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Glossary of Terms

insurance

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A

Accidental Death and Dismemberment (AD&D) Rider: A supplement to many life insurance policies that provides an additional cash benefit to the insured or his/her beneficiaries if an accident causes either the death of the insured or causes the insured to lose any two limbs or the sight in both eyes.

Agent: In insurance, the person authorized to represent the insurer in negotiating, servicing, or effecting insurance policies.

 

Applicant: The party applying for an insurance policy.

Application: A printed form developed by an insurer that includes questions about the prospective insured and the desired insurance coverage and limits.

Assigned Risk: A risk insured through a pool of insurers and assigned to a specific insurer. These risks are generally considered undesirable by underwriters, but due to state law or otherwise, they must be insured.

Automatic Premium Loan: A provision in some life insurance policies that authorizes a policy loan using the cash value accumulated by the insurance policy to pay for past due premiums at the end of the grace period. This prevents a lapse of coverage.

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B

Beneficiary: Any person, persons, or other entity designated to receive the policy benefits upon the death of the policyholder.

Binder: A written or oral contract issued temporarily to place insurance in force when it is not possible to issue a new policy or endorse the existing policy immediately. A binder is subject to the premium and all the terms of the policy to be issued.

Binding Receipt: A premium receipt acknowledging temporary insurance coverage immediately until the insurance company rejects the application or approves it and issues a policy.

Broker: A marketing specialist who represents insurance organizations and who deals with either agents or companies in arranging for the coverage required by the customer.

Buy-Sell Agreements: Agreement that a deceased business owner's interest will be sold and purchased at a predetermined price or at a price according to a predetermined formula.

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C

Cancellation: The discontinuance of an insurance policy before its normal expiration date, by either the insured or the company.

Case Management: A utilization management technique that addresses the medical necessity of care as well as alternative treatments or solutions, especially when the patient is likely to require very expensive treatment.

Cash Value (cash surrender value): The cash amount payable to a life insurance policyowner in the event of termination or cancellation of the policy before its maturity or the insured event.

Certificate of Insurance: A statement of coverage issued to an individual insured under a group insurance contract, outlining the insurance benefits and principal provisions applicable to the member.

Claim: A person's request for payment from an insurer for a loss covered by the insurance policy.

Commission: The amount of money, usually a percentage of the premiums paid to an insurance agent for selling an insurance policy.

Conditions: The part of your insurance policy that states the obligations of the person insured and those of the insurance company.

Contingent Beneficiary: In a life insurance policy, the person designated to receive the policy benefits if the primary beneficiary dies before the insured.

Contract: A legally enforceable agreement between two or more parties.

Conversion Privilege: The right to convert or change insurance coverage from an individual term insurance policy to an individual whole life insurance policy.

Convertible Term Life Insurance: A type of term life insurance that offers the policyowner the option to exchange the term policy for a form of permanent insurance.

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D

Declination: The insurer's refusal to insure an individual after careful evaluation of the application for insurance and any other pertinent factors.

 

Double Indemnity: A provision in a life insurance policy, subject to specified conditions and exclusions, under the terms of which double the face amount of the policy is payable if the death of the insured is the result of an accident. In general, the conditions are that the insured's death occurs prior to a specified age and results from bodily injury effected solely through external, violent and accidental means independently and exclusively of all other cause, within 60 or 90 days after such injury.

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E

 

Exclusions and Limitations: Conditions, situations and services not covered by the health plan.

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

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F

Face Amount: The amount stated in the life insurance policy as the death benefit.

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G

Grace Period: The specified length of time, after a Life or Health Insurance premium payment is due in which the insured may make the payment and keep the policy in force. (Usually 30 days.)

Guaranteed Renewable Policy: A health insurance policy that the insurer is required to renew – as long as premiums are paid – at least until the insured attains the age limit specified in the policy, or the policy is cancelled by the insured. The insurer may increase the premium rate for any class of guaranteed renewable policies.

Guaranty Association: Established by each state to support insurers and protect consumers in the case of insurer insolvency, guaranty associations are funded by insurers through assessments.

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I

Indemnification: Compensation to the victim of a loss, in whole or in part, by payment, repair, or replacement.

Indemnity: Legal principle that specifies an insured should not collect more than the actual cash value of a loss but should be restored to approximately the same financial position as existed before the loss.

Incontestable Clause: A life insurance policy wording that provides a time limit (e.g. two years) on the insurer's right to dispute a policy's validity based on material misstatements in the application.

Insurable Interest: Any interest a person has in property that is the subject of insurance, so that damage to this property would cause the insured a financial loss.

Insurance Company: An organization that has been chartered by a governmental entity to transact the business of insurance.

Insured: A person or organization covered by an insurance policy, including the "named insured" and any other parties for whom protection is provided under the policy terms.

Insurer: The party to the insurance contract who promises to pay losses or benefits. Also, any corporation engaged primarily in the business of furnishing insurance to the public.

Irrevocable Beneficiary: A named beneficiary whose rights to life insurance policy proceeds cannot be canceled or changed by the policyowner unless the beneficiary consents.

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J

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K

Key Employee: Insurance Protection of a business against financial loss caused by the death or disablement of a vital member of the company, usually individuals possessing special managerial or technical skill or expertise. Also called key executive insurance.

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L

Lapse: Termination of a policy due to nonpayment of premiums.

Liability: A legal obligation to compensate a person harmed by one's acts or omissions.

Life Insurance: Insurance that pays a specified sum of money to designated beneficiaries if the insured person dies during the policy term.

Loss: The happening of the event for which insurance pays.

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M

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N

 

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O

 

P

Paid-up Policy: An in-force life insurance policy for which no further premium payments are required.

Permanent Insurance: A general term for ordinary life and whole life insurance policies that remain in effect as long as their premiums are paid.

Policy: The written forms that make up the insurance contract between an insured and insurer. A policy includes the terms and conditions of the coverage, the perils insured or excluded, etc.

Policy Declarations: The part of the insurance contract that lists basic underwriting information, including the insured's name, address and description of insured locations as well as policy limits.

Policy Limits: The maximum amount an insured may collect or for which an insured is protected, under the terms of the policy.

Policy Loan: A loan from a life insurer to the owner of a policy that has a cash value.

Policyholder: The person who buys insurance.

Policy owner: An individual with an ownership interest in an insurance policy.

Policy Period: The amount of time an insurance contract or policy lasts.

Preferred Risk: A risk whose physical condition, occupation, mode of living and other characteristics indicate a prospect for longevity superior to that of the average longevity of unimpaired lives of the same age.

Premium: The price for insurance coverage as described in the insurance policy for a specific period of time.

Primary Beneficiary: The person designated as the first to receive the proceeds of a life insurance policy upon the death of the insured.

 

Proof of Loss: A sworn statement that usually must be furnished by the insured to an insurer before any loss under a policy may be paid.

Protection Amount: The face amount of a life insurance policy, or amount of money that will be paid to a beneficiary upon the death of an insured. This amount will be reduced by the amount of any outstanding policy loan.

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Q

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R

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Rate: The pricing factor upon which the insurance buyer's premium is based.

Rated Policy: Sometimes called an "extra-risk" policy, an insurance policy issued at a higher-than-standard premium rate to cover the extra risk where, for example, an insured is a smoker.

Reinstatement: The process by which a life insurance company puts back in force a policy that has lapsed or has been canceled for nonpayment of premium.

Renewable Term Life Insurance: A renewable life policy permits the owner of the policy to automatically renew the policy beyond its original term by acceptance of a premium for a new policy term without evidence of insurability.

Revocable Beneficiary: A life insurance policy whose designation as beneficiary can be revoked or changed by the policy owner at any time prior to the insured's death.

Riders: An addition to an insurance policy that becomes a part of the contract.

Risk: The possibility or chance of loss or injury.

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S

Settlement: An agreement between a claimant or beneficiary to an insurance policy and the insurance company regarding the amount and method of a claim or benefit payment.

Standard Risk: A person who, according to a company's underwriting standards, is entitled to purchase insurance protection without extra rating or special restrictions.

Standard Risk Rate: The risk category that is composed of proposed insureds who have a likelihood of loss that is not significantly greater than average.

Substandard Risk: A risk that cannot meet the normal requirements of an auto insurance policy. Protection is provided in consideration of a waiver, a special policy form, or a higher premium charge. Substandard risks may include those persons who are rated because of poor driving habits.

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T

Term Insurance: Life insurance under which the benefit is payable only if the insured dies during a specified period. If the insured survives beyond that period, coverage ceases. This type of policy does not build up any cash or nonforfeiture values.

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U

Underwriter: (a) A company that receives the premiums and accepts responsibility for the fulfillment of the policy contract; (b) the company employee who decides whether or not the company should assume a particular risk; (c) the agent who sells the policy.

Underwriting: The process of reviewing applications for coverage. Applications that are accepted are then classified by the underwriter according to the type and degree of risk.

Uninsurable Risk: One not acceptable for insurance due to excessive risk.

Universal Life: Flexible premium, two-part contract containing renewable term insurance and a cash value account that generally earns interest at a higher rate than a traditional policy. The interest rate varies. Premiums are deposited in the cash value accounts after the company deducts its fee and a monthly cost for the term coverage.

 

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V

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W

Waiver: An agreement attached to a policy which exempts from coverage certain disabilities or injuries that otherwise would be covered by the policy.

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X

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Y

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Z

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