Glossary of terms
Accident – An unforeseen, unintended event.
Accidental death benefits – If a life insurance policy includes an accidental death benefit, the cause of death will be examined to determine whether the insured´s death meets the policy´s definition of accidental.
Actual cash value (ACV) – The value of your property, based on the current cost to replace it minus depreciation. Also see “replacement cost.”
Additional living expenses (ALE) – Reimburses the policyholder for the cost of temporary housing, food, and other essential living expenses, if the home is damaged by a covered peril that makes the home temporarily uninhabitable. Policies cap the amount of ALE payable to 20 percent of the policy’s dwelling coverage.
Adjuster – An individual employed by an insurer to evaluate losses and settle policyholder claims. Also see “public insurance adjuster.”
Agent – A person who sells insurance policies.
Annuitant – A person who receives the payments from an annuity during his or her lifetime.
Annuity – A contract in which the buyer deposits money with a life insurance company for investment. The contract provides for specific payments to be made at regular intervals for a fixed period or for life.
Application – A form to be filled out with personal information that an insurance company will use to decide whether to issue a policy and how much to charge.
Appraisal – An evaluation of a home insurance property claim by an authorized person to determine property value or damaged property value. Many policies provide an “appraisal” process to resolve claim disputes. In this process, you and the insurance company hire separate damage appraisers. The two appraisers choose a third appraiser to act as an “umpire.” The appraisers then review your claim, and the umpire rules on any disagreements. The umpire’s decision is binding on you and the insurance company, but only for the loss amount. If there is a dispute over what is covered, you can still pursue a settlement of the coverage issue after the appraisal takes place. You are required to pay for your appraiser and half of the umpire’s costs.
Assignment – The transfer of all or part of a policy owner´s legal title and rights to a policy to another person. It is possible to change this type of transfer at a later date.
Beneficiary – The person, people, or entity designated to receive the death benefits from a life insurance policy or annuity contract.
Binder – A temporary insurance contract that provides proof of coverage until a permanent policy is issued.
Bodily injury (BI) – Physical injury to a person, including death.
Cancellation – Termination of an insurance policy by the company or insured before the renewal date.
Carrier – A company
Cash surrender option – Nonforfeiture option that specifies the policy owner can cancel the coverage and receive the entire net cash value in a lump sum.
Cash value – The amount of money the life insurance policy owner will receive as a refund if the policy owner cancels the coverage and returns the policy to the company. Also called “cash surrender value.”
Claim – A policyholder’s request for reimbursement from an insurance company under an insurance policy for a loss.
Claimant – A person who makes an insurance claim.
Collision coverage – Pays for damage to a car without regard to who caused an accident. The company must pay for the repair or up to the actual cash value of the vehicle, minus the deductible.
Complaint – A written communication primarily expressing a grievance against an insurance company or agent.
Comprehensive coverage (physical damage other than collision) – Pays for damage to or loss of your automobile from causes other than accidents. These include hail, vandalism, flood, fire, and theft.
Conditional receipt – A premium receipt given to an applicant that makes a life and health insurance policy effective only if or when a specified condition is met.
Contestable period – A period of up to two years during which a life insurance company may deny payment of a claim because of suicide or a material misrepresentation on an application.
Contingent beneficiary – Another party or parties who will receive the life insurance proceeds if the primary beneficiary should predecease the person whose life is insured.
Contract – In most cases, an insurance policy. A policy is considered to be a contract between the insurance company and the policyholder.
Conversion privilege – The right to change (convert) insurance coverage from one type of policy to another. For example, the right to change from an individual term insurance policy to an individual whole life insurance policy.
Death benefit – Amount paid to the beneficiary upon the death of the insured.
Declarations page – The page in a policy that shows the name and address of the insurer, the period of time a policy is in force, the amount of the premium, and the amount of coverage.
Deductible – The amount the insured must pay in a loss before any payment is due from the company.
Depreciation – Decrease in the value of property over time due to use or wear and tear.
Earned premium – The portion of a policy premium that has been used to actually buy coverage, or that the insurance company has “earned.” For instance, if a policyholder has a six-month policy that was paid for in advance, two months into the policy, there would be two months of earned premium. The remaining four months of premium is “unearned premium.”
Effective date – The date on which an insurance policy becomes effective.
Endorsement – A written agreement attached to a policy expanding or limiting the benefits otherwise payable under the policy. Also called a “rider.”
Escrow – Money placed in the hands of a third party until specified conditions are met.
Evidence of insurability – To qualify for a particular policy at a particular price, companies have the right to ask for information about health and lifestyle. An insurance company will use this information – the evidence of insurability – in deciding if your application for insurance is acceptable and at what premium rate.
Exclusions or limitations – Provisions that exclude or limit coverage of certain named diseases, medical conditions, or services, as well as some sicknesses or accidents that occur under specified circumstances.
Expiration date – The date on which an insurance policy expires.
Extended term insurance option – A policy provision that provides the option of continuing the existing amount of insurance as term insurance for as long a period of time as the contract’s cash value will purchase.
Face value – The initial amount of death benefit provided by the policy as shown on the face page of the contract. The actual death benefit may be higher or lower depending on the options selected, outstanding policy loans, or premium owed.
First-party claim – A claim filed by an insured against his or her own insurance policy.
Free examination period – Also known as “10-day free look” or “free look,” it is the time period after a life insurance policy or an annuity is delivered during which the policy owner may review it and return it to the company for a full refund of the initial premium. Variable life policies are required to include a “free-look” provision. For other coverage, it is at the company´s option.
Gap insurance – Insurance that pays the difference between the actual cash value of a vehicle and the amount still to be paid on the loan. Some gap policies may also cover the amount of the deductible.
Health benefit plan – In most cases, health care services provided to employees by an employer. It can be an indemnity plan or an HMO plan.
Incontestability – A provision that places a time limit – up to two years – on a life insurance company´s right to deny payment of a claim because of suicide or a material misrepresentation on your application.
Independent adjuster – A person who charges a fee to an insurance company to adjust the company´s claim.
Indexed life insurance – A whole life plan of insurance that provides for the face amount of the policy and, correspondingly, the premium rate, to automatically increase every year based on an increase in the Consumer Price Index (CPI) or another index as defined in the policy.
Inflation protection – Automatically adjusts home insurance policy limits to account for increases in the costs to repair or rebuild a property.
Insurable interest – Any financial interest a person has in the property or person insured. In life insurance, a person´s or party´s interest – financial or emotional – in the continuing life of the insured.
Insured – The person or organization covered by an insurance policy.
Insurer – The insurance company.
Irrevocable beneficiary – A named beneficiary whose rights to life insurance policy proceeds are vested and whose rights cannot be canceled by the policy owner unless the beneficiary consents.
Lapse – The termination of an insurance policy because a renewal premium is not paid by the end of the grace period.
Liability – Responsibility to another for one´s negligence that results in injury or damage.
Liability insurance – An auto insurance coverage that pays for injuries to the other party and damages to the other vehicle resulting from an accident the policyholder caused. It also pays if the accident was caused by someone covered by the policyholder’s policy, including a driver operating the car with their permission.
Liability limits – The maximum amount your liability policy will pay. Your policy must pay at least $30,000 for each injured person, up to a total of $60,000 per accident, and $25,000 for property damage per accident. This basic coverage is called “30/60/25” coverage.
Liability coverage – Covers losses that an insured is legally liable. For homeowners insurance, for example, liability coverage protects the policyholder against financial loss if they are sued and found legally responsible for someone else’s injury or property damage.
Lifetime maximum -The total dollar amount a health care plan will pay over a policyholder´s lifetime.
Long-term care benefits – Coverage that provides help for people when they are unable to care for themselves because of prolonged illness or disability. Benefits are triggered by specific findings of “cognitive impairment” or inability to perform certain actions known as “Activities of Daily Living.” Benefits can range from help with daily activities while recuperating at home to skilled nursing care provided in a nursing home.
Loss – The amount an insurance company pays on a claim.
Loss of use – A provision in homeowners and renters insurance policies that reimburses policyholders for the additional costs (housing, food, and other essentials) of having to live elsewhere while the home is being restored following a disaster.
Loss history – Refers to the number of insurance claims previously filed by a policyholder. A company will consider loss history when underwriting a new policy or considering a renewal of an existing policy. Companies view loss history as an indication of the likelihood that an insured will file a claim in the future.
Market value – The current value of your home, including the price of land.
Material misrepresentation – A significant misstatement on an application form. If a company had access to the correct information at the time of application, the company might not have agreed to accept the application.
Maximum out-of-pocket expense – The maximum amount someone covered under a health care plan must pay during a certain period for expenses covered by the plan. Until the maximum is reached, the person covered is required to pay a copayment or a percentage on each claim.
Medical payments and personal injury protection (PIP) – Both auto insurance coverages pay limited medical and funeral expenses if the policyholder, a family member, or a passenger in the car is injured or killed in a motor vehicle accident. PIP also pays lost-income benefits.
Named driver exclusion – An endorsement to an auto insurance policy that provides that a policy does not cover accidents when a specifically named person is the driver.
Named driver policy – An auto insurance policy that doesn’t provide coverage for an individual residing in a named insured ‘s household specifically unless the individual is named on the policy. The term includes an auto insurance policy that has been endorsed to provide coverage only for drivers specifically named on the policy.
Non-owners policy – Auto insurance coverage that offers liability, uninsured motorist, and medical payments to a named insured who does not own a vehicle.
Non-renewal – A decision by an insurance company not to renew a policy.
Out-of-pocket maximum – The most you will have to pay during a policy period (usually a year) before you no longer have to pay your share of coinsurance for covered health services. Once you’ve reached your out-of-pocket maximum, your health plan generally pays 100 percent of your health care costs, up to your policy’s coverage limit. You are still responsible for paying your premium. Depending on your plan, you also may have to continue paying copayments and some other expenses.
Paid-up – This event occurs when a life insurance policy will not require any further premiums to keep the coverage in force.
Paid-up additions – Additional amounts of life insurance purchased using dividends; these insurance amounts require no further premium payments.
Peril – A specific risk or cause of loss covered by a property insurance policy, such as a fire, windstorm, flood, or theft. A named-peril policy covers the policyholder only for the risks named in the policy. An all-risk policy covers all causes of loss except those specifically excluded.
Personal property – All tangible property (other than land) that is either temporary or movable in some way, such as furniture, jewelry, electronics, etc.
Policy – The contract issued by the insurance company to the insured.
Policy loan – An advance made by a life insurance company to a policy owner. The advance is secured by the cash value of the policy.
Policy owner – The person or party who owns an individual insurance policy. This person may be the insured, the beneficiary, or another person. The policy owner usually is the one who pays the premium and is the only person who may make changes to a policy.
Policy period – The period a policy is in force, from the beginning or effective date to the expiration date.
Premium – The amount paid by an insured to an insurance company to obtain or maintain an insurance policy.
Premium load – An amount deducted from each life insurance premium payment, which reduces the amount credited to the policy.
Property damage (PD) – Physical damage to property.
Provider – A hospital, pharmacist, registered nurse, organization, institution, or person licensed to provide health care. A physician also may be referred to as a provider. The term provider is often used collectively to refer to individual or facilities who provide health services.
Public insurance adjuster – An individual employed by a policyholder to negotiate a claim with the insurance company in exchange for a percentage of the claim settlement. Public insurance adjusters must be licensed by the state.
Rated policy – A policy issued at a higher premium to cover a person classified as a greater-than-average risk, usually due to impaired health or a dangerous occupation.
Refund – An amount of money returned to the policyholder for overpayment of premium or if the policyholder is due unearned premium.
Reinstatement – The process by which a life insurance company puts a policy back in force after it lapsed because of nonpayment of renewal premiums.
Renewal – Continuation of a policy after its expiration date.
Rental reimbursement coverage – Auto insurance coverage that pays a set daily amount for a rental car if the policyholder’s car is being repaired because of damage covered by the auto policy.
Renters insurance – A form of property insurance that covers a policyholder’s belongings against perils. It also provides personal liability coverage and additional living expenses. Possessions can be covered for their replacement cost or the actual cash value, which includes depreciation.
Replacement cost – Insurance coverage that pays the dollar amount needed to replace the structure or damaged personal property without deducting for depreciation but limited by the policy’s maximum dollar amount.
Rescission – The termination of an insurance contract by the insurer when material misrepresentation has occurred.
Residual market – Insurers, such as assigned risk plans, that exist to provide coverage for those who cannot get it in the standard market.
Return premium – A portion of the premium returned to a policy owner as a result of cancelation, rate adjustment, or a calculation that an advance premium was in excess of the actual premium.
Rider – A written agreement attached to the policy expanding or limiting the benefits otherwise payable under the policy. Also called an “endorsement.”
Self-funded plans – Plans funded strictly from employer contributions and employee premiums. These plans are authorized by the federal Employee Retirement and Income Security Act (ERISA) of 1974 and are regulated by the U.S. Department of Labor. State regulation of these plans is limited. Although an insurance company may be hired to administer the plan, the insurance company assumes no risk. (Also known as ERISA plans.)
Staff adjuster – Employee of the insurance company´s claims department.
Subrogation – Assignment of rights of recovery from insured.
Surcharge – An extra charge added to a premium by an insurance company. For automobile insurance, a surcharge is usually added if a policyholder has at-fault accidents.
Surplus lines – Coverage from out-of-state companies not licensed in Texas but legally eligible to sell insurance on a “surplus lines” basis. Surplus lines companies generally charge more than licensed companies and often offer less coverage.
Surrender charges – Charges that are deducted if a life insurance policy or annuity is cashed in (surrendered). These charges also are deducted if the policyholder borrows money on the policy or if the policy lapses for non-payment.
Third-party claim – A claim filed against another person’s insurance policy.
Towing and labor coverage – Auto insurance coverage that pays for towing charges when a car can´t be driven. Also pays labor charges, such as changing a flat tire, at the place where the car broke down.
Underwriter – The person who reviews an application for insurance and decides if the applicant is acceptable and at what premium rate.
Underwriting – The process an insurance company uses to decide whether to accept or reject an application for a policy.
Uninsured/underinsured motorist (UM/UIM) coverage – Auto insurance coverage that pays for the policyholder’s injuries and property damage caused by a hit-and-run driver or a motorist without liability insurance. It will also pay when medical and car repair bills are higher than the other driver´s liability coverage.
Universal life insurance – The key characteristic of universal life insurance is flexibility. Within limits, a policyholder can choose the amount of insurance and the premium they want to pay. The policy will stay in force as long as the policy value is sufficient to pay the costs and expenses of the policy. The policy value is “interest-sensitive,” which means that it varies in accordance with the general financial climate. Lowering the death benefit and raising the premium will increase the growth rate of your policy. The opposite also is true. Raising the death benefit and lowering the premium will slow the growth of your policy. If insufficient premiums are paid, the policy could lapse without value before the maturity date is reached. (The maturity date is the time your policy ceases and cash surrender value would be payable if the policyholder is still living.) Therefore, it is the policyholder’s responsibility to consistently pay a premium that is high enough to ensure that the policy´s value will be adequate to pay the monthly cost of the policy. The company is required to send an annual report and also to notify the policyholder if they are in danger of losing their policy due to insufficient value.
Usual and customary – The charge for medical services that refers to the amount approved by the carrier for payment. These charges may be based on rates usually charged by physicians and providers in your area; rate averages compiled by independent rating services; or rate averages compiled by the insurance company.
Utilization review – The review process aimed at helping HMOs and insurance companies reduce health care costs by avoiding unnecessary care. The review includes evaluating requests for medical treatment and determining, on a case-by-case basis, whether that treatment is necessary.
Variable life insurance – A type of whole life policy in which the death benefit and the cash value fluctuate according to the investment performance of a separate account fund that the policyholder selects. Because the investment account is regulated by the Securities and Exchange Commission, the policyholder must be presented with a prospectus before they purchase a variable life policy.
Whole life insurance – Whole life insurance policies are one type of cash value insurance. Whole life policies offer protection through a lifetime – that is, for a person´s “whole life.” From the day a person buys the policy, they pay a scheduled premium. The scheduled premium may be level or may increase after a fixed time period, but it will not change from the amount(s) shown in the policy schedule. It is important to look at the policy schedule to understand what the premium payments will be and that they are affordable over time. This premium is based on age at the time of purchase. Initially, it will be higher than the premium paid for a term policy, but they are likely to decrease over time if the policy is kept for a long time. Part of each premium payment will go to cash value growth, part for the death benefit and part for expenses (such as commissions and administrative costs). There is no need to renew whole life policies. As long as the premium is paid when due, coverage will continue in force.