Glossary of Insurance Terms

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Glossary of Insurance Terms


Accident An unexpected, unforeseen event not under the control of an insured and resulting in a loss.

Accident Frequency The number of times an accident occurs. Used in predicting losses upon which premiums are based.

Act of God Natural occurrence beyond human control or influence. Such acts of nature include hurricanes, earthquakes, and floods.

Actual Cash Value An amount equivalent to the replacement cost of a stolen or damaged property at the time of the loss, less depreciation. For vehicles, this amount would be determined by a local area private party sales and dealer quotations. Kelly Blue Book would only be used as a guide and not the final word.

Actuary A professional trained in the mathematics of insurance and risk management.

Adjuster A person employed by a property/casualty insurer to evaluate losses and settle claims.

Admitted Company An insurance company authorized to do business in this state.

Alien Insurance Company An insurance company incorporated under the laws of a foreign country

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Benefit Period In long term care policies, how long the benefits will last, usually stated in terms of a maximum number of days, years, or visits.

Binder A temporary or preliminary agreement which provides coverage until a policy can be written or delivered.

Blue Book A publication used for the determination of values for used automobiles and trucks.

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Cancellation The termination of insurance coverage during the policy period. Flat cancellation is the cancellation of a policy as of its effective date, without any premium charge.

Catastrophic Coverage A health insurance policy with a high deductible

Certificate of Creditable Coverage The document that gives you evidence of protection under Maine's continuity law. It must be provided to you when you leave your health insurance carrier.

Claim A formal request for payment of a loss under an insurance contract.

Claimant The first or third party. That is any person who asserts right of recovery.

Clause A section or paragraph in an insurance policy that explains, defines or clarifies the conditions of coverage.

COBRA The "Consolidated Omnibus Budget Reconciliation Act" is a federal law that applies to employers that have a health plan and have 20 or more employees. COBRA requires employers to permit persons who lose their eligibility for the plan to stay covered under the plan at their own expense for a temporary period (typically up to 18 months).

Coinsurance In property insurance, a coinsurance clause requires the policyholder to carry insurance equal to a specified percentage of the value of the property in order to receive full payment of a loss. In health insurance, coinsurance is a percentage of each claim, above the deductible, that is paid by the policyholder.

Collision Insurance Insurance coverage which pays for damage to the policyholder's car caused by collision.

Comprehensive Insurance Coverage in automobile insurance providing protection in the event of physical damage (other than collision) or theft of the insured car.

Continuity In health insurance, the Maine law that protect consumers who have pre-existing conditions when changing insurance companies. As long as a person does not go without coverage for more than 63 (or in some cases 90) days, the new insurance company cannot exclude a health condition that was covered under the old policy. This is also known as "portability".

Copay The payment required at the time of health care services in addition to the insurance premium paid (e.g., for a doctor's visit or for a prescription drug).

Creditable Coverage A health insurance, prescription drug, or other health benefit plan that meets a minimum set of qualifications. Types of creditable coverage plans include group health plans, individual health plans, student health plans, as well as a variety of government-sponsored or government-provided plans.

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Declaration Page That page of the insurance policy which lists the insurance company, its address, name of the policyholder, starting and ending dates of coverage, and the actual coverages given in the contract, including the covered locations and amounts.

Decline The company refuses to accept the request for insurance coverage.

Deductible The amount which you are responsible to pay before benefits from the insurance company are payable. You may choose a higher deductible to lower your premium.

Defense Clause A provision in a casualty insurance policy that provides additional coverage for expenses of judicial assistance.

Depreciation A decrease in value due to age, wear and tear, etc.

Domestic Insurance Company An insurer domiciled in this state.

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Earned Premium That part of the premium applicable to the expired part of the policy period, including the short-rate charge on cancellation.

Effective Date The date on which an insurance policy coverage starts.

Eligible Employee An employee who works full-time, with a normal work week of 30 hours or more. An employer can choose to treat part-time employees who work at least 10 hours per week as eligible employees as long as at least one employee works 30 hours or more per week.

Elimination Period In long term care policies, the number of days of care that an enrollee receives and must pay out-of-pocket before the insurance company begins to pay.

Endorsement Amendment to the policy used to add or delete coverage. Also referred to as a "rider."

EOB (Explanation of Benefits) The document sent by the health insurance plan briefly detailing health services obtained and their reimbursements.

Exclusion Certain causes and conditions, listed in the policy, which are not covered.

Experience The record of claims made or paid within a specified time period.

Experience Rating Determination of the premium rate for an individual risk, made partially or wholly on the basis of that risk's own past claim experience.

Expiration Date The date on which the policy ends.

External Review In health insurance, a consumer can request that an independent reviewing panel look at their case when an insurance company or HMO denies benefits for health care services based on issues of medical diagnosis, care or treatment, medical necessity, preexisting conditions, or services that the health insurance carrier considers to be experimental or investigational. A consumer must first exhaust the health insurance carrier's first and second level appeal and grievance process or meet the criteria for an expedited review.

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Fire Insurance Coverage for loss of or damage to a building and/or contents due to fire.

Flat Cancellation Cancellation of an insurance policy as of the date of its start with no premium charge.

Foreign Insurance Company An insurer domiciled in another state.

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Guarantee Funds All 50 states, the District of Columbia and Puerto Rico require licensed insurers to assume some of an insolvent insurance company's policyholder liabilities. These funds (life & health and property & casualty) are the mechanism by which solvent insurers bail out the policyholders of companies that fail.

Guaranteed Issue The Maine law protecting consumers who change health insurance plans. If a consumer has been covered under a prior health plan, or a government program like MaineCare (Medicaid), he/she cannot be denied coverage under a new health plan.

Guaranteed Renewal Once a consumer is issued an individual health or long term care policy, the policy is renewable as long as premiums continue to be paid. If premiums are not paid, the insurer can terminate the policy.

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HMO (Health Maintenance Organization) People enrolled in this type of plan must choose a primary care physician (PCP) from a list of participating doctors. For any non-emergency hospital or specialty care, enrollees must get a referral from their primary care physicians.

Homeowner Insurance An elective combination of coverages for the risks of owning a home. Can include losses due to fire, burglary, vandalism, earthquake, and other perils.

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Individual Policy All Maine residents who are not eligible for Medicare can buy health insurance policies for themselves and/or their families, regardless of their employment or health status.

Insurance A system to protect persons against the risks of financial loss by transferring the risks to a large group who share the financial losses.

Insured The policyholder - the person(s) protected in case of a loss or claim.

Insured Plan or Fully-Insured Plan A plan in which an insurance company or HMO is responsible for paying covered health care costs for enrollees. The insurance contract is regulated by the Maine Bureau of Insurance.

Insurer The company offering protection through the sale of an insurance policy to an insured.

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Liability Insurance Insurance for money the policyholder is legally obligated to pay because of bodily injury or property damage caused to another person and covered in the policy.

Limit Maximum amount a policy will pay either overall or under a particular coverage.

Limited Benefit Insurance / Specified Disease Insurance These policies cover fewer health conditions and don't have as many consumer protections as comprehensive health plans. Examples are policies that pay for services limited to treatment for cancer, specified critical illnesses, dentistry or eye care.

Loss of Use Insurance Insurance against loss due to the insured's inability to use property, such as a vehicle or a store; includes additional living expense, business interruption, rent insurance, rental reimbursement, and rental value.

LTC (Long Term Care Insurance) This insurance pays for chronic health conditions, such as physical incapacity or mental impairment, treated in a setting other than an acute care hospital. Every LTC policy delivered to a Maine resident must be guaranteed renewable for life (if premiums are paid). Premiums can increase, but increases are based on the insurer's claims experience for all Maine people who have the same policy, not on the claims you file.

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Mainecare MaineCare (formerly Medicaid and CubCare) is a "Federal/State" program which provides health and dental insurance assistance to people with limited resources. Eligibility for a variety of MaineCare funded programs is determined by the Office of Family Independence. You can contact them at 1-800-442-6003 or 207-624-4168.

Malpractice Insurance A professional liability coverage that insures physicians, lawyers and other specialists against suits alleging their negligence.

Marine Insurance Coverage for goods in transit, and for the vehicles that transport them, over waterways, over land and in air.

Material Misrepresentation The policyholder / applicant makes a false statement of any material (important) fact on his/her application. For instance, the policyholder provides false information regarding the location where the vehicle is garaged.

Medical Underwriting In individual long term care insurance, an insurance company can refuse an application for a policy if the consumer does not meet its guidelines.

Medicare Supplement This insurance covers some of the expenses not paid by Medicare. Medicare supplement products are standardized -- insurers may sell 10 standard plans plus one high deductible plan which are labeled: "A", "B", "C", "D", "F", "G", "K", "L", "M", and "N" plans.

Misquote An incorrect estimate of the insurance premium.

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Network The doctors, hospitals, special therapists, and other health care providers who have signed contracts to provide services to a health plan's members. Members who obtain services from providers outside the network will have to pay more out-of-pocket.

No Fault A system in which each driver's auto insurance coverage pays for injuries and damage, no matter who caused the accident (used in some states).

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PCP (Primary Care Physician) Primary care provider: HMOs and other health insurance carriers often require each enrollee to choose a PCP.

Peril The cause of a possible loss. For example, fire, theft, or hail.

Physical Damage Insurance Property damage coverage for a vehicle under the "collision insurance" and "comprehensive insurance" sections of the policy.

PIP (Personal Injury Protection) Coverage present in no-fault states which pays medical, loss of income, death and/or disability, and loss of services incurred as a result of an automobile accident. This coverage is not part of auto insurance policies issued in Maine.

Policy The written contract of insurance.

Policy Limit The maximum amount a policy will pay, either overall or under a particular coverage.

POS (Point-of-service plan) A type of managed care plan in which enrollees have more flexibility in choosing health care providers than typical HMO enrollees, but not quite as much flexibility as PPO enrollees.

PPO (Preferred Provider Organization) The health insurer contracts with a network of medical providers who agree to accept lower fees and/or to control utilization. The enrollee receives a higher lever of benefits if they go to a preferred provider than if they go to a non-preferred provider.

Pre-Existing Condition A health condition a person may have within the 6 months before the effective date of coverage. For long term care insurance, a policy may not exclude coverage for a loss or confinement from a pre-existing condition unless the loss or confinement begins within 6 months following the effective date of coverage. Major medical health insurance  must cover pre-existing conditions. (Note: This is not the case for hospital indemnity policies, which can exclude people for pre-existing conditions.)

Premium The amount of money an insurance company charges for insurance coverage.

Premium Financing When a policyholder contracts with a lender to pay the insurance premium on his/her behalf. The policyholder agrees to repay the lender for the cost of the premium, plus interest and fees.

Prior Authorization is the process of obtaining authorization from the insurer prior to the member receiving services. The purpose of the prior authorization function is for the insurer to determine member eligibility, benefit coverage, medical necessity,  and appropriateness of services.

Property Damage Liability Insurance Coverage in the event that the negligent acts or omissions of an insured result in damage or destruction to another's property.

Pro-Rata Cancellation When the policy is terminated midterm by the insurance company, the earned premium is calculated only for the period coverage was provided. For example: an annual policy with premium of $1,000 is cancelled after 40 days of coverage at the company's election. The earned premium would be calculated as follows: 40/365 days X $1,000=.110 X $1,000=$110.

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Quote An estimate of the cost of insurance, based on information supplied to the insurance company by the applicant.

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Rebate A reduction of a premium.

Red Book A publication used for the determination of values for used automobiles and trucks.

Referral In managed care, a health plan member must first contact his/her PCP to obtain medical services unless it's an emergency. Together, the member and PCP decide if the member needs to see a specialist or obtain special services. This is also be referred to as "preauthorization".

Reinstatement The restoring of a cancelled policy to full force and effect. The reinstatement may be effective after the cancellation date, creating a lapse of coverage. Some companies require evidence of insurability and payment of past due premiums plus interest.

Reinsurance A form of insurance that insurance companies buy for their own protection.

Replacement Cost The cost to repair or replace an insured item. Some insurance only pays the actual cash or market value of the item at the time of the loss, not what it would cost to fix or replace it. If you have personal property replacement cost coverage, your insurance will pay the full cost to repair an item or buy a new one once the repairs or purchases have been made.

Replacement Value The full cost to repair or replace the damaged property with no deduction for depreciation, subject to policy limits and contract provisions.

Risk A term used to designate an insured or a peril insured against.

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Self-Insured (or Self-Funded) Plan A plan in which the employer itself is responsible for paying covered health care costs for participating employees and family members. Claims may be administered by an insurance company, but there is no insurance policy involved. Under federal law called ERISA (Employee Retirement Income Security Act), self-insured plans are exempt from state insurance laws.

Short Term Policy A health insurance policy that lasts no longer than 12 months. Consumer protections regarding pre-existing conditions do not apply to these policies.

Short-Rate Cancellation When the policy is terminated prior to the expiration date at the policyholder's request. Earned premium charged would be more than the pro-rata earned premium. Generally, the return premium would be approximately 90 percent of the pro-rata return premium. However, the company may also establish its own short-rate schedule.

Surcharge An extra charge applied by the insurer. For automobile insurance, a surcharge is usually for accidents or moving violations.

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Title Insurance Indemnifies the owner of real estate in the event clear ownership of property is challenged by discovery of faults in the title.

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Umbrella Liability Insurance A liability policy that covers in excess of primary limits of the basic liability policy.

Underwriting The process of selecting applicants for insurance and classifying them according to their degrees of insurability so that the appropriate premium rates may be charged. The process includes rejection of unacceptable risks.

Uninsured Motorist Coverage Endorsement to a personal automobile policy that covers an insured's claims for bodily injury involved in a collision with a driver who does not have liability insurance.

UR (Utilization Review) Utilization review: A program used in managed care plans to reduce unnecessary medical services. An individual or organization, on behalf of an insurer, reviews the necessity, use, appropriateness, efficacy or efficiency of health care services, procedures, providers, or facilities.

Usual And Customary Charges In health insurance, usual and customary -- also called reasonable and customary -- means the fee charged by most of the providers in a given geographical area for a particular service. Insurance companies may subscribe to an independent service which periodically surveys providers in a given area, or they may use their own claims experience to establish these allowances. Most companies pay claims based on a percentage of the usual and customary fee schedule.

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Workers Compensation Insurance Pays for medical care and physical rehabilitation of injured workers and replaces their lost wages while they're unable to work.

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