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Glossary of Common Insurance Terms

Select a letter to view terms beginning with that letter

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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
Accelerated Death Benefits - If your policy has an accelerated death benefits provision, it will pay you - under certain conditions - all or part of the policy death benefits while you are still alive. These conditions include proof that the policyholder is terminally ill with a life expectancy of less than 12 months, has a specified life-threatening disease or is in a long-term care facility such as a nursing home. If you have a group term life policy or certificate, the amount of accelerated benefit you may receive is limited by law to: the greatest of $25,000 or 50% of the death benefit. By accepting an accelerated benefit payment, a person could be ruled ineligible for Medicaid or other government benefits. The proceeds also may be taxable.

Accident - An unforeseen, unintended event; something unexpected; fortuitous.

Accidental Death Benefits - If a policy includes an accidental death benefit, the cause of death will be examined to determine whether the insured's death meets the policy's definition of accidental.

Actual Cash Value (ACV) - The value of property, based on current replacement cost less depreciation.

Adjuster - A person who investigates and settles insurance claims.

Administrative Expense Charge - An amount deducted, usually monthly, from the policy.

Agent - A person who sells insurance products of the insurance company. The person responsible for your insurance coverage needs.

Annuitant - A person who receives the payments from an annuity during his or her lifetime.

Annuity - A contract in which the buyer deposits money with a life insurance company for investment. The contract provides for specific payments to be made at regular intervals for a fixed period or for life.

Annuity Certain - An annuity that provides a benefit amount payable for a specified period of time regardless of whether the annuitant lives or dies.

Annuity Period - The time span between the benefit payments made under an annuity contract.

Application - A form containing underwriting information. The basis upon which a policy is issued.

Assignment - The transfer of all or part of a policy owner's legal title and rights to a policy to another person. It is possible to change this type of transfer at a later date.

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B
Bankdraft - Occurs when money is being automatically debited from a banking account for insurance coverage.

Benchmark Rate(s) - The rate set annually by the Commissioner of Insurance by line, relative to which the flexibility bands and statutory rate limitations apply.

Beneficiary - The person, persons or entity designated to receive the death benefits from a life insurance policy or annuity contract.

Binder - Placing insurance temporarily in force, pending issuance of a policy.

Bodily Injury (BI) - Physical injury to a person; insured's liability for same covered under Liability Insurance policies.

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C
Cancellation - Termination of an insurance policy by the company or insured.

Cash Surrender Option - Nonforfeiture option, which specifies that the policy owner can cancel the coverage and receive the entire net cash value in a lump sum.

Cash Value - The amount of money, which the policy owner will receive as a refund if the policy owner cancels the coverage and returns the policy to the company. Also known as cash surrender value.

Churning - Can occur when an agent persuades a consumer to borrow against an existing life insurance policy to pay the premium on a new one.

Claimant - One who makes a claim against another.

Co-insurance - The percent of each health care bill you must pay out of your own pocket. Non-covered charges and deductibles are in addition to this amount.

Conditional Receipt - A premium receipt given to an applicant which makes the insurance effective only if or when a specified condition is met.

Contestable Period - A period of up to 2 years when an insurance company may deny payment of a claim because of suicide or a material misrepresentation on your application.

Contingent Beneficiary - Another party or parties who will receive the proceeds if the primary beneficiary should predecease the person whose life is insured.

Contract - In most cases, the term "contract" refers to the insurance policy. The policy is considered to be a "contract" between the insurer and the insured for indemnification.

Conversion Privilege - The right to change (convert) insurance coverage from one type of policy to another. For example, the right to change from an individual term insurance policy to an individual whole life insurance policy.

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D
Death Benefit - Amount paid to the beneficiary upon the death of the insured.

Declarations Page - The contract section containing such information as the name and address of the insured, period a policy is in force, premium payable, lienholder, description of the vehicle, and amount of coverage.

Deductible - An amount absorbed by the insured in a loss, before any payment is due from the company.

Deferred Annuity - An annuity under which the annuity payment period is scheduled to begin at some future date.

Depreciation - The act of lowering an item's value due to use or wear and tear.

Dividend - The amount of money an insurance company may decide to distribute to policyholders.

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E
Earned Premium - The portion of a policy premium which the company has earned; the portion which the insured has "used up."

Effective Date - The date on which an insurance policy becomes effective.

Endorsement - A form attached to a policy to change or modify its conditions.

Escrow - Money placed in the hands of a third party until specified conditions are met.

Evidence of Insurability - To qualify you for a particular policy at a particular price, companies have the right to ask you for information about your health and lifestyle. An insurance company will use this information - your evidence of insurability - in deciding if your application for insurance is acceptable and at what premium rate.

Exclusion - Provision in an insurance policy that indicates what is denied coverage.

Experience Period - The period of time that a company will reference when making evaluations of an insuring policy. There is not a standardized amount of time. See annotation for an example of an experience period.

Expiration Date - The date on which an insurance policy expires.

Extended Term Insurance Option - A nonforfeiture benefit under which the net cash value of the policy is used to purchase term insurance for the amount of coverage available under the original policy.

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F
Face Value - The initial amount of death benefit provided by the policy as shown on the face page of the contract. The actual death benefit may be higher or lower depending on the options selected, outstanding policy loans or premium owed.

First Party Loss - A situation involving only the insurer and insured.

Free Examination Period - Also known as "10-day free look" or "Free Look," it is the time period after a life insurance policy or an annuity is delivered during which the policy owner may review it and return it to the company for a full refund of the initial premium. Variable life policies are required to include a "free-look" provision. For other coverage, it is at the company's option.

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G
Grace Period(s) - The time - usually 31 days - during which a policy remains in force after the premium is due but not paid. The policy lapses as of the day the premium was originally due unless the premium is paid before the end of the 31 days or the insured dies. This is not a "free-insurance" period.

Group Life Insurance - This type of life insurance provides coverage to a group of people under one contract. Most group contracts are sold to businesses that want to provide life insurance for their employees. Group life insurance also can be sold to associations to cover their members and to lending institutions to cover the amounts of their debtor loans. Most group policies are for term insurance. Generally, the business will be issued a master policy and each person in the group will receive a certificate of insurance.

Group of Companies - Several insurance companies under common ownership and often common management.

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H
Health Maintenance Organization (HMO) - Prepaid group health insurance plan which entitles members to services of participating physicians, hospitals and clinics. Emphasis is on preventative medicine.

Home Service Life - Home service refers to a method of selling and servicing insurance, mostly life and health insurance, and does not identify the type or relative cost of the product that is sold. Some companies that market on a home service basis sell what is known as "industrial life insurance." These are most often low death benefit policies with face amounts that may vary from $1,000 to $5,000 and which accumulate cash values at a very low rate. They are intended primarily to cover the expenses of a last illness and burial. The relative cost of industrial life insurance is extremely high compared to some other cash value policies and term life insurance policies.

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I
Incontestability - A provision that places a time limit - up to two years - on a company's right to deny payment of a claim because of suicide or a material misrepresentation on your application.

Independent Adjuster - A person who charges a fee to the insurance company to adjust the company's claim.

Indexed Life Insurance - A whole life plan of insurance that provides for the face amount of the policy and, correspondingly, the premium rate, to automatically increase every year based on an increase in the Consumer Price Index (CPI) or another index as defined in the policy.

Insurable Interest - A financial interest in the property insured, prerequisite to a valid contract of insurance. In life insurance, a person's or party's interest - financial or emotional - in the continuing life of the insured.

Insured - The person or firm covered by an insurance policy.

Insurer - The insurance company.

Interpleader - This is a procedure when conflicting claims are made on a life insurance policy by two or more people. Using this procedure the insurance company pays the policy proceeds to a court, stating the company cannot determine the correct party to whom the proceeds should be paid.

Irrevocable Beneficiary - A named beneficiary whose rights to life insurance policy proceeds are vested and whose rights cannot be canceled by the policy owner unless the beneficiary consents.

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J

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K

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L
Lapse - Termination of a policy due to non-payment of renewal premiums. If the policy has cash value, then the policy's insurance coverage may remain effective as extended term or reduced paid up insurance through the use of a nonforfeiture option.

Liability - Responsibility to another for one's negligence.

Liability Limits - The limits of protection the insured has in a liability policy.

Loss - Damages through the insured's negligent act and/or omission resulting in bodily injury and/or property damages to a third party; damage to an insured's property; or amount an insurance company has a legal obligation to pay.

Loss History - Refers to an insured's history of losses (claims) with other companies, or their current company. A company will consider "loss history" when underwriting a new policy or considering a renewal of an existing policy. Companies view "loss history" as an indication of an insured's propensity for a claim in the future.

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M
Material Misrepresentation - A significant misstatement in an application form. If a company had access to the correct information at the time of application, the company might not have agreed to accept the application.

Mortality Charge - The cost of the insurance protection element of a universal life policy. This cost is based on the net amount at risk under the policy, the insured's risk classification at the time of policy purchase, and the insured's current age.

Mortality Expenses - The cost of the insurance protection based upon actuarial tables which are based upon the incidence of death, by age, among given groups of people. This cost is based on the amount at risk under the policy, the insured's risk classification at the time of policy purchase, and the insured's current age.

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N
Named Driver Policy - A policy whereby ONLY the named insured has coverage under the policy. Generally, all other drivers are excluded from coverage under the policy. This type of policy is usually written by surplus lines companies.

Net Cash Value - The cash value amount available to a policy owner after adjustments have been made to the cash surrender value to account for policy loans and dividends.

Non-participating Policy - A life insurance policy that does not grant the policy owner the right to policy dividends.

Non-renewal - Provision in a policy that states the circumstances under which an insurer may elect not to renew the policy.

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O

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P
Paid-Up - This event occurs when a policy will not require any further premiums to keep the coverage in force.

Paid-Up Additions - Additional amounts of insurance purchased using dividends; these insurance amounts require no further premium payments.

Peril - A cause of property losses. Usually used in the context of "a peril insured against."

Policy - The contract issued by the insurance company to the insured.

Policy Loan - An advance made by a life insurance company to a policy owner. The advance is secured by the cash value of the policy.

Policy Owner - The person or party who owns an individual insurance policy. This person may be the insured, the beneficiary or another person. The policy owner usually is the one who pays the premium and is the only person who may make changes to a policy.

Policy Period - The period a policy is in force, from inception date to expiration date.

Preferred Provider Organization (PPO) - Hospital, physician, or other provider of health care which an insurer recommends to an insured. A PPO allows insurance companies to negotiate directly with hospitals and physicians for health services at a lower price than would be normally charged.

Premium - The consideration for a policy, paid by the insured to the insurer. This term refers to the amount of money being paid to keep insurance coverage in force.

Premium Expense Charges - An amount deducted from each premium payment, which reduces the amount credited to the policy.

Property Damage (PD) - Physical damage to property; insured's liability for it covered under Liability policies.

Providers - Usually references doctors or those who are providing a medical service.

Public Adjuster - A person hired by the insured to settle the claim with the insurance company and to settle the claim on the insured's behalf.

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Q

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R
Rated Policy - A policy issued at a higher premium to cover a person classified as a greater-than-average risk, usually due to impaired health or a dangerous occupation.

Redlining - Refusal by an insurance company to underwrite or to continue to underwrite questionable risks in a given geographical area.

Refund - Amount of money being returned to the policyholder.

Reinstatement - The process by which a life insurance company puts back in force a policy which had lapsed because of nonpayment of renewal premiums.

Renewal Policy - A policy issued as a renewal of a policy expiring in the same company or agency; not new business.

Replacement Cost - The cost associated with replacing property at current market prices.

Rescind - To take away or remove. To avoid so as to restore the involved parties to the positions they would have occupied had there been no contract.

Return Premium - The premium returned to an insured for canceling or amending a policy.

Rider - A written agreement attached to the policy expanding or limiting the benefits otherwise payable under the policy.

Rule of 78 - This is a method for calculating the amount of unused premium which takes into account the fact that more insurance coverage is required in the early months of the loan, since the payoff of the loan is greater. As the loan is paid off, less coverage is being paid for, so the refund percentage decreases.

Rule of Anticipation - This is a similar method to "Rule of 78" where the amount of unused premium takes into account the fact that more insurance coverage is required in the early months of the loan, since the payoff of the loan is greater. As the loan is paid off, less coverage is being paid for, so the refund percentage decreases.

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S
Single Interest Insurance - Insurance coverage for only one of the parties having an insurable interest in that property.

Single-Premium Whole Life Policy - A type of limited-payment policy that requires only one premium payment.

Staff Adjuster - Employee of the insurance company's claim department.

Subrogation - Assignment of rights of recovery from insured.

Suicide Clause - Life insurance policy wording which specifies that the proceeds of the policy will not be paid if the insured takes his or her own life within a specified period of time after the policy's date of issue.

Surplus Lines - Insurance coverage not available from an admitted company in the regular market; thus a surplus lines broker/agent representing an applicant seeks coverage in the surplus lines market from a nonadmitted insurer according to the insurance regulations of a particular state.

Surrender Charges - Charges that are deducted if the insured's life insurance policy or annuity is cashed in (surrendered). These charges also are deducted if the insured borrows money on the insured's policy or if the insured's policy lapses for non-payment.

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T
Third Party Administrator (TPA) - An organization that performs managerial and clerical functions related to an employee benefit insurance plan by an individual or committee that is not an original party to the benefit plan.

Third Party Loss - A situation involving a person other than the insurer and insured; i.e., a person making a liability claim against the insured.

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U
Underwriter - The person who reviews an application for insurance and decides if the applicant is acceptable and at what premium rate.

Underwriting - An insurance company issues a policy when it believes you have a certain level of "risk" or chance of a claim. Underwriting is the process the company uses to decide whether to accept or reject an application. Companies do not make their underwriting guidelines public because they are considered to be trade secrets.

Unearned Premium - The insured's remaining premium equity in his policy; that part of the policy premium that has not been "used up."

Universal Life Insurance - The key characteristic of universal life insurance is flexibility. Within limits, you can choose the amount of insurance and the premium you wish to pay. The policy will stay in force as long as the policy value is sufficient to pay the costs and expenses of the policy. The policy value is "interest-sensitive," which means that it varies in accordance with the general financial climate. Lowering the death benefit and raising the premium will increase the growth rate of your policy. The opposite also is true. Raising the death benefit and lowering the premium will slow the growth of your policy. If insufficient premiums are paid, the policy could lapse without value before the maturity date is reached. (The maturity date is the time your policy ceases and cash surrender value would be payable if the policyholder is still living.) Therefore, it is your responsibility to pay consistently a premium that is high enough to ensure that your policy's value will be adequate to pay the monthly cost of the policy. The company is required to send you an annual report and also to notify you if you are in danger of losing your policy due to insufficient value.

Usual and Customary - these charges may be based on: rates usually charged by physicians and providers in your area; rate averages compiled by independent rating services; or rate averages compiled by the insurance company.

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V
Variable Annuity - A form of annuity policy under which the amount of each benefit payment is not guaranteed and specified in the policy, but which instead fluctuates according to the earnings of a separate account fund.

Variable Life Insurance - A type of whole life policy in which the death benefit and the cash value fluctuate according to the investment performance of a separate account fund that the policyholder selects. Because the investment account is regulated by the Securities and Exchange Commission, you must be presented with a prospectus before you purchase a variable life policy.

Viatical Settlement Agreements - Viatical settlements involve the sale of an existing life insurance policy by a viator (person with a life threatening or terminal illness) to a viatical settlement company in return for a cash payment that is a percentage of the policy's death benefit.

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W
Whole Life Insurance - Whole life insurance policies are one type of cash value insurance. Whole life policies offer protection through a lifetime - that is, for a person's "whole life." From the day you buy the policy, you pay a scheduled premium,. The scheduled premium may be level or may increase after a fixed time period, but it will not change from the amount(s) shown in the policy schedule. It is important that you look at the policy schedule to be sure you understand what your premium payments will be and that you can afford them over time. This premium is based on your age at the time of purchase. Initially, it will be higher than the premium paid for a term policy, but you are likely to end up paying less in premiums when you are older, if you keep the policy for a long time. Part of each premium payment will go to cash value growth, part for the death benefit and part for expenses (such as commissions and administrative costs). There is no need to renew whole life policies. As long as you pay your premium when due, your coverage will continue in force throughout your life.

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X

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Y

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Z

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Disclaimer: This information is intended to be a guide to understanding common insurance terms. The Louisiana Department of Insurance does not intend this information to be official or legally binding. This list should be used as a basic guide to understanding these terms and should not be considered complete or definitive.

Reference Information: Much of the information provided in this glossary comes from the Texas Department of Insurance, as of 12/2001. We thank them for providing this helpful information to the public.

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