Insurance Terms / Glossary
Accelerated Death Benefits – In some life insurance policies, this provision allows for some benefits to be made available prior to the insured’s death. These benefits are usually available only due to either a catastrophic or terminal illness, or for long-term care or confinement in a nursing home.
Accidental Death Benefit – An added feature of a life insurance policy that provid3s an additional benefit if the insured dies in an accident. Most policies indicate that death must occur within twelve months of the accident.
Agent/Broker – A sales and service representative of an insurance company. The agent is the consumer’s primary contact with the insurance company. Agents work with consumers to assess their needs and plan for long-term financial stability.
Annuity – A financial contract in which the buyer deposits money with a life insurance company for investment. The contract then provides specific continuing income, at regular intervals for a fixed time period or for life. This type of policy is typically used for funding retirement.
Application for Insurance – A form that furnishes the insurance company with the necessary information on the applicant. The company uses the information contained in the application to determine whether or not to insure the applicant.
Assignment - Transferring ownership of a life insurance policy (title and rights) to another person.
Automatic Premium Loan – A provision in a life insurance policy designed to provide added flexibility by automatically borrowing from a policy’s cash value in order to keep the policy in force even if the premium due has not been received by the end of the grace period.
Beneficiary – A person(s) named in a life insurance policy to receive the insurance proceeds at the death of the insured. A secondary or contingent beneficiary will receive the proceeds if the primary beneficiary cannot collect.
Cash Value or Surrender Value – The amount of money that the insurance company guarantees to pay to the policy owner if the policy owner allows the policy to lapse or cancels the insurance coverage and surrenders the policy to the company. The cash value is considered to be the policy owner’s equity or ownership in a policy.
Co-insurance – A provision of a medical policy that requires the insured to pay a percentage of all eligible medical expenses, in excess of the deductible.
Contestability Period – A specific period of time, most often two years, during which the insurer may deny coverage, void a contract or question the validity of a claim.
Coordination of Benefits – When an individual is covered under two or more group health policies, this provision prevents duplication or paying twice for the same expense. Under this provision one insurance carrier is aware of any other insurance coverage the policyholder may have. The two companies determine which company has the primary responsibility to pay and which company has the secondary responsibility after the benefits from the primary insurer are exhausted.
Critical Illness Insurance - This type of insurance pays out a lump sum on the diagnosis of a "serious disease". These conditions can include: cancer, heart attack, stroke, Alzheimer's disease, heart bypass surgery and angioplasty. Some policies may even pay out on the loss of sight, hearing and/or paralysis.
Death Benefit- The amount paid to the beneficiary upon the death of an insured.
Decedent – A person who has died.
Decreasing Term Policy - This type of policy is most often referred to as Mortgage Insurance. The death benefit decreases every year and the initial death benefit may equal or approximate the amount of your loan, with the benefit decreasing as your loan is paid off. If you die, the insurance benefits pay off or reduce your loan balance.
Deductible – The amount an insured must pay before insurance covers any eligible expenses.
Disability Insurance – Insurance designed to provide financial payments to replace the insured’s income if he/she is unable to work due to an illness or injury.
Dividends – Dividends are only used within a certain structure of a participating policy. Dividends reflect the difference between guaranteed and actual expenses and mortality costs, and investment yields.
Elimination Period – Also called Waiting Period. The time a policyholder must be insured before he/she is eligible for benefits.
Estate – The total value of a decedent’s assets as of the date of his/her death. Such assets may be passed directly to a beneficiary via a will, or held in trust for the benefit of the beneficiary.
Evidence of Insurability – The presentation of a prospective insured’s current and historical medical status. Usually, disclosure of health history, plus current assessments of blood and urine and other evidence are provided to an insurer so that it may determine the appropriate premium to charge.
Exclusions – Losses or risks that a policy does not cover.
Extended Care Facility – A skilled nursing home or rehabilitation facility equipped to provide nursing care.
Face Amount – Also known as "Face Value". The amount stated on the policy that will be paid at the time of death or maturity.
Free Look Period – A time in which the policyholder may return the policy if he/she is not satisfied and receive a full refund. Most policies provide a ten day "free look".
Grace Period – The period of time after a premium due date, usually 30 days, during which the insurance policy remains in effect and the overdue premium may be paid without penalty.
Guaranteed Renewable – A policy that is renewable at the policyholder’s option and cannot be terminated by the insurance company.
Incontestability - A provision in most policies that places a time limit (typically up to the first two years) on an insurance company's right to deny payment of a death claim because of suicide or a material misrepresentation on the application for insurance.
Illustration – A reference tool depicting how a given insurer’s whole life or universal life policy is "expected" to perform, if all conditions were to remain unchanged over the time the policy is held by the buyer.
Insurability – An assessment of the applicant or insured’s health status which is used to determine the appropriate premium that is commensurate with the risk to be assumed by the insurer. There are three basic categories of insurability: preferred, standard, and rated. Preferred applicants are those whose health is above average. Standard applicants are of normal health status. Rated applicants are those whose health is below average, i.e. those who have had heart trouble, diabetes, cancer, etc.
Lapsed Policy – A policy which has been terminated and is no longer in force due to non-payment of the premium.
Long Term Care Insurance – Insurance designed to cover a range of services for people who are chronically or terminally ill.
Material Misrepresentation -- A misstatement in a life insurance application, that had the insurance company had this information at time of application may not have accepted the policy as applied for.
Medicaid – An assistance program for low income or needy people which is administered by the state under provisions of federal law.
Medicare – A federal health insurance program for older persons that covers many (not all) health care expenses that seniors are likely to incur.
Medigap Policy – An insurance plan designed to supplement Medicare. A Medigap policy covers some medical and surgical services that individuals would normally have to pay for themselves.
Mortality – The risk of death for any given person. Mortality factors include age, gender, lifestyle, etc.
Option Renewable Policy – A policy that gives the insurance company the option to renew or not renew the policy at each premium due date. The policy cannot be cancelled by the insurance company between the premium due dates.
Paid-Up Additions - This is additional insurance purchased with the interest or dividends paid on your policy. There are some policies that include a column showing the "paid up additions" which increase the death benefit over time.
Permanent Life Insurance Policy – A type of life insurance, other than term insurance, that accrues cash value and is designed for long-term, or permanent, needs of the policyholder. These types of policies include Universal Life, Whole Life and Variable Life.
Policy – The actual terms of a contract of life insurance. A printed copy of these terms is provided to all policyholders.
Policy Owner - The person or party that owns the life insurance policy. The owner can be the insured, the beneficiary or another person.
Policy Loan – The amount of the policy’s cash value that has been borrowed by the policyholder. Either a fixed or a variable rate is charged by the insurer for the amounts accessed via this method.
Preexisting Condition – An illness or health condition that originated prior to the issuing of the policy.
Rated Policy - An insurance policy that is issued at a higher than standard Premium to cover a person classified as a higher than average risk, typically due to a dangerous occupation (pilot), hobby (scuba diving) or an impaired health condition.
Reinstatement – The restoration of a lapsed policy to in force status. Reinstatement can only occur after the expiration of the grace period. The company may require evidence of insurability and will always require payment of the total amount of the past due premium.
Rider – An added provision that may supplement a policy, expanding or limiting the benefits that are otherwise available.
Premium – A payment or payments that are required by the insurance company to keep the policy in force.
Settlement Options – The ways in which policyholders or beneficiaries may choose to have benefits paid other than a lump sum.
Surrender Charges - Charges that are deducted from the cash value of an existing policy if that policy is cased in or surrendered.
Term Insurance – Life insurance written for a specific period of time and payable only if the policyholder dies within that time period.
Time Limit On Certain Defenses – This clause in an insurance policy is required under state law. After two years, misstatements on an insurance application cannot be used to void the policy or claim. At the end of the two year period, a claim may not be denied on the grounds that a disease or physical condition, not specifically excluded by name, had existed before the policy went into effect.
Underwriting – The process of classifying applicants for insurance by identifying such characteristics as age, gender, health, occupation, and lifestyle or hobbies. People with similar characteristics are grouped together and are charged a premium based on the group’s level of risk.
Universal Life Insurance – A flexible life insurance policy allowing the policyholder to change the death benefit from time to time, and vary the amount or time of a premium payments.
Variable Life Insurance – Life insurance that can vary the benefits, but never below a guaranteed minimum benefit level. The benefit is based on the value of assets behind the contract at the time the benefit is paid.
Viatical Settlements - One of the newest and fastest growing areas of insurance. Viatical Settlements involve the sale of an existing life insurance policy by a "viator" (the person with a terminal illness) to a viatical settlement company in return for a cash payment that is a percentage of the existing policies death benefit. The policy is purchased by the viatical settlement company at a discount from it's face amount or death benefit. The percentage paid varies based on the life expectancy of the "viator".
Waiver of Premium – A provision that sets certain conditions under which an insurance policy would be kept in force even though premium payments are not being made. Most often, the condition is the total disability of the policyholder.
Whole Life Insurance – Life insurance coverage that remains in force during the insured’s entire life, providing premiums are paid as specified within the policy.
Copyright © 2005 Southwestern Benefit Designers. All rights reserved. Last updated October 12, 2005