Insurance Terminology – A Comprehensive Glossary
Insurance Terminology: Read This Before Getting One
Many life insurance reviews and contracts are crowded with technical insurance terms that may leave you more confused than when you started. Understanding some key life insurance terms is important before deciding which life insurance policy is right for you and your family is important.
This is the amount you will have to pay out-of-pocket for covered expenses before your insurance policy kicks in. For example, if you have a $500 deductible, you will need to pay the first $500 of any covered medical expenses yourself.
Actual Cash Value
This is the amount of money an insurance company will pay you for a covered loss minus depreciation. Depreciation is the decrease in the value of an item over time due to wear and tear.
Annual Renewable Term
An annual renewable term is an insurance policy that renews each year automatically for a new term unless you cancel it. The premium (the amount you pay for coverage) may increase each year.
Also known as the policy term, the benefit period is the length of time that an insurance policy will provide coverage. For example, a life insurance policy may have a benefit period of 20 years.
When you have coinsurance, you and your insurance company share the cost of covered expenses. For example, if you have 80/20 coinsurance, your insurance company will pay 80% of the covered expenses, and you will be responsible for paying the remaining 20%.
Disability Income Insurance
This type of insurance provides you with a source of income if you become disabled and are unable to work. The benefit amount is typically a percentage of your regular income.
Double indemnity is an insurance policy provision that pays double the face value of the policy in the event of accidental death.
Health Maintenance Organization (HMO)
An HMO is a type of health insurance requiring you to use the doctors and other health care providers in the HMO's network. You will usually pay a lower premium for an HMO plan, but you may have to pay more out-of-pocket costs if you see an out-of-network doctor.
An indemnity plan is a type of health insurance that reimburses you for covered medical expenses. You can see any doctor you want, but you will usually pay more out-of-pocket costs if you see an out-of-network doctor.
Lifetime Maximum Benefit
A lifetime maximum benefit is the maximum amount of money that an insurance company will pay out under a policy. Once this limit is reached, the policy will no longer provide coverage.
Long-Term Care Insurance
This type of insurance pays for long-term care expenses, such as nursing home care or in-home care. Long-term care insurance policies typically have a waiting period before benefits are paid, and they often have a lifetime maximum benefit.
A network is a group of doctors, hospitals, and other health care providers that have agreed to provide care at a discounted rate to patients with a particular insurance plan.
The out-of-pocket maximum is the maximum amount of money that you will have to pay for covered expenses in a year. Once you reach this limit, your insurance company will pay 100% of the covered expenses for the rest of the year.
Managed care is a type of health insurance that uses a network of doctors and other health care providers to provide care at a discounted rate. Managed care plans often have lower premiums than indemnity plans, but they may also have more restrictions on which doctors you can see.
Preferred Provider Organizations (PPO)
A PPO is a type of managed care plan that allows you to see any doctor you want, but you will usually pay more out-of-pocket costs if you see an out-of-network doctor.
Prescription Drug Coverage
At times, an insurance policy will cover the cost of prescription drugs. Many policies have a separate deductible and coinsurance for prescriptions, and some policies have a maximum lifetime benefit for prescriptions.
Replacement cost is the amount of money it would cost to replace an item with a new one. For example, if you have a piece of jewelry that is stolen, the replacement cost would be the cost of buying a new piece of jewelry that is similar in quality and value to the one that was stolen.
A rider is an add-on to an insurance policy that provides additional coverage. Riders are often available for an additional premium and can be added to or removed from a policy at any time.
Third-Party Administrator (TPA)
A TPA is a company that is hired by an insurance company to handle claims and other administrative tasks. TPAs are often used by insurance companies that do not have their own claims processing department.
Underwriting is the process of reviewing an insurance application and determining whether or not to issue a policy. Underwriters will consider factors such as age, health, and lifestyle when deciding.
There are many types of insurance, and it is important to understand the different terms used to describe them. Insurance policies can be complex, so it is always a good idea to speak with an agent or broker if you have any questions.Print this Article