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A A A (Back to top)
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, calculates rates and reserves, and
evaluates and manages statistical information.
Adjuster — Someone who is paid by the insurance company or the insured person to
investigate or negotiate insurance claims on their behalf.
Adverse Selection — This term is used for people who have an above average risk for
loss. They have a tendency to buy more insurance coverage than those who are at a lower
risk. For example, people with terminal illnesses will often try to buy large amounts of
life insurance.
Agent — A person who sells and services insurance policies. In Washington state,
all insurance agents must obtain an agent license from the Office of the Insurance
Commissioner.
B B B (Back to top)
Book of Business — A term insurance agents use to describe the various policies they
write in the state.
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.
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.
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 agent or broker keeps as
compensation for sales, service, and distribution of insurance policies.
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.
Cost Shifting (refers to health insurance) — When an insurer charges one group
of health care buyers more to make up for the underpayment of others.
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.
D D D (Back to top)
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.
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.
E E E (Back to top)
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.
Endorsement — A written form attached to the policy that changes the terms of the
policy to fit special circumstances.
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).
F F F (Back to top)
Form — This is an insurance policy, or the riders and endorsements attached to it.
Formulary (refers to health insurance) — A published list of prescription drugs a
health care plan covers.
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.
H H H (Back to top)
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 Plan — A generic term that refers to a specific health benefits package offered by
an insurer.
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 in the regular market.
“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, or theft. This type of policy also includes liability coverage.
I I I (Back to top)
Incurred But Not Reported (IBNR) (refers to business and health insurance)
— Claim costs the insured person does not file with the insurance company, the Health
Maintenance Organization (HMO), or the Health Care Service Contractor (HCSC) within
the contractual period.
J J J (Back to top)
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.
K K K (Back to top)
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.
L L L (Back to top)
Lapse — When an insurance company ends a policy because the insured person fails to
pay the premium.
Life Insurance — A contract between a person and a life insurance company that
provides coverage in the event the person dies. Life insurance policies may include
endowment benefits, additional benefits in the event the insured person loses an arm or
leg due to an accident, or in the event of a disability. Life insurance policies also may
offer annuities.
Limit of Liability — The maximum dollar amount an insurance company agrees to pay
the insured person in case of loss.
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.
Loss Ratio —The percentage of each premium dollar an insurance company spends
on claims.
M M M (Back to top)
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.
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,
such as:
· Age 65 or older
· Blind
· Children under age 19
· Disabled
· Expecting mothers
· Families with children under age 19
· Immigrants
Medical Group Practice (refers to health insurance) — This is when at least
three licensed doctors engage in a formally-organized and legally-recognized patient
health care business. They share equipment, facilities, common records, and personnel
involved in both patient care and business management.
Medical Loss Ratio (refers to health insurance) — The total cost of health care
benefits divided by the total premium.
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.
O O O (Back to top)
P P P (Back to top)
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 a 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. The provider agrees to provide health
care services to covered individuals for payment (other than coinsurance, copayments, or
deductibles) from the health insurance plan.
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.
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.
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.
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, or 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.
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, a paramedic, or other type of health-care provider, depending on the
situation. Managed care systems try to resolve as many health problems as possible at
this level.
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 preauthorization.
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.
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.
Q Q Q (Back to top)
R R R (Back to top)
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.
S S S (Back to top)
Single Payer Plan (refers to health insurance) — A system of health care coverage,
financed by taxes that enrolls everyone in a government-run program. For example,
Medicare is a single payer plan for people in the U.S. over age 65.
Staff Model HMO (refers to health insurance) — A group of doctors who provide
health care services. They 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.
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.
Underwriter — A person trained to evaluate risks, and determine rates and coverages
for insurance companies.
Underwriting Loss — When the cost to pay insurance claims, plus overhead, exceeds
premium income.
W W W (Back to top)
Whole Life (refers to life insurance) — A life insurance policy that runs for the
whole life of the person covered under the policy until death. Policyholders may pay
premiums for a whole life policy for their entire life or for a limited period at a
higher premium.
Write — In the insurance industry, this means to insure. It also means to underwrite or
to sell insurance policies.
2121-OIC-Glossary-Insurance terms-rev.05/08