Accidental Death and Dismemberment (AD&D) Rider: A
supplement to many life insurance policies that provides
an additional cash benefit to the insured or his/her beneficiaries
if an accident causes either the death of the insured or
causes the insured to lose any two limbs or the sight in
Actual Cash Value: The value of property based on the
cost of repairing or replacing it with property of the
same kind and quality. Typically, actual cash value equals
the current replacement cost minus depreciation (age, condition,
length of time in use, and obsolescence).
Adjuster: A person who investigates and settles losses
for an insurance carrier.
Agent: In insurance, the person authorized to represent
the insurer in negotiating, servicing, or effecting insurance
Annual Out-of-Pocket Maximum: A dollar amount set by the
plan which puts a cap on the amount of money the insured
must pay out of his or her own pocket for covered expenses
over the course of a calendar year.
Annuity: A contract that provides for a series of periodic
payments to be made or received at regular intervals.
Applicant: The party applying for an insurance policy.
Application: A printed form developed by an insurer that
includes questions about the prospective insured and the
desired insurance coverage and limits.
Assigned Risk: A risk insured through a pool of insurers
and assigned to a specific insurer. These risks are generally
considered undesirable by underwriters, but due to state
law or otherwise, they must be insured.
Auto Collision Coverage: Optional auto insurance which
pays for damage to your car caused by collision with another
car or object, or by rolling the car over. Frequently required
if you have a car loan.
Auto Comprehensive Physical Damage Coverage: Optional
auto insurance which pays for damage to your auto caused
by things other than collision or rolling the car over,
such as fire, theft, vandalism, flood or hail. Frequently
required if you have a car loan.
Automatic Premium Loan: A provision in some life insurance
policies that authorizes a policy loan using the cash value
accumulated by the insurance policy to pay for past due
premiums at the end of the grace period. This prevents
a lapse of coverage.
Beneficiary: Any person, persons, or other entity designated
to receive the policy benefits upon the death of the policyholder.
Binder: A written or oral contract issued temporarily
to place insurance in force when it is not possible to
issue a new policy or endorse the existing policy immediately.
A binder is subject to the premium and all the terms of
the policy to be issued.
Binding Receipt: A premium receipt acknowledging temporary
insurance coverage immediately until the insurance company
rejects the application or approves it and issues a policy.
Broker: A marketing specialist who represents insurance
organizations and who deals with either agents or companies
in arranging for the coverage required by the customer.
Buy-Sell Agreements: Agreement that a deceased business
owner’s interest will be sold and purchased at a predetermined
price or at a price according to a predetermined formula.
Calendar Year Deductible: The amount of health care expenses
that the insured person must pay before insurance payments
for covered eligible expenses.
Cancellation: The discontinuance of an insurance policy
before its normal expiration date, either by the insured
or the company.
Case Management: A utilization management technique that
addresses the medical necessity of care as well as alternative
treatments or solutions, especially when the patient is
likely to require very expensive treatment.
Cash Value (cash surrender value): The cash amount payable
to a life insurance policyowner in the event of termination
or cancellation of the policy before its maturity or the
Certificate of Insurance: A statement of coverage issued
to an individual insured under a group insurance contract,
outlining the insurance benefits and principal provisions
applicable to the member.
Claim: A person’s request for payment from an insurer
for a loss covered by the insurance policy.
COBRA (Consolidated Omnibus Budget Reconciliation Act):
COBRA requires organizations with twenty or more employees
to offer the continuation of group health benefits (Medical,
Dental, Vision, and Medical Reimbursement Account) to employees
(and covered dependents) upon experiencing a “Qualifying
Employers are required to provide initial COBRA notification
to covered employees and dependents. A letter detailing
an individual’s rights upon experiencing a “qualifying
event” and an explanation of the conversion privilege.
The legislation defines the following six situations as “Qualifying
Events” that require COBRA continuation:
Termination of Employment
Reduction of Work Hours
Employee’s Divorce (or legal separation in some states)
Change in “Dependent” Status
Coinsurance Provision: A specified percentage of the cost
of treatment the insured is required to pay for all covered
medical expenses remaining after the policy’s deductible
has been met.
Collision Insurance: Protection against loss resulting
from any damage to the policyholder’s car caused by collision
with another vehicle or object, or by upset of the insured
car, whether it was the insured’s fault or not.
Commission: The amount of money, usually a percentage
of the premiums that is paid to an insurance agent for
selling an insurance policy.
Comprehensive Auto Insurance: Protection against loss
resulting from damage to the insured auto, other than loss
by collision or upset.
Compulsory Auto Liability Insurance: Insurance laws in
some states required motorists to carry at least certain
minimum auto coverages. This is called
Conditions: The part of your insurance policy that states
the obligations of the person insured and those of the
Contingent Beneficiary: In a life insurance policy, the
person designated to receive the policy benefits if the
primary beneficiary dies before the insured.
Contract: A legally enforceable agreement between two
or more parties.
Conversion Privilege: The right to convert or change
insurance coverage from an individual term insurance policy
to an individual whole life insurance policy.
Convertible Term Life Insurance: A type of term life
insurance that offers the policyowner the option to exchange
the term policy for a form of permanent insurance.
Copay: The fee you pay for certain medical services or
for each prescription. For example, you may pay $20 for
an office visit or $10 to fill a prescription and the health
plan covers the balance of the charges. (1) A fee that
many insurance plans require an insured to pay for certain
medical services (such as a physician’s office visit).
(2) An amount that the insured must pay toward the cost
of each prescription under a prescription drug plan.
Creditable Coverage: The pre-existing condition exclusion
is reduced one month for every month that a person had
coverage in a previous qualifying plan as long as the gap
in coverage between the previous plan and the new plan
is 63 days or less.
Declination: The insurer’s refusal to insure an individual
after careful evaluation of the application for insurance
and any other pertinent factors.
Deductibles: The portion of the loss that the policyholder
agrees to pay out of pocket, before the insurance company
pays the amount they are obligated to cover. For example,
if the covered claim is $1000 and your deductible is $250,
you pay $250 and your company will pay $750. Deductibles
help to keep insurance rates reasonable. Raising the amount
of the deductible lowers the cost of insurance.
Dependent: A person for whom the insured has some legal
obligation to. For most plans, it is the insured’s spouse
and/or children. Some plans also allow non-traditional
spousal relationships (significant other, life-partner,
etc.) to be considered a dependent with some additional
Depreciation: Reduction in the value of property due
to age and use.
Double Indemnity: A provision in a life insurance policy,
subject to specified conditions and exclusions, under the
terms of which double the face amount of the policy is
payable if the death of the insured is the result of an
accident. In general, the conditions are that the insured’s
death occurs prior to a specified age and results from
bodily injury effected solely through external, violent
and accidental means independently and exclusively of all
other cause, within 60 or 90 days after such injury.
Emergency Room Visit: A visit to a hospital for treatment
of an accidental injury or for emergency medical care.
To qualify as an emergency, the symptoms must be sudden,
severe and require immediate medical attention. Some states
judge emergencies by the “prudent layperson” law,
meaning that the health plan must cover a trip to the emergency
room “if a prudent layperson, acting reasonably, would
have believed that an emergency medical condition existed.” Keep
in mind that some plans won’t cover a trip to the emergency
room if the symptoms appeared more than 24 hours earlier.
Endorsement: Attachment or addendum to an insurance policy;
an endorsement changes the contract’s original terms.
Exclusions and Limitations: Conditions, situations and
services not covered by the health plan.
Extended Term Life Insurance: A nonforfeiture benefit
under which the net cash value of the policy is used to
purchase term insurance for the amount of coverage available
under the original policy.
Face Amount: The amount stated in the life insurance policy
as the death benefit.
Grace Period: The specified length of time, after a Life
or Health premium payment is due in which the insured may
make the payment and keep the policy in force. (Usually
Group Health Insurance: An insurance plan designed for
a group, such as employees of a single employer. Insurance
is provided to them under a single policy.
Guaranteed Renewable Policy: A health insurance policy
that the insurer is required to renew — as long as premiums
are paid — at least until the insured attains the age
limit specified in the policy, or the policy is cancelled
by the insured. The insurer may increase the premium rate
for any class of guaranteed renewable policies.
Guaranty Association: Established by each state to support
insurers and protect consumers in the case of insurer insolvency,
guaranty associations are funded by insurers through assessments.
HIPPA – Health Insurance Portability and Accountability
Act of 1996: Under this federal law (known as HIPAA), group
health plans cannot deny coverage based solely on an individual’s
health status. This law also gives employees who change
or lose their jobs better access to health coverage, guarantees
renewability and availability to certain employees and
limits exclusions for pre-existing conditions. For example,
under this law, group health plans must credit any employee
the amount of time that they spent on any health plan prior
to the new plan, which is known as “prior credible
coverage.” A pre-existing condition will be covered
without a waiting period when an employee joins a new group
plan if the employee has been insured for the previous
12 months with credible health insurance, with no lapse
in coverage of 63 days or more. This means that if an employee
has been insured for 12 months or more, the employee will
be able to go from one job to another and his or her pre-existing
coverage will remain intact — without additional waiting
periods. However, if an employee has a pre-existing condition
and was not covered previously for 12 months before joining
a new plan, the longest the employee will have to wait
for their pre-existing coverage to be covered is 12 months.
HMO (Health Maintenance Organization): A health care financing
and delivery system that provides comprehensive health
care for subscribing members in a particular geographic
area using managed care techniques. Most HMOs require that
you only utilize physicians within their network, often
going so far as to require you to choose a primary care
physician who directs most courses of your treatment.
Indemnification: Compensation to the victim of a loss,
in whole or in part, by payment, repair, or replacement.
Indemnity. Legal principle that specifies an insured should
not collect more than the actual cash value of a loss but
should be restored to approximately the same financial
position as existed before the loss.
Insolvent: Having insufficient financial resources (assets)
to meet financial obligations (liabilities).
Insurable Risk: The conditions that make a risk insurable
are (a) the peril insured against must produce a definite
loss not under the control of the insured, (b) there must
be a large number of homogeneous exposures subject to the
same perils, (c) the loss must be calculable and the cost
of insuring it must be economically feasible, (d) the peril
must be unlikely to affect all insureds simultaneously,
and (e) the loss produced by a risk must be definite and
have a potential to be financially serious.
Incontestable Clause: A life insurance policy wording
that provides a time limit (e.g. two years) on the insurer’s
right to dispute a policy’s validity based on material
misstatements in the application.
Insurable Interest: Any interest a person has in property
that is the subject of insurance, so that damage to this
property would cause the insured a financial loss.
Insurance Company: An organization that has been chartered
by a governmental entity to transact the business of insurance.
Insured: A person or organization covered by an insurance
policy, including the “named insured” and any
other parties for whom protection is provided under the
Insurer: The party to the insurance contract who promises
to pay losses or benefits. Also, any corporation engaged
primarily in the business of furnishing insurance to the
Irrevocable Beneficiary: A named beneficiary whose rights
to life insurance policy proceeds cannot be canceled or
changed by the policyowner unless the beneficiary consents.
Key Employee: Insurance Protection of a business against
financial loss caused by the death or disablement of a
vital member of the company, usually individuals possessing
special managerial or technical skill or expertise. Also
called key executive insurance.
Lapse: Termination of a policy due to nonpayment of premiums.
Liability: A legal obligation to compensate a person
harmed by one’s acts or omissions.
Liability Coverage: Insurance that provides compensation
for a harm or wrong to a third party for which an insured
is legally obligated to pay.
Life Insurance: Insurance that pays a specified sum of
money to designated beneficiaries if the insured person
dies during the policy term.
Lifetime Maximum: The maximum amount of money a plan will
pay towards healthcare services over the course of the
Loss: The happening of the event for which insurance pays.
Loss Expense – Allocated: Handling expenses, such as legal
or independent adjuster fees, paid by an insurance company
in settling a claim which can be definitely charged to
that particular claim.
Loss Expense – Unallocated: Salaries and other expenses
incurred in connection with the operation of a claim department
of an insurance carrier which cannot be charged to individual
Medical Payments Coverage: Medical and funeral expense
coverage for bodily injuries sustained from or while occupying
an insured vehicle, regardless of the insured’s negligence.
Misrepresentation: Act of making, issuing, circulating
or causing to be issued or circulated an estimate, an illustration,
a circular or a statement of any kind that does not represent
the correct policy terms, dividends or share of surplus
or the name or title for any policy or class of policies
that does not in fact reflect its true nature.
Negligence: Failure to use a generally acceptable level
of care and caution.
Network: A group of doctors, hospitals and other health-care
providers contracting with a health plan, usually to provide
care at special rates and to handle paperwork with the
No-fault Insurance: A system of compensation enacted
by law in many states under which indemnification is made
by the insured’s own insurance company regardless of who
is at fault. Details of this system vary significantly
from state to state.
Non-Formulary Drugs: Non-formulary drugs often require
a higher copayment. Non-formulary drugs are those that
have not yet been reviewed or have been denied formulary
status, typically because they offer no extra benefit over
the drugs already on a plan’s formulary list.
Offer and Acceptance: The offer may be made by the applicant
by signing the application, paying the first premium and,
if necessary, submitting to physical examination. Policy
issuance, as applied for, constitutes acceptance by the
company. Or the offer may be made by the company when no
premium payment is submitted with the application. Premium
payment on the offered policy then constitutes acceptance
by the applicant.
Out-of-Network: Health care services received outside
the HMO, POS or PPO network.
Out-of-Pocket Expense: Any medical care costs not covered
by insurance, which must be paid by the insured.
Paid-up Policy: An in-force life insurance policy for
which no further premium payments are required.
Peril: The cause of loss or damage.
Personal Injury Protection: First-party no-fault coverage
in which an insurer pays, within the specified limits,
the wage loss, medical, hospital and funeral expenses of
Physical Damage: Damage to or loss of the automobile resulting
from collision, fire, theft or other perils.
Permanent Insurance: A general term for ordinary life
and whole life insurance policies that remain in effect
as long as their premiums are paid.
Personal Property Insurance: Protects against the loss
of, or damage to property other than real property (real
estate) caused by specific perils.
Point-of-Service Plan: An HMO plan that also incorporates
an indemnity plan option allowing members to obtain medical
care from providers outside of the HMO network at a reduced
benefit and at greater out-of-pocket expense.
Policy: The written forms that make up the insurance
contract between an insured and insurer. A policy includes
the terms and conditions of the coverage, the perils insured
or excluded, etc.
Policy Declarations: The part of the insurance contract
that lists basic underwriting information, including the
insured’s name, address and description of insured locations
as well as policy limits.
Policy Limits: The maximum amount an insured may collect
or for which an insured is protected, under the terms of
Policy Loan: A loan from a life insurer to the owner
of a policy that has a cash value.
Policyholder: The person who buys insurance.
Policyowner: An individual with an ownership interest
in an insurance policy.
Policy Period: The amount of time an insurance contract
or policy lasts.
PPO (Preferred Provider Organization): An organization
where providers are under contract to an insurance company
or health plan to provide care at a discounted or negotiated
rate. Typically, you can see any doctor in the PPO network
without requiring special approval, and you usually do
not need to choose a primary care physician. Most PPOs
will also allow you to seek care outside of the PPO network;
however, the benefits are usually reduced and the insured
has a greater out-of-pocket expense.
Pre-Existing Condition: (1) According to most individual
health insurance policies, an injury that occurred or a
sickness that first appeared or manifested itself before
the policy was issued and that was not disclosed on the
application for insurance. (2) According to most group
health insurance policies, a condition (excluding pregnancy)
for which an individual received medical care during the
three months to six month immediately prior to the enrollment
of his coverage.
Pre-Existing Conditions Provision: A health insurance
policy provision stating that benefits will not be paid
for any illness and/or condition that existed prior to
one becoming an insured under the particular health plan
in question, until the insured has been covered under the
policy for a specified period.
Preferred Risk: A risk whose physical condition, occupation,
mode of living and other characteristics indicate a prospect
for longevity superior to that of the average longevity
of unimpaired lives of the same age.
Premium: The price for insurance coverage as described
in the insurance policy for a specific period of time.
Primary Beneficiary: The person designated as the first
to receive the proceeds of a life insurance policy upon
the death of the insured.
Primary Care Physician (PCP): A general or family practitioner
who serves as the insured’s personal physician and first
contact with a managed care system. The PCP will usually
direct the course of your treatment and/or refer you to
other doctors and/or specialists in the network.
Probationary Period: The length of time that a new group
member must wait before becoming eligible to enroll in
a group insurance plan.
Proof of Loss: A sworn statement that usually must be
furnished by the insured to an insurer before any loss
under a policy may be paid.
Property Damage Coverage: An agreement by an insurance
carrier to protect an insured against legal liability for
damage by an insured automobile to the property of another.
Protection Amount: The face amount of a life insurance
policy, or amount of money that will be paid to a beneficiary
upon the death of an insured. This amount will be reduced
by the amount of any outstanding policy loan.
Rate: The pricing factor upon which the insurance buyer’s
premium is based.
Rated Policy: Sometimes called an “extra-risk” policy,
an insurance policy issued at a higher-than-standard premium
rate to cover the extra risk where, for example, an insured
has had a DUI or other traffic violations.
Rebating: Giving any valuable consideration, usually all
or part of the commission, to the prospect or insured as
an inducement to buy or renew. Insurance rebating is prohibited
Reimbursement: The payment of an amount of money by an
insurance policy for a covered loss.
Reinstatement: The process by which a life insurance
company puts back in force a policy that has lapsed or
has been canceled for nonpayment of premium.
Renewable Term Life
Insurance: A renewable life policy permits the owner
of the policy to automatically renew the policy beyond
its original term by acceptance of a premium for a new
policy term without evidence of insurability.
Revocable Beneficiary: A life insurance policy whose
designation as beneficiary can be revoked or changed by
the policyowner at any time prior to the insured’s death.
Riders: An addition to an insurance policy that becomes
a part of the contract.
Risk: The possibility or chance of loss or injury.
Salvage: Recovery made by an insurance company by the
sale of property which has been taken over from the insured
as a part of loss settlement.
Settlement: An agreement between a claimant or beneficiary
to an insurance policy and the insurance company regarding
the amount and method of a claim or benefit payment.
Standard Industrial Classification (SIC): The Standard
Industrial Classification (SIC) system is a series of number
codes that attempts to classify all business establishments
by the types of products or services they make available.
Establishments engaged in the same activity, whatever their
size or type of ownership, are assigned the same SIC code.
These definitions are important for standardization. Insurance
companies use SIC codes to determine specific rates for
various industries. HealthInsurance.com uses these codes
to ensure that you receive the best possible rate for your
Standard Risk: A person who, according to a company’s
underwriting standards, is entitled to purchase insurance
protection without extra rating or special restrictions.
Standard Risk Rate: The risk category that is composed
of proposed insureds who have a likelihood of loss that
is not significantly greater than average.
Substandard Risk: A risk that cannot meet the normal requirements
of an auto insurance policy. Protection is provided in
consideration of a waiver, a special policy form, or a
higher premium charge. Substandard risks may include those
persons who are rated because of poor driving habits.
Stop-Loss Provision: A major medical policy provision
under which the insurer will pay 100 percent of the insured’s
eligible medical expenses after the insured has incurred
a specified amount of out-of-pocket expenses in deductible
and coinsurance payments.
Term Insurance: Life insurance under which the benefit
is payable only if the insured dies during a specified
period. If the insured survives beyond that period, coverage
ceases. This type of policy does not build up any cash
or nonforfeiture values.
Theft Limit (or Inside Policy Limits): The highest amount
an insurance company will pay on certain items of personal
property. For instance, some policies have a $5,000 limit
for computers. If an item would cost more than the limit
Underwriter: (a) A company that receives the premiums
and accepts responsibility for the fulfillment of the policy
contract; (b) the company employee who decides whether
or not the company should assume a particular risk; (c)
the agent who sells the policy.
Underwriting: The process of reviewing applications for
coverage. Applications that are accepted are then classified
by the underwriter according to the type and degree of
Unilateral: A distinguishing characteristic of a life
insurance contract in that it is only the insurance company
that pledges anything. The policyowner does not even promise
to pay premiums; therefore, it is really a one-sided contract
favoring the policyowner.
Uninsured (Underinsured) Motorist Coverage: A form of
insurance that pays the policy holder and passengers in
his/her car for bodily injury caused by the owner or operator
of an uninsured or inadequately insured automobile.
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 accounts after the company deducts its
fee and a monthly cost for the term coverage.
Urgent Care: Urgent care is appropriate when a medical
urgency arises which necessitates immediate care, but has
not reached the level of extreme emergency. Most managed
care plans require you to seek urgent care at a participating
urgent care facility or hospital.
Usual, Customary and Reasonable Fee: The maximum dollar
amount of a covered expense that is considered eligible
for reimbursement under a major medical policy.
Waiver: An agreement attached to a policy
which exempts from coverage certain disabilities or injuries
that otherwise would be covered by the policy.
September is Life Insurance Awareness Month.
It’s the perfect time to remind ourselves to plan ahead for the ones we love.