Glossary of Terms ...

Select the first letter of the word from the list below to jump to appropriate section of the glossary. If the term you are looking for starts with a digit or symbol, choose the '#' link.

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z #

- A -

absolute assignment:

Assignment by the owner of the policy giving up all rights.

accelerated benefit:

A feature of a life insurance policy in which the death benefit may be paid to the policyholder prior to death under clearly defined health-related circumstances.

accidental death:

Death resulting from an injury that happens suddenly, unexpectedly, and without the intent of the insured.

accidental death and dismemberment (AD&D):

Policy or rider that provides coverage for an accidental death or loss of certain body part.

accumulation unit:

A unit of measure used in annuity contracts which measure amounts of monies currently accumulating by the investor during the accumulation stage.

activities of daily living (ADLs):

Normal functions such as bathing, continence, dressing, eating, toileting and transferring, the inability of which to perform unassisted represent the criteria for eligibility for long term care insurance benefits.


A specialist in the mathematics of insurance who calculates rates and reserves.


Printed by the insurance company, in which if changes are made, handwriting will prevail.

adjustable life insurance:

A form of whole life insurance which allows changes on the policy face amount, premium and period of protection.

adverse selection:

Selection against the insurance company. The tendency of less favorable insurance risks to buy and maintain insurance than healthy persons.


The individual appointed by an insurance company to solicit, negotiate, effect or counter- sign insurance contracts on its behalf.


The person during whose life an annuity is payable, usually the person to receive the annuity.


The investor turns over the accumulated value of the annuity to the insurance company and in return will receive a payout option such as income for life.


A long-term investment that provides tax-free growth and income at regular intervals for as long as you specify, such as a number of years or for life.

annuity beneficiary:

The person who receives the benefits of an annuity policy upon the death of the annuitant.

annuity certain:

A contract that provides an income for a specified number of years, regardless of life or death.

annuity consideration:

The payment, or one of the regular periodic payments, an annuitant makes to an insurer for an annuity.

annuity owner:

The owner of the annuity contract and who make decisions about the beneficiary and other policy decisions.

annuity period:

The period of time during which the annuitant begins to receive annuity payments or benefits from the insurance company.

annuity unit:

An accounting measure used to determine the amount of each payment to an annuitant during the payout period.


A statement of information made by a person applying for insurance. It helps the insurance company assess the acceptability of risk.

approved amount:

The amount Medicare determines to be reasonable for a service that is covered under
Part B of Medicare. It may be less than the actual charge.

asset allocation:

Before purchasing a mutual fund or variable life insurance product or annuity, you must decide which products will best meet your investment objectives and which risk characteristics will best fit your financial situation.

assets under management:

A measure of growth, representing the value of the assets of an insurance company, plus assets that the company manages, but does not own, such as mutual funds.

  1. The legal transfer of one person's interest in an insurance policy or other asset to another person.

  2. An arrangement whereby a physician or medical supplier agrees to accept the Medicare-approved amount as full payment for services and supplies covered under Part B. Medicare usually pays 80% of the approved amount directly to the physician or supplier after the beneficiary meets the annual
    Part B deductible of $100.

attained age:

The age an insured has reached on a given date.

automatic premium loan:

A provision in the policy or a rider added authorizing the insurance company to use the loan value to pay any premium not paid by the end of the grace period.

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- B -


Making the effective date of a life insurance policy earlier than the date of the application, so that the premium rate will be lower. State laws usually limit this to not more than six months.


The person named in a life insurance policy to receive the insurance proceeds upon the death of the insured.

  • primary: First claims against the proceeds.

  • contingent: Receives proceeds if no primary beneficiary.

  • revocable: Can be changed by the policy owner.

  • irrevocable: Cannot be changed without the written permission of the
    irrevocable beneficiary.

benefit period:
  1. In reference to health insurance, the maximum length of time benefits will be paid.

  2. In reference to Medicare, a way of measuring a beneficiary's use of hospital and skilled nursing facility services. A benefit period begins the day the beneficiary is hospitalized. It ends after the beneficiary has been out of the hospital or a facility that primarily provides skilled nursing or rehabilitative services for 60 days in a row. If the beneficiary is hospitalized after 60 days, a new benefit period begins, most Medicare Part A benefits are renewed, and the beneficiary must pay a new inpatient hospital deductible. There is no limit to the number of benefit periods a beneficiary can have.

blanket insurance:

Covers a group of individuals who are exposed to the same hazards. An example of this would be high school students.

blue cross/blue shield:

A membership association which provides health insurance for hospital and physicians costs, and which pays benefits directly to the service providers.

business insurance:

Life or health insurance written to cover business situations such as key persons, sole proprietor, buy-sell agreements, partnerships and corporations.

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- C -

capital stock insurance company:

An insurance company having in addition to surplus and reserve funds, a capital fund paid in by stockholders.

cash buildup rules:

Shows which type of insurance premiums mode will build cash the fastest.

cash surrender value:

The amount available in cash upon voluntary termination of a life insurance policy by its owner before it becomes payable by death or maturity.

cash value:

The amount available in cash when a permanent life policy is redeemed prior to becoming payable by death or maturity.

census data:

Information needed about the people in a proposed group, including names, date of birth, sex, dependents, earnings, length of employment and other pertinent information.


A statement issued to individuals insured under a group policy, setting forth the essential provisions relating to their coverage.


Notification to an insurance company that payment of an amount is due under the terms of a policy.

claims-paying-ability ratings:

An evaluation of the relative ability of an insurance company to honor its insurance or contractual liabilities as distinct from its debt obligations.

cobra (Comprehensive Omnibus Budgetary Reconciliation Act):

A federal law which requires employers to offer extended group health coverage to terminating employees.

  1. In health insurance, the cost sharing amount or percentage that the insured patient is required to pay out of pocket.

  2. With Medicare, the portion or percentage of the Medicare-approved amount that a beneficiary is responsible for paying.

collateral assignment:

Assignment of a life insurance policy as security for a loan.

community rating:

The practice of grouping all insured groups in a given area for rating purposes, thus basing the costs on the general experience and level of costs in the area.

compound interest:

Interest computed on the principal plus the interest accumulated previously to the date of compounding.

comprehensive major medical:

A health policy that combines basic and major medical coverage in a single policy.


The withholding of facts by an applicant.

conditionally renewable:

Provides that the insured may renew the contract to a stated date or a certain age, subject to the right of the insurance company to decline the renewal only under conditions defined in the contract.

contingent beneficiary:

Receives the proceeds if primary beneficiary is no longer alive.

contributory plan:

Insurance plan in which the employees contribute some or all of the premiums (75% of all eligible employees must be included in the plan).

conversion privilege:

A period of time after termination from employment during which a person formerly covered under a group policy can be converted to individual coverage without evidence of insurability.

convertible term insurance:

Term insurance which can be exchanged, at the option of the policyholder and without evidence of insurability, for another plan of insurance.

coordination of benefits:

If an insured is covered by more than one health plan, coordination provisions will apply to allow a combined full recovery of benefits from the two carriers, but eliminating full reimbursement from both.

corridor of pure insurance:

IRS rule which does not allow the cash value in a universal life insurance policy grow beyond certain limits.

cost-of-living rider:

Optional rider to increase the death benefit to match increases in the CPI.


Scope of protection provided under the insurance contract.

credit life insurance:

Decreasing term insurance based on the balance of the loan.

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- D -

decreasing term:

A form of term insurance that provides a death benefit which declines throughout the term of the contract. This type of insurance is sometimes called mortgage insurance and credit life insurance. The death benefit is based on the decreasing loan balance.


An amount that an insured patient must first incur before their insurance plan or Medicare begins payment for covered services and supplies.

deferred annuity:

An annuity providing for income payments to begin at some future date.

dependent life:

Life insurance issued in fractional amounts on the spouse and children of the primary insured.

deposit administration group annuity:

A type of group annuity providing for the accumulation of contributions in an undivided fund out of which annuities are purchased as the individual members of the group retire.


The definition of disability will vary from policy to policy. The strictest form will state that the insured is unable to perform any occupation, while a more liberal policy will state that the insured is unable to perform their own occupation to qualify for disability benefits.

disability benefit:

A feature added to some life insurance policies providing for waiver of premium, and sometimes payment of monthly income, if the policyholder becomes totally and permanently disabled.

disability income insurance:

A form of health insurance providing payments to the insured for loss of income at work due to a disability.

disclosure requirements:

Requires disclosure of all pertinent information by insurance companies and producers to their clients.

  1. A company's payment of profits to its stockholders.

  2. A mutual fund's payment of profits to its shareholders.

  3. A return of part of the premium on participating insurance to reflect the
    difference between the premium charged and the combination of actual
    mortality, expense and investment experience.

dividend addition:

An amount of paid up insurance purchased with a policy dividend and added to the face amount of the policy.

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- E -

effective date:

The date on which an insurance policy goes into effect and provides protection.

elimination period:
  1. The waiting period after a disability policy goes into effect and before
    actual benefits begin.

  2. The waiting period after you enter a nursing home or begin using home
    care before the benefits of a long term care policy actually begin.


Life insurance payable to the policyholder, if living, on the maturity date stated in the policy, or to a beneficiary if the insured dies prior to that date.

estate protection:

A term used to refer to insurance covering the assets owned by an insured at death.

evidence of insurability:

Any statement of proof of your health, finances, or occupation which helps the insurer to decide if you are an acceptable risk.

excess charge:

The difference between the Medicare-approved amount for a service or supply and the actual charge, if the actual charge is more than the approved amount.

excess interest:

Interest credited in excess of the minimum guaranteed by the life insurance policy contract.


Conditions listed in the exclusion part of the insurance contract which are not covered and for which no benefits are payable. These conditions must be specifically listed.


Your policy's share of the insurance company's operating costs, fees for medical exams and inspection reports, underwriting, printing costs, commissions, advertising, agency expenses, premium taxes, salaries, rent, etc. Such costs are important in determining dividends and premium rates.

expense guarantee:

One of the guarantees of an annuity that guarantees the expenses will not be increased.

expense ratio:

The percentage of the premium used to pay all the costs of acquiring and writing business.

experience rating:

Evaluating the claims history of a particular group in order to set a premium for the next period.


The date upon which a policy will cease to cover.

extended care:

Medical care reimbursement may or may not be provided under a policy that extends benefits for care beyond hospital confinement.

extended term insurance:

A non-forfeiture benefit under which the net cash value of the policy is used to purchase term insurance for the amount of coverage available under the initial permanent policy.

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- F -

face value:

The total value of an investment or insurance policy, usually stated on the "face" of the document.

fair credit reporting act:

Requires that an applicant be advised that a consumer report may be requested by the underwriters of the insurance company.

family income policy:

A life insurance combined policy that pays an income after the death of the insured for a stated number of years from the date of issue and a lump sum to the beneficiary.

family policy:

A life insurance policy providing insurance on all or several family members in one contract.

fixed amount installments:

A settlement option under which fixed amounts are paid until the principal is exhausted.

fixed annuity:

An insurance annuity where the terms are fixed and guaranteed.

fixed period installments:

A settlement option in which the proceeds are guaranteed to be paid in equal installments until exhausted.

flexible benefit options:

In a Section 125 group plan, the opportunity to choose the kinds of benefits desired from a large selection. This is usually referred to as a Cafeteria Plan.

flexible premium policy or annuity:

A life insurance policy or annuity under which the policyholder or contract holder may vary the amounts or timing of premium payments.

fraternal insurance:

Insurance provided by fraternal orders or societies to their members.

free look:

A period of time, usually 10 to 20 days, during which the policyholder may return the insurance policy.

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- G -

guaranteed renewable:

An individual health policy that is non-cancelable by the company. However, premium rates may be raised by class.

general account:

An insurance company's investment portfolio, used by the insurer for investment of premium income.

grace period:

A period, usually 30 or 31 days, following the premium due date, during which an overdue premium may be paid without penalty. the policy remains in force throughout this period.

graded premium policy:

A modified whole life policy in which the initial premium is low and then increases over a period of time, usually 5 years, after which it becomes level premium.


A number of people classed together by some common factor, such as place of employment, occupation or membership in an association.

group contract:

A contract of group life insurance or health insurance between the insurance company and the employer, not the employees.

group ordinary life:

Level premium ordinary life insurance that is issued on a group basis.

group permanent life:

Level premium life insurance issued on a group basis and containing cash values and paid-up values, as compared to group term insurance.

group term insurance:

Term insurance issued on a group basis.

guaranteed annuity:

An insurance product that guarantees the principal and also a specified rate of interest.

guaranteed income contract:

An insurance product that, upon payment of a specific amount, and after a specified number of years, guarantees a specific dollar amount of income.

guaranteed insurable:

A rider that can be added to a life insurance policy that permits the insured to buy additional amounts of life insurance at designated intervals.

guaranteed renewable:

An insurance policy that the insured has the right to continue in force by the payment of premiums for a period of time as set forth in the contract. The insurer cannot make any changes in any provision other than to change the premium rate which must be changed for a class of persons, not an individual.

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- H -

health insurance:

Insurance against loss by sickness or bodily injury.

health maintenance organization (HMO):

A health delivery system consisting of health providers where members pay a premium for which medical care is received when needed. The emphasis is on preventative medicine and is often offered as an alternative to commercial health plans.

hospital expenses:

Those expenses covered by limited-benefits hospital insurance.

hospital/surgical expense policy:

A limited-benefits policy combining benefits of hospital and surgical coverage.

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- I -

immediate annuity:

An insurance annuity contract purchased for a single premium or lump sum that provides an immediate income to the annuitant.

incontestability clause:

A clause in a policy providing that after the policy has been in effect for two years, the insurance company shall not be able to contest it as to statements made in the application.


A clause in an insurance policy stating the agreement by the insurer to compensate the insured for losses covered up to certain limits.

indemnity policy:

A policy that indemnifies a specified amount when certain conditions are met.


A benchmark against which investment performance is judged.

industrial life/health insurance:

Insurance usually in small amounts or low benefits, with the premium generally collected at the home of the insured by an agent of the company, in weekly or monthly modes. (Sometimes referred to as "debit insurance.")

inside limits:

Most policies will place a limit on certain medical costs such as psychiatric, maternity, drugs, etc. Should be avoided when applied to routine medical tests and procedures, such as lab tests, x-rays, etc.

installment refund annuity:

Periodic payments will be continued after the death of the annuitant until the payments have equaled the purchase price of the annuity.


Represents the payment of premium by the insured and in return the insurance company will provide indemnification or payments on valued contracts for certain losses, through an insurance contract.


Acceptability of an applicant for a policy by the insurance company.

insurable interest:

An interest in the insured based on any legal relationship or something else that can cause monetary loss, such as a business relationship.

insurable risk:

A risk which meets the following prerequisites:

  1. The loss must be capable of being defined.

  2. It must be accidental.

  3. It must be large as compared to the premium paid.

  4. It must be possible to establish a specific loss.

  5. The insurance company must be able to calculate the chance of loss.

insurance department:

A governmental bureau in each state that directs all insurance activities within the state.

insurance examiner:

The representative of a state insurance department assigned to participate in the official audit and examination of the affairs of an insurance company.

insuring clause:

The clause in the policy which spells out the insurance company's obligations.


The person on whose life an insurance policy is issued.

interest sensitive whole life:

Special type of whole life policy that allows a variable rate of return to be applied as the current interest rate.

irrevocable beneficiary:

A beneficiary that cannot be changed without consent.

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- J -

joint life policy:

A combination life insurance policy that pays benefits when the first of two or more covered persons die. (Also know as "first to die" policies.)

joint and survivor annuity:

An annuity contract that makes payments to both annuitants and, should one annuitant die, continues to make payments to the survivor.

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- K -

key employee policy:

An insurance policy on the life of a key employee whose death would cause the employer financial loss. The company is always the beneficiary.

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- L -


Termination of an insurance policy for non-payment of premiums.

lapse rate:

The rate at which life insurance policies terminate because of failure to pay the premiums. When policies are lapsed before enough premium payments are made to cover early policy expenses, the company must make up this loss from the remaining policyholders. Therefore, the lapse rate will affect the cost of the policy.

late charges:

Allows insurance companies to charge insured a late charge if premiums are not paid on time.

legal reserve:

The minimum reserves required under the laws of the jurisdiction in which an insurer operates.

level premium:

Life insurance for which the premiums remain level throughout the life of the policy. The premium is more than the actual cost of protection during the earlier years of the policy and less than the actual cost in the later years.

level term insurance:

The face amount remains the same throughout the term of the policy.


Amounts set aside to pay future obligations or guarantees, such as life and health insurance claims.

life annuity:

A contract that provides an income for life, usually paid monthly.

life expectancy:

The average number of years of life remaining for a group of persons of a given age, according to a particular mortality table.

life insurance:

Insurance paying a death benefit to the beneficiary upon the death of the insured.

life insurance in force:

The sum total of all life insurance coverage in force at a given time. Additional amounts payable under accidental death or other special provisions are not included.

life with a period certain:

An annuity option which provides lifetime income to the annuitant with a minimum guaranteed period of time.

limited pay policy:

Whole life insurance on which premiums are payable for a specified number of years or until death, if death occurs before the end of the specified period.

limiting charge:

The maximum amount a physician may charge a Medicare beneficiary for a covered physician service if the physician does not accept assignment of the Medicare claim. The limit is 15 percent above the fee schedule amount for non-participating physicians.

living needs rider:

Allows a terminally ill person to obtain part of the death benefit to help pay for medical expenses.

loading factors:

Amounts added to the pure insurance cost to cover the expenses and costs of operating an insurance company.

long term care insurance:

A policy providing coverage for various levels of nursing home, at-home, or adult day care for periods of uncertain long-term duration, but for periods no longer than those specified in the policy.

long term disability:

A disability having a duration for two years or more in group disability plans.

loss ratio:

The percentage of losses to premiums.

lump sum distribution:

A simple payment to a beneficiary of the entire benefit amount.

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- M -

major medical insurance:

A type of health insurance that provides benefits for most types of medical expenses with high limits and subject to a deductible and co-insurance.

managed health care plans:

Plans such as HMOs and PPOs.

master policy:

The policy issued to the employer under a group insurance plan. The employees receive a certificate of insurance, not a master policy.


The date at which the face value of a whole life or an endowment policy becomes payable if the insured is still living.


A medical benefits program administered by the states and subsidized by the federal government. If a person is on public aid they would probably be eligible for Medicaid.

medical information bureau (MIB):

An organization serving as a storehouse of information on impaired risks as reported to it by member insurance companies.


Benefits provided to those who are eligible for social security. Benefits include hospital insurance and supplementary medical insurance.

medicare carrier:

An insurance organization under contract to the federal government to process Medicare Part B claims from physicians and other suppliers.

medicare hospital insurance:

This is Part A of Medicare. It helps pay for medically necessary inpatient care in a hospital, skilled nursing facility or psychiatric hospital, and for hospice and home health care.

medicare medical insurance:

This is Part B of Medicare. It helps pay for medically necessary physician services and many other medical services and supplies not covered by Part A.

medicare supplement insurance:

Private insurance sold on an individual or group basis which helps to fill the gaps in the protection provided by Medicare. (Also known as "Medigap insurance.")


The use of written or oral statements of the insured or insurance company misrepresenting terms.

modified whole life policy:

Combines both term insurance and whole life insurance coverage.

morbidity table:

A statistical table showing the incidence of occurrences of sickness.

mortality table:

A statistical table showing the incidence of death.

multiple employer trust (MET):

A trust formed to provide insurance benefits for employees of companies that band together with the expectation that the coverage rate for each participating firm will be lower than if they had separate group policies.

multiple employer welfare association (MEWA):

Basically the same as a MET, but the business owners get together as a self-insured association.

multiple indemnity:

A provision that the benefit under a policy will be increased by a stated multiple. For example, double or triple indemnity.

mutual insurance company:

An insurance company without stockholders, whose management is directed by a board elected by the policyholders. Mutual companies, in general, issue participating insurance.

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- N -

national association of insurance commissioners (NAIC):

An association of the 50 state insurance commissioners that acts in an advisory capacity to maintain regulatory consistency. It has no authority, but recommends model laws and regulations.

net premium:

The pure insurance premium.


A contract of health insurance that the insured has a right to continue in force by payment of premiums. The insurer has no right to make any change in any provision in the contract.


Any group plan in which the employees do not contribute to the plan and the employer pays the full premium. Requires 100% employee participation.

non-forfeiture items:

Those values in a life insurance policy that the policy holder does not forfeit, even if the premium is stopped and the policy lapses. Non-forfeiture items include taking the cash value, buying paid-up life insurance and buying extended term insurance.

non-medical limit:

The maximum face value of a life insurance policy that a given company will issue without the applicant taking a medical examination.

non-occupational policy:

A policy or provision which excludes accidents occurring on the job, as it would be covered by workers compensation.


An insurance policy which does not pay dividends to the policyowner.

non-qualified plan:

An plan which is not recognized by the IRS and would not receive any special tax considerations.

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- O -

optionally renewable:

A health insurance contract in which the insurer reserves the unrestricted right to terminate the coverage at any anniversary or premium due date.

ordinary life insurance:

Life insurance usually issued in amounts of $1,000 or more with premiums payable on an annual, semi-annual, quarterly or monthly basis.

over insurance:

More insurance is in force on the insured than the potential loss. May even produce a morale hazard. For example, so much disability insurance in force that it becomes profitable to become disabled.

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- P -

paid-up additions:

Additional single premium life insurance paid for by policy dividends and added to the total policy face amount.

paid-up insurance:

Insurance on which all required premiums have been paid. The term is frequently used to mean the reduced paid-up insurance available as a non-forfeiture option.

partial disability:

Insured cannot perform all of the duties of his occupation, but can perform some.

participating physician:

A physician who agrees to accept assignment on all Medicare claims.

participating policy:

A policy under which the company agrees to distribute to policyholders the part of its surplus which its Board of Directors determines is not needed at the end of the business year.

participating supplier:

A supplier who agrees to accept assignment on all Medicare claims.

payor policy:

Premiums are waived on a child's life insurance policy if the payor dies or becomes totally disabled.


The cause of a possible loss.

permanent disability:

Disability in which the insured does not recover.

permanent life insurance:

A phrase used to cover any form of life insurance except term. Generally, insurance that accrues cash value, such as whole life or universal life.

plan administrator:

The person who is appointed by the employer or sponsor to administer a group insurance plan within a company or sponsoring organization.


The printed legal document stating the terms of the insurance contract that is issued to the policyholder by the company, including all provisions, riders and endorsements.

policy dividend:

A refund of part of the premium on a participating insurance policy reflecting the difference between the premium charged and actual experience.

policy loan:

Loans made by the life insurance company from its general funds, advanced to policy holders on the security of the cash values of their policies.

policy proceeds:

The amount actually paid on a life insurance policy at death or when the insured receives payment at surrender or maturity. It includes any dividends left on deposit and the value of any additional insurance purchased with dividends; and it excludes any loans not repaid, plus unpaid interest on those loans.

policy reserves:

The measure of the funds that an insurance company holds specifically for the fulfillment of its policy obligations. Reserves are required by law to be so calculated that, together with future premium payments and anticipated interest earnings, they will enable the company to pay all future claims.

policyholder or policyowner:

The person who owns a life insurance policy. This is usually the insured person, but it may also be a relative of the insured, a partnership or a corporation.

policyholder dividends:

Return of premium allotted to participating policyholders out of profits earned on such policies.

pre-existing condition:

A condition that existed before the policy was issued and one which will probably not be covered in a health policy.

preferred provider organization (PPO):

An organization of hospitals and physicians who provide services to insurance company clients. They are preferred, but the insured is not limited as they are with an HMO.


The payment, or one of the periodic payments, a policyholder agrees to make for an insurance policy in order to keep it in force.


Considerations received from a contract holder in return for a future obligation by the insurance company.

premium loan:

A policy loan made for the purpose of paying premiums.

presumptive disability:

A disability which does not have to be proven in order to collect benefits.

primary beneficiary:

The beneficiary named first to receive the policy proceeds.

probationary period:

Time period during which the policy is not yet in effect.


An agent who sells insurance, producing business for an insurance company.

proof of loss:

A formal statement made by the insured to the insurance company regarding a loss.

pure premium:

The premium necessary to cover the pure cost of insurance without expense loading.

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- Q -

qualified plan:

A plan which the Internal Revenue Service approves as meeting their requirements to qualify for special tax advantages.

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- R -


The per unit cost of insurance.

rated policy (rating up):

The basis for an additional charge to the standard premium because the person insured is classified as a greater than normal risk, usually resulting from impaired health or hazardous occupation.

rating agency:

A firm which thoroughly evaluates all aspects of an insurance company's operations in order to determine its financial quality and issues debt and claims-paying-ability ratings.
(e.g. A.M. Best Company, Moody's Investors Service, Standard & Poor's Corporation, and Duff Phelps.)

rated policy:

Sometimes called an "extra-risk" policy, an insurance policy issued at a higher-than- standard premium rate to cover the extra risk. For example, where an insured has impaired health or a hazardous occupation.

recurring disability:

Defines the duration of a period of time during which the recurrence of a condition will be considered a continuation of a prior period of disability.

reduced paid-up insurance:

A form of insurance available as a non-forfeiture option. It provides for continuation of the original insurance plan, but for only the amount it will purchase.


Payment by the insurer of a sum of money related to a covered expense or loss incurred by, or on behalf of, the insured, as under a group medical expense policy.


Putting a lapsed policy back in force.


Insurance by one insurance company of all or part of a risk with another company which agrees to reimburse the insurance company for the portion of claims reinsured.

renewable term insurance:

Term insurance which can be renewed at the end of the term, at the option of the policyholder and without evidence of insurability, for a limited number of successive terms. The rates increase at each renewal as the age of the insured increases.


The continuation, in full force and effect, of something that is about to expire.

replacement rules:

State rules regulating the replacement of an insured's insurance policy with another.


Statements made by the insured on their application.


The amount required to be carried as a liability in the financial statement of an insurer, to provide for future commitments under policies outstanding.

reserve requirements:

The amounts which insurance companies must be set aside to meet future benefit obligations as defined by the state insurance departments.

residual disability:

Partial disability when the insured comes back to work following a total disability.

residual income:

Should an insured recover partially from a disability, but not completely, then the policy will pay a portion of the disability benefit based upon the amount of recovery.

revocable beneficiary:

Can be changed by the owner of the policy.


A special policy provision or group of provisions that may be added to a policy to expand or limit the benefits otherwise payable.


The measurable loss potential which insurance is meant to protect against.

risk classification:

The process by which a company decides how its premium rates for insurance should differ according to the risk characteristics of individual's insured (e.g. age, occupation, sex, state of health) and then applies the resulting rules to individual applications.

risk management:

Management of pure risks, including reducing the risk, retaining the risk, transferring the risk, or avoiding the risk.

risk reduction:

Taking steps to reduce the probability of a possible loss, such as installing smoke alarm systems in buildings.

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- S -


Covering pure risks by appropriating sufficient funds in advance to meet estimated losses.


Medical expense insurance generally provides payment for a semi-private hospital room.

settlement options:

The several ways, other than immediate payment in cash, which a policyholder or beneficiary may choose to have policy benefits paid.

short term disability:

Usually a policy providing benefits for less than two years.

sickness policy:

A form of health insurance providing coverage against losses by illness or disease.

simultaneous death act:

State law which states that if the insured and beneficiary die in the same accident and it cannot be determined which died first, it will be assumed that the beneficiary died first, and all proceeds will then pass to the insured's contingent beneficiary.

speculative risk:

A risk which has the possibility of either gain or loss, but which insurance will not cover.

spendthrift clause:

Prevents the beneficiary from receiving a lump sum death benefit.

standard provisions:

Prescribed by state law and which must appear in all policies.

standard risk:

The classification of a person applying for life insurance who fits the physical, occupational, and other standards on which normal premium rates are based.

statutory accounting principals (SAP):

A set of accounting practices used in the insurance industry to ensure a company's ability to meet obligations at any and all times.

stock insurance company:

An insurance company owned by stockholders who elect a board to direct the company's management. Stock companies, in general, issue nonparticipating insurance, but may also issue participating insurance.

stop-loss provision:

Protects the insured from high claims by providing that an insurance company will cover claims above a set level.

straight life insurance:

Whole life insurance on which premiums are payable for life.


Less than standard issue.

supplementary contract:

A contract between the insurer and the beneficiary which is formed when proceeds are applied under a settlement.

surgical expenses:

Those expenses covered by limited-benefits surgical insurance plans.


Withdrawing the cash value of a policy and surrendering the policy form to the insurer.

survivorship life insurance:

Also known as second-to-die insurance. Insures the lives of two persons, but will only pay the death benefit upon the death of the second insured.

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A term describing an investment whose accumulated earnings are free from taxation until the investor takes possession of them.

tax sheltered annuity:

A qualified annuity for employees of certain non-profit organizations, such as churches, school systems, etc.

term life insurance:

Life insurance payable to a beneficiary only when an insured dies within a specified period. No benefit is payable if the insured survives past the end of the term. Provides pure life insurance protection without any benefit of cash savings.

total disability:

Prevents the insured from performing the duties of any occupation.

transfer of risk:

Shifting all or part of a risk to an insurance company as a form of risk management.


Inducing or seeking to induce a policyholder, by misrepresentation, to terminate an existing policy to purchase a new one.

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unallocated contract:

A contract whereby premiums and contributions are deposited rather than used immediately to purchase annuities for benefit plan participants.


The process by which an insurance company determines whether or not it can accept an application for insurance and, if so, on what basis.

unearned premium:

That part of the premium paid in advance that has not yet been used for the coverage written.

uniform provisions:

A set of provisions in health insurance policies which are specified by law.

uniform simultaneous death act:

If both the insured and beneficiary die in the same accident, the presumption will be that the insured outlived the beneficiary.

unilateral contract:

Contract in which one party does something, while the other makes a promise to do something in the future.

universal life insurance:

Interest sensitive life insurance which combines term insurance with a cash accumulation account, featuring flexible premiums and death benefit.

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variable annuity:

An annuity contract with a value based on the underlying securities, allowing the annuitant to invest in the stock and bond markets using mutual funds, with the added advantage of staying ahead of inflation.

variable life insurance:

Life insurance based upon the value of the underlying securities, allowing the policyholder to invest in the stock and bond markets using mutual funds, with the added advantage of staying ahead of inflation.

variable universal life:

Combines the features of a universal life insurance contract with the benefit of staying ahead of inflation with the features of the variable life insurance contract.

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waiting period:

A period of time before a new employee becomes eligible for group insurance and, in disability insurance, a period of time after the onset of disability before benefit payments begin.


The giving up of a known right.

waiver of premium:

Under certain conditions, an insurance policy will be kept in full force without further payment or premiums. It is used mostly in the event of a permanent disability.


A statement made on the insurance application that is warranted to be true in all respects. However, in the absence of fraud, all statements made on life and health insurance applications are representations, not warranties.

whole life insurance:

Life insurance under which coverage remains in force during the insured's entire lifetime, provided premiums are paid as specified in the policy.

workers compensation:

Benefits available for injury, disability or death as a result of an occupational hazard. Premium payments are paid by the employer.

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Copyright 1998-2015  McClaren & Associates.  All Rights Reserved.
Last modified: March 01, 2015