Glossary of Insurance Terms

The insurance world is filled with a lot of language and wording that may not be familiar to everyone. To help you better understand important insurance terms that may be included in your coverage, David Rine Insurance offers this handy glossary as an informational resource.

 

Homeowners and Renters Insurance Terms & Definitions

HOMEOWNERS INSURANCE & RENTERS INSURANCE
The typical homeowners insurance policy covers the house, the garage and other structures on the property, as well as personal possessions inside the house such as furniture, appliances and clothing, against a wide variety of perils including windstorms, fire and theft. The extent of the perils covered depends on the type of policy. An all-risk policy offers the broadest coverage. This covers all perils except those specifically excluded in the policy.  Dwelling refers to the home itself.  This would include the foundation, walls, roof, wiring, plumbing, permanently installed fixtures or appliances, installed carpet, etc.

Homeowners insurance also covers additional living expenses, known as loss of use, this provision in the policy reimburses the policyholder for the extra cost of living elsewhere while the house is being restored after a disaster. The liability portion of the policy covers the homeowner for accidental injuries caused to third parties and/or their property, such as a guest slipping and falling down improperly maintained stairs. Coverage for flood and earthquake damage is excluded and must be purchased separately.

CONTENTS COVERAGE
Contents of your home are also covered. Included are your clothing, appliances, furniture, etc.  The amount of coverage varies from company to company but usually falls between 50% and 70% of the amount of coverage carried on the dwelling. This can be increased if you feel that you need additional coverage.

LOSS OF USE
In the event you could not live in your home, after an insured peril occurs. We will offer payment of temporary living quarters while you  are waiting for repair work to be completed.  You will also have additional expenses such as food and laundry paid for as well.

PERSONAL LIABILITY
Covers claims involving bodily injury or property damage for which you are legally responsible.  This normally excludes auto and business related claims. You would be covered up to the liability limit for each accident.

Examples would be:

  • Your dog bites the neighbor
  • You injure someone in a hunting accident
  • Your child breaks someone’s window with a ball
  • Someone is injured on your premises

MEDICAL PAYMENTS
Another included coverage is for medical payments to a non-policy holder.  Medical payments can be made to others (those not in your immediate family) up to the limit amount.  This will often prevent going to court to see who’s “fault” it was.  The amount paid will cover many minor accidents, regardless of who was responsible.

PERSONAL ARTICLES FLOATER
An addition to a policy used to cover personal valuables, like jewelry or furs, fine arts, collectibles.  There is an added cost and appraisals will be need for this coverage.

BACK-UP OF SEWERS OR DRAINS
Coverage is provided for direct physical loss to property caused by water or water-borne material which backs up through sewers or drains; or which enters into and overflows or is discharged from within a sump, sump pump or related equipment designed to remove subsurface water which is drained from the foundation area.  Refer to limits and or restrictions purchased on your insurance policy.

IDENTITY THEFT INSURANCE
Coverage for expenses incurred as the result of an identity theft. Can include costs for notarizing fraud affidavits and certified mail, lost income from time taken off from work to meet with law-enforcement personnel or credit agencies, fees for reapplying for loans and attorney’s fees to defend against lawsuits and remove criminal or civil judgments.

INSURANCE SCORE
Insurance scores are confidential rankings based on credit information. This includes whether the consumer has made timely payments on loans, the number of open credit card accounts and whether a bankruptcy filing has been made. An insurance score is a measure of how well consumers manage their financial affairs, not of their financial assets. It does not include information about income or race.

HOMEOWNERS INSURANCE “TERMS”

There are many terms associated with homeowners that you may not know or understand – here is a list of terms that are commonly associated with home owners insurance policies so that you can understand what you are getting with your insurance policy.

Act of God – This is an accident or event that is unpreventable and is the result of natural causes such as lightning or floods.

Actual Cash Value (ACV) – this is the replacement cost of your damaged or lost property at the time of the loss minus the depreciation.

Additional Living Expense (ALE) – Increases in your living expenses caused by the accident for which you are making an insurance claim in order to maintain a normal standard of living..

Application – the written statement given to the potential policy holder that provides the information that will determine the home owner insurance policy to be written.

Appraisal – A claims representative or appraiser’s estimate of the damage to your property or the value of your property and/or possessions.

Basic limits – the lowest possible coverage amount by law or by company.

Cancellation – ending the insurance policy

Catastrophe – A severe disaster that causes a major or total loss unexpectedly and suddenly.

Claim – demanding payment for a loss incurred under your insurance contract.

Conditions – the provisions listed in the insurance policy that includes the rights, duties and responsibilities of the insured and the insurer.

Damages – the payment that a party is legally required to pay to someone as compensation for an injury or loss.

Deductible – the amount of an insurance claim that the insured person agrees to pay. This amount is deducted from the claim payout.

Depreciation – the decrease in value of any property over a period of time.

Effective date – the date that your homeowner’s insurance policy begins.

Endorsement – An amendment to your standard homeowner’s insurance policy that covers unique items.

Exclusion – the perils, people, property or locations that are NOT covered with your homeowners insurance.

Fire insurance – part of your homeowners insurance policy that insures against losses due to fire, lightning and other causes defined in the contract.

Flood insurance – coverage for your possessions and property that are caused by rising and flooding of bodies of water. Flood insurance is separate from homeowners insurance.

Hazard – a condition that increases the likelihood or extent of a loss.

Insured – the person who is protected by the homeowner’s insurance policy.

Liability insurance – insurance for injuries to other people.

Loss – the reduction in the value of your property that is caused by a peril covered by your homeowners insurance.

Loss of use – payments/compensation for your losses because you have lost the use of your possessions or property.

Mobile home insurance – special home owners policy designed for mobile home owners.

Partial loss – loss that does not completely destroy the insured property that is covered by the policy.

Peril – the cause of the accident, claim or loss.

Premium – the amount to be paid for the insurance policy.

Total loss – a complete loss of goods or property that is insured.

RENTERS INSURANCE
A form of insurance that covers a policyholder’s belongings (contents) against perils such as fire, theft, windstorm, hail, explosion, vandalism, riots, and others. It also provides personal liability coverage for damage the policyholder or dependents cause to third parties. It also provides additional living expenses, known   as loss-of-use coverage, if a policyholder must move while his or her dwelling is repaired. It also can include coverage for property improvements. (REFER TO HOMEOWNERS FOR OTHER TERMS AND DEFINITIONS)

CONDOMINIUM INSURANCE
Buying Insurance is different for a condominium unit owner than for owners of a conventional home or a renter.  A condo policy is for the customer who owns and occupies a dwelling unit in a structure owned and insured by a:

  • Condominium Association Townhouse Association
  • Cooperative Homeowner Association
  • Planned Community or similar types of organization

Why do I need condo insurance?
You own a condo and the association has insurance. So why do you need insurance, too? Your condominium association insurance covers the condominium building, commonly owned property, and liability insurance for the association. But that insurance doesn’t cover losses to your unit as a result of a burglary, if water damage ruins your living room walls, or if someone slips on your wet kitchen floor and is injured. That’s why you need condominium insurance designed specifically for condo or co-op owners. Condominium policies protect you from losses to your personal property and the interior of your unit. You will also have liability protection for bodily injury or property damage to others.

What does a condo insurance policy cover?
The articles of the condominium association and state law determine exactly which building components are covered under the association’s master insurance policy. In most instances the association’s coverage stops inside the exterior walls meaning that you are responsible for the interior walls and possibly for fixtures, as well as your personal property and liability exposures. This is where your own personal condo policy would come in.  (REFER TO HOMEOWNERS FOR OTHER TERMS AND DEFINITIONS)

 

Personal Umbrella Insurance Terms & Definitions

PERSONAL UMBRELLA POLICY
An umbrella policy is an insurance policy that covers claims that are in excess of the coverage under your homeowner’s or automobile coverage. Before you purchase an umbrella policy you will need to have both an automobile policy and a homeowner’s policy from the same insurance company. Both of these policies must have the highest liability that the insurance company provides. Once you have reached these limits, you can purchase an umbrella policy.

An umbrella policy takes affect after the limits on your homeowner’s or auto insurance policy are reached. The deductible for the umbrella coverage is the limit on your other insurance policy, for example, if the limit on your homeowner’s policy is $250,000, then the deductible on your umbrella coverage is $250,000. This leaves uninterrupted coverage from the time you pay your initial deductible until the claim is paid.

Umbrella policies are typically inexpensive. You may find that a million dollars worth of coverage is a few hundred dollars a year. The reason that an umbrella policy is so inexpensive is because they are not used that often. However, when you find yourself in a position of being sued for exorbitant sums, an umbrella policy becomes priceless.

 

Individual Health Insurance Terms & Conditions

Short Term Individual Health Insurance Plans
Same coverage as major medical plans with a short term commitment. Short-term individual healthcare plans provide the same comprehensive coverage for individuals that are in between jobs or have a gap in their health insurance. You can get full coverage immediately and it can last for up to 6 months.

Short-Term Medical – Temporary coverage for an individual for a short period of time, usually from 30 days to six months.

Health savings account (HSA) – A tax advantaged medical savings account available to taxpayers in the United States who are enrolled in a High Deductible Health Plan (HDHP).  The funds contributed to the account are not subject to federal income tax at the time of deposit. Unlike a flexible spending account (FSA), funds roll over and accumulate year over year if not spent.  HSA’s are owned by the individual.

Annual maximum benefit: Maximum dollar amount paid by the dental plan in a calendar year or plan year.

 

Dental Insurance Terms & Conditions

Basic services: Dental procedures to repair and restore individual teeth due to decay, trauma, impaired function, attrition, abrasion or erosion. Basic services may include oral surgery, endodontics (root canals), fillings and periodontics (tissue/bone treatment).

Co-insurance: The arrangement between the insurance carrier and the insured in which the insured pays a specified portion of covered expenses. ex. charge amount $100, paid at 80% = HD payment of $80. The members responsibility of 20% co-insurance is the remaining dollars.

Co-payment: A cost-sharing arrangement in which a Member pays a specified charge for a specified service, such as $10 for an office visit. This usually applies to our DHMO line of business. The co-payment would be paid at the time of service. ex. Member goes to DDS for exam, cleaning, x-rays he would be charged as follows: exam co payment- $20; cleaning co payment – $0; x-ray co payment – $5.

Endodontics (root canals): Dental specialty concerned with the treatment of diseases of the dental pulp (nerves, blood vessels, etc., within the tooth).

Family deductible: Deductible that may be satisfied by the combined expenses of all covered family members.

Implant: Device of metal or other foreign material that is surgically placed into or on the upper or lower bone, to support a crown, bridge, or partial or full denture.

Individual deductible: Amount of eligible expense a covered person must pay each year before the dental plan will pay for eligible benefits.

Major services: Dental procedures concerned with the restoration of teeth by cast restorations such as inlays, onlays, crowns or veneers. Major services may include endodontics (root canals) or periodontics (tissue/bone treatment). 

Nonparticipating provider: Dentist who has not contracted with the carrier to be a participating dentist for a plan.

Oral surgery: Dental specialty concerned with the surgical procedures in and about the mouth and jaw.

Orthodontic services: Dental specialty concerned with the correction of improper alignment of the upper and lower teeth. .

Out-of-network: Dental services from a dentist who is not affiliated with or contracted with the dental net 

Periodontics: Dental specialty concerned with diseases of the gums and other supportive structures of the teeth.

Preventive services: Dental procedures concerned with the prevention of dental diseases by protective and educational measures. May include examination, cleanings, X-rays and fluoride.  work.

Voluntary plans: A comprehensive dental insurance plan that employers can offer at no cost to their business. Employees like the simplicity and convenience of having their dental premiums deducted directly from their paychecks.

 

Auto Insurance Terms & Definitions

BODILY INJURY LIABILITY:
This coverage provides protection against financial loss should your auto injure others, and you are held liable. Includes such expenses as medical bills and lost wages. You are covered up to the policy limit per one individual, and to an increased limit for an accident injuring two or more people.

PROPERTY DAMAGE LIABILITY:
This coverage provides protection against financial loss should your auto damage the property of others, and you are held liable. This includes property such as an auto, house, fence, or building. You are covered up to the policy limit for each separate occurrence.

MEDICAL PAYMENTS INSURANCE:
This coverage provides protection against financial loss when you or others in your auto are injured. It includes such expenses as medical bills and surgery. You are covered up to the policy limit, regardless of who is at fault. This coverage will help fill in the gaps you may have in your own personal or family health plan.

UNINSURED MOTORIST:
This coverage pays for expenses that you and your passengers may incur, as a result of injury caused by an uninsured motorist. The coverage also pays you and your family members up to the policy limit if you are a victim of a hit and run accident, or are struck by a vehicle as a pedestrian.

UNDERINSURED MOTORIST:
This coverage pays the difference between the amount you are entitled to receive for an injury, and the actual amount of insurance carried by the driver responsible for your injuries. You and your passengers are covered up to the policy limit.

UNINSURED MOTORIST PROPERTY DAMAGE:
This coverage pays for the property damage caused by an uninsured motorist, when held liable for damages

COMPREHENSIVE COVERAGE:
Portion of an auto insurance policy that covers damage to the policyholder’s car not involving a collision with another car (including damage from fire, explosions, earthquakes, floods, and riots), and theft.

COLLISION:
Portion of an auto insurance policy that covers damage to the policyholder’s car caused by a collision with any object, or upset of your auto. This coverage is subject to the deductible amount that you have selected.

DEDUCTIBLE:
The amount of an insurance claim that the insured person agrees to pay. This amount is deducted from the claim payout.

RENTAL REIMBURSEMENT:
This coverage pays for the rental of an auto, when your insured vehicle is disabled due to a collision or comprehensive loss. Refer to policy for exact coverages, limits and exclusions.

TOWING AND LABOR:
Pays for towing and/or emergency labor costs when the insured auto becomes disabled, up to a stated amount.

NOTICE OF LOSS:
A written notice required by insurance companies immediately after an accident or other loss. Part of the standard provisions defining a policyholder’s responsibilities after a loss.

AUTO INSURANCE PREMIUM:
The price an insurance company charges for coverage, based on the frequency and cost of potential accidents, theft and other losses. Prices vary from company to company, as with any product or service. Premiums also vary depending on the amount and type of coverage purchased; the make and model of the car; and the insured’s driving record, years of driving and the number of miles the car is driven per year. Other factors taken into account include the driver’s age and gender, where the car is most likely to be driven and the times of day. Some insurance companies may also use credit history-related information.

INSURANCE SCORE:
Insurance scores are confidential rankings based on credit information. This includes whether the consumer has made timely payments on loans, the number of open credit card accounts and whether a bankruptcy filing has been made. An insurance score is a measure of how well consumers manage their financial affairs, not of their financial assets. It does not include information about income or race.

 

Life Insurance Terms & Definitions

Application for insurance
This is the form on where you state information and answer questions from the insurance company about yourself and your history. This application along with information from a medical examination, if taken, from your physicians, any hospitals you may have visited and investigation are what’s used by the insurance company to decide whether or not to offer you life insurance and at what rate.

Beneficiary
The person(s) named in the policy to receive the life insurance proceeds upon the death of the insured.

Cash (Surrender) Value
The amount that is available in cash for loans and that may be available for withdrawals in a whole life insurance, universal life insurance or survivorship life insurance policy. Accessing Cash Surrender Value may reduce the death benefit and may increase the risk of lapse.

Contestability, Non-Contestability, Clause
In an insurance policy, there is a clause which explains the conditions under which the insurer may contest or void the life insurance policy. This contestability is for a limited period of time which, in most states, is two years. After that period of time the insurance company cannot contest the policy.

Convertible Term Insurance
Term insurance which can be exchanged (converted), at the option of the policyowner and without evidence of insurability, for a whole life insurance policy or universal life insurance policy.

Face Amount
The amount stated on the face of the policy that will be paid in case of death. It does not include additional amounts payable under accidental death or other special provisions, or acquired through the application of policy dividends.

Grace Period
Life insurance premiums are due on a certain date, if you are late in paying, policies allow a period of time where you can still pay your premium and not lose your polcy. This is the grace period. Most policies allow a grace period of 30 days from the due date. After the grace period, if the premium is not paid, the policy can lapse i.e. be terminated by the insurance company.

Insurability
Acceptability to the company of an applicant for insurance.

Insurable Interest
See owner of an insurance policy.

Insured or Insured Life
The person on whose life the policy is issued.

Key Person Life Insurance
When one has a key person in a business without whom the business would suffer financially, key person life insurance is often purchased which helps to reimburse the company for the business loss incurred by the death of this person.

Level Premium (Life Insurance)
Life insurance for which the premium remains the same from year to year. The premium is normally more than the actual cost of protection during the earlier years of the policy and less than the actual cost in the later years. The building of a reserve is a natural result of level premiums. The payments in the early years, together with the interest that is to be earned, serves to balance out the underpayment of the later years.

Life Expectancy
The average number of years remaining for an individual to live shown at each age based on long term studies by insurance companies. These statistics as shown on charts called mortality tables.

Life Insurance
A contract between an owner (often the insured person) and a life insurance company that guarantees the payment of a stated amount of money on the death of the insured.

Loan (Policy Loan)
A loan made by a life insurance company from its general funds to a policy owner on the security of the cash value of a policy.

Mutual Life Insurance Company
A life insurance company owned by the policyholders. Policyholders of a mutual life insurance company may participate in the “divisible surplus” of the life insurance company as owners. They can receive dividends, most commonly on whole life policies, which can enhance the cash value, increase the insurance amount or lower premiums.

Owner of a Life Insurance Policy
A life insurance policy can be owned by the insured person or an individual, a company or a trust with an insurable interest in the insured person. Insurable interest means there would be a financial loss by the owner in the event of the death of the insured person.

Paid-up Insurance
Insurance that will remain in force with no need to pay additional premiums.

Participating Policy
A life insurance policy that is eligible for the payment of dividends by the insurer (see also Dividend.)

Permanent Life Insurance
Any form of life insurance except term; generally insurance that builds up a cash value, such as whole life. Universal life and whole life are types of permanent life insurance.

Policy Owner
The person who owns a life insurance policy. This is usually the insured person, but it may also be a relative of the insured, a partnership or a corporation.

Premiums
Payments to the insurance company to buy a policy and to keep it in force.

Renewable Term Insurance
Term insurance which can be renewed at the end of the term, at the option of the policy owner and without evidence of insurability, for a limited number of successive terms. The rates generally increase at each renewal as the age of the insured increases.

Return of Premium Life Insurance
Also known as return of premium term life insurance, this is term life insurance for a period of time where one receives a guaranteed return of premiums paid if you keep the policy for the term period. For example, 20 year return of premium term would guarantee a return of premium paid after you paid 20 years of premium. Most of these policies also give a partial return of premium if you keep the policy for a great part of the years.

Second to Die Life Insurance
Life insurance that pays the benefit after two people die. See survivorship life insurance in this glossary.

Stock Life Insurance Company
A stock life insurance company is owned by stockholders. Contrast this with mutual life insurance company.

Survivorship Life Insurance
Life insurance purchased on two individuals, usually man and wife, where the life insurance benefit is paid after both individuals have died. This type of life insurance became popular as a solution to paying estate taxes. The estate tax law allowed a couple to delay paying estate taxes until both had died. Thus, survivorship life insurance became popular as a less expensive way for heirs to pay estate taxes. The premiums are less than buying life insurance on one life. By paying premiums now the theory is that one can “pre-pay” the estate taxes because of the lump sum that comes in after the second death.

Term life Insurance
Term insurance is life insurance coverage for a specified period of time. This can be at a guaranteed rate or in some cases a guaranteed rate for a period of time and then a projected rate. Term periods can be for 1 year, 5 years, 10 years, 15, 20 and even 30 years. For example: 30 year level term would guarantee a level premium for 30 years based on a specified death benefit. Term life insurance is usually the least expensive form of life coverage, at least initially. After the initial term period of years, 5,10,15, 20, 30 etc. the policy could terminate or it can renew at a higher premium. If you are allowed to renew it at a higher premium (based on your then attained age), it is called renewable term life insurance.

Types of Life Insurance Companies
See the definitions in the glossary for mutual life insurance company and stock life insurance company

Universal Life Insurance
Universal life insurance is permanent life insurance with premiums that are not guaranteed. To a certain degree one can “design” a premium on this type of policy. Universal life insurance often can be set up with a lower premium initially than whole life insurance. Premiums and values are based on projections of assumed interest rates, the cost of insurance (also known as mortality cost) and the insurance company’s expenses. The actual premium paid may increase because interest rates may go lower or the projected cost of insurance may increase.

Waiver of Premium
This is an extra or add-in (called a rider in insurance lingo) that can be added to most individual life insurance policies which waives (allows you to stop paying) the payment after the insured person has been disabled (as described and defined in the insurance policy) for a specified period of time, usually six months. At that time, the six months premium paid along with future premium payments are waived.

Whole Life Insurance
Life insurance which has a guaranteed level premium for the rest of one’s life with no increases in premium, with a guaranteed cash value. There is participating whole life insurance usually issued by a mutual life insurance company where one participates as an owner of the company and there is non-participating whole life insurance issued by a stock life insurance company.

 

Group Health Insurance Terms & Definitions

Agent: Licensed salespersons who represent one or more health insurance companies and presents their products to consumers.

Association: A group. Often, associations can offer individual health insurance plans specially designed for their members.

Benefit: Amount payable by the insurance company to a claimant, assignee, or beneficiary when the insured suffers a loss.

Brand-name drug: Prescription drugs marketed with a specific brand name by the company that manufactures it, usually the company which develops and patents it. When patents run out, generic versions of many popular drugs are marketed at lower cost by other companies. Check your insurance plan to see if coverage differs between name-brand and their generic twins.

Broker: Licensed insurance salesperson who obtains quotes and plan from multiple sources information for clients.

Carrier: The insurance company or HMO offering a health plan.

Certificate of Insurance: The printed description of the benefits and coverage provisions forming the contract between the carrier and the customer. Discloses what it covered, what is not, and dollar limits.

Co-Insurance: Co-insurance refers to money that an individual is required to pay for services, after a deductible has been paid. In some health care plans, co-insurance is called “co-payment.” Co-insurance is often specified by a percentage. For example, the employee pays 20 percent toward the charges for a service and the employer or insurance company pays 80 percent.

Co-Payment: Co-payment is a predetermined (flat) fee that an individual pays for health care services, in addition to what the insurance covers. For example, some HMOs require a $10 “co-payment” for each office visit, regardless of the type or level of services provided during the visit. Co-payments are not usually specified by percentages. COBRA: Federal legislation that lets you, if you work for an insured employer group of 20 or more employees, continue to purchase health insurance for up to 18 months if you lose your job or your coverage is otherwise terminated. For more information, visit the Department of Labor.

Credit for Prior Coverage: This is something that may or may not apply when you switch employers or insurance plans. A pre-existing condition waiting period met under while you were under an employer’s (qualifying) coverage can be honored by your new plan, if any interruption in the coverage between the two plans meets state guidelines.

Deductible: The amount an individual must pay for health care expenses before insurance (or a self-insured company) covers the costs. Often, insurance plans are based on yearly deductible amounts.

Employee Assistance Programs (EAPs): Mental health counseling services that are sometimes offered by insurance companies or employers. Typically, individuals or employers do not have to directly pay for services provided through an employee assistance program.

Exclusions: Medical services that are not covered by an individual’s insurance policy.

Explanation of Benefits: The insurance company’s written explanation to a claim, showing what they paid and what the client must pay. Sometimes accompanied by a benefits check.

Generic Drug: A “twin” to a “brand name drug” once the brand name company’s patent has run out and other drug companies are allowed to sell a duplicate of the original. Generic drugs are cheaper, and most prescription and health plans reward clients for choosing generics.

Health Maintenance Organizations (HMOs): Health Maintenance Organizations represent “pre-paid” or “capitated” insurance plans in which individuals or their employers pay a fixed monthly fee for services, instead of a separate charge for each visit or service. The monthly fees remain the same, regardless of types or levels of services provided, Services are provided by physicians who are employed by, or under contract with, the HMO. HMOs vary in design. Depending on the type of the HMO, services may be provided in a central facility, or in a physician’s own office (as with IPAs.)

HIPAA: A Federal law passed in 1996 that allows persons to qualify immediately for comparable health insurance coverage when they change their employment or relationships. It also creates the authority to mandate the use of standards for the electronic exchange of health care data; to specify what medical and administrative code sets should be used within those standards; to require the use of national identification systems for health care patients, providers, payers (or plans), and employers (or sponsors); and to specify the types of measures required to protect the security and privacy of personally identifiable health care. Full name is “The Health Insurance Portability and Accountability Act of 1996.”

In-network: Providers or health care facilities which are part of a health plan’s network of providers with which it has negoiated a discount. Insured individuals usually pay less when using an in-network provider, because those networks provide services at lower cost to the insurance companies with which they have contracts.

Indemnity Health Plan: Indemnity health insurance plans are also called “fee-for-service.” These are the types of plans that primarily existed before the rise of HMOs, IPAs, and PPOs. With indemnity plans, the individual pays a pre-determined percentage of the cost of health care services, and the insurance company (or self-insured employer) pays the other percentage. For example, an individual might pay 20 percent for services and the insurance company pays 80 percent. The fees for services are defined by the providers and vary from physician to physician. Indemnity health plans offer individuals the freedom to choose their health care professionals.

Lifetime Maximum Benefit (or Maximum Lifetime Benefit): The maximum amount a health plan will pay in benefits to an insured individual during that individual’s lifetime.

Managed Care: A medical delivery system that attempts to manage the quality and cost of medical services that individuals receive. Most managed care systems offer HMOs and PPOs that individuals are encouraged to use for their health care services. Some managed care plans attempt to improve health quality, by emphasizing prevention of disease.

Maximum Dollar Limit: The maximum amount of money that an insurance company (or self-insured company) will pay for claims within a specific time period. Maximum dollar limits vary greatly. They may be based on or specified in terms of types of illnesses or types of services. Sometimes they are specified in terms of lifetime, sometimes for a year.

Network: A group of doctors, hospitals and other health care providers contracted to provide services to insurance companies customers for less than their usual fees. Provider networks can cover a large geographic market or a wide range of health care services. Insured individuals typically pay less for using a network provider.

Open-ended HMOs: HMOs which allow enrolled individuals to use out-of-plan providers and still receive partial or full coverage and payment for the professional’s services under a traditional indemnity plan.

Out-of-Plan (Out-of-Network): This phrase usually refers to physicians, hospitals or other health care providers who are considered nonparticipants in an insurance plan (usually an HMO or PPO). Depending on an individual’s health insurance plan, expenses incurred by services provided by out-of-plan health professionals may not be covered, or covered only in part by an individual’s insurance company.

Out-Of-Pocket Maximum: A predetermined limited amount of money that an individual must pay out of their own savings, before an insurance company or (self-insured employer) will pay 100 percent for an individual’s health care expenses.

Outpatient: An individual (patient) who receives health care services (such as surgery) on an outpatient basis, meaning they do not stay overnight in a hospital or inpatient facility. Many insurance companies have identified a list of tests and procedures (including surgery) that will not be covered (paid for) unless they are performed on an outpatient basis. The term outpatient is also used synonymously with ambulatory to describe health care facilities where procedures are performed.

Pre-Admission Certification: Also called pre-certification review, or pre-admission review. Approval by a case manager or insurance company representative (usually a nurse) for a person to be admitted to a hospital or in-patient facility, granted prior to the admittance. Pre-admission certification often must be obtained by the individual. Sometimes, however, physicians will contact the appropriate individual. The goal of pre-admission certification is to ensure that individuals are not exposed to inappropriate health care services (services that are medically unnecessary).

Pre-Admission Review: A review of an individual’s health care status or condition, prior to an individual being admitted to an inpatient health care facility, such as a hospital. Pre-admission reviews are often conducted by case managers or insurance company representatives (usually nurses) in cooperation with the individual, his or her physician or health care provider, and hospitals.

Pre-existing Conditions: A medical condition that is excluded from coverage by an insurance company, because the condition was believed to exist prior to the individual obtaining a policy from the particular insurance company.

Preferred Provider Organizations (PPOs): You or your employer receive discounted rates if you use doctors from a pre-selected group. If you use a physician outside the PPO plan, you must pay more for the medical care.

Primary Care Provider (PCP): A health care professional (usually a physician) who is responsible for monitoring an individual’s overall health care needs. Typically, a PCP serves as a “quarterback” for an individual’s medical care, referring the individual to more specialized physicians for specialist care.

Provider: Provider is a term used for health professionals who provide health care services. Sometimes, the term refers only to physicians. Often, however, the term also refers to other health care professionals such as hospitals, nurse practitioners, chiropractors, physical therapists, and others offering specialized health care services.

Reasonable and Customary Fees: The average fee charged by a particular type of health care practitioner within a geographic area. The term is often used by medical plans as the amount of money they will approve for a specific test or procedure. If the fees are higher than the approved amount, the individual receiving the service is responsible for paying the difference. Sometimes, however, if an individual questions his or her physician about the fee, the provider will reduce the charge to the amount that the insurance company has defined as reasonable and customary.

Rider: A modification made to a Certificate of Insurance regarding the clauses and provisions of a policy (usually adding or excluding coverage).

Usual, Customary and Reasonable (UCR) or Covered Expenses: An amount customarily charged for or covered for similar services and supplies which are medically necessary, recommended by a doctor, or required for treatment.

Waiting Period: A period of time when you are not covered by insurance for a particular problem.