Glossary of Insurance Terms

Learning about insurance can be intimidating. Besides each plan having its exceptions, the industry is full of key terms and acronyms. We’ve compiled this glossary to give you an insider’s advantage when choosing your insurance plan. We’ll continue to add terms, so check back often.

Click on a letter to locate a specific term.

A

AD&D: Accidental death and dismemberment
Loss of limb, eyesight, or life as a direct result of injuries to the body caused by violent, external, and unexpected factors.
ADB: accelerated death benefit
Fixed life insurance benefits paid in advance, while the insured is still living, that decrease the benefit amount paid after his or her death.
Additional living expense coverage
ALE coverage is reimbursement for common expenses of the insured to help him or her maintain a standard of living experienced before a loss covered under a policy.
Adjudication
The process insurance companies use to determine how much they’ll pay to healthcare providers after they receive a medical claim.
ADLs: activities of daily living
Basic movements people make every day without help to take care of personal needs, including getting in and out of bed, bathing, dressing, eating, controlling their bladder and bowels, and getting on and off the toilet.
Advance healthcare directive
Also referred to as a living will, this legal document takes effect when someone is no longer able to speak for himself or herself, letting others know his or her preferences for medical care.
AI: additional insured
A person or organization not originally included in an insurance policy but added by the insured.
Allowed amount
Also known as a recognized charge, negotiated rate, payment allowance, or eligible expense, this amount is the maximum payment an insurance plan will contribute for a covered healthcare service.
Ancillary services
Diagnostic, therapeutic, or custodial care that supplements the primary care of doctors, dentists, and nurses to help meet specific medical needs, such as pharmaceutical medicine, kidney dialysis, physical therapy, and nutrition education.

B

Benefit duration
The window of time in which benefits will be paid by the insurance provider to an insured.
Benefit maximum
The most money an insurance provider will pay the insured for healthcare benefits in a year or over a lifetime.
Benefit period
A consecutive number of days covered by an insurance policy during which a plan member can receive benefits for medical services.

C

Centers for Medicare & Medicaid Services (CMS)
A federal agency of the U.S. Department of Health and Human Services that provides affordable and accessible programs, information, and resources on patient-centered medical care.
Coinsurance
A set percentage of the total medical bill that the insured owes a healthcare provider after he or she has paid the plan’s deductible.
Coordination of benefits (COB)
Insurance providers who cover the same person working together as primary and secondary payers to ensure benefits don’t exceed the amount of the claim.
Copay/copayment
A set amount the insured pays each time he or she uses a medical service, such as a doctor’s office visit.
Coverage gap (Medicare)
Also known as a donut hole, this is a phase in Medicare Part D that temporarily limits coverage for prescription drugs after a fixed amount has been spent by the insured and Medicare.
Creditable coverage (Medicare)
Insurance coverage that pays on average as much as the standard prescription drug coverage of a Medicare Part D plan.
Custodial care
Temporary help with activities of daily living provided through ancillary services, ranging from bi-weekly in-home care to 24-hour nursing home care.

D

Death benefit
Also known as face amount, this is the payment a life insurance provider makes to a beneficiary when the insured policyholder passes away.
Deductible (Medicare)
The required amount, which can vary each year, paid by the insured for healthcare services or prescription drugs before Medicare payments begin.
Dual eligibles (Medicare)
People who qualify for some level of help from both Medicare and Medicaid and are legally protected from cost-sharing and double charges.
Durable medical equipment (DME) (Medicare)
Assistive items, such as wheelchairs, walkers, and oxygen tanks, that are expected to last at least three years while being used regularly and repeatedly for activities of daily living in the home.

E

EOB: Explanation of Benefits
Provided by the insurance company, a detailed account of costs that are eligible for coverage after medical services have been completed.
EOI: Evidence of insurability
Also known as medical underwriting, this is medical and personal information on an individual or group applying for health or life insurance that is used to help an insurance provider decide on coverage.

F

Formulary (open, closed, preferred)
A list of generic and brand-name prescription drugs that are covered by a health plan and often include various cost-sharing tiers or levels. An open formulary has no limitations on medication access. A closed formulary is a limited list of drugs. A preferred formulary is a network of retail pharmacies that generally offer discounted prices for covered medications.

G

Guaranteed issue maximum
The amount someone automatically qualifies for without having to prove good health when applying for a life insurance plan.

H

HIPAA
An acronym for Health Insurance Portability and Accountability Act, a federal law passed by Congress in 1996 and administered by the U.S. Department of Health and Human Services that sets and regulates health information privacy and security standards.
Home care/home healthcare
Services, such as assistance with activities of daily living, that help people live independently without long-term care. Home care focuses on household chores and cleaning. Home healthcare focuses on medical services, such as skilled nursing, speech therapy, and occupational and physical therapy to help someone recover from an illness or injury.

I

IADLs: instrumental activities of daily living
Advanced skills in self-care, such as transportation, grocery shopping, meal preparation, home maintenance, housecleaning, taking medications, and financial management.
ID card
A source of information and proof of insurance for plan members, as well as service providers and insurance companies, with contact information and details of the insured’s plan coverage, benefits, and costs.
Indemnity plan
Also called traditional plan or fee-for-service plans, this is an alternative to PPOs and HMOs offered by health insurance companies that pays fixed fees for specific medical services and procedures.
Initial coverage limit
A set amount covered by an insurance plan for prescription drugs after factoring in the copayment or coinsurance and the insured has paid the deductible.

L

Lapse or lapse in coverage
The end of an insurance policy after the premium payment is no longer being made — intentionally or accidentally.
Lifetime maximum
The most money an insurance provider will pay for non-essential healthcare services while the insured is living.
Long-term care
Help with personal needs and activities of daily living at home, in the community, or in residential facilities, such as nursing homes, provided over an extended length of time and typically in the form of custodial care.

M

Medicaid
A healthcare assistance program administered by state governments according to federal requirements overseen by the Centers for Medicare & Medicaid Services that offers coverage to eligible low-income children, pregnant women, adults, the elderly, and people with disabilities.
Medicare
The federal health insurance program that provides hospital insurance (Part A), medical insurance (Part B), Medicare Advantage plans (Part C), and prescription drug coverage (Part D) for people 65 years old and older, qualified people with disabilities, and people with end-stage renal disease.
Medicare Advantage
A Medicare Part C health plan contracted with a private company — with options in HMOs, PPOs, private indemnity plans, special needs plans, and Medicare medical savings account plans — to provide the same benefits as Medicare Parts A and B and some prescription drug coverage that’s included in Part D.
Medicare limiting charge
The most money healthcare providers who don’t accept the Medicare-approved amount as full payment can bill for applicable services, which don’t include supplies or equipment.
Medigap
Medicare supplement health insurance policies sold by private companies to help with some costs that aren’t covered by Medicare, such as copayments, coinsurance, deductibles, and even medical care received while traveling internationally.

O

Out-of-pocket maximum
The most money the insured has to pay in a plan year for covered services, including copayments, coinsurance, and deductibles, but excluding monthly premiums.

P

Palliative care
Treatment for the relief of discomfort, symptoms, and stress caused by serious illness to help improve someone’s quality of life.
Portability
Under HIPAA, the legal right of an insured person to have the ability to keep certain benefits, such as health savings accounts and pension plans, when moving to a different employer.
PPO: Preferred Provider Organization
A managed-care organization of healthcare service providers contracted by an insurance company or third-party administrator to provide health insurance coverage and offer significant discounts in services to policyholders.
Precertification
Also known as authorization, certification, prior authorization, or pre-service utilization review in Texas. This is approval of medical services before they’re received, establishing what the insurance provider is willing to pay for a specific procedure, treatment, or prescription drug without guaranteeing coverage.

R

Respite care
Short-term relief, from a couple of hours to several weeks, for primary caregivers of people with chronic illness or disabilities.
Rider
An insurance policy amendment to add or exclude coverage for a body part, body system, or health condition, such as pregnancy.

S

SEP
Special enrollment periods, also known as special election period, for people with a Medicare plan. Certain times or circumstances that allow a policyholder to make changes to his or her Medicare Advantage and Medicare prescription drug coverage plans.
Short-term care
Temporary treatment, from several weeks to a few months, after a surgery, injury, or illness to help it improve.
Skilled care
Direct, management, observation, and evaluation services provided by a medical professional, including nursing and rehabilitative care, such as physical, occupational, or speech therapy.

V

Virtual companion care
Also known as attendant care, this is a method of using emerging technologies, such as animated people or animals, to provide non-medical health services — from help with activities of daily living to mental stimulation — for people who spend long periods of time on their own.