Life And Health Insurance Terms

Front 1

Define insurance

Back 1

a social device for spreading the chance of financial loss among a large number of people

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Insurer

Back 2

under takes to indemnify for losses - carrier- company

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Premium

Back 3

periodic payments to keep a police in force

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Insured

Back 4

a person who is covered by the insurance (insurer)

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Policy

Back 5

a contract of insurance, describing the term, coverage, premiums and deductibles

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Loss

Back 6

reduction in the value of an asset

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Claim

Back 7

the "demand" for payment of the insurance benefit to a person named in a policy INSURED SENDS CLAIM TO INSURER

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Risk

Back 8

the possibility of loss

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Speculative Risk

Back 9

risk that can have a gain or loss

INSURANCE USUALLY DOES NOT COVER

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Pure Risk

Back 10

risk with only a chance of loss

INSURANCE USUALLY DO COVER- NO GAIN

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Peril

Back 11

Cause for potential loss

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Hazards

Back 12

conditions which increases the seriousness of a potential loss/ increases likelihood of loss will occur

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List Hazards

Back 13

Physical - Moral - Morale - Legal

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Physical Hazards

Back 14

material, structural, or operational features of a risk. (ex. slippery floors, unsanitary conditions)

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Moral Hazards

Back 15

A person that might create a loss situation on purpose just to collect from insurance company. (ex. filing a false claim)

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Morale Hazards

Back 16

an individual through recklessness or thoughtless action, can increase the possibility for a loss (ex. failing to wear a seat-belt)

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Legal Hazards

Back 17

Increased likelihood that a loss will occur because of court actions. (ex. people file lawsuits and of courts to award enormous sums of alleged damages , or to require insurance payments which were not intended)

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List Of Ways To Managing Risks

Back 18

avoid - reduced - retained - transfer

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Avoid Risk

Back 19

never associating with a risk
(ex. avoids automobile accidents by never getting in a car.)

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Reduced Risk/ Controlled Risk

Back 20

Examining the perils and seeing which ones can be eliminated (ext. reduces health problems by living a healthier lifestyle)

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Retained Risk

Back 21

Person decides to assume financial responsibility for certain events (ex. pays deductible on a health insurance policy) (premiums may be reduced because of retaining risks)

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Transferred Risk

Back 22

Transfer risk to another party
(ex. has a policy from another insurance company)

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Law Of Large Numbers

Back 23

the larger the # / exposures, the more closely will the actual results obtained approach the probable results expected from an infinite # of risks / exposures

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Insurable Interest

Back 24

Interest in property such that (ex. loss or destruction of the property could cause a financial loss) EXISTS DURING THE APPLICATION PHASE ONLY

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Indemnity

Back 25

restoration to the victim of a loss by payment, repair or replacement.

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Face Amount / Face Value

Back 26

the amount indicated on the face of a life policy that will be paid at death or when the policy matures

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Deductible

Back 27

Amount of loss that the insured pays before the insurance kicks in.

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Coinsurance

Back 28

a sharing of risk between the insurer and the insured (COPAY)

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Stock Insurers

Back 29

like other stock companies, consist of stockholders who own shares in a company.

An incorporated insurer with capital contributed by stockholders, to whom earnings are distributed as dividends on their shares

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Mutual Insurers

Back 30

An insurance system in which the insured persons become company members, each paying specified amounts into a common fund from which members are entitled to indemnification in case of loss.

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Reciprocal Insurers

Back 31

An unincorporated groups of individuals, firms or corporations, commonly termed subscribers, who mutually insure one another, each separately assuming his or her share of each risk. Its chief administrator is an attorney-in-fact.

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Fraternal Insurers

Back 32

insurance offered to a special group of people, namely members of a lodge or fraternal order. such insurance may be written on an assessment basis or on legal reserve basis

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Lloyd's

Back 33

Generally refers to Lloyd's of London, England, an institution within which individual underwriters accept or reject the risks offered to them. The Lloyd's Corp. provides the support facility for their activities.

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Reinsurers

Back 34

Reinsurance is insurance purchased by insurers from other insurers to limit the total loss an insurer would experience in case of a disaster.

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Excess Insurance

Back 35

Coverage of the insured against loss above a stated amount or which pays only after any other insurance that may apply

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Surplus

Back 36

The amount by which assets exceed liabilities

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Domestic Insurer

Back 37

Insurer who does business in the state

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Foreign Insurer

Back 38

Insurer who does business out of state

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Alien insurer

Back 39

Insurer who does business out of country

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Producer / Agent

Back 40

-individual who sells and services insurance policies in either of two classifications:

Independent agent represents at least two insurance companies and (at least in theory) services clients by searching the market for the most advantageous price for the most coverage. The agent's commission is a percentage of each premium paid and includes a fee for servicing the insured's policy.
Direct or career agent represents only one company and sells only its policies. This agent is paid on a commission basis in much the same manner as the independent agent.

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Broker

Back 41

Insurance salesperson that searches the marketplace in the interest of clients, not insurance companies.

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Underwriter

Back 42

The individual trained in evaluating risks and determining rates and coverages for them. Also, an insurer.

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Fair Credit Reporting Act

Back 43

Federal law giving individuals the right to examine their own credit history. The provisions of this law enable consumers to approach credit reporting agencies to see what the agencies may be saying about them, find out if their credit information has been used any third parties, and approach an agency to dispute wrongful use or interpretation of their information. The law also places restrictions on the consumer reporting agencies, such as requiring the agencies to provide each consumer one free report per year upon request, as well as restricting the amount of time certain information can remain on one's credit report.

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Fraud

Back 44

an intentional misrepresentation made by a person with the intent to gain an advantage and relied upon by a second party which suffers a loss as a result

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Misrepresentation

Back 45

The use of oral or written statements that do not truly reflect the facts either by an insured on an application for insurance or by an insurer concerning the terms or benefits of an insurance policy.

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Two ways to determine needs to prevent over and under insuring

Back 46

Human Life Value Approach and Needs Analysis Approach

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Human Life Value Approach

Back 47

the values to others that a human life has in monetary terms

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Needs Analysis Approach

Back 48

A method of calculating how much life insurance is required by an individual/family to cover their needs (i.e. expenses). These include things like funeral expenses, legal fees, estate and gift taxes, business buyout costs, probate fees, medical deductibles, emergency funds, mortgage expenses, rent, debt and loans, college, child care, private schooling and maintenance costs. The needs approach contrasts the human-life approach.

Front 49

Accelerated Benefits

Back 49

living benefits paid by the insurance company which reduce the remaining death benefits

Front 50

Buy-Sell Agreement

Back 50

a contract among the owners of a business which provides terms for their purchase of a withdrawing partner's or stockholder's interest in the enterprise.

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Cross Purchase Plan
(partnership life and health insurance)

Back 51

Contract among partners or stockholders (shareholders) to purchase shares belonging to an incapacitated or deceased partner. These shares are distributed among the survivors either in proportion to their current shareholdings or according to a specified formula. Cross-purchase agreement is entered into before anyone knows who will be the seller or buyer(s). To fund the purchase price of the shares, usually each partner takes a life insurance policy on the other partners with himself or herself as the beneficiary. Also called buy and sell agreement.

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Entity Plan

Back 52

A type of business succession plan that is used by companies that have more than one owner. The plan involves having the company take out an insurance policy on the lives of owners in the amount equal to each owner's interest. In the event of death, the amount collected by the company from the insurance, which is equal to the deceased owners stake, is used to pay the deceased's estate for its share of the business.

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Key Person Life Insurance
(Key Man Insurance - key woman insurance - business life insurance)

Back 53

Key person insurance is needed if the sudden loss of a key executive would have a large negative effect on the company's operations. The payout provided from the death of the executive essentially buys the company time to find a new person or to implement other strategies to save the business.

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Deferred Compensation

Back 54

a plan whose terms permit an employee to defer payment of a portion of his or her salary in return for the employer’s promises to pay the employee the salary at some time in the future.
Generally, if such plan is not funded by irrevocably setting the fund aside for the employee or guaranteed by insurance, the employee will not recognize income from the plan until the employee is actually paid, and the employer does not obtain a deduction until the employee recognizes the income.

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Split Dollar

Back 55

Policy in which premiums and ownership rights and death proceeds are split between an employer and an employee, or a parent and a child. The employer pays at least the part of each year’s premium that equals the increase in the cash value, and in some cases the employer pays the entire premium. Aben- eficiary chosen by the employee splits the death payment with the employer.

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Fiduciary

Back 56

An individual, corporation or association holding assets for another party, often with the legal authority and duty to make decisions regarding financial matters on behalf of the other party.

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Term Life Insurance

Back 57

Life insurance that provides protection for a specified period of time. Common policy periods are one year, five years, 10 years or until the insured reaches age 65 or 70. The policy doesn't build up any of the nonforfeiture values associated with whole life policies.

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Renewable Term Policy

Back 58

A term life insurance policy that allows the policyholder to renew the policy (typically at a higher premium rate) after the policy has matured.

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Convertible Term

Back 59

Term life insurance coverage that 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.

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Reentry Term

Back 60

Re-entry, which is the allowance for level-premium term policyowners to qualify for another level-premium period, generally with new evidence of insurability.

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Level Term

Back 61

Life insurance policy whose face value does not change but whose premiums gradually rise over time.

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Decreasing Term

Back 62

Term life insurance in which (while the premium remains the same) the amount of death benefit decreases over the term of the policy in monthly, quarterly, or yearly steps.

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Increasing Term

Back 63

Increasing Term (sold only as a Rider) – Policy where Face Value goes up each year. Premium stays the same, so the insurer is charging a premium that is higher than required in the early years. Example of Increasing Term policies are the Return of Cash Value and Return of Premium riders, explained below.

Front 64

Whole Life Insurance

Back 64

Life insurance which might be kept in force for a person's whole life and which pays a benefit upon the person's death, whenever that might be.

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Cash Value

Back 65

A life insurance policy which in addition to providing a benefit upon the death of the policy holder, also accumulates cash value over time enabling benefits to be paid out before death. The three main types of cash value insurances are: whole life insurance, variable life insurance, and universal life insurance. Term life insurance is not a type of cash value insurance.

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non-forfeiture

Back 66

A non-forfeiture provision is a State mandated requirement that life insurance policies return surplus cash values (if any) to the policy owner if the policy lapses, or is terminated by the policy owner.

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Policy Loans

Back 67

A loan issued by an insurance company that uses the cash value of a person's life insurance policy as collateral.