annuity certain
An annuity that is made regardless of whether or not the
payee dies.
annuity period
The period of time between annuity payments.
annuity units
Ownership shares in a variable annuity.
apparent authority
Authority that a third party believes an agent to possess
due to the actions, intentional or not, of the principal
that the principal did not expressly grant to the agent.
application
The initial forms used when applying for insurance.
assignee
The party to whom contractual rights are transferred in an
assignment.
assignment
The transfer of ownership rights in a contract from one
party or person to another.
assignment of benefits
The transfer of benefits to another. This could be used to
pay a physician directly, instead of having the insurance
company pay the policyholder, who will then pay the
physician.
assignor
The person or party who transfers the contractual rights in
an assignment.
assuming company
See reinsurer.
assumption reinsurance
Reinsurance in which the transfer is permanent and the
ceding company is no longer a party of the insurance
agreement.
attending physician's statement
A statement from the physician who treated or is treating
the insured or the applicant.
automatic dividend option
The insurance dividend used if the policyholder does not
select another option.
average indexed monthly earnings
The figures used to calculate Social Security and other
governmental benefits. It is an average of earnings on which
Social Security tax has been paid, adjusted for inflation.
aviation exclusion
An insurance provision stating that death benefits are not
payable if the death occurs as a result of aviation
activities.
backdating
Listing the effective date as being prior to the application
date, in order to lower premium rates.
band grading
Grouping insurance policies according to death-benefit
amounts.
basic death benefit
The death benefit as originally listed, excluding any
supplementary riders or provisions.
basic hospital
Insurance coverage for inpatient care (in a hospital or
other medical facility) only.
beneficiary
The individual or party designated to receive policy
proceeds.
benefit of survivorship
Annuity payments will continue as long as the recipient is
alive.
benefit schedule
In a group insurance plan, a schedule that lists coverage
amounts provided to each class of insured individuals.
benefits
Payments made by an insurance company when an insurance
claim is approved, such as at time of death, retirement, or
disability.
binder
A temporary agreement that provides coverage until a policy
is written or delivered.
binding premium receipt
Initial premium receipt in which coverage is immediately
effective but only lasts until a decision is made on the
insurance application.
birthday rule
When both parents have insurance, benefits for dependent
children are paid by the plan of the parent whose birthday
occurs first in the year.
blended rates
Mortality rates based on a combination of experience rates
and manual rates.
Blue Cross plan
Hospital-expense plan operated in conjunction with a
nonprofit healthcare organization.
Blue Shield plan
Physician-expense plan operated in conjunction with a
nonprofit healthcare organization.
break in service
Amount of time between leaving a company and returning to
work at the same company; used in calculating benefits in
regard to leaves of absence, short-term disability, and
other extended periods of unemployment.
broker
An individual or organization that is licensed by the state
and seeks insurance on behalf of a customer. Brokers do not
work with a single entity but can work with multiple
insurance companies or customers.
brokerage distribution system
A system of selling insurance that uses commissioned
brokers.
bundled insurance product
An insurance policy in which the factors used to determine
premium and cash values are not identified separately.
business insurance
Insurance designed to serve business needs rather than
individual needs.
business continuation insurance
Insurance designed to allow remaining partners or
shareholders to purchase the portion of the company owned by
a deceased partner or owner.
Buyer's Guide
A publication that provides information to consumers
concerning life insurance. In some states, it is required by
law that the insurance company supply a copy to all
applicants.
cafeteria plan
See flexible benefits plan.
cancellable policy
An insurance policy that can be terminated at any time by
the insurer.
cancellation
Termination of an insurance policy or coverage while the
policy is still in effect.
capacity
The largest amount of insurance the insurer will underwrite.
capitation
The preset limit paid to a health-maintenance organization
(HMO). The amount of service used is irrelevent.
career agent
An agent who works full-time out of the insurance company's
field office instead of being an independent contractor who
has an agreement to do business with the insurance company.
career average benefit formula
Formula by which retirement benefits are calculated, based
upon compensation for the entire amount of time in the plan.
carry-over provision
A provision stating that expenses incurred at the end of a
benefit period, usually the last three months of the year,
that apply to the deductible may also be used to cover the
next period's deductible. This protects the insured from
having to pay a double deductible simply because an injury
or illness occurred at the end of a period.
case management
A system used to ensure that individuals receive appropriate
healthcare services at a reasonable cost. It can be used to
identify alternate, cheaper treatment methods that do not
sacrifice the quality of care. Also called claim management.
cash-balance pension plan
A pension plan in which the amount each participant has
accrued (contributions and interest) is listed, and in
which, upon retirement, the participant may remove the
entire amount in a lump sum, assuming it is vested.
Cash or Deferred Arrangement (CODA)
See Section 401(k) Plan.
cash-payment option
An option in life-insurance plans in which dividends are
paid in cash to the policyholder.
cash-refund option
An insurance option that states that if any proceeds remain
after the death of the beneficiary, the balance of the
benefits will be paid to the contingent payee in a lump sum.
cash surrender value
The amount of money due the policyholder if the policy is
surrendered to the insurance company.
cash surrender value option
An option allowing the policyholder to discontinue premiums
and surrender the policy, receiving the cash surrender
value.
cash value
The amount of money due the policyholder if the insurance
policy is lapsed or cancelled.
ceding company
In a reinsurance deal, the original insurer who purchases
reinsurance.
certain payment
A payment that will be made regardless of circumstances.
certificate of indebtedness
A certificate given to the beneficiary of an insurance
policy, stating the minimum interest rate and frequency of
payments under the interest settlement option.
certificate of insurance
A certificate specifying the type and amount of insurance
coverage as well as the beneficiary.
cession
The portion of insurance that is ceded to a reinsurer.
change-of-condition provision
A provision stating that the policy will not become
effective unless all conditions in the application are still
true and valid at the time the policy is delivered.
change of occupation provision
A provision allowing the insurance company to change
benefits or premiums if the insured changes occupations.
claim
A request by the insured or someone connected with the
insured (healthcare provider) for the insurance company to
pay for the loss incurred.
claim administration department
The department in an insurance company that processes
claims.
claim examiner
An employee of the insurance company who examines all claims
for validity, and approves or denies payment accordingly.
claim frequency rate
The percentage of insureds who file claims, or the number of
claims filed over a set period; this is used to calculate
premiums.
claim management
See case management.
claimant
The individual or party requesting payment of benefits
according to the insurance policy.
class beneficiary designation
The beneficiary is designated as a group instead of naming
each person separately, such as children.
clean-up fund
A life insurance benefit used to pay expenses and
outstanding debts, in case of death.
closing
The process of finalizing the purchase of insurance or other
financial products, by having the purchaser read and sign
the final documents as well as any other legal details.
COBRA (The Consolidate Omnibus Budget
Reconciliation Act of 1985)
Federal law that requires companies with 20 or more
employees to offer individuals who would otherwise lose
their insurance coverage (i.e., through termination) the
option to continue their group healthcare coverage. Also,
some states require that smaller companies, with as few as
two employees, offer the ability to extend their coverage.
CODA (Cash or Deferred Arrangement)
See Section 401(k) Plan.
coinsurance
The percentage of expenses that the policyholder must pay
after the deductible has been paid in full. In some cases, a
co-payment is used instead.
coinsurance provision
A provision requiring the insured to pay coinsurance on
certain expenses.
COLA (cost-of-living adjustment)
Increases in benefits based on increases in the cost of
living.
combination clause
A clause in disability insurance stating when the definition
of total disability changes from the inability to perform
the current occupation to the inability to perform any
occupation.
combination plan
A pension plan in which part of the funding is allocated and
part is not; the unallocated portion is placed in a
conversion fund for later use.
commission
The fee, generally a percentage of the premium amount, paid
to an insurance agent for selling a policy.
common-accident provision
A provision within insurance policies stating that if two or
more members of a family are injured in a single accident,
they pay a single deductible between them, instead of the
separate deductibles.
common-disaster clause
An insurance provision requiring the beneficiary to survive
the insured by a certain length of time in order to receive
the policy benefits.
community rating
Using the same premium rates for a specific group without
considering loss experience.
comprehensive major-medical insurance
Health insurance that includes the benefits of a
major-medical policy and a hospital-expense policy.
conditionally renewable policy
An insurance policy that the insurer can refuse to renew for
predetermined reasons.
confirmation certificate
Certificate provided to a beneficiary, stating the amount of
insurance proceeds, current interest rate, and other account
information.
conservation
The attempt by an insurance company to prevent policies from
lapsing.
Consolidated Omnibus Budget
Reconciliation Act of 1985
See COBRA.
consumer report
A report on an individual's credit history or other personal
information; regulated under the Fair Credit Reporting Act.
consumer-reporting agency
A company that generates consumer reports.
contestable period
The length of time during which an insurer can challenge the
validity of an insurance policy.
contingencies
Events that affect risk that may or may not occur.
contingent beneficiary
See secondary beneficiary.
contingent payment
A payment made only if a certain condition is met.
continuous premium life insurance
See straight-life insurance.
contract of adhesion
An agreement prepared by one side, which is either accepted
or rejected by the other side. There is no bargaining.
contribution limit
Maximum legal limit on any contribution to an employee
benefit account.
contributory group insurance
Group plans in which the insured individuals pay a portion
of the cost.
contributory plan
Any plan in which the participants pay a portion of the
cost.
conversion privilege
The right to convert from group to individual coverage; this
generally occurs when the person in question leaves the
group that was supplying group coverage.
convertible term insurance
Term insurance that may be converted to whole life insurance
by the policyholder without having to update or show new
evidence of insurability.
coordination-of-benefits clause
A provision in insurance policies stating benefits will not
be paid if another insurance policy has already covered the
expenses.
co-payment
Similar to coinsurance in that the policyholder must pay a
portion of the expenses in the form of a flat fee, such as a
set co-payment for doctor visits.
cost-of-living adjustment
See COLA.
credibility percentage
The consideration given to actual claim experience in
determining future claims or dividends.
credit life insurance
Insurance meant to pay off a loan if the insured dies before
it is repaid.
current review
The monitoring of the insured's treatment while in a
hospital or other medical facility to determine if continued
care is necessary.
current settlement option rates
Settlement option rates based on interest rates currently
earned by the insurance company.
curtailment
A change to a plan that reduces benefits or contributions.
death benefit
The amount of money paid to the beneficiary upon the death
of the insured.
decline
A refusal by an insurance company to grant insurance
coverage.
decreasing term insurance
Insurance in which the amount of coverage decreases during
the term of coverage.
decrement
A reduction in the number of participants in an
employee-benefits plan.
deductible
The amount of covered expenses the insured must pay before
any benefits are received from the insurance company.
deferral date
A date occurring after the normal premium due date
(generally on the one-year anniversary of issue) when the
premiums for the next year are due.
deferred annuity
An annuity in which the initial payment is postponed.
deferred compensation plan
A compensation plan in which benefits, such as retirement
benefits, are paid at a later time.
deferred premiums
Premiums that are deferred until a date later than the
normal due date (generally the one-year anniversary of
issue).
defined benefit formula
A formula used to determine the benefits due each
participant in a defined benefit plan.
defined benefit plan
A group benefits plan that pays benefits based on a
prespecified formula.
defined contribution formula
A formula used to determine the amount of contributions made
toward a group benefits plan
defined contribution plan
A group benefits plan in which the amount of employer
contributions made is defined according to a set formula.
denial of claim
Refusal by an insurance company to pay for services
obtained, such as a hospital visit.
dependent
An individual who relies on someone else for support.
dependent life insurance
Life insurance covering dependents of the primary insured.
deposit term insurance
A form of insurance with much larger premiums the first year
than in subsequent years.
deviated rate
A premium rate that is above the prima facie rate.
diagnostic related groups
A payment system in which benefit payments are based on the
individual diagnosis of a patient instead of the actual
medical service received.
direct response marketing
A way in which insurance carriers sell directly to the
customer without using insurance agents, generally through
direct mail, telephone, or media advertisements such as
television commercials.
disability
Inability to work due to an injury or sickness.
disability benefits
Benefits paid while the insured is disabled.
disability income insurance
Insurance that provides a percentage of regular income to an
individual who has become disabled and is unable to work.
disabled life annuity
An annuity paid as long as an individual is still alive and
disabled.
disintermediation
Removal of an intermediary in order to earn higher profits,
such as an insurance carrier selling directly to the
customers without using independent insurance agents.
dividend
A payment made to an insured by the insurance company that
reflects excess premiums.
dividend accumulations
The accumulation of funds when the policyholder leaves
dividends on deposit with the insurer; often done to
increase interest earnings from the insurer's investments.
dividend options
The options policyholders have in selecting how they will
receive their shares of dividends from the insurance
company.
doctrine of reasonable expectations
Court rulings stating that the reasonable expectations of
policyholders and their beneficiaries will be honored even
if the insurance policy does not support them. These serve
to eliminate fine-print clauses that alter the meaning of
the policy from what the insured was lead to believe.
double indemnity
A doubling of the basic death benefit if the insured's death
is precipitated in a certain manner, most often through an
accident.
drinking criticism
Evidence that the insured is suffering from alcohol or drug
abuse.
early retirement age
An age earlier than the normal retirement age at which time
the participant can receive benefits. such as pension
benefits, although they may be reduced.
election period
A 60-day period following notification of an insured's
eligibility for COBRA continuation coverage, during which
the individual can accept or decline the coverage.
eligibility period
For group health insurance, the period of time in which a
new employee may enroll in the group coverage.
eligibility requirements
Requirements for joining a group health-insurance plan or
another insurance/financial plan.
employee assistance programs
Employee counseling services that are often fully
confidential and can cover a wide range of mental-health
issues.
Employee Retirement Income Security Act
of 1974
See ERISA.
endorsement
See rider.
endorsement method
A method of changing the beneficiary of an insurance policy
in which the policyholder notifies the insurance company and
an endorsement is added to the policy.
enhancement type policy
Life insurance in which a portion of the dividends paid for
term insurance guarantee a preset total death benefit.
enrolled actuary
An actuary who is a member of the Joint Board for the
Enrollment of Actuaries, a federal agency.
entire contract provision
An insurance provision stating that the policy itself and
any attachments are the whole agreement between the
policyholder and the insurance company; nothing else is
relevant.
EPO (Exclusive Provider Organization)
A health system in which any physician within the contracted
network can be visited without prior approval or referrals
by the insurance company or a primary-care physician. No
services received outside the network, however, are covered.
Equity-based insurance product
Insurance in which the benefit levels are based on a
portfolio of equity investments and may change over time
depending on the performance of the investments.
equity pension
Pensions in which the benefit levels are based on a
portfolio of equity investments and may change over time
depending on the performance of the investments.
equivalent single payment
A single payment that replaces others of equal combined
value.
equivocal suicide
A suicide in which there is doubt as to the intention of the
deceased to die.
ERISA (Employee Retirement Income
Security Act of 1974)
A federal law guaranteeing the rights of pension plan
members, rules and standards for investing pension plan
assets, and requirements for disclosing plan funding and
provisions.
error and omissions insurance
Insurance that protects the insured from injurious actions,
such as negligence, by an agent.
evidence of insurability
Evidence that an individual's risk falls within an insurable
range.
excess interest
Interest paid above the guaranteed amount during a
settlement.
exchange program
A program permitting the insured to replace one policy with
another one without having to show new or updated evidence
of insurability.
exclusion
Specific conditions, causes, or issues listed in the policy
that are not covered by an insurance policy.
Exclusive Provider Organization
See EPO.
Exoneration statutes
Statutes that prevent the insurance company from incurring
liability in cases in which a conflict in policy claims has
arisen after the insurance company has paid the claims to a
party in good faith.
experience rating
The use of a group's history of premiums and claims to
calculate premium rates. (A history of high claims, for
example, could result in increased premium costs.)
experience refund
A refund of premiums when the claims experience proves to be
superior to that used when the premium was calculated.
expiration date
The date when an insurance policy ends.
express authority
The authority a principal explicitly grants an agent.
face amount
In a life-insurance policy, the amount to be paid to the
listed beneficiary upon the death of the insured.
factor table
An underwriting tool used to determine net worth through the
practice of multiplying annual income by various factors to
find the maximum amount of insurance available.
Fair Credit Reporting Act
See FCRA.
family deductible
A single group deductible covering all insurance policies
within a family instead of multiple separate deductibles.
family insurance policy
A single life-insurance policy that covers all members of a
family.
federally qualified HMO
An HMO that meets the requirements of the Health Maintenance
Organization Act of 1973. Under the law, these HMOs receive
advantages, such as eligibility for federal loans.
FCRA (Fair Credit Reporting Act)
Federal law requiring consumer-reporting agencies to be
impartial and maintain the consumer's right to privacy.
fee for service
See indemnity.
fee schedule
A list of dollar amounts paid for certain procedures.
fee schedule basis
Compensation plans in which physicians or health-service
organizations are paid a set amount per service, according
to a fee schedule.
fiduciary
A person or organization that manages or controls money or
financial assets belonging to others, or that offers
financial advice for a fee.
field office
A local sales office.
final average benefit formula
Formula by which retirement benefits are calculated, based
on an average of the last few years of employment.
financial institution
Any organization, such as a bank or insurance company, that
accepts and pays out money in a situation in which fees or
interest are paid for the use of money.
financial settlement
A lump sum paid to the insured that ends the insurer's
responsibilities under the policy.
fire insurance
Insurance coverage for losses resulting from fire.
first-year commission
Commission paid to an insurance agent based on the amount of
the premium the first year the policy is in effect.
fixed-payment option
An insurance settlement option in which the beneficiary is
paid in installments until the proceeds from the policy and
any interest run out.
fixed-period option
An insurance settlement option in which the beneficiary is
paid in a series of payments instead of a single payment.
flat amount formula
A method of determining benefits by which all participants
receive a flat, periodic benefit amount, such as $1,000 a
month.
flat percentage of earnings formula
A method of determining benefits by which participants
receive a percentage of pre-retirement compensation, or in
the case of disability, predisability income.
flexible
benefits plan
An employee benefits plan in which the employees have
several options as to the type or amount of benefits. Also
called a cafeteria plan.
foreseeability
The reasonable expectation that an injury or harm will occur
to the insured.
forfeiture
The unvested portion of a pension or other financial plan
that remains after a participant withdraws from the plan.
fractional premiums
Premiums that are paid in installments through the year
rather than in total once a year.
fraudulent claim
A claim in which the claimant knowingly uses false
information in order to collect on the policy.
free examination period
The period of time during which the policyholder can return
the policy for a full refund of any premium paid.
full-service plan
Health insurance plan that pays the full cost, provided it
qualifies as reasonable and customary.
fully contributory
A situation in which the insured individual in a group plan
pays the entire cost of the insurance.
funding agency
The group that holds the assets (money) of a pension plan or
other financial plan.
funding deficiency
See accumulated funding
deficiency.
future service
The prospective service an employee will give to the
employer following entrance into a pension plan until the
normal date or retirement.
future-service benefits
Benefits provided in exchange for service in the future.
GAAP (generally accepted
accounting principles)
Accounting principles used by the majority of companies in
the United States.
generally accepted accounting principles
See GAAP.
good-health provision
A provision stating that the insurance policy is void if the
applicant was not in good health at the time the policy was
signed or delivered.
grace period
The period of time after a premium due date has passed
during which the policy remains active even though payment
has yet to be made.
graded premium whole life insurance
Whole life insurance in which premiums increase at specified
times until they reach a preset maximum level where they
then remain.
gross premium
The total amount the policyholder pays for insurance,
including premiums and any additional expenses.
group deferred annuity
An annuity plan in which deferred annuities are purchased to
provide retirement benefits for the participants of the
group plan.
group insurance
An insurance contract that provides coverage to a group.
guaranteed issue limit
The maximum amount for which an insurance company will
insure an individual without receiving information
concerning their insurability; used in group insurance.
guaranteed-insurability rider
An addendum to an insurance policy that allows the
policyholder to purchase additional insurance at a preset
rate at preset times without having to show updated evidence
of insurability.
guaranteed-issue insurance
Group insurance in which all members of the group who meet
certain conditions automatically receive coverage without
individual underwriting.
guaranteed-renewable policy
An insurance policy that states that the policy will
continue to be renewed for a set period of time.
guaranty association
An organization whose purpose is to protect policyholders in
the event an insurance company becomes insolvent.
Health-care decision counseling
Counseling services that assist people in making informed
decisions concerning medical tests and treatment; these are
sometimes provided by insurance companies.
health insurance
An insurance policy that protects the insured in case of
illness or injury, and that pays for the appropriate medical
treatments required, based upon limits established within
the individual policies.
Health Insurance Portability and
Accountability Act of 1996
See HIPAA.
health maintenance organization
See HMO.
HIPAA (Health Insurance
Portability and Accountability Act of 1996)
Federal law that protects health coverage when the insured
changes or loses a job. This is done by guaranteeing
portability – defined in this case as using previous
health coverage (the coverage possessed before leaving
employment) to reduce or eliminate any preexisting-condition
exclusions that may apply under future insurance plans. This
does not mean current coverage is maintained after leaving
employment, although various state laws allow for coverage
to continue on a temporary basis.
history statement
Physician's statement regarding the health history of the
insured.
HMO (health maintenance
organization)
An insurance plan in which individuals or their employers
pay a fixed monthly fee for service regardless of the amount
of medical costs incurred. To receive the benefits, however,
the insured must use a primary-care physician within the
system for all initial treatments except in life-threatening
emergencies. Hospitals or specialists must be recommended by
the primary-care physician and be within the HMO network.
hold-harmless release
A release stating that the payee of a claim will reimburse
the insurance company if another claimant appears and
successfully challenges the initial disbursement of
benefits.
homeowner insurance
Insurance covering the risks of owning a home, such as fire
or vandalism.
hospital confinement insurance
A form of health insurance that provides a preset benefit
amount for each day spent in a hospital, regardless of the
actual medical expenses incurred.
hospital expense insurance
Health insurance that provides benefits directly connected
to the cost of hospitalization, such as surgery, outpatient
care, nursing home or convalescent care, and physician fees
incurred while in a hospital.
hour of service
Defined under ERISA, as an hour for
which an employee is paid or is due to be paid.
illness perils
A classification used to evaluate types of danger (perils)
in a certain occupation, such as exposure to poisons,
chemicals, or extreme temperatures.
immediate annuity
An annuity in which payments begin in the first period after
purchase.
impairment
An aspect of health or lifestyle, including occupation, that
could affect mortality.
impairment rider
A health-insurance rider limiting coverage for a specific
health condition.
implied authority
Authority a principal intends for the agent to possess but
that hasn't been expressly granted.
incentive coinsurance provisions
Provisions granting incentives to perform certain acts, such
as taking preventative medicine, in order to have the
insurer pay a higher proportion of expenses.
incident of ownership
Any policy right, such as the right to assign the coverage,
cancel the policy, or change the beneficiary.
income-replacement ratio
Percentage of pre-retirement income needed to maintain the
same standard of living after retirement. This is less than
the pre-retirement income, due to a decrease in taxes and
other expenses after retirement.
incontestable clause
A provision in the insurance policy that defines a time
limit, generally two years, after which the insurance
company agrees not to dispute the validity of the policy.
increasing term insurance
Term insurance in which the death benefit increases over
time, either at preset points or based a formula, such as
cost of living.
indemnity
An insurance health plan that allows absolute freedom in
selecting physicians or medical facilities, and, unlike
other health plans, self-referral to a specialist. A yearly
deductible must be met before coinsurance is paid by the
insurance company, and coinsurance is set at a predetermined
rate in which the insurance company pays that percentage of
costs. Also called fee for service.
indexed life insurance
Life insurance in which the premium rate and death benefit
both rise annually based upon the Consumer Price Index.
individual insurance
Insurance issued to a single individual.
individual retirement account
See IRA
initial premium
The first payment for an insurance policy.
inspection report
An investigative report from a consumer-reporting agency on
the insured's lifestyle, occupation, and other indicators of
economic standing.
installation
Administrative activities that take place between the
decision to purchase an insurance policy and the issuing of
the policy.
installment certificate
A certificate given to the beneficiary of an insurance
policy stating the benefit payment information.
installment refund option
An insurance option that states if any proceeds from a
policy remain after the beneficiary's death, they will be
paid to the contingent payee in a series of installments.
insurability provision
An insurance provision stating that the policy will not
become effective unless the insured is still considered
insurable at the time of delivery.
insurability statement
A statement ascertaining if there have been changes in
insurability between the time of application and policy
issue.
insurable interest
A valid concern for the person applying for the insurance
policy that is required by law. The insured person must
suffer a loss if the event insured against occurs.
insurance
Protection against loss in which premiums are paid in
exchange for benefits should a loss occur.
insurance agent
A sales representative of an insurance company.
insured
The policyholder or party protected by the insurance policy.
insurer
The insurance company or party that provides the insurance
policy.
insurer-administered group insurance plan
A group insurance plan in which the insurer handles all
administrative work.
integrated deductible
A deductible that can be satisfied by payments in another
portion of the plan. (For example, if a person pays the full
deductible in a basic medical plan, the deductible in the
hospital plan is considered paid.)
interest option
An insurance option in which the policy proceeds are left on
deposit for a set period of time and the interest from those
proceeds is paid to the beneficiary. After the period of
time has elapsed, the policy proceeds are paid.
interim
insurance agreement
An agreement that provides temporary insurance for a short
period of time, such as during the period in which regular
insurance is being written. Also called temporary insurance
agreements.
internal replacement
Surrendering one insurance policy in order to buy another
one from the same insurer.
interpleader
Claim settlement in which the insurance company turns the
proceeds over to a court, with the understanding that the
court should decide who is the proper recipient.
investigative consumer report
A consumer report that involves interviews with
knowledgeable parties in order to gather information.
investment-sensitive insurance
Insurance in which the benefits are based on the insurer's
investment earnings, generally with a guaranteed minimum.
involuntary plan termination
The termination of a pension plan by a party other than the
plan sponsor, generally a governmental organization.
IRA (individual retirement
account)
A savings plan in which participants can make pretax
deposits into an investment account.
irrevocable beneficiary
A beneficiary who cannot be removed later by the
policyholder, without the beneficiary's consent.
issuing bank
A bank that sells and issues insurance policies in its own
name.
joint and survivor annuity
Annuities in which payments are made to multiple annuitants
and which continue until all annuitants are deceased.
joint and survivorship option
Insurance settlement option in which payments are made to
multiple parties and continue until all parties are
deceased.
joint whole-life insurance policy
A single insurance policy that covers two individuals and
usually pays the proceeds when the first insured individual
dies.
juvenile insurance policy
An insurance policy on a child.
Keogh Act (Self-Employed
Individuals Tax Retirement Act of 1962)
A federal law allowing self-employed individuals to save
money for retirement by depositing money in a
government-approved account that is managed by a financial
institution; similar to a Section 401(k) Plan.
key-person insurance
Insurance designed to protect a business firm against the
loss of business income resulting from the disability or
death of an employee in a significant position.
lapse
Termination of an insurance policy because premiums were not
paid on time.
late-remittance offer
An offer by the insurance company to accept overdue
premiums, even if past the grace period, without requiring
additional applications or paperwork in order to reinstate a
lapsed policy.
legal-actions provision
Restrictions in an insurance policy concerning when a
claimant may sue to collect a disputed claim amount – the
minimum waiting period before suing is allowed and the
cutoff point when it is no longer permitted.
length of stay
Amount of time spent in a hospital or other medical
facility.
level-commission schedule
A commission schedule that has the same commission rate for
all years of the policy.
level-premium annuity
A deferred annuity in which equal premium payments are made
over time, such as annually, until the benefit payments are
to begin.
level-premium system
Pricing system in which premiums remain the same for the
life of the policy.
level premiums
Premiums that remain the same for the life of the policy.
level term insurance
Insurance in which the benefits remain the same over the
specified period.
liability insurance
Insurance providing coverage for those who have been found
to have legal responsibility for injuring others or their
property.
life annuity
An annuity made for the length of the annuitant's life.
life annuity with period certain
A life annuity that will continue to pay the annuity to
another person selected by the annuitant if the annuitant
should die; these payments continue for the length of a
pre-selected period.
life income option
An insurance option in which the beneficiary is paid in
equal payments for the length of the beneficiary's life.
life insurance
Insurance that protects against economic loss by paying a
specified sum to beneficiaries upon the death of the
insured.
lifetime maximum
Under an insurance policy, the maximum amount paid for the
insured while under the policy.
limit
Maximum amount a policy will pay.
limited-coverage policy
An insurance policy covering only specific illnesses, such
as cancer.
limited-payment whole life insurance
Whole life insurance that does not require premiums to be
paid during the entire life of the insured; premiums stop at
a set point, but coverage remains.
living-benefit rider
An insurance rider specifying that, under certain
circumstances such as terminal illness, the insured can take
a portion of the death benefit before death.
long-term-care policy
A benefits plan that provides a specific dollar benefit or a
percentage of expenses charged for nursing home care, home
health-care, and adult day care if a covered person suffers
a loss of functional or cognitive capacity.
long-term disability
Disability lasting for an extended period of time as defined
in the insurance policy.
long-term disability insurance
Insurance plans that provide income for an individual who
has become disabled and is no longer able to work. The
compensation provided is either a flat amount or based on a
percentage of the regular income.
loss ratio
The ratio of claims to premiums (claims divided by
premiums).
maintenance expenses
Costs involved in maintaining a policy, including
processing, making dividend payments, and the time
customer-service personnel spend assisting policyholders.
major-medical insurance
Medical insurance covering the majority of expenses
associated with illness or injury.
managed care
A system of medical care that attempts to reduce costs while
providing quality care under the control of the insurance
company. (HMOs and PPOs are examples of managed care.)
mandated benefit
A benefit required by state or federal law that must be
included in an insurance policy.
manual rates
Preset rates used for broad groups when there is no history
concerning a particular insured group.
master policy
The contract between an insurance company and a
group-insurance policyholder that provides insurance for
more than one person.
matching contributions
Contributions by the employer made to an employee-benefits
plan, such as a 401(k), that match the employee
contributions at a set percentage.
material fact
Any relevant fact related to underwriting decisions
concerning policies.
material misrepresentation
False statements by an applicant or policyholder that affect
whether or not the insurer will accept the risk and issue a
policy.
matured endowment
An endowment insurance policy that is payable due to having
reached the end of its term.
maximum benefit
The largest benefit amount available to a plan participant.
IRS regulations determine this amount.
maximum benefit period
Maximum period of time during which benefits are paid.
maximum dollar limit
Maximum amount of money that will be paid for claims during
a set period of time (one year, lifetime, etc.).
Medicaid
A governmental program that provides medical coverage for
people under 65 who meet certain requirements.
medical application
An insurance application requiring medical tests or an
examination.
medical-expense insurance
Health insurance covering all or a portion of medical
expenses.
medical report
A physician's report on the insured's health.
Medicare
A governmental program providing medical coverage for people
65 and over who meet certain requirements.
Medicare supplement
Supplemental medical-expense coverage providing benefits for
expenses not covered by Medicare.
minimum deposit arrangement
A system in which the policyholder can apply the initial
year's cash value of an insurance policy to the premium
amount of that same year.
minimum service requirement
Requirements that employees be employed for a set amount of
time before being eligible to join a group plan.
misquote
An error in estimating the insurance premium.
misrepresentation
False or misleading statements on the part of the insurance
company or the applicant to sway the other into accepting a
policy.
misstatement-of-age provision
A provision in an insurance policy that delineates the
results if it is learned that the insured has misstated
their age in the application. (Age is often a significant
factor in the calculation of premiums and benefits.)
mode of premium payment
The timing in which premiums are paid, such as monthly or
annually.
modified net premiums
Net premiums that do not remain the same throughout the life
of the policy. (They are generally lower in the first year.)
modified premium life insurance
A method generally used in whole life insurance in which the
premiums for the first few years are lower than normal, and
the premiums for the years following are higher than normal.
money purchase pension plan
A pension plan in which the participant contributes a set
percentage of income. Benefits equal the contributions plus
gains from investment.
monthly outstanding balance method
A method of paying the premium in monthly installments.
moral hazard
Risk that an applicant for insurance will intentionally lie
or conceal information that is pertinent to the policy.
morbidity
Illness or disability.
morbidity rate
The likelihood that an individual in a specific group will
become ill or suffer a disability. (This is used to
determine premiums for that specific group.)
morbidity table
A chart showing morbidity rates generally based upon age.
mortality curve
The difference in mortality rates related to age (often
shown as a line graph).
mortality experience
The actual number of deaths for a particular group.
mortality rate
The frequency of death within a particular group.
mortality table
The difference in mortality rates related to age (often
shown as a chart).
mortgage-redemption insurance
Insurance that pays the remaining mortgage on the insured's
home in case of death.
multi-employer plan
Pension or other benefits plans involving more than one
employer, so that if an employee moves to another employer
in the plan, their coverage continues unabated.
multi-employer trust
Insurance plans that cover the employees of multiple
employers.
mutual-benefit method
A method of funding life insurance in which the members of a
group are each charged an equal fee upon the death of one
member to cover the death benefit. (This is rarely used now
except for some fraternal orders.)
mutual insurance company
An insurance company owned by the policyholders instead of
stockholders or other individuals.
NAIC (National Association
of Insurance Commissioners)
An association of state insurance commissioners established
in order to create consistent insurance regulations.
National Association of Insurance
Commissioners
See NAIC.
national brokerage houses
Independent companies that provide advice in risk management
and employee benefits.
National Organization of Life and Health
Guaranty Associations
See NOLHGA.
needs analysis
Analyzing the customer to determine his or her insurance
needs.
net premium
The amount of money that must be collected in order to meet
the benefits to be paid.
net single premium
The amount of money that must be collected at the time of
issue in order to meet the benefits to be paid later
(present value of expected benefits).
NOLHGA (National
Organization of Life and Health Guaranty Associations)
An organization made up of state guaranty associations that
provides information and resolves issues resulting from the
insolvency of insurers licensed in multiple states.
nonadmitted reinsurer
A reinsurer who is not licensed to
operate in a specific area.
noncancellable and guaranteed-renewable
policy
An insurance policy in which the insurance company can
neither raise premiums nor terminate the policy.
noncontributory group insurance
Group insurance in which the entire premium is paid by the
group policyholder, and participants pay no portion of the
insurance premium.
noncontributory plan
A plan in which all contributions are made by the sponsor
and nothing is paid by the individual participants.
nonelective contributions
Non matching employer contributions to a group plan, such as
a 401(k).
nonmedical application
An insurance application that does not require a medical
examination.
nonmedical supplement
A supplemental report outlining the applicant's health
history.
nonparticipating policy
A policy or annuity in which the policyholder does not
receive dividends.
nonqualified annuity
An annuity funded with money that has already been taxed.
nonqualified deferred compensation plan
Benefits plan that does not meet the legal requirements to
be pretaxed like a qualified plan.
nonretroactive disability benefits
Disability benefits that are paid only after a set length of
time following the time the disability occurred.
normal cost
The amount needed to cover a single year of retirement
benefits for a plan participant or for a plan itself.
normal retirement age
The age at which a participant can retire and receive full
benefits.
numerical rating system
A system of ranking risk in which numerical values are
assigned to various factors according to their impact on
mortality.
occupation class
A group of occupations that present a similar level of risk.
option
Any choice or decision that policyholders can make
concerning settlements, dividends, or other aspects of the
policy.
optionally renewable policy
An insurance policy that can be renewed only if the insurer
chooses to do so.
ordinary life insurance
Life insurance with monthly premiums and unlimited (within
reason or legal constraints) maximum death benefits.
outliers
Patients with unique conditions or illnesses that cannot be
classified under the standard groups.
out-of-pocket maximum
A preset amount that the plan participant must pay before
the insurance company pays 100% of the expenses.
outpatient
Healthcare services that do not involve an overnight stay in
a hospital or other medical facility.
overinsurance
Coverage exceeding the probable loss to which it applies.
overinsurance provision
Provisions stating that, in some cases, benefits will be
reduced if a condition of overinsurance exists.
overlined
A situation in which an insurance company has accepted a
level of insurance above its capacity at a certain risk
level.
paid-up policy
An insurance policy that still provides benefits even though
all premiums have been paid.
paramedical report
Any medical report created by medical personnel other than a
physician. (They are often used as part of an insurance
application.)
partial disability
A disability that affects some but not all duties or that
affects the amount of time the individual can work (from
full-time to part-time).
partial
disability benefit
A benefit, generally a portion of the full disability
amount, paid when the insured suffers a partial disability.
Also called residual disability benefit.
partial-plan termination
Termination of an employee-benefits plan or pension for some
participants but not all.
partial-surrender
provision
A provision in an insurance policy that allows the
policyholder to take a certain amount of cash from the
policy's cash value, thus decreasing the cash value. Also
called a withdrawal provision.
participating policy
An insurance policy in which dividends are paid to the
policyholder.
past service
The amount of service an employee gives before a pension
plan is instituted or before the employee enrolled.
payee
The person to whom benefits are payable.
payroll-deduction plan
Premium payment plan in which the premium amount is deducted
from the employee's paycheck.
PCP (primary-care provider)
The healthcare professional who is the first source for
overseeing an individual's medical needs. (The PCP refers
the individual to specialists or hospitals as needed.)
peer review group
Local groups of physicians or medical experts who promote
ethical practices in their industry.
pension
Income paid to a person who has retired for the remainder of
their life.
Pension Benefit Guaranty Corporation
The organization that insures benefits in defined benefit
pension plans and guarantees that benefits will be paid
regardless of what happens to the pension fund.
pension fund
The institution that manages the assets used to pay
pensions, or the assets themselves.
per-capita beneficiary designation
A group of beneficiaries among whom only those who survive
the insured will collect on policy proceeds.
per-cause deductible
A deductible that must be met for each separate illness or
injury before insurance benefits are paid.
per-cause maximum
The maximum amount of money a medical-expense policy will
pay for any particular illness or injury.
peril
The cause of damages or a loss, such as a flood or theft.
period certain
The period of time during which an insurance company
guarantees that benefits will continue to be paid.
permanent and total disability
A medical condition that prevents any return to employment.
per stirpes beneficiary designation
A system under which the beneficiary's descendants will
receive the beneficiary's share of the insurance proceeds,
if the beneficiary dies before the insured.
physical examination provision
A provision that allows the insurer to have the insured
examined by a doctor of the insurer's choice at the
insurer's expense.
plan document
A document outlining the terms of an employee-benefits plan.
plan participant
An individual taking part in a plan who shares in the
responsibilities and benefits listed in the plan.
plan sponsor
The party that maintains a plan, such as a pension plan.
point-of-service program
(POS)
Healthcare delivery method offered as an option of an
employer's indemnity program in which employees coordinate
their healthcare needs through a primary-care physician.
policy
A written contract of insurance.
policy anniversary
The annual anniversary of the date on which a policy was
issued.
policy fee
An additional cost added to the premium to cover expenses.
It is a set fee that is not based on policy size.
policyholder
The party or individual who owns an insurance policy
(contract).
policy limit
The maximum amount a policy will pay.
policy loan
A loan made to a policyholder by the insurer and secured by
the policy's cash value.
policy proceeds
The amount of benefits the beneficiary receives after all
adjustments, fees, and other factors are taken into
consideration.
policy provisions
Statements describing the operation of the policy.
policy summary
A summary of the policy, containing any data required by
law, that is given to the applicant during the application
process.
policy year
A single year, beginning when the policy is issued.
pooling
The combination of several small groups into one large group
for insurance purposes, such as obtaining lower premiums or
more group benefits.
portability
The ability to transfer benefits from one plan to another or
from one employer to another.
portfolio
The collection of products offered by an insurance company.
POS.
See point-of-service program.
post notice
A requirement under the Fair Credit Reporting Act that if an
insurance company makes an adverse decision concerning an
applicant based on information obtained from a consumer
reporting agency, they must notify the applicant of this.
power of agency
The agent's right to act on behalf of an insurer.
PPO (preferred provider
organization)
A managed-care system in which the insured can choose from a
network of healthcare providers for medical attention, or
the insured can go outside the group. A discounted fee is
available for insureds who use the listed healthcare
providers.
pre-admission review
Prior authorization from the insurer is required before an
insured can be admitted to a hospital, except in emergency
situations.
pre-admission certification
Written approval by the insurance company or representative
for an insured to be admitted to a hospital or other medical
facility.
pre-authorized payment system
A form of payment in which the insured authorizes both the
bank and the insurance company to allow automatic
withdrawals of an account in order to pay premiums.
predetermination of benefits provision
A provision stating that in situations in which costs will
exceed a certain amount, the medical provider must submit
treatment plans to the insurer before any services are
undertaken in order to determine what amount is payable by
the insurance plan.
preexisting condition
A medical condition that existed prior to obtaining
insurance.
preexisting-conditions provision
A provision in an insurance plan that states that medical
expenses relating to preexisting conditions will not be
covered until the insured has been enrolled in the plan for
a certain length of time.
preference beneficiary clause
A clause stating that if no specific beneficiary exists, all
benefits will be paid in a preset order according to lists
of individuals within the policy.
preferred provider organization
See PPO.
preferred risk class
A risk class whose expected mortality is below that of the
standard risk class.
premium
Payment charged by an insurance company to establish and
maintain an insurance policy.
premium deposits
Funds deposited with the insurance company to cover future
premiums.
premium-reduction option
An insurance option in which dividends are applied toward
premiums to reduce their amounts.
pre-notice
A requirement under the Fair Credit Reporting Act stating
that insurance companies must inform applicants that
consumer reports on them may be produced.
presumptive disability
A condition, such as total blindness, that automatically
results in the individual being classified as totally
disabled.
prima facie rate
Standard premium rates suggested by government regulators.
primary beneficiary
The beneficiary with the first right to collect on policy
benefits.
primary-care provider
See PCP.
principal
The person or group authorizing another, the agent, to act
on their behalf.
proceeds
The money the insurance company pays for insurance policies
or annuities.
providers
The physicians, nurses, hospitals, and others who perform
healthcare services.
proximate cause of death
The event that is responsible for the death in question.
qualified annuity
A form of annuity in which the money funding the annuity is
deductible from the gross income.
qualified domestic-relations order
A settlement in which a portion of a pension plan or other
employee-benefits plan is assigned to an alternate payee due
to issues arising from alimony, child support, or other
domestic matter.
qualified joint and survivor (QJ&S)
annuity
An annuity in which benefits continue to the spouse of the
plan participant even after the death of the participant.
These continuing benefits are often at a lesser rate than
the original annuity benefits.
qualified plan
Employee-benefits plans that meet federal requirements
allowing them tax advantages.
quote
Estimates of the cost of insurance, based on the initial
information given by the applicant.
rate making
The calculation of premium rates.
rate of return method
A method of comparing insurance policy costs by calculating
the interest rate.
rated policy
An insurance policy issued to an individual with
above-average losses. (These policies often have higher
premiums or certain exclusions that are not standard.)
reasonable-and-customary fees
The standard fees charged by physicians, hospitals, or other
healthcare providers. (These are often used as a base for
what an insurance plan will or will not cover.)
recording method
A method of changing the beneficiary of an insurance policy
simply by notifying the insurance company in writing.
recovery benefit
A benefit paid if an insured suffers a loss of income after
returning to work due to the earlier disability.
refund annuity
An annuity guaranteeing that at minimum the price of the
annuity will be paid out.
reinstatement
Restoring a lapsed policy and putting it back into force.
reinstatement provision
A provision stating the requirements the policyholder must
meet in order to have a policy put back into force if it has
been terminated as a result of not paying the premiums.
reinsurance
Transactions in which one insurance company buys insurance
from another company to help cover all or part of the risks
in the insurance policy.
reinsurance treaty
The agreement between the reinsurer and the ceding
company.
reinsurer
The insurance company that accepts the risk in a reinsurance
deal. Also called the assuming company.
relative value schedule
A schedule describing the cost of medical procedures as a
unit rather than a dollar amount. (A procedure with a value
of 50, for example, would be more expensive than a procedure
with a value of 40.)
renewal premiums
Premiums payable after the initial premium.
renewal provision
An insurance provision stating the guidelines that a
policyholder must meet to continue insurance coverage at the
end of the initial term, and what actions must be taken to
do so.
replacement
Surrendering an insurance policy in order to purchase a
different insurance policy.
replacement cost
The cost to replace an insured item.
representation
Statements by insurance applicants as to some past or
existing fact or circumstance. Such statements must be true
to the best of the applicant's knowledge and belief, but are
not warranted as exact in every detail.
rescission
The attempt by an insurer to void a policy due to material
misrepresentation on the insurance application.
residual disability benefit
See partial disability benefit.
resisted claim
A claim the insurer refuses to pay, but which is still being
contested.
result clause
A war-hazard exclusion in which benefits will not be paid
for losses resulting from war or related acts.
retention
In reinsurance, the amount of risk the ceding company
retains.
retention limit
The maximum amount of insurance an insurance company will
carry before ceding part of the risk to a reinsurer.
retired lives reserve
A fund used to provide employees with group life insurance
after they retire.
retroactive disability benefit
Disability benefits that are payable beginning at the time
of disability, but whose initial payment occurs after the
elimination period has expired.
retro premium
A premium rate set at the beginning of the payment period
but paid at the end only if claim experience justifies it.
This is in addition to a smaller base premium that is paid
at the beginning of the payment period.
revocable beneficiary
A beneficiary that can be dropped as beneficiary at any time
by the policyholder before the insured's death.
rider
A policy amendment used to change coverage. Also called an
endorsement.
risk
The chance of loss to the insurance company, such as the
insured being more likely to develop lung cancer because of
smoking.
risk class
A group of insured individuals who are of similar risk for
the insurance company, such as nonsmokers, substandard, etc.
second opinion
A medical opinion provided by a second physician or medical
expert after first receiving an opinion on the medical issue
by another physician or medical expert.
secondary beneficiary
The party who will receive insurance proceeds should the
beneficiary die before the insured person. Also called
contingent beneficiary.
Section 401(k) Plan
A tax-deferred investment plan generally used for retirement
purposes. Also called a Cash or Deferred Arrangement (CODA).
self-administered group insurance plan
A group insurance plan in which the policyholder performs
administrative functions, such as record keeping, request
processing, and address changes, instead of the insurer.