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Glossary of Insurance Terms:Insurance Glossary

Accidental Death Benefit: In an Accidental Death policy, this is the benefit paid to the beneficiary, should death occur due to an accident. In a Life Insurance Policy this can be an additional benefit above the face amount paid in the event that death occurs due to an accident. There can often be additional exclusions and limitations with respect to type of accident and age of the insured.

Activities of Daily Living: Activities generally including bathing, preparing and eating meals, moving from room to room, getting into and out of bed or chairs, dressing, and using the toilet.

Actual Cash Value: The current cost of replacing damaged or destroyed property with comparable new property, minus depreciation and obsolescence.

Actuary: A mathematical and statistical expert in the field of insurance who calculates rates, reserves, dividends, mortality/morbidity rates and other statistics.

Adjuster: A representative of an insurer responsible for determining the extent of the insurer's liability for loss when a claim is submitted.

Agent: An individual who sells and services insurance policies, either as an Independent Agent, or as a Direct Agent (also called a Captive Agent).  – Also See: Independent Agent and Direct Agent

Annuity: A contract between an annuitant and an insurance company, which generally provides a stream of income for life or for a fixed period of time. There are many types of annuities, which will vary in their accumulation period as well as their distribution period and terms.

Attained Age: 1) A policyholder’s age at any particular time, often used as a benchmark for rate increases on insurance policies. 2) The age at which the beneficiary of an insurance policy or other scheduled payment plan may begin to receive benefit payments or withdraw funds.

Benefit Period: The number of days for which benefits are paid to an insured or beneficiary for a health insurance policy.

Broker: An insurance salesperson who searches the market for insurance coverage on behalf of a consumer rather than by representing specific insurance carriers.

Captive Insurance AgentAlso referred to as a Direct Insurance Agent - An individual who represents only one company and sells only its policies. This agent is paid either on a commission basis in much the same manner as the independent agent, or may be paid in a combination of salary and commission.

Casualty: Loss resulting from an accident.

Casualty Insurance: The type of insurance primarily dealing with losses caused by injuries to people and legal liability of an insured for such injury or for damage caused to the property of others. Casualty Insurance also includes such diverse forms as plate glass, insurance against crime, such as robbery, burglary and forgery, boiler and machinery insurance and aviation insurance.

Claim: A demand for payment made by an insured based on the terms of an insurance policy.

Compliance: The observation of and adherence to laws, regulations, standards, or other requirements.

Commercial Lines: Lines of insurance pertaining to coverage for businesses, professionals and commercial establishments.

Commission: Compensation paid to an agent or insurance salesperson as a percentage of the policy premium. Commission percentages vary widely depending on the type coverage, the insurer and the marketing methods.

Common Carrier: A business that makes transportation services available to the general public for the transit of people or goods. Common carriers include trucking companies, bus lines and airlines.

Comprehensive Insurance: Auto insurance coverage providing protection in the event of physical damage (other than from a vehicle collision) or theft of the insured vehicle.

Coverage: The scope of protection provided by the terms of an insurance policy. In property insurance, coverage lists perils insured against, properties covered, locations covered, individuals insured, and the limits and exclusions of indemnification. In life insurance, living benefits and death benefits are listed.

Convertible: Term life insurance coverage that can be converted into permanent insurance regardless of an insured's physical condition and without a medical examination. The individual cannot be denied coverage or charged an additional premium for any health problems.

Copayment: Also referred to as Copay - A predetermined fee that an individual pays when receiving health-care services. This amount is in addition to what insurance covers, and may or may not vary for type of services rendered.

Death Benefit: The amount of benefits that will be paid to a beneficiary in the event of the death of a covered person.

Deductible: Amount of loss that the insured pays before the insurance begins to assume liability.

Defamation: The expression, whether directly or through implication, that attributes to an individual, entity, product or service a negative image.

Direct Insurance AgentAlso referred to as a Captive Insurance Agent - An individual who represents only one company and sells only its policies. This agent is paid either on a commission basis in much the same manner as the independent agent, or may be paid in a combination of salary and commission.

Elimination Period: The time which must elapse between an initial injury or illness and the time at which benefits beginning to become payable. Also known as "waiting period."

Exclusions: Items, conditions or activities that are not covered by an insurance policy.

Exposure: The quantification of vulnerability to loss, usually expressed in dollars.

Fraud: A criminal or civil violation generally characterized by intentional deception, made either for personal gain, or to harm another individual or entity.

Future Purchase Option: Also known as Guaranteed Insurability Option - Life and health insurance provision which guarantees the insured the right to purchase additional coverage without proving insurability.

General Liability Insurance: Insurance designed to protect business operators from a variety of liability exposures. Exposures could include those arising from accidents occurring on the insured's premises, from liabilities related to the functioning of products sold by the insured, operations completed by the insured, and contractual liabilities.

Grace Period: The length of time that a policy remains in-force after a premium due date has passed and gone unpaid (usually 31 days). Generally a premium paid during the grace period is considered to have been paid “on time.”

Guaranteed Insurability Option: Also known as Future Purchase Option - Life and health insurance provision which guarantees the insured the right to purchase additional coverage without proving insurability.

Guaranteed Renewable: A policy provision available in many polices which guarantees the policyholder the right to renew coverage at each policy anniversary date. The insurer does not have the right to cancel coverage except for nonpayment of premiums by the policyholder. The insurer does have the ability to raise premiums.

Hazard: A circumstance which increases the likelihood of a loss event, or which increases the likely severity of a loss event.

Hazardous Activity: Pursuits like skydiving, bungee jumping, scuba diving, auto-racing and other activities, which are generally excluded from coverage by a standard insurance policy.

Health Maintenance Organization (HMO): Group health insurance plan that entitles members to services of participating physicians, hospitals and care-giving facilities. HMO’s place an emphasis on preventative care to reduce overall healthcare costs. Members must use in network health-care providers.

Health Reimbursement Arrangement (HRA): Policyholders of high-deductible health plans who do not qualify for a Health Savings Account can use a Health Reimbursement Arrangement.

Health Savings Account (HSA): Policyholders of high-deductible health plans may contribute pre-tax money to a Health Savings Account to be used for qualified medical expenses. HSA’s are portable, and must be linked to a qualifying high-deductible health insurance policy.

HIPAA: Health Insurance Portability and Accountability Act, creates standards around health insurance and healthcare related matters including issues of privacy.

Independent Insurance Agent: An individual who represents multiple insurance companies and services clients by searching the market for the most advantageous price for the most coverage. The agent's commission is typically a percentage of each premium paid, and may include a fee for servicing the insured's policy.

Insurable Interest: Interest in property such that loss or destruction of that property would cause a financial loss. In the case of Life insurance: An interest based upon the continued financial advantage derived from the continued life and or health of another individual, or an interest which arises through love and affection as in the case of a relative by blood or marriage.

Least Expensive Alternative Treatment: The amount an insurance company will pay for a procedure based upon an evaluation of the cost for an alternative treatment procedure, generally associated to dental insurance.

Liability: Any legally enforceable obligation, especially a pecuniary obligation.

Liability Insurance: Insurance that pays for losses arising out of an insurer’s responsibility; due to negligence, to others imposed by law or assumed by contract.

Loss Adjustment Expenses: Costs incurred by insurer to investigate and settle losses.

Loss Ratio: The total of all losses (incurred losses plus reserved losses) and loss adjustment expenses divided by total earned premium. This can also be thought of as the ratio (usually expressed as a percentage) of premium paid to an insurance company and the claims paid by the company.

Loss Reserve: The estimated liability for unpaid insurance claims or losses which are believed to have occurred as of a given date but which may not yet have been reported to the company.

Medical Loss Ratio: The loss ratio for a health insurance policy, mathematically the total healthcare benefit paid divided by total earned premium.

Misrepresentation: The false statement of fact.

Non-cancelable: A policy provision available in some polices which guarantees the policyholder the right to renew coverage for a defined timeframe. The insurer does not have the right to cancel coverage except for nonpayment of premiums by the policyholder. The insurer does not have the ability to raise premiums during the term of a non-cancelable policy.

Out-of-Pocket Limit: The predetermined amount of money that an individual must pay before insurance will pay 100% of that individual's healthcare expenses.

Own Occupation: A policy provision that allows policyholders to collect benefits if they can no longer work in their own occupation.

Paid-Up Additions: A policy provision that allows the policyholder of a life insurance policy to use policy dividends and/or additional premiums to buy additional insurance on the same plan as the initial policy and at a face amount determined by the insured's attained age.

Peril: The specific cause of a loss.

Point-of-Service Plan: Health insurance plan that combines features of HMO and PPO plans. A POS plan entitles insured parties to choose between in-network and out-of-network care, with higher coverage for care sought from in-network providers.

Policy: The written evidence of insurance coverage including the insurance contract, any clauses, riders, or endorsements.

Pre-Existing Condition: A coverage limitation included in many health policies, which states that certain physical or mental conditions will not be covered under a new policy for a specified period of time. Pre-existing conditions generally include those which were previously diagnosed, or those for which a reasonable individual would normally seek medical care.

Preferred Provider Organization: Type of managed care health coverage, which includes a network of doctors, hospitals and other care-giving facilities which charge on a fee-for-service basis, but are paid on a negotiated, discounted fee schedule. PPO plans allow the insured to seek care either in or out-of-network. The insured is usually only responsible for their annual deductible and per-visit co-pay when seeking treatment in-network. Visits to out-of-networks providers generally required the insured to pay for services rendered and then file a claim with their insurer

Premium: The price of an insurance policy for a specified period.

Qualified High Deductible Plan: The word qualified in this context refers to a high deductible health plan, which qualifies to be combined with a tax-advantaged Health Savings Account (HSA). As of 2012, the IRS has set the minimum qualifying deductible at $1,200 for individuals and $2,400 for families.

Qualifying Event: An event which triggers and insured’s coverage based upon the terms of an insurance contract.

Rebating: Returning a portion of the premium or agent commission to a consumer to induce or influence an insurance sale.

Reinsurance: Insurance purchased by an insurance company from another insurance company, to limit the maximum liability exposure for coverage issued. A reinsurance arrangement is detailed in a reinsurance contract which defines the conditions under which the reinsurer will pay some or all of the losses of the initial insurer (called a cedent or cedant).

Renewal: The automatic continuation of an insurance policy through continued payment of premiums due. The re-establishment of a policy, which has expired or which will expire unless it is renewed.

Replacement Cost: The dollar amount needed to replace damaged or destroyed property without deducting for depreciation but limited by the maximum dollar amount shown on the declarations page of the policy.

Stock Insurance Company: An incorporated insurer owned by stockholders, to whom earnings are distributed as dividends on their shares.

Surrender Charge: Fee charged to a policyholder or an annuitant when a life insurance policy or annuity is surrendered for its cash value.

Surrender Period: A set period of time during which an annuitant must keep the majority of the annuity funds in the annuity contract to avoid surrender charges.

Term Life Insurance: Type of life insurance which provides coverage for a specified period of time or until a specified attained age.

Total Loss: A loss of sufficient severity that the covered property is effectively damaged beyond cost effective repair.

Twisting: Inducing a consumer to drop a current insurance policy and take another policy which is substantially the same through misrepresentation or incomplete comparison of the benefits or advantages of the two policies.

Underwriter: The individual trained in evaluating risks and whose role is determining rates, coverage, and exclusions for insuring risks.

Underwriting: The processes by which insurance risks are classified according to their degrees of insurability so that coverage may be offered or denied, and so that rates may be determined.

Universal Life Insurance: Type of flexible permanent life insurance where a portion of the premium paid is credited to a savings element to build up a cash value. A unique feature of a universal life policy is that it’s built-up cash value and earned interest may be used to pay premiums.

Variable Life Insurance: A form of life insurance whose face value will very depending upon the value of the securities into which policy assets are invested.

Variable Universal Life Insurance: A combination of the features of variable life insurance and universal life insurance. The policy’s value is variable based upon the policy’s underlying investments, and premiums are flexible at the option of the policyholder.

Waiver of Premium: A provision in some insurance policies which waives the collection of premiums while keeping the policy in force if the policyholder becomes unable to work because of an accident or injury.

Whole Life Insurance: Type of life insurance intended to be in force for a person's whole life and which pays a benefit upon the person's death. Whole life insurance generally has level premiums until age 100, and a portion of those premiums are accretive to a savings element, which builds up a cash value.

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