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401(k) Plan: A qualified retirement plan in which the employer generally matches the employee’s contribution, and the amount contributed works like a salary cut for income tax purposes.
A
A&H Policy: Accident and Health. A policy that pays benefits for losses resulting from generally either an accident or a sickness. The three major classifications of A&H benefits are medical expense benefits, disability income benefits, and dismemberment benefits. A&H policies are also referred to as Health policies. See Accident & Health.
Absolute Assignment: The complete and absolute transfer of all of the legal rights and benefits contained in a policy from one policyowner to a new policyowner. Also see Assignment.
Accelerated Death Benefit: See Living Benefit Option.
Accident: An event that causes a loss at an unpredictable moment or in an unpredictable amount. In health insurance, an unintended and unforeseen (unpredictable, unexpected) event which results in bodily injury. Accident and sickness are perils which can be covered by health policies. Some policies cover only accidents, while others cover both accident and sickness.
Accident and health insurance: A category of insurance that can assist with the payment of medical bills or replace a portion of someone’s income after an illness, injury or disability.
Accidental Bodily Injury: An unforeseen and unintended bodily injury resulting from an accident which takes place in a known place and at a known time.
Accidental Death: Death resulting from an accident. Some life and health policies only pay benefits if death occurs as the result of an accident, as opposed to death as the result of a sickness.
Accidental Death and Dismemberment Benefit: Pays a stated amount in case of accidental death or in case of the loss of limbs or sight as a result of an accident. Also see Accidental Death & Dismemberment Policy.
Accidental Death and Dismemberment (AD&D) Policy: A health insurance policy that provides two types of benefits: a death benefit paid for accidental death, and a dismemberment benefit for the accidental loss of parts of the body, such as hands, feet and eyes. An AD&D policy is conceptually a combination of life insurance and health insurance. It is accident only coverage (does not pay benefits for losses due to sickness).
Accidental Death Benefit: In life and health insurance, a payment for loss of life due to an accident. Also, a rider added to a life insurance policy for payment of an additional benefit, related to the face amount of the basic policy, when death occurs as the result of an accident as defined in the policy.
Accumulate at Interest: A dividend option in which the policyowner leaves the dividends with the insurance company to invest and earn interest. This dividend option works much like a savings account. See Accumulated Dividends.
Accumulation Period: The “pay in” period of an annuity unless it is the funding vehicle for a qualified retirement plan, contributions are in after-tax dollars. Interest grows on a tax-deferred basis and is then fully taxable at withdrawal.
Activities of Daily Living: Eating, dressing, bathing etc. Long Term care policies are designed to provide nursing home type benefits when people can no longer perform the activities of daily living.
Actuaries: Professionals who determine the overall likelihood of losses for an insurance company and calculate an appropriate set of rates that insurers will use to charge their customers.
Additional Living Expenses: Costs that a homeowner or renter encounters as a direct result of not being able to use his or her home.
Adjustable Life: A relatively modern life insurance policy which allows flexibility in (1) face amount, (2) premium, and (3) the policy plan (which includes the period of protection and the payment period). Its primary advantage is that insureds can periodically adjust the amount of death benefit, the amount of premium or even the type of coverage as their needs change over their lifetimes.
Advertising Injury: In commercial general liability insurance, committing an offense against someone in promotional materials.
Annually Renewable Term: A Term Life insurance contract which gives the policyowner the right to renew the policy each year up to a specified age (such as age 65) or for a specified period of time (such as 10 years) without proof of insurability. Premiums increase with each renewal because the rates are based on the insured’s newly attained age.
Annuitant: One who receives the proceeds of an annuity (or upon whose life payments depend).
Annuity: A contract guaranteeing an income for a certain period of time or for life to the annuitant.
Annuity Certain: Unlike a Life Annuity, the Annuity Certain is a contract which pays a specified income for a set period of time whether the annuitant lives or dies. The Fixed Period and Fixed Amount settlement options are examples of Annuities Certain. For contrast, see Straight Life Annuity.
Annuity Units: With a Variable Life Annuity, the promise made to the annuitant is to pay the value of a specified number of annuity units at each payment interval for life. The value of the annuity unit fluctuates according to the value of the underlying investments made by the company in common stocks and bonds.
Any Occupation (Any OCC): This is the most restrictive definition of total disability because you are considered to be disabled only if you cannot do your job or any other job for which you are reasonably suited by education, training, or experience. For contrast, see Your Occ. Also see Presumptive Total Disability.
Application: The collection of documents used by an underwriter to evaluate a specific applicant for insurance.
Appraisal: A formal, expert opinion that pertains to an item’s authenticity, condition and value.
Arbitration: A method of dispute resolution in which the parties generally agree to abide by the
findings of an impartial third party without a chance to appeal.
Assignment: In insurance, the transfer of some or all of the rights contained within an insurance contract from the consumer to a third party.
Attained Age: The age an insured has reached or attained. For life insurance, the attained age is based on either the actual age or the insured’s age prior to the last birthday, depending upon the limits set by state law.
Automatic Premium Loan Provision: A provision in a life insurance policy authorizing the insurance company to automatically use the loan value (if adequate) to pay any premium not paid by the end of the grace period. The amount so paid is charged against the policy as a policy loan.
Average Earnings Clause: In Disability Income policies, an optional provision which permits the company to limit an insured’s disability income benefits to the amount of his or her average earnings for the 24 months prior to the disability. Typically, if, at the time the disability commences, the total benefits payable under all coverages owned by the insured exceed the average earnings of the insured over the preceding two years, the benefits will be reduced pro rata to the average income amount.
Aviation Clause/Exclusion: Limits or excludes life or health coverages when the insured is killed or injured in specified types of air travel. Coverage may be confined to fare paying passengers on regularly scheduled flights of commercial airlines or it may be considerably less restrictive.
B
Bailee Insurance: Insurance for businesses that specialize in servicing other people’s property, such as dry cleaners and repair shops.
Beneficiary: The person to whom the proceeds of a life or health insurance policy are payable when the insured dies. The primary beneficiaries are those who are first entitled to the proceeds. The secondary beneficiaries are entitled to the proceeds if no primary beneficiary is living when the insured dies. The tertiary beneficiaries are those entitled to the proceeds if no primary or secondary beneficiaries are alive when the insured dies. Secondary and tertiary beneficiaries are also referred to as contingent beneficiaries.
Beneficiary Provision: A provision in a life or health policy which gives the policyowner the right to name the beneficiary and to change the designated beneficiary unless the beneficiary is named irrevocably.
Binder: A method by which an agent accepts a risk on a carrier’s behalf and gives temporary coverage to a consumer while an insurance policy is still in the process of being issued.
Blanket Insurance: In property insurance that applies to multiple items within a collection. In health insurance, a group health insurance policy covering a number of individuals who are not individually named in the policy. Only certain groups, dictated by state law, are eligible to purchase blanket policies such as high school athletic teams, children’s summer camps, newspaper carriers, school districts, etc.
Block Policies: Specialized insurance products for businesses that specialize in selling highly
valuable and very portable items, such as jewelry.
Builders Risk Insurance: Insurance that covers a building while it is being rehabilitated or constructed and insures the building materials that have been purchased for the project.
Building and Personal Property Coverage Form: A document, created by the ISO, that contains the most common policy language for commercial property insurance.
Business Income Insurance: A form of business interruption insurance that pays business owners the amount of money they would have earned if a covered peril had not forced them to suspend normal operations.
Business Interruption Insurance: Insurance that reimburses businesses for lost income and the expenses they incur during a break in normal business operations.
Business Overhead Expense: A modified disability income policy designed to pay for the monthly expenses of a business, generally of a self-employed professional or a sole proprietor. The Business Overhead Expense policy is written on the businessowner, but it pays the business so that the office rent, the employees’ salaries, and other business expenses can be paid. However, BOE never covers the salary of the businessowner, and benefits are paid on a reimbursement basis for the business expenses actually incurred.
Business-Owners Policy (BOP): An insurance policy that provides a combination of property and casualty coverage to businesses within relatively low-risk industries and below certain sizes.
Buy and Sell Agreement: A contract that establishes what will be done with a business in the event an owner dies or becomes disabled. Life insurance normally provides the funds necessary to implement the Buy and Sell Agreement in case of an owner’s death because it can provide the exact amount of money needed at exactly the time it is needed. Similarly, in health insurance, Disability Buy-Sell coverage is designed to provide benefits to a corporation to buy out a disabled stockholder/director’s share of the business. If one of the primary stockholder/directors becomes disabled, the policy will generally pay an installment benefit to the corporation for up to a year and then finally pay out a lump sum benefit to the corporation so it can buy out the disabled partner.
C
Cancellation: The act of ending an agreement prior to its intended expiration date.
Cargo Insurance: In marine insurance, insurance for property being transported.
Cash Value: In a life insurance policy, the cash value is the equity amount legally available to the policyowner when the policy is surrendered. The cash surrender option is one of a life insurance policy’s nonforfeiture options.
Casualty insurance: A category of insurance that provides financial protection to an insured who is potentially liable for someone else’s losses.
Certificate of Insurance: A document that provides proof of insurance by the insured to a third party.
Change of Insured Rider: When a joint policy is used to fund a Buy-Sell Agreement, one of the insured’s could leave that employment before any of the principals die. If a new partner joins the company this rider allows the other partners to continue their coverage without an age change or new proof of insurability.
Change of Occupation Provision: An optional provision contained in health policies stating that if the insured changes occupation, he or she must notify the company for the premium rate adjustment.
Claim: In insurance, a request or demand by the policyowner of the insurance company for payment of benefits according to the provisions of the policy.
Claims Adjuster: An insurance professional who evaluates whether a loss should be covered at all and, if so, for how much.
Coinsurance Clause: In property insurance, a requirement that property be insured for at least a certain percentage of its value in order for the owner to be fully compensated for a partial loss. In health insurance, a provision whereby the insurance company and the policyowner share covered losses in agreed proportions. An 80/20 Coinsurance Clause is typical of Major Medical type policies. Excluding the amount of the deductible, the company agrees to pay 80 percent of the insured’s covered expenses and the insured pays the remaining 20 percent.
Collateral Assignment: The limited assignment of an insurance policy to a creditor as security for a debt. Under a collateral assignment, the creditor is entitled to be reimbursed out of policy proceeds for the amount owed. The beneficiary is entitled to any excess of the policy proceeds over the amount due the creditor in the event of the insured’s death.
Collision Coverage: In auto insurance, insurance that pays for damage to the insured’s own car due to a crash.
Commission: In insurance sales, the percentage of the premium paid by the insurance company to the agent or broker as compensation for making the sale.
Commercial General Liability Insurance: A broad form of liability insurance for businesses that
addresses property damage, bodily injury, medical payments, personal injury and advertising injury.
Commercial Lines Insurance: Insurance intended to insure either a business or an individual within the context of his or her profession.
Commercial Package Policy: A special insurance policy for businesses that combines property insurance with various types of liability insurance as chosen by the insured.
Common Disaster Provision: A life insurance policy provision which states that if the beneficiary dies within a stated period of time (such as 30 or 60 days) of the insured, then the insurance company will proceed as if the insured had outlived the beneficiary. Also called a Death of Beneficiary Clause. In health insurance, a provision which states that if two or more insureds are injured in the same accident, then only one deductible will be charged against the claim.
Common Policy Conditions: In a commercial package policy, a set of responsibilities, duties and rights that govern the policy, regardless of which specific coverages are selected.
Common Policy Declarations Form: In a commercial package policy, a set of basic information about the insured business and the selected coverages.
Comparative Interest Rate Method: A way of comparison shopping while purchasing life insurance. With this approach (sometimes called the internal rate of return) you simply compute an interest rate based upon premiums paid versus cash developed under the contract.
Completed Operations Liability: A form of liability that arises when a business’s poor performance causes harm even though the business’s work has already been finished.
Comprehensive Coverage: In auto insurance, insurance that compensates the insured when his or her own vehicle is damaged by theft, fire or several other perils other than a crash (also known as “other-than-collision insurance”).
Conditions: The portion of a property and casualty insurance policy that lays out many of the requirements for each party to the contract.
Consideration: Something of value offered in exchange for something else of value.
Contents Coverage: Insurance for someone’s belongings.
Contestable Period: The period of time during which an insurance company may contest a claim under a policy because of fraud, misrepresentation, or misleading or incomplete information furnished on the application.
Contingent Beneficiary: A contingent beneficiary is an alternate beneficiary designated to receive payment in the event that the primary revocable beneficiary dies before the insured.
Contingent business interruption insurance: Insurance that provides lost income to a business when an offsite “dependent property” suffers physical damage and must shut down.
Continuing Normal Operating Expenses: In business interruption insurance, costs that the insured would face regardless of damage to named property.
Continuous Premium Whole Life: A Whole Life policy for which the policyowner makes premium payments for the whole of life (until death or reaching age 100, whichever comes first). Also called Straight Life.
Contributory Plan: A group insurance plan under which the employees contribute to the payment of premium for the insurance coverage. Employee contributions are generally made through periodic payroll deductions.
Coverage Territory: The geographic area where a loss must occur in order for it be covered by an insurance product. In some cases, the coverage territory might not extend to another country or another state.
Conversion: In life insurance, a contractual right allowing the policyowner to exchange his or her insurance policy of one kind for a policy of a different kind. For example, Convertible Term can be converted to Whole Life.
Conversion Period: In group life insurance, the period of time a departing group member has to convert his or her group life insurance coverage into an individual policy without proof of insurability.
Conversion Privilege: In group insurance, the right of an insured individual who is leaving the group to convert to an individual policy of insurance without proof of insurability.
Convertible Term Policy: A Term life insurance policy which may be converted into a permanent type of coverage (such as Whole Life) without proof of insurability if converted within a specified period as stated in the contract. The new premium will be based upon the attained age of the insured at the time of conversion.
Coordination of Benefits Clause: A provision in some group health insurance policies specifying that if the insured is covered under another group plan in addition to his or her own group health plan, then benefits will be coordinated by the two insurance companies so that double benefits are not paid. One policy will be primary and it will pay as if no other coverage existed; the other company will be secondary and will pay the covered expenses not paid by the primary policy (the deductible and the insured’s portion of the coinsurance).
Cost of Living Option: On a disability income policy, this option would automatically increase the disability benefit at a given rate after the insured starts receiving benefits. Depending upon the company, this can be done by stating a guaranteed percentage or tying the benefits to an inflation index like the Consumer Price Index (CPI).
Cost of Living Rider: The Cost of Living rider allows the policyowner to increase the face amount of the policy as the designated cost-of-living index increases.
Credit Life Policy: Life insurance issued on the life of a borrower (debtor) to cover the repayment of a loan in case of the borrower’s death before the loan has been repaid. The creditor (generally a lending institution) is the owner and beneficiary of the policy and the borrower is the insured. Credit Life insurance is usually written using Decreasing Term on a relatively small, decreasing balance installment loan. In the event of the borrower’s death, the death benefit is used to pay off the outstanding balance of the loan. Credit Life is normally written on a group basis.
Cross-purchase Plan: A method of funding a Buy and Sell Agreement where each partner in the company buys a policy on each of the other partners. If there are three partners, six policies are purchased.
Currently Insured: Under Social Security, a status of limited eligibility that provides only death benefits to widows or widowers and children; it does not provide old-age or disability benefits.
Cyber Insurance: A broad category of property and casualty insurance that relates to losses from data breaches, computer viruses and other problems with technology.
D
Damages: Depending on the context, either harm suffered by someone or compensation provided by a liable party because of harm.
Death Benefit: The policy proceeds to be paid upon the death of the insured. In life or AD&D health policies, the face amount, as stated in the policy, to be paid to the beneficiary upon proof of death of the insured.
Declarations Page: Often a first-page summary of an insurance policy.
Decreasing Term: Term life insurance in which the face amount decreases over time in scheduled steps from the date the policy goes into force until the date the policy expires. The premium, however, usually remains level. The intervals between the decreases are usually either monthly or annually.
Deductible: The amount of an otherwise insured loss that the consumer must pay out of pocket before a loss can be covered by the insurance policy. In many health insurance policies, the amount of covered expenses which must be paid by the policyowner before the policy pays any benefits.
Differences in Conditions Insurance: Generally insurance designed to cover perils that are commonly excluded by commercial property insurance, such as floods and earthquakes.
Deferred Annuity: A Life Annuity contract under which the first payment is not made to the annuitant until the expiration of a fixed number of years or until the annuitant attains a specific age; often used to provide retirement income.
Defined Benefit Plans: This plan is just the opposite of a Defined Contribution Plan. Here, you know what will come out, but it requires a constant process of estimating to determine what must go in. These fixed benefit plans, sometimes called Annuity Purchase plans, establish a set benefit formula for employees. The defined benefit may be a percentage of pay for each year of service in the plan, or a flat sum, or some combination of the two. The dollar amount of the benefit may vary, as with a variable annuity plan, but the formula must be fixed in the plan.
Defined Contribution Plans: Sometimes called Money Purchase Plans, these pension plans require a set rate of contribution from the corporation. Employee benefits at retirement will depend directly upon the amount of contributions made, the plans earnings, and the employee’s length of service in the plan. Estimated benefits are derived from actuarial projections which obviously use age and sex as considerations. Under a Defined Contribution Plan, you know exactly what will be put in, but you can only guess at what will come out.
Dental Expense Insurance: A form of medical expense health insurance covering the treatment and care of dental disease and injury to the insured’s teeth.
Directors and Officers (D & O) Insurance: Liability insurance for high-ranking decision makers at public, private or non-profit companies.
Disability: A physical or mental impairment caused by accident or sickness which partially or totally limits your ability to work. There are several standard definitions of “disability”: Your Occupation (Own Occupation), Any Occupation, Presumptive Total Disability, Partial Disability, Residual Disability. In order to be eligible for disability income benefits, the insured must fit the definition of disability stated in the policy or, in the case of Social Security Disability Income, the definition required by the Social Security Administration.
Disability Buy-Sell: A coverage designed to provide benefits to a corporation to buy out a disabled stockholder/director’s share of the business. If one of the primary stockholders/directors becomes disabled, the policy will generally pay an installment benefit to the corporation for up to a year and then finally pay out a lump sum benefit to the corporation so it can buy out the disabled partner.
Disability Income: A cash benefit paid on a periodic basis (such as monthly) and designed to replace income during a period of the insured’s disability. Also, under some life insurance policies, a limited disability income may be provided by means of a rider in the event of total and permanent disability of the insured.
Disability Income Benefits: The type of benefits payable under a Disability Income policy. They are periodic payments (usually monthly) that replace income while the insured is disabled.
Disability Income Insurance: A health insurance policy that provides periodic payments when the insured is disabled and unable to work. It is a stated amount (valued) contract. Disability Income policies are sometimes called Loss of Time or Income Protection policies.
Double Indemnity Rider: A life insurance policy rider which obligates the insurance company to pay double the face amount of the policy if the insured dies as the result of an accident. This rider generally stipulates that the death must occur prior to a specified age and result from an accidental bodily injury and not be contributed to by any other cause.
Dwelling: In property insurance, the structure that a person lives in.
Dwelling Policies: Limited insurance for a home that generally does not include coverage for theft or personal liability.
E
Elimination Period: A period, often expressed as a number of days, during which an insured will need to pay out of pocket for a loss or will not receive benefits before specific time after the loss event when insurance benefits will apply.
Employers Liability Insurance: Insurance that pays for damages and defense costs when an employer is believed to be liable for an occupational injury that is not covered by workers compensation insurance.
Employment Practices Liability Insurance: Insurance that is intended to protect businesses when they are accused of violating someone’s employment rights.
Endorsement: An amendment to an insurance company’s standard policy language.
Endowment Policy: A form of life insurance which offers death protection for a stated period of time (the endowment period), and which also accumulates cash value. Endowment policies are designed so that the cash value will equal the face amount at the end of the endowment period. If the insured dies during the endowment period, the policy matures and the death benefit is paid. If the insured does not die, but lives to the end of the endowment period, then the policy matures and endows the face amount.
Enhanced Ordinary Life: Also known as Economatic or Extra Ordinary Whole Life. Combines Whole Life and Term for a constant death benefit. Over time, dividends are used to purchase Single Premium Paid Up Adds to replace the Term portion.
Equipment Breakdown Insurance: Insurance used in response to unexpected damage to machinery caused by power surges, broken motors and defective parts rather than by fire, flood or other traditional perils.
Errors and Omissions Insurance: A type of liability insurance that covers various professionals when their act, omission, mistake or wrong advice results in damages to the client.
Equity Indexed Annuity: An annuity in which the rate of return on the investment (cash value) is linked to an equity (stock market) index, such as the Standard & Poor’s/S&P 500. However, there is a minimum guaranteed rate of return, such as 3%.
Equity Indexed Life Insurance: Permanent insurance with cash value guaranteed to grow at a conservative rate but could show higher returns as it is linked with a public equity index like the S&P 500.
Exclusions: Losses that are not covered.
Extended Replacement-Cost Coverage: A type of homeowners insurance that will provide extra coverage (often capped at 120% or 125% of Coverage A) when the cost of replacing the dwelling is larger than the policy’s Coverage A limit.
Extended Reporting Period: In casualty insurance, an amount of time during which a claim can be reported to an insurance company even though coverage has otherwise been canceled or not renewed.
Extended Term Option: In life insurance policies that have cash value, Extended Term is a non-forfeiture option which allows the policyowner to receive the equity of the policy in the form of Term insurance in the same face amount as the policy being surrendered. The length of the Extended Term is stated in the non-forfeiture table and is directly related to the amount of equity accumulated in the policy.
F
Face Amount: In a life insurance policy, the amount payable in the event of death as stated on the policy face. The face amount will be decreased by any outstanding loan against the policy, and increased by any additional benefits payable such as accumulated dividends, paid-up additions, or multiple indemnity benefits.
Facility of Payment Clause: A clause which allows the insurance company to pay the death benefit to someone who seems reasonably entitled in case there is no beneficiary named in the policy or all beneficiaries have predeceased the insured or the beneficiary cannot be located. The person reasonably entitled to receive the proceeds is typically the person who paid the funeral expenses.
Family Income Policy: A policy which combines Decreasing Term and Whole Life to offer income protection and a death benefit in the event of the premature death of the breadwinner. The policy provides that if the insured dies within a specified period (say 20 years), the family will receive a stated amount of income from the date of death until the end of the specified period. At the end of that period, the Whole Life death benefit is paid to the beneficiary.
Family Income Rider: Same concept as the Family Income policy except that the Decreasing Term part of the coverage is written as a rider on a Whole Life policy rather than combining both coverages into the policy itself.
Family Maintenance Policy: This policy combines Level Term and Whole Life to offer income protection and a death benefit in the event of the premature death of the family breadwinner. The policy stipulates that if the insured dies within a stated period, the family will receive a monthly benefit from the date of death for the stated period of time. At the end of the monthly income benefit period, the face amount of the policy is paid to the beneficiary.
Family Maintenance Rider: A Level Term rider added onto a Whole Life policy in order to achieve the characteristics of a Family Maintenance policy.
Family (Protection) Policy: A policy which combines Convertible Term and Whole Life to provide a moderate amount of insurance on each member of the family. These coverages are packaged into units. Typically, a unit consists of $5,000 of Whole Life protection on the breadwinner, $1,250 Convertible Term coverage on the spouse and $1,000 of Convertible Term on each child.
Fidelity Bond: A bond guaranteeing loyalty and faithfulness, often by an employee to an employer.
Financial Needs Approach: A method of determining how much insurance a person should have. The focus of this approach is not on the proposed insured but on the needs of his surviving family.
Fixed Amount Settlement Option: A life insurance policy settlement option under which the beneficiary receives the death benefit proceeds in regular installments (usually monthly) in a specified dollar amount.
Fixed Period Settlement Option: A life insurance policy settlement option in which the beneficiary receives an income for a stated period of time (fixed period) from the death benefit proceeds.
Flexible Premium Annuity: A Deferred Annuity under which premiums may vary from year to year within stipulated limits; often used to fund an IRA.
Floater: An insurance product designed to provide greater coverage for particular kinds of movable and valuable personal property.
Free Look Provision: A life or health insurance policy provision, usually required by law, which gives the policyowner a stated number of days to review a newly issued policy. If the policyowner is dissatisfied with the policy for any reason, he or she can return it to the insurance company within the stated period of time for a 100% refund. If the policy is returned, the coverage is cancelled from the date of issue and the company is not liable for any claims which occurred during that period of time. Also called Right to Examine the Policy.
Fully Insured: Under Social Security, an individual acquires the status of fully insured after working 40 quarters (10 years). In order to qualify for most Social Security programs (retirement benefits, disability benefits, and most survivor benefits), an individual must be fully insured. For contrast, see Currently Insured.
Future Income Option: A rider which may be available on a disability income policy which allows the insured to purchase additional amounts of disability income coverage in the future regardless of health (no proof of insurability). The specific benefit available and frequency of option dates varies greatly from one company to another.
G
Grace Period Provision: A period of time after the premium due date during which the policy remains in force. Losses occurring during the grace period are covered. The length of the grace period is determined by state law, and may vary depending on whether it is a life or health policy, and whether it is an individual or a group policy. Also see Unpaid Premium Provision.
Graded Premium Whole Life: A form of Whole Life with a redistribution of premium. Premium payments are lower than traditional Whole Life in the early years of the policy, and higher in the later years. The objective is to make the initial premiums more affordable during the early years of the policy and still offer permanent protection. Also called Modified Life.
Group Disability Income: Group Disability Income covers a group of employees under one policy (called the Master Contract). Premiums paid by the employer are deductible to the employer, and the premiums are not considered to be part of the employee’s income. Benefits paid to the employee as the result of employer contributions are fully taxable to the employee.
Group Insurance: Life or health insurance which covers a group of persons under just one policy (called a Master Contract). The group must have been formed for a purpose other than to obtain insurance. State law determines what types of groups are eligible. Typical eligible groups include: employee groups, association groups, debtor groups, and labor union groups.
Guaranteed Cash Value: In a Whole Life policy, the guaranteed amount payable to the policyowner upon surrender of the policy according to the policy’s table of guaranteed values. The cash value table is scaled according to the number of years the policy is in force.
Guaranteed Insurability Provision: A provision which allows the policyowner to purchase additional insurance in specified amounts at various future dates without proof of insurability. Rates for the insurance purchased under this option are based on the insured’s attained age at the time of purchase. This benefit may also be accomplished by means of a rider. In a disability income policy, this provision may also be called a Future Income Option.
Guaranteed Renewable: A form of renewability in health insurance which gives the policyowner the right to continue coverage until a stated date or age. During the policy period, the insurance company may not make any changes in the policy except for the premium charged. Premiums may be adjusted over time by class. This is usually the highest form of renewal available for medical expense policies. Also see Noncancellable.
Guaranteed Replacement-Cost Insurance: A formerly common type of homeowners insurance that made the insurer pay to replace the entire dwelling regardless of a policy’s Coverage A limit.
H
Health Insurance: The generic name which has been accepted by the insurance industry as the broad term for the branch of insurance that includes all types of disability income, medical expense and the accidental death and dismemberment coverages due to accident or sickness. It is also known as accident and health insurance, sickness and accident insurance, etc.
Health Maintenance Organization (HMO): A type of health care service provider. The classic HMO is a program that operates by hiring its own doctors to staff its own local clinics. The HMO approach emphasizes preventive health care, so routine physicals, immunizations, and office visits are covered and there are usually no deductibles or coinsurance.
Health Savings Account: A cross between a Self-Funded Plan and a traditional Medical Expense Contract with a very high deductible. It can be sold on an individual (or family) basis or to groups.
Home Health Care: In most policies, intermediate or custodial care performed at the patient’s own home.
Homeowners Insurance: A common form of insurance for owner-occupied dwellings that also
includes personal liability insurance.
Human Life Value Approach: A method of determining how much insurance a person should have. The human life value approach totally focuses on what the proposed insured reasonably anticipates earning and contributing to his or her family.
I
Immediate Annuity: A Life Annuity contract under which the first income payment will be received by the annuitant immediately (usually one month, three months, six months, or 12 months) after the payment of the purchase price.
Income Replacement Contract: A relatively new alternative to traditional disability income policies, Income Replacement is a policy under which the insurance company agrees to replace an insured’s income up to a stated percentage, like 70% or 80%, if he or she suffers a loss of income due to a covered accident or sickness. Even if you are working full time doing all the same duties you did before, if you suffer a loss of income because of a covered accident or sickness, you get paid.
Incontestable Clause: A mandatory provision for life and health policies which limits the amount of time (two years in most states) that an insurance company can rescind a policy or contest a claim due to misrepresentation or concealment on the application – except for nonpayment of premium (or fraud, in many medical expense policies). Also called Time Limit On Certain Defenses in health insurance.
Increasing Term: Term life insurance coverage in which the face value increases periodically (each year or month) during the policy period. The premium for Increasing Term may be level, or it may increase over time along with the face amount. For contrast, see Level Term and Decreasing Term.
Individual Retirement Account (IRA): A qualified retirement plan for any individual with earned income; contributions to an IRA may be deductible for tax purposes (depending on income and whether the individual is in another qualified plan), and interest earned on an IRA is tax deferred until withdrawn. Along with the tax advantages, there are also restrictions, such as the amount of the deductible annual contribution, and when and for what purpose money can be withdrawn.
Inflation Protection: In homeowners insurance, a policy feature that will recalculate the dwelling’s insured value on a regular basis and may increase the policy’s Coverage A limit based on the increased cost of construction.
Inland Marine Insurance: Insurance for items shipped by land rather than by water. Also, insurance used to cover easily movable commercial property of great value.
Inside Limits: In health insurance policies, the maximum amount the policy will pay for specified types of medical expenses.
Insurable Interest: A legal interest in another person’s life or health or in the protection of property from injury, loss, destruction or damage.
Insurance: A contractual arrangement whereby one party agrees to absorb a risk in exchange for compensation and in an attempt to pool several risks together.
Insurance Policy: The printed form prepared by an insurance company to serve as the contract between the policyowner and the insurance company. The policy contains all the terms and conditions of the agreement between the parties to the contract.
Insurance Producers: Licensed professionals who act as intermediaries between consumers and insurance companies.
Insured: In general, a person or other entity who is entitled to insurance benefits after a loss. Depending on the circumstances, also known as the “policy owner,” “policyholder,” or “named insured.”
Insurer: The company issuing the policy, also known as the “carrier.”
Interest Option: A settlement option under which the insurance company holds the insurance proceeds and invests them on behalf of the beneficiary, and the beneficiary receives the interest from the investment. The proceeds remain the property of the beneficiary and are ultimately paid in accordance with the settlement agreement.
Interest Sensitive Whole Life: Under this contract the company sets the initial premium based upon current assumptions about risk, interest and expense. If the actual experience differs from what is expected, then premiums can be raised or lowered. Additionally, cash value growth is projected using a rather conservative guarantee. If the company earns more it can pay higher than the guarantee – but never lower.
Interim Insuring Agreement: An agreement separate from the policy which may be used to speed up coverage for the insured before actually receiving the policy. Interim Insuring Agreements require payment of the first premium, but do not guarantee that a policy will be issued.
Irrevocable Beneficiary: A beneficiary designation whereby the policyowner cannot change the designated beneficiary, surrender the policy, take out a policy loan, or exercise any other policy feature without the consent of the irrevocable beneficiary. Upon the death of the insured, the death benefit goes to the irrevocable beneficiary (or the irrevocable beneficiary’s estate if he or she predeceased the insured, unless named on a reversionary basis).
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Joint and Survivor Life Annuity: An Annuity that makes payments to two (or more) annuitants throughout their lifetimes. When the first annuitant dies, the insurance company continues to make payments (in whole or in part) until the last annuitant has died.
Joint Life: Two or more persons covered by one policy. Death benefits are paid upon the death of the first insured.
Jumping Juvenile Policy: Juvenile insurance on which the face amount automatically increases by a multiple (usually five), of the original face amount when the insured child reaches a predetermined age (like 18, 21, or 25). No proof of insurability or additional premium is required when the face amount is increased. Sometimes called an Estate Builder policy. Also see Juvenile Life.
Juvenile Life: Life insurance policies written on the lives of children within specified age limits (usually under age 15), generally with the parents or grandparents as the policyowners.
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Keogh Plan (HR-10): A qualified retirement plan for self-employed professionals and their eligible employees. Contributions to a Keogh Plan are deductible from income (up to certain limits) and interest earned on a Keogh account is not subject to taxation until the money is withdrawn. Like IRA’s, there is a penalty for early withdrawal of the money and other restrictions on the plan.
Key Employee Insurance: Life or disability income insurance designed to indemnify a business against financial loss caused by the death or disability of a vital member of the firm; the business (employer) is the owner and beneficiary of the policy, and the key employee is the insured.
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Lapse: Cancellation of an insurance policy due to nonpayment of premiums.
Legal Capacity: The capacity to bind oneself contractually, i.e., being of legal age, sane, and sober. An individual with legal capacity is considered a legally competent party.
Legal Guardian: An adult who has been charged with looking after the legal affairs of a minor or an incompetent.
Level Term Policy: Term Life coverage in which the face value remains unchanged from the date of issue to the date the policy expires. For contrast, see Increasing Term Policy and Decreasing Term Policy.
Liberalization Clause: Part of an insurance policy that states that if the carrier decides to modify the policy in a way that gives additional insurance to new customers at no cost (either by choice or by law), its existing policyholders must also receive these free benefits.
Life Annuity: An annuity that promises to pay a guaranteed income for life.
Life Annuity With Period Certain: A Life Annuity contract providing income to the annuitant for at least a definite and specified period of time, such as 10 years, with payment going to a designated beneficiary if the annuitant dies before the end of the specified period. If the original annuitant is still alive at the end of the designated period, annuity payments continue until the annuitant’s death. In life insurance, as a settlement option, this annuity is called Life Income with Period Certain.
Life Income Option: In life insurance, one of the optional modes of settlement under which the proceeds of the policy may be taken in the form of an annuity payable to the beneficiary for life. Also see Straight Life Annuity.
Life Insurance: A broad category of insurance that helps manage the financial consequences of premature death.
Life Insurance Company: An organization chartered by a state for the purpose of furnishing life insurance protection and annuities.
Lifetime Extension: A disability income policy rider which extends the income benefits for total disability until death as long as the insured becomes disabled before some limiting age.
Limit of Liability: The maximum amount of compensation that an insurance company must pay to an insured after a loss.
Living Benefit Option: A life insurance benefit which pays a portion (up to 50%) of the face amount to the insured/owner prior to death.
Lloyd’s of London: An English institution within which individual underwriters or groups of individuals accept insurance risks. Lloyd’s provides the support facilities for such activities and is not, in itself, an insurance company.
Loan Value: In life insurance, the cash value which has built up in the policy and which can be borrowed from the policy by the policyowner. If the policy matures or is surrendered when there is an outstanding loan against the policy, this amount (plus interest) is deducted from the amount payable.
Long-Term Care Insurance: Long-term care policies provide coverage for medically necessary services which a person receives in a setting other than a hospital, such as a nursing home or, perhaps, even one’s own home.
Loss: An expense or decrease in value.
Loss of Use Coverage: Property insurance that pays money to the insured when the residence premises or building is made uninhabitable by a covered peril.
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Marine Insurance: Insurance pertaining to trade and goods in transit.
Material Fact: Information that, if known, would influence a decision regarding whether to enter into a contract in the first place.
Mediation: A form of non-binding dispute resolution in which attorneys, retired judges or other third party participants attempt to get both sides of a dispute talking to each other in order to come to a resolution.
Medical Information Bureau (MIB): The MIB is an organization that stores and makes available to insurance companies key underwriting information on applicants for life or health insurance. The major purpose is to help guard against concealment or fraud by new applicants. Member companies check with the MIB to uncover pertinent health facts discovered by another company on an applicant.
Medical Payments Coverage: In auto insurance, medical coverage for a driver or a driver’s passengers.
Medicare Supplement Policy: A Medicare Supplement Policy (MSP) is an individual or group medical expense health policy which is designed primarily as a supplement to the hospital, medical or surgical expense reimbursements available under the federal Medicare program.
Modified Life: A form of Whole Life insurance with reduced premiums during the early years but higher than regular rates during the later years. Modified Life can be constructed by combining Term and Whole Life, or by simply redistributing the premium of a Whole Life policy.
Morbidity: The rate of disease or probability of accident or illness. Morbidity is part of the risk which insurance companies take into account in calculating health insurance premium rates.
Morbidity Table: A statistical table which is used to estimate the amount of loss due to accidents and sickness of persons at different ages. Morbidity tables are used in the computation of health insurance rates, similarly to how the mortality tables are used in life insurance underwriting.
Mortality: The rate of death. Mortality is part of the risk which insurance companies take into account in calculating life insurance premium rates.
Mortality Table: A statistical table which, based on age and sex, states the life expectancy of persons and the percentage of persons in any given group who are expected to die. Mortality tables are used in the computation of life insurance rates.
Mortgage Protection Insurance: A type of Decreasing Term insurance designed to correspond directly to the amount of outstanding loan and length of time remaining on a mortgage. If the insured dies during the mortgage period, the outstanding balance is paid by the insurance company to the beneficiary or directly to the mortgage company. Also called Mortgage Redemption.
Multiple Indemnity Rider: A life insurance provision which states that some or all of the benefits under a policy will be increased by a stated multiple (such as double or triple indemnity) in the event the insured dies an accidental death.
Mutual Company: An insurance company owned by the same individuals who have purchased insurance from it.
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Named Insured: With a few exceptions, usually the only person or entity who will be covered by insurance and the only party, besides the insurer, who can change the insurance.
Named-Peril Policy: An insurance contract that only insures the policyholder against those perils that are specifically mentioned as a covered peril.
Non-Renewal: The insurance company’s refusal to extend coverage beyond the previously agreed policy period.
Noncancellable: A form of renewal in a health insurance policy which not only allows the policyowner to keep the coverage in force until a stated date or age, but which also guarantees the premium. During the policy period, the insurance company has no unilateral right to make any changes, or to cancel the policy as long as the premiums are paid. Also called Noncancellable and Guaranteed Renewable.
Noncontributory Plan: A group insurance plan in which the employer pays the entire premium for insurance coverage and the employee/insured pays nothing. For contrast, see Contributory Plan.
Nonforfeiture Options, Provisions or Values: In life insurance, nonforfeiture values are benefits available by law to the policyowner should he/she choose to stop paying for the policy and surrender it to the company.
O
Open-Peril Policy: An insurance contract that covers losses caused by any peril unless the insurance contract specifically excludes it.
Old Age Survivors Disability Insurance (OASDI): Social Security retirement, survivors and disability insurance (OASDI) is part of the Social Security Act and is administered by the Social Security Administration. It provides what are commonly called “social security benefits” to workers who are retired, disabled workers, and survivors of deceased workers.
Ordinary Life: Ordinary Life is one method of marketing life insurance. It is essentially individual life insurance whereby an agent collects the first premium with the application and then premiums after the first are mailed directly to the home office of the company that issued the policy. Ordinary Life has traditionally included Term, Whole Life, and Endowment insurance. Sometimes, Continuous Premium Whole Life (Straight Life) is inaccurately referred to as Ordinary Life.
Other Insurance Clause: Part of an insurance policy that explains how a loss will be handled if the same loss is insured under multiple policies and/or by multiple insurance companies.
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Package Policy: An insurance product designed to cover multiple kinds of risk and thereby containing multiple insuring agreements.
Paid-Up Additions: A dividend option in which fully-paid additional insurance of the same type as the original policy is added to the policy. It is as if the dividend were used as a single premium to purchase as much insurance as possible of the same type as the original at the insured’s attained age.
Partial Disability: In health insurance, a transitional benefit for an insured who has been totally disabled and can return to work, but cannot resume all of his or her duties or cannot yet work full-time. Typically, the partial disability benefit is 50% of the total disability benefit for a period not to exceed six months.
Payor Benefit Rider: A rider usually attached to a life insurance policy written on the life of a child. This rider waives the right to premium should the person paying for the policy, e.g., the parent, die or become disabled.
Peril: A cause of a loss.
Period of Restoration: The amount of time during which a business will receive business interruption benefits, usually lasting until the point in time when the business has permanently relocated or should’ve been capable of rebuilding the premises.
Permanent Insurance: Generally refers to Whole Life insurance. The insured is guaranteed the right to keep the policy in force for his or her entire life as long as the premiums are paid, and the policy builds cash value.
Personal Auto Policy: An ISO-authored coverage form used to insure most private-passenger vehicles.
Personal Injury Protection (PIP): In no-fault auto insurance states, insurance that is intended to cover a driver’s own medical costs after an accident.
Personal Liability Insurance: A portion of homeowners insurance that pays when third parties suffer accidental harm to themselves or their property because of something an insured did or failed to do.
Personal Lines Insurance: Insurance intended to insure one person or a family in non-business endeavors.
Personal Umbrella Policy: Excess liability insurance that applies when a person’s primary insurance policies for personal liability have reached their limits.
Policy Change Provision (Conversion Option): A life insurance policy provision which states that the policyowner has the right to change from a lower premium form of insurance, such as Term, to a higher premium form, such as Whole Life, without evidence of insurability. This provision also states that to change from a higher premium form to a lower premium form does require proof of insurability.
Policy Date: The date on which insurance coverage becomes effective, as shown in the policy.
Policy Fee: A small annual charge (or sometimes a one-time charge) to the policyowner, in addition to the premium, which covers the cost of issuing the policy and/or the cost of policy administration, such as collecting the premium and paying policy taxes.
Policy Loan Provision: A provision in cash value life policies which states that the policyowner has the right to borrow up to the amount of the cash value in the policy without cancelling or surrendering the policy. The insurance company, however, may charge interest on the loan in advance.
Policy Period: The time between an insurance policy’s issue date and expiration date.
Preferred Provider Organization (PPO): A health care plan under which the covered individual can choose the health care provider he or she wants. The PPO contracts with a large number of medical providers (hospitals, doctors, etc.) across a community and lists them. If the claimant utilizes a physician or hospital on the PPO’s preferred list, benefits are structured somewhat as they would be with an HMO – small (if any) deductible, low cost sharing and some coverage for preventive care.
Premises and Operations Liability: In commercial general liability insurance, liability that arises from accidents at the insured’s place of business or while the insured is conducting business.
Premium: Consideration paid by the consumer to the insurer for insurance.
Professional Liability Insurance: A broad category of liability insurance that includes malpractice insurance, errors and omissions insurance, directors and officers (D & O) insurance and more.
Proof of Loss: Documentation that must be provided by the insured to receive compensation from the insurance company.
Property Insurance: A broad category of insurance that compensates businesses and individuals when they suffer losses pertaining to their physical assets, such as their building, home or belongings.
Pro Rata Liability: A manner of calculating each insurer’s share of an insured loss when it could reasonably be covered by multiple existing policies. Typically based on each policy’s fraction of the overall coverage limit for the loss.
Q
Qualification Period: In a disability income policy with a residual disability income benefit, the qualification period is a specified period of time which (1) modifies the elimination period by stating that the elimination period can be satisfied with just partial disability, and (2) states that the insured must be totally disabled for the length of the qualification period. In order to get residual disability benefits, the insured must go through both the elimination period and the qualification period, but the time periods can run concurrently.
Qualified Retirement Plan: A retirement plan which meets certain federal requirements and which qualifies for special tax treatment. The major requirements are that the plan (1) be for the benefit of employees or their beneficiaries, (2) not discriminate (such as in favor of highly compensated employees), (3) be in writing, (4) define the contributions or the benefits, and (5) be permanent. Contributions are deductible for income tax purposes (within certain limits) and the funds accumulate interest on a tax deferred basis. Keogh Plans, IRA’s, and 401(k) Plans are examples of qualified retirement plans.
R
Recurrent Disability Provision: In a disability income policy, a provision which states that a later, separate period of disability will be considered a continuation of a prior period of disability if it starts within six months after the end of the prior period of disability and is the result in whole or in part of the same or related injury or sickness.
Reduced Paid-Up Insurance: In life insurance, a nonforfeiture option under which the insured’s cash value is used as a net single premium to purchase as much paid-up insurance of the same type as the original policy as is possible, given his or her attained age. The face amount of the policy is thereby reduced, but it is completely paid-up.
Refund Life Annuity: A Life Annuity contract which provides that upon the death of the annuitant, the company will pay to a designated beneficiary the difference between the annuity value and the income payments made. This may be done as a continuation of the income payments or in a lump sum. As a life insurance settlement option, the Refund Life Annuity guarantees that the beneficiary gets an income for life plus a guarantee that at least the settlement amount will be paid out.
Reinstatement Provision: A required provision in both life and health insurance policies which states whether and how the policyowner can reinstate a lapsed policy. In life insurance, unless the policy has been surrendered for its cash value, the policyowner can reinstate within a specified period (determined by state law) by providing proof of insurability and payment of all past due premium plus interest. In health insurance, the company is not obligated to reinstate a lapsed health insurance policy.
Renewable Term: A Term life insurance policy under which the policyowner has the right at the end of the specified term to renew the policy for another term of the same length without proof of insurability but potentially with increased premium.
Renewal: In life or health insurance, the continuance of a policy beyond its original policy term.
Replacement-Cost Coverage: Property insurance that does not subtract for depreciation.
Rescission: Cancelling and treating a contract as if it never existed at all.
Residence Premises: In homeowners insurance, the dwelling and all the land and other structures surrounding it.
Residual Market: In auto insurance, arrangements by which high-risk drivers can obtain mandatory insurance despite being otherwise uninsurable.
Rider: A written modification to a policy which may add or delete benefits.
S
Salvage Value: The worth of an item that can no longer be used for its intended purpose.
Settlement Options: In life insurance, the various methods by which the beneficiary or the policyowner may have policy proceeds paid upon maturity of the policy. The settlement options usually available are (1) Cash, (2) Interest, (3) Fixed Period, (4) Fixed Amount, and (5) Life Income.
Short Term Disability Income(STD): A disability income policy with a benefit period of less than two years (for group policies), or less than five years (for individual policies).
“Special” Coverage: In property insurance policies based on ISO forms, open-peril insurance that will respond to all perils other than those specifically excluded in the policy.
Special Flood Hazard Area: A place where there is at least a 1 percent chance of flooding each year, thereby usually requiring the purchase of flood insurance.
Special Limits of Liability: In property insurance, coverage limits on some highly valued items, such as jewelry, furs and documents.
Split Limit: In auto insurance, having different dollar limits for bodily injury liability and property damage liability.
Subrogation: The transfer of rights between parties who are already part of the contract (such as rights transferred from the policyholder to the insurer).
Surety Bond: A bond guaranteeing that something will be done.
Survivor Benefits: Payments to survivors of covered workers lifetime or temporary monthly payments and/or a lump-sum death benefit.
Survivorship Life: Two or more persons are covered by one policy. Death benefits are paid upon the death of the last insured.
T
TERM LIFE INSURANCE: A life insurance contract which provides coverage for a specified period of time and expires without value if the insured survives the stated period.
U
Underwriter: A person, such as an insurance company employee, who evaluates a risk, decides on its eligibility for coverage (accepts or rejects the risk), and determines the appropriate rate
Universal Life: Considered to be an interest sensitive form of permanent protection, Universal Life combines Term life insurance with a tax deferred savings plan (cash value). The death benefit, premium amount, payment period, cash value growth, and protection period are all flexible.
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Variable Annuity: A Life Annuity contract similar to a traditional Fixed Life Annuity in that payments will be made periodically to the annuitant over the remaining years of that person’s life, but differing in that payments vary in dollar amount.
Variable Universal Life: An advanced and sophisticated life insurance product which gives the policyowner the ability to increase, decrease or even skip premiums altogether (within limits), dump large amounts of money into the plan (as permitted by law), increase (with evidence of insurability) or decrease the amount of insurance, take money out of the plan as a partial withdrawal or as a policy loan, and the right to select the investment vehicle for the policy’s cash value from a number of different options. However, there is no guaranteed return on cash value.
Variable Whole Life: A permanent form of life insurance in which the death benefit and cash value vary based upon the investment performance of the cash value. Unlike traditional Whole Life, the cash value of a Variable Life policy is invested in common stocks which provides the potential for a higher return on the investment – but greater risk. A minimum death benefit is guaranteed.
Viatical Settlements: Selling your policy to an investor at a discounted price to provide cash before death which pays for a terminal illness.
W
Waiver of Premium: A provision included in many life insurance and disability income policies which exempts the policyowner from further payment of premiums after he or she has been totally (and, in some cases, permanently) disabled for a specified period of time.
Whole Life Insurance: A form of life insurance which has a guaranteed level death benefit until death or age 100, whichever comes first, and which builds a guaranteed cash value which will equal the face amount of the policy at age 100. Premiums for a Whole Life policy are also level and may be paid for as long as the insured lives or age 100.
Workers Compensation: Insurance coverage purchased by an employer which pays benefits (medical expense, dismemberment, disability income, death benefits, etc.) for employees who are injured or killed on the job.
Y
Your Occupation (Your OCC): This is the most generous definition of total disability. Under this definition, you are considered disabled if you are unable to perform the important duties of your own occupation – the work in which you were engaged when the disability began – regardless of whether you can or want to do some other job. For contrast, see Any Occupation.