowing immediate borrowing against the first-year premium.
Miscellaneous Expenses
Hospital charges beyond room and board, such as x-rays and laboratory fees.
Misrepresentation
Providing inaccurate information about policy terms, dividends, or the nature of a policy.
Misstatement of Age or Sex Provision
Adjustment of benefits if the insured’s age or sex is misstated on the application.
Modified Endowment Contract (MEC)
A life insurance policy with initial premium payments exceeding those needed for paid-up future benefits in seven years.
Modified Whole Life
Whole life insurance with lower premiums for the first few years, increasing thereafter but remaining lower than standard whole life rates.
Money Purchase Plan
A qualified plan where contributions are fixed amounts or percentages of the employee’s salary.
Moral Hazard
The effect of personal characteristics, reputation, or financial habits on insurability.
Morale Hazard
The indifference to loss due to the existence of insurance.
Morbidity
The incidence of disability due to sickness or accident within a group.
Morbidity Rate
The frequency and severity of disability within a large group, used in setting health insurance rates.
Mortality
The incidence of death within a group.
Mortality Table
A listing of mortality rates by age, used by actuaries to predict life expectancy.
Mortgage Insurance
Life insurance designed to pay off a mortgage balance at the insured’s death, typically payable to family beneficiaries.
Multiple Employer Trust (MET)
Small groups banding together under state trust laws to purchase insurance at favorable rates.
Multiple Employer Welfare Arrangement (MEWA)
Employers pooling risks and self-insuring.
Multiple Protection Policy
A combination of term and whole life coverage paying a multiple of the face amount for a set period.
Mutual Insurer
An insurance company owned by policyholders and issuing participating insurance.
N
National Association of Health Underwriters (NAHU)
NAHU is a group of health insurance agents committed to supporting the health insurance industry and improving the quality of service provided by insurance professionals.
National Association of Insurance and Financial Advisors (NAIFA)
NAIFA is an organization of life insurance agents dedicated to supporting the life insurance industry and enhancing the quality of service offered by insurance professionals.
National Association of Insurance Commissioners (NAIC)
The NAIC is a group of state insurance commissioners actively involved in addressing insurance regulatory issues and developing model legislation and standards.
Natural Group
A group formed for reasons unrelated to obtaining insurance coverage.
Needs Approach
A method for determining the appropriate amount of insurance coverage by assessing the needs and goals of a family or business in the event of death, disability, or retirement.
Net Premium
Premium calculated based on a given mortality table and interest rate, excluding any loading charges.
Nonadmitted Insurer
An insurance company not licensed to operate within a specific state.
Noncancellable and Guaranteed Renewable Contract
Health insurance contract allowing the insured to continue coverage by paying premiums stated in the contract, with the insurer unable to unilaterally alter provisions.
Noncontributory Plan
Employee benefit plan where the employer covers the entire cost of benefits, typically for 100% of eligible employees.
Nondisabling Injury
An injury requiring medical care but not resulting in a loss of work time.
Nonduplication Provision
Clause stipulating that insured individuals cannot collect charges under a group health plan if already reimbursed by their own or their spouse’s plan.
Nonforfeiture Options
Benefits allowed under a life insurance contract even if premium payments cease, typically including cash value, loan value, paid-up insurance value, and extended term insurance value.
Nonforfeiture Values
Benefits in a life insurance policy that policyholders retain even if premium payments stop, mandated by law.
Nonmedical Insurance
Insurance issued without requiring a regular medical examination, relying on the applicant’s health information and references.
Nonparticipating
Insurance where the insured does not share in the company’s divisible surplus.
Nonqualified Plan
Retirement plan not meeting federal requirements for favorable tax treatment.
Notice of Claims Provision
Policy requirement for the policyholder to notify the insurer of a loss within a reasonable timeframe
O
Offer and Acceptance
The applicant can make an offer by signing the application, paying the initial premium, and, if needed, undergoing a physical exam. Policy issuance, as requested, constitutes acceptance by the insurance company. Alternatively, the company can make an offer without receiving a premium payment with the application. Payment of the premium on the offered policy then signifies acceptance by the applicant.
Old-Age, Survivors, Disability and Hospital Insurance (OASDI)
OASDI provides retirement, death, disability income, and hospital insurance benefits under the Social Security system.
Open-Panel HMO
An HMO network comprising physicians who operate from their own offices and participate in the HMO on a part-time basis.
Optionally Renewable Contract
A health insurance policy in which the insurer reserves the right to terminate coverage at any anniversary or, in some cases, at any premium due date, but cannot terminate coverage between such dates.
Ordinary Insurance
Life insurance offered by commercial companies not based on weekly premiums, typically providing protection of $1,000 or more.
Other Insureds Rider
A term rider attached to the base policy covering the insured, providing coverage for a family member other than the insured.
Outline of Coverage
Informational material detailing the features and benefits of a specific insurance plan or policy. In many states, providing an outline of coverage is mandatory when considering certain types of coverages.
Overhead Insurance
Short-term disability insurance reimbursing the insured for fixed monthly expenses typically incurred in operating their business.
Overinsurance
Excessive insurance coverage resulting in payment exceeding the actual loss or expenses incurred.
Own Occupation
A definition of total disability requiring the insured to be unable to work at their own occupation to receive disability income benefits.
P
Paid-up Additions
Additional life insurance acquired through policy dividends on a net single premium basis at the insured’s attained insurance age at the time of purchase.
Paid-up Policy
A policy for which no further premiums are required, and the insurance company is liable for the benefits outlined in the contract.
Parol Evidence Rule
A principle in contract law that incorporates all verbal statements into the written contract, preventing alterations or modifications to the contract through oral evidence.
Partial Disability
An illness or injury that prevents the insured from performing some, but not all, of their occupational duties.
Participating
A type of insurance plan where the policy owner receives dividends from the company’s divisible surplus.
Participating Physician
A doctor or physician who accepts Medicare’s allowable charges and does not charge more than this amount.
Participation Standards
Rules dictating employee eligibility for qualified retirement plans.
Partnership
A business entity where two or more individuals work together as co-owners to enhance effectiveness.
Payor Rider
An additional feature available in certain juvenile life insurance policies, waiving future premiums if the individual responsible for payment dies or becomes disabled.
Per Capita Rule
A principle dividing death proceeds equally among living primary beneficiaries.
Peril
The specific event causing loss and creating risk.
Period Certain Annuity
An annuity income option guaranteeing a minimum period of payments.
Permanent Flat Extra Premium
A fixed charge added per $1,000 of insurance for substandard risks.
Personal Producing General Agency System (PPGA)
A method of selling insurance where personal producing general agents are compensated for business they personally sell and business sold by agents under them.
Per Stirpes Rule
A principle dividing death proceeds equally among named beneficiaries, with the share of a deceased beneficiary going to their living descendants.
Policy
The written document outlining the terms of an insurance contract.
Policy Loan
A loan made by the insurance company to the policy owner, secured by the policy’s cash value.
Policy Provisions
The terms and conditions of an insurance policy as outlined in its clauses.
Precertification
Insurer approval required before an insured enters a hospital, often to control costs.
Preexisting Condition
An illness or medical condition existing before a policy’s effective date, typically excluded from coverage.
Preferred Provider Organization (PPO)
A network of healthcare providers offering services to members at negotiated fees.
Preferred Risk
A risk indicating longevity for unimpaired lives of the same age.
Premium
The periodic payment necessary to maintain an insurance policy.
Premium Factors
The primary factors considered when calculating insurance premiums: mortality, expense, and interest.
Prescription Drug Coverage
Optional coverage for prescription drugs, often included in group medical expense plans.
Presumptive Disability Benefit
A disability income policy benefit presuming total disability if the insured experiences a specified disability, such as blindness.
Primary Beneficiary
The beneficiary designated by the insured to receive policy benefits first in life insurance.
Primary Insurance Amount (PIA)
The Social Security retirement or disability benefit for a covered worker at age 65.
Principal
An insurance company that authorizes someone as its agent and is bound by contracts completed on its behalf.
Principal Sum
The amount payable as a death benefit under an Accidental Death and Dismemberment policy.
Private Insurer
An insurer not affiliated with federal or state governments.
Probationary Period
A waiting period after policy issuance during which coverage for sickness is not provided.
Proceeds
The net amount payable by the insurance company at the insured’s death or policy maturity.
Producer
A term encompassing agents, brokers, personal producing general agents, solicitors, or others who sell insurance.
Professional Liability Insurance
Insurance protecting against errors and omissions in professional services.
Profit-Sharing Plan
A plan distributing a portion of a company’s profits to qualifying employees.
Proof of Loss
A health insurance provision requiring the insured to submit a completed claim form to the insurer within a specified time after a loss.
Pure Endowment
A contract paying only if a certain person survives to a specified date, opposite to a term contract.
Pure Risk
A risk involving only the chance of loss, with no opportunity for gain
Q
Qualified Plan – An employer-established retirement or employee compensation plan meeting specific IRS guidelines, thereby qualifying for favorable tax treatment.
R
Rate-up in age – A system of rating substandard risks that assumes the insured to be older than their actual age, resulting in a correspondingly higher premium.
Rating – The process of determining the premium classification for an applicant for life or health insurance.
Reasonable and customary charge – The charge for a healthcare service consistent with the prevailing rate in a specific geographical area for similar services.
Rebating – The illegal practice of returning part of the commission or providing other incentives to the insured as inducement to purchase a policy. It may result in license revocation.
Reciprocal insurer – An insurance company where policyholders insure each other’s risks.
Recurrent disability provision – A provision in a disability income policy specifying the period during which a recurrence of disability is considered a continuation of a prior disability.
Reduced paid-up insurance – A nonforfeiture option in life insurance allowing the policyholder to use the cash surrender value to purchase a paid-up policy for a reduced amount of insurance.
Re-entry option – An option in a renewable term life policy allowing the policyholder to renew coverage without evidence of insurability at the end of the term.
Refund annuity – An annuity that continues until the total payments equal the purchase price, with any excess paid to the beneficiary.
Reimbursement approach – The payment of health policy benefits based on actual medical expenses incurred.
Reinstatement – Restoring a lapsed policy to force by providing evidence of insurability and paying past-due premiums.
Reinsurance – The acceptance by one or more insurers (reinsurers) of a portion of the risk underwritten by another insurer.
Relative value scale – A method for determining benefits payable under a surgical expense policy, assigning points to surgical procedures.
Renewable option – An option allowing the policyholder to renew a term policy without evidence of insurability.
Renewable term – Term policies renewable without a medical examination, with premiums based on the insured’s age.
Replacement – The act of replacing one life insurance policy with another under certain conditions.
Representation – Statements on insurance applications representing as substantially true to the applicant’s knowledge and belief.
Reserve – Funds held by an insurance company to cover future claims.
Residual disability benefit – Disability income payment based on the proportion of income lost.
Respite care – Temporary healthcare designed to provide a caregiver with a short rest period.
Results provision – A provision outlining accidental bodily injury benefits.
Revocable beneficiary – A beneficiary whose rights in a policy are subject to the policyowner’s right to revoke or change them.
Rider – A supplemental agreement attached to a policy, adding, expanding, or waiving certain coverages or conditions.
Risk – The uncertainty of loss for an insured or prospect.
Risk pooling – The principle of insurance where many contribute to cover the losses of a few.
Risk selection – The underwriting process to accept or decline applicants based on risk assessment.
Rollover IRA – An IRA established with funds transferred from another IRA or qualified retirement plan.
S
Salary continuation plan – An arrangement whereby an income, usually related to an employee’s salary, is continued upon employee’s retirement, death or disability.
Salary reduction SEP – A qualified retirement plan limited to companies with 25 or fewer employees. It allows employees to defer part of their pretax income to the plan, lowering their taxable income. (See simplified employee pension plan)
Savings incentive match plan for employees (SIMPLE) – A qualified employer retirement plan that allows small employers to set up tax-favored retirement savings plans for their employees.
Schedule – List of specified amounts payable, usually for surgical operations, dismemberment, fractures, and so forth.
Secondary beneficiary – An alternative beneficiary designated to receive payment, usually in the event the original beneficiary predeceases the insured.
Section 457 plans – Deferred compensation plans for employees of state and local governments in which amounts deferred will not be included in gross income until they are actually received or made available.
Self-Employed Individuals Retirement Act – Passed by Congress in 1962, this Act enables self-employed persons to establish qualified retirement plans similar to those available to corporations.
Self-insurance – Program for providing insurance financed entirely through the means of the policyowner, in place of purchasing coverage from commercial carriers.
Self-insured plan – A health insurance plan characterized by an employer (usually a large one), labor union, fraternal organization, or other group retaining the risk of covering its employees’ medical expenses.
Service insurers – Companies that offer prepayment plans for medical or hospital services, such as health maintenance organizations.
Service provider – An organization that provides health coverage by contracting with service providers, to provide medical services to subscribers, who pay in advance through premiums. Examples of such coverages are HMOs and PPOs.
Settlement options – Optional modes of settlement provided by most life insurance policies in lieu of lump-sum payment. Usual options are lump-sum cash, interest-only, fixed-period, fixed-amount, and life income.
Simplified employee pension plan (SEP) – A type of qualified retirement plan under which the employer contributes to an individual retirement account set up and maintained by the employee.
Single dismemberment – Loss of one hand or one foot, or the sight of one eye.
Single-premium whole life insurance – Whole life insurance for which the entire premium is paid in one sum at the beginning of the contract period.
Skilled nursing care – Daily nursing care ordered by a doctor; often medically necessary. It can only be performed by or under the supervision of skilled medical professionals and is available 24 hours a day.
Social Security – Programs first created by Congress in 1935 and now composed of Old-Age, Survivors and Disability Insurance (OASDI), Medicare, Medicaid, and various grants-in-aid, which provide economic security to nearly all employed people.
Sole proprietorship – The simplest form of business organization whereby one individual owns and controls the entire company.
Special class – Applicants who cannot qualify for standard insurance but may secure policies with riders waiving payment for losses involving certain existing health impairments.
Special risk policy – Provides coverage for unusual hazards normally not covered under accident and health insurance, such as a concert pianist insuring his hands for a million dollars. (See limited risk policy)
Specified disease insurance – (See limited risk policy)
Speculative risk – A type of risk that involves the chance of both loss and gain; not insurable.
Spendthrift provision – Stipulates that, to the extent permitted by law, policy proceeds shall not be subject to the claims of creditors of the beneficiary or policy owner.
Split-dollar life insurance – An arrangement between two parties where life insurance is written on the life of one, who names the beneficiary of the net death benefits (death benefits less cash value), and the other is assigned the cash value, with both sharing premium payments.
Spousal IRA – An individual retirement account that persons eligible to set up IRAs for themselves may set up jointly with a nonworking spouse.
Standard provisions – Forerunners of the Uniform Policy Provisions in health insurance policies today.
Standard risk – Person who, according to a company’s underwriting standards, is entitled to insurance protection without extra rating or special restrictions.
Stock bonus plan – A plan under which bonuses are paid to employees in shares of stock.
Stock insurer – An insurance company owned and controlled by a group of stockholders whose investment in the company provides the safety margin necessary in issuance of guaranteed, fixed premium, nonparticipating policies.
Stock redemption plan – An agreement under which a close corporation purchases a deceased stockholder’s interest.
Stop-loss provision – Designed to stop the company’s loss at a given point, as an aggregate payable under a policy, a maximum payable for any one disability or the like; also applies to individuals, placing a limit on the maximum out-of-pocket expenses an insured must pay for health care, after which the health policy covers all expenses.
Straight life income annuity (straight life annuity, life annuity) – An annuity income option that pays a guaranteed income for the annuitant’s lifetime, after which time payments stop.
Straight whole life insurance – (See whole life insurance)
Subscriber – Policyowner of a health care plan underwritten by a service insurer.
Substandard risk – Person who is considered an under-average or impaired insurance risk because of physical condition, family or personal history of disease, occupation, residence in unhealthy climate, or dangerous habits. (See special class)
Successor beneficiary – (See secondary beneficiary)
Suicide provision – Most life insurance policies provide that if the insured commits suicide within a specified period, usually two years after the issue date, the company’s liability will be limited to a return of premiums paid.
Supplemental accident coverage – Often included as part of a group basic or major medical plan, this type of coverage is designed to cover expenses associated with accidents to the extent they are not provided under other coverages.
Supplementary major medical policy – A medical expense health plan that covers expenses not included under a basic policy and expenses that exceed the limits of a basic policy.
Surgical expense insurance – Provides benefits to pay for the cost of surgical operations.
Surgical schedule – List of cash allowances payable for various types of surgery, with the respective maximum amounts payable based upon severity of the operations; stipulated maximum usually covers all professional fees involved (e.g., surgeon, anesthesiologist).
Surrender value – (See cash surrender value)
T
Taxable wage base – The maximum amount of earnings upon which FICA taxes must be paid.
Tax-sheltered annuity – An annuity plan reserved for nonprofit organizations and their employees. Funds contributed to the annuity are excluded from current taxable income and are only taxed later, when benefits begin to be paid. Also called tax-deferred annuity and 403(b) plan.
Temporary insurance agreement – (See binding receipt)
Term insurance – Protection during limited number of years; expiring without value if the insured survives the stated period, which may be one or more years, but usually is 5 to 20 years, because such periods generally cover the needs for temporary protection.
Term of policy – Period for which the policy runs. In life insurance, this is to the end of the term period for term insurance, to the maturity date for endowments and to the insured’s death (or age 100) for permanent insurance. In most other kinds of insurance, it is usually the period for which a premium has been paid in advance; however, it may be for a year or more, even though the premium is paid on a semiannual or other basis.
Tertiary beneficiary – In life insurance, a beneficiary designated as third in line to receive the proceeds or benefits if the primary and secondary beneficiaries do not survive the insured.
Third-party administrator (TPA) – An organization outside the members of a self-insurance group which, for a fee, processes claims, completes benefits paperwork, and often analyzes claims information.
Third-party applicant – A policy applicant who is not the prospective insured.
Time limit on certain defenses – A provision stating that an insurance policy is incontestable after it has been in force a certain period of time. It also limits the period during which an insurer can deny a claim on the basis of a preexisting condition.
Total disability – Disability preventing insureds from performing any duty of their usual occupations or any occupation for remuneration; actual definition depends on policy wording.
Traditional net cost method – A method of comparing costs of similar policies that does not take into account the time value of money.
Transacting insurance – The transaction of any of the following, in addition to other acts included under applicable provisions of the state code: solicitation or inducement, preliminary negotiations, effecting a contract of insurance, transacting matters subsequent to effecting a contract of insurance, and arising out of it.
Travel-accident policies – Limited to indemnities for accidents while traveling, usually by common carrier.
Trust – Arrangement in which property is held by a person or corporation (trustee) for the benefit of others (beneficiaries). The grantor (person transferring the property to the trustee) gives legal title to the trustee, subject to terms set forth in a trust agreement. Beneficiaries have equitable title to the trust property.
Trustee – One holding legal title to property for the benefit of another; may be either an individual or a company, such as a bank and trust company.
Twisting – Practice of inducing a policyowner with one company to lapse, forfeit, or surrender a life insurance policy for the purpose of taking out a policy in another company. Generally classified as a misdemeanor, subject to fine, revocation of license, and sometimes imprisonment. (See misrepresentation)
U
Unallocated benefit – Reimbursement provision, usually for miscellaneous hospital and medical expenses, that does not specify how much will be paid for each type of treatment, examination, dressing, and so forth, but only sets a maximum that will be paid for all such treatments.
Underwriter – Company receiving premiums and accepting responsibility for fulfilling the policy contract. Company employee who decides whether or not the company should assume a particular risk. The agent who sells the policy.
Underwriting – Process through which an insurer determines whether, and on what basis, an insurance application will be accepted.
Unfair Trade Practices Act – A model act written by the National Association of Insurance Commissioners (NAIC) and adopted by most states empowering state insurance commissioners to investigate and issue cease and desist orders and penalties to insurers for engaging in unfair or deceptive practices, such as misrepresentation or coercion.
Uniform Individual Accident and Sickness Policy Provisions Law – NAIC model law that established uniform terms, provisions, and standards for health insurance policies covering loss “resulting from sickness or from bodily injury or death by accident or both.”
Uniform Simultaneous Death Act – Model law that states when an insured and beneficiary die at the same time, it is presumed that the insured survived the beneficiary.
Unilateral – Distinguishing characteristic of an insurance contract in that it is only the insurance company that pledges anything.
Uninsurable risk – One not acceptable for insurance due to excessive risk.
Universal life – Flexible premium, two-part contract containing renewable term insurance and a cash value account that generally earns interest at a higher rate than a traditional policy. The interest rate varies. Premiums are deposited in the cash value account after the company deducts its fee and a monthly cost for the term coverage.
Utilization review – A technique used by health care providers to determine after the fact if health care was appropriate and effective.
V
Valued contract – A contract of insurance that pays a stated amount in the event of a loss.
Variable annuity – Similar to a traditional, fixed annuity in that retirement payments will be made periodically to the annuitants, usually over the remaining years of their lives. Under the variable annuity, there is no guarantee of the dollar amount of the payments; they fluctuate according to the value of an account invested primarily in common stocks.
Variable life insurance – Provides a guaranteed minimum death benefit. Actual benefits paid may be more, however, depending on the fluctuating market value of investments behind the contract at the insured’s death. The cash surrender value also generally fluctuates with the market value of the investment portfolio.
Variable universal life insurance – A life insurance policy combining characteristics of universal and variable life policies. A VUL policy contains unscheduled premium payments and death benefits and a cash value that varies according to the underlying funds whose investment portfolio is managed by the policyowner.
Vesting – Right of employees under a retirement plan to retain part or all of the annuities purchased by the employer’s contributions on their behalf or, in some plans, to receive cash payments or equivalent value, on termination of their employment, after certain qualifying conditions have been met.
Viatical broker – An insurance producer licensed to solicit viatical settlement agreements between providers and policyowners of life insurance contracts.
Viatical provider – A company that buys a life insurance policy from a policyowner who is suffering from a terminal illness or a severe chronic illness.
Viatical settlement contract – An agreement under which the owner of a life insurance policy sells the policy to another person in exchange for a bargained for payment, which is generally less than the expected death benefit under the policy.
Viator – An individual suffering from a terminal illness or severe chronic illness who sells his life insurance policy to a viatical company. The company becomes the policyowner and assumes responsibility for paying premiums. When the insured dies, the company receives the death benefits.
Vision insurance – Optional coverage available with group health insurance plans, vision insurance typically pays for charges incurred during eye exams; eyeglasses and contact lenses are usually excluded.
Void contract – An agreement without legal effect; an invalid contract.
Voidable contract – A contract that can be made void at the option of one or more parties to the agreement.
Voluntary group AD&D – A group accidental death and dismemberment policy paid for entirely by employees, rather than an employer.
W
Waiting period – (See elimination period)
Waiver – Agreement waiving the company’s liability for a certain type or types of risk ordinarily covered in the policy; a voluntary giving up of a legal, given right.
Waiver of premium – Rider or provision included in most life insurance policies and some health insurance policies exempting the insured from paying premiums after the insured has been disabled for a specified period of time, usually six months in life policies and 90 days or six months in health policies.
War clause – Relieves the insurer of liability, or reduces its liability, for specified loss caused by war.
Warranties – Statements made on an application for insurance that are warranted to be true; that is, they are exact in every detail as opposed to representations. Statements on applications for insurance are rarely warranties, unless fraud is involved. (See representation)
Whole life insurance – Permanent level insurance protection for the “whole of life,” from policy issue to the death of the insured. Characterized by level premiums, level benefits, and cash values.
Wholesale insurance – (See franchise insurance)
Workers’ compensation – Benefits paid workers for injury, disability, or disease contracted in the course of their employment. Benefits and conditions are set by law, although in most states the insurance to provide the benefits may be purchased from regular insurance companies. A few states have monopolistic state compensation funds.
Y
Yearly renewable term insurance (YRT) – (See annually renewable term)