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The California Life and Disability Guarantee Fund

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This is a state fund that provides protection for policyholders whose insurer becomes insolvent (goes broke). It provides a limited amount of protection to member companies. In order to be covered under this fund the insurance company must be authorized as an admitted insurer in California.

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Mutual

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An Insurance company that issues policy's that share in the company's excess funds or divisible surplus.

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Contingent Beneficiary

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Acts as a back up in case the primary beneficiary pre-deceases the insured. The primary beneficiary is always first in line to receive policy proceeds. However, if the primary beneficiary is dead when the insured dies the proceeds will go to the contingent beneficiary. If the contingent is not living the proceeds would be included in the estate of the insured.

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Entire Contract

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The policy and application when attached prior to issue.

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Coinsurance

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The percentage of sharing of a loss between the insured and the insurer after the deductible has been satisfied.

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Certificate of Insurance

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What each person covered in a group insurance policy as proof of coverage. An individual policy is not issued; a policy is issued to the employer as a master policy.

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Enrollment Period

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The time a new employee must wait before they can enroll in a group plan.

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Consideration

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An exchange of values and is required in order for a contract to be legally enforceable. It is not required to be equal and is required when the contract is entered into, not at the time of loss.

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Per Capita

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Latin for "each head". This is a designation to pay out benefits equally to beneficiaries. Used in the case when a father names his children as beneficiaries and wants his children to receive benefits equally upon payout.

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Cash

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The automatic settlement option if one has not previously been selected.

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Inactive

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The state of a Life Agent's license when they currently hold no appointments with any insurance companies. In order to begin selling again you would need to be appointed by an insurer.

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CIC

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Abbreviation for California Insurance Code.

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California Insurance Code

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Statutes written and passed by the California legislature and signed into law by the governor.

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Survivorship Life Policy

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A specialized policy that is actually a type of whole life insurance that covers two lives (usually husband and wife) and pays out upon death of the surviving insured. It was created to help heirs pay estate taxes, which are due upon death of the second spouse. The estate tax is something that is only triggered if someone has a very large estate, hence the face amounts are usually over $1 million dollars. The premiums is cheaper than purchasing two policies since it only pays out one death benefit.

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Contributory Group Insurance

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An insurance policy written between the insurer and the employer where the employer covers 75% of the premium and the employees cover the rest. In this arrangement, not all employees are required to participate.

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Non-Contributory Group Insurance

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An insurance policy written between the insurer and the employer where the employer covers 100% of the premium and the employees cover the rest. In this arrangement, ALL eligible employees are required to participate. In this arrangement, the premiums covered by the employer is tax deductible, yet tax free for the employee.

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Open Enrollment

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A period in which new employees can elect to enroll in an employer's group plan. If they wish to enroll during any other time they may be subject to further underwriting.

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Common Disaster Clause

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The clause applies if the primary beneficiary and the insured die in the same accident. It states that no matter what really happened, the primary beneficiary always died first. This clause protects the interest of the contingent beneficiary. However, in order for this clause to apply the insured must die within a certain number of days from the accident.

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Guaranteed Renewable Health

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A health insurance policy that cannot be changed and must be renewed although rates can be changed by class. policies rates can be changed by class only. An individual cannot be singled out for a rate increase.

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HMO

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Abbreviation for: Health Maintenance Organization

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24-Hour Coverage

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A policy that is sold to employers and includes a combination of Workers Compensation and a group health insurance plan. They call it 24 hour coverage since the employee is covered 24 hours a day seven days a week. They are covered on the job under the Workers Compensation policy and off the job under the group health insurance policy. The coverage is seamless since there are no gaps.

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Corridor Deductible

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The gap between the Basic Plan and Major Medical in a Comprehensive Major Medical policy. Comprehensive Major Medical policies have a deductible that applies between the basic plan and major medical co-insurance.

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Double Indemnity

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Also known as the accidental death benefit rider and pays double the face amount if the insured dies in an accident.

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Waiver of Premium

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A rider that can be added to a life insurance policy that will waive the premium for coverage if the insured becomes totally disabled for a six month period.

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Premium

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It is the amount the insured pays for the coverage provided.

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Single Premium Immediate Annuity

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One of the two immediate annuities available. A single premium immediate annuity is purchased with a lump sum and is immediately annuitized - for example, $400 a month for the remainder of a lifetime.

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Single Premium Deferred Annuity

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The other of two immediate annuities available. A single premium deferred annuity is purchased with a lump sum, but is not immediately annuitized.

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MET

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Multiple Employer Trust

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Multiple Employer Trust

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A legal entity that small employers may join to become eligible for group insurance.

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Risk

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Defined as: a chance a loss will occur and is what causes individuals to buy insurance. There are two main categories of risk - pure risk, & speculative risk.

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Pure Risk

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A chance of loss with no potential for gain and is insurable. Only pure risk is insurable.

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Speculative Risk

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A chance possessing the possibility of loss and/or gain. Gambling is an example of a speculative risk. Speculative risks are not insurable.

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Fiduciary

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A professional who is in a position of financial trust. They must act in a fiduciary capacity and always keep in mind their customers best interest. An insurance agent acts in a fiduciary capacity when handling customer funds (premiums).

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Any Occupation

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This definition is very restrictive because in order to meet it and become eligible for benefits the insured's disability must cause them to be unable to perform any job they are suited to do. This could be 20 different jobs!

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Co-Payment

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A flat fee per office visit charged to subscribers of an HMO.

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Co-Insurance Requirement

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Often an 80/20, where the insured pays 20% of the every claim after paying the deductible, the co-insurance requirement discourages over-utilization of the policy. It is insurance companies writing Major Medical Expense policies that usually have this requirement.

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Coordination of Benefits

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A provision which states that if you are covered by more than one Group Medical Expense policies, the one that covers you as an employee is primary and the one that covers you as a dependent is excess (secondary coverage).

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COB

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Abbreviation for: Coordination of Benefits

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Mode

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Method of premium payment. For example, montly, semi-annually, & annually. Due to service charges, the more frequent the mode of payment, the higher the total annual cost of the policy. The annual mode would be the cheapest, since there would be no service charges. Monthly would be the most expensive.

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Hospital Confinement Indemnity

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A policy that will pay the insured a flat daily rate for each day they are hospitalized regardless of the cause. This policy does not follow the principle of Indemnity; thus, this type of policy pays in addition to any other type of health insurance the insured may have, including Medical Expense, and it is possible for the insured to collect more than they actually lost.

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Morbidity Table

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A table based upon the Law of Large Numbers which measures the frequency of illness, sickness and disease at each age, and the actual number of individuals who incurred an illness, sickness or disease at each age. Used by Health Insurances when determening product benefits and pricing.

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Doctrine of Utmost Good Faith

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The doctrine that presumes that all parties, including the insurer, the agent and the insured, are honest and acting in good faith.

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Waiver and Estoppel

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Legal doctrines that state that once an insurer gives up to the right to deny a claim (a waiver), they can no longer deny it (estoppel).

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Doctrine of Reasonable Expectations

answer

The doctrine that reinforces the Doctrine of Adhesion.

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Doctrine of Adhesion

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The doctrine which states that since the insurer wrote the contract, any vague language will be construed in favor of the insured, since they had no choice when the bought it.

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Hazard

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Something that increases the risk.

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Morale Hazard

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An act presented by a careless or reckless person, such as one who drives too fast.

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Moral Hazard

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Presented by a dishonest person, such as one who turns in a fraudulent claim.

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Physical Hazard

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A habit such as smoking.

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Stop-Loss Feature

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The feature that limits the insured's out-of-pocket expenses. Most Major Medical Expense policies put a 'cap' on the insured's share of the co-insurance, which is known as a stop-loss feature. For example, an insured has 80/20 co-insurance, which means that after the deductible he has to pay 20% of the claim. On a large claim this could be a substantial amount, which is why many Major Medical policies have a stop-loss of $5,000, which means after the insured's share of the co-insurance reaches $5,000 on a particular claim, the insurer will pay 100%.

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Vesting / Vested

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Ownership / Owned

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Probationary Period

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A period of time where no coverage is extended if a pre-existing sickness that the insured was treated or not treated prior to the new policy's effective date or reoccurance. Also known as the pre-existing condition clause, this period protects the insurer against adverse selection.

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Admitted

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Authorized by the Insurance Commissioner before they can transact business within a particular state, whether they are domiciled in this state (domestic), another state (foreign) or in another country (alien).

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Hospice Care

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Coverage for the care and counseling of the terminally ill. This is covered by Medicare Part A which also includes basic hospital benefits.

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Medicare

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A federal health insurance program for people 65 or older who qualify for Social Security, people of any age with permanent kidney failure, and those who are permanently and totally disabled.

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Medicare Part A

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Medicare provisions that provide coverage for hospitalization, skilled nursing, home health care and hospice care. Automatically eligible to individuals at age 65 free of monthly premium.

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Reduced Paid-Up

answer

Whole Life non-forfeiture option that uses the cash value in the policy to purchase Paid-up Whole Life Insurance for less than the full face amount of the original policy.

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Probationary Period

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In Group Health insurance, the period of time that starts when a new employee is hired and ends on the date they become eligible for the employer's Group Health plan.

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Pre-Existing Condition Clause

answer

A period of time that starts after enrollment, which states that pre-existing conditions may not be covered for a specified period of time. Although Group Health plans may or may not have a pre-existing condition clause, individual plans usually do.

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Rehabilitation Benefit

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A benefit under Disability Income insurance is designed to pay for necessary vocational training to help the insured resume his normal occupation or prepare for a new career.

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Waiting Period

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On Disability Income insurance, the period of time between the onset of a disability and the time benefits start.

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Insured

answer

The person upon whose life a Life insurance policy is based.

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Defined Benefit Qualified Retirement Plans

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Employer contributions are not taxed to the employee until they are distributed; Employer contributions are tax deductible for the employer; Plan earnings ARE tax deferred until distribution. ERISA subject; requires vesting schedules.

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Aleatory Contract

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A contract that has an unequal exchange due to its uncertain outcome... Insurance contracts are considered aleatory. For example, your client buys medical expense insurance, but never has a claim, while another client buys a policy today and has a large claim tomorrow. The outcome depends on chance.

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Mutual Company

answer

An insurance company owned by policyholders

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Decreasing Mortgage

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A Life insurance policy that will provide protection to pay off your mortgage but decreases at a straight line and may not provide enough.

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Mortgage Protection

answer

A Life insurance policy that will ALWAYS provide protection to pay off your mortgage and is set up to decrease at exactly the same rate as your mortgage amortizes.

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Mortgage Guarantee

answer

Insurance which protects banks if they foreclose on your house and you owe more than the house is worth.

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Homeowners

answer

A type of Fire insurance, not Life insurance.

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Partial Disability Benefits

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Defined as the inability of the insured to perform one or more of the regular duties of his occupation. A person who is partially disabled is able to go back to work and perform some duties and earn some income.

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Surplus Lines Broker

answer

A person licensed by the Commissioner to solicit and place insurance with non-admitted insurers when the insurance cannot be procured from admitted insurers, not an MGA.

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Managing General Agents (MGA)

answer

A Fire and Casualty broker/agent or a Life agent who represents one or more admitted insurers and manages the transaction of insurance by those insurers in a specific territory.

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Extended Term Option

answer

A non-forfeiture option of Life insurance that is automatically selected if a policy lapses without choosing another forfeiture option within a period of time. the cash value is used to buy a new term life policy for the same face amount as the prior policy for a specified period of time, which depends upon the insured's age, the amount of cash value available and the face amount.

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Currently Insured

answer

Under Social Security this means that a worker must have at least 6 quarters of coverage paid in out of the last 13-quarter period ending with the quarter resulting in their death, disability or retirement. If a person has only currently insured status, they are eligible for only certain reduced benefits.

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Fully Insured

answer

Under Social Security means that a person has paid in 40 quarters of coverage. If a person is fully insured, they are eligible for all Social Security benefits.

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Theft

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Under the California Insurance Code, anyone who diverts or appropriates customer funds while acting in a fiduciary capacity to their own use is guilty of this crime.

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Comprehensive Long Term Care (LTC)

answer

Policies that cover both institutional and home care. Home care includes coverage for home health care, including skilled nursing or other professional services (non-facility) in the residence, adult day care and respite care, which is short-term care provided by other caregivers in order to provide relief for a primary caregiver. However, skilled nursing in a long term care facility (nursing home) IS NOT covered.

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Respite Care

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Short-term care provided by other caregivers in order to provide relief for a primary caregiver.

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Incontestability Clause

answer

The clause in a Life insurance policy protects the insurer from those who are guilty of fraud or material misrepresentation on their application, but only for the first 2 years. After that, as required by state law, the insured is protected since the policy is 'incontestable', and claims are covered regardless.

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Interest Option

answer

The Life insurance settlement option that a beneficiary may select if they want to conserve the proceeds payable upon the insured's death. For example... if you would like to conserve a $1,000,000 estate that was just created, you might select this option, where the insurer will keep the money for you and pay you annual interest. Although the $1,000,000 proceeds are not taxable to you, the interest is. 5% of $1,000,000 is $50,000 a year, plus you are still a millionaire!

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Material Fact

answer

A fact that is important to the underwriter.

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Concealment

answer

The failure to disclose a material fact that a party knows and ought to communicate. Concealment, whether intentional or not, entitles the injured party to rescind (void) the contract.

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Survivorship Life

answer

Insurance policy that only pays when the second party dies, meaning nothing is paid when the first party dies. This type of policy is often written to cover estate taxes, since they are due when the second spouse dies. A type of Joint Life.

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Part B Medicare

answer

The Part of Medicare designed to cover Physicians and related services for an additional premium charge. Namely: physicians services, clinical laboratory services, home health care - but NOT hospitalization.

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Insurable Interest

answer

An underwriting requirement that states that you cannot buy Life insurance on anyone other than yourself unless you have an insurable interest in that person at the time of application. Insurable interest is usually based upon immediate family or economics, such as Key Person Life insurance. It is designed to prevent gambling. Insurable interest need not exist at time of death. Insurable interest is NOT a policy provision.

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Non-occupational Medical Expense Insurance

answer

Insurance that excludes on the job injury or sickness, that of which is covered by Workers Compensation instead. However, if an individual is not required to be covered by Workers Compensation, they may be able to buy Medical Expense insurance that provides 'occupational' coverage, which covers both on and off the job.

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Employee Stock Ownership Plan

answer

A qualified Employee Benefit plan that gives employees part ownership in the company for which they work. Benefits are paid out in the stock. Stock in the company is issued and held in trust for the benefit of eligible employees.

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Viatrical Settlement

answer

Occurs when a terminally ill insured sells his Life insurance policy to an investor at a discount. The policy ownership is absolutely assigned to the investor, who must pay future premiums, but names themselves as beneficiary.

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Medicaid

answer

A medical welfare program for those who have very little income or assets, regardless of age.

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Beneficiary (Medicaid)

answer

What persons covered by Medicaid are called.

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Insured (Health)

answer

What persons who buy Health Insurance are called.

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Subscriber (Health)

answer

What persons who subscribe to Pre-paid Health Insurance plans are called.

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