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Terms

For a full glossary of common terms used in insurance please visit this page. 

This page provides a list of common insurance terms and definitions that are used in the insurance business. 

The definitions in this glossary are developed by the NAIC Research and Actuarial Department staff based on various insurance references. These definitions represent a common or general use of the term. Some words and/or phrases may be defined differently by other entities, or used in a context such that the definition shown may not be applicable.

Accident - an unexpected event or circumstance without deliberate intent.

Accident Insurance - insurance for unforeseen bodily injury.

Agent - an individual who sells, services, or negotiates insurance policies either on behalf of a company or independently.

All-Risk - also known as open peril, this type of policy covers a broad range of losses. The policy covers risks not explicitly excluded in the policy contract.

Alternative Workers' Compensation - other than standard workers' compensation coverage, employer's liability and excess workers' compensation (e.g., large deductible, managed care).

Annuities – Immediate Non-variable - an annuity contract that provides for the fixed payment of the annuity at the end of the first interval of payment after purchase. The interval may vary, however the annuity payouts must begin within 13 months.

Annuity - a contract providing income for a specified period of time, or duration of life for a person or persons.

Beneficiary - an individual who may become eligible to receive payment due to will, life insurance policy, retirement plan, annuity, trust, or other contract.

Benefits (Medical & Hospital Expenses) - total expenditures for health care services paid to or on behalf of a member.

Claim - a request made by the insured for insurer remittance of payment due to loss incurred and covered under the policy agreement.

Claims Adjustment Expenses - costs expected to be incurred in connection with the adjustment and recording of accident and health, auto medical and workers' compensation claims.

Claims-made Form - A type of liability insurance form that only pays if the both event that causes (triggers)the claim and the actual claim are submitted to the insurance company during the policy term

Disability Income - a policy designed to compensate insured individuals for a portion of the income they lose because of a disabling injury or illness.

Disability Income - Long-Term - policies that provide a weekly or monthly income benefit for more than five years for individual coverage and more than one year for group coverage for full or partial disability arising from accident and/or sickness.

Disability Income - Short-Term - policies that provide a weekly or monthly income benefit for up to five years for individual coverage and up to one year for group coverage for full or partial disability arising from accident and/or sickness.

Excess Workers' Compensation - either specific and/or aggregate excess workers' compensation insurance written above an attachment point or self-insured retention.

Expense Ratio - percentage of premium income used to attain and service policies. Derived by subtracting related expenses from incurred losses and dividing by written premiums.

Face Amount - the value of a policy to be provided upon maturity date or death.

Group Accident and Health - coverage written on a group basis (e.g., employees of a single employer and their dependents) that pays scheduled benefits or medical expenses caused by disease, accidental injury or accidental death. Excludes amounts attributable to uninsured accidents and health plans and the uninsured portion of partially insured accident and health plans.

Group Annuities – Deferred Non- Variable and Variable - an annuity contract that provides an accumulation based on both (1) funds that accumulate based on a guaranteed crediting interest rates or additional interest rate applied to designated considerations, and (2) funds where the accumulation vary in accordance with the rate of return of the underlying investment portfolio selected by the policyholder. The contract provides for the initiation of payments at some designated future date.

Group Annuities – Deferred Variable - an annuity contract that provides an accumulation based fund where the accumulation varies in accordance with the rate of return of the underlying investment portfolio selected by the policyholder. Must include at least one option to have the accumulation vary in accordance with the rate of return of the underlying investment portfolio selected by the policyholder and may include at least one option to have the series of payments vary in accordance with the rate of return of the underlying investment portfolio selected by the policyholder. This annuity contract provides for the initiation of payments at some designated future date.

Group Annuities – Immediate Non-Variable and Variable - an annuity contract that provides an accumulation based on both (1) funds that accumulate based on a guaranteed crediting interest rates or additional interest rate applied to designated considerations, and (2) funds where the accumulation vary in accordance with the rate of return of the underlying investment portfolio selected by the policyholder. The contract provides for the initiation of payments at some interval that may vary, however the annuity payouts must begin within 13 months.

Group Annuities – Immediate Variable - an annuity contract that provides for the first payment of the annuity at the end of the fixed interval of payment after purchase. The interval may vary, however the annuity payouts must begin within 13 months. The amount varies with the value of equities (separate account) purchased as investments by the insurance companies.

Group Annuities – Unallocated - annuity contracts or portions thereof where the Insurer purchases an annuity for the retirees.

Group Annuity - a contract providing income for a specified period of time, or duration of life for a person or persons established to benefit a group of employees.

Group Health - health insurance issued to employers, associations, trusts, or other groups covering employees or members and/or their dependents, to whom a certificate of coverage may be provided.

Group Code - a unique three to five digit number assigned by the NAIC to identify those companies that are part of a larger group of insurance companies.

Group Credit – Life - contracts sold in connection with loan/credit transactions or other credit transactions, which do not exceed a stated duration and/or amount and provide insurance protection against death.

Group Health Organizations – Health Maintenance (HMO) - a plan under which an enrollee pays a membership fixed fee in advance in return for a wide range of comprehensive health care services with the HMO's approved providers in a designated service area.

Health – Excess/Stop Loss - this type of insurance may be extended to either a health plan or a self-insured employer plan. Its purpose is to insure against the risk that any one claim will exceed a specific dollar amount or that an entire plan's losses will exceed a specific amount.

Health Insurance - a generic term applying to all types of insurance indemnifying or reimbursing for losses caused by bodily injury or illness including related medical expenses.

Health Maintenance Organization (HMO) - a medical group plan that provides physician, hospital, and clinical services to participating members in exchange for a periodic flat fee.

Health Plan - written promise of coverage given to an individual, family, or group of covered individuals, where a beneficiary is entitled to receive a defined set of health care benefits in exchange for a defined consideration, such as a premium.

Irrevocable Beneficiary - a life insurance policy beneficiary who has a vested interest in the policy proceeds even during the insured's lifetime because the policy owner has the right to change the beneficiary designation only after obtaining the beneficiary's consent.

Joint and Last Survivor Annuity - retirement plan that continues to payout so long as at least one, of two or more, annuitants is alive.

Joint Underwriting Association (JUA) - a loss-sharing mechanism combining several insurance companies to provide extra capacity due to type or size of exposure.

Joint-Life Annuity - an annuity contract that ceases upon the death of the first of two or more annuitants.

Liability - a certain or probable future sacrifice of economic benefits arising from present obligations of a particular entity to transfer assets or to provide services to other entities in the future as a result of a past transactions(s) or event(s). three essential characteristics: a)    It embodies a present duty or responsibility to one or more other entities that entails settlement by probable future transfer or use of assets at a specified or determinable date, on occurrence of a specified event, or on demand; b)    The duty or responsibility obligates a particular entity, leaving it little or no discretion to avoid the future sacrifice; and c)    The transaction or other event obligating the entity has already happened.

Life – Endowment - insurance that pays the same benefit amount should the insured die during the term of the contract, or if the insured survives to the end of the specified coverage term or age.

Life – Flexible Premium Adjustable Life - a group life insurance that provides a face amount that is adjustable to the certificate holder and allows the certificate holder to vary the modal premium that is paid or to skip a payment so long as the certificate value is sufficient to keep the certificate in force, and under which separately identified interest credits (other than in connection with dividend accumulation, premium deposit funds or other supplementary accounts) and mortality and expense charges are made to individual certificates while providing minimum guaranteed values.

Life Settlements - a contract or agreement in which a policyholder agrees to sell or transfer ownership in all or part of a life insurance policy to a third party for compensation that is less than the expected death benefit of a policy.

Lifetime Disability Benefit - a provision in some disability income policies to recoup lost wages for the term of disability or remainder of insured's life in case of permanent disability.

Limited Benefit - policies that provide coverage for vision, prescription drug, and/or any other single service plan or program. Also include short-term care policies that provide coverage for less than one year for medical and other services provided in a setting other than an acute care unit of the hospital.

Limited Payment Life Insurance - a form of whole-life insurance with a pre-defined number of premiums to be paid.

Limited Policies - health insurance coverage for a certain ailment, such as cancer.

Limits - maximum value to be derived from a policy.

Major Medical - a hospital/surgical/medical expense contract that provides comprehensive benefits as defined in the state in which the contract will be delivered.

Medicaid - policies issued in association with the Federal/State entitlement program created by Title XIX of the Social Security Act of 1965 that pays for medical assistance for certain individuals and families with low incomes and resources.

Medical & Hospital Expenses (Benefits or Claims) - total expenditures for health care services paid to or on behalf of members.

Medical Malpractice - insurance coverage protecting a licensed health care provider or health care facility against legal liability resulting from the death or injury of any person due to the insured's misconduct, negligence, or incompetence, in rendering or failure to render professional services.

Medical Only - line of business that provides medical only benefits without hospital coverage. An example would be provider-sponsored organizations where there is no coverage for other than provider (non-hospital) services. Does not include self-insured business, FEHBP, Medicare and Medicaid programs, or dental only business.

Medical Professional Liability - insurance coverage protecting a licensed health care provider or health care facility against legal liability resulting from the death or injury of any person due to the insured's misconduct, negligence, or incompetence in rendering professional services. Medical Professional Liability is also known as Medical Malpractice.

Medicare - a state assistance program, passed under Title XVIII of the Social Security Amendments of 1965, to provide hospital and medical expense insurance to those over 65 years of age.

Medicare + Choice - a major initiative in the Balanced Budget Act of 1997 (also called Medicare Part C), under which Medicare beneficiaries may select from among several managed care options or a Medicare system.

Medicare Advantage Plan - an HMO, PPO, or Private Fee-For Service Plan that contracts with Medicare Advantage Prescription Drug Plan also includes drug benefits. The plan may provide extra coverage such as vision, hearing, dental, and/or health and wellness programs. Medicare pays a fixed amount for insured's care every month to the companies offering Medicare Advantage plans.

Medicare Cost - contract with Center for Medicare and Medicaid Services (CMS) for Medicare coverage. These contracts with CMS provide reimbursement through pre-determined monthly amount per member based on a total estimated budget. The beneficiary may use providers outside the provider network. Does not include stand alone Medicare Part D Plans.

Medicare Part D - Stand-Alone - stand-alone Part D coverage written through individual contracts; stand-alone Part D coverage written through group contracts and certificates; and Part D coverage written on employer groups where the reporting entity is responsible for reporting claims to the Centers for Medicare & Medicaid Services (CMS).

Medicare Supplement - Insurance coverage sold on an individual or group basis to help fill the "gaps" in the protections granted by the federal Medicare program. This is strictly supplemental coverage and cannot duplicate any benefits provided by Medicare. It is structured to pay part or all of Medicare's deductibles and co-payments. It may also cover some services and expenses not covered by Medicare. Also known as Medigap" insurance.

Medigap - supplementary private health insurance products to Medicare insurance benefits.

Policy - a written contract ratifying the legality of an insurance agreement.

Policy Dividend - a refund of part of the premium on a participating life insurance policy. Amount of payment is determined by subtracting the actual premium expense from the premium charged. The payment can be taken as cash, applied to a purchase an increment of paid-up insurance, left on deposit with the insurance company or applied to purchase term insurance for one year.

Policy Period - time period during which insurance coverage is in effect.

Policy Reserve - the amount of money allocated specifically for the fulfillment of policy obligations by a life insurance company; reserves are in place to safeguard that the company is able to pay all future claims.

Policyholders Surplus - assets in excess of the liabilities of a company or net income above any monies indebted to legal obligation.

Short-term Disability - a company standard defining a period of time employees are eligible for short-term disability coverage, typically for 2 years or less.

Short-Term Medical - policies that provide major medical coverage for a short period of time, typically 30 to 180 days. These policies may be renewable for multiple periods.

Universal Life Insurance - adjustable life insurance under which premiums and coverage are adjustable, company expenses are not specifically disclosed to the insured but a financial report is provided to policyholder's annually.

Whole Life - life insurance that may be kept in force for a person's entire life and that pays a benefit upon the person's death, whenever that may be.

Whole Life Insurance - life insurance that may be kept in force for the duration of a person's life and pays a benefit upon the person's death. Premiums are made for same time period.

Workers' Compensation - insurance that covers an employer's liability for injuries, disability or death to persons in their employment, without regard to fault, as prescribed by state or federal workers' compensation laws and other statutes.

Written Premium - the contractually determined amount charged by the reporting entity to the policyholder for the effective period of the contract based on the expectation of risk, policy benefits, and expenses associated with the coverage provided by the terms of the insurance contract.