SD Life & Health key terms

An insurance company that has been licensed by a state's insurance department to sell policies in that state and is therefore subject to its solvency and market-conduct rules.

The formal license issued by a state insurance department that authorizes an insurer, or in some states a producer, to transact specific lines of insurance within that state.

A producer's legal obligation to handle money collected on behalf of an insurer or client honestly and separately, holding premiums in trust and never mixing them with personal funds.

Giving a client any part of a producer's commission, or anything of value not stated in the policy, as an inducement to buy; an illegal unfair trade practice in nearly every state.

A state-created entity, funded by insurers, that pays limited benefits to policyholders of an insurer that becomes insolvent, protecting consumers when a company cannot meet its obligations.

The principle that insurance restores a policyholder to roughly the same financial position held before a loss, without allowing profit from the loss; life insurance is a valued-policy exception.

A financial or love-and-affection relationship that makes a person suffer a loss if the insured dies or is harmed; it must exist when the life policy is applied for.

The tendency of people with the greatest likelihood of loss to seek or keep insurance more eagerly than lower-risk people, which is why insurers underwrite and use risk classifications.

The doctrine requiring both insurer and applicant to deal honestly and disclose all material facts on an application, since the insurer cannot inspect the insured's health or habits itself.

A premium that stays the same for the life of the policy; because mortality risk rises with age, the insurer charges more than the true cost early to build reserves and cash value.

The savings or reserve portion of a permanent life insurance policy that builds over time as premiums are paid; it is available through surrender, loans, or nonforfeiture options.

The underwriting process of sorting applicants into groups with similar expected mortality or morbidity, such as preferred, standard, and substandard, so each group pays a fair premium.

Life coverage provided for a set number of years, paying a death benefit only if the insured dies during that period, with no cash value and usually renewable or convertible.

Permanent coverage with guaranteed premiums, a guaranteed death benefit, and guaranteed cash value accumulation; it stays in force for the insured's lifetime as long as required premiums are paid.

Flexible permanent coverage that separates the cost of insurance from the savings element; the policyowner can vary premium amounts and, after the first year, adjust the death benefit.

A permanent policy whose cash value is invested in separate account subaccounts chosen by the owner, so both cash value and death benefit fluctuate and the owner carries the investment risk.

A joint policy covering two people, usually spouses, that pays the death benefit after both have died; it is used mainly to fund estate taxes at the second death.

A provision stating that after a policy has been in force for usually two years, the insurer cannot void coverage or deny a claim because of misstatements on the application.

A set time, typically 30 or 31 days after a premium due date, during which coverage stays in force even though the premium is unpaid; payment must be made to keep the policy alive.

Choices given to a whole life policyowner who stops paying premiums: take the accumulated cash value in cash, as reduced paid-up insurance, as extended term coverage, or as an annuity.

A rider that cancels premiums when the insured becomes totally disabled, usually after a waiting period of about six months, and keeps the policy and its values in force during the disability.

The methods a beneficiary may use to receive the death benefit, such as lump sum, interest only, fixed period, fixed amount, or a life income arrangement.

A contract that pays a stream of income for a set period or for life in exchange for a lump sum or periodic payments; it protects against outliving one's savings.

The point at which accumulated annuity funds are converted into regular income payments, after which the contract generally cannot be cashed out and payout options are fixed.

A fee an insurer deducts when an annuity or life policy is cashed out early, used to recover sales costs; it is usually highest in the first years and declines to zero.

An annuity in which the insurer guarantees the interest credited and the dollar amount of each income payment, shifting investment risk to the insurer rather than the owner.

A tax-free transfer of cash value or annuity funds directly from one life policy or annuity to another, permitted by the Internal Revenue Code when the exchange meets set requirements.

The amount of covered medical expenses a policyholder must pay out of pocket each year before the insurer begins paying its share of the claim.

The percentage split of covered expenses shared between insurer and insured after the deductible is met, such as an 80/20 clause where the insurer pays most of the cost.

A fixed dollar amount, such as twenty-five dollars, that the insured pays at the time of a covered service like an office visit or a prescription.

A health maintenance organization that provides care through a contracted network and a primary care physician, usually with small copays and little or no coverage outside the network.

The rule that determines the order in which two or more health plans pay when a person is covered by more than one, preventing total payments above the actual expense.

The waiting time, often measured in days of disability, that must pass before disability income benefits begin; it works much like a time deductible.

The maximum length of time a disability income policy or long-term care policy will continue paying benefits for a single disability or confinement.

A disability standard that pays benefits when the insured cannot perform the main duties of the occupation he or she is trained for, even if able to work elsewhere.

A benefit that pays a portion of the full disability benefit when the insured can still work but suffers a loss of income because of injury or illness.

The federal health program for people age sixty-five and older and for certain disabled individuals, made up of Part A hospital coverage and Part B medical insurance, plus optional Part D.

A joint federal and state program that pays medical costs for people with low income and limited resources; eligibility rules and covered services are set by each state.