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Glossary of Insurance Terms
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The content provided on this page informational and is not intended to provide legal or financial advice.

 

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401K or pension plan coverage (ERISA bond)

If the insured's practice offers a retirement plan, then federal law requires that 10 percent of plan assets be covered by an ERISA bond. The bond protects the assets in the plan from fraudulent or dishonest acts.

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Accounts receivables

This is often part of a business owner’s policy. This limit covers the costs to reproduce lost or damaged records of amounts owed to the insured but not yet collected.

Annual aggregate limit

For claims-made carriers, the annual aggregate limit is the maximum amount the carrier will pay for all claims arising from incidents that occurred and were reported during a given policy year. For occurrence carriers, the annual aggregate limit refers to the maximum amount the carrier will pay for all claims arising from incidents that occurred during a given policy year.

Assessability

Some insurance policies may be assessable. This means an obligation exists for policyholders to pay additional money, in excess of premium amounts, to cover past company losses for which reserves have proven to be inadequate.

Assets

The property and financial resources owned by an insurance company. Admitted assets are those that can be liquidated to raise cash to pay claims. Non-admitted assets, such as real estate (other than home office), furniture, and other equipment, are assets that are not recognized for solvency purposes by state insurance laws or insurance department regulations.

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A.M. Best rating

A rating given to insurance companies by the A.M. Best Company, an independent analyst of the insurance industry. The rating is an independent opinion of an insurer’s financial strength and its ability to meet its ongoing insurance policy and contract obligations.

Backup of sewer or drains

This is often part of a business owner’s policy. This limit covers property losses specifically caused by water that backs up from a sewer or drain.

Blanket limit

A single limit of insurance that applies over more than one type of property coverage or more than one location, or both.

Builders risk policy

An insurance policy designed to cover property while in the course of construction. Can apply to the construction site as well as to materials kept in storage or in transit. The owner/future occupant of the completed structure or the building contractor may insure the property being built.

Building coverage

This is often part of a business owner’s policy. This limit covers structures owned by the insured, including attached fixtures and outdoor equipment within a certain distance from the building.

Business income

This is often part of a business owner’s policy. This limit covers income losses due to the necessary suspension of the insured's business after a covered loss. Usually covered for 12 months after the event.

Business income daily limit

Optional; this is often part of a business owner’s policy. The insured can set a predetermined amount for the first 15 days (avoids having to send records of lost income and rescheduled clients).

Business income extension for off-premises utility services

This is often part of a business owner’s policy. This limit covers income losses caused by interruption of service (water, power, communications) to the insured premises, resulting from a covered loss to a property not on the premises.

Business liability

See general liability.

Business owner’s policy (BOP)

This is an insurance policy for small and medium-sized businesses that combines several business-related risks into one policy. The policy covers the business property, the building (if the business owns the building), crime, business interruption (lost income) and general liability. Many optional coverages can be added and may include: non-owned autos used by the business, tenant legal liability, computer and data coverage, equipment breakdown, etc.

Business personal property (BPP)

This is often part of a business owner’s policy. This covers losses/damage to property owned by the insured and used in its business, i.e. furniture, inventory, supplies, office machines, etc.

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Captive

In its simplest form, a captive is a wholly owned insurance company that is formed by a noninsurance entity or group to insure or reinsure some or all of the risks of its parent. A captive is usually administered by consultants.

Civil monetary penalties (CMP)

Penalties may be imposed for a variety of conduct, and different amounts of penalties and assessments may be authorized based on the type of violation at issue. Penalties range from up to $10,000 to $50,000 per violation. CMPs also can include an assessment of up to three times the amount claimed for each item or service, or up to three times the amount of remuneration offered, paid, solicited, or received.

Commercial autos

Often a separate policy covering property damage and liability involving vehicles that are owned in the insured's business name.

Commercial umbrella insurance

This insurance provides additional liability coverage above the liability limits of existing or underlying general liability, commercial auto, and employer’s liability policies. Coverage pays for court-ordered or out-of-court settlements and legal costs that exceed the liability amount listed on the underlying policy.

Computer fraud

This is often part of a business owner’s policy. This limit covers losses from electronic theft or illegal transfer of money or property.

Computers and electronic media

This is often part of a business owner’s policy. It covers the physical equipment (servers, laptops, printers, etc.) from power surges, theft, viruses, as well as costs to restore data and/or software, up to a certain limit. See also Cyber liability.

Condo unit

Business owner’s policies typically cover the portion of the unit that the insured owns, that which is not covered by the condominium master policy. (Often, the master policy only covers outside portions of the building, like the roof, and common areas like sidewalks or lobbies. Individual units are often not covered). Condo association bylaws can vary greatly, so unit owners must clarify with the condominium association which spaces should be insured by which party.

Condo unit loss assessment

This is often part of a business owner’s policy. This covers fees that are assessed against all unit owners resulting from damage to common areas by a covered cause of loss.

Crime

This can be part of a business owner’s policy or a separate policy. It protects the insured's corporate assets from theft, forgery, fraud by employees or third parties.

Cyber liability

Cyber liability coverage provides protection for losses involving an unauthorized leak of confidential information transmitted via e-mail, the internet and computer networks. Some policies include coverage for recovering lost data, fines and penalties associated with violations, and the costs to notify those affected and for credit-monitoring services (which can average around $250 per person).

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Damage to premises rented to you

This is often part of a business owner’s policy. A liability coverage, this covers the insured's liability for damage to a property that he/she rents or occupies (usually for fire damage). See also Tenant’s Legal Liability and Water Damage Legal Liability.

Date of Reporting

The date on which an incident was reported to the insurance company.

Declaration

Also called declarations page, this portion of an insurance policy states information such as the name and address of the insured, the policy period, the amount of insurance coverage, premiums due for the policy period and any coverage restrictions.

Deductible

An applicable deductible means that the insured will pay an amount of the “first dollars” of a claim payment and, in return, pay a lower premium for assuming the risk. When deductibles are used, they may apply to both indemnity and defense costs. When the deductible applies in both areas, the insured pays up to the total amount of the deductible for claims in which defense costs (such as legal fees) have been incurred – even if no indemnity is paid. If the deductible applies to indemnity only, the insured pays only if indemnity is paid.

Directors and officers liability

This policy covers errors and omissions while serving as director/officer of an organization (such as an attorney practice, or on a board for a for- or non-profit organization). Allegations may include breach of contract, conflict of interest, using company assets for personal gain and lack of due diligence – and can come from competitors, suppliers, fellow shareholder and others.

Disability income protection insurance

See separate related listings.

Disciplinary actions

Often part of a professional liability policy or can be a separate policy. Provides defense coverage for licensing actions related to allegations of professional misconduct.

Domiciled

Refers to the state in which an insurance company receives a license to operate. The company is then regulated by that state’s department of insurance.

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Earthquake

Covers property losses caused specifically by an earthquake (typically not covered by a business owner’s policy, but can be added).

Electronic data processing equipment / data / media

This is often part of a business owner’s policy. See Computers and electronic media.

Employee benefits liability (EBL)

This policy covers errors/omissions made in the administration of employee benefits programs (life, health insurance, pension plans). This is often part of a business owner’s policy.

Employee dishonesty

This is often part of a business owner’s policy. This covers losses from theft of property and/or money from the insured business by an employee.

Employer’s liability

This is part of worker’s compensation insurance. This protects the insured business against suits from employees' spouse, family members or other third parties for work-related accidents or injuries.

Employment practices liability insurance (EPLI)

A type of coverage that protects businesses from the financial consequences associated with a variety of employment-related lawsuits including employee harassment, discrimination, failure to hire or promote, wrongful termination, etc. The coverage protects the company, directors, officers, and other employees.

Endorsement

An amendment, sometimes referred to as a rider, added in writing to an insurance contract or policy.

Equipment breakdown

This is often part of a business owner’s policy. This limit covers losses to the insured's property caused by equipment breakdown.

ERISA bond

An ERISA bond protects participants and beneficiaries of a retirement plan from dishonest or negligent acts by the fiduciary who maintains the plan. The bond is required by the ERISA Act of 1974 and protects the assets only. See also Fidelity bond and Fiduciary liability.

Excess insurance

A separate insurance policy with limits above the primary (or “first dollar”) policy.

Exclusions

Specific conditions or circumstances for which the policy or plan will not provide benefits.

Extended reporting endorsement

See Tail coverage.

Extra expenses

This is often part of a business owner’s policy. After a covered loss to the insured's property, this covers the costs necessary to avoid or minimize the time the business is down. Example: relocating to another premises would involve moving expenses, extra rent, notifying clients, etc. Usually included at a set amount.

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Fidelity bond

Protects the policyholders/investors in a benefit plan for losses incurred as a result of fraudulent or dishonest acts by the specific individuals charged with handling the benefit plan.

Fiduciary liability

This insurance protects the person who makes decisions and/or handles enrollments for retirement plans and other employee benefits. Covers errors and omissions made in the administration thereof.

Fine arts

This is often part of a business owner’s policy. This limit can cover items with rare, historic or artistic merit, such as art glass windows or rare books. Sub-limits may apply to individual pieces of art.

Fire legal liability

The coverage of a tenant’s liability for damage by fire to the rented premises.

Fixed annuities

See separate related listings.

Flood

(Not covered; separate policy needed.) Covers the insured's property from damage caused by natural waters (not plumbing).

Forgery/alterations

This is often part of a business owner’s policy. This limit protects the insured against false payments made from its business, using unauthorized company checks or credit/debit cards, as well as losses resulting from acceptance of false payments from others.

Fungi, bacteria or virus coverage

Damage/loss to property caused by mold. This is often excluded by business owner’s policies, however some companies offer a limited amount.

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General liability (GL)

This is often part of a business owner’s policy. General liability is a broad coverage that protects the insured against claims of bodily injury / property damage from a client, vendor, etc. Plaintiffs often allege that the insured was negligent in maintaining a safe premises.

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Health insurance terms

See separate listing.

High value equipment

This is often part of a business owner’s policy. Machines valued over $100,000 can be covered separately from the business personal property.

Hired and non-owned auto liability

This is often part of a business owner’s policy. This limit protects the insured business from claims arising from autos that it does not own, but that are used in the course of business, i.e. employees’ vehicles (making bank deposits), rentals.

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Incident

An occurrence that the plaintiff claims has led to culpable injury.

Incurred losses

These losses include both paid and unpaid (reserved) losses.

Indemnity

An insurance company’s payment to a plaintiff in settlement or adjudication of a claim.

Indemnity reserves

Claims reserves that are set aside to pay the portion of claims costs paid directly to claimants.

Inland marine policy

A property insurance designed to cover items/exposures that cannot be conveniently or reasonably confined to a fixed location or rated under a standard insurance form. Useful for certain types of office equipment. Also called floater policies in some circumstances.

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Life insurance

See separate list of related terms.

Limits of liability

The maximum amount paid under the terms of the policy. A professional liability claims-made policy usually has two limits, a per-incident limit and an annual aggregate limit. The per-incident limit is the most the insurance company will pay for all claims arising out of any one incident. The annual aggregate is the most the insurance company will pay for the sum of all damages in any one policy period (usually one year) regardless of the number of incidents or claims.

Loss ratio

The result of losses incurred (indemnity and Allocated Loss Adjustment Expenses) divided by net earned premium.

Loss reserves

The company’s best estimate of what it will pay for claims, which is periodically readjusted. They represent a liability on the insurer’s balance sheet.

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Malpractice coverage

See Professional liability insurance.

Mechanical breakdown

See Equipment breakdown.

Medical expenses or medical payments

This is often part of a business owner’s policy. This limit is a good-faith, no-fault coverage for first aid and medical expenses for parties injured on the insured's premises, if below a certain dollar amount.

Malpractice (professional liability)

Professional negligence is the failure by an attorney to exercise the degree of care used by a reasonable and prudent person of like qualifications in the same or similar circumstances. For a plaintiff to collect damages in a court of law, the plaintiff’s attorney must show that the attorney owed the client a duty and that the attorney’s violation of the standards of practice caused the client’s injury.

Money (and securities) on/off premises

This is often part of a business owner’s policy. This limit covers theft, loss, or destruction of money while at (or in transit to) the business, bank or an employee’s home.

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Newly acquired or constructed property

 

This is often part of a business owner’s policy. New property not yet added to the policy is covered for a limited number of days and at a limited amount. Changes must be reported to the insurance company for coverage to apply.

 

Non-assessable

A condition under which an insurance company is sufficiently sound to free policyholders of any obligation to pay additional money for past losses for which reserves are inadequate.

Nose coverage

See Prior acts coverage.

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Ordinance or law

This is often part of a business owner’s policy. This limit covers the extra expenses, especially after property damage, if the insured's space must be built or repaired to comply with updated building codes. Can also apply to rebuilding the undamaged part of the premises.

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Paid losses

The amount paid in losses during a specified time period.

Personal and advertising injury

Part of general liability in the business owner’s policy. Protects the insured's business from suits from a third party (often a competitor) alleging that the insured's advertising or marketing harmed them or their business (i.e. copyright or trademark infringement, libel, slander, etc).

Personal effects

This is often part of a business owner’s policy. This limit covers personal belongings brought into the insured's premises that are not used in the business (i.e. picture frames, artwork owned by employees).

Personal property of others

This is often part of a business owner’s policy. Covers property lent or leased to the insured for use in its business (copiers, medical equipment, etc.).

Policy

The contract between an insurance company and its insured. The policy defines what the company agrees to cover for what period of time, and it describes the obligations and responsibilities of the insured.

Policy term

The length of time for which a policy is written.

Premises liability

Part of general liability in the business owner’s policy. This limit protects the insured business from suits alleging injury or damage suffered by guests while on the premises (i.e. slips and falls). Plaintiffs often allege that the insured was negligent in maintaining a safe premises.

Premium

The amount of money a policyholder pays for insurance protection. The premium is the amount deemed necessary to pay current losses, to set aside reserves for anticipated losses, and to pay expenses and taxes necessary to operate the company during the period for which the policies are in force. Premiums allow the company to generate a reasonable profit that reinforces future solvency and contributes to the company’s growth.

Premium credits

A credit included in the premium computation that recognizes a reduction in hazard, which makes the account a better risk.

Prior acts coverage

Prior acts coverage is when a claims made policy looks back in time to cover incidents that happened in the past. Prior acts coverage is determined by the “retroactive date” identified on the policy. If the incident took place after the retroactive date (or prior acts date) identified on the policy, and the claim is made during an in-force policy (and is not otherwise excluded), the claims-made policy will respond. Also known as Nose coverage.

Products/completed operations liability

Part of general liability in the business owner’s policy. This limit protects against claims related to the manufacture or sale of products, goods, etc., claiming damage or injuries due to a defect, malfunction, defective design, etc.

Professional liability insurance

Protects against liability incurred from claims of negligence or wrongful acts executed by an attorney that causes monetary damages to client.

Property off-premises/ in transit

This is often part of a business owner’s policy. This limit covers property not located on the premises when damaged, or that moves between locations.

Punitive damages

These damages may be excluded or optionally covered. A few states require that punitive damages be covered. Other state laws prohibit insurance companies from covering punitive damages because such damages are intended to punish the defendant for willful, fraudulent, oppressive, malicious, or otherwise outrageous behavior that should not be covered by insurance.

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Rate maturation

When an attorney enters onto his or her first claims-made professional liability policy, the rate will rise annually from a “first-year” claims-made rate to a “mature” claims-made rate, typically at year five or six. Rates are low in the first year because the policy is covering only one year of exposure. As the number of exposure years increases the premium increases, because the more time that passes and the more clients seen, the greater the potential for a claim. With liability claims, there is often a time delay between when an act, error or omission occurs and the time that a client files a claim. Rate level increases are also known as "step" increases.

Reinsurance

An agreement between insurance companies under which the reinsurance company accepts all or part of the risk or loss of the primary company. Most primary companies insure only part of the risk on any given policy. The amount retained by the primary company varies among companies. The reminder of the policy limit is covered by a reinsurance entity or entities. The less risk that a primary company retains, the more premium it has to pay to the reinsurer to cover the remaining policy limit.

Rescind

To nullify or make void a policy or coverage. If and when a company rescinds a policy, premiums may be refunded.

Retroactive coverage

See Prior acts coverage.

Retroactive date

Usually found on the declarations page of a claims-made policy. Each attorney and the legal entity will have its own date. Only incidents that occurred after this date and are reported during the in-force policy period (and otherwise not excluded) are covered. (Not to be confused with the effective and expiration dates of the policy itself).

Risk classifications

A risk classification is based on the number and amount of losses that can be expected from a group with similar risk characteristics.

Risk management

A systematic approach used to identify, evaluate and reduce or eliminate the possibility of an unfavorable deviation from the expected outcome and thus prevent the injury as a result of negligence and the loss of financial assets resulting from such injury.

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Self-insured retention (SIR)

The dollar amount specified in a policy (usually a liability policy) that the insured must pay before the policy will respond to a loss. It may apply to the actual damages and/or to defense costs. SIRs differ from deductibles in that after paying an SIR, the full amount of the limit is available to pay a claim (whereas with a deductible, the deductible amount is subtracted from the available limit).

Standard risk

A person who, by the company’s underwriting standards, is eligible for insurance without restrictions or surcharges.

Substandard risk

A person or entity that must pay higher premiums and is subject to special coverage restrictions based on underwriting standards.

Surplus

The amount by which a company’s assets exceed its liabilities. A company’s surplus allows it to take on risk and serves as a cushion in the event that the losses from that risk exceed the premiums intended to cover the risk. Stated another way, surplus can be used to make up for deficiencies in loss reserves that were set aside from earned premiums. Surplus thus serves to provide strength and to maintain fiscal integrity in the face of adverse loss experience that was not actuarially anticipated.

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Tail coverage

Coverage that protects an attorney against all claims that arise from professional services performed while the claims-made policy was in effect, but which were reported after the termination of the policy. Some insurers offer this feature free of charge for retiring attorneys who meet certain requirements. Also known as extended reporting coverage.

Tenant’s legal liability

This is often part of a business owner’s policy. This coverage protects the insured's business against suits claiming property damage to the space it rents, allegedly caused by the insured. Coverage is not limited to fire or water damage but other causes of damage also. See also Damage to premises rented to you and Water damage legal liability.

Tenants improvements and betterments

This is often part of a business owner's policy. This limit provides coverage for permanent or semi-permanent additions made at the insured's expense (office buildouts, carpeting, cabinetry) on/in a building that is leased.

Terrorism coverage

Required by the Terrorism Risk Insurance Act of 2002, which created a federal government backstop for insurance claims related to terrorism. Mandatory on some policies, optional on others.

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Umbrella

Provides an additional layer of coverage over one or more underlying liability policies. This may be part of a business owner’s policy or a separate policy.

Underwriting

Process by which an insurer determines whether or not, and on what basis, it will accept and classify the risks associated with an application for coverage.

Underwriting results

The profit or loss of the insurance company, calculated by subtracting from earned premium those amounts paid out and reserved for losses and expenses. Any residual amount is called an underwriting profit. If deductions exceed earned premium, it is called an underwriting loss. Underwriting results do not include investment income.

Unearned premium

That portion of a premium that is paid in advance of a coverage period. Insureds usually pay a calendar quarter or more in advance of an actual coverage period; the advance payment is initially unearned and starts to become earned on the first day of the coverage period and incrementally thereafter during the ensuing coverage period.

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Valuable papers/records

This is often part of a business owner’s policy. This limit covers the cost to reconstruct lost or damaged documents such client records, leases, deeds, mortgages, etc.

Vicarious liability

Liability for the acts of someone else because of a relationship. For example: an employer could be held vicariously liable for the acts of an employee.

Water damage legal liability

This is often part of a business owner’s policy. This limit protects the insured business against suits claiming water damage to the space it rents, allegedly caused by the insured. See also Damage to Premises Rented to You.

Workers’ compensation

The policy pays medical expenses and a portion of lost wages after an employee's job-related injury or illness, in accordance with Virginia law. Employer’s liability as part of the workers' compensation insurance protects the insured’s business against suits from the employee’s spouse, family members or third parties for work-related accidents or injuries.

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Disability Income Protection Terms

Group long-term disability insurance

Employer-owned plan that typically offers 60 percent of income as coverage, is taxable as ordinary income if the firm pays the premium and may limit coverage periods for working in your own occupation.

Individual disability insurance

A policy individually underwritten that is paid for and owned by an individual and is portable as the owner changes employers. Benefits are typically free from income tax, and coverage amounts are based on one’s earned income.

Waiting period

Period of time between the start of a disability and when the coverage starts to pay benefits. Waiting periods can typically be 60, 90, 180 or 365 days. The shorter the waiting period, the higher the premium.

Benefit period

The length of time benefits are paid after the waiting period is satisfied. Benefit periods are typically 2, 5, 6 and 10 years, or to age 65. The longer the benefit period the higher the premium.

Total disability

When a person cannot work due to injury or sickness and cannot work in any other occupation.

Waiver of premium

Premiums are typically waived while you are disabled and receiving benefits.

Cost of living adjustment rider

After your first year of disability this rider increases the amount of your disability benefit so that it can help to keep pace with inflation. Typically, the increase is compounded annually, and is usually 3 percent.

Catastrophic disability rider

Provides additional benefits when the insured is disabled, and also needs assistance with two of the basic activities of daily living (Bathing, Dressing, Eating, Toileting, Transferring, Continence) or when the insured develops a severe cognitive impairment (such as Alzheimer’s, Huntington’s Disease).

Future insurability rider

As your income increases over time this additional coverage rider allows you to purchase additional coverage without having to provide proof of medical insurability. Financial underwriting to verify your increase in income is required before coverage can be increased.

Own occupation rider

Provides income benefits when the insured is disabled as a result of sickness or injury, and the insured cannot perform the main duties of his or her occupation.

Business Overhead Expense Insurance (BOE)

Insurance that pays ongoing expenses (such as rent and salaries) that continue while an insured business owner or partner is disabled and cannot work.

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Fixed Annuity Terms

Immediate annuity

Sometimes called an “income strategy,” an immediate annuity converts an initial lump sum into a series of periodic payments that begin within one year from the time of your lump sum payment.

Deferred fixed annuity

A deferred fixed annuity offers safety of principal and earns a guaranteed interest rate for a specified period of time. It is a low-risk product designed for more conservative investors who, most importantly, don't want to worry about the ups and downs in the markets.

Accumulation phase

This is the period of time after which a contract starts when money deposited into a contract continues to grow.

Annuity phase

This is the phase of an annuity when money is distributed to the contract owner. This can be done via partial distributions, or may be established as a set, guaranteed income.

Guaranteed interest rates

Fixed annuities lock-in set interest rates during the contract’s accumulation period. This means the money within the contract grows steadily over time. Guarantees are subject to the claims paying ability of the insurance company issuing the annuity contract.

Death benefit protection

If you die during the accumulation phase of your annuity contract, your beneficiary will receive a death benefit. Any death benefit payable during the annuity payout phase would be based upon the annuity payout option you select.

Surrender period

As annuities are designed for long-term accumulation and the eventual distribution of assets in retirement, insurance companies will commonly apply a “surrender charge” to the annuity. This charge may be assessed against money taken out of a fixed annuity prior to the end of the surrender period. A typical surrender period may last 3, 5 or 7 years. The fee assessed against money distributed typically declines over a period of time. Irrespective of any surrender charge, a fixed annuity will usually allow for a free withdrawal of up to 10% of the contract’s value per contract year.

Lifetime income

Annuity options provide guaranteed income for life, income for a specific period of time or a combination of both. The annuity payout method is elected by the contract owner.

Tax deferral

Earnings in a fixed annuity grow tax-deferred. When money is taken out of the contract, the earnings are taken out first, and are taxed as ordinary income.

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Health Insurance Terms

Accountable Care Organization

A group of health care providers who give coordinated care, chronic disease management, and thereby improve the quality of care patients get. The organization's payment is tied to achieving health care quality goals and outcomes that result in cost savings.

Advanced Premium Tax Credits (APTC)

A tax credit that can help you afford coverage bought through the Marketplace. Sometimes known as APTC, “advance payments of the premium tax credit,” or premium tax credit. Unlike tax credits you claim when you file your taxes, these tax credits can be used right away to lower your monthly premium costs. If you qualify, you may choose how much advance credit payments to apply to your premiums each month, up to a maximum amount. If the amount of advance credit payments you get for the year is less than the tax credit you're due, you'll get the difference as a refundable credit when you file your federal income tax return. If your advance payments for the year are more than the amount of your credit, you must repay the excess advance payments with your tax return. Please discuss your particular needs and tax situation with a licensed tax profession to determine your eligibility for the APTC.

Allowed amount

Maximum amount on which payment is based for covered health care services. This may be called “eligible expense,” “payment allowance" or "negotiated rate." If your provider charges more than the allowed amount, you may have to pay the difference.

Affordable Care Act

Actuarial value

The percentage of total average costs for covered benefits that a plan will cover. For example, if a plan has an actuarial value of 70%, on average, you would be responsible for 30% of the costs of all covered benefits. However, you could be responsible for a higher or lower percentage of the total costs of covered services for the year, depending on your actual health care needs and the terms of your insurance policy.

Coinsurance

A form of medical cost sharing in a health insurance plan that requires an insured person to pay a stated percentage of medical expenses after the deductible amount, if any, was paid.

Coinsurance rates may differ if services are received from an approved provider (i.e., a provider with whom the insurer has a contract or an agreement specifying payment levels and other contract requirements) or if received by providers not on the approved list.

Co-payment

A form of medical cost sharing in a health insurance plan that requires an insured person to pay a fixed dollar amount when a medical service is received. There may be separate co-payments for different services. Some plans require that a deductible first be met for some specific services before a co-payment applies.

Deductible

A fixed dollar amount during the benefit period - usually a year - that an insured person pays before the insurer starts to make payments for covered medical services. Plans may have both per individual and family deductibles.

Some plans may have separate deductibles for specific services. For example, a plan may have a hospitalization deductible per admission.

Deductibles may differ if services are received from an approved provider or if received from providers not on the approved list.

Flexible Spending Accounts or Arrangements (FSA)

Accounts offered and administered by employers that provide a way for employees to set aside, out of their paycheck, pretax dollars to pay for the employee’s share of insurance premiums or medical expenses not covered by the employer’s health plan. The employer may also make contributions to a FSA. Typically, benefits or cash must be used within the given benefit year or the employee loses the money. Flexible spending accounts can also be provided to cover childcare expenses, but those accounts must be established separately from medical FSAs.

Flexible benefits plan (Cafeteria plan) (IRS 125 Plan)

A benefit program under Section 125 of the Internal Revenue Code that offers employees a choice between permissible taxable benefits, including cash, and nontaxable benefits such as life and health insurance, vacations, retirement plans and child care. Although a common core of benefits may be required, the employee can determine how his or her remaining benefit dollars are to be allocated for each type of benefit from the total amount promised by the employer. Sometimes employee contributions may be made for additional coverage.

Fully insured plan

A plan where the employer contracts with another organization to assume financial responsibility for the enrollees’ medical claims and for all incurred administrative costs.

Gatekeeper

Under some health insurance arrangements, a gatekeeper is responsible for the administration of the patient’s treatment; the gatekeeper coordinates and authorizes all medical services, laboratory studies, specialty referrals and hospitalizations.

Essential Health Benefits (EHB’s)

A set of health care service categories that must be covered by certain plans, starting in 2014. EHB’s are defined as the following: Ambulatory patient services; Emergency services; Hospitalization; Maternity and newborn care; Mental health and substance use; Prescription drugs; Rehabilitative and habilitative services; Laboratory services; Preventive services and management for chronic care conditions; Pediatric vision services.

Flexible Spending Account (FSA)

An arrangement you set up through your employer to pay for many of your out-of-pocket medical expenses with tax-free dollars. These expenses include insurance copayments and deductibles, and qualified prescription drugs, insulin and medical devices. You decide how much of your pre-tax wages you want taken out of your paycheck and put into an FSA. You don’t have to pay taxes on this money. Your employer’s plan sets a limit on the amount you can put into an FSA each year.

There is no carry-over of FSA funds. This means that FSA funds you don’t spend by the end of the plan year can’t be used for expenses in the next year. An exception is if your employer’s FSA plan permits you to use unused FSA funds for expenses incurred during a grace period of up to 2.5 months after the end of the FSA plan year.

Formulary

A list of prescription drugs covered by a prescription drug plan or another insurance plan offering prescription drug benefits. Also called a drug list.

Grandfathered health plan

As used in connection with the Affordable Care Act: A group health plan that was created—or an individual health insurance policy that was purchased—on or before March 23, 2010. Grandfathered plans are exempted from many changes required under the Affordable Care Act. Plans or policies may lose their “grandfathered” status if they make certain significant changes that reduce benefits or increase costs to consumers. A health plan must disclose in its plan materials whether it considers itself to be a grandfathered plan and must also advise consumers how to contact the U.S. Department of Labor or the U.S. Department of Health and Human Services with questions. (Note: If you are in a group health plan, the date you joined may not reflect the date the plan was created. New employees and new family members may be added to grandfathered group plans after March 23, 2010).

Health Insurance Marketplace

A resource where individuals, families, and small businesses can: learn about their health coverage options; compare health insurance plans based on costs, benefits, and other important features; choose a plan; and enroll in coverage. The Marketplace also provides information on programs that help people with low to moderate income and resources pay for coverage. This includes ways to save on the monthly premiums and out-of-pocket costs of coverage available through the Marketplace, and information about other programs, including Medicaid and the Children’s Health Insurance Program (CHIP). The Marketplace encourages competition among private health plans, and is accessible through websites, call centers, and in-person assistance. In some states, the Marketplace is run by the state. In others it is run by the federal government.

Health Maintenance Organization (HMO)

A type of health insurance plan that usually limits coverage to care from doctors who work for or contract with the HMO. It generally won't cover out-of-network care except in an emergency. An HMO may require you to live or work in its service area to be eligible for coverage. HMOs often provide integrated care and focus on prevention and wellness.

Health Reimbursement Account (HRA)

Health Reimbursement Accounts (HRAs) are employer-funded group health plans from which employees are reimbursed tax-free for qualified medical expenses up to a fixed dollar amount per year. Unused amounts may be rolled over to be used in subsequent years. The employer funds and owns the account. Health Reimbursement Accounts are sometimes called Health Reimbursement Arrangements.

Marketplace insurance categories - “Metal Levels”

There are 5 categories or “metal levels” of coverage in the Marketplace. Plans in each category pay different amounts of the total costs of an average person’s care. This takes into account the plans’ monthly premiums, deductibles, copayments, coinsurance, and out-of-pocket maximums. The actual percentage you’ll pay in total or per service will depend on the services you use during the year.*

  • Bronze: Your health plan pays 60% on average. You pay about 40%.
  • Silver: Your health plan pays 70% on average. You pay about 30%.
  • Gold: Your health plan pays 80% on average. You pay about 20%.
  • Platinum: Your health plan pays 90% on average. You pay about 10%.
  • Catastrophic: Catastrophic coverage plans pay less than 60% of the total average cost of care on average. They’re available only to people who are under 30 years old or have a hardship exemption.

“*” – Based on offerings under the Affordable Care Act as of 11/2014

Minimum essential coverage

The type of coverage an individual needs to have to meet the individual responsibility requirement under the Affordable Care Act. This includes individual market policies, job-based coverage, Medicare, Medicaid, CHIP, TRICARE and certain other coverage.

Multi-State Plan

A Multi-State Plan is a private health insurance plan sold through the Marketplace under a contract between the U.S. Office of Personnel Management (OPM) and an insurance company. OPM is the federal agency that administers health insurance plans for federal employees, retirees, and their families.

Multi-State Plans must include essential health benefits, and generally must cover any additional benefits required by state law. Enrollees in Multi-State Plans are eligible for the same income-based savings as enrollees in other Marketplace plans.

Important: Some Multi-State Plan options offer in-network care out of state, but not all do. Please carefully review the plan’s materials and provider directory to see if providers outside the state or service area are included in the network. Services provided by health care providers outside of a plan’s network usually cost more than services delivered by in-network providers.

Network

The facilities, providers and suppliers your health insurer or plan has contracted with to provide health care services.

Out-of-pocket maximum/limit

The most you pay during a policy period (usually one year) before your health insurance or plan starts to pay 100% for covered essential health benefits. This limit must include deductibles, coinsurance, copayments, or similar charges and any other expenditure required of an individual which is a qualified medical expense for the essential health benefits. This limit does not have to count premiums, balance billing amounts for non-network providers and other out-of-network cost-sharing, or spending for non-essential health benefits.

The maximum out-of-pocket cost limit for any individual Marketplace plan for 2015 can be no more than $6,600 for an individual plan and $13,200 for a family plan.

Out-of-pocket costs

Your expenses for medical care that aren't reimbursed by insurance. Out-of-pocket costs include deductibles, coinsurance, and copayments for covered services plus all costs for services that aren't covered.

Penalty fee

If you don’t have a health plan that qualifies as minimum essential coverage, you may have to pay a fee for the year you don’t have coverage. In 2015 the fee is the higher of these two dollar amounts: 2% of your income; or $325 per adult ($162.50 per child), up to a maximum of $925. The fee increases every year. You’ll pay the fee on the federal income tax return you file for the coverage year. People with very low incomes and others may be eligible for exemptions.

Point of Service (POS) Plans

A type of plan in which you pay less if you use doctors, hospitals, and other health care providers that belong to the plan’s network. POS plans also may require you to get a referral from your primary care doctor in order to see a specialist.

Preauthorization

A decision by your health insurer or plan that a health care service, treatment plan, prescription drug or durable medical equipment is medically necessary. Sometimes called prior authorization, prior approval or precertification. Your health insurance or plan may require preauthorization for certain services before you receive them, except in an emergency. Preauthorization isn’t a promise your health insurance or plan will cover the cost.

Preferred Provider Organization (PPO)

A type of health plan that contracts with medical providers, such as hospitals and doctors, to create a network of participating providers. You pay less if you use providers that belong to the plan’s network. You can use doctors, hospitals, and providers outside of the network for an additional cost.

Preferred Provider

A provider who has a contract with your health insurer or plan to provide services to you at a discount. Check your policy to see if you can see all preferred providers or if your health insurance or plan has a “tiered” network and you must pay extra to see some providers. Your health insurance or plan may have preferred providers who are also “participating” providers. Participating providers also contract with your health insurer or plan, but the discount may not be as great, and you may have to pay more.

Premium tax credit

The Affordable Care Act provides a new tax credit to help you afford health coverage purchased through the Marketplace. Advance payments of the tax credit can be used right away to lower your monthly premium costs. If you qualify, you may choose how much advance credit payments to apply to your premiums each month, up to a maximum amount. If the amount of advance credit payments you get for the year is less than the tax credit you're due, you’ll get the difference as a refundable credit when you file your federal income tax return. If your advance payments for the year are more than the amount of your credit, you must repay the excess advance payments with your tax return.

Prior authorization

Approval from a health plan that may be required before you get a service or fill a prescription in order for the service or prescription to be covered by your plan.

Qualified health plan

Under the Affordable Care Act, starting in 2014, an insurance plan that is certified by the Health Insurance Marketplace, provides essential health benefits, follows established limits on cost-sharing (like deductibles, copayments, and out-of-pocket maximum amounts), and meets other requirements. A qualified health plan will have a certification by each Marketplace in which it is sold.

Qualifying life event

A change in your life that can make you eligible for a Special Enrollment Period to enroll in health coverage. Examples of qualifying life events are moving to a new state, certain changes in your income, and changes in your family size (for example, if you marry, divorce, or have a baby) and gaining membership in a federally recognized tribe or status as an Alaska Native Claims Settlement Act (ANCSA) Corporation shareholder.

Rehabilitative/rehabilitation services

Health care services that help you keep, get back, or improve skills and functioning for daily living that have been lost or impaired because you were sick, hurt, or disabled. These services may include physical and occupational therapy, speech-language pathology, and psychiatric rehabilitation services in a variety of inpatient and/or outpatient settings.

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Life Insurance Terms

Term life insurance

Term life insurance is a type of life insurance that lasts for a specific “term.” The cost for the insurance is usually lower than other types of life insurance as the death benefit only pays the beneficiary if the insured dies within the term of the policy. Term life insurance is typically used to cover obligations which remain constant for a short or intermediate time frame. Term life insurance does not grow cash value.

Universal life insurance

A form of permanent life insurance, universal life insurance can be designed to last for a specific length of time, or for the life of the insured. Premiums can be higher than term insurance, especially when the death benefit is designed to last for the entire life of the insured. Depending on the design of the contract, it may or may not accumulate cash value. Universal Life is typically used for long-term obligations, estate growth, estate liquidity or funding retirement needs.

Whole life insurance

A form of permanent life insurance, whole life insurance has a guaranteed death benefit, a guaranteed premium, and guaranteed cash value accumulation. The cash value in a whole life policy typically increases based on the insurance company’s general account portfolio performance. This type of insurance may be suitable for long-term obligations such as income needs for a surviving spouse, estate liquidity, funding retirement needs, etc.

Beneficiary

The individual(s) or entity(ies) to which life insurance death benefits are payable upon the death of the insured.

Policy Owner

The individual(s) or entity(ies) which own the insurance policy. This may or may not be the same party as the insured.

Insured

The individual(s) whose lives are insured under a life insurance policy.

Underwriting

The process by which an insurance company evaluates a prospective insured for the amount of risk they represent.

Certificate

The documentation provided to the insured within an employer’s group life insurance policy which shows evidence of insurance coverage. Please note that this differs from an individually-underwritten and individually-owned life insurance policy as the employer typically owns the insurance policy.

Group life insurance

Life insurance coverage commonly provided through one’s employer. The employer will usually own this type of policy. Coverage commonly ends when the employee leaves their place of employment.

Rider

A rider is a feature that can be added to an insurance policy, and which also provides additional value above and beyond the basic terms of the insurance policy. As riders provide additional value, they will also typically carry an additional cost.

Premium

The amount of money that a policy owner pays to an insurance company in exchange for the promise of insurance coverage.

Death benefit

Money that is paid to the beneficiary of a life insurance policy. These assets are typically free from taxation.

1035 Exchange

Section 1035 of the Internal Revenue Code allows a policy owner to transfer cash value held within a life insurance policy to a new or differednt life insurance policy without being required to pay taxes on the gains on the assets held within the original policy. A policy owner can transfer assets from one life insurance policy to another, or from a life insurance policy to an annuity as a 1035 Exchange; however, a transfer of assets from an annuity contract to a life insurance policy is not allowed by law.

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