Accelerated Death Benefits – If your policy has an accelerated death benefits provision, it will pay you – under certain conditions – all or part of the policy death benefits while you are still alive. These conditions include proof that the policyholder is terminally ill with a life expectancy of less than 12 months, has a specified life-threatening disease or is in a long-term care facility such as a nursing home. If you have a group term life policy or certificate, the amount of accelerated benefit you may receive is limited by law to: the greatest of $25,000 or 50% of the death benefit. By accepting an accelerated benefit payment, a person could be ruled ineligible for Medicaid or other government benefits. The proceeds also may be taxable.
Accident – An unforeseen, unintended event; something unexpected; fortuitous.
Accidental Death Benefits – If a 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.
Adjuster – A person who investigates and settles insurance claims.
Administrative Expense Charge – An amount deducted, usually monthly, from the policy.
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.
Annuity Certain – An annuity that provides a benefit amount payable for a specified period of time regardless of whether the annuitant lives or dies.
Annuity Period – The time span between the benefit payments made under an annuity contract.
Application – A form you fill out with information about you that an insurance company will use to decide whether to issue you a policy and how much to charge.
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.
Bankdraft – Occurs when money is being automatically debited from a banking account to for insurance coverage.
Benchmark Rate(s) – The rates set annually by the Commissioner of Insurance that rate-regulated insurance companies use to reference their rates. Rate-regulated insurance companies filing rates within a range of 30 percent above or below the benchmarks may use them immediately upon filing without prior approval. A company that wants to set its rates outside this range must receive the Commissioner´s prior approval.
Beneficiary – The person, persons 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 you receive a permanent policy.
Bodily Injury (BI) – Physical injury to a person.
Cancellation – Termination of an insurance policy by the company or insured before the renewal date.
Cash Surrender Option – Nonforfeiture option, which specifies that the policy owner can cancel the coverage and receive the entire net cash value in a lump sum.
Cash Value – The amount of money, which the policy owner will receive as a refund if the policy owner cancels the coverage and returns the policy to the company. Also known as cash surrender value.
Churning – Can occur when an agent persuades a consumer to borrow against an existing life insurance policy to pay the premium on a new one.
Claimant – A person who makes an insurance claim.
Co-insurance – The percent of each health care bill you must pay out of your own pocket. Non-covered charges and deductibles are in addition to this amount.
Collision Coverage – Pays for damage to your car without regard to who caused an accident. The company must pay for the repair or up to the actual cash value of your vehicle, minus your deductible.
Company Profile – A synopsis of a company´s performance in the state of Texas. Includes licensing data, a rating provided by A.M. Best Company, financial information regarding the company´s assets and liabilities, complaint history and a record of the companies activities as it pertains to the interests it has in Texas.
Complaint – The formal mechanism to start an investigation of potential wrongdoings by insurers, agents and premium finance companies licensed and doing business in the start of Texas.
Complaint History – Information collected or maintained by the Texas Department of Insurance relating to the number of justified, verified as accurate, and documented as valid, complaints received against a particular insurer, agent or premium finance company and the disposition of the complaints.
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 which makes the insurance effective only if or when a specified condition is met.
Contestable Period – A period of up to 2 years that an insurance company may deny payment of a claim because of suicide or a material misrepresentation on your application.
Contingent Beneficiary – Another party or parties who will receive the proceeds if the primary beneficiary should predecease the person whose life is insured.
Contract – In most cases, the term “contract” refers to 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.
Credit Life Insurance – This is a special type of coverage usually designed to pay off your loan or charge account balance if you die. Some lenders or sellers may require credit life insurance before they will approve your loan. If credit life is required, the lender or seller cannot require you to purchase it from them or a particular insurance company. If you have an existing life policy, the creditor has to accept an assignment of benefits under your existing policy instead of requiring you to purchase a credit life policy. Credit life insurance premium rates for loans of 10 years or less are regulated by the Texas Department of Insurance, but premium rates for loans that are more than 10 years old are unregulated.
Death Benefit – Amount paid to the beneficiary upon the death of the insured.
Declarations Page – – The page in your policy that shows the name and address of the insurer, the period of time a policy is in force, a description of the vehicle, 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.
Deferred Annuity – An annuity under which the annuity payment period is scheduled to begin at some future date.
Depreciation – The act of lowering an item´s value due to use or wear and tear.
Dividend – The amount of money an insurance company may decide to distribute to policyholders.
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 you have a six-month policy that you paid for in advance, two months into the policy, there would be two months of earned premium. The remaining four months of premium is called 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. Same as a “rider.”
Escrow – Money placed in the hands of a third party until specified conditions are met.
Evidence of Insurability – To qualify you for a particular policy at a particular price, companies have the right to ask you for information about your health and lifestyle. An insurance company will use this information – your evidence of insurability – in deciding if your application for insurance is acceptable and at what premium rate.
Exclusion – Provision in an insurance policy that indicates what is denied coverage.
Experience Period – The period of time that a company will reference when making evaluations of an insuring policy. There is not a standardized amount of time. See annotation for an example of an experience period.
Expiration Date – The date on which an insurance policy expires.
Extended Term Insurance Option – 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.
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 Loss – A situation involving only the insurer and insured.
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.
Grace Period(s) – The time – usually 31 days – during which a policy remains in force after the premium is due but not paid. The policy lapses as of the day the premium was originally due unless the premium is paid before the end of the 31 days or the insured dies. This is not a “free-insurance” period.
Group Life Insurance – This type of life insurance provides coverage to a group of people under one contract. Most group contracts are sold to businesses that want to provide life insurance for their employees. Group life insurance also can be sold to associations to cover their members and to lending institutions to cover the amounts of their debtor loans. Most group policies are for term insurance. Generally, the business will be issued a master policy and each person in the group will receive a certificate of insurance.
Group of Companies – Several insurance companies under common ownership and often common management.
Health Maintenance Organization (HMO) – Prepaid group health insurance plan which entitles members to services of participating physicians, hospitals and clinics. Emphasis is on preventative medicine.
Home Service Life – Home service refers to a method of selling and servicing insurance, mostly life and health insurance, and does not identify the type or relative cost of the product that is sold. Some companies that market on a home service basis sell what is known as “industrial life insurance. ” These are most often low death benefit policies with face amounts that may vary from $1,000 to $5,000 and which accumulate cash values at a very low rate. They are intended primarily to cover the expenses of a last illness and burial. The relative cost of industrial life insurance is extremely high compared to some other cash value policies and term life insurance policies.
Incontestability – A provision that places a time limit – up to two years – on a 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 the 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.
Insurable Interest – A financial interest in the property insured, prerequisite to a valid contract of insurance. In life insurance, a person´s or party´s interest – financial or emotional – in the continuing life of the insured. Insured – The person or firm covered by an insurance policy.
Insurer – The insurance company.
Interpleader – This is a procedure when conflicting claims are made on a life insurance policy by two or more people. Using this procedure the insurance company pays the policy proceeds to a court, stating the company cannot determine the correct party to whom the proceeds should be paid.
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 – Termination of a policy due to non-payment of premiums.
Liability – Responsibility to another for one´s negligence.
Liability Insurance – Pays for injuries to the other party and damages to the other vehicle resulting from an accident you caused. It also pays if the accident was caused by someone covered by your policy, including a driver operating your car with your permission.
Liability Limits – The maximum amount your liability policy will pay. Your policy must pay at least $20,000 per person for injuries and deaths, up to $40,000 for all victims of an accident, plus $15,000 for property damage. You can purchase higher liability limits for additional premium.
Loss – The amount an insurance company pays on a claim.
Loss History – Refers to an insured´s history of losses (claims) with other companies, or the company they are currently with. 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 an insured´s propensity for a claim in the future.
Material Misrepresentation – A significant misstatement in 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.
Medical Payments & Personal Injury Protection (PIP) – Both pay limited medical and funeral expenses if you, a family member, or a passenger in your car is injured or killed in a motor vehicle accident. PIP also pays lost-income benefits.
Mortality Charge – The cost of the insurance protection element of a universal life policy. This cost is based on the net amount at risk under the policy, the Insured´s risk classification at the time of policy purchase, and the Insured´s current age.
Mortality Expenses – The cost of the insurance protection based upon actuarial tables which are based upon the incidence of death, by age, among given groups of people . This cost is based on the amount at risk under the policy, the insured´s risk classification at the time of policy purchase, and the insured´s current age.
Named Driver Exclusion – An endorsement that provides that a policy does not cover accidents when a specifically named person is the driver.
Named Driver Policy – A policy that covers only the drivers specifically named in the policy. Generally, all other drivers are excluded from coverage under the policy. This type of policy is usually written by surplus lines companies.
Net Cash Value – The cash value amount available to a policy owner after adjustments have been made to the cash surrender value to account for policy loans and dividends.
Non-Owners Policy – Insurance coverage that offers liability, uninsured motorist, and medical payments to a named insured who does not own a vehicle.
Nonparticipating Policy – A life insurance policy that does not grant the policy owner the right to policy dividends.
Non-renewal – A decision by an insurance company not to renew a policy.
Paid-Up – This event occurs when a policy will not require any further premiums to keep the coverage in force.
Paid-Up Additions – Additional amounts of insurance purchased using dividends; these insurance amounts require no further premium payments.Peril – A cause of property losses. Usually used in the context of “a peril insured against.”
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.
Preferred Provider Organization (PPO) – Hospital, physician, or other provider of health care which an insurer recommends to an insured. A PPO allows insurance companies to negotiate directly with hospitals and physicians for health services at a lower price than would be normally charged.
Premium – The amount paid by an insured to an insurance company to obtain or maintain an insurance policy.
Premium Expense Charges – An amount deducted from each premium payment, which reduces the amount credited to the policy.
Property Damage (PD) – Physical damage to property.
Providers – Usually references doctors or those who are providing a medical service.
Public Adjuster – A person hired by you to settle the claim with the insurance company to settle the claim on your behalf.
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.
Redlining – Refusal by an insurance company to underwrite or to continue to underwrite questionable risks in a given geographical area.
Refund – Amount of money being returned to the policyholder.
Reinstatement – The process by which a life insurance company puts back in force a policy which had lapsed because of nonpayment of renewal premiums.
Renewal Policy – A policy issued as a renewal of a policy expiring in the same company or agency; not new business.
Rental Reimbursement Coverage – Pays a set daily amount for a rental car if your car is being repaired because of damage covered by your auto policy.
Replacement Cost – The cost associated with replacing property at current market prices.
Rescind – To take away or remove. To avoid so as to restore the involved parties to the positions they would have occupied had there been no contract.
Return Premium – The premium returned to an insured for canceling or amending a policy.
Rider – A written agreement attached to the policy expanding or limiting the benefits otherwise payable under the policy. Same as an “endorsement.”
Rule of 78 – This is a method for calculating the amount of unused premium which takes into account the fact that more insurance coverage is required in the early months of the loan, since the payoff of the loan is greater. As the loan is paid off, less coverage is being paid for, so the refund percentage decreases.
Rule of Anticipation – This is a similar method to “Rule of 78” where the amount of unused premium takes into account the fact that more insurance coverage is required in the early months of the loan, since the payoff of the loan is greater. As the loan is paid off, less coverage is being paid for, so the refund percentage decreases.
Single Interest Insurance – Insurance coverage for only one of the parties having an insurable interest in that property.
Single-Premium Whole Life Policy – A type of limited-payment policy that requires only one premium payment.
Staff Adjuster – Employee of the insurance company´s claim department.
Subrogation – Assignment of rights of recovery from insured.
Suicide Clause – Life insurance policy wording which specifies that the proceeds of the policy will not be paid if the insured takes his or her own life within a specified period of time after the policy´s date of issue.
Surcharge – An extra charge added to your premium by an insurance company. For automobile insurance, a surcharge is usually added if you have 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 your life insurance policy or annuity is cashed in (surrendered). These charges also are deducted if you borrow money on your policy or if your policy lapses for non-payment.
Third Party Administrator (TPA) – An organization that performs managerial and clerical functions related to an employee benefit insurance plan by an individual or committee that is not an original party to the benefit plan.
Third Party Loss – A situation involving a person other than the insurer and insured; i.e., a person making a liability claim against the insured.
Towing and Labor Coverage – Pays for towing charges when your car can´t be driven. Also pays labor charges, such as changing a flat tire, at the place where your 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.
Unearned Premium – The insured´s remaining premium equity in his policy; that part of the policy premium that has not been “used up.”
Uninsured/Underinsured Motorist (UM/UIM) Coverage – Pays for your injuries and property damage caused by a hit-and-run driver or a motorist without liability insurance. It will also pay when your 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, you can choose the amount of insurance and the premium you wish 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 your responsibility to pay consistently a premium that is high enough to ensure that your policy´s value will be adequate to pay the monthly cost of the policy. The company is required to send you an annual report and also to notify you if you are in danger of losing your policy due to insufficient value.
Usual and Customary – 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.
Variable Annuity – A form of annuity policy under which the amount of each benefit payment is not guaranteed and specified in the policy, but which instead fluctuates according to the earnings of a separate account fund.
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, you must be presented with a prospectus before you purchase a variable life policy.
Viatical Settlement Agreements – Viatical settlements involve the sale of an existing life insurance policy by a viator (person with a life threatening or terminal illness) to a viatical settlement company in return for a cash payment that is a percentage of the policy´s death benefit.
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 you buy the policy, you 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 that you look at the policy schedule to be sure you understand what your premium payments will be and that you can afford them over time. This premium is based on your age at the time of purchase. Initially, it will be higher than the premium paid for a term policy, but you are likely to end up paying less in premiums when you are older, if you keep the policy 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 you pay your premium when due, your coverage will continue in force throughout your life.
Disclaimer: This information is intended to be a guide to understanding common insurance terms. InsuranceUSA does not intend this information to be official or legally binding. This list should be used as a basic guide to understanding these terms and should not be considered complete or definitive.
Reference Information: Much of the information provided in this glossary comes from the Texas Department of Insurance, as of December 2001. We thank them for providing this helpful information to the public.