MT Life & Health key terms

A license issued by a state insurance department that allows an insurer to transact insurance business in that state. It confirms the company has met minimum capital, surplus, and operational requirements.

An illegal practice in which a producer uses misleading or incomplete comparisons to persuade a policyholder to drop one policy and buy another, usually to earn new commissions and often harming the client.

Giving part of an agent's commission, or anything of value not stated in the policy, to a buyer as an inducement to purchase insurance. It is illegal in nearly every state.

The act of surrendering, lapsing, or using values from an existing life insurance policy to buy a new one. Producers must usually give the applicant and the insurer written notice of the proposed replacement.

A situation where the only possible outcomes are loss or no loss, with no chance of gain. Insurers generally insure pure risks, such as fire, premature death, or disability.

A financial relationship in which a person would suffer a real economic loss if the insured died or was injured. It must exist when a life policy is applied for.

The principle that insurance should restore the insured to approximately the same financial position as before a loss, not create a profit. It applies mainly to property and health coverage, not life insurance.

The requirement that both the applicant and the insurer deal honestly and disclose all material facts. Insurance contracts depend on full disclosure because the insurer cannot inspect the risk firsthand.

A contract in which the amounts exchanged by the parties are unequal and depend on an uncertain event. The insured may pay small premiums and later receive a large benefit, or receive nothing.

A statistical principle holding that predictions become more accurate as the number of similar exposure units increases. Insurers use it to estimate expected claims and set rates.

The insurer's right, after paying a claim, to pursue the party that caused the loss and recover the amount paid. It prevents the insured from collecting twice for the same loss.

The producer's role in gathering accurate information about an applicant, completing the application correctly, and reporting facts that might affect the insurer's decision to accept the risk.

A receipt given when the initial premium is paid with the application. Coverage may begin immediately, but only if the applicant meets the insurer's standard underwriting requirements.

The process of grouping applicants with similar expected mortality or morbidity so each group pays a rate matching its expected claims. Common classes are preferred, standard, and substandard.

A provision stating that the policy, the attached application, and any riders or endorsements make up the whole agreement. Nothing outside those documents can be used to change it.

After a policy has been in force for a set period, usually two years, the insurer cannot void the coverage because of misstatements on the application, except for nonpayment of premium.

A period, commonly 30 or 31 days after the premium due date, during which a policy stays in force even though the premium is unpaid. A death during this time still pays, minus the owed premium.

Restoring a lapsed policy to its original in-force status. The owner usually must pay overdue premiums with interest and provide evidence of insurability; new contestability and suicide periods may apply.

Choices available to a policyowner who stops paying premiums on a cash value policy. Options typically include cash surrender, reduced paid-up insurance, and extended term insurance.

Money borrowed from an insurer using the cash value of a permanent policy as collateral. The loan does not have to be repaid, but unpaid interest reduces the death benefit or cash value.

A settlement provision that limits a beneficiary's ability to assign, sell, or pledge future policy proceeds. It also shields the proceeds from most of the beneficiary's creditors.

A rider that cancels premium payments while the insured is totally disabled, as defined in the rider, typically after a waiting period. The policy remains in force, including cash value growth.

An option that lets the insured buy additional coverage at stated ages or events without proving insurability. Premiums are based on the insured's age at the time of purchase.

A provision allowing a terminally or chronically ill insured to receive part of the policy's death benefit early. The amount received is subtracted from the final death benefit paid to beneficiaries.

A rider on a juvenile policy that waives premiums if the adult who pays the premium dies or becomes disabled, keeping the child's coverage in force until a stated age.

A contract in which an insurer pays a lump sum or periodic income, either immediately or at a future date, in exchange for one or more premiums. It is designed to liquidate a sum of money over time.

The point at which an annuity's accumulated value is converted into a stream of income payments. Once chosen, the election is usually irrevocable.

The percentage of each annuity payment that is not taxed because it represents the return of the annuitant's original investment. The remainder, representing earnings, is taxed as ordinary income.

A fee imposed by an insurer when an annuity or cash value policy is cancelled during the early contract years. It is intended to recover costs the insurer already incurred.

An annuity whose value is tied to a separate account of investments, usually mutual-fund-like subaccounts. The owner bears the investment risk, and payments can rise or fall.

A health condition for which the person received diagnosis or treatment during a set period before coverage began. Under current federal rules, most major medical plans cannot exclude such conditions.

A method of determining which of two or more health plans pays first when a person is covered by both, so total benefits do not exceed the actual charge.

A health policy provision that gives the insured the right to renew coverage at each premium due date without proving insurability. The insurer may raise premiums for all policyholders in the same class.

A disability income provision that pays a partial benefit when the insured returns to work but earns less income or cannot perform some duties, usually tied to lost earnings.

A disability definition that considers the insured disabled if unable to perform the main duties of the specific occupation held before disability, even if capable of other work.

A federal law requiring most employers with 20 or more employees to let workers and dependents continue group health coverage after a qualifying event, at the individual's own expense.

A method of pricing group coverage in which the employer's premium reflects that group's own past claims, rather than only industry-wide averages.

An employer-sponsored plan allowing workers to choose between cash and qualified benefits, such as health insurance or a flexible spending account, with the chosen benefits paid from pre-tax salary.

A tax-advantaged account available to people enrolled in a qualified high-deductible health plan. Contributions are pretax, growth is tax-deferred, and withdrawals for eligible medical costs are tax-free.