Insurance Terms, Frequently Ask Questions & Definitions.
Life & Health Insurance terms and benefits can be difficult to understand, for most consumers it is more difficult to understand the policy and definition. We make it simple for you to understand Insurance terms. Obamacare
Accidental Death and Dismemberment (AD&D) Rider: A
supplement to many life insurance policies that provides an additional cash
benefit to the insured or his/her beneficiaries if an accident causes either the
death of the insured or causes the insured to lose any two limbs or the sight in
Adjuster: A person who investigates and settles losses for
an insurance carrier.
Agent: In insurance, the person authorized to represent the
insurer in negotiating, servicing, or effecting insurance policies.
Annual Out-of-Pocket Maximum: A dollar amount set by the
plan that puts a cap on the amount of money the insured must pay out of his or
her own pocket for covered expenses over the course of a calendar year.
Annuity: A contract that provides for a series of periodic
payments to be made or received at regular intervals.
Applicant: The party applying for an insurance policy.
Application: A printed form developed by an insurer that
includes questions about the prospective insured and the desired insurance
coverage and limits.
Assigned Risk: A risk insured through a pool of insurers and
assigned to a specific insurer. These risks are generally considered undesirable
by underwriters, but due to state law or otherwise, they must be insured.
Auto Comprehensive Physical Damage Coverage: Optional auto
insurance that pays for damage to your auto caused by things other than a
collision or rolling the car over, such as fire, theft, vandalism, flood or
hail. Frequently required if you have a car loan.
Automatic Premium Loan: A provision in some life insurance
policies that authorizes a #policy loan using the cash value accumulated by the
insurance policy to pay for past due premiums at the end of the grace period.
This prevents a lapse of coverage.
Beneficiary: Any person, persons, or other entity designated
to receive the policy benefits upon the death of the policyholder.
Binder: A written or oral contract issued temporarily to
place insurance in force when it is not possible to issue a new policy or
endorse the existing policy immediately. A binder is subject to the premium and
all the terms of the policy to be issued.
Binder:Binding Receipt: A premium receipt acknowledging
temporary insurance coverage immediately until the insurance company rejects the
application or approves it and issues a policy.
Broker: A marketing specialist who represents insurance
organizations and who deals with either agents or companies in arranging for the
coverage required by the customer.
Buy-Sell Agreements: Agreement that a deceased business
owner’s interest will be sold and purchased at a predetermined price or at a
price according to a predetermined formula.
Calendar Year Deductible: The amount of health care expenses
that the insured person must pay before insurance payments for covered eligible
Cancellation: The discontinuance of an insurance policy
before its normal expiration date, by either the insured or the company.
Case Management: A utilization management technique that
addresses the medical necessity of care as well as alternative treatments or
solutions, especially when the patient is likely to require very expensive
Cash Value (cash surrender value): The cash amount payable
to a life insurance policyowner in the event of termination or cancellation of
the policy before its maturity or the insured event.
Certificate of Insurance: A statement of coverage issued to
an individual insured under a group insurance contract, outlining the insurance
benefits and principal provisions applicable to the member.
Claim: A person’s request for payment from an insurer for a
loss covered by the insurance policy.
COBRA (Consolidated Omnibus Budget Reconciliation Act):
COBRA requires organizations with 20 or more employees to offer the continuation
of group health benefits (Medical, Dental, Vision, and Medical Reimbursement
Account) to employees (and covered dependents) upon experiencing a “Qualifying
Event.” Employers are required to provide initial COBRA notification to covered
employees and dependents. A letter is sent detailing an individual’s rights upon
experiencing a “qualifying event” and an explanation of the conversion
privilege. Legislation defines the following six situations as “Qualifying
Events” that require COBRA continuation:
- Termination of Employment
- Reduction of Work Hours
- Employee’s Death
- Employee’s Divorce (or legal separation in some states)
- Medicare Entitlement
- Change in “Dependent” Status
Coinsurance Provision: A specified percentage of the cost of
treatment the insured is required to pay for all covered medical expenses
remaining after the policy’s deductible has been met.
Commission: The amount of money, usually a percentage of the
premiums paid to an insurance agent for selling an insurance policy.
Conditions: The part of your insurance policy that states
the obligations of the person insured and those of the insurance company.
Contingent Beneficiary: In a life insurance policy, the
person designated to receive the policy benefits if the primary beneficiary dies
before the insured.
Contract: A legally enforceable agreement between two or
Conversion Privilege: The right to convert or change
insurance coverage from an individual term insurance policy to an individual
whole life insurance policy.
Convertible Term Life Insurance: A type of term life
insurance that offers the policyowner the option to exchange the term policy for
a form of permanent insurance.
Copay: The fee you pay for certain medical services or for
each prescription. For example, you may pay $20 for an office visit or $10 to
fill a prescription and the health plan covers the balance of the charges.
Creditable Coverage: The pre-existing condition exclusion is
reduced one month for every month that a person had coverage in a previous
qualifying plan as long as the gap in coverage between the previous plan and the
new plan is 63 days or less.
Declination: The insurer’s refusal to insure an individual
after careful evaluation of the application for insurance and any other
Deductibles: The portion of the loss that the policyholder
agrees to pay out of pocket, before the insurance company pays the amount they
are obligated to cover. For example, if the covered claim is $1000 and your
deductible is $250, you pay $250 and your company will pay $750. Deductibles
help to keep insurance rates reasonable. Raising the amount of the deductible
lowers the cost of insurance.
Dependent: A person for whom the insured has some legal
obligation to. For most plans, it is the insured’s spouse and/or children. Some
plans also allow non-traditional spousal relationships (significant other,
life-partner, etc.) to be considered a dependent with some additional certifying
Depreciation: Reduction in the value of property due to age
Double Indemnity: A provision in a life insurance policy,
subject to specified conditions and exclusions, under the terms of which double
the face amount of the policy is payable if the death of the insured is the
result of an accident. In general, the conditions are that the insured’s death
occurs prior to a specified age and results from bodily injury effected solely
through external, violent and accidental means independently and exclusively of
all other cause, within 60 or 90 days after such injury.
Emergency Room Visit: A visit to a hospital for treatment of
an accidental injury or for emergency medical care.
Endorsement: Attachment or addendum to an insurance policy;
an endorsement changes the contract’s original terms.
Exclusions and Limitations: Conditions, situations and
services not covered by the health plan. Policy.
Extended Term Life Insurance: A nonforfeiture benefit under
which the net cash value of the policy is used to purchase term insurance for
the amount of coverage available under the original policy.
Face Amount: The amount stated in the life insurance policy
as the death benefit.
Grace Period: The specified length of time, after a Life or
Health premium payment is due in which the insured may make the payment and keep
the policy in force. (Usually 30 days.)
Group Health Insurance: An insurance plan designed for a
group, such as employees of a single employer. Insurance is provided to them
under a single policy.
Guaranteed Renewable Policy: A health insurance policy that
the insurer is required to renew – as long as premiums are paid – at least until
the insured attains the age limit specified in the policy, or the policy is
cancelled by the insured. The insurer may increase the premium rate for any
class of guaranteed renewable policies.
Guaranty Association: Established by each state to support
insurers and protect consumers in the case of insurer insolvency, guaranty
associations are funded by insurers through assessments.
HIPPA – Health Insurance Portability and Accountability Act of 1996:
Under this federal law (known as HIPAA), group health plans cannot deny coverage
based solely on an individual’s health status. This law also gives employees who
change or lose their jobs better access to health coverage, guarantees
renewability and availability to certain employees and limits exclusions for
pre-existing conditions. For example, under this law, group health plans must
credit any employee the amount of time that they spent on any health plan prior
to the new plan, which is known as “prior credible coverage.” A pre-existing
condition will be covered without a waiting period when an employee joins a new
group plan if the employee has been insured for the previous 12 months with
credible health insurance, with no lapse in coverage of 63 days or more. This
means that if an employee has been insured for 12 months or more, the employee
will be able to go from one job to another and his or her pre-existing coverage
will remain intact — without additional waiting periods. However, if an
employee has a pre-existing condition and was not covered previously for 12
months before joining a new plan, the longest the employee will have to wait for
their pre-existing coverage to be covered is 12 months.
HMO (Health Maintenance Organization): A health care
financing and delivery system that provides comprehensive health care for
subscribing members in a particular geographic area using managed care
techniques. Most HMOs require that you only utilize physicians within their
network, often going so far as to require you to choose a primary care physician
who directs most courses of your treatment.
Indemnification: Compensation to the victim of a loss, in
whole or in part, by payment, repair, or replacement. Indemnity. Legal principle
that specifies an insured should not collect more than the actual cash value of
a loss but should be restored to approximately the same financial position as
existed before the loss.
Incontestable Clause: A life insurance policy wording that
provides a time limit (e.g. two years) on the insurer’s right to dispute a
policy’s validity based on material misstatements in the application.
Insurable Interest: Any interest a person has in property
that is the subject of insurance, so that damage to this property would cause
the insured a financial loss.
Insurance Company: An organization that has been chartered
by a governmental entity to transact the business of insurance.
Insured: A person or organization covered by an insurance
policy, including the “named insured” and any other parties for whom protection
is provided under the policy terms.
Insurer: The party to the insurance contract who promises to
pay losses or benefits. Also, any corporation engaged primarily in the business
of furnishing insurance to the public.
Irrevocable Beneficiary: A named beneficiary whose rights to
life insurance policy proceeds cannot be canceled or changed by the policyowner
unless the beneficiary consents.
Key Employee: Insurance Protection of a business against
financial loss caused by the death or disablement of a vital member of the
company, usually individuals possessing special managerial or technical skill or
expertise. Also called key executive insurance.
Lapse: Termination of a policy due to nonpayment of
Liability: A legal obligation to compensate a person harmed
by one’s acts or omissions.
Liability Coverage: Insurance that provides compensation for
a harm or wrong to a third party for which an insured is legally obligated to
Life Insurance: Insurance that pays a specified sum of money
to designated beneficiaries if the insured person dies during the policy term.
Lifetime Maximum: The maximum amount of money a plan will
pay towards healthcare services over the course of the insured’s lifetime.
Loss: The happening of the event for which insurance pays.
Medical Payments Coverage: Medical and funeral expense
coverage for bodily injuries sustained from or while occupying an insured
vehicle, regardless of the insured’s negligence.
Negligence: Failure to use a generally acceptable level of
care and caution.
Network: A group of doctors, hospitals and other health-care
providers contracting with a health plan, usually to provide care at special
rates and to handle paperwork with the health plan.
Non-Formulary Drugs: Non-formulary drugs often require a
higher copayment. Non-formulary drugs are those that have not yet been reviewed
or have been denied formulary status, typically because they offer no extra
benefit over the drugs already on a plan’s formulary list.
Out-of-Network: Health care services received outside the
HMO, POS or PPO network.
Out-of-Pocket Expense: Any medical care costs not covered by
insurance, which must be paid by the insured.
Paid-up Policy: An in-force life insurance policy for which
no further premium payments are required.
Peril: The cause of loss or damage.
Permanent Insurance: A general term for ordinary life and
whole life insurance policies that remain in effect as long as their premiums
Policy: The written forms that make up the insurance
contract between an insured and insurer. A policy includes the terms and
conditions of the coverage, the perils insured or excluded, etc.
#policy declarations: The part of the insurance contract that
lists basic underwriting information, including the insured’s name, address and
description of insured locations as well as #policy limits.
Policy Limits: The maximum amount an insured may collect or
for which an insured is protected, under the terms of the policy.
Policy Loan: A loan from a life insurer to the owner of a
policy that has a cash value.
Policyholder: The person who buys insurance.
Policy owner: An individual with an ownership interest in an
Policy Period: The amount of time an insurance contract or
PPO (Preferred Provider Organization): An organization where
providers are under contract to an insurance company or health plan to provide
care at a discounted or negotiated rate. Typically, you can see any doctor in
the PPO network without requiring special approval, and you usually do not need
to choose a primary care physician. Most PPOs will also allow you to seek care
outside of the PPO network; however, the benefits are usually reduced and the
insured has a greater out-of-pocket expense.
Preferred Risk: A risk whose physical condition, occupation,
mode of living and other characteristics indicate a prospect for longevity
superior to that of the average longevity of unimpaired lives of the same age.
Premium: The price for insurance coverage as described in
the insurance policy for a specific period of time.
Primary Beneficiary: The person designated as the first to
receive the proceeds of a life insurance policy upon the death of the insured.
Primary Care Physician (PCP): A general or family
practitioner who serves as the insured’s personal physician and first contact
with a managed care system. The PCP will usually direct the course of your
treatment and/or refer you to other doctors and/or specialists in the network.
Probationary Period: The length of time that a new group
member must wait before becoming eligible to enroll in a group insurance plan.
Proof of Loss: A sworn statement that usually must be
furnished by the insured to an insurer before any loss under a policy may be
Protection Amount: The face amount of a life insurance
policy, or amount of money that will be paid to a beneficiary upon the death of
an insured. This amount will be reduced by the amount of any outstanding policy
Rate: The pricing factor upon which the insurance buyer’s
premium is based.
Rated Policy: Sometimes called an “extra-risk” policy, an
insurance policy issued at a higher-than-standard premium rate to cover the
extra risk where, for example, an insured is a smoker.
Reimbursement: The payment of an amount of money by an
insurance policy for a covered loss.
Reinstatement: The process by which a life insurance company
puts back in force a policy that has lapsed or has been canceled for nonpayment
Renewable Term Life Insurance: A renewable life policy
permits the owner of the policy to automatically renew the policy beyond its
original term by acceptance of a premium for a new policy term without evidence
Revocable Beneficiary: A life insurance policy whose
designation as beneficiary can be revoked or changed by the policy owner at any
time prior to the insured’s death.
Riders: An addition to an insurance policy that becomes a
part of the contract.
Risk: The possibility or chance of loss or injury.
Settlement: An agreement between a claimant or beneficiary
to an insurance policy and the insurance company regarding the amount and method
of a claim or benefit payment.
Standard Risk: A person who, according to a company’s
underwriting standards, is entitled to purchase insurance protection without
extra rating or special restrictions.
#standard risk rate: The risk category that is composed of
proposed insureds who have a likelihood of loss that is not significantly
greater than average.
Substandard Risk: A risk that cannot meet the normal
requirements of an auto insurance policy. Protection is provided in
consideration of a waiver, a special policy form, or a higher premium charge.
Substandard risks may include those persons who are rated because of poor
Stop-Loss Provision: A major medical policy provision under
which the insurer will pay 100% of the insured’s eligible medical expenses after
the insured has incurred a specified amount of out-of-pocket expenses in
deductible and coinsurance payments.
Term Insurance: Life insurance under which the benefit is
payable only if the insured dies during a specified period. If the insured
survives beyond that period, coverage ceases. This type of policy does not build
up any cash or nonforfeiture values.
Theft Limit (or Inside Policy Limits): The highest amount an
insurance company will pay on certain items of personal property.
Underwriter: (a) A company that receives the premiums and
accepts responsibility for the fulfillment of the policy contract; (b) the
company employee who decides whether or not the company should assume a
particular risk; (c) the agent who sells the policy.
Underwriting: The process of reviewing applications for
coverage. Applications that are accepted are then classified by the underwriter
according to the type and degree of risk.
Uninsurable Risk: One not acceptable for insurance due to
Universal Life: Flexible premium, two-part contract
containing renewable term insurance and a cash value account that generally
earns interest at a higher rate than a traditional policy. The interest rate
varies. Premiums are deposited in the cash value accounts after the company
deducts its fee and a monthly cost for the term coverage.
Urgent Care: Urgent care is appropriate when a medical
urgency arises which necessitates immediate care, but has not reached the level
of extreme emergency. Most managed care plans require you to seek urgent care at
a participating urgent care facility or hospital.
Usual, Customary and Reasonable Fee: The maximum dollar
amount of a covered expense that is considered eligible for reimbursement under
a major medical policy.
Waiver: An agreement attached to a policy which exempts from
coverage certain disabilities or injuries that otherwise would be covered by the