Insurance Terminology and Concepts, Exams of Personal Health

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Xcel Texas Pre-licensing Education - Life

and Health Insurance

1. Absolute assignment - ✔✔Policy assignment under which the assignee (person to whom the policy is assigned) receives full control over the policy and also full rights to its benefits. Generally, when a policy is assigned to secure a debt, the owner retains all rights in the policy in excess of the debt, even though the assignment is absolute in form. (See assignment)
2. Accelerated benefits rider - ✔✔A life insurance rider that allows for the early payment of some portion of the policies face amount should the insured suffers from a terminal illness or injury.
3. Acceptance (See offer and acceptance) - ✔✔
4. Accident and health insurance - ✔✔Under which benefits are payable in case of disease, accidental injury, or accidental death. Also called health insurance, personal health insurance, and sickness and accident insurance.
5. Accidental bodily injury provision - ✔✔Disability income or accident policy provision that requires that the injury be accidental in order for benefits to be payable.

6. Accidental death and dismemberment (AD&D) - ✔✔Insurance providing payment if the insured's death results from an accident, if the insured accidentally severs a limb above the wrist or ankle joints, or totally and irreversibly loses eyesight.
7. Accidental death benefit rider - ✔✔A life insurance policy rider providing for payment of an additional benefit when death occurs by accidental means.
8. Accidental dismemberment - ✔✔Often defined as "the severance of limbs at or above the wrists or ankle joints, or the entire irrevocable loss of sight." Loss of use in itself may or not be considered dismemberment.
9. Accidental means provision - ✔✔Unforeseen, unexpected, unintended cause of an accident. Requirement of an accident-based policy that the cause of the mishap must be accidental for any claim to be payable.
10. Accumulation unit - ✔✔Premiums an annuitant pays into annuities are credited as accumulation units. At the end of the accumulation period, accumulation units are converted to annuity units.
11. Acquired immune deficiency syndrome (AIDS) - ✔✔A life- threatening condition brought on by the human immunodeficiency

virus; insurers must adhere to strict underwriting and claims guidelines in regard to AIDS risks and AIDS-related conditions.

12. Acute illness - ✔✔A serious condition, such as pneumonia, from which the body can fully recover with proper medical attention.
13. Adhesion - ✔✔A life insurance policy is a contract of adhesion because buyers must adhere to the terms of the contract already in existence. They have no opportunity to negotiate terms, rates, values, and so on.
14. Adjustable life insurance - ✔✔Combines features of both term and whole life coverage with the length of coverage and amount of accumulated cash value as the adjustable factors. Premiums may be increased or decreased to fit the specific needs. Such adjustments are not retroactive and apply only to the future.
15. Administrative-services-only (ASO) Plan - ✔✔Arrangement under which an insurance company or an independent organization, for a fee, handles the administration of claims, benefits, and other administrative functions for a self-insured group.
16. Admitted insurer - ✔✔An insurance company that has met the legal and financial requirements for operation within a given state.

17. Adult day care - ✔✔Type of care (usually custodial) designed for individuals who require assistance with various activities of daily living, while their primary caregivers are absent. Offered in care centers.
18. Adverse selection - ✔✔Selection "against the company." Tendency of less favorable insurance risks to seek or continue insurance to a greater extent than others. Also, tendency of policy owners to take advantage of favorable options in insurance contracts.
19. Advertising Code - ✔✔Rules established by the National Association of Insurance Commissioners (NAIC) to regulate insurance advertising.
20. Agency - ✔✔Situation wherein one party (an agent) has the power to act for another (the principal) i n dealing with third parties.
21. Agent - ✔✔Anyone not a duly licensed broker who solicits insurance or aids in placing risks, delivering policies, or collecting premiums on behalf of an insurance company.
22. Agent's report - ✔✔The section of an insurance application where the agent reports personal observations about the applicant.

23. Aleatory - ✔✔Feature of insurance contracts in that there is an element of chance for both parties and that the dollar given by the policyholder (premiums) and the insurer (benefits) may not be equal.
24. Alien Insurer - ✔✔Company incorporated or organized under the laws of any foreign nation, providence, or territory.
25. Ambulatory surgery - ✔✔Surgery performed on an outpatient basis.
26. Amount at risk - ✔✔Difference between the face amount of the policy and the reserve or policy value at a given time. In other words, the dollar amount over what the policy owner has contributed of cash value toward payment of the policyowner's own claim. Because the cash value increases every year, the net amount at risk naturally decreases until it finally reaches zero when the cash value or reserve become the face amount.
27. Annually renewable term (ART) - ✔✔A form of renewable term insurance that provides coverage for one year and allows the policy owner to renew coverage each year without evidence of insurability. Also called yearly renewable term (YRT).
28. Annuitant - ✔✔One to whom an annuity is payable, or a person upon the continuance of whose life further payment depends.

29. Annuity - ✔✔A contract that provides a stipulated sum payable at certain regular intervals during the lifetime of one or more persons, or payable for a specified period only.
30. Annuity unit - ✔✔The number of annuity units denotes the share of the funds an annuitant will receive from a variable annuity account after the accumulation period ends and benefits begin. A formula is used to convert accumulation units to annuity units.
31. Any occupation - ✔✔A definition of total disability that requires that for disability income benefits to be payable, the insured must be unable to perform any job for which the insured is "reasonably suited by reason of education, training, or experience."
32. Apparent authority - ✔✔The authority an agent appears to have, based on the principal's (the insurer's) actions, words, deeds, or because of circumstances the principal (the insurer) created.
33. Application - ✔✔Form supplied by the insurance company, usually filled in by the agent and medical examiner (if applicable) on the basis of information received from the applicant. It is signed by the applicant and is part of the insurance policy if it is issued. It gives information to the home office underwriting department, so it may consider whether an insurance policy will be issued and, if so, in what classification and at what premium rate.

34. Appointment - ✔✔Authorization or certification of an agent to act for or represent an insurance company.
35. Approval receipt - ✔✔Rarely used today, a type of conditional receipt that provides that coverage is effective as of the date the application is approved (before the policy is delivered).
36. Assessment mutual insurer - ✔✔An insurance company characterized by member-insureds who are assessed an individual portion of each loss that occurs. No premium payment is payable in advance.
37. Assignee Person (including corporation, partnership, or other organization) to whom a right or rights under a policy are transferred by means of an assignment. - ✔✔
38. Assignment - ✔✔Signed transfer of benefits of a policy by an insured to another party. The company does not guarantee the validity of an assignment.
39. Assignment provision (health contracts) - ✔✔Commercial health policy provision that allows the policy owner to assign benefit payments from the insurer directly to the health care provider.

40. Assignor - ✔✔Person (including corporation, partnership, or other organization or entity) who transfers a right or rights under an insurance policy to another by means of an assignment.
41. Attained age - ✔✔With reference to an insured, the current insurance age.
42. Authority - ✔✔The actions and deeds an agent is authorized to conduct on behalf of an insurance company, as specified in the agent's contract.
43. Authorized company - ✔✔Company duly authorized by the insurance department to operate in the state.
44. Automatic premium loan provision - ✔✔Authorizes insurer to automatically pay any premium in default at the end of the grace period and charge the amount so paid against the life insurance policy as a policy loan.
45. Average Indexed Monthly Earnings (AIME) - ✔✔The basis used for calculating the primary insurance amount (PIA) for Social Security benefits.
46. Average Monthly Wage (AMW) - ✔✔The average wage base for computing virtually all Social Security benefits prior to.

47. Aviation exclusion - ✔✔Either attached by rider or included in standard policy language excepting from coverage certain deaths or disabilities due to aviation, such as "other than a fare-paying passenger."
48. Backdating - ✔✔The practice of making a policy effective at an earlier date than the present.
49. Basic medical expense policy - ✔✔Health insurance policy that provides "first dollar" benefits for specified (and limited) health care, such as hospitalization, surgery, or physician services. Characterized by limited benefit periods and relatively low coverage limits.
50. Beneficiary - ✔✔Person to whom the proceeds of a life or accident policy are payable when the insured dies. The various types of beneficiaries are primary beneficiaries (those first entitled to proceeds), secondary beneficiaries (those entitled to proceeds if no primary beneficiary is living when the insured dies), and tertiary beneficiaries (those entitled to proceeds if no primary or secondary beneficiaries are alive when the insured dies).
51. Benefit - ✔✔May be either money or a right to the policy owner upon the happening of the conditions set out in the policy.

52. Benefit period - ✔✔Maximum length of time that insurance benefits will be paid for any one accident, illness, or hospital stay.
53. Best's Insurance Report - ✔✔A guide, published by A.M. Best, Inc., that rates insurers' financial integrity and managerial and operational strengths.
54. Binding receipt - ✔✔Given by a company upon an applicant's first premium payment. The policy, if approved, becomes effective from the date of the receipt.
55. Blackout period - ✔✔Period following the death of a family breadwinner during which no Social Security benefits are available to the surviving spouse.
56. Blanket policy - ✔✔Covers a number of individuals who are exposed to the same hazards, such as members of an athletic team, company officials who are passengers in the same company plane, and so on.
57. Broker - ✔✔Licensed insurance representative who does not represent a specific company, but places business among various companies. Legally, the broker is usually regarded as a representative of the insured rather than the company.

58. Business continuation plan - ✔✔Arrangements between the business owners that provide that the shares owned by any one of them who dies or becomes disabled shall be sold to and purchased by the other co-owners or by the business.
59. Business overhead expense insurance - ✔✔A form of disability income coverage designed to pay necessary business overhead expenses, such as rent, should the insured business owner become disabled.
60. Buy-sell agreement - ✔✔Agreement that a deceased business owner's interest will be sold and purchased at a predetermined price or at a price according to a predetermined formula.
61. Buyer's guides - ✔✔Informational consumer guide books that explain insurance policies and insurance concepts; in many states, they are required to be given to applicants when certain types of coverages are being considered.
62. Cafeteria plan - ✔✔Employee benefit arrangements in which employees can select from a range of benefits.
63. Cancellable contract - ✔✔Health insurance contract that may be terminated by the company or that is renewable at its option.

64. Capital sum - ✔✔Amount provided for accidental dismemberment or loss of eyesight. Indemnities for loss of one member or sight of one eye are percentages of the capital sum.
65. Career agency system - ✔✔A method of marketing, selling, and distributing insurance, it is represented by agencies or branch offices committed to the ongoing recruitment and development of career agents.
66. Case management - ✔✔The professional arrangement and coordination of health services through assessment, service plan development, and monitoring.
67. Cash or deferred arrangements - ✔✔A qualified employer retirement plan under which employees can defer amounts of their salaries into a retirement plan. These amounts are not included in the employee's gross income and so are tax deferred. Also called (k) plans.
68. Cash refund annuity - ✔✔Provides that, upon the death of an annuitant before payments totaling the purchase price have been made, the excess of the amount paid by the purchaser over the total annuity payments received will be paid in one sum to designated beneficiaries.

69. Cash surrender option - ✔✔A nonforfeiture option that allows whole life insurance policy owners to receive a payout of their policy's cash values.
70. Cash surrender value - ✔✔Amount available to the owner when a life insurance policy is surrendered to the company. During the early policy years, the cash value is the reserve less a "surrender charge"; in later policy years, it usually equals or closely approximates the reserve value at time of surrender.
71. Cash value - ✔✔The equity amount or "savings" accumulation in a whole life policy.
72. Churning - ✔✔The practice by which policy values in an existing life insurance policy or annuity contract are used to purchase another policy or contract with that same insurer for the purpose of earning additional premiums or commissions without an objectively reasonable basis for believing that the new policy will result in an actual and demonstrable benefit.
73. Class designation - ✔✔A beneficiary designation. Rather than specifying one or more beneficiaries by name, the policy owner designates a class or group of beneficiaries. For example, "my children."
74. Classification - ✔✔Occupational category of a risk.

75. Cleft lip - ✔✔A congenital furrow or groove in the upper lip that results from incomplete embryonic development. This condition may be associated with a cleft palate. Also called a hare lip.
76. Cleft palate - ✔✔A congenital furrow or groove in the roof of the mouth that results from incomplete embryonic development. This condition may be associated with a cleft lip.
77. Close corporation - ✔✔A corporation owned by a small group of stockholders, each of whom usually has a voice in operating the business.
78. COBRA (Consolidated Omnibus Budget Reconciliation Act) - ✔✔Extends group health coverage to terminated employees and their families
79. Coinsurance (percentage participation) - ✔✔Principle under which the company insures only part of the potential loss, the policyowners paying the other part. For instance, in a major medical policy, the company may agree to pay % of the insured expenses, with the insured to pay the other %.
80. Collateral assignment - ✔✔Assignment of a policy to a creditor as security for a debt. The creditor is entitled to be reimbursed out of policy proceeds for the amount owed. The beneficiary is entitled to

any excess of policy proceeds over the amount due the creditor in the event of the insured's death.

81. Combination company - ✔✔Company whose agents sell both weekly premium life and health insurance and ordinary life insurance. Also called a multi-line company.
82. Commercial health insurers - ✔✔Insurance companies that function on the reimbursement approach, which allows policy owners to seek medical treatment then submit the charges to the insurer for reimbursement.
83. Commissioner - ✔✔Head of a state insurance department; public officer charged with supervising the insurance business in a state and administrating insurance laws. Called "superintendent" in some states, "director" in others.
84. Commissioner's Standard Ordinary (CSO) Table - ✔✔Table of mortality based on intercompany experience over a period of time, which is legally recognized as the mortality basis for computing maximum reserves on policies issued within past years.
85. Common disaster provision - ✔✔Sometimes added to a policy and designed to provide an alternative beneficiary in the event that the insured as well as the original beneficiary dies as the result of a common accident.

86. Competent parties - ✔✔To be enforceable, a contract must be entered into by competent parties. A competent party is one who is capable of understanding the contract being agreed to.
87. Comprehensive major medical insurance - ✔✔Designed to give the protection offered by both a basic medical expense and major medical policy. It is characterized by a low deductible amount, coinsurance clause, and high maximum benefits.
88. Concealment - ✔✔Failure of the insured to disclose to the company a fact material to the acceptance of the risk at the time application is made.
89. Conditional contract - ✔✔Characteristic of an insurance contract in that the payment of benefits is dependent on or a condition of the occurrence of the risk insured against.
90. Conditional receipt - ✔✔Given to the policy owners when they pay a premium at time of application.Such receipts bind the insurance company if the risk is approved as applied for, subject to any other conditions stated on the receipt.
91. Conditionally renewable contract - ✔✔Health insurance policy providing that the insured may renew the contract from period to period, or continue it to a stated date or an advanced age, subject to

the right of the insurer to decline renewal only under conditions defined in the contract.

92. Consideration - ✔✔Element of a binding contract; acceptance by the company of payment of the premium and statements made by the prospective insured in the application.
93. Consideration clause - ✔✔The part of an insurance contract setting forth the amount of initial and renewal premiums and frequency of future payments. ,
94. Contestable period - ✔✔Period during which the company may contest a claim on a policy because of misleading or incomplete information in the application.
95. Contingent beneficiary - ✔✔Person(s) named to receive proceeds in case the original beneficiary is not alive. Also referred to as secondary.
96. Continuing care - ✔✔Type of health or medical care designed to provide a benefit for elderly individuals who live in a retirement community; addresses fulltime needs, both social and medical. Also known as residential care.

97. Contract - ✔✔An agreement enforceable by law whereby one party binds itself to certain promises or deeds.
98. Contract of agency - ✔✔A legal document containing the terms of the contract between the agent and company, signed by both parties. Also called agency agreement.
99. Contributory plan - ✔✔Group insurance plan issued to an employer under which both the employer and employees contribute to the cost of the plan. Generally, % of the eligible employees must be insured. (See noncontributory plan
100. Conversion factor - ✔✔A stated dollar-per-point amount used to determine benefit amounts paid for the cost of a procedure under a health insurance plan.
101. Conversion privilege - ✔✔Allows the policy owner, before an original insurance policy expires, to elect to have a new policy issued that will continue the insurance coverage. Conversion may be effected at attained age (premiums based on the age attained at time of conversion) or at original age (premiums based on age at time of original issue).
102. Convertible term - ✔✔Contract that may be converted to a permanent form of insurance without medical examination.

103. Coordination of benefits (COB) provision - ✔✔Designed to prevent duplication of group insurance benefits. Limits benefits from multiple group health insurance policies in a particular case to % of the expenses covered and designates the order in which the multiple carriers are to pay benefits.
104. Corridor deductible - ✔✔In superimposed maor medical plans, a deductible amount between the benefits paid by the basic plan and the beginning of the major medical benefits.
105. Cost of Living (COL) rider - ✔✔A rider available with some policies that provides for a n automatic increase in benefits (typically tied to the Consumer Price Index), offsetting the effects of inflation.
106. Coverage requirements - ✔✔Standards of coverage that prevent retirement plans from discriminating in favor of highly compensated employees. A plan must pass a n IRS coverage test to be considered qualified.
107. Credit accident and health insurance - ✔✔If the insured debtor becomes totally disabled due to an accident or sickness, the policy premiums are paid during the period of disability or the loan is paid off. May be individual or group policy.
108. Credit life insurance - ✔✔Usually written as decreasing term on a relatively small decreasing balance installment loan that may reflect

direct borrowing or a balance due for merchandise purchased. If borrower dies, benefits pay balance due. May be individual or group policy.

109. Credit report - ✔✔A summary of an insurance applicant's credit history, made by a n independent organization that has investigated the applicant's credit standing.
110. Cross-purchase plan - ✔✔An agreement that provides that upon a business owner's death, surviving owners will purchase the deceased's interest, often with funds from life insurance policies owned by each principal on the lives of all other principals.
111. Currently insured - ✔✔Under Social Security, a status of limited eligibility that provides only death benefits.
112. Custodial care - ✔✔Level of health or medical care given to meet daily personal needs, such as dressing, bathing, getting out of bed, and so on. Though it does not require medical training, it must be administered under a physician's order.
113. Death rate - ✔✔Proportion of persons in each age group who die within a year; usually expressed as so many deaths per thousand persons. (See expected mortality)

114. Debit insurer - ✔✔(See home service insurer)
115. Decreasing term insurance - ✔✔Term life insurance on which the face value slowly decreases in scheduled steps from the date the policy comes into force to the date the policy expires, while the premium remains level. The intervals between decreases are usually monthly or annually.
116. Deductible - ✔✔Amount of expense or loss to be paid by the insured before a health insurance policy starts paying benefits.
117. Deferred annuity - ✔✔Provides for postponement of the commencement of an annuity until after a specified period or until the annuitant attains a specified age. May be purchased either on single-premium or flexible premium basis.
118. Deferred compensation plan - ✔✔The deferral of an employee's compensation to some future age or date. These plans are frequently used to provide fringe benefits, such as retirement income, to selected personnel.
119. Defined benefit plan - ✔✔A pension plan under which benefits are determined by a specific benefit formula.

120. Defined contribution plan - ✔✔A tax-qualified retirement plan in which annual contributions are determined by a formula set forth in the plan. Benefits paid to a participant vary with the amount of contributions made on the participant's behalf and the length of service under the plan.
121. Delayed disability provision - ✔✔A disability income policy provision that allows a certain amount of time after an accident for a disability to result, and the insured remains eligible for benefits.
122. Dental insurance - ✔✔A relatively new form of health insurance coverage typically offered on a group basis, it covers the costs of normal dental maintenance as well as oral surgery and root canal therapy.
123. Dependency period - ✔✔Period following the death of the breadwinner up until the youngest child reaches maturity.
124. Deposit term - ✔✔Has modest endowment feature. Normally is sold for - year terms with a higher first-year premium than for subsequent years. If policy lapses, insured forfeits the "deposit" and receives no refund.
125. Disability - ✔✔Physical or mental impairment making a person incapable of performing one or more duties of that person's occupation.

126. Disability buy-sell agreement - ✔✔An agreement between business co-owners that provides that shares owned by any one of them who becomes disabled shall be sold to and purchased by the other co-owners or by the business using funds from disability income insurance.
127. Disability income insurance - ✔✔A type of health insurance coverage, it provides for the payment of regular, periodic income should the insured become disabled from illness or injury.
128. Disability income rider - ✔✔Typically a rider to a life insurance policy, it provides benefits in the form of income in the event the insured becomes totally disabled.
129. Discrimination - ✔✔In insurance, the act of treating certain groups of people unfairly in the sale and/or pricing of policies; treating any of a given class of risk differently from other like risks. Discrimination is expressly prohibited in most state insurance codes.
130. Dividend - ✔✔Policy owner's share in the divisible surplus of a company issuing insurance on the participating plan.
131. Dividend options - ✔✔The different ways in which the insured under a participating life insurance policy may elect to receive surplus earnings (in cash, as a reduction of premium, as additional

paid-up insurance, left on deposit at interest, or as additional term insurance).

132. Domestic insurer - ✔✔Company within the state in which it is chartered and in which its home office is located.
133. Dread disease policy - ✔✔(See limited risk policy)
134. Elimination period - ✔✔Duration of time between the beginning of an insured's disability and the commencement of the period for which benefits are payable.
135. Employee benefit plans - ✔✔Plans through which employers offer employees benefits such as coverage for medical expenses, disability, retirement, and death.
136. Endowment - ✔✔Contract providing for payment of the face amount at the end of a fixed period, at a specified age of the insured, or at the insured's death before the end of the stated period.
137. Endowment period - ✔✔Period specified in an endowment policy during which, if the insured dies, the beneficiary receives a death benefit. If the insured is still living at the end of the endowment period, the insured receives the endowment as a living benefit.

138. Enhanced whole life - ✔✔A whole life insurance policy issued by a mutual insurer, in which policy dividends are used to provide extra death benefits or to reduce future premiums.
139. Enrollment period - ✔✔Period during which new employees can sign up for coverage under a group insurance plan.
140. Entire contract provision - ✔✔An insurance policy provision stating that the application and policy contain all provisions and constitute the entire contract.
141. Entity plan - ✔✔An agreement in which a business assumes the obligation of purchasing a deceased owner's interest in the business, thereby proportionately increasing the interests of surviving owners.
142. Equity indexed annuity - ✔✔A fixed deferred annuity that offers the traditional guaranteed minimum interest rate and an excess interest feature that is based on the performance of an external equities market index.
143. Errors and omissions insurance - ✔✔Professional liability insurance that protects an insurance producer against claims arising from service the producer rendered or failed to render.