LIFE AND HEALTH INSURANCE GLOSSARY

Question 1

A&H:

Answer 1

Accident and Health

Question 2

Absolute Assignment:

Answer 2

Assignment by the policy owner of all control and rights to a third party. Accident: A fortuitous event, unforeseen and unintended.

Question 3

Accidental Death Insurance:

Answer 3

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).

Question 4

Accident and Sickness:

Answer 4

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.

Question 5

Accidental Means:

Answer 5

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.

Question 6

Accumulation at Interest Option:

Answer 6

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.

Question 7

Actuary:

Answer 7

One concerned with the application of probability and statistical theory to insurance, utilizing the law of large numbers.

Question 8

ADB:

Answer 8

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.

Question 9

AD&D:

Answer 9

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.

Question 10

Administrator:

Answer 10

Person appointed by a court to settle a deceased’s estate, sometimes called an executor.

Question 11

Adverse Selection:

Answer 11

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.

Question 12

Adverse Underwriting Decisions, Consumer Rights:

Answer 12

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.

Question 13

Affordable Care Act:

Answer 13

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.

Question 14

Agent / Producer:

Answer 14

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.

Question 15

Alien Company:

Answer 15

An insurer organized and domiciled in a country other than the United States.

Question 16

Annuitant:

Answer 16

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.

Question 17

Annuity:

Answer 17

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.

Question 18

Applicant:

Answer 18

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.”

Question 19

Application:

Answer 19

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.

Question 20

Assignee:

Answer 20

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.

Question 21

Assignment:

Answer 21

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.

Question 22

Attained Age:

Answer 22

The present age of the insured. Upon conversion, premiums are based on the current age of the insured

Question 23

Attorney-In-Fact:

Answer 23

A person to whom authorization is given by an individual to exchange insurance with other persons. Always present in a Reciprocal Insurance Company

Question 24

Authorized Company:

Answer 24

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.

Question 25

Automatic Premium Loan:

Answer 25

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.

Question 26

Aviation Clause:

Answer 26

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.

Question 27

Beneficiary:

Answer 27

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.”

Question 28

Blanket Insurance Contract:

Answer 28

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.

Question 29

Blue Plan:

Answer 29

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.”

Question 30

Brokerage:

Answer 30

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.

Question 31

Business Insurance:

Answer 31

Life or Health insurance written to cover business situations such as key person, sole proprietor, partnership, corporations, etc.

Question 32

Cancelable:

Answer 32

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.

Question 33

Cancellation:

Answer 33

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.

Question 34

Capital Sum:

Answer 34

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.

Question 35

Cash Dividend Option:

Answer 35

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.

Question 36

Cash Surrender Value:

Answer 36

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.

Question 37

Certificate:

Answer 37

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.

Question 38

Claim:

Answer 38

A demand for payment under the insurance policy.

Question 39

Classification:

Answer 39

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

Question 40

Coinsurance:

Answer 40

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.

Question 41

Collateral Assignment:

Answer 41

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.

Question 42

Common Disaster Provision:

Answer 42

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.

Question 43

Comprehensive Health Insurance:

Answer 43

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.

Question 44

Concealment:

Answer 44

The withholding of facts by an applicant for insurance, which materially affects an insurance risk or loss.

Question 45

Conditional Receipt:

Answer 45

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!

Question 46

Conditionally Renewable:

Answer 46

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.

Question 47

Conditions:

Answer 47

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.

Question 48

Consideration:

Answer 48

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.

Question 49

Consideration Clause:

Answer 49

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.

Question 50

Contingent Beneficiary:

Answer 50

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.

Question 51

Contract:

Answer 51

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.

Question 52

Contributory Group:

Answer 52

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.

Question 53

Controlled Business

Answer 53

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.

Question 54

Convertible Term Insurance:

Answer 54

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.

Question 55

Corridor Deductible

Answer 55

A Major Medical deductible that applies between benefits paid by the Basic plan and the start of the Major Medical benefits.

Question 56

Credit Insurance:

Answer 56

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.

Question 57

Death Benefit:

Answer 57

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.

Question 58

Deductible:

Answer 58

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.

Question 59

Decreasing Term Insurance:

Answer 59

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.

Question 60

Deferred Annuity:

Answer 60

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.

Question 61

Direct Writer:

Answer 61

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.

Question 62

Disability Income Insurance:

Answer 62

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.

Question 63

Dismemberment Benefits:

Answer 63

Benefits paid for the loss of eyesight or limbs.

Question 64

Dividend:

Answer 64

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

Question 65

Dividend Options:

Answer 65

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.

Question 66

Domestic Insurance Company:

Answer 66

An insurance company formed under the laws of the state in which the insurance is written.

Question 67

Double Indemnity:

Answer 67

Payment of twice the basic benefit in the event of loss resulting from specified cause or under specific circumstances.

Question 68

Dread Disease Policy:

Answer 68

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.

Question 69

Earned Premium:

Answer 69

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.

Question 70

Effective Date

Answer 70

The date on which an insurance policy or bond goes into effect and from which protection is furnished.

Question 71

Eligibility Period

Answer 71

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.

Question 72

Endorsement:

Answer 72

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.

Question 73

Endowment Policy:

Answer 73

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

Question 74

Essential Health Benefits:

Answer 74

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.

Question 75

Exclusions:

Answer 75

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

Question 76

Experience:

Answer 76

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.”

Question 77

Extended Term Option:

Answer 77

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.

Question 78

Face Amount:

Answer 78

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.

Question 79

Family Income Rider:

Answer 79

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.

Question 80

Family Plan Policy:

Answer 80

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

Question 81

Fiduciary:

Answer 81

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.

Question 82

Fixed Amount Option:

Answer 82

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.

Question 83

Fixed Period Option:

Answer 83

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.

Question 84

Foreign Company:

Answer 84

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.

Question 85

Fraud:

Answer 85

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.

Question 86

General Agent (GA):

Answer 86

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).

Question 87

Grace Period:

Answer 87

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.

Question 88

Group Contract:

Answer 88

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.

Question 89

Group Life Insurance:

Answer 89

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.

Question 90

Guaranteed Issue:

Answer 90

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.

Question 91

Guaranteed Insurability

Answer 91

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.

Question 92

Guaranteed Renewable:

Answer 92

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.

Question 93

Hazard:

Answer 93

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.

Question 94

Health Insurance:

Answer 94

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.

Question 95

Health Maintenance Organization (HMO):

Answer 95

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.

Question 96

Hospital Expense or Income Policy:

Answer 96

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

Question 97

Hospitalization Expense Policy:

Answer 97

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.

Question 98

Immediate Annuity:

Answer 98

A lump-sum Annuity on which the income payments to the annuitant are to begin at once. Immediate annuities have no “accumulation” period.

Question 99

Incontestable Clause:

Answer 99

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!

Question 100

Indemnify:

Answer 100

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.

Question 101

Indemnity:

Answer 101

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!

Question 102

Individual Contract:

Answer 102

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.

Question 103

Industrial Life:

Answer 103

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.

Question 104

In-Patient:

Answer 104

A patient admitted to a hospital as a resident patient.

Question 105

Insurability:

Answer 105

Acceptability of an applicant for insurance to the insurance company.

Question 106

Insurable Interest:

Answer 106

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.

Question 107

Insurance:

Answer 107

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.

Question 108

Insurance Age:

Answer 108

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.

Question 109

Insurance Commissioner

Answer 109

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.

Question 110

Insurance Policy:

Answer 110

A contract, a legal document, which establishes the terms of agreement between the insurer and insured.

Question 111

Insured:

Answer 111

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.

Question 112

Insurer:

Answer 112

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.”

Question 113

Insuring Clause:

Answer 113

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.

Question 114

Interest Option:

Answer 114

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.

Question 115

Irrevocable Beneficiary:

Answer 115

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.

Question 116

Joint Life and Survivorship Annuity (Survivorship Annuity):

Answer 116

Payments are made to two annuitants with the survivor continuing to receive payments after the first annuitant dies.

Question 117

Joint Life Annuity:

Answer 117

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.

Question 118

Jumping Juvenile:

Answer 118

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.

Question 119

Key Person Insurance:

Answer 119

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.

Question 120

Lapse:

Answer 120

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.

Question 121

Law of Large Numbers:

Answer 121

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.

Question 122

Legal Reserve:

Answer 122

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.”

Question 123

Level Premium Insurance:

Answer 123

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.

Question 124

Level Term Insurance:

Answer 124

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.”

Question 125

Life Annuity:

Answer 125

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.

Question 126

Life Annuity with Installments Certain (Life Income with Period Certain):

Answer 126

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!

Question 127

Life Income Option

Answer 127

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.

Question 128

Life Insurance:

Answer 128

Insurance paying a specified amount on the death of the insured, to his estate or to a beneficiary.

Question 129

Limited Pay Life:

Answer 129

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.

Question 130

Loading:

Answer 130

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.

Question 131

Loan Value:

Answer 131

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.

Question 132

Long Term Disability:

Answer 132

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).

Question 133

Loss:

Answer 133

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.

Question 134

Loss of Income Benefits:

Answer 134

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.

Question 135

Loss Ratio:

Answer 135

The percentage of losses to premiums, usually losses incurred to premiums earned.

Question 136

Lump Sum:

Answer 136

Proceeds of a policy taken all at once. A single amount.

Question 137

Major Medical Insurance:

Answer 137

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.

Question 138

Manual Rates:

Answer 138

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.

Question 139

Master Policy:

Answer 139

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.

Question 140

Material Misrepresentation:

Answer 140

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.

Question 141

Maturity

Answer 141

A Life policy is mature when the face amount is payable. Whole Life matures at age 100.

Question 142

Medicaid:

Answer 142

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.

Question 143

Medicare Benefits:

Answer 143

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.