MI Life & Health key terms

A license granted by a state insurance department that allows an insurer to legally transact insurance in that state. An insurer without one is called unauthorized or nonadmitted and is subject to penalties for doing business there.

A state-issued credential that authorizes a person to solicit, negotiate, or sell insurance. Getting one usually requires prelicensing education, a licensing exam, a background check, and appointment by a sponsoring insurer.

An unfair trade practice in which a producer uses misleading or incomplete comparisons to persuade a policyholder to drop existing coverage and buy a replacement, usually to earn a new commission. It is prohibited by state law.

A state-created organization, funded by member insurers, that pays covered claims of policyholders when an insurer becomes insolvent, up to statutory limits. It is not a government agency and does not protect against poor investment performance.

A financial or economic stake in a person's continued life or health, such that death or illness would cause real loss. In life insurance it must exist when the policy is applied for, but need not continue afterward.

The principle that insurance should restore an insured to roughly the same financial position held before a loss, without allowing profit. Health and property coverage follow it closely; life insurance pays a stated face amount instead.

The requirement that both insurer and applicant deal honestly and disclose all material facts. Breach can let the insurer rescind a policy, and the concept underlies representations, warranties, and the incontestability period.

An insurance contract written and controlled by the insurer and offered to the applicant on a take-it-or-leave-it basis. Because the insured has no say in the wording, ambiguities are interpreted in the insured's favor.

A premium that stays the same each year for the life of the policy or a chosen period. The insurer overcharges in early years to build reserves that offset the rising cost of mortality in later years.

The savings portion of a permanent life policy that grows tax-deferred and is available as a loan or on surrender. It equals what the insurer holds for the policy minus any surrender charge.

A life policy funded more heavily than the federal seven-pay test allows. It keeps its death benefit but loses favorable tax treatment: loans, withdrawals, and gains are taxed income first, with a 10% penalty before age 59½.

The sale of an existing life insurance policy by a person with a terminal or chronic illness to a third party for a lump sum that is less than the death benefit; the buyer then collects the benefit.

Temporary coverage that pays a death benefit only if the insured dies within a stated period, such as 10 or 20 years. It builds no cash value, so it usually costs the least for a given face amount.

Permanent flexible-premium coverage with a stated account value. The insurer deducts mortality and expense charges monthly and credits interest at a declared rate, so the policy stays in force only while the account value covers the charges.

Permanent coverage whose cash value, and usually the death benefit, rise and fall with investments in the insurer's separate account. It is a security, so it must be sold with a prospectus by a FINRA-registered representative.

A single policy insuring two people that pays when the second one dies. The premium is lower than for two separate policies, and it is used mainly for estate planning and estate tax liquidity.

A provision stating that after a policy has been in force for two years, the insurer cannot void it or reduce the benefit because of misstatements on the application, except for nonpayment of premium.

The guaranteed choices available when a cash-value policy is surrendered or lapses: take the cash surrender value, convert to reduced paid-up insurance, or convert to extended term insurance.

The ways a death benefit can be paid: lump sum, interest only, fixed period, fixed amount, or a life income. The owner may choose in advance; otherwise the beneficiary decides.

A rider that pays the policy's premiums while the insured is totally disabled beyond an elimination period, usually six months. The policy and its cash value keep growing as though premiums had been paid.

A rider or provision letting the insured buy specified amounts of additional coverage at stated ages or events without new evidence of insurability, paying the standard rate for the attained age.

A provision that lets the insured collect part of the face amount early, usually when diagnosed with a terminal illness, while reducing the benefit paid to the beneficiary at death. Benefits are often tax-free.

Converting an annuity's accumulated value into a stream of regular income payments, either for a fixed number of years or for life. Once annuitized, the decision is generally irrevocable.

The percentage of each annuity payment that is a tax-free return of the owner's own after-tax investment. It is figured by dividing the investment in the contract by the total expected return.

An annuity whose value and payments depend on the performance of separate-account investments rather than a fixed rate. The owner carries the investment risk, so payments may be lower than expected.

The rate and severity of illness or injury in a group of people. Health insurers use morbidity tables, together with expense and interest assumptions, to estimate claims and set premiums.

The share of covered medical costs the insured pays after meeting the deductible, usually a percentage such as 20%. The insurer pays the rest, and a stop-loss limit caps the insured's out-of-pocket amount.

The amount the insured must pay out of pocket for covered health services each year before the insurer begins to pay benefits. Higher deductibles usually mean lower premiums.

A provision stating that the policy, the attached application, and any riders make up the whole agreement. No other document or outside statement can be used to change or dispute it.

A health policy provision barring the insurer, after two years from issue, from denying a claim or voiding the policy because of misstatements on the application, except for fraud or nonpayment of premium.

The extra time after a premium due date during which the policy stays in force, commonly 31 days for life and group health coverage. A claim during this period may be reduced by the unpaid premium.

A disability policy standard that pays benefits when the insured cannot perform the main duties of their own specific occupation, even if they could work elsewhere. It is broader than an any-occupation definition.

A benefit that pays a reduced amount when the insured can work again, but at lower income or fewer hours. Payment is usually a percentage of the lost earnings.

A disability policy the insurer cannot cancel or raise premiums on until a stated age, usually 65, as long as premiums are paid. It gives the strongest renewal guarantee an insured can buy.

Coverage that reimburses a business's fixed operating costs, such as rent and utilities, while the owner is disabled. It pays for a limited period and is not a substitute for the owner's personal disability income.

A provision that prevents double payment when a person is covered by more than one health plan. The primary plan pays its benefits first, and the secondary plan pays up to its limit.

A prepaid managed-care plan that provides care through a network and usually requires members to choose a primary care physician who coordinates referrals. Nonemergency care outside the network is typically not covered.

A federal law that lets eligible employees and dependents keep group health coverage after events such as job loss or reduced hours, for 18 to 36 months, paying the full premium plus up to 2%.

A privately sold, standardized policy that helps pay Medicare's deductibles, coinsurance, and copayments. Federal rules give people a six-month open enrollment when they first take Medicare Part B at 65 or older.