Insurance Glossary
Plain-English definitions for every insurance term you'll encounter - from deductibles to Medigap, DIME to IUL.
Accelerated Death Benefit
A life insurance rider that allows the policyholder to receive a portion of the death benefit while still alive if diagnosed with a terminal illness. Also called a living benefit rider.
Accident Insurance
Supplemental insurance that pays a lump-sum cash benefit when you suffer a covered accidental injury such as a broken bone, burn, or emergency room visit. Pays regardless of other insurance.
Actuarial Table
A statistical table used by insurance companies to calculate premiums and reserves based on life expectancy, mortality rates, and other risk factors for a given population.
Attained-Age Rating
A Medicare Supplement pricing method where premiums increase as you age. Most common rating method. Premiums start lower but increase annually, often making them the most expensive long-term.
Beneficiary
The person or entity designated to receive the proceeds of a life insurance policy upon the death of the insured. Can be a person, trust, charity, or estate. Primary and contingent beneficiaries can be named.
Benefit Period
In Medicare, a benefit period begins the day you're admitted to a hospital or skilled nursing facility and ends when you haven't received inpatient care for 60 consecutive days. There's no limit to the number of benefit periods.
COBRA
Consolidated Omnibus Budget Reconciliation Act. A federal law that allows employees and their families to continue group health insurance coverage for a limited time after leaving a job, at their own expense (up to 102% of the premium).
Cash Value
The savings component of permanent life insurance (whole life, universal life) that accumulates over time on a tax-deferred basis. Policyholders can borrow against or withdraw from cash value during their lifetime.
Cancer Insurance
Supplemental insurance that pays a lump sum or per-treatment benefit upon diagnosis of cancer. Helps cover out-of-pocket costs not covered by primary health insurance, including experimental treatments, travel, and lost income.
Coinsurance
The percentage of covered medical costs you pay after meeting your deductible. For example, if your plan has 20% coinsurance, you pay 20% of covered costs and your insurer pays 80%, until you reach your out-of-pocket maximum.
Copayment (Copay)
A fixed dollar amount you pay for a covered health care service, usually at the time of service. For example, $25 for a primary care visit or $50 for a specialist. Copays typically don't count toward your deductible.
Critical Illness Insurance
Supplemental insurance that pays a lump-sum cash benefit upon diagnosis of a covered serious illness such as heart attack, stroke, cancer, or organ failure. The cash can be used for any purpose.
Deductible
The amount you pay for covered health care services before your insurance plan starts to pay. For example, with a $1,500 deductible, you pay the first $1,500 of covered services yourself each year.
DIME Method
A life insurance needs calculation method that adds up Debt, Income replacement, Mortgage payoff, and Education costs to determine how much life insurance coverage you need.
Disability Insurance
Insurance that replaces a portion of your income (typically 60-70%) if you become unable to work due to illness or injury. Short-term disability covers weeks to months; long-term disability can cover years or until retirement.
Dividend
A portion of an insurance company's surplus returned to policyholders of participating policies. Dividends are not guaranteed but have been paid consistently by mutual companies like Northwestern Mutual and MassMutual for over 100 years.
Elimination Period
The waiting period between when a disability begins and when disability insurance benefits start. Common elimination periods are 30, 60, 90, or 180 days. A longer elimination period means lower premiums.
Enrollment Period
A specific time window during which you can sign up for or change health or Medicare coverage. Missing an enrollment period can result in late enrollment penalties or gaps in coverage.
Evidence of Insurability (EOI)
Documentation required by an insurer to prove you are in good health and qualify for coverage. May include a medical questionnaire, physical exam, or medical records. Required for most individual life and health policies.
Exclusion
A specific condition, circumstance, or type of loss that is not covered by an insurance policy. Common exclusions include pre-existing conditions (in some policies), self-inflicted injuries, and acts of war.
Final Expense Insurance
A type of whole life insurance with a small death benefit (typically $5,000-$25,000) designed to cover funeral costs, burial expenses, and other end-of-life costs. Often available without a medical exam.
Free Look Period
A period (typically 10-30 days) after receiving a new insurance policy during which you can cancel for a full refund of premiums paid. Required by law in most states.
Grace Period
A period (typically 30-31 days) after a premium due date during which you can pay without losing coverage. If you die during the grace period, the insurer may deduct the unpaid premium from the death benefit.
Guaranteed Issue
An insurance policy that is issued without medical underwriting - no health questions, no exam, no possibility of being denied for health reasons. Premiums are typically higher and benefits may be limited for the first 2-3 years.
Guaranteed Renewable
A policy provision that guarantees the insurer cannot cancel your policy as long as you pay premiums, but allows the insurer to raise rates for an entire class of policyholders (not just you individually).
Health Maintenance Organization (HMO)
A type of health insurance plan that requires you to use a network of doctors and hospitals and get referrals from a primary care physician to see specialists. Generally lower premiums but less flexibility than PPO plans.
High-Deductible Health Plan (HDHP)
A health plan with a higher deductible than traditional plans. For 2025, the minimum deductible is $1,650 for individuals. HDHPs are eligible to be paired with a Health Savings Account (HSA).
Hospital Indemnity Insurance
Supplemental insurance that pays a fixed daily, weekly, or per-admission benefit when you are hospitalized. Benefits are paid directly to you in cash, regardless of other insurance coverage.
Indexed Universal Life (IUL)
A type of universal life insurance where the cash value growth is tied to a stock market index (like the S&P 500), with a floor (typically 0%) to protect against market losses and a cap on maximum gains.
Initial Enrollment Period (IEP)
The 7-month window around your 65th birthday (3 months before, the month of, and 3 months after) during which you can first enroll in Medicare Part A and Part B without penalty.
Insurable Interest
A legal requirement that the policyholder must have a financial stake in the continued life or health of the insured person. You have insurable interest in yourself, your spouse, children, and business partners.
Irrevocable Beneficiary
A beneficiary designation that cannot be changed without the beneficiary's consent. Provides the beneficiary with a guaranteed interest in the policy. Contrast with revocable beneficiary, which can be changed at any time.
Issue-Age Rating
A Medicare Supplement pricing method where premiums are based on your age when you first buy the policy and don't increase as you age (though they may increase due to inflation). Often the most cost-effective long-term.
Lapse
The termination of an insurance policy due to non-payment of premiums. A lapsed policy provides no coverage. Most policies have a grace period before lapsing, and some have reinstatement provisions.
Life Insurance
A contract between an insured person and an insurance company where the insurer pays a death benefit to beneficiaries upon the insured's death in exchange for premium payments during the insured's lifetime.
Long-Term Care Insurance
Insurance that covers the cost of long-term care services, including nursing home care, assisted living, and in-home care, when you can no longer perform basic activities of daily living due to illness, injury, or cognitive impairment.
Long-Term Disability Insurance
Disability insurance that replaces income for an extended period - typically 2 years, 5 years, or until age 65 - after the elimination period. Covers illnesses and injuries that prevent you from working long-term.
Medicare
A federal health insurance program primarily for people 65 and older, and for certain younger people with disabilities. Consists of Part A (hospital), Part B (medical), Part C (Medicare Advantage), and Part D (prescription drugs).
Medicare Advantage (Part C)
An alternative to Original Medicare offered by private insurance companies. Combines Part A and Part B coverage, usually includes Part D, and often offers extra benefits like dental and vision. Requires using a network of providers.
Medicare Part A
The hospital insurance component of Medicare. Covers inpatient hospital stays, skilled nursing facility care, hospice care, and some home health care. Most people don't pay a premium for Part A if they worked 40+ quarters.
Medicare Part B
The medical insurance component of Medicare. Covers outpatient care, doctor visits, preventive services, and medical equipment. The standard 2025 premium is $185.00/month, though higher earners pay more (IRMAA).
Medicare Part D
Medicare prescription drug coverage offered through private insurance companies. Helps cover the cost of prescription drugs. Coverage and costs vary by plan. Late enrollment penalties apply if you don't enroll when first eligible.
Medicare Supplement (Medigap)
Private health insurance that supplements Original Medicare by covering some or all of the out-of-pocket costs Medicare doesn't pay, such as deductibles, copayments, and coinsurance. Plans are standardized by letter (A, B, C, D, F, G, K, L, M, N).
Medigap Open Enrollment
A 6-month period starting when you turn 65 and enroll in Medicare Part B during which you have guaranteed issue rights for any Medigap policy sold in your state. After this window, you may be subject to medical underwriting.
Moral Hazard
The tendency for people to take more risks when they are insured against the consequences. Insurance companies manage moral hazard through deductibles, copayments, and policy exclusions that keep the insured financially invested in outcomes.
Mutual Insurance Company
An insurance company owned by its policyholders rather than shareholders. Profits are returned to policyholders as dividends. Examples include Northwestern Mutual, MassMutual, and New York Life.
Network
The group of doctors, hospitals, and other healthcare providers that have contracted with an insurance plan to provide services at negotiated rates. Using in-network providers typically results in lower out-of-pocket costs.
Non-Forfeiture Options
Options available to a whole life policyholder if they stop paying premiums. Options typically include extended term insurance, reduced paid-up insurance, or cash surrender value. Prevents total loss of policy value.
Open Enrollment Period
A period during which you can enroll in or change health insurance coverage without needing a qualifying life event. For Medicare, the Annual Enrollment Period (AEP) runs October 15 - December 7 each year.
Out-of-Pocket Maximum
The most you have to pay for covered services in a plan year. After you spend this amount on deductibles, copayments, and coinsurance, your health plan pays 100% of covered benefits. For 2025, the ACA limit is $9,450 for individuals.
Own-Occupation Disability
A disability insurance definition that pays benefits if you cannot perform the duties of your specific occupation, even if you could work in another field. The gold standard for professionals like doctors, lawyers, and dentists.
Paid-Up Policy
A life insurance policy on which no further premium payments are required. Can occur when a policy has accumulated enough cash value to sustain itself, or when a limited-pay policy has completed its premium payment period.
Participating Policy
A life insurance policy that is eligible to receive dividends from the insurance company's surplus. Typically issued by mutual insurance companies. Dividends are not guaranteed but have been paid consistently by major mutual companies.
Plan G
The most comprehensive Medicare Supplement plan available to new Medicare enrollees since 2020 (Plan F is no longer available to new enrollees). Covers all Medicare cost-sharing except the Part B deductible ($257 in 2025).
Plan N
A Medicare Supplement plan that covers most Medicare cost-sharing but requires copays of up to $20 for office visits and up to $50 for emergency room visits. Typically $30-$50/month less expensive than Plan G.
Policy Loan
A loan taken against the cash value of a permanent life insurance policy. Policy loans are not taxable and don't require repayment, but unpaid loans plus interest reduce the death benefit and can cause the policy to lapse.
Pre-Existing Condition
A health condition that existed before the start of a new insurance policy. The ACA prohibits health insurers from denying coverage or charging more based on pre-existing conditions. Medicare Supplement policies may use medical underwriting.
Preferred Provider Organization (PPO)
A type of health insurance plan that allows you to see any doctor or specialist without a referral, both in-network and out-of-network, though you'll pay less for in-network care. More flexible but typically more expensive than HMOs.
Qualifying Life Event (QLE)
A change in your situation that makes you eligible to enroll in or change health insurance outside of open enrollment. Examples include losing job-based coverage, getting married, having a baby, or moving to a new area.
Rider
An optional add-on to an insurance policy that provides additional benefits or modifies the base policy. Common riders include waiver of premium, accidental death benefit, long-term care, and accelerated death benefit riders.
Risk Classification
The process by which insurers categorize applicants based on their risk level to determine eligibility and premium rates. Classifications typically include preferred, standard, substandard, and declined.
Short-Term Disability Insurance
Disability insurance that replaces income for a short period - typically 3 to 6 months - after the elimination period (usually 7-14 days). Covers illnesses and injuries that temporarily prevent you from working.
Special Enrollment Period (SEP)
A time outside the regular enrollment period when you can sign up for or change Medicare or health insurance coverage due to a qualifying life event such as losing other coverage, moving, or changes in income.
Subrogation
The legal right of an insurer to pursue a third party that caused an insurance loss to the insured. For example, if another driver causes an accident and your insurer pays your claim, they can then sue the at-fault driver to recover costs.
Surrender Value
The amount a policyholder receives if they cancel a permanent life insurance policy before it matures or the insured dies. Equal to the cash value minus any surrender charges and outstanding loans.
Term Life Insurance
Life insurance that provides coverage for a specific period (term), such as 10, 20, or 30 years. If the insured dies during the term, the death benefit is paid. If the term expires, coverage ends with no cash value.
Underwriting
The process by which an insurance company evaluates the risk of insuring a person or entity and determines whether to offer coverage and at what premium. Involves reviewing medical history, lifestyle factors, and other risk indicators.
Universal Life Insurance
A type of permanent life insurance with flexible premiums and death benefits. Has a cash value component that earns interest. The policyholder can adjust premiums and death benefits within certain limits.
Variable Universal Life (VUL)
A type of universal life insurance where the cash value is invested in sub-accounts similar to mutual funds. Offers higher growth potential but also investment risk - cash value can decrease if investments perform poorly.
Viatical Settlement
The sale of a life insurance policy by a terminally ill policyholder to a third party for a lump sum less than the death benefit. The buyer pays the premiums and collects the death benefit when the insured dies.
Waiting Period
A period after purchasing insurance during which certain benefits are not available. Common in dental insurance (6-12 months for major procedures) and guaranteed issue life insurance (2-year graded benefit period).
Whole Life Insurance
Permanent life insurance that provides coverage for the insured's entire lifetime (as long as premiums are paid). Builds cash value over time, has fixed premiums, and pays a guaranteed death benefit.
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