WI Life & Health key terms

A license issued by a state insurance department that gives an insurer legal permission to sell insurance in that state. Without it, the company cannot lawfully transact insurance business there.

The state-issued credential an individual must hold to sell, solicit, or negotiate insurance. It requires prelicensing education, a passing exam, a background check, and renewal through continuing education.

A financial stake in the continued life or health of the insured, such as a family relationship or a business debt. It must exist when the policy is applied for, or the contract is void.

The principle that insurance restores the insured to roughly the same financial position as before a loss, not better. It prevents profit from loss, though life insurance is valued rather than strictly indemnity.

The tendency of people with higher-than-average risk to seek or keep insurance more eagerly than low-risk people. Insurers manage it through underwriting, exclusions, and pricing so the risk pool stays balanced.

The death benefit stated on a life insurance policy's face page, paid to the beneficiary when the insured dies. It is also called the policy's denomination or death benefit.

The savings component of permanent life insurance that builds over time and is paid if the policy is surrendered or borrowed against. Term policies generally have none.

A return of unearned premium paid to owners of participating policies when the insurer's actual mortality, expense, and interest results are better than assumed. It is not guaranteed.

A receipt given when an application and initial premium are submitted, providing temporary coverage if the proposed insured meets the insurer's underwriting conditions. Coverage typically starts on the date of the receipt.

Pure protection covering a set number of years with no cash value build-up. It pays the face amount only if the insured dies during the term and is usually the least expensive form of life insurance.

Permanent coverage that lasts the insured's whole life, with level premiums and guaranteed cash value growth. It typically pays dividends if participating and never expires as long as premiums are paid.

Flexible permanent coverage that separates the death benefit from the cash account. The owner can adjust premiums and face amount within limits, and the policy stays in force while cash value covers costs.

Permanent coverage whose cash value is invested in subaccounts chosen by the owner, typically stock, bond, or money market funds. The owner bears the investment risk, and values fluctuate with market performance.

A joint policy covering two people, usually spouses, that pays the death benefit when the second one dies. It is often used to fund estate taxes and costs less than two separate policies.

A provision saying the insurer cannot deny a claim or cancel the policy for misrepresentation after the policy has been in force for a set period, typically two years, except for nonpayment.

A short period, usually 30 or 31 days after a premium due date, during which the policy stays in force even though the premium is unpaid. The insured can still pay during that window.

A rider that pays the policy's premiums if the insured becomes totally disabled for a specified period, keeping coverage and cash value growth intact while the insured cannot pay.

A provision that lets a terminally or chronically ill insured receive part of the death benefit early, as a lump sum or income. Payments reduce the amount eventually paid to beneficiaries.

Choices a policyholder has when surrendering a permanent policy with cash value: take cash, reduced paid-up insurance, or extended term coverage. They protect the value already built.

A contract that pays a stream of income, usually for retirement, funded by premiums paid to an insurer. It is designed to liquidate capital rather than create a death benefit.

The process of converting an annuity's accumulated value into periodic income payments. The owner must typically choose between fixed and variable payout options, and the choice may be irrevocable.

A fee deducted if an annuity or life policy is cashed out during its early years. It is intended to recoup acquisition costs and discourage early withdrawals.

The fraction of each annuity payment that is considered a return of the owner's after-tax principal and is therefore not taxed. It is based on the expected total return of premium.

The amount an insured must pay out of pocket for covered services before the insurer begins paying. Higher deductibles usually mean lower premiums.

The percentage split of covered medical costs shared by the insurer and the insured after the deductible is met, such as 80/20. It continues until an out-of-pocket maximum is reached.

The waiting period a policyholder must satisfy, often measured in days of disability, before benefits begin. Longer elimination periods reduce premiums and are common in disability income policies.

A provision preventing double payment when a person is covered by more than one health plan. The plans determine which pays first and limit total benefits to the actual expenses.

A disability definition that pays benefits when the insured cannot perform the duties of the specific occupation held at the time of disability. It is the broadest and most costly definition.

A benefit paid when the insured can still work but loses income because of a disability. The payment is usually a percentage of the lost earnings rather than the full monthly benefit.

A managed care plan that provides care for members through a network of contracted providers for a prepaid fee. Care received outside the network is generally not covered except in emergencies.

A health plan that contracts with a network of providers at negotiated rates but still lets members use out-of-network providers for a larger share of the cost. No referral is usually needed.

The single contract a group life or health plan issues to the employer or other sponsoring group, with members receiving certificates of coverage. The employer holds the policy, not the members.

A federal law requiring most employers with 20 or more workers to offer continued group health coverage at the employee's expense for a limited time after a qualifying event such as a job loss.

A tax-free exchange of one life insurance policy or annuity for another under Internal Revenue Code Section 1035. Gains continue to be tax-deferred rather than taxed at the time of transfer.

A life policy funded with more premium than federal tax rules allow, so it loses favorable tax treatment. Loans and withdrawals are taxed first as income and may face a 10% penalty before age 59½.

Life insurance proceeds paid to a named beneficiary are generally free of federal income tax. Estate tax may still apply if the insured owned the policy or the estate is the beneficiary.

An employer-sponsored retirement plan letting employees defer part of their salary into individual accounts on a pre-tax basis, often with employer matching. Withdrawals before age 59½ generally face a 10% penalty.

A retirement account funded with after-tax dollars that allows tax-free qualified withdrawals in retirement. Contributions are not deductible, and required minimum distributions do not apply to the owner.

A business contract requiring the transfer of a departing owner's interest at a set price or formula upon death, disability, or retirement. It is typically funded with life insurance on each owner.

Life or disability coverage a business buys on an essential employee, with the business named as beneficiary. The proceeds help cover the cost of finding and training a replacement.