"Protect your world"
Glossary of Insurance Terms
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Accidental death benefit. A benefit in a life insurance policy providing for the payment of an additional amount equal to the face amount of the policy in case of death by accident.
Accidental death and dismemberment insurance. A form of health insurance that provides payment in the event of death or loss of one or more bodily members (such as hands or feet) or the sight of one or both eyes as a result of an accident.
Actuarial liabilities. The estimated funds needed, together with future premiums and investment income, to pay future benefits and expenses under insurance and annuity contracts, with an allowance provided for adverse experience in future assumptions.
Actuary. A person professionally trained in the mathematical and technical aspects of insurance and related fields, particularly in the calculation of premiums, actuarial liabilities and other values.
Administrative Services Only (ASO) Plan. An arrangement under which an insurance carrier or an independent organization will, for a fee, administer a health benefit plan and settle claims but not guarantee payments because the plan is uninsured.
Agent. A sales and service representative of an insurance company. In a life insurance company, an agent is also often called a life underwriter.
Annual return. The yearly report of an insurer to insurance regulators, showing assets and liabilities, receipts and disbursements, and other financial data.
Annuitant. A person during whose life an annuity income is payable, usually the person receiving the income.
Annuity. A contract that provides income payments at regular (typically monthly) intervals, usually for a specified period or for the lifetime of the annuitant. Income payments may begin right away or be postponed to some future date.
Annuity consideration. The payment, or one of the regular periodic payments, made to purchase an annuity. Same as a premium for life insurance.
Application. A statement of information made by a person applying for insurance. It identifies the plan and the amount applied for, the life insured and the beneficiary, and provides other data useful in evaluating the risk.
Association group plans. Insurance plans designed for members of a professional association or trade association. Members may be protected under a group policy or by individual franchise policies.
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Beneficiary. The person who is to receive the insurance proceeds at the death of the insured.
Benefit. The amount payable by the insurance company to a claimant, assignee, or beneficiary when the insured suffers a loss covered by the policy.
Blue Cross. An independent non-profit membership corporation providing protection against insurable health care costs.
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Cash value. Also called "cash surrender value". The amount available in cash upon voluntary termination of a policy by its owner before it becomes payable by death or maturity.
Casualty insurance. Lines of insurance, such as automobile, liability, aviation, bonding and theft.
Certificate of insurance. A document delivered to an individual that summarizes the benefits and principal provisions of the group contract under which the person is insured.
Claim. A demand to the insurer by the insured person for the payment of benefits under a policy.
Coinsurance. A provision in a health insurance contract by which the insurer and insured share, in a specific ratio, the covered expenses under a policy. For example, the insurer may reimburse the insured for 80 per cent of covered expenses, the insured paying the remaining 20 per cent of such expenses.
Covered expenses. Specified hospital, medical and miscellaneous health care expenses that will be considered in the calculation of benefits due under a health insurance policy.
Creditors’ critical illness insurance. Insurance issued in conjunction with indebtedness that provides for the payment of debt(s) owing to contractually specified creditors when the insured is diagnosed with a contractually specified critical illness.
Creditors' disability insurance. Insurance issued in conjunction with indebtedness that provides for the payment of loan installments while the borrower is disabled.
Critical illness insurance. A living benefit product that provides a lump-sum cash payment on the first diagnosis of one of several contractually specified critical illnesses or events.
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Deductible. The amount of covered expenses that must be incurred and paid by the insured before benefits become payable by the insurer.
Deferred annuity. An annuity providing for income payments to begin at some future date.
Deferred Profit Sharing Plan (DPSP). An arrangement by an employer who credits selected employees with a specified share of profits of the business if, and when, they arise. A DPSP is registered with the government and credits accumulated under this type of plan are considered registered funds..
Defined benefit pension plan. A plan where benefits are predetermined by a formula and employer contributions depend on the cost of the benefit minus the employee's contributions, if any.
Defined contribution pension plan. A plan where contributions by employees and the employer are fixed and the benefits depend on the contributions and their earnings.
Disability. A physical or mental condition that makes an insured person incapable of performing one or more duties of his or her occupation.
Disability benefit. A benefit added to some life insurance policies providing for waiver of premium and sometimes payment of a monthly income, if the insured becomes totally and permanently disabled.
Disability income insurance. A form of health insurance that provides periodic payments when the insured is unable to work as a result of illness or injury.
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Endowment insurance. Life insurance payable to the policyholder, if living at the end of a specified period, called the maturity date, or to a beneficiary if the life insured dies prior to that date.
Extended health care insurance. A form of health insurance that provides, in one policy, protection for hospital and medical expenses not covered by government programs and usually other health care expenses, such as prescribed drugs, medical appliances, ambulance, private duty nursing, etc.. The policy may contain a deductible amount, coinsurance and high maximum benefits.
Extended term insurance. A form of paid-up life insurance available as a non-forfeiture option. It provides continued protection for the full face amount (less any policy loan outstanding), but only for a limited period of time.
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Face amount. The amount stated on the face of the policy that will be paid on the death of the life insured or at the maturity of the policy. It does not include additional amounts payable under accidental death or other special provisions, or acquired through the application of policyholder dividends. Also called the "sum insured".
Flexible premium policy or annuity. A life insurance policy or annuity under which the policyholder or contract holder may vary the amount or timing of premium payments.
Fraternal life insurance. Life insurance provided by fraternal orders or societies to their members.
Fraternal society. A corporate body that is without share capital that has a representative form of government and that was incorporated for fraternal benevolent or religious purposes including the provision of insurance benefits solely to its members or the spouses or children of the members.
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Grace period. The period (usually 30 or 31 days) following the premium due date, during which an overdue premium for a life insurance policy may be paid without penalty. The policy remains in force throughout this period.
Group annuity. A contract providing annuities at retirement to a group of people in a pension plan. Usually, it is issued to an employer for the benefit of employees. The individual members of the group hold certificates as evidence of their annuities.
Group insurance. Insurance issued, usually without medical examination, on a group of people under a master contract. It is usually issued to an employer for the benefit of employees. The individual members of the group hold certificates as evidence of their insurance.
Group Registered Retirement Savings Plan (GRRSP). An arrangement established for employees or members of a professional or trade association. Individual RRSP contracts must be registered for each participant and separate accounts kept for each. Employer contributions are treated as employees’ earned income for income tax purposes.
Guaranteed Minimum Withdrawal Benefit (GMWB). A GMWB is an option that annuitants can purchase for their retirement annuities. This specific option gives annuitants the ability to protect their retirement investments against downside market risk by allowing the annuitant the right to withdraw a specified percentage of their entire investment each year until the initial investment amount has been recouped or, in some cases, until death, if later.
Guaranteed renewable policies. A health insurance contract provision in which the insurance company must renew the policy, but premiums may be raised by class. This means that the increase applies to all policyholders in a particular group, rather than to one individual policyholder.
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Health insurance. Insurance providing for the payment of benefits as a result of sickness or injury. Includes various types of insurance, such as accident insurance, disability income replacement insurance, medical expense insurance, and accidental death and dismemberment insurance. Often includes government hospital-medical plans.
Hospital expense insurance. Insurance that provides specific benefits for hospital room and board and prescribed hospital services during hospital confinement that are not covered by government hospital plans.
Hospital indemnity. A form of health insurance that provides a stipulated daily, weekly or monthly indemnity during hospital confinement.
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Individual insurance. Insurance purchased on an individual basis, covering only one person or, in some cases, members of his or her family as well.
Insured. See “Policyholder”.
Insurer. The party to the insurance contract who promises to pay losses or benefits. Also, any corporation licensed to furnish insurance to the public.
Integration. Coordination of the disability income insurance benefit with other disability income benefits, such as Canada and Quebec Pension Plans.
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Joint and survivor annuity. An annuity where payouts are made to the annuitant during his/her lifetime, and after his/her death, to his/her designated beneficiary as long as he or she lives.
- L -
Lapsed policy. A policy terminated because of non-payment of premiums. This phrase sometimes is limited to a termination occurring before the policy has a cash or other non-forfeiture value.
Level premium life insurance. Life insurance for which the premium remains the same from year to year. The premium is more than the actual cost of protection during the earlier years of a policy and less than the actual cost in later years. The excess paid in the early years builds up a reserve. When invested, this reserve amount earns a return that helps keep the amount of the level premium down.
Life annuity. A contract that provides an income for the annuitant’s life.
Life Income Fund (LIF). A LIF is a payout option for locked-in monies from pension plans and is designed to generate a lifetime income combining the features of a RRIF and an annuity. It operates like a RRIF (except that a LIF has limits on payouts in any year) up to age 80, when it must be converted to a life annuity. Most provinces now permit this new payout option under their pension legislation.
Life insurance. Insurance providing for the payment of benefits upon the death, whether by accident or otherwise, of the life insured.
Life insured. The person on whose death or disability the insurance proceeds will become payable.
Limited policy. A health insurance policy that covers only specified accidents or sicknesses.
Locked-in Retirement Account (LIRA). An arrangement similar to a locked-in RRSP. Some provinces have replaced the locked-in RRSP with the LIRA.
Locked-in Retirement Income Fund (LRIF). The LRIF is similar to a LIF with some additional flexibility in terms of what you can receive in income in any given year. The maximum payment in any year depends on the investment earnings in the previous year. The LRIF does not require annuitization at age 80. LRIFs are only available in some provinces.
Locked-in Registered Retirement Savings Plan (Locked-in RRSP). Funds transferred to a RRSP from a RPP that continue to be governed by certain provisions of the relevant pension legislation. At maturity, the locked-in RRSP must be converted to a life annuity or, where permitted by the province, to a LIF or LRIF. The individual does not have access to the funds other than as income, and thus, the reference to "locked-in".
Long-term care insurance. Insurance that provides financial protection for persons who become unable to care for themselves because of a chronic illness, disability, or cognitive impairment, such as Alzheimer's disease.
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Mutual insurance company. An insurance company without shareholders. Management is directed by a board elected in most cases by holders of participating policies.
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New money policy. A life insurance policy where the premiums are revised periodically to reflect current and expected interest rates.
Non-cancellable policy. A health insurance contract provision where the insurance company can neither cancel coverage nor vary the premium rate specified in the contract. Policies specify, at the time of purchase, the length of time the coverage is non-cancellable and guaranteed renewable.
Non-contributory pension plan. A pension plan where the entire cost of the plan is borne by the employer and no employee contributions are required.
Non-forfeiture options. The choices available in a life insurance policy to a policyholder if he or she discontinues premium payments on a policy that has accumulated a cash value. The choices are usually to take the cash value in cash, to apply the cash value to purchase "reduced paid-up insurance" or "extended term insurance", or to use the cash value as security for a loan against the policy to pay the premium or premiums due ("automatic premium loan").
Non-participating insurance. Insurance on which policyholders do not share in any surplus earnings distributed by the company. No "policyholder dividends" are payable. The premium is based on an estimate of future costs and investment earnings very close to what the company believes most likely will occur, with a slight margin added for contingencies and profit.
Non-profit insurers. Bodies organized under provincial laws to provide hospital, medical or dental insurance on a co-operative basis. They are exempt from certain types of taxes.
- O -
Office of the Superintendent of Financial Institutions (OSFI). The federal agency responsible for regulating and supervising banks, insurance, trust, loan and investment companies, federally-regulated pension plans, and co-operative credit associations that are licensed or registered by the federal government.
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Paid-up group annuity. A former premium paying RPP where pensions purchased for individual members remain the liability of the insurer.
Paid-up insurance. Life insurance on which all the required premiums have been paid.
Partial disability benefit. A benefit sometimes found in disability income policies providing for the payment of reduced monthly income in the event the insured cannot work full-time or is prevented from performing one or more important daily duties pertaining to his or her occupation.
Participating insurance. Insurance on which policyholders share in the surplus earnings attributed to that business. "Policyholder dividends" are payable. The premium is based on an estimate of future earnings at a somewhat lower level and costs at a somewhat higher level than the company believes most likely will occur.
Permanent insurance. Life insurance that provides coverage throughout the insured's lifetime, provided premiums are paid as stated in the policy, and also provides a savings element through the accrual of a cash value.
Policy. The legal document issued by the insurer to the policyholder that outlines the conditions and terms of the insurance. Also called the contract.
Policy loan. A loan made by a life insurance company to a policyholder on the security of the cash value of a policy.
Policy reserves. See "Actuarial liabilities".
Policyholder. The person who owns an insurance policy. Also called the "insured". In life insurance, the policyholder is usually the "life insured" but not always.
Policyholder dividend. A yearly return to the policyholder of surplus earnings based on the company's experienced and anticipated costs. Policyholder dividends are not guaranteed but depend on mortality and morbidity experience, investment earnings, expenses and other factors. They may be increased or decreased at the discretion of the company.
Pooled Registered Pension Plan (PRPP). A pension plan available to employees who are enrolled by their employer and the self-employed, who enrol themselves. Once a person has a PRPP account the funds they contribute and their employer contributes (if any) are credited to their account. Their funds are pooled with other funds in the plan to achieve lower investment management and administrative costs. The plans are set up by organizations who are licensed to administer the plans.
Premium. The payment, or one of the periodic payments, a policyholder is required to make for an insurance policy.
Provincial company. An insurance company provincially incorporated and operating under provincial licence only (i.e., without federal registry).
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Rated policy. Sometimes called an "extra-risk policy", this is an insurance policy issued at a higher than standard premium rate.
Reduced paid-up insurance. A form of paid-up life insurance available as a "non-forfeiture option". It provides insurance payable at the same time and in the same manner as the original policy, but for a reduced amount.
Registered Pension Plan (RPP). Strictly employment-based pension plans that are, for the most part, governed under provincial rather than federal legislation. On retirement, benefits under a RPP must be taken in the form of a life annuity or, where permitted by the province, the income may be taken in the form of a LIF or a LRIF.
Registered Retirement Income Fund (RRIF). One of three options for maturing RRSP funds. The RRIF imposes a mandatory minimum payout formula. Before 1993, the formula exhausted the funds by age 90. The new formula, a series of specified percentages, provides for the payments to continue over the lifetime of the RRIF holder (or the lifetime of his or her spouse). (The other two RRSP maturity options are life annuities and fixed-term annuities.)
Registered Retirement Savings Plan (RRSP). The RRSP is designed to encourage Canadians to accumulate funds for retirement on an individual basis through the deferral of tax provided by registration. RRSP funds must be matured before the end of the year you turn age 71. Otherwise, the funds become deregistered and are taxed as a lump sum.
Reinsure. To transfer the risk of potential loss from one insurer to another insurer.
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Segregated fund. A pool of investments that is held and managed separately (i.e., segregated) from other similar pools or funds and the general funds of the life insurance company. The benefits of contracts issued through a segregated fund are based on the market value of the investments in the fund.
Settlement options. The several ways, other than immediate payment in cash, that the policyholder or beneficiary may choose to have life insurance policy benefits paid.
Standard or statutory provisions. A set of policy provisions prescribed by provincial laws setting forth certain rights and obligations of both the insured and the company under an individual policy of insurance.
Stock insurance company. An insurance company with share capital. Management is directed by a board elected partly by the shareholders and partly by the participating policyholders, if any. The shareholders share in any company profits.
Substandard (impaired) risk. A risk that cannot meet the normal health requirements of a standard insurance policy. Protection is provided in consideration of a waiver, a special policy form, or a higher premium charge.
Sum insured. See “face amount”.
Surrendered policy. A policy terminated because of non-payment of premiums, for which there is a cash value or other non-forfeiture value available.
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Tax-Free Savings Account (TFSA). An account that does not charge taxes on any contributions, interest earned, dividends or capital gains, and can be withdrawn tax free. The contributions are not tax deductible and any unused room can be carried forward. This savings account is available to individuals aged 18 and older and can be used for any purpose.
Term life insurance. Temporary life insurance payable on the death of the life insured, provided that death occurs within a specified period of time.
Term to 100. A permanent life insurance policy where normal cash value and paid-up benefits are reduced, restricted or eliminated when the policy is terminated prior to death.
Travel insurance. Insurance designed to pay for certain unexpected costs that may arise when you are travelling, such as emergency hospital/medical costs, trip cancellation, lost baggage and accidental death insurance.
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Underwriting. The process by which an insurer determines whether or not, and on what basis, it will accept an application for insurance.
Uninsured plan. An arrangement whereby an employer undertakes to provide health benefits to employees outside of an insurance contract. The plan may be administered by the employer or by an insurance company or other organization.
Universal life. Permanent life insurance where premiums (less expense charges) are credited to an investment account from which periodic charges for life insurance coverage are deducted and to which income is credited. Usually, the policyholder can vary the amount and timing of premium payments.
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Variable contract. A life insurance or annuity contract under which benefits are not fixed but vary with the market value of a specified group of assets in which the premiums have been invested.
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Waiver of premium. See "Disability benefit".
Whole life insurance. Permanent life insurance payable on the death of the life insured whenever that occurs. Premiums are typically fixed under the contract and payable until the death of the life insured or for a specified number of years.