life Flashcards
1
Q
1035 exchange
A
Named for IRC Section 1035, an exchange of permanent life insurance or deferred annuity contracts that does not incur taxation.
2
Q
401(k) plan
A
One of the most popular types of qualified employer plans. 401(k)s are a form of defined contribution plan that allows both employer and
employees to contribute to the plan. Employees can defer part of their wages into the plan. These deferrals are not included in the employee’s
gross income. As a result, they are not taxed.
3
Q
403(b) plan
A
A retirement plan reserved for non-profit organizations and their employees. Both employer and/or employee contribute funds into the plan. The
funds are directed into individual accounts set up for each participating employee. The contributions are not taxable to the employee when they
are made. Rather, they grow tax-deferred until they are distributed. Also called a tax-sheltered annuity plan (TSA).
4
Q
457 plan
A
Qualified retirement plans reserved for employees of state and local government units. Under these plans, eligible employees are allowed to make
elective salary deferrals into the plan on a pre-tax basis. Earnings accumulate tax-deferred. Neither the contributions made to the plan nor their
earnings are taxed until they are withdrawn or distributed.
5
Q
7-pay test
A
To be considered a life insurance policy, the policy must meet the terms of this test. Applies specifically to the premiums paid into a contract during
its first seven years. If this amount exceeds the net level premiums that would have been required to produce paid-up future benefits (i.e., a paid-
up policy) after seven level annual payments are made, then the policy is a MEC.
6
Q
absolute assignment
A
The complete transfer of all rights in an insurance policy to a third party; giving up the control of all rights in an insurance policy.
7
Q
accelerated benefits
A
A benefit, provided through a policy provision or rider, that pays out part of a life insurance policy’s death benefit while the insured is still living if
the insured is terminally ill or suffers a disabling injury. Typically pays up to 50 percent of the face amount.
8
Q
acceptance
A
One of the three elements of a contract. Under common law, an offeree who wants to accept an offer must abide by any stipulations in the offer
and must accept every term of the offer.
9
Q
accidental death benefit rider
A
Designed to provide an additional amount of insurance if the insured dies as a result of an accident. The additional amount is typically double or
triple the amount of the base policy’s face value.
10
Q
accidental means
A
One of the ways in which an AD&D policy pays its benefit. (The other way is the accidental results requirement.) Requires both the cause and the
result of an accident to be by chance for the policy to pay the benefit.
11
Q
accidental results
A
One of the ways in which an AD&D policy pays its benefit. (The other way is the accidental means requirement.) Requires only that the death or
injury be accidental. The cause of the accident is not a factor.
12
Q
account contract fee
A
One of the three types of charges and fees common to variable annuities (the others are fund management fee and mortality and expense cost).
This charge is assessed every year by the insurer. It covers the cost of administering and handling the contract.
13
Q
accumulation option
A
A dividend option in which the insurance company holds the dividends in an interest-bearing account for the policyowner. The policyowner can
withdraw the accumulated dividends and interest at any time.
14
Q
accumulation period
A
In an annuity, the period during which premium funds are paid into the annuity contract.
15
Q
accumulation unit
A
The growth of a variable annuity’s funds or value during its accumulation period is measured in terms of accumulation units. When the annuity
owner makes premium deposits and allocates them among the contract’s subaccounts, they are used to buy accumulation units. These purchases
are then credited to the owner’s contract.
16
Q
AD&D policy
A
Accidental death and dismemberment insurance. These policies provide financial support if the insured dies or is dismembered from an accident.
AD&D policies are a form of limited risk policy.
17
Q
ADEA
A
Age Discrimination in Employment Act (passed in 1967, amended in 1986 and 1991). This Act makes it illegal to discriminate against those age
40 or older in employment practices.
18
Q
adjustable life insurance
A
A life insurance policy that lets the policyowner change the three elements of a life insurance policy as often as he or she wants: (1) premium, (2)
cash value, and (3) death benefit. In changing these three elements, the policy can function at any one time as a term life policy, an ordinary
whole life policy, or a limited payment life policy.
19
Q
admitted insurer
A
A company that has received a certificate of authority from the state. This certificate permits the company to transact insurance within the state. It
certifies that the company has met the state’s requirements for conducting the business of insurance. Admitted insurers are also called
“authorized insurers.”
20
Q
adverse selection
A
The tendency of those who most need insurance (most at risk) to buy insurance. Those who don’t have as much of a need for a particular type of
insurance (least at risk) are less likely to buy it.
21
Q
agent’s report
A
Includes information about the client that would be useful to the underwriter; written from the agent’s perspective.
22
Q
aleatory
A
In an aleatory contract, one party may receive a benefit that is out of proportion to the consideration he or she is giving. Receiving the
disproportionately large benefit depends on whether a chance event occurs.
23
Q
alien insurance company
A
A company that is incorporated in a country outside the United States and is doing business in the United States
24
Q
annually renewable term (ART) life insurance
A
The most basic type of term life insurance, which must be renewed annually (with a corresponding increase in premium reflecting the insured’s
increased age).
25
annuitant
The person an annuity owner chooses to receive the periodic annuity payments when the contract annuitizes.
26
annuitant-driven contract
Annuity contracts that pay out their values when the annuitant dies.
27
annuitization
The process in which the funds in an annuity are turned into a series of ongoing, periodic income payments.
28
annuity
A cash contract between a person (the annuity owner) and a life insurance company (the annuity issuer). The annuity is set up to accumulate
and/or distribute a sum of money.
29
annuity owner
The person (or entity) who buys the contract (annuity).
30
annuity payout period
the period during which funds are paid out from the annuity in the form of periodic income payments
31
annuity purchase payout
The amount of on-going income that $1,000 of the annuity contract value buys.
32
annuity unit
After the first payment under a variable annuity is made, the payment is converted into annuity units. For the second and all future income
payments, the amount of each monthly payment is determined by multiplying the annuity units by the latest revalued amount of those units.
33
any occupation
Under a health insurance policy using the any occupation definition of total disability, the policy’s benefits are payable if the insured is unable to
engage in any occupation for pay or profit.
34
any occupation definition of disability
A definition of total disability that requires the insured be unable to engage in any occupation for which he or she is suited.
35
any provider coverage
Medical expense insurance under which the insured can use any health care provider.
36
any willing provider laws
Laws that require insurers to cover specific treatments or service.
37
assignment
The transfer of some or all of the owner's legal rights or interest in an insurance policy to a third person.; the transfer of the ownership rights in a
life insurance policy from one person to another.
38
assignor
A person assigning rights in an insurance policy to another person. That person is the assignee.
39
association group
In relation to group life insurance, an association group is comprised of members of associations, such as independent school districts or cities
and towns. Members can be insured under an association plan.
40
assumed interest rate (AIR)
The rate of interest or rate of return that an annuity contract's values are assumed to earn over the annuitization period. The AIR is usually in the
range of 3 to 5 percent.
41
Attending Physician's Statement (APS)
A document requested by an underwriter that includes specific details about any medical conditions found in the health section of a proposed
insured's application for insurance. The APS is written by the proposed insured’s doctor.
42
automatic premium loan
An optional life insurance benefit whose purpose is to prevent a policy from lapsing if the policyowner fails to pay the premium.
43
automatic premium loan provision (APL)
An optional life insurance benefit whose purpose is to prevent a policy from lapsing if the policyowner fails to pay the premium.
44
autopsy provision
A provision in a life insurance policy that gives the insurer the right to (1) examine a deceased insured if the insurer determines it is needed when
a claim is pending; and (2) request an autopsy upon the death of the insured where it is not prohibited by law.
45
average indexed monthly earnings
The amount of Social Security OASDI benefits that any one covered worker is entitled to is a function of the person’s average indexed monthly
earnings. These earnings are the average of a worker’s lifetime earnings on which FICA taxes were imposed.
46
back-end loaded
A life insurance contract that subtracts its costs and fees after premiums have been deposited and when values are withdrawn from the contract.
47
basic hospital expense policy
A category of medical expense plan that that covers only hospital costs (daily hospital room and board and miscellaneous expenses).
48
basic medical expense insurance
A category of medical expense insurance that provides coverage for a specific form of medical care. These "first dollar" plans pay benefits
beginning with the first dollar the insured incurs, and typically do not involve a deductible or coinsurance.
49
basic physician expense policy
A category of medical expense plan that that covers routine doctor’s office visits, charges for diagnostic x-rays, and laboratory charges.
50
beneficiary
The person or persons designated to receive death benefits from a life insurance policy or annuity
51
benefit period
The maximum time for which benefits are paid for a disability under a DI policy or for long-term care under a long-term care policy
52
benefit schedule
Medical expense insurance coverage under which the insurer assigns a “price,” or certain dollar amount or unit value, to each specific medical
cost, procedure, charge, or aspect of coverage. The amount the insurer then pays to the insured is some percentage of this assigned price (such
as 80 percent).
53
biding receipt
Guarantees coverage from the time the applicant completes the application (or the insured completes the medical exam)
54
black out period
The period in which there are no Social Security benefits for the surviving spouse of a deceased covered worker. It begins when the youngest
child turns 16 and continues until the spouse reaches age 60 (when spousal benefits can begin). If there are no eligible children when the covered
worker dies, the blackout period starts immediately
55
blue cross / blue shield
The first of the pre-paid health plans that enrolled members or subscribers. Blue Cross provides coverage for hospital care; Blue Shield provides
medical and surgical care.
56
bring-back rule
When a life insurance policy is transferred to a third party and the original owner/insured dies within three years after the transfer, the policy death
benefits are included ("brought back) in the original owner’s estate for estate tax purposes.
57
business overhead expense (BOE) policy
Designed for the small business owner who becomes disabled, the BOE policy covers certain overhead costs, such as rent, utility bills, insurance,
taxes, etc. Such coverage allows the business to continue to run while the owner is disabled or cannot actively run the business.
58
Cafeteria Plan
An employer-sponsored program that lets employees choose benefits from a suite of options (e.g., group medical, group life, voluntary
supplemental insurance, etc.), and pay for them using pre-tax payroll deductions
59
cancellable
The most extreme renewability provision from the insured's perspective. Allows the insurer to cancel or end the policy at any time simply by
providing written notification. The insurer must also refund any advance premiums paid before canceling the policy.
60
cancellation provision
One of the 11 optional provisions in a health insurance policy. Enables an insurer to cancel the policy at any time with 45 days notice.
61
capital sum
The amount payable under an AD&D policy for accidental dismemberment; usually some percentage of the principal sum
62
capitation
In a managed care plan (e.g., an HMO), this is the fixed amount of money the HMO pays to contracted health care providers for each enrollee
(subscriber) assigned to that provider, whether or not that person seeks care
63
career (captive) agency system
The agency system under which the agent is employed by one insurance company. The agent works at a branch of the company under the
supervision of a general agent. The agent receives 50 percent or more in commissions as compensation for an initial sale, and an additional
reduced commission at the time of each yearly renewal.
64
cash refund option
A life insurance settlement option with a life contingency in which the contingent payee receives a lump sum of any unpaid amounts
65
cash surrender option
Under this option, the policy is surrendered and the insurer simply pays the cash value to the policyowner in a lump sum. At that point, the policy
is canceled. The insurer’s responsibility under the terms of the contract end. Surrendered policies cannot be reinstated.
66
catch-up contributions
Additional amounts that 401(k) participants age 50 and older can choose to defer into their 401(k)
67
certificate of coverage
A statement of coverage issued to an enrollee in a group insurance plan. The certificate outlines the benefits and provisions of the master policy
issued to the employer. Sometimes called a certificate of insurance, though this term more accurately relates to property and casualty insurance,
in which a certificate of insurance is evidence that certain types of coverage have been purchased by a party required to purchase such coverage
68
change of beneficiary provision
One of the 12 required provisions in a health insurance policy. Applies to those cases where the policy provides a death benefit and a beneficiary
has been designated. This provision states that the policyowner has the right to change beneficiaries. However, a beneficiary can be changed
only if he or she had been designated revocable.
69
change of occupation provision
One of the 11 optional provisions in a health insurance policy. This provision allows the insurer to increase the premium if the insured changes to a
more hazardous occupation.
70
changing premium whole life insurance
A type of whole life policy, including indeterminate premium whole life and current assumption whole life, in which the premium rates are not fixed.
They can vary with the insurer's actual experience.
71
claim forms provision
One of the 12 required provisions in a health insurance policy. States that the insurer must provide claim forms for the insured within 15 days of
receiving a notice of claim
72
COBRA
The Consolidated Omnibus Budget Reconciliation Act of 1985, known simply as “COBRA.” Protects those who are no longer covered by an
employer’s health insurance plan or its benefits. Coverage lasts for up to 18 months.
73
collateral assignment
When a policyowner pledges his or her life insurance policy to secure a loan. The policy is the collateral
74
combination dividend option
A dividend option in which the policy dividend is used to purchase one-year term insurance. The insurance is bought in an amount equal to the
policy’s cash value. Also called fifth dividend option
75
commercial insurance company
Typically write traditional indemnity plans that reimburse the insured for all or a portion of the cost of health care he or she receives
76
common disaster provision
Identifies how a life policy’s proceeds will be paid if the insured and the primary beneficiary are killed or die in close time proximity. Assumes the
insured dies before the beneficiary, so that proceeds are payable to the contingent beneficiary.
77
community rating
A way of rating group contracts that examines the community or region in which the group operates. It then bases the group’s premiums on the
overall characteristics of a much broader risk pool (that is, the community).
78
community rating laws
Laws that require insurers to limit premium differences among individuals. Insurers must base premiums on the risk profile or risk characteristic of
a geographic region
79
condition precedent
A premium is a condition precedent to the insurer’s obligation to pay the death claim. If a policyowner fails to pay the premium on time, then the
insurer does not have to pay the promised death benefit.
80
conditional contract
conditional contract
81
conditional receipt
Provides for conditional coverage. The coverage begins on the date of application or the date of a medical exam if required, whichever is later.
The receipt is made on the condition that underwriting determines the insured is insurable
82
conditionally renewable
A renewability provision in a health insurance policy under which the insurer guarantees that the policyowner can renew the coverage. But, he or
she must first meet the conditions of the policy
83
conformity with state statutes provision
One of the 11 optional provisions in a health insurance policy. This provision addresses any provisions that differ from state law. Such a provision
is automatically changed to meet the minimum requirements of the law.
84
convertibile term life insurance
Term life insurance that allows the policyowner to exchange the temporary coverage provided by the term insurance policy or rider for a
permanent life insurance policy. The insured does not have to prove his or her insurability
85
convertibility provision
Allows an insured to change to a different policy without having to prove insurability. Usually found in term insurance and group insurance
86
convertible term life insurance
Term life insurance that allows the policyowner to exchange the temporary coverage provided by the term insurance policy or rider for a
permanent life insurance policy. The insured does not have to prove his or her insurability.
87
corporate-owned life insurance (COLI) plan
A business life insurance plan that typically covers lower level employees who are insured for the benefit of the corporation. Such a plan is usually
reserved for very large corporate employers or organizations. Under a COLI plan, the corporation takes out and owns individual policies on
individual employees. It names itself as the beneficiary. At the death of the individual employee, the company receives the benefit.
88
corridor deductible
Common to supplementary major medical plans that work with a basic plan. A corridor deductible is applied after the basic plan pays benefits and
before the supplementary plan pays benefits.
89
corridor requirement
The minimum amount of pure risk that must be maintained in a life insurance policy for it to meet the statutory definition of life insurance. Meeting
this definition qualifies the policy for the favorable tax treatment given to life insurance policies
90
cost of living (COL) rider
Gives the policyowner the option to increase the face amount on his or her policy to fight inflation. This type of rider is tied to an inflation index
such as the Consumer Price Index (CPI).
91
credit disability insurance
A variation of a traditional DI policy (income replacement policy is the other variation) that covers the risk of becoming disabled and being unable
to pay off a large loan. The policy is written so that its benefit period is the same as the loan period. The benefits payable are matched to the
decreasing loan balance. If the insured becomes disabled during the policy’s period, then the policy pays off the balance of the loan to the creditor
92
credit life insurance
Life insurance designed to cover the life of a borrower in the amount of his or her outstanding loan. If the borrower dies, then the policy pays the policy’s death benefit to the creditor
93
cross-purchase buy-sell agreement
A type of buy-sell agreement that is a contract between individual partners or shareholders. In this agreement, the partners or shareholders agree
to buy the interest of the other(s) in the event the individual(s) dies or withdraws from the business.
94
current declared rate
One of two interest rate levels for a fixed annuity. (The other is guaranteed minimum rate.) This rate is subject to change periodically and is based
on the insurer’s investment results and on the economic climate.
95
death benefit Option 1
A universal life insurance death benefit under which the benefit payable when the insured dies stays level and equal to the initial specified
amount. Also called Option A
96
death benefit Option 2
A universal life insurance death benefit that is a generally increasing death benefit. This benefit equals the policy’s specified amount plus its cash
value.
97
death benefit Option 3
A variable universal life insurance death benefit under which the benefit payable at the insured's death equals the initial specified amount plus the
net aggregate premiums credited to the policy
98
decreasing term life insurance
Provides temporary protection for a set period. The death benefit decreases monthly over the policy term. It continues decreasing until it reaches
zero at the end of the term
99
disability buy-out policy
When an owner or partner can no longer participate in the business because of a disability, a disability income policy pays a benefit that the
partner or shareholders then use to buy out the owner’s or partners’ interest
100
disability income benefit rider
A life insurance policy rider that pays a monthly income if the insured becomes totally disabled. Benefit payments do not reduce the policy’s cash
value or death benefit in any way
101
dread disease policy
Another form of medical expense indemnity plan that covers specific illnesses such as heart disease, multiple sclerosis, or cancer. These types of
policies cover all medical costs associated with these diseases and have very high maximum limits.
102
education savings plan
A form of Section 529 plan (along with prepaid tuition plans) that builds funds for college in a tax-advantaged way. This plan takes the form of a
state-managed investment account. To this account, parents (or grandparents) can contribute funds. When the funds are withdrawn for qualified
education expenses, they are not taxable.
103
endowment
A permanent life policy for which premiums are paid for a specified number of years. If the insured is alive at the end of the specified period, then
he/she receives the face amount of the policy. If the insured dies before the end of the period, then the beneficiary receives the proceeds of the
policy
104
endowment date
the point at which a life insurance policy matures or endows—when its guaranteed cash value equals its face amount.
105
endowment insurance
A type of life insurance that pays the face amount to the insured after a specified time (endowment period) or to the beneficiary if the insured dies
before the period specified has ended
106
endowment policy
A special form of life insurance in which cash values grow rapidly. As a result, the policy endows well before age 120 (e.g., age 65 was common).
107
entire contract provision
A life and health policy provision that states that if any guarantees, promises, exclusions, or anything else are not included in the policy (or in the
application, if made a part of the policy), then they are not part of the contract
108
entity purchase buy-sell agreement
A type of buy-sell agreement in which the business itself is a party to the agreement. In this plan, the business buys the interest or shares of a deceased partner or shareholder. The business can be a partnership or a close corporation
109
equity indexed life insurance
A form of permanent insurance. The interest credited to the contract’s cash value is tied to an equity index instead of to a rate declared by the
insurer
110
ERISA
Employee Retirement Income Security Act of 1974. ERISA is a federal law that sets standards in many areas for qualified retirement plans and
group insurance plans
111
estoppel
When a party to a contract gives up a right without intending to do so
112
exclusion ratio
Applied to each annuity payment to determine the portion that is excluded from tax
113
executive bonus plan
A plan under which an employer agrees to pay some or all of the premiums on a life insurance policy an executive owns. The employer can
deduct the premium payments as compensation paid to an employee.
114
express authority
The authority given to an agent by the contract between the agent and insurer
115
extended term insurance option
An option under which the insurer applies the cash value of a lapsed policy to buy a term insurance policy. The term insurance is bought in an
amount equal to the face amount of the lapsed policy. The term coverage lasts for whatever period the cash value buys
116
face amount
The amount of the death benefit stated in a life insurance policy. In a universal life policy, the face amount is called the "specified amount."
117
facility of payment clause
Allows the insurer to pay the death benefit to someone other than the beneficiary under certain conditions. This clause generally appears in group
life or industrial policies.
118
Fair Credit Reporting Act (FCRA)
Sets procedures that requesting agencies must follow to ensure confidentiality, accuracy of reporting, and proper use of the information
119
family income policy
A life insurance policy that combines whole life insurance and decreasing term life insurance on a named insured. The person named is typically a
family’s main wage earner. The period for the payment of the term portion of the death benefit begins when the contract is issued
120
family maintenance policy
Provides an income to surviving family members by combining whole life insurance with level term life insurance. The period for the payment of
the term portion of the death benefit begins when the insured dies.
121
fee-for-service plan
A payment system plan where the insured pays the health care provider (the doctor, for instance) for each service he or she provides. Then the
insurer reimburses the insured for costs incurred.
122
FICA
Federal Insurance Contributions Act. This Act is the enabling legislation that grants the federal government the right to collect a portion of workers’
wages (through payroll taxes) to fund Social Security benefits. FICA taxes are also termed “OASDI-HI” taxes
123
fiduciary
A person holding funds or valuable property for the benefit of another person. A fiduciary is generally held to a higher standard of care with
respect to the held propert
124
field underwriting
The activities that the agent or producer performs when seeking applications for insurance. This includes requesting information about prospective
insureds and helping people fill out applications for coverage.
125
fifth dividend option
A dividend option in which the declared dividend each year buys one-year term insurance. The insurance is bought in an amount equal to the
policy’s cash value. Also called combination dividend option
126
fixed amount certain payout option
An annuity payout option under which income payments are made for as long as it takes to entirely liquidate the annuity principal. The contract
owner chooses a monthly amount. Then the insurance company computes how long it will take to liquidate the principal at the selected amount. If
the owner dies before the principal reaches zero, then the same payments are made to a beneficiary until the principal is entirely liquidated.
127
fixed amount settlement option
A life insurance settlement option without a life contingency in which the payee receives a fixed income for an unspecified period. The insurer holds the proceeds placed under this option. The insurer then pays out the proceeds (including interest) on a schedule until the principal is
exhausted
128
fixed period settlement option
A life insurance settlement option without a life contingency in which either the policyowner or beneficiary selects a payment period. Then the
insurer makes payments consisting of both principal (proceeds) and interest over the term of the period.
129
fixed premium deferred annuity
An annuity whose owner makes on-going, fixed and level premium deposits of specific amounts. The owner makes these deposits at specified
times (annually, quarterly, monthly) during the contract’s accumulation period. This annuity type provides a specific amount of future income. Also
called retirement annuity
130
foreign insurance company
Any company that does business in a state other than the one in which it is domiciled
131
franchise association
Groups consisting of small employers in the same business who own and operate franchises.
132
fraternal benefit society
An organization composed of individuals who typically share a common ethnic or religious affiliation
133
fraternal insurers
Mainly life insurance providers whose insureds are also members of lodges or fraternal organizations
134
free look provision
The provision that gives the new policyowner a set period (usually ten days) in which to review the policy and to decide whether to keep it. The
period begins when the policy is delivered to the owner
135
front-end loaded
A life insurance policy in which an insurer deducts costs and fees from each premium before crediting the premium to the policy’s cash value. As a
result, the amount that is actually invested in the contract is reduced
136
fund management fee
One of the three types of charges and fees common to variable annuities (the others are fund management fee and account contract fee). These
charges cover the cost of managing and administering the separate subaccount investment portfolios.
137
future increase option rider
An individual DI policy rider that allows the insured to buy extra coverage under the policy without proving evidence of insurability.
138
gain
The portion of the benefit includible in the beneficiary’s income for tax purposes.
139
general account
The basic account in which an insurance company maintains the funds that support its fixed life insurance and annuity products. The general
account's conservative investments allow the insurer to guarantee interest returns on its fixed insurance and annuity products
140
government plans
In relation to health insurance, government plans are a third health insurance option after commercial insurers and managed care plans.
Government plans include Medicare, Medicaid, Social Security disability, and workers' compensation.
141
graded premium whole life insurance
Has premiums that start very low (compared to straight whole life). They then increase annually for a long period and stay level for the rest of the
life of the policy.
142
grade-in period
In a graded premium whole life policy, the period during which premiums increase each year. This period may be ten
143
gross annual premium
A premium that includes the loading costs
144
group annuity
Has the same features as an individual annuity except that it is written on a group basis.
145
group health insurance
A plan of insurance that an eligible group sponsor, such as an employer, provides for its members. The plan sponsor owns the plan and pays its
premiums. The individual group members are the insureds.
146
group insurance
A category of life or health insurance in which one policy covers multiple people, each of whom receives a certificate of insurance as evidence of
their coverage.
147
guarantee of insurability option
A rider an insured can add to an LTC policy that enables him or her to buy additional benefits after policy issue, no matter what his or her health
may be.
148
guaranteed insurability rider
Guarantees that the policyowner can buy additional permanent life insurance on the insured’s life in the future; sometimes called a purchase
option rider or an additional insurability option ride
149
guaranteed issue laws
Laws that require insurers to sell insurance to all potential customers regardless of health or pre-existing conditions
150
guaranteed minimum rate
One of two interest rate levels for a fixed annuity. (The other is current declared rate.) This rate is usually low and extends for the life of the
contract
151
guaranteed renewable
```
A renewability provision in a health insurance policy under which the insurer guarantees that, during the guaranteed renewable period, it will not
cancel the policy, and it will increase premiums only on a class basis.
```
152
guideline premium test
One of the tests a policy must meet to qualify as life insurance. A policy must meet this test to receive the favorable tax status of life insurance.
153
health maintenance organization (HMO)
A corporation that delivers health care services. HMOs are financed by premiums. The HMO creates a network of associated doctors, medical
care staffs and participating hospitals and clinics. This network provides curative and preventive treatment to enrolled members and their families.
154
health savings account (HSA)
A tax-exempt account into which account holders can make tax-deductible contributions to finance health care services. Funds in an HSA account
grow tax-free. If withdrawn to cover medical expenses, they are also received tax free.
155
HI
The portion of FICA tax that goes to Medicare. HI stands for hospital insurance. So FICA taxes are also termed “OASDI-HI” taxes.
156
HIPAA
Health Insurance Portability and Accountability Act of 1996. Privacy and security regulations that apply to entities that have access to information
about a person's health. HIPPA is intended to affect the way individual and group health insurance plans are made available. HIPAA mainly
ensures that those who have lost their jobs or want to change their health insurance carriers can continue their health benefits or carry them over
to another job (called portability). HIPAA applies to group insurance plans that cover two or more people
157
human life value approach
Developed by Dr. Solomon S. Huebner, this approach is one of the first systems for determining how much life insurance is appropriate for a
person. Involves estimating a person’s personal earnings each year to retirement. Then the costs of self-maintenance and income taxes are
deducted. The result is residual income that is set aside to provide for family members. The residual income stream is discounted to its present
value. The present value thus determined is the value of that human life.
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illegal occupation provision
One of the optional provisions in a health insurance policy. This provision protects the insurer. It allows the insurer to deny liability when the
insured’s claim arises from an illegal activity he or she participated in.
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impairment rider
In a health insurance contract, an insurer usually uses an impairment rider to limit or exclude coverage for a specific condition an insured may
have.
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implied authority
An agent’s authority is implied when it: (1) is intended to be given by the insurer; (2) usually relates to the general customs of the business; (3) is
not contractually provided or specifically explained.
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income replacement policy
"A variation of a traditional DI policy that provides a benefit if the insured becomes disabled and cannot perform the duties of his or her occupation
and is not engaged in any other occupation. "
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incontestability provision
A provision in an insurance policy that states that after a policy has been in force for a set period, the insurer cannot contest a claim for any
reason except for non-payment of premiums. Under most policies, that period is two years.
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indeterminate premium whole life insurance
A whole life policy issued with two premium rates: (1) a lower fixed rate and (2) a guaranteed maximum rate.
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indexed annuity
A type of fixed annuity contract that allows contract owners to participate in some of the growth in the stock market while avoiding possible losses
to principal. Indexed annuities are commonly linked to the S&P 500 or a Dow Jones Index.
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indexed whole life insurance
A type of whole life policy that ties its death benefit and its premiums to a specified index, most commonly the Consumer Price index (CPI). Over
time, the policy’s face amount increases automatically with CPI increases.
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industrial life insurance
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A class of individual life insurance that offers individual coverage in small amounts usually around $1,000 to $2,000. Generally, an insurance
agent calls on the policyowner at home on a weekly or monthly basis to collect the premium. Also known as home service insurance.
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inflation protection option
A rider an insured can add to an LTC policy to account for the rising costs of long-term care.
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installment refund option
A life insurance settlement option with a life contingency in which income payments continue to a contingent payee in the same amount as were
paid to the primary beneficiary. They continue until the amount placed under the settlement option is fully paid out
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insurable interest
An insurance policyowner's financial interest in the person or property being insured. In general, insurance policy applicants must have an
insurable interest in the person or property they are seeking to insure.
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insurable risk
An applicant is an insurable risk to the insurer if he or she meets certain criteria for insurability; if these criteria are met, then the applicant is
insurable.
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insured buy-sell agreement
When life insurance is bought to provide the funds to support a buy-sell agreement
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insuring clause
The basic agreement between the insured and the company. The clause states the company’s promise to pay the policy’s face amount (death
benefit) to the named beneficiary if the insured dies.
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interest-sensitive whole life insurance
A life insurance policy characterized by premium rates that can change over time in response to the insurer’s actual mortality, interest, and
expense experience
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intermediate care
On-going care necessary to address a person’s condition, but not needed 24-hours a day. Intermediate care is delivered by registered nurses,
licensed practical nurses, and nurses aides, who are being supervised by a doctor. It is usually delivered in a nursing home, but depending on the
individual case, it can also be provided at one’s home or in a community-based center.
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intoxication or the use of narcotics provision
One of the optional provisions in a health insurance policy. This provision excludes insurer liability if a covered loss results from intoxication or the
use of narcotics.
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investigative consumer report
Used in the underwriting process. Provides information on a person’s personal history and lifestyle. These reports also provide information on his
or her financial condition. They can be required in underwriting a policy for issue
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joint and last survivor life income settlement option
An annuity or life insurance death benefit payout option under which an income is paid until the second of the two annuitants dies. Upon the
second death, no further payments are made to anyone. Also called a joint and survivor option
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joint annuitant
Two or more people named as annuitants in an annuity.
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jumping juvenile life insurance
A form of permanent coverage, typically issued in units of $1,000 of death benefit. Because the insured is so young when the policy is issued, the
premiums are relatively small. When the insured child reaches age 21, the death benefit jumps to $5,000 per unit. However, the premium does not
change, nor is proof of insurability required
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Keogh plan
A qualified retirement plan designed for unincorporated businesses (sole proprietorships and partnerships) that allows the business owner or
partner to participate in the plan as an “employee.” Keogh plans can be set up as either a defined benefit plan or a defined contribution plan.
Keoghs are treated the same way as corporate plans with respect to maximum contribution and benefit limits, participation and coverage
requirements, and nondiscrimination in coverage, contributions, and benefits.
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key person insurance
Life insurance, owned by a business, that covers the business in the event of the key employee's death. The business applies for, owns, and is
the beneficiary of the policy covering the life of a key employee.
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labor union group
In relation to group life insurance, labor unions can buy group policies to insure members of the union. The union owns the policy for the benefit of
the members.
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last in/first out (LIFO)
In an annuity, LIFO is how withdrawals are treated. Premium payments are made first; then interest accrues on top of that amount. So earned
interest is the "last in" part of the equation. And because the earned interest is “last in,” accruing “on top of” the principal, the interest is also the
first out when a withdrawal is made
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law of large numbers
A method of predicting future losses with great accuracy. It is based on the principle that the greater the number of incidents of a random process,
the more the expected number of incidents and the actual numbers of incidents tend to become the same. It is the mathematical principle of
probability on which insurance rests.
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legal actions provision
One of the 12 required provisions in a health insurance policy. Defines the periods during which the insured can take a legal action against the
insurer because it didn’t pay a claim
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legal delivery
Legal delivery of a policy requires personal delivery to the client and an explanation. For example, the agent should explain any terms of the policy
that were imposed during the underwriting process. The agent should also inform the owner of any additional premium charge that was not known
at the time of application.
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level premium
In life insurance policies, insureds pay the same (level) premium over the life of the policy. At any time, the insured never pays more in premium
than he or she paid in the early years of the policy, when he or she was young.
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level premium payment
A premium payment plan in which the premium is set and remains fixed over the policy’s term.
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level term life insurance
Provides a level death benefit. It also charges a level premium for a set period.
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life contingency options
The payout options for annuitized income based on the life of one or more annuitants. A life contingent payout guarantees that income payments
are made for as long as the annuitant lives, no matter how long that is.
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life income settlement option
A life insurance or annuity settlement option with a life contingency. This type of settlement option is based on the lifespan of the payee.
Settlement options with life contingencies all have a common element: they involve lifetime income payments.
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life income with period certain
A life insurance settlement option with a life contingency under which a payee receives income payments for life. However, he or she is
guaranteed that the payments will be made for a specified term
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life income with refund
A life insurance settlement option with a life contingency that provides income payments for the life of the payee. If the payee dies before
receiving payments equal to the amount placed under the settlement option, then the remainder goes to a contingent payee in the form of a
refund.
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life income with refund guarantee
An annuity payout option that pays the annuitant an income for life no matter how long he or she lives. If the annuitant dies before total income
payments equal the annuity’s accumulated cash value, then the refund guarantee option provides that the balance is paid to the chosen
beneficiary
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life with period certain
An annuity payout option that guarantees that income is paid for the length of the annuitant’s life. However, the income is paid but for no less than
a certain number of years. So if the annuitant dies before the chosen term period ends, then income payments continue to his or her beneficiary
for the balance of the period.
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limited choice plans
Medical expense insurance that requires insureds get medical care from certain providers if the cost of the care is to be covered.
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limited payment whole life insurance
A whole life insurance policy under which a policyowner pays a higher premium than for an otherwise identical ordinary whole life policy in return
for the right to pay premiums for a shorter period.
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limited risk policy
Pays benefits only for very specific risks.
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living benefits
The funds from cash values that life insurance provides; these cash values are used during the insured’s lifetime.
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living benefits rider
Any of several life insurance policy riders designed to provide access to the policy's face amount while the insured is alive.
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Lloyd's associations
The individual members that offer insurance services through Lloyd’s of London
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Lloyd's of London
An insurance market; it provides: a meeting place for transacting insurance business; underwriting information; a forum for settling disputes and
claims, and other regulatory and administrative services.
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load factor
A premium factor that represents the insurer’s expenses (and the profit the company wants to derive).
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loading
The amount added to the net premium of a policy to cover the operations costs of the insurance company. Such costs include rent, salaries,
commissions, etc.
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long-term care
A broad term that includes a wide range of assistance, services, or devices provided over an extended period. Long-term care is designed to meet
medical, personal, ad social needs in a variety of settings or locations to enable a person to live as independently as possible. Such care may
involve custodial care, intermediate care, or skilled nursing care
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long-term care rider
An optional life insurance policy rider that provides accelerated payment of the policy's death benefit if the insured becomes chronically ill.
Benefits can be used to help pay for medical, nursing home, and assisted living care for extended durations
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long-term disability coverage
Group plans with maximum benefit periods of two years or more.
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look-back period
The period during which the insurer "looks back" (usually no more than six months before the insured enrolled in the plan) to determine if the
insured had any pre-existing conditions that would be excluded from coverage
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loss
An unwelcome and unplanned reduction in economic value.
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lump sum cash payment
Payment of insurance policy proceeds in a single (lump) sum.
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MAGI
Modified adjusted gross income (MAGI) is a taxpayer's adjusted gross income (AGI) plus certain additional items like IRA contributions, student
loan deductions and foreign income. It is used to determine whether an individual is eligible to deduct traditional IRA contributions and whether an
individual is eligible to make contributions to a Roth IRA
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maintenance fee
A fee charged by some variable life and health insurers that is added to the initial premium. The fee pays the costs of acquiring the new business
and offsets costs such as commissions, administration setup, and ongoing maintenance.
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managed care plan
Systems of healthcare delivery. They share the cost of the service and treatment with the managed care provider, such as HMOs or PPOs.
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managed care provider
Provide their insureds with health care directly through a network of health care providers.
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managerial system
One of three distribution systems to bring an insurer's policies to market; in a managerial system, the agency head is an employee of the insurer.
The insurer is responsible for agency expenses and staffing
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market value adjusted annuity (MVA)
A fixed annuity that offers an interest rate adjustment feature. This feature lets the owner take advantage of interest crediting changes in response
to market conditions at the time he or she withdraws funds
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master policy
In a group life policy, the master policy indicates the sponsor as policy owner and premium payor.
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matching contributions
A provision in most 401(k) plans that allows employers to match every $1 employee contribution with a 50 cent- or more contribution.
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maximum premium
In a UL policy, the highest amount that can be paid for that level of death benefit and still allow the policy to meet the guideline premium test.
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Medicaid
A program funded by state and federal funds and administered by the states. This program pays for healthcare for the financially needy,
regardless of age.
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Medical Information Bureau (MIB)
A non-profit clearinghouse that holds a database of confidential medical information on applicants for life and health insurance.
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medical savings account (MSA)
The forerunners of HSAs. Group MSAs were created specifically for self-employed people and employees of small employers. Their purpose is to help fund qualified medical expenses on a tax-advantaged basis.
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Medicare
A federal health insurance program designed specifically for people age 65 and over and for certain disabled persons. Medicare is funded by
payroll taxes. It extends the Social Security program beyond retirement, disability, and survivor benefits into the field of medical expense benefits.
Coverage provided under Medicare is divided into four parts: A through D
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Medicare Advantage
The popular name for Medicare Part C. This part of Medicare opened the program to new health care providers and health care programs. These
new additions offer the full range of Medicare services to participants. Such services include managed care plans, preferred provider
organizations, and private fee-for-service plans.
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Medicare SELECT plan
Medicare supplement coverage offered by a managed care provider or by an insurance company that offers the policy’s benefits through a
network of doctors, hospitals, and health care service provider
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Medicare Supplement plans
Designed mainly as supplements to reimbursements under Medicare. These plans help pay for the hospital, medical, or surgical costs of persons
eligible for Medicare. They were designed to provide funds to pay the deductibles and coinsurance. Medicare supplement policies are also known
as Medigap policies. The range of available Medicare supplement policies include 12 different plans, which are Plans A through L. The provisions
of each plan are the same among insurers
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minimum premium
In a UL policy, the minimum amount that is estimated to cover the cost of pure UL insurance and policy expenses.
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misstatement of age of sex provision
A provision in life and health insurance that states the action to be taken if a proposed insured misstates his or her age or sex on an application
for coverage. Normally, policy benefits are changed to the benefits that the premium would have provided if the correct age and sex had been
stated.
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modified adjusted gross income
Income calculated to determine if a recipient's Social Security benefits are subject to income tax. Modified adjusted gross income includes earnings, pension benefits, dividend taxable investment earnings, interest on tax-exempt bonds, and one-half of the Social Security benefits. Any
income over these levels may be subject to up to 85 percent of the Social Security benefits to tax.
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modified endowment contract (MEC)
A category of life insurance policy that fails to meet the 7-pay test imposed by the federal government. Because of that, a MEC loses some, but
not all, of the favorable tax treatment normally given to life insurance policies.
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modified premium whole life insurance
Policies with a lower premium in the early years of the policy, usually the first five years. At the end of the initial period, the premium is increased
and stays at that increased level for the life of the policy
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monthly income unit
In family income policies, monthly income as defined in terms of $10 for every $1,000 of whole life coverage.
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morbidity
Used by insurers in pricing health insurance policies. Morbidity rates indicate the average number of persons at various ages who can be
expected to become disabled because of sickness or accident. Morbidity rates also indicate how long a disability is expected to last.
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mortality
Mortality is the rate of death in the target population; it is a significant factor in calculating life insurance premiums.
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mortality and expense cost (M&E)
One of the two types of charges and fees common to variable annuities (the other is fund management fee). These are the insurance-related
costs for a variable annuity. They cover the cost of the contract’s death benefit.
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mortality charge
Reflects the cost of insurance for that point in the insured’s life. Consequently, over time, the mortality cost increases, which reflects the insured’s
age
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mortality rate
Used by insurers in pricing life insurance policies. Mortality rates indicate the average number of persons within a very large group who can be
expected to die in any given year.
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multiple employer trust (MET)
A trust of two or more employers that buy group insurance for their employees. Contributions from the employers, employees, or a combination of
both are paid into the trust. The trust buys insurance for the benefit of the employees. The trust owns the policy.
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multiple employer welfare arrangement (MEWA)
An association of employers formed to buy group insurance for their employees. These plans are usually established by employers that are in the
same trade or industry, as provided under ERISA
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multiple indemnity rider
A rider to a health insurance policy that offers benefits if the insured dies accidentally or becomes dismembered or loses a limb because of an
accident.
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mutual insurance companies
Owned by policyowners; mutual companies have no stockholders.
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National Association of Insurance Commissioners (NAIC)
An association of insurance commissioners in the various states. Actively proposes model laws that standardize policies and promote fair trade
practices in the insurance industry
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National Association of Securities Dealers (NASD)
An organization that regulates agents who sell variable life products.
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natural group
A collection of people that form a group simply because they work in the same place or happen to belong to a mutual organization. To be eligible
for group coverage, the group must be a natural group
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natural person
An individual—a parent, spouse, or partner in a business relationship.
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needs approach
An approach for determining how much life insurance is appropriate for a person. This approach determines personal life insurance needs based
on a detailed review of each person’s specific situation. It mandates that the person’s and family’s income, liabilities, and assets be examined to
calculate the right amount of life insurance.
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net amount at risk
The difference between a life insurance policy’s cash value and the policy’s death benefit.
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net single premium
The theoretical single premium amount, minus ("net of") the expense charge, required to fund a fixed life insurance policy's face amount.
Calculating the net single premium is the first step in calculating the premium actually paid by the policy owner. (When an expense charge is
added, the result is the gross single premium.)
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noncancellable
A renewability provision in a health insurance policy under which the insurer guarantees that during the noncancellable period, it will not end the
policy, nor will it increase the premium.
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non-contributory
A group plan in which the employer pays the entire premium amount for group term life insurance.
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non-contributory plan
A category of group health insurance plan that does not require participants to make contributions to the premium for coverage.
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nondisabling injury provision
Included in many disability income policies, this provision pays for medical expenses or medical treatment that the insured incurs because of
accidental injuries. The policy pays the benefit even if the injury does not produce a sustained disability or a loss of income.
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nonforfeiture option
A guarantee given to the policyowner that prevents the loss of the cash value. This option applies when the policy is surrendered or lapses. The
purpose of the option is to identify how the cash value will be used
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non-natural person
A corporation or trust.
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non-participating policy
A class of life (or health) insurance policy in which the owner is not entitled to be paid a dividend. Generally, individual health insurance is nonparticipating.
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nonqualified annuity
Annuities that are not used to fund a qualified plan, such as an IRA or 403(b) plan.
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nonqualified plan
A retirement plan that does not meet IRS qualification requirements and does not qualify for favorable tax treatment. A deferred compensation
agreement is an example of a nonqualified plan
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notice of claim provision
One of the 12 required provisions in a health insurance policy. Requires that the insured notify the insurer within 20 days after he or she has a
covered loss.
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Notice of Information Practices Statement
A type of disclosure to an insurance applicant that informs the applicant that, in the course of underwriting the policy, the insurer may collect
information from sources other than the application. In addition, it states how the insurer can share that information with third parties.
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OASDI
Old Age, Survivors, and Disability Insurance program. Provides monthly benefits to qualified retired and disabled workers and their dependents,
and to survivors of insured workers. Eligibility and benefit amounts are determined by the worker's contributions to Social Security
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occupation classification table
Used by DI insurers to determine adequate disability insurance protection for an insured based on his or her occupation.
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offer
One of the three elements of a contract. To be considered a valid offer, the offeror must express a willingness to enter into an agreement in a way
that the offeree understands that saying yes to the offer will result in an agreement. Can be either written or verbal.
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offeree
In a contract, the party to whom an offer is made.
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offeror
in a contract, the party making the offer
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optionally renewable provision
A renewability provision in a health insurance policy under which the insurer holds the right to cancel the policy on a date sp
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ordinary life insurance
A class of individual life insurance that offers individual coverage in a variety of term (temporary) or permanent plans, in any face amount.
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other insurance in this insurer provision
One of the 11 optional provisions in a health insurance policy. This provision limits the total coverage that the company assumes with one insured.
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other insurance with other insurer provision
One of the 11 optional provisions in a health insurance policy. This provision allows an insurer to prorate the amount of benefit it will pay for an
expense-covered loss if another insurer is covering losses from the same event. It keeps the insured from receiving a benefit larger than the loss
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other insurance with other insurers provision
One of the 11 optional provisions in a health insurance policy. Similar to the other insurance with other insurer provision. But this provision extends
to coverage with multiple insurers of which the primary insurer had prior knowledge.
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other insured rider
Covers someone other than the base policy insured. These riders typically take the form of term insurance. Many people buy such riders rather
than buying permanent policies on each person. Common other insured term riders are children's term rider and family term rider.
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overinsurance
A duplication of benefits when a single group participant is covered by more than one plan.
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own occupation
Under a health insurance policy using the own occupation definition of total disability, the policy’s benefits are payable if the insured cannot
perform the duties of his or her own regular occupation.
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own occupation definition of disability
A definition of total disability that requires the insured be unable to perform the duties of his or her own occupation.
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owner-driven contract
Annuity contracts that pay out their values when the owner dies.
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paid-up additions option
A dividend option in which the dividend buys additional paid-up insurance of the same type as the base policy.
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paid-up insurance option
A dividend option that lets the policyowner use the dividends to pay up a life insurance policy early.
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paid-up policy
A life insurance policy for which all required premiums have been paid, but the policy has not matured. No more premiums are necessary or
possible
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partial disability
The partial disability benefit continues benefit payments (on a reduced basis) to an insured who is recovering from a total disability and is able to
work on a partial basis. It is sometimes called a "recovery benefit."
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partial surrender
In a universal life or adjustable life insurance policy, a partial surrender involves the actual surrendering of a portion of the policy as a way to
withdraw some of its cash value. The death benefit under a partial surrender is reduced proportionately by the amount of the surrender.
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participating policy
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A class of life (or health) insurance policy in which the owner is paid a dividend out of the insurance company’s earnings that are available for
distribution (the divisible surplus)
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participation rate
The percentage of the index change that is actually credited to an indexed annuity. These rates typically range from 60 to 90 percent.
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payment of claims provision
Defines how and when insurance proceeds are to be paid out. This provision also defines the requirements to initiate a death benefit claim.
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payor benefit
Commonly associated with juvenile insurance, this benefit pays the policy premium when the policy owner becomes disabled or dies.
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PDP
Private prescription drug plan.
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per capita
A beneficiary designation where proceeds of the policy are paid only to the beneficiaries who are alive and have been named in the policy. The
share of a per capita beneficiary is not passed down to his or her children. Instead, the share is paid to the policy’s other named beneficiaries
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per stirpes
A beneficiary designation where proceeds of a life insurance policy pass down to the beneficiary’s children if the named beneficiary dies before
the insured
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period certain-only option
An annuity payout option without a life contingency. Payments are made over a set number of years or in specified amounts and then end. Also
called a term certain option.
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permanent life insurance
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A class of life insurance, permanent insurance lasts for the insured’s entire lifetime or until age 120. As long as premiums are paid, the insurance
stays in force and is guaranteed to pay its death benefit.
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permanently insured
Regarding Social Security benefit eligibility, a fully insured worker is considered permanently insured once he or she has earned 40 quarters of
coverage. At that point, it is no longer necessary to continue earning at least one QC per calendar year to remain fully insured
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physical examination and autopsy provision
One of the 12 required provisions in a health insurance policy. Allows the insurer to require the insured to take a physical exam during the claims
investigation process. (The insurer must pay for the exam.) If the claim is because of the death of the insured, this provision also allows the
insurer to order an autopsy to determine the cause of death. Again, the insurer must pay for the autopsy
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point-of-service option (POS)
Allows an HMO member to get treatment from a provider outside the HMO network. In a PPO, the POS option covers out-of-network services at a
lower rate or lower percentage; members must pay larger out-of-pocket cost on deductibles and co-payments.
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policy dividend
An amount returned to the owner of a participating insurance policy out of an insurance company’s surplus funds.
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policy loan
A loan granted by an insurance company to a permanent life insurance policyowner, using the policy's cash value as collateral.
294
portability
When insureds can take their health benefits with them from job to job.
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preferred risk
One of the three risk classifications; any risk that is considered to be better than standard.
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Pregnancy Discrimination Act
This act makes discrimination on the basis pregnancy, childbirth, or related medical conditions unlawful sexual discrimination.
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premium
The charge to the policyowner for the risk the insurance contract covers. The greater the risk, the higher the premium.
298
premium receipt
The receipt an agent normally gives an applicant when the applicant submits an application for life insurance with the first premium payment. The
receipt is designed to offer interim coverage while the application is being approved and the policy is being formally issued.
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premium reduction option
A dividend option in which the insurance company keeps the dividend and uses it to reduce the next premium due.
300
premium tax
A tax levied on insurance companies on the receipt of premiums.
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pre-paid plan
A plan under which the health care provider pre-negotiates with the insurer the fees for a given service. The health care provider bills the insurer
directly rather than billing the insured. HMOs and PPOs typically use the pre-paid option.
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prepaid tuition plan
A form of Section 529 plan (along with education savings plans) set up to "pre-pay" a child's education. These plans guarantee a regular plan of
savings will mature to guaranteed paid semesters of college. Future college tuition can be "locked in" at today's prices.
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present value
The value today that a given sum of money will grow to in the future, with interest earnings added.
304
presumption of disability provision
A provision in a health insurance policy under which the insured can automatically qualify for the policy’s full benefit if he or she were to suffer
from certain specified conditions. These conditions are severe enough that total disability is presumed.
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pre-tax dollars
Employee contributions made directly into a qualified retirement plan before income taxes are assessed.
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preventive care
A strategy used by HMOs to detect diseases in members early and to promote healthy member lifestyles. By so doing, HMOs help members
avoid preventable illnesses.
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primary beneficiary
The first person (or class of persons) in line to receive the death benefits.
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primary care physician (PCP)
Controls access to the HMO network. The PCP’s role is to coordinate and direct members’ health care treatment. Based on this role, the PCP is
sometimes known as a “gatekeeper.”
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primary insurance amount (PIA)
The amount of the retirement benefit the worker will receive when he or she reaches full retirement age. It is the basis for benefits payable to the
worker’s family and dependents
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principal
The party on whose behalf the agent acts.
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principal sum
The benefit payable for accidental death. This sum is the amount of insurance the insured bought.
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probationary period
When used with an individual health insurance policy, a probationary period is the period that must pass between the policy’s effective date and
the time benefits are payable. Its purpose is to help the insurer avoid adverse selection. When used with group insurance, the probationary period
is the time the employee must be employed before being eligible for the company’s employee benefits. The employer identifies this period.
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producer
Anyone who sells insurance for another and gets a policy from the insurer; also called an agent.
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profit-sharing plan
A form of defined contribution plan that allows employees to share in the profits of the employer. The employer is the sole contributor to the plan.
The contributions are calculated using a pre-determined formula
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promisee
In a contract, the party to whom the promisor makes a promise.
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promisor
In a contract, the party who has the "duty to perform." The promisor is the party who makes the promise.
317
proof of loss provision
One of the 12 required provisions in a health insurance policy. The insurer must receive written proof of loss within 90 days of the loss. This period
can be extended for extenuating circumstances
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purchasing group
A group of persons or entities with similar risks who form an organization for the purpose of buying insurance on a group basis.
319
pure joint option
A variation of the joint and last survivor life income option (an annuity payout option). Under this payout option, income is paid to two or more
annuitants until the first one dies.
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pure risk
That which can result only in a loss to the person at risk.
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qualified annuity
Annuities used to fund a qualified plan; qualified annuities are taxed according to the rules that govern the plan.
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qualified retirement plan
A formal retirement plan set up by an employer to provide its employees with future benefits. It does so in a way that meets certain IRS-imposed
requirements. By meeting these qualifying standards, the plan is granted advantageous tax treatment. Such tax treatment favors both the
employer and the employees.
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quarters of coverage
The basic units for determining whether a worker is covered under Social Security. A worker receives one quarter of coverage for a certain dollar
amount of wages earned.
324
rate cap
In relation to an EIA, a rate cap is the maximum interest rate that is applied to the funds in the EIA if the percent of change in the index is greater
than the cap
325
rebate
The giving of anything of significant value to induce someone to buy insurance. Includes payment for referrals to non-licensed people.
326
reciprocal insurer
An unincorporated group of subscribers working individually and together through an attorney-in-fact to provide reciprocal insurance among
themselves.
327
recurrent disability
A disability that occurs within a specified (limited) time after a period of disability from the same or related cause.
328
redetermination
The process insurers use to evaluate their actual experience and to apply the changes to their premium rates
329
reduced paid-up insurance option (RPU)
Under this option, the lapsed policy’s cash value is applied as a net single premium to buy a paid-up policy of the same type as the lapsed policy.
The paid-up death benefit is the amount that the cash value buys as a single premium at the insured’s age
330
re-entry term life insurance
Term life insurance under which the insured can renew his or her coverage at the end of the specified term at a lower rate than the guaranteed
rate by proving insurability.
331
rehabilitation provision
A provision in some DI policies under which the insurer pays for occupational therapy, training, or modifications to the insured’s work place to help
the insured to return to work.
332
reimbursement contract
A health insurance policy that bases the amount of benefit on the loss that is actually suffered.
333
reinstatement provision
A provision that lets the policyowner place a lapsed policy back in force within a certain period. This period is typically three years.
334
reinsurance
An insurer that sells insurance to the public enters into an agreement with another insurance company to accept some of its risk. The insurer
accepting some of the risk being transferred is known as the reinsurance company
335
relation of earnings provision
One of the 11 optional provisions in a health insurance policy. This provision applies to policies that provide income payments if the insured
becomes disabled. If many insurers are insuring for the same risk, then it limits the liability of any one insurer’s policy to the proportion of the total
benefits it assumes.
336
relation-to-earnings provision
Included in many disability income policies, this provision limits the amount of benefits the insurer will pay. The total amount of disability benefits
from all insurers and from all policies the insured owns cannot be more than an insured's usual earnings.
337
renewability provision
In health insurance, this provision defines the terms under which the policy may be cancelled or renewed. Common terms include cancelable,
conditionally renewable, guaranteed renewable, and noncancelable
338
renewable term life insurance
A type of level term insurance contract that allows the coverage to be renewed for another period or another term without proof of insurability.
339
representation
A statement made at the time a contract is formed. This statement persuades a party to enter into the contract.
340
reserve
For a younger person, the premium he or she pays in the earlier years of a life insurance policy is higher than what it actually costs the insurer
annually to insure the person. The money "left over" between the premium and the actual cost of insurance in the early years is the reserve
341
residual benefit payment
A method of benefit payment for a partial disability that is based on the proportion (percentage) of income that is actually lost because of the
partial disability.
342
retirement earnings test exempt amount
An earnings test that is imposed if a worker elects to receive Social Security benefits before he or she reaches FRA and, at the same time,
continues to work and earn money. Social Security benefits are reduced for amounts earned over this limit, but return to their full amount at the
worker's FRA.
343
return of premium option
A rider an insured can add to an LTC policy that returns a part of the premium paid for the LTC coverage to the insured’s estate. Or, it returns a
part of the premium to a named beneficiary when the insured dies.
344
return of premium rider
Pays to the owner of a term policy all or a portion of premiums paid if the insured is alive at the end of the policy term. The returned premiums do
not include interest
345
revocable beneficiary
A beneficiary in a life insurance policy that has no rights in or to the policy during the insured’s lifetime. The revocable beneficiary has only an
expectancy that he or she may receive the death benefit without the beneficiary's permission.
346
revocable of beneficiary
A beneficiary in a life insurance policy that has no rights in or to the policy during the insured’s lifetime. The revocable beneficiary has only an
expectancy that he or she may receive the death benefit without the beneficiary's permission.
347
rider
An attachment to an insurance policy that changes the benefits either by adding new benefits or by excluding certain benefits from coverage.
348
risk classification
The risk-selection process that insurance underwriters follow. As a result of this process, the proposed insured is (1) accepted at standard
premium rates; (2) assigned to one of the various substandard rating classifications; or (3) reject.
349
risk reduction
Taking measures to reduce a certain risk; reducing a risk does not remove the possibility of suffering a financial loss.
350
risk retention
Choosing to use existing assets to pay for any losses if the risk becomes a reality; also known as the "do nothing" option.
351
risk retention group (RRG)
An insurance company that provides self-insurance services to owner-members. These members all have a business, occupation, or professional
relationship with one another
352
risk sharing
One of the oldest ways to manage risks; similar to buying insurance in that a part of the risk is transferred to others
353
risk transfer
An individual or business transfers the risk of loss to an insurance company in return for a premium.
354
rollover IRA
Transferring funds from one qualified account or traditional IRA to another qualified account or IRA. Received funds must be rolled over within 60
days to avoid current income taxation
355
Roth conversion
The result of converting a traditional IRA into a Roth IRA. Current income taxes are payable on the full value of the traditional IRA at the time of
the conversion, but after that, all distributions are tax-free
356
Roth IRA
An alternative to a traditional IRA, Roth IRAs provide for “back-end” benefits. This means that contributions to a Roth account cannot be deducted
and are taxed. But the earnings on those contributions, when withdrawn, are entirely tax-free.
357
rules of agency
The "common law" rule that states that an agency relationship must involve two parties: (1) a principal, and (2) an agent.
358
S Corporation
A form of corporation, allowed by the IRS for most companies with 75 or fewer shareholders, which enables the company to enjoy the benefits of
incorporation but be taxed as if it were a partnership. Also called Subchapter S Corporation.
359
salary continuation plan
A common form of deferred compensation arrangement under which the executive does not actually defer any compensation. Instead, the
employer agrees to continue paying a portion of the employee’s salary after he or she retires.
360
sales load
An additional charge imposed by the insurer to allow the company to recover its new business acquisition costs.
361
SAR-SEP
A salary-reduction SEP; no longer allowed to be set up as of 1997. However, those already in place can continue to operate. Employee
contributions are deferred into the plan instead of being paid out as current (taxable) compensation. This feature is like that of a 401(k). The limit
on employee contributions to a SAR-SEP is the same as those for a 401(k) and other elective deferral plans.
362
save age
Backdating a policy by up to six months, which qualifies an applicant to have the policy issued at a younger age. Because the policy is issued at a
younger age, the policyowner pays a lower premium.
363
secondary plan
Coverage provided by any plan or provider that is not the primary plan or provider. It pays benefits only to the extent the primary plan does not
cover the loss.
364
Section 125 cafeteria plan
A group health plan that enables employees to select among various employee benefits. Section 125 plans also allow employees to have a
portion of their wages withheld, on a pre-tax basis, to fund these benefits. Section 125 plans provide a way for employees to pay for their share of
a group health plan on a before-tax basis.
365
Section 529 plan
A qualified retirement plan whose goal is to provide a way to save and invest in a tax-favored way for a child’s college education.
366
self-funded plan
A group health insurance plan under which the employer funds and pays for member claims and benefits. The employer’s premium payments are
directed into a trust from which the plan’s benefits and claims are paid
367
self-insurers
Refers to a large company that is willing and financially able to retain certain risks and to self-fund for that purpose.
368
settlement option
Provisions in a life insurance policy or annuity that provide the payee with various ways to receive periodic payments of benefits.
369
short-term disability insurance
Group plans with maximum benefit periods of less than two years.
370
SIMPLE plan
Designed solely for small businesses and are known formally as “Savings Incentive Match Plan for Employees.” Employees who choose to
participate can defer up to a specified amount of their compensation each year. These amounts are not subject to tax. The employer then makes
a matching dollar-for-dollar contribution, up to 3 percent of the employee’s annual compensation.
371
Simplified Employee Pension (SEP) Plan
A form of defined contribution plan under which an employer sets up individual retirement accounts (IRAs) for each participating employee. The
employer makes contributions to these accounts on behalf of the employee. These contributions into an employee’s SEP are not included in the
employee’s gross income
372
single premium deferred annuity (SPDA)
An annuity whose money grows within the contract until the owner accesses the funds or the contract annuitizes. Once a person buys the SPDA,
no additional premium payments are accepted.
373
single premium immediate annuity (SPIA)
Bought to regularly distribute income. A person who buys an immediate annuity exchanges a lump-sum amount of money for a series of monthly
income payments.
374
single premium life insurance
The most extreme form of limited pay life. The policy is paid with one premium at the time the policy is bought.
375
skilled nursing care
Nursing care normally in a facility that is provided under the supervision of skilled professionals and under a doctor's orders.
376
social insurance supplement (SIS) rider
An individual DI policy rider that provides extra monthly income, helping the person who is eligible for a social insurance program but whose
benefits have not yet begun
377
special risk policy
Applies to unique hazards or risks. An example is a boxer who insures himself for a boxing match.
378
specialized life insurance policy
A category of life insurance policy characterized not by the policies' design or features but by the purpose for which these policies are written. This
category of life insurance policy includes joint life insurance, survivorship policies, juvenile life insurance, and life insurance for family uses and
needs.
379
specified amount
The amount of death benefit a policyowner initially buys in a universal life policy.
380
specified coverage
Coverage under medical expense insurance that is limited to one specific form of care, such as vision-only, dental-only, etc.
381
speculative risk
Risk that can result in loss or gain.
382
spend down
The process by which applicants exhaust their assets to qualify for Medicaid, if these assets are above the allowable limits.
383
spendthrift clause
A common clause in life insurance policies that states that creditors cannot claim any death proceeds from the policy before the proceeds are paid
out to the beneficiary
384
split-dollar plan
An arrangement under which a permanent life insurance policy is bought on the life of a key executive. Either the executive or the employer owns
the policy. The premiums for the policy and the death benefits provided under it are split between the employer and the key executive (or other
third party)
385
sponsor
In group life insurance, the sponsor is the policyowner and premium payor
386
standard policy exclusion
In life insurance, such exclusions include war, aviation, hazardous occupations and hobbies, and commission of a felony.
387
standard risk
One of the three risk classifications. The applicant receives this rating when he or she meets the insurer’s guidelines as an acceptable risk.
388
statement of continued good heath
If the initial premium is not paid with a life insurance application, then the applicant is required to sign a statement of continued good health when
the policy is delivered. This assures the insurer that nothing has changed with the applicant’s health that would alter the insurer’s underwriting
decision.
389
stock insurance companies
Owned by stockholders, these companies pay dividends, when declared, to their stockholders
390
stock redemption agreement
The name of the agreement when a close corporation buys the interest or shares of a deceased partner or shareholder.
391
stop-loss
A feature common to major medical policies that protects the insured by limiting the out-of-pocket dollar amount he or she must pay.
392
straight life income option
A life insurance settlement option with a life contingency under which the policy’s proceeds are converted into payments that are made for the life
of the payee. The payments stop upon his or her death.
393
straight whole life policy
A whole life policy in which death benefits are level. Level premiums are paid until the insured dies or until he or she reaches age 120, whichever
comes first.
394
straight-life income option
In an annuity, a life contingency payout option in which the annuitant is paid an income for his or her lifetime, regardless of how long the owner
lives. At the owner’s death, no further payments are made to anyone—the contract ends.
395
structured settlement annuity
An annuity used to distribute funds from the settlement of lawsuits or from the winnings of state lotteries.
396
sub-account
Investment accounts into which VLI policy values are invested. Sub-accounts are unsecured and nonguaranteed.
397
sub-capitation
An arrangement whereby a medical care provider being paid under an HMO capitation system sub-contracts with other providers, sharing a
portion of the original capitated premium
398
substandard risk
One of the three risk classifications. An applicant can receive this rating for a number of reasons, including poor health, bad habits, dangerous job,
or high number of early major illnesses in the famil
399
suicide provision
A provision in nearly all life insurance policies that denies paying the death benefit if, during the first two years following policy issue, the insured
commits suicide.
400
summary plan description
Describes what the employer-sponsored plan covers and what rules must be followed to obtain the benefits the plan offers.
401
supplemental major medical policy
Covers costs beyond what a basic medical expense plan pays for.
402
surplus lines insurance
A specialized insurance coverage that is offered when either of these conditions arises: (1) a risk or a part of a risk is identified for which there is
no market available through the original or producing agent; or (2) a state bars the sale of a specific type of coverage or otherwise prevents
insurance companies from providing coverage for a particular risk or restricts them from charging adequate rates.
403
surrender
When a policyowner actively cancels an annuity or life insurance policy, in full or in part, and withdraws the cash value.
404
surrender charge
A charge imposed on the early surrender of or withdrawal of funds from a universal life insurance policy. The purpose of the surrender charge is to
enable the insurer to recover the costs it incurs in selling and underwriting the policy. A surrender charge is sometimes referred to as a contingent
deferred sales charge
405
survivorship life insurance
Commonly known as second-to-die policies. These policies are so called because they insure more than one person but pay the death benefit
only when the second insured dies.
406
target premium
In a UL policy, the premium level at which insurers typically pay full first-year commissions to their agents.
407
taxable wage base
The amount of one's wages that is subject to OASDI tax.
408
tax-qualified LTC policy
Enables policyowners to deduct premiums as a medical expense deduction. It also enables policyowners to receive limited benefits tax-free.
409
temporary settlement options
A life insurance settlement option without a life contingency in which the payments do not continue until the payee’s death. Fixed amount and
fixed periods are types of temporary settlement options.
410
term insurance
```
A class of life insurance, term coverage is temporary, applying only for a limited period. At the end of that period, the policy expires. The policy
pays a death benefit only if the insured dies during the term. The term can be defined in years or by the age of the insured.
```
411
term life insurance
Provides protection for a specified, limited period. The term can be defined in years or by the age of the insured.
412
term rider
Can be added to any policy to increase the death benefit payable if the insured dies during the specified term. Term riders are pure death benefit--
they have no cash value or other living benefits associated with them.
413
third-party ownership
In a life insurance policy, when the insured and policyowner are not the same person.
414
time limit on certain defenses provision
One of the 12 required provisions in a health insurance policy. Largely the same as the incontestable clause in life insurance. It limits the time an
insurer can void a contract or deny a claim for material misrepresentations on the application
415
time payment of claim provision
One of the 12 required provisions in a health insurance policy. States that the insurance company pays claims immediately after receiving proper
proof of loss. Ongoing income payments for disability claims must be paid at least monthly
416
top-heavy plan
A top heavy plan is a qualified employer-sponsored plan that results in highly compensated employees receiving more from the plan, as a
percentage of pay, than rank-and-file employees. If a plan is found to be “top heavy,” the IRS could move to disqualify it.
417
total disability
The condition for which total disability benefits are payable as defined in a disability policy. Disability policies define total disability in different
ways. A total disability provision can be an "own occupation" definition, an "any occupation" definition, or a hybrid definition.
418
transfer-for-value rule
Applies when life insurance policies are sold or transferred to another party for valuable consideration. In such cases, the beneficiary may be
subject to income tax when the death benefits are paid.
419
trust
A legal entity established to own and hold property or assets for the benefit of another person or people.
420
twisting
Illegally inducing a policyowner to lapse or to cancel existing insurance for the purpose of replacement.
421
two-tiered fixed annuity
A variation on the standard fixed annuity. This annuity has a higher level of interest crediting than most traditional fixed annuities, provided the
contract owner keeps the product and chooses to annuitize it. However, a lower rate is applied if the contract owner surrenders the annuity and
takes its values in a lump sum instead of annuitizing. If he or she does that, then this lower rate of interest is retroactively applied back to the date
the contract was bought.
422
UCR
Usual, customary, and reasonable. Under this type of medical expense coverage, the amount payable for the covered service is based on the
amount that is usual or common for the area in which the service is performed. Or it is based on the usual charge that most other health providers
of similar training or experience charge
423
underwriting
The process that determines if the risk proposed for insurance should be accepted or rejected. See also field underwriting.
424
unilateral contract
A contract in which only the insurer makes a promise that can be enforced.
425
universal life insurance
An extremely flexible life insurance policy in which the policyowner can, within certain limits, increase premiums, reduce premiums, or pay no
premiums. Similarly, the policyowner can increase the benefit paid at death (subject to evidence of insurability) or can decrease it. The three
factors central to the policy (mortality, expenses, and interest) are separate elements.
426
unpaid premium provision
One of the 11 optional provisions in a health insurance policy. This provision addresses any premiums the insured may not have paid at the time
of a claim. In such a case, the insurer can deduct this amount from the total benefit it owes the insured.
427
utilization review
Used by managed care plans to assess the need for and appropriateness of given health care services for members or subscribers. It is a primary
tool to control over-utilization, to reduce costs, and to manage health care services.
428
valuable consideration
Something given as part of an agreement between two parties that has some objective value and so makes the agreement a valid contract. For
example, in the sale of a car, valuable consideration is the money paid to the person selling the car.
429
valued contract
A life or health insurance policy that pays a stipulated sum as set in the contract. All life insurance policies are valued contracts, as are accidental
death & dismemberment health policies. A valued contract is the opposite of an indemnity (reimbursement) contract
430
variable annuity
A form of annuity for which the insurer makes no guarantee as to the annuity principal or the credited interest rate. Variable annuity premiums and contract values are invested in the insurer’s separate accounts instead of its general account. The contract’s values move up and down in
response to the investment performance of the separate accounts and their associated stock, bond, and money-market portfolio subaccounts
431
variable life insurance
A form of permanent whole life insurance in which premiums are placed in investment sub-accounts that the policyowner owns. The insurer
guarantees a minimum death benefit, usually the face amount of the policy at issue. However, the cash values and the death benefit rise and fall
on the basis of the sub-account’s investment performance.
432
variable life insurance policy
A form of permanent life insurance in which premiums are placed in investment sub-accounts that the policyowner owns. The insurer guarantees
a minimum death benefit, usually the face amount of the policy at issue. However, the cash values and the death benefit rise and fall on the basis
of the sub-account’s investment performance
433
variable sub-account
An investment portfolio included in the separate account. Variable product owners can allocate premiums and cash value into the separate
account.
434
variable universal life insurance
Combines the features of universal life insurance with the ability to allocate premiums to a separate account.
435
viatical settlement
The sale of the rights and benefits in an existing life insurance policy to an investor; when a terminally ill person transfers ownership of a life
insurance policy to another in return for payment of some amount less than the policy's death benefit
436
viatical settlement agreement
Arranges the agreement between the viatical settlement purchaser, provider, and viator. The broker works on behalf of the viator in this
agreement.
437
viatical settlement broker
Arranges the agreement between the viatical settlement purchaser, provider, and viator. The broker works on behalf of the viator in this agreement
438
viatical settlement provider
In a viatical settlement, the third-party to whom the chronically or terminally ill policyowner sells his or her life insurance policy.
439
viatical settlement purchaser
An investor who funds a viatical settlement on behalf of the viatical settlement provider.
440
viator
The insured in a viatical settlement.
441
waiver
When a party to a contract gives up a right that this party knows he or she holds.
442
waiver of cost of insurance
In UL policies, waives only the cost of insurance that is deducted monthly from the policy’s cash value.
443
waiver of premium
A provision in an insurance policy, sometimes provided by rider, under which the policy’s premiums are waived if the insured becomes totally
disabled for a stated period.
444
waiver of stipulated premium
In UL policies, waives a preset premium payment amount if the insured becomes disabled for at least six months.
445
warranty
A statement guaranteed by the maker to be true in all ways.
446
whole life insurance
Provides permanent insurance coverage for a person’s lifetime. Provides guarantees for premiums, cash value, and death benefits.
447
Workers' Compensation
State administered program that protects people who are injured or become sick on the job.
