Glossary of Terms

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Glossary of Insurance Terms

The following links are provided for informational purposes only. ShawHankins, LLC does not attest to the accuracy of the content and strongly suggests that you fully read and understand all aspects of an insurance policy before signing it.

Beneficiary
The beneficiary of a life insurance policy, is the person who receives the payment of the amount of insurance after the death of the insured.

Cash Surrender Value
The amount of cash a policyholder receives from the life insurance company if he or she actually terminates (surrenders) a life insurance policy before it becomes payable by death or maturity. This amount is net of any surrender charges and outstanding policy loans and interest thereon.

Coinsurance
The joint assumption of risk between the insurer and the insured. In health insurance, coinsurance is sometimes used synonymously with copayment, but is defined differently – a copay is typically fixed while the coinsurance is a percentage that the insured pays after the insurance policy's deductible is exceeded up to the policy's stop loss. It is expressed as a pair of percentages with the insurer's portion stated first.

Copayment
The copayment (or copay) is a payment defined in the insurance policy and paid by the insured person each time a medical service is accessed. It is technically a form of coinsurance, but is defined differently in health insurance where a coinsurance is a percentage payment after the deductible up to a certain limit. It must be paid before any policy benefit is payable by an insurance company.

Deductible
The amount of expenses that must be paid out of pocket before an insurer will cover any expenses.

FSA (Flexible Spending Arrangement)
One of a number of tax-advantaged financial accounts that can be set up through a cafeteria plan of an employer in the United States. An FSA allows an employee to set aside a portion of his or her earnings to pay for qualified expenses as established in the cafeteria plan, most commonly for medical expenses but often for dependent care or other expenses. Money deducted from an employee's pay into an FSA is not subject to payroll taxes, resulting in a substantial payroll tax savings.

HMO (Health Maintenance Organization)
A type of managed care organization (MCO) that provides a form of health care coverage in the United States that is fulfilled through hospitals, doctors, and other providers with which the HMO has a contract. Unlike traditional indemnity insurance, an HMO covers only care rendered by those doctors and other professionals who have agreed to treat patients in accordance with the HMO's guidelines and restrictions in exchange for a steady stream of customers.

HRA (Health Reimbursement Account)
Health Reimbursement Accounts or Health Reimbursement Arrangements (HRAs) are Internal Revenue Service (IRS)-sanctioned programs that allow an employer to reimburse medical expenses paid by participating employees, thus yielding "tax advantages to offset health care costs".

HSA (Health Savings Account)
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. HSAs are owned by the individual, which differentiates them from the company-owned Health Reimbursement Arrangement (HRA) that is an alternate tax-deductible source of funds paired with HDHPs. Funds may be used to pay for qualified medical expenses at any time without federal tax liability. Withdrawals for non-medical expenses are treated very similarly to those in an IRA in that they may provide tax advantages if taken after retirement age, and they incur penalties if taken earlier. These accounts are a component of consumer driven health care.

Key Person Insurance (AKA "Key Man" Insurance)
There is no legal definition for "key person insurance". In general, it can be described as an insurance policy taken out by a business to compensate that business for financial losses that would arise from the death or extended incapacity of the member of the business specified on the policy. The policy’s term does not extend beyond the period of the key person’s usefulness to the business. The aim is to compensate the business for losses and facilitate business continuity.

Life Insurance, Term
Life insurance which provides coverage at a fixed rate of payments for a limited period of time, the relevant term. After that period expires coverage at the previous rate of premiums is no longer guaranteed and the client must either forgo coverage or potentially obtain further coverage with different payments and/or conditions. If the insured dies during the term, the death benefit will be paid to the beneficiary. Term insurance is often the most inexpensive way to purchase a substantial death benefit on a coverage amount per premium dollar basis.

Life Insurance, Universal
A type of permanent life insurance based on a cash value. That is, the policy is established with the insurer where premium payments above the cost of insurance are credited to the cash value. The cash value is credited each month with interest, and the policy is debited each month by a cost of insurance (COI) charge, and any other policy charges and fees which are drawn from the cash value if no premium payment is made that month. The interest credited to the account is determined by the insurer; sometimes it is pegged to a financial index such as a bond or other interest rate index.

Life Insurance, Whole
A life insurance policy that remains in force for the insured's whole life and requires (in most cases) premiums to be paid every year into the policy.

POS (Point of Service Plan)
A point of service plan, or POS plan, is a type of managed care health insurance system. It combines characteristics of both the HMO and the PPO. Members of a POS plan do not make a choice about which system to use until the point at which the service is being used.

PPO (Preferred Provider Organization)
A managed care organization of medical doctors, hospitals, and other health care providers who have covenanted with an insurer or a third-party administrator to provide health care at reduced rates to the insurer's or administrator's clients.

These links are provided for informational purposes only. ShawHankins, LLC does not attest to the accuracy of the content and strongly suggests that you fully read and understand all aspects of an insurance policy before signing it.