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A Consumer’s Insurance Glossary

Words and phrases used in the insurance industry

If viewing online, click a letter below to link to the corresponding section


A | B | C | D | E | F | G | H | I | J | K | L | M
N | O | P | Q | R | S | T | U | V | W | X | Y | Z
NOTE: Most of the terms, explanations and definitions in this glossary came from
various government and insurance industry guides, reference books, and dictionaries. The
definitions may vary under state law, federal law and common usage. Meanings and word
usage may change over time or be redefined in insurance contracts. We hope this glossary
will help you better understand insurance.

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Actual Cash Value (refers to auto and homeowner insurance) — The cost to
replace damaged or lost property with comparable or like property, minus depreciation.

Actuary — An insurance professional who analyzes, calculates rates and reserves, and
evaluates and manages statistical information.

Actuarial — These are statistical calculations insurance companies use to decide


insurance rates and premiums. They are based on usage projections and costs for a
defined risk in a specific insurance market.

Adjuster — Someone who is paid by the insurance company or the insured person to
investigate or negotiate insurance claims on their behalf.

Administrative Costs — Costs associated with running an insurance business, such


as utilization review, marketing, medical underwriting, agents’ commissions, premium
collection, claims processing, insurer profit, quality assurance programs, and risk
management.

Administrative Services Only (ASO) (refers to health insurance) — When a


Third-Party Administrator (see term “Third-Party Administrator”) provides services such
as processing and paying health insurance claims for an employer.

Admitted Company — An insurance company the Office of the Insurance


Commissioner authorizes and licenses to do business in Washington state.

Adverse Selection — This term is used for people who have an above average risk for
loss. They have a tendency to buy more insurance coverage than those who are at a lower
risk. For example, people with terminal illnesses will often try to buy large amounts of
life insurance.

Agent — A person who sells and services insurance policies. In Washington state,
all insurance agents must obtain an agent license from the Office of the Insurance
Commissioner.

Annuity (refers to life insurance) — This is a series of income payments made


to a customer at regular intervals by an insurance company in return for a premium
or premiums the customer paid. There are many types of annuities, which offer
various benefits.

Application (APP) — An insurance form a potential customer fills out. Based on


the form, the insurance company decides whether or not to insure the customer, modify
the coverage offered, or decline to cover the customer. An application without premium
payment is a request for an offer. With a premium payment, it is an actual offer, unless the
insurance company declines to issue a policy to the customer.

Apportionment — Dividing a loss proportionately among two or more insurers to


cover the same loss. For example, assume someone insures their property for $10,000
with one insurance company, and they also insure it for $5,000 with a second insurance
company. If a loss occurs, the first company pays two-thirds of the loss and the second
company pays one-third.

Assigned Risk (refers to auto insurance) — This is a state-based program


Washington uses to issue insurance coverage for people who cannot buy auto insurance.
The Western Association of Automobile Insurance Plans administers the assigned risk
plan in Washington state. The Plan assigns these drivers to insurance companies that do
business in Washington based on how much auto insurance the company sells.

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Basic Health Plan (BHP) (refers to health insurance) — BHP is a subsidized


health insurance plan offered by the Washington State Health Care Authority to
low –income Washington state residents.

Beneficiary — A person eligible to receive benefits under an insurance policy.


Binder (Binding Receipt) (refers to auto and homeowner insurance) — A
binder is proof of coverage for a specified time period prior to the company issuing
someone the actual policy or requiring a premium payment. However, if the consumer
pays the premium with the application, the insurance company will issue a binder or
“binding receipt.”

Book of Business — A term insurance agents use to describe the various policies they
write in the state.

Broker — A broker is different than an agent. Brokers do not represent a particular


company. They receive a commission or fee for finding you coverage or renewing your
policy. In Washington state, all insurance brokers must obtain a broker license from the
Office of the Insurance Commissioner.

Business Interruption Insurance (refers to business insurance) — A policy


that pays for the loss of earnings when business operations are reduced or stopped due to
a property loss, such as water damage, theft, or fire.

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Cancelable — An insurance contract that an insurance company or an insured person


can cancel at any time. Most insurance is cancelable. Exceptions include certain life
insurance policies and health insurance.

Cancellation — This is when an insurance company or an insured person voluntarily


ends an insurance policy according to contract provisions or by mutual agreement.

Capitation (refers to health insurance) — A payment method insurance companies


use, such as Health Maintenance Organizations (HMOs), for health care services. The
HMO pays the provider a fixed amount for each patient, regardless of the required
treatment.

Carrier — A company that sells insurance (also called an insurer).


Carve-Out (refers to health insurance) — Services separately designed and
contracted to an exclusive, independent provider by a managed care plan.

Case Management (refers to health insurance) — Coordinating patient care to


ensure cost-effective treatment.

Cash Surrender Value (refers to life insurance) — The amount of cash due to the
insured person who requests the insurance company cancel their life insurance policy.

Centers for Medicare and Medicaid Services (CMS) (refers to health


insurance) — The U.S. federal agency that administers federal health financing and
related regulatory programs, mainly Medicare, Medicaid, and Peer Review Organization
programs. It is also the contracting agency for health carriers that provide Medicare
managed care plans.

Chartered Life Underwriter (CLU) — A title given by the American College of Life
Underwriters to insurance industry professionals after they successfully complete required
exams and experience requirements.

Chartered Property and Casualty Underwriter (CPCU) — A title given to an


insurance professional by the American Institute for Property and Liability Underwriters
after they successfully complete a series of insurance-related exams and experience
requirements.

Claim — A demand made by an insured person for payment of benefits as described in


their insurance policy.

Clause — This identifies a specific part of a policy or endorsement.


Closed Formulary (refers to health insurance) — In some health plans, doctors
must order only patient prescription drugs listed on the health plan’s formulary (also see
term “drug formulary”).

Co-Insurance (refers to health and homeowner insurance) — In health


insurance, it means the insured person and the insurance company share losses in agreed
proportion. Also known as “percentage participation.” In managed health care, it refers
to the portion of the cost of care for which the insured person is responsible. This often
applies after the insured person meets a specified deductible. In homeowner insurance,
the insured person shares proportionally in losses when the amount of insurance is less
than a specified percentage of the property insured.

Collision Coverage (refers to auto and business insurance) — This covers the
physical damage to the insured person’s vehicle due to a collision with another object,
such as another vehicle, a fence, building, etc.

Commission — This is the portion of the premium the agent or broker keeps as
compensation for sales, service, and distribution of insurance policies.

Community Rating (refers to health insurance) — A method state insurance


regulators use to establish premiums for health insurance. There are two types of
community rating. Pure community rating uses one average for all subscribers. Semi-
community rating allows other limited factors to help determine rates, such as age, family
size, and geographical location.
Composite Rate (refers to health insurance) — A health insurance premium that
applies to all of those eligible in a subscriber group, regardless of the number of claimed
dependents. This is common among plans purchased by large employer groups.

Comprehensive Coverage (refers to auto insurance) — This covers damage to an


insured person’s car — except by collision. For example, this covers their car if a tree falls
on it or someone vandalizes it.

Comprehensive Health Insurance (refers to health insurance) — Also called


Comprehensive Major Medical. This is a form of health insurance that provides coverage
for most types of medical expenses. Most employer health plans are comprehensive. A
health plan that covers only hospital inpatient charges is not comprehensive.

Comprehensive Personal Liability Policy (CPL) (refers to homeowner


insurance) — This is a personal liability contract individuals may buy. A CPL provides
liability insurance coverage for individual and family needs that may arise due to personal
activities and situations, such as residential property ownership, pet ownership, sports
activities, and many other everyday activities.

Concurrent Review (refers to health insurance) — This is the usage review


conducted by an insurance company during a patient’s hospital stay or treatment.

Conditional Receipt (refers to life insurance) — An insurance premium receipt


that specifies conditions the applicant must first satisfy before the insurance company
will accept the applicant for coverage. If the applicant meets the conditions, the coverage
becomes effective as of the date on the receipt.

Contractor’s Bond (refers to business insurance) — Guarantees the performance


of a contract and the payment of all related labor and material bills between a contractor
and subcontractors, up to the stated bond amount. In situations where two bonds
are required, contractors can obtain a performance bond (covers performance) and a
payment bond (covers payment of labor and material).

Coordination of Benefits (COB) (refers to health insurance) — This


determines the amount payable by each insurer when the insured person is covered under
two or more group health plans. Total reimbursement should not exceed 100 percent of
the cost of care.

Copayment (refers to health insurance) — A copayment is a patient’s share of a


health care bill. It usually is a small amount, such as $5 or $10 per office visit.

Cost Sharing (refers to health insurance) — When the consumer must pay out-of-
pocket to receive health care. This also can occur when an insured person pays a portion
of the monthly premium for his or her health insurance.
Cost Shifting (refers to health insurance) — When an insurer charges one group
of health care buyers more to make up for the underpayment of others.

Coverage — The scope of protection provided to the insured person under an


insurance contract.

Credentialing (refers to health insurance) — A process health insurance


companies use to examine and verify the medical qualifications of health care providers
who want to participate in a Preferred Provider Organization (PPO) or Health
Maintenance Organization (HMO) network.

Credit Insurance (refers to auto, business and homeowner insurance) — An


insurance policy that pays debts should the borrower lose his or her job, die, or become
disabled (usually called “credit life” policy).

Creditable (refers to health insurance) — Any previous health coverage a new plan
will allow a person to use to shorten his or her pre-existing condition waiting period.

Corporate owned life insurance — Life or disability insurance to cover a key


employee whose death or disability would cause the employer financial loss. The policy is
owned by and payable to the employer.

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Declaration Page (Dec Sheet) (refers to auto, business, and homeowner


insurance) — The portion of an insurance policy that contains information about risk.
It identifies the parties in the contract and the subject of coverage.

Decreasing Term Policy (refers to life insurance) — Generally, this is a rider


attached to cash value policies or other term policies. The protection decreases each year
or month in accordance with a schedule. It is also sold as a Mortgage Protection policy.

Deductible — The dollar amount an insured person must pay for covered charges
during a calendar year before the plan starts paying claims. Only charges outlined in the
plan that the insurer would normally pay get applied to the deductible.

Deferred Annuity (refers to life insurance) — An annuity in which the benefits


begin at some designated future date.

Dependent property (refers to business insurance) — This is property not


owned, operated or controlled by the business owner; however, he or she depends upon
it for normal business operations. Dependent property protects the business owner from
financial losses caused by problems that occur elsewhere, such as with another vendor or
supplier who suffers a loss.

Destroyed or damaged records coverage (refers to business insurance) — If a


covered loss destroys or damages business records, this insurance compensates the owner
for his or her inability to collect income, and the cost to reproduce the records.

Diagnosis-Related Groups (DRG) (refers to health insurance) — A


classification system used by Medicare to group patients according to diagnosis, type of
treatment, age, and other relevant criteria. Under the payment system, Medicare pays
hospitals a set fee for treating patients in a single DRG category, no matter what the actual
cost of care for the person.

Direct Access (refers to health insurance) — Under a 1995 Washington state law,
health insurance companies must cover women’s direct access to female-related health
care services, such as mammograms, general exams, and preventative care.

Direct Writer — An insurance company that sells its policies through salaried
employees (licensed agents) who represent it exclusively.

Disability Income Insurance (refers to disability insurance) — An insurance


that provides periodic payments to replace income lost to an insured person when they
cannot work due to sickness or injury.

Drug Formulary (refers to health insurance) — A list of selected prescription


drugs and their proper doses that a health plan covers.

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Earned Premium —The portion of an insurance premium that applies to the expired
part of the policy term. Even though customers pay their premiums in advance, the
insurance company does not fully earn the premium until their customers’ policy
term expires.

Earthquake Coverage (refers to business and homeowner insurance) —


Insurance companies offer earthquake coverage as additional coverage to standard
commercial property and casualty policies. Earthquake coverage is available in
Washington state. It is expensive for masonry structures and business operations with
high-risk inventory or equipment.

Elimination Period (refers to disability and long-term care insurance) — A


term that refers to the “waiting period” or “probationary period” in long-term care and
disability insurance policies. For example, for long-term care policies, this is the number
of days a person must spend in a nursing home before the insurance company will start
paying benefits.

Employee Retirement Income Security Act (ERISA) (refers to health


insurance) — This law, which deals primarily with pensions and retirement plans,
includes a section exempting self-funded employer and union health plans from
state regulation.

Employment Practices Coverage (refers to business insurance) — This type


of coverage helps business owners defend against employment-related claims, such as
sexual harassment, age discrimination, or wrongful termination. Some policies offer legal
assistance. Other policies may pay both legal costs and damages.

Endorsement — A written form attached to the policy that changes the terms of the
policy to fit special circumstances.

Endowment Insurance (refers to life insurance) — A form of life insurance


payable to the insured person if they are living at the end of the endowment period, or to a
beneficiary if the insured person dies before the endowment date.

Exclusions (refers to any insurance contract) — Clauses in a health insurance


contract that deny coverage for certain conditions, treatments, supplies or risks, such as
cosmetic surgery. In home and auto contracts, exclusions from coverage may also include
certain events or circumstances, such as drag racing, renting an insured vehicle to others,
or flood or earthquake coverages.

Experience — The loss record of an insured person, a class of coverage (such as auto or
homeowner insurance), or an insurance company’s loss experience (the total number
of claims).

Experience Rating — A method insurers use to decide the amount of premium to


charge customers based on the actual usage of large groups with like risks.

Exposure — The possibility of loss.

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Face — The first page of a policy.


Face Amount (refers to life insurance) — This is the death benefit stated on the
first page of a life insurance policy.
Federally Qualified HMOs (refers to health insurance) — These are health
maintenance organizations (HMOs) that meet certain federal requirements designed to
protect consumers. To qualify, HMOs must provide a broad range of basic health services,
and meet standards of financial solvency and quality of care. The U.S. Department of
Health and Human Services (DHHS) administers the qualification process.

Fee — A charge or price for professional services.


Fee Disclosure (refers to health insurance) — This is when doctors and caregivers
discuss their charges with patients prior to treatment.

Fee-for-Service (refers to health insurance) — This is the traditional payment


method in U.S. health care. The health care provider charges the patient according to a fee
schedule they set for each service and procedure they provide.

Fiduciary (refers to health insurance) — Someone who is responsible for the


administration of a group health insurance plan or an Employee Retirement Income
Security Act (ERISA) plan or someone who has discretionary authority over plan assets
and claim payments. The federal ERISA law imposes various duties on fiduciaries about
the use of their powers. For example, the plan fiduciary must protect plan assets, and
administer claims for the exclusive purpose of providing benefits to plan participants.

Fiscal Intermediary (refers to health insurance) — A private company that has a


contract with Medicare to pay Part A and some Part B bills for Medicare clients.

Fleet Coverage (refers to business insurance) — This multi-vehicle coverage


applies to businesses that rely on a number of vehicles and need to insure them
collectively.

Foreign-Product Liability Coverage (refers to business insurance) — This


business-related coverage applies to losses that occur due to difficulties with providing or
obtaining items that foreign suppliers manufacture.

Form — This is an insurance policy, or the riders and endorsements attached to it.
Formulary (refers to health insurance) — A published list of prescription drugs a
health care plan covers.

Fraternal — An insurance company organized under a special section of the state


insurance code, characterized by a lodge or social system, such as an Elks or Moose
Lodge. It only issues insurance to members.
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GAP Coverage (refers to auto insurance) — If an auto is totaled by an insurance


company, this pays the difference between the current market value of the owner’s car and
the amount they still owe the lender.

Gatekeeper (refers to health insurance) — A primary care doctor who is


responsible for overseeing and coordinating all aspects of a patient’s medical care in
managed care plans. The main goal is to reduce health care usage and costs. Managed
care patients cannot receive referrals to specialty care or hospital admission without pre-
authorization from a gatekeeper. However, patients can obtain emergency room service
when they believe an emergency exists.

Gatekeeper Provision (refers to long-term care insurance) — This is a


condition the applicant must first meet to qualify for the benefits of a long-term care
policy. For example, a gatekeeper provision could require a doctor to certify that a person
is unable to perform certain daily living activities.

General Agent — An insurance company representative who supervises the company’s


business within a specific territory. He or she may appoint local agents. A general agent is
also an independent contractor compensated on a commission basis.

General Liability and Property Coverage (refers to business insurance) —


Liability insurance protects businesses when they are legally liable for someone’s injury
or property damage. The insurer pays the damages, and funds and handles the business’
legal defense. Property insurance covers a business’ physical assets, such as buildings,
equipment, furnishings, fixtures, inventory, etc.

Grace Period (refers to disability, health, life, and long-term care insurance)
— A period of time (commonly 10 to 31 days depending on the type of contract) after the
premium due date. During this time, the policy remains in force without penalty even
though the policyholder has not yet paid the premium.

Group Contract — An insurance contract between an insurance company and an


employer or other entity to cover employees or other group members. A group contract
may include life insurance, health insurance, or an annuity, and sometimes property
liability. Eligibility for coverage of group members is defined in the contract. For example,
an eligible employee might be defined as “employees working over 30 hours per week for
the employer.”

Group Insurance (refers to health insurance) — A heath insurance policy or a


health care services contract (HCSC) that covers a group of employees and often their
dependents. Health care coverage occurs under a master policy issued to the employer or
other group.
Guaranteed Insurability Rider (GIR) (refers to life insurance) — A contract
provision a life insurance policy owner buys from an insurance company. It gives the
policy owner the right to buy an additional amount of life insurance at one or more
specified “option dates,” without providing new evidence of insurability at that time.
For example, a person could buy a $100,000 life insurance policy with a Guaranteed
Insurability Rider (GIR). The GIR would allow the person to buy $50,000 of additional
insurance on the fifth and tenth year policy anniversary without providing medical
information.

Guaranteed Renewable (refers to auto, disability, health, and life insurance)


— An insurance policy the insurance company is required to renew as long as the insured
person makes premium payments. Disability and life insurance policies usually have an
age limit while health insurance policies do not. The insurance company may also increase
premium rates on a statewide basis.

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Health Care Service Contractor (HCSC) (refers to health insurance) — Any


corporation, cooperative group, or association that is sponsored by or connected with a
health care provider or group of providers. They may engage in the limited insurance-like
business to accept prepayment for health care services from individuals and groups. For
example, Blue Cross and Blue Shield companies usually hold a HCSC license.

Health Insurance — A policy or product that provides coverage for someone for
doctor, hospital, and other medical expenses that result from illness or injury.

Health Maintenance Organization (HMO) (refers to health insurance) —


This health insurance plan requires subscribers to get all their care from a list of providers
(except for some emergency care). The plan may require the subscriber’s primary care
doctor to provide them with a referral before they can see a specialist or go to the hospital.

Health Plan — A generic term that refers to a specific health benefits package offered by
an insurer.

High Risk Pool (refers to health insurance) — In Washington state, this is a non-
profit organization called the Washington State Health Insurance Pool. It provides access
to health insurance to all Washington state residents who are unable to buy individual or
group health insurance in the regular market.

“Hold Harmless” Clause (refers to health insurance) — State law and regulations
require contracted health care providers to not hold patients accountable for claim
amounts that a health insurance company owes on a contract.
Homeowner Policy — An insurance policy to cover a homeowner’s house, other
structures on their property, and personal contents against losses caused by such things as
windstorms, fire, or theft. This type of policy also includes liability coverage.

Hospital Benefits (refers to health insurance) — Benefits an insurance company


pays when an insured person is hospitalized. They include reimbursement for both
inpatient and outpatient medical care expenses. Inpatient benefits include charges for
room and board, necessary services, and supplies. Outpatient benefits include surgical
procedures, radiology services, and rehabilitation therapy.

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Incurred But Not Reported (IBNR) (refers to business and health insurance)
— Claim costs the insured person does not file with the insurance company, the Health
Maintenance Organization (HMO), or the Health Care Service Contractor (HCSC) within
the contractual period.

Indemnify — This provides payment, repair, or replacement to a victim of loss.


Independent Practice Association/Organization (IPA/IPO) (refers to health
insurance) — This is when a health insurance company contracts with a doctor
organization. The doctor organization then contracts with individual doctors to provide
health services to the insurance company’s members. IPA doctors practice in their own
offices, and also see fee-for-service patients. The health insurance company reimburses the
IPA on a capitated basis. The IPA may reimburse its doctors on a capitated or modified
fee-for-service basis when doctors charge agreed-upon rates to the covered patients and
then bill the IPA.

Individual Market (refers to health insurance) — This market consists of


individuals and their dependents who buy health insurance coverage directly from an
insurer - approximately 5 percent of the entire health insurance market. People usually
buy their own coverage because they are not eligible for government (such as Medicare or
Medicaid) or employer-sponsored coverage.

Installment Refund Annuity (refers to life insurance) — A type of annuity


policy that guarantees if a policyholder dies before receiving payments equal to the
amount they paid to establish the annuity, the insurer will refund the difference to the
beneficiary in equal installments.

Insurable Interest (refers to homeowner and life insurance) — For homeowner


insurance, this is when a person has a legal financial interest in the property that is the
subject of the insurance. For life insurance, this is the financial interest one person (the
beneficiary) has in the person covered by the life insurance policy.

Insurance — A contract to transfer risk from individuals to an insurance company. In


exchange for a premium, the insurance company agrees to pay for losses covered under
the terms of the policy.

Insurance Commissioner — The elected state official who is authorized to enforce


the state’s insurance law, and to make reasonable rules and regulations to implement
provisions of the law. The Insurance Commissioner also conducts investigations,
examinations, and hearings related to those enforcement activities.

Insurance Policy — This is the entire written insurance contract.


Insured — The individual or party who the insurance company agrees to cover for
losses, or provide benefits or service.

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Joint Life Policy (refers to life insurance) — A life insurance policy that insures
two or more people. Some of these policies pay a death benefit on the first person to die.
Some pay on the last person to die.

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Key Man Insurance Policy (refers to disability and life insurance) — Life or
disability insurance to cover a key employee whose death or disability would cause the
employer financial loss. The policy is owned by and payable to the employer.

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Lapse — When an insurance company ends a policy because the insured person fails to
pay the premium.

Level Premium Insurance (refers to life insurance) — A life insurance premium


that remains at the same dollar amount throughout the life of the policy.
Liability Insurance (refers to auto, business, and homeowner insurance) —
Coverage that pays for any loss if the insured person is legally liable for bodily injury to
others or damage to someone’s property.

Liability Limits (refers to auto, business, and homeowner insurance) — The


dollar amount beyond which a liability insurance company does not protect the insured
on a particular policy.

Life Insurance — A contract between a person and a life insurance company that
provides coverage in the event the person dies. Life insurance policies may include
endowment benefits, additional benefits in the event the insured person loses an arm or
leg due to an accident, or in the event of a disability. Life insurance policies also may
offer annuities.

Limit of Liability — The maximum dollar amount an insurance company agrees to pay
the insured person in case of loss.

Limitations — These are exclusions, exceptions, or reductions of coverage in an


insurance policy.

Limits — The maximum amount of benefit the insurance company will pay for a given
situation or occurrence. Limits also include the ages below or above what an insurance
company will not issue a new policy, or continue a policy.

Long-Term Disability (refers to long-term care and disability insurance)


— Typically, a disability is the limitation of normal physical, mental, and social activities
that lasts longer than two years. Note: each individual insurance policy defines the terms
“long-term” and “disability.”

Loss Ratio —The percentage of each premium dollar an insurance company spends
on claims.

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Major Hospitalization Policy or Insurance (refers to health insurance)


— Health insurance to cover medical expenses over and above that of a basic health
insurance policy. This insurance only applies to expenses the patient incurs while they are
hospitalized.

Major Medical Insurance (refers to health insurance) — Health insurance to


cover medical expenses over and above that of a basic health insurance policy. Major
medical policies pay expenses both in and out of the hospital.
Managed Care Plan (refers to health insurance) — A health plan that coordinates
covered health care services for a covered person using a primary care provider and a
network. Examples include Health Maintenance Organizations (HMOs) and Point-of-
Service (POS) plans.

Managed Care Organization (MCO) (refers to health insurance) — Any type


of organization that provides managed care, such as a Health Maintenance Organization
(HMO) or a Health Care Service Contract (HCSC) that provides services through a
Preferred Provider Organization (PPO).

Mandated Benefits (refers to health insurance) — Washington state law requires


insurance companies to offer or include certain benefits in specific health plans. Mandates
may include mammograms, automatic coverage of newborn or adopted children, and
home and hospice treatment options.

Market Share — An insurance company’s portion or percentage of the total market for
the product it sells.

Maturity (refers to life insurance) — The date the face amount of a life insurance
policy is due.

Maximum Allowable Charge (refers to health insurance) — The highest


amount the insurance company will allow as a covered benefit for a particular
medical service.

Maximum Lifetime Benefit (refers to health insurance) — This is the maximum


dollar amount a health insurer agrees to pay on behalf of the insured for covered services
during the course of his or her lifetime.

Medicaid (refers to health insurance) — A federal and state funded program that
provides hospital and medical coverage to low-income people who meet certain criteria,
such as:

· Age 65 or older
· Blind
· Children under age 19
· Disabled
· Expecting mothers
· Families with children under age 19
· Immigrants
Medical Group Practice (refers to health insurance) — This is when at least
three licensed doctors engage in a formally-organized and legally-recognized patient
health care business. They share equipment, facilities, common records, and personnel
involved in both patient care and business management.

Medical Loss Ratio (refers to health insurance) — The total cost of health care
benefits divided by the total premium.

Medical Underwriting (refers to health insurance) — A process used by an


insurer to screen health insurance applicants out of a plan based on health or a pre-
existing medical condition.

Medically Necessary (refers to health insurance) — Covered health care services


required to maintain the health of a patient in line with the geographical area’s standards
of medical practice. These are often defined in the policy.

Medicare (refers to health insurance) — A federally funded insurance plan that


provides hospital and medical coverage for people age 65 and older, for people with
certain disabilities who are under age 65, and for people of all ages with End-Stage Renal
Disease (permanent kidney failure) or Amyotrophic Lateral Sclerosis (Lou Gehrig’s
disease).

Medicare Risk Contract (refers to health insurance) — A contract between


a managed care plan and Medicare to provide services to Medicare clients for a fixed
monthly payment.

Medicare Supplement (refers to health insurance) — Voluntary private insurance


coverage Medicare enrollees buy to cover the cost of services not reimbursed by Medicare.

Member (refers to health insurance) — An enrollee, beneficiary, or insured. A


member includes people who enroll or subscribe to a health insurance plan, and includes
their eligible dependents.

Morbidity-Sickness Table (refers to disability and health insurance) — A


table that shows the number of people exposed to the risk of illness and disease at each
age, and the actual number of people who became ill or diseased at each age.

Morbidity Rate (refers to health insurance) — An actuarial term for the likelihood
that medical expenses will occur.

Mortality-Death Table (refers to life insurance) — A table that shows the number
of people who died at each age.

Multi-Specialty Group (refers to health insurance) — A group of doctors who


represent various medical specialties and who work together.
N N N (Back to top)

National Association of Insurance Commissioners (NAIC) — A National


association of state insurance commissioners, who discuss regulatory problems, and who
form and recommend uniform insurance practices and legislation.

National Association of Life Underwriters (NALU) — A national organization of


life insurance agents.

National Flood Insurance Program (NFIP) (refers to business and


homeowner insurance) —A program offered by the U.S. government’s Federal
Emergency Management Administration that pools policy premiums throughout the
United States. It is backed by the federal government and offers reasonable rates to the
public for flood damage coverage.

National Committee for Quality Assurance (NCQA) (refers to health


insurance) — A non-profit organization created to improve patient care and health plan
performance in partnership with managed care plans, purchasers, consumers, and the
public sector.

Network Model HMO (refers to health insurance) — A Health Maintenance


Organization (HMO) that contracts with two or more independent group practices to
provide health services. Solo practices may be included, but it is mainly organized around
groups. Health Care Service Contractors (HCSCs) commonly use this HMO model.

Non-Forfeiture Values (refers to life and long-term care insurance) — Those


values in a life or long-term care insurance policy that the policy owner does not forfeit –
even if he or she stops paying premiums.

Non-Standard Market (refers to auto insurance) — This auto insurance market


includes young drivers with less experience, drivers with multiple tickets or accidents, and
drivers with reckless or drunk driving histories.

O O O (Back to top)

Open Enrollment (refers to health insurance) — A period when eligible members


may enroll in, or transfer between available health care plans. Federal Health Maintenance
Organization (HMO) regulations require that HMOs, which meet certain criteria,
conduct annual open enrollment periods of no less than 30 days.

Open Panel (refers to health insurance) — An HMO contracts with private


doctors to provide care to HMO patients.
Ordinary Life (refers to life insurance) — A whole life insurance policy in which
the insured person pays the premiums continuously as long as they live. It’s also called
Straight Life.

Out-of-Pocket Limit (refers to health insurance) — The maximum coinsurance


a health care plan requires a person to pay, after which the insurer will pay 100 percent of
covered expenses up to the policy limit.

Outcomes Management (refers to health insurance) — An outcome is the


positive or negative result of a medical or surgical treatment. Managed care organizations
use outcomes management to closely monitor and measure patient treatment results. This
information provides caregivers with a better understanding of which treatments result in
better outcomes for patients.

Outlier (refers to health insurance) — In a Health Maintenance Organization’s


(HMO’s) usage review, this is an insured person who does not fall within the norm. They
either use too many or too few services. This term is also used to describe a patient who
varies significantly from other patients, such as a longer or shorter length of stay, leaving
against medical advice, etc.

Out-of-Area Benefits (refers to health insurance) — Coverage that a managed


care plan allows its members for emergency situations should they temporarily be outside
of their Health Maintenance Organization (HMO) or Preferred Provider Organization
(PPO) prescribed service area.

Out-of-Area Services (refers to health insurance) — Health care services


provided to an insurance plan member while they are outside their plan’s established
geographic service area. These services are usually not covered or are covered at a lower
amount, unless delaying treatment would adversely affect the member’s health.

Outpatient Services (refers to health insurance) — Health care services provided


to a patient in or out of a hospital facility, when medical or surgical care does not include
an overnight hospital stay.

P P P (Back to top)

Paid-Up (refers to life insurance) — This is a life insurance term, in which the
policy owner paid all required premiums, but the policy has not yet matured (by either
death or endowment). For example, in a 10-year payment policy, after the policy owner
completes the 10-year premium-paying period, the policy will continue to cover the
insured person for the rest of his or her life.
Participating Provider (refers to health insurance) — A provider who contracts
with a health insurance plan to provide health care. The provider agrees to provide health
care services to covered individuals for payment (other than coinsurance, copayments, or
deductibles) from the health insurance plan.

Peer Review (refers to health insurance) — Evaluation of a doctor’s performance


by other doctors, usually within the same geographic area and medical specialty.

Performance Standards (refers to health insurance) — These are standards an


individual health care provider is expected to meet to achieve the desired quality of care.
Volume of care also may be included, such as office hours, office visits per week or month,
on-call days, surgical procedures per year, etc.

Per Member Per Month (PMPM) (refers to health insurance) — This refers to
the cost or revenue a health insurance plan receives from each plan member for a month.
It includes revenue, expenses, or services use.

Personal Injury Protection (PIP) (refers to auto insurance) — This is insurance


coverage for medical and other expenses, such as wage loss and funeral expenses that
result from an auto accident – no matter who is at fault. Auto insurance companies must
offer PIP to consumers. If consumers do not want it, they must reject it in writing.

Point-of-Service Plan (POS) (refers to health insurance) — This plan includes


the features of both Health Maintenance Organizations (HMOs) and Preferred Provider
Organizations (PPOs). POS plans encourage but do not require members to choose a
primary care doctor. Members may visit non-network providers, but they will pay higher
deductibles and copayments.

Policy Dividend — Most common in life insurance policies, this is a partial return
of the premium. It represents the difference between the premium charged and the
company’s actual cost of coverage during the term of the insurance policy.

Policyholder — The person who has possession of the policy.


Policy Owner — The person who may exercise the rights and privileges in the
insurance policy. This person may or may not be the insured.

Pooling — Grouping of a large number of similar risks together to spread the risk and
make insurance more affordable. For example, auto insurers pool all the drivers with
similar risks, such as age and driving record together.

Portability (refers to health insurance) — Gives someone the ability to go from


one health plan to another without having to wait for coverage of a pre-existing condition. 
Both state and federal law contain provisions to determine if a consumer may move from
plan to plan without being subjected to pre-existing condition waiting periods.
Practice Parameters (refers to health insurance) — These are strategies doctors
use for patient management to help them with clinical decision-making. Practice
parameters are also called practice options, practice guidelines, practice policies, or
practice standards.

Preauthorization (refers to health insurance) — This is a procedure managed


care plans use to control plan members’ use of health care services through review and pre
approval. See also term “prior authorization.”

Preadmission Review (refers to health insurance) — Requires an insured person


or their doctor to obtain prior authorization from the health care plan before any non-
emergency hospitalization occurs.

Pre-Existing Condition (refers to health insurance) — A health problem


someone has before the date their new health insurance plan starts. Coverage for a pre-
existing condition depends on the health insurance plan.

Preferred Market (refers to auto insurance) — This auto insurance market


features the lowest premiums. It is available to low-risk drivers with exceptional
driving records.

Preferred Provider Organization (PPO) (refers to health insurance) — This


is a network of health care providers who contract with health insurance plans. A health
insurance plan often pays more if members get their care from doctors or hospitals that
contract with a PPO. The providers and hospitals are called “network” providers. Members
pay more if they go to a doctor or hospital not listed in the plan’s network.

Preferred Risk (refers to auto insurance) — This typically refers to drivers who
statistically have fewer accidents than average. Insurance companies take into account
factors such as age, gender, or a clean driving record. These drivers are usually eligible for
a reduced rate.

Premium — The dollar amount an insured person pays to the insurance company to
cover the cost of insurance.

Prescription Benefit Managers (PBMs) (refers to health insurance) — The


person who monitors prescription claims for managed care organizations. They track the
drugs and their volumes that are prescribed by the plan’s participating doctors.

Primary Care (refers to health insurance) — Primary care is the first care a patient
receives, often through a family doctor. However, the patient may also receive primary
care from a nurse, a paramedic, or other type of health-care provider, depending on the
situation. Managed care systems try to resolve as many health problems as possible at
this level.
Prior Authorization (refers to health insurance) — This is a managed care
procedure to control plan members’ use of health care services through review and pre–
approval. See also preauthorization.

Pro Rata — Dividing the premium proportionately between the insured person and the
insurance company based on how long the insurance policy was in force.

Producer — A term applied to an agent, solicitor, or other person who sells insurance.
Progressive Rates (refers to health insurance) — A method health plans use to
implement new monthly, quarterly or semi-annual rates. New or renewing subscribers,
or groups with anniversaries falling within such periods, are automatically subject to
prevailing rates in effect during those periods. Insurers generally guarantee these rates for
the full 12-month benefit year.

Proof of Loss — A formal statement made by the insured person to the insurance
company about a loss. The purpose is to provide the company with sufficient information
about the loss to help it decide its liability under the policy.

Providers (refers to health insurance) — Institutions and individuals licensed


to provide health care services, such as hospitals, doctors, naturopaths, medical health
clinicians, pharmacists, etc.

Q Q Q (Back to top)

Quality Assurance (refers to health insurance) — An internal peer review process


managed care organizations use to audit the quality of care given by providers. It also
involves educating providers on how to prevent and correct errors, and how to improve
the quality of care.

R R R (Back to top)

Rating Bands — These limit the difference between the lowest and highest health
insurance premium rates companies may charge to a pool of groups or individuals. For
example, on individual health insurance contracts, the insurance company’s highest
permitted rate for any age group cannot be more than 375 percent of the lowest rate for all
age groups.

Rating Bureau — A private organization that classifies and shares rates with
consumers. In some cases, a rating bureau may compile data and measure hazards of
individual risks in terms of rates for a given territory.
Rebate — When an insurance agent gives a policy owner a part of his or her commission
(or something of value) as an incentive to buy insurance. This is illegal.

Reinsurance — A risk management tool for insurance companies. It transfers risk


from one insurance company to another. For example, a primary insurance company will
agree to insure an airline’s fleet of planes for $10 billion. Through separate reinsurance
contracts, the primary insurance company will pay premiums to nine other insurance
companies to accept $1 billion of the risk. If a $10 billion loss occurs, each company will
pay $1 billion.

Replacement Cost (refers to business and homeowner insurance) — The cost


to replace property without deducting depreciation.

Reserves (refers to health, homeowner, and auto insurance) — Funds that an


insurance company sets aside to pay claims and claim expenses.

Rider — An attachment to a policy that modifies the conditions of the policy by


expanding or decreasing its benefits, or excluding certain conditions from coverage.

Risk — The chance that a loss will occur.


Risk Sharing (refers to health insurance) — A financial arrangement between a
managed care organization and a contracted health care provider to allocate the risk and
rewards of providing health care services. Risk sharing motivates the provider to operate
more efficiently.

S S S (Back to top)

Schedule (refers to health and homeowner insurance) — For health insurance,


it’s a list of specific items a policy covers, such as surgical procedures, therapy, or
additional expenses. For property-related insurance, it’s a list of items covered under one
policy, such as various buildings, animals, and other property.

Self-insurance (refers to health insurance) — When an employer or organization


assumes responsibility for the covered health care expenses of its employees. Usually the
employer sets up and contributes money to an account solely to pay claims. Often an
independent organization, such as a third-party administrator, processes employee claims
and makes claim payments out of the employer’s self-funded plan account.

SHIBA HelpLine (refers to health insurance) — A free counseling service, the


Statewide Health Insurance Benefits Advisors (SHIBA) HelpLine uses about 400-trained
volunteers to assist health insurance consumers statewide. Volunteers assist consumers
with health insurance options, and help them find access to health care and prescription
drug programs. The SHIBA HelpLine is a service of the Office of the Insurance
Commissioner and is sponsored by local community-based organizations.

Single Payer Plan (refers to health insurance) — A system of health care coverage,
financed by taxes that enrolls everyone in a government-run program. For example,
Medicare is a single payer plan for people in the U.S. over age 65.

Special Limits (refers to homeowner insurance) — The limitation in a


homeowner’s policy about losses for specific items, such as gold and silver bullion,
currency, securities, letters of credit, manuscripts, passports, tickets, stamps, boats,
trailers, firearms, and silver and goldware. To cover these items, the homeowner must buy
additional coverage.

Staff Model HMO (refers to health insurance) — A group of doctors who provide
health care services. They are either staff employees of a professional group practice,
which is an integral part of the Health Maintenance Organization (HMO) plan, or they
are direct employees of the HMO itself.

Standard Market (refers to auto insurance) — This auto insurance market refers
to the average driver who uses family-type cars and has a reasonably good driving record.

Stop Loss — A provision in an insurance policy created to cut off an insurer’s or


insured’s losses at a certain point.

Subrogation — This allows the insurance company to recover the payment it made
to the person it insures from the person responsible for the damages or their insurance
company.

Surplus Line — Coverage a consumer buys from an unlicensed insurance company


because it’s unavailable from an insurance company licensed in the state.

TTT (Back to top)

Term — The period of time that an insurance policy is issued.


Third-Party Administrator (TPA) (health, homeowner, and auto insurance)
— For health insurance, it’s a person or company hired by an employer to manage health
care claims processing, pay providers, develop and coordinate self-insurance programs,
and help locate stop-loss insurance. They also may analyze the effectiveness of the plan
and its usage. For homeowner and auto insurance, it’s a person or company hired to
investigate and process claims. In either case, the TPA is not the policyholder or
the insurer.
U U U (Back to top)

Underwriter — A person trained to evaluate risks, and determine rates and coverages
for insurance companies.

Underwriting Loss — When the cost to pay insurance claims, plus overhead, exceeds
premium income.

Unearned Premium — This is the part of an advance insurance premium payment


that has not yet been used for coverage written. For example, if an insured person has an
annual premium, at the end of the first month of the premium period, 11 months of his or
her premium would still be “unearned.”

Uninsured/Underinsured Motorist (UIM) (refers to auto insurance) — This


coverage protects an insured driver from losses due to another driver, who doesn’t have
auto insurance, or who is not fully covered. Auto insurance companies must offer UIM as
part of an auto insurance policy. Consumers who do not want the coverage must sign
a waiver.

Usual, Customary and Reasonable (UCR) (refers to health and auto


insurance) — A health provider’s usual charge for a health care service that is consistent
with the going rate or charge in a certain geographical area for identical or similar
services. Note: For auto insurance, this relates to Personal Injury Protection claims.

Utilization (refers to health insurance) — A numerical measure of use of a single


service or type of service, such as hospital care, prescription drugs, or doctor services, by a
given population group over a given period of time.

Utilization Review (UR) (refers to health insurance) — A health insurance


company’s review to determine if the health care services a provider or facility gives to a
member or group of members is necessary and appropriate.

W W W (Back to top)

Waiting Period (refers to disability and health insurance) — For disability


insurance, it is a period of time between the start of a disability and the date benefits
begin. For health insurance, it is the time a person must wait from the date of their
employment until the date their health care coverage starts. This term may also refer to
the total time a person must be covered on a health plan before the plan will cover pre-
existing conditions.
Waiver — A waiver is a rider that excludes liability for a stated cause of an accident or
sickness. It can be a provision that agrees to waive the insurance premium payment during
a period of disability. It can also mean the company could waive its right to have the
insured person examined by a doctor it chooses. An agent, adjuster, or insurance company
may give a waiver of rights to the insured person orally or in writing.

Whole Life (refers to life insurance) — A life insurance policy that runs for the
whole life of the person covered under the policy until death. Policyholders may pay
premiums for a whole life policy for their entire life or for a limited period at a
higher premium.

Withhold (refers to health insurance) — The portion of the fee or monthly


capitation payment to the health care provider that is held back by the Managed Care
Organization (MCO) until it determines the cost of the provider’s total annual referrals
for hospital services. A provider who exceeds utilization norms set by the MCO does not
receive the withheld amount.

Workers’ Compensation (refers to health insurance) — Most employers in


Washington state are required by law to provide workers’ compensation insurance
through the state’s Department of Labor and Industries (L&I). Workers’ compensation
pays employees’ medical expenses and provides some income replacement when they are
injured on the job.

Write — In the insurance industry, this means to insure. It also means to underwrite or
to sell insurance policies.

2121-OIC-Glossary-Insurance terms-rev.05/08