Glossary of Key Insurance Terms:

Accidental Death and Dismemberment (AD&D): Designed to pay benefits in the event of death or the loss of a limb or sight caused by an unintended, unforeseen, and unexpected event.

Administrative Service Only (ASO): Is a self-insured plan where unused premiums at the end of the year are not lost. Unlike other insurance programs, an ASO will use any extra amount of premiums paid and roll them over to the next year or refund them. See our Administrative Service Only page.

Application: A signed statement of facts made by a person applying for insurance and then used by the insurance company to decide whether or not to issue a policy. The application becomes part of the insurance contract when the policy is issued.

Beneficiary: This is the person who benefits from the terms of a trust, a will, an RRSP, a RRIF, a LIF, an annuity or life insurance policy. A beneficiary under the age of 18 must be represented by an individual guardian over the age of 18 or a public official who represents minors generally.

Benefit Period: In health insurance, the number of days for which benefits are paid to the named insured and his or her dependents. For example, the number of days that benefits are calculated for a calendar year consist of the days beginning on Jan. 1 and ending on Dec. 31 of each year.

Broker: Insurance salesperson that searches the marketplace in the interest of clients, not insurance companies. Svab Insurance Inc. Consists of independent brokers.

Carrier: The insuring insurance company and provide the benefits.

Cash Value/ Cash Surrender Value: When considering life insurance there is amount available to be withdrawn or taken out as a loan. Accessing this cash surrender value may reduce the death benefit and may increase the risk of lapse. Withdrawals may be subject to surrender charges and could have a permanent effect on the cash value. Loans reduce the cash value and death benefit by the amount of the loan outstanding plus interest. If the policy is surrendered, the cash surrender value is paid to the policy owner.

Census Data: Because each group is underwritten and rated on the basis of the people who make up the group, a rather complete census must be made. Most insurance companies have specific "census forms" with pertinent information concerning all employees to be enrolled in the group plan.

Certificate of Insurance: A document delivered to the insured that summarizes the benefits and provisions of the group or individual plan.

Claim: A demand made by the insured, or the insured's beneficiary, for payment of the benefits as provided by the policy.

Contribution plan: A group insurance plan that requires that the employee participates in premium payments for a percentage of the required premium monthly. Example: the employer pays 50% of the premiums and the employees are required to pay the remaining 50%.

Convertible: Term life insurance coverage that can be converted into permanent insurance regardless of an insured's physical condition and without a medical examination. The individual cannot be denied coverage or charged an additional premium for any health problems.

Cost-of-Living Adjustment (COLA): Automatic adjustment applied to Social Security retirement payments when the consumer price index increases at a rate of at least 3%, the first quarter of one year to the first quarter of the next year.

Death Benefit: The limit of insurance or the amount of benefit that will be paid in the event of the death of a covered person.

Deductible: Amount of loss that the insured pays before the insurance kicks in.

Defined Benefit Program: A plan in which specified benefits are offered at a stated cost to employees who have no choice other than whether or not to participate in the plan.

Defined Contribution Program: A plan in which the employer pays a set premium for selected benefits that may change as the group's needs change.

Disability Insurance: Insurance that pays you an ongoing income if you become disabled and are unable to pursue employment or business activities. See our Disability Insurance page.

Dispensing Fee: The cost of the purchase of drugs is made up of two specific parts: ingredient cost and dispensing fee. A maximum mark-up on the ingredient cost is governed by law, but the cost of dispensing the drug charged by the pharmacy is driven by competitive pressure. These fees vary dramatically from chain to chain, usually between $5.00 and $12.00 per prescription.4

Dividend: As the term dividend relates to a corporation’s earning, a dividend is an amount paid per share from a corporation’s after tax profits. Some dividends are paid in the form of additional shares of the corporation. Dividends paid by Canadian corporations qualify for the dividend tax credit and are taxed at lower rates than other incomes.

Life insurance policy owners of participating policies usually have four and sometimes five dividend options from which to choose:

(1)  Take the dividend in cash,

(2)  Apply the dividend to reduce current premiums,

(3)  Leave the dividends on deposit with the insurance company to accumulate at interest live a savings plan,

(4)  Use the dividends to purchase one year term insurance equal to the guaranteed cash value at the end of the policy year with any portion of the dividend not required for this purpose being applied under one of the other dividend options.

Elimination Period: The time which must pass after filing a claim before policyholder can collect insurance benefits. Also known as "waiting period."

Employee Assistance Program (EAP): Is an ancillary benefit added to a group insurance plan which provides confidential counselling to an employee and his family e.g. substance abuse, marital discord. See our Employee Assistance Program page.

Employee Benefit Program: A program of benefits that are provided to employees by the employer. All benefits - aside from salary or wages - are included, such as group life and health plans, retirement plans, vacation days, etc. Sometimes called "fringe benefits."

Enrolment: Used to describe the total number of enrolees in a health plan. It may also be used to refer to the process of enrolling people in a health plan.

Enrolment Period: The amount of time an employee has to sign up for a contributory health plan.

Estate Planning: Planning for the orderly handling and administration of an estate upon the death of the owner. This usually involves drawing up a will and setting up trusts and insurance, with the intention of minimizing loss to the estate value incurred by estate taxes and administrative expenses. See our Estate Planning page.

Evidence of Insurability: The statement of information needed for the underwriting of an insurance policy.

Extension of Benefits: A condition in the insurance policy which allows coverage to continue beyond the expiration date of the policy in the case of employees who are not actively at work or dependents who are hospitalized on that date. The extended coverage applies only where the employee or dependent is disabled as of that date and continues only until the employee returns to work or the dependent leaves the hospital.

Face Amount: The original death benefit on a life insurance policy. On whole life policies, dividends are often used to purchase paid-up additions, thereby increasing the death benefit.

Grace Period: A specific period of time after a premium payment is due during which the policy owner may make payment, and during which, the protection of the policy continues. The grace period usually ends in 30 days.

Guaranteed Renewable: A policy provision in many products which guarantees the policy owner the right to renew coverage at every policy anniversary date. The company does not have the right to cancel coverage except for nonpayment of premiums by the policy owner; however, the company can raise rates if they choose.

Group Long-Term Disability Insurance (Group LTD): A master disability insurance contract issued to an employer. It covers some or all employees, and provides long-term benefits on a group basis. Benefits are usually paid to age 65. These plans typically provide 50% to 60% of salary, and are reduced by income from other sources. See our Group LTD page.

Group Life Insurance: This is a very common form of life insurance which is found in employee benefits plans and bank mortgage insurance. In employee benefits plans the form of this insurance is usually one-year renewable term insurance. See our section on Group Insurance.

Some people rely on this kind if insurance as their primary coverage forgetting that group life insurance is a condition of employment with their employer. The coverage is not transferable and cannot be taken with you if you change jobs. If you have a change in health, you may not qualify for new coverage at your new place of employment.

Group RRSPs: A Group RRSP enables employees of a company to save for retirement by contributing to an RRSP through payroll deductions and receiving a tax break every pay at source. Because employees are participating as part of a larger group, they can often receive added benefits that most individual RRSP plan holders do not. See out section on Group RRSPs.
These benefits can include things such as:

• Low or no fees on certain accounts
• Lower minimums on some types of investments
• Initial sign up session on site at the company
• Educational and information seminars at the company
• Employee Semi-Annual or Annual reviews on site at the company

Independent Broker: This is a provincial government licensed businessperson who usually represents five or more life insurance companies in a sales and service capacity and who is paid a commission by those life insurance companies for sales and service of life insurance products. We for example, have been in business for 15 years and regularly place new business with over twenty different life insurance companies.

Insured: This is the person covered by the life insurance policy. Upon this person’s death, a tax free benefit will be paid to that person’s estate or a named beneficiary.

Insured Retirement Plan: This is a recently coined phrase describing the concept of using Universal life Insurance to tax shelter earnings which can be used to generate tax-free income in retirement. The concept has been described by some as “the most effective tax-neutralization strategy that exists in Canada today.”

Irrevocable Beneficiary: A beneficiary whose interest cannot be cancelled without his or her consent

Level Premium Life Insurance: This is a type of insurance for which the cost is distributed evenly over the premium payment period. The premium remains the same from year to year and is more than actual cost of protection in the earlier year of the policy and less than the actual cost of protection in the later years. The excess paid in the early years builds up a reserve to cover the high cost in the later years.

Life Expectancy: The average number of years of life remaining for a group of people of a given age and gender according to a particular mortality table.

Life Insurance: Provides coverage where the risk insured against is the death of a particular person (the life insured). Upon the death of the life insured, while the policy is in force, the insurance company (the insurer) will pay the death benefit to the beneficiary named in the insurance policy. See our section on Life Insurance.

Living Benefits Rider: A rider attached to a life insurance policy which provides LTC benefits or benefits for the terminally ill. The benefits provided are derived from the available life insurance benefits.

Long-Term Disability (LTD): Except in multiple employer trusts, LTD is generally not offered to small employer units. It affords disability income protection, generally after a six-month hiatus, (or several years in the case of illness, and to age 65 for an accident incurred disability'. Each carrier has special considerations that must be understood. Long-term disability often produces higher severity claims than death. See our LTD page.

Maturity Date: The date which the policy endows for its total face amount.

Maturity Value: The amount payable under a whole life insurance policy if the insured person lives to the last age on the mortality table on which the values of the contract were based.

Occupational Classification: In disability insurance, this refers to the applicant/insured's job classification by level of risk. Occupation classifications govern the amount of premium charged, the type of contract, and the range of benefits.

Optional Policy Benefits: The additional policy benefits that are available with various life and health insurance policies. The additional benefits are entirely elective and are subject to approval by underwriting.

Optionally Renewable: A contract of Health Insurance in which an insurance company reserves the unrestricted right to terminate coverage at any anniversary or, in some cases, at any premium due date. It may not do so in between.

Policy: The written document issued by a life or health insurance company to a policy owner, which expresses the insurance contract between the company and the policy owner.

Policy Date: Specifies when the insurance becomes effective; that is, when the insurer becomes liable to pay benefits provided under the terms of the contract.  

Policy Loan: A non-recourse loan from the insurer to the policy owner secured by the policy's cash value. Loan interest, which may be set at a fixed or variable rate, must be paid or accumulated on the loan.

Policy Owner: The individual who owns an insurance policy, and who has all contractual rights. The policy owner is not necessarily the same person as the insured or the payer.

Primary Beneficiary: The person who, upon the insured's death, has the first right to receive insurance proceeds.

Probationary Period: A period of time between the effective date of a Health Insurance policy, and the date coverage begins for all or certain physical conditions.

Reserves: You will probably hear this term in connection with the year-end analysis of the experience of the risk itself, The carrier must maintain certain legal reserves (plus amounts for incurred but unknown claims), in addition to reserves for certain coverage's such as maternity and major medical.

Revocable Beneficiary: A beneficiary whose rights are subject to the rights of the policy owner who may revoke or change the beneficiary designation and exercise any ownership rights under the policy without the beneficiary's consent.

Suicide Clause: A policy provision stating that if the insured dies by suicide within two years of the date of issue, the amount payable will be limited to the total premiums paid, less any policy debt. The full benefit would be paid if a suicide occurs after the second policy year. Most companies have a two year suicide clause, except where state law mandates otherwise.

Surrender: Cancellation of the policy, which involves returning the contract to the issuing company.

Short-Term Disability Insurance: A group or individual policy usually written to cover disabilities of 13 or 26 weeks duration, though coverage for as long as two years is not uncommon.

Stop-Loss Insurance: This is a type of reinsurance which can be taken out by a health plan or self-funded employer plan. The plan can be written to cover excess losses over a specified amount either on a specific or individual basis, or on a total basis for the plan over a period of time such as one year.

Term Life Insurance: Insurance which provides a death benefit only. Premiums increase each year, or, in the case of level premium renewable term, at the end of each renewal period (typically 5,10,15 or 20 years). Level premium decreasing term has a level premium, but the insurance benefit decreases on each policy anniversary. Since term insurance can become quite expensive at older ages, it is often used to cover protection needs of a shorter duration or to cover a specific need such as an outstanding loan balance. It may be convertible to some form of permanent life insurance.

Term Rider: A rider attached to a basic policy to provide additional coverage in the form of term insurance. Dividends earned on the basic plan may be designated to replace the term insurance with permanent paid-up additions.

Travel Accident Insurance: A form of Health Insurance limiting coverage to accidents occurring while the insured is traveling. See our section on Travel Insurance.

Underwriting: The process of determining a reasonable expectation of an applicant's death (mortality) or disability (morbidity) likelihood, for the purpose of issuing insurance.

Universal Life Insurance: A life insurance policy that combines term insurance and a side fund investment in one contract. Typical designs are interest-sensitive and allow for flexible premium payments which can be varied by the policy owner at will. Also known as Flexible Premium Adjustable Life.

Vision Care: Like dental care, vision care is largely elective and is not universally offered to all size risks. Now that the government has deinsured all those in between the ages of 20 and 65 for regular eye examinations, vision care has become a popular addition to health insurance.

 
Whole Life Insurance: Permanent insurance which provides, at minimum, a level death benefit upon the insured's death, or a cash endowment upon policy maturity that is equal to the death benefit.