Glossary
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Accelerated Death Benefit Rider (ADB)
A rider added to a life insurance policy that makes living benefits payable to the insured for medical expenses prior to death to protect the insured against financial loss in the event of a terminal illness. The accelerated benefits paid reduce the death benefit payable to the beneficiary upon death.
Activities of Daily Living (ADL)
Bathing, preparing and eating meals, moving from room to room, getting into and out of beds or chairs, dressing, using a toilet.
Actuary
A specialist in the mathematics of risk, especially as it relates to insurance calculations such as expectancy, premiums, dividends, and annuity rates.
A federal tax aimed at guaranteeing that individuals, trusts, estates, and corporations pay a minimum amount of income tax, preventing them from taking full advantage of exemptions and other tax benefits that would otherwise allow them to pay little or no income tax.
For loan purposes, the systematic process by which a lender calculates loan payments so as to liquidate a debt over time. Payments are made at specific time intervals to reduce the outstanding debt to zero at the end of the loan period.
An IRS provision that allows a person to give $12,000 per year (2006) to an unlimited number of recipients (persons or organizations) without incurring gift or estate tax.
Annuitization
Process by which you convert part or all of the money in a qualified retirement plan or nonqualified annuity contract into a stream of regular income payments. The payments may last for a fixed period of time, for your lifetime, or for the lifetimes of you and your joint annuitant. Once you choose to annuitize, the payment schedule and the amount is generally fixed and can't be altered.
Annuitization Options
Choices in the way to annuitize. For example, life with a 10-year period certain means payouts will last a lifetime, but should the annuitant die during the first 10 years, the payments will continue to beneficiaries through the 10th year. Selection of such an option reduces the amount of the periodic payment.
A contract sold by life insurance companies that offers tax-deferred accumulation of earnings and various distribution options such as partial withdrawals, full surrender or a guaranteed income called annuitization. An annuitization option is one that pays a fixed or variable payment to the contract owner, either for a fixed number of years or for life.
Periodic payments made to an annuitant or to the annuitant's designated beneficiary. The payments may be made on an annual, semiannual, quarterly, or monthly basis, and may last for life or for a specified period. Depending on whether the annuity in question is a fixed annuity or a variable annuity, the annuitant (or his/her beneficiary) may receive either payments of a fixed dollar amount or payments that vary in amount according to the value of the underlying securities.
A group insurance policy purchased by an organization or association to provide coverage for its members.
Attained Age
An insured's age at a particular time.
The original cost, plus out of pocket expenses, of an asset (such as property, stock, or a business interest) that is used to determine gain or loss when the asset is transferred, whether through sale or gift. The basis is affected by the nature of the transaction by which the asset was acquired. For example, property received as a gift will have a different method of basis determination than property purchased at fair market value.
A falling market or a market in which prices are generally decreasing. A bear market in stocks is usually brought on by the anticipation of declining economic activity while a bear market in bonds is usually caused by rising interest rates.
Bed Hold Reservation
This Long Term Care policy feature will reserve a policyholders bed if he/she must be temporarily absent, for any reason, from the assisted living care facility or nursing home for up to thirty days per calendar year.
Beneficiary
An individual or entity designated in a will to receive an inheritance, or the individual designated to receive the proceeds of an insurance policy, retirement account, trust, or other asset.
The period of time benefits are received based on a contractual agreement, usually referring to health or disability benefits.
A term used to describe a stock of a large, financially-strong company that has a long history of profits, dividend payments, and a reputation for quality management, products, and services.
A rising market, or a market in which prices are generally increasing for stocks, bonds, or commodities.
Business Overhead Expense Insurance
A business disability policy designed to pay the ongoing expenses of a business in the event the business owner becomes disabled.
A contract used in business succession planning for sole proprietors, partnerships, and closely held corporations that provides the conditions for the sale of a business upon an owner's death, disability, retirement, or other triggering event.
An employee benefits plan that allows employees to customize their benefit package. Employees receive a fixed amount of dollars that can be allocated between several fringe benefits.
A long-term asset, owned for personal or investment purposes that is not bought or sold in the normal course of business, which includes fixed assets such as land, buildings, equipment, furniture, and fixtures.
The gain realized from the sale of certain assets that represent the difference between the purchase price of an asset and the selling price when the difference is positive. Capital gains are separated into short-term capital gains and long-term capital gains. A long-term capital gain applies to assets such as stocks, bonds, or mutual funds held for at least 12 months, which are taxed at a maximum rate of 20% for taxpayers in the 28% bracket or higher. Assets held less than 12 months generate short-term capital gains, which are subject to regular income tax rates.
Capital Gains Tax
The tax on the gain realized from the sale of capital assets such as stocks, mutual funds, business interests, or other assets. Long-term capital gains tax rates apply to assets held longer than 12 months.
Capital Loss
The term referring to an amount by which the proceeds from the sale of a capital asset are less than its cost basis.
Care Coordinators
In a Long Term Care policy that includes Home and Community based care, these specialists work with clients and their families to help eliminate guesswork in planning for care. An advantage to using the Care Coordinator is that it allows an Informal caregiver, such as a client's friend or relative to provide personal care at home.
Carrier
An insurance company that underwrites and issues an insurance policy. The term refers to the fact that the company carries (or assumes) certain risks for the policyholder.
The amount that is available to the owner if a life insurance policy is surrendered. The amount represents the cash value minus surrender charges and any outstanding loans due upon cancellation of the policy.
Cash Value
The cash within a permanent life insurance policy. Cash value is the premium paid less the cost of the insurance policy. Cash value is also adjusted by any investment performance within the insurance policy.
Cash Value Life Insurance
A permanent insurance policy that builds cash value. Cash value life insurance differs from term insurance, where premiums purchase pure insurance protection only.
Casualty Insurance
That type of insurance that is primarily concerned with losses caused by injuries to persons and legal liability imposed upon the insured for such injury or for damage to property of others. It includes insurance against crime, such as robbery, burglary and forgery, boiler and machinery insurance and aviation insurance.
A statement of coverage, also known as a Certificate of Insurance, that an individual receives when insured under a group contract. The certificate serves as proof of insurance, and outlines benefits and provisions.
Claim
A demand made by the insured, or the insured's beneficiary, for payment of the benefits as provided by the policy.
COBRA (Consolidated Omnibus Budget Reconciliation)
Regulations requiring an employer who employs more than 20 people to offer continued group insurance coverage to former employees for up to 18 months. If the employee dies, the employer must offer continued group health insurance coverage to widowed spouses and dependent children for up to 36 months.
Co-insurance
In property insurance, co-insurance requires the policyholder to carry insurance equal to a specified percentage of the value of property to receive full payment on a loss. For health insurance, it is a percentage of each claim above the deductible paid by the policyholder. For a 20% health insurance coinsurance clause, the policyholder pays for the deductible plus 20% of his covered losses. After paying 80% of losses up to a specified ceiling, the insurer starts paying 100% of losses.
The assignment of an asset (e.g., a life insurance policy's death benefit or its cash surrender value) to a creditor as collateral for a loan.
Comprehensive coverage refers to the part of an automobile insurance policy that covers damage to a vehicle caused by miscellaneous hazards other than collision, such as fire, theft, explosion, windstorm, hail, water or contact with an animal.
Period of time, generally two years, during which an insurance company can declare a life insurance contract void because of misrepresentation or concealment by the insured in obtaining the policy. Once this period has elapsed, the company cannot cancel the policy or refuse to pay claims for any reason other than nonpayment of premiums.
Convertibility
A feature of a term life insurance policy where coverage can be converted into permanent insurance regardless of an insured's physical condition and without a medical examination. The individual cannot be denied coverage or charged an additional premium for any health problems.
Co-payment
A predetermined, flat fee an individual pays for health-care services, in addition to what insurance covers. For example, some HMOs require a $20 co-payment for each office visit, regardless of the type or level of services provided during the visit.
The original price of an asset, plus any additions and reinvested earnings, which is used to determine capital gains or losses at the time of sale of the asset. In the case of an inheritance, the cost basis is the appraised value of the asset at the time of the donor's death.
Cost-of-Living Adjustment (COLA)
An adjustment made, usually to an income stream, to take into account inflation. Also, it can refer specifically to automatic adjustments applied to Social Security retirement payments when the consumer price index increases at a rate of at least 3%, the first quarter of one year to the first quarter of the next year.
Coverage
The scope of protection provided under an insurance policy. In property insurance, coverage lists perils insured against, properties covered, locations covered, individuals insured, and the limits of indemnification. In life insurance, living and death benefits are listed.
Creditable Coverage
A term meaning that benefits provided by other drug plans are at least as good as those provided by the new Medicare Part D program. This may be important to people eligible for Medicare Part D but who do not sign up at their first opportunity because if the other plans provide creditable coverage, plan members can later convert to Medicare Part D without paying higher premiums than those in effect during their open enrollment period.
The amount payable, as stated in a life insurance policy, to the designated beneficiary upon the death of the insured. The amount paid is the face value, plus any riders, less any outstanding loans.
The amount that must be paid out of pocket by the insured for covered losses before the insurance company pays a claim. .
An annuity in which the income payments/withdrawals begin at some future date.
An employer-sponsored retirement plan that promises to pay a specified amount to each employee who retires after a set number of years of service with the company. Generally the employer makes all contributions to such a plan, although employees do contribute to them in some cases. This is also referred to as a Defined Benefit Pension Plan or pension.
Defined Contribution Plan
An employer-sponsored retirement plan in which the level of contributions is fixed through annual or periodic contributions to accounts set up for each employee. The employer contribution may be a percentage of the employee's salary, or may be related to years of service. Employee contributions are also permitted and encouraged. The benefit at retirement depends on the contributions and the return from investments. Common examples of defined contribution plans include 401(k), 403(b), and 457 plans, profit-sharing plans, and employee stock ownership plans (ESOPs).
The process of changing the legal structure of an insurance company from a mutual form of ownership to a stock form of ownership.
An individual for whom the taxpayer provides at least 50 percent of the support regardless of where they live. Generally, the individual bears a specific relationship to the taxpayer (i.e., child, sibling, parent) and/or resides primarily in taxpayer's household.
A physical or mental impairment that substantially limits one or more of an individual's major life activities. Disability may be partial or total.
Disability Benefit Period
The period during which disability insurance benefits are paid. While this period may vary between policies, benefits paid until age 65 are common for long-term policies and benefits paid for 26 weeks are common for short-term policies.
Disability Income Rider (Waiver of Premium)
A rider on a life insurance policy stating that when an insured becomes disabled for at least six months, premiums are waived. Depending on the rider, the insured may also begin to receive monthly income payments from the policy.
Disability Insurance
Also known as disability income insurance, this type of policy provides income benefits to the insured if he or she becomes ill or is injured and can no longer perform the duties specified in the contract. The contract may define the disability by the inability to perform the duties of one's "own occupation" or "any occupation" or in other terms.
Amount of a consumer's income remaining after essentials such as food, housing, and utilities and prior commitments have been paid.
Dividend
The return of part of the policy's premium for a policy issued on a participating basis by either a mutual or stock insurer. A portion of the surplus paid to the stockholders of a corporation.
Employer benefits offered to unmarried partners of employees. Although laws regarding domestic partner benefits apply only to same-sex couples, in practice, many employers offer domestic partner benefits to both same- and opposite-sex couples. Benefits may include health insurance, leave to care for an ill partner, and bereavement leave at a partner's death.
In Long Term Care policies that include Home and Community based care, this feature may keep a policyholder at home with the supportive medical equipment that meets his/her unique needs.
Elimination period
The period of time that must elapse (beginning with the first day of illness or injury) before benefits become payable. Therefore, benefits are paid only for costs incurred after the end of the elimination period. Also known as "Waiting Period."
Employers Liability Insurance
Coverage against common law liability of an employer for accidents to employees, as distinguished from liability imposed by a workers' compensation law.
Encumbrance
A claim on property, such as a mortgage, a lien for work and materials, or a right of dower. The interest of the property owner is reduced by the amount of the encumbrance.
An ownership interest such as that held by shareholders in a corporation. Equity can also represent the difference between the market value of real estate and the outstanding balance on the loan(s) secured by that property.
Estate
All assets a person owns at the time of death, including securities, real estate, business interests, physical property, and cash, less outstanding liabilities. The estate is distributed to heirs according to the terms of the person's will or, if there is no will, by probate court ruling.
The process of developing and implementing a master plan that facilitates the distribution of one's property after death according to his/her goals and objectives.
Estate Tax
A tax imposed by the federal government and some state governments on the transfer of assets to heirs.
Exclusions
Items or conditions that are not covered by the general insurance contract.
An individual or professional organization, such as a bank's trust department, named in a will to administer an estate upon the death of the owner.
Exposure
Measure of vulnerability to loss, usually expressed in dollars or units.
Face Amount
The amount of death benefit coverage that is purchased under a life insurance policy.
Fair Market Value
The price at which property would change hands between a willing buyer and a willing seller, where both parties have reasonable knowledge of the relevant facts and neither party is under any compulsion to buy or sell.
A tax that is imposed by the federal government and some state governments on the transfer of assets to heirs. The Taxpayer Relief Act of 1997 provides that the amount of assets each person can exclude from estate taxes is $2 million in 2006.
Federal Gift Tax
A federal tax that is imposed on the transfer of securities, property, or other assets. The tax is based on the fair market value of the transferred assets and applies to transfers valued over $12,000 (2006) per individual per year.
A person, company, or association that holds assets in trust for a beneficiary. The fiduciary is charged with the responsibility of investing the assets wisely for the beneficiary's benefit. Examples of fiduciaries include executors of wills and estates, trustees, and those who administer the assets of underage or incompetent beneficiaries.
A type of annuity that guarantees your principal and provides an investment return at least equal to a specified fixed rate until you annuitize. In addition, the amount of your payout can be fixed once you begin receiving distributions from the annuity.
The right of an insured to examine an insurance policy for a stated period, often 10 days, and if not satisfied, the right to return the policy and receive a full refund of the initial premium.
Fringe Benefits
Non-cash benefits such as group health insurance, term life insurance, and disability insurance made available to employees in addition to salary, but are generally not taxable to the employee.
Future Purchase Option
Life and health insurance provisions that guarantee the insured the right to buy additional coverage without proving insurability. Also known as "Guaranteed Insurability Option."
General Liability Insurance
Insurance designed to protect business owners and operators from a wide variety of liability exposures. Exposures could include liability arising from accidents resulting from the insured's premises or operations, products sold by the insured, operations completed by the insured, and contractual liability.
Generation Skipping Transfer (GST)
A transfer of property made to a family member who is more than one generation below the donor, that occurs either during life as a gift or at death by will or bequest.
Generation-Skipping Transfer Tax (GSTT)
A federal tax on transfers of property made to a family member who is more than one generation below the donor, that occur either during life as a gift or at death by will or bequest.
Gift Tax (Federal Gift Tax)
A graduated tax imposed by the federal government (and most state governments) on transfers of assets over $12,000 per year per recipient (2006).
Gifting strategies are estate planning techniques that allow a donor to transfer assets to heirs during the donor's lifetime with the intention of reducing federal and state estate taxes.
Grace Period
The length of time (usually 31 days) after a premium is due and unpaid during which the policy, including all riders, remains in force. If a premium is paid during the grace period, the premium is considered to have been paid on time. In Universal Life policies, it typically provides for coverage to remain in force for 60 days following the date cash value becomes insufficient to support the payment of monthly insurance costs.
The total value of all property in an estate before liabilities (i.e., debts and taxes) are deducted.
Group Disability Insurance
A disability insurance policy that covers a group of individuals who are affiliated in some way, either through an employer, trade association, or other organization. Group disability coverage is generally less expensive than individual disability coverage, however, benefits are limited to a stated length of time and the maximum monthly income benefit is usually no more than 50 to 60 percent of earnings.
Group Insurance
An insurance contract that covers a group of individuals who are affiliated in some way, either through an employer, trade association, or other organization.
Guaranteed Insurability Option
Life and health insurance provisions that guarantee the insured the right to buy additional coverage without proving insurability. Also known as "Future Purchase Option."
Guaranteed Issue Right
The right to purchase insurance without physical examination. The present and past physical condition of the applicant are not considered. Generally associated with group insurances.
Guaranteed Renewable
A policy provision which guarantees the policyowner the right to renew coverage at every policy anniversary date. The company does not have the right to cancel coverage except for nonpayment of premiums by the policyowner; however, the company can raise rates if they choose.
An individual who is responsible for another person's loan or other debt in the event that the principal debtor defaults and cannot meet the debt.
Hazardous Activity
Bungee jumping, scuba diving, horse riding and other activities not generally covered by standard insurance policies. For insurers that do provide cover for such activities, it is unlikely they will cover liability and personal accident, which should be provided by the company hosting the activity. It is also possible that insurers will charge higher premiums for such insureds through sub-standard ratings.
Health Maintenance Organization (HMO)
A prepaid group health insurance plan that entitles members to services of participating physicians, hospitals and clinics. Emphasis is on preventative medicine, and members must use contracted health-care providers in the network and will not receive insurance coverage if they utilize care outside of the network.
Health Reimbursement Arrangement (HRA)
Owners of high-deductible health plans who are not qualified for a health savings account can use an HRA.
Health Savings Account (HSA)
A plan that allows you to contribute pre-tax money to be used for qualified medical expenses. HSA's, which are portable, must be linked to a high-deductible health insurance policy.
Heirs are individuals who inherit some or all of the estate of a deceased person by virtue of being in the direct line of descent, or being designated in a will or by a legal authority. Assigns or assignees is a broader term that includes anyone to whom property is, will, or may be assigned. An assign may receive property from an assignor by conveyance, descent, or an act of law.
A facility that provides short-term continuous care in a home-like setting for terminally ill people with a life expectancy of six months or less. Some health insurance plans cover hospice stay up to a certain limit with no deductible.
An annuity that begins to make income payments immediately (or soon after) after the first premium is paid, as opposed to a deferred annuity.
Income in Respect of a Decedent
All gross income that the decedent had a right to receive, but did not receive, prior to death such as uncollected wages, deferred compensation, and pension benefits. These income amounts are not included on the final Form 1040 but are reported on the fiduciary return or the beneficiary's tax return.
A benefit in disability insurance policies where an injured or sick wage earner receives a monthly income payment that is sufficient to replace a percentage of lost earnings.
The principle upon which all property/casualty insurance contracts are based. According to this principle, the objective of insurance is to restore the insured to the same financial position after a loss that he/she was in prior to the loss.
A type of health insurance plan that provides reimbursement of covered medical expenses and gives plan participants considerable freedom to choose their own health care providers.
A statistical composite that measures changes in the economy or in financial markets by measuring the ups and downs of stock, bond, and commodities markets, and reflecting market prices and the number of shares outstanding for the companies in the index. Some well-known indices include the New York Stock Exchange Composite Index, S&P 500, American Stock Exchange Composite Index, and Dow Jones Industrial Average.
An insurance policy (life, health, or disability) that provides coverage for an individual person (and, in some cases, his/her family members) as opposed to a group policy that provides coverage for a group of individuals.
Individual Retirement Account (IRA)
A personal, tax-deferred retirement account that an individual can establish and fund with earned income up to a maximum amount. Deposits up to a maximum of $4,000 per year may be deductible within prescribed income levels and retirement plan participation. The income earned is tax-deferred until it is withdrawn.
An attachment or amendment to an insurance policy that provides protection against inflation by adjusting the level or amount of the benefit to keep pace with inflation. Can also be a "Cost-of-Living Adjustment (COLA)" rider.
A relationship between an insured person or property and the potential beneficiary of the insurance whereby the loss of the insured person or property could cause financial loss to the beneficiary. This requirement must be present at the time the life insurance policy is applied for but doesn't need to exist at the time of the insured's death. Insurable interest exists because there is a reasonable expectation that the beneficiary will benefit from the continued life of the insured, or experience a loss at the death of the insured.
Property that is transferred while living, as opposed to being transferred by will.
The risk that changes in interest rates will adversely affect the value of an investment portfolio. Interest-rate risk affects portfolios with large holdings in long-term bonds or many dividend-paying utility company stocks because the value will fall in the event interest rates rise.
To die without leaving a valid will.
Investment Income
The return received by insurers from their investment portfolios including interest, dividends and realized capital gains on stocks. It does not include the value of any stocks or bonds that the company currently owns.
Something that cannot be legally undone, altered, amended, revoked, or terminated.
A trust that cannot be altered, amended, revoked, or terminated by the settlor.
The probability that two people will live to specific ages according to a mortality table.
Ownership of property by two or more individuals with equal interest in the property. Upon death, a joint tenant's interest passes to the other joint tenant(s) and does not pass into the estate.
A key employee is an individual who may have special skills and makes a significant contribution to the business. Executives and managers may be considered key employees, in addition to certain shareholders who actively participate in the ongoing success of the business.
Insurance designed to pay benefits to a business that loses the essential services of a key employee due to disability, death, or retirement and the business suffers a financial loss as a result.
Laddering
Purchasing bond investments that mature at different time intervals.
The expiration of a right or privilege when one party does not live up to its obligations during the time allowed.
Liability
Any legally enforceable obligation (e.g. debt, taxes, etc..)
Liability Insurance
Insurance that pays and renders service on behalf of an insured for loss arising out of his responsibility, due to negligence, to others imposed by law or assumed by contract.
An annuity that makes regular (e.g., monthly, quarterly, etc.) income payments for the life of a person (the annuitant). Therefore, the annuitant cannot outlive the payments. Upon his/her death, however, all income payments cease and there are no beneficiary benefits.
The number of years a person is expected to live as determined by actuaries using mortality (actuarial) tables. This information is used to calculate annuity payments, life insurance premiums, and annual minimum distributions from IRAs.
A legal contract between an insurance company and an owner/insured to provide protection against adverse financial consequences of the death of an individual in the form of payment to a beneficiary.
An agreement that establishes a trust for the designated beneficiary(ies) of a life insurance policy. Upon the death of the insured, the trust is legally obligated to pay the death benefit proceeds in the manner specified in the trust agreement.
The process by which an insurance company examines, accepts, or rejects insurance risks so as to charge the proper premium for the coverage and to spread the risk among a pool of insureds in a manner that is both fair to the insureds and profitable for the company. The company classifies the accepted applicants into different risk categories in order to charge the proper premium.
A gift made during someone's life, as opposed to a post-mortem gift.
Lifetime Reserve Days
Sixty additional days Medicare pays for when you are hospitalized for more than 90 days in a benefit period. These days can only be used once during your lifetime. For each lifetime reserve day, Medicare pays all covered costs except for a daily coinsurance amount.
The maximum amount of insurance coverage that is available under a policy. Coverage limitations can often be increased for an additional premium.
Liquidity
Liquidity is the ability of an individual or business to quickly convert assets into cash without incurring a considerable loss. There are two kinds of liquidity: quick and current. Quick liquidity refers to funds such as cash, short-term investments, and government bonds, and possessions which can immediately be converted into cash in the case of an emergency. Current liquidity refers to quick liquidity plus possessions such as real estate which cannot be immediately liquidated, but eventually can be sold and converted into cash. Quick liquidity is a subset of current liquidity. Liquidity reflects the financial stability of a company and thus their rating.
This feature allows, under certain circumstances, for the insured to receive the proceeds of a life insurance policy before death. Such circumstances include terminal or catastrophic illness, the need for long-term care, or confinement to a nursing home. Also known as "Accelerated Death Benefits (ADB)." Accelerated or living benefits paid will reduce the amount of death benefits payable to the beneficiary upon the insured's death.
A revocable or irrevocable trust created during the life of the grantor that is also known as an inter vivos trust.
An insurance contract that pays benefits in the event the insured needs long-term medical care in a facility other than a hospital such as a nursing home, assisted-living facility or at-home nursing care. In order for benefits to begin, the terms of the contract must be met, which generally call for an elimination period once two or more of the activities of daily living (ADL) can not be performed by the insured.
Disabilities that last more than two years are said to be long-term. Disability policies that pay benefits for long-term disabilities are said to offer long-term coverage.
Long-term Disability Insurance
A disability insurance policy that provides coverage in the form of monthly income payments for as long as the insured remains disabled (usually up to age 65).
The period of time, currently 36 months, during which a hospitalized or institutionalized individual may be ineligible for benefits payable under a state Medicaid plan when assets are transferred for less than their fair market value for the purpose of qualifying for payment.
Health care plan based on practice guidelines or protocols that health care providers must follow. The goals of a managed care plan are to lower health care costs, provide as comprehensive coverage as possible, and improve the methods used to select health care providers.
Provision in the federal estate and gift tax law allowing all the assets of a marriage partner to pass to the surviving spouse free of estate taxes.
Securities that are easily sold or that can be readily converted into cash such as government securities, banker's acceptances, and commercial paper.
The largest monthly Social Security benefit payable to an individual if more than two persons receive payments on the same Social Security record.
Medical Information Bureau (MIB)
A central computerized facility that keeps on file the health history of the applicants for life and health insurance with member MIB companies. This information is made available to insurance companies for the purpose of evaluating an applicant's insurability and preventing fraud.
Medical Loss Ratio
Total health benefits divided by total premium.
Modified Endowment Contract (MEC)
A special class of life insurance whereby cash value limits inside the policy were breached and the tax-advantages of the policy are then limited. Funds withdrawn from a MEC policy in the form of policy loans, partial surrenders, assignments, and pledges are treated as gross income to the recipient and therefore subject to taxation.
Mortality and Expense Risk Fees
A charge that covers such annuity contract guarantees as death benefits.
A statistical table showing the rate of death at each age in terms of the number of deaths per thousand, indicating the probability of a certain number of people from a group dying in a given year. Insurance companies and the IRS use mortality (actuarial) tables to establish premiums for different age groups, to base life estates, and annuity valuations.
A debt instrument by which the borrower (mortgagor) gives the lender (mortgagee) a lien on property as security for the repayment of a loan. The borrower has use of the property, and the lien is removed when the obligation is fully paid.
Mortgage Insurance Policy
In life and health insurance, a policy covering a mortgagor with benefits intended to pay off the balance due on a mortgage upon the insured's death, or to meet the payments due on a mortgage in case of the insured's death or disability.
Corporation or trust, managed by an investment adviser, that raises money from shareholders and invests it in securities, such as stocks, bonds, options, commodities and/or money market securities. Registered with the US Securities and Exchange Commission under the Investment Company Act, mutual funds offer investors the advantages of diversification and professional management for which they charge a management fee.
An insurance company owned by its policyholders. Mutual insurance company stock is not available for purchase on the stock exchange. Members are policy holders entitled to name the directors or trustees and to receive dividends or rebates on future premiums.
Mutual Insurance Companies
Companies with no capital stock, and owned by policyholders. The earnings of the company, over and above the payments of the losses, operating expenses and reserves, are the property of the policyholders. There are two types of mutual insurance companies. A non-assessable mutual charges a fixed premium and the policyholders cannot be assessed further. Legal reserves and surplus are maintained to provide payment of all claims. Assessable mutuals are companies that charge an initial fixed premium and, if that isn't sufficient, might assess policyholders to meet losses in excess of the premiums that have been charged.
National Association of Insurance Commissioners (NAIC)
The association of state insurance commissioners whose purpose is to promote uniformity of insurance regulation, monitor insurance solvency and develop model laws for passage by state legislatures.
Net Income
The total after-tax earnings generated from operations and realized capital gains as reported in the company's NAIC annual statement on page 4, line 16.
Net Investment Income
This item represents investment income earned during the year less investment expenses and depreciation on real estate. Investment expenses are the expenses related to generating investment income and capital gains but exclude income taxes.
Total financial worth after totaling all assets and subtracting all liabilities.
A type of contract that cannot be canceled by the insurance company and is used for health and disability insurance.
Noncancellable Guaranteed Renewable
An insurance policy that is not subject to alteration, termination, or increase in premium upon renewal.
Nonqualified Deferred Compensation Plan (NQDC)
Nonqualified deferred compensation (NQDC) is an arrangement between an employer and employee that defers the receipt of currently earned compensation. A NQDC plan does not have to comply with the discrimination and administrative rules that govern qualified benefit plans, such as Section 401 of the Internal Revenue Code and the Employee Retirement Income Security Act (ERISA).
The age at which a pension plan participant can retire and immediately receive unreduced benefits. The normal retirement age for Social Security retirement benefits.
An illness contracted as a result of employment-related exposures and conditions. Coverage for these situations is provided through workers compensation.
Condition surrounding a work environment that increases the probability of death, illness, or disability to a worker. This type of hazard is considered when evaluating an application for insurance.
A period of time, often once or twice a year, during which individuals are permitted to enroll in group insurance plans.
Out-of-Pocket Limit
A predetermined amount of money that an individual must pay before insurance will pay 100% for an individual's health-care expenses.
Overall Liquidity Ratio
Total admitted assets divided by total liabilities less conditional reserves. This ratio indicates a company's ability to cover net liabilities with total assets. This ratio doesn't address the quality and marketability of premium balances, affiliated investments and other uninvested assets.
Own Occupation
Insurance contract provision that allows policyholders to collect benefits if they can no longer work in their own occupation.
Paid-Up Additional Insurance
An option that allows the policyholder to use policy dividends and/or additional premiums to buy additional insurance on the same plan as the basic policy and at a face amount determined by the insured's attained age.
This feature of a Long Term Care policy, where allowed by the state, permits a client's premium payments to end when the policy is still in effect on the later of the policy anniversary after the client's 95th birthday or when a policy has been in effect at least 20 years. A client must not have been eligible for benefits during that time.
Partial Disability
Inability of the insured to perform one or more of the important daily duties of his or her regular occupation. The income payment to the insured is reduced from that of total disability.
Participation Rate
In equity-indexed annuities, a participation rate determines how much of the gain in the index will be credited to the annuity. For example, the insurance company may set the participation rate at 80%, which means the annuity would only be credited with 80% of the gain experienced by the index.
In the insurance context, permanent life insurance is ordinary life insurance such as whole life--as opposed to term life insurance which expires unless renewed at the end of each term.
Permanent and Total Disability
A disability in which a wage earner is forever prevented from working because of injury or illness suffered.
Point-of-Service Plan
Health insurance policy that allows the employee to choose between in-network and out-of-network care each time medical treatment is needed.
Policy
The written contract effecting insurance, or the certificate thereof, by whatever name called, and including all clauses, riders, endorsements, and papers attached thereto and made a part thereof.
The amount that the owner of a life insurance policy can borrow, at an interest rate set by the company, from the insurer up to the cash surrender value. If interest is not paid when due it is deducted from any remaining cash value. At the death of the policyholder any outstanding policy loans and interest due are subtracted from the death benefit.
A written document that authorizes an individual to perform certain acts on behalf of the person signing the document. The document, which must be witnessed by a notary public or some other public officer, may bestow either full power of attorney or limited power of attorney and it becomes void upon the death of the signer.
Pre-Existing Condition
A coverage limitation included in many health policies which states that certain physical or mental conditions, either previously diagnosed or which would normally be expected to require treatment prior to issue, will not be covered under the new policy for a specified period of time.
Preferred Provider Organization
Network of medical providers who charge on a fee-for-service basis, but are paid on a negotiated, discounted fee schedule.
Premium
The price of insurance protection for a specified risk for a specified period of time.
Value today of a future payment, or stream of payments, discounted at some appropriate compound interest or discount rate.
The assumption of total disability when an insured loses sight, hearing, speech, or a limb.
Qualified Deferred Compensation Plan
A tax-deferred plan set up by an employer for employees. These plans, such as a profit-sharing or a pension plans, provide for employer contributions to be tax deductible expenses to the employer, and may also allow employee contributions. Also known as a "Qualified Plan."
Qualified High-Deductible Health Plan
A health plan with lower premiums that covers health-care expenses only after the insured has paid each year a large amount out of pocket or from another source. To qualify as a health plan coupled with a Health Savings Account, the Internal Revenue Code requires the deductible to be at least $1,000 for an individual and $2,000 for a family. High-deductible plans are also known as catastrophic plans.
A tax-deferred plan set up by an employer for employees. These plans, such as a profit-sharing or a pension plans, provide for employer contributions to be tax deductible expenses to the employer, and may also allow employee contributions.
QTIP - Qualified Terminable Interest Property
Property that qualifies for the unlimited marital deduction when certain other conditions are met. Typically, the surviving spouse is entitled to all the income from the trust for life. No other individual has power of appointment for any part of the trust during the lifetime of the surviving spouse. The property ultimately passes to a predetermined remainder person.
Qualified Versus Non-Qualified Policies
Qualified plans are those employee benefit plans that meet Internal Revenue Service requirements as stated in IRS Code Section 401a. When a plan is approved, contributions made by the employer are tax deductible expenses.
Qualifying Event
An occurrence that triggers an insured's protection.
A disability that recurs or comes back again after disappearing the first time. Disability policies may not pay income benefits for a recurrent disability unless it meets the provisions of the policy.
In banking, refinance means to change the maturity date, the interest rate, or the amount of existing debt. With bonds, it means to retire existing bonded debt by issuing new securities to reduce the interest rate, or to extend the maturity date, or both. With mortgages, it means to pay off an existing mortgage loan and replacing it with a new one, usually in a different amount or at a lower interest rate.
Reinsurance
Insurance that an insurance company buys for its own protection. The risk of loss is spread so a disproportionately large loss under a single policy doesn't fall on one company. Reinsurance enables an insurance company to expand its capacity; stabilize its underwriting results; finance its expanding volume; secure catastrophe protection against shock losses; withdraw from a line of business or a geographical area within a specified time period.
Renewal
The automatic re-establishment of in-force status effected by the payment of another premium.
Insurance for renting tenants. A typical renter's policy consists of two main components: liability coverage and personal property coverage.
Replacement Cost
The dollar amount needed to replace damaged personal property or dwelling property without deducting for depreciation but limited by the maximum dollar amount shown on the declarations page of the policy.
Reserve
An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders. A reserve is usually treated as a liability.
Residual Benefit
In disability insurance, a benefit paid when you suffer a loss of income due to a covered disability or if loss of income persists. This benefit is based on a formula specified in your policy and it is generally a percentage of the full benefit. It may be paid up to the maximum benefit period.
The inability to perform one or more important daily job duties, or the inability to perform the usual daily job duties for the time period normally required for the performance of such duties.
A feature of a Long Term Care policy that provides temporary assistance while the giving the regular caregivers temporary relief.
Return of Premium
In a Long Term Care policy, where allowed by the state, this feature permits for a return to a client's estate all premiums paid for their policy upon his/her death, if their policy remained in force until the later of the policy anniversary after a client's 100th birthday or when a policy had been in effect for 25 years and the client had not received policy benefits nor was he eligible for benefits.
Reverse Gift Technique
An estate planning tool where property is transferred to the terminally ill spouse who is less affluent to provide a stepped up basis and to better utilize the dying spouse's unified credit. If the spouse dies more than one year after the transfer, the property passes back to the surviving spouse with a step-up in basis as well.
Can be altered, amended, revoked, or terminated during the lifetime of the grantor.
The provisions of this type of trust can be altered, amended, revoked, or terminated by the grantor as many times as desired during the grantor's lifetime.
A provision attached to a policy that adds benefits not found in the original policy or that changes the original policy.
In finance, risk is the possibility of losing or of not gaining in value. For insurance purposes, risk refers to the probability that a given covered event, such as death or a car accident, will occur. In terms of investments, risk is a measure of a particular investment's volatility and of the possibility that it will cause an investor some degree of financial loss. Specific types of risk include actuarial risk, interest rate risk, inflation risk, and credit risk.
Risk Class
Risk class, in insurance underwriting, is a grouping of insureds with a similar level of risk. Typical underwriting classifications are preferred, standard and substandard, smoking and nonsmoking, male and female.
Procedures to minimize the adverse effect of a possible financial loss to which a company or individual might be subject. It involves identifying potential sources of loss, measuring the financial consequences of a loss occurring, and using controls to minimize actual losses or their financial consequences through practices such as avoiding the risk, retaining the risk, reducing the risk, or transferring the risk, usually by insurance.
Roth IRA
An individual retirement account which permits accountholder's capital to accumulate tax free under certain conditions. Individuals can invest up to $4,000 per year, subject to income limitations. Withdrawals of principal and earnings are totally tax free after age 59 1/2 as long as the assets have remained in the IRA for at least five years after the first contribution. In addition, there are no minimum distribution requirements.
The organized trading of securities (stocks, bonds, etc.) through various exchanges and over-the-counter markets where securities are bought and sold subsequent to their original issuance. Trading in secondary markets is subject to the rules and regulations of the SEC. The secondary market is populated by buyers willing to pay what they determine to be fair market value.
Section 1035 Exchange
This refers to a part of the Internal Revenue Code that allows owners to replace a life insurance or annuity policy without creating a taxable event.
Section 7702
Part of the Internal Revenue Code that defines the conditions a life policy must satisfy to qualify as a life insurance contract, which has tax advantages.
An instrument that signifies an ownership position in a corporation (a stock), a creditor relationship with a corporation or governmental body (a bond), or rights to ownership such as an option, subscription right, or subscription warrant.
Insuring oneself or one's business through savings or investments instead of purchasing insurance coverage.
Separate Account
A separate account is an investment option that is maintained separately from an insurer's general account. Investment risk associated with separate-account investments is born by the contract owner.
Short-term Disability Insurance
A disability insurance policy that pays benefits only for a limited period of time (e.g., 26 weeks or one year).
Solvency
Having sufficient assets (capital, surplus, reserves) and being able to satisfy financial requirements (investments, annual reports, examinations) to be eligible to transact insurance business and meet liabilities.
A unique power that allows you to facilitate your eligibility for Medicaid while protecting your home and potentially receiving certain tax benefits. With a special power of appointment, you transfer your house to someone else in order to avoid having to sell the house and 'spend down' the proceeds before you can qualify for Medicaid. At the same time, the special power allows you to reserve the right to irrevocably redirect the house to a different person at a later time. This ability or power to redirect the home can be exercised during your lifetime (by a deed) or at your death (by a will), but only once in any case. Moreover, there are certain parties, such as your creditors and your estate, to whom you cannot redirect the house under the special power.
A life insurance policy in which premiums, ownership rights, and death benefit proceeds are split between an employer and an employee.
Stock Insurance Company
An incorporated insurer with capital contributed by stockholders, to whom earnings are distributed as dividends on their shares.
Stop Loss
Any provision in a policy designed to cut off an insurer's losses at a given point.
Successive Periods
In hospital income protection, when confinements in a hospital are due to the same or related causes and are separated by less than a contractually stipulated period of time, they are considered part of the same period of confinement.
Limitation in life insurance policies to the effect that no death benefits will be paid if the insured commits suicide during a specified initial period, usually the first two years that the policy is in force.
Surplus
The amount by which assets exceed liabilities.
Surrender Charge
The fee charged to a policyholder when a life insurance policy or annuity is surrendered for its cash value during the surrender period. This fee reflects expenses the insurance company incurs by placing the policy on its books, and subsequent administrative expenses.
Surrender Period
A set amount of time during which an annuity has surrender charges. Most surrender periods last from five to 10 years. Most contracts will allow you to take out at least 10% a year of the accumulated value of the account, even during the surrender period. If you take out more than that 10%, you will have to pay a surrender charge on the amount that you have withdrawn above that 10%. For annuity owners under age 59 ½, there may be an IRS penalty for early withdrawal.
With cash value life insurance policies that allow policy withdrawals, this is a strategy where the policyholder withdraws only up to his or her basis (i.e., the amount he or she has paid into the policy) so as to avoid having the withdrawal taxed. Investment earnings, which would be taxable upon withdrawal, are left in the policy.
Section 1035 of the Internal Revenue Code provides that certain exchanges of life insurance contracts, annuity contracts, and modified endowment contracts will generally not trigger a taxable gain as long as the owner is the same person under both contracts. Section 1031 of the code provides for like-kind exchanges of business or investment property.
A disability that is expected to last no more than one year.
Ownership of property by two or more persons in which each owner has an undivided interest. At the death of an owner the interest becomes part of the estate and does not pass to co-owners.
An endorsement or attachment to a life insurance policy that provides additional term coverage for only a specified, limited period. If the insured dies during this time, the designated beneficiary(ies) can receive death benefit proceeds.
A form of life insurance which provides coverage for a specified period of time and does not build cash value. Common policy periods are one year, five years, ten years, and twenty years or until the insured reaches age 65 or 70.
A person who dies with a will is said to die testate, while a person who dies without a will is said to die intestate.
A rule that brings back into the estate certain gifts, for estate tax purposes, made in the three year period before death. Gifts brought back into the taxable estate are subject to estate taxes.
A price placed on the time an investor has to wait until an investment matures, as determined by calculating the present value of the investment at maturity.
Total Loss
A loss of sufficient size that it can be said no value is left; the complete destruction of the property. The term also is used to mean a loss requiring the maximum amount a policy will pay.
A legal entity in which a person, called a trustee, holds title to and manages property for the benefit of another person, called a beneficiary. A trust created during the trustor's lifetime is called a living or inter vivos trust, and a trust created by a will is called a testamentary trust.
The holder of legal title to property for the management, use, or benefit of another.
The person who executes a deed to convey title to property or who creates a trust. Also called a creator, settlor, donor, or grantor.
Umbrella Policy
Coverage for losses above the limit of an underlying policy or policies such as homeowners and auto insurance. While it applies to losses over the dollar amount in the underlying policies, terms of coverage are sometimes broader than those of underlying policies.
Underwriter
The individual trained in evaluating risks and determining rates and coverages for them. Also, an insurer.
Underwriting
The process of selecting risks for insurance and classifying them according to their degrees of insurability so that the appropriate rates may be assigned. The process also includes rejection of those risks that do not quality.
Non-employment income, such as income from investments, trusts, rent, Social Security benefits, alimony payments, pensions, and annuities.
A federal tax credit allowed to each U. S. citizen or resident against tax, imposed on lifetime gifts (federal gift tax) or against tax, imposed on testamentary transfers of assets (federal estate tax).
Uniform Gift to Minors Act (UGMA)
State laws under which gifts to minors may be made by transferring property to a custodian.
A policy whose premium is the same for both men and women, mandated by certain states and optional in others.
A form of permanent life insurance that provides both life insurance protection and a savings component with a guaranteed minimum rate of return, plus an additional return when the insurance company's investments perform well. Other key features include the ability to adjust both your premium payments and the amount of your insurance coverage.
A federal gift and estate tax deduction allowed for transfers of property between spouses. Specifically, the marital deduction for both federal estate and gift taxes has no dollar or percentage limit as long as the donee (the spouse to whom the property is transferred) is a citizen of the U.S.
Usual, Customary and Reasonable Fees
An amount customarily charged for or covered for similar services and supplies which are medically necessary, recommended by a doctor or required for treatment.
Utilization
How much a covered group uses a particular health plan or program.
A method of managing medical care costs by controlling the fees charged by providers for various medical treatments, as well as the appropriateness of the treatment. Utilization management controls the component of appropriateness for medical care by using established criteria to review the care patients receive and make sure it is necessary and appropriate.
A type of annuity that has a variety of investment options available. The rate of return you receive will depend on the performance of the underlying investments chosen.
One of several types of life insurance policies that provide both life insurance protection and a savings component. The return on the savings portion of a variable life policy will generally vary, as it depends on the performance of the underlying securities.
Variable Universal Life Insurance
A form of permanent life insurance that combines features of both variable life and universal life. As with universal life, you have flexibility with both premium payments and death benefit coverage. As with variable life, the rate of return on the cash value portion of the policy is not fixed, but rather depends on the performance of the underlying investments selected.
Variable Life Insurance
A form of life insurance whose face value fluctuates depending upon the value of the dollar, securities or other equity products supporting the policy at the time payment is due.
Insurance that provides coverage for expenses relating to routine eye care (e.g., eye examinations, glasses, contact lenses).
Waiting Period
The period of time that must elapse (beginning with the first day of illness or injury) before benefits become payable. Therefore, benefits are paid only for costs incurred after the end of the elimination period. Also known as "Elimination Period."
Waiting Period Payback Provision
In a Long Term Care policy, this feature gives clients the option to be reimbursed for expenses incurred during the waiting period, one year after complete recovery from a paid loss.
Waiver of Premium
A clause or rider on a life insurance, disability, or long-term care insurance policy that cancels the premium payments the insured must make if he or she is disabled longer than a certain time period (usually six months) and as long as he or she continues to be disabled. The policy remains in force even though the insured is no longer paying the premiums.
A document that, when signed and witnessed, gives legal effect to the wishes of an individual, called a testator, to provide for the disposal of property upon death.
Whole Life Insurance
A life insurance policy that remains in full force and effect for the entire life of the insured provided that premiums are paid. As like other permanent life insurance policies, the contract builds tax-deferred cash value.