Accelerated Death Benefits - If your policy has an accelerated death benefits
provision, it will pay you - under certain conditions - all or part of
the policy death benefits while you are still alive. These conditions
include proof that the policyholder is terminally ill with a life expectancy
of less than 12 months, has a specified life-threatening disease or is
in a long-term care facility such as a nursing home. By accepting an accelerated benefit payment, a person could
be ruled ineligible for Medicaid or other government benefits. The proceeds
also may be taxable.
Accident - An unforeseen, unintended event; something unexpected; fortuitous.
Accidental Death Benefits - If a policy includes an accidental death
benefit, the cause of death will be examined to determine whether the
Insured's death meets the policy's definition of accidental.
Actual Cash Value (ACV) - The value of property, based on current replacement
cost less depreciation.
Adjuster - A person who investigates and settles insurance claims.
Administrative Expense Charge - An amount deducted, usually monthly,
from the policy.
Agent - A person who sells insurance products of the insurance company.
The person responsible for your insurance coverage needs.
Annuitant - A person who receives the payments from an annuity during
his or her lifetime.
Annuity - A contract in which the buyer deposits money with a life insurance
company for investment. The contract provides for specific payments to
be made at regular intervals for a fixed period or for life.
Annuity Certain - An annuity that provides a benefit amount payable for
a specified period of time regardless of whether the annuitant lives or
Annuity Period - The time span between the benefit payments made under
an annuity contract.
Application - A form containing underwriting information. The basis upon
which a policy is issued.
Assignment - The transfer of all or part of a policy owner's legal title
and rights to a policy to another person. It is possible to change this
type of transfer at a later date.
Bankdraft - Occurs when money is being automatically debited from a banking
account to for insurance coverage.
Benchmark Rate(s) - The rate set annually by the Commissioner of Insurance
by line, relative to which the flexibility bands and statutory rate limitations
Beneficiary - The person, persons or entity designated to receive the
death benefits from a life insurance policy or annuity contract.
Binder - Placing insurance temporarily in force, pending issuance of
Bodily Injury (BI) - Physical injury to a person; insured's liability
for same covered under Liability Insurance policies.
Cancellation - Termination of an insurance policy by the company or insured.
Cash Surrender Option - Nonforfeiture option, which specifies that the
policy owner can cancel the coverage and receive the entire net cash value
in a lump sum.
Cash Value - The amount of money, which the policy owner will receive
as a refund if the policy owner cancels the coverage and returns the policy
to the company. Also known as cash surrender value.
Churning - Can occur when an agent persuades a consumer to borrow against
an existing life insurance policy to pay the premium on a new one.
Claimant - One who makes a claim against another.
Co-insurance - The percent of each health care bill you must pay out
of your own pocket. Non-covered charges and deductibles are in addition
to this amount.
Conditional Receipt - A premium receipt given to an applicant which makes
the insurance effective only if or when a specified condition is met.
Contestable Period - A period of up to 2 years that an insurance company
may deny payment of a claim because of suicide or a material misrepresentation
on your application.
Contingent Beneficiary - Another party or parties who will receive the
proceeds if the primary beneficiary should predecease the person whose
life is insured.
Contract - In most cases, the term ""contract" refers
to the insurance policy. The policy is considered to be a "contract"
between the insurer and the insured for indemnification.
Conversion Privilege - The right to change (convert) insurance coverage
from one type of policy to another. For example, the right to change from
an individual term insurance policy to an individual whole life insurance
Death Benefit - Amount paid to the beneficiary upon the death of the insured.
Declarations Page - The contract section containing such information
as the name and address of the insured, period a policy is in force, premium
payable, lienholder, description of the vehicle, and amount of coverage.
Deductible - An amount absorbed by the insured in a loss, before any
payment is due from the company.
Deferred Annuity - An annuity under which the annuity payment period
is scheduled to begin at some future date.
Depreciation - The act of lowering an item's value due to use or wear
Dividend - The amount of money an insurance company may decide to distribute
Earned Premium - The portion of a policy premium, which the company has
earned; the portion, which the insured has "used up."
Effective Date - The date on which an insurance policy becomes effective.
Endorsement - A form attached to a policy to change or modify its conditions.
Escrow - Money placed in the hands of a third party until specified conditions
Evidence of Insurability - To qualify you for a particular policy at
a particular price, companies have the right to ask you for information
about your health and lifestyle. An insurance company will use this information
- your evidence of insurability - in deciding if your application for
insurance is acceptable and at what premium rate.
Exclusion - Provision in an insurance policy that indicates what is denied
Experience Period - The period of time that a company will reference
when making evaluations of an insuring policy. There is not a standardized
amount of time. See annotation for an example of an experience period.
Expiration Date - The date on which an insurance policy expires.
Extended Term Insurance Option - 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 Value - The initial amount of death benefit provided by the policy
as shown on the face page of the contract. The actual death benefit may
be higher or lower depending on the options selected, outstanding policy
loans or premium owed.
First Party Loss - A situation involving only the insurer and insured.
Free Examination Period - Also known as "10-day free look"
or "Free Look," it is the time period after a life insurance
policy or an annuity is delivered during which the policy owner may review
it and return it to the company for a full refund of the initial premium.
Variable life policies are required to include a "free-look"
provision. For other coverage, it is at the company's option.
Grace Period(s) - The time - usually 31 days - during which a policy remains
in force after the premium is due but not paid. The policy lapses as of
the day the premium was originally due unless the premium is paid before
the end of the 31 days or the insured dies. This is not a "free-insurance"
Group Life Insurance - This type of life insurance provides coverage
to a group of people under one contract. Most group contracts are sold
to businesses that want to provide life insurance for their employees.
Group life insurance also can be sold to associations to cover their members
and to lending institutions to cover the amounts of their debtor loans.
Most group policies are for term insurance. Generally, the business will
be issued a master policy and each person in the group will receive a
certificate of insurance.
Group of Companies - Several insurance companies under common ownership
and often common management.
Health Maintenance Organization (HMO) - Prepaid group health insurance
plan which entitles members to services of participating physicians, hospitals
and clinics. Emphasis is on preventative medicine.
Home Service Life - Home service refers to a method of selling and servicing
insurance, mostly life and health insurance, and does not identify the
type or relative cost of the product that is sold. Some companies that
market on a home service basis sell what is known as "industrial
life insurance." These are most often low death benefit policies
with face amounts that may vary from $1,000 to $5,000 and which accumulate
cash values at a very low rate. They are intended primarily to cover the
expenses of a last illness and burial. The relative cost of industrial
life insurance is extremely high compared to some other cash value policies
and term life insurance policies.
Incontestability - A provision that places a time limit - up to two years
- on a company's right to deny payment of a claim because of suicide or
a material misrepresentation on your application.
Independent Adjuster - A person who charges a fee to the insurance company
to adjust the company's claim.
Indexed Life Insurance - A whole life plan of insurance that provides
for the face amount of the policy and, correspondingly, the premium rate,
to automatically increase every year based on an increase in the Consumer
Price Index (CPI) or another index as defined in the policy.
Insurable Interest - A financial interest in the property insured, prerequisite
to a valid contract of insurance. In life insurance, a person's or party's
interest - financial or emotional - in the continuing life of the insured.
Insured - The person or firm covered by an insurance policy.
Insurer - The insurance company.
Interpleader - This is a procedure when conflicting claims are made on
a life insurance policy by two or more people. Using this procedure the
insurance company pays the policy proceeds to a court, stating the company
cannot determine the correct party to whom the proceeds should be paid.
Irrevocable Beneficiary - A named beneficiary whose rights to life insurance
policy proceeds are vested and whose rights cannot be canceled by the
policy owner unless the beneficiary consents.
Lapse - Termination of a policy due to non-payment of renewal premiums.
If the policy has cash value, then the policy's insurance coverage may
remain effective as extended term or reduced paid up insurance through
the use of a nonforfeiture option.
Liability - Responsibility to another for one's negligence.
Liability Limits - The limits of protection the insured has in a liability
Loss - Damages through the insured's negligent act and/or omission resulting
in bodily injury and/or property damages to a third party; damage to an
insured's property; or amount an insurance company has a legal obligation
Loss History - Refers to an insured's history of losses (claims) with
other companies, or the company they are currently with. A company will
consider "loss history" when underwriting a new policy or considering
a renewal of an existing policy. Companies view "loss history"
as an indication of an insured's propensity for a claim in the future.
Material Misrepresentation - A significant misstatement in an application
form. If a company had access to the correct information at the time of
application, the company might not have agreed to accept the application.
Mortality Charge - The cost of the insurance protection element of a
universal life policy. This cost is based on the net amount at risk under
the policy, the Insured's risk classification at the time of policy purchase,
and the Insured's current age.
Mortality Expenses - The cost of the insurance protection based upon
actuarial tables which are based upon the incidence of death, by age,
among given groups of people. This cost is based on the amount at risk
under the policy, the insured's risk classification at the time of policy
purchase, and the insured's current age.
Named Driver Policy - A policy whereby ONLY the named insured has coverage
under the policy. Generally, all other drivers are excluded from coverage
under the policy. This type of policy is usually written by surplus lines
Net Cash Value - The cash value amount available to a policy owner after
adjustments have been made to the cash surrender value to account for
policy loans and dividends.
Non-participating Policy - A life insurance policy that does not grant
the policy owner the right to policy dividends.
Non-renewal - Provision in a policy that states the circumstances under
which an insurer may elect not to renew the policy.
Paid-Up - This event occurs when a policy will not require any further
premiums to keep the coverage in force.
- Additional amounts of insurance purchased using dividends; these insurance
amounts require no further premium payments.
Peril - A cause of
property losses. Usually used in the context of "a peril insured
Policy - The contract
issued by the insurance company to the insured.
Policy Loan - An advance
made by a life insurance company to a policy owner. The advance is secured
by the cash value of the policy.
Policy Owner - The
person or party who owns an individual insurance policy. This person may
be the insured, the beneficiary or another person. The policy owner usually
is the one who pays the premium and is the only person who may make changes
to a policy.
Policy Period - The
period a policy is in force, from inception date to expiration date.
Organization (PPO) - Hospital, physician, or other provider of health
care which an insurer recommends to an insured. A PPO allows insurance
companies to negotiate directly with hospitals and physicians for health
services at a lower price than would be normally charged.
Premium - The consideration
for a policy, paid by the insured to the insurer. This term refers to
the amount of money being paid to keep insurance coverage in force.
Premium Expense Charges
- An amount deducted from each premium payment, which reduces the amount
credited to the policy.
Property Damage (PD)
- Physical damage to property, insured's liability for it covered under
Providers - Usually
references doctors or those who are providing a medical service.
Public Adjuster -
A person hired by you to settle the claim with the insurance company to
settle the claim on your behalf.
Rated Policy - A policy issued at a higher premium to cover a person classified
as a greater-than-average risk, usually due to impaired health or a dangerous
Redlining - Refusal
by an insurance company to underwrite or to continue to underwrite questionable
risks in a given geographical area.
Refund - Amount of
money being returned to the policyholder.
Reinstatement - The
process by which a life insurance company puts back in force a policy
which had lapsed because of nonpayment of renewal premiums.
Renewal Policy - A
policy issued as a renewal of a policy expiring in the same company or
agency; not new business.
Replacement Cost -
The cost associated with replacing property at current market prices.
Rescind - To take
away or remove. To avoid so as to restore the involved parties to the
positions they would have occupied had there been no contract.
Return Premium - The
premium returned to an insured for canceling or amending a policy.
Rider - A written
agreement attached to the policy expanding or limiting the benefits otherwise
payable under the policy.
Rule of 78 - This
is a method for calculating the amount of unused premium which takes into
account the fact that more insurance coverage is required in the early
months of the loan, since the payoff of the loan is greater. As the loan
is paid off, less coverage is being paid for, so the refund percentage
Rule of Anticipation
- This is a similar method to "Rule of 78" where the amount
of unused premium takes into account the fact that more insurance coverage
is required in the early months of the loan, since the payoff of the loan
is greater. As the loan is paid off, less coverage is being paid for,
so the refund percentage decreases.
Single Interest Insurance - Insurance coverage for only one of the parties
having an insurable interest in that property.
Life Policy - A type of limited-payment policy that requires only one
Staff Adjuster - Employee
of the insurance company's claim department.
Subrogation - Assignment
of rights of recovery from insured.
Suicide Clause - Life
insurance policy wording which specifies that the proceeds of the policy
will not be paid if the insured takes his or her own life within a specified
period of time after the policy's date of issue.
Surplus Lines - Insurance
coverage not available from an admitted company in the regular market;
thus a surplus lines broker/agent representing an applicant seeks coverage
in the surplus lines market from a nonadmitted insurer according to the
insurance regulations of a particular state.
- Charges that are deducted if your life insurance policy or annuity is
cashed in (surrendered). These charges also are deducted if you borrow
money on your policy or if your policy lapses for non-payment.
Third Party Administrator (TPA) - An organization that performs managerial
and clerical functions related to an employee benefit insurance plan by
an individual or committee that is not an original party to the benefit
Third Party Loss -
A situation involving a person other than the insurer and insured; i.e.,
a person making a liability claim against the insured.
Underwriter - The person who reviews an application for insurance and
decides if the applicant is acceptable and at what premium rate.
Underwriting - An
insurance company issues a policy when it believes you have a certain
level of "risk" or chance of a claim. Underwriting is the process
the company uses to decide whether to accept or reject an application.
Companies do not make their underwriting guidelines public because they
are considered to be trade secrets.
Unearned Premium -
The insured's remaining premium equity in his policy; that part of the
policy premium that has not been "used up."
Universal Life Insurance
- The key characteristic of universal life insurance is flexibility. Within
limits, you can choose the amount of insurance and the premium you wish
to pay. The policy will stay in force as long as the policy value is sufficient
to pay the costs and expenses of the policy. The policy value is "interest-sensitive,"
which means that it varies in accordance with the general financial climate.
Lowering the death benefit and raising the premium will increase the growth
rate of your policy. The opposite also is true. Raising the death benefit
and lowering the premium will slow the growth of your policy. If insufficient
premiums are paid, the policy could lapse without value before the maturity
date is reached. (The maturity date is the time your policy ceases and
cash surrender value would be payable if the policyholder is still living.)
Therefore, it is your responsibility to pay consistently a premium that
is high enough to ensure that your policy's value will be adequate to
pay the monthly cost of the policy. The company is required to send you
an annual report and also to notify you if you are in danger of losing
your policy due to insufficient value.
Usual and Customary
- these charges may be based on: rates usually charged by physicians and
providers in your area; rate averages compiled by independent rating services;
or rate averages compiled by the insurance company.
Variable Annuity - A form of annuity policy under which the amount of
each benefit payment is not guaranteed and specified in the policy, but
which instead fluctuates according to the earnings of a separate account
Variable Life Insurance
- A type of whole life policy in which the death benefit and the cash
value fluctuate according to the investment performance of a separate
account fund that the policyholder selects. Because the investment account
is regulated by the Securities and Exchange Commission, you must be presented
with a prospectus before you purchase a variable life policy.
Agreements - Viatical settlements involve the sale of an existing life
insurance policy by a viator (person with a life threatening or terminal
illness) to a viatical settlement company in return for a cash payment
that is a percentage of the policy's death benefit.
Whole Life Insurance - Whole life insurance policies are one type of cash
value insurance. Whole life policies offer protection through a lifetime
- that is, for a person's "whole life." From the day you buy
the policy, you pay a scheduled premium,. The scheduled premium may be
level or may increase after a fixed time period, but it will not change
from the amount(s) shown in the policy schedule. It is important that
you look at the policy schedule to be sure you understand what your premium
payments will be and that you can afford them over time. This premium
is based on your age at the time of purchase. Initially, it will be higher
than the premium paid for a term policy, but you are likely to end up
paying less in premiums when you are older, if you keep the policy for
a long time. Part of each premium payment will go to cash value growth,
part for the death benefit and part for expenses (such as commissions
and administrative costs). There is no need to renew whole life policies.
As long as you pay your premium when due, your coverage will continue
in force throughout your life.