Insurance Terms

Cafeteria Plans

An employee benefits plan that allows employees to customize their benefit package. Employees receive a fixed amount of dollars that can be allocated between several fringe benefits.
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Capital Asset

A long-term asset, owned for personal or investment purposes, that is not bought or sold in the normal course of business. In general, the term includes fixed assets such as land, buildings, equipment, furniture, and fixtures.
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Capital Gains

Gain realized from the sale of certain assets that represent the difference between the purchase price of an asset and the selling price when the difference is positive. Capital gains are separated into short-term capital gains and long-term capital gains. A long-term capital gain applies to assets such as a stocks, bonds, or mutual funds held for at least 12 months, which are taxed at a maximum rate of 20% for taxpayers in the 28% bracket or higher. Assets held less than 12 months generate short-term capital gains, which are subject to regular income tax rates.
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Capital Gains Tax

Tax on the gain realized from the sale of capital assets such as stock, mutual funds, business interests, or other asset. Long-term capital gains tax rates apply to assets held longer than 12 months.
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Capital Loss

Amount by which the proceeds from the sale of a capital asset are less than its cost basis.
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Carrier

Insurance company that actually underwrites and issues the insurance policy. The term refers to the fact that the company carries (or assumes) certain risks for the policyholder.
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Carryover

Refers to the process of shifting to a future taxable year those losses and other deductions that exceed limits for the current tax year.
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Carryover Basis

Basis in property that may 'carry over' from the transferor to the transferee. Generally this occurs when there is an exchange of property, or property is transferred by gift.
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Cash

Paper currency and coins, negotiable money orders and checks, and bank balances.
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Cash Reserve

An emergency or contingency fund (or credit) set aside and held in an easily accessible form (such as a savings account) for the purpose of meeting emergency expenses and/or short-term cash flow needs.
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Cash Surrender Value

The amount that is available to the owner if a life insurance policy is surrendered. The amount represents the cash value minus surrender charges and any outstanding loans due upon cancellation of the policy.
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Cash Value

The cash within a permanent life insurance policy. Cash value is the premium paid less the cost of insurance policy. Cash value is also adjusted by any investment performance within the insurance policy.
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Cash Value Life Insurance

A permanent insurance policy that builds cash value, often described as a savings account within the policy. Cash value life insurance differs from term insurance, where premiums purchase pure insurance protection only.
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Casualty

Liability or loss resulting from an accident.
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Certificate of Deposit (CD)

Debt instrument issued by a bank that usually pays interest based on rates set by competitive forces in the marketplace. The interest rate on a CD is guaranteed for a specific period of time.
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Certificates of Coverage

A statement of coverage, also known as a Certificate of Insurance, that an individual receives when insured under a group contract. The certificate serves as proof of insurance, and outlines benefits and provisions.
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Child Support

Amount payable to a custodial parent, often by court order, by a non-custodial parent on behalf of a minor child or children. Support payments generally are not taxable income to the recipient or deductible by the payer.
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Churning

Refers to excessive trading of a client's account for the purpose of increasing broker commissions, and leaving the client worse off or no better off than before. Churning is illegal under SEC and exchange rules.
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Claim

Written request by an insured for the insurance company to cover an incurred loss, usually submitted on the company's standard form.
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Claimant

One who submits a claim for an incurred loss.
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Class of Stock

A type of share with particular rights and privileges such as the right to vote on corporate matters. The most common classes of stock are common stock, voting preferred stock, and non-voting preferred stock.
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Closed-End Lease

Auto lease that allows you to walk away from the lease at the end of the lease term without paying for any difference between the anticipated residual value and the actual value of the car.
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Closing on Sale-Contingency Clause

When such a clause is included in the contract, the seller of the home you are buying agrees to the following: (1) the closing will be delayed until you've sold and closed on your present home (usually within a time limit of three to six months), and (2) if you're unable to sell and close on your present home within this time limit, the contract to purchase the new home is automatically canceled. Unless you and the seller later agree to extend the time limit, your entire deposit is returned, and you are no longer obligated to purchase the home.
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COBRA (Consolidated Omnibus Budget Reconciliation)

Regulations requiring an employer who employs more than 20 people to offer continued group insurance coverage to former employees for up to 18 months. If the employee dies, the employer must offer continued group health insurance coverage to widowed spouses and dependent children for up to 36 months.
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Collateral

Asset pledged to a lender until a loan is repaid. If the borrower defaults, the lender has the legal right to seize the collateral and sell it to pay off the loan.
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Collateral assignment

Assignment of an asset (e.g., a life insurance policy's death benefit or its cash surrender value) to a creditor as collateral for a loan.
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Collateralized

Refers to a loan or other contract that is secured by collateral in the form of property or other assets. In the case of a loan, the lender can exercise its right to seize the collateral backing the loan in the event the borrower defaults.
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Collision Coverage

Collision coverage refers to the part of an automobile insurance policy that covers damage to a vehicle caused by an impact with another vehicle or object or a rollover.
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Common Law Marriage

A marriage deemed valid under some state laws which is created by an agreement to marry, followed by cohabitation between two people legally capable of making a marriage contract. Such a marriage requires a mutual agreement to enter into a marriage, cohabitation sufficient to establish the relationship of husband and wife, and an assumption of marital duties and obligations. The cohabitation requirement (e.g., the length of time the two people have to live together under the same roof) and other criteria defining a common law marriage may vary from state to state.
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Common Policy Provisions

Words, sentences, and paragraphs in an insurance policy that generally take the form of clauses that govern the policy and that set forth the rights and obligations of both insured and insurer under the policy. Common policy provisions for a life insurance policy include the suicide clause, the incontestable clause, and the beneficiary clause.
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Common Stock

Units of ownership in a public corporation that typically entitle shareholders to vote on corporate matters as well as receive dividends on their holdings. Although the claims of preferred shareholders generally take priority over those of common shareholders in the event of insolvency, common stock generally has more potential for appreciation.
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Community Property

Marital property as defined by state law under which spouses own equal interests in property acquired during a marriage. This does not include property brought to the marriage or acquired by gift or inheritance. Currently there are nine community property states: Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington, and Wisconsin.
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Compensable Injury

An injury that qualifies for benefits paid under workers' compensation.
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Comprehensive Coverage

Comprehensive coverage refers to the part of an automobile insurance policy that covers damage to a vehicle caused by miscellaneous hazards other than collision, such as fire, theft, explosion, windstorm, hail, water or contact with an animal.
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Consumer Price Index (CPI)

Measure of change in consumer prices, published monthly by the U.S. Bureau of Labor Statistics in the Department of Labor. This index is widely used as a cost-of-living benchmark to adjust Social Security payments and other payment schedules.
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Contestability Period

Period of time, generally two years, during which an insurance company can declare a life insurance contract void because of misrepresentation or concealment by the insured in obtaining the policy. Once this period has elapsed, the company cannot cancel the policy or refuse to pay claims for any reason other than nonpayment of premiums.
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Convertible Term Insurance

Term life insurance coverage that can be converted into permanent life insurance upon the policy's expiration. The insured generally cannot be denied permanent coverage or charged an additional premium because of health problems.
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Copayment

Partial payment of certain medical costs that individual participants may be required to make under a health insurance policy. For example, under your employer's health plan, you might have to pay $5 toward each prescription.
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Cost Basis

The original price of an asset, plus any additions and reinvested earnings, that is used to determine capital gains or losses at the time of sale of the asset. In the case of an inheritance, the cost basis is the appraised value of the asset at the time of the donor's death.
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Countable Assets

In terms of eligibility for Medicaid, countable assets are anything of value you own that is not exempt by law or otherwise inaccessible to you. Countable assets include, but are not limited to: savings and checking accounts, stocks, bonds, CDs, Treasury notes and bills, savings bonds, investment property and vacation homes, second vehicles, livestock, IRAs and other retirement plans, mutual funds, precious metals and coins, and whole life insurance above a certain surrender value. States use the total value of your countable assets as one of three tests to determine your eligibility for Medicaid.
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Covered Expenses

In health insurance, reimbursement for an insured's medically-related expenses, including, but not limited to surgery, medicines, hospitalization, ambulance service, and X-rays.
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Coverage Forms

Attachments to an insurance policy to complete the coverage provided by the policy.
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Credit Insurance

Insurance issued to creditors as protection against losses on outstanding loans due to the death or disability of the debtor.
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Crummey Power

A right exercised by the beneficiary of a trust to withdraw money from the trust for a limited amount of time each year.
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Custodial Parent

The parent granted legal custody of a minor child by a divorce decree or a written separation agreement.
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