NE Life & Health key terms

A license granted by a state insurance department allowing an insurer to sell specified lines of insurance in that state. Selling insurance without one is an unauthorized and illegal activity.

A state organization, funded by assessments on admitted insurers, that pays covered claims up to statutory limits when a member insurer becomes insolvent and cannot meet its obligations to policyholders.

An unfair trade practice in which a producer uses misleading or incomplete comparisons to persuade a policyholder to lapse or surrender existing coverage and buy a replacement policy instead.

Giving or offering any part of a producer's commission, or any valuable consideration not stated in the contract, as an inducement to purchase insurance. Prohibited by state law.

A financial or emotional stake in the continued life or well-being of the insured. In life insurance it must exist when the policy is applied for, or the contract is void.

A condition that increases the chance or severity of a loss, such as poor health, smoking, or unsafe working conditions. Underwriters use hazards to classify and rate risks.

The tendency for people who expect to need coverage most, such as the seriously ill, to buy or keep insurance. Underwriting and group participation rules exist to limit it.

The principle that insurer and applicant must deal honestly and disclose all material facts. A material misrepresentation on the application can give the insurer grounds to rescind coverage.

A premium that stays the same each year for the life of a permanent policy. Early premiums exceed the actual cost of protection, building reserves that cover rising mortality costs later.

The savings or reserve element inside a permanent life policy. It grows tax deferred and can be reached through policy loans, surrender, or the nonforfeiture options.

A receipt issued when the first premium is paid with the application. It provides interim coverage, often effective only if the proposed insured proves insurable under the insurer's rules.

The person, persons, or entity named in a life insurance policy to receive the death benefit. A clear designation directs proceeds as the owner intends and generally avoids probate.

Coverage for a specified number of years that pays the face amount only if the insured dies during that period. It builds no cash value and is usually renewable or convertible.

Permanent coverage with guaranteed level premiums, a guaranteed cash value, and a death benefit payable whenever death occurs, typically maturing at age 100 or 121.

Permanent coverage with flexible premiums and an adjustable death benefit. The insurer deducts mortality and expense charges monthly and credits a current interest rate to the cash value.

Permanent coverage whose cash value, and often death benefit, varies with the investment performance of separate accounts the owner selects. Because the owner bears investment risk, it is sold as a security.

The days after a premium due date, commonly 30 or 31, during which the policy remains in force while payment is outstanding. Death during this period still produces a payable claim.

A provision limiting the insurer's right to deny a claim or rescind coverage for material misrepresentation after the policy has been in force a stated period, usually two years from issue.

Choices available when premiums stop on a permanent policy that has cash value: take the cash surrender value, convert to reduced paid-up insurance, or use extended term insurance.

A nonforfeiture choice that applies the net cash value as a single premium to buy term insurance equal to the policy's face amount for whatever period that money will purchase.

A rider that pays the policy's premiums if the insured becomes totally disabled, typically after a waiting period, so coverage stays in force without out-of-pocket payments.

The person whose life expectancy determines the amount and duration of annuity payments. The annuitant may differ from the contract owner, who holds the contractual rights.

The years before annuitization during which annuity premiums earn interest or investment returns and no income payments are being made to the annuitant.

The percentage of each annuity payment treated as a tax-free return of the owner's cost basis. The remaining portion of the payment is taxable as ordinary income.

The incidence and duration of sickness and injury within a population. Health insurers use morbidity tables, much as life insurers use mortality tables, to estimate claims and set premiums.

The amount an insured must pay toward covered medical expenses before the insurer begins to pay. Choosing a higher deductible generally lowers the premium.

A cost-sharing percentage applied to covered expenses after the deductible is satisfied, such as the insurer paying 80 percent and the insured paying the remaining 20 percent.

A medical condition diagnosed or treated before a health policy's effective date. Federal rules now restrict exclusions in most plans, though some individual and short-term policies still apply them.

A provision determining which of two or more health plans pays first when a person is covered twice, preventing combined payments from exceeding the actual covered expense.

A health policy clause stating that after a set period, usually two or three years, the insurer cannot contest the policy for misstatements except fraudulent ones.

The waiting period measured from the onset of a disability until benefits begin. A longer elimination period lowers the premium because fewer short-term claims are paid.

The maximum length of time a disability or medical plan continues to pay benefits for a covered condition. Longer benefit periods increase the cost of the coverage.

A policy definition describing when the insured cannot work at all. Some contracts require inability to perform one's own occupation; others require inability to perform any occupation for which suited.

A benefit that pays a reduced amount when the insured returns to work at lower earnings or fewer hours because of the disabling condition, based on the percentage of income lost.

The single contract an insurer issues to an employer or other sponsor of a group plan. Covered individuals receive certificates summarizing their benefits rather than individual policies.

A federal law requiring most employers with 20 or more workers to let employees and dependents continue group health coverage for a limited time after a qualifying event, at their own expense.

An employer plan allowing employees to pay health and other insurance premiums with pre-tax salary dollars, lowering the employee's taxable income and the employer's payroll taxes.

A life policy that fails the seven-pay test because premiums were funded too quickly. Loans and withdrawals are taxed as income first and may incur a 10 percent penalty before age 59½.

Employer-paid premiums for up to $50,000 of group term life coverage are deductible to the employer and excluded from the employee's income; coverage above that amount creates taxable income.