A consumer's insurance glossary

A list of words and phrases insurance people use (but the rest of us don't really understand).

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z


  A

Actual cash value (refers to auto and homeowner insurance) — The cost to replace damaged or lost property with comparable or like property, minus depreciation.

Actuary — An insurance professional who analyzes and calculates rates and reserves. Evaluates and manages statistical information.

Actuarial — Statistical calculations insurance companies use to decide insurance rates and premiums based on usage projections and costs for a defined risk in a specific insurance market.

Adjuster — Someone who is paid by the insurance company or the insured person to investigate or negotiate insurance claims on their behalf.

Administrative costs — Costs associated with running an insurance business, such as utilization review, marketing, medical underwriting, commissions, premium collection, claims processing, insurer profit, quality assurance programs, and risk management.

Administrative services only (ASO) (refers to health insurance) — When a third-party administrator (see “Third-party administrator”) provides services such as processing and paying health benefit claims for an employer.

Admitted company — An insurance company the Office of the Insurance Commissioner authorizes and licenses to do business in Washington state.

Adverse benefit determination — This means that for some reason, the health plan has decided that it’s not going to pay a claim, or it’s not going to pay the dollar amount that the consumer wanted. The denial can be for many reasons. For example:

  • the health plan simply doesn’t cover the procedure;
  • the consumer’s employer tells the health plan that, at the time the consumer received the service, the consumer wasn’t eligible to participate in the plan; or
  • the health plan defines the service as “experimental or investigational” or “not medically necessary.”

When consumers receive adverse benefit determinations from their health plans, consumers can file an appeal.

Agent — See "Producer".

Annual Limit — Many health insurance plans place limits on how much money they will pay you or your doctor over the course of a plan year. Health care reform bans annual limits for essential benefits for plan years starting after Sept. 23, 2010.

Annuity (refers to life insurance) — This is a series of income payments made to a customer at regular intervals by an insurance company in return for a premium or premiums the customer paid. There are many types of annuities which offer various benefits.

Appeal — A request for reconsideration of a health claim, usually from a denial.

Application (app) — An insurance form a potential customer fills out. Based on the form, the insurance company decides whether or not to insure the customer, modify the coverage offered, or decline to cover the customer. An application without premium payment is a request for an offer. With a premium payment, it is an actual offer, unless the insurance company declines to issue a policy to the customer.

Apportionment — Dividing a loss proportionately among two or more insurers to cover the same loss. For example, assume someone insures their property for $10,000 with one insurance company, and they also insure it for $5,000 with a second insurance company. If a loss occurs, the first company pays two-thirds of the loss and the second company pays one-third.

Assigned risk (refers to auto insurance) — This is a state-based program Washington uses to issue insurance coverage for people who cannot buy auto insurance. The Western Association of Automobile Insurance Plans administers the Assigned Risk Plan in Washington state. The Plan assigns these drivers to insurance companies that do business in Washington based on how much auto insurance the company sells.

Auto insurance (refers to personal and business insurance) — Personal auto insurance provides you with coverage for use of your own car or truck. If you own and operate commercial vehicles, make sure your fleet is appropriately insured. If you rarely use your personal vehicle for business reasons, your personal policy might include the necessary coverage. Check with your agent to make sure.

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  B

Basic Health Plan (BHP) — BHP is a subsidized health insurance plan offered by the Washington State Health Care Authority to low–income Washington state residents.

Basic hospital plans (refers to business insurance) — Basic hospital plans cover only in-hospital (inpatient) care, not other services. This benefit may also limit subscribers to an approved or network facility. Hospitalization in a different facility may qualify for less coverage, or none at all.

Beneficiary — A person eligible to receive benefits under an insurance policy.

Binder (binding receipt - refers to auto and homeowner insurance) — A binder is proof of coverage for a specified time period prior to the company issuing someone the actual policy or requiring a premium payment. However, if the consumer pays the premium with the application, the insurance company will issue a binder or binding receipt.

Book of Business — A term insurance agents use to describe the various policies they write in the state.

Broker — See "Producer".

Business Interruption Insurance (refers to business insurance) — A policy that pays for the loss of earnings when business operations are reduced or stopped due to a property loss such as water damage, theft, or fire.

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  C

Cancelable — An insurance contract that an insurance company or an insured person can cancel at any time. Most insurance is cancelable. Exceptions include certain life insurance policies and health insurance.

Cancellation — This is when an insurance company or an insured person voluntarily ends an insurance policy according to contract provisions or by mutual agreement.

Carrier — A company that sells insurance (also called an insurer).

Case management (refers to health insurance) — Coordinating patient care to ensure cost-effective treatment.

Cash Surrender Value (refers to life insurance) — The amount of cash due to the insured person who requests the insurance company cancel their life insurance policy, less any loans or surrender fees.

Centers for Medicare and Medicaid Services (CMS - Medicare) — The U.S. federal agency that administers federal health financing and related regulatory programs - mainly Medicare, Medicaid, and Peer Review Organization programs. It is also the contracting agency for entities that provide Medicare-managed care plans.

Chartered Life Underwriter (CLU) — A title given by the American College of Life Underwriters to insurance industry professionals after they successfully complete required exams and experience requirements.

Chartered Property and Casualty Underwriter (CPCU) — A title given to an insurance professional by the American Institute for Property and Liability Underwriters after they successfully complete a series of insurance-related exams and experience requirements.

Claim — A demand made by an insured person for payment of benefits as described in their insurance policy.

Clause — A specific part of a policy or endorsement.

Closed formulary (refers to health insurance) — In some health plans, doctors must order only patient prescription drugs listed on the health plan’s formulary (see also “Drug formulary”).

Coinsurance (refers to health and homeowner insurance) — In health insurance, it means the insured person and the insurance company share losses in agreed proportion - also known as “percentage participation.” In managed health care, it refers to the portion of the cost of care for which the insured person is responsible. This often applies after the insured person meets a specified deductible. In homeowner insurance, the insured person shares proportionally in losses when the amount of insurance is less than a specified percentage of the property insured.

Collision coverage (refers to auto and business insurance) — This covers the physical damage to the insured person’s vehicle due to a collision with another object such as another vehicle, a fence, building, etc.

Commission — This is the portion of the premium the insurance producer (agent, broker) keeps as compensation for sales, service, and distribution of insurance policies.

Community rating (refers to health insurance) — A method state insurance regulators use to establish premiums for health insurance. There are two types of community rating. Pure community rating uses one average for all subscribers. Semi-community rating allows other limited factors to help determine rates such as age, family size, and geographical location.

Composite rate (refers to health insurance) — A health insurance premium that applies to all of those eligible in a subscriber group, regardless of the number of claimed dependents. This is common among plans purchased by large employer groups.

Comprehensive coverage (refers to auto insurance) — This covers damage to an insured person’s car, except by collision. For example, this covers their car if a tree falls on it or someone vandalizes it.

Comprehensive health insurance (refers to health insurance) — Also called Comprehensive Major Medical. This is a form of health insurance that provides coverage for most types of medical expenses. Most employer health plans are comprehensive. A health plan that covers only hospital inpatient charges is not comprehensive.

Comprehensive personal liability policy (CPL) (refers to homeowner insurance) — This is a personal liability contract individuals may buy. A CPL provides liability insurance coverage for individual and family needs that may arise due to personal activities and situations such as residential property ownership, pet ownership, sports activities, and many other everyday activities.

Concurrent review (refers to health insurance) — This is the usage review conducted by an insurance company during a patient’s hospital stay or treatment.

Conditional receipt (refers to life insurance) — An insurance premium receipt that specifies conditions the applicant must first satisfy before the insurance company will accept the applicant for coverage. If the applicant meets the conditions, the coverage becomes effective as of the date on the receipt.

COBRA - Consolidated Omnibus Budget Reconciliation Act (refers to health insurance)— COBRA requires companies with 20 or more employees to offer separating employees the option to continue their group health care coverage at their own expense. The law generally covers health plans maintained by private-sector employers with 20 or more employees, employee organizations, or state or local governments.

Contractor’s bond (refers to business insurance) — Guarantees the performance of a contract and the payment of all related labor and material bills between a contractor and subcontractors, up to the stated bond amount. In situations where two bonds are required, contractors can obtain a performance bond (covers performance) and a payment bond (covers payment of labor and material).

Coordination of benefits (COB) (refers to health insurance) — This determines the amount payable by each insurer when the insured person is covered under two or more group health plans. Total reimbursement should not exceed 100 percent of the cost of care.

Copayment (refers to health insurance) — A copayment is a patient’s share of a health care bill. It usually is a small amount, such as $5 or $10 per office visit.

Corporate owned life insurance — Life or disability insurance to cover a key employee whose death or disability would cause the employer financial loss. The policy is owned by and payable to the employer.

Cost sharing (refers to health insurance) — When the consumer must pay out-of-pocket to receive health care. This also can occur when an insured person pays a portion of the monthly premium for his or her health insurance.

Coverage — The scope of protection provided to the insured person under an insurance contract.

Credentialing (refers to health insurance) — A process health insurance companies use to examine and verify the medical qualifications of health care providers who want to participate in a Preferred Provider Organization (PPO) or Health Maintenance Organization (HMO) network.

Credit insurance (refers to life and health insurance) — An insurance policy that pays debts should the borrower lose his or her job, die, or become disabled (usually called “credit life” policy).

Creditable (refers to health insurance) — Any previous health coverage a new plan will allow a person to use to shorten his or her pre-existing condition waiting period.

Current Procedural Terminology (CPT or treatment code) – These are five-digit codes developed by the American Medical Association that doctors use to communicate with health plans about the tasks and services they provided to a patient. Medicare refers to these as Healthcare Common Procedure Coding System (or HCPCS) codes.

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  D

Declaration page (Dec Sheet - refers to auto, business and homeowner insurance) — The portion of an insurance policy that contains information about risk. It identifies the parties in the contract and the subject of coverage.

Decreasing term policy (refers to life insurance) — A term life insurance policy that provides a death benefit which decreases over the term of coverage. Commonly sold in conjunction with a home loan and may be known as a Mortgage Protection policy.

Deductible — The dollar amount an insured person must pay for covered charges during a calendar year before the plan starts paying claims. Only charges outlined in the plan that the insurer would normally pay get applied to the deductible.

Deferred annuity (refers to life insurance) — An annuity in which the benefits begin at some designated future date.

Dependent property (refers to business insurance) — This is property not owned, operated, or controlled by the business owner; however, he or she depends upon it for normal business operations. Dependent property protects the business owner from financial losses caused by problems that occur elsewhere, such as with another vendor or supplier who suffers a loss.

Destroyed or damaged records coverage (refers to business insurance) — If a covered loss destroys or damages business records, this insurance compensates the owner for his or her inability to collect income and the cost to reproduce the records.

Direct access (refers to health insurance) — Under a 1995 Washington state law, health insurance companies must cover women’s direct access to female-related health care services such as mammograms, general exams, and preventative care.

Direct writer — An insurance company that sells its policies through salaried employees (licensed agents) who represent it exclusively.

Disability income insurance (refers to disability insurance) — An insurance that provides periodic payments to replace income lost to an insured person when they cannot work due to sickness or injury.

Drug formulary (refers to health insurance) — A list of selected prescription drugs and their proper doses that a health plan covers.

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  E

Earned premium —The portion of an insurance premium that applies to the expired part of the policy term. Even though customers pay their premiums in advance, the insurance company does not fully earn the premium until their customers’ policy term expires.

Earthquake coverage (refers to business and homeowner insurance) — Insurance companies offer earthquake coverage as additional coverage to homeowner policies, and standard commercial property and casualty policies. You can buy it as a separate endorsement and add it to to your homeowner policy or buy a separate stand-alone policy.

Eligibility – Whether a person qualifies for coverage or not. If you were eligible, and then lost eligibility, health plans may cancel your coverage and deny any claims incurred after eligibility was lost. Should this happen, you may be able to appeal the decision to the health plan.

Elimination period (refers to disability and long-term care insurance) — A term that refers to the waiting period before claim payment will begin. For long-term care policies, this is the number of days a person must receive qualifying care before the insurance company will start paying benefits.

Employee Retirement Income Security Act (ERISA) (refers to health insurance) — This law, which deals primarily with pensions and retirement plans, includes a section exempting self-funded-employer and union health plans from state regulation.

Employment practices coverage (refers to business insurance) — This type of coverage helps business owners defend against employment-related claims such as sexual harassment, age discrimination, or wrongful termination. Some policies offer legal assistance. Other policies may pay both legal costs and damages.

Endorsement — A written form attached to the policy that changes the terms of the policy to fit special circumstances.

Endowment insurance (refers to life insurance) — A form of life insurance payable to the insured person if they are living at the end of the endowment period or to a beneficiary if the insured person dies before the endowment date.

Essential Benefit— Basic benefits that include: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care.

Exclusions — Clauses in a health insurance contract that deny coverage for certain conditions, treatments, supplies or risks, such as cosmetic surgery. In home and auto contracts, exclusions from coverage may also include certain events or circumstances such as drag racing, renting an insured vehicle to others, or flood or earthquake coverages.

Experience — The loss record of an insured person, a class of coverage (such as auto or homeowner insurance), or an insurance company’s loss experience (the total number of claims).

Experience Rating — A method insurers use to decide the amount of premium to charge customers based on the actual usage of large groups with like risks.

Explanation of benefits (refers to health insurance) — This is a statement your health insurance company sends you after you receive medical services.  It shows what the medical provider charged for the visit and services, what your insurer allowed and paid, and what you may owe out-of-pocket.

Exposure — The possibility of loss.

External Review — Review of plan or issuer’s denial of coverage or services by an Independent Review Organization (IRO). This review happens after the internal review process has been exhausted, or when circumstances qualify the appeal as being urgent and the IRO’s decision is needed for a quick response – both of which are changing with implementation of the ACA. The insurance company is bound to the decision reached in the external review. Health care reform requires all new health plans to provide an external review process that meets specific standards.

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  F

Face amount (refers to life insurance) — This is the death benefit stated on the first page of a life insurance policy.

Fee — A charge or price for professional services.

Fee disclosure (refers to health insurance) — This is when doctors and caregivers discuss their charges with patients prior to treatment.

Fee-for-service (refers to health insurance) — This is the traditional payment method in U.S. health care. The health care provider charges the patient according to a fee schedule they set for each service and procedure they provide.

Fiduciary (refers to health insurance) — Someone who is responsible for the administration of a group health insurance plan or an Employee Retirement Income Security Act (ERISA) plan, or someone who has discretionary authority over plan assets and claim payments. The federal ERISA law imposes various duties on fiduciaries about the use of their powers. For example, the plan fiduciary must protect plan assets and administer claims for the exclusive purpose of providing benefits to plan participants.

Final Adverse Benefit Determination — An adverse benefit determination that has been upheld by a health plan at the completion of the internal appeals process. If a consumer wants to appeal a final adverse benefit determination, he or she would request an external review from his or her health plan.

Fiscal intermediary (refers to health insurance) — A private company that has a contract with Medicare to pay Part A and some Part B bills for Medicare clients.

Fleet coverage (refers to business insurance) — This multi-vehicle coverage applies to businesses that rely on a number of vehicles and need to insure them collectively.

Flood coverage (refers to business and homeowner insurance) — This is coverage for damage caused by floods. It is not included in ordinary homeowner and commercial policies. Flood insurance, which also covers damage caused by mudslides, is available through the National Flood Insurance Program (NFIP) at 800-427-4661. Contact your agent for more information.

Foreign-product liability coverage (refers to business insurance) — This business-related coverage applies to losses that occur due to difficulties with providing or obtaining items that foreign suppliers manufacture.

Formulary (refers to health insurance) — A published list of prescription drugs a health care plan covers.

Fraternal — An insurance company organized under a special section of the state insurance code, characterized by a lodge or social system such as an Elks or Moose Lodge. It only issues insurance to members.

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  G

Gap coverage (refers to auto insurance) — If an auto is totaled by an insurance company, this pays the difference between the current market value of the owner’s car and the amount they still owe the lender.

Gatekeeper (refers to health insurance) — A primary care doctor who is responsible for overseeing and coordinating all aspects of a patient’s medical care in managed care plans, including referrals for specialists.

Gatekeeper provision (refers to long-term care insurance) — This is a condition the applicant must first meet to qualify for the benefits of a long-term care policy. For example, a gatekeeper provision could require a doctor to certify that a person is unable to perform certain activities of daily living.

General agent — An insurance company representative who supervises the company’s business within a specific territory. He or she may appoint local agents. A general agent is also an independent contractor compensated on a commission basis.

General liability and property coverage (refers to business insurance) — Liability insurance protects businesses when they are legally liable for someone’s injury or property damage. The insurer pays the damages, and handles the business’ legal defense and pays for it. Property insurance covers a business’ physical assets such as buildings, equipment, furnishings, fixtures, inventory, etc.

Glass coverage (refers to business insurance) — Commercial insurance packages may or may not include glass breakage. If they don’t include glass coverage you may have the option to buy special glass-breakage coverage for operations that present a special risk. For example, if you own a building with a lot of expensive exterior glass, this policy covers you if the glass is broken due to theft or vandalism.

Grace period (refers to disability, health, life and long-term care insurance) — A period of time (commonly 10 to 31 days, depending on the type of contract) after the premium due date. During this time, the policy remains in force without penalty even though the policyholder has not yet paid the premium.

Grandfathered Plan — (Also sometimes referred to as an “old” plan) A plan that is exempt from most of the changes required by health reform because it was in existence before March 23, 2010 and hasn’t made significant changes to the plan design. If a plan is grandfathered, it must disclose this status. New people and their dependents can be added to a grandfathered plan.

Group contract — An insurance contract between an insurance company and an employer or other entity to cover employees or other group members. A group contract may include life insurance, health insurance, or an annuity and, sometimes, property liability. Eligibility for coverage of group members is defined in the contract. For example, an eligible employee might be defined as “employees working over 30 hours per week for the employer.”

Group insurance (refers to health insurance) — A heath insurance policy or a health care services contract (HCSC) that covers a group of employees. Health care coverage occurs under a master policy issued to the employer or other group.

Guaranteed insurability rider (GIR) (refers to life insurance) — A contract provision a life insurance policy owner buys from an insurance company. It gives the policy owner the right to buy an additional amount of life insurance at one or more specified “option dates,” without providing new evidence of insurability at that time.

Guaranteed Issue — A requirement that health insurers not screen applicants with medical underwriting and accept anyone to whom the plan is offered (in the case of group insurance) or is made available (in the case of individual insurance), and not discriminate on the basis of age, health condition, ethnicity, etc. Health care reform requires all health insurance be sold on a guaranteed-issue basis starting in 2014.

Guaranteed renewable (refers to auto, disability health and life insurance) — When the insurance company is required to renew, as long as the insured person makes premium payments. Disability and life insurance policies usually have an age limit while health insurance policies do not.

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  H

Health care service contractor (HCSC) ( refers to health insurance) — Any corporation, cooperative group, or association that is sponsored by or connected with a health care provider or group of providers. They accept prepayment for health care services from individuals and groups.

Health insurance — A policy or product that provides coverage for someone for doctor, hospital, and other medical expenses that result from illness or injury.

Health maintenance organization (HMO) (refers to health insurance) — This health insurance plan requires subscribers to get all their care from a list of providers (except for some emergency care). The plan may require the subscriber’s primary-care doctor to provide them with a referral before they can receive specialty care.

Health plan — A generic term that refers to a specific health benefits package offered by an insurer.

Health Plan Provider – The company or group that provides your health plan to you.

High-risk pool (refers to health insurance) — In Washington state, this is a non-profit organization called the Washington State Health Insurance Pool. It provides access to health insurance to all Washington state residents who are unable to buy individual or group health insurance due to their health status.

HIPAA (Health Insurance Portability and Accountability Act of 1996) — A federal law enacted in 1996. The law makes it easier for people to change jobs without the risk of being unable to obtain health insurance or having to wait for coverage due to pre-existing medical conditions. The law also creates standards that deal with the privacy of health information, which helps stop improper use your medical records.

“Hold-harmless” clause (refers to health insurance) — State law and regulations require contracted health care providers to not hold patients accountable for claim amounts that a health insurance company owes on a contract.

Homeowner policy — An insurance policy to cover a homeowner’s house, other structures on their property, and personal contents against losses caused by such things as windstorms, fire, and theft. This type of policy also includes liability coverage.

Hospital benefits (refers to health insurance) — Benefits an insurance company pays when an insured person is hospitalized. They include reimbursement for both inpatient and outpatient medical care expenses. Inpatient benefits include charges for room and board, necessary services, and supplies. Outpatient benefits include surgical procedures, radiology services, and rehabilitation therapy.

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  I

Indemnify — This provides payment, repair, or replacement to a person who has experienced a loss.

Independent Review Organization (IRO) — an independent and unbiased group or entity that conducts external reviews of final adverse determinations made by insurance companies; the reviews are at the request of the insured. The cost of such a review falls on the insurance company to pay, and their determination is final and binding on the insurance company.

Individual market (refers to health insurance) — This market consists of individuals and their dependents who buy health insurance coverage directly from an insurer.

In-Network Provider — A health care provider (such as a hospital or doctor) that is contracted to be part of the network for a managed care organization (such as an HMO or PPO). The provider agrees to the managed care organization’s rules and fee schedules and agrees not to bill patients for amounts beyond the agreed upon fee.

Internal Appeal —This is the first stage of an appeal when you (or an authorized representative) ask a health plan to reconsider a decision it has made about your benefits (an “adverse determination”). The plan will review your appeal, and will notify you of whether or not it thinks their initial decision was decided correctly. Some internal appeals have multiple levels.

Installment refund annuity (refers to life insurance) — A type of annuity policy that guarantees if a policyholder dies before receiving payments equal to the amount they paid to establish the annuity, the insurer will refund the difference to the beneficiary in equal installments.

Insurable interest (refers to homeowner and life insurance) — For homeowner insurance, this is when a person has a legal financial interest in the property that is the subject of the insurance. For life insurance, the policy owner or beneficiary would suffer a genuine loss if a loss occurred.

Insurance — A contract to transfer risk from individuals to an insurance company. In exchange for a premium, the insurance company agrees to pay for losses covered under the terms of the policy.

Insurance commissioner — The elected state official who is authorized to enforce the state’s insurance law and to make reasonable rules and regulations to implement provisions of the law. The insurance commissioner also conducts investigations, examinations, and hearings related to those enforcement activities.

Insurance policy — This is the entire written insurance contract.

Insured — The individual or party who the insurance company agrees to cover for losses or provide benefits or service.

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  J

Joint life policy (refers to life insurance) — A life insurance policy that insures two or more people. Some of these policies pay a death benefit on the first person to die. Some pay on the last person to die.

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  K

Key man insurance policy (refers to disability and life insurance) — Life or disability insurance to cover a key employee whose death or disability would cause the employer financial loss. The policy is owned by and payable to the employer.

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  L

Lapse — When an insurance company ends a policy because the insured person fails to pay the premium.

Level premium insurance (refers to life insurance) — A life insurance premium that remains at the same dollar amount throughout the life of the policy.

Liability insurance (refers to auto, business and homeowner insurance) — Coverage that pays for any loss if the insured person is legally liable for bodily injury to others or damage to someone’s property.

Liability limits (refers to auto, business and homeowner insurance) — The dollar amount beyond which a liability insurance company does not protect the insured on a particular policy.

Life insurance — A contract between a person and a life insurance company that provides coverage in the event the person dies. Annuities are also considered a life insurance product. If you own a business an insurance agent or broker can suggest various types of life insurance to protect your company. You can also buy key-person life insurance. This insurance pays the company upon the death of a key person, usually an owner or senior executive, to help the company deal financially with the loss or their expertise.

Lifetime Limit—A lifetime limit is a dollar limit on what a health plan would spend for your covered benefits during the entire time you were enrolled in that plan. Before health reform passed, you were required to pay the cost of all care exceeding those limits. Under health reform, lifetime limits on most benefits are banned in any health plan or insurance policy issued or renewed on or after Sept. 23, 2010.

Limit of liability — The maximum dollar amount an insurance company agrees to pay the insured person in case of loss.

Limitations — These are exclusions, exceptions, or reductions of coverage in an insurance policy.

Limits — The maximum amount of benefit the insurance company will pay for a given situation or occurrence. Limits also include the ages below or above what an insurance company will not issue a new policy or continue a policy.

Long-term disability (refers to long-term care and disability insurance) — Typically a disability is the limitation of normal physical, mental, and social activities that lasts longer than two years. Note: Each individual insurance policy defines the terms “long-term” and “disability.”

Loss ratio —The percentage of each premium dollar an insurance company spends on claims.

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  M

Major medical insurance (refers to health insurance) — Health insurance to cover medical expenses over and above that of a basic health insurance policy. Major medical policies pay expenses both in and out of the hospital.

Managed care plan (refers to health insurance) — A health plan that coordinates covered health care services for a covered person using a primary-care provider and a network.

Managed care organization (MCO) (refers to health insurance) — Any type of organization that provides managed care, such as a health maintenance organization (HMO) or a health care service contract (HCSC), that provides services through a preferred provider organization (PPO).

Mandated benefits (refers to health insurance) — Washington state law and federal law requires insurance companies to offer or include certain benefits in specific health plans. Mandates may include mammograms, automatic coverage of newborn or adopted children, and home and hospice treatment options.

Market share — An insurance company’s portion or percentage of the total market for the product it sells.

Maturity (refers to life insurance) — The date the face amount of a life insurance policy is due.

Maximum allowable charge (refers to health insurance) — The highest amount the insurance company will allow as a covered benefit for a particular medical service.

Maximum lifetime benefit (refers to health insurance) — The maximum dollar amount a health insurer agrees to pay on behalf of the insured for covered services during the course of his or her lifetime.

Medicaid (refers to health insurance) — A federal and state funded program that provides hospital and medical coverage to low-income people who meet certain criteria.

Medical loss ratio (refers to health insurance) — The total cost of health care benefits divided by the total premium.

Medical underwriting (refers to health insurance) — A process used by an insurer to screen health insurance applicants out of a plan based on health or a pre-existing medical condition.

Medicare Health Plan – A Medicare health plan is offered by a private company that contracts with Medicare to provide Part A and Part B benefits to people with Medicare who enroll in the plan.

Medically necessary (refers to health insurance) — Covered health care services required to maintain the health of a patient in line with the geographical area’s standards of medical practice. These are often defined in the policy.

Medicare (refers to health insurance) — A federally funded insurance plan that provides hospital and medical coverage for people age 65 and older, for people with certain disabilities who are under age 65, and for people of all ages with End-Stage Renal Disease or Amyotrophic Lateral Sclerosis (Lou Gehrig’s disease).

Medicare supplement (aka medigap - refers to health insurance) — Voluntary private insurance coverage Medicare enrollees buy to cover the cost of services not reimbursed by Medicare.

Member (refers to health insurance) — An enrollee, beneficiary, or insured. A member includes people who enroll or subscribe to a health insurance plan and their eligible dependents.

Morbidity-sickness table (refers to disability and health insurance) — A table that shows the number of people exposed to the risk of illness and disease at each age and the actual number of people who became ill or diseased at each age.

Morbidity rate (refers to health insurance) — An actuarial term for the likelihood that medical expenses will occur.

Mortality-death table (refers to life insurance) — A table that shows the number of people who died at each age.

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  N

National Association of Insurance Commissioners (NAIC) — A national association of state insurance commissioners who discuss regulatory problems and who form and recommend uniform insurance practices and legislation.

National Association of Life Underwriters (NALU) — A national organization of life insurance agents.

National Flood Insurance Program (NFIP) (refers to business and homeowner insurance) — A program offered by the U.S. government’s Federal Emergency Management Administration that pools policy premiums throughout the United States. It is backed by the federal government and offers reasonable rates to the public for flood damage coverage.

National Committee for Quality Assurance (NCQA) (refers to health insurance) — A non-profit organization created to improve patient care and health plan performance in partnership with managed care plans, purchasers, consumers, and the public sector.

Non-forfeiture values (refers to life and long-term care insurance) — Those values in a life or long-term care insurance policy that the policy owner does not forfeit, even if he or she stops paying premiums.

Non-grandfathered plan – (Also known as an “other” type plan) A plan that is required to implement the changes required by health care reform because it either came into existence after the law was passed (March 23rd, 2010), or was in existence before the law but made significant changes causing it to lose its grandfathered status.

Non-standard market (refers to auto insurance) — This auto insurance market includes young drivers with less experience, drivers with multiple tickets or accidents, and drivers with reckless or drunk driving histories.

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  O

Open enrollment (refers to health insurance) — A period when eligible members may enroll in or transfer between available health care plans.

Open panel (refers to health insurance) — A health maintenance organization (HMO) contracts with private doctors to provide care to HMO patients.

Ordinary life (refers to life insurance) — A whole-life insurance policy in which the insured person pays the premiums continuously as long as they live. It’s also called straight life.

Out-of-pocket limit (refers to health insurance) — The maximum coinsurance a health care plan requires a person to pay, after which the insurer will pay 100 percent of covered expenses up to the policy limit.

Out-of-area benefits (refers to health insurance) — Coverage that a managed care plan allows its members for emergency situations, should they be temporarily outside of their health maintenance organization (HMO), or preferred provider organization (PPO) prescribed service area.

Out-of-area services (refers to health insurance) — Health care services provided to an insurance plan member while they are outside their plan’s established geographic service area. These services are usually not covered or are covered at a lower amount.

Out-of-Network Provider — A health care provider (such as a hospital or doctor) that is not contracted to be part of a organization’s network (such as an HMO or PPO). Depending on the managed care organization’s rules, an individual may not be covered at all or may be required to pay a higher portion of the total costs when he/she seeks care from an out-of-network provider.

Outpatient services (refers to health insurance) — Health care services provided to a patient in or out of a hospital facility when medical or surgical care does not include an overnight hospital stay.

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  P

Paid-up (refers to life insurance) — This is a life insurance term in which the policy owner paid all required premiums but the policy has not yet matured (by either death or endowment). For example, in 10-year payment policy, after the policy owner completes the 10-year premium-paying period the policy will continue to cover the insured person for the rest of his or her life.

Participating provider (refers to health insurance) — A provider who contracts with a health insurance plan to provide health care and agrees to provide health care services to covered individuals for payment (other than coinsurance, copayments, or deductibles) from the health insurance plan.

Patient Protection and Affordable Care Act (PPACA or ACA) – The comprehensive federal legislation signed into law on March 23, 2010 also known as health reform. The major provisions of the bill will take effect during the five years that follow.

Peer review (refers to health insurance and auto personal injury protection) — Evaluation of a doctor’s performance by other doctors, usually within the same geographic area and medical specialty.

Per-member per-month (PMPM) (refers to health insurance) — This refers to the cost or revenue a health insurance plan receives from each plan member for a month. It includes revenue, expenses, or services use.

Personal injury protection (PIP) (refers to auto insurance) — This is insurance coverage for medical and other expenses such as wage-loss and funeral expenses that result from an auto accident no matter who is at fault. Auto insurance companies must offer PIP to consumers. If consumers do not want it, they must reject it in writing.

Point-of-service plan (POS) (refers to health insurance) — This plan includes the features of both health maintenance organizations (HMOs) and preferred provider organizations (PPOs). POS plans encourage, but do not require, members to choose a primary care doctor. Members may visit non-network providers but they will pay higher deductibles and copayments.

Policy dividend — Most common in life insurance policies, this is a partial return of the premium. It represents the difference between the premium charged and the company’s actual cost of coverage during the term of the insurance policy.

Policyholder — The person who has possession of the policy.

Policy owner — The person who may exercise the rights and privileges in the insurance policy. This person may or may not be the insured.

Pooling — Grouping of a large number of similar risks together to spread the risk and make insurance more affordable. For example, auto insurers pool all the drivers with similar risks such as age and driving record together.

Portability (refers to health insurance) — Gives someone the ability to go from one health plan to another without having to wait for coverage of a pre-existing condition. Both state and federal law contain provisions to determine if a consumer may move from plan to plan without being subjected to pre-existing-condition waiting periods.

Post-Service Claim – Claims that get submitted by you or your doctor after you’ve received medical services, such as requests for reimbursement or payment for services provided. Most claims for group health benefits are post-service claims.

Pre-authorization (refers to health insurance) — This is a procedure managed care plans use to control plan members use of health care services through review and pre-approval. See also “Prior authorization.”

Pre-admission review (refers to health insurance) — Requires an insured person or their doctor to obtain prior authorization from the health care plan before any non-emergency hospitalization occurs.

Pre-existing condition (refers to health insurance) — A health problem someone has before the date their new health insurance plan starts. For an individual health plan it includes signs or symptoms that were present and not treated before coverage began. Coverage for a pre-existing condition depends on the health insurance plan.

Preferred market (refers to auto insurance) — This auto insurance market features the lowest premiums. It is available to low-risk drivers with exceptional driving records.

Preferred provider organization (PPO) (refers to health insurance) — This is a network of health care providers who contract with health insurance plans. A health insurance plan often pays more if members get their care from doctors or hospitals that contract with a PPO. The providers and hospitals are called “network” providers. Members pay more if they go to a doctor or hospital not listed in the plan’s network.

Preferred risk (refers to auto insurance) — This typically refers to drivers who statistically have fewer accidents than average. Insurance companies take into account factors such as age, gender, and a clean driving record. These drivers are usually eligible for a reduced rate.

Premium — The dollar amount an insured person pays to the insurance company to cover the cost of insurance.

Pre-Service Claim – A request for authorization from your health plan before you get medical care or treatment. For example, if you (or your provider) have to get your plan’s authorization before having a procedure in order for the plan to pay for it, that request is known as a pre-service claim. If your plan denies authorization, that is known as a pre-service denial.

Primary care (refers to health insurance) — Primary care is the first care a patient receives, often through a family doctor. However, the patient may also receive primary care from a nurse or other type of health care provider depending on the situation.

Prior authorization (refers to health insurance) — This is a managed-care procedure to control plan members use of health care services through review and pre–approval. See also "Pre-authorization."

Pro rata — Dividing the premium proportionately between the insured person and the insurance company based on how long the insurance policy was in force.

Producer — A term applied to an agent, solicitor or other person who sells insurance. Also, a person who sells and services insurance policies. In Washington state, all insurance producers must obtain a producer license from the Office of the Insurance Commissioner.

Progressive rates (refers to health insurance) — A method health plans use to implement new monthly, quarterly or semi-annual rates. New or renewing subscribers (or groups with anniversaries falling within such periods) are automatically subject to prevailing rates in effect during those periods. Insurers generally guarantee these rates for the full 12-month benefit year.

Proof of loss — A formal statement made by the insured person to the insurance company about a loss. The purpose is to provide the company with sufficient information about the loss to help it decide its liability under the policy.

Providers (refers to health insurance) — Institutions and individuals licensed to provide health care services such as hospitals, doctors, naturopaths, medical health clinicians, pharmacists, etc.

Public adjuster (refers to homeowner insurance) — An insurance-claims adjuster who is hired by you, the policyholder, to work on your behalf to appraise and negotiate a property-insurance claim.

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  Q

Quality assurance (refers to health insurance) — An internal peer review process managed care organizations use to audit the quality of care given by providers. It also involves educating providers on how to prevent and correct errors as well as how to improve the quality of care.

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  R

Rating bands — These limit the difference between the lowest and highest health insurance premium rates companies may charge to a pool of groups or individuals. For example, on individual health insurance contracts, the insurance company’s highest permitted rate for any age group cannot be more than 375 percent of the lowest rate for all age groups.

Rating bureau — A private organization that classifies and shares rates with consumers. In some cases, a rating bureau may compile data and measure hazards of individual risks in terms of rates for a given territory.

Rebate — When an insurance agent gives a policy owner a part of his or her commission (or something of value) as an incentive to buy insurance. This is illegal.

Reinsurance — A risk-management tool for insurance companies. It transfers risk from one insurance company to another. For example, a primary insurance company will agree to insure an airline’s fleet of planes for $10 billion. Through separate reinsurance contracts, the primary insurance company will pay premiums to nine other insurance companies to accept $1 billion of the risk. If a $10 billion loss occurs, each company will pay $1 billion.

Replacement cost (refers to business and homeowner insurance) — If you have a loss, this pays the actual cost to replace your property with a like kind and quality product. Your insurance company initially pays you for the used value of your item. After you buy the replacement item, your insurance company will pay you the difference between the used value and the actual replacement cost.

Rescission — When an insurer withdraws their original approval of a policyholder’s application for coverage and any payment for any benefits he or she used. This usually happens when the insurer learns the policyholder did not fill out the application accurately. Under health care reform, policies can only be rescinded in instances where the policyholder intentionally lied on the application.

Reserves (refers to health, homeowner and auto insurance) — Funds an insurance company sets aside to pay claims and claim expenses.

Rider — An attachment to a policy that modifies the conditions of the policy by expanding or decreasing its benefits, or excluding certain conditions from coverage.

Risk — The chance that a loss will occur.

Risk sharing (refers to health insurance) — A financial arrangement between a managed-care organization and a contracted health care provider to allocate the risk and rewards of providing health care services. Risk sharing motivates the provider to operate more efficiently.

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  S

Schedule (refers to health and homeowner insurance) — For health insurance, it’s a list of specific items a policy covers such as surgical procedures, therapy, or additional expenses. For property-related insurance, it’s a list of items covered under one policy such as various buildings, animals, and other property.

Self-funded (aka self-insured - refers to health and auto insurance) — When an employer or organization assumes responsibility for the covered health care expenses of its employees. Usually the employer sets up and contributes money to an account solely to pay claims. Sometimes the company handles the claims internally, but often an independent organization, such as a third-party administrator (TPA), processes employee claims and makes claim payments out of the employer’s self-funded plan account. Some plans are not subject to state insurance laws; most self-funded plans are regulated under Federal law by the U.S. Department of Labor.

For auto insurance this is when you file a certificate of deposit with the Office of the State Treasurer instead of buying auto insurance from an insurance company.

SHIBA (refers to health insurance) — A free, unbiased counseling service, the Statewide Health Insurance Benefits Advisors (SHIBA) uses trained volunteers to assist health insurance consumers statewide with health insurance options including finding access to health care and prescription-drug programs. SHIBA is a service of the Office of the Insurance Commissioner and is sponsored by local community-based organizations.

Special limits (refers to homeowner insurance) — The limitation in a homeowner policy about losses for specific items such as gold and silver bullion, currency, securities, letters of credit, manuscripts, passports, tickets, stamps, boats, trailers, firearms, and silver and goldware. To cover these items, the homeowner must buy additional coverage.

Staff model HMO (refers to health insurance) — A group of doctors that provides health care services. The doctors are either staff employees of a professional group practice, which is an integral part of the health maintenance organization (HMO) plan, or they are direct employees of the HMO itself.

Standard market (refers to auto insurance) — This auto insurance market refers to the average driver who uses family-type cars and has a reasonably good driving record.

Stop loss — A provision in an insurance policy created to cut off an insurer’s or insured’s losses at a certain point.

Subrogation — This allows the insurance company to recover the payment it made to the person it insures from the person responsible for the damages or their insurance company.

Surplus line — Coverage a consumer buys from an unlicensed insurance company because it’s unavailable from an insurance company licensed in the state.

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  T

Term — The period of time that an insurance policy is issued.

Third-party administrator (TPA) (health, homeowner and auto insurance) — For health insurance, it’s a person or company hired by an employer to manage health care claims processing, pay providers, develop and coordinate self-insurance programs, and help locate stop-loss insurance. They also may analyze the effectiveness of the plan and its usage. For homeowner and auto insurance, it’s a person or company hired to investigate and process claims. In either case, the TPA is not the policyholder or the insurer.

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  U

Underwriter — A person trained to evaluate risks, determine rates and determine coverages for insurance companies.

Underwriting loss — When the cost to pay insurance claims, plus overhead, exceeds premium income.

Unearned premium — This is the part of an advance insurance premium payment that has not yet been used for coverage written. For example, if an insured person has an annual premium, at the end of the first month of the premium period, 11 months of his or her premium would still be unearned.

Uninsured/underinsured motorist (UIM) (refers to auto insurance) — This coverage protects an insured driver from losses due to another driver who doesn’t have auto insurance or who is not fully covered. Auto insurance companies must offer UIM as part of an auto insurance policy. Consumers who do not want the coverage must sign a waiver.

Urgent Care Claims – This is an expedited claim you can make if withholding medical care endangers your life or causes you prolonged pain or discomfort. Your medical provider with knowledge of your situation will decide if your condition is urgent or not.

Usual, customary and reasonable (UCR) (refers to health and auto insurance) — A health provider’s usual charge for a health care service that is consistent with the going rate or charge in a certain geographical area for identical or similar services. Note: For auto insurance, this relates to personal injury protection claims.

Utilization (refers to health insurance) — A numerical measure of use of a single service or type of service, such as hospital care, prescription drugs, or doctor services, by a given population group over a given period of time.

Utilization review (UR) (refers to health insurance) — A health insurance company’s review to determine if the health care services a provider or facility gives to a member or group of members is necessary and appropriate.

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  W

Waiting period (refers to disability and health insurance) — For disability insurance, it is a period of time between the start of a disability and the date benefits begin. For health insurance, it is the time a person must wait from the date of their employment until the date their health care coverage starts. This term may also refer to the total time a person must be covered on a health plan before the plan will cover pre-existing conditions.

Waiver — A waiver is a rider that excludes liability for a stated cause of an accident or sickness. It can be a provision that agrees to waive the insurance premium payment during a period of disability. It can also mean the company could waive its right to have the insured person examined by a doctor it chooses. An agent, adjuster, or insurance company may give a waiver of rights to the insured person verbally or in writing.

Whole life (refers to life insurance) — A life insurance policy that runs for the whole life of the person covered under the policy, until their death. Policyholders may pay premiums for a whole-life policy for their entire life or for a limited period at a higher premium.

Workers’ compensation — Most employers in Washington state are required by law to provide workers’ compensation insurance through the state’s Department of Labor and Industries (L&I). Workers’ compensation pays employees’ medical expenses and provides some income replacement when they are injured on the job.

Write — In the insurance industry this means to insure. It also means to underwrite or to sell insurance policies.

Note: Most of the terms, explanations and definitions in this flyer were taken from various insurance industry guides, reference books, dictionaries and the Commission on Insurance Terminology, a group that tries to bring consistency to the use of many of these terms.

Language and its use does not remain static. Meanings and word usage can change over the years and from region to region. We do not intend this to be a final statement on what various words mean, but hope it will help the average person better understand insurance.


Updated 04/22/2014

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