MS Life & Health key terms

A financial or love-and-affection stake a person has in the continued life or health of another, such that the person would suffer a loss if that other died or became ill. It must exist when a life policy is purchased.

The principle that both parties to an insurance contract must deal honestly and disclose all material facts. Insurers rely on the applicant's truthful answers, and concealment or material misrepresentation can void coverage.

An insurance policy drafted by the insurer and offered to the buyer on a take-it-or-leave-it basis. Because the insurer writes the terms, ambiguities are generally interpreted in favor of the insured.

A rule that an insurer who knowingly gives up a right (waiver) cannot later use that right to deny a claim if the insured relied on the insurer's conduct and was harmed (estoppel).

The death benefit stated on a life insurance policy's face page, payable to the beneficiary when the insured dies. It may be reduced by outstanding policy loans or increased by dividends and riders.

A premium that stays the same for the life of the policy. Because mortality risk rises with age, the insurer charges more than the actual cost of protection in early years to cover later years.

Pure protection that pays a death benefit only if the insured dies during a specified period, such as 10 or 20 years. It builds no cash value and is usually the least expensive form of coverage.

Permanent coverage that stays in force for the insured's entire life, provided premiums are paid. It has guaranteed level premiums, a guaranteed death benefit, and a guaranteed cash value that grows over time.

Flexible permanent coverage that separates the death benefit from the cash value account. The owner may vary premium payments and, within limits, the death benefit, as long as the policy's cash value covers its costs.

Permanent coverage whose cash value is invested in separate accounts such as stock or bond subaccounts chosen by the owner. Values fluctuate with market performance, and the owner bears the investment risk.

A period, typically 30 or 31 days after a premium due date, during which the policy remains in force even though the premium has not been paid. Death during this time still produces a claim.

A provision stating that after the policy has been in force for a set period, usually two years, the insurer cannot deny a claim or rescind coverage because of misstatements in the application, short of fraud or nonpayment.

Choices available when a permanent policy with cash value is surrendered or lapses and premiums stop. Standard options include cash surrender, reduced paid-up insurance, and extended term insurance.

A loan the owner takes from the insurer, secured by the policy's cash value. Interest accrues, and any unpaid balance plus interest reduces the death benefit or cash value if not repaid.

A rider that excuses premium payments if the insured becomes totally disabled for a specified period, usually six months, while keeping the policy and its values in force.

A contract, usually with an insurer, that accumulates money and then pays it out as a series of income payments, often for life. It protects against the risk of outliving one's savings.

The process of converting an annuity's accumulated value into periodic income payments. Once elected, the payout schedule generally cannot be reversed, and the method chosen determines how long payments last.

An annuity in which the accumulation phase lasts for years before income payments begin. Money grows tax deferred, and surrender charges or penalties typically apply to early withdrawals.

The fraction of each annuity payment that represents a tax-free return of the owner's after-tax investment rather than taxable earnings. It is determined at annuitization using expected return and investment in the contract.

The person or entity first in line to receive the policy proceeds when the insured dies. If the primary beneficiary is not living or has been removed, proceeds pass to any contingent beneficiary.

A beneficiary designation method that divides a deceased beneficiary's share among that beneficiary's heirs. For example, a deceased child's portion passes to that child's own children.

A beneficiary whose right to the policy proceeds cannot be changed or cancelled without that beneficiary's written consent. The owner also generally cannot take loans or surrender the policy without consent.

A receipt given when the first premium is paid with the application. It provides temporary coverage effective on the date of application or medical examination, but only if the proposed insured proves insurable.

A right to return a newly delivered policy within a stated period, often 10 to 30 days, for a full premium refund. It gives the buyer time to review the contract after purchase.

The rate or incidence of illness and injury in a population. Health insurers use morbidity tables, along with interest and expense assumptions, to estimate expected claim costs and set premiums.

The tendency of people with higher-than-average health or mortality risk to seek or keep insurance more eagerly than lower-risk people. Insurers use underwriting to control it.

The amount an insured must pay out of pocket for covered medical expenses each year before the health plan begins to pay benefits. Deductibles reduce premiums by discouraging small claims.

The share of covered medical costs, stated as a percentage, that the insured pays after the deductible is met, while the plan pays the rest. A common split is 20 percent insured and 80 percent plan.

A medical condition for which the insured received diagnosis or treatment, or had symptoms, before the coverage began. Waiting periods or exclusions for such conditions are limited by law in most group plans.

The waiting time after a disability begins before disability income benefits start, or after a long-term care event before benefits are paid. Longer elimination periods lower the premium.

A disability definition that pays benefits if the insured cannot perform the duties of the occupation held at the time of disability, even if able to work in another field. It is the most favorable definition for the insured.

A benefit that pays when the insured returns to work at reduced income or hours because of disability. It typically requires a loss of income of a stated percentage and pays proportionally.

The group insurance contract issued to an employer or other sponsor, which covers the whole group. Individual participants receive certificates that summarize, but do not replace, the master policy.

A document given to each person covered under a group policy that describes the benefits, limits, and provisions of the master contract. It is not the contract itself.

A federal law requiring employers with 20 or more workers to let employees and dependents continue group health coverage after a qualifying event, such as leaving a job, at their own expense.

A health maintenance organization plan that provides care through a network of contracted providers and usually requires members to choose a primary care physician who coordinates care and referrals.

A preferred provider organization plan that contracts with a network of providers at discounted rates. Members may use out-of-network providers at a higher cost without a referral.

A private Medicare supplement policy that pays some of the cost sharing, such as deductibles and coinsurance, that original Medicare does not cover. It does not pay for long-term custodial care.

Basic self-care tasks such as bathing, dressing, eating, toileting, transferring, and continence. Long-term care policies typically pay benefits when someone cannot perform a set number of these without help.

Help with personal activities such as bathing, dressing, and eating rather than skilled medical treatment. Medicare generally does not pay for long-term custodial care, though long-term care policies do.