Glossary of Terms
Accidental Death Benefit
In a life insurance policy, benefit in addition to the death benefit paid to the beneficiary, should death occur due to an accident. There can be certain exclusions as well as time and age limits.
Activities of Daily Living
Bathing, preparing and eating meals, moving from room to room, getting into and out of beds or chairs, dressing, using a toilet.
Actual Cash Value
Cost of replacing damaged or destroyed property with comparable new property, minus depreciation and obsolescence. For example, a 10-year-old sofa will not be replaced at current full value because of a decade of depreciation.
A specialist in the mathematics of insurance who calculates rates, reserves, dividends and other statistics. (Americanism: In most other countries the individual is known as "mathematician.")
An interest rate that changes, based on changes in a published market-rate index.
Usually refers to liability insurance and indicates the amount of coverage that the insured has under the contract for a specific period of time, usually the contract period, no matter how many separate accidents might occur.
An agreement by an insurer to make periodic payments that continue during the survival of the annuitant(s) or for a specified period.
Process by which you convert part or all of the money in a qualified retirement plan or nonqualified annuity contract into a stream of regular income payments, either for your lifetime or the lifetimes of you and your joint annuitant. Once you choose to annuitize, the payment schedule and the amount is generally fixed and can't be altered.
Choices in the way to annuitize. For example, life with a 10-year period certain means payouts will last a lifetime, but should the annuitant die during the first 10 years, the payments will continue to beneficiaries through the 10th year. Selection of such an option reduces the amount of the periodic payment.
Insured's age at a particular time. For example, many term life insurance policies allow an insured to convert to permanent insurance without a physical examination at the insured's then attained age. Upon conversion, the premium usually rises substantially to reflect the insured's age and diminished life expectancy.
In health insurance, the number of days for which benefits are paid to the named insured and his or her dependents. For example, the number of days that benefits are calculated for a calendar year consist of the days beginning on Jan. 1 and ending on Dec. 31 of each year.
The medical services included in a health insurance policy to which the insured person or persons are entitled
The time period from January 1 to December 31 in a single year.
A system of coordinating medical services to treat a patient, improve care and reduce cost. A case manager coordinates health care delivery for patients.
Catastrophic Health Insurance
Insurance with a very high deductible, covering an injury or illness with medical expenses that are above the normal parameters of basic health insurance
"Consolidated Omnibus Budget Reconciliation Act" of 1985 is a regulation that affects most U.S. employers of over 20 employees, whereby they must offer departing employees a continuation of their health insurance; it includes other options.
In property insurance, requires the policyholder to carry insurance equal to a specified percentage of the value of property to receive full payment on a loss. For health insurance, it is a percentage of each claim above the deductible paid by the policyholder. For a 20% health insurance coinsurance clause, the policyholder pays for the deductible plus 20% of his covered losses. After paying 80% of losses up to a specified ceiling, the insurer starts paying 100% of losses.
Term life insurance coverage that can be converted into permanent insurance regardless of an insured's physical condition and without a medical examination. The individual cannot be denied coverage or charged an additional premium for any health problems.
A predetermined flat fee an individual pays for health-care services, in addition to what insurance covers. For example, some HMOs require a $10 copayment for each office visit, regardless of the type or level of services provided during the visit. Copayments are not usually specified by percentages.
Cost-of-Living Adjustment (COLA)
Automatic adjustment applied to Social Security retirement payments when the consumer price index increases at a rate of at least 3%, the first quarter of one year to the first quarter of the next year.
The geographic region covered by travel insurance.
Benefits provided by other drug plans are at least as good as those provided by the new Medicare Part D program. This may be important to people eligible for Medicare Part D but who do not sign up at their first opportunity because if the other plans provide creditable coverage, plan members can later convert to Medicare Part D without paying higher premiums than those in effect during their open enrollment period.
The limit of insurance or the amount of benefit that will be paid in the event of the death of a covered person.
Amount of loss that the insured pays before the insurance kicks in.
A system of coordinated health-care interventions and communications for patients with certain illnesses.
The return of part of the policy's premium for a policy issued on a participating basis by either a mutual or stock insurer. A portion of the surplus paid to the stockholders of a corporation.
The time which must pass after filing a claim before policyholder can collect insurance benefits. Also known as "waiting period."
Items or conditions that are not covered by the general insurance contract.
Flexible Spending Account
A benefit offered to an employee by an employer which allows a fixed amount of pre-tax wages to be set aside for qualified expenses. Qualified expenses may included child care or uncovered medical expenses. The amount set aside must be determined in advance and employees lose any unused dollars in the account at year-end.
Future Purchase Option
Life and health insurance provisions that guarantee the insured the right to buy additional coverage without proving insurability. Also known as "guaranteed insurability option."
Group Health Insurance
Health coverage based on a collection of people, whether assembled by an organization or a business. The cost is spread out among the members of the group. Under federal guidelines, a "large employer" is one with 51 or more employees and a "small employer" averages 2 to 50 employees in a calendar year.
A policy provision in many products which guarantees the policyowner the right to renew coverage at every policy anniversary date. The company does not have the right to cancel coverage except for nonpayment of premiums by the policyowner; however, the company can raise rates if they choose.
Health Insurance Portability and Accountability Act—HIPAA provides national standards to protect the privacy of personal health information. It also defines creditable coverage requirements for people who have been covered under a group health for at least 18 months.
"Health Maintenance Organization" is a type of group health plan in which an organization is formed to provide medical care to its members. The physicians and medical personnel work for the HMO and provide medical care to the members of the HMO, with limited referrals to outside specialists. There is often an emphasis on prevention of disease and participation in programs for better health. Recently, members of HMOs may see health care professionals outside of their system, with higher fees. Members usually obtain all of their medical needs from their HMO clinics through managed medical care.
"Health Reimbursement Arrangement" - an arrangement where an employer purchases a high deductible health plan and reimburses back down to a lower benefit level for his/her employees. With an HRA, a Third Party Administrator is typically used to process the HRA medical reimbursements for the employer.
Health Savings Account
Plan that allows you to contribute pre-tax money to be used for qualified medical expenses. HSAs, which are portable, must be linked to a high-deductible health insurance policy.
Individual Health Insurance
Health coverage on an individual basis, not part of a group. The premium is usually higher for individual health insurance than for a group policy.
The return received by insurers from their investment portfolios including interest, dividends and realized capital gains on stocks. It doesn't include the value of any stocks or bonds that the company currently owns.
Lifetime Reserve Days
Sixty additional days Medicare pays for when you are hospitalized for more than 90 days in a benefit period. These days can only be used once during your lifetime. For each lifetime reserve day, Medicare pays all covered costs except for a daily coinsurance amount.
This feature allows you, under certain circumstances, to receive the proceeds of your life insurance policy before you die. Such circumstances include terminal or catastrophic illness, the need for long-term care, or confinement to a nursing home. Also known as "accelerated death benefits."
The highest dollar amounts a health insurance plan will pay: 1) for a single claim; 2) over the lifetime of an insured person.
Medical Loss Ratio
Total health benefits divided by total premium.
Mortgage Insurance Policy
In life and health insurance, a policy covering a mortgagor with benefits intended to pay off the balance due on a mortgage upon the insured's death, or to meet the payments due on a mortgage in case of the insured's death or disability.
The doctors or other medical providers and facilities that either work for or contract with a group health care organization.
Doctors or other medical providers and facilities which either do not work for or which do not contract with a group health care organization.
A predetermined amount of money that an individual must pay before insurance will pay 100% for an individual's health-care expenses.
Insurance contract provision that allows policyholders to collect benefits if they can no longer work in their own occupation.
Paid-Up Additional Insurance
An option that allows the policyholder to use policy dividends and/or additional premiums to buy additional insurance on the same plan as the basic policy and at a face amount determined by the insured's attained age.
"Primary Care Physician" or "Personal Care Provider" is a physician or other medical care provider who participates in a health care system.
The legal agreement between an insurance company and insured person, whereby the company agrees to pay for the covered medical services included in the agreement and the insured agrees to pay the premium price.
Policy or Sales Illustration
Material used by an agent and insurer to show how a policy may perform under a variety of conditions and over a number of years.
"Point of Service" is a type of group insurance with a combination of HMO and PPO characteristics. The policyholders must use a primary care physician, but they can use other network health providers when needed or go to out-of-network providers, at higher cost.
"Preferred Provider Organization" is a type of group health plan. The medical professionals in the system agree to accept a standard fee schedule and patient care controls; the system is usually organized by an insurance company. In a PPO, the policyholder can go to any medical provider in the PPO network and pay the co-payment amount for each regular service. If the policyholder chooses to go to an out-of-network provider, he/she often pays that doctor's fees directly and files for reimbursement from the insurance company. This is a greater cost. For that reason, the PPO system encourages its policyholders to see the doctors and health providers who are part of the system.
A coverage limitation included in many health policies which states that certain physical or mental conditions, either previously diagnosed or which would normally be expected to require treatment prior to issue, will not be covered under the new policy for a specified period of time.
The price of insurance protection for a specified risk for a specified period of time.
An organized plan whereby prescription needs are provided to group members at a lower cost, usually through a vendor with a pharmacy network that covers the whole country and negotiates for lower drug costs.
A physician, hospital, medical care facility, or other type of medical personnel who provide health care.
The method whereby a physician directs a patient to the services of another physician.
Qualified High-Deductible Health Plan
A health plan with lower premiums that covers health-care expenses only after the insured has paid each year a large amount out of pocket or from another source. To qualify as a health plan coupled with a Health Savings Account, the Internal Revenue Code requires the deductible to be at least $1,000 for an individual and $2,000 for a family. High-deductible plans are also known as catastrophic plans.
Qualified Versus Non-Qualified Policies
Qualified plans are those employee benefit plans that meet Internal Revenue Service requirements as stated in IRS Code Section 401a. When a plan is approved, contributions made by the employer are tax deductible expenses.
An occurrence that triggers an insured's protection.
Re-entry, which is the allowance for level-premium term policyowners to qualify for another level-premium period, generally with new evidence of insurability.
In disability insurance, a benefit paid when you suffer a loss of income due to a covered disability or if loss of income persists. This benefit is based on a formula specified in your policy and it is generally a percentage of the full benefit. It may be paid up to the maximum benefit period.
Risk class, in insurance underwriting, is a grouping of insureds with a similar level of risk. Typical underwriting classifications are preferred, standard and substandard, smoking and nonsmoking, male and female.
Section 125 Plan
A plan named after the section of the IRS tax code that permits employee contributions the ability to be matched by pre-tax dollars.
Section 105 Plan
Also known as an Health Reimbursement Arrangement (HRA), is a plan that allows employers and the self employed to set aside a specific amount of money annually for employees to use to pay for eligible medical expenses as defined by the plan.
Section 1035 Exchange
This refers to a part of the Internal Revenue Code that allows owners to replace a life insurance or annuity policy without creating a taxable event.
Any provision in a policy designed to cut off an insurer's losses at a given point.
Fee charged to a policyholder when a life insurance policy or annuity is surrendered for its cash value. This fee reflects expenses the insurance company incurs by placing the policy on its books, and subsequent administrative expenses.
A set amount of time during which you have to keep the majority of your money in an annuity contract. Most surrender periods last from five to 10 years. Most contracts will allow you to take out at least 10% a year of the accumulated value of the account, even during the surrender period. If you take out more than that 10%, you will have to pay a surrender charge on the amount that you have withdrawn above that 10%.
Term Life Insurance
Life insurance that provides protection for a specified period of time. Common policy periods are between 5 years and 30 years. The policy doesn't build up any of the nonforfeiture values associated with whole life policies.
The individual trained in evaluating risks and determining rates and coverages for them.
The process of selecting risks for insurance and classifying them according to their degrees of insurability so that the appropriate rates may be assigned. The process also includes rejection of those risks that do not qualify.
Universal Life Insurance
A combination flexible premium, adjustable life insurance policy.
Usual, Customary and Reasonable Fees
An amount customarily charged for or covered for similar services and supplies which are medically necessary, recommended by a doctor or required for treatment.
Variable Life Insurance
A form of life insurance whose face value fluctuates depending upon the value of the dollar, securities or other equity products supporting the policy at the time payment is due.
See "elimination period."
Waiver of Premium
A provision in some insurance contracts which enables an insurance company to waive the collection of premiums while keeping the policy in force if the policyholder becomes unable to work because of an accident or injury. The waiver of premium for disability remains in effect as long as the ensured is disabled.
Whole Life Insurance
Life insurance which might be kept in force for a person's whole life and which pays a benefit upon the person's death, whenever that might be.