Deductibles, copays, ADLs, oh my! What does it all mean?

There are a lot of terms used in the insurance industry and many have duplicate meanings. Feel free to contact us if you don’t see what you are looking for below.

Accelerated Death Benefit – A life insurance policy feature that lets you use some of the policy’s death benefit prior to death. The benefit you receive while living is often times subject to tax.

Accidental Death Benefit – In a life insurance policy, benefit in addition to the death benefit paid to the beneficiary, should death occur due to an accident. There can be certain exclusions as well as time and age limits.

Activities of Daily Living (ADLs) – Bathing, continence, dressing, feeding, transferring and toileting. You need to be unable to perform 2 of the 6 ADLs before a Long-term Care Insurance policy begins to pay your monthly benefit.

Actuary – A specialist in the mathematics of insurance who calculates rates, reserves, dividends and other statistics. (Americanism: In most other countries the individual is known as “mathematician.”)

Acute Care – Recovery is the primary goal of acute care. Physician, nurse, or other skilled professional services are typically required and usually provided in a doctor’s office or hospital. Acute care is usually short term.

Adjustable Rate – An interest rate that changes, based on changes in a published market-rate index.

Admitted Assets – Assets permitted by state law to be included in an insurance company’s annual statement. These assets are an important factor when regulators measure insurance company solvency. They include mortgages, stocks, bonds and real estate.

Adult Day Care Services provided during the day at a community-based center. Programs address the individual needs of functionally or cognitively impaired adults. These structured, comprehensive programs provide social and support services in a protective setting during any part of a day, but not 24-hour care. Many adult day service programs include health-related services.

Advanced Directive – (also referred to as a Health Care Directive, Advanced Health Care Directive or Living Will) a Legal document that specifies whether you would like to be kept on artificial life support if you become permanently unconscious or are otherwise dying and unable to speak for yourself. It also specifies other aspects of health care you would like under those circumstances.

Agent -individual who sells and services insurance policies in either of two classifications:

  1. Independent agent represents at least two insurance companies and (at least in theory) services clients by searching the market for the most advantageous price for the most coverage. The agent’s commission is a percentage of each premium paid and includes a fee for servicing the insured’s policy.
  2. Direct or career agent represents only one company and sells only its policies. This agent is paid on a commission basis in much the same manner as the independent agent.

Aggregate Limit – Usually refers to liability insurance and indicates the amount of coverage that the insured has under the contract for a specific period of time, usually the contract period, no matter how many separate accidents might occur.

Alzheimer’s Disease Progressive, degenerative form of dementia that causes severe intellectual deterioration. First symptoms are impaired memory, followed by impaired thought and speech, and finally complete helplessness.

Annual Administrative Fee – Charge for expenses associated with administering a group employee benefit plan.

Annual Crediting Cap – The maximum rate that the equity-indexed annuity can be credited in a year. If a contract has an upper limit, or cap, of 7 percent and the index linked to the annuity gained 7.2 percent, only 7 percent would be credited to the annuity.

Annuitization – Process by which you convert part or all of the money in a qualified retirement plan or non-qualified annuity contract into a stream of regular income payments, either for your lifetime or the lifetimes of you and your joint annuitant. Once you choose to annuitize, the payment schedule and the amount is generally fixed and can’t be altered.

Annuitization Options – Choices in the way to annuitize. For example, life with a 10-year period certain means payouts will last a lifetime, but should the annuitant die during the first 10 years, the payments will continue to beneficiaries through the 10th year. Selection of such an option reduces the amount of the periodic payment.

Annuity – An agreement by an insurer to make periodic payments that continue during the survival of the annuitant(s) or for a specified period.

Approved for Reinsurance – Indicates the company is approved (or authorized) to write reinsurance on risks in this state. A license to write reinsurance might not be required in these states.

Assets – Assets refer to “all the available properties of every kind or possession of an insurance company that might be used to pay its debts.” There are three classifications of assets: invested assets, all other assets, and total admitted assets. Invested assets refer to things such as bonds, stocks, cash and income-producing real estate. All other assets refer to non-income producing possessions such as the building the company occupies, office furniture, and debts owed, usually in the form of deferred and unpaid premiums. Total admitted assets refer to everything a company owns. All other plus invested assets equals total admitted assets. By law, some states don’t permit insurance companies to claim certain goods and possessions, such as deferred and unpaid premiums, in the all other assets category, declaring them “non-admissible.”

Assisted Living Facility  Residential living arrangement that provides individualized personal care, assistance with ADLs, help with medications, and services such as laundry and housekeeping. Facilities may also provide health and medical care, but care is not as intensive as care offered at a nursing home. Types and sizes of facilities vary, ranging from small homes to large apartment-style complexes. Levels of care and services also vary. Assisted living facilities allow people to remain relatively independent.

Attained Age – Insured’s age at a particular time. For example, many term life insurance policies allow an insured to convert to permanent insurance without a physical examination at the insured’s then attained age. Upon conversion, the premium usually rises substantially to reflect the insured’s age and diminished life expectancy.

Balance Sheet – An accounting term referring to a listing of a company’s assets, liabilities and surplus as of a specific date.

Bathing – Washing oneself by sponge bath or in the bathtub or shower. One of the six Activities of Daily Living (ADLs)

Benefit Period – In health insurance, the number of days for which benefits are paid to the named insured and his or her dependents. For example, the number of days that benefits are calculated for a calendar year consist of the days beginning on Jan. 1 and ending on Dec. 31 of each year.

Benefit Triggers – Insurance companies use benefit triggers as criteria to determine when you are eligible to receive benefits. The most common benefit triggers for long-term care insurance are:

  1. Needing help with two or more Activities of Daily Living
  2. Having a Cognitive Impairment such as Alzheimer’s Disease, Dementia or Parkinsons

Broker – Insurance salesperson that searches the marketplace in the interest of clients, not insurance companies.

Broker-Agent – Independent insurance salesperson who represents particular insurers but also might function as a broker by searching the entire insurance market to place an applicant’s coverage to maximize protection and minimize cost. This person is licensed as an agent and a broker.

Capital – Equity of shareholders of a stock insurance company. The company’s capital and surplus are measured by the difference between its assets minus its liabilities. This value protects the interests of the company’s policyowners in the event it develops financial problems; the policyowners’ benefits are thus protected by the insurance company’s capital. Shareholders’ interest is second to that of policyowners.

Capitalization or Leverage – Measures the exposure of a company’s surplus to various operating and financial practices. A highly leveraged, or poorly capitalized, company can show a high return on surplus, but might be exposed to a high risk of instability.

Captive Agent – Representative of a single insurer or fleet of insurers who is obliged to submit business only to that company, or at the very minimum, give that company first refusal rights on a sale. In exchange, that insurer usually provides its captive agents with an allowance for office expenses as well as an extensive list of employee benefits such as pensions, life insurance, health insurance, and credit unions.

Caregiver – A caregiver is anyone who helps care for an elderly individual or person with a disability who lives at home. Caregivers usually provide assistance with activities of daily living and other essential activities like shopping, meal preparation and housework.

Case Management – A system of coordinating medical services to treat a patient, improve care and reduce cost. A case manager coordinates health care delivery for patients.

Chronically Ill – Having a long-lasting or recurrent illness or condition that causes you to need help with Activities of Daily Living and often other health and support services. The condition is expected to last for at least 90 consecutive days. The term used in tax-qualified long-term care insurance policies to describe a person who needs long-term care because of an inability to do a certain number of ADLs without help or because of a severe cognitive impairment such as Alzheimer’s Disease, Dementia or Parkinsons.

Claim – A demand made by the insured, or the insured’s beneficiary, for payment of the benefits as provided by the policy.

Cognitive Impairment  Deficiency in short or long-term memory, orientation to person, place and time, deductive or abstract reasoning, or judgment as it relates to safety awareness. Alzheimer’s Disease, Dementia and Parkinsons are examples of cognitive impairments.

Coinsurance – In property insurance, requires the policyholder to carry insurance equal to a specified percentage of the value of property to receive full payment on a loss. For health insurance, it is a percentage of each claim above the deductible paid by the policyholder. For a 20% health insurance coinsurance clause, the policyholder pays for the deductible plus 20% of his covered losses. After paying 80% of losses up to a specified ceiling, the insurer starts paying 100% of losses.

Combined Ratio After Policyholder Dividends – The sum of the loss, expense and policyholder dividend ratios not reflecting investment income or income taxes. This ratio measures the company’s overall underwriting profitability, and a combined ratio of less than 100 indicates an underwriting profit.

Commission – Fee paid to an agent or insurance salesperson as a percentage of the policy premium. The percentage varies widely depending on coverage, the insurer and the marketing methods.

Community Spouse – Spouse of a nursing home resident applying for or receiving Medicaid long-term care services.

Community-Based Services – Services and service settings in the community, such as adult day services, home delivered meals, or transportation services. Often referred to as home- and community-based services, they are designed to help older people and people with disabilities stay in their homes as independently as possible.

Concurrent Periods – In hospital income protection, when a patient is confined to a hospital due to more than one injury and/or illness at the same time, benefits are paid as if the total disability resulted from only one cause.

Continence  Ability to maintain control of bowel and bladder functions, or when unable to maintain control of these functions, the ability to perform associated personal hygiene such as caring for a catheter or colostomy bag. This is one of the six Activities of Daily Living.

Continuing Care Retirement Communities (CCRC) Retirement complex that offers a range of services and levels of care. Residents may move first into an independent living unit, a private apartment, or a house on the campus. The CCRC provides social and housing-related services and often also has an assisted living unit and an on-site or affiliated nursing home. If and when residents can no longer live independently in their apartment or home, they move into assisted living or the CCRC’s nursing home.

Convertible – Term life insurance coverage that can be converted into permanent insurance regardless of an insured’s physical condition and without a medical examination. The individual cannot be denied coverage or charged an additional premium for any health problems.

Copayment – A predetermined, flat fee an individual pays for health-care services, in addition to what insurance covers. For example, some HMOs require a $10 copayment for each office visit, regardless of the type or level of services provided during the visit. Copayments are not usually specified by percentages.

Cost-of-Living Adjustment (COLA) – Automatic adjustment applied to Social Security retirement payments when the consumer price index increases at a rate of at least 3%, the first quarter of one year to the first quarter of the next year.

Countable Assets – Assets whose value is counted in determining financial eligibility for Medicaid. They include:

  • Vehicles other than the one used primarily for transportation
  • Life insurance with a face value over $1,500
  • Bank accounts and trusts
  • Your home provided that your spouse or child does not live there and its equity value is greater than $536,000 ($750,000 in some states and is adjusted for inflation)

Coverage – The scope of protection provided under an insurance policy. In property insurance, coverage lists perils insured against, properties covered, locations covered, individuals insured, and the limits of indemnification. In life insurance, living and death benefits are listed.

Creditable Coverage – Term means that benefits provided by other drug plans are at least as good as those provided by the new Medicare Part D program. This may be important to people eligible for Medicare Part D but who do not sign up at their first opportunity because if the other plans provide creditable coverage, plan members can later convert to Medicare Part D without paying higher premiums than those in effect during their open enrollment period.

Custodial Care – (also called personal care) Non-skilled service or care, such as help with bathing, dressing, eating, getting in and out of bed or chair, moving around and using the bathroom.

Death Benefit – The limit of insurance or the amount of benefit that will be paid in the event of the death of a covered person.

Deductible – Amount of loss that the insured pays before the insurance kicks in.

Deficit Reduction Act – Signed into law on February 8th, 2006, there were three major sets of provisions related to Long-Term Care (LTC):

  1. Changed Medicaid eligibility for LTC (From 3 years to 5 years)
  2. Changed home equity exemption to $536,000 (in Ohio), $750,000 in other states and is adjusted for inflation.
  3. Changed the treatment of an Annuity (The state must be listed as the beneficiary of the annuity for Medicaid purposes)

Dementia  Deterioration of mental faculties due to a disorder of the brain.

Developed to Net Premiums Earned – The ratio of developed premiums through the year to net premiums earned. If premium growth was relatively steady, and the mix of business by line didn’t materially change, this ratio measures whether or not a company’s loss reserves are keeping pace with premium growth.

Direct Premiums Written – The aggregate amount of recorded originated premiums, other than reinsurance, written during the year, whether collected or not, at the close of the year, plus retrospective audit premium collections, after deducting all return premiums.

Direct Writer – An insurer whose distribution mechanism is either the direct selling system or the exclusive agency system.

Disabled – Someone whose physical or mental condition prevents him or her from doing enough work or the type of work needed for self-support.

Disease Management – A system of coordinated health-care interventions and communications for patients with certain illnesses.

Dividend – The return of part of the policy’s premium for a policy issued on a participating basis by either a mutual or stock insurer. A portion of the surplus paid to the stockholders of a corporation.

Do Not Resuscitate Order (DNR) – Written order from a doctor that resuscitation should not be attempted if a person suffers cardiac or respiratory arrest. A DNR order may be instituted on the basis of an Advance Directive from a person, or from someone entitled to make decisions on the person’s behalf, such as a health care proxy. In some jurisdictions, such orders can also be instituted on the basis of a physician’s own initiative, usually when resuscitation would not alter the ultimate outcome of a disease. Any person who does not wish to undergo lifesaving treatment in the event of cardiac or respiratory arrest can get a DNR order, although DNR orders are more common when a person with a fatal illness wishes to die without painful or invasive medical procedures.

Dressing – Putting on and taking off all items of clothing and any necessary braces, fasteners, or artificial limbs. This is one of the six ADLs.

Durable Power of Attorney – Legal document that gives someone else the authority to act on your behalf on matters that you specify. The power can be specific to a certain task or broad to cover many financial duties. You can specify if you want the power to start immediately or upon mental incapacity. For the document to be valid, you must sign it before you become disabled.

Earned Premium – The amount of the premium that as been paid for in advance that has been “earned” by virtue of the fact that time has passed without claim. A three-year policy that has been paid in advance and is one year old would have only partly earned the premium.

Eating – Feeding oneself by getting food into the body from a receptacle or by a feeding tube or intravenously. It is one of the six ADLs.

Elder Law Attorney – An attorney that specializes in helping families:

  • plan for Medicaid coverage of long-term care, and apply for coverage when the time comes.
  • plan and administer an estate.
  • represent guardians and conservators.
  • create and administer trusts.

Elimination Period – The time which must pass after filing a claim before policyholder can collect insurance benefits. Also known as “waiting period.”

Equity Value – Fair market value of property minus any liabilities on the property such as mortgages or loans.

Estate Planning Attorney – An estate planning attorney is an attorney who, through years of mentoring, continuing legal education and experience, understands how to advise clients on getting their affairs in order to prepare for the possibility of mental disability and eventual death.

Estate Recovery Process by which Medicaid recovers an amount of money from the estate of a person who received Medicaid. The amount Medicaid recovers cannot exceed the debt that was created for the person’s medical care.

Exclusions – Items or conditions that are not covered by the general insurance contract.

Exempt Assets (also called Non-countable Assets) Assets whose value is not counted in determining financial eligibility for Medicaid. They include:

  • Personal belongings
  • One vehicle
  • Life insurance with a face value under $1,500
  • Your home provided that your spouse or child lives there and its equity value is less than $536,000 ($750,000 in some states and is adjusted for inflation)

Expense Ratio – The ratio of underwriting expenses (including commissions) to net premiums written. This ratio measures the company’s operational efficiency in underwriting its book of business.

Exposure – Measure of vulnerability to loss, usually expressed in dollars or units.

Federal Poverty Level – Income standard that the federal government issues annually that reflects increases in prices, measured by the Consumer Price Index.

File-and-Use Rating Laws – State-based laws which permit insurers to adopt new rates without the prior approval of the insurance department. Usually insurers submit their new rates with supporting statistical data.

Financing Entity – Assessment of a person’s available income and assets to determine if he or she meets Medicaid eligibility requirements.

Functional Eligibility – Assessment of a person’s care needs to determine if he or she meets Medicaid eligibility requirements for payment of long-term care services. The assessment may include a person’s ability to perform ADLs or the need for skilled care.

Future Purchase Option – Life and disability insurance provisions that guarantee the insured the right to buy additional coverage without proving insurability. Also known as “guaranteed insurability option.”

General Account – All premiums are paid into an insurer’s general account. Thus, buyers are subject to credit-risk exposure to the insurance company, which is low but not zero.

Grace Period – The length of time (usually 31 days) after a premium is due and unpaid during which the policy, including all riders, remains in force. If a premium is paid during the grace period, the premium is considered to have been paid on time. In Universal Life policies, it typically provides for coverage to remain in force for 60 days following the date cash value becomes insufficient to support the payment of monthly insurance costs.

Group Home – (also called Board and Care Home) Residential private homes designed to provide housing, meals, housekeeping, personal care services, and supports to frail or disabled residents. At least one caregiver is onsite at all times. In many states, group homes are licensed or certified and must meet criteria for facility safety, types of services provided, and the number and type of residents they can care for. Group homes are often owned and managed by an individual or family involved in their everyday operation.

Gross Leverage – The sum of net leverage and ceded reinsurance leverage. This ratio measures a company’s gross exposure to pricing errors in its current book of business, to errors of estimating its liabilities, and exposure to its reinsurers.

Guaranteed Insurability Option – See “future purchase option.”

Guaranteed Issue Right – The right to purchase insurance without physical examination; the present and past physical condition of the applicant are not considered.

Guaranteed Renewable – A policy provision in many products which guarantees the policy owner the right to renew coverage at every policy anniversary date. The company does not have the right to cancel coverage except for nonpayment of premiums by the policy owner; however, the company can raise rates if they choose.

Guaranty Association – An organization of life insurance companies within a state responsible for covering the financial obligations of a member company that becomes insolvent.

Health Care Proxy – Legal document in which you name someone to make health care decisions for you if, for any reason and at any time, you become unable to make or communicate those decisions for yourself.

Health Maintenance Organization (HMO) – Health insurance plan that entitles members to services of participating physicians, hospitals and clinics. Emphasis is on preventative medicine, and members must use contracted health-care providers. There are usually no “out-of-network” benefits available. 

Health Reimbursement Arrangement – Owners of high-deductible health plans who are not qualified for a health savings account can use an HRA.

Health Savings Account – Plan that allows you to contribute pre-tax money to be used for qualified medical expenses. HSAs, which are portable, must be linked to a high-deductible health insurance policy.

High Blood Pressure – Blood pressure is the force of blood pushing against your blood vessel walls. High blood pressure is when that force, as measured by a blood pressure cuff, is elevated above normal limits.

Homemaker  Licensed Homemaker Services provides “hands-off” care such as helping with cooking and running errands. Often referred to as “Personal Care Assistants” or “Companions.” This is the rate charged by a non-Medicare certified, licensed agency.

Home Health Care – Allows individuals to live independently for as long as possible, given the limits of their medical condition. It covers a wide range of services and can often delay the need for long-term nursing home care. More specifically, home health care may include occupational and physical therapy, speech therapy, and even skilled nursing. It may involve helping the elderly with activities of daily living such as bathing, dressing, and eating.

Hospice Care Short-term, supportive care for individuals who are terminally ill (have a life expectancy of six months or less). Hospice care focuses on pain management and emotional, physical, and spiritual support for the patient and family. It can be provided at home or in a hospital, nursing home, or hospice facility. Medicare typically pays for hospice care. Hospice care is not usually considered long-term care.

Incontinence  Inability to maintain control of bowel and bladder functions as well as the inability to perform associated personal hygiene such as caring for a catheter or colostomy bag. Continence is one of the six ADLs.

Indemnity – Restoration to the victim of a loss by payment, repair or replacement.

Income Taxes – Incurred income taxes (including income taxes on capital gains) reported in each annual statement for that year.

Inflation Protection – An optional property coverage endorsement offered by some insurers that increases the policy’s limits of insurance during the policy term to keep pace with inflation.

Informal Caregiver  Any person who provides long-term care services without pay.

Instrumental Activities of Daily Living Activities that are not necessary for basic functioning, but are necessary in order to live independently. These activities may include:

  • Doing light housework
  • Preparing and cleaning up after meals
  • Taking medication
  • Shopping for groceries or clothes
  • Using the telephone
  • Managing money
  • Taking care of pets
  • Using communication devices
  • Getting around the community
  • Responding to emergency alerts such as fire alarms

Insurable Interest – Interest in property such that loss or destruction of the property could cause a financial loss.

Insurance Attorneys – An attorney who practices the law as it relates to insurance matters. Attorneys might be solo practitioners or work as part of a law firm. Insurance companies who retain attorneys to defend them against law suits might hire staff attorneys to work for them in-house or they might retain attorneys on an as-needed basis. A.M. Best’s Directory of Recommended Attorneys and Adjusters lists insurance defense attorneys who concentrate their practice in insurance defense such as coverage issues, bad faith, malpractice, products liability, and workers’ compensation.

Interest-Crediting Methods – There are at least 30 interest-crediting methods that insurers use. They usually involve some combination of point-to-point, annual reset, yield spread, averaging, or high water mark.

Investment Income – The return received by insurers from their investment portfolios including interest, dividends and realized capital gains on stocks. It doesn’t include the value of any stocks or bonds that the company currently owns.

Investments in Affiliates – Bonds, stocks, collateral loans, short-term investments in affiliated and real estate properties occupied by the company.

Insurance Regulatory Information System (IRIS) – Introduced by the National Association of Insurance Commissioners in 1974 to identify insurance companies that might require further regulatory review.

Laddering – Purchasing bond investments, cds and annuities that mature at different time intervals.

Lapse Ratio – The ratio of the number of life insurance policies that lapsed within a given period to the number in force at the beginning of that period.

Least Expensive Alternative Treatment – The amount an insurance company will pay based on its determination of cost for a particular procedure.

Leverage or Capitalization – Measures the exposure of a company’s surplus to various operating and financial practices. A highly leveraged, or poorly capitalized, company can show a high return on surplus, but might be exposed to a high risk of instability.

Liability – Broadly, any legally enforceable obligation. The term is most commonly used in a pecuniary sense.

Liability Insurance – Insurance that pays and renders service on behalf of an insured for loss arising out of his responsibility, due to negligence, to others imposed by law or assumed by contract.

Licensed – Indicates the company is incorporated (or chartered) in another state but is a licensed (admitted) insurer for this state to write specific lines of business for which it qualifies.

Licensed for Reinsurance Only – Indicates the company is a licensed (admitted) insurer to write reinsurance on risks in this state.

Lifetime Reserve Days – Sixty additional days Medicare pays for when you are hospitalized for more than 90 days in a benefit period. These days can only be used once during your lifetime. For each lifetime reserve day, Medicare pays all covered costs except for a daily coinsurance amount.

Liquidity – Liquidity is the ability of an individual or business to quickly convert assets into cash without incurring a considerable loss. There are two kinds of liquidity: quick and current. Quick liquidity refers to funds–cash, short-term investments, and government bonds–and possessions which can immediately be converted into cash in the case of an emergency. Current liquidity refers to current liquidity plus possessions such as real estate which cannot be immediately liquidated, but eventually can be sold and converted into cash. Quick liquidity is a subset of current liquidity. This reflects the financial stability of a company and thus their rating.

Living Benefits – This feature allows you, under certain circumstances, to receive the proceeds of your life insurance or annuity policy before you die. Such circumstances include terminal or catastrophic illness, the need for long-term care, or confinement to a nursing home. Also known as “accelerated death benefits.”

Living Will – (also called Health Care Directive, Advanced Health Care Directive, Living Will, or Health Care Directive) Legal document that specifies whether you would like to be kept on artificial life support if you become permanently unconscious or are otherwise dying and unable to speak for yourself. It also specifies other aspects of health care you would like under those circumstances.

Long-Term Care  Services and supports necessary to meet health or personal care needs over an extended period of time.

Long-Term Care Facility – (also called Long Nursing Home or Convalescent Care Facility) Licensed facility that provides general nursing care to those who are chronically ill or unable to take care of daily living needs.

Long-Term Care Insurance – Insurance policy designed to offer financial support to pay for long-term care services.

Long-Term Care Services Services that include medical and non-medical care for people with a chronic illness or disability. Long-term care helps meet health or personal needs. Most long-term care services assists people with Activities of Daily Living, such as dressing, bathing, and using the bathroom. Long-term care can be provided at home, in the community, or in a facility. For purposes of Medicaid eligibility and payment, long-term care services are those provided to an individual who requires a level of care equivalent to that received in a nursing facility.

Look Back Period – Five-year period prior to a person’s application for Medicaid payment of long-term care services. The Medicaid agency determines if any transfers of assets have taken place during that period that would disqualify the applicant from receiving Medicaid benefits for a period of time called the penalty period.

Loss Ratio – The ratio of incurred losses and loss-adjustment expenses to net premiums earned. This ratio measures the company’s underlying profitability, or loss experience, on its total book of business.

Medicaid – Joint federal and state public assistance program for financing health care for low-income people. It pays for health care services for those with low incomes or very high medical bills relative to income and assets. It is the largest public payer of long-term care services.

Medical Loss Ratio – Total health benefits divided by total premium.

Medical Power of Attorney – Legal document that allows you to name someone to make health care decisions for you if, for any reason and at any time, you become unable to make or communicate those decisions for yourself.

Medicare – Federal program that provides hospital and medical expense benefits for people over age 65, or those meeting specific disability standards. Benefits for nursing home and home health services are limited.

Medicare Supplement Insurance – (also called Medigap coverage) Private insurance policy that covers gaps in Medicare coverage.

Medigap Insurance – (also called Medicare Supplement Insurance) Private insurance policy that covers gaps in Medicare coverage.

Member Month – Total number of health plan participants who are members for each month.

Morbidity –  Refers to the incidence of illness within a population.

Mortality – Refers to the incidence of death within a population. 

Mutual Insurance Companies – Companies with no capital stock, and owned by policyholders. The earnings of the company–over and above the payments of the losses, operating expenses and reserves–are the property of the policyholders. 

National Association of Insurance Commissioners (NAIC) – Association of state insurance commissioners whose purpose is to promote uniformity of insurance regulation, monitor insurance solvency and develop model laws for passage by state legislatures.

Net Income – The total after-tax earnings generated from operations and realized capital gains as reported in the company’s NAIC annual statement on page 4, line 16.

Net Investment Income – This item represents investment income earned during the year less investment expenses and depreciation on real estate. Investment expenses are the expenses related to generating investment income and capital gains but exclude income taxes.

Net Leverage – The sum of a company’s net premium written to policyholder surplus and net liabilities to policyholder surplus. This ratio measures the combination of a company’s net exposure to pricing errors in its current book of business and errors of estimation in its net liabilities after reinsurance, in relation to policyholder surplus.

Net Liabilities to Policyholder Surplus – Net liabilities expressed as a ratio to policyholder surplus. Net liabilities equal total liabilities less conditional reserves, plus encumbrances on real estate, less the smaller of receivables from or payable to affiliates. This ratio measures company’s exposures to errors of estimation in its loss reserves and all other liabilities. Loss-reserve leverage is generally the key component of net liability leverage. The higher the loss-reserve leverage the more critical a company’s solvency depends upon maintaining reserve adequacy.

Net Premium – The amount of premium minus the agent’s commission. Also, the premium necessary to cover only anticipated losses, before loading to cover other expenses.

Net Premiums Earned – The adjustment of net premiums written for the increase or decrease of the company’s liability for unearned premiums during the year. When an insurance company’s business increases from year to year, the earned premiums will usually be less than the written premiums. With the increased volume, the premiums are considered fully paid at the inception of the policy so that, at the end of a calendar period, the company must set up premiums representing the unexpired terms of the policies. On a decreasing volume, the reverse is true.

Net Premiums Written – Represents gross premium written, direct and reinsurance assumed, less reinsurance ceded.

Net Underwriting Income – Net premiums earned less incurred losses, loss-adjustment expenses, underwriting expenses incurred, and dividends to policyholders.

Non-cancellable – Contract terms, including costs that can never be changed.

Nonforfeiture – A clause in an insurance policy that allows for the insured to receive all or a portion of the benefits or a partial refund on the premiums paid.

Non-Qualified – An investment that is funded with after-tax premiums/funds.

Nursing Home  (also called Long-Term Care Facility or Convalescent Care Facility) Licensed facility that provides general nursing care to those who are chronically ill or unable to take care of daily living needs.

Occurrence – An event that results in an insured loss. In some lines of business, such as liability, an occurrence is distinguished from accident in that the loss doesn’t have to be sudden and fortuitous and can result from continuous or repeated exposure which results in bodily injury or property damage neither expected not intended by the insured.

Operating Cash Flow – Measures the funds generated from insurance operations, which includes the change in cash and invested assets attributed to underwriting activities, net investment income and federal income taxes. This measure excludes stockholder dividends, capital contributions, unrealized capital gains/losses and various noninsurance related transactions with affiliates. This test measures a company’s ability to meet current obligations through the internal generation of funds from insurance operations. Negative balances might indicate unprofitable underwriting results or low yielding assets.

Operating Ratio (IRIS) – Combined ratio less the net investment income ratio (net investment income to net premiums earned). The operating ratio measures a company’s overall operational profitability from underwriting and investment activities. This ratio doesn’t reflect other operating income/expenses, capital gains or income taxes. An operating ratio of more than 100 indicates a company is unable to generate profits from its underwriting and investment activities.

Other Income/Expenses – This item represents miscellaneous sources of operating income or expenses that principally relate to premium finance income or charges for un-collectible premium and reinsurance business.

Out-of-Pocket Limit – A predetermined amount of money that an individual must pay before insurance will pay 100% for an individual’s health-care expenses.

Overall Liquidity Ratio – Total admitted assets divided by total liabilities less conditional reserves. This ratio indicates a company’s ability to cover net liabilities with total assets. This ratio doesn’t address the quality and marketability of premium balances, affiliated investments and other uninvested assets.

Own Occupation – Insurance contract provision that allows policyholders to collect benefits if they can no longer work in their own occupation.

Paid-Up Additional Insurance – An option that allows the policyholder to use policy dividends and/or additional premiums to buy additional insurance on the same plan as the basic policy and at a face amount determined by the insured’s attained age.

Participation Rate – In equity-indexed annuities, a participation rate determines how much of the gain in the index will be credited to the annuity. For example, the insurance company may set the participation rate at 80%, which means the annuity would only be credited with 80% of the gain experienced by the index.

Partnership Long Term Care Insurance Policy Private long-term care insurance policy that allows you to keep some or all of your assets if you apply for Medicaid after using up your policy’s benefits. Under a Partnership policy, the amount of Medicaid spend-down protection you receive is generally equal to the amount of benefits you received under your private Partnership policy (State-specific program designs vary). The plan must also include, but not limited to, inflation protection and non-forfeiture benefits in order to qualify.

Pension Protection Act – Signed into law on August 17th, 2006, Section 844 of the act allows for certain annuities to be treated as tax-qualified Long-Term Care insurance, if:

  1. The Annuity is funded with after-tax premium sources.
  2. It meets the guidelines set forth in the Health Insurance Portability and Accountability Act of 1996 (HIPAA)

Peril – The cause of a possible loss.

Personal Care – (also called custodial care) Non-skilled service or care, such as help with bathing, dressing, eating, getting in and out of bed or chair, moving around, and using the bathroom.

Personal Injury Protection – Pays basic expenses for an insured and his or her family in states with no-fault auto insurance. No-fault laws generally require drivers to carry both liability insurance and personal injury protection coverage to pay for basic needs of the insured, such as medical expenses, in the event of an accident.

Point-of-Service Plan – Health insurance policy that allows the employee to choose between in-network and out-of-network care each time medical treatment is needed.

Policy – The written contract effecting insurance, or the certificate thereof, by whatever name called, and including all clause, riders, endorsements, and papers attached thereto and made a part thereof.

Policyholder Dividend Ratio – The ratio of dividends to policyholders related to net premiums earned.

Policyholder Surplus – The sum of paid in capital, paid in and contributed surplus, and net earned surplus, including voluntary contingency reserves. It also is the difference between total admitted assets and total liabilities.

Policy or Sales Illustration – Material used by an agent and insurer to show how a policy may perform under a variety of conditions and over a number of years.

Pre-Existing Condition – A coverage limitation included in many health policies which states that certain physical or mental conditions, either previously diagnosed or which would normally be expected to require treatment prior to issue, will not be covered under the new policy for a specified period of time.

Preferred Provider Organization – Network of medical providers who charge on a fee-for-service basis, but are paid on a negotiated, discounted fee schedule.

Premium – The price of insurance protection for a specified risk for a specified period of time.

Premium Balances – Premiums and agents’ balances in course of collection; premiums, agents’ balances and installments booked but deferred and not yet due; bills receivable, taken for premiums and accrued retrospective premiums.

Premium Earned – The amount of the premium that has been paid for in advance that has been “earned” by virtue of the fact that time has passed without claim. A three-year policy that has been paid in advance and is one year old would have only partly earned the premium.

Premium to Surplus Ratio – This ratio is designed to measure the ability of the insurer to absorb above-average losses and the insurer’s financial strength. The ratio is computed by dividing net premiums written by surplus. An insurance company’s surplus is the amount by which assets exceed liabilities. The ratio is computed by dividing net premiums written by surplus. For example, a company with $2 in net premiums written for every $1 of surplus has a 2-to-1 premium to surplus ratio. The lower the ratio, the greater the company’s financial strength. State regulators have established a premium-to-surplus ratio of no higher than 3-to-1 as a guideline.

Premium Unearned – That part of the premium applicable to the unexpired part of the policy period.

Pretax Operating Income – Pretax operating earnings before any capital gains generated from underwriting, investment and other miscellaneous operating sources.

Pretax Return on Revenue – A measure of a company’s operating profitability and is calculated by dividing pretax operating earnings by net premiums earned.

Profit – A measure of the competence and ability of management to provide viable insurance products at competitive prices and maintain a financially strong company for both policyholders and stockholders.

Qualified High-Deductible Health Plan – A health plan with lower premiums that covers health-care expenses only after the insured has paid each year a large amount out of pocket or from another source. To qualify as a health plan coupled with a Health Savings Account, the Internal Revenue Code requires the deductible to be at least $1,000 for an individual and $2,000 for a family. High-deductible plans are also known as catastrophic plans.

Qualified Versus Non-Qualified Policies – Qualified plans are those employee benefit plans that meet Internal Revenue Service requirements as stated in IRS Code Section 401a. When a plan is approved, contributions made by the employer are tax deductible expenses and contributions made by the employee are usually made “pre-tax.” 401k, 403b and IRAs are examples of qualified plans.

Qualifying Event – An occurrence that triggers an insured’s protection.

Re-Entry – Re-entry, which is the allowance for level-premium term policy owners to qualify for another level-premium period, generally with new evidence of insurability.

Reinsurance – In effect, insurance that an insurance company buys for its own protection. The risk of loss is spread so a disproportionately large loss under a single policy doesn’t fall on one company. Reinsurance enables an insurance company to expand its capacity; stabilize its underwriting results; finance its expanding volume; secure catastrophe protection against shock losses; withdraw from a line of business or a geographical area within a specified time period.

Renewal – The automatic re-establishment of in-force status effected by the payment of another premium.

Replacement Cost – The dollar amount needed to replace damaged personal property or dwelling property without deducting for depreciation but limited by the maximum dollar amount shown on the declarations page of the policy.

Reserve – An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders. A reserve is usually treated as a liability.

Residual Benefit – In disability insurance, a benefit paid when you suffer a loss of income due to a covered disability or if loss of income persists. This benefit is based on a formula specified in your policy and it is generally a percentage of the full benefit. It may be paid up to the maximum benefit period.

Respite Care  Temporary care which is intended to provide time off for those who care for someone on a regular basis. Respite care is typically 14 to 21 days of care per year and can be provided in a nursing home, adult day service center, or at home by a private party

Return on Policyholder Surplus (Return on Equity) – The sum of after-tax net income and unrealized capital gains, to the mean of prior and current year-end policyholder surplus, expressed as a percent. This ratio measures a company’s overall after-tax profitability from underwriting and investment activity.

Risk Class – Risk class, in insurance underwriting, is a grouping of insureds with a similar level of risk. Typical underwriting classifications are preferred, standard and substandard, smoking and nonsmoking, male and female.

Risk Management – Management of the pure risks to which a company might be subject. It involves analyzing all exposures to the possibility of loss and determining how to handle these exposures through practices such as avoiding the risk, retaining the risk, reducing the risk, or transferring the risk, usually by insurance.

Section 1035 Exchange – This refers to a part of the Internal Revenue Code that allows owners to replace a life insurance or annuity policy without creating a taxable event.

Section 7702 – Part of the Internal Revenue Code that defines the conditions a life policy must satisfy to qualify as a life insurance contract, which has tax advantages.

Separate Account – A separate account is an investment option that is maintained separately from an insurer’s general account. Investment risk associated with separate-account investments is born by the contract owner.

Skilled Care  Nursing care such as help with medications and caring for wounds, and therapies such as occupational, speech, respiratory, and physical therapy. Skilled care usually requires the services of a licensed professional such as a nurse, doctor, or therapist.

Solvency – Having sufficient assets–capital, surplus, reserves–and being able to satisfy financial requirements–investments, annual reports, examinations–to be eligible to transact insurance business and meet liabilities.

Spend Down – Requirement that an individual spend most of his or her income and assets to pay for care before he or she can satisfy Medicaid’s financial eligibility criteria.

Standard Auto – Auto insurance for average drivers with relatively few accidents during lifetime.

State of Domicile – The state in which the company is incorporated or chartered. The company also is licensed (admitted) under the state’s insurance statutes for those lines of business for which it qualifies.

Statutory Reserve – A reserve, either specific or general, required by law.

Stock Insurance Company – An incorporated insurer with capital contributed by stockholders, to whom earnings are distributed as dividends on their shares.

Stop Loss – Any provision in a policy designed to cut off an insurer’s losses at a given point.

Sub-account Charge – The fee to manage a sub-account, which is an investment option in variable products that is separate from the general account.

Subrogation – The right of an insurer who has taken over another’s loss also to take over the other person’s right to pursue remedies against a third party.

Successive Periods – In hospital income protection, when confinements in a hospital are due to the same or related causes and are separated by less than a contractually stipulated period of time, they are considered part of the same period of confinement.

Supervisory Care – Long-term care service for people with memory or orientation problems. Supervision ensures that people don’t harm themselves or others because their memory, reasoning, and orientation to person, place, or time are impaired.

Supplemental Security Income (SSI) – Program administered by the Social Security Administration that provides financial assistance to needy persons who are disabled or aged 65 or older. Many states provide Medicaid without further application to persons who are eligible for SSI.

Surplus – The amount by which assets exceed liabilities.

Surrender Charge – Fee charged to a policyholder when a life insurance policy or annuity is surrendered for its cash value. This fee reflects expenses the insurance company incurs by placing the policy on its books, and subsequent administrative expenses.

Surrender Period – A set amount of time during which you have to keep the majority of your money in an annuity contract. Most surrender periods last from five to 10 years. Most contracts will allow you to take out at least 10% a year of the accumulated value of the account, even during the surrender period. If you take out more than that 10%, you will have to pay a surrender charge on the amount that you have withdrawn above that 10%.

Term Life Insurance – Life insurance that provides protection for a specified period of time. Common policy periods are one year, five years, 10 years or until the insured reaches age 65 or 70. The policy doesn’t build up any of the non-forfeiture values associated with whole life policies.

Toileting – The act of helping someone to perform the actions of urinating or emptying their bowels. Toileting is one of the six ADLs.

Total Admitted Assets – This item is the sum of all admitted assets, and are valued in accordance with state laws and regulations, as reported by the company in its financial statements filed with state insurance regulatory authorities. This item is reported net as to encumbrances on real estate (the amount of any encumbrances on real estate is deducted from the value of the real estate) and net as to amounts recoverable from reinsurers (which are deducted from the corresponding liabilities for unpaid losses and unearned premiums).

Transfer of Assets – Giving away property for less than it is worth or for the sole purpose of becoming eligible for Medicaid. Transferring assets during the look back period results in disqualification for Medicaid payment of long-term care services for a penalty period.

Transferring  Moving into and out of a bed, chair, or wheelchair. Transferring is one of the six ADLs.

Underwriter – The individual trained in evaluating risks and determining rates and coverages for them. Also, an insurer.

Underwriting – The process of selecting risks for insurance and classifying them according to their degrees of insurability so that the appropriate rates may be assigned. The process also includes rejection of those risks that do not qualify.

Underwriting Expenses Incurred – Expenses, including net commissions, salaries and advertising costs, which are attributable to the production of net premiums written.

Underwriting Expense Ratio – This represents the percentage of a company’s net premiums written that went toward underwriting expenses, such as commissions to agents and brokers, state and municipal taxes, salaries, employee benefits and other operating costs. The ratio is computed by dividing underwriting expenses by net premiums written. The ratio is computed by dividing underwriting expenses by net premiums written. A company with an underwriting expense ratio of 31.3% is spending more than 31 cents of every dollar of net premiums written to pay underwriting costs. It should be noted that different lines of business have intrinsically differing expense ratios. For example, boiler and machinery insurance, which requires a corps of skilled inspectors, is a high expense ratio line. On the other hand, expense ratios are usually low on group health insurance.

Underwriting Guide – Details the underwriting practices of an insurance company and provides specific guidance as to how underwriters should analyze all of the various types of applicants they might encounter. Also called an underwriting manual, underwriting guidelines, or manual of underwriting policy.

Unearned Premiums – That part of the premium applicable to the unexpired part of the policy period.

Universal Life Insurance – A combination flexible premium, adjustable life insurance policy.

Usual, Customary and Reasonable Fees – An amount customarily charged for or covered for similar services and supplies which are medically necessary, recommended by a doctor or required for treatment.

Utilization – How much a covered group uses a particular health plan or program.

Valuation – A calculation of the policy reserve in life insurance. Also, a mathematical analysis of the financial condition of a pension plan.

Valuation Reserve – A reserve against the contingency that the valuation of assets, particularly investments, might be higher than what can be actually realized or that a liability may turn out to be greater than the valuation placed on it.

Variable Annuitization – The act of converting a variable annuity from the accumulation phase to the payout phase.

Variable Life Insurance – A form of life insurance whose face value fluctuates depending upon the value of the dollar, securities or other equity products supporting the policy at the time payment is due.

Variable Universal Life Insurance – A combination of the features of variable life insurance and universal life insurance under the same contract. Benefits are variable based on the value of underlying equity investments, and premiums and benefits are adjustable at the option of the policyholder.

Viatical Settlement Provider – Someone who serves as a sales agent, but does not actually purchase policies.

Viator – The terminally ill person who sells his or her life insurance policy.

Voluntary Reserve – An allocation of surplus not required by law. Insurers often accumulate such reserves to strengthen their financial structure.

Waiting Period – See “elimination period.”

Waiver of Premium – A provision in some insurance contracts which enables an insurance company to waive the collection of premiums while keeping the policy in force if the policyholder becomes unable to work because of an accident or injury. The waiver of premium for disability remains in effect as long as the ensured is disabled.

Whole Life Insurance – Life insurance which might be kept in force for a person’s whole life and which pays a benefit upon the person’s death, whenever that might be.

 

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