Insurance Glossary

Contingent beneficiary

Person or persons named to recive benefit if the primaru beneficiary is not alive when teh insured dies for example. THe primaur beneficiary might be your spouse and the contingent beneficary might be your spouse

Incontenstable clause

Provides that after the policy has been in force a certain length of time, the company can no longer contest it or void it, except for non payment of premiums. The time period is usually two yers. In other words, life and health policies are contestable for teh frist two years, and incontestable thereafter. However, health policies are always contestable for fraud.

Adverse Seelection

Selection not in favor of the company. The tendency of poorer risk to want insurance more often than standard risks. For example a person is already sick would like to buy health insurance.

Decreasing Term Insurance

Term insurance whose amount of coverage starts out at the full amount, then gradually decreases untilt eh expirtation date of the policy. Generally, the cheapesst tyep of life insruance, but it has no cash value and cannot be renewed. Often used as mortgage protection insurance.

Cancellation

Termination of a contract of insruance mid term by voluntary act of the insruance company or insured, efefct in accordance with proviidosn in the contract or by mutual agreement

Earned Premium

That portion of the premium for which policy protection has already been given. For example if you buy a one year health policy for a premium of 1200, and the insurer cancels you exactly six months later, they are entitled to keep $600, but they must also refund you $600, which is called the unearned premium. If they covered you fro the entire year, all the premium would be earned. This concept applies to P & C insurance but not to insurance where all premiums are consiedere to be fully earned upon payment.

Agent/ Producer

The Individual appointed by an insurance company to solicy an dnegotiate insurance contracts on it's behalf. Agents or producers represent the company, not the client.

Annuitant

The Party reciging the benefits of an annuity, similar to the insured on an insurance policy. The annuitant usually also owns the annuity, although you can buy an annuity to benefit another party who would be the annuitant

Cash Surrender Value

The accumulate guarnetted cash value in a Whole life or Endowment policy at any given point in time. Most contracts do not deveop a cahs value until after the 3rd year. On whole, life, the cash value whill eequal the face amount of the policy at age 100.

Face Amount

The amount indicated on teh face of a life policy that be paid at death or when a whole policy policy matures at age 100. Also knowne as a death benefit or the policy limit. Non taable

Consideration Clause

A Clause in a life policy specifiying the premium due for the insurance protection and the frequency of payment. The more frequent the mode of payment, the higher the cost, sinc emost isnsuers charge service fees for budget payments. The cheapest mode is annual

Group Contract

A Contract of insurance made with an employer or other entity that covers

Corridot Deductible

A Major medical deductible that applies between beenfits paid by the Basic plan and the start of the Major medical beenfits

Convertibel term insurance

A Term life policy that can be conerted any time to a permanent type of coverage without proof of insruability Conversion premums are based on current age adn coverage cannot be increased, Most term is convertible, but not all. Most group insurance is convertble by law during its 31 day grace period.

Endowment Policy

A cash life policy for which premiums are paid for a limited number of year ssuch as to age 65.If the insure dis alive at teh end of this premium paying period, he she receives the face amount of the policy. If the insured deis before maturity of the policy, the beneficary receives the proceeds. Generally the most expensive type of cash value life insruacne, sinc ethe policiy reaches maturity priort to age 100. Endowments are often purchase to supplement retirement or fro teh children's educational purposes.

Family Plan Policy

A combination plan covering your entire family, usually with permenant insurance on fahters life, with mother and children automatically covered for lesser amounts, all included under one premium

Guarenteed Renewable

A conrac tthat vies the insured the right to continue in force by the timely payment of premiums for a period of time as set forth in the contract. During that period of time, the insurere has no right to make any changes in any provision of the contract other than a change in premium rate for all insures in teh same class.

Conditionally renewable

A contract of health insruacne that provides that the insured may renew the contract to a state date or age, subject to the right of insurer to decline renewal only under conditions defined the contract

Blanket Insurance Contract

A contract of health insurance that covers all of the a class of persons not individually identified. Often written to cover school children or sports teams, such as little league. No ceritficates are issued, sinc ecoverage applies to everyone that tends or participates.

Cancellable

A contract of insurance that may be terminated by the insurance company or insured t any time. Virutally every form of insurance is cancelable except life insurance and those health policies designated guarnetted renewable or non canelable and guarenteed reneable.

Insurance

A contract or device for the transfer of pure risk to an insuere, who agrees for a consideration to indemnify or pay a specifeid amount for losses usffered by teh insured. Risk is defined as the fhacne or unvertainty fo loss. Pure risk is the chanc eof loss, with no chance for gain. It is the only type of risk that is insurable. Speculative risk, which is the chance for loss or gain is not insurable.

Claim

A demand for payment under the insuranc epolicy

Cash Dividend option

A dividend option under which the policy holder recies the dividends in cash. Not subject to tax. Mutual insureres must issue partipccating policies, which might pay dividnedns but they are not guarenteed

Accumulation at intreste opiton

A dividend or ettlemnet option udner which the policy holder allows his or her dividends or policy proceeds to accumulate interest within the company. although the dividends or proceeds are not generally taxable, the interes earned is.

Endorsement

A form attached to an insurance P & C policy changing the contract. Endorsements are called riders in Life and Health insurance. No change to a policy may become effective until approved by a company officer.

Comprehensive Health Insurance

A form of health insurance that combines the coverage of Major Medical and basic medical expesne contracts into one broad contrac that provides coverage for almost all types of medical expense, usually subject to corridor deductible and to a percent particpation clause applicable to all or some of the covered expenses

Disability income insurance

A form of health insurance that provides periodic payments to replace income, when teh insured is unable to work as a result of sickness or injury. May be either individual or group coverage and is usually subject to a waiting or elimination period. In order to receive benefits, the insured must meet the definition of total disability in the policy, which varies by company

Application

A form on which the prospective insured states facts requestd by the insurer and on the basis of which the insurer decies whetehr or not to accept the risk, modify the coverage offered, or decline the risk. With premium, teh application is considered to be an offer to buy. if attached to the policy at issue, it becomes part of the entire contract.

Dread Disease Policy

A health policy for certain specified diseases such as cancer. Such policies do not follow the principle of indemnity in that they in addition to any other coverage the insured has.

Contract

A legal agreement between two parties fro consideration such as an insurance policy. To hold up in court, conracts must contian four required elements, consdieration fofer, acceptance and legal purpose (COAL). Parties to the contract must also have lega capabity

Extended term option

A life insurance non forfeiture option under which the insured uses the policy's cash value to purchase one year term insruance in an amoutn equal to the orginal policy fact amount. Although the policy holder could select the extended term option at any time, if the policy lapses adn noth other non forteiture option has been selected, the policy will automatically go into extended term. Remember that are three non feiture options. Cash surrender, reduced paid up and extended term.

Fixed amount option

A life insurance settlemne toption under which the beneficary recceives a fixed amount for an unspecified period of tim. Payments continue until the principal and interest ar edepleted.

Fixed period option

A life insurance settlemtn option under whicht eh beneficary recevies a regular incoemf ro a specifed period of time until the principal and interest are depleted.

Immediate annity

A lump sum annity on which the income payments to the annitant are to begin at once and continue for teh lifetime of the annuitant. Immediate annuties have no accumulation period.

Grace period

A period of time after premium due date during which a policy remains in force without penalty, even though the premium due has not been paid. If yo don't pay your premium on time, the grace period is the frist policy provision to apply

Beneficiary

A person who may become eligible to receive or is receiving benefits under an insurance plan. The beneficiary is slected by the policy owner and may be changed at any time unless irrevoable.

Fiduciary

A person who occupies a position of secial trust and confidence when handling premiums on behalf of insures and insureres. Insurance producers are consdiered to be fiduciaries.

Hosptalization expense policy

A policy that covers daily hosptial room adn board charges and also covers miscellaneous hospital expense. it also covers emergency treatment charges and many times will also include a surgical schedule. Also known as a basic plan

Hopital expense or income policy

A policy that pays a sate mount per wweek or month while teh insured is hospitallied without refered to expense actually incurred. Pays in addition to toehr policies.

Brokerage

A producer who represenesd a ninsured in the solicitation onegotation or procurement of contracts onf insurance. For example, you might represnt only one insurer as a producer. If that insuere declines to write coverage for your client, you might ttry to broker teh business elsewhere in an effeort to better serve your customer.

Common Disaster Provision

A provision in a life contrac that provides that the primary beneficary must outlive the insured by a speciifcied period of time in order to recive the proveeds. If not then the contingent beneficiary recives the proceeds. The provision is desigend to protect the rights of the contingent benefiary in teh event of simultaneous death of the insured and primary beneficairy.

Authomatic premium loan

A rider in a life policy authorizing the insruance company to use the cash value to pay premiums not paid by the end of the grace period. May be present in whole life or endowment polices, never term. This rider is free, but must be selected by the policy owner

Guarenteed insurability

A rider in life and health contracts that permits the insured to buy additional prescribed amount sof insruacne at prescribe future time intervals without evidence of insurability.

Certifciate

A statement evidencign that a policy that has been written adn stating the coverage in general. On group insurance, the employer recieves th amaster policy adn the employees recive certifcates of insurance.

Accident

A sudden event, unforeseen and unintended.

Absolute Assignment

A transfer by the policyholder of all control and rights to a third party.

AD & D

Accidental death and DIsmemberment insurance. A limited form of Health insurance that covers accident only. It is the only type of Health insurance that covers death. AD&D policies do not follow the principle of indemnity, in that they in addition to any other coverage teh insured has

ADB

Accidental death benefit, a rider added to a life policy that will pay double teh face amountif the inusred dies as a result of accident, generally within 90 days of the accident

Family income rider

Added to a whole life policy for an additional premium, this rider is similar ot eh decreasign term rider except that payments to the benficary are in the form of monthly incoem rather than a lump sum. For example, if you added a 10 year $100000 FIR to your policy , and you die on the 5th year, it will pay 5 years of $10000. On the 11th, there will be no additional benefit, but you will still ge teh whole life benefit

Insurance Age

An age upon which current premium rates may be established. It is commonly based on age at last birthday, age next birthday, or age at nearest birthday. Also known as original age.

Annuity

An agreement by an insurer to amek periodic payments that continue during the lifetime of the annitant for a specificied period. Annuities are considered to the be teh opposite of life isnruacne, since annuities pay while you're alive and life insurances pays when you die. Life insurance proceeds create an estate, while annuiteis are used to liquidate an estate over a period of time. All annuities are insurance products and a life insurance license is required.

Deferred Annuity

An annuity on which payments to teh annuitant are delayed until a specified future date. May be purchased with a single premium or with flexible premiums. Interest earned during the accumulation period is tax

General Agent

An insruacne appoined by an insurere to administer its business in a given toerriorty. Responsible for building the agency adn service force. Compensation is on a comission override baiss. Often called a mangaging general agent.

Domestic Insurance company

An insurance company formed under the laws of the state in which the insurance is written

Direct Writer

An insurance company that sells its policies through licensed producers who represent teh insurere exclusively, rather than through independ local producers, who represent several insuranc companies.

Alien company

An insurer organized and domicilied in a country other than teh united states

Foreign company

An insurer organized under laws of a state other than the one in which the insurance is written. For example. a company that is domestic to Illinois would be consdieed to be forreign in other states.

Authorized company

An insurer permitted to sell insruance with a state. Must obtain a cerficate of authoirty from teh comissioner or director of insruance of every state they sell in.

Fraud

An intentional mispreresenation mad eby a person with intent to gain advantage and relied upon by a second party that suffers a loss. Fraud is the intent to deceive and can be very hard to prove.

Insurable interest

An interest in life of an indviidual by which there will br a loss if the insured dies. The interest may be based on eithe ra family relationship or on economic factors. must exist at the time of applicaiton, not necessary at teh time of loss. If you would benefit if a person ccontinues to live, you have an insurabl interest in that person.

HMO

An organization of health service provides known as manage care providers. Each subscriber pays a premium for which he or she receive medical care when desired, subject to a copayment per office visit The emphasis is on prevntative medicine as an laterntive to tradtional indeminity written by insurance companies.

Hazard

Any factor tending to make a policy holder a less desirable risk for the insuring company

Collateral assignment

Assignemnt of part of the proceeds of an insuranc epolicy to a bank as collateral to settle the loan balance that may exist at he insureds death

Exclusions

Causes or condiitons listed in the policy that are not covered and for which no eenfits are payable. For esample in most states, suicide is excluded on a life policy fro teh first 2 years. On Health Insurance, intentional self inflected injury is never covered.

Insurance Comissioner

Common title for head of state dpeartmnet or divisn of isnruacnce. Also known as direct of insurance in some states. Insuracne is regulated by stte lw. The comissionsers job is to protect the insurance buying public by administering state insurance laws and regulations. teh comissioner does not maek teh lawes, he she enforces them.

Deductible

Dollars or pervetnage of expense tha ill not be reimbursed by the insurer. The purpose of the deductible is to hold down the cost of insruance. The higher the deductible, the lower the premium.

Blue Plan

Generic term for those insurers who are auhorized to use the designation blue cross or blue shield

Contributory group

Group insuranc efor which teh employee pays part of the premium if the group is contribuory at 75% of the hose eligble must enroll in order to prevent advers selection. In non contribory groups, 100% must enroll

Dividend options

If a mutual insurere declares a dividend, the policyholder has a choice of six divdend options, which can be change at any time, including: cash interest applied to premium when due, paid up additions, one year term insurance or paid up option

Conditioanl receipt

In life and health insurance a conditional receipt provides that if premium accompanies the application, coverage shall be in force from the date of application, provdied the insurance company would have issued the coverage on the basis of facts as revealed by teh application and other usual sources of underwriting information. Remember, there is never any coverage unless the premium has been paid

Indemnity

Insurance is designed to restore the policy holder to the same financial conditiion enjoyed prior to a loss. The intent is to cover the amount of the actual loss and to avoid paying amounts that allow an insured to profit from a loss siutation. This is knownas the principle of indemnity. Health insurance follows this concept, but life insurance doesnt. All life policies pay in addition to each other.

Credit Insurance

Insurance on a debtor in favor of a lender, intended to pay off a loan or the balance due thereon if the insured dies or is disabled. Credit life is a type of decreasing term insurance

Accident and Sickness

Inusrance against bodily injury, disability or death by accident, or against disability or expense resulting from sickness, adn the insurance relating there to.

Aviation clause

LImites or excludeds coverage when the insured is particpating in specified types of air travel. Coverage is usally confied to regularly schedule flights of commercial airlines. Often applies to student pilots

Industrial Life

Life insurance generally with a face amount of less than 1000, with premiums collected weekly by the producer in person. The grace period for this type of insurance is 28 days. Also known as home service life insurance. There are three types of life insurance, ordinary(which includes life

Controlled Business

Life-insurance Coverage written on the producers own life and on the lives of such persons as teh producers relatives and business associates. Teh amount of controlled business a producer may write is restricted in most states, often of 50% in a 12 month period.

Insuring Clause

The clause in a policy that specifies in brief the contracts intent adn benefits. Also known as the Insurign Agreement. It specifies the covered perils such as accident adn sickness on health insurance. A peril is a cause of loss.

Effective Date

The date on which an insurance policy goes into effect adn from which protection is furnished

Concealment

The deliberate witholdign of facts by applicatn fro insurance that materially affects an insurance risk or loss

Consideration

The exchange of value on which a contract is based. In life and health insruance, teh consdieration is the premium and teh statements in the application. Rememmber, consideration need not be equal you might pay 1000$ in premum, but your policy will pay $100000 if you die

Classificaiton

The grouping of persons for the purpose of determining an underwriting or ratingr group into which a particular risk must be placed.

Insurer

The insurance company assumign risk adn agreeing to pay cliams or provide services. Insrueres write indemnity plans, coverign the insured. HMOS are not true insuranc companies. They write prepaid service plansf ro their subscribers.

Experience

The loss record of an insured, a class coverage or an insurance company. For example, most large group life poliices are rated based on the prior claims history of the group, which is called expereicne rating.

Conditions

The part of an insurance contract setting otu the responibilites of both the insured adn the insurer, such as the requriments regarding teh notice of claim and proof of loss

Insured

The party to an insurance contract to whom or on behalf of the insurance company agrees to indemnify for losses, provide benefits or erender servvices. In prepaid hosptial service plans, the insured is called the subscriber

Eligibilty period

The period during which the employee is elisible to obtain coverage under a group life or health plan. Also known as open enrollment period

Assignee

The person to whom policy rights are assigned in whole or in part by the policy holder, who is known as teh assignor. On life insurance there are two tpes of assignemnt. Absolute and collateral

Attained age

The present or current age of teh insured. upon conversion, premiums are based on the current age of the insured.

Dividend

The return of part of premium paid for a Partipcating policy issued by a mutual insurere. It is unlawfult o guarentee future dividends, but producers may refer to the insurers past dividend payment history if accurate. Mutual dividends are not taxable. However, dividends paid to stock holders of a stock insurere are taxable, since stock ompanies are non partipciating policies.

Indemnify

To restore the insured financially afte ra loss, or to make them whole. For example, a basic medical expense policy might cover yoru room and board in the hospital up to $1000 a day. If your bill for one day is $900, the company will pay for it all. However, if your bill is 1100 the company will only pay 1000. The company will pay the policy limit o the amount of cliam, whichever is less.

Assignment:

Transfer of rifhts in a policy to another party by the policy holder. For example if you brought a life insuranc epolicy on a minor child, you are the owner and the child is insured. When the child reaches 21, you can assign all rights of ownership in the policy to thte child. This is absolte assignment

Adverse underwriting decision consumer rights

Under the fair credit reporting act, whan an adverse underwriting decision is made, the insurer must provide the applicant or policy holder with specific written reasonsf ro teh decision or advise teh individual that speciific reason are available upon written request Upon receipt of the written request, the insurer must furnish specifc reasons fro the adverse decision and the naems and adress of the sourcs that provided the information

Health insurance

coverage to provide benefits upon the occurenc eof disabling sickness o accident or accidential deaht or dismemberment or loss of income due to disability. Health insuranc enver covers death to sickness.

Group LIfe Insurance

life insurance that a person is eligble to purchase through membership in a group. In an employer group, teh employer receives the master policy adn employeers receive Certifactes of insurance. Group life has a grace period of 31 days and is conterivle to individual coverage without a physical exam based upon current age.

Business insurance

life or health insurance written to cover business situations such as key perso, sole propriertor, partnership, corporations

actuary

one concered with the application of probabilty and statiscal theory to insurance, utilizing the law of large numbers

Capital sum

the maximum amount payable in one sum in the event of accidental dismemberment. on an ad & d policy, the ricnipal sum is the amount pauable for accidental death. The capitlam sum is generally 50% of the principal su.

Applicant

the party making application to teh insuranc ecompany fro the policy. Applicants must provide the insurer with the truth to the best of their knoweldge, which is known as a represetnation.

Death Benefit

the policy proceeds to be paid upon the death of the insured. On Life Insurance, proceeds are not taxable, but they may be included in the value of the insured's estate for the estate tax purposes.

Accidental means

the unexpected cause of an accidental bodily injyry under an accidenal means definition, which is very restrictive, if you meant to do whatever caused your injury, there is no coverage. most health insurance policies cover accidental bodily injury, which is much broader, in that it covers accidents regardless of the cause