Lapse
Termination of a policy upon the policy owner's failure to pay the premium within the grace period.
Law of large numbers
Basic principle of insurance that the larger the number of individual risks combined into a group, the more certainty there is in predicting the degree or amount of loss that will be incurred in any given period.
Legal purpose
In contract law, the requirement that the object of, or reason for, the contract must be legal.
Legal reserve
Policy reserves are maintained according to the standard levels established through the
insurance laws of the various states.
Level premium funding method
The insurance plan (used by all regular life insurance companies) under which, instead of an annually increasing premium that reflects the increasing chance of death, an equivalent level premium is paid. Reserves that accumulate from more than adequate pr
Level term insurance
Term coverage on which the face value remains unchanged from the date the policy comes into force to the date the policy expires.
License
Certification issued by a state insurance department that an individual is qualified to solicit insurance applications for the period covered; usually issued for one year, renewable on application without need to repeat the original qualifying requirement
Licensed insurer
(See admitted insurer)
Lien system
Plan for issuing coverage for substandard risks. A standard premium is paid, but there is a lien against the policy to reduce the amount of insurance if the insured dies from a cause that resulted in the substandard rating.
Life annuity
Payable during the continued life of the annuitant. No provision is made for the guaranteed return of the unused portion of the premium.
Life expectancy
Average duration of the life remaining to a number of persons of a given age, according to a given mortality table. Not to be confused with "probable lifetime," which refers to the difference between a person's present age and the age at which death
is mo
Life income settlement option
A settlement option providing for life insurance or annuity proceeds to be used to buy an annuity payable to the beneficiary for life-often with a specified number of payments certain or a refund if payments don't equal or exceed premiums paid.
Life insurance
Insurance against loss due to the death of a particular person (the insured) upon whose death the insurance company agrees to pay a stated sum or income to the beneficiary.
Limited pay life insurance
A form of whole life insurance characterized by premium payments only being made for a specified or limited number of years.
Limited policies
Restrict benefits to specified accidents or diseases, such as travel policies, dread disease policies, ticket policies, and so forth.
Limited risk policy
Provides coverage for specific kinds of accidents or illnesses, such as injuries received as a result of travel accidents or medical expenses stemming from a specified disease. (See special risk policy)
Lloyd's of London
An association of individuals and companies that underwrite insurance on their own accounts and provide specialized coverages.
Loading
Amount added to net premiums to cover the company's operating expenses and contingencies; includes the cost of securing new business, collection expenses, and general management expenses; excess of gross premiums over net premiums.
Loan value
Determinable amount that can be borrowed from the issuing company by the policyowner using the value of the life insurance policy as collateral.
Long-term care
Refers to the broad range of medical and personal services for individuals (often the elderly) who need assistance with daily activities for an extended period of time.
Long-term care policy
Health insurance policies that provide daily indemnity benefits for extended care confinement.
Loss sharing
(See risk pooling)
Lump sum
Payment of entire proceeds of an insurance policy in one sum. The method of settlement provided by
most policies unless an alternate settlement is elected by the policy owner or beneficiary.
Major medical expense policy
Health insurance policy that provides broad coverage and high benefits for
hospitalization, surgery, and physician services. Characterized by deductibles and coinsurance cost- sharing.
Managed care
A system of delivering health care and health care services, characterized by arrangements with selected providers, programs of ongoing quality control, and utilization review and financial incentives for members to use providers and procedures covered by
Mandatory second opinion
To control costs, many health policies provide that, in order to be eligible for benefits, insureds must get a second opinion before receiving non-life-threatening surgery.
Master contract
Issued to the employer under a group plan; contains all the insuring clauses defining employee benefits. Individual employees participating in the group plan receive individual certificates that outline highlights of the coverage. Also called master polic
Maturity value
Proceeds payable on an endowment contract at the end of the specified endowment period, or payable on an ordinary life contract at the last age of the mortality table if the insured is still living at that age. Maturity value of a policy is the same as th
McCarran-Ferguson Act
Also known as Public Law, the act exempting insurance from federal antitrust laws to the extent insurance is regulated by states.
Medicaid
Provides medical care for the needy under joint federal-state participation (Kerr-Mills Act).
Medical cost management
The process of controlling how policyholders utilize their policies. (See mandatory
second opinion, precertification, ambulatory surgery, and case management)
Medical examination
Usually conducted by a licensed physician; the medical report is part of the application, becomes part of the policy contract, and is attached to the policy.A "nonmedical" is a short-form medical report filled out by the agent. Various company rules, such
Medical expense insurance
Pays benefits for nonsurgical doctors' fees commonly rendered in a hospital; sometimes pays for home and office calls.
Medical Information Bureau (MIB)
A service organization that collects medical data on life and health insurance applicants for member insurance companies.
Medical report
A document completed by a physician or other approved examiner and submitted to an insurer to supply medical evidence of insurability (or lack of insurability) or in relation to a claim.
Medicare
Federally sponsored health insurance and medical program; administered under provisions of the Social Security Act.
Medicare Part A
Compulsory hospitalization insurance that provides specified in hospital benefits and related benefits. All workers covered by Social Security finance its operation through a portion of their FICA tax.
Medicare Part B
Voluntary program designed to provide supplementary medical insurance to cover physician services, medical services, and supplies not covered under Medicare Part A.
Medicare Part C
Medicare Part C is called Medicare Advantage. The program offers a variety of managed care plans, a private fee-for-service plan, and Medicare specialty plans. These specialty plans provide services that focus care on the management of a specific disease
Medicare Part D
A program that offers a prescription drug benefit to help Medicare beneficiaries pay for the drugs they need. The drug benefit is optional and is available to anyone who is entitled to Medicare Part A or enrolled in Part B. This benefit is available throu
Medicare supplement policy
Health insurance that provides coverage to fill the gaps in Medicare cover- age.
Minimum deposit insurance
A cash value life insurance policy having a first-year loan value that is avail- able for borrowing immediately upon payment of the first-year premium.
Minimum premium plan (MPP)
Designed to support a self-insured plan, a minimum premium plan helps insure against large, unpredictable losses that exceed the self-insured level.
Miscellaneous expenses
Hospital charges, other than for room and board (e.g., x-rays, drugs, laboratory fees, and so forth), in connection with health insurance.
Misrepresentation
Act of making, issuing, circulating, or causing to be issued or circulated, an estimate, illustration, circular, or statement of any kind that does not represent the correct policy terms, dividends, or share of the surplus or the name or title for any pol
Misstatement of age or sex provision
If the insured's age or sex is misstated in an application for insurance, the benefit payable usually is adjusted to what the premiums paid should have purchased.
Misuse of premium
Improper use of premiums collected by an insurance producer.
Modified endowment contract (MEC)
A life insurance policy under which the amount a policy owner pays in during the first years exceeds the sum of net level premiums that would have been payable to provide paid-up future benefits in seven years.
Modified whole life
Whole life insurance with premium payable during the first few years, usually five years, only slightly larger than the rate for term insurance. Afterwards, the premium is higher for the remainder of life than the premium for ordinary life at the original
Money purchase plan
A type of qualified plan under which contributions are fixed amounts or fixed percentages of the employee's salary. An employee's benefits are provided in whatever amount the accumulated or current contributions will produce for the employee.
Morale hazard
Hazard arising from indifference to loss because of the existence of insurance.
Moral hazard
Effect of personal reputation, character, associates, personal living habits, financial responsibility,
and environment, as distinguished from physical health, upon an individual's general insurability.
Morbidity
The relative incidence of disability due to sickness or accident within a given group.
Morbidity rate
Shows the incidence and extent of disability that may be expected from a given large group of persons; used in computing health insurance rates.
Mortality
The relative incidence of death within a group.
Mortality table
Listing of the mortality experience of individuals by age; permits an actuary to calculate,
on the average, how long a male or female of a given age group may be expected to live.
Mortgage insurance
A basic use of life insurance, so-called because many family heads leave insurance for specifically paying off any mortgage balance outstanding at their death. The insurance generally is made payable to a family beneficiary instead of to the mortgage hold
Multiple employer trust (MET)
Several small groups of individuals that need life and health insurance but do not qualify for true group insurance band together under state trust laws to purchase insurance at a more favorable rate.
Multiple employer welfare arrangement (MEWA)
Similar to a multiple employer trust (MET) with the exception that in a MEWA, a number of employers pool their risks and self-insure.
Multiple protection policy
A combination of term and whole life coverage that pays some multiple of the face amount of the basic whole life portion (such as $ per month per $,) throughout the multiple
protection period (such as to age ).
Mutual insurer
An insurance company characterized by having no capital stock; it is owned by its policy owners and usually issues participating insurance.