Glossary of Insurance Terms
A
absolute assignment A policy assignment under which the assignee (person to whom the policy is assigned) receives full control over the policy and also full rights to its benefits. Generally, when a policy is assigned to secure a debt, the owner retains all rights in the policy in excess of the debt, even though the assignment is absolute in form.
See also assignee; assignment; assignor.
accelerated benefits rider A life insurance rider that allows for the early payment of some portion of the policies face amount should the insured suffer from a terminal illness or injury.
acceptance One party's agreement to the purchase offer of another party, such that a legal contract is formed and both parties are contractually bound. With an insurance contract, acceptance generally takes place when the agent binds coverage or the policy is issued. See also offer and acceptance.
accidental bodily injury provision A disability income or accident policy provision that requires that the injury be accidental in order for benefits to be payable. accidental death and dismemberment (AD&D) This is insurance that provides payment if the insured's death results from an accident, if the insured accidentally severs a limb above the wrist or ankle joints or totally and irreversibly loses his or her eyesight.
accidental death benefit rider A life insurance policy rider that provides for payment of an additional benefit related to the face amount of the base policy when death occurs by accidental means.
accidental dismemberment Often defined as the severance of limbs at or above the wrists or ankle joints, or the entire irrevocable loss of sight. Loss of use in itself may or may not be considered dismemberment.
accidental means provision The unforeseen, unexpected or unintended cause of an accident; requirement of an accident-based policy that the cause of the mishap be accidental for any claim to be payable. accident and health insurance An insurance policy under which benefits are payable in case of disease, accidental injury or accidental death. Also called health insurance, personal health insurance and sickness and accident insurance.
accumulation unit The premiums an annuitant pays into a variable annuity are credited as accumulation units. At the end of the accumulation period, accumulation units are converted to annuity units.
acquired immune deficiency syndrome (AIDS) A life- threatening condition brought on by the human immunodeficiency virus; insurers must adhere to strict underwriting and claims guidelines in regard to AIDS risks and AIDS-related conditions.
acute illness A serious condition, such as pneumonia, from which the body can fully recover with proper medical attention.
adhesion A life insurance policy is a contract of adhesion because buyers must adhere to the terms of the contract already in existence. They have no opportunity to negotiate terms, rates, values, etc.
adjustable life insurance This product combines features of both term and whole life coverage and has adjustable lengths of coverage and amounts of accumulated cash value. Premiums may be increased or decreased to fit specific needs. Such adjustments are not retroactive and apply only to the future.
administrative-services-only (ASO) plan An arrangement under which an insurance company or an independent organization, for a fee, handles the administration of claims, benefits and other administrative functions for a self-insured group.
admitted insurer An insurance company that has met the legal and financial requirements for operation within a given state.
adult day care A type of care offered in care centers (usually custodial) designed for individuals who require assistance with various activities of daily living while their primary caregivers are absent.
adverse selection The tendency of insured persons who present a higher probability of loss to purchase or renew insurance more often than those who present a lower probability; selection against the best interests of the insurance company (e.g., people near rivers purchasing flood insurance); tendency of policy owners to take advantage of favorable options in insurance contracts.
agency The legal principle that allows an individual or organization to represent another individual or organization.
agent A person licensed by the state insurance authority to sell insurance products. The agent represents the insurance company in all transactions. See also broker; producer.
agent's report The section of an insurance application where the agent reports his or her personal observations about the applicant.
aleatory A kind of contract in which one party may obtain greater value under the agreement than the other party and in which payment depends upon a fortuitous event. An insurance contract is an aleatory contract.
alien insurer An insurance company incorporated and organized under the laws of a foreign nation, state, province or territory, rather than under the laws of the United States.
ambulatory surgery Surgery performed on an outpatient basis.
amount at risk The difference between the face amount of the policy and the reserve or policy value at a given time. In other words, the dollar amount over what the policy owner has contributed of cash value toward payment of his or her own claim. Because the cash value increases every year, the net amount at risk decreases until it finally reaches zero, at which time the cash value or reserve becomes the face amount.
annually renewable term (ART) A form of renewable term insurance that provides coverage for one year and allows the policy owner to renew his or her coverage each year without evidence of insurability. Also called yearly renewable term (YRT).
annuitant A person to whom an annuity is payable, or upon the continuance of whose life further payment depends.
annuity A contract that provides a stipulated sum payable at certain regular intervals (1) during the lifetime of one or more persons or (2) for a specified period only.
annuity unit The number of annuity units denotes the share of funds an annuitant will receive from a variable annuity account after the accumulation period ends and benefits begin. A formula is used to convert accumulation units to annuity units.
any occupation A definition of total disability that requires the insured to be unable to perform any job for which he or she is, "reasonably suited by reason of education, training or experience," in order to receive disability income benefits.
application Form supplied by the insurance company, usually filled in the by the agent and medical examiner (if applicable) on the basis of information received from the applicant. It is signed by the applicant and is part of the insurance policy if it is issued. It gives information to the home office underwriting department so it may consider whether an insurance policy will be issued and, if so, in what classification and at what premium rate.
appointment The authorization or certification of an agent to act for or represent an insurance company.
assignee A person (including a corporation, partnership or other organization) to whom a right or rights under a policy are transferred by means of an assignment
assignment The legal transfer of a policy owner's rights or interests in an insurance policy to another party. The insured requests the assignment, and, barring state law, the company can either accept or reject the request.
assignment provision (health contracts) A commercial health policy provision that allows the policy- owner to assign benefit payments from the insurer to directly to the health care provider.
assignor A person (including a corporation, partnership or other organization or entity) who transfers a right or rights under an insurance policy to another by means of an assignment.
attained age With reference to an insured, the current insurance age.
authority 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 insurer that meets the licensing criteria of the state it wishes to do business in and has received a certificate of authority Also known as an admitted company.
automatic premium loan provision This authorizes insurer to pay any premium in default automatically at the end of the grace period and charge the amount so- paid against the life insurance policy as a policy loan.
average indexed monthly earnings (AIME) The basis used for calculating the primary insurance amount (NA) for Social Security benefits.
aviation exclusion This excludes from coverage certain deaths or disabilities due to aviation for those, "other than fare-paying passengers." May be attached by rider or included in standard policy language.
B
back dating The practice of making a policy effective at a date earlier than the present.
basic medical expense policy This is a health insurance policy that provides first dollar benefits for specified (and limited) health care, such as hospitalization, surgery or physician services and that is characterized by limited benefit periods and relatively low coverage limits.
beneficiary A person to whom the proceeds of a life or accident policy are payable when the insured dies. The various types of beneficiaries are: primary (those first entitled to proceeds), secondary (those entitled to proceeds if no primary beneficiary is living when the insured dies) and tertiary (those entitled to proceeds if no primary or secondary beneficiaries are alive when the insured dies).
benefit May be either the money or the right(s) given to the policy owner if the conditions set out in the policy come to pass.
benefit period The maximum length of time that insurance benefits will be paid for any one accident, illness or hospital stay.
Best's Insurance Report A guide, published by A.M. Best, Inc., that rates insurers' financial integrity and managerial and operational strengths.
binder A written note that temporarily obligates an insurer to provide insurance in the amount of $1 million or more; it effectively puts insurance into force before a contract has been written or the premium paid. A binder is usually good for 90 days.
binding receipt This is given by a company upon an applicant's first premium payment. The policy, if approved, becomes effective from the date of the receipt.
blackout period The period following the death of a family breadwinner during which no Social Security benefits are available to the surviving spouse.
blanket policy This covers a number of individuals who are exposed to the same hazards, such as members of an athletic team company officials who are passengers in the same company plane, etc.
Blue Cross Independent, nonprofit membership organization providing protection against the costs of hospital care in a limited geographical area. Benefit payments are made directly to the hospital; benefits vary among Blue Cross organizations.
Blue Shield Independent, nonprofit membership organization providing protection against the costs of surgery and other items of medical care in a limited geographical area. Benefit payments are made directly to the company.
broker A licensed insurance representative who does not represent a specific company, but places business among various companies. Legally, the broker is usually regarded as a representative of the insured rather than the company.
business continuation plan Arrangements between the business owners that provide that the shares owned by any one of them shall be sold to and purchased by the other co-owners or the business in the event of death or disablement.
business health insurance This is insurance issued primarily to indemnify a business for the loss of services of a key employee, partner or active close corporation stockholder.
business overhead expense insurance A form of disability income coverage designed to pay necessary business overhead expenses, such as rent, should the insured business owner become disabled.
buyer's guides Informational consumer guide books that explain insurance policies and insurance concepts; in many states, they must be given to applicants when certain types of coverage's are being considered.
buy-sell agreement An agreement that a decreased business owner 's interest will be sold and purchased at a predetermined price or according to a predetermined formula.
C
cafeteria plan An employee benefit arrangement in which employees can select from a range of benefits.
cancelable contact A health insurance contract that may be terminated by the company or renewed at its option.
capital sum The amount provided for accidental dismemberment or loss of eyesight. Indemnities for loss of one member or sight of one eye are percentages of the capital sum.
carrier Another term for an insurer or an entity responsible for the payment of benefits under an insurance policy; i.e., an insurer carries the risk for the policy owner.
case management The professional arrangement and coordination of health services through assessment, service plan development and monitoring.
cash or deferred arrangements A qualified employer retirement plan under which employees can defer amounts of their salaries into a retirement plan. These amounts are not included in the employee's gross income and so are tax-deferred. Also called 401(k) plans.
cash refund annuity This provides that, upon the death of an annuitant before payments totaling the purchase price have been made, the excess of the amount paid by the purchaser over the total annuity payments received will be paid in one sum to designated beneficiaries.
cash surrender option A non-forfeiture option that allows whole life insurance policy owners to receive a payout of their policy's cash values.
cash surrender value Amount available to the owner when a life insurance policy is surrendered to the company. During the early policy years, the cash value is the reserve less a surrender charge; in later policy years, it usually equals or closely approximates the reserve value at time of surrender.
cash value The equity amount or savings accumulation in a whole life policy
chronic condition A treatable but incurable illness, such as arthritis or hypertension.
class designation A beneficiary designation. Rather than specifying one or more beneficiaries by name, the policy owner designates a class or group of beneficiaries. For example, "my children."
classification Occupational category of a risk.
cleanup fund A basic use for life insurance; this is a reserve to cover costs of last illness, burial, legal and administrative expenses, miscellaneous outstanding bills, etc. Also called a final expense fund.
close corporation A corporation owned by a small group of stockholders, each of whom usually has a voice in operation the business.
closed-panel HMO A group of physicians who are salaried employees of an HMO and who work in facilities provided by the HMO.
Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 This law extended group health coverage to terminated employees and their families for up to 18 or 36 months.
coinsurance (percentage participation) The principle under which the company insures only part of the potential loss, and the policy owners paying the other part. For instance, in a major medical policy, the company may agree to pay 75 percent of the insured expenses, and the insured must pay the other 25.
collateral assignment The assignment of a policy to a creditor as security for a debt. The creditor is entitled to be reimbursed out of policy proceeds for the amount owed. The beneficiary is entitled to any excess of policy proceeds over the amount due the creditor in the event of the insured's death.
commercial health insurers Insurance companies that function on the reimbursement approach, which allows policy owners first to seek medical treatment and then to submit the charges to the insurer for reimbursement.
commissioner The head of a state insurance department; public officer charged with supervising the insurance business in a state and administrating insurance laws. Called "superintendent" in some states, and "director" in others.
common disaster provision This is sometimes added to a policy and designed to provide an alternative beneficiary in the event that both the insured and the original beneficiary die as the result of a common accident.
competent parties A person capable of understanding the contract being agreed to; to be enforceable, a contract must be entered into by competent parties.
comprehensive major medical insurance This is designed to give the protection offered by both a basic medical expense and major medical policy. It is characterized by a low deductible amount, coinsurance clause and high maximum benefits.
concealment The deliberate withholding of material facts that would affect the validity of an insurance policy or a claim under the policy.
conditional contract A contract that is in force only if certain obligations are met or events come to pass. In regard to an insurance contract, the payment of benefits is dependent on or a condition of the occurrence of the risk insured against.
conditionally renewable contract A health insurance policy that provides that the insured may renew the contract from period to period or continue it to a stated date or an advanced age, subject to the right of the insurer to decline renewal under the conditions defined in the contract.
conditioned receipt This is given to the policy owners when they pay a premium at the time of application. Such receipts bind the insurance company if the risk is approved as applied for, subject to any other conditions stated on the receipt.
consideration The inducement to complete a contract, for example, the premium paid by the insured and the promise to pay made by the insurer.
consideration clause The part of an insurance contract that sets forth the amount of initial and renewal premiums and frequency of future payments.
contestable period The period during which the company may contest a claim on a policy because of misleading or incomplete information furnished in the application.
contingent beneficiary The person or persons named to receive proceeds in case the original beneficiary is no longer living. Also referred to as secondary or tertiary beneficiary.
contract An agreement (offer and acceptance) between two parties who have legal capacity to contract that involves valuable consideration and that does not violate any statute or other legal rule.
contributory plan A group insurance plan issued to an employer under which both the employer and employees contribute to the cost of the plan. Generally, 75 % of the eligible employees must be insured.
conversion privilege This allows the policy owner, before an original insurance policy expires, to elect to have a new policy issued that will continue the insurance coverage. Conversion may be effected at attained age (premiums based on the age attained at time of conversion) or at original age (premiums based on age at time of original issue).
convertible term An insurance contract that may be converted to a permanent form of insurance without medical examination.
coordination of benefits (COB) provision This is designed to prevent duplication of group insurance benefits. It limits benefits from multiple group health insurance policies in a particular case to 100 percent of the expenses covered and designates the order in which the multiple carriers are to pay benefits.
corridor deductible In superimposed major medical plans, this is the deductible amount between the benefits paid by the basic plan and the beginning of the major medical benefits.
cost of living (COL) rider A rider available with some policies that provides for an automatic increase in benefits (typically tied to the Consumer Price Index) to offset the effects of inflation.
coverage requirements The standards of coverage that prevent retirement plans from discrimination in favor of highly compensated employees. A plan must pass an IRS coverage test to be considered qualified.
credit accident and health insurance This pays policy premiums during the disability period or pays off an outstanding loan if the insured debtor becomes totally disabled due to an accident or sickness. May be individual or group policy.
credit life insurance This is usually written as decreasing term on a relatively small decreasing balance installment loan that may reflect direct borrowing or a balance due for merchandise purchased. If the borrower dies, benefits pay the balance due. May be individual or group policy
cross-purchase plan An agreement that provides that upon a business owner 's death, surviving owners will purchase the deceased interest, often with funds from life insurance policies owned by each principal on the lives of all other principals.
currently insured A status of limited eligibility under Social Security that provides only death benefits.
custodial care The level of health or medical care given to meet daily personal needs, such as dressing, bathing, getting out of bed, etc. Though it does not require medical training, it must be administered under a physician's order.
D
death rate The proportion of persons in each age group who die within a year; usually expressed as so many deaths per thousand persons. See also expected mortality.
decreasing term insurance This is term life insurance on which the face value slowly decreases in scheduled steps from the date the policy comes into force to the date the policy expires, while the premium remains level. The intervals between decreases are usually monthly or annual.
deductible The amount of expense or loss to be paid by the insured before a health insurance policy starts paying benefits.
deferred annuity This provides for the postponement of the commencement of an annuity until after a specified period or until the annuitant attains a specified age. May be purchased either on single-premium or flexible premium basis.
deferred compensation plan The deferral of an employee's compensation to some future age or date. These plans are frequently used to provide fringe benefits, such as retirement income, to selected personnel.
defined benefit plan A pension plan under which benefits are determined by a specific benefit formula defined contribution plan A tax-qualified retirement plan in which annual contributions are determined by a formula set for those in the plan. Benefits paid to a participant vary with the amount of contributions made on his or her behalf and the length of service under the plan.
delayed disability provision A disability income policy provision that allows a certain amount of time after an accident for a disability to result during which the insured remains eligible for benefits.
dental insurance A relatively new form of health insurance coverage typically offered on a group basis. It may cover the costs of normal dental maintenance as well as oral surgery and root canal therapy.
dependency period The period following the death of the breadwinner up until the youngest child reaches maturity.
deposit term An insurance product with a modest endowment feature. It is normally sold for ten-year terms with a higher first-year premium than for subsequent years. If policy lapses, insured forfeits his or her deposit and receives no refund.
disability A physical or mental impairment that makes a person incapable of performing one or more duties of his or her occupation.
disability buy-sell agreement An agreement between business co-owners that provides that shares owned by any one of them who becomes disabled shall be sold to and purchased by the other co-owners or by the business using funds from disability income insurance.
disability income insurance A type of health insurance coverage that provides for the payment of regular, periodic income should the insured become disabled illness or injury.
disability income rider This is typically a rider to a life insurance policy that provides benefits in the form of income in the event the insured becomes totally disabled.
discrimination In insurance, this is the act of treating certain groups of people unfairly in the sale or pricing of policies; or of treating any of a given class of risk differently from other like risks. Discrimination is expressly prohibited in most state insurance codes.
dividend The policy owner's share in the divisible surplus of a company issuing insurance on the participating plan.
dividend options The different ways in which the insured under a participating life insurance policy may elect to receive surplus earnings: in cash, as a reduction of premium, as additional paid-up insurance, left on deposit at interest, or as additional term insurance.
domestic insurer An insurance company that writes business in the state or province of its incorporation or charter.
E
elimination period The duration of time between the beginning of an insured's disability and the commencement of the period for which benefits are payable.
employee benefit plans Plans through which employers offer employees benefits such as coverage for medical expenses, disability, retirement and death.
employee stock ownership plan (ESOP) A form of defined contribution profit-sharing plan that ESOP invests primarily in the securities or stock of the employer.
endowment A contract that provides for payment of the face amount at the end of a fixed period, at a specified age of the insured or at the insured's death before the end of the stated period.
endowment period The period specified in an endowment policy during which, if the insured dies, the beneficiary receives a death benefit. If the insured is still living at the end of the endowment period, he or she receives the endowment as a living benefit.
enhanced whole life A whole life insurance policy issued by a mutual insurer, in which policy dividends are used to provide extra death benefits or to reduce future premiums.
enrollment period The period during which new employees can sign up for coverage under a group insurance plan.
entire contract provision An insurance policy provision that states that the application and policy contain all provisions and constitute the entire contract.
entity plan An agreement in which a business assumes the obligation of purchasing a deceased owner's interest in the business, thereby proportionately increasing the interests of surviving owners.
equity-indexed annuity A fixed deferred annuity that offers the traditional guaranteed minimum interest rate and an excess interest feature that is based on the performance of an external equities market index.
estate This is, most commonly, the quantity of wealth or property remaining at an individual's death.
estate tax The federal tax imposed on the value of property transferred by an individual at his or her death.
evidence of insurability Any statement or proof of a person's physical condition, occupation, etc., that affects acceptance of the applicant for insurance.
examiner A physician authorized by the medical director of an insurance company to make medical examination person assigned by a state insurance company.
excess interest The difference between the rate of interest the company guarantees to pay on proceeds left under settlement options and the interest actually paid on such funds by the company.
exclusion ratio A fraction used to determine the amount of annual annuity income exempt from federal income tax. The exclusion ratio is the total contributions or investment in the annuity divided by the expected ratio.
exclusion rider A health insurance policy rider that waives the insurer's liability for all future claims on a preexisting condition.
exclusions These are specified hazards listed in a policy for which benefits will not be paid.
exclusive provider organization (EPO) A variation of the PPO concept, an EPO contracts with an extremely limited number of physicians and typically only one hospital to provide services to members; members who elect to get health care from outside the EPO receive no benefits. See also preferred provider organization.
experience rating The review of the previous year's claims experience for a group insurance contract in order to establish premiums for the next period.
extended term insurance A nonforfeiture option that provides for the cash surrender value of a policy to be used as a net single premium (at the insured's attained age) to purchase term insurance for the face amount of the policy, less indebtedness, for as long a period as possible (but no longer than the term of the original policy.)
extra percentage tables Mortality or morbidity tables that indicate the percentage amount increase of premium for certain impaired health conditions. also known as rate-up
F
face amount This commonly refers to the principal sum involved in the insurance contract. The actual amount payable may be decreased by loans or increased by additional benefits payable under conditions specified or stated in the rider.
facility of payment provision A clause permitted under a uniform health insurance policy provision that allows the company to pay up to $1,000 in benefits or proceeds to any relative who appears entitled to it if there is no named beneficiary or if the insured or beneficiary is a minor or legally incompetent.
family income policy A combination of ordinary life and decreasing term insurance covering a period of 5,10,15, or 20 years. The term insurance is sufficient to provide (often when supplemented by interest on the ordinary life insurance) a specified monthly income from the date of death until the end of the specified income period. The principal sum of the ordinary insurance is payable when monthly income from the term insurance ceases or upon subsequent death.
family maintenance (family protection) policy Similar to the family income policy, this combines ordinary and term insurance, but without the decreasing insurance feature. Beginning at the insured's death, it provides for payment of an income for a fixed period of 10, 15 or 20 years from the date of death (not from the date of issue, as in the family income policy), with payment of the principal sum of the ordinary insurance at the end of the fixed period.
family plan policy An all-family plan of protection, usually with permanent insurance on the primary wage earner's life and with spouse and children automatically covered for lesser amounts of protection, usually term, all included for one premium.
fiduciary A person who occupies a position of special trust and confidence regarding the handling or supervision of the affairs or funds of another. Examples are trustees, executors, administrators, corporate directors and insurance agents.
fixed-amount settlement option A life insurance settlement option whereby the beneficiary instructs that proceeds be paid in regular installments of a fixed dollar amount. The number of payment periods is determined by the policy's face amount, the amount of each payment and the interest earned.
fixed annuity A type of annuity that provides a guaranteed fixed benefit amount payable for the life of the annuitant.
fixed-period settlement option A life insurance settlement option in which the number of payments is fixed by the payee, with the amount of each payment determined by the amount of proceeds.
flat deductible The amount of covered expenses that must be paid by the insured before medical benefits are payable.
foreign insurer An insurance company that operates in a state other than the one in which it is incorporated or chartered.
franchise insurance A life or health insurance plan for covering groups of persons with individual policies uniform in provisions, although perhaps different in benefits. Solicitation usually takes place in an employer's business with the employer's consent. It is generally written for groups too small or qualify for regular group coverage. May be called wholesale insurance when the policy is life insurance.
fraternal benefit insurer A nonprofit benevolent organization that provides insurance to its members.
fraud An intentional concealment or false representation of a material fact that intends to take something of value or to force the surrender of a right. Fraud can only be determined by a court of appropriate jurisdiction.
free look A provision required in most states whereby policyholders have either 10 or 20 days to examine their new policies at no obligation.
fully funded In a retirement plan, a status in which the funds necessary to meet the financial obligations of the plan are accumulated in a reserve while the plan is in operation.
fully insured A status of complete eligibility for the full range of Social Security benefits: death benefits, retirement benefits, disability benefits and Medicare benefits.
funding In a retirement plan, the setting aside of funds for the payment of benefits.
G
general agent An independent agent with the authority, under contract with the company, to appoint soliciting agents within a designated territory and fix their compensation.
government insurer An organization that, as an extension of the federal or state government, provides a program of social insurance.
grace period The period of time after the due date of a premium during which the policy remains in force without penalty.
graded premium whole life This is a variation of a traditional whole life contract that provides for lower than normal premium rates during the first few policy years, with premiums increasing gradually each year. After the preliminary period, premiums level off and remain constant.
gross premium The total premium paid by the policy- owner, it generally consists of the net premium plus the expense of operation minus interest.
group insurance This is insurance that provides coverage for a group of persons, usually employees of a company, under one master contract.
guaranteed insurability (guaranteed issue) An arrangement, usually provided by rider, whereby additional insurance may be purchased at various times without evidence of insurability.
guaranteed renewable contract A health insurance contract that the insured has the right to continue in force by payment of premiums for a substantial period of time during which the insurer has a unilateral right to make any change in any provision, other than a change in premium rate for classes of insured's.
guarantee association An association established by each state to support insurers and protect consumers in the case of insurer insolvency. They are funded by insurers through assessments.
H
hazard A specific situation or condition that increases the probability or severity of a loss.
health insurance This is insurance against loss through sickness or accidental bodily injury. Also called accident and health, accident and sickness, sickness and accident or disability insurance.
health maintenance organization (HMO) Health care management that stresses preventive health care, early diagnosis and treatment on an outpatient basis. Persons generally enroll voluntarily by paying a periodic fixed fee.
home health care Skilled or unskilled care provided in an individual's home, usually on a part-time basis.
hospital benefits The benefits payable for charges incurred while- the insured is confined to or treated in a hospital, as defined in a health insurance policy.
hospital expense insurance Health insurance benefits subject to a specified daily maximum for a specified period of time while the inured is confined to a hospital, plus a limited allowance up to a specified amount for miscellaneous hospital expenses, such as operating room, anesthesia, laboratory fees, etc. Also called hospitalization insurance.See also medical expense insurance.
hospital indemnity
A form of health insurance that provides a stipulated daily, weekly or monthly indemnity during hospital confinement; payable on an unallocated basis without regard to actual hospital expense.
human life value An individual's economic worth, measured by the sum of his or her future earnings that are devoted to his or her family.
I
immediate annuity This provides of the payment of an annuity benefit at one payment interval from date of purchase. Can only be purchased with a single payment.
incidents of ownership Any power or interest over a life insurance policy that would subject the policy to inclusion in a decedent's gross estate.
incontestable clause This places a time limit (one to two years after issue) on the insurer's right to void a policy or refuse benefits because of material misstatements made in the application.
increasing term insurance This is term life insurance in which the death benefit increases periodically over the policy's term. Usually purchased as a cost of living rider to a whole life policy. See also cost of living rider.
indemnity approach A method of paying health policy benefits to insured's based on a predetermined, fixed rate set for the medical services provided, regardless of the actual expenses incurred.
independent agency system A system for marketing, selling and distributing insurance in which independent brokers are not affiliated with any one insurer but represent any number of insurers.
indexed whole life A whole life insurance policy whose death benefit increases according to the rate of inflation. Such policies are usually tied to the Consumer Price Index (CPI).
individual insurance These are policies that provide protection to the policy owner, as distinct from group and blanket insurance. Also called personal insurance.
individual retirement account (IRA) A personal qualified retirement account through which eligible individuals accumulate tax-deferred income up to a certain amount each year, depending on their tax bracket.
inspection receipt A receipt obtained from an insurance applicant when a policy (upon which the first premium has not been paid) is left with him or her for further inspection. It states that the insurance is not in effect and that the policy has been delivered for inspection only.
inspection report An investigator report that provides facts required for a proper underwriting decision on applications for new insurance and reinstatements.
installment refund annuity An annuity income option that provides for the funds remaining at the annuitant's death to be paid to the beneficiary in the form of continued annuity payments.
insurability All conditions pertaining to individuals that affect their health, susceptibility to injury, or life expectancy; an individual's risk profile.
insurability receipt A type of conditional receipt that makes coverage effective on the date the application was signed or the date of the medical exam (whichever is later), provided the applicant proves to be insurable.
insurable interest The interest from which monetary loss will result if the peril insured against occurs; possibility of financial loss that can be protected against by insurance.
insurance A contractual means of transferring the risk of loss to an entity (insurer) that pools similar exposures.
insurance code The laws that govern the business of insurance in a given state.
insurer An entity that provides insurance coverage, typically through a contract of insurance. See also carrier.
insuring clause This defines and describes the scope of the coverage provided and limits of indemnification.
integrated deductible In superimposed major medical plans, this is a deductible amount between the benefits paid by the basic plan and those benefits paid by the major medical. All or part of the integrated deductible may be absorbed by the basic plan.
interest adjusted net cost method A method of comparing the costs of similar policies by using an index that takes into account the time value of money.
interest-only option (interest option) A mode of settlement under which all or part of the policy proceeds are left with the company for a definite period at a guaranteed minimum interest rate. Interest may either be added to the proceeds or paid annually, semiannually, quarterly or monthly.
interest-sensitive whole life A whole life policy whose premiums vary depending upon the insurer's underlying death, investment and expense assumptions.
interim term insurance Term insurance for a period of 12 months or less by special agreement of the company; it permits a permanent policy to become effective at a selected future date.
intermediate nursing care A level of health or medical care that is occasional or rehabilitative, ordered by a physician, and performed by skilled medical personnel.
irrevocable beneficiary A beneficiary whose interest cannot be revoked without his or her written consent, usually because the policy owner has made the beneficiary designation without retaining the right to revoke or change it.
J
joint and last survivor policy A variation of the joint life policy that covers two lives but pays the benefit upon the death of the second insured.
joint and survivor annuity This covers two or more lives and continues in force as long as any one of them survives.
joint life policy This covers two or more lives and provides for the payment of the proceeds at the death of the first among those insured, at which time the policy automatically terminates.
juvenile insurance This is written on the lives of children who are within specified age limits and generally under parental control.
K
Keogh plans These are designed to fund retirement of self-employed individuals; the name is derived from the author of the Keogh Act (HR-b), under which contributions to such plans are given favorable tax treatment.
key-person insurance This provides protection of a business against financial loss caused by the death or disablement of a vital number of the company, usually individuals possessing special managerial or technical skill or expertise.
L
lapse Termination of a policy because of the nonpayment of premiums.
law of large numbers A statistical principle which states that the larger the number of observations, the more accurate and reliable a prediction will be.
legal purpose The concept that the purpose of a contract must be legal, moral and in the public good. See also contract.
legal reserve The standard levels for policy reserves established thorough the insurance laws of the various states.
level premium funding method The insurance plan (used by all regular life insurance companies) under which, instead of an annually increasing premium that reflects the increasing chance of death, an equivalent level premium is paid. Reserves that accumulate from more than adequate premiums paid in the early years supplement inadequate premiums in later years.
level term insurance this is term coverage on which the face value remains unchanged from the date the policy comes into force to the date the policy expires.
license The certification issued by a state insurance department that an qualifies individual to solicit insurance applications for the period covered; usually issued for one year, renewable on application without need for repeat on the original qualifying requirements.
licensed insurer See admitted insurer
lien system A plan for issuing coverage for substandard risks. A standard premium is paid but there is a lien against the policy to reduce the amount of insurance if the insured dies from a cause that resulted in the substandard rating.
life annuity This is payable during the continued life of the annuitant. No provision is made for the guaranteed return of the unused portion of the premium.
life expectancy The average duration of the life remaining to a number of persons of a given age, according to a given mortality table. Not to be confused with probable lifetime,which refers to the difference between a person's present age and the age at which death is most probable, i.e., the age at which most deaths occur.
life income settlement option A settlement option that provides for life insurance or annuity proceeds to be used to buy an annuity payable to the beneficiary for life, often with a specified number of payments certain or a refund if payments don't equal or exceed premiums paid.
life insurance This is insurance against loss due to the death of a particular person (the insured) upon whose death the insurance company agrees to pay a stated sum or income to the beneficiary
limited pay life insurance A form of whole life insurance characterized by premium payments only being made for a specified or limited number of years. limited policies These restrict benefits to specified accidents or diseases, such as travel policies, dread disease policies, ticket policies and so forth.
limited risk policy This provides coverage for specific kinds of accidents or illnesses, such as injuries received as a result of travel accidents or medical expenses stemming from a specified disease. See also special risk policy.
Lloyd's of London An association of individuals and companies that underwrite insurance on their own accounts and provide specialized coverage's.
loading The amount added to net premiums to cover the company's operating expenses and contingencies; includes the cost of securing new business, collection expenses and general management expenses.
loan value The amount that can be borrowed from the issuing company by the policy owner using the value of the life insurance policy as collateral.
long-term care The broad range of medical and personal services for individuals (often the elderly) who need assistance with daily activities for an extended period of time.
long-term care policy A health insurance policy that provides daily indemnity benefits for extended care confinement.
loss sharing A basic principle of insurance whereby a large number of insured's contribute to cover the losses of a few.
lump sum The payment of the entire proceeds of an insurance policy in one sum. This is the method of settlement provided by most policies unless an alternate settlement is elected by the policy owner or beneficiary.
M
major medical expense policy A health insurance policy that provides broad coverage and high benefits for hospitalization, surgery and physician services. Characterized by deductibles and coinsurance cost-sharing.
managed care A system of delivering health care and health care services characterized by arrangements with selected providers, programs of ongoing quality control and of utilization review and financial incentives for members to use providers and procedures covered by the plan.
mandatory second opinion Requires insured's to get a second opinion before receiving nonlife-threatening surgery in order to be eligible for benefits.
master policy A policy issued to the employer under a group plan; contains all the insuring clauses defining employee benefits. Individual employees participating in the group plan receive individual certificates that outline highlights of the coverage. Also called master contract.
material Having influence or effect; a representation relating to a matter that is so substantial as to influence an outcome or actions.
maturity value The proceeds payable on an endowment contract at the end of the specified endowment period, or payable on an ordinary life contract at the last age of the mortality table if the insured is still living at that age. Maturity value of a policy is the same as the face amount of the policy and is equal to the reserve value of the contract on this maturity date. Actual amount payable by the company may be increased by dividend additions or accumulated dividend deposits, or decreased by outstanding loans.
Medicaid This provides medical care for the needy under joint federal-state participation (Kerr-Mills Act).
medical cost management The process of controlling how policyholders utilize their policies. See also mandatory second opinion, precertification, ambulatory surgery and case management.
medical examination This is usually conducted by a licensed physician; the medical report is part of the application, becomes part of the policy contract, and is attached to the policy. A "nonmedical" is a short-form medical report filled out by the agent. Various company rules, such as amount of insurance applied for or already in force, or applicant's age, sex, past physical history and data revealed by inspection report, etc., determine whether the examination will be "medical" or "nonmedical."
medical expense insurance This pays benefits for non-surgical doctors' fees commonly rendered in a hospital; sometimes pays for home and office calls.
Medical Information Bureau (MIB) A service organization that collects medical data on life and health insurance applicants for member insurance companies. medical report A document completed by a physician or other approved examiner and submitted to an insurer to supply medical evidence of insurability (or lack of insurability) or in relation to a claim.
Medicare A federally sponsored health insurance and medical care program for persons age 65 or older; administered under provisions of the Social Security Act.
Medicare Part A This is compulsory hospitalization insurance that provides specified in hospital and related benefits. All workers covered by Social Security finance its operation through a portion of their FICA tax.
Medicare Part B A voluntary program designed to provide supplementary medical insurance to cover physician services, medical services and supplies not covered under Medicare Part A.
Medicare+Choice A program that offers a variety of Medicare managed care choices, a private fee-for-service plan (PFFS), a Medicare medical savings account plan (MSA) and religious fraternal benefit society plans. Also known as Medicare Part C.
Medicare supplement policy This is health insurance that provides coverage to fill the gaps in Medicare coverage. also known as Medigap
minimum deposit insurance A cash value life insurance policy having a first-year loan value that is available for borrowing immediately upon payment of the first-year premium.
minimum premium plan (MPP) Designed to support a self-insured plan, a minimum premium plan helps insure against large, unpredictable losses that exceed the self-insured level.
miscellaneous expenses Hospital charges, other than for room and board, e.g., x-rays, drugs, laboratory fees, etc., in connection with health insurance. misrepresentation The act of making, issuing, circulating or causing to be issued or circulated, an estimate, illustration, circular or statement of any kind that does not represent the correct policy terms, dividends or share of the surplus or the name or title for any policy or class of policies that does not in fact reflect its true nature.
misstatement of age or sex provision This provides that, if the insured's age or sex is misstated in an application for insurance, the benefit payable usually is adjusted to what the premiums paid should have purchased.
misuse of premium The improper use of premiums collected by an insurance producer.
modified endowment contract (MEC) A life insurance policy under which the amount a policy owner pays in during the first year exceeds the sum of net level premium that would have been payable to provide paid-up future benefits in seven years.
modified whole life A whole life insurance with premium payable during the first few years (usually five) only slightly larger than the rate of term insurance. Afterwards, the premium is higher for the remainder of life than the premium for ordinary life at the original age of issue, but lower than the rate at the attained age at the time of charge.
money-purchase plan A type of qualified plan under which contributions are fixed amounts or fixed percentages of the employees' salary. An employee's benefits are provided in whatever amount the accumulated or current contributions will produce for him or her.
moral hazard Effect of person reputation, character, associates, personal living habits, financial responsibility and environment (as distinguished from physical health) upon an individual's general insurability.
morale hazard The effect(s) indifference concerning loss has on the risk to be insured.
morbidity The relative incidence of disability due to sickness or accident within a given group.
morbidity rate This shows the incidence and extent of disability that may be expected from a given large group of persons; used in computing health insurance rates.
mortality The relative incidence of death within a group.
mortality table A listing of the mortality experience of individuals by age; permits an actuary to calculate, on average, how long a male or female of a given age group may be expected to live.
mortgage insurance A basic use of life insurance, so-called because many breadwinners leave insurance to pay off any mortgage balance outstanding at their death. The insurance generally is made payable to a family beneficiary instead of to the mortgage holder.
multiple employer trust (MET) This is made up of several small groups of individuals that need life and health insurance but do not qualify for true group insurance who band together under state trust laws to purchase insurance at a more favorable rate.
multiple employer welfare arrangement (MEWA) This is similar to a multiple employer trust (MET) with the exception that in a MEWA, a number of employers pool their risks and self-insure.
multiple protection policy A combination of term and whole life coverage that pays some multiple of the face amount of the basic whole life portion (such as $10 per month per $1,000) throughout the multiple protection period (such as to age 65).
mutual insurer An insurance company that is owned by its policyholders and managed by a board of directors.
N
National Association of Health Underwriters (NAHU) An organization of health insurance agents that is dedicated to supporting the health insurance industry and to advancing the quality of service provided by insurance professionals.
National Association of Insurance Commissioners (NAIC) An association of state insurance commissioners active in the analysis of insurance regulations and in the formation and recommendation of uniform and model regulations and legislation.
National Association of Insurance and Financial Advisors (NAIFA) An organization of life insurance agents that is dedicated to supporting the life insurance industry and to advancing the quality of service provided by insurance professionals.
National Service Life Insurance (NSLI) Created by Congress in 1940 to provide policies for individuals on active duty in military service. Persons entering military service after December 31, 1956 cannot purchase this insurance. However, persons discharged with a service-connected disability may purchase it within a certain time limit.
natural group A group formed for a reason other than to obtain insurance.
needs approach A method for determining how much insurance protection a person should have by analyzing a family's or business' needs and objectives should the insured die, become disabled or retire.
net premium This is calculated on the basis of a given mortality table and a given interest rate, without any allowance for loading.
nonadmitted insurer An insurance company that has not been licensed to operate within a given state.
noncancelable and guaranteed renewable contract A health insurance contract that the insured has the right to continue in force by payment of premiums set forth in the contract for a substantial period of time, during which the insurer has no right to make unilaterally any change in any contract provision.
noncontributory plan An employee benefit plan under which the employer bears the full cost of the employees' benefits; must insure 100 percent of eligible employees.
nondisabling injury An injury that requires medical care, but does not result in loss of time from work.
nonduplication provision This stipulates that insured's shall be ineligible to collect for charges under a group health plan if the charges are reimbursed under their own or spouse's group plan.
nonforfeiture options The privileges allowed under terms of a life insurance contract after cash values have been created.
nonforfeiture values Those benefits in a life insurance policy that by law the policy owner does not forfeit even if he or she discontinues premium payments; usually cash value, loan value, paid-up insurance value and extended term insurance value.
nonmedical insurance This is issued on a regular basis without requiring a regular medical examination. In passing on the risk, the company relies on the applicant's answers to questions regarding his or her physical condition and on personal references or inspection reports.
nonparticipating This is insurance under which the insured is not entitled to share in the divisible surplus of the company.
nonqualified plan A retirement plan that does not meet federal government requirements and is not eligible for favorable tax treatment.
notice of claims provision A policy provision that describes the policy owner's obligation to provide notification of loss to the insurer within a reasonable period of time.
O
offer and acceptance The offer may be made by the applicant by signing the application, paying the first premium and, if necessary, submitting to a 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 application. Premium payment on the offered policy then constitutes acceptance by the applicant.
Old Age. Survivors, Disability and Hospital Insurance (OASDI) Retirement, death, survivor's disability income, health and hospital insurance benefits provided under the Social Security system. It is better known as Social Security.
open certificate This stipulates that rates and policy provisions may be changed. Fraternal benefit societies are required by law to issue this type of certificate. Also called open policy.
open-panel HMO A network of physicians who work out of 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 the coverage at any anniversary or, in some cases, at any premium due date, but does not have the right to terminate coverage between such dates.
ordinary insurance Life insurance of commercial companies not issued on the weekly basis; amount of protection usually is $1,000 or more.
Occupational Safety and Health Administration (OSHA) This establishes federal work safety guidelines.
other insured's rider A term rider that covers a family member other than the insured and that is attached to the base policy covering the insured.
outline of coverage The informational material about a specific plan or policy of insurance that describes the policy's features and benefits; in many states, an outline of coverage is required to be given to consumers when certain types of coverage's are being considered.
overhead insurance A type of short-term disability insurance that reimburses the insured for specified, fixed, monthly expenses, normal and customary in operating the insured's business.
overinsurance An excessive amount of insurance; an amount of insurance that would result in payment of more than the actual loss or more than incurred expenses.
own occupation A definition of total disability that requires that the insured must be unable to work at his or her own occupation in order to receive disability income benefits.
P
paid-up additions The additional life insurance purchased by policy dividends on a net single premium basis at the insured's attained insurance age at the time additions are purchased.
paid-up policy A contract on which no further premiums are to be paid and for the benefits of which the company is held liable.
parole evidence rule A rule of contract law that brings all verbal statements into the written contract and disallows any changes or modifications to the contract by oral evidence.
partial disability An illness or injury that prevents an insured from performing at least one or more, but not all, of their occupational duties.
participating An insurance plan under which the policy owner receives shares (commonly called dividends) of the divisible surplus of the company.
participating physician A doctor or physician who accepts Medicare's allowable or recognized charges and will not charge more than this amount.
participation standards The rules that must be followed for determining employee eligibility for a qualified retirement plan.
partnership A business entity that allows two or more people to strengthen their effectiveness by working together as co-owners.
payor rider This is available under certain juvenile life insurance policies, upon payment of an extra premium; provides for the waiver of future premiums if the person responsible for paying them dies or is disabled before the policy becomes fully paid or matures as a death claim, or as an endowment, or the child reaches a specific age.
per capita rule This stipulates that death proceeds from an insurance policy are to be divided equally among the living primary beneficiaries.
peril The immediate, specific event that causes loss and gives rise to risk.
period certain annuity An annuity income option that guarantees a definite minimum period of payments.
periodical publication group A group representative of those eligible for blanket life insurance; in this case, the policy is issued to a newspaper, farm paper, magazine or other periodical. The policy insures independent contractors and others engaged in the marketing and delivery of periodical publications.
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 marketing, selling and distributing insurance in which personal producing general agents (PPGAs) are compensated for business they personally sell and business sold by agents with whom they subcontract. Subcontracted agents are considered employees of the PPGA, not the insurer.
per stirpes rule This stipulates that death proceeds from an insurance policy are to be divided equally among the named beneficiaries. If a named beneficiary is deceased, his or her share then goes to the living descendants of that individual.
policy The insurance contract and all attached endorsements.
policy loan A loan made by the insurance company to the policy owner with the policy's cash value assigned as security. One of the standard nonforfeiture options.
policy provisions The term or conditions of an insurance policy as contained in the policy clauses.
precertification The insurer's approval of an insured's entering a hospital. Many health policies require pre-certification as part of an effort to control costs.
preexisting condition An illness or medical condition that existed before a policy's effective date; usually excluded from coverage through the policy's standard provisions or by waiver.
preferred provider organization (PPO) An association of health care providers, such as doctors and hospitals, that agree to provide health care services to members of a particular group at fees negotiated in advance.
preferred risk A risk whose physical condition, occupation, mode of living and other characteristics indicate a prospect for longevity or an unimpaired life.
preliminary term insurance This is term insurance attached to a newly issued permanent life insurance policy that extends term coverage of a preliminary period of up to 11 months, until the permanent insurance becomes effective. The purpose is to provide full life insurance premium and the anniversary to a later date.
premium The periodic payment required to keep an insurance policy in force.
premium factors The three primary factors considered when computing the basic premium for insurance: mortality, expense and interest.
prescription drug coverage This is usually offered as an optional benefit to group medical expense plans and covers some or all of the cost of prescription drugs.
presumptive disability benefit A disability income policy benefit that provides that if an insured experiences a specified disability such as blindness, he or she is presumed to be totally disabled and entitled to the full amount payable under the policy, whether or not he or she is able to work.
primary beneficiary In life insurance, this is the beneficiary designated by the insured as the first to receive policy benefits.
primary insurance amount (PIA) Amount equal to a covered worker's full Social Security retirement benefit at age 65 or disability benefit.
principal A person whose obligations are guaranteed under a bond (also called the obligor); the applicant for or subject of insurance; the one (usually the insurer) from whom an insurance agent derives authority
principal sum The amount under an AD&D policy that its payable as a death benefit if death is due to an accident.
private insurer An insurer that is not associated with federal or state government.
probationary period The specified number of days after an insurance policy's issue date during which coverage is not afforded for sickness. Standard practice for group coverage's.
proceeds The net amount of money payable by the company at the insured's death or at policy maturity. producer A general term applied to an agent, broker, personal producing general agent, solicitor or other person who sells insurance.
profit-sharing plan Any plan whereby a portion of a company's profits is set aside for distribution to employees who qualify under the plan.
proof of loss A mandatory health insurance provision stating that the insured must provide a completed claim form to the insurer within 90 days of the date of loss.
proper solicitation A high professional standard that requires an agent to identify himself or herself properly as an agent soliciting insurance on behalf of an insurance company.
pure endowment A contract providing for payment only upon survival of a certain person to a certain date and not in event of that person's prior death. This type of contract is just the opposite of a term contract, which provides for payment only in event that a certain person dies within the term period specified.
pure risk The uncertainty as to whether loss will occur; offers no chance for gain. Insurance may be provided against many types of pure risk.
Q
qualified plan A retirement or employee compensation plan established and maintained by an employer that meets specific guidelines spelled out by the IRS and consequently receives favorable tax treatment.
R
rate-up in age A system of rating substandard risks that involves assuming the insured to be older than he or she really is and charging a correspondingly higher premium.
rating The premium classification given an applicant for life or health insurance.
reasonable and customary charge The charge for a heath care service consistent with the going rate of charge in a given geographical area for an identical or similar service.
rebating The act of returning part of the commission or giving anything else of value to the insured as an inducement to buy the policy. It is illegal and cause for license revocation in most states. In some states, both the agent and the person receiving the rebate may be punished.
reciprocal insurer An association of individuals known as subscribers, managed by an attorney-in-fact, who agree to exchange insurance risks.
recurrent disability provision A disability income policy provision that specifies the period of time during which the reoccurrence of a disability is considered a continuation of a prior disability.
reduced paid-up insurance A nonforfeiture option contained in most life insurance policies that allows the insured to elect to have the cash surrender vale of the policy used to purchase a paid-up policy for a reduced amount of insurance.
re-entry option An option in a renewable term life policy under which the policy owner is guaranteed, at the end of the term, to be able to renew his or her coverage without evidence of insurability at a premium rate specified in the policy.
refund annuity This provides for the continuance of the annuity during the annuitant's lifetime at least until total payment equal to the purchase price have been made by the company
rehabilitation benefit This is offered as an optional benefit to a disability income policy is designed to cover the cost of retraining in order to reenter the work force following a period of disability
reimbursement approach The payment of health policy benefits to insured based on actual medical expenses incurred.
reinstatement The act of putting a lapsed policy back in force by producing satisfactory evidence of insurability and paying any past-due premiums required.
reinsurance The act of sharing or spreading a risk that is too large for one insurer by transferring part of the risk to a reinsurer. The insurance company obtaining the reinsurance is called the ceding company; the insurance company issuing the reinsurance is called the reinsurer.
relative value scale A method for determining the benefits payable under a basic surgical expense policy. Points are assigned to each surgical procedure and a dollar per point amount, or conversion factor, is used to determine the benefit.
renewable term A term policy prove that maybe renewed on the same plan for one or more years without medical examination, but with rates based on the insured's advanced age.
renewable option An option that allows the policy- owner to renew a term policy before its termination date without having to provide evidence of insurability
replacement The act of replacing one life insurance policy with another; may be done legally under certain conditions. See also twisting.
representation A statement of material fact that is reasonably .accepted as substantially true.
reserve Funds held by the company to help fulfill future claims.
reserve basis In life insurance, this is the mortality table and assumed interest rate used in computing rates.
residential care A type of health or medical care designed to provide a benefit for elderly individuals who live in a retirement community; addresses full- time needs, both social and medical.
residual disability benefit A disability income payment based on the proportion of in come the insured has actually lost, taking into account the fact that he or she is able to earn some income.
respite care A type of health or medical care designed to provide a short rest period for a caregiver. Characterized by its temporary status.
results provision See accidental bodily injury provision.
retention The act of keeping a policy in force and "on the books."
revocable beneficiary A beneficiary whose right in a policy are subject to the policy owner's reserved right to revoke or change the beneficiary designation and the right to surrender or make a loan on the policy without the beneficiary's consent.
rider Strictly speaking, a rider adds something to a policy. However, the term is used loosely to refer to any supplemental agreement attached to and made a part of the policy, whether the policy's conditions are expanded and additional coverage's added, or a coverage or conditions is waived.
risk The uncertainty regarding loss; a term indicating the person or property insured. See also pure risk; speculative risk.
risk pooling See loss sharing.
risk selection The method a home office underwriter uses to choose applicants that the insurance company will accept. The underwriter must determine whether risks are standard, substandard or preferred and adjust the premium rates accordingly
rollover IRA An individual retirement account established with funds transferred from another IRA or qualified retirement plan that the owner had terminated.
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 (SARSEP) 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 also 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 A list of specified amounts payable, usually for surgical operations, dismemberment, fractures, etc.
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 Provided by a non-insurance company that has the financial ability to retain the risk of loss without the use of an insurance policy
self-insured plan A health insurance plan under which an employer (usually a large one), labor union, fraternal organization or other group retains the risk of covering its employees' medical expenses.
service insurers Companies that offer prepayment plans for medical or hospital services; well-known examples are Blue Cross/Blue Shield plans and health maintenance organizations.
Service members' group life insurance (SGLI) All service members on active duty are automatically covered for a specified amount of this group term life insurance, unless they elect no coverage or lesser amounts. The insurance is written by commercial companies and premiums are shared by insured and federal government.
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 cover- ages are HMOs and Blue Cross/Blue Shield plans.
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 The loss of one hand, one foot or the sight of one eye.
single-premium whole life insurance This is whole life insurance for which the entire premium is paid in one sum at the beginning of the contract period.
skilled nursing care The 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 The 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 agent An agent who represents an insurance company in a given territory
special class These are applicants who cannot qualify for standard insurance, but may secure policies with riders waiving payment for losses involving certain existing health impairments.
special questionnaires The forms used when, for underwriting purposes, the insurer needs more detailed information from an applicant regarding aviation or avocation, foreign residence, finances, military service or occupation.
special risk policy This provides coverage for unusual hazards normally not covered under accident and health insurance, such as a concert pianist insuring his or her hands for a million dollars. See also 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 This 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 The forerunners of the Uniform Policy Provisions in health insurance policies today standard risk A 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 This is 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 The policy owner of a health care plan underwritten by a service insurer, such as Blue Cross/Blue Shield.
substandard risk A 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 also special class.
successor beneficiary See secondary beneficiary. suicide provision This provides 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 This is often included as part of a group basic or major medical plan and is designed to cover expenses associated with accidents to the extent they are not provided under other coverage's.
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 This provides benefits to pay for the cost of surgical operations.
surgical schedule A 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.
surplus The amount by which assets exceed liabilities. surplus lines broker An individual licensed to place coverage not available in his or her state (or not available in sufficient amount) through insurers not licensed or not admitted to do business in the state where the broker operates.
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 flat extra premium A fixed charge per $1,000 of insurance added to substandard risks for a specified period of years.
temporary insurance agreement See binding receipt.
term insurance This provides protection during a limited number of years and expires without value if the insured survives the stated period, which may be one or more years.
term of policy The 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 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.
three-year rule Under estate tax law, this rule brings into the gross estate the value of any life insurance policy in which the decedent had incidents of ownership if the policy had been transferred within three years of his or her death.
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 A disability that prevents insured�s 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.
travel-accident policies These provided coverage limited to indemnities for accidents while traveling, usually by common carrier.
treaty reinsurance An arrangement under which two or more insurers agree to share large insurance risks; the reinsurer automatically reinsures risks of a certain type written by the other, subject to the agreement.
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 A person who holds 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 The practice of inducing a policy owner 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 also misrepresentation.
U
unallocated benefit A 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, etc., but only sets a maximum that will be paid for all such treatments.
underwriter A company that receives premiums and accepting responsibility for fulfilling the policy contract or a company employee who decides whether or not the company should assume a particular risk; the agent who sells the policy.
underwriting The 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 An 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 A Model law that states that when an insured and beneficiary die at the same time, it is presumed that the insured survived the beneficiary.
unilateral A characteristic of an insurance contract in that only one party, the insurance company, makes an enforceable promise.
uninsurable risk A person who is not acceptable for insurance due to excessive risk factors.
universal life A 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.
urgent care center A health care establishment that allows patients to see a physician without an appointment at any time; serves as an alternative to a hospital emergency room.
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 This 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 (VUL) 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 policy owner.
vesting
The 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.
veterans' group life insurance (VGLI) This is low-cost nonrenewable, but convertible, five-year term insurance to which Service members' Group Life Insurance (SGLI) is converted automatically at the time an insured service member is discharged, separated or released from active duty. At the end of the five-year period, the veteran may convert his or her VGLI to an individual policy with any company participating in the program.
vision insurance An 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 or paid for on a discount program.
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 An 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 A rider or provision included in most life insurance policies and some health insurance policies that exempts the insured from paying premiums after he or she 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 This relieves or reduces the insurer's 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 This is 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 The benefits paid to 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.
absolute assignment A policy assignment under which the assignee (person to whom the policy is assigned) receives full control over the policy and also full rights to its benefits. Generally, when a policy is assigned to secure a debt, the owner retains all rights in the policy in excess of the debt, even though the assignment is absolute in form.
See also assignee; assignment; assignor.
accelerated benefits rider A life insurance rider that allows for the early payment of some portion of the policies face amount should the insured suffer from a terminal illness or injury.
acceptance One party's agreement to the purchase offer of another party, such that a legal contract is formed and both parties are contractually bound. With an insurance contract, acceptance generally takes place when the agent binds coverage or the policy is issued. See also offer and acceptance.
accidental bodily injury provision A disability income or accident policy provision that requires that the injury be accidental in order for benefits to be payable. accidental death and dismemberment (AD&D) This is insurance that provides payment if the insured's death results from an accident, if the insured accidentally severs a limb above the wrist or ankle joints or totally and irreversibly loses his or her eyesight.
accidental death benefit rider A life insurance policy rider that provides for payment of an additional benefit related to the face amount of the base policy when death occurs by accidental means.
accidental dismemberment Often defined as the severance of limbs at or above the wrists or ankle joints, or the entire irrevocable loss of sight. Loss of use in itself may or may not be considered dismemberment.
accidental means provision The unforeseen, unexpected or unintended cause of an accident; requirement of an accident-based policy that the cause of the mishap be accidental for any claim to be payable. accident and health insurance An insurance policy under which benefits are payable in case of disease, accidental injury or accidental death. Also called health insurance, personal health insurance and sickness and accident insurance.
accumulation unit The premiums an annuitant pays into a variable annuity are credited as accumulation units. At the end of the accumulation period, accumulation units are converted to annuity units.
acquired immune deficiency syndrome (AIDS) A life- threatening condition brought on by the human immunodeficiency virus; insurers must adhere to strict underwriting and claims guidelines in regard to AIDS risks and AIDS-related conditions.
acute illness A serious condition, such as pneumonia, from which the body can fully recover with proper medical attention.
adhesion A life insurance policy is a contract of adhesion because buyers must adhere to the terms of the contract already in existence. They have no opportunity to negotiate terms, rates, values, etc.
adjustable life insurance This product combines features of both term and whole life coverage and has adjustable lengths of coverage and amounts of accumulated cash value. Premiums may be increased or decreased to fit specific needs. Such adjustments are not retroactive and apply only to the future.
administrative-services-only (ASO) plan An arrangement under which an insurance company or an independent organization, for a fee, handles the administration of claims, benefits and other administrative functions for a self-insured group.
admitted insurer An insurance company that has met the legal and financial requirements for operation within a given state.
adult day care A type of care offered in care centers (usually custodial) designed for individuals who require assistance with various activities of daily living while their primary caregivers are absent.
adverse selection The tendency of insured persons who present a higher probability of loss to purchase or renew insurance more often than those who present a lower probability; selection against the best interests of the insurance company (e.g., people near rivers purchasing flood insurance); tendency of policy owners to take advantage of favorable options in insurance contracts.
agency The legal principle that allows an individual or organization to represent another individual or organization.
agent A person licensed by the state insurance authority to sell insurance products. The agent represents the insurance company in all transactions. See also broker; producer.
agent's report The section of an insurance application where the agent reports his or her personal observations about the applicant.
aleatory A kind of contract in which one party may obtain greater value under the agreement than the other party and in which payment depends upon a fortuitous event. An insurance contract is an aleatory contract.
alien insurer An insurance company incorporated and organized under the laws of a foreign nation, state, province or territory, rather than under the laws of the United States.
ambulatory surgery Surgery performed on an outpatient basis.
amount at risk The difference between the face amount of the policy and the reserve or policy value at a given time. In other words, the dollar amount over what the policy owner has contributed of cash value toward payment of his or her own claim. Because the cash value increases every year, the net amount at risk decreases until it finally reaches zero, at which time the cash value or reserve becomes the face amount.
annually renewable term (ART) A form of renewable term insurance that provides coverage for one year and allows the policy owner to renew his or her coverage each year without evidence of insurability. Also called yearly renewable term (YRT).
annuitant A person to whom an annuity is payable, or upon the continuance of whose life further payment depends.
annuity A contract that provides a stipulated sum payable at certain regular intervals (1) during the lifetime of one or more persons or (2) for a specified period only.
annuity unit The number of annuity units denotes the share of funds an annuitant will receive from a variable annuity account after the accumulation period ends and benefits begin. A formula is used to convert accumulation units to annuity units.
any occupation A definition of total disability that requires the insured to be unable to perform any job for which he or she is, "reasonably suited by reason of education, training or experience," in order to receive disability income benefits.
application Form supplied by the insurance company, usually filled in the by the agent and medical examiner (if applicable) on the basis of information received from the applicant. It is signed by the applicant and is part of the insurance policy if it is issued. It gives information to the home office underwriting department so it may consider whether an insurance policy will be issued and, if so, in what classification and at what premium rate.
appointment The authorization or certification of an agent to act for or represent an insurance company.
assignee A person (including a corporation, partnership or other organization) to whom a right or rights under a policy are transferred by means of an assignment
assignment The legal transfer of a policy owner's rights or interests in an insurance policy to another party. The insured requests the assignment, and, barring state law, the company can either accept or reject the request.
assignment provision (health contracts) A commercial health policy provision that allows the policy- owner to assign benefit payments from the insurer to directly to the health care provider.
assignor A person (including a corporation, partnership or other organization or entity) who transfers a right or rights under an insurance policy to another by means of an assignment.
attained age With reference to an insured, the current insurance age.
authority 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 insurer that meets the licensing criteria of the state it wishes to do business in and has received a certificate of authority Also known as an admitted company.
automatic premium loan provision This authorizes insurer to pay any premium in default automatically at the end of the grace period and charge the amount so- paid against the life insurance policy as a policy loan.
average indexed monthly earnings (AIME) The basis used for calculating the primary insurance amount (NA) for Social Security benefits.
aviation exclusion This excludes from coverage certain deaths or disabilities due to aviation for those, "other than fare-paying passengers." May be attached by rider or included in standard policy language.
B
back dating The practice of making a policy effective at a date earlier than the present.
basic medical expense policy This is a health insurance policy that provides first dollar benefits for specified (and limited) health care, such as hospitalization, surgery or physician services and that is characterized by limited benefit periods and relatively low coverage limits.
beneficiary A person to whom the proceeds of a life or accident policy are payable when the insured dies. The various types of beneficiaries are: primary (those first entitled to proceeds), secondary (those entitled to proceeds if no primary beneficiary is living when the insured dies) and tertiary (those entitled to proceeds if no primary or secondary beneficiaries are alive when the insured dies).
benefit May be either the money or the right(s) given to the policy owner if the conditions set out in the policy come to pass.
benefit period The maximum length of time that insurance benefits will be paid for any one accident, illness or hospital stay.
Best's Insurance Report A guide, published by A.M. Best, Inc., that rates insurers' financial integrity and managerial and operational strengths.
binder A written note that temporarily obligates an insurer to provide insurance in the amount of $1 million or more; it effectively puts insurance into force before a contract has been written or the premium paid. A binder is usually good for 90 days.
binding receipt This is given by a company upon an applicant's first premium payment. The policy, if approved, becomes effective from the date of the receipt.
blackout period The period following the death of a family breadwinner during which no Social Security benefits are available to the surviving spouse.
blanket policy This covers a number of individuals who are exposed to the same hazards, such as members of an athletic team company officials who are passengers in the same company plane, etc.
Blue Cross Independent, nonprofit membership organization providing protection against the costs of hospital care in a limited geographical area. Benefit payments are made directly to the hospital; benefits vary among Blue Cross organizations.
Blue Shield Independent, nonprofit membership organization providing protection against the costs of surgery and other items of medical care in a limited geographical area. Benefit payments are made directly to the company.
broker A licensed insurance representative who does not represent a specific company, but places business among various companies. Legally, the broker is usually regarded as a representative of the insured rather than the company.
business continuation plan Arrangements between the business owners that provide that the shares owned by any one of them shall be sold to and purchased by the other co-owners or the business in the event of death or disablement.
business health insurance This is insurance issued primarily to indemnify a business for the loss of services of a key employee, partner or active close corporation stockholder.
business overhead expense insurance A form of disability income coverage designed to pay necessary business overhead expenses, such as rent, should the insured business owner become disabled.
buyer's guides Informational consumer guide books that explain insurance policies and insurance concepts; in many states, they must be given to applicants when certain types of coverage's are being considered.
buy-sell agreement An agreement that a decreased business owner 's interest will be sold and purchased at a predetermined price or according to a predetermined formula.
C
cafeteria plan An employee benefit arrangement in which employees can select from a range of benefits.
cancelable contact A health insurance contract that may be terminated by the company or renewed at its option.
capital sum The amount provided for accidental dismemberment or loss of eyesight. Indemnities for loss of one member or sight of one eye are percentages of the capital sum.
carrier Another term for an insurer or an entity responsible for the payment of benefits under an insurance policy; i.e., an insurer carries the risk for the policy owner.
case management The professional arrangement and coordination of health services through assessment, service plan development and monitoring.
cash or deferred arrangements A qualified employer retirement plan under which employees can defer amounts of their salaries into a retirement plan. These amounts are not included in the employee's gross income and so are tax-deferred. Also called 401(k) plans.
cash refund annuity This provides that, upon the death of an annuitant before payments totaling the purchase price have been made, the excess of the amount paid by the purchaser over the total annuity payments received will be paid in one sum to designated beneficiaries.
cash surrender option A non-forfeiture option that allows whole life insurance policy owners to receive a payout of their policy's cash values.
cash surrender value Amount available to the owner when a life insurance policy is surrendered to the company. During the early policy years, the cash value is the reserve less a surrender charge; in later policy years, it usually equals or closely approximates the reserve value at time of surrender.
cash value The equity amount or savings accumulation in a whole life policy
chronic condition A treatable but incurable illness, such as arthritis or hypertension.
class designation A beneficiary designation. Rather than specifying one or more beneficiaries by name, the policy owner designates a class or group of beneficiaries. For example, "my children."
classification Occupational category of a risk.
cleanup fund A basic use for life insurance; this is a reserve to cover costs of last illness, burial, legal and administrative expenses, miscellaneous outstanding bills, etc. Also called a final expense fund.
close corporation A corporation owned by a small group of stockholders, each of whom usually has a voice in operation the business.
closed-panel HMO A group of physicians who are salaried employees of an HMO and who work in facilities provided by the HMO.
Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 This law extended group health coverage to terminated employees and their families for up to 18 or 36 months.
coinsurance (percentage participation) The principle under which the company insures only part of the potential loss, and the policy owners paying the other part. For instance, in a major medical policy, the company may agree to pay 75 percent of the insured expenses, and the insured must pay the other 25.
collateral assignment The assignment of a policy to a creditor as security for a debt. The creditor is entitled to be reimbursed out of policy proceeds for the amount owed. The beneficiary is entitled to any excess of policy proceeds over the amount due the creditor in the event of the insured's death.
commercial health insurers Insurance companies that function on the reimbursement approach, which allows policy owners first to seek medical treatment and then to submit the charges to the insurer for reimbursement.
commissioner The head of a state insurance department; public officer charged with supervising the insurance business in a state and administrating insurance laws. Called "superintendent" in some states, and "director" in others.
common disaster provision This is sometimes added to a policy and designed to provide an alternative beneficiary in the event that both the insured and the original beneficiary die as the result of a common accident.
competent parties A person capable of understanding the contract being agreed to; to be enforceable, a contract must be entered into by competent parties.
comprehensive major medical insurance This is designed to give the protection offered by both a basic medical expense and major medical policy. It is characterized by a low deductible amount, coinsurance clause and high maximum benefits.
concealment The deliberate withholding of material facts that would affect the validity of an insurance policy or a claim under the policy.
conditional contract A contract that is in force only if certain obligations are met or events come to pass. In regard to an insurance contract, the payment of benefits is dependent on or a condition of the occurrence of the risk insured against.
conditionally renewable contract A health insurance policy that provides that the insured may renew the contract from period to period or continue it to a stated date or an advanced age, subject to the right of the insurer to decline renewal under the conditions defined in the contract.
conditioned receipt This is given to the policy owners when they pay a premium at the time of application. Such receipts bind the insurance company if the risk is approved as applied for, subject to any other conditions stated on the receipt.
consideration The inducement to complete a contract, for example, the premium paid by the insured and the promise to pay made by the insurer.
consideration clause The part of an insurance contract that sets forth the amount of initial and renewal premiums and frequency of future payments.
contestable period The period during which the company may contest a claim on a policy because of misleading or incomplete information furnished in the application.
contingent beneficiary The person or persons named to receive proceeds in case the original beneficiary is no longer living. Also referred to as secondary or tertiary beneficiary.
contract An agreement (offer and acceptance) between two parties who have legal capacity to contract that involves valuable consideration and that does not violate any statute or other legal rule.
contributory plan A group insurance plan issued to an employer under which both the employer and employees contribute to the cost of the plan. Generally, 75 % of the eligible employees must be insured.
conversion privilege This allows the policy owner, before an original insurance policy expires, to elect to have a new policy issued that will continue the insurance coverage. Conversion may be effected at attained age (premiums based on the age attained at time of conversion) or at original age (premiums based on age at time of original issue).
convertible term An insurance contract that may be converted to a permanent form of insurance without medical examination.
coordination of benefits (COB) provision This is designed to prevent duplication of group insurance benefits. It limits benefits from multiple group health insurance policies in a particular case to 100 percent of the expenses covered and designates the order in which the multiple carriers are to pay benefits.
corridor deductible In superimposed major medical plans, this is the deductible amount between the benefits paid by the basic plan and the beginning of the major medical benefits.
cost of living (COL) rider A rider available with some policies that provides for an automatic increase in benefits (typically tied to the Consumer Price Index) to offset the effects of inflation.
coverage requirements The standards of coverage that prevent retirement plans from discrimination in favor of highly compensated employees. A plan must pass an IRS coverage test to be considered qualified.
credit accident and health insurance This pays policy premiums during the disability period or pays off an outstanding loan if the insured debtor becomes totally disabled due to an accident or sickness. May be individual or group policy.
credit life insurance This is usually written as decreasing term on a relatively small decreasing balance installment loan that may reflect direct borrowing or a balance due for merchandise purchased. If the borrower dies, benefits pay the balance due. May be individual or group policy
cross-purchase plan An agreement that provides that upon a business owner 's death, surviving owners will purchase the deceased interest, often with funds from life insurance policies owned by each principal on the lives of all other principals.
currently insured A status of limited eligibility under Social Security that provides only death benefits.
custodial care The level of health or medical care given to meet daily personal needs, such as dressing, bathing, getting out of bed, etc. Though it does not require medical training, it must be administered under a physician's order.
D
death rate The proportion of persons in each age group who die within a year; usually expressed as so many deaths per thousand persons. See also expected mortality.
decreasing term insurance This is term life insurance on which the face value slowly decreases in scheduled steps from the date the policy comes into force to the date the policy expires, while the premium remains level. The intervals between decreases are usually monthly or annual.
deductible The amount of expense or loss to be paid by the insured before a health insurance policy starts paying benefits.
deferred annuity This provides for the postponement of the commencement of an annuity until after a specified period or until the annuitant attains a specified age. May be purchased either on single-premium or flexible premium basis.
deferred compensation plan The deferral of an employee's compensation to some future age or date. These plans are frequently used to provide fringe benefits, such as retirement income, to selected personnel.
defined benefit plan A pension plan under which benefits are determined by a specific benefit formula defined contribution plan A tax-qualified retirement plan in which annual contributions are determined by a formula set for those in the plan. Benefits paid to a participant vary with the amount of contributions made on his or her behalf and the length of service under the plan.
delayed disability provision A disability income policy provision that allows a certain amount of time after an accident for a disability to result during which the insured remains eligible for benefits.
dental insurance A relatively new form of health insurance coverage typically offered on a group basis. It may cover the costs of normal dental maintenance as well as oral surgery and root canal therapy.
dependency period The period following the death of the breadwinner up until the youngest child reaches maturity.
deposit term An insurance product with a modest endowment feature. It is normally sold for ten-year terms with a higher first-year premium than for subsequent years. If policy lapses, insured forfeits his or her deposit and receives no refund.
disability A physical or mental impairment that makes a person incapable of performing one or more duties of his or her occupation.
disability buy-sell agreement An agreement between business co-owners that provides that shares owned by any one of them who becomes disabled shall be sold to and purchased by the other co-owners or by the business using funds from disability income insurance.
disability income insurance A type of health insurance coverage that provides for the payment of regular, periodic income should the insured become disabled illness or injury.
disability income rider This is typically a rider to a life insurance policy that provides benefits in the form of income in the event the insured becomes totally disabled.
discrimination In insurance, this is the act of treating certain groups of people unfairly in the sale or pricing of policies; or of treating any of a given class of risk differently from other like risks. Discrimination is expressly prohibited in most state insurance codes.
dividend The policy owner's share in the divisible surplus of a company issuing insurance on the participating plan.
dividend options The different ways in which the insured under a participating life insurance policy may elect to receive surplus earnings: in cash, as a reduction of premium, as additional paid-up insurance, left on deposit at interest, or as additional term insurance.
domestic insurer An insurance company that writes business in the state or province of its incorporation or charter.
E
elimination period The duration of time between the beginning of an insured's disability and the commencement of the period for which benefits are payable.
employee benefit plans Plans through which employers offer employees benefits such as coverage for medical expenses, disability, retirement and death.
employee stock ownership plan (ESOP) A form of defined contribution profit-sharing plan that ESOP invests primarily in the securities or stock of the employer.
endowment A contract that provides for payment of the face amount at the end of a fixed period, at a specified age of the insured or at the insured's death before the end of the stated period.
endowment period The period specified in an endowment policy during which, if the insured dies, the beneficiary receives a death benefit. If the insured is still living at the end of the endowment period, he or she receives the endowment as a living benefit.
enhanced whole life A whole life insurance policy issued by a mutual insurer, in which policy dividends are used to provide extra death benefits or to reduce future premiums.
enrollment period The period during which new employees can sign up for coverage under a group insurance plan.
entire contract provision An insurance policy provision that states that the application and policy contain all provisions and constitute the entire contract.
entity plan An agreement in which a business assumes the obligation of purchasing a deceased owner's interest in the business, thereby proportionately increasing the interests of surviving owners.
equity-indexed annuity A fixed deferred annuity that offers the traditional guaranteed minimum interest rate and an excess interest feature that is based on the performance of an external equities market index.
estate This is, most commonly, the quantity of wealth or property remaining at an individual's death.
estate tax The federal tax imposed on the value of property transferred by an individual at his or her death.
evidence of insurability Any statement or proof of a person's physical condition, occupation, etc., that affects acceptance of the applicant for insurance.
examiner A physician authorized by the medical director of an insurance company to make medical examination person assigned by a state insurance company.
excess interest The difference between the rate of interest the company guarantees to pay on proceeds left under settlement options and the interest actually paid on such funds by the company.
exclusion ratio A fraction used to determine the amount of annual annuity income exempt from federal income tax. The exclusion ratio is the total contributions or investment in the annuity divided by the expected ratio.
exclusion rider A health insurance policy rider that waives the insurer's liability for all future claims on a preexisting condition.
exclusions These are specified hazards listed in a policy for which benefits will not be paid.
exclusive provider organization (EPO) A variation of the PPO concept, an EPO contracts with an extremely limited number of physicians and typically only one hospital to provide services to members; members who elect to get health care from outside the EPO receive no benefits. See also preferred provider organization.
experience rating The review of the previous year's claims experience for a group insurance contract in order to establish premiums for the next period.
extended term insurance A nonforfeiture option that provides for the cash surrender value of a policy to be used as a net single premium (at the insured's attained age) to purchase term insurance for the face amount of the policy, less indebtedness, for as long a period as possible (but no longer than the term of the original policy.)
extra percentage tables Mortality or morbidity tables that indicate the percentage amount increase of premium for certain impaired health conditions. also known as rate-up
F
face amount This commonly refers to the principal sum involved in the insurance contract. The actual amount payable may be decreased by loans or increased by additional benefits payable under conditions specified or stated in the rider.
facility of payment provision A clause permitted under a uniform health insurance policy provision that allows the company to pay up to $1,000 in benefits or proceeds to any relative who appears entitled to it if there is no named beneficiary or if the insured or beneficiary is a minor or legally incompetent.
family income policy A combination of ordinary life and decreasing term insurance covering a period of 5,10,15, or 20 years. The term insurance is sufficient to provide (often when supplemented by interest on the ordinary life insurance) a specified monthly income from the date of death until the end of the specified income period. The principal sum of the ordinary insurance is payable when monthly income from the term insurance ceases or upon subsequent death.
family maintenance (family protection) policy Similar to the family income policy, this combines ordinary and term insurance, but without the decreasing insurance feature. Beginning at the insured's death, it provides for payment of an income for a fixed period of 10, 15 or 20 years from the date of death (not from the date of issue, as in the family income policy), with payment of the principal sum of the ordinary insurance at the end of the fixed period.
family plan policy An all-family plan of protection, usually with permanent insurance on the primary wage earner's life and with spouse and children automatically covered for lesser amounts of protection, usually term, all included for one premium.
fiduciary A person who occupies a position of special trust and confidence regarding the handling or supervision of the affairs or funds of another. Examples are trustees, executors, administrators, corporate directors and insurance agents.
fixed-amount settlement option A life insurance settlement option whereby the beneficiary instructs that proceeds be paid in regular installments of a fixed dollar amount. The number of payment periods is determined by the policy's face amount, the amount of each payment and the interest earned.
fixed annuity A type of annuity that provides a guaranteed fixed benefit amount payable for the life of the annuitant.
fixed-period settlement option A life insurance settlement option in which the number of payments is fixed by the payee, with the amount of each payment determined by the amount of proceeds.
flat deductible The amount of covered expenses that must be paid by the insured before medical benefits are payable.
foreign insurer An insurance company that operates in a state other than the one in which it is incorporated or chartered.
franchise insurance A life or health insurance plan for covering groups of persons with individual policies uniform in provisions, although perhaps different in benefits. Solicitation usually takes place in an employer's business with the employer's consent. It is generally written for groups too small or qualify for regular group coverage. May be called wholesale insurance when the policy is life insurance.
fraternal benefit insurer A nonprofit benevolent organization that provides insurance to its members.
fraud An intentional concealment or false representation of a material fact that intends to take something of value or to force the surrender of a right. Fraud can only be determined by a court of appropriate jurisdiction.
free look A provision required in most states whereby policyholders have either 10 or 20 days to examine their new policies at no obligation.
fully funded In a retirement plan, a status in which the funds necessary to meet the financial obligations of the plan are accumulated in a reserve while the plan is in operation.
fully insured A status of complete eligibility for the full range of Social Security benefits: death benefits, retirement benefits, disability benefits and Medicare benefits.
funding In a retirement plan, the setting aside of funds for the payment of benefits.
G
general agent An independent agent with the authority, under contract with the company, to appoint soliciting agents within a designated territory and fix their compensation.
government insurer An organization that, as an extension of the federal or state government, provides a program of social insurance.
grace period The period of time after the due date of a premium during which the policy remains in force without penalty.
graded premium whole life This is a variation of a traditional whole life contract that provides for lower than normal premium rates during the first few policy years, with premiums increasing gradually each year. After the preliminary period, premiums level off and remain constant.
gross premium The total premium paid by the policy- owner, it generally consists of the net premium plus the expense of operation minus interest.
group insurance This is insurance that provides coverage for a group of persons, usually employees of a company, under one master contract.
guaranteed insurability (guaranteed issue) An arrangement, usually provided by rider, whereby additional insurance may be purchased at various times without evidence of insurability.
guaranteed renewable contract A health insurance contract that the insured has the right to continue in force by payment of premiums for a substantial period of time during which the insurer has a unilateral right to make any change in any provision, other than a change in premium rate for classes of insured's.
guarantee association An association established by each state to support insurers and protect consumers in the case of insurer insolvency. They are funded by insurers through assessments.
H
hazard A specific situation or condition that increases the probability or severity of a loss.
health insurance This is insurance against loss through sickness or accidental bodily injury. Also called accident and health, accident and sickness, sickness and accident or disability insurance.
health maintenance organization (HMO) Health care management that stresses preventive health care, early diagnosis and treatment on an outpatient basis. Persons generally enroll voluntarily by paying a periodic fixed fee.
home health care Skilled or unskilled care provided in an individual's home, usually on a part-time basis.
hospital benefits The benefits payable for charges incurred while- the insured is confined to or treated in a hospital, as defined in a health insurance policy.
hospital expense insurance Health insurance benefits subject to a specified daily maximum for a specified period of time while the inured is confined to a hospital, plus a limited allowance up to a specified amount for miscellaneous hospital expenses, such as operating room, anesthesia, laboratory fees, etc. Also called hospitalization insurance.See also medical expense insurance.
hospital indemnity
A form of health insurance that provides a stipulated daily, weekly or monthly indemnity during hospital confinement; payable on an unallocated basis without regard to actual hospital expense.
human life value An individual's economic worth, measured by the sum of his or her future earnings that are devoted to his or her family.
I
immediate annuity This provides of the payment of an annuity benefit at one payment interval from date of purchase. Can only be purchased with a single payment.
incidents of ownership Any power or interest over a life insurance policy that would subject the policy to inclusion in a decedent's gross estate.
incontestable clause This places a time limit (one to two years after issue) on the insurer's right to void a policy or refuse benefits because of material misstatements made in the application.
increasing term insurance This is term life insurance in which the death benefit increases periodically over the policy's term. Usually purchased as a cost of living rider to a whole life policy. See also cost of living rider.
indemnity approach A method of paying health policy benefits to insured's based on a predetermined, fixed rate set for the medical services provided, regardless of the actual expenses incurred.
independent agency system A system for marketing, selling and distributing insurance in which independent brokers are not affiliated with any one insurer but represent any number of insurers.
indexed whole life A whole life insurance policy whose death benefit increases according to the rate of inflation. Such policies are usually tied to the Consumer Price Index (CPI).
individual insurance These are policies that provide protection to the policy owner, as distinct from group and blanket insurance. Also called personal insurance.
individual retirement account (IRA) A personal qualified retirement account through which eligible individuals accumulate tax-deferred income up to a certain amount each year, depending on their tax bracket.
inspection receipt A receipt obtained from an insurance applicant when a policy (upon which the first premium has not been paid) is left with him or her for further inspection. It states that the insurance is not in effect and that the policy has been delivered for inspection only.
inspection report An investigator report that provides facts required for a proper underwriting decision on applications for new insurance and reinstatements.
installment refund annuity An annuity income option that provides for the funds remaining at the annuitant's death to be paid to the beneficiary in the form of continued annuity payments.
insurability All conditions pertaining to individuals that affect their health, susceptibility to injury, or life expectancy; an individual's risk profile.
insurability receipt A type of conditional receipt that makes coverage effective on the date the application was signed or the date of the medical exam (whichever is later), provided the applicant proves to be insurable.
insurable interest The interest from which monetary loss will result if the peril insured against occurs; possibility of financial loss that can be protected against by insurance.
insurance A contractual means of transferring the risk of loss to an entity (insurer) that pools similar exposures.
insurance code The laws that govern the business of insurance in a given state.
insurer An entity that provides insurance coverage, typically through a contract of insurance. See also carrier.
insuring clause This defines and describes the scope of the coverage provided and limits of indemnification.
integrated deductible In superimposed major medical plans, this is a deductible amount between the benefits paid by the basic plan and those benefits paid by the major medical. All or part of the integrated deductible may be absorbed by the basic plan.
interest adjusted net cost method A method of comparing the costs of similar policies by using an index that takes into account the time value of money.
interest-only option (interest option) A mode of settlement under which all or part of the policy proceeds are left with the company for a definite period at a guaranteed minimum interest rate. Interest may either be added to the proceeds or paid annually, semiannually, quarterly or monthly.
interest-sensitive whole life A whole life policy whose premiums vary depending upon the insurer's underlying death, investment and expense assumptions.
interim term insurance Term insurance for a period of 12 months or less by special agreement of the company; it permits a permanent policy to become effective at a selected future date.
intermediate nursing care A level of health or medical care that is occasional or rehabilitative, ordered by a physician, and performed by skilled medical personnel.
irrevocable beneficiary A beneficiary whose interest cannot be revoked without his or her written consent, usually because the policy owner has made the beneficiary designation without retaining the right to revoke or change it.
J
joint and last survivor policy A variation of the joint life policy that covers two lives but pays the benefit upon the death of the second insured.
joint and survivor annuity This covers two or more lives and continues in force as long as any one of them survives.
joint life policy This covers two or more lives and provides for the payment of the proceeds at the death of the first among those insured, at which time the policy automatically terminates.
juvenile insurance This is written on the lives of children who are within specified age limits and generally under parental control.
K
Keogh plans These are designed to fund retirement of self-employed individuals; the name is derived from the author of the Keogh Act (HR-b), under which contributions to such plans are given favorable tax treatment.
key-person insurance This provides protection of a business against financial loss caused by the death or disablement of a vital number of the company, usually individuals possessing special managerial or technical skill or expertise.
L
lapse Termination of a policy because of the nonpayment of premiums.
law of large numbers A statistical principle which states that the larger the number of observations, the more accurate and reliable a prediction will be.
legal purpose The concept that the purpose of a contract must be legal, moral and in the public good. See also contract.
legal reserve The standard levels for policy reserves established thorough the insurance laws of the various states.
level premium funding method The insurance plan (used by all regular life insurance companies) under which, instead of an annually increasing premium that reflects the increasing chance of death, an equivalent level premium is paid. Reserves that accumulate from more than adequate premiums paid in the early years supplement inadequate premiums in later years.
level term insurance this is term coverage on which the face value remains unchanged from the date the policy comes into force to the date the policy expires.
license The certification issued by a state insurance department that an qualifies individual to solicit insurance applications for the period covered; usually issued for one year, renewable on application without need for repeat on the original qualifying requirements.
licensed insurer See admitted insurer
lien system A plan for issuing coverage for substandard risks. A standard premium is paid but there is a lien against the policy to reduce the amount of insurance if the insured dies from a cause that resulted in the substandard rating.
life annuity This is payable during the continued life of the annuitant. No provision is made for the guaranteed return of the unused portion of the premium.
life expectancy The average duration of the life remaining to a number of persons of a given age, according to a given mortality table. Not to be confused with probable lifetime,which refers to the difference between a person's present age and the age at which death is most probable, i.e., the age at which most deaths occur.
life income settlement option A settlement option that provides for life insurance or annuity proceeds to be used to buy an annuity payable to the beneficiary for life, often with a specified number of payments certain or a refund if payments don't equal or exceed premiums paid.
life insurance This is insurance against loss due to the death of a particular person (the insured) upon whose death the insurance company agrees to pay a stated sum or income to the beneficiary
limited pay life insurance A form of whole life insurance characterized by premium payments only being made for a specified or limited number of years. limited policies These restrict benefits to specified accidents or diseases, such as travel policies, dread disease policies, ticket policies and so forth.
limited risk policy This provides coverage for specific kinds of accidents or illnesses, such as injuries received as a result of travel accidents or medical expenses stemming from a specified disease. See also special risk policy.
Lloyd's of London An association of individuals and companies that underwrite insurance on their own accounts and provide specialized coverage's.
loading The amount added to net premiums to cover the company's operating expenses and contingencies; includes the cost of securing new business, collection expenses and general management expenses.
loan value The amount that can be borrowed from the issuing company by the policy owner using the value of the life insurance policy as collateral.
long-term care The broad range of medical and personal services for individuals (often the elderly) who need assistance with daily activities for an extended period of time.
long-term care policy A health insurance policy that provides daily indemnity benefits for extended care confinement.
loss sharing A basic principle of insurance whereby a large number of insured's contribute to cover the losses of a few.
lump sum The payment of the entire proceeds of an insurance policy in one sum. This is the method of settlement provided by most policies unless an alternate settlement is elected by the policy owner or beneficiary.
M
major medical expense policy A health insurance policy that provides broad coverage and high benefits for hospitalization, surgery and physician services. Characterized by deductibles and coinsurance cost-sharing.
managed care A system of delivering health care and health care services characterized by arrangements with selected providers, programs of ongoing quality control and of utilization review and financial incentives for members to use providers and procedures covered by the plan.
mandatory second opinion Requires insured's to get a second opinion before receiving nonlife-threatening surgery in order to be eligible for benefits.
master policy A policy issued to the employer under a group plan; contains all the insuring clauses defining employee benefits. Individual employees participating in the group plan receive individual certificates that outline highlights of the coverage. Also called master contract.
material Having influence or effect; a representation relating to a matter that is so substantial as to influence an outcome or actions.
maturity value The proceeds payable on an endowment contract at the end of the specified endowment period, or payable on an ordinary life contract at the last age of the mortality table if the insured is still living at that age. Maturity value of a policy is the same as the face amount of the policy and is equal to the reserve value of the contract on this maturity date. Actual amount payable by the company may be increased by dividend additions or accumulated dividend deposits, or decreased by outstanding loans.
Medicaid This provides medical care for the needy under joint federal-state participation (Kerr-Mills Act).
medical cost management The process of controlling how policyholders utilize their policies. See also mandatory second opinion, precertification, ambulatory surgery and case management.
medical examination This is usually conducted by a licensed physician; the medical report is part of the application, becomes part of the policy contract, and is attached to the policy. A "nonmedical" is a short-form medical report filled out by the agent. Various company rules, such as amount of insurance applied for or already in force, or applicant's age, sex, past physical history and data revealed by inspection report, etc., determine whether the examination will be "medical" or "nonmedical."
medical expense insurance This pays benefits for non-surgical doctors' fees commonly rendered in a hospital; sometimes pays for home and office calls.
Medical Information Bureau (MIB) A service organization that collects medical data on life and health insurance applicants for member insurance companies. medical report A document completed by a physician or other approved examiner and submitted to an insurer to supply medical evidence of insurability (or lack of insurability) or in relation to a claim.
Medicare A federally sponsored health insurance and medical care program for persons age 65 or older; administered under provisions of the Social Security Act.
Medicare Part A This is compulsory hospitalization insurance that provides specified in hospital and related benefits. All workers covered by Social Security finance its operation through a portion of their FICA tax.
Medicare Part B A voluntary program designed to provide supplementary medical insurance to cover physician services, medical services and supplies not covered under Medicare Part A.
Medicare+Choice A program that offers a variety of Medicare managed care choices, a private fee-for-service plan (PFFS), a Medicare medical savings account plan (MSA) and religious fraternal benefit society plans. Also known as Medicare Part C.
Medicare supplement policy This is health insurance that provides coverage to fill the gaps in Medicare coverage. also known as Medigap
minimum deposit insurance A cash value life insurance policy having a first-year loan value that is available for borrowing immediately upon payment of the first-year premium.
minimum premium plan (MPP) Designed to support a self-insured plan, a minimum premium plan helps insure against large, unpredictable losses that exceed the self-insured level.
miscellaneous expenses Hospital charges, other than for room and board, e.g., x-rays, drugs, laboratory fees, etc., in connection with health insurance. misrepresentation The act of making, issuing, circulating or causing to be issued or circulated, an estimate, illustration, circular or statement of any kind that does not represent the correct policy terms, dividends or share of the surplus or the name or title for any policy or class of policies that does not in fact reflect its true nature.
misstatement of age or sex provision This provides that, if the insured's age or sex is misstated in an application for insurance, the benefit payable usually is adjusted to what the premiums paid should have purchased.
misuse of premium The improper use of premiums collected by an insurance producer.
modified endowment contract (MEC) A life insurance policy under which the amount a policy owner pays in during the first year exceeds the sum of net level premium that would have been payable to provide paid-up future benefits in seven years.
modified whole life A whole life insurance with premium payable during the first few years (usually five) only slightly larger than the rate of term insurance. Afterwards, the premium is higher for the remainder of life than the premium for ordinary life at the original age of issue, but lower than the rate at the attained age at the time of charge.
money-purchase plan A type of qualified plan under which contributions are fixed amounts or fixed percentages of the employees' salary. An employee's benefits are provided in whatever amount the accumulated or current contributions will produce for him or her.
moral hazard Effect of person reputation, character, associates, personal living habits, financial responsibility and environment (as distinguished from physical health) upon an individual's general insurability.
morale hazard The effect(s) indifference concerning loss has on the risk to be insured.
morbidity The relative incidence of disability due to sickness or accident within a given group.
morbidity rate This shows the incidence and extent of disability that may be expected from a given large group of persons; used in computing health insurance rates.
mortality The relative incidence of death within a group.
mortality table A listing of the mortality experience of individuals by age; permits an actuary to calculate, on average, how long a male or female of a given age group may be expected to live.
mortgage insurance A basic use of life insurance, so-called because many breadwinners leave insurance to pay off any mortgage balance outstanding at their death. The insurance generally is made payable to a family beneficiary instead of to the mortgage holder.
multiple employer trust (MET) This is made up of several small groups of individuals that need life and health insurance but do not qualify for true group insurance who band together under state trust laws to purchase insurance at a more favorable rate.
multiple employer welfare arrangement (MEWA) This is similar to a multiple employer trust (MET) with the exception that in a MEWA, a number of employers pool their risks and self-insure.
multiple protection policy A combination of term and whole life coverage that pays some multiple of the face amount of the basic whole life portion (such as $10 per month per $1,000) throughout the multiple protection period (such as to age 65).
mutual insurer An insurance company that is owned by its policyholders and managed by a board of directors.
N
National Association of Health Underwriters (NAHU) An organization of health insurance agents that is dedicated to supporting the health insurance industry and to advancing the quality of service provided by insurance professionals.
National Association of Insurance Commissioners (NAIC) An association of state insurance commissioners active in the analysis of insurance regulations and in the formation and recommendation of uniform and model regulations and legislation.
National Association of Insurance and Financial Advisors (NAIFA) An organization of life insurance agents that is dedicated to supporting the life insurance industry and to advancing the quality of service provided by insurance professionals.
National Service Life Insurance (NSLI) Created by Congress in 1940 to provide policies for individuals on active duty in military service. Persons entering military service after December 31, 1956 cannot purchase this insurance. However, persons discharged with a service-connected disability may purchase it within a certain time limit.
natural group A group formed for a reason other than to obtain insurance.
needs approach A method for determining how much insurance protection a person should have by analyzing a family's or business' needs and objectives should the insured die, become disabled or retire.
net premium This is calculated on the basis of a given mortality table and a given interest rate, without any allowance for loading.
nonadmitted insurer An insurance company that has not been licensed to operate within a given state.
noncancelable and guaranteed renewable contract A health insurance contract that the insured has the right to continue in force by payment of premiums set forth in the contract for a substantial period of time, during which the insurer has no right to make unilaterally any change in any contract provision.
noncontributory plan An employee benefit plan under which the employer bears the full cost of the employees' benefits; must insure 100 percent of eligible employees.
nondisabling injury An injury that requires medical care, but does not result in loss of time from work.
nonduplication provision This stipulates that insured's shall be ineligible to collect for charges under a group health plan if the charges are reimbursed under their own or spouse's group plan.
nonforfeiture options The privileges allowed under terms of a life insurance contract after cash values have been created.
nonforfeiture values Those benefits in a life insurance policy that by law the policy owner does not forfeit even if he or she discontinues premium payments; usually cash value, loan value, paid-up insurance value and extended term insurance value.
nonmedical insurance This is issued on a regular basis without requiring a regular medical examination. In passing on the risk, the company relies on the applicant's answers to questions regarding his or her physical condition and on personal references or inspection reports.
nonparticipating This is insurance under which the insured is not entitled to share in the divisible surplus of the company.
nonqualified plan A retirement plan that does not meet federal government requirements and is not eligible for favorable tax treatment.
notice of claims provision A policy provision that describes the policy owner's obligation to provide notification of loss to the insurer within a reasonable period of time.
O
offer and acceptance The offer may be made by the applicant by signing the application, paying the first premium and, if necessary, submitting to a 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 application. Premium payment on the offered policy then constitutes acceptance by the applicant.
Old Age. Survivors, Disability and Hospital Insurance (OASDI) Retirement, death, survivor's disability income, health and hospital insurance benefits provided under the Social Security system. It is better known as Social Security.
open certificate This stipulates that rates and policy provisions may be changed. Fraternal benefit societies are required by law to issue this type of certificate. Also called open policy.
open-panel HMO A network of physicians who work out of 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 the coverage at any anniversary or, in some cases, at any premium due date, but does not have the right to terminate coverage between such dates.
ordinary insurance Life insurance of commercial companies not issued on the weekly basis; amount of protection usually is $1,000 or more.
Occupational Safety and Health Administration (OSHA) This establishes federal work safety guidelines.
other insured's rider A term rider that covers a family member other than the insured and that is attached to the base policy covering the insured.
outline of coverage The informational material about a specific plan or policy of insurance that describes the policy's features and benefits; in many states, an outline of coverage is required to be given to consumers when certain types of coverage's are being considered.
overhead insurance A type of short-term disability insurance that reimburses the insured for specified, fixed, monthly expenses, normal and customary in operating the insured's business.
overinsurance An excessive amount of insurance; an amount of insurance that would result in payment of more than the actual loss or more than incurred expenses.
own occupation A definition of total disability that requires that the insured must be unable to work at his or her own occupation in order to receive disability income benefits.
P
paid-up additions The additional life insurance purchased by policy dividends on a net single premium basis at the insured's attained insurance age at the time additions are purchased.
paid-up policy A contract on which no further premiums are to be paid and for the benefits of which the company is held liable.
parole evidence rule A rule of contract law that brings all verbal statements into the written contract and disallows any changes or modifications to the contract by oral evidence.
partial disability An illness or injury that prevents an insured from performing at least one or more, but not all, of their occupational duties.
participating An insurance plan under which the policy owner receives shares (commonly called dividends) of the divisible surplus of the company.
participating physician A doctor or physician who accepts Medicare's allowable or recognized charges and will not charge more than this amount.
participation standards The rules that must be followed for determining employee eligibility for a qualified retirement plan.
partnership A business entity that allows two or more people to strengthen their effectiveness by working together as co-owners.
payor rider This is available under certain juvenile life insurance policies, upon payment of an extra premium; provides for the waiver of future premiums if the person responsible for paying them dies or is disabled before the policy becomes fully paid or matures as a death claim, or as an endowment, or the child reaches a specific age.
per capita rule This stipulates that death proceeds from an insurance policy are to be divided equally among the living primary beneficiaries.
peril The immediate, specific event that causes loss and gives rise to risk.
period certain annuity An annuity income option that guarantees a definite minimum period of payments.
periodical publication group A group representative of those eligible for blanket life insurance; in this case, the policy is issued to a newspaper, farm paper, magazine or other periodical. The policy insures independent contractors and others engaged in the marketing and delivery of periodical publications.
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 marketing, selling and distributing insurance in which personal producing general agents (PPGAs) are compensated for business they personally sell and business sold by agents with whom they subcontract. Subcontracted agents are considered employees of the PPGA, not the insurer.
per stirpes rule This stipulates that death proceeds from an insurance policy are to be divided equally among the named beneficiaries. If a named beneficiary is deceased, his or her share then goes to the living descendants of that individual.
policy The insurance contract and all attached endorsements.
policy loan A loan made by the insurance company to the policy owner with the policy's cash value assigned as security. One of the standard nonforfeiture options.
policy provisions The term or conditions of an insurance policy as contained in the policy clauses.
precertification The insurer's approval of an insured's entering a hospital. Many health policies require pre-certification as part of an effort to control costs.
preexisting condition An illness or medical condition that existed before a policy's effective date; usually excluded from coverage through the policy's standard provisions or by waiver.
preferred provider organization (PPO) An association of health care providers, such as doctors and hospitals, that agree to provide health care services to members of a particular group at fees negotiated in advance.
preferred risk A risk whose physical condition, occupation, mode of living and other characteristics indicate a prospect for longevity or an unimpaired life.
preliminary term insurance This is term insurance attached to a newly issued permanent life insurance policy that extends term coverage of a preliminary period of up to 11 months, until the permanent insurance becomes effective. The purpose is to provide full life insurance premium and the anniversary to a later date.
premium The periodic payment required to keep an insurance policy in force.
premium factors The three primary factors considered when computing the basic premium for insurance: mortality, expense and interest.
prescription drug coverage This is usually offered as an optional benefit to group medical expense plans and covers some or all of the cost of prescription drugs.
presumptive disability benefit A disability income policy benefit that provides that if an insured experiences a specified disability such as blindness, he or she is presumed to be totally disabled and entitled to the full amount payable under the policy, whether or not he or she is able to work.
primary beneficiary In life insurance, this is the beneficiary designated by the insured as the first to receive policy benefits.
primary insurance amount (PIA) Amount equal to a covered worker's full Social Security retirement benefit at age 65 or disability benefit.
principal A person whose obligations are guaranteed under a bond (also called the obligor); the applicant for or subject of insurance; the one (usually the insurer) from whom an insurance agent derives authority
principal sum The amount under an AD&D policy that its payable as a death benefit if death is due to an accident.
private insurer An insurer that is not associated with federal or state government.
probationary period The specified number of days after an insurance policy's issue date during which coverage is not afforded for sickness. Standard practice for group coverage's.
proceeds The net amount of money payable by the company at the insured's death or at policy maturity. producer A general term applied to an agent, broker, personal producing general agent, solicitor or other person who sells insurance.
profit-sharing plan Any plan whereby a portion of a company's profits is set aside for distribution to employees who qualify under the plan.
proof of loss A mandatory health insurance provision stating that the insured must provide a completed claim form to the insurer within 90 days of the date of loss.
proper solicitation A high professional standard that requires an agent to identify himself or herself properly as an agent soliciting insurance on behalf of an insurance company.
pure endowment A contract providing for payment only upon survival of a certain person to a certain date and not in event of that person's prior death. This type of contract is just the opposite of a term contract, which provides for payment only in event that a certain person dies within the term period specified.
pure risk The uncertainty as to whether loss will occur; offers no chance for gain. Insurance may be provided against many types of pure risk.
Q
qualified plan A retirement or employee compensation plan established and maintained by an employer that meets specific guidelines spelled out by the IRS and consequently receives favorable tax treatment.
R
rate-up in age A system of rating substandard risks that involves assuming the insured to be older than he or she really is and charging a correspondingly higher premium.
rating The premium classification given an applicant for life or health insurance.
reasonable and customary charge The charge for a heath care service consistent with the going rate of charge in a given geographical area for an identical or similar service.
rebating The act of returning part of the commission or giving anything else of value to the insured as an inducement to buy the policy. It is illegal and cause for license revocation in most states. In some states, both the agent and the person receiving the rebate may be punished.
reciprocal insurer An association of individuals known as subscribers, managed by an attorney-in-fact, who agree to exchange insurance risks.
recurrent disability provision A disability income policy provision that specifies the period of time during which the reoccurrence of a disability is considered a continuation of a prior disability.
reduced paid-up insurance A nonforfeiture option contained in most life insurance policies that allows the insured to elect to have the cash surrender vale of the policy used to purchase a paid-up policy for a reduced amount of insurance.
re-entry option An option in a renewable term life policy under which the policy owner is guaranteed, at the end of the term, to be able to renew his or her coverage without evidence of insurability at a premium rate specified in the policy.
refund annuity This provides for the continuance of the annuity during the annuitant's lifetime at least until total payment equal to the purchase price have been made by the company
rehabilitation benefit This is offered as an optional benefit to a disability income policy is designed to cover the cost of retraining in order to reenter the work force following a period of disability
reimbursement approach The payment of health policy benefits to insured based on actual medical expenses incurred.
reinstatement The act of putting a lapsed policy back in force by producing satisfactory evidence of insurability and paying any past-due premiums required.
reinsurance The act of sharing or spreading a risk that is too large for one insurer by transferring part of the risk to a reinsurer. The insurance company obtaining the reinsurance is called the ceding company; the insurance company issuing the reinsurance is called the reinsurer.
relative value scale A method for determining the benefits payable under a basic surgical expense policy. Points are assigned to each surgical procedure and a dollar per point amount, or conversion factor, is used to determine the benefit.
renewable term A term policy prove that maybe renewed on the same plan for one or more years without medical examination, but with rates based on the insured's advanced age.
renewable option An option that allows the policy- owner to renew a term policy before its termination date without having to provide evidence of insurability
replacement The act of replacing one life insurance policy with another; may be done legally under certain conditions. See also twisting.
representation A statement of material fact that is reasonably .accepted as substantially true.
reserve Funds held by the company to help fulfill future claims.
reserve basis In life insurance, this is the mortality table and assumed interest rate used in computing rates.
residential care A type of health or medical care designed to provide a benefit for elderly individuals who live in a retirement community; addresses full- time needs, both social and medical.
residual disability benefit A disability income payment based on the proportion of in come the insured has actually lost, taking into account the fact that he or she is able to earn some income.
respite care A type of health or medical care designed to provide a short rest period for a caregiver. Characterized by its temporary status.
results provision See accidental bodily injury provision.
retention The act of keeping a policy in force and "on the books."
revocable beneficiary A beneficiary whose right in a policy are subject to the policy owner's reserved right to revoke or change the beneficiary designation and the right to surrender or make a loan on the policy without the beneficiary's consent.
rider Strictly speaking, a rider adds something to a policy. However, the term is used loosely to refer to any supplemental agreement attached to and made a part of the policy, whether the policy's conditions are expanded and additional coverage's added, or a coverage or conditions is waived.
risk The uncertainty regarding loss; a term indicating the person or property insured. See also pure risk; speculative risk.
risk pooling See loss sharing.
risk selection The method a home office underwriter uses to choose applicants that the insurance company will accept. The underwriter must determine whether risks are standard, substandard or preferred and adjust the premium rates accordingly
rollover IRA An individual retirement account established with funds transferred from another IRA or qualified retirement plan that the owner had terminated.
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 (SARSEP) 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 also 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 A list of specified amounts payable, usually for surgical operations, dismemberment, fractures, etc.
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 Provided by a non-insurance company that has the financial ability to retain the risk of loss without the use of an insurance policy
self-insured plan A health insurance plan under which an employer (usually a large one), labor union, fraternal organization or other group retains the risk of covering its employees' medical expenses.
service insurers Companies that offer prepayment plans for medical or hospital services; well-known examples are Blue Cross/Blue Shield plans and health maintenance organizations.
Service members' group life insurance (SGLI) All service members on active duty are automatically covered for a specified amount of this group term life insurance, unless they elect no coverage or lesser amounts. The insurance is written by commercial companies and premiums are shared by insured and federal government.
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 cover- ages are HMOs and Blue Cross/Blue Shield plans.
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 The loss of one hand, one foot or the sight of one eye.
single-premium whole life insurance This is whole life insurance for which the entire premium is paid in one sum at the beginning of the contract period.
skilled nursing care The 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 The 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 agent An agent who represents an insurance company in a given territory
special class These are applicants who cannot qualify for standard insurance, but may secure policies with riders waiving payment for losses involving certain existing health impairments.
special questionnaires The forms used when, for underwriting purposes, the insurer needs more detailed information from an applicant regarding aviation or avocation, foreign residence, finances, military service or occupation.
special risk policy This provides coverage for unusual hazards normally not covered under accident and health insurance, such as a concert pianist insuring his or her hands for a million dollars. See also 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 This 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 The forerunners of the Uniform Policy Provisions in health insurance policies today standard risk A 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 This is 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 The policy owner of a health care plan underwritten by a service insurer, such as Blue Cross/Blue Shield.
substandard risk A 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 also special class.
successor beneficiary See secondary beneficiary. suicide provision This provides 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 This is often included as part of a group basic or major medical plan and is designed to cover expenses associated with accidents to the extent they are not provided under other coverage's.
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 This provides benefits to pay for the cost of surgical operations.
surgical schedule A 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.
surplus The amount by which assets exceed liabilities. surplus lines broker An individual licensed to place coverage not available in his or her state (or not available in sufficient amount) through insurers not licensed or not admitted to do business in the state where the broker operates.
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 flat extra premium A fixed charge per $1,000 of insurance added to substandard risks for a specified period of years.
temporary insurance agreement See binding receipt.
term insurance This provides protection during a limited number of years and expires without value if the insured survives the stated period, which may be one or more years.
term of policy The 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 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.
three-year rule Under estate tax law, this rule brings into the gross estate the value of any life insurance policy in which the decedent had incidents of ownership if the policy had been transferred within three years of his or her death.
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 A disability that prevents insured�s 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.
travel-accident policies These provided coverage limited to indemnities for accidents while traveling, usually by common carrier.
treaty reinsurance An arrangement under which two or more insurers agree to share large insurance risks; the reinsurer automatically reinsures risks of a certain type written by the other, subject to the agreement.
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 A person who holds 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 The practice of inducing a policy owner 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 also misrepresentation.
U
unallocated benefit A 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, etc., but only sets a maximum that will be paid for all such treatments.
underwriter A company that receives premiums and accepting responsibility for fulfilling the policy contract or a company employee who decides whether or not the company should assume a particular risk; the agent who sells the policy.
underwriting The 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 An 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 A Model law that states that when an insured and beneficiary die at the same time, it is presumed that the insured survived the beneficiary.
unilateral A characteristic of an insurance contract in that only one party, the insurance company, makes an enforceable promise.
uninsurable risk A person who is not acceptable for insurance due to excessive risk factors.
universal life A 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.
urgent care center A health care establishment that allows patients to see a physician without an appointment at any time; serves as an alternative to a hospital emergency room.
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 This 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 (VUL) 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 policy owner.
vesting
The 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.
veterans' group life insurance (VGLI) This is low-cost nonrenewable, but convertible, five-year term insurance to which Service members' Group Life Insurance (SGLI) is converted automatically at the time an insured service member is discharged, separated or released from active duty. At the end of the five-year period, the veteran may convert his or her VGLI to an individual policy with any company participating in the program.
vision insurance An 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 or paid for on a discount program.
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 An 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 A rider or provision included in most life insurance policies and some health insurance policies that exempts the insured from paying premiums after he or she 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 This relieves or reduces the insurer's 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 This is 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 The benefits paid to 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.