Insurance Pre-Licensing

Class Designation

A beneficiary designation that does not specify beneficiaries by name, but rather by a group or class. For example, a policyowner names "All my children" as beneficiaries to the life insurance proceeds. (6-3)

Disability Income Insurance

A type of health insurance policy that replaces the insured's income if he or she becomes disabled and unable to work. Sometimes called loss of income insurance. (14-1) (12-2)

Alien Insurer

An insurance company organized and incorporated outside the United States, that is, organized under laws of a foreign nation.

Capital Sum

The benefit provided for accidental dismemberment or accidental blindness. See accidental death & dismemberment (AD&D); also see principal sum.

Aleatory

A contract condition where one party may obtain greater value under the agreement than the other party. An insurance contract has this "chance" or possibly unequal element.

Annuity

A contract offered by the life insurance industry that provides stipulated payments at regular intervals (usually monthly) for (1) the lifetime of the annuitant or (2) a specified length of time. See annuitant.

Conditional Contract

A contract that is in force only if certain obligations are met or events have occurred. (2-6)

Any Occupation

A definition of total disability that requires the insured to be unable to perform any occupation they would be reasonably suited to do based on education, training or work experience in order to receive disability income benefits from the policy. See total disability, disability income insurance and own occupation

Accumulation at Interest

A dividend option that leaves the policy dividends with the insurance company to invest and earn interest.

Cafeteria Plan

A employee benefit plan that allows employees to select among various group programs and insurance plans that best meet their specific needs. Also called a flexible benefit plan. (12-7) See flexible spending account (12-7) ; also see worksite insurance plans.

Application

A form supplied by the insurance company that is completed by the agent (and possibly a medical examiner) while questioning the applicant. The agent and applicant sign it. It is then submitted to the underwriting department for review. If a policy is issued, the application is attached to the policy. See applicant; also see underwriting.

Contributory Plan

A group insurance policy were the policyowner (an employer) and insureds (employees) share the cost of the plan. Generally, insurance companies will require 75% or more of all eligible employees to participate. See noncontributory plan. (10-4)

Basic Medical Expense

A health insurance policy that only covers outpatient physician services and procedures. It provides first dollar benefits by the insurer, but low coverage limits.

Basic Hospital Expense

A health insurance policy that only covers room and board if the insured stays overnight in a hospital and the miscellaneous expenses (such as, testing, x-rays, lab work etc.) that occur because of that stay. It provides first dollar benefits by the insurer, but low coverage limits. See first dollar coverage.

Basic Surgical Expense

A health insurance policy that only covers surgeries, surgeons and anesthesiologists. It provides first dollar benefits by the insurer, but low coverage limits. See first dollar coverage

Conditionally Renewable

A health insurance provision that allows renewability if certain stated conditions are met by the insured, such as full-time employment to age 65. (12-8)

Catastrophe (Catastrophic) Insurance

A health policy that provides substantial benefits if the insured has a prolonged, serious and expensive disability or illness.

Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)

A law that extends group health insurance coverage for terminated employees and dependents for up to 18 or 36 months. (16-4)

Custodial Care

A level of care assisting someone with the activities of daily living. The caregiver does not need medical training, but a doctor orders the care. Sometimes called personal or residential care. See activities of daily living. (18-7)

Accidental Death Benefit Rider

A life insurance policy rider that provides for an additional death benefit if the insured dies by reason of accident. Sometimes called a "double indemnity" rider.

Accelerated Benefits Rider/Option

A life insurance rider that allows for the early payment of some portion of the policy's face amount should the insured suffer from a terminal illness or injury.

Aviation Clause

A limitation or exclusion of coverage for private aircraft. Fare-paying passengers and commercial crewmembers do not have this exclusion in their life policies.

Activities of Daily Living (ADLs)

A long-term care policy will use these activities (bathing, dressing, eating, mobility, etc.) as a guide to assess dependency. See long-term care; also see long-term care policy and custodial care.

Capitation

A method of payment for health services in which the medical provider is paid a fixed amount for each patient without regard to the actual number or nature of services provided. This is a common payment method for an HMO's primary care physicians. See health maintenance organization (HMO) and primary care physician.

Cash Surrender Option

A nonforfeiture option that allows the policyowner to receive the cash value when surrendering or giving up their permanent life insurance. See nonforfeiture options.

Commission

A percentage of premium paid by the insurance company to the agent (producer) as compensation for selling an insurance policy. See premium. (3-10)

Blackout Period

A period of time when Social Security survivor benefits are not available to the surviving spouse and/or children

Contestable Period

A period of time, usually the first two years the policy is in force, in which the insurance company can contest a claim based on misstatements or omissions on the application. See incontestable clause. (6-4)

Agent

A person licensed by the state insurance authority to sell insurance products. An agent represents the insurance company in all transactions. See broker; also see producer.

Annuitant

A person whose life is measured for the annuity contract. Typically, the annuitant will receive monthly income payments for his or her life. See annuity

Disability

A physical or mental impairment caused by sickness or accident that limits a persons ability to work. See total, partial, residual disability; also see any occupation and own occupation. (11-2)

Common Disaster Provision

A policy condition designed to protect the contingent beneficiary or provide an alternative beneficiary in the event that both the insured and primary beneficiary die as a result of a common accident. See beneficiary; also see primary and contingent beneficiary.

Business Health Insurance

A policy purchased and owned by a business to indemnify the business in case of disability or sickness of a key employee.

Adjustable Life Insurance

A policy that allows changes or adjustments to the policy face amount, the amount of premium, the period of protection and the type of coverage (term or whole life). See term insurance; also see whole life insurance.

Blanket Policy

A policy that covers a number of insureds exposed to the same hazards or risks, such as members of an athletic team or campers.

Accidental Death and Dismemberment (AD&D)

A policy that provides payment if the insured dies from an accident, accidentally severs a limb or accidentally and permanently loses eyesight.

Credit Accident and Health Insurance

A policy that will pay an outstanding debt if the insured becomes totally disabled. (18-16)

Credit Life Insurance

A policy that will pay the outstanding loan balance of a debt if the insured dies. (10-3)

Dividend

A policyowner's share of divisible surplus (profit after expenses have been met shared equitably by policyowners) paid by a participating policy. Sometimes called policy dividends. See participating. (7-1)

Class Rate

A premium calculation for a group or class of persons with similar risks. See rating

Cancellable

A renewability provision with a health insurance contract that allows the insurance company, at its option, to terminate or renew the policy.

Claim

A request for payment of a loss which may be covered by the insurance contract. (15-2)

Competent Party

A requirement that both parties understand the contract and agree to it in order for the contract to be enforceable. A policyowner must be of legal age. (2-2)

Cost of Living Rider (COLA—cost of living adjustment)

A rider that automatically increases the benefit of a policy (typically linked to the CPI—consumer price index) to offset the effects of inflation. (8-3, 14-10)

Acute Illness

A serious and life threatening condition which requires immediate and proper medical attention.

Co-payment (Copay)

A set amount of money that a managed care plan member must pay at the time the member see a medical provider. See managed care. (13-3)

Currently Insured

A status of limited eligibility under Social Security that provides only death benefits. See fully insured and Social Security. (11-2)

Automatic Premium Loan Provision

A stipulation that authorizes the insurance company to pay any defaulted premium from the cash value of a life policy. The insurance company will treat this as a policy loan. See cash value; also see policy loan.

Critical Illness Insurance

A supplemental health policy that pays a lump sum in the event the insured is diagnosed with a critical illness such as cancer, heart attack or stroke. The benefit can be used to pay for medical care, daily living expenses or any other costs associated with the critical illness. (18-11)

Convertible Term

A term life policy that may be exchanged to a permanent life policy without evidence of insurability. (4-3)

Chronic Condition

A treatable but incurable illness, such as arthritis or high blood pressure.

Buy-Sell Agreement

A type of business continuation plan that gives a remaining business owner the predetermined legal right to purchase a deceased owner's interest at a predetermined price. Proceeds to purchase the deceased owner's interest come from a life insurance policy. See business continuation plan.

Disability Buy-Sell Agreement

A type of business continuation plan that gives a remaining business owner the predetermined legal right to purchase a disabled owner's interest at a predetermined price. Proceeds to purchase the disabled owner's interest come from a disability income policy. See business continuation plan, buy-sell agreement and disability income insurance. (14-6)

Consumer-Driven Health Plan

A type of health benefit plan in which the insureds select their health care providers, manage their health expenses and assume more control in protecting their health. (12-6)

Absolute Assignment

A type of policy assignment under which the assignee (person to whom the policy is assigned) receives full control over the policy and also full rights to its benefits. Also called permanent assignment.

Collateral Assignment

A type of policy assignment under which the assignee (person to whom the policy is assigned) receives partial control over the policy and also partial rights to its benefits. This

Annually Renewable Term (ART)

A type of term insurance that provides coverage for one year, then automatically renews at the end of the policy year for another year without evidence of insurability. See term insurance.

Decreasing Term Insurance

A type of term life insurance usually sold in connection with a debt or loan to protect the lender in case the borrower (insured) dies before the loan is repaid. The face amount of the policy is tied to the loan and is reduced as the debt is paid off. At the expiration of the term, the face amount is zero. See term insurance; also see mortgage insurance. (4-2)

Comprehensive Major Medical Expense

A type of traditional medical expense insurance designed to reimburse the policyowner for out-of-pocket medical expenses. It characterized by typically low deductibles ($100-$500), coinsurance and stop loss limits. See major medical expense, deductible, coinsurance and stop-loss provision. (13-4)

Contract

An agreement (offer and acceptance) between two parties that have the legal capacity to do so and have exchanged valuable consideration. See consideration. (2-1)

Deferred Annuity

An annuity contract that will not pay income benefits until a later date (usually when the annuitant reaches retirement age). (9-3)

Cash Refund Annuity

An annuity settlement option that offers an additional guarantee to pay a beneficiary if not all premiums were returned to the annuitant as income payments. See annuitant; also see annuity.

Business Continuation Plan

An arrangement among business partners or owners that provides for the continuation of the business in the event of death or disability of one of the owners.

Counteroffer

An initial offer that is not accepted, but negotiated by the second party. With insurance, the alternate offer usually involves additional premium to be paid for the coverage requested. See acceptance; also offer and rating. (2-1)

Adjuster

An insurance company representative who seeks to determine the extent of the company's liability when a claim is submitted. Also called claims adjuster.

Accident and Health Insurance

An insurance policy under which benefits are payable in case of illness or accident. Also called health insurance.

Accident

An unforeseen, unexpected and unintended event that results in bodily injury.

Carrier

Another term for insurer or insurance company. See insurer.

Conditions

Another term for policy provisions or terms. See policy provisions. (6-1)

Certificate of Creditable Coverage

Documentation issued by a group health care plan to an employee for presentation to a new group plan to verify previous coverage especially for a preexisting condition. See HIPAA. (16-6)

Consideration

Exchange of values between parties to complete a contract. With an insurance contract, premium is paid by the policyowner, and the insurer promises to pay according to the policy. (2-2)

Conditional Receipt

Given to potential policyowners at time of application and initial premium payment. It allows for the earliest possible coverage if the policy is approved subject to underwriting and any other stated conditions on the receipt. (3-5)

Certificate of Insurance

Issued by group contracts (typically employer groups) that summarizes coverage to insured employees. Sometimes called group certificate. (10-2)

Coordination of Benefits Provision

It prevents duplication of benefits with multiple group health insurance coverage. It limits coverage to 100% of the expenses covered and designates the order of benefits payable by the group carriers. (16-3)

Death Benefit

Life insurance policy proceeds paid to the beneficiary upon death of the insured. See policy proceeds and beneficiary. (4-2,3,4)

Actuary

Mathematician hired by an insurance company to apply probabilities and statistical analysis to risks and premiums.

Customary and Reasonable Expense

Medical expenses that are paid by the insurance company that do not specify a set dollar amount, but instead bases payment upon similar charges for a like service in the same geographic area. Charges in excess can be denied. Sometimes called usual, customary and reasonable (UCR) expense. (12-6) (13-3)

Acceptance

One party's agreement to the offer of another party. With an insurance contract, acceptance usually takes place when the policy is issued.

Agreement

One party's offer is accepted by another party. Both parties agree to the terms of the contract.

Ambulatory Surgery/Care

Performed on an outpatient basis.

Broker

Person licensed by the state insurance authority to sell insurance products. A broker represents the client and places business among various insurance companies. See agent and producer.

Commercial Health Insurers

Private health insurance companies offering traditional reimbursement policies such as major medical expense insurance. See reimbursement; also see major medical expense insurance.

Blue Cross

Service organization that geographically provides protection against the cost of hospitalization. Blue Cross pays benefits directly to the participating hospitals. See service organization.

Blue Shield

Service organization that geographically provides protection against the cost of surgeries and other medical care. Blue Shield pays benefits directly to the participating medical providers. See service organization.

Business Overhead Expense Insurance

Specialized use of disability income insurance that pays routine, necessary overhead expenses of a business if the business owner becomes disabled.

Cash Surrender Value

The amount of equity (cash value) available if the policyowner surrenders their permanent life insurance.

Cash Value

The amount of equity (ownership) or cash accumulation in a permanent life insurance policy.

Deductible

The amount of loss paid by the policyowner before the health insurance policy pays the claim. (13-3)

Attained Age

The current or present age of the insured. See original age.

Concealment

The deliberate withholding of information in order to financially gain, such as obtaining an insurance policy or receiving payment on a claim under false pretense. See claim. (3-2)

Assignment

The legal transfer of a policyowner's rights in an insurance policy to another party. See absolute and collateral assignment.

Consideration Clause

The part of the insurance contract that sets forth the amount, renewal and frequency of premium payments by the policyowner. (2-2)

Applicant

The person applying for the insurance policy who could also be the insured and/or policyowner.

Contingent Beneficiary

The recipient of a life or accident policy payable upon the death of the insured and no primary beneficiary is named or alive. Also called secondary (second) or tertiary (third) beneficiary. See beneficiary; also see primary beneficiary. (6-3)

Beneficiary

The recipient of a life or accident policy payable upon the death of the insured. See primary beneficiary; also see contingent beneficiary

Adverse Selection

The tendency of insureds who present a higher probability of loss to purchase or renew insurance more often than those who present a lower probability of loss. Insurance companies review this as "anti-selection"; i.e., not in the best interests of the company

Coinsurance

Under major medical expense insurance, the company insures a percentage of the potential loss and the policyowner pays the remaining percentage. For example, 80/20 means that the company pays 80% of the loss (after the deductible has been met) and the policyowner pays 20% of the loss. Also called percentage participation. See major medical expense and deductible (13-3)

Accumulation Period

With an annuity, it is the period of time, usually before retirement and withdrawals, that the annuitant is paying premium that accumulates interest tax-deferred. See annuity; also see annuitant.

Corridor Deductible

With supplemental major medical expense, it is an amount that is paid by the policyowner after the insurer first pays the basic plan portion when covered expenses are submitted. See supplemental major medical expense and basic policies. (13-4)

Consent

Written approval or permission to be insured by another party. See insurable interest. (2-2)