LIFE AND HEALTH INSURANCE GLOSSARY Flashcards
1
Q
A&H:
A
Accident and Health
2
Q
Absolute Assignment:
A
Assignment by the policy owner of all control and rights to a third party. Accident: A fortuitous event, unforeseen and unintended.
3
Q
Accidental Death Insurance:
A
A form of Health insurance that provides payment, if death of the insured results from accident. Accidental Death insurance is often combined with Dismemberment insurance in a form called Accidental Death & Dismemberment (AD&D).
4
Q
Accident and Sickness:
A
Insurance against bodily injury, disability or death by accident or accidental means, or expense thereof, or against disability or expense resulting from sickness, and the insurance relating thereto.
5
Q
Accidental Means:
A
The unexpected cause of an accidental bodily injury. Under an Accidental Means definition, which is very restrictive, if you meant to do whatever caused your injury, there is no coverage. Most Health insurance policies cover Accidental Bodily Injury, which is much broader, in that it covers accidents regardless of the cause.
6
Q
Accumulation at Interest Option:
A
A dividend or settlement option under which the policyholder allows his/her dividends or policy proceeds to accumulate interest with the company. Although the dividends or proceeds are not generally taxable, the interest earned is.
7
Q
Actuary:
A
One concerned with the application of probability and statistical theory to insurance, utilizing the law of large numbers.
8
Q
ADB:
A
Accidental Death Benefit, also known as Double or Triple Indemnity. A rider added to a Life policy that will pay double the face amount if the insured dies as a result of accident, generally within 90 days of the accident.
9
Q
AD&D:
A
Accidental Death and Dismemberment insurance. A limited form of Health insurance that covers accident only. It is the only type of Health insurance that covers death. AD&D policies do not follow the Principle of Indemnity, in that they pay in addition to any other coverage the insured has.
10
Q
Administrator:
A
Person appointed by a court to settle a deceased’s estate, sometimes called an executor.
11
Q
Adverse Selection:
A
Selection not in favor of the company. The tendency of poorer risks to want insurance more often than standard risks. Adverse selection occurs when a person who is already sick purchases health insurance.
12
Q
Adverse Underwriting Decisions, Consumer Rights:
A
Under the Fair Credit Reporting Act, when an adverse underwriting decision is made, the insurer or producer responsible must provide the applicant or policyholder with specific written reasons for the decision, or advise the individual that specific reasons are available upon written request. After receiving notice that an adverse underwriting decision has been made, an individual has 90 business days within which to request information in writing. Upon receipt of the written request, the institution or producer must furnish, within 21 business days, specific reasons for the adverse decision and the names and addresses of the sources that provided the information.
13
Q
Affordable Care Act:
A
The Patient Protection and Affordable Care Act (commonly called the ACA or “Obamacare” was signed into law on March 23, 2010. Representing a fundamental shift in the area of medical expense policies, the ACA provisions have taken effect over time. One of the first provisions enacted was the extension of time children may remain dependents on their parent’s policies, up to age 26. October 1, 2013 saw the launch of health insurance “exchanges”. January 1, 2014 is when U.S. citizens are required to have health insurance, or pay a fee (penalty tax on their tax return). A controversial law, the ACA is designed to enable all U.S. citizens the ability to purchase health insurance regardless of their health status (or if they qualify enroll in Medicaid or the Children’s Health Insurance Program - CHIP). The ability to purchase medical expense policies regardless of health (guaranteed issue) represents a dramatic shift in the industry. The ACA also eliminates annual limits, lifetime limits and describes “essential coverage benefits”. All medical expense policies must cover these “essential health benefits”. Under the ACA, a person’s premium can no longer be based upon health. Age, type of coverage purchased, smoker/non-smoker status, and location are allowable factors in determining a person’s premium.
14
Q
Agent / Producer:
A
The individual appointed by an insurance company to solicit and negotiate insurance contracts on its behalf. Agents or Producers represent the company, not the client.
15
Q
Alien Company:
A
An insurer organized and domiciled in a country other than the United States.
16
Q
Annuitant:
A
The party receiving the benefits of an annuity, similar to the insured on an insurance policy. The annuitant usually also owns the annuity, although you can buy an annuity to benefit another party, who would then be the annuitant.
17
Q
Annuity:
A
1) An amount of money payable yearly or, by extension, at other regular intervals. 2) An agreement by an insurer to make periodic payments that continue during the lifetime of the annuitant(s) or for a specified period. Annuities are considered to be the opposite of life insurance, since annuities pay while you’re alive and life insurance pays when you die. Life insurance proceeds create an estate, while annuities are used to liquidate an estate over a period of time. All annuities are insurance products and a life insurance license is required.
18
Q
Applicant:
A
The party making application to the insurance company for the policy. Applicants must provide the insurer with the truth to the best of their knowledge, which is known as a “representation.”
19
Q
Application:
A
A form on which the prospective insured states facts requested by the insurer and on the basis of which (together with any information from medical examiners, attending physicians, hospitals, investigators, and the producer) the insurer decides whether or not to accept the risk, modify the coverage offered, or decline the risk. An application without premium money is a Request for an Offer. With premium money, it is an Offer itself. If attached to the policy at issue, it becomes part of the Entire Contract.
20
Q
Assignee:
A
The person to whom policy rights are assigned in whole or in part by the policy owner, who is known as the Assignor. On Life insurance there are two types of assignment: Absolute and Collateral.
21
Q
Assignment:
A
Transfer of rights in a policy to another party by the policyholder. For example, if you bought a life insurance policy on a minor child, you are the owner and the child is the insured. When the child reaches age 21, you could assign all rights of ownership in the policy to the child. This is an absolute assignment.
22
Q
Attained Age:
A
The present age of the insured. Upon conversion, premiums are based on the current age of the insured
23
Q
Attorney-In-Fact:
A
A person to whom authorization is given by an individual to exchange insurance with other persons. Always present in a Reciprocal Insurance Company
24
Q
Authorized Company:
A
An insurer permitted to sell insurance within a state. Must obtain a Certificate of Authority from the Director (Insurance Commissioner) from every state they sell in.
25
Automatic Premium Loan:
A rider in a Life policy authorizing the insurance company to use the cash value to pay premiums not paid by the end of the grace period. May be present in Whole Life or Endowment policies only, never Term since Term has no cash value. This rider is free, but must be selected by the policy owner.
26
Aviation Clause:
Limits or excludes coverage when the insured is participating in specified types of air travel. Coverage is usually confined to regularly scheduled flights of commercial airlines. Often applies to student pilots.
27
Beneficiary:
A person who may become eligible to receive, or is receiving, benefits under an insurance plan, other than as a participant. The beneficiary is selected by the policy owner and may be changed at any time, unless “irrevocable.”
28
Blanket Insurance Contract:
A contract of Health insurance that covers all of a class of persons not individually identified. Often written to cover school children or sports teams, such as Little League. No certificates are issued, since coverage applies to everyone that attends or participates.
29
Blue Plan:
Generic term for those insurers (usually on a service rather than reimbursement basis) who are authorized to use the designation “Blue Cross” or “Blue Shield.”
30
Brokerage:
A Producer who represents an insured in the solicitation, negotiation, or procurement of contracts of insurance. For example, you might represent only one insurer as a Producer. If that insurer declines to write coverage for your client, you might try to “broker” the business elsewhere in an effort to better serve your customer.
31
Business Insurance:
Life or Health insurance written to cover business situations such as key person, sole proprietor, partnership, corporations, etc.
32
Cancelable:
A contract of insurance that may be terminated by the insurance company or insured at any time. Virtually every form of insurance is Cancelable (unless state law prohibits such action), except Life insurance and those Health policies designated as Guaranteed Renewable or Non-cancelable and Guaranteed Renewable.
33
Cancellation:
Termination of a contract of insurance mid-term (rather than at the renewal date) by voluntary act of the insurance company or insured, effected in accordance with provisions in the contract or by mutual agreement.
34
Capital Sum:
The maximum amount payable in one sum in event of Accidental Dismemberment. On an AD&D policy, the Principal sum is the amount payable for Accidental Death. The Capital Sum is generally 50% of the Principal Sum.
35
Cash Dividend Option:
A dividend option under which the policyholder receives the dividends in cash. Not subject to tax. Mutual insurers issue “participating” policies, which might pay dividends, but they are not guaranteed.
36
Cash Surrender Value:
The accumulated, guaranteed cash value in a Whole Life or Endowment policy at any given point in time. Most contracts do not develop a cash value until after the 3rd year. On Whole Life, the cash value will equal the face amount of the policy at age 100. Synonymous with Cash Value.
37
Certificate:
A statement evidencing that a policy has been written and stating the coverage in general. On Group insurance, the employer receives the master policy and the employees receive Certificates of Insurance.
38
Claim:
A demand for payment under the insurance policy.
39
Classification:
The grouping of persons for the purpose of determining an underwriting or rating group into which a particular risk must be placed. For example, on Whole Life, the “standard” rate for the average person at age 30 might be $10 per $1,000 of face amount. If the insured is “sub-standard,” the rate will be higher. A Preferred risk receives a discount from the standard rate
40
Coinsurance:
In Health insurance, a provision that the insured and insurance company will share covered losses in agreed proportion. In Health insurance, coinsurance is often percentage participation, with the insurer paying 80% and the client paying 20%, up to a maximum “stop loss” amount. Coinsurance applies after the deductible has been satisfied. The purpose of coinsurance is to keep the insured from over utilizing the coverage, since he/she has to pay part of every claim. HMOs utilize “co-payments” for office visits, rather than coinsurance.
41
Collateral Assignment:
Assignment of part of the proceeds of an insurance policy to a bank as collateral to settle the loan balance that may exist at the insured's death.
42
Common Disaster Provision:
A provision that can be included in a Life contract, that provides that the Primary Beneficiary must outlive the insured by a specified period of time in order to receive the proceeds. If not, then the Contingent Beneficiary receives the proceeds. The provision is designed to protect the rights of the Contingent Beneficiary in the event of simultaneous (or nearly simultaneous) death of the insured and the Primary Beneficiary. The time limit is usually 10, 15, or 30 days, depending on state law.
43
Comprehensive Health Insurance:
A form of Health insurance that combines the coverage of Major Medical and Basic Medical Expense contracts into one broad contract that provides coverage for almost all types of medical expense, usually subject to a Corridor Deductible and to a Percentage Participation clause (sometimes called Coinsurance) applicable to all or some of the covered expenses.
44
Concealment:
The withholding of facts by an applicant for insurance, which materially affects an insurance risk or loss.
45
Conditional Receipt:
The more exact term for what is often called a "binding receipt" in Life and Health insurance. In Life and Health insurance, a Conditional Receipt provides that if premium accompanies the application, coverage shall be in force from the date of application (whether the policy has yet been issued or not) provided the insurance company would have issued the coverage on the basis of facts as revealed by the application and other usual sources of underwriting information. Remember, there is never any coverage unless the premium has been paid!
46
Conditionally Renewable:
A contract of Health insurance that provides that the insured may renew the contract to a stated date or an advanced age, subject to the right of the insurer to decline renewal only under conditions defined in the contract.
47
Conditions:
The part of an insurance contract setting out the responsibilities of both the Insured and the Insurer, such as the requirements regarding Notice of Claim and Proof of Loss.
48
Consideration:
The exchange of value on which a contract is based. In Life and Health insurance, the Consideration is the premium and the statements in the application. Remember, consideration need not be equal. You might pay $1,000 in premium, but your policy will pay $100,000 if you die.
49
Consideration Clause:
A clause in a Life policy specifying the premium due for the insurance protection and the frequency of payment (also called Mode). The more frequent the Mode of Payment, the higher the cost, since most insurers charge service fees for budget payments. The cheapest Mode is annual.
50
Contingent Beneficiary:
Person or persons named to receive benefits if the Primary Beneficiary is not alive when the insured dies. For example, the Primary Beneficiary might be your spouse and the Contingent Beneficiary might be your children.
51
Contract:
A legal agreement between two parties for consideration, such as an insurance policy. To hold up in court, contracts must contain four required elements: Consideration, Offer, Acceptance and Legal Purpose (remember the acronym COAL). Parties to the contract must also have Legal Capacity.
52
Contributory Group:
Group insurance for which the employees pay part of the premium. If the group is contributory, at least 75% of those eligible must enroll in order to prevent “adverse selection.” In non contributory groups, 100% must enroll.
53
Controlled Business
Life insurance coverage written on the producer's own life and on the lives of such persons as the producer's relatives and business associates. The amount of controlled business a producer may write is restricted in most states, often to a maximum of 50% in a 12 month period.
54
Convertible Term Insurance:
A Term policy that can be converted at any time to a permanent type of coverage without proof of insurability. Conversion premiums are based on current age and coverage cannot be increased. Most Term is convertible, but not all. Most Group insurance (which is usually Annual Renewable Term) is convertible by law during its 31 day grace period.
55
Corridor Deductible
A Major Medical deductible that applies between benefits paid by the Basic plan and the start of the Major Medical benefits.
56
Credit Insurance:
Insurance on a debtor in favor of a lender, intended to pay off a loan or the balance due thereon if the insured dies or is disabled. Credit Life is a type of decreasing term insurance and the face amount of the policy is limited to the amount of the loan. Generally not used as Mortgage Protection Insurance.
57
Death Benefit:
The policy proceeds to be paid upon the death of the insured. On Life insurance, proceeds are not taxable, but may be included in the value of the insured’s estate for estate tax purposes.
58
Deductible:
Dollars or percentage of expense that will not be reimbursed by the insurer. The purpose of the deductible is to hold down the cost of insurance. The higher the deductible, the lower the premium.
59
Decreasing Term Insurance:
Term insurance whose amount of coverage starts out at the full amount, then gradually decreases until the expiration date of the policy. Generally, the cheapest type of Life insurance, but it has no cash value and cannot be renewed. Often used as Mortgage Protection insurance.
60
Deferred Annuity:
An Annuity on which payments to the annuitant are delayed until a specified future date. May be purchased with a single premium (a SPDA) or with flexible premiums. Interest earned during the “accumulation” (or pay in) period is tax deferred until withdrawal, when amounts above the annuitant’s invested capital (or cost basis) are taxed as ordinary income.
61
Direct Writer:
An insurance company that sells its policies through licensed producers who represent the insurer exclusively, rather than through independent local producers, who represent several insurance companies. Direct writing producers are also called “Exclusive” or “captive” producers.
62
Disability Income Insurance:
A form of Health insurance that provides periodic payments to replace income, actually or presumptively lost, when the insured is unable to work as a result of sickness or injury.
May be either individual or group coverage and is usually subject to a “waiting” or “elimination” period. In order to receive benefits, the insured must meet the definition of total disability in the policy, which varies by company.
63
Dismemberment Benefits:
Benefits paid for the loss of eyesight or limbs.
64
Dividend:
The return of part of the premium paid for a participating policy issued by a mutual insurer. It is unlawful to guarantee future dividends, but Producers may refer to the insurer’s past dividend payment history, if accurate. Mutual dividends are not taxable. However, dividends paid to stockholders of a stock insurer are taxable, since stock companies issue “non-participating” policies
65
Dividend Options:
Ways an insured may receive policy dividends. If a Mutual insurer declares a dividend, the policyholder has a choice of six dividend options, which can be changed at any time, including: Cash, Interest, Applied to Premium When Due, Paid Up Additions, one year Term insurance, or Paid-Up Option.
66
Domestic Insurance Company:
An insurance company formed under the laws of the state in which the insurance is written.
67
Double Indemnity:
Payment of twice the basic benefit in the event of loss resulting from specified cause or under specific circumstances.
68
Dread Disease Policy:
A policy, usually offering blanket coverage up to a very high maximum, for certain specified diseases only, such as scarlet fever, smallpox, polio, tetanus, cancer, etc. Such policies do not follow the Principle of Indemnity in that they pay in addition to any other coverage the insured has.
69
Earned Premium:
That portion of the premium for which policy protection has already been given during the now-expired portion of the policy term. For example, if you buy a one year Health policy for a premium of $1,200 and the insurer cancels you exactly six months later, they are entitled to keep $600 (the earned premium), but they must also refund you $600, which is called the “unearned” premium. If they covered you for the entire year, all the premium would be earned. This concept also applies to P&C insurance, but not to Life insurance, where all premiums are considered to be fully “earned” upon payment.
70
Effective Date
The date on which an insurance policy or bond goes into effect and from which protection is furnished.
71
Eligibility Period
The period during which the employee is eligible to obtain coverage under a Group Life or Health plan. This period is also sometimes called the “open enrollment” period.
72
Endorsement:
A form attached to an insurance P&C policy changing the contract. Endorsements are called “riders” in Life and Health insurance. No change to a policy may become effective until approved by a company officer.
73
Endowment Policy:
A cash value life policy for which premiums are paid for a limited number of years, such as to age 65. If the insured is alive at the end of this premium-paying period, he/she receives the face amount of the policy. If the insured dies before maturity of the policy, the beneficiary receives the proceeds. Generally the most expensive type of cash value life insurance, since the policy reaches maturity prior to age 100. Endowments are often purchased to supplement retirement or for children’s educational purposes
74
Essential Health Benefits:
The ACA requires all medical expense policies to include coverage for the following essential health benefits: ambulatory patient services (outpatient care you get without being admitted to a hospital), emergency services, hospitalization (such as surgery), maternity and newborn care (care before and after your baby is born), mental health and substance use disorder services, including behavioral health treatment (this includes counseling and psychotherapy), prescription drugs, rehabilitative and habilitative services and devices (services and devices to help people with injuries, disabilities, or chronic conditions gain or recover mental and physical skills), laboratory services, preventive and wellness services and chronic disease management, and pediatric services. Essential health benefits may not be subject to annual limits or lifetime limits.
75
Exclusions:
Causes, conditions, or property listed in the policy that are not covered and for which no benefits are payable. For example, in most states, suicide is excluded on a Life policy for the first 2 years. On Health insurance, intentional self inflicted injury is never covered
76
Experience:
The loss record of an insured, a class of coverage, or an insurance company. For example, most large Group Life policies are rated based on the prior claims history of the group, which is called “experience rating.”
77
Extended Term Option:
A Life insurance non-forfeiture option, under which the insured uses the policy's cash-value accumulation to purchase one-year Renewable Term Insurance in an amount equal to the original policy face amount. Although the policy holder could select the Extended Term Option at any time, if the policy lapses and no other non-forfeiture option has been selected, the policy will automatically go into Extended Term. Remember, there are three non-forfeiture options: Cash Surrender, Reduced Paid Up and Extended Term.
78
Face Amount:
The amount indicated on the face of a Life policy that will be paid at death or when a Whole Life policy matures at age 100. Also known as the Death Benefit or the policy limit. Not taxable.
79
Family Income Rider:
Added to a Whole Life policy for an additional premium, this rider is similar to the Decreasing Term Rider except that payments to the beneficiary are in the form of monthly income rather than a lump sum. For example, if you added a 10 year $100,000 FIR to your policy and died five years later, your family would receive $10,000 a year for five years PLUS the face amount of your Whole Life policy. Remember, the rider is term insurance and you must die in the term. If you died after 11 years, the rider would not cover, but the Whole Life would, since Whole Life is “permanent” insurance, covering to age 100.
80
Family Plan Policy:
A combination plan covering your entire family, usually with Permanent insurance on the father's life, with mother and children automatically covered for lesser amounts (usually Term), all included under one premium
81
Fiduciary:
A person who occupies a position of special trust and confidence when handling premiums on behalf of insureds and insurers. (for example, in handling or supervising the affairs or funds of another). Insurance producers are considered to be fiduciaries.
82
Fixed Amount Option:
A settlement option under which the beneficiary receives a fixed amount (such as $500 a month) for an unspecified period of time. Payments continue until the principal and interest are depleted.
83
Fixed Period Option:
A settlement option, under which the beneficiary receives a regular income for a specified period of time, such as 10 years, at which time the principal and interest are depleted. The name speaks for itself.
84
Foreign Company:
An insurer organized under laws of a state other than the one in which the insurance is written. For example, a company that is domestic to Illinois would be considered to be “foreign” in all other states.
85
Fraud:
An intentional misrepresentation made by a person with intent to gain advantage, and relied upon by a second party that suffers a loss. Fraud is the intent to deceive and can be very hard to prove.
86
General Agent (GA):
An individual appointed by an insurer to administer its business in a given territory. Responsible for building the agency and service force. Compensation is on a commission basis, although there may be additional expense allowances. Often called a Managing General Agent (MGA).
87
Grace Period:
A period of time after the premium due date during which a policy remains in force without penalty, even though the premium due has not been paid. If you don’t pay your premium on time, the grace period is the first policy provision to apply.
88
Group Contract:
A contract of insurance made with an employer or other entity that covers a group of people identified as individuals by reference to their relationship to the entity. A Group contract may be Life insurance, Health insurance, or an Annuity.
89
Group Life Insurance:
Life insurance a person is eligible to purchase through membership in a group. The group may not be formed just to buy insurance. Group insurance is usually less expensive than individual coverages. Remember, you cannot form a group just to buy insurance. It must exist for some other purpose.
90
Guaranteed Issue:
A policy that the insurer must issue. Under the Affordable Care Act health insurance policies are as of January 1, 2014 guaranteed issue. That means that the insurer must issue the policy, no matter the person’s health. Medicare Supplement Plans purchased in the open enrollment period are guaranteed issue. Medicare is also guaranteed issue.
91
Guaranteed Insurability
A rider in Life and Health contracts that permits the insured to buy additional prescribed amounts of insurance at prescribed future time intervals without evidence of insurability.
92
Guaranteed Renewable:
A contract that gives the insured the right to continue in force by the timely payment of premiums for a substantial period of time as set forth in the contract. During that period of time, the insurer has no right to make any change in any provision of the contract other than a change in the premium rate for all insureds in the same class.
93
Hazard:
Any factor tending to make a policy owner a less-desirable risk for the insuring company. May be Physical, Morale or Moral (health, occupation, dangerous sports, criminality, immorality). A hazard is something that increases the risk. Risk is defined as the chance of loss. For example, smoking is a hazard on both Life and Health insurance.
94
Health Insurance:
Broadly, coverage to provide benefits upon the occurrence of disabling sickness or accident, or accidental death or dismemberment, or loss of income due to disability. Health insurance never covers death due to sickness, however. That’s Life insurance! Also known as A&H (Accident and Health) or Disability insurance.
95
Health Maintenance Organization (HMO):
An organization of health services providers, also known as “Managed Care” providers. Each member/subscriber pays a premium for which he receives medical care when desired, subject to a co-payment per office visit. The emphasis is on preventative medicine as an alternative to traditional employee benefit plans. Employers of more than 25 persons are required to offer this alternative to employees, if an HMO is located in the area, but not if the cost exceeds that of present employee health plans.
96
Hospital Expense or Income Policy:
A policy that pays a stated amount per week or month while the insured is hospitalized, without reference to expenses actually incurred. It might be viewed as a Disability Income policy with disability defined as hospitalization. Pays in addition to other policies
97
Hospitalization Expense Policy:
A policy that covers daily hospital Room and Board charges and also covers Miscellaneous Hospital Expenses (such as X-rays). It also often covers Emergency Treatment charges and many times will also include a Surgical Schedule. A “basic” plan.
98
Immediate Annuity:
A lump-sum Annuity on which the income payments to the annuitant are to begin at once. Immediate annuities have no “accumulation” period.
99
Incontestable Clause:
Provides that after the policy has been in force a certain length of time, the company can no longer contest it or void it, except for nonpayment of premiums. The time period is usually two years. In other words, Life and Health policies are “contestable” for the first two years and “incontestable” thereafter. However, Health policies are always contestable for fraud!
100
Indemnify:
To restore the insured victim of a loss financially, in whole or in part, by payment, repair, or replacement. To make the insured “whole” after a loss. For example, a Basic Medical Expense policy might cover your room and board in the hospital up to $1,000 a day. If your bill for one day is $900, the company will pay it all. However, if your bill is $1,100, the company will only pay $1,000. The company will pay the policy limit or the amount of the claim, whichever is less.
101
Indemnity:
Insurance is designed to restore the policyholder to the same financial condition enjoyed prior to a loss. The intent is to cover the amount of the actual loss only and to avoid paying amounts that allow an insured to profit from a loss situation. This is known as the Principle of Indemnity. Health insurance follows this concept, but Life insurance doesn’t. All Life policies pay in addition to each other!
102
Individual Contract:
A contract of Health insurance made with an individual that covers her and, in certain instances, specified members of the household. In general, any insurance policy except Group or Blanket.
103
Industrial Life:
Life insurance generally with a face amount of less than $1,000, with premiums collected monthly or more frequently by the producer in person. The grace period for this type of insurance is 28 days. Also known as “Home Service” Life insurance. There are three types of Life insurance: Ordinary (which includes Whole Life, Term and Endowment), Group and Industrial.
104
In-Patient:
A patient admitted to a hospital as a resident patient.
105
Insurability:
Acceptability of an applicant for insurance to the insurance company.
106
Insurable Interest:
An interest in the life of an individual by which there will be a loss if the insured dies. The interest may be based on either a family relationship or economic factor. Must exist at the time of application, not necessarily at the time of loss. If you would benefit if a person continues to live, you have an insurable interest in that person.
107
Insurance:
A contract or device for the transfer of pure risk to an insurer, who agrees, for a consideration, to indemnify or pay a specified amount for losses suffered by the insured. Risk is defined as the chance or uncertainty of loss. Pure risk is the chance of loss, with no chance for gain. It is the only type of risk that is insurable. Speculative risk, which is the chance for loss or gain, is not insurable.
108
Insurance Age:
An age upon which current premium rates may be established. It is commonly based on age at last birthday, age next birthday, or age at nearest birthday. Also known as “original” age.
109
Insurance Commissioner
Common title for the head of a state Department or Division of Insurance (Also known as Director in some states). Insurance is regulated by state law. The Commissioner’s job is to protect the insurance buying public by administering state insurance laws and regulations. The Commissioner does not make the laws, he/she enforces them.
110
Insurance Policy:
A contract, a legal document, which establishes the terms of agreement between the insurer and insured.
111
Insured:
The party to an insurance arrangement to whom, or on behalf of whom, the insurance company agrees to indemnify for losses, provide benefits, or render service. In Prepaid Hospital Service plans, the insured is called the subscriber.
112
Insurer:
The insurance company assuming risk and agreeing to pay claims or provide services. Insurers write “indemnity” plans, covering the insured. HMOs are not true insurance companies. They write pre paid “service” plans for their “subscribers.”
113
Insuring Clause:
The clause in a policy that specifies in brief the contract's intent and benefits. Also known as the Insuring Agreement. It specifies the covered perils, such as accident and sickness on Health insurance. A peril is a cause of loss.
114
Interest Option:
A settlement option under which the insurer keeps the insurance proceeds and invests them on behalf of the beneficiary. The beneficiary receives the interest from the investment. The proceeds remain the property of the beneficiary. The proceeds are not taxable but the interest earned is.
115
Irrevocable Beneficiary:
Once elected, cannot be changed without named beneficiary's consent, since they have a “vested” interest in the policy benefits. A policy loan would also require the consent of the Irrevocable Beneficiary, since if you die with a loan outstanding, they would receive less.
116
Joint Life and Survivorship Annuity (Survivorship Annuity):
Payments are made to two annuitants with the survivor continuing to receive payments after the first annuitant dies.
117
Joint Life Annuity:
Payments continue to two annuitants for only as long as both live. Payments stop entirely when the first annuitant dies. There is no survivorship, so monthly payments would actually be higher to the annuitants on a Joint Life Annuity than they would be on a Joint and Survivor Annuity, which pays until the last party dies.
118
Jumping Juvenile:
Juvenile insurance on which the face amount increases by a multiple, usually five, of the original face amount when the insured reaches 21. Used as a marketing tool to sell Life insurance covering children, whose rates are extremely low.
119
Key Person Insurance:
Life or Health insurance on important employees whose absence would cause the employer financial loss. The insurance is usually owned by or payable to the employer. Premiums are not tax deductible, but benefits are not taxed.
120
Lapse:
Termination of a policy because of failure to pay the premium. A policy lapses at the end of its grace period. For example, if you forget to pay your Whole Life premium when due, there is usually a 30 day grace period, during which time coverage continues until the policy lapses.
121
Law of Large Numbers:
An insurance company must protect losses on a homogeneous group. Risks are not usually considered insurable, unless the insurer has a large enough base of previous loss experience to be able to accurately predict future losses. It is the Law of Large Numbers that makes accurate predictions of similar risks possible. Mortality tables are based on groups of at least 10,000,000 people.
122
Legal Reserve:
The amount required as a reserve, to pay claims and benefits, using the mortality table and a maximum assumed interest rate prescribed by state law of the Insurance Commissioner. Insurance companies must file annual financial reports with the Commissioner proving their “solvency.”
123
Level Premium Insurance:
Life insurance, the premium for which remains at the same level (amount) throughout the life of the policy. For example, on traditional Whole Life, the premium is based upon the insured’s original age and it will never change.
124
Level Term Insurance:
The amount of insurance protection in the Term policy remains constant during the policy period, which could be 5 years, 10, 20 or even to age 65. For example, on a five year Level Term Life insurance policy the face amount and the premium would remain level for five years. At renewal at the end of the fifth year, premiums would increase based upon the next five year average age, but the face amount would remain the same. Remember, Term has no cash value and will eventually expire. To be covered, you must die in the term. The word “term” means time. Term insurance is considered to be “temporary.”
125
Life Annuity:
An Annuity that provides a periodic income to the annuitant during his lifetime. A straight Life Annuity has no beneficiary and is considered to be the most risky type of annuity. The annuitant is betting that he/she will live a long time, but the insurer is betting he/she is going to die. Remember, annuities are the opposite of life insurance! Annuities are not subject to underwriting, since there is no insurance protection.
126
Life Annuity with Installments Certain (Life Income with Period Certain):
An annuitant is to receive payments for a specified number of years (such as 10) or for the rest of his/her life, whichever is longer. If the annuitant dies before all the guaranteed payments have been made, the beneficiary receives the payments for the rest of the certain period. The period certain is designed to eliminate some of the risk, but the longer the period certain is, the lower the annuitant’s monthly payments will be!
127
Life Income Option
A settlement option that provides payments during the entire life of the payee. There are four methods:
• Straight Life Income - The payee receives a specified income for life, with no refunds upon death. This is considered the most risky option, since there is no beneficiary.
• Refund Annuity - Income is paid for the lifetime of the payee and to a second payee if the first dies before receiving the full proceeds of the policy. This is the least risky option.
• Life Income Certain - The payee receives installments for life, with a second payee receiving the payments if the first dies before the end of the time specified in the Period Certain. The payee will not receive payments for life, only until the end of the Period Certain, which could be 5 years, 10, 15 or even 20 years, so there is still some risk!
• Joint and Survivor Life Income - Two payees are recipients of the income for the life of the first. The surviving payee then receives a lesser amount.
128
Life Insurance:
Insurance paying a specified amount on the death of the insured, to his estate or to a beneficiary.
129
Limited Pay Life:
A Permanent Whole life insurance policy on which premiums are paid for a specified number of years or to a specified age of the insured. Protection continues for the entire life of the insured. LP65 and 20-Pay Life are examples. A Life Paid up at age 65 is paid up at age 65, but the cash value does not equal the face amount of the policy until age 100 when the policy reaches maturity. Limited Pay Whole Life is more expensive than traditional Whole Life since the premiums must be paid within a shorter period of time.
130
Loading:
The amount added to the cost of mortality (death) to cover the operating expenses of the insurer, such as commissions and the cost of underwriting.
131
Loan Value:
That amount of Cash Value in a Whole Life or Endowment policy reposing in a policy that may be borrowed by the insured. When you borrow from your policy, the insurer is loaning you their money and keeping your money as collateral. Since they usually have their funds invested, they will charge you annual interest on the loan (maximum 8% in most states). Loans don’t have to be paid back while you are alive, but will continue to accrue interest. Upon death, the amount of the unpaid loan plus accrued interest will be subtracted from proceeds.
132
Long Term Disability:
1) A disability having duration longer than a short-term disability, the exact duration being variable and a matter of reference; commonly, anything longer than 90 days. 2) A form of Disability income insurance paying benefits of two years’ duration or more. Long Term Disability policies usually have waiting or elimination periods of at least 30 days and it is usually written on an individual basis. In contrast, Short Term Disability is usually written on a group basis with shorter waiting periods (often seven days) and shorter benefit periods (often six months).
133
Loss:
An unpredictable reduction in the quality, quantity, or value of something. For example, bodily injury, disease, property damage, physical disappearance of property, incurred expenses, death, etc.
134
Loss of Income Benefits:
Benefits paid for inability to work for remuneration because of disability resulting from accidental bodily injury or sickness. The loss of income may be Real or Presumptive.
135
Loss Ratio:
The percentage of losses to premiums, usually losses incurred to premiums earned.
136
Lump Sum:
Proceeds of a policy taken all at once. A single amount.
137
Major Medical Insurance:
A type of Health insurance that provides benefits for most types of medical expenses incurred up to a high limit, subject to a deductible. Such contracts may contain a Percentage Participation clause (sometimes called the Co-insurance clause). A Major Medical policy pays expenses both in and out of the hospital.
138
Manual Rates:
Insurance rates according to a company Rate Manual that varies from company to company. Also known as “Standard Rates.” Most rates must be filed with the state Insurance Commissioner, but the insurance companies actually set their own rates in the competitive marketplace.
139
Master Policy:
The policy contract issued to the employer under a Group insurance plan. Remember, the employees covered by a group plan are considered to be insureds, but they only receive certificates.
140
Material Misrepresentation:
Material Misrepresentation: A misrepresentation that would have been important or essential to the underwriter's decision to issue the policy. A misrepresentation is the applicant’s failure to tell the truth to the best of their knowledge.
141
Maturity
A Life policy is mature when the face amount is payable. Whole Life matures at age 100.
142
Medicaid:
A medical-benefits program administered by states and subsidized by the federal government. Under this plan, various medical expenses will be paid to those who qualify, regardless of age, subject to an income/asset test.
143
Medicare Benefits:
Benefits provided by a federal program as part of the Social Security program. It applies to persons over 65 years of age and certain disabled beneficiaries regardless of age. Medicare has four parts: Part A - Hospitals is provided at no charge and Part B - Physician’s Services, which is optional and requires the Medicare “beneficiary” to pay a monthly premium, Part C - Medicare Advantage Plans which are provided by HMOs and PPOs, and Part D - Prescription Drug Insurance.
