AL Life & Health key terms

A financial or emotional stake in another person's life or property such that a loss would cause genuine hardship. Insurers require it when a life policy is applied for, which prevents gambling on someone's death.

The tendency for people who expect to need coverage, because they are sick or face high risk, to buy insurance more readily than healthy people do. Insurers counter it with underwriting, waiting periods, and exclusions.

Insurance bought by an insurance company to spread part of the risk it has assumed to another insurer. It protects the ceding insurer against catastrophic claims and lets it accept larger policies than it could otherwise.

A state-created entity that pays claims, within statutory limits, when a licensed insurer becomes insolvent. Producers must not use it as a selling point because it is not a substitute for insurer financial strength.

The legal obligation of a producer to act in the client's best interest and to hold money belonging to clients or insurers in a trust capacity. Mishandling those funds is a serious licensing violation.

Mixing client or insurer money with a producer's personal or business funds. It is prohibited because it makes tracing premium payments impossible and creates a risk of misappropriation.

Offering part of a producer's commission, or any inducement not stated in the policy, to persuade someone to buy. Most states prohibit it as an unfair trade practice and unlawful inducement.

Misrepresenting an existing policy to convince a policyholder to lapse or replace it. It is an unfair trade practice because the replacement is induced by false or misleading comparisons.

Dropping, surrendering, or reducing one life policy to buy another. Producers must deliver required disclosure notices and comparisons so the client understands what is being given up.

A receipt given with the first premium stating that coverage begins on the application date if the proposed insured proves insurable under the insurer's underwriting rules. Otherwise no coverage exists retroactively.

A medical report completed by the proposed insured's doctor describing treatment, diagnoses, and prognosis. Underwriters use it to clarify details that health questionnaires or medical records leave unclear.

A membership organization that stores coded medical and lifestyle information reported by insurers. It is not a credit or claims database, and it cannot be used alone to deny an application.

A beneficiary arrangement that distributes a deceased beneficiary's share to that person's own descendants in equal parts. It keeps a deceased child's inheritance flowing to the grandchildren.

A beneficiary the policyowner may change at any time without that beneficiary's consent. The owner keeps full control of the policy and of who receives the proceeds.

A set number of days, commonly 30 or 31, after a premium due date during which the policy stays in force. If the insured dies in that window, the overdue premium is deducted from the benefit.

After the policy has been in force for typically two years, the insurer cannot void coverage or deny a claim because of a misstatement on the application, except for nonpayment of premium.

Choices a policyowner has when a cash value policy lapses: reduced paid-up insurance, extended term insurance, or surrender for cash. They protect the value already built in the contract.

Allows a lapsed policy to be restored, usually within three to five years, by paying overdue premiums with interest and providing proof of insurability. A new contestable period may then apply.

A rider that pays the policy's premiums when the insured is totally disabled for a stated period, keeping coverage in force. Some versions also refund premiums paid during the waiting period.

A provision letting a terminally or chronically ill insured collect part or all of the death benefit early. The remaining benefit is reduced, and the advance is generally free of income tax.

Money borrowed from a cash value life policy and secured by that policy's values. Unpaid loans plus interest reduce the death benefit, and the policy can lapse if the loan exhausts available values.

Temporary coverage lasting a stated number of years with no cash value. It pays only if the insured dies during the term, making it the least expensive way to buy a large death benefit.

Permanent coverage with level premiums, a guaranteed death benefit, and guaranteed cash value that grows over time. It stays in force for the insured's lifetime as long as premiums are paid.

Permanent coverage that separates the death benefit from cash accumulation. The owner can vary premium payments and, within limits, the benefit amount, but rising internal costs can erode policy values.

Permanent coverage whose cash value, and in some versions the death benefit, rises and falls with separate account investments chosen by the owner. The owner bears investment risk, so a securities license is required.

A contract that accumulates money and then pays it out over time, typically to provide retirement income. It guards against outliving savings, and in fixed versions the insurer bears mortality and investment risk.

The point when an annuity's accumulated value is converted into a stream of income payments, usually irrevocably. Before that point the contract sits in the accumulation phase, growing tax-deferred.

A fee deducted when an annuity or cash value policy is cashed out during its early contract years. It reimburses the insurer for acquisition costs and discourages early withdrawals.

The portion of each annuity payment that represents a tax-free return of the owner's after-tax investment, determined by dividing that investment by the expected total payout. It applies to nonqualified annuities only.

A tax-free transfer of cash value from one life policy or annuity into another, or from life insurance into an annuity. Tax deferral continues, but cost basis must be tracked because it is not stepped up.

A life policy funded above federal limits, which loses some tax advantages. Withdrawals are taxed on a last-in, first-out basis with a pre-age-59½ penalty, and loans are treated as distributions.

The amount a member pays out of pocket for covered care before the insurer begins paying. A higher deductible lowers premium, and certain preventive services are exempt from it.

The share of covered costs a member pays after the deductible, usually a fixed percentage, with the insurer paying the rest. It differs from a copayment, which is a flat dollar amount.

The waiting period, measured in days of disability or days of care, before benefits begin. A longer elimination period lowers premium because the insurer avoids paying short-term claims.

A disability definition that pays when the insured cannot perform the duties of their own specific job, even if working elsewhere. It is the most favorable and most expensive definition available.

Rules that prevent duplicate payment when a person is covered by two group health plans. The primary plan pays first, and the secondary plan pays remaining covered costs up to its own limit.

A federal law letting workers and dependents continue group health coverage after a qualifying event such as job loss. They pay the full premium plus a small administration fee for a limited period.

Private supplemental insurance sold to Medicare enrollees to help pay deductibles, coinsurance, and other cost sharing. Federal law standardizes plan letters, and enrollees cannot use it alongside a Medicare Advantage plan.

A private plan approved by Medicare that delivers Part A and Part B benefits, often with drug coverage and extra services, in place of original Medicare. Provider networks and prior authorization usually apply.

Basic self-care tasks such as bathing, dressing, eating, toileting, transferring, and continence. Being unable to perform a set number of them is a common trigger for long-term care benefits.