Glossary of Terms
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absolute assignment
An irrevocable transfer of complete ownership of a life insurance policy from one party to another. See also assignment.
accelerated benefits
Some companies provide "accelerated benefits," also known as "living benefits." This rider allows you, under certain circumstances, to receive the proceeds of your life insurance policy before you die. Such circumstances include terminal or catastrophic illness, the need for long-term care, or confinement to a nursing home. Ask your agent for information about these and other policy riders.
accidental death and dismemberment (AD&D) rider
A supplementary benefit rider or endorsement that provides for an amount of money in addition to the basic death benefit of a life insurance policy. This additional amount is payable only if the insured dies or loses any two limbs or the sight of both eyes as the result of an accident. Some AD&D riders pay one half of the benefit amount if the insured loses one limb or the sight in one eye.
accidental death benefit (ADB) rider
A supplementary benefit rider or endorsement that provides for an amount of money in addition to the basic death benefit of a life insurance policy. This additional amount is payable only if the insured dies as the result of an accident.
actively-at-work provision
A provision found in many group insurance contracts which specifies that, if an employee is absent from work because of sickness, injury, or certain other specified reasons, on the day the employee's coverage under the contract is due to begin, then coverage will not begin until the day the employee returns to work.
actuarial department
The department in a life and health insurance company responsible for seeing that the company's operations are conducted on a mathematically sound basis. In conjunction with other departments, it designs and revises a company's life and health insurance products. The actuarial department calculates premium and dividend rates, determines what a company's reserve liabilities should be, and establishes nonforfeiture, surrender, and loan values. It also does the research needed to predict mortality and morbidity rates, to establish guidelines for selecting risks, and to determine the profitability of the company's products.
actuary
A technical expert in life insurance, particularly in mathematics. A person in this job applies the theory of probability to calculate mortality rates, morbidity rates, lapse rates, premium rates, policy reserves, and other values.
administrative services only (ASO)
An arrangement whereby an organization (usually an employer) hires an outside firm to perform specific administrative services, usually including claim administration, for a group health insurance program. The organization retains financial responsibility for paying claims. See also self-insured group insurance and third-party administrator (TPA).
Age Discrimination in Employment Act of 1967 (ADEA)
United States legislation that protects employment rights of individuals age 40 and over. ADEA prohibits age-based firings and generally prevents employers from forcing employees to retire at age 65. In relation to pension plans, ADEA prohibits employers from discontinuing contributions or benefit accruals to an individual's pension plan after that person reaches age 65.
agent of record
The agent or broker who is recognized by the insurer as the person to whom the commission is to be paid.
agent's statement
The portion of the insurance application in which the agent reports anything he or she knows or suspects about the proposed insured that is not reported by the applicant or proposed insured.
American Council of Life Insurance (ACLI)
In the United States, an organization which collects and disseminates data on life insurance markets.
antiselection
The tendency of people with a greater-than-average likelihood of loss to apply for or continue insurance to a greater extent than do other people. Also called adverse selection or selection against the insurer.
applicant
The party applying for an insurance policy.
application
A form that must be completed by an individual or other party who is seeking insurance coverage. This form provides the insurance company with much of the information it will need to decide whether to accept or reject the risk.
assignee
The party to whom all or certain contractual rights are transferred under an absolute or collateral assignment.
assignment
(1) The transfer of ownership rights in a life insurance policy or other type of contract from one party to another. (2) The document that causes the transfer of ownership rights to go into effect. See also absolute assignment and collateral assignment.
assignment of benefits
An authorization directing an insurer to make payment directly to a provider of benefits, such as a physician or dentist, rather than to the insured.
assignor
The person or party who transfers certain contractual rights under an absolute or collateral assignment.
association group insurance
Group insurance extended to the members of a trade, professional, or other association.
attained age
The current age of the insured. The age of the insured at the time the insured's policy was issued plus the number of years elapsed since the policy was issued.
Attending Physician's Statement (APS)
A written statement from a physician who has treated, or is currently treating, a proposed insured or an insured for one or more conditions. The statement provides the insurance company with information relevant to underwriting a risk or settling a claim.
aviation exclusion
A life insurance contract provision which specifies that the death benefit is not payable if the insured dies as a result of certain aviation activities.
basic death benefit
The death benefit according to the terms of the original, basic contract of a life insurance policy. The basic death benefit does not include the benefit for any supplementary riders, such as an accidental death benefit (ADB) rider. For policies whose death benefit remains constant, the basic death benefit is equivalent to the face amount. Compare to death benefit and policy proceeds.
beneficiary
The person or other party designated to receive life insurance policy proceeds. See also contingent beneficiary, irrevocable beneficiary, primary beneficiary, and revocable beneficiary.
benefit
The amount of money paid when an insurance claim is approved. Also called the policy benefit.
benefit schedule
Under a group insurance plan, a table or schedule which specifies the amount of coverage provided for each class of insured. Insureds are often classified with reference either to earnings or to rank or position. Also known as schedule of benefits.
blended rates
Group mortality rates that are based partially on a group's own experience and partially on manual rates. Blended rates are used to determine the appropriate group insurance premium rates for intermediate-size groups. See also experience rating and manual rates.
broker
(1) An insurance salesperson agent who sells insurance products for more than one insurance company. (2) For a career agent, to submit insurance applications to companies other than the agent's own company.
certificate of insurance
A document given to each person insured by a group insurance plan. This document shows the type and amount of coverage to which the group member is entitled and the beneficiary of the coverage. The certificate may also contain a summary of the contract terms as they affect individual group members. See also master contract.
claim
A request for payment under the terms of an insurance policy.
claim administration department
The department in a life and health insurance company responsible for processing claims. In this department, claim examiners review claims presented by policyowners or beneficiaries, verify the validity of claims, and authorize the payment of benefits to the proper person.
claimant
The person or party making a formal request for payment of benefits due under the terms of an insurance contract.
claim examiner
An employee of an insurance company whose responsibilities include investigating claims, approving the claims that are valid, and denying those that are invalid or fraudulent.
claim investigation
The process of obtaining necessary claim information in order to decide whether or not to pay a claim.
claim reserve
A claim department's estimate of the amount of money needed to pay a claim. The estimate is made with the help of information that the claim department gathers in the course of handling the claim. This information may involve, for example, the extent to which the claim is covered by the policy, the effect of previously paid claims on the amount of coverage available to pay a current claim, and the effect of any applicable reinsurance coverage on the claim.
class beneficiary designation
A beneficiary designation that names several people as a group -- for example, "children of the insured" -- rather than naming each person individually.
collateral assignment
A transfer of some ownership rights in a contract from one party to another, generally for a temporary period. Insurance policies are often assigned as collateral for a loan, in which case all transferred rights revert to the assignor when the loan is repaid. See also assignment.
combination company
A life and health insurance company that sells both industrial and ordinary insurance products.
combination clause
A clause in a disability income contract that specifies a point at which the definition of total disability will no longer be based on an insured's inability to perform his or her "own occupation" but on the insured's inability to perform "any occupation."
commission
The amount of money paid to an insurance agent for selling an insurance policy. A commission is almost always calculated as a percentage of the premium.
common accident provision
(1) A provision of many medical expense insurance contracts which specifies that, if two or more members of the same family are injured in the same accident, their combined medical expenses will only be subject to one deductible. (2) A provision found in many voluntary group accidental death and dismemberment plans which specifies that the amount payable by the insurance company is limited to a stipulated maximum for all employees killed or injured in a single accident.
common disaster clause
A life insurance policy provision which states that the primary beneficiary must survive the insured by a specified period, such as 60 or 90 days, in order to receive the policy proceeds. Otherwise, the policy proceeds will be paid as though the primary beneficiary had died before the insured.
contestable period
The period of time (usually two years) during which an insurer may challenge the validity of a life insurance policy. See also incontestable clause.
contingent beneficiary
The party designated to receive life insurance policy proceeds if the primary beneficiary should die before the person whose life is insured. Also called the secondary beneficiary or the successor beneficiary.
contributory group insurance
Any group insurance plan that calls for the insureds to pay a portion of the cost of the group insurance coverage. Contrast to noncontributory group insurance.
conversion privilege
(1) The right of a person who is covered by a group insurance policy to convert his or her group coverage to coverage under an individual insurance policy. Such a conversion can be made when a person leaves the group, benefits are downgraded or terminated for a specific class, or when the group master policy is ended. (2) The right to change insurance coverage in certain prescribed situations 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.
convertible term insurance
A type of term insurance that allows the policyowner to change the term insurance policy to a whole life policy without providing evidence of insurability. The premium rate is normally based on the age of the insured at the time of the conversion.
cost-of-living adjustment (COLA)
An increase in a pension benefit, disability income benefit or life income benefit to compensate for an increase in the cost of living. See also indexation.
credibility percentage
The amount of credit or weight given to a group's actual claims experience in determining a projection of future claims or in the calculation of a dividend. Sometimes called the credibility factor. See also experience rating and experience refund.
customer service department
The department in a life and health insurance company that is charged with providing assistance to the company's policyowners, agents, and beneficiaries. Customer service specialists answer policyowners' requests for information, help them interpret policy language, answer questions about policy coverage, and make changes requested by the policyowner, such as changing the policyowner's address, beneficiary designation, and mode of premium payment. The customer service department may also send premium notices to customers, collect premium payments, and calculate and process policy loans, nonforfeiture options, dividends, and surrenders. In some companies, the customer service department also processes commission payments for company agents. Also called the client service department, the policy administration department, the policyowner service department, and the service and claim department.
death benefit
The amount of money paid or due to be paid when a person insured under a life insurance policy dies. This amount does not include adjustments for outstanding policy loans, dividends, paid-up additions, or late premium payments. See also basic death benefit and policy proceeds.
death claim
A request for payment under the terms of a life insurance policy.
dependent life insurance
Group life insurance made available to group members, usually on an optional and contributory basis, to cover the spouse, children, or other dependents of the group member. It is usually sold in small amounts which are intended to pay funeral expenses.
disability
Inability to work due to an injury or sickness. See also partial disability, presumptive disability, and total disability.
disability benefits
Benefits that are payable periodically while an insured continues to be disabled. "Being disabled" is generally defined in terms of inability to work. See also total disability.
disability income insurance
A type of health insurance designed to compensate insured people for a portion of the income they lose because of a disabling injury or illness. Generally, benefits for disability income insurance are provided for the disabled person in the form of monthly payments. Sometimes called loss of time insurance. See also long-term disability income insurance and short-term disability income insurance.
double indemnity
Death benefit coverage that pays an additional benefit equal to the basic death benefit of the policy if the insured's death is accidental. See also accidental death benefit (ADB) rider.
eligibility period
In contributory group insurance plans, the period of time, usually 31 days, during which a new employee may apply for group insurance coverage.
eligibility requirements
The conditions a person must meet in order to be a participant in a group life insurance, group health insurance, or retirement plan.
Employee Retirement Income Security Act of 1974 (ERISA)
A United States federal law establishing (a) the rights of pension plan participants, (b) standards for the investment of pension plan assets, and (c) requirements for the disclosure of plan provisions and funding. ERISA also established the Pension Benefit Guaranty Corporation (PBGC).
error and omissions (E&O) insurance
Insurance designed to cover claims that result from the negligent acts or mistakes of an agent, including (1) his or her vicarious liability stemming from negligent acts or (2) mistakes committed by individuals for whom the agent is legally liable.
evidence of insurability
Proof that a person is an insurable risk.
exclusions
Specific conditions or circumstances for which the policy will not provide benefits.
experience rating
The process of using a group's own premium and claims experience to calculate premium rates. If the claims experience for the previous year was favorable, the insurer considers reducing the premium rates for the coming year. If the experience was unfavorable, the insurer attempts to discover the reason and may propose higher premium rates for the next year. See also blended rates and manual rates.
face amount
In a life insurance policy whose benefit is not variable, the amount stated as payable at the death of the insured or (in the case of an annuity) at the maturity of the contract. It is generally shown on the first page of the policy. Also called the face value. See also basic death benefit, death benefit, and policy proceeds.
family benefit
A life insurance policy rider that provides term insurance coverage on the insured's spouse and children.
field offices
An insurance company's local sales offices.
field underwriting
The first step in the risk selection process. Field underwriting occurs when an agent gathers pertinent information about the proposed insured and reports that information on the application blank so the home office underwriter can make an underwriting decision.
first-year commission
An amount paid to an insurance agent based on a policy's first annual premium amount.
fraudulent claim
A type of claim that occurs when a claimant intentionally uses false information in an attempt to collect policy proceeds.
fraudulent misrepresentation
According to common law, a false statement which meets the following three criteria: (1) the party that makes the statement is aware that it is not true or disregards whether it is true; (2) the party that makes the statement does so in order to induce another party to enter into a contract; (3) the other party does enter into a contract as a result of the statement and suffers a loss because of the contract.
free examination period
The period of time after delivery of an insurance policy during which the policyowner may review the policy and return it to the company for a full refund of the initial premium. Full coverage is in force during this period. Also called a ten-day free look.
fully contributory
An arrangement in which the insureds under a group policy pay the entire cost of their insurance. Contrast with contributory group insurance and noncontributory group insurance.
grace period
The length of time (usually 31 days) after a premium is due and unpaid during which the policy, including all riders, remains in force. If a premium is paid during the grace period, the premium is considered to have been paid on time.
group insurance
Insurance that provides coverage for several people under one contract, called a master contract.
group representative
A salaried insurance company employee who deals solely with the distribution of group insurance products. The primary responsibilities of group representatives include finding prospects, designing proposals, installing the product, and renegotiating the policy at renewal.
guaranteed insurability (GI) rider
An amendment to a life insurance policy that gives the policyowner the right to purchase additional insurance of the same type as provided in the original policy. The additional insurance can equal no more than an amount specified in the policy contract and can be purchased at specified premium rates and at specified times without new evidence of insurability. Also called a policy purchase rider.
guaranteed-issue insurance
Insurance coverage for which there is usually no individual underwriting. All eligible members of a particular group of proposed insureds who apply for the policy and who meet certain conditions are automatically issued a policy.
illness perils
A classification used by health insurance underwriters to evaluate the type and degree of peril represented by a particular occupation. Illness perils include exposure to dust, poisons, and extreme temperatures. See also accident perils.
income protection insurance policy
A type of disability income policy which specifies that an insured is disabled if that person suffers an income loss caused by a disability.
income replacement ratio
The percentage of preretirement income that a retiree would need to receive after retirement in order to have a postretirement standard of living equivalent to his or her preretirement standard of living. This ratio is generally less than 100 percent, because some of an individual's expenses (i.e., taxes, commuting costs, clothing expenditures, savings needs) decrease after retirement. Also known as the replacement ratio.
incontestable clause
Life insurance policy clause that provides a time limit (usually two years) on the insurer's right to dispute a policy's validity based on material misstatements made in the application. See also contestable period.
individual insurance
Insurance that is issued to an individual person, as contrasted with group insurance. Also called ordinary insurance. See also ordinary life insurance.
initial premium
The first premium payable for an insurance contract.
installation
The term used to include all the activities from the time a prospect decides to purchase a group insurance policy to the time the master contract and its individual certificates are issued.
insurable interest
A condition in which the person applying for an insurance policy and the person who is to receive the policy benefit will suffer an emotional or financial loss if the event insured against occurs. Without the presence of insurable interest, an insurance contract is not formed for a lawful purpose and, thus, is void from the start.
insurance
A system of protection against loss in which a number of individuals agree to pay certain sums of money, called premiums, to create a pool of money which will guarantee that the individuals will be compensated for losses caused by events such as fire, accident, illness, or death.
insured
(1) In the United States and Quebec, a person whose life is insured by an insurance policy (for individual life insurance policies, called the life insured in the rest of Canada). (2) In the common law provinces of Canada, the owner of an individual life insurance policy (called the policyowner in the United States and the policyholder or owner in Quebec). (For the purposes of this glossary, we have used this term as it is used in the United States and Quebec, except in the definitions of purely Canadian terms, in which cases we have made it clear that we are using the term as it is used in Canada.)
insurer
The party in an insurance contract that promises to pay a benefit if a specified loss occurs. Usually an insurance company.
key-person insurance
Life insurance purchased by a business on the life of a person (usually an employee) whose continued participation in the business is necessary to the firm's success and whose death or disability would cause financial loss to the company.
lapse
The termination of an insurance policy because premiums were not paid when they came due.
law of large numbers
The theory of probability which specifies that the greater the number of observations made of a particular event, the more likely it will be that the observed results will approximate the results anticipated by the mathematics of probability.
level commission schedule
A commission schedule that provides the same commission rate for the first and renewal years.
life insurance
Insurance that provides protection against the economic loss caused by the death of the person insured.
loading
A charge that the insurer adds to the net premium to produce the gross premium actually paid by the policyowner. The loading is designed to cover the operating expenses of the company, to compensate the company for the loss of income when policies lapse and to provide margins for profits and contributions to surplus.
long-term disability income insurance
Disability income insurance which typically provides disability income benefits that begin at the end of a specified waiting period and that continue until the earlier of the date when the insured person returns to work, dies, or becomes eligible for pension benefits. See also disability income insurance and short-term disability income insurance.
loss ratio
In pricing health insurance, the loss ratio is a means of comparing claims losses to premium earnings. To determine its loss ratio, an insurer divides the dollar amount of claims it incurred during a given year by the dollar amount of premiums it earned during the same year.
manual rates
Premium rates that are established for broad classes of groups. Manual rates are often used to establish premium rates for small groups with no credible loss experience, and to establish initial premium rates for large groups. See also blended rates and experience rating.
master contract
The legal contract between an insurance company and a group insurance policyholder. The master contract insures a number of people under a single contract. Also called the master policy. See also certificate of insurance.
material misrepresentation
In insurance, a misstatement by an applicant that is relevant to the insurer's acceptance of the risk, because, if the truth had been known, the insurer would not have issued the policy or would have issued the policy on a different basis.
maximum benefit period
The maximum length of time for which disability income payments will continue.
medical application
An application for insurance in which the proposed insured is required to undergo some type of medical examination. The results of the medical examination are then reported to the insurance company.
medical report
A report on a proposed insured's health that is completed by a physician and is based on a physical examination and questioning of the proposed insured. Such a medical report serves as part of a medical application.
MIB, Inc. (Medical Information Bureau)
MIB is organized as a non-stock, not-for-profit membership association of life insurance companies of the United States and Canada. MIB conducts a confidential interchange of information of underwriting significance among its member life insurance companies. The interchange enables MIB member companies to protect the interests of prospective insurance consumers, policyholders and life insurance companies from consumers who omit or misrepresent material facts on their applications for life, health or disability insurance. If in the underwriting of an application for insurance, an MIB member company develops information which is significant to health or longevity, a brief, coded resume of such information will be submitted to MIB. If the consumer applies to another MIB member insurance company, that company may request a copy of the report from MIB provided it has obtained from the consumer a written authorization naming MIB as an informational source. Under the general rules of the association, an insurance company may not base its underwriting decision solely on information provided by MIB. Each member company must conduct its own underwriting investigation. Access to MIB information is restricted to each member company's authorized medical, underwriting and claims personnel. Consumers may request disclosure of or correction to their MIB record by contacting the MIB Information Office, P.O. Box 105, Essex Station, Boston, MA 02112, (617) 426-3660.
misrepresentation
(1) A false or misleading statement made to induce a prospect to purchase insurance. Misrepresentation is a prohibited insurance sales practice. (2) A false or misleading statement made by an applicant for insurance. Certain misrepresentations provide a basis for the insurer to avoid the policy.
misstatement of age provision
Life insurance policy wording that specifies the action the insurer will take if, at the insured's death, the insurer discovers that the insured's age was misstated in the application and the misstatement has resulted in an incorrect premium for the amount of insurance purchased. In an individual life insurance policy, this provision specifies that the policy's benefit amount will be adjusted. In a group insurance policy, this provision generally specifies that the policy's premium amount will be adjusted.
mode of premium payment
The frequency with which premiums are paid (for example, annually, quarterly, monthly).
morbidity
Sickness, disability, or failure of health.
morbidity rate
The likelihood that a person of a given age will suffer an illness or disability. The premium that a person pays for health insurance is based in part on the morbidity rate for that person's age group.
morbidity table
A chart that shows the rates of sickness and injury occurring among given groups of people categorized by age.
mutual benefit method
An early method of funding life insurance, formerly used by fraternal orders or guilds. Under the mutual benefit method, the promised death benefit was provided by charging participating members an equal amount after the death of an insured member. Also called the post-death assessment method. See also assessment method.
no-evidence limit
In group insurance, the maximum amount for which an insurance company will insure an individual without first securing evidence of insurability. Also known as the guaranteed issue limit.
noncontributory group insurance
A group insurance plan in which the insureds pay no portion of the premium for their insurance. The group policyholder pays the entire premium. If a group plan is noncontributory, the enrollment of group members is automatic; all eligible group members are covered. Contrast to contributory group insurance.
noncontributory plan
A pension or employee-benefit plan in which contributions are made entirely by the plan sponsor. Contrast with contributory plan.
nonmedical application
An application for insurance in which the proposed insured is not required to undergo a medical examination. However, a nonmedical application does contain questions that the proposed insured must answer about his or her health. See also nonmedical supplement.
nonmedical supplement
A report that describes the proposed insured's health history. A nonmedical supplement is completed by the agent based on information provided by the proposed insured and can serve as part of a nonmedical application. Also called a nonmedical declaration. See also nonmedical application.
nonparticipating policy
A type of life insurance policy or annuity in which the policyowner does not receive policy dividends. Also called a nonpar policy.
nonsmoker risk class
An underwriting risk class that includes people who are standard risks and who have not smoked cigarettes for a specified period of time, usually 12 months, before applying for insurance. People in the nonsmoker risk class pay lower than standard premiums.
occupation class
A group of occupations that present a similar risk to an insurance company. If all other factors are equal, people in the same occupation class will pay the same premium rates for health insurance.
overinsurance
An amount of insurance that is excessive in relation to the loss insured against.
paramedical report
A report based on a physical examination and a medical history completed by a medical technician, a physician's assistant, or a nurse, rather than a physician. A paramedical report describes the health of a proposed insured and can serve as part of an insurance application.
partial disability
A disability that prevents an insured from engaging in some of the duties of his or her usual occupation or from engaging in the occupation on a full-time basis.
partial disability benefit
A flat amount specified in a disability income insurance policy that is payable when the insured suffers a partial disability. Usually the partial disability benefit is half the full disability benefit. See also residual disability benefit.
participating policy
A type of life insurance policy or annuity under which policy dividends may be paid to the policyowner. Also called a par policy. See also dividend.
payroll deduction plan
(1) See salary-reduction plan. (2) A premium payment method for individual insurance under which an individual's employer deducts the employee's premium amount from his or her paycheck and sends the premium to the insurer.
percentage contribution
The amount of the premium that a group member pays in a contributory group insurance plan. Also known as employee contribution or member contribution. See also contributory group insurance.
permanent and total disability
A condition that prevents an insured from returning to any gainful employment.
persistency
The retention of business that occurs when a policy remains in force as a result of the continued payment of the policy's renewal premiums.
personal interview report
A report that contains the same types of information as an inspection report, except that the personal interview report relies on the proposed insured as the only source of information. See also inspection report.
plan participant
A person on whose behalf contributions are made or benefits are accrued under a pension or employee-benefit plan.
plan sponsor
An entity which has adopted and maintains a pension or employee-benefit plan. The plan sponsor is often an employer, but may be a union, a trade or professional association, or a committee composed of representatives of a number of employers or associations.
policy
A written document that serves as evidence of an insurance contract and contains the pertinent facts about the policyowner, the insurance coverage, the insured, and the insurer.
policy anniversary
The anniversary of the date on which a policy was issued. Sometimes simply called the anniversary.
policy charge
An amount that an insurer adds to the gross premium to help cover the insurer's expenses. This amount is the same regardless of the size of the policy. Also called a policy fee.
policyholder
(1) The company or organization that owns a group insurance contract (called the group policyholder in Canada). The policyholder of a group insurance contract does not have the same ownership rights under the contract that a policyowner has under an individual contract. (2) In Quebec, the owner of an individual life insurance policy (called the policyowner in the United States and the insured in the rest of Canada). Also sometimes called the owner in Quebec. (3) Often used interchangeably with policyowner.
policyowner
The person or party who owns an individual insurance policy. The policyowner is not necessarily the person whose life is insured. The terms policyowner and policyholder are frequently used interchangeably.
policy proceeds
The amount that the beneficiary actually receives from a life insurance policy after adjustments have been made to the basic death benefit for policy loans, dividends, paid-up additions, late premium payments, and supplementary benefit riders. Compare to basic death benefit and death benefit. Also called net policy proceeds.
policy provisions
The statements, following the face page of an insurance policy, that describe the operation of the insurance contract.
policy year
The 12-month period between a policy's anniversaries.
pooling
In group insurance, the practice of underwriting a number of small groups as one large group.
portability
The ability of an individual to transfer from one health insurer to another health insurer without regard to preexisting conditions or other risk factors.
preexisting condition
A health problem that existed before the date your insurance became effective. Many insurance plans will not cover preexisting conditions. Some will cover them only after a waiting period.
preexisting conditions provision
A provision in most medical expense insurance policies stating that until the insured has been covered under the policy for a certain period, the insurer will not pay benefits for any preexisting condition.
preferred risk class
In life insurance, a risk class that consists of individuals whose anticipated mortality is lower than the norm established for the standard risk class. Among other things, people in the preferred risk class are in excellent physical condition, have good family medical histories, and do not smoke. Sometimes called the superstandard risk class.
premium
The monthly amount you or your employer pays in exchange for insurance coverage.
presumptive disability
A condition that, if present, automatically causes an insured to be considered totally disabled. Examples of presumptive disabilities are total and permanent blindness or loss of two limbs.
primary beneficiary
The party or parties who have first rights to receive policy benefits when the benefits of an insurance policy become payable.
probability
The likelihood of some event occurring. In mathematics, probability is the number of times that something is likely to occur out of a number of possible occurrences. Probability theory is an essential aspect of the mathematical foundations of insurance.
proximate cause of death
An event that is directly responsible for a death or an event that initiates an unbroken chain of events that lead to death.
qualified plan
In the United States, a pension plan or employee-benefit plan which meets a series of federal government requirements and is therefore eligible for certain tax advantages.
rate making
The calculation of premium rates for an insurance company's products. Actuaries consider several factors when they establish life insurance premium rates. The most important factors are mortality rates, interest rates, and loading.
rating classes
The three different approaches that insurers take when they use mortality assumptions to calculate group life insurance premiums. The three rating classes for group premiums are manually rated premiums, experience rated premiums, and blended premiums. See also blended rates, experience rating, and manual rates.
recovery benefit
A partial or residual disability benefit payable after an insured satisfies a qualification or an elimination period, returns to work, and then suffers a loss of earnings directly resulting from a preceding total or partial disability. Also known as income replacement benefit. See also partial disability benefit and residual disability benefit.
reinstatement
The process by which a life insurance company puts back in force a policy that had lapsed because of nonpayment of renewal premiums.
reinstatement provision
A life insurance policy provision that describes the conditions the policyowner must meet in order for the insurer to reinstate the policy if it has terminated because of nonpayment of renewal premiums.
reinsurance
A transaction between two insurance companies in which one company purchases insurance from the other to cover part or all of the risks that the first company does not wish to retain in full. See also ceding company and reinsurer.
reinsurance treaty
A broadly worded statement of the agreement between a reinsurer and a ceding company. The three common types of reinsurance treaties are automatic, facultative, and facultative-obligatory. Usually just called a treaty. See also automatic reinsurance treaty, facultative reinsurance treaty, and facultative-obligatory (fac-ob) reinsurance treaty.
reinsurer
An insurance company that accepts the risk transferred from another insurance company in a reinsurance transaction. Also called the assuming company.
relation of earnings to insurance clause
A clause included in some guaranteed renewable or noncancellable individual disability policies that limits the amount of benefits in which an insurer will participate when the total amount of disability benefits from all insurers exceeds an insured's usual earnings. Also known as a participation limit.
renewal commissions
Those commissions paid to the agent for a specified number of years, usually nine, after the first policy year. The renewal commission rate is generally much lower than the first-year commission rate and is paid only on policies that remain in force.
renewal premiums
Premiums payable after the initial premium.
renewal provision
(1) An individual life insurance policy provision that gives the policyowner the right to continue the insurance coverage at the end of the specified term without submitting evidence of continued insurability. (2) A provision in an individual health insurance policy describing the circumstances under which the insurance company may refuse to renew the coverage, may cancel the coverage, or may increase the policy's premium rate.
replacement
The act of surrendering an insurance policy or part of the coverage of an insurance policy in order to buy another policy.
representation
A statement by an insurance applicant of facts upon which the insurer bases its decision as to whether or not to issue the policy as applied for.
rescission
An equitable remedy under which the insurer seeks to void a policy or have it declared void. Rescissions usually occur when there has been material misrepresentation in the insurance application.
reserve
Typically, the liability account that identifies the amount of assets needed to pay future claims. There are many different types of reserves. When the term "reserve" is used in the life insurance industry, it usually refers to the policy reserve. See policy reserve.
reserve strengthening
The process of setting up additional policy reserves.
residual disability benefit
A partial disability benefit amount that is established according to a formula specified in a disability income insurance policy. The amount of the benefit varies according to the percentage of income loss attributable to the disability. See also partial disability benefit.
result clause
A type of war hazard exclusion that excludes payment of benefits only for losses resulting from war or acts of war. Contrast with status clause.
retention
(1) In reinsurance, the amount of a reinsured risk which the ceding company retains. (2) See retention charge.
retention charge
For a group insurance contract, the portion of the premium that is intended to cover expenses (other than claims) and to allow the insurance company to make a profit. Sometimes simply called retention.
retention limit
The maximum amount of insurance that an insurance company will carry at its own risk on any individual without ceding part of the risk to a reinsurer.
retroactive disability benefit
A type of disability benefit that is payable from the date of disability. The first payment is not made, however, until an elimination period has been satisfied.
rider
An amendment to an insurance policy that becomes a part of the insurance contract and expands or limits the benefits payable. Also called an endorsement.
risk class
A group of insureds who present a substantially similar risk to the insurance company. Among the most common risk classes used by life insurance companies are standard, preferred, nonsmoker, substandard, and uninsurable.
salary continuation plan
A disability or sick-leave plan which provides for employees to continue to receive up to 100 percent of their salary for a limited number of days if they become ill or disabled. The number of days per year granted to an employee generally increases as the employee's length of service increases. Most such plans are self-insured. Also known as a sick-leave plan.
self-administered group insurance plan
Under this type of group insurance plan, the group policyholder rather than the insurer performs most of the administrative work for the plan. The policyholder maintains detailed records of group membership, processes routine requests, such as requests for beneficiary changes and name and address changes, prepares its own premium statements, and, in some cases, prepares certificates for new group members.
self-insured group insurance
A form of group insurance in which the group sponsor, not an insurance company, is financially responsible for paying claims made by group insureds. A group may be partially or fully self-insured. See also administrative services only (ASO) contract.
short-term disability income insurance
Disability income insurance which provides a benefit for a short disability or for the first part of a long disability. See also disability income insurance, long-term disability income insurance, and weekly indemnity plan.
small group insurance plan
A type of group life insurance plan that uses group underwriting techniques but adds some degree of simplified individual underwriting and is designed to cover groups containing 2 to 25 people. Also called a baby group plan.
Social Security
In the United States, a program of the United States federal government that provides retirement income, health care for the aged, and disability coverage for eligible workers and their dependents.
Social Security Disability Income (SSDI)
In the United States, a long-term disability income program that provides benefits to disabled workers who are under age 65 and who have paid a specified amount of Social Security tax for a prescribed number of quarter-year periods.
spouse and children's insurance rider
An addition to a life insurance policy that provides coverage for a spouse and/or children.
standard risk class
A risk class made up of individuals whose anticipated likelihood of loss is regarded as average. People in the standard risk class pay standard premium rates. Most insureds are included in the standard risk class.
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 (usually two years) after the policy's date of issue.
Summary Plan Description (SPD)
(1) In the United States, a document required by ERISA to provide information about a pension plan to plan participants in simple language. The SPD must, among other requirements, identify the plan's administrator and those who are responsible for managing the plan's assets, must explain the plan's eligibility requirements and the circumstances under which a plan participant could forfeit his or her benefits under the plan, and must explain the procedures for making claims under the plan. (2) In the United States, a description of various aspects of a group insurance plan which must be provided to all plan participants and to the Department of Labor.
supplemental group life insurance
Life insurance over and above the basic coverage provided by a group policy. The supplemental coverage may provide an additional amount of the same type of insurance or may provide a different type of insurance. Supplemental coverage is usually contributory and subject to stricter underwriting standards than is the basic group coverage.
supplementary benefit rider
A rider that is added to an insurance policy to provide additional benefits. Some typical supplementary benefit riders are accidental death coverage, waiver of premium, and the guaranteed insurance option. See also rider.
temporary insurance agreements
Legal agreements between an insurer and a proposed insured that provide a guaranteed amount of temporary life insurance coverage for a specific period of time, usually the underwriting period. Also known as interim insurance agreements and temporary insurance receipts.
third-party administrator (TPA)
An organization that administers an insurance contract for a self-insured group but that does not have financial responsibility for paying claims. The self-insured group pays its own claims. See also administrative services only (ASO) contract and self-insured group insurance.
top-heavy plan
In the United States, a pension plan or employee-benefit plan which provides more than 60% of its accrued benefits to the owners, executives or most highly paid employees of a company (known as key employees). To remain qualified, a top-heavy plan must provide certain minimum benefits to nonkey employee participants. See also key employee.
total disability
When a disability begins, it is typically considered a "total disability" if it prevents an insured person from performing the essential duties of his or her regular occupation. Under many insurance policies, the definition of total disability changes at the end of a specified period after the disability begins, usually two years. Therefore, insureds are considered totally disabled only if their disabilities prevent them from working at any occupation for which they are reasonably fitted by education, training, or experience. See also disability.
travel accident benefit
An accidental death benefit often included in group insurance policies issued to employer-employee groups. This benefit is payable only if an accident occurs while an employee is traveling for the employer.
triple indemnity
A type of accidental death benefit coverage that pays an additional benefit equal to twice the policy's basic death benefit if the accident is sustained while the insured is a passenger in a public conveyance operated by a licensed common carrier, such as a bus, train, or airplane.
unclaimed benefits
Policy benefits for which no payee can be found. Under typical state statutes for unclaimed property, when an insurer cannot locate anyone entitled to policy benefits, the insurer will hold the unclaimed benefits for seven years and then turn them over to the state. Usually, the unclaimed property statute of the state of the beneficiary's last known address applies. If no address is known, the statute of the insurer's state of domicile will govern.
underwriter
(1) The person who assesses and classifies the potential degree of risk that a proposed insured represents. (2) The person or organization that guarantees that money will be available to pay for losses that are insured against. In this sense, the insurance company is the underwriter.
underwriting
(1) The process of assessing and classifying the potential degree of risk that a proposed insured represents. Also called selection of risks. (2) Providing guarantees that money will be available to pay for losses that are insured against.
underwriting department
The department in a life and health insurance company that selects the risks that the company will insure. The underwriting department tries to make sure that the actual mortality or morbidity rates of the company's insureds do not exceed the rates assumed when premium rates were calculated. The underwriter considers an applicant's age, weight, physical condition, personal and family medical history, occupation, financial resources, and other selection factors to determine the degree of risk represented by the proposed insured. This department also participates in the negotiation and management of reinsurance agreements, through which an insurance company transfers some or all of an insurance risk to another insurance company. Also called the new business department.
underwriting manual
A summary of the methods used by a particular insurer to evaluate and rate risks. The underwriting manual provides underwriters with background information on underwriting impairments and serves as a guide to suggested underwriting actions when various impairments are present. See also risk class.
underwriting requirements
Printed instructions that indicate what evidence of insurability is required for a given situation and which of several optional information sources will be needed to provide underwriters with necessary information. Sources of information may include medical records and the results of physical examinations. Underwriting requirements are graduated based on the proposed insured's age and the amount of coverage requested.
uninsurable risk class
The group of people with a risk of loss so great that an insurance company will not offer them insurance.
void contract
A contract that is not valid. For example, a life insurance contract that lacks insurable interest is void for reasons of public policy.
waiting period
(1) In medical expense insurance, a prescribed amount of time following policy issue during which the insured's medical expenses are not covered by the policy. Such waiting periods usually last from 14 to 30 days following policy issue and normally apply only to medical expenses arising from sickness, not from accidents. (2) In disability income insurance, a specified amount of time, beginning with the onset of the disability, during which benefits are not payable. Such waiting periods may last from seven days to six months. The waiting period in a disability income insurance policy is sometimes called the elimination period or the probationary period. (3) In a group insurance plan, the length of time that a new group member must wait before being eligible to join the group plan. Also called a probationary period.
waiver of premium for disability (WP) benefit
A rider or a policy provision under which the insurer promises to give up its right to collect the policy's premium if the policyowner becomes unable to work because of an accident or injury. The waiver of premium for disability benefit remains in effect as long as the policyowner is disabled.
war exclusion provision
A life insurance policy provision that limits an insurer's liability to pay a death benefit if the insured's death is connected with war or military service. See result clause and status cause.
weekly indemnity plan
A type of short-term disability income insurance plan which typically pays a weekly benefit equal to a stated dollar amount or a percentage, such as 60 percent, of the insured person's earnings.
withdrawal
Voluntary termination of an insurance contract by the policyowner. See also lapse.
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