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CA Department of Insurance

Glossary

Below is a glossary of some common terms used in the insurance industry. We have tried to provide consumers with some simple definitions to better understand their policies and other terminology used in the industry.

A B C D E F G H I L M N O P R S T U W


A

Accelerated Benefit Provision
A provision in many new policies which will allow the policy owner to receive a portion of the death benefit early if the insured person is diagnosed with a terminal illness or permanently confined to a nursing home.

Accidental Death Benefit
A rider added to a policy that provides an additional benefit if the insured dies from accidental causes.

Accumulation Phase
The phase in which you pay into your annuity, and your annuity earns interest.

Activities of Daily Living (ADL)
Everyday functions and activities individuals usually do without help. ADL functions include bathing, continence, dressing, eating, toileting, transferring, and for non-tax qualified policies, ambulating (California Insurance Code [CIC] 10232.8 [a] [2] for Non-Tax Qualified and [CIC] 10232.8 [d] for Federally Qualified LTC policies).

Acute Care Facility
One step below a hospital, an acute care facility gives advanced medical and nursing services to bring you back to health.

Agent
In the insurance industry, an agent is appointed by an insurance company to sell insurance policies. The agent represents the insurance company, not the insured.

Annuity
A contract in which an insurance company makes a series of payments to you at regular intervals in return for a premium. See Immediate Annuity and Deferred Annuity. Also see Tax-Qualified Annuity and Non-Tax Qualified Annuity.

Annuitization Phase
The phase in which you receive a monthly payment from your annuity.

Assignment of Benefits
Your signed authorization to your doctor or hospital (medical provider) assigning payment to be made directly to them for your medical treatment.

Assisted Living
(See "board and care facility.")

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B

Banding
Organizing people together by age groups to calculate premiums.

Basis Points
The fees in your annuity; reflects a percentage of your investment.

Beneficiary
A person who may become eligible to receive or is receiving benefits under an insurance policy.

Benefit Triggers
Term used by insurance companies to describe when to pay benefits.

Board and Care Facility (Long Term)
A board and care facility offers no nursing services. It is designed for people who are unable to take care of their day-to-day feeding, hygiene, and/or ambulatory needs. Sometimes called an "assisted living facility," their orientation is for provision of service over the "long term."

Broker
A person licensed by the State to sell insurance coverage with multiple health plans or insurers. The broker represents you and not the insurance companies. The broker helps you shop for the best policy.

Business Day
Every day that an insurance company is open for business, which excludes Saturday, Sunday, and state and federal holidays.

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C

Calendar Day
Every day of the calendar month, includes Saturday, Sunday, and state and federal holidays. However, if any action tied to a time frame in an insurance policy or CDI regulation or code falls on a Saturday, Sunday, or state or federal holiday; then the action is postponed to the next calendar day that does not fall on a Saturday, Sunday, or state or federal holiday.

Capitation
A flat patient fee paid to providers no matter how many services they have provided.

Certificate of Coverage
A document issued to a member of a group health insurance plan showing evidence of participation in the insurance.

Certificate of Creditable Coverage
A written statement from your prior insurance company or health plan documenting the length of time you were covered.

Chronic Condition
A medical condition or disease that goes on for a long period of time. Examples are diabetes and cystic fibrosis.

Claim
A notification to your insurance company that payment is due under the policy provisions.

Copayment
The portion of charges you pay to your provider for covered health care services in addition to any deductible.

Coverage
The scope of protection provided by an insurance contract which includes any of the listed benefits in an insurance policy.

Creditable Coverage or Prior Qualifying Coverage
The number of months you had health insurance in place before your current or new policy became effective. Creditable coverage must be counted towards any preexisting condition exclusion in either an individual or group policy.

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D

Death Benefit
The amount of money your survivor (beneficiary) receives if you die before you begin the annuitization phase; generally the value of your annuity or the amount you have invested, whichever sum is greater. However, some annuity contracts do impose a surrender charge if your beneficiary wishes to withdraw all of the money in the annuity.

Deductible
A fixed amount which is deducted from eligible expenses before benefits from the insurance company are payable.

Deferred Annuity
Under this contract, money paid by the insured accumulates with interest over a period of time. The accumulated amounts will then be paid out in periodic installments.

Denial
An insurance company decision to withhold a claim payment or preauthorization. A denial may be made because the medical service is not covered, not medically necessary, experimental or investigational.

Drug Formulary
A list of drugs that an insurer will pay for. Drugs that are not on the formulary ("off-formulary") are sometimes covered but are more expensive (see "excluded drugs"). To you, the cheapest drugs are generic drugs that are on the formulary, and the most expensive drugs are name-brand drugs that are off-formulary.

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E

Elimination Period
(see "pre-existing condition") A period of time before benefits are payable.

ERISA
Stands for the Employee Retirement Income Security Act (1974). Administered by the U.S. Department of Labor, Employee Benefits Security Administration. ERISA regulates employer sponsored pension and insurance plans (self-insured plans) for employees.

Evidence-Based Medicine
In evidence-based medicine, treatment success is measured by a careful study of the outcome, using both the clinical expertise of the provider, as well as the most up-to-date research available.

Evidence of Insurability
Medical and other information about a person applying for insurance that the life insurance company keeps confidential, but uses to decide whether the policy can be issued and what premiums will be charged.

Excluded Drugs
Drugs not covered by the insurance policy.

Exclusions and/or Limitations - Conditions or circumstances spelled out in an insurance policy which limit or exclude coverage benefits. It is important to read all exclusion, limitation, and reduction clauses in your health insurance policy or certificate of coverage to determine which expenses are not covered.

Experimental and/or Investigational Medical Services - A drug, device, procedure, treatment plan or other therapy which is currently not within the accepted standards of medical care.

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F

Face Amount
The amount to be paid to the beneficiary when the insured dies. It will be reduced by any unpaid policy loans and interest on those loans, and may be increased by any dividends.

Fee-for-Service
A system in which you pay the provider for each single service or procedure.

Forced Annuitization
If an annuity is tax-qualified, the annuitant is required to begin minimum required distributions by age 70 ½. Failure to take the required minimum distribution by age 70 ½ will result in a tax penalty. If the annuity is non-qualified, there is no requirement to withdraw the funds at any age except as required by the contract itself.

Free Look
The right of the owner to have a period of ten or more days to examine an annuity product, and if not satisfied, return it to the company for a full refund of all amounts paid. Seniors are provided with a 30 day free look period.

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G

Generic Drug
A drug that is similar to a name-brand drug but not covered by original patents and therefore cheaper. For example, the generic for the name-brand "Vicodin®" is "hydrocodone." If you buy a generic drug, you usually pay less co-pay (see "name-brand drugs").

Grace Period
A specified period immediately following the premium due date during which a payment can be made to continue a policy in force without interruption. This applies only to Life and Health policies. Check your policy to be sure that a grace period is offered and how many days, if any, are allowed.

Group Health Plan
When groups of individuals are covered under one insurance contract. Usually people are offered group health plans by their employers (see "individual health plan").

Guaranteed Issue
A health insurance policy that must be issued regardless of any preexisting medical condition. The present and past physical condition of a health insurance applicant is not considered as a part of underwriting. No physical examination is required. The insurance company cannot decline coverage to an applicant of a guaranteed issue policy based on medical history.

Guaranteed Insurability
An option that permits the policyholder to buy additional stated amounts of life insurance at certain times in the future, without having to provide new evidence of insurability.

Guaranteed Renewable Policies
A policy that cannot be canceled and must be renewed when it expires unless benefits have been exhausted. The company cannot change the coverage or refuse to renew the coverage for other than nonpayment of premiums.

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H

Home Health Care
Health care provided in your home.

Hospice Care
Care given to someone expected to live less than six months due to a terminal disease or condition. Hospice care can be given at home or in a hospice center or a board and care facility.


I

Illustration
A document used in annuity sales presentations showing year-by-year numbers indicating how a contract will work. Usually it assumes that amounts being paid today will continue in all future years.

Immediate Annuity
Under this type of contract, first a lump sum is paid to an insurance company and payments to the insured start immediately under periodic installments.

Impairment of Cognitive Ability
Deterioration or loss of intellectual capacity due to organic mental disease, including Alzheimer's disease or relate illnesses, that requires continual supervision to protect oneself or others [CIC] 10232.8 [a] [e].

Independent Medical Review
A process where expert medical professionals who have no relationship to your health insurance company or health plan review specific medical decisions made by the insurance company. California law provides for an Independent Medical Review Program, which is administered by the CDI and the DMHC depending upon what type of coverage you have (indemnity or HMO).

Individual Health Plan
A form of health insurance designed to cover just one person (and often immediate family members), as opposed to someone covered by a group plan (see "group health plan").

Inflation Protection
A policy option that provides for increases in benefit levels to help pay for expected increases in the costs of long-term care services.

Insured
The person who is covered by an insurance policy; the policy owner; the policyholder.

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L

Lapse
Termination of a policy when a renewal premium is not paid

Lifetime Limit
A dollar limit on how much the insurance company will pay in your lifetime. An insurer may, for example, cover up to $1 million over your lifetime. Above this they will pay nothing.

Long-term Care
Long Term Care is the assistance or supervision you may need when you are not able to do some of the basic "activities of daily living" (ADL) like bathing, dressing or moving from a bed to a chair. Examples of conditions in which you might need assistance with ADLs are: injury, illness, advanced age, or mental deterioration.

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M

Medicare Supplement Insurance
A private insurance policy that covers many of the gaps in Medicare coverage.

Medically Necessary
A drug, device, procedure, treatment plan, or other therapy that is covered under your health insurance policy and that your doctor, hospital, or provider has determined essential for your medical well-being, specific illness, or underlying condition.

Mode of Premium Payment
The frequency of premium payments during the contract year. Premium payments can usually be made on annual, semi-annual, quarterly, or monthly mode.

Mortality and Expense (M&E)
The fee the insurance company charges for its expenses and to provide you with a lifetime income or the fee the insurance company charges your beneficiaries to provide a death benefit should you die during the accumulation phase.

Mortality Table
A statistical table showing the death rate (probability of death) for each age.

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N

Name-brand Drug
A drug sold under a name-brand, and covered by original patents (for example, the name brand for hydrocodone is "Vicodin®"). Name-brand drugs are more expensive than generic drugs, and you usually have a higher co-pay for them than generics (see "generic drugs").

National Association of Insurance Commissioners (NAIC)
Membership organization of the nation's insurance commissioners. One of its goals is to promote uniformity of state regulation and legislation related to insurance.

Non-cancelable Policies
Insurance contract that cannot be canceled and the rates cannot be changed by the insurance company.

Non-Tax Qualified Annuity
An annuity that is funded with after-tax dollars.

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O

Open Enrollment
If you are 65 years of age or older and you are enrolled in Medicare Part B an Open Enrollment is a period of time set by law when you may purchase or change Medicare Supplement Insurance plans regardless of any prior medical condition. (See "Guide to Medicare Supplement Insurance" for more information).

Out-of-Pocket
The amount of money you paid for medical services after insurance has paid its contribution.

Out-of-Pocket Maximum
The most you will have to pay in a year for deductibles and coinsurance for covered benefits.

Ownership
All rights, benefits, and privileges under a policy controlled by the owner, who is usually the insured. Ownership may be transferred or assigned to someone else by written request of the current owner.

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P

Policy
The written contract between an individual or group policyholder and an insurance company. The policy outlines the duties, obligations, and responsibilities of both the policyholder and the insurance company. A policy may include any application, endorsement, certificate, or any other document that can describe, limit, or exclude coverage benefits under the policy.

Preexisting Condition
Any illness or health condition for which you have received medical advice or treatment during the six months prior to obtaining health insurance. Group healthcare policies cover preexisting conditions after you have been insured for 6 months, and individual policies cover preexisting conditions after you have been insured for 1 year. Reference [CIC] 10198.7. Creditable coverage must be counted towards any preexisting condition exclusion in either an individual or group policy.

Premium
The payment a policy owner is required to make to an insurance company to purchase insurance coverage and to keep the policy in force.

Preventive Medicine
Health care designed to prevent disease or discover and treat disease in the early stage. Examples: Annual physical exam, Pap smear, cholesterol screening, mammography.

Primary Care Physician
Your Primary Care Physician ("PCP") is the doctor you choose to provide basic health care. In an HMO, your PCP must refer you to a specialist if you need to see one.

Provider
Any person or place that provides health care or prescription drugs. Providers can be doctors, hospitals, pharmacies, chiropractors, etc.

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R

Rescind
When the insurance company voids a policy back to the effective date.

Respite Care
Is short-term care provided in an institution, in the home, or a community-based program, that is designed to relieve a primary care giver in the home [CIC] 10232.9 [b] [6].

Rider
A provision added to a policy that provides additional benefits, usually accompanied by a corresponding premium increase or change.


S

Skilled Nursing Facility (SNF)
Often called a "SNF". A SNF provides medical care under the supervision of a medical professional or technician, and dispenses medications, performs diagnostics, and can do minor surgery.

Stop-Loss
An insurer may pay 100% of covered benefit charges after you have met your deductible and coinsurance requirements, and your out-of-pocket maximum.

Surrender
The process to voluntarily terminate an annuity for its cash value or other non-forfeiture options. Usually, there is a fee charged if you surrender your annuity within the first seven to ten years of owning it.

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T

Tax Deferral
The money that accumulates in your annuity grows tax-deferred, meaning you do not pay taxes on it until you begin receiving annuity payments.

Tax Qualified Annuity
Annuity that is funded with pre-tax dollars.

Term Certain Annuity
An annuity that provides you with income payments for a specific period of time, such as 10 or 20 years, rather than a lifetime.


U

Underwriting
The process of evaluating applicants for insurance and classifying them fairly, so the appropriate premium rate may be charged. This may involve a physical examination of the applicant.

Usual, Reasonable, and Customary
The amount that your insurance company determines is the normal payment range for a specific medical procedure performed within a given geographic area. If the charges you submit to your health insurance company are higher than what is considered normal for the covered health care services, then your health insurance company may not allow the full amount charged to you.

Utilization Review
Insurance companies and hospitals watch their costs and quality by having medical personnel review selected medical cases. They look at the types and frequency of medical services given and the charges associated with them.


W

Waiver of Premium
A rider added to policy that will waive the premium payments required by an insured during the total disability of the insured.

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