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