Term
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Definition
| A transfer by the policyholder of all control and rights to a third party. |
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Term
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Definition
| A sudden event, unforeseen and unintended. |
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Term
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Definition
| Insurance against bodily injury, disability or death by accident, or against disability or expense resulting from sickness, and the insurance relating thereto. |
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Term
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Definition
| The unexpected cause of an accidental bodily injury. Under an Accidental Means definition, which is very restrictive, if you meant to do whatever caused your injury, there is no coverage. Most Health insurance policies cover Accidental Bodily Injury, which is much broader, in that it covers accidents regardless of the cause. |
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Term
| Accumulation at Interest Option |
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Definition
| A dividend or settlement option under which the policyholder allows his/her dividends or policy proceeds to accumulate interest with the company. Although the dividends or proceeds are not generally taxable, the interest earned is. |
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Term
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Definition
| One concerned with the application of probability and statistical theory to insurance, utilizing the law of large numbers. |
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Term
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Definition
| Accidental Death Benefit (also known as Double Indemnity). A rider added to a Life policy that will pay double the face amount if the insured dies as a result of accident, generally within 90 days of the accident. |
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Term
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Definition
| Accidental Death and Dismemberment insurance. A limited form of Health insurance that covers accident only. It is the only type of Health insurance that covers death. AD&D policies do not follow the Principle of Indemnity, in that they pay in addition to any other coverage the insured has. |
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Term
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Definition
| Selection not in favor of the company. The tendency of poorer risks to want insurance more often than standard risks. For example, a person who is already sick would like to buy health insurance. |
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Term
| Adverse Underwriting Decisions, Consumer Rights |
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Definition
| Under the Fair Credit Reporting Act, when an adverse underwriting decision is made, the insurer must provide the applicant or policyholder with specific written reasons for the decision, or advise the individual that specific reasons are available upon written request. Upon receipt of the written request, the insurer must furnish specific reasons for the adverse decision and the names and addresses of the sources that provided the information. |
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Term
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Definition
| The individual appointed by an insurance company to solicit and negotiate insurance contracts on its behalf. Agents or Producers represent the company, not the client. |
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Term
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Definition
| An insurer organized and domiciled in a country other than the United States. |
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Term
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Definition
| The party receiving the benefits of an annuity, similar to the insured on an insurance policy. The annuitant usually also owns the annuity, although you can buy an annuity to benefit another party, who would then be the annuitant |
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Term
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Definition
| An agreement by an insurer to make periodic payments that continue during the lifetime of the annuitant(s) or for a specified period. Annuities are considered to be the opposite of life insurance, since Annuities pay while you’re alive and life insurance pays when you die. Life insurance proceeds create an estate, while annuities are used to liquidate an estate over a period of time. All annuities are insurance products and a life insurance license is required. |
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Term
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Definition
| The party making application to the insurance company for the policy. Applicants must provide the insurer with the truth to the best of their knowledge, which is known as a “representation.” |
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Term
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Definition
| A form on which the prospective insured states facts requested by the insurer and on the basis of which (together with any information from medical examiners, attending physicians, hospitals, investigators, and the producer) the insurer decides whether or not to accept the risk, modify the coverage offered, or decline the risk. With premium, the application is considered to be an offer to buy. If attached to the policy at issue, it becomes part of the Entire Contract. |
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Term
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Definition
| The person to whom policy rights are assigned in whole or in part by the policyholder, who is known as the Assignor. On Life insurance there are two types of assignment Absolute and Collateral. |
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Term
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Definition
| Transfer of rights in a policy to another party by the policyholder. For example, if you bought a life insurance policy on a minor child, you are the owner and the child is the insured. When the child reaches age 21, you could assign all rights of ownership in the policy to the child. This is an absolute assignment. |
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Term
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Definition
| The present or current age of the insured. Upon conversion, premiums are based on the current age of the insured. |
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Term
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Definition
| An insurer permitted to sell insurance within a state. Must obtain a Certificate of Authority from the Commissioner or Director of Insurance of every state they sell in. |
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Term
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Definition
| A rider in a Life policy authorizing the insurance company to use the cash value to pay premiums not paid by the end of the grace period. May be present in Whole Life or Endowment policies only, never Term. This rider is free, but must be selected by the policy owner. |
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Term
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Definition
| Limits or excludes coverage when the insured is participating in specified types of air travel. Coverage is usually confined to regularly scheduled flights of commercial airlines. Often applies to student pilots. |
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Term
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Definition
| A person who may become eligible to receive, or is receiving, benefits under an insurance plan. The Beneficiary is selected by the policy owner and may be changed at any time, unless “irrevocable.” |
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Term
| Blanket Insurance Contract |
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Definition
| A contract of Health insurance that covers all of a class of persons not individually identified. Often written to cover school children or sports teams, such as Little League. No certificates are issued, since coverage applies to everyone that attends or participates |
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Term
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Definition
| Assignment of part of the proceeds of an insurance policy to a bank as collateral to settle the loan balance that may exist at the insured’s death. |
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Term
| Common Disaster Provision |
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Definition
| A provision in a Life contract that provides that the Primary Beneficiary must outlive the insured by a specified period of time in order to receive the proceeds. If not, then the Contingent Beneficiary receives the proceeds. The provision is designed to protect the rights of the Contingent Beneficiary in the event of simultaneous (or nearly simultaneous) death of the insured and the Primary Beneficiary. The time limit is usually 10, 15, or 30 days, depending on state law. Also known as the Uniform Simultaneous Death law. |
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Term
| Comprehensive Health Insurance |
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Definition
| A form of Health insurance that combines the coverage of Major-medical and Basic Medical Expense contracts into one broad contract that provides coverage for almost all types of medical expense, usually subject to a Corridor Deductible and to a Percentage Participation clause (sometimes called Coinsurance) applicable to all or some of the covered expenses. |
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Term
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Definition
| The deliberate withholding of facts by an applicant for insurance that materially affects an insurance risk or loss. |
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Term
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Definition
| In Life and Health insurance, a Conditional Receipt provides that if premium accompanies the application, coverage shall be in force from the date of application (whether the policy has yet been issued or not) provided the insurance company would have issued the coverage on the basis of facts as revealed by the application and other usual sources of underwriting information. Remember, there is never any coverage unless the premium has been paid! |
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Term
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Definition
| A contract of Health insurance that provides that the insured may renew the contract to a stated date or age, subject to the right of the insurer to decline renewal only under conditions defined in the contract. |
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Term
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Definition
| The part of an insurance contract setting out the responsibilities of both the Insured and the Insurer, such as the requirements regarding Notice of Claim and Proof of Loss. |
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Term
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Definition
| The exchange of value on which a contract is based. In Life and Health insurance, the Consideration is the premium and the statements in the application. Remember, consideration need not be equal. You might pay $1,000 in premium, your policy will pay $100,000 if you die. |
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Term
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Definition
| A clause in a Life policy specifying the premium due for the insurance protection and the frequency of payment (also called Mode). The more frequent the Mode of Payment, the higher the cost, since most insurers charge service fees for budget payments. The cheapest Mode is annual. |
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Term
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Definition
| Person or persons named to receive benefits if the Primary Beneficiary is not alive when the insured dies. For example, the Primary Beneficiary might be your spouse and the Contingent Beneficiary might be your children. |
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Term
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Definition
| A legal agreement between two parties for consideration, such as an insurance policy. To hold up in court, contracts must contain four required elements Consideration, Offer, Acceptance and Legal Purpose (COAL). Parties to the contract must also have Legal Capacity. |
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Term
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Definition
| Group insurance for which the employees pay part of the premium. If the group is contributory, at least 75% of those eligible must enroll in order to prevent “adverse selection.” In non -contributory groups, 100% must enroll. |
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Term
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Definition
| Life-insurance coverage written on the producer's own life and on the lives of such persons as the producer’s relatives and business associates. The amount of controlled business a producer may write is restricted in most states, often to a maximum of 50% in a 12 month period. |
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Term
| Convertible Term Insurance |
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Definition
| A Term Life policy that can be converted any time to a permanent type of coverage without proof of insurability. Conversion premiums are based on current age and coverage cannot be increased. Most Term is convertible, but not all. Most Group insurance (which is usually Annual Renewable Term) is convertible by law during its 31 day grace period. |
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Term
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Definition
| A Major Medical deductible that applies between benefits paid by the Basic plan and the start of the Major Medical benefits. |
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Term
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Definition
| Insurance on a debtor in favor of a lender, intended to pay off a loan or the balance due thereon if the insured dies or is disabled. Credit Life is a type of decreasing term insurance and the face amount of the policy is limited to the amount of the loan. Generally not used as Mortgage Protection Insurance. |
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Term
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Definition
| The policy proceeds to be paid upon the death of the insured. On Life insurance, proceeds are not taxable, but may be included in the value of the insured’s estate for estate tax purposes. |
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Term
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Definition
| Dollars or percentage of expense that will not be reimbursed by the insurer. The purpose ofthe deductible is to hold down the cost of insurance. The higher the deductible, the lower the premium. |
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Term
| Decreasing Term Insurance |
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Definition
| Term insurance whose amount of coverage starts out at the full amount, then gradually decreases until the expiration date of the policy. Generally, the cheapest type of Life insurance, but it has no cash value and cannot be renewed. Often used as Mortgage Protection insurance. |
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Term
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Definition
| An Annuity on which payments to the annuitant are delayed until a specified future date. May be purchased with a single premium (a SPDA) or with flexible premiums. Interest earned during the “accumulation” (or pay in) period is tax deferred until withdrawal, when amounts above the annuitant’s invested capital (or cost basis) are taxed as ordinary income. |
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Term
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Definition
| An insurance company that sells its policies through licensed producers who represent the insurer exclusively, rather than through independent local producers, who represent several insurance companies. Direct writing producers are also called “Exclusive” or “captive” producers. |
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Term
| Disability Income Insurance |
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Definition
| A form of Health insurance that provides periodic payments to replace income, when the insured is unable to work as a result of sickness or injury. May be either individual or group coverage and is usually subject to a “waiting” or “elimination” period. In order to receive benefits, the insured must meet the definition of total disability in the policy, which varies by company. |
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Term
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Definition
| The return of part of the premium paid for a Participating policy issued by a mutual insurer. It is unlawful to guarantee future dividends, but Producers may refer to the insurers past dividend payment history, if accurate. Mutual dividends are not taxable. However, dividends paid to stockholders of a stock insurer are taxable, since stock companies issue “non-participating” policies. |
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Term
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Definition
| Premiums paid minus cash value and any policy dividends paid as of the date the calculation is being made. |
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Term
| National Association of Insurance Commissioners (NAIC) |
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Definition
| An organization made up of all the insurance commissioners of the various states designed to provide a way to exchange information and work toward uniformity of insurance regulation among the states. However, insurance laws are still far from uniform. |
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Term
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Definition
| A contract of Health insurance that the insured has a right to continue in force by payment of premiums, as set forth in the contract, for a period of time, and that the insurer has no right to change any provision of the contract. |
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Term
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Definition
| Any plan or program of insurance (usually Group) for which the employer pays the entire premium and the employee contributes no part of the premium. 100% participation is required. |
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Term
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Definition
| A legal provision whereby the policyholder may take the accumulated cash values in a policy as 1) Reduced Paid UP Permanent insurance; 2) Extended Term insurance, or 3) Surrender the policy for payment of its cash value, less any outstanding loans. Also known as “Guaranteed Values.” When surrendering for cash, any amount paid out in excess of premiums paid in is taxable as ordinary income. Once a policy is surrendered for cash, it may not be reinstated. |
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Term
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Definition
| Insurance issued without a medical exam. For example, if the applicant is young and is buying a small amount of Life insurance, no physical exam is required, so coverage may begin immediately. |
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Term
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Definition
| Health policy that covers off-the-job accident and sickness. Most Health insurance is Non-occupational, since occupational injury or sickness is required to be covered by Worker’s Compensation insurance. However, if the insured is not required to have Worker’s Comp, his/her Health policy will cover him/her both on and off the job, which is known as “occupational” coverage. |
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Term
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Definition
| Insurance that does not pay policy dividends to policyholders, which are issued by stock insurance companies. Stock insurers may pay dividends, but if so, they are paid to the stockholders and they are taxable. |
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Term
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Definition
| A producer licensed in a state in which he/she is not a resident. In most states, no exam is required to obtain a Nonresident license. You simply must prove that you are licensed and in good standing in your home state and pay the required fees. You can only have one resident license, but you can have 49 nonresident licenses, if desired. |
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Term
| One-Year Term Dividend Option |
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Definition
| A dividend option under which the insured has the company purchase one-year Term insurance with the dividend. For example, your dividend is $100, which you could have taken as cash. Instead, you have the insurer use the money to buy you an additional one year term policy at your current age. If you die in the term, your beneficiary will receive the proceeds of your Life policy PLUS the face amount of the one year term policy. At the end of the year, the term policy expires. |
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Term
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Definition
| A contract of Health insurance in which the insurer reserves the unrestricted righto terminate coverage at any anniversary or, in some cases, at any premium due date, but does not have the right to terminate coverage between such dates. Renewal is at the discretion of the insurer. |
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Term
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Definition
| Life insurance other than Industrial or Group. Ordinary life may be Whole Life, Endowment or Term. The grace period on all Ordinary Life insurance is 30 days. The Mortality Table is used to calculate the rates and benefits payable for Ordinary Life insurance. |
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Term
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Definition
| The insured's age when the policy was initially purchased. Often calculated based on the applicant’s closest birthday. |
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Term
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Definition
| The existence of another contract covering the same interest and perils. Although Life insurance policies pay in addition to each other, most Health insurance policies follow the Principle of Indemnity, which is reinforced by the Other Insurance clause. For example, if you are covered by two Disability Income policies, they would share your claim proportionately. You cannot recover more than you actually lost. You can collect from both policies, but you may not be able to collect in full from both. |
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Term
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Definition
| Additional single-premium Life insurance paid for by policy dividends and added to the face amount. For example, your mutual insurer declares a $100 dividend, which you could have taken as cash. Instead, you ask them to use the money to buy you an additional Whole life policy, which is paid up to age 100. Although this additional policy is small, no physical exam is required, so this option is very popular with clients who have health problems. Over a period of time, you can obtain substantial additional coverage. |
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Term
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Definition
| A condition in which, as a result of injury or sickness, the insured cannot perform one or more of the duties of his/her occupation but can perform some. Follows a period of Total Disability. |
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Term
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Definition
| Insurance that pays policy dividends to policyholders. Issued by a Mutual Company. Dividends may never be guaranteed and they are not taxable, since the IRS considers them to be a return of premium already paid. |
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Term
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Definition
| Life or Health insurance sold to a partnership to protect against the loss of business continuity caused by the death or disability of a partner. For example, if your partner dies, his/her share of the business would go to his/her spouse who knows nothing about the business. To avoid this, you buy a Life insurance policy on your partner and he/she buys one on you. If he/she dies, the money goes to you tax free and you use it to buy out his/her spouse. A “buy/sell” agreement should be drafted by a lawyer and signed by all four parties you, your spouse, your partner and his/her spouse. |
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Term
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Definition
| A rider or provision, usually found in Juvenile policies, under which premiums are waived if the Payor of the premium (usually a parent) becomes disabled or dies while the child is still a minor. |
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Term
| Permanent and Total Disability |
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Definition
| The definition of Total Disability actually varies by company. For example, in a Disability Income policy, some insurers state that you are not totally disabled unless you are confined to the hospital, which is very restrictive. Others state that you are totally disabled if you cannot perform your own job, which is very broad. Most policies state that you are totally disabled if you cannot perform your own job for the first two years and that you are unable to perform any job that you are suited to do by virtue of education, training or experience thereafter. |
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Term
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Definition
| Whole Life insurance is considered to be permanent since it covers you until you die or to age 100, whichever comes first. Term insurance is considered to be temporary. |
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Term
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Definition
| A risk not acceptable at standard rates. Also known as a “nonstandard” risk or a “rated” risk. For example, you apply for Life insurance at standard rates. However, due to a health problem, the insurer declines to insure you. Instead, they make you a “counter offer,” agreeing to insure you if you pay a higher premium, or a rate up. You have the option of accepting or declining their counter-offer. |
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Term
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Definition
| An exclusion on a Life insurance policy that states that if the insured commits suicide within a specified period of time, the policy will be voided. Paid premiums are usually refunded to the beneficiary as a gesture of sympathy. The time limit is generally two years, except in Colorado where just one year is. |
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Term
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Definition
| A list of specific maximum amounts payable for surgical procedures in Basic Health insurance indemnity type policies. Sometimes called a Relative Value Schedule. |
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Term
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Definition
| Withdrawing the cash value of a Life policy and surrendering the policy to the insurer. No further coverage exists and the policy may not be reinstated. Cash Surrender is one of the three required Non-forfeiture options. A policy may be surrendered for cash at any time. However, amounts received in excess of premiums paid upon cash surrender are taxable. |
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Term
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Definition
| Life insurance that normally does not have cash accumulation and is issued to remain in force for a specified period of time, following which it is subject to renewal or termination. Term insurance is considered to be temporary coverage. Remember, the word “term” means time. Term policies only cover you for a period of time and you must die in the term in order to be covered. Whole life, however, is permanent in that it covers you until you die. |
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Term
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Definition
| Next in line behind the Contingent Beneficiary to receive policy proceeds if both the Primary and Contingent Beneficiaries are deceased. Also known as the Final Beneficiary, which is usually the estate of the insured. The word “Tertiary” means “third.” |
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Term
| Time Limit on Certain Defenses |
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Definition
| A Uniform Provision on Health Insurance policies specifying that after a given number of years (usually two) no statements (except fraudulent misstatements) made in the application shall be used to deny a claim or void the policy. Also known as the Incontestability Clause. A Health policy is contestable for the first two years and incontestable thereafter, except for fraud. |
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Term
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Definition
| A degree of disability from injury or sickness that prevents the insured from working. This definition actually varies by company. In other words, on Disability Income insurance, you get what you pay for. If this definition is broad, such as you are totally disabled if you cannot perform your own job, the policy will be expensive. However, if the definition states that you are totally disabled only if you are confined to the hospital, it won’t cost much. |
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Term
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Definition
| A form of accident insurance limiting coverage to accidents occurring while the insured is traveling. This is a form of AD&D insurance, and is considered to be a limited policy since it covers accidents only. These policies have many exclusions, such as no coverage if your injury occurs while you are under the influence of alcohol. |
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Term
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Definition
| Inducing a policyholder by misrepresentation to terminate an existing Life policy in order to replace it with a new policy. Producers are naturally tempted to engage in “replacement,” since the commission paid on new policies generally exceeds the commissions paid on renewal policies. Replacement is not illegal, unless it is detrimental to the client. However, “twisting” the facts in order to induce replacement is an illegal and/or unethical trade practice. |
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Term
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Definition
| An insurer not permitted to sell insurance within a state, except for Surplus Lines or Reinsurance companies. All insurers must be “authorized,” which means they must obtain a Certificate of Authority from the state. However, Surplus Lines companies such as Lloyds of London & companies who “reinsure” other companies are exempt from this requirement. Most states allow Surplus Lines companies who are “unauthorized” to write the risks that authorized companies won’t take. Surplus Lines companies do not participate in the State Guarantee Fund or Association and are generally unregulated as to rates and policy forms used. |
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Term
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Definition
| 1) A salaried company employee trained in evaluating risks and selecting the proper rates and coverage’s. No license is required. 2) A producer, especially a Life-insurance producer, is considered to be a “Field Underwriter” or “Front Line Underwriter.” In theory, the producer is supposed to do some underwriting before submitting the application to the home office underwriter in order to assist in making a decision on the basis of known facts. The producer is required to report all facts known to him/her that might affect the risk. Remember, the producer represents the insurer, not the insured. |
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Term
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Definition
| The process of evaluating a risk for the purpose of issuing insurance coverage. Also known as risk “classification.” The underwriter’s job is to select business that fits into the rate structure of the insurer, allowing the insurer to not only pay claims and expenses, but to make an underwriting profit. |
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Term
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Definition
| That portion of an advance premium payment that has not yet been used for coverage written. Thus, in the case of an annual premium, at the end of the first month of the premium period, 11 months of the premium would still be “unearned.” So, if the insurer cancelled a Health policy that had an annual premium of $1,200 after one month on a pro-rata basis, they would have to refund $1,100 in unearned premium. |
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Term
| Uniform Simultaneous Death Act |
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Definition
| A uniform law adopted by most states providing that if the Primary Beneficiary and the insured die in the same accident and there is no proof that the beneficiary outlived the insured, the proceeds are paid as if the Primary Beneficiary died first, which means that the proceeds are paid to the Contingent Beneficiary. Also known as the Common Disaster provision. |
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Term
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Definition
| An Annuity contract in which the amount of the periodic benefits varies, usually in relation to the value of securities invested in a “separate” account, which is very similar to a mutual fund. Producers selling variable annuities or variable life insurance must also pass the FINRA Series 6 or 7 exam and be registered with the Securities Exchange Commission (SEC), since securities are regulated by Federal law. Further, most states require that producers selling variable products obtain a Variable Products endorsement to their state Life insurance license. |
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Term
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Definition
| A period of time between the beginning of a disability and the date benefits begin. Also known as Elimination Period. The Waiting Period is like a deductible, in that the longer it is, the lower your premium. |
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Term
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Definition
| 1) A rider excluding liability for a stated cause of accident or sickness. Also known as an “Impairment” rider. 2) A provision or rider agreeing to waive premium payment during a period of disability. Also known as “Waiver of Premium.” 3) The giving up or surrender of a right or privilege that is known to exist. For example, the underwriter has the right to require applicants to complete all the questions on the application. If the underwriter accepts an incomplete application, they have waived the Right to obtain it later. Once a right is waived, it can no longer be asserted. This is known as “Estoppel.” |
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Term
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Definition
| A statement made on an application for Property and Casualty insurance that is warranted to be true in all respects. If untrue in any respect, even though the untruth may not have been known to the person giving the warranty, the contract may be voided without regard to the materiality of the statement. Statements on Life and Health insurance applications are, in the absence of fraud, not warranties, but representations. |
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Term
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Definition
| This generally excludes coverage for persons serving in the armed forces during the time of war, whether on the battlefield or not. |
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Term
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Definition
| A Life policy that runs for the insured's whole life that is, until death or the ultimate age on the mortality table being used (age 100). Premiums for a Whole Life policy may be paid for the whole life or for a limited period (for example, 20-Pay-Life or LP65) during which the higher premium charged pays up the policy. Also known as “permanent” insurance. |
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Term
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Definition
| A transfer by the policyholder of all control and rights to a third party. |
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Term
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Definition
| A sudden event, unforeseen and unintended. |
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Term
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Definition
| Insurance against bodily injury, disability or death by accident, or against disability or expense resulting from sickness, and the insurance relating thereto. |
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Term
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Definition
| The unexpected cause of an accidental bodily injury. Under an Accidental Means definition, which is very restrictive, if you meant to do whatever caused your injury, there is no coverage. Most Health insurance policies cover Accidental Bodily Injury, which is much broader, in that it covers accidents regardless of the cause. |
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Term
| Accumulation at Interest Option |
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Definition
| A dividend or settlement option under which the policyholder allows his/her dividends or policy proceeds to accumulate interest with the company. Although the dividends or proceeds are not generally taxable, the interest earned is. |
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Term
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Definition
| One concerned with the application of probability and statistical theory to insurance, utilizing the law of large numbers. |
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Term
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Definition
| Accidental Death Benefit (also known as Double Indemnity). A rider added to a Life policy that will pay double the face amount if the insured dies as a result of accident, generally within 90 days of the accident. |
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Term
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Definition
| Accidental Death and Dismemberment insurance. A limited form of Health insurance that covers accident only. It is the only type of Health insurance that covers death. AD&D policies do not follow the Principle of Indemnity, in that they pay in addition to any other coverage the insured has. |
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Term
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Definition
| Selection not in favor of the company. The tendency of poorer risks to want insurance more often than standard risks. For example, a person who is already sick would like to buy health insurance. |
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Term
| Adverse Underwriting Decisions, Consumer Rights |
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Definition
| Under the Fair Credit Reporting Act, when an adverse underwriting decision is made, the insurer must provide the applicant or policyholder with specific written reasons for the decision, or advise the individual that specific reasons are available upon written request. Upon receipt of the written request, the insurer must furnish specific reasons for the adverse decision and the names and addresses of the sources that provided the information. |
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Term
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Definition
| The individual appointed by an insurance company to solicit and negotiate insurance contracts on its behalf. Agents or Producers represent the company, not the client. |
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Term
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Definition
| An insurer organized and domiciled in a country other than the United States. |
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