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