Glossary of terms

From the Canadian Life and Health Insurance Association (CLHIA)

A

Accident and sickness insurance

A type of insurance that makes a payment if you have an illness, are injured or die from an accident. It includes disability income insurance as well as accidental death and dismemberment insurance.

Accidental death and dismemberment insurance

A type of insurance that makes a payment if you die from an accident or lose full or partial use of a limb, hearing or eyesight. You can buy this type of insurance on its own or add it to a life insurance policy.

Accidental death insurance

A type of insurance that makes a payment if you die from an accident.

You can buy accidental death insurance on its own or add it to a life insurance policy.If you add it to a life insurance policy and die from an accident, your insurance company pays both the life insurance amount and the accidental death insurance amount.

When the amount of the accidental death insurance is equal to the amount of the life insurance, the amount payable is double the original amount of the life insurance policy. This is known as double indemnity.

Actuary

A person professionally trained in calculating the risks and costs of insurance.

Administrative services only (ASO) plan

A type of group plan where the benefits are not insured. The plan sponsor (usually an employer) hires an outside firm (often a life and health insurance company) to administer their plan. The plan sponsor is responsible for providing the funds to pay claims.

Advisor

A person who is licensed by a provincial or territorial regulator to sell life insurance, accident and sickness insurance, group insurance and annuities, including segregated funds. An advisor is also referred to as an agent or a broker.

Agent

See Advisor

Annuitant

The person who receives payments from an annuity. It can also refer to the person on whose life the payments are based or the policyholder.

Annuity

A contract that pays you income at regular intervals, typically monthly, in exchange for an upfront payment. The income can start right away or in the future. Annuities are often used to provide retirement income. When offered by an insurer, annuity contracts can be registered as RRSPs, RRIFs, TFSAs and more. They are also offered through group retirement and savings plans.

The different types of annuities are:

  • A life annuity, which makes payments for as long as you live. A joint life annuity could make payments for as long as either you or your spouse lives.
  • An annuity certain, which makes payments for a specified number of years or to a specified age, regardless of whether you are alive throughout that period.
  • Some combination of both.
Application

An application is a formal request for insurance coverage. It provides information about you as well as the type and amount of insurance you want. The information you give the insurance company helps them decide if you meet their requirements and qualify for the insurance. In some cases, you have to answer a series of health questions. You may also have to undergo basic medical tests as part of your application.

B

Beneficiary

The person you name to receive the payment from your insurance policy. If you have life insurance and don’t name a beneficiary, the payment goes to your estate.

Benefit

The payment an insurance company makes when they approve an insurance claim.

Broker

See Advisor.

C

Cash surrender value

The amount your insurance company pays you when you cancel a permanent life insurance policy that has built up a cash value. The insurance company deducts any policy loans or overdue premiums from the cash surrender value before paying you.

Cash value

The cash amount that builds up in a permanent life insurance policy. You can take a loan against the cash value of your policy. If you cancel your policy, you get the cash value.

Whole life, variable life and universal life are types of life insurance that have cash value.

(See Cash surrender value.)

Certificate of insurance

A document that sets out the key features of the insurance under a group insurance plan. It lists things like the type and amount of coverage, categories of dependents, deductibles and coinsurance, limits and exclusions, and instructions for making a claim.

A contract given to those who have insurance through a fraternal society.

Claim

A formal request to an insurance company for payment of a benefit.

Claimant

The person who makes a claim.

Co-insurance

An arrangement in a health or dental insurance plan where you and the insurance company share the cost of the items covered. You usually pay a set percentage. For example, 20% paid by you and 80% paid by the plan.

Contestability

Contestability is the legal right of the insurance company to question – or contest –your insurance coverage. If the company finds that you gave incomplete or incorrect information when applying for the insurance, they will look at what impact the missing information would have had on their decision to insure you. If their decision would have been different, they may cancel your coverage and deny any claims.

Most policies have a two-year contestability period. After that, the company can’t contest your coverage except in the case of fraud (a deliberate misstatement of fact). An example of fraud is a smoker who states in their application that they’re a non-smoker in order to get a reduced premium.

Contingent beneficiary

If you choose to name more than one person to receive a benefit, you can name some to be primary and others to be secondary (also called contingent). Primary beneficiaries are first in line to receive benefits. Secondary beneficiaries receive a benefit if the primary beneficiary for that specific share has already died when the benefit becomes payable.

Contract

An insurance contract is the legal agreement with your insurance company that sets out the terms of your coverage. The contract usually includes your application, the policy and any changes made later to the policy.

Conversion right

A right that a policyholder has to exchange their policy for another one without giving proof of good health. A common example is term insurance that can be exchanged for a permanent insurance policy. Another example is a group insurance plan where an employee plan member who leaves the plan can convert their group insurance to an individual insurance policy.

Coordination of benefits

Families with two working adults may be covered by more than one health or dental plan. If your primary plan doesn’t pay the full amount of an expense, you can submit a claim to the other plan for the balance. In this way, you can receive up to 100% of your expense.

Covered expenses
Creditor’s group insurance

A type of insurance that helps to pay down or pay off your loan, credit card, or cover your payments in certain situations such as if you die or become disabled. It can be offered through financial institutions, auto dealers, mortgage brokers, retailers or credit card companies when you take on debt.

Critical illness insurance

A type of insurance that pays you a lump sum if you are diagnosed with a life-altering illness like a stroke, heart attack, life-threatening cancer, Multiple Sclerosis or Parkinson’s Disease. The exact illnesses covered are listed in your policy. You can buy this type of insurance on its own or you may be able to add it to a life insurance policy or group plan.

D

Deductible

Deductibles are common in health insurance plans. The deductible is the amount of a covered expense that you pay before your insurance company makes any payments. The deductibles apply to you and to any dependents covered under the plan. Examples might be $50 per person per year or $5 for each drug prescription.

Deferred annuity

A contract that pays you income at regular intervals, starting at a future date (a certain number of years or at a specific age).

Disability income insurance

A type of insurance that makes regular payments (usually monthly) to replace income if you become disabled and unable to work. It’s usually provided as part of a group plan, but you can also buy it on its own.

Double indemnity

E

Eligible expenses

Expenses that are covered under a health or dental plan. Depending on the coverage provided, you may have to pay a share of the expenses.

(See Deductible and Co-insurance.)

Eligibility period

The length of time you must be a member of a group before qualifying for coverage under the group plan. For example, an organization whose health and dental plan has a 90-day eligibility period would require 90 days of qualified employment before coverage starts.

Elimination period

In disability insurance, you have to be continuously disabled for a certain amount of time before making a claim. This amount of time is the elimination period (sometimes referred to as a waiting period). You won’t receive benefits for the elimination period.

Evidence of insurability

The information an insurance company uses to decide whether or not to insure you. It’s often called proof of good health. The information may include medical, lifestyle, smoking and other personal information.

Exclusions

Things that are not covered by an insurance policy can include:

  • Certain medical conditions you had before you applied for the insurance.
  • High-risk activities such as sky-diving.

You can sometimes buy extra insurance to pay for risks that wouldn’t otherwise be covered.

Extended health care insurance

A type of insurance that pays for hospital and medical expenses not covered by your provincial health plan. It can be part of a group plan or you can buy it on its own.

F

Face amount

Also called the sum insured, the face amount is the amount stated on your policy that your insurance company guarantees to pay when the insured person dies. It doesn’t include amounts payable under accidental death coverage or other special provisions.

Financial needs analysis

When you buy insurance, an advisor may help you decide how much insurance you need by completing a financial needs analysis. This looks at your current financial and personal situation and goals, to help decide how much insurance you need. It can include things like taking care of dependents and paying off loans.

Flexible premium policy or annuity

A type of life insurance policy or annuity contract where you can vary the amount of your premium payments and when you make them. For example, you can pay premiums for six months and then stop paying them for the next six months. There may be minimums and maximums that apply to your payments.

Fraternal society/Fraternal benefit society

A non-profit organization that operates for fraternal, benevolent or religious purposes, including providing insurance to its members and their families.

G

Grace period

A period in which an insurance policy is effective even though the premium is past due.

Group insurance

A type of insurance that provides coverage for a group of people (employees or members of an association) under one contract called a group plan or group policy.

Group policyholder

An organization, such as an employer or association, that enters into a group insurance contract with an insurance company.

Guaranteed death benefit

The minimum amount an insurance company pays to the beneficiary when the insured person dies.

Guaranteed maturity benefit

The amount your insurance company guarantees to pay you on the policy maturity date. This benefit is most common with segregated fund contracts.

Guaranteed renewable policies

A feature of an individual insurance policy where the insurance company guarantees to renew the insurance at the end of a certain period regardless of any changes in your health. Premiums may increase at renewal times.

H

Health care spending account

An arrangement in a group plan where the plan member gets a number of credits in an account. The member can use the credits to pay for health and dental expenses not covered elsewhere in their plan.

Health insurance

A type of insurance that covers medical expenses (such as drugs, dental expenses, vision expenses and paramedical expenses) or loss of income if you’re sick or injured.

Types of health insurance include:

  • Accident and sickness insurance
  • Accidental death and dismemberment insurance
  • Critical illness insurance
  • Disability income insurance
  • Extended health care insurance
  • Long-term care insurance
Hospital expense insurance

A feature of extended health care insurance that covers hospital expenses not covered by your provincial health plan during your stay in hospital. It can include the cost of private or semi-private hospital rooms and other prescribed hospital services.

Hospital indemnity

A health insurance benefit that pays a flat amount for each day a covered person is in hospital. The number of days covered is set and the daily amount paid doesn’t vary, regardless of the medical expenses the covered person incurs. It’s also called hospital cash plans.

I

Illustration

A document you may get from your advisor when you are thinking about buying insurance. It explains how the policy would work and shows the costs and values of the policy under different conditions. It should also clearly show what’s guaranteed and what’s not. A policy illustration is for your information only and isn’t part of a legal contract.

Impaired risk

In life and health insurance, a person who has physical or health problems, or who has a risky occupation or hobby, is known as an impaired risk. A person who presents an impaired risk may not qualify for coverage. If they do qualify, they may pay higher premiums for their coverage. For example, someone with a history of strokes would be an impaired risk.

Individual insurance

Insurance you buy as an individual from an advisor or insurance company. This differs from group insurance, which you may have through your employer.

Individual variable insurance contract

An annuity contract where your premiums are invested in segregated funds managed by the life insurance company. The value of the plan will vary over time based on the value of those investments.

You are guaranteed to receive at least 75% of what you’ve paid into the plan on death or maturity – even if the investments have dropped in value.

Insured

See Policyholder.

Insurer

An insurance company that issues policies and promises to pay benefits.

Irrevocable beneficiary

A type of beneficiary designation where you need written permission from the beneficiary before changing the beneficiary or making certain changes to your policy.

K

Key person insurance

A type of insurance on the life of a key employee in a business. It’s designed to provide cash to hire and train a replacement and replace lost revenues and profits if the key employee dies.

L

Lapsed policy

An insurance policy that has ended because you stopped paying premiums.

Level premium life insurance

A type of life insurance where the premium you pay stays the same through the life of the policy.

License

The official certification that a provincial or territorial regulator issues to an individual to show the individual is authorized to sell insurance.

Life insurance

A type of insurance that pays out when the insured person dies.

Life insured

The person whose life is insured.

Long-term care insurance

A type of insurance that provides financial support for people who become unable to care for themselves because of a debilitating, severe or chronic illness.

Long-term disability insurance

A type of group insurance that replaces part of your income if you become disabled and are unable to work. Long-term disability often starts after short-term disability ends and it usually provides coverage for two or more years.

M

Master policy
Master policyholder
Material facts

Information or a fact you’re aware of that could affect an insurance company’s decision about whether to insure you and at what cost. For example, if you’re being checked for a medical condition when you’re applying for insurance, you must tell the insurance company. If you don’t, the company could cancel your policy and refuse to pay any claims.

Maturity date

The date on which the insurance company pays a maturity benefit and the policy ends. For an endowment policy or annuity contract, including segregated fund contracts, the maturity date is a predetermined age or date.

Medical Information Bureau (MIB)

A non-profit association of Canadian life and health insurance companies established to provide for confidential information sharing among its members. Member insurance companies use MIB’s services to help assess an individual’s risk and eligibility during the underwriting of life, health, disability income, critical illness and long-term care insurance policies. Reports from MIB may alert insurance companies to applicants who have provided incomplete or false information and help them fight insurance fraud.

Member

See Plan member.

Misrepresentation

A false or misleading statement an applicant makes when applying for insurance. An insurance company can cancel the policy if they find you gave them false or misleading information in your application.

(See Material facts.)

Misstatement of age

This happens when an insurance company is given the wrong age for the person insured. In some situations the insurance company can cancel the coverage when the wrong age is given. However, in many cases they adjust the coverage or premiums to take the correct age into account.

Mutual insurance company

An insurance company owned by its policyholders (called participating policyholders). A mutual insurance company has no shareholders. Management is directed by an elected board.

N

Non-cancellable and guaranteed renewable policy

A type of insurance policy where the insurance company guarantees not to cancel the policy, increase the premiums or make changes to the policy until the insured person reaches a set age (usually 65). These policies are typically for disability insurance.

It’s also known as a non-cancellable policy.

Non-forfeiture options

A feature of some permanent life insurance policies that provides the policyholder with choices if they stop paying premiums on a policy. The choices may include:

  • Cash (cash value or cash surrender value)
  • Reduced paid-up amount of insurance
  • Automatic premium loan to continue the full sum insured
  • Extended term insurance for the full sum insured over a specified period (not made available by all insurers).

P

Paid-up insurance

Life insurance in which all the required premiums have been paid and coverage continues.

Partial disability benefit

A disability benefit that pays a monthly amount that’s less than a total disability benefit. In this situation, the insured person can’t work full time or is prevented from performing one or more important daily duties of their occupation, but isn’t considered totally disabled under the policy.

Participating insurance

A type of insurance policy that pays the policyholder a share of the insurance company’s earnings or dividends.

(See Policyholder dividend.)

Permanent life insurance

A type of life insurance that provides coverage for the lifetime of the person insured provided the required premiums are paid. Permanent life insurance usually has a cash value. Whole Life, Term to 100 and Universal Life are examples of this type of insurance.

Plan member or participant

The person insured under a group insurance, group benefit, group pension or group savings plan such as an employee, union member or association member.

Plan sponsor

The holder of a group insurance, group benefit, group pension or group savings plan. It can be any organization that provides group benefits to its members such as an employer, union or association.

Policy (contract)

The legal agreement between you and your insurance company that sets out the terms of your insurance coverage.

Policy loan

A loan made by a life insurance company to a policyholder based on the policy’s cash value. A policy loan reduces the cash value and the insurance company usually charges interest.

Policy reserves

The pool of funds that an insurance company keeps specifically to meet its policy obligations. The law requires insurance companies to keep sufficient reserves to pay all future claims.

Policyholder

The person who owns an insurance policy. Also called the policy owner.

Policyholder dividend

If you have a participating insurance policy, a policyholder dividend is a payment your insurance company makes to you when the company performs well. Dividends are not guaranteed. They depend on things like the total amount of claims the company pays, how the company’s investments perform and its level of expenses.

You can receive dividends in different ways:

  • Cash
  • Leave them in the policy to accumulate
  • Use them to pay part of the premiums (which reduces your insurance cost)
  • Use them to buy additional insurance
Pre-determination of benefits

A claim procedure required by many group plans before you incur large expenses. For example, if you need major dental work, your plan may require you to obtain and submit an estimate of the costs so your insurer can determine what portion of the costs your plan will cover (called a pre-determination of benefits) before you receive treatment. You can then budget for the expense knowing how much your plan will pay and how much you’ll have to pay. You may be able to cover some of your costs under your spouse’s or partner’s plan.

Pre-existing condition

A medical condition for which you’ve had symptoms, consulted a medical professional or received treatment before you apply for insurance or before your coverage takes effect.

Some types of insurance have pre-existing condition clauses, which may limit or exclude benefits if you make a claim related to that condition.

Premium

The amount you pay to buy insurance. The premium is usually paid monthly, quarterly or annually. The amount of your premium may change over time.

R

Rated policy

An insurance policy where the insured person does not meet the company’s standard insurance requirements, such as a risky occupation. This policy has higher risks and higher premiums.

Reinstating a policy

You may apply to restart your insurance coverage if it ended because you did not pay your premiums. This process is called reinstating your policy. To do so you must apply within two years of the date the required premiums were not paid. You must also provide evidence of insurability and pay any outstanding costs plus interest.

Reinsurance

An agreement between insurance companies to share insurance risk. One company transfers some of its insurance risk to another company (known as the reinsurer). Reinsurance is one way your insurance company manages the risks it takes on.

Renewable term insurance

A type of term life insurance that can be renewed at the end of the term, either automatically or at the policyholder’s option, without evidence of insurability. The amount you pay for the insurance (the premium) is usually fixed and guaranteed not to change for the length of the term. When the insurance renews, the premium increases based on your age.

Replacement

The act of replacing an existing insurance policy with another policy. Since this means that the first policy is cancelled, the insurance company usually requires a written statement showing you understand the seriousness of making this change.

Rescission right

The policyholder’s right to cancel a policy within a set period of time and get a refund of any premiums paid. This free-look period allows you to review the policy and ensure it meets your needs.

Revocable beneficiary

A type of beneficiary designation. You can change a revocable beneficiary at any time.

Rider

A change or addition to an insurance policy that either expands or limits the coverage and benefits.

Risk

The likelihood that an insured event will happen while the policy is in place. For example, in life and health insurance, risk is typically the likelihood that the person insured will die, be injured or get sick.

S

Settlement options

The choices a beneficiary or policyholder may have for receiving payment of life insurance benefits, other than an immediate cash payment. For example, the beneficiary may choose to receive the benefit in the form of an annuity.

Short-term disability insurance

A type of insurance that replaces income for a short period of time when a person becomes disabled and is unable to work. If the disability continues, the person may be eligible for long-term disability benefits if they have that coverage.

Standard or statutory provisions

The provisions in an insurance policy setting out certain rights and obligations that you and the insurance company have. These are required by provincial insurance laws.

Standard risk

A person who qualifies to buy insurance at the company’s regular premium rates.

(See Rated policy and Impaired risk.)

Stock insurance company

An insurance company that is listed on a stock exchange. The company’s shares (or stocks) are owned by the shareholders.

Substandard risk
Suicide clause

A provision in a life insurance policy stating that benefits will not be paid if the person insured commits suicide or dies as a result of self-inflicted injuries.

Sum insured

See Face amount.

Surrendered policy

A policy you’ve asked your insurance company to cancel. If your policy has a cash value, you receive this amount when you cancel your policy.

T

Term life insurance

Term life insuranceA type of life insurance that provides coverage for a set period of time. The period (or term) of the coverage can be either a fixed number of years (such as 10) or to a set age (such as 65). The policy has no cash value.

(See Renewable term insurance.)

Term to 100

A type of permanent life insurance that provides coverage for your lifetime as long as you pay the required premiums. The premium amount stays the same and you stop paying premiums after age 100. The policy has little or no cash value.

Travel insurance

Insurance designed to pay for certain unexpected costs that may arise when you are travelling outside your home province or Canada. These costs may include emergency hospital and medical costs, trip cancellation and lost baggage. Some travel insurance coverage includes an accidental death benefit.

U

Underwriting

The process an insurance company goes through to decide whether or not to insure someone.

Universal life

A type of permanent life insurance with flexible premium payments. It consists of two parts: life insurance and an investment account. You pay money into the investment account. The insurer takes premiums and other expenses from the account. Any investment growth accumulates in the account. You can increase or decrease your premiums and your death benefit within certain limitations. Investment growth may not be guaranteed depending on the type of investment chosen.

W

Waiver of premium

A feature of some insurance policies that allows you to stop paying the premiums if you become disabled.

Whole life insurance

A type of permanent life insurance that provides coverage for your lifetime. It has fixed premiums, builds up a cash value and has features that help keep your coverage in place if you can’t pay the premiums.

*Original source:

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