TX Life & Health key terms

A legal right to insure someone based on a relationship in which the policyholder would suffer a real financial or emotional loss if that person died. It must exist when the policy is applied for, not merely at the time of death.

A contract prepared by one party, the insurer, and offered to the other on a take-it-or-leave-it basis. Because the applicant has no power to negotiate the wording, ambiguities are generally resolved in the insured's favor.

A contract in which the amounts exchanged by the parties are unequal and depend on an uncertain event. The policyholder may pay modest premiums and the insurer may pay a large death benefit, or pay nothing at all.

The principle that both parties must deal honestly and disclose all material facts. The applicant must answer questions truthfully, and concealment or misrepresentation can give the insurer grounds to void the contract.

An illegal sales practice in which an agent uses misleading or incomplete comparisons to persuade a policyholder to lapse, surrender, or replace existing coverage. The agent misrepresents the old policy to make a new sale.

The act of dropping existing life insurance or an annuity and buying new coverage in its place. Disclosure and notice rules apply, and the replacing insurer must generally notify the existing insurer.

A receipt issued when the initial premium is submitted with the application; it provides interim coverage only if the proposed insured proves to be insurable under the insurer's underwriting rules. If the risk is declined, no coverage ever took effect.

A beneficiary whose right to the policy proceeds cannot be changed or removed without that person's written consent. The policyowner also generally cannot take a loan, surrender, or assign the policy without permission.

Pure protection that pays a death benefit only if the insured dies within a stated number of years. It builds no cash value, and coverage ends when the term expires unless it is renewed or converted.

Permanent coverage with level premiums paid for life or to a stated age, guaranteed cash value, and a death benefit that is expected to be paid. It stays in force as long as required premiums are paid.

Flexible permanent insurance that separates the death benefit from the cash account. The owner may vary premium amounts and, within limits, the death benefit, as long as the policy holds enough value to cover its costs.

Permanent insurance whose cash value and death benefit fluctuate with the investment results of subaccounts the owner selects. The owner bears the investment risk, so the product is a security and requires a prospectus.

The savings portion of a permanent life policy that grows over time and belongs to the policyowner. It may be borrowed against, taken on surrender, or used to keep coverage in force.

A provision stating that after the policy has been in force for a set period, usually two years, the insurer can no longer void the contract because of a material misstatement on the application.

A required period, usually 30 or 31 days after a premium due date, during which the policy remains in force even though payment is late. If the insured dies within that period, the overdue premium is deducted from the benefit.

Allows a lapsed policy to be restored to its original status by paying overdue premiums with interest and providing evidence of insurability. New contestability and suicide periods generally start over.

The choices available when a permanent policy with cash value is surrendered or lapses: cash surrender, reduced paid-up insurance, or extended term insurance. They prevent the owner from losing accumulated value.

The ways a participating policyholder may take the insurer's divisible surplus: cash, premium reduction, accumulation at interest, paid-up additions, or one-year term insurance. Dividends are a return of premium and are not guaranteed.

The methods a beneficiary may use to receive the death benefit instead of a lump sum, such as interest only, fixed period, fixed amount, or life income. The insurer holds the proceeds and distributes them under the chosen method.

A rider that keeps a policy in force without further premium payments if the insured becomes totally disabled for a specified period, usually six months. Coverage continues as though the premiums were being paid.

Allows part of the death benefit to be paid early when the insured is diagnosed with a terminal illness or meets other qualifying conditions. The amount paid early reduces the benefit later paid to the beneficiary.

A contract in which an insurer accumulates funds and then pays them out as a series of income payments, often for life. It is designed to protect against outliving one's income rather than to provide a death benefit.

The point at which accumulated annuity funds are converted into regular income payments. The owner selects an income option, and the payout depends on age, payout period, and the guarantees chosen.

A fee the insurer imposes when a deferred annuity or permanent policy is cashed in during the early contract years. It recovers acquisition costs and usually steps down to zero on a set schedule.

A life policy that fails the federal seven-pay test because too much premium was paid too quickly. Loans and withdrawals are then taxed as income first, with a 10% penalty generally applied before age 59½.

The portion of each annuity payment that represents a return of the owner's after-tax contributions and is therefore not taxable. The remainder of each payment is taxed as ordinary income.

A tax-free transfer of cash value from one life policy or annuity to another of the same type, or from life insurance to an annuity, under Internal Revenue Code Section 1035. Gain is deferred rather than taxed.

The amount an insured must pay out of pocket for covered services each benefit period before the insurer begins paying. Choosing a higher deductible usually lowers the premium.

The percentage split of covered expenses shared between the insurer and the insured after the deductible is satisfied, such as 80/20. It continues until the insured reaches the plan's out-of-pocket maximum.

The most an insured will pay during a benefit period for covered services, counting deductibles, copayments, and coinsurance. Once it is reached, the plan generally pays 100% of covered expenses.

A required window, commonly 10 to 30 days after a policy is delivered, during which the buyer may cancel for a full refund. It protects consumers who change their minds after purchasing.

A provision stating that the policy plus the attached application make up the whole agreement. No outside documents, separate papers, or oral promises can be used to change its terms.

A health policy provision that bars the insurer from denying a claim because of misrepresentation after the policy has been in force for a stated period, usually two years, except in cases of fraud.

A physical or mental condition for which the insured received a diagnosis, care, or treatment before the policy's effective date. Such conditions may be excluded or subject to a waiting period.

The waiting time after a disability begins before benefit payments start, working much like a deductible measured in days. A longer elimination period reduces the premium.

A benefit paid when the insured returns to work but earns less income or cannot perform every duty. Payment is typically a percentage tied to the amount of income lost.

A definition that treats the insured as disabled when unable to perform the material duties of their own specific occupation. It is broader and more favorable to the insured than an any-occupation definition.

Rules that determine which of two or more health plans pays first when a person is covered by more than one. The primary plan pays its benefits, and the secondary plan pays toward the remaining balance.

A federal law that lets employees and their dependents continue group health coverage for a limited time after a qualifying event such as job loss. The individual usually pays the full premium plus a small administrative fee.

A managed care plan that delivers services through a network of contracted providers and generally requires a primary care physician plus referrals for specialists. Care received outside the network is usually not covered except in emergencies.