Insurance Terms
Accelerated Living Benefit
Accelerated death benefits allow the early payment of a portion of the death benefit if the insured has any of the following conditions:
Home Convalescent Care
is provided in the insured's home under a planned program established by his or her attending physician. Such care must be provided by a long-term care facility, a home health care agency or a hospital.
Life Income Option
life-income option, also known as straight life, provides the recipient with an income that he or she cannot outlive. Installment payments are guaranteed for as long as the recipient lives, irrespective of the date of death. The amount of each installment paid is based on the recipient's life expectancy and the amount of principal. If the beneficiary lives for a very long time, payments may exceed the total principal.
Continuing Education
Must be done before every renewal period, 2 years. Total of 24 hours, 2 of which must cover ethics, and 50% must be done in class. Excess hours are not carried over. Records must be kept for 4 years.
Long-Term Care
These riders provide for the payment of part of the death benefit (called accelerated benefits) in order to take care of the insured's health care expenses, which are incurred in a nursing or convalescent home.
Transfer of Assignment
Transfer of the life insurance policy does not change the insured or amount of coverage; it only changes who has the policy ownership rights.
Status Clause
excludes all causes of death while the insured is on active duty in the military.
Reduced Paid up Option
the policy cash value is used by the insurer as a single premium to purchase a completely paid-up permanent policy that has a reduced face amount from that of the former policy. The new reduced policy builds its own cash value and will remain in force until death or maturity.
Skilled Care
is daily nursing and rehabilitative care that can only be provided by medical personnel, under the direction of a physician. Skilled care is almost always provided in an institutional setting. Examples of skilled care include changing sterile dressing and physical therapy given in a skilled nursing care facility. Care that can be given by nonprofessional staff is not considered skilled care.
Results Clause
only excludes the death benefit if the insured is killed as a result of an act of war (declared or undeclared).
Common Disaster Clause
If the insured and the primary beneficiary die at approximately the same time from a common accident with no clear evidence as to who died first, a problem may arise in identifying which party is eligible for the death benefit.
Automatic Premium Loans
This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium.
Disability Buyout Agreement
specifies who will purchase a disabled partner's interest and legally obligates that person or party to purchase such interest upon disability.
Medicare Part A
A helps pay for inpatient hospital care, inpatient care in a skilled nursing facility, home health care, and hospice care
Suicide Provision
If the insured commits suicide within 2 years following the policy effective date (issue date), the insurer's liability is limited to a refund of premium.
Medicare Part C
Medicare Advantage plans must cover all of the services covered under the Original Medicare except hospice care and some care in qualifying clinical research studies. It may also offer extra coverage, such as vision, hearing, dental, and other health and wellness programs. To be eligible for Medicare Advantage, beneficiaries must also be enrolled in Medicare Parts A and B. Medicare Advantage is Medicare provided by an approved Health Maintenance Organization or Preferred Provider Organization. Many HMOs or PPOs do not charge premiums beyond what is paid by Medicare.
Nonoccupational
Nonoccupational coverage, on the other hand, only covers claims that result from accidents or sicknesses occurring off the job.
Limitation of Lawsuits
Texas requires a provision limiting the time in which a claimant may seek recovery from an insurer under a policy. All legal actions must be taken no later than within 2 years after the loss occurred.
Owner's Right's
The policyowner has the responsibility of paying the policy premiums, and is also the person who must have an insurable interest in the insured at the time of application for the insurance. When the owner and the insured are not the same person, the insurance arrangement is referred to as the third-party ownership.
Payment of Claims
Upon receipt of a written proof of death and the right of the claimant to the proceeds, the insurer must pay death claims within 2 months. provision specifies to whom claims payments are to be made.
High-Deductible Health Plans
are designed to help individuals save for qualified health expenses that they, their spouse, or their dependents incur. An individual who is covered by a high deductible health plan can make a tax- deductible contribution to an HSA, and use it to pay for out-of-pocket medical expenses. Contributions by an employer are not included in the individual's taxable income. To be eligible for a Health Savings Account, an individual must be covered by a high deductible health plan (HDHP), must not be covered by other health
Business Overhead Expense
insurance is sold to small business owners to reimburse them for the overhead expenses after a disability. The premiums paid to the BOE policy are tax deductible to the business as a business expense. The benefits are usually limited to covered expenses incurred or the maximum monthly benefit stated in the policy, and are taxable to the business as received.
Collateral Assignment
involves a transfer of partial rights to another person. It is usually done in order to secure a loan or some other transaction. A collateral assignment is a partial and temporary assignment of some of the policy rights. Once the debt or loan is repaid, the assigned rights are returned to the policyowner.
Absolute Assignment
involves transferring all rights of ownership to another person or entity. This is a permanent and total transfer of all the policy rights. The new policyowner does not need to have an insurable interest in the insured.
Custodial Care
is care for meeting personal needs such as assistance in eating, dressing, or bathing, which can be provided by nonmedical personnel, such as relatives or home health care workers. Custodial care can be provided in an institutional setting or in the patient's home. In other words, it involves caring for a person's activities of daily living, and not hospital or surgical needs.
Home Health Care
is care provided by a skilled nursing or other professional services in one's home. Home health care includes occasional visits to the person's home by registered nurses, licensed practical nurses, licensed vocational nurses, or community-based organizations like hospice. Home health care might include physical therapy, occupational therapy, speech therapy, and medical services by a social worker.
Adult Day Care
is care provided for functionally impaired adults on less than a 24-hour basis. It could be provided by a neighborhood recreation center or a community center. Care includes transportation to and from the day care center, and a variety of health, social and related activities. Meals are usually included as a part of the service.
Residential Care
is provided while the insured resides in a retirement community or a residential care facility for the elderly (RCFE). In some arrangements, the degree of independence is the same as living in one's own home; however, this care provides a physical and social environment that contributes to continued intellectual, psychological and physical growth. These facilities are commonly for the middle and upper classes because of the costs.
COBRA
requires any employer with 20 or more employees to extend group health coverage to terminated employees and their families after a qualifying event. Qualifying events include the following: Voluntary termination of employment; Termination of employment for reasons other than gross misconduct (e.g. company downsizing);Employment status change: from full time to part time. For events such as death of the employee, divorce or legal separation, the period is 36 months for the dependents.
Flexible Spending Account
A Flexible Spending Account (FSA) is a form of cafeteria plan benefit funded by salary reduction and employer contributions. The employees are allowed to deposit a certain amount of their paycheck into an account before paying income taxes. Then, during the year, the employee can be directly reimbursed from this account for eligible health care and dependent care expenses. FSAbenefits are subject to annual maximum and "use-or-lose" rule. This plan does not provide a cumulative benefit beyond the plan year.
Common Exclusions
Aviation, Hazardous Occupation, Military Service
Policy Loan
The policy loan option is found only in policies that contain cash value. Policy loans are not subject to income taxation.
One-Year Term Option
The insurance company uses the dividend to purchase additional insurance in the form of one-year term insurance that increases the overall policy death benefit.
Reinstatement Provision
The reinstatement provision allows a lapsed policy to be put back in force. The maximum time limit for reinstatement is usually 3 years after the policy has lapsed. If the policyowner elects to reinstate the policy, he/she will have to provide evidence of insurability. The policyowner is required to pay all back premiums plus interest, and may be required to repay any outstanding loans and interest. The advantage to reinstating a lapsed policy as opposed to purchasing a new one is that the policy will be restored to its original status, and retain all the values that were established at the insured's issue age.
Contributory
When the premiums for group insurance are shared between the employer and employees, the plan is referred to as a contributory plan. Under a contributory plan, an insurer will require that 75% of eligible employees be included in the plan.
Types of FSA's
a Health Care Account for out- of-pocket health care expenses, and a Dependent Care Account (subject to annual contribution limits) to help pay for dependent's care expenses which makes it possible for an employee and his or her spouse to continue to work.
Medicare Supplement Policies, referred to as Medigap
Are policies issued by private insurance companies that are designed to fill in some of the gaps in Medicare. These plans are designed to fill the gap in coverage attributable to Medicare's deductibles, copayment requirements, and benefit periods. All Medigap policies are guaranteed renewable. Medigap policies must also include a 30-day free look provision that allows the insured to return the policy to the insurer within 30 days for a full refund of the premium paid.
Point of Service
The Point-Of-Service (POS) plan is merely a combination of HMO and PPO plans.
Children's Term
The children's term rider allows children of the insured (natural, adopted or stepchildren) to be added to coverage for a limited period of time for a specified amount. This coverage is also term insurance and usually expires when the minor reaches a certain age (18 or 21). Most riders provide the minor with the option of converting to a permanent policy without evidence of insurability. Children's term riders provide temporary life insurance coverage on all children of the family for one premium. The premium does not change on the inclusion of additional children; it is based on an average number of children. The family term rider incorporates the spouse term rider along with the children's term rider in a single rider. When added to a whole life policy, the family term rider provides level term life insurance benefits covering the spouse and all of the children in the family.
Waiver of Monthly Deduction
The waiver of monthly deductions rider pays all monthly deductions while the insured is disabled, after a 6-month waiting period. This rider only pays the monthly deductions, and not the full premium necessary to accumulate cash values. The length of time this rider will pay monthly deductions will vary based on the age at which the insured becomes disabled. This rider is usually found in Universal Life and Variable Universal Life policies.
Noncontributory
When an employer pays all of the premiums, the plan is referred to as a noncontributory plan.
Respite Care
is designed to provide relief to the family caregiver, and can include a service such as someone coming to the home while the caregiver takes a nap or goes out for a while. Adult day care centers also provide this type of relief for the caregiver.
Association Group
(alumni or professional) can buy group insurance for its members. The group must have at least 100 members, be organized for a reason other than buying insurance, have been active for at least two years, have a constitution, by-laws, and must hold at least annual meetings. These groups include, but are not limited to, trade associations, professional associations, college alumni associations, veteran associations, customers of large retail chains, and saving account depositors, to name a few. Association group plans may be either contributory or noncontributory.
Elimination Period, or waiting period
The elimination period is a type of deductible that is commonly found in disability income policies. It is a period of days which must expire after the onset of an illness or occurrence of an accident before benefits will be payable. The longer the elimination period, the lower the cost of coverage.
Occupational
Occupational coverage provides benefits for illness, injury or disability resulting from accidents or sicknesses that occur on or off the job.
Corridor Deductible
The corridor deductible derives its name from the fact that it is applied between the basic coverage and the major medical coverage.
Group Life Insurance
Group insurance is usually written for employee-employer groups, but other types of groups are also eligible for coverage. It is usually written as annually renewable term insurance. Two features that distinguish group insurance from individual insurance are: Evidence of insurability is usually not required (unless an applicant is enrolling for coverage outside the normal enrollment period); and Participants (insureds) under the plan do not receive a policy because they do not own or control the policy.
Medicare Part B
pays for doctor's services and a variety of other medical services and supplies that are not covered by hospital insurance. Most of the services needed by people with permanent kidney failure are covered only by medical insurance. Funded by monthly premium.
Conversion Privilege
If an employee terminates membership in the insured group, the employee has the right to convert to an individual policy without proving insurability at a standard rate, based on the individual's attained age. The group life policy can convert to any form of insurance issued by the insurer (usually whole life), except for term insurance. The face amount or death benefit will be equal to the group term face amount but the premium will be higher. The employee usually has a period of 31 days after terminating from the group in order to exercise the conversion option. During this time, the employee is still covered under the original group policy.
Reduction of Premiums
The insurer uses the dividend to reduce the next year's premium. For example, if the policyowner usually pays an annual premium of $1,000 and the insurer declares a $100 dividend, the policyowner would only pay a $900 premium that year.
HMOs
The HMO provides benefits in the form of services rather than in the form of reimbursement for the services of the physician or hospital. Traditionally, the insurance companies provide the financing, while the doctors and hospitals have provided the care. The HMO concept is unique in that the HMO provides both the financing and patient care for its members.
Waiver of Premium
The waiver of premium rider waives the premium for the policy if the insured becomes totally disabled. Coverage remains in force until the insured is able to return to work. If the insured is never able to return to work, the premiums will continue to be waived by the insurance company. Most insurers impose a 6- month waiting period from the time of disability until the first premium is waived. If the insured is still disabled after this waiting period, the insurer will refund the premium paid by the insured from the start of the disability. This rider usually expires when the insured reaches age 65.
Extended Option
Under the extended-term option, the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy. The duration of the new term coverage lasts for as long a period as the amount of cash value will purchase. If the policyowner has neglected to select one of these nonforfeiture options, the insurer will automatically implement the extended-term option in the event of termination of the original policy.
Interest-Only Option
With the interest-only option, the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals (monthly, quarterly, semiannually, or annually). The insurer usually guarantees a certain rate of interest and will often pay interest in excess of the guaranteed rate. The interest option is considered to be a temporary option since the proceeds are retained by the insurer until some later point when the proceeds are paid out in a lump sum or paid under one of the other settlement options.
PPO
A PPO is a group of physicians and hospitals that contract with employers, insurers, or third party organizations to provide medical care services at a reduced fee. The PPOs differ from the HMOs in two ways. First, they do not provide care on a prepaid basis, but physicians are paid a fee for service. Secondly, subscribers are not required to use physicians or facilities that have contracts with the PPO.
Pre-Exisiting Conditions
Pre-existing conditions are conditions for which the insured has received diagnosis, advice, care, or treatment during a specific time period prior to the application for health coverage. Up to January 2014, health insurance policies could have these conditions excluded from coverage; however, therecently enacted health care reform eliminated pre-existing conditions restrictions in individual and group health insurance plans. Note, however, that pre-existing condition limitations may still apply in Medicare Supplement policies and long-term care insurance.
Nonforfeiture Option
certain guarantees are built into the policy that cannot be forfeited by the policyowner. These guarantees (known as nonforfeiture values) are required by state law to be included in the policy. A table showing the nonforfeiture values for a minimum period of 20 years must be included in the policy. The policyowner chooses one of the following nonforfeiture options: cash surrender value, reduced paid-up insurance, or extended term.
Limited Risk
defines the specific risk in which accidental death or dismemberment benefits will be paid. For example, the policy may be a Travel Accident Policy in which the benefits are only payable if the loss occurs as a result of travel.
Fixed Period
fixed-period installments option (also called period certain), a specified period of years is selected, and equal installments are paid to the recipient. The payments will continue for the specified period even if the recipient dies before the end of that period. In the event of the recipient's death, the payments would continue to a beneficiary. The size of each installment is determined by the amount of principal, guaranteed interest, and the length of period selected. The longer the period selected, the smaller each installment will be. This option does not guarantee income for the life of the beneficiary; however, it does guarantee that the entire principal will be distributed.
Short-Term disability
group plans usually have a benefit period of less than 2 years.
Intermediate Care
is occasional nursing or rehabilitative care provided for stable conditions that require daily medical assistance on a less frequent basis than skilled nursing care. It is ordered by a physician, and skilled medical personnel would deliver or monitor this type of care. Intermediate care could be as simple as giving medication to a group in physical therapy once a day or changing a bandage. It may be carried out in a nursing home, an intermediate-care unit or in the patient's home.
Uniform Simultaneous Death Clause
it will be assumed that the primary beneficiary died first in a common disaster. This provides that the proceeds will be paid to either the contingent beneficiary or to the insured's estate, if no contingent beneficiary is designated.
Life Income Joint and Survivor
life income joint and survivor option guarantees an income for two or more recipients for as long as they live. Most contracts provide that the surviving recipient will receive a reduced payment after the first recipient dies.
Life Income with Period Certain Option
life income with period certain option, the recipient is provided with the "best of both worlds" in terms of a lifetime income and a guaranteed installment period. Not only are the payments guaranteed for the lifetime of the recipient, but there is also a specified period that is guaranteed.
Nonfamily Insured's
Other riders are also available to insure somebody who is not a member of the insured's family - nonfamily insureds. The substitute insured or change of insured rider does not permit an additional insured, but instead allows for the change of insureds, subject to insurability. It is most commonly used with Key Person insurance when the key person or employee retires or terminates employment. The rider permits the policyowner, owner or employer, to change the insured to another key employee, subject to insurability.
Accidental Death
The accidental death rider pays some multiple of the face amount if death is the result of an accident as defined in the policy. Death must usually occur within 90 days of such an accident. The benefit is normally two times (double indemnity) the face amount. Some policies pay triple the face amount (triple indemnity) for accidental death.
Return of Premium
The return of premium rider is implemented by using increasing term insurance. When added to a whole life policy, it provides that at death prior to a given age, not only is the original face amount payable, but an amount equal to all premiums previously paid is also payable to the beneficiary. The return of premium rider usually expires at a specified age such as age 60.
Medicare Part D
This act implemented a plan to add a Part D - Prescription Drug Benefit to the standard Medicare Coverages. This optional coverage is provided through private prescription drug plans (PDPs) that contract with Medicare. To receive the benefits provided, beneficiaries must sign up with a plan offering this coverage in their area and must be enrolled in Medicare Part A or in Parts A and B. In areas where no private plans are offered, the government will offer a standard plan. Medicaid recipients are automatically enrolled. Medicare beneficiaries may choose between stand-alone plans that offer coverage on a fee-for-service basis, or integrated plans that group coverages together, including PPOs and HMOs (known as Medicare Advantage).
Recurrent Disability
is generally expressed in a policy provision that specifies the period of time (usually within 3-6 months), during which the recurrence of an injury or illness will be considered as a continuation of a prior period of disability. The significance of this feature is that recurrence of a disabling condition will not be considered to be a new period of disability so that the insured is not subjected to another elimination period.
Paid-Up Additions
The dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy. No new separate policies are issued; however, each of these small single premium payments will increase the death benefit of the original policy by whatever amount the dividend will buy. In addition, each of these paid-up policies will accumulate cash value and pay dividends. The amount of additional coverage that can be purchased with the dividend is based on the insured's attained age at the time the dividend is declared.
Long-Term Disability
group plans usually pay benefits for 2 years or longer.
Living Needs Rider
The Living Needs Rider provides for the payment of part of the policy death benefit if the insured is diagnosed with a terminal illness that will result in death within 2 years.
Consideration Clause
The consideration provision states that the consideration (value) offered by the insured is the premium and statements made in the application. The consideration given by the insurer is the promise to pay in accordance with the terms of the contract.
Guaranteed Insurability
The guaranteed insurability rider allows the insured to purchase additional coverage at specified future dates (usually every 3 years) or events (such as marriage or birth of a child), without evidence of insurability, for an additional premium. When this option is exercised, the insured purchases the additional coverage at his or her attained age. This rider usually expires at the insured's age 40.
Impairment
The impairment (exclusion) rider may be attached to a contract for the purpose of eliminating coverage for a specifically defined pre-existing condition, such as back injuries.
Incontestability
The incontestability clause prevents an insurer from denying a claim due to statements in the application after the policy has been in force for 2 years, even if there has been a material misstatement of facts or concealment of a material fact. it also does not usually apply to statements relating to age, sex or identity.
Accumulation at Interest
The insurance company keeps the dividend in an account where it accumulates interest. The policyowner is allowed to withdraw the dividends at any time. The amount of interest is specified in the policy and compounds annually. Although the dividends themselves are not taxable, the interest on the dividends is taxable to the policyowner when credited to the policy, whether or not the policyowner receives the interest.
Insuring Clause
The insuring clause (or insuring agreement) sets forth the basic agreement between the insurer and the insured. It states the insurer's promise to pay the death benefit upon the insured's death. The insuring clause usually is located on the policy face page, and also defines who the parties to the contract are, the premium to be paid, how long coverage is in force, and the amount of the death benefit.
Spouse/Other Insured
The other insured rider provides coverage for one or more family members other than the insured. The rider is usually level term insurance, attached to the base policy covering the insured. This is also known as a family rider. If the rider covers just the spouse of the insured, it can be specified as a spouse term rider, and allows the spouse to be added to coverage for a limited period of time and for a specified amount (it usually expires when the spouse reaches age 65).
Payor Benefit
The payor benefit rider is primarily used with juvenile policies (any life insurance written on the life of a minor); otherwise, it functions like the waiver of premium rider. If the payor (usually a parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21. This rider is also used when the owner and the insured are two different individuals.
Probationary Period
The probationary period provision states that a period of time must lapse before coverage for specified conditions goes into effect. This provision is most commonly found in disability income policies. The probationary period also applies to new employees who must wait a certain period of time before they can enroll in the group plan. The purpose of this provision is to avoid unnecessary administrative expenses in cases of employee turnover.
Paid-Up Option
Usually, the insurer first accumulates the dividends at interest and then uses the accumulated dividends, plus interest, and the policy cash value to pay the policy up early. In other words, if the insured had a continuous premium whole life policy (in which premiums are paid to age 100), using the paid-up option the policyowner is able to pay up the policy early.
Guaranteed Renewable
a policy that is written on a noncancellable basis with the right to renew guaranteed. The guaranteed renewable provision is similar to the noncancellable provision, with the exception that the insurer can increase the policy premium on the policy anniversary date. The insured, however, has the unilateral right to renew the policy for the life of the contract. The insurer may increase premiums on a class basis only and not on an individual policy. As with the noncancellable policy, coverage generally is not renewable beyond the insured's age 65. Medicare Supplements and long-term care policies must be written as guaranteed renewable contracts, and cannot be cancelled by the company at the insured's age 65.
Fixed Amount
fixed-amount installments option pays a fixed, specified amount in installments until the proceeds (principal and interest) are exhausted. The recipient selects a specified fixed dollar amount to be paid until the proceeds are gone. If the beneficiary dies before the proceeds are exhausted, installments will continue to be paid to a contingent beneficiary until all proceeds have been paid out. With this option, the size of each installment will determine how long benefits will be received. The larger the installment, the shorter the income period will be. As with the fixed-period option, this option does not guarantee payments for the life of the beneficiary, but does guarantee that all proceeds will be paid out.
Residual Disability
is the type of disability income policy that provides benefits for loss of income when a person returns to work after a total disability, but is still not able to work as long or at the same level he/she worked before becoming disabled. Many companies have replaced partial disability with residual disability. Residual disability will help pay for loss of earnings. If the person can only work part-time or at a lesser paying position, residual disability will make up the difference between their present earnings and what they were earning prior to disability.
Speciality Risk
on the other hand, will cover unusual types of risks that are not normally covered under AD&D policies. It covers only the specific hazard or risk identified in the policy, such as a racecar driver test-driving a new car.
Accidental Death and Dismemberment
pays the principal (face amount) for accidental death, and pays a percentage of that amount, or a capital sum, for accidental dismemberment. The accidental death portion is the same as that already discussed with the accidental death rider. The dismemberment portion of the rider will usually determine the amount of the benefit according to the severity of the injury. The full principal amount will usually be paid for loss of two hands, two arms, two legs or the loss of vision in both eyes. A capital amount is usually limited to half the face value and is payable in the event of the loss of one hand, arm, leg, or eye. The dismemberment can be defined differently by insurance companies, from the actual severance of the limb to the loss of use.
Employer-Sponsored Group
the employer (a partnership, corporation or a sole proprietorship) provides group coverage to its employees. Eligible employees usually must meet certain time of service requirements and work full-time. The same as group life insurance, group health insurance may be either contributory or noncontributory.