Insurance Gobbledygook Made Simple

Plain english explanations of insurance terms used by agents, companies and lawyers and found in your insurance policies.

A | B | C | D | E | F | G | H | I | L | M | N | O | P | R | S | T | U | V | W

Accelerated Death Benefit

A provision or rider that allows you (the policyowner) to receive all or part of the benefits of your life insurance policy while you are alive in the event of a terminal illness. Depending on the insurance company issuing the policy, and the policy form involved, these benefits are paid either on diagnosis of a terminal illnesses, such as AIDS, certain organ transplants, or upon a diagnosis that death within two years is almost certain. Some companies permit payout of some of the face amount of the policy by way of accelerated death benefits in the event of nursing home confinement or other health conditions. The circumstances under which such benefits are available varies from company to company, and the manner the payments are accounted for also can vary, in some as an “advance” against the ultimate benefit to be paid and in others as a loan, to be repaid, in some cases with interest, when the face amount is paid out. Also known as “living benefits.” See also viatical settlements, which involve the sale of a policy of an insured who is terminally ill.

Accidental death and dismemberment coverage

Coverage that will pay you, your family members, a set amount, under the terms of the policy, for certain serious injuries or death resulting from an accident while in your car.

Accidental death and dismemberment insurance

A policy that pays the beneficiaries a fixed death benefit but only if the insured person dies in or from a covered accident. Sometimes the policies pay extra benefits if the death occurred while a passenger on a common carrier, or while wearing a seatbelt. That is the “accidental death” portion of the policy. The policy also pays the policyowner a percentage of the face amount for the loss of an arm, leg, eye, etc. in a covered accident; the percentage typically varies with the extent of disablement or loss of bodily function, such as loss of one hand, 25%, one arm, 50%, both arms 100%, if the person loses the bodily parts or functions as a result of a covered accident. It is important to determine what types of accidents are covered and which are not. These policies are typically very inexpensive as most deaths occur from illness or disease, not accidents.

Accidental death benefit

A provision or rider to a life insurance policy that pays the beneficiary more than the face amount (such as double) in case you, the insured, die as a result of a covered accident, Formerly known as a “double indemnity” rider, there are some forms that pay 3 times the face amount if the accident occurred while a passenger on a commercial airline or other common carrier.

Actual cash value

an amount equal to the cost of replacing a damaged item with a new one, minus depreciation.

Actual charge

The charge(s) for a particular service/treatment by a health care provider.

Actuary

an expert trained in the mathematics of insurance who is responsible for the calculation of reserves, premiums, and other values.

Additional Living Expenses

Extra charges covered by your homeowners polices over and above your customary lifing expenses. These expenses are covered when an insured needs temporary shelter due to a covered peril that makes the home unihabitable for some short period of time.

Adjuster

a person who investigates and evaluates for an insurance carrier the damages caused in an accident.

Administrative expense charge

An amount charged by the insurer and/or administrator (sometimes separately delineated) to pay the costs of administering the policy.

Adverse Selection

A tendency for those with higher risk exposure to obtain more insurance coverage than others with lower risk exposure. Adverse selection concentrates carrier risks instead of spreading it evenly across a large group of customers.

Affinity Sales

The selling of insurance through groups, associations, and other aggregating organizations. For example, AARP, AAA, Sam’s Club, Sears, Ford, many college alumni associations, etc… have partnered with insurance companies to create Affinity Sales programs for their groups.

Agent

an insurance salesperson who sells and services policies. An independent agent usually represents two or more insurers in a sales and service capacity and is paid on a commission basis. An exclusive agent or captive agent represents only one company, usually on a commission basis.

Alternative medicine

Some medical techniques once considered outside the boundaries of standard practice have become more accepted in recent years and may now be eligible for coverage. Acupuncture, midwives, and osteopathic treatments are examples of formerly excluded treatments that are now covered under many health insurance policies.

Amendment

an attachment to a policy that modifies certain policy benefits.

Annual limits

are maximums on the dollar amounts the plan will pay for any given year.

Annuity

A life insurance product that pays out income benefits at specific intervals of time or over the course of the annuity owners lifetime. There are two types of annuities: deferred and immediate.

Application

a signed request for life insurance giving information about the prospective policyholder, including age, sex, and if the policy is subject to underwriting, typically it also asks a series of health related questions. A false statement by the applicant for life insurance makes the policy “voidable” within the first two years of issue, or “contestable” if the insured dies within the first two years.

Approved charge

the dollar amount on which your insurer bases its payments and your co-payments.

Arbitration

a determination made by impartial persons (often experts) as to the value of property or the extent of damage. In arbitration the proceeding is typically far less formal that a court proceeding, but the decision of the abitrator(s) is final, absent fraud. Arbitration is typically used as an alternative to formal court-based litigation in which the determination is made by a judge and/or jury operating according to all legal rules.

Assigned risk plan

a state-supervised insurance plan for people who are unable to obtain insurance coverage in the regular market. The cost of this insurance is substantially higher.

Assignment

giving rights and benefits under your insurance policy to someone else.

Assignments of benefits

the insured allows a hospital or doctor to collect your health insurance benefits directly from your insurance company.

Associated group plans

fully insured plans issued to employee groups, including those formed by labor unions, nonprofit membership corporations, etc.

Auto Insurance Policy

There are six types of auto insurance coverage. Depending on the state you live in, some are required and some are optional. The six basic coverages are:
Bodily Injury, Medical or Personal Injury Protection, Property Damage, Collision, Comprehensive, and Uninsured Motorist Coverage

Auto Insurance Premium

The price that you pay for auto insurance coverage from your insurance company. The price is based on the insurance company’s experience and expectations of the potential frequency and cost of accidents, theft, and other losses. Prices vary between companies and products.

Other factors on price, include: amount and type of coverage purchased, make and model of your car, driving record, how long you’ve been licensed, your age and gender, where and how much the car is driven, and more recently & controversially, some insurance companies use your credit history to determine pricing.

Automatic premium loan

if you cannot pay your premiums, the insurance company takes money from your policy’s cash value to pay the premiums, assuming there is sufficient cash value.