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Glossary of Insurance & Financial Terms

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The following glossary provides a brief description of some of the terminology used with insurance and financial products. 

To make it quicker for you to find the specific term you are looking for, or if you are just trying to learn about a specific type of financial product this glossary is organized by type of financial product.  The following glossary is not specific to any individual insurance carrier or financial services company. Each company may use different definitions in their respective contract which may be different from the following.

Dental Insurance

Class of Service

Dental plans usually break down dental services into 3 or 4 different categories or classes of service.  The expenses in each category or class of service are paid at different amounts and may be subject to different waiting periods and annual or lifetime benefits.  As an example the classes may be broken down between Diagnostic Services, Preventive Services, Basic Services, Major Services and Orthodontic Services.  The dental expenses that fall under each class of service may vary between insurance plans.


The amount of covered dental expenses an individual must pay out of pocket before the insurance contact starts to pay.  The deductible amount starts over either on a calendar year basis or on the plan anniversary.

Probationary Period or Waiting Period

The period after an employee is hired in which the benefits from the plan are not available.

Balance Billing

Billed for services you received from a dentist that were over and above the usual and customary charges allowed by your insurance plan for the particular service you received.  Balanced billing may occur when you have a fee for services plan or an indemnity plan.

Maximum Contract Benefits

The maximum amount the plan pays for those expenses covered under the plan benefit year.

Coordination of Benefits

When an insured is covered by two or more dental plans the insurance carrier will coordinate benefits between the plans.  The insured will not be reimbursed more than the cost of the dental services.


This is a percent of the covered charges that an insured will pay after he/she has met their deductible.  The insurance carrier will also pay a percent of the covered charges  The coinsurance the insured pays is usually 20 % for basic services and 50 % for major services.


A predetermined amount an insured pays for each type of dental service obtained. May also be referred to as a fee.


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Disability Insurance

Disability Income Policy or Income Protection

An insurance policy which will pay you a monthly benefit when you are unable to work due to an injury or sickness.  Each disability policy will have it's definitions of disability, and contractual features.


A type of disability policy which does not allow the insurance company to make changes to the premiums or provisions once the policy is in force.

Guaranteed Renewable

A type of disability policy which allows the insurance company to make changes to the premiums of in-force policies by state, occupation, class, policy form or other categories with prior notification.  The insurance company can not change provisions.

Own Occupation (own occ) Definition of Total Disability

A definition used in a disability income policy which says that the benefits of the policy will be paid due to sickness or injury if you are unable to perform the material and substantial duties of your regular occupation.  This usually does not prevent you from working in some other occupation while still being paid your disability benefits.

Initial Period

The time period for which the definition of disability is based on your regular occupation at the time you became disabled. The initial period may be anywhere from 1, 2,or 5 years to lifetime.  After the initial period you would be considered disabled if you were unable to work in not only your regular occupation but in any occupation.  Each insurance contract may have different definitions of "any occupation". 

Benefit Period

The longest period of time benefits will be payable.  Common benefit periods are 1, 2,3 and 5 years or to age 65.

Benefit Amount

The monthly benefit or payment you would receive after your elimination period.

Elimination Period

The number of days you must be disabled before you receive any benefits.  This is kind of like a deductible.  Each contract will have different contractual features for how the days of disability will be applied to the elimination period. The more common elimination periods are 30, 60 and 90 days, and one year.

Partial Disability or Residual Disability

Unable to perform one or more of your material and substantial duties due to sickness or injury.  Each contract will have different requirements to meet before paying benefits for a partial disability.   Some contracts will require a loss of time and duties. Some will require a loss of income only, usually at least 20 %. Some may require both.

Regular occupation

Your occupation at the time you become disabled. 

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Health Insurance

Calendar Year Deductible 

The amount of covered medical expenses the insured pays each calendar year before the insurance plan pays.  There is normally a calendar year deductible for each insured.  Each insurance carrier may have a different maximum deductible that a family may have to pay.  Some plans may also have a separate deductible for charges incurred in a PPO network and charges incurred outside of a PPO Network.


This is a percent of the covered charges that an insured will pay after he/she has met their deductible.  The insurance carrier will also pay a percent of the covered charges up to a maximum coinsurance limit.  This limit may vary between plan designs but is usually in the range of $5,000 to $40,000.  As an example an insured may have a 20% coinsurance up to $5,000.  This means that the insured will pay 20 % of $5,000 of covered medical expenses and the insurance company will pay 80%.  After that the insurance company will pay 100 % of covered charges. 

Co pay

A fee the insured pays each time he/she receives certain medical services.  These medical services may vary between insurance carriers, but is generally a fee you will pay for visiting a doctor, using the emergency room, hospital admission or for buying a prescription.  Co- pays usually do not count toward your deductible or out of pocket expense limit.

Covered Charges

An expense or fee incurred by an insured person because of injury or sickness.  This expense must be medically necessary and not be excluded from coverage or exceed the maximum allowable charges under the plan.


A qualified family member who may be covered under your insurance plan.  Children may be covered up to the age of 26.  


Subject to varying interpretations by insurance carriers, but generally means the sudden onset of a sickness or injury, that without immediate medical care could reasonably be expected to result in death, placing the covered person in serious jeopardy, creating a serious impairment to bodily functions, or serious dysfunction of any bodily organ or part. 

Formulary Drug List

A preferred list of prescriptions drugs used in a health insurance plan.  A formulary list is usually divided into three categories:  generic, preferred brand name, non preferred brand name. 


Health Maintenance Organization - an organization which provides comprehensive heath care by its member physicians referred to as primary care providers.  These primary care providers will treat your medical condition or refer you to a specialist if they are unable to treat your condition.


Each individual who is covered under your health plan.

Lifetime Maximum Benefit Payable

The total amount of benefits an insurance carrier will pay to an insured for covered charges.  Some covered charges may be subject to a different lifetime maximum benefit.

Medically Necessary

Subject to varying interpretations by insurance carriers, but generally means, medical treatment or services prescribed by a physician, to the extent required to treat or diagnose an injury or sickness.  The treatment or services usually means the shortest, least expensive that does not conflict with generally accepted medical standards.

Out of Pocket Maximum

The total amount the insured pays annually in deductibles and coinsurance of covered expenses.  After this amount is met the insurance company will pay 100 % of the remaining covered charges.  Each carrier will have a different out of pocket maximum for the insured and a different maximum amount for the family.  Co-pays, non covered charges, and amounts above the lifetime maximum are not counted in calculating the out of pocket maximums.

PPO Provider

A Preferred Provider Organization is a network of doctors, hospitals and other medical service providers who agree to provide their services under a contract with an insurance carrier or third party.

Health Savings Accounts

New for 2004 - a way for individuals to put money away in an account which may earn interest which is not taxable and withdraw money to pay for certain medical expenses.  Certain restrictions apply and a health savings account is only available with certain types of health insurance plans.

Flexible Spending Accounts

An account set up by an employer in which an individual may have money deducted from his/her pay check before taxes and later used to pay for certain medical expenses. Certain restrictions and requirements apply.

Health Reimbursement Accounts

Similar to a flexible spending account but the money is put into an account by the employer.

Fee for Service Plans or Indemnity

A traditional insurance plan which allows the insured to select any doctor, hospital or health care provider.  The plan will pay all or a share of the covered charges. These plans will typically have a deductible and co insurance.

POS or Point of Service Plans

A cross between an HMO and PPO.  You select a primary care physician, but have the option of going to a doctor other than your primary care physician.

Reasonable and Customary Charges

The amount charged by health care providers or health care services which is consistent with the charges from similar providers for identical or similar services in your area.  Areas may be broken down by zip codes, counties etc.

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Life Insurance

Life Insurance 

Is simply a contract between an insurance company and another party (usually the owner of the policy), in which the party pays a premium to an insurance company in return for a sum of money upon an insured's death.  There are three main categories of life insurance:  term insurance, permanent insurance, and endowment insurance.  Each category of life insurance may have different type of plans (see the definition of each category for the types of plans. 

Term Insurance 

An insurance contract with a death benefit paid to a beneficiary only if the insured dies within a specified period of time while the policy is in force. These terms may be 1 year, 5 year, 10 year 30 year and so on. 
An annual renewable term (ART) is one which may be renewed annually but usually at a higher premium. The maximum renewal period is determined by the contract.  A contract with a level premium for the specified term is known as a level term policy. Although the premium is level there may be a clause which allows the insurance company to raise the premium.  A term policy with a  guaranteed premium for a certain term period, for example 30 years, is known as a guaranteed level renewable term policy.  This means  the premium is guaranteed to stay level for the specified term. After the guaranteed period the policy may be renewed sometimes without evidence of insurability but usually at a higher premium.

Endowment Insurance

A type of life insurance that provides a benefit to the owner of the policy (1) if death occurs during a specified number of years or (2) if, at the end of the specified number of years, the insured is alive.

Permanent Insurance 

An insurance contract with a death benefit paid to a beneficiary when the insured dies, with no policy expiration date, as long as the policy is kept in force.  These policies may also build cash values.  There are several types of permanent insurance policies. Whole life, variable life, universal life, variable universal life, survivorship life also know as second to die insurance.


The individual or entity (business, trust etc.) who is designated by the owner of the life insurance policy to receive the death benefit in the event of the insured's death. The owner may specify multiple beneficiaries and contingent beneficiaries.

Cash Value

A sum of money due to the policy owner upon surrender of a life insurance policy with cash values.

Contestable Period

The period of time an insurance company may cancel an insurance contract usually due to some false statement made on the application.  This period is usually two years.

Convertible Insurance Policy

A right in a life insurance contract which allows the owner of the policy to change the form of the policy usually from term insurance to a permanent insurance policy, without evidence of insurability.  The conversion feature usually must be done by a certain date specified in the contract.


This is a return of a portion of the premium which was paid on a life insurance policy.  Dividends may usually be (1) taken as cash, (2) used to purchase more life insurance (3) left with the insurance company to earn interest (4) applied against future premiums.  Generally dividends are paid on life insurance policies with a mutual insurance company.

Face Amount

This is the death benefit in the life insurance policy.


A term used by insurance companies to determine if an individual who is applying for life insurance is someone they want to insure.  Individuals may be turned down for life insurance due to medical reasons, financial reasons or occupations considered dangerous by the insurance company.

Suicide Clause

A clause in the life insurance contract which states that if the insured commits suicide within a certain term of the policy (usually two years) that no death benefits will be paid.

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Long Term Care

Long Term Care

Care given to those individuals with a prolonged illness, injury, disability, cognitive disorder or the effects of old age, who are unable to care for themselves.  There are three main forms of long term care, "skilled" "intermediate" and "custodial".  The care may be performed in the home, an alternative living center, adult day care or nursing home.

Activities of Daily Living

Those activities which are used to determine when a long term care policy will start to pay benefits.  Generally you must need assistance with at least two of the six "Activities of Daily Living" which are "bathing", "dressing", "toileting", "continence", "transferring", and "eating".

Benefit Period

The number of days a long term care policy will pay the daily benefit purchased.  This may be 1, 2, 3, 4, 5, 6 ,10 years or lifetime.

Inflation Protection

An option in long term care policies which increases the daily benefit by a certain percentage each year.  This helps the original daily benefit keep pace with medical inflation.  The two main types of inflation protection are "equal inflation protection" and "compound inflation protection".

Daily Benefit Amount

The maximum amount of benefit your long term care insurance plan will pay on a daily basis.  The daily benefit usually starts out at $40.00 a day and may be increased in increments of $10.00 per day up to a maximum.  The maximum amount is different for each insurance carrier.

Elimination Period

Similar to a deductible - this is the number of days that you would have to pay for long term care expense before the insurance policy would start paying.  This is similar to a deductible on your automobile or home owners insurance. The days selected may range from 0 days elimination period to a 365 days.  Some companies may offer longer elimination periods.

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Defined Benefit Plans

A type of retirement plan which specifies the benefit that each participant in the plan will receive, usually in installments for the life of the individual starting at retirement.

Defined Contribution Plans

A type of retirement plan which specifies the contribution amount that each participant receives.


An individual retirement account - a retirement account which allows individuals to save for retirement on a tax advantaged manner.

Roth IRA

An individual retirement account where contributions are made to the account on an after tax basis but the withdrawals at retirement are made tax free.


A way to transfer assets tax-free between qualified retirement plans.  

401 (k)

A type of qualified retirement plan which allows participants to defer a portion of their current compensation into the plan. The plan may provide for employer matching contributions and discretionary profit-sharing contributions.


An acronym for "simplified employee pension".  This is a retirement plan which uses individual IRAs to hold the retirement assets.


An acronym for "savings incentive match plan for employees".  This is a simplified retirement plan which allows participants to save on a before tax basis with limited employer contributions.

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An acronym for "The Americans with Disabilities Act". This act makes it unlawful for an employer to discriminate in employment practices against a qualified individual with a disability.


An acronym for "The Age Discrimination in Employment Act of 1967". This act protects individuals who are age 40 and older from employment discrimination based on age.


An acronym for "Consolidated Omnibus Budget Reconciliation Act" gives workers and their families who lose their group health coverage the right to continue on their current group plan for a certain period of time.  Certain requirements must be met.


An acronym for "Employee Retirement Income Security Act of 1974". This is a federal law that establishes a minimum standard for most voluntarily established pension and health plans in private industry.  The intent of this law is to provide protection for the employees in these plans.


An acronym for "Fair Labor Standards Act". An act which establishes minimum wage, overtime pay, record keeping, and child labor standards for full-time and part-time workers.


An acronym for "Health Insurance Portability and Accountability Act of 1996" a law which protects the health insurance coverage for workers and  their families when they change or lose their jobs.


An acronym for "The Older Workers Benefit Protection Act of 1990" This act specifically prohibit employers from denying benefits to older employees.


An acronym for "Worker Adjustment and Retraining Notification Act (WARN)".  This act generally covers employers with 100 or more employees, and requires employers to provide notification of plant closings and mass layoffs at least 60 calendar days in advance of the closings and mass layoffs.


An acronym for "Work Opportunity Tax Credit".  A federal tax credit that provides private-sector businesses an incentive for hiring individuals from twelve targeted groups of individuals.

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