Accidental Bodily Injury:
Insured's bodily injury or death is due to an unforeseen accident independent of any natural causes.

 

Accidental Death and Dismemberment (AD&D):
This type of insurance pays a benefit to the insured or the insured's beneficiary in the event of bodily injury or death by accidental means (See also Accidental bodily injury). Accident insurance can take the form of an individual policy or an AD&D rider on an insurance policy to supplement the death benefit amount when the insured loses any two limbs or eyesight in both eyes.

 

Accidental Death Rider:
A rider added to a life insurance policy that pays a benefit to the beneficiary in addition to the face amount of the policy when the insured's death is the result of an accident (See also Accidental death and dismemberment). Sometimes referred to as Double or Triple Indemnity where two or three times the death benefit amount is paid to the beneficiary when certain age and time restrictions are met.

 

Accidental Means:
An uncontrollable, unforeseen event that occurs which results in accidental bodily injury (See also Accidental Bodily Injury). The mishap itself would have to be accidental in addition to the injury.

 

Act of God:
Certain acts of nature such as earthquakes, floods, or hurricanes, that are beyond human control.

 

Actuarial:
Deals with the mathematics and probabilities of insurance. Ensures evaluation of risk, adequate premium payment and other statistical studies for all type of risks that are underwritten.

 

Adhesion, Contracts of:
A one-sided, legally binding agreement prepared by one party and wholly accepted or rejected by another party. An insurance policy is a unilateral, take it or leave it contract because the insurer sets the terms of the policy. All insurance contracts are considered to be contracts of adhesion.

 

Age Basis (Age Change):
An applicant's insurance age is determined one of two ways, depending on the insurance carrier: (1)Age Nearest: six months before applicant's birthday, their insurance age changes; (2)Actual Age: applicant's last birthday will be used to determine the insurance age. Most insurance carriers use age nearest.

 

Aggregate Limit:
In Liability Insurance, the maximum amount of coverage under the contract period, regardless of how many accidents occur.

 

Aleatory Contract:
A contract such as an insurance contract in which the dollar amount to be paid by each party is not equal. For example, a policyholder could pay a premium and collect nothing from the insurer, or the policyholder could pay a premium and collect more from the insurer than the amount of premium paid if a loss occurs.

 

Amendment:
An official document that serves as a revision to the original policy.

 

Annually Renewable Term (ART):
Provides the policy owner the right to renew his/her term life insurance policy at the end of each year without evidence of insurability. This annual renewal right continues until the policy owner reaches a specified age or for the number of years determined by the policy's contract. With most Annual (Yearly) Renewable Term contracts, the premium increases every year, especially as the policy owner reaches age 50 and older.

 

Application:
A form that the proposed insured completes with personal, financial and familial history information and used by the insurer to decide whether or not to accept the risk and determine the proposed insured's underwriting classification.

 

Appraisal:
A valuation of property conducted to determine the amount of insurance to be purchased or the amount of damage to be paid.

 

Assignment:
The transfer of ownership rights of a life insurance policy to another person or business.

 

Attained Age:
The age of the insured on a particular date.

 

Attending Physician's Statement (APS):
Medical information and records usually obtained from the insured's primary care physician and used in underwriting a life or health insurance application.

 

Authorization:
The amount of insurance coverage an underwriter will accept on a given color of property or risk exposure.

 

Auto Collision:
In auto insurance, coverage separate from comprehensive insurance that provides protection to the insured in the case of physical damage to the insured's car should a collision occur with another inanimate object.

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Back Dating:
Making the effective policy date earlier than the application or issue date, thereby making the age at issue lower and obtaining a lower premium. This is usually limited by law to six months.

 

Beneficiary (-ies):
The entity (relative, business, trustee, etc.) selected by the owner of the policy to whom the proceeds are payable in the event of the insured's death (See also Contingent and Primary beneficiary).

 

Benefits:
The monetary amount paid (or payable) and/or services provided to the insured by the insurer under the terms of the insurance contract.

 

Buy-Sell Agreements:
A continuation plan for partnerships, sole proprietorships and closed corporations by which the death or disability of one partner triggers the selling of his/her interest to the remaining partner(s), proprietors(s) or shareholder(s) at a predetermined formula. These agreements are often funded by life insurance and/or disability income on each member and is owned and paid for by the business.

 

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Cancelable:
An insurance contract that may be ended by the insured or the insurer at any time.

 

Cancellation:
The termination of an insurance contract by the insured or the insurer in accordance with the policy provisions.

 

Cash Surrender Value:
The sum of money due to the insured when the insured surrenders a life insurance policy with cash value. This value is calculated by taking the total cash value minus any surrender charges and/or outstanding loans (and accrued interest).

 

Cash Value:
The sum of money available to the owner when the policy is surrendered. The cash value can also be used as collateral if the owner takes out a loan against the policy. Policies that offer cash value include, but are not limited to, whole life, variable life, universal life and joint life insurance.

 

Catastrophe Hazard:
The potential danger of a loss due to a disaster in which large numbers of insureds are subject. A tornado would be catastrophic in nature because many people would be threatened if it occurred.

 

Child Rider:
A rider to a life insurance policy in which term life insurance on the insured's child is added. The child must be minor and at least 15 days old. Most child riders cover any number of children for one flat rate.

 

Claim:
A request for payment of the contractual benefits by the insurer that is made by the insured or the beneficiary.

 

Clause:
A section of an insurance policy that covers various topics such as exclusions, conditions for coverage, or responsibilities of the insured.

 

Collateral Assignment:
Securing a loan by using the insurance policy or its value.

 

Collusion:
An agreement between persons to commit insurance fraud.

 

Concealment:
Refers to a fact that is intentionally not disclosed to the insurance company that could affect either the premium or the settlement of a loss. Concealment of material fact may be cause to void the contract.

 

Conditional Receipt:
A temporary contract that requires the insurance company to provide conditional coverage during the underwriting process when premium is submitted with the application and the applicant has been examined.

 

Contestable Period:
A period of time during which the insurer can cancel or contest the policy. For life insurance, the contestable period is normally two years.

 

Contingent Beneficiary:
A secondary beneficiary designated by the insured to receive the benefits of the policy if the named primary beneficiary is deceased when the proceeds become payable.

 

Contract:
An agreement by which the insurer agrees to provide certain benefits and/or services to the insured in exchange for consideration (premium payments).

 

Conversion:
Converting a group health or life policy to an individual policy, under specific conditions, when the insured is no longer a member of the group providing coverage.

 

Convertible (Convertibility Option or Conversion Privilege:
The right of an individual to change the form of the original policy without evidence of insurability. For a example, a term life policy may be convertible to permanent insurance without a new medical examination.

 

Coverage Amount:
The face amount of the policy. This is the amount of benefit the insurer would pay in the event of the insured's death.

 

Credit Report:
A confidential document that provides the financial record and reputation of an applicant who is being underwritten for insurance.

 

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Date of Issue:
The date printed on the policy that indicates when the policy was issued. This date may be different than the policy date, which is the date the policy went into effect.

 

Decreasing Term Insurance:
Term insurance by which the death benefit decreases annually but the premium remains level. This type of insurance is typically used to cover mortgages.

 

Deductible:
The designated amount the insured must pay after a loss before he/she is entitled to the benefits from the insurer.

 

Disability Income (DI) Rider (Waiver of Premium):
A rider that allows insurance premiums to be waived when the insured is disabled, typically for atleast six months.

 

Dividend:
The return of a portion of the premium to a policyowner by a participating mutual or stock insurer. Dividends paid to policyowners are not typically taxable since they are a return of premium and not considered a gain. These dividends may be: (1)taken as cash, (2)applied against the premium, (3)used to purchase more insurance coverage, (4)left on deposit with the insurance company to earn interest, or (5)used to purchase one year of term life insurance.

 

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Effective Date (Policy Date):
The date the insurance policy is effective and in force.

 

Emergency Fund:
Money set aside for emergency expenses.

 

Evidence Clause:
A statement in the policy relating to the investigation of a claim and requiring the insured to cooperate fully in an investigation by providing any records and taking exams that would satisfy the adjuster and the validity of the claim.

 

Evidence of Insurability:
Health information such as a medical exam or an attending physician's statement required to satisfy underwriting requirements.

 

Exclusions:
A provision in the contract that does not provide coverage for certain perils. Common exclusions are catastrophic hazards for property and casualty policies. A common exclusion for life insurance policies is the aviation exclusion.

 

Expiry:
The date a term life policy terminates coverage.

 

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Face Amount:
The death benefit amount of a life insurance policy.

 

Federal Estate Tax:
The federal tax placed on the deceased's estate amounting to the calculated value of the estate.

 

FEGLI:
Federal Employees' Group Life Insurance.

 

Fiduciary:
A person such as an attorney, executor of an estate, or a trustee holding money or property who is obligated to act ethically and responsibly on behalf of someone else. The fiduciary must safeguard the property left under his or her care.

 

Flat Extra Premium:
A fixed premium paid in addition to the regular premium. This may be charged for the length of the contract or for specified years. A $5 per thousand flat extra added to a $100,000 life insurance policy would increase the premium by $500 a year.

 

Free Look:
An opportunity for the policyholder to examine the terms of a new policy and surrender it for a complete refund of premium if not fully satisfied. This period is usually 10, 20 or 30 days, depending on the state in which the policy is written in.

 

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Gift Tax:
A federal and state gift tax on the transfer of property.

 

Grace Period:
A period of 30 or 31 days after the premium due date when the insured can pay the premium and keep the policy current while the policy remains in force.

 

Graded Premium:
A life insurance policy with a low initial premium that increases over a period of time until it becomes level.

 

Group Life Insurance:
Life insurance offered to members of a group, usually employees. The employee typically has a master policy and all employees are offered some coverage without any underwriting requirements. The premiums may be paid by the employer, the employee or both.

 

Guaranteed Issue:
The purchase of insurance without an exam in which the present and past physical conditions of the applicant are not measured.

 

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Hazard:
Any situation that increases or influences the probability of loss.

 

Hazardous Activities:
Any activity that increases one's risk of peril or danger. On an insurance application, scuba diving, aviation, sky diving, and racecar driving are examples of hazardous activities that are taken into account when an insurance company decides whether or not to accept the risk of insuring the applicant.

 

Human Life Value:
The quantitative value of the future earnings of a wage earner. By calculating the human life value, one may determine the amount of life insurance to purchase on an applicant. By determining the average income of a wage earner, the number of years the wage earner is going to work and the present value of the income of the wage earner, one can calculate the human life value of a wage earner.

 

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Impaired Risk:
A person with a substandard physical condition such as a history of stroke or heart attack who would be a higher probability of risk for the insurer. An applicant who engages in hazardous activities could also be an impaired risk.

 

Indemnity:
The restoration of loss in the form of payment or replacement.

 

In-Force Business:
Cases on which the premiums are paid or are being paid as part of a life insurance company's business portfolio.

 

Inspection Report:
A report prepared by an inspection organization for the insurance company that summarizes the financial, physical, moral or other attributes of an applicant for insurance. Inspection reports are typically required for applicants applying for larger amounts of life insurance.

 

Insurable Interest:
The expectation of financial loss that can be covered by an insurance policy. For example, a person might have an interest in his or her home because the loss of it could cause financial hardship. A beneficiary must have an insurable interest in the life of the insured in order to be designated a beneficiary at the time of the application.

 

Insurance:
A mechanism for reducing the risk of many by contractually transferring the risk to an insurer, thereby pooling the risk in return for monetary considerations from the insured.

 

Insured:
The person who is covered by an insurance policy.

 

Insurer:
The party who offers protection to the insured as outlined in the policy.

 

Irrevocable Beneficiary:
A beneficiary who can be changed only through written consent from that beneficiary.

 

Issue Age:
Insurance age of insured used to calculate the premium of an insurance policy.

 

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Joint Life and Survivor Insurance:
Insurance coverage that is written on two or more persons and payable at the death of the last of those insured. This type of insurance is typically used for estate planning purposes.

 

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Key Employee Insurance:
Insurance on a key employee whose loss of services would cause hardship for the employer. The employer is the owner, beneficiary and payer of the policy.

 

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Lapse:
The termination of an insurance policy for failure to pay the policy's premium.

 

Level Premium Term Insurance:
A term life insurance policy where the premium paid remains the same throughout the term of the policy. The premiums for such policies are initially higher than an Annual Renewable Term policy, however, over the life of the contract, the total premiums paid may be more cost effective.

 

Liabilities:
In insurance terms, an obligation of one party to another for damages made resulting in personal injury and/or damages to a person's property and/or other assets.

 

Life Expectancy:
A calculation made to determine the number of years a person is expected to live according to a particular mortality table. This is one of the considerations in determining life insurance premiums.

 

Limitations:
The maximum amount of insurance coverage available under a policy or exclusion of certain described premises.

 

Loss:
Property damage or bodily injury made to a third party by the insured party, or damage to the insured party's own property by the insured party.

 

Loss Reserve:
The amount of money an insurance carrier must "set aside" for both known and unknown future claims.

 

Lump Sum:
A single payment from the insurer for the total benefit amount due, instead of a series of installment payments. Life insurance face amounts may be paid in lump sum, if requested by the beneficiary.

 

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Market Value:
The value of an asset based on the price a willing buyer would pay and current market conditions.

 

Master Policy:
A single insurance contract issued to an employer or other entity that provides group insurance to eligible employees or members, typically by issuing a certificate of insurance to such member.

 

Medical Information Bureau (MIB):
The organization that maintains a secure, centralized computer facility that stores the coded health history of persons who have applied for insurance from subscribing companies in the past. This information is then available to other insurance companies for future insurability evaluations. For more information, you may visit the MIB website at http://www.mib.com/.

 

Misrepresentation:
Inaccurate information provided by the applicant during the application process. Providing inaccurate information with the intent to receive a lower premium in considered intent to defraud.

 

Mortgage Life Insurance:
A type of life insurance that pays the remaining balance of mortgage if the insured dies. This is usually a decreasing term insurance policy where the death benefit decreases over time as the balance on the mortgage decreases.

 

Mutual Insurer:
An insurer whose policyowners are also owners of the company, entitled to dividends (return of premium) and, in some cases, proxy rights. Mutual companies do not have their stocks trading on the stock exchange.

 

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Nonassignable Policy:
Prohibits a policyowner from transferring the rights of a policy to a third party.

 

Nonparticipating Policy (non-par):
Life insurance policy from which the policyowner does not receive dividends from the insurance company's surplus.

 

Notice of Cancellation:
A written notice stating that the insurer will cancel a policy or that the insured is requesting the cancellation of the policy.

 

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Offer:
The submission of an application for an insurance policy. If the offer is for life insurance, the first premium payment must be included for the application to be considered an offer.

 

Offer and Acceptance:
The submission of an application for an insurance policy by the applicant and in the case of a life insurance application, a first premium payment ("Offer"), followed by an issuance of a policy by the insurer ("Acceptance").

 

Omnibus Clause:
Insurance that covers a third party while driving the insured's automobile with the permission of the insured.

 

Overinsured:
A circumstance in which the amount of insurance benefits exceeds the value of damages. For life insurance, an applicant considered overinsured will not be offered additional coverage unless the applicant replaces their current coverage.

 

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Paramedical Exam (Paramed):
A medical examination performed by a non-physician medical professional used to determine an applicant's health risk. The health risk is used in determining insurability and premium classification for life and health insurance.

 

Partial Disability:
A disability that prevents the insured from performing all of the normal duties associated with their occupation.

 

Partial Loss:
Damage to property that falls short of a total loss.

 

Participating Policy (par):
Life insurance policy where the policyowner receives dividends from the insurance company's surplus.

 

Per Capita:
A term used in the designation of beneficiaries. All surviving beneficiaries will share equally in the death benefit. If one beneficiary predeceased the insured, the remaining beneficiaries will share equally in the death benefit.

 

Per Stirpes:
A term used in the designation of beneficiaries. The distribution of the death benefit among beneficiaries with the provision that protects the heirs of each beneficiary in case the beneficiary dies before the insured. If one beneficiary predeceased the insured, that beneficiary's heirs would share equally in the death benefit of that beneficiary.

 

Permanent Life Insurance:
A policy that provides coverage throughout the insured's lifetime, with no policy expiration date, as long as premium payments are made. This policy may also build cash value.

 

Persistency:
The percentage of policies that remain in force and have not lapsed. The higher the persistency for an insurer, the better the retention of business.

 

Policy:
A legal document that details the terms of an agreement between an insurance company and a policyowner.

 

Policy Anniversary:
The anniversary of the date a policy was issued.

 

Policy Date:
The date on which a policy is in effect. This may be different than the issue date, if the policy was backdated.

 

Policy Fee:
A flat charge, added to the basic premium cost, used for the administrative expenses the insurance company incurs in processing a policy.

 

Policy Not Taken:
A Policy is not taken when an applicant decides not to accept the policy. If a policy was prepaid and the applicant declines the policy within the free-look period, the premium is fully refunded to the applicant.

 

Policyholder:
Person(s) or other entity who is the owner of the insurance policy.

 

Policyowner:
See Policyholder.

 

Power of Attorney:
A legal document that authorizes a specific person to act on behalf of the another person. This generally applies to signing certain legal documents and making decisions on behalf of the another person. A power of attorney may be designated to help decide the payment options for a beneficiary.

 

Preferred Risk:
An applicant or insured that represents lower risk than the standard category that was used to calculate the premium rate. This usually results in lower premiums.

 

Premium:
The payment(s) necessary to keep an insurance policy in force. Premiums are calculated based on the applicant's/insured's risk level of incurring a loss.

 

Premium Notice:
This is a notice from the insurance company detailing how much premium payment is due, and by what date.

 

Primary Beneficiary:
The entity (relative, business, trustee, etc.) selected by the owner of the policy to whom the proceeds are payable in the event of the insured's death.

 

Proof of Loss:
Formal documentation by the policyowner to the insurer about any incurred losses. This documentation is needed to assess the loss and also required before an insurer will compensate the policyowner for the loss.

 

Provisions:
The contents of an insurance contract that details the terms of the policy and the obligations and rights of the insured and the insurance company.

 

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Reinstatement:
Placing a policy back in force that was previously discontinued due to lack of premium payment(s) after the grace period has expired.

 

Renewable Term Life Insurance:
A term life insurance policy that may be renewed annually by the policyowner annually without any further evidence of insurability.

 

Replacement, Life Insurance:
Exchanging an in force policy for a new policy.

 

Replacement Cost:
Amount required to replace an insured's damaged or destroyed property with one of similar kind and quality, without a reduction for depreciation.

 

Representation:
Written or verbal statements made, either written or verbal, by an applicant during the application process. The applicant must answer such inquiries to the best of their knowledge. These statements are generally used in determining an applicant's insurability and risk level.

 

Reserve:
See Loss Reserve.

 

Retention of Risk:
Choosing to assume all or some of a risk by not acquiring insurance or using another technique to transfer the risk.

 

Revocable Beneficiary:
A life insurance beneficiary who can be removed or changed, by the policy owner, at any time prior to the death of the insured.

 

Rider:
An endorsement to an original policy that adds, removes or changes a condition(s) in the original policy.

 

Risk:
The probability that the insured will incur a financial loss in the form of property damage, personal injury or death.

 

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Section 1035 Exchanges:
A section of the Internal Revenue Code that allows for taking the proceeds of one life insurance policy or annuity and immediately investing them into another life insurance policy or annuity, without having to pay taxes on any gains.

 

Split Dollar Plan:
A method of purchasing life insurance where an employee and an employer split the premiums, ownership rights and benefits. There are two types of split dollar plans: endorsement and collateral.

 

Standard Risk:
An applicant or insured who is considered to have a normal, or average, probability of a loss based on health, a vocation and lifestyle.

 

Substandard Risk:
An applicant or insured who is considered to have a higher than normal risk of incurring a loss based either on health, a vocation and/or lifestyle. An applicant considered a substandard risk may be offered coverage at a higher premium.

 

Suicide Clause:
A limitation in a life insurance policy that states that if an insured commits suicide during the initial term of the policy (usually two years), that no death benefits will be paid by the insurance company.

 

Super-Preferred Risk:
An applicant or insured who is considered to have a much lower than normal risk of incurring a loss based either on health, avocation and/or lifestyle. A super-preferred risk will be offered coverage at the lowest premium.

 

Surrender:
The act of terminating a whole life policy. The policy owner exchanges future rights of coverage for the immediate cash value of a life insurance or annuity policy.

 

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Term Life Insurance:
A type of low-cost, life insurance that only pays benefits if the insured dies during the specified period of time. Term life insurance does not build cash value.

 

Termination:
The cancellation of an insurance policy by the insurance company or the insured.

 

Tertiary Beneficiary:
The third beneficiary to a life insurance policy eligible for policy benefits should the primary and secondary beneficiaries not survive.

 

Title Insurance:
Covers a purchaser of property against unknown defects at the time of purchase, such as a lien against the property.

 

Total Loss:
Damage(s) to property that are so severe that the property cannot be restored to the previous condition before the damage(s) occurred.

 

Trustee:
A person acting as a guardian of property who holds, manage and/or uses the property for the benefit of a third party, according to the terms and conditions of the trust.

 

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Underwriter:
The party who assesses the applicant's/insured's risk level, establishes the corresponding premium(s) and assures that funds will be available to pay to the insured in the event of a loss.

 

Unilateral Contract:
A legal contract in which only one party makes any legally enforceable promises. A life insurance policy is a unilateral contract since the insurer writes the contract and makes future promises and the insured pays the premium in exchange for such considerations.

 

Uninsurable Risk:
The risk of incurring a loss is so high that an insurer will not offer coverage.

 

Uninsured Motorist Coverage:
This type of coverage is part of an automobile insurance policy and protects the owner of an insured vehicle where damages are made to the insured vehicle by a person who is not covered by insurance.

 

Universal Life Insurance:
An adjustable type of life insurance that provides both term life insurance coverage and a savings vehicle side account with a guaranteed minimum return on the investment. This type of life insurance also allows the policy owner to change the amount of coverage and premiums throughout the duration of coverage.

 

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Variable Life Insurance:
An investment oriented type of permanent life insurance that provides both life insurance coverage and a savings vehicle through sub-accounts with the amount of return linked to an underlying portfolio of securities. Variable life insurance has a fixed premium and a guaranteed minimum death benefit.

 

Voidable:
An insurance policy that can be cancelled by either the insurer or the insured if either side breaches any term(s) in the contract.

 

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Waiver of Premium:
When a life insurance company no longer requires that an insured party make premium payment if he/she has become disabled for longer than six months. The insurance policy remains in full force even though premium payments are no longer required.

 

Whole Life Insurance:
A type of life insurance that remains in full force for the insured's entire life, as long as premiums are paid.

 

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Yearly Renewable Term (YRT):
Provides the policyowner the right to renew his/her term life insurance policy at the end of each year without evidence of insurability. This annual renewal right continues until the policyowner reaches a specified age or for the number of years determined by the policy's contract. With most Annual (Yearly) Renewable Term contracts, the premium increases every year, especially as the insured reaches age 50 and older.

 

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